SGV & Co.

January 13, 2009 BIR RULING [DA-(TAR-001) 009-09] Sec. 237; RR V-I; 311-87; 085-94 SGV & Co. 6760 Ayala Avenue Makati City Attention: Atty. R.C. Vinzon Partner, Tax Services Gentlemen : This refers to your letter dated August 1, 2008, requesting on behalf of your client, Monde Nissin Corporation ("Monde") for confirmation of your opinion that its purchases of coconut shells and rice hulls from marginalized farmers are exempt from compliance with Revenue Regulations No. V-I, otherwise known as the Bookkeeping Regulations. DcaECT It is represented that Monde intends to purchase coconut shells and rice hulls from farmers, in order to utilize these as an alternative fuel source for its production and manufacturing operations; that the farmers from which Monde intends to buy the cocoshells and rice hulls are individuals who have no other significant means of livelihood, except to sell these by-products; and, that these farmers are not able to issue sales or commercial invoices, or receipts to evidence their sales of coconut shells and rice hulls. Based on the foregoing representation, you now request for confirmation that Monde's issuance of a purchase invoice or purchase voucher to their farmer-suppliers is sufficient to evidence such transactions, and to make such purchases qualify as deductible expenses. In reply thereto, please be informed that Chapter IV of the Bookkeeping Regulations provide that: "All persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at two pesos or more, prepare and issue sales or commercial invoices or receipts serially numbered in duplicate, showing, among other things, their names, or styles, if any, and business address. . . ." It is also provided that: "The Commissioner of Internal Revenue may, in meritorious cases, exempt any person subject to an internal revenue tax, from compliance with the provisions of this section. In any event, public market vendors selling exclusively domestic meat, fruits, vegetables, game, poultry, fish and other domestic food products are hereby exempted from the provisions of this section. (Sec. 204 of Commonwealth Act No. 466, as amended by Com. Act. No. 526, Sec. 9, Republic Act No. 48; Sec. 18 of Republic Act No. 1612; and by Republic Act No. 1856.)" Accordingly, Section 237 of the 1997 Tax Code, as amended, provides: "Issuance of Receipts or Sales or Commercial Invoices . All persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty Five Pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or nature of service. . . CTHaSD xxx xxx xxx The Commissioner may, in meritorious cases, exempt any person subject to an internal revenue tax from compliance with the provisions of this Section." Certain exemptions have been upheld by the Commissioner of Internal Revenue regarding the requirement to issue receipts or sales or commercial invoices. In BIR Ruling No. 311-87, dated October 7, 1987, this Office held that purchases of dried sea products and dried fish from small time fishermen are sufficiently evidenced by the issuance of a cash voucher, to wit: "In reply thereto, please be informed that Bookkeeping Regulations No. V-I, Chapter IV, as amended by R.A. 1856, in relation to [ then ] Section 181 of the Tax Code, as amended, exempts certain group of persons from the requirement of issuing official receipts on their sale or transfer of merchandise, namely: public market vendors selling exclusively domestic meat, fruit, vegetables, game poultry, fish and other domestic food products. Obviously, the rationale thereof is that for such group of people conducting marginal economic activity, public interest is served best when such group is allowed to take advantage of modest opportunities without being hampered with government requirements that they cannot comprehend or comply anyway . Since you are, in effect, voluntarily imposing a burden unto yourself in providing for the evidences of your purchases from your suppliers, this Office hereby authorizes your use of the cash voucher to evidence your purchases of dried sea products, dried fish bought from poor town folks struggling to make a living by selling dried fish or other dried sea products." (emphasis supplied) This exemption was echoed and affirmed in BIR Ruling No. 085-94, dated April 6, 1994, where it was held that purchases from small-time junk suppliers are sufficiently documented by the issuance of purchase invoices, thus: "Your client's small-time or "backyard" scrap or junk suppliers, who trade their junks by means of push-carts and who are in the same category as the "magdidiyaryo-bote" can be considered as people conducting 'marginal economic activity.'" Furthermore, this Office found occasion to cite Revenue Regulations No. 12-78, dated July 31, 1978, as follows: "The last paragraph of Section 238 [now Sec. 237] of the Tax Code, as amended, in relation to Section 4(c) of Revenue Regulations No. 12-78 dated July 31, 1978 provides that the Commissioner may, in meritorious cases, exempt any person subject to an internal revenue tax from compliance with the provisions of this section. The same Revenue Regulations, however, further provides that in case no receipt or invoice is 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 expense 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 was effected, quantity, unit, cost and description of transaction, merchandise or nature of the service rendered as the case may be ." (emphasis supplied) THDIaC Accordingly, since the purchaser-taxpayer voluntarily imposes a burden unto itself in providing for the necessary evidences of its purchases from its small-time junk suppliers, the BIR authorized the issuance of purchase invoices to fully document the transaction. Applying the foregoing to the circumstances of Monde, it is clear that its farmer-suppliers earn marginal income, and that their sales of cocoshells and rice hulls are legitimately considered marginal economic activity. In order to evidence their purchases of cocoshells and rice hulls from farmers and to claim said purchases as a deductible expense, Monde is authorized to issue a purchase voucher to the individual farmers from whom they will purchase said items, subject to the condition that such purchase invoice shall indicate the name and address of the farmer; shall bear the farmer's signature; and shall show the name and address of the purchaser, Monde, as well as the, date when the transaction was effected, and the quantity, unit, cost and description of transaction. 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 null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service