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Philippine Tax Update - Chan Robles Virtual Law Library


   
THE
NATIONAL INTERNAL REVENUE CODE
OF THE PHILIPPINES
[Tax Reform Act of 1997]
Republic Act No. 8424
AN ACT AMENDING THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES


Read the full text of the




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.cralaw

    (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.cralaw

    (C) The term "domestic", when applied to a corporation, means created or organized in the Philippines or under its laws.cralaw

    (D) The term "foreign", when applied to a corporation, means a corporation which is not domestic.cralaw

    (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.



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