BIR Ruling [DA-192-05]

April 21, 2005 BIR RULING [DA-192-05] R.A. 7459; RR 19-93; DA-556-2004 ABO Concrete Systems, Inc . 1401 OMM Bldg. San Miguel Avenue Ortigas Center, Pasig City Attention: Ms. Maria Teresa O. Que Accountant Gentlemen : This refers to your letter dated September 10, 2004 requesting in effect, for tax exemption under Republic Act No. 7459, otherwise known as the Inventors and Inventions Incentives Act of the Philippines. Records show that you are the registered patent holder of the herein product: Patent Registration No. Title Date Granted 3-2002-000471 Hollow Block November 13, 2003 that Mr. Angel B. Ong representing ABO Concrete System Corporation is a bona fide inventor and member of the Filipino Inventors Society (FIS),Inc.;that the Interagency Screening Committee has evaluated and recommended that you are eligible to the tax incentives under the aforesaid law. In reply, please be informed that RA 7459, as implemented by Revenue Regulations No. 19-93 dated July 27, 1993, particularly Section 6 thereof states that: "SEC. 6. Tax Exemption . To promote, encourage, develop and accelerate commercialization of technologies developed by local researches or adopted locally from foreign sources including inventions, any income derived from these technologies shall be exempted from all kinds of taxes during the first ten (10) years from the date of the first sale, subject to the rules and regulations of the Department of Finance: ..." In effect, you are still subject to the following taxes: 1. 20% final withholding taxes on interest from currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements and 7 1/2 final withholding tax on interest from foreign currency deposit; 2. Capital gains tax on sale of shares of stock prescribed under Section 24(C) of the Tax Code of 1997; 3. Capital gains tax on sale of real property prescribed under Section 24(D) of the Tax Code of 1997; 4. Income tax on income not arising from the inventors productive activity such as interest, royalties, prizes, winnings and dividends; 5. Value-added tax (VAT) on the gross receipts/revenues derived from the sale of the said invention product and also VAT for which the inventor is not directly liable, e.g.,VAT on his purchases of raw materials, supplies and equipment/machinery, which may be shifted to him as part of the cost of goods sold or for services rendered; and 6. Other percentages taxes under Title V of the Tax Code; 7. Excise taxes directly payable in connection with the sale of invention products; and 8. Documentary stamp tax on documents, instruments and papers. The said exemption can be availed of during the first ten (10) years from the date of the first sale on a commercial scale, provided that said exemption privileges pertaining to the invention shall be extended to the legal heir or assignee upon the death of the inventor. CTEacH It is important to note that the Final Resolution of the Office of the President (OP), in OP Case No. 03-G-422 dated February 2, 2004, affirming the finding of the Department of Finance denying the appeal of an inventor relative to his tax exemption privileges granted by this Office, clarifies that the only tax exemption granted by the first paragraph of Section 6 of RA 7459 merely refers to income tax. Moreover, you shall register with the proper Revenue District Officer as a withholding agent and as such shall withhold taxes (1) on the wages/salaries of your employees; (2) on your income payments 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, and as last amended by Revenue Regulations No. 2-98. Finally, you shall prepare and file in triplicate on or before April 15 of each year for the preceding calendar 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 examinations 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. DA-556-2004 dated November 8, 2004) 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, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group