DA ITAD BIR Ruling No. 102-07

October 24, 2007 DA ITAD BIR RULING NO. 102-07 Section 109 (K), National Internal Revenue Code of 1997; Section 10, Article 3, Convention on the Privileges and Immunities of the Specialized Agencies of the UN; Section 9, Article of Agreement of the IFC; BIR ITAD No. ITAD 46-07 International Finance Corporation 11 Floor, Tower One Ayala Triangle, Ayala Avenue 1226 Makati City Attention: Ms. Maricar Solis Gentlemen : This refers to your e-mail dated July 18, 2007 inquiring on the value-added tax (VAT) zero rating and other tax immunities of the International Finance Corporation (IFC), attaching therewith the following documents: 1. Letter dated February 18, 1977 to the Department of Finance (DOF) on the opening of the IFC office in the Philippines and to which the government, through the DOF, acceded; 2. Articles of Agreement of the IFC dated April 1993; 3. Convention on the Privileges and Immunities of the Specialized Agencies of the United Nations dated November 21, 1947 (UN Convention); and 4. VAT Review Committee Ruling No. 109-99 dated November 22, 1999. In reply, please be informed that pursuant to the Articles of Agreement of the IFC and the UN Convention, it is clear that the properties, funds, assets, income and authorized operations and transactions of the IFC itself as an agency , are not subject to tax. The pertinent provisions of the aforecited Agreements state that: "Articles of Agreement xxx xxx xxx SEC. 9. Immunities from Taxation. (a) The Corporation , its assets, property, income and its operations and transactions authorized by this Agreement, shall be immune from all taxation and from all customs duties. The Corporation shall also be immune from liability for the collection or payment of any tax or duty." (Emphasis supplied) AcISTE xxx xxx xxx" "Convention on the Privileges and Immunities of the Specialized Agencies of the United Nations dated November 21, 1947. Article III Property, Funds and Assets xxx xxx xxx Section 10. While the specialized agencies will not, as a general rule, claim exemption from excise duties and from taxes on the sale of movable and immovable property which form part of the price to be paid, nevertheless when the specialized agencies are making important purchases for official use of property on which such duties and taxes have been charged or chargeable, States parties to this Convention will whenever possible, make appropriate administrative arrangements for the remission or return of the amount of duty or tax." (Emphasis supplied) This Bureau has taken a position that based on the above provision on the imposition of taxes on the important purchases for official use by specialized agency of the UN, in lieu of the provision on the remission or refund of amount of tax due, a tax exemption privilege can be granted. (VAT Ruling No. 143-90 revoking VAT Ruling No. 176-89) Such being the case, the local purchases of property by IFC are exempt from VAT (and not subject to VAT at zero percent) pursuant to Section 109 (K) 1 of the National Internal Revenue Code (Tax Code) of 1997, as amended by Republic Act No. 9337. 2 However, a closer examination of the Articles of Agreement and the UN Convention reveals that only important purchases for official use of property on which taxes may be charged are exempt. Property, in the legal context, is defined as anything which is or may be the object of appropriation. 3 It may either be immovable and/or real property or movable and/or personal property. 4 The following are immovable property: (1) Land, buildings, roads and constructions of all kinds adhered to the soil; (2) Trees, plants, and growing fruits, while they are attached to the land or form an integral part of an immovable; (3) Everything attached to an immovable in a fixed manner in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object; (4) Statues, reliefs, paintings or other objects for use or ornamentation, places in buildings or lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements; (5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works; (6) Animal houses, pigeon houses, beehives, fish ponds or breeding places of similar nature, in case their owner has placed them or preserves them with the intention to have them permanently attached to the land and forming a permanent part of it; the animals attached in these places are included; (7) Fertilizer actually used on a piece of land; (8) Mines, quarries and slag dumps, while the matter thereof forms part of the bed and waters either running or stagnant; (9) Docks and structures which, though floating are intended by their nature and object to remain at a fixed place on the river, lake, coast; (10) Contracts for public works, and servitudes and other real rights over immovable property. 5 On the other hand, the following things are deemed to be personal property: (1) Those movables susceptible of appropriation which are not included in Article 415; (2) Real property which by any special provision of law is considered as personalty; (3) Forces of nature which are brought under control by science; CSTDEH (4) In general, all things which can be transferred from place to place without impairment of the real property to which they are fixed. 6 The following are also considered personal property: (1) Obligations and actions which have for their object movables or demandable sums; and (2) Shares of stock of agricultural, commercial and industrial entities, although they may have real estate. 7 The tests to determine whether an object is movable or not are: (1) Whether the object can be transported from place to place; (2) Whether the change of location can take place without injury to the immovable to which it may be attached; and (3) Whether it is not included in the enumeration found in Article 415 of the Civil Code. If the answer to all the above questions is in the affirmative, then the object is movable. With the above definitions and discussions on property, it is understood that purchases of something other than those enumerated cannot be considered purchase of property and are therefore not exempt from VAT. One example is the purchase of an airline ticket. A transaction which involves a contract of carriage of passengers whereby an airline company binds itself to transport the passenger who availed of the services from place of origin to place of destination usually evidenced by an airline ticket is clearly a purchase of service and not a purchase of property (immovable/real or movable/personal). Such being the case, this Office is of the opinion that the IFC, its properties, funds, interests and assets, its authorized operations and transactions are exempt from direct taxes. Moreover, important purchases of goods by the IFC are exempt from VAT. It must be understood, however, that the tax privilege accorded to IFC does not extend to its personnel. 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. aTICAc Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner Footnotes 1. SEC. 109. Exempt Transactions . The following shall be exempt from the value-added tax: STHAID 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. 2. An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237 and 288 of the National Internal Revenue Code of 1997, As Amended, And For Other Purposes. 3. Article 414, Civil Code of the Philippines. 4. Ibid. 5. Article 415, Ibid. 6. Article 416, Ibid. 7. Article 417, Ibid.