BIR Ruling No. 118-14

May 2, 2014 BIR RULING NO. 118-14 E.O. 226 Secs. 57 (B); 106 (A) (1) (a); 109 (1) (P); 196 of the Tax Code of 1997, as amended; BIR Ruling No. 334-11 Technology Exports Services Corp. RMT Industrial Complex, Tunasan Muntinlupa City 1770 Attention: Raulito O. Magpantay President and General Manager Gentlemen : This refers to your letter dated 06 June 2012 requesting for the exemption under Executive Order (EO) 226, otherwise known as the "Omnibus Investments Code of 1987". It is represented that TECHNOLOGY EXPORTS SERVICES CORP., with Tax Identification Number (TIN) 004-683-249-000, is a corporation duly organized under the laws of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under Company Registration No. A199600263 dated 05 June 1996; that TECHNOLOGY EXPORTS SERVICES CORP. is engaged in the fabrication, service, sales and repair of all types of machinery and equipment for industrial use, including but not limited to water wells, oil, gas, geothermal other energy related industries, and to such machineries as maybe necessary in the industries; that TECHNOLOGY EXPORTS SERVICES CORP. is duly registered with the Board of Investments under Certificate of Registration No. 2012-046 dated 20 March 2012, as Manufacturer, Fabricator and Supplier of Locally-Produced Machineries, Equipment and Components for Geothermal Technologies with capacity of 60 units per year; and that pursuant to its registration, its project is entitled to income tax holiday (ITH) incentive for a period of seven (7) years from 31 January 2011. In reply, please be informed that under Sec. 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 prescribe in the said Regulations shall not apply to income payments made to persons enjoying exemption form the income tax provided by the Omnibus Investment Code of 1987, as amended. CaSHAc Accordingly, since TECHNOLOGY EXPORTS SERVICES CORP. "Manufacturer, Fabricator and Supplier of Locally-Produced Machineries, Equipment and Components for Geothermal Technologies" , is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by it in connection with the aforementioned project, TECHNOLOGY EXPORTS SERVICES CORP. "Manufacturer, Fabricator and Supplier of Locally-Produced Machineries, Equipment and Components for Geothermal Technologies" , is exempt from creditable withholding tax imposed under RR No. 2-98, as amended by RR No. 6-2001 for seven (7) years from 31 January 2011 with a capacity of 60 units per year, subject to the submission of Certificate of Endorsement issued by the Department of Energy (DOE) Renewable Energy Management Bureau (REMB) on a per transaction basis, that the enterprise is in good standing. It must be emphasized, however, that the above exemption from creditable withholding tax covers only income directly attributable to revenues generated from its registered activity, specifically from the sale of locally-produced energy equipment, machineries, and components and services related thereto with a capacity of 60 units per year. Furthermore, such exemption shall not cover revenues other than those specifically mentioned on the BOI's Specific Terms and Conditions as limitation of its ITH entitlement. Moreover, TECHNOLOGY EXPORTS SERVICES CORP. "Manufacturer, Fabricator and Supplier of Locally-Produced Machineries, Equipment and Components for Geothermal Technologies" entitlement to ITH is entitlement to ITH is not automatic as it has still to comply with Sections 1, 4 and 5 of the Specific Terms and Conditions of the BOI Registration, viz. : 1) The enterprise shall comply with all the provisions of R.A. 9513 (The Renewable Energy Act of 2008) and its Implementing Rules and Regulations (IRR), Department Circular No. DC2009-07-0010 (Guidelines for the Accreditation of Manufacturers, Fabricators and Suppliers of Locally-produced Renewable Energy Equipment and Components) and the terms and conditions of the enterprises DOE Accreditation No. RE-GEO2011-01-001-00 as Manufacturer, Fabricator and Supplier of Locally-produced Geothermal Energy Equipment, Machineries and Components issued on 31 January 2011; 2) The enterprise shall maintain a book of account for this registered project separate from all its other operation/s ( e.g. , manufacturing/fabrication/supply of machineries, equipment and components for non-RE industries and/or for export); AIaHES 3) Only income directly attributable to revenue generated from the registered project (specifically from the sale of locally-produced renewable energy equipment, machinery and components and services related thereto) shall be qualified for ITH. For this purpose, the enterprise shall submit audited segregated income statements for this registered project. Net income from operation of registered activity shall be certified under oath by CEO or CFO. For every availment of ITH, the enterprise shall submit information on its clients and type of enterprise's locally-produced Geothermal Energy Equipment, Machineries and Components supplied thereto; together with proof of sales such as but not limited to sales invoices, etc.; 4) File an application with the BOI Incentives Division 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 enterprise is in good standing in the remittance of SSS contributions of its employees; 5) Secure a Certificate of ITH Entitlement (CoE) from the BOI Supervision and Monitoring Department prior to the filing of ITR with the BIR: otherwise. ITH for that particular taxable year without CoE shall be forfeited; 6) Submit to the BOI Supervision and Monitoring Department, on a quarterly basis within fifteen (15) days from the end of each quarter, a report on Actual Investments, Employment. Sales, Costs and other information that the Board may require anytime with respect to the registered project starting the date of registration. Furthermore, BOI-registered enterprises enjoy no tax exemption/privileges 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 TECHNOLOGY EXPORTS SERVICES CORP. "Manufacturer, Fabricator and Supplier of Locally-Produced Machinery Equipment and Components for Geothermal Technologies" was clearly granted a 7-year ITH but such terms and conditions do not provide for any exemption from other taxes that it may be subject to on its business transactions. CIaHDc It should be understood that TECHNOLOGY EXPORTS SERVICES CORP. shall be constituted as withholding agent of the government if it acts as an employer and its employees receive compensation income subject to the withholding tax under Section 79 (A), Chapter XIII, Title II of the tax Code of 1997, as amended, and as implemented by Revenue Regulations (Rev. Regs.) No. 2-98, as amended, or if it makes income payments to individuals or corporations subject to the expanded withholding tax provided for in Section 57 (B) of the same Code, also as implemented by Rev. Regs. No. 2-98, as amended. Likewise, TECHNOLOGY EXPORTS SERVICES CORP. is required to file on or before the 15th day of the fourth month following the close of its accounting period a Profit and Loss Statement and Balance Sheet with the Annual Information Return under oath, stating its gross income and expenses incurred during the taxable year. Finally, TECHNOLOGY EXPORTS SERVICES CORP.'s books of accounts and other pertinent records shall be periodic examination by revenue enforcement officers of this Bureau for the purpose of ascertaining compliance with the conditions under which they have been granted or tax incentives, and their tax liabilities, if any, pursuant to Section 235 of the tax Code of 1997, as amended. (BIR Ruling No. 334-2011 dated September 7, 2011) 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.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue