BIR Ruling [DA-151-02]

September 10, 2002 BIR RULING [DA-151-02] 57 (B), RR 2-98, RMC 74-99 163-94, DA 263-98 Cayuga Inc. 1237 EDSA Quezon City Attention: Mr. Benny de Guzman President Gentlemen : This refers to your letter dated June 6, 2002, requesting in effect for a ruling that you are exempt from the 5% creditable withholding tax being an ECOZONE registered enterprise. It appears from the documents submitted that Cayuga Inc. has been certified by the Philippine Economic Zone Authority as a PEZA-registered Ecozone Facilities Enterprise with Registration Certificate No. 01-002-F dated January 16, 2001, to construct three (3) warehouse-type factory buildings for lease to PEZA-registered export enterprises at the Laguna Technopark Special Economic Zone, Bian, Laguna. In reply, please be informed that Section 24 of Republic Act No. 7916 provides: "SEC. 24. Exemption from Taxes under the National Internal Revenue Code. Any provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu of paying taxes, five percent (5%) of the gross income earned by all businesses and enterprises within the ECOZONE shall be remitted to the national government. This five percent (5%) shall be shared and distributed as follows: "(a) Three percent (3%) to the national government; "(b) One percent (1%) to the local government units affected by the declaration of the ECOZONE in proportion to their population, land area, and equal sharing factors; and "(c) One percent (1%) for the establishment of a development fund to be utilized for the development of municipalities outside and contiguous to each ECOZONE: . . ." Thus, as a PEZA-registered business establishment operating within the ECOZONE, Cayuga Inc. shall, in lieu of paying local and national taxes, be subject to the payment of preferential tax rate of 5% based on its gross income earned within the ECOZONE which shall be remitted in accordance with Republic Act No. 8748. Accordingly, since you are exempt from payment of national and local taxes, and in lieu of which, you are subject to the 5% tax based on the gross income earned as defined under Revenue Regulations No. 12-97, and as further amended by Revenue Regulations No. 1-2000, this Office is of the opinion as it hereby holds that you are exempt from the creditable withholding tax imposed under Section 2.57.5(B) of Revenue Regulations No. 2-98, implementing Section 57(B) of the Tax Code of 1997 on income payments received by your company from the lease of your three (3) warehouse-type factory buildings to PEZA-registered export enterprises at the Laguna Technopark Special Economic Zone. ( BIR Ruling No. 163-94 dated December 2, 1994 and BIR Ruling No. DA-263-98 dated June 23, 1998 ) 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, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group