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PLDTvs.NTC RepublicofthePhilippinesSUPREMECOURTManila SECONDDIVISION G.R.No.152685December4,2007 PHILIPPINELONGDISTANCETELEPHONECOMPANY,petitioner,vs.NATIONAL TELECOMMUNICATIONSCOMMISSION,JOSEPHA.SANTIAGO,inhiscapacityasNTC Commissioner,andEDGARDOCABARRIOS,inhiscapacityasChief,CCAD,respondents. RESOLUTION VELASCO,JR.,J.: 1 BeforeusisaPetitionforReviewonCertiorari underRule45oftheRulesofCourt.

Itassailsthe 2 February 12, 2001 Decision of the Court of Appeals (CA) in CAG.R. SP No. 61033, which dismissedpetitionersspecialcivilactionforcertiorariandprohibition,andtheMarch21,2002 3 Resolution of the CA denying petitioners motion for reconsideration. The petition raises the soleissueonwhethertheappellatecourterredinholdingthattheassessmentsoftheNational Telecommunications Commission (NTC) were contrary to our Decision in G.R. No. 127937 4 entitledNTCv.HonorableCourtofAppeals. 5 6 ThiscasepertainstoSection40(e) ofthePublicServiceAct (PSA),asamendedonMarch15, 1984, pursuant to Batas Pambansa Blg. 325, which authorized the NTC to collect from public telecommunicationscompaniesSupervisionandRegulationFees(SRF)ofPhP0.50foreveryPhP 100 or a fraction of the capital and stock subscribed or paid for of a stock corporation, partnershiporsingleproprietorshipofthecapitalinvested,orofthepropertyandequipment, whicheverishigher. Under Section 40 (e) of the PSA, the NTC sent SRF assessments to petitioner Philippine Long Distance Telephone Company (PLDT) starting sometime in 1988. The SRF assessments were basedonthemarketvalueoftheoutstandingcapitalstock,includingstockdividends,ofPLDT. PLDTprotestedtheassessmentscontendingthattheSRFoughttobebasedontheparvalueof its outstanding capital stock. Its protest was denied by the NTC and likewise, its motion for reconsideration. PLDTappealedbeforetheCA.TheCAmodifiedthedispositionof theNTCbyholdingthatthe SRF should be assessed at par value of the outstanding capital stock of PLDT, excluding stock dividends. WiththedenialoftheNTCspartialreconsiderationoftheCADecision,theissueofthebasisfor the assessment of the SRF was brought before this Court under G.R. No. 127937 wherein we ruled that the SRF should be based neither on the par value nor the market value of the outstanding capital stock but on the value of the stocks subscribed or paid including the premiums paid therefor, that is, the amount that the corporation receives, inclusive of the premiumsifany,inconsiderationoftheoriginalissuanceoftheshares.Weaddedthatinthe case of stock dividends, it is the amount that the corporation transfers from its surplus profit accounttoitscapitalaccount,thatis,theamountthestockdividendsrepresentisequivalentto thevaluepaidforitsoriginalissuance. PLDT wanted our July 28, 1999 Decision in G.R. No. 127937 clarified. It posited that the SRF should be based on the par value in consonance with our holding in Philippine Long Distance 7 Telephone Company v. Public Service Commission, and that the premiums on issued shares shouldnotbeincludedinthevaluationoftheoutstandingcapitalstock.ThroughourNovember 15,1999ResolutioninG.R.No.127937,weelucidatedthatourJuly28,1999decisionwasnotin conflict with our ruling in Philippine Long Distance Telephone Company since we never enunciated in the said case that the phrase "capital stock subscribed or paid" must be determinedatparvalue.Wereiteratedthattheterm"capitalstocksubscribedorpaid"isthe

amountthatthecorporationreceives,inclusiveofthepremiums,ifany,inconsiderationofthe originalissuanceoftheshares. Thereafter,tocomplywithourdispositioninG.R.No.127937,forthereassessmentoftheSRF basedonthevalueofthestockssubscribedorpaidincludingthepremiumspaidforthestocks, 8 9 ifany,theNTCsenttheassailedassessmentsofFebruary10,2000 andSeptember5,2000 to PLDT which included the value of stock dividends issued by PLDT. The assailed assessments werebasedonthescheduleofcapitalstocksubmittedbyPLDT. PLDTnowcontendsthatourdispositioninG.R.No.127937excludedstockdividendsfromthe SRF coverage, while the NTC asserts the contrary. Also, PLDT questions the assessments for violating our disposition in G.R. No. 127937 since these assessments were identical to the previousassessmentsfrom1988whichwerequestionedbyPLDTinG.R.No.127937forbeing basedonthemarketvalueofitsoutstandingcapitalstock. PLDTwrotealetterprotestingtheassailedFebruary10,2000assessmentwhichwasnotacted upon by the NTC. Instead, the NTC sent a second assailed assessment on September 5, 2000. Thus, in an attempt to clarify and resolve this issue, PLDT filed a Motion for Clarification of Enforcement of the Decision dated 28 July 1999 in G.R. No. 127937 which this Court simply notedforthecasehadalreadybecomefinalandexecutory. Thus,onOctober2,2000,PLDTinstitutedthespecialcivilactionforcertiorariandprohibition 10 docketedasCAG.R.SPNo.61033 beforetheCA.Tomaintainthestatusquoandtodeferthe enforcementoftheassailedassessmentsandsubsequentassessments,onOctober3,2000,the CAissuedaTemporaryRestrainingOrder.OnDecember4,2000,awritofpreliminaryinjunction wasgranted. Subsequently, on February 12, 2001, the CA rendered the assailed Decision dismissing the petition.Thedispositiveportionreads: WHEREFORE,thepetitionisDISMISSEDforlackofmerit,andthewritofpreliminaryinjunction 11 heretoforeissuedisDISSOLVED. PLDTsmotionforreconsiderationwasdeniedbytheCAsSpecialDivisionofFiveonMarch21, 2002. Hence,theinstantpetitionforreview,raisingthecoreissue: THECOURTOFAPPEALSERREDINHOLDINGTHATTHEDISPUTEDNTCASSESSMENTSWERENOT 12 CONTRARYTOTHEPURISIMADECISION. Thepetitionisbereftofmerit. PLDTarguesthatinourDecisioninG.R.No.127937wehaveexcludedfromthecoverageofthe SRFthecapitalstocksissuedasstockdividends.PetitionerarguesthatG.R.No.127937clearly delineatesbetweencapitalsubscribedandstockdividendstotheeffectthatthelatterarenot includedintheconceptofcapitalstocksubscribedbecausesubscribersorshareholdersdonot payfortheirsubscriptionsasnoamountisreceivedbythecorporationinconsiderationofsuch issuancessincetheseareeffectedasmerebookentries,thatis,thetransferfromtheretained earningsaccounttothecapitalorstockaccount.Tobolsteritsposition,PLDTrepeatedlyused the phrase "actual payments" received by a corporation as a consideration for issuances of shareswhichdonotapplytostockdividends. Wearenotpersuaded. Crucial in point is our disquisition in G.R. No. 127937 entitled National Telecommunications Commissionv.HonorableCourtofAppeals,whichwequote: Theterm"capital"andothertermsusedtodescribethecapitalstructureofacorporationareof universal acceptance and their usages have long been established in jurisprudence. Briefly, capitalreferstothevalueofthepropertyorassetsofacorporation.The capitalsubscribedis thetotalamountofthecapitalthatpersons(subscribersorshareholders)haveagreedtotake andpayfor,whichneednotnecessarilyby,andcanbemorethan,theparvalueoftheshares.

In fine, it is the amount that the corporation receives, inclusive of the premiums if any, in consideration of the original issuance of the shares. In the case of stock dividends, it is the amountthatthecorporationtransfersfromitssurplusprofitaccounttoitscapitalaccount.It is the same amount that can be loosely termed as the "trust fund" of the corporation. The "Trust Fund" doctrine considers this subscribed capital as a trust fund for the payment of the debtsofthecorporation,towhichthecreditorsmaylookforsatisfaction.Untiltheliquidation of the corporation, no part of the subscribed capital may be returned or released to the stockholder (except in the redemption of redeemable shares) without violating this principle. Thus,dividendsmustneverimpairthesubscribedcapital;subscriptioncommitmentscannotbe condonedorremitted;norcanthecorporationbuyitsownsharesusingthesubscribedcapital 13 astheconsiderationstherefor. (Emphasissupplied.) Twoconceptscanbegleanedfromtheabove.First,whatconstitutescapitalstockthatissubject to the SRF. Second, such capital stock is equated to the "trust fund" of a corporation held in trustassecurityforsatisfactiontocreditorsincaseofcorporateliquidation. The first asks if stock dividends are part of the outstanding capital stocks of a corporation insofarasitissubjecttotheSRF.Theyare.Thefirstissuewehavetotackleis,areallthestock dividends that are part of the outstanding capital stock of PLDT subject to the SRF? Yes, they are. PLDTscontention,thatstockdividendsarenotsimilarlysituatedasthesubscribedcapitalstock because the subscribers or shareholders do not pay for their issuances as no amount was received by the corporation in consideration of such issuances since these are effected as a merebookentry,iserroneous. Dividends,regardlessoftheformthesearedeclared,thatis,cash,propertyorstocks,arevalued at the amount of the declared dividend taken from the unrestricted retained earnings of a corporation.Thus,thevalueofthedeclarationinthecaseofastockdividendistheactualvalue of the original issuance of said stocks. In G.R. No. 127937 we said that "in the case of stock dividends,itistheamountthatthecorporationtransfersfromitssurplusprofitaccounttoits capital account" or "it is the amount that the corporation receives in consideration of the originalissuanceoftheshares."Itis"thedistributionofcurrentoraccumulatedearningstothe 14 shareholders of a corporation pro rata based on the number of shares owned." Such distributioninwhateverformisvaluedatthedeclaredamountormonetaryequivalent. Thus, it cannot be said that no consideration is involved in the issuance of stock dividends. In fact,thedeclarationofstockdividendsisakintoaforcedpurchaseofstocks.Bydeclaringstock dividends, a corporation ploughs back a portion or its entire unrestricted retained earnings eithertoitsworkingcapitalorforcapitalassetacquisitionorinvestments.Itissimplistictosay that the corporation did not receive any actual payment for these. When the dividend is distributed, it ceases to be a property of the corporation as the entire or portion of its unrestrictedretainedearningsisdistributedproratatocorporateshareholders. Whenstockdividendsaredistributed,theamountdeclaredceasestobelongtothecorporation butisdistributedamongtheshareholders.Consequently,theunrestrictedretainedearningsof thecorporationarediminishedbytheamountofthedeclareddividendwhilethestockholders equity is increased. Furthermore, the actual payment is the cash value from the unrestricted retainedearningsthateachshareholderforegoesforadditionalstocks/shareswhichhewould otherwisereceiveasrequiredbytheCorporationCodetobegiventothestockholderssubject 15 totheavailabilityandconditionedonacertainlevelofretainedearnings. Elsewiseput,where the unrestricted retained earnings of a corporation are more than 100% of the paidin capital stock, the corporate Board of Directors is mandated to declare dividends which the shareholders will receive in cash unless otherwise declared as property or stock dividends, whichinthelattercasethestockholdersareforcedtoforegocashinlieuofpropertyorstocks.

Inessence,therefore,thestockholdersbyreceivingstockdividendsareforcedtoexchangethe monetary value of their dividend for capital stock, and the monetary value they forego is considered the actual payment for the original issuance of the stocks given as dividends. Therefore, stock dividends acquired by shareholders for the monetary value they forego are underthecoverageoftheSRFandthebasisforthelatterissuchmonetaryvalueasdeclaredby theboardofdirectors. On the second issue, do the assailed NTC assessments violate the ruling in G.R. No. 127937? PLDTcontendsthatthesedidsincetheassessmentsareidenticaltothepreviousassessments from1988whichwerequestionedbyPLDTintheseminalG.R.No.127937forbeingbasedon themarketvalueofitsoutstandingcapitalstock. AcursoryreviewoftheassessmentsmadebytheNTCpriortoourJuly28,1999DecisioninG.R. No. 127937 and the assailed assessments of February 10, 2000 and September 5, 2000 does showthattheassessmentsaresubstantiallyidentical.InourJuly28,1999DecisioninG.R.No. 127937,wenoted,andsimilarlytrueinthepetitionbeforeus,that,"Theactualcapitalpaidor the amount of capital stock paid and for which PLDT received actual payments were not 16 disclosedorextantintherecordsbeforetheCourt." Hence,asbefore,wecannotfactuallydeterminewhethertheassailedassessmentssubstantially followedourDecisioninG.R.No.127937.Itisapparentthattheassessmentsareidenticaland that the NTC in the earlier case asserted that the SRF be based on the market value of the capitalstock,yetitassessedittoPLDT.However,acloserlookattheassailedassessmentsof February 13, 2000 and September 5, 2000 would show that the NTC based its assessment on thescheduleofcapitalstocksubmittedbyPLDT.PLDTdidnotdisputethis;itonlydisputedthe levelofassessmentwhichwasthesameasbefore. Now,whereshouldtheNTCbaseitsassessment?ItisincumbentuponPLDTtofurnishtheNTC theactualpaymentmadeonthesubscriptionofitscapitalstockinorderfortheNTCtoassess theproperSRF.Logically,theNTCwouldbaseitsSRFassessmentofPLDTfromPLDTdata. PLDTshouldnotbewailthattheassailedassessmentsaresubstantiallythesameassessmentsit protested in G.R. No. 127937. After all, it had not shown the actual figures of the amount of premiumsandsubscriptionsithadreceivedfortheoriginalissuancesofitscapitalstock.While indeed it submitted a table of the comparative assessments made by the NTC to this Court, PLDThasnotfurnishedtheNTCnorthisCourtthecorrectfiguresoftheactualpaymentsmade foritscapitalstock. We are not unaware that in accounting practice, the journal entries for transactions are recorded in historical value or cost. Thus, the purchase of properties or assets is recorded at acquisitioncost.Thesameistruewithliabilitiesandequitytransactionswheretheactualloan and the amount paid for the subscription are recorded at the actual payment, including the premiumspaidforthesubscriptionofcapitalstock. Moreover,itiscommonpracticethatthevaluesoftheaccountsrecordedathistoricalvalueor cost are not increased or decreased due to market forces. In the case of properties, the appreciationinvaluesisgenerallynotrecordedasincomenortheincreaseinthecorresponding assetbecausetheincreaseordecreaseisnotyetrealizeduntilthepropertyisactuallysold.The same is true with the capital account. The market value may be much higher than the actual payment of the par value and premium of capital stock. Still, the books of account will not reflectsuchincrease;andviceversa,anydecreaseofthevalueofstocksislikewisenotreflected inthebooksofaccount.Thus,giventhegeneralpracticethatbookentriesofthepremiumsand subscriptionsforcapitalstockaretheactualvaluefortheoriginalissuanceofstocks,thenthe NTCwascorrecttofollowthescheduleofcapitalstockssubmittedbyPLDT. Moreover, the "Trust Fund" doctrine, the second concept this Court elucidated in G.R. No. 127937andquotedabove,bolstersthecorrectnessoftheassessmentsmadebytheNTC.Asa

fund in trust for creditors in case of liquidation, the actual value of the subscriptions and the value of stock dividends distributed may not be decreased or increased by the fluctuating marketvalueofthestocks.Thus,absentanyshowingbyPLDToftheactualpaymentitreceived for the original issuance of its capital stock, the assessments made by the NTC, based on the schedule of outstanding capital stock of PLDT recorded at historical value payments made, is deemedcorrect. Anentstockdividends,thevaluetransferredfromtheunrestrictedretainedearningsofPLDTto thecapitalstockaccountpursuanttotheissuanceofstockdividendsistheproperbasisforthe assessmentoftheSRF,whichtheNTCcorrectlyassessed. WHEREFORE, we DENY the petition for lack of merit, and AFFIRM the February 12, 2001 DecisionandMarch21,2002ResolutioninCAG.R.SPNo.61033.Costsagainstpetitioner. SOORDERED. Quisumbing,ChairpersonCarpio,CarpioMorales,Tinga,JJ.,concur. SHARESOFSTOCK,CORPORATIONCODE,SEC69 Section 6. Classification of shares. The shares of stock of stock corporations may be divided intoclassesorseriesofshares,orboth,anyofwhichclassesorseriesofsharesmayhavesuch rights,privilegesorrestrictionsasmaybestatedinthearticlesofincorporation:Provided,That nosharemaybedeprivedofvotingrightsexceptthoseclassifiedandissuedas"preferred"or "redeemable"shares,unlessotherwiseprovidedinthisCode:Provided,further,Thatthereshall alwaysbeaclassorseriesofshareswhichhavecompletevotingrights.Anyoralloftheshares or series of shares may have a par value or have no par value as may be provided for in the articlesofincorporation:Provided,however,Thatbanks,trustcompanies,insurancecompanies, publicutilities,andbuildingandloanassociationsshallnotbepermittedtoissuenoparvalue sharesofstock. Preferredsharesofstockissuedbyanycorporationmaybegivenpreferenceinthedistribution of the assets of the corporation in case of liquidation and in the distribution of dividends, or suchotherpreferencesasmaybestatedinthearticlesofincorporationwhicharenotviolative oftheprovisionsofthisCode:Provided,Thatpreferredsharesofstockmaybeissuedonlywith a stated par value. The board of directors, where authorized in the articles of incorporation, mayfixthetermsandconditionsofpreferredsharesofstockoranyseriesthereof:Provided, Thatsuchtermsandconditionsshallbeeffectiveuponthefilingofacertificatethereofwiththe SecuritiesandExchangeCommission. Sharesofcapitalstockissuedwithoutparvalueshallbedeemedfullypaidandnonassessable andtheholderofsuchsharesshallnotbeliabletothecorporationortoitscreditorsinrespect thereto:Provided;Thatshareswithoutparvaluemaynotbeissuedforaconsiderationlessthan the value of five (P5.00) pesos per share: Provided, further, That the entire consideration receivedbythecorporationforitsnoparvaluesharesshallbetreatedascapitalandshallnot beavailablefordistributionasdividends. Acorporationmay,furthermore,classifyitssharesforthepurposeofinsuringcompliancewith constitutionalorlegalrequirements. Except as otherwise provided in the articles of incorporation and stated in the certificate of stock,eachshareshallbeequalinallrespectstoeveryothershare. Wherethearticlesofincorporationprovidefornonvotingsharesinthecasesallowedbythis Code,theholdersofsuchsharesshallneverthelessbeentitledtovoteonthefollowingmatters: 1.Amendmentofthearticlesofincorporation; 2.Adoptionandamendmentofbylaws;

3.Sale,lease,exchange,mortgage,pledgeorotherdispositionofallorsubstantiallyallofthe corporateproperty; 4.Incurring,creatingorincreasingbondedindebtedness; 5.Increaseordecreaseofcapitalstock; 6.Mergerorconsolidationofthecorporationwithanothercorporationorothercorporations; 7. Investment of corporate funds in another corporation or business in accordance with this Code;and 8.Dissolutionofthecorporation. Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular corporate act as provided in this Code shall be deemed to refer only to stocks with votingrights.(5a) Section7. Founders'shares.Founders'sharesclassifiedassuchinthearticlesofincorporation maybegivencertainrightsandprivilegesnotenjoyedbytheownersofotherstocks,provided thatwheretheexclusiverighttovoteandbevotedforintheelectionofdirectorsisgranted,it mustbeforalimitedperiodnottoexceedfive(5)yearssubjecttotheapprovaloftheSecurities andExchangeCommission.Thefiveyearperiodshallcommencefromthedateoftheaforesaid approvalbytheSecuritiesandExchangeCommission.(n) Section 8. Redeemable shares. Redeemable shares may be issued by the corporation when expresslysoprovidedinthearticlesofincorporation.Theymaybepurchasedortakenupbythe corporation upon the expiration of a fixed period, regardless of the existence of unrestricted retainedearningsinthebooksofthecorporation,anduponsuchothertermsandconditionsas maybestatedinthearticlesofincorporation,whichtermsandconditionsmustalsobestatedin thecertificateofstockrepresentingsaidshares.(n) Section9.Treasuryshares.Treasurysharesaresharesofstockwhichhavebeenissuedand fullypaidfor,butsubsequentlyreacquiredbytheissuingcorporationbypurchase,redemption, donationorthroughsomeotherlawfulmeans.Suchsharesmayagainbedisposedoffora reasonablepricefixedbytheboardofdirectors.(n) OUTSTANDINGCAPITALSTOCK,CC,SEC137 Section137.Outstandingcapitalstockdefined.Theterm"outstandingcapitalstock",asused inthisCode,meansthetotalsharesofstockissuedunderbindingsubscriptionagreementsto subscribersorstockholders,whetherornotfullyorpartiallypaid,excepttreasuryshares.(n) CAPITALGAINSTAXONSALEOFSHARES,NIRC,SEC2728 CHAPTERIVTAXONCORPORATIONS Section27.RatesofIncometaxonDomesticCorporations. (A)InGeneral. (B)ProprietaryEducationalInstitutionsandHospitals. (C)GovernmentownedorControlledCorporations,AgenciesorInstrumentalities. (D)RatesofTaxonCertainPassiveIncomes. (1)InterestfromDepositsandYieldoranyotherMonetaryBenefitfromDepositSubstitutesand fromTrustFundsandSimilarArrangements,andRoyalties. (2)CapitalGainsfromtheSaleofSharesofStockNotTradedintheStockExchange.Afinaltax attheratesprescribedbelowshallbeimposedonnetcapitalgainsrealizedduringthetaxable yearfromthesale,exchangeorotherdispositionofsharesofstockinadomesticcorporation exceptsharessoldordisposedofthroughthestockexchange:

NotoverP100,000 5% AmountinexcessofP100,000 10% (3)TaxonIncomeDerivedundertheExpandedForeignCurrencyDepositSystem (4)IntercorporateDividends. (5)CapitalGainsRealizedfromtheSale,ExchangeorDispositionofLandsand/orBuildings. Section28.RatesofIncomeTaxonForeignCorporations. (A)TaxonResidentForeignCorporations. (7)TaxonCertainIncomesReceivedbyaResidentForeignCorporation. (a) Interest from Deposits and Yield or any other Monetary Benefit from Deposit Substitutes, TrustFundsandSimilarArrangementsandRoyalties. (b)IncomeDerivedundertheExpandedForeignCurrencyDepositSystem. (c)CapitalGainsfromSaleofSharesofStockNotTradedintheStockExchange.Afinaltaxat the rates prescribed below is hereby imposed upon the net capital gains realized during the taxableyearfromthesale,barter,exchangeorotherdispositionofsharesofstockinadomestic corporationexceptsharessoldordisposedofthroughthestockexchange: NotoverP100,000 5% OnanyamountinexcessofP100,000 10% (d)IntercorporateDividends. (B)TaxonNonresidentForeignCorporation. (5)TaxonCertainIncomesReceivedbyaNonresidentForeignCorporation. (c) CapitalGainsfromSaleofSharesofStocknotTradedintheStockExchange.Afinaltaxat the rates prescribed below is hereby imposed upon the net capital gains realized during the taxableyearfromthesale,barter,exchangeorotherdispositionofsharesofstockinadomestic corporation,exceptsharessold,ordisposedofthroughthestockexchange: NotoverP100,000 5% OnanyamountinexcessofP100,000 10% CAPITALGAINSTAXONSALEOFSHARES,RR62008 CAPITALGAINSTAXONSALEOFSHARES,RMC792010 FAIRMARKETVALUE,BIRRULING792010 DIVIDENDTAX,NIRC CHAPTERIIITAXONINDIVIDUALS Section24.IncomeTaxRates. (B)RateofTaxonCertainPassiveIncome. (2)Cashand/orPropertyDividendsAfinaltaxatthefollowingratesshallbeimposeduponthe cashand/orpropertydividendsactuallyorconstructivelyreceivedbyanindividualfroma domesticcorporationorfromajointstockcompany,insuranceormutualfundcompaniesand regionaloperatingheadquartersofmultinationalcompanies,orontheshareofanindividualin thedistributablenetincomeaftertaxofapartnership(exceptageneralprofessional partnership)ofwhichheisapartner,orontheshareofanindividualinthenetincomeaftertax ofanassociation,ajointaccount,orajointventureorconsortiumtaxableasacorporationof whichheisamemberorcoventurer:

Sixpercent(6%)beginningJanuary1,1998; Eightpercent(8%)beginningJanuary1,1999; Tenpercent(10%beginningJanuary1,2000. Provided,however,Thatthetaxondividendsshallapplyonlyonincomeearnedonorafter January1,1998.IncomeformingpartofretainedearningsasofDecember31,1997shallnot, evenifdeclaredordistributedonorafterJanuary1,1998,besubjecttothistax. CHAPTERIVTAXONCORPORATIONS Section27.RatesofIncometaxonDomesticCorporations. ((D)RatesofTaxonCertainPassiveIncomes. (4) Intercorporate Dividends. Dividends received by a domestic corporation from another domesticcorporationshallnotbesubjecttotax. Section28.RatesofIncomeTaxonForeignCorporations. (A)TaxonResidentForeignCorporations. (7)TaxonCertainIncomesReceivedbyaResidentForeignCorporation. (d) Intercorporate Dividends. Dividends received by a resident foreign corporation from a domesticcorporationliabletotaxunderthisCodeshallnotbesubjecttotaxunderthisTitle. (B)TaxonNonresidentForeignCorporation. (5)TaxonCertainIncomesReceivedbyaNonresidentForeignCorporation. (b) Intercorporate Dividends. A final withholding tax at the rate of fifteen percent (15%) is hereby imposed on the amount of cash and/or property dividends received from a domestic corporation,whichshallbecollectedandpaidasprovidedinSection57(A)ofthisCode,subject to the condition that the country in which the nonresident foreign corporation is domiciled, shallallowacreditagainstthetaxduefromthenonresidentforeigncorporationtaxesdeemed to have been paid in the Philippines equivalent to twenty percent (20%) for 1997, nineteen percent (19%) for 1998, eighteen percent (18%) for 1999, and seventeen percent (17%) thereafter, which represents the difference between the regular income tax of thirtyfive percent (35%) in 1997, thirtyfour percent (34%) in 1998, and thirtythree percent (33%) in 1999,andthirtytwopercent(32%)thereafteroncorporationsandthefifteenpercent(15%)tax ondividendsasprovidedinthissubparagraph; Section73.DistributionofdividendsorAssetsbyCorporations. (A) DefinitionofDividends.Theterm'dividends'whenusedinthisTitlemeansanydistribution made by a corporation to its shareholders out of its earnings or profits and payable to its shareholders,whetherinmoneyorinotherproperty. Whereacorporationdistributesallofitsassetsincompleteliquidationordissolution,thegain realized or loss sustained by the stockholder, whether individual or corporate, is a taxable incomeoradeductibleloss,asthecasemaybe. (B) Stock Dividend. A stock dividend representing the transfer of surplus to capital account shall not be subject to tax. However, if a corporation cancels or redeems stock issued as a dividend at such time and in such manner as to make the distribution and cancellation or redemption,inwholeorinpart,essentiallyequivalenttothedistributionofataxabledividend, the amount so distributed in redemption or cancellation of the stock shall be considered as taxableincometotheextentthatitrepresentsadistributionofearningsorprofits. (C) Dividends Distributed are Deemed Made from Most Recently Accumulated Profits. Any distribution made to the shareholders or members of a corporation shall be deemed to have beenmadeformthemostrecentlyaccumulatedprofitsorsurplus,andshallconstituteapartof theannualincomeofthedistributeefortheyearinwhichreceived. (D) Net Income of a Partnership Deemed Constructively Received by Partners. The taxable

incomedeclaredbyapartnershipforataxableyearwhichissubjecttotaxunderSection27(A) of this Code, after deducting the corporate income tax imposed therein, shall be deemed to havebeenactuallyorconstructivelyreceivedbythepartnersinthesametaxableyearandshall betaxedtothemintheirindividualcapacity,whetheractuallydistributedornot. DOCUMENTARYSTAMPTAX,NIRC SECTION2.Section175oftheNationalInternalRevenueCodeof1997,asamended,ishereby renumberedasSection174andfurtheramendedasfollows: "SEC.174. StampTaxonOriginalIssueofSharesofStock.Oneveryoriginalissue,whetheron organization, reorganization or for any lawful purpose, of shares of stock by any association, companyorcorporation,thereshallbecollectedadocumentarystampofOnepeso(P1.00)on eachTwohundredpesos(P200),orfractionalpartthereof,oftheparvalue,ofsuchsharesof stock: Provided,Thatinthecaseoftheoriginalissueofsharesofstockwithoutparvalue,the amount of the documentary stamp tax herein prescribed shall be based upon the actual consideration for the issuance of such shares of stock: Provided, further, That in the case of stockdividends,ontheactualvaluerepresentedbyeachshare." SECTION3.Section176oftheNationalInternalRevenuecodeof1997,asamended,ishereby renumberedasSection175andfurtheramendedasfollows: "SEC.175.StampTaxonSales,AgreementstoSell.MemorandaofSales,DeliveriesorTransferof SharesorCertificatesofStock.Onallsales,oragreementstosell,ormemorandaofsales,or deliveries. Or transfer of shares or certificates of stock in any association, company, or corporation,ortransferofsuchsecuritiesbyassignmentinblank,orbydelivery,orbyanypaper or agreement, or memorandum or other evidences of transfer or sale whether entitling the holderinanymannertothebenefitofsuchstock,ortosecurethefuturepaymentofmoney,or for the future transfer of any stock, there shall be collected a documentary stamp tax of Seventyfivecentavos(P0.75)oneachTwohundredpesos(P200),orfractionalpartthereof,of the par value of such stock: Provided, That only one tax shall be collected on each sale or transferofstockfromonepersontoanother,regardlessofwhetherornotacertificateofstock is issued, indorsed, or delivered in pursuance of such sale or transfer: and Provided, further, That in the case of stock without par value the amount of the documentary stamp tax herein prescribedshallbeequivalenttotwentyfivepercent(25%)ofthedocumentarystamptaxpaid upontheoriginalissueofsaidstock." DOCUMENTARYSTAMPTAX,BIRRULINGDA9704 TAXTREATMENTOFCONVERSIONOFCOMMONTOPREFERREDSHARES,BIRRULINGDA030 05