Diaz Murillo Dalupan and Company

January 11, 2007 BIR RULING [DA-013-07] R.A. 7916; 008-99 Diaz Murillo Dalupan and Company Certified Public Accountants Unit 504 Cebu Holdings Center Cebu Business Park Cebu City Attention: Atty. Bethuel V. Tanupan, C.P.A. Tax and Corporate Service Manager Gentlemen : This refers to your letter dated December 18, 2006, requesting on behalf of your client CEBU DAIKI CORPORATION (CDK), for confirmation that the sale of its buildings is exempt from the capital gains tax, documentary stamp tax and value-added tax. It is represented that CDK is a PEZA-registered company under Republic Act No. 7916 with business address located at Mactan Export Processing Zone, Lapu-Lapu City, Cebu, Philippines. On October 28, 2006, the Board of Directors of CDK approved the resolution for the discontinuance of its operations in the Philippines. Consequently, in the succeeding meeting, the board of directors approved a resolution allowing the disposition of CDK's buildings located in the Ecozone by way of sale to Lookwell Philippines Corporation (LPC), which is also a PEZA-registered company. In reply, please be informed that under Section 24 of Republic Act No. 7916, as amended by R.A. No. 8748, otherwise known as "The Special Economic Zone Act of 1995", no taxes, local and national shall be imposed on business establishments operating within the Ecozone and that in lieu of paying taxes, three percent (3%) of the gross income earned by all business enterprises within the Ecozone shall be remitted to the national government and two percent (2%) to the municipality or city where the enterprise is located, or a total of 5%. Additionally, under Section 2 (nn), rule 1 of the Rules and Regulations implementing R.A. No. 7916, "gross income" refers to gross sales or gross revenues derived from business activity within the Ecozone, net of sales discounts, sales returns and allowance minus cost of sales or direct costs but before deduction is made for administrative expenses or incidental losses during a given taxable period. Such being the case, and since R.A. No. 7916 is a special law which grants exemptions from payment of national taxes to PEZA-registered business establishments operating within the Ecozone, except payment of the preferential tax of 5% on the gross income earned, the gross income earned on the sale by CDK of its building located within the Ecozone in the course of winding up its registered business with the Ecozone is subject to the 5% preferential tax rate based on the gross selling price minus the depreciated cost of the building as of the date of cessation of commercial operations. DHEcCT Furthermore, as a duly Ecozone registered enterprise, CDK is not subject to value-added tax and documentary stamp tax on the sale of its buildings to LPC. Since the buyer of the buildings is likewise a PEZA-registered company, no documentary stamp is payable on such sale transaction. 2uptax07 This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service