ITAD Ruling No. 168-03

November 14, 2003 ITAD RULING NO. 168-03 Sec 109 (q) of the Tax Code of 1997 BIR Ruling No. DA-ITAD-91-03 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 Attention: Dirk Rahlenbeck Third Secretary Gentlemen : This has reference to your Note Verbale KFZ No. 85/2003 dated September 12, 2003 indorsed to this Office by the Department of Foreign Affairs (DFA), requesting for exemption from payment of value-added tax (VAT) on the local purchase of one (1) motor vehicle, for the official use of GDC-GTZ Office of the German Embassy, specifically described as follows: Type of use: Official use Organization: GTZ-"Support to the Agrarian Reform Project" 9/F, PDCP Bank Center, L. P. Leviste corner V.A. Rufino Streets, Salcedo Village, Makati City Make: Toyota Revo SR 2.4 A/T Model year: 2002 Color: Blue Engine No: 7K-0543300 Chassis No: KF82-6000191 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 (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 accommodations for seconded experts; (Emphasis supplied) In addition, please be informed that Sec. 109 of the NIRC provides, viz : CDAEHS "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 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 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. 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. In view thereof, your herein request for exemption from VAT on the local purchase of one (1) unit of Toyota Revo SR 2.4 A/T, for the official use of GTZ is hereby exempt from value-added tax (VAT). (BIR Ruling No. DA-ITAD-91-03 dated July 3, 2003) Very truly yours, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service