The Exemption from Income Tax on the Net Income and Value Added Tax on Gross Receipts Derived from the Sale of Invention Products, as well as Excise Taxes, if any, Directly Payable in Connection with such Sale, shall Continue to be Available

December 6, 1995 BIR RULING NO. 181-95 21 (c) (2) 24 (e) (4) 000-00 181-95 Mr. Edgardo G. Vasquez Vasquez Building Systems Corporation 1269 EDSA, Quezon City S i r : This refers to your letter dated September 18, 1995, stating that as a registered inventor, you were issued BIR Ruling Nos. 041-95, and 042-95 both dated March 31, 1995, confirming that your two (2) existing firms, namely: the Vasquez Building Systems Corporation and Vasquez Commodities Corporation are entitled to the tax incentives under Republic Act No. 7459, as implemented by Revenue Regulations No. 19-93; that you have invented and patented a system of housing construction design now known as the VAZBUILT Technology; that your aforesaid firms manufacture the pre-fabricated reinforced concrete columns, wall panels, tie beams, steel framing concrete roof tiles and together with other house components, assemble into modular housing units; that with the tax free benefits you are now enjoying, you are motivated to expand your operations and share your developed technology to more Filipinos, but your companies could not do this alone due to limited resources; that you need to form new companies with other investors (like housing developers and foreign investors), wherein you will hold the majority share in each of the new corporations to protect your rights to the invention; that you plan to put up factories in all regions of the Philippines close to sources of raw materials; that your first priority is north of Manila where you could make use of lahar and where there is no truck ban; and that it will have the following advantages: "1. Cost of the invention products will be lower since cost of principal raw materials such as sand and cement will be cheaper: cdta "2. Without truck ban, hauling of above-mentioned raw materials will be faster; hence, production output will increase; "3. Such more houses could be built helping the government solve the housing backlog; "4. The new plants will provide jobs to the people (like those affected by lahar flows) living in the region, thus helping solve unemployment; and "5. Tax collection as a whole will increase because all the other industries affected by housing will also grow." Based on the foregoing, you posed the following queries: "a. Can these new companies extending the operations of my original firms also enjoy the same tax incentives? "b. If yes, what will be the tax consequence on the dividends to be received by the other stockholder?" It appears that as an inventor and registered patent holder of the following product/design, to wit: Title Patent No. Issue Date Modular Housing Unit Invention 28144 3\24\94 Modular Housing Unit Design 5937 3\24\94 Precast Concrete Wall Structure Design 5888 1\24\94 Precast Concrete Column Design 5744 8\18\93 Precast Concrete Column Design 5489 9\28\92 Precast Concrete Wall Design 5190 11\05\91 Roofing Tiles Design 5478 9\28\92 Roofing Tiles Design 5212 12\02\91 Roofing Tiles Design 5191 11\05\91 Concrete Wall Structure Utility Model 7250 7\24\91 Garden Plant Guide Plate (Grass Pavers) Utility Model 12537 4\21\93 Precast Paving Stone Design 9778 12\29\93 Precast Paving Stone Design 9781 12\29\93 Precast Paving Stone Design 9782 12\29\93 you have been granted tax incentives and tax exemptions pursuant to Section 3 of Republic Act No. 7459, as implemented by Section 3(C) of Revenue Regulations No. 19-93. (UN-041-95 and 042-95, March 31, 1995) In reply, please be informed that the exemption from income tax on the net income and value added tax on gross receipts derived from the sale of the foregoing invention products, as well as excise taxes, if any, directly payable in connection with such sale, shall continue to be available to you and the corporations to be established with you as the majority stockholder. Moreover, the dividends to be received from your corporations by the individual stockholders, whether citizen or resident alien shall be subject to tax at the rate of 10% under Section 21(c)(2) of the Tax Code, as amended. While dividends to be received by a domestic or resident foreign corporation from its investments in the proposed corporations dealing in the manufacture and sale of your invention products shall not be subject to tax. (Secs. 24(e)(4) & 25 (a)(6)(D), Tax Code, as amended; BIR Ruling No. 007-90 dated January 29, 1990) cdt In general, dividends to be received by a non-resident foreign corporation not doing business in the Philippines from domestic corporations like the ones you intend to establish shall be subject to tax at the rate of 35%. However, said non-resident foreign corporations shall be subject to an income tax of 15% on dividends received from a domestic corporation which shall be collected and paid as provided in Section 50(a) of the Tax Code, as amended, subject to the condition that the country in which the non-resident foreign corporation in domiciled shall allow a credit against the tax due from the non-resident foreign corporation, taxes deemed to have been paid in the Philippines equivalent to 20% which represents the difference between the regular tax (35%) on corporation and the tax (15%) on dividends as provided in Section 25(b)(5)(B) of the Tax Code, as amended. It should be emphasized that the aforementioned exemptions from taxes for which otherwise the corporations to be established by you shall be directly liable shall apply on the manufacture and sale of the aforementioned invention products. This ruling is issued on the basis of the foregoing representation of facts. If after investigation the facts are found to be different, then this ruling shall automatically be considered null and void. LibLex Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue