BIR Ruling No. 641-12

December 4, 2012 BIR RULING NO. 641-12 E.O. 226; Sec. 57 (B) NIRC; BIR Ruling No. 334-2011 Superstar Agri Farms Corporation Sitio Pook, Brgy. Buenavista West, Candelaria Quezon Attention: Carlos T. Licup President Gentlemen : This refers to your letter, dated July 4, 2011, requesting on behalf of Superstar Agri Farms Corporation's (SAFC) activity, which is production of Commercial Broilers ("SAFC-Commercial Broilers"), for exemption from income and creditable withholding taxes pursuant to Revenue Regulations No. 2-98, as amended, 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 SAFC-Commercial Broilers, with Tax Identification Number (TIN) 007-760-443-000, is duly registered with the Board of Investments (BOI) under Certificate of Registration No. 2010-172, dated October 20, 2010, as New Producer of Commercial Broilers (SAFC-Commercial Broilers) on a non-pioneer status; that SAFC-Commercial Broilers has been granted Income Tax Holiday (ITH) for a period of four (4) years from November 2010 or actual start of commercial operations/selling, whichever is earlier, but in no case earlier than the date of registration; that the ITH shall be limited only to the revenue generated from its registered activity (SAFC-Commercial Broilers); and that under the Specific Terms and Conditions of its BOI Registration, SAFC-Commercial Broilers shall observe the following production and sales schedules: Year Production/Sales Charge Per Head Total Sales Value Vol. (heads) (P) (P'000) 1 665,420 10.00 6,654 2 698,691 10.50 7,336 3 698,691 11.00 7,686 4 698,691 11.50 8,035 5 698,691 12.00 8,035 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. (BIR Ruling No. 334-2011 dated September 17, 2011) . HSacEI Accordingly, since SAFC-Commercial Broilers , is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by SAFC in connection with the aforementioned registered activity, SAFC-Commercial Broilers, 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 November 2010 or actual start of commercial operations, whichever is earlier, but in no case earlier than the date of registration. It must be emphasized, however, that the above exemption from the creditable withholding tax covers only revenues generated from the registered activity, SAFC-Commercial Broilers . (BIR Ruling No. 334-2011 dated September 17, 2011). Moreover, SAFC-Commercial Broilers' entitlement to ITH is not automatic as it has still to comply with Section 8 (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; (2) Secure a Certificate of ITH Entitlement (CoE) from the BOI Supervision and Monitoring Department prior to filing of ITR with the BIR; otherwise, ITH for that particular taxable year without CoE shall be forfeited. 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, SAFC-Commercial Broilers was clearly granted a 4-year ITH but such terms and conditions do not provide for any exemption from other taxes under the Tax Code that it may be subject to on its business transactions. AcaEDC It should be understood that SAFC-Commercial Broilers 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. (BIR Ruling No. 334-2011 dated September 17, 2011) Likewise, SAFC-Commercial Broilers 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. (BIR Ruling No. 334-2011 dated September 17, 2011) Finally, SAFC-Commercial Broilers' 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. (BIR Ruling No. 334-2011 dated September 17, 2011) 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