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TAX CODE OF THE PHILIPPINES PDF

Wednesday, April 3, 2019


The power to interpret the provisions of this Code and other tax laws shall be under . Commissioner is hereby authorized to divide the Philippines into different. This Code shall be known as the National Internal Revenue Code of . from business subject to tax, or is intending to leave the Philippines or to remove . “The Senate version of TRAIN (Tax Reform for Acceleration and Inclusion) started with building a theme. – the theme of It simplifies the tax code to create the environment to .. 20Memo//Annex%20B1_pdf.


Tax Code Of The Philippines Pdf

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Full text of the National Internal Revenue Code of the Philippines [Tax Reform Act of ]. Published on the World Wide Web by The Law Firm of Chan Robles. the rationalization of the Philippine internal revenue tax system, SEC. 3. Section 5 of the National Internal Revenue Code of. (NIRC), as. (4) The revenue collected pursuant to the provisions of this Code shall inure . otherwise organized under the laws of the Philippines but engaged in trade or.

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. Provided, That the information obtained from the banks and other financial institutions may be used by the Bureau of Internal Revenue for tax assessment, verification, audit and enforcement purposes.

In case of a request from a foreign tax authority for tax information held by banks and financial institutions, the exchange of information shall be done in a secure manner to ensure confidentiality thereof under such rules and regulations as may be promulgated by the Secretary of Finance, upon recommendation of the Commissioner.

The Commissioner shall provide the tax information obtained from banks and financial institutions pursuant to a convention or agreement upon request of the foreign tax authority when such requesting foreign tax authority has provided the following information to demonstrate the foreseeable relevance of the information to the request: The Commissioner shall forward the information as promptly as possible to the requesting foreign tax authority. To ensure a prompt response, the Commissioner shall confirm receipt of a request in writing to the requesting tax authority and shall notify the latter of deficiencies in the request, if any, within sixty 60 days from receipt of the request.

If the Commissioner is unable to obtain and provide the information within ninety 90 days from receipt of the request, due to obstacles encountered in furnishing the information or when the bank or financial institution refuses to furnish the information, he shall immediately inform the requesting tax authority of the same, explaining the nature of the obstacles encountered or the reasons for refusal.

Within one hundred twenty days from January 1, , 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.

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. Authority of the Commissioner to Delegate Power. Provided, however, That the following powers of the Commissioner shall not be delegated: Provided, however, That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos P, 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.

Section 8.

A Provision and Distribution to Proper-Officials. For this purpose, internal revenue stamps, or other markings 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, or other markings shall be firmly and conspicuously affixed or printed on each pack of cigars and cigarettes and bottles of distilled spirits subject to excise tax in the manner and form as prescribed by the Commissioner, upon approval of the Secretary of Finance. To further improve tax administration, cigarette and alcohol manufacturers shall be required to install automated volume-counters of packs and bottles to deter over-removals and misdeclaration of removals.

B Receipts for Payment Mode. Internal Revenue Districts. Each of these districts shall be under the supervision of a Revenue District Officer. Revenue Regional Director. 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.

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 and of this Code. Authority of a Revenue Officer. Any person so arrested shall be forthwith brought before a court, there to be dealt with according to law. 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.

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.

Reports of Violation of Laws. 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.

Contents of Commissioner's Annual Report. Submission of Report and Pertinent Information by the Commissioner. A Submission of Pertinent Information to Congress.

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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. Sources of Revenue. 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.

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

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 download of securities and the resale thereof to customers; that is, one who, as a merchant, downloads securities and re-sells them to customers with a view to the gains and profits that may be derived therefrom.

W The term 'non-bank financial intermediary' means a financial intermediary, as defined in Section 2 D c of Republic Act No. 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 redownload agreements for purposes of relending or downloading 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 downloading 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, redownload agreements, including reverse redownload 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: FF The term 'long-term deposit or investment certificate' 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 non-bank financial intermediaries and finance companies to individuals in denominations of Ten thousand pesos P10, and other denominations as may be prescribed by the BSP.

General Principles of Income Taxation in the Philippines. 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.

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Not over P, 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.

Provided, That minimum wage earners as defined in Section 22 HH of this Code shall be exempt from the payment of income tax on their taxable income: Provided, further, That the holiday pay, overtime pay, night shift differential pay and hazard pay received by such minimum wage earners shall likewise be exempt from income tax.

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: 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;.

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. Tax on Nonresident Alien Individual. A nonresident alien individual who shall come to the Philippines and stay therein for an aggregate period of more than one hundred eighty days during any calendar year shall be deemed a 'nonresident alien doing business in the Philippines'.

Section 22 G of this Code notwithstanding. 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: 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 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. 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.

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. The veto message reads: While I understand the laudable objective of the proposal, the provision is violative of the Equal Protection Clause under Section 1, Article III of the Constitution, as well as the rule of equity and uniformity in the application of the burden of taxation: Section 1.

No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws.

In line with this, the overriding consideration is the promotion of fairness of the tax system for individuals performing similar work. Given the significant reduction in the personal income tax, the employees of these forms should follow the regular tax rates applicable to other individual taxpayers.

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.

Rates of Income tax on Domestic Corporations. A In General. 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, downloads 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 corporate income tax rate shall be applied on the amount computed by multiplying the number of months covered by the new rate within the fiscal year by the taxable income of the corporation for the period, divided by twelve.

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. 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. 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.

Any income of nonresidents, whether individuals or corporations, from transactions with depository banks under the expanded system shall be exempt from income tax.

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.

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. 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. Rates of Income Tax on Foreign Corporations. A Tax on Resident Foreign Corporations.

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, downloads and other transactions occur.

Provided, further, That for a flight which originates from the Philippines, but transshipment of passenger takes place at any part 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.

Provided, That international carriers doing business in the Philippines may avail of a preferential rate or exemption from the tax herein imposed on their gross revenue derived from the carriage of persons and their excess baggage on the basis of an applicable tax treaty or international agreement to which the Philippines is a signatory or on the basis of reciprocity such that an international carrier, whose home country grants income tax exemption to Philippine carriers, shall likewise be exempt from the tax imposed under this provision.

Any income of nonresidents, whether individuals or corporations, from transactions with said offshore banking units shall be exempt from income tax. 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.

B Tax on Nonresident Foreign Corporation. Imposition of Improperly Accumulated Earnings Tax. D Improperly Accumulated Taxable Income. Provided, however, That for corporations using the calendar year basis, the accumulated earnings tax shall not apply on improperly accumulated income as of December 31, 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 E Reasonable Needs of the Business.

Taxation in the Philippines

Exemptions from Tax on Corporations. 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 for the 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 inure 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.

Taxable Income Defined. Gross Income. B Exclusions from Gross Income. Provided, however, That income from such property, as well as gift, bequest, devise or descent of income from any property, in cases of transfers of divided interest, shall be included in gross income.

Provided, That the retiring official or employee has been in the service of the same employer for at least ten 10 years and is not less than fifty 50 years of age at the time of his retirement: Provided, further, That the benefits granted under this subparagraph shall be availed of by an official or employee only once. For purposes of this Subsection, the term 'reasonable private benefit plan' means a pension, gratuity, stock bonus or profit-sharing plan maintained by an employer for the benefit of some or all of his officials or employees, wherein contributions are made by such employer for the officials or employees, or both, for the purpose of distributing to such officials and employees the earnings and principal of the fund thus accumulated, and wherein it is provided in said plan that at no time shall any part of the corpus or income of the fund be used for, or be diverted to, any purpose other than for the exclusive benefit of the said officials and employees.

Provided, however, That the total exclusion under this subparagraph shall not exceed Ninety thousand pesos P90, which shall cover: Special Treatment of Fringe Benefit.

A Imposition of Tax. The tax herein imposed is payable by the employer which tax shall be paid in the same manner as provided for under Section 57 A of this Code. Provided, however, That fringe benefit furnished to employees and taxable under Subsections B , C , D , and E of Section 25 shall be taxed at the applicable rates imposed thereat: B Fringe Benefit Defined.

C Fringe Benefits Not Taxable. The Secretary of Finance is hereby authorized to promulgate, upon recommendation of the Commissioner, such rules and regulations as are necessary to carry out efficiently and fairly the provisions of this Section, taking into account the peculiar nature and special need of the trade, business or profession of the employer.

Deductions from Gross Income. A Expenses. Provided, That the final tax imposed under Section 33 hereof has been paid;. Provided, That any expense incurred for entertainment, amusement or recreation that is contrary to law, morals public policy or public order shall in no case be allowed as a deduction. Provided, That such interest shall be allowed as a deduction in the year the indebtedness is paid: Provided, further, That if the indebtedness is payable in periodic amortizations, the amount of interest which corresponds to the amount of the principal amortized or paid during the year shall be allowed as deduction in such taxable year;.

Provided, That taxes allowed under this Subsection, when refunded or credited, shall be included as part of gross income in the year of receipt to the extent of the income tax benefit of said deduction. An alien individual and a foreign corporation shall not be allowed the credits against the tax for the taxes of foreign countries allowed under this paragraph. In the case of such a tax incurred but not paid, the Commissioner as a condition precedent to the allowance of this credit may require the taxpayer to give a bond with sureties satisfactory to and to be approved by the Commissioner in such sum as he may require, conditioned upon the payment by the taxpayer of any amount of tax found due upon any such redetermination.

The bond herein prescribed shall contain such further conditions as the Commissioner may require. If the taxpayer elects to take such credits in the year in which the taxes of the foreign country accrued, the credits for all subsequent years shall be taken upon the same basis and no portion of any such taxes shall be allowed as a deduction in the same or any succeeding year.

The Secretary of Finance, upon recommendation of the Commissioner, is hereby authorized to promulgate rules and regulations prescribing, among other things, the time and manner by which the taxpayer shall submit a declaration of loss sustained from casualty or from robbery, theft or embezzlement during the taxable year: Provided, however, That the time limit to be so prescribed in the rules and regulations shall not be less than thirty 30 days nor more than ninety 90 days from the date of discovery of the casualty or robbery, theft or embezzlement giving rise to the loss.

The secretary of Finance, upon recommendation of the Commissioner, is hereby authorized to promulgate rules and regulations prescribing, among other things, the time and manner by which the taxpayer shall submit a declaration of loss sustained from casualty or from robbery, theft or embezzlement during the taxable year: Provided, That the time to be so prescribed in the rules and regulations shall not be less than thirty 30 days nor more than ninety 90 days from the date of discovery of the casualty or robbery, theft or embezzlement giving rise to the loss; and.

Provided, however, That any net loss incurred in a taxable year during which the taxpayer was exempt from income tax shall not be allowed as a deduction under this Subsection: Provided, further, That a net operating loss carry-over shall be allowed only if there has been no substantial change in the ownership of the business or enterprise in that -.

For purposes of this subsection, the term 'net operating loss' shall mean the excess of allowable deduction over gross income of the business in a taxable year. Provided, That for mines other than oil and gas wells, a net operating loss without the benefit of incentives provided for under Executive Order No. The entire amount of the loss shall be carried over to the first of the five 5 taxable years following the loss, and any portion of such loss which exceeds the taxable income of such first year shall be deducted in like manner form the taxable income of the next remaining four 4 years.

Provided, That accumulated expenditures incurred in that area prior to January 1, shall be allowed as a deduction only from any income derived from the same contract area. In all cases, notices of abandonment shall be filed with the Commissioner. Provided, That if such abandoned well is re-entered and production is resumed, or if such equipment or facility is restored into service, the said costs shall be included as part of gross income in the year of resumption or restoration and shall be amortized or depreciated, as the case may be.

Provided, That recovery of bad debts previously allowed as deduction in the preceding years shall be included as part of the gross income in the year of recovery to the extent of the income tax benefit of said deduction. In the case of property held by one person for life with remainder to another person, the deduction shall be computed as if the life tenant were the absolute owner of the property and shall be allowed to the life tenant.

In the case of property held in trust, the allowable deduction shall be apportioned between the income beneficiaries and the trustees in accordance with the pertinent provisions of the instrument creating the trust, or in the absence of such provisions, on the basis of the trust income allowable to each.

The responsibility of establishing the existence of such facts and circumstances shall rest with the party initiating the modification. Any change in the agreed rate and useful life of the depreciable property as specified in the agreement shall not be effective for taxable years prior to the taxable year in which notice in writing by certified mail or registered mail is served by the party initiating such change to the other party to the agreement: Provided, however, that where the taxpayer has adopted such useful life and depreciation rate for any depreciable and claimed the depreciation expenses as deduction from his gross income, without any written objection on the part of the Commissioner or his duly authorized representatives, the aforesaid useful life and depreciation rate so adopted by the taxpayer for the aforesaid depreciable asset shall be considered binding for purposes of this Subsection.

However, if the service contractor initially elects the declining-balance method, it may at any subsequent date, shift to the straight-line method. The useful life of properties used in or related to production of petroleum shall be ten 10 years of such shorter life as may be permitted by the Commissioner. Properties not used directly in the production of petroleum shall be depreciated under the straight-line method on the basis of an estimated useful life of five 5 years.

Provided, That the contractor notifies the Commissioner at the beginning of the depreciation period which depreciation rate allowed by this Section will be used.

Provided, That when the allowance for depletion shall equal the capital invested no further allowance shall be granted: Provided, further, That after production in commercial quantities has commenced, certain intangible exploration and development drilling costs: Provided, That said costs shall not pertain to the acquisition or improvement of property of a character subject to the allowance for depreciation except that the allowances for depreciation on such property shall be deductible under this Subsection.

Any intangible exploration, drilling and development expenses allowed as a deduction in computing taxable income during the year shall not be taken into consideration in computing the adjusted cost basis for the purpose of computing allowable cost depletion. The election by the taxpayer to deduct the exploration and development expenditures is irrevocable and shall be binding in succeeding taxable years. This paragraph shall not apply to expenditures for the acquisition or improvement of property of a character which is subject to the allowance for depreciation.

In no case shall this paragraph apply with respect to amounts paid or incurred for the exploration and development of oil and gas.

The term 'exploration expenditures' means expenditures paid or incurred for the purpose of ascertaining the existence, location, extent or quality of any deposit of ore or other mineral, and paid or incurred before the beginning of the development stage of the mine or deposit. The term 'development expenditures' means expenditures paid or incurred during the development stage of the mine or other natural deposits.

The development stage of a mine or other natural deposit shall begin at the time when deposits of ore or other minerals are shown to exist in sufficient commercial quantity and quality and shall end upon commencement of actual commercial extraction. H Charitable and Other Contributions. Provided, That any donation which is made to the Government or to any of its agencies or political subdivisions not in accordance with the said annual priority plan shall be subject to the limitations prescribed in paragraph 1 of this Subsection;.

Subject to such terms and conditions as may be prescribed by the Secretary of Finance, the term 'utilization' means: An amount set aside for a specific project which comes within one or more purposes of the accredited nongovernment organization may be treated as a utilization, but only if at the time such amount is set aside, the accredited nongovernment organization has established to the satisfaction of the Commissioner that the amount will be paid for the specific project within a period to be prescribed in rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner, but not to exceed five 5 years, and the project is one which can be better accomplished by setting aside such amount than by immediate payment of funds.

I Research and Development. The expenditures so treated shall be allowed as deduction during the taxable year when paid or incurred. In computing taxable income, such deferred expenses shall be allowed as deduction ratably distributed over a period of not less than sixty 60 months as may be elected by the taxpayer beginning with the month in which the taxpayer first realizes benefits from such expenditures.

The election provided by paragraph 2 hereof may be made for any taxable year beginning after the effectivity of this Code, but only if made not later than the time prescribed by law for filing the return for such taxable year. The method so elected, and the period selected by the taxpayer, shall be adhered to in computing taxable income for the taxable year for which the election is made and for all subsequent taxable years unless with the approval of the Commissioner, a change to a different method is authorized with respect to a part or all of such expenditures.

The election shall not apply to any expenditure paid or incurred during any taxable year for which the taxpayer makes the election. J Pension Trusts. Unless the taxpayer signifies in his return his intention to elect the optional standard deduction, he shall be considered as having availed himself of the deductions allowed in the preceding Subsections.

Such election when made in the return shall be irrevocable for the taxable year for which the return is made: Provided, That an individual who is entitled to and claimed for the optional standard deduction shall not be required to submit with his tax return such financial statements otherwise required under this Code: Provided, further, That a general professional partnership and the partners comprising such partnership may avail of the optional standard deduction only once, either by the general professional partnership or the partners comprising the partnership: Provided, finally, That except when the Commissioner otherwise permits, the said individual shall keep such records pertaining to his gross sales or gross receipts, or the said corporation shall keep such records pertaining to his gross income as defined in Section 32 of this Code during the taxable year, as may be required by the rules and regulations promulgated by the Secretary of Finance, upon, recommendation of the Commissioner.

Notwithstanding the provision of the preceding Subsections, the Secretary of Finance, upon recommendation of the Commissioner, after a public hearing shall have been held for this purpose, may prescribe by rules and regulations, limitations or ceilings for any of the itemized deductions under Subsections A to J of this Section: Provided, That for purposes of determining such ceilings or limitations, the Secretary of Finance shall consider the following factors: Provided, further, That no ceilings shall further be imposed on items of expense already subject to ceilings under present law.

Items not Deductible. A General Rule. This Subsection shall not apply to intangible drilling and development costs incurred in petroleum operations which are deductible under Subsection G 1 of Section 34 of this Code. B Losses from Sales or Exchanges of Property. For purposes of this paragraph, the family of an individual shall include only his brothers and sisters whether by the whole or half-blood , spouse, ancestors, and lineal descendants; or.

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Provided, however, That the released reserve be treated as income for the year of release. B Mutual Insurance Companies. C Mutual Marine Insurance Companies. D Assessment Insurance Companies. Losses from Wash Sales of Stock or Securities. A In the case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or securities where it appears that within a period beginning thirty 30 days before the date of such sale or disposition and ending thirty 30 days after such date, the taxpayer has acquired by download or by exchange upon which the entire amount of gain or loss was recognized by law , or has entered into a contact or option so to acquire, substantially identical stock or securities, then no deduction for the loss shall be allowed under Section 34 unless the claim is made by a dealer in stock or securities and with respect to a transaction made in the ordinary course of the business of such dealer.

B If the amount of stock or securities acquired or covered by the contract or option to acquire is less than the amount of stock or securities sold or otherwise disposed of, then the particular shares of stock or securities, the loss from the sale or other disposition of which is not deductible, shall be determined under rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner.

C If the amount of stock or securities acquired or covered by the contract or option to acquire which is not less than the amount of stock or securities sold or otherwise disposed of, then the particular shares of stock or securities, the acquisition of which or the contract or option to acquire which resulted in the non-deductibility of the loss shall be determined under rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner.

Capital Gains and Losses. B Percentage Taken into Account — In the case of a taxpayer, other than a corporation, only the following percentages of the gain or loss recognized upon the sale or exchange of a capital asset shall be taken into account in computing net capital gain, net capital loss, and net income.

C Limitation on Capital losses. If a bank or trust company incorporated under the laws of the Philippines, a substantial part of whose business is the receipt of deposits, sells any bond, debenture, note, or certificate or other evidence of indebtedness issued by any corporation including one issued by a government or political subdivision thereof , with interest coupons or in registered form, any loss resulting from such sale shall not be subject to the foregoing limitation and shall not be included in determining the applicability of such limitation to other losses.

E Retirement of Bonds, Etc. F Gains or losses from Short Sales, Etc. Determination of Amount and Recognition of Gain or Loss. A Computation of Gain or Loss. The amount realized from the sale or other disposition of property shall be the sum of money received plus the fair market value of the property other than money received;.

No gain or loss shall also be recognized if property is transferred to a corporation by a person in exchange for stock or unit of participation in such a corporation of which as a result of such exchange said person, alone or together with others, not exceeding four 4 persons, gains control of said corporation: Provided, That stocks issued for services shall not be considered as issued in return for property. Provided, That the property received as 'boot' shall have as basis its fair market value: Provided, further, That if as part of the consideration to the transferor, the transferee of property assumes a liability of the transferor or acquires form the latter property subject to a liability, such assumption or acquisition in the amount of the liability shall, for purposes of this paragraph, be treated as money received by the transferor on the exchange: Provided, finally, That if the transferor receives several kinds of stock or securities, the Commissioner is hereby authorized to allocate the basis among the several classes of stocks or securities.

Provided, That for a transaction to be regarded as a merger or consolidation within the purview of this Section, it must be undertaken for a bona fide business purpose and not solely for the purpose of escaping the burden of taxation: Provided, further, That in determining whether a bona fide business purpose exists, each and every step of the transaction shall be considered and the whole transaction or series of transaction shall be treated as a single unit: If a taxpayer, after having complied with the terms and a conditions prescribed by the Commissioner, uses a particular method of valuing its inventory for any taxable year, then such method shall be used in all subsequent taxable years unless: Provided, however, That the Commissioner shall not exercise his authority to require a change in inventory method more often than once every three 3 years: Provided, further, That any change in an inventory valuation method must be subject to approval by the Secretary of Finance.

Income from Sources Within the Philippines. Provided, That such items of deductions shall be allowed only if fully substantiated by all the information necessary for its calculation. The remainder, if any, shall be treated in full as taxable income from sources within the Philippines. The remainder, if any, shall be treated in full as taxable income from sources without the Philippines. Where items of gross income are separately allocated to sources within the Philippines, there shall be deducted for the purpose of computing the taxable income therefrom the expenses, losses and other deductions properly apportioned or allocated thereto and a ratable part of other expenses, losses or other deductions which cannot definitely be allocated to some items or classes of gross income.

The remainder, if any, shall be included in full as taxable income from sources within the Philippines. In the case of gross income derived from sources partly within and partly without the Philippines, the taxable income may first be computed by deducting the expenses, losses or other deductions apportioned or allocated thereto and a ratable part of any expense, loss or other deduction which cannot definitely be allocated to some items or classes of gross income; and the portion of such taxable income attributable to sources within the Philippines may be determined by processes or formulas of general apportionment prescribed by the Secretary of Finance.

Gains, profits and income from the sale of personal property produced in whole or in part by the taxpayer within and sold without the Philippines, or produced in whole or in part by the taxpayer without and sold within the Philippines, shall be treated as derived partly from sources within and partly from sources without the Philippines.

Gains, profits and income derived from the download of personal property within and its sale without the Philippines, or from the download of personal property without and its sale within the Philippines shall be treated as derived entirely form sources within the country in which sold: Provided, however, That gain from the sale of shares of stock in a domestic corporation shall be treated as derived entirely form sources within the Philippines regardless of where the said shares are sold.

The transfer by a nonresident alien or a foreign corporation to anyone of any share of stock issued by a domestic corporation shall not be effected or made in its book unless: It shall be the duty of the transferor and the corporation the shares of which are sold or transferred, to advise the transferee of this requirement. F Definitions. General Rule. If the taxpayer's annual accounting period is other than a fiscal year, as defined in Section 22 Q , or if the taxpayer has no annual accounting period, or does not keep books, or if the taxpayer is an individual, the taxable income shall be computed on the basis of the calendar year.

Period in which Items of Gross Income Included. In the case of the death of a taxpayer, there shall be included in computing taxable income for the taxable period in which falls the date of his death, amounts accrued up to the date of his death if not otherwise properly includible in respect of such period or a prior period. Period for which Deductions and Credits Taken. In the case of the death of a taxpayer, there shall be allowed as deductions for the taxable period in which falls the date of his death, amounts accrued up to the date of his death if not otherwise properly allowable in respect of such period or a prior period.

Change of Accounting Period. If a taxpayer, other than an individual, changes his accounting period from fiscal year to calendar year, from calendar year to fiscal year, or from one fiscal year to another, the net income shall, with the approval of the Commissioner, be computed on the basis of such new accounting period, subject to the provisions of Section If the change is from calendar year to fiscal year, a separate final or adjustment return shall be made for the period between the close of the last calendar year for which return was made and the date designated as the close of the fiscal year.

If the change is from one fiscal year to another fiscal year, a separate final or adjustment return shall be made for the period between the close of the former fiscal year and the date designated as the close of the new fiscal year.

Accounting for Long-term Contracts. As used herein, the term 'long-term contracts' means building, installation or construction contracts covering a period in excess of one 1 year.

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Persons whose gross income is derived in whole or in part from such contracts shall report such income upon the basis of percentage of completion.

The return should be accompanied by a return certificate of architects or engineers showing the percentage of completion during the taxable year of the entire work performed under contract.

There should be deducted from such gross income all expenditures made during the taxable year on account of the contract, account being taken of the material and supplies on hand at the beginning and end of the taxable period for use in connection with the work under the contract but not yet so applied. If upon completion of a contract, it is found that the taxable [net] income arising thereunder has not been clearly reflected for any year or years, the Commissioner may permit or require an amended return.

A Sales of Dealers in Personal Property. As such, they shall be entitled to the same incentives under Rule XIV of these Rules in accordance with the pertinent provisions of the Act and the Code. It may include modernization and rehabilitation. Modernization or rehabilitation to be registrable may or may not result in increase in capacity but the following conditions should be met: 1. The area must be listed in the Investment Priorities Plan specifically for modernization or rehabilitation; 2.

These shall include, among others, the following expenses or any combination of them: 1.

Training materials, books and supplies; 2. Cost of raw materials and non-depreciable tools actually consumed and used during the training; 3. Honoraria for resource speakers and training coordinators and other fees; 4. Travelling expenses of resource speakers and training coordinators while away from home on account of the training program; 5. Salaries of trainees and training staff for the duration of training; 6. Travelling expenses of trainees and training staff while away from home on account of the training program; 7.

Tuition, registration or similar fees paid for sponsored trainees; 8. Cost of repairs of training equipment facilities and other fixed assets used in the training program, if breakdown occurs as a result of training; 9.

Compensation shall cover salaries and wages, including other payments such as bonuses and cost of living allowances which form part of the laborer's or employee's taxable earnings. Protection of Investment - Consistent with Section 7 of the Act, all investors and registered enterprises are entitled to the basic rights and guarantees provided in the Constitution. Among other rights recognized by the Government of the Philippines are the following: a Repatriation of Investments - In the case of foreign investments, the right to repatriate the entire proceeds of the liquidation of the investment in the currency in which the investment was originally made and at the exchange rate prevailing at the time of repatriation, subject to the applicable provisions of Republic Act No.

The remittance shall be in the equivalent foreign exchange through any of the banks licensed by the Bangko Sentral ng Pilipinas in the ECOZONE: Provided, That such foreign investments in the registered enterprise have been previously registered with the Bangko Sentral ng Pilipinas. In such cases, foreign investors or enterprises shall have the right to remit sums received as compensation for the expropriated property in the currency in which the investment was originally made at the exchange rate at the time of remittance, subject to the applicable provisions of Republic Act No.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.

The bond herein prescribed shall contain such further conditions as the Commissioner may require. If a taxpayer, after having complied with the terms and a conditions prescribed by the Commissioner, uses a particular method of valuing its inventory for any taxable year, then such method shall be used in all subsequent taxable years unless: 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.

E Services subject to percentage tax under Title V;. B Stock Dividend. 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. 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: Nonresident Filipino citizens, with respect to income from without the Philippines, and nonresident aliens not engaged in trade or business in the Philippines, are not required to render a declaration of estimated income tax.

D To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry; and.