Smart Broadband, Inc.

October 15, 2008 BIR RULING [DA-(IL-026) 292-08] Section 57 (B); BIR Ruling No. DA-273-2006 Smart Broadband, Inc. 12th Floor Rafort Pacific Tower Ayala Avenue, Makati City Attention: Rina R. Manuel Senior Tax Manager Gentlemen : This refers to your letter dated January 23, 2007, requesting a confirmation of your opinion that SMART BROADBAND, INC., being a BOI-registered enterprise enjoying income tax holiday (ITH) pursuant to the Omnibus Investments Code of 1987, is exempt from the creditable withholding taxes prescribed under Revenue Regulations No. 2-98 as amended, on income payments received from its customers. It is represented that SMART BROADBAND, INC. (SBI, for short) is a domestic corporation registered with the Securities and Exchange Commission (SEC), and is engaged in the operation of integrated telecommunications services throughout the Philippines; that SBI is registered with the Board of Investments (BOI) beginning July 21, 2005 as a pioneer enterprise under Executive Order (E.O.) No. 226 (Omnibus Investments Code of 1987) as a new operator of telecommunication facilities (nationwide broadband access) under the BOI-issued Certificate of Registration No. 2005-101; that, moreover, under the terms of its registration, it is entitled to a certain tax and non-tax incentives, which include, among others, income tax holiday (ITH) for six (6) years from July 2005 or until July, 2011. In reply, please be informed that under Section 2.57.5 (B) (2) of Revenue Regulations No. 2-98, as amended, implementing Section 57 (B) of the Tax Code of 1997, the withholding tax prescribed in the said Regulations shall not apply to income payments made to persons enjoying exemption from payment of income taxes pursuant to the provisions of any law (general or special) like the Omnibus Investments Code of 1987. cTACIa Accordingly, since Smart Broadband, Inc. is a BOI-registered enterprise enjoying exemption from payment of income taxes pursuant to the provisions of Section 39 (a) (l) of the Omnibus Investment Code of 1987, income payments received from its customers shall not be subject to the expanded creditable withholding tax prescribed in Revenue Regulations No. 2-98, as amended, for a period of six (6) years from July, 2005 or actual start of commercial operations, whichever is earlier but in no case earlier than the date of registration. (BIR Ruling No. 189-2000 dated March 30, 2000). 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. Very truly yours, (SGD.) GREGORIO V. CABANTAC Deputy Commissioner