BIR Ruling [DA-252-04]

May 12, 2004 BIR RULING [DA-252-04] Sec. 24 7916; DA333-98 RBF Development Corporation 9/F, Chantham House 116 V.A. Rufino corner Valero Streets Salcedo Village Makati City Attention: J. Joel G. Cruz Corporate Legal Counsel Gentlemen : This refers to your letter dated December 4, 2002 requesting for a ruling that the sale of a parcel of land located within the special economic zone of Carmelray Industrial Park II in Calamba, between two (2) Philippine Economic Zone Authority (PEZA)-registered enterprises is exempt from the payment of capital gains tax and the corresponding documentary stamp tax; and for the issuance of the Certificate Authorizing Registration (CAR) by the Revenue District Officer (RDO) of Revenue District No. 56, Calamba City, so that title to the property may now be issued by the Register of Deeds concerned in the name of the buyer. It is represented that Carmelray-JTCI Corporation (CJTCI) is a domestic corporation with principal office address at Carmelray Industrial Park II, Km. 54 National Highway, Calamba, Laguna; that on the other hand, RBF Development Corporation (RBF) is likewise a domestic corporation with principal office address at Carmelray Industrial Park II, Km. 54 National Highway, Calamba, Laguna; that CJTCI is the absolute and registered owner of a parcel of land namely Lot C4-9 all situated within the Carmelray Industrial Park II, Municipality of Calamba, Province of Laguna covered by TCT No. T-503886 containing an area of 4,792 square meters; that on October 23, 2002, a Deed of Absolute Sale was executed by and between CJTCI and RBF whereby the former transferred to the latter the above-described parcel of land for P14,376,000.00; that since the parties are both PEZA-registered enterprises, you are of the opinion that said transaction is exempt from the payment of capital gains tax and corresponding documentary stamp tax; and that, however RDO No. 56, Calamba, Laguna refused to issue the necessary CAR unless you secure a confirmation letter from the Law Division exempting said transaction from taxes pursuant to Revenue Memorandum Order No. 66-99. cDHAES In reply thereto, please be informed that Section 24 of R.A. No. 7916, otherwise known as "The Special Economic Zone Act of 1995", provides that no taxes, local and national, shall be imposed on business establishments Operating within the Ecozone and that in lieu of paying taxes; five percent (5%) of the gross income earned by all business enterprises within the Ecozone shall be remitted to the national government. Additionally, Section 2 (nn), Rule I of the Rules and Regulations implementing R.A. No. 7916 provides that the term "gross income" refers to gross sales or gross revenues derived from business activity within the Ecozone, net of sales discounts, sales returns and allowances minus cost of sales or direct costs but before deduction is made for administrative expenses or incidental losses during a given taxable period. As a general rule, PEZA-registered enterprises are imposed a preferential tax rate of five percent (5%) based on gross income in lieu of all taxes except real property tax. The tax incentives granted to PEZA-registered enterprises applies only in respect of the enterprise's operation within the Ecozone that is being managed and operated by the PEZA as a separate customs territory. In BIR Ruling No. DA333-98 dated July 21, 1998, this office ruled that ". . . the development, operation, sale or lease of lots of your client, Balibago Land Corporation, as a PEZA Ecozone Developer or Operator is exempt from income tax, capital gains tax, value-added tax and all other national internal revenue taxes. In lieu thereof, your client is liable to pay the five percent (5%) final tax on its gross income from said activities computed in accordance with Subsection (2), Section 2, Rule XX of the Rules and Regulations to implement R.A. No. 7916. . . . ." WHEREFORE, premises considered, the sale of a parcel land located within the Ecozone between two (2) PEZA-registered enterprises (CJTCI and RBF) is not subject to the capital gains tax/creditable withholding tax and the corresponding documentary stamp tax, but subject to the 5% preferential tax rate based on the gross income earned pursuant to Section 24 of R.A. No. 7916. This will therefore serve as an authority for RDO No. 56, Laguna to issue the necessary CAR so that title to the said property may now be issued in the name of RBF Development Corporation. ScTCIE 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 & Inspection Group