BIR Ruling [DA-373-03]

October 15, 2003 BIR RULING [DA-373-03] 43 Punongbayan & Araullo 20th Floor, Tower 1 The Enterprise Center 6766 Ayala Avenue Makati City Attention: Atty. Benedicta Du-Baladad Tax Partner Gentlemen : This refers to your letter dated February 10, 2003 stating that your client, Jardin de Paradiso Properties, Inc.,is a corporation duly organized and existing under the laws of the Philippines with principal office address at Suite 1509 Antel Global Corporate Center, No. 3 Julia Vargas Avenue, Ortigas Center, Pasig City; that it is issued a Certificate of Registration by the Securities and Exchange Commission (SEC) on October 16, 2001; that the primary purpose of the said corporation is to engage in and carry on the business of an owner/developer/operator of a columbarium, memorial park, cemetery, crematorium, as well as to provide sanctuary of memorial services for the dead and other related after life services; that the corporation's initial operations will be the development of a columbarium; that a columbarium is the modern method of providing interment services or spaces (niches) for human cremated remains and/or bones other than the traditional cemetery or burial ground; that the corporation's first columbarium shall be located at G. Araneta Avenue corner Baloy Street, Barangay Doa Imelda, Quezon City; that this will include the development of the site which will principally provide garden, church and building settings for the various interment spaces (niches);that the interment spaces or the continuing easement and rights for interment of human cremated remains and/or bines integrated with perpetual memorial care services shall be sold to interested purchasers; that the sale will involve three stages, to wit: 1. Reservation Application The Purchaser applies to purchase from the corporation an integrated continuing easement and rights for interment of human cremated remains and/or bones with perpetual memorial care services and sets the terms of payments, such as the number of years to pay and the schedule of payment. Installment plan of payment may last for one year to five years. The reservation application is subject to the approval of and receipt of initial payment by the corporation; 2. Purchase Agreement Upon approval by the corporation of the Reservation Application, a Purchase Agreement shall be executed between the corporation and the purchaser. Upon the execution of this Purchase Agreement, the purchaser pays the initial payment agreed upon and agrees to pay the remaining balance in installments, if payable in installment; 3. Deed of Sale and Certificate of Memorial Care Upon completion of all payments, the corporation will convey to the purchaser by way of Deed of Sale the interment space or continuing easement and rights for interment of human cremated remains and/or bones; that the corporation shall also issue to the Purchaser a Certificate of Ownership and Memorial Care certifying that the purchaser has fully and satisfactorily paid the Contract Price and the contribution to the Memorial Care Fund and thereby granting the purchaser a continuing easement and perpetual right, for interment of human cremated remains and/or bones within the terms of the Purchase Agreement; that the certificate specifies that once all the interment spaces have been sold, the corporation reserves the right to determine what to do with the columbarium facility, including its ownership to ensure its continued proper maintenance and care for the ultimate benefit and interest of the owners of the interment spaces; that the execution of the Purchase Agreement happens before the actual development or construction of the columbarium complex; that should the corporation fail to develop the columbarium according to the approved plans and within the time limit for complying with the same, the Purchaser may desist from further complying with the same; and that the Purchaser may, at his option, be reimbursed the total amount paid with the interest thereon at the legal rate, on the other hand, the purchase price shall be paid in full before use of the interment space shall be permitted. Based on the foregoing representations, you now request for an approval/permission to use for income tax purposes a modified cash basis in accounting for the revenue which shall be consistently applied to all similar subsequent projects of Jardin de Paradiso Properties, Inc. DIETHS In reply thereto, please be informed that Section 43 of the Tax Code of 1997 provides that the taxable income shall be computed upon the basis of the taxpayer's annual accounting period (fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer; but if no such method of accounting has been employed, or if the method employed does not clearly reflect the income, the computation shall be made in accordance with such method as in the opinion of the Commissioner clearly reflects the income. . . . Corollarily, Section 167 of Revenue Regulations No. 2, otherwise known as the Income Tax Regulations, provides that "Sec. 167. Method of Accounting. It is recognized that no uniform method of accounting can be prescribed for all taxpayers, and the law contemplates that each taxpayer shall adopt such forms and systems of accounting as are in his judgment best suited for his purpose. Each taxpayer is required by law to make a return of his true income. He must, therefore, maintain such accounting records as will enable him to do so. Any approved standard method of accounting which reflects taxpayer's income may be adopted." From the foregoing, since there is no hard and fast rule on the applicability of the uniformity prescribed in the method of accounting for all taxpayers, as the law merely allows such taxpayers to adopt such forms and systems of accounting that best suits their business. Inasmuch as the modified cash basis of accounting, would clearly and fairly reflect your client's taxable income, as your client would recognize revenue, for income tax and VAT purposes, the actual cash receipts in the year these revenues are received even before or during the process of the construction of the columbarium. Accordingly, Jardin de Paradiso Properties, Inc. is hereby granted permission to use the modified cash basis of accounting for its columbarium business as it would clearly and fairly reflect its taxable income. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group