Applicability of VAT Law on the Contracts Entered into by the Secretariat

May 30, 1988 BIR RULING NO. 222-88 103-u 057-88 222-88 Gentlemen : This refers to your letter dated January 12, 1988 requesting clarification on the applicability of the value-added tax law on the contracts entered into by the Secretariat. It is represented that the Economic Support Funds managed by that Secretariat are proceeds of the RP-US Military Bases Agreements and under existing bilateral grant agreements between the U.S. and the Government of the Philippines; and that the ESF proceeds are exempt from any Philippine Government tax or imposition. In reply, please be informed that the Secretariat is exempt from the value-added tax on contracts entered into by it in connection with said Funds since they fall within the purview of "transactions which are exempt under special law or international agreements to which the Philippines is a signatory." (Sec. 103(u), Tax Code, as amended by Executive Order No. 273). However, there is no showing that your exemption privilege extends to exemption from indirect tax such as the value-added tax. Such being the case, your seller-suppliers of goods and services being the parties directly liable for the VAT may legally pass on the VAT to you. aisadc Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner