BIR Ruling [DA-460-03]

December 5, 2003 BIR RULING [DA-460-03] 114 (C); DA-202-03 Department of Transportation & Communications The Columbia Tower Barangay Wack-Wack, Ortigas Avenue Mandaluyong City Attention: Ms. Lydia S. Malvar Director, Comptrollership Gentlemen : This refers to your letter dated July 10, 2003 requesting for clarification of BIR Ruling No. DA202-03 dated June 30, 2003 addressed to Hanjin Heavy Industries & Construction Co., Ltd., where this Office ruled that "Accordingly, the computation referred to in number (1) above should likewise be made applicable to Hanjin's output VAT liability attributable to its ADB and JEXIM funded projects, with the option that for public works contract, Hanjin can either avail of the 1.5% presumptive input tax or actual input tax on its purchases of goods, properties and services directly attributable to the particular public works contract." In your aforesaid letter dated July 10, 2003, you stated that the Davao International Airport Development Project (DIADP) is funded under Asian Development Bank (ADB) Loan No. 1333-PHI; that you imposed the corresponding VAT of 8.5% and withheld the same on every billings made to Hanjin Heavy Industries & Construction Co. Ltd. (Hanjin), as contractor of the aforesaid project; and that pursuant to the above-cited ruling, Hanjin requested that you should stop deducting the 8.5% VAT on each and every payments. In reply thereto, please be informed that this Office has consistently ruled that under Article 56(1) of the ADB Charter, the Bank, its assets, property, income and its operations and transactions, shall be exempt from all taxation and from all customs duties. Thus, the bank shall also be exempt from any obligation for the payment, withholding or collection of any tax or duty. Since ADB is an international organization, its funds are similar to those of an OECF Fund which under the Exchange of Notes shall not be used to pay for the tax. aEHADT Inasmuch as OECF or JBIC funded projects are exempt from taxes pursuant to the non-tax utilization aspect of the loan under the Exchange of Notes, and the funds of ADB are treated similarly to those funds under the Exchange of Notes, which principle is applicable regardless of the nationality of the contractor performing the said projects, the executing government agency, like DOTC, should not impose the 8.5% creditable VAT as prescribed under Section 114(C) of the Tax Code of 1997. SUCH BEING THE CASE, Hanjin is correct on their request not to subject their payments, relative to the DIADP, made by DOTC to the 8.5% creditable VAT as imposed under Section 114(C) of the Tax Code of 1997. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group