ITAD Ruling No. 116-00

August 29, 2000 ITAD RULING NO. 116-00 Sections 106, 107, 108 Wilfredo L. Maximo Director, Immunities and Privileges Office of Protocol, Department of Foreign Affairs Roxas Blvd., Pasay City S i r : This refers to your letter dated September 29, 1999 requesting for confirmation that the Manila Japanese School (MJS), an institution attached to the Embassy of Japan, enjoys value-added tax (VAT) exemption for its local purchase of goods and services It is represented that MJS, located at Brgy. Don Bosco, Levitown Subd., Paraaque City, is planning to build a new facility in University Park, Fort Bonifacio Global City, Taguig, Metro Manila to accommodate an increasing number of enrollees; that MJS has sought confirmation from your Office if it will continue to enjoy VAT exemption (if ever indeed it has been entitled to such exemption) and whether materials imported for the proposed new school building will continue to be exempt from customs duties; that under the present arrangement, all importations of the said School are coursed through the Embassy to enjoy tax exemption accorded by your Department. In reply, please be informed that this case has already been denied by this Office for lack of legal basis in our letter to the Department of Finance dated October 20, 1999. However, in the said letter, it was raised that VAT exemption based on the principle of reciprocity in International Law may be resorted to resolved this request. In this connection, we cite the Vienna Convention on Diplomatic Relations, pertinent portions of which read: "ARTICLE 3 1. The functions of a diplomatic mission consist inter alia in: (a) representing the sending State in the receiving State; (b) protecting in the receiving State the interests of the sending State and of its nationals within the limits permitted by international law; (c) negotiating with the Government of the receiving State; (d) ascertaining by all lawful means conditions and developments in the receiving State, and reporting thereon to the Government of the sending State; (e) promoting friendly relations between the sending State and the receiving State, and developing their economic, cultural, and scientific relations. The operation of a school is not within the purview of the regular functions of a foreign diplomatic mission. Although previous communications between the Department of Foreign Affairs (DFA) and the Embassy of Japan will prove that it is the latter that established MJS, it does not necessarily follow that the establishment of MJS is within the ambit of the said Embassy's regular functions, thus, entitling the school to like privileges enjoyed by the Embassy. As a matter of fact, the Office of Legal Affairs of the DFA noted that based on the communications between the DFA and the Embassy, tax exemption is not part of the agreement allowing the Embassy to construct the school. While under paragraph 1, Article 23 of the same Convention, foreign diplomatic missions, such as the Japanese Embassy, are exempt from national, regional or municipal dues and taxes in respect of the premises of the mission, since MJS is not in the premises of the Embassy, MJS is not covered by the exemption. Such being the case, your request is hereby denied for lack of legal basis. The Manila Japanese School (MJS) is not entitled to all forms of tax exemption accorded the Japanese Embassy including VAT exemption granted based on reciprocity. The purchase of goods and services as well as the importation of materials for the construction of the proposed school building of MJS shall be subject to VAT pursuant to Sections 106 to 108 of the National Internal Revenue Code of 1997. (BIR Unnumbered Ruling dated October 20, 1999) For confirmation on whether materials imported for the proposed new school is exempt from customs duties or not, the matter should be brought to the attention of the Bureau of Customs for their appropriate action. For your information and guidance. aCHDST Very truly yours, (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group