BIR Ruling [UN-269-95]

July 24, 1995 BIR RULING [UN-269-95] Philippine Communications Satellite Corporation Telecoms Plaza Building 316 Sen. Gil Puyat Avenue 1200 Makati City Attention: Mr . Oscar Rudijer T . Santiano VP-Comptroller / Internal Audit Gentlemen : This refers to your letter dated July 6, 1995 stating that Philippine Communications Satellite Corporation (Philcomsat) is a grantee of a legislative franchise under Republic Act No. 5514 as amended by Republic Act No. 7949 which stipulates among others that Philcomsat, its successors or assigns shall construct, maintain, operate, own, manage, lease and purchase, in the Philippines, at such places as the grantee may select, station or stations, telecommunications systems, lines, cable or systems and associated equipment and facilities for international and domestic communications, including but not limited to satellite transmissions, for any and all forms or types of telecommunications services with authority to receive and transmit messages, facsimile, impressions, pictures, music, data and voice, without however engaging in broadcasting, telecasting and cable television services, throughout the Philippines and between the Philippines and other countries and territories, ships at sea, aircrafts and other conveyances, stations and telecommunications systems of other countries; that presently Philcomsat owns, operates and maintains an earth station inside the Subic Special Economic and Freeport Zone; and that this is being used to transmit/receive telecommunication signals to and from various parts of the world. cdtech In connection therewith, you are requesting confirmation of your opinion on the following: (1) That Philcomsat's revenues inside the secured area are exempted from all national and local taxes and is liable to only 5% tax based on gross income; (2) That all equipment, spare parts, supplies used in connection with the operation, maintenance, construction, upgrading of the facilities and for all other projects necessary to make the earth station in good operating condition in accordance with the standards set by the International Satellite Organization is exempt from the payment of customs and import duties and other national internal revenue taxes. In reply thereto, please be informed that under Section 12(c) of R.A. No. 7227, registered enterprises within the Secured Area of the SBF Zone as defined in Executive Order No. 97-A dated June 19, 1993 shall, in lieu of local and national taxes, be liable to the payment of the following, based on gross income earned: (1) To the National Government 3% (2) To the Local Government units affected by the declaration of the Zone 1% (3) To the Special Development Fund to be utilized for the development of municipalities outside the City of Olongapo and the Municipality of Subic and other Municipalities contiguous to the base areas 1% Such being the case, and provided that Philcomsat is duly registered with the SBMA as a Subic Bay Freeport Enterprise, it shall, in lieu of local and national internal revenue taxes, as a Subic Bay Freeport Enterprise, be liable to the payment of the preferential tax rate of 3% of the National Government, in addition to the amounts equivalent to 1% and 1% respectively due to the Local Government units affected by the declaration of the Zone and to the Special Development Fund, based on its gross income earned from operations within the Secured Area of the Zone. Moreover, its importation of equipment, spare parts, supplies used in connection with the operation, maintenance, construction, upgrading of the facilities and for all other projects necessary to make the earth station in good operating condition in accordance with the standards set by the International Satellite Organization shall be exempted from the value added tax (VAT). (BIR Ruling No. UN-107-94 dated March 28, 1994; UN-311-94 dated November 11, 1994) Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)