BIR Ruling [DA-068-06]

March 1, 2006 BIR RULING [DA-068-06] 105; DA-ITAD 16-05 United States Agency for International Development Unit 2401, Prestige Tower F. Ortigas Jr. Road, Ortigas Center Pasig City Attention: Mr. Daniel S. Rothberg Deputy Chief of Party Management and Administration Gentlemen : This refers to your letter dated September 8, 2005 requesting for a VAT Exemption Certificate. It is represented that the Philippine Environmental Governance 2 (EcoGov2) is a project of United States Agency for International Development (USAID) that provides technical assistance to the Department of Environment and Natural Resources (DENR); that EcoGov2 is handled by the Development Alternatives, Inc. (DAI) for USAID; that EcoGov2 promotes improved environmental governance among local government institutions, better management of forest lands, coastal areas, and better delivery of solid waste and water management; that DAI is currently renting an office space from Amberland Corporation at Units 2401, 2402 and 2410 (now combined to one unit, 2401), Prestige Tower, F. Ortigas Jr. Road, Ortigas Center, Pasig City from March 1, 2005 to February 28, 2006; and that you were informed by Amberland that they require a VAT Exempt Certificate from the Bureau of Internal Revenue stating specifically that as a prime contractor of USAID in the implementation of EcoGov2, DAI is vat exempt. In reply, please be informed that the fees paid by USAID to DAI, being rental payments for the use or lease of properties in the Philippines, are generally subject to ten (10) percent value added tax (VAT) under Section 108(A) of the Tax Code below: "Section 108. Value-added Tax on Sale of Services and Use or Lease of Properties. SDAaTC (A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of the gross receipts derived from the sale or exchange of services, including the use or lease of properties. The phrase "sale or exchange of services" means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration . . ." Since VAT is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee (Section 105, Tax Code), Development Alternatives, in this case, will ultimately shoulder the VAT on rental payments. But considering that Development Alternatives was contracted by USAID to provide technical assistance in the implementation of the Environmental Governance 2 Project pursuant to the Memorandum of Understanding between the United States of America (through USAID) and the Republic of the Philippines (through the National Economic and Development Authority) for the Protection of Productive and Life Sustaining Natural Resources dated may 30, 2002, it is as if, it is the USAID that will ultimately shoulder the payment of the VAT on rental payments. Furthermore, under the principle of reciprocity, this Office may grant tax exemption to transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, provided that same foreign government, allows similar tax exemption to the Republic of the Philippines. Thus, in view of the existing VAT Exemption Certificate No. 2004-109 dated December 15, 2003 issued to the Embassy of the United States of America (to which the USAID) is a part and is working dependently) valid until December 31, 2004 and renewable every year, the USAID cannot be obliged to shoulder the VAT on the subject rental payments of Development Alternative. Thus, the rental payments of the latter are exempt from VAT. (BIR Ruling No. DA-ITAD 16-05 dated February 24, 2005). 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. cCAIDS Very truly yours, Commissioner of Internal Revenue By (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service