QuestionsQuestions (BIR REVENUE MEMORANDUM CIRCULAR NO. 42-99)
RMC No. 42-99 provides the tax treatment of Japanese contractors/nationals and explains the application of standard clauses under the OECF-funded Exchange of Notes. It amends Revenue Memorandum Circular (RMC) No. 32-99.
The Government of the Philippines (itself or through executing agencies) assumes the fiscal levies or taxes on Japanese firms and nationals operating in connection with income accruing from supplying products/services under the OECF-funded projects.
It states that invoice billings of Japanese contractors with executing government agencies are exempt from the 8.5% creditable VAT withholding.
The previously withheld 8.5% creditable VAT shall be deducted against the Japanese contractor’s VAT due. If excess payment results even after applying the credit, it is treated as taxes erroneously paid and may be refunded or credited subject to the rules and prescriptive period.
Suppliers/sub-contractors bill and pass on 10% VAT to the Japanese contractors; the Japanese contractors then bill and pass on 10% VAT to the executing agencies. Thus, billings to executing agencies are deemed inclusive of VAT.
Since the OECF Fund shall not be used to pay for the tax, the VAT is to be paid out of the Philippine counterpart fund.
Japanese contractors must file the prescribed VAT returns on gross receipts from OECF-funded projects, claim input taxes from purchases, and pay VAT due after offsetting allowable input taxes, considering that the VAT amount was already collected as part of the total invoice price.
The excess is considered taxes erroneously paid and received; it may be refunded or credited (cash or Tax Credit Certificate at option) under Section 204(C) of the Tax Code of 1997, subject to a claim filed within the two-year prescriptive period.
No. They must still file the prescribed income tax returns, but they need not pay the taxes due because executing government agencies are mandated to assume payment under the Exchange of Notes.
The concerned Revenue District Officer shall collect the income taxes from the concerned executing government agencies.
The corresponding cash refund should be recovered from the government executing agencies, upon presentation of proof of payment by the Japanese contractors/nationals.
Executing government agencies shall remit the prescribed 1% creditable expanded withholding tax to the BIR, following the expanded withholding tax regulations as amended.
No. Since executing agencies assume payment of the income taxes due under the Exchange of Notes, the 1% creditable expanded withholding tax is not to be deducted from the income payments; it should be assumed and paid out of the agencies’ own funds.
They must furnish the Japanese contractors/nationals with the prescribed withholding tax statement showing the amount of the 1% creditable expanded withholding tax remitted to the BIR.
It shall be credited or deducted by the Japanese contractors/nationals in computing the net income tax due referred to in paragraph B (Income Tax).
The Japanese contractors/nationals may recover the corresponding cash refund from the executing government agencies.
It addresses VAT (including exemption from 8.5% creditable VAT withholding, inclusive VAT billing, VAT returns/input tax claims, and refund of excess), Income Tax (filing required but payment assumed by executing agencies; collection by RDO; recovery of refunds if paid directly), and 1% creditable expanded withholding tax (remitted by agencies, not deducted from payments, withholding statements issued, credit/deduction by contractors; refunds if improperly withheld).
Inconsistent BIR issuances or revenue regulations are deemed amended, repealed, or modified to conform with the rules in RMC No. 42-99.