ITAD BIR Ruling No. 153-14

August 15, 2014 ITAD BIR RULING NO. 153-14 RMC 31-2013, as amended by RMC 73-2013; Article 21 (2) (b) UNIDO Constitution; Sections 17 & 18 UN Privileges Convention United Nations Industrial Development Organization 29/F Yuchengco Tower RCBC Plaza 6819 Ayala Avenue Makati City Gentlemen : This refers to Note Verbale No. 6776 of the Department of Foreign Affairs (DFA) dated 07 April 2014 requesting this Office to confirm the tax exemption of the salaries, emoluments and remuneration received by officials and employees of the United Nations Industrial Development Organization ("UNIDO") pursuant to the Convention on the Privileges and Immunities of the United Nations 1 ("UN Privileges Convention) and to include UNIDO in the list of international organizations whose employees and officials are exempt from income tax as clarified by Revenue Memorandum Circular ("RMC") No. 31-2013 , as amended by RMC No. 73-2013. 2 It is represented that UNIDO was formally established as a specialized agency of the United Nations through the Constitution of United Nations Industrial Development Organization ("UNIDO Constitution") which was adopted in Vienna on 08 April 1979; that UNIDO is responsible for the promotion and acceleration of industrial development in developing countries with a view to assisting in the establishment of a new international economic order; that the Philippines became a signatory to the UNIDO Constitution on 12 October 1979; that the UNIDO Constitution was ratified by the President of the Philippines on 21 November 1979 without reservations; that Philippines deposited the instrument of ratification with the UN Secretary General on 15 January 1980; that UNIDO maintains an office in the Philippines and employs local and foreign officials. It is further represented that the Government of the Philippines has not yet acceded to the General Convention on the Privileges and Immunities of Specialized Agencies of the United Nations ("SA Convention") in respect of UNIDO; that the SA Convention is not applicable to UNIDO in the territory of the Philippines; that the UNIDO Constitution accords UNIDO certain privileges and immunities; and that notwithstanding that UNIDO is a specialized agency of the UN, Article 21 of the UNIDO Constitution expressly provides that the UN Privileges Convention shall apply to UNIDO where a Member State does not accede to the SA Convention. SAcCIH Based on this provision of the UNIDO Constitution, it is your position that, although the Philippines has not yet deposited its instrument of accession to the SA Convention with respect to UNIDO, the organization is nonetheless entitled to tax privileges including the exemption from taxation of salaries and emoluments paid to UNIDO officials, regardless of their nationality or place of residence, because Philippines has acceded to the UN Privileges Convention. You make this request for confirmation of the tax exemption of UNIDO officials pursuant to Section 5 of RMC 31-2013, as amended, which provides that: "SEC 5. Confirmation of Tax Exemption/Tax Treatment. International organizations maintaining offices, headquarters or operation in the Philippines and/or their respective employees claiming exemptions pursuant to the terms and provisions of international agreements or laws granting privileges to employees of international organizations shall file an application for confirmation of tax exemption/tax treatment with the International Tax Affairs Division (ITAD) of the Bureau of Internal Revenue. The foregoing shall not apply to international organizations and their employees already covered by this Circular." In reply, please be informed that Article 21 of the UNIDO Constitution grants UNIDO legal capacity and immunities and privileges necessary for its operations. It states that: " 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: DEHaTC a) In the territory of any Member that has acceded to the Convention on the Privileges and Immunities of the Specialized Agencies in respect of the Organization, be as defined in the standard clause of that Convention as modified by an annex thereto approved by the Board; b) In the territory of any Member that has not acceded to the Convention on Privileges and Immunities of the Specialized Agencies in respect of the Organization but has acceded to the Convention on the Privileges and Immunities of the United Nations , be as defined in the latter Convention , unless such State notifies the Depositary on depositing its instrument of ratification, acceptance, approval, or accession that it will not apply to this Convention to the Organization; the Convention 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 provided) The foregoing provisions recognize that the UN Privileges Convention shall apply to a Member State if it has not acceded to the SA Convention in respect of UNIDO and if the instrument of ratification deposited by a Member State does not contain any reservation to the effect that the UN Privileges Convention shall not apply to UNIDO. Inasmuch as the Philippines has not acceded to the SA Convention with respect to UNIDO, and considering that the instrument of ratification deposited by the Philippines does not contain any reservations to the UNIDO Constitution, this Office is of the opinion that the tax privileges specified in the UN Privileges Convention shall apply to UNIDO and its officials pursuant to Article 21.2.b. of the UNIDO Constitution. Relative thereto, Sections 17 and 18, Article V of the UN Privileges Convention state: EHTISC "ARTICLE V Officials SEC. 17. The Secretary-General will specify the categories of officials to which the provisions of this Article and Article VII shall apply. He shall submit these categories to the General Assembly. Thereafter these categories shall be communicated to the Governments of all Members. The names of the officials included in these categories shall from time to time be made known to the Governments of Members . SEC. 18. Officials of the United Nations shall: . . . (b) Be exempt from taxation on the salaries and emoluments paid to them by the United Nations ; . . ." (Underscoring supplied) Based on the above provisions, officials of the UN, regardless of their nationality or place of residence, 3 shall be exempt from Philippine income tax on salaries and emoluments paid to them by the UN. Moreover, as stated in Section 17 of the Convention, to be entitled to the privilege, the categories of officials of the UN should be communicated to the Philippine government, through the Department of Foreign Affairs. Accordingly, the names of UNIDO's officials included in the same categories shall from time to time be made known to the Philippine Government. Applying the foregoing to UNIDO, this Office is of the opinion and so holds that the salaries, emoluments and remuneration received by officials of the UNIDO Philippine office, whose categories are duly communicated to the DFA, are exempt from Philippine taxation, regardless of the officials' nationality or place of residence, pursuant to Section 21 (2) (b) of the UNIDO Constitution, in relation to Sections 17 and 18 of the UN Privileges Convention. This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling is without force and effect insofar as the herein party is concerned. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Adopted by the General Assembly of the United Nations on 13 February 1946 Philippines acceded to Convention on 28 October 1947. 2. Note from the Publisher: Copied verbatim from the official document. Missing footnote text. 3. The grant of tax immunities under the UN Privileges Convention may, however, be qualified by the execution of supplemental agreements between the Secretary-General of the United Nations and the Philippine Government under Section 36 of the UN Privileges Convention.