ITAD Ruling No. 181-00

December 4, 2000 ITAD RULING NO. 181-00 Section 106 Section 108 BIR Ruling No. 206-93 Embassy of Panama Rm. 501 Victoria Bldg. 429 United Nations Avenue Ermita, Manila Gentlemen : This refers to your letter dated September 26, 2000, which was referred to this Office by the Department of Foreign Affairs (DFA), relative to your request for a Certification of Value-Added (VAT) Exemption on purchases of goods and services based on the principle of reciprocity. In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic Relations pertinent portion 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 DHcSIT "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 tax on their 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, all of the National Internal Revenue Code of 1997. However, under the principle of reciprocity, this Office may grant tax exemptions to your embassy and its personnel on their local purchases of goods and/or services it appearing from the indorsement letter of the Department of Foreign Affairs dated October 10, 2000 that, pursuant to Resolution No. 201-862 (2 March 1999) of the Ministry of Finance and Economy of Panama, your Government allows similar exemption to Philippine Embassy personnel on their local purchase of goods and services in your country. With respect to the purchase of vehicles, under Cabinet Decree 280 of August 10, 1970, foreign diplomatic and consular agents duly accredited to Panama are also allowed to import or locally purchase an auto vehicle every two years, with exemption from tax and customs duties, while the Head of the Diplomatic Mission is allowed to import or purchase two cars, exempt from taxes and customs duties, every two years. (BIR Ruling No. 206-93 dated May 11, 1993) Hence, the Embassy of Panama and its personnel are entitled to VAT and ad valorem tax exemptions on their purchase of local goods and/or services, subject to the above-mentioned limitations on the purchase of auto vehicles. Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group