BIR Ruling

March 15, 1967 The Collector of Customs Port of Manila Bureau of Customs Manila S i r : This refers to your letter dated February 24, 1967 requesting information as to whether or not in arriving at the landed cost of imported articles for the purpose of collecting the advance sales tax or compensating tax on importations under Section 2(b) of Republic Act No. 4086, the amount of full duty impossible or only the amount of duty actually paid, i.e. 25% of the full duty imposable should be considered. In reply, I have the honor to inform you that in line with the decision of the Court of Tax Appeals in the case of Southern Industrial Projects, Inc. vs The Collector of Internal Revenue CTA Case No. 941, dated November 20, 1961, only the amount of customs duty legally due and paid by the importer shall be considered in determining the landed cost for purposes of computing advance sales tax or the compensating tax, which in this case is only 25% of the duty imposable. For ready reference, there is quoted hereunder the pertinent portion of said decision, viz: "It is suggested on behalf of the respondent that the customs duty adverted to above should be interpreted as referring to the 100% customs duty on the imported articles, whether wholly or partially paid by the importer. In other words, it is agreed that for the purpose of computing the advance sales tax, the full customs duty should be included in the total landed cost of the articles plus mark-up, regardless of the amount of customs duty due and actually paid. "The suggestion is without merit. The advance sales tax is based on the import invoice value of the imported article, including expenses at the time it was received by the importer, plus mark-up. In the determination of this tax, 'landed cost', 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, 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. 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. cdtech "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." Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue