ITAD BIR Ruling No. 027-12

January 31, 2012 ITAD BIR RULING NO. 027-12 Section 101, NIRC of 1997, as amended; Revenue Regulations No. 25-03; BIR Ruling No. ITAD-229-11 Municipality of Bay Bay, Laguna Attention: Hon. Jose O. Padrid Municipal Mayor Gentlemen : This refers to your letter dated August 12, 2011 indorsed to this Office by the Department of Finance and the Department of Foreign Affairs (DFA) requesting confirmation of the tax treatment on the donation of two (2) units of officially-owned motor vehicle of the International Rice Research Institute (IRRI) to the Municipality of Bay, Laguna specifically described as follows: aAHDIc Make Model Color Chassis Engine OEV Plate Year Number Number Number Nissan Sentra 1998 White BAYALHAB14C GA16-P00872H 20322 Sedan 22532 Nissan Sentra 1999 White BAYALHABI4C GA16P001889H 23925 Sedan 40615 Documents show that on May 31, 2011, IRRI and the Municipality of Bay, Laguna executed a Certificate of Donation whereby IRRI donated to the municipality the above-described motor vehicles. 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. 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. ..." 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 donations 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" Accordingly, since the Municipality of Bay, the recipient of the aforementioned two 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. (BIR Ruling No. DA-ITAD-085-02 dated May 9, 2002) SECIcT However, the said transfer of motor vehicle 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 two Nissan Sentra Sedan to the Municipality of Bay, Laguna by IRRI, is subject to excise tax. Municipality of Bay, 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. DA-ITAD-053-00 dated March 7, 2000; BIR Ruling No. 016-95 dated February 9, 1995) 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.