Taxability of the Materials to be Used under a Contract with U.S. Government

April 19, 1988 BIR RULING NO. 157-88 102 000-00 157-88 Gentlemen : This refers to your letters dated December 10, 1987 and January 5, 1988 requesting a ruling on the taxability of the materials to be used by you under your contract with the U.S. government for the construction of San Bernardino Seawall, a temporary lodging facility at the Subic Naval Base. cdt Pursuant to Article V of the RP-US Military Bases Agreement stating: "No import, excise, consumption or other tax, duty or impost shall be charged on material, equipment, supplies or goods, including food stores, clothing, for exclusive use in the construction, maintenance, operation, or defense of the bases, consigned to, or destined for, the United States authorities and certified by them to be for such purpose." the sale of goods and materials/supplies or services to the United States Authority at the US Military Bases for the exclusive use in the construction in said Bases are exempt from import, excise, consumption or other taxes. Such being the case, in accordance with Section 102 of the Tax Code as amended by Executive Order 273, and further amplified in Section 8(c)(2) of Revenue Regulations No. 5-87, your sale of services including the cost of materials which forms part of your gross receipts pursuant to Section 2(m) of the same Revenue Regulations, is effectively zero-rated. In other words, your billing to the US Military Base authorities for your sale of services inclusive of the materials used in the construction of the facilities covered by the Military Bases Agreement, need not include the billing for value-added tax of 10%; provided, that you obtain approval from the Commissioner of Internal Revenue of your status as zero-rated taxpayer. For this purpose, an application in a form prescribed therefor should be filed with the Value-Added Tax Division of this Office. [Sec. 8(d), Revenue Regulations No. 5-87] The taxes which need not be billed to the U.S. Military Base authorities shall refer only to taxes for which you are directly liable. cdta Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner