ITAD BIR Ruling No. 229-11

September 21, 2011 ITAD BIR RULING NO. 229-11 Section 101, NIRC of 1997, as amended; Revenue Regulations No. 25-03; BIR Ruling No. ITAD-108-08 National Economic and Development Authority NEDA sa Pasig, 12 Saint Josemaria Escriva Drive Ortigas Center, Pasig City 1605 P.O. Box 419, Greenhills Attention: Mr. Librado F. Quitoriano Director IV Gentlemen : This refers to your letter dated June 10, 2011 regarding the donation to the National Economic and Development Authority (NEDA) by the Minister Counsellor of the Australian Embassy of a motor vehicle specifically described as follows: cHCIEA Make Model Color Chassis Number Engine Number OEV Plate Year Number Nissan X-Trail 2005 Silver X TDBNLJAT30-A22611 QR25-248006A 23925 250X Documents show that on December 8, 2010, the Government of Australia, represented by Mr. Titon Mitra, Minister Counsellor of the Australian Embassy, as Donor, executed a Deed of Donation in favor of NEDA, represented by its Deputy Director General Rolando Tungpalan, as Donee, over a motor vehicle specifically described above; that NEDA, in turn, accepted the donation of the said motor vehicle for the logistical support of NEDA's operation per its Letter of Acceptance dated December 8, 2010; and that the Australian Embassy requests endorsement to the Department of Finance (DOF) and the Land Transportation Office (LTO) for the transfer of registration under the Donee's name. 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. HaEcAC xxx xxx xxx" 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 xxx xxx xxx" Accordingly, since NEDA, the recipient of the 2005 Nissan X-Trail 250X from the Australian Embassy, 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. (BIR Ruling No. DA-ITAD-085-02 dated May 9, 2002) However, the said transfer of motor vehicle is subject to excise tax under Section 8 of Revenue Regulations (RR) No. 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. cIHCST 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 a 2005 Nissan X-Trail 250X to NEDA by the Australian Embassy, is subject to excise tax. NEDA, 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 Sections 3 and 8 of RR 25-03. (BIR Ruling No. DA-ITAD-053-00 dated March 7, 2000; BIR Ruling No. 016-95 dated February 9, 1995) And, in relation to the excise tax due on the subject donation, it is worth mentioning that Section 13 of the General Provisions of the General Appropriations Act of 2011 quoted below, provides for the appropriation for national internal revenue taxes, to wit: "SEC. 13. National Internal Revenue Taxes and Import Duties . The following are deemed automatically appropriated: (a) National internal revenue taxes and import duties payable by national government agencies to the National Government arising from foreign donations, grants and loans; HSIDTE xxx xxx xxx The amounts pertaining to such taxes, and duties covered by this section shall be considered as revenue and expenditure of the government. Implementation of this section shall be in accordance with guidelines jointly issued by the DOF and DBM." 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.