Request to adopt the Estimated Remaining Useful Life After Rehabilitation of Assets Acquired from Sime Darby Philippines and Valuated as of October 17, 1996 Based on Independent Study of the Asian Appraisal Company, Inc. in Computing Depreciation Expense, for Both Tax and Financial Accounting Purposes

December 29, 1997 BIR RULING NO. 144-97 29 (f) 000-00 144-97 Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati City Attention: Atty . C . P . Noel Tax Division Gentlemen : This refers to your letter dated March 31, 1997, requesting on behalf of your client, Goodyear Philippines, Inc. (Goodyear), for confirmation that it be allowed to adopt in computing its depreciation expense, for both tax and financial accounting purposes the estimated remaining useful life after rehabilitation of the assets acquired from Sime Darby Philippines (Sime Darby) and valuated as of October 17, 1996 based on the independent study of the Asian Appraisal Company, Inc. (AACI). It appears that on May 9, 1996, Goodyear acquired the assets of Sime Darby, consisting mainly of buildings, other land improvements, machinery and equipment , located at Fortune Avenue, Barrio Bagumbayan, Marikina City; that Goodyear commissioned AACI to appraise and evaluate the remaining life of the acquired assets to determine the cost of reproduction, sound value and estimated useful life after rehabilitation of the acquired assets after the acquisition for depreciation purposes; that AACI rendered a study report (Study) stating that the remaining life of an asset is that estimated period of time, expressed in years, that subject asset is expected to perform in a satisfactory manner, the function for which was designed and built, assuming normal and reasonable maintenance; and that pursuant to the Study, the projected remaining life after rehabilitation of the acquired assets was determined in consideration of the approved rehabilitation cost totaling $17,816,000 . 00 incurred by Goodyear for the years 1996 to 1997. cdta In connection therewith, you are requesting confirmation that, for depreciation purposes, Goodyear be allowed to adopt the estimated useful life after rehabilitation of the assets acquired from Sime Darby as of May 9, 1996, as set forth in the Sound Value Appraisal and Remaining Useful Life Study of AACI, for both tax and financial accounting reporting purposes. In reply, please be informed that pursuant to Section 29 (f)(1) of the Tax Code, as amended, there shall be allowed as depreciation deduction a reasonable allowance for the exhaustion, wear and tear (including reasonable allowance for obsolescence) of property used in the trade or business. The term "reasonable allowance" shall include (but not limited to) an allowance computed in accordance with regulations prescribed by the Secretary of Finance, under any of the following methods: (A) The straight-line method; (B) Declining balance method, using a rate not exceeding twice the rate which would have been used had the annual allowance been computed under the method described in paragraph (f)(1) of Section 29 of the Tax Code, as amended; (C) The sum-of-the-years-digit method; and (D) Any other method which may be prescribed by the Secretary of Finance upon recommendation of the Commissioner of Internal Revenue. The proper allowance for depreciation of any property used in the trade or business is that amount which should be set aside for the taxable year in accordance with a reasonable consistent plan whereby the aggregate of the amount so set aside, plus the salvage value, will, at the end of the useful life of the property in business, equal the basis of the property. Due regard must be given to expenditures for current upkeep. (Section 105, Revenue Regulations No. 2) Moreover, 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 an apportionment of the capital sum over units of production. Whatever plan or method of 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 not 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 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 re-estimated in the light of the subsequent facts, and depreciation deductions taken accordingly. (Section 109, Revenue Regulations No. 2) Depreciation is a question of fact and is not measured by theoretical yardstick, but should be determined by a consideration of actual facts. Thus, the rates of depreciation on Bulletin "F" of the Federal Internal Revenue Service has some persuasive effect. (Limpan Investment Corporation vs. Commissioner of Internal Revenue, et al., No. L-21570, July 26, 1996). The remaining estimated useful life of the assets transferred from Sime Darby has been determined as that period of time, expressed in years, that an asset is expected to perform in a satisfactory manner the function for which it was designed and built, assuming normal and reasonable maintenance. The estimates of remaining life for each item of property had been based, in very large measure, upon the observed condition at the time of appraisal and condition of maintenance, and the consideration of normal rates of depreciation for the type of property. Such being the case, Goodyear may be allowed to adopt in computing its depreciation expense for both tax and financial accounting purposes the estimated remaining useful life after rehabilitation of the assets acquired from Sime Darby and valuated as of October 17, 1996, based on the independent study of AACI. 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. aisadc Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue