US court nixes RP ‘privilege’ over real estate tax debts

02/13/2008

New York-- In a legal debacle for Manila, a United States federal court judge has ruled that the Philippines cannot invoke diplomatic privilege so that it would not be compelled to pay $19 million worth of unpaid real estate taxes to the New York City government.

The New York City government scored a victory over real estate tax-delinquent states, including the Philippines, India and Mongolia, after US District Judge Jed Rakoff, in a written opinion, ruled in favor of the city.

Rakoff’s ruling will force the three countries, which are renting out offices and business establishments housed in diplomatic buildings in New York, to settle their financial obligations to the city’s government.

Reports said India owed the city $39.4 million including taxes, while Mongolia has to pay $4.2 million.

Reports said “diplomatic privileges and niceties” do not exempt the countries from paying local taxes.

The Philippine Center, which occupies a property along the upscale Fifth Avenue in midtown Manhattan, serves as offices for the Philippine Consulate General and the Philippines Mission to New York. The building is also being rented to commercial tenants such as the government-owned Philippine National Bank and the country’s flag carrier, Philippine Airlines.

Normally, foreign countries are tax-exempt due to diplomatic courtesy.

But the New York City Department of Finance said the Philippines and other countries have abused their diplomatic privileges by renting out spaces for commercial purposes for profit.

Amid its demand to pay the necessary taxes, the Philippines, for several years, have ignored the calls of the New York City government.

The city argued it had a right to collect taxes on portions of the building used for non-diplomatic purposes.

The US State Department has defended foreign states for their non-payment of real estate taxes, citing diplomatic privilege under the Vienna Convention.

State Department officials have warned that the US government may also face tax charges on its properties abroad if the New York City government would insist on collecting taxes on diplomatic buildings.

Reports said India owed the city $39.4 million including taxes, while Mongolia has to pay $4.2 million.

Reports said “diplomatic privileges and niceties” do not exempt the countries from having to pay local taxes.

Michaela P. del Callar