ITAD BIR Ruling No. 245-12

June 6, 2012 ITAD BIR RULING NO. 245-12 Article IX (Privileges and Immunities), Agreement between the Government of the Republic of the Philippines and the United Nations Development Programme; Article II (Property, Funds and Assets), Convention on the Privileges and Immunities of the United Nations; BIR Ruling No. ITAD-002-11 United Nations Development Programme 30th Floor, Yuchengco Tower, RCBC Plaza 6819 Ayala Avenue corner Sen. Gil J. Puyat Avenue Makati City Attention: Renaud Meyer Country Director Gentlemen : This refers to your letter dated April 26, 2012, as indorsed to us by the Department of Foreign Affairs and the Department of Finance, requesting for exemption from payment of value-added tax (VAT) on the local purchase of one (1) motor vehicle, for the official use of the United Nations Industrial Development Organization (UNIDO) , a specialized agency of the United Nations Development Programme (UNDP) , specifically described as follows: Make: Isuzu D-Max 4x2 MT LT Model Year: 2012 Chassis No.: PABTFR54HDB000493 Engine No.: 4JA1180193P In reply, please be informed that under Section 106 (A) of the National Internal Revenue Code of 1997 ("Tax Code") , as amended, the sale of goods or properties in the Philippines is generally subject to VAT, 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, a 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 transferors: Provided, That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, 1 raise the rate of value-added tax to twelve percent (12%), . . ." Under Section 105 of the Tax Code, the VAT is the liability of the seller but since it is an indirect tax, VAT may be shifted or passed-on to the buyer or transferee of the goods or properties, thus: "SEC. 105. Persons Liable. Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code. DaAISH The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act No. 7716. . ." However, under Section 106 (A) (2) (c) and 109 (1) (K) of the Tax Code, certain transactions involving the sale of goods or properties are subject to VAT at zero percent or are exempt from VAT 2 (where in either case no output VAT is shifted or passed on to the buyer or transferee of the goods or properties) if they are treated as such under special laws or international agreements to which the Philippines is a signatory, 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 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. 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." TICAcD With respect to an international agreement, there is the Agreement between the Government of the Republic of the Philippines and the United Nations Development Programme. 3 Paragraph 1, Article IX thereof provides: "Article IX PRIVILEGES AND IMMUNITIES 1. The Government shall apply to the United Nations and its organs, including the UNDP and U.N. subsidiary organs acting as UNDP Executing Agencies, their property, funds and assets, and to their officials, including the resident representative and other members of the UNDP mission in the country, the provisions of the Convention on the Privileges and Immunities of the United Nations." Under paragraph 1 above, the Philippines shall grant the same privileges and immunities under the Convention on the Privileges and Immunities of the United Nations 4 to the UNDP, its property, funds and assets, and to its officials, resident representative and other members. In this connection, Section 8, Article II of the Convention provides: "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." Under Section 8 above, the Philippines, as host country to the UNDP, shall make appropriate administrative arrangements for the return or refund of taxes paid by the UNDP on its important purchases of property in the Philippines. Accordingly, in the case of VAT being an indirect tax, this tax cannot be shifted or passed-on to the UNDP on its purchase of property in the Philippines. DaAETS This being so, this Office hereby rules that the sale of the subject motor vehicle for the official use of UNIDO, a specialized agency of UNDP, shall be exempt from VAT and from excise tax, pursuant to paragraph 1, Article IX of the Agreement, in relation to Section 8, Article II of the 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. The VAT rate was increased to 12 percent on February 1, 2006 , in accordance with the Memorandum of the Executive Secretary to the Secretary of Finance dated January 31, 2006, as circularized by Revenue Memorandum Circular No. 7-2006 (Publishing the Full Text of the Memorandum from Executive Secretary Eduardo R. Ermita dated January 31, 2006 Approving the Recommendation of the Secretary of Finance to Increase the Value Added Tax Rate from Ten Percent to Twelve Percent) dated January 31, 2006. 2. 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+." 3. Signed on July 21, 1977. 4. Adopted by the General Assembly on February 13, 1946.