BBDO Guerrero Ortega, Inc.

July 10, 2009 BIR RULING [DA-(VAT-066) 361-09] Section 107; DA-062-04 BBDO Guerrero Ortega, Inc. 11th Floor, Insular Life Building Ayala Avenue corner Paseo de Roxas Makati City Attention: Ms. Veranie Rose L. Valencia Asst. Finance Manager Gentlemen : This refers to your letters dated February 16, 2007, September 24, 2007 and December 11, 2007 requesting that you be allowed to use the accrual basis instead of cash basis as a means to remit value-added tax. It is represented that the transition from cash basis to accrual basis of remitting VAT will only be a timing difference and that the reconciliation process between the returns filed versus the financial statements will be eliminated. In reply, please be informed that the nature of the business of the taxpayer is essential in determining whether cash or accrual method should be applied for purposes of VAT. Unfortunately, the documents submitted do not reflect whether BBDO Guerrero Ortega, Inc. is a seller of goods or services. Section 106 (A) of the National Internal Revenue Code of 1997 (NIRC), as amended, partly states: "Sec. 106. Value-Added Tax on Sale of Goods or Properties. "(A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to 10% of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor. . . ." In addition, Section 108 (A) of the NIRC, as amended, reads: "SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. "(A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties: EICSTa Applying the above provisions, if the taxpayer is a seller of goods, VAT is computed based on gross selling price or gross value in money. Clearly, the accrual method is prescribed. On the other hand, if the taxpayer is a seller of services, the VAT is levied, assessed and collected based on gross receipts. Hence, cash basis should be used. IN VIEW OF THE FOREGOING, this Office is of the opinion that if BBDO Guerrero Ortega, Inc. is a seller of goods, it should apply the accrual method for purposes of computing VAT. However, if it is a seller of services, cash basis should be utilized. SDHCac Please be guided accordingly. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service