ITAD BIR Ruling No. 020-17

June 21, 2017 ITAD BIR RULING NO. 020-17 Articles 23 and 34, Vienna Convention Jerril G. Santos Assistant Secretary, Office of Protocol Department of Foreign Affairs 2330 Roxas Blvd., Pasay City 1300 Dear Assistant Secretary Santos, This refers to Note Verbale No. 29/2017 dated 17 February 2017 of the Embassy of Spain, indorsed by your office on 27 February 2017, requesting for a special ruling on the exemption from payment of Value-Added Tax (VAT) on real property lease payments by the Embassy of Spain and clarification on the VAT exemption of services such as its association dues. In reply, please be informed that Article 23 of the Vienna Convention on Diplomatic Relations (Vienna Convention) states, to wit: "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 provided) In view thereof, a diplomatic mission such as an embassy is exempt from dues and taxes including VAT on its owned or leased premises in the receiving State. Accordingly, the Embassy of Spain is exempt from payment of VAT on its real property lease payments. Moreover, the Embassy of Spain is exempt from the payment of Philippine income tax imposed on the association dues collected by condominium corporations. It is worthy to mention that Article 34 of the Vienna Convention provides that: "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;" Based on the foregoing, diplomatic agents are not exempt from indirect taxes, such as ad valorem and VAT, on their local purchases of goods and services. However, this Office may confirm VAT exemption of the embassy personnel on their local purchases of goods and/or services, based on the principle of reciprocity if the Government of such embassy personnel allows similar exemption to the Philippine Embassy personnel on their purchase of goods and services in its country. As per the 26 May 2016 letter of the Office of Protocol of the Department of Foreign Affairs on the updates from the various Philippine Foreign Service Posts, Spain grants VAT refunds on goods and services to the Philippine Embassy and to the latter's diplomatic personnel. Accordingly, this Office is of the opinion that, the diplomatic agents of the Embassy of Spain are exempt from VAT on association dues they pay to condominium corporations. Hence, VAT cannot be passed-on by a lessor condominium corporation to the diplomatic agents, and the former non-privileged entity is liable to the payment of the VAT on the aforementioned dues. Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue