ITAD BIR Ruling No. 036-10

September 16, 2010 ITAD BIR RULING NO. 036-10 Sections 106 & 108, NIRC of 1997; Article 34, Vienna Convention on Diplomatic Relations Embassy of the United Arab Emirates 2nd Floor, Renaissance Bldg. 215 Salcedo Street, Legaspi Village Makati City Gentlemen : This has reference to your Note No. 10-1902 dated July 26, 2010 referred to this Office by the Department of Finance and the Department of Foreign Affairs (DFA), requesting for exemption from payment of value-added tax (VAT) on the local purchase of a motor vehicle for the official use of the Embassy of the United Arab Emirates, specifically described as follows: Type of Use: Official Make: Nissan Frontier Navara 4X4 2.51 A/T (NWA) Model Year: 2010 Color: Galaxy Black Frame Number: MNTVCUD40Z0024731 Engine Number: YD25227009T In reply, please be informed that Article 34 of the Vienna Convention on Diplomatic Relations reads: "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 the goods and services; xxx xxx xxx. " (Emphasis supplied) Thus, the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from VAT on its local purchases of goods and services. In other words, purchases by that Embassy of goods and/or services shall, in general, be subject to VAT as prescribed under Sections 106 and 108 both of the National Internal Revenue Code of 1997, as amended (NIRC of 1997). ITaCEc However, applying the principle of reciprocity, this Office may confirm the VAT exemption of the Embassy of the United Arab Emirates and/or its personnel on their local purchase of motor vehicles, it appearing from the list submitted by the DFA dated March 22, 2010 that the Government of United Arab Emirates allows similar exemption to the Philippine Embassy and/or its personnel on their local purchases of motor vehicles thereat. Hence, the local purchase of one (1) unit of 2010 Nissan Frontier Navara 4X4 2.51 A/T (NWA) for the official use of the Embassy of the United Arab Emirates is exempt from VAT. As for the sale made by a VAT-registered business establishment to the qualified foreign embassy, it shall enjoy the benefit of zero percent (0%) VAT pursuant to Revenue Memorandum Order No. 22-2004. This ruling is being issued on the basis of the foregoing facts as presented. However, if upon investigation, it will 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.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue