ITAD BIR Ruling No. 304-12

July 27, 2012 ITAD BIR RULING NO. 304-12 Section 101, NIRC of 1997, as amended; Revenue Regulations No. 25-03; BIR Ruling No. ITAD-229-11 Philippine Commission on Women 1145 J.P. Laurel Street, San Miguel, Manila, 1005 Attention: Ms. Emmeline L. Verzosa Executive Director Gentlemen : This refers to your letter dated May 22, 2012 regarding the donation from the Philippine Canada Cooperation Office ("PCCO"), Program Support Unit of the Canadian International Development Agency ("CIDA") as logistic support to the Philippine Commission on Women's ("PCW") operations of a motor vehicle specifically described as follows: Make Model Color Chassis Number Engine OEV Plate Year Number Number Toyota Hi-Ace 2004 Aqua LH154-7000250 5L-5544682 24142 Super Grandia Silver Documents show that on April 25, 2012, CIDA of the Embassy of Canada, as Donor, executed a Deed of Donation in favor of PCW, as Donee, over a motor vehicle specifically described above; that PCW, in turn, accepted the donation of the said motor vehicle for the logistical support of PCW's operation per its Deed of Acceptance dated April 12, 2012; and that the Embassy of Canada requests endorsement to the Department of Finance (DOF) and the Land Transportation Office (LTO) for the transfer of registration under the PCW'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. . . ." 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: cHDEaC (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 . . ." Accordingly, since PCW, the recipient of the 2004 Toyota Hi-Ace Super Grandia from CIDA of the Embassy of Canada, is a government agency operating under the Office of the President 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 a 2004 Toyota Hi-Ace Super Grandia to PCW by the CIDA of the Embassy of Canada, is subject to excise tax. PCW, 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. ITAD-229-11 dated September 21, 2011) 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 2012 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; 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. SDTIaE 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.