Xurpas Inc.

January 16, 2007 BIR RULING [DA-018-07] R.R. 2-98; DA-578-2006 Xurpas Inc. Unit 303 Cityland Tower 3 Herrera St., corner VA Rufino Esteban St. Legaspi Village, Makati City Attention: Mr. Raymond Gerard S. Racaza Vice-President for Operations Gentlemen : This refers to your letter dated July 21, 2006 requesting for exemption from the provisions of Revenue Regulations No. 17-2003, particularly the withholding of 2% contractor's tax by virtue of the Income Tax Holiday (ITH) granted by the Board of Investments. It is represented that XURPAS, Inc. is a corporation duly organized and existing under Philippine laws; that it is a VAT registered corporation engaged in Research and Experimental Development in Information Technology as New IT Service Firm in the Field of Software Development on a Non-Pioneer Status; that it is also a BOI-registered corporation under Certificate of Registration No. 2005-028; and that pursuant to the said Certificate of Registration, it is entitled to ITH, to wit: "4. The firm shall be entitled to the following incentives: a. Income Tax Holiday (ITH) for a period of four (4) years from February 2005 or actual start of commercial operations, whichever is earlier, but in no case earlier than the date of registration. The ITH incentive shall be limited only to the revenues generated from registered Software Development activity. Date of filing: An application shall be filed with the BOI Incentives Department within one (1) month from the filing of the final ITR with the BIR in order to validate claim for income tax exemption. Any request for extension of the reckoning date of ITH availment shall be filed prior to the scheduled date or within 90 days from the occurrence of fortuitous events and/or government delays." In reply, please be informed that Section 2.57.5 (B) (2) of Revenue Regulations (RR) No. 2-98, as last amended by RR 30-2003, implementing Section 57 (B) of the Tax Code of 1997, as amended by Republic Act (RA) No. 9337, provides that the withholding tax prescribed in the said regulations shall not apply to income payments to persons enjoying exemption from income tax pursuant to the provisions of R.A. No. 7916 and the Omnibus Investment Code of 1987. Considering therefore, that Xurpas, Inc. is a BOI-registered enterprise enjoying ITH for a period of four (4) years reckoned pursuant to the provisions of Section 39 (a) (1) of Executive Order No. 226, i.e., from February 2005 or actual start of commercial operations, whichever is earlier, but in no case earlier than the date of registration, this Office is of the opinion as it hereby holds that it is exempt from the payment of creditable withholding tax prescribed in RR No. 2-98, as last amended by RR No. 30-2003 on income payments received by it during the bonus year ITH, in connection with its registered activity. Consequently, as a supplier of services, Xurpas, Inc. is exempt from the provision of Section 3 (M) of RR No. 17-2003, as amended, which imposes upon the top ten thousand (10,000) private corporations the duty to withhold an equivalent of two (2%) percent creditable withholding tax on their income payments to their supplier of services. (BIR Ruling No. DA-578-2006 dated September 22, 2006) 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