DA ITAD BIR Ruling No. 085-07

July 19, 2007 DA ITAD BIR RULING NO. 085-07 Sec. 109 National Internal Revenue Code 1997; Article III, Section 10 Vienna Convention on the Privileges and Immunities of the Specialized Agencies of the United Nations; BIR Ruling No. ITAD-46-07 United Nations-World Food Programme (UN-WFP) 5th Floor, Jaka II Building 150 Legaspi Street, Legaspi Village 1226 Makati City Gentlemen : This refers to your letter dated September 19, 2006, requesting exemption from indirect taxes on all sale of movable/immovable properties, non-food items and services provided to UN-WFP and its officials such as security upgrades to offices, rentals etc. In reply, please be informed that Section 109 (k) of the National Internal Revenue Code, as amended by Republic Act 9337, provides, viz: "SEC. 109. Exempt Transactions . Subject to the provisions of Subsection (2) hereof, the following transactions 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;" DTCAES In relation, thereto, Section 10, Article III of the Convention on the Privileges and Immunities of the Specialized Agencies of the United Nations dated November 21, 1947 (Convention) provides: "Article III 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 for the remission or return of the amount of duty or tax. (emphasis ours) "xxx xxx xxx" This Bureau has taken the position that the aforecited provision on the imposition of taxes on the important purchases for the official use of UN-WFP shall mean that, in lieu of the provision on the remission or refund of amount of tax due, a tax exemption privilege can be granted. (BIR Ruling No. DA-ITAD 046-07 dated April 11, 2007). Accordingly, the local purchases by UN-WFP are exempt from VAT pursuant to Section 109 (K) of the NIRC of 1997, as amended by R.A. 9337. Moreover, a closer examination of the Section 10 of the Convention provides that the exemption accorded to UN-WFP on its important purchases refers to property for its official use. STaCIA Property, in the legal context, is defined as anything which is or may be the object of appropriation. 1 It may either be immovable and/or real property or movable and/or personal property. 2 The following are immovable property: (1) Land, buildings, roads and constructions of all kinds adhered to the soil; (2) Trees, plants, and growing fruits, while they are attached to the land or form an integral part of an immovable; (3) Everything attached to an immovable in a fixed manner in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object; (4) Statues, reliefs, paintings or other objects for use or ornamentation, places in buildings or lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements; (5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works; (6) Animal houses, pigeon houses, beehives, fish ponds or breeding places of similar nature, in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it; the animals attached in these places are included; (7) Fertilizer actually used on a piece of land; TSIDEa (8) Mines, quarries and slag dumps, while the matter thereof forms part of the bed and waters either running or stagnant; (9) Docks and structures which, though floating are intended by their nature and object to remain at a fixed place on the river, lake, or coast; (10) Contracts for public works, and servitudes and other real rights over immovable property. 3 On the other hand, the following things are deemed to be personal property: (1) Those movables susceptible of appropriation which are not included in Article 415; (2) Real property which by any special provision of law is considered as personalty; (3) Forces of nature which are brought under control by science; (4) In general, all things which can be transferred from place to place without impairment of the real property to which they are fixed. 4 The following are also considered personal property: (1) Obligations and actions which have for their object movables or demandable sums; and (2) Shares of stock of agricultural, commercial and industrial entities, although they may have real estate. 5 The tests to determine whether an object is movable or not are: (1) Whether the object can be transported from place to place; (2) Whether the change of location can take place without injury to the immovable to which it may be attached; and (3) Whether it is not included in the enumeration found in Article 415 of the Civil Code. If the answer to all the above questions is in the affirmative, then the object is movable. EAICTS Applying the above definitions and discussions on property, it is clear that services provided to UN/WFP such as security upgrades to offices and rentals purchases are not considered as purchase of property, hence, outside the scope of the tax exemption privilege accorded it. (BIR Ruling No. DA-ITAD-46-07 dated April 11, 2007) Finally, this Office is of the opinion that Section 10 of the Convention extends the tax exemption privilege to the specialized agencies of the UN such as UN-WFP but not to its officials as stated in your letter. 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, (SGD.) GREGORIO V. CABANTAC Deputy Commissioner Footnotes 1. Article 414, Civil Code of the Philippines. 2. Ibid. 3. Article 415, Ibid. 4. Article 416, Ibid. 5. Article 417, Ibid.