Bureau of Local Government Finance Opinion

February 9, 2011 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Yoshihiro Kasuya General Manager Miyaji Iron Works Co., Ltd. Manila Branch Unit 1609, Herrera Tower V.A. Rufino St., cor. Valero St. Salcedo Village, Makati City Sir : This refers to your letter dated February 3, 2011 requesting confirmation that as a Japanese contractor of JBIC-funded project, Miyaji Iron Works Co., Ltd. (Miyaji for brevity) shall be exempted from paying of local business taxes as this shall be assumed by the Government of the Republic of the Philippines or its executive agencies or instrumentalities as stated in the Exchange of Notes. Representations are made that Miyaji, with main office in Tokyo, Japan has established its Manila Branch office in the Republic of the Philippines duly licensed under the Securities and Exchange Commission on July 28, 2005. Said Manila Branch had been contracted along with its lead partner, Toyo Construction Co., Ltd.-Philippines Branch, by the Department of Public Works and Highways (DPWH) for the implementation of Contract Package I under the Urgent Bridges Construction Project for Rural Development pursuant to JBIC ODA Loan under L/A No. PH-P231. The construction of this project necessitates the Manila Branch to put up site offices all over the country. Thus, having that in mind, Miyaji obliged to comply with the ordinances being implemented in the cities and municipalities where the said project will be constructed. The significant provisions of the said Exchange of Notes on Urgent Bridges Construction dated March 26, 2002, states that: Section 5.2 The Government of the Republic of the Philippines will, by itself or through its executing agencies, assume: (a) all fiscal levies and taxes imposed in the Republic of the Philippines on Japanese companies operating as suppliers, contractors and/or consultants with respect to the payment carried out for the income accruing from the supply of the products and/or services required for the implementation of the projects enumerated in the Lists; and" aAcDSC Moreover and as pointed out in your letter, the Department of Justice (DOJ) clarified that local 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." 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, Miyaji Iron Works Co., Ltd.-Manila Branch. 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 tax liability being applicable to local taxes only. We hope that this will help clarify matters. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA, CESO III Executive Director