BIR Ruling [DA-282-96]

July 30, 1996 BIR RULING [DA-282-96] The Royal Embassy of Belgium 6th Flr., Don Jacinto Bldg. Dela Rosa and Salcedo Streets Legaspi Vil., Makati City Gentlemen : This refers to your Note Verbale No. 72/946 dated April 18, 1996 and Note Verbale No. 72/1224 dated May 15, 1996 which were referred to this Office by the Department of Foreign Affairs, in effect, requesting for a Certificate of Tax Exemption from the value-added tax on your local purchase of goods and rental services. In connection therewith, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic Relations pertinent portion of which reads: "ARTICLE 34 "A diplomatic agent shall be exempt from all dues and taxes, personal or real, national, regional or municipal, except: "(a) indirect taxes of a kind which are normally incorporated in the price of goods and service; "xxx xxx xxx" the tax exemption privilege of an Embassy and its diplomatic agents do not include exemption from the value-added tax (VAT) on local purchases of goods and/or rental service. In other words, purchases by that Embassy of goods and/or rental services shall be subject to the value-added tax prescribed under Sections 100(a) and 102(a), both of the Tax Code, as amended by Republic Act No. 7716. However, under the principle of reciprocity this Office hereby grants exemption to the Royal Belgian Embassy and its missions and diplomatic staff on their purchase of goods and/or rental services in the Philippines, it appearing from the list submitted by the Office of the Protocol dated May 15, 1996 that your Government allows similar tax exemption privileges to Filipino Embassy personnel on their purchase of goods and services in your territory. Accordingly, the lessor of the new premises you are renting should not bill the 10% VAT imposed under Section 102(a) of the Tax Code, as amended, on your rental payment for the lease of said real property. It may stated therein that the lease of residential properties by foreign embassies or their personnel heirs in the Philippines may effectively be zero-rated provided that the lessor, who must be a VAT-registered person, applies and secures, prior approval for effective zero-rating on his sale of rental services to the foreign diplomatic mission or its personnel whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero-rate. In other words, although the said sale of rental services is a taxable transaction for VAT purposes, the same shall not result in any output tax on the part of the lessor and the input tax on his purchases of goods, properties or services related to such effectively zero-rated sale of service shall be liable as tax credit or refund. (BIR Ruling No. 014-96 dated February 20, 1996) Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head Rev. Executive Assistant Legal Service