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BIR Ruling No. 14-2012 dated January 4, 2012 deductibiiity of Royaity Payments

BIR Ruling No. 14-2012 dated January 4, 2012

►  S Co., a PEZA-registered Ecozone Export Enterprise, enjoys the 5% gross
income tax incentive on gross income from the manufacture and saie of
lighters. Under a license agreement, BV Co. granted S Co. the right to use
intellectual property over technology and trademarks in the manufacture and
sale of the lighters. In consideration for granting the license, S Co. pays
royalties to BV Co.
►  Are the royalty payments by S Co. to BV Co. deductible from S Co.'s gross
income for purposes of computing the 5% gross income tax?y of Royaity Payments___________ 

BIR Ruling No. 14-2012 dated January 4, 2012 Non-deductibiiity of Royalty Payments
■    No. Section 2, Rule XX of the PEZA Implementing Rules and Regulations provides an exclusive enumeration of allowable deductions from the gross income of Ecozone export enterprises as follows: .    Direct salaries.'wages or labor expenses
■                 Production supervision salaries
■                 Raw materials used in the manufacture of products
■                 Goods in process (intermediate goods)
■                 Finished goods
■                 Supplies and fuels used in production
■   Depreciation of machinery and equipment used in production, and buildingowned or constructed by an ECOZONE Enterprise
.    Rent and utility charges associated with building, equipment and warehouses, or handling of goods
■                 Financing charges associated with fixed assets.
►   The exclusive enumeration does not include royalty payments.

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