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    CIR v. General Foods Topic: Requisites of Deductibility - Advertisements Facts

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    Reuel Realin
    1. General Foods claimed a deduction of 9 million pesos for advertising its Tang beverage product in 1985, but CIR disallowed 50% of the deduction. 2. The issue is whether an inordinately large amount spent on advertising current products can be considered an ordinary expense and valid deduction. 3. The court held that the 9 million peso advertising expense was not deductible because the amount was unreasonable and constituted a capital expenditure aimed at future sales rather than current sales.

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    CIR v. General Foods Topic: Requisites of Deductibility - Advertisements Facts

    Uploaded by

    Reuel Realin
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    1. General Foods claimed a deduction of 9 million pesos for advertising its Tang beverage product in 1985, but CIR disallowed 50% of the deduction. 2. The issue is whether an inordinately large amount spent on advertising current products can be considered an ordinary expense and valid deduction. 3. The court held that the 9 million peso advertising expense was not deductible because the amount was unreasonable and constituted a capital expenditure aimed at future sales rather than current sales.

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    CIR v Genfoods

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    1. General Foods claimed a deduction of 9 million pesos for advertising its Tang beverage product in 1985, but CIR disallowed 50% of the deduction. 2. The issue is whether an inordinately large amount spent on advertising current products can be considered an ordinary expense and valid deduction. 3. The court held that the 9 million peso advertising expense was not deductible because the amount was unreasonable and constituted a capital expenditure aimed at future sales rather than current sales.

    Copyright:

    © All Rights Reserved
    Flag for inappropriate content
    19 views1 page

    CIR v. General Foods Topic: Requisites of Deductibility - Advertisements Facts

    Uploaded by

    Reuel Realin
    1. General Foods claimed a deduction of 9 million pesos for advertising its Tang beverage product in 1985, but CIR disallowed 50% of the deduction. 2. The issue is whether an inordinately large amount spent on advertising current products can be considered an ordinary expense and valid deduction. 3. The court held that the 9 million peso advertising expense was not deductible because the amount was unreasonable and constituted a capital expenditure aimed at future sales rather than current sales.

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    CIR v.

    General Foods
    Topic: Requisites of Deductibility - Advertisements

    Facts
    1. Case involves the expenses incurred by General Foods Inc. in advertising their beverage
    products.
    2. In the tax return for 1985, respondent claimed as deduction Php 9 million for the media
    advertising for their product, Tang. The CIR disallowed 50% of the deduction claimed by the
    respondent.
    3. Appeal of respondent to the CTA dismissed. CA reversed.

    Issue: Whether an inordinately large amount advertising expenses to promote current products of a
    company is considered ordinary so as to constitute as valid deductions.

    Held: No it does not. CTA decision reinstated.

    Ratio:
    1. For and expense to be deductible from gross income, it must be: (1) ordinary and necessary,
    (2) paid during the taxable year, (3) paid or incurred in carrying the trade or business of the
    taxpayer, (4) supported by receipts
    2. The expense must be ordinary which means that it should be (1) reasonable and (2) must not
    constitute as capital expenditures.
    3. Advertising expenses may partake of two kinds:
    a. Stimulate the current sale of merchandise or use of services (ordinary and necessary,
    insofar as reasonable)
    b. Stimulate the future sale of merchandise or use of services (Goodwill, considered
    capex: not deductible. If ever it should be amortized.)
    4. Here, the amount of Php 9 million for one product as well as further claims for advertisement
    expenses (Php 4 million) for other products is unreasonable.

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