ITAD BIR Ruling No. 014-16

March 4, 2016 ITAD BIR RULING NO. 014-16 Section 101, NIRC of 1997, as amended Revenue Regulations No. 25-03 Bureau of Agricultural Research Department of Agriculture Visayas Avenue corner Elliptical Road Diliman, Quezon City Attention: Dr. Nicomedes P. Eleazar Director Gentlemen : This refers to your letter of 04 January 2016 requesting from this Bureau clearance on the donation of three (3) units motor vehicle by the International Rice Research Institute (IRRI) to the Department of Agriculture-Bureau of Agricultural Research (DA-BAR), specifically described as follows: Make Model Year Chassis Number Engine Number OEV Plate No. Toyota Revo Wagon 2003 KF82-6004943 7K0614277 22767 Toyota Revo Wagon 2004 KF82-6007638 7K0697776 23544 Toyota Revo Wagon 2004 KF82-6007724 7K0700806 23545 Documents show that IRRI, represented by Dr. Robert S. Zeigler, as Donor, executed a Deed of Donation in favor of DA-BAR, represented by Director-CESO IV Nicomedes P. Eleazar, as Donee, over the above-described motor vehicles; that DA-BAR, expressing need of the said motor vehicles for its official use, accepted the donation; and that DA-BAR now requests assistance from the Bureau to facilitate the transfer of registration of the subject vehicle under the DA-BAR's name. In reply, please be informed as follows: Section 98 of the National Internal Revenue Code (NIRC) of 1997, as amended, provides that transfers by gift of property, real or personal, are generally subject to donor's tax. Section 98 reads: "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. . . ." However, certain transfers are exempt from donor's tax such as those provided in Section 101 of the NIRC of 1997, as amended. It states: "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. (1) . . . (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" In addition, Article IV, paragraph 5, Section 4.5.1 of the "Headquarters Agreement Between the Government of the Republic of the Philippines and the International Rice Research Institute" ("Headquarters Agreement"), signed by the then Secretary of Foreign Affairs Alberto G. Romulo, for the Republic of the Philippines and Dr. Robert S. Zeigler, Director-General of IRRI on April 24, 2006, concurred in by the Philippine Senate in a resolution 1 n adopted on April 28, 2008 and which entered into force on May 14, 2008, provides: SDHTEC "ARTICLE IV Immunities and Privileges xxx xxx xxx 5. Taxation, Customs and Quarantine Section 4.5.1. The provisions of existing laws or ordinances to the contrary notwithstanding, the Institute, or its successors, shall be exempt from the payment of all taxes provided under existing laws or ordinances. This exemption shall extend to goods imported and owned by the Institute which are intended for its official use." In view of the foregoing, since DA-BAR, the recipient of the aforementioned three motor vehicles from IRRI, is an agency of the Government of the Republic of the Philippines, the subject transfer is hereby exempt from donor's tax, pursuant to Section 101 (A) (2) of the NIRC of 1997, and further, under Article IV paragraph 5, Section 4.5.1 of the Headquarters Agreement. (BIR Ruling Nos. ITAD-086-14 dated 19 June 2014 and ITAD-360-12 dated 22 October 2012) However, the said transfer of motor vehicles is subject to excise tax under Section 8 of Revenue Regulations No. (RR) 25-03. It provides, viz. : "CHAPTER II Coverage, Bases and Rates of Tax 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, 1 the computation of the ad valorem tax shall be governed by the Act. 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 automobile to person/entity not enjoying indirect tax exemption shall be subject to excise tax in the hands of the latter and the said non-exempt transferee shall be liable for the unpaid excise tax on such automobile based on its depreciated value. In sum, and as it has been consistently ruled by this Office on several occasions involving similar case that the transferee not enjoying indirect tax exemption shall pay the unpaid taxes on the good/s received from an exempt transferor, this Office is of the opinion and so holds that the herein donation of three Toyota Revo to DA-BAR by IRRI, is subject to excise tax. DA-BAR, the non-exempt transferee of the subject motor vehicle shall be considered the purchaser thereof who shall then be liable for the unpaid excise tax pursuant to Sections 3 and 8 of RR 25-03. (BIR Ruling No. ITAD-242-15 dated 14 August 2015) Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. 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. n Note from the Publisher: Copied verbatim from the official document. " resolution 1" should read as "resolution 1 ".