Ortega, Bacorro, Odulio

September 28, 2023 BIR RULING NO. OT-086-2023 Sections 131, 134 & 141 of the Tax Code of 1997, as amended; BIR Ruling No. 700-19; BIR Ruling No. 40-00; and BIR Ruling No. OT-124-22 Ortega, Bacorro, Odulio Calma & Carbonell P.O. Box 781, Manila 1099, Philippines Attention: AAA Gentlemen : This refers to your letter requesting on behalf of your client KC N A Philippines, Inc. ("KC N A") for confirmation of your opinion that the importation of Ethyl Alcohol (Denatured Anhydrous Ethyl Alcohol) and SE-5 (Toluene 95%) are exempt from the imposition of Excise Tax. HTcADC Based on your representation, KC N A, with Taxpayer Identification Number (TIN) 000-000-000-000, is a corporation duly registered with the Philippine Economic Zone Authority (PEZA) under Certificate of Registration No. 17-148; that KC N A entered into a Service Agreement dated December 12, 2022 with Samsung Electro-Mechanics Philippines Corporation (SEMPHIL) for the supply, logistics and on-site mixture of Ethyl Alcohol and SE-5 to be used by SEMPHIL for the treatment of mobile phone chips; that the said chemicals were imported by KC N A for exclusive distribution to SEMPHIL for its manufacturing process; and that the said chemicals have mixtures which are not fit for human consumption. Hence this request. Please be informed of the following provisions of the National Internal Revenue Code of 1997 (Tax Code), as amended, relative to the taxability of ethyl alcohol, as follows: "SEC. 141. Distilled Spirits. On distilled spirits, subject to the provisions of Section 133 of this Code, an excise tax shall be levied, assessed and collected based on the following schedule: xxx xxx xxx (D) Effective January 1, 2023 (1) An ad valorem tax equivalent to twenty-two percent (22%) of the net retail price (excluding the excise tax and the value-added tax) per proof; and (2) In addition to the ad valorem tax herein imposed a specific tax of Fifty-nine (P59.00) per proof liter. CAIHTE xxx xxx xxx (F) In addition to the ad valorem tax herein imposed, the specific tax imposed under this Section shall be increased by six percent (6%) every year thereafter effective January 1, 2025, through revenue regulations issued by the Secretary of Finance. xxx xxx xxx This tax shall be proportionally increased for any strength of the spirits taxed over proof spirits, and the tax shall attach to this substance as soon as it is in existence as such, whether it be subsequently separated as pure or impure spirits, or transformed into any other substance either in the process of original production or by any subsequent process. 'Spirits or distilled spirits' is the substance known as ethyl alcohol , ethanol or spirits of wine, including all dilutions, purifications and mixtures thereof, from whatever source, by whatever process produced, and shall include whisky, brandy, rum, gin and vodka, and other similar products or mixtures." Section 131 of the same Code provides for the payment of excise taxes on imported articles, to wit: "SEC. 131. Payment of Excise Taxes on Imported Articles. xxx xxx xxx (B) Rate and Basis of the Excise Tax on Imported Articles. Unless otherwise specified, imported articles shall be subject to the same rates and basis of excise taxes applicable to locally manufactured articles." Based thereon, imported spirits or distilled spirits are subject to an excise tax at the same rates and basis applicable to similar products locally manufactured. While Section 141 considered ethyl alcohol as substance of spirits or distilled spirits, it can be clearly gleaned that the law pertains to those products of ethyl alcohol which are fit for human consumption. On the other hand, Section 134, Chapter II of the Tax Code, as amended, provides for the exemption or conditional tax-free removal of Domestic Denatured Alcohol, to wit: "CHAPTER II EXEMPTION OR CONDITIONAL TAX-FREE REMOVAL OF CERTAIN ARTICLES xxx xxx xxx "SEC. 134. Domestic Denatured Alcohol. Domestic alcohol of not less than one hundred eighty degrees (180) proof (ninety percent (90%) absolute alcohol) shall, when suitably denatured and rendered unfit for oral intake, be exempt from the excise tax prescribed in Section 141: Provided, however, That such denatured alcohol shall be subject to tax under Section 106 (A) of this Code: Provided, further, That if such alcohol is to be used for motive power, it shall be taxed under Section 148 (d) of this Code: Provided, finally, That any alcohol, previously rendered unfit for oral intake after denaturing but subsequently rendered fit for oral intake after undergoing fermentation, dilution, purification, mixture or any other similar process shall be taxed under Section 141 of this Code and such tax shall be paid by the person in possession of such reprocessed spirits." aScITE Evidently, when the domestic alcohol falls under the purview of Section 134 hereof, such as: (1) the domestic alcohol is not less than 180 proof or 90% absolute alcohol, (2) the same is suitably denatured; and (3) it is rendered unfit for oral intake, no excise tax may be imposed thereon. However, when such denatured alcohol is to be used for motive power, it shall be taxed under Section 148 (D) of the Tax Code, as amended, or when any alcohol previously rendered unfit for oral intake or after denaturing but subsequently rendered fit for oral intake after undergoing fermentation, dilution, purification, mixture or any other similar process shall be taxed under Section 141 of the Tax Code, as amended. In summary, to be entitled to the excise tax exemption under Section 134, the following requisites must be present: 1) That the domestic alcohol is not less than 180 proof or 90% absolute alcohol; 2) That the same is suitably denatured; and 3) That it is rendered unfit for oral intake. In the instant case, since it clearly shows that the subject goods (alcohol) were imported and not domestically manufactured/acquired, it is irrelevant to ascertain the degree of proof or the rate of the alcohol content containing the product. Section 134 of the Tax Code, as amended, categorically pertains to domestic alcohol and nothing in the said code mentioned about imported alcohol. Nevertheless, in case where the said product is to be used for motive power or subsequently rendered fit for oral intake, through fermentation, dilution, purification, mixture or any other similar process, it shall be taxed under Section 148 (D) and Section 141, respectively, of the Tax Code, as amended, pursuant to the provision of Section 131 (B) of the same code. In view of all the foregoing, this Office hereby holds that the request for exemption from the imposition of Excise Tax on importation by KC N A of Ethyl Alcohol (Denatured Anhydrous Ethyl Alcohol) and SE-5 (Toluene 95%) is hereby denied for lack of legal basis. DETACa This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) ROMEO D. LUMAGUI, JR. Commissioner of Internal Revenue