Quiason Makalintal Barot Torres & Ibarra

November 16, 2009 BIR RULING [DA-(TAR-12) 675-09] RMC 26-85; RMC 40-92; RR 6-06; 004-03; 144-85; 206-90; 137-97; 187-2007; DA-359-03; DA-146-2001; DA-084-2008; DA-413-03 Quiason Makalintal Barot Torres & Ibarra 21st Floor, Robinsons-Equitable Tower 4 ADB Avenue Corner Pedro Poveda Avenue 1605 Ortigas Center, Pasig City Attention: Atty. Benedict R. Tugonon Gentlemen : This refers to your letter dated October 1, 2009 requesting on behalf of your client, PETNET, INC., for confirmation of your opinion that PETNET, INC. may use, as uniform rate, the end day US Dollar exchange rate under the interbank reference rate published by the Bangko Sentral ng Pilipinas ("BSP Rate") as the exchange rate of the numerous US Dollar sale transactions undertaken by PETNET, INC. within the day in order to meet its Philippine Peso pay-out requirements, in accordance with the provisions of Revenue Memorandum Circular No. 26-85 and 40-92. It is represented that PETNET, INC. is a corporation duly organized and existing under the laws of the Republic of the Philippines, with its principal place of business at 114 Aguirre St., Legaspi Village, Makati City and is engaged in the business of money transfer service in the Philippines and is a duly appointed agent of Western Union and is likewise a licensed money changer, with authority to buy and sell foreign currencies; that it derives various payments in US Dollar from Western Union such as transaction fees, percentage of the gains from Western Union, and others payments which are remitted together with the relevant remittances of the Western Union clients; that upon receipt by your client of the various remittances and fees from Western Union, Western Union identifies the applicable US Dollar to Philippine Peso exchange rate applicable to each remittance; that under the agreement between Western Union, your client will undertake the pay-out to its clients subject to replenishment by Western Union within two (2) days from date of pay-out; that Western Union clients are given the option to receive pay-out either in Philippine Pesos or US Dollar, in order to pay-out Western Union clients who opt to get Philippine Pesos and to cover the other Philippine Peso expenses and requirements of your client, it sells US Dollars; that your client handles hundreds to thousands of pay-out transactions daily and consequently it undertakes equally numerous US Dollar sale transactions at various time of the day in order to meet the requirements of clients opting to get pay-out in Philippine Pesos; that actual exchange rate of each US Dollar sale transaction undertaken by our client varies or changes several times within the day and that it would be very difficult and impractical to keep tract of the exact exchange rate of each US Dollar sale transactions undertaken by our client given the sheer volume of the transactions undertaken in more than 130 branches of our client all over the Philippines; that your client utilizes US Dollar to pay some of its payables; that even if a substantial amount of its income and expenses are in US Dollar, the functional currency of your client for financial accounting purposes is still Philippine Pesos. TCHcAE In view of the foregoing representations, you now request for confirmation of your opinion that for purposes of determining foreign exchange gain or loss, your client may use as uniform rate the end day US Dollar exchange rate under the interbank reference rate published by the Bangko Sentral ng Pilipinas ("BSP Rate") as the exchange rate of the numerous US Dollar sale transactions undertaken by your client within the day in order to meet its Philippine Peso pay-out requirements, in accordance with the provisions of Revenue Memorandum Circular No. 26-85 and 40-92. In reply thereto, please be informed that Section 11 (2) (f) of Revenue Regulations (RR) No. 6-2006 provides: "For foreign currency income and expense items recognized in the reporting period, for each period presented ( i.e., including comparatives), translation should be based on exchange rates at the dates of the transactions. For practical reasons, a rate that approximates the actual exchange rates at the dates of the transactions, for example, an average rate for the period may be used to translate foreign currency income and expense items." Likewise, Revenue Memorandum Circular (RMC) No. 26-85 also provides: "a) the conversion rate to be applied shall be the prevailing interbank reference rate for the day of the transaction. b) In the event that the foreign exchange rate as stated in the above paragraph (a) is impractical or not feasible, the average interbank reference during the year shall apply. c) For the purpose of converting the tax liability in U.S. dollar to Philippine Peso, the prevailing interbank rate at the time of payment shall be applied when paid before the due date of the tax or the prevailing interbank reference rate at the due date of tax when paid on or after the due date of the tax. d) When currency involved is other than U.S. dollar, the foreign currency shall first be converted to U.S. dollar at the prevailing exchanges rate between the two currencies". (Emphasis supplied) cITAaD Following the afore-quoted provisions of RR No. 6-2006 and RMC No. 26-85, this Office confirms your opinion that PETNET, INC. may utilize the end day BSP Rate as the applicable exchange rate of the total US Dollar remittances and fees converted by its client during the day as the applicable rate for purposes of determining any foreign exchange gain or loss, depending on the fluctuation of the exchange rate between the date of remittance by Western Union and the end day BSP Rate when the US Dollars are sold. (BIR Ruling Nos. 004-03 dated June 3, 2003; DA-413-03 dated November 17, 2003 and DA(TAR-006) 491-08 dated December 4, 2008). 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service