ITAD BIR Ruling No. 373-12

November 13, 2012 ITAD BIR RULING NO. 373-12 Secs. 106 and 109, 1997 NIRC, as amended; Article III (Section 10) and Article I (Section 1), Vienna Convention on the Privileges and Immunities of the Specialized Agencies of the United Nations; BIR Ruling No. ITAD-116-11 United Nations Development Programme 30/F Yuchengco Tower 1 Ayala Avenue cor. G. Puyat Avenue 6819, Makati City Attention: Renaud Meyer Resident Representative Gentlemen : This refers to your letter dated September 17, 2012 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 one (1) motor vehicle, for the official use of the UN OCHA of the United Nations Development Programme (UNDP), specifically described as follows: Make : Toyota Hi-Lux 4x4 3.0L G M/T Model Year : 2012 Color : 1C0 Lithium Engine Number : 1 KD5811500 Chassis Number : MR0FZ29G401659822 In reply, 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;" With respect to an international agreement, there is the Agreement between the Government of the Republic of the Philippines and the United Nations Development Programme . 1 Paragraph 1, Article IX thereof 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." IaTSED 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." 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. 3 Such being the case, and since UNDP is a specialized agency of the UN, this Office is of the opinion and so holds that aforementioned purchase of one (1) unit 2012 Toyota Hi-Lux 4X4 3.0L G M/T by UNDP, for its official use, is exempt from VAT. (BIR Ruling No. ITAD-116-11 dated April 11, 2011) . Moreover, pursuant to Section 106 (A) (2) (c) of the 1997 NIRC, as amended, sales of goods by VAT-registered sellers to persons or entities who are tax-exempt under special laws or international agreements to which the Philippines is a signatory are effectively zero-rated, 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. 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." Accordingly, the sale of the above motor vehicle by the local car dealer to UNDP, being a tax-exempt entity, 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. ScaEIT Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Signed on July 21, 1977. 2. Adopted by the General Assembly on February 13, 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.