Request for Exemption of Sasktel International from Payment of Income and Value-Added Taxes

May 21, 1998 BIR RULING NO. 065-98 28 (A) (1) 107; 108 000-00 065-98 Canadian Embassy 11th Floor, Allied Bank Centre 6754 Ayala Avenue, Makati City Attention: Mr . Paul Huddleston Counsellor (Development) Head, Development Cooperation Section Gentlemen : This refers to your letter dated March 31, 1998 requesting, in effect, for a ruling exempting Sasktel International from the payment of income and value-added taxes. It appears that on April 27, 1994 the Government of the Republic of the Philippines, represented by the Department of Transportation and Communications (DOTC), and the Government of Canada, represented by the Canadian International Development Agency (CIDA), entered into a Memorandum of Understanding (MOU) for the development of a telecommunication system entitled "Telecommunications Import Support Project II #18476"; that the Philippines Executing Agency for the Project is the Municipal Telephone Project Office (MTPO) while the Canadian Executing Agency is Sasktel International; and that the Project is funded by the contribution of Canada in an amount not to exceed $11,750,000 which the Philippines has agreed not to use to "directly or indirectly finance any taxes, fees, customs duties or any other levies or charges including non-tariff barriers on any goods, materials, equipment, vehicles and services purchased or acquired for, or related to, the execution of the Project". In reply, please be informed that pursuant to Article V of the General Agreement on Development Cooperation between the Governments of the Philippines and Canada reading: "ARTICLE V "The Government of the Republic of the Philippines shall exempt Canadian firms and Canadian personnel from or bear the costs of customs and excise duties, sales taxes, fees (except those associated with private motor vehicles), and other charges imposed by the Government of the Republic of the Philippines of similar nature, on all goods, materials, equipment, vehicles and services and on any other goods or services acquired in or imported into the Philippines for or related to the execution of projects established under any subsidiary arrangement. Resale of goods, materials, equipment or vehicles acquired under this section to a firm or person other than a Canadian firm or Canadian personnel or other exempt buyer will be subject to normal taxes and duties as provided for by the existing laws of the Philippines." Sasktel International which is the Canadian Prime Contractor undertaking the Project is not liable to the corporate income tax imposed under Section 25 (a)(1) of the Tax Code [now Section 28 (A)(1) of the Tax Code of 1997] on resident foreign corporation engaged in the trade or business in the Philippines; and to the 10% value-added tax on its imported equipment as well as for its sale of services relative to the aforementioned Project, pursuant to Sections 107 and 108 of the Tax Code of 1997 (formerly Sections 101 and 102 of the Tax Code, as amended by RA 7716 as further amended by RA 8241). Accordingly, Revenue Officers LUIS J. AGUILA and ISIDORO Z. GUZMAN of Revenue District Office No. 42, San Juan, were instructed on even date to withdraw the proposed deficiency income and value-added tax assessment for the year 1995 in the amount of P300,072,084 against Sasktel International. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue