BIR Ruling [DA-510-03]

December 17, 2003 BIR RULING [DA-510-03] 105 006-97 Laya Mananghaya & Co . 22/F Philamlife Tower 8767 Paseo de Roxas Makati City Attention: Atty. Francisco G. Tagao Principal and Atty. Manuel P. Salvador III Director Gentlemen : This refers to your letter dated December 5, 2003 stating that Solid Cement Corporation (SCC) is a corporation duly organized and existing under the laws of the Philippines with principal office at the 24th Floor, Petron Megaplaza, 358 Sen. Gil J. Puyat Avenue, Makati City; that Apo Cement Corporation (ACC) is likewise a corporation duly organized and existing under the laws of the Philippines with principal office address at the 25th Floor, Petron Megaplaza, 358 Sen. Gil Puyat Avenue, Makati City; that on the other hand, Cemex Trademark Worldwide Ltd. (CTWL) is a corporation duly organized and existing under the laws of Switzerland with registered office at Rommerstrasse 13, 2555 Brugg, Switzerland; that both SCC and ACC are engaged in the manufacture and sale of cement and cement products; that SCC owns the trademarks "Island Portland Cement & Design" and "Rizal Pozzolan Cement & Design" that on the other hand, ACC is the owner of the trademark "Apo Portland Cement & Design"; that all the respective registrations of the above-mentioned Trademarks are currently pending before the Intellectual Property Office of the Philippines and are respectively being pursued in the names of SCC and ACC; that with the intention of transferring ownership of the said Trademarks, CTWL and SCC executed an Agreement whereby in consideration of the sum of US$7,400,000, SCC shall transfer to CTWL full title of its Trademarks, including all and any rights in and to its Trademarks, along with the benefit of the applications for registration with the intention that when the applications are granted the registrations will vest in CTWL; and that CTWL and ACC also executed an Agreement whereby CTWL will acquire Apo's trademark, including the same immediately described rights, in consideration of US$15,000,000. Based on the foregoing representations, you now request for confirmation of your opinion that the sales by SCC and ACC of their trademarks to CTWL are not subject to value-added tax (VAT) because the said sales are not pursued in the regular course of trade or business of either SCC or ACC. In reply thereto, please be informed that Section 105 of the Tax Code of 1997 provides that any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders service, and any person who imports goods shall be subject to VAT. The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto. It is to be emphasized that the sale of trademarks either by SCC and ACC to CTWL is not in the regular course of trade or business as the former are engaged in the manufacture and sale of cement and cement products. Neither should it be considered incidental thereto as the same did not necessarily follow the primary function of manufacturing and selling of cement and cement products. ( BIR Ruling No. 113-98 dated July 28, 1998 ) However, the sale thereof is an isolated transaction inasmuch as the sale of Trademarks is unrelated to its regular commercial activity. ( BIR Ruling No. 020-02 dated May 13, 2002 ) Accordingly, the sale of Trademarks by SCC and ACC to CTWL is not within the contemplation of Section 105 of the Tax Code of 1997. SUCH BEING THE CASE, the sale of Trademarks by SCC and ACC, which is neither in the course of their trade or business nor incidental thereto, to CTWL, is not subject to VAT as prescribed in Section 105 of the Tax Code of 1997. ETAICc 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group