Embassy of the Federal Republic of Germany

August 12, 2022 ITAD BIR RULING NO. 015-22 Sec. 106 (A) (2) (b), NIRC of 1997, as amended; Technical Co-operation Agreement (1971) Embassy of the Federal Republic of Germany 25th Floor, The RCBC Plaza, Tower 2 6819 Ayala Avenue, Makati City Gentlemen : This refers to your Note Nos. 43/2022 and 44/2022 both dated July 19, 2022, indorsed by the Department of Foreign Affairs and the Department of Finance, requesting for exemption from value-added tax (VAT) and ad valorem tax on the local purchase of two (2) units 2022 Nissan NP300 Navarra 2.5 VE MT 4x4 for the official use of Deutsche Gesellschaft fuer Internationale Zusammenarbeit (GIZ). In reply, please be informed that Section 106 (A) (2) (b) of the 1997 National Internal Revenue Code (NIRC), as amended by Republic Act No. 10963, otherwise known as the Tax Reform for Acceleration and Inclusion Act (TRAIN Law), provides as follows: "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 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. 109. Exempt Transactions. (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax. (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" Based on the foregoing provisions, sales of goods or properties made by VAT-registered persons are generally subject to 12% VAT except when a special law or an international agreement to which the Philippines is a signatory effectively subjects such sale to zero percent (0%) VAT or exempts the transaction from VAT. The relevant agreement for the transaction is the Agreement between the Government of the Federal Republic of Germany and the Government of the Republic of the Philippines Concerning Technical Co-operation (Technical Co-operation Agreement or TCA) executed on September 7, 1971, in relation to the Diplomatic Exchange of Notes dated May 6, 2002, which constitute the Arrangement between the two countries concerning the continuation of the local office of the office of the GIZ in Manila ("2002 E/N"). While the TCA partakes the nature of an international agreement referred to under Section 106 (A) (2) (b) of the NIRC, the Diplomatic Exchange of Notes, on the other hand, is considered a form of an executive agreement, which becomes binding through executive action without the need of a vote by the Senate or Congress. 1 Article 4 (5) and Article 5 (3) of the TCA and paragraph 4 (a) of the 2002 E/N provide as follows: "Article 4 The Government of the Republic of the Philippines shall: xxx xxx xxx (5) exempt from harbor dues, import and export duties, and all other public charges the articles supplied on behalf of the Government of the Federal Republic of Germany for the projects ; xxx xxx xxx Article 5 xxx xxx xxx (3) exempt the German experts, teachers and technicians, their families and other members of their households, for the duration of their stay, from all import and export duties and other fiscal charges in respect of effects intended for their personal use, provided that such articles shall be re-exported; such effects shall include, for each household, one motor vehicle, one refrigerator, one deep freezer, one radio, one record player, one tape recorder, one television set, minor electrical appliances and, or each person, one air-conditioner, one set of photographic and cine equipment. xxx xxx xxx" (Emphasis supplied) "4. The Government of the Republic of the Philippines shall make the following contributions: It shall (a) exempt the material and motor vehicles supplied for the Office from taxes, licenses, harbour dues, import and export duties and other public charges, as well as storage fees, and ensure that such material is cleared by customs without delay. The aforementioned exemptions shall, with regard to value-added tax (VAT), also apply to material and services (including consulting services) procured in the Republic of the Philippines , as well as to the renting of office premises and accommodation for second experts;" ( Emphasis supplied ) Nothing in the abovementioned provisions exempts the sale of the subject motor vehicle from VAT. Article 4 (5) of the TCA refers to articles supplied on behalf of the Government of the Federal Republic of Germany for the projects, while Article 5 thereof covers, among others, imported motor vehicle. A cursory reading of paragraph 4 (a) of the 2002 E/N, on the other hand, reveals that the first sentence deals with the tax exemption of imported materials and motor vehicles while the second sentence deals with the exemption from VAT of material and services, including consultancy services, procured in the Philippines. The latter sentence excluded the locally purchased motor vehicles from the list of VAT-exempt goods and services procured in the Philippines. Applying the familiar maxim, expressio unius est exclusio alterius , the express mention of one person, thing, or consequence implies the exclusion of all others. In view of the foregoing, the request for exemption from VAT and ad valorem tax on the local purchase of two (2) units 2022 Nissan NP300 Navarra 2.5 VE MT 4x4 is denied for lack of legal basis. Accordingly, the GIZ shall pay the corresponding indirect taxes on the subject motor vehicle. Very truly yours, (SGD.) LILIA CATRIS GUILLERMO Commissioner of Internal Revenue Footnotes 1. Abaya v. Ebdane , 544 Phil. 645 (2007).