GTE Directories Corporation (Philippine Branch) Request for a Ruling

April 26, 1991 VAT RULING NO. 025-91 Joaquin Cunanan & Co. BA-Lepanto Building 8747 Paseo de Roxas Makati, Metro Manila RE : GTE Directories Corporation (Philippine Branch) Request for a Ruling S i r s : This has reference to your letter dated September 14, 1989 requesting for a ruling on whether or not your client, GTE Directories Corporation, hereinafter referred to as "GTE", is entitled to 8% presumptive input tax on its "Published Directories Inventory" as of December 31, 1987. LibLex It is represented that GTE is involved in publishing the annual telephone directories of Philippine Long Distance Telephone Company (PLDT). In so doing, it has to solicit and sell advertising in the name of PLDT, and compile, print and deliver the telephone directories to PLDT and/or its subscribers at annual intervals. Under GTE's system of accounting, the costs of directories in process of publication consisting of paper, printing, selling and production are deferred and accumulated in an inventory account specifically termed "DIRECTORIES IN PROCESS (DIP)". The accumulation period is usually twelve months preceding publication date. Upon publication, the accumulated costs are transferred to another inventory account called "PUBLISHED DIRECTORIES (PDC)". Said costs are then amortized over the directories life of twelve months. Billing to PLDT and recognition of revenue are also done over a period of twelve months coinciding with the life of the directories. Following the above procedures, the printing costs of GTE's 1987-88 Manila directories, which were published by June 1987, were accumulated in the "DIP" inventory account from June 1986 to May 31, 1987. Upon publication, the costs were transferred to "PDC" inventory account and then amortized over a twelve-month period from June 1987 to May 31, 1988. In like manner, billings for the 1987-88 directories were rendered over the same twelve-month period from June 1987 to May 1988. Thus, as of December 31, 1987, about 58% of the accumulated cost was already charged to expense and corresponding billings were issued and recognized as revenue in 1987. The remaining unamortized cost of about 48% remained in the "PDC" inventory account as of December 31, 1987. The same was amortized and the corresponding billings were issued over a period of five months from January to May 1988. These 1988 billings were subjected to the 10% VAT upon collection. This being the case, GTE opined that it is entitled to claim 8% presumptive input tax on the paper and printing costs included in its "PDC" inventory as of December 31, 1987 pursuant to Section 25 of E.O. 273 and Section 26(2) of RR 5-87. In reply, please be informed that your client is entitled to 8% presumptive input tax only on the cost of paper component of the "PUBLISHED DIRECTORIES" inventory as of December 31, 1987 pursuant to Section 25(a)(2) of E.O. 273; provided, however, that an inventory list showing this inventory account, was filed with this BUREAU in accordance with the provisions of the VAT laws and various administrative issuances. cdpr Very truly yours, JOSE U. ONG Commissioner of Internal Revenue