BIR Ruling [DA-070-06]

March 1, 2006 BIR RULING [DA-070-06] R.A. No. 7916 BIR Ruling No. DA-649-2004 & DA-120-2005 Nippon Antenna (Philippines), Inc . Block 12, Lots 3 & 4, First Cavite Industrial Estate Dasmarias, Cavite Attention: Mr. Toshikazu Taira Admin. General Manager Gentlemen : This refers to your letter dated June 22, 2005 requesting for a ruling exempting Nippon Antenna (Philippines), Inc . (NAPI) from the payment of withholding tax. As represented, NAPI is registered with the Philippine Economic Zone Authority (PEZA). It is engaged in the manufacture of car radio antenna and other related products for export. It undertakes its business activities exclusively in the First Cavite Industrial Estate, a special economic zone. NAPI is a wholly-owned subsidiary of Nippon Antenna Co., LTD., a non-resident foreign corporation organized and operating under the laws of Japan. NAPI is in its 9th year of operation and paying 5% on gross income earned from operations with the Ecozone in lieu of all national and local taxes. Aside from export activities, NAPI supplied its products to local automotive industries included among the Top 10,000 corporations engaged in export activities and required to withholding the 1% tax on their suppliers. Presently, NAPI has around 1.4 Million pesos worth of unutilized Creditable Withholding Tax Certificate. In reply, please be informed that under Section 2.57.(B)(2) of Revenue Regulations (Rev. Regs.) 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 income tax provided by Republic Act (R.A.) No. 7916, as amended, otherwise known as "The Special Economic Zone Act of 1995" and the Omnibus Investments Code of 1987. Accordingly, since NAPI is a PEZA-registered enterprise, enjoying exemption from payment of income taxes pursuant to Rule XV, Section 6(A)(1)(b) of the Rules and Regulations implementing R.A. No. 7916, it is exempt from the payment of the creditable withholding tax imposed under Rev. Regs. No. 2-98, as amended, on income payments received by it during the aforementioned period in connection with its registered activity (BIR Ruling No. DA-649-2004 dated December 21, 2004). IDSEAH Moreover, pursuant to the provisions of R.A. No. 7916, NAPI is subject to the 5% preferential tax rate, in lieu of all internal revenue taxes, local and national. R.A. No. 7916 is a special law which grants exemptions from payment of national taxes to PEZA-registered business establishments operating within the Ecozone, except payment of the preferential tax rate of 5% on the gross income earned. Likewise, pursuant to Section 24, R.A. No. 7916, as amended by R.A. No. 8748, and as implemented by Rev. Regs. No. 1-2000, promulgated on November 12, 1999, 3% of the 5% special tax shall be remitted directly to the Bureau of Internal Revenue while the remaining 2% thereof shall be paid directly to the concerned City or Municipality where the enterprise is located. Accordingly, pursuant to Section 2 of Rev. Regs. No. 1-2000, NAPI, as a PEZA-registered enterprise, is liable for the 5% preferential tax on gross income earned, in lieu of all internal revenue taxes, national or local. In view of the foregoing, this Office is of the opinion, as it hereby holds, that NAPI is exempt from the 1% creditable withholding tax deducted by the Top 5,000 corporations pursuant to Rev. Regs. No. 17-2003 (BIR Ruling No. DA-120-2005 dated April 6, 2005). 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 as a null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service