Money to be Paid for Rental Services Rendered to the Local Executing Agency or Implementing Agent of the Project Management Office of the Policy, Training and Technical Assistance Facility Project During the Six-Year Period, Which in All Probability, Will be Taken from the said Restricted Contribution of Canada, shall be Subject to Zero-Rate (0%) VAT

October 23, 1997 BIR RULING NO. 111-97 102 (b) (3) 000-00 111-97 Policy, Training and Technical Assistance Facility (PTTAF) Project Management Office Unit 603 Manila Luxury Condominium Pearl Drive corner Gold Loop Ortigas Center, Pasig City Attention: Ms . Nide Marie S . Bombay Project Director Gentlemen : This refers to your letter dated September 11, 1996 requesting for an opinion on whether or not the Project Management Office of the Policy, Training and Technical Assistance Facility (PTTAF-PMO) is exempt from payment of the value-added tax on its rental of condominium unit, particularly Unit 603 of Manila Luxury Condominium at Pearl Drive, Ortigas Commercial Center, Pasig City. cdti It is represented that Policy, Training and Technical Assistance Facility (PTTAF) is a six-year project funded under the Canadian International Development Assistance (CIDA) Program; that the Project is aimed at strengthening the capacity of selected Philippine government institutions to effectively and efficiently manage the development process which is embodied in a Memorandum of Understanding (MOU) dated July 23, 1992 between the governments of Canada and the Philippines; that the MOU is a subsidiary agreement made pursuant to the General Agreement on Development Cooperation (GADC) dated November 13, 1987 between the two (2) countries; that the GADC was ratified by the Philippine Senate on June 3, 1993; that under the aforesaid MOU, the National Economic and Development Authority (NEDA) is the designated agency responsible for the implementation of the Project; that NEDA, in turn, designated the Philippine Institute for Development Studies (PIDS) as its local executing agency that pursuant to the aforementioned function, PIDS entered into a Contract of Lease dated September 11, 1995 with the Philippine International Trading Corporation (PITC) covering the aforementioned subject premises for the use by the Project Management Office of PTTAF; that upon the termination of the designation of PIDS as the local executing agency of the PTTAF Project, as evidenced by the Memorandum of Agreement dated June 28, 1996 between the NEDA and PIDS, the rights and obligations of PIDS under the said contract of lease were transferred to and assumed by PTTAF-PMO under an amended Contract of Lease dated June 28, 1996; that on August 19, 1996, the PTTAF-PMO sent to PITC its rental payment of P27,000 for the month of August 1996 with an explanation that it is exempt from the payment of the additional 10% VAT based on the provision under the MOU between the Government of Canada and the Government of the Philippines, particularly, Section 5.02, Article V thereof, viz: "ARTICLE V CONTRIBUTION OF CANADA "xxx xxx xxx Section 5.02. The proceeds of the contribution shall not be used by the PHILIPPINES to pay any taxes, fees, customs duties or any other levies or charges imposed directly or indirectly by the PHILIPPINES on any goods, materials, equipment vehicle and services purchased or acquired for, or related to, the execution of the Project." and, that PITC demanded that "unless justified by a Certificate of Exemption from the BIR, PTTAF-PMO should pay the amount of P5,400 for the 10% E-VAT for July and August 1996". Hence, this request. In reply, please be informed that under Section 3 of Revenue Regulations No. 6-97 effective January 1, 1997, implementing Republic Act No. 8241, an Act Amending R.A. No. 7716 otherwise known as the Expanded Value-Added Tax Law, which reads, 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 agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero-percent (0%) rate ; ( Emphasis supplied ) xxx xxx xxx The foregoing provision 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 General Agreement on Development Cooperation between the Governments of the Philippines and Canada (GADC-RP-CANADA) signed on November 13, 1987 is an international agreement. The said GADC-RP-CANADA has been ratified by the Senate in its Resolution No. 35 adopted on June 3, 1993. On the other hand, the subject MOU was one of a series of memoranda entered by the parties for the implementation of the PTTAF Project pursuant to the GADC-RP-CANADA. Thus, the restriction on the use of the funds under the above-cited Section 5.02, Article V of the GADC-RP-CANADA, viz, "should be used only to finance those projects authorized under the development cooperation program and not in the payment, among others, of any tax imposed directly or indirectly by the Philippines on any goods, materials, equipment, vehicle and service purchased or acquired for, or related to the execution of the Project" is, in effect, a grant of tax exemption. Such being the case, the money to be paid for rental services rendered to the local executing agency or implementing agent of the PTTAF Project during the six-year period, which in all probability, will be taken from the said restricted contribution of Canada, shall effectively be subject to a zero-rate (0%) VAT. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue