ITAD BIR Ruling No. 297-13

October 25, 2013 ITAD BIR RULING NO. 297-13 Principle of Reciprocity; Articles 23 & 34, Vienna Convention Wilfredo R. Cuyugan Assistant Secretary, Office of Protocol Department of Foreign Affairs 2330 Roxas Blvd., Pasay City Dear Assistant Secretary Cuyugan : These refers to Note Verbal No. 0178 dated 17 January 2013 and No. 0461 dated 06 March 2013 of the Embassy of the United States of America (US Embassy) indorsed by your office on 15 March 2013 seeking confirmation of exemption of the US Embassy on the following: 1) Value-added taxes (VAT) on association dues, membership fees and other assessments/charges being imposed by condominium corporations under Revenue Memorandum Circular (RMC) No. 65-2012 dated 12 October 2012; and 2) Real Estate Property Taxes. In reply, please be informed that Article 23 of the Vienna Convention on Diplomatic Relations (Vienna Convention) provides, as follows: "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. aEHTSc 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 supplied) Based on the above provision, a diplomatic mission (embassy) cannot be imposed dues and taxes in respect of its owned/leased premises in the receiving State. Accordingly, the US Embassy is exempt from the payment of Philippine income tax imposed on the association dues, membership fees and other assessments/charges collected by condominium corporations. Moreover, as to the members of the diplomatic mission, Article 34 of the Vienna Convention applies. It provides: HCTAEc "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 goods or services; . . ." Based on the above, the tax exemption privilege of the diplomatic agents does not include exemption from indirect taxes, such as ad valorem and value-added taxes (VAT), on their local purchases of goods and services. In other words, purchases by diplomatic agents of goods and/or services shall generally be subject to the VAT prescribed under Sections 106 and 108, of the National Internal Revenue Code of 1997, as amended. However, applying the principle of reciprocity, this Office may confirm entitlement to VAT exemption of the embassy personnel on their local purchases of goods and/or services if it appears from the list submitted by the DFA that the Government of such embassy personnel allows similar exemption to the Philippine Embassy personnel on their purchase of goods and services in its country. As per the 23 July 2013 letter of the Office of Protocol of the Department of Foreign Affairs on the updates from the various Philippine Foreign Service Posts, the United States of America does not impose VAT on goods and services to the Philippine Embassy as well as the latter's diplomatic and non-diplomatic personnel. Hence, this Office is of the opinion that, based on the Article 34 of the Vienna Convention, the diplomatic agents of the US Embassy in Manila are exempt from VAT on association dues, membership fees and other assessments/charges they pay to condominium corporations. Consequently, these US Embassy diplomatic agents cannot be passed-on VAT by its lessor condominium corporation, and, the latter non-privileged entity shall then be liable to the payment of the VAT of the aforementioned fees. STHDAc As to the 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 1997 NIRC, as amended. In this light, inquiry may be directed to the Bureau of Local Government Finance bringing to their attention the afore-cited Article 23 (1) of the Vienna Convention on Diplomatic Mission. Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue