ITAD Ruling No. 091-03

July 3, 2003 ITAD RULING NO. 091-03 Sec. 109, NIRC BIR Ruling No. DA-ITAD-205-02 Platon Martinez Flores San Pedro & Leao Law Offices 6th Floor Tuscan Bldg., 114 Herrera St. Legaspi Village, Makati City Attention: Ms. Grace P. Quevedo-Panagsagan Gentlemen : This refers to your letter dated November 25, 2002 on behalf of your client, Deutsche Gesselschaft Fur Technische Zusammenarbeit (GTZ), requesting our opinion as to the tax consequences, particularly the value-added taxes (VAT), on the purchases of local materials and rental payments made by GTZ for its offices and the offices and accommodations of its German experts. It is represented that GTZ is an agency of the Government of the Federal Republic of Germany tasked to implement the German Government's contribution concerning technical cooperation with the Government of the Republic of the Philippines pursuant to an 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 and with Diplomatic Exchange Notes dated May 6, 2002; that in its operations within the Philippines, GTZ purchases supplies and services for which it is being currently charged with VAT. Based on the above, it is your opinion that the procurements by GTZ of materials and services in the Philippines pursuant to the Agreement between the German and Philippine Governments and the Diplomatic Exchange of Notes dated May 6, 2002 are not subject to VAT, under to Sec. 106(A)(2)(c) of the National Internal Revenue Code of 1997 (NIRC). To substantiate your request you cite paragraph 4(a) of the Diplomatic Exchange of Notes dated May 6, 2002, which provides: "4. The Government of the Republic of the Philippines shall make the following contributions: It shall (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 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 of office premises and accommodation for seconded experts; (Emphasis supplied) In reply, please be informed that Sec. 109 of the NIRC 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 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 an international agreement to which the Philippines is a signatory or a special law provides for such exemption. It is worthy to note that 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 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. DTIcSH In view thereof, this Office is of the opinion and so holds that the purchases made by GTZ of materials and services in the Philippines under the 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 Notes dated May 6, 2002 are exempt from VAT, pursuant to Sec. 109(q) of the NIRC. 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