Mr. Melchor Palaganas, Jr.

October 24, 2007 BIR RULING [DA-559-07] R.A. 7459; RR 19-93 DA-191-2000 Mr. Melchor Palaganas, Jr. 12 Berlin St., BF Homes Phase 3 Paraaque City S i r : This refers to your letter dated September 25, 2007, requesting for a tax exemption under Republic Act (RA) No. 7459, otherwise known as the Inventors and Inventions Incentives Act of the Philippines. HIaTDS Records show that Melchor Palaganas, Jr. is the registered patent holder of the following utility model: Patent Registration No. Title Date Granted 2-2007-000052 Coco Diesel Fuel Blend for May 7, 2007 Internal Combustion Engines that the raw materials for this product are crude coconut oil, CME or cocomethyl ester (commonly known as biodiesel), biocide package, and petroleum diesel; that you intend to start commercial production and marketing of this product; that you would like to know the various tax incentives available to you; that you seek advise as to the type of business structure needed to be set up and the specific rulings on the procedure and documentation needed to claim these tax exemptions. aITDAE 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) aTHCSE 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; and HASTCa 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. SDcITH Moreover, the inventor shall register with the proper Revenue District Officer as a withholding agent and as such shall withhold taxes (1) on the wages/salaries of his employees; (2) on his 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. Further, the inventor 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 his place of business. ICTHDE It is of course understood, that his books of accounts and other pertinent records shall be subject to periodic examinations by our revenue enforcement officers for purposes of ascertaining whether he has been complying with the conditions under which he has been granted tax exemption or tax incentives and his tax liability, if any, pursuant to Section 235 of the Tax Code of 1997. (BIR Ruling No. 653-95 dated March 8, 1995) Finally, as to the type of business structure needed to be set up, this Office is without jurisdiction to advise you on this matter, as this issue is left entirely to the taxpayer's discretion. 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. TaDSCA Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner