Isla Lipana & Co.

November 24, 2008 BIR RULING [DA-(TAR-005) 459-08] Isla Lipana & Co. 29th Floor Philamlife Tower 8767 Paseo de Roxas Makati City Attention: Atty. Malou P. Lim Partner Gentlemen : This refers to your letter dated September 26, 2008 stating that your client, Lindberg AG-A4 Philippine Branch (the Branch), is the Philippine branch of Lindberg AG (LAG), a foreign corporation established under the laws of Switzerland which is engaged in the business of trading and sale of spectacles/optical frames and related accessories; that these spectacle and optical frames are products of Lindberg A/S (LAS) which is another foreign corporation established under the laws of Denmark; that LAG and LAS are members of the global Lindberg Group of Companies; that a couple of years ago, LAG acquired from LAS the exclusive right to sell and distribute the latter's products in and outside Europe; that in 2006, LAG established the Branch to take over its sales to non-European markets (A4 markets), while retaining its right to cover the sales in Europe; that to ensure the marketability of the products in the A4 market, the Branch secured the assistance of LAS to undertake promotional activities in these areas and to accept orders from customers in the A4 markets considering that the Branch is located in the Philippines; that the business relationship between LAS and the Branch with regard to the sales made in the A4 markets, was formalized via a Service Agreement (the Agreement) specifying therein the services to be rendered by LAS to the Branch; that one of the services provided for under this Agreement is for LAS to manage the Branch client accounts in the A4 markets by means of the following: aCcHEI a) Assistance in the bookkeeping/recording of the sales of the Branch in the A4 markets by the issuance of individual invoices which serve as written acknowledgments for delivery of goods and payment of money by the buyers located in the said area; b) Assistance in the preparation of monthly invoicing journals and/or summary reports corresponding to the aforementioned sales which will be forwarded to the Branch through the inter-company computer system. These invoicing journals shall be used by the Branch as reference in the issuance of BIR-duly registered manual monthly invoices. that LAS issues individual invoices to buyers located in the A4 markets on behalf of the Branch; that these invoices issued abroad primarily serve as written acknowledgments of delivery of goods to the A4 markets; that upon receipt of the monthly summaries the Branch then issues BIR-registered (single) manual monthly invoices reflecting therein the aggregate amount of all the invoices issued abroad; that a summary of the invoices issued in a month by LAS is attached to the monthly aggregate invoice issued by the Branch along with the transmittal letters received from LAS; and that the single monthly invoices issued by the Branch contain on their faces the following data: a. Seller's (Branch) Name; b. Seller's (Branch) Address; c. Seller's (Branch) TIN; d. Customer's Name (which is LAS), in lieu of or representing the long list of the actual Customer's Names and other details); e. Order Number; f. Issuance Date (which is "one-time date" after a month of daily sale transactions or the actual date when the monthly invoice is issued); g. Description (which refers to the phrase "Total Sales for October" in lieu of the long list of specific descriptions of the products sold to the individual customers); h. Total Cost (which is the "Total Sales or aggregate amount" taken from the said Summary); and Authority No. "4AU0000440624", which is dated May 3, 2007). SHECcT Based on the foregoing representations, you now request for confirmation of your opinion that the issuance by the Branch of monthly aggregated sales invoice is sufficient compliance with the invoicing requirements prescribed under Section 237 of the Tax Code of 1997. In reply thereto, please be informed that Section 237 of the Tax Code of 1997 provides that "SEC. 237. 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: Provided, however, That in the case of sales, receipts or transfers in the amount of One hundred pesos (P100.00) or more, or regardless of the amount, where the sale or transfer is made by a person liable to VAT to another person also liable to VAT; or where the receipt is issued to cover payment made as rentals, commissions, compensations or fees, receipts or invoices shall be issued which shall show the name, business style, if any, and address of the purchaser, customer or client: Provided, further, that where the purchaser is a VAT-registered person, in addition to the information herein required, the invoice or receipt shall further show the TIN of the purchaser. The original of each receipt or invoice shall be issued to the purchaser, customer or client at the time the transaction is effected, who, if engaged in business or in the exercise of profession, shall keep and preserve the same in his place of business for a period of three (3) years from the close of the taxable year in which such invoice or receipt was issued, while the duplicate shall be kept and preserved by the issuer, also in his place of business, for a like period. The Commissioner may, in meritorious cases , exempt any person subject to internal revenue tax from compliance with the provisions of this Section." Corollarily, Section 113, supra provides "SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons . "(A) A Value-Added Tax (VAT)-registered person shall, for every sale, issue an invoice or receipt, which should indicate the following information, in addition to those required under Section 237 of the Code: aTIEcA (1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN); and (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax." In the present case, the voluminous sales transactions consummated in the A4 markets, will be very tedious and long process on the part of the Branch to again issue individual invoices for all the sales made to its foreign customers, it is for this reason that the Branch for the sake of expediency, issues instead monthly sales invoices aggregating therein the amount of sales made during the month. The sales invoices are supported by the foreign invoices issued by LAS and the summary reports provided by LAS as generated from the inter-company computer system. The system accurately accounts for all the sales made for each month. This Office in similar circumstances, stressed the above-mentioned principle and elucidated the matter in BIR Ruling No. 311-87 dated October 7, 1987 , as follows: ". . . Bookkeeping Regulations No. V-1, Chapter IV, as amended by R.A. No. 1856, in relation to 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 evidence 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." This Office in separate occasion had again the opportunity to rule in BIR Ruling No. 085-94 dated April 6, 1994 , as follows: TCSEcI "Since your client, Ong Ta Lead Factory, Inc., in effect voluntarily imposes a burden unto itself in providing for the necessary evidences of its purchases from its small-time junk suppliers by using its registered purchase invoices issued specifically under the name of the individual 'small time' junk suppliers with an attached Xeroxed copy of the check payments made to the said supplier/s, this Office hereby authorizes your said client to use its registered purchase invoices provided, however, that the provisions of the aforesaid Section 4(c) of Revenue Regulations No. 12-78 are properly complied with." SUCH BEING THE CASE, this Office hereby confirms your opinion that the issuance by the Branch of the monthly aggregated sales invoice is sufficient compliance with the invoicing requirements prescribed in Section 237 of the Tax Code of 1997. 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service