BIR Ruling [DA-322-99]

May 24, 1999 BIR RULING [DA-322-99] Embassy of Cuba Manila Gentlemen : This refers to your letter dated January 27, 1999 addressed to the Office of Protocol, Department of Foreign Affairs, Pasay City which referred to this Office by way of 1st Indorsement dated February 2, 1999, requesting in effect, for a ruling as to whether the Embassy of Cuba is exempt from capital gains tax on the sale of its property located at 11th Floor, Heart Tower Condominium, Salcedo Village, Makati City. It appears that as the seller of real property, the embassy will be responsible for capital gains tax; and that it is verbally represented that the property in question is the former chancery of the embassy. In reply, please be informed that Article 23 of the Vienna Convention on Diplomatic Relations adopted on April 18, 1961 (Vol. IV, P. 445-460, Phil, Tax Treaty Series) viz: "ARTICLE 23 "1. The sending state and the head of the 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 persons 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 Cuba is exempt from the capital gains tax on the sale of its property at 11th Floor, Heart Tower Condominium, Salcedo Village, Makati City; and that under the Convention (Art, 23), the Embassy of Cuba is exempt from all internal revenue taxes for which it is directly liable. However, under Section 173 of the Tax Code of 1997, it is provided that whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax. Accordingly, the buyer of the Embassy of Cuba's real property shall be the party directly liable for the payment of the documentary stamp tax due thereon imposed under Section 196 of the Tax Code of 1997, based on the selling price or the fair market value of the real property, whichever is higher. (BIR Ruling No. DA-120-91 dated June 25, 1991) Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)