Nittetsu Micrometal Corporation Philippines

December 23, 2009 BIR RULING [DA-(C-354) 844-09] Sec. 24 RA 7916; DA-698-2006, DA-124-2008 Nittetsu Micrometal Corporation Philippines First Philippine Industrial Park Barangay Sta. Anastacia, Sto. Tomas Batangas Attention: Kiyoshi Kojima President Gentlemen : This refers to your letter dated June 18, 2007 requesting for confirmation of your opinion that the payments you receive from customers is not subject to expanded withholding taxes whether your manufacturing activities enjoy the income tax holiday incentive or already covered by the special 5% gross income tax regime. EaSCAH It is represented that Nittetsu Micrometal Corporation Philippines is a domestic corporation duly organized and existing under the laws of the Philippines with principal office at First Philippine Industrial Park Barangay Sta. Anastacia, Sto. Tomas Batangas and is registered with Philippine Economic Zone Authority (PEZA). Nittetsu is engaged in the manufacturing of gold bonding wires, for export, and the importation of raw materials, machinery, equipment, tools, goods, wares, articles or merchandise directly used in its registered operations. In reply, please be informed that Section 2.57.5 (B) of Revenue Regulations No. 2-98, as amended, implementing Section 57 (B) of the Tax Code of 1997, is explicit in its provisions that the 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 specific income tax exemption under Section 24 of Republic Act (R.A.) No. 7916, as amended by R.A. No. 8748, otherwise known as the Special Economic Zone Act of 1995 (approved on June 1, 1999) which provides: "SECTION 24. Exemption from National and Local Taxes. Except for real property taxes on land owned by developers, no taxes, local or 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 or enterprises within the ECOZONE shall be remitted as follows: (a) Three percent (3%) to the National Government; (b) Two percent (2%) which shall be directly remitted by the business establishments to the treasurer's office of the municipality or city where the enterprise is located." In view of the foregoing, this Office confirms your opinion that Nittetsu being a PEZA-registered enterprise enjoying incentive under a special law and the 5% preferential tax incentive from the PEZA, all payments received by it from its customers whether ECOZONE registered or customs territory enterprises are exempt from withholding taxes. Accordingly, Nittetsu is not subject to expanded withholding taxes on income payments received by it in connection with its registered activity. 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. DaACIH Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service