DA ITAD BIR Ruling No. 088-10

November 15, 2010 DA ITAD BIR RULING NO. 088-10 Section 34, Vienna Convention on Diplomatic Relations; Revenue Memorandum Circular No. 40-2007; BIR Ruling No. DA-ITAD-008-10 Embassy of the United States of America 1201 Roxas Boulevard Manila Attention: Mr. Marcial Salvatierra Chief of Party, Education Development Center SUBJECT : USAID Project Education Quality and Access for Learning and Livelihood Skills (EQuALLS) Program Gentlemen : This refers to your Diplomatic Note No. 1364 dated August 31, 2010 forwarded to this Office by the Department of Finance and the Department of Foreign Affairs, Office of Protocol and State Visits of the Department of Foreign Affairs (DFA), requesting for a tax-free purchase of nine (9) locally-assembled motor vehicles specifically described hereunder, for the official use of the Education Development Center, as implementing agent of the United States of Agency for International Development (USAID) for the project "Education Quality and Access for Learning and Livelihood Skills Program", pursuant to the 1951 Economic and Technical Cooperation Agreement between the Government of the United States of America and the Government of the Philippines (1951 Agreement). DcCEHI Make Model Year Color Engine Number Frame Number 1. Ford Everest 3.0L 2010 Highlight WEAT1 136619 MNCUS4E90AW3087 4X4 A/T TDCi Silver 92 2. Honda XRM125 2006 Red XRM15E102794 XRM15102788 3. Honda XRM125 2006 Red XRM15E102796 XRM15102790 4. Honda XRM125 2006 Red XRM15E102799 XRM15102793 5. Honda XRM125 2006 Red XRM15E102800 XRM15102795 6. Honda XRM125 2006 Red XRM15E102763 XRM15102797 7. Honda XRM125 2006 Red XRM15E102809 XRM15102804 8. Honda XRM125 2006 Red XRM15E102811 XRM15102807 9. Honda XRM125 2006 Red XRM15E102817 XRM15102813 Value added tax Exemption of the United States Diplomatic Mission 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 or services; xxx xxx xxx" Thus, the tax exemption privilege of a diplomatic mission and its diplomatic agents does not include exemption from the value-added tax (VAT) on their local purchases of goods and services. In other words, purchases by a diplomatic mission, in this case the Diplomatic Mission of the United States of America (US Embassy), of goods and services shall, in general, be subject to the VAT prescribed under Sections 106 and 108, both of the National Internal Revenue Code of 1997 (NIRC of 1997), as amended. However, applying the principle of reciprocity, the Bureau of Internal Revenue (BIR) may confirm exemption to the US Embassy on its local purchases of goods and services it appearing from the list submitted by the Department of Foreign Affairs that the Government of the United States of America allows similar exemption to Philippine Embassy and its personnel on their purchases of goods and services in the United States. DAHCaI Value-added tax Exemption of USAID In relation to the foregoing, Article IV, paragraph 1 of the 1951 Agreement provides for the basis and lays down the conditions for USAID's exemption 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." (Emphasis supplied) In view of this, tax privileges accorded to the US Embassy and its personnel shall be extended by the Philippine Government to the Special Technical and Economic Mission of the United States of America (Mission) tasked to discharge the responsibilities of the Government of the United States of America (USA) in the Philippines under the 1951 Agreement and its personnel of comparable rank, including experts to implement USAID development assistance activities, upon appropriate Notification from the Ambassador of the USA in the Philippines, in accordance with the 1951 Agreement. 1 Pursuant to the Notification from the Ambassador of the USA to the Philippines dated December 18, 2006, the USAID is recognized as the Mission of the USA for discharging the responsibilities of the Government of the USA in the Philippines under the 1951 Agreement. For purposes of enjoying the tax privileges, the USAID, its personnel of comparable rank and its Implementing Agents recognized by the US Embassy, under Section 6 of Revenue Memorandum Circular (RMC) No. 40-2007 dated June 14, 2007, as part of USAID for purposes of implementing development assistance activities pursuant to the 1951 Agreement, shall be considered as part of the diplomatic mission entitled to direct tax exemption pursuant to the Vienna Convention on Diplomatic Relations and indirect tax exemption pursuant to the Tax Code of 1997, as amended and its implementing rules and regulations. 2 For each of USAID's activities, the USA Department of State, through USAID, will select a Contractor to serve as its Implementing Agent. The BIR shall recognize the selected 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 1951 Agreement upon receipt of a Note Verbal from the Ambassador of the US Embassy in the Philippines, duly indorsed by the DFA, with information as to the name of such person or entity, and the start and end dates for which the agency relationship is in effect. 3 HDCAaS Hence, under Notification from the Ambassador of the USA dated October 29, 2008, the Education Development Center is recognized as an Implementing Agent of the USAID in the Philippines, and in whose favor the BIR has issued Certification No. 2010-033 dated February 8, 2010 confirming its status as such. As a recognized Implementing Agent, it is authorized to make local purchases of goods and services for and on behalf of the US Embassy and in connection with the USAID development assistance activity Education Quality and Access for Learning and Livelihood Skills Program. Accordingly, sales of goods and services by VAT-registered suppliers to Education Development Center, to be used exclusively for the Education Quality and Access for Learning and Livelihood Skills Program of the USAID, shall be subject to value-added tax (VAT) at zero percent (0%) rate pursuant to RMC No. 40-2007. Therefore, pursuant to Section 34 of the Vienna Convention on Diplomatic Relations and RMC No. 40-2007, the herein purchases of the locally-assembled motor vehicles, one (1) unit 2010 Ford Everest and eight (8) units 2006 Honda XRM125 by the above Implementing Agent of the USAID, Education Development Center, for and in behalf of the US Embassy and in connection with the Education Quality and Access for Learning and Livelihood Skills Program, is subject to VAT at zero percent, provided that: the subject vehicle shall be registered in the name of USAID for the Education Quality and Access for Learning and Livelihood Skills Program. Furthermore, please note that all sales to the USAID's Implementing Agents in connection with the programs covered by RMC No. 40-2007 must be issued a VAT invoice/an official receipt for each sale by the VAT-registered sellers containing the following information: a. Name of seller and a statement that such seller is a VAT-registered person, followed by his Tax Identification Number (TIN); b. Name and address of the USAID implementing agent, together with the words, "USAID, by X Co., the Implementing Agent for (Name of Program/Project)"; 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 aDcETC (ii) The term "ZERO RATED SALE" or "EXEMPT 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. 4 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 party is concerned. Very truly yours, (SGD.) MARISSA O. CABREROS OIC-Assistant Commissioner Legal Service Footnotes 1. Section 4, Revenue Memorandum Circular No. 40-2007. 2. Section 5, ibid. 3. Section 6, ibid. 4. Section 9, ibid.