Proper Treatment of Tax Credit for Taxes and Duties on Raw Materials Used in Manufacturing of Export Products

March 30, 1992 BIR RULING NO. 106-92 28 000-00 106-92 Century Canning Corporation Barrio Bagumbayan Taguig, Metro Manila Attention: Mr . Norman Uy Assistant Comptroller Gentlemen : This refers to your letter dated December 12, 1991 requesting for our opinion on the proper treatment of tax credit for taxes and duties on raw materials used in manufacturing your company's export products. It is represented that Century Canning Corporation is a BOI-registered company existing under and by virtue of Philippine laws; that as such company, you are engaged in manufacturing export products; and that you enjoy tax credit on NIRC taxes and customs duties paid on raw materials used in manufacturing your export products. In this connection, you would like to know if the tax credit issued in your favor is subject to corporate income tax. In reply, please be informed that Article 21 of the Omnibus Investments Code in 1987 (i.e. Executive Order No. 226) provides the following: "Article 21. "Tax Credit" shall mean any of the credits against taxes and/or duties equal to those actually paid or would have been paid to evidence which a tax credit certificate shall be issued by the Secretary of Finance or his representative, or the Board, is so delegated by the Secretary of Finance. The tax credit certificates including those issued by the Board pursuant to laws repealed by this Code but without in any way diminishing the scope of negotiability under their laws of issue are transferable under such conditions as may be determined by the Board after consultation with the Department of Finance. The tax credit certificate shall be used to pay taxes, duties, charges and fees due to the National Government: Provided, That the tax credits issued under this Code shall not form part of the gross income of the grantee/transferee for income tax purposes under Section 29 of the National Internal Revenue Code and are therefore not taxable: Provided, further , That such tax credits shall be valid only for a period of ten (10) years from date of issuance." (emphasis supplied). Based on the foregoing, it is the opinion of this Office as it hereby holds that the tax credits issued in your favor under E.O. 226 shall not form part of your gross income for income tax purposes under Section 28 of the Tax Code, as amended, and are, therefore, not taxable. Furthermore, the term "gross income", as used in the above-quoted article, must be understood to include both "gross income before cost of goods sold" and "other income". cdta Very truly yours, JOSE U. ONG Commissioner of Internal Revenue