DA ITAD BIR Ruling No. 095-07

September 26, 2007 DA ITAD BIR RULING NO. 095-07 Section 108 National Internal Revenue Code of 1997; BIR Ruling No. DA-ITAD-171-03 United States Agency for International Development 8/F, PNB Financial Center Pres. Diosdado Macapagal Blvd. 1308 Pasay City Philippines Attention: Ms. Aye Aye Thwin Acting Deputy Director Gentlemen : This refers to your letter dated August 16, 2007, regarding Certifications for the United States Agency for International Development's (USAID) implementing agents under Revenue Memorandum Circular No. 40-2007, and requesting therein a Bill Ruling on the eligibility of purchase of airline tickets for value-added tax (VAT) exemption in connection with USAID development assistance activities. HAICTD In reply, please be informed that the VAT exemption privilege accorded to a diplomatic mission, pursuant to the principle of reciprocity, does not extend to the purchase of airfare tickets of the participants to a project which is sponsored by the said diplomatic mission or by an attached agency of the latter, for the following apparent reasons: 1. To allow the same is tantamount to an indirect grant of VAT exemption to persons who are otherwise directly subjected to VAT, considering that the persons who would utilize the airfare tickets are not part of the diplomatic mission and are non-privileged persons; Thus, what is prohibited directly cannot be allowed indirectly ; IcESDA 2. The VAT exemption privilege is personal to the grantee and as such, shall extend only to transactions which directly involve the embassy and/or its qualified personnel (meaning the embassy itself or the qualified embassy personnel themselves are the ones benefited by the services/goods purchased). Thus, where the transaction is one which does not directly involve the US Embassy from which the USAID derives its VAT exemption privilege, or its qualified personnel as in this case where the contracts of carriage (airfare tickets) are between PAL and the USAID implementing agents' personnel, then, exemption from VAT cannot be applied (BIR Ruling No. DA-ITAD-171-03); 3. Tax exemptions are construed in strictissimi juris or strictly construed against the taxpayer, grantee or the one claiming the exemption, and liberally in favor of the taxing authority; and acEHSI 4. To allow the same would open the floodgate for abuse of a privilege. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service