BIR Ruling [DA-072-06]

March 1, 2006 BIR RULING [DA-072-06] Sec. 141 (a) Philippine Wine Merchants Philippine Wine Merchants Compound 2253 Aurora Blvd., Pasay City Attention: Rose R. Madela General Manager/Import Head Gentlemen : This refers to your letter dated August 10, 2005, inquiring on the correct tax rate under Section 141 of the Tax Code of 1997 of BARDINET SPIRITS which your company is importing from France. It is represented that Philippine Wine Merchants (Phil. Wine for short) has been importing BARDINET SPIRITS from France and has been paying all corresponding taxes and duties for the release of the imported goods; that in the old tax scheme, prior to the approval of the bill increasing the excise tax on alcohol and tobacco, the excise tax was P84.00 per proof liter, that, however, when the bill was finally approved, the excise tax was increased to P126.00 per proof liter; that sometime in May, 2005, your supplier visited you and explained that the alcohol used in the manufacture of BARDINET was derived from sugarcane molasses and not from grapes; that sugarcane according to them is commercially grown in the Island of La Martinique, a French territory; that being a derivative of sugarcane, the excise tax to be paid per proof liter would only be P11.65; that premises considered, you presented all your documents to the ATRIG Section of this Office (BIR) in order for them to reconsider and amend the excise tax rate applicable to you, and eventually grant refund/credit of the erroneous tax payments; and that you were advised by the ATRIG Section of this Bureau to seek legal opinion. In reply, please be informed that Section 141 of the Tax Code provides, to quote: "Section 141. Distilled Spirits . On distilled spirits, there shall be collected, subject to the provisions of Section 133 of this Code, excise taxes as follows: (a) If produced from the sap of nipa, coconut, cassava, camote, or buri palm or from the juice, syrup or sugar of the cane, provided such materials are produced commercially in the country where they are processed into distilled spirits, per proof liter, Eight pesos (P8.00): Provided, That if produced in a pot still or other similar primary distilling apparatus by a distiller producing not more than one hundred (100) liters a day, containing not more than fifty percent (50%) of alcohol by volume, per proof liter, Four pesos (P4.00)" It could be observed from the aforecited provision that a distilled spirit produced from the sugar of the cane may be taxed at a lower rate of P8.00 per proof liter if it could be shown that such materials are produced commercially in the country where they are processed into distilled spirits. The sugarcane from which the distilled spirit is produced, is commercially grown in the Island of La Martinique, a French territory in the West Indies. A sugarcane is a tropical plant which grows only in warm regions. Obviously it cannot thrive in France, where the climate is generally cool. However, the Island of La Martinique is the territory of France. A territory is an entity which possesses what is commonly denominated as an incomplete, imperfect, qualified or quasi-international personality. It is subject to the control and sovereignty of some other "superior" state or states in the conduct of its external and foreign relations. La Martinique being a French Territory is subject to the laws and regulations of France. aCASEH Since the Island of La Martinique is a French territory dependent completely on the French authority over all its affairs, having no separate personality in the International Organization of Nations, it may as well be considered a possession of France. Thus, in International Law, it is considered a part of the country of France. Accordingly, the sugarcane commercially grown in the Island of La Martinique, a French territory in the West Indies, could very well be considered as produced in the country of France, where it is processed into distilled spirits, thus, within the ambit of Section 141 of the Tax Code of 1997. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service