Taxes on Articles Brought or Imported Into the Philippines, Tax-free, by Tax-exempt Persons, Entities or Agencies

January 2, 1958 BIR RULING NO. 003-58 3rd Indorsement Respectfully returned, thru the Honorable, the Secretary of Finance, to the Honorable, the Secretary of Foreign Affairs, Manila. cdll Articles brought or imported into the Philippines, tax-free, by tax-exempt persons, entities or agencies, such as automobiles being brought or imported into this country by the World Health Organization and its officials, which are subsequently sold or transferred therein to non-tax-exempt private persons or entities, or exchanged for other articles belonging to the latter, are subject to the compensating or advance sales tax, depending upon whether such articles will be used personally or sold by the purchaser or recipient thereof. Said tax is payable, irrespective of the date of sale, transfer or exchange of the articles, by the purchaser or recipient who is, under such kind of transaction, considered the importer thereof. The basis for the imposition of the tax is sections 183(b) and 190 of the Tax Code, as amended by Republic Acts Nos. 1511 and 1612, and not Republic Act No. 1603 which amended, among others, Section 4 of the Motor Vehicle Law (Act No. 3992), the latter amendment being merely a provision to insure collection of the tax. While it is true that under Section 11(a) of the Host Agreement concluded on July 22, 1951 between the Government of the Philippines and the World Health Organization, the latter, its assets, income and other property are exempt from all direct and indirect taxes, nevertheless, the imposition of the compensating or advance sales tax upon the cars being sold in the Philippines by said Organization or its officials does not violate the provisions of Section 11(a) of the Host Agreement, because it is not a tax, direct or indirect, on the Organization, its assets, income or other property. The compensating tax is a tax on the use of imported articles, while the advance sales tax is a tax on the sales thereof by the importer. Again, while in accordance with Section 22(g) of said Agreement, officials of the Organization can, after three years from the date of importation of a car, dispose of the same free from tax, that exemption refers only to the tax payable by such officials on their said importation, and does not embrace the tax due on the car upon subsequent sale thereof in the Philippines to a non-tax-exempt person or entity. cdt The ruling dated March 8, 1955 of this Office to the effect that no tax is due on a car owned by an official of the Organization sold after three years from the date of its importation into this country obviously referred to the World Health Organization official and had for its basis Section 22(g) of Article VIII of the Agreement. Republic Act No. 1511 amended Sections 183(b) and 190 of the Tax Code, was approved on June 16, 1956, and considers purchasers of articles brought or imported into the Philippines tax-free as importers, subject to either the compensating or advance sales tax. While the exemption provided in the aforesaid Sections 22(g) relates to the tax payable by the officials of the Organization, on the other hand, Republic Act No. 1511 is directed against the purchasers from such officials. There is, therefore, no conflict between the two provisions. Accordingly, one can be enforced without doing violence to the other. It may be true that, as stated in the basic communication of July 24, 1956, the imposition of the compensating or advance sales tax on the transaction in question tends to reduce the purchase price of the automobile offered for sale. However, considering that the provisions of Sections 183(b) and 190 on the matter are quite clear, and since the Host Agreement does not clearly afford exemption in favor of the purchaser, this Office has no other alternative than to imposed the corresponding tax on cars purchased by non-tax-exempt persons or entities from the World Health Organization or its officials. (SGD.) JOSE ARAAS Collector of Internal Revenue