Tax Exemption Granted to Toyo Corporation of Japan

May 5, 1987 BIR RULING NO. 124-87 25 000-00 124-87 Gentlemen : This refers to your letter dated April 24, 1987 requesting exemption of your client, Toyo Corporation of Japan from all Philippine taxes in connection with Contracts PL-Butel (82)-1A and PL- Butel (82)-1B. It is represented that your client is the prime contractor of the BUTEL PHASE A Regional Telecommunications Development Project under PL-Butel (82)-1A dated December 13, 1982 and PL-Butel (82)-1B dated December 13, 1982 entered into between your client and the Government of the Philippines; and that BUTEL PHASE A Project is funded by the Overseas Economic Cooperation Fund of Japan (OECF) pursuant to the Exchange of Notes dated June 9, 1981 between the Philippine Government and the Japanese Government. In reply thereto, I have the honor to inform you that pursuant to paragraph 5(2) of Exchange of Notes Dated June 9, 1981 between the Philippine Government and the Japanese Government and Article 19 of Contract No. PL-Butel (82)-1A Loan Agreement No. PH-P47 dated December 13, 1982 as well as Article 15 of Contract No. PL-Butel (82)-1B Loan Agreement No. PH-P47 dated December 13, 1982, pertinent portions of which are quoted hereunder as follows: iatdc "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) acd "Article 19. Taxes, and Other Charges and Licenses "19.1. . . . "19.2. The Contractor shall be exempted from customs duties and other import taxes on the Goods, and on contractor's vehicles, supplies and equipment which will be imported into the Philippines solely for the purpose of carrying out the contract. The Goods shall include those to be brought in the Philippines for replacement and/or repair of defective parts covering the entire period stated in Article 5. "19.3. The Contractor and members of its staff who are not citizens of the Philippines shall be exempted from all fiscal levies or taxes imposed in the Republic of the Philippines in respect to all work carried out in the Philippines in connection with this contract, including the following taxes and duties: "19.3.1 Personal Income and business taxes; "19.3.2 Corporate income and business taxes national or local including licenses, fees, or any charges imposed by the national and local government. "19.3.3 Sales tax; "19.3.4 The contractor's tax and municipality taxes; "19.3.5 Stamp duty for the contract; "19.3.6 Import taxes and duties for personal effects." "Article 15. Taxes and Other Charges and Licenses "15.1. . . . "15.2. The Contractor shall be exempted from customs duties and other import taxes on the Goods and on Contractor's vehicles, supplies and equipment which will be imported into the Philippines solely for the purpose of carrying out the Contract. The Goods shall include those to be brought in the Philippines for replacement and/or repair of defective parts covering the entire period stated in Article 5. "15.3. The Contractor and members of its staff who are not citizens of the Philippines shall be exempted from all fiscal levies or taxes imposed in the Republic of the Philippines in connection with this contract, including the following taxes and duties: "15.3.1 Personal income and business taxes "15.3.2 Corporate income and business taxes national or local including licenses, fees, or any charges imposed by the national and local government; "15.3.3 Sales tax; "15.3.4 The Contractor's tax and municipality taxes; "15.3.5 Stamp duty for the contract; "15.3.6 Import taxes and duties for personal effects." Japanese contractors and their foreign personnel are exempt from Philippine taxes. Such being the case, your client, Toyo Corporation of Japan which is undertaking OECF-assisted projects in the Philippines is exempt from the corporate income tax imposed under then Section 24(b)(2) [now Section 25(a) (1)] of the Tax Code as amended, on resident foreign corporation engaged in trade or business within the Philippines; from the 3% (now 4%) contractor's tax and compensating taxes imposed under then Sections 205 and 204 [now Sections 170 and 169] of the Tax Code as amended. Moreover, its foreign personnel shall also be exempt from the individual income tax prescribed under Section 22 of the same Code as amended. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner