BIR Ruling [DA-281-98]

July 1, 1998 BIR RULING [DA-281-98] Mr. Rudy N. Lantano Department of Science & Technology DOST Compound, Bicutan Taguig, Metro Manila S i r : This refers to your letter dated May 5, 1998 requesting confirmation of your opinion that the sale of Alcodiesel is exempt from payment of all kinds of taxes during the first ten (10) years from the date of the first sale on a commercial scale (more than P200,000.00) and that the manufacture of the same shall also be exempt from payment of license, permit fees, customs duties and charges on imports pursuant to Art. III, Section 6 of Republic Act No. 7459, otherwise known as the "Inventors and Invention Incentives Act of the Philippines", specifically on the following: LLjur "1. That the sale of Alcodiesel is exempt from payment of all kinds of taxes during the first Ten (10) years from the date of the first sale on a commercial scale (more than P200,000.00); and "2. That the components naphtha, diesel, ethanol, methanol and anti-corrosion additives used for the manufacture of Alcodiesel shall be exempt from payment of license, permit fees, customs duties and charges on imports." It is represented that you are a bonafide member of the Filipino Inventors Society (FIS) renowned for your environment-friendly petroleum based fuel inventions; that you are likewise, the recipient of the "Gold Medal Award for Outstanding Invention" of the World Intellectual Property Organization, an association based in Geneva, Switzerland; that you have been previously issued a tax exemption certificate by this Office under BIR Ruling No. DA-037-98 dated February 4, 1998, hence, you are conclusively confirmed by the Filipino Inventors Society Screening Committee; that among other inventions, you invented the " Alcodiesel ", a fuel designed for commercial use and economic efficiency as covered by Patent No. 13424 A Fuel Composition and the Process of Producing thereof issued by the Philippine Patents Office on August 31, 1994; that Alcodiesel is an automotive fuel blend of naphtha, diesel, ethanol, methanol, anti-corrosive additives and processed through a patented agitating machine or apparatus with Patent No. 13595 which you also invented; that in this connection, you are now intending to manufacture Alcodiesel on a commercial scale to be made available to the general public; that to do this, you are now contemplating to enter into a Joint Venture Agreement with Pilipinas Shell Petroleum Corporation (Shell) on a 51:49 basis in your favor; that the arrangement/conditions initially agreed upon by the parties are the following: Shell shall finance and market the product, and the inventor shall provide the technology which necessarily will include the patented agitating machine, the invention process which necessarily would include the sourcing of the raw materials since the same shall be the utmost secret of the inventor; and that the inventor intends to import the raw materials like naphtha, diesel, ethanol, methanol and the additives. In reply, please be informed that pursuant to R.A. No. 7459, as implemented by Revenue Regulations No. 19-93 dated July 27, 1993, you, as the inventor , and as distinguished from the Joint Venture Corporation that you and Pilipinas Shell Petroleum Corporation will eventually create as a consequence of your plan to enter into a Joint Venture Agreement with the said oil company, are exempt from the payment of the following taxes for which otherwise, you shall be directly liable, viz: (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; (b) Value-added tax (VAT) on the gross receipts/revenues derived from the sale of the 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; and (c) Excise taxes directly payable in connection with the sale of invention products. but still liable to pay the following: 1. 20% final withholding tax on interest income from any currency bank deposit, yield or any other monetary benefit from deposit substitutes, trust funds and similar arrangements, royalties, prices and other winnings; prcd 2. 7% final withholding tax on interest income from a depository bank under the expanded foreign currency deposit system; 3. Final withholding tax upon cash and/or property dividend actually or constructively received from a domestic corporation corporation, etc. pursuant to Section 24(B)(2) of the Tax Code of 1997; 4. Final withholding tax on the interest income from the pre-terminated long term deposit or investment certificate in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates in such form as may be prescribed by the Bangko Sentral ng Pilipinas based on the remaining maturity thereafter before the 5th year under Section 24(B)(1) of the Tax Code of 1997; 5. Capital gains tax on sales of shares of stock not traded in the stock exchange prescribed under Section 24(C) of the Tax Code of 1997; 6. Capital gains tax on sales of real property classified as capital assets prescribed under Section 24(D) of the Tax Code; 7. Other percentage taxes under Title II; and 8. Documentary stamp tax on documents, instruments and papers. The exemption shall be during the first ten (10) years from the date of the first sale on a commercial scale (more than P200,000.00) of your invention, provided, that this exemption privilege pertaining to the invention shall be extended to the legal heir or assignee upon the death of the inventor. Moreover, under the second paragraph of Section 6, Article III of Republic Act No. 7459, the technologies, their manufacturer or sale shall also be exempt from payment of license, permit fees, customs duties and charges on imports. Accordingly, the components naphtha, diesel, ethanol, methanol and anti-corrosive additives used for the manufacture of Alcodiesel shall be exempt from payment of the license, permit fees, customs duties and charges on imports. It is however, understood that the foregoing exemptions granted under R.A. No. 7459 are exclusive to you as the inventor of Alcodiesel and shall not extend to Pilipinas Shell Petroleum Corp. or to any other entity to which you may hereinafter deal/contract with. cdpr Furthermore, you shall register with the proper Revenue District Officer as a withholding agent and as such shall withhold taxes (1) on the wages of your employees (2) income payment to individuals or corporations subject to the expanded withholding tax provided for in Section 52(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, 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 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 on the incentives and your tax liability, if any, pursuant to Section 235 of the Tax Code of 1997. (BIR Ruling No. DA-417-97 dated December 11, 1997) 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.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)