Sycip Gorres Velayo & Co.

June 7, 2010 BIR RULING [DA-(IL-009) 089-10] Section 24, RA 7916;DA-(IL-011) 107-08; [DA-(C-165) 432-09]; DA-004-03; DA-412-06 Sycip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Attention: F.K. Delos Santos Tax Services Gentlemen : This refers to your letter dated June 24, 2009, on behalf of your client Amkor Technology Philippines, Inc. (ATP), requesting for confirmation of your opinion that realized foreign exchange gains arising from transactions directly attributable to its registered activities are covered by the tax incentives granted by the Philippine Economic Zone Authority (PEZA) to ATP. It is represented that ATP is a corporation duly organized and existing under and by virtue of the laws of the Philippines; that its principal office address is at Km. 22 East Service Road, South Superhighway, Cupang, Muntinlupa City; that it is registered with the PEZA as an Ecozone Export Enterprise pursuant to its Certificate of Registration No. 00-092; that ATP is primarily engaged in the business of manufacturing, assembling, processing, exporting, buying and selling semiconductor products and components. It is further represented that in the course of its trade or business, ATP's transactions ( i.e., purchases of raw materials, production equipment and supplies used in production; and sales transactions) are entered into in foreign currencies; and that due to the difference in exchange rates on the date of recording and date of actual settlement, foreign exchange gains or losses are realized by ATP. Based on the foregoing representations, it is your opinion that the realized foreign exchange gains arising from the abovementioned transactions are covered by ATP's tax incentives as a PEZA-registered company. cDCSTA In reply, please be informed that Section 24 of Republic Act (R.A.) No. 7916 provides: "SEC. 24. Exemption from National and Local Taxes. Except for real property taxes on land owned by developers, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu thereof, five percent (5%) of the gross income earned by all business enterprises within the ECOZONE shall be paid and remitted as follows: . . ." In relation thereto, Section 2 (nn) of the Implementing Rules and Regulations of R.A. No. 7916 provides: "nn. 'Gross Income' for purposes of computing the special tax due under Section 24 of the Act refers to gross sales or gross revenues derived from business activity within the ECOZONE, net of sales discounts, sales returns and allowances and minus costs of sales or direct costs but before any deduction is made for administrative expenses or incidental losses during a given taxable period. The allowable deductions from "gross income" are specifically enumerated under Section 2, Rule XX of these Rules." Based on above-cited provisions, PEZA registered enterprises are subject to the 5% preferential tax rate, in lieu of all local and national taxes, earned from its business activity within the ECOZONE. The foregoing position is consistent with PEZA Memorandum Circular No. 32-2005 dated September 15, 2005 herein quoted as follows: "The tax treatment of foreign exchange (forex) gains shall depend on the activities from which there arise. Thus, if the forex gain is attributed to an activity with income tax incentive (Income Tax Holiday or 5% Gross Income Tax), said forex gain shall be covered by the same income tax incentive. On the other hand, if the forex gain is attributed to an activity without income tax incentive, said forex gain shall likewise be without income tax incentive, i.e., therefore, subject to normal corporate income tax." In the instant case, the foreign exchange gains of ATP, which arose from trade payables and receivables, are directly attributable to its registered activities. Accordingly, said realized foreign exchange gains of ATP are also covered by the preferential 5% gross income tax rate incentive. (BIR Ruling DA-195-08 dated March 25, 2008; BIR Ruling DA-375-08 dated June 20, 2008; BIR Ruling [DA-(IL-011) 107-08] dated August 5, 2008) SICDAa This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner Legal and Inspection Group