ITAD BIR Ruling No. 045-17

December 29, 2017 ITAD BIR RULING NO. 045-17 Sections 6, 24 and 196 of the Tax Code Jerril G. Santos Assistant Secretary Department of Foreign Affairs 2330 Roxas Blvd., Pasay City 1300 Dear Assistant Secretary Santos, This refers to your letter dated 25 August 2017 informing the Bureau of Internal Revenue (BIR) that the Department of Foreign Affairs-Office of Protocol (DFA-OP) received a note verbale from the Embassy of the State of Qatar in Manila (Embassy), dated 11 August 2017 requesting for guidelines relating to the sale of a property owned by the Embassy, as well as list of requirements, procedures, fees and exemptions. In this regard, DFA-OP is seeking the assistance of BIR to provide relevant information and documents with regard to the selling of the Embassy's property located in ASEANA Business Park, Paraaque City and such information and documents will be transmitted to the Embassy. HTcADC In reply, please be informed that Sections 24 and 6 (E) of the National Internal Revenue Code of 1997, as amended (Tax Code), provides that: " SEC. 24. Income Tax Rates. (D) Capital Gains from Sale of Real Property. (1) In General . The provisions of Section 39(B) notwithstanding, a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher, is hereby imposed upon capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts: Provided, That the tax liability, if any, on gains from sales or other dispositions of real property to the government or any of its political subdivisions or agencies or to government-owned or controlled corporations shall be determined either under Section 24 (A) or under this Subsection, at the option of the taxpayer; SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement. (E) Authority of the Commissioner to Prescribe Real Property Values . The Commissioner is hereby authorized to divide the Philippines into different zones or areas and shall, upon consultation with competent appraisers both from the private and public sectors, determine the fair market value of real properties located in each zone or area. For purposes of computing any internal revenue tax, the value of the property shall be, whichever is the higher of: (1) The fair market value as determined by the Commissioner; or (2) The fair market value as shown in the schedule of values of the Provincial and City Assessors." Moreover, Section 196 of the Tax Code states that: " SEC. 196. Stamp Tax on Deeds of Sale and Conveyances of Real Property . On all conveyances, deeds, instruments, or writings, other than grants, patents or original certificates of adjudication issued by the Government, whereby any land, tenement, or other realty sold shall be granted, assigned, transferred or otherwise conveyed to the purchaser, or purchasers, or to any other person or persons designated by such purchaser or purchasers, there shall be collected a documentary stamp tax, at the rates herein below prescribed, based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6(E) of this Code, whichever is higher: Provided, That when one of the contracting parties is the Government the tax herein imposed shall be based on the actual consideration. (a) When the consideration, or value received or contracted to be paid for such realty after making proper allowance of any encumbrance, does not exceed One thousand pesos (P1,000), Fifteen pesos (P15.00). (b) For each additional One thousand Pesos (P1,000), or fractional part thereof in excess of One thousand pesos (P1,000) of such consideration or value, Fifteen pesos (P15.00). When it appears that the amount of the documentary stamp tax payable hereunder has been reduced by an incorrect statement of the consideration in any conveyance, deed, instrument or writing subject to such tax the Commissioner, provincial or city Treasurer, or other revenue officer shall, from the assessment rolls or other reliable source of information, assess the property of its true market value and collect the proper tax thereon." In view of the foregoing, sale of real property located in the Philippines, which is classified as capital asset will be subject to capital gains tax which is a final tax of 6% based on the gross selling price or current fair market value, whichever is higher. The current fair market value shall be the higher value between the fair market value as determined by the Commissioner or fair market value as shown in the schedule of values of the Provincial and City Assessors. A documentary stamp tax on documents evidencing the sale of real property, such as a deed of sale, shall likewise be collected. The documentary stamp tax shall be collected at the rates prescribed under Section 196 of the Tax Code, based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6 (E) of the Tax Code, whichever is higher. aScITE Meanwhile, 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) The Embassy shall be exempt from all national, regional or municipal dues and taxes in respect of the premises of the mission. Premises of the mission is defined under the Vienna Convention as "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." The DFA-OP informed this Office that the Embassy's property located in ASEANA Business Park, Paraaque City is still unoccupied; that the Embassy's office is still located at Block 4, Lot 6 Santiago Street, Paseo de Magallanes, Brgy. Magallanes, Makati City. In view thereof, the property located in ASEANA Business Park, Paraaque City does not qualify as a part of the premises of the mission since it is not used for the purposes of the mission because it is currently unoccupied by the Embassy. Therefore, the property of the Embassy in Magallanes, Makati City is considered as the premise of the mission. Based on the foregoing, this Office is of the opinion that the sale of property located in ASEANA Business Park, Paraaque City, by the Embassy is not exempt from taxes. The sale of such property will be subject to capital gains tax and documentary stamp tax. However, should the DFA-OP categorically confirms that the Philippine Foreign Service Post (FSP) in Qatar is accorded exemptions from taxes on similar transactions of the FSP, then this Office may grant the same privilege to the Embassy, based on the principle of reciprocity. Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue