REVENUE MEMORANDUM CIRCULAR NO. 45-2015 issued on August 24, 2015 clarifies the withholding of Value-Added Tax (VAT) on government money payments and payments to non-residents under the Exchange of Notes between the Republic of the Philippines and the Japanese Government for Overseas Economic Cooperation Fund (OECF)-funded projects undertaken in the Philippines.
     The BIR upholds the validity and application of Republic Act (RA) No. 9337 for government money payments under OECF-funded projects pursuant to an Exchange of Notes between the Republic of the Philippines and the Government of Japan.
    The Government of the Philippines, itself or through its executing agencies or instrumentalities, shall assume the final withholding VAT at the rate of 5% of the gross payment thereof under Section 114(C) of the National Internal Revenue Code, as amended. This will be paid out from the fund of the Government of the Philippines, or of its respective government agencies or instrumentalities as a final settlement of the tax due on the income received by Japanese contractors.
      The Japanese contractors of OECF-funded projects cannot include in its billing the whole 12% VAT that will be assumed by the Philippine Government or its instrumentalities or agencies in accordance with the Exchange of Notes.
      Consequently, Revenue Memorandum Circular (RMC) No. 42-99 no longer finds application to cases or transactions after the effectivity of RA No. 9337. RMCs are issuances that publish pertinent and applicable portions, as well as amplifications of laws, rules, regulations and precedents issued by the BIR and other agencies/offices. Being a mere amplification of the law, if the legal provision on which it is anchored has been amended, then the said RMC cannot find application on transactions which are now covered by the amendatory law.