BIR Ruling [DA-621-99]

November 3, 1999 BIR RULING [DA-621-99] Joaquin Cunanan & Co. 14th Floor, Multinational Bancorporation Centre 0805 Ayala Avenue, Makati City Attention: Ms. Tomasa H. Lipana Managing Partner Gentlemen : This refers to your letter dated February 2, 1999, in behalf of your client Teradyne Philippines, Ltd., requesting for a confirmation of your opinion that creditable withholding tax shall not apply to income payments made to your client pursuant to Section 2.57.5(B)(2) of Revenue Regulations No. 2-98. It is represented that Teradyne Philippines, Ltd., is an ecozone export enterprise registered with the Philippine Economic Zone Authority (PEZA) under Certificate of Registration No. 96-017 dated February 5, 1996; that it is engaged in repairing and servicing of printed circuit board for export at the Mactan Export Processing Zone, Lapu-Lapu City, Cebu; and that it is entitled to Fiscal Incentives pursuant to the Certification issued by the Philippine Economic Zone Authority, viz : "1. Incentives under Book VI of EO 226 which include the following: "a) Corporate income tax holiday (ITH) for four (4) years for original project effective on the date of start of commercial operation or the date specified in the Registration Agreement whichever comes earlier; ITH entitlement for the original project can also be extended for another three years provided specific criteria are met for each additional year; duly approved and registered expansion projects are entitled to three years ITH, New Projects to a separate four year ITH, subject to setting up of a separate books of accounts; "b) VAT zero-rating of local purchases subject to the compliance with BIR and REZA requirements; "c) Tax and duty free importation of merchandise which include raw materials, capital equipment, machineries, spare parts and supplies; "d) Exemption from wharfage dues and export tax, impost or fees; "e) Additional deduction for incremental labor within five years of operations provided this is not availed of simultaneously with ITH; and "f) Exemption from payment of any and all local government imposts, fees, licenses or taxes except real estate tax. "2. After the lapse of ITH the following incentives shall apply: "a. Exemption from national and local taxes, in lieu thereof payment of 5% final tax on gross taxable income (Section 24 of RA 7916); and "b. Additional deduction for training expenses (1/2 of value) against 3% of 5% tax on gross income earned, subject to guidelines to be formulated by PEZA in coordination with the Department of Labor and Employment and the Department of Finance xxx xxx xxx" In reply, please be informed that under Section 2.57.5(B)(2) of Revenue Regulations No. 2-98, implementing Section 57(B) of the Tax Code of 1997, the withholding tax prescribed in the said Regulations shall not apply to income payments made to persons enjoying exemption from the income tax under Republic Act No. 7916 and the Omnibus Investments Code of 1987. Accordingly, since Teradyne Philippines, Ltd. is a PEZA registered enterprise, enjoying exemption from payment of income taxes for a period of four (4) years reckoned from the start of its commercial operations in accordance with the provisions of the Omnibus Investments Code of 1987, this Office is of the opinion, as it hereby holds that it is exempt from the payment of the creditable withholding tax imposed under Revenue Regulations No. 2-98 on income payments received by it from February 5, 1996 to February 4, 2000. (BIR Ruling No. 020-95 dated February 13, 1995) ISAaTH 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 from the date of issuance. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group