VAT Ruling No. 051-97

July 14, 1997 VAT RULING NO. 051-97 Sec. 103 (u) 14-96 051-97 Royal Danish Embassy Manila, Philippines Attention: Shirley S . Sanares Administrative Officer Gentlemen : This refers to your letter dated 28 May 1997 requesting for exemption from the value-added tax (VAT) on your 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 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 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 Nos. 7716 and 8241. cdll However, under the principle of reciprocity , this Office may grant exemption to the Royal Danish Embassy or its diplomatic personnel on their local purchases of goods and/or services. It appearing from the list dated 15 May 1996 submitted by the Office of Protocol of the Department of Foreign Affairs that your Government allows similar exemption to Philippine Embassy personnel on their purchases of goods and services in your country, your request for exemption from the value-added tax (VAT) on the purchases of goods and services for the use of your embassy and diplomatic personnel is hereby granted (BIR Ruling No. 160-95 dated October 17, 1995). In addition, the lease of residential properties by foreign embassies or their diplomatic personnel here in the Philippines 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 said sale of rental services is a taxable transaction for VAT purposes, 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 (BIRRuling No. 14-96 dated February 20, 1996). llcd Very truly yours, SIXTO S. ESQUIVIAS IV (OIC) Assistant Commissioner, Legal Service Chairman, VAT Review Committee