BIR Ruling [DA-173-99]

March 19, 1999 BIR RULING [DA-173-99] Monterey-San Miguel Properties, Inc. 24th floor, San Miguel Properties Centre St. Francis St., Ortigas Centre Mandaluyong City Attention: Ma . Clarissa C . Arguelles Head, Tax Management Gentlemen : This refers to your letter dated May 12, 1998, requesting on behalf of your subsidiary, Legacy Homes, Inc ., for a certificate of exemption from the creditable withholding tax imposed under Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94, on the ground that it suffered net operating losses during the last two (2) taxable years ended December 31, 1996 and December 31, 1997. It is represented that Legacy Homes Inc. is a wholly-owned subsidiary of Monterey-San Miguel Properties, Inc. and is engaged in the business of real property development and sale; and that as per audited financial statements for the calendar years 1996 and 1997, Legacy Homes, Inc. suffered net operating losses in the amounts of P10,766,847.00 and P43,357,638.00, respectively. In reply, please be informed that Section 3 of Revenue Regulations No. 12-94, amending Revenue Regulations No. 6-85, otherwise known as the "Expanded Withholding Tax Regulations", prior to its amendment by Revenue Regulations No. 2-98 on April 17, 1998 provides that "SEC. 3. Section 4 of Revenue Regulations No. 6-85 is hereby amended to read as follows: "SEC. 4. Exemption from Withholding . The withholding of the tax prescribed in these regulations shall not apply to income payments in the following cases: xxx xxx xxx "(d) In the case of a payee who suffered net operating losses during the immediately preceding two (2) tax years; xxx xxx xxx" It is emphasized herein that the aforesaid exemption from the creditable withholding tax is no longer included under Section 2.57.5 of Revenue Regulations No. 2-98, the new regulations relative to the Withholding on Income subject to the Expanded Withholding Tax and Final Withholding Tax, Withholding of Creditable Value-Added Tax and Other Percentage Taxes. However, Revenue Regulations No. 2-98 was published in the newspapers on May 9, 1998 and took effect fifteen (15) days thereafter or on May 24, 1998. Hence, all applications for exemption from the creditable withholding tax based on the "2-year operating loss" filed with this Office on or before May 24, 1998 are still covered by Revenue Regulations No. 12-94. Such being the case, and since Legacy Homes, Inc. incurred net operating losses during the years 1996 and 1997, it is exempt from the creditable withholding tax prescribed under Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94 on the sale of its real property for the year 1998. (BIR Ruling No. 126-94 dated August 15, 1994). LLpr 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.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)