Guidelines on the Procedure and Computations of Tax Refunds/Credits

May 16, 1989 BIR RULING NO. 104-89 100 (a) & 149 000-00 104-89 Gentlemen : This refers to your letter dated April 15, 1989 requesting clear guidelines on the procedure and computations of tax refunds/credits (not rebates for transactions involving the sales of locally-assembled vehicles to ADB, embassies, and others. In reply, please be informed that ADB is exempt from sales tax on its purchases of locally-produced automobiles pursuant to Executive Order No. 161 effective April 21, 1987 a portion of which reads: "(a) goods sold directly to the Asian Development Bank shall not be subject to sales tax . . ." It should be noted that when Executive Order No. 161 was issued, locally-manufactured automobiles used to be subject only to sales tax. Since the sales tax was abolished and replaced by VAT, sale of automobile shall likewise be exempt from VAT pursuant to Section 103(u) of the Tax Code, as amended by Executive Order No. 273. Where the tax element is erroneously included in the billing to ADB, it may be the subject of a claim for refund/credit. If the seller is VAT registered and applies for zero-rating on its sales of automobiles to ADB, said sale shall be zero-rated, the effect of which is that VAT shall not be added to the cost of the automobile; but the seller shall be allowed to claim as tax refund/credit the VAT element paid in the previous purchase. However, applying the rule of strict construction of tax exemption laws (Philippine Acetylene vs. CIR, 20 SCRA 1030, L-19707, Aug. 17, 1967), the same sale of automobile to ADB, while exempt from VAT, shall be subject to the excise tax, which is not a sales tax but a new and different kind of tax on automobile prescribed in Section 149 of the Tax Code, as amended by Executive Order No. 273. On the other hand, purchases of locally-produced automobiles by the embassy personnel shall be subject to both VAT and excise tax under Sections 100(a) and 149 respectively, in relation to Section 126 of the same Code. In other words, sale to embassy personnel of locally-produced automobiles is taxable pursuant to the Vienna Convention on Diplomatic Relations stating: "ARTICLE 34 "A diplomatic agent shall be exempt from all dues and taxes, personal or real, national, regional or municipal, except: (a) indirect taxes of a kind of which are normally incorporated in the price of the goods or services;" xxx xxx xxx The tax consequence of similar sale of automobiles to other entities shall be determined on a case to case basis depending on the applicable tax exemption provision under special laws or international agreements. Very truly yours, (SGD.) JOSE U. ONG Commissioner