No Tax Consequence-Accommodation in the Shortage Log Production

1981 BIR RULING NO. 169-81 199-a 000-00 169-81 ACME Plywood & Veneer Co., Inc. Jardine Davies Building 222 Buendia Avenue, Makati Metro Manila Gentlemen : This refers to your letter dated May 18, 1981 requesting confirmation of your opinion to the effect that under the following transaction, no tax consequence is involved: "Acme Plywood & Veneer Co., Inc. (ACME) and Southern Plywood Corporation (SPC) are sister companies, both logging concessionaires, engaged in the production of forest products for domestic and export sales. ACME has an export commitment of logs but at the time of loading, it lacks sufficient quantity of logs. Thus, it borrowed logs from its sister company (SPC) so as to complete the shipment, with the condition that it will return the same quantity and volume of logs in due time. It should be emphasized that it is a single and isolated arrangement by and between the sister companies." In reply, please be informed that a merchant is a person engaged in the sale, barter or exchange of personal property of whatever character. A merchant, in order to be subjected to the necessity of paying the internal revenue tax, must be "engaged" in the sale, barter or exchange of personal property. A person is not necessarily occupied or employed, as those words are used, in the sale, barter or exchange of personal property, when he has made one purchase and sale only. (Philip C. Whitaker vs. James J. Rafferty, 38 Phil. 508) In the instant case, you have in 1980, a shortage of your production of logs and lumbers, in which case, on February 1, 1980, you requested your sister company, SPC, to accommodate you with about 10,000 cu. m. of logs to meet your export commitments under BOI requirements as a preferred non-pioneer enterprise (Reg. No. 70-162) with the condition that the same quantity and volume of logs will be returned in due time. This single and isolated arrangement of borrowing between you and Southern Plywood Corporation does not come within the contemplation of sale, barter or exchange of logs and lumbers subject to internal revenue tax. Hence, your opinion that no tax consequence is involved is hereby confirmed. Very truly yours, RUBEN B. ANCHETA Acting Commissioner