ITAD BIR Ruling No. 097-16

June 2, 2016 ITAD BIR RULING NO. 097-16 Revenue Regulations No. 25-03; Revenue Memorandum Circular No. 69-2004 Missionaries of the East (ME), Inc. 628 Santo Nio Street, Mandaluyong City 1550 Attention: Rev. Dr. Jacob Gnalian Director Gentlemen : This refers to your 02 May 2016 letter requesting for a ruling in connection with your purchase of one (1) unit of motor vehicle from Mr. Samiuela Tukuafu, Principal Economist from the Asian Development Bank, specifically described as follows: Make Model Chassis Number Engine No. OEV Plate Year No. Honda CRV 2001 PADRD1720YV201748 PEWD2-Y302782 22025 Documents show that Mr. Samiuela Tukuafu, with office address c/o Asian Development Bank, No. 6 ADB Avenue, Mandaluyong City, Metro Manila, (as the privileged "Seller"), for and in consideration of the sum of Two Hundred Pesos only (P200.00), executed a Deed of Sale over the motor vehicle described above, in favor of Fr. Jacob Gnalian, Director, Missionaries of the East, presently residing at 628 Sto. Nio Street, Mandaluyong City (as the non-privileged "Buyer"). In reply, please be informed that the said transfer of motor vehicle 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. ISHCcT 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 case 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 sale 2001 Honda CRV to Fr. Gnalian by Mr. Tukuafu, is subject to excise tax. Fr. Gnalian, the non-exempt transferee of the subject motor vehicle shall be considered the purchaser thereof who shall then be liable for the unpaid excise tax pursuant to Section 8 of RR 25-03. For computing ad valorem tax, the value shall be 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 sale, transfer, or exchange which depreciation 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. 2 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. 2. Revenue Memorandum Circular No. 69-2004 dated 03 November 2004.