Treatment of Billings Covering Services Completely Rendered

February 29, 1988 BIR RULING NO. 059-88 102 000-00 059-88 Gentlemen : This refers to your letter dated December 11, 1987 requesting clarification on how to treat billings covering services completely rendered but which remain unpaid as of December 31, 1987 as well as proposing that advertising agencies be taxed at 10% only on their 15% agency commission rather than on the gross receipts which include the 85% due to media/production supplier. In reply, please be informed as follows: 1. Section 6(g) of Revenue Regulations No. 5-87 which implements the provisions of Executive Order No. 273 states that amounts due on contracts completed on or before December 31, 1987, payments of which are receivable on or after January 1, 1988, shall be considered as accrued as of December 31, 1987 for purposes of the payment of the contractor's tax, subject to the following conditions: a) filing of an information return showing the name(s) of the contractee(s) and the amount(s) of the contract price outstanding as of December 31, 1986, and containing a declaration of the obligation to pay the contractor's tax due; b) billing of the unpaid amount not later than December 31, 1987 by the contractor and copy of such billing to be attached to the information return herein required; c) recording of the amount receivable in the books of accounts of the contractor for the year 1987; and d) filing not later than January 20, 1987, and/or before the 20th day after each calendar quarter, of the regular contractor's tax return for the payment of the contractor's tax on payments received in 1988. Failure to comply with the above-stated conditions shall automatically subject the gross receipts to value-added tax at 10%. Accordingly, under the foregoing provision of the regulations, billings, for services completely rendered but which remain unpaid as of December 31, 1987 are still subject to the 4% contractor's tax provided that the above-stated conditions are complied with; otherwise, said billings shall be subject to VAT. 2. As regards the basis of the 10% VAT payable by an advertising agency, the Department of Finance has ruled that only 15% of its gross billings, constitute the gross receipts subject to the contractor's tax then payable by said agency since this amount is retained by the agency as its commission from media. (See 3rd Indorsement dated December 3, 1973 of Acting Secretary Pedro M. Almanzor) Accordingly, and since the 10% VAT is based on gross receipts which means the total amount of money or its equivalent representing the contract price, compensation or service fee (Section 2(m), Revenue Regulations No. 5-87) said 15% of the gross billings of an advertising agency, likewise, constitutes the gross receipts of said agency for purposes of the 10% VAT. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner