BIR Ruling [DA-238-99]

April 15, 1999 BIR RULING [DA-238-99] Toyota Autoparts Philippines, Inc. Toyota Sta. Rosa (Laguna) Complex Special Export Processing Zone Barangay Pulong Sta. Cruz, Sta. Rosa Laguna Attention: Mr . Kenichi Yoshida Treasurer/Comptroller Gentlemen : This refers to your letter dated February 2, 1999 requesting for a ruling as to whether or not the local sales of transmission and constant velocity joint (CVJ) by Toyota Autoparts Philippines, Inc. (TAP) is subject to the creditable withholding tax prescribed by Revenue Regulations No. 2-98. LexLib In BIR Ruling No. 186-94 dated December 29, 1994 involving the same subject matter, this Office ruled "xxx xxx xxx "In reply, please be informed that under Section 4(b)(2) of Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94, implementing Section 50(b) of the Tax Code, as amended, the withholding tax prescribed in the Regulations shall not apply to income payments to persons enjoying exemption from payment of income taxes pursuant to the provisions of the Omnibus Investments Code of 1987, as amended. "Accordingly, and since you are registered with BOI and enjoying exemption from the payment of income taxes for a period of six (6) years from September 1992 until calendar year 1998 in accordance with the provisions of the Omnibus Investments Code of 1987, this Office is of the opinion, as it hereby holds, that you are exempt from the payment of the creditable withholding tax prescribed under Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94, on income payments received by your company from September 1992 to calendar year 1998." Documentary evidence submitted to this Office disclosed that TAP is a Philippine Economic Zone Authority (PEZA) registered enterprise; that TAP was previously registered with the Board of Investments (BOI) until it transferred its registration with the PEZA in June 1995; that TAP, is engaged in the manufacture and sale of light commercial vehicle transmission and constant velocity joint (CVJ) automotive parts; and that its project was approved as a pioneer new project and was entitled to a six (6) years income tax holiday from start of its commercial operations. LLjur In reply, please be informed that Section 2.57.5(B) of Revenue Regulations No. 2-98 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 provisions of any law, general or special, . . ." Section 24 of R.A. No. 7916, otherwise known as the "Special Economic Zone Act of 1995" states that 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 business 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 population 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 TAP is enjoying exemption from national taxes by virtue of the aforecited provision, it is exempt from the payment of the 1% creditable withholding tax imposed under Revenue Regulations No. 2-98, implementing Section 57(B) of the Tax Code of 1997. (BIR Ruling No. 117-95 dated July 31, 1995) 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. LLphil Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S . ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)