Navotas Shipyard Corporation

December 9, 2009 BIR RULING [DA-(C-308) 758-09] RR 8-2005; BIR Ruling No. DA-683-06 Navotas Shipyard Corporation 1328 Int. M. Naval Street Navotas, Metro Manila Attention: Engr. Jesus N. Villaflor President Gentlemen : This refers to your letter dated July 08, 2009 requesting for a ruling that the Manila Electric Company (MERALCO) refund to the corporation is not subject to the twenty-five percent (25%) creditable withholding tax. It is represented that on February 14, 2005, Navotas Shipyard Corporation received from Meralco documents informing that it was included in its clients list for refund program ordered by the ERC; that last April 24, 2009 it received a letter from the BIR stating that it no longer belongs to the Top 20,000 private corporations and as such it should cease/stop withholding the one (1%) percent creditable expanded withholding tax on its purchase of goods and two (2%) percent on its purchase of services on actual receipt. In reply, please be informed that Section 2.57.2 of Revenue Regulations (RR) No. 2-98, as amended by RR No. 3-2004 and 8-2005, implementing Section 57 (B) of the Code provides, to wit: "Sec. 2.57.2. Income payments subject to creditable tax and rates prescribed thereon. Except as herein otherwise provided, there shall be withheld a creditable income tax at the rates herein specified for each class of payee from the following items of income payments to persons residing in the Philippines: xxx xxx xxx (U) MERALCO Refund arising from Supreme Court Case G.R. No. 14814 of April 9, 2003 to customers under Phase IV as approved by ERC On gross amount of refund given by MERALCO to Customers with active contracts as classified by MERALCO Twenty Five Percent (25%); To Customers with terminated contracts Thirty Two Percent (32%); cEaCAH xxx xxx xxx" It can be gleaned that Navotas Shipyard Corporation does not belong to exempt corporations under Section 30 of the Tax Code of 1997, as amended, which exempts such corporations from income tax, and consequently from withholding tax. Being withdrawn from the list of the Top 20,000 private corporations, does not mean that it is no longer subject to withholding tax. Rather, it means that it is no longer required to withhold the 1% or 2% tax on its purchases. Thus, Navotas Shipyard Corporation cannot claim exemption from income tax, and consequently, from the withholding tax, under Section 30 of the same Code. In view of the foregoing, this Office regrets to deny your request for exemption from withholding tax on MERALCO refund since the said refund of the excess utility payments in your favor will give rise to or create a taxable income. Accordingly, the refund of the excess utility payments with MERALCO is subject to the withholding tax. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service