ITAD BIR Ruling No. 162-12

April 19, 2012 ITAD BIR RULING NO. 162-12 Section 21, National Internal Revenue Code of 1997, as amended; Sections 135, 200 and 206, Local Government Code of 1991 Embassy of the Republic of Korea 122 Upper McKinley Road McKinley Town Center Fort Bonifacio, Taguig City Attention: Kim Dong Gon Second Secretary Gentlemen : This refers to your Note No. KPH 2011-153-G dated November 9, 2011 requesting, in effect, for confirmation that the acquisition of the official residence of the Ambassador of Korea to the Philippines is exempt from value added taxes. You are additionally requesting for the transfer of tax declaration of the said property to the Embassy of the Republic of Korea in the Philippines and waiver of unpaid real property taxes thereon. A review of the documents shows that on March 13, 1986 , a Deed of Absolute Sale was entered into between LID Development, Inc. ("LID Development") and the Embassy where LID Development sold to the Embassy a parcel of land located at No. 2, Harvard Street (corner McKinley Road), Forbes Park, Makati City, including all buildings, stables, swimming pool and other improvements situated thereon. The property is covered by Transfer Certificate of Title No. S-108355 of the Registry of Deeds for Metro Manila and was bought for a price of P8,000,000.00. A Transfer Certificate of Title (No. 140932) was subsequently issued by the Registry of Deeds of Makati on March 14, 1986 in the name of the Embassy. cDCSET However, since the time of the acquisition, there was no tax declaration filed that stated the fair market value of the property. When the Embassy requested from the Assessment Department of Makati of the appraised value of the property and for the transfer of the Tax Declaration on the property in the name of the Embassy, the latter was informed that the property has unpaid real property tax of P8,300,000.00 for the years 1997 to 2011. The City Assessor refused to accept the pertinent documents on the acquisition of the property to effect the transfer of the tax declaration. Relative thereto, please be informed that with respect to VAT, since the acquisition of the property by the Embassy from LID Development was effected in 1986 the transaction could not be subject to VAT because this tax was introduced only in 1987 under Executive Order No. 273 (Adopting a Value-Added Tax, Amending for this Purpose Certain Provisions of the National Internal Revenue Code, and for Other Purposes) issued by the President on July 25, 1987. Moreover, Article 23 of the Vienna Convention on Diplomatic Relations ("Convention") adopted on April 18, 1961, provides that: "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 services rendered. (Emphasis supplied) 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. ICHAaT xxx xxx xxx" Based on the aforequoted provisions of the Convention, the acquisition of the official residence of the Ambassador, being the head of mission of the Republic of Korea in the Philippines, shall be exempt from all national, regional or municipal dues and taxes for the acquisition of the official residence of the Ambassador of the Republic of Korea to the Philippines. With respect to real property tax, please be informed that this is not an internal revenue tax which is administered and collected by this Bureau under Section 28 (B) (4) of the National Internal Revenue Code of 1997, as amended. Hence, this Bureau declines to rule on the issue of issuance of the transfer of tax declaration and waiving of unpaid real property taxes on the same, since it is beyond its jurisdiction to pass upon matters relating to taxes outside the scope of the Tax Code. It is recommended that such request be forwarded to the Bureau of Local Government Finance which has jurisdiction over the same. Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue