BIR Ruling [DA-501-99]

September 3, 1999 BIR RULING [DA-501-99] National Economic and Development Authority Canada-Philippines Development Counterpart Fund Unit 203, Manila Luxury Condominium Pearl Drive cor. Gold Loop Ortigas Complex, Pasig City Attention: Mr . Augusto B . Santos Asst. Director General and Chairman, Joint Management Committee Gentlemen : This refers to your letter dated January 8, 1998 requesting exemption from the expanded withholding tax and any other form of taxes imposed on goods, materials, equipment and services purchased or acquired out of the Project Fund of the Canada-Philippines Development Counterpart Fund or Development Fund. It is represented that the Development Fund is a grant assistance from the Canadian government to the Philippine government; that it is generated from the sale of grant commodities under the Commodity Assistance Program (CAP); that the Development Fund is utilized in funding various private and public sector projects jointly selected by the Canadian International Development Agency (CIDA) or the representative of the Canadian government, by the National Economic and Development Authority (NEDA) as representative of the Philippine government through a Joint Management Committee (JMC) and that under the Memorandum of Understanding (MOU) between the Government of the Republic of the Philippines and the Government of Canada concerning the Philippines-Canada Monetization Facility Project (PCMFD) particularly Section 4.02, Article IV thereof, viz: "Article IV CONTRIBUTION OF CANADA xxx xxx xxx "Section 4.02. "The Canadian contribution shall not be used by the PHILIPPINES to pay taxes, fees, customs duties or any other levies such as value-added tax charges imposed directly or indirectly by the PHILIPPINES on any goods, equipment, vehicles and services purchased or acquired for, or related to, the execution of the Project." In reply, please be informed that under Section 2.57.5 of Revenue Regulations No. 2-98, the withholding of creditable withholding tax prescribed in the said Regulations shall not apply to income payments made to persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special. In this connection, it is noted that the General Agreement on Development Cooperation between the Government of the Philippines and Canada (GADC-RP-CANADA) signed on November 13, 1997 is an international agreement, the same having been ratified by the Senate in its Resolution No. 35 adopted on June 3, 1993. On the other hand, the subject MOU was entered into between the Government of the Republic of the Philippines and the Government of Canada pursuant to the objectives and purposes of the GADC-RP-CANADA. Thus, the restriction or the use of the funds under the above-cited Section 4.02, Article 10 of the subject MOU, viz, "shall not be used by the Philippines to pay taxes, fees, customs duties or any other levies such as value-added tax charges imposed directly or indirectly by the Philippines on any goods, equipment, vehicles and services purchased or acquired for, or related to, the execution of the project is in effect a grant of tax exemption. Such being the case, and since international agreements entered into by the Philippine Government and ratified by the Senate are part of the law of the land (Philippines), income payments to be made to the executing agency or implementing agents of the Canada-Philippines Development Counterpart Fund during the six-year period, which in all probability, will be taken from the said restricted contribution of Canada, shall be exempt from the payment of the creditable withholding tax imposed under Revenue Regulations No. 2-98 implementing among others, Section 57(B) of the Tax Code of 1997, on goods, materials, equipment and services purchased or acquired out of the Project Fund. (BIR Ruling No. 111-97) LexLib Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)