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

A PEZA-registered Ecozone export enterprise, enjoys 5% Gross Income Tax incentive on gross income from the manufacture and sale of lighters.  Under license agreement, BV Co. granted the enterprise the right to use intellectual property over technology and trademarks in the manufacture and sale of lighters.

In consideration for granting the license, the said enterprise pays royalties to BV Co, which, in its opinion, are deductible from its gross income for purposes of computing 5% gross income tax.

The BIR held that the royalty payments to be paid by the enterprise to BV Co. are not deductible for purposes of the 5% gross income tax.  The BIR argued that 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 and the enumeration does not include royalty payments.