Law Summary

Purpose and Scope

This memorandum circular provides guidelines for the conversion of the U.S. dollar and other foreign currencies to Philippine pesos, specifically for the collection of income taxes from non-resident citizens. It supplements Revenue Memorandum Circular No. 77-89 dated December 19, 1989.

• Purpose: To govern conversion rates for income tax assessment.
• Applicability: Non-resident citizens with income in foreign currencies.

Exchange Rate Conversion for Gross Income and Deductions

This section outlines the exchange rate to be used for converting gross income and deductions from foreign currencies to U.S. dollars.

• Legal Principle: The average interbank reference rate for the taxable year when the gross income was earned or deductions incurred shall be used for conversion.
• Key Definitions:
  • Average Interbank Reference Rate: The average rate published by the Central Bank of the Philippines.
• Requirements/Procedures:
  • Obtain the average rate from the U.S. Dollar Rates of Selected Currencies issued by the Central Bank.
  • If the currency is not listed, the International Tax Affairs Division will provide the applicable rate.
• Timeframes:
  • For the taxable year 1990, refer to EXHIBIT A for the U.S. Dollar Rate.

Conversion to Philippine Pesos

This section describes the conversion process from U.S. dollars to Philippine pesos.

• Legal Principle: The converted amounts in U.S. dollars shall be further converted to Philippine pesos at the average peso/dollar interbank reference rate for the taxable year.
• Key Definitions:
  • Peso/Dollar Monthly Averages: Report issued by the Central Bank of the Philippines.
• Important Details:
  • For the taxable year 1990, the average peso/dollar interbank reference rate is P24.3105 per U.S. dollar.

Payment of Tax Liabilities

This section details how tax liabilities should be converted and paid.

• Legal Principle: The prevailing peso/dollar interbank reference rate at the time of payment applies for converting tax liabilities to Philippine pesos.
• Procedures:
  • Tax liabilities in U.S. dollars must be converted using the rate published in national newspapers on the payment day.
  • If paying in other foreign currencies, convert the U.S. dollar amount to the foreign currency using the prevailing exchange rate at the foreign post during payment.

Deficiency Income Tax Assessment

This section addresses the treatment of any deficiency income tax determined after an audit.

• Legal Principle: Deficiency tax is calculated by deducting previous payments from the tax due.
• Requirements:
  • Convert the resulting deficiency tax from U.S. dollars to Philippine pesos using the prevailing interbank reference rate at the time of assessment.
• Important Details:
  • The calculation is based on the Transcript of Assessment prepared by the Bureau of Internal Revenue (BIR).

Amendments to Previous Memoranda

This section states that previous revenue memoranda inconsistent with these provisions are amended or modified accordingly.

• Legal Principle: All prior inconsistent instructions are superseded by this memorandum.

Key Takeaways

• The memorandum establishes a clear framework for converting foreign currency gross income and deductions to Philippine pesos for tax purposes.
• The average interbank reference rates must be used based on the taxable year of income or deductions.
• Tax liabilities must be converted at the rate applicable at the time of payment.
• Deficiency taxes are calculated based on previous payments and assessed accordingly.
• The memorandum modifies previous instructions to ensure consistency in tax administration.