ITAD BIR Ruling No. 232-11

October 14, 2011 ITAD BIR RULING NO. 232-11 Host Country Agreement Between the Government of the Republic of the Philippines and the ASEAN Centre for Biodiversity; Revenue Regulations No. 2-98 Asean Centre for Biodiversity 3F, ERDB Bldg., Forestry Campus College Laguna, 4031 Philippines Attention: Rodrigo U. Fuentes Executive Director Gentlemen : This refers to your letter dated November 3, 2010, referred to this Office by the Department of Foreign Affairs, requesting confirmation of the following tax-related concerns: a.) Exemption of the ASEAN Centre for Biodiversity ("ACB") from the duty of withholding taxes on its income payments to other entities including payments of compensation to its Filipino staff and/or employees; b.) Exemption of ACB from custom duties and taxes, including value added tax ("VAT") and excise tax on its importation of goods; and c.) Exemption from taxes of ACB's Executive Director and its duly designated officials. It is represented that ACB was established by the Association of Southeast Asian Nations ("ASEAN") Ministers on the Environment through the signing of the Agreement on the Establishment of the ACB, as part of their commitment to conserve and sustainably use the biological resources in the ASEAN Region; that a Host Country Agreement between the Government of the Republic of the Philippines and the ASEAN Centre for Biodiversity ("Host Country Agreement") was concluded on August 8, 2006 and was duly ratified by the Philippine Senate per Senate Resolution No. 1311; that the Host Country Agreement extended several tax privileges and exemptions in favor of ACB and its Executive Director including ACB's duly designated officials. HcDSaT Based on the above representations, you now seek a ruling validating the tax exemptions and privileges of ACB and its officials. In reply, please be informed as follows: A. Exemption of the ACB from the duty of withholding taxes on its income payments On whether ACB is exempt from the duty of withholding taxes on its income payments to other entities including payments of compensation to its Filipino staff and/or employees, Article VIII (A) and (D) (1) of the Host Country Agreement provides: "ARTICLE VIII IMMUNITIES AND PRIVILEGES A. Grant of Immunities and Privileges 1. The ACB shall enjoy the immunities and privileges accorded to an international organization of universal character. xxx xxx xxx D. Taxation and Customs 1. . . . ACB shall also be exempt from the duty to withhold taxes on its income payments to other entities, including payments of compensation to its Filipino staff and/or employees. However, its Filipino staff and/or employees are still required to file their income tax returns and to pay the corresponding tax due thereon as required under existing laws and regulations. xxx xxx xxx" Moreover, Revenue Regulations No. 2-98, as amended, state: "Sec. 2.78. WITHHOLDING TAX ON COMPENSATION. Sec. 2.78.1. Withholding of Income Tax on Compensation Income. xxx xxx xxx (B) Exemptions from withholding tax on compensation. The following income payments are exempted from the requirement of withholding tax on compensation: HaIESC xxx xxx xxx (5) Compensation for services by a citizen or a resident of the Philippines for a foreign government or an international organization. Remuneration paid for services performed as an employee of a foreign government or an international organization is exempted. The exemption includes not only remuneration paid for services performed by ambassadors, ministers and other diplomatic officers and employees but also remuneration paid for services performed as consular or other officer or employee of a foreign government or as a non-diplomatic representative of such government." Clearly, ACB, being an international organization and pursuant to the foregoing discussion is exempt from the obligation to withhold income tax on its income payments, as well as on its compensation payments. It bears to stress, however, that despite ACB's exemption from the obligation to withhold from its income payments to other entities and payments of compensation to its Filipino staff/employees, their Filipino staff/employees are still required to file their income tax returns and pay the corresponding tax due on their salaries received from ACB. AcIaST B. Exemption of ACB from custom duties and taxes, including VAT and excise tax on its importation of goods On whether ACB is exempt from custom duties and taxes, including VAT and excise tax on its importation of goods, Article VIII (D) (1) and (4) of the Host Country Agreement provides: "ARTICLE VIII IMMUNITIES AND PRIVILEGES xxx xxx xxx D. Taxation and Customs 1. The provisions of existing laws or ordinances to the contrary notwithstanding, ACB shall be exempt from the payment of all direct taxes and from value-added tax on its purchase of goods, materials, equipment, vehicles and services for its official use. ACB shall also be exempt from the duty to withhold taxes on its income payments to other entities, including payments if compensation to its Filipino staff and/or employees. However, its Filipino staff and/or employees are still required to file their income tax returns and to pay the corresponding income tax due thereon as required under existing laws and regulations. xxx xxx xxx 4. ACB shall be exempt from the payment of all custom duties and related levies of any kind, including value added tax and excise tax on importation of goods except for storage, transport and services supplied and shall be processed in the same manner and under existing procedures applied by Department of Finance in similarly situated cases. AHDacC xxx xxx xxx" Based on the aforequoted provision, ACB is extended exemption from VAT and excise tax on its importation of goods, provided that the same is for its official use . However, as to exemption of ACB from custom duties and other levies on its importation, this Office is in no position to rule on the matter, the same being under the jurisdiction of the Bureau of Customs. C. Exemption from taxes of ACB's Executive Director and its duly designated officials. Under Article VIII (1) (2) of the Host Country Agreement, it is provided that: "ARTICLE VIII IMMUNITIES AND PRIVILEGES xxx xxx xxx I. Immunities and Facilities Accorded to Officers and Staff of the ACB 2. The Executive Director of the ACB shall enjoy in the Philippines the privileges, immunities, exemptions, and facilities accorded to ambassadors who are heads of diplomatic missions. He shall designate, for approval of the Government, the officials who, by reason of their responsibilities or their functions, shall enjoy in the Philippines the same privileges, immunities, exemptions, and facilities as are accorded to the ASEAN Secretariat. xxx xxx xxx" The Vienna Convention establishes the tax benefits granted to ambassadors and it provides: "Article 34 A diplomatic agent shall be exempt from all dues and taxes, personal or real, national, regional or municipal except : (a) Indirect taxes of a kind which are normally incorporated in the price of goods or services; (b) Dues and taxes on private immovable property situated in the territory of the receiving State, unless he holds it on behalf of the sending State for the purposes of the mission; (c) Estate, succession or inheritance duties levied by the receiving State, subject to the provisions of paragraph 4 of article 39; (d) Dues and taxes on private income having its source in the receiving State and capital taxes on investments made in commercial undertakings in the receiving State; aDcTHE (e) Charges levied for specific services rendered; (f) Registration, court or record fees, mortgage dues and stamp duty, with respect to immovable property, subject to the provisions of article 23." (emphasis supplied) "Article 36 1. The receiving State shall, in accordance with such laws and regulations as it may adopt, permit entry of and grant exemption from all customs duties, taxes, and related charges other than charges for storage, cartage and similar services, on: xxx xxx xxx (b) Articles for the personal use of a diplomatic agent or members of his family forming part of his household, including articles intended for his establishment." Since it is provided in the Host Country Agreement that the Executive Director of the ACB shall enjoy similar exemptions as that of the Ambassador, the foregoing provisions of the Vienna Convention consequently apply to ACB's Executive Director. On the other hand, as for the officials of ACB it is clear from the provisions of the Host Country Agreement that they shall be extended similar exemptions as that accorded to the ASEAN Secretariat and its staff, and in accordance with the laws and regulations prevailing in the jurisdiction of the Government of the Philippines, provided however, that the aforementioned officials shall also be designated by ADB's Executive Director and subject to the approval of the Government of the Philippines. As such, pending the designation of ACB's officials and approval thereof by the Government of the Philippines, this Office declines to rule on this matter. 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. cATDIH Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue