Tax Exemption Granted to SGS

November 14, 1988 BIR RULING NO. 537-88 19-00 000-00 537-88 S i r : This refers to your letter dated October 18, 1988 stating that the Government is currently considering the expansion of the Comprehensive Import Supervision Scheme; that to implement that scheme, you will designate the present surveyor, Societe General d' Surveillance (SGS) a limited liability company organized and existing under the laws of Switzerland, to conduct pre-shipment inspection of goods imported into the Philippines from specified countries; that the inspection service will be conducted at the country of supply; that reports of findings will be issued showing the results of inspection (principally, quantity, quality and dutiable base) of the shipment and mailed or otherwise transmitted to the Philippine importers and the Bureau of Customs; that SGS will maintain a liaison office in the Philippines to coordinate the issuance of request for inspection, transmittal of shipping documents and receipt of the report of findings; that payment for the service will be made to SGS' home office abroad; that the Certificate of Authority No. 1060 issued by the Board of Investment shows that SGS Far East, Limited, a Swiss Corporation, is a branch office established to act as third party in the inspection of goods subject of international contracts and trade to ensure honesty and fair dealing between international contracting parties; and that the Agreement entered into by and between the Government and the SGS on December 17, 1986, stipulates: Article 6 FEES "6.1 As remuneration for the services rendered hereunder, the Government shall pay SGS fees in accordance with Schedule I to this Agreement. "6.2 The fees referred to in Sub-Article 6.1 shall be net fees, free from any reduction for charges, levies, taxes, and/or imposts of any kind. The Government shall exempt or secure exemption, of such fees, from all Philippine taxes of whatsoever kind or nature whether national or local or pay the taxes, if any, on such fees." In reply, please be informed that based on the foregoing facts, SGS is exempt from all taxes on the consideration paid by the Government to SGS for the latter's service of providing a clean report of findings on the quantity, quality and price comparison of imported goods in the country of supply. Notwithstanding the fact that Executive Order No. 93 has withdrawn the tax incentives granted to government and private entities, the aforesaid tax exemption enjoyed by SGS under an Agreement with the Government has not been affected because it is protected by the non-impairment clause of the Constitution and the tax exemption is conferred by an effective international agreement to which the Government of the Republic of the Philippines is a signatory. (Section 1(a) and (b), Executive Order No. 93) This opinion finds support in Opinion No. 42, S. 1987 of the Secretary of Justice recognizing that the Agreement between the Government and SGS is enforceable against the Government. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner