BIR Ruling [DA-112-05]

April 5, 2005 BIR RULING [DA-112-05] Fe-Tronic Manufacturing Phils., Inc . Road J. corner Road 8 Blk. 17 Phase IV CEZ, Rosario, Cavite Attention: Ms. Nenita P. Arriola Accountant Gentlemen : This refers to your letter dated February 22, 2005 requesting clarification of BIR Ruling No. DA027-05 dated January 24, 2005, where this Office ruled that "Since the sale of the building by a PEZA-registered enterprise in the course of winding up its business activities is embraced by the said 5% special tax regime, it stands to reason that Fe-Tronic's sale of its building is embraced therein. Consequently, the sale transaction is subject to the 5% preferential tax rate based on the gross income earned by Fe-Tronic, in lieu of all taxes." It is your contention that in lieu of all taxes provisions in R.A. 7916 include exemptions from the payment of capital gains tax, documentary stamp tax and creditable withholding tax. In reply thereto, please be informed that after a careful restudy of the above-cited ruling together with the applicable laws, regulations and rulings on the matter, this Office holds that Fe-Tronic, a PEZA-registered enterprise, enjoying exemption from the payment of national and local taxes, except payment of the preferential tax rate of 5% based on the gross income earned, under R.A. No. 7916, indeed is exempt from the payment of capital gains tax, documentary stamp tax and creditable withholding tax on the sale of its building to another PEZA-registered enterprise. However, it is subject to the preferential tax rate of 5% based on the gross income earned, including income from the sale of the building. To fortify the above position, this Office had already occasioned to rule on the matter when it said in BIR Ruling No. DA 090-01 dated May 16, 2001 that ". . . since R.A. 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, the gross income earned on the sale by Daswani Enterprises, Inc. of its factory located within the Ecozone in the course of winding up its registered business within the Ecozone is subject to the 5% preferential rate based on the gross selling price or fair market value of the property as determined under Sec. 6(E) of the Tax Code of 1997, whichever is higher, minus the depreciated cost of the building as of the date of the cessation of commercial operations. "Furthermore, as a duly registered Ecozone export enterprise, Daswani Enterprises, Inc. is not subject to value-added tax and documentary stamp tax on the sale of its factory building located within the Ecozone. Finally, since the buyer of the factory building is likewise a PEZA-registered company, no documentary stamp tax is payable on such sale transaction. ( BIR Ruling No. 008-99 dated January 1, 1999 )" IN VIEW OF THE FOREGOING, this Office holds that the sale of building by Fe-Tronic, a PEZA-registered enterprise, is exempt from the payment of capital gains tax, documentary stamp tax and creditable withholding tax. However, it is subject to the 5% preferential tax rate based on the gross selling price or fair market value of the property, whichever is higher, as determined under Section 6(E) of the Tax Code of 1997. AcHEaS 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 and Inspection Group