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

October 21, 1988 BIR RULING NO. 513-88 101 102 000-00 513-88 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, the ESF proceeds are exempt from any Philippine Government tax or imposition. In reply, please be informed that pursuant to the RP-US Military Bases Agreement and the bilateral agreement between the two governments exempting the Economic Support Fund (ESF) proceeds from the Philippine government tax and other impositions, the use of the fund to finance government projects which are paid directly from said fund are within the purview of effectively zero-rated transactions contemplated under Sections 100(a)(2) and 102(a)(3) of the Tax Code. In other words, billings by the seller of goods or services who executed the projects funded by ESF shall not include the value-added tax: Provided, however, that the seller of said goods or services shall first apply for zero rating in accordance with Section 8(d) of Revenue Regulations No. 5-87. This revokes BIR Ruling No. 228-88. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner