BIR Ruling [DA-408-06]

June 30, 2006 BIR RULING [DA-408-06] Vibal Publishing House, Inc . G. Araneta Ave., cor. Maria Clara Street Quezon City Attention: Ms. Lilian O. Ancheta Comptroller Gentlemen : This refers to your letter dated April 19, 2006 requesting in behalf of the Vibal Group of Companies (VIBAL, for brevity) for a clarification on the time difference recognizing the creditable tax withheld by your clients since 2003. It is represented that the Vibal Group of Companies is composed of Vibal Publishing House, Inc., SD Publications, Inc., JTW Corporation, LG&M Corporation, and JGM&S Corporation; that this query is in connection with the Certificates of Creditable Tax Withheld at Source (BIR Form No. 2307) issued by VIBAL's clients from the government and private sector, which, the Revenue Officers auditing its books disallowed as tax credit; that the practice of its clients especially those in the government sector is to withhold the tax only upon payment to VIBAL; that based on its experience, a majority of its clients pay after a year or more after the date of invoice; that VIBAL only recognizes the tax credit when it receives the payment as it can only get hold of the creditable tax withheld certificate a month after the client remits the tax withheld from VIBAL; that the Revenue Officers auditing its books of accounts disallowed this practice because they say it should have been taken up in VIBAL's books when it recognized the sale; that VIBAL finds it unjust as it is not in control of its clients not complying with regulations; and that its clients already deducted the tax from their payment and it cannot claim these as creditable tax. In reply please be informed that deductions shall be taken for the taxable year in which "paid or accrued" or "paid or incurred", dependent upon the method of accounting upon the basis of which the net income is computed, unless in order to clearly reflect the income, the deductions should be taken as of a different period pursuant to Section 45 of the Tax Code of 1997. Thus, deductions are allowed depending on whether the taxpayer is on a cash basis (year when paid) or accrual basis (year when accrued) unless the taxpayer is allowed to adopt other methods designed to truly reflect its income. Accordingly, if VIBAL's method of accounting is the accrual method, the recognition of the tax credit shall be the date of the issuance of the sales invoice, while on the buyer's side, the expense is accrued when the purchase is made. If on the other hand, the accounting method used by VIBAL is the cash method, the recognition of the tax credit shall be that year when the payment is received. HCEcAa 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