Services Rendered by Development Academy of the Phil. for Conducting a Training Needs Analysis Subject to 0% Rate

June 2, 1998 BIR RULING NO. 084-98 108 (B) (3)-000-00-84-98 BIR/GTZ Advisory Project German Technical Cooperation Room 607, HRD-Project Assistance Bureau of Internal Revenue-NOB Diliman, Quezon City Attention: Prof . Norbert Hennig BIR/GTZ-Project Consultant Gentlemen : This refers to your letter dated May 12, 1998 stating that Deutsche Gesellschaft fr Technische Zusammenarbeit (GTZ) GmbH is an enterprise owned by the German Federal Government with a development mission; that it is commissioned by the Government of the Federal Republic of Germany to undertake the planning and implementation of Technical Assistance Projects within the framework of Bilateral Cooperation between the Republic of the Philippines and the Federal Republic of Germany; that the activities of GTZ are carried out on a non-profit basis and are governed by international agreements between the German Federal Government and the partner countries; that at present, GTZ has a project with the Bureau of Internal Revenue (BIR); that within the project, the Development Academy of the Philippines (DAP) shall on behalf of GTZ, conduct a Training Needs Analysis (TNA) for the BIR; and that in accordance with the Contract entitled "Advisory Services to Philippine Tax Administration" executed by GTZ and DAP, the former shall pay the latter a remuneration of P 460,200.00 in accordance with the schedule of payments stated therein. Based on the foregoing, you now request for a confirmation of your opinion that services rendered by DAP for conducting a TNA shall be subject to a zero percent (0%) rate and hence, need not pass on the VAT to GTZ Projects/Project Consultants. In support of your request, you cited Article 5(2) of the Bilateral Agreement between the Government of the Federal Republic of Germany and the Government of the Republic of the Philippines covering Technical Cooperation, which provides, viz: "Article 5 "The Government of the Republic of the Philippines shall "(1) . . . "(2) levy no taxes or other fiscal charges on any emoluments paid from German public funds to German specialists or German construction and consulting firms for services rendered within the framework of the present Agreement;" In reply, please be informed that Section 3 of Revenue Regulations No. 6-97, implementing Republic Act No. 8241 which amended then Section 102(b) of the Tax Code, as amended (now Section 108(B)(3) of the Tax Code of 1997), provides as follows, viz: "SEC. 3. Zero-rating . Section 4.102-2(b) of Rev. Regs. No. 7-95 is hereby amended to read as follows: "(b) Transactions Subject to Zero-Percent (0%) Rate . The following services performed in the Philippines by VAT-registered persons shall be subject to zero-percent (0%) rate: "(1) . . . "(2) . . . "(3) Services rendered to persons or entities whose exemption under special laws or international agreement to which the Philippines is a signatory effectively subjects the supply of such services to zero-percent (0%) rate ;" (Emphasis supplied) The foregoing provides that only those services rendered to persons or entities whose exemption is clearly provided under international agreements, to which the Philippines is a signatory, are effectively subject to zero-percent (0%) VAT. It must be noted that the Bilateral Agreement between the German Federal Government and the Government of the Philippines partakes of the nature of an international agreement, and is a valid source of tax exemption even without legislative concurrence. Furthermore, the restriction on the use of funds under the above-cited provision of the Bilateral Agreement, i.e., the Government of the Philippines shall levy no taxes or other fiscal charges on any emolument paid from German public funds, is, in effect, a grant of tax exemption. Such being the case, GTZ Projects/Project Consultants may not legally be passed on with the value-added tax otherwise due from DAP vis-a-vis your payments to the latter for conducting Training Needs Analysis with the BIR. LibLex This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue