BIR Ruling

September 1, 1967 Messrs. Ross, Salcedo, Del Rosario Bito & Misa P.O. Box 781 Manila Gentlemen : This refers to your letter dated August 17, 1967 requesting the opinion of this Office as to whether or not "smelter charges and penalties" form part of the "gross output of the minerals or mineral products" subject to the 1% ad valorem tax prescribed in Section 243 of the Tax Code. LibLex You represented that your client is to operate a mining claim and that it will ship the minerals to Japan on C.i.f. basis. That under your client's proposed agreement with the foreign buyer, the smelter charges and penalties to be incurred in Japan, in addition to ocean freight and insurance, will be borne by the foreign buyer. The expenses not deductible under Section 246 of the Tax Code are those incurred in connection with the mining operations within this Country. However, considering that the mines concentrates has to undergo smelting or refining process at your client's expense, your client is deemed to have sold a refined product and not merely the ore concentrates. Under the circumstances, the smelting charges and so-called penalties and any other expense incident to the smelting and refining form part of the gross value of the mineral output of your client for purposes of the 1% ad valorem tax. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue