BIR Ruling [DA-089-97]

March 5, 1997 BIR RULING [DA-089-97] Sycip, Gorres, Velayo & Co. 6760 Ayala Avenue Makati City Attention: Atty . M . F . A . Balili Gentlemen : This refers to your letter dated December 2, 1996 requesting for a confirmation of your opinion that the rental payments to be received by your client, Subic Technopark Corporation (STC) from its locators (lessees) are not subject to the 5% expanded withholding tax (EWT) imposed under Revenue Regulations No. 6-85, as amended, otherwise known as the Consolidated EWT Regulations. It is represented that STC is a corporation organized and existing under Philippine laws with principal office at the Subic Bay Freeport (SBF) Zone, Olongapo City, as a joint venture corporation between and among the Subic Bay Metropolitan Authority (SBMA), Japan International Development Organization, Ltd. and Toyo Construction Co., Ltd., that STC's Articles of Incorporation were approved by the Securities and Exchange Commission on May 14, 1996, and it was subsequently registered with the SBMA as an SBF enterprise, as evidenced by the Certificate of Registration and Tax Exemption No. 96-0028, dated June 20, 1996, issued by the SBMA; that STC was organized primarily to plan, develop, operate, lease and manage the Japanese industrial estate park located in the SBF Zone; and that it will develop and construct the Japanese industrial estate park located in the SBF Zone, and will lease portions thereof to locators who will also be SBF-registered enterprise, for which STC derive rental income. In reply, please be informed that Section 4(b) of Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94, is explicit in its provisions that the withholding tax therein prescribed shall not apply to "income payments to persons enjoying exemption from payment of income taxes pursuant to the provision of any law, general or special . . ." Pursuant to Section 12(c) of R.A. 7227, otherwise known as the Bases Conversion and Development Act of 1992, an SBMA registered enterprise shall be liable to the payment of the preferential rate of 3%, plus the amounts equivalent to 1% for Local Government Units and 1% for Special Development Fund, based on its gross income earned, in lieu of local and national internal revenue taxes . (Emphasis ours) Such being the case, and since STC is enjoying exemption from income tax by virtue of the aforecited provision, its rental income shall be exempt from the 5% creditable EWT imposed under Section 1(c)(1) of Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 8-90. This serves as a certification that the renal payments to Subic Technopark Corporation are not subject to the expanded withholding tax. 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. (BIR Ruling No. 155-95 dated October 12, 1995) cdtech Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)