ITAD BIR Ruling No. 024-14

March 19, 2014 ITAD BIR RULING NO. 024-14 Sections 106 & 108, NIRC of 1997, as amended; Section 34, ADB-PH Agreement Department of Finance Roxas Boulevard corner Pablo Ocampo, Sr. St. Manila 1004 Attention: Mr. Gil S. Beltran DOF Undersecretary Executive Director, National Credit Council Gentlemen : This refers to your 09 December 2013 letter in connection with the Letter of Agreement dated 18 December 2012 entered into by the Republic of the Philippines and the Asian Development Bank (ADB) covering a grant assistance of US$1,000,000 from the Japan Fund for Poverty Reduction (JFPR) to finance the Capacity Building for Microinsurance Project (JFPR No. 8258-PHI) with National Credit Council (NCC) with the Department of Finance as Executing Agency, requesting tax exemption on the procurement of goods and services under the JFPR No. 8258-PHI project. In reply, please be informed that Sections 106 (A) (2) (c) and 108 (B) (3) of the 1997 National Internal Revenue Code, as amended (1997 NIRC, as amended) provide, viz. : "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 ten percent (10%) of the gross selling price on gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor: 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: xxx xxx xxx (2) Zero-rated Sales The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: xxx xxx xxx (c) 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. . . ." SCIAaT "SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. 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; . . ." Moreover, Sections 4.106-5 (c) and 4.108-5 (b) (3) of Revenue Regulations (RR) No. 16-2005, as amended pertinently provide, viz. : "SEC. 4.106.5. Zero-Rated Sales of Goods or Properties. A zero-rated sale of goods or properties (by a VAT-registered person) is taxable transaction for VAT purposes, but shall not result in any output tax. However, the input tax on purchases of goods, properties or services related to such zero-rated sale, shall be available as tax credit or refund in accordance with these Regulations. The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: xxx xxx xxx (c) Sales to persons or Entities Deemed Tax-exempt under Special Law or International Agreement. Sales of goods or property to persons or entities who are tax-exempt under special laws or international agreements to which the Philippines is signatory, such as, Asian Development Bank (ADB) , International Rice Research Institute (IRRI), etc. shall be effectively subject to VAT at zero-rate." (Underscoring ours) "SEC. 4.108-5. Zero-rated Sale of Services. (b) Transactions Subject to Zero Percent (0%) VAT Rate. The following services performed in the Philippines by a VAT-registered person shall be subject to zero percent (0%) VAT rate: xxx xxx xxx (3) Services rendered to persons or entities whose exemption under special laws or international agreement to which the Philippines is a signatory effectively subjects the supply of such services to zero (0%) rate; . . ." In relation thereto, Section 34 of the 22 December 1966 Agreement between the Asian Development Bank and the Government of the Republic of the Philippines Regarding the Headquarters of the Asian Development Bank (ADB-PH Agreement) provides, viz. : SEIDAC "ARTICLE IX Property of the Bank and Taxation Section 34. The Bank, its property and its operations and transactions shall be exempt from: (a) all taxation and any obligation for the payment, withholding or collection of any tax or duty. The Bank will not claim exemption from taxes or charges which are no more than payments for public utility services; (b) all customs duties and other levies on any goods, articles, including motor vehicles, spare parts and publications, imported or exported by the Bank for its official use, and any obligation for the payment, withholding or collection of any customs duties. The goods and articles, including vehicles, spare parts and publications imported under such exemption will not be sold in the Republic of the Philippines except under conditions agreed upon with the Government; and (c) all prohibitions and restrictions on imports and exports in respect of goods or articles, including motor vehicles, spare parts and publications intended for the official use of the Bank. xxx xxx xxx" Based on the foregoing, considering that the procurement of goods and services under the subject JFPR No. 8258-PHI constitutes a project/transaction of the ADB, an entity exempt from VAT, the sale of goods and services by VAT-registered persons to ADB directly in connection with the project JFPR No. 8258-PHI shall be subject to VAT at zero-percent (0%) rate pursuant to Sections 106 (A) (2) (c) and 108 (B) (3) of the 1997 NIRC, as amended, and as implemented by 4.106-5 (c) and 4.108-5 (b) (3) of Revenue Regulations No. 16-2005, as amended. This ruling is issued on the basis of the foregoing 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