Clark Development Corporation is Exempt from Local and National Taxes Including but Not Limited to Withholding Income Taxes and Value Added Tax Since It Exercises Proprietary Functions and Powers Within the CSEZ

March 3, 1995 BIR RULING NO. 046-95 24 (a) 100 000-00 046-95 Clark Development Corporation Clark Field, Bldg. 2217, Dorst Avenue corner Weston Avenue, Clark Field Pampanga Attention: Mr . Antonio A . Henson President and CEO Gentlemen : This refers to your letter dated January 23, 1995 stating that Clark Development Corporation (CDC) is a government owned and controlled corporation established pursuant to Executive Order No. 80, Series of 1993 as the operating and implementing arm of the Bases Conversion and Development Authority (BCDA) to manage the Clark Special Economic Zone (CSEZ). In connection therewith, you are requesting confirmation of your opinion to the effect that CDC is exempt from local and national taxes including but not limited to withholding income taxes and value added tax since it exercises proprietary functions and powers within the CSEZ.. In reply thereto, please be informed that Section 5 of Executive Order No. 80 authorizing the establishment of the CDC as the implementing arm of BCDA for CSEZ provides that the CSEZ shall have all the applicable incentives in the Subic Special Economic and Free Port Zone under RA 7227 and those applicable incentives granted in the Export Processing Zones, the Omnibus Investments Code of 1987, the Foreign Investments Act of 1991 and new investments laws which may hereinafter be enacted. Section 12(c) of R.A. No. 7227, otherwise known as the Bases Conversion and Development Act of 1992, provided that registered enterprises within the Secured Area of the Zone as defined in Executive Order No. 97 dated June 19, 1993 shall, in lieu of local and national taxes, be liable to the payment of the following, based on gross income earned: (1) To the National Government 3% (2) To the Local Government Units affected by declaration of the Zone 1% (3) To the Special Development Fund to be utilized for the development of municipalities outside the City of Olongapo and the Municipality of Subic and other municipalities contiguous to the base areas 1% and implementing arm of the BCDA pursuant to Executive Order No. 80,. has no specific tax exemption, the powers and functions of BCDA as enumerated in its Articles of Incorporation to wit: " PRIMARY PURPOSE "Operates, administer, manage and develop the Clark Special Economic Zone (CSEZ) including but not limited to the Civic Aviation Complex, Industrial Estate, Tourism Estate and the Agro-industrial Processing Centers situated therein; " SECONDARY PURPOSE "1. Undertake and regulate the establishment, operation, and maintenance of the power utility, water supply, telephone communication, cargo transshipment and related businesses, airport terminal services and concessions incidental therein, airport operations, and such other services and infrastructure in the Clark Special Economic Zone, and to fix just and reasonable fares, rates, charges and other forms of pricing in connection thereof; "2. Purchase, acquire, own, lease, sell and convey real properties such as lands, buildings and warehouses, and personal properties such machinery and equipment as may be necessary in or incidentally to the conduct of the corporate business, and to pay in cash shares of its capital stock, debentures and other evidences of indebtedness, or other securities, as may be deemed expedient, for any business or property acquired by the Corporation; "3. Encourage, facilitate, accept and regulate the participation of any local and foreign investments, business or enterprises in the Clark special Economic Zone; "4. Borrow or raise money from local international financial institutions necessary to meet the financial requirements of its business; to issue bonds, promissory notes and other evidence of indebtedness; and to secure the re-payment thereof by mortgage, pledge, deed of trust or lien upon the shares of its capital stock, debentures and other evidences of indebtedness as payment for properties acquired by the Corporation of its lawful business, subject to such rules and regulations issued by the Vases Conclusion Development Authority (BCDA); "5. Conduct business research, business studios surveys and tests; create, install and utilize business systems, methods, controls, layouts and plans as are required or expedient to the management, administration or operation of the Corporation's assets; "6. Invest and deal with the money and properties of the corporation in such manner as may from time to time, be considered wise or expedient for the advancement of its interest; sell, dispose of or transfer the business, properties and goodwill of the Corporation or any part thereof for such consideration and under such terms and conditions approved by the Bases Convention and Development Authority BCDA). "7. Grant concessions, rights or licenses to private corporations, associations or entities and to operate or manage the various businesses and activities inside the Clark Special Economic Zone; xxx xxx xxx undoubtedly indicate that they are proprietary in nature, in which case, CDC falls within the purview of a business enterprise operating within the Zone. It is therefor, our opinion that by undertaking the aforementioned business activities in the CSEZ, CDC shall be liable to the payment of the preferential tax rate of 3%,plus the amounts equivalent to 1% and 1% respectively, for the Local Government Units and special Development Fund, as aforequoted, based on its gross income earned, in lieu of local and national internal revenue taxes. Accordingly, its importation of goods/articles in connection with such activities which are proprietary in character shall be exempted from VAT. Moreover, the sale of goods by a domestic vendor in the customs territory to CDC shall be considered export and effectively zero rated on the part of the seller. The domestic vendor shall not impute or shift any VAT as part of cost to be paid by the CDC on its purchases from the Customs Territory. This same holds true with respect to purchases of goods by a registered enterprise operating within the CSEZ from a domestic vendor in the Customs Territory. It shall be understood however, that VAT registered vendors in the Customs Territory shall apply for the effective zero rating of their sales to CDC and to registered enterprises within the CSEZ pursuant to Revenue Regulations No. 5-87. LibLex Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue