ITAD Ruling No. 022-05

March 29, 2005 ITAD RULING NO. 022-05 Sec 109 (q) of the Tax Code of 1997 BIR Ruling No. DA-ITAD-167-03 Deutsche Gesselschaft Fur Technische Zusammenarbeit (GTZ) c/o GDC-GTZ Office, 9/F, PDCP Bank Center LP Leviste cor. V.A. Rufino Sts.,Salcedo Village Makati City Gentlemen : This has reference to your (4) Note Verbale Nos. 3/2005 to 6/2005 all dated February 1, 2005 indorsed to this Office by the Department of Finance (DOF) and the Department of Foreign Affairs (DFA),requesting for exemption from payment of value-added tax (VAT) on the local purchase of four (4) motor vehicles, for the official use of the following GDC-GTZ Projects/German Embassy, specifically described as follows: 1) SUPPORT TO THE AGRARIAN REFORM PROJECT Type of use: Official use Make: Toyota Revo SR 2.4 DSL M/T Model year: 2004 Color: Glacia Engine No: 2L-5544598 Chassis No: LF82-6008438 2) PEACE BUILDING AND CONFLICT PREVENTION IN MINDANAO Type of use: Official use Make: Toyota Revo SR DSL 2.4 M/T Model year: 2004 Color: Glacia Engine No: 2L-5556053 Chassis No: LF82-6008618 3) SMALL AND MEDIUM ENTERPRISE DEVELOPMENT FOR SUSTAINABLE EMPLOYMENT PROGRAM Type of use: Official use AaSCTD Make: Toyota Revo SR 1.8 Gas M/T Model year: 2004 Color: Glacia Engine No: 7K-0749282 Chassis No: KF82-6009551 4) INTEGRATED WATER MANAGEMENT PROGRAM Type of use: Official use Make: Toyota Revo SR 2.4 DSL M/T Model year: 2004 Color: Glacia Engine No: 2L-5545391 Chassis No: LF82-6008433 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 a 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 office premises and accommodation for seconded experts; In addition, please be informed that Sec. 109 of the Tax Code of 1997 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 the 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, 2005 is, in effect, a grant of exemption from VAT. TAcSCH In view thereof, this Office is of the opinion and so holds that the local purchase of four (4) units of Toyota Revo, for the official use of GTZ are hereby exempt from value-added tax (VAT). (BIR Ruling No. DA-ITAD-167-03 dated November 14, 2003) Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group