ITAD Ruling No. 033-02

March 14, 2002 ITAD RULING NO. 033-02 NIRC Sec. 173 Vienna Convention DA-091-97 Romulo Mabanta Buenaventura Sayoc and De Los Angeles Attorneys At Law 30th Floor, Citibank Tower Citibank Plaza, 8741 Paseo de Roxas Makati City, Philippines Attention: Joseph Anthony M. Alejandro Gentlemen : This refers to your letter dated August 21, 2001 requesting confirmation of your opinion that the transactions to be entered by the Embassy of the Russian Federation (Russian Federation) is exempt from the imposition of Capital Gains Tax, Documentary Stamp Tax and Transfer Taxes pursuant to the Vienna Convention on Diplomatic Relations. 1 It is represented that the Russian Federation is the absolute owner of a parcel of land consisting of 4,223 square meters, more or less, including any and all building and improvements thereon at 10 Narra Place, South Forbes, Makati City (Forbes Park Property), as described in TCT No. 203133 issued by the Registry of Deeds-Makati City; that the Russian Federation was never able to utilize the Forbes Park Property since the Forbes Park Association, Inc. objected to the proposed construction of the Russian Federation's consular offices within the vicinity; that the Russian Federation found no use in keeping the said property considering that it remained idle; that the Russian Federation decided, to sell said property by virtue of, and pursuant to Order No. 731-p dated May 28, 2001 issued by the Russian Federation Government, which also authorizes the former to acquire another property to operate as the embassy's new quarters. In reply, please be informed that pursuant to Article 23 of the Vienna Convention on Diplomatic Relations adopted on April 18, 1961 (Vol. IV, 445-460, Phil. Tax Treaty Series) 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. "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." It is clear from the aforequoted provision of the Convention that the Russian Federation is exempt from the payment of internal revenue taxes for which it is directly liable, i.e., capital gains tax on the sale of its property in the Philippines and the documentary stamp tax on the adverted sale. (BIR Ruling No. DA-91-97) However, since the Embassy of the Russian Federation is exempt from the documentary stamp tax, then the other party to the transaction, i.e., the buyer of the real property, shall be the one directly liable for the payment of the tax pursuant to Section 173 of the 1997 Tax Code. It is not within the jurisdiction of this Office to rule on the exemption of the Federation with respect to transfer tax (local government tax). As such, you may address your query to the Department of the Interior and Local Government-Finance, which has jurisdiction on the matter. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group Footnotes 1. DFA Indorsement dtd. September 26, 2001.