BIR Ruling [DA-636-04]

December 15, 2004 BIR RULING [DA-636-04] SEC. 24; RA 7916; DA-252-2004 dtd 5-12-04 Ocampo, Mendoza & Co. Certified Public Accountants Unit 102 Regalia Park Tower 150 P. Tuazon Avenue Cubao, Quezon City Attention: Ma. Cristina B. Ocampo Partner Gentlemen : This refers to your letter dated August 9, 2004, in behalf of your client SHANG MEI PHILIPPINES CORP. (Shang Mei for brevity), a PEZA-registered entity, requesting a confirmation of your opinion that the purchase of a parcel of land by your client, Shang Mei, from First Philippine Industrial Park Inc., likewise, a PEZA-registered Ecozone Developer/Operator is exempt from the capital gains tax, creditable withholding tax and documentary stamp tax. It is represented that Shang Mei is a domestic corporation principally engaged in real estate development; that it is registered with the Philippine Economic Zone Authority (PEZA) on December 1, 2003 under Certificate of Registration No. 03-27-F as an Ecozone Facilities Enterprise to be located at First Philippine Industrial Park-Special Economic Zone in Sto. Tomas, Batangas; that on December 8, 2003, First Philippine Industrial Park, Inc. (FPIP) executed a Contract to Sell in favor of Shang Mei over a parcel of land situated at the industrial estate; that FPIP is registered with PEZA on October 29, 1997 under Certificate of Registration No. EZ-97-03 as an Ecozone Developer/Operator; that under its registration, FPIP is to establish, develop, construct, administer, manage and operate FPIP-Special Economic Zone; that under their contract to sell, Shang Mei shall shoulder all expenses necessary including capital gains tax, creditable withholding tax, documentary stamp tax among other things. In reply, please be informed that Section 24 of R.A. No. 7916, otherwise known as "The Special Economic Zone Act of 1995," provides that no taxes, local and national, shall be imposed on business establishments operating within the Ecozone and that in lieu of paying taxes, five percent (5%) of the gross income earned by all business enterprises within the Ecozone shall be remitted to the national government. Additionally, Section 2 (nn), Rule l of the Rules and Regulations implementing R.A. No. 7916 provides that the term "gross income" refers to gross sales or gross revenues derived from business activity within the Ecozone, net of sales discounts, sales returns and allowances minus cost of sales or direct costs but before deduction is made for administrative expenses or incidental losses during a given taxable period. In BIR Ruling No. DA333-98 dated July 21, 1998, this office ruled that ". . . the development, operation, sale or lease of lots of your client, Balibago Land Corporation, as a PEZA Ecozone Developer or Operator is exempt from income tax, capital gains tax, value-added tax and all other national internal revenue taxes. In lieu thereof, your client is liable to pay the five percent (5%) final tax on its gross income from said activities computed in accordance with Subsection (2), Section 2, Rule XX of the Rules and Regulations to implement R.A. No. 7916. . . ." WHEREFORE, premises considered, the sale of a parcel of land located within the Ecozone between two (2) PEZA-registered enterprises (FPIP & Shang Mei) is not subject to the capital gains tax/creditable withholding tax and the corresponding documentary stamp tax, but subject to the 5% preferential tax rate based on the gross income earned pursuant to Section 24 of R.A. No. 7916. This will therefore serve as an authority for RDO No. 58 (Batangas City) to issue the necessary CAR so that title to the said property may now be issued in the name of Shang Mei Philippines, Inc. cHaCAS 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, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group