BIR Ruling [DA-066-96]

February 7, 1996 BIR RULING [DA-066-96] Oral Educational Distributor Rm. 206 Catalina Building Cor. New York St. & E. Rodriguez Ave. Cubao, Quezon City Attention: Mr . Francisco Oral Pagayon Owner/General Manager Gentlemen : This refers to your letter dated August 21, 1995 requesting for exemption under R. A. 7459, otherwise known as the "Inventors and Invention Incentives Act of the Philippines". cdta Documents submitted show that Teodorico E. Castaeda and Francisco O. Pagayon are members of the Filipino Inventors Society, Inc.; that on June 8, 1993 and May 2, 1994, both of them were issued Patent Nos. UM 7577 and UM 7772 for An Improved Vehicular Plate and Truncheon Device, respectively, by the Bureau of Patents, Trademarks and Technology Transfer; and, that the Department of Science and Technology has evaluated and confirmed that both of them are eligible to the tax incentives under the aforesaid law. 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: (a) Income tax on the net income derived from the sale of invention products resulting from newly discovered developed technologies by local researches 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 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 21(d) of the Tax Code, as amended; 3. Capital gains tax on sales of real property prescribed under Section 21(e) of the Tax Code, as amended. 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 50(b) of the Tax Code, as amended, as implemented by Revenue Regulations No. 6-85, as amended; and (3) on government money payments pursuant to RA 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 on or before the 15th day of the fourth month following the close of such fiscal year, an Annual Information Return (BIR Form 1702A-2) with the Revenue District Officer. 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, as amended by PD 1959. (BIR Ruling No. 053-95 dated March 8, 1995) cdtech Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)