ITAD BIR Ruling No. 166-12

April 20, 2012 ITAD BIR RULING NO. 166-12 Articles 1, 3 and 34 Vienna Convention on Diplomatic Relations Embassy of the Federal Republic of Germany 25th Floor, Tower 2, RCBC Plaza 6819 Ayala Avenue corner Sen. Gil Puyat Avenue Makati City Gentlemen : This refers to your Note Verbale dated March 1, 2012 indorsed to us by the Department of Foreign Affairs (DFA) requesting reconsideration of the DFA's denial of your request for tax exemption on the local purchase of the following motor vehicle by the new Head Mistress of the German School, Ms. Astrid Martinez Lopez: Type of Use Personal Make and Model Nissan X-Trail Chassis Number JN1TBNT30Z0102731 Engine/Motor Number QR2531479A Ms. Lopez is a holder of DFA ID No. EXP 91905 and was granted a 47 (A) (2) visa under the classification of an "Expert". In reply, please be informed that Article 34 of the Vienna Convention on Diplomatic Relations 1 (Convention) provides: "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." (Underscoring supplied) According to Article 34, the tax exemption privilege of an embassy and its diplomatic agents does not generally include exemption from indirect taxes like value-added tax (VAT),which is imposed on the local purchase of goods and services under Sections 106 and 108 of the National Internal Revenue Code of 1997 ("Tax Code") ,as amended. However, applying the principle of reciprocity, this Office generally grants VAT exemption to an embassy and its diplomatic officials on their local purchase of motor vehicles, among others, based on an updated list submitted by the DFA to this Bureau that the relevant foreign country allows similar exemption to the Philippine Embassy and its diplomatic agents in that country. EIcSTD Since the exemption is limited to diplomatic agents, under Article 1 (e),(a) and (d) of the Convention ,such individual is either the head of the mission or a member of the diplomatic staff, to wit: "(e) A 'diplomatic agent' is the head of the mission or a member of the diplomatic staff of the mission; (a) The 'head of the mission' is the person charged by the sending State with the duty of acting in that capacity; (d) The 'members of the diplomatic staff' are the members of the staff of the mission having diplomatic rank ;" (emphasis supplied) Moreover, under Article 3 of the Convention, it enumerates the functions of a diplomatic mission, to wit: "Article 3 1. The functions of a diplomatic mission consist, inter alia ,in: (a) Representing the sending State in the receiving State; (b) Protecting in the receiving State the interests of the sending State and of its nationals, within the limits permitted by international law; (c) Negotiating with the Government of the receiving State; (d) Ascertaining by all lawful means conditions and developments in the receiving State, and reporting thereon to the Government of the sending State; (e) Promoting friendly relations between the sending State, and the receiving State, and developing their economic, cultural and scientific relations." aHTCIc Relative thereto, since Ms. Lopez is Head Mistress of the German School in Manila ,as represented and indicated in her DFA ID No. EXP 91905 , and not a diplomatic agent, based on the foregoing definition of the Vienna Convention, she is not entitled to the same exemptions granted to any diplomatic agent of the German Embassy. Consequently, the subject purchase of motor vehicle by Ms. Lopez shall be subject to VAT pursuant to Section 106 (A) (2) (c) of the Tax Code of 1997, as amended by Republic Act No. 9337, which provides, viz. : "SEC. 106. Value-added Tax on Sale of Goods or Properties. (A) Rate and Base Tax. There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to twelve percent (12%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor. xxx xxx xxx." Moreover, the purchase is subject to ad valorem tax under Section 149 of the Tax Code, to wit: "Section 149. Automobiles. There shall be levied, assessed and collected an ad valorem tax on automobiles based on the manufacturer's/assembler's or importer's selling price, net of excise and value-added tax, ..." Under the principle of strictissimi juris ,tax exemptions are strictly construed against the taxpayer and cannot be allowed unless granted in the most explicit and categorical language too plain to be mistaken. They cannot be extended by mere implication or inference. ( Pansacola vs. CIR , G.R. No. 159991 dated November 16, 2006 citing Insular Lumber Co. v. Court of Tax Appeals ,No. L-31057 dated May 29, 1981; Davao Gulf Lumber Corporation v. Commissioner of Internal Revenue , G.R. No. 117359 dated July 23, 1998; and, Philippine Long Distance Telephone Company, Inc. v. City of Davao ,G.R. No. 143867 dated March 25, 2003). ESCDHA Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Done at Vienna on 18 April 1961.