BIR Ruling

March 29, 1976 Tax Liability and Exemption of Central Bank This refers to your letter dated August 31, 1976 informing this Office that to implement the provisions of Presidential Decree No. 783, which authorizes the Central Bank to establish and operate a security printing plant for the printing of bank notes and other security instruments, you secured the services of UES & Co., Ltd. of England as technical consultant for five (5) years; and that under the Technical Consultancy Agreement dated July 24, 1976, the Central Bank shall pay UES and/or its technicians the following: "1) $100,000.00 Annual Consultancy Fee "2) $50,000.00 Annual Salary, travel, living and other expenses of the Head, Advisory Group $20,000.00 to be paid to De La Rue $30,000.00 to be paid directly to Head, advisory Group on a monthly basis at $2,500.00 "3) $290,000.00 Salaries, travel, living and other expenses of ten (10) Technicians to be based in the Philippines "$175,724.00 to be remitted to De La Rue, as follows: $125,724.00 15 May 1976 $25,000.00 14 January 1977 $25,000.00 15 May 1977 "114,276.00 to be paid directly to the ten (10) technicians on a monthly basis." and that Pursuant to said agreement "the Central Bank undertakes to pay any or all taxes that may be levied on such payments to De La Rue and its technicians." cdti You further informed this Office that pursuant to Presidential Decree No. 484, as amended by Presidential Decree No. 783, "the Central Bank shall be exempt from all forms of taxation and from duties and all other imposts . ." On the basis of the foregoing facts and representations, you posed the following queries: "1. As invisaged under Presidential Decree No. 484, as amended, is the Central Bank exempt from taxes in connection with payments to Thomas De La Rue & Co., Ltd. and its technicians under the aforementioned Agreements? "2. If not, what is the Central Bank's liability thereon, as regards to kind and amount of tax to be paid; and the date the same is due?" In reply, I have the honor to inform you that as that Bank has assumed payment of all taxes due from UES & Co., Ltd. and the members of the Advisory Group, it is liable for the payment of the 35% withholding tax on the compensation derived by the aforenamed company from services rendered by it within the Philippines, pursuant to Section 24(b)(1) of the Tax Code. It is also subject to 30% withholding tax on the compensation paid to nonresident consultants. Although Section 1(a) of Presidential Decree No. 484, as amended by Presidential Decree No. 783, provides among other things, that in the establishment and operation of the Security Printing Plant, the Central Bank of the Philippines shall be exempt from all forms of taxation, such exemption applies only to taxes to which it is primarily or directly liable. Any tax liability of other persons or entities which the Central Bank assumed by virtue of its contractual commitments, not being its primary or direct liability, is not covered by the exemption provisions of the said Presidential Decree. Accordingly, it cannot claim exemption from the payment of taxes due from Thomas De La Rue and its technicians. cdasia