BIR Ruling [DA-279-05]

June 23, 2005 BIR RULING [DA-279-05] Section 175; BIR Ruling Nos. 141-97 & 117-99 Ocampo Mendoza & Co., CPAs Unit 102 Regalia Park Tower 150 P. Tuazon Avenue Cubao, Quezon City Attention: Ms. Ma. Cristina B. Ocampo Partner Gentlemen : This refers to the Memorandum of Acting Regional Director Merlinda L. Ordoyo dated March 3, 2005 requesting, in effect, for amendment of BIR Ruling No. DA-236-2004 dated December 15, 2004 in view of the factual findings of Revenue District Office of Lipa City that the First Philippine Industrial Park, Inc. (FPIP) is a PEZA-registered enterprise still under Income Tax Holiday (ITH) until March 5, 2005. Documents show that your client, Shang Mei Philippines Corp. (Shang Mei) is principally engaged in real estate development; that it is registered with the Philippine Economic Zone Authority (PEZA) under Certificate of Registration No. 03-27-F dated December 1, 2003 as an ecozone facilities enterprise located at First Philippine Industrial Park-Special Economic Zone in Sto. Tomas, Batangas; that First Philippine Industrial Park, Inc. (FPIP) is likewise registered with PEZA under Certificate of Registration No. EZ-97-03 dated October 29, 1997 as an ecozone developer/operator; that FPIP's registered activity is to establish, develop, construct, administer, manage and operate FPIP-Special Economic Zone; that on December 8, 2003, FPIP executed a Contract to Sell in favor of Shang Mei over a parcel of land situated at the industrial estate; and that under their Contract to Sell, Shang Mei shall shoulder all expenses necessary including capital gains tax, creditable withholding tax, and documentary stamp tax, among others. In reply, please be informed that FPIP may not simultaneously enjoy its ITH granted by the BOI with the incentives granted by PEZA (cited in BIR Ruling No. 117-99 dated August 10, 1999). ITH is an exemption from income tax on income payments received by the company for the duration of the period specified in the Terms and Conditions of the Certificate of Registration (cited in BIR Ruling No. 141-97 dated December 29, 1997). Documentary stamp tax (DST) is not a tax on income but is in the nature of an "excise tax" ( CIR vs . Heald Lumber Company , 10 SCRA 372) imposed either upon the transaction or document. Accordingly, if FPIP is still enjoying an ITH at the time of the real estate transaction, it is subject to DST. On the other hand, if it is no longer enjoying the ITH at the time of the real estate transaction, then as a PEZA-registered enterprise it may claim exemption from the DST on its registered activity since the 5% income tax on gross income applicable to PEZA-registered enterprises is in lieu of all national and local taxes including DST. CDTHSI The findings of the district office revealed that the ITH of FPIP expired only on March 5, 2005 whereas the real estate transaction between FPIP and Shang Mei was consummated on October 19, 2004 or within the ITH period of FPIP. SUCH BEING THE CASE, the sale of a parcel of land located within the ecozone between FPIP and Shang Mei is subject to DST. This amends BIR Ruling No. DA-236-2004 dated December 15, 2004 in so far as it exempts FPIP from payment of DST on the sale of its property to Shang Mei in view of the factual findings of Revenue District Office of Lipa City that the FPIP is a PEZA-registered enterprise still under Income Tax Holiday (ITH) until March 5, 2005. 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 as null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group