BIR Ruling [DA-058-03]

February 28, 2003 BIR RULING [DA-058-03] RR 2-98; 43-2001 Surtec Philippines, Inc. #116 East Service Avenue, Laguna Technopark Special Economic Processing Zone Bian, Laguna Attention: Mr. Mitsuo Sakamoto President Gentlemen : This refers to your letter dated July 3, 2002 requesting for exemption from the 2% creditable withholding tax. It is represented that Surtec Philippines, Inc. (SPI) is registered with Philippine Economic Zone Authority with PEZA Registration No. 96-024 dated February 15, 1996; that its registered activity is Electroplating and/or Metal surface treatment; that it provides services to both PEZA-registered and BOI-registered enterprises, thus all its products are exported; that SPI was granted an Income Tax Holiday from October 1996 to September 2000; and that from October 2000 up to the present, you are now subject to preferential tax rate of 5% based on gross profit. In reply, please be informed that Section 2.57.5 (B) of Revenue Regulations No. 2-98 is explicit in its provisions that the 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 specific income tax exemption 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 SPI is a PEZA-registered enterprise enjoying exemption from payment of income taxes pursuant to the provisions of R.A. 7916, income payments made to you by local suppliers of goods shall not be subject to the 2% creditable withholding tax prescribed under Section 2.57.5 of Revenue Regulations No. 2-98, as amended. ( BIR Ruling No. 43-2001 dated September 21, 2001 ) cDCaTS 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group