Australian Embassy

January 3, 2020 ITAD BIR RULING NO. 001-20 Secs. 106, 108 and 109, NIRC of 1997, as amended; Articles 5 & 7, GADC between GPH and GA Australian Embassy 23rd Floor, Tower 2, RCBC Plaza 6819 Ayala Avenue 1200 Makati City Gentlemen : This refers to your Note No. 378/19 dated 9 August 2019, which was indorsed by the Department of Foreign Affairs, requesting confirmation that Cardno Emerging Markets (Australia) Pty. Ltd. (" CEMAPL "), in its role as managing contractor of the ASEAN-Australia Counter-Trafficking (" ASEAN-ACT "), is exempt from value-added tax (" VAT ") on all program supplies, professional and technical materials and services provided for or procured for the implementation of the activities under the ASEAN-ACT pursuant to the General Agreement on Development Cooperation between the Government of the Republic of the Philippines (" GPH ") and the Government of Australia (" GA ") (" GADC "). It is represented that the GADC was signed in Sydney on 28 October 1994, was ratified and confirmed by Philippine President Fidel V. Ramos on 7 February 1995, and concurred in by the Philippine Senate per Senate Resolution No. 18 adopted on 22 January 1996; that a Subsidiary Arrangement was thereafter entered into between GPH and GA on 21 December 2018 for the creation and implementation of the ASEAN-ACT ; that the overarching goal to which the ten-year Program (2018-2028) will contribute is that the Association of the South East Asian Nations (ASEAN) Member States, including the Philippines, have effective justice systems that provide just punishment of traffickers and protect the human rights of the victims; that ASEAN-ACT is being implemented by CEMAPL as managing contractor, engaged by the GA through its Department of Foreign Affairs and Trade (" DFAT "), in collaboration with the Department of Justice ( DOJ ) of the GPH. In reply, please be informed that Sections 106 (A) (2) (b), 107 (A), 108 (B) (3) and 109 (1) (K) of the National Internal Revenue Code ("NIRC") of 1997, as amended, provide, viz. : HTcADC " Section 106. Value-Added Tax on Sale of Goods or Properties. (A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to twelve percent (12%) 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. xxx xxx xxx (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: xxx xxx xxx (b) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate. x x x" " SEC. 107. Value-Added Tax on Importation of Goods. (A) In General. There shall be levied, assessed and collected on every importation of goods a value-added tax equivalent to twelve percent (12%) based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody: Provided, That where the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes, if any. xxx xxx xxx" " SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties. xxx xxx xxx (B) Transactions Subject to Zero Percent (0%) Rate The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: CAIHTE xxx xxx xxx (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate; xxx xxx xxx" " SEC. 109. Exempt Transactions. (1) 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; xxx xxx xxx" Based on the foregoing provisions, sale of goods and/or services by a VAT-registered person, in general, is subject to 12% VAT, except when the buyer is a person or entity whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sale to zero percent (0%) rate. Meanwhile, importation of goods in general, is subject to 12% VAT, except when such importation is subject to exemption under international agreements to which the Philippines is a signatory. In this case, the international agreement being invoked as basis for zero-rating and VAT exemption is the GADC , which further permits the applicability of its terms to subsidiary arrangements aimed at carrying out its objectives. Article 5 of the GADC provides, to wit : aScITE " Article 5 Subsidiary Arrangements (1) In support of the objective of this agreement, the Government of Australia and the Government of the Republic of the Philippines, or their agencies, statutory authorities or organizations may conclude subsidiary arrangements in respect of specific activities. x x x" Significantly, the ASEAN-ACT was created by virtue of a subsidiary arrangement between the GA and GPH, through their respective agencies. Paragraph 1.1 thereof specifically made reference to the GADC with clear provision as to the applicability of the latter's terms to it. Consequently, all exemptions and privileges granted under the GADC shall likewise be extended to the subject subsidiary arrangement. Now, in granting VAT exemption to CEMAPL , reference shall be made to Article 7 (1) (a) of the GADC which provides for zero-rating with respect to project supplies, and professional and technical material and services imported into, or procured within, the Philippines, viz. : " Article 7 Project supplies and professional and technical material and services (1) In respect of project supplies and professional and technical material and services whether to be imported from outside or procured within the Philippines, the Government of the Republic of the Philippines shall: a) For direct supplies of domestic goods and services, subject them to zero rate for purposes of Value-Added Tax (VAT) ; exempt direct importation of goods from import duties, VAT and other taxes imposed in the Philippines (or pay such duties thereon); and be responsible for inspection fees, storage charges and all other levies, fees and charges;" (emphasis ours) DETACa In view of the foregoing, this Office is of the opinion and so holds that all program supplies, professional and technical material and services procured within the Philippines by CEMAPL for the implementation of the ASEAN-ACT shall be subject to VAT at zero percent (0%) rate pursuant to paragraph 1 (a), Article 7 of the GADC , in relation to Sections 106 (A) (2) (b) and 108 (B) (3) of the NIRC of 1997, as amended. Meanwhile, the direct importation of goods of CEMAPL in connection with ASEAN-ACT shall be VAT-exempt pursuant to paragraph 1 (a), Article 7 of the GADC , in relation to Section 109 (1) (K) of the NIRC of 1997, as amended. This privilege, however, shall be limited to the purchase of goods and services and importation of goods necessary to implement the ASEAN-ACT and GADC , and cannot be claimed by CEMAPL for any other purpose notwithstanding its designation as the managing contractor. This ruling is issued on the basis of facts represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein party is concerned. Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue