Tax notes: No BIR ruling needed for CWT exemption of Peza enterprises

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Monday, May 2, 2011


AS A withholding agent, a domestic company is not required to obtain a favorable BIR ruling before it can exempt from creditable withholding tax (CWT) its income payments to a Philippine Economic Zone Authority (Peza) registered enterprise. This is the ruling of the Court of Tax Appeals (CTA) in its decision in CTA Case No. 7057 last Feb. 4.

In this case, the Bureau of the Internal Revenue (BIR) assessed a domestic company for a deficiency in its withholding tax on its purchase of goods and services from a Peza-registered enterprise. BIR asserts that even if Peza-registered enterprises are exempt from CWT, the domestic company cannot automatically exempt the Peza-registered enterprise from withholding tax, thus requiring the company to secure a BIR ruling exempting its income payments to Peza-registered enterprises from withholding tax.

The CTA ruled otherwise. CTA cited Section 2.57.5 of Revenue Regulations (RR) No. 2-98 explicitly exempting income payments to Peza-registered enterprises from CWT. To enjoy exemption from CWT, the CTA ruled that a domestic company does not need to secure a BIR ruling. Hence, the CTA ordered the cancellation of deficiency withholding tax on its purchase of goods and services from the Peza-registered enterprise.

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(Source: Punongbayan & Araullo)

Published in the Sun.Star Cebu newspaper on May 03, 2011.

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