BIR Ruling No. 072-13

February 18, 2013 BIR RULING NO. 072-13 E.O. 226; RR 2-98; 000-00 Areo Law Office 2/f, Room 204, St. Anne Building Luna St., Lapaz, Iloilo City Attention: Atty. Joseph Edward P. Areo Gentlemen : This refers to your letter dated July 5, 2012, requesting tax exemption in behalf of the 5A Feedmill Corporation as a New Producer of Animal Feeds pursuant to the provisions of the Omnibus Investments Code of 1987. cSIADH Documents submitted disclosed that 5A Feedmill Corporation with Taxpayer's Identification No. 295-290-757-000, is a domestic corporation engaged in milling and/or mixing of agricultural feeds for hogs and poultry products of San Miguel Foods, Inc. and registered with the Securities and Exchange Commission (SEC) under SEC Registration No. CS201027973; that 5A Feedmill Corporation is registered with the Board of Investments (BOI) as a New Producer of Animal Feeds per BOI Registration No. 2011-092 dated May 18, 2011; that according to the Terms and Conditions of its BOI Registration, 5A Feedmill Corporation is entitled to ITH for a period of four (4) years from August 2011 or the actual start of commercial operations/selling whichever is earlier, but in no case earlier than the date of registration; and that 5A Feedmill Corporation's ITH shall be limited only to the revenue generated from the registered activity, i.e. , production of animal feeds. 5A Feedmill Corporation shall observe the following production and sales schedules: Year Production Volume Production/Sales Sales Value (MT) Volumes (Bags) (Php'000) 1 105,000 2,100,000 75,600 2 127,500 2,550,000 96,390 3 150,000 3,000,000 119,070 4 150,000 3,000,000 125,024 5 150,000 3,000,000 131,275 In reply, please be informed that under Section 2.57.5 (B) (2) of Revenue Regulations (RR) No. 2-98, as amended by RR No. 6-2001 implementing Section 57 (B) of the Tax Code of 1997, as amended, the withholding tax prescribed in the said Regulations shall not apply to income payments to persons enjoying exemption from the income tax provided by the Omnibus Investments Code of 1987. Accordingly, since 5A Feedmill Corporation New Producer of Animal Feeds , is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by 5A Feedmill Corporation in connection with production of animal feeds are exempt from the creditable withholding tax imposed under RR No. 2-98, as amended by RR No. 6-2001, for a period of four (4) years from August 2011 or the actual start of commercial operations/selling whichever is earlier, but in no case earlier than the date of registration. Moreover, 5A Feedmill Corporation's entitlement to ITH is not automatic as it has still to comply with Section 9 (a) of the Specific Terms and Conditions of the BOI Registration, viz. : (1) Income Tax Holiday for four (4) years from August 2011 or the actual start of commercial operations/selling whichever is earlier, but in no case earlier than the date of registration. Only income generated from the registered activity, i.e. , production of animal feeds, shall be entitled to ITH incentives. For this purpose, the enterprise shall submit audited segregated income statements for the registered project; (2) File an application with the BOI Incentives Department within one (1) month from the filing of the final Income Tax Return (ITR) with the Bureau of Internal Revenue (BIR) in order to validate the claim for income tax exemption. The application shall be accompanied by a certification from the Social Security System (SSS) that the enterprise is in good standing in the remittance of SSS contributions of its employees; and (3) Secure a Certificate of ITH Entitlement (CoE) from the BOI Supervision and Monitoring Department prior to filing of ITR with the BIR; otherwise, ITH for that particular taxable year without CoE shall be forfeited. Furthermore, BOI-registered enterprises enjoy no tax exemption/privileges other than those granted under E.O. 226. In this regard, under the terms and conditions of its BOI registration, 5A Feedmill Corporation New Producer of Animal Feeds was clearly granted a 4-year ITH from August 2011 or the actual start of commercial operations/selling whichever is earlier, but in no case earlier than the date of registration, but such terms and conditions do not provide for any exemption from other taxes that it may be subject to on its business transactions. The services rendered by 5A Feedmill Corporation New Producer of Animal Feeds does not fall within the purview of Sec. 4.109-1 (b) of RR 16-2005 as amended by RR 4-2007. Thus, 5A Feedmill Corporation New Producer of Animal Feeds will remain subject to Value Added Tax (VAT) pursuant to Section 106 (A) of the Tax Code as amended. CScTED It should be understood that 5A Feedmill Corporation New Producer of Animal Feeds shall be constituted as a withholding agent for the government if it acts as employer and any of its employees receive compensation income subject to compensation withholding tax, or if it makes payments to individuals or corporations subject to the withholding taxes as source as required under Chapter XIII and Section 57 of the Tax Code of 1997, as amended and implemented by Revenue Regulations No. 2-98, as amended. Likewise, 5A Feedmill Corporation New Producer of Animal Feeds is required to file on or before the 15th day of the fourth month following the close of your accounting period a Profit and Loss Statement and Balance Sheet with the Annual information Return under oath, stating your gross income and expenses incurred during the taxable year. Finally, 5A Feedmill Corporation New Producer of Animal Feeds's books of accounts and other pertinent records shall be subject to periodic examination by revenue enforcement officers of this Bureau for the purpose of ascertaining whether you have been complying with the conditions under which you have been granted tax exemption or tax incentives and your tax liability, if any, pursuant to Section 235 of the Tax Code of 1997, as amended. 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 as represented are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue