ITAD BIR Ruling No. 023-13

February 1, 2013 ITAD BIR RULING NO. 023-13 Articles 3 (Definitions), 5 (Subsidiary Arrangements) and 7 (Project Supplies and Professional and Technical Material and Services); Philippines-Australia Agreement on Development Cooperation Australian Agency for International Development Embassy of Australia Level 22-24, Tower 2, RCBC Plaza 6819 Ayala Avenue, Makati City Attention: Mr. Andrew Egan Counselor, Development Cooperation Chair, PRMF Project Steering Committee Gentlemen : This refers to your letter dated September 13, 2012 requesting confirmation that purchase of goods and services made by the Australian Agency for International Development ("AusAID") are subject to value-added tax ("VAT") at zero percent pursuant to the General Agreement on Development Cooperation between the Government of the Republic of the Philippines and the Government of Australia ("Philippines-Australia Cooperation Agreement") TICDSc Under the Agreement, the Philippines and Australia will promote assistance by way of, among others, the development and the carrying out of collaborative research, studies and projects by the Philippines and Australia to contribute to the attainment of the objectives of the Agreement. On November 25, 2010 , the Department of the Interior and Local Government ("DILG") and the Australia Agency for International Development ("AusAID") entered into a Memorandum of Subsidiary Arrangement Relating to the Philippines-Australia Provincial Road Management Facility ("PRMF") which supersedes the previous Subsidiary Arrangement dated March 27, 2009. The goal of the new Subsidiary Arrangement is to increase economic growth and improve access to public infrastructures and services in Southern Philippines. The facility will provide grant assistance directly to, or in support of, selected provincial governments in the Philippines. The implementing agencies for the Philippines are the DILG and the selected provincial governments and for Australia is AusAID. The DILG is responsible for promoting peace and order, ensuring public safety, and strengthening capability of local government units through active people participation and a professionalized corps of civil servants in the Philippines. DILG is located at A. Francisco Gold Condominium II, EDSA corner Mapagmahal Street, Diliman, Quezon City, Philippines. AusAID is responsible for managing Australia's overseas aid program and it is an executive agency within the Foreign Affairs and Trade portfolio and reports to the Minister for Foreign Affairs. AusAID's head office is located at 255 London Circuit, Canberra, Australia, and its local office is at the Australian Embassy in the Philippines at Level 22-24, Tower 2, RCBC Plaza, 6819 Ayala Avenue, Makati City, Philippines. The Australian government's contribution to the PRMF project will not exceed 100 million Australian dollars for a period of five years. AusAID will engage a suitably qualified facility managing contractor to carry out management and administration of the PRMF project. For this purpose, AusAID appointed Coffey International Development Pty. Ltd. ("Coffey") , a foreign corporation in Australia located at Level 2, 70 Hindmarsh Square, Adelaide, South Australia, Australia, and which has local office at 3rd Floor, JMT Building, ADB Avenue, Ortigas Center, Pasig City, Philippines. In BIR Ruling No. ITAD 158-12 issued on April 10, 2012, this Bureau confirmed Coffey's exemption under the Philippines-Australia Cooperation Agreement as managing contractor for the project. As mentioned in your letter, Coffey's engagement would end on September 30, 2012 . At this point, AusAID will temporarily administer the PRMF project until a new contractor to replace Coffey is appointed. Hence, you now request a ruling confirming the same exemption to AusAID as administrator of the project. In reply, please be informed that Articles 3, 5 and 7 of the Philippines-Australia Agreement provide: "Article 7 Project supplies and professional and technical material and services 1. In respect of project supplies and professional and technical material and services whether to be imported from outside or procured within the Philippines, the Government of the Republic of the Philippines shall: (a) for direct supplies of domestic goods and services, subject them to zero rate for purposes of Value-Added Tax (VAT); exempt direct importation of goods from import duties, VAT and other taxes imposed in the Philippines (or pay such duties thereon); and be responsible for inspection fees, storage charges and all other levies, fees and charges;" "Article 5 Subsidiary Arrangements 1. In support of the objective of this agreement, the Government of Australia and the Government of the Republic of the Philippines, or their agencies, statutory authorities or organizations may conclude subsidiary arrangements in respect of specific activities." "Article 3 Definitions In this Agreement: (a) 'Australian institutions, firms and organizations' means Australian institutions, firms or organizations engaged in a development activity under this Agreement; TSCIEa Under the Agreement, the governments of the Philippines and Australia, or their agencies, statutory authorities or organizations may conclude subsidiary arrangements in respect of specific activities, such as the development and the carrying out of collaborative research, studies and projects by the two countries to contribute to the attainment of the objectives of the Agreement. For Australia, these research, studies and projects can be carried out by Australian institutions, firms, or organizations. Direct supplies of domestic goods and services made by these institutions, firms, or organizations, are subject to zero percent VAT, and direct importation of goods made by the same is exempt from import duties, VAT, and other taxes. Accordingly, since AusAID is an Australian institution responsible for implementing the Subsidiary Arrangement relating to the PRMF project, direct supplies of domestic goods and services made by AusAID in connection with the project shall be subject to zero percent VAT, while direct importation of goods made by AusAID shall be exempt from VAT and other taxes, pursuant to paragraph 1 (a), article 7 of the Philippines-Australia Development Agreement. 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