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.

Issue:

►  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

Ruling:

■    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.