ITAD BIR Ruling No. 289-13

October 10, 2013 ITAD BIR RULING NO. 289-13 Section 32 (B) (5), 1997 NIRC, as amended; Articles 7 & 105, UN Charter of 1945; Section 7, Article II, UN Convention of 1946 Manabat Sanagustin & Co. CPAs The KPMG Center, 9th Floor 6787 Ayala Avenue Makati City 1266 Attention: Mr. Herminigildo G. Murakami Principal, Tax Gentlemen : This refers to your 15 July 2013 letter on behalf of The United Nations ("the UN"), requesting confirmation of the tax exemption privileges for the assets and investment income held in the Philippines by the United Nations Joint Staff Pension Fund ("UNJSPF") , including tax assessed on both direct and indirect investments. It is represented that the UNJSPF was established as a Subsidiary Organ pursuant to UN General Assembly Resolution 248 (III), entitled "Regulations for the United National Joint Staff Pension Fund" which took effect 23 January 1949, and which have been amended by the Assembly a number of times since then, following recommendations by and consultation with the United Nations Joint Staff Pension Board; that the main purpose of the UNJSPF is to provide retirement, death, disability and related benefits for the staff of the UN; that the fund currently serves 23 member organizations and more than 121,000 active participants and 65,000 beneficiaries; that the assets of the UNJSPF are acquired, deposited and held in the name of the UN; that the said assets are invested globally in approximately 44 countries and 28 currencies; that the UNJSPF holds a diversified portfolio of assets that attempts to allocate risk between different asset classes; that the majority of the UNJSPF's investments are transferable securities, including publicly traded shares and bonds; that the UNJSPF does not hold, either directly or indirectly, controlling interest in the entities in which it invests, and it does not engage the services of an external investment manager, investment advisor or other dependent agent in the countries where it conducts its investments. CTcSIA In reply, please be informed that Section 32 (B) (5) of the 1997 National Internal Revenue Code, as amended ("1997 NIRC, as amended") provides, viz. : "SEC. 32. Gross Income . xxx xxx xxx (B) Exclusions from Gross Income . The following items shall not be included in gross income and shall be exempt from taxation under this Title: xxx xxx xxx (5) Income Exempt under Treaty . Income of any kind to the extent required by any treaty obligation binding upon the Government of the Philippines. xxx xxx xxx" In relation thereto, Article 7, Chapter III and Article 105, Chapter XVI of the 1945 Charter of the United Nations ("UN Charter") provide, viz. : "CHAPTER III Organs xxx xxx xxx Article 7 1. There are established as the principal organs of the United Nations: a General Assembly, a Security Council, an Economic and Social Council, a Trusteeship Council, an International Court of Justice, and a Secretariat. IEHaSc 2. Such subsidiary organs as may be found necessary may be established in accordance with the present Charter." (Underscoring supplied) "CHAPTER XVI Miscellaneous Provisions xxx xxx xxx Article 105 1. The Organization shall enjoy in the territory of each of its Members such privileges and immunities as are necessary for the fulfillment of its purposes. 2. Representatives of the Members of the United Nations and officials of the Organization shall similarly enjoy such privileges and immunities as are necessary for the independent exercise of their functions in connection with the Organization. 3. The General Assembly may make recommendations with a view to determining the details of the application of paragraphs 1 and 2 of this Article or may propose conventions to the Members of the United Nations for this purpose. . . ." Further thereto, Section 7, Article II of the Convention on the Privileges and Immunities of the United Nations ("UN Convention") adopted by the General Assembly of the UN on 13 February 1946 provides, viz. : "Article II Property, Funds and Assets SEC. 7. The United Nations, its assets, income and other property shall be: aEAIDH (a) Exempt from all direct taxes ; it is understood, however, that the United Nations will not claim exemption from taxes which are, in fact, no more than charges for public utility services; (b) Exempt from customs duties and prohibitions and restrictions on imports and exports in respect of articles imported or exported by the United Nations for its official use. It is understood, however, that articles imported under such exemption will not be sold in the country into which they were imported except under conditions agreed with the Government of that country; (c) Exempt from customs duties and prohibitions and restrictions on imports and exports in respect of its publications. (Underscoring supplied) ICHAaT Based on the foregoing, the UNJSPF, being a Subsidiary Organ of the UN, an international organization accorded taxation privileges as are necessary for the fulfillment of its purposes under the 1945 UN Charter and 1946 UN Convention to which the Republic of the Philippines is a signatory and is legally bound, shall be exempt from all direct taxes for its assets and investment income held in the Philippines pursuant to the Section 32 (B) (5) of the 1997 NIRC, as amended. 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