Tax Exemption of Japanese Contractors and their Foreign Personnel

June 7, 1988 BIR RULING NO. 251-88 25 138-88 251-88 Gentlemen : This refers to your letter dated May 24, 1988 requesting exemption from Philippine taxes in connection with your Contract No. Sp82 DLME.569 for the Furnishing and Installing Complete and on a Turn Key Basis the Kalayaan-Naga Line 500 KV-3-Phase Double Circuit Transmission Line, Southern Luzon EHV Transmission Line Project and also your Contract No. Sp 81 DLMC-554 (1-a & 1) for Financing, Furnishing, Delivering and Installing Complete the Malaya-Kalayaan 230 KV.3-Phase, Double Circuit Transmission Lines, 1st Priority Projects, Luzon Grid, Philippines. cdtech It is represented that you are a foreign corporation organized and existing under the laws of Japan; that you have been awarded the two (2) aforementioned contracts by the Republic of the Philippines through the National Power Corporation; and that the said 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, 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 or 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) Japanese contractors and their foreign personnel are not liable to Philippine taxes. Such being the case, and since you are undertaking OECF-assisted project in the Philippines specifically Contract No. Sp 82 DLME-569 for the furnishing and installing complete and on a turn-key basis the Kalayaan-Naga Line 500 KV 3-Phase Double Circuit Transmission Line, Southern Luzon EHV Transmission Line Project, you are not liable for the corporate income tax imposed under then Section 24(b)(2) [now Section 25(a)(1)] of the Tax Code, on resident foreign corporations engaged in trade or business within the Philippines; form the 10% value-added tax on your imported equipment as well as for your sale of services relative to the aforementioned project pursuant to Sections 101 and 102 of the Tax Code, as amended. Moreover, your foreign personnel are also not liable to the individual income tax prescribed under Section 22 of the same Code, as amended. However, as regards your other project, i.e., your Contract for Financing, Furnishing, Delivering and Installing Complete the Malaya-Kalayaan 230 KV, 3 Phase, Double Circuit Transmission Lines, 1st Priority Projects, Luzon Grid, Philippines, this Office can not rule on your liability as well as that of your foreign personnel to Philippine taxes until documentary evidence is submitted to this Office that said project is funded by the Overseas Economic Cooperation Fund of Japan pursuant to the Exchange of Notes between the Philippine Government and the Japanese Government. cdti Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner