ITAD BIR Ruling No. 346-12

September 19, 2012 ITAD BIR RULING NO. 346-12 Revenue Regulations No. 25-03 Embassy of the Republic of South Africa 29/F Yuchengco Tower, RCBC Plaza 6819 Ayala Avenue, Makati City Attention: Ms. Zoleka Mankahla Attache Gentlemen : This refers to Note Verbal No PHIL/45/12 dated July 04, 2012 indorsed by the Department of Finance (DOF) and the Department of Foreign Affairs (DFA) with regard to the sale of a motor vehicle by Ms. Zoleka Mankahla, Attache of the Embassy of the Republic of South Africa to Mr. Anselme C. Motcho, a Sierra Leone national, for the latter's personal use, specifically described as follows: Make Model Color Chassis Number Engine Number Plate Year Number Honda 2008 Night Hawk PADCD66308V404565 REGD53-8404586 5805 City Black Documents show that a deed of sale over the above-described motor vehicle was executed by and between Ms. Zoleka Mankahla, as Seller, and Mr. Anselme C. Motcho, as Buyer on May 31, 2012 in Makati City for the personal use of the latter; and that the Embassy of the Republic of South Africa now requests necessary assistance and support from the DOF to facilitate the transfer of registration of the subject vehicle under the Buyers's name. In reply, please be informed 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. HcTIDC 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 sale of a 2008 Honda City by the Embassy of the Republic of South Africa to Mr. Anselme C. Motcho, for the latter's personal use, is subject to excise tax. Mr. Anselme C. Motcho, 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. HATICc 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, as amended.