Department of Agrarian Reform

March 16, 2022 DA ITAD BIR RULING NO. 011-22 Section 101, NIRC of 1997, as amended; RR No. 25-03; Section 15 (GP) of the GAA of 2022 Department of Agrarian Reform Central Office, Elliptical Road 1100 Diliman, Quezon City Attention: ________________ Gentlemen : This refers to your letter dated February 15, 2022 requesting this Office to determine whether the donation of the motor vehicle described below by the Italian Embassy in favor of the Department of Agrarian Reform (DAR) is taxable or exempt from tax. Make Model Year Chassis Number Engine Number Toyota Hi-Lux 4x4 G DSL MT 2014 MR0FZ29GX02556267 1KD-A566938 Documents show that on September 11, 2021, the Italian Agency for Development Cooperation, represented by _________________________ a.i. of the Italian Embassy, executed a Deed of Donation over the subject motor vehicle in favor of the DAR, represented by _________________________. The DAR, in turn, accepted the said donation in the same deed. In reply, please be informed as follows: As to the donor's tax liability, Section 98 of the National Internal Revenue Code (Tax Code) of 1997, as amended, provides that transfers by gift of property, real or personal, are generally subject to tax, to wit: " CHAPTER II DONOR'S TAX SEC. 98. Imposition of Tax. (A) there shall be levied, assessed, collected and paid upon the transfer by any person, resident or nonresident, of the property by gift, a tax, computed as provided in Section 99. (B) the tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. xxx xxx xxx" Nevertheless, if the donation was made in favor of, or was intended for the use of, the national government, no donor's tax shall be imposed on such donation pursuant to Section 101 (A) (2) of the Tax Code, thus: CAIHTE " SEC. 101. Exemption of Certain Gifts. The following gifts or donation shall be exempt from the tax provided for in this Chapter: (A) In the Case of Gifts Made by a Resident. xxx xxx xxx (2) Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government; and xxx xxx xxx" Accordingly, since the DAR is an agency of the Government of the Republic of the Philippines, the subject transfer is hereby declared as exempt from donor's tax . While exempt from donor's tax, the subsequent transfer of a locally manufactured or assembled motor vehicle to a non-privileged buyer shall, however, be subject to ad valorem tax . Section 3 of Revenue Regulations (RR) No. 25-2003 states, to wit: " SEC. 3. PERSONS LIABLE. The following persons shall be liable for the payment of ad valorem tax on automobiles: a. On locally manufactured/assembled automobiles The excise tax shall be paid by the manufacturer/assembler of automobiles. Should domestically manufactured/assembled automobiles be removed from the place of manufacture/assembly without the payment of the tax, the dealer/trader, owner, or person having possession thereof shall be liable for the excise tax due thereon. In case of transfer of locally manufactured/assembled automobiles from a tax-exempt person to a non-tax-exempt individual or entity, the transferee or possessor thereof shall be the one liable for the excise tax. xxx xxx xxx" (Emphasis supplied) Based on the foregoing, the subsequent transfer of locally manufactured/assembled and imported motor vehicles from a tax-exempt person to a non-tax-exempt individual or entity, either by way of sale, donation or any other mode of transfer, shall make the purchaser, transferee or possessor thereof liable for the ad valorem tax due on such motor vehicle, which shall be computed based on Section 8 of RR No. 25-2003: " SEC. 8. TAX TREATMENT ON SUBSEQUENT SALE, TRANSFER OR EXCHANGE OF TAX-EXEMPT AUTOMOBILE BY A TAX-EXEMPT PERSON/ENTITY TO A NON-EXEMPT PERSON/ENTITY. In cases where a tax-exempt person/entity acquired an automobile, whether locally purchased or imported, without payment of the tax by reason of his/their exemption, the purchase thereof by a non-exempt person/entity shall be subjected to the ad valorem tax based on the higher of (i) actual consideration between the tax-exempt person/entity and the non-exempt person/entity; or (ii) the depreciated value of the automobile at the time of sale, transfer, or exchange which depreciation rate shall be at ten percent (10%) per year, but in no case shall the total amount of depreciation be more than fifty percent (50%) of the original cost or value. xxx xxx xxx" Finally, it is worthy to mention that Section 15 (a) of the General Provisions of the General Appropriations Act of 2022 quoted below, provides that taxes arising from foreign donations are deemed automatically appropriated, to wit: " Sec. 15. National Internal Revenue Taxes and Import Duties. The amounts pertaining to the following taxes and duties shall be considered as both revenue and expenditure of the government, and are deemed automatically appropriated: (a) National internal revenue taxes and import duties payable or assumed by departments, bureaus, offices, and instrumentalities of the National Government, including Constitutional Offices enjoying fiscal autonomy and SUCs to the Government arising from foreign donations, grants and loans; xxx xxx xxx Implementation of this Section shall be subject to the guidelines issued by the DOF and DBM, and such other guidelines issued by the agencies concerned." Please be guided accordingly. Very truly yours, Commissioner of Internal Revenue By: (SGD.) LARRY M. BARCELO Assistant Commissioner Legal Service