BIR Ruling No. 033-14

January 27, 2014 BIR RULING NO. 033-14 RA 7459; RR 19-93; BIR Ruling No. 328-12 Eduardo R. Yrezabal Bormaheco Compound Km. 17 West Service Road South Superhighway, Paraaque City Sir : This refers to the letter of Technology Application and Promotion Institute (TAPI) Officer-in-Charge Luzviminda A. Cabug dated February 3, 2011 requesting for a ruling on behalf of Mr. Eduardo R. Yrezabal's application for tax incentives under Republic Act (R.A.) No. 7459, otherwise known as the Inventors and Inventions Incentives Act of the Philippines: Records show that Inventor Eduardo R. Yrezabal with Tax Identification Number 151-409-850-000 is the registered patent holder of the following products: Registration Date Filed Date of No. First Sale 1. A Reinforced Frame for 1-2005-000210 April 26, 2005 February 9, 2011 Rattan Furniture and Method of Construction 2. A Multi-Layered Rattan 1-2005-000214 April 26, 2005 May 22, 2007 Cladding for furniture, Housewares and Architectural components and Method of Construction 3. A Multi-Layered 1-2005-000212 April 26, 2005 August 13, 2009 Hollow Rattan Structure for Staircase, Handrails, Furniture and Architectural Components and Method of Construction that Mr. Eduardo R. Yrezabal is an accredited member of the Filipino Inventor Society (FIS) and that the above-mentioned patented inventions are being commercially produced and distributed by Yrezabal & Co.,Inc.,a domestic corporation registered with the Securities and Exchange Commission (SEC) under SEC Registration No. AS092-05958, located at Bormaheco Compound Km. 17 West Service Road, South Superhighway, Paraaque City; and that the Screening Committee has evaluated and recommended that the above-mentioned patented inventions are eligible for the tax incentives pursuant to Resolution No. 2010-011 dated October 14, 2010. DcTaEH In reply, please be informed that Section 6 of R.A. No. 7459 provides: "SECTION 6. Tax Exemption . To promote, encourage, develop and accelerate commercialization of technologies developed by local researchers or adapted 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: Provided, that this tax exemption privilege pertaining to invention shall be extended to the legal heir or assignee upon the death of the inventor. "The technologies, their manufacture or sale, shall also be exempt from payment of license, permit fees, customs duties and charges on imports." The said exemption can be availed of by inventor, Mr. Eduardo R. Yrezabal, during the first ten (10) years from the date of the first sale on a commercial scale which are indicated above opposite each product invented, provided that said exemption privileges pertaining to the invention shall be extended to the legal heir or assignee upon the death of the inventor. (BIR Ruling No. 328-12 dated May 11, 2012) 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 RA 7459 refers to income tax. cDCIHT It is understood that the tax incentive/exemption under R.A. No. 7459, as implemented by Revenue Regulations (RR) No. 19-93, is for the inventor, Mr. Eduardo R. Yrezabal, and not for the company or entity that produced/distributed and/or marketed the invention. Hence, any income received by the company, Yrezabal & Co., Inc., from such production/distribution/marketing is subject to the payment of appropriate taxes. In effect, Mr. Eduardo R. Yrezabal is still 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; aSDHCT 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; 6. Other percentage taxes under Title V of the Tax Code of 1997; 7. Excise taxes directly payable in connection with the sale of invention products; and 8. Documentary stamp tax on documents, instruments and papers. Moreover, the inventor, Mr. Eduardo R. Yrezabal shall register with the proper Revenue District Officer as a withholding agent and as such shall withhold taxes (1) on wages/salaries of his employees; and (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. Finally, Mr. Eduardo R. Yrezabal 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 Mr. Eduardo R. Yrezabal's books of accounts and other pertinent records shall be subject to periodic examination by our revenue enforcement officers for purposes of ascertaining whether he has been complying with the conditions under which he has been granted tax exemption or tax incentives and his tax liability, if any, pursuant to Section 235 of the Tax Code of 1997. 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.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue