October 27, 2005

BIR RULING [DA-445-05]

Laya Mananghaya & Co.

22/F Philamlife Tower
8767 Paseo de Roxas
Makati City

Attention: Atty. Francisco G. Tagao

Head, Tax and Corporate Services
and
Atty. Joseph Shelner N. Songco
Assistant Manager, Tax and Corporate Services

Gentlemen :

This refers to your letter dated October 21, 2005 stating that your client, Global
Brands Company, Inc. (GBCI), is a corporation duly organized and existing under and by
virtue of the laws of the Philippines with of ce address at 35F Penthouse Raf es
Corporate Center, Emerald Avenue, Ortigas Center, Pasig City; that GBCI is duly
incorporated with the Securities and Exchange Commission (SEC) on June 26, 2000;
that on July 21, 2000, GBCI was duly registered with the BIR and was duly issued its BIR
Certi cate of Registration; that GBCI adopts a scal year as its accounting period
beginning April 1 and ending March 31 of each year; and that accordingly, the rst
taxable year of GBCI when it was registered with the BIR is scal year ending March 31,
2001.
In connection therewith, you now request con rmation of your opinion that GBCI
is not subject to the 2% Minimum Corporate Income Tax (MCIT) for taxable year ended
March 31, 2004 but will only be subject to MCIT effective its scal year ended March
31, 2005 because it is the fourth taxable year immediately following its scal year of
registration with the BIR, which ended on March 31, 2001.
In reply thereto, please be informed that pursuant to Section 27(E) of the Tax
Code of 1997, a minimum corporate income tax (MCIT) of two percent (2%) of the
gross income as of the end of the taxable year is imposed upon a corporation
beginning on the fourth (4th) taxable year immediately following the year in which such
corporation commenced its business operations.
Corollarily, Section 2.27(E) of Revenue Regulations No. 9-98 provides
"(1) Imposition of the Tax A minimum corporate income tax (MCIT) of
two percent (2%) of the gross income as of the end of the taxable year (whether
calendar or fiscal year, depending on the accounting period employed is hereby
imposed upon any domestic corporation beginning the fourth (4th) taxable year
immediately following the taxable year in which such corporation commenced
its business operations. The MCIT shall be imposed whenever such corporation
has zero or negative taxable income or whenever the amount of minimum-
corporate income tax is greater than the normal income tax due from such
corporation." DAHaTc

Moreover, Section 2.27(E)(5), supra reads

"(5) Specific Rules for Determining the Period When a Corporation
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 Becomes Subject to the MCIT
"For purposes of the MCIT, the taxable year in which
business operations commenced shall be the year in which the
domestic corporation registered with the Bureau of Internal
Revenue (BIR)."
It is clear from the above cited provisions that the four-year period is counted
after the end of the taxable year of the commencement of the corporation's business
operations. The term "taxable year" is de ned under Section 22(P) of the Tax Code as
either the calendar year or the scal year, upon the basis of which net income is
computed. Accordingly, the reckoning period from which to count the four-year period
refers to the end of either the calendar or scal year when the corporation commenced
its business operations, depending on the accounting period being utilized by the
company:
In BIR Ruling No. 051-01 dated November 7, 2001 , this Office ruled that
". . . Section 27(E)(1) of the Tax Code of 1997, imposes a minimum
corporate income tax (MCIT) of two percent (2%) of the gross income as of the
end of the taxable year upon any domestic corporation beginning the fourth
(4th) taxable year immediately following the taxable year in which such
corporation commenced its business operations. Under Section 2.27(E)(5) of
Revenue Regulations No. 9-98, it is provided that "For purposes of the MCIT, the
taxable year in which the business operations commenced shall be the year in
which the domestic corporation registered with the Bureau of Internal Revenue
(BIR).
"Accordingly, since you were registered with the BIR on December 29,
1995, your taxable year started on that date and, therefore, shall be covered by
the MCIT beginning taxable year 1999."
IN VIEW OF THE FOREGOING, this Of ce hereby con rms your opinion that GBCI
is not subject to the 2% MCIT for taxable year ended March 31, 2004 as this is the third
taxable year following its BIR registration in fiscal year ended March 31, 2001. However,
GBCI will only be subject to MCIT effective the scal year ended, March 31, 2005
because it is its fourth taxable year immediately following its scal year of registration
with the BIR, which ended on March 31, 2001.
This ruling is being issued on the basis of the foregoing facts as represented.
However, if upon investigation, it will be disclosed that the facts are different, then this
ruling shall be considered null and void. aSCHcA

Very truly yours,

(SGD.) JOSE MARIO C. BUAG

OIC, Commissioner of Internal Revenue

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