BIR Ruling

May 17, 1967 Messrs. Ozaeta, Gibbs & Ozaeta Attorneys-at-Law P. O. Box 758 Manila Attention: Mr . Roman Mabanta, Jr . Gentlemen : This refers to your letter dated April 5, 1967 stating the following: "Our client, a manufacturing and marketing corporation, intends to set up separate divisions within the company to handle different aspects of its various activities. The divisions will be under the overall supervision and control of the corporation's central management, but each division will operate, to a great extent, autonomously, with its own budget, under a division manager. Each division will transact business under its own business name and style, issuing receipts and invoices and corresponding under said business name and style. LexLib "The corporation intends to register each business name with the Bureau of Commerce and the Bureau of Internal Revenue, or with any other government entity required by law, as one belonging to one of its divisions. There is no question that in contemplation of law, there is only one entity (the corporation), and, therefore, it intends to recognize the acts of any of said divisions as its own and to be liable therefore. The corporation will, of course, file only one income tax return which will reflect the activities and transactions of all its divisions. The corporate books, receipts, etc. shall be registered with the Bureau of Internal Revenue when and as required by law. "The corporation's purpose in going into the above arrangement is (1) to allow each division some degree of autonomy and to engender competition among them and thus enhance their efficiency; and (2) to allow each division to have a separate public business image. The importance of the second reason above may be illustrated thus: A corporation sells rat poison and baby food. The corporation may be so identified with sales of rat poison, that the idea of its also selling baby food cannot be reconciled in the public mind. Public reaction may not be conscious, but there is no question the association with rat poison can and will affect sales of baby food. However, if the corporation has two divisions, each with a separate business name and style, each with baby food will not be affected by the sales of rat poison. Our queries are: 1. Would the corporation be violating any Internal Revenue Law or regulation? 2. What steps have to be taken by the corporation to comply with Internal Revenue laws or regulations? 3. May each division transact business and issue receipts, invoices, etc. and correspond exclusively under its registered business name and style, without mentioning that it is a division of the main company?" In reply, I have the honor to inform you that under the foregoing proposed set up of your client, there is no internal revenue law or regulation violated. It shall be sufficient for internal revenue purposes that your client pays the privilege taxes corresponding to each division created, register their names or styles with this Bureau in accordance with Section 203 of the Tax Code, and provide them with the required books of accounts and other records as prescribed by Revenue Regulations No. V-1, as amended. Each division of the corporation may transact business and issue receipts, invoices, etc. correspondingly, but the fact that they are operated by the corporation must be indicated in all their records, as for instance "Baby foods (Operated by X corporation)"; otherwise, each division may be mistaken as an independent entity when in fact it has no independent juridical personality. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue