BIR Ruling [DA-349-99]

June 16, 1999 BIR RULING [DA-349-99] Laya Mananghaya Salgado & Co. 22/F Antel 1000 Corporate Center 139 Valero Street, Salcedo 1227 Makati City Attention: Atty . Zayber B . Protacio Gentlemen : This refers to your letter dated March 2, 1998, requesting on behalf of your clients, Assets Growth Inc . and Reel Service Phils ., Inc . for exemption from the 1% creditable withholding tax on the income payment made to them and at the same time, exemption of Asset Growth, Inc. from the 5% expanded withholding tax on rental payments made to it by Reel Services Phils., Inc. It is represented that Asset Growth, Inc. is registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone Facilities Enterprise with Certificate of Registration No. 96-010 whose facilities are rented by Reel Service Phils., Inc., also a PEZA registered zone enterprise with Certificate of Registration No. 97-003. In reply, 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 special. PEZA registered enterprises are granted specific income tax exemption under Section 24 of Republic Act 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. . . ." Such being the case, Asset Growth Inc., is exempt from the 5% expanded withholding tax on rentals paid to it by Reel Services Phils., Inc. Likewise, since both' entities are PEZA registered and enjoying exemption from income taxes, all payments received by them from other taxpayers, whether ecozone registered or customs territory enterprises are likewise exempt from the withholding tax. 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. llcd Very truly yours, Commissioner Of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)