BIR Ruling No. 382-11

October 20, 2011 BIR RULING NO. 382-11 E.O. 226; Sec. 57 (B) NIRC; BIR Ruling No. [DA-(IL-028) 527-09) Themebuilders Phils., Inc. Sitio Cubol, Brgy. Sapalibutad Angeles City, Pampanga Attention: Noemi A. Esperanza Admin. Officer Gentlemen : This refers to your letter, dated July 19, 2010, requesting on behalf of Themebuilders Phils., Inc.'s (TPI) project, Pre-Fabricated Artworks for Theme Parks, Buildings, Landscapes, etc. ( " TPI-Pre-Fabricated Artworks ", for brevity), for exemption from income and creditable withholding taxes pursuant to Revenue Regulations No. 2-98, as amended, on account of the project's 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 TPI, with Tax Identification Number (TIN) 237-403-973-000, is duly registered with the Board of Investments (BOI) under Certificate of Registration No. EP 2005-201, dated December 1, 2005, as New Exporter Producer of Pre-Fabricated Artworks for Theme Parks, Buildings, Landscapes, etc., (TPI-Pre-Fabricated Artworks) on a non-pioneer status; that TPI-Pre-Fabricated Artworks has been granted Income Tax Holiday (ITH) for a period of four (4) years from January 2006 or actual start of commercial operations/selling, whichever is earlier, but in no case earlier than the date of registration; that the ITH has been extended for one (1) year (January 4, 2010 to January 3, 2011) as approved by the Director of Incentives Department of the Department of Trade and Industry dated April 21, 2010; and that the ITH shall be limited only to the revenue generated from its registered project (TPI-Pre-Fabricated Artworks). 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 TPI-Pre-Fabricated Artworks, is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by TPI in connection with the aforementioned registered activity, TPI-Pre-Fabricated Artworks, 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 starting from January 2006 or actual start of commercial operations, whichever is earlier, but in no case earlier than the date of registration, with an approved bonus year for the period of January 4, 2010 to January 3, 2011. It must be emphasized, however, that the above exemption from the creditable withholding tax covers only revenues generated from the registered activity, TPI-Pre-Fabricated Artworks. (BIR Ruling No. DA-(IL-028) 527-09 dated September 10, 2009) . Moreover, TPI-Pre-Fabricated Artworks' entitlement to ITH is not automatic as it has still to comply with Section 6 (a) of the Specific Terms and Conditions of the BOI Registration, viz.: (1) 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. llcd It should be understood that TPI 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, TPI 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, TPI'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