BIR Ruling [DA-076-98]

March 11, 1998 BIR RULING [DA-076-98] KPMG Feliciano F. Miravite, Inc. 12th Floor, LV Locsin Bldg., 6752 Ayala corner, Makati Avenue 1226 City of Makati Attention: Mr . Feliciano F . Miravite President & Actuary Gentlemen : This refers to your letter dated December 1, 1997 requesting a ruling as to whether or not there will be a violation of BIR Ruling dated August 11, 1970 to the effect that "a person cannot be both an independent accountant and actuary of the same client", when KPMG Feliciano F. Miravite, Inc., an independent actuarial consulting company, performs actuarial and related services for clients of KPMG Fernandez, Santos and Lopez, an accounting firm which is a member firm of KPMG International. It is represented that effective July 1, 1997, KPMG Feliciano F. Miravite, Inc. became an affiliate firm of KPMG Consulting (Philippines), Inc. which is owned by KPMG Asian Pacific, a regional office of KPMG International; that KPMG Consulting (Philippines), Inc. was established to operate in areas related to management consulting services; that KPMG Feliciano F. Miravite, Inc. maintained its status as an independent consulting actuarial firm, responsible for undertaking actuarial and related studies for the clientele of KPMG Consulting (Philippines), Inc. and for KPMG Asia Pacific, Inc. both in the Philippines and in the Southeast Asia Region; that KPMG Feliciano F. Miravite, Inc. nonetheless continues to provide consulting services to its own clientele of private firms operating in the country; that KPMG Feliciano F. Miravite, Inc. pays royalty to KPMG Asia Pacific for the use of the KPMG International name, logo and for making available the use of expertise in many areas of the world not available locally; that on the other hand, KPMG Fernandez, Santos and Lopez is a member firm of auditors of KPMG International operating in the Philippines; and that KPMG Feliciano F. Miravite, Inc. is not related whatsoever, whether financial or organizational, with KPMG Fernandez, Santos and Lopez. In reply thereto, please be informed that in BIR Rulings dated February 16 and August 11, 1970, this Office held that "An actuary of an accounting firm cannot be considered an independent actuary within the purview of Revenue Regulations No. 1-68 with respect to actuarial reports he prepares on the retirement plans of employers of whom the accounting firm is the external auditor. This is for the reason that an actuary employed by an accounting firm actually prepares the report not in his individual capacity but for the firm wherein employed. "In effect, it is the opinion of this Office, that a person cannot be both an independent accountant and actuary of the same client" The word 'independent' means free from the influence, control, or determination of another or others; free from influence, persuasion or bias" (Webster's Dictionary, College Ed.) It is in this sense that the word 'independent' is used in Revenue Regulations No. 1-68, as amended by Revenue Regulations No. 1-83, implementing then Sec. 28 (b) (7) (A) of the Tax Code, as amended (now Section 32 (B)(6)(a) of the Tax Code of 1997). To be really independent, therefore, a consulting actuary must, in the exercise of his profession, be free from influence, control, persuasion or bias. Thus, KPMG Feliciano F. Miravite, Inc., although now an affiliate firm of KPMG Consulting (Philippines), Inc. performing actuarial and related studies for the clientele of KPMG Consulting (Philippines), Inc., as well as for its own clientele of private firms operating in the country, is not related whatsoever with KPMG Fernandez, Santos and Lopez, the accounting firm which is a member firm of KPMG International. Accordingly, it is an independent actuary within the purview of Revenue Regulations No. 1-68, as amended by Revenue Regulations 1-83, implementing Section 32(B)(6)(a) of the Tax Code, as amended with respect to actuarial and related services which it might render for the clients of KPMG Fernandez, Santos and Lopez. (BIR Ruling dated February 16 and August 11, 1970) LLphil This ruling is being issued on the basis of the facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)