BIR Ruling [DA-273-06]

April 21, 2006 BIR RULING [DA-273-06] RR 2-98; DA-363-2004 HS Molding Technologies, Inc. East Avenue corner CEZIA Road CEZA, Rosario, Cavite Attention: Mario S. Ponce de Leon Treasurer Gentlemen : This refers to your letter dated April 20, 2005 requesting for a ruling exempting the income payments made to your company from the creditable withholding tax. It is represented that HS MOLDING TECHNOLOGIES, INC. (HSMTI), is a PEZA registered company located in Cavite Economic Zone with Certificate of Registration No. 92-040 issued on November 6, 2001, as amended. Its business registered activities are as follows: Manufacture of plastic injected parts for car radios/stereos and other electric component parts; fabricate manufacture/assemble and repair of mold making units, parts and jigs; and production, design assemble and marketing of Internet Provider computer telecommunication system, parts and supplies and other similar kinds of telecommunication equipment. Since the start of commercial operation on April 1993, HSMTI was on Income Tax Holiday (ITH) until March 1999 as approved by the PEZA Board. Upon expiration of the six (6) years ITH, HSMTI adopted the preferential gross income tax rate of 5% in lieu of all taxes pursuant to the provisions of R.A. No. 7916, as amended by R.A. No. 8748. In reply, please be informed that Section 2.57.5(8) of Revenue Regulations No. 2-98, as amended, provides: "Sec. 2.57.5. Exemption from Withholding . The withholding of creditable tax prescribed in these Regulations shall not apply to income payments made to the following: xxx xxx xxx (B) Persons enjoying exemption from payment of income tax pursuant to the provisions of any law, general or special, such as but not limited to the following: . . ." Section 2.57.5(B) of Revenue Regulations No. 2-98, as amended, is explicit in its provisions that the 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 specific income tax exemption under Section 24 of R.A. 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 liar 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 HSMTI is a PEZA-registered enterprise enjoying exemption from payment of income taxes pursuant to the provisions of R.A. No. 7916, income payments made by its local suppliers of goods shall not be subject to the 2% creditable withholding tax prescribed under Section 2.57(B) of Revenue Regulations No. 2-98, as amended. ( BIR Ruling No. DA 363-2004 dated June 28, 2004 ) 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service