BIR Ruling [DA-550-04]

November 5, 2004 BIR RULING [DA-550-04] DST, Sec. 179; DA-107-01; 097-04 Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati City Attention: Atty. Rafael Ma. C. Vinzon Tax Division Gentlemen : This refers to your letter dated September 30, 2004 stating that your client, Amkor Technology Philippines, Inc. (ATP), is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines with principal office address at Km. 22 East Service Road, South Superhighway, Cupang, Muntinlupa City; that ATP is primarily engaged in the business of manufacturing, assembling, processing, exporting, buying and selling semiconductor products and components; that ATP is registered with the Philippine Economic Zone Authority (PEZA1) as an Ecozone Export Enterprise under Certificate of Registration No. 00-092 dated December 1, 2000; that pursuant to its PEZA registration, ATP is liable to pay the 5% final tax on its gross taxable income as provided in Section 24 of R.A. No. 7916, in lieu of national and local taxes; that ATP entered into a loan agreement with Amkor Technology, Inc., [ATI] and which agreement was executed by the parties in the United States. It is further represented that ATI is a non-resident corporation duly organized and existing under the laws of the State of Delaware, with principal office at Goshen Corporate Park, 1345 Enterprise Drive, West Chester, Pennsylvania 19380, United States of America; that ATI has no permanent establishment in the Philippines and is not engaged in business herein. Based on the foregoing representations, you now request for a ruling as to whether or not ATP, a PEZA registered enterprise, and ATI, a non-resident foreign corporation organized and existing under the laws of the United States of America, are exempt from the payment of documentary stamp tax on debt instruments as imposed under Section 179 of the Tax Code of 1997, as amended. In reply thereto, please be informed that Section 179 of the Tax Code of 1997, as amended, provides that a documentary stamp tax shall be collected on every original issue of debt instruments in the amount of one peso (P1) on each two hundred pesos (P200), or fractional part thereof, of the issue price of such debt instruments. aSIETH However, since PEZA registered enterprises are liable to the preferential tax rate of 5% of the gross income earned which shall be in lieu of national and local taxes pursuant to Section 24 of R.A. No. 7916, otherwise known as the "Special Economic Zone Act of 1995", ATP, a PEZA registered enterprise is therefore exempt from the payment of documentary stamp taxes on loan agreements, their renewals and continuances, mortgages, pledges, promissory notes and similar instruments (BIR Ruling DA-107-01 dated June 1, 2001 citing BIR Ruling No. 008-99 dated January 19, 1999). On the other hand, Section 173 of the Tax Code of 1997 provides that "whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax." Such being the case, where ATP is exempt from the documentary stamp tax, ordinarily, ATP's contracting party is liable to pay the documentary stamp tax on the debt instruments. However, no documentary stamp tax may be imposed on ATI as it is likewise exempt from liability for documentary stamp taxes for being a nonresident foreign entity with no permanent establishment in the Philippines and not engaged in business herein. The foregoing follows from the inherent limitation of taxation that it can only be exercised within the territorial jurisdiction of the taxing authority. (BIR Ruling DA-097-04 dated March 1, 2004 and BIR Ruling DA-107-01, supra .) Such being the case, this Office holds that ATP, a PEZA-registered enterprise subject to the preferential tax rate of 5% based on its gross income earned in lieu of national and local taxes, and ATI, a non-resident foreign corporation which is beyond the territorial jurisdiction of the taxing authority, are exempt from the payment of the documentary stamp tax on the loan agreement entered into between them as prescribed in Section 179 of the Tax Code of 1997, as amended. 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. AICTcE Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group