Isla Lipana & Co.

July 18, 2007 BIR RULING [DA-392-07] BIR Ruling No. DA-059-03 Isla Lipana & Co. 29th Floor Philamlife Tower 8767 Paseo de Roxas Attention: Mr. George J. Lavadia Principal, Tax Services Gentlemen : This refers to your letter dated January 11, 2007 requesting on behalf of your client, Exas Philippines, Inc. (EXAS) for a confirmatory ruling that it is exempt from payment of Improperly Accumulated Earnings Tax ("IAET") imposed under Section 29 of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-2001 on account of its being a PEZA-registered enterprise. As represented, EXAS is a domestic corporation registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone Export Enterprise on a pioneer status under PEZA Certificate of Registration No. 92-58 dated October 23, 1992 with principal offices and manufacturing facilities located at the Mactan Economic Zone 1, Lapu Lapu City, a public economic zone, EXAS started commercial operations in June 1993. Upon registration with PEZA, the company was granted Income Tax Holiday (ITH) incentives for six (6) years. Thereafter, it was granted two (2) years ITH extension which expired in March 2001. The company is now subject to the 5% final tax on gross income, in lieu of the payment of all other local and national taxes. In reply, please be informed that in BIR Ruling No. DA-059-2003 dated February 28, 2003, this Office had occasion to rule, viz: ". . . Section 4 of Rev. Regs. No. 2-2001 provides as follows: 'SEC. 4. Coverage . The 10% Improperly Accumulated Earnings Tax (IAET) is imposed on improperly accumulated taxable income earned starting January 1, 1998 by domestic corporations as defined under the Tax Code and which are classified as closely held corporations. Provided, however, that Improperly Accumulated Earnings Tax shall not apply to the following corporations: EScAHT a) Banks and other non-bank financial intermediaries; b) Insurance companies; c) Publicly-held corporations; d) Taxable partnerships; e) General professional partnerships; J) Non-taxable joint ventures; and g) Enterprises duly registered with the Philippine Economic Zone Authority (PEZA) under R.A. 7916, and enterprises registered pursuant to the Bases Conversion and Development Act of 1992 under R.A. 7227, as well as other enterprises duly registered under special economic zones declared by law which enjoy payment of special tax rate on their registered operations or activities in lieu of other taxes, national or local.'" In view of the foregoing, this Office confirms your opinion that since EXAS is a PEZA-registered enterprise, it is exempt from payment of the IAET under Section 4 of Revenue Regulations No. 2-2001 implementing Section 29 of the Tax Code of 1997. 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 as null and void. Very truly yours, (SGD.) GREGORIO V. CABANTAC Deputy Commissioner