Technology Application and Promotion Institute (TAPI)

June 5, 2008 BIR RULING [DA-347-08] R.A. 7459; RR 19-93; DA-559-07 Technology Application and Promotion Institute (TAPI) DOST Compound, Gen. Santos Avenue Bicutan, Taguig, Metro Manila Attention: Usec. Maripaz L. Perez Officer-in-Charge Gentlemen : This refers to your Indorsement dated December 28, 2007 relative to the request of Mr. Rizal A. Obligar for exemption from taxes on the sale of his invention pursuant to Republic Act No. 7459, otherwise known as the "Inventors and Invention Incentives Act". Documents submitted disclosed that Mr. Rizal A. Obligar is a bona fide member of the Filipino Inventors Society and holder of Utility Model Patent Certificates of registration issued by the Intellectual Property Office, as follows: REG. NO. TITLE OF UTILITY MODEL DATE ISSUED 2-2003-000023 Charcoal Stove June 27, 2006 2-2005-000214 An Improved Battery Cable Clamp May 21, 2007 The above-named patented inventions are being commercially produced and marketed under the trademark G.O. Unique Products, Inc., the exclusive designer, manufacturer and distributor, with business address at No. 85 E. Miranda Street, Paso de Blas, Valenzuela City. In reply, please be informed that R.A. 7459, as implemented by Revenue Regulations No. 19-93, dated July 27, 1993, particularly Section 6 thereof states that: "SEC. 6. Tax Exemption . To promote, encourage, develop and accelerate commercialization of technologies developed by local researches or adopted 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: . . ." (Italics supplied) In effect, the inventor is 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; 6. Other percentage taxes under Title V of the Tax Code; 7. Excise taxes directly payable in connection with the sale of invention products; and 8. Documentary stamp tax on documents, instruments and papers. 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. (BIR Ruling No. DA-559-07 dated October 24, 2007) The above 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. On the other hand, G.O. Unique Products, Inc., the company marketing the above inventions, is required to 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, G.O. Unique Products, Inc. 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 its place of business. It is, of course, understood that G.O. Unique Products, Inc.'s books of accounts and other pertinent records shall be subject to periodic examination by our revenue enforcement officers for purposes of ascertaining whether it has been complying with the conditions under which it has been granted tax exemption or tax incentives and its tax liability, if any, pursuant to Section 235 of the Tax Code of 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service