BIR Ruling [DA-666-06]

November 14, 2006 BIR RULING [DA-666-06] RA 7916; RR-8-2005; DA-359-2006 dtd 6/9/06 Sanyo Plastic Philippines, Inc . 110 East Main Ave. Special Economic Processing Zone Laguna Technopark, Bian, Laguna Attention: Mr. Akira, Ishii President Gentlemen : This refers to your letter dated May 15, 2006, requesting a Certificate of Exemption from the 25% withholding tax imposed under Revenue Regulations No. 8-2005 on your Meralco refund of excess withholding payments. It is represented that Sanyo Plastic Philippines, Inc. (SPPI) is a PEZA-registered corporation organized and existing under Philippine laws with principal address at 110 East Main Ave., SEPZ, Laguna Technopark, Bian, Laguna; that it is engaged in the business of manufacturing injected plastic products such as but not limited to control panels, remote controllers and fabrication of injection molds for export; that as a PEZA-registered, SPPI was granted an Income Tax Holiday of four years that ends in year 2000 and now currently paying 5% Gross Income Tax in lieu of all taxes; that under this tax incentive, any income payments to PEZA-registered enterprises are exempt from withholding tax; that under RMO No. 22-2005 which provides policies and guidelines for customers claiming exemption from withholding tax prescribed under RR No. 8-2005, you would like to request a Certificate of Exemption (COE) which you need to present to Meralco for claiming the exemption from the 25% withholding tax. 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 payment 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 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." Moreover, since the excess utility payments pertain to expenses related to SPPI's registered activity, then the refund which will be received by SPPI is not subject to the 35% regular corporate income tax nor to the 5% income tax because the refund pertains to the excess utility payments made during the period when SPPI was on an ITH. In sum, the Meralco refund to SPPI 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 SPPI was on an ITH, is exempt from the 35% regular corporate income tax, and consequently, from the 25% or 35% withholding tax imposed under RR No. 8-2005. Moreover, it is not subject to the 5% gross income tax under R.A. No. 7916. (BIR Ruling No. DA-074-2006 dated March 2, 2006) 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. cTECHI Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service