BIR Ruling [DA-052-03]

February 21, 2003 BIR RULING [DA-052-03] Revenue Regulations No. 2-98 DA Nos. 224-01 dated October 29, 2001; 072-98 dated March 11, 1998 Punongbayan & Araullo 20th Floor, Tower I The Enterprise Center 6766 Ayala Avenue Makati City Attention: Atty. Romeo H. Duran Tax Principal Gentlemen : This refers to your letter dated October 8, 2002 requesting on behalf of your client, JGC Philippines, Inc. (JGC) [formerly Technoserve International Co., Inc.], for a ruling that income payments made to JGC during the period of its income tax holiday incentive are not subject to creditable withholding tax under Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 14-2002. It is represented that JGC is a company incorporated and registered with the Securities and Exchange Commission (SEC) on September 5, 1989 to engage in the business of providing engineering services to its clients; that in 1999, JGC applied for and was given pioneer status as a New IT service firm in the field of Information Technology Services (Engineering, Procurement and Construction Services) [EPC services] by the Board of Investments (BOI) under BOI Certificate of Registration No. 2001-024 dated March 6, 2001; and that JGC, a BOI-registered enterprise on pioneer status, was given an income tax holiday for a period of six (6) years in accordance with Section 39(a)(1) of the Omnibus Investment Code of 1987. IDcTEA In reply thereto, please be informed that under Section 2.57.5(B)(2) of Revenue Regulations No. 2-98, as amended, implementing Section 57(B) of the Tax Code of 1997, the withholding tax prescribed in the said regulations shall not apply to income payments to persons enjoying exemption from the income tax provided by Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987. (BIR Ruling No. DA072-98 dated March 11, 1998; DA224-01 dated October 29, 2001) Corollarily, Section 4 of Revenue Regulations No. 14-2002 amending Section 2.57.5(B)(2) of Revenue Regulations No. 2-98 provides: "Sec. 2.57.5. Exemption from Withholding. The withholding of creditable withholding tax prescribed in these regulations shall not apply to income payments to: "(B) Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special, such as but not limited to: "(1) . . . "(2) Corporations duly registered with the Board of Investments, Philippine Export Processing Zones and Subic Bay Metropolitan Authority enjoying exemption from income tax pursuant to E.O. 226, as amended, R.A. No. 7916, the Omnibus Investment Code of 1987 and R.A. 7227, as amended." Accordingly, since JGC is a BOI-registered enterprise enjoying exemption from the payment of income tax pursuant to Section 39(a)(1) of the Omnibus Investments Code of 1987 for a period of six (6) years reckoned from March 6, 2001, this Office holds that income payments made to JGC are exempt from the payment of creditable withholding tax under Revenue Regulations No. 2-98. EcTIDA 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, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group