The Net Group

January 22, 2008 BIR RULING [DA-025-08] 196, 57 (B); DA-659-2006; DA-281-2007; The Net Group Unit 9-2, 9th Floor, Net One Center Third Ave. cor 26th St. Bonifacio Global City, Taguig City Attention: Mr. Carlos S. Rufino President Gentlemen : This refers to your letter requesting on behalf of your client, 14-678 Properties Holdings, Inc. ("14-678 PHI"), for confirmation of your opinion on the tax consequences of the purchase of parcels of land of 14-678 PHI from Fort Bonifacio Development Corporation (FBDC). It is represented that 14-678 PHI is a domestic corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines. It obtained a registration with the Philippine Economic Zone Authority ("PEZA") as an Ecozone Facilities Enterprise on July 4, 2007. Consequently, 14-678 PHI was granted various fiscal and non-fiscal incentives including, among others, exemption from all national and local taxes, except real property taxes on commercial spaces occupied by non-PEZA registered enterprises. In lieu of the national and local taxes, 14-678 PHI is subject only to the payment of a five percent (5%) final tax on its gross income. On the other hand, FBDC is a domestic corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines. It established, developed, constructed, administered, managed and operated the 24.3699 hectare E-Square Information Technology Park (formerly known as Silicon Alley Information Technology Park) located at Fort Bonifacio Global City, Taguig, Metro Manila, which was declared as a Special Economic Zone by virtue of Presidential Proclamation No. 303 dated 4 May 2000. On 14 July 2000, FBDC obtained a registration with the Philippine Economic Zone Authority ("PEZA") as an Economic Zone Developer/Operator. Consequently, FBDC was granted various fiscal and non-fiscal incentives including, among others, exemption from all national and local taxes, except real property taxes on land owned by a developer. In lieu of the national and local taxes, FBDC is subject only to the payment of a five percent (5%) final tax on its gross income. On July 4, 2007 or after 14-678 PHI secured its registration with the PEZA as an Ecozone Facilities Enterprise, 14-678 PHI, as buyer, and FBDC, as seller, executed a Deed of Absolute Sale for the purchase of parcels of land located at Block 14, Lots 6, 7, 8a and 8b, E-Zone, Bonifacio Global City, Taguig, Metro Manila ("Subject Properties"), with an area of 5,209 square meters, more or less. On the basis of the foregoing facts, you request for confirmation of the following opinion: (1) No value added tax is due from the sale of the Subject Properties by virtue of the exemptions of both 14-678 PHI and FBDC from liability for all local and national taxes. cACHSE (2) No documentary stamp tax is due from the sale of the Subject Properties and/or execution of the Deeds of Absolute Sale by virtue of the exemptions of both 14-678 PHI and FBDC from liability for all local and national taxes. (3) No other tax is due from the sale of the Subject Properties and/or execution of the Deed of Absolute Sale by virtue of the exemptions of both 14-678 PHI and FBDC from liability for all local and national taxes. In reply, please be informed that under Section 24 of Republic Act (RA) No. 7916, otherwise known as "The Special Economic Zone Act of 1995," as amended by RA 8748, no taxes, local and national, shall be imposed on business establishments operating within the Ecozone and that in lieu of paying taxes, five percent (5%) of the gross income earned by all business enterprises within the Ecozone shall be remitted as follows: (a) three percent (3%) to the national government; and (2) two percent (2%) to the municipality or city where the enterprise is located. In BIR Ruling No. DA-259-2005 dated June 16, 2005, this Office ruled as follows: ". . . 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. P EZ A-registered enterprises are granted certain preferential tax treatment under Section 24 of Republic Act No. 7 91 6 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 Ogami is a P EZ A-registered enterprise enjoying preferential tax rate, income payments made to it with respect to its registered activity shall not be subject to 2% expanded creditable withholding tax prescribed in Revenue Regulations No. 2-98, as amended. . . ." (Emphasis supplied). In BIR Ruling No. 008-99 dated January 19, 1999, the BIR ruled on the exemption of a P EZ A-registered enterprise from value-added tax (VAT) and documentary stamp tax, thus: (2) As a duly registered Ecozone export enterprise, KPC is not subject to value-added tax and documentary stamp tax on the sale of its factory building. Since the buyer of the factory building is likewise a P EZ A-registered company, no documentary stamp tax is payable on such sale transaction. (Emphasis supplied) In view thereof, the sale of a parcel of land located within the Ecozone between FBDC and 14-678 PHI is not subject to the capital gains tax/creditable withholding tax on sale of real property and the corresponding documentary stamp tax, as well as VAT but subject to the 5% preferential tax rate based on the gross income earned. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. EIDATc Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service