Sakamoto Orient Chemicals Corporation

April 23, 2009 BIR RULING [DA-(C-059) 208-09] RR 2-98; RMC 74-99; DA-174-05; DA-340-07 Sakamoto Orient Chemicals Corporation 9/F Liberty Center Bldg. 104 H.V. dela Costa St., Salcedo Village Makati City Attention: Mr. Emmanuel M. Elpedes Accounting and Administration Manager Gentlemen : This refers to your letter dated June 26, 2008 requesting for a confirmation of opinion that your company, Sakamoto Orient Chemicals Corporation (SOCC) is exempt from creditable withholding tax (CWT) being deducted by your customers on their income payments for locally purchased products. Documents submitted show that SOCC with Tax Identification No. (TIN) 000-171-218-000, is a corporation duly organized and existing under Philippine laws and is registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone Export Enterprise under Registration Certificate No. 99-012 dated March 11, 1999 at the Cocochem Agro-Industrial Park-SEZ. It was organized to engage in the: (1) manufacture of Refined Glycerine (RG), Crude Glycerine (CG) and Poly Glycerine (Poly-G), (2) manufacture of TBA Polymer, (3) increase in the production capacity of its Poly-Glycerine and Tetrabromob spherol A (TBA) Polymer projects, (4) increase in the production capacity of its Refined Glycerine (RG) project, and (5) increase in the production capacity of its Poly-G project. In reply, please be informed that Sec. 2.57.5 (B) (2) of Revenue Regulations (RR) No. 2-98, as amended, provides as follows: "Sec. 2.57.5. Exemption from withholding. The withholding of creditable withholding tax prescribed in these Regulations shall not apply to income payments made to the following: xxx xxx xxx (B) Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special, such as but not limited to the following: xxx xxx xxx (2) Corporations registered with the Board of Investments, Philippine Export Processing Zones, Subic Bay Metropolitan Authority, enjoying exemption from the income tax pursuant to E.O. 226 as amended by Republic Act No. 7916 and the Omnibus Investment Code of 1987." The aforequoted provision explicitly provides that the CWT does not apply to income payments to persons enjoying exemption from the 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. Accordingly, since SOCC is a PEZA-registered enterprise enjoying exemption from national taxes by virtue of Sec. 24 of R.A. 7916, income payments made to it with respect to its registered activities shall not be subject to the 1% CWT prescribed in RR 2-98, as amended. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, (SGD.) GREGORIO V. CABANTAC Deputy Commissioner