In order to enjoy the incentives granted under the PEZA Law, a taxpayer must prove that its declared income was related to the conduct of its registered trade or business.

Taxpayer is a non-pioneer Information Technology locator enterprise registered as an Ecozone IT Enterprise by virtue of tis Philippine Economic Zone Authority Amended Certificate of Registration. As a PEZA-registered enterprise, it is entitled to four years income tax holiday (ITH) incentive, and upon the expiration of the ITH incentive, it shall be entitled to the 5% gross income tax incentive. However, for the first four years from the start of its operations, it mistakenly paid the 5% gross income tax. Realizing that it paid the 5% gross income tax when it should have been exempt for the first four years by virtue of its ITH incentive, it filed a claim for refund. It presented its income tax return showing the payment of the 5% tax on gross income.
The claim for refund was denied. According to the Court, to enjoy the incentives granted under the PEZA Law, the relevant income must be effectively related to the conduct of the registered trade or business. An effectively related income is that income derived from the business activity in which the corporation is engaged in; for an income may also be received that may not be directly connected or related to the registered business activity. The taxpayer must establish, among others, that its income relating to the subject tax refund was actually gained or received in relation to its registered operations. Taxpayer failed to do so. The annual income tax return only constitutes prima facie evidence of the facts stated therein. It does not, however, distinguish whether the income declared was derived from taxpayer’s registered activity or not. (Sutherland Global Philippines, Inc. vs. Commissioner of Internal Revenue, CTA Case EB No. 916, December 2, 2013.)