DA ITAD BIR Ruling No. 077-14

September 15, 2014 DA ITAD BIR RULING NO. 077-14 Section 106 (A) (2) (c), NIRC of 1997, as amended; RMC No. 40-2007; BIR Ruling No. ITAD-141-14 Embassy of the United States of America 1201 Roxas Boulevard Manila, Philippines 1000 Attention: Ms. Gloria D. Steele USAID Mission Director Gentlemen : This has reference to your Note No. 0536 dated April 2, 2014 referred to this Office by the Department of Finance (DOF) and the Department of Foreign Affairs (DFA), requesting for the exemption from the payment of value-added tax (VAT) on the local purchase of a motor vehicle by the United States Agency for International Development (USAID), for the official use of its Implementing Agency, Deloitte Consulting LLP , for USAID's development assistance activity Technical Assistance for the Integrity for Investments Initiatives (i3 Project), specifically described as follows: Type of Use: Official Make: Honda Pilot 3.5EXL AT Model Year: 2013 Color: Crystal Black Frame Number: 5FNYF4875DB702705 Engine Number: J35Z45060629 In reply, please be informed that Article 34 of the Vienna Convention on Diplomatic Relations reads: "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 the goods and services; xxx xxx xxx" Thus, the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from VAT on its local purchases of goods and services. In other words, purchases by that Embassy of goods and/or services shall, in general, be subject to the VAT prescribed under Sections 106 and 108 of the National Internal Revenue Code of 1997, as amended. HDIATS However, applying the principle of reciprocity, this Office may confirm exemption of the Embassy of the United States of America and/or its personnel on their local purchase of motor vehicles it appearing from the list submitted by the DFA dated July 15, 2014 that the Government of the United States of America allows similar exemption to the Philippine Embassy and/or its personnel on their purchase of motor vehicles in the United States. In relation thereto, Article IV, paragraph 1 of the 1951 Philippine-US Agreement on Economic and Technical Cooperation provides the basis and lays down the conditions for the exemption of the USAID from VAT. It states: "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." Under the above provision, the tax privileges accorded by the Philippine government to the US Embassy and its personnel shall be extended to the Special Technical and Economic Mission of the US and its personnel of comparable rank and experts who are tasked to discharge the responsibilities of the US government in the Philippines under the Agreement, upon appropriate notification from the US Ambassador to the Philippines. Pursuant to the notification issued by the US Ambassador on December 18, 2006, the USAID is recognized as a Mission who will discharge the responsibilities of the US government in the Philippines under the Agreement. For this purpose, under Section 6 of Revenue Memorandum Circular (RMC) No. 40-2007 the USAID, its personnel of comparable rank and its Implementing Agents recognized by the US Embassy, shall be considered as part of the diplomatic mission entitled to direct tax exemption pursuant to the Vienna Convention on Diplomatic Relations and to indirect tax exemption pursuant to the Tax Code of 1997, as amended, and its implementing rules and regulations. ISDCHA For each of USAID's activities, the US Department of State, through USAID, will select a Contractor to serve as Implementing Agent. The BIR shall recognize the Implementing Agent, excluding its personnel and staff, as part of the USAID for purposes of implementing USAID development assistance activities and shall be accorded the appropriate tax treatment under the Agreement upon receipt of a note verbale from the US Ambassador duly indorsed by the DFA, with information on the name of the person or entity as Implementing Agent and the dates for which such agency relationship is in effect. Hence, under the notification the US Ambassador dated March 14, 2013, Deloitte Consulting LLP is recognized as an Implementing Agent of the USAID in the Philippines, and in whose favor the BIR has issued Certification No. 2013-059 on May 14, 2013, to confirm its status as such. As a recognized Implementing Agent, it is authorized to make local purchase of goods and services for and on behalf of the US Embassy and in connection with USAID's development assistance activity, i3 Project. Accordingly, pursuant to RMC No. 40-2007 and Section 106 (A) (2) (c) of the NIRC of 1997 as amended, the herein purchase of one (1) unit of 2013 Honda Pilot 3.5EXL AT for the official use of the USAID in its Technical Assistance for the Integrity for Investments Initiatives (i3) Project, as implemented by Deloitte Consulting LLP, a USAID implementing agent exempt from VAT, 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-141-14 dated August 11, 2014) Furthermore, all sales to USAID's Implementing Agents by VAT-registered sellers must be issued a VAT invoice or an official receipt for each sale which contains the following information: a. Name of the seller and a statement that he or it is a VAT-registered person followed by his or its Tax Identification Number (TIN); b. Name and address of the Implementing Agent, together with the words, "USAID, by X Co., the Implementing Agent for (Name of Program/Project)"; THEDCA c. Current and valid VAT Exemption Certificate Number of USAID; d. The total amount which the purchaser pays or is obliged to pay to the seller, Provided, that (i) The amount of the VAT shall be shown as a separate item in the invoice or receipt; or (ii) The term "ZERO RATED SALE", as appropriate, is written or printed prominently on the face of the invoice/receipt; e. The date of transaction, quantity, unit cost and description of the goods or properties or nature of the services. 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