Bureau of Local Government Finance Opinion

January 6, 2010 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Yasunori Eda Treasurer & Head-Admin TOYO Construction Co., Ltd. (Philippine Branch) 4/F Princess Building, 104 Esteban St. Legaspi Village, Makati City Sir : This refers to your letter dated December 14, 2009 requesting confirmation that Toyo Construction Co. Ltd.,-Philippine Branch (TCCL for brevity), as a Japanese contractor of JICA funded project is exempt from payment of local taxes. In its letter dated November 2, 2009, addressed to Mr. Hitoshi Yamaya, Project Director, TCCL, this Bureau confirmed that the Pasig-Marikina River Channel Improvement Project, (Phase II), Contract Package 1-A and 1-B under JICA Loan No. Ph-239 which is currently being undertaken by TCCL is exempt from local government business taxes imposed by the local government units. It appears that TCCL is likewise currently undertaking the following projects in different municipalities and cities: Project Title Implementing Location Status Loan Agency No. (1) Contract Package I, Urgent DPWH Region I On-going PH 231 Bridges Construction Project for Rural Development (2) Contract Package III, Urgent DPWH Region I, On-going PH 231 Bridges Construction Project IV-A and for Rural Development V (3) Supplemental No. 1 to DPWH Visayas & On-going PH 231 Contract Package III, Urgent Mindanao Bridges Construction Project for Rural Development The above request is being made in view of the Exchange of Notes on Urgent Bridges Construction dated March 26, 2002, the relevant provisions of which state: DcCEHI 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 previous request of TCCL, 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." 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 Construction Co. Ltd.,-Philippine 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 the tax liability being applicable to local taxes only. We hope that this will help clarify matters. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director