Tax Liability of Societe Generale de Surveillance S.A. (SGS)

December 29, 1988 BIR RULING NO. 606-88 19-00 000-00 606-88 S i r : This refers to your letter dated October 20, 1988 requesting clarification whether Societe Generale de Surveillance S.A. (SGS), which entered into an agreement with the Philippine Government through the Department of Finance to provide inspection services of imported goods from Japan, Taiwan and HongKong, is liable for taxes by virtue of their having set up a corporation and doing business in the Philippines. In reply, please be informed that SGS is a limited liability company organized and existing under the laws of Switzerland which was contracted by the Government to conduct pre-shipment inspection of goods imported into the Philippines, from specified countries; and that gleaned from the Certificate of Authority No. 1060 issued by the Board of Investments SGS Far East, Limited, is a branch of the aforesaid Swiss Corporation, established to act as third party in the inspection of goods subject to international contracts and trade to ensure honesty and fair dealing between international contracting parties. The agreement entered into by and between the Government and the SGS on December 17, 1986 stipulates: cdta Article 6 FEES "6.1. As remuneration for the services rendered hereunder, the Government shall be 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." It is clear from the foregoing facts that 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 Notwithstanding the fact that Executive Order No. 93 has withdrawn the tax incentives granted to government and private entities, the aforesaid tax exemption enjoyed by SGS under an Agreement with the Government has not been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. cdti Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner