March 19, 2008

VAT RULING NO. 002-08

Sec. 109 (R), R.A. 9337, Secs. 5 (f)

& 7, R.A. 8792; VAT Ruling No.
047-2003

CE-Logic Inc.
1672 Quezon Avenue, South Triangle
Quezon City

Attention: Franklin A. Naig

Legal Counsel

Gentlemen :

This refers to your letter dated October 3, 2007, requesting for a ruling that
sales of educational products in digital/electronic format is not subject to VAT.

It is represented that CE-Logic, Inc. (CE-Logic), is a corporation organized

under Philippine laws with office address at 1672 Quezon Avenue, South
Triangle, Quezon City; and that it is primarily engaged in the business of selling
educational products, mainly acting as the exclusive distributor in the Philippines
of online academic library resources, e-Books, and e-Journals of various foreign
publishers. The products that CE-Logic sells, are described as follows:

1. ONLINE ACADEMIC LIBRARY RESOURCES — An online

library resource is a library in which collections are stored in
digital formats (as opposed to print, microform, or other media)
and accessible by computer. The digital content may be stored
locally, or accessed remotely via the internet or computer
networks.

2. E-BOOKS — An e-book or electronic book is the digital media

equivalent of a conventional printed book. Such documents are
either read on personal computers, or on dedicated hardware
devices known as e-book devices or e-book readers. Copies
thereof can be made instantly and in as great a quantity as

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 desired. acCDSH

3. E-JOURNALS — Electronic journals are scholarly journals or

magazines that can be accessed via electronic transmission.
They are specialized forms of electronic documents: they have
the purpose of providing material for academic research and
study, they are formatted approximately like printed journal
articles, the metadata is entered into specialized databases, such
as DOAJ or OACI as well as the databases for the discipline,
and they are predominantly available through academic
libraries and special libraries.

In view thereof, CE-Logic would like to confirm its opinion that its sales of
e-journals, e-books and online library resources are exempt from VAT since their
products are considered as merely computerized versions of printed media and that
these appear at regular intervals; are available for subscription and sale at fixed
prices; and are not principally devoted to the publication of paid advertisements.

In reply, please be informed that Section 109 (R) of the Tax Code of 1997,
as amended by Republic Act (RA) No. 9337, provides that:

"Sec. 109. Exempt Transactions. — Subject to the provisions of

Subsection (2) hereof, the following transactions shall be exempt from VAT:

xxx xxx xxx

(R) Sale, importation, printing or publication of books and any

newspaper, magazine, review or bulletin which appears at regular intervals
with fixed prices for subscription and sale and which is not devoted
principally to the publication of paid advertisements."

The above provision must be read in connection with Sections 5 (f) and 7 of
RA 8792, otherwise known as the "Electronic Commerce Act of 2000" which state
that:

"Sec. 5. Definition of Terms. — For the purposes of this Act, the

following terms are defined, as follows:

xxx xxx xxx

f. "Electronic Document" refers to information or the

representation of information, data, figures, symbols or other modes of
written expression, described or however represented, by which a right is
established or an obligation extinguished, or by which a fact may be proved
and affirmed which is received, recorded, transmitted, stored, processed,

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 retrieved or produced electronically. HcTIDC

xxx xxx xxx

Sec. 7. Legal Recognition of Electronic Documents. —

Electronic documents shall have the legal effect, validity or enforceability as
any other document or legal writing . . .".

From the above provisions, it can be seen that entities engaged in the
importation and sale of printed material as stated in Sec. 109 (R) of the Tax Code
of 1997, as amended, may avail of VAT exemption on such printed material. In
this regard, RA 8792 clearly allows for documents/messages/information which
are electronically written, capable of being sent, received, recorded, stored,
downloaded, transmitted, retrieved and finally reduced into printed form to be
considered as equivalent to print media.

Moreover, this Office held in VAT Ruling No. 047-2003 that:

xxx xxx xxx

"absence of hard copy (print format) does not negate the fact that
every electronic data message or document electronically written is capable
of being sent, received, recorded, stored, downloaded, transmitted, retrieved
and finally reduced into printed form. Such being the case, although the
aforesaid journals and periodicals can be accessed only through the web,
they are nonetheless considered written publications.

Accordingly, such importation of journals and periodicals which can

be accessed only through the internet may be exempted from VAT as
provided for under Section 109 (y) of the Tax Code of 1997, if (1) their
publication in the internet appears at regular intervals; (2) they are available
for subscription and sale at fixed prices; and (3) they are not principally
devoted to the publication of paid advertisements."

Accordingly, since the e-books, e-journals and online library resources of

CE-Logic are considered as equivalent to printed media; appear at regular
intervals; available for subscription and sale at fixed prices; and are not principally
devoted to the publication of paid advertisements, CE-Logic's sales of such
products are exempt from VAT in accordance with Section 109 (R) of the Tax
Code of 1997, as amended.

This ruling is being issued on the basis of the foregoing facts as

represented. However, if upon investigation, it will be disclosed that the facts are
different, then this ruling shall be considered null and void. EaISDC

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 Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) GREGORIO V. CABANTAC

Deputy Commissioner

March 7, 2008

VAT RULING NO. 001-08

RR 11-00; 237

Ong, Ordoñez & Associates

8F 111 Paseo de Roxas Bldg.
Paseo de Roxas cor. Legazpi Street
Legazpi Vill., Makati City

Attention: Ms. Catherine M. Saldi

Gentlemen :

This refers to your letter dated May 31, 2006 requesting for a ruling which
will allow your client, INCO7 Inc., to use/issue purchase invoices to peddlers as
evidence/supporting documents to their transaction.

It is represented that the business of INCO7 Inc. is related to manufacturing

and trading of metal products; that it is duly registered with the Securities and
Exchange Commission under SEC Registration No. CS200514460, dated August

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24, 2005; that its primary purpose is to engage in the business of
import/export/trading of goods such as metal scrap, waste, junk and general
merchandise on wholesale/retail basis; that most of its suppliers are peddlers or
those who sell goods on carts (wheeled wagons); or those called peddlers; and that
most of these peddlers are marginal income earners and are not registered with the
Bureau of Internal Revenue and that they do not issue any registered invoice in
their sales transactions.

In reply, please be informed that pursuant to Section 237 of the Tax Code
of 1997, "all persons subject to an internal revenue tax shall, for each sale or
transfer of merchandise or for services rendered valued at twenty-five pesos
(P25.00) or more, issue duly registered receipts or sales or commercial invoices
prepared at least in duplicate, showing the date of transaction, quantity, unit cost
and description of merchandise or nature of service. . . . However, the
Commissioner may, in meritorious cases, exempt any person subject to an internal
revenue tax from compliance with the provisions of this Section."

Corollary thereto, under Revenue Audit Memorandum Order No. 1-2000,

the business document that serves as evidence of a purchase transaction is the
purchase invoice.

In addition, Section 4 (A) (3) and (4) of Revenue Regulations No. 11-2000
provides, viz.:

"Section 4. Tax Compliance Requirement. — "Marginal income

earners", who are possible income tax filers and recipients or payors of
income payments subject to withholding tax and registered with the
Bureau of Internal Revenue, shall be entitled to the following privileges
and minimum tax compliance requirements:

A. Compliance to Registration and Bookkeeping Rules —

xxx xxx xxx

(3) Exemption from compliance with the issuance of registered

receipts or sales/commercial invoices prescribed under Section 237
of the Tax Code of 1997. cDEHIC

(4) Exemption from the requirement of maintenance of books of

accounts."

Considering that your suppliers are marginal income earners that do not
have the capacity to issue any registered invoice on their sales transactions and are
likewise exempt from the issuance thereof pursuant to the provisions of RR
11-2000 the issuance of a purchase invoice to peddlers of metal scrap, wastes and

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junks who are marginal income earners as evidence to support your purchases is
the best alternative.

This ruling is being issued on the basis of the foregoing facts as

represented. However, if upon investigation, it will be disclosed that the facts are
different, then this ruling shall be considered null and void.

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) GREGORIO V. CABANTAC

Deputy Commissioner

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