ITAD BIR Ruling No. 315-14

November 24, 2014 ITAD BIR RULING NO. 315-14 Sec. 106 (A) (2) (c), 1997 NIRC, as amended Article II (Section 8), Convention on the Privileges and Immunities of the United Nations United Nations Population Fund (UNFPA) 30th Floor Yuchengco Tower 1 RCBC Plaza 6819 Ayala Avenue Makati City Attention: Rena Doa Assistant Representative Gentlemen : This refers to your Note No. PHI/GEN-023 dated 08 January 2014 indorsed to this Office by the Department of Finance (DOF) and the Department of Foreign Affairs (DFA), requesting exemption from value-added tax (VAT) on the local purchase of four (4) units of motor vehicle, for the official use of the United Nations Population Fund (UNFPA), specifically described as follows: Make Year Color Chassis Number Engine Number Nissan X-Trail 2013 White X TDBNLJWT31A17575 QR25 198266B CVT 2.5 AT 4WD Nissan X-Trail 2013 White X TDBNLJWT31A17569 QR25 198252B CVT 2.5 AT 4WD Nissan X-Trail 2013 White X TDBNLJWT31A17577 QR25 198259B CVT 2.5 AT 4WD Nissan X-Trail 2013 White X TDBNLJWT31A16083 QR25 111110B CVT 2.5 AT 4WD It is represented that pursuant to United Nations (UN) General Assembly Decision 50/438 of 20 December 1995 on UNFPA Institutional Arrangements, UNFPA and UNDP had agreed to designate the Fund Resident Country Directors as Fund Representatives; that the UNFPA Representatives will function fully as part of the UN Resident Coordinator System, thereby strengthening the activity, effectiveness and visibility of UNFPA at the country level; that this refinement in UNFPA institutional arrangements will be particularly important in the context of collaboration and complementarity among UN agencies; that UNFPA was part of the Basic Assistance Agreement between the UNDP and the Philippines; that with the new institutional arrangements of UNFPA, per the General Assembly Decision, the designated UNFPA Country Director, Hon. Nafis Sadik, M.D., proposes that the Basic Assistance Agreement of UNDP apply mutatis mutandis to UNFPA; that in the 21 October 1996 letter-reply of Hon. Federico M. Macaranas, then Acting Secretary of Foreign Affairs to Hon. Nafis Sadik, M.D., Under-Secretary-General, UNFPA, the Philippine Government agreed to have the Philippines-UNDP Agreement apply to UNFPA, mutatis mutandis. HAICTD In reply thereto, please be informed of Paragraph 1, Article IX of the Agreement between the Government of the Republic of the Philippines and the United Nations Development Programme, 1 which 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 2 ("UN Convention") 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 UN 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." ETHSAI The aforecited provision of the UN Convention clearly requires that to be entitled to a possible remission or return of the amount of duty or tax, the subject purchase must be for official use of the UN. But in lieu of remission or return of the amount of duty or tax related to the purchase for official use, a tax exemption privilege is instead granted. 3 In relation thereto, please be informed that Section 109 (1) (K) of the 1997 National Internal Revenue Code (NIRC), as amended, 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;" Moreover, pursuant to Section 106 (A) (2) (c) of the 1997 NIRC, sales of goods by 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, . . . SDHacT (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." Accordingly, the sale of four (4) units 2013 Nissan X-Trail CVT 2.5 AT 4WD by the VAT-registered local car dealer to UNFPA, a transaction which is exempt from VAT, for the latter's official use, shall be subject to VAT at zero-percent (0%) rate. 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 Bureau of Internal Revenue Footnotes 1. Signed on 21 July 1977. 2. Adopted by the General Assembly on 13 February 1946. 3. BIR Ruling No. ITAD-46-07 dated 11 April 2007 citing VAT Ruling No. 143-90 which revoked VAT Ruling No. 176-89.