Tax Exemptions of Diplomatic Representatives Do Not Include Exemption from Indirect Taxes

September 30, 1985 BIR RULING NO. 173-85 199-00 53-82 173-85 S i r : This refers to your letter dated March 22, 1983 stating that the U.S. Department of State has stopped granting tax exemptions to our Philippine Embassy and its personnel effective February 15, 1985; that the Philippine Embassy and its personnel in Washington D.C. will now be paying sales taxes, property taxes, utility taxes and other taxes; that although the local American Embassy earlier recommended the grant of tax exemption privileges on local purchases, except hotels and restaurants, the Office of Foreign Missions of the U.S. State Department maintains that tax exemptions are granted on reciprocal basis and not by mere recommendation; and that the State Department insists that there is still value added taxes imposed by the manufacturers and producers of consumer goods in the Philippines which the American Embassy and its staff pay in the form of indirect taxes. cdtech On the basis of the foregoing, you are submitting for our consideration a proposal that refund of taxes paid on all local purchases, including hotel and restaurant added taxes, be granted to the U.S. Embassy and its personnel in Manila. In reply, I have the honor to inform you that under Article 34 of the Vienna Convention on Diplomatic Relations adopted on April 18, 1961; diplomatic agents 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 or services; (b) dues and taxes on private immovable property situated in the territory of the receiving state, unless he holds it on behalf of the sending state for the purpose of the mission; (c) estate, succession or inheritance duties levied by the receiving State, subject to the provisions of paragraph 4 of Article 39; (d) dues and taxes on private income having its source in the receiving state and capital taxes on investments made in commercial undertakings in the receiving State; (e) charges levied for specific services rendered; (f) registration, court or record fees, mortgage dues and stamp duty, with respect to immovable property, subject to the provisions of Article 23. From the foregoing, it is clear that the tax exemptions of diplomatic representatives do not include exemption from indirect taxes such as the sales tax and the percentage taxes on hotels and restaurants. Such being the case, a refund of the aforesaid taxes to the U.S. Embassy and to any of its diplomatic representatives cannot be granted for lack of legal basis. cdt Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner