BIR Ruling [DA-246-96]

July 16, 1996 BIR RULING [DA-246-96] Mejjen Manufacturing and Marketing Suite No. 6-D, 6th Floor, Maya Theatre No. 678 Edsa, Bgy. Immaculate Conception District 4, Quezon City Attention: Mr . Miguel V . Calingo, Jr . Gentlemen : This refers to your letter dated August 6, 1995 requesting for a Certificate of Tax Exemption under R.A. No. 7459, otherwise known as the Inventors and Invention Incentives Act of Philippines. It is represented that Mr. Miguel V. Calingo, Jr. is an inventor and duly certified by the Filipino Inventors Society, Inc. (FIS); that he alleged that he has an invention entitled "Portable Water Purifier" under Patent No. UM6709 issued by the Bureau of Patents, Trademarks and Technology Transfer dated October 17, 1988; that said invention was already screened and evaluated by FIS; and that said invention is now already on commercial scale. In reply, please be informed that Section 3(c) of Revenue Regulations No. 19-93 implementing RA 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 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; (c) Excise taxes directly payable in connection with the sale of invention products; The aforestated tax exemptions are the only tax privileges accorded by the said law to the Inventors. Such being the case, Mr. Miguel V. Calingo, Jr., 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 137-94 dated September 6, 1994) cdi Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)