VAT Ruling No. 003-97

January 17, 1997 VAT RULING NO. 003-97 Sec. 103 (u); 206-93; 003-97 Embassy of the Republic of Iraq 2261 Avocado Street, Dasmarias Village Makati, Metro Manila Philippines Gentlemen : This refers to your Note No. 064-96 dated June 21, 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 services in the Philippines. 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. "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 the Republic of Iraq in Manila or its personnel on their local purchases of goods and/or 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 Government of Iraq allows similar tax exemption to the Philippine Embassy and its personnel on their purchases of goods and services in that foreign territory (BIR Ruling No. 206-93 dated May 11, 1993). Indorsement made by the Office of Protocol, Department of Foreign Affairs dated July 11, 1996 confirmed that the Embassy of Republic of Iraq is entitled to VAT exemption on the basis of reciprocity principle. Such being the case, the Embassy of the Republic of Iraq in the Philippines is exempt from VAT on their local purchases of goods and services, i.e., services rendered by PLDT, Meralco, MWSS, in accordance with Section 103 (u) of the Tax Code, as amended. Very truly yours, ALICIA L. TOMACRUZ Head Revenue Executive Assistant/Director Legal Service Chairman, VAT Review Committee