BIR Ruling [DA-116-04]

March 15, 2004 BIR RULING [DA-116-04] R.A. No. 7916 060-2002 Ito-Seisakusho Philippines Corporation Lot C2-1B, Carmelray Industrial Park II Km. 54 National Hi-Way Barangay Tulo & Punta Calamba, Laguna Attention: Ms. Rose Andrion Manager, Admin. and Accounting Gentlemen : This refers to your letter dated August 5, 2003 requesting for exemption from the payment of the creditable expanded withholding tax. It is represented that ITO-SEISAKUSHO PHILIPPINES CORPORATION (ISPC) is registered with the Philippine Economic Zone Authority (PEZA) as Ecozone Export Enterprise at Carmelray Industrial Park II-Special Economic Zone under its amended Certificate of Registration No. 02-017 dated January 9, 2003, to engage in die parts and mould fabrication and manufacture of metal parts; that ISPC enjoys certain incentives, to wit: an income tax holiday (ITH) for four (4) years for original project effective on the date of start of commercial operations, or actual date of start of commercial operations, whichever is earlier, (the date of start of commercial operation is the date wherein the applicant, Ito Seisakusho Phils. Corp. intends to start the commercial operation or the company's forecast which is indicated in the PEZA Registration Agreement. However, since this is just a forecast, PEZA allows or permits the actual start of commercial operation provided there are valid reasons for the said changes. The difference is the word actual which allows the PEZA registered company commencement of the incentive based on the actual operation and not on the estimated period of commercial operation) ; that per PEZA Notice of Approval of Start of Commercial Operations (SCO) No. 03-016, ISPC's approved date of SCO is April 2003, which is the starting date of its ITH entitlement period, including ITH extensions, if any; tax and duty free importation of merchandise which include raw materials, capital equipment, machineries and spare parts, exemption from wharfage dues and export tax, impost fees, VAT zero-rating of local purchases subject to compliance with BIR and PEZA requirements, and exemption from payment of any and all local government imposts, fees, licenses or taxes except real estate tax; however, machineries installed and operated in the ecozone for manufacturing, processing or for industrial purposes shall not be subject to payment of real estate taxes for the first three (3) years of operation of such machineries; production equipment not attached to real estate shall be exempt from real property taxes; that the availment of the foregoing incentives in favor of ISPC is subject to all evaluation and/or processing requirements and procedures prescribed under PEZA Rules, pertinent circulars and directives; and that ISPC's entitlement to incentives shall continue as long as it remains in good standing, commit no violation of PEZA Rules and Regulations, pertinent circulars and directives, or the terms and conditions of its Registration Agreement with PEZA. In reply, please be informed that under Section 2.57.5(B)(2) of Revenue Regulations 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 No. 7916 otherwise known as "The Special Economic Zone Act of 1995" and the Omnibus Investments Code of 1987. Accordingly, since ISPC 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, for a period of four (4) years reckoned from the date of actual start of its commercial operation, which is April 2003, this Office is of the opinion as it hereby holds, that it is exempt from the payment of the creditable withholding tax imposed under Revenue Regulations 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-060-2002 dated April 1, 2002 ) 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. DCScaT Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group