BIR Ruling [DA-462-04]

August 30, 2004 BIR RULING [DA-462-04] RA 7459; RR 19-93 DA-191-2000 JV Baring Consultants and Allied Services JV Baring Bldg., Banilad Cebu City Attention: Engr. Jesselito V. Baring Senior Consultant Gentlemen : This refers to your letter dated December 3, 2003 stating that your company, J.V. Baring Consultants and Allied Services is a single proprietorship duly registered with the Department of Trade and Industry (DTI), Local Government Unit of Cebu City and the Bureau of Internal Revenue-RDO 81. You further represent that you are engaged in Environment Consultancy, providing services like environmental study and other services related to the environment and pollution control. In 1995, you being a Chemical Engineer by profession started to research on a wastewater treatment equipment and system that could answer the needs of your clients at an affordable cost. The aforestated system has now been perfected and called the Rotating Biological Contactor-Packed Media Technology (RBC-PMT) and was granted Patent No. 31373 by the Intellectual Property Office (IPO) on September 23, 1998. The said invention has won both regional and national invention competitions in the country. In 1996, you made the first prototype of your invention and tested it in a noodle company in Cebu, and from 1997 up to the present, you have commercialized the equipment and have installed units in Cebu, Manila and Luzon and have been paying income taxes for profits generated from the sale of such units. Records likewise show that you are an accredited member of the Filipino Inventors Society (FIS); that the Screening Committee for Republic Act (RA) 7459 on its 40th SC meeting on February 9, 2001 has approved for endorsement to this Bureau, your request to avail of the tax incentives and exemptions provided for by Revenue Regulations No. 19-93; and you now request for a refund of the income taxes paid for revenues generated from the sale of RBC-PMT to your clients from 1997 to the present. In reply, please be informed that RA 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, 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 born 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 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 RA 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 the 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 RA 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. 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 examinations 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. 653-95 dated March 8, 1995) As regards your request for refund of the income taxes paid as a consequence of the revenues generated from the sale of your invented equipment, the same may be directed to the RDO where you are registered pursuant to Revenue Delegation Authority Order No. 3-2002 dated February 15, 2002. HTDAac This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained 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