BIR Ruling No. 447-2020

Taat BUREAU OF INTERNAL REVENUE REPUBLICOF THE PHILIPPINES DEPARTMENT OF FINANCE

Quezon City

JY Campos Centre, 9th Ave. cor. 30th St.. Bonifacio Global City, Taguig City DEL MONTE PHILIPPINES,INC. Sec. 41 of the National BIR Ruling No. 250-14 Internal Revenue Code of 1997,as amended;Revenue Regulations No. 2 010747-2019 AUG 0 9 2019

Attention: SOPHIA AGNES V.JANDAYAN Chief Accountant

Gentlemen:

Philippines, Inc. (DMPI for brevity), for an authority to change its accounting method on inventory costing from Weighted Average method to First-In-First-Out (FIFO) method effective May 1, 2016. This refers to your letter dated July 29, 2016, requesting on behalf of Del Monte

Background:

of the Philippines and registered with the Securities and Exchange Commission (SEC) under Company Registration No. PHILPACK and PHILPAK. It is also registered with Revenue District Office (RDO) No. 122 with Taxpayers Identification Number (TIN) As represented, DMPI is a corporation duly organized under the laws of the Republic It is doing business under the name and style of and adopts Fiscal Year ending

Export Processing Zone as an Ecozone Export Enterprise under Certificate of Registration No. was also approved for the registration of its additional activity, particularly the Fresh Fruit processing project at the Bukidnon Agro-Resource Export Zone in Manolo Fortich, Bukidnon. registered with the Philippine Economic Zone Authority at the Philippine Packing Agricultural mainly under the brand names "Del Monte", "Todays ", and "S&W". Its cannery operation is DMPI is engaged primarily in growing, processing and distribution of food products dated December 03, 2007. On October 09, 2015, Certificate of Registration No.

corporation organized under the laws of the Republic of Panama. Its intermediate parent company is Del Monte Pacific Ltd. ("DMPL for brevity), a company incorporated in the and the Philippine Stock Exchange (PSE). It decided to adopt FIFOmethod of accounting in the costing of its raw materials, packaging materials, traded goods, and storeroom supplies for the following reasons: British Virgin Islands, and a listed entity in the Singapore Exchange Securities Trading Limited Moreover, DMPI is a wholly-owned subsidiary of Central American Resources, Inc., a

1. to align its inventory costing method with DMPL and other affiliates; thus. to the accounting practice of DMPL and other affiliates; relieve itself from the burden of converting its financial report to conform

2. to provide a valuation of inventory which is more reflective of the current

market values; currently, the costs of new and recent inventories are averaged with the older costs of inventories; and

DEL MONTE PHILIPPINES,INC. 'sa +

3.to establish a more effective and orderly inventory management system, under the FIFO" method; thus, minimizing losses caused by obsolete and perishable stocks. This reflects the character and nature of the inventories are the ones which should also be sold first. which are perishable stocks, and hence, the ones which were purchased first

accounting practice in the trade which will most clearly reflect its true income. Hence, this from weighted averagemethod to FIFO method will certainly conform to the best request. Given the foregoing reasons, DMPI submits that the change of its inventory costing

hereby granted permission to change its accounting method from "weighted average" method to "FIFO method, pursuant to the provisions of Section 4I of the National Internal Revenue Code of 1997, as amended, in relation to Section 145 of Revenue Regulations (RR) No. 2, pertinent portion of which provides that: In reply, please be informed that on the basis of the above representations, DMPI is

Commissioner, the use of inventories is necessary in order to determine clearly the income of any taxpaver, inventories shall be taken by such taxpayer upon 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. such basis as the Secretary of Finance, upon recommendation of"the "Section 41. Inventories. - Whenever in the judgment of the

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

taxable vears unless:

(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 scarcity, liquidity, marketability and price movements is such that inventory gains should be considered

income, profits, or loss in a more realistic manner: realized for tax purposes and, therefore, it is necessary to modify the valuation method for purposes of ascertaining the 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 taxpaver should be consistent from

vear 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.

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DEL MONTE PHILIPPINES, INC. 0T:7-201 AUG 0 9 2019

accounting practice as said "FIFO method will clearly reflect its income, this Office hereby grants authority to DMPI to change its accounting method of valuing its inventories from if upon investigation, it will be disclosed that the facts are different then the ruling shall be "weighted average method to FIFO method effective May 1, 2016. considered null and void. Considering that DMPI's change of its accounting method will best conform to its This ruling is being issued on the basis of the foregoing facts as represented. However,

Very truly yours,

K-I-LMAT Commissioner of Internal Revenue iesaran CAESAR R.DULAY - 035792

JREAUOFINTERNALRFVENUE

MAY 21 2023

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