8 October 2021
Yes. In Allegro Microsystems, Inc. v. CCT-Toyo Consortium (G.R. No. 229537, February 10, 2020), the Supreme Court held, in a case where the subject construction contract stipulates that the contract price is “exclusive of value-added tax”, that value-added tax (VAT) being an indirect tax means that it is collected by the Bureau of Internal Revenue (BIR) from the seller which, in turn, is entitled to collect the amount from the end buyer or consumer.
The case originated from a construction arbitration where the sole arbitrator ruled that VAT as a sales tax should be collected from the seller-contractor and not from the buyer-project owner, especially since the contract is silent on any agreement to shift the burden of paying VAT from the seller to the buyer. The Court of Appeals reversed the ruling and held that the phrase “exclusive of value-added tax” actually means that the contract price does not yet include the VAT component of the transaction and that the buyer is the party ultimately liable to pay VAT owing to its very nature as an indirect tax. Thus, the seller can collect an additional 12% of the contract price from the buyer as VAT.
The Supreme Court affirmed the Court of Appeals and further rejected the buyer’s argument that the shifting of the burden to pay VAT is merely “permissive” and cannot be merely inferred from the phrase “exclusive of value-added tax”
SyCipLaw TIP: To avoid disputes, contracting parties should clearly indicate whether the stipulated contract price for goods or services already includes the VAT component, and which party shall be responsible for VAT. In the absence of stipulation, the phrase “exclusive of Value-Added Tax” will be read to mean that the contract price does not yet include VAT and that the buyer is ultimately responsible for paying the VAT.
For further information, please contact:
Carina C. Laforteza, Tax Department Head,
SyCip Salazar Hernandez & Gatmaitan
cclaforteza@syciplaw.com
