Transferability of NPC's Exemption from Payment of Specific Tax in Favor of Independent Power Producers

April 13, 1998 BIR RULING NO. 039-98 148-000-00-39-98 National Power Corporation Visayas Regional Center Don Jose R. Martinez Bldg. Osmea Blvd., Cebu City Attention: Mr . Cordell U . Del Rosario Vice President , Visayas Regional Center Gentlemen : This refers to your faxed letter dated January 16, 1998 requesting for a ruling regarding the transferability of your exemption from the payment of specific tax in favor of the Independent Power Producers (IPPs). LLpr It is represented that by virtue of its exemption from Government fees, i.e., customs duties, specific taxes and wharfage dues and the Oil Supplier's discounts on bulk purchases, NPC supplies the fuel needs of its IPPs; that in the wake of the Rehabilitate, Operate and Maintenance (ROM) contracts with private entities, NPC is contemplating on the transfer of its fuel purchases to the respective IPPs; that the transfer of the fuel supply risk will have NPC pay the IPPs cost of the ROM and the fuel which the latter uses; that however, NPC pays not on a per unit volume of fuel purchased but rather on the energy (kwh) that the fuel generates; and that NPC's pilot project will be its Naga Power Plant Complex in Cebu. In reply, please be informed that the exemption of NPC under Section 13, pars. (a) and (d) of R.A. No. 6395, as amended by P.D. 380, from all taxes, duties, fees, imposts and other charges, cannot be transferred by it to another person with binding effect on the Government. It goes without saying that in much the same way that taxes are personal, tax exemptions are likewise personal and hence, not transferable. Thus, NPC's intention to divest itself of the fuel supply risks by transferring its exemption from the payment of specific tax in favor of the respective IPPs may only be binding between the parties in their respective private capacities but cannot legally bind the BIR. In short, the Oil Suppliers should bill the IPPs on their fuel purchases the corresponding specific tax of P1.63 per liter for diesel oil and P0.30 per liter for fuel oil imposed under Section 148(i) and (1), respectively, of the Tax Code of 1997. The answer to your other question concerning the applicable control measures that the BIR has or will require NPC to ensure that the exemption is not abused by the IPPs is deemed unnecessary in view of our above answer. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue