Embassy of Hungary

February 13, 2018 ITAD BIR RULING NO. 012-18 Principle of Reciprocity Embassy of Hungary 8th Floor, Del Rosario Law Centre 21st Drive corner 20th Drive Bonifacio Global City, Taguig 1630 Metro Manila Gentlemen : This refers to your Note Verbal No. 47/D/2017 dated 6 November 2017 requesting value-added tax (VAT) exemption of the diplomatic staff of the Embassy of Hungary on rental payments of their residential units during their official tenure in the Philippines, on the basis of reciprocity. AHCETa It is represented that, since the entry into effect of the provisions of the new Law on Foreign Service (Law no. LXXIII. of 2016) of Hungary on 1 August 2017, the Embassy of Hungary in the Philippines no longer leases properties for the residential use of home-based diplomatic and consular staff of the Embassy; and that, since 1 August 2017, the diplomatic staff of the Embassy are leasing their respective condominium units on an individual basis. Based thereon, since the rental of real estate is subject to VAT in the Philippines, but no such tax is levied on Foreign Service Personnel of the Philippines in Hungary, hence this request for VAT exemption by the Embassy. In reply, please be informed of Article 34 of the Vienna Convention on Diplomatic Relations, as follows: "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 supplied) Based on the foregoing, the general rule is that the tax exemption privilege of a diplomatic agent does not include exemption from VAT on the prices of goods and services, as well as taxes on private immovable property situated in the Philippines. Hence, purchases by a diplomatic agent of goods and/or services and lease payments on private immovable property shall, in general, be subject to VAT prescribed under Sections 106 and 108 of the National Internal Revenue Code of 1997, as amended. However, applying the principle of reciprocity, this Office may confirm VAT exemption of the personnel of the Embassy of Hungary on their local purchase of goods and services, and on rental payments of private immovable properties it appearing from the list submitted by the Office of Protocol of the Department of Foreign Affairs (DFA-OP) that the Government of Hungary allows similar exemption to the Philippine Embassy personnel on their purchase of goods and services and on rental payments of private immovable properties therein. Relative thereto, in its letter of 8 December 2017, the DFA-OP informs of the confirmation made by the Philippine Embassy in Hungary that there is no direct or indirect tax imposed on rental of real estate in Hungary; and that its personnel are not paying any added value other than their basic monthly rentals. Considering the said categorical confirmation, this Bureau may proceed to grant similar treatment to the diplomatic personnel of the Embassy of Hungary on their individual rental of real estate. In view of the foregoing, this Office is of the opinion and so holds that the diplomatic staff of the Embassy of Hungary in the Philippines are exempt on VAT on rental payments of their residential units during their official tenure in the Philippines, based on the principle of reciprocity. 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. ScHADI Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue