ITAD BIR Ruling No. 064-10

November 30, 2010 ITAD BIR RULING NO. 064-10 Revenue Regulations No. 25-2003; Section 107, NIRC of 1997, as amended; BIR Ruling No. DA-ITAD-085-02; BIR Ruling No. DA-ITAD-053-00; BIR Ruling No. 016-95; BIR Ruling No. ITAD-041-10 Bureau of Local Government Finance Department of Finance 8th Floor EDPC Building, Bangko Sentral ng Pilipinas Complex Roxas Boulevard, Manila Attention: Ms. Ma. Presentacion R. Montesa, CESO III BLGF Executive Director & LAMP2 Component 4 Manager Gentlemen : This refers to your letter dated 21 September 2010 requesting for a ruling that the Bureau of Local Government Finance (BLGF) is exempt from taxes due on a donation made by the Australian Government, through the Australian Agency for International Development (AusAID), to support the project operations requirements of LAMP2, of a motor vehicle specifically described as follows: Make: Toyota Hi-Ace GL Grandia Van Plate No.: ZFH 412 Engine Number: 2KD-1507065 Chassis Number: JTFRS13P8-00003476 In reply, please be informed as follows: As to donor's tax liability, please be informed that Section 98 of the National Internal Revenue Code (NIRC) of 1997 provides that transfers by gift of property, real or personal, are generally subject to tax. Section 98 provides: "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 (A) (2) of the NIRC of 1997. It provides: "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" Accordingly, since the recipient of the Toyota Hi-Ace GL Grandia, BLGF, is an agency of the Government of the Republic of the Philippines, attached to the Department of Finance, the subject transfer is hereby exempt from donors tax, pursuant to Section 101 of the NIRC of 1997. (BIR Ruling No. 041-10 dated April 15, 2010) DHcEAa As to exemption from payment of ad valorem tax and value-added tax (VAT), Section 107 (B) of the NIRC of 1997, as amended, provides, to wit: SEC. 107. Value-Added Tax on Importation of Goods. (A) . . . (B) Transfer of Goods by Tax-exempt Persons. In the case of tax-free importation of goods into the Philippines by persons, entities or agencies exempt from tax where such goods are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entities, the purchasers, transferees or recipients shall be considered the importers thereof, who shall be liable for any internal revenue tax on such importation. The tax due on such importation shall constitute a lien on the goods superior to all charges or liens on the goods, irrespective of the possessor thereof. (Emphasis supplied) In addition, Section 8 of Revenue Regulations No. (RR) 25-03, provides, 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." In view of the foregoing provisions, transfers made by a tax-exempt person/entity of an automobile to a person/entity not enjoying exemption from indirect taxes shall be subject to VAT and ad valorem tax in the hands of the latter. The transferee of the automobile who is not exempt from the payment of VAT and ad valorem tax shall be liable for the unpaid VAT and ad valorem tax on such automobile. This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the actual facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. HSDCTA 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.