DA ITAD BIR Ruling No. 123-06

October 13, 2006 DA ITAD BIR RULING NO. 123-06 Articles 23 & 34, Vienna Convention on Diplomatic Relations; BIR Ruling Nos. DA-ITAD-88-05 & 65-03 British Embassy 15th-17th Floors L.V. Locsin Building 6752 Ayala Avenue cor. Makati Avenue Makati City Gentlemen : This refers to your Note Verbale No. 162-05 dated December 20, 2005 indorsed to this Office by the Department of Foreign Affairs (DFA), requesting the issuance of a certification exempting the British Embassy from all national, regional and municipal dues and taxes, in respect of the new Embassy the British Government intends to construct at McKinley Hall, Taguig, Metro Manila. 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. cHAaEC xxx xxx xxx" It is clear from the aforequoted provisions of the Convention that the British Embassy is exempt from all national, regional or municipal dues and taxes on the acquisition of real property for their new Embassy, except those imposed on services rendered in connection with their intended construction project on this property. With respect to the services referred to in the preceding paragraph, this Office may confirm VAT and ad valorem tax exemptions to a foreign Embassy in the Philippines upon favorable indorsement from the DFA based on information that the same tax exemptions are enjoyed by the Philippine Embassy in the home country of such Embassy. In relation to this, we note DFA's Undersecretary Franklin M. Ebdalin's letter dated June 13, 2006, which states that VAT will be imposed on the acquisition and construction activities of the British Embassy in Manila in relation to your new chancery. According to Undersecretary Ebdalin's letter, "The Philippine Government has recently acquired a property in London for use as the new chancery of the Philippine Embassy. The Philippine Government was required to pay VAT in the amount of GBP 787,500.00 as a result of the property acquisition. VAT shall also be collected in relation to the refurbishment of the property." Hence, we regret that the British Embassy cannot be exempted from the payment of VAT on services related to its property acquisition at McKinley Hall. As to documentary stamp taxes, please note that the National Internal Revenue Code of 1997 (Tax Code), as amended, 1 provides that whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax. Accordingly, since the British Embassy is exempt from all taxes in respect of the premises of the mission and, as such, is exempt from DST arising from its property acquisition for the new chancery in the Philippines, the seller of the real property to the British Embassy shall be the party directly liable for the payment of the documentary stamp tax thereon. (BIR Ruling No. DA-ITAD-88-05 dated August 30, 2005) For your information and guidance. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service Footnotes 1. SEC. 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments and Papers. Upon documents, instruments, loan agreements and papers, and upon acceptances, assignments, sales and transfers of the obligation, right or property incident thereto, there shall be levied, collected and paid for, and in respect of the transaction so had or accomplished, the corresponding documentary stamp taxes prescribed in the following Sections of this title, by the person making, signing, issuing, accepting, or transferring the same wherever the document is made, signed, issued, accepted or transferred when the obligation or right arises from Philippine sources or the property is situated in the Philippines, and at the same time such act is done or transaction had: Provided, That whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax.