Payment of VAT Output Liability Based on Gross Receipts

June 29, 1999 BIR RULING NO. 085-99 108 (A) (8)-000-00-085-99 Balmeo Bautista & Peasales Law Offices Rm. 309 Margarita Building J.P. Rizal cor. Cardona Streets Makati City Attention: Atty . Lovell R . Bautista Gentlemen : This refers to your letter dated May 5, 1999 stating that your client, William, Gothong & Aboitiz, Inc. (WG&A) is a domestic corporation duly registered with the Securities and Exchange Commission and with head office address at Sergio Osmea Blvd., North Reclamation Area, Cebu City; that WG&A is a domestic shipping company engaged in the transport of cargoes; that as such, it is liable to the 10% output VAT on its gross receipts from the aforementioned services; that WG&A's present treatment of the 10% output VAT in its transport of cargoes is to immediately record recognize and pay the same at the time when the services are recognized and recorded in the book as income for income tax purposes; that just recently, however, your client has obtained a professional advice that it can pay the 10% output VAT at the time when the payment of the services is actually received from the customers pursuant to the provisions of Section 108 of the Tax Code of 1997; that WG&A as of December 31, 1998 has an outstanding account receivable, arising from transport of cargoes, in the total amount of Seven Hundred Million Pesos (P700,000,000.00); that the VAT on this receivable in the amount of Seventy Million Pesos (P70,000,000.00) has already been remitted to the BIR; and that WG&A would like to: book the said Seventy Million Pesos (P70,000,000.00) output VAT as deferred output VAT; apply the same upon payment of the output VAT on services actually collected from the customers, amend all VAT returns which incorrectly recognized the transaction on an accrual basis so as to reflect the deferred output VAT as advance payment; and file the same in the RDO of Cebu where the principal place of business of WG&A is situated. Based on the foregoing, you now in effect request for a ruling that your client be allowed to pay its VAT output liability based on gross receipts. In reply, please be informed that Section 108(A) of the Tax Code of 1997 provides that 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 of lease of properties. The phrase " sale or exchange of services " includes services performed by domestic common carrier by water relative to their transport of goods or cargoes. On the other hand, Section 108(A)(8) of the same Code defines "gross receipts" as "the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding value-added tax." Such being the case, WG&A being a domestic corporation engaged in the transport of cargoes is well within the coverage of Section 108(A)(8) of the Tax Code of 1997. Its previous practice of reporting VAT on accrual basis is wrong and will cause confusion. Accordingly, WG&A is required by the Tax Code of 1997 to pay its VAT output liability based on its gross receipts pursuant to the aforecited provision. Furthermore, WG&A can: book the said Seventy Million Pesos (P70,000,000.00) output VAT as deferred output VAT; apply the same upon payment of the output VAT on services actually collected from the customers; amend all VAT returns which incorrectly recognized the transaction on an accrual basis so as to reflect the deferred output VAT as advance payment; and file the same in RDO of Cebu where the principal place of business of WG&A is situated. cdlex 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.) BEETHOVEN L. RUALO Commissioner of Internal Revenue