BIR Ruling [DA-578-06]

September 22, 2006 BIR RULING [DA-578-06] 57 (B); R.R. 17-2003; 090-2004 Manila Water Company, Inc. MWSS Administration Building 489 Katipunan Road 1105 Balara, Quezon City Attention: Ms. Sherisa P. Nuesa Chief Financial Officer Gentlemen : This refers to your letter dated February 7, 2006 requesting for exemption from the provisions of Revenue Regulations No. 17-2003, particularly the withholding of 2% from water/sewer bills payment to Manila Water Co., Inc. (MWCI) by virtue of the Income Tax Holiday Extension (ITHE) granted by the Board of Investments that runs from January 1, 2006 to December 31, 2006. Based on your representations, as well as from the documents submitted, it appears that MWCI is registered with the BOI as new operator of water supply and sewerage system for the east zone service area under Certificate of Registration No. 97-188 dated August 20, 1997; that under its Certificate of Registration dated August 20, 1997, MWCI was granted certain incentives, among others, an Income Tax Holiday (ITH) for six (6) years from August 1, 2000 until July 31, 2006; that the BOI, in its meeting dated December 20, 2005, granted a bonus year of ITH to MWCI covering the period from January 1, 2006 to December 31, 2006; and that the Board of Directors of Manila Waterworks and Sewerage System, in its Resolution No. 2006-011 held on January 19, 2006 issued a Certification in favor of MWCI attesting that the ITH incentive of the latter would redound to the benefit of the consumer and will accelerate the coverage of the water service, water supply availability and water service to Baras and Jala-Jala. In reply, please be informed that Section 2.57.5(B)(2) of Revenue Regulations (RR) No. 2-98, as last amended by RR 30-2003, implementing Section 57(B) of the Tax Code of 1997, as amended by Republic Act (RA) No. 9337, provides that the withholding tax prescribed in the said Regulations shall not apply to income payments to persons enjoying exemption from income tax pursuant to the provisions of RA No. 7916 and the Omnibus Investment Code of 1987. Considering therefore, that MWCI is a BOI-registered enterprise enjoying ITH for a period of one (1) year reckoned from January 1, 2006 until December 31, 2006, pursuant to the provisions of Section 39(a)(1) of Executive Order No. 226, this Office is of the opinion as it hereby holds that it is exempt from the payment of creditable withholding tax prescribed in RR No. 2-98, as last amended by RR No. 30-2003 on income payments received by it during the bonus year ITH, in connection with its registered activity. AEScHa Consequently, as a supplier of services, MWCI is exempt from the provision of Section 3(M) of RR No. 17-2003, as amended, that imposes upon the top ten thousand (10,000) private corporations the duty to withhold an equivalent of two (2%) percent creditable withholding tax on their income payments to their supplier of services. 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