Zero-Rating of Local Suppliers of Goods and Services

August 8, 1989 BIR RULING NO. 165-89 100 (a) (2); 102 (a) (3) 000-00 165-89 Gentlemen : This refers to your letter dated June 6, 1989 requesting that the sale of goods and services to the World Bank and to the officers thereof in those cases where goods and services are paid by the Bank be zero-rated to enable you to settle all pending claims from PLDT, Meralco and other vendors of goods and services on the payment of the value-added tax. cdtech In support of your request, you stated that under Article VII, Section 9(a) of the Articles of Agreement, the Bank is immune from taxation and all customs duties which provision applies to all kinds of taxes and customs duties particularly the value-added taxes which are levied in some countries on manufactured products and services rendered; and that under Articles III, Section 9 and VI, Section 19 of the Philippine Treaty Series, Convention on Immunities and Privileges of the Specialized Agencies of the United Nations which was adopted by the General Assembly on November 21, 1947, the World Bank and its Officers are immune from taxation. In reply, please be informed that under Article III, Section 9(a) of the Convention on the Privileges and Immunities of the Specialized Agencies reading: Article III " PROPERTY, FUNDS AND ASSETS "Section 9 "The specialized agencies, their assets, income and other property shall be: "(a) Exempt from all direct taxes; it is understood, however, that the specialized agencies will not claim exemption from taxes which are, in fact, no more than charges for public utility service. xxx xxx xxx your exemption does not include exemption from the indirect taxes such as the value-added tax. In view however, of the Articles of Agreement exempting you from all taxes, including the value-added tax, your request for zero-rating of your local suppliers of goods and services is hereby granted pursuant to Sections 100(a)(2) and 102(a)(3) of the Tax Code, as amended by Executive Order No. 273; Provided, the seller is VAT-registered and that it applied for zero rating pursuant to Section 8(d) of Revenue Regulations No. 5-87. On the other hand, the sale of goods and services to the officers of the World Bank shall be subject to VAT it appearing that the exemption from taxation of the officials of the specialized agencies is in respect of the salaries and emoluments paid to them. In other words, since the officials of the World Bank have no tax exemption in connection with their purchase of goods and services in the Philippines, your request for zero-rating of the local suppliers of said goods and services can not be granted for lack of legal basis. Very truly yours, (SGD.) JOSE U. ONG Commissioner