DA ITAD BIR Ruling No. 050-17

December 20, 2017 DA ITAD BIR RULING NO. 050-17 Principle of Reciprocity; BIR Ruling No. ITAD-372-12 Embassy of the Russian Federation 1245 Acacia Road, Dasmarias Village Makati City Attention: AAA _______________ Gentlemen : This refers to your Note Verbale No. 785 dated 06 December 2017 referred to this Office by the Department of Finance (DOF) and the Department of Foreign Affairs (DFA), requesting for exemption from payment of value-added tax (VAT) and ad valorem tax on the local purchase of a motor vehicle for the official use of the Embassy of the Russian Federation, specifically described as follows: ScHADI Type of Use: Official Make: 2017 Toyota Fortuner 2.7 4x2 G Gas A/T Motor/Engine No.: 2TRA389765 Frame/Chasis No.: MHFJX8GS9H0606676 Color: Phantom Brown Metallic In reply, please be informed that Article 34 of the Vienna Convention on Diplomatic Relations reads: "ARTICLE 34 A diplomatic agent 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; x x x." (Underscoring supplied) Thus, the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from VAT and ad valorem which are indirect taxes, on their local purchase of goods and services. In other words, purchases by that Embassy or its agents of goods and services shall, in general, be subject to VAT and ad valorem tax under Sections 106 and 149 of the National Internal Revenue Code (NIRC) of 1997, as amended, respectively. However, applying the principle of reciprocity, this Office may confirm exemption to the Embassy of the Russian Federation and/or its personnel on their local purchase of motor vehicles it appearing from the list submitted by the DFA dated 22 November 2017, that the Government of the Russian Federation allows similar exemption to the Philippine Embassy and/or its personnel on their purchase of motor vehicles thereat. Hence, the local purchase of one (1) unit of 2017 Toyota Fortuner 2.7 4x2 G Gas A/T, for the official use of the Embassy of the Russian Federation, is exempt from VAT and ad valorem tax. (BIR Ruling No. ITAD-372-12 dated 13 November 2012) As for the sale made by a VAT-registered business establishment to the qualified foreign embassy, it shall enjoy the benefit of zero percent (0%) VAT pursuant to Revenue Memorandum Order No. 22-2004. This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the actual facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MARISSA O. CABREROS Assistant Commissioner Legal Service