ITAD BIR Ruling No. 019-11

January 20, 2011 ITAD BIR RULING NO. 019-11 Sections 106 and 109 of the National Internal Revenue Code of 1997; Article VIII (D)(1) and (4) of the Host Country Between the Government of the Republic of the Philippines and the ASEAN Centre for Biodiversity ASEAN Centre for Biodiversity 3rd Floor, ERDB Building UPLB Forestry Campus Los Baos, Laguna Attention: Mr. Rodrigo U. Fuentes Executive Director Gentlemen : This has reference to your letter dated November 11, 2010 indorsed to this Office by the Department of Finance (DOF) and the Office of Protocol and State Visits of the Department of Foreign Affairs (DFA), requesting for the exemption from payment of value-added tax (VAT) and ad valorem tax on the local purchase of one (1) motor vehicle, for the official use of the ASEAN Centre for Biodiversity (ACB) , specifically described as follows: CDAHaE Make: One (1) unit Toyota Innova 2.5 DSL A/T Model Year: 2010 Chassis No.: KUN40-5042034 Engine No.: 2KD-6642553 In reply, please be informed that Section 106 (A) (2) (c) of the National Internal Revenue Code (NIRC) of 1997, as amended, 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, 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 However, Section 109 of the NIRC of 1997 provides: "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" In relation thereto, Article VIII (D) (1) and (4) of the Host Country Agreement Between the Government of the Republic of the Philippines and the ASEAN Centre for Biodiversity 1 provides: "D. Taxation and Customs 1. The provisions of existing laws or ordinances to the contrary notwithstanding, ACB shall be exempt from the payment of all direct taxes and from value-added tax on its purchases of goods, materials, equipment, vehicles and services for its official use. xxx xxx xxx 4. ACB shall be exempt from the payment of all customs duties and related levies of any kind, including value added tax and excise tax on importation of goods , . . ." In view of the foregoing, since the subject purchase by ACB of one (1) unit of Toyota Innova 2.5 DSL A/T is for its official use, the same is exempt from payment of VAT pursuant to Article VIII (D) (1) of the Agreement. CETDHA However, with respect to ad valorem tax (being a type of excise tax), Article VII (D) (4) of the Agreement exempts the ACB from VAT and excise tax on importation of goods. This being so, and since the motor vehicle in question was purchased by ACB locally and not by importation, the subject one (1) unit of Toyota Innova shall be subject to ad valorem tax. Settled is the rule that tax exemptions are strictly construed against the taxpayer and cannot be allowed unless granted in the most explicit and categorical language too plain to be mistaken. They cannot be extended by mere implication or inference. ( Pansacola vs. CIR, G.R. No. 159991 dated November 16, 2006 citing Insular Lumber Co. v. Court of Tax Appeals , No. L-31057 dated May 29, 1981; Davao Gulf Lumber Corporation v. Commissioner of Internal Revenue , G.R. No. 117359 dated July 23, 1998; and, Philippine Long Distance Telephone Company, Inc. v. City of Davao , G.R. No. 143867 dated March 25, 2003). 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 Footnotes 1. Signed on August 8, 2006, and ratified by the Philippine Senate during its Third Regular Session, Fourteenth Congress of the Republic of the Philippines pursuant to P.S. Res. No. 1311.