ITAD Ruling No. 052-00

March 2, 2000 ITAD RULING NO. 052-00 Sec. 106, 108, 149 333-92 ITAD 34-99 VAT 00-08 Pepito A. Castro Comptroller Pilipinas Transport Industries, Inc. EDSA Cor. Madison St., Mandaluyong City S i r : This refers to your letter dated April 23, 1999 requesting for clarification on the following matters in connection with the intention of the Embassy of Spain to purchase a tax-exempt Suzuki VITARA: 1. Whether the Embassy of Spain is a tax-exempt entity or not. 2. If the answer is in the affirmative, what are the taxes that they are exempted from. In reply, please be informed that pursuant to Art. 34 of the Vienna Convention on Diplomatic Relations, pertinent portions of which read: "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 goods and services xxx xxx xxx" the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from value added tax (VAT) and ad valorem taxes on its local purchases of goods and services. In other words, purchases by that Embassy of goods and/or services shall be subject to the value added tax prescribed under Sections 106 and 108, and ad valorem tax under Section 149, both of the National Internal Revenue Code of 1997. (BIR Memo dated June 19, 1994; BIR Ruling 333-92 dated October 27, 1992) However, under the principle of reciprocity, such sales may be treated as exempt, provided that the embassy of the foreign state or the members of diplomatic mission purchasing the said products 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 grants similar tax exemption to the Philippine Embassy or its personnel in the purchases of goods and services in that foreign country. (VAT Ruling No. 42-98) Relative to the foregoing, the list dated October 4, 1999, submitted by the Office of the Protocol of the Department of Foreign Affairs confirms that the Embassy of Spain is entitled to VAT exemption on the basis of reciprocity. Consequently, suppliers of VAT exempt embassies are entitled to zero-rating on their transactions with the said embassies. This being the case, your company may apply for the effective zero-rating with this Office on your actual transaction with the Embassy of Spain. (Vat Ruling 08-00) Exemption from excise taxes may also be granted to embassies on the basis of reciprocity, provided there is a confirmation from the Department of Foreign Affairs that the home country of the embassy grants similar tax exemptions to the Philippine embassy in their country. For your information and guidance. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group