International Rice Research Institute

July 26, 2018 DA ITAD BIR RULING NO. 031-18 Section 106 (A) (2) (b), NIRC of 1997, as amended; Section 5, RR No. 4-2007; Section 5 RR No. 3-2008 Headquarters Agreement Between the Government of the Republic of the Philippines and the International Rice Research Institute; BIR Ruling No. ITAD-360-12 International Rice Research Institute Suite 1009, Security Bank Center 6776 Ayala Avenue 1226 Makati City Attention: AAA _______________ Gentlemen : This refers to your letter dated 28 June 2018, forwarded to this Office by the Department of Foreign Affairs and the Department of Finance, requesting for ad valorem and value-added tax (VAT) exemption on the locally purchased motor vehicle for the official use of the International Rice Research Institute (IRRI) pursuant to the Headquarters Agreement Between the Government of the Republic of the Philippines and the International Rice Research Institute ("Headquarters Agreement"), specifically described as follows: HESIcT Type of Use: Official Make: Brand new Hino RK8JSUA bus (6 Cylinder Diesel Engine, 250 PS at 2500 RPM) Engine No.: J08EUB15738 Chassis No.: PA4RK8JSUJ00-10153 In reply, please be informed that Section 106 (A) (2) (b) of the National Internal Revenue Code (NIRC) of 1997, as amended , provides, viz. : "SEC. 106. Value-Added Tax on Sale of Goods of Properties. (A) Rate and Base 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. x x x" In relation thereto, we look into the Headquarters Agreement signed by the then Secretary of Foreign Affairs Alberto G. Romulo, for the Republic of the Philippines and Dr. Robert S. Zeigler, Director-General of IRRI, on 24 April 2006, concurred with by the Philippine Senate in a resolution 1 adopted on 28 April 2008 and which entered into force on 14 May 2008. Its Article IV, paragraph 5, Section 4.5.1 provides: caITAC " ARTICLE IV IMMUNITIES AND PRIVILEGES xxx xxx xxx 5. Taxation, Customs and Quarantine Section 4.5.1. The provisions of existing laws or ordinances to the contrary notwithstanding, the Institute , or its successors, shall be exempt from the payment of all taxes provided under existing laws or ordinances. This exemption shall extend to goods imported and owned by the Institute which are intended for its official use. (underscoring supplied) Based on the above provision, IRRI is exempt from the payment of all taxes . As to the scope of the term 'all taxes', it may be argued that in Commissioner of Internal Revenue vs. Philippine Long Distance Telephone Company, G.R. No. 140230 dated 15 December 2005 (CIR vs. PLDT) , the Supreme Court declared that the correct lesson from the case of Maceda vs Macaraig, Jr. , 2 is that "x x x an exemption from 'all taxes' excludes indirect taxes, unless the exempting statute, like NPC's charter, is so couched as to include indirect tax from exemption." Hence, it would appear that the exemption accorded to IRRI under the Headquarters Agreement covers only direct taxes, VAT not included being an indirect tax. However, Section 5 of Revenue Regulations (RR) No. 4-2007, amending Section 4.106-5 of RR No. 16-2005 effectively subjects all sales of goods and properties to IRRI to zero-rate, thus: Section 5. ZERO-RATED SALES. Sec. 4.106-5 of RR No. 16-2005 is hereby amended to read as follows: " SEC. 4.106-5. Zero-Rated Sales of Goods or Properties. x x x. The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (c) Sales to Persons or Entities Deemed Tax-exempt Under Special Law or International Agreement. Sale of goods or property to persons or entities who are tax-exempt under special laws or international agreements to which the Philippines is a signatory, such as, Asian Development Bank (ADB), International Rice Research Institute (IRRI) , etc., shall be effectively subject to VAT at zero-rate." (underscoring supplied) The above RR recognizes IRRI as a tax-exempt entity under an international agreement, and effectively subjects the sale of goods or property to IRRI to VAT at zero percent (0%) rate. Clearly, IRRI falls under the exception enunciated in CIR vs. PLDT , "x x x unless the exempting statute x x x is so couched as to include indirect tax from exemption." As to the ad valorem tax, Section 5 of RR 003-08 3 specifically mentions IRRI as an international organization exempt from excise tax ( i.e. , ad valorem ), to wit: "SECTION 5 . Exemption from the Imposition of Excise Tax upon Removal . In case of sale/delivery to embassies, legates such as the Office of the Papal Nuncio, or international organizations (i.e., Asian Development Bank, International Rice Research Institute . United Nations' various international organizations such as World Health Organization, UNICEF, etc.), the excisable articles may be removed from the place of production of the manufacturer without payment of the excise tax, subject to the following conditions: x x x" (underscoring supplied) The above RR is explicit that IRRI is recognized as an entity exempt from excise tax and hence, cannot be made to shoulder the said tax. In view of all of the foregoing, this Office is of the opinion and so holds that the aforementioned purchase of one (1) brand new Hino RK8JSUA bus described in detail above, for the official use of the IRRI, is confirmed to be exempt from ad valorem tax and subject to VAT at zero-percent (0%) rate, pursuant to Section 5 of RR 003-08, Section 106 (A) (2) (b) of the NIRC of 1997, as amended, and the Headquarters Agreement. (BIR Ruling No. ITAD-360-12 dated 22 October 2012) It is hereby understood that this exemption applies only to vehicles purchased under the name of the IRRI and for its official use. ICHDca 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, (SGD.) LARRY M. BARCELO OIC-Assistant Commissioner Legal Service Footnotes 1. Resolution No. 64 adopted by the Senate on 28 April 2008. 2. Ernesto M. Maceda vs. Hon. Catalino Macaraig, Jr., in his capacity as Executive Secretary, Office of the President, Hon. Vicente Jayme, etc., et al. , G.R. No. 88291, 8 June 1993. 3. Entitled "Amending Certain Provisions of Existing Regulations on the Granting of Outright Excise Tax Exemption on Removal of Excisable Articles Intended for Export or Sale/Delivery to International Carriers or to Tax-Exempt Entities/Agencies and Prescribing the Provisions for Availing Claims for Product Replenishment" dated 22 January 2008.