ITAD BIR Ruling No. 110-12

February 29, 2012 ITAD BIR RULING NO. 110-12 Secs. 106, 108, and 149 NIRC of 1997, as amended; Article 34, Vienna Convention on Diplomatic Relations Embassy of Canada Levels 6 to 8, Tower 2 RCBC Plaza Bldg. 6819 Ayala Avenue, Makati City Gentlemen : This has reference to your Note No. 12-032 dated February 1, 2012 referred to this Office by the Department of Finance and the Department of Foreign Affairs (DFA), requesting for exemption from payment of ad valorem and value-added taxes (VAT) on the local purchase of a motor vehicle for the official use of the Embassy of Canada, specifically described as follows: Make: Toyota Innova V Diesel 2.5 A/T Model Year: 2011 Color: Thermalyte Engine Number: 2KD6938610 Chassis Number: KUN405053736 In reply, please be informed that Article 34 of the Vienna Convention on Diplomatic Relations reads: "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 the goods and services; xxx xxx xxx." (Emphasis supplied) Thus, the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from VAT and ad valorem tax, which are indirect taxes, on their local purchases of goods and services. In other words, purchases by that Embassy of goods and/or services shall, in general, be subject to the VAT under Sections 106 and 108 and ad valorem tax under Section 149 of the National Internal Revenue Code of 1997 (NIRC of 1997) as amended. cCSTHA However, applying the principle of reciprocity, this Office may confirm the exemption from VAT and ad valorem tax of the Embassy of Canada and/or its personnel on their local purchase of motor vehicles, it appearing from the list submitted by the DFA dated February 2, 2012 that the Government of Canada allows similar exemption to the Philippine Embassy and/or its personnel on their local purchases of motor vehicles thereat. Hence, the local purchase of one (1) unit 2011 Toyota Innova V Diesel 2.5 A/T for the official use of the Embassy of Canada is exempt from VAT and ad valorem tax on the basis of reciprocity. As for the sale made by a VAT-registered business establishment to the qualified foreign embassy, it shall enjoy the benefit of zero percent (0%) VAT pursuant to Revenue Memorandum Order No. 22-2004. 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue