BIR Ruling No. 142-10

December 9, 2010 BIR RULING NO. 142-10 RA 7916; RR 2-98; BIR Ruling No. DA-362-98; BIR Ruling No. DA-349-99; BIR Ruling No. DA-242-03 PacificTech Solutions, Inc. 9th Floor, Marvin Plaza Building 2153 Chino Roces Avenue cor. Herrera St. Makati City Attention: Julius Sturm Chief Operating Officer Gentlemen : This refers to your letter dated March 15, 2010 requesting for a Certificate of Exemption from the payment of creditable expanded withholding tax prescribed under Revenue Regulations No. 2-98, as amended on account of your registration with the Philippine Economic Zone Authority (PEZA). It is represented that PacificTech Solutions, Inc. (PacificTech), with Tax Identification Number 006-539-538-000, is registered with PEZA as an IT Export Enterprise under Amended Certificate of Registration No. 06-69-IT; that it has been granted by the PEZA Board an income tax holiday incentive of four (4) years on its registered activity as indicated in the Registration Agreement between PEZA and PacificTech which pertinently provides, viz. : "13.4. The ITH incentive granted to this project is premised on the REGISTRANT's representation that it will provide technical design/drawing activities using new IT equipment, such as desktop computers, network equipment, etc. ..." and that on the basis of the letter dated April 26, 2007 issued by the Officer-in-Charge of PEZA, PacificTech started its commercial operations for its registered activity in February 2007. In reply, please be informed that Section 2.57.5.(B) (2) of Revenue Regulations No. 2-98, as amended, is explicit in its provisions that the expanded withholding tax does not apply to income payments to persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special. PEZA-registered enterprises are granted certain preferential tax treatment under Section 24 of Republic Act No. 7916 which provides that "any provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national shall be imposed on business establishments operating within the ECOZONE. In lieu of paying taxes, five percent (5%) of the gross income earned by all businesses and enterprises within the ECOZONE shall be remitted to the national government. (BIR Ruling No. DA 242-03 dated July 25, 2003) aIAHcE Accordingly, since PacificTech is a PEZA-registered enterprise enjoying a 4-year-ITH, income payments made to it, with respect to its registered activity of providing technical design/drawing activities, shall not be subject to 2% expanded creditable withholding tax prescribed in Revenue Regulations No. 2-98, as amended, for a period of four (4) years from February 2007 (BIR Ruling No. DA 242-03, supra, citing DA 349-99 dated June 16, 1999; and BIR Ruling No. DA-362-98 dated August 12, 1998). It must be emphasized, however, that PacificTech is constituted as withholding agent for the government. As such, it is required to withhold the tax on compensation income of its employees or the withholding tax on income payments to persons subject to tax pursuant to Section 57 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 shall 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