BIR Ruling No. 353-2022

BUREAU OF INTERNAL REVENUE REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE

Quezon City

k kng o 24 Section 34F3 of the Tax Code of 1997.as amended BIR Ruling No. 728-2019; JL192022

27F Net Lima Building,5th Avenue corner 26th Street Bonifacio Global City,Taguig City COCA-COLA FEMSA PHILIPPINES.INC

Attention: ATTY.NIGEL AVILA Tax Manager

Gentlemen:

bottles and cases in claiming depreciation, both for tax and financial accounting purposes. (CCFPI for brevity), for confirmation on the proposed change in accounting treatment for This refers to your request on behalf of Coca-Cola FEMSA Philippines, Inc.

Background:

non-alcoholic beverages, including juices and water. CCFPI is a domestic corporation engaged in the manufacture, distribution and sale of

owned subsidiary of Coca-Cola FEMSA, S.A.B. de C.V. Bebidas, S.L.while Coca-Cola South Asia Holdings,Inc. and Coca-Cola Holdings Overseas Ltd. owns 39% and 10% respectively.Controladora de Inversiones de Bebidas, S.L. is a wholly As of December 31,2016,CCFPI is 51% owned by Controladora de Inversiones de

is recorded as property, plant, and equipment, as follows: owner.Approximately thirty percent (30% is recorded as inventory and seventy percent (70% CCFPI currently treats its bottles and cases based on the old policy of its previous

Classification Bottles Cases (Approximately) Inventory 3% 30% Balance Sheet Treatment Approximately Fixed Assets 70% 70%

assets in accordance with the accounting treatment per Coca-Cola FEMSA, S.A.B. de C.V. policy, as follows: With the change in ownership, CCFPI needs to align the accounting treatment of its

Classification Bottles Cases Inventory 0% 0% Balance Sheet Treatment Fixed Assets 100% 100%

1 Formerly: Coca-Cola Bottlers Philippines, Inc. Now: Coca-Cola Beverages Philippines,Inc.

COCA-COLA FEMSA PHILIPPINES,INC T-353-2022 JUL 1 9 2022

cases starting January 1, 2017, as follows: From the foregoing, CCFPI proposes to change the accounting treatment of bottles and

Classification Bottles Cases Inventory 0% 0% Balance Sheet Treatment Fixed Assets 100% 100% Useful Life 4 years 7 years

of the said assets, as follows: CCFPI, below is the financial comparison of the effect of the change in accounting treatment Based on the Affidavit dated April 05, 2021 of Mr. Erwinson C. Baltazar, the Controller of With the said changes, CCFPI will now be recognizing depreciation on the said assets.

Bottles (2018 onwards) Bottles2017 Cases2017 Type of Asset Depreciation using old accounting treatment (Php) Depreciation using new accounting treatment (Php Difference (Php)

Cases2018 onwards

depreciation expense recorded in CCFPI's books amortized over the asset's useful life. of CCFPI,the latter is still collecting deposit value of the bottles for every sale of Coca-Cola glass bottles are returned. For every unreturned bottle, the customer shall pay the corresponding deposit value to CCFPI.The amount covered by customers' deposit shall be deducted from the products in Returnable Glass Bottles (RGB). The deposit value forms part of Accounts Receivable from customers and Container Deposit Liability accounts, subject for reversal once Per Letter dated March 08,2022 of Mr. Romano Maglalang,the Senior Tax Manager

reasonable allowance for obsolescence) of property used in the trade or business. depreciation deduction a reasonable allowance for the exhaustion, wear and tear (including Revenue Code (Tax Code of 1997, as amended, provides that there shall be allowed as a In reply thereto, please be informed that Section 34 (F(1) of the National Internal

computed in accordance with rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner, under any of the following methods: The term "reasonable allowance" shall include, but not limited to, an allowance

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 Subsection (F) (1); 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.[Sec.34 (F2,Tax Code of 1997,as amended]

Corollarily, Section 34 (F) (3) of the Tax Code of 1997, as amended, provides that

compensation income arising from personal services rendered under an emplover-emplovee relationship where no deductions shall be allowed under this Section, in computing taxable income subject to income tax under Sections "SEC. 34. Deductions from Gross Income. - Except for taxpavers earning

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COCA-COLA FEMSA PHILIPPINES, INC OT-353 -2022 JUL 1 9 2022

following deductions from gross income: 24(A): 25(A): 26:27(A).(B). and (C): and 28(A)),there shall be allowed the

FDepreciation.- XXX XXX XXX

XXX XXX XXX

Where under rules and regulations prescribed by the'Secretary of Finance upon rate of depreciation of any property, the rate so agreed upon shall be binding in the agreed rate and useful life of the depreciable property as specified in the agreement shall not be effective for taxable years prior to the taxable year in which notice in writing by certified mail or registered mail is served by the party initiating such change to the other party to the agreement: entered into an agreement in writing specifically dealing with the useful life and on both the taxpayer and the national Government in the absence of facts and circumstances not taken into consideration during the adoption of such agreement. The responsibility of establishing the existence of such facts and circumstances shall rest with the party initiating the modification. Any change recommendation of the Commissioner, the taxpaver and the Commissioner have (3) Agreement as to Useful Life on Which Depreciation Rate is Based. -

the part of the Commissioner or his duly authorized representatives, the aforesaid depreciable asset shall be considered binding for purposes of this and depreciation rate for any depreciable and claimed the depreciation expenses as deduction from his gross income, without any written objection on aforesaid useful life and depreciation rate so adopted by the taxpayer for the Subsection. Provided, however, that where the taxpaver has adopted such useful life

"Income Tax Regulations" reads Moreover, Section 105 of Revenue Regulations (RR) No. 2, otherwise known as the

property. Due regard must also be given to expenditures for current upkeep.' whereby the aggregate of the amount so set aside, plus the salvage value, will, business may be deducted from gross income: For convenience, such an any idea of a mere reduction in market value not resulting from exhaustion, wear and tear,or obsolescence. The proper allowance for such depreciation of any property used in the trade or business is that amount which should be set at the end of the useful life of the property in business, equal the basis of the exhaustion, wear and tear, and obsolescence of property used in the trade or allowance will usually be referred to as depreciation, excluding from the term aside for the taxable vear in accordance with a reasonable consistent plan "Section 105. Depreciation. A reasonable allowance for the

Furthermore, Section 109 of said RR No.2 likewise reads

production. Whatever plan or method of apportionment is adopted must be reasonable and must have due regard to operating conditions during the the deductions taken by him, such deductions must not be disallowed unless shown byclearand convincing evidenceto 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. property, either in equal instalment or in accordance with any other recognized trade practices, such as an apportionment of the capital sum over units of taxable period. While the burden of proof must rest upon the taxpayer to sustain capital sum to be replaced should be charged off over the useful life of the "Section 109. Method of computing depreciation allowance. be unreasonable.The The

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the property as re-estimated in the light of the subsequent facts, and depreciation deductions taken accordingly." (Emphasis supplied) of the cost of other basis of the property not already provided for through depreciation allowances should be spread over the remaining useful life of useful life as originally estimated under all the then known facts, the portion If it develops that the useful life of the property will be longer or shorter than

useful life and rate of depreciation of any property. The rate so agreed upon shall be binding longer reasonable, the law aliows the taxpayer to lengthen or shorten the useful life of the property in the light of prevailing factual considerations. on both the taxpayer and the Bureau of Internal Revenue (BIR). However, if it develops that the useful life of the property originally estimated under previous factual conditions is no Based on the foregoing, the taxpayer and the Commissioner may agree on the estimated

CCFPI and must be deducted from depreciation expense claimed by CCFPI. treatment of the above-mentioned assets of CCFPI in claiming depreciation, both for tax and 34(F of the Tax Code of 1997, as amended, provided, however, that any prior period adjustments shall be subject to deficiency income tax, interest and penalties, if warranted.3 Provided further, that amounts collected for unreturned bottles must be reported as income of financial accounting purposes,effective January 1,2017 pursuant to the provisions of Section In view of the foregoing, this Office hereby confirms the proposed change in accounting

if upon investigation, it will be disclosed that the facts are different then the ruling shall be considered null and void. This ruling is being issued on the basis of the foregoing facts as represented. However,

Very truly yours.

K-1-LMAT Commissioner of Internal Revenue LILIA CATRIS GUILLERMO hL C lui 000096

2 BIR Ruling No. 598-2012 dated October 25, 2012 3 BIR Ruling No. 728-2019 dated December 9, 2019

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