ITAD BIR Ruling No. 341-13

December 6, 2013 ITAD BIR RULING NO. 341-13 Vienna Convention on Diplomatic Relations, Article 23; BIR Ruling No. ITAD-272-12 Consular Office of Japan in Davao Suite B 305, 3rd Floor, Plaza de Luisa Complex 140 R. Magsaysay Avenue, Davao City Attention: Mr. Kazuhiko Anzai First Secretary of the Embassy of Japan Gentlemen : This refers to your 04 October 2012 letter requesting exemption from the payment of any real estate tax in connection with the sale of the Consular Office's real estate property, specifically a residential house and other improvements thereon situated at San Pedro Village, Davao City, to a non-privileged buyer, Mr. Edgar R. Lagura. aIcDCA In reply, please be informed as follows: On capital gains tax ("CGT") Under Section 27 (D) (5) of the National Internal Revenue Code ("NIRC") of 1997, as amended, the sale of real property may be subject to CGT if the property subject of sale is a capital asset or to creditable withholding tax ("CWT") of 6% if an ordinary asset. However, Article 23 of the Vienna Convention on Consular Relations adopted on 24 April 1963 ("Vienna Convention"), provides, viz. : " Article 32 Exemption from taxation of consular premises 1. Consular premises and the residence of the career head of consular post of which the sending State or any person acting on its behalf is the owner or lessee shall be exempt from all national, regional or municipal dues and taxes whatsoever, other than such as represent payment for specific services rendered. 2. The exemption from taxation referred to paragraph 1 of this article shall not apply to such dues and taxes if, under the law of the receiving State, they are payable by the person who contracted with the sending State or with the person acting on its behalf. (Underscoring supplied) " Based on the foregoing, the exemption from all taxes accorded to the sending State in respect of the premises of the mission is unequivocal leaving no room for interpretation. Hence, the Government of Japan is exempt from Philippine income tax on the gain realized from 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 subject 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 herein case, since the Government of Japan is exempt from all taxes in the sale of its real property, the party directly liable for the payment of the DST shall be the vendee. 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. IEcDCa Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue