Exemption from All Direct and Indirect Taxes — Proceeds of the Foreign Loan

July 28, 1981 BIR RULING NO. 129-81 024-a 000-77 129-81 Messrs. Sycip, Gorres, Velayo & Co. P.O. Box 589 Metro Manila Attention: Mr . W . E . Sanchez Tax Division Gentlemen : This refers to your letter dated May 2, 1980 requesting confirmation of your opinion to the effect that your client, Kingston Reynolds Thom and Allardice Limited as well as the foreign personnel are exempt from all taxes pursuant to Presidential Decree No. 334 as amended by Presidential Decree No. 572 otherwise known as the Charter of the Philippine National Oil Company (PNOC). It is represented that your client is a foreign company incorporated and existing under the laws of New Zealand, that it entered into two (2) contracts with the Energy Development Corporation (EDC), an affiliate or wholly-owned subsidiary of PNOC; that the first contract involves the rendition of scientific and geothermal engineering services to EDC; that the other contract will provide drilling management services on geothermal exploration, reinjection and production well-drilling in the Philippines for EDC; that under both contracts, EDC has agreed to shoulder whatever corporate taxes levied or that might be levied by the Philippine government on your client; and that part of the foreign loan proceeds contracted by EDC pursuant to Section 13 of the PNOC Charter will be used to pay for the services of your client and its foreign personnel under said two (2) contracts entered into by EDC. cdtech In reply thereto, I have the honor to inform you that Section 13 of PNOC Charter provides that PNOC as well as any of its affiliates may contract foreign loans and that the importation of machinery, equipment, materials, supplies and services , by PNOC or any of its affiliates paid from the proceeds of said loan, shall be exempt from all direct and indirect taxes, duties, fees, imposts, and all other charges and restrictions, including import restrictions previously and presently imposed and to be imposed by the Republic of the Philippines, or any of its agencies and political subdivisions. In other words, compensation for imported services, i.e. services coming from abroad, which is paid out of the proceeds of a foreign loan is exempt from direct and indirect taxes. In the instant case, the importations of services was effected by EDC when it contracted your client, a foreign company, as well as its foreign personnel to undertake said services. Accordingly, under the aforecited provisions of the PNOC Charter, the compensation paid from the proceeds of the foreign loan contracted by EDC is exempt from all direct and indirect taxes. Such being the case, your client is exempt from corporate income and contractor's taxes. Likewise, its foreign personnel are exempt from individual income tax. Very truly yours, RUBEN B. ANCHETA Acting Commissioner