BIR Ruling [DA-445-05]

October 27, 2005 BIR RULING [DA-445-05] Laya Mananghaya & Co. 22/F Philamlife Tower 8767 Paseo de Roxas Makati City Attention: Atty. Francisco G. Tagao Head, Tax and Corporate Services and Atty. Joseph Shelner N. Songco Assistant Manager, Tax and Corporate Services Gentlemen : This refers to your letter dated October 21, 2005 stating that your client, Global Brands Company, Inc. (GBCI), is a corporation duly organized and existing under and by virtue of the laws of the Philippines with office address at 35F Penthouse Raffles Corporate Center, Emerald Avenue, Ortigas Center, Pasig City; that GBCI is duly incorporated with the Securities and Exchange Commission (SEC) on June 26, 2000; that on July 21, 2000, GBCI was duly registered with the BIR and was duly issued its BIR Certificate of Registration; that GBCI adopts a fiscal year as its accounting period beginning April 1 and ending March 31 of each year; and that accordingly, the first taxable year of GBCI when it was registered with the BIR is fiscal year ending March 31, 2001. In connection therewith, you now request confirmation of your opinion that GBCI is not subject to the 2% Minimum Corporate Income Tax (MCIT) for taxable year ended March 31, 2004 but will only be subject to MCIT effective its fiscal year ended March 31, 2005 because it is the fourth taxable year immediately following its fiscal year of registration with the BIR, which ended on March 31, 2001. In reply thereto, please be informed that pursuant to Section 27(E) of the Tax Code of 1997, a minimum corporate income tax (MCIT) of two percent (2%) of the gross income as of the end of the taxable year is imposed upon a corporation beginning on the fourth (4th) taxable year immediately following the year in which such corporation commenced its business operations. Corollarily, Section 2.27(E) of Revenue Regulations No. 9-98 provides "(1) Imposition of the Tax A minimum corporate income tax (MCIT) of two percent (2%) of the gross income as of the end of the taxable year (whether calendar or fiscal year, depending on the accounting period employed is hereby imposed upon any domestic corporation beginning the fourth (4th) taxable year immediately following the taxable year in which such corporation commenced its business operations. The MCIT shall be imposed whenever such corporation has zero or negative taxable income or whenever the amount of minimum-corporate income tax is greater than the normal income tax due from such corporation." DAHaTc Moreover, Section 2.27(E)(5), supra reads "(5) Specific Rules for Determining the Period When a Corporation Becomes Subject to the MCIT "For purposes of the MCIT, the taxable year in which business operations commenced shall be the year in which the domestic corporation registered with the Bureau of Internal Revenue (BIR)." It is clear from the above cited provisions that the four-year period is counted after the end of the taxable year of the commencement of the corporation's business operations. The term "taxable year" is defined under Section 22(P) of the Tax Code as either the calendar year or the fiscal year, upon the basis of which net income is computed. Accordingly, the reckoning period from which to count the four-year period refers to the end of either the calendar or fiscal year when the corporation commenced its business operations, depending on the accounting period being utilized by the company: In BIR Ruling No. 051-01 dated November 7, 2001 , this Office ruled that ". . . Section 27(E)(1) of the Tax Code of 1997, imposes a minimum corporate income tax (MCIT) of two percent (2%) of the gross income as of the end of the taxable year upon any domestic corporation beginning the fourth (4th) taxable year immediately following the taxable year in which such corporation commenced its business operations. Under Section 2.27(E)(5) of Revenue Regulations No. 9-98, it is provided that "For purposes of the MCIT, the taxable year in which the business operations commenced shall be the year in which the domestic corporation registered with the Bureau of Internal Revenue (BIR). "Accordingly, since you were registered with the BIR on December 29, 1995, your taxable year started on that date and, therefore, shall be covered by the MCIT beginning taxable year 1999." IN VIEW OF THE FOREGOING, this Office hereby confirms your opinion that GBCI is not subject to the 2% MCIT for taxable year ended March 31, 2004 as this is the third taxable year following its BIR registration in fiscal year ended March 31, 2001. However, GBCI will only be subject to MCIT effective the fiscal year ended, March 31, 2005 because it is its fourth taxable year immediately following its fiscal year of registration with the BIR, which ended on March 31, 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. aSCHcA Very truly yours, (SGD.) JOSE MARIO C. BUAG OIC, Commissioner of Internal Revenue