Request for Exemption, in Behalf of the Embassy, from Payment of Value-Added Tax on Expenses Incurred in the Celebration of the National Day of the Sovereign Military Order of Malta

August 5, 1997 BIR RULING NO. 087-97 102 (a) 206-93 087-97 Embassy of the Sovereign Military Order of Malta Chancery Sixth Floor, Cattleya Condominium Bldg. 235 Salcedo St., Legaspi Village 1229 Makati City Attention: Ambassador Enrique P . Syquia Gentlemen : This refers to your letter dated June 26, 1997 requesting for exemption, in behalf of the Embassy, from the payment of value-added tax on the expenses that you incurred in the celebration of the National Day of the Sovereign Military Order of Malta (SMOM). LLpr It is represented that you are the Ambassador of the SMOM to the Philippines and have presented your credentials to President Fidel V. Ramos on May 13, 1996; that last June 24, 1997, you celebrated the National Day of the SMOM at the Manila Polo Club in the presence of high government and religious dignitaries led by the Acting Secretary of Foreign Affairs Leonides Caday and the Dean of the Diplomatic Corps Papal Nuncio, Archbishop Gian Vincenzo Moreno that the total cost of the National Day reception amounted to P81,704.40, excluding the hard drinks which were brought by the Embassy; and since that was a diplomatic affair, you requested Manila Polo Club to give you VAT exemption thereto, but instead, the Manila Polo Club suspended the same until you could provide them a BIR certificate of tax exemption to that effect; that as Chief of Mission, you believe that you are entitled to the same appropriate courtesies similar to those being accorded the other Chiefs of Mission in the Philippines. In reply, please be informed that while under Article 34 of the Vienna Convention on Diplomatic Relations of 1961, diplomatic agents are exempt from all dues and taxes, personal or real, national, regional or municipal, they are nevertheless subject to the indirect taxes of a kind which are normally incorporated in the price of goods or services, e.g., ad valorem tax and VAT. However, under the principle of reciprocity, this Office may grant tax exemption to the Embassy of a Foreign State and to the members of diplomatic missions on their local purchases of goods and services, provided that they can submit to the Commissioner of Internal revenue or her duly authorized representative a copy of the special legislation or international agreement showing that the said foreign government allows similar tax exemptions to the Philippine Embassy or its personnel on their purchases of goods or services in that foreign country. (BIR Ruling No. 206-93 dated May 11, 1993) Thus, upon the certification by the Department of Foreign Affairs that indirect tax (e.g., VAT) exemption is granted to the Philippine Embassy and its personnel in a particular host country, the same privilege will also be accorded to the latter's Embassy and its personnel in the Philippines. Accordingly, if SMOM is certified as exempt from VAT because of the reciprocity principle, the Manila Polo club should not bill the 10% VAT imposed under Sec. 102(a) of the Tax Code, as amended, on the total cost of SMOM's National Day reception which amounted to P81,704.40. On the other hand, the said payment may effectively be zero-rated provided that Manila Polo Club is a VAT-registered taxpayer and has applied and secured prior approval for effective zero-rating on the said of goods and services to the foreign diplomatic mission whose exemption under special law or international agreement to which the Philippines is a signatory effectively subjects the supply of such goods and services to zero-rate. In other words, although the said sale of goods and services is a taxable transaction for VAT purposes, the same shall not result in any output tax on the part of the Manila Polo Club and the input tax on its purchases of goods and services related to such effectively zero-rated sale shall be available as tax credit or refund. aisadc Such being the case, aside from the diplomatic identity card that you submitted to us, you also have to secure from the Department of Foreign Affairs a certification to the effect that indirect tax (e.g., VAT) exemption is granted to the members of diplomatic missions of the Philippines in SMOM so that the same privilege will also be accorded to you and to the other members of SMOM's diplomatic missions in the Philippines and the same should be submitted to us before we can give you the requested certificate of tax exemption from the payment of VAT on the expenses that you incurred in the celebration of the National Day of the Sovereign Military Order of Malta. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue