BIR Ruling No. 417-15

December 15, 2015 BIR RULING NO. 417-15 E.O. 226; RR 16-2011; Secs. 57 (B); 106 (A) (1) (a); 196 NIRC; BIR Ruling No. 450-12 dated July 10, 2012 Asiga Green Energy Corporation Purok-3 Ambangan, Brgy. Ambago Butuan City, Agusan del Norte Attention: Ronnie Vicente C. Lagnada President Gentlemen : This refers to your letter dated October 07, 2014 stating that Asiga Green Energy Corporation ("Asiga Green Energy" for brevity) with Tax Identification No. 427-824-369-000 is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) under Company Reg. No. CS201230650. It is engaged in exploration, development, utilization, operation and maintenance of new and renewable energy resources; and registered with the Board of Investments (BOI) as Renewable Energy Developer of 8MW Hydroelectric Power Plant under Certificate of Registration No. 2014-132 dated August 20, 2014 in accordance with the Omnibus Investments Code of 1987 or Executive Order (EO) No. 226. It was granted by the Department of Energy a Confirmation of Commerciality under HCC 2014-06-048 dated August 1, 2014 as basis for the Hydropower Service Contract No. 2011-12-172-A. Asiga Green Energy has been granted Income Tax Holiday (ITH) by the BOI for a period of seven (7) years from March 2016 or actual date of commercial operation, whichever is earlier but in no case earlier than the date of registration. Under the Specific Terms and Conditions of its BOI Registration, the ITH of Asia Green Energy shall cover only this particular project: Project Name Location Start of Commercial Operation 8MW Hydroelectric Santiago, Agusan del Norte March 2016 Power Plant Project On the basis of the foregoing, you now request for an opinion on the tax consequences of the said ITH granted by BOI. Specifically, if Asiga Green Energy, being a BOI-registered enterprise, is exempt from the payment of the creditable withholding tax (CWT) imposed under Revenue Regulations No. 2-98 on income payments received during the aforementioned period with respect to its registered activity. 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 as provided by the Omnibus Investments Code of 1987. Accordingly, since Asiga Green Energy Corporation Renewable Energy Developer of 8MW Hydroelectric Power Plant (Santiago, Agusan del Norte) Project is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by Asiga Green Energy in connection with its operations (Renewable Energy Developer of 8MW Hydroelectric Power Plant as mentioned in the Specific Terms and Conditions of its BOI Registration) , is exempt from CWT under RR No. 2-98, as amended by RR No. 6-2001, for a period of seven (7) years from March 2016 or actual start of commercial operations, whichever is earlier but in no case earlier than the date of registration. 1 It must be emphasized, however, that the above exemption shall be limited only to revenues generated from the sales of electricity of the 8.0 MW Hydroelectric Power Plant (Santiago, Agusan del Norte).Only revenues derived from power generated and sold to grid, other entities and/or communities based on bilateral contracts approved by ERC shall be entitled to ITH. CAIHTE Moreover, the entitlement to ITH of Asiga Green Energy Corporation Renewable Energy Developer of 8MW Hydroelectric Power Plant (Santiago, Agusan del Norte) Project is not automatic as it still has to comply with the following provisions of the Specific Terms and Conditions of its BOI Registration, viz. : 1. The enterprise shall secure a Certificate of Compliance (COC) from the Energy Regulation Commission (ERC) prior to the start of commercial operations subject to the condition that in the event that ERC denies the said COC, the registration shall be subject to the automatic cancellation procedure. 2. The enterprise shall increase its stockholder's equity to at least PhP327 Million equivalent to 25% of the total project cost and shall submit proof of compliance before availment of ITH. 3. The enterprise should endeavor to undertake meaningful and sustainable Corporate Social Responsibility (CSR) activities in the locality where the project is implemented. 4. The enterprise shall observe the following production and sales schedules: Year 1 Year 2 Year 3 Year 4 Year 5 Sales Volume (KWH) 39,279,840 39,279,840 39,279,840 39,279,840 39,279,840 Selling Price (PhP/Kwh) 6.50 6.50 6.50 6.50 6.50 Sales Value (PhP) 255,318,960 255,318,960 255,318,960 255,318,960 255,318,960 5. The enterprise shall observe the following project timetable: Activity Schedule Related Cost Expense/s (In PhP'000) Obtain permits, Completed Permits and licenses 28,625 licenses with from NWRB, ECC, government agencies Building permit and Business, MOA Site acquisition and April 2014-June Land improvement, 690,804 development 2016 civil works construction Acquisition and February 2015- Acquisition and 549,209 installation of March 2016 installation cost of equipment, furniture machinery and & fixture equipment Start of commercial March 2016 Working capital 39,362 operation Total Project Cost 1,308,000 ======= 6. The enterprise shall submit a list of common cost items and cost allocation methodology for its other projects/activities (whether BOI-registered or non-registered). 7. File an application with the BOI Incentives Service within one (1) month from 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. 8. Secure from the DOE-REMB, a Certificate of Endorsement that the enterprise is in good standing for availment of the ITH incentive prior to filing of application for issuance of the certificate of ITH entitlement with the BOI; and from the BOI Legal Service, a certificate of ITH Entitlement (CoE) prior to filing of ITR with the BIR; otherwise, ITH for that particular year without CoE shall be forfeited. 9. The enterprise shall submit to the BOI Legal Service, on a semestral basis, within fifteen (15) days from end of each semester, a report on actual investments, employment, sales, production costs, actual ITH availed of for each year, and other information that the Board may require at any given time with respect to the registered project. 10. The enterprise must commit to the tenets of Good Corporate Governance. DETACa Furthermore, BOI-registered enterprises 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, Asiga Green Energy Corporation Renewable Energy Developer of 8MW Hydroelectric Power Plant (Santiago, Agusan del Norte) Project was clearly granted a 7-year ITH but such terms and conditions do not provide for any exemption from other taxes that Asiga Green Energy may be subject to on its business transactions. It should be understood that Asiga Green Energy Corporation 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 at 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, Asiga Green Energy Corporation 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, Asiga Green Energy'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 it has been complying with the conditions under which it has been granted tax exemption or tax incentives and its 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 Footnotes 1. Movement of ITH period is subject to Art. 7 of E.O. 226 per BOI Specific Terms and Conditions No. 1.