BIR Ruling [DA-094-03]

March 26, 2003 BIR RULING [DA-094-03] RR 2-98; DA 381-2000 Fernandez, Santos & Lopez 8th Floor, Philbank Building 6778 Ayala Avenue 1226 Makati City Attention: Mr. Carlos G. Zulueta Gentlemen : This refers to your letter dated December 5, 2000 requesting for a ruling on behalf of your client, Globetronics Philippines, Inc. (GPI), to the effect that GPI is not subject to any income tax under its income tax holiday incentive. It is represented that GPI is a domestic corporation registered with the Philippine Economic Zone Authority (PEZA) under PEZA Certificate of Registration No. 97-078, having been granted and enjoying, among others, an income tax holiday incentive for four years commencing from October 30, 1997; that it is engaged in the business of manufacturing goods such as semi-conductor products, i . e ., integrated circuits, and to trade the same on wholesale basis; that as an ECOZONE enterprise enjoying ITH incentive, it shall not be subject to any income tax, including withholding taxes, as long as its registration as a PEZA ECOZONE enterprise remains effective and valid; that one of GPI's customers is Intel Technology Phil., Inc. (Intel), a domestic corporation situated at Gateway Business Park, Javalera, Gen. Trias, Cavite, Philippines; that when Intel pays GPI for the latter's billing for the sale/supply of goods, Intel deducts from its payment to GPI a withholding tax of 1%; that Intel's justification for its deduction and withholding of the 1% tax is anchored on Section 2.57.2(M) of Revenue Regulations No. 2-98; and it is your position that assuming that Intel is one of the top 5000 corporations, the fact remains that GPI is a PEZA-registered ECOZONE enterprise with an effective ITH incentive, and to subject the income payments received by GPI to the 1% withholding tax would render its ITH incentive inutile or useless. In reply, please be informed that Section 2.57.5(B) of Revenue Regulations No. 2-98 is explicit in its provisions that the expanded 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 enjoy exemption from payment of income taxes pursuant to the provisions of Section 39(a)(1) of the Omnibus Investments Code of 1987, such as the income tax holiday. Such being the case, GPI is exempt from the 1% withholding tax on income payments made by the top 5000 corporations. Accordingly, since GPI is a PEZA registered enterprise still enjoying ITH incentive under a special law, all payments received by it from its customers, whether ECOZONE registered or customs territory enterprises are exempt from the withholding tax. (BIR Ruling DA 381-2000 dated November 7, 2000) 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. HTSaEC Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group