Ilo Land, Inc.

November 17, 2008 BIR RULING [DA-(IL-043) 429-08] RR 2-98; DA 174-05 Ilo Land, Inc. La Mesa, Calamba Laguna Attention: Mr. Eaton Brian Ong President Gentlemen : This refers to your letter dated July 25, 2008 requesting confirmation of your opinion that payments made in favor of Ilo Land, Inc. (ILI, for brevity) are exempt from the creditable withholding tax (CWT) pursuant to Section 2.57.5 of Revenue Regulations (RR) No. 2-98, as amended by RR No. 17-2003. It is represented that ILI is a PEZA-registered Ecozone Facilities enterprise with Registration Certificate No. 97-006-F dated 15 August 1997, to engage in the construction and leasing of real properties in various ecozones; that among the incentives provided in the Registration Agreement between PEZA and ILI is that ILI is entitled to the 5% gross income tax which is in lieu of national and local taxes pursuant to Section 24 of Republic Act (RA) No. 7916 as amended by R.A. No. 8748; In reply please be informed that Section 2.57.5 (B) (2) of RR No. 2-98 provides, to wit: "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: SDITAC 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 registered with the Board of Investments and enjoying exemption from the income tax provided by Republic Act No. 7916 and the Omnibus Investment Code of 1987;" The aforequoted provision explicitly provides that the creditable withholding tax does not apply to income payments to persons enjoying exemption from the payment of income taxes pursuant to the provisions of any law, general or special. PEZA-registered enterprises are granted certain preferential tax treatment under Section 24 of R.A. No. 7916 which provides that "any provision of existing laws, rules and regulations to the contrary notwithstanding, not taxes, local and 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 and enterprises within the ECOZONE shall be remitted to the national government. Accordingly, since ILI is a PEZA-registered enterprise enjoying exemption from national taxes by virtue of Section 24 of RA 7916, income payments made to it with respect to its registered activities shall not be subject to the creditable withholding tax prescribed in RR No. 2-98, as amended. This ruling is being issued on the basis of the foregoing 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. CcAIDa Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service