Jerril G. Santos

July 12, 2018 ITAD BIR RULING NO. 076-18 Articles 23 and 34, Vienna Convention Jerril G. Santos Assistant Secretary, Office of Protocol Department of Foreign Affairs 2330 Roxas Blvd., Pasay City 1300 Dear Assistant Secretary Santos, This refers to your letter dated 27 July 2017 drawing the attention of the Bureau of Internal Revenue to the VAT exemption of the Embassy of Spain (Embassy) and its diplomatic personnel on association dues collected by condominium corporations, in connection with the request of the Embassy for a special ruling on the exemption from payment of Value-Added Tax (VAT) on real property lease payments by the Embassy and clarification on the VAT exemption of services such as its association dues. In reply, please be informed that 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) In view thereof, a diplomatic mission such as an embassy is exempt from dues and taxes including VAT on its owned or leased premises in the receiving State. Accordingly, the Embassy is exempt from payment of VAT on its real property lease payments. It is worthy to mention that Article 34 of the Vienna Convention provides that: HTcADC "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 goods or services;" Based on the foregoing, diplomatic agents are not exempt from indirect taxes, such as ad valorem and VAT, on their local purchases of goods and services. However, this Office may confirm VAT exemption of the embassy personnel on their local purchases of goods and/or services, based on the principle of reciprocity if the Government of such embassy personnel allows similar exemption to the Philippine Embassy personnel on their purchase of goods and services in its country. As per the letter dated 27 July 2017 of the Office of Protocol of the Department of Foreign Affairs, the diplomatic personnel of the Philippine Embassy in Madrid, Spain, are not exempt from paying VAT on services, including association dues, among others. Accordingly, based on the principle of reciprocity, the diplomatic personnel of the Embassy of Spain are not exempt from paying VAT on services, such as association dues. Moreover, with regard to services, the Embassy is only exempt from paying VAT on utilities and services which include water, gas, electricity and fuel supplies, as well as provision of telephone and radio and telegraphic communication services. Therefore, this list is exclusive and other services which are not mentioned will be liable for the payment of VAT. To reiterate, the Embassy of Spain is exempt from VAT on real property lease payments pursuant to Article 23 of the Vienna Convention but liable for the payment on VAT for services such as association dues. Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue