RMC No. 40-2007: Prescribes the guidelines for the implementation of the tax treatment on the development assistance activities of the United States Agency for International Development (USAID)in the Philippines

Key points

1. Basis and recognition. Under Article IV of the 1951 Agreement, the USAID Mission and its personnel of comparable rank get the tax privileges of the US Diplomatic Mission. The USAID is recognized as that Mission per the Ambassador’s notification dated December 18, 2006, and the BIR recognizes an Implementing Agent (excluding its personnel and staff) upon a Note Verbale endorsed by the DFA stating its name and the start and end dates of the agency relationship.
2. VAT treatment of sales. Sales by VAT-registered suppliers to USAID through its Implementing Agents are generally subject to 0% VAT under Sections 106(2)(c) and 108(B)(3) of the Tax Code. Payments to non-resident sellers are exempt from VAT, and non-VAT registered sellers exempt under Section 109(1)(V) pay 3% Percentage Tax under Section 116.
3. Invoice requirements. Each VAT invoice or official receipt must show the seller’s name, VAT-registered status and TIN, the Implementing Agent in the prescribed wording, USAID’s VAT Exemption Certificate Number, and the total amount. It must also show VAT as a separate item or the words ZERO RATED SALE or EXEMPT SALE, plus the date, quantity, unit cost and description.
4. Controls. Implementing Agents send vouchers to the Regional Financial Services Center (RFSC)/Manila with certified disbursement reports for zero-rated purchases, and USAID’s Cognizant Technical Officer reviews eligibility before approval. If a supplier does not honor the VAT Exemption Certificate, the Chief of ITAD helps and issues a certification signed by the ACIR-LS.
5. Vehicles, imports and direct taxes. Motor vehicle VAT and Ad Valorem Tax exemptions stay under RMO No. 22-2004, which requires a separate ruling. Materials imported for USAID activities are consigned to USAID and are VAT exempt, but a non-exempt buyer who gets them becomes the importer liable for VAT. USAID and Implementing Agents are exempt from direct taxes arising from the development assistance activities, but Implementing Agents remain liable to income tax and other direct taxes unrelated to those activities.
6. Other points. Sales for non-development assistance activities are taxed under the Tax Code or relevant tax treaty. Non-national employees of Implementing Agents are subject to Income Tax, and inconsistent provisions of RMO No. 22-2004 and other issuances are revised.

Who is affected

• USAID and its recognized Implementing Agents
• VAT-registered and non-VAT suppliers selling to USAID
• Non-national employees of Implementing Agents

Deadlines and effectivity

• Ambassador’s notification: December 18, 2006