B-161629, B-161630, OCT. 5, 1967

B-161629,B-161630: Oct 5, 1967

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TAX EXEMPTION CERTIFICATES WHICH WERE ISSUED TO CONTRACTORS FOR GASOLINE USED IN CONNECTION WITH AIR FORCE CONTRACTS IN PHILIPPINES BUT WHICH WERE NOT HONORED BY PHILIPPINE AUTHORITIES BECAUSE A TAX AGREEMENT HAD NOT BEEN REACHED BETWEEN U.S. PHILIPPINES DURING LIFE OF THE CONTRACTS MAY BE CONSIDERED TO SUPPORT THE VIEW THAT IT WAS MUTUAL INTENTION OF PARTIES THAT TAXES WOULD NOT BE APPLICABLE TO THE CONTRACTS. SINCE TAXES WERE NOT INCLUDED IN CONTRACT PRICES. SECRETARY: FURTHER REFERENCE IS MADE TO COPIES OF LETTERS DATED MAY 12. THESE MATTERS WERE THE SUBJECT OF REPORTS TO OUR OFFICE DATED AUGUST 17. BOTH CONTRACTORS REQUEST REIMBURSEMENT OF TAXES PAID ON FUEL AND LUBRICANTS TO THE REPUBLIC OF THE PHILIPPINES FOR WHICH TAX EXEMPTION CERTIFICATES WERE ISSUED BY THE UNITED STATES GOVERNMENT.

B-161629, B-161630, OCT. 5, 1967

CONTRACTS - TAXES - INCLUSION-EXCLUSION - PHILIPPINE GAS TAXES DECISION TO SECY. OF THE AIR FORCE CONCERNING REQUESTS FROM TRANSPORT CONTRACTORS, INC., AND LUZON STEVEDORING CORP. FOR REIMBURSEMENT FOR TAXES PAID ON FUEL AND LUBRICANTS TO REPUBLIC OF THE PHILIPPINES UNDER TAX- EXCLUSIVE CONTRACTS. TAX EXEMPTION CERTIFICATES WHICH WERE ISSUED TO CONTRACTORS FOR GASOLINE USED IN CONNECTION WITH AIR FORCE CONTRACTS IN PHILIPPINES BUT WHICH WERE NOT HONORED BY PHILIPPINE AUTHORITIES BECAUSE A TAX AGREEMENT HAD NOT BEEN REACHED BETWEEN U.S. AND PHILIPPINES DURING LIFE OF THE CONTRACTS MAY BE CONSIDERED TO SUPPORT THE VIEW THAT IT WAS MUTUAL INTENTION OF PARTIES THAT TAXES WOULD NOT BE APPLICABLE TO THE CONTRACTS. THEREFORE, SINCE TAXES WERE NOT INCLUDED IN CONTRACT PRICES, REIMBURSEMENT OF THE TAXES MAY BE MADE TO THE CONTRACTORS.

TO MR. SECRETARY:

FURTHER REFERENCE IS MADE TO COPIES OF LETTERS DATED MAY 12, 1967, WITH ATTACHMENTS, FROM HEADQUARTERS 6200TH MATERIEL WING (PACAF), AND HEADQUARTERS 636TH COMBAT SUPPORT GROUP (PACAF), FORWARDING TO OUR OFFICE THE REQUESTS OF TRANSPORT CONTRACTORS, INC., AND THE LUZON STEVEDORING CORPORATION, FOR REIMBURSEMENT OF TAXES PAID ON FUEL AND LUBRICANTS TO THE REPUBLIC OF THE PHILIPPINES UNDER VARIOUS TAX EXCLUSIVE CONTRACTS. THESE MATTERS WERE THE SUBJECT OF REPORTS TO OUR OFFICE DATED AUGUST 17, 1967 (FILE REFERENCE AJF), FROM HEADQUARTERS ACCOUNTING AND FINANCE CENTER, DENVER, COLORADO, AND SEPTEMBER 5, 1967 (FILE REFERENCE MCPKA), FROM HEADQUARTERS AIR FORCE LOGISTICS COMMAND, WRIGHT-PATTERSON AIR FORCE BASE, OHIO.

BOTH CONTRACTORS REQUEST REIMBURSEMENT OF TAXES PAID ON FUEL AND LUBRICANTS TO THE REPUBLIC OF THE PHILIPPINES FOR WHICH TAX EXEMPTION CERTIFICATES WERE ISSUED BY THE UNITED STATES GOVERNMENT, BUT WHICH WERE NOT RECOGNIZED BY THE GOVERNMENT OF THE PHILIPPINES. THE EXEMPTION CERTIFICATES WERE CONSIDERED BY THE CONTRACTOR AND THE CONTRACTING AGENCY TO COVER THE PURCHASE OF PETROLEUM PRODUCTS FOR USE IN CONNECTION WITH THE CONSTRUCTION, MAINTENANCE OPERATION, OR DEFENSE OF BASES IN THE PHILIPPINES.

THE FOREIGN TAXES CLAUSE OF THE INVOLVED CONTRACTS WERE BASED UPON AFPI 11-2002A IN THE EARLIER CONTRACTS, AND THE LATER CONTRACT TAX CLAUSES WERE IN ACCORDANCE WITH ASPR 11-403.2 (A). BOTH CLAUSES PROVIDE GENERALLY THAT THE CONTRACT PRICES DO NOT INCLUDE ANY TAX OR DUTY WHICH THE GOVERNMENT OF THE UNITED STATES AND THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES HAVE AGREED SHALL NOT BE APPLICABLE TO EXPENDITURE IN THE PHILIPPINES BY THE UNITED STATES OR ANY TAX OR DUTY FROM WHICH THE CONTRACTOR IS EXEMPT UNDER THE LAWS OF THE PHILIPPINES.

THE RECORD SHOWS THAT, PURSUANT TO THE CONTRACTS, EXEMPTION CERTIFICATES FOR THESE TAXES WERE ISSUED TO THE CONTRACTOR BY THE CONTRACTING AGENCY AND THAT IT WAS THE TACIT UNDERSTANDING OF THE PARTIES THAT THESE TAXES WOULD BE EXEMPTED. HOWEVER, THE TAX EXEMPTION CERTIFICATES WERE NOT HONORED BY THE PHILIPPINE AUTHORITIES SINCE NO TAX AGREEMENT HAD BEEN REACHED BETWEEN THE UNITED STATES AND THE PHILIPPINES DURING THE LIFE OF THE CONTRACTS.

THE ISSUANCE OF THE TAX EXEMPTION CERTIFICATES IN THE CIRCUMSTANCES SUPPORTS THE VIEW THAT IT WAS THE MUTUAL INTENTION OF THE PARTIES THAT THE TAXES WOULD NOT BE APPLICABLE TO THE CONTRACTS AND THAT SUCH TAXES WERE NOT TO BE INCLUDED IN THE CONTRACT PRICES. SINCE IT APPEARS THAT THE TAXES WERE NOT INCLUDED IN THE CONTRACT PRICES AND THAT THE CONTRACTORS HAD TO BEAR THE BURDEN THEREOF, OUR OFFICE WOULD HAVE NO LEGAL OBJECTION TO REIMBURSEMENT OF THE TAXES INVOLVED, PROVIDED SUCH ACTION IS OTHERWISE PROPER.

A COPY OF THIS DECISION SHOULD BE ATTACHED TO PAYMENT VOUCHERS COVERING ANY ADDITIONAL PAYMENTS TO THE CONTRACTORS AS TAX REIMBURSEMENTS.

THE ORIGINAL CLAIM LETTERS AND SUPPORTING FILES ARE RETURNED HEREWITH.