BIR Ruling No. 473-13

December 18, 2013 BIR RULING NO. 473-13 RA No. 7459; RR No. 19-93; BIR Ruling No. 328-12 Mr. Dennis J. Abella Lot 18 Block 3 4th Street, Trinidad Homes, Manggahan, Pasig City Gentlemen : This refers to the letter, with attachments, submitted by the Filipino Inventors Society (FIS) dated October 20, 2012, endorsing the application for tax exemption of inventor Mr. Dennis J. Abella under the provisions of R.A. No. 7459, otherwise known as the Inventors and Inventions Incentives Act of the Philippines. It is represented that inventor Mr. Dennis J. Abella is the registered patent holder of the following product: Utility Model Registration Date Issued Date of First No. Sale Fire Proof Fabric 2-2010-000121 June 15, 2010 February 8, 2011 that Mr. Dennis J. Abella is an accredited member of the Filipino Inventors Society (FIS); that the above-mentioned patented invention is being commercially produced and marketed by Metro Asia Exchange and Creation Company with Taxpayer's Identification Number (TIN) 007-571-456-000 and duly registered with the Securities and Exchange Commission (SEC) with Company Registration No. PG201000554 dated January 20, 2010; and that on June 27, 2012, the Screening Committee for R.A. No. 7459 has confirmed that the above-mentioned patented invention is eligible for the tax incentives as per SC Resolution No. 2012-006. 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. DaEcTC 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. Dennis J. Abella ,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. 328-12 dated May 11, 2012) 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. It is understood that the tax incentive/exemption under R.A. No. 7459, as implemented by Revenue Regulations (RR) No. 19-93, is for the inventor, Mr. Dennis J. Abella ,and not for the company or entity that produced/distributed and/or marketed the invention. Hence, any income received by Metro Asia Exchange and Creation Company from such production/distribution/marketing is subject to the payment of appropriate taxes. In effect, Mr. Dennis J. Abella 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; HTCaAD 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. Moreover, the inventor, Mr. Dennis J. Abella shall register with the proper Revenue District Office as a withholding agent and as such shall withhold taxes (1) on wages/salaries of his employees; (2) on his 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. Dennis J. Abella 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 Office having jurisdiction over his place of business. It is, of course, understood that Mr. Dennis J. Abella'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