DA ITAD BIR Ruling No. 098-09

October 19, 2009 DA ITAD BIR RULING NO. 098-09 Sections 106 (A) (2) (c) and 109, NIRC of 1997, as amended; Section 4.106-5 (c) of RR No. 16-05, as amended by RR No. 4-07; Headquarters Agreement Between the Government of the Republic of the Philippines and the International Rice Research Institute; BIR Ruling No. 17-09 International Rice Research Institute UPLB Compound College Los Baos, Laguna Attention: Mr. Norman Macdonald Treasurer and Director for Management Services Gentlemen : This refers to your letter dated 14 July 2009, forwarded to this Office by the Department of Foreign Affairs and the Department of Finance, requesting for a value-added tax (VAT) exemption ruling on the official purchase by the International Rice Research Institute (IRRI) of motor vehicles, specifically described as follows: Make Model Color Engine Number Chassis Number Year 1. Toyota HILUX 2009 Freedom 2KD-7718099 MR0ES12G503022933 4X2 2.5L J M/T White 2. Toyota Coaster 2009 White 15B-1844055 JTGFH518X03001792 Documents submitted show that IRRI was established on 09 December 1959 at Los Baos, Laguna by virtue of a Memorandum of Understanding between the Government of the Republic of the Philippines and the Ford and Rockefeller Foundations as an autonomous philanthropic, tax-free, non-profit, non-stock organization designed to conduct research on the rice plant and on all phases of rice production with a view of attaining nutritive, economic and ecological benefits for the rice-consuming countries in Asia and other rice-growing areas of the world, through improvement in the quality and quantity of rice; that the status of IRRI as an international organization, as well as its charter, was recognized in the Agreement Recognizing the International Legal Personality of the International Rice Research Institute (1995 Agreement) signed by the authorized representatives of 19 states on 19 May 1995 and opened for signature at Manila, Philippines to other states and eligible international organizations for a period of one (1) year from the said date and now open to accession by any state or eligible international organization; that the Republic of the Philippines has ratified the 1995 Agreement on 28 July 2005; that a Headquarters Agreement was entered into between the Republic of the Philippines and the IRRI on 24 April 2006 which was ratified by the Senate on 28 April 2008 and entered into force on 14 May 2008. CSTEHI In reply, please be informed that Section 106 (A) of the National Internal Revenue Code (NIRC) of 1997, as amended, provides, viz. : "SEC. 106. Value-added Tax on Sale of Goods or Properties. (A) Rate and Base Tax. There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor: Provided, That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve-percent (12%), . . ." In relation to, Section 109 (K) of the NIRC provides, viz. : "SEC. 109. Exempt Transactions. (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from value-added tax: xxx xxx xxx (K) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under Presidential Decree No. 529;" Article IV, paragraph 5, Section 4.5.1 of the "Headquarters Agreement Between the Government of the Republic of the Philippines and the International Rice Research Institute" ("Headquarters Agreement") signed by the Secretary of Foreign Affairs Alberto G. Romulo, for the Republic of the Philippines and Dr. Robert S. Zeigler, Director-General of IRRI on 24 April 2006, concurred in by the Philippine Senate in a resolution 1 adopted on 28 April 2008 and which entered into force on 14 May 2008 provides: "ARTICLE IV IMMUNITIES AND PRIVILEGES 5. Taxation, Customs and Quarantine Section 4.5.1. The provisions of existing laws or ordinances to the contrary notwithstanding, the Institute, or its successors, shall be exempt from the payment of all taxes provided under existing laws or ordinances. This exemption shall extend to goods imported and owned by the Institute which are intended for its official use. (emphasis supplied)" HACaSc As to the scope of the term 'all taxes', the Supreme Court in Commissioner of Internal Revenue vs. Philippine Long Distance Telephone Company, G.R. No. 140230 15 December 2005 (CIR vs. PLDT), declared that the correct lesson from the case of Maceda vs. Macaraig, Jr. , 2 is that ". . . an exemption from 'all taxes' excludes indirect taxes, unless the exempting statute, like NPC's charter, is so couched as to include indirect tax from exemption". Hence, it would appear that the exemption accorded to IRRI under the Headquarters Agreement covers only direct taxes, VAT not included being an indirect tax. Section 4.106-5 (c) of Revenue Regulations (RR) No. 16-2005, as amended by RR No. 4-07 in turn provides: "SEC. 4.106-5. Zero-Rated Sales of Goods or Properties. . . . . The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) . . . (b) . . . (c) Sales to Persons or Entities Deemed Tax-exempt Under Special Law or International Agreement. Sale of goods or property to persons or entities who are tax-exempt under special laws or international agreements to which the Philippines is a signatory, such as, Asian Development Bank (ADB), International Rice Research Institute (IRRI), etc., shall be effectively subject to VAT at zero-rate." (emphasis supplied) The above revenue regulations specifically recognizes IRRI as a tax-exempt entity under an international agreement and specifically subjects the sale of goods or property to it as effectively subject to VAT at zero-rate, clearly showing that the IRRI is considered as falling under the exception contemplated under the principle enunciated in CIR vs. PLDT, ". . . unless the exempting statute . . . is so couched as to include indirect tax from exemption". In view of all of the foregoing, this Office is of the opinion and so holds that the aforementioned tax-free purchase of the two (2) units of motor vehicle described above, for the official use of the IRRI, is confirmed to be a valid tax-free purchase pursuant to Section 109 (K) of the NIRC of 1997, as amended and the Headquarters Agreement. The VAT exemption on the subject purchase is interpreted to mean that the direct sale of goods and services to IRRI is considered effectively zero-rated pursuant to Section 106 (A) (2) (c) of the same NIRC and Section 4.106-5 (c) of RR No. 16-05 as amended by RR No. 4-2007. It is hereby understood that this exemption applies only to vehicles purchased under the name of the International Rice Research Institute and for its official use. 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 parties are concerned. CDTHSI Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service Footnotes 1. Resolution No. 64 adopted by the Senate on 28 April 2008. 2. Ernesto M. Maceda vs. Hon. Catalino Macaraig, Jr., in his capacity as Executive Secretary, Office of the President, Hon. Vicente Jayme, etc., et al., G.R. No. 88291, 08 June 1993.