BIR Ruling [DA-401-99]

July 12, 1999 BIR RULING [DA-401-99] National Irrigation Administration National Government Center E. delos Santos Avenue Quezon City Attention: Mr. Manuel S. Arevalo Administrator Gentlemen : This refers to your letter dated March 31, 1999 requesting a certification to the effect that the Joint Venture formed by Taisei Corporation and Kurimoto Ltd., both Japanese resident foreign corporations for the purpose of undertaking the contract for the Pampanga Delta Development Project, Irrigation Component, Contract No. PDDPI-C-1 which is an OECF funded project is not subject to the 8.5% creditable VAT and also to the 1% expanded withholding tax. In reply, please be informed that under Revenue Memorandum Circular No. 42-99 dated June 2, 1999, this Office held that by virtue of the Exchange of Notes between the Government of Japan and the Republic of the Philippines, Japanese contractors or nationals engaged in OECF-funded projects in the Philippines shall not be required to shoulder all fiscal levies or taxes associated with such projects. Accordingly, the invoice billings of the Japanese contractors with the executing government agencies are exempt from the 8.5% creditable VAT withholding prescribed under Section 114(C) of the National Internal Revenue Code of 1997. In turn, the executing government agencies of the Philippine Government, such as the National Irrigation Administration, shall not withhold the 8.5% creditable VAT from the said billings of the Japanese contractors. With respect to the 1% expanded withholding tax, the same shall likewise not be deducted from the income payments made to Japanese contractors or nationals. However, since the executing government agencies are mandated under the Exchange of Note to assume the income taxes due from Japanese contractors in connection with the project, the executing government agencies shall continue to remit the prescribed 1% creditable withholding tax but shall assume the payment thereof out of their own funds. aIAEcD For your ready reference, we have enclosed a copy of Revenue Memorandum Circular No. 42-99. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue