Professional Documents
Culture Documents
Income Tax Reviewer
Income Tax Reviewer
PAGE- 1
ventures taxable as corporations, associations and recreation or The terms shall be construed according to the method of
amusement clubs (such as golf, polo or similar clubs), and accounting upon the basis of which the net income is computed
mutual fund certificates. under this Title.
The term means borrowing funds from twenty (20) or more or exchange of property which is not a capital asset as defined in
personal or corporate lenders at any one time, through the Section 39(A)(1). The term 'ordinary loss' includes any loss from
issuance, endorsement, or acceptance of debt instruments of any the sale or exchange of property which is not a capital asset. Any
kind other than deposits for the borrower's own account, or loss from the sale or exchange of property which is treated or
through the issuance of certificates of assignment or similar considered, under other provisions of this Title, as 'ordinary loss'
instruments, with recourse, or of repurchase agreements for shall be treated as loss from the sale or exchange of property
purposes of relending or purchasing receivables and other which is not a capital asset.
similar obligations: Provided, however, That commercial,
industrial and other non-financial companies, which borrow RANK AND FILE EMPLOYEES
funds through any of these means for the limited purpose of The term shall mean all employees who are holding neither
financing their own needs or the needs of their agents or dealers, managerial nor supervisory position as defined under existing
shall not be considered as performing quasi-banking functions. provisions of the Labor Code of the Philippines, as amended.
support and maintenance; data processing and communications; The real party in interest being the mother corporation in the United
and business development. States, it follows that American entity is the real party in interest, and
should have been the claimant in this case.
LONG-TERM DEPOSIT OR INVESTMENT CERTIFICATES
The term shall refer to certificate of time deposit or investment Closely intertwined with the first assignment of error is the issue of
in the form of savings, common or individual trust funds, deposit whether or not PMC-U.S.A. is a non-resident foreign corporation under
substitutes, investment management accounts and other Section 24(b)(1) of the Tax Code (the subsidiary of an American) a
investments with a maturity period of not less than five (5) domestic corporation domiciled in the United States, is entitled under
years, the form of which shall be prescribed by the Bangko the U.S. Tax Code to a United States Foreign Tax Credit equivalent to at
Sentral ng Pilipinas (BSP) and issued by banks only (not by least the 20 percentage paid portion (of the 35% dividend tax) spared or
nonbank financial intermediaries and finance companies) to waived as otherwise considered or deemed paid by the government. The
individuals in denominations of Ten thousand pesos (P10,000) law pertinent to the issue is Section 902 of the U.S. Internal Revenue
and other denominations as may be prescribed by the BS. Code, as amended by Public Law 87-834, the law governing tax credits
granted to U.S. corporations on dividends received from foreign
TAXPAYER corporations, which to the extent applicable reads:
Refers to any person subject to tax imposed by this Title.
SEC. 902 - CREDIT FOR CORPORATE STOCKHOLDERS IN
PERSONS FOREIGN CORPORATION.
It means an individual, a trust, estate or corporation (a) Treatment of Taxes Paid by Foreign Corporation - For purposes of this
subject, a domestic corporation which owns at least 10 percent of the
PERSONS LIABLE TO TAX voting stock of a foreign corporation from which it receives dividends in
any taxable year shall-
CIR V. PROCTER AND GAMBLE
204 SCRA 378 (1) to the extent such dividends are paid by such foreign corporation out
of accumulated profits [as defined in subsection (c) (1) (a)] of a year for
FACTS: which such foreign corporation is not a less developed country
PMC paid a 25-35% tax on its income for a relevant year. Thereafter, corporation, be deemed to have paid the same proportion of any income,
deriving at its net income, it declared dividends for the benefit of PMC- war profits, or excess profits taxes paid or deemed to be paid by such
USA. From this declared dividends, it paid a 25% tax, as per taxation foreign corporation to any foreign country or to any possession of the
laws. The company did the same for the next few quarters. Then, United States on or with respect to such accumulated profits, which the
contending that it is the withholding agent for the tax paid on the amount of such dividends (determined without regard to Section 78)
dividends paid to PMC-USA, it requested for the refund of its alleged bears to the amount of such accumulated profits in excess of such income,
overpayments of taxes. The company was denied the refund and war profits, and excess profits taxes (other than those deemed paid); and
coursing through the CTA, the latter ruled in its favor.
(2) to the extent such dividends are paid by such foreign corporation out
HELD: of accumulated profits [as defined in subsection (c) (1) (b)] of a year for
The submission of the Commissioner of Internal Revenue that PMC-Phil. which such foreign corporation is a less-developed country corporation,
is but a withholding agent of the government and therefore cannot claim be deemed to have paid the same proportion of any income, war profits,
reimbursement of the alleged over paid taxes, is completely meritorious. or excess profits taxes paid or deemed to be paid by such foreign
The Secretary or his delegate shall have full power to determine from the (4) Those who are naturalized in the accordance with law.
accumulated profits of what year or years such dividends were paid, Section 2. Natural-born citizens are those who are citizens of the
treating dividends paid in the first 20 days of any year as having been Philippines from birth without having to perform any act to acquire or
paid from the accumulated profits of the preceding year or years (unless perfect their Philippine citizenship. Those who elect Philippine
to his satisfaction shows otherwise), and in other respects treating citizenship in accordance with paragraph (3), Section 1 hereof shall be
dividends as having been paid from the most recently accumulated gains, deemed natural-born citizens.
profits, or earnings.
NONRESIDENT CITIZEN
There is nothing in the aforecited provision that would justify tax return
1. A citizen of the Philippines who establishes to the satisfaction of
of the disputed 15% to the private respondent. Furthermore, as ably
the Commissioner the fact of his physical presence abroad with
argued by the petitioner, the private respondent failed to meet certain
a definite intention to reside therein.
conditions necessary in order that the dividends received by the non-
2. A citizen of the Philippines who leaves the Philippines during
resident parent company in the United States may be subject to the
the taxable year to reside abroad, either as an immigrant or for
preferential 15% tax instead of 35%. Among other things, the private
employment on a permanent basis.
respondent failed: (1) to show the actual amount credited by the U.S.
3. A citizen of the Philippines who works and derives income from
government against the income tax due from PMC-U.S.A. on the
abroad and whose employment thereat requires him to be
dividends received from private respondent; (2) to present the income tax
physically present abroad most of the time during the taxable
return of its mother company for 1975 when the dividends were received;
year.
and (3) to submit any duly authenticated document showing that the
4. A citizen who has been previously considered as nonresident
U.S. government credited the 20% tax deemed paid in the Philippines.
citizen and who arrives in the Philippines at any time during
the taxable year to reside permanently in the Philippines shall
likewise be treated as a nonresident citizen for the taxable year Estate/trusts Depends
in which he arrives in the Philippines with respect to his income Corporations
derived from sources abroad until the date of his arrival in the Domestic w/in, w/out
Philippines.
Foreign Resident w/in
5. The taxpayer shall submit proof to the Commissioner to show
Non- w/in
his intention of leaving the Philippines to reside permanently
resident
abroad or to return to and reside in the Philippines as the case
may be for purpose of this Section.
TAN V. CIR
ALIENS GR L-109289, OCTOBER 3, 1994
GENERAL PROFESSIONAL PARTNERSHIP The several propositions advanced by petitioners revolve around the
Are partnerships formed by persons for the sole purpose of question of whether or not public respondents have exceeded their
exercising their common profession, no part of the income of authority in promulgating Section 6, Revenue Regulations No. 2-93, to
which is derived from engaging in any trade or business. carry out Republic Act No. 7496.
The Court, first of all, should like to correct the apparent misconception Corporations, (3) Estates under Judicial Settlement and (4) Irrevocable
that general professional partnerships are subject to the payment of Trusts (irrevocable both as to corpus and as to income).
income tax or that there is a difference in the tax treatment between
individuals engaged in business or in the practice of their respective Partnerships are, under the Code, either "taxable partnerships" or
professions and partners in general professional partnerships. The fact of "exempt partnerships." Ordinarily, partnerships, no matter how created
the matter is that a general professional partnership, unlike an ordinary or organized, are subject to income tax (and thus alluded to as "taxable
business partnership (which is treated as a corporation for income tax partnerships") which, for purposes of the above categorization, are by law
purposes and so subject to the corporate income tax), is not itself an assimilated to be within the context of, and so legally contemplated as,
income taxpayer. The income tax is imposed not on the professional corporations. Except for few variances, such as in the application of the
partnership, which is tax exempt, but on the partners themselves in "constructive receipt rule" in the derivation of income, the income tax
their individual capacity computed on their distributive shares of approach is alike to both juridical persons. Obviously, SNIT is not
partnership profits. intended or envisioned, as so correctly pointed out in the discussions in
Congress during its deliberations on Republic Act 7496, aforequoted, to
There is, then and now, no distinction in income tax liability between a cover corporations and partnerships which are independently subject to
person who practices his profession alone or individually and one who the payment of income tax.
does it through partnership (whether registered or not) with others in
the exercise of a common profession. Indeed, outside of the gross "Exempt partnerships," upon the other hand, are not similarly identified
compensation income tax and the final tax on passive investment income, as corporations nor even considered as independent taxable entities for
under the present income tax system all individuals deriving income income tax purposes. A general professional partnership is such an
from any source whatsoever are treated in almost invariably the same example. 4 Here, the partners themselves, not the partnership (although
manner and under a common set of rules. it is still obligated to file an income tax return [mainly for administration
and data]), are liable for the payment of income tax in their individual
We can well appreciate the concern taken by petitioners if perhaps we capacity computed on their respective and distributive shares of profits.
were to consider Republic Act No. 7496 as an entirely independent, not In the determination of the tax liability, a partner does so as an
merely as an amendatory, piece of legislation. The view can easily individual, and there is no choice on the matter. In fine, under the Tax
become myopic, however, when the law is understood, as it should be, as Code on income taxation, the general professional partnership is deemed
only forming part of, and subject to, the whole income tax concept and to be no more than a mere mechanism or a flow-through entity in the
precepts long obtaining under the National Internal Revenue Code. To generation of income by, and the ultimate distribution of such income to,
elaborate a little, the phrase "income taxpayers" is an all embracing term respectively, each of the individual partners.
used in the Tax Code, and it practically covers all persons who derive
taxable income. The law, in levying the tax, adopts the most Section 6 of Revenue Regulation No. 2-93 did not alter, but merely
comprehensive tax situs of nationality and residence of the taxpayer confirmed, the above standing rule as now so modified by Republic Act
(that renders citizens, regardless of residence, and resident aliens subject No. 7496 on basically the extent of allowable deductions applicable to all
to income tax liability on their income from all sources) and of the individual income taxpayers on their non-compensation income. There is
generally accepted and internationally recognized income taxable base no evident intention of the law, either before or after the amendatory
(that can subject non-resident aliens and foreign corporations to income legislation, to place in an unequal footing or in significant variance the
tax on their income from Philippine sources). In the process, the Code income tax treatment of professionals who practice their respective
classifies taxpayers into four main groups, namely: (1) Individuals, (2) professions individually and of those who do it through a general
professional partnership.
(1) In General. - The tax shall be computed upon the taxable income
ESTATES AND TRUSTS of the estate or trust and shall be paid by the fiduciary, except as
provided in Section 63 (relating to revocable trusts) and Section 64
SEC. 60. Imposition of Tax. - (relating to income for the benefit of the grantor).
(A) Application of Tax. - The tax imposed by this Title upon individuals (2) Consolidation of Income of Two or More Trusts. - Where, in the
shall apply to the income of estates or of any kind of property held in case of two or more trusts, the creator of the trust in each instance is the
trust, including: same person, and the beneficiary in each instance is the same, the
taxable income of all the trusts shall be consolidated and the tax
(1) Income accumulated in trust for the benefit of unborn or provided in this Section computed on such consolidated income, and such
unascertained person or persons with contingent interests, and income proportion of said tax shall be assessed and collected from each trustee
accumulated or held for future distribution under the terms of the will or which the taxable income of the trust administered by him bears to the
trust; consolidated income of the several trusts.
(2) Income which is to be distributed currently by the fiduciary to the SEC. 61. Taxable Income. - The taxable income of the estate or trust
beneficiaries, and income collected by a guardian of an infant which is to shall be computed in the same manner and on the same basis as in the
be held or distributed as the court may direct; case of an individual, except that:
(3) Income received by estates of deceased persons during the period of
administration or settlement of the estate; and (A) There shall be allowed as a deduction in computing the taxable
(4) Income which, in the discretion of the fiduciary, may be either income of the estate or trust the amount of the income of the estate or
distributed to the beneficiaries or accumulated. trust for the taxable year which is to be distributed currently by the
(B) Exception. - The tax imposed by this Title shall not apply to fiduciary to the beneficiaries, and the amount of the income collected by
employee's trust which forms part of a pension, stock bonus or profit- a guardian of an infant which is to be held or distributed as the court
sharing plan of an employer for the benefit of some or all of his may direct, but the amount so allowed as a deduction shall be included in
employees (1) if contributions are made to the trust by such employer, or computing the taxable income of the beneficiaries, whether distributed to
employees, or both for the purpose of distributing to such employees the them or not. Any amount allowed as a deduction under this Subsection
earnings and principal of the fund accumulated by the trust in shall not be allowed as a deduction under Subsection (B) of this Section
accordance with such plan, and (2) if under the trust instrument it is in the same or any succeeding taxable year.
impossible, at any time prior to the satisfaction of all liabilities with
respect to employees under the trust, for any part of the corpus or income (B) In the case of income received by estates of deceased persons during
to be (within the taxable year or thereafter) used for, or diverted to, the period of administration or settlement of the estate, and in the case
purposes other than for the exclusive benefit of his employees: Provided, of income which, in the discretion of the fiduciary, may be either
That any amount actually distributed to any employee or distributee distributed to the beneficiary or accumulated, there shall be allowed as
shall be taxable to him in the year in which so distributed to the extent an additional deduction in computing the taxable income of the estate or
that it exceeds the amount contributed by such employee or distributee. trust the amount of the income of the estate or trust for its taxable year,
which is properly paid or credited during such year to any legatee, heir or
(C) Computation and Payment. - beneficiary but the amount so allowed as a deduction shall be included in
computing the taxable income of the legatee, heir or beneficiary.
(C) In the case of a trust administered in a foreign country, the acting in any fiduciary capacity, shall render, in duplicate, a return of
deductions mentioned in Subsections (A) and (B) of this Section shall not the income of the person, trust or estate for whom or which they act, and
be allowed: Provided, That the amount of any income included in the be subject to all the provisions of this Title, which apply to individuals in
return of said trust shall not be included in computing the income of the case such person, estate or trust has a gross income of Twenty thousand
beneficiaries. pesos (P20,000) or over during the taxable year. Such fiduciary or person
filing the return for him or it, shall take oath that he has sufficient
SEC. 62. Exemption Allowed to Estates and Trusts. - For the purpose of knowledge of the affairs of such person, trust or estate to enable him to
the tax provided for in this Title, there shall be allowed an exemption of make such return and that the same is, to the best of his knowledge and
Twenty thousand pesos (P20,000) from the income of the estate or trust. belief, true and correct, and be subject to all the provisions of this Title
which apply to individuals: Provided, That a return made by or for one or
SEC. 63. Revocable Trusts. - Where at any time the power to revest in two or more joint fiduciaries filed in the province where such fiduciaries
the grantor title to any part of the corpus of the trust is vested (1) in the reside; under such rules and regulations as the Secretary of Finance,
grantor either alone or in conjunction with any person not having a upon recommendation of the Commissioner, shall prescribe, shall be a
substantial adverse interest in the disposition of such part of the corpus sufficient compliance with the requirements of this Section.
or the income therefrom, or (2) in any person not having a substantial
adverse interest in the disposition of such part of the corpus or the SEC. 66. Fiduciaries Indemnified Against Claims for Taxes Paid. -
income therefrom, the income of such part of the trust shall be included Trustees, executors, administrators and other fiduciaries are indemnified
in computing the taxable income of the grantor. against the claims or demands of every beneficiary for all payments of
taxes which they shall be required to make under the provisions of this
SEC. 64. Income for Benefit of Grantor.- Title, and they shall have credit for the amount of such payments against
the beneficiary or principal in any accounting which they make as such
(A) Where any part of the income of a trust (1) is, or in the discretion of trustees or other fiduciaries.
the grantor or of any person not having a substantial adverse interest in
the disposition of such part of the income may be held or accumulated for CIR V. VISAYAS ELECTRIC
future distribution to the grantor, or (2) may, or in the discretion of the 23 SCRA 715
grantor or of any person not having a substantial adverse interest in the
disposition of such part of the income, be distributed to the grantor, or (3) FACTS:
is, or in the discretion of the grantor or of any person not having a Visayas Electric was given legislative franchise to operate and maintain
substantial adverse interest in the disposition of such part of the income an electric light, heat, and power system in the City of Cebu, certain
may be applied to the payment of premiums upon policies of insurance on municipalities in the Province of Cebu, and other surrounding places.
the life of the grantor, such part of the income of the trust shall be In a board of directors' meeting, respondent company established a
included in computing the taxable income of the grantor. pension fund, known as the "Employees' Reserve for Pensions." Said fund
(B) As used in this Section, the term 'in the discretion of the grantor' is for the benefit of its "present and future" employees, in the event of
means in the discretion of the grantor, either alone or in conjunction with retirement, accident or disability. Every month thereafter an amount has
any person not having a substantial adverse interest in the disposition of been set aside for this purpose. It is taken from the gross operating
the part of the income in question. receipts of the company. This reserve fund was later invested by the
company in stocks of San Miguel Brewery, Inc., for which dividends have
SEC. 65. Fiduciary Returns. - Guardians, trustees, executors, been regularly received. But these dividends were not declared for tax
administrators, receivers, conservators and all persons or corporations, purposes.
at all as the company's "receipts, revenues and profits" which are exempt
It was in a letter that the Auditor General gave notice that as the from income tax.
company has retained full control of the fund, therefore, the dividends
are not tax exempt; but that such dividends may be excluded from gross CIR V. CA, CTA, GCL RETIREMENT PLAN
receipts for franchise tax purposes, provided the same are declared for 207 SCRA 487
income tax purposes.
FACTS:
In pursuance of the above letter, the Provincial Auditor of Cebu allowed Private Respondent, GCL Retirement Plan (GCL, for brevity) is an
the company the option to declare the dividends either as part of the employees' trust maintained by the employer, GCL Inc., to provide
company's income for income tax purposes or as part of its income for retirement, pension, disability and death benefits to its employees. The
franchise tax purposes. The company elected the latter. However, as per Plan as submitted was approved and qualified as exempt from income
report of a revenue examiner, it was found out that the company was the tax by Petitioner Commissioner of Internal Revenue in accordance with
full custodian of the funds and thus, the corporate income tax was Rep. Act No. 4917.
imposed on the same.
Respondent GCL made investsments and earned therefrom interest
HELD: income from which was witheld the fifteen per centum (15%) final
The disputed income are not receipts, revenues or profits of the company. witholding tax imposed by Pres. Decree No. 1959.
They do not go to the general fund of the company. They are dividends
from the San Miguel Brewery, Inc. investment which form part of and Respondent GCL filed with Petitioner a claim for refund in the amounts
are added to the reserve pension fund which is solely for the benefit of of P1,312.66 withheld by Anscor Capital and Investment Corp., and
the employees, "to be distributed among the employees." P2,064.15 by Commercial Bank of Manila. On 12 February 1985, it filed
a second claim for refund of the amount of P7,925.00 withheld by Anscor,
Not escaping notice is that by the resolution of respondent company's stating in both letters that it disagreed with the collection of the 15%
board and the setting aside of monthly amounts from its gross operating final withholding tax from the interest income as it is an entity fully
receipts for that fund, said company was merely acting, with respect to exempt from income tax as provided under Rep. Act No. 4917 in relation
such fund, as trustee for its employees. For, indeed, the intention to to Section 56 (b)of the Tax Code.
establish a trust in favor of the employees is clear. A valid express trust
has thus been created. And, for tax purposes, the employees' reserve fund The refund requested having been denied, Respondent GCL elevated the
is a separate taxable entity. Respondent company then, while retaining matter to respondent Court of Tax Appeals (CTA). The latter ruled in
legal title and custody over the property, holds it in trust for the favor of GCL, holding that employees' trusts are exempt from the 15%
beneficiaries mentioned in the resolution creating the trust, in the final withholding tax on interest income and ordering a refund of the tax
absence of any condition therein which would, in effect, destroy the withheld.
intention to create a trust.
HELD:
Given the fact that the dividends are returns of the trust estate and not It is to be noted that the exemption from withholding tax on interest on
of the grantor company, we must say that petitioner misconceived the bank deposits previously extended by Pres. Decree No. 1739 if the
import of the law when he assessed said dividends as part of the income recipient (individual or corporation) of the interest income is exempt
of the company. Similarly, the tax court should not have considered them from income taxation, and the imposition of the preferential tax rates if
the recipient of the income is enjoying preferential income tax treatment,
were both abolished by Pres. Decree No. 1959. Petitioner thus submits sharing plan of an employer for the benefit of some or all of his
that the deletion of the exempting and preferential tax treatment employees . . .
provisions under the old law is a clear manifestation that the single 15%
(now 20%) rate is impossible on all interest incomes from deposits, The tax-exemption privilege of employees' trusts, as distinguished from
deposit substitutes, trust funds and similar arrangements, regardless of any other kind of property held in trust, springs from the foregoing
the tax status or character of the recipients thereof. In short, petitioner's provision. It is unambiguous. Manifest therefrom is that the tax law has
position is that from 15 October 1984 when Pres. Decree No. 1959 was singled out employees' trusts for tax exemption.
promulgated, employees' trusts ceased to be exempt and thereafter And rightly so, by virtue of the raison de'etre behind the creation of
became subject to the final withholding tax. employees' trusts. Employees' trusts or benefit plans normally provide
economic assistance to employees upon the occurrence of certain
To begin with, it is significant to note that the GCL Plan was qualified as contingencies, particularly, old age retirement, death, sickness, or
exempt from income tax by the Commissioner of Internal Revenue in disability. It provides security against certain hazards to which members
accordance with Rep. Act No. 4917 approved on 17 June 1967. This law of the Plan may be exposed. It is an independent and additional source of
specifically provided: protection for the working group. What is more, it is established for their
exclusive benefit and for no other purpose.
Sec. 1. Any provision of law to the contrary notwithstanding, the
retirement benefits received by officials and employees of private firms, The tax advantage in Rep. Act No. 1983, Section 56(b), was conceived in
whether individual or corporate, in accordance with a reasonable private order to encourage the formation and establishment of such private
benefit plan maintained by the employer shall be exempt from all taxes Plans for the benefit of laborers and employees outside of the Social
and shall not be liable to attachment, levy or seizure by or under any Security Act.
legal or equitable process whatsoever except to pay a debt of the official
or employee concerned to the private benefit plan or that arising from It is evident that tax-exemption is likewise to be enjoyed by the income of
liability imposed in a criminal action; . . . (emphasis ours). the pension trust. Otherwise, taxation of those earnings would result in a
diminution accumulated income and reduce whatever the trust
In so far as employees' trusts are concerned, the foregoing provision beneficiaries would receive out of the trust fund. This would run afoul of
should be taken in relation to then Section 56(b) (now 53[b]) of the Tax the very intendment of the law.
Code, as amended by Rep. Act No. 1983, supra, which took effect on 22
June 1957. This provision specifically exempted employee's trusts from The deletion in Pres. Decree No. 1959 of the provisos regarding tax
income tax and is repeated hereunder for emphasis: exemption and preferential tax rates under the old law, therefore, can
not be deemed to extent to employees' trusts. Said Decree, being a
Sec. 56. Imposition of Tax. (a) Application of tax. The taxes imposed general law, can not repeal by implication a specific provision.
by this Title upon individuals shall apply to the income of estates or of
any kind of property held in trust. CORPORATIONS
xxx xxx xxx SEC. 22. Definitions - When used in this Title:
(b) Exception. The tax imposed by this Title shall not apply to xxx
employee's trust which forms part of a pension, stock bonus or profit-
(B) The term "corporation" shall include partnerships, no matter how HELD:
created or organized, joint-stock companies, joint accounts (cuentas en The petitioners pose for our resolution the following questions: (1) Under
participacion), association, or insurance companies, but does not include the facts found by the Court of Tax Appeals, should petitioners be
general professional partnerships and a joint venture or consortium considered as co-owners of the properties inherited by them from the
formed for the purpose of undertaking construction projects or engaging deceased Julia Buales and the profits derived from transactions
in petroleum, coal, geothermal and other energy operations pursuant to involving the same, or, must they be deemed to have formed an
an operating consortium agreement under a service contract with the unregistered partnership subject to tax under Sections 24 and 84(b) of
Government. the National Internal Revenue Code? (2) Assuming they have formed an
unregistered partnership, should this not be only in the sense that they
xxx invested as a common fund the profits earned by the properties owned by
them in common and the loans granted to them upon the security of the
said properties, with the result that as far as their respective shares in
DOMESTIC CORPORATIONS the inheritance are concerned, the total income thereof should be
Are those created or organized in the Philippines or under its considered as that of co-owners and not of the unregistered partnership?
laws And (3) assuming again that they are taxable as an unregistered
partnership, should not the various amounts already paid by them for
AS DISTINGUISHED FROM CO-OWNERSHIP the same years 1955 and 1956 as individual income taxes on their
There is co-ownership whenever the ownership of an undivided respective shares of the profits accruing from the properties they owned
thing or right belongs to different persons. Contrary stipulation in common be deducted from the deficiency corporate taxes, herein
is void. (CC) involved, assessed against such unregistered partnership by the
respondent Commissioner?
FOREIGN CORPORATIONS
Resident foreign corporationIt is a foreign corporation engaged It is thus incontrovertible that petitioners did not, contrary to their
in trade or business within the Philippines contention, merely limit themselves to holding the properties inherited
Non-resident corporationit is a foreign corporation not by them. Indeed, it is admitted that during the material years herein
engaged in trade or business within the Philippines. involved, some of the said properties were sold at considerable profit, and
that with said profit, petitioners engaged, thru Lorenzo T. Oa, in the
OA V. CIR purchase and sale of corporate securities. It is likewise admitted that all
45 SCRA 74 the profits from these ventures were divided among petitioners
proportionately in accordance with their respective shares in the
FACTS: inheritance. In these circumstances, it is Our considered view that from
Petitioners were surviving heirs of Julia Baales. An action for partition the moment petitioners allowed not only the incomes from their
of estate was instituted wherein Oa was appointed as the respective shares of the inheritance but even the inherited properties
administrator. He was also appointed as the guardian of the minor themselves to be used by Lorenzo T. Oa as a common fund in
children. No partition took place however. Instead, the funds and undertaking several transactions or in business, with the intention of
properties were used to increase income. It was invested in many things. deriving profit to be shared by them proportionally, such act was
The income derived was then divided equally among the petitioners. tantamonut to actually contributing such incomes to a common fund and,
This prompted the Commissioner to hold that there was a formed in effect, they thereby formed an unregistered partnership within the
unregistered partnership and subjected them to corporate income tax. purview of the above-mentioned provisions of the Tax Code.
and that they intended to divide the profits among themselves. transactions were isolated. The character of habituality peculiar to
Respondent commissioner and/ or his representative just assumed these business transactions for the purpose of gain was not present.
conditions to be present on the basis of the fact that petitioners
purchased certain parcels of land and became co-owners thereof. AFISCO INSURANCE CORPORATION V. CIR
In Evangelists, there was a series of transactions where petitioners GR 112675, JANUARY 25, 1999
purchased twenty-four (24) lots showing that the purpose was not limited 302 SCRA 1
to the conservation or preservation of the common fund or even the
properties acquired by them. The character of habituality peculiar to FACTS:
business transactions engaged in for the purpose of gain was present. The petitioners are 41 non-life insurance corporations, organized and
existing under the laws of the Philippines. Upon issuance by them of
The sharing of returns does not in itself establish a partnership whether Erection, Machinery Breakdown, Boiler Explosion and Contractors' All
or not the persons sharing therein have a joint or common right or Risk insurance policies, the petitioners entered into a Quota Share
interest in the property. There must be a clear intent to form a Reinsurance Treaty and a Surplus Reinsurance Treaty with the
partnership, the existence of a juridical personality different from the Munchener Ruckversicherungs-Gesselschaft (hereafter called Munich), a
individual partners, and the freedom of each party to transfer or assign non-resident foreign insurance corporation. The reinsurance treaties
the whole property. required petitioners to form a pool. Accordingly, a pool composed of the
petitioners was formed on the same day.
In the present case, there is clear evidence of co-ownership between the
petitioners. There is no adequate basis to support the proposition that The pool submitted its financial statements and they were accordingly
they thereby formed an unregistered partnership. The two isolated assessed for deficiency corporate taxes to which they tried to opposed but
transactions whereby they purchased properties and sold the same a few unfortunately was denied.
years thereafter did not thereby make them partners. They shared in the
gross profits as co- owners and paid their capital gains taxes on their net HELD:
profits and availed of the tax amnesty thereby. Under the circumstances, Ineludibly, the Philippine legislature included in the concept of
they cannot be considered to have formed an unregistered partnership corporations those entities that resembled them such as unregistered
which is thereby liable for corporate income tax, as the respondent partnerships and associations. Parenthetically, the NIRC's inclusion of
commissioner proposes. such entities in the tax on corporations was made even clearer by the tax
Reform Act of 1997.
And even assuming for the sake of argument that such unregistered
partnership appears to have been formed, since there is no such existing In the case before us, the ceding companies entered into a Pool
unregistered partnership with a distinct personality nor with assets that Agreement or an association that would handle all the insurance
can be held liable for said deficiency corporate income tax, then businesses covered under their quota-share reinsurance treaty 31 and
petitioners can be held individually liable as partners for this unpaid surplus reinsurance treaty with Munich. The following unmistakably
obligation of the partnershipIn the instant case, petitioners bought two indicates a partnership or an association covered by Section 24 of the
(2) parcels of land in 1965. They did not sell the same nor make any NIRC:
improvements thereon. In 1966, they bought another three (3) parcels of (1) The pool has a common fund, consisting of money and other valuables
land from one seller. It was only 1968 when they sold the two (2) parcels that are deposited in the name and credit of the pool. 33 This common
of land after which they did not make any additional or new purchase. fund pays for the administration and operation expenses of the pool.
The remaining three (3) parcels were sold by them in 1970. The
(2) The pool functions through an executive board, which resembles the economically useful to the business of the ceding companies and Munich,
board of directors of a corporation, composed of one representative for because without it they would not have received their premiums. The
each of the ceding companies. ceding companies share "in the business ceded to the pool" and in the
(3) True, the pool itself is not a reinsurer and does not issue any "expenses" according to a "Rules of Distribution" annexed to the Pool
insurance policy; however, its work is indispensable, beneficial and Agreement.
CHAPTER 3
TAX BASE AND TAX RATES
Interests, Royalties, Prizes and other *there is emphasis on the holding period and not
winnings the maturity period.
1. Interest on any currency bank deposit,
yield or other monetary benefits from
Passive Income deposit substitute, trust fund and
Final tax of 20%
similar arrangement
2. Royalties in general
3. Prize exceeding P10,000
4. Other winnings except PCSO and lotto
sweepstakes
Royalty from books, literary works, and
Final tax of 10%
musical compositions
Prize less than P10,000 Regular income
Interest under the expanded foreign There is a preference to promote the increase in
Final tax of 7 %
currency deposit system foreign exchange reserves
Dividends: Dividend income from a foreign corporation doing
business in the country is considered as regular
Dividend from a domestic corporation or income and would be taxed with the
from a joint stock company, insurance or corresponding graduated rate.
mutual fund company, and regional 1998: 6%
operating headquarters of multinational 1999: 8% *Dividends don't stop with those coming from
company, or share in the distributable net Current: Final tax of 10% shares of stock.
income after tax of a partnership (except a
general professional partnership), joint
stock or joint venture or consortium taxable
as a corporation
Capital gains on shares of stock Sale of shares of stock of a domestic corporation
through a local stock exchange or thru initial
On sale of shares of stock of a domestic On the net capital gain: public offering pays the stock transaction tax and
corporation not listed and traded through a Not over P100,000---------------final other percentage taxes, and having paid this tax,
local stock exchange, held as capital asset tax of 5% shall not be subject to the rules on income tax
On any amount in excess of
P100,000-------------------------------------
-----------final tax of 10%
Capital gains on real property On the gross selling price, or the Exemptioncapital gain from the sale or
On sale of real property in the Philippines current fair market value at the disposition of a principal residence of a natural
held as capital asset time of sale, whichever is higher--- person, which is fully utilized in acquiring or
final tax of 6% constructing a new principal residence, provided:
Art. 415. The following are immovable 1. The proceeds of the sale or disposition is
property: ~@~ utilized within 18 months from the date of
(1) Land, buildings, roads and constructions sale or disposition
of all kinds adhered to the soil; (6) Animal houses, pigeon-houses, 2. The Commissioner of Internal Revenue is
(2) Trees, plants, and growing fruits, while beehives, fish ponds or breeding notified by the taxpayer within 30 days from
they are attached to the land or form an places of similar nature, in case the date of sale or disposition
integral part of an immovable; their owner has placed them or 3. Can avail of exemption once every 10 years
(3) Everything attached to an immovable in preserves them with the intention 4. A deposit is made of the 6% capital gain tax
a fixed manner, in such a way that it to have them permanently attached withheld by the buyer, in cash or managers
cannot be separated therefrom without to the land, and forming a check, in interest bearing account with an
breaking the material or deterioration of permanent part of it; the animals in AAB, under an Escrow agreement between
the object; these places are included; the taxpayer and BIR that the same shall be
(4) Statues, reliefs, paintings or other (7) Fertilizer actually used on a released to the seller when the proceeds of
objects for use or ornamentation, placed in piece of land; the sale shall have been utilized as intended
buildings or on lands by the owner of the (8) Mines, quarries, and slag
immovable in such a manner that it reveals dumps, while the matter thereof Disposition of real property to the government:
the intention to attach them permanently forms part of the bed, and waters you have option to be subjected to final tax of 6%
to the tenements; either running or stagnant; or graduated rate of 5-32%
(5) Machinery, receptacles, instruments or (9) Docks and structures which,
implements intended by the owner of the though floating, are intended by
tenement for an industry or works which their nature and object to remain at
may be carried on in a building or on a a fixed place on a river, lake, or
piece of land, and which tend directly to coast;
meet the needs of the said industry or (10) Contracts for public works, and
works; servitudes and other real rights
over immovable property. (334a)
Non-Resident Alien
Engaged in Taxable incomefrom within the Uniform rules of 5%-32% *The 180 days for one to be considered to be
trade or Philippines engaged in trade or business is counted with
business in the respect to each calendar year (Section 24 and 25)
Interest on any currency bank deposit, Final tax of 20% Depositary bank who holds money from
yield or other monetary benefit from depositors and invests it to another as foreign
deposit substitute, trust fund and similar loans or whatnot is subject to 10%
arrangement, and royalties
Dividends
Dividend from domestic corporation Exempt
Passive income intercompany dividend
Capital gains Sale of shares of stock of a domestic corporation
On sale of shares of stock of a corporation On the net capital gain through a local stock exchange or thru initial
not listed and traded through the local Not over P100000final tax of 5% public offering pays the stock transaction tax and
stock exchange held as capital assets Over P100000final tax of 10% other percentage taxes, and having paid this tax,
shall not be subject to the rules on income tax
On sale of land and/or building held as
capital asset On the gross selling price or current
fair market value prevailing at the
time of sale, whichever is higher
final tax of 10%
Resident foreign corporationwithin the Philippines
In general 2005-200835% Has the option of being taxed with 15% gross
2008-after30% income tax
International carriers 2 % on gross Philippine billings (a) International Air Carrier. - "Gross Philippine
Billings" refers to the amount of gross revenue
derived from carriage of persons, excess baggage,
cargo and mail originating from the Philippines
in a continuous and uninterrupted flight,
irrespective of the place of sale or issue and the
place of payment of the ticket or passage
document: Provided, That tickets revalidated,
exchanged and/or indorsed to another
international airline form part of the Gross
Philippine Billings if the passenger boards a
plane in a port or point in the Philippines:
Provided, further, That for a flight which
originates from the Philippines, but
transshipment of passenger takes place at any
port outside the Philippines on another airline,
only the aliquot portion of the cost of the ticket
Special foreign corresponding to the leg flown from the
corporations Philippines to the point of transshipment shall
form part of Gross Philippine Billings.
(b) International Shipping. - "Gross Philippine
Billings" means gross revenue whether for
passenger, cargo or mail originating from the
Philippines up to final destination, regardless of
the place of sale or payments of the passage or
freight documents.
Offshore banking units 10% of such interest income Any income of nonresidents, whether individuals
Including any interest derived from foreign or corporations, from transactions with said
currency loan granted to residents offshore banking units shall be exempt from
income tax.
Regional or area headquarters and (a) Regional or area headquarters
regional operating headquarters as defined in Section 22(DD) shall
not be subject to income tax.
(b) Regional operating headquarters
as defined in Section 22(EE) shall
pay a tax of ten percent (10%) of
their taxable income.
Any profit remitted by a branch to its head 15% which shall be based on the The tax shall be collected and paid in the same
office total profits applied or earmarked manner as provided in Sections 57 and 58 of this
for remittance without any Code: provided, that interests, dividends, rents,
deduction for the tax component royalties, including remuneration for technical
thereof (except those activities services, salaries, wages premiums, annuities,
which are registered with the emoluments or other fixed or determinable
Branch profit
Philippine Economic Zone annual, periodic or casual gains, profits, income
remittance tax
Authority). and capital gains received by a foreign
corporation during each taxable year from all
sources within the Philippines shall not be
treated as branch profits unless the same are
effectively connected with the conduct of its trade
or business in the Philippines.
Interest
Interest under the expanded foreign Final tax of 7 %
currency deposit system
Branch 32% on net income from within The link is between the head office and home
Merely an extension of the foreign head office
office (single entity concept)
If the branch remits to the head office, it is
Tax treatment is that of a foreign subject to the branch profit remittance tax
corporation
Home is liable for all liabilities of the branch
BPRT=15% Dividend=15%
Branch Subsidiary
RFC DC
35% TI (within) 35% TI (within/without)
Account
in Boston
Bank
Interest
exempt exempt
Income
[Sec [Sec
received exempt exempt exempt
27(D)(3) 27(D)(3) exempt
from a $ (Sec 2.24 [Sec [Sec
4 7.5% FT 7.5% FT / Sec / Sec [Sec
Savings RR 10- 28(A)(7)(a 27(D)(3
2.27 (c) 2.27 (c) 28(4)]
Account 98) ) )]
RR 10- RR 10-
in Metro
98] 98]
Bank
Interest
exempt exempt
Income
[Sec [Sec
received exempt exempt
27(D)(3) 27(D)(3) exempt
from a $ (Sec 2.24 [Sec
5 7.5% FT 7.5% FT / Sec / Sec [Sec
Savings RR 10- 28(A)(7
2.27 (c) 2.27 (c) 28(A)(7)(b)]
Account 98) )(b)]
RR 10- RR 10-
in Bank
98] 98]
of Tokyo
Interest
Income
received
exempt exempt exempt exempt exempt exempt exempt exempt
from a $ 35%
6 5 - 32% RT (income (income (income (income [Sec (incom (income (income
savings RT
w/o) w/o) w/o) w/o) 27(D)(3)] e w/o) w/o) w/o)
Account
in Boston
Bank
Interest
Income
received
from 5 - 32% 5 - 32% 5 - 32% 35%
7 5 - 32% RT 25% FT 35% RT 35% FT
money RT RT RT RT
(pesos)
lent in
the
Philippin
es
Interest
Income
received
exempt exempt exempt exempt exempt exempt
from 35%
8 5 - 32% RT (income (income (income (income (incom (incom
money RT
w/o) w/o) w/o) w/o) e w/o) e w/o)
(pesos)
lent
abroad
Interest
Income
received
from
money 5 - 32% 5 - 32% 5 - 32%
9 5 - 32% RT 25% FT 10% 35% FT
(dollar) RT RT RT
lent in
the
Philippin
es
Interest
Income
received
exempt exempt exempt exempt exempt exempt exempt
from
10 5 - 32% RT (income (income (income (income 10% (income (income (incom
money
w/o) w/o) w/o) w/o) w/o) w/o) e w/o)
(dollar)
lent
abroad
Beginning on the fourth taxable year immediately following the year in which such
corporation commenced its business operations, when the minimum income tax is
greater than the tax computed under Subsection (A) of this Section for the taxable
year.
Relief from the Minimum Corporate Income Tax Under Certain Conditions.
The Secretary of Finance is hereby authorized to suspend the imposition of
the minimum corporate income tax on any corporation which suffers losses
on account of prolonged labor dispute, or because of force majeure, or
because of legitimate business reverses.
The Secretary of Finance is hereby authorized to promulgate, upon
recommendation of the Commissioner, the necessary rules and regulation
that shall define the terms and conditions under which he may suspend
the imposition of the minimum corporate income tax in a meritorious case.
Gross income
Shall mean gross sales less sales returns, discounts and allowances and
cost of goods sold.
Cost of goods soldshall include all business expenses directly incurred to produce
the merchandise to bring them to their present location and use.
For a trading or merchandising concern, "cost of goods sold' shall include
the invoice cost of the goods sold, plus import duties, freight in
transporting the goods to the place where the goods are actually sold
including insurance while the goods are in transit.
For a manufacturing concern, cost of "goods manufactured and sold" shall
include all costs of production of finished goods, such as raw materials
used, direct labor and manufacturing overhead, freight cost, insurance
premiums and other costs incurred to bring the raw materials to the
factory or warehouse.
In the case of taxpayers engaged in the sale of service, 'gross income' means
gross receipts less sales returns, allowances, discounts and cost of services.
Cost of servicesshall mean all direct costs and expenses necessarily
incurred to provide the services required by the customers and clients
including
Provided, however, That for corporations using the calendar year basis, the
accumulated earnings under tax shall not apply on improperly accumulated income
as of December 31, 1997. In the case of corporations adopting the fiscal year
accounting period, the improperly accumulated income not subject to this tax, shall
be reckoned, as of the end of the month comprising the twelve (12)-month period of
fiscal year 1997-1998.
FACTS: FACTS:
HELD: HELD:
FACTS:
HELD:
HELD:
CIR V. TUASON JR.
173 SCRA 397
NON-RESIDENT FOREIGN CORPORATION FACTS:
FACTS: CYANAMID V. CA
322 SCRA 639
HELD: FACTS:
FACTS:
CHAPTER 4
INCOME
HELD:
TAXABLE INCOME
MARUBENI CORPORATION V. COMMISSIONER The pertinent items of gross income specified in this Code, less
177 SCRA 500 the deductions and/or personal and additional exemptions, if
any, authorized for such types of income by this Code or other
FACTS: special laws.
Section 36-38, Regulations 2
o Gross income derived from the conduct of trade or If a corporation transfers to its employees its own stock as
business or the exercise of a profession; renumeration for services rendered by the employee, the amount
o Gains derived from dealings in property; of such renumeration is the fair market value of the stock at the
o Interests; time the services were rendered
o Rents; Where compensation is paid in property other than money, the
o Royalties; employer shall make necessary arrangements to ensure that the
o Dividends; amount of tax required to be withheld is available for payment
o Annuities; to the Commissioner
o Prizes and winnings;
o Pensions; and Living Quarters or Meals
o Partner's distributive share from the net income of the If a person receives a salary as renumeration for services
general professional partnership. (CGIR2D2AP3) rendered, and in addition thereto, living quarters or meals are
provided, the value to such person of the quarters and meals so
COMPENSATION furnished shall be added to the renumeration paid for the
All renumeration for services performed by an employee for his purposes of determining the amount of compensation subject to
employer under a employee-employer relationship withholding
The name by which renumeration for services is designated is However, if living quarters or meals are furnished to the
immaterial employee for the convenience of the employer, the value thereof
The basis upon which the renumeration is paid is immaterial in need not be included as part of the compensation income
determining whether the renumeration constitutes
compensation Facilities and Privileges of a Relatively Small Value
Renumeration for services constitutes compensation even if the Ordinarily, facilities and privileges otherwise known as de
relationship of employer and employee doesn't exist any longer minimis benefits, furnished or offered by an employer to
at the time when payment is made between the person in whose employees are not considered as compensation subject to income
employ the services had been performed and the individual who tax and consequently to withholding, if such facilities and
has performed them privileges are of relatively small value and are offered or
RR 2-98, Section 2.78.1 furnished by the employer merely as a means of promoting the
health, goodwill, contentment, or efficiency of his employees
Compensation paid in kind
Compensation may be paid in money or some other medium Tips and Gratuities
than money, as for example, stocks, bonds, or other forms of Paid directly to the employee by the customer of the employer,
property which are not accounted for by the employer are considered
If services are to be paid for in a medium other than money, the taxable income but not subject to withholding
fair market value of the thing taken in payment is the amount
to be included as compensation subject to withholding Pensions, Retirement and Separation pay
If services are rendered at a stipulated price, in the absence of Subject to withholding except those which are according to the
evidence to the contrary, such price will be presumed to be the following requirements
fair market value of the renumeration received o The plan is reasonable
o The benefit plan must be approved by the Bureau
o The retiring official or employees must be in the service excess of advances made over actual expenses shall
of the employer for at least 10 years and isnt less than constitute taxable income if such amount is not
50 years of age at the time of retirement returned to the employer. Reasonable amounts of
o The retiring official or employee shouldn't have reimbursements/advances for traveling and
previously availed of the privilege under the retirement entertainment expenses which are precomputed on a
benefit plan of another employer daily basis and are paid to an employee while is on as
assignment or duty need not be subject to the
Fixed or Variable Transportation, Representation, and other requirement of substantiation and to withholding
Allowances
In general, is subject to withholding, provided however, that Vacation and Sick Leave Allowances
representation and transportation allowance granted to public Paid to the employee are considered compensation
officers and employees under the General Appropriations Act Salary of an employee on vacation or sick leave are considered
and the Personal Economic Relief Allowance which essentially compensation notwithstanding absence from work
constitute reimbursement for expenses incurred in the However, the monetized value of unutilized vacation leave
performance of government personnels official duties shall not credits of 10 days or less, which are paid to private employees
be subject to income tax and consequently to withholding tax during the year and the monetized value of leave credits paid to
o Provided further that Additional Compensation government officials and employees shall not be subject to
Allowance given to government personnel shall not be income tax and consequently to withholding tax
subject to withholding tax pending its formal
integration into the basic pay Deductions Made By Employer From Compensation Of Employee
o Consequently, and effective for the taxable year 2000, Any amount which is required to be deducted from the
ACA shall be classified as part of the other benefits compensation of the employee by the employer including the
under the Tax Code which are excluded from gross withheld tax, is considered a part of employees compensation
compensation income provided the total amount of such and is deemed to be paid to the employee as compensation at the
benefits doesn't exceed P30000 time deduction was made
Any amount paid specifically either as advances or
reimbursements for traveling, representation, and other bona Renumeration for Services As Employee of a Nonresident Alien
fide ordinary and necessary expenses incurred or reasonably Individual or Foreign Entity
expected to be incurred by the employee in the performance of Any person paying compensation on behalf of a non-resident
his duties are not compensations subject to withholding, if the alien individual or partnership or foreign corporation, which is
following conditions are met not engaged in trade or business within the Philippines is
o It is for ordinary and necessary traveling and subject to all provisions of law and regulations applicable to an
representation and entertainment expenses paid or employer
incurred by the employee in the pursuit of the trade,
business, or profession Compensation For Services Performed Outside The Philippines
o The employee is required to account/liquidate for the Renumeration for services provided outside the Philippines by a
foregoing expenses in accordance with the specific resident citizen for a domestic or a resident foreign corporation
requirements of substantiation for each category of or partnership, or for a non-resident corporation or partnership
expenses pursuant to Section 34 of the Code. The or for a non-resident foreign individual not engaged in trade or
business in the Philippines shall be as compensation which is of, or necessary to the trade, business or profession of the
subject to tax employer, or when the fringe benefit is for the convenience or
A non-resident citizen as defined in the regulations is taxable on advantage of the employer)
income derived from sources within the Philippines. The tax herein imposed is payable by the employer which tax
In general, the situs of the income whether within or without shall be paid in the same manner as provided for under Section
the Philippines is determined by the place where the place is 57 (A) of this Code.
rendered The grossed-up monetary value of the fringe benefit shall be
determined by dividing the actual monetary value of the fringe
Fringe Benefits, Defined benefit by 66% effective January 1, 1998; 67% effective January
Any good, service or other benefit furnished or granted in cash 1, 1999 and 68% effective January 1, 2000 and thereafter:
or in kind by an employer to an individual employee (except Provided, however, That fringe benefit furnished to employees
rank and file employees as defined herein) such as, but not and taxable under Subsections (B), (C), (D) and (E) of Section 25
limited to, the following: shall be taxed at the applicable rates imposed thereat: Provided,
o Housing; further, That the grossed -Up value of the fringe benefit shall be
o Expense account; determined by dividing the actual monetary value of the fringe
o Vehicle of any kind; benefit by the difference between one hundred percent (100%)
o Household personnel, such as maid, driver and others; and the applicable rates of income tax under Subsections (B),
o Interest on loan at less than market rate to the extent (C), (D), and (E) of Section 25.
of the difference between the market rate and actual
rate granted; Determination of the Amount Subject to Fringe Benefit Tax
o Membership fees, dues and other expenses borne by the In general, valuation of the benefit granted and determination of
employer for the employee in social and athletic clubs or the proportion or percentage of the benefit, which is subject to
other similar organizations; the fringe benefit tax
o Expenses for foreign travel; In cases where the fringe benefits entail joint benefits for both the
o Holiday and vacation expenses; employer and employee, the portion which shall be subject to the
o Educational assistance to the employee or his fringe benefits tax and the guidelines for the valuation of fringe
dependents; and benefits are defined as follows
o Life or health insurance and other non-life insurance
premiums or similar amounts in excess of what the law What was granted Value to be considered
allows. If money or directly granted by the Value is the amount granted or
employer paid for
Fringe Benefits, Imposition of Tax Property other than money and Fair market value of the property
A final tax of 34% effective January 1, 1998, 33% effective ownership is transferred to the as determined by the authority of
January 1, 1999, and 32% effective January 1, 2000 and employee the Commissioner
thereafter Property other than money but Depreciation value of the property
Tax base: grossed-up monetary value of fringe benefit furnished ownership isnt transferred to the
or granted to the employee (except rank and file employees as
employee
defined herein) by the employer, whether an individual or a
corporation (unless the fringe benefit is required by the nature
Taxation of Fringe Benefit Received by a Non-Resident Alien b. Alien individual employed by an offshore banking unit of a
Individual Who Is Not Engaged in Trade or Business in the foreign bank established in the Philippines
Philippines c. An alien individual employed by a foreign service contractor
A fringe benefit tax of 25% of the grossed up monetary value of or foreign service contractor engaged in petroleum
the fringe benefit operations in the Philippines
Shall be computed by dividing the monetary value of the fringe d. Any of their Filipino individual employees who are employed
benefit by 75% and occupying the same position as those aforementioned by
alien employees
Taxation of fringe benefit received by: FBT of 15% shall be imposed on the grossed up monetary value
a. An alien individual employed by regional or area of the fringe benefit which in turn shall be computed by dividing
headquarters of a multinational company or by regional the monetary value of the fringe benefit by 85%
operating headquarters of a multinational company
Fringe Benefits Not Taxable 2. Contributions of the employer for the benefit of the employee to
1. Fringe benefits which are authorized and exempted from tax retirement, insurance and hospitalization benefit plans;
under special laws;
3. Benefits given to the rank and file employees, whether granted j. Daily meal allowance for overtime work not exceeding 25% of
under a collective bargaining agreement or not; and the basic minimum wage
4. De minimis benefits as defined in the rules and regulations to be
promulgated by the Secretary of Finance, upon recommendation Basic Rules on Fringe Benefits and Fringe Benefits Tax
of the Commissioner. 1. Fringe benefits given to a rank and file employee is not subject
to the fringe benefit tax
De Minimis Benefits Not Subject To Withholding Tax on 2. Fringe benefit given to a supervisory or managerial employee is
Compensation Income of Both Managerial and Rank and File subject to the fringe benefit tax
Employees (As provided for in RR 8-2000) 3. De minimis benefit, whether given to a rank-and-file employee
*The amount of the de minimis benefits conforming to the ceiling shall or a supervisory or managerial employee is not subject to the
not be considered in determining the P30,000 ceiling or other benefits fringe benefit tax
provided under the Code. However, if the employer pays more than the a. Note that de minimis benefits shall be limited to
ceiling prescribed by these regulations, the excess shall be taxable to the facilities and privileges furnished or offered by an
employee receiving the benefits only if such excess is beyond P30,000 employer to his employees that are relatively small in
ceiling. Provided further, that any amount given by the employer as value and are offered or furnished by the employer
benefits to his employees whether classified as de minimis or fringe merely as a means of promoting the health, goodwill
benefits, shall constitute deductible expense for the employer. and contentment, or efficiency of his employees
a. Monetized unused vacation leave credits of employees not
exceeding 10 days during the year Convenience of the Employer Rule
b. Medical cash allowance to dependents of employees not When a fringe benefit is solely given for the convenience of the
exceeding P750 per semester or P125 per month employer, the fringe benefit is exempt from the fringe benefit
c. Rice subsidy of P1000 or one sack of 50-kg. rice per month tax
amounting to not more than P1000 The employee will not recognize income from the benefit
d. Uniforms given to employees by the employer not exceeding
P3000 per annum Computation of the Tax
e. Actual medical benefits given to the employees by the employer Determine first the grossed-up monetary value of the fringe
not exceeding P10,000 per annum benefit by dividing the monetary value of the benefit with 68%
f. Laundry allowance not exceeding P300 per month Compute then the fringe benefit tax by multiplying the grossed-
g. Employee achievement awards, e.g for the length of service or up monetary value by 32%
safety achievement, which must be in the form of a tangible
personal property other than cash or gift certificate, with an Deduction For The Employer
annual monetary value not exceeding P10,000 received by the a. If the fringe benefit is given to a rank-and-file employee or to a
employee under an established written plan which doesn't supervisory or managerial employee, not subject to fringe
discriminate in favor of highly paid employees benefit tax, the deduction for the employer is the monetary
h. Gifts given during Christmas and major anniversary value of the fringe benefit
celebrations not exceeding P5,000 per employee per annum b. If the fringe benefit is given to a supervisory or managerial
i. Flowers, fruits, books or similar items given to the employees employee, and is subject to fringe benefit tax, the deduction for
under special circumstanceson account of illness, marriage, the employer is the grossed-up monetary value of the fringe
birth of child, etc. not exceeding 25% of the basic minimum wage
benefit divided into two components of fringe benefit expense In determining the gross income, subtractions shouldn't be made
and fringe benefit tax for depreciation, depletion, selling expenses or losses, or for
items not ordinarily used in computing the cost of goods sold
Income for the Employee In case of sellers of services, their gross income is computed by
Note: exempt from income tax are gross benefits received by deducting all direct costs and expenses as prescribed in RR 4-
officials and employees of public and private firms to the extent 2003
of P30000
Long Term Contracts
Withholding and Remittance of Tax Building, installing, or construction contracts covering a period
Final tax that should be paid and withheld by the employer on in excess of one year
or before the 10th day of the month following the calendar Income from long-term contracts is taxable for the period in
quarter in which the fringe benefit was granted. which the income is determined, such determination depending
upon the nature and terms of the particular contract
COLLECTOR V. HENDERSON Persons whose income is derived in whole or in part from such
1 SCRA 649 contracts shall report their income on the basis of percentage of
completion
FACTS: There should be deducted from such gross income all
expenditures made during the taxable year on account of the
contract, account being taken of the materials and supplies for
HELD: use in connection with the work under the contract but not yet
so applied
These contracts are generally adopted for construction contracts
CIR V. CASTANEDA as well as for real estate development projects
203 SCRA 72
Gross Income of Farmers
FACTS: A farmer reporting on the basis of cash receipts and
disbursements (in which no inventory to determine profits is
used) shall include in his gross income for the taxable year
HELD: o The amount of cash or the value of merchandise or
other property received from the sale of livestk and
INCOME FROM BUSINESS OR EXERCISE OF PROFESSION produce which were raised during the taxable year or
prior years
Gross Income From Business o The profits from the sale of any livestock or other items
In the case of manufacturing, merchandising aor mining which were purchased
business, gross income means the total sales, less the cost of o Gross income from all other sources
goods sold, plus any income from investments and from The profit from the sale of livestock or other items which were
incidental or operations or sources purchased is to be ascertained by deducting the cost from the
sale price in the year in which the sale occurs, except that in the
case of sale of animals purchased as draft or work animals, or
solely for breeding or dairy purposes and not for resale, the Gain or loss from a sale of goodwill results only when the
profit shall be the amount of any excess of the sale price over business, or a part of it, to which the goodwill attaches is sold, in
the amount representing the difference between the cost and which case the gain or loss will be determined by comparing the
the depreciation therefor sustained and allowed as a deduction sale price with the cost or other basis of the assets, including
in computing net income goodwill.
In case of a farmer reporting on the accrual basisin which an If specific payment was not made for goodwill, there can be no
inventory is used his gross profits are ascertained by adding to deductible loss with respect thereto, but gain may be realized
the inventory value of livestock and products on hand at the from the sale of goodwill built up through expenditures, which
end of the year the amount received from the sale of livestock have been currently deducted
and products, and miscellaneous receipts for hire of farm It is immaterial that goodwill may never have been carried on
machinery, and the like, during the year, and deducting from the books as an asset, but the burden of proof is on the taxpayer
the sum of inventory value of livestock and products on hand at to establish the cost or fair market value of the goodwill sold
the beginning of the year and the cost of the livestock and
products purchased during the year. In such cases, all livestock RENTS
raised or purchased for sale shall be included in the inventory Rental income on personal property located in the Philippines
at their proper valuation determined in accordance with the paid to a non-resident alien or non-resident foreign corporation
method authorized and adopted for that purpose. shall be subject to the 25% or 32% final withholding tax,
Also, livestock acquired for drafts, breeding, or dairy products respectively
and not for sale may be included in the inventory, instead of Rental income on the lease of personal property located in the
being treated as capital assets subject to depreciation, subject to Philippines and paid to a non-resident taxpayer shall be taxed
depreciation, provided such practice is followed consistently by as follows
the taxpayer. In case of the sale of any livestock included in an
inventory, their cost must not be taken as an additional NON-RESIDENT NON-RESIDENT
deduction in the return of income, as such deduction will be CORPORATION ALIEN
reflected in the inventory Vessel 4.5% 25%
Aircraft, machineries, 7.5% 25%
Sale of Patents and Copyrights and other equipment
A taxpayer disposing of patents and copyrights by sale should
Other assets 32% 25%
determine the profit or loss arising therefrom by computing the
difference between the selling price and the cost or adjusted
basis GAINS DERIVED FROM DEALINGS IN PROPERTY
The taxable income in the case of patents or copyrights should Sale of real propertylocation of the real property: if the real
be ascertained in accordance with the provisions of section 136 property is located within the Philippines, the gain is considered
of these regulations. The profits or loss thus ascertained should as income from the Philippines
be increased or decreased, as the case may be, by the amounts Sale of personal property
deducted on account of depreciation of such patents or o Personal property produced in whole or in part by the
copyrights since the date of acquisition taxpayer within the Philippines and sold without the
Philippines or produced in whole or in part by the
Sale of Goodwill taxpayer without and sold within the Philippinesany
gain, profit, income shall be treated as derived partly
from sources within and partly from sources without (2) Net Capital Gain. - The term "net capital gain" means the excess of
the Philippines the gains from sales or exchanges of capital assets over the losses from
o Purchase of personal property within and its sale such sales or exchanges.
without the Philippines, or purchase of personal (3) Net Capital Loss. - The term "net capital loss" means the excess of the
property without and sale within the Philippinesany losses from sales or exchanges of capital assets over the gains from such
gain, profit or income shall be treated as derived sales or exchanges.
entirely from sources within the country in which sold.
(B) Percentage Taken Into Account. - In the case of a taxpayer, other
Ordinary Gains and Losses than a corporation, only the following percentages of the gain or loss
(Section 22,Z) recognized upon the sale or exchange of a capital asset shall be taken
into account in computing net capital gain, net capital loss, and net
(Z) The term "ordinary income" includes any gain from the sale or income:
exchange of property which is not a capital asset or property described in (1) One hundred percent (100%) if the capital asset has been held for not
Section 39(A)(1). Any gain from the sale or exchange of property which is more than twelve (12) months; and
treated or considered, under other provisions of this Title, as 'ordinary (2) Fifty percent (50%) if the capital asset has been held for more than
income' shall be treated as gain from the sale or exchange of property twelve (12) months;
which is not a capital asset as defined in Section 39(A)(1). The term
'ordinary loss' includes any loss from the sale or exchange of property (C) Limitation on Capital Losses. - Losses from sales or exchanges of
which is not a capital asset. Any loss from the sale or exchange of capital assets shall be allowed only to the extent of the gains from such
property which is treated or considered, under other provisions of this sales or exchanges. If a bank or trust company incorporated under the
Title, as 'ordinary loss' shall be treated as loss from the sale or exchange laws of the Philippines, a substantial part of whose business is the
of property which is not a capital asset. receipt of deposits, sells any bond, debenture, note, or certificate or other
evidence of indebtedness issued by any corporation (including one issued
Capital Gains and Losses by a government or political subdivision thereof), with interest coupons
(Section 39) or in registered form, any loss resulting from such sale shall not be
subject to the foregoing limitation and shall not be included in
SEC. 39. Capital Gains and Losses. - determining the applicability of such limitation to other losses.
(A) Definitions. - As used in this Title - (D) Net Capital Loss Carry-over. - If any taxpayer, other than a
(1) Capital Assets. - The term "capital assets" means property held by the corporation, sustains in any taxable year a net capital loss, such loss (in
taxpayer (whether or not connected with his trade or business), but does an amount not in excess of the net income for such year) shall be treated
not include stock in trade of the taxpayer or other property of a kind in the succeeding taxable year as a loss from the sale or exchange of a
which would properly be included in the inventory of the taxpayer if on capital asset held for not more than twelve (12) months.
hand at the close of the taxable year, or property held by the taxpayer
primarily for sale to customers in the ordinary course of his trade or (E) Retirement of Bonds, Etc. - For purposes of this Title, amounts
business, or property used in the trade or business, of a character which received by the holder upon the retirement of bonds, debentures, notes or
is subject to the allowance for depreciation provided in Subsection (F) of certificates or other evidences of indebtedness issued by any corporation
Section 34; or real property used in trade or business of the taxpayer. (including those issued by a government or political subdivision thereof)
with interest coupons or in registered form, shall be considered as (1) Gains or losses from short sales of property shall be considered as
amounts received in exchange therefor. gains or losses from sales or exchanges of capital assets; and
(2) Gains or losses attributable to the failure to exercise privileges or
(F) Gains or Losses From Short Sales, Etc. - For purposes of this Title - options to buy or sell property shall be considered as capital gains or
losses.
D The term "ordinary assets" means property held by the taxpayer The term "capital assets" means property held by the taxpayer (whether or not connected
E which includes (a) stock in trade of the taxpayer or other with his trade or business), but does not include stock in trade of the taxpayer or other
F property of a kind which would properly be included in the property of a kind which would properly be included in the inventory of the taxpayer if on
I inventory of the taxpayer if on hand at the close of the taxable hand at the close of the taxable year, or property held by the taxpayer primarily for sale to
N year, or (b) property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or property used in the trade or
I customers in the ordinary course of his trade or business, or (c) business, of a character which is subject to the allowance for depreciation provided in
T property used in the trade or business, of a character which is Subsection (F) of Section 34; or real property used in trade or business of the taxpayer.
I subject to the allowance for depreciation provided in Subsection
O (F) of Section 34; or (d) real property used in trade or business
N of the taxpayer.
Real Property Shares of Stock Other Assets Real Property Shares of Stock Other Assets
All Land Othe of a Domestic of Corporation
Type of types of & rs Corporation other than
Asset Real Buildi Domestic
Propert ng Corporation
ies Only
Individ Corporat Individ Corporat Individ Corporat Individ Corporation Individ Corporat Individ Corporat Individ Corporat
ual ion ual ion ual ion ual ual ion ual ion ual ion
Taxpayer
n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a applica n/a applica n/a
Applicabi ble ble
lity of
Holding
Period
Ordinary Gain n/a n/a Capit Net Net Capital Capital Capital Capital
al Gain Gain Gain Gain Gain Gain
Gain
Gain
Ordinary Loss n/a n/a Capit n/a n/a Capital Capital Capital Capital
al Loss Loss Loss Loss
Loss
Loss
Net Operating Loss Carry Over (NOLCO) under Sec 34 (D) n/a n/a n/a n/a n/a Net n/a Net n/a
Applicabi
Capital Capital
lity of
Loss Loss
Net Loss
Carry Carry
Carry
Over Over
Over
Real Property: Ordinary v. Capital Assets therefrom over the basis or adjusted basis for determining gain, and the
Ordinary assetsif the property sold is classified as an ordinary loss shall be the excess of the basis or adjusted basis for determining loss
asset, income tax due is the normal corporate income tax of 32% over the amount realized. The amount realized from the sale or other
of its net taxable income or the graduated income tax ranging disposition of property shall be the sum of money received plus the fair
from 5%-32% applied on his net taxable income market value of the property (other than money) received;
Capital assetsin general, if the real property is classified as a
capital asset, the income tax due is the capital gains tax (B) Basis for Determining Gain or Loss from Sale or Disposition of
computed at 6% of the actual consideration or fair market value Property. - The basis of property shall be -
of the real property sold as determined by the Commissioner, (1) The cost thereof in the case of property acquired on or after March 1,
whichever is higher 1913, if such property was acquired by purchase; or
(2) The fair market price or value as of the date of acquisition, if the same
Recognition of Gains and Losses was acquired by inheritance; or
(3) If the property was acquired by gift, the basis shall be the same as if
SEC. 40. Determination of Amount and Recognition of Gain or Loss. - it would be in the hands of the donor or the last preceding owner by whom
it was not acquired by gift, except that if such basis is greater than the
(A) Computation of Gain or Loss. - The gain from the sale or other fair market value of the property at the time of the gift then, for the
disposition of property shall be the excess of the amount realized purpose of determining loss, the basis shall be such fair market value; or
(4) If the property was acquired for less than an adequate consideration received: Provided, That as to the shareholder, if the money and/or other
in money or money's worth, the basis of such property is the amount paid property received has the effect of a distribution of a taxable dividend,
by the transferee for the property; or there shall be taxed as dividend to the shareholder an amount of the gain
(5) The basis as defined in paragraph (C)(5) of this Section, if the recognized not in excess of his proportionate share of the undistributed
property was acquired in a transaction where gain or loss is not earnings and profits of the corporation; the remainder, if any, of the gain
recognized under paragraph (C)(2) of this Section. recognized shall be treated as a capital gain.
(b) If, in connection with the exchange described in the above exceptions,
(C) Exchange of Property. - the transferor corporation receives not only stock permitted to be
(1) General Rule. - Except as herein provided, upon the sale or exchange received without the recognition of gain or loss but also money and/or
or property, the entire amount of the gain or loss, as the case may be, shall other property, then (i) if the corporation receiving such money and/or
be recognized. other property distributes it in pursuance of the plan of merger or
consolidation, no gain to the corporation shall be recognized from the
(2) Exception. - No gain or loss shall be recognized if in pursuance of a exchange, but (ii) if the corporation receiving such other property and/or
plan of merger or consolidation - money does not distribute it in pursuance of the plan of merger or
(a) A corporation, which is a party to a merger or consolidation, consolidation, the gain, if any, but not the loss to the corporation shall be
exchanges property solely for stock in a corporation, which is a party to recognized but in an amount not in excess of the sum of such money and
the merger or consolidation; or the fair market value of such other property so received, which is not
(b) A shareholder exchanges stock in a corporation, which is a party to distributed.
the merger or consolidation, solely for the stock of another corporation
also a party to the merger or consolidation; or (4) Assumption of Liability. -
(c) A security holder of a corporation, which is a party to the merger or (a) If the taxpayer, in connection with the exchanges described in the
consolidation, exchanges his securities in such corporation, solely for foregoing exceptions, receives stock or securities which would be
stock or securities in such corporation, a party to the merger or permitted to be received without the recognition of the gain if it were the
consolidation. sole consideration, and as part of the consideration, another party to the
No gain or loss shall also be recognized if property is transferred to a exchange assumes a liability of the taxpayer, or acquires from the
corporation by a person in exchange for stock or unit of participation in taxpayer property, subject to a liability, then such assumption or
such a corporation of which as a result of such exchange said person, acquisition shall not be treated as money and/or other property, and
alone or together with others, not exceeding four (4) persons, gains shall not prevent the exchange from being within the exceptions.
control of said corporation: Provided, That stocks issued for services shall (b) If the amount of the liabilities assumed plus the amount of the
not be considered as issued in return for property. liabilities to which the property is subject exceed the total of the adjusted
basis of the property transferred pursuant to such exchange, then such
(3) Exchange Not Solely in Kind. - excess shall be considered as a gain from the sale or exchange of a capital
asset or of property which is not a capital asset, as the case may be.
(a) If, in connection with an exchange described in the above exceptions,
an individual, a shareholder, a security holder or a corporation receives (5) Basis -
not only stock or securities permitted to be received without the (a) The basis of the stock or securities received by the transferor upon the
recognition of gain or loss, but also money and/or property, the gain, if exchange specified in the above exception shall be the same as the basis
any, but not the loss, shall be recognized but in an amount not in excess of the property, stock or securities exchanged, decreased by (1) the money
of the sum of the money and fair market value of such other property received, and (2) the fair market value of the other property received, and
increased by (a) the amount treated as dividend of the shareholder and purpose "substantially all" and for the proper implementation of this
(b) the amount of any gain that was recognized on the exchange: Section.
Provided, That the property received as "boot" shall have as basis its fair
market value: Provided, further, That if as part of the consideration to INTEREST
the transferor, the transferee of property assumes a liability of the In general, interests received or credited to the account of the
transferor or acquires form the latter property subject to a liability, such depositor or investor are included in their gross income, unless
assumption or acquisition (in the amount of the liability) shall, for they are exempt from tax or subject to final tax at preferential
purposes of this paragraph, be treated as money received by the rate under the Tax Code or under applicable tax treaty
transferor on the exchange: Provided, finally, That if the transferor
receives several kinds of stock or securities, the Commissioner is hereby 1. Income interest from Philippine currency deposits and deposit
authorized to allocate the basis among the several classes of stocks or substitutesgross income from Philippine currency deposits and
securities. yield or other monetary benefit from deposit substitutes and
(b) The basis of the property transferred in the hands of the transferee from trust funds and similar arrangements are subject to the
shall be the same as it would be in the hands of the transferor increased 20% final withholding tax except if the depositor is a non-
by the amount of the gain recognized to the transferor on the transfer. resident alien, then the final withholding tax rate shall be 25%
in accordance with the pertinent provision of the Tax Code. If
(6) Definitions. - the depositor is an employee trust fund or accredited retirement
plan, such interest income, yield or monetary benefit shall be
(a) The term "securities" means bonds and debentures but not "notes" of exempted from the final withholding tax
whatever class or duration. 2. Interest income on foreign currency depositsgross interest
(b) The term "merger" or "consolidation", when used in this Section, shall income from foreign currency deposits with an OBU or FCDU in
be understood to mean: (i) the ordinary merger or consolidation, or (ii) the Philippines is subject to the final withholding tax of 7.5%. If
the acquisition by one corporation of all or substantially all the the deposit is with a bank located outside the Philippines, it
properties of another corporation solely for stock: Provided, That for a shall be subjected to the graduated income tax rates ranging
transaction to be regarded as a merger or consolidation within the from 5%-32% or the normal corporate income tax rate.
purview of this Section, it must be undertaken for a bona fide business 3. Interest income from long-term deposits or investments of
purpose and not solely for the purpose of escaping the burden of taxation: individuals is exempt (general rule)
Provided, further, That in determining whether a bona fide business 4. Interest income on traditional loans is not subject to final or
purpose exists, each and every step of the transaction shall be considered creditable withholding tax
and the whole transaction or series of transaction shall be treated as a 5. Interest on foreign loansinterest on foreign loans extended by
single unit: Provided, finally , That in determining whether the property non-resident foreign corporations is subject to the 20% final
transferred constitutes a substantial portion of the property of the withholding tax unless a lower tax rate is provided for in atreaty
transferor, the term 'property' shall be taken to include the cash assets of
the transferor. ROYALTIES
(c) The term "control", when used in this Section, shall mean ownership Location of the property or interest in such property
of stocks in a corporation possessing at least fifty-one percent (51%) of If the property or interest is located within the Philippines, the
the total voting power of all classes of stocks entitled to vote. gain is considered as income from the Philippines
(d) The Secretary of Finance, upon recommendation of the
Commissioner, is hereby authorized to issue rules and regulations for the DIVIDENDS
Comprise any distribution whether in cash or other property in (D) Net Income of a Partnership Deemed Constructively Received by
the ordinary course of business, even though extraordinary in Partners. - The taxable income declared by a partnership for a taxable
amount made by a domestic corporation, joint stock company, year which is subject to tax under Section 27 (A) of this Code, after
partnership, joint account, association, or insurance company to deducting the corporate income tax imposed therein, shall be deemed to
the shareholders or members out of its earnings or profits have been actually or constructively received by the partners in the same
In general, dividends are included in the gross income of the taxable year and shall be taxed to them in their individual capacity,
stockholder unless they are exempt from tax or subject to final whether actually distributed or not.
withholding tax as may be provided for by the Tax Code
Remember that any type of dividend must come from the
unappropriated retained earnings of the corporation CIR V. CA, CTA & ANSCOR
GR 108576, JANUARY 30, 1999
income tax imposed under this Chapter. Persons engaging in business as (4) Compensation for Injuries or Sickness. - amounts received,
partners in a general professional partnership shall be liable for income through Accident or Health Insurance or under Workmen's
tax only in their separate and individual capacities. Compensation Acts, as compensation for personal injuries or sickness,
plus the amounts of any damages received, whether by suit or
For purposes of computing the distributive share of the partners, the net agreement, on account of such injuries or sickness.
income of the partnership shall be computed in the same manner as a
corporation. (5) Income Exempt under Treaty. - Income of any kind, to the extent
required by any treaty obligation binding upon the Government of the
Each partner shall report as gross income his distributive share, actually Philippines.
or constructively received, in the net income of the partnership.
(6) Retirement Benefits, Pensions, Gratuities, etc.-
INCOME FROM WHATEVER SOURCES
(a) Retirement benefits received under Republic Act No. 7641 and
those received by officials and employees of private firms, whether
EXCLUSIONS FROM GROSS INCOME individual or corporate, in accordance with a reasonable private benefit
plan maintained by the employer: Provided, That the retiring official or
(B) Exclusions from Gross Income. - The following items shall not be employee has been in the service of the same employer for at least ten
included in gross income and shall be exempt from taxation under this (10) years and is not less than fifty (50) years of age at the time of his
retirement: Provided, further, That the benefits granted under this
title:
subparagraph shall be availed of by an official or employee only once. For
purposes of this Subsection, the term 'reasonable private benefit plan'
(1) Life Insurance. - The proceeds of life insurance policies paid to
means a pension, gratuity, stock bonus or profit-sharing plan maintained
the heirs or beneficiaries upon the death of the insured, whether in a
by an employer for the benefit of some or all of his officials or employees,
single sum or otherwise, but if such amounts are held by the insurer
wherein contributions are made by such employer for the officials or
under an agreement to pay interest thereon, the interest payments shall
employees, or both, for the purpose of distributing to such officials and
be included in gross income.
employees the earnings and principal of the fund thus accumulated, and
(2) Amount Received by Insured as Return of Premium. - The wherein its is provided in said plan that at no time shall any part of the
amount received by the insured, as a return of premiums paid by him corpus or income of the fund be used for, or be diverted to, any purpose
under life insurance, endowment, or annuity contracts, either during the other than for the exclusive benefit of the said officials and employees.
term or at the maturity of the term mentioned in the contract or upon
(b) Any amount received by an official or employee or by his heirs
surrender of the contract.
from the employer as a consequence of separation of such official or
employee from the service of the employer because of death sickness or
(3) Gifts, Bequests, and Devises. - The value of property acquired by
other physical disability or for any cause beyond the control of the said
gift, bequest, devise, or descent: Provided, however, That income from
official or employee.
such property, as well as gift, bequest, devise or descent of income from
any property, in cases of transfers of divided interest, shall be included in
(c) The provisions of any existing law to the contrary
gross income.
notwithstanding, social security benefits, retirement gratuities, pensions
and other similar benefits received by resident or nonresident citizens of
(f) Benefits received from the GSIS under Republic Act No. 8291, (i) Benefits received by officials and employees of the national
including retirement gratuity received by government officials and and local government pursuant to Republic Act No. 6686;
employees.
(ii) Benefits received by employees pursuant to Presidential
(7) Miscellaneous Items. - Decree No. 851, as amended by Memorandum Order No. 28, dated
August 13, 1986;
(a) Income Derived by Foreign Government. - Income derived
from investments in the Philippines in loans, stocks, bonds or other (iii) Benefits received by officials and employees not covered
domestic securities, or from interest on deposits in banks in the by Presidential decree No. 851, as amended by Memorandum Order No.
Philippines by (i) foreign governments, (ii) financing institutions owned, 28, dated August 13, 1986; and
controlled, or enjoying refinancing from foreign governments, and (iii)
international or regional financial institutions established by foreign (iv) Other benefits such as productivity incentives and
governments. Christmas bonus: Provided, further, That the ceiling of Thirty thousand
pesos (P30,000) may be increased through rules and regulations issued
(b) Income Derived by the Government or its Political by the Secretary of Finance, upon recommendation of the Commissioner,
Subdivisions. - Income derived from any public utility or from the after considering among others, the effect on the same of the inflation
exercise of any essential governmental function accruing to the rate at the end of the taxable year.
Government of the Philippines or to any political subdivision thereof.
(f) GSIS, SSS, Medicare and Other Contributions. - GSIS, SSS,
(c) Prizes and Awards. - Prizes and awards made primarily in Medicare and Pag-ibig contributions, and union dues of individuals.
recognition of religious, charitable, scientific, educational, artistic,
literary, or civic achievement but only if: (g) Gains from the Sale of Bonds, Debentures or other Certificate
of Indebtedness. - Gains realized from the same or exchange or
(i) The recipient was selected without any action on his part retirement of bonds, debentures or other certificate of indebtedness with
to enter the contest or proceeding; and a maturity of more than five (5) years.
(h) Gains from Redemption of Shares in Mutual Fund. - Gains 10. Daily meal allowances for overtime work not exceeding 25% of
realized by the investor upon redemption of shares of stock in a mutual the basic minimum wage
fund company as defined in Section 22 (BB) of this Code.
CIR V. CASTANEDA
Terminal leave pay of government employees are not subject to
SEC 2.78.1 (B) RR 2-98WITHHOLDING TAX ON income tax
COMPENSATION
The withholding of tax on compensation income is a method of BIR RULING 219-3 DATED MAY 17, 1993
collecting the income tax at source upon receipt of the income. This refers to the letter stating that Lawrence was awarded
It applies to all employed individuals whether citizens or aliens, unpaid salaries and commission, plus moral and exemplary
deriving income from compensation for services rendered in the damages and attorneys fees in a labor case. The award has
Philippines. become final and executory, and the respondent is willing to pay
The employer is constituted as the withholding agent the award less the withholding tax thereon, and that it is the
belief of your client that the unpaid salaries and commission are
Compensation Income Defined subject to withholding tax but the damages which consist of
In general, the term Compensation means all renumeration for moral and exemplary damages and attorneys fees are not
services performed by an employee for his employer under an subject to withholding tax to which the respondent disagrees
employer-employee relationship, unless specifically excluded by The amounts received as damages are not taxable income. The
the tax code legal expenses incurred in court proceedings, where the
taxpayer was awarded moral damages are not deductible from
DE MINIMIS BENEFITS gross income. On the other hand, attorneys fees awarded to
1. Monetized unused vacation leave credits not exceeding 10 days your client as part of the damages shall not be subject to income
during the year tax, the same being merely a reimbursement of his
2. Medical cash allowance to dependents of employees not expenses/advances in the course of the hearing of his case.
exceeding P750/employee per semester; or P125 per month The award of damages and attorneys fees are not subject to
3. Rice subsidy of P1000 or one sack of 50kg rice/month amounting income tax and therefore are not subject to withholding tax
to not more than P1000
4. Uniforms and clothing allowance not exceeding P3000/year I-DRAWING NATIN
5. Actual medical benefits not exceeding P10,000/annum
6. Laundry allowance not exceeding P300/month
7. Employee achievement awards, e.g for length of service, or
safety achievement, which must be in the form of a tangible
personal property other than cash or gift certificates, with an
annual monetary value not exceeding P10,000 received by the
employee under an established written plan which doesn't
discriminate in favor of highly paid employees
8. Gifts given during Christmas and major anniversary
celebrations not exceeding P5000/employee per annum
9. Flowers, fruits, and books of similar items given to employees
under certain circumstances
(4) Rentals and Royalties. - Rentals and royalties from property located
in the Philippines or from any interest in such property, including
rentals or royalties for -
(a) The use of or the right or privilege to use in the Philippines any
copyright, patent, design or model, plan, secret formula or process,
goodwill, trademark, trade brand or other like property or right;
(b) The use of, or the right to use in the Philippines any industrial,
commercial or scientific equipment;
(c) The supply of scientific, technical, industrial or commercial knowledge
or information;
(d) The supply of any assistance that is ancillary and subsidiary to, and
INCOME FROM SOURCES WITHIN AND WITHOUT THE is furnished as a means of enabling the application or enjoyment of, any
PHILIPPINES such property or right as is mentioned in paragraph (a), any such
equipment as is mentioned in paragraph (b) or any such knowledge or
information as is mentioned in paragraph (c);
SEC. 42. Income from Sources Within the Philippines.-
(e) The supply of services by a nonresident person or his employee in
connection with the use of property or rights belonging to, or the
(A) Gross Income From Sources Within the Philippines. - The following
installation or operation of any brand, machinery or other apparatus
items of gross income shall be treated as gross income from sources
purchased from such nonresident person;
within the Philippines:
(f) Technical advice, assistance or services rendered in connection with
technical management or administration of any scientific, industrial or
(1) Interests. - Interests derived from sources within the Philippines, and
commercial undertaking, venture, project or scheme; and
interests on bonds, notes or other interest-bearing obligation of residents,
(g) The use of or the right to use:
corporate or otherwise;
(i) Motion picture films;
(ii) Films or video tapes for use in connection with television; and
(2) Dividends. - The amount received as dividends:
(iii) Tapes for use in connection with radio broadcasting.
(a) from a domestic corporation; and
(b) from a foreign corporation, unless less than fifty percent (50%) of the
(5) Sale of Real Property. - Gains, profits and income from the sale of real
gross income of such foreign corporation for the three-year period ending
property located in the Philippines; and
with the close of its taxable year preceding the declaration of such
dividends or for such part of such period as the corporation has been in
(6) Sale of Personal Property. - Gains; profits and income from the sale of
existence) was derived from sources within the Philippines as
personal property, as determined in Subsection (E) of this Section.
determined under the provisions of this Section; but only in an amount
which bears the same ration to such dividends as the gross income of the
(B) Taxable Income From Sources Within the Philippines. -
corporation for such period derived from sources within the Philippines
(1) General Rule. - From the items of gross income specified in
bears to its gross income from all sources.
Subsection (A) of this Section, there shall be deducted the expenses,
losses and other deductions properly allocated thereto and a ratable part or other deduction which cannot definitely be allocated to some items or
of expenses, interests, losses and other deductions effectively connected classes of gross income. The remainder, if any, shall be treated in full as
with the business or trade conducted exclusively within the Philippines taxable income from sources without the Philippines.
which cannot definitely be allocated to some items or class of gross
income: Provided, That such items of deductions shall be allowed only if (E) Income From Sources Partly Within and Partly Without the
fully substantiated by all the information necessary for its calculation. Philippines.- Items of gross income, expenses, losses and deductions,
The remainder, if any, shall be treated in full as taxable income from other than those specified in Subsections (A) and (C) of this Section, shall
sources within the Philippines. be allocated or apportioned to sources within or without the Philippines,
under the rules and regulations prescribed by the Secretary of Finance,
(2) Exception. - No deductions for interest paid or incurred abroad shall upon recommendation of the Commissioner. Where items of gross income
be allowed from the item of gross income specified in subsection (A) are separately allocated to sources within the Philippines, there shall be
unless indebtedness was actually incurred to provide funds for use in deducted (for the purpose of computing the taxable income therefrom)
connection with the conduct or operation of trade or business in the the expenses, losses and other deductions properly apportioned or
Philippines. allocated thereto and a ratable part of other expenses, losses or other
deductions which cannot definitely be allocated to some items or classes
(C) Gross Income From Sources Without the Philippines. - The following of gross income. The remainder, if any, shall be included in full as
items of gross income shall be treated as income from sources without taxable income from sources within the Philippines. In the case of gross
the Philippines: income derived from sources partly within and partly without the
(1) Interests other than those derived from sources within the Philippines, the taxable income may first be computed by deducting the
Philippines as provided in paragraph (1) of Subsection (A) of this Section; expenses, losses or other deductions apportioned or allocated thereto and
(2) Dividends other than those derived from sources within the a ratable part of any expense, loss or other deduction which cannot
Philippines as provided in definitely be allocated to some items or classes of gross income; and the
paragraph (2) of Subsection (A) of this Section; portion of such taxable income attributable to sources within the
(3) Compensation for labor or personal services performed without the Philippines may be determined by processes or formulas of general
Philippines; apportionment prescribed by the Secretary of Finance. Gains, profits and
(4) Rentals or royalties from property located without the Philippines or income from the sale of personal property produced (in whole or in part)
from any interest in by the taxpayer within and sold without the Philippines, or produced (in
such property including rentals or royalties for the use of or for the whole or in part) by the taxpayer without and sold within the
privilege of using Philippines, shall be treated as derived partly from sources within and
without the Philippines, patents, copyrights, secret processes and partly from sources without the Philippines.
formulas, goodwill,
trademarks, trade brands, franchises and other like properties; and Gains, profits and income derived from the purchase of personal property
(5) Gains, profits and income from the sale of real property located within and its sale without the Philippines, or from the purchase of
without the Philippines. personal property without and its sale within the Philippines shall be
treated as derived entirely form sources within the country in which sold:
(D) Taxable Income From Sources Without the Philippines. - From the Provided, however, That gain from the sale of shares of stock in a
items of gross income specified in Subsection (C) of this Section there domestic corporation shall be treated as derived entirely form sources
shall be deducted the expenses, losses, and other deductions properly within the Philippines regardless of where the said shares are sold. The
apportioned or allocated thereto and a ratable part of any expense, loss transfer by a nonresident alien or a foreign corporation to anyone of any
share of stock issued by a domestic corporation shall not be effected or of which are sold or transferred, to advise the transferee of this
made in its book unless: (1) the transferor has filed with the requirement.
Commissioner a bond conditioned upon the future payment by him of any
income tax that may be due on the gains derived from such transfer, or (F) Definitions. - As used in this Section the words "sale" or "sold" include
(2) the Commissioner has certified that the taxes, if any, imposed in this "exchange" or "exchanged"; and the word "produced" includes "created",
Title and due on the gain realized from such sale or transfer have been "fabricated", "manufactured", "extracted", "processed", "cured" or "aged".
paid. It shall be the duty of the transferor and the corporation the shares
CHAPTER 5
DEDUCTIONS
Not Deductible
1. Interest on unpaid salaries and
bonuses
2. Interest on indebtedness incurred or
continued to purchase bonds and
other securities
3. Interest paid to related persons
4. Interest deducted in advance on loan
of an individual on cash basis (shall
be allowed as a deduction during the
year the indebtedness is paid)
5. Interest on loan incurred to finance
petroleum operation in the
Philippines
6. Interest on preferred shares
Limitation on credit for foreign No deduction is allowed for amounts
taxes representing interest, surcharges, or
1. Shall not exceed the same proportion penalties incident to delinquency.
of the tax against which such credit
is taken, which the taxpayers net Ways to avoid double or multiple
income from sources within such taxation
country taxable bears to his entire There is a strong possibility that the
net income for the same taxable year income from sources outside the
2. The total amount of the credit shall Philippines must have already been
not exceed the same proportion of subjected to income tax by the foreign
1. Payments must be for taxes the tax against which such credit is government where the source of income is
2. Taxes are imposed by law upon the taken, which the taxpayers net located
taxpayer income from sources within the The Philippine government generally
3. Taxes must be paid or accrued during Philippines bears to his entire net adopts either the --
Taxes the taxable year in connection with income for the same taxable year o Exemption methodavoids or
the taxpayers trade, business, or (apples where the resident citizen or totally eliminates double
profession domestic corporation derives income taxation by tax exemption in the
4. Taxes are not specifically excluded by from more than 1 country) resident state
law from being deducted from the o Tax credit methodprevents or
taxpayers gross income partly eliminates double
taxation in the resident state
Taxes not deductible through the grant of credit for
1. Philippine income tax taxes paid in the source State
2. Foreign income tax
3. Estate and donors tax Analysis of credit for taxes
4. Special assessments on real If the taxpayer signifies in his return his
property desire to claim a credit for taxes, in the case
5. Electric energy consumption tax of a Philippine citizen, whether resident or
under BP36 non-resident, and the case of domestic
corporations, is as follows
1. The amount of any federal or national
income, war-profits, and excess-profits
taxes paid or accrued during the taxable
year to any foreign country
2. An individuals proportionate share of
any such taxes of which is a partner or of
an estate or trust of which he is the
beneficiary paid or accrued during the
taxable year to a foreign country, if his
distributive share of the income of suchj
partnership or trust is reported as income
under the pertinent provisions of the tax
code
insurance or otherwise the same persons date of the embezzlement, a loss was
6. In the case of an individual, the loss 2. Not less than 75% of the paid up sustained in the year of discovery
must be connected with his trade, capital of the corporation if the The above has been modified in such a
business or profession, or incurred in business is in the name of the way that since the embezzlement of funds
any transaction entered into for profit corporation, is held by or on behalf of creates a debtor-creditor relationship, the
though not connected with his trade, the same persons loss is deductible as bad debt in the year
business, or profession when the right of recovery is worthless
7. In the case of casualty loss, it has General principles of NOLCO
been reported to the BIR within 45 1. Limited only to net operating losses Voluntary removal of buildings
days from date of occurence of the loss accumulated beginning January As an incident to renewals or
1998 replacements is deductible as loss during
2. Shall be allowed a deduction from the taxable year
gross income of the same taxpayer However, when a taxpayer buys real
who sustained the accumulated the estate upon which a building is located,
net operating losses regardless of the which he proceeds to raze with a view to
change in its ownership. This shall erecting another building, it will be
also apply in the case of a merger considered that the taxpayer has
where the taxpayer is the surviving sustained no deductible expense on
entity. account of the cost of such removal, the
3. NOLCO of the taxpayer shall not be value of the real estate, exclusive of old
transferred to another person improvements, being presumably equal to
whether directly or indirectly, such the purchase price of the land and
as, but not limited to, the transfer or building plus the cost of removing the
assignment thereof through a useless building
merger, consolidation or any form of
business combination off such Net Operating Loss
taxpayer with another person Excess of allowable deductions over gross
4. An individual who claims the 10% income of the business in a taxable year
OSD shall not be allowed to claim
deduction of NOLCOthree-year Net Operating Loss Carry-Over (NOLCO)
period shall continue to run despite The net operating loss of the business or
the use of the OSD enterprise for any taxable year
5. NOLCO shall be in a first in-first out immediately preceding the current
basis taxable year which had not been
6. To be availed of by individuals and previously offset as deduction from gross
domestic and resident foreign income shall be carried over as a
corporations deduction from gross income for the next
3 CONSECUTIVE taxable years
Wash sales of stocks or securities immediately following the year of such
acquisition cost of such property philantrophic persons and which comes within one or more purposes of
institutions the accredited nongovernment organization
Limited Deductibility Provided, That any donation which is may be treated as a utilization, but only if at
Contributions or gifts actually paid or made to the Government or to any of the time such amount is set aside, the
made within the taxable year to, or its agencies or political subdivisions accredited nongovernment organization has
for the use of the Government of the not in accordance with the said established to the satisfaction of the
Philippines or any of its agencies or annual priority plan shall be subject Commissioner that the amount will be paid
any political subdivision thereof to the limitations prescribed in for the specific project within a period to be
exclusively for public purposes, or to paragraph (1) of this Subsection; prescribed in rules and regulations to be
accredited domestic corporation or promulgated by the Secretary of Finance,
associations organized and operated Donations to Certain Foreign Institutions upon recommendation of the Commissioner,
exclusively for religious, charitable, or International Organizations. but not to exceed five (5) years, and the
scientific, youth and sports Donations to foreign institutions or project is one which can be better
development, cultural or educational international organizations which accomplished by setting aside such amount
purposes or for the rehabilitation of are fully deductible in pursuance of than by immediate payment of funds.
veterans, or to social welfare or in compliance with agreements,
institutions, or to non-government treaties, or commitments entered
organizations, in accordance with into by the Government of the
rules and regulations promulgated by Philippines and the foreign
the Secretary of finance, upon institutions or international
recommendation of the Commissioner, organizations or in pursuance of
no part of the net income of which special laws
inures to the benefit of any private
stockholder or individual in an Donations to Accredited Nongovernment
amount not in excess of ten percent Organizations.
(10%) in the case of an individual, and 1. Organized and operated exclusively
five percent (%) in the case of a for scientific, research, educational,
corporation, of the taxpayer's taxable character-building and youth and
income derived from trade, business sports development, health, social
or profession as computed without the welfare, cultural or charitable
benefit of this and the following purposes, or a combination thereof,
subparagraphs. no part of the net income of which
inures to the benefit of any private
Full Deductibility individual;
1. Donations to the government 2. Which, not later than the 15th day of
2. Donations to certain foreign the third month after the close of the
institutions or international accredited nongovernment
organizations organizations taxable year in which
3. Donations to accredited non- contributions are received, makes
A taxpayer may treat research or Shall not apply Amortization of Certain Research and
development expenditures which are paid 1. Any expenditure for the acquisition Development Expenditures.
Research and or incurred by him during the taxable year or improvement of land, or for the At the election of the taxpayer and in
Development in connection with his trade, business or improvement of property to be used accordance with the rules and regulations to
profession as ordinary and necessary in connection with research and be prescribed by the Secretary of Finance,
expenses which are not chargeable to development of a character which is upon recommendation of the Commissioner,
capital account. The expenditures so subject to depreciation and depletion; the following research and development
treated shall be allowed as deduction and expenditures may be treated as deferred
during the taxable year when paid or 2. Any expenditure paid or incurred for expenses:
incurred. the purpose of ascertaining the (a) Paid or incurred by the taxpayer in
existence, location, extent, or quality connection with his trade, business or
of any deposit of ore or other profession;
mineral, including oil or gas. (b) Not treated as expenses under paragraph
91) hereof; and
(c) Chargeable to capital account but not
chargeable to property of a character which is
subject to depreciation or depletion.
(B) Mutual Insurance Companies. - In the case of mutual fire and mutual employers' liability and mutual workmen's compensation and
Insurance
mutual casualty insurance companies requiring their members to make premium deposits to provide for losses and expenses, said
Companies,
companies shall not return as income any portion of the premium deposits returned to their policyholders, but shall return as taxable
Whether
income all income received by them from all other sources plus such portion of the premium deposits as are retained by the companies
domestic or
for purposes other than the payment of losses and expenses and reinsurance reserves.
foreign
(C) Mutual Marine Insurance Companies. - Mutual marine insurance companies shall include in their return of gross income, gross
premiums collected and received by them less amounts paid to policyholders on account of premiums previously paid by them and
interest paid upon those amounts between the ascertainment and payment thereof.
(D) Assessment Insurance Companies.- Assessment insurance companies, whether domestic or foreign, may deduct from their gross
income the actual deposit of sums with the officers of the Government of the Philippines pursuant to law, as additions to guarantee or
reserve funds.
Under the Omnibus Investments Code or EO 226
(1) For six (6) years from commercial operation for pioneer firms and four (4) years for non-pioneer firms, new registered firms shall be
fully exempt from income taxes levied by the National Government. Subject to such guidelines as may be prescribed by the Board, the
income tax exemption will be extended for another year in each of the following cases:
i. the project meets the prescribed ratio of capital equipment to number of workers set by the Board;
iii. the net foreign exchange savings or earnings amount to at least US$500,000.00 annually during the first three (3) years of
operation.
The preceding paragraph notwithstanding, no registered pioneer firm may avail of this incentive for a period exceeding eight (8) years.
Incentives
(2) For a period of three (3) years from commercial operation, registered expanding firms shall be entitled to an exemption from income
granted to
taxes levied by the National Government proportionate to their expansion under such terms and conditions as the Board may
registered
determine; Provided, however, That during the period within which this incentive is availed of by the expanding firm it shall not be
enterprises
entitled to additional deduction for incremental labor expense.
(3) The provision of Article 7 (14) notwithstanding, registered firms shall not be entitled to any extension of this incentive.
(b) Additional Deduction for Labor Expense. For the first five (5) years from registration a registered enterprise shall be allowed an
additional deduction from the taxable income of fifty percent (50%) of the wages corresponding to the increment in the number of direct
labor for skilled and unskilled workers if the project meets the prescribed ratio of capital equipment to number of workers set by the
Board: Provided, That this additional deduction shall be doubled if the activity is located in less developed areas as defined in Art. 40.
(c) Tax and Duty Exemption on Imported Capital Equipment. Within five (5) years from the effectivity of this Code, importations of
machinery and equipment and accompanying spare parts of new and expanding registered enterprise shall be exempt to the extent of
one hundred percent (100%) of the customs duties and national internal revenue tax payable thereon: Provided, That the importation of
machinery and equipment and accompanying spare parts shall comply with the following conditions:
(1) They are not manufactured domestically in sufficient quantity, of comparable quality and at reasonable prices;
(2) They are reasonably needed and will be used exclusively by the registered enterprise in the manufacture of its products, unless prior
approval of the Board is secured for the part-time utilization of said equipment in a non-registered activity to maximize usage thereof
or the proportionate taxes and duties are paid on the specific equipment and machinery being permanently used for non-registered
activities; and
(3) The approval of the Board was obtained by the registered enterprise for the importation of such machinery, equipment and spare
parts.
In granting the approval of the importations under this paragraph, the Board may require international canvassing but if the total cost
of the capital equipment or industrial plant exceeds US$5,000,000, the Board shall apply or adopt the provisions of Presidential Decree
Numbered 1764 on International Competitive Bidding.
If the registered enterprise sells, transfers or disposes of these machinery, equipment and spare parts without prior approval of the
Board within five (5) years from date of acquisition, the registered enterprise and the vendee, transferee, or assignee shall be solidarily
liable to pay twice the amount of the tax exemption given it.
The Board shall allow and approve the sale, transfer or disposition of the said items within the said period of five (5) years if made:
(aa) to another registered enterprise or registered domestic producer enjoying similar incentives;
(cc) for purposes of replacement to improve and/or expand the operations of the registered enterprise.
(d) Tax Credit on Domestic Capital Equipment. A tax credit equivalent to one hundred percent (100%) of the value of the national
internal revenue taxes and customs duties that would have been waived on the machinery, equipment and spare parts, had these items
been imported shall be given to the new and expanding registered enterprise which purchases machinery, equipment and spare parts
from a domestic manufacturer: Provided, That (1) That the said equipment, machinery and spare parts are reasonably needed and will
be used exclusively by the registered enterprise in the manufacture of its products, unless prior approval of the Board is secured for the
part-time utilization of said equipment in a non-registered activity to maximize usage thereof; (2) that the equipment would have
qualified for tax and duty-free importation under paragraph (c) hereof; (3) that the approval of the Board was obtained by the registered
enterprise; and (4) that the purchase is made within five (5) years from the date of effectivity of the Code. If the registered enterprise
sells, transfers or disposes of these machinery, equipment and spare parts, the provisions in the preceding paragraph for such
disposition shall apply.
(e) Exemption from Contractor's Tax. The registered enterprise shall be exempt from the payment of contractor's tax, whether national
or local.
(f) Simplification of Customs Procedure. Customs procedures for the importation of equipment, spare parts, raw materials and supplies,
and exports of processed products by registered enterprises shall be simplied by the Bureau of Customs.
(g) Unrestricted Use of Consigned Equipment. Provisions of existing laws notwithstanding, machinery, equipment and spare part
consigned to any registered enterprises shall not be subject to restrictions as to period of use of such machinery, equipment and spare
parts Provided, that the appropriate re-export bond is posted unless the importation is otherwise covered under subsections (c) and (m)
of this Article. Provided, further, that such consigned equipment shall be for the exclusive use of the registered enterprise.
If such equipment is sold, transferred or otherwise disposed of by the registered enterprise the related provision of Article 39 (c) (3)
shall apply. Outward remittance of foreign exchange covering the proceeds of such sale, transfer or disposition shall be allowed only
upon prior Central Bank approval.
(h) Employment of Foreign Nationals. Subject to the provisions of Section 29 of Commonwealth Act Number 613, as amended, a
registered enterprise may employ foreign nationals in supervisory, technical or advisory positions for a period not exceeding five (5)
years from its registration, extendible for limited periods at the discretion of the Board: Provided, however, That when the majority of
the capital stock of a registered enterprise is owned by foreign investors, the position of president, treasurer and general manager or
their equivalents may be retained by foreign nationals beyond the period set forth herein.
Foreign nationals under employment contract within the purview of this incentive, their spouses and unmarried children under twenty-
one (21) years of age, who are not excluded by Section 29 of Commonwealth Act Numbered 613, as amended, shall be permitted to enter
and reside in the Philippines during the period of employment of such foreign nationals.
A registered enterprise shall train Filipinos as understudies of foreign nationals in administrative, supervisory and technical skills and
shall submit annual reports on such training to the Board.
(i) Exemption on Breeding Stocks and Genetic Materials. The importation of breeding stocks and genetic materials within ten (10)
years from the date of registration or commercial operation of the enterprise shall be exempt from all taxes and duties: Provided, That
such breeding stocks and genetic materials are (1) not locally available and/or obtainable locally in comparable quality and at
reasonable prices; (2) reasonably needed in the registered activity; and (3) approved by the Board.
(j) Tax Credit on Domestic Breeding Stocks and Genetic Materials. A tax credit equivalent to one hundred percent (100%) of the value
of national internal revenue taxes and customs duties that would have been waived on the breeding stocks and genetic materials had
these items been imported shall be given to the registered enterprise which purchases breeding stocks and generic materials from a
domestic producer: Provided, 1) That said breeding stocks and generic materials would have qualified for tax and duty free importation
under the preceding paragraph; 2) that the breeding stocks and genetic materials are reasonably needed in the registered activity; 3)
that the approval of the board has been obtained by the registered enterprise; and 4) that the purchase is made within ten (10) years
from date of registration or commercial operation of the registered enterprise.
(k) Tax Credit for Taxes and Duties on Raw Materials. Every registered enterprise shall enjoy a tax credit equivalent to the National
Internal Revenue taxes and Customs duties paid on the supplies, raw materials and semi-manufactured products used in the
manufacture, processing or production of its export products and forming part thereof, exported directly or indirectly by the registered
enterprise: Provided, however, that the taxes on the supplies, raw materials and semi- manufactured products domestically purchased
are indicated as a separate item in the sales invoice.
Nothing herein shall be construed as to preclude the Board from setting a fixed percentage of export sales as the approximate tax credit
for taxes and duties of raw materials based on an average or standard usage for such materials in the industry.
(l) Access to Bonded Manufacturing/Trading Warehouse System. Registered export oriented enterprises shall have access to the
utilization of the bonded warehousing system in all areas required by the project subject to such guidelines as may be issued by the
Board upon prior consultation with the Bureau of Customs.
(m) Exemption from Taxes and Duties on Imported Spare Parts. Importation of required supplies and spare parts for consigned
equipment or those imported tax and duty free by a registered enterprise with a bonded manufacturing warehouse shall be exempt
from customs duties and national internal revenue taxes payable thereon, Provided, However, That at least seventy percent (70%) of
production is exported; Provided, further, that such spare parts and supplies are not locally available at reasonable prices, sufficient
quantity and comparable quality; Provided, finally, That all such spare parts and supplies shall be used only in the bonded
manufacturing warehouse of the registered enterprise under such requirements as the Bureau of Customs may impose.
(n) Exemption from Wharfage Dues and any Export Tax, Duty, Impost and Fee. The provisions of law to the contrary notwithstanding,
exports by a registered enterprise of its non- traditional export products shall be exempted of its non-traditional export products shall
be exempted from any wharfage dues, and any export tax, duty, impost and fee.
Status-At-The-End-Of-The-Year Rule
Whatever the status of the taxpayer at the end of the calendar year shall be used for purposes of determining his personal and additional exemptions
A change of status of the taxpayer during the taxable year generally benefits the taxpayer but doesn't prejudice him
For the purpose of the tax provided for in this Title, there shall be allowed an exemption of Twenty
ESTATES AND TRUSTS
thousand pesos (P20,000) from the income of the estate or trust.
in the manner above prescribed in this Section. As used in this Section, INDIVIDUALS
the term "initial payments" means the payments received in cash or
property other than evidences of indebtedness of the purchaser during SEC. 51. Individual Return.
the taxable period in which the sale or other disposition is made.
(A) Requirements. -
(C) Sales of Real Property Considered as Capital Asset by Individuals. - (1) Except as provided in paragraph (2) of this Subsection, the following
An individual who sells or disposes of real property, considered as capital individuals are required to file an income tax return:
asset, and is otherwise qualified to report the gain therefrom under (a) Every Filipino citizen residing in the Philippines;
Subsection (B) may pay the capital gains tax in installments under rules (b) Every Filipino citizen residing outside the Philippines, on his income
and regulations to be promulgated by the Secretary of Finance, upon from sources within the Philippines;
recommendation of the Commissioner. (c) Every alien residing in the Philippines, on income derived from
sources within the Philippines; and
(D) Change from Accrual to Installment Basis. - If a taxpayer entitled to (d) Every nonresident alien engaged in trade or business or in the
the benefits of Subsection (A) elects for any taxable year to report his exercise of profession in the Philippines.
taxable income on the installment basis, then in computing his income (2) The following individuals shall not be required to file an income tax
for the year of change or any subsequent year, amounts actually received return;
during any such year on account of sales or other dispositions of property (a) An individual whose gross income does not exceed his total personal
made in any prior year shall not be excluded. and additional exemptions for dependents under Section 35: Provided,
That a citizen of the Philippines and any alien individual engaged in
Under Section 51, Revenue Regulations 2gains, profits, and business or practice of profession within the Philippine shall file an
income are to be included in the gross income for the taxable income tax return, regardless of the amount of gross income;
year in which they are received by the taxpayer, unless they are (b) An individual with respect to pure compensation income, as defined in
included when they accrue to him in accordance with the Section 32 (A)(1), derived from sources within the Philippines, the
approved method of accounting followed by him. If a person income tax on which has been correctly withheld under the provisions of
sues in one year on a pecuniary claim or for property, and money Section 79 of this Code: Provided, That an individual deriving
or property is reconciled on a judgment therefore in a later year, compensation concurrently from two or more employers at any time
income is realized in that year, assuming that the money or during the taxable year shall file an income tax return: Provided,
property would have been income in the earliest year if then further, That an individual whose compensation income derived from
received. This is true of a recovery for patent infringment. Bad sources within the Philippines exceeds Sixty thousand pesos (P60,000)
debts or accounts charged off subsequent to March 1, 1913, shall also file an income tax return;
because of the fact that they were determined to be worthless, (c) An individual whose sole income has been subjected to final
which are subsequently recovered, whether or not by suit, withholding tax pursuant to Section 57(A) of this Code; and
constitute income for the year in which recovered, regardless of (d) An individual who is exempt from income tax pursuant to the
the date when amounts were charged off provisions of this Code and other laws, general or special.
(3) The forgoing notwithstanding, any individual not required to file an
income tax return may nevertheless be required to file an information
CHAPTER 7 return pursuant to rules and regulations prescribed by the Secretary of
RETURNS AND PAYMENTS OF TAX Finance, upon recommendation of the Commissioner.
(4) The income tax return shall be filed in duplicate by the following file one return, each spouse may file a separate return of income but the
persons: returns so filed shall be consolidated by the Bureau for purposes of
(a) A resident citizen - on his income from all sources; verification for the taxable year.
(b) A nonresident citizen - on his income derived from sources within the
Philippines; (E) Return of Parent to Include Income of Children. - The income of
(c) A resident alien - on his income derived from sources within the unmarried minors derived from properly received from a living parent
Philippines; and shall be included in the return of the parent, except (1) when the donor's
(d) A nonresident alien engaged in trade or business in the Philippines - tax has been paid on such property, or (2) when the transfer of such
on his income derived from sources within the Philippines. property is exempt from donor's tax.
(B) Where to File. - Except in cases where the Commissioner otherwise
permits, the return shall be filed with an authorized agent bank, (F) Persons Under Disability. - If the taxpayer is unable to make his own
Revenue District Officer, Collection Agent or duly authorized Treasurer return, the return may be made by his duly authorized agent or
of the city or municipality in which such person has his legal residence or representative or by the guardian or other person charged with the care
principal place of business in the Philippines, or if there be no legal of his person or property, the principal and his representative or
residence or place of business in the Philippines, with the Office of the guardian assuming the responsibility of making the return and incurring
Commissioner. penalties provided for erroneous, false or fraudulent returns.
(C) When to File. - (G) Signature Presumed Correct. - The fact that an individual's name is
signed to a filed return shall be prima facie evidence for all purposes that
(1) The return of any individual specified above shall be filed on or the return was actually signed by him.
before the fifteenth (15th) day of April of each year covering income for
the preceding taxable year. SEC. 56. Payment and Assessment of Income Tax for Individuals
and Corporation. -
(2) Individuals subject to tax on capital gains;
(A) Payment of Tax. -
(a) From the sale or exchange of shares of stock not traded thru a
local stock exchange as prescribed under Section 24(c) shall file a return (1) In General. - The total amount of tax imposed by this Title shall
within thirty (30) days after each transaction and a final consolidated be paid by the person subject thereto at the time the return is filed. In
return on or before April 15 of each year covering all stock transactions of the case of tramp vessels, the shipping agents and/or the husbanding
the preceding taxable year; and agents, and in their absence, the captains thereof are required to file the
return herein provided and pay the tax due thereon before their
(b) From the sale or disposition of real property under Section departure. Upon failure of the said agents or captains to file the return
24(D) shall file a return within thirty (30) days following each sale or and pay the tax, the Bureau of Customs is hereby authorized to hold the
other disposition. vessel and prevent its departure until proof of payment of the tax is
presented or a sufficient bond is filed to answer for the tax due.
(D) Husband and Wife. - Married individuals, whether citizens, resident
or nonresident aliens, who do not derive income purely from (2) Installment of Payment. - When the tax due is in excess of Two
compensation, shall file a return for the taxable year to include the thousand pesos (P2,000), the taxpayer other than a corporation may elect
income of both spouses, but where it is impracticable for the spouses to to pay the tax in two (2) equal installments in which case, the first
installment shall be paid at the time the return is filed and the second
installment, on or before July 15 following the close of the calendar year. (1) The amount by which the tax imposed by this Title exceeds the
If any installment is not paid on or before the date fixed for its payment, amount shown as the tax by the taxpayer upon his return; but the
the whole amount of the tax unpaid becomes due and payable, together amount so shown on the return shall be increased by the amounts
with the delinquency penalties. previously assessed (or collected without assessment) as a deficiency, and
decreased by the amount previously abated, credited, returned or
(3) Payment of Capital Gains Tax. - The total amount of tax imposed otherwise repaid in respect of such tax; or
and prescribed under Section 24 (c), 24(D), 27(E)(2), 28(A)(8)(c) and
28(B)(5)(c) shall be paid on the date the return prescribed therefor is filed (2) If no amount is shown as the tax by the taxpayer upon this return,
by the person liable thereto: Provided, That if the seller submits proof of or if no return is made by the taxpayer, then the amount by which the
his intention to avail himself of the benefit of exemption of capital gains tax exceeds the amounts previously assessed (or collected without
under existing special laws, no such payments shall be required : assessment) as a deficiency; but such amounts previously assessed or
Provided, further, That in case of failure to qualify for exemption under collected without assessment shall first be decreased by the amounts
such special laws and implementing rules and regulations, the tax due previously abated, credited returned or otherwise repaid in respect of
on the gains realized from the original transaction shall immediately such tax.
become due and payable, subject to the penalties prescribed under
applicable provisions of this Code: Provided, finally, That if the seller, SEC. 74. Declaration of Income Tax for Individuals. -
having paid the tax, submits such proof of intent within six (6) months
from the registration of the document transferring the real property, he (A) In General. - Except as otherwise provided in this Section, every
shall be entitled to a refund of such tax upon verification of his individual subject to income tax under Sections 24 and 25(A) of this Title,
compliance with the requirements for such exemption. who is receiving self-employment income, whether it constitutes the sole
source of his income or in combination with salaries, wages and other
In case the taxpayer elects and is qualified to report the gain by fixed or determinable income, shall make and file a declaration of his
installments under Section 49 of this Code, the tax due from each estimated income for the current taxable year on or before April 15 of the
installment payment shall be paid within (30) days from the receipt of same taxable year. In general, self-employment income consists of the
such payments. earnings derived by the individual from the practice of profession or
conduct of trade or business carried on by him as a sole proprietor or by a
No registration of any document transferring real property shall be partnership of which he is a member. Nonresident Filipino citizens, with
effected by the Register of Deeds unless the Commissioner or his duly respect to income from without the Philippines, and nonresident aliens
authorized representative has certified that such transfer has been not engaged in trade or business in the Philippines, are not required to
reported, and the tax herein imposed, if any, has been paid. render a declaration of estimated income tax. The declaration shall
contain such pertinent information as the Secretary of Finance, upon
(B) Assessment and Payment of Deficiency Tax. - After the return is recommendation of the Commissioner, may, by rules and regulations
filed, the Commissioner shall examine it and assess the correct amount prescribe. An individual may make amendments of a declaration filed
of the tax. The tax or deficiency income tax so discovered shall be paid during the taxable year under the rules and regulations prescribed by
upon notice and demand from the Commissioner. the Secretary of Finance, upon recommendation of the Commissioner.
As used in this Chapter, in respect of a tax imposed by this Title, the (B) Return and Payment of Estimated Income Tax by Individuals. - The
term "deficiency" means: amount of estimated income as defined in Subsection (C) with respect to
which a declaration is required under Subsection (A) shall be paid in four render a correct return to the Commissioner, verified under oath, setting
(4) installments. The first installment shall be paid at the time of the forth the terms of such resolution or plan and such other information as
declaration and the second and third shall be paid on August 15 and the Secretary of Finance, upon recommendation of the commissioner,
November 15 of the current year, respectively. The fourth installment shall, by rules and regulations, prescribe.
shall be paid on or before April 15 of the following calendar year when
the final adjusted income tax return is due to be filed. The dissolving or reorganizing corporation shall, prior to the issuance by
the Securities and Exchange Commission of the Certificate of Dissolution
(C) Definition of Estimated Tax. - In the case of an individual, the term or Reorganization, as may be defined by rules and regulations prescribed
"estimated tax" means the amount which the individual declared as by the Secretary of Finance, upon recommendation of the Commissioner,
income tax in his final adjusted and annual income tax return for the secure a certificate of tax clearance from the Bureau of Internal Revenue
preceding taxable year minus the sum of the credits allowed under this which certificate shall be submitted to the Securities and Exchange
Title against the said tax. If, during the current taxable year, the Commission.
taxpayer reasonable expects to pay a bigger income tax, he shall file an
amended declaration during any interval of installment payment dates. (D) Return on Capital Gains Realized from Sale of Shares of Stock not
Traded in the Local Stock Exchange. - Every corporation deriving capital
CORPORATIONS gains from the sale or exchange of shares of stock not traded thru a local
stock exchange as prescribed under Sections 24 (c), 25 (A)(3), 27 (E)(2),
SEC. 52. Corporation Returns. - 28(A)(8)(c) and 28 (B)(5)(c), shall file a return within thirty (30) days
after each transactions and a final consolidated return of all transactions
(A) Requirements. - Every corporation subject to the tax herein imposed, during the taxable year on or before the fifteenth (15th) day of the fourth
except foreign corporations not engaged in trade or business in the (4th) month following the close of the taxable year.
Philippines, shall render, in duplicate, a true and accurate quarterly
income tax return and final or adjustment return in accordance with the SEC. 56. Payment and Assessment of Income Tax for Individuals
provisions of Chapter XII of this Title. The return shall be filed by the and Corporation. -
president, vice-president or other principal officer, and shall be sworn to
by such officer and by the treasurer or assistant treasurer. (A) Payment of Tax. -
(B) Taxable Year of Corporation. - A corporation may employ either (1) In General. - The total amount of tax imposed by this Title shall
calendar year or fiscal year as a basis for filing its annual income tax be paid by the person subject thereto at the time the return is filed. In
return: Provided, That the corporation shall not change the accounting the case of tramp vessels, the shipping agents and/or the husbanding
period employed without prior approval from the Commissioner in agents, and in their absence, the captains thereof are required to file the
accordance with the provisions of Section 47 of this Code. return herein provided and pay the tax due thereon before their
departure. Upon failure of the said agents or captains to file the return
(C) Return of Corporation Contemplating Dissolution or Reorganization. and pay the tax, the Bureau of Customs is hereby authorized to hold the
- Every corporation shall, within thirty (30) days after the adoption by vessel and prevent its departure until proof of payment of the tax is
the corporation of a resolution or plan for its dissolution, or for the presented or a sufficient bond is filed to answer for the tax due.
liquidation of the whole or any part of its capital stock, including a
corporation which has been notified of possible involuntary dissolution by (2) Installment of Payment. - When the tax due is in excess of Two
the Securities and Exchange Commission, or for its reorganization, thousand pesos (P2,000), the taxpayer other than a corporation may elect
to pay the tax in two (2) equal installments in which case, the first As used in this Chapter, in respect of a tax imposed by this Title, the
installment shall be paid at the time the return is filed and the second term "deficiency" means:
installment, on or before July 15 following the close of the calendar year.
If any installment is not paid on or before the date fixed for its payment, (1) The amount by which the tax imposed by this Title exceeds the
the whole amount of the tax unpaid becomes due and payable, together amount shown as the tax by the taxpayer upon his return; but the
with the delinquency penalties. amount so shown on the return shall be increased by the amounts
previously assessed (or collected without assessment) as a deficiency, and
(3) Payment of Capital Gains Tax. - The total amount of tax imposed decreased by the amount previously abated, credited, returned or
and prescribed under Section 24 (c), 24(D), 27(E)(2), 28(A)(8)(c) and otherwise repaid in respect of such tax; or
28(B)(5)(c) shall be paid on the date the return prescribed therefor is filed
by the person liable thereto: Provided, That if the seller submits proof of (2) If no amount is shown as the tax by the taxpayer upon this return,
his intention to avail himself of the benefit of exemption of capital gains or if no return is made by the taxpayer, then the amount by which the
under existing special laws, no such payments shall be required : tax exceeds the amounts previously assessed (or collected without
Provided, further, That in case of failure to qualify for exemption under assessment) as a deficiency; but such amounts previously assessed or
such special laws and implementing rules and regulations, the tax due collected without assessment shall first be decreased by the amounts
on the gains realized from the original transaction shall immediately previously abated, credited returned or otherwise repaid in respect of
become due and payable, subject to the penalties prescribed under such tax.
applicable provisions of this Code: Provided, finally, That if the seller,
having paid the tax, submits such proof of intent within six (6) months SEC. 75. Declaration of Quarterly Corporate Income Tax. - Every
from the registration of the document transferring the real property, he corporation shall file in duplicate a quarterly summary declaration of its
shall be entitled to a refund of such tax upon verification of his gross income and deductions on a cumulative basis for the preceding
compliance with the requirements for such exemption. quarter or quarters upon which the income tax, as provided in Title II of
this Code, shall be levied, collected and paid. The tax so computed shall
In case the taxpayer elects and is qualified to report the gain by be decreased by the amount of tax previously paid or assessed during the
installments under Section 49 of this Code, the tax due from each preceding quarters and shall be paid not later than sixty (60) days from
installment payment shall be paid within (30) days from the receipt of the close of each of the first three (3) quarters of the taxable year,
such payments. whether calendar or fiscal year.
No registration of any document transferring real property shall be SEC. 76. Final Adjustment Return. - Every corporation liable to tax
effected by the Register of Deeds unless the Commissioner or his duly under Section 27 shall file a final adjustment return covering the total
authorized representative has certified that such transfer has been taxable income for the preceding calendar or fiscal year. If the sum of the
reported, and the tax herein imposed, if any, has been paid. quarterly tax payments made during the said taxable year is not equal to
the total tax due on the entire taxable income of that year, the
(B) Assessment and Payment of Deficiency Tax. - After the return is corporation shall either:
filed, the Commissioner shall examine it and assess the correct amount
of the tax. The tax or deficiency income tax so discovered shall be paid (A) Pay the balance of tax still due; or
upon notice and demand from the Commissioner.
(B) Carry-over the excess credit; or
(C) Be credited or refunded with the excess amount paid, as the case
may be. SEC. 65. Fiduciary Returns. - Guardians, trustees, executors,
administrators, receivers, conservators and all persons or corporations,
In case the corporation is entitled to a tax credit or refund of the excess acting in any fiduciary capacity, shall render, in duplicate, a return of
estimated quarterly income taxes paid, the excess amount shown on its the income of the person, trust or estate for whom or which they act, and
final adjustment return may be carried over and credited against the be subject to all the provisions of this Title, which apply to individuals in
estimated quarterly income tax liabilities for the taxable quarters of the case such person, estate or trust has a gross income of Twenty thousand
succeeding taxable years. Once the option to carry-over and apply the pesos (P20,000) or over during the taxable year. Such fiduciary or person
excess quarterly income tax against income tax due for the taxable filing the return for him or it, shall take oath that he has sufficient
quarters of the succeeding taxable years has been made, such option knowledge of the affairs of such person, trust or estate to enable him to
shall be considered irrevocable for that taxable period and no application make such return and that the same is, to the best of his knowledge and
for cash refund or issuance of a tax credit certificate shall be allowed belief, true and correct, and be subject to all the provisions of this Title
therefor. which apply to individuals: Provided, That a return made by or for one or
two or more joint fiduciaries filed in the province where such fiduciaries
SEC. 77. Place and Time of Filing and Payment of Quarterly reside; under such rules and regulations as the Secretary of Finance,
Corporate Income Tax. - upon recommendation of the Commissioner, shall prescribe, shall be a
sufficient compliance with the requirements of this Section.
(A) Place of Filing. - Except as the Commissioner other wise permits, the
quarterly income tax declaration required in Section 75 and the final GENERAL PROFESSIONAL PARTNERSHIPS
adjustment return required in Section 76 shall be filed with the
authorized agent banks or Revenue District Officer or Collection Agent or SEC. 55. Returns of General Professional Partnerships. - Every general
duly authorized Treasurer of the city or municipality having jurisdiction professional partnership shall file, in duplicate, a return of its income,
over the location of the principal office of the corporation filing the return except income exempt under Section 32 (B) of this Title, setting forth the
or place where its main books of accounts and other data from which the items of gross income and of deductions allowed by this Title, and the
return is prepared are kept. names, Taxpayer Identification Numbers (TIN), addresses and shares of
each of the partners.
(B) Time of Filing the Income Tax Return. - The corporate quarterly
declaration shall be filed within sixty (60) days following the close of each
CHAPTER 8
of the first three (3) quarters of the taxable year. The final adjustment
WITHHOLDING TAXES
return shall be filed on or before the fifteenth (15th) day of April, or on or
before the fifteenth (15th) day of the fourth (4th) month following the
close of the fiscal year, as the case may be. WITHHOLDING TAXES ON WAGES
(C) Time of Payment of the Income Tax. - The income tax due on the
corporate quarterly returns and the final adjustment income tax returns SEC. 78. Definitions. - As used in this Chapter:
computed in accordance with Sections 75 and 76 shall be paid at the time
the declaration or return is filed in a manner prescribed by the (A) Wages. - The term 'wages' means all remuneration (other than fees
Commissioner. paid to a public official) for services performed by an employee for his
employer, including the cash value of all remuneration paid in any
ESTATES AND TRUSTS
medium other than cash, except that such term shall not include
remuneration paid: (1) If the person for whom the individual performs or performed any
service does not have control of the payment of the wages for such
(1) For agricultural labor paid entirely in products of the farm where services, the term "employer" (except for the purpose of Subsection (A)
the labor is performed, or means the person having control of the payment of such wages; and
(2) For domestic service in a private home, or (2) In the case of a person paying wages on behalf of a nonresident
alien individual, foreign partnership or foreign corporation not engaged
(3) For casual labor not in the course of the employer's trade or in trade or business within the Philippines, the term "employer" (except
business, or for the purpose of Subsection (A) means such person.
(4) For services by a citizen or resident of the Philippines for a SEC. 79. Income Tax Collected at Source.-
foreign government or an international organization.
(A) Requirement of Withholding. - Every employer making payment of
If the remuneration paid by an employer to an employee for services wages shall deduct and withhold upon such wages a tax determined in
performed during one-half (1/2) or more of any payroll period of not more accordance with the rules and regulations to be prescribed by the
than thirty-one (31) consecutive days constitutes wages, all the Secretary of Finance, upon recommendation of the Commissioner:
remuneration paid by such employer to such employee for such period Provided, however, That no withholding of a tax shall be required where
shall be deemed to be wages; but if the remuneration paid by an the total compensation income of an individual does not exceed the
employer to an employee for services performed during more than one - statutory minimum wage, or five thousand pesos (P5,000.00) per month,
half (1/2) of any such payroll period does not constitute wages, then none whichever is higher.
of the remuneration paid by such employer to such employee for such
period shall be deemed to be wages. (B) Tax Paid by Recipient. - If the employer, in violation of the
provisions of this Chapter, fails to deduct and withhold the tax as
(B) Payroll Period. - The term 'payroll period' means a period for which required under this Chapter, and thereafter the tax against which such
payment of wages is ordinarily made to the employee by his employer, tax may be credited is paid, the tax so required to be deducted and
and the term "miscellaneous payroll period" means a payroll period other withheld shall not be collected from the employer; but this Subsection
than, a daily, weekly, biweekly, semi-monthly, monthly, quarterly, semi- shall in no case relieve the employer from liability for any penalty or
annual, or annual period. addition to the tax otherwise applicable in respect of such failure to
deduct and withhold.
(C) Employee. - The term 'employee' refers to any individual who is the
recipient of wages and includes an officer, employee or elected official of (C) Refunds or Credits. -
the Government of the Philippines or any political subdivision, agency or
instrumentality thereof. The term "employee" also includes an officer of a (1) Employer. - When there has been an overpayment of tax under
corporation. this Section, refund or credit shall be made to the employer only to the
extent that the amount of such overpayment was not deducted and
(D) Employer. - The term "employer" means the person for whom an withheld hereunder by the employer.
individual performs or performed any service, of whatever nature, as the
employee of such person, except that:
(2) Employees. -The amount deducted and withheld under this (c) Use of Certificates. - The certificates filed hereunder shall be
Chapter during any calendar year shall be allowed as a credit to the used by the employer in the determination of the amount of taxes to be
recipient of such income against the tax imposed under Section 24(A) of withheld.
this Title. Refunds and credits in cases of excessive withholding shall be
granted under rules and regulations promulgated by the Secretary of (d) Failure to Furnish Certificate. - Where an employee, in
Finance, upon recommendation of the Commissioner. violation of this Chapter, either fails or refuses to file a withholding
exemption certificate, the employer shall withhold the taxes prescribed
Any excess of the taxes withheld over the tax due from the taxpayer shall under the schedule for zero exemption of the withholding tax table
be returned or credited within three (3) months from the fifteenth (15th) determined pursuant to Subsection (A) hereof.
day of April. Refunds or credits made after such time shall earn interest
at the rate of six percent (6%) per annum, starting after the lapse of the (E) Withholding on Basis of Average Wages. - The Commissioner may,
three-month period to the date the refund of credit is made. under rules and regulations promulgated by the Secretary of Finance,
authorize employers to:
Refunds shall be made upon warrants drawn by the Commissioner or by
his duly authorized representative without the necessity of counter- (1) estimate the wages which will be paid to an employee in any
signature by the Chairman, Commission on Audit or the latter's duly quarter of the calendar year;
authorized representative as an exception to the requirement prescribed
by Section 49, Chapter 8, Subtitle B, Title 1 of Book V of Executive Order (2) determine the amount to be deducted and withheld upon each
No. 292, otherwise known as the Administrative Code of 1987. payment of wages to such employee during such quarter as if the
appropriate average of the wages so estimated constituted the actual
(D) Personal Exemptions. - wages paid; and
(1) In General. - Unless otherwise provided by this Chapter, the (3) deduct and withhold upon any payment of wages to such
personal and additional exemptions applicable under this Chapter shall employee during ;such quarter such amount as may be required to be
be determined in accordance with the main provisions of this Title. deducted and withheld during such quarter without regard to this
Subsection.
(2) Exemption Certificate. -
(F) Husband and Wife. - When a husband and wife each are recipients of
(a) When to File. - On or before the date of commencement of wages, whether from the same or from different employers, taxes to be
employment with an employer, the employee shall furnish the employer withheld shall be determined on the following bases:
with a signed withholding exemption certificate relating to the personal (1) The husband shall be deemed the head of the family and proper
and additional exemptions to which he is entitled. claimant of the additional exemption in respect to any dependent
children, unless he explicitly waives his right in favor of his wife in the
(b) Change of Status. - In case of change of status of an employee withholding exemption certificate.
as a result of which he would be entitled to a lesser or greater amount of (2) Taxes shall be withheld from the wages of the wife in accordance
exemption, the employee shall, within ten (10) days from such change, with the schedule for zero exemption of the withholding tax table
file with the employer a new withholding exemption certificate reflecting prescribed in Subsection (D)(2)(d) hereof.
the change.
(G) Nonresident Aliens. - Wages paid to nonresident alien individuals his legal residence or principal place of business, or in case the employer
engaged in trade or business in the Philippines shall be subject to the is a corporation, where the principal office is located.
provisions of this Chapter.
The return shall be filed and the payment made within twenty-five (25)
(H) Year-End Adjustment. - On or before the end of the calendar year days from the close of each calendar quarter: Provided, however, That
but prior to the payment of the compensation for the last payroll period, the Commissioner may, with the approval of the Secretary of Finance,
the employer shall determine the tax due from each employee on taxable require the employers to pay or deposit the taxes deducted and withheld
compensation income for the entire taxable year in accordance with at more frequent intervals, in cases where such requirement is deemed
Section 24(A). The difference between the tax due from the employee for necessary to protect the interest of the Government.
the entire year and the sum of taxes withheld from January to November
shall either be withheld from his salary in December of the current The taxes deducted and withheld by employers shall be held in a special
calendar year or refunded to the employee not later than January 25 of fund in trust for the Government until the same are paid to the said
the succeeding year. collecting officers.
SEC. 80. Liability for Tax. - SEC. 82. Return and Payment in Case of Government Employees. - If the
employer is the Government of the Philippines or any political
(A) Employer. - The employer shall be liable for the withholding and subdivision, agency or instrumentality thereof, the return of the amount
remittance of the correct amount of tax required to be deducted and deducted and withheld upon any wage shall be made by the officer or
withheld under this Chapter. If the employer fails to withhold and remit employee having control of the payment of such wage, or by any officer or
the correct amount of tax as required to be withheld under the provision employee duly designated for the purpose.
of this Chapter, such tax shall be collected from the employer together
with the penalties or additions to the tax otherwise applicable in respect SEC. 83. Statements and Returns. -
to such failure to withhold and remit.
(A) Requirements. - Every employer required to deduct and withhold a
(B) Employee. - Where an employee fails or refuses to file the tax shall furnish to each such employee in respect of his employment
withholding exemption certificate or willfully supplies false or inaccurate during the calendar year, on or before January thirty-first (31st) of the
information thereunder, the tax otherwise required to be withheld by the succeeding year, or if his employment is terminated before the close of
employer shall be collected from him including penalties or additions to such calendar year, on the same day of which the last payment of wages
the tax from the due date of remittance until the date of payment. On the is made, a written statement confirming the wages paid by the employer
other hand, excess taxes withheld made by the employer due to: to such employee during the calendar year, and the amount of tax
(1) failure or refusal to file the withholding exemption certificate; or deducted and withheld under this Chapter in respect of such wages. The
(2) false and inaccurate information shall not be refunded to the statement required to be furnished by this Section in respect of any wage
employee but shall be forfeited in favor of the Government. shall contain such other information, and shall be furnished at such
SEC. 81. Filing of Return and Payment of Taxes Withheld. - Except as other time and in such form as the Secretary of Finance, upon the
the Commissioner otherwise permits, taxes deducted and withheld by recommendation of the Commissioner, may, by rules and regulation,
the employer on wages of employees shall be covered by a return and prescribe.
paid to an authorized agent bank; Collection Agent, or the duly
authorized Treasurer of the city or municipality where the employer has (B) Annual Information Returns. - Every employer required to deduct
and withhold the taxes in respect of the wages of his employees shall, on
or before January thirty-first (31st) of the succeeding year, submit to the person and paid in the same manner and subject to the same conditions
Commissioner an annual information return containing a list of as provided in Section 58 of this Code.
employees, the total amount of compensation income of each employee,
the total amount of taxes withheld therefrom during the year, 2. Creditable withholding tax/Expanded withholding taxtaxes
accompanied by copies of the statement referred to in the preceding withheld on certain income payments are intended to equal or at
paragraph, and such other information as may be deemed necessary. least approximate the tax due of the payee on said income
This return, if made and filed in accordance with rules and regulations
promulgated by the Secretary of Finance, upon recommendation of the SEC. 57. Withholding of Tax at Source. -
Commissioner, shall be sufficient compliance with the requirements of
Section 68 of this Title in respect of such wages. (B) Withholding of Creditable Tax at Source. - The Secretary of Finance
may, upon the recommendation of the Commissioner, require the
(C) Extension of time. - The Commissioner, under such rules and withholding of a tax on the items of income payable to natural or
regulations as may be promulgated by the Secretary of Finance, may juridical persons, residing in the Philippines, by payor-
grant to any employer a reasonable extension of time to furnish and corporation/persons as provided for by law, at the rate of not less than
submit the statements and returns required under this Section. one percent (1%) but not more than thirty-two percent (32%) thereof,
which shall be credited against the income tax liability of the taxpayer
WITHHOLDING TAX ON SOURCE for the taxable year.
1. Final withholding taxthe amount of income tax withheld by
the withholding agent is constituted to be the full and final RETURNS AND PAYMENTS
payment of the income tax due from payee on the said income
a. The liability for payment of the tax rests primarily on SEC. 58. Returns and Payment of Taxes Withheld at Source. -
the payor as withholding tax agent
b. Finality of the withholding tax is limited only to the (A) Quarterly Returns and Payments of Taxes Withheld. - Taxes
payees other tax liability on said income, such as when deducted and withheld under Section 57 by withholding agents shall be
the said income is further subject to a percentage tax, covered by a return and paid to, except in cases where the Commissioner
such as gross receipts tax in the case of a bank otherwise permits, an authorized Treasurer of the city or municipality
where the withholding agent has his legal residence or principal place of
SEC. 57. Withholding of Tax at Source. - business, or where the withholding agent is a corporation, where the
principal office is located.
(A) Withholding of Final Tax on Certain Incomes. - Subject to rules and
regulations the Secretary of Finance may promulgate, upon the The taxes deducted and withheld by the withholding agent shall be held
recommendation of the Commissioner, requiring the filing of income tax as a special fund in trust for the government until paid to the collecting
return by certain income payees, the tax imposed or prescribed by officers.
Sections 24(B)(1), 24(B)(2), 24(C), 24(D)(1); 25(A)(2), 25(A)(3), 25(B),
25(C), 25(D), 25(E), 27(D)(!), 27(D)(2), 27(D)(3), 27(D)(5), 28 (A)(4), The return for final withholding tax shall be filed and the payment made
28(A)(5), 28(A)(7)(a), 28(A)(7)(b), 28(A)(7)(c), 28(B)(1), 28(B)(2), 28(B)(3), within twenty-five (25) days from the close of each calendar quarter,
28(B)(4), 28(B)(5)(a), 28(B)(5)(b), 28(B)(5)(c); 33; and 282 of this Code on while the return for creditable withholding taxes shall be filed and the
specified items of income shall be withheld by payor-corporation and/or payment made not later than the last day of the month following the
close of the quarter during which withholding was made: Provided, That
INTEGRATION PROBLEM
INDIVIDUALS
GIVEN:
As Employee:
Compensation Income of as President and Board Member of XYZ Corporation
Basic Salary 300,000
Transportation Allowance 120,000
Housing Privilege (rental) 120,000
Directors Fees 60,000
Travel Incentive for the family 50,000
13th month pay 30,000
Rice Subsidy 24,000
Club Membership 20,000
Clothing Allowance 3,000
As a Freelance Lawyer:
Gross consultancy income 200,000
Expenses
Salaries of staff 60,000
Cost of Computer Equipment 50,000
Cost of Law Books & Reference Materials 50,000
Tuition fee of child EE 30,000
Office Supplies 25,000
Household Grocery 20,000
Business Communication Expense 15,000
Depreciation Factor: 5 years straight line method
Other Income
Interest on sales on account (receivables) 15,000
Interest on Bank Deposits in Metrobank of XYZ Trading 20,000
Gain on sale of old office building
Selling Price 1,000,000
BookValue 300,000
Fair Market Value 1,200,000
As a Freelance Lawyer:
Gross consultancy income 200,000 RT 5-32%
Expenses
Salaries of staff 60,000 Deductible
Cost of Computer Equipment 50,000 Non-deduct but subj to depreciation
Cost of Law Books & Reference Materials 50,000 Non-deduct but subj to depreciation
Other Income
Interest on sales on account (receivables) 15,000 RT 5-32%
Interest on Bank Deposits in MetroBank of XYZ
Trading 20,000 FT 20%
Gain on sale of old office building
Selling Price 1,000,000
BookValue 300,000 Gain = SP less BV RT 5-32%
Fair Market Value 1,200,000
5 Non-Taxable Compensation
13th month pay 30,000
Rice subsidy 12,000
Clothing allowance 3,000
Total Non-Taxable Compensation 45,000
share
Distributive 203,125 203,125 10% 20,313
share
Interest on Bank Deposits of XYZ 20,000 20% 4,000
Trading
Capital Gains on Shares of Stock
Selling Price 1,000,000
Less: 850,000
Cost
Gain 150,000 150,000 5% / 10% 10,000
Capital Gains on Real Property
Transaction
Selling Price 10,000,000
Zonal 12,000,000 12,000,000 6% 720,000
Valuation
Interest income from deposit substitute 200,000 20% 40,000
Winnings from game show "Whammy" 500,000 20% 100,000
Royalty from books - "Every Day Law" 50,000 10% 5,000
Total Final Taxes 899,313
straight line
method)
Computer Equipment 50,000 5 yrs 10,000
Law Books & Reference Materials 50,000 5 yrs 10,000
Total Depreciation 20,000
Non-deductible 3,600
Taxes
Non-deductible 1,000
Donation
Non-deductible 5,000
Facilitation Fee
Total Non- 18,000
Deductible
Expenses
19 As sole owner of XYZ Trading: Capital gains on capital assets not subj to FT
Held for more than 12 months 200,000 *50% 100,000
Held for 6 months 100,000 *100% 100,000
Capital gains on 200,000
capital assets
20 As sole owner of XYZ Trading: Capital loss on capital assets not subj to FT
Held in 8 months 60,000 *100% 60,000
Capital losses on capital assets 60,000
Interest 51,600
Expense
Salaries of 50,000
Staff
40,000
Depreciation
Minor Repairs of machineries 5,000
Local Taxes & Mayor's Permit 2,000
Donation to Gov't for NEDA 12,000
certified priority activity
Total Allowable Expense 160,600
Net Income of XYZ 879,400
Trading