BIR Ruling [DA-080-05]

March 11, 2005 BIR RULING [DA-080-05] Rev. Regulations No. 17-2003 DA-113-2003 Mr. Rudy L. Magcalas Certified Public Accountant Unit 808 Emerald Square Condominium JP Rizal cor P. Tuazon Sts. Project 4, Cubao, Quezon City S i r : This refers to your letter dated December 1, 2004 in behalf of your client, S.K. INDUSTRY, INC. requesting for an exemption from withholding tax. It is represented that S.K. INDUSTRY, INC. whose office is strategically located in San Pedro, Laguna is principally engaged in the manufacture of electronic items for export; that many of its clients are PEZA registered enterprises and are considered among the top 10,000 corporations where they are obliged to withhold taxes from their suppliers; that your client is duly registered with the Board of Investments and presently enjoys a tax holiday for six (6) years to expire on June 1, 2007. In reply, please be informed that Section 3 (M) of Revenue Regulations No. 17-2003 dated March 31, 2003 amended further pertinent provisions of Revenue Regulations No. 2-98, as amended, providing for additional transactions subject to Creditable Withholding Tax, provides as follows: "SEC. 2. INCOME PAYMENTS SUBJECT TO CREDITABLE WITHHOLDING TAX. (M) Income payments made by the top ten thousand (10,000) private corporations to their local/resident supplier of goods and local/resident supplier of services other than those covered by other rates of withholding tax . Income payments made by any of the top ten thousand (10,000) private corporations ,as determined by the Commissioner, to their local/ resident supplier of goods and local/resident supplier of services, including non-resident alien engaged in trade or business in the Philippines . Supplier of goods One percent (1%) Supplier of services Two percent (2%)". A reading of the above regulations disclose that indeed, sale of electronic items, is a form of service rendered that is subject to the 1% withholding tax. acHITE In addition, being a BOI registered enterprise enjoying income tax holiday which is due to expire on June 1, 2007 the provisions of Revenue Regulations No. 2-98 will apply, viz : "SEC. 2.57.5. Exemption from Withholding . The withholding of creditable withholding tax prescribed in these Regulations shall not apply to income payments made to the following: (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 the following: (1) ... (2) Corporations registered with the Board of Investments and enjoying exemption from the income tax provided by Republic Act No. 7916 and the Omnibus Investment Code of 1987;" IN VIEW OF THE FOREGOING, this Office hereby holds that payments made by the clientele-companies of your client, are not subject to a creditable withholding tax provided for by Revenue Regulations No. 17-2003. 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 null and void. DCHaTc Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group