Embassy of the United States of America

March 9, 2020 ITAD BIR RULING NO. 022-20 Section 101, NIRC of 1997, as amended; Revenue Regulations No. 25-03 Embassy of the United States of America 1201 Roxas Boulevard, Ermita, Manila 1000 Metro Manila Gentlemen : This refers to the donation made by the Embassy of the United States (US Embassy) to the Bureau of Internal Revenue (BIR) of a motor vehicle specifically described as follows: CAIHTE Make Model Year Chassis Number Motor Number Plate Number Ford Flex Wagon 2013 2FMHK6084DBD22898 DBD22898 OEV-27068 Documents show that on 20 February 2020, the US Embassy, donor, represented herein by AAA, __________ of the US Embassy, executed a Deed of Donation in favor of the BIR, donee, represented herein by Commissioner Caesar R. Dulay, over a motor vehicle specifically described above; that the BIR, in turn, accepted the donation of the said motor vehicle per the Deed of Acceptance dated 20 February 2020; and that the subject transaction is being endorsed to this Bureau for the issuance of a BIR ruling on the payment of taxes in connection with the transaction as required by the Land Transportation Office (LTO) for the transfer of the motor vehicle's registration in the donee's name. In reply, please be informed as follows: As to donor's tax liability, 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 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. xxx xxx xxx" 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) x x x (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 BIR is an agency of the Government of the Republic of the Philippines, the subject transfer is hereby declared as exempt from donor's tax, pursuant to Section 101 (A) (2) of the NIRC of 1997. However, the said transfer of motor vehicle is subject to excise tax under Section 8 of Revenue Regulations (RR) No. 25-03, to wit: "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 subject donation of a 2013 Ford Flex Wagon to the BIR is subject to excise tax. The BIR, 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 No. 25-03. Moreover, it is worth mentioning that Section 15 (a) of the General Provisions of the General Appropriations Act of 2020 quoted below, provides that taxes arising from foreign donations are deemed automatically appropriated, to wit: DETACa " 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, (SGD.) CAESAR R. DULAY 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) .