ITAD Ruling No. 001-04

January 12, 2004 ITAD RULING NO. 001-04 NIRC, Sec. 109 VAT Ruling No. 109-99 International Labour Organization Subregional Office for South-East Asia and the Pacific NEDA sa Makati Bldg., 106 Amorsolo St. Legaspi Village, Makati City Attention: Warner Konrad Blenk Director Gentlemen : This refers to your letter dated September 17, 2003, indorsed to this Office by the Department of Foreign Affairs and the Department of Finance, requesting exemption from the payment of value-added tax (VAT) on the purchase of goods and services by the International Labour Organization Sub-Regional Office for South-East and the Pacific, Manila (ILO Manila). It is represented that ILO Manila is a specialized agency of the United Nations; that it is in the process of considering to relocate its office and consequently reviewing its lease agreement; that included in the lease agreement are some provisions for payment VAT; and that pursuant to the UN Charter and to the Convention on the Privileges and Immunities of the Specialized Agencies of the United Nations to which the Philippines is a signatory, ILO Manila is exempt from the payment of VAT. In reply, please be informed that Section 109 of the National Internal Revenue Code of 1997 (NIRC) provides, viz : "Sec. 109. Exempt transactions The following shall be exempt from the value-added tax: "xxx xxx xxx" "(q) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under Presidential Decree Nos. 66, 529 and 1590; In this connection, Article 3, Section 10 of the Convention on the Privileges and Immunities of the Specialized Agencies of the United Nations to which the Philippines is a signatory, provides, viz ; "Article III Property, Funds and Assets "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 form part of the price to be paid, nevertheless when the specialized agencies are making important purchases for the official use of property on which such duties and taxes have been charged or 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." Based on the above-quoted provisions, official purchases of goods and services in the Philippines by specialized agencies of the United Nations are recorded exemption from indirect taxes such as the VAT imposed under Section 106 of the Tax Code of 1997. Such being the case, and since the International Labour Organization is a specialized agency of the United Nations, this Office is of the opinion and so holds that ILO Manila is exempt from the payment of VAT on its official purchases of goods and services in the Philippines. (VAT Ruling No. 109-99 dated November 22, 1999) 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 without force and effect as the herein parties are concerned. DHEaTS Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service