Cost of Car Aircon and Stereo/Audio Supplied/Sold by Independent Manufacturers to the Dealers of PAMCOR but Installed by the Latter at Its Plant/Assembly Line by Prior Arrangement with the Dealers and their Suppliers Shall Not Form Part of or Added to the Cost of the Vehicles Assembled by PAMCOR in the Assessment of Ad Valorem Tax on the Vehicles

March 3, 1997 BIR RULING NO. 020-97 149 000-00 020-97 Philippine Automotive Manufacturing Corporation (PAMCOR) Ortigas Avenue Extension Cainta, Rizal Attention: Attys . Antonio A . Cabiltas and Imelda M . Abadilla Gentlemen : This refers to your letter dated July 5, 1996 requesting on behalf of Philippine Automotive Manufacturing Corporation (PAMCOR) for a confirmation of your opinion that the cost of car aircon and stereo/audio supplied/sold by independent manufacturers to the Dealers of PAMCOR but installed by the latter at its plant/assembly line by prior arrangement with the Dealers and their Suppliers shall not form part of or added to the cost of the vehicles assembled by PAMCOR in the assessment of ad valorem tax on the vehicles. Based on your representations and documents submitted, PAMCOR is a duly organized domestic corporation engaged in the manufacture and assembly of Mitsubishi motor vehicles; that PAMCOR's manufacturing activity/operation is confined only to the manufacture and assembly of automotive vehicles without aircon and stereo; that PAMCOR sells the automotive vehicles without aircon and stereo directly to its dealers; that among PAMCOR's authorized dealers by virtue of Direct Dealers Sales Agreements are (1) Diamond Motor Corporation; (2) CT Citimotors Corporation; (3) Union Motor Corporation; (4) Car World, Inc.; (5) Avescor Motors, Inc.: (6) Cebu Asian Motors Corporation; (7) SFM Sales Corporation; (8) Freeway Motor Sales Corporation (9) Motorplaza, Inc.; (10) Mindanao Integrated Commercial Enterprises, Inc.; (11) Five-Star Enterprises, Inc.; (12) Karasia, Inc.; and (13) Zamboanga Motors, Inc.; that aircons and stereos are ordered and purchased directly by PAMCOR Dealers from independent manufacturers/suppliers; that one Supplier/Seller of stereo car/audio for PAMCOR dealers is Spirit Electronics System, Inc., a domestic corporation engaged in the distribution and sale of electronic and car audio products; that on the other hand, the Suppliers/Sellers of aircon are (1) MIT Air, Inc. and Automotive Technology Development, Inc. both domestic corporations engaged in the sale and installation of car air-conditioning units; that presently, aircon and stereo are installed by the Suppliers at the Dealer's plant site or at their own installation sites, after the vehicles are released from PAMCOR plant; that this practice of installing said accessories by the Suppliers at the Dealer's plant had been observed to have affected the quality of the vehicles because certain component parts of the vehicle are disassembled during the installation of the accessories and sometimes improperly re-assembled and in the process results in handling damage which affects quality and also causes delay, inconvenience and unnecessary wastage of time to the prejudice of Dealers and Suppliers; and that to eliminate those problems and to ensure compliance with the Suppliers and Dealers of car aircon and stereo, PAMCOR in consultation with its dealers and suppliers of the car accessories intends to do the installation of said car accessories at its plant/assembly line upon payment of a service or installation fee by the Suppliers based on the number and model of the car accessories ordered and purchased by the Dealers. In reply, please be informed that since the Suppliers are the ones who will actually sell the car aircon and stereo to the Dealers and not PAMCOR, the cost of such accessories shall not be included as part of the gross selling price of the automobile for purposes of computing the ad valorem tax imposed under Section 149 of the Tax Code, as amended. The fact that the installation of the car aircon and stereo will be done at the plant/assembly line of PAMCOR is not a ground for including the value of said car accessories since the place of installation is merely an internal arrangement between PAMCOR and the Suppliers. However, PAMCOR will be subject to the value-added tax imposed under Section 102 of the Tax Code, as amended by R.A. No. 7716, on the service or installation fee which it will receive from the Suppliers. 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, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue