The tax perks that inventors enjoy are limited only to their income from their inventions and not to firms that assemble and sell these innovative products, Finance Secretary Carlos Dominguez III said.
Dominguez on Dec. 18 last year issued Department of Finance Opinion No. 18-2019 in response to the request for review lodged by engineer Ramon Castillo of Innovatronix Inc., who had sought to reverse the Bureau of Internal Revenue’s (BIR) earlier ruling that tax exemptions under Republic Act No. 7459, or the Inventors and Invention Incentives Act of the Philippines, could only be claimed by the inventor.
The BIR ruling stated that “any income received by the company, Innovatronix, from such production/distribution/marketing was subject to the payment of appropriate taxes,” referring to four products with patents held by Castillo that were commercially produced and distributed by Innovatronix.
However, Innovatronix had disagreed with the BIR, saying that it was entitled to tax exemptions under RA 7459 given that the patentees were both Castillo and the company itself.
But in his opinion, Dominguez said the intent of Congress in its passage of RA 7459 was “to limit the tax-exemption privilege to the original inventor,” citing Sections 2 and 6 of the law.
“Congressional records disclose that it is in the legislative intent of RA 7459 that only the original inventor is entitled to the tax incentives. Consistent with the intent of its framers to provide incentives to the original inventors, Section 6 should be construed to refer only to Castillo and should not include lnnovatronix,” Dominguez said.
“It must be read that the purpose of Section 6 of RA 7459 is to exempt the income derived by the inventor from the technologies and invention. To say that the tax exemption is attached to the technology or invention itself regardless of whoever produces, manufactures, and/or markets the same, would create an absurd result wherein it would allow anyone to claim the tax exemption privilege by alleging that it acts as the producer, manufacturer, and/or marketer of the technology or product,” Dominguez added.“To be clear, the government’s purpose in enacting the lnventors and lnvention lncentives Act of the Philippines is to provide incentives to inventors and protect their exclusive right to their invention, particularly when it is beneficial to the people and contributes to national development and progress. Limiting the tax exemption privilege only to the original inventor does not contradict the furtherance of this policy,” according to Dominguez.