BIR Ruling No. 250-14

June 30, 2014 BIR RULING NO. 250-14 Sec. 41 of the Tax Code of 1997; Revenue Regulations No. 2; BIR Ruling No. 034-12 Yokohama Tire Sales Philippines, Inc. Unit A2, First Midland Building 109 Gamboa St., Legaspi Village Makati City Attention: Vivienne Cruz Finance and Operations Manager Gentlemen : This refers to your letter dated November 11, 2011 which was received by this Office on the same date requesting for an authority to change its accounting method on inventory posting from "first-in-first-out" (FIFO) method to Monthly Weighted Average Method effective January 1, 2012. It is represented that YOKOHAMA TIRE SALES PHILIPPINES, INC. with Taxpayer's Identification No. (TIN) 208-918-647-000 is a corporation duly organized under the laws of the Philippines and it is registered with the Securities and Exchange Commission (SEC) under Registration No. A20018793. It is further represented that YOKOHAMA TIRE SALES PHILIPPINES, INC.'s Mother Company in Japan, THE YOKOHAMA RUBBER CORPORATION is requiring all its subsidiary and overseas sales office to use the in-house Sales and Logistics System called Global Compass and adapt the System Inventory Method which is the Monthly Weighted Average Inventory Method. ASTIED In reply, please be informed that on the basis of the above representations, YOKOHAMA TIRE SALES PHILIPPINES, INC. is hereby granted permission to change its accounting method from "first-in-first-out" (FIFO) method to Monthly Weighted Average Method pursuant to the provisions of Section 41 of the Tax Code of 1997, as amended, in relation to Section 145 of Revenue Regulations No. 2, pertinent portion of which provides that "SEC. 41. Inventories. Whenever in the judgment of the Commissioner, the use of inventories is necessary in order to determine clearly the income of any taxpayer, inventories shall be taken by such taxpayer upon such basis as the Secretary of Finance, upon recommendation of the Commissioner, may by rules and regulations, prescribe as conforming as nearly as may be to the best accounting practice in the trade or business and as most clearly reflecting the income. If a taxpayer, after having complied with the terms and conditions prescribed by the Commissioner, uses a particular method of valuing its inventory for any taxable year, then such method shall be used in all subsequent taxable years unless: "(i) with the approval of the Commissioner, a change to a different method is authorized; or cAaTED "(ii) the Commissioner finds that the nature of the stock on hand ( e.g. , its scarcity, liquidity, marketability and price movements is such that inventory gains should be considered realized for tax purposes and, therefore, it is necessary to modify the valuation method for purposes of ascertaining the income, profits, or loss in a more realistic manner: Provided, however, that the Commissioner shall not exercise his authority to require a change in inventory method more often than once every three (3) years: Provided, further, That any change in an inventory valuation method must be subject to approval by the Secretary of Finance. "Section 145. Valuation of Inventories. The law provides two tests to which inventory must conform. (1) it must conform as nearly as possible to the best accounting practice in the trade or business, and (2) it must clearly reflect the income. It follows, therefore, that inventory rules cannot be uniform but must give effect to trade customs which come within the scope of the best accounting practice in the particular trade or business. In order to clearly reflect income, the inventory practice of a taxpayer should be consistent from year to year, and greater weight is to be given to consistency than to any particular method of inventory or basis of valuation, as long as the method or basis used is substantially in accord with these regulations, an inventory that can be used under the best accounting practice in a balance sheet showing the financial position of the taxpayer is, as a general rule, regarded as clearly reflecting his income." Considering that YOKOHAMA TIRE SALES PHILIPPINES, INC. is being required by its Mother Company in Japan, THE YOKOHAMA RUBBER CORPORATION, to change its accounting method on inventory posting, this Office hereby grants authority to YOKOHAMA TIRE SALES PHILIPPINES, INC. to change its accounting method on inventory posting from "first-in-first-out" (FIFO) method to Monthly Weighted Average Method effective January 1, 2012. 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 the ruling shall be considered null and void. Recommending Approval: (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue Approved: (SGD.) CESAR V. PURISIMA Secretary Department of Finance