Tax Liability of the Local Suppliers of Goods and Services

April 17, 1989 BIR RULING NO. 078-89 100 (a) (2) 102 (a) (3) 000-00 078-89 Gentlemen : This refers to your letter dated February 1, 1989, in effect, requesting a blanket authorization by this Office that all your suppliers and contractors be zero-rated on their sale of goods or services to you. cdta It appears that you are a non-profit, private organization made up of 26 American relief, religious, labor, civic and cooperative agencies which provides a way for the American people through their voluntary contributions by express their friendship for the people of other countries by extending direct assistance in the form of relief, rehabilitation and reconstruction equipment and material. In the Agreement entered into on August 1, 1963 between the Philippine Government and that organization, it was agreed that you will solicit contributions to finance the purchase and delivery of commodities to individuals and lawfully existing organizations in the Philippines designated by or on behalf of the donors; and deliver, or arrange for the delivery of commodities so financed; while the Philippine Government, in turn, will allow your importation of donated commodities free of all arrastre charges, import duties, taxes and fees for consular invoices. In reply, please be informed that paragraph 3 of the Agreement between the Philippine Government and that organization reading "3. The Government will: "(a) In view of the beneficial nature of the program for which the donated commodities described herein are to be used, admit the commodities, as well as any equipment and supplies required to be imported by CARE for the administration of the program, and all personal effects, equipment and supplies of American employees of CARE, free of all arrastre charges, import duties, taxes and fees for consular invoices. "(b) Levy no taxes: (1) on commodities imported by CARE into the Philippines belonging to CARE, any organization distributing them for CARE, or the ultimate recipients," exempts your importation of commodities but does not contemplate a grant of tax exemption to your purchase of goods and services in the Philippines. In other words, since local purchases are not covered by your tax exemption, you have no tax exemption privilege that can be extended to your suppliers of goods and services as contemplated by the provisions of Section 100(a) (2) and 102(a)(3) of the Tax Code, as amended by Executive Order No. 273. Accordingly, your request for the zero-rating of your local suppliers of goods and services has to be as it is hereby denied for lack of legal basis. Very truly yours, (SGD.) JOSE U. ONG Commissioner