BIR Ruling

December 11, 1969 Philippine Ace Lines, Inc. P. O. Box 3567 Manila Gentlemen : This refers to your request that freight charges should not be included in the total landed cost of the Chevrolet Camaro car brought in freight free from Japan by Mr. Samuel R. Suarez (your operations manager in Japan) for purposes of computing the compensating tax due on said car. cdlex In reply, I have the honor to inform you that in a case presented before the Court of Tax Appeals as to whether the advance sales tax should be competed, among others, on the 10% of the customs duty which the importer actually paid in accordance with the diminishing exemption provisions of Republic Act No. 901, or on the 100% customs duty on the importer articles, whether wholly or partially paid by the importer, the Tax Court ruled this wise: "The advance sales tax is based on the import invoice value of the importer article, including expenses at the time it was received by the imported, plus mark-up. On the determination of this tax, 'landed cost' has been interpreted as synonymous with the phrase 'total value' which means the import invoice value of the article, including freight, postage, insurance, commission, customs duty, and all similar charges. The landed cost plus mark-up represents theoretically the selling price of the imported article (Mayon Motors, Inc. vs. Acting Commissioner of Internal Revenue, G.R. No. L-15000, March 29, 1961). Since the selling price of the imported article is determined by its landed cost or import invoice value, including expenses at the time it was received by the imported, plus mark-up, what is not related to the article as an actual expense cannot be determinative of its selling price. As a corollary, it cannot be a basis of the advance sales tax. And, if, as in the case at bar, the importer is entitled to a customs duty exemption of 90% and as a consequence thereof actually pays only 10% of the full customs duty, the latter percentage of duty should be considered in the computation of the advance sales tax. LibLex "In fine, we rule and so hold that the phrase 'customs duty' found in Section 183(b) of the Tax Code should be interpreted to mean the amount of customs duty legally due and paid by the imported." (The Southern Industrial Projects, Inc. vs. the Commissioner of Internal Revenue, CTA Case No. 941, November 20, 1961). In the light of the foregoing and considering that freight, like customs duty, forms part of the landed cost for purposes of determining the advance sales of compensating tax due on imported articles, it is the opinion of this Office as it hereby holds that the freight of the car from Japan which was not actually paid by Mr. Suarez should not be considered as part of the landed cost of the car in question for purposes of computing the compensating tax due thereon. prcd Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue