Mr. Jerril G. Santos

September 5, 2018 ITAD BIR RULING NO. 082-18 Principle of Reciprocity Mr. 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 the letter from the Department of Foreign Affairs, Office of Protocol (DFA-OP) dated 02 May 2018, on the issuance and/or renewal of Value-Added Tax [VAT] Exemption Certificate (VEC) in favor of the Embassy of the Islamic Republic of Iran in Manila (Iran Embassy), and its personnel. HASDcC Records show that BIR Ruling No. ITAD-341-12 dated 10 September 2012 was issued by the Bureau of Internal Revenue (BIR) confirming the grant of VAT exemption on local purchase of goods, services (inclusive of utilities) and motor vehicle in favor of the Iran Embassy and its diplomatic personnel, based on the principle of reciprocity, as per the 13 August 2012 indorsement by the DFA-OP categorically confirming that the Philippine Embassy and its diplomatic personnel in Tehran enjoy VAT exemption privileges on local purchase of goods, services and motor vehicles thereat. Based on the said BIR ruling, the Iran Embassy and its diplomatic personnel were issued VECs which entitled them to claim zero-rated VAT at point-of-sale or purchase of goods and services (inclusive of utilities) here in the Philippines. It is now represented, that while the DFA-OP is fully aware of the difficulty encountered by the BIR in processing claim or request for refund of foreign missions, it nevertheless, wishes to inform that the Philippine Embassy in Tehran now strongly recommends that the refund system be applied by the BIR to the Iran Embassy and its personnel in so far as the grant of VAT privileges on their purchase of goods and services; that, by doing so, it would be in keeping with the principle of reciprocity since the refund system still remains in effect in Iran; that DFA-OP recommends that the validity period of all VECs issued prior to this notice be honored until their expiry dates; and that, the DFA-OP shall discontinue to endorse requests lodged by the Iran Embassy for the issuance and/or renewal of the VECs in favor of the embassy and its personnel. In reply, please be informed of Section 109 (K) of the 1997 National Internal Revenue Code, as amended, which provides: "SEC. 109. Exempt Transactions. 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"; The Philippines is a signatory to the Vienna Convention on Diplomatic Relations (Vienna Convention). While Article 34 of the Vienna Convention exempts diplomatic agents from all dues and taxes, personal or real, national, regional or municipal, they are nevertheless subject to the indirect taxes of a kind which are normally incorporated in the price of goods or services ( e.g., VAT ). Nevertheless, under the principle of reciprocity, this Office may grant tax exemption to the diplomatic mission of a foreign State ( e.g., embassy) and to their agents on their local purchases of goods and services, provided that they can submit to the Commissioner of Internal Revenue proof that the said foreign government allows similar tax exemptions to the Philippine Embassy or its personnel on their purchases of goods or services in that foreign State. As per the 02 February 2018 updates from the various Philippine Foreign Service Posts, as monitored by the DFA-OP, the Philippine Embassy and its diplomatic personnel in Tehran are entitled to tax refund on local purchase of goods, services and motor vehicles thereat, with a minimum recoverable amount of IRR500,000 1 for every single tax period. The Philippine Post in Tehran informs that in spite of their entitlement to refund, the complicated procedure for claiming thereof discourages them to do so. In view of the foregoing, applying the principle of reciprocity, the Iran Embassy and its qualified personnel in Manila shall also be entitled to, and, may proceed to secure VAT refund on official ( for the embassy ) and personal ( for the embassy personnel ) purchase of specific goods and services, including the local purchase of motor vehicles in the Philippines. The minimum recoverable amount on purchase of goods and services would be IRR500,000 ( based on prevailing BSP exchange rate) for every tax period . This ruling supersedes BIR Ruling No. ITAD-341-12 dated 10 September 2012. Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue Footnotes 1. More or less PHP621.88 as of 1 June 2018.