DA ITAD BIR Ruling No. 052-09

May 4, 2009 DA ITAD BIR RULING NO. 052-09 Sections 106, 107 & 108 of the National Internal Revenue Code of 1997, as amended; Article 34, Vienna Convention on Diplomatic Relations; BIR Ruling No. ITAD-006-09 Embassy of the Republic of Singapore 508 Rizal Drive, Bonifacio Global City Taguig City Attention: Mr. Low Kim Bock Police Attach Gentlemen : This has reference to your Note Verbale No. MNL 023/2009 dated 10 March 2009, referred to this Office by the Department of Finance (DOF) and the Office of Protocol and State Visits of the Department of Foreign Affairs (DFA), requesting for a tax-free purchase of a motor vehicle for the personal use of Mr. Low Kim Bock of the Embassy of the Republic of Singapore, specifically described as follows: Make: Toyota Camry 2.4V A/T Model Year: 2009 Color: Xtreme Black Engine Number: 2AZE127584 Chassis Number: MR053BK4007032574 Upon evaluation of documents submitted to this Office in support of said request, it was found that the subject vehicle is an imported vehicle which is locally distributed by Mitsubishi Motors Philippines Corporation. cASTED In reply to your request, 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 ; xxx xxx xxx." ( Underscoring supplied ) Thus, the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the value-added tax (VAT), which is an indirect tax, on its local purchases of goods and services. In other words, purchases by that Embassy of goods and/or services shall, in general, be subject to the VAT prescribed under Sections 106 and 108, both of the National Internal Revenue Code (NIRC) of 1997, as amended. However, applying the principle of reciprocity, this Office may confirm the VAT exemption of the Embassy of the Republic of Singapore and/or its personnel on their local purchase of motor vehicles imported by local dealerships it appearing from the list 1 submitted by the DFA dated 10 February 2009, that the Government of Singapore allows similar exemption to the Philippine Embassy and/or its personnel on their purchases of imported motor vehicles thereat. Hence, the herein locally-purchased imported 2009 Toyota Camry 2.4V A/T for the personal use of Mr. Low Kim Bock of the Embassy of the Republic of Singapore is exempt from VAT on the basis of reciprocity . In addition to the foregoing, please be informed that Section 107 of the NIRC of 1997, as amended provides: SEC. 107. Value-Added Tax on Importation of Goods. (A) In General. There shall be levied, assessed and collected on every importation of goods a value-added tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody: Provided, That where the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes, if any: Provided, further , That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied : . . ." Thus, it should be understood that the VAT on the subject vehicle should have been paid by the importer/distributor thereof. But, since the herein buyer, the Embassy of the Republic of Singapore is exempt from VAT, the seller/distributor cannot pass on the VAT to the buyer and the latter cannot be made to shoulder the tax paid by the said importer/distributor. In other words, the exemption of herein buyer will, in no case, operate to exempt VAT on the importation of the vehicle but the VAT-registered importer/distributor shall be ratably entitled to zero-rating on that particular sale. 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. IHCDAS Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service Footnotes 1. List of diplomatic missions and other entities entitled to value-added tax (VAT) exemption on their purchase of locally-assembled motor vehicles and locally-purchased motor vehicles (imported by local dealerships) , based on reciprocity.