ITAD BIR Ruling No. 027-17

September 29, 2017 ITAD BIR RULING NO. 027-17 Revenue Regulations No. 25-2003 Laura B. Pascua Undersecretary for Policy and Strategy & Chairperson PFM Committee Department of Budget and Management Boncodin Hall, General Solano Street San Miguel, Manila Dear Undersecretary Pascua, This refers to your letter dated 17 May 2017 requesting a Certificate of Exemption from Excise Tax and Value-Added Tax (VAT) for four (4) project vehicles which will be turned-over by the Australian Embassy to Department of Budget and Management (DBM), specifically described as follows: ATICcS Quantity Year/Make/Model OEV Plate No. Engine No. Chassis No. 1 _______________ 00000 R00A00000000 MRHRE0000BP000000 1 _______________ 00000 K00Z00000000 MRHRE0000BP000000 1 _______________ 00000 0D00AAF0000 PAEVB0MMCCB000000 1 _______________ 00000 0D00AA00000 PAEVB0MMCCB000000 It is represented that the Philippines-Australia Public Financial Management Program (PFMP), under the Subsidiary Arrangement between the Government of Australia and the Government of the Philippines, particularly between DBM and the Australian Agency for International Development (AusAID), now the Department of Foreign Affairs and Trade (DFAT), is due for project closure on June 30, 2017; and that, under the Subsidiary Agreement, all assets including the 4 aforementioned vehicles will be turned over to DBM, towards the conclusion of the program. In reply please be informed that Section 8 of Revenue Regulations No. (RR) 25-2003 states that: "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 of automobiles made by tax-exempt person or entity to a non-exempt person or entity shall be subject to excise tax based on the depreciated value of the automobiles, which shall be paid by the latter. Therefore, pursuant to RR 25-2003, an entity not enjoying indirect tax exemption shall be considered as the purchaser of the automobiles, and shall be liable for the unpaid excise tax. In view thereof, the Office is of the opinion as it hereby rules that the herein donation to DBM by the Australian Embassy of two units ____________________, and two units ____________________, is subject to excise tax. Accordingly, DBM, the non-exempt transferee, shall be considered the purchaser thereof which shall then be liable for the unpaid excise tax pursuant to Section 8 of RR 25-2003. The donation is, however, not subject to VAT. TIADCc This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. 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.