Tax Consequences of a Contract for the Delivery of Various Computer Services and Equipment Entered into by and Between a Government-Owned and Controlled Corporation and a Foreign Contractor

January 22, 1997 BIR RULING NO. 008-97 102 (a) (3) (4) (5) & (6) 000-00 008-97 JAVLON International (Phils.), Inc. 4th Floor, Pacific Star Bldg. Makati Avenue cor. Sen. Gil Puyat Makati City Attention: Ms . Corazon J . Panganiban Director, Business Development Gentlemen : This refers to your letter dated October 30, 1996 requesting, in effect, for a ruling on the tax consequences of a Contract for the delivery of various computer services and equipment entered into by and between a government-owned and controlled corporation (GOCC) and a foreign contractor represented in the Philippines by you, through Mr. Herve Laumond, President. It appears from the submitted agreement that the foreign contractor is a Limited Company organized under the laws of France; that it will provide, among others, the technology for the installation of the appropriate computer system, control systems and communications equipment including hardware, software, and various technical services stated in the aforesaid agreement. In reply, please be informed that based on the foregoing facts, the supply of technology as well as communications equipment to a government-owned or controlled corporation is subject to value-added tax (VAT) pursuant to Section 102 (a) (3) (4) (5) & (6) of the Tax Code, as amended by Republic Act No. 7716, otherwise known as the Expanded Value-Added Tax Law. The collection of the VAT shall be effected by way of withholding by the income payor who shall then remit the same to the BIR using the VAT Withholding Remittance Form. Moreover, pursuant to Section 12(2) of the RP-France Tax Treaty, stating: "Article 12 Royalties "xxx xxx xxx "2. However, such royalties may be taxed in the Contracting State in which they arise, and according to the law of that State. However, the tax so charged shall, provided that the royalties are taxable in the other Contracting State, not exceed: "a) in the case of the Philippines, 15 per cent of the gross amount of the royalties, where the royalties are paid by an enterprise registered with the Philippine Board of Investments and engaged in preferred areas of activities and also royalties in respect of cinematographic films or tapes for television or broadcasting, "b) in all other cases, 25 per cent of the gross amount of the royalties. "xxx xxx xxx said income payment shall be subject to the preferential rate of 25%. cdta Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue