BIR Ruling [DA-448-03]

December 5, 2003 BIR RULING [DA-448-03] VAT 060-00 Bureau of Animal Industry Diliman, Quezon City Attention: Mr. Jose Q. Molina, DVM, MVS Director Gentlemen : This refers to your letter dated March 13, 2003 stating that the Animal Products Development Center of the Bureau of Animal Industry (BAI) is currently implementing a foreign assisted project entitled "Meat Commodity Diversification and Upgrading of Meat Processing Technologies in Asia-Pacific"; that the main funding organization which is the Common Fund for Commodities (CFC) is an intergovernmental financial institution established within the framework of the United Nations, headquartered in Amsterdam, the Netherlands; that CFC designated as Project Executing Agency, the United Nations Office for Project Services (UNOPS) which has entered into a Project Implementation Agreement (PIA) with the Animal Products Development Center; that the said PIA provides for the terms and conditions in the implementation of the said project; and that included in this agreement is the condition that all operational activities undertaken in Member States of CFC (like the Philippines) shall be exempt from taxation and from all customs duties on goods imported and exported. In connection therewith, you now request for a ruling to the effect that the purchase or importation of motor vehicle and other equipment by the BAI using the money granted by the CFC is exempt from all taxes pursuant to Article 48 of the PIA. In reply thereto, please be informed that the Agreement establishing the Common Fund for Commodities provides that all operational activities undertaken in Member States of the Fund shall be exempt from all direct taxation and from all customs duties on goods imported and exported. Such taxes and duties incurred are therefore not eligible for financing under the Grant. Accordingly, costs reported in statements of expenditures to be delivered pursuant to this Agreement shall be stated net of taxes and duties. It is significant to note that notwithstanding the fact that Executive Order No. 93 effective March 10, 1993 withdrew all tax and duty incentives granted to government and private entities, the aforesaid tax exemption granted to BAI by virtue of the PIA which partakes of the nature of an International Agreement, has not been affected because it is protected by the non-impairment clause of the Constitution, as the tax exemption is conferred by an effective international agreement to which the Philippines is a signatory. ( Sec. 1(a) and (b), Executive Order No. 93 ) However, the tax exemption clause under the PIA provides merely for exemption from taxes which the BAI is directly liable and there is no showing that it is likewise exempt from indirect tax. Since the value-added tax is an indirect tax and the same is indirectly passed on by the supplier of goods and services to the buyer, it loses its character as a tax in the hands of the buyer. Thus, BAI cannot legally invoke its tax exemption privilege under the PIA, since BAI does not also enjoy exemption from indirect tax on its local purchases from VAT-registered entities. TACEDI SUCH BEING THE CASE, this Office holds that the local purchase by BAI of a motor vehicle and other equipments from VAT-registered entities shall be subject to the 10% VAT. ( VAT Ruling No. 060-00 dated December 18, 2000 ) 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. EaSCAH Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group