BIR Ruling [DA-259-05]

June 16, 2005 BIR RULING [DA-259-05] RR 2-98; DA-349-99 Ogami Corporation Philippine Economic Zone Authority Bldg. A, Blk. 8, Lot 13A, Phase 2 FCIE Brgy. Langkaan, Dasmarias Cavite Attention: Mr. Yukisoshi Otani President Gentlemen : This refers to your letter dated February 28 requesting exemption from the payment of creditable withholding tax on the premise that you are a PEZA registered company and is entitled to the 5% preferential tax on gross income. It is represented that Ogami Corporation (Ogami) is registered with the PEZA as an export Enterprise under Registration Certificate No. 95-146 dated 28 November 2001 to engage in the (1) manufacture of various plastic automobile parts such as pivot cap covers for windshield wipers, bobbins for wiper motor coils, relay covers for electric parts box covers and bushings for windshield wipers, (2) subcontracting of printed circuit boards (PCBs) assembly and testing (quality control) and packing of PCBs and (3) production of various plastic automobile parts (expansion project); that as per Certification dated January 25, 2005 issued by the PEZA, Ogami Corporation is entitled to the 5% Special Tax on Gross Income under Section 24 of Republic Act No. 7916 and Rule XX of its Implementing Rules and Regulations; and that the 5% Special Tax on Gross Income applies upon expiry of Ogami's Income Tax Holiday entitlement. 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. Accordingly, since Ogami is a PEZA-registered enterprise enjoying preferential tax rate, 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. (BIR Ruling No. DA-349-99 dated June 16, 1999) SDHETI 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 and Inspection Group