ITAD BIR Ruling No. 017-11

January 20, 2011 ITAD BIR RULING NO. 017-11 Revenue Memorandum Order No. 22-2004; Memorandum of Agreement between the Government of the Republic of the Philippines and the World Organization of the Scout Movement; Section 109 of the National Internal Revenue Code, as amended; BIR Ruling No. ITAD 001-09 World Organization of the Scout Movement/Asia-Pacific Region 4th Floor ODC International Plaza Building 219 Salcedo Street, Legaspi Village, Makati City 1229, Philippines Attention: S. Prassanna Shrivastava Director, Administration and Finance Gentlemen : This has reference to your Note No. 2010-20 dated October 7, 2010, referred to this Office by the Department of Foreign Affairs (DFA), requesting for the issuance of value-added tax exemption certificate ("VEC") in favor of: aCcSDT a.) the World Organization of the Scout Movement-Asian Pacific Region ("WOSM-APR"); b.) Abdullah Rasheed, Regional Director of WOSM-APR; c.) S. Prassanna Shrivastava, Director of the Administration and Resource Development of WOSM-APR; and, d.) Thian Hiong-Boon, Director of the Adult Resources of WOSM-APR. It is represented that the WOSM-APR is a non-government, non-profit international organization associated with the United Nations Economic and Social Council ("UNESCO"), with diplomatic status in the Republic of the Philippines, in charge of promoting Scouting and supporting National Scout organizations in 26 countries all over the Asia-Pacific Region; that on January 22, 1991, WOSM-APR and the Government of the Republic of the Philippines ("GOP") entered into a Memorandum of Agreement ("Memorandum") wherein the GOP extended tax exemption and benefits to WOSM-APR and its high ranking officials ( e.g. , Regional Executive Commissioner and Deputy Regional Executive Commissioner); and that, in accordance with the said Memorandum, you are now seeking confirmation of the exemption from value-added tax ("VAT") of WOSM-APR and its officials on their sale, barter, exchange or lease of goods or properties and services in the Philippines through the issuance of VECs. We reply as follows: On the matter of issuance of a VEC, please be informed that VECs are issued by the Bureau of Internal Revenue ("BIR") only to embassies/qualified embassy personnel in the Philippines based on the principle of reciprocity and pursuant to Revenue Memorandum Order No. 22-2004 dated May 11, 2004. All other requests for VAT exemption are confirmed by this Bureau through the issuance of a BIR Ruling. On the matter of your request regarding the exemption of the WOSM-APR and its three (3) officials, please be informed that Section 109 (K) of the National Internal Revenue Code ("Tax Code") of 1997, as amended by Republic Act No. 9337 , governs VAT exemption privileges of transactions embodied in an international agreement, such as the instant Memorandum between WOSM-APR and the GOP. Section 109 (K) of the Tax Code of 1997, as amended provides, as follows: "SEC. 109. Exempt Transactions. Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax: cDCaHA 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;" Relative thereto, the tax exemption provisions of the Memorandum are found in Articles III and IV thereof, to wit: "ARTICLE III Exemption from Taxes The Scout Movement shall be exempt from all taxes and customs duties on import and export of articles to include motor vehicles imported or exported for official purposes. xxx xxx xxx ARTICLE IV Officials and Alien Employees xxx xxx xxx 2. The Regional Executive Commissioner and the Deputy Regional Executive Commissioner shall enjoy the following tax and duty-free privileges: (a) Exemption from customs duties and taxes on personal and household effects imported into the Philippines within six months from the date of first arrival; and, (b) Tax and duty-free importation of one motor vehicle provided that: (i) Such imported motor vehicle has been used in the country of last posting or such motor vehicle is purchased locally or from a third country within six (6) months from the date of his or her first arrival in the Philippines; xxx xxx xxx" It is clear from the foregoing that although the Memorandum grants tax exemption privileges in favor of WOSM-APR, such exemption is limited only to taxes arising from the importation of articles and motor vehicles and does not include taxes ( i.e. , VAT) from the local purchase and lease of goods or properties. Further, in so far as WOSM-APR's officials are concerned, exemption is limited only to taxes arising from importation of personal and household effects, as well as taxes associated with the importation and local purchase of one motor vehicle. Accordingly, only the importation of WOSM-APR and the 3 officials of articles and motor vehicles, and the local purchase of one motor vehicle by the 3 officials, subject to the conditions in Article IV of the Memorandum, shall enjoy exemption from VAT. As regards the local purchases of other goods and services of WOSM-APR and the 3 officials, we regret to inform you that the requested tax exemption cannot be granted for lack of legal basis. Finally, please be advised that the confirmation of exemption of any importation by WOSM-APR and its personnel, or the latter's purchase is issued on a per transaction basis and shall be applied with the Bureau's International Tax Affairs Division together with the supporting documentary requirements pertinent to the transaction. ECSHID This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall 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.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue