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REVENUE REGULATIONS NO. 27-2025 issued on October 21, 2025 amendsSection 8 of Revenue Regulations (RR) No. 25-2003 on the tax treatment on subsequent sale, transfer or exchange of tax-exempt automobile by a tax-exempt person/entity to a non-exempt person/entity

Section 8 of RR No. 25-2003 is amended to read as follows:

“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, whichever is higher of, (i) the actual consideration between the tax-exempt person/entity and the nonexempt person/entity; or (ii) the depreciated value of the automobile at the time of sale, transfer, or exchange which depreciation rate shall be at sixteen percent (16%) per year, but in no case shall the total amount of depreciation be more than eighty percent (80%) 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, the computation of the ad valorem tax shall be governed by the Act.

Where a tax-exempt automobile is subsequently sold, transferred, or exchanged by a tax-exempt person/entity, and it is determined that such acquisition was primarily intended to avoid the payment of excise tax, the applicable ad valorem tax shall be assessed based on the original purchase price or value of importation at the time of acquisition, without any allowance for depreciation.

A finding that the acquisition of an automobile was primarily to circumvent the payment of excise tax may be based on any of the following circumstances, unless evidence to the contrary is shown that the sale, transfer or exchange of the automobile is bona fide and at arm’s length:

1. The automobile is sold, transferred, or exchanged within a short period (e.g., within one year) from acquisition without sufficient justification or compelling reason (e.g., operational need, accident, or change in mission);

2. A pattern is observed where a tax-exempt person/entity repeatedly acquires automobiles under exemption and subsequently disposes of them shortly after, suggesting a business practice rather than bona fide institutional use;

3. The automobile is transferred to an officer, employee, relative, or closely affiliated entity without arm’s length transaction terms or documented fair market value;

4. Records (e.g., mileage logs, maintenance records) show that the automobile was hardly used for the entity’s official operations before its disposal;

5. Evidence exists of prior agreements, verbal or written, indicating intent to sell or transfer the automobile even before or shortly after acquisition;

6. The tax-exempt person/entity’s nature, operations, or size does not justify the acquisition of a luxury or high-value automobile under the exemption;

7. The automobile was never registered in the name of the tax exempt person/entity without valid justification, or use was predominantly by persons not employed by or affiliated with the tax-exempt person/entity; or

8. Any other circumstance taken alone or in combination with the above factors clearly indicates that the automobile was acquired not for bona fide institutional use but primarily to circumvent the payment of excise tax.”