Australian Embassy

October 1, 2018 ITAD BIR RULING NO. 087-18 Sec. 101 of the NIRC of 1997, as amended; Sec. 8 of Revenue Regulations No. 25-2003 Australian Embassy Level 23-Tower 2, RCBC Plaza 6819 Ayala Avenue 1200 Makati City Attention: AAA _______________ Gentlemen : This refers to your Note No. 429/17 dated 22 September 2017 indorsed by the Department of Foreign Affairs and Department of Finance reflecting the donation of two (2) tax-exempt, locally purchased motor vehicles, specifically described as follows: ICcDaA Quantity Year/Make/Model OEV Plate No. Engine No. Chassis No. 1 2009 26837 4D56UCBT4680 MMBGNKH409F015580 1 2012 27890 4D56AAF6919 PAEL35MYCCB009979 Documents show that the Government of Australia (Donor), represented by the Counsellor for Governance and Humanitarian Section, Department of Foreign Affairs and Trade (DFAT), Australian Embassy, BBB, in recognition of the partnership between the Provincial Government of Misamis Occidental (PGMOC) and the Provincial Road Management Facility (PRMF), DFAT, executed a Deed of Donation in favor of PGMOC (Donee), represented by Governor Herminia Ramiro, over the above-described motor vehicles; and that PGMOC accepted the donation. In reply, please be informed as follows: 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 donor's 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. x x x" 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: (B) In the Case of Gifts Made by a Nonresident not a Citizen of the Philippines. (1) 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." Based on the foregoing provision, since the Donee is a political subdivision of the Government of the Republic of the Philippines, the subject transfer is hereby exempt from donor's tax. Nothing precludes the BIR, however, from imposing excise tax under Section 149 of the NIRC, as amended by Republic Act No. 9224 and further implemented under Section 8 of Revenue Regulations No. (RR) 25-2003, which 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, 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 herein donation to PGMOC by the Australian Embassy of one (1) unit of 2009 Mitsubishi Montero Sports and one (1) unit of 2012 Mitsubishi L300 FB, is subject to excise tax. Accordingly, PGMOC, the non-exempt transferee, shall be considered the purchaser thereof which shall then be liable for the unpaid excise tax. 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. ADEHTS 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.