ITAD BIR Ruling No. 316-12

August 15, 2012 ITAD BIR RULING NO. 316-12 Section 106 (A) (2) (c), NIRC of 1997, as amended; Articles 5 & 7, GADC between GRP and GOA; Par. 7, MSA between GRP and GOA relating to PRMF Embassy of Australia Level 23 Tower 2 RCBC Plaza 6819 Ayala Avenue, Makati City Gentlemen : This has reference to your Note No. 186/12 dated May 24, 2012 referred to this Office by the Department of Finance and the Department of Foreign Affairs, requesting exemption from payment of value-added tax (VAT) on the local purchase of motor vehicles for the official use of the Provincial Road Management Facility (PRMF) Project ,specifically described as follows: Make Model Year Color VIN Engine Number Mitsubishi Montero Sport GLS V 2.5L DSL 4X4 M/T 2012 Pyrenese Black MMBGNKH40CF016583 4D56UCDF9182 Cool Silver MMBGNKH40CF012608 4D56UCDD7447 Cool Silver MMBGNKH40CF012607 4D56UCDD7587 In reply, please be informed that Section 106 (A) (2) (c) of the National Internal Revenue Code of 1997 (NIRC of 1997), as amended provides, viz. : "Section 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 transferor: Provided, That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve-percent (12%),... (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." Relative thereto Article 5, paragraphs 1 & 2 of the General Agreement on Development Cooperation (GADC) between the Government of the Republic of the Philippines (GRP) and the Government of Australia (GOA) provides, viz. : ACaTIc "Article 5 Subsidiary arrangements 1. In support of the objectives of this Agreement, the Government of Australia and the Government of the Republic of the Philippines, or their agencies, statutory authorities or organizations may conclude subsidiary arrangements in respect of specific activities . 2. Subsidiary arrangements shall make specific reference to this Agreement and the terms of this Agreement shall, unless otherwise stated, apply to such subsidiary arrangements. Wherever possible, such subsidiary arrangements shall set out: (a) the name and duration of the activity; EICSDT (b) a description of the activity and statement of its objectives; (c) the nominated implementing agencies in both countries; (d) potential benefits of the activity; xxx xxx xxx (Underscoring supplied)" Moreover, Article 7 of the same GADC between GRP and GOA provides, viz. : " Article 7 Project supplies and professional and technical material and services 1. In respect of project supplies and professional and technical material and services whether to be imported from outside or procured within the Philippines, the Government of the Republic of the Philippines: (a) For direct supplies of domestic goods and services, subject them to zero rate for purposes of Value-Added Tax (VAT) ;exempt direct importation of goods from import duties, VAT and other taxes imposed in the Philippines (or pay such duties thereon);and be responsible for inspection fees, storage charges and all other levies, fees and charges; (b) Facilitate the expeditious clearance and release of imported goods including the provision of appropriate customs and wharfage facilities in the port of entry closest to the site of the activity; and (c) Unless provided otherwise, provide expeditious internal transport to the site of the activity. 2. Project supplies provided by the Government of Australia for a specific activity under this Agreement shall be available for the unrestricted use of that specific activity and shall not be withdrawn from that use without the consent of the Government of Australia. 3. The disposal of vehicles provided for activities executed under this Agreement shall be the subject of discussions between the two Governments and shall take into account the transport requirements of other activities assisted by the Government of Australia under the Program of development cooperation. (Underscoring supplied)" EDSHcT In this connection, a Memorandum of Subsidiary Arrangement (MSA) between the GRP and the GOA relating to the PRMF was signed on November 25, 2010. Its paragraph 7 provides, viz. : "7. Facility Supplies, Motor Vehicles and Professional and Technical Material and Services xxx xxx xxx 7.2 In respect of supplies, motor vehicles and professional and technical material and services required by the Project for the conduct of PRMF, whether imported into or procured within the Philippines, the GOP will: (a) coordinate with concerned agencies in the exemption of Expanded Value Added Tax (eVAT) and other duties and taxes imposed in the Philippines, and be responsible for inspection fees, storage charges and all other levies, fees and charges levied in the Philippines; and xxx xxx xxx" Based on the abovequoted provisions, the terms of the GADC, unless otherwise stated, shall apply to subsidiary arrangements making specific reference to said Agreement. It is worthy to note that the subject PRMF was created by virtue of the aforecited MSA between the GRP and the GOA signed on November 25, 2010 pursuant to Article 5 of the GADC. Such being the case, this office is of the opinion and so holds that the subject purchase of three (3) units of Mitsubishi Montero, for PRMF's official use shall be subject to VAT at zero percent rate pursuant to Section 106 (A) (2) (C) of the NIRC of 1997, as amended, in relation to Articles 5 and 7 of the GADC and paragraph 7 (7.2) of the MSA on the creation of PRMF. 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. TcIaHC Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue