VAT Ruling No. 087-99

August 16, 1999 VAT RULING NO. 087-99 RMC 42-99-135-99-087-99 Taisei Corporation 6th Floor, Champaca II Building Alfaro Street, Salcedo Village Makati City Attention: Mr . Tsutomu Yamazaki Administration Manager Gentlemen : This refers to your letter dated March 19, 1999 requesting for a ruling as to whether or not the amount of P14,925,254.71 representing the 10% VAT input taxes generated from the purchases of goods and services by Taisei-Kurimoto Joint Venture (TKJV) from its VAT-registered suppliers and sub-contractors and attributable to its Pampanga Delta Development Project, which is an OECF-funded project of the Government of the Philippines under the supervision of the National Irrigation Administration (NIA) can be considered in the processing for tax refund. cdlex In reply, please be advised that the tax consequence and implications arising from OECF-Funded Project have been specifically laid down under Revenue Memorandum Circular No. 42-99. In respect of your query, the following excerpts therefrom are particularly applicable: "A) VALUE-ADDED TAX: 1. The invoice billings of the Japanese contractors with the executing government agencies are exempt from the 8 . 5% creditable VAT withholding prescribed under Section 114(C) of the National Internal Revenue Code of 1997 (then Section 110(c), old NIRC) as provided for in Revenue Memorandum Circular No. 32-99. Accordingly, the executing agencies of the Philippine government shall not withhold the 8 5% creditable VAT from the said billings of the Japanese contractors. 2. The suppliers and sub-contractors of the Japanese contractors shall bill and pass on the 10% VAT to the said Japanese contractors. The Japanese contractors. in turn. shall bill and pass on the 10% VAT to the concerned executing agencies of the Philippine government. Thus, billings to the executing government agencies shall be deemed inclusive of VAT. Since. under the Exchange of Notes, the OECF Fund shall not be used to pay for the tax, then the VAT is to be paid out of the Philippine counterpart fund. 3. The Japanese contractors shall file the prescribed VAT-returns on gross receipts derived from OECF-funded projects, claim their input taxes from their purchases of goods, properties and services from their suppliers or sub contractors, and shall pay the VAT thereon, after offsetting the allowable input taxes, considering that the amount intended for payment of the VAT has already been collected and received by the Japanese contractors or nationals from the executing government agencies as part of the total invoice price. 4. In cases where the executing government agencies previously withheld any 8.5% creditable VAT from the total billings of the Japanese contractors, said creditable VAT withholding shall be deducted against the-VAT due from the Japanese contractors. Furthermore, if the VAT returns of the Japanese contractors show that there are still excess VAT payments, after applying the 8.5% creditable VAT previously withheld from the VAT due, then such excess VAT payment constitutes taxes erroneously paid and received. Pursuant to Section 204 (C) of the Tax Code of 1997, such excess tax payment shall be refunded or credited to the Japanese contractors, either in cash or Tax Credit Certificate, as the case may be, at the option of the Japanese contractors, subject to the filing of the corresponding claim with the Commissioner or with the Court of Tax Appeals within the two-year prescriptive period." In view of the foregoing, the input taxes subject of your query may be refunded only if it is proven to constitute excess VAT payments under the foregoing rules. BIR Ruling No. DA-135-99 dated March 8, 1999 is modified or revoked insofar as it is inconsistent with this ruling. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue