ITAD BIR Ruling No. 126-16

August 5, 2016 ITAD BIR RULING NO. 126-16 Section 109 (K), NIRC of 1997, as amended; Articles 1 and 23, Vienna Convention Mr. Jerril G. Santos Assistant Secretary Office of Protocol Department of Foreign Affairs 2330 Roxas Boulevard, Pasay City 1300 Dear Assistant Secretary Santos, This refers to your letter of 20 June 2016 referring for appropriate action the request of the Embassy of the Federal Republic of Germany (German Embassy) for confirmation of its exemption from payment of any tax arising from long-term rental or lease of immovable property for its official use. It is represented that the request arose from a purchase of immovable property of the Philippine Embassy in Berlin for which exemption from real estate is sought; that the German Government cannot grant the request for exemption pending confirmation from the Philippine Government of a similar exemption as a basis for the German Government to apply the principle of reciprocity. In reply, please be informed of Section 109 (K) of the 1997 National Internal Revenue Code, as amended, which provides: "SEC. 109. Exempt Transactions. xxx xxx xxx (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;" In relation thereto, the Philippines is a signatory to the Vienna Convention on Diplomatic Relations (Vienna Convention), which Article 23 provides: "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 ours) As regards the definition of the "premises of the mission", Article 1 of the Vienna Convention further provides: "Article 1 For the purpose of the present Convention, the following expressions shall have the meanings hereunder assigned to them: cSEDTC (i) The "premises of the mission" are 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." Based on the above provisions, exemption from all national taxes is accorded to the sending State in respect of the premises of the mission, whether owned or leased. While, generally, the lease of property used in the Philippines is subject to VAT, 1 however, in this instance, since the lessee is the Republic of Germany thru its diplomatic mission in the Philippines, and the leased property is being used for the official purposes of the mission, this Bureau is of the opinion that the subject lease is exempt from VAT. Accordingly, being an entity exempt from VAT by specific provision of the Vienna Convention, the German Embassy cannot, therefore, be passed on with VAT. 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.) CAESAR R. DULAY Commissioner of Internal Revenue Footnotes 1. SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties . (A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties: . . .