BIR Ruling [DA-198-98]

May 18, 1998 BIR RULING [DA-198-98] Sanyo Precision Phils., Inc. Philippine Economic Zone Authority Phase III, Block 15, Lot 4 & 6 Rosario, Cavite Attention: Mr . Hideaki Kojima Vice-President Gentlemen : This refers to your letter dated March 13, 1997 requesting for a ruling that payments made in favor of Sanyo Precision Phils., Inc. (SPPI) are exempt from the 1% expanded creditable withholding tax pursuant to Section 4(b) of Revenue Regulations No. 12-94 amending Revenue Regulations No. 6-85, otherwise known as the "Consolidated Expanded Withholding Tax Regulations." It is represented that SPPI is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) dated February 16, 1995 and was subsequently registered with the Philippine Economic Zone Authority (PEZA), as evidenced by the Certificate of Registration No. 95-39 dated April 5, 1995; and that SPPI was organized primarily to engage in the business of manufacturing, importing, exporting, buying, selling or otherwise dealing in wholesale such goods like, zinc/aluminum die cast, recorder, copy machine, automobile wiper/window, VCR, video camera, CATV junctions and plastic case, plastic parts/components for sprayers, gadgets, appliances and other related zinc, aluminum and plastic products or of similar nature. In reply, please be informed that Section 4(b) of Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94, is explicit in its provisions that the withholding tax therein prescribed shall not apply to "income payments to persons enjoying exemption from payment of income taxes pursuant to the provision of any law, general or special . . ." Pursuant to Section 24 of Republic Act No. 7916, otherwise known as "The Special Economic Zone Act of 1995", 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 populations, 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: . . ." Such being the case, and since SPPI is enjoying exemption from national taxes by virtue of the aforecited provision, it is exempt from the payment of the 1% expanded creditable withholding tax imposed under Revenue Regulations No. 12-94 amending Revenue Regulations No. 6-85, implementing then Section 50(b) of the Tax Code of 1977 [now Sec. 57(B) of the Tax Code of 1997]. (BIR Ruling No. 117-95 dated July 31, 1995) This serves as your Certification that the income payments to SPPI are not subject to the expanded creditable withholding tax. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)