BIR Ruling [DA-362-98]

August 12, 1998 BIR RULING [DA-362-98] Castro Cadiz & Carag Suite 6B, Eisenhower Condominium No. 7 Eisenhower Street 1500 Greenhills, San Juan Metro, Manila Attention: Attys . Othelo C . Carag and Anna Liza M . Ang-Co Gentlemen : This refers to your letter dated May 28, 1998 requesting for a ruling that the income to be derived by your client, Hyorim Electronics (Phils.), Inc. (Hyorim) from the proposed sale of its building is exempt from the payment of expanded withholding tax under Revenue Regulations No. 2-98. It is represented that Hyorim is a corporation duly registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone Export Enterprise at the Cavite Ecozone under Certificate of Registration No. 95-113 dated October 20, 1995; that it is registered as a manufacturer of car stereos and other electronic parts and products and other goods of similar nature on a preferred, non-pioneer status; that under the Rules and Regulations implementing R.A. 7916, otherwise known as the "Special Economic Zone Act of 1995", it is entitled to an income tax holiday of four (4) years from the start of its commercial operations on May 13, 1996 up to May 13, 2000; that Hyorim has constructed a factory cum warehouse building within the Cavite Ecozone and installed air conditioning equipment, transformer compressors and other improvements in said building; that the property is being used in its business as factory, where Hyorim manufactures its electronic products for export; that as such, the property is an ordinary asset and not a capital asset as defined in Section 39(A)(1) in relation to Section 27(D)(5) both of the Tax Code of 1997; and that it now intends to sell the said property to a prospective buyer. In reply, please be informed that under Section 2.57.5(B)(2) of Revenue Regulations No. 2-98 implementing Section 57(B) of the Tax Code of 1997, the withholding tax prescribed in the said Regulations shall not apply to income payments made to corporations enjoying exemption from the payment of income taxes pursuant to the provisions of R.A. No. 7916. Since Hyorim is enjoying exemption from the payment of income taxes for a period of four (4) years from the start of its commercial operations on May 13, 1996 pursuant to R.A. No. 7916, this Office is of the opinion as it hereby holds that the sale of the aforementioned property, is exempt from the expanded withholding tax imposed under Revenue Regulations No. 2-98. However, the sale shall be subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6(E) of the said Code, whichever is higher. 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. cdtech Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue