BIR Ruling [DA-222-06]

April 7, 2006 BIR RULING [DA-222-06] DA 417-03 Hitachi Industrial Machinery Philippines Corp. (HIMAP) First Cavite Industrial Estate Dasmarias, Cavite Attention: Yuichi Keimi President Gentlemen : This refers to your letter dated October 7, 2004 which was referred to this Office by Revenue Region No. 9, San Pablo City dated January 31, 2005 requesting for an authority to use functional foreign currency specifically Japanese Yen in the financial statements to be submitted for tax purposes. In reply thereto, please be informed that this Office has found no statute or regulation that prohibits the use of foreign currency in financial statements of Philippine taxpayers. What the Tax Code requires is that the books be kept in a native language, English or Spanish ( Section 234, Tax Code of 1997 ). Besides, the prohibition against transactions in foreign currency has been lifted with the repeal of R.A. No. 529, the Uniform Currency Act. The Accounting Standards Council in its letter dated July 18, 2001, confirms that Philippine generally accepted accounting principles (GAAP) allow the use of foreign currency in financial statements. Finally, the use of foreign currency for companies whose functional currency is a foreign currency will more clearly reflect income considering that the use of Philippine pesos results in artificial foreign exchange losses which distort the real financial condition of these companies. The use of foreign currency is also revenue neutral. In the light of the foregoing and on the basis of Section 6 in relation to Section 43 both of the Tax Code, this Office hereby grants your request to authorize Hitachi Industrial Machinery Philippines Corporation (HIMAP) to use foreign currency in financial statements subject to the following conditions: "1. The foreign currency to be used in the books shall be limited to the Japanese Currency (Yen currency); "2. The financial statements shall also be prepared and maintained in Yen currency with a translation in Philippine pesos using the exchange rate provided under Revenue Memorandum Circular (RMC) No. 26-85; "3. Tax returns shall be prepared in Philippine pesos and taxes due shall be paid in Philippine pesos using the exchange rate provided in RMC No. 26-85; and "4. Or any return, statement or other documents in which a conversion was made, the rate of exchange used shall be indicated thereon." ( BIR Ruling No. DA417-03 dated November 18, 2003 ) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) PABLO M. BASTES, JR. OIC-Head Revenue Executive Assistant Legal Service