ITAD BIR Ruling No. 016-17

May 12, 2017 ITAD BIR RULING NO. 016-17 Section 32 (B) (7) (a), National Internal Revenue Code of 1997, as amended; Articles 4 [(1) and (2)], 1 (1) (a) and 49 (d), Vienna Convention on Consular Relations Embassy of Spain 27F, Equitable Bank Tower 8751 Paseo de Roxas Makati City 1227 Gentlemen : This refers to your Note Verbale No. 42/2017 dated 15 March 2017, which was referred to this Office by the Office of Protocol of the Department of Foreign Affairs, requesting confirmation that the Consulate General of Spain is exempt from income tax on interest derived from bank deposit in Philippine banks. In reply, please be informed that Section 32 (B) (7) (a) of the National Internal Revenue Code of 1997, as amended (Tax Code), provides that: "Sec. 32. Gross Income. (B) Exclusions from Gross Income. The following items shall not be included in gross income and shall be exempt from taxation under this Title: (7) Miscellaneous Items. (a) Income Derived by Foreign Government. Income derived from investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on deposits in banks in the Philippines by (i) foreign governments , (ii) financing institutions owned, controlled, or enjoying refinancing from foreign governments and (iii) international or regional financial institutions established by foreign governments." (Underscoring provided) Based on the above provision, interest on deposits in Philippine banks derived by a foreign government is excluded from the computation of its gross income and exempt from taxation. Consular posts, which include a consulate-general , a consulate, a vice-consulate, and a consular agency, form part of foreign governments since establishment of consular relations is made between States or governments, where a sending State may establish a consular post in the territory of the receiving State subject to the approval of the latter State. Article 4 [(1) and (2)] and Article 1 (1) (a) of the 1963 Vienna Convention on Consular Relations (Vienna Convention) provide: "Article 4 Establishment of a consular post 1. A consular post may be established in the territory of the receiving State only with that State's consent. 2. The seat of the consular post, its classification and the consular district shall be established by the sending State and shall be subject to the approval of the receiving State." "Article 1 Definitions 1. For the purposes of the present Convention, the following expressions shall have the meanings hereunder assigned to them: (a) 'consular post' means any consulate-general, consulate, vice-consulate or consular agency;" In view of the foregoing, considering that the Consulate General of Spain represents the Government of Spain, this Office is of the opinion and so holds that interest income derived by the Consulate General of Spain from its deposits in local banks in the Philippines is exempt from income tax pursuant to Section 32 (B) (7) (a) of the Tax Code. However, deposits ( e.g. , savings, current) which are in the name of the consular officers and consular employees of the Consulate General of Spain and members of their families forming part of their households are not entitled to exemption on interest on those deposits, as clearly provided under Article 49 (d) of the Vienna Convention, to wit: "Article 49 Exemption from taxation Consular officers and consular employees and members of their families forming part of their households shall be exempt from all dues and taxes, personal or real, national, regional or municipal, except : xxx xxx xxx (d) dues and taxes on private income , including capital gains, having its source in the receiving State and capital taxes relating to investments made in commercial or financial undertakings in the receiving State;" (Underscoring provided) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue