VAT Ruling No. 042-98

November 26, 1998 VAT RULING NO. 042-98 Sec. 109-087-97-042-98 Luis A. Maglaya Legal Counsel Petron Corporation # 7901 Makati Avenue 1200 Makati City S i r : This refers to your letter dated August 3, 1998 requesting for a clarification, relative to the sales of Petron Corporation of products subject to the value added tax (VAT) such as lubes and greases to embassies/diplomatic missions, on the issue of whether such sales should be treated as exempt from VAT or be considered as zero-rated sales. In reply, please be informed that the sales of products subject to VAT such as lubes and greases to embassies/diplomatic missions do not fall under any of those transactions which are exempt from VAT under Section 109 of the National Internal Revenue Code of 1997 and under Article 34 of the Vienna Convention of 1961 on Diplomatic Relations, which exempt diplomatic agents from all dues and taxes, personal or real, national, regional or municipal, except indirect taxes of a kind which is normally incorporated in the price of goods or services, e.g. ad valorem and VAT. However, under the principle of reciprocity, such sales may be treated as exempt, provided that the embassy of the foreign state or the members of diplomatic missions purchasing the said products can submit to the Commissioner of Internal Revenue or his duly authorized representative, a copy of the special legislation or international agreement showing that the said foreign government grants similar tax exemption to the Philippine Embassy or its personnel on their purchases of goods and services in that foreign country. This is pursuant to the declared principle of the State that it adopts the generally accepted principles of international law as part of the law of the land. (BIR Ruling Nos. 087-97, 318-93, 206-93, and 333-92; VAT Ruling Nos. 25-93 and 18-93) Thus, upon the certification by the foreign State that indirect tax (e.g. VAT) exemption is granted to the Philippine Embassy and its personnel in its territory, the same privilege will also be accorded to the latter's Embassy and its personnel in the Philippines. dctai Accordingly, the sales of said products to embassies/diplomatic missions should be treated as VAT exempt. This privilege, however, may only be exercised upon presentation by the concerned embassy/diplomatic mission of the written approval of this Bureau. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue