BIR Ruling

June 9, 1967 3rd Indorsement Respectfully returned to the Honorable, the Secretary of Finance the papers bearing on the inquiry of the Chief of Staff, Armed Forces of the Philippines, as to the liability for the Philippines, as to the liability for the Philippine income tax of United States contractors and their employees who are nationals of the United States on income derived by them from the proposed construction of the AFP Tropo Scatter System which is to be constructed out of the United States Government funds under the Philippine-United States Military Assistance Agreement dated June 26, 1953, paragraph (6) of which in part reads: ". . . The Government of the Republic of the Philippines will, in accordance with mutually satisfactory procedures, accord relief from all Philippine taxes and duties on any United States expenditures in the Philippines for the common defense including any foreign aid program of the United States." aisadc This Office believes that the exemption excludes the income tax due on income of U.S. nationals derived from the construction project. The exemption clearly embraces taxes and duties otherwise due and directly payable by the U.S. government, such as taxes and duties on materials and equipments imported for use in the project which are payable out of U.S. Government funds. It may not be amiss to state that exemption as a rule is to be strictly construed and applied and in the absence of clear and unequivocal terms exemption must be construed against the taxpayer. It may also be stated that the U.S. nationals who come to the Philippines to work on the project shall during their stay in the Philippines be considered non-resident aliens engaged in trade or business in the Philippines subject to income tax on income earned by them from all sources within the Philippines pursuant to Section 22(a) of the Tax Code. If it was the intention of the Agreement to exempt from income tax U.S. nationals who come to work in the Philippines in connection with the construction project, the exemption could have easily been embodied in the Agreement in the same manner that the exemption of contractors in U.S. bases in the Philippines who are nationals of the U.S. is embodied in paragraph 4, Article XII of the Bases Agreement which reads, viz.: cdti "No national of the United States, or corporation organized under the laws of the United States, resident in the United States, shall be liable to pay income tax in the Philippines in respect of any profits derived under a contract made in the United States with the Government of the United States in connection with the construction, maintenance, operation, and defense of the bases, or any tax in the nature of a license in respect of any service or work for the United States in connection with the construction, maintenance, operation, and defense of the bases." The inquiry is, therefore, answered in the negative. (SGD.) MISAEL P. VERA Commissioner of Internal Revenue