BIR Ruling No. 076-83

May 4, 1983 BIR RULING NO. 076-83 Gentlemen : This refers to your letter dated November 9, 1983 requesting our opinion with respect to the following matters: cdti 1. Whether your client Hanil Development Co. Ltd. (HANIL), a South Korean construction firm under contract with National Power Corporation (NPC) to build the Maramag (Bukidnon) Hydroelectric Project is exempted from the payment of all taxes including the 3% contractor's tax. 2. Whether the salaries and wages of its Korean personnel are exempted from the withholding tax deductions and, if so, whether it is possible for them to refund from the Bureau of Internal Revenue the amount of withholding taxes previously deducted from them. In reply, please be informed that the exemption under Section 8(b) of R.A. No. 6395, (NPC charter) as amended by P.D. No. 1360, relied upon by your client, applies only to certain importation of machinery, equipment, materials, supplies and services . In the present case, there is no importation of services because your client came to the Philippines to participate in the competitive bidding for the construction of the Maramag (Bukidnon) Hydroelectric Project. However, it is noted that NPC is "exempt from the payment of all forms of taxes, duties, fees, imposts as well as costs and service fees . . ." (Sec. 13, R.A. No. 6395, as further amended by P.D. No. 938 effective May 12, 1976). The scope of this tax exemption is that it includes taxes indirectly payable by NPC, e.g. the 3% contractor's tax imposed under Section 205 of the Tax Code. Although, as contractor, Hanil is directly liable for the payment of the 3% contractor's tax, the billing of the said tax to NPC would make the latter indirectly liable for the payment thereof. Under the aforesaid tax exemption provisions, NPC is also exempt from indirect taxes, i.e. those taxes which make NPC indirectly liable. In other words, Hanil should bill NPC without including therein the aforesaid 3% tax imposed by Section 205 of the Tax Code. In such case, Hanil is exempt from paying the said tax due on the receipts derived from NPC. (BIR Ruling No. 205-A-000-00-31-82). cdta However, Hanil a foreign corporation licensed to do business in the Philippines, remains subject to the corporate income tax imposed by Section 24(b)(2) of the Tax Code. Moreover, its Korean personnel are likewise subject to the individual income tax imposed under Section 22 of the same Code. Such being the case, said individual income taxes previously withheld from the wages and salaries of the Korean personnel being neither erroneously nor illegally collected cannot be refunded by this Office. Very truly yours, (SGD.) ROMULO M. VILLA Acting Commissioner Bureau of Internal Revenue