ITAD Ruling No. 088-05

August 30, 2005 ITAD RULING NO. 088-05 Art. 23, Vienna Convention on Diplomatic Convention BIR Ruling No. 120-91 Embassy of Japan Manila Gentlemen : This refers to your Note Verbale No. 333-05 dated June 14, 2005 indorsed to this Office by the Department of Finance and the Department of Foreign Affairs, requesting for the issuance of a certification exempting the Embassy of Japan from the payment of taxes such as capital gains tax, documentary stamp tax, real estate tax, and other taxes related to the sale of real property of the Government of Japan in the Philippines. In reply, please be informed of Article 23 of the Vienna Convention on Diplomatic Relations (Convention) adopted on April 18, 1961, 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." (Emphasis supplied) 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." HAICTD xxx xxx xxx" It is clear from the aforequoted provisions of the Convention that the Embassy of Japan is exempt from the capital gains tax on the sale of its real property in the Philippines. On the other hand, considering that the documentary stamp tax is payable by either party to the contract and that under the Convention the Japan Embassy is exempt from all taxes in respect of the premises of the mission, i.e., capital gains tax, then, it is likewise exempt from the documentary stamp tax due on the adverted sale. (BIR Ruling No. 120-91 dated June 25, 1991) However, it is provided that whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax. (Sec. 173, Tax Code of 1997, as amended) Accordingly, the buyer of the Japan Embassy real property shall be the party directly liable for the payment of the documentary stamp tax thereon. With respect to your request for exemption from the real estate tax, you may address your query to the Bureau of Local Government-Finance, which has jurisdiction on the said matter. This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. CcSTHI Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service