date

BBBB

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Attention: MR. XXXX

Gentlemen:

We are pleased to submit our opinion on BBBB (the “Company”) query on whether policy holders of the
Company who hold tax exemptions from the Philippine Economic Zone Authority (PEZA) are exempt
from documentary stamp tax (DST) on insurance policies.

Discussion

Exemption under RA 7916

Business establishments operating within the ECOZONE are exempt from all national and local taxes
pursuant to Section 24 of Republic Act No. 7916, otherwise known as the Special Economic Zone Act of
1995, as amended. In lieu thereof, it shall pay preferential tax of 5% on gross income earned. Section 24
of RA 7916, as amended provides in part:

"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: . . . "

This exemption from the payment of national internal revenue taxes is reiterated in Section 1(A), Rule
XIV of the Rules and Regulations to Implement Republic Act No. 7916, issued by the PEZA Board and
implemented through BIR Revenue Regulations No. 12-97.

Exemption is in lieu of all taxes,

national and local including DST

The rule that the 5% preferential tax rate under RA 7916 is in lieu of all taxes is now already settled. The
Supreme Court in the case Commissioner of Internal Revenue v. Toshiba Information Equipment (Phils.),
Inc., ruled in this wise:

“The five percent (5%) preferential tax rate on gross income under Rep. Act No. 7916, as amended, is in
lieu of all taxes. Except for real property taxes, no other national or local tax may be imposed on a PEZA-
registered enterprise availing of this particular fiscal incentive, not even an indirect tax like VAT.”

RA 7916, as amended, provides exemption from National and Local Taxes. This particular exemption
includes Documentary Stamp Tax (DST) which is levied under Title VII of the National Internal Revenue
Code of 1997. In the case of Commissioner of Internal Revenue vs. Nidec Copal Philippines Corporation ,
the Court of Tax Appeals (CTA) thus ruled:

“Since the law does not exclude the DST from the prohibition, it is deemed included. Exceptio firmat
regulam in casibus non exceptis. An exception confirms the rule in cases not excepted; that is, a thing
not being excepted must be regarded as coming within the purview of the general rule.

xxx xxx xxx

It is clear therefore that the DST, which is a national tax, cannot likewise be imposed on a PEZA-
registered enterprise availing of the 5% preferential tax rate. Thus, the Court in Division correctly ruled
that Nidec's exemption from the payment of local and national taxes includes the DST on its loan
agreements and lease contracts imposed under the afore-quoted Sections 194 and 180 of the 1997
NIRC. This is consistent with the pronouncement of the Supreme Court that the incentives offered to
PEZA-registered enterprises such as tax exemptions, "ultimately redound to the benefit of the national
economy, enticing as they do more enterprises to invest and do business within the zones, thus creating
more employment opportunities and infusing more dynamism to the vibrant interplay of market forces.
"

The Bureau of Internal Revenue (BIR) itself has consistently ruled that a PEZA- registered enterprise
subject to the preferential tax of 5% is exempt from the payment of all other national taxes including the
DST .

Thus in BIR Ruling [DA-107-01], dated 1 June 2001, BIR ruled that PIATCO, a PEZA-registered enterprise,
is liable for the preferential tax rate of 5% on its gross income earned, in lieu of all local and national
taxes (except real property on land), it is exempt from the payment of all other national taxes including
documentary stamp taxes.

In the same vein, the BIR has also ruled that a PEZA-registered enterprise subject to the 5% tax is
exempt from the payment of DST on the sale and/or lease of its PEZA-registered lots to PEZA-registered
and non-PEZA locators.

With the foregoing, we submit that PEZA-registered policy holders of the Company who enjoys Income
Tax Holiday (ITH) or 5% tax rate on its gross income earned are exempt from DST on insurance policy.

Party liable to pay DST

Section 173 of the National Internal Revenue Code of 1997, as amended, provides that:
"Sec. 173. Stamp taxes upon documents, instruments, and papers. — Upon documents,
instruments, and papers, and upon acceptances, assignments, sales, and transfers of the obligation,
right, or property incident thereto, there shall be levied, collected and paid for, and in respect of the
transaction so had or accomplished, the corresponding documentary stamp taxes prescribed in the
following sections of this Title, by the person making, signing, issuing, accepting, or transferring the
same, wherever the document is made, signed, issued, accepted or transferred when the obligation or
right arises from Philippine sources or the property is situated in the Philippines and at the same time
such act is done or transaction had; Provided, That whenever one party to the taxable document enjoys
exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one
directly liable for the tax." (emphasis ours)

This provision of the Tax Code was applied by the BIR in BIR Ruling [DA-373-05], dated 30 August 2005.
We quote the pertinent portion of the ruling:

“Furthermore, since IPI is engaged in real estate business, leasing of real properties is among its
registered activities, IPI, therefore, is exempt from payment of the documentary stamp tax (DST) due on
the Contract of Lease it executed with the other PEZA-registered company. However, applying Sec. 173
of the Tax Code of 1997, as amended, the other party to the Contract of Lease, therefore, shall bear the
burden of paying the DST, except, however, if the other PEZA-registered enterprise is also engaged in
realty (leasing) business, in which case, it shall likewise be exempt from payment of the DST.” (emphasis
ours)

Considering that the PEZA- registered policy holders of the Company are exempt from DST on insurance
policy, the Company shall be the one directly liable for the tax.

***

We trust that we have sufficiently addressed your concerns. Should you have questions on the
foregoing, please do not hesitate to contact us.

Our advise is limited to the conclusions specifically set forth herein and is based on the completeness
and accuracy of the stated facts, assumptions and/or representations included. In rendering our advice,
we may consider tax authorities that are subject to change, retroactively and/or prospectively, and any
such changes could affect the validity of our advice. We will not update our advice for subsequent
changes or modifications to the law and regulations, or to the judicial and administrative interpretations
thereof.

This advice has been prepared for the sole benefit of BBBB and is based on the specific facts and
circumstances of BBBB and is issued pursuant to the terms of the engagement letter. It should not be
relied upon by any other person. Any other person choosing to rely on this advice does so at their own
risk. To the fullest extent permitted by law, Manabat Sanagustin & Co. accepts no responsibility or
liability to them in connection with the services.

Very truly yours,

MANABAT SANAGUSTIN & CO.

By:

HERMINIGILDO G. MURAKAMI

Principal, Tax