TITLE IITAX ON
INCOMECHAPTER IVTAX 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%).cralaw:red
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.cralaw:red
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.cralaw:red
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) toGNP.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.cralaw:red
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.cralaw:red
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.cralaw:red
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.cralaw:red
In the case of taxpayers
engaged in the sale of service, 'gross income' means gross receipts
less
sales returns, allowances and discounts.cralaw:red
(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.cralaw:red
(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
cinematographic
film owner, lessor, or distributor shall pay a tax of twenty-five
percent
(25%) of its gross income from all sources within the Philippines.
(3) Nonresident
Owner or Lessor of Vessels Chartered by Philippine Nationals. - A
nonresident
owner or lessor of vessels shall be subject to a tax of four and
one-half
percent (4 1/2%) of gross rentals, lease or charter fees from leases or
charters to Filipino citizens or corporations, as approved by the
Maritime
Industry Authority.
(4) Nonresident
Owner or Lessor of Aircraft, Machineries and Other Equipment. -
Rentals,
charters and other fees derived by a nonresident lessor of aircraft,
machineries
and other equipment shall be subject to a tax of seven and one-half
percent
(7 1/2%) of gross rentals or fees.
(5) Tax on
Certain
Incomes Received by a Nonresident Foreign Corporation. -
(a) Interest
on
Foreign Loans. - A final withholding tax at the rate of twenty
percent
(20%) is hereby imposed on the amount of interest on foreign loans
contracted
on or after August 1, 1986;
(b) Intercorporate
Dividends. - A final withholding tax at the rate of fifteen percent
(15%) is hereby imposed on the amount of cash and/or property dividends
received from a domestic corporation, which shall be collected and paid
as provided in Section 57 (A) of this Code, subject to the condition
that
the country in which the nonresident foreign corporation is domiciled,
shall allow a credit against the tax due from the nonresident foreign
corporation
taxes deemed to have been paid in the Philippines equivalent to twenty
percent (20%) for 1997, nineteen percent (19%) for 1998, eighteen
percent
(18%) for 1999, and seventeen percent (17%) thereafter, which
represents
the difference between the regular income tax of thirty-five percent
(35%)
in 1997, thirty-four percent (34%) in 1998, and thirty-three percent
(33%)
in 1999, and thirty-two percent (32%) thereafter on corporations and
the
fifteen percent (15%) tax on dividends as provided in this subparagraph;
(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%
SEC.
29. Imposition of Improperly Accumulated Earnings Tax.
-
(A) In General.
- In addition to other taxes imposed by this Title, there is hereby
imposed
for each taxable year on the improperly accumulated taxable income of
each
corporation described in Subsection B hereof, an improperly accumulated
earnings tax equal to ten percent (10%) of the improperly accumulated
taxable
income.cralaw:red
(B) Tax on Corporations
Subject to Improperly Accumulated Earnings Tax. -
(1) In
General.
- The improperly accumulated earnings tax imposed in the preceding
Section shall apply to every corporation formed or availed for the
purpose
of avoiding the income tax with respect to its shareholders or the
shareholders
of any other corporation, by permitting earnings and profits to
accumulate
instead of being divided or distributed.
(2) Exceptions.
- The improperly accumulated earnings tax as provided for under this
Section
shall not apply to:
(a) Publicly-held
corporations;
(b) Banks and other
nonbank financial intermediaries; and
(c) Insurance companies.(C) Evidence of
Purpose
to Avoid Income Tax. -
(1) Prima
Facie
Evidence. - the fact that any corporation is a mere holding company
or investment company shall be prima facie evidence of a purpose to
avoid
the tax upon its shareholders or members.
(2) Evidence
Determinative
of Purpose. - The fact that the earnings or profits of a
corporation
are permitted to accumulate beyond the reasonable needs of the business
shall be determinative of the purpose to avoid the tax upon its
shareholders
or members unless the corporation, by the clear preponderance of
evidence,
shall prove to the contrary.(D) Improperly
Accumulated
Taxable Income. - For purposes of this Section, the term
'improperly
accumulated taxable income' means taxable income' adjusted by:
(1) Income exempt
from tax;
(2) Income excluded
from gross income;
(3) Income subject
to final tax; and
(4) The amount of net
operating loss carry-over deducted;
And reduced by the
sum of:
(1) Dividends
actually
or constructively paid; and
(2) Income tax paid
for the taxable year.
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.(E) Reasonable Needs
of the Business. - For purposes of this Section, the term
'reasonable
needs of the business' includes the reasonably anticipated needs of the
business.
SEC.
30. Exemptions from Tax on Corporations.chanrobles virtual law library
- The following organizations shall not be taxed under this Title in
respect
to income received by them as such:
(A) Labor, agricultural
or horticultural organization not organized principally for profit;
(B) Mutual savings bank
not having a capital stock represented by shares, and cooperative bank
without capital stock organized and operated for mutual purposes and
without
profit;
(C) A beneficiary society,
order or association, operating fort he exclusive benefit of the
members
such as a fraternal organization operating under the lodge system, or
mutual
aid association or a nonstock corporation organized by employees
providing
for the payment of life, sickness, accident, or other benefits
exclusively
to the members of such society, order, or association, or nonstock
corporation
or their dependents;
(D) Cemetery company
owned and operated exclusively for the benefit of its members;
(E) Nonstock corporation
or association organized and operated exclusively for religious,
charitable,
scientific, athletic, or cultural purposes, or for the rehabilitation
of
veterans, no part of its net income or asset shall belong to or inures
to the benefit of any member, organizer, officer or any specific person;
(F) Business league
chamber of commerce, or board of trade, not organized for profit and no
part of the net income of which inures to the benefit of any private
stock-holder,
or individual;
(G) Civic league or
organization not organized for profit but operated exclusively for the
promotion of social welfare;
(H) A nonstock and nonprofit
educational institution;
(I) Government educational
institution;
(J) Farmers' or other
mutual typhoon or fire insurance company, mutual ditch or irrigation
company,
mutual or cooperative telephone company, or like organization of a
purely
local character, the income of which consists solely of assessments,
dues,
and fees collected from members for the sole purpose of meeting its
expenses;
and
(K) Farmers', fruit
growers', or like association organized and operated as a sales agent
for
the purpose of marketing the products of its members and turning back
to
them the proceeds of sales, less the necessary selling expenses on the
basis of the quantity of produce finished by them;
Notwithstanding the
provisions in the preceding paragraphs, the income of whatever kind and
character of the foregoing organizations from any of their properties,
real or personal, or from any of their activities conducted for profit
regardless of the disposition made of such income, shall be subject to
tax imposed under this Code.
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