BIR Ruling No. 336-2022

REPUBLIC OF THE PHILIPPINES

DEPARTMENTOF FINANCF BUREAU OF INTERNAL REVENUE

Quezon City

National Internal I evenue Code of 1997.as a nended Sections 27 and 4 of the cf-3a 22 Perscr to Contact: Chief. Law Division Tel. Nos. 926-55-36 / 927-09-63

Date:

ISLA LIPANA&CO 29th FloorPhilamli e Tower. 8767 Paseo de Roxi 1226 Makati City

A tte ntion: ATTY CARLOS T. CARADO II Partner.Tax

Gentlemeh:

NGK Spark Plugs recognition of dedu tibility of sales rebates granted by NGK to its customers/distributors for income tax purpose: This refers tyour letter dated February 08.2018, requesting on behalf of your client. Philippines Inc.(NGKfor confirmation on the proper timing of

to import/export,pr mote.market.sell at wholesale.and/or distribute spark plugs and/or similar parts or acce sories for various kinds or types of motors; that it offers sales rebates to an agreement: and tl at its practice is to consider sales rebatas as deduction from gross sales for income tax purposes ur on accrual, (.e. same period when the corresponding inventory is sold Securities andExchngCommissionSECon February 212008;that its primary purpose is certain customers at graduated rates for meeting certain levels of sales volume executed under to customers/distribi tors) which are supported by BIR-regstered credit memos. It is represer ied that NGK was incorporated in the Philippines and registered with the

(Tax Code) of 1997. as umended, partly provides that: In replypleae he informed that'Section 27(A of the National Internal Revenue Code

"SEC.2.R teof Income tax on Domestic Corporations.

XXX XA XXX

income tax sl all be thirty percent (30%). tax of thirtv-i percent(35% is herebv imposed upon the taxable income taxable unde this Title as a corporation. organized in. or existing under the derived durig ach taxable vear from all sources within and without the Philippines heverv corporaion.as defined in Section22(B) of this Code and laws of the F hilippines:Provided.That effective January 1,2009, the rate of A Ii.Gneral.-Except as otherwise providd in this Code.an income

to their prese t cation and use.(Emphasis and underscoring supplied business sha he eauivalent to gross sales less sales returns, discounts and allowances i nd cost of goods sold. 'Cost of goods sold' shall include all business expe nses directly inicurred to produce the inerchandise to bring them For I urposes of this Section. the term gross income' derived from XXX XXX X

W

NGKSPARKPLUGSPFPINES)INC Of-3.3,6 -2 022

the Supreme Court sates that: In the case ot Cemmissioner of Internal Revenue.vs.Central Luzon Drug Corporation

reduction fre m the full amount or value of something. especiallv a price." In made from tl e sross amount or value of anvthing."To be more precise, it is in business par'ance "a deduction or lowering of an amount of monev:"or "a business there ure many kinds of discount. the most common of which is that affecting the n ome statement or financial report upon which the income tax is based. "Byrdinar acceptation. a discount is an "abatement or reduction

XXX XXX xXX

to, because the accounts receivable and sales figures that arise from sales sales -- know I s the gross method -- is most widelyused, because it is simple. more comven en to apply than the net method, and produces no material errors country: this ype of discount is reflected in the income statement as a line item deducted --'ong with returns,allowances,rebates and other similar expenses discounts, -- us well as from quantity, volume or bulk discounts -- are recorded statements ai thi gross amounts of the invoices.This manner of recording credit over time. in the manua ardcomputerized books of accounts and reflected in the financial -- from gros sales to arrive at net sales. This type of presentation is resorted Applying generally accepted accounting principles(GAAP) in the

XXX XXX XXX

they were gi n. While determinative only of the VAT, the latter provision also appears as1uitable reference point for income tax purposes already embraced in tlie former. After all. these two provisions affirm that sales discounts arc umounts that are alway's deductible from gross sales." (Emphasis and undersco ing supplied) come up wii h the gross income,profit or margin derived from business.In invoices at th time of sale -- and that do not depend upon the happening of any future event -viay be excluded from the gross sales within the same quarter oneprovisi on advertsto. amountswhose suin returns, allo ances and cost of goods sold -- is deducted from gross sales to another proy sion therein, sales discounts that are granted and indicated in the The t rn sales discounts is not expressly defined in the Tax Code, but alongwith sales

as amended. and th above quoted decision of the Suprerne Court, the sales rebates being offered by NGK to certain customers at graduated rates for meeting certain levels of sales volume executed un ler an agreement are considered as deductions from gross sales to arrive at net sales. Applying the above quoted provision of the National Internal Revenue Code of 1997

Code of 1997. as am nded, states that: As to when t ie sales rebates shall be reported for tax purposes. Section 45 of the Tax

to clearlv ret ec the income, the deductions should be taken as of a different accounting ucon the basis of v.hich the net income is computed, unless in order period. deductions pi oviled for in this Title shall be taken for the taxable vear in which 'paid or acud' or 'paid or incurred, dependent upon the method of "SEC +5. Period foi: which Deductions and Credits Taken. - The

G.R.No.15964April I5

PAGE2OF4

NGKSPARK PLGSPH EPINES)INC. 6I JUN 3 0 2022

allowable deduction fcr the current year but failed to do so cannot deduct the same for the accrual method of a counting. expenses not being claimed as deductions by a taxpayer in the current year when t ey are incurred cannot be claimed as deduction from income for the succeeding year. Th is. a taxpayer who is authorized to deduct certain expenses and other next year. Revenue Auit Memorandum Order (RAMO) No. 1-2000, provides that under the

determinable in amo int without regard to indeterminacy me-ely of time of payment. of accounting.Amounts of income a erue where the right to receive them become fixed,where there is created an entorceable liablity. Similarly,liabilities are accrued when fixed and to pay them. in oppcsition to actual receipt or payment,which characterizes the cash method The accrual n ethod relies upon the taxpayer's right to receive amounts or its obligation

under paragraph 3 oi Se tion 12A:51 of MERTENS'Law of Federal Income Taxation states as follows: The U.S.Rul s hich have persuasive effect on Philippine Law,as specifically provided

income or exnenses. The accrual of income or expenses is permitted when the all-events tes hes been met. Fhe all-events test requires: the facts pres ont themselves. in'such a manner that the taxpayer must recognize "For 1 tuxpaver on the accrual method, the uuestion becomes when do

(2) th availability of the reasonably accurare determination of (l) fis ing of a right to income or liability to pay; and su h income or liability.

to pay the income. I further requires that income accrues to the taxpayer when there arises a fixed and unconditio nal right to the receipt of a sum certain. even though actual payment is to be deferred. by looking initially io the nature of the taxpayer's right to income.Generally, the taxpayer's right to receive amou nts of income cannot be fixed before the time another becomes obligated The first elen ent requires that a taxpayer's right to receive amounts in income be fixed

a computation may F unknown within the taxable year. information necessar t compute the amount with reasonabie accuracy. It would also suffice where the computati n remains uncertainif its basis is unchangeable: the test is satisfied where determined with rea onable accuracy. However, the all-events test does not demand that the amount of income or liability be known absolutely,only that a taxpayer has at his disposal, the On the secor d element. it requires that the amount of the income or liability be

the Supreme Court stes that: In the case oCommissioner of Internal Revenue, vs. Isabela Cultural Corporation

it must be dtermined with "reasonable accuracy. Accordingly, the term accurate ami unt. "reasonable iccuracy" implies something less than an exact or completely The amount of liability does not have to be determined exactly;

the accrual o ar item of income or deduction. question of fa t;such that the tuxpaver bears the burden of proofofestablishing knew, or cou'd reasonably be expected to have known, at the closing of its books for thi taxable year. Accrual method of accovnting presents largely a The p.opriety of an acerual must be judged by the facts that a taxpayer

favor of the ti xing authority: and one who claims an exemption must be able to must be con trued in strictissimi juris against the tuxpaver and liberally in Corol arily, it is a governing principle in taxution that tax exemptions

G.R.No.172231.Februa200

G

PAGE3OF4

- NGKSPARK PLUGS (PH INES).INC. JUN 3 T

justify the sa ne hy the clearest grant of organic or statute law. An exemption from the com noi burden cannot be permitted to exisi upon vague implications. And since a ceduction for income tax purposes parickes of the nature of a tax exemption, tl n it must also be strictly construed.

as deduction in the arie period thev were incurred. Also. as previously stated. the accrual purposes when the all-events test has been met. Otherwise.NGK cannot claim the sales rebates method presents lar el a question of fact. Thus. in this case, NGK bears the burden of establishing the accr ial of such expense. In view there of. the sales retates shall be reported only as deduction by NGK for tax

if upon investigatior it will be disclosed that the facts are different, then this ruling shall be considered null and oid. This ruling is being issued on the basis on the foregcing facts as represented. However.

Very truly yours.

Commissioner of Internal Revenue A CAESAR R. DULAY

K-1-RST/LMAT F 052200g

PAGE 4OF4