Mining Tax Regulations

June 1, 1967 REVENUE REGULATIONS NO. 11-67 SUBJECT : Mining Tax Regulations Pursuant to the provisions of section 338 of the N.I.R.C., the following regulations are hereby promulgated to implement the provisions of Title VII (Sections 241 to 248) of the N.I.R.C. cdtech SEC. 241 Occupation fee . Any locator, holder, or occupant of any mining claim shall pay to the Commissioner of Internal Revenue in advance, upon the expiration of the period of two years from the date of the registration of the claim in the Office of the Mining Recorder, and on the same date every year thereafter, an annual occupation fee of one peso per hectare, or fractional part thereof, until the lease covering the mining claim shall have been granted. Fifty per centum of all the fees collected under this section shall accrue to the province, and fifty per centum to the municipality in which the mining claims are located: Provided , That in case the mining claims are located in a chartered city, the full amount shall accrue to the city concerned. Failure to pay the occupation fee herein required within thirty days after demand shall cause the mining claims to be open to relocation and lease by other persons qualified to locate and lease the same under the provisions of the Mining Act, in the same manner as if no location of the said mining claims had ever been made, unless the locator, holder, occupant, his heirs, executors, administrators, or legal representatives, shall have paid the delinquent occupation fees and have resumed occupation of the claims before relocation by other persons. No lease shall be granted on any mining claim until the occupation fees required to be paid under this section shall have been fully paid: Provided , however , That nothing herein contained shall be construed to extend the period of four years within which application for lease of a mining claim shall be filed from the date of the recording of the claim in the Office of the Mining Recorder, as provided for in the Mining Act. SECTION 1. Mining claims registered prior to C . A . No . 137 . The occupation fee established in Sec. 241 of the Tax Code is collectible on mining claims located and registered under C.A. No. 137, otherwise known as the Mining Act. Mining claims located and registered under the provisions of the law in force prior to the passage of the aforesaid Mining Act are not liable to the payment of the occupation fee. (BIR Ruling dated February 27, 1940) SECTION 2. Holders of Coal Revocable Permit . The occupation fee under section 241 imposed on holders of coal revocable permits is a fee imposed incident to the registration of a mining claim which accrues after two years from the date of registration of any such claim and payable annually thereafter until the lease covering the mining claim shall have been granted. The said fee arises from the act of registration and where no registration is made the fee does not become due. An application for the lease of mining lands covered within the operation of Commonwealth Act No. 137, as amended, otherwise known as the Mining Act, is predicated on the discovery of a mining claim and the registration of the location thereof with the Mining Recorder. The exploitation and utilization of the coal resources of the country, on the other hand, is not covered by the Mining Act but by a special law No. 2719, as amended, otherwise known as the Coal Land Act. Under the provisions of the Coal Land Act, the prior discovery, location and registration of a claim is not made a condition precedent to the grant of lease of coal lands in contradiction to the requirement of the Mining Act. The lease of coal lands can be had by direct application to the Secretary of Agriculture and Natural Resources without the necessity of any claim previously staked. As no claim is previously staked by applicants for the lease of coal lands or the issuance of limited or commercial or revocable permits for the right to prospect for, mine and dispose of coal belonging to the Government, lessees of coal lands and holders of coal revocable permits are not subject to the occupation fee imposed by Section 241 of the Tax Code. (BIR Ruling dated November 16, 1955). SECTION 3. Unregistered Mining Claim . Sec. 241 of the Tax Code provides among other things that, "any locator, holder, or occupant of any mining claim shall pay to the Commissioner of Internal Revenue in advance, upon the expiration of two years from the date of the registration of the claim in the Office of the Mining Recorder, and on the same date every year thereafter, an annual occupation fee of one peso per hectare, or fractional part thereof, until the lease covering the mining claim shall have been granted." It is clear from the above quoted provision of law that the occupation fee accrues only after the lapse of two years from the date of the registration of the claim in the Office of the Mining Recorder. Where a claim is not thus duly registered, no liability to the occupation fee arises. (BIR Ruling, June 26, 1957) SECTION 4. Time and Place of Recording . The law requires that every person locating a mineral claim shall record the same in the office of the Mining Recorder of the province where the claim is situated within sixty days after the location thereof. (Section 34 Mining Act) Where the last day of filing falls on a Sunday the locator is within the time if he files on the Monday following. (Columbia etc. Co. vs. Duchess etc. Co. 13 Wyo. 244. 79 p. 385) SECTION 5. Delay in Filing . Where there are no intervening rights, failure to file the certificate within the statutory time does not void the location and there is no forfeiture. (Palay v. Goar, 22 Ariz. 146; Butle etc. Co. vs. Clarke Montana R. Co. 249 U.S. 12, affirming 39 Sup. Crt. 231, 63 L. ED. 447) SECTION 6. Effect of Recording the Claim . From and after the declaration of location duly recorded, under the law, all persons are constructively notified of the whole contents thereof. (Lindley on Mines, 3rd ed. Vol. 2 p. 892) aisadc SECTION 7. Failure to Record the Claim . A claim which has not been recorded within the prescribed period shall be deemed to have been abandoned. (Sec. 34, Mining Act) SECTION 8. Payment of Occupation Fee and Consequence of Failure Thereof . Failure to pay the occupation fee within thirty days after demand shall render the mining claims open to relocation and lease by other qualified persons. (BIR Ruling April 20, 1955) SEC. 242. Rentals and royalties on mineral lands under lease . For the privilege of exploring, developing, mining extracting, and disposing of the minerals from the lands covered by his lease, the lessee shall pay to the Government of the Philippines, through the Commissioner of Internal Revenue, rentals and royalties as follows: (a) Rentals . (1) On coal-bearing public lands, an annual rental, payable in advance on the date of the approval of the lease and on the same date every year thereafter, on the lands covered by such lease, at the rate of two pesos and fifty centavos per hectare or fraction thereof for the first ten years, and five pesos per hectare or fraction thereof for each and every year thereafter during the life of the lease: Provided , That such rental for any year shall be credited against the royalties as they accrue for that year as provided in subsection (b) hereof: And provided , further , That such rental and royalties paid during any year shall be credited against the specific tax provided for in section one hundred forty three. (2) On all mineral lands of the first, second, fourth, and fifth groups provided under the Mining Act, one peso per hectare or fraction thereof. The rental shall be paid in advance to the provincial, city, or deputy provincial treasurers on the date of the granting of the lease and on the same date every year thereafter during the life of the lease. Fifty per centum of all the rentals collected shall accrue to the province, and fifty per centum to the municipality in which the mining claims are located: Provided , That in case the mining claims are located in a chartered city, the full amount shall accrue to that city. (b) Royalties . (1) On coal, such royalties as may be specified in the lease, which shall not be less than ten centavos per ton of one thousand and sixteen kilograms. (2) On gold, a royalty of one and one-half per centum of the actual market value of the annual gross output thereof. (3) On all other minerals, extracted from, or mineral products of, mineral lands of the first, second, fourth, and fifth groups as provided for in the Mining Act, a royalty of one and one-half per centum of the actual market value of the gross output thereof. Before the minerals or mineral products are removed from the mines, the Commissioner of Internal Revenue or his representatives shall first be notified of such removal on a form prescribed for the purpose. The rentals and royalties at the rates herein established or at such rates as hereafter may be prescribed by law shall be paid by the lessee and a provision to this effect shall be deemed to be a part of every contract of lease covering the mineral lands and mineral products referred to in this section. (As amended by sec. 1, Republic Act No. 909.) SECTION 9. Gold and Other Minerals or Mineral Products now Subject to a Royalty of 1% . Before the amendment of this section by R.A. 909 the royalties on gold fixed under section 242 (b) were graduated on the basis of the actual market value of the annual gross output thereof, which were very much higher than the royalties collected from other minerals. By virtue of the amendment this inequality has been removed, so that gold and other minerals or mineral products are now subject to the royalty of 1% of the actual market value of the gross output thereof. (BIR Gen. Cir. No. V-159 dated July 7, 1953) SECTION 10. Rentals and Royalties Paid are Credited Against the Specific Tax Due on Coal Produced . The provisions of sec. 242 (a) (1) of the Tax Code simply means that the rental and royalty payable are creditable against or deductible from the specific tax due on the coal produced and removed and the difference is the amount payable by way of specific tax. If the amount of rental and royalty due and payable exceeds that of the specific tax, lessee is no longer subject to the specific tax. This is for the reason that the specific tax due and payable is more than covered by the rental and royalty paid. (BIR Ruling, April 17, 1957) SECTION 11. Sale of Mineral and Mineral Products Exempt from Percentage Taxes . The sale of minerals and mineral products made by the lessee, concessionaire or owner of the mining claims from which removed are not subject to the percentage taxes imposed by section 184, 185 and 186 of the Tax Code (Sec. 188, Tax Code) SECTION 12. Duty of Collection Agents and Deputy Provincial Treasurers to Collect Rental . Upon receipt of the Bureau of Mines Form No. 81 informing our Office that a lease contract has been granted, the collection agent or the Deputy Provincial Treasurer, in places where no collection agents are assigned, shall immediately collect the rentals due from the lessee. The rentals for the succeeding years shall be collected on the same date every year thereafter. SECTION 12-A. Mineral Lands Under Lease . With respect to leased mineral lands, the lessee shall pay to the government not only rentals for the use of the land, but also royalty, on the minerals extracted therefrom. These imposts are levied "for the privilege of exploring, developing, mining, extracting and disposing of the minerals". (Cebu Portland Cement Co. vs. Commissioner of Internal Revenue, G.R. No. L-18649, promulgated on Feb. 27, 1965). SEC. 243. Ad valorem taxes on output of mineral lands not covered by lease . There shall be assessed and collected on the actual market value of the annual gross output of the minerals or mineral products extracted or produced from all mineral lands, not covered by lease, an ad valorem tax, payable to the Commissioner of Internal Revenue, in the amount of one and one-half per centum of the value of said output. Before the minerals or mineral products are removed from the mines the Commissioner of Internal Revenue or his representatives shall first be notified of such removal on a form prescribed for the purpose. (As amended by sec. 2, Republic Act No. 909.) SECTION 13. Annual Gross Output of a Mining Company . In order to determine the annual gross output of a mining company for purposes of the royalty and ad valorem tax established in section 242 and 243 of the Tax Code, the minerals and mineral products extracted or produced on or before December 31, 1939, are considered part of the gross output for that year even if the said production is removed after that date. Consequently, ores, extracted on or before December 31, 1939 and sent to the mills whether owned by the company or not, for milling or refining purposes, but removed from said mill after said date, are considered part of the production for 1939. (BIR Ruling dated February 28, 1940) SECTION 14. Basis of Tax . Ad valorem tax or royalty is computed on the actual market value of the minerals removed from the mine site without any deduction for mining, milling, refining, transporting handling, marketing, or other expenses. However, in case the minerals are sold or consigned abroad under CIF terms, the cost of freight and insurance is deductible. At present, the actual market value of the minerals sold abroad is the total amount received in pesos after cost in dollars has been converted at the current rate of exchange minus the cost of insurance and freight computed also at the current rate of exchange. lex SECTION 15. Sections 242 and 243 provide that before the Minerals or Mineral Products are Removed from the Mines, the Commissioner of Internal Revenue or his Representatives shall First be Notified of such Removal on a Form Prescribed for the Purpose . Such notice or removal shall be accompanied by a copy of the sales invoice of the seller indicating among other things the name and address of the buyer, quantity sold, and amount of consideration due or paid, and a certified copy of the assayist report on the mineral contents of the products sold: Provided , That in the case of sale, removal or consignment abroad of such lessee, owner, operator or any person, of any mineral or mineral products, either for final disposition or for processing abroad, such notice of removal shall, in addition to the regular invoice and assayist report, be accompanied by a copy of the duly approved Central Bank Sales Report (for export), a copy of the loading certificate of weight, quantity and quality duly signed by the shipmaster and a responsible official of the shipper and a representative of the Commissioner of Internal Revenue: And provided further , that the Bureau of Internal Revenue shall be furnished a copy of any processing contract with any foreign country before any export is made of any mineral or concentrates. cdtech SECTION 16. Actual Market Value Defined . The actual market value of minerals or mineral products sold, consigned or removed shall be the actual selling price agreed upon by the seller and buyer or the prevailing (current) world wide market price quotations at the time said minerals or mineral products are converted into their marketable condition, whichever is higher: Provided , that in the case of removal or consignment abroad of such minerals or mineral products, either in its original or partially-milled form, for processing or smelting in a foreign country, the gross output shall be based on the final smelter report of the processing company as duly verified and signed by the BIR attach' and the Philippine Consulate in the country where the processing was made. SECTION 17. Accrual of Tax Distinguished from Time of Payment . Royalties and ad valorem taxes are assessed on minerals and mineral products extracted or produced from the mineral lands. Hence the tax liability accrues from the moment the minerals are extracted or produced. Although it is true that under Sec. 245 of the Tax Code the tax is "due and payable upon the removal of the minerals or mineral products from the locality where mined" or in a cases where a bond is filed within twenty days after the close of the quarter, such time is fixed solely to determine delinquency of the taxpayer but not the time when the liability arises. (Surigao Consolidated Mining Co., Inc. vs. Collector of Internal Revenue, Manila Civil Case No. 4770, July 16, 1958) SECTION 17-A. The actual market value of the annual gross output of mines under Section 243 of the Tax Code, in relation to R.A. No. 4859, an Act to Provide for Assistance to the Gold Mining Industry, for purposes of computing the ad valorem tax due is 1%. The official price of gold of $35.00 an ounce constitute necessarily the actual market value thereof. This price, exclusive of the assistance received by gold producers under existing law, therefore, serves as the basis of the 1% ad valorem tax in accordance with Section 243 of the Tax Code (BIR Ruling dated 2-7-67) "Smelting charges and penalties" and any other expense incident to the smelting and refining form part of the gross value of the mineral output for purposes of the 1% ad valorem tax. (BIR Ruling dated 9-1-67) SEC. 244. (Repealed by Sec. 3, R.A. 909) SEC. 245. Time and Manner of Payment of Royalties or Ad Valorem Taxes . The royalties or ad valorem taxes, as the case may be, shall be due and payable upon the removal of the mineral products from the locality where mined. However, the output of the mine may be removed from such locality without the prepayment of such royalties or ad valorem taxes if the lessee, owner, or operator shall file a bond in the form and amount and with such sureties as the Commissioner of Internal Revenue may require, conditioned upon the payment of such royalties or ad valorem taxes, in which case, it shall be the duty of every lessee, owner, or operator of a mine to make a true and complete return in duplicate under oath setting forth the quantity and the actual market value of the output of his mine removed during each calendar quarter and pay the royalties or ad valorem taxes due thereon within twenty days after the close of said quarter. llibris In case the royalties or ad valorem taxes are not paid within the period prescribed above, there shall be added thereto a surcharge of twenty-five per centum . Where a false or fraudulent return is made, there shall be added to the royalties or ad valorem taxes a surcharge of fifty per centum of their amount. The surcharge so added shall be collected in the same manner and as part of the royalties or ad valorem taxes, as the case may be. SECTION 18. Request for Extension of Time to Pay Ad Valorem Taxes . Requests for extension of time within which to make payment of the 1% ad valorem tax due on gross output of mines prescribed by this section, will not be entertained because the Commissioner of Internal Revenue is without authority to extend the period fixed by law for the payment of the tax. (BIR Ruling dated July 27, 1956) SEC. 246. Definitions of the Terms " Gross Output ", " Minerals " and " Mineral Products ". Disposition of Royalties and Ad Valorem Taxes . The term "gross output" shall be interpreted as the actual market value of minerals or mineral products, or of bullion from each mine or mineral lands operated as a separate entity without any deduction from mining, milling, refining transporting, handling, marketing, or any other expenses: Provided , however , That if the minerals or mineral products are sold or consigned abroad by the lessee or owner of the mine under C.I.F. terms, the actual cost of ocean freight and insurance shall be deducted. The output of any group of contiguous mining claim shall not be subdivided. The word "minerals" shall mean all inorganic substances found in nature whether in solid, liquid, gaseous, or any intermediate state. The term "mineral products" shall mean things produced by the lessee, concessionaire, or owner of mineral lands, at least eighty per cent of which things must be minerals extracted by such lessee, concessionaire, or owner of mineral lands. Ten per centum of the royalties and ad valorem taxes herein provided shall accrue to the municipality and ten per centum to the province where the mines are situated, and eighty per centum to the National Treasury. (As amended by sec. 1, Republic Act No. 834; sec. 1, Republic Act No. 1299; sec. 1, Republic Act No. 1510.) SECTION 19. Actual Market Value of Minerals or Mineral Products Bartered for Collateral Goods . In the case of minerals or mineral products bartered for collateral goods, the market value for ad valorem tax purposes is the actual market value thereof for barter purposes less the cost of insurance and freight in case said expenses incurred in transporting the minerals are borne by the shipper. (BIR Ruling No. 62 0010, January 10, 1962) SECTION 20. Cement not a Mineral Product . Although cement is composed of 80% minerals, it is not merely an ad mixture or blending of raw materials, as lime, silica, shale and others. It is the result of a definite process the crushing of minerals, grinding, mixing, calcining, cooking, adding of retarder or raw gypsum. In short, before cement reaches its salable form, the minerals had already undergone a chemical change thru manufacturing process. This could not have been the state of mineral products that the law contemplates for purposes of imposing the ad valorem tax. (Cebu Portland Cement Co. vs. Commissioner of Internal Revenue, G.R. No. L-18649, February 27, 1965; G.R. No. L-18649, December 29, 1967.) SECTION 20-A. Nature and Basis of the Ad Valorem Tax on Cement . The ad valorem tax should be based on the actual market value of the quarried minerals used in processing cement. The law intended to impose the ad valorem tax upon the market value of the component mineral products in their original state before processing into cement. The law does not impose a tax on cement qua cement , but on mineral products, at least 80% of which must be minerals extracted by the lessee, concessionaire or owner of mineral lands. libris While cement is a mineral product, it is no longer in the state or condition contemplated by the law; hence the market value of the cement could not be the basis for computing the ad valorem tax, since the ad valorem tax is a severance tax, i.e., a charge upon the privilege of severing or extracting minerals from the earth, and is due and payable upon removal of the mineral product from its bed or mine. So that the tax is to be computed on the basis of the market value of the mineral in its condition at the time of such removal and before its being substantially changed by chemical or manufacturing (as distinguished from purely physical) processing. (Cebu Portland Cement Co. vs. Commissioner of Internal Revenue, G.R. No. L-18649, dated December 29, 1967) SEC. 247. Deductions from royalties payable by persons removing minerals from private lands . In case mining is carried on upon private lands, the royalty due on the value of the output of such mines under any and all leases granted for the purpose shall be reduced by five per centum of the amount due to the Government under the provisions of this Title, the amount so reduced to be paid by the lessee to the land owner. This privilege shall not be granted to any person acquiring an option on the surface right after any mining location has been made on the minerals found therein. SECTION 21. Where Mining is Undertaken by a Person, Not a Lessee of Mining Claims Located in Private Lands . Where the mining of copper ore is undertaken by a person on mining claims located in a private land owned by a decedent who, during his lifetime, leased said mining claim to a company which in turn leased the same to another company and, because of inability to operate the mining claims, this company assigned all its interests therein to said person who now operates under a temporary permit to extract mineral ores issued by the Bureau of Mines, the reduction of 5% of the royalty due the Government allowed under section 247 of the Tax Code, cannot be availed of, such assignee being not a lessee of private mineral land within the purview of the aforesaid section. (BIR Ruling dated July 20, 1956. Internal Revenue Bill, Vol. I, No. 7) SEC. 248. Specific penalties . Anyone liable to make a return of the actual market value of the output of mines or to pay the royalties or ad valorem taxes required in section 245, who refuses or neglects to file such return, or to pay such royalties or ad valorem taxes at the time or times specified therein; and any lessee, owner or person in charge of any minerals or mineral products upon which the royalties or ad valorem taxes imposed in this Title are applicable, who removes, in violation of the first paragraph of said section, or who allows or procures the unlawful removal from the place where mined of any such products, upon which the royalties or ad valorem taxes have not been paid; and any person who abets or aids in the unlawful removal of minerals or mineral products, shall be fined not more than one thousand pesos or imprisoned for not more than six months, or both. Anyone required by this Title to make, render, or file a return of the actual value of the output of mines, who makes, renders, or files a false or fraudulent return with intent to defeat or evade the payment of the royalties or ad valorem taxes, as the case may be, shall be fined not more than four thousand pesos or imprisoned for not more than one year, or both. cdll SECTION 22. Effective Date . These Regulations shall take effect upon their promulgation in the Official Gazette. EDUARDO Z. ROMUALDEZ Secretary of Finance Recommended by: MISAEL P. VERA Commissioner of Internal Revenue ATTACHMENT 1st Indorsement January 20, 1969 Respectfully returned to the Commissioner of Internal Revenue, Manila, the attached proposed Revenue Regulations No. 11-67, dated June 1, 1967 which shall be known as the Mining Tax Regulations, to implement the provisions of Sections 241 to 248, Title VII of the National Internal Revenue Code, approved. cdi EDUARDO Z. ROMUALDEZ Secretary