BIR Ruling No. 204-99

December 27, 1999 BIR RULING NO. 204-99 204-99 Philippine Long Distance Telephone Company 6th Floor, Ramon Cojuangco Building Makati Avenue, Makati City Attention: Mr . Rene G . Baez First Vice President Support Services & Tax Gentlemen : This refers to your letter dated February 8, 1999 requesting for a ruling that Subic Bay Freeport (SBF) Enterprises; Clark Special Economic Zone (CSEZ) Enterprises, John Hay Special Economic Zone (JHSEZ) Enterprises, Poro Point Special Economic Zone (PPSEZ) Enterprises, and other Special Economic Zones (SEZ) registered under the Philippine Economic Zone Authority (PEZA) are exempt from the 10% overseas communication tax (OCT). LibLex It is represented that the Philippine Long Distance Telephone Company (PLDT) is a domestic corporation duly organized and existing under the laws of the Philippines with its principal office located at the Ramon Cojuangco Building, Makati Avenue, Makati City; that it is duly licensed to operate a telecommunications system in the Philippines by virtue of a legislative franchise issued on November 28, 1928 under Act No. 3436, as amended by Commonwealth Act No. 407 and further amended by Republic Act No. 6146 and Republic Act No. 7082; that PLDT provides overseas telecommunication services among others, to numerous Special Enterprises throughout the country (i.e. SBF, CSEZ, JHSEZ, PPSEZ, SEZ); that an overseas communication tax of 10% is being collected by the person rendering the communication service from the person paying for the communication services; and that the Special Economic Zone Enterprises are exempt from all local and national taxes pursuant to R.A. No. 7916 and R.A. No. 7227. In reply, please be informed that pursuant to Section 120(A) of the Tax Code of 1997, there shall be collected upon every overseas dispatch, message or conversation transmitted from the Philippines by telephone, telegraph, telewriter exchange wireless and other communication equipment services, a tax of ten percent (10%) on the amount paid for such services, which shall be payable by the person paying for the services rendered and shall be paid to the person rendering the services who is required to collect and pay the tax within twenty (20) days after the end of each quarter. Moreover, under Section 120(B) of the Tax Code of 1997, the 10% overseas communication tax shall not apply to the Government, Diplomatic Services, International Organizations and News Services. However, Section 5 of Executive Order No. 80 authorizing the establishment of the Clark Development Corporation (CDC) as the implementing arm of the Bases Conversion and Development Authority (BCDA) for Clark Special Economic Zone (CSEZ) provides that the CSEZ shall have all the applicable incentives in the Subic Special Economic and Free Port Zone under R.A. No. 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. llcd Section 12(c) of R.A. No. 7227, otherwise known as the Bases Conversion and Development Act of 1992, provides that registered enterprises within the Secured Area of the Zone as defined in Executive Order No. 97 dated June 19, 1993 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, based on their gross income earned, in lieu of local and national internal revenue taxes . Furthermore, under Section 24 of Republic Act No. 7916, otherwise known as "The Special Economic Zone Act of 1995", businesses and enterprises within the ECOZONE shall, in lieu of paying local and national taxes ,be liable to the payment of the five percent (5%) preferential tax rate based on gross income earned distributed as follows: (1) three percent (3%) to the national government; (2) one percent (1%) to the local government units affected by the declaration of the ECOZONE; and (3) one percent (1%) for the establishment of a development fund to be utilized for the development of municipalities outside and contiguous to each ECOZONE. This, under the basic laws which govern said registered enterprises, i.e., R.A. Nos. 7916 and 7227, explicit is the provision that said enterprises are exempt from paying all taxes, whether national or local and in lieu thereof, they shall pay a 5% tax based on gross income .National taxes have been defined to mean "all internal revenue taxes, including the regular income taxes, otherwise due and collectible from all registered ECOZONE enterprises under the National Internal Revenue Code . . ." (Rev. Regs. 12-97). The Overseas Communications Tax (OCT) is without doubt a national internal revenue tax and is therefore included in the term "all taxes, whether national or local" to which PEZA-registered and SBF Enterprises are exempted from. Notwithstanding that they are not among those listed as exempt under Section 120(B) of the Tax Code, this Office is duty bound to recognize the clear import of pertinent and contemporaneous laws on the subject. Such being the case, the following enterprises, i.e. SBF, CSEZ, JHSEZ, PPSEZ and other SEZ registered under the PEZA, shall be exempt from the 10% overseas communication tax since these enterprises are liable only to the payment of the preferential tax rate of 5% in lieu of the payment of local and national taxes. (BIR Ruling Nos. 15-97 dated February 4, 1997; 70-97 dated June 9, 1997; 85-98 dated June 2, 1998) However, it should be understood that this exemption is limited to overseas calls emanating from landlines installed within the premises and registered under the names of the Special Enterprises located and registered within the enclaves of the freeport and economic zones as authorized under R.A. Nos. 7916 and 7227. This ruling shall take effect upon the date of its issuance and is being issued on the basis of the foregoing facts as represented. If upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. cdll Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue