DA ITAD BIR Ruling No. 054-15

November 24, 2015 DA ITAD BIR RULING NO. 054-15 Sec. 106 (A) (2) (c), 1997 NIRC, as amended; Charter of the Southeast Asian Ministers of Education Organization adopted at Singapore; Convention on the Privileges and Immunities of the Specialized Agencies of the United Nations; BIR Ruling No. ITAD-222-13 Southeast Asian Ministers of Education Organization Regional Center for Educational Innovation and Technology Attention: Ramon C. Bacani Director Gentlemen : This refers to your letter dated September 23, 2015 indorsed to this Office by the Department of Finance (DOF) and the Department of Foreign Affairs (DFA), requesting for the exemption from payment of value-added tax (VAT) and ad valorem tax on the local purchase of one (1) unit motor vehicle, for the official use of the Southeast Asian Ministers of Education Organization (SEAMEO-INNOTECH), specifically described as follows: Make: One (1) Toyota Corolla Altis 1.6G A/T Model Year: 2015 Color: Thermalyte Engine Number: 1ZR-X529859 Chassis Number: MR053REH104538588 In reply, please be informed that Section 106 (A) (2) of the 1997 National Internal Revenue Code (NIRC), as amended, provides that sales by VAT-registered persons to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory shall be subject to zero percent (0%) rate, thus: "Section 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: TIADCc (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%). . . . (2) Zero-rated Sales The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: xxx xxx xxx (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. xxx xxx xxx" In relation thereto, the Agreement between the Government of the Republic of the Philippines and the Southeast Asian Ministers of Education Organization Regarding the Temporary Operation of the SEAMEC Regional Centre for Educational Innovation and Technology (INNOTECH) dated 16 July 1976 may be taken into consideration. Article II of said Agreement provides that: "Article II Legal Status of the Regional Centre 1. The Government recognizes the juridical personality of the Organization, and that the Organization and the Regional Centre, on behalf of and as a subordinate body of the Organization, shall have the capacity a. To contract; b. To acquire and dispose of movable and immovable property; c. To institute legal proceedings. 2. The Government shall grant the Regional Centre the same privileges and immunities as those accorded international bodies now operating in the Philippines such as SEARCA. . . ." Moreover, the Charter of the Southeast Asian Ministers of Education Organization (SEAMEO) adopted at Singapore on 07 February 1968 which was accepted by the President of the Philippines was concurred in by the Senate on 31 August 1972 as evidenced by Senate Resolution No. 56. 1 Article VIII of the said Charter provides that: "Article VIII Legal Status of the Organization 1. The Organization shall possess full juridical personality and, in particular, full capacity: a. To contract; b. To acquire , and dispose of, immovable and movable property ; and c. To institute legal proceedings. 2. The Organization shall enjoy in the territory of each of its Member States such privileges and immunities as are necessary for the fulfillment of its purposes . . . . . (Underscoring supplied)" Pursuant to the SEAMEO charter, the provision of Section 10, Article III of the Convention on the Privileges and Immunities of the Specialized Agencies of the United Nations (UN Convention) may apply to INNOTECH. It states that: AIDSTE "Article III Property, Funds and Assets xxx xxx xxx Section 10. While the specialized agencies will not, as a general rule, claim exemption from excise duties and from taxes on the sale of movable and immovable property which form part of the price to be paid, nevertheless when the specialized agencies are making important purchases for official use of property on which such duties and taxes have been charged or chargeable, States parties to this Convention will whenever possible, make appropriate administrative arrangements from the remission or return of the amount of duty or tax." The aforecited provision of the UN Convention clearly requires that to be entitled to a possible remission or return of the amount of duty or tax, the subject purchase must be for official use of the specialized agency. But in lieu of remission or return of the amount of duty or tax related to the purchase for official use, a tax exemption privilege is instead granted. 2 In view of all of the foregoing, this Office is of the opinion and hereby holds that sale of one (1) unit 2015 Toyota Corolla 1.6G A/T by the VAT-registered local car dealer to SEAMEO INNOTECH an entity exempt from VAT pursuant to the SEAMEO Charter, in relation to Section 10, Article III of the UN Convention, and Section 109 (K) of the 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. (BIR Ruling No. ITAD-222-13 dated August 13, 2013) It is hereby understood that the tax exemption privilege herein accorded applies only to vehicles purchased under the name of SEAMEO INNOTECH for its official use. 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 Footnotes 1. Resolution Concurring in the Acceptance of the President of the Philippines on the charter of the Southeast Asian Ministers of Education. 2. BIR Ruling No. ITAD-46-07 dated April 11, 2007 citing VAT Ruling No. 143-90 dated May 23, 1990 which revoked VAT Ruling No. 176-89 dated August 4, 1989.