Embassy of the Republic of Korea

October 26, 2020 ITAD BIR RULING NO. 066-20 Articles 3 & 23, VCDR Embassy of the Republic of Korea 122 Upper McKinley Road McKinley Town Center, Fort Bonifacio 1634 Taguig City Dear Sir : This refers to your Note No. KPH 2020-039-P dated 17 February 2020 requesting for confirmation that the purchase by the Embassy of the Republic of Korea of the Colby Center Building (the subject property), which will be used as the new location of the Korean Cultural Center (KCC), is exempt from Value-Added Tax (VAT). The subject property is a seven-storey commercial building with parking lots, located at Block 10 Bayani Road, Fort Bonifacio, Taguig City. Article II, Section 2 of the 1987 Philippine Constitution states that the Philippines adopts the generally accepted principles of international law as part of the law of the land. The Philippines is a signatory to the Vienna Convention on Diplomatic Relations (VCDR), and as such, it is obliged to faithfully comply with the terms of the said convention, especially with respect to the provisions expressly granting tax exemptions. According to the preamble of the VCDR, the purpose of such privileges and immunities is not to benefit individuals but to ensure the efficient performance of the functions of diplomatic missions as representing States. While the Philippines recognizes the supremacy of international agreements, due regard must be had to the particular provisions dealing with the case at hand, i.e. , Article 23, in relation to Article 3, of the VCDR. Article 23 states that the sending state shall be exempt from all national taxes in respect of the premises of the mission, 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. The phrase 'premises of the mission' is defined under the VCDR 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." As to the functions of the diplomatic mission, we must examine Article 3 of the VCDR, which reads as follows: DETACa Article 3 1. The functions of a diplomatic mission consist, inter alia, in: (a) Representing the sending State in the receiving State; (b) Protecting in the receiving State the interests of the sending State and of its nationals, within the limits permitted by international law; (c) Negotiating with the Government of the receiving State; (d) Ascertaining by all lawful means conditions and developments in the receiving State, and reporting thereon to the Government of the sending State; (e) Promoting friendly relations between the sending State and the receiving State, and developing their economic, cultural and scientific relations. Undoubtedly, the Korean Embassy located at 122 Upper McKinley Road, McKinley Town Center, Fort Bonifacio, Taguig City, is recognized by the receiving state, the Philippines, as a premise of the mission since it is used for the aforecited purposes. This Office, however, has doubts on whether the subject property will be used in furtherance of the functions of the mission. HEITAD To determine whether the intended use of the subject property is for the purposes of the mission, we must take a look at the current functions of, and activities being conducted at, the current KCC in the Philippines that is located at 28th Floor, Spaces World Plaza, 5th Avenue, Bonifacio Global City, Taguig City. Based on its website, the KCC opened its doors to the public on July 19, 2011, with the goal of expanding the understanding and appreciation of Korean culture, and promoting a more active people-to-people exchange between the Republic of Korea and the Philippines. It is operated by the Ministry of Culture, Sports and Tourism and the Embassy of the Republic of Korea in the Philippines. It has been providing diverse range of programs and services for a fee or otherwise, including the following: 1) Classes a. Language Classes Course Fee (in Php) i. Regular Term Classes 1. Basic Korean 2,000 2. Elementary Korean 1 2,500 3. Elementary Korean 2 2,500 4. Intermediate Korean 1 3,000 5. Intermediate Korean 2 3,000 b. Special Term Classes i. Intensive Korean for F6-1 Spouse VISA Application 2,000 c. Kpop Dance Classes 500-1,000 d. Korean Singing Class 1,000 e. Cooking Classes 400 per session f. Taekwondo Classes 500-2,000 g. Traditional Dance Class 1,000 2) Hosting of Exhibitions in another museum 3) Organizing Korean Cultural Caravans in different universities and institutions Free 4) Holding Korean Film Festival in other cinemas Free 5) Holding different contests (speech, cooking, etc.) in KCC or in other venues 6) Organizing Philippines-Korea Cultural Exchange Festival 7) KCC Performance Teams honorarium must be provided, unless waived by the KCC director 8) Holding the Test of Proficiency in Korean (TOPIK) twice a year 9) Regular Film and concert screenings in the multi-purpose area 10) Library a. Membership Fee: i. Regular 200 (50% discount for school students) ii. KCC student Free iii. Special (borrowing materials for a particular event) a request letter is needed b. Check out of Book 300 per book which is refundable provided it is returned without damage. Certainly, the subject property will not be used for the first four purposes cited above. It may be used for the purpose of developing the cultural relations between the Philippines and Korea but the whole seven-storey building will not be used solely for such purpose since the same activities currently conducted at the KCC are intended to be transferred to the subject property. A careful reading of Article 3 of the VCDR leads to no other conclusion than that the mission is not allowed to engage in any commercial activity, or any activity conducted for profit. Considering the intended use of the subject property, this Office is constrained to hold that the property is not wholly considered as premises of the mission. While the area of the subject property to be used as the Cultural Affairs Section of the Korean Embassy is indisputably included as premises of the mission, any other areas to be used for commercial activities, e.g. , the conduct of language and dance classes for a fee, the library and its multi-purpose area where classes for dance and taekwondo, as well as film screenings, demonstrations, and special performances, are usually held, cannot be regarded as such since the purpose thereof would be contrary to the functions of a diplomatic mission. In Canada, cultural activities and areas which are not granted privileges and immunities of a cultural section include teaching activities, language schools, rooms used for exhibitions, media centers and libraries. Canada also specified that cultural sections must not be for profit, that sale of membership is prohibited and that public access should be limited. On the other hand, buildings where tourism offices and cultural institutes are located are not considered as premises of a mission in Belgium. In fine, the purchase of the subject property is, therefore, not fully exempt from VAT. Only the part of the purchase price which is proportionate to the area of the subject property to be used in furtherance of the functions of the mission, i.e. , to develop the cultural relations between the Philippines and Korea, shall be exempt from VAT. The purchase price corresponding to the area of the subject property to be used for commercial activities is not exempt from VAT. ATICcS Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue