ITAD Ruling No. 045-00

February 10, 2000 ITAD RULING NO. 045-00 Secs. 106, 108 & 149 NIRC 10-00 The Embassy of Malaysia Manila, Philippines Gentlemen : This refers to your Note No. 155/99 dated October 25, 1999, which was referred to this Office by the Department of Foreign Affairs, requesting for the issuance of value-added tax (VAT) exemption certificate on payments for the repair works made by F. Tiotioen Construction on the Embassys premises and related facilities, commencing in the first week of October 1999 and expected to be completed in January 2000, amounting to P4,256,150.00. In reply, please be informed that pursuant to Article 43 of the Vienna Convention on Diplomatic Relations pertinent portions of which reads: "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 the goods and services xxx xxx xxx" the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from VAT and ad valorem taxes on its local purchases of goods and services. In other words, purchases by the Embassy of goods and services shall be subject to VAT prescribed under Sections 106 and 108, and ad valorem tax under Section 149, both of the National Internal Revenue Code of 1997. However, under the principle of reciprocity, this Office may grant tax exemption to the Embassy of Malaysia or its personnel on their local purchases of goods and services, it appearing from the list submitted by the Department of Foreign Affairs (dated October 4, 1999) that your Government allows similar exemption to Philippine Embassy personnel on their purchase of goods and services in your country. Hence, the Embassy of Malaysia is entitled to VAT exemption on their local purchase of goods and services, and consequently, from the 10 percent VAT chargeable against the contract price of the repair works performed by F. Tiotioen Construction for the Embassy amounting to P425,615.00. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group