DA ITAD BIR Ruling No. 061-07

May 10, 2007 DA ITAD BIR RULING NO. 061-07 Articles 5 (Permanent Establishment) and 8 (Business Profits), Philippines-United States of America tax treaty; Sections 105, 108 [(A) and (B) (3)] and 109 (q), 232 (A), 233, 235 and 236 [(A), (B) and (J)] National Internal Revenue Code of 1997; Articles II and IV, Philippines-United States of America Economic and Technical Cooperation Agreement Laya Mananghaya & Co. Certified Public Accountants and Management Consultants 22nd Floor, Philamlife Tower 8767 Paseo de Roxas Street Makati City Attention: Atty. Raymund S. Gallardo Partner Atty. Arni A. Perlas Director Tax and Corporate Services Gentlemen : This refers to your letters dated May 23, August 2, and September 14, 2005, requesting confirmation that: 1. Chemonics International, Inc. (Chemonics) does not have a permanent establishment in the Philippines; 2. the service fees to be paid to Chemonics by the United States Agency for International Development (USAID) in connection with Philippine projects funded by the latter are not subject to value-added tax (VAT); and 3. Chemonics , by reason that it authorized another person to act as a withholding agent on its behalf, is not required to register itself and its books of accounts with the Bureau of Internal Revenue. BASIC FACTS It is represented that Chemonics is a corporation, organized and existing under the laws of the United States of America, with address at 1133 20th Street Northwest, Washington, District of Columbia, 20036, United States of America, as confirmed by its Certificate of Incorporation dated February 8, 1999, and by the Awards/Contracts granted to it by the USAID; and that on September 27, 2002, and September 2, 2005, respectively, the USAID granted Chemonics the Awards/Contracts "to provide technical assistance to strengthen private sector participation in the diagnosis and treatment for control of tuberculosis (TB) in the Philippines (Philippine Tuberculosis Initiatives for the Private Sector or Philippine TIPS Project)", and "to provide technical assistance in the implementation of the Private Sector Mobilization for Family Planning (PRISM) Project" (collectively, the Projects). a. The Philippine TIPS Project That under the Philippine TIPS Project (Contract No. 492-C-00-02-00031-00), Chemonics will be responsible in increasing the number of private practitioners who correctly treat TB using Direct Observation Therapy - Short Course (DOTS) and in increasing the demand for DOTS-related services; that Chemonics will perform the following tasks relating to the Project: Task 1 : Policies, guidelines and regulations revised and expanded to support appropriate, complementary implementation by both public and private providers. Task 2 : Best strategies identified to improve and expand DOTS implementation in the private sector. Task 3 : Private sector models developed, implemented and assessed at regional or local levels. Task 4 : Best approaches/models are implemented and adopted in at least twenty-five (25) strategic urban cities/large municipalities nationwide with the potential for implementation beyond these sites. Task 5 : Sustainability of all TB Programs strengthened through improved teaching and training in medical professional schools, and improved health-seeking behaviors of the public. Task 6 : National health care financing schemes that strengthen private sector delivery of TB control and cure service developed and implemented. and that the service fee for the Philippine TIPS Project is US$8,924,461.00 (composed of project cost at US$8,680,557.00 and fixed fee at US$243,904.00). b. The PRISM Project That under the PRISM Project (Contract No. 492-C-00-04-00036-00), Chemonics will be responsible in making programming and policy recommendations to assure the strengthened and expanded delivery of family planning services in and/or by the private sector; that Chemonics will perform the following tasks relating to the Project: Component 1 : Increase support for family planning within the formal employment sector. Task A : Increasing public discussions by business leaders of population and family planning issues. Task B : Increase support by firms for family planning counseling, motivation and service delivery or referrals, as appropriate, for their workforces. Task C : Increasing support by labor unions for family planning counseling, motivation and service delivery or referrals in the workforce. Task D : Develop cost-effective and sustainable models of family planning counseling, motivations and service delivery or referrals, as appropriate, for the workplace. Component 2 : Establishment of viable mass market brands of oral and injectable contraceptives in the commercial sector. Task A : Increasing private sector suppliers recognizing the business opportunity in providing affordable oral, injectable and other types of contraceptives. Task B : Increasing readiness of the pharmaceutical industry to respond to market development and commercial opportunities. Component 3 : Increasing business value of family planning in private providers' practice. Task A : Increasing the number of midwives with self-sustaining private practices, while incorporating family planning services. Task B : Increasing support from medical profession for family planning as an essential part of good provider practice. and that the service fee for the PRISM Project is US$32,036,699.00 (composed of unspecified project cost and fixed fee). It is further represented that the Projects are pursuant to the Economic and Technical Cooperation Agreement between the Government of the United States of America and the Government of the Republic of the Philippines (Philippines-United States Economic and Technical Cooperation Agreement) (signed on April 27, 1951, and entered into force on May 21, 1951) and the Memorandum of Understanding between the United States of America and the Republic of the Philippines for Desired Family Size and Improved Health Sustainably Achieved (Philippines-United States Desired Family Size and Improved Health Memorandum of Understanding) (signed on May 30, 2002). RULING In reply please be informed as follows. 1. Whether Chemonics has a permanent establishment in the Philippines Under Article 8, paragraph 1 of the Convention between the Government of the Republic of the Philippines and the Government of the United States of America with Respect to Taxes on Income (Philippines-United States tax treaty), the service fees to be paid by the USAID to Chemonics are subject to Philippine income tax if the fees are attributable to a permanent establishment which Chemonics has in the Philippines, thus: "Article 8 BUSINESS PROFITS 1. Business profits of a resident of one of the Contracting States shall be taxable only in that State unless the resident has a permanent establishment in the other Contracting State. If the resident has a permanent establishment in that other Contracting State, tax may be imposed by that other Contracting State on the business profits of the resident but only on so much of them as are attributable to the permanent establishment." Under Article 5, paragraphs 1 and 2 of the Philippines-United States tax treaty, Chemonics is deemed to have a permanent establishment in the Philippines if it has a fixed place of business in the Philippines through which it engages in trade or business (such as a seat of management, a branch, an office, etc.) or if it furnishes services in the Philippines for a period or periods aggregating more than 183 days, thus: "Article 5 PERMANENT ESTABLISHMENT 1. For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which a resident of one of the Contracting States engages in a trade or business. 2. The term 'fixed place of business' includes but is not limited to: a) A seat of management; b) A branch; c) An office; d) A store or other sales outlet; e) A factory; f) A workshop; g) A warehouse; h) A mine, quarry, or other place of extraction of natural resources; i) A building site or construction or assembly project or supervisory activities in connection therewith, provided such site, project or activity continues for a period of more than 183 days; and j) The furnishing of services, including consultancy services, by a resident of one of the Contracting States through employees or other personnel, provided activities of that nature continue (for the same or a connected project) within the other Contracting State for a period or periods aggregating more than 183 days." However, under paragraph 3 of the same article, Chemonics , even if it has a fixed place of business or it furnishes services for more than 183 days, is not deemed to have a permanent establishment in the Philippines if such place of business or furnishing of services falls among those exceptions described in paragraph 3, thus: "3. Notwithstanding paragraphs 1, 2, and 4, a permanent establishment shall be deemed not to include any one or more of the following: a) The use of facilities solely for the purpose of storage, display, or occasional delivery of goods or merchandise belonging to the resident; b) The maintenance of a stock of goods or merchandise belonging to the resident solely for the purpose of storage, display, or occasional delivery; c) The maintenance of a stock of goods or merchandise belonging to the resident solely for the purpose of processing by another person; d) The maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or for collecting information, for the resident; e) The maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research, or for similar activities which have a preparatory or auxiliary character, for the resident; or f) The furnishing of services, including the provision of equipment, in one of the Contracting States by a resident of the other Contracting State, including consultancy firms, in accordance with, or in the implementation of, an agreement between the Contracting States regarding technical cooperation." In subparagraphs (a) to (e), a fixed place of business of an enterprise does not constitute a permanent establishment if the activity or activities performed therein are merely preparatory or auxiliary in character. In subparagraph (f), the furnishing of services and the provision of equipment by an enterprise does not constitute a permanent establishment if they are undertaken pursuant to an agreement on technical cooperation between the Philippines and the United States. Citing subparagraph (f) as basis and inasmuch as Chemonics will provide technical assistance in the Philippines to implement the Projects, which are undertaken and financed by the United States government for the Philippine government pursuant to the Philippines-United States Economic and Technical Cooperation Agreement and the Philippines-United States Desired Family Size and Improved Health Memorandum of Understanding, this Office is of the opinion and so holds that Chemonics will not be deemed to have a permanent establishment in the Philippines with respect to services rendered in relation to the Projects. This notwithstanding that Chemonics has or could eventually have a fixed place of business in the Philippines for the purpose of providing the technical assistance or that Chemonics might furnish the services for more than 183 days, where, generally speaking, such place of business or furnishing of services would already constitute a permanent establishment for Chemonics under paragraphs 1 and 2 of Article 5 (as quoted above). This being the case, pursuant to paragraph 1, Article 8 of the Philippines-United States tax treaty (as quoted above), the service fees to be paid by the USAID to Chemonics for technical assistance rendered by Chemonics to implement the Projects are exempt from Philippine income tax. (BIR Ruling No. DA-ITAD 16-05 dated February 24, 2005) 2. Whether the service fees to be paid by the USAID to Chemonics are exempt from VAT Under Section 108 (A) of the National Internal Revenue Code of 1997 (Tax Code), the service fees to be paid by the USAID to Chemonics , being payments for the performance of services in the Philippines, are generally subject to VAT, thus: "SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties . (A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties. The phrase 'sale or exchange of services' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration. . . " 1 Under Section 105 of the Tax Code, the VAT, being an indirect tax, may be shifted or passed on by Chemonics to the USAID, thus: "SEC. 105. Persons Liable . Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to value-added tax (VAT) imposed in Sections 106 to 108 of this Code. The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. . . " However, under Sections 109(q) and 108(B)(3) of the Tax Code, the transaction between Chemonics and the USAID will not result in the payment of VAT by the USAID if the transaction is considered an exempt transaction or as one subject to zero percent (0%) VAT rate , thus: "SEC. 109. Exempt Transactions . The following shall be exempt from the value-added tax: xxx xxx xxx (q) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under Presidential Decree Nos. 66, 529 and 1590; 2 "SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties . xxx xxx xxx (B) Transactions Subject to Zero Percent (0%) Rate. The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: xxx xxx xxx (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate." In an exempt transaction, Chemonics will not subject to VAT (output tax) the service fees paid to it by the USAID and Chemonics is not allowed any tax credit on VAT (input tax) it previously paid. Chemonics will not bill any output tax to the USAID because the said transaction is not subject to VAT. On the other hand, Chemonics , if it is a VAT-registered purchaser of VAT-exempt goods/properties or services, is not entitled to any input tax on its purchases despite the issuance of a VAT invoice or receipt. (Section 4.103-1, Revenue Regulations 7-95) 3 On the other hand, in a zero-rated transaction, which is a taxable transaction for VAT purposes, the transaction which Chemonics has with the USAID, assuming Chemonics is a VAT registered person, will not result in any output tax. However, the input tax on Chemonics' purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund. (Section 4.102-2, Ibid .) 4 On whether the transaction between Chemonics and the USAID will not result in the payment of VAT by the USAID, Article IV, paragraph 1 of the Philippines-United States Economic and Technical Cooperation Agreement (Agreement) provides that for purposes of according privileges and immunities to the United States Special Technical and Economic Mission and its personnel of comparable diplomatic rank, the Philippine government shall, upon appropriate notification by the United States Ambassador in the Philippines, consider the Special Technical and Economic Mission and its personnel as part also of the United States Diplomatic Mission in the Philippines, thus: "Article IV Missions 1. The Government of the Philippines agrees to receive a Special Technical and Economic Mission which will discharge the responsibilities of the Government of the United States of America in the Philippines under this Agreement and the Government of the Philippines will, upon appropriate notification from the Ambassador of the United States of America in the Philippines, consider this Mission and its personnel as part of the Diplomatic Mission of the United States of America for the purpose of enjoying privileges and immunities accorded to that Mission and its personnel of comparable rank. Such Mission shall include but not be limited to experts whose services are made available to implement Article II of this Agreement." With respect to privileges and immunities normally given by the Philippines to diplomatic missions and their personnel, these include privileges and immunities described in the Vienna Convention on Diplomatic Relations (signed on April 18, 1961), to which the Philippines is a signatory. As to taxation privileges, Articles 23 and 34 of the Convention mention: "Article 23 1. The sending State and the head of the mission shall be exempt from all national, regional or municipal dues and taxes in respect of the premises of the mission, whether owned or leased, other than such as represent payment for specific services rendered. 2. The exemption from taxation referred to in this Article shall not apply to such dues and taxes payable under the law of the receiving State by persons contracting with the sending State or the head of the mission." "Article 34 A diplomatic agent shall be exempt from all dues and taxes, personal or real, national, regional or municipal, except: (a) indirect taxes of a kind which are normally incorporated in the price of goods or services; (b) dues and taxes on private immovable property situated in the territory of the receiving State, unless he holds it on behalf of the sending State for the purposes of the mission; (c) estate, succession or inheritance duties levied by the receiving State, subject to the provisions of paragraph 4 of Article 39; (d) dues and taxes on private income having its source in the receiving State and capital taxes on investments made in commercial undertakings in the receiving State; (e) charges levied for specific services rendered; (f) registration, court or record fees, mortgage dues and stamp duty, with respect to immovable property, subject to the provisions of Article 23." On taxation privileges of the sending State and the head of the mission, Article 23 provides that the sending State (as represented by its embassy in the receiving State) and the head of the mission are exempt from all dues and taxes relating to their premises, which include, for example, VAT on rental of such premises. On taxation privileges of a diplomatic agent, Article 34 provides that a diplomatic agent is generally exempt from all dues and taxes (personal or real, national, regional or municipal), except those described in items (a) to (f) of Article 34 like indirect taxes of a kind which are normally incorporated in the price of goods or services. By the nature of VAT as an indirect tax which may be shifted or passed on to the buyer, transferee or lessee of the goods, properties, or services (Section 105, Tax Code), VAT is not among those taxes which a diplomatic agent can be exempt from in the receiving State. However, although selectively, the VAT exemption privilege of diplomatic missions in the Philippines and their personnel is made to rest on the principle of reciprocity . In BIR Ruling No. 246-92 dated September 3, 1992, the precursor ruling that cited reciprocity as a basis for the grant of VAT exemption to diplomatic missions in the Philippines and their personnel, this Bureau ruled that the French Embassy's purchase of a motor vehicle is exempt from VAT and from ad valorem tax on the basis of reciprocity. This was on the condition that the French Embassy could submit to the Commissioner of Internal Revenue (or his duly authorized representative) a copy of a special legislation or an international agreement that shows that the French government allows similar tax exemption to the Philippine Embassy in France and its personnel on their purchase of goods and services in France. The same requirement was invoked in the predecessor ruling, BIR Ruling No. 206-93 dated May 11, 1993, where this Bureau ruled that the British Embassy's purchase of a motor vehicle is exempt from VAT and from ad valorem tax on the basis of reciprocity. Based on the British Embassy's letter to the Commissioner of Internal Revenue dated April 7, 1993, the British government allows similar tax exemption to the Philippine Embassy in the United Kingdom and its personnel on their purchase of goods and services in the United Kingdom. From then on, the determination of the existence of a special legislation or an international agreement that allows similar tax exemption to Philippine Embassies abroad and their personnel now lies with the Office of Protocol and State Visits of the Department of Foreign Affairs (DFA), which furnishes this Bureau from time to time of an updated list of diplomatic missions in the Philippines that are entitled to VAT exemption on the basis of reciprocity. Inasmuch as the USAID discharges the responsibilities of the United States government to the Philippine government under the Philippines-United States Economic and Technical Cooperation Agreement by providing economic and technical assistance in the Philippines, the USAID constitutes as part of the Special Technical and Economic Mission described in the Agreement. As it is, the USAID is an agency of the United States government and is a part of and is working dependently with the United States Embassy in the Philippines. Hence, in keeping with its obligations under Article IV of the Agreement, the Philippine government will accord to the USAID and its personnel of comparable diplomatic rank those privileges and immunities presently enjoyed by the United States Embassy in the Philippines and its personnel, which includes VAT exemption on the purchase of goods and services in the Philippines. Thus, on the basis of reciprocity, as always reiterated in all VAT exemption rulings, VECs and VEICs issued by this Bureau to the United States Embassy and its personnel, this Office likewise extends the same privilege of VAT exemption to the USAID and its personnel of comparable diplomatic rank in the Philippines. This being the case, this Office is of the opinion and so holds that the service fees to be paid by the USAID to Chemonics in connection with the Projects funded by the USAID are exempt from VAT. (BIR Ruling No. DA-ITAD 98-06 dated August 25, 2006) 3. Whether Chemonics, by reason that it authorized another person to act as a withholding agent on its behalf, is not required to register itself and its books of accounts with the Bureau of Internal Revenue . Under Section 236 (A) of the Tax Code, Chemonics is required to register with the Bureau of Internal Revenue because it is subject to internal revenue tax, thus: "SEC. 236. Registration Requirements . (A) Requirements. Every person subject to any internal revenue tax shall register once with the appropriate Revenue District Officer: (1) Within ten (10) days) from date of employment, or (2) On or before the commencement of business, or (3) Before payment of any tax due, or (4) Upon filing of a return, statement or declaration as required in this Code. The registration shall contain the taxpayer's name, style, place of residence, business, and such other information as may be required by the Commissioner in the form prescribed therefor. A person maintaining a head office, branch or facility shall register with the Revenue District Officer having jurisdiction over the head office, branch or facility. For purposes of this Section, the term 'facility' may include but not be limited to sales outlets, places of production, warehouses or storage places." Generally speaking, a person (natural or juridical) is subject to internal revenue tax directly or indirectly . In the first instance, a person who engages in trade or business and is subject to income tax and VAT on his activities is directly subject to or liable for internal revenue tax and is required to register pursuant to Section 236 (A). In the second instance, a person who has control over the payments to be made to another person (like its employee or an independent contractor that supply goods and services to it) and is deemed a withholding agent for tax purposes, is indirectly subject to or liable for internal revenue tax and is also required to register pursuant to Section 236 (A). In the case of Chemonics , where we ruled in Items 1 and 2 of this ruling that the service fees to be paid to it by the USAID are exempt from income tax and from VAT, we believe that Chemonics will not be directly subject to or liable for internal revenue tax in such a situation. However, inasmuch as Chemonics has or will have control over the payments to be made by it to other persons including its employees or independent contractors that supply goods and services to it and that it is deemed a withholding agent for tax purposes in this situation, Chemonics will be indirectly subject to or liable for internal revenue tax and, therefore, Chemonics is required to register pursuant to Section 236 (A) of the Tax Code. Given this, you inquired whether Chemonics is or will not be required to register by reason that it already authorized another person to act as a withholding agent on its behalf. In reply, please be informed that Chemonics cannot be exempt from the registration requirement in Section 236 (A) of the Tax Code for the sole reason that it authorized another person to act as a withholding agent on its behalf for payments to be made by it to other persons including its employees and independent contractors. Under an arrangement, Chemonics must register itself as 'Chemonics (by the Authorized Withholding Agent) , with the Revenue District Office of this Bureau which has jurisdiction over it. When registering, Chemonics should submit to the Revenue District Office concerned its Articles of Incorporation, its Contract of Agency with the Authorized Withholding Agent, and its Registration with the Securities and Exchange Commission (if any). The registration of Chemonics (by the Authorized Withholding Agent) will be under the Taxpayer Identification Number (TIN) of Chemonics , to be issued by the Bureau of Internal Revenue pursuant to Sections 236(J) of the Tax Code, to wit: "SEC. 236. Registration Requirements . xxx xxx xxx (J) Supply of Taxpayer Identification Number (TIN) . Any person required under the authority of this Code to make, render or file a return, statement or other document shall be supplied with or assigned a Taxpayer Identification Number (TIN) which he shall indicate in such return, statement of document filed with the Bureau of Internal Revenue for his proper identification for tax purposes, and which he shall indicate in certain documents. . . " In addition, under Sections 236(B), 232, 233 and 235 of the Tax Code, Chemonics is required to pay the annual registration fee of P500.00, and to keep its own book of accounts and subsidiary books and preserve them for a certain period of time as necessary, thus: "SEC. 236. Registration Requirements . xxx xxx xxx (B) Annual Registration Fee . An annual registration fee in the amount of five hundred pesos (P500) for every separate or distinct establishment or place of business, including facility types where sales transactions occur, shall be paid upon registration and every year thereafter on or before the last day of January. . . " "SEC. 232. Keeping of Books Accounts . (A) Corporations, Companies, Partnerships or Persons Required to Keep Books of Accounts . All corporations, companies, partnerships or persons required by law to pay internal revenue taxes shall keep a journal and a ledger or their equivalents. . . "SEC. 233. Subsidiary Books . All corporations, companies, partnerships or persons keeping the books of accounts mentioned in the preceding Section may, at their option, keep subsidiary books as the needs of their business may require: Provided, That where such subsidiaries are kept, they shall form part of the accounting system of the taxpayer and shall be subject to the same rules and regulations as to their keeping, translation, production and inspection as are applicable to the journal and the ledger." "SEC. 235. Preservation of Books of Accounts and Other Accounting Records . All the books of accounts and other accounting records of corporations, companies, partnerships, or persons, shall be preserved by them for a period beginning from the last entry in each book until the last day prescribed by Section 203 within which the Commissioner is authorized to make an assessment. The said books and records shall be subject to examination and inspection by internal revenue officers. . . " This ruling is issued on the basis of the actual facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, (SGD.) JOSE MARIO C. BUAG Commissioner of Internal Revenue Footnotes 1. Section 108 was amended by Republic Act No. 9337 (An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 151, 236, 237 And 288 Of The National Internal Revenue Code Of 1997, As Amended, And For Other Purposes), which was signed into law on May 24, 2005 and became effective on November 1, 2005, to read as: "SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. (A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties 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 one and one-half percent (1 1/2%); or (ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 1/2%). The phrase 'sale of exchange of services' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration. . . " The VAT rate was increased to 12% on February 1, 2006, in accordance with the Memorandum of the Executive Secretary to the Secretary of Finance dated January 31, 2006, as circularized by Revenue Memorandum Circular No. 7-2006 (Publishing the Full Text of the Memorandum from Executive Secretary Eduardo R. Ermita dated January 31, 2006 Approving the Recommendation of the Secretary of Finance to Increase the Value Added Tax Rate from Ten Percent to Twelve Percent) dated January 31, 2006. 2. Section 109 (q) was amended and renumbered by Republic Act 9337 to read as: "SEC. 109. Exempt Transactions. (1) Subject to the provisions of Subsection (2) hereof, the following shall be exempt from the value-added tax: xxx xxx xxx (K) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under Presidential Decree No. 529;" 3. Now Section 4.409-1 of Revenue Regulations 16-2005, the accompanying regulations of Republic Act 9337. 4. Now Section 4.108-5 of Revenue Regulations 16-2005.