BIR Ruling [DA-221-03]

July 10, 2003 BIR RULING [DA-221-03] Sec. 142 (b); RR 2-97 DA-170-97 Bel Mondo Italia Corporation #71 J.P. Rizal Street Arty Homes Subdivision Karuhatan, Valenzuela City Attention: Trinidad R. Sula Finance & Admin. Manager Gentlemen : This refers to your letter dated February 21, 2003 requesting a ruling on the correct classification of the two (2) wine variants, namely, Novellino Bianco Vivace and Novellino Rosso Vivace. It is represented that Bel Mondo Italia Corporation (BMIC for brevity) is a domestic corporation engaged in the manufacture of still wines. BMIC bought the machinery and equipment from Metro Pacific Corporation (MPC) after the latter stopped its wine manufacturing business with the brand name of Reunite. BMIC follows exactly the same process of MPC in producing wines except that the alcohol content of Novellino Bianco Vivace and Novellino Rosso Vivace is lower by 1.5% than that of Reunite wine. The comparative production process employed by BMIC that is similar to what MPC did in producing sparkling wines and Reunite wines are as follows: CHAMPAGNE PRODUCTION REUNITE WINE PRODUCTION 1. Blending 1. Blending 2. 1st Fermentation (1-3 weeks) 2. Fermentation 3. Clarification (1-2 months) 3. Clarification 4. Assessment/Blending & Bottling 4. Chilling/Precipitation 5. 2nd Fermentation (2 months) 5. Final Adjustments Filtration 6. Maturation (6-12 months) 6. Carbonation 7. Remuage (Yeast Settlement)-2 months 7. Micro-Filtration 8. Disgorging and Sweetening 8. Bottling BMIC then requested the registration of the new brands it will manufacture and packaging of alcohol products with the Bureau of Internal Revenue. In response to said request, the Large Taxpayers Service, this Bureau, made the following classification, viz.: STILL WINES ARTICLE DESCRIPTION TAX RATE Novellino Strawberry Passion 750 ml; 4.5 alcohol by volume P13.44 Novellino Rosso Classico 750 ml; 4.5 alcohol by volume P13.44 Novellino Bianco Classico 750 ml; 4.5 alcohol by volume P13.44 Novellino Luscious Peach 750 ml; 4.5 alcohol by volume P13.44 Novellino Wild Blackberry 750 ml; 4.5 alcohol by volume P13.44 Novellino Rosso Tradizionale 750 ml; 9.5 alcohol by volume P13.44 SPARKLING WINES ARTICLE DESCRIPTION TAX RATE Novellino Bianco Vivace 750 ml; 7.5 alcohol by volume P112.00 Novellino Rosso Vivace 750 ml; 7.5 alcohol by volume P112.00 It is your contention that the last two (2) products should not be classified as sparkling wines because these variants contain 7.5% alcohol by volume only and carbonated through injection after the first fermentation and not through a secondary process. As such, you now request for a ruling classifying the above variants as still wines. In reply, please be informed that under Revenue Regulations No. 2-97, sparkling wine is defined as an effervescent table wine usually white but occasionally red in color, containing an average of 12% alcohol by volume which is carbonated by secondary fermentation. This includes champagne. Based on the foregoing definition, there are two elements in order for a variant to be classified as a sparkling wine, viz. : 1. That it contains an average of 12% Alcohol by volume; and 2. That it is carbonated by secondary fermentation. Since Novellino Bianco Vivace (NVB) and Novellino Rosso Vivace (NRV) contain only 7.5% alcohol by volume and were not carbonated by secondary fermentation, it is the considered opinion of this Office that they should not be classified as sparkling wines. Neither the production process of these wines nor the alcohol content will justify the categorization of NVB and NRV as sparkling wines (BIR Ruling No. DA-170-97 dated April 15, 1997) .Stated differently, NVB and NRV did not meet the criteria for sparkling wine from the aspect of production process and alcohol content. TEaADS Be that as it may, Novellino Bianco Vivace and Novellino Rosso Vivace shall be classified as still wines subject to the specific tax rate of P13.44 per liter of volume capacity pursuant to 142(b) of the National Internal Revenue Code of 1997. Under Revenue Regulations No. 2-97, still wine is wine that is not carbonated by secondary fermentation and has an alcohol content of 14% or less. 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group