Tax Treatment of Returnable Containers Used by VAT Registered Persons.

January 5, 1989 REVENUE REGULATIONS NO. 03-89 SUBJECT : Tax Treatment of Returnable Containers Used by VAT Registered Persons TO : All Internal Revenue Officers and Others Concerned SECTION 1 . Scope . Pursuant to the provisions of Section 245 of the Tax Code, as amended, these regulations are hereby promulgated to govern the imposition of 10% value-added tax on deposits for returnable containers. casia SECTION 2 . Nature and Classification of Returnable Containers . Returnable containers such as bottles and shells, tanks and other similar items, may not be actually sold but deposits are collected from the customers to guarantee the return of the containers. Where the customers fail to return the containers, the deposits are forfeited. At the end of the year, taxpayers who treat their returnable containers as supplies take a physical inventory of such containers and those that cannot be accounted for, are written off or charged to expense. A portion of the inventory is also charged off against outstanding deposits. Other taxpayers record their containers as fixed assets (wherein depreciation is claimed) which is amortized for a certain period corresponding to the estimated life of the containers. They also collect deposits from customers on these containers. SECTION 3 . Tax Treatment of Deposits for Returnable Containers . The following deposits for returnable containers shall be subject to 10% value-added tax and should be declared in Schedule B-1 of BIR Form No. 2550: (1) Those made prior to January 1, 1988, which have not been refunded or credited to the buyer as of December 31, 1987. (2) Those made from January 1, 1988 up to the effectivity of these regulations, less whatever refunds or credits were made during the same period. aisa dc (3) Those made after the effectivity of these regulations shall be declared in the VAT-return in the quarter when the deposit was received. For purposes of income tax, the accounting method already adopted by the taxpayer in accounting, for income and expenses on returnable containers shall be maintained. SECTION 4 . Input taxes for returnable containers . (1) The taxpayer shall be entitled to presumptive input tax of 8% on the value of inventory as of December 31, 1987, provided that he has not claimed presumptive input tax under the provisions of Section 25, o f Executive Order No. 273. (2) On purchases of returnable containers starting January 1, 1988, the taxpayer shall avail of the provisions of Sec. 104 of the Tax Code. SECTION 5 . Treatment of deposits refunded or credited to the customer upon return of the containers . For purposes of value-added tax, refunds or credits of the deposit to the customer, for containers returned shall be considered as sales returns and allowances to be reflected under Schedule B-5 of B.I.R. Form 2550. The amount of deposit shall be allowed as deduction from the gross selling price or gross receipts of the taxpayer in the quarter when the refund or credit was made. If the sales returns or allowances exceed the total taxable sales, the balance may be carried over to the next quarter or quarters. SECTION 6 . Submission of reports . For purposes of Sections 3 (1) and (2) and Section (1) above, all taxpayers concerned shall submit a report within 15 days from the effectivity of these regulations as follows: (1) A report of deposits payable on containers as of December 31, 1987; (2) Deposits received and deposits refunded and/or credited during the period January 1, 1988 up to the effectivity of these regulations; and cdt (3) Report of inventory of returnable containers as of December 31, 1987 for which no presumptive input tax has previously been claimed. SECTION 7 . Effectivity . These regulations shall take effect upon its approval. (Sgd.) VICENTE R. JAYME Secretary of Finance