BIR Ruling [DA-309-06]

May 10, 2006 BIR RULING [DA-309-06] Memo-011-2002; DA-247-2005 Pan-Century Surfactants, Inc. Barangay Osmea, Jose Panganiban Camarines Norte Attention: M P Pathak Gentlemen : This refers to your letter dated February 28, 2006 requesting for confirmation of your opinion that the sale of factory to the Asian Development Bank (ADB) is exempt from all taxes as per ADB Charter and Agreement with the Philippine government. It is represented that Pan-Century Surfactants, Inc. (Surfactants) filed a Capital Gains Tax Return (BIR Form No. 1706) and Documentary Stamp Tax Declaration/Return (BIR Form No. 2000-OT) relative to the sale of factory to ADB; that this factory is based on state of the art technology and very unique in the world; that the manufacturing in this factory will use coconut oil produced locally for value addition and exporting the final products and earning foreign exchange to the country; that the operation of the factory will add to the economy of the country; and that besides, the opening of the factory will be providing employment in the Bicol Region for the coconut farmers as well as professionals in the area. In reply, please be informed that ADB is accorded certain rights, immunities and privileges among which is immunity from taxation as found in Article 56(I) of its Charter which provides that "The Bank, its assets, property, income and its operations and transactions shall be exempt from all taxation and from all customs duties. This has to be interpreted to mean that transactions that may be made by ADB are also exempt from taxation imposed under the Tax Code. The bank shall also be exempt from any obligation for the payment, withholding or collection of any tax or duty. Thus, apart from its immunity from taxes, the Charter provides for ADB's exemption from the obligation to withhold taxes. cTDECH Likewise, this exemption from the obligation to withhold shall extend to paying agents acting for and on behalf of ADB. The rationale for this is that the paying agent acts merely as an agent of ADB. Imposing the same withholding obligation on the paying agent would violate ADB's exemption from any obligation to withhold under Article 56(I) of the ADB Charter. In addition, where ADB is a party to a transaction, the transaction itself is exempt from DST. Therefore, the provision of Section 173 of the Tax Code which shifts to the other party the payment of DST shall not apply as there is no instance that DST may be imposed on any transaction entered into by ADB pursuant to the aforementioned Section 56(I) of the ADB Charter. (BIR Ruling No. 247-2005 dated June 8, 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service