BIR Ruling [DA-135-04]

March 26, 2004 BIR RULING [DA-135-04] RMC-42-99 DA-202-03 Hanjin Heavy Industries & Construction Co.,Ltd. 2nd Floor, Eurovilla Condominium 1 Cor. Herrera & Legaspi Streets Legaspi Village, Makati City Attention: In Yong Yong Finance Manager Gentlemen : This refers to your letter dated December 29, 2003 requesting for exemption from the payment of the 8.5% creditable value-added tax and the 2% expanded withholding tax in connection with the Project of Department of Public Works and Highways (DPWH) financed by Asian Development Bank (ADB). It is represented that the project of the Department of Public Works and Highways particularly the "LOAN No. 1473- PHI, Sixth Road Project Road Improvement Component Contract Package 6P-l, Puerto Princesa Langogan, Road" is funded by ADB. In reply, please be informed that in an unnumbered Revenue Ruling dated July 7, 1984, it has been ruled that "...pursuant to Section 3, Article H of the Agreement between ADB and the Government of the Republic of the Philippines, ADB is an international organization. ( BIR Ruling No. 23-99 dated February 25, 1999 ) Article 56(I) of the ADB Charter provides that "The Bank, its assets, property, income and its operations and transactions, shall be exempt from all taxation and from all customs duties. Thus, the Bank shall also be exempt from any obligation for the payment, withholding or collection of any tax or duty. Since ADB is an international organization, its funds are similar to those of an OECF Fund which and under the Exchange of Notes shall not be used to pay for the tax. (BIR Ruling No. DA-202-2003 dated June 30, 2003 dated June 30, 2003) With respect to the exemption from the 2% withholding tax, this Office has already held that a joint venture or consortium formed for the purpose of undertaking construction projects is not considered as a taxable corporation in itself, hence gross payments by the DPWH to Hanjin is not subject to the expanded prescribed under Section 57(B) of the Tax Code of 1997. ( BIR VAT Ruling No. 024-00 dated July 27, 2000 ) Likewise, this Office held that the executing government agencies should not impose the 8.5% creditable VAT withholding prescribed under Section 114(C) of the National Internal Revenue Code of 1997 for government public works contractors undertaking ADB-funded projects. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. SDIaHE Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group