ITAD Ruling No. 004-01

January 18, 2001 ITAD RULING NO. 004-01 27 (E) RAMO 1-95 RR 09-98 The Japanese: Chamber of Commerce and Industry in the Philippines, Inc . 6TH Floor, Jaycem Building, 104 Rada Street Legaspi Village, Makati City Attention: Mr . Tadaomi Shimaoka President Gentlemen : This refers to your request for confirmation of your opinion that the determination of the taxable income of Philippine branches and liaison offices of the Sogo Shoshas will continue to be governed by the provisions of the Revenue Audit Memorandum Order (RAMO) No. 1-95 and shall not be affected by the passage of Republic Act No. 8424, otherwise known as the Tax Code of 1997. In your letter, you underscored the rationale for the issuance and implementation of RAMO 1-95, that is, to provide, pursuant to the RP-Japan Tax Treaty and the Commissioner's power under Section 43 (now Section 50) of the Tax Code, special guidelines and audit procedures that will render the income taxation of the Sogo Shoshas as well as the similarly situated foreign trading companies more practical, easy and equitable in view of the peculiar nature of their business; and that considering that no significant changes were introduced by the Tax Code of 1997 with respect to the income taxation of resident foreign corporations, except for the reduction in the rates, it is your opinion that the enactment and effectivity of the Tax Code of 1997 should not affect the continued implementation of RAMO 1-95. In reply, please be informed that the formula provided by RAMO 1-95 in computing the Philippine income tax of Sogo Shoshas and other similarly situated foreign trading companies, which is based on their worldwide trading activities, will continue to apply in the computation of their normal income tax liability imposed under Section 28(A)(1) of the Tax Code of 1997 on resident foreign corporations. This is so since RAMO 1-95 is still in conformity with the Tax Code of 1997 and is the result of negotiations long before the said Code was passed and took effect. CaDATc However, the Minimum Corporate Income Tax (MCIT) is introduced under Section 28(A)(2) in relation to Section 27(E) of the Tax Code of 1997 which explicitly states that a minimum corporate income tax of two percent (2%) of the gross income as of the end of the taxable year is imposed on resident foreign corporations beginning on the fourth taxable year immediately following the year in which such corporations commenced its business operations, if the MCIT is greater than the normal income tax imposed under Section 28(A)(1) of the Tax Code, as implemented by RAMO 1-95 for purposes of the Sogo Shoshas and other similarly situated foreign companies. Therefore, with the introduction of the MCIT provision of the Tax Code as implemented by Revenue Regulations (RR) No. 09-98, the Sogo Shoshas and other similarly situated multinational enterprises shall be required to comply with the requirements of RR 09-98 for the computation of their MCIT, on one hand, while RAMO 1-95 will continue to govern in the determination of their normal income tax, on the other hand. Very truly yours, (SGD.) DAKILA B. FONACIER Commissioner of Internal Revenue