BIR Ruling [DA-063-05]

February 23, 2005 BIR RULING [DA-063-05] R.A. 7916 Sec. 108 (B) (3) DA-090-2001 Ishida Philippines Grating Co . , Inc . P.E.Z.A. First Cavite Industrial Estate Bo. Langkaan, Dasmarias, Cavite Attention: Mr . Wakazono O . Taizo President Gentlemen : This refers to your letter dated February 4, 2005 requesting for a ruling whether your factory plant that is being leased out to another PEZA registered company is subject to 10% or 0% value added tax. It is represented that Ishida Philippines Grating Co., Inc. (IPGCI) is a PEZA registered company engaged in the manufacture of various steel grating. It is also a VAT registered entity under Vat Registration No. 001-568-046-V. Accordingly, IPGCI owns a factory plant located within the Ecozone and the same is being leased-out to another PEZA company Maeno Giken, Inc. The company is aware that the leasing of property is not one of its registered activities. Thus, the earnings of the lease is being subjected to the regular income tax rate of 0% to 32%. In reply, please be informed of the provisions of Section 108(B)(3) of the Tax Code of 1997 which provides: "Sec. 108. Value-added Tax on Sale of Services and Use or Lease of Properties . xxx xxx xxx (B) Transactions Subject to Zero Percent (0%) Rate . The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: xxx xxx xxx (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate: xxx xxx xxx Since IPGCI leases its property to a company that enjoys certain tax exemptions under the PEZA Law which is a special law, this Office is of the considered opinion that the lease is subject to zero percent (0%) rate. ADSTCI Moreover, it is worth mentioning that under Section 24 of R.A. No. 7916, otherwise known as "the Special Economic Zone Act of 1995", 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 to the national government. ( BIR Ruling No . DA-090-2001 dated May 16, 2001 ) 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