ITAD BIR Ruling No. 380-12

November 20, 2012 ITAD BIR RULING NO. 380-12 Sec. 109 (K), 1997 NIRC, as amended; Paragraph 4 (a), May 6, 2002 Diplomatic Exchange of Notes; Article 5, Agreement between the Government of the Federal Republic of Germany and the Government of the Republic of the Philippines Concerning Technical Co-operation Embassy of the Federal Republic of Germany 25th Floor, The RCBC Plaza, Tower 2 6819 Ayala Avenue, Makati City Attention: Ansgar Kremnitzer Attache Gentlemen : This refers to your Note Verbale Kfz No.: 75/2012 dated September 10, 2012 indorsed to this Office by the Department of Finance and the Department of Foreign Affairs (DFA), Office of Protocol, requesting exemption from Value-Added Tax (VAT) on the local purchase of a motor vehicle for the official use of the Deutsche Gesellschaft fr Internationale Zusammenarbeit (GIZ) , GIZ Office, Manila, specifically described as follows: Organization : Deutsche Gesellschaft fr Internationale Zusammenarbeit (GIZ), GIZ Office, Manila Type of use : Official use for the " Protection and Rehabilitation of Coastal Ecosystems for Improved Adaptation to Climate Change in the Philippines and the Coral Triangle " of the GIZ Make : one (1) unit Toyota Hi Lux 4x4 3.0 Diesel MT Model year : 2012 Color : Lithium Engine No. : 1KD5819402 Frame No. : MR0FZ29G101660765 It is represented that Deutsche Gessellschaft fr Internationale Zusammenarbeit (GIZ) is the new name of Deutsche Gessellschaft fr Technische Zusammenarbeit (GTZ) effective January 1, 2011, per Note No. 275/10 dated December 1, 2010 of the Embassy of the Federal Republic of Germany and DFA Note No. 11-0197 dated January 31, 2011; that the renaming of GTZ as GIZ is part of Germany's technical cooperation reform with the intention of increasing its efficiency and effectiveness by unifying structures and processes under a single agency; and that the said change of name shall have no effect on the existing arrangements and ongoing projects. AScTaD In reply, please be informed that Section 109 (K) of the 1997 National Internal Revenue Code (NIRC), as amended, provides, viz. : "SEC. 109. Exempt Transactions. 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;" Based on the foregoing, a transaction is exempt from VAT when a special law or an international agreement to which the Philippines is a signatory provides for such exemption. The Agreement between the Government of the Federal Republic of Germany and the Government of the Republic of the Philippines Concerning Technical Co-operation ( Technical Co-operation Agreement ) executed on September 7, 1971, together with the Diplomatic Exchange of Notes dated May 6, 2002 approving the Arrangement for the continuation of the GTZ Office in Manila, partakes the nature of an international agreement as provided in Section 109 (K) of the 1997 NIRC, as amended. Paragraph 4 (a) of the aforementioned Diplomatic Exchange of Notes is, in effect, a grant of exemption from VAT. It provides: "4. The Government of the Republic of the Philippines shall make the following contributions: It shall (a) exempt the material and motor vehicles supplied for the Office from taxes, licenses, harbour dues, import and export duties and other public charges, as well as storage fees, and ensure that such material is cleared by customs without delay. The aforementioned exemptions shall, with regard to value-added tax (VAT), also apply to material and services (including consulting services) procured in the Republic of the Philippines, as well as to the renting of office premises and accommodation for seconded experts ;" (Underscoring ours) TSacAE In view thereof, this Office is of the opinion and so holds that the purchases made by GIZ of materials and motor vehicles in the Philippines pursuant to the aforementioned Technical Co-operation Agreement, and Diplomatic Exchange of Notes, are exempt from VAT, based on Section 109 (K) of the 1997 NIRC, as amended. Hence, the herein request for exemption from VAT on the local purchase of a Toyota Hi Lux 4x4 3.0 Diesel MT, for the official use of the Protection and Rehabilitation of Coastal Ecosystems for Improved Adaptation to Climate Change in the Philippines and the Coral Triangle of the GIZ is hereby granted. Accordingly, the sale of the above motor vehicle by the local car dealer to GIZ, being a tax-exempt entity, shall be subject to VAT at zero-percent (0%) rate pursuant to Section 106 (A) (2) (c). 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. aITECA Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue