Sycip Gorres, Velayo & Co.

August 4, 2009 BIR RULING [DA-(TAR-007) 436-09] 34 (A); RR V-1; RR 11-2000; #311-87; #85-94; #018-95; DA-238-2003; DA-172-2004 Sycip Gorres, Velayo & Co. 6760 Ayala Avenue Makati City 1226 Attention: Atty. Ma. Victoria A. Villaluz Tax Services Gentlemen : This refers to your letter dated February 27, 2009 requesting for and in behalf of your client, Primero Y Segundo Corp. (PYS Corp.), for confirmation and approval that Primero Y Segundo Corp. can use for accounting and tax purposes, "purchase invoices" and "cash vouchers" to document and support its purchases of materials from ordinary household and junkshops. It is represented that Primero Y Segundo Corporation is a corporation duly organized and existing under Philippine laws under Securities and Exchange Commission (SEC) Certificate of Registration No. CS200308975 issued on April 11, 2003; that its primary business purpose is to engage in the business of trading of goods such as metal, aluminum and other scraps on wholesale basis; that these scrap items consist of among others: aluminum scrap, copper brass, copper bronze, carton scrap, plastic and paper scrap, glass bottle scrap, batter scrap, stainless, zinc and lead scrap; that PYS Corp. will also buy and sell steel scrap, G.I. roofing scrap, tin can and tin plates scraps; that most of the materials that PYS Corp. sells are derived from "junk" bought from marginal businesses, including "backyard" junkshops, households, and ordinary individuals; that considering the fact that the suppliers of the "junk" are small-time junk suppliers, individuals not engaged in business, and ordinary households they are not able to issue duly-registered invoices and receipts; that since the sellers/suppliers of materials are either ordinary individuals not engaged in business, ordinary households or backyard junkshops, that are basically marginal businesses, they do not have invoices and receipts to document their sales transaction; that PYS Corp. desires to properly document its purchases to enable it to correctly account for the said purchases; that for this purpose, PYS Corp. proposes to use "purchase invoices" and "cash vouchers" as evidence of its purchases of materials from its supplier; that the "purchase invoice" will provide for the following information: (1) Name of PYS; (2) its business address; (3) TIN of PYS (4) Name of supplier/seller; (5) address of supplier/seller; (6) TIN of supplier/seller; (7) the number of units purchased; (8) the description of the items/goods purchased; (9) the value or the amount purchased; (10) the signature of seller/supplier; (11) Date of the transaction; that since the sellers/suppliers are NON-VAT taxpayers, the "Purchase Invoice" will indicate that it is a "NON-VAT" Purchase Invoice and in addition, PYS Corp. will also issue cash vouchers to document the payment made for the purchases; that the "cash vouchers" will also contain the same information as the "purchase invoice". In reply thereto, please be informed as follows: As stated under Sec. 237 of the NIRC, the Commissioner has the power to exempt any person subject to an internal revenue tax from the issuance of receipts or sales or commercial invoices. Sec. 237 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 amount, where the sale or transfer is made by a person liable to value-added tax to another person also liable to value-added tax; 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 Taxpayer Identification Number (TIN) of the purchaser. 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." This power of the Commissioner to exempt individuals from the issuances of sales invoices has been used to exempt marginal income earners from the invoicing requirements under the Tax Code. In BIR Ruling 311-87 dated October 7, 1987, wherein mostly poor town folks do not issue sales invoice or official receipts for dried sea products or dried fish, the Commissioner ruled that: "In reply thereto, please be informed that Bookkeeping Regulations No. V-I, Chapter IV, as amended by R.A. 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 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." In BIR Ruling 85-94 dated April 6, 1994, ONG TA LEAD FACTORY was engaged in the manufacture of lead products. It sourced its raw materials from small-time or "backyard" scrap or junk vendors similar to Primero Y Segundo Corp. The Commissioner of Internal Revenue ruled that: "In reply thereto, please be informed that this Office has previously opined in BIR Ruling No. 311-87 that public interest is served best when a group of people conducting "marginal economic activity", like the public market vendors, is allowed to take advantage of modest opportunities without being hampered with government requirements that they cannot comprehend or comply anyway; hence, they were exempted from the requirements of issuing official receipts on their sale or transfer of merchandise. 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". The last paragraph of Section 238 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. 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 it registered purchase invoices provided, however, that the provisions of the aforesaid Section 4(c) of Revenue Regulations No. 12-78 are properly complied with." This Office similarly ruled BIR Ruling No. 018-95, dated February 10, 1995 as follows: " . . ., that there are instances when your clients encounter difficulty in securing official receipts on their purchases from the seller; and that pursuant to Section 14 (d) of Revenue Regulations V-1 otherwise known as the Bookkeeping Regulations every purchase or expenditure by a taxpayer subject to the 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 the Regulations. Should any of the 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 style, if any; and shall show the name and address of the purchaser, quantity, unit cost and description of transaction, merchandise or nature of the service rendered, as the case may be. xxx xxx xxx. In reply thereto, please be informed that 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. Such being the case, in case where your clients encounter difficulty in securing official receipts on their purchases from the seller, your client may require the seller 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 the transaction, merchandise or nature of the service rendered, as the case may be. While the purchase or expense voucher is not considered a receipt or sale or commercial invoice within the aforementioned requirements of Section 14 (d) of the Bookkeeping Regulations. Moreover, the purchase or expense voucher need not be signed by the purchaser. Furthermore, Revenue Regulation No. 11-2000 dated December 12, 2000 provides the regulations applicable to marginal income earners. This Regulations was issued to further the "policy of the State to free the people from poverty through policies that promote full employment, rising standards of living and an improved quality of life." Under Sec. 3 of RR 11-2000, "marginal income earners" are defined as: "individuals not otherwise deriving compensation as an employee under an employer-employee relationship but who are self-employed and deriving gross sales/receipts not exceeding P100,000.00 during any 12-month period." Sec. 4 of said Revenue Regulations further provides that: "Sec. 4. Tax Compliance Requirement. "Marginal income earners", who are possible income tax filers and recipients or payors of income payments subject to withholding tax and registered with the Bureau of Internal Revenue, shall be entitled to the following privileges and minimum tax compliance requirements: A. Compliance to Registration and Bookkeeping Rules (1) Exemption from the payment of registration fee as prescribed under Sec. 236(B) of the Tax Code upon registration with the Bureau of Internal Revenue after submission of minimal basic documentary requirements. (2) Issuance of Taxpayer Identification Number (TIN) with TIN card. (3) Exemption from compliance with the issuance of registered receipts or sales/commercial invoices prescribed under Section 237 of the Tax Code of 1997. xxx xxx xxx" The "backyard" junkshops, households and individuals selling the "junk" to Primero Y Segundo fall within the classification of marginal income earners and as such can be said to be exempt from issuing sales invoices. Based from the foregoing, this Office opines that Primero Y Segundo Corporation may at the very least use the "purchase invoice" and "cash vouchers" to evidence its purchases from these small-time vendors, inasmuch as it is almost impossible for them to request these "backyard" junk vendors to issue registered sales invoices. 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.) GREGORIO V. CABANTAC Deputy Commissioner Legal and Inspection Group