BIR Ruling [DA-717-06]

December 15, 2006 BIR RULING [DA-717-06] DA 216-06 Filipino Inventors Society 62-A Holy Spirit Drive Don Antonio Heights Quezon City Attention: Mr. Teodorico E. Castaeda National Secretary, FIS Gentlemen : This refers to your letter dated November 3, 2006 requesting on behalf of Dr. Rolando B. Hortaleza (Dr. Hortaleza), a registered inventor of patented Palatable Coconut Oil Food Supplement, for availment of tax incentives under Republic Act (R.A.) No. 7459, otherwise known as the Inventors and Inventions Incentives Act of the Philippines. Records show that Dr. Hortaleza's invention is entitled: A Palatable Coconut Oil Food Supplement with Patent No. 1-2005-00239 issued on August 30, 2006; that said invention has been produced and manufactured on a commercial scale and distributed in the market for over a year since July 2005 exclusively by Splash Nutra-ceutical Corporation; that Dr. Hortaleza is a bona fide member of good standing of the said organization; and that the Screening Committee has evaluated and recommended him to be eligible to the tax incentives under the aforesaid law. In reply thereto, please be informed that pursuant to R.A. No. 7459, as implemented by Revenue Regulations No. 19-93 dated July 27, 1993, he is exempt from the payment of income tax on the net income derived from the sale of invention products resulting from newly discovered/developed technologies by local researchers or new technology adopted from foreign sources whether it be patented machine, product, process, including implements or tools and other related gadgets of invention, utility model and industrial design patents. However, he is 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; DHCSTa 5. Other percentage taxes under Title V of the Tax Code; and 6. 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. Moreover, Dr. Hortaleza shall register with the proper Revenue District Office 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 R.A. No. 1051, as implemented by Revenue Regulations No. 2-98, as amended. Finally, Dr. Hortaleza shall file in triplicate on or before April 15 of each year for the preceding calendar year an Annual Information Return with the Revenue District Office having jurisdiction over his place of business. 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. DA104-01 dated June 1, 2001 citing BIR Ruling No. 053-95 dated March 8, 1995 ) 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