United Nations Industrial Development Organization

August 30, 2018 ITAD BIR RULING NO. 079-18 Section 106 (A) (2) (b), Tax Code UN Convention United Nations Industrial Development Organization 14th Floor, North Tower, Rockwell Business Center Sheridan corner United Sheridan Streets Mandaluyong City, 1554, Metro Manila Attention: AAA _______________ Gentlemen : This refers to your letter dated 19 February 2018, endorsed to this Office by the Department of Foreign Affairs and the Department of Finance, requesting for exemption from payment of value-added tax and ad valorem tax on the local purchase of a motor vehicle for the official use of the United Nations Industrial Development Organization ( UNIDO ),specifically described as follows: Type of Use: Official Make: 2018 Camry 2.5V A/T Engine No.: 2AR1853404 Frame No.: MR053AK50H9000563 Color: White Pearl Documents show that UNIDO was formally established as a specialized agency of the United Nations with the adoption of the Constitution of the United Nations Industrial Development Organization ( UNIDO Constitution ) on 08 April 1979, in Vienna, Austria; that UNIDO's primary objective is the promotion and acceleration of industrial growth and technological progress in developing countries and countries with economies in transition and the promotion of international industrial cooperation; that the Philippines became a signatory to the UNIDO Constitution on 12 October 1979, which was ratified by the President of the Philippines on 21 November 1979, without reservations; that the Philippines deposited instruments of ratification, acceptance or approval on 07 January 1980; and that, on 26 February 1993, a Basic Co-operation Agreement was entered into by and between UNIDO and the Government of the Republic of the Philippines. HTcADC It is further shown that, while UNIDO is a specialized agency of the United Nations ( UN ),the Convention on the Privileges and Immunities of the Specialized Agencies of the UN ( SA Convention ) is not applicable to UNIDO in the territory of the Philippines since the Government of the Philippines has not yet acceded to the SA Convention. Be that as it may, Article 21 of the UNIDO Constitution expressly provides that the Convention on the Privileges and Immunities of the United Nations ( UN Convention ) shall apply to UNIDO where a Member State does not accede to the SA Convention, to wit: "Article 21 Legal capacity, privileges and immunities 1. The Organization shall enjoy in the territory of each of its Members such legal capacity and such privileges and immunities as are necessary for the exercise of its functions and for the fulfillment of its objectives. Representatives of Members and officials of the Organization shall enjoy such privileges and immunities as are necessary for the independent exercise of their functions in connection with the Organization. 2. The legal capacity, privileges and immunities referred to in paragraph 1 shall: (a) In the territory of any Member that has acceded to the Co nventi on on the Privileges and Immunities of the Specialized Agencies in respect of the Organization, be as defined in the standard clauses of the Convention as modified by an annex thereto approved by the Board; (b) In the territory of any Member that has not acceded to the Co nventi on on the Privileges and Immunities of the Specialized Agencies in respect of the Organization but has acceded to the Co nventi on on the Privileges and Immunities of the United Nations , be as defined in the latter Co nventi on , unless such State notifies the Depositary on depositing its instrument of ratification, acceptance, approval or accession that it will not apply this Co nventi on to the Organization; the Co nventi on on the Privileges and Immunities of the United Nations shall cease to apply to the Organization thirty days after such State has so notified the Depositary; (c) Be as defined in other agreements entered into by the Organization." (Emphasis and italics supplied) Considering that the Philippines has acceded to the UN Convention by depositing its instrument of accession thereto without any reservations on 28 October 1947, the privileges specified in the UN Convention shall apply to UNIDO, pursuant to Article 21 (2) (b) of the foregoing provision. In connection thereto, Section 8, Article II of the UN Convention states that: "Article II PROPERTY, FUNDS and ASSETS xxx xxx xxx SECTION 8. While the United Nations 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 United Nations is making important purchases for official use of property on which such duties and taxes have been charged or are chargeable, Members will, whenever possible, make appropriate administrative arrangements for the remission or return of the amount of duty or tax." The aforecited provision of the UN Convention requires that to be entitled to a possible remission or return of the amount of tax, purchase must be for the official use of the UN ( UNIDO , in the herein case ).But, in lieu of remission or return of the amount of tax related to the purchase for official use, a tax exemption privilege is instead granted. In relation thereto, please be informed that under Section 106 (A) (2) (b) of the 1997 NIRC, as amended ( Tax Code ),the sale of goods by VAT-registered sellers to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to VAT at zero percent (0%),thus: "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 (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: xxx xxx xxx (b) 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." Accordingly, the sale of one (1) unit of 2018 Toyota Camry 2.5V A/T by the VAT-registered local car dealer to UNIDO, for the latter's official use, shall be exempt from ad valorem tax, and subject to VAT at zero-percent (0%) rate, pursuant to Section 106 (A) (2) (b) of the Tax Code, in relation to Article II, Section 8 of the UN Convention. 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. aScITE Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue