Tax Consequence of the Purchase of the Tax-Exempt Car

February 12, 1988 BIR RULING NO. 046-88 101 (b) 000-00 046-88 S i r : This refers to your letter dated September 30, 1987 to the Secretary of Finance stating that you are the Attorney-in-Fact of Mr. William Chao, the purchaser of a Mercedes Benz 300D model 1982, 4-door sedan, Motor No. 617912-22-271974, Chassis No. 123130-22-271974 and with a color of Manila Beige; and that you would like a clearance to pay the corresponding customs duties and taxes in behalf of Mr. Chao, a non-exempt person. It appears that the Department of Foreign Affairs in its Note No. 851714 dated May 10, 1985 to the Australian Embassy approved the sale of the tax-free car above-described from Mr. Edmon Brian Dillon [Minister (Commercial) of the Australian Embassy] to Mr. William Chao through you, as the latter's Attorney-in-Fact. In reply, please be informed that pursuant to then Section 169 of the Tax Code, a tax-free article brought or imported to the Philippines by persons, entities or agencies which are exempt from tax and subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entities, the purchasers or recipients shall be considered the importers thereof, and shall be liable for the duty and internal revenue tax due on such importation. Such being the case, as a consequence of the purchase of the tax-exempt car by Mr. Chao, he is deemed the importer who is subject to the compensating tax of 30% based on the total value used by the Bureau of Customs in determining tariff and customs duties, including customs duty and all other charges, pursuant to then Section 169 in relation to then Section 163(1)(e) of the Tax Code. However, since the transaction took place before the effectivity of Executive Order No. 36 on August 1, 1986 inserting Section 135-A of the Tax Code, which prescribed ad valorem tax on automobiles on a graduated scale based on the importer's selling price, the aforesaid transaction is exempt from ad valorem tax. aisadc Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner