BIR Ruling [UN-246-95]

July 5, 1995 BIR RULING [UN-246-95] Embassy of the Federal Republic of Germany M a n i l a Attention: The Project Manager Philippine-German Rural Drinking Water Supply Project in Palawan Gentlemen : This refers to your letter to the Department of Foreign Affairs dated November 17, 1994, transmitting a document concerning the purchase by the Embassy of one (1) unit locally assembled vehicle for its tax exemption. It appears that subject vehicle is a 1990 Toyota Tamaraw High Side Pickup, from Toyota Motor Philippines Corporation, to be used officially for the "Philippine-German Rural Drinking Water Supply Project in Palawan." In reply, please be informed that, as a rule, sale of tax-exempt goods by a tax-exempt seller to a non-exempt purchaser is a taxable transaction. The exception is, when the latter enjoys exemption from indirect tax. Pursuant to 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 on 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; and (f) registration, court or record fees, mortgage, dues and stamp duty, with respect to immovable property, subject to the provision of Article 23. It is clear from the foregoing 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 may grant tax exemption to the Embassy of the Federal Republic of Germany or its personnel on their local purchases of goods and services , 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 the Government of the Federal Republic of Germany allows similar tax exemption to Filipino Embassy personnel on their purchase of goods and services in that territory, specifically, exemption in the payment of taxes and duties on the purchase of locally assembled vehicles. The exemption in the latter case includes VAT. VAT must however be paid if the car is later on sold to a non-privileged person. (BIR Ruling No. 206-93, dated May 11, 1993) Accordingly, the purchase by the Embassy of the Federal Republic of Germany of one (1) unit locally assembled vehicle, a 1990 Toyota Tamaraw High Side Pickup, from Toyota Motor Philippines is exempt from taxes including VAT if it can be shown that the Federal Republic of Germany grants the same exemption to Filipino Citizens in that country. Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)