Wallace Fuel Storage, Inc.

October 6, 2008 BIR RULING [DA-(IL-026) 276-08] DA372-07 Wallace Fuel Storage, Inc. Port Complex, Poro Point San Fernando City La Union Attention: Ms. Lorna G. Ramos Gentlemen : This refers to your letter dated September 18, 2008 stating that Wallace Fuel Storage, Inc. (Wallace) is a corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. CS200417407 dated November 2, 2004; that it is likewise registered with the Poro Point Special Economic Zone and Freeport Zone (PPSEFZ) as a service enterprise with PPFZ Certificate of Registration No. 2008-01; that it is classified as a PPFZ registered enterprise for the purpose of: HADTEC "buying, selling, distributing, import and export, marketing at wholesale and retail, storage and transshipment, insofar permitted by law, all kinds of goods, commodities, wares and merchandise of every kind and description, including but not limited to petroleum products and to enter into all kinds of contracts for the buying, selling, distributing, importing, exporting and the storage and transshipment and other dispositions for its own account as principal or in a representative capacity as a manufacturer's representative, merchandise broker, indentor, commission merchant, factor, agent, upon consignment of the aforesaid goods and merchandise in the Poro Point Freeport Zone." and that you posit that Wallace is entitled to all the incentives available pursuant to Section 15 of Republic Act (R.A.) No. 7227, as amended. Based on the foregoing representations, you now request for tax exemption as a requirement of its customers in processing their payments to Wallace. In reply thereto, please be informed that Section 2.57.5 (B) (2) of Revenue Regulations No. 2-98, as amended by Section 4 of Revenue Regulations No. 14-2002, provides as follows: "SEC. 4. 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 Board of Investments, Philippine Export Processing Zones and Subic Bay Metropolitan Authority enjoying exemption from income tax pursuant to E.O.226, as amended, R.A.No.7916, the OmnibusInvestments Code of 1987, and R.A.No.7227, as amended, respectively: xxx xxx xxx" Such being the case, Wallace is exempt from the 1% withholding tax on income payments made by the top 10,000 corporations. Accordingly, if Wallace, a PPSEFZ still enjoys ITH incentive under a special law or the 5% preferential tax incentive from the SBF, all payments received by it from its customers, whether ECOZONE registered or customs territory enterprises are exempt from the withholding tax. DTEScI Moreover, Section 2 of R.A. No. 9400 which amended R.A. No. 7227, as circularized in Revenue Memorandum Circular No. 27-2007, as amended by Revenue Memorandum Circular No. 50-2007, provides as follows: "SEC. 2. Section 15 of Republic Act No. 7227, as amended, is hereby amended to read as follows: xxx xxx xxx "Duly registered business enterprises that will operate in the Special Economic Zones to be created shall be entitled to the same tax and duty incentives as provided for under Republic Act No. 7916, as amended: Provided, That for the purpose of administering these incentives, the PEZA shall register, regulate, and supervise all registered enterprises within the Special Economic Zones." Thus, in the case of Commissioner of Internal Revenue vs. Seagate Technology (Philippines) G.R. No. 153866 dated February 11, 2005, the Supreme Court ruled that ". . . conversely, sales by a PEZA-registered entity to a VAT-registered in the customs territory are deemed imports from a foreign country. An ecozone indubitably a geographical territory of the Philippines is, however, regarded in law as foreign soil. This legal fiction is necessary to give meaningful effect to the policies of the special law creating the zone. If respondent is located in an export processing zone within that Ecozone, sales to the export processing zone, even without being actually exported, shall in fact be viewed as constructively exported under E.O. 226. Considered as export sales, such purchase transactions by respondent would indeed be subject to a zero rate." Accordingly, any sale made by a VAT-registered entity of goods or services to Wallace located within the Freeport Zones and which enjoys the incentives under R.A. No. 7227, as amended by Section 2 of R.A. No. 9400, is legally entitled to zero percent (0%) VAT. 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. cCaIET Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service