Exemption from Direct and Indirect Taxes-Foreign Loans

November 10, 1981 BIR RULING NO. 221-81 24-a 129-81 221-81 Nippon Kokan K.K. Manila Project Office No. 22 Matalino Street Diliman, Quezon City Attention: Mr . T . Fushimi Construction Manager Manila Water Supply Project Gentlemen : This refers to your letter dated February 11, 1981 to the Metropolitan Waterworks and Sewerage System (MWSS) requesting confirmation that you and your foreign personnel are exempt from all taxes pursuant to Republic Act No. 6234, as amended by Presidential Decree No. 425, otherwise known as the Charter of MWSS. It is represented that you are a foreign corporation duly organized and existing under the laws of Japan; that you participated in the international bidding held by the MWSS relative to the contract for water main construction denominated as Contract No. PG-5 under the Manila Water Supply Project; that you won the bid and was awarded and thereafter entered into contract with the MWSS; that said contract is partly financed from foreign loans under ADB Loan No. 190-PHI contracted by the MWSS with the Asian Development Bank pursuant to the powers granted under MWSS Charter; and that part of the foreign loan proceeds contracted by the MWSS pursuant to Section 9(b) of the MWSS Charter will be used to pay for you and your foreign personnel's services under the said contract. In reply thereto, I have the honor to inform you that by virtue of Section 9(b) of the MWSS Charter, MWSS may contract foreign loans and that it may import machinery, equipment, materials, supplies and services and the payments of the principal, interest, and other charges of the same shall be paid from the proceeds of the said loan, which shall be exempt from all direct and indirect taxes, fees, imposts and all other charges and 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 from 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 importation of services was effected by MWSS when it contracted you as well as your foreign personnel for said services. Accordingly, under the aforecited provisions of the MWSS charter, the compensation paid from the proceeds of the foreign loan contracted by MWSS is exempt from all direct and indirect taxes. Such being the case, you are exempt from corporate income and contractor's taxes and your foreign personnel from individual income tax. aisadc Very truly yours, RUBEN B. ANCHETA Acting Commissioner