BIR Ruling No. 226-14

June 25, 2014 BIR RULING NO. 226-14 Republic Act No. 7459; RR 19-93; BIR Ruling No. 473-2013 Mr. Benjamin O. Yao C/o Steel Asia Manufacturing Corporation 2801, 2nd/F Building 2, Bonifacio High Street Global City, Taguig Dear Mr. Yao , This refers to the letter dated November 04, 2009 of Atty. Mario P. Bravo, Assistant Secretary of the Department of Science and Technology (DOST) and Officer-in-Charge of the Technology Application and Promotion Institute (TAPI),relative to your request for tax exemption privileges under Republic Act (R.A.) No. 7459 ,otherwise known as the Inventors and Invention Incentives Act of the Philippines ,for the following inventions, to wit: SaH Title of Invention/UM Patent/Registration Date Issued Date of First Sale Apparatus for 1-2006-000185 12-17-2008 10-10-2008 Quenching Reinforcing Steel Bars A Method for 1-2006-000186 12-17-2008 10-10-2008 Quenching Reinforcing Steel Bars A Roll Stand Having 1-2006-000322 12-17-2008 10-10-2008 Multiple Passes Documents submitted show that Mr. Yao ,is an accredited member of the Filipino Inventors Society ("FIS") per Certification dated June 4, 2009 issued by FIS National President, Guillermo M. Chua; that the products of the above-patented inventions are being commercially produced and distributed by Steel Asia , with business address at 2801, 2nd/F Building 2, Bonifacio High Street, Global City, Taguig; that the foregoing inventions are parts/components adapted/installed in a single rolling mill process called "Quenching of Steel Bars" which produces only one (1) product, that is, the "Deformed Steel Bars for Concrete Reinforcing (Rebars)"; that the inventions with Letter Patent Nos. 1-2006-000185 and 1-2006-000186 are specially invented components of a quenching technology system which considerably enhances the physico-mechanical properties of steel, thereby upgrading its quality without altering its chemical composition; that the invention covered by Letter Patent No. 1-2006-000322 is specially designed to make multiple passes in a roll stand which shall consequently prolong the use of a roll stand in the rolling system; that the Screening Committee for R.A. 7459, in its Resolution No. 2009-003 dated October 12, 2009, has evaluated and found that the quenching process described in the Letters Patent of Mr. Yao considerably enhances the physico-mechanical properties of a steel and upgrades its quality without altering its chemical composition; that the Screening Committee has determined that the steel bars produced by the above inventions of Mr. Yao are qualified for tax exemption under R.A. 7459 but only the steel bars that undergo the quenching process at the Meycauayan Plant shall enjoy the tax exemption; and that per Certification dated January 3, 2014 issued by the FIS, the above inventions are new and original, and the technologies are newly developed by local researchers. In reply, please be informed that Section 6 of R.A. No. 7459 provides: "SEC. 6. Tax Exemption . To promote, encourage, develop and accelerate commercialization of technologies developed by local researchers or adapted locally from foreign sources including inventions, any income derived from this technologies shall be exempted from all kinds of taxes during the first ten (10) years from the date of the first sale, subject to the rules and regulations of the Department of Finance: Provided, that this tax exemption privilege pertaining to invention shall be extended to the legal heir or assignee upon the death of the inventor. The technologies, their manufacture or sale, shall also be exempt from payment of license, permit fees, customs duties and charges on imports." The said exemption can be availed of by inventor, Mr. Yao ,insofar as the steel bars that undergo quenching process at the Meycauayan plant of Steel Asia Manufacturing Corporation is concerned during the first ten (10) years from the date of the first sale on a commercial scale provided that said exemption privileges pertaining to the invention shall be extended to the legal heir or assignee upon the death of the inventor. (BIR Ruling No. 473-2013 dated December 18, 2013) DEcTIS It is important to note that the Final Resolution of the Office of the President (OP), in OP Case No. 03-G-422 dated February 2, 2004, affirming the finding of the Department of Finance denying the appeal of an inventor relative to his tax exemption privileges granted by this Office, clarifies that the tax exemption granted by the first paragraph of Section 6 of RA 7459 refers only to income tax. It is understood that the tax incentive/exemption under R.A. 7459, as implemented by Revenue Regulations (RR) No. 19-93, is for the inventor, Mr. Yao ,and not for the company or entity that produced/distributed and/or marketed the invention. Hence, any income received by Steel Asia from such production/distribution/marketing is subject to the payment of appropriate taxes. (BIR Ruling No. 473-2013 dated December 18, 2013) In effect, Mr. Yao is still subject to the following taxes: 1. 20% final withholding taxes on interest from currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements and 7 1/2% withholding tax on interest from foreign currency deposit; 2. Capital gains tax on sale of shares of stock prescribed under Section 24 (C) of the Tax Code of 1997; 3. Capital gains tax on sale of real property prescribed under Section 24 (D) of the Tax Code of 1997; 4. Income tax on income not arising from the inventor's productive activity such as interest, royalties, prizes, winnings, and dividends. 5. Value-added tax (VAT) on the gross receipts/revenues derived from the sale of the said invention products, and also VAT for which the inventor is not directly liable, e.g., VAT on his purchases of raw materials, supplies, and equipment/machinery, which may be shifted to him as part of the cost of goods sold or for services rendered; and 6. Other percentage taxes under Title V of the Tax Code; and 7. Excise taxes directly payable in connection with the sale of invention products; and 8. Documentary stamp tax on documents, instruments and papers. Moreover, the inventor, Mr. Yao , shall register with the proper Revenue District Officer as a withholding agent and as such shall withhold taxes (1) on wages/salaries of employees; and (2) on income payments to individuals or corporations subject to the expanded withholding tax at source, as required under Chapter XIII and Section 57 of the Tax Code of 1997, as amended, and implemented by Revenue Regulations (RR) No. 2-98 ,as amended. cSaATC Finally, Mr. Yao shall prepare and file in triplicate on or before April 15 of each year for the preceding calendar year an Annual Information Return with the Revenue District Officer having jurisdiction over his place of business. It is, of course, understood that Mr. Yao's books of accounts and other pertinent records shall be subject to periodic examination by the revenue enforcement officers for purposes of ascertaining whether he has been complying with the conditions under which he has been granted tax exemption or tax incentives and his tax liability, if any, pursuant to Section 235 of the Tax Code of 1997. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue