BIR Ruling [DA-379-04]

July 7, 2004 BIR RULING [DA-379-04] Sec. 46; Sec. 109; RR No. 2 DA-023-1-15-97; 048-96 Sansen Co., Ltd. Phil. Branch Cavite Export Processing Zone Rosario, Cavite Attention: Takashi Kotsuma Executive Vice-President Deputy Branch Manager Gentlemen : This refers to your letter dated September 18, 2002 which was forwarded to this Office by the Regional Director, Revenue Region No. 9, San Pablo City, requesting for an authority to allow your office to: 1. Change in accounting period from fiscal year ending May 31st to fiscal year ending September 30th; and 2. Change in method of computing depreciation from straight line to declining balance method. It is represented that Sansen Company, Limited (Sansen for brevity), is registered with the Cavite Economic Zone Authority. It is licensed to transact business in the Philippines as Branch Office of Sansen Co., Ltd of Japan as approved by the Securities and Exchange Commission on July 4, 1997. Following are the bases: 1. The request for a change in accounting period is necessary to synchronize and facilitate the consolidation process with the financial transactions of the Head Office which has its fiscal year ending September 30th; and 2. The request for a change in method of computing depreciation from straight line method to declining balance method is also necessary to be consistent with the method used by the Head Office. In reply, please be informed as follows: 1. Pursuant to Section 46 of the Tax Code of 1997, your request for a change in accounting period from fiscal year ending May 31st to fiscal year ending September 30th is hereby granted. However, a separate final adjustment return covering your operation for the period between the close of the former fiscal year and the date designated as the close of the new fiscal year shall be filed with the Revenue District Office No. 54, Trece Martirez City, on or before November 29, 2003 and the tax due thereon be paid at the time of filing ( BIR Ruling DA-023-1-15-97 ). Thereafter, your annual income tax return covering the twelve (12) month period from October 1 to September 30 of the following year should be filed on or before January 15 following the close of such fiscal year and the tax due thereon shall be paid at the time of filing. In filing the quarterly corporate income tax returns, the requirements of Title II Chapter XII of the Tax Code should be complied with. Finally, a copy of this letter should be attached to the separate final or adjustment income tax return to be filed by you. 2. Based on the foregoing representations, Sansen is hereby granted permission to change its method of computing depreciation from straight-line to declining balance method ( BIR Ruling No. 048-96 dated April 10, 1996 ) pursuant to the provisions of Section 109 of Revenue Regulations No. 2 which provides, viz : "Section 109. Method of Computing Depreciation Allowance . the capital sum to be replaced should be charged off over the useful life of the property, either in equal annual installments or in accordance with any other recognized trade practice, such as apportionment of the capital sum over units of production. Whatever plan or method or apportionment is adopted must be reasonable and must have due regard to operating conditions during the taxable period. While the burden of proof must rest upon the taxpayer to sustain the deductions taken by him, such deductions must be disallowed unless shown by clear and convincing evidence to be unreasonable. The reasonableness of any claim for depreciation shall be determined upon the conditions known to exist at the end of the period for which the return is made. If it develops that the useful life of the property will be longer or shorter than the useful life as originally estimated under all the then known facts, the portion of the cost or other basis of the property not already provided for through depreciation allowances should be spread over the remaining useful life of the property as reestimated in the light of the subsequent facts, and depreciation deductions taken accordingly." 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group