When Customs Duty Is Not Included as Part of Landed Cost in Computing the Compensating or Advance Sales Taxes

March 6, 1985 BIR RULING NO. 034-85 193 (b) 000-00 034-85 Gentlemen : This refers to your letter dated July 27, 1984 requesting a ruling on what is included in landed cost for purposes of computing the compensating or advance sales tax on importations which are free or exempted from customs duty. In reply, we are quoting hereunder the pertinent portion of Revenue Regulations No. 8-78, implementing Section 193(b) of the Tax Code: "(a) Total Landed Cost refers to the total of the following: 1. The home consumption value or price in the country where the article is purchased or procured (excluding the internal excise taxes imposed therein); 2. Ten per cent (10%) of such home consumption value or price; and 3. Postage, commission, customs duty and all similar charges except freight and insurance imposed or incurred prior to the release of the goods from customs custody." (Emphasis supplied) In the case of Southern Industrial Projects, Inc. vs. CIR, CTA Case No. 941, dated November 20, 1961, the Court of Tax Appeals stated the rule reading: ". . . The landed cost plus mark-up represents theoretically the selling price of the imported article (Mayon Motors, Inc. vs. Acting Commissioner of Internal Revenue, G.R. No. L-15000, March 29, 1961). Since the selling price of the imported article is determined by its landed cost or import invoice value, including expenses at the time it was received by the importer, plus mark-up, what is not related to the article as an actual expense cannot be determinative of its selling price . As a corollary, it cannot be a basis of the advance sale tax . . . . cdti "In fine, we rule and so hold that the phrase 'customs duty' found in Section 183 (b) [now 193 (b)] of the Tax Code should be interpreted to mean the amount of customs duty legally due and paid by the importer." (Emphasis supplied) Applying the aforequoted rule, where the customs duty is not incurred or paid because the importer is entitled to tax exemption under a general or special law, the same shall not be included as part of the landed cost in the computation of the compensating or advance sales taxes. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner