Siguion Reyna Montecillo & Ongsiako Law Offices

January 17, 2008 BIR RULING [DA-015-08] RR 2-98, as amended; DA-281-2005 Siguion Reyna Montecillo & Ongsiako Law Offices 4th & 6th Floors Citibank Center Paseo de Roxas, Makati City Attention: Attys. Jose Lis Leagogo and Deborah S. Acosta Gentlemen : This refers to your letter dated November 26, 2007, requesting on behalf of your client, Swedish Match Philippines, Inc. ("SMPI"), for exemption from withholding tax on income payment to its suppliers. IcHTCS It is represented that SMPI is duly organized corporation under the laws of the Republic of the Philippines; that it is duly registered with the Securities and Exchange Commission; that recently, it has been granted registration as an Ecozone Export Enterprise with the Philippine Economic Zone Authority ("PEZA") under Certificate of Registration No. 07-25 dated April 03, 2007; that as a PEZA registered enterprise, it is exempt from paying all local and national taxes and is subject to a five (5%) percent special tax on gross income as defined under the implementing rules of Republic Act No. 7916, otherwise known as the Special Economic Zone Act of 1995; and that it is your opinion that all income of SMPI is subject to the five (5%) percent tax on gross income, hence, income payments made to SMPI is exempt from expanded withholding tax. ADScCE In reply, please be informed that Section 2.57.5 (B) (2) of Revenue Regulations No. 2-98, as amended, is explicit in its provisions that the expanded withholding tax does not apply to income payments to persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special. PEZA-registered enterprises are granted certain preferential tax treatment under Section 24 of Republic Act No. 7916 which provides that "any provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national shall be imposed on business establishments operating within the ECOZONE. In lieu of paying taxes, five percent (5%) of the gross income earned by all businesses and enterprises within the ECOZONE shall be remitted to the national government." Accordingly, since SMPI is a PEZA-registered enterprise enjoying preferential tax rate, income payments made to it with respect to its registered activity shall not be subject to expanded creditable withholding tax prescribed in Revenue Regulations No. 2-98, as amended. ScaEIT 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