Integrated Microelectronics, Inc.

November 14, 2007 BIR RULING [DA-593-07] R.A. 7916 & RR 8-05; BIR Ruling No. DA-097-06, DA-226-06 & DA-359-06 Integrated Microelectronics, Inc. North Science Avenue, Special Export Processing Zone Laguna Technopark, Bian Laguna Attention: Atty. Arlene B. Montero Gentlemen : This refers to your letter dated May 7, 2007 requesting for confirmation of your opinion that the refund by the Manila Electric Company (Meralco) of IMI's excess utility payments incurred and paid by IMI during the period of its Income Tax Holiday (ITH) is not subject to the 32% corporate income tax and withholding tax imposed under Revenue Regulations (RR) No. 2-98, as amended by RR No. 3-05 considering that the excess utility payments incurred by IMI during the period of its ITH were directly connected with its Philippine Economic Zone Authority (PEZA)-registered activities. CDcaSA As represented, Integrated Microelectronics, Inc. ("IMI") is a corporation duly organized and existing under the laws of the Philippines and registered with the PEZA. Its principal office is located at the North Science Avenue, Special Export Processing Zone, Laguna Technopark, Bian, Laguna. As a PEZA-registered enterprise, IMI enjoyed ITH. During the ITH period, IMI incurred and paid Meralco excess utility payments related to its PEZA-registered activities. In reply, please be informed that Section 2.57.5 (B) (2) of RR No. 2-98, as amended by RR Nos. 3-2004 and 8-2005, is explicit in its provisions that the expanded withholding tax does not apply to income payments to persons enjoying exemption from payments 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 (R.A.) 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." HETDAC Considering that the excess utility payments pertain to expenses related to IMI's registered activity, the refund which will be received by IMI is not subject to the 32% regular corporate income tax nor to the 5% gross income tax because the refund pertains to the excess utility payments made during the period when IMI was on ITH. Consequently, the Meralco refund will not give rise to any taxable income on the part of IMI since it did not benefit on such utility payments during its ITH period. In view of the foregoing, the Meralco refund to IMI arising from the Supreme Court case with G.R. No. 141314 dated April 9, 2003 of the excess utility payments which were incurred and paid during the time when IMI was on ITH, is exempt from the 32% regular corporate income tax, and consequently, from the 25% or 32% withholding tax imposed under RR No. 8-2005. DTIcSH 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 as null and void. SECAHa Very truly yours, (SGD.) GREGORIO V. CABANTAC Deputy Commissioner