BIR Ruling [DA-199-99]

March 30, 1999 BIR RULING [DA-199-99] D.M. Consunji, Inc. 2281 Pasong Tamo Extension Makati City Attention: Ms . Daisy Ann G . Legada Gentlemen : This refers to your letter dated March 23, 1999 in behalf of the Construction Industry, seeking the opinion of this Office in relation to the percentage of completion method. As prescribed by Section 48 of the Tax Code of 1997, the percentage of completion method is now the only method of accounting recognized for long-term contracts, in effect, mandating the discontinuance by concerned taxpayers in adopting the completed contract method of income recognition for such contracts. In particular, you are, asking whether or not a taxpayer engaged in construction project who has entered into a contract prior to 1998, reported and recorded the transaction under the completed contract method and which project has not been completed in 1998 will still be allowed to employ the said method for reporting income in 1998. LibLex In reply, please be informed that this Office interposes no objection to the use of the completed contract method of income recognition provided that: 1) the same is strictly applied only for construction contracts entered into and started prior to January 1, 1998 which is the date when the Tax Code of 1997 took effect; 2) that the project was previously reported under the completed contract method; 3) that the project was not completed in 1998; 4) that allowable deductions already incurred in relation to the project were not yet claimed and recognized in 1998 or for the duration of the project. It is a rule of statutory construction that all statutes are to be construed as having only a prospective operation unless the purposes and intention of the legislature to give them a retrospective effect is expressly declared or is necessarily implied from the language used. In every case of doubt, the doubt must be resolved against the retrospective effect. (Montilla vs. Agustinian Corp., 24 Phil. 220). It must be understood, however, that construction projects, arising from contracts executed prior to January 1, 1998, but which are actually started only after said date shall already be reported under the percentage of completion method of income recognition. This ruling is subject to such further conditions as may be imposed under rules and regulations to be issued on the subject. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue