ITAD BIR Ruling No. 015-15

February 24, 2015 ITAD BIR RULING NO. 015-15 Section 108 (B) (3), 1997 NIRC, as amended; Article 3, PH-IOM Cooperation Agreement Evelyn D. Austria-Garcia Assistant Secretary, Office of Protocol Department of Foreign Affairs 2330 Roxas Blvd., Pasay City Dear Assistant Secretary Austria-Garcia : This refers to Note Verbal dated 10 July 2014 from the International Organization for Migration (IOM) indorsed by your office on 15 July 2014 requesting confirmation of exemption from value-added tax (VAT) on the following: 1) Services and use or lease of properties under Section 108 (B) (3) of the 1997 National Internal Revenue Code (NIRC), as amended; and 2) Association dues, membership fees and other assessments/charges being imposed by condominium corporations under Revenue Memorandum Circular (RMC) No. 65-2012 dated 12 October 2012. In reply, please be informed that Section 108 (B) (3) of the 1997 NIRC, as amended provides, viz. : "SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties . (A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) 1 of the gross receipts derived from the sale or exchange of services, including the use or lease of properties: Provided, That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied: (i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or (ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 1/2%). . . . IEaCDH 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; . . ." (Underscoring ours) In relation thereto, Article 3 of the 13 March 2003 Cooperation Agreement between the Government of the Republic of the Philippines and the International Organization for Migration (PH-IOM Cooperation Agreement) provides, viz. : "Article 3 1. The Organization shall enjoy in the Republic of the Philippines the same privileges and immunities as those granted to specialized agencies of the United Nations by virtue of the Convention on the privileges and immunities of the specialized agencies of 21 November 1947. 2. In particular, the organization shall be exempt from all indirect taxes for purchases of articles intended for official use. . . ." (Underscoring ours) Under the PH-IOM Cooperative Agreement, IOM is exempt from VAT on purchase of articles intended for official use. A detailed and careful reading of the above provision, however, shows that the exemption from indirect taxes accorded to IOM is limited only to purchase of articles intended for official use and not on purchase of services . Now, a well-settled principle in statutory construction is that exemption from tax is strictly construed against the taxpayer and liberally in favor of the taxing authority. A taxpayer who claim an exemption must be able to justify the clearest grant of organic or statue n law its exemption from the payment of tax. An exemption from the common burden cannot be permitted to exist upon vague implication. 2 Hence, in the absence of a clear and unequivocal provision of law or agreement to the contrary, the grant of VAT exemption to IOM on its purchases of articles intended for official use cannot extend the purchase of services including the use or lease of properties. Moreover, considering that association dues, membership fees, and other assessments/charges collected by a condominium corporation constitute income payment or compensation for the beneficial services it provides to its members and tenants under RMC 65-2012, the grant of VAT exemption to IOM cannot also extend to its payment of association dues, membership fees and other assessments/charges being imposed by condominium corporations. In view thereof, the requested VAT exemption by the IOM on services, use or lease of properties, association dues, membership fees and other assessments/charges being imposed by condominium corporations is hereby denied for lack of legal basis. EcDSHT Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue Footnotes 1. Now 12%, per RMC 7-2006 issued 31 January 2006 publishing the full text of the memorandum issued by Executive Secretary Eduardo R. Ermita informing the Secretary of Finance that his recommendation to increase the VAT rate from 10% to 12% effective 01 February 2006 has been approved by the President. 2. BIR Ruling No. 083-2011 dated 15 March 2011. n Note from the Publisher: "Statue" should read as "statutory".