ITAD Ruling No. 003-00

2000 ITAD RULING NO. 003-00 Sec. 24 (B) Sec. 32 (B) (7) (a) 130-95 144-94 Embajada De Panama Room 501, Victoria Building 429 United Nations Avenue Ermita, Manila Attention: Mr . Patrick Parsons Consul Gentlemen : This refers to your letter dated June 04, 1999, requesting for information on whether Section 24 (B) of Republic Act 8424 (Rate of Tax on Certain Passive Income) (1) Interests, Royalties, Prizes, and Other Winnings; (2) Cash and/or Property Dividends is applicable to Diplomatic and Consular Missions in the Philippines. In reply, please be informed that pursuant to Section 32 (B)(7)(a) of the Tax Code of 1997, as amended, "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 financing institutions established by foreign governments", and (c) "prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement but only if: (i) the recipient was selected without any action on his part to enter the contest or proceeding; and (ii) the recipient is not required to render substantial future services as a condition to receiving the prize or award" shall not be included in gross income and shall be EXEMPT from taxation. Since diplomatic and consular Missions fall within the purview of the term foreign government as contemplated in the aforequoted provision of the Tax Code, interests on the bank deposits of foreign embassies as well as cash and/or property dividends, are exempt from income tax and consequently from the final withholding tax. [BIR Ruling No. 130-95] However, the interest income on the personal deposits of the personnel of that Embassy is subject to income tax in accordance with Sec. 24(B)(1) of the Tax Code of 1997. [BIR Ruling No. 130-95] Moreover, Article 34 of the Vienna Convention on Diplomatic Relations of 1961 exempts diplomatic agents from all dues and taxes, personal or real, national, regional or municipal, but are nevertheless subject to the dues and taxes on private income having its source in the receiving State and capital taxes on investments made in commercial undertakings in the receiving State, e.g., royalties, etc. However, under the principle of reciprocity, this Office may grant tax exemption to the Embassy of a Foreign State and to the members of diplomatic missions on those taxes, dues or charges falling under paragraphs (a) to (f) of Article 34 of the Vienna Convention, provided that they can submit to the Commissioner of Internal Revenue or his duly authorized representative a copy of the special legislation or international agreement showing that the said foreign government allows similar tax exemptions to the Philippine Embassy or its personnel in that foreign country. Thus, upon the certification by the Department of Foreign Affairs that a certain tax exemption is granted to the Philippine Embassy and its personnel in a particular host country, the same privilege will also be accorded to the latters Embassy and its personnel in the Philippines. [BIR Ruling No. 087-97 dated August 5, 1997] llcd Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group