BIR Ruling [DA-223-96]

July 3, 1996 BIR RULING [DA-223-96] Hon. William G. Padolina Department of Science and Technology Bicutan, Taguig Metro-Manila S i r : This refers to your letter dated January 22, 1996 indorsing among others, the request of Mr. Roberto del Rosario, a registered inventor of patented designs or products described below, for availment of the tax incentives under R.A. 7459, otherwise known as the "Inventors and Invention Incentives Act of the Philippines." Records show that Mr. Roberto del Rosario is a registered patent holder of the following products/design: Title Date Patent Number Issue The one-man band 13227 02-14-80 Audio-dynamic sing-along 6237 11-14-86 system A method of determining a 19256 02-18-86 singer's voice range that he is a Filipino inventor, and duly certified by the Filipino Inventors Society, Inc. (FIS) as its bona fide member, and entitled to all the tax incentives/benefits under R.A. No. 7459 for his invention which are already on commercial scale; and that said inventions were already screened and evaluated by FIS. In reply, please be informed that Section 3(C) of Revenue Regulations No. 19-93 implementing R.A. 7459, provides that: "SEC. 3. Tax Incentives and Tax Exemptions . xxx xxx xxx C. The inventor shall be exempt from the following taxes for which otherwise he 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 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 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; (c) Excise taxes directly payable in connection with the sale of invention products." The aforesaid tax exemptions are the only tax privileges accorded by the said law to the Inventors. Such being the case, Mr. Roberto del Rosario, an inventor, is entitled to the aforequoted tax exemptions for a period of ten (10) years from the date of first sale on a commercial scale as defined in Section 2(a) of Revenue Regulations No. 19-93 implementing R.A. No. 7459. However, an inventor shall be constituted as a withholding agent and shall be required to withhold and remit to the BIR withholding tax on his payments as an employer of compensation income to his employees or on his payments to persons subject to expanded withholding tax. Finally, Filipino inventors enjoying the said tax exemption privileges shall be subject to the 20% final withholding tax on interest income from Philippine currency bank deposits, yield or any monetary benefit from deposit substitutes, trust fund and similar arrangements, and to the capital gains tax on sales of real property and shares of stock prescribed under Section 21(e) and (d) of the Tax Code, as amended. (BIR Ruling No. 137-94 dated September 6, 1994) cdt Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)