ITAD BIR Ruling No. 278-15

October 16, 2015 ITAD BIR RULING NO. 278-15 Sections 109 (1) (K), 106 (A) (2) (c), 108 (B) (3) Tax Code; Article VII, Sec. 9, IBRD Articles of Agreement The World Bank/International Bank for Reconstruction and Development (IBRD) 26th Floor, One Global Place, 5th Avenue corner 25th Street Bonifacio Global City, Taguig City 1634 Attention: Agatha Pawlowska Acting Country Director, Philippines East Asia and the Pacific Region Gentlemen : This refers to your letter dated August 6, 2015 indorsed to this Office by the Department of Foreign Affairs (DFA), requesting confirmation of tax exemption of the World Bank/IBRD Manila Office. In reply, please be informed that Section 109 (1) (K) of the 1997 National Internal Revenue Code, as amended (Tax Code), provides as follows: "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;" Relative thereto, Section 9 (a), Article VII of the IBRD Articles of Agreement, provides: "Article VII Status, Immunities and Privileges xxx xxx xxx SECTION 9. Immunities from Taxation. (a) The Bank, its assets, property, income and its operations and transactions authorized by this Agreement, shall be immune from all taxation and from all customs duties. The Bank shall also be immune from the collection or payment of any tax or duty. CAIHTE xxx xxx xxx" Considering that the Philippines is a signatory 1 to the IBRD Articles of Agreement, the immunity from taxation on assets, property, income, official operations and transactions of the IBRD under the same is binding upon and recognized by the Philippines. Relative thereto, Sections 106 (A) (2) (c) and 108 (B) (3) of the Tax Code provides that sales of goods and services by value-added tax (VAT)-registered sellers to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to VAT at zero percent (0%) rate, 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: Provided, . . . (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: . . . (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. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties . . . . (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;" The purpose of these provisions is to maintain and recognize the exemption accorded by law to entities such as the IBRD by allowing sales of local suppliers to them to be zero-rated. This is inferred from the fact that under the above Tax Code provisions on zero-rating, it is not the person/entity accorded exemption under the law or international agreement who is given the zero-rating privilege and who benefits from the privilege of zero-rating, but the sales by VAT-registered local suppliers to such person/entity. In view of the foregoing, the World Bank/IBRD, its assets, property, income and its operations and transactions, shall be exempt from all taxes, pursuant to Section 109 (K) of the Tax Code in relation to Article VII, Section 9 of the IBRD Articles of Agreement. Accordingly, sale of goods and services by VAT-registered suppliers to World Bank/IBRD are effectively zero-rated under Sections 106 and 108 of the Tax Code. However, it should be made clear that the herein grant of tax exemption privilege applies only to the organization itself the World Bank/IBRD, and does not extend to its individual staff/officials. 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 Philippines became a member of the World Bank on December 27, 1945.