BIR Ruling [DA-294-06]

May 3, 2006 BIR RULING [DA-294-06] DA-545-04 SGV & Co . 6760 Ayala Avenue Makati City Attention: Mr . Joel L . Tan-Torres Partner, Tax Services Gentlemen : This refers to your letter dated February 2, 2006 requesting for a confirmation on behalf of your client, AGC Automotive Philippines, Inc. (AAPH), that the condonation of the liability of AAPH by Asahi Glass Co. Ltd. (AGC), its Japanese parent-company, does not give rise to taxable income on the part of AAPH nor to a donation subject to donor's tax on the part of AGC. It is represented that AGC Automotive Philippines, Inc. (AAPH) is a corporation incorporated under the laws of the Philippines and is engaged in the importation, assembly, distribution and marketing of automotive safety glass and related products on a wholesale basis; that AAPH is a wholly-owned subsidiary of Asahi Glass Co. Ltd. (AGC), a corporation incorporated under the laws of Japan; that AAPH employs Japanese nationals (expatriates) to work in the Philippines; that portions of the expatriates' compensation are being remitted back to the families of the expatriates in Japan by AAPH; that in 2004, AGC advanced the amount of P3,714,480.00 that should have been remitted by AAPH to the families of the expatriates; that AAPH then recognized those advances as its payable or liability to AGC; that AAPH did not claim the same as an expense in 2004 in determining its income tax liability; that AAPH incurred a loss of P12,509,551.00 in 2004 as reported in its income tax return; that in 2005, AGC advised AAPH that it will condone the amount that it advanced for AAPH in 2004; and that AAPH reversed the payable it recorded in 2004. ITaESD In reply, please be informed that since AAPH did not deduct the amount advanced by AGC as expense in 2004 and therefore did not derive any tax benefit therefrom, as shown in the income tax return and financial statements of AAPH in 2004, the condonation of the payable of AAPH by AGC does not give rise to taxable income, and considering that there was no donative intent on the part of AGC when it condoned such payable but made the condonation solely for business considerations, then the condonation is also not subject to donor's tax. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service