Franchise Tax Imposed on the Revenue Derived from the U.S. Armed Forces on Their Official Inter-Island or Domestic Calls

April 24, 1987 BIR RULING NO. 114-87 240 (a) 000-00 114-87 Gentlemen : This refers to the letter to you dated November 4, 1986 of Real Admiral T. E. Lewin of the U.S. Navy as well as your reply thereto dated November 24, 1986, copies of which were furnished this Office. It appears from the aforesaid letter of Admiral Lewin that you have included in your monthly billings to the U.S. Navy the 1% franchise tax on amounts paid for official inter-island or domestic long distance calls as well as the 10% overseas communication tax, all official overseas calls originating from the U.S. Facilities at Subic Naval Base and Clark Air Base, Philippines. However, Admiral Lewin believes said taxes should be deducted from future PLDT billings. In effect, you would like to be informed whether you should include the said taxes in your billings to the U.S. Armed Forces. In reply, please be informed that the franchise tax imposed on you is in consideration of the granting of the franchise (Panay Electric Co., Inc. vs. Collector, G.R. No. L-16574, May 28, 1958). Accordingly, the revenue derived by you from the U.S. Armed Forces on their official inter-island or domestic calls form part of your gross receipts subject to franchise tax. Said revenue is not covered by Article XVIII of the R.P.-US Military Bases Agreement which exempts sales and services within the bases from all taxes duties and inspection by Philippine authorities. Such being the case, the question as to whether you should bill the franchise tax to the U.S. Armed Forces is not for this Office to decide. As regards payments made by U.S. Facilities on official overseas telephone calls transmitted from the Philippines for the operation of United States Military Bases, the same are covered by the said tax exemption provisions of the R.P.-U.S. Military Bases Agreement. Said payments are exempt from the 10% overseas communication tax because U.S. Military facilities enjoy exemption which the Philippine Government is committed to recognize, pursuant to international agreement. (Sec. 240(b) iii, Tax Code, BIR Ruling No. 84-84). Accordingly, since said payments are exempt from the 10% overseas communication tax, the same need not be included in your billings to the U.S. Armed Forces. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner