ITAD Ruling No. 043-03

March 6, 2003 ITAD RULING NO. 043-03 Sec. 109 (q), Tax Code of 1997 Art. 7 (1) (a), General Agreement on Development Cooperation Memorandum of Subsidiary Agreement BIR Ruling No. DA-ITAD 14-03 Philippines-Australia Governance Facility (PAGF) Unit 1702 Equitable Bank Tower 8751 Paseo de Roxas, Makati City Attention: Dr. Ross Worthington Facility Director Gentlemen : This refers to your request under Note No. 286/02 dated August 27, 2002 indorsed to this Office by the Department of Finance for exemption from payment of value-added tax on the local purchase of one (1) unit motor vehicle, a 2002 Honda Civic 1.5 LXI A/T for the official use of the Philippine Australian Governance Facility (PAGF)/Australian Embassy, specifically described as follows: Type of Use: Official Make: Honda Civic 1.5 LXI A/T Model Year: 2002 Color: Titanium Silver Chassis No.: PADES86301V000548 Engine No.: PSGD5-1000542 Records show that the Government of the Philippines (GOP) and the Government of Australia (GOA) executed the General Agreement on Development Cooperation (GADC) to strengthen existing cordial relations and foster cooperation between the two countries in conformity with the socio-economic development programs of the Government of the Philippines; that by virtue of Article 5 of the GADC, the two countries concluded a memorandum of subsidiary arrangement relating to PAGF; that PAGF is a project of the Australian Embassy under the Australian Agency for International Development (AusAID) designed to improve the efficiency and effectiveness of Philippine government policies, programs and projects within the guidelines of the Philippines Country Program Strategy. cDCIHT In reply, please be informed that Section 109(q) of the Tax Code of 1997 provides: "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" Article 7 of the GADC provides: "Article 7 Project supplies and professional and technical material and services "1. In respect of project supplies and technical material and services whether to be imported from outside or procured within the Philippines , the Government of the Republic of the Philippines shall: (a) for direct supplies of domestic goods and services , subject them to zero rate for purposes of Value-Added Tax (VAT) ; exempt direct importation of goods from import duties, VAT and other taxes imposed in the Philippines (or pay such duties thereon); and be responsible for inspection fees, storage charges and all other levies, fees and charges; xxx xxx xxx "2. . . . "3. The disposal of vehicles provided for activities executed under this Agreement shall be the subject of discussions between the two Governments and shall take into account the transport requirements of other activities assisted by the Government of Australia under the Program of development cooperation." Subject to the foregoing provisions, Section 9.1 of the PAGF Memorandum of Subsidiary Arrangement provides: "9. Facility Supplies, Motor Vehicles and Professional and Technical Material And Services "9.1. In respect of supplies, motor vehicles and professional and technical material and services provided by the GOA, whether imported into or procured within the Philippines, the GOP will : (a) coordinate with concerned agencies in the exemption of and/or be responsible for the payment of import duties, Value-Added Tax (VAT) and other duties and taxes imposed in the Philippines, and be responsible for inspection fees, storage charges and all other levies, fees and charges levied in the Philippines;" "xxx xxx xxx." Based on the above-quoted provisions, Article 7 of GADC provides that the Government of the Philippines shall: 1) subject to zero rate, for purposes of VAT, direct supplies of domestic goods and services in respect of project supplies and professional and technical material and services whether to be imported from outside or procured within the Philippines; and 2) exempt direct importation of goods from import duties, VAT and other taxes imposed in the Philippines. Moreover, Section 9.1 of the PAGF Memorandum of Subsidiary Arrangement provides that, "in respect of . . . , motor vehicles, . . . , whether imported into or procured within the Philippines, the Government of the Philippines will coordinate with concerned agencies, in this case the BIR, in the exemption of and/or responsible for the payment of import duties, VAT and other duties and taxes imposed in the Philippines . . . ." Such being the case, this Office is of the opinion and so holds that since PAGF is a subsidiary arrangement of GADC, an international agreement to which the Philippines is a signatory, then direct supplies of domestic goods and services of PAGF are subject to zero rate for purposes of VAT in respect of supplies, motor vehicles and professional and technical material and services provided by the Government of Australia while direct importations of goods are exempt from VAT. (DA-ITAD 14-03 dated January 27, 2003) Thus, the local purchase of PAGF of one (1) unit Honda Civic 1.5 LXI A/T 2002 Model for its official use is subject to zero rate for purposes of VAT pursuant to Section 109(q) of the Tax Code of 1997 in relation to Article 7 of the GADC. 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 party is concerned. EAISDH Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service