The PEZA Issue
Transcript of 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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Fiscal Incentives on Businesses Located within the Ecozone
(RA 7916 as amended by RA 8748)
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.
Fiscal Incentives on Businesses Located within the Ecozone
(RA 7916 as amended by RA 8748)
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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.
Fiscal Incentives on Businesses Located within the Ecozone
(RA 7916 as amended by RA 8748)
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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;
CASE 1: Affinity Express Philippines, Inc.
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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:
CASE 1: Affinity Express Philippines, Inc.
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.
CASE 1: Affinity Express Philippines, Inc.
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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:
CASE 1: Affinity Express Philippines, Inc.
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.
CASE 2: Affinity Express Philippines, Inc.
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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:
CASE 2: Affinity Express Philippines, Inc.
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.
CASE 2: Affinity Express Philippines, Inc.
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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.
CASE 2: Affinity Express Philippines, Inc.
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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;
CASE 2: Affinity Express Philippines, Inc.
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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.
.
CASE 2: Affinity Express Philippines, Inc.
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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.
CASE 2: Affinity Express Philippines, Inc.
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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.
CASE 3: Yazaki-Torres Manufacturing, Inc.
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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.
CASE 3: Yazaki-Torres Manufacturing, Inc.
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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.
CASE 3: Yazaki-Torres Manufacturing, Inc.
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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.
CASE 3: Yazaki-Torres Manufacturing, Inc.