BIR Ruling [DA-091-97]

March 7, 1997 BIR RULING [DA-091-97] Embassy of Japan Manila Gentlemen : This refers to your letter dated December 11, 1996 (Note Verbale No. 746-96) which was referred to this Office by the Department of Foreign Affairs, requesting for issuance of a Certificate of Exemption from the payment of taxes such as capital gains tax, documentary stamp tax, real estate tax, and other taxes related to the sale of real estate property of the Government of Japan. In reply, please be informed that pursuant to Article 23 of the Vienna Convention on Diplomatic Relations adopted on April 18, 1961 (Vol. IV, p. 445-460, Phil. Tax Treaty Series) pertinent portion of which reads: "ARTICLE 23 "1. The sending state and the head of mission shall be exempt from all national, regional or municipal dues and taxes in respect of the premises of the mission, whether owned or leased, other than such as represent payment for specific services rendered." "2. The exemption from taxation referred to in this article shall not apply to such dues and taxes payable under the law of the receiving state by the person contracting with the sending state or the head of the mission." It is clear from the aforequoted provisions of the Convention that the Embassy of Japan is exempt from the capital gains tax on the sale of its property in the Philippines. On the other hand, the documentary stamp tax is likewise, payable by either party to the contract. Therefore, since the Embassy of Japan is exempt from payment of internal revenue taxes for which it is directly liable under the Convention (Art. 23), i.e., capital gains tax; then, it is likewise exempt from the documentary stamp tax due on the adverted sale. (BIR Ruling No. 120-91 dated June 25, 1991) However, since the Embassy of Japan is exempt from the documentary stamp tax, then the other party to the transaction, i.e., the buyer of the real property, shall be the one directly liable for the payment of the tax pursuant to Section 173 of the Tax Code, as amended by R.A. 7660. cdta With respect to your request for exemption from the real estate tax, you may address your query to the Bureau of Local Government-Finance, which has jurisdiction on the said matter. Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)