BIR Ruling [DA-037-98]

February 4, 1998 BIR RULING [DA-037-98] Mr. Rudy N. Lantano Batasan Complex Quezon City Gentlemen : This refers to your letter dated January 14, 1998 requesting for tax exemption as a registered inventor of environment-friendly petroleum-based fuels pursuant to the provisions of R.A. 7459, otherwise known as the "Inventors and Inventions Incentives Act of the Philippines." LLjur It is represented that you are an inventor of an environment-friendly petroleum-based fuels, for which you currently own various patents; that you are a Technical Consultant for Science and Technology at the Office of the Speaker of the House of Representatives and a member of the Filipino Inventors' Society (FIS); that you have received various forms of assistance from the Department of Science and Technology (DOST), particularly the Technology Application and Promotions Institute (TAPI); that during the National Inventors Week in November of 1996, your invention called "SUPERBUNKER FORMULA-L" (BF) was given the highest award in the form of "Gold Medal Award for Outstanding Invention" by the Geneva-based World Intellectual Property Organization (WPD), because of its potential to dramatically reduce ''greenhouse gases" from combustion by as much as 40% immediately without need for the users to invest in new equipment or technology; that SBF is produced by blending through your patented process as much as 40% water with the traditional Regular Fuel Oil (RFO) plus some types of naphthas; that naphthas are mostly by-products of the oil refining process with very minimal application in local business; that there is an overflowing excess of these, so that these are currently exported by our country's oil refineries; that the only major local user of this petroleum product right now is a Navotas-based power barge supplying electricity to the Luzon electric power grid; that in the future, the petrochemical complexes now being constructed will also be using these as feedstock for the production of plastics; that these projects get their naphthas specific tax free; that you are also requesting to have the same specific tax-free incentive when you buy your naphthas which are raw material inputs to the production of your invention, SBF; that currently, you are undertaking jointly with Pilipinas Shell Petroleum Corporation and ARCCO Corporation, a boiler supplier with principals in Germany, the initial commercialization of your "Superbunker Formula-L'', which is intended to replace the traditional Regular Fuel Oil (RFO) in industrial establishments; that you look forward to the time in the future when these establishments are able to cut down on their combustion emissions by 40% while giving them as much as 20% cost-savings by using SBF; that the feasibility of generating cost-savings depends on your being able to get your raw materials at their current prices; that should your initial commercial application of SBF be a success, you expect to license out your invention to any enterprise or person who may want to produce SBF to replace RFO; that in the process, this will accelerate adoption of SBF so that it could create an immediate impact of the problem of "global warming"; and that in view of possible future licensing ventures of your invention, you likewise request that you and your prospective licensees of your invention be exempted from the payment of specific taxes for the naphtha raw materials. In reply, please be informed that pursuant to R.A. No. 7459, as implemented by Revenue Regulations No. 19-93 dated July 27, 1993, you are exempt from the payment of the following taxes for which, otherwise, you shall have been directly liable; viz: (a) Income tax on the net income derived from the sale of invention products resulting from newly discovered/developed technologies by local researchers or new technology adopted from foreign sources whether it be patented machine, product, process including implements or tools and other related gadgets of invention, utility model and industrial design patents; (b) Value-added tax (VAT) on the gross receipts/revenues derived from the sale of the said invention products, provided, however, that an inventor shall not be exempt from taxes for which he is not directly liable, e.g., VAT on his purchases of raw materials, supplies and equipment/machineries, which may be shifted to him as part of cost of goods sold or for services rendered; and (c) Excise taxes directly payable in connection with the sale of invention products; but still liable to pay the following: 1. 20% final withholding tax on interest from Philippine currency bank deposits, yield or any monetary benefit from deposit substitutes, trust fund and similar arrangements; 2. Capital gains tax on sales of shares of stock prescribed under Section 24(C) of the Tax Code of 1997; 3. Capital gains on sales of real property prescribed under Section 24(D) of the Tax Code of 1997; 4. Income Tax on income not arising from the inventor's productive activity such as interest, royalties, prizes, winnings and dividends; 5. Other percentage taxes under Title V of the Tax Code; and 6. Documentary stamp tax on documents, instruments and papers. The exemption shall be during the first ten (10) years from the date of the first sale on a commercial scale, provided that this exemption/privilege pertaining to the invention shall be extended to the legal heir or assignee upon the death of the inventor. Moreover, you shall register with the proper Revenue District Officer as a withholding agent and as such shall withhold taxes (1) on the wages of your employees; (2) income payment to individuals or corporations subject to the expanded withholding tax provided for in Section 57(B) of the Tax Code of 1997; and (3) on government money payments pursuant to R.A. No. 1051, as implemented by Revenue Regulations No, 4-88, as amended by Revenue Regulations No. 10-93. Finally, you shall prepare and file in triplicate on or before April 15 of each year for the preceding calendar year, or if you have designated a fiscal year, an Annual Information Return with the Revenue District officer having jurisdiction over your place of business. It is, of course, understood that your books of accounts and other pertinent records shall be subject to periodic examination by our revenue enforcement officers for purposes of ascertaining whether you have been complying with the conditions under which you have been granted tax exemption or tax incentives and your tax liability, if any, pursuant to Section 235 of the Tax Code of 1997. (BIR Ruling No. 053-95 dated March 8, 1995) Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)