BIR Ruling [DA-176-05]

April 20, 2005 BIR RULING [DA-176-05] R.R. 2-98; DA-033-99 Pag-asa Steel Works, Inc. Amang Rodriguez Ave., Bo. Manggahan Pasig City Attention: Atty. Flaviano L. Ramirez Gentlemen : This refers to your letter dated November 11, 2004 requesting for a ruling as to whether or not services rendered by Harbour Center Port Terminal, Inc. (HCPTI) is exempt from the two percent (2%) withholding tax as provided for under Section 2.57.5 of Revenue Regulations No. 2-98. It is represented that HCPTI is a PEZA-registered Ecozone Facilities Enterprise with Registration Certificate No. 99-04-F dated 18 June 1999 operating and maintaining a Port Terminal Facility at the Manila Harbour Center SEZ; that as provided in HCPTI's Registration Agreement, it shall be entitled to the 5% Special Tax on gross income under Section 24 of RA 7916 as amended by R.A. No. 8748 after the expiry of its Income Tax Holiday Incentive and that it is opting to avail of the five percent preferential tax rate, waiving the income tax holiday incentive. In reply, please be informed that pertinent portion of Section 24, Chapter III of R.A. No. 7916, otherwise known as the "Special Economic Zone Act of 1995" provides that 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. EIDaAH From the foregoing provision of R. A. No. 7916, it is clear that the sale of services to PEZA-registered enterprises, for income and VAT purposes, should be rendered within the PEZA boundaries to be entitled to the benefits of Section 24 of R.A. No. 7916. Accordingly, considering that HCPTI is a PEZA-registered Ecozone Facilities Enterprise, licensed to operate and maintain a Port Terminal Facility at the Manila Harbour Center SEZ, services rendered by it is exempt from the two percent (2%) withholding tax considering that the five percent (5%) preferential tax rate on the gross income earned as provided for under the aforestated R.A. No. 7916 is in lieu of all other taxes, local or national. (BIR Ruling No. 033-99 dated March 23, 1999) 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group