BIR Ruling [DA-363-04]

June 28, 2004 BIR RULING [DA-363-04] RR 2-98; 43-2001 TANN Philippines, Inc. First Philippine Industrial Park Barangay Sta. Anastacia Sto. Tomas, Batangas Attention: Ms. Josephine S. Ramos Controlling Division Gentlemen : This refers to your letter dated February 26, 2004 requesting for exemption from the 2% creditable withholding tax. It is represented that TANN Philippines, Inc. (TPI) is registered with Philippine Economic Zone Authority with PEZA Registration No. 02-216 dated April 16, 2002; that it is engaged in the processing of special printed fine papers such as tipping paper for use in tobacco industry and healthcare industry; and that TPI was granted a non-pioneer status and a four (4) years Income Tax Holiday incentive commencing on the date of TPI's commercial operation. In reply, please be informed that Section 2.57.5 (B) of Revenue Regulations No. 2-98 is explicit in its provisions that the 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 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. . . ." Accordingly, since TPI is a PEZA-registered enterprise enjoying exemption from payment of income taxes pursuant to the provisions of RA 7916, income payments made by its local suppliers of goods shall not be subject to the 2% creditable withholding tax prescribed under Section 2.57.5 of Revenue Regulations No. 2-98, as amended. ( BIR Ruling No. 43-2001 dated September 21, 2001 ) 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. IDaEHS Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group