Local Purchases of Equipment and Services Funded by Belgian Contribution Not Exempt from VAT

February 7, 1996 BIR RULING NO. 012-96 101 (a) 102 (a) 000-00 012-96 Department of Agrarian Reform Elliptical Road, Diliman Quezon City Attention: Mr . Ernesto D . Garilao Secretary Gentlemen : This refers to your letter dated December 13, 1995 stating that the Department of Agrarian Reform is implementing the Belgian Agrarian Reform Support Project (BARSP), a development cooperation between the Government of the Philippines (GOP) and the Government of the Kingdom of Belgium for which the latter will fund the project as grant-in-aid; that the project aims to alleviate rural poverty and agricultural stagnation in Agrarian Reform Communities (ARC's) in the provinces of Negros Oriental, Bohol and Cebu; and that the Specific Agreement signed on March 27, 1995 between the GOP and the Government of the Kingdom of Belgium includes the procurement of equipment and services which the Belgian Government will provide the project. In connection therewith, you are requesting a ruling to the effect that the local purchases of equipment and services funded by the Belgian contribution are exempt from VAT. In reply, please be informed that under Revenue Regulations No. 7-95 implementing the VAT law, to be zero rated, the sale by a VAT-registered person must be made to a person or entity who was granted indirect tax exemption under special laws or international agreements. It is noted that the Specific Agreement between the Government of the Kingdom of Belgium and the Government of the Republic of the Philippines does not contain any provision granting indirect tax exemption to the former on its local purchases of goods and services. In the absence of a clear grant of exemption, this Office can not issue a certificate of tax exemption from the value-added tax on the local purchases of equipment and services funded by the Belgian Government. cdll Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue