Davao International Container Terminal, Inc.

November 9, 2023 BIR RULING NO. OT-091-2023 Sec. 41 (i), Tax Code of 1997, as amended; BIR Ruling No. 049-16 Davao International Container Terminal, Inc. DICT Administrative Building Brgy. San Pedro, Panabo City 8105 Davao del Norte Attention: Mr. Alfred E. Samson Chief Financial Officer Gentlemen : This refers to your request on behalf of Davao International Container Terminal, Inc. ("DICT" or the "Company") for authority pursuant to Section 41 (i) of the National Internal Revenue Code (Tax Code) of 1997, as amended, to change its inventory method from first-in, first-out (FIFO) to moving average method for the following inventory items materials and supplies; construction supplies; spare parts; fuel, oils, and lubricants; and other supplies effective January 1, 2022. ASEcHI Documents show that DICT is a domestic corporation duly organized and existing under and by virtue of Philippine laws. It is primarily engaged in the business of providing and rendering general services incidental to and necessarily connected with, the operation of port terminals in the Philippines such as general commercial brokerage, stevedoring, lightering, towing and/or storing of cargo of all kinds. Per Corporate Secretary's Certificate dated October 15, 2021, the Board of Directors approved and authorized the Company to change its inventory costing method for the following items from their respective previous costing methods under Microsoft GP ERP (Enterprise Resource Planning) Software to their new costing methods under SAP (Systems Applications and Products) ERP Software: Inventory From To Materials and Supplies FIFO Moving Average Construction Supplies FIFO Moving Average Spare Parts FIFO Moving Average Fuel, Oils and Lubricants FIFO Moving Average Other Supplies FIFO Moving Average From the time of its incorporation, the Company has consistently adopted the FIFO method in costing its materials and supplies, construction supplies, spare parts, fuel, oils, and lubricants, and other supplies. In order to facilitate its cost accounting and optimize the use of its computerized system, the Company will install computerized cost accounting system (CAS). The CAS to be adopted is SAP ERP Software which recognizes the Moving Average method for materials and supplies, construction supplies, spare parts, fuel, oils, and lubricants, and other supplies. Hence, this request. cTDaEH In reply, please be informed that Section 41 of the Tax Code of 1997, as amended, provides that with the approval of the Commissioner, a change to a different method is authorized . In relation to the above Section of the Tax Code, Section 145 of Revenue Regulations No. 2 states: "Section 145. Valuation of Inventories. The law provides two tests to which each 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 can not 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 of 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." Since the change in DICT's accounting method is needed because of its adoption of the new CAS, which uses the Moving Average method rather than the FIFO method of inventory costing, the Company is hereby granted permission to change its accounting method from FIFO to Moving Average method for the following inventory items: materials and supplies, construction supplies, spare parts, fuel, oils, and lubricants, and other supplies effective January 1, 2022 pursuant to the provision of Section 41 of the Tax Code of 1997, as amended, provided that such method conforms nearly as possible to the best accounting practice in the trade or business, and it will clearly reflect the income of the company. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) ROMEO D. LUMAGUI, JR. Commissioner of Internal Revenue