ITAD BIR Ruling No. 095-16

May 23, 2016 ITAD BIR RULING NO. 095-16 Section 101, NIRC of 1997, as amended; Revenue Regulations No. 25-03 Department of Health Regional Office No. VIII Government Center Palo Leyte 6501 Attention: Minerva P. Molon, MD, MPH, FPPA Director IV Gentlemen : This refers to your 19 February 2016 letter to Revenue Region 14 of the Bureau of Internal Revenue requesting for a BIR ruling on the donation of a motor vehicle by the United Nations Children Fund (UNICEF) to Regional Office VIII of the Department of Health (DOH-RO-8), specifically described as follows: Make Model Chassis Number Engine No. OEV Plate Year No. Toyota Hilux 4x4 G 2014 MROFZ29G302527712 1KDS280237 131204 3.0 Diesel Documents show that UNICEF, with office address at RCBC Plaza 6819 Ayala Ave. cor Gil Puyat Ave., Makati City 1200, and represented by Lotta Sylwander (as Donor), for and in consideration of the conduct of the Expanded Program of Immunization activities under the Seventh Country Programme for Children, executed a Deed of Donation in favor of DOH-RO-8, with office address at Government Center, Palo, Leyte, as represented by Regional Director Minerva Molon, (as Donee), over the above-described motor vehicle; and that DOH-RO 8 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. cTDaEH (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 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 . . ." In view of the foregoing, since DOH-RO 8, the recipient of the aforementioned motor vehicle from UNICEF, 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. However, the said transfer of motor vehicles 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 cases 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 to DOH-RO 8 by UNICEF of a 2014 Toyota Hilux, is subject to excise tax. The non-exempt transferee of the subject motor vehicle, DOH-RO 8, shall be considered the purchaser thereof which shall then be liable for the unpaid excise tax pursuant to Section 8 of RR 25-03. 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.