January 3, 1980

BIR RULING NO. 004-80

Sycip, Gorres, Velayo & Co.

Certified Public Accountant
P.O. Box 589, Manila
Attention: Mr. M . Gutierrez
Tax Division

Gentlemen :

This refers to your letter dated July 31, 1978 on behalf of the Tire
Manufacturers Association of the Philippines requesting a clarificatory ruling
on the new method of computing the 10% manufacturer's tax payable by the
members of the Association in the light of P.D. No. 1358 and its
implementing Regulations No. 8-78. Specifically, you would like our opinion
on the following set of facts stated in your letter, viz: cdt

"Prior to P.D. 1358, your Office has consistently ruled that

discounts (e.g., cash discounts, prompt payment discount, volume
discounts, special or confidential discounts) can be deducted from the
gross selling price for purposes of computing sales tax provided that
such discounts are ascertainable or actually given at the time of sale,
and that although not shown in the invoices, they must be accurately
shown in credit memoranda, credit note, or other supporting papers.
We believe the reason for the deductibility of the said discounts from
the 'gross selling price' can be found in the definition of the term 'gross
selling price' which stated that —
"'Gross selling price' or 'gross value in money' of
articles sold, bartered or exchanged is the total amount of
money or its equivalent which the vendee pays to the
vendor for the goods."

"Since the amount paid by the buyer to the seller to acquire the
goods is the net discounted value, then the sales tax should be based
on this amount.
"Above premises considered, we would like to know whether the
following credits given before the sale can be deducted from the gross
selling price, although they are not indicated in the sales invoices but
expressly shown in the credit memoranda or credit notes issued to the
customers:

"a) Credits given to customer by way of credit

memo or note to cover prompt payment discount, volume
discount and/or other special or confidential discount;
"b) Credit for price adjustments due to factory
defects;

"c) Credits for price adjustments to correct billing or

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 invoicing errors;

"d) Credits for sales returns; and

"e) Credits for allowances to cover rollback in prices
and other price adjustments."

In reply, I have the honor to inform you that the second paragraph of
Section 5(b) of Revenue Regulations No. 8-78 provides as follows:
"In computing the base of the tax, discounts may be allowed as a
deduction from the gross selling price provided said discounts are
given at the time of the sale and are expressly indicated in the sales
invoice."

Under the regulations, only bona-fide discounts which are given to

purchasers as a consideration in the sales contract and which are
ascertainable and definitely agreed upon by the vendor and the vendee at
the time of sale are deductible from the gross selling price for the purposes
of the sales tax. Such discounts must be expressly indicated in the invoice.
Thus, credits given to customer by way of credit memo or note to cover
prompt payment discount, volume discount and/or other special or
confidential discounts which although granted to the vendee at the time of
sale but are not expressly indicated in the sales invoice are not deductible
from gross sales in determining the sales tax due on the finished products.
Likewise, credits for allowances to cover rollback in prices and other price
adjustments are not deductible for sales tax purposes.
However, credits for price adjustments due/to factory defects and
credits for prices adjustments to correct billing or invoicing errors may be
deducted since these credits are not actually discounts but credits to reflect
the true and correct selling price of the articles sold.
The adoption of the tax credit method of computing the sales tax has
not changed the previous rule on the deductibility of the value of articles
returned by the customer for purposes of the sales tax. The previous rule is
where part of the goods delivered is returned by the customer and such
goods returned are placed in stock for resale to others, the selling price
thereof may be deducted from the gross selling price during the quarter in
which the return was made if the said goods are not resold during the said
quarter. If the returned goods were also sold during the quarter, then no
deduction is made. However, under the present system, in order that sales
returns may be deducted from the gross sales of a manufacturer, the original
receipt evidencing the sale should be returned by the purchaser and a new
invoice issued by the seller to reflect only the actual sales and the tax billed
as a separate item in the new receipt. cdtai

Very truly yours,

RUBEN B. ANCHETA
Acting Commissioner
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