BIR Ruling [DA-578-04]

November 12, 2004 BIR RULING [DA-578-04] 27 (E); RAMO 1-95; ITAD Ruling 004-01 SGV & Co . 6760 Ayala Avenue 1225 Makati City Attention: W.U. Villanueva Gentlemen : This refers to your letter dated July 20, 2004 requesting for confirmation of your opinion that the determination of the normal taxable income of Metal One Manila as well as the calculation of its income tax liabilities will be governed by the provisions of Revenue Audit Memorandum Order No. 1-95. It is represented that Metal One Corporation (Kabushiki Kaisa Metal One) is a corporation duly organized and existing under the laws of Japan, and with head office located at 3-23-1 Shiba, Minatoku, Tokyo-to, Japan; that it has an authorized capital stock of Five Million shares at a par value of JPY50,000.00 per share; that out of its authorized capital stock, Two Million shares are presently outstanding and fully paid-up; that the subscribed and paid-up capital is 60% owned by Mitsubishi Corporation and 40% owned by Nissho Iwai Corporation which are both Japanese general trading firms; that on January 7, 2004, Metal One Corporation was granted a license to transact business in the Philippines by the Securities and Exchange Commission through a branch office which is now known as Metal One Corporation Manila Branch; that it was licensed in the Philippines to engage in the business of exporting/importing and selling of steel products such as bar steel, steel sheets, steel pipes, semi-finished steel products (i.e. billets, blooms, slabs, etc.). In reply, please be informed that the formula provided by RAMO 1-95 in computing the Philippine income tax of Sogo Shoshas and other similarly situated foreign trading companies, which is based on their worldwide trading activities, will continue to apply in the computation of their normal income tax liability imposed under Section 28(A)(1) of the Tax Code of 1997 on resident foreign corporations. This is so since RAMO 1-95 is still in conformity with the Tax Code of 1997 and is the result of negotiations long before the said Code was passed and took effect. CETDHA Accordingly, Metal One Manila clearly falls under the coverage of RAMO 1-95 and therefore its income tax liability shall properly be computed as follows: 1. For solicitation and trading activities 75% Worldwide operating Sales to the Philippines attribution tax Income X Worldwide Sales X rate X rate 2. For construction and other activities Net income from construction and other activities x tax rate. However, the Minimum Corporate Income Tax (MCIT) is introduced under Section 28(A)(2) in relation to Section 27(E) of the Tax Code of 1997 which explicitly states that a minimum corporate income tax of two percent (2%) of the gross income as of the end of the taxable year is imposed on resident foreign corporations beginning on the fourth taxable year immediately following the year in which such corporations commenced its business operations, if the MCIT is greater than the normal income tax imposed under Section 28(A)(1) of the Tax Code, as implemented by RAMO 1-95 for purposes of the Sogo Shoshas and other similarly situated foreign companies. Therefore, with the introduction of the MCIT provision of the Tax Code as implemented by Revenue Regulations 9-98, the Sogo Shoshas and other similarly situated multinational enterprises shall be required to comply with the requirements of RR 9-98 for the computation of their MCIT, on one hand, while RAMO 1-95 will continue to govern in the determination of their normal income tax, on the other hand. (BIR ITAD Ruling No. 004-01 dated January 18, 2001) 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. DTAESI Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group