DA ITAD BIR Ruling No. 043-17

November 17, 2017 DA ITAD BIR RULING NO. 043-17 Principle of Reciprocity; BIR Ruling No. ITAD-008-09 Taipei Economic and Cultural Office 41st Floor, Tower 1 RCBC Plaza, 6819 Valero Street, Salcedo Village, Makati City, Metro Manila Gentlemen : This has reference to your letter dated July 10, 2017 referred to this Office by the Department of Finance and the Department of Foreign Affairs, requesting for the exemption from the payment of value-added (VAT) and ad valorem taxes on the local purchase of a motor vehicle for the official use of the Taipei Economic and Cultural Office of the Philippines, specifically described as follows: DHITCc Type of Use: Official Make: Toyota Innova 2.0 G GAS A/T Model Year: 2017 Color: Black Frame Number: PA2GW8EM3H3151741 Engine Number: 1TR-A271190 In reply, please be informed that purchases of goods and/or services in the Philippines are, in general, subject to the VAT prescribed under Sections 106 and 108 of the National Internal Revenue Code of 1997, as amended. However, applying the principle of reciprocity, this Office may confirm entitlement to VAT exemption of TECO and/or its personnel on their local purchase of motor vehicles in the Philippines upon favorable indorsement from the DFA indicating that reciprocity exists and may be used as a basis for the grant of exemption to TECO as an entity. In a meeting on 13-19 June 1975 between the predecessor entities of TECO [Pacific Economic and Cultural Center (PECC)] and MECO [Far East Trade Promotion Center (FETPC)], an agreement was reached on the establishment of PECC offices in Manila, Cebu and Davao and FETPC office in Taipei and two (2) other locations; that the Agreement sets out the functions of the respective offices; and that the Agreement gave both parties considerable latitude in according appropriate and reciprocal courtesies to enable them to perform their functions efficiently, as shown in the copy of the Agreement dated 19 June 1975 (1975 Agreement), which states: "AGREEMENT x x x representative of the Pacific Economic and Cultural Center (PECC) and of the Far East Trade Promotion Center (FETPC) met in Taipei from June 13-19, 1975 and reached agreement as follows: 1) The PECC shall establish three Offices in Manila, Cebu and Davao; and the FETPC shall establish an Office in Taipei and, if so desired, Offices of two other locations to be designated; xxx xxx xxx 5) The Offices of both sides and their personnel shall enjoy normal courtesies ; xxx xxx xxx 7) The functions of the Offices of the PECC and the FETPC include the following: a) Looking after the interests of their nationals and legal persons; b) Promoting economic and trade relations and tourism; c) Negotiating or assisting to negotiate and signing non-governmental agreements in regard to trade, investment, banking and technical cooperation, etc.; d) Assisting in handling cases involving fishermen and fishing vessels; e) Assisting in handling matters in respect of sea and air transportation and telecommunication; f) Promoting academic, cultural and sports interchanges; g) Handling other matters relating to the promotion of substantive and practical relations." (Underscoring supplied) It is further shown that effective 08 May 2005, pursuant to Exchanges of Letters between MECO and TECO which transpired in 2005-2006, the 1975 Agreement was amended. As part of said amendment, exemption from VAT for the offices of both parties and their regular personnel have been agreed to be granted as part of the "normal courtesies" under paragraph 5 of the 1975 Agreement. cEaSHC In letters dated 05 September 2008 and 07 October 2008 addressed to Hon. Tomas L Alcantara, Chairman/Chief Executive Officer of MECO, the TECO, through its Ambassador Donald C.T. Lee, affirmed that pursuant to the Exchange of Letters between the two Parties in 2006 amending the 1975 Agreement, the Government of Taiwan, Republic of China is implementing the provision granting to MECO and its regular personnel the privilege of VAT exemption, thereby confirming reciprocity as the basis for TECO's request for VAT exemption in the Philippines. In this regard, it was noted in DFA's letter dated 05 January 2009 that pursuant to the aforementioned Exchange of Letters between MECO and TECO (which amended the 1975 Agreement), reciprocity may be applied for the purpose of granting VAT exemption, and we read this indorsement in connection with Executive Order (EO) No. 313 (Prohibiting Philippine Government Officials to Visit Taiwan or to Receive Calls by Visiting Taiwanese Officials) and Memorandum Circular (MC) No. 148 dated 27 February 1992, which implements this Order. Pertinent portion of EO 313 and MC 148 provides: " EXECUTIVE ORDER NO. 313 PROHIBITING PHILIPPINE GOVERNMENT OFFICIALS TO VISIT TAIWAN OR TO RECEIVE CALLS BY VISITING TAIWANESE OFFICIALS xxx xxx xxx NOW, THEREFORE, I, CORAZON C. AQUINO, President of the Philippines, by virtue of the powers vested in me by the Constitution, do hereby order, as a matter of policy, the following : 1. No official of the Philippine government may visit Taiwan. 2. No official of the Philippine government may receive Taiwanese officials visiting the Philippines. 3. No official activity relating to Taiwan shall be carried out without the clearance of the Department of Foreign Affairs . This Executive Order shall take effect immediately." (Underscoring supplied) MEMORANDUM CIRCULAR NO. 148 IMPLEMENTING ORDER EO NO. 313, Series of 1987 xxx xxx xxx 7. No agreements, memorandum of understanding, exchange of notes or similar documents shall be concluded with any Taiwanese organizations/agency unless the text thereof has first been cleared with the Department of Foreign Affairs (DFA) and the authority to sign has been secured from the Office of the President . xxx xxx xxx." (Underscoring supplied) Evident from the above-quoted provisions is the requirement for a DFA clearance before any agreement or exchange of notes can be concluded with Taiwanese organizations and that the authority of the signatories to a concluded exchange of notes must have first been secured from the Office of the President. In the case of the Exchange of Notes amending the 1975 Agreement, the grant of authority, as required under EO No. 313 and MC No. 148, is embodied in the following: 1. The DFA's letter to the Office of the President dated 10 October 2005 providing in part that: "x x x the grant of reciprocal privileges and immunities is acceptable , x x x," 2. Letter from the Office of the President to MECO dated 17 October 2005, stating that: "x x x Thus, based on the 1975 Agreement and the clarification made by the DFA and in the light of the need to service the needs of our overseas foreign workers (OFWs) in Taiwan more effectively, MECO has the authority to enter into the above arrangements with TECO concerning the above proposed changes on a reciprocal basis. As clarified by the DFA, the 1975 Agreement provides them with considerable latitude in undertaking these measures as part of the normal courtesies they afford to each other. x x x" Finally, it is worthy to note that TECO is included in the 29 June 2017 DFA list of entities entitled to VAT exemption on local purchase of basic goods and services, and on local purchase of motor vehicle in the Philippines pursuant to the 1975 Agreement and the Exchange of Letters between MECO and TECO. CTIEac In view of all of the foregoing, this Office is of the opinion that the local purchase of one (1) unit Toyota Innova 2.0 G GAS A/T for the official use of TECO, being an entity exempt from VAT, shall be subject to VAT at zero-percent (0%) rate pursuant to the 1975 Agreement between MECO and TECO and the Exchange of Letters amending the same. (BIR Ruling No. ITAD-008-09 dated 31 March 2009 and BIR Ruling No. ITAD-037-17 dated November 9, 2017). 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.) MARISSA O. CABREROS Assistant Commissioner Legal Service