BIR Ruling [DA-002-97]

January 3, 1997 BIR RULING [DA-002-97] Toyo Construction (Subic), Inc. Bldg. 1458 Boton Area, Subic Bay Freeport Zone Philippines 2222 Attention: T . Inoue Manager Administration Gentlemen: This refers to your letter dated November 27, 1996 requesting for a ruling that the construction payments made to Toyo Construction (Subic), Inc. (Toyo Subic) for the project of Japanese Industrial Part at the Subic Freeport Zone are exempt from the 1% creditable expanded withholding tax. It is represented that Toyo Subic is a corporation duly registered with the Securities and Exchange Commission on July 3, 1996 and registered as a Subic Bay Freeport Enterprise on July 15, 1996, with Subic Bay Metropolitan Authority (SBMA); that your client is also a Subic Bay Freeport Enterprise; that currently Toyo Subic is now implementing the project for the Japanese Industrial Part at the Subic Freeport Zone; that Toyo Subic will get downpayment for the project from its client in the middle of December 1996 and that before getting the downpayment, you would like to clear this matter of exemption from the creditable expanded withholding tax. In reply, please be informed that Section 4(b) of Revenue Regulations No. 6-85 as amended by Revenue Regulations No. 12-94 explicitly provides that the withholding tax therein prescribed shall not apply to income payments made to persons enjoying tax exemption. Pursuant to Section 12(c) of Republic Act No. 7227, otherwise known as the Bases Conversion and Development Act of 1992, SBF Enterprises within the Subic Bay Freeport shall be liable to the payment of the preferential rate of 3%, plus the amounts equivalent to 1% for Local Government Units contiguous to the zone, and 1% for the Special Development Fund, based on its gross income earned, in lieu of local and national internal revenue taxes . (Emphasis ours) Such being the case, and since Toyo Subic, is an SBMA accredited enterprise located within the Subic Bay Freeport Zone enjoying exemption from income tax by virtue of the aforecited provision, income payments to it from construction projects shall be exempt from the 1% creditable expanded withholding tax imposed under Section 1(c) (1) of Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 8-90 and 12-94. (BIR Ruling No. 155-95 dated October 12, 1995) This serves as your certification that the construction fees to be received by Toyo Subic from the implementation of the project of the Japanese Industrial Park at the Subic Freeport Zone are not subject to the creditable expanded withholding tax. Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head Revenue Executive Assistant/Director (Legal Service)