SAMMA Corporation

December 17, 2008 BIR RULING [DA-(IL-047) 548-08] DA 112-05 SAMMA Corporation Main Avenue, Cavite Economic Zone Rosario, Cavite Attention: Jung Hee Kim President Gentlemen : This refers to your letter dated August 26, 2008 stating that Samma Corporation (Samma) is organized and existing under the laws of the Philippines; that it is likewise registered with the Philippine Economic Zone Authority (PEZA) under Certificate of Registration No. 91-14 dated June 27, 1991; that in a Certification issued by PEZA on March 28, 2008, it is certified that Samma is entitled to the 5% special tax on gross income earned under Section 24 of Republic Act (R.A.) No. 7916, as amended by R.A. No. 8748; that after several years of operation in Cavite Economic Zone with a significant change in the economic and business climate of its products, Samma reduced its manufacturing activity resulting to excess factory space and subleased the excess spaces in the factory to Dong Seung, Inc., also a PEZA-registered company; that the continued escalation of production costs and stiff competition in the world market has resulted to continuous financial losses since year 2003; that it has completely closed down the production of its major product last March 2008 and paid the separation pay of its employees and accounts to various suppliers through the loan it has obtained; that on November 26, 2008, in a Secretary's Certificate issued by the Corporate Secretary Marievic G. Ramos-Aonuevo, it was certified that the Board of Directors of Samma resolved to permanently cease its commercial operations as of December 31, 2008; and that the management has decided to sell its factory buildings to another PEZA-registered company, CQS Stainless Corporation, to payback its loan and to continue the operation of the remaining production orders with viability. Based on the foregoing representations, you now request for ruling that any gain from the sale of the aforesaid factory buildings, previously used in its PEZA-registered operations, and rental income derived from the lease of its factory building, are subject to the preferential tax rate of 5% based on the gross income earned pursuant to Section 24 of Republic Act (R.A.) No. 7916. In reply thereto, please be informed that in BIR Ruling No. DA 206-00 dated April 4, 2000, which is a reiteration of BIR Ruling No. DA 008-99 dated January 19, 1999, this Office ruled that ". . . , it is the opinion of this Office as it hereby holds that the income derived by Far East Wire Harness Corporation, a PEZA-registered enterprise, from the lease of its factory buildings is subject to the preferential tax rate of 5% on its gross income earned." CaEATI IN VIEW OF THE FOREGOING, this Office holds that the sale of factory buildings by Samma, a PEZA-registered enterprise, is exempt from the payment of capital gains tax and creditable withholding tax. However, it is subject to the 5% preferential tax rate based on the gross selling price or fair market value of the property, whichever is higher, as determined under Section 6 (E) of the Tax Code of 1997. 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service