ITAD BIR Ruling No. 126-13

April 30, 2013 ITAD BIR RULING NO. 126-13 Vienna Convention on Diplomatic Relations, Article 23; BIR Ruling No. ITAD-272-12 Embassy of the Republic of Cuba Penthouse, Cacho Gonzalez Building 101 Aguirre St. cor Trasierra St. Legaspi Village, Makati City Gentlemen : This refers to Note Verbale RS No. 19/2013 dated 06 March 2013 forwarded to this Bureau by the Office of Protocol of the Department of Foreign Affairs (DFA),in connection with the sale of the Embassy's real estate properties, to wit: (1) Chancery/Residence Penthouse located at Cacho Gonzales Building, 101 Aguirre Street corner Trasierra Street, Legaspi Village, Makati City and (2) Residential condominium Unit 55 Tropical Palms Condominium, 103 Dela Rosa Street, Legaspi Village, Makati City ,requesting assistance and guidance on the procedures for the payment of Capital Gains Tax (CGT),Documentary Stamp Tax (DST) and other corresponding taxes when sold to a non-privileged buyer. DEScaT In reply, please be informed as follows: On capital gains tax ("CGT") Under Section 27 (D) (5) of the National Internal Revenue Code ("NIRC") of 1997, as amended, the sale of real property may be subject to CGT if the property subject of sale is a capital asset or to creditable withholding tax ("CWT") of 6% if an ordinary asset. However, Article 23 of the Vienna Convention on Diplomatic Relations adopted on 18 April 1961 ("Vienna Convention"), provides, viz. : "ARTICLE 23 "1. The sending State and the head of 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 the person contracting with the sending state or the head of the mission." (Underscoring supplied) Based on the foregoing, the exemption from all taxes accorded to the sending State in respect of the premises of the mission is unequivocal leaving no room for interpretation. Hence, the Government of the Republic of Cuba is exempt from Philippine income tax on the gain realized from the sale of its real properties in the Philippines. On documentary stamp tax ("DST") Under Sections 196 and 173 of the NIRC of 1997, as amended, the subject transaction shall be subject to DST. It bears to stress, however, that whenever one party to the taxable document enjoys exemption from the DST imposed on the conveyance of land, the non-privileged party shall be the one directly liable to tax. Accordingly, in the herein case, since the Government of the Republic of Cuba is exempt from all taxes in the sale of its real properties, the party directly liable for the payment of the DST shall be the vendee. It is hoped that we have assisted you with your inquiry. DECSIT Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue