Exemption Granted to PHILCOMSAT

September 29, 1989 BIR RULING NO. 209-89 Art. XVIII RP-US Military Tax Agreement 054-89 209-89 Gentlemen : This refers to your letter dated June 19, 1989 requesting confirmation of your opinion that PHILCOMSAT is exempt from the payment of all licenses, fees, percentage, excise or other taxes such as franchise tax on its gross receipts derived from concession inside the U.S. Military Bases at Cubi Point. It appears that PHILCOMSAT is a grantee of a legislative franchise under Republic Act No. 5514 to establish, construct, maintain and operate ground satellite terminal station or stations for international satellite communications; that there is a pending request of the U.S. Defense Communications Agency (DCA) under RFPDCA 200-89-R-0034 for the common carriers (U.S. and Philippine Common Carriers) to submit a competitive proposal for the provision, installation, operation and maintenance of a satellite earth station facilities capable of handling two (2) full duplex, full period 1,544 mbps aggregates to establish their private network from Cubi Point to Hickam AFB in Hawaii and Anderson AFB in Guam; and that PHILCOMSAT being the franchised carrier and the signatory to Intelsat was requested by the Philippine Common Carriers to submit a corresponding proposal that will comply with the DCA service requirement which was projected for operation in 1990. In reply, please be informed that under Article XVIII of the RP-US Military Bases Agreement stating: "ARTICLE XVIII " SALES AND SERVICES WITHIN THE BASES "It is mutually agreed that the United States shall have the right to establish on bases, free of all licenses, fees, sales, excise, and other taxes, or imposts, Government agencies, including concessions, such as sales commissaries and post exchanges, messes and social clubs, for the exclusive use of the United States Military Forces personnel and their families. The merchandise or services sold or dispensed by such agencies shall be free of all taxes, duties and inspection by the Philippine Authorities. . . .". a company rendering services inside a U.S. Military Base by virtue of a contract with Base Authorities is exempt from taxes, (Araneta vs. Manila Pencil Co., G.R. No. L-8182, June 29, 1957; BIR Ruling Nos. 112-81 and 162-82) aisa dc Such being the case, PHILCOMSAT is exempt from the payment of franchise tax on gross receipts derived from its satellite service rendered within the U.S. Bases, pursuant to the RP-US Military Bases Agreement. However, it shall remain subject to income tax on income from its services within the U.S. Bases, pursuant to Section 2 of Executive Order No. 72, amending Section 227 (now Section 117) of the Tax Code, as amended. Very truly yours, (SGD.) JOSE U. ONG Commissioner