ITAD BIR Ruling No. 031-10

August 27, 2010 ITAD BIR RULING NO. 031-10 Sec. 106 (A) (2) (c), NIRC of 1997; Charter of the Southeast Asian Ministers of Education Organization adopted at Singapore; Convention on the Privileges and Immunities of the Specialized Agencies of the United Nations; BIR Ruling No. ITAD-10-004 Food and Agriculture Organization 29th Floor, Yuchengco Tower RCBC Plaza 6819 Ayala Avenue Makati City Gentlemen : This refers to your letter dated February 12, 2010, indorsed to this Office by the Department of Finance (DOF) and the Department of Foreign Affairs (DFA), requesting exemption from payment of value-added tax (VAT) on the local purchase of one (1) motor vehicle, for the official use of the Food and Agriculture Organization (FAO), specifically described as follows: Make: Toyota Fortuner 4X2 G Diesel M/T Model Year: 2010 Color: Freedom White Engine Number: 2KD7982802 Chassis Number: MROZR69G800018344 In reply, please be informed that Section 106 (A) (2) of the National Internal Revenue Code (NIRC) of 1997, as amended, provides: "Section 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 or 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: (i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or (ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 1/2%). xxx xxx xxx (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: HEAcDC 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." In relation thereto, Section 10, Article III of the Convention on the Privileges and Immunities of the Specialized Agencies of the United Nations dated November 21, 1947 provides: "Article III xxx xxx xxx Section 10 While the specialized agencies will not, as a general rule, claim exemption from excise duties and from taxes on the sale of movable and immovable property which form part of the price to be paid, nevertheless when the specialized agencies are making important purchases for official use of property on which such duties and taxes have been charged or chargeable, States parties to this Convention will, whenever possible, make appropriate administrative arrangements for the remission or return of the amount of duty or tax. xxx xxx xxx" Relative thereto, Section 1 (b), Article I of the same UN Convention provides: "Article I DEFINITION AND SCOPE Section 1 In this Convention: (i) . . . (ii) The words "specialized agencies" mean: xxx xxx xxx (b) The Food and Agriculture Organization of the United Nations; xxx xxx xxx" Based on the above provisions of the UN Convention, the Food and Agriculture Organization is a specialized agency of the United Nations. The aforecited provision of the UN Convention clearly requires that to be entitled to a possible remission or return of the amount of duty or tax, the subject purchase must be for official use of the specialized agency. But in lieu of remission or return of the amount of duty or tax related to the purchase for official use, a tax exemption privilege is instead granted. 1 In view of the foregoing, this Office is of the opinion and so holds that the aforementioned purchase of one (1) unit 2010 Toyota Fortuner 4X2 G Diesel M/T, for the official use of FAO, is exempt from VAT, pursuant to the Convention on the Privileges and Immunities of the Specialized Agencies of the United Nations. (BIR Ruling No. 46-07 dated April 11, 2007) It is hereby understood that this exemption applies only to vehicles purchased under the name of Food and Agriculture Organization for its official use. As for the sale made by a VAT-registered business establishment to the qualified foreign embassy, it shall enjoy the benefit of zero percent (0%) VAT pursuant to Revenue Memorandum Order No. 22-2004. This ruling is being issued on the basis of the foregoing facts as presented. However, if upon investigation, it will be disclosed that the actual facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. DaTICc Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. BIR Ruling No. ITAD-46-07 dated 11 April 2007 citing VAT Ruling No. 143-90 which revoked VAT Ruling No. 176-89.