ITAD Ruling No. 160-03

October 24, 2003 ITAD RULING NO. 160-03 Article 5 & 7, Paragraph 1 (a) of the GADC between GRP and GOA; Section 106 (A) (2) (c) of the Tax Code of 1997 ITAD Ruling No. 209-02 Philippines-Australia Quality Technical Vocational Education and Training Project Phase II (PAQTVET II) 6/F TESDA Complex, East Service Road South Superhighway, Taguig, M.M. Gentlemen : This refers to your letter dated June 23, 2003 endorsed to this Office by the Department of Foreign Affairs (DFA), requesting exemption from ad valorem and value-added taxes (VAT) on the local purchase of the two (2) units of 2003 Chrysler Town and Country LXi and one (1) unit of Nissan Cefiro 2.0L Elite, for the official use of the Philippines-Australia Quality Technical Vocational Education and Training Project Phase II (PAQTVET II), specifically described as follows: Type of use: Official use Organization: Philippines-Australia Quality Technical Vocational Education and Training Project Phase II Make: Two (2) Chrysler Town and Country LXi One (1) Nissan Cefiro 2.0L Elite In reply, please be informed that Article 5, paragraphs 1 & 2 of the General Agreement on the Development Cooperation (GADC) between the Government of the Republic of the Philippines (GRP) and the Government of Australia (GOA) provides, viz : "Article 5 "Subsidiary arrangements "1. In support of the objectives of this Agreement, the Government of Australia and the Government of the Republic of the Philippines, or their agencies, statutory authorities or organizations, may conclude subsidiary arrangements in respect of the specific activities. EAIaHD "2. Subsidiary arrangements shall make specific reference to this Agreement and the terms of this Agreement shall, unless otherwise stated, apply to such subsidiary arrangements. Wherever possible, such subsidiary arrangements shall set out: (Emphasis supplied) "(a) the name and duration of the activity; "(b) a description of the activity and statement of its objectives; "(c) the nominated implementing agencies in both countries; "(d) potential benefits of the activity; "xxx xxx xxx" Relative thereto, Article 7, paragraph 1(a) of the GADC between GRP and GOA pertinently provides as follows: "Article 7 "Project supplies and professional and technical material and services "1. In respect of project supplies and professional and technical material and services whether to be imported from outside or procured within the Philippines, the Government if the Republic of the Philippines shall: "(a) for direct supplies of domestic goods and services, subject them to zero rate for purposes of Value Added Tax (VAT); exempt direct importation of goods from import duties, VAT and other taxes imposed in the Philippines (or pay such duties thereon); and be responsible for inspection fees, storage charges and all other levies, fees and charges; "xxx xxx xxx" In addition, Section 106 (A)(2)(c) of the National Internal Revenue Code of 1997 provides, viz : "Section 106. Value-added Tax on Sale of Goods or Properties . "(A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or exchange of gods or properties, a value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor. "(2) [Zero-rated Sales] The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: "xxx xxx xxx "(c) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate. "xxx xxx xxx" Based on the above quoted provisions, the terms of the GADC, unless otherwise stated, shall apply to subsidiary arrangements with specific reference to said Agreement. Moreover, Article 7 of the GADC states that the Government of the Philippines shall subject to zero rate, for purposes of VAT, direct supplies of domestic goods and services in respect of the project supplies and professional and technical material and services whether to be imported from outside or procured within the Philippines. Such being the case, since PAQTVET II is a subsidiary arrangement of GADC and falls within the purview of Section 106 (A)(2)(c) of the National Internal Revenue Code of 1997, and which exemption under an international agreement ( i.e. , GADC) to which the Philippines is a signatory effectively subjects such sales to zero rate, this Office is of the opinion and so holds that the purchase of two (2) units of Chrysler Town & Country LXi and one (1) unit of Nissan Cefiro 2.0L Elite, for PAQTVET II's official use shall be subject to VAT at zero percent (0%) rate. However, considering that exemption from taxes other than VAT applies only to direct importation of goods, your request for exemption from the payment of the ad valorem tax for the above purchases is hereby denied for lack of legal basis. IcDESA Very truly yours, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Services