BIR Ruling [DA-245-98]

June 15, 1998 BIR RULING [DA-245-98] Embassy of the Republic of Cuba Heart Tower Condominium 11/F Rms. 1103 and 1104 108 Valero Street, Salcedo Village Makati Attention: Mr . Francisco Ramos Ambassador to Cuba Gentlemen : This refers to your note endorsed to us by the Department of Finance on May 7, 1997 seeking advice concerning your problem on the documentary stamp tax imposed on the sale of the Embassy's real property. It is represented that the Embassy sold its property located at Forbes Park, Makati; that one of the conditions for the execution of the Deed of Sale provided that the seller shall pay the documentary stamp tax; that the buyer refused to pay the documentary stamp tax on the ground that the Embassy waived its tax exemption privilege when it assumed to pay the same in the Deed of Sale; that the buyer proposed that the amount corresponding to the documentary stamp tax required to be paid be deducted from the purchase price; and that as a result, the property cannot be recorded as yet for non-payment of the documentary stamp tax. In reply, please be informed that although the subject Deed of Sale specified that "the seller (i.e., the Embassy of the Republic of Cuba) of the real property shall pay the . . . documentary stamp tax," it is, however, exempt from paying the same pursuant to Article 23(1) of the Vienna Convention on Diplomatic Relations adopted on April 18, 1961. However, Section 173 of the Tax Code as amended, provides, among others, that whenever one party to the taxable document enjoys exemption from the tax therein imposed, the other party thereto who is not exempt shall be the one directly liable to the tax, hence, the buyer shall be the party directly liable for the payment of the said tax considering that the Embassy is tax-exempt. (BIR Ruling No. 077-95 dated April 24, 1995) The Embassy opines that should it be made liable as maintained by the buyer, it will in effect be paying the documentary stamp tax, thus, abandoning the privileges conceded by the Philippine Government in accordance with the Vienna Convention and the principle of reciprocity. Exemption from taxation by treaty are generally granted on grounds of reciprocity and to lessen the rigors of international double or multiple taxation. Nonetheless, exemption from taxation is a privilege which may be waived. Although the Embassy is exempt from the payment of the documentary stamp tax under the principle of comity, the same privilege was waived by the Embassy when it assumed to pay the DST per the Deed of Sale executed between the Embassy and the seller. Article 1159 of the Civil Code provides that "obligations arising from contracts have the force of law between the parties and should be complied with good faith." Art. 1315 of the same Code further provides that "contracts are perfected by mere consent, and from the moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law." Above premises considered, this Office is of the opinion and hereby holds, that the Embassy is the one liable for the payment of the DST. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)