VAT Ruling No. 110-89

April 22, 1989 VAT RULING NO. 110-89 Mr. Godofredo N. Alcasid, Jr. Director Bureau of Soils and Water Management Elliptical Road, Quezon City Dear Sir : This refers to your letter dated July 26, 1988 stating that your agency deals with the Japanese International Agency (JICA) in the implementation of a grant-in-aid and technical assistance program for the construction of the Soil Research and Development Center (SOILSEARCH Center). As verbally represented, the said project is contracted by a Japanese Corporation, who after being declared as the winning bidder, shall have the right to hire the subcontracting services of a domestic corporation. Moreover, in the course of the implementation of the project JICA or the winning bidder shall procure supplies and materials from domestic suppliers. Based on the foregoing, you now request for advice on how JICA can be granted exemption from the value-added tax specifically in its local purchase of goods and services. In reply, please be informed that the pertinent provisions of the Exchange of Notes between the Philippine and Japanese governments, (dated October 24, 1988) state that: "The Government of the Republic of the Philippines will take necessary measures to exempt Japanese nationals from customs duties, internal revenue taxes and other fiscal levies which may be imposed in the Republic of the Philippines with respect to the supply of the products and services under verified contracts". It is therefore clear from the foregoing provisions that the winning Japanese contractors are not liable to pay Philippine taxes in their contracting services as well as in their importation of supplies and materials. Such being the case, domestic local subcontractors and local suppliers of materials are subject to the value-added tax. On the other hand, purchases of local supplies by the Japanese contractor and JICA itself are not exempt from VAT because pursuant to Section 99 of the Tax Code as amended by Executive Order No. 273, the person liable for the payment of the VAT are not the buyers/purchasers but the sellers or importers of goods and those performing services for a fee. In this case, the tax can be passed on to the buyers as part of the purchase price. HSDaTC Very truly yours, (SGD.) JOSE U. ONG Commissioner of Internal Revenue By: (SGD.) EUFRACIO D. SANTOS Deputy Commissioner (Officer-in-Charge)