ITAD Ruling No. 145-04

December 17, 2004 ITAD RULING NO. 145-04 Sections 105, 106 and 109, Tax Code of 1997 BIR Ruling No. DA-ITAD-173-03 BIR Ruling No. 065-98 National Judicial Institute Unit 2008 Jollibee Plaza Emerald Avenue, Pasig City Attention: Atty . Hector Soliman Local Project Director, NJI-JURIS Project Gentlemen : This refers to your letters dated July 19, 2004 and September 9, 2004 requesting for a ruling on whether or not the Justice Reform Initiative Support (JURIS) Project (Project), formerly known as the Judicial Reform Support Project, is exempt from value-added tax (VAT) and excise taxes. It is represented that on June 18, 2002, the Government of the Republic of the Philippines and the Government of Canada entered into a Memorandum of Understanding (MOU) concerning the Project, a subsidiary arrangement made pursuant to the General Agreement on Development Cooperation between the Philippines and Canada dated November 13, 1987; that the Project is a Canadian International Development Agency (CIDA) Project; that the goal of the Project is to improve the quality of judicial services and access to justice particularly by the poor and marginalized groups by supporting selected elements of the Supreme Court's Action Program for Judicial Reform 2001-2006 (APJR) including the APJR Supplement; that for this purpose and pursuant to Article II, Section 2.01 of the MOU, CIDA contracted the National Judicial Institute of Canada (NJI), a Canadian non-profit organization engaged in judicial education, as the Canadian Executing Agency responsible for the overall financial, administrative and technical management of the Project; and that NJI has been purchasing equipment, contracting services and undertaken other activities necessary and proper for the effective implementation of the Project. HCaIDS In support of your request, you cited Article IV of the General Agreement on Development Cooperation between the Philippines and Canada and the MOU as legal basis for the exemption of the JURIS Project. In reply, please be informed that Section 105 of the National Internal Revenue Code of 1997 (Tax Code), provides that any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods, shall be subject to the 10 percent VAT. Being an indirect tax, the VAT may be shifted or passed on by the person concerned to the buyer, transferee, or lessee of the properties, or services. However, Sections 106(A)(5)(c), 108(B)(3) and 109(q) of the Tax Code either exempt from VAT or subject to zero percent VAT goods and services sold to persons and entities whose tax treatment under special laws or international agreements to which the Philippines is a signatory exempts or effectively subjects to zero percent such goods and services sold to them. In this regard, Articles IV and V of the Philippines-Canada General Agreement Development Cooperation and Section 5.02, Article 5 of the Memorandum of Understanding establishing and implementing the JURIS Project, both being international agreements to which the Philippines is a signatory, provide, viz : "Article IV "The Government of the Republic of the Philippines shall ensure that development aid funds provided under any subsidiary arrangement are not used to pay any taxes, fees, customs duties or any other levies and charges imposed directly or indirectly by the Government of the Republic of the Philippines, any goods, materials, equipment, vehicles and services purchased or acquired for the execution of any project being carried out in the Philippines pursuant to a subsidiary arrangement." "Article V "The Government of the Republic of the Philippines shall exempt Canadian firms and Canadian personnel from or bear the costs of customs and excise duties, sales taxes, fees (except those associated with private motor vehicles), and other charges imposed by the Government of the Republic of the Philippines of similar nature, on all goods, materials, equipment, vehicles and services and on any other goods or services acquired in or imported into the Philippines for or related to the execution of projects established under any subsidiary arrangement. . . ." "Section 5.02 "CANADA's contribution cannot be used to pay any taxes, fees, customs duties or any other levies or charges imposed directly or indirectly by THE PHILIPPINES on any goods, materials, equipment, vehicles and services purchased or acquired to meet project requirements or in relation to the implementation of the Project." Taken altogether, the abovequoted provisions provide that the Philippine government shall ensure that the development aid funds allocated by the Canadian government for the JURIS Project shall not be utilized in paying for taxes on goods and services purchased necessary for the effective implementation of the Project. Thus, this Office is of the opinion and so holds that in keeping with the intention of provisions, NJI, the Canadian Executing Agency responsible for the overall financial, administrative and technical management of the Project, shall be exempt from corporate income tax and as well as to VAT and excise tax imposed on the purchases of goods and services by NJI relevant to the implementation of the Project. (BIR Ruling No. 65-98 dated May 21, 1998 and BIR Ruling No. DA-ITAD 173-03 dated November 20, 2003) EAcTDH 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