Southwing Heavy Industries, Inc.

April 8, 2009 BIR RULING [DA-(IL-004) 188-09] RR 14-2002; DA-037-07; DA-526-2006; VAT Ruling No. 006-2004 Southwing Heavy Industries, Inc. Lot 5 Former Twinhull Shipyard Argonaut Highway Subic Bay Freeport Zone Attention: Mr. Jose Ma. Torralba Dizon General Manager Gentlemen : This refers to your letter dated January 26, 2009 requesting for confirmation of opinion that Southwing Heavy Industries, Inc. (Southwing for brevity), being a Subic Bay Freeport Zone (SBFZ)-registered enterprise is exempt from creditable withholding tax (CWT) pursuant to Section 2.57.5 of Revenue Regulations (RR) No. 2-98, as amended. Documents submitted show that Southwing is engaged in port arrastre services, trading, distribution and warehousing of industrial machineries, construction equipment and related services within the Freeport zone. It is duly accredited by the Subic Bay Metropolitan Authority (SBMA) under Certificate of Registration and Tax Exemption No. 2001-0022 dated October 19, 2008 and the same shall be effective from said date to October 18, 2009. Southwing has its office within the SBFZ and enjoys the five percent (5%) preferential tax rate, in lieu of paying all national and local taxes pursuant to Section 12 (c) of Republic Act (RA) No. 7227, as amended. In reply, please be informed that Sec. 2.57.5 (B) (2) of RR No. 2-98, as amended by RR No. 14-2002, provides as follows: CcEHaI "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 duly registered with the . . . and Subic Bay Metropolitan Authority enjoying exemption from income tax pursuant to E.O. 226, as amended, R.A. 7916, the Omnibus Investment Code of 1997 and R.A. 7227, as amended, respectively;" DScTaC As an SBFZ-registered enterprise, Southwing is subject to the payment of preferential tax rate of 5%, in lieu of paying local and national taxes, based on its gross income earned within the zone and which shall be remitted in accordance with RA No. 7227, as amended. Accordingly, since Southwing is exempt from payment of national and local taxes, and in lieu of which, it is subject to the 5% tax based on the gross income earned as defined under RR No. 2-05, this Office is of the opinion as it hereby holds that it is exempt from the CWT prescribed under Section 2.57.5 (B) of RR No. 2-98, as amended by RR 14-2002, implementing Section 57 (B) of the Tax Code of 1997 on income payments received by Southwing. (BIR Ruling No. DA-267-08 dated April 24, 2008) Furthermore, as a duly registered SBFZ-enterprise enjoying the 5% preferential income tax rate, Southwing is also exempt from the value-added tax on the sale of its services to clients also located inside the Freeport zone pursuant to Section 109 (K) of RA No. 9337. (VAT Ruling No. 006-2004 dated April 2, 2004) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be ascertained that the facts are different, then this ruling shall be considered as null and void. DSAEIT Very truly yours, (SGD.) GREGORIO V. CABANTAC Deputy Commissioner