Note that the grant of the VAT exemption is largely based on the international law principles of reciprocity and comity enshrined in the Philippine Constitution.

Under the principle of reciprocity, the BIR may grant VAT exemption privileges, which would depend on a categorical confirmation from the Department of Foreign Affairs (DFA) that the foreign government provides the same VAT privileges to Philippine Foreign Service Posts (PFSPs) and its personnel on their purchase of goods and services in the concerned foreign country. 

Under the RMO, the BIR grants VAT exemption privileges either at the point-of-sale or on a refund/reimbursement basis.

Point-of-sale

If the VAT exemption is at the point-of-sale, business establishments cannot charge VAT on their sale of goods and services, as the sale is considered a “zero-rated sale.”

A zero-rated sale refers to the sale, lease, barter or exchange of goods, properties and services subject to VAT at the rate of zero percent. A resident foreign mission and its members who (as determined by the DFA) are entitled to the grant of VAT exemption at point-of-sale will be issued a VAT certificate (VC). A VAT identification card (VIC) may be issued to qualified personnel and their qualified dependents. Without the VC/VIC, a seller may validly refuse to subject the sale to 0 percent VAT. The VC/VIC shall be effective for two years, renewable every two years thereafter, or until the expiration of the term of office of the qualified personnel of a foreign mission.

The VC/VIC, however, cannot be used for the purpose of securing VAT exemption on the local purchase of a motor vehicle. For this purpose, the BIR will issue a ruling confirming the foreign mission’s VAT exemption based on reciprocity.

Refund/reimbursement

If the exemption is on a refund/reimbursement basis, VAT will have to be paid on every local purchase of goods and services. Instead of a VC/VIC, the BIR will issue a ruling confirming that the foreign mission, its qualified personnel and the latter’s dependents are entitled to reimbursement/refund of the VAT paid. The duly issued BIR ruling shall be the basis for the foreign mission to file a VAT reimbursement/refund application with Revenue District Office (RDO) 51 in Pasay City. RDO 51 shall process the application with complete documents within 90 days upon receipt. Foreign missions have two years from the close of the taxable quarter when the sales were made to file the VAT reimbursement/refund application.

Applying for VC/VIC/BIR ruling

Applications for the issuance of the VC/VIC/BIR ruling shall be coursed through the Office of Protocol of the DFA (DFA-OP). Upon receipt of the application, the DFA-OP will determine whether the VAT exemption is either at the point-of-sale, or on a refund/reimbursement basis and will endorse the application to the International Tax Affairs Division (ITAD) of the BIR for processing of the VC/VIC/BIR ruling.

Manila Times Source

ATTY. RON ARRIESGADO

Partner LMA LAW