BIR Ruling [DA-542-04]

October 29, 2004 BIR RULING [DA-542-04] RA 7916 DA-349-99 Dowa Hightech Philippines, Inc . FCIE Barangay Langkaan Dasmarias, Cavite Attention: Mr. Hiroyuki Hosono Director Gentlemen : This refers to your letter dated March 25, 2004 requesting for a Certificate of Exemption from the payment of creditable withholding tax prescribed under Revenue Regulations No. 2-98, as amended on account of your registration with the Philippine Economic Zone Authority (PEZA). It is represented that Dowa Hightech Philippines, Inc. is registered with the PEZA under PEZA Registration No. 95-11 dated January 24, 1995; that on March 17, 1996, Resolution No. 96-106 was passed converting Dowa's status of registration from non-pioneer to pioneer for its project involving the production of different types of lead frames for electronics products; and that the said project shall be entitled to a six (6) year income tax holiday from the start of its commercial operations or on the date committed in the project proposal whichever comes earlier as amplified in the Certification accompanying its registration. In reply, please be informed that Section 2.57.5(B)(2) of Revenue Regulations No. 2-98, as amended, is explicit in its provisions that the expanded 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 certain preferential tax treatment 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 DOWA is a PEZA-registered enterprise enjoying preferential tax rate, income payments made to it with respect to its registered activity shall not be subject to 2% expanded creditable withholding tax prescribed in Revenue Regulations No. 2-98, as amended. (BIR Ruling No. DA-349-99 dated June 16, 1999) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be considered null and void. CaASIc Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group