BIR Declares that the Clark Development Corporation is not Entitled to Incentives Granted to RBEs

On 30 May 2023, the Bureau of Internal Revenue (“BIR”) issued Revenue Memorandum Circular (“RMC”) No. 63-2023, which finally classified the Clark Development Corporation (“CDC”) as a government-owned and-controlled corporation (“GOCC”) and as an investment promotion agency (“IPA”), and thus not entitled to the incentives granted to registered business enterprises (“RBEs”). 

In 2001, the BIR issued Ruling No. 038-2001, which stated that due to the fact that CDC is a corporation formed in accordance with Philippine Corporation Law and which performs activities that are proprietary in nature, it is considered a business enterprise and should be entitled to the same privileges granted to enterprises operating within the Clark Special Economic Zone (“CSEZ”), including 5% preferential tax rate on gross income earned. 

Through RMC No. 63-2023, the BIR ruled that while it is true that the CDC is a private corporation performing activities that are proprietary in nature, the fact still remains that it is a GOCC entrusted with the responsibility of carrying out regulatory functions. Said functions include the operation and administration of the CSEZ; regulation and supervision of the enterprises in the CSEZ; and coordination with the local government units, among others. As such, it does not stand on equal footing with business enterprises operating within CSEZ, thereby precluding it from claiming the same privileges available to them. Consequently, its income should be subject to income tax as provided in Section 27 (C) of the Tax Code. 
According to the BIR, even assuming arguendo that CDC is correctly treated as a business enterprise, the conclusion remains unchanged. BIR ratiocinated that upon the passage of Republic Act No. 11534 (otherwise known as “CREATE”), the availment of fiscal incentives are now limited only to RBEs registered with the IPA.