VAT Ruling No. 002-97

January 17, 1997 VAT RULING NO. 002-97 Sec. 103 (u); 206-93; 002-97 Chinese Consulate General Cebu, Philippines Gentlemen : This refers to your Note No. 96-PG091 dated July 2, 1996 which was referred to this Office by the Department of Foreign Affairs relative to your request for exemption from the value-added tax (VAT) on your local purchases of goods and rental services in the Philippines. In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic Relations, pertinent portions 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. "xxx xxx xxx" the tax exemption of an Embassy and its diplomatic agents does not include exemption from the value-added tax (VAT) 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 100 (a) and 102 (a), both of the Tax Code, as amended by Executive Order. However, under the principle of reciprocity, this Office may grant tax exemption to the Embassy of a Foreign State and their personnel on their local purchases of goods and services, provided that you can submit to the Commissioner of Internal Revenue or her duly authorized representative a copy of the special legislation or international agreement showing that the said foreign government allows similar tax exemption to the Philippine Embassy or its personnel on their purchases of goods and services in that foreign territory (BIR Ruling No. 206-93 dated May 11, 1993). Per your said Note dated July 2, 1996 which is duly confirmed by the Assistant Secretary, Office of Protocol, Department of Foreign Affairs, Manila in his 1st Indorsement dated July 5, 1996, the Chinese Government on the basis of reciprocity, grants VAT exemption to the Philippine Embassy in Beijing, and the Consulate General in Xiamen as well as to their personnel on their purchases of goods and services, telephone bills, gasoline (diesel),and rental payments/expenses for the residence of its staff. Such being the case, the Embassy of the People's Republic of China in Manila and the Consulate General in Cebu City as well as their personnel shall be exempt from VAT on their telephone bills, gasoline (diesel),and rental payments/expenses for their offices in Manila and Cebu City and for the residences of the Ambassador, Consul General and their staff. Very truly yours, ALICIA L. TOMACRUZ Head Revenue Executive Assistant/Director Legal Service Chairman, VAT Review Committee