Exemption of Japanese Contractors and Their Foreign Personnel from Philippine Taxes

April 14, 1988 BIR RULING NO. 138-88 25 124-87 282-87 138-88 Gentlemen : This refers to your letter dated March 1, 1988 requesting confirmation of your opinion to the effect that your client, P & N Corporation and its personnel are exempt from Philippine taxes in connection with Contracts PL-PAGASA (84)-1 and PL-TCC (85)-1 as well as the filing of corporate and individual income tax returns on income derived from the project. cdti It is represented that your client is the prime contractor of the Establishment of Floor Forecasting and Warning System for Dam Operation Project and the Supply, Installation, Commissioning, Testing and Maintenance of the Tariff Control System and Associated Works in Metro Manila Phase II Project under PL-PAGASA (84)-1 and PL-TCC (85-1 respectively, entered into between your client and the Government of the Republic of the Philippines; and that both projects are funded by the Overseas Economic Cooperation Fund of Japan (OECF) pursuant to the Exchange of Notes 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 the Exchange of Notes dated June 9, 1981 between the Philippine Government and the Japanese Government and Article 14 of Contract PL-PAGASA (84)-1 Loan Agreement No. PH-P53 as well as Article 17 of the Contract PL-TCC (85)-1 Loan Agreement No. PH-P54 pertinent portions of which are quoted hereunder as follows: "5. (1) . . . "(2) The Government of the Republic of the Philippines will, itself or through its executing agencies of 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) "ARTICLE 14 TAXES AND OTHER CHARGES "14.1 The cost of any taxes, duties, fees or levies imposed by the Government of the Republic of the Philippines (hereinafter called GOP) on the Contractor and on the personnel employed by him while carrying out the Works, on imported equipment and materials required for the purpose of carrying out the Works shall be exempted for those equipment and materials which are subsequently withdrawn and re-exported after the completion of the Works. "14.2. The Contractor and the members of its staff who are not citizens of the Philippines shall be exempted from all fiscal levies, taxes, and charges imposed in the Republic of the Philippines in respect to all Works carried out in the Philippines in connection with this Contract, including the following taxes, duties and charges: "14.2.1. Personal income and business taxes; "14.2.2. Corporate income and business taxes, national or local, including licenses, fees, or any charge imposed by the national and local government such as fees for building permits, electrical permits as defined in the Conditions of Contract and the like; "14.2.3. Sales Tax; "14.2.4. The Contractor's Tax; "14.2.5. Stamp duty for the Contracts; "ARTICLE 17 TAXES AND OTHER CHARGES AND LICENSES "17.1. . . . "17.2. 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 in Article 5. cdtech xxx xxx xxx "17.3. 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 Works carried out in the Philippines in connection with this Contract, including the following taxes and duties: "17.3.1. Personal and income and business taxes; "17.3.2. Corporate income and business taxes national or local including licenses, fees, or any charges imposed by the national and local government; "17.3.3. Sales Tax; "17.3.4. The Contractors tax and municipality taxes; "17.3.5. Stamp duty for the Contract; "17.3.6. Import taxes and duties for personal effects." Japanese contractors and their foreign personnel are exempt from Philippine taxes. Such being the case, P & N Corporation of Japan which is undertaking CECF-assisted projects in the Philippines is exempt from the corporate income tax imposed under Section 25(a)(1) of the Tax Code, as amended, on resident foreign corporations engaged in trade or business with the Philippines; from the 10% value-added tax on its imported equipment as well as for its sale of services relative to the aforementioned projects pursuant to Sections 101 and 102 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. Finally, P & N Corporation is not required to file quarterly income tax returns and final or adjustment returns on income derived from the aforesaid projects. Likewise, its foreign personnel are not also required to file individual income tax returns on income also derived from the said project. cdt Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner