BIR Ruling [DA-518-05]

December 22, 2005 BIR RULING [DA-518-05] 57 (B); DA-300-03 Castillo Laman Tan Pantaleon & San Jose Law Offices The Valero Tower, 122 Valero Street Salcedo Village, 1227 Makati City Attention: Atty. Teodulo G. San Juan, Jr. and Atty. Ronald P. de Vera Gentlemen : This refers to your letter dated June 3, 2005 requesting in behalf of your client, Seer Technologies, Inc. (Seer), for confirmation of your opinion that creditable withholding tax shall not apply to its income payments, as an entity enjoying exemption from income taxes under Article 39(a)(1) of Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987. It is represented that on July 2, 2003, Seer was registered with the Board of Investments as a New IT Service Firm in the field of Software Development on a non-pioneer status under the Omnibus Investments Code of 1987; that pursuant to No. 3(a) of the Specific Terms and Conditions accompanying its registration, it is entitled to income tax holiday for a period of four (4) years from July 2003 or actual start of commercial operations, whichever is earlier, but in no case earlier than the date of registration; that Seer commenced commercial operations on July 2, 2003; that pursuant to its 4-year full exemption from all income taxes levied by the National Government, which began when Seer commenced commercial operations on July 2, 2003, Seer has been instructing its clients not to withhold from their payments to Seer the creditable withholding taxes; that Seer's clients accepted certified true copies of the Certificate of Registration as basis for not withholding; that recently, some of Seer's clients have insisted on withholding creditable withholding tax from income payments to Seer; that these clients refused to accept certified true copies of the Certificate of Registration as sufficient basis for not withholding and have insisted on being furnished a certification from the Bureau of Internal Revenue, confirming Seer's Income Tax Holiday; and that because of such Income Tax Holiday, the requirement to withhold creditable withholding tax is not applicable to Seer. In reply, please be informed that under Section 2.57.5(B)(2) of Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 6-2001 implementing Section 57(B) of the Tax Code of 1997, the withholding tax prescribed in the said Regulations shall not apply to income payments to persons enjoying exemption from income tax on their registered activities provided by Republic Act No. 7916 and the Omnibus Investments Code of 1987. Accordingly, since Seer Technologies, Inc. is a BOI-registered enterprise, enjoying exemption from payment of income taxes pursuant to the provisions of Section 39(a)(1) of the Omnibus Investments Code of 1987, for a period of four (4) years reckoned from July 2, 2003, this Office is of the opinion as it hereby holds, that it is exempt from the payment of the creditable withholding tax imposed under Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 6-2001 on income payments received by it during the aforementioned period, in connection with its conduct of its registered activity, but not on its passive income like rental, interest or dividends. (BIR Ruling No. DA-300-03 dated September 11, 2003; BIR Ruling No. DA-060-2002 dated April 1, 2002 and BIR Ruling No. 143-91 dated August 2, 1991). 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. TCcSDE Very truly yours, (SGD.) JOSE MARIO C. BUAG Commissioner of Internal Revenue