VAT at 0% on the Sales to Persons or Entities Who are Exempt under Special Laws or International Agreements

August 16, 1990 BIR RULING NO. 154-90 100 000-00 154-90 Gentlemen : This refers to your letter dated July 10, 1990 requesting that the Canadian International Development Agency (CIDA) be exempt from the 10% value-added tax on its local purchase of equipment required by the Telecommunications Technical Assistance Project. It appears that the Government of the Republic of the Philippines and the Government of Canada, through CIDA, have signed a Memorandum of Understanding concerning Telecommunications Technical Assistance which is implemented by the Department of Transportation and Communications and Teleconsult, Ltd., the Canadian Executing Agency. In seeking the above exemption, you cited the provisions of the General Agreement on Development Corporation Between the two governments particularly Article IV thereof which provides, viz: "ARTICLE IV "The Government of the Republic of the Philippines shall ensure that development aid funds provided under any subsidiary arrangement are not used to pay any taxes, fees, customs duties or any other levies and charges imposed directly or indirectly by the Government of the Republic of the Philippines, on any goods, materials, equipment, vehicles and services purchased or acquired for the execution of any project being carried out in the Philippines pursuant to a subsidiary arrangement." In reply, please be informed that under Section 100 (a)(2) of the Tax Code as amended by Executive Order No. 273, sales to persons or entities who are exempt under special laws or international agreements to which the Philippines is a signatory, are effectively subject to zero-rating. The General Agreement on Development Cooperation between the Governments of Canada and the Philippines partakes the nature of an international agreement. Such being the case, CIDA's local purchases of equipment as required by the Telecommunications Technical Assistance Project shall be subject to VAT at 0%, provided that the seller is a VAT-registered and that it applied for zero rating pursuant to Section 8 (b) of Revenue Regulations No. 5-87. casia Very truly yours, (SGD.) JOSE U. ONG Commissioner