USAID Project — "Growth with Equity in Mindanao III"

November 7, 2008 DA ITAD BIR RULING NO. 095-08 Section 34, Vienna Convention on Diplomatic Relations; Revenue Memorandum Circular No. 40-2007; BIR Ruling No. ITAD-47-08 Embassy of the United States of America 1201 Roxas Boulevard Manila Attention: Mr. Noel A. Ruiz Deputy Chief of Party SUBJECT : USAID Project "Growth with Equity in Mindanao III" Gentlemen : This refers to your Diplomatic Note No. 1071 dated 13 August 2008, forwarded to this Office by the Department of Foreign Affairs, requesting for a tax-free purchase of eleven (11) locally-assembled motor vehicles specifically described hereunder, for the official use of the "Louis Berger Group, Inc.", as implementing agent of the United States Agency for International Development (USAID) for the project "Growth With Equity In Mindanao (GEM) III", pursuant to the 1951 Economic and Technical Cooperation Agreement between the Government of the United States of America and the Government of the Republic of the Philippines (1951 Agreement). Make Model Color Chassis Number Engine Number Year Ford Everest 3.0L 2008 Black MNCUS4E908W210445 WEAT 163855 4x4 A/T Ford Everest 3.0L 2008 Black MNCUS4E908W210537 WEAT 164405 4X4 A/T Ford Everest 3.0L 2008 Black MNCUS4E908W210563 WEAT 164666 4x4 A/T Ford Everest 3.0L 2008 Black MNCUS4E908W209827 WEAT 160972 4x4 A/T Ford Everest 3.0L 2008 Black MNCUS4E907W206839 WEAT 138004 4x4 A/T Ford Everest 3.0L 2008 Black MNCUS4E908W211092 WEAT 167045 4x4 A/T Ford Everest 3.0L 2008 Black MNCUS4E908W211129 WEAT 167393 4x4 A/T Ford Everest 3.0L 2008 Black MNCUS4E908W211243 WEAT 168135 44 A/T Ford Everest 3.0L 2008 Black MNCUS4E908W211273 WEAT 168446 4x4 A/T Ford Everest 3.0L 2008 Black MNCUS4E908W210507 WEAT 164234 4x4 A/T Ford Everest 3.0L 2008 Cool White MNCUS4E908W209215 WEAT 154960 4x4 A/T In reply, please be informed as follows. THIAaD 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 an services; xxx xxx xxx" Thus, the tax exemption privilege of a diplomatic mission and its diplomatic agents does not include exemption from 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 (Tax Code) of 1997. 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 the Philippine Embassy and its personnel on their purchases of goods and services in the United States. 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: IaHDcT "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 EcaDCI Hence, under Notification No. 1639 dated 19 December 2007, with authority from the Ambassador of the United States to the Philippines, "Louis Berger Group, Inc." is recognized as an Implementing Agent of the USAID in the Philippines, and in whose favor the BIR has issued Certification No. 2008-016 dated 27 February 2008 and valid until 15 June 2009, 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 "Growth With Equity In Mindanao (GEM) III". Accordingly, sale of goods and services by VAT-registered suppliers to Louis Berger Group, Inc., to be used exclusively for the "Growth With Equity In Mindanao III" 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 RMC No. 40-2007, the herein purchase of locally-assembled 11 units of 2008 Ford Everest 3.0L 4X4 A/T by the Implementing Agent of the USAID, Louis Berger Group, Inc., for and in behalf of the US Embassy and in connection with the "Growth With Equity In Mindanao III" development assistance activity is subject to VAT at zero percent, provided that: the subject vehicles shall be registered in the name of USAID for the "Growth With Equity In Mindanao III" activity. (BIR Ruling No. ITAD-47-08 dated 30 June 2008) Furthermore, please note that all sales to the USAID's Implementing Agents in connection with the development assistance activities 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 obligated to pay to the seller, Provided, that aTSEcA (i) The amount of the VAT shall be shown as a separate item in the invoice or receipt; or (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 being issued on the basis of the foregoing facts as presented. However, if upon investigation, it will 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.) JAMES H. ROLDAN 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. TcIaHC