Tax Liability on the Contract Entered Into with the U.S. Department of the Navy

February 10, 1987 BIR RULING NO. 034-87 170 000-00 034-87 Gentlemen : This refers to your letter dated October 24, 1986 requesting a ruling as to your tax liability on the contract you entered into with the U.S. Department of the Navy. It is represented that your company entered into a contract with the U.S. Department of the Navy, more specifically the Officer in Charge of Construction, Naval Facilities Engineering Command Contracts, Southwest Pacific, APO San Francisco 96528, for the renovation of Pavilion 9 at the Ministry of Health Compound, Sta. Cruz, Manila (San Lazaro Hospital) and that the merchandise or services sold or dispensed by such agencies shall be free of all taxes, duties and inspection by the Philippine authorities under the RP-U.S. Military Bases Agreement. In reply, please be informed that under the RP-US Military Bases Agreement, purchases, either by the United States Government directly or by its contractors acting for and in behalf of the United States Government, of goods and services, imported into or produced in the Philippines for use in the construction, maintenance and operation of the United States military bases are exempted, among others, from customs duties and taxes. In your case, the construction you undertake for the renovation of Pavilion 9 at the Ministry of Health Compound, Sta. Cruz, Manila is not connected with the use in the construction, maintenance, and operation of the United States Military bases. Accordingly, you are subject to the 4% contractor's tax under Section 170 of the Tax Code, as amended. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner