BIR Ruling No. 012-09

July 8, 2009 BIR RULING NO. 012-09 Puyat Jacinto & Santos 12/F Manilabank Building 6772 Ayala Avenue Makati City Attention: Atty. Virginia B. Viray and Atty. Arnaldo M. Cario Gentlemen : This refers to your letter dated November 26, 2008 stating that your client, Cavite Biofuels Philippines, Inc. (CBPI), is a corporation organized and existing under the laws of the Philippines with office address at Suite 807 8th Floor, Tower One, Ayala Triangle, Makati Avenue cor. Paseo de Roxas, Makati City; that it is registered with the Securities and Exchange Commission (SEC) on January 18, 2008; that CBPI is primarily engaged in the business of manufacturing, producing, marketing and selling of Bioethanol fuel, which business includes the construction and operation of co-generation plant and Bioethanol distillery complex that will produce Bioethanol from sugarcane and related raw materials; that it is also registered with the Bureau of Internal Revenue (BIR) as an excise taxpayer with Tax Identification Number (TIN) 006-956-195-000; that with the effectivity of Republic Act (R.A.) No. 9367, otherwise known as the Biofuels Act of 2006 (the Biofuels Act), CBPI, a Department of Energy (DOE) accredited biofuel producer, intends to locally manufacture, produce and sell Bioethanol as an automotive fuel and as a fuel blend or an additive substance to E-gasoline; and that the Energy Utilization Management Bureau of the DOE interposes no objection to the primary purpose mentioned in the Articles of Incorporation of CBPI subject to the condition that said corporation shall comply with pertinent laws, rules and regulations administered and enforced by the Department. Based on the foregoing representations, you now request for confirmation of your opinion that the excise tax on local biofuels component per liter of volume shall be zero pursuant to R.A. No. 9367. In reply thereto, please be informed that Section 6 (a) of R.A. No. 9367 provides that "Sec. 6. Incentive Scheme. To encourage investments in the production, distribution and use of locally-produced biofuels at and above the minimum mandated blends, and without prejudice to enjoying applicable incentives and benefits under existing laws, rules and regulations, the following additional incentives are hereby provided under this Act. a. Specific Tax The specific tax on local or imported biofuels component, per liter of volume shall be zero (0). The gasoline and diesel fuel component shall remain subject to the prevailing specific tax rates. Corollarily, Section 7.1 (a) of the Implementing Rules and Regulations of the Biofuels Act provides that "(a) Specific Tax. The specific tax on local or imported biofuels component of the blend per liter of volume shall be zero. For the purpose of availing a zero specific tax, local or imported bioethanol shall be suitably denatured into bioethanol fuel in accordance with existing revenue regulations. The gasoline and diesel fuel component shall remain subject to the prevailing specific tax rates." Prescinding from the above-mentioned provisions, it is undisputed that for locally produced biofuels component to be subject to excise tax at the rate of zero per liter volume, it must be suitably denatured into Bioethanol fuel in accordance with the said regulations and Philippine National Standard. Thus, if the bioethanol to be manufactured, produced and sold by CBPI is suitably denatured into Bioethanol fuel, then, the excise tax on local biofuels component per liter of volume shall be subject to zero pursuant to Section 6 (a) of R.A. No. 9367. However, if the bioethanol to be manufactured, produced and sold by CBPI is found not suitably denatured, then, the same shall be subject to excise tax. 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.) SIXTO S. ESQUIVIAS IV Commissioner of Internal Revenue