DA ITAD BIR Ruling No. 079-07

June 20, 2007 DA ITAD BIR RULING NO. 079 -07 Art. 23, Vienna Convention on Diplomatic Relations; BIR Ruling No. DA-ITAD-088-05 Ms. Maria Cynthia P. Pelayo Acting Director for Immunities and Privileges Office of Protocol and State Visits Department of Foreign Affairs 2330 Roxas Blvd. Pasay City M a d a m : This refers to the letter of then Director for Immunities and Privileges, Mr. Ruel U. Gunabe dated December 29, 2006 requesting on behalf of the Philippine Embassy in Berlin, which is planning to purchase land for the purpose of building the Chancery in Berlin, information on the specific taxes levied on the acquisition of land by diplomatic missions in the Philippines. In reply, please be informed of Article 23 of the Vienna Convention on Diplomatic Relations (Convention) adopted on April 18, 1961, pertinent portion of which reads: "ARTICLE 23 1. The sending state and the head of mission shall be exempt from all national, regional or municipal dues and taxes in respect of the premises of the mission, whether owned or leased, other than such as represent payment for services rendered. (Emphasis supplied) 2. The exemption from taxation referred to in this article shall not apply to such dues and taxes payable under the law of the receiving state by the person contracting with the sending state or the head of the mission. xxx xxx xxx" It is clear from the aforequoted provisions of the Convention that diplomatic missions in the Philippines are exempt from all national, regional or municipal dues and taxes on the acquisition of property for the premises of the mission. Thus, the diplomatic mission is exempt from capital gains tax and documentary stamp taxes (DST) arising from such acquisition of property. However, as regards DST, please note that Section 173 of the National Internal Revenue Code of 1997 provides that whenever one party to a taxable document enjoys exemption from DST, the other party thereto who is not exempt shall be the one directly liable for the tax. Accordingly, since diplomatic missions are exempt from DST on its acquisition of property for the premises of the mission, the seller of the real property to the German Embassy shall be the party directly liable for the payment of the DST. CDcHSa With respect to value-added tax (VAT), please be informed that the Philippines, which likewise follows the principle of reciprocity as a basis for the grant of VAT exemptions, currently issues VAT exemption certificates for the purchase of goods and services by the German Embassy and its personnel, based on favorable indorsements by the DFA. Thus, this Bureau may confirm exemption from VAT on an acquisition of land by the German embassy for the embassy's premises, based on a favorable indorsement by the DFA stating therein that the Philippine Embassy in Germany is granted the same privilege in Germany. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service