ITAD BIR Ruling No. 355-13

December 13, 2013 ITAD BIR RULING NO. 355-13 Vienna Convention on Diplomatic Relations, Article 23 Director Margarita S. Ibayan Division on Immunities and Privileges Office of Protocol, Department of Foreign Affairs 2330 Roxas Blvd., Pasay City 1300 Dear Director Ibayan : This refers to Note Verbale No. 054/2013 dated 18 June 2013 of the Embassy of the Republic of Singapore forwarded by your office to this Bureau, requesting confirmation that the Ministry of Defence of the Republic of Singapore , in connection with the sale of its two (2) condominium units located in the Philippines, is exempt from the payment of Capital Gains Tax (CGT), Documentary Stamp Tax (DST) and other corresponding taxes payable by a seller of a real property. Documents submitted show that two (2) condominium units with addresses at Unit 102 Cosmopolitan Tower, 134 Valero St., Salcedo Village, Makati City , and Unit 12-A, Pacific Plaza Condominium, Apartment Ridge, Ayala Avenue, Makati City , and covered by Condominium Certificate of Title Nos. 28709 and 28710, respectively, issued by the Registry of Deeds of Makati City on 03 August 1993, are registered in the name of the Government of the Republic of Singapore; that the said condominium units are being used as residence for the personnel of the Ministry of Defence of Singapore posted in the Philippines as Defence Relation Officers; that Contracts to Sell ("Contracts") for the said condominium units were signed and executed by and between the Government of the Republic of Singapore, as the Vendor, through its authorized representative Permanent Secretary Mr. Chan Yeng Kit, and the Vendees, namely: 1) Mr Federico Kelley A. Mangahas, et al. , over the unit with improvements situated at Unit 102 Cosmopolitan Tower, 134 Valero St., Salcedo Village, Makati City, with one (1) parking slot; and 2) Mr. Pablo Garcia-Morera over the other unit with improvements situated at Unit 12-A, Pacific Plaza Condominium, Apartment Ridge, Ayala Avenue, Makati City; and that per the Contracts, an undertaking was made that the DST and Transfer Tax shall be for the account of the Vendee. TIaEDC In reply, please be informed as follows: Article 23 of the Vienna Convention on Diplomatic Relations adopted on 18 April 1961 ("Vienna Convention"), provides, viz. : "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. 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) Based on the foregoing, exemption from all taxes is accorded to the sending State, the Republic of Singapore in the instant case, only in respect of the premises of its mission , that is, the Embassy of the Republic of Singapore in Manila. It is clearly shown that the subject condominium units owned by the Government of the Republic of Singapore are being used as residence of the personnel from the Ministry of Defence of Singapore. Considering that the said properties are neither used as premises of the Embassy of the Republic of Singapore nor its qualified embassy personnel, then the tax exemption accorded under the afore-mentioned Vienna Convention cannot apply. Moreover, Section 32 (B) paragraphs (5) and (7) (a) of the 1997 National Internal Revenue Code (NIRC), as amended, are relevant. It provides: SDIaCT "Sec. 32. Gross Income . xxx xxx xxx (B) Exclusions from Gross Income. The following items shall not be included in gross income and shall be exempt from taxation under this Title: xxx xxx xxx (5) Income Exempt under Treaty. Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Republic of the Philippines. xxx xxx xxx (7) Miscellaneous Items. (a) Income derived by Foreign Government. Income derived from investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on deposits in banks in the Philippines by (i) foreign governments, (ii) financing institutions owned, controlled, or enjoying refinancing from foreign governments, and (iii) international or regional financial institutions established by foreign governments. aTcIAS xxx xxx xxx (Underscoring supplied)" The afore-quoted Tax Code provision accords tax exemption to foreign governments on income derived from the Philippines. However, the exemption can only be availed of, first, if such is clearly required by a treaty, and second, when the income is derived by the foreign government from its investments in the Philippines. In view thereof and considering that there is no existing bilateral agreement between the Philippines and Singapore relative to the ownership of the Singapore government properties in the Philippines, and that the subject income is derived from the sale of real properties owned by a foreign government and not from the latter's investments as enumerated above, the afore-cited provision cannot be used as legal basis for exemption. However, applying the principles of comity among States and reciprocity, this Office may grant exemption to the Government of the Republic of Singapore if a similar exemption on sale of real property in Singapore is accorded the Philippine Government pursuant to the domestic laws of Singapore. As categorically confirmed by the Department of Foreign Affairs, per its letter dated 09 December 2013, the Republic of Singapore does not impose capital gains tax. The gains derived from the sale of property in Singapore are not taxable unless the seller is deemed to be trading in properties. However, the Singapore government levies stamp tax on commercial and legal documents. In view of all of the foregoing, this Office is of the opinion and so holds that the sale by the Government of Singapore of the subject two (2) condominium units in the Philippines is not subject to capital gains tax based on the principle of reciprocity. However, the said contract to sell is subject to documentary stamp tax. cDHAES 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. Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue