World Food Programme

April 19, 2007 VAT RULING NO. 005-07 Sec. 109 (q) World Food Programme 6/F Citibank Tower 8741 Paseo de Roxas Makati City, 1226 Philippines Attention: Mr. Mahadevan Ramachandran Officer-in-Charge Gentlemen : This refers to your letter dated May 30, 2006, requesting for and on behalf of the United Nations World Food Programme Emergency Operations Assistance to Conflict Afflicted Mindanao (WFP-EMOP), exemption from the Value Added Tax on their local purchases of food commodities. It is represented that on July 2, 1968, the Philippine Government and the United Nations World Food Programme (WFP) entered into a basic agreement wherein the Philippine Government will be eligible to avail of assistance from the United Nations Food and Agriculture Organization/World Food Programme; that said agreement took effect in 1972; that the WFP is a specialized Agency of the United Nations with the primary objective of bringing food to where these are needed most; that upon the request of the Philippine Government, thru the Department of Social Welfare and Development, and with the end in view of facilitating the peace-building process and the early rehabilitation of the conflict afflicted people in Mindanao once the peace agreement is reached, WFP joined the Multi-Donor Trust Fund-Joint Needs Assessment Mission in July 2004 and decided to participate in the effort by distributing food in the province of Lanao del Norte, Lanao del Sur, Maguindanao, Sultan Kudarat and North Cotabato; that the distributable food commodities that will be used in the project will be sourced from international donors and from local suppliers; that in implementation of said project, the WFP-EMOP will be procuring locally appropriated food commodities such as palm oil, sugar and others to augment the donated food stuff; and that the food commodities that will be bought by WFP-EMOP will not be for sale but will be used to support the various project components. Based on the foregoing, you are now seeking for a ruling which will exempt WFP-EMOP's domestic purchase of food commodities from the VAT. EaTCSA In reply, please be informed that Section 109 (q) (now Sec. 109 (k) of the National Internal Revenue Code, which was reiterated in toto by Republic Act No. 9337, provides, viz : "Exempt transactions The following shall be exempt from the value-added tax: xxx xxx xxx "(k) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under presidential Decrees No. 529. xxx xxx xxx" Relative thereto, Section 10, Article III of the Convention on the Privileges and Immunities of the Specialized Agencies of the United Nations dated November 21, 1947 provides: "Article III xxx xxx xxx Section 10 While the specialized agencies will not, as a general rule, claim exemption from excise duties and from taxes on the sale of movable and immovable property which form part of the price to be paid, nevertheless when the specialized agencies are making important purchases for official use of property on which such duties and taxes have been charged or chargeable, State parties to this Convention will, whenever possible, make appropriate administrative arrangements for the remission or return of the amount of duty or tax. xxx xxx xxx" Based on the above provisions, important purchases of goods and services in the Philippines for official use of the specialized agencies of the United Nations (UN) are accorded exemption from indirect taxes such as VAT imposed under Section 106 of the NIRC. Such being the case, and since the WFP is a specialized agency of the UN, 1 WFP shall be exempt from VAT on its local purchases of food commodities. 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 considered null and void. Very truly yours, (SGD.) GREGORIO V. CABANTAC Deputy Commissioner Legal and Inspection Group Footnotes 1. VAT Ruling No. 146-90 dated May 24, 1990.