BIR Ruling No. 333-14

August 15, 2014 BIR RULING NO. 333-14 E.O. 226; Secs. 57 (B); 106 (A) (1) (a); 196 NIRC; BIR Ruling No. 334-2011 DMCI Masbate Power Corporation Brgy. Tugbo, Mobo Masbate Attention: Nestor D. Dadivas President Gentlemen : This refers to your letter dated May 8, 2012 requesting, on behalf of DMCI Masbate Power Corporation ("DMCI MPC") , certificate of tax exemption from income and expanded withholding taxes on account of its registration with the Board of Investments (BOI) under Executive Order No. 226, otherwise known as the "Omnibus Investments Code of 1987". Documents submitted show that DMCI MPC, with Tax Identification No. (TIN) 006-917-178-000, is a domestic corporation duly organized under the Philippine laws; that the Corporation is registered with the Securities and Exchange Commission (SEC) bearing SEC Certificate of Registration No. CS200717618; that the primary purpose for which it was incorporated is to acquire, design, develop, construct, invest in, and operate power generating plants in the Province of Masbate and engage in the business of a Generation Company in accordance with Republic Act No. 9136, otherwise known as the "Electric Power Industry Reform Act of 2001"; that it is registered with the Board of Investments per Certificate of Registration No. 2010-160 dated September 23, 2010 as a new operator of a 24.4 MW Diesel Power Plant on a pioneer status under the Omnibus Investments Code of 1987 (E.O. 226); that DMCI MPC shall be entitled to income tax holiday (ITH) for the said activity for a period of six (6) years beginning from September 2010 or actual start of commercial operations/selling, whichever is earlier, but in no case earlier than the date of registration; and that the ITH of DMCI MPC shall be limited only to the revenue generated from its registered activity as New Operator of 24.4 MW Diesel Power Plant (Mobo, Masbate) . EAICTS DMCI MPC, under the Specific Terms and Conditions of its BOI Registration for the above registered activity, is obligated to observe the following production and sales schedule: Year Electricity Sales Volume Sales Values (kWh) (Php'000) 1 48,000,000 422,080 2 48,018,249 443,184 3 50,419,162 465,344 4 52,940,120 488,611 5 Onwards 55,587,126 513,040 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 Republic Act No. 7916 and the Omnibus Investments Code of 1987. ( BIR Ruling No. 334-2011 dated September 7, 2011 ) Accordingly, since DMCI MPC's 24.4 MW Diesel Power Plant (Mobo, Masbate) , is a BOI registered activity, this Office is of the opinion as it hereby holds, that income payments received by DMCI MPC in connection with the operation of the said diesel power plant, are exempt from the creditable withholding tax imposed under RR No. 2-98, as amended by RR No. 6-2001, for a period of six (6) years beginning from September 2010 or actual start of commercial operations/selling, whichever is earlier, but in no case earlier than the date of registration. It must be emphasized that the above exemption from the creditable withholding tax covers only the revenues generated from DMCI MPC's operation of its registered activity, 24.4 MW Diesel Power Plant (Mobo, Masbate) . Moreover, DMCI MPC's entitlement to ITH for its registered activity, 24.4 MW Diesel Power Plant (Mobo, Masbate) ,is not automatic as it has still to comply with the provisions of the Specific Terms and Conditions of the BOI Registration, viz. : cEDaTS (1) Secure from BOI Supervision and Monitoring Department, a certificate of ITH Entitlement prior to filing of income tax return with BIR, otherwise, ITH for that particular taxable year without COE will be forfeited; (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) The enterprise shall 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, Production Costs and other information that the Board may require at anytime with respect to the registered project starting on date of registration. It should be understood that DMCI MPC shall be constituted as a withholding agent for the government if it acts as employer and any of its employees received 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 (RR) No. 2-98 ,as amended. Likewise, DMCI MPC 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. AEHCDa Finally, the DMCI MPC'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 are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue