BIR Ruling [DA-413-05]

October 4, 2005 BIR RULING [DA-413-05] Secs. 106, 108 & 109; VAT Ruling No. 006-2004; DA-ITAD-91-03 International Rice Research Institute (IRRI) Suite 1009, 6776 Ayala Avenue, Makati City Attention: Mr. Ian M. Wallace Director for Administration & Human Resources Gentlemen : This refers to your letter dated August 1, 2005 requesting a ruling that sale of goods and services to the International Rice Research Institute ( IRRI ) shall be subject to the value-added tax of zero percent. It is represented that IRRI was established in 1960 by the Ford and Rockefeller Foundation with the help and approval of the Government of the Philippines pursuant to a Memorandum of Understanding among the aforesaid Foundations and the Government of the Philippines signed on December 9, 1959; that IRRI is one of the 13 non-profit international research and training centers supported by the Consultative Group of International Agricultural Research (CGIAR); and that IRRI has been granted tax exemption privileges under both Republic Act 2707 and Presidential Decree No. 1620 and the status of an international organization under said P.D. 1620. In reply, please be informed that Section 106(A)(2)(c) and Section 108(B)(3) of the Tax Code of 1997, respectively provide, viz: "Section 106. Value-added tax on Sale of Goods or Properties . (A) . . . (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 of international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate." (Emphasis supplied). "Section 108. Value-added Tax on Sale of Services and Use or Lease of Properties . (B) Transactions Subject to Zero Percent (0%) Rate . The following services performed in the Philippines by VAT-registered persons shall be 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:" (Emphasis supplied) Furthermore, Section 109 of the Tax Code of 1997 provides, viz: "Section 109. Exempt Transactions . The following shall be exempt from the value-added tax: xxx xxx xxx (q) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws , except those under Presidential Decree Nos. 66, 529, and 1590; (Emphasis supplied) xxx xxx xxx Relative thereto, Republic Act No. 4169 provides, viz: "AN ACT TO AMEND REPUBLIC ACT NUMBERED THREE THOUSAND FIVE HUNDRED AND THIRTY EIGHT, ENTITLED "AN ACT TO EXEMPT THE FORD FOUNDATION AND ITS GRANTS FROM THE PAYMENT OF GIFT, FRANCHISE, SPECIFIC, PERCENTAGE, REAL PROPERTY, AND ALL OTHER TAXES, DUTIES AND FEES AND TO EXEMPT FOREIGN PERSONNEL ENGAGED IN THE FORD FOUNDATION PROGRAM FROM THE PAYMENT OF INCOME TAX," BY EXTENDING TO THE ROCKEFELLER FOUNDATION, AGRICULTURAL DEVELOPMENT COUNCIL, INC., FOSTER PARENTS PLAN, INC., AND THEIR FOREIGN PERSONNEL ENGAGED IN THEIR RESPECTIVE PROGRAMS SIMILAR EXEMPTIONS. DaScCH "Be it enacted by the Senate and the House of Representatives of the Philippines in Congress assembled: "SEC. 1. The provisions of existing laws or ordinances to the contrary notwithstanding, the Ford Foundation, the Rockefeller Foundation , the Agricultural Development Council, Inc., and the Foster Plan, Inc. shall be exempt from the payment of gift, franchise, specific, percentage, real property and all other taxes , duties and fees provided under existing laws or ordinances. This exemption shall extend to goods imported under the Ford Foundation, the Rockefeller Foundation, the Agricultural Development Council, Inc., or the Foster Parents Plan, Inc., grants for relief, medical, scientific, educational and training purposes to government organizations and private institutions recognized by the government and to goods brought in or imported for the personal use of foreign personnel whose services are paid by the Ford Foundation, the Rockefeller Foundation, the Agricultural Development Council, Inc., or the Foster Parents Plan, Inc., or from funds granted by these foundations: Provided, however, That this exemption is without prejudice to the collection of customs duties and taxes on goods or articles brought or imported into the Philippines for the use of such foreign personnel should such goods or articles subsequently be sold, transferred or exchanged in the Philippines to persons or entities not entitled to exemption from said customs duties and taxes pursuant to existing laws and regulations governing the matter." (Emphasis supplied) xxx xxx xxx From the foregoing, Section s 106(A)(2)(c), 108(B)(3) and 109(q) of the Tax Code of 1997 subject to zero percent VAT sales by VAT-registered persons, and/or, exempt from VAT, sales of goods and services to persons and entities whose tax treatment under special law or international agreements to which the Philippines is a signatory effectively subjects to zero percent or necessarily exempts such sales of goods and services to them. It is worthy to note that the above-quoted Republic Act which, to date, is still effective as certified by the Office of the House of Representatives, Legislative Operations Department in its letter dated November 10, 2003, clearly provides exemption from the payment of gift, franchise, specific, percentage, real property and all other taxes to IRRI. In view thereof, this Office is of the opinion and so holds that IRRI, being a non-profit agricultural research and training organization based in Los Baos, Laguna, is subject to zero rate (0%). (VAT Ruling No. 006-2004 dated April 02, 2004; DA-ITAD-91-03 dated July 3, 2003) 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service