ITAD BIR Ruling No. 102-14

June 30, 2014 ITAD BIR RULING NO. 102-14 Article VI Agreement between the UNICEF and the Philippines Ms. Gina B. Pimentel Philippine Long Distance Telephone Company (PLDT) Sales & Service Center Supervisor Roxas City, Capiz Dear Ms. Pimentel, This refers to your 07 February 2014 letter requesting confirmation of the tax exemption of your subscriber organization, the United Nations Children's Fund (UNICEF), who was in Roxas City to help the victims of Typhoon Yolanda which struck the province last 08 November 2013. It is represented, per the 27 March 2014 letter of PLDT, that when Roxas City was devastated by Typhoon Yolanda last 08 November 2013, one of the international organizations which responded for relief operations was UNICEF; that UNICEF established an office in the locality to be more responsive to the needs of the people; to have connectivity, UNICEF applied with PLDT for telephone and Internet connections; that subscription entails payment of twelve percent (12%) value-added tax (VAT); that UNICEF invokes its immunity from taxation by submitting pertinent documents to PLDT; and that PLDT needs tax exemption confirmation of UNICEF for the latter's application which will be forwarded to the PLDT main office for proper disposition and action. In reply, please be informed that based on Sections 106 (2) (c) and 108 (B) (3) of the amended 1997 National Internal Revenue Code (NIRC), sales as well as services performed in the Philippines by VAT-registered persons to persons who or entities which are exempt under special laws or international agreements to which the Philippines is a signatory, shall be subject to zero percent (0%) rate, thus: "Section 106. Value-added Tax on Sale of Goods or Properties. aSTHDc 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." "Section 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: (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. xxx xxx xxx" Moreover, Section 109 (1) (K) of the same Code provides that among the VAT exempt transactions are those transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, thus: "Section 109. Exempt transactions. xxx xxx xxx (K) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under Presidential Decree No. 529; . . ." In connection thereto, there is the Agreement between the United Nations Children's Fund and the Government of the Philippines (PH-UNICEF Agreement) which was signed in Paris, France on 20 November 1948. Its Article VI provides that: "Article VI Immunity from Taxation A. The Fund, its assets, property, income and its operations and transactions of whatsoever nature , shall be immune from taxes , fees, tolls, or duties imposed by the Government or by any political sub-division thereof or by any other public authority in the Philippines. The Fund shall also be immune from liability for the collection of payment of any tax , fee, toll, or duty imposed by the Government or any political sub-division thereof or by any other public authority. AEHCDa B. No tax, fee, toll or duty shall be levied by the Government or any political sub-division thereof or any other public authority on or in respect of salaries or remunerations for personal services paid by the Fund to its officers, employees, or other Fund personnel who are not subjects of the Philippines, or permanent residents thereof. C. The Government will take such action as is necessary for the purpose of making effective the foregoing principles. In addition, the Government will take whatever other action may be necessary to ensure that supplies and services furnished by the Fund are not subjected to any tax , fee toll, or duty in a manner which reduces the resources of the Fund. " (Underscoring supplied) Based on the above provisions, the UNICEF may be exempt from value-added tax (VAT) when there is an express provision to this effect in the agreements or conventions entered into by the Republic of the Philippines with the UNICEF. Now, the 1948 PH-UNICEF Agreement clearly provides that the assets, property, income, operations and transactions of UNICEF, or "The Fund" as referred to therein, is immune from taxation or from the collection of any tax. In view of the foregoing, this Office confirms as it hereby rules that the UNICEF is an entity exempt from VAT pursuant to Section 109 (K) of the amended 1997 NIRC and the PH-UNICEF Agreement of 1948. Furthermore, being an exempt entity, the sales made to UNICEF by PLDT, if it is VAT-registered entity, shall be subject to zero percent (0%) VAT pursuant to Sections 106 (2) (c) and 108 (B) (3) of the amended 1997 NIRC. 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