Sycip Gorres Velayo & Co.

March 28, 2008 BIR RULING [DA-205-08] 34 (A); RR V-1; DA-238-2003; DA-172-2004 Sycip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Attention: Atty. Emmanuel C. Alcantara Co-Head, Tax Services Gentlemen : This refers to your letter dated February 14, 2008 requesting on behalf of your client, QMR, Inc., for confirmation of your opinion that trade sheets, weight slips, goods receipt notes, metal slips, material payment vouchers, and issued checks may be used as supporting documents for its purchases of raw materials claimed as deduction from gross income in accordance with the substantiation requirements under Section 34 (A) (1) (b) of the National Internal Revenue Code of 1997. It is represented that QMR, Inc. is a corporation duly organized and existing under the laws of the Philippines with principal office address at No. 3, 1st Street, Golden Mile Business Park, Maduya, Carmona, Cavity; that it is engaged in the business of buying scrap metals, processing these scrap metals by segregation, re-packing and quality checking, and exporting the processed metals to clients abroad; that it buys scrap metals from a variety of suppliers including individual traders, business enterprises, small-time or "backyard" scrap vendors and junk dealers, most of whom do not issue receipts or invoices; that in order to properly account for and document such purchases, QMR issues the following documents: 1. Trade Sheet Signed by the trader/supplier describing the kind and estimated weight of the materials sold. 2. Weight Slip Jointly signed by QMR and trader/supplier upon receipt and verification of exact weight of the materials delivered and contains the date of weigh-in delivery and the name of the weigher, checker, and trader/supplier. 3. Goods Receipt Note Signed by QMR upon acceptance of materials for purchase and contains the supplier name, date, weight, kind and quantity of materials purchased. 4. Metal Slip Signed by supplier/trader summarizing the materials, weight and price of materials purchased. 5. Material Payment Voucher signed by QMR and issued to the supplier/trader upon payment of purchase of materials containing the name and address of payee, description of materials, quantity, amount paid, mode of payment, date of payment, and if applicable, copy of check paid. This document is signed by the trader/supplier. In reply, please be informed that Section 34 (A) (1) (b) of the National Internal Revenue Code of 1997 states as follows: "(b) Substantiation Requirements no deduction from gross income shall be allowed under Subsection (A) hereof unless the taxpayer shall substantiate with sufficient evidence, such as official receipts or other adequate records : (i) the amount of the expense being deducted, and (ii) the direct connection or relation of the expense being deducted to the development, management, operation and/or conduct of the trade, business or profession of the taxpayer." Moreover, pursuant to Section 14 (d) of Revenue Regulations No. V-1, as amended, otherwise known as the Bookkeeping Regulations, every purchase or expenditure by a taxpayer subject to these regulations shall be duly supported by a receipt or invoice issued by the vendor or the person rendering the service in accordance with Section 15 of these regulations. Should any of the receipts or invoice lack any of the information required to be indicated therein, such receipts or invoices shall be deemed inadequate for documentation or substantiation of the particular transaction. However, in case no receipt or invoice was issued by the vendor or the person rendering the service for the reason that he is exempt from the requirement to issue the same, the purchaser, customer or client may require the vendor or the person rendering the service to sign a purchase or expenses voucher indicating his name, address and business style, if any, and shall show the name and address of the purchaser, customer or client, date when the transaction, merchandise or nature of the service rendered, as the case may be. (BIR Ruling No. 018-95 dated February 10, 1995) Such being the case, an expense to be deductible must be substantiated by official receipts or adequate records. Generally, this Office only accepts the original copy of the receipt/s, which a taxpayer presents to substantiate deductible expense. However, the absence of original receipts or records does not prevent a taxpayer from proving by other evidence that the claimed deduction was really paid or incurred. ( Zamora vs. Collector, L-15290, May 13, 1963; Visayan Cebu Terminal Co., Inc. vs. Collector, L-12798, May 30, 1960; BIR Ruling DA-238-03 dated July 23, 2003; BIR Ruling DA-172-04 dated April 6, 2004) Accordingly, for purposes of claiming such purchases of scrap materials as a deduction from QMR's gross income, the trade sheets, weight slips, goods receipt notes, metal slips, material payment vouchers, and issued checks shall be sufficient, provided, it contains all the information required under Revenue Regulations No. V-1, as amended, otherwise known as the Bookkeeping Regulations cited above, subject to review and investigation by the RDO having jurisdiction over the taxpayer. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service