ITAD BIR Ruling No. 032-17

October 19, 2017 ITAD BIR RULING NO. 032-17 Article V of the PEMSEA Headquarters Agreement; Revenue Regulations No. 25-2003 ______________________________ ______________________________ ______________________________ ______________________________ ______________________________ ______________________________ Dear __________, This refers to your letter dated 04 May 2017 indorsed by the Department of Foreign Affairs and the Department of Finance on the donation of tax-exempt, locally purchased, officially-owned motor vehicles by the United Nations Development Programme (UNDP) to Non-Government Organization 1 (NGO1), specifically described as follows: ATICcS Quantity Year/Make/Model OEV Plate No. Engine No. Chassis No. 1 __________ 00000 GA00-000000Y BAYALJAB00-D00000 1 __________ 00000 ZD00-000077K TWS0LPFE00A00000 Documents show that UNDP, as represented by AAA (Donor), executed a Deed of Donation in favor of NGO1, with business address at ____________________, as represented by BBB (Donee), over the aforementioned motor vehicles; and that, the donation was accepted by NGO1. Documents further show that NGO1 is an intergovernmental organization operating in East Asia to foster and sustain healthy and resilient oceans, coasts, communities and economies across the region; that the Philippines has hosted NGO1 since 1993 by providing the use of land, equipment as well as other services and facilities to NGO1 as the Philippines' contribution to the enhancement of sustainable coastal development in the region; that the Philippine Government granted NGO1 the use and sole occupancy of the Headquarters Seat inside the Department of Environment and Natural Resources (DENR) compound in Quezon City; and that the Philippines recognizes the international juridical personality of NGO1 pursuant to the Agreement between the Government of the Republic of the Philippines and the Non-Government Organization 1 (NGO1) Establishing the NGO1 Resource Facility Center (NGO1 Headquarters Agreement) , signed on 31 July 2012, ratified on 22 November 2013, and concurred to by the Senate in a Resolution adopted on 25 May 2015. In reply please be informed that Section 98 of the National Internal Revenue Code of 1997, as amended (Tax Code), provides that: " 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, under Article V of the NGO1 Headquarters Agreement , donations received by NGO1 shall be exempt from taxation, to wit: "ARTICLE V IMMUNITIES AND PRIVILEGES OF xxx xxx xxx xxx D. Taxation Section 3. All gifts, bequests, donations and contributions which may be received by xxx from any source whatsoever, or which may be granted by xxx to any individual or non-profit organization for educational or scientific purposes, shall be exempt from taxation and considered allowable deductions for purposes of determining the income tax of the donor." In view of the foregoing, the herein donation of two motor vehicles to NGO1 is not subject to donor's tax pursuant to Article V (D) 3 of the NGO1 Headquarters Agreement . TIADCc However, 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." Meanwhile, Article V (D) 1 of the NGO1 Headquarters Agreement also provides that: "ARTICLE V IMMUNITIES AND PRIVILEGES OF xxx xxx xxx xxx D. Taxation Section 1. The provisions of existing laws or ordinances to the contrary notwithstanding, xxx shall be exempt from the payment of all direct taxes and from value-added taxes on its purchase of goods, materials, equipment, vehicles and services for its official use." Based on the foregoing, the subsequent transfer of the two motor vehicles to NGO1 is subject to excise taxes based on the depreciated value of the motor vehicles, but in no case shall the total amount of depreciation be more than fifty percent (50%) of the original cost or value thereof. It is worthy to note that NGO1 is only exempt from the payment of all direct taxes and from value-added taxes on its purchase of vehicles. But, there is no clear grant under the NGO1 Headquarters Agreement that NGO1 is exempt from the payment of excise taxes. Therefore, pursuant to RR 25-2003, this Office is of the opinion that NGO1, which is considered as the purchaser of the two motor vehicles, shall be liable for the unpaid excise taxes. 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. AIDSTE 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.