BIR Ruling

October 9, 1968 Mr. Marciano M. Tongol 20 Scout Albano St. Diliman, Quezon City d-502 S i r : This refers to your letter dated September 22, 1968 stating that you are intending to organize a corporation to engage in the business of leasing ice cuber and ice flaker machines; and that before you reach a definite decision you would like to know the stand of this Bureau on the following matters: 1. The primary objective of the corporation is to lease the imported machines. Eventually, you expect the lessors to offer to buy the units. In case of such sale, is there a tax involved and if so, what is the rate. 2. The contract of lease will cover only rental of the equipment, the servicing or maintenance is not included. What tax in involved. 3. The lessors might insist on your servicing or maintaining the units for which a contract will be signed. 4. It is expected that the customers will be the hospitals, clinics, hotels, fish markets, school canteens, office canteens, processors of meat and poultry, restaurants, caterers and the like. What tax will be imposed when the units are imported. In reply, I have the honor to inform you as follows: Imported ice cuber and ice flaker machines intended for lease and not for sale, barter or exchange are subject to the 30% compensating tax pursuant to Section 190 in relation to Section 185-A(b), both of the Tax Code. However, if the lessors of the imported machines elect to purchase the leased machines, then the machines shall be subjected to the advance sales tax. And in determining the deficiency advance sales tax due on the imported machines on which the compensating tax had already been paid before the same were released from customs custody, the original landed cost thereof, plus the corresponding mark-up at the time of importation shall be the basis of the advance sales tax. In other words, the deficiency advance sales due on the machines sold to the lessors thereof is the difference between the advance sales tax computed at the time of importation less the compensating tax paid on the machines. The income derived from the leased machines is not subject to any internal revenue tax on business. However, if your proposed corporation enters into a contract with the lessors whereby the corporation agrees to provide for the repair and maintenance of the leased machines for a separate fee, then the corporation is considered a contractor subject to the annual fixed tax of P20.00 and to the 3% tax on the fees received on account of the aforesaid service, pursuant to Sections 182(A)(1) and 191 of the Tax Code, respectively. cdta Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue