ITAD BIR Ruling No. 317-11

December 15, 2011 ITAD BIR RULING NO. 317-11 Article V (Facilities, Privileges and Immunities), Basic Agreement between the Philippine Government and the United Nations/Food and Agriculture Organization World Food Program Concerning Assistance from the World Food Program; Article III (Property, Funds and Assets), Convention on the Privileges and Immunities of the Specialized Agencies of the United Nations World Food Programme-Philippines 5th Floor, GC Corporate Plaza 150 Legaspi Street Makati City Attention: Stephen L. Anderson Country Director and Representative Gentlemen : This refers to your letter dated July 11, 2011, as indorsed to us by the Department of Foreign Affairs, requesting confirmation that fuel purchased by the United Nations World Food Programme ("WFP") is exempt from applicable taxes. WFP is the United Nations' frontline agency mandated to combat global hunger, which afflicts one out of every seven people on earth. In emergencies, WFP is on the frontline, delivering food to save the lives of victims of war, civil conflict and natural disasters. After the cause of an emergency has passed, WFP uses food to help communities rebuild their shattered lives. The vision of WFP is a world in which every man, woman and child has access at all times to the food needed for an active and healthy life. 1 In reply, under Sections 106 (A) (2) (c) and 109 (1) (K) of the National Internal Revenue Code of 1997 ("Tax Code") , as amended, 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: AaITCS "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;" With respect to an international agreement, there is the Basic Agreement between the Philippine Government and the United Nations/Food and Agriculture Organization World Food Program Concerning Assistance from the World Food Program. 3 Paragraph 2, Article V thereof provides: HEacDA "ARTICLE V FACILITIES, PRIVILEGES AND IMMUNITIES xxx xxx xxx 2. The Government shall apply the provisions of the Convention on the Privileges and Immunities of the Specialized Agencies to the World Food Program, its property, funds and assets and to its officials and consultants. xxx xxx xxx" Under paragraph 2 above, the Philippines shall grant to the WFP, its property, funds and assets, and to its officials and consultants, those privileges and immunities under the Convention on the Privileges and Immunities of the Specialized Agencies of the United Nations. 4 In this connection, Section 10, Article III of the Convention provides: "Article III PROPERTY, FUNDS AND ASSETS xxx xxx xxx Section 10. While the specialized agencies will not, as a general rule, claim exemption from excise duties and from taxes on the sale of movable and immovable property which forms part of the price to be paid, nevertheless when the specialized agencies are making important purchases for official use of property on which such duties and taxes have been charged or are chargeable, States parties to this Convention will, whenever possible, make appropriate administrative arrangements for the remission or return of the amount of duty or tax." 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 specialized agency. 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. This tax exemption privilege extends to indirect taxes such as VAT considering that the subject provision of the UN Convention covers "taxes on the sale of movable and immovable property which forms part of the price to be paid" and VAT forms part of the price of goods for sale in the ordinary course of business. Hence, important purchases of goods in the Philippines for official use of the specialized agencies of the United Nations are accorded exemption from indirect taxes imposed under Section 106 of the Tax Code. ECcTaS Such being the case, and since the WFP is a specialized agency of the United Nations, this Office is of the opinion and so holds that aforementioned purchase of fuel for the official use of WFP is exempt from VAT pursuant to Section 109 (1) (K) of the Tax Code, and the afore-discussed UN Convention ( VAT Ruling No. 008-98 dated January 1998). It is hereby understood that this exemption applies only to fuel purchased under the name of WFP for its official use. As to the sale made by the petroleum dealer, it shall be subject to VAT at zero percent (0%) rate pursuant to Section 106 (a) (2) (c) of the Tax Code subject to post-reportorial requirements to be submitted quarterly to the Audit Information, Tax Exemption and Incentives Division (AITEID) under the Assessment Service of the Bureau of Internal Revenue showing the following information: (a) VAT Ruling Number and date; (b) Official Receipt number/s, which must be under the name of WFP correspondingly stamped as "Zero-rated"; and, (c) total of volume of fuel purchased by WFP for the period. ICHDca Furthermore, WFP shall also provide AITEID information as to its official purchases of fuel through a quarterly summary report of all its purchases which procedure shall be dealt with separately in another revenue issuance. Lastly, such fuel purchased by the WFP is exempt from excise tax as provided under Section 135 (c) of the Tax Code, to wit: "SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. Petroleum products sold to the following are exempt from excise tax: (a) International carriers of Philippine or foreign registry on their use or consumption outside the Philippines: Provided, That the petroleum products sold to these international carriers shall be stored in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner; (b) Exempt entities or agencies covered by tax treaties, conventions and other international agreements for their use of consumption: Provided, however, That the country of said foreign international carrier or exempt entities or agencies exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies; and (c) Entities which are by law exempt from direct and indirect taxes. " (emphasis supplied) 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 shall be considered null and void. ETaSDc Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. http://www.wfp.org/faqs#faq1. 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 2, 1968, and entered into force on October 2, 1972. 4. Adopted by the General Assembly on November 21, 1947.