DA ITAD BIR Ruling No. 058-09

May 26, 2009 DA ITAD BIR RULING NO. 058-09 Sections 106, 107 & 108 of the National Internal Revenue Code of 1997; Article 34, Vienna Convention on Diplomatic Relations; BIR Ruling No. DA-ITAD-006-09 Royal Thai Embassy 107 Thailand (Rada) Street Legaspi Village Makati City Attention: Chakorn Suchiva Charge d' Affaires, a.i Gentlemen : This has reference to your Note Verbale No. 40001/232 dated 5 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 one (1) unit of locally-purchased motor vehicle, for the personal use of Group Captain Nathpong Viriyakupt, Defense and Air Attach of the Royal Thai Embassy, specifically described as follows: Type of use: Personal Make: Toyota HiAce GL 2.0 5S Model year: 2000 Color: 058 White Frame Number: RZH102-6003164 Engine Number: 1RZ-2646474 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; . . .." (emphasis supplied) Thus, the tax exemption privilege of an Embassy and/or 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 and/or its diplomatic agents of goods, services and/or motor vehicles shall be subject to the VAT prescribed under Sections 106 and 108 of the National Internal Revenue Code of 1997, as amended. EHaDIC However, applying the principle of reciprocity, this Office may confirm the VAT exemption of the Royal Thai Embassy and/or its personnel on their local purchase of imported motor vehicles it appearing from the list 1 submitted by the DFA dated 10 February 2009, that the Government of Thailand allows similar exemption to the Philippine Embassy and/or its personnel on their purchases of imported motor vehicles thereat. (BIR Ruling No. DA-ITAD-006-09 dated February 19, 2009) Hence, the herein locally-purchased imported 2000 Toyota HiAce GL 2.0 5S for the personal use of Group Captain Nathpong Viriyakupt, Defense and Air Attach of the Royal Thai Embassy 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 Royal Thai Embassy 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. 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. ITADaE