ITAD BIR Ruling No. 317-12

August 22, 2012 ITAD BIR RULING NO. 317-12 Section 4, Presidential Decree No. 1249; Section 1, Executive Order No. 93 International Potato Center PCARRD Complex Los Baos, Laguna Attention: Dindo M. Campilan Research Program Leader Asia SP/RTCs Gentlemen : This refers to your letter dated July 22, 2011 requesting for the issuance of a Value-Added Tax ("VAT") Exemption Certificate in favor of the International Potato Center ("IPC") . Relative thereto, you invoke Presidential Decree No. 1249 (Granting Authority and Incentives to the Philippine Council for Agriculture and Resources Research in its Generation of Foreign Funding for Research) issued on November 25, 1977. Section 4 thereof provides that items of equipment and supplies including but not limited to construction materials, laboratory supplies, fixtures, scientific equipment, machinery, household, office and laboratory furnishing and vehicles imported by the Philippine Council for Agriculture and Resources Research ("PCARR") or by international agencies or organizations are exempt from payment of customs duty or other tax, thus: " Section 4. Items of equipment and supplies including but not limited to construction materials, laboratory supplies, fixtures, scientific equipment, machinery, household, office and laboratory furnishing and vehicles imported by PCARR or by representatives of international agencies/organizations in consultation with PCARR will be exempt from payment of customs duty or other tax;" (Underscoring supplied) Furthermore, under the Preamble of this Decree, IPC is expressly mentioned as among those international agencies or organizations with which the Philippines has existing international agreements, to wit: "WHEREAS, the Philippine Council for Agriculture and Resources Research (PCARR) as created by Presidential Decree No. 48 to provide a systematic approach in the planning, administration and implementation of the government's agriculture and resources research program; EaIcAS xxx xxx xxx WHEREAS, to augment research funds and to accelerate technology transfer and research, PCARR has entered into agreements with funding agencies and international research centers such as USAID, the International Potato Center (CIP) ,Centro International de Meyramiento de Maiz y Trigo (CYMMIT),Centro internacional de Agricultura Tropical (CIAT),the International Soybean Research Program (INTSOY),the Rubber Research Institute of Malaysia (RRIM) and other similar agencies;" (Underscoring supplied) 1 In reply, please be informed that Section 109 (1) (K) of the National Internal Revenue Code of 1997 ("Tax Code") ,as amended, certain transactions are exempt from VAT 2 if they are treated as such under international agreements to which the Philippines is a signatory or under special laws, thus: "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;" In view of all of the foregoing, since Presidential Decree 1249 limits the exemption of IPC to customs duty and other applicable taxes on importation ,this Bureau cannot issue a certificate or ruling to IPC to the effect that the sale of goods, the supply of services, and the lease of properties, in the Philippines, to IPC are exempt from VAT. At most, this Bureau confirms the exemption of IPC but solely to VAT and excise tax normally imposed on importation under Sections 107 (A) and 129 of the Tax Code, to wit: cIETHa "SEC. 107. Value Added Tax on Importation of Goods . (A) In General . There shall be levied, assessed and collected on every importation of goods a value-added tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in determining tariff and customs duties plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody: Provided, That where the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes, If any." "SEC. 129. Goods subject to Excise Taxes . Excise taxes apply to goods manufactured or produced in the Philippines for domestic sales or consumption or for any other disposition and to things imported. The excise tax imposed herein shall be in addition to the value-added tax imposed under Title IV." subject to the requirement under Section 4 of PD 1249 for IPC to consult PCARR in case of importation of items or equipment mentioned therein. This ruling is issued on the basis of the foregoing 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 tax incentives granted under Presidential Decree 1249 has not been withdrawn under Executive Order No. 93 (Withdrawing All Tax and Duty Incentives, Subject to Certain Exceptions, Expanding the Powers of the Fiscal Incentives Review Board and for Other Purposes) issued on December 17, 1986. Section 1 thereof provides: "Sec. 1. The provisions of any general or special law to the contrary notwithstanding, all tax and duty incentives granted to government and private entities are hereby withdrawn, except: xxx xxx xxx b) those conferred by effective international agreements to which the Government of the Republic of the Philippines is a signatory;" 2. Revenue Regulations No. 16-2005 (Consolidated Value-Added Tax Regulations of 2005) ,as amended, provides: "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."