Exemption from Philippine Taxes - Japanese Contractors and Their Foreign Personnel

March 23, 1990 BIR RULING NO. 034-90 225 251-88 034-90 Gentlemen : This refers to your letter dated January 31, 1990 requesting for a clarification/ruling whether or not you are exempt from Philippine taxes in connection with your contract with National Power Corporation involving furnishing and installing complete and on a Turn Key Basis the Kalayaan-San Jose Line 500 KV, 3-Phase Double Circuit Transmission Line-Southern Luzon EHV Transmission Line Project (Stage II). cdtech It appears that you are a foreign corporation organized and existing under the laws of Japan; that you have been awarded by the Philippine Government through the National Power Corporation Contract No. Sp 87DLMc-820 involving furnishing and installing complete and on a Turn-Key Basis the Kalayaan-San Jose Line 500 KV, 3-Phase Double Circuit Transmission Line Southern Luzon EHV Transmission Line Project (Stage II); and that said projects are funded by a loan obtained from the Overseas Economic Cooperation Fund (OECF) of Japan under the OECP-RP Loan Agreement No. PH-P57 dated September 9, 1983, pursuant to the Exchange of Notes between the Government of Japan and the Philippine Government on July 18, 1983. In reply thereto, I have the honor to inform you that pursuant to paragraph 5(2) of the Exchange of Notes between the Government of Japan and the Philippine Government dated July 18, 1983, the Government, through the National Power Corporation, shall assume all fiscal levies or taxes for the Project. It is understood that the provision relative to taxes as indicated in paragraph 5(2) of the aforesaid Exchange of Notes is identical to paragraph 5(2) of the Exchange of Notes dated June 9, 1981 between the two countries, pertinent portions of which as quoted under BIR Ruling No. 25-138-88-251-88, read as follows: "5. (1) . . . "(2) The Government of the Republic of the Philippines will, itself or through its executing agencies or instrumentalities, assume all fiscal levies or taxes imposed in the Republic of the Philippines on Japanese firms and nationals operating as suppliers, contractors or consultants, on and/or in connection with any income that may accrue from the supply of products and/or services to be provided under the loan ." (Emphasis supplied) Based on the aforequoted provision, it is our opinion that Japanese contractors and their foreign personnel are not liable to Philippine taxes. Such being the case, and since you are undertaking OECF-assisted project in the Philippines specifically Contract No. SP87DLMc-820 for the furnishing and installing complete and on a Turn-Key Basis the Kalayaan-San Jose Line 500 EHV Transmission Line Project (Stage II), you are not liable for the corporate income tax imposed under Section 25(a)(1) of the Tax Code, on resident foreign corporation engaged in trade or business in the Philippines; from the 10% value-added tax on your imported equipment as well as for your sale of services relative to the aforementioned project pursuant to Sections 101 and 102 of the Tax Code, as amended. Moreover, your foreign personnel are also not liable to the individual income tax prescribed under Section 22 of the same Code, as amended. cdta Very truly yours, (SGD.) JOSE U. ONG Commissioner