DA ITAD BIR Ruling No. 086-10

October 27, 2010 DA ITAD BIR RULING NO. 086-10 Sections 106 & 108, NIRC of 1997; Article 34, Vienna Convention on Diplomatic Relations; BIR Ruling No. DA-ITAD-089-05; VAT Ruling No. 008-00 Embassy of the Federal Republic of Germany 25/F Tower 2, RCBC Plaza 6819 Ayala Ave (cor Sen. Gil Puyat Ave) Makati City, Metro Manila, Philippines Attention: Mr. Carsten Muller First Secretary Gentlemen : This has reference to your Note Verbale No. KFZ 69/2010 dated August 16, 2010, referred to this Office by the Department of Finance (DOF) and the Office of Protocol and State Visits of the Department of Foreign Affairs (DFA), requesting exemption from payment of value-added tax (VAT) and ad valorem tax on a locally purchased motor vehicle, for official use of the Sustainable Management of Natural Resources of GDC-GTZ Office, Manila, specifically described as follows: cDSAEI Type of Use: Official Make and Model: 2010 Toyota Innova 2.0 E VVTi 5MT Chassis No.: TGN40-5021592 Engine No.: ITR-6954555 Color: Beige Metallic In reply, please be informed that paragraph 4 (a) of the Diplomatic Exchange of Notes dated May 6, 2002 , provides: "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;" In addition, please be informed that Section 106 (A) (2) (c) of the National Internal Revenue Code (NIRC) of 1997, as amended provides as follows: "SEC. 106. The following sales by a VAT-registered persons shall be subject to zero percent (0%) rate: xxx xxx xxx (2) Zero-rated Sales The following sales by VAT-registered persons shall be subject to zero percent 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" Under the above-cited provisions, a transaction is subject to zero percent (0%) VAT when a special law or an international agreement to which the Philippines is a signatory provides for such exemption. The herein Agreement between the Government of the Federal Republic of Germany and the Government of the Republic of the Philippines Concerning Technical Co-operation executed on September 7, 1971, with Diplomatic Exchange of Notes dated May 6, 2002 partakes of the nature of an international agreement. The cited paragraph 4 (a) of the Diplomatic Exchange of Notes dated May 6, 2002 shall, in effect, grant an exemption from ad valorem tax and shall subject the sale to zero percent (0%) VAT. AEIDTc In view thereof, this Office is of the opinion and so holds that the local purchase of two (1) * units of Toyota Innova, for the official use of Sustainable Management of Natural Resources of GDC-GTZ are hereby exempt from ad valorem tax but subject to 0% VAT. (BIR Ruling No. DA-ITAD-089-05 dated April 28, 2005; VAT Ruling No. 008-00 dated February 7, 2000). Very truly yours, Commissioner of Internal Revenue By: (SGD.) MARISSA O. CABREROS OIC-Assistant Commissioner Legal Service