ITAD Ruling No. 089-05

August 30, 2005 ITAD RULING NO. 089-05 Sec 109 (q) of the Tax Code of 1997 BIR Ruling No. DA-ITAD-37-05 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 Note Verbale Nos. 42/2005 and 43/2005 both dated July 13, 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) and ad valorem tax on the local purchase of two (2) motor vehicles, for the official use of the following GDC-GTZ Projects/German Embassy, specifically described as follows: 1) GTZ CONSULTANCY SERVICES FOR THE NATIONAL ECONOMIC & DEVELOPMENT AUTHORITY (NEDA) Type of use: Official use Make: Toyota Innova 2.5 Diesel A/T Model year: 2005 Color: Silver Metallic Engine No: 2KD-9336421 Chassis No: KUN40-5003916 2) GTZ HEALTH PROGRAM Type of use: Official use Make: Toyota Innova 2.5 Diesel M/T Model year: 2005 Color: Silver Metallic Engine No: 2KD-9334267 Chassis No: KUN40-5002621 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 SADECI (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 of 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, 2002 is, in effect, a grant of exemption from VAT and ad valorem taxes. In view thereof, this Office is of the opinion and so holds that the local purchase of two (2) units of Toyota Innova, for the official use of GTZ are hereby exempt from VAT and ad valorem taxes. (BIR Ruling No. DA-ITAD-37-05 dated April 28, 2005). cSTHaE Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service