DA ITAD BIR Ruling No. 052-13

November 11, 2013 DA ITAD BIR RULING NO. 052-13 Sec. 106 (A) (2) (c), NIRC of 1997, as amended; Paragraph 4 (a), May 6, 2002 Diplomatic Exchange of Notes; Art. 5, Agreement between the Government of the Federal Republic of Germany and the Government of the Republic of the Philippines Concerning Technical Co-operation; BIR Ruling No. ITAD-009-13 Embassy of the Federal Republic of Germany 25th Floor, The RCBC Plaza, Tower 2 6819 Ayala Avenue, Makati City Attention: Reinhold Armbrecht Head of Administration Gentlemen : This refers to your Note Kfz No. 90/2013 dated October 1, 2013 indorsed to this Office by the Department of Finance (DOF) and the Department of Foreign Affairs (DFA), Office of Protocol, requesting exemption from value-added tax (VAT) on the local purchase of ten (10) units of 2013 Toyota Hi-Lux for the official use of the Protected Area Management Enhancement in the Philippines of the Deutsche Gesellschaft fr Internationale Zusammenarbeit (GIZ) Office, Manila, specifically described as follows: aTIAES Make Model Color Chassis No. Engine No. Toyota Hi-Lux 4x4 3.0L G M/T 2013 Lithium MR0FZ29G902520084 1KDA242461 Toyota Hi-Lux 4x4 3.0L G M/T 2013 Lithium MR0FZ29G602520219 1KDA243307 Toyota Hi-Lux 4x4 3.0L G M/T 2013 Lithium MR0FZ29G702519841 1KDA240381 Toyota Hi-Lux 4x4 3.0L G M/T 2013 Lithium MR0FZ29G802519508 1KDA238480 Toyota Hi-Lux 4x4 3.0L G M/T 2013 Lithium MR0FZ29G802520271 1KDA244249 Toyota Hi-Lux 4x4 3.0L G M/T 2013 Lithium MR0FZ29G702520231 1KDA243295 Toyota Hi-Lux 4x4 3.0L G M/T 2013 Lithium MR0FZ29GX02520059 1KDA242004 Toyota Hi-Lux 4x4 3.0L G M/T 2013 Lithium MR0FZ29G902520750 1KDA247286 Toyota Hi-Lux 4x4 3.0L G M/T 2013 Lithium MR0FZ29G802519945 1KDA242033 Toyota Hi-Lux 4x4 3.0L G M/T 2013 Lithium MR0FZ29G502520678 1KDA251265 It is represented that GIZ is the new name of Deutsche Gesellschaft fr Technische Zusammenarbeit (GTZ) effective January 1, 2011, per Note No. 275/10 dated December 1, 2010 of the Embassy of the Federal Republic of Germany and DFA Note No. 11-0197 dated January 31, 2011; that the renaming of GTZ as GIZ is part of Germany's technical cooperation reform with the intention of increasing its efficiency and effectiveness by unifying structures and processes under a single agency; that as of January 1, 2011, the German Development Service (DED) and InWEnt-Capacity Building International, Germany, will also be merged with the GIZ, which will continue the work of those two (2) organizations; that from the start of 2011, there will thus only be named the "Deutsche Gesellschaft fr Technische Zusammenarbeit" (GIZ); and that the said change of name shall have no effect on the existing arrangement and ongoing projects. In reply, please be informed that Section 106 (A) (2) (c) of the 1997 National Internal Revenue Code, as amended (1997 NIRC, as amended) provides, viz. : "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 ten percent (10%) 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: Provided, That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied: (i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or (ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 1/2%). . . . DIESHT xxx xxx xxx (2) Zero-rated Sales The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: . . . (c) 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. . . ." In relation thereto, the Agreement between the Government of the Federal Republic of Germany and the Government of the Republic of the Philippines Concerning Technical Co-operation (Technical Co-operation Agreement) executed on September 7, 1971, together with the Diplomatic Exchange of Notes dated May 6, 2002 approving the Arrangement for the continuation of the GTZ Office in Manila, partakes the nature of an international agreement as provided in Section 106 (A) (2) (c) of the NIRC of 1997. Paragraph 4 (a) of the aforementioned Diplomatic Exchange of Notes is, in effect, a grant of exemption from VAT. It provides: " 4. The Government of the Republic of the Philippines shall make the following contributions: It shall (a) exempt the material and motor vehicles supplied for the Office from taxes, licenses, harbour dues, import and export duties and other public charges, as well as storage fees, and ensure that such material is cleared by customs without delay. The aforementioned exemptions shall, with regard to value-added tax (VAT), also apply to material and services (including consulting services) procured in the Republic of the Philippines, as well as to the renting of office premises and accommodation for seconded experts; " (Underscoring ours) In view thereof, the local purchase of ten (10) units 2013 Toyota Hi-Lux 4x4 3.0L G M/T for the official use of the Protected Area Management Enhancement in the Philippines , of the GIZ, being an entity exempt from VAT, pursuant to the aforementioned Technical Co-operation Agreement, Diplomatic Exchange of Notes and Section 109 (K) of the 1997 NIRC, as amended, shall be subject to VAT at zero-percent (0%) rate pursuant to Section 106 (A) (2) (c) of the NIRC of 1997, as amended. 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. SAcaDE Very truly yours, Commissioner of Internal Revenue By: (SGD.) ESTELA V. SALES Deputy Commissioner Legal Group