ITAD Ruling No. 216-02

December 23, 2002 ITAD RULING NO. 216-02 Article VIII Section 22 (g) of the Host Agreement between the Government of the Republic of the Philippines and the WHO BIR Ruling No. ITAD-125-02 World Health Organization P.O. Box 2932 U.N. Avenue, Manila Attention: Shigeru Omi, MD, Ph. D. Regional Director Gentlemen : This refers to the 2nd Indorsement of the Department of Finance dated August 5, 2002 referring to your letter dated July 11, 2002, requesting for exemption from the value-added tax (VAT) and the ad valorem tax on the purchase of a locally-manufactured motor vehicle, a 2002 Toyota Corolla Altis 1.8G, for the personal use of Dr. Hajime Inoue, a Medical Officer (Technology Transfer) of the World Health Organization (WHO). It is represented that Dr. Inoue, a Medical Officer of the World Health Organization, wants to purchase a locally-manufactured Toyota Corolla Altis 1.8G for his personal use; that under the Host Agreement between WHO and the Government of the Philippines, particularly Article VIII Section 22(g), "the officials of the organization have the right to import free of duty a motor car"; that at the time when the Host Agreement was signed in 1951, there were no local car manufacturers; that in the spirit of said Agreement and in consideration of the benefit that may be derived by the existing local car industry, the said purchase is requested exemption from VAT and ad valorem tax; that the Department of Foreign Affairs and the Department of Finance did not interpose any objection to your request in its 2nd Indorsement letter dated August 5, 2002. In reply, please be informed that under the Host Agreement between the Government of the Republic of the Philippines and the World Health Organization, Article VIII Section 22(g) provides, viz : "Section 22 Officials of the Organization shall: xxx xxx xxx "(g) once every three years have the right to import free of duty a motor-car it being understood that the duty will become payable in the event of the sale or disposal of such motor-car to a person not entitled to this exemption within three years upon importation." It is also noted that under the same Agreement, particularly Article IV, Section 12, clearly states that: "Article IV "PROPERTY, FUNDS AND ASSETS "Section 12 "While the organization will not, as a general rule, in the case of minor purchases, claim exemption from excise duties, and from taxes on the movable and immovable property which form part of the price to be paid, nevertheless, when the Organization is making important purchases for official use of property on which such duties and taxes have been charged or are chargeable, the Government of the Republic of the Philippines shall make appropriate administrative arrangements for the remission or return of the amount of duty or tax ." (Emphasis supplied) A plain reading of Section 22(g) of Article VIII of the Host Agreement provides that deferment of the tax in the acquisition of motor vehicle requires the following conditions, to wit: 1) the privilege is availed by an official of WHO; and 2) the mode of acquisition is through importation once every three (3) years. Furthermore, Section 12 of Article VI of the same Agreement states that only purchases of goods and services in the Philippines made by WHO for its official use are accorded exemption from indirect taxes such as VAT and ad valorem taxes imposed under Sections 106, 108 and 149, all of the Tax Code of 1997. STcaDI In the instant case, it does not appear that Dr. Inoue is among the WHO officials referred to in Section 22. Also, it is clear that the purchase is made personally by Dr. Inoue and not by the organization for its official use. Moreover, the Host Agreement only accommodates tax-free importation of vehicles. this is different from the provisions of the Asian Development Bank Charter wherein ADB officials are given the option to purchase tax-free locally manufactured cars in lieu of their privilege to purchase tax-free imported cars, in line with the Philippine government's policy to spur the growth of the domestic car industry, as can be gleaned from the Memorandum of the Executive Secretary of the Office of the President of the Philippines dated August 15, 1973 as implemented by the Department Order No. 43-92 dated October 13, 1989 ( BIR Ruling No. 125-02 dated July 22, 2002 ) As regards the statement that the Department of Foreign Affairs (DFA) did not interpose objection on the subject sale, it is clear that the Office of Protocol Letter No. 21435 shows that the non-objection refers only to the proposed sale and not to the requested tax exemption, which is clearly the jurisdiction of this Office. As a matter of fact, the DFA categorically stated that the sale shall be subject to the provisions of the abovementioned Convention. All the above considered, the purchase of one (1) unit of 2002 Toyota Corolla 1.8G by Dr. Inoue for his personal use is subject to VAT and the ad valorem taxes. Very truly yours, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service