BIR Ruling

February 9, 1970 MEMORANDUM for The Commissioner This assessment against the Swedish East Asia., Ltd, hereinafter referred to as Swedish, involving the amount of P572,167.84 as deficiency income tax for 1962 involves purely a question of evidence. The assessment is based on gross income of Swedish from the Philippines for the reason that it failed to provide or submit evidence to warrant its availment of the provisions of Section 163 of the Income Tax Regulations. cdti From the tenor of the proposed action, it seems that Swedish, thru its local agent, International Harvester Macleod, Inc. hereinafter referred to as Harvester, is being required to submit its books of accounts. This requirement is believed impossible of compliance. This impossibility had been recognized when this Office adopted the position that, in order to avail of the formula prescribed in Section 163 of the regulations, it is enough that a statement of world operation certified by the tax authorities of the government of the foreign country in which the foreign corporation is domiciled, or, if the same is not available, a financial statement certified by an independent certified public accountant and authenticated in both cases by a Philippine consular or foreign affairs official or, in the absence thereof, by an American consular official is submitted. The records of this case show that a certificate of the Chairman of the proper assessment board of Gothenburg, Sweden, as to the world income and world gross profit of Swedish for 1962 had been duly authenticated by the American Consul thereat. The only question which may be appreciated, therefore, would be the adequacy of the certificate for purposes of Section 163 of the regulations. With the certificate showing world income and world expenses, there is no question that the formula prescribed by Section 163 can be applied. However, the question may be asked as to whether or not we should take this certificate on its face value or require the submission of supporting details. In this connection, it is about opportune that the Bureau establish clearly a position policy thereon. It is to be noted that there are many cases of this nature involving the foreign shipping business, the so-called tramp vessels passing Philippine ports, and up to now, the resolution of these cases has been a nagging problem of the Bureau. This Office believes that the best evidence of world operations could not be established in a more convincing manner than by the submission of a certified true copy of the income tax return and the financial statement submitted therewith filed by the foreign taxpayer with the tax authorities of his country. For purposes of the availment of the formula prescribed by Section 163 of the regulations, and, in order to secure expediency in the settlement of cases of this nature, the certified copy of the income tax return of the foreign taxpayer may be taken as conclusive basis, any discrepancy that may be found thereon by the tax authorities of the foreign country concerned, if any, may not after all be too substantial as to affect very much the application of the formula. Until any other policy is adopted and enforced, it is believed, for the purpose of the instant case and other similar case, that a sworn certification of a responsible and competent person in the foreign tax jurisdiction on the world income and expenses of the foreign taxpayer duly authenticated by a Philippine or American consular or foreign affairs official may be considered adequate if only to terminate the numerous cases still pending in the Bureau. The matter is respectively submitted for consideration. Respectfully submitted: (SGD.) PRISCILLA R. GONZALES Acting Revenue Operations Head (Legal) APPROVED: MISAEL P. VERA Commissioner of Internal Revenue