DA ITAD BIR Ruling No. 084-10

October 5, 2010 DA ITAD BIR RULING NO. 084-10 Sections 106 & 108, NIRC of 1997; Article 34, Vienna Convention on Diplomatic Relations; BIR Ruling No. ITAD-36-00 Embassy of Italy 6/F Zeta Building, 191 Salcedo Street Legaspi Village, Makati City Gentlemen : This has reference to your Note Verbale No. 1593 dated August 30, 2010, 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 exemption from payment of value-added tax (VAT) on the local purchase of a motor vehicle, for the official use of the Embassy of Italy, specifically described as follows: AcSEHT Type of use: Official Make: Toyota Fortuner 4X2 DSL M/T Model Year: 2010 Color: Dark Gray Engine Number: 2KD-5079663 Chassis Number: MR0ZR69G500100404 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 its diplomatic agents does not include exemption from 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 of 1997 (NIRC of 1997), as amended. However, applying the principle of reciprocity, this Office may confirm the VAT exemption of the Embassy on the purchase of the said motor vehicle it appearing from the list submitted by the DFA dated March 22, 2010, that Italy allows similar exemption to the Philippine Embassy and/or its personnel on their local purchases of motor vehicles thereat. Hence, the local purchase of one (1) unit 2010 Toyota Fortuner 4X2 DSL M/T for the official use of the Embassy of Italy is exempt from VAT on the basis of reciprocity. 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 being issued on the basis of the foregoing facts as presented. However, if upon investigation, it will be disclosed that the actual facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. SEIaHT Very truly yours, Commissioner of Internal Revenue By: (SGD.) MARISSA O. CABREROS OIC-Assistant Commissioner Legal Service