BIR Ruling No. 291-12 Dated 04.25.2012 PDF

April 25, 2012
BIR RULING NO. 291-12
RA 7916;
Executive Order No. 226;
Sec. 106 of the Tax Code of 1997;
RR 2-98; 000-00
ACCRA Law Offices

ACCRA Building
122 Gamboa St., Legaspi Village
Makati City
Attention: Atty. Ruby Rose J. Yusi &
Atty. Jay Patrick R. Santiago
Gentlemen :
This refers to your letter dated September 8, 2009 and July 30, 2010 requesting,
in behalf of your client, STMicroelectronics, Inc. (STMI), confirmation of your
opinion that sale of certain assets to ST-Ericsson (Philippines), Inc. (ST-EPI) by
STMI (1) is not subject to regular rate of income taxation, but it is subject only to
either (a) the five percent (5%) special tax incentive pursuant to the Special Economic
Act Zone of 1995 (Republic Act No. 7916); or (b) the ITH incentive pursuant to the
Omnibus Investment Code of 1987, in relation to the Special Economic Zone Act of
1995; (2) that the transaction shall not be subject to value added tax and documentary
stamp tax; and (3) that the transactions are exempt from the creditable withholding
tax.
It is represented that STMI is a corporation duly organized and existing under

and by virtue of Philippine laws; that it is engaged in the business of development,
manufacture, production, processing and/or assembly for export and sale of electronic
equipment, accessories, parts or components, including semiconductors, integrated
circuits, micro-processors, printed circuit board assemblies, computer systems and sub
systems and sub-systems and accessories, parts and components thereof; that STMI is
Copyright 2012 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia 2012 1
registered with the PEZA as an Ecozone Export Enterprise under Certificate of
Registration No. 08-35 engaged in: (I) the manufacture of (a) integrated circuits (TV
on mobile, portable poser solution, audio and video processor, wireless LAN, USB)
and (b) micro leadframe package known as "HVQFN"; (II) the assembly of Bluetooth
("BT") system modules; (III) the manufacture of assembly of integrated circuits (small
shrink outline package and near-field communication and quad flat packages); and
(IV) the importation of raw materials, machinery, equipment, tools, goods, wares,
articles or merchandise directly used in its registered operations at the Light Industry
and Science Park of the Philippines II-Special Economic Zone (LISP II-SEZ); that it
enjoys the incentives opposite each of the products described below:
Activity Date of Registration Incentive
Manufacture/Assembly of February 17, 1998 5% GIT

Integrated circuits (TV on
mobile, portable power
solution, audio & video
processor, wireless LAN,
USB)
Manufacture/assembly of December 21, 2005 ITH from Nov. 2005

micro leadframe package to October 2009
known as "HVQFN"
Manufacture/assembly and July 12, 2007 5% GIT

bluetooth (BT) systems
modules
Manufacture/assembly of ITH from Oct. 2005

micro leadframe package to September 2009
known as "HVQFN"
that ST-EPI is also a domestic corporation engaged in the business of development,

manufacture, production, processing and/or assembly for export or wholesale
distribution of electronic equipment, accessories, parts or components, including but
not limited to, semi conductors, integrated circuits, micro-processors, printed circuit
board assembled, computer systems and sub-systems and accessories, parts and
components thereof; that it is registered with PEZA as an Ecozone Export Enterprise
under Certificate No. 09-02 engaged in: (I) the manufacture of (a) integrated circuits
(TV on mobile, portable poser solution, audio and video processor, wireless LAN,
USB) and (b) micro leadframe package known as "HVQFN"; (II) the assembly of
Bluetooth ("BT") system modules; and (III) the importation of raw materials,
machinery equipment, tools, goods, wares, articles or merchandise directly used in its
registered operations at Light Industry and Science Park of the Philippines II-Special
Economic Zone (LISP II-SEZ); that as part of a worldwide restructuring and transfer
of business between the parent companies of STMI and ST-EPI, STMI sold all assets
related to all its PEZA-registered activities to ST-EPI; that the sale included tangible
fixed assets like buildings, machinery and installations and production and
commercial inventories used in projects registered under the regime of five percent
(5%) special tax incentive pursuant to the Republic Act No. 7916, as amended and
income tax holiday incentive pursuant to the Omnibus Investment Code of 1987, in
relation to the Special Economic Zone Act of 1995.
In reply, please be informed that Section 2.57.5. (B) (2) of Revenue

Regulations No. 2-98, as amended, is explicit in its provisions that the expanded
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. PEZA-registered enterprises are granted certain preferential tax treatment
under Section 24 of Republic Act No. 7916 which provides that "any provision of
existing laws, rules and regulations to the contrary notwithstanding, no taxes, local
and national shall be imposed on business establishments operating within the
ECOZONE. In lieu of paying taxes, five percent (5%) of the gross income earned by
all businesses and enterprises within the ECOZONE shall be remitted to the national
government. IaHAcT
Based on the foregoing, though STMI, a PEZA-registered company, is granted

certain preferential tax treatment under Section 24 of RA No. 7916 on its registered
activities i.e. (I) the manufacture of (a) integrated circuits (TV on mobile, portable
poser solution, audio and video processor, wireless LAN, USB) and (b) micro
leadframe package known as "HVQFN"; (II) the assembly of Bluetooth ("BT") system
modules; (III) the manufacture of assembly of integrated circuits (small shrink outline
package and near-field communication and quad flat packages); and (IV) the
importation of raw materials, machinery, equipment, tools, goods, wares, articles or
merchandise, nevertheless sale of fixed assets is not included in its registered activity.
Thus, inasmuch as the preferential rate/s should only apply to STMI's registered
activities and that sale of its fixed assets is not part of its registered activities, hence it
is subject to normal income tax rate.
It should be remembered that laws and statutes granting tax exemptions are
strictly construed against the taxpayer. Exemptions are never presumed and the burden
is upon the taxpayer to establish his right to exemption beyond reasonable doubt. 1(1)
In the case of Mactan Cebu International Airport Authority v. Marcos, 2(2) the
Supreme Court held:
"Accordingly, tax statutes must be construed strictly against the

government and liberally in favor of the taxpayer. But since taxes are what we
pay for civilized society, or are the lifeblood of the nation, the law frowns
against exemptions from taxation and statutes granting the exemptions are thus
construed strictissimi juris against the taxpayer and liberally in favor of the
taxing authority. A claim of exemption from tax payments must be clearly
shown and based on language in the law too plain to be mistaken. Elsewise
stated, taxation is the rule, exemption therefrom is the exception."
In view of the foregoing, the request for confirmation of your opinion that sale
of certain assets to ST-EPI by STMI (1) is not subject to regular rate of income
taxation but it is subject only to either (a) the five percent (5%) special tax incentive
pursuant to the Special Economic Act Zone of 1995 (Republic Act No. 7916); or (b)
the ITH incentive pursuant to the Omnibus Investment Code of 1987, in relation to the
Special Economic Zone Act of 1995; (2) that the transaction shall not be subject to
value-added tax and documentary stamp tax; and (3) that the transactions are exempt
from the creditable withholding tax is hereby denied for lack of legal basis. TCSEcI
Very truly yours,
(SGD.) KIM S. JACINTO-HENARES

Commissioner of Internal Revenue
Footnotes
1. Dimaampao, Japar B., Tax Principles and Remedies, Second Edition (2005).
2. G.R. No. 120082, 11 September 1996, 261 SCRA 667.
Endnotes
1 (Popup - Popup)
1. Dimaampao, Japar B., Tax Principles and Remedies, Second Edition (2005).
2 (Popup - Popup)
2. G.R. No. 120082, 11 September 1996, 261 SCRA 667.

BIR Ruling No. 291-12 Dated 04.25.2012 PDF

Uploaded by

Copyright:

Available Formats

BIR Ruling No. 291-12 Dated 04.25.2012 PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

BIR Ruling No. 291-12 Dated 04.25.2012 PDF

Uploaded by

Copyright:

Available Formats

April 25, 2012

BIR RULING NO. 291-12

ACCRA Law Offices

It is represented that STMI is a corporation duly organized and existing under

Activity Date of Registration Incentive

Manufacture/Assembly of February 17, 1998 5% GIT

Manufacture/assembly of December 21, 2005 ITH from Nov. 2005

Manufacture/assembly and July 12, 2007 5% GIT

Manufacture/assembly of ITH from Oct. 2005

that ST-EPI is also a domestic corporation engaged in the business of development,

In reply, please be informed that Section 2.57.5. (B) (2) of Revenue

Based on the foregoing, though STMI, a PEZA-registered company, is granted

"Accordingly, tax statutes must be construed strictly against the

Very truly yours,

(SGD.) KIM S. JACINTO-HENARES

You might also like