Australian Embassy

May 9, 2019 ITAD BIR RULING NO. 007-19 Section 108 (B) (3), NIRC of 1997, as amended; Article 23, VCDR; Principle of Reciprocity Australian Embassy Level 23, RCBC Tower 2 6819 Ayala Avenue 1200 Makati City Gentlemen : This refers to your Note No. 151-19 dated 21 March 2019, endorsed by the Department of Foreign Affairs (DFA) requesting for the issuance of a ruling exempting from value-added tax (VAT) the lease of the following: 1. Premises used exclusively by the mission pursuant to the Vienna Convention on Diplomatic Relations (VCDR);and 2. Residential accommodations such as houses, condominiums and apartments (excluding hotel-managed buildings and full-serviced apartments) occupied by accredited Diplomatic and Consular staff of the Embassy. It is represented that based on the Australian Embassy's consultation with the Australian Taxation Office, and supported with information received by the DFA from the Philippine Embassy in Canberra, residential leases in Australia are not subject to Goods and Services Tax (GST) which is equivalent to VAT; that long-term accommodations in full-serviced apartments and hotel managed buildings are not exempt from GST; and that the DFA recommends that the same tax exemption privileges be accorded to the Australian Embassy in Manila and its qualified personnel based on the principle of reciprocity. 1. On premises used exclusively by the mission In reply, please be informed that Section 108 (B) (3) of the National Internal Revenue Code (NIRC) of 1997, as amended by Republic Act No. 10963 1 provides, viz. : "SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties. xxx xxx xxx (B) Transactions Subject to Zero Percent (0%) Rate. The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: xxx xxx xxx (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate; x x x" In connection thereto, the Philippines is a signatory to the VCDR. Its Article 23 provides, viz. : "Article 23 1. The sending State and the head of the 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 specific services rendered. 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 persons contracting with the sending State or the head of the mission." (Underscoring ours) Based on the above provisions, exemption from all national taxes is accorded the sending State in respect of the premises of the mission, whether owned or leased. In view thereof, premises being leased by the Australian Embassy for its exclusive use as a mission is subject to zero rated VAT pursuant to Section 108 (B) (3) of the NIRC of 1997, as amended, in relation to Article 23 of the VCDR. 2. On residential accommodations such as houses, condominiums and apartments occupied by accredited Diplomatic and Consular staff of the Embassy ( excluding hotel-managed buildings and full-serviced apartments ). Please be informed that Article 34 of the VCDR provides, viz. : "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; (b) Dues and taxes on private immovable property situated in the territory of the receiving State, unless he holds it on behalf of the sending State for the purposes of the mission; (c) Estate, succession or inheritance duties levied by the receiving State, subject to the provisions of paragraph 4 of article 39; (d) Dues and taxes on private income having its source in the receiving State and capital taxes on investments made in commercial undertakings in the receiving State; (e) Charges levied for specific services rendered; (f) Registration, court or record fees, mortgage dues and stamp duty, with respect to immovable property, subject to the provisions of article 23." (Underscoring ours) Based on the above, tax exemption privilege of diplomatic agents does not include exemption from VAT which is an indirect tax on their local purchase of goods and services. In other words, purchases by the diplomatic agents of goods and services are, in general, subject to VAT under Sections 106 and 108 of the NIRC of 1997, as amended. However, applying the principle of reciprocity, this Office may confirm VAT exemption to the diplomatic and consular personnel of the Australian Embassy on their local purchase of services, which in the instant case, is the lease of residential accommodations such as houses, condominiums and apartments since the DFA confirms that residential leases in Australia are not subject to Goods and Services Tax (GST),which is equivalent to VAT. In view of all the foregoing, this Office is of the opinion as it hereby rules that the lease of premises by the Australian Embassy for the exclusive use of the mission is subject to zero percent (0%) VAT, pursuant to Section 108 (B) (3) of the NIRC of 1997, as amended, and Article 24 of the VCDR. Moreover, the lease by the Australian Embassy's diplomatic and consular staff of houses, condominiums and apartments to be used as their residences during their period of assignment in the Philippines shall be subject to zero percent (0%) VAT pursuant to the principle of reciprocity. The VAT zero-rated privilege accorded to diplomatic and consular staff of the embassy does not include accommodation in hotels, hotel-managed buildings and serviced apartments. 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.) CAESAR R. DULAY Commissioner of Internal Revenue Footnotes 1. Tax Reform for Acceleration and Inclusion, also known as the TRAIN ACT.