February 5, 1998

BIR RULING NO. 010-98

24(a), 99 102-000-00-010-98
R.S. BERNALDO & ASSOCIATES
Unit 1810 Cityland Condominium 10 Tower I
6815 Ayala Avenue cor. HV. Dela Costa Ext.
1200 Makati City
Attention : Ms. Rosario S. Bernaldo
Managing Partner
Gentlemen :
This refers to your letter dated July 28, 1997 requesting for a ruling as to
whether or not TIPCO-BATAAN GROUP, INCORPORATED, which provides
technical, research, management and personnel assistance to its affiliates on a
reimbursement-of-cost basis is exempt from income tax and value-added tax under
the Tax Code, as amended.
dctai

It is represented that TIPCO-BATAAN GROUP INCORPORATED is a

domestic corporation duly organized and existing under Philippine laws with
principal office in Makati City; that it was organized in July 1996 with the following
purposes, among others, viz:
"PRIMARY PURPOSE
"To provide technical, research, management and personnel assistance
to its affiliated companies and received payments for such assistance on a
reimbursement-of-cost basis, by receiving plain reimbursements of the exact
costs and expenses it had incurred, such as but not limited to salaries and
allowances of its professional staff, office rentals, costs of utilities such as
electricity, water and telecommunication, and other miscellaneous expenses
such as transportation, office supplies without any intention of realizing profit.
"SECONDARY PURPOSES
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CD Technologies Asia, Inc.

Taxation 2005

"xxx

xxx

xxx

"3. To invest and deal with the money and properties of the
corporation in such manner as may from time to time be considered wise or
expedient for the advancement of its interests and to sell, dispose of or transfer
the business, properties and goodwill of the corporation or any part thereof for
such consideration;
"xxx

xxx

xxx

"5. To enter into any lawful arrangement for sharing of profits, union
of interest, utilization of farmout agreement, reciprocal concession, or
cooperation, with any corporation, association, partnership, syndicate, entity,
person or governmental, municipal or public authority, domestic or foreign, in
carrying on of the business or transaction deemed necessary, convenient or
incidental to carrying out any of the purposes of this corporation;
"xxx

xxx

xxx"

And that it does not derive any profit from its operations.
In reply, please be informed that while TIPCO-BATAAN primarily operates
for the purpose of providing technical, research, management and personnel
assistance to its affiliated companies and receive payments for such assistance on a
reimbursement-of-cost basis without any intention of realizing profit, it is still a
corporation subject to income tax under Section 24(a) of the Tax Code, as amended.
LLjur

It must be noted that being a stock corporation, it is not prohibited from

engaging in profitable activities and consequently from distributing dividends to its
stockholders. This intention is supported by its secondary purposes enumerated it its
Articles of Incorporation. Assuming that the corporation does not actually realize
profit from the activities mentioned, then those may be the situations wherein it will
not derive any taxable income. But since under its secondary purposes, there is a
possibility that profits may be generated from engaging in such activities, then it
cannot be denied that the same shall be subject to income tax.
Moreover, it must be noted that even those corporations granted exemptions
from tax pursuant to Section 26 of the same Code, can still be subject to income tax
under the "catch-all" provision of the same Section, which provides, viz:
"Notwithstanding the provisions in the preceding paragraphs, the income
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CD Technologies Asia, Inc.

Taxation 2005

of whatever kind and character of the foregoing organizations from any of their
properties, real or personal, or from any of their activities conducted for profit,
regardless of the disposition made of such income, shall be subject to tax
imposed under this Code."
cdlex

Hence, on the above bases, this Office hereby holds that although
TIPCO-BATAAN GROUP INCORPORATED was organized to operate on purely
reimbursement-of-cost basis without any intention of realizing profit therefrom, it is
still subject to income tax.
Likewise, under Section 4.99-2 of Revenue Regulations No. 7-95, as amended
by Revenue Regulations No. 6-97, implementing Republic Act No. 8241, an Act
Amending Republic Act No. 7716, otherwise known as the Expanded Value-Added
Tax Law, which provides, viz:
"SEC. 4.99-1.
Persons liable. Any person who, in the course of
his trade or business, sells, barters, exchanges or leases goods or properties, or
renders services, and any person who imports goods shall be liable to VAT
imposed in Section 100 to 102 of the Code."

Under Section 4.102-1 of the same Rev. Regs. No. 7-95, the phrase "sale or
exchange of services shall likewise include, among others, the supply of technical
service, assistance or services rendered in connection with technical management or
administration of any scientific, industrial or commercial undertaking, project or
scheme.
Thus, as an entity that renders services to its affiliated companies and receives
payments for such assistance, although on a reimbursement-of-cost basis, it is subject
to VAT on such services rendered.
cda

Very truly yours,

(SGD.) LIWAYWAY VINZONS-CHATO
Commissioner of Internal Revenue

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Taxation 2005