Petroleum Products Sold to ADB Exempt from Excise Tax

February 25, 1999 BIR RULING NO. 023-99 130 (A) (2); 135-000-00-023-99 Asian Development Bank 6 ADB Avenue Mandaluyong City Attention: Mr . Normin S . Pakpahan Manager , General Services Division Office of the Administrative Services Gentlemen : This refers to your letter dated December 1, 1998 requesting for a ruling whether it is proper for Petron Corporation (Petron) to impose specific taxes on its sale of petroleum products to Asian Development Bank (ADB) beginning January 1, 1999 in view of the amendment introduced by Republic Act No. 8424 under Section 130(A)(2) of the 1997 Tax Code, which prescribes a complete abolition of the facility period of fifteen (15) days for the payment of specific tax, such that manufacturers or producers of locally manufactured products and indigenous petroleum are to pay excise taxes before removal from the place of production starting January 1, 1999 and thereafter. LexLib It is represented that your company, ADB, is a tax exempt entity which normally purchases petroleum products from Petron free from excise taxes; that, with the complete phase-out of the facility payment period accorded to manufacturers of petroleum products in view of the enactment of Republic Act No. 8424, you were advised by Petron, that starting January 1, 1999 and thereafter, it can no longer supply ADB tax free petroleum products as the law now provides for the payment specific taxes on these products before their removal from the refinery; hence, Petron is constrained to sell its petroleum products inclusive of taxes even to tax exempt customers like ADB. In view of above representations, you now request clarification on whether the provision for the payment of excise taxes before removal of petroleum products from the refinery also applies to purchases made by international organizations like the ADB, and if so, what are the administrative remedies or options available for the recovery of excise taxes paid. In reply, please be informed that the 1997 National Internal Revenue Code (NIRC), relative to the filing of return and payment of excise tax provides for the following: "SEC. 130. Filing of Return and Payment of Excise Tax on Domestic Products . "(A) Persons Liable to File a Return , Filing of Return on Removal and Payment of Tax . "(1) . . . "(2) Time for Filing of Return and Payment of the Tax . Unless . . . Provided, That excise tax on locally manufactured petroleum products and indigenous petroleum levied under Sections 148 and 151(A)(4), respectively, of this Title shall be paid within ten (10) days from the date of removal of such products for the period from January 1, 1998 to June 30, 1998; within five (5) days from the date of removal of such products for the period from July 1, 1998 to December 31, 1998; and, before removal from the place of production of such products from January 1, 1999 and thereafter. Provided, further . . . "(3) . . . "(4) . . ." Based on the foregoing provision, manufacturers of petroleum products are required, beginning January 1, 1999 and thereafter, to pay specific taxes due on these products even before these products are removed from the refinery and deposited in the depots. Since petroleum products deposited in the depots shall all be tax-paid beginning said date, this requirement effectively removed from the manufacturers the holding of tax-free petroleum inventory in their depots from which they get their supply of petroleum products purchased by tax exempt entities. In view thereof, your supplier (Petron) of tax-free petroleum products has no other recourse but to pass on the specific taxes paid thereon to your company notwithstanding the fact that the same is a tax exempt entity. dctai In an unnumbered Revenue Ruling dated July 17, 1984, it has been ruled that ". . . pursuant to Section 3 , Article II of the Agreement between ADB and the Government of the Republic of the Philippines , ADB is an international organization . Hence , ADB is entitled to tax exemption privilege on the purchase of petroleum products for its official use ." Article 56(1) of the ADB Charter further provides that " The Bank , its assets , property , income and its operations and transactions , shall be exempt from all taxation and from all customs duties . The Bank shall also be exempt from any obligation for the payment , withholding or collection of any tax or duty ." Such being the case, ADB is therefore covered by the exempting provision of Section 135(c) of same Code, stating that petroleum products sold to " Entities which are by law exempt from direct and indirect taxes " are exempt from excise tax. Thus, it is entitled to a refund of specific taxes in cases where its purchases of petroleum products, beginning January 1, 1999, are made inclusive of taxes. The administrative remedy provided by the Code in this particular case is for your company to file with the Bureau a claim for tax refund/tax credit certificate corresponding to said taxes pursuant to Section 229 thereof, which claim must be filed within two (2) years from the date of payment of said tax. This ruling is issued based on the foregoing facts presented. However, if it shall be found that the facts are different, then this ruling shall be considered null and void. cdlex Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue