BIR Ruling No. 443-2020

BUREAU OF INTERNAL REVENUE REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE

Quezon City

RA 7916; RR No. 2-98

BIR Ruling No. 568-17

07-0443-2020 AUG 17 2020

Suite 303, 3F i2 Bldg., Asiatown IT Park PRIMARY PROPERTIES CORPORATION Apas, Cebu City

Attention: William Christopher U. Liu, Jr. President

Gentlemen:

documentary stamp tax (DST); and (iii) exempt from the creditable withholding tax (CWT). anotherPEZA-registeredExportEnterprise,NKCMANUFACTURING sale of a factory building (Factory Unit No. 8 or PPC 8) by PRIMARY PROPERTIES CORPORATION (PPC for brevity), a PEZA-registered Facilities Enterprise to PHILIPPINES CORPORATION (NKC for brevity), is (i) subject to five percent (5%) special tax incentive pursuant to the Special Economic Zone Act of 1995 (Republic Act [RA] No. 7916); (ii) not subject to value-added tax (VAT) and This refers to your letter dated July 2, 2018, requesting confirmation that the

Factual Background:

duly organized and existing under the laws of the Philippines, with principal office at Suite 303, 3F i2 Bldg., Asiatown IT Park, Apas, Cebu City. It is duly registered with the Securities and Exchange Commission (SEC) under Company Registration Number hold, improve, develop and manage any real state so acquired. It is registered with the lands and interests in lands or buildings or improvements in said lands, and to own. Bureau of Internal Revenue (BIR) with Tax Identification Number (TIN) PPC, formerly Primary Industrial Properties Corp., is a domestic corporation Its primary purpose is to acquire, by purchase or lease or otherwise.

subsequently amended for every additional or expansion project that the company undertook. One of such expansions refer to the construction of three (3) storey factory as an Ecozone Facilities Enterprise under PEZA Certificate of Registration No. buildings at the Mactan Economic Zone II-Special Economic (MEZ II -SEZ.This dated March 25, 1994.The Companys original registration with PEZA was PPC is also registered with the Philippine Economic Zone Authority (PEZA)

amendment is covered by a Fourth Supplemental Agreement with PEZA dated March

Primary Properties Corporation Page 2 of 4 0-0443-2020 AUG 1 7 2020

6, 2000, such supplemental agreement forming an integral part of the original contract. Under the subject Supplemental Agreement, PPC's expansion project shall be entitled RA No. 7916, as amended, and its implementing rules, subject to the setting up of building's correct number of storeys, actual gross floor area, and specific locations. Under the subject Restatement, the gross floor area of PPC 8 has been amended from 8,300 square meters (as indicated in the March 6, 2000 Supplemental Agreement) to its actual area of 6,049 square meters. to the following incentive -exemption from national and local taxes, and in lieu thereof, payment of five percent (5%) on gross income earned in accordance with Section 24 of separate books of accounts for the said projects. Subsequently, the PEZA and the Company entered into a Restatement of Supplemental Agreement dated March 6,2000 whereby PEZA approved PPC's request for amendment to reflect the three (3) factory

under the laws of the Philippines, with principal office at the Mactan Economic Zone operate, conduct and maintain the business of manufacturing, importing, exporting, buying, selling or otherwise dealing in, at wholesale such goods as parts for roller II-, Lapu-lapu City. It is duly registered with the Securities and Exchange Commission bearings, conveyor systems, sash rollers, rubber seals, metal core plates, automotive parts and components, radial retainer, die parts of metal retainer and other miscellaneous parts and goods of similar nature. It is registered with the BIR with TIN (SEC) under Company Registration No. Certificate of Registration No. On the other hand, NKC is a domestic corporation duly organized and existing as well as with the PEZA as an Export Enterprise under PEZA . Its purpose is to engage in,

Economic Zone 2, Lapu-lapu City. The factory building has a total floor area of six of the 3 factory buildings subject of the Company's Fourth Supplemental Agreement with PEZA and the subsequent Restatement of Supplemental Agreement. Prior to the 2017 approving PPC's request to sell the subject factory building in favor of NKC. thousand forty nine square meters (6,049) and is covered by Tax Declaration No. sale, PEZA issued Letter of Authority No. NKC for the sale of a factory building (Factory Unit No. 8 or PPC 8) located in Mactan issued by the Lapu-lapu City Assessor's Office. The subject factory unit is one On June 19, 2018,a Deed of Absolute Sale was executed between PPC and dated September 4,

tax on gross income, to be distributed in accordance with Section 24 of RA No. 7916, to wit: paying all local and national taxes and, in lieu thereof, are only subject to the 5% special In reply, please be informed that PEZA-registered enterprises are exempt from

taxes, local and national, shall be imposed on business five percent (5% of the gross income earned by all business enterprises within the ECOZONE shall be paid and remitted as follows: SEC.24.Exemption from National and Local Taxes Except for real property taxes on land owned by developers, no establishments operating within the ECOZONE. In lieu thereof

(a) Three percent (3%) to the National Government;

0-0443-2020

Primary Properties Corporation Page 3 of 4 AUG 17 2020

b Two percent (2%) which shall be directly remitted by the business establishments to the treasurer's office of the municipality or city where the enterprise is located.

XXX XXX XXX"

subject of the PPC's Fourth Supplemental Agreement with PEZA and the subsequent by the 5% special tax on gross income. Accordingly, the aforesaid sale is no longer subject to VAT and DST. As to the CWT, Section 2.57.5(B)(2) of Revenue Regulations Restatement of Supplemental Agreement, the sale thereof by PPC to NKC is covered (RR) No. 2-98, as amended, provides: Based on the foregoing, since the factory unit is one of the 3 factory buildings

"SECTION 2.57.5. Exemption from Withholding. - The withholding of creditable withholding tax prescribed in these Regulations shall not apply to income payments made to the following:

XXX XXX XXX

(B) Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special, such as but not limited to the following:

XXX XXX XXX

(2) Corporations registered with the Board of

Investments, Philippine Export Processing Zones and

Subic Bay Metropolitan Authority enjoying exemption from the income tax pursuant to EO 226, as amended, Republic Act No. 7916 and the Omnibus Investments Code of 1987 and RA 7227, as amended, respectively; (Underscoring supplied)

Based thereon, it is clear that the creditable withholding tax does not apply to income payments to persons enjoying exemption from payment of income taxes

pursuant to the provisions of any law, general or special. Accordingly, since PPC is an

enterprise enjoying exemption from the payment of income tax pursuant to RA No

7916, its revenues derived directly in connection with its registered activity as Ecozone Facilities Enterprise, shall not be subject to the CWT prescribed under RR No. 2-98, as

amended.

It should be understood that PPC shall be constituted as a withholding agent for

the government if it acts as employer and any of its employees received 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 RR No.

2-98, as amended.

Page 4 of 4 Primary Properties Corporation 0-8443-2020 AUG 17 2020

its tax returns and pay its tax liabilities, on or before the deadline as provided under the 1997 Tax Code, as amended, using the electronic system for filing and payment of taxes of the BIR. Furthermore, it shall file with PEZA a complete annual tax incentives report of its income-based tax incentives, VAT and duty exemptions, deductions, credits or exclusions from the tax base, as may be provided under RA No. 7916, within thirty (30) days from the deadline for filing of tax returns and payment of taxes. Pursuant to Section 4 of Republic Act (RA) No. 107081, PPC is required to file

However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. This ruling is being issued on the basis of the foregoing facts as represented.

Au CAESAR R. DULAY Very truly yours,

Commissioner of Internal Revenue

035959

K-1

An Act Enhancing Transparency in the Management and Accounting of Tax Incentives Administered by Investment Promotion Agencies.