the peza issue

7/29/2019 The PEZA Issue

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TAX EXEMPTIONS ANDTAXABILITY OF PEZA-

REGISTERED ENTERPRISES

AND SERVICE

ESTABLISHEMENTS

OPERATING WITHIN THEECOZONE


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Rules of Interpretation(Section 5, Local Government Code)

a) Any provision on the power of LGU shall be liberally

interpreted in its favor, and in case of doubt, any question

thereon shall be resolved in favor of devolution of powers and

of the lower LGU. Any fair and reasonable doubt as to the

existence of the power shall be interpreted in favor of LGU

concerned.b) In case ofdoubt, any tax ordinance or revenue measure

shall be construed strictly against the local government unit

enacting it, and liberally in favor of the taxpayer. Any tax

exemption, incentive or relief granted by any local government

unit pursuant to the provisions of this Code shall be construedstrictly against the person claiming it.

c) The general welfare provision in this Code shall be liberally

interpreted to give more powers to LGUs in accelerating

economic development and upgrading the quality of life for the

people in the community.


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Limitations of Taxing Powers of LGUs(Local Government Code)

Section 16. General Welfare. - Every LGU shall exercise thepowers expressly granted, those necessary implied therefrom, as

well as powers necessary, appropriate, or incidental for its

efficient and effective governance, and those which are essential

to the promotion of the general welfare.

Section 133. Common L imi tations o f the Taxing Powers of

LGUs. Unless otherwise provided herein, the exercise of the

taxing powers of provinces, cities, municipalities, and barangays

shall not extend to the levy of the following:

(g) Taxes on business enterprises certified to by the Board of

Investments as pioneer or non-pioneer for a period of six

(6) and four (4) years respectively from the date of

registration.


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Fiscal Incentives on Businesses Located within the Ecozone

(RA 7916 as amended by RA 8748)

SEC. 23.Fiscal Incentives. Business establishments operating within

the ECOZONES shall be entitled to the fiscal incentives as provided forunder Presidential Decree No. 66, the law creating the Export Processing

Zone Authority, or those provided under Book VI of Executive Order No.

226, otherwise known as the Omnibus Investment Code of 1987.

Two (2) sets of fiscal incentives granted under the afore-cited provisionsof law can be summarized as follows:

1) Those provided for under Book VI of Executive Order No. 226,

including but not limited to an Income Tax Holiday (ITH) of4 to 6

years depending on whether an entity is registered as a pioneerornon-pioneer enterprise.

2) Those under P. D. No. 66, as amended, and Section 24 of R. A.

7916 which includes the 5% preferential tax on gross income

earned, which is in lieu of the national and local taxes.


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Articles 39 and 78 of E. O. 226 provides as follows:

Article 39. Inc ent ives to Registered Enterpr ises. All

registered enterprises shall be granted the following

incentives to the extent engaged in a preferred area of

investment:

(a)Income Tax Holiday.

(1) For six (6) years from commercial operation forpioneer firms and four (4) years for non-pioneer firms, new

registered firms shall be fully exempt from income taxes

levied by the National Government. Subject to such

guidelines as may be prescribed by the Board, x x x.


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SEC. 24. Exemp tion from National and Lo cal Taxes.-Except for real property taxes on land owned by developers,

no taxes, local and national, shall be imposed on

business establishments operating within the

ECOZONE. In lieu thereof, five percent (5%) of the gross

income earned by all business enterprises within the

ECOZONE shall be paid and remitted as follows:

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

b. Two percent (2%) which shall be directly remitted by

the business establishments to the treasurers office

of the municipality or city where the enterprise is

located.




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Article 78. Addi t ional Incent ives. A zone registeredenterprise shall also enjoy all the incentive benefits provided

in Article 39 hereof under the same terms and conditions

stated therein. In addition zone registered enterprises shall

also be entitled to the following:

(a)Exempt ion from Local Taxes and L icenses.

Notwithstanding the provisions of law to the contrary,

zone registered enterprises shall, to the extent of their

construction, operation or production inside the zone beexempt from the payment of any and all local

government imposts, fees, licenses or taxes except

real estate taxes x x x.




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Applicable National and Local Taxes(RA 7916 as amended by RA 8748)

SEC. 25. Appl icable National and Local Taxes. Allpersons and services establishments in the ECOZONE

shall be subject to national and local taxes under the

National Internal Revenue Code and the Local Government

Code.

Service establishments refers to business entity or

concerned within the ECOZONE such as but not limited to

customs brokerage, trucking/forwarding services, parcel

services, janitorial services, security services, insurance,and/or banking services, consultancy services, restaurants or

such other services within the ECOZONE, xxx, duly

registered and/or licensed by the PEZA x x x. (PEZA letter

dated 06 March 2013 addressed to BLGF)


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Applicable National and Local Taxes(RA 7916 as amended by RA 8748)

Inc om e from activ i t ies not ent i t led to ITH or th e 5% GIT

incent ive refers to income derived from activities unrelated

to the PEZA-registered business and therefore, subject to

national and local taxes. (PEZA letter dated 06 March 2013

addressed to the Executive Director, BLGF)


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1) An eligible enterprise is exempted from payment of realproperty taxes on machineries and equipment they

acquire for use in their production operations, during the

first 3 years use of such machinery and equipment.

2) An eligible enterprise will have to pay the real propertytax on a machinery and equipment only on the fourth

year of use/operation of such machinery and

equipment, except in cases where the eligible economic

zone enterprise is already exempted from payment of thereal property tax on the machinery and equipment by

virtue of it having graduated to the availment of the 5%

GIT incentive.

Taxability of Machinery and Equipment


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SITUS OF THE TAX

Enterprises operating within the EOCOZONEs withprincipal office outside of ECOZONE (factory/plant)

o If no sales are made and recorded in the

Head/Principal Office, a corporation should pay itsbusiness taxes in full to the local government unit

where the ECOZONE is located and where the

sales are made and recorded.

o The 30%-70% rule applies only where the principal

office conducts sales transactions and records the

said sales therein.


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Enterprises operating within the EOCOZONEs withprincipal office outside of ECOZONE (factory/plant)

o If Liaison office is maintained, LGU concerned shall not

share in the business tax paid by a PEZAenterprise/taxpayer, considering that said office is not

included among those mentioned in the law (LGC) and

the Implementing Rules and Regulations (IRR) as

entitled to a share of the tax.

o LGU Office may collect Mayors permit fee and other

regulatory fees provided for under existing local tax

ordinance of that city.

SITUS OF THE TAX


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Facts: For the taxable years 2007 to November 2009, Affinity

maintained its office, operation and conducted its business

within the territorial jurisdiction of the City Government of

Pasig, specifically at the Orient Square Bldg., Ortigas

Centre, Pasig City, a PEZA registered office building underPEZA Certificate of Registration No. -07-43-IT;

Starting November 2009 up to present, Affinity ceased to

hold its office in Pasig City and start to conduct itsbusiness and/or operation at UP Science and Technology

Park (North), Quezon City under PEZA Certificate of

Registration No. -07-43-IT;

CASE 1: Affinity Express Philippines, Inc.


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Facts: For On the other hand, the Office of the City

Treasurer-Pasig City required Affinity to secure

and/or pay its Mayors permit, local business

taxes and/or permit fees for taxable years 2009 to2010;

An assessment was issued by the Office of the

City Treasurer-Pasig City and required Affinity topay (1) P124,925.92 for deficiency tax for the year

2009; and (2) P1,350,014.04 for taxable year

2010;



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Facts: Accordingly, Affinity paid a total amount of One Million

Four Hundred Seventy Four Thousand Nine Hundred

Thirty Nine Pesos and 96/100 (P1,474,939.96), broken

down as follows:


Date Paid Amount and

Purpose

Deficiency tax for

2009

15 March 2010 P124,925.92

Taxable Yea 2010 15 March 2010 P1,350,014.04 forLBT & and permit

fees

TOTAL P1,474,939.96


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Issues: WON Affinity as a PEZA-registered non-pioneer

enterprise is entitled for a refund for LBT and regulatory

fees paid to Pasig City in 2009-2010; and

Whether Affinity is entitled to a cash refund.

Ruling:

Affinity as PEZA-registered non-pioneer enterprise should

not have been assessed for regulatory fees and LBT for

the period 2009-1010 considering it still enjoy ITHexemption under its PEZA Certificate of Registration in

relation to Section 23 of R.A. No. 7916 and Articles 39 and

78 of E.O. No. 226, the Omnibus Investment Code.



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Ruling: Affinity is entitled to a cash refund for the amount paid to

Pasig in 2009-2010 considering that it no longer operates

within Pasig City hence no future obligation in the form of

taxes and regulatory fees may be envisaged. Provided,

however, that the requirements under Section 196 of the

LGC had been complied with.

Legal basis:


Section 196, LGC

Article 286, IRR of LGC

Sec. 23 of RA 7916

Arts. 39 & 78, EO 226

PEZA MC No. 2004-24

MOA between PEZA and

City of Pasig dated 29

January 2010


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Facts: Affinity Is a PEZA-registered non-pioneer IT enterprise

with Certificate of Registration No. 07-43-IT. It previously

operated in Pasig City and terminated its operation in

November 2009 when it transferred to UP Science and

Technology Park (UP Technohub) in Quezon City.

Notwithstanding RA No. 7916 and PEZA MC No. 2004-24,

Affinity was required by Pasig City to pay LBT from 2nd

quarter of 2007 to 4th quarter of 2009 and the Quezon City

Treasurers Office also assessed Affinity for LBT from2010 to 2012, which the enterprise both paid.



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Facts: Affinity, in view of incentives and exemptions provided

under RA 7916 as amended by RA 8748 on PEZA-

registered IT enterprises, claimed for refund based on its

view that it was erroneously assessed by the Treasurers

Offices of Quezon City for payment maid, as follows:


Year Official Receipt Amount Paid

2010 OR #A3CORO764217-3 P1,308,759.67

2011 OR # AOCOR1526845-0 1,287,176.45

TOTAL P2,595,935.92


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Issue: Whether Affinity, as a PEZA-registered non-pioneer IT

enterprise entitled for a refund of the amount paid for LBT

for CYs 2010-2011.

Ruling: There was no basis for the collection of the 2% LBT on the

gross receipts of Affinity for CYs 2010 and 2011

considering that it was still enjoying its ITH as a non-

pioneer IT enterprise at that time and therefore, entitled for

a refund of the amount of P2,595,935.92 it paid to Quezon

City.



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Basis: SC Decision (Ramie Textile, Inc. v. Hon, isamel Mathay,

Sr., GRN L-32364, April 30, 1979)

The quasi-contract of solution-indebiti is one of theconcrete manifestations of the ancient principle that no

one shall enrich himself unjustly at the expense of

another. Hence, it would be unedifying for the

government, that knowing it has no right at all to collect or

to receive money for alleged taxes paid by mistake, it

would be reluctant to return the same.



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Basis: Book VI, EO No. 226:

Section 24. Exemption from National and Local taxes

Corporate income tax holiday (ITH) for four (4) years for

original project effective on the committed date of start of

commercial operations, or the actual date of start of

commercial operations, whichever is earlier; ITH entitlement

for the original project can also be extended for another three

(3) years provided specific criteria are met for each additional

year and prior PEZA approval is obtained; duly approvedand registered Expansion and New projects are entitled to

a three-year, and four-year ITH, respectively;



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Basis: After the lapse of ITH, the following incentives shall apply:

Exemption from national and local taxes, in lieu

thereof payment of five percent (5%) final tax on grossincome as provided in Section 24 of R. A. No. 7916 and

Rule XX of the Rules and Regulations to Implement R. A.

No. 7916, x x x.

.



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Basis:

Sec. 24, RA 7916 as amended:

Section 24. Exemption from National and Local taxes

Except for real property taxes on land owned by developers,

no taxes, local and national, shall be imposed on business

establishments operating within the ECOZONE. In lieu thereof,

five percent (5%) of the gross income earned by all business

enterprises within the ECOZONE shall be paid and remitted as

follows:(a) Three percent (3%) to the National Government.

(b) Two percent (2%) which shall be directly remitted by the

business establishments to the treasurers office of the

municipality or city where the enterprise is located.



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Facts:

The City Treasurer of Calamba assessed YTMI for LBT on

its Regular Rate revenue reflected in the Income Tax

Returns filed with the BIR applying Section 25 of RA No.

7916 as amended, with provides:

Section 25.App l icable National and Local Taxes.

All persons and services establishments in the

ECOZONE shall be subject to national and local taxes

under the National Internal Revenue Code and the LocalGovernment Code.

CASE 3: Yazaki-Torres Manufacturing, Inc.


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Facts:

The City Treasurer further claimed that the regular rate

revenue is subject to tax considering that it was assessed

for such by the BIR based on a regular corporate rate of

30%. It was submitted that the revenue was earned from

activities outside of

YTMI on the other hand, claimed that Sec. 25, supra,

applies only to non-PEZA enterprises which are not

entitled to the exemptions under Sec. 24 of the same Law.



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Issues:

WON the regular rate under the TAXABLE portion of

the Annual Income Tax Return of YTMI is subject to local

business tax.

Ruling:

In a letter dated March 18, 2013 of the BLGF addressed

to Ms. Eufemia H. Biscocho, Special Assistant to the Division

Head, Finance Division, YTMI, BLGF expressed the view

that income of YTMI classified as regularrate is subject toLBT imposed under the duly-enacted tax ordinance of the

City of Calamba and found the assessment made of the CTO

in full accord of the law.



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Basis: PEZA MC No. 2005-032

If the gain is derived from activity not entitled to either

ITH or 5% GIT then subject to tax. The same rule also

applies to other kinds of income realized from othersources by a PEZA-registered enterprise.

Note: The regularrate appearing in the ITR was considered

by CTO-Calamba as income realized by YTMI fromsources not related to its registered activities or

earned not within the ECOZONE thus it was

subjected to local business tax.



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Basis: Letter dated 06 March 2013 of Atty. Procolo M. Olaivar,

Manager, Legal Service Group, PEZA, which states:

Income from activities not entitled to ITH or the 5% GIT

incentive refers to income derived from activitiesunrelated to the PEZA-registered business and not

covered by any PEZA incentive is subject to nationaland

local taxes.


the peza issue

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