Whether Philippine Branches of Biwater Int'l. Ltd. and Biwater Supply Ltd. Will Only be Subject to 5% Final Tax

November 18, 1998 BIR RULING NO. 161-98 R.A. 7227-000-00-161-98 Joaquin Cunanan & Company 8th Floor, BA-Lepanto Bldg. 8747 Paseo de Roxas Makati City Attention: Atty . George J . Lavadia Principal Gentlemen : This refers to your letter dated April 29, 1996 requesting for a ruling that the respective Philippine branches of Biwater International Limited (BIL) and Biwater Supply Limited (BSL) will only be subject to the 5% final tax on their respective gross incomes earned in lieu of all other national and local taxes, including the 35% corporate income tax and 15% branch profit remittance tax. aisadc It is represented that Biwater International Limited (BIL) and Biwater Supply Limited (BSL) are both incorporated under the laws of the United Kingdom (UK) and in the process of setting up their respective Philippine branch offices in the Subic Special Economic and Freeport Zone (SSEFZ) and registered with the Subic Bay Metropolitan Authority (SBMA) as Subic Bay Freeport (SBF) enterprise pursuant to the Joint Venture Agreement (JVA) executed on November 24, 1995 by and among the SBMA, Olongapo City Water District (OCWD), BIL and D.M. Consunji, Inc. (DMCI); that said JVA is further supported by three main attachments still in draft form, as follows: Franchise Agreement, Management Services Agreement and Construction Agreement; that under the draft Franchise Agreement to be executed between SBMA and Subic Water and Sewerage Company, Inc. (SUBIC WATER), Subic Water is granted by the SBMA the authority to carry on the business of providing water and sewerage services in the SSEFZ under certain terms and conditions; that Subic Water shall exclusively operate and maintain all existing water and sewerage facilities in the Zone; that under the draft Management Services Agreement which will be executed between Subic Water and BSL, BSL shall provide Subic Water specialized Financial and Engineering Services, Technology Transfer, Training and specific works in connection with its operational and management responsibilities; that for such services, Subic Water shall pay BSL certain amounts to be negotiated between the parties; that under the draft Construction Agreement which will be entered by Subic Water with joint venture contractors to be known as Subic Water Construction JV (SWCJV), the latter will design, execute and complete the Water Supply Project in the SSEFZ; that the parties to act as joint venture (JV) contractors without forming a JV company are the following: a. Philippine branch office of BIL to be registered as a SBF enterprise; and b. a newly-formed subsidiary of DMCI to be registered as a SBF enterprise. In reply, please be informed that if as represented, the proposed Philippine branches of BSL and BIL which are both SBF enterprises will provide or render management and construction services, respectively within the SSEFZ, said branches of BSL and BIL are only subject to 5% final tax on their respective gross income earned in lieu of any and all other taxes. Accordingly, the same shall be exempt from any other national and local taxes, including but limited to 35% (now 34%) corporate income tax and 15% branch profit remittance tax, pursuant to Section 43 of the implementing rules and regulations of Republic Act No. 7227, otherwise known as the "Bases Conversion and Development Act of 1992." This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue