BIR Ruling [DA-395-04]

July 21, 2004 BIR RULING [DA-395-04] Secs. 6; 43; 004-2003 Tae Sung Phils. Co., Inc. Philippine Economic Zone Authority (PEZA) Lot 3 & 5, Block 24, Phase IV, CEPZ, Rosario CAVITE Attention: Ms. Cristina Mendoza Manager Gentlemen : This refers to your letter dated May 05, 2004 requesting for an authority to use US Dollar as an alternative to using Philippine Peso, in financial statements that will be submitted for tax purposes. It is represented that your company is a PEZA-registered enterprise; that it is a Korean firm and its major shareholders are of Korean nationality; that its main activity is metal press and metal spray; that it has been in operation for about 10 years now and the volume of its transactions deal mostly in US Dollars except for some minor cases of transaction that requires Peso currency; that its need for US Dollar denominated financial statements is due to retained deficit on foreign currency loss carried over in years since 1997; that the retained deficit arises to P37 Million carried forward as of this date; and that the amount had actually created an adverse effect to its financial position with its bank and other users of the financial statement. In reply thereto, please be informed that in BIR Ruling No. 004-2003 dated June 3, 2003, this Office has already granted the said authority to the Joint Foreign Chambers of Commerce of the Philippines to the effect 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) 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. "IN VIEW OF THE FOREGOING, this Office, on the basis of Section 6 in relation to Section 43 both of the Tax Code, hereby agrees to grant authority 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 United States Dollars (US dollars); "2. The financial statements shall also be prepared and maintained in US dollars 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. SUCH BEING THE CASE, this Office hereby grants to Tae Sung Philippines Company, Inc., the authority to use US Dollars in its financial statements to be for tax purposes. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group