BIR Ruling [DA-215-05]

May 3, 2005 BIR RULING [DA-215-05] 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, CRISMINA GARMENTS, INC. with business address at 6th Flr. Executive Bldg. Center, Gil Puyat Ave. cor. Makati Ave.,clarification on whether or not it is exempted from withholding tax on its sewing business. It is represented that Crismina Garments, Inc. is a 100% export oriented enterprise; that at the same time, it is 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 resulting in the accumulation of withholding taxes and tax credits in its hand which are not being used/consumed within the prescribed period; that as exporter, it has three (3) registrations, namely, with the Board of Investments (BOI),with the Philippine Economic Zone Authority (PEZA) in Bataan and the Clark Special Economic Zone (CSEZ),as a result of which it is enjoying the 5% Gross Income Tax (GIT) incentive; that it is your argument that should Crismina Garments services be subject to withholding tax, it will have a carry-over withholding tax every year because as a VAT zero rated enterprise, it has several tax credit certificates available for payment of its internal revenue taxes and its businesses in the ecozones are subject only to 5% Gross Income Tax. 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. Such being the case, inasmuch your client is a CSEZ-registered enterprise enjoying the 5% preferential income 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). CacTIE 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