BIR Ruling

January 31, 1972 The San Miguel Corporation San Miguel Building 6766 Ayala Avenue, Makati, Rizal Attention: Mr . D . T . Reyes Asst . Vice-president Gentlemen : This refers to your letter dated January 26, 1972 stating substantially as follows: You intend to manufacture a new type of beverage in a totally separate and distinct establishment using as principal raw material "beer" which will be removed from your brewery tax paid. The beverage is manufactured by mixing the beer with non-alcoholic articles and flavorings. The article does not undergo any process of fermentation and the resultant product shall contain about 2.0% alcohol by volume. You now ask confirmation of your opinion that: (1) You are considered a compounder as defined in the Tax Code. (2) The beverage is not subject to sales tax because it is not a soft drink; and (3) Since the chief ingredient (beer) had already been tax paid, no other tax is due on the sale of the beverage. In reply, I have the honor to inform you as follows: This Office does not agree with you that you shall be "compounders" as defined by the Tax Code. A compounder is one which mixes distilled spirits or other liquor but not including fermented liquor with any other material, except water, to produce an intoxicating beverage. The beverage you will produce will be considered an ordinary article subject to the 7% sales tax prescribed by Section 186 of the Tax Code. However, in computing the sales tax due on your sales thereof, you can deduct the cost of the beer and other tax paid raw materials used in manufacture from the gross selling price pursuant to Section 188(a) of the Tax Code. Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue