SGV & Co

October 23, 2007 BIR RULING [DA-550-07] RMC 72-2003 DA-182-04; DA-185-05 SGV & Co 8F Pryce Tower, Pryce Business Park J.P. Laurel Avenue, Davao City Attention: Atty. Fabian K. Delos Santos Partner, Tax Services Gentlemen : This refers to your letter dated May 23, 2006 requesting in behalf of your clients, Lapanday Agricultural and Development Corporation (LADC) and Malalag Ventures Plantation, Inc. (MVPI), confirmation of your opinions on the tax implications of their payments to Davao del Sur Electric Cooperative Inc. (DASURECO): It is represented that LADC and MVPI are corporations duly organized and existing under Philippine laws; that both are notified by the Bureau of Internal Revenue (BIR) as top 10,000 private corporations; that DASURECO is an electric cooperative duly registered with the National Electrification Administration (NEA); that LADC and MVPI purchase electricity from DASURECO and withhold 2% Expanded Withholding Tax (EWT) from their payments to DASURECO for the said purchase pursuant to Section 2.57.2 (M) of Revenue Regulations (RR) No. 2-98 as amended; that pursuant to Section 39 (a) of Presidential Decree (PD) 269, DASURECO claims that being an electric cooperative duly registered with NEA, it is exempt from income tax and accordingly payments to it by its customers are not subject to 2% EWT; that at present, MVPI and LADC withhold the 2% EWT and remit the same to BIR; and that both LADC and MVPI make two (2) separate check payments to DASURECO, one check covers the amount due net of the EWT and the other check for the amount corresponding to the EWT. Based on the foregoing, you are requesting confirmation of your opinions as follows: 1. That DASURECO is exempt from income tax pursuant to Section 39 (a) of PD No. 269; 2. That the payments of LADC and MVPI to DASURECO for electricity charges are exempt from the 2% EWT as provided in Section 2.57.2 (M) in relation to Section 2.57.5 of RR No. 2-98, as amended; 3. That since DASURECO is exempt from income tax and EWT, the ruling confirming such exemption will be considered as sufficient proof of its exemption from EWT as required in Q.32 and A.32 of Revenue Memorandum Circular (RMC) No. 72-04; and 4. That since DASURECO is exempt from income tax, DASURECO will be allowed to claim a tax refund or tax credit certificate corresponding to the unutilized total creditable tax withheld and remitted by LADC/MVPI to the BIR. In support of your request, a copy of DASURECO's Certificate of Registration with the NEA is submitted as evidence of such registration. In reply, please be informed that your opinion is hereby confirmed as follows, to wit: SCEDaT 1. DASURECO is exempt from income tax pursuant to Section 39 (a) of PD No. 269. In BIR Ruling No. DA-021-04 dated January 15, 2004 and later reiterated in BIR Ruling Nos. DA 182-04 and DA-185-05 dated April 6, 2004 and April 21, 2005 , respectively, this Office ruled that "Section A (3) and (4) of Revenue Memorandum Circular No. 72-2003 dated October 20, 2003 provides: "A. Electric Cooperatives (Ecs) registered with the National Electrification Administration (NEA) are exempt from: xxx xxx xxx 3. Income taxes for which they are directly liable [P.D. No. 269, Sec. 39(a)(1)]; 4. All National Government taxes and fees, including franchise, filing, recordation, license or permit fees or taxes. Provided, however, that the said exemption shall end on December 31 of the thirtieth full calendar year after the date of the cooperative's organization or conversion, or until it shall become completely free of indebtedness incurred by borrowing, whichever event first occurs. Provided further, that the period of exemption for a new cooperative formed by consolidation, as provided in Section 29 of P.D. No. 269, to begin as of the date of the beginning of such period for the constituent consolidating cooperative which was most recently organized or converted under P.D. No. 269 . . ." Thus, DASURECO, being a NEA-registered electric cooperative, is exempt from income tax for which it is directly liable. Accordingly, payments to DASURECO shall not be subject to income tax and consequently, to EWT. 2. The payments of LADC and MVPI to DASURECO for electricity charges are exempt from the 2% EWT as provided in Section 2.57.2 (M) in relation to Section 2.57.5 of RR No. 2-98, as amended; It should be noted that Section 2.57.2 (M) of RR No. 2-98, as amended by RR No. 17-2003, which requires top ten thousand (10,000) private corporations to withhold 2% tax on income payments made to local/resident supplier of services shall not apply to income payments made to persons enjoying exemption from payment of income tax pursuant to the provisions of any law, general or special, as provided for under Section 2.57.5 (B) of RR No. 2-98, as amended by RR No. 14-2002. The foregoing considered, payments by LADC and MVPI made to DASURECO are not subject to 2% EWT. 3. Since DASURECO is exempt from income tax and EWT, the ruling confirming such exemption will be considered as a proof of its exemption from EWT as required in Q.32 and A.32 of RMC No. 72-04. In relation thereto, this ruling shall serve as a proof for the EWT exemption of payments for electricity charges to DASURECO as required in Q.32 and A.32 of RMC No. 72-04. 4. Since DASURECO is exempt from income tax, DASURECO will be allowed to claim a tax refund or tax credit certificate corresponding to the unutilized total creditable tax withheld and remitted by LADC/MVPI to the BIR. ATCaDE Finally, since DASURECO is exempt from income tax, remittances to the BIR made by LADC/MVPI corresponding to the unutilized total creditable tax withheld shall be available for refund and or tax credit certificate (TCC) pursuant to Section 229 of the 1997 Tax Code, as amended. For this purpose, DASURECO will have to file a claim for refund or issuance of a tax credit certificate with the RDO having jurisdiction over its place of business within two (2) years from the date of payment of the tax pursuant to Section 204 (C) of the same Tax Code. 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.) GREGORIO V. CABANTAC Deputy Commissioner