Embassy of the United States of America

February 21, 2023 DA ITAD BIR RULING NO. 011-23 Section 106 (A) (2) (c), NIRC of 1997, as amended; 1951 PH-US Agreement; RMC No. 40-2007; BIR Ruling No. ITAD-141-14 Embassy of the United States of America 1201 Roxas Boulevard 1000 City of Manila Attention: AAA __________ Gentlemen : This refers to your Note No. 0146 dated January 25, 2023 referred to this Office by the Department of Finance and the Department of Foreign Affairs, requesting for exemption from payment of value-added tax (VAT) and ad valorem tax on the local purchase of a motor vehicle by the United States Agency for International Development (USAID), for the official use of its Implementing Agency, ACDI/VOCA, in the implementation of the USAID's development assistance activity covered by the Cooperative Development Program (CDP), specifically described as follows: ITAaHc MAKE YEAR COLOR CHASSIS NUMBER ENGINE NUMBER Toyota Fortuner 2.4L 4x2 G AT-X3-005 2022 Gray Metallic MHFCB8GS6N0525671 2GDD037400 In reply, please be informed that Section 106 (A) (2) (b) of the National Internal Revenue Code (Tax Code) of 1997, as amended by Republic Act No. 10963, otherwise known as the Tax Reform for Acceleration and Inclusion (TRAIN) Act, states, to wit: "SEC. 106. Value-Added Tax on Sale of Goods or Properties. (A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to twelve percent (12%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor: xxx xxx xxx (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: xxx xxx xxx (b) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate." cSaATC Generally, every sale of goods or properties by VAT-registered persons is subject to VAT at 12%. However, if such sale is made to persons or entities that are exempt from VAT, such sale is effectively subject to VAT at zero percent (0%) rate. The pertinent international agreement governing the present case is paragraph 1, Article IV of the 1951 Philippines-US Agreement on Economic and Technical Cooperation (1951 PH-US Agreement), which provides as follows: " Article IV Missions 1. The Government of the Philippines agrees to receive a Special Technical and Economic Mission which will discharge the responsibilities of the Government of the United States of America in the Philippines under this agreement and the Government of the United States of America in the Philippines, consider this Mission and its personnel as part of the Diplomatic Mission of the United States of America for the purpose of enjoying privileges and immunities accorded to that Mission and its personnel of comparable rank. Such Mission shall include but not be limited to experts whose services are made available to implement Article II of this agreement. " Under the above provision, the Philippine government will, after receiving notification from the Ambassador of the US to the Philippines that the said mission will discharge the responsibilities of the US government under the Agreement, regard the Special Technical and Economic Mission, its personnel of comparable rank, and experts whose services are made available to implement the Agreement as part of the Diplomatic Mission of the US. Thus, all privileges and immunities being enjoyed by the US Embassy and its personnel shall likewise be accorded to the said Mission, its personnel and qualified experts. On December 18, 2006, the US Ambassador notified the Philippine government that the USAID is recognized as a Special Technical and Economic Mission of the US government for the purpose of discharging its responsibilities under the Agreement. Applying paragraph 1, Article IV of the 1951 PH-US Agreement, USAID, like the US Embassy, is considered an entity exempt from VAT on its official purchases of goods and services. On June 14, 2007, the Bureau issued Revenue Memorandum Circular (RMC) No. 40-2007 to prescribe the guidelines for the implementation of the appropriate VAT treatment on the purchases of goods and services associated with the development assistance activities of the USAID. Section 5 thereof recognizes the USAID, its personnel of comparable rank and its implementing agents as part of the US Diplomatic Mission and are, therefore, entitled to direct tax exemption pursuant to the Vienna Convention on Diplomatic Relations and to indirect tax exemption based on the Tax Code, as amended, and its Implementing Rules and Regulations. CHTAIc In view of the foregoing, the local sale of one (1) unit of 2022 Toyota Fortuner 2.4L 4x2 G AT-X3-005 for the official use of ACDI/VOCA in connection with the development assistance activity covered by the CDP of the USAID, being an exempt entity, shall be subject to VAT at zero percent (0%) rate pursuant to Section 106 (A) (2) (b) of the Tax Code, as amended. Such sale is likewise exempt from ad valorem tax pursuant to Section 9 of Revenue Regulations No. 25-2003. This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the actual facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, Commissioner of Internal Revenue By: (SGD.) LARRY M. BARCELO Assistant Commissioner Legal Service