BIR Ruling [DA-002-98]

January 6, 1998 BIR RULING [DA-002-98] Ngaw & Lauron Law Offices Suite 1014 State Centre 333 Juan Luna St., Binondo Manila Attention: Atty . Jose Ngaw Gentlemen : This refers to your letter dated October 21, 1996 and December 11, 1997 stating that client, Deutsche Gessellschaft fr Technische Zusammenarbeit (GTZ) GmbH is owned by the German Federal Government; that it is an enterprise with a development mission; that it is commissioned by the Government of the Federal Republic of Germany to undertake the planning and implementation of Technical Assistance Projects within the framework of Bilateral Cooperation between the Republic of the Philippines and the Federal Republic of Germany; that the activities of GTZ are carried out on behalf of the German Federal Government on a non-profit basis and are governed by international agreements between the German Federal Government and the partner countries; that as of the present time, GTZ has several current projects with the Philippine Government; and that under Article [4(1) and 4(4)] of the Bilateral Agreement of 1971 between the Governments of the Federal Republic of Germany and the Republic of the Philippines, the latter shall: cdt "(1) provide the land and buildings necessary for the projects in the Philippines including such equipment as is not supplied by the Government of the Federal Republic of Germany; xxx xxx xxx "(4) bear the cost of renting and maintaining adequate furnished dwellings for the dispatched German experts and their families or provide such dwellings;" Based on the foregoing, you now request for a confirmation of your opinion that payments of lease pursuant and/or related to said technical and developmental projects are not subject to the Expanded Value-Added Tax. In reply, please be informed that the aforequoted provision of the bilateral agreement between the Governments of the Federal Republic of Germany and the Republic of the Philippines is not a grant of direct tax exemption privilege to the German personnel, firms, institutions and organizations involved in the project because the said provision states that it is the Government of the Republic of the Philippines that is obligated to " provide the land and buildings " and " bear the cost of renting and maintaining adequate furnished dwelling for the dispatched German experts and their families or provide such dwellings ". Thus, there is no tax exemption to speak of because whatever taxes due shall be assumed by the Philippine Government; hence, the said provision is not violative of the Constitutional prohibition against grants of tax exemptions without the concurrence of the majority of the members of the Congress (Sec. 28(4), Art. VI, 1978 Philippine Constitution). In view thereof, and considering that all dwellings of these German experts were never provided for, and/or made available by the Philippine Government, leases had to be taken out and paid for by GTZ Projects/Project Consultant with private property owners/lessors, this Office is of the opinion as it hereby hold that the said leases are exempt from VAT. Accordingly, your request is hereby confirmed. (BIR Ruling No. 071-97 dated June 10, 1997) aisadc Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue