BIR Ruling [DA-439-99]

July 30, 1999 BIR RULING [DA-439-99] RMC 42-99 Sec. 114 (C) DA401-99 Department of Public Works and Highways Bonifacio Drive, Port Area Manila Attention: Mr. Joel L. Altea Asst. Sec. For Comptrollership and Financial Management Gentlemen : This refers to your letter dated July 16, 1999 requesting for an official copy of Revenue Memorandum Circular No. 42-99 dated June 2, 1999 which detailed the tax treatment for OECF-funded projects where Japanese contractors and nationals are involved. In reply, please be informed that under the said Circular, 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 Department of Public Works and Highways, shall not withhold the 8.5% creditable VAT from the said billings of the Japanese contractors. DCcSHE 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. For your ready reference, we have enclosed a copy of Revenue Memorandum Circular No. 42-99. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group