RMC No. 15-2011: Revokes BIR Ruling No. DA-563-2006 issued to Interadent Zahntechnik Phils., Incorporated pursuant to CTA E.B. Case No. 287

Summary

RMC No. 15-2011 revokes BIR Ruling No. DA-563-2006 dated September 19, 2006, issued to Interadent Zahntechnik Phils., Incorporated (IZPI), in light of the Court of Tax Appeals decision in CTA E.B. Case No. 287 (CS Garments, Inc. vs. Commissioner of Internal Revenue).

Key points

1. Revoked ruling. The ruling had held IZPI’s sale of its company car exempt from VAT, since its regular business is manufacturing and exporting custom-made dental products and nothing showed the car sales were regular or incidental to that business.
2. CTA decision. The CTA held that CS Garments’ sale of a motor vehicle to its General Manager was incidental to its business of manufacturing garments for sale abroad, and so subject to VAT, because the vehicle was bought and used in furtherance of the business.
3. Section 105 test. Under Section 105 of the NIRC of 1997, as amended, VAT applies to a transaction in the course of trade or business. That means it is regularly conducted and undertaken in pursuit of a commercial or economic activity, and transactions incidental to such activity also count.
4. Result. The sale of IZPI’s company cars to its officers is subject to VAT as incident to its commercial or economic activity. Ruling DA-563-2006 and all other existing rulings inconsistent with the Circular are revoked.

Who is affected

• Interadent Zahntechnik Phils., Incorporated (IZPI)

Summary by Tax Resources PH. It is not a substitute for the full text of the issuance or professional advice.