Sakamoto Takema

October 17, 2023 ITAD BIR RULING NO. 012-23 Sections 106 (2) (c) and 108 (B) (3), Tax Code; Article XI, ATC Sakamoto Takema Chief Representative Japan International Cooperation Agency, Philippines 40th Floor, Yuchengco Tower, RCBC Plaza 6819 Ayala Avenue 1200 Makati City Dear Mr. Takema : This refers to your letter dated September 20, 2023, requesting clarification on whether the zero-rated value-added tax (VAT) accorded to the Japan International Cooperation Agency (JICA) in the Philippines may include general purchase of goods and services, office space lease, building maintenance fees, and others which are necessary for the functions and activities of the JICA office, pursuant to Article XI, Paragraph 2 (2) (c) of the Agreement on Technical Cooperation between the Government of the Republic of the Philippines and the Government of Japan (ATC) . TIADCc In reply, please be informed that Sections 106 (2) (b) and 108 (B) (3) of the National Internal Revenue Code of 1997 (Tax Code), as amended , 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. cSEDTC In connection thereto, Article XI 2 (2) (c) of the ATC provides, to wit: "Article XI xxx xxx xxx 2. The Government of the Republic of the Philippines shall: xxx xxx xxx (2) (a) exempt the Office from consular fees, taxes including value-added tax, customs duties and fiscal charges, as well as 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; xxx xxx xxx (c) exempt the Office from taxes including income tax and fiscal charges imposed on or in connection with office expenses remitted from abroad." Based on the above provisions, the Philippine Government is obliged to grant VAT exemption privileges to JICA on the fiscal charges imposed in connection with office expenses remitted from abroad. Accordingly, it is hereby ruled that payments made to VAT-registered local lessors/suppliers for expenses necessary for the functions and activities of JICA, including, but not limited to, office space rental and maintenance fees, 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 supplements BIR Ruling No. ITAD-011-23 dated 04 September 2023, and 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