BIR Ruling [DA-286-04]

May 24, 2004 BIR RULING [DA-286-04] RA No. 7459 & RR 19-93 DA-104-01; 040-2002 Natures Legacy Eximport, Inc. Cogon, Compostela Cebu Attention: Mr. Pedro H. Delantar President Gentlemen : This refers to your letter dated March 19, 2003 indorsed to this Office on July 24, 2003 by the Department of Science and Technology requesting for a Certificate of Tax Exemption under Republic Act No. 7459, otherwise known as the "Inventors and Invention Incentives Act" for your new invention entitled "A Simulated Natural Stone Composition and Articles Made Therefrom," with Letters Patent Nos. UM 2-1999-00568, UM 2-1999-00569 and UM 2-1999-00394. Documents show that Natures Legacy Eximport, Inc. was incorporated on August 10, 1998 under SEC Registration No. C199800706, though it has been extensively researching its manufacturing process and mixture since 1993 and manufactured its unique products in 1997 under single proprietorship; that commercial operations started in 1999; that the company is situated in Barangay Cogon, Compostela, Cebu an area newly developed for industrial use, some 27 km. from Cebu City; that products manufactured are as follows: 1) house wares such as urns, vases, decorative plates, wall decors, candle holders, small occasional furniture and other articles for indoor use which are unique and functional; 2) garden articles like planters, pots, fountains, bench, outdoor tables, water features and vases; 3) furniture which include bookshelf, etageres, console table, mirror frames, dining table, side and cocktail table and small stools; 4) architectural components such as columns, chandeliers, torchie, scones, bracket, tiles and balusters and component or part of the above mentioned products; that the human resource pool of the company is composed of 350 workers; that the project refers to the commercialization of utility model of a stonecraft; that "A Simulated Natural Stone Composition and Articles Made Therefrom" relates to stonecraft and more particularly to a simulated natural stone composition and articles made therefrom which comprise of mineral materials with a bonding material; and that the invention is manufactured on commercial scale. 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. CTDAaE "The technologies, their manufacture or sale, shall also be exempt from payment of license, permit fees, customs duties and charges on imports." What is exempt under the paragraph one (1) of the above-mentioned provision is the income of the inventor. ( BIR Ruling No. 040-2002 dated November 14, 2002 ) 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 the said exemption privileges pertaining to the invention shall be extended to the legal heir or assignee upon the death of the inventor. 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. 4-88, as amended by Revenue Regulations No. 10-93, and as last amended 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. 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