BIR Ruling

July 19, 1966 D. F. Fischer & Sons, Ltd. 4245 Emilia Corner Superhighway Makati, Rizal Attention: Mr . Linton S . Marshall Liaison Officer Gentlemen : This refers to your letter dated April 19, 1966 requesting information regarding the tax liability of your corporation to the Philippine Government. In your letter you stated that D.F. Fischer & Sons, Ltd., a corporation organized under the laws of the State of Nevada, U.S.A., was authorized by the Securities and Exchange Commission to transact business in the Philippines as a General Contractor and that all its operations and activities in this country will be strictly limited to construction work in American bases under formal contracts entered into with the U.S. Government. LexLib You now request information on the following questions: (1) Is your company exempt from the payment of income tax and other internal revenue taxes? (2) Is it required to withhold a portion of the salaries paid to its employees for income tax purposes? (3) Has the Municipality of Makati or the Province of Rizal the authority to levy against or collect from your corporation any license fees, privilege tax, contractor's tax or any other kind of tax? In reply, I have the honor to quote hereunder Paragraph 4, Article XII of the U.S.-R.P. Military Bases Agreement, viz: "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 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." It is our understanding that under the agreement the contracts shall be perfected in the United states for a predetermined work in U.S. military bases in this country in connection with the construction, maintenance, operation and defense thereof; and the contractor shall come to this country solely for said purpose, and that after the completion of the work specified in the contract perfected in the United States, the contractor must return to the United States. In short, our understanding is that the contractor will not engage in trade or business in this country, nor will it establish itself here in anticipation of possible construction work in the bases which are not specified in the contracts entered into in the United States. Accordingly, if your firm came to the Philippines solely to perform a contract entered into in the United States with the United States Government, it is exempt from the income tax and all excise taxes on business, including the 3% contractor's tax. On the other hand, if it came to the Philippines not only to perform the specific contract perfected in the United States but also to perform other contracts not so specified even if performed in the bases, your firm shall be subject to income tax even on income derived under the contract perfected in the United States. However, all receipts that you will derive under a contract performed in the bases shall be exempt from the contractor's tax, pursuant to the supplementary agreement to the Bases agreement entered into between the Government of the United States and this country on December 29, 1952. Your corporation is required under Supplement A of the National Internal Revenue Code to withhold a portion of the salaries or wages paid to Filipino and resident alien employees according to the withholding schedule in Revenue Regulations V-8, as amended. LLjur As regards the third question, this Office is not competent to answer the same since it does not involve internal revenue matters. You may direct said question to the Secretary of Finance. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue