Zero-Rated VAT on the Sale of Goods and Services to IRRI

March 4, 1988 BIR RULING NO. 077-88 100-00 000-00 077-88 Gentlemen : This refers to your letter dated February 1, 1988 requesting a ruling that sale of goods and services to the International Rice Research Institute (IRRI) shall be subject to the value-added tax of zero percent. It is represented that IRRI was established in 1960 by the Ford and Rockefeller Foundations with the help and approval of the Government of the Philippines pursuant to a Memorandum of Understanding among the aforesaid Foundations and the Government of the Philippines signed on December 9, 1959; that IRRI is one of the 13-non-profit international research and training centers supported by the Consultative Group of International Agricultural Research (CGIAR); and that IRRI has been granted tax exemption privileges under both Republic Act 2707 and Presidential Decree No. 1620 and the status of an international organization under said P.D. 1620. Under Republic Act 2707 and Presidential Decree 1620, the Institute enjoys the comprehensive tax exemption privilege which "extends to goods imported and owned by the International Rice Research Institute . . ." This exemption was granted in the light of the commitment of the Philippine Government to extend full support to the IRRI. In the context of this commitment, the board tax exemption privileges granted under Republic Act 2707 and Presidential Decree 1620 shall not be construed as being limited only to the taxes for which the IRRI is directly liable, considering that under Section 100(a)(2) of the National Internal Revenue Code, as amended by Executive Order 273, sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory, are effectively subject to zero-rating . The purpose of this provision of the Tax Code, as amended, is to maintain and recognize such exemption enjoyed by such entities as the IRRI by permitting sales (by domestic suppliers) to such entities to be zero-rated. This can be inferred from the fact that under Section 100(a)(2) of the Tax Code, it is not the person or entity enjoying tax-exemption privilege under special law or international agreement which is given the privilege of enjoying zero-rating under the VAT law, but the sales (by suppliers) to such persons or entities which may be subject to the zero-rate. In view of the foregoing, sales to the IRRI by a VAT-registered person are effectively zero-rated. However, pursuant to Section 8(d) of Revenue Regulations 5-87, any person claiming that its sales of goods or services are effectively zero-rated under Sections 100 and 102 shall file an application in a form prescribed therefor with the Commissioner of Internal Revenue justifying the imposition of zero rate on the said transactions. Upon approval, his status as a zero-rated taxpayer shall remain valid until revoked. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner