International Monetary Fund

April 28, 2023 ITAD BIR RULING NO. 008-23 Sections 106, 108 and 109 of the National Internal Revenue Code, as amended; Sec. 9 (a), Art. IX of the Articles of Agreement of the International Monetary Fund International Monetary Fund Office of the Resident Representative Room 407, 5-Storey Building Bangko Sentral ng Pilipinas A. Mabini Street, Manila Attention: Ragnar Gudmundsson Resident Representative Gentlemen : This refers to your letter dated 18 April 2023 requesting confirmation of the tax exemption privileges of the International Monetary Fund ("IMF" or the "Fund"), specifically Value-Added Tax (VAT), on the availment of services from vendors and suppliers. SCaITA In reply, please be informed as follows: I. Exemption from Value-Added Tax (VAT) Section 109 (1) (K) of the National Internal Revenue Code of 1997 ("Tax Code"), as amended, states that: 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 (Underscoring supplied) Relative thereto, Section 9 (a), Article IX of the Articles of Agreement of the IMF, provides: "Article IX STATUS, IMMUNITIES, AND PRIVILEGES xxx xxx xxx SECTION 9. Immunities from Taxation. (a) The Fund, 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 Fund shall also be immune from liability for the collection or payment of any tax or duty. cHECAS xxx xxx xxx (Emphasis supplied) It must be noted that the Philippines was an original signatory to Articles of Agreement of the IMF. The membership of the Philippines to the Fund was authorized by Commonwealth Act No. 699 dated 20 November 1945. The treaty entered into force on 27 December 1945 and was proclaimed by the President through Proclamation No. 27, s. 1945. Considering that the Philippines is a signatory to the Articles of Agreement of the IMF, the immunity from taxation of the assets, property, income, official operations and transactions of the IMF under the same is binding upon, and is recognized by, the Philippines. In this regard, the purchases of goods and services by the IMF from VAT-registered suppliers are considered zero-rated for VAT purposes pursuant to Sections 106 (A) (2) (b) and 108 (B) (3) of the Tax Code, as amended by Republic Act No. 10963, otherwise known as the Tax Reform for Acceleration and Inclusion Act, thus: SEC. 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 and entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate. xxx xxx xxx SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties. x x x (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: aTHCSE 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 The purpose of these provisions is to maintain and recognize the exemption accorded by law to exempt entities such as the IMF by treating the sales of VAT-registered suppliers to such entities as effectively zero-rated transactions and are, therefore, subject to zero percent (0%) VAT. This is inferred from the fact that under the above Tax Code provisions on zero-rating, it is not the person/entity accorded exemption under the law or international agreement who is given the zero-rating privilege and who benefits from the privilege of zero-rating but the sales by VAT-registered suppliers to such person/entity. II. Exemption from Income Tax In general, an income tax of 25% is imposed upon the taxable income derived during each taxable year from all sources within the Philippines by a foreign corporation. However, Section 32 (B) of the Tax Code excludes from the computation of gross income any income that is specifically exempt under a valid and effective tax treaty, to wit: SEC. 32. Gross Income. xxx xxx xxx (B) Exclusions from Gross Income . The following items shall not be included in gross income and shall be exempt from taxation under this Title: 1 xxx xxx xxx (5) Income Exempt under Treaty . Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines. Considering that the Articles of Agreement of the IMF expressly provides for the exemption of the IMF from all forms of tax and that the Philippines recognizes said Agreement as a treaty, this Bureau hereby confirms the exemption of the IMF from income tax and consequently from withholding tax. In sum, the IMF, its assets, property, income, operations and transactions, shall be exempt from all taxes, pursuant to Sections 109 (1) (K) and 32 (B) of the Tax Code, in relation to Article IX, Section 9 (a) of the Articles of Agreement of the IMF, and consequently exempt from withholding tax. Moreover, sales of goods and services by VAT-registered suppliers to the IMF are effectively zero-rated under Sections 106 (A) (2) (b) and 108 (B) (3) of the Tax Code. AHDacC Very truly yours, ROMEO D. LUMAGUI, JR. Commissioner of Internal Revenue By: (SGD.) MARISSA O. CABREROS Deputy Commissioner Legal Group Officer-in-Charge Footnotes 1. TITLE II TAX ON INCOME.