ITAD Ruling No. 018-04

February 23, 2004 ITAD RULING NO. 018-04 Sec 109 (q) of the Tax Code of 1997 BIR Ruling No. DA-ITAD-91-03 Deutsche Gesselschaft Fur Technische Zusammenarbeit (GTZ) c/o GDC-GTZ Office, 9/F, PDCP Bank Center Makati City Attention: Dirk Rahlenbeck Third Secretary Gentlemen : This has reference to your Note Verbale KFZ No. 2/2004 dated January 13, 2004 indorsed to this Office by the Department of Foreign Affairs (DFA), requesting for exemption from payment of value-added tax (VAT) on the local purchase of three (3) motor vehicles, for the official use of GDC-GTZ Office of the German Embassy, specifically described as follows: Type of use: Official use Organization: GTZ"Support of Decentralization Structures in the Visayas Regions" 9/F, PDCP Bank Center, L.P. Leviste corner V.A. Rufino Streets, Salcedo Village, Makati City Make: Three (3) units Toyota Revo VX200 Model year: 2003 Color: Kool Kristal Engine No: 1) RZF82 003412 2) RZF82 003425 3) RZF82 0003416 Chassis No: 1) 1RZ 3132417 2) 1RZ 3134420 3) 1RZ 3132871 In reply, please be informed that paragraph 4(a) of the Diplomatic Exchange of Notes dated May 6, 2002, 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; (Emphasis supplied) In addition, please be informed that Sec. 109 of the 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; xxx xxx xxx Under the above-cited provisions, 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 herein Agreement between the Government of the Federal Republic of Germany and the Government of the Republic of the Philippines Concerning Technical Co-operation executed on September 7, 1971, with Diplomatic Exchange Notes dated May 6, 2002 partakes of the nature of an international agreement. The cited paragraph 4(a) of the Diplomatic Exchange of Notes dated May 6, 2002 is, in effect, a grant of exemption from VAT. AaHcIT In view thereof, this Office is of the opinion and so holds that the purchases made by GTZ of materials and services in the Philippines under the Agreement between the Government of the Federal Republic of Germany and the Government of the Republic of the Philippines Concerning Technical Co-operation executed on September 7, 1971, with Diplomatic Exchange Notes dated May 6, 2002 are exempt from VAT, pursuant to Sec. 109(q) of the NIRC. In view thereof, you herein request for exemption from VAT on the local purchase of three (3) units of Toyota Revo VX200, for the official use of GTZ is hereby exempt from value-added tax (VAT). (BIR Ruling No. DA-ITAD-91-03 dated July 3, 2003) Very truly yours, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service