Tax Digest
Volume 10,
Series 60
Clarification on VAT: OECF Funded Projects between the Republic of the Philippines and the Government of Japan

With the on-going funded projects of Overseas Economic Cooperation Fund (OECF) between the Philippines and Japan undertaken in the Philippines, the BIR clarifies the provisions pertaining to the taxation of participating Japanese suppliers, contractors and nationals. It was stated in the Exchange of Notes that the Japanese participants shall not be required to shoulder any fiscal levies and taxes associated with the project. The circular laid-out the governing rules of imposing VAT in the premise of the exchange of notes, which are as follows:

  1. VAT-registered suppliers and sub-contractors of the Japanese companies shall bill and pass on the 12% VAT to the Japanese companies or contractors. In, turn the Japanese contractors shall include in their billing and pass on the 12% VAT to the concerned executing agencies of the Philippines. Since under the Exchange of Notes, the OECF Fund shall not be used to pay for the tax, then the VAT is for the account of the Philippines government.
  2. Japanese contractors shall file the prescribed VAT returns on gross receipts derive from OECF-funded projects, claim their input taxes from their purchases of goods, properties, and services from their suppliers or subcontractors and shall pay the output tax or VAT thereon, after offsetting the creditable or 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 billing or invoice price.
  3. In no case, shall input taxes arising from transactions attributable to activities unrelated to the OECF-funded project be allowed or be credited against the output tax on gross receipts from the project.

Revenue Memorandum Circular No. 8-2017
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