BIR Ruling

November 2, 1972 NVPAS Recapping Co., Inc. 357 (old 569) Rizal Ave. Ext. Caloocan City ZZIP D-706 Attention: Mr . C . R . Oliva Vice President Finance & Administration Gentlemen : This refers to your letter dated June 13, 1972 requesting clarification if the "Importation Taxes" referred in paragraph 18(a) of the bid papers for tire recapping services for U.S.A. bases in Clark Air Base & Subic Bay which for ready reference is reproduced, viz: cdtech "18. TAXES "a. The resultant contractor shall be exempt from payment of the 3% Contractor's Tax, the 7% sales Tax, and all types and kinds of importation taxes normally applicable to this contract . As a result, the prospective contractor by signature on the face of the Solicitation, certifies these taxes are not included in his proposal." apply to raw materials used for the recapping of tires subject of the contract, and if so, to indicate the mechanics for securing exemption from such importation taxes: In reply, I have the honor to quote hereunder pertinent provisions of the U.S.-P.I. Military Bases Agreement dealing on tax exemption on sales and services within the Bases, viz: "ARTICLE XVIII. Sales and Services Within the Base I. It is mutually agreed that the United States shall have the right to establish on bases, free of all licenses; fees; sales, excise or other taxes, or imposts; Government agencies, including concessions, such as sales commissaries and post exchanges, messes and social clubs, for the exclusive use of the United States military forces and authorized civilian personnel and their families. The merchandise or services sold or dispensed by such agencies shall be free of all taxes, duties and inspection by the Philippine authorities. Administrative measures shall be taken by the appropriate authorities of the United States to prevent the resale of goods which are sold under the provisions of this Article to persons not entitled to buy goods at such agencies, and, generally, to prevent abuse of the privileges granted under this Article. There shall be cooperation between such authorities and the Philippines to this end." Under the above-quoted provisions of the Agreement, receipts derived by a Filipino contractor from his contracts with the U.S. Military Bases on any service or work for the operation, maintenance and defense of the bases is exempt from the 3% contractor's tax. However, the raw materials imported by a Filipino contractor for use in connection with his contract are not included within the purview of the said exempting provisions. Such being the case, your importation of raw materials for use in the recapping of tires subject of the contract with the U.S. Military Authorities is subject to the compensating tax under Section 190 of the Tax Code. For exemption from customs and other duties under the Tariff and Customs Code, you are advised to direct your query to the Bureau of Customs. Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue