Embassy of Japan

August 7, 2023 DA ITAD BIR RULING NO. 029-23 Section 106 (A) (2) (c), Tax Code of 1997, as amended; Article XI, PH-Japan TCA; BIR Ruling No. ITAD-010-17 Embassy of Japan 627 Roxas Boulevard 1300 Pasay City Gentlemen : This refers to your Note No. 353-23 dated June 29, 2023, referred to this office by the Department of Finance and the Department of Foreign Affairs, requesting exemption from the payment of ad valorem and value-added taxes (VAT) on the local purchase of motor vehicle for the official use of the Japan International Cooperation Agency (JICA), specifically described, as follows: AcICHD MAKE YEAR COLOR FRAME NUMBER ENGINE NUMBER Toyota Hiace 2.8 Super Grandia Leather A/T 2023 White Pearl Crystal Shine JTFWA3APXP8013586 1GD9138516 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." caITAC 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 Article XI of the Agreement on Technical Cooperation between the Government of the Republic of the Philippines and the Government of Japan 1 (PH-Japan TCA), which provides as follows: "Article XI 1. It is confirmed that JICA may maintain its overseas office in the Republic of the Philippines (hereinafter referred to as the "Office") with a resident representative and his/her staff to be dispatched from Japan (hereinafter referred to as "Representative and the "Staff" respectively) who perform the duties to be assigned to them by JICA relative to the technical cooperation programs under this Agreement in the Republic of the Philippines. 2. The Government of the Republic of the Philippines shall: xxx xxx xxx (2) (a) exempt the Office from consular fees, taxes including value-added tax, customs duties and fiscal charges, as well as from the requirements of obtaining certificate of foreign exchange coverage, in respect of the importation of the equipment, machinery, motor vehicles and materials necessary for activities of the Office; (b) exempt the Office from taxes including value-added tax and fiscal charges in respect of the local purchase of the equipment, machinery, motor vehicles , materials and professional and technical services necessary for the functions of the Office; and (c) exempt the Office from taxes including income tax and fiscal charges imposed on or in connection with office expenses remitted from abroad. x x x" (Underscoring ours) Based on the above provisions, the Philippine Government is obliged to grant VAT exemption privileges to JICA in respect of locally purchased motor vehicles that are necessary for carrying out its functions. In view of the foregoing, the local sale of one (1) unit of 2022 Toyota Hiace 2.8 Super Grandia for the official use of the JICA Office in the Philippines, 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. TAIaHE This ruling is issued on the basis of the facts as represented. However, if it will be disclosed upon investigation 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 Footnotes 1. Ratified by the Philippine President on December 23, 2010; concurred to by the Philippine Senate in its Resolution No. 36, adopted on March 14, 2011; entered into force on April 8, 2011 upon receipt by the Government of Japan of the Philippine notification as conveyed by the Embassy of Japan in its Note Verbale dated April 8, 2011.