BIR Ruling [DA-214-05]

May 3, 2005 BIR RULING [DA-214-05] R.R. 2-98; DA-094-2003 dtd 3/26/03 Ms. Teresita S. Opea 6th Flr. Executive Bldg. Center Gil Puyat Ave. cor. Makati Ave. Makati City M a d a m : This refers to your letter dated November 17, 2004, requesting in behalf of your client, ANGELES GARMENTS CORPORATION with business address at Bldg. 15-D Philexcel Industrial Park, MA. Roxas Highway, 1961st Area Clarkfield, Pampanga, a ruling on whether or not it is exempt from withholding tax on its sewing subcontracting business. It is represented that your client is an exporter, registered with the Clark Special Economic Zone (CSEZ) and is exempt from withholding tax; that under its registration, it is enjoying the 5% Gross Income Tax (GIT) incentive; that apart from being an exporter, it is also a subcontractor of 100% exporters; that as such, its services are being withheld of a tax by the principal contractors to whom it renders sewing services; that it is your argument that should these services be subjected to tax, it will have a carry-over withholding tax because it is CSEZ locator as a result of which, it is enjoying the 5% GIT rate. In reply, please be informed that Section 2.57.5(B) of Revenue Regulations No. 2-98 is explicit in its provisions that the expanded withholding tax does not apply to income payments to persons enjoying exemption from the payment of income taxes pursuant to the provisions of any law, general or special. A CSEZ-registered enterprise enjoys exemption from payment of income tax pursuant to the provisions of Section 15 of Republic Act No. 7227/Executive Order (EO) No. 62, Sec. 5 of E.O. No. 80/Proclamation No. 163 and Revenue Regulations No. 6-97. TICDSc Such being the case, inasmuch your client is a CSEZ-registered enterprise enjoying the 5% preferential tax rate under a special law, it is exempt from the 2% withholding tax on income payments received by it from its customers/the large taxpayers whether ECOZONE registered or customs territory enterprises. (BIR Ruling DA 381-2000 dated November 7, 2000). 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, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group