BIR Ruling [DA-581-98]

December 24, 1998 BIR RULING [DA-581-98] 3rd Indorsement Returned to the Chief, Regulatory Operations Monitoring Division, the within papers bearing on the request of Le Rossignol, Inc., for approval of its application for effective zero-rating on the lease of its real property to the Embassy of Brunei Darussalam. cdt It appears that Le Rossignol, Inc., a VAT-registered entity, has been leasing its property located at No. 3 Agoho Street, North Forbes Park, Makati City to the Government of Brunei Darussalam since September 1993; that on February 6, 1997, the Regional Director of Revenue Region No. 8, Makati City, granted the request of the Embassy of Brunei Darussalam for VAT exemption on local purchases of goods and services for the official use of its foreign missions and diplomatic staff; that Le Rossignol, Inc. is of the opinion that the lease of its residential property to Brunei Darussalam may be effectively zero-rated provided that the lessor is a VAT registered person and has secured prior approval of the application for effective zero-rating; hence, your request for clarification as to whether a lessor of property, like herein taxpayer, is exempt or zero-rated if the lessee is a foreign embassy or a diplomatic staff member. In connection therewith, please be informed that in BIR Ruling No. 030-96 dated February 27, 1996, VAT Ruling No. 019-97 dated March 5, 1997 and unnumbered ruling DA-424-98 dated September 16, 1998 all involving the lease of residential properties by foreign embassies, i.e., Royal Embassy of Saudi Arabia, Embassy of Singapore and Embassy of the State of Kuwait, this Office has consistently ruled that ". . . , the lease of residential properties by foreign embassies or their diplomatic personnel here in the Philippines may be effectively 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 or services shall be available as tax credit or refund (BIR Ruling No. 14-96 dated February 20, 1996)." Accordingly, the application of Le Rossignol, Inc. for the effective zero-rating of the lease of its aforesaid real property to the Embassy of Brunei Darussalam should be granted. aisadc Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)