BIR Ruling [DA-242-03]

July 25, 2003 BIR RULING [DA-242-03] R.A. 7916; DA-349-99 HS Molding Technologies, Inc. East Avenue corner CEZIA Road Philippine Economic Zone Authority Rosario, Cavite Attention: Mr. Mario S. Ponce de Leon Treasurer Gentlemen : This refers to your letter dated April 24, 2002 requesting for a Certificate of Exemption from the payment of creditable expanded withholding tax prescribed under Revenue Regulations No. 2-98, as amended on account of your registration with the Philippine Economic Zone Authority (PEZA). It is represented that HS Molding Technologies, Inc. (HS Molding) has been granted by the PEZA Board a new income tax holiday incentive of three (3) years on incremental sales from an expansion project as indicated in the Supplemental Agreement between PEZA and HS Molding which provides, viz.: "6. The expansion project shall be entitled to a new three-year Income Tax Holiday incentive on incremental sales in accordance with applicable PEZA rules, effective on the date of start of commercial operations (SCO) as indicated in Condition No. 2 hereof or on the date of actual SCO, whichever comes earlier, unless an adjustment of said SCO is approved by PEZA." and that on the basis of the Certification issued by the Zone Administrator of PEZA, HS Molding started its commercial operations for their expansion project on April 01, 2002. In reply, please be informed that Section 2.57.5.(B)(2) of Revenue Regulations No. 2-98, as amended, is explicit in its provisions that the expanded withholding tax does not apply to income payments to persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special. PEZA-registered enterprises are granted certain preferential tax treatment under Section 24 of Republic Act No. 7916 which provides that "any provision of existing laws, rules and regulations to the contrary notwithstanding, 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 businesses and enterprises within the ECOZONE shall be remitted to the national government. cAHDES Accordingly, since HS Molding is a PEZA-registered enterprise enjoying a 3-year-ITH, income payments made to it with respect to its registered activity shall not be subject to 2% expanded creditable withholding tax prescribed in Revenue Regulations No. 2-98, as amended, for a period of three (3) years from April 1, 2002, on its incremental sales from its expansion project. (BIR Ruling No. DA-349-99 dated June 16, 1999) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group