BIR Ruling

August 14, 1968 The Honorable The Secretary of Finance Manila S i r : This refers to your letter dated July 18, 1968 requesting clarification as to the legal basis of the ruling of this Office dated December 22, 1967 wherein it was held that the sale of the Ford car brought in tax-free under the provisions of Republic Act No. 4112 by Miss Liwayway B. Barican, Foreign Affairs Officer to a non-exempt person is not subject to tax and, therefore, the non-exempt purchaser may register the car in his name without being required to pay the tax due thereon. It is alleged that the foregoing ruling is diametrically opposed to the provisions of Section 183(b) and 190 of the Tax Code, which provide "that in the case of tax-free articles brought or imported into the Philippines by persons, entities or agencies exempt from tax which are subsequently sold, transferred or exchanged in the Philippines to non-exempt private persons or entities, the purchasers shall be considered the importers thereof." With due deference to the foregoing allegation, this Office believes that the provisions of Sections 183(b) and 190 of the Tax Code as aforesaid do not apply to cars and personal and household effects brought in tax-free by officers and employees of the Department of Foreign Affairs upon their recall or reassignment to the home office. Section 6 of Republic Act No. 708, as amended by Republic Act No. 4112 provides as follows: "SEC. 6. Exemption from taxation : (a) All allowances, per diems , benefits, and the like received by officers and employees of the service in consideration of their service, except their basic salaries, shall be exempt from the Philippine income tax. "(b) Any officer or employee returning from a regular assignment abroad for reassignment to the home office or who dies, resigns or is retired from the service shall be exempt from the payment of all duties and taxes on his personal and household effects, including one motor car duly registered in his name: Provided, however , That this exemption shall apply only to the value of the motor car and to the aggregate assessed value of said personal and household effects, the latter not to exceed fifty per centum of the total amount received by such officer or employee in salary and allowances during his latest assignment abroad but not to exceed four years: And provided, further , That this exempt shall not be availed of oftener than once every four years." It should be noted that the exemption under Republic Act No. 4112 applies only to the value of the motor car and to the aggregate assessed value of the personal and household effects of the returning officer or employee of the foreign service. In short, the exemption is more of a privilege attached to the position arising out of foreign assignment and not to the person of the foreign service personnel unlike those contemplated by the provisions of Sections 183(b) and 190 of the Tax Code which are attached to the person of the beneficiary on account of special assignment and service in the Philippine Government, such as the Bases Agreement. As the exemption was predicated on such service and use of the tax-exempt article in this country for the duration of such service, the subsequent transfer of tax-exempt articles by the beneficiary to another not similarly privileged must necessarily be subjected to tax. As a matter of fact, this was the very purpose for which the provisions in question were inserted into the law by Republic Acts Nos. 1511 and 1612 occasioned by the then illegal traffic of PX goods. cdta In the light of the foregoing, this Office believes that the ruling in question is in accordance with law and should, therefore, be maintained. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue