BIR Ruling [DA-046-97]

January 30, 1997 BIR RULING [DA-046-97] Cargill Philippines, Inc. 14th Floor Citibank Tower 8741 Makati Avenue Makati City Attention: Mr . Romeo R . Versula Country Controller Gentlemen : This refers to your letter dated August 14, 1996 requesting for a ruling on whether Magellan Maritime (Subic) Corporation (MMSC), a registered Subic Bay Freeport Enterprise is exempt from the 5% withholding tax on rental income from lease of real property and from the 1% withholding tax on fees from cargo handling services. It is represented that Cargill Philippines (CPI), Inc. is a foreign-owned company engaged in the trading of agricultural commodities; that CPI is renting a warehouse from MMSC inside the Subic Bay Freeport Zone; that MMSC also provides cargo handling services to CPI; that in CPI's payments to MMSC it deducts the corresponding withholding taxes of 5% on the warehouse rentals and 1% on the cargo handling fees. In reply, please be informed that Section 4(b) of Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94, is explicit in its provisions that the withholding tax therein prescribed shall not apply to "income payments to persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special . . ." Pursuant to Section 12(c) of R.A. No. 7227, otherwise known as the Bases Conversion and Development Act of 1992, MMSC shall be liable to the payment of the preferential rate of 3%, plus the amounts equivalent to 1% for Local Governments Units and 1% for 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 MMSC is a Subic Bay Freeport Enterprise, its income from lease of real property, as well as from cargo handling services are subject to the 5% preferential tax rate under R.A. 7227 in lieu of income tax under the Tax Code, and consequently exempt from the 5% and 1% withholding tax imposed under Sections 1(c) and 2, respectively, of Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 8-90. This serves as your certification that the payments by Cargill Philippines, Inc. to Magellan Maritime (Subic) Corporation for rentals and for cargo handling are not subject to the withholding tax. 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. (BIR Ruling No. 155-95 dated October 12, 1995) cdlex Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)