DA ITAD BIR Ruling No. 067-06

June 8, 2006 DA ITAD BIR RULING NO. 067-06 Sec 106 & 108, Sec 149 of the Tax Code 1997; Article 34, Vienna Convention on Diplomatic Relations Embassy of Spain/Instituto Cervantes The Cultural Center 2 Lafayette Square Unit 16E, 105 Tordesillas St. Salcedo Village, Makati City Gentlemen : This has reference to your Note No. 155 dated December 13, 2005, referred to this Office by the Department of Finance (DOF) and the Department of Foreign Affairs (DFA), requesting exemption from payment of value-added tax (VAT) on the purchase from an Asian Development Bank (ADB) personnel of one (1) locally-assembled motor vehicle, by the Embassy of Spain/Instituto Cervantes for its official use, specifically described as follows: Make: Honda CRV 2.0 M/T Model Year: 2001 License No.: 22219 Engine Number: PADRD17201V303043 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; xxx xxx xxx" Thus, the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that Embassy of goods and/or services shall be subject to the value-added tax prescribed under Sections 106 and 108 of the National Internal Revenue Code of 1997. However, applying the principle of reciprocity, this Office may grant exemption to the Embassy of Spain and/or its personnel on their purchases of locally-assembled motor vehicles it appearing from the list submitted by the Department of Foreign Affairs as of October 18, 2005 and as confirmed by the Office of the Protocol (DFA) in its Indorsement letter dated October 17, 2005, that your Government allows similar exemption to Philippine Embassy and its personnel on their purchase of locally-assembled motor vehicles in your country. Hence, since the transferor (ADB) and the transferee (Embassy of Spain) of the subject motor vehicle are both VAT exempt entities, the sale of one (1) unit of 2001 Honda CRV 2.0 M/T by ADB to the Cultural Center of the Embassy of Spain/Instituto Cervantes for its official use continues to be exempt from VAT. cACTaI This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, (SGD.) JOSE MARIO C. BUAG Commissioner of Internal Revenue