BIR Ruling [DA-135-99]

March 8, 1999 BIR RULING [DA-135-99] Taisei-Kurimoto Joint Venture Pampanga Project 6th Floor, Champaca II Building Alfaro Street, Salcedo Village Makati City Gentlemen : This refers to your letter dated February 1, 1999 to the Honorable Secretary, Department of Finance, Manila, which was endorsed to this Office on February 15, 1999 stating that a Joint Venture Agreement was entered into on November 7, 1997 by and between Taisei Corporation and Kurimoto Ltd., both corporations of which are organized and existing under the laws of Japan for the purpose of undertaking the contract for the Pampanga Delta Development Project, Irrigation Component, Contract No. PDDPI-C-1 (Project), which is a project of the Government of the Philippines under the supervision of the National Irrigation Administration (NIA); that the co-venturer will be performing separate scope of work and will be filing their separate income tax returns; that the Project is covered by Loan Agreement No. PH-P123 dated July 16, 1991 between the Overseas Economic Cooperation Fund, Japan (OECF) and the Government of the Republic of the Philippines pursuant to the Exchange of Notes between the Government of Japan and the Government of the Republic of the Philippines dated March 26, 1991; that the Pampanga Delta Development Project (Irrigation Component) is one of the projects listed in the aforementioned Exchange of Notes; that all payments to the Joint Venture for both advance payment and progress billings are being subjected by NIA to the 8.5% creditable VAT; and that NIA is also withholding 1% expanded withholding tax from its billings to the Joint Venture. In connection therewith, you are requesting a ruling to the effect that the Joint Venture is not subject to the 8.5% creditable VAT and also to the 1% expanded withholding tax; that the purchases of materials and services by the Joint Venture for the Project is subject to 0% VAT; and for the refund of your alleged overpayment of the 8.5% creditable VAT and 1% expanded withholding tax. In reply thereto, please be informed that pursuant to No. V paragraph 4(1) and (2) of the Exchange of Notes dated March 26, 1991 between the Governments of Japan and the Republic of the Philippines reading: "4. (1) The Government of the Republic of the Philippines will exempt the Fund from all fiscal levies or taxes imposed in the Republic of the Philippines on and/or in connection with the Project Loan, the Fisheries Sector Program Loan, the Transport Sector Program Loan and the Environmental Sector Adjustment Program Loan as well as, interest accruing therefrom. "(2) The Government of the Republic of the Philippines will, itself or through its executing agencies or instrumentalities, assume all fiscal levies or taxes imposed in the Republic of the Philippines on Japanese firms and nationals operating as suppliers, contractors or consultants on and/or in connection with any income that may accrue from the supply of products and/or services to be provided under the Project Loan". the Joint Venture formed by Taisei Corporation and Kurimoto Ltd. both Japanese resident foreign corporations for the purpose of undertaking the aforementioned construction project being a Japanese national is exempt from VAT imposed under Sections 106(A) and 108(A) both of the Tax Code of 1997 on its supply of materials and services relative to the aforementioned Project. This is so, because the Exchange of Notes between the Japanese and Philippine Government partakes the nature of an international agreement even without legislative concurrence hence, exempt from VAT under Section 109(q) of the same Code. [BIR Ruling No. 341-88 dated July 20, 1998; BIR Ruling No. 84-98 dated June 2, 1998; Kumagai-Gumi Co., Ltd. (Phil. Branch) vs. The Commissioner of Internal Revenue, CTA Case No. 4670, Prom. July 29, 1997] Moreover, sales by VAT registered suppliers and services rendered by VAT registered subcontractors relative to the Pampanga Delta Development Project, Irrigation Component, Contract No. PDDPI-C-1 shall be subject to VAT at 0% rate pursuant to Sections 106(A)(2)(c) and 108(B)(3) both of the Tax Code of 1997. It is, of course, understood that the said suppliers and subcontractors shall apply with the Revenue District Officer concerned for the effective zero-rating of their sales of goods and services to the Joint Venture pursuant to Revenue Regulations No. 7-95 as amended. Without an approved application for zero-rating, the transaction shall be considered exempt. Furthermore, your claim for refund of the 8.5% payment by the Joint Venture of the creditable VAT should be filed with the Revenue District Officer concerned which has jurisdiction over the matter within two (2) years after the close of the taxable quarter when the sales were made. (Sec. 4.106- 1 Revenue Regulations No. 7-95) Finally, your claim for refund of the 1% expanded withholding tax should be filed with the Appellate Division, BIR, National Office Building, Diliman, Quezon City, within two (2) years after the payment of the tax pursuant to Section 204(C) of the Tax Code of 1997. 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. LLpr Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)