BIR Ruling [UN-242-94]

August 16, 1994 BIR RULING [UN-242-94] Caltex (Philippines), Inc. G/F 6759 Ayala Avenue 1226 Makati, Metro Manila Attention: Ms . Joselia J . Poblador General Manager-Legal & Tax Gentlemen : This refers to your letter dated April 8, 1994 requesting confirmation of your opinion that the import duties and taxes you paid on certain capital equipment imported in 1993 can be deducted from your gross income for that year as taxes pursuant to Section 29 (c) of the Tax Code, as amended instead of capitalizing the same as part of cost of equipment and taking the usual depreciation deduction which has been the practice of your company; and that the same does not, in effect, involve a change in accounting method as would require prior BIR approval. In reply thereto, please be informed that taxes paid or accrued within the taxable year in connection with the taxpayer's profession, trade or business are deductible from its gross income. (Section 29(c)(1), Tax Code, as amended). However, if the capital equipment imported by Caltex in 1993 will be used in its VAT exempt operations, Caltex shall not be allowed to deduct from its gross income for the year 1993, the VAT paid on said importation as outright expense. Caltex should instead capitalize the same as part of the cost of the imported equipment and take up deductions for depreciation based on the estimated useful life of the equipment. Moreover, the foregoing circumstances do not involve a change in accounting method that would require the prior approval of the Commissioner of Internal Revenue. cdtech Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue