Mr. Rodillo R. Catalan

February 26, 2018 ITAD BIR RULING NO. 020-18 Principle of Reciprocity; BIR Ruling No. ITAD-019-17 Mr. Rodillo R. Catalan Director, Immunities and Privileges 2330 Roxas Boulevard 1300 Manila, Philippines Dear Director Catalan, This refers to your 1st Indorsement dated September 14, 2017, concerning the request of the Embassy of the United States of America (US Embassy) on its purchase of twelve (12) condominium units for the official use as housing quarters of US Embassy diplomats assigned in Manila. acHTIC It is represented, based on US State Department (USD) Circular Note No. 14-45 dated January 14, 2014, 1 that the state and local tax authorities of the US consistently extend real estate tax exemption privileges for foreign missions, on the basis of written authorization from the Director of the US Department Office of Foreign Missions (OFM) on the basis of a property's authorized use for diplomatic or consular purposes, such as: 1) the premises of a bilateral diplomatic mission or consular post, headed by a career consular officer, that is owned by the respective foreign government or head of the mission or consular post; 2) the premises of a consular post, headed by an honorary consular officer, that is owned by the respective foreign government; 3) the primary residence of the head of a bilateral diplomatic mission or career head of the consular post; 4) the primary residence of a member or members of the staff of a bilateral diplomatic mission or career consular post, that is owned by the respective government; 5) a residence used for 'temporarily' lodging representatives or employees of a government of a state recognized by the United States, who visit the United States for bilateral or multilateral diplomatic or consular purposes, that is owned by the respective foreign government; or 6) another category of property authorized by OFM. It is further represented that under the same US Circular, real estate taxes refer to taxes associated with the purchase, ownership, and disposition of real property, other than such as represent payment for specific services rendered, including, but not limited to, annual property tax, recordation tax, and the functional equivalent of deed registration charges and stamp duties. Finally, it is represented that based on the USD Note No. 16-677 to Washington DC Philippine Embassy (PE) dated April 27, 2016, PE was reminded "of its eligibility for exemption from real estate taxes on the purchase of property authorized by the DFA for diplomatic or consular use, including property used as the primary residence of a staff member of the diplomatic mission or consular posts, that is owned by the Government of the Philippines." Based on the reply of the Washington DC PE, the Philippine Government would be entitled to exemption to the US equivalent of creditable withholding tax (CWT) and documentary stamps tax (DST) in case it purchases real estate properties for official use in the US; and that the US does not charge VAT on the purchase of real estate property within its territory. In reply, please be informed that the Philippine national taxes involved in purchase of real property ( condominium units, in the herein case ) if the seller is a real estate broker, are income tax (collected under the creditable tax system), value-added tax (VAT) and documentary stamp tax (DST). Income tax and DST are direct tax liabilities of the seller. However, whenever one party to the taxable document enjoys exemption from the tax the other party who is not exempt shall be the one directly liable for the tax pursuant to Section 173 of the NIRC of 1997. Hence, the seller of the twelve (12) condominium units being the other party who is not exempt shall be the one directly liable to the DST. However, VAT, being an indirect tax can be shifted by the seller to buyers. Considering the above categorical confirmation by the DFA of the tax exemption privileges on purchase of real property for official use by the Philippine Embassy in Washington DC, this Office is of the opinion that the US Embassy, on its intended purchase of twelve (12) condominium units in the Philippines for its official use as housing quarters of US Embassy diplomats assigned in Manila, being an exempt entity, cannot be passed-on with VAT by the seller of the condominium units. Seller, on the other hand, is the one directly liable to Income Tax and DST. This ruling is issued on the basis of the foregoing 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. Policies and procedures regarding exemption of real estate taxes for real property owned by foreign diplomatic and consular missions in the US.