ITAD BIR Ruling No. 008-09

March 31, 2009 ITAD BIR RULING NO. 008-09 DFA Indorsement dated 04 November 2008; Agreement between PECC and FETPC dated 19 June 1975; Exchange of Letters between MECO and TECO dated 27 October 2005, 08 May 2006 and 24 May 2006 Manila Economic and Cultural Office 41st Floor, Tower 1, RCBC Plaza 6819 Ayala Avenue Makati City Attention: Ma. Isabel O. Golamco Director and Chief Finance Officer Gentlemen : This has reference to the letter 1 from MANILA ECONOMIC AND CULTURAL OFFICE (MECO), referred to this Office by the Immunities and Privileges Division, Office of Protocol and State Visits of the Department of Foreign Affairs (DFA), requesting for the issuance of value-added tax (VAT) exemption certificates for TAIPEI ECONOMIC AND CULTURAL OFFICE IN THE PHILIPPINES (TECO) and its staff, pursuant to the Exchange of Letters between MECO and TECO amending the Agreement entered into by the parties on 19 June 1975. ADHaTC Documents submitted to this Office show that in a meeting 2 between the predecessor entities of TECO [Pacific Economic and Cultural Center (PECC)] and MECO [Far East Trade Promotion Center (FETPC)] on 13-19 June 1975, an agreement 3 was reached on the establishment of PECC offices in Manila, Cebu and Davao and FETPC office in Taipei and two (2) other locations; that the Agreement sets out the functions of the respective offices; and that the Agreement gave both parties considerable latitude in according appropriate and reciprocal courtesies to enable them to perform their functions efficiently, as shown in the copy of the Agreement dated 19 June 1975 (hereinafter, 1975 Agreement), which states: "AGREEMENT To promote the economic, trade, cultural and other substantive and practical relations between the peoples of the two countries, representative of the Pacific Economic and Cultural Center (hereafter referred to as PECC) and of the Far East Trade Promotion Center (hereafter referred to as FETPC) met in Taipei from June 13-19, 1975 and reached agreement as follows: 1) The PECC shall establish three Offices in Manila, Cebu and Davao; and the FETPC shall establish an Office in Taipei and, if so desired, Offices at two other locations to be designated; xxx xxx xxx 5) The Offices of both sides and their personnel shall enjoy normal courtesies. xxx xxx xxx 7) The functions of the Offices of the PECC and the FETPC include the following: a) Looking after the interests of their nationals and legal persons; b) Promoting economic and trade relations and tourism; c) Negotiating or assisting to negotiate and signing non-governmental agreements in regard to trade, investment, banking and technical cooperation, etc.; d) Assisting in handling cases involving fishermen and fishing vessels; e) Assisting in handling matters in respect of sea and air transportation and telecommunication; EATcHD f) Promoting academic, cultural and sports interchanges; g) Handling other matters relating to the promotion of substantive and practical relations." (emphasis supplied) It is further shown that effective 08 May 2006, pursuant to Exchanges of Letters between MECO and TECO which transpired in 2005-2006 4 the 1975 Agreement was amended. As part of said amendment, exemption from VAT for the offices of both parties and their regular personnel have been agreed to be granted as part of the "normal courtesies" under paragraph 5 of the 1975 Agreement. In its letters dated 05 September 2008 and 07 October 2008 addressed to Hon. Tomas I. Alcantara, Chairman/Chief Executive Officer of MECO, TECO through its Ambassador Donald C.T. Lee, affirmed that pursuant to the Exchange of Letters between the two Parties in 2006 amending the 1975 Agreement, the Government of Taiwan, Republic of China is implementing the provision granting to MECO and its regular personnel the privilege of VAT exemption, thereby confirming reciprocity as the basis for TECO's request for VAT exemption in the Philippines. Moreover, the DFA in an indorsement to this Bureau dated 04 November 2008, recommended favorable action on the request for issuance of VAT exemption certificates (VECs) for TECO and its staff on the basis of reciprocity and pursuant to the Exchange of Letters between MECO and TECO. Likewise, in a letter dated 05 January 2009, in response to this Bureau's request for confirmation on whether TECO is an entity to which reciprocity may be applied as regards the granting of VAT exemption in favor of its official staff and regular personnel in the Philippines, the DFA confirmed that pursuant to the foregoing Exchange of Letters, reciprocity may be applied for the purpose of granting VAT exemption to TECO's personnel. Furthermore, the DFA reiterated in the same letter that MECO and its regular personnel in Taiwan are already being given the same privilege in accordance with the 1975 Agreement. Accordingly, the DFA list of entities entitled to VAT exemption on local purchase of goods and services in the Philippines submitted was amended on November 2008 to include the Taipei Economic and Cultural Office (TECO) under the heading "Other Exempt Entities". TSEHcA Also submitted to this office are the following documents: 1. A letter from the DFA to the Office of the President dated 10 October 2005 confirming acceptance/clearance by the DFA of the amendments to the 1975 Agreement between MECO and TECO, providing in part that: ". . . the grant of reciprocal privileges and immunities is acceptable , . . ." 2. A letter from the Office of the President to MECO dated 17 October 2005 stating that: ". . . Thus, based on the 1975 Agreement and the clarification made by the DFA and in the light of the need to service the needs of our overseas foreign workers (OFWs) in Taiwan more effectively, MECO has the authority to enter into the above arrangements with TECO concerning the above proposed changes on a reciprocal basis. As clarified by the DFA, the 1975 Agreement provides them with considerable latitude in undertaking these measures as part of the normal courtesies they afford to each other. . . ." In reply, please be informed that purchases of goods and/or services in the Philippines are, in general, subject to the VAT prescribed under Sections 106 and 108 of the National Internal Revenue Code of 1997, as amended. However, applying the principle of reciprocity, this Office may confirm entitlement to VAT exemption of TECO and/or its personnel on their local purchase of goods and/or services in the Philippines upon favorable indorsement from the DFA indicating that reciprocity exists and may be used as a basis for the grant of exemption to TECO as an entity. In this regard, we note that DFA's letter dated 05 January 2009 provides that pursuant to the aforementioned Exchange of Letters between MECO and TECO (which amended the 1975 Agreement) reciprocity may be applied for the purpose of granting VAT exemption, and we read this indorsement in connection with Executive Order No. 313 (EO 313) (Prohibiting Philippine Government Officials to Visit Taiwan or to Receive Calls by Visiting Taiwanese Officials) and Memorandum Circular No. 148 (MC 148) dated 27 February 1992, which implements this Order. Pertinent portion of EO 313 and MC 148 provides: "EXECUTIVE ORDER NO. 313 PROHIBITING PHILIPPINE GOVERNMENT OFFICIALS TO VISIT TAIWAN OR TO RECEIVE CALLS BY VISITING TAIWANESE OFFICIALS xxx xxx xxx NOW, THEREFORE, I, CORAZON C. AQUINO, President of the Philippines, by virtue of the powers vested in me by the Constitution, do hereby order, as a matter of policy, the following: 1. No official of the Philippine government may visit Taiwan. 2. No official of the Philippine government may receive Taiwanese officials visiting the Philippines. 3. No official activity relating to Taiwan shall be carried out without the clearance of the Department of Foreign Affairs. This Executive Order shall take effect immediately." (Emphasis supplied) ITcCaS "MEMORANDUM CIRCULAR NO. 148 IMPLEMENTING ORDER EO NO. 313, SERIES OF 1987 xxx xxx xxx 7. No agreements, memoranda of understanding, exchange of notes or similar documents shall be concluded with any Taiwanese organizations/agency unless the text thereof has first been cleared with the Department of Foreign Affairs (DFA) and the authority to sign has been secured from the Office of the President. xxx xxx xxx." (Emphasis supplied) Evident from the abovequoted provisions is the requirement for a DFA clearance before any agreement or exchange of notes can be concluded with Taiwanese organizations and that the authority of the signatories to a concluded exchange of notes must have first been secured from the Office of the President. In the case of the Exchange of Notes amending the 1975 Agreement, the grant of authority as required under EO No. 313 and MC No. 148 is embodied in the following: 1. The DFA's letter to the Office of the President dated 10 October 2005 2. Letter from the Office of the President to MECO dated 17 October 2005 Moreover, it is worthy to note that TECO is included in the DFA list of entities entitled to VAT exemption on local purchase of basic goods and services in the Philippines on the basis of reciprocity, issued on November 2008 and January 2009. TaDSHC In sum, this Office is of the opinion that TECO and its personnel are exempt from VAT on their purchases of goods and services in the Philippines on the basis of reciprocity and pursuant to the 1975 Agreement between MECO and TECO and the Exchange of Letters amending the same. This ruling is being issued on the basis of the foregoing facts and documents as represented. 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.) SIXTO S. ESQUIVIAS IV Commissioner of Internal Revenue Footnotes 1. Reference No. MM08-10-33 dated 30 October 2008. 2. Participated in by The Hon. Chou Tung-hun, Director of East Asian and Pacific Affairs Department, Ministry of Foreign Affairs, for the Government of the Republic of China, and H.E. Ismael D. Lapus, Ambassador and The Hon. Jovito Rivera, General Manager of the National Export Trading Corporation, for the Government of the Republic of the Philippines. 3. Signed by The Hon. Liu Tsung-han, for PECC and The Hon. Jovito Rivera, for FETPC. 4. Letter from MECO to TECO dated 27 October 2005; Letter from TECO to MECO dated 08 May 2005 ; Letter from MECO to TECO dated 24 May 2006.