Dra. Maria Isabel B. Sangutan

June 17, 2009 BIR RULING [DA-(OSL-019) 303-09] R.A. 7459; Rev. Regs. 19-93; DA (OSL-017) 438-2008 dtd. 11/19/08 Dra. Maria Isabel B. Sangutan Purok 9, Ising Carmen Davao del Norte Gentlemen : This refers to the letter dated March 31, 2009, of Undersecretary Fortunato T. de la Pea, DOST and Officer-in-Charge, Technology Application and Promotion Institute (TAPI), indorsing your request for Tax Incentives and Exemption pursuant to Republic Act (R.A.) No. 7459, otherwise known as the "Inventors and Incentives Act of the Philippines". ScAHTI Documents submitted disclosed that you are a registered patent holder of the invention entitled "A Novel Herbal Composition for Alleviating Body Ailments and Process of the Preparations" with UM Registration No. 2-2002-000569, which registration shall be valid for seven (7) years from the date of filing which is December 27, 2002, as endorsed by TAPI-DOST in its letter dated March 31, 2009; that you are an accredited member of the Mindanao Inventors Federation, Inc.; and that the above-mentioned patented invention is being commercially produced, distributed and marketed nationwide by M.I. Herbal Capsule & Oil Laboratory, of Purok 9, Sadpudon, Ising, Carmen, Davao Del Norte. 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) However, the inventor 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; 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 HTCaAD 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 R.A. 7459 merely refers to income tax . 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 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. Finally, 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. It is of course understood, that her books of accounts and other pertinent records shall be subject to periodic examinations by our revenue enforcement officers for purposes of ascertaining whether she has been complying with the conditions under which she has been granted tax exemption or tax incentives and her tax liability, if any, pursuant to Section 235 of the Tax Code of 1997. (BIR Ruling No. 653-95 dated March 8, 1995) ITAaCc 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service