BIR Ruling

June 22, 1972 2nd Indorsement Returned to the Bureau of Customs, Manila, Attn.: Mr. Pablo M. Bautista, Special Deputy Collector of Customs, Port of Manila, the within papers relative to the importation of a 1970 Dodge Sedan 2-door car by Col. Lorenzo Z. Cepeda. The papers show that the amount of $218.00 was paid as freight of the said car while it is the contention of that Office that the usual freight charges from San Francisco to the Philippines on an imported car is at least $500.00. In view of the foregoing circumstances, information is being requested as to whether the amount of $218.00 certified by the ship agent to have been paid may be accepted in the computation of the landed cost for determining the compensating tax due on the said car. In a case presented before the Court of Tax Appeals as to whether the advance sales tax should be computed, 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 imported 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 imported articles, including expenses at the time it was received by the importer, plus mark-up. In the determination of this tax, 'landed costs' 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 importer, 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. "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 importer." (The Southern Industrial Projects, Inc. vs. The Commissioner of Internal Revenue, CTA Case No. 941, November 20, 1961). In the light of the foregoing decision and considering that freight, like customs duty, forms part of the landed cost for purposes of determining the advance sales or compensating tax due on imported articles, it is the opinion of this Office, as it hereby holds that the $218.00 freight actually paid by Col. Cepeda, should be considered as the amount of freight in arriving at the total landed cost for compensating tax purposes. In other words, the difference between $500.00 the usual freight charges from San Francisco to the Philippines on an imported car and the $218.00 actually paid should not be added to the total landed cost of the car for purposes of computing the compensating tax. MISAEL P. VERA Commissioner of Internal Revenue