VAT Ruling No. 036-97

April 15, 1997 VAT RULING NO. 036-97 Sec. 103 (u); 14-96; 036-97 Embassy of the Arab Republic of Egypt Manila, Philippines Attention: Hon . Nabil Zaki Ambassador Gentlemen : This refers to your letter dated April 4, 1997 requesting for exemption from the value added tax (VAT) on your purchases of goods and services in the Philippines. casia In reply, please be informed that pursuant to Article 34 of Vienna Convention on Diplomatic Relations, pertinent portions of which read: "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 privilege 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 National Internal Revenue Code, as amended by Republic Act No. 7716. However, under the principle of reciprocity, this Office may grant exemption to the Embassy of the Arab Republic of Egypt or its diplomatic personnel on their local purchases of goods and/or services provided that you can submit to the Commissioner of Internal Revenue or his duly authorized representative a copy of special legislation or international agreement that your Government grants similar exemptions to the Philippine Embassy or its personnel on their purchase or goods and services within your territory. It appearing from the list dated May 15, 1996 submitted by the Office of Protocol of the Department of Foreign Affairs that your Government allows similar exemption to Filipino Embassy personnel on their purchases of good and services in your country, your request for exemption from the value added tax (VAT) on the local purchases of goods and services for the use of your embassy and diplomatic personnel is hereby granted (BIR Ruling 160-95 dated October 17, 1995). In addition, the lease of presidential properties by foreign embassies or their diplomatic personnel here in the Philippine may be effectively zero-rated provided that the lessor, who must be a VAT-registered person, applies and secures prior approval for effective zero-rating on his sale of rental services to the foreign diplomatic mission or its personnel whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero-rate. In other words, although, the same shall not result in any output tax on the part of the lessor and the input tax on his purchases of goods, properties or services related to such effectively zero-rated sale of services shall be available as tax credit or refund (BIR Ruling 14-96 dated February 20, 1996). cdi Very truly yours, ALICIA L. TOMACRUZ Head Revenue Executive Assistant Chairman, VAT Review Committee