Hon. Philip A. Pichay

June 11, 2008 BIR RULING [DA-354-08] Section 101 (A) (2); BIR Ruling No. DA-565-06 Hon. Philip A. Pichay Representative, First District, Surigao del Sur House of Representatives Batasan, Quezon City S i r : This refers to your letter dated November 29, 2007 requesting on behalf of the Municipality of Madrid, Surigao del Sur through Municipal Mayor Jose A. Arpilleda for tax exemption on the shipment of donated medical equipments, machines and other goods from British Columbia, Canada. As represented, these donated items are extremely needed to augment the inadequate supply of the Madrid District Hospital. In reply, please be informed that in this jurisdiction, tax exemptions are construed in strictissimi juris against the taxpayer. Thus, a taxpayer who claims tax exemption must be able to justify his claim by the clearest grant of organic law or statute. In the instant case, the above donation partakes the nature of an importation. Section 107 (A) of the Tax Code of 1997, as amended provides, viz.: "SEC. 107. Value-added Tax on Importation of Goods. (A) In General. There shall be levied, assessed and collected on every importation of goods a value-added tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody: Provided, That where the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes, if any. . ." ADcEST Regrettably, the provisions on VAT exemptions under Section 109 of the Code did not include exemption of transactions similar to the case at hand. Thus, this Office cannot grant your request for lack of legal basis. Such being the case, the donee shall be considered importer who shall be liable for the VAT on such importation and the tax due on such importation shall constitute a lien on the goods, superior to all charges or liens on the subject medical equipments, machines and goods, irrespective of the possessor thereof. VAT shall be equivalent to 12% (then 10%) of the total value used by the Bureau of Customs in determining tariff and customs duties, excise tax, and other charges pursuant to Section 107 of the Tax Code of 1997, as amended. The above notwithstanding, said importation is exempt from donor's tax pursuant to Section 101 (B) (1) of the Tax Code of 1997, as amended which provides that gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government is exempt from donor's tax. Accordingly, the donation of medical equipments, machines and other goods from British Columbia, Canada is exempt from donor's tax pursuant to the aforecited provision of the Tax Code. 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 as null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service