BIR Ruling

December 10, 1973 Judge Francisco S. Tantuico, Jr. Cebu Courts of First Instance Law Library 2nd Floor, Provincial Capitol Bldg. Cebu City S i r : This refers to your letter dated October 8, 1973 requesting reconsideration of the ruling of Revenue Region No. 13, Cebu City dated September 6, 1973 subjecting to 7% compensating tax a shipment of law books donated from abroad by an American law office to the Cebu CFI Law Library. acd You represented that the Cebu CFI Law Library is a court library originally established when the courts were under the supervision of the Department of Justice, now under the supervision of the Supreme Court; that its personnel are court personnel and its maintained as an integral part of the Courts of First Instance; and that the Funds being used for the purchase of law books comes from the General Appropriation Act of the Republic. In other words, said library is a government office. You also stated that said books are exempt from the payment of compensating tax in accordance with the provisions of the UNESCO Agreement on Importation of Educational, Scientific and Cultural Materials dated November 22, 1950 wherein the Philippines is among the signatory nations, particularly Article I, paragraph 1 of the said Agreement, which reads: "ARTICLE I "1. The contracting states undertakes not to apply customs duties or other charges on, or in connection with, the importation of: (a) Books, publications and documents, listed in annex "A" to this Agreement; (b) Educational, scientific and cultural materials listed in annexes B, C, D, and E to this Agreement; which are the products of another contracting State, subject to the conditions laid down in those annexes." In reply, I have the honor to inform you as follows: Although Article I paragraph 1 of the UNESCO Agreement on Importation of Educational Scientific and Cultural Materials provides that the contracting States shall undertake not to apply customs duties or other charges on the importation of books, publications and documents as well as educational, scientific and cultural materials, such exemption however, should be interpreted as limited and applying only to customs duties or charges and should not be construed to extend to internal revenue taxes like compensating tax. This is so, because the term "duty" does not include taxes. That compensating tax is not included in the said exemption could be deducted from the same Article I of the said UNESCO Agreement which also provides: "ARTICLE I "xxx xxx xxx "2. The provisions of paragraph 1 of this Article shall not prevent any contracting State from levying on imported materials: (a) Internal taxes or any other internal charges of any kind, imposed at the time of importation or subsequently, not exceeding those applied directly or indirectly to like domestic products." From the abovequoted provision of the UNESCO Agreement it is clear that compensating tax is not included, hence, a claim for exemption from compensating tax on the said importation under the last paragraph of Section 190 of the Tax Code, as amended by Presidential Decree No. 69 is not in order. As regards the contention that the library is not engaged in business nor the books are being imported for its own use, and therefore, not liable to compensating tax, it may be stated that the compensating tax imposed under Section 190 of the Tax Code is not a tax on the importation of goods. This is evident from the proviso that imported merchandise which is to be disposed of in transactions subject to sales tax under Sections 184 and 196 is expressly exempted therefrom. This feature shows that it is not the act of importation that is taxed under Section 190 but the use of imported goods not subject to a sales tax; otherwise, the compensating tax would have been levied on all imported goods regardless of any subsequent tax that might accrue. (Int'l Business Machines Corp. of the Phil. v. Vol. of Int. Rev., G. R. No. L-6732, March 6, 1936; Masbate Consolidated Mining Co. v. Col. of Int. Rev., G. R. No. L-7898, Feb. 27, 1956). And insofar as payment of compensating tax is concerned, the allegation that the said law books are for the use of the courts, the law practitioners and the public in general is of no moment since the consignee or importer thereof is the library itself. It appearing therefore, that the Cebu CFI Law Library is an instrumentality of the government, it is subject to the payment of compensating tax pursuant to Section 186 in relation to Section 190, both of the Tax Code, as amended by Presidential Decree No. 69. Under Section 1205 of Republic Act No. 1937, as amended by Presidential Decree No. 34, otherwise known as the Tariff and Customs Code of the Philippines, all importations by the government for its own use or that of its subordinate branches or instrumentalities, or corporations, agencies or instrumentalities owned or controlled by the government, shall be subject to duties, taxes, fees, and other charges provided for in this Code. Section 3514 of the same Code defines taxes as to include all taxes, fees and charges imposed by the Bureau of Customs and the Bureau of Internal Revenue . In view of the foregoing, your request for reconsideration of the abovementioned ruling is hereby denied. It is, therefore, urged that you pay the 7% compensating tax due on the said shipment. aisadc Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN-1601-593-5