ITAD Ruling No. 036-05

April 20, 2005 ITAD RULING NO. 036-05 Sections 105, 106 and 109, Tax Code of 1997 BIR Ruling No. DA-ITAD-173-03 BIR Ruling No. DA ITAD-63-02 World Islamic Call Society Suite 1102 Liberty Centre Building 104 H.V. dela Costa Street, Salcedo Village 1227 Makati City Gentlemen : This refers to your letters dated November 14, 2003 and January 21, 2004 requesting for the issuance of VAT Exemption Certificate (VEC) in favor of your Office, World Islamic Call Society (WICS),Mr. Gamal N. Ahmed, a representative of WICS in Manila, and his wife, Mrs. Ghada M.M. Alkorati. In support of your request, you cited the Memorandum of Understanding between the Government of the Republic of the Philippines and the World Islamic Call Society entered into on November 17, 2002 (Memorandum of Understanding) as the legal basis for the exemption from value-added tax (VAT). In reply, please be informed that Section 105 of the National Internal Revenue Code of 1997 (Tax Code) provides that any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods, shall be subject to the 10 percent VAT. Being an indirect tax, the VAT may be shifted or passed on to the buyer, transferee, or lessee of the goods, properties, or services. However, Sections 106(A)(2)(c), 108(B)(3) and 109(q) of the Tax Code either exempt from VAT or subject to zero percent VAT goods and services sold to persons and entities whose tax treatment under special laws or international agreements to which the Philippines is a signatory exempts or effectively subjects to zero percent such goods and services sold to them. In this regard, Article II of the Memorandum of Understanding provides, viz : "Article II Property, Funds, Assets 1. Unless otherwise provided in this MOU, and in accordance with Philippine law, the Society, including its property, funds and assets shall enjoy privileges in accordance with the Convention and Privileges and Immunities of Specialized Agencies of 21 November 1947, and of Philippine laws and regulations pertinent to this matter .(underscoring supplied) 2. Subject to Philippine law, the Society shall be exempt from all taxes and customs duties on import and export of articles imported or exported for its official use .The articles imported under such exemption may not be sold within the country without the Government's prior approval and under conditions stipulated by it. The articles may, however, be exported subject to existing laws and regulations of the Government. (underscoring supplied) In this connection, Article 3, Section 10 of the Convention on Privileges and Immunities of the Specialized Agencies of 21 November 1947 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, it is clear that the official purchases of goods and services in the Philippines by WICS as an accredited organization under the provisions of the Convention of Privileges and Immunities of Specialized Agencies of 21 November 1947, are accorded accorded exemption from indirect taxes such as the VAT imposed under Section 106 of the Tax Code. Such being the case, this Office is of the opinion and so holds that WICS is exempt from the payment of VAT on it official purchases of goods and services in the Philippines. (VAT Ruling No. 109-99 dated November 22, 1999) However, request for the issuance of VEC in favor of Mr. Gamal N. Ahmed and his wife, Mrs. Ghada M.M. Alkorati cannot be given due course for lack of legal basis. Clearly, the tax exemption accorded by the Memorandum of Understanding between the Government of the Republic of the Philippines and the World Islamic Call Society is only limited to official purchases of goods and services of WICS. In other words, VAT exemption is limited to WICS official purchases of goods and services and does not extend to WICS' personnel nor to their personal purchases thereof. Accordingly, this Office cannot issue the requested VECs in favor of Mr. Gamal N. Ahmed and Mrs. Ghana M.M. Alkorati for lack of legal basis. (BIR Ruling No. DA ITAD-63-02 dated April 24, 2002) 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 insofar as the herein parties are concerned. TaDSHC Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group