BIR Ruling No. 166-61

April 6, 1961 BIR RULING NO. 166-61 MEMORANDUM FOR: The Chief, Income Tax Division (Thru the Revenue Operations Executive Assessment) B.I.R., Manila There is returned herewith the papers on the 1956 deficiency income tax liability of the International Harvester Co. of the Philippines. LLpr It is observed that the deficiency assessment is based on the inland and ocean freights and other charges expended by the International Harvester Co. of Chicago in sending the goods to the domestic company which the latter reimbursed and deducted from its gross income. This deduction is now being disallowed on the ground that they were expenses incurred outside the Philippines. It is observed further, however, that the goods were shipped to the domestic company FOB factory. If the domestic company reported as cost of the goods such FOB price, its deduction of the inland and ocean freights and other charges was proper because these items of expenses were actually part of the cost of the goods which it could have included in the cost instead of treating it as business expense. If the transactions are "at arm's length", inland and ocean freight and other charges may be considered part of the cost of corresponding imported goods. Accordingly, if the "disallowed" items can properly constitute part of the cost of goods sold for the corresponding taxable period, but taken up as expenses, the instant assessment finds no legal justification. Please be guided accordingly. prll (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue