BIR Ruling [DA-200-06]

March 29, 2006 BIR RULING [DA-200-06] Secs. 191 & 173; DA-217-02 SGV & Co . 6760 Ayala Avenue 1226 Makati City Attention: Atty. R.C. Vinzon Gentlemen : This refers to your letter dated March 15, 2006 requesting on behalf of your client, Amkor Technology Philippines, Inc. (ATP), for a confirmation of your opinion that ATP is exempt from all direct and indirect taxes, including the documentary stamp tax on the forms purchased by ATP such as import entry, carrier bond, cargo manifest and transshipment permit, relative to its importation of raw materials, machinery, equipment, tools, goods, wares, articles and/or merchandise which are directly used in its registered activities. It is represented that ATP is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines with principal office address at Km. 22 East Service Road, South Superhighway, Cupang, Muntinlupa City; that ATP is primarily engaged in the business of manufacturing, assembling, processing, exporting, buying and selling semiconductor products and components; that ATP is registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone Export Enterprise under Certificate of Registration No. 00-092 dated December 1, 2000; that pursuant to its PEZA registration, ATP is liable to pay the 5% final tax on its gross taxable income as provided in Section 24 of R.A. No. 7916 in lieu of national and local taxes; that presently, the forms purchased such as import entry, carrier bond, cargo manifest and transshipment permit used in connection with ATP's transactions with the Bureau of Customs (BOC) are being subject to the documentary stamp tax: Import entry P265.00 Carrier bond 115.00 Cargo manifest 115.00 Transshipment permit 115.00 Total P610.00 ====== that these forms are being used by ATP for the importation of its raw materials, supplies, machinery, equipment, tools, goods, wares, articles and/or merchandise directly used in its registered activity. AIDTSE In reply thereto, please be informed that Section 24 of RA 7916, as implemented by Revenue Regulations No. 12-97, as amended by Revenue Regulations No. 1-2000, provides that ". . . 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 . . . ." The aforementioned 5% preferential tax is a commutation of all the national and local taxes that are otherwise due from business and enterprises operating within the ECOZONE. Such being the case, ATP, a PEZA-registered enterprise, is considered exempt from all direct and indirect taxes, including the documentary stamp tax on the forms purchased by ATP relative to its importation of raw materials, machinery, equipment, tools, goods, wares, articles and/or merchandise which are directly used in its registered activities. ( BIR Ruling No. DA-217-02 dated November 22, 2002 ) The provisions of Section 173 of the Tax Code of 1997, as amended, notwithstanding, it is a cardinal rule in taxation that the sovereign may not ordinarily tax itself or its subdivisions unless it appears from the tax statutes themselves that it subjects itself or any subdivision or instrumentality thereof to such statutes ( Standard Oil Co. vs. Posadas , 55 Phil 715). Thus, the State in the exercise of sovereignty does not tax itself or any of its political subdivisions but it may tax any of its government-owned or-controlled corporations exercising proprietary functions. Accordingly, Section 173 of the Tax Code of 1997 is not applicable in this case, as BOC cannot be taxed by the State in the sale of the abovementioned forms, as it is not exercising proprietary functions. Such being the case, neither party in the above-mentioned transaction shall be liable for documentary stamp tax prescribed under Section 191 of the Tax Code of 1997, as amended. Furthermore, in Commissioner of Internal Revenue vs. Seagate Technology (Philippines) , G.R. No. 153866, February 11, 2005, it was held that PEZA-registered enterprises are exempt from both direct and indirect taxes. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) PABLO M. BASTES, JR. OIC, Head Revenue Executive Assistant Legal Service