ITAD BIR Ruling No. 104-12

February 24, 2012 ITAD BIR RULING NO. 104-12 Articles I (Definition and Scope) and III (Property, Funds and Assets) Convention on the Privileges and Immunities of the Specialized Agencies of the United Nations; BIR Ruling No. ITAD 31-10 Food and Agriculture Organization Representative Office 29th Floor, Yuchengco Tower RCBC Plaza 6819 Ayala Avenue Makati City Attention: Kazuyuki Tsurumi Representative Gentlemen : This refers to your request for exemption from value-added tax (" VAT ") dated November 23, 2011 pertaining to the following motor vehicle purchased by the Food and Agriculture Organization ("FAO") Representative Office for its official use: Make: Dodge Nitro 4x4 SXT Model Year: 2011 Color: Bright Silver Metallic Clear Engine No.: BW568250 Chassis No.: 1D4PU5GK8BW568250 Relative thereto, please be informed that under Section 106 (A) (2) (c) and 109 (1) (K) of the National Internal Revenue Code of 1997 ("Tax Code"), certain transactions involving the sale of goods or properties are exempt from VAT or are subject to VAT at zero percent if they are treated as such under special laws or international agreements to which the Philippines is a signatory, to wit: "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 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. DSEIcT xxx xxx xxx (2) 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." "SEC. 109. Exempt Transactions. (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax: 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 either case, no output VAT is shifted or passed-on to the buyer or transferee of the goods or properties. 1 With respect to international agreement relevant to the FAO Representative Office, there is the Convention on the Privileges and Immunities of the Specialized Agencies of the United Nations, which entered into force on December 2, 1948. Section 10, Article III, and Section 1 (ii) (b), Article I thereof provide: "Article III PROPERTY, FUNDS AND ASSETS 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 forms 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 are 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." cCAIDS "Article I DEFINITION AND SCOPE Section 1. In this Convention: xxx xxx xxx (ii) The words 'specialized agencies' mean: xxx xxx xxx (b) The Food and Agriculture Organization of the United Nations." Based on the foregoing, the Philippines, as host country, shall make appropriate administrative arrangements for the remission or return of the amount of duty or tax imposed on movable and immovable properties sold to FAO Representative Office, which forms part of the price paid on these properties. Accordingly, since the subject Dodge Nitro 4x4 SXT was sold to the FAO Representative Office, being a specialized agency of the United Nations, for its official use, this Office hereby rules, in lieu of the said remission or return of tax, that the motor vehicle shall be exempt from VAT at the point of sale, pursuant to Section 10, Article III, and Section 1 (ii) (b), Article I of the Convention. (BIR Ruling No. ITAD 31-10 dated August 27, 2010) Furthermore, should the seller in this case be a VAT-registered taxpayer, it shall be entitled to VAT-zero rating under Section 106 (A) (2) (c) of the Tax Code. This ruling is issued on the basis of the actual facts as represented. However, if upon investigation it shall be disclosed that the 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 Footnotes 1. Revenue Regulations No. 16-2005 (Consolidated Value-Added Tax Regulations of 2005), as amended, provides: ''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 a 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." "SEC. 4.109-1. VAT-Exempt Transactions. (A) In general. 'VAT-exempt transactions' refer to the sale of goods or properties and/or services and the use or lease of properties that is not subject to VAT (output tax) and the seller is not allowed any tax credit of VAT (input tax) on purchases. The person making the exempt sale of goods, properties or services shall not bill any output tax to his customers because the said transaction is not subject to VAT+."