Toei Animation Phils., Inc.

April 17, 2007 BIR RULING [DA-241-07] RA 7916; RR 16-2005; DA-142-2004 Toei Animation Phils.,Inc. 9th Floor, Cyberone Bldg. Eastwood City Cyberpark, E. Rodriguez Avenue Bagumbayan, Quezon City Attention : Mr. Antonio P. Pornobi Group Manager-Finance & Admin Gentlemen : This refers to your letter dated January 12, 2007 requesting a ruling relative to the payment of documentary stamp tax, registration fee, transfer tax and additional transfer tax of a PEZA registrant who is under 5% gross income tax incentive. It is represented that TOEI Animation Phils., Inc. (TAPI) is a Philippine Economic Zone Authority-Registered Economic Zone Enterprise with Certificate of Registration No. 01-012-IT given on September 25, 2001; that its operation with PEZA started on December 1, 2001 with a four-year income tax holiday that expired last November 30, 2005 and its now enjoying the preferential tax treatment of 5% on its gross income, in lieu of all national and local taxes except real property taxes on land owned by developers (5% GIT incentive) in accordance with Republic Act No. 7916; that previously, TAPI purchased condominium units at the 9th floor of Cyberone Building, on Eastwood Avenue, Eastwood Cyberpark, Bagumbayan, Quezon City, an economic area; and that presently, it is in the process of completing government requirements for the transfer of Condominium Certificate of Title, but it was asked to pay taxes other than real property taxes on land such as documentary stamp tax, registration fee payable to Registry of Deeds, transfer tax payable to the Quezon City Treasurer and additional transfer tax payable again to Quezon City Treasurer which, it believes, contradicts the above cited law. In reply, please be informed that Section 1 (A) of Rule XIV of the Rules and Regulations Implementing Republic Act No. 7916 provides viz: "Rule XIV Incentives to ECOZONE Developers/Operators Section 1. Incentives to ECOZONE Developers/Operators. ECOZONE Developers/Operators shall be entitled to the following incentives. A. Exemption from National and Local Taxes and Licenses. Except for real property taxes on land, an ECOZONE Developer/Operator shall be exempt from payment of all national and local taxes. In lieu thereof, the ECOZONE Developer/Operator shall pay a five percent (5%) final tax on gross income in accordance with the provisions of Rule XX of these Rules." HESIcT xxx xxx xxx" Thus, PEZA registered enterprises are granted specific tax exemption such that no taxes, local and national shall be imposed on business establishments operating within the ECOZONE and in lieu thereof, they shall pay five percent (5%) preferential tax rate on gross income earned within the ECOZONE. Corollarily, Section 4.106-5 (c) of Revenue Regulations No. 16-2005 provides that sales of goods or property to persons or entities who are tax-exempt under special laws, e.g., sales to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority (SBMA) pursuant to R.A. No. 7227, sales to enterprises duly registered and accredited with the Philippine Economic Zone Authority (PEZA), or international agreements to which the Philippines is signatory, such as, Asian Development Bank (ADB), International Rice Research Institute (IRRI), etc., shall be effectively subject to VAT at zero rate. Accordingly, since TAPI is a duly registered PEZA corporation, being an Ecozone IT Enterprise, it is subject to the preferential tax rate of five percent (5%) in lieu of paying other taxes, and likewise, the sales of TAPI suppliers qualify for VAT zero-rating, being sales to a PEZA registered enterprise. TADcCS 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service