Materials, Supplies, and Compensation for Services Paid from Proceeds of Foreign Loans Contracted by MWSS Exempt from All Direct and Indirect Taxes

January 4, 1982 BIR RULING NO. 004-82 024-a 129-81 004-82 Kawasaki Steel Corporation Room 305 Alcco Bldg. Ortigas Avenue Greenhills, San Juan Metro Manila Attention: Mr . Hiroshi Nagamine Gentlemen : This refers to your letter dated January 20, 1981, to the Metropolitan Waterworks and Sewerage Systems (MWSS) requesting its assistance to secure a ruling from this Office that you and your foreign personnel are exempt from all taxes to the extent of the proceeds paid from the International Bank for Reconstruction and Development (IBRD) Loan on the basis of Section 9(b) of Republic Act No. 6234, as amended by Presidential Decree No. 425, otherwise known as the Charter of the MWSS. It is represented that you are a foreign corporation duly organized and existing under the laws of Japan; that you participated, jointly with Construction and Development Corporation of the Philippines (CDCP), a local contractor, in the international bidding held by the MWSS relative to the contract for water main construction denominated as Contract No. PG-6 under the Manila Water Supply Project; that your said joint venture won the bid and was awarded the contract with MWSS; that said contract is partly financed from foreign loans under IBRD Loan No. 1615-PH contracted by the MWSS with the International Bank for Reconstruction and Development pursuant to the powers granted to it under the MWSS Charter; and that part of the foreign loan proceeds contracted by the MWSS pursuant to Section 9(b) of the MWSS Charter will be used to pay for your importation of materials, supplies and services and as well as your foreign personnel's services under the said contract. In reply thereto, I have the honor to inform you that by virtue of Section 9(b) of the MWSS Charter, MWSS may contract foreign loans and that it may import machinery, equipment, materials , supplies and services and the payment of the principal, interest, and other charges of the same may be paid from the proceeds of the said loan, which shall be exempt from all direct and indirect taxes, fees, imposts and all other charges and restrictions previously and presently imposed and to be imposed by the Republic of the Philippines, or any of its agencies and political subdivisions. In other words, importation of materials, supplies, as well as compensation for imported services, i.e., services coming from abroad, which is paid out of the proceeds of a foreign loan, is exempt from direct and indirect taxes. In the instant case, the importation of materials, supplies and services was effected by MWSS when it contracted you as well as your foreign personnel for the same. Accordingly, under the aforecited provisions of the MWSS Charter, the materials, supplies, and compensation for services paid from the proceeds of the foreign loan contracted by MWSS are exempt from all direct and indirect taxes. Such being the case, you are exempt from corporate income, contractor's and compensating taxes, and your foreign personnel are exempt from individual income tax. Very truly yours, RUBEN B. ANCHETA Acting Commissioner