BIR Ruling No. 359-2021

BUREAU OF INTERNAL REVENUE REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE Quezon City

ET-359- } BlR Ruling No. 49-2016 14 Sec. 41, NIRC 2Q2

SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City

Attention: Atty. Revnante M. Marcelo Partner, Tax Services Gentlemen:

Unimart, Incorporated ("Unimart" or "the Company") for authority pursuant to Section 4 (i) method from First-In, First-Out (FIFO) to Moving Average method effective July l. 2019. of the National Internal Revenue Code (Tax Code) of 1997, as amended, to change its inventory This refers to your letter dated July 18, 2019 requesting on behaif of your client.

of wholesale and retail of general merchandise and grocery items. Iit is also a top 20.000 corporation. Unimart is owned 94% by Makati Supermarket Corporation (MSC) while its ultimate parent company is JHN Holding Company inc. As represented, Unimart, is a domestic corporation engaged primarily in the business

is the method recognized by the new CAS, effective July 1. 2019. costing of its inventories. On August 31, 2018, Unimart has applied for BIR authority to adopt Data Processing or SAP. The adoption by the Company of a new CAS wili ensure faster a new computerized accounting system (CAS) based on Systems Applications and Products in processing of data, reduction of the possibility of errors. easy storage and retrieval of data, thus the change will have the effect of clearly reflecting the income of Unimart. However, the new CAS uses Moving Average method rather than the FiFO method of inventory costing, which Since its incorporation, Unimart has been consistently using the FIFO method in the

provides: In reply, please be informed that Section 41 of the Tax Code of 1997, as amended.

Commissioner, the use of inventories is necessary in order to determine clearly "Section 4I. Inventories. --- Whenever in the judgment of the

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Page 2 of 3 SGV & Co. (Unimart, Incorporated)

as may be to the best accounting practice in the trade or business and as most clearly reflecting the income. the income of any taxpayer. inventories shall be taken by such taxpayer upon such basis as the Secretary of Finance, upon the recommendation of the Commissioner, may, by rules and regulations, prescribe as conforming as nearly

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: If a taxpayer, after having complied with the terms and conditions

(i) with the approval of the Commissioner, a change to a different method is authorized; or

(ii) the Commissioner finds that the nature of the stock on hand (e.g., its hy the Secretary of Finance. " (Emphasis provided.) 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 its authority to require a change in inventory method more ofien than once every three (3) years: Provided. further. That any change in an inventory valuation method must be subject to approval scarcity, liguidity, marketability and price movements) is such that inventory gains should be considered realized for tax purposes and.

Revenue Regulations No. 2 states: In relation, to the above section of the Tax Code of 1997, as amended. Section 145 of

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 hasis of valuation, as long as the method of hasis used is under the best accounting practice in a halance sheet showing the financial position of the taxpayer is. as a general rule, regarded as clearly reflecting his income. 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 substantially in accord with these regulations. an inventory that cun be used which each inventory must conform. -- (1) it must conform as nearly as possible "Section 145. Valuation of Inventories. -- The law provide's two tests to

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accounting method must conform to the best accounting practice in the trade or business, and Section 41 of the Tax Code of 1997, as amended. It is understood, however, that such the new CAS, which system uses the Moving Average method rather than the FIFO method of FIFO method to Moving Average method effective July l, 2019 pursuant to the provision of must clearly reflect the income of the company. inventory costing. Unimart is hereby granted permission to change its accounting method from Since the change in Unimart's accounting method is needed because of its adoption of

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

Very tru ly yours.

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Commissioner of Internal Revenue CAESAR R. DULAY

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