ITAD BIR Ruling No. 242-15

August 14, 2015 ITAD BIR RULING NO. 242-15 Section 101 (B) (2), NIRC of 1997, as amended, Revenue Regulations No. 25-03 Embassy of the Holy See (The Apostolic Nunciature) 2140 Taft Avenue P.O. Box 3364, Manila Attention: Msgr. Seamus Patrick Horgan Counsellor Gentlemen : This refers your Note Verbal No. 1800/15 dated 27 June 2015 indorsed by the Department of Foreign Affairs (DFA) and the Department of Finance (DOF) on the donation by your Embassy of a motor vehicle to Tulay ng Kabataan Foundation (TNK), specifically described as follows: Make Model Color Chassis Number Engine Number Conduction Year Number Honda 2006 Shoreline PADRD78506V400479 RRMD55-6400456 DD0164 CR-V Mist S-4 AT Documents show that the Apostolic Nunciature in the Philippines, represented by Rev. Msgr. Seamus Horgan, Counsellor, as Donor, executed a Deed of Donation in favor of Tulay ng Kabataan Foundation, Inc. (TNK), represented by Mr. Charles Cruse, Human Resource Officer, as Donee, over a motor vehicle specifically described above; that TNK is a non-stock, non-profit corporation duly organized under Philippine laws for the purpose of undertaking and implementing non-political, non-sectarian projects and programs focused on child development especially the street children who are no longer in touch with their families, and the urban poor children of Metropolitan Manila, to promote better life and integration into the society of these distressed and disadvantaged children; and that the Apostolic Nunciature now requests necessary assistance from the Bureau to facilitate the transfer of registration of the subject vehicle under the Donee's name. EcTCAD In reply, please be informed that in as much as TNK is a charitable organization, donations to it are exempt from the payment of donor's tax pursuant to Section 101 (B) (2) of the 1997 National Internal Revenue Code (NIRC), as amended, subject to the condition that not more than thirty percent (30%) of said gift shall be used for administration purposes. (BIR Ruling No. 485-2014 dated 9 December 2014) 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. 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 2006 Honda CR-V by the Embassy of the Holy See to Tulay ng Kabataan Foundation, Inc., is subject to excise tax. TNK, 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 No. 25-03. Please be guided accordingly. HSAcaE 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, as amended.