BIR Ruling [DA-336-98]

July 22, 1998 BIR RULING [DA-336-98] Hotel Inter-Continental Manila 1 Ayala Avenue Makati City Attention: Ms . Eppie C . Ignacio Controller Gentlemen : This refers to your letter dated June 6, 1997 requesting for an official statement relative to the tax exemption privileges of the Embassies of Romania, Turkey and India particularly exemption from the payment of value-added tax and other similar taxes on local purchases of goods and services by reason of reciprocity and photocopies of the respective BIR Rulings concerning the tax exemption privileges of the above-named Embassies. In reply, please be informed that there is no law or regulation in the Philippines expressly granting exemption from the value-added tax to foreign embassies on their local purchases of goods/services. Our stand is based on Article 34(e) of the Vienna Convention on Diplomatic Relations adopted on April 18, 1961 which provides that the tax exemptions of diplomatic agents/representatives do not include exemption from indirect taxes of a kind which are normally incorporated in their purchases of goods and services, e.g., ad valorem tax and VAT. However, under the principle of reciprocity this Office grants exemption from VAT to foreign embassies including their missions and diplomatic staff members provided that they can submit to the Commissioner of Internal Revenue or his duly authorized representative a copy of the special legislation or international agreement showing that their government allow similar tax exemption privileges to the Philippine Embassy personnel on their local purchases of goods/services in that territory. Such being the case, since the Department of Foreign Affairs confirmed tax exemptions to the Philippine Embassies and their staff in the capital cities of the above-mentioned countries on the basis of reciprocity, these embassies are granted exemption from VAT including their missions and diplomatic staff members on their local purchases of goods/services under Sec. 109(q) of the Tax Code of 1997. cdtech We are sending you photocopies of the BIR Rulings concerning the tax exemption privileges issued by this Bureau to the above Embassies which are self-explanatory, for your reference and guidance. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)