DA ITAD BIR Ruling No. 085-14

October 13, 2014 DA ITAD BIR RULING NO. 085-14 Sec. 106 (A) (2) (c), NIRC of 1997, as amended; Paragraph 4 (a), May 6, 2002 Diplomatic Exchange of Notes; Technical Co-operation Agreement of September 7, 1971; 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: Ulrich Khler First Secretary Gentlemen : This refers to your KFZ Note No. 54/2014 dated August 28, 2014 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 a motor vehicle for the official use of the Deutsche Gesellschaft fr Internationale Zusammenarbeit (GIZ), GIZ Office, Manila, specifically described as follows: Organization: Deutsche Gesellschaft fr Internationale Zusammenarbeit (GIZ), GIZ Office, Manila Type of use: Official Make: one (1) unit Toyota Hi-Lux G 4x4 3.0L M/T Model year: 2014 Color: Freedom White Engine No.: 1KD-A513102 Frame No.: MR0FZ29GX02549125 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 arrangements and ongoing projects. aETAHD 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%). . . . 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: CScTDE "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 a 2014 Toyota Hi-Lux G 4x4 3.0L M/T for the official use of the GIZ office Manila, 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. (BIR Ruling No. ITAD-009-13 dated January 22, 2013) 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 Bureau of Internal Revenue