Australian Embassy

August 8, 2017 ITAD BIR RULING NO. 025-17 Articles 3 (Definitions), 5 (Subsidiary Arrangements) and 7 (Project Supplies and Professional and Technical Material and Services), Philippines-Australia Agreement on Development Cooperation Australian Embassy Level 23-Tower 2, RCBC Plaza 6819 Ayala Avenue Makati City Attention: AAA _______________ Gentlemen : This refers to your letter dated July 30, 2014 requesting for reconsideration of BIR Ruling No . ITAD 54 - 14 dated May 27 , 2014 which denied value-added tax (" VAT ") exemption to The Louis Berger Group , Inc . (" Louis Berger ") pursuant to the General Agreement on Development Cooperation between the Government of the Republic of the Philippines and the Government of Australia (" Philippines - Australia GADC "). AaCTcI FACTS 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 which supersedes the previous Subsidiary Arrangement dated March 27 , 2009 . The goal of this facility 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 are the DILG and partner provincial governments for the Philippines, and AusAID for Australia. Following selection to participate in the facility, a partner provincial government will sign a Memorandum of Arrangement with the DILG and AusAID accepting the principles and implementing arrangement of the facility. The DILG is responsible in 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. AusAID is an agency of the Australian Government responsible for managing Australia's overseas aid program. AusAID is an executive agency within the Foreign Affairs and Trade portfolio and reports to the Minister for Foreign Affairs. Its head office is in Canberra, Australia, and its local office is at the Australian Embassy in the Philippines. The Australian government's contribution to the facility is up to 100 million Australian dollars, which will cease after a period of five years. AusAID will engage a suitably qualified facility managing contractor to carry out management and administration of the facility. The managing contractor may subcontract delivery of program activities under the Subsidiary Arrangement. Based on AusAID 's letter to this Bureau, it appointed Louis Berger as the new Facility Managing Contractor to carry out the management and administration of the facility effective August 19, 2013. A contract between AusAID and Louis Berger was entered into for this purpose. Louis Berger is a United States corporation with a local office in the Philippines. In BIR Ruling 54-14, we denied exemption to Louis Berger under paragraph 1 (a), Article 7 of the GADC, which provides: " 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;" The denial was grounded on the fact that Louis Berger is not an Australian institution , firm and organization as defined in paragraph 1 (a) below, Article 3 of the agreement: " 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;" In your letter, you mentioned that since 2006, the Australian government has shifted away from this policy and non-Australian organizations, such as Louis Berger , are now able to bid and acquire contracts for Australian aid programs. Activities implemented pursuant to the GADC are nonetheless still wholly funded from the Australian government's overseas development assistance budget. The question arises if the GADC allows the same VAT exemption under this new policy. RULING Relative thereto we revisit paragraph 1 (a), Article 7 of the GADC: " 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;" Paragraph 1 speaks of the following phrases: "project supplies," "professional and technical material" and "services," which have their respective definitions in Article 3 (Definitions) of the GADC, to wit: "(d) ' professional and technical material ' means equipment and other goods imported by members of the Australian personnel or Australian institutions, firms and organizations for their professional use while engaged in an activity under this Agreement and paid for from funds provided by the Government of Australia;" "(e) ' project supplies ' means equipment, material and other goods supplied for the execution of development activities under this Agreement, the cost of which is funded from the contribution of the Government of Australia to the activity;" "(f) ' services ' means services performed by individuals or by general partnerships registered in the Philippines;" Based on the above, the restriction on nationality is applicable only to professional and technical materials , which are exempt from VAT if imported by Australian personnel or Australian institutions, firms and organizations. EcTCAD On the other hand, regardless of nationality of the procuring entity, direct supplies of goods are subject to zero-rated VAT if carried out for the execution of development activities funded by the Australian government, and local procurement of services are subject to zero-rated VAT if the services are provided by individuals or general partnerships registered in the Philippines. Pursuant to paragraph 1 (a), Article 7 of the GADC, Louis Berger , the new facility managing contractor to carry out the management and administration of the Philippines-Australia Provincial Road Management Facility, is entitled to VAT-zero rating on the following: 1. Direct supplies of goods from VAT-registered suppliers; and 2. Locally procured services provided by VAT-registered individuals and general partnerships registered in the Philippines. In view of the foregoing, this Office is of the opinion that BIR Ruling No. ITAD 54-14 dated May 27, 2014 earlier issued to Louis Berger is hereby revoked and amended accordingly. 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.) CAESAR R. DULAY Commissioner of Internal Revenue