RP Gov’t Contests NYC’s Win on Tax Dispute

by Momar Visaya/Asianjournal.com

NEW YORK — The Philippine government is going to contest the ruling of a New York City judge last week saying that the city can collect millions of dollars in real estate taxes on the Fifth Avenue building owned by the government of the Philippines, Consul General Cecilia Rebong told local media Wednesday.

“We will bring the recommendations of our legal counsel to Ambassador Willy Gaa, who is the chairman of the Philippine Center Management Board, and submit it to the judge along with new computations from our legal officer,” ConGen Rebong said.

US District Judge Jed Rakoff ruled that diplomatic privileges and niceties don’t exempt the countries from having to pay at least some local taxes on the buildings that house staff and offices for their missions to the United Nations.

Under international treaties, consulates and embassies are generally tax-exempt. Their status as sovereign territory often puts them outside the reach of US law.

But in New York’s case, the city argued that it had a right to collect taxes on portions of the structures used for non-diplomatic purposes.

Judge Rakoff said that the Philippines was not required to pay taxes on Maharlika, a restaurant that used to operate in the building.

“We had a very good presentation during the hearings. We won the case for the Maharlika restaurant. The judge did not side with us on the issue of PNB, which occupied the space occupied formerly by Maharlika and the one-room office of PAL,” ConGen Rebong said.

The Philippines’ building, on a prime stretch of Fifth Avenue, has had a variety of commercial tenants, including a restaurant (Maharlika), a bank (Philippine National Bank) and an airline office (Philippine Airlines).

“Back then, PAL and PNB were government entities and were used to promote the Philippines. Maharlika, as a restaurant at the Philippine Center, was used to promote Philippine culture through our cuisine,” ConGen Rebong said.

In a statement obtained by the Asian Journal, Ambassador Gaa said, “The Court has found tax liabilities on the portions previously used by PNB which primarily served the official transactions of the Philippine Consulate General and the Philippine Government in the United States and also on the office used by PAL, a government-controlled corporation at that time, that was officially mandated to promote tourism to the Philippines.”

“These findings appear inconsistent with the spirit of international law that we expected in our customary dealings with foreign nations,” the statement added.

India & Mongolia, Too

It all began in April 2003 when the city filed suits seeking unpaid real estate taxes against four countries. Aside from the Philippines, the city is also running after India and Mongolia. The city settled with Turkey in 2003 for $5.05 million in real estate taxes and interest.

India’s 26-story tower on East 43rd Street near the U.N. holds 20 floors worth of apartments, all occupied by diplomatic employees. According to the city, the Indian government owes $39.4 million as of September 2007. Mongolia’s six-story building on East 77th Street, which has two floors that serve as staff residences, owes $4.2 million.

For years, the three countries refused to pay their New York City tax bills, but the legal tide turned in the city’s favor when the Supreme Court ruled in June that the nations could, indeed, be sued over the matter in US courts.

For ConGen Rebong, it was not that they were ignoring the tax bills but it was a matter of principle.

“These foreign missions should not have been brought to court in the first place. We should not be taxed. We’re not supposed to pay the tax,” Rebong said, citing the Vienna Convention on Diplomatic Relations, which gives tax exemptions for the residences of ambassadors and properties used to conduct diplomacy.

The city had been arguing that the Philippines owed $19 million, as of 2005, but that amount is likely to change since Judge Rakoff said the law didn’t require the country to pay taxes on a restaurant that once operated on the site.

The original assessment was that the Philippine government owed the city of New York $823,000. It ballooned to $19 million in 2005. The amount reached $37 million last year including interests and penalties.

“It is now down to $10 million, $400,000 of which represent the principal while the rest is accrued interest,” Consul Leandro Lachica said during the press briefing.

The long-running legal dispute had attracted attention from the US Department of State, which had sided with the foreign countries against the city. State Department officials had warned that if New York City won, the US might be forced to pay millions of dollars in taxes on various properties it controls abroad.

“It is good to note that the State Department shares our position but the case is between us and the city. Kailangan nating ipaglaban ito,” Rebong said.

Calls made to Robert A. Kandell, the lawyer representing the Philippines in the lawsuit were not returned as of press time.

(AJ with AP wire reports)

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