Taxability of Unexposed Negative Films

January 6, 1958 BIR RULING NO. 009-58 The Philippine Movie Producers Association Room 204 Digna Building Dasmarias, David, Manila Gentlemen: Reference is made to your letter to the Secretary of Finance dated July 17, 1957 and your letter to use dated July 22, 1957, relative to the taxability of unexposed negative films (master negative). cdpr According to you, these negative films (master negatives) are purely "molds or casts, or a repository or source for the production of printed cinematographic films". Admittedly, therefore, master negative films do not form part of the printed cinematographic films. Section 190 of the Tax Code provides that the compensating tax shall not apply to articles to be used by the importer himself in the manufacture or preparation of articles subject to specific tax or those for consignment abroad and are to form part thereof. From this provision, it is clear that, in order to be exempt from the compensating tax, the imported article must firstly, be used in the manufacture or preparation of the articles subject to the specific tax and secondly, such imported article must form part of the manufactured article. In short, these two prerequisites must concur. As heretofore pointed out, master negative films do not form part of the printed cinematographic films. Only one prerequisite is, therefore, present in the case of said articles. Such being the case, said articles are not within the purview of the exemption granted by Section 190 of the Tax Code. In view of the foregoing, this Office is constrained to adhere to the ruling that master negative films imported by the members of that Association and used by them in the manufacture of printed cinematographic films are subject to the compensating tax. prcd Very truly yours, (SGD.) JOSE ARAAS Collector of Internal Revenue