DA ITAD BIR Ruling No. 114-07

November 20, 2007 DA ITAD BIR RULING NO. 114-07 Paragraph 4 (a), Diplomatic Exchange of Notes dated May 6, 2002; Art 5, Agreement between the Govt. of the Federal Republic of Germany and the Govt. of the Republic of the Philippines; Sec. 109 (k), National Internal Revenue Code of 1997, as amended; BIR Ruling No. DA-ITAD-149-05 Embassy of the Federal Republic of Germany 25th Floor, The RCBC Plaza, Tower 2 6819 Ayala Avenue Makati City Attention: Klaus Tesch First Secretary Gentlemen : This has reference to your Note Verbale WZ 445.11/Auto KFZ No. 087/2007 dated September 14, 2007 indorsed to this Office by the Department of Finance and the Department of Foreign Affairs (DFA), Office of Protocol, requesting for exemption from payment of taxes on the local purchase of one (1) motor vehicle, for the official use of the Private Sector Development Program under the project of GDC-GTZ Office of the German Embassy, specifically described as follows: ISCDEA Type of use: Official use Organization: German Development Cooperation-German Technical Cooperation (GDC-GTZ) 9/F, PDCP Bank Center, L.P. Leviste corner V.A. Rufino Streets, Salcedo Village, Makati City Make: one (1) unit Toyota Innova E Diesel 2.5L M/T Model year: 2007 Color: Silver Ash Engine No.: 2KD-9947277 Frame No.: KUN40-5018277 In reply, please be informed that Section 109 of the National Internal Revenue Code of 1997 (NIRC), as amended by Section 7 of Republic Act No. 9337 dated November 1, 2005 , provides, viz : aDcHIS "SEC. 109. Exempt Transactions . Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the 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;" SHCaEA Based on the Section 109 above, a transaction is exempt from VAT when a special law or an international agreement to which the Philippines is a signatory provides for such exemption. The Agreement between the Government of the Federal Republic of Germany and the Government of the Republic of the Philippines Concerning Technical Co-operation 1 executed on September 7, 1971, with Diplomatic Exchange Notes dated May 6, 2002 partakes the nature of an international agreement as required under Section 109. Paragraph 4 (a) of the Diplomatic Exchange of Notes dated May 6, 2002 and which provides as follows, is, in effect, a grant of exemption from VAT: "4. The Government of the Republic of the Philippines shall make the following contributions: It shall (a) exempt the material and motor vehicles supplied for the Office from taxes, licenses, harbour dues, import and export duties and other public charges, as well as storage fees, and ensure that such material is cleared by customs without delay. The aforementioned exemptions shall, with regard to value-added tax (VAT), also apply to material and services (including consulting services) procured in the Republic of the Philippines, as well as to the renting of office premises and accommodation for seconded experts; (Emphasis supplied) ADaSEH In view thereof, this Office is of the opinion and so holds that the purchases made by GDC-GTZ of materials and motor vehicles in the Philippines under the Agreement between the Government of the Federal Republic of Germany and the Government of the Republic of the Philippines Concerning Technical Co-operation executed on September 7, 1971, with Diplomatic Exchange Notes dated May 6, 2002, are exempt from VAT, pursuant to Sec. 109 (K) of the NIRC of 1997, as amended. Hence, your herein request for exemption from VAT and ad valorem taxes on the local purchase of one (1) unit Toyota Innova E Diesel 2.5L M/T, for the official use of the Private Sector Development Program under the project of GDC-GTZ is hereby granted. (BIR Ruling No. DA-ITAD-149-05 dated November 30, 2005) ACETID Very truly yours, (SGD.) GREGORIO V. CABANTAC Deputy Commissioner Footnotes 1. Article 1 of the Agreement states that the Contracting Parties "may conclude arrangements concerning individual projects of technical co-operation."