BIR Ruling [DA-024-05]

January 21, 2005 BIR RULING [DA-024-05] 108 (B) DA-077-88 Southeast Asian Regional Center for Graduate Study and Research in Agriculture c/o ABS-CBN Broadcasting Corporation 15th Floor, ELJ Communications Center Building Lopez Drive, Quezon City Attention: Atty. Ma. Celia H. Fernandez-Estavillo Gentlemen : This refers to your letter dated October 18, 2004 requesting for a ruling as to whether the sale of goods and services to the Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA) is subject to the value-added tax of zero percent (0%) rate. It is represented that on February 7, 1968, the Ministers of Education of Indonesia, Laos, Malaysia, Philippines, Singapore and Thailand signed the Charter of the Southeast Asian Ministers of Education Organization (SEAMEO) in order to promote cooperation among Southeast Asian nations through education, science and agriculture; that on August 31, 1972, the Philippine Senate concurred in the acceptance of the President of the Philippines of the Charter of SEAMEO; that pursuant to the SEAMEO charter, SEARCA was organized through an enabling instrument; that SEARCA is a non-stock-non-profit educational institution based in Los Baos, Laguna; that the Government of the Philippines finances and underwrites all operation costs of SEARCA; that in order to "articulate Philippine commitment to regional cooperation among Southeast Asian and other countries in Asia and elsewhere through education, science and culture" and also as a practical consideration since the Philippine Government was responsible for all operations costs of SEARCA, Republic Act No. 6450 was passed in January 1972 comprehensively exempting SEARCA from the "payment of compensating taxes, duties and fees provided under existing laws and regulations" for a period of five (5) years; and that this tax exemption also made it possible for SEARCA to engage in regional cooperation in agricultural research with the least possible cost. In reply, please be informed that pursuant to Section 1 of Republic Act No. 6450 as amended by Presidential Decree No. 1171 which reads as follows: "Section 1. Tax Exemption . The provisions of the existing laws or ordinances to the contrary notwithstanding, the Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA) and its grantees, shall be exempt from the payment of gift, franchise, specific, percentage, real property, exchange, import, export, and all other taxes, duties and fees provided under existing laws or ordinances: Provided , That this exemption shall extend to goods imported and owned by SEARCA to be leased or used by members of its staff and to goods brought in or imported for the personal use of foreign personnel whose services are paid by specific donor entities, agencies, or governments or from funds granted by these donors: Provided, further , That should such goods or articles subsequently sold, transferred or otherwise disposed of in the Philippines to persons or entities not entitled to tax exemption as herein provided, the proper customs duties and taxes under existing laws shall be imposed: Provided, finally , That non-Filipino citizens or non-resident aliens who are experts in their respective fields and are serving in the staff of the Regional Center shall be exempt from the payment of Philippine income tax on all salaries and stipends, wages or other income derived solely and by reason of service under SEARCA." In connection therewith, Sections 106(A)(2)(c) and Section 108(B)(3) of the Tax Code of 1997 which provides, viz : "Sec. 106. Value-added Tax on Sale of Goods or Properties . '(A) Rate and Base of Tax There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the gross selling price of gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor. xxx xxx xxx "(2) [Zero-rated Sales.] The following sales by VAT-registered persons shall be subject to zero-percent (0%) rate: xxx xxx xxx "(c) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate." "Sec. 108. Value-added Tax on Sale of Services and Use or Lease of Properties . xxx xxx xxx (B) Transactions Subject to Zero Percent (0%) Rate . xxx xxx xxx (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate; xxx xxx xxx Under Presidential Decree No. 1171, SEARCA enjoys the comprehensive tax exemption privilege which extends to goods imported and owned by the SEARCA. This exemption was granted in view of the fact that SEARCA continues to articulate Philippine Commitment to regional cooperation among Southeast Asian and other countries in Asia and elsewhere through education, science and culture. In the context of this commitment, the broad tax exemption privileges granted under Republic Act No. 6450 and Presidential Decree No. 1171 shall not be construed as being limited only to the taxes for which SEARCA is directly liable, considering that under the aforementioned Section 106(A)(2)(c) and 108(B)(3) of the Tax Code of 1997, sales of goods and services respectively, to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory are effectively subject to zero-rating. The purpose of this provision of the Tax Code is to maintain and recognize such exemption enjoyed by such entities as the SEARCA by permitting sales by domestic suppliers to such entities to be zero-rated. In view of the foregoing, sales to SEARCA by a VAT-registered person are effectively zero-rated. However, pursuant to Section 4.100-2(c) in relation to Section 4.100-3 of Revenue Regulations No. 7-95, any person claiming that its sales of goods or services are effectively zero-rated shall file an application in a form prescribed therefor with the Commissioner of Internal Revenue justifying the imposition of zero-rate on the said transaction. Upon approval, his status as a zero-rated taxpayer shall remain valid until revoked. (BIR Ruling No. 077-88 dated March 4, 1988) 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group