ITAD Ruling No. 051-01

May 31, 2001 ITAD RULING NO. 051-01 Sec 101 (b) (1); Sec 109 (q) Embassy of the United States of America 1201 Roxas Boulevard, Manila Attention: H . E . Michael E. Malinowski Charge d'Affaires, a.i. Gentlemen : This has reference to your letter dated May 7, 2001 requesting for exemption from Philippine tax of the US Government's donation of Fifty One Thousand Dollars ($51,000.00) worth of equipment pursuant to the Letter of Agreement on Narcotics Control and Law Enforcement Between The Government of the United States of America and The Government of the Republic of The Philippines (Letter of Agreement) to support the establishment of the Philippine Drug Data Center at the National Drug Law Enforcement and Prevention Coordinating Center. In reply, please be informed that pursuant to Section 109 (q) of the Tax Code of 1997: "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 the exchange of letters outlining the above Letter of Agreement as confirmed by then Secretary of the Department of the Interior and Local Government, Alfredo S. Lim, dated September 25, 2000, it is acknowledged "that it is the understanding of our government that any funds, materials and equipment provided under the terms of the Letter of Agreement between our two governments for the benefits of the Government of the Republic of the Philippines shall be treated as exempt from taxation . . . Specifically, such funds, materials, and equipment shall be exempt from taxes, service charges and investment or deposit requirements and currency control in the Philippines, and the import, export, acquisition, use or disposition of any such property or funds in connection with the Letter of Agreement shall be exempt from any tariffs, customs duties, import and export taxes, on purchase or disposition and any other taxes or similar charges in the Philippines ." (Emphasis supplied) Such being the case and since the Philippines is a signatory to the subject Letter of Agreement, the U.S. Government is exempt from value-added tax (VAT) on the importation, or acquisition, use or disposition of any such property or funds in connection with the Agreement. This modifies BIR Ruling No. DA-402-2000 dated November 21, 2000 to the extent that said importation is subject to VAT. Very truly yours, (SGD.) REN G. BAEZ Commissioner of Internal Revenue