BIR Ruling [DA-622-04]

December 8, 2004 BIR RULING [DA-622-04] DA 417-03 RCA Management And Business Consultants Room 688 Padilla-Delos Reyes Building 232 Juan Luna Street Binondo, Manila Attention: Ms. Luisa B. Rayos Managing Partner Gentlemen : This refers to your letter stating that your client, Takachiho Philippines, Inc. is a Japanese owned corporation registered with the Securities and Exchange Commission (SEC) on February 23, 2004 under SEC Registration No. CS-200402593; that it is also registered with the Philippine Economic Zone Authority (PEZA) on March 24, 2004 and established its operations at B5 L6 Laguna International Industrial Park, Mamplasan, Bian, Laguna; that it started its commercial operations on April 1, 2004; and its registered activities are, to wit: 1) Establishment of warehouse facility for the storage, deposit, safekeeping of goods for subsequent transfer directly to the ECOZONE plant of the PEZA-registered export enterprise-owner/consignee thereof; 2) Importation mainly from its parent company Takachiho Electric Co., Ltd. and affiliate companies such as Takachiho Singapore (Pte.) and/or procurement from other PEZA-registered enterprises of goods for resale, and/or re-exporting of goods for resale, or for packing/covering (including marking, labeling), cutting or altering to customer's specification, mounting and/or packaging into kits or marketable lots thereof for subsequent sale, transfer or disposition directly to PEZA-registered export enterprises, to clients abroad (for possible re-exporting in the future) and to export enterprises engaged in the semiconductor and electronics industry which are registered with BOI or operating at the Clark, Subic Economic Zones and other Special Economic Zones outside the administration of PEZA, for direct export, or for consignment to PEZA-registered export enterprises; 3) Products handled are mainly Electric Materials which includes adhesive such as tapes, silicon and solder, optical parts and materials such as optical film for LCD and other mechanical and non-mechanical materials such as molded parts for mobile forms and insulators; and 4) Possible marketing and sales support for an affiliate company based on a marketing agreement in the future. AHCaES that in the last seven months that Takachiho Philippines, Inc. is in operations, its revenues is dominated by 80% Japanese Yen and 20% US dollars; that its customers are mainly from the export processing zone, where the means of exchange are being tendered in foreign currencies for export-sales i.e., either direct or constructive exports; and that its parent company, Takachiho Electric Co., Ltd., in Minato-ku, Tokyo, Japan periodic reporting in Japanese Yen is being required as it is easier for the management to interpret financially. Based on the foregoing representations, you now request 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) 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 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 Takachiho Philippines, Inc. 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. 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group