VAT Ruling No. 008-91

January 29, 1991 VAT RULING NO. 008-91 Joaquin Cunanan & Co. 8th Flr. BA Lepanto Bldg. 8747 Paseo de Roxas Makati, Metro Manila Attention: Mr . Jose S . Tayag, Jr . S i r s : This has reference to your letter of June 28, 1990 on behalf of your client, Metro Drug Inc., requesting for confirmation that its van distribution operation, as laid down hereinbelow, is in compliance with VAT rules and regulations, to wit: A) A van salesman requisitions certain fast-moving consumer times from a branch's warehouse. Once the requisition is approved, the stocks are loaded into the salesman's van and considered still part of the company's inventory. The van is in effect considered an extension warehouse; cdll B) The salesman sells his stocks in cash to smaller outlets using the same list prices MDI normally bills its big wholesalers. He then issues a Panel Sales Invoice which is pre-numbered and an accountable form and registered with the BIR; C) At least once a week, the salesman submits to EDP for encoding his liquidation report together with the covering Panel Sales Invoices. D) After encoding, EDP will automatically generate one Sales Invoice to cover a batch of Panel Sales Invoices submitted by the salesman. In the process, this transaction will reduce the stock accountability of the salesman. At the same time, entries are automatically recorded in the books as a debit to Accounts Receivable and credit to Sales and the corresponding output tax. E) The total sales amount shown in the generated Sales Invoice should tie up with the grand totals of all the Panel Sales Invoices previously issued by the van salesman. F) The salesman should reconcile his cash sales proceeds as appearing in his liquidation report against the total amount arrived at in procedure "E" above. At this stage, Accounting Department will debit Cash and credit Accounts Receivable account previously debited per procedure "D". It is the contention of MDI that because of voluminous sales generated daily, it would be more practical to generate just one set of computerized Sales Invoice in its office [following the procedures in "b" above] without showing the specific names of the customers. Based on the foregoing, confirmation of the following is requested: a. That MDI is not subject to VAT on the transfer of its stock from its main warehouse to the salesmen's van as the same does not constitute a sales transaction. b. That MDI would not violate the provisions of bookkeeping requirements of the VAT rules and regulations on account of the above described recording schemes. In reply, please be informed that mere transfer of goods from the main warehouse to the salesmen's van does not constitute a sale transaction and therefore, not subject to the VAT. On the other hand, sales made by MDI representatives (through its van distribution scheme) to the public shall be subject to the 10% VAT pursuant to Sec. 100(a) of the Tax Code. Adoption of the abovecited recording scheme will not constitute violation of the bookkeeping requirements as embodied in the VAT rules and regulations. Nonetheless, a daily record of sales (by MDI salesmen) shall be maintained although recording of the same is made weekly. Moreover, MDI's VAT liability should be recognized upon the issuance of the Panel Sales Invoice (VAT invoice) inasmuch as the sale is considered to have been consummated at this point and the VAT-registered buyer has generated a concomitant creditable input tax upon his receipt thereof. (Panel Sales Invoices issued shall form part of MDI's accounting records.) Very truly yours, JOSE U. ONG Commissioner of Internal Revenue