BIR Ruling [DA-347-06]

June 5, 2006 BIR RULING [DA-347-06] Rev. Regs. No. 2-98; DA-094-2003 Intel Technology Philippines, Inc . Gateway Business Park, Javelera General Trias 4107 Cavite, Philippines Attention: Mr. Marc Paul B. Tan Tax Manager Gentlemen : This refers to your letter dated September 27, 2005, requesting for certification that your office is exempted from expanded withholding tax for being a PEZA registered enterprise. It is represented that Intel Technology Philippines, Inc. is a domestic corporation duly registered with the Securities and Exchange Commission and the Philippine Economic Zone Authority; that you are a registered 100% export enterprise enjoying both income tax holiday and the 5% preferential tax incentives from the PEZA; and that it is your position that Intel Technology Philippines, Inc. is exempt from the expanded withholding tax mandated under Revenue Regulations No. 2-98. Based on the copies of the Supplemental Agreements submitted and the Certification issued by the PEZA, the following are the registered activities and incentives granted in favor of Intel Technology Philippines, Inc.: Project Reference Nature of Status Start of Document Approval Commercial Operations Assembly and test of Pioneer microprocessor RA dd. Original (BR# 95- January 1997 integrated circuits, 12/08/95 Project 180 specially called dd. PENTIUM 12/08/95 Manufacture/Assembly SA dd. Pioneer of single edge contact 05/13/97 New Project (SA dd. August 1997 cartridge 05/13/97 Assembly/test of chip SA dd. sets IC's for 09/01/97 New Project Pioneer microprocessors (SA dd. December 1997 Test of '"Sunizona'" SA dd. Amendment 02/09/99) chipset IC 03/08/04 Assembly/test of SA dd. CA/OLGA (Controlled 02/09/99 New Project Collapse Chip Pioneer Connect/Organic Land (SA dd. October 1998 Grid Array) products 11/10/99) Assembly of Interposer SA dd. Amendment 1 (INT 1) in its 03/14/01 C4/OLGA project Testing of Sentinal or SA dd. New Project Non-pioneer Firmware Hub (FWH) 11/10/99 September 1999 Testing of flash SA dd. Co-terminus w/ semiconductor devices 03/14/01 Amendment Non-pioneer the testing of Sentinel or Firmware Hub Assembly and test of flip chip pin grid array SA dd. Expansion As provided in 2 (FCPGA2) and flip 02/05/02 Project registrant's chip ball grid array 2 application (FCBGA2) Provide failure Not later than one analysis, silicon SA dd. New IT Non-pioneer (1) year from date design, package 01/21/04 Project of registration assembly, and test technology development Testing of '"Ardon'" SA dd. New Project Non-pioneer December 2003 (wireless chipset IC) 03/08/04 Assembly, sorting and SA dd. testing of Tyax 03/08/04 New Project September 2003 wireless flash memory products Test of Sixmile+ SA dd. Amendment wireless and embedded 08/02/05 (1) Non-pioneer Co-terminus with flash memory product original Assembly and test of SA dd. Amendment registered activity O/B Cypress SMRAM 08/02/05 Particularly the Memory product assembly, sort & Test of Dalmore SA dd. Amendment test of Tyax wireless and embedded 08/02/05 (3) wireless flash flash memory products memory products Testing of Dalhart SA dd. New Project Product Client 12/14/04 without Base Non-pioneer March 2004 Architecture (PCA) Figure Processor Assembly and testing SA dd. New Project of Bulverde 12/14/04 without Base Applications Processor Figure Non-pioneer April 2004 Test of Cotulla PCA SA dd. Amendment (product client 08/02/05 architecture) processor Testing of Crystals SA dd. New Project Falls 64M Product 06/10/05 without Base Non-pioneer July 2004 Figure SA dd. New Project Testing of Ramon2 IC 06/10/05 without Base Non-pioneer October 2004 Figure Assembly of F-SCSP SA dd. New Project Not later than (Folded Stacked Chip 08/02/05 without Base August 2005 Scala Package) Figure Hermon Cellular Non-pioneer Processor Test of F-SCSP SA dd. Amendment Co-terminus with Hermon bottom and 09/22/05 the assembly of stacked packages F-SCSP Herman Cellular package Assembly and testing SA dd. New Project of ICH-6 and ICH-7 06/10/05 without Base Non-pioneer May 2004 Chipsets Figure '"Component Product SA dd. Co-terminus with Validation (CPV) 08/02/05 Amendment Non-pioneer original registered Testing of Alviso activity particularly the Product'" assembly & testing of ICH-6 & ICH-7 chipsets Assembly and test of SA dd. Not later than one Yonah 12/06/05 New Project Non-pioneer (1) year from microprocessors December, 2005 Trumbull Known SA dd. Good Die (KGD) 03/08/04 New Project Wafer Testing Non-pioneer September 2003 '"Armagosa Known SA dd. Good Die (KGD) 12/06/05 Amendment Wafer Testing'" The certification further certifies that the available incentives to Intel, in relation to the above projects, are, among others: EHaASD "1. Incentives under Book VI of EO 226 which include the following: a. Corporate Income tax holiday (ITH) for six (6) year for pioneer projects and four (4) years for non-pioneer projects effective on the committed date of start of commercial operation, or the actual date of start of commercial operations, whichever is earlier; xxx xxx xxx b. Tax and duty free importation of merchandise which include raw materials, capital equipment, machineries and spare parts; c. Exemption from wharfage dues and export tax, impost or fees; d. VAT zero-rating of local purchases subject to compliance with BIR and PEZA requirements; and e. Exemption from payment of any and all local government imposts, fees, licenses or taxes except real estate tax; however machineries installed and operated in the ecozone for manufacturing, processing or for industrial purposes shall not be subject to payment of real estate taxes for the first three (3) years of operation of such machineries; production equipment not attached to real estate shall be exempt from real property taxes. 2. After the lapse of ITH, the following incentives shall apply: a. Exemption from national and local taxes, in lieu thereof payment of 5% final tax on gross income as provided in Section 24 of R.A. 7916 and Rule XX of the Rules and Regulations to Implement R.A. 7916, and b. Additional deduction for training expenses (1/2 of value) against the 6% tax on gross income earned, but not to exceed 3%, subject to guidelines to be formulated by PEZA in coordination with the Department of Labor and Employment and the Department of Finance (Section 42 of R.A. 7916). 3. Pursuant to BIR's Revenue Regulations No. 14-2002 (amending further pertinent provisions of Revenue Regula tions N o. 2-98, as amended and Revenue Memorandum Circular No. 72-2004, income payments to PEZA registered enterprises under the ITH and 5% GIT incentives are exempt from expanded withholding tax." In reply thereto, please be informed that Section 2.57.5 (B) of Revenue Regulations No. 2-98 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 applied. PEZA registered enterprises enjoy exemption from payment of income taxes pursuant to the provisions of Section 39 (a) (1) of the Omnibus Investments Code of 1987, such as the income tax holiday. In particular, Section 2.57.5 (B)(2) of Revenue Regulations No. 2-98, as amended by Section 4 of Revenue Regulations No. 14-02, provides as follows: SEC. 4. Exemption From Withholding . The withholding of creditable withholding 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 taxes pursuant to the provisions of any law, general or special, such as but not limited to the following: xxx xxx xxx (2) Corporations duly registered with the Board of Investments, Philippine Export Processing Zones and Subic Bay Metropolitan Authority enjoying exemption from income tax pursuant to E.O. 226, as amended, R.A. 7916, the Omnibus Inve stment Co de of 1997, and R.A. 7227, as amended, respectively; xxx xxx xxx Such being the case, Intel Technology Philippines, Inc. is exempt from the 1% withholding tax on income payments made by the top 10,000 corporations. Accordingly, since Intel Technology Philippines, Inc. is a PEZA registered enterprise still enjoying ITH incentive under a special law and the 5% preferential tax incentive from the PEZA, all payments received by it from its customers, whether ECOZONE registered or customs territory enterprises are exempt from the withholding tax. (BIR Ruling No. DA-381-2000 dated November 7, 2000). This ruling is being issued on the bases 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 Commissioner of Internal Revenue