ITAD BIR Ruling No. 378-12

November 20, 2012 ITAD BIR RULING NO. 378-12 Sec. 109 (K), NIRC of 1997, as amended; Convention on the Privileges and Immunities of the Specialized Agencies of the UN; Cooperation Agreement between the Government of the Republic of the Philippines and the International Organization for Migration Wilfredo R. Cuyugan Assistant Secretary, Office of Protocol Department of Foreign Affairs 2330 Roxas Blvd., Pasay City Dear Assistant Secretary Cuyugan : This refers to your indorsement dated September 10, 2012 of the letter of Mr. Duc Tran, Chief of Administration Services of the International Organization for Migration ("IOM") dated July 13, 2012, requesting for the issuance of proof of tax exemption on interest earned income for the IOM, as required by the China Banking Corporation. In reply, please be informed that exemption on interest income of international organizations is generally governed by Section 32 (B) of the 1997 National Internal Revenue Code, as amended (Tax Code). It provides: "Sec. 32. Gross Income. xxx xxx xxx (B) Exclusions from Gross Income. The following items shall not be included in gross income and shall be exempt from taxation under this Title. xxx xxx xxx (5) Income Exempt under Treaty. Income of any kind to the extent required by any treaty obligation binding upon the Government of the Philippines. xxx xxx xxx" In connection thereto, Articles 3 (1) and 4 of the March 13, 2003 Cooperation Agreement between the Government of the Republic of the Philippines and the International Organization for Migration ("PH-IOM Agreement") provide that: DCSTAH "Article 4 The Director and the Deputy Director General of the Organization, on the one hand, and on the other hand, the staff of the organization shall enjoy in the Republic of the Philippines the same privileges and immunities as those granted to executive heads and to the staff, respectively, of specialized agencies of the United Nations by virtue of the Convention on the privileges and immunities of the specialized agencies of 21 November 1947 . xxx xxx xxx " (Underscoring ours) Sections 18 and 19 of Article VI of the aforementioned Convention provide as follows: "Article VI OFFICIALS Section 18. Each specialized agency will specify the categories of officials to which the provision of this article and of article VIII shall apply. It shall communicate to the Governments of all States parties to this Convention in respect of the agency and to the Secretary-General of the United Nations. The names of the officials included in these categories shall from time to time be made known to the above-mentioned Governments. Section 19. Officials of the specialized agencies shall: xxx xxx xxx (b) Enjoy the same exemptions from taxation in respect of the salaries and emoluments paid to them by the specialized agencies and on the same conditions as are enjoyed by officials of the United Nations ; . . ." (Underscoring ours) Relative thereto, Article V of the Convention on the Privileges and Immunities of the United Nations ("UN Convention") now applies. It provides: "Article V OFFICIALS xxx xxx xxx Section 18. Officials of the United Nations shall: IETCAS xxx xxx xxx (b) be exempt from taxation on the salaries and emoluments paid to them by the United Nations; . . ." (Underscoring ours) Based on the cited provisions of the PH-IOM Agreement, officials of the IOM are accorded the same privilege with that granted to the officials of specialized agencies of the UN and of the UN itself. Clearly, the officials of the UN and UN specialized agencies are accorded tax exemption only on salaries and emoluments received by them. There is no mention of tax exemption on interest income earned by these officials. In view thereof and applying the rule on strict construction of laws in granting tax exemptions that doubts should be resolved favoring taxability, this Office cannot confirm the requested exemption of interest income of IOM officials. However, as regards IOM itself, Article III, Section 9 of the UN Convention applies. It provides: "Article III PROPERTY, FUNDS AND ASSETS xxx xxx xxx Section 9. The specialized agencies , their assets, income and other property shall be: (a) Exempt from all direct taxes : it is understood, however, that the specialized agencies will not claim exemption from taxes which are, in fact, no more than charges for public utility services; SDECAI xxx xxx xxx" (Underscoring ours) Based on the foregoing, income of UN specialized agencies is exempt from direct taxes. The same tax immunity of the UN specialized agencies also applies to IOM. Hence, the interest income of IOM itself as an organization is, likewise, exempt from tax pursuant to the UN Convention in relation to the PH-IOM Agreement. It is hoped that we have assisted with the subject matter. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue