BIR Ruling [UN-078-94]

February 2, 1994 BIR RULING [UN-078-94] Herma Corporation Amreh Building #94 Scout Rallos St. Kamuning, Quezon City Attention: Ms . Hosanna T . Ayson Legal Counsel Gentlemen : This refers to your letter dated November 10, 1993, stating that your company, Herma Corporation (HERMA), a domestic corporation duly organized and existing under Philippine laws primarily engaged in marine transport of cargo, has been duly registered with the Board of Investments (BOI) under Certificate of Registration No. 91-528 on February 18, 1992, in accordance with the provisions of Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987 as a "non-pioneer expanding operator of inter-island shipping"; that you presently own and operate in the tramping service within the Manila Bay and Pasig River area thirteen (13) motor tankers (barges) and two (2) tugboats; that under Item No. 5(d) of the "Specific Terms and Conditions" attached to your Certificate of Registration provides as follows: cdtech "Income tax holiday for three (3) years from January, 1992 or start of commercial operation of the vessel MT Hagonoy, whichever comes first but in no case earlier that date of registration. The base figure of P98,256,779 shall be used in the computation of the firm's ITH." Based on the foregoing representations, you now request a ruling to the effect that you are exempt from the expanded withholding tax being deducted from your income by major oil companies. In reply, please be informed that Article 39(a)(2), Title III of Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987 provides as follows: "ARTICLE 39. Incentives to Registered Enterprises . All registered enterprises shall be granted the following incentives to the extent engaged in a preferred area of investment: (a) Income Tax Holiday . (1) ... (2) For a period of three (3) years from commercial operation, registered expanding firms shall be entitled to an exemption from income taxes levied by the National Government proportionate to their expansion under such terms and conditions as the Board may determine; Provided, however, That during the period within which this incentive is availed of by the expanding firm it shall not be entitled to additional deduction for incremental labor expense." Such being the case, and since you are registered with the Board of Investments with the status of a non-pioneer enterprise, you are exempt from income tax for three (3) years from the date of your registration with the Board of Investments on February 18, 1992. Accordingly, income payments made to you by major oil companies within the said period are not subject to the expanded withholding tax prescribed by Section 50(b) of the Tax Code, as amended. (Sec. 4(b),Revenue Regulations No. 6-85) (BIR RULING No. 19-89 dated February 13, 1989). Very truly yours, JAIME M. MAZA Assistant Commissioner (Legal Service)