ITAD Ruling No. 226-02

December 27, 2002 ITAD RULING NO. 226-02 Article 34 Vienna Convention BIR Ruling No. 318-93 & UN 249-7-6-95 H.E. Mohd. Arshad Manzoor Hussain Ambassador Embassy of Malaysia 107 Tordesillas Street, Salcedo Village, Makati City S i r : This refers to your letter dated August 23, 2001, requesting for a ruling whether your sale of a second hand locally assembled Honda CRV to a non-privileged person is subject to value-added tax (VAT), and in the affirmative, the amount of VAT to be paid on the said sale. cIDHSC It is represented that after your arrival in Manila, you purchased a second hand locally assembled Honda CRV in February 2002 from the International Center for Living Aquatic Resources (ICLARM), a privileged non-government organization; that ICLARM purchased the vehicle in February 1998 from Honda Cars Makati, Inc. (Honda) for P767,700.00; that the ad valorem tax was included in the price, but excluded VAT as ICLARM was exempted therefrom, as evidenced by a vehicle sales invoice (VSI No. 21324) dated February 27, 1998 issued by Honda; that Honda certified that the ad valorem tax on the said vehicle was paid to the Bureau of Internal Revenue; that by reason of your re-assignment to another post in October 2001, you decided to sell said vehicle to a non-privileged person with the permission of the Department of Foreign Affairs. In reply, please be informed that under Article 34 of the Vienna Convention on Diplomatic Relations adopted on April 18, 1961, diplomatic agents 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 or services; (b) dues and taxes on private immovable property situated in the territory of the receiving State, unless he holds it on behalf of the sending State for the purpose of the mission; (c) estate, succession on inheritance duties levied by the receiving State, subject to the provisions at paragraph 4 of Article 39; (d) dues and taxes on private income having its source in the receiving State and capital taxes on investments made in commercial undertakings in the receiving State; (e) charges levied for specific services rendered; aHICDc (f) registrations, court or record fees, mortgage dues and stamp duty, with respect to immovable property, subject to the provisions of Article 23. It is clear from the foregoing that the tax exemption of diplomatic agents/representatives does not include exemption from indirect taxes of a kind which are normally incorporated in their purchases of goods and services, e.g. ad valorem tax and VAT. 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, provided that you can submit to the Commissioner of Internal Revenue or his duly authorized representative a copy of the special legislation or international agreement showing that your Government allows similar tax exemption to Filipino Embassy personnel on their purchase of goods and services in your territory. Based on the September 4, 2001 listing of diplomatic missions provided to this Bureau by the Office of Protocol, Department of Foreign Affairs, the Embassy of Malaysia is entitled to VAT exemptions in the Philippines on the basis of reciprocity. Said exemption from VAT by those diplomatic missions listed therein is in the form of a special suspension of payment. Such being the case, your purchase of a second hand locally assembled Honda CRV from ICLARM is exempt from ad valorem tax and VAT. However, if the car is later sold to a non-privileged person, said sale shall be subject to VAT and ad valorem tax. (BIR Ruling No. 318-93 and BIR Ruling UN-249-7-6-95) In view of the foregoing, the VAT to be paid is 1/11 of P848,000.00 (the actual market price of the vehicle prevailing at that time it was purchased by ICLARM inclusive of ad valorem tax and VAT per brochure of Honda Cars, Makati) or P77,090.91. DaCTcA This ruling is issued on the basis of the facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service