Embassy of Japan

September 14, 2023 ITAD BIR RULING NO. 011-23 Sections 109 (K), 106 (2) (c) and 108 (B) (3), Tax Code; Articles VI, IX and XI, ATC Embassy of Japan 2627 Roxas Boulevard 1300 Pasay City Gentlemen : This refers to your Note No. 378-23 dated June 22, 2023 forwarded to this Office by the Office of Protocol of the Department of Foreign Affairs (DFA-OP), requesting for the issuance of Value-Added Tax (VAT) Certificate confirming the VAT exemption of Japan International Cooperation Agency (JICA) , pursuant to the Agreement on Technical Cooperation between the Government of the Republic of the Philippines and the Government of Japan (ATC) . HTcADC Documents submitted show that the ATC was signed on April 4, 2006 by the governments of Japan and the Philippines to promote technical cooperation between the two countries. It was ratified by the President of the Republic of the Philippines on December 23, 2010, concurred in by the Philippine Senate in its Resolution No. 36 adopted on March 14, 2011, and entered into force on April 8, 2011 upon receipt by the Government of Japan of the written notification from the Government of the Republic of the Philippines of the completion of necessary domestic procedures for the entry into force of the ATC. JICA is a Japanese government institution founded in 1974 to coordinate Japan's official development assistance. Its Philippine office is located in Makati City and is registered under the jurisdiction of Revenue District Office No. 50-South Makati. Pursuant to the ATC, the Government of Japan, through JICA, will provide technical training to Philippine nationals in Japan; dispatch to the Philippines experts, Japanese missions that will conduct surveys of economic and social development projects of the Philippines, Japanese volunteers with a wide range of technical skills and abundant experience; provide equipment, machinery and materials; and provide other forms of technical cooperation, as may be decided upon by mutual consent between the two governments. In reply, please be informed that Section 109 (K) of the National Internal Revenue Code of 1997, (Tax Code) as amended , provides: "SEC. 109. Exempt Transactions . (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from value-added tax: x x x CAIHTE (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, Sections 106 (2) (b) and 108 (B) (3) of the Tax Code, provide: "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 (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." 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. 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 shall 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, Articles IX and XI of the ATC provide, to wit: Article IX 1. (1) In case JICA provides the Government of the Republic of the Philippines with equipment, machinery and materials, the Government of the Republic of the Philippines shall exempt such equipment, machinery and materials 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 . The equipment, machinery and materials mentioned above shall become the property of the Government of the Republic of the Philippines upon being delivered c.i.f. at the port of the disembarkation to the executing agencies of the Government of the Republic of the Philippines. (2) In case JICA provides the Government of the Republic of the Philippines with equipment, machinery, materials and services from local sources, the Government of the Republic of the Philippines shall exempt such equipment, machinery, materials and services from taxes including value-added tax and fiscal charges in respect of the local purchase . aScITE xxx xxx xxx Article XI xxx xxx xxx 2. The Government of the Republic of the Philippines shall: xxx xxx xxx (1) (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 xxx xxx xxx" (Underscoring and emphasis ours) Based on the above provisions, the Philippine Government is obliged to grant VAT exemption privileges to JICA on the latter's importation and local purchases. In view thereof, JICA shall be exempt from VAT on its importation and/or local purchase of equipment, machinery and materials it will provide to the Philippine Government, including its local purchase of motor vehicles, professional and technical services which are necessary for carrying out its functions. Moreover, the sales made by VAT-registered local suppliers to JICA are subject to VAT at zero percent (0%) rate pursuant to Sections 106 (2) (b) and 108 (B) (3) of the Tax Code, as amended. This ruling is issued to maintain and recognize the exemption accorded by law to entitled entities, like JICA in this case, through the application of VAT zero-rating on the sales of goods and services made by VAT-registered suppliers to such exempt entities. DETACa This ruling is being issued on the basis of the foregoing facts as represented. However, if it will be disclosed upon investigation 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.) ROMEO D. LUMAGUI, JR. Commissioner of Internal Revenue