BIR Ruling [DA-251-05]

June 9, 2005 BIR RULING [DA-251-05] BIR Ruling No. DA-622-2004 NEC TOKIN Electronics (Philippines) Inc. 1 Ring Road, Light Industry & Science Park (LISP) II Barangay La Mesa, Calamba Laguna Attention: Mr. Hiroshi Akiho General Manager Finance and Administration Gentlemen : This refers to your letter dated January 26, 2005 indorsed by Acting Regional Director Merlinda L. Ordoyo on February 22, 2005 requesting for authority to use US Dollar as functional foreign currency in your financial statements for statutory reporting consistent with the provisions of SEC Memorandum Circular No. 14, series of 2003. It is represented that for the fiscal year ending March 31, 2005 onwards, your company would be using US Dollar as its functional currency in the preparation of your financial statement. In view of your request, you submitted a copy of the approval letter from Securities and Exchange Commission on the said change of functional currency from Philippine Peso to US Dollar subject to compliance with the applicable provisions of SEC Memorandum Circular No. 14, series of 2003. In reply, 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 Republic Act 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) allows 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. IDAESH 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 use foreign currency specifically US Dollar in financial statements subject to the following conditions: "1. The foreign currency to be used in the books shall be limited to the US Dollar; 2. The financial statements shall also be prepared and maintained in US Dollar 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. In any return, statement or other documents in which a conversion was made, the rate of exchange used shall be indicated thereon." 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 as null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group