ITAD BIR Ruling No. 272-12

June 28, 2012 ITAD BIR RULING NO. 272-12 Article 23, Vienna Convention on Diplomatic Relations; BIR Ruling No. ITAD-233-11 Embassy of Japan 2627 Roxas Boulevard Pasay City 1300 Gentlemen : This refers to the request for exemption from payment of taxes such as capital gains tax, documentary stamp tax and real estate tax, in relation to the sale of a real estate property located in Makati City by the Government of Japan. Documents submitted show that on April 12, 2012, a Deed of Absolute Sale was made and entered into between the Government of Japan, as the Vendor, through the Ambassador of Japan in the Philippines as its authorized representative, and Ms. Danna Richelle G. Coyiuto, as the Vendee, over a residential house and other improvements thereon situated at 1431 Calumpang Street, Dasmarias Village, Makati City; and that pursuant to the said Deed of Absolute Sale, an undertaking was made that the DST and Transfer Tax shall be for the account of the Vendee. In reply, please be informed as follows: On capital gains tax ("CGT") Pursuant to Article 23 of the Vienna Convention on Diplomatic Relations adopted on April 18, 1961 ["Vienna Convention"], the pertinent portion of which reads: "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." cCTIaS "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] The exemption from all taxes accorded to the sending state on the premises of the mission is unequivocal, leaving no room for interpretation. Hence, the Government of Japan is exempt from capital gains tax on the sale of its real property in the Philippines. On documentary stamp tax ("DST") Under Sections 196 and 173 of the NIRC of 1997, as amended, the 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 instant case, since the Government of Japan is exempt from taxes in the sale of its real property, the vendee of the subject property, Ms. Danna Richelle G. Coyiuto, shall be the party directly liable for the payment of the DST thereon. On real property tax This Bureau declines to rule on this issue since it is beyond its jurisdiction to pass upon matters relating to taxes outside the scope of the NIRC of 1997, as amended. Therefore, in view of all the foregoing, this Office is of the opinion and so holds that the subject sale of a real property by the Government of Japan through its embassy in Manila shall be exempt from CGT. On the other hand, DST shall be paid directly by Ms. Danna Richelle G. Coyiuto, the non-exempt vendee herein, pursuant to Sections 196 and 173 of the NIRC of 1997, as amended. 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. DaHcAS Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue