BIR Ruling No. 328-12

May 11, 2012 BIR RULING NO. 328-12 RA 7459; RR 19-93; 000-00 Migs Systems, Inc. 316 McArthur Hi-way Malinta, Valenzuela City Attention: Ray G. Ferrera President & General Manager Gentlemen : This refers to your letter dated August 20, 2010 of Luzviminda A. Cabug, Officer-in-Charge, Technology Application and Promotion Institute, requesting for a ruling on tax incentives under R.A. No. 7459, otherwise known as the Inventors and Inventions Incentives Act of the Philippines: Records show that Inventor Ray G. Ferrera is the registered patent holder of the following products: Utility Model Registration Date Issued Date of No. First Sale 1. Plastic Pipe Clamp 2-2004-000282 July 9, 2004 November 9, with Service Tap 2007 Connector 2. Plastic Pipe Clamp 2-2004-000281 July 9, 2004 December 15, with Service Tap 2004 Connector 3. Plastic Pipe Clamp 2-2004-000280 July 9, 2004 February 4, with Service Tap 2008 Connector 4. Plastic Poultry 2-2004-000324 August 2, 2004 November 10, Feeding Device 2004 5. Improved Plastic 2-2005-000365 August 18, 2005 August 27, Pipe coupling of the 2008 T-pipe fitting Type 6. Improved Plastic 2-2005-000364 August 18, 2005 July 25, 2007 Pipe coupling of the Straight-pipe Fitting Type 7. Improved Plastic 2-2005-000363 August 18, 2005 April 18, 2005 Pipe coupling of the Elbow-pipe Fitting Type 8. Pipe Nipple 2-2005-000424 October 6, 2005 November 15, 2007 9. Tapping Fitting 2-2006-000046 January 30, 2006 July 19, 2008 10. Plastic Pipe 2-2006-000045 January 30, 2006 November 30, Coupling 2007 11. Plastic Pipe 2-2006-000289 July 14, 2006 October 16, Coupling 2008 12. Plastic Pipe 2-2006-000288 July 14, 2006 April 9, 2008 Coupling 13. Plastic Pipe 2-2006-000287 July 14, 2006 November 20, Coupling 2004 14. Plastic Poultry 2-2006-000520 December 6, 2006 November 10, Feeding Device 2004 15. Plastic Poultry 2-2006-000519 December 6, 2006 November 10, Watering Device 2004 16. Improved Plastic 2-2007-000117 April 26, 2007 November 15, Pipe Coupling 2007 17. Elbow-Type Plastic 2-2007-00016 April 26, 2007 November 30, Pipe Coupling 2007 18. Straight Plastic Pipe 2-2008-000246 May 23, 2008 April 8, 2008 Coupling 19. Plastic Water Repair 2-2008-000245 May 23, 2008 August 27, Clamp 2008 20. Y-Type Tapping 2-2008-000244 May 23, 2008 February 4, Fitting 2008 that Mr. Ray G. Ferrera is an accredited member of the Filipino Inventors Society (FIS) and that the above-mentioned patented inventions are being commercially produced and distributed by MIG System Incorporated located at 316 McArthur Highway, Malinta, Valenzuela City; and that the Screening Committee has evaluated and recommended that the above-mentioned patented inventions are eligible for the tax incentives pursuant to Resolution No. 2010-006 dated July 15, 2010. CDScaT 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 these 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." In effect, Mr. Ray G. Ferrera 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% final 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; 7. Excise taxes directly payable in connection with the sale of invention products; and 8. Documentary stamp tax on documents, instruments and papers. acHITE The said exemption can be availed of during the first ten (10) years from the date of the first sale on a commercial scale which are indicated above opposite each product invented, provided that said exemption privileges pertaining to the invention shall be extended to the legal heir or assignee upon the death of the inventor. 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 only tax exemption granted by the first paragraph of Section 6 of RA 7459 merely refers to income tax. CSTHca Moreover, Mr. Ray G. Ferrera shall register with the proper Revenue District Officer as a withholding agent and as such shall withhold taxes (1) on wages/salaries of your employees; (2) on your income payments to individuals or corporations subject to the expanded withholding tax provided for in Section 57 (B) of the Tax Code of 1997; and (3) on government money payments pursuant to R.A. No. 1051, as implemented by Revenue Regulations No. 2-98, as amended. Finally, Mr. Ray G. Ferrera 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. Ray G. Ferrera's books of accounts and other pertinent records shall be subject to periodic examination by our 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