USAID Project — "The Microenterprise Access to Banking Services-IV Program"

November 7, 2008 DA ITAD BIR RULING NO. 096-08 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. John Owens Chief of Party USAID MABS Program SUBJECT : USAID Project "The Microenterprise Access to Banking Services-IV Program" Gentlemen : This refers to your Diplomatic Note No. 1103 dated 20 August 2008, forwarded to this Office by the Department of Foreign Affairs, requesting for a tax-free purchase of two (2) locally-assembled motor vehicles specifically described hereunder, for the official use of the "Chemonics International, Inc.", as implementing agent of the United States Agency for International Development (USAID) for the project "The Microenterprise Access to Banking Services-IV Program (MABS)", 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 4x2 2008 Cool white MNCLS4D108W211224 WLAT 950295 A/T 2.5L Ford Everest 4x2 2008 Cool white MNCLS4D108W211094 WLAT 948211 A/T 2.5L In reply, please be informed as follows. 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 and services; HEDSCc 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: "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) CDHSac 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 Hence, under Notification No. 0758 dated 17 June 2008, with authority from the Ambassador of the United States to the Philippines, "Chemonics International, Inc." is recognized as an Implementing Agent of the USAID in the Philippines. 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 "The Microenterprise Access to Banking Services-IV Program". Accordingly, sale of goods and services by VAT-registered suppliers to Louis Berger Group. Inc., to be used exclusively for "The Microenterprise Access to Banking Services-IV Program" of the USAID, shall be subject to value-added tax (VAT) at zero percent (0%) rate pursuant to RMC No. 40-2007. AICEDc Therefore, pursuant to RMC No. 40-2007, the herein purchase of locally-assembled 2 units of 2008 Ford Everest 4X2 A/T 2.5L by the Implementing Agent of the USAID, Chemonics International, Inc., for and in behalf of the US Embassy and in connection with "The Microenterprise Access to Banking Services-IV Program" 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 Microenterprise Access to Banking Services-IV Program" 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 (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. DCcHAa 3. Section 6, ibid. 4. Section 9, ibid.