Bureau of Local Government Finance Opinion

January 13, 2010 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 2nd Indorsement Respectfully returned to the Regional Director for Local Government Finance, Region I, 2nd Floor, Kenny Plaza Building, Quezon Avenue, San Fernando City, La Union, the herein preceding indorsement relative to the letter dated December 15, 2009 of Mr. Shingo Imai, Project Manager of the Toyo-Nippon Steel-Miyaji Joint Venture (Toyo-Nippon for brevity) requesting clarification relative to the imposition of business tax on the said firm by the Municipality of Sudipen, La Union. It is claimed that an "Exchange of Notes" is entered into by and between the Government of Japan and Government of the Republic of the Philippines in every Project. In the Exchange of Notes on Urgent Bridges Construction dated March 26, 2002, the relevant provisions state that: Section 5.2. "The Government of the Republic of the Philippines will, by itself or through its executing agencies, assume: Section 5.2.a. All fiscal levies and taxes imposed in the Republic of the Philippines on the Japanese companies operating as suppliers, contractors and/or consultants with respect to the payment carried out for and the income accruing from the supply of the products and/or services required for the implementation of the projects enumerated in the List; and Moreover and as pointed out in the said letter of Mr. Imai, the Department of Justice (DOJ) clarified that local business taxes imposed by cities and municipalities are likewise embraced in the definition of taxes to be assumed by the Government of the Republic of the Philippines, the pertinent portion of which is quoted as follows: "Nonetheless, it is noted that the clauses quoted above used the words 'levies' and 'taxes' without any distinction. Unless the contrary appears in the Exchange of Notes or related agreements, no distinction can be made as the kinds of levies/taxes that the Government of the Republic of the Philippines itself or through its executing agencies or instrumentalities will assume under the said agreement." ATHCDa In view of the foregoing, this Bureau, consistent with its previous stand on the same issue, maintains the view that the LGUs concerned cannot impose a contractor's tax on Japanese companies operating as contractors, in this case, Toyo-Nippon Steel-Miyaji Joint Venture. It bears emphasis, however, that said company shall be liable to pay the Mayor's permit and other regulatory fees or charges that the LGUs may have imposed under their duly enacted tax ordinances, the assumption by the National government of the tax liability being applicable to local taxes only. Be guided accordingly. (SGD.) MA. PRESENTACION R. MONTESA Executive Director ATTACHMENT Republic of the Philippines Department of Finance Bureau of Local Government Finance Region I Quezon Avenue, Second Floor, Kenny Plaza Bldg. City of San Fernando, La Union, 2500 Telefax No.: (072) 242-0503 1st Indorsement December 15, 2009 Respectfully forwarded to the Executive Director, Bureau of Local Government Finance, Department of Finance, Manila, the herein letter dated December 9, 2009 with attachment of Mr. Shingo Imai, Project Manager of the Toyo-Nippon Steel-Miyaji Joint Venture, for the favor of final clarification relative to the imposition of business tax on the firm by the Local Government Unit of Sudipen, La Union. Preferential action on this matter is requested. Very truly yours, (SGD.) PETER D. BALUYAN Regional Director