ITAD BIR Ruling No. 010-17

March 6, 2017 ITAD BIR RULING NO. 010-17 Sections 109 (K), 106 (2) (c) and 108 (B) (3), Tax Code; Article XI, PH-Japan TCA Japan International Cooperation Agency 40th Floor Yuchengco Tower, RCBC Plaza Ayala Avenue, Makati City Gentlemen : This refers to your note no. 575-16 dated 12 December 2016, referred to this office by the Department of Finance and the Department of Foreign Affairs, requesting exemption from the payment of ad valorem and value-added taxes (VAT) on the local purchase of a motor vehicle for the official use of the Japan International Cooperation Agency (JICA), specifically described, as follows: Type of use: Official Make: Toyota Hi-Ace S Grandia 3.0L DSL A/T1T-ZO Model year: 2017 Color: White Pearl Frame number: JTFRT13P2G8008973 Engine number: 1KD-2656726 In reply, please be informed of Section 109 (K) of the National Internal Revenue Code of 1997, as amended (Tax Code), which provides: "SEC. 109. Exempt Transactions. (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from 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;" Moreover, Section 106 (2) (c) of the Tax Code, provides: "SEC. 106. Value-Added Tax on Sale of Goods or Properties. xxx xxx xxx (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: xxx xxx xxx (c) 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" Further thereto, Section 108 (B) (3) of the Tax Code, provides: "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. 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;" Based on the foregoing, the sale of goods and services by VAT-registered entities to JICA, can be subject to VAT at zero percent (0%) rate pursuant to Sections 106 (2) (b) and 108 (B) (3) of the Tax Code, in relation to Section 109 (K) of the same Code if a special law or an international agreement effectively subjects such sales of goods and services to zero rate. In connection thereto, there is the Agreement on Technical Cooperation between the Government of the Republic of the Philippines and the Government of Japan 1 (PH-Japan TCA). Its Article XI provides, as follows: "Article XI 1. It is confirmed that JICA may maintain its overseas office in the Republic of the Philippines (hereinafter referred to as the "Office") with a resident representative and his/her staff to be dispatched from Japan (hereinafter referred to as "Representative and the Staff" respectively) who perform the duties to be assigned to them by JICA relative to the technical cooperation programs under this Agreement in the Republic of the Philippines. 2. The Government of the Republic of the Philippines shall: (1) (a) exempt the Representative and the Staff from taxes including income tax and fiscal charges imposed on or in connection with salaries and any allowances remitted to them from abroad concerning the performance of their duties under his Agreement; (b) exempt the Representative, the Staff and their families from consular fees, taxes including value added tax, customs duties and fiscal charges, as well as from the requirements of obtaining certificate of foreign exchange coverage, within six months of their arrival in the Republic of the Philippines, in respect of the importation of: (i) luggage; (ii) personal effects, household effects and consumer goods; and (iii) one motor vehicle every five years per Representative and per Staff assigned to stay in the Republic of the Philippines; (c) exempt the Representative and the Staff who do not import any motor vehicle into the Republic of the Philippines from taxes including value added tax and fiscal charges in respect of the local purchase of one motor vehicle per Representative and per Staff, provided that such motor vehicle is purchased within six months of his/her arrival in the Republic of the Philippines; (d) facilitate the registration of the motor vehicles mentioned in (b)(iii) and (c); (e) permit the Representative, the Staff and their families to enter, leave and sojourn in the Republic of the Philippines for the duration of their assignment therein, offer them the convenience for procedures of alien registration requirements, and exempt them from consular fees; (f) issue identification cards and special passes to the Representative and the Staff to enter airport/seaport beyond passport control point to receive and send off the Experts, members of the Missions, the Senior Volunteers and the JOCV; (g) offer the Representative, the Staff and their families the convenience for acquisition of car driving license; and (h) carry out other measures necessary for the performance of the duties of the Representative and the Staff. (2) (a) exempt the Office from consular fees, taxes including value added tax, customs duties and fiscal charges, as well as from the requirements of obtaining certificate of foreign exchange coverage, in respect of the importation of the equipment, machinery, motor vehicles and materials necessary for activities of the Office; (b) exempt the Office from taxes including value added tax and fiscal charges in respect of the local purchase of the equipment, machinery, motor vehicles, materials and professional and technical services necessary for the functions of the Office; and (c) exempt the Office from taxes including income tax and fiscal charges imposed on or in connection with office expenses remitted from abroad. x x x" (Underscoring ours) Based on the foregoing, tax exemption privileges are accorded by the Philippine Government to the JICA Office in the Philippines, on its local purchase of motor vehicles which are necessary for its functions. In view thereof, this Office is of the opinion that the JICA Office in the Philippines is exempt from VAT on its local purchase of a 2017 Toyota Hi-Ace S Grandia 3.0L DSL A/T 1T -ZO, for its official use, pursuant to Section 109 (K) of the Tax Code and Article XI of the PH-Japan TCA. Moreover, the sales by VAT registered local suppliers to JICA, are subject to zero percent (0%) VAT pursuant to Sections 106 (2) (c) and 108 (B) (3) of the Tax Code. This ruling is being issued on the basis of the foregoing facts 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.) CAESAR R. DULAY Commissioner of Internal Revenue Footnotes 1. Ratified by the Philippine President on 23 December 2010; concurred to by the Philippine Senate in its Resolution No. 36 adopted on 14 March 2011; entered into force on 08 April 2011 upon receipt by the Government of Japan of the Philippine notification as conveyed by the Embassy of Japan in its Note Verbale dated 08 April 2011.