ITAD BIR Ruling No. 164-12

April 19, 2012 ITAD BIR RULING NO. 164-12 Section 101, NIRC of 1997, as amended; Revenue Regulations No. 25-03; BIR Ruling No. ITAD-027-12; BIR Ruling No. ITAD-229-11 Department of Energy Energy Center, Merritt Rd.,Fort Bonifacio Taguig City, Metro Manila Attention: Director Raquel S. Huliganga Energy Research Testing and Laboratory Services Gentlemen : This refers to your letter dated November 25, 2011 requesting for a ruling in connection with the donation of three (3) project vehicles by the United Nations Development Programme (UNDP) to the Department of Energy (DOE),described as follows: Make Model Chassis Number Engine Number OEV Plate Year Number Ford Everest 2005 MNCLS4D405W WLAT-550234 23986 Wagon 111180 Ford Everest 2005 MNCLS4D404W WLAT-520343 24287 Wagon 109711 Isuzu Sportivo 2006 PABTBR54F620 4JAI-M00409 24560 Wagon 37808 It is represented that the abovementioned vehicles were transferred to DOE to facilitate the project entitled "Philippine Efficient Lighting Market Transformation Project" (PELMATP) with project ID: 00041692 undertaken in the Philippines from 2005 to 2011; and that one of the documents being required by the Department of Foreign Affairs (DFA) is the evidence of payment of taxes and duties due on the said vehicle, hence the herein request. In reply, please be informed as follows: As to donor's tax liability, 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 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. ..." 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: HDITCS (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 DOE, the recipient of the aforementioned three motor vehicles from the UNDP, 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 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. 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 donation of two Ford Everests and one Isuzu Sportivo to the DOE by the UNDP, is subject to excise tax. The DOE, the non-exempt transferee of the subject motor vehicles shall be considered the purchaser thereof who shall then be liable for the unpaid excise tax pursuant to Sections 3 and 8 of RR 25-03. (BIR Ruling No. ITAD-027-12 dated January 31, 2012; BIR Ruling No. 229-11 dated September 21, 2011) Please be guided accordingly. EIDaAH 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.