VAT Ruling No. 048-99

April 15, 1999 VAT RULING NO. 048-99 108 (B) (3)-000-00-022-99 UNESCO National Commission of the Philippines Department of Foreign Affairs Building 2330 Roxas Boulevard Pasay City Attention: Ms . Virginia R . Moreno Chair, Unesco Cultural Committee Gentlemen : This refers to your letters dated May 20 & 22, 1998 requesting for the exemption from the payment of value-added tax on the importation of "3 boxes video equipment covered by Airway Bill No. 618 5272 9563, valued at $12,500.00 and classified as Scientific Instrument or Apparatus" under the UNESCO-Florence Agreement. It appears from the records that the consignee of the merchandise is the UNESCO National Commission of the Philippines; that the consignment is a UNESCO PARIS grant of equipment with the Museum of Moving Images of the University of the Philippines as the direct beneficiary; that the subject equipment is being donated by UNESCO for educational objectives and is not granted for commercial purposes; that the Office of the Protocol of the Department of Foreign Affairs has issued an indorsement dated 16 July 1998 for the tax and duty free release of the said UNESCO purchased equipment; that the Mabuhay Lane of the Department of Finance in its indorsement dated May 14, 1998 granted to release of the said equipment duty-free but subjected the same to payment of VAT that neither the UNESCO National Commission nor the Museum of Moving Images of the University of the Philippines has any budget set aside for payment of VAT; that the Secretary of Foreign Affairs, in his letter dated 13 August 1998 has himself endorsed the exemption of the said equipment from VAT, stating that the non-exemption thereof, * the Philippine Government in the eyes of UNESCO. * "1. The contracting States undertake to give every possible facility to the importation of educational, scientific or cultural materials, which are imported exclusively for showing at a public exhibition approved by the competent authorities of the importing country and for subsequent re-exportation . These facilities shall include the granting of the necessary licenses and exemption from customs duties and internal taxes and charges of all kinds payable on importation, other than fees and charges corresponding to the approximate cost of services rendered. 2. Nothing in this article shall prevent the authorities of an importing country from taking such steps as may be necessary to ensure that the materials in question shall be re-exported at the close of their exhibition." It will be observed that the exemption availing under the said agreement is only limited to importation exclusively intended for showing at a public exhibition and for subsequent re-exportation. The said requisites, however, are not availing in your case because the subject importation shall not be re-exported. Hence, the UNESCO agreement could not be availed of for purposes of VAT exemption following the well-established dictum that tax exemptions are strictly construed and that the exemption will not be held to be conferred unless the terms under which it is granted clearly and distinctly show that such was the intention. (Phil. Acetylene Co. Inc. vs. Commissioner, 20 SCRA 1056; Surigao Consolidated Mining Co., vs. Collector, L-14878, Dec. 26, 1963). However, it cannot be disputed that UNESCO is an attached agency of the United Nations and is the grantor and consignee at the same time of the subject importation. Considering that the Philippines is a signatory to the Convention of the Privileges and Immunities of the United Nations (on October 28, 1947) and that Convention provides for the exemption of the United Nations, its assets, income and other property from all direct taxes including the United Nations Educational Scientific and Cultural Organization, the claimed exemption from import VAT, which is a direct tax liability by UNESCO, is hereby granted. [Sec. 7(a), Article II (Convention on the Privileges and Immunities of the United Nations)] (BIR Ruling No. 026-84) Moreover, should the real or ultimate owner of the said donated equipment turns out to be the University of the Philippines which is a non-stock, non-profit educational institution itself, exemption from VAT can likewise find support under Section 4(3), Article XIV. of the 1987 constitution which provides that: "(3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties. . . " Non-stock, non-profit educational institutions are exempt from tax on all revenues derived in pursuance of its purposes as an educational institution and used actually, directly, and exclusively for educational purposes. The exemption herein contemplated refers to internal revenue taxes and customs duties, in appropriate cases, imposed by the national government on all revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes. Since the equipment being donated by UNESCO is intended for educational purposes, the same comes within the ambit of the exemption thus conferred upon non-stock, non-profit educational institution like the University of the Philippines. Based on the above representations and corresponding dispositions, the request for VAT exemption is hereby granted. This letter will therefore serve as the authority for the Bureau of Customs to release the consignment subject of this ruling without payment of the 10% Value-Added Tax. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group