DA ITAD BIR Ruling No. 108-08

December 18, 2008 DA ITAD BIR RULING NO. 108-08 Section 107, National Internal Revenue Code of 1997, as amended; Revenue Regulations No. 25-03 Bureau of Fisheries and Aquatic Resources Regional Fisheries Office VI M.H. del Pilar, Molo, Iloilo City Attention: Ms. Drusila Esther E. Bayate Regional Director Gentlemen : This refers to your letter dated March 12, 2008 requesting certification from the Bureau of Internal Revenue that the Bureau of Fisheries and Aquatic Resources Region VI (BFAR 6), being the beneficiary of a donation of the German Technical Cooperation (GTZ) of a motor vehicle specifically described below, is exempt from paying value-added tax (VAT). CDHcaS Make Model Color Chassis Number Engine OEV Country Year Number Plate of Number Origin Nissan 2003 White JN1TENT30Z0002901 YD22114528 23104 Japan X-Trail Comfort Documents submitted show that on October 31, 2003, the said motor vehicle was shipped, via Everett Orient Line, Inc., from Yokohama, Japan by Nissan Trading Co., Ltd. to the GTZ Manila Office, the written consignee thereof; that the said transfer to GTZ by importation was free from duties and taxes per Certificate of Payment No. 03673731 issued by the Bureau of Customs dated November 27, 2003. Documents further show that on February 27, 2008, GTZ and BFAR 6 executed a Certificate of Donation whereby GTZ donated to BFAR 6 the above-described motor vehicle in consideration of a Technical Cooperation Agreement; that BFAR 6 executed a Certificate of Acceptance certifying receipt and acceptance of the said motor vehicle from GTZ on March 10, 2008; that GTZ is presently facilitating the change of blue plate into red plate and one of the documents being required by the DFA is the evidence of payment of taxes and duties due on the said vehicle, hence the herein request. HCSDca In reply, please be informed that the VAT liability on transfers of motor vehicle by tax-exempt entities to non-exempt entities shall be governed by Section 107 of the National Internal Revenue Code (Tax Code) of 1997, as amended. Accordingly, Section 107 of the NIRC of 1997, as amended, provides, viz.: SEC. 107. Value-Added Tax on Importation of Goods. (A) In General. There shall be levied, assessed and collected on every importation of goods a value-added tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody: Provided, That where the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes, if any: Provided, further, That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied: (i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or (ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 1/2 %). HcaATE (B) Transfer of Goods by Tax-exempt Persons. In the case of tax-free importation of goods into the Philippines by persons, entities or agencies exempt from tax where such goods are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entities, the purchasers, transferees or recipients shall be considered the importers thereof, who shall be liable for any internal revenue tax on such importation. The tax due on such importation shall constitute a lien on the goods superior to all charges or liens on the goods, irrespective of the possessor thereof. (Emphasis supplied) In addition, the excise tax (ad valorem tax) liability on the subject transfer of motor vehicle should also be considered. Thus, Sections 3 and 8, both of Revenue Regulations No. (RR) 25-03, provide, viz.: "CHAPTER II COVERAGE, BASES AND RATES OF TAX SEC. 3. Persons Liable. The following persons shall be liable for the payment of ad valorem tax on automobiles: 1 xxx xxx xxx b. On imported automobiles The excise tax shall be paid by the owner or importer of the automobile or by the dealer/trader, or by any person who is found in possession of any untaxed automobiles including any person other than the one legally entitled to exemption from the ad valorem tax in the proper case. In cases where automobiles are brought or imported tax free into the country by persons, entities, or agencies exempt from tax and are subsequently sold, transferred, or exchanged in the Philippines to non-exempt persons, or entities, including the introduction and re-introduction into customs territory of automobiles intended for exclusive use within the freeport zones, the purchaser or transferee, owner/possessor of the automobiles shall be considered as the importer, and shall be liable for the excise tax due on such importation. (Emphasis supplied) AaSIET xxx xxx xxx 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 depreciated rate shall be 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. However, in case where the automobile was acquired by the tax-exempt person or entity prior to but sold after the effectivity of the Act, 2 the computation of the ad valorem tax shall be governed by the Act. EITcaH Where a tax-exempt automobile subsequently sold, transferred or exchanged by a tax-exempt person or entity was determined to be originally acquired by such person or entity primarily for the purpose of avoiding the payment of the excise tax, the ad valorem tax shall be computed based on the original purchase price or value of importation of such motor vehicle at the time of its original purchase or importation by such tax-exempt person or entity without the benefit of any deduction for depreciation otherwise allowed under existing rules and regulations." Based on the foregoing, transfers made by tax-exempt person/entity of imported goods which were brought into the Philippines free from tax are subject to VAT and ad valorem tax. In such cases, the non-exempt purchaser/transferee of the imported goods shall be considered the importer thereof who shall then be liable for the unpaid VAT and ad valorem tax on such importations. HTIEaS In sum, therefore, this Office is of the opinion and so holds that the herein donation by GTZ to BFAR 6 of an imported motor vehicle, a 2003 Nissan X-Trail, in consideration of a Technical Cooperation Agreement is subject to ad valorem tax. Accordingly, BFAR 6, the herein non-exempt transferee is considered the importer of the subject motor vehicle which shall be liable for the unpaid VAT on such importation and, in addition, ad valorem tax. However, in relation to the foregoing VAT and ad valorem tax due on the subject donation, it is worth mentioning that Section 14 of the General Appropriations Act quoted below, provides for the appropriation for national internal revenue taxes, to wit: "Sec. 14. National Internal Revenue Taxes and Import Duties. The following are deemed automatically appropriated: (a) National internal revenue taxes and import duties payable by national government agencies to the national government arising from foreign donations, grants and loans; . . . . xxx xxx xxx The amounts pertaining to such taxes, and duties covered by this section shall be considered as revenue and expenditure of the government. Implementation of this section shall be in accordance with guidelines jointly issued by the DOF and DBM." ADECcI Please be guided accordingly. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Commissioner of Internal Revenue Footnotes 1. Section 2, RR 25-2003. "(b) AUTOMOBILE shall refer to any four (4) or more-wheeled motor vehicle regardless of seating capacity, which is propelled by gasoline, diesel, electricity or any other motive power; provided that, for purposes of these Regulations, buses, trucks, cargo van, jeeps/jeepneys/jeepney substitutes, single cab chassis, and special purpose vehicles as herein defined shall not be considered as automobiles. Any motor vehicle, though referred to or otherwise denominated as truck, cargo van, jeep/jeepney/jeepney substitute, bus, single cab chassis, or special purpose vehicle, but not falling within the purview of the definitions stated in these regulations shall be classified as automobile and therefore subject to excise tax. . . . 2. Republic Act No. 9224, An Act Rationalizing the Excise Tax on Automobiles, amending the provisions of Section 149 of the National Internal Revenue Code of 1997.