SECTION 1.
Short Title
- This Act shall be cited as the "Tax Reform Act of 1997".
SEC. 2.
State Policy.
– It is hereby declared the policy of the State to promote sustainable
economic growth through the rationalization of the Philippine internal
revenue tax system, including tax administration; to provide, as much
as
possible, an equitable relief to a greater number of taxpayers in order
to improve levels of disposable income and increase economic activity;
and to create a robust environment for business to enable firms to
compete
better in the regional as well as the global market, at the same time
that
the State ensures that Government is able to provide for the needs of
those
under its jurisdiction and care.
SEC. 3.
Presidential Decree No. 1158, as amended by, among others, Presidential
Decree No. 1994 and Executive Order No. 273, otherwise known as the
National
Internal Revenue Code, is hereby further amended.
TITLE
I
ORGANIZATION
AND FUNCTION OF
THE
BUREAU
OF INTERNAL REVENUE
SECTION 1. Title
of the Code.
- This Code shall be known as the National Internal Revenue Code of
1997.
SEC.
2. Powers and Duties of the Bureau of Internal Revenue.
- The Bureau of Internal Revenue shall be under the supervision and
control
of the Department of Finance and its powers and duties shall comprehend
the assessment and collection of all national internal revenue taxes,
fees,
and charges, and the enforcement of all forfeitures, penalties, and
fines
connected therewith, including the execution of judgments in all cases
decided in its favor by the Court of Tax Appeals and the ordinary
courts.
The Bureau shall give effect to and administer the supervisory and
police
powers conferred to it by this Code or other laws.
SEC.
3. Chief Officials of the Bureau of Internal Revenue.
- The Bureau of Internal Revenue shall have a chief to be known
as
Commissioner of Internal Revenue, hereinafter referred to as the
Commissioner
and four (4) assistant chiefs to be known as Deputy Commissioners.
SEC.
4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax
Cases.
- The power to interpret the provisions of this Code and other
tax
laws shall be under the exclusive and original jurisdiction of the
Commissioner,
subject to review by the Secretary of Finance.
The power to
decide
disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters
arising
under this Code or other laws or portions thereof administered by the
Bureau
of Internal Revenue is vested in the Commissioner, subject to the
exclusive
appellate jurisdiction of the Court of Tax Appeals.
SEC.
5. Power of the Commissioner to Obtain Information, and to Summon,
Examine,
and Take Testimony of Persons.
- In ascertaining the correctness of any return, or in making a return
when none has been made, or in determining the liability of any person
for any internal revenue tax, or in collecting any such liability, or
in
evaluating tax compliance, the Commissioner is authorized:
(A)
To examine any book, paper, record, or other data which may be relevant
or material to
such inquiry;
(B) To obtain
on
a regular basis from any person other than the person whose internal
revenue tax liability is subject to audit or investigation, or from any
office or officer of the national and local governments, government agencies and
instrumentalities,
including the Bangko Sentral ng Pilipinas and government-owned or -controlled
corporations,
any
information such as, but not limited to, costs and volume of
production,
receipts or sales
and gross incomes of taxpayers, and the names, addresses, and financial
statements of
corporations, mutual fund companies, insurance companies, regional
operating headquarters of multinational companies, joint accounts, associations,
joint ventures of consortia and registered partnerships, and their members;
(C) To summon
the
person liable for tax or required to file a return, or any officer or
employee of such person, or any person having possession, custody, or
care
of the books of accounts and other accounting records containing entries
relating
to the business of the person liable for tax, or any other person, to appear
before
the Commissioner or his duly authorized representative at a time and place
specified
in the summons and to produce such books, papers, records, or other
data,
and
to give testimony;
(D) To take
such
testimony of the person concerned, under oath, as may be relevant or
material to such inquiry; and
(E) To cause
revenue
officers and employees to make a canvass from time to time of any revenue district or region and inquire after and concerning all persons
therein who may be liable to pay any internal revenue tax, and all persons owning or
having
the care, management or possession of any object with respect to which a tax is
imposed.
The
provisions
of the foregoing paragraphs notwithstanding, nothing in this Section
shall
be construed as granting the Commissioner the authority to inquire into
bank deposits other than as provided for in Section 6(F) of this Code.
SEC.
6. Power of the Commissioner to Make assessments and Prescribe
additional
Requirements for Tax Administration and Enforcement.
-
(A) Examination
of Returns and Determination of Tax Due. - After a return has been
filed as required under the provisions of this Code, the Commissioner or his
duly
authorized representative may authorize the examination of any taxpayer and the
assessment of the correct amount of tax: Provided, however; That failure
to
file a return shall not
prevent the Commissioner from authorizing the examination of any
taxpayer.
Any return,
statement
of declaration filed in any office authorized to receive the same shall
not be withdrawn: Provided, That within three (3) years from
the
date of such filing, the same may be modified, changed, or amended: Provided,
further, That no notice for audit or investigation of such return,
statement or declaration has in the meantime been actually served upon
the taxpayer.
(B) Failure to
Submit
Required Returns, Statements, Reports and other Documents. - When a report required by law as a basis for the assessment of any national
internal revenue
tax shall not be forthcoming within the time fixed by laws or rules and
regulations or
when there is reason to believe that any such report is false,
incomplete
or erroneous,
the Commissioner shall assess the proper tax on the best evidence
obtainable.
In case a
person
fails to file a required return or other document at the time
prescribed
by law, or willfully or otherwise files a false or fraudulent return or
other document, the Commissioner shall make or amend the return from
his
own knowledge and from such information as he can obtain through
testimony
or otherwise, which shall be prima facie correct and sufficient for all
legal purposes.
(C) Authority
to
Conduct Inventory-taking, surveillance and to Prescribe Presumptive
Gross
Sales and Receipts. - The Commissioner may, at any time during the
taxable year, order
inventory-taking of goods of any taxpayer as a basis for determining
his
internal revenue
tax liabilities, or may place the business operations of any person,
natural
or juridical,
under observation or surveillance if there is reason to believe that
such
person is not
declaring his correct income, sales or receipts for internal revenue
tax
purposes. The
findings may be used as the basis for assessing the taxes for the other
months or
quarters of the same or different taxable years and such assessment
shall
be deemed
prima facie correct.
When it is
found
that a person has failed to issue receipts and invoices in violation of
the requirements of Sections 113 and 237 of this Code, or when there is
reason to believe that the books of accounts or other records do not
correctly
reflect the declarations made or to be made in a return required to be
filed under the provisions of this Code, the Commissioner, after taking
into account the sales, receipts, income or other taxable base of other
persons engaged in similar businesses under similar situations or
circumstances
or after considering other relevant information may prescribe a minimum
amount of such gross receipts, sales and taxable base, and such amount
so prescribed shall be prima facie correct for purposes of determining
the internal revenue tax liabilities of such person.
(D) Authority
to
Terminate Taxable Period. - When it shall come to the knowledge of
the
Commissioner that a taxpayer is retiring from business subject to tax,
or is intending to
leave the Philippines or to remove his property therefrom or to hide or
conceal his
property, or is performing any act tending to obstruct the proceedings
for the collection of
the tax for the past or current quarter or year or to render the same
totally
or partly
ineffective unless such proceedings are begun immediately, the
Commissioner
shall
declare the tax period of such taxpayer terminated at any time and
shall
send the
taxpayer a notice of such decision, together with a request for the
immediate
payment
of the tax for the period so declared terminated and the tax for the
preceding
year or
quarter, or such portion thereof as may be unpaid, and said taxes shall
be due and
payable immediately and shall be subject to all the penalties hereafter
prescribed,
unless paid within the time fixed in the demand made by the
Commissioner.
(E) Authority
of the Commissioner to Prescribe Real Property Values. - The
Commissioner
is
hereby authorized to divide the Philippines into different zones or
areas
and shall, upon
consultation with competent appraisers both from the private and public
sectors,
determine the fair market value of real properties located in each zone
or area. For
purposes of computing any internal revenue tax, the value of the
property
shall be,
whichever is the higher of:
(1) the fair
market
value as determined by the Commissioner, or
(2) the fair
market
value as shown in the schedule of values of the Provincial and City Assessors.
(F) Authority
of
the Commissioner to inquire into Bank Deposit Accounts. -
Notwithstanding
any contrary provision of Republic Act No. 1405 and other general or
special
laws, the
Commissioner is hereby authorized to inquire into the bank deposits of:
(1) a
decedent
to determine his gross estate; and
(2) any
taxpayer
who has filed an application for compromise of his tax liability under Sec. 204 (A) (2) of this Code by reason of financial incapacity to pay
his tax liability.
In case a taxpayer
files an application to compromise the payment of his tax liabilities
on
his claim that his financial position demonstrates a clear inability to
pay the tax assessed, his application shall not be considered unless
and
until he waives in writing his privilege under Republic Act No. 1405 or
under other general or special laws, and such waiver shall constitute
the
authority of the Commissioner to inquire into the bank deposits of the
taxpayer.
(G) Authority
to
Accredit and Register Tax Agents. - The Commissioner shall
accredit
and
register, based on their professional competence, integrity and moral
fitness,
individuals
and general professional partnerships and their representatives who
prepare
and file tax
returns, statements, reports, protests, and other papers with or who
appear
before, the
Bureau for taxpayers. Within one hundred twenty (120) days from January
1, 1998, the
Commissioner shall create national and regional accreditation boards,
the
members of
which shall serve for three (3) years, and shall designate from among
the
senior officials
of the Bureau, one (1) chairman and two (2) members for each board,
subject
to such
rules and regulations as the Secretary of Finance shall promulgate upon
the
recommendation of the Commissioner.
Individuals
and
general professional partnerships and their representatives who are
denied
accreditation by the Commissioner and/or the national and regional
accreditation
boards may appeal such denial to the Secretary of Finance, who shall
rule
on the appeal within sixty (60) days from receipt of such appeal.
Failure
of the Secretary of Finance to rule on the Appeal within the prescribed
period shall be deemed as approval of the application for accreditation
of the appellant.
(H) Authority
of
the Commissioner to Prescribe Additional Procedural or Documentary
Requirements. - The Commissioner may prescribe the manner of
compliance
with any
documentary or procedural requirement in connection with the submission
or preparation
of financial statements accompanying the tax returns.
SEC.
7. Authority of the Commissioner to Delegate Power.
- The Commissioner may delegate the powers vested in him under the
pertinent
provisions of this Code to any or such subordinate officials with the
rank
equivalent to a division chief or higher, subject to such limitations
and
restrictions as may be imposed under rules and regulations to be
promulgated
by the Secretary of finance, upon recommendation of the Commissioner: Provided,
however, That the following powers of the Commissioner shall not be
delegated:
(a) The power
to
recommend the promulgation of rules and regulations by the Secretary of Finance;
(b) The power
to
issue rulings of first impression or to reverse, revoke or modify any
existing ruling of the Bureau;
(c) The power
to
compromise or abate, under Sec. 204 (A) and (B) of this Code, any tax
liability: Provided, however, That assessments issued by the
regional
offices involving
basic deficiency taxes of Five hundred thousand pesos (P500,000) or
less,
and minor criminal violations, as may be determined by rules and regulations to
be
promulgated by
the Secretary of finance, upon recommendation of the Commissioner,
discovered
by
regional and district officials, may be compromised by a regional
evaluation
board which
shall be composed of the Regional Director as Chairman, the Assistant
Regional
Director,
the heads of the Legal, Assessment and Collection Divisions and the
Revenue
District
Officer having jurisdiction over the taxpayer, as members; and
(d) The power
to
assign or reassign internal revenue officers to establishments where
articles
subject to excise tax are produced or kept.
SEC.
8. Duty of the Commissioner to Ensure the Provision and
Distribution
of forms, Receipts, Certificates, and Appliances, and the
Acknowledgment
of Payment of Taxes.-
(A) Provision
and Distribution to Proper Officials. - It shall be the duty of the
Commissioner, among other things, to prescribe, provide, and distribute
to the
proper officials the requisite licenses internal revenue stamps, labels
all other
forms, certificates, bonds, records, invoices, books, receipts,
instruments,
appliances and apparatus used in administering the laws falling within
the
jurisdiction of the Bureau. For this purpose, internal revenue stamps,
strip
stamps and labels shall be caused by the Commissioner to be printed with
adequate security features.
Internal
revenue
stamps, whether of a bar code or fusion design, shall be firmly and
conspicuously
affixed on each pack of cigars and cigarettes subject to excise tax in
the manner and form as prescribed by the Commissioner, upon approval of
the Secretary of Finance.
(B) Receipts
for
Payment Made. - It shall be the duty of the Commissioner or his
duly
authorized representative or an authorized agent bank to whom any
payment
of
any tax is made under the provision of this Code to acknowledge the
payment
of such tax, expressing the amount paid and the particular account for
which such
payment was made in a form and manner prescribed therefor by the
Commissioner.
SEC.
9. Internal Revenue Districts.
- With the approval of the Secretary of Finance, the Commissioner shall
divide the Philippines into such number of revenue districts as may
form
time to time be required for administrative purposes. Each of these
districts
shall be under the supervision of a Revenue District Officer.
SEC.
10. Revenue Regional Director.
- Under rules and regulations, policies and standards formulated by the
Commissioner, with the approval of the Secretary of Finance, the
Revenue
Regional director shall, within the region and district offices under
his
jurisdiction, among others:
(a) Implement
laws,
policies, plans, programs, rules and regulations of the department or
agencies in the regional area;
(b)
Administer
and enforce internal revenue laws, and rules and regulations, including
the
assessment and collection of all internal revenue taxes, charges and
fees.
(c) Issue
Letters
of authority for the examination of taxpayers within the region;
(d) Provide
economical,
efficient and effective service to the people in the area;
(e)
Coordinate
with regional offices or other departments, bureaus and agencies in the
area;
(f)
Coordinate
with local government units in the area;
(g) Exercise
control
and supervision over the officers and employees within the region; and
(h) Perform
such
other functions as may be provided by law and as may be delegated
by the Commissioner.
SEC.
11. Duties of Revenue District Officers and Other Internal Revenue
Officers.
- It shall be the duty of every Revenue District Officer or other
internal
revenue officers and employees to ensure that all laws, and rules and
regulations
affecting national internal revenue are faithfully executed and
complied
with, and to aid in the prevention, detection and punishment of frauds
of delinquencies in connection therewith.
It shall be the
duty
of every Revenue District Officer to examine the efficiency of all
officers
and employees of the Bureau of Internal Revenue under his supervision,
and to report in writing to the Commissioner, through the Regional
Director,
any neglect of duty, incompetency, delinquency, or malfeasance in
office
of any internal revenue officer of which he may obtain knowledge, with
a statement of all the facts and any evidence sustaining each case.
SEC.
12. Agents and Deputies for Collection of National Internal Revenue
Taxes.
- The following are hereby constituted agents of the Commissioner:
(a) The
Commissioner
of Customs and his subordinates with respect to the collection of
national internal revenue taxes on imported goods;
(b) The head
of
the appropriate government office and his subordinates with respect to
the
collection of energy tax; and
(c) Banks
duly
accredited by the Commissioner with respect to receipt of payments
internal
revenue taxes authorized to be made thru bank.
Any officer
or
employee of an authorized agent bank assigned to receive internal
revenue
tax payments and transmit tax returns or documents to the Bureau of
Internal
Revenue shall be subject to the same sanctions and penalties prescribed
in Sections 269 and 270 of this Code.
SEC.
13. Authority of a Revenue Offices.
- subject to the rules and regulations to be prescribed by the
Secretary
of Finance, upon recommendation of the Commissioner, a Revenue Officer
assigned to perform assessment functions in any district may, pursuant
to a Letter of Authority issued by the Revenue Regional Director,
examine
taxpayers within the jurisdiction of the district in order to collect
the
correct amount of tax, or to recommend the assessment of any deficiency
tax due in the same manner that the said acts could have been performed
by the Revenue Regional Director himself.
SEC.
14. Authority of Officers to Administer Oaths and Take Testimony.
- The Commissioner, Deputy Commissioners, Service Chiefs, Assistant
Service
Chiefs, Revenue Regional Directors, Assistant Revenue Regional
Directors,
Chiefs and Assistant Chiefs of Divisions, Revenue District Officers,
special
deputies of the Commissioner, internal revenue officers and any other
employee
of the Bureau thereunto especially deputized by the Commissioner shall
have the power to administer oaths and to take testimony in any
official
matter or investigation conducted by them regarding matters within the
jurisdiction of the Bureau.
SEC.
15. Authority of Internal Revenue Officers to Make Arrests and
Seizures.
- The Commissioner, the Deputy Commissioners, the Revenue Regional
Directors, the Revenue District Officers and other internal revenue
officers
shall have authority to make arrests and seizures for the violation of
any penal law, rule or regulation administered by the Bureau of
Internal
Revenue. Any person so arrested shall be forthwith brought before a
court,
there to be dealt with according to law.
SEC.
16. Assignment of Internal Revenue Officers Involved in Excise Tax
Functions
to Establishments Where Articles subject to Excise Tax are Produced or
Kept.
- The Commissioner shall employ, assign, or reassign internal
revenue
officers involved in excise tax functions, as often as the exigencies
of
the revenue service may require, to establishments or places where
articles
subject to excise tax are produced or kept: Provided, That an
internal
revenue officer assigned to any such establishment shall in no case
stay
in his assignment for more than two (2) years, subject to rules and
regulations
to be prescribed by the Secretary of Finance, upon recommendation of
the
Commissioner.
SEC.
17. Assignment of Internal Revenue Officers and Other Employees to
Other
Duties.
- The Commissioner may, subject to the provisions of Section 16
and
the laws on civil service, as well as the rules and regulations to be
prescribed
by the Secretary of Finance upon the recommendation of the
Commissioner,
assign or reassign internal revenue officers and employees of the
Bureau
of Internal Revenue, without change in their official rank and salary,
to other or special duties connected with the enforcement or
administration
of the revenue laws as the exigencies of the service may require: Provided,
That internal revenue officers assigned to perform assessment or
collection
function shall not remain in the same assignment for more than three
(3)
years; Provided, further, That assignment of internal revenue
officers
and employees of the Bureau to special duties shall not exceed one (1)
year.
SEC.
18. Reports of Violation of Laws.
- When an internal revenue officer discovers evidence of a violation of
this Code or of any law, rule or regulations administered by the Bureau
of Internal Revenue of such character as to warrant the institution of
criminal proceedings, he shall immediately report the facts to the
Commissioner
through his immediate superior, giving the name and address of the
offender
and the names of the witnesses if possible: Provided, That in
urgent
cases, the Revenue Regional director or Revenue District Officer, as
the
case may be, may send the report to the corresponding prosecuting
officer
in the latter case, a copy of his report shall be sent to the
Commissioner.
SEC.
19. Contents of Commissioner's Annual Report.
- The Annual Report of the Commissioner shall contain detailed
statements
of the collections of the Bureau with specifications of the sources of
revenue by type of tax, by manner of payment, by revenue region and by
industry group and its disbursements by classes of expenditures.
In case the
actual
collection exceeds or falls short of target as set in the annual
national
budget by fifteen percent (15%) or more, the Commissioner shall explain
the reason for such excess or shortfall.
SEC.
20. Submission of Report and Pertinent Information by the
Commissioner.
(A) Submission
of Pertinent Information to Congress. - The provision of Section
270
of this
Code to the contrary notwithstanding, the Commissioner shall, upon
request
of
Congress and in aid of legislation, furnish its appropriate Committee
pertinent
information including but not limited to: industry audits, collection
performance
data,
status reports in criminal actions initiated against persons and
taxpayer's
returns:
Provided, however, That any return or return information
which can
be associated
with, or otherwise identify, directly or indirectly, a particular
taxpayer
shall be
furnished the appropriate Committee of Congress only when sitting in
Executive
Session Unless such taxpayer otherwise consents in writing to such
disclosure.
(B) Report
to
Oversight Committee. - The Commissioner shall, with reference to
Section
204
of this Code, submit to the Oversight Committee referred to in Section
290 hereof,
through the Chairmen of the Committee on Ways and Means of the Senate
and
House
of Representatives, a report on the exercise of his powers pursuant to
the said section,
every six (6) months of each calendar year.
SEC.
21. Sources of Revenue.
- The following taxes, fees and charges are deemed to be national
internal
revenue taxes:
(a) Income tax;
(b) Estate and
donor's
taxes;
(c) Value-added
tax;
(d) Other percentage
taxes;
(e) Excise taxes;
(f)
Documentary
stamp taxes; and
(g) Such other taxes
as are or hereafter may be imposed and collected by the Bureau of
Internal Revenue.
TITLE II
TAX ON INCOME
CHAPTER I
DEFINITIONS
SEC.
22. Definitions - When used in this Title:
(A) The term "person"
means an individual, a trust, estate or corporation.
(B) The term "corporation"
shall include partnerships, no matter how created or organized,
joint-stock
companies, joint accounts (cuentas en participacion), association, or
insurance
companies, but does not include general professional partnerships and a
joint venture or consortium formed for the purpose of undertaking
construction
projects or engaging in petroleum, coal, geothermal and other energy
operations
pursuant to an operating consortium agreement under a service contract
with the Government. "General professional partnerships" are
partnerships formed by persons for the sole purpose of exercising their
common profession, no part of the income of which is derived from
engaging
in any trade or business.
(C) The term "domestic",
when applied to a corporation, means created or organized in the
Philippines
or under its laws.
(D) The term "foreign",
when applied to a corporation, means a corporation which is not
domestic.
(E) The term "nonresident
citizen" means:
(1) A citizen
of
the Philippines who establishes to the satisfaction of the Commissioner
the fact of his physical presence abroad with a definite intention to
reside
therein.
(2) A citizen
of
the Philippines who leaves the Philippines during the taxable year to
reside
abroad, either as an immigrant or for employment on a permanent basis.
(3) A citizen
of
the Philippines who works and derives income from abroad and whose
employment
thereat requires him to be physically present abroad most of the time
during
the taxable year.
(4) A citizen
who
has been previously considered as nonresident 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 in which he arrives in the Philippines with respect to
his income derived from sources abroad until the date of his arrival in
the Philippines.
(5) The
taxpayer
shall submit proof to the Commissioner to show his intention of leaving
the Philippines to reside permanently abroad or to return to and reside
in the Philippines as the case may be for purpose of this Section.
(F) The term "resident
alien" means an individual whose residence is within the
Philippines
and who is not a citizen thereof.
(G) The term "nonresident
alien" means an individual whose residence is not within the
Philippines
and who is not a citizen thereof.
(H) The term
"resident foreign corporation" applies to a foreign corporation
engaged
in trade or business within the Philippines.
(I) The term 'nonresident
foreign corporation' applies to a foreign corporation not engaged
in
trade or business within the Philippines.
(J) The term "fiduciary"
means a guardian, trustee, executor, administrator, receiver,
conservator
or any person acting in any fiduciary capacity for any person.
(K) The term
"withholding agent" means any person required to deduct and
withhold
any tax under the provisions of Section 57.
(L) The term "shares
of stock" shall include shares of stock of a corporation, warrants
and/or options to purchase shares of stock, as well as units of
participation
in a partnership (except general professional partnerships), joint
stock
companies, joint accounts, joint ventures taxable as corporations,
associations
and recreation or amusement clubs (such as golf, polo or similar
clubs),
and mutual fund certificates.
(M) The term
"shareholder" shall include holders of a share/s of stock,
warrant/s
and/or option/s to purchase shares of stock of a corporation, as well
as
a holder of a unit of participation in a partnership (except general
professional
partnerships) in a joint stock company, a joint account, a taxable
joint
venture, a member of an association, recreation or amusement club (such
as golf, polo or similar clubs) and a holder of a mutual fund
certificate,
a member in an association, joint-stock company, or insurance company.
(N) The term
"taxpayer" means any person subject to tax imposed by this
Title.
(O) The terms "including"
and "includes", when used in a definition contained
in
this Title, shall not be deemed to exclude other things otherwise
within
the meaning of the term defined.
(P) The term
"taxable year" means the calendar year, or the fiscal year ending
during
such calendar year, upon the basis of which the net income is computed
under this Title. 'Taxable year' includes, in the case of a return made
for a fractional part of a year under the provisions of this Title or
under
rules and regulations prescribed by the Secretary of Finance, upon
recommendation
of the commissioner, the period for which such return is made.
(Q) The term
"fiscal year" means an accounting period of twelve (12) months
ending
on the last day of any month other than December.
(R) The terms
"paid or incurred" and 'paid or accrued' shall be construed
according
to the method of accounting upon the basis of which the net income is
computed
under this Title.
(S) The term "trade
or business" includes the performance of the functions of a public
office.
(T) The term
"securities" means shares of stock in a corporation and rights to
subscribe
for or to receive such shares. The term includes bonds, debentures,
notes
or certificates, or other evidence or indebtedness, issued by any
corporation,
including those issued by a government or political subdivision
thereof,
with interest coupons or in registered form.
(U) The term "dealer
in securities" means a merchant of stocks or securities, whether an
individual, partnership or corporation, with an established place of
business,
regularly engaged in the purchase of securities and the resale thereof
to customers; that is, one who, as a merchant, buys securities and
re-sells
them to customers with a view to the gains and profits that may be
derived
therefrom.
(V) The term
"bank" means every banking institution, as defined in
Section
2 of Republic Act No. 337, as amended, otherwise known as the General
banking
Act. A bank may either be a commercial bank, a thrift bank, a
development
bank, a rural bank or specialized government bank.
(W) The term "non-bank
financial intermediary" means a financial intermediary, as defined
in Section 2(D)(C) of Republic Act No. 337, as amended, otherwise known
as the General Banking Act, authorized by the Bangko Sentral ng
Pilipinas
(BSP) to perform quasi-banking activities.
(X) The term "quasi-banking
activities" means borrowing funds from twenty (20) or more personal
or corporate lenders at any one time, through the issuance,
endorsement,
or acceptance of debt instruments of any kind other than deposits for
the
borrower's own account, or through the issuance of certificates of
assignment
or similar instruments, with recourse, or of repurchase agreements for
purposes of relending or purchasing receivables and other similar
obligations:
Provided, however, That commercial, industrial and other non-financial
companies, which borrow funds through any of these means for the
limited
purpose of financing their own needs or the needs of their agents or
dealers,
shall not be considered as performing quasi-banking functions.
(Y) The term "deposit
substitutes" shall mean an alternative from of obtaining funds from
the public (the term 'public' means borrowing from twenty (20) or more
individual or corporate lenders at any one time) other than deposits,
through
the issuance, endorsement, or acceptance of debt instruments for the
borrowers
own account, for the purpose of relending or purchasing of receivables
and other obligations, or financing their own needs or the needs of
their
agent or dealer. These instruments may include, but need not be limited
to bankers' acceptances, promissory notes, repurchase agreements,
including
reverse repurchase agreements entered into by and between the Bangko
Sentral
ng Pilipinas (BSP) and any authorized agent bank, certificates of
assignment
or participation and similar instruments with recourse: Provided,
however,
That debt instruments issued for interbank call loans with maturity of
not more than five (5) days to cover deficiency in reserves against
deposit
liabilities, including those between or among banks and quasi-banks,
shall
not be considered as deposit substitute debt instruments.
(Z) The term "ordinary
income" includes any gain from the sale or exchange of property
which
is not a capital asset or property described in Section 39(A)(1). Any
gain
from the sale or exchange of property which is treated or considered,
under
other provisions of this Title, as 'ordinary income' shall be treated
as
gain from the sale or exchange of property 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 which is not a capital asset. Any
loss from the sale or exchange of property which is treated or
considered,
under other provisions of this Title, as 'ordinary loss' shall be
treated
as loss from the sale or exchange of property which is not a capital
asset.
(AA) The term "rank
and file employees" shall mean all employees who are holding
neither
managerial nor supervisory position as defined under existing
provisions
of the Labor Code of the Philippines, as amended.
(BB) The term "mutual
fund company" shall mean an open-end and close-end investment
company
as defined under the Investment Company Act.
(CC) The term "trade,
business or profession" shall not include performance of services
by
the taxpayer as an employee.
(DD) The term "regional
or area headquarters" shall mean a branch established in the
Philippines
by multinational companies and which headquarters do not earn or derive
income from the Philippines and which act as supervisory,
communications
and coordinating center for their affiliates, subsidiaries, or branches
in the Asia-Pacific Region and other foreign markets.
(EE) The term "regional
operating headquarters" shall mean a branch established in the
Philippines
by multinational companies which are engaged in any of the following
services:
general administration and planning; business planning and
coordination;
sourcing and procurement of raw materials and components; corporate
finance
advisory services; marketing control and sales promotion; training and
personnel management; logistic services; research and development
services
and product development; technical support and maintenance; data
processing
and communications; and business development.
(FF) The term "long-term
deposit or investment certificates" shall refer to certificate of
time
deposit or investment in the form of savings, common or individual
trust
funds, deposit substitutes, investment management accounts and other
investments
with a maturity period of not less than five (5) years, the form of
which
shall be prescribed by the Bangko Sentral ng Pilipinas (BSP) and issued
by banks only (not by nonbank financial intermediaries and finance
companies)
to individuals in denominations of Ten thousand pesos (P10,000) and
other
denominations as may be prescribed by the BS.
CHAPTER II
GENERAL
PRINCIPLES
SEC.
23. General Principles of Income Taxation in the Philippines.
- Except when otherwise provided in this Code:
(A) A citizen of the
Philippines residing therein is taxable on all income derived from
sources
within and without the Philippines;
(B) A nonresident
citizen
is taxable only on income derived from sources within the Philippines;
(C) An individual
citizen
of the Philippines who is working and deriving income from abroad as an
overseas contract worker is taxable only on income derived from sources
within the Philippines: Provided, That a seaman who is a
citizen
of the Philippines and who receives compensation for services rendered
abroad as a member of the complement of a vessel engaged exclusively in
international trade shall be treated as an overseas contract worker;
(D) An alien
individual,
whether a resident or not of the Philippines, is taxable only on income
derived from sources within the Philippines;
(E) A domestic
corporation
is taxable on all income derived from sources within and without the
Philippines;
and
(F) A foreign
corporation,
whether engaged or not in trade or business in the Philippines, is
taxable
only on income derived from sources within the Philippines.
CHAPTER
III
TAX ON
INDIVIDUALS
SEC.
24. Income Tax Rates. -
(A) Rates of Income
Tax on Individual Citizen and Individual Resident Alien of the
Philippines.
(1) An income tax is
hereby imposed:
(a) On the taxable
income defined in Section 31 of this Code, other than income subject to
tax under Subsections (B), (C) and (D) of this Section, derived for
each
taxable year from all sources within and without the Philippines be
every
individual citizen of the Philippines residing therein;
(b) On the taxable
income defined in Section 31 of this Code, other than income subject to
tax under Subsections (B), (C) and (D) of this Section, derived for
each
taxable year from all sources within the Philippines by an individual
citizen
of the Philippines who is residing outside of the Philippines including
overseas contract workers referred to in Subsection(C) of Section 23
hereof;
and
(c) On the taxable
income defined in Section 31 of this Code, other than income subject to
tax under Subsections (b), (C) and (D) of this Section, derived for
each
taxable year from all sources within the Philippines by an individual
alien
who is a resident of the Philippines.
The tax shall be
computed
in accordance with and at the rates established in the following
schedule:
Not over
P10,000…………………………………....5%
Over P10,000 but
not
over P30,000………………P500+10% of the excess over
P10,000
Over P30,000 but
not
over P70,000………………P2,500+15% of the excess over
P30,000
Over P70,000 but
not
over P140,000……..………P8,500+20% of the excess over
P70,000
Over P140,000 but
not
over P250,000……………P22,500+25% of the excess over
P140,000
Over P250,000 but
not
over P500,000……………P50,000+30% of the excess over
P250,000
Over P500,000
………………………….....
P125,000+34% of the excess over
P500,000 in 1998.
Provided,
That
effective January 1, 1999, the top marginal rate shall be thirty-three
percent (33%) and effective January 1, 2000, the said rate shall be
thirty-two
percent (32%).
For married
individuals,
the husband and wife, subject to the provision of Section 51 (D)
hereof,
shall compute separately their individual income tax based on their
respective
total taxable income: Provided, That if any income cannot be
definitely
attributed to or identified as income exclusively earned or realized by
either of the spouses, the same shall be divided equally between the
spouses
for the purpose of determining their respective taxable income.
(B) Rate of Tax on Certain
Passive Income.
(1) Interests,
Royalties,
Prizes, and Other Winnings. - A final tax at the rate of twenty
percent
(20%) is hereby imposed upon the amount of interest from any currency
bank
deposit and yield or any other monetary benefit from deposit
substitutes
and from trust funds and similar arrangements; royalties, except on
books,
as well as other literary works and musical compositions, which shall
be
imposed a final tax of ten percent (10%); prizes (except prizes
amounting
to Ten thousand pesos (P10,000) or less which shall be subject to tax
under
Subsection (A) of Section 24; and other winnings (except Philippine
Charity
Sweepstakes and Lotto winnings), derived from sources within the
Philippines:
Provided, however, That interest income received by an
individual
taxpayer (except a nonresident individual) from a depository bank under
the expanded foreign currency deposit system shall be subject to a
final
income tax at the rate of seven and one-half percent (7 1/2%) of such
interest
income: Provided, further, That interest income from long-term
deposit
or investment in the form of savings, common or individual trust funds,
deposit substitutes, investment management accounts and other
investments
evidenced by certificates in such form prescribed by the Bangko Sentral
ng Pilipinas (BSP) shall be exempt from the tax imposed under this
Subsection:
Provided, finally, That should the holder of the certificate
pre-terminate
the deposit or investment before the fifth (5th) year, a
final
tax shall be imposed on the entire income and shall be deducted and
withheld
by the depository bank from the proceeds of the long-term deposit or
investment
certificate based on the remaining maturity thereof:
Four (4) years to
less
than five (5) years - 5%;
Three (3) years to
less than (4) years - 12%; and
Less than three (3)
years - 20%
(2) Cash and/or
Property Dividends - A final tax at the following rates shall be
imposed
upon the cash and/or property dividends actually or constructively
received
by an individual from a domestic corporation or from a joint stock
company,
insurance or mutual fund companies and regional operating headquarters
of multinational companies, or on the share of an individual in the
distributable
net income after tax of a partnership (except a general professional
partnership)
of which he is a partner, or on the share of an individual in the net
income
after tax of an association, a joint account, or a joint venture or
consortium
taxable as a corporation of which he is a member or co-venturer:
Six percent (6%)
beginning
January 1, 1998;
Eight percent (8%)
beginning January 1, 1999; and
Ten percent (10%
beginning
January 1, 2000.
Provided, however,
That the tax on dividends shall apply only on income earned on or after
January 1, 1998. Income forming part of retained earnings as of
December
31, 1997 shall not, even if declared or distributed on or after January
1, 1998, be subject to this tax.
(C) Capital Gains from
Sale of Shares of Stock not Traded in the Stock Exchange. - The
provisions
of Section 39(B) notwithstanding, a final tax at the rates prescribed
below
is hereby imposed upon the net capital gains realized during the
taxable
year from the sale, barter, exchange or other disposition of shares of
stock in a domestic corporation, except shares sold, or disposed of
through
the stock exchange.
Not over
P100,000……………………………........
5%
On any amount in
excess
of P100,000………… 10%
(D) Capital Gains from
Sale of Real Property. -
(1) In General.
- The provisions of Section 39(B) notwithstanding, a final tax of six
percent
(6%) based on the gross selling price or current fair market value as
determined
in accordance with Section 6(E) of this Code, whichever is higher, is
hereby
imposed upon capital gains presumed to have been realized from the
sale,
exchange, or other disposition of real property located in the
Philippines,
classified as capital assets, including pacto de retro sales and other
forms of conditional sales, by individuals, including estates and
trusts:
Provided, That the tax liability, if any, on gains from sales
or
other dispositions of real property to the government or any of its
political
subdivisions or agencies or to government-owned or controlled
corporations
shall be determined either under Section 24 (A) or under this
Subsection,
at the option of the taxpayer.
(2) Exception.
- The provisions of paragraph (1) of this Subsection to the contrary
notwithstanding,
capital gains presumed to have been realized from the sale or
disposition
of their principal residence by natural persons, the proceeds of which
is fully utilized in acquiring or constructing a new principal
residence
within eighteen (18) calendar months from the date of sale or
disposition,
shall be exempt from the capital gains tax imposed under this
Subsection:
Provided, That the historical cost or adjusted basis of the
real
property sold or disposed shall be carried over to the new principal
residence
built or acquired: Provided, further, That the Commissioner
shall
have been duly notified by the taxpayer within thirty (30) days from
the
date of sale or disposition through a prescribed return of his
intention
to avail of the tax exemption herein mentioned: Provided, still
further,
That the said tax exemption can only be availed of once every ten (10)
years: Provided, finally, that if there is no full utilization
of
the proceeds of sale or disposition, the portion of the gain presumed
to
have been realized from the sale or disposition shall be subject to
capital
gains tax. For this purpose, the gross selling price or fair market
value
at the time of sale, whichever is higher, shall be multiplied by a
fraction
which the unutilized amount bears to the gross selling price in order
to
determine the taxable portion and the tax prescribed under paragraph
(1)
of this Subsection shall be imposed thereon.
SEC.
25. Tax on Nonresident Alien Individual. -
(A) Nonresident Alien
Engaged in trade or Business Within the Philippines. -
(1) In General.
- A nonresident alien individual engaged in trade or business in the
Philippines
shall be subject to an income tax in the same manner as an individual
citizen
and a resident alien individual, on taxable income received from all
sources
within the Philippines. A nonresident alien individual who shall come
to
the Philippines and stay therein for an aggregate period of more than
one
hundred eighty (180) days during any calendar year shall be deemed a
'nonresident
alien doing business in the Philippines'. Section 22 (G) of this Code
notwithstanding.
(2) Cash and/or
Property
Dividends from a Domestic Corporation or Joint Stock Company, or
Insurance
or Mutual Fund Company or Regional Operating Headquarters or
Multinational
Company, or Share in the Distributable Net Income of a Partnership
(Except
a General Professional Partnership), Joint Account, Joint Venture
Taxable
as a Corporation or Association., Interests, Royalties, Prizes, and
Other
Winnings. - Cash and/or property dividends from a domestic corporation,
or from a joint stock company, or from an insurance or mutual fund
company
or from a regional operating headquarters of multinational company, or
the share of a nonresident alien individual in the distributable net
income
after tax of a partnership (except a general professional partnership)
of which he is a partner, or the share of a nonresident alien
individual
in the net income after tax of an association, a joint account, or a
joint
venture taxable as a corporation of which he is a member or a
co-venturer;
interests; royalties (in any form); and prizes (except prizes amounting
to Ten thousand pesos (P10,000) or less which shall be subject to tax
under
Subsection (B)(1) of Section 24) and other winnings (except Philippine
Charity Sweepstakes and Lotto winnings); shall be subject to an income
tax of twenty percent (20%) on the total amount thereof: Provided,
however,
that royalties on books as well as other literary works, and royalties
on musical compositions shall be subject to a final tax of ten percent
(10%) on the total amount thereof: Provided, further, That
cinematographic
films and similar works shall be subject to the tax provided under
Section
28 of this Code: Provided, furthermore, That interest income
from
long-term deposit or investment in the form of savings, common or
individual
trust funds, deposit substitutes, investment management accounts and
other
investments evidenced by certificates in such form prescribed by the
Bangko
Sentral ng Pilipinas (BSP) shall be exempt from the tax imposed under
this
Subsection: Provided, finally, that should the holder of the
certificate
pre-terminate the deposit or investment before the fifth (5th)
year, a final tax shall be imposed on the entire income and shall be
deducted
and withheld by the depository bank from the proceeds of the long-term
deposit or investment certificate based on the remaining maturity
thereof:
Four (4) years to
less
than five (5) years - 5%;
Three (3) years to
less than four (4) years - 12%; and
Less than three (3)
years - 20%.
(3) Capital Gains.
- Capital gains realized from sale, barter or exchange of shares of
stock
in domestic corporations not traded through the local stock exchange,
and
real properties shall be subject to the tax prescribed under
Subsections
(C) and (D) of Section 24.
(B) Nonresident Alien
Individual Not Engaged in Trade or Business Within the Philippines. -
There shall be levied, collected and paid for each taxable year upon
the
entire income received from all sources within the Philippines by every
nonresident alien individual not engaged in trade or business within
the
Philippines as interest, cash and/or property dividends, rents,
salaries,
wages, premiums, annuities, compensation, remuneration, emoluments, or
other fixed or determinable annual or periodic or casual gains,
profits,
and income, and capital gains, a tax equal to twenty-five percent (25%)
of such income. Capital gains realized by a nonresident alien
individual
not engaged in trade or business in the Philippines from the sale of
shares
of stock in any domestic corporation and real property shall be subject
to the income tax prescribed under Subsections (C) and (D) of Section
24.
(C) Alien Individual
Employed by Regional or Area Headquarters and Regional Operating
Headquarters
of Multinational Companies. - There shall be levied, collected and
paid for each taxable year upon the gross income received by every
alien
individual employed by regional or area headquarters and regional
operating
headquarters established in the Philippines by multinational companies
as salaries, wages, annuities, compensation, remuneration and other
emoluments,
such as honoraria and allowances, from such regional or area
headquarters
and regional operating headquarters, a tax equal to fifteen percent
(15%)
of such gross income: Provided, however, That the same tax
treatment
shall apply to Filipinos employed and occupying the same position as
those
of aliens employed by these multinational companies. For purposes of
this
Chapter, the term 'multinational company' means a foreign firm or
entity
engaged in international trade with affiliates or subsidiaries or
branch
offices in the Asia-Pacific Region and other foreign markets.
(D) Alien Individual
Employed by Offshore Banking Units. - There shall be levied,
collected
and paid for each taxable year upon the gross income received by every
alien individual employed by offshore banking units established in the
Philippines as salaries, wages, annuities, compensation, remuneration
and
other emoluments, such as honoraria and allowances, from such off-shore
banking units, a tax equal to fifteen percent (15%) of such gross
income:
Provided, however, That the same tax treatment shall apply to
Filipinos
employed and occupying the same positions as those of aliens employed
by
these offshore banking units.
(E) Alien Individual
Employed by Petroleum Service Contractor and Subcontractor. - An
Alien
individual who is a permanent resident of a foreign country but who is
employed and assigned in the Philippines by a foreign service
contractor
or by a foreign service subcontractor engaged in petroleum operations
in
the Philippines shall be liable to a tax of fifteen percent (15%) of
the
salaries, wages, annuities, compensation, remuneration and other
emoluments,
such as honoraria and allowances, received from such contractor or
subcontractor:
Provided, however, That the same tax treatment shall apply to a
Filipino
employed and occupying the same position as an alien employed by
petroleum
service contractor and subcontractor.
Any income earned from
all other sources within the Philippines by the alien employees
referred
to under Subsections (C), (D) and (E) hereof shall be subject to the
pertinent
income tax, as the case may be, imposed under this Code.
SEC.
26. Tax Liability of Members of General Professional Partnerships.
- A general professional partnership as such shall not be subject to
the
income tax imposed under this Chapter. Persons engaging in business as
partners in a general professional partnership shall be liable for
income
tax only in their separate and individual capacities.
For purposes of computing
the distributive share of the partners, the net income of the
partnership
shall be computed in the same manner as a corporation.
Each partner shall report
as gross income his distributive share, actually or constructively
received,
in the net income of the partnership.
CHAPTER IV
TAX ON
CORPORATIONS
SEC.
27. Rates of Income tax on Domestic Corporations. -
(A) In General. -
Except as otherwise provided in this Code, an income tax of thirty-five
percent (35%) is hereby imposed upon the taxable income derived during
each taxable year from all sources within and without the Philippines
by
every corporation, as defined in Section 22(B) of this Code and taxable
under this Title as a corporation, organized in, or existing under the
laws of the Philippines: Provided, That effective January 1,
1998,
the rate of income tax shall be thirty-four percent (34%); effective
January
1, 1999, the rate shall be thirty-three percent (33%); and effective
January
1, 2000 and thereafter, the rate shall be thirty-two percent (32%).
In the case of corporations
adopting the fiscal-year accounting period, the taxable income shall be
computed without regard to the specific date when specific sales,
purchases
and other transactions occur. Their income and expenses for the fiscal
year shall be deemed to have been earned and spent equally for each
month
of the period.
The reduced corporate
income tax rates shall be applied on the amount computed by multiplying
the number of months covered by the new rates within the fiscal year by
the taxable income of the corporation for the period, divided by twelve.
Provided, further,
That the President, upon the recommendation of the Secretary of
Finance,
may effective January 1, 2000, allow corporations the option to be
taxed
at fifteen percent (15%) of gross income as defined herein, after the
following
conditions have been satisfied:
(1) A tax effort
ratio
of twenty percent (20%) of Gross National Product (GNP);
(2) A ratio of forty
percent (40%) of income tax collection to total tax revenues;
(3) A VAT tax effort
of four percent (4%) of GNP; and
(4) A 0.9 percent
(0.9%)
ratio of the Consolidated Public Sector Financial Position (CPSFP) to
GNP.
The option to be taxed
based on gross income shall be available only to firms whose ratio of
cost
of sales to gross sales or receipts from all sources does not exceed
fifty-five
percent (55%).
The election of the
gross income tax option by the corporation shall be irrevocable for
three
(3) consecutive taxable years during which the corporation is qualified
under the scheme.
For purposes of this
Section, the term 'gross income' derived from business shall be
equivalent
to gross sales less sales returns, discounts and allowances and cost of
goods sold. "Cost of goods sold" shall 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 and discounts.
(B) Proprietary Educational
Institutions and Hospitals. - Proprietary educational institutions
and hospitals which are nonprofit shall pay a tax of ten percent (10%)
on their taxable income except those covered by Subsection (D) hereof:
Provided, that if the gross income from unrelated trade, business
or
other activity exceeds fifty percent (50%) of the total gross income
derived
by such educational institutions or hospitals from all sources, the tax
prescribed in Subsection (A) hereof shall be imposed on the entire
taxable
income. For purposes of this Subsection, the term 'unrelated trade,
business
or other activity' means any trade, business or other activity, the
conduct
of which is not substantially related to the exercise or performance by
such educational institution or hospital of its primary purpose or
function.
A "Proprietary educational institution" is any private school
maintained
and administered by private individuals or groups with an issued permit
to operate from the Department of Education, Culture and Sports (DECS),
or the Commission on Higher Education (CHED), or the Technical
Education
and Skills Development Authority (TESDA), as the case may be, in
accordance
with existing laws and regulations.
(C) Government-owned
or Controlled-Corporations, Agencies or Instrumentalities. - The
provisions
of existing special or general laws to the contrary notwithstanding,
all
corporations, agencies, or instrumentalities owned or controlled by the
Government, except the Government Service Insurance System (GSIS), the
Social Security System (SSS), the Philippine Health Insurance
Corporation
(PHIC), the Philippine Charity Sweepstakes Office (PCSO) and the
Philippine
Amusement and Gaming Corporation (PAGCOR), shall pay such rate of tax
upon
their taxable income as are imposed by this Section upon corporations
or
associations engaged in s similar business, industry, or activity.
(D) Rates of Tax
on Certain Passive Incomes. -
(1) Interest
from
Deposits and Yield or any other Monetary Benefit from Deposit
Substitutes
and from Trust Funds and Similar Arrangements, and Royalties. - A
final
tax at the rate of twenty percent (20%) is hereby imposed upon the
amount
of interest on currency bank deposit and yield or any other monetary
benefit
from deposit substitutes and from trust funds and similar arrangements
received by domestic corporations, and royalties, derived from sources
within the Philippines: Provided, however, That interest
income
derived by a domestic corporation from a depository bank under the
expanded
foreign currency deposit system shall be subject to a final income tax
at the rate of seven and one-half percent (7 1/2%) of such interest
income.
(2) Capital
Gains
from the Sale of Shares of Stock Not Traded in the Stock Exchange. -
A final tax at the rates prescribed below shall be imposed on net
capital
gains realized during the taxable year from the sale, exchange or other
disposition of shares of stock in a domestic corporation except shares
sold or disposed of through the stock exchange:
Not over
P100,000………………………….....
5%
Amount in excess of
P100,000…………….. 10%
(3) Tax on
Income
Derived under the Expanded Foreign Currency Deposit System. -
Income
derived by a depository bank under the expanded foreign currency
deposit
system from foreign currency transactions with local commercial banks,
including branches of foreign banks that may be authorized by the
Bangko
Sentral ng Pilipinas (BSP) to transact business with foreign currency
depository
system units and other depository banks under the expanded foreign
currency
deposit system, including interest income from foreign currency loans
granted
by such depository banks under said expanded foreign currency deposit
system
to residents, shall be subject to a final income tax at the rate of ten
percent (10%) of such income.
Any income of
nonresidents,
whether individuals or corporations, from transactions with depository
banks under the expanded system shall be exempt from income tax.
(4) Intercorporate
Dividends. - Dividends received by a domestic corporation from
another
domestic corporation shall not be subject to tax.
(5) Capital
Gains Realized from the Sale, Exchange or Disposition of Lands and/or
Buildings.
- A final tax of six percent (6%) is hereby imposed on the gain
presumed
to have been realized on the sale, exchange or disposition of lands
and/or
buildings which are not actually used in the business of a corporation
and are treated as capital assets, based on the gross selling price of
fair market value as determined in accordance with Section 6(E) of this
Code, whichever is higher, of such lands and/or buildings.
(E) Minimum
Corporate
Income Tax on Domestic Corporations. -
(1) Imposition of
Tax. - A minimum corporate income tax of two percent (2%0 of the
gross
income as of the end of the taxable year, as defined herein, is hereby
imposed on a corporation taxable under this Title, 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.
(2) Carry Forward
of Excess Minimum Tax. - Any excess of the minimum corporate income
tax over the normal income tax as computed under Subsection (A) of this
Section shall be carried forward and credited against the normal income
tax for the three (3) immediately succeeding taxable years.
(3) 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.
(4) Gross
Income
Defined. - For purposes of applying the minimum corporate income
tax
provided under Subsection (E) hereof, the term 'gross income' shall
mean
gross sales less sales returns, discounts and allowances and cost of
goods
sold. "Cost of goods sold' shall 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
services" shall mean all direct costs and expenses necessarily
incurred
to provide the services required by the customers and clients including
(A) salaries and employee benefits of personnel, consultants and
specialists
directly rendering the service and (B) cost of facilities directly
utilized
in providing the service such as depreciation or rental of equipment
used
and cost of supplies: Provided, however, That in the case of
banks,
"cost of services" shall include interest expense.
SEC.
28. Rates of Income Tax on Foreign Corporations. -
(A) Tax on Resident
Foreign Corporations. -
(1) In General.
- Except as otherwise provided in this Code, a corporation organized,
authorized,
or existing under the laws of any foreign country, engaged in trade or
business within the Philippines, shall be subject to an income tax
equivalent
to thirty-five percent (35%) of the taxable income derived in the
preceding
taxable year from all sources within the Philippines: Provided, That
effective January 1, 1998, the rate of income tax shall be thirty-four
percent (34%); effective January 1, 1999, the rate shall be
thirty-three
percent (33%), and effective January 1, 2000 and thereafter, the rate
shall
be thirty-two percent (32%).
In the case of
corporations
adopting the fiscal-year accounting period, the taxable income shall be
computed without regard to the specific date when sales, purchases and
other transactions occur. Their income and expenses for the fiscal year
shall be deemed to have been earned and spent equally for each month of
the period.
The reduced
corporate
income tax rates shall be applied on the amount computed by multiplying
the number of months covered by the new rates within the fiscal year by
the taxable income of the corporation for the period, divided by twelve.
Provided,
however,
That a resident foreign corporation shall be granted the option to be
taxed
at fifteen percent (15%) on gross income under the same conditions, as
provided in Section 27 (A).
(2) Minimum
Corporate
Income Tax on Resident Foreign Corporations. - A minimum corporate
income tax of two percent (2%) of gross income, as prescribed under
Section
27 (E) of this Code, shall be imposed, under the same conditions, on a
resident foreign corporation taxable under paragraph (1) of this
Subsection.
(3) International
Carrier. - An international carrier doing business in the
Philippines
shall pay a tax of two and one-half percent (2 1/2%) on its "Gross
Philippine
Billings" as defined hereunder:
(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 corresponding to the leg
flown
from the 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.
(4) Offshore
Banking
Units. - The provisions of any law to the contrary
notwithstanding,
income derived by offshore banking units authorized by the Bangko
Sentral
ng Pilipinas (BSP) to transact business with offshore banking units,
including
any interest income derived from foreign currency loans granted to
residents,
shall be subject to a final income tax at the rate of ten percent (10%)
of such income.
Any income of
nonresidents,
whether individuals or corporations, from transactions with said
offshore
banking units shall be exempt from income tax.
(5) Tax on
Branch
Profits Remittances. - Any profit remitted by a branch to its head
office shall be subject to a tax of fifteen (15%) which shall be based
on the total profits applied or earmarked for remittance without any
deduction
for the tax component thereof (except those activities which are
registered
with the Philippine Economic Zone Authority). The tax shall be
collected
and paid in the same manner as provided in Sections 57 and 58 of this
Code:
provided, that interests, dividends, rents, royalties, including
remuneration
for technical services, salaries, wages premiums, annuities, emoluments
or other fixed or determinable annual, periodic or casual gains,
profits,
income 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.
(6) Regional or
Area Headquarters and Regional Operating Headquarters of Multinational
Companies. -
(a) Regional or
area
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.
(7) Tax on
Certain
Incomes Received by a Resident Foreign Corporation. -
(a) Interest
from
Deposits and Yield or any other Monetary Benefit from Deposit
Substitutes,
Trust Funds and Similar Arrangements and Royalties. - Interest
from
any currency bank deposit and yield or any other monetary benefit from
deposit substitutes and from trust funds and similar arrangements and
royalties
derived from sources within the Philippines shall be subject to a final
income tax at the rate of twenty percent (20%) of such interest: Provided,
however, That interest income derived by a resident foreign
corporation
from a depository bank under the expanded foreign currency deposit
system
shall be subject to a final income tax at the rate of seven and
one-half
percent (7 1/2%) of such interest income.
(b) Income
Derived
under the Expanded Foreign Currency Deposit System. - Income
derived
by a depository bank under the expanded foreign currency deposit system
from foreign currency transactions with local commercial banks
including
branches of foreign banks that may be authorized by the Bangko Sentral
ng Pilipinas (BSP) to transact business with foreign currency deposit
system
units, including interest income from foreign currency loans granted by
such depository banks under said expanded foreign currency deposit
system
to residents, shall be subject to a final income tax at the rate of ten
percent (10%) of such income.
Any income of
nonresidents,
whether individuals or corporations, from transactions with depository
banks under the expanded system shall be exempt from income tax.
(c) Capital
Gains
from Sale of Shares of Stock Not Traded in the Stock Exchange. - A
final tax at the rates prescribed below is hereby imposed upon the net
capital gains realized during the taxable year from the sale, barter,
exchange
or other disposition of shares of stock in a domestic corporation
except
shares sold or disposed of through the stock exchange:
Not over
P100,000………………………......…
5%
On any amount in excess
of P100,000……. 10%
(d) Intercorporate
Dividends. - Dividends received by a resident foreign corporation
from
a domestic corporation liable to tax under this Code shall not be
subject
to tax under this Title.
(B) Tax on Nonresident
Foreign Corporation. -
(1) In General.
- Except as otherwise provided in this Code, a foreign corporation not
engaged in trade or business in the Philippines shall pay a tax equal
to
thirty-five percent (35%) of the gross income received during each
taxable
year from all sources within the Philippines, such as interests,
dividends,
rents, royalties, salaries, premiums (except reinsurance premiums),
annuities,
emoluments or other fixed or determinable annual, periodic or casual
gains,
profits and income, and capital gains, except capital gains subject to
tax under subparagraphs (C) and (d): Provided, That effective
1,
1998, the rate of income tax shall be thirty-four percent (34%);
effective
January 1, 1999, the rate shall be thirty-three percent (33%); and,
effective
January 1, 2000 and thereafter, the rate shall be thirty-two percent
(32%).
(2) Nonresident
Cinematographic Film Owner, Lessor or Distributor. - A
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