BIR Ruling [DA-479-99]

August 23, 1999 BIR RULING [DA-479-99] Heraeus Electronic Materials Philippines, Inc. Gateway Business Park, Paraiso Street Brgy. Javalera, Gen. Trias, Cavite Attention: Ms . Cora A . dela Rosa Vice-President, Sales & Adm. Gentlemen : This refers to your letter dated December 17, 1998 requesting for a ruling that Heraeus Electronic Materials Philippines, Inc. ("Heraeus") is exempt from the 1% withholding tax imposed under Section 2.57.2 of Revenue Regulations No. 2-98, in relation to Section 57 (B) of the Tax Code of 1997. It is represented that Heraeus is a domestic corporation registered with the Philippine Export Zone Authority (PEZA) as an ecozone export enterprise with Certificate of Registration No. 97-026 dated March 21, 1997; that its line of business is the manufacture of high grade gold bonding wire and lead frames for the semiconductor industry; that it started its commercial operation only on January 1, 1998; and that it is entitled to an Income Tax Holiday (ITH) for four (4) years for original project effective on the date of start of commercial operation. In reply, please be informed that Section 24 of Republic Act No. 7916, otherwise known as "The Special Economic Zone Act of 1995" provides: "SEC. 24. Exemption from Taxes Under the National Internal Revenue Code . 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. . . ." However, since Heraeus is entitled to an ITH for four (4) years from January 1, 1998, the start of its commercial operation, it is exempt from the creditable withholding tax under Section 57 (B) of the Tax Code of 1997 and as implemented by Section 2.57.2 of Revenue Regulations No. 2-98. After the expiration of ITH, Heraeus shall be liable to the payment of five percent (5%) of gross income in lieu of local and national taxes pursuant to Section 24 of Republic Act No. 7916 otherwise known as "The Special Economic Zone Act of 1995" (BIR Ruling No. DA-333-98 dated July 21, 1998) 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, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)