Payments to advertising agencies

THE Bureau of Internal Revenue (BIR) recently issued Revenue Memorandum Circular No. 63-2012 clarifying the issues affecting invoicing and recording of income payments for media advertising placements.

Advertising agencies, media suppliers and advertisers comprise the tripartite institutional structure of the advertising industry. Depending on their industry practice, advertising agencies have different procedures in billing their clients/advertisers.

Clients/advertisers make income payments for media advertisement contracts directly to the advertising agency or directly to the media supplier for the total cost of the media advertisement, inclusive of creative and media services, advertising commission or service fees and value added tax (VAT).

Issues thus arise from the invoicing of income payments and recording of gross receipts such that the reporting thereof does not accurately reflect the income recipients and which may affect the computation of taxes due on the transaction.

In contracts for media advertisements, the media supplier shall bill the client for the total cost of production and media placement. The client/advertiser shall pay the media supplier directly for the amount billed by it.

On the income payment by client/advertiser to the media supplier, the latter shall bill the former the total amount of media placement. Upon payment, client/advertiser shall withhold two percent on the entire invoice amount of the media supplier. Client/advertisers shall likewise issue a Certificate of Creditable Income Tax Withheld at Source in the name of the media supplier.

On the gross receipts of the media supplier, upon receipt of income payment from the advertiser, the media supplier shall issue VAT invoice/official receipt to client/advertiser.

On the payment of commission/service fee by the media supplier to the advertising agency, the latter shall bill the former for its commission/service fee. Upon payment by the media supplier to the advertising agency, it shall withhold two percent from the commission/service fee of the advertising agency. It shall likewise issue a Certificate of Creditable Income Tax Withheld at Source in the name of the advertising agency.

On the receipt of commission/service fee by the advertising agency, the latter shall issue its VAT invoice/official receipt to the media supplier for the amount of commission/service fee received. The amount of VAT shall be reported based on the commission/service fee of the advertising agency.

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