BIR Ruling [DA-359-06]

June 9, 2006 BIR RULING [DA-359-06] RA 7916; RR-8-2005; DA-226-2006 dtd 4/10/66 Atty. Carlos C. Lontoc c/o Pitargue & Associates Rm. 310 JR. Building 1520 Quezon Avenue, Quezon City S i r : This refers to your undated letter in behalf of your client, ASE HOLDING ELECTRONICS (Phils.) INC., requesting a ruling to the effect that the refund of the excess utility payments which were incurred and paid by ASE HOLDING ELECTRONICS (Phils) INC., being a PEZA-registered enterprise, is exempt from the 32% regular corporate income tax, and consequently, from the withholding tax imposed under Revenue Regulations (RR) No. 8-2005, or the 5% gross income tax under Republic Act (RA) No. 7916, otherwise known as the "Special Economic Zone Act of 1995." It is represented that ASE HOLDING ELECTRONICS (Phils) INC. (ASE Holding, for short) is a corporation duly organized and existing under the laws of the Philippines; that its business address is at First Cavite Industrial Estate, Bo. Lancaan, Dasmarias, Cavite; that it is a PEZA-registered Ecozone Enterprise with registration Certificate No. 96-006 dated January 15, 1996; that as a PEZA-registered enterprise, it enjoyed all the tax holiday granted under RA No. 7916 and likewise, income tax holidays under Book VI of E.O. 226; that pursuant to the Resolution of the Supreme Court, which held that MERALCO committed error in billing customers, like others, your client, ASE Holding is also entitled to refund; that it is your contention that the refundable amount representing over payment of erroneous electricity billing by MERALCO is exempt from withholding and income taxes on the following grounds: (1) ASE Holding is a PEZA-registered enterprise; (2) the refund is merely a return of the excess amount paid by ASE HOLDING to Meralco; (3) ASE Holding had already ceased operation as of 2003 and has no outstanding tax liabilities with the Bureau of Internal Revenue. In reply, please be informed that Section 2.57.5(B)(2) of` RR No. 2-98, as amended by RR Nos. 3-2004 and 8-2005, 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 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 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." Moreover, since the excess utility payments pertain to expenses related to ASE Holding's registered activity, then the refund which will be received by ASE Holding is not subject to the 32% regular corporate income tax nor to the 5% income tax because the refund pertains to the excess utility payments made during to period when ASE Holding was on an ITH. cTSHaE In sum, the Meralco refund to ASE Holding arising from the Supreme Court case with G.R. No. 141314 dated April 9, 2003 of the excess utility payments which were incurred and paid during the time when ASE Holding was on an ITH, is exempt from the 32% regular corporate income tax, and consequently, from the 25% or 32% withholding tax imposed under RR No. 8-2005. Moreover, it is not subject to the 5% gross income tax under R.A. No. 7916. ( BIR Ruling No. DA-074-2006 dated March 2, 2006 ) 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