ITAD Ruling No. 077-04

July 28, 2004 ITAD RULING NO. 077-04 NIRC, Sec. 109 VAT Ruling No. 142-90 Filipinas Eye Center Foundation, Inc . Philippine General Hospital Taft Avenue, Manila Attention: Marita V.T. Reyes, MD President Gentlemen : This refers to your letter dated June 10, 2004 (your reference: 2004-147) requesting for a ruling on the tax exemption of the equipment to be purchased by Filipinas Eye Center Foundation, Inc. (FECFI) as part of the grant of the Government of Spain. It is represented that the Statement of the Fourth Philippines-Spain Joint Commission for Cooperation was signed in Madrid, Spain on July 3, 2001 for the implementation of the Fourth Joint Commission for Cooperation between the two governments; that pursuant to the said Statement, the National Eye Referral Center of the Philippine General Hospital in the Philippines was established designating FECFI, a non-governmental organization, as its implementing agency; that part of the grant by the Government of Spain for the establishment of the National Eye Referral Center is an equipment which is expected to arrive in the Philippines during the second quarter of 2004. In this regard, your Office now requests for confirmation that the importation of the subject equipment in the Philippines is exempt from Philippine taxes pursuant to the tax privileges and immunities accorded under the General Friendship and Cooperation Treaty dated June 30, 2000 and the Basic Agreement of Technical Cooperation between the Government of Spain and the Government of the Republic of the Philippines signed and entered into on September 20, 1974. In reply, please be informed that Section 109(q) of the Tax Code of 1997 provides as follows: "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" In this connection, Article VIII of the Basic Agreement of Technical Cooperation between the Government of Spain and the Government of the Republic of the Philippines signed and entered into on September 20, 1974, as recognized under the Statement of the Fourth Philippines-Spain Joint Commission for Cooperation, provides as follows: "Article VIII "In the execution of programs and projects envisaged in the Present Agreement and in Supplementary Agreements derived from the same, the following rules shall be observed:: 1. The articles sent by one High Contracting Party to the Other which are necessary for the execution of programs and projects shall be exempt from the payment of Customs duties and any other taxes, and may not be sold, donated or transferred, in the territory of the receiving State." "xxx xxx xxx" Based on the afore-quoted provisions, articles sent by the Government of Spain to the Philippines which are necessary for the execution of programs and projects shall be exempt from the payment of customs duties and other taxes. Such being the case, and considering that the subject equipment is part of the grant of the Government of Spain necessary for the establishment of the National Eye Referral Center in the Philippines, a bilateral project of Spain and the Philippines under the Fourth Joint Commission, this Office is of the opinion and so holds that the importation of the subject equipment is exempt from the payment of VAT imposed under Section 107(A) of the Tax Code of 1997. (VAT Ruling No. 142-90 dated May 23, 1990) For confirmation on whether the subject equipment is exempt from customs duties or not, the matter should be brought to the attention of the Bureau of Customs having jurisdiction over issues concerning import duties, for their appropriate action. 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service