Puyat Jacinto & Santos

December 17, 2008 BIR RULING [DA-(IL-048) 549-08] Sec. 57 (B); RR 14-2002; DA-508-07; DA-518-05 Puyat Jacinto & Santos 12th Floor, Manilabank Bldg. 6772 Ayala Avenue, Makati City Philippines Attention: Atty. Virginia B. Viray and Atty. Arnaldo M. Cario Gentlemen : This refers to your letter dated December 11, 2008 requesting for confirmation of your opinion on behalf of your client, Masinloc Power Partners Co. Ltd. (MPPCL for brevity), that the income received by MPPCL are not subject to creditable withholding tax, as an entity enjoying exemption from income taxes under Article 39 (a) (1) of Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987. DSETcC It is represented that MPPCL is a partnership duly organized and existing under Philippine laws with SEC Registration No. PL200709834; that its primary purpose is to invest in, acquire, finance, complete, construct, develop, improve, operate, maintain and hold power production and electrical generating facilities in the Philippines, and other property incidental thereto, for the production and sale of electricity; that MPPCL is registered with the Philippine Board of Investments (BOI) as a New Operator of 2 x 300 MW Coal Fired Power Plant on a Pioneer Status under the Omnibus Investments Code of 1987 (Executive Order No. 226) with Certificate of Registration No. 2008-052; that it is also a registered taxpayer with the Bureau of Internal Revenue (BIR) with BIR Registration No. 8RC0000018387; and that as a duly registered pioneer enterprise with the BOI, MPPCL is entitled to an Income Tax Holiday (ITH) for six (6) years from October 2008 or actual start of commercial operations, whichever is earlier, but in no case earlier than the date of registration. In reply, please be informed that under RR No. 14-2002, viz. : "Sec. 4. Exemption from Withholding. Section 2.57.5 of Revenue Regulations No. 2-98 is hereby amended to read as follows: 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: 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: (1) . . . (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. 7916, the Omnibus Investment Code of 1987 and R.A. 7227, as amended, respectively;" Accordingly, since MPPCL is a BOI-registered pioneer enterprise, enjoying exemption from the payment of income tax pursuant to the provisions of Sec. 39 (a) (1) of the Omnibus Investments Code of 1987 for a period of six (6) years from October 2008 or actual start of commercial operations, whichever is earlier, but in no case earlier than the date of registration, this Office is of the opinion as it hereby holds, that MPPCL's income is exempt from creditable withholding tax imposed under RR No. 2-98 as amended by RR No. 14-2002. Thus, no deductions for creditable withholding taxes should be made on payments to MPPCL ( e.g. , by its customers) during the aforementioned period with respect to its registered activity, subject however, to the condition that both the BOI General and Specific Terms and Conditions for the grant of ITH are met during the said period ( BIR Ruling No. DA-508-07 dated September 25, 2007; BIR Ruling No. DA-518-05 dated December 22, 2005). aESIDH 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