BIR Ruling [DA-261-04]

May 17, 2004 BIR RULING [DA-261-04] R.A. No. 7459; RR19-93; DA-118-2002 Mr. Francisco O. Pagayon Oral Educational Distributor Suite 206 Catalina Building, 9 New York Street cor. E. Rodriguez Sr. Blvd., Cubao, Quezon City S i r : This refers to your letter dated February 15, 2003 to the Department of Science and Technology which was indorsed to this Office on March 5, 2003 requesting for a ruling that as a registered inventor of the following patented designs or products described below, you are entitled to the tax incentives under R.A. No. 7459, otherwise known as the Inventors and Inventions Incentives Act of the Philippines: Patent Registration No. Title Invention # 2-1999-00451 Tree Planting Kit Invention # 2-1999-00452 Grains Thermal Drying Trays that you are an accredited member of the Filipino Inventors Society (FIS);and 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 Section 6 of R.A. No. 7459 provides: "SEC. 6. Tax Exemption. To promote, encourage, develop and accelerate commercialization of technologies developed by local researchers or adapted 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: Provided, that this tax exemption privilege pertaining to invention shall be extended to the legal heir or assignee upon the death of the inventor. TCIDSa "The technologies, their manufacture or sale, shall also be exempt from payment of license, permit fees, customs duties and charges on imports." 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 inventor's 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 products, 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 ESCcaT 6. Other percentage taxes under Title V of the Tax Code; and 7. Excise taxes directly payable in connection with the sale of invention products; 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. 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 R.A. 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 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. 2-98, as amended. 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. HcSaTI It is, of course, understood that your books of accounts and other pertinent records shall be subject to periodic examination 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-104-2001 dated June 1, 2001) 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