BIR Ruling [DA-217-02]

November 22, 2002 BIR RULING [DA-217-02] Lufthansa Technik Philippines, Inc. Villamor Air Base Pasay City Attention: Mr. Thomas Gockel President and CEO Gentlemen : This refers to your letter dated May 7, 2002 which was referred to this Office by the Department of Finance by way of 1st Indorsement dated May 17, 2002 requesting for a ruling as to whether or not Lufthansa Technik Philippines, Inc. (LTP),a Philippine Economic Zone Authority (PEZA) registered enterprise is liable to documentary stamp tax. It is represented that LTP is a PEZA-registered enterprise under Certificate of Registration No. 00-070 dated August 31, 2000; that LTP is engaged in globally-competitive aircraft maintenance, repair and overhaul, and aircraft components repair and overhaul; that the purchase of forms (e.g. customs EPZA warehousing entry, boatnote, transshipment permit) to be used in connection with LTP's transactions with the Bureau of Customs (BOC) is presently subject to the documentary stamp tax; that the forms are being used by LTP for the importation of raw materials, machinery, equipment, tools, goods, wares, articles and/or merchandise directly used in its registered activity; and that as a PEZA-registered enterprise, income derived by it is subject to the preferential tax rate of 5% under RA No. 7916. 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, LTP, a PEZA-registered enterprise, is considered exempt from all direct and indirect taxes, including the documentary stamp tax on the forms purchased by LTP relative to its importation of raw materials, machinery, equipment, tools, goods, wares, articles and/or merchandise which are directly used in its registered activities. The provisions of Section 173 of the Tax Code of 1997, 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 on the above-mentioned transaction shall be liable to documentary stamp tax prescribed under Section 191 of the Tax Code of 1997. 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.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group