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45. Letter to the Egyptian Mission concerning the New York State Transfer Tax (September 30, 2002)


United States Department of State

September 30, 2002

Deputy Permanent Representative Amr Aboulatta
Permanent Mission of the Arab Republic of Egypt to the United Nations
New York, New York

Re: Permanent Mission of the Arab Republic of Egypt, CMS No 183466 Real Estate Transfer Tax Year 2000, Conveyance of 36 East 67th Street, New York, New York

Dear Rep. Aboulatta:

We write in response to the request of the Egyptian Permanent Mission to the United Nations ("Egyptian Mission") that the United States Department of State provide this letter-opinion concerning the validity of the Egyptian Mission's efforts to secure a refund of the New York State Transfer Tax in the amount of $39,000. The tax was paid by the Egyptian Mission under protest in connection with the sale of premises of the mission located at 36 East 67th Street, New York, New York, on February 29, 2000. We understand the relevant facts to be set forth in the Schedule of Facts in the Egyptian Mission's petition. We understand that a hearing on the rebate petition took place on June 18, 2002, and we have reviewed the transcript of that hearing.

Please be advised that the Egyptian Mission enjoys tax exemption in the United States with respect to the premises of the mission under Article 23 of the Vienna Convention on Diplomatic Relations, made applicable by Article 105 paragraph 2 of the United Nations Charter and Section 15 of the United States-United Nations Headquarters Agreement. Article 23 provides as follows:

1. The sending State and the head of the mission shall be exempt from all national, regional or municipal dues and taxes in respect of the

premises of the mission, whether owned or leased, other than such as represent payment for specific services rendered.

2. The exemption from taxation referred to in this Article shall not apply to such dues and taxes payable under the law of the receiving State by persons contracting with the sending State or the head of the mission.

Under this provision the Egyptian Mission enjoys exemption from taxes associated with the sale of its mission premises. This treaty obligation is binding on states and municipalities as well as on the federal government. United States Constitution, Article VI; United States of America v. County of Arlington, 702 F.2d 485, 488 (4th Cir. 1983).

The Department understands that New York law relieves a seller or grantor of liability for the transfer tax where the seller or grantor is tax-exempt, as was the Egyptian Mission, and in certain circumstances shifts responsibility for the tax to the non-exempt buyer or grantee. (See Tax Law 1404(a) & 1405(a)(2), and Codes of Rules and Regulations of the State of New York 575.9(b)). This state law would require a buyer to pay the tax only where the seller is tax exempt. Because this would cause a buyer to reduce its purchase price it would effectively deprive the foreign government of a treaty-based tax exemption.

The Department is of the view that where, as here, implementation of a state statute acts to deprive a foreign government of a treaty-based tax exemption by shifting the tax liability to the buyer to avoid the tax exempt status of the seller, the statute violates the treaty obligations of the United States when applied to a foreign government. Clearly, the statute operates to manipulate the tax liability to the prejudice of a tax-exempt foreign government seller. Such a result cannot stand under United States law and treaty obligations. See generally United States v. City of Glen Cove, 322 F. Supp. 149 (E.D.N.Y.), aff' d, 450 F.2d 884 (2d Cir. 1971).

Please note that Article 23, paragraph 2 of the Vienna Convention on Diplomatic Relations is not intended to permit the arrangement contained under New York law, where host state law operates to manipulate statutory tax liability to deprive a foreign government of a treaty tax

exemption. Rather, it is intended to prevent distortion in the market place and a windfall to a private landlord or other private party that avoids taxes for which it is normally liable by passing them on to a tax-exempt foreign government. See E. Denza, Diplomatic Law 153 (2d ed. 1998).

The Department therefore supports the request of the Egyptian Mission that the transfer tax be refunded forthwith, in accordance with the treaty obligations of the United States.

Very truly yours,
David Stewart
Assistant Legal Adviser Office of Diplomatic Law
and Litigation

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