BIR Ruling

July 14, 1972 Mr. Generoso G. Derodias Kabacan, North Cotabato S i r : This refers to your letter dated January 20, 1972 requesting information regarding the internal revenue taxes payable by a corporation operating on the fiscal year basis. It is represented that "Y" Corporation which was newly organized started business operations the first day of July 1970 after paying the municipal licenses and fixed tax on C-13 in the amount of P10.00; that due to a Municipal Ordinance in the Municipality it was obliged to renew its business permits on January 20, 1971 by paying its municipal licenses and fixed tax based on the gross sales realized during the period from July 1 to December 31, 1970; that the corresponding Official Receipts issued therefor covers the period from January 1 to December 31, 1971; that on June 30, 1971 the books of accounts of the corporation were closed and financial statements were made for the fiscal year ended; that the corporate income tax was filed and paid on October 15, 1971; that all the taxes paid on January 20, 1971 were treated as expenses for the fiscal period ending June 30, 1971 without adjustment for the portion of the tax corresponding to the period from July 1 to December 31, 1971; and that the corporation again renewed its business permits as of January 18, 1972 paying all licenses and fixed tax based on the total gross sales realized during the period from July 1, 1970 to June 30, 1971. cdt You would like to know whether "Y" corporation has paid its taxes correctly and whether it would be proper to consider as expense on the closing of the books of the corporation on June 30, 1972 the whole amount of annual fixed tax paid last January 18, 1972. In reply thereto, I have the honor to inform you as follows: "Y" Corporation paid correctly the amount of P10.00 as initial graduated fixed tax on July 1, 1970, the first day of operation, pursuant to Section 180, in relation to Section 182(A)(2), both of the Tax Code. On January 20, 1971 it also paid correctly its graduated fixed tax based on its gross sales for the period from July 1 to December 31, 1970. However, the Official Receipt issued therefor should cover the whole calendar year 1971, instead of July 1 to December 1970. Under Section 182(A)(2) of the Tax Code, it is provided that a person subject to graduated fixed annual tax shall pay for each calendar year or fraction thereof the said tax based upon his gross annual sales during the preceding calendar year. In other words, since the corporation paid the initial graduated fixed tax for the year 1970 on July 1, 1970 (first day of its operation), the next graduated fixed tax to be paid on or before January 20, 1971 covers the whole year 1971 (if paid annually), although the tax was based on the gross sales for the preceding year (July to December 31, 1970). The payment made by the corporation of the graduated fixed tax on January 18, 1972 based on the gross sales realized during the period from July 1, 1970 to June 30, 1971 is erroneous. Under the abovecited provision of Section 182(A)(2) of the Tax Code, said payment covering the whole year 1972 should be based on the gross sales for the period from January 1 to December 31, 1971. The total amount of fixed taxes paid by the corporation on July 1, 1970 and January 20, 1971 are deductible for income tax purposes for the fiscal year ending June 30, 1971; while the total amount of fixed tax paid by the corporation on January 18, 1972 is deductible for income tax purposes for the fiscal year ending June 30, 1972. Since it is apparent that the corporation did not pay the correct amount of graduated fixed annual tax, it is requested that our Regional Office at Cotabato be contacted immediately in order that the correct amount of tax may be ascertained and paid. cdti Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue