Assistant Secretary Jerril G. Santos

March 21, 2018 ITAD BIR RULING NO. 043-18 Sections 108 (B) (3) & 109 (K), Tax Code, as amended; Article 23, Vienna Convention Assistant Secretary Jerril G. Santos Office of Protocol, Department of Foreign Affairs 2330 Roxas Boulevard, Pasay City 1300 Dear Assistant Secretary Santos, This refers to your letter dated 2 February 2018, seeking confirmation that foreign/diplomatic missions are exempted from payment of Value-Added Tax (VAT) and the Documentary Stamp Tax (DST) in relation to purchase or lease of the premises of the mission pursuant to Article 23 of the Vienna Convention on Diplomatic Relations. ScHADI In reply, please be informed that purchases of goods and services in the Philippines are, generally, subject to VAT under Sections 106 1 and 108 2 of the National Internal Revenue Code of 1997 (Tax Code), as amended. However, Section 109, par. (K) 3 of the same Tax Code, provides that those transactions which are exempt under international agreements to which the Philippines is a signatory are exempt from VAT. In connection thereto, the Philippines is a signatory to the 1961 Vienna Convention on Diplomatic Relations (Vienna Convention). Its Article 23, par. 1 provides: "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. x x x" (Underscoring ours) As regards the definition of the "premises of the mission," Article 1, par (i) of the Vienna Convention further provides: "Article 1 For the purpose of the present Convention, the following expressions shall have the meanings hereunder assigned to them: xxx xxx xxx (i) The "premises of the mission" are the buildings or parts of buildings and the land ancillary thereto, irrespective of ownership, used for the purposes of the mission including the residence of the head of the mission ." (Underscoring ours) Based on the afore-quoted provisions, exemption from all national taxes (VAT and DST included), in respect of the premises of the mission, whether owned or leased, is accorded to the sending State, which is usually represented by a foreign mission. Premises of the mission includes the residence of the head of mission ( e.g. , residence of the Ambassador). However, the scope of exemption from taxes accorded under the Vienna Convention is only with respect to the premises of the mission. VAT and DST payable and which are not in respect of the premises of the mission shall be governed by the international law principle of reciprocity. Hence, this Office hereby confirms that purchases and lease of foreign missions in the Philippines, in respect of their premises used for official purposes, are exempt from all taxes under the Tax Code, as amended, pursuant to Articles 1 (i) and 23 (1) of the Vienna Convention, in relation to Section 109 (K) of the Tax Code, as amended. This ruling is issued on the basis of the 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. aICcHA Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue Footnotes 1. "SEC 106. Value-Added Tax on Sale of Goods or Properties. (A) Rate and Base of Tax There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to twelve percent (12%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, x x x". 2. "SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties. (A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent to twelve percent (12%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties : x x x" (Underscoring ours). 3. "SEC 109. Exempt Transactions. (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax: x x x (K) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under Presidential Decree No. 529; x x x".