RMC No. 08-2017: Clarifies the tax treatment of Value-Added Tax on government money payments for OECF-funded projects under Exchange of Notes between Republic of the Philippines and the Government of Japan

Key points

1. Who bears the taxes. Under the Exchange of Notes, Japanese suppliers, contractors or nationals in OECF-funded projects do not shoulder fiscal levies or taxes tied to the project. The executing government agencies assume all such taxes, including the 12% VAT on sales of goods and services, even those sold to the government.
2. Billing of the VAT. VAT-registered suppliers and sub-contractors of the Japanese companies bill and pass on the 12% VAT to the Japanese companies or contractors. The Japanese contractors include it in their billing to the executing agencies. The OECF fund is not used to pay the tax, so the VAT is for the account of the Philippine government.
3. Returns and input tax. Japanese contractors file the prescribed VAT returns on gross receipts from OECF-funded projects. They claim input taxes on purchases and pay the output tax after offsetting creditable or allowable input taxes.
4. Unrelated input taxes. Input taxes from transactions attributable to activities unrelated to the OECF-funded project are never allowed or credited against output tax on gross receipts from the project.

Who is affected

• Japanese suppliers, contractors or nationals in OECF-funded projects
• VAT-registered suppliers and sub-contractors of Japanese companies
• Executing government agencies