THE NATIONALINTERNALREVENUECODE OFTHEPHILIPPINES [TaxReformActof1997] RepublicActNo.8424 ANACTAMENDINGTHENATIONALINTERNALREVENUECODE,ASAMENDED, ANDFOROTHERPURPOSES SECTION1.ShortTitleThisActshallbecitedasthe"TaxReformActof1997". SEC.2.StatePolicy.ItisherebydeclaredthepolicyoftheStatetopromote sustainableeconomicgrowththroughtherationalizationofthePhilippineinternal revenuetaxsystem,includingtaxadministration;toprovide,asmuchaspossible,an equitablerelieftoagreaternumberoftaxpayersinordertoimprovelevelsof disposableincomeandincreaseeconomicactivity;andtocreatearobust environmentforbusinesstoenablefirmstocompetebetterintheregionalaswell astheglobalmarket,atthesametimethattheStateensuresthatGovernmentis abletoprovidefortheneedsofthoseunderitsjurisdictionandcare. SEC.3.PresidentialDecreeNo.1158,asamendedby,amongothers,Presidential DecreeNo.1994andExecutiveOrderNo.273,otherwiseknownastheNational InternalRevenueCode,isherebyfurtheramended. TITLEI ORGANIZATIONANDFUNCTIONOF THEBUREAUOFINTERNALREVENUE

SECTION1.TitleoftheCode.ThisCodeshallbeknownastheNationalInternal RevenueCodeof1997. SEC.2.PowersandDutiesoftheBureauofInternalRevenue.TheBureauof InternalRevenueshallbeunderthesupervisionandcontroloftheDepartmentof Financeanditspowersanddutiesshallcomprehendtheassessmentandcollection ofallnationalinternalrevenuetaxes,fees,andcharges,andtheenforcementofall forfeitures,penalties,andfinesconnectedtherewith,includingtheexecutionof judgmentsinallcasesdecidedinitsfavorbytheCourtofTaxAppealsandthe ordinarycourts.TheBureaushallgiveeffecttoandadministerthesupervisoryand policepowersconferredtoitbythisCodeorotherlaws. SEC.3.ChiefOfficialsoftheBureauofInternalRevenue.TheBureauofInternal RevenueshallhaveachieftobeknownasCommissionerofInternalRevenue, hereinafterreferredtoastheCommissionerandfour(4)assistantchiefstobe knownasDeputyCommissioners. SEC.4.PoweroftheCommissionertoInterpretTaxLawsandtoDecideTax Cases.ThepowertointerprettheprovisionsofthisCodeandothertaxlawsshall beundertheexclusiveandoriginaljurisdictionoftheCommissioner,subjectto reviewbytheSecretaryofFinance. Thepowertodecidedisputedassessments,refundsofinternalrevenuetaxes, feesorothercharges,penaltiesimposedinrelationthereto,orothermattersarising underthisCodeorotherlawsorportionsthereofadministeredbytheBureauof InternalRevenueisvestedintheCommissioner,subjecttotheexclusiveappellate jurisdictionoftheCourtofTaxAppeals. SEC.5.PoweroftheCommissionertoObtainInformation,andtoSummon, Examine,andTakeTestimonyofPersons.Inascertainingthecorrectnessofany return,orinmakingareturnwhennonehasbeenmade,orindeterminingthe liabilityofanypersonforanyinternalrevenuetax,orincollectinganysuchliability, orinevaluatingtaxcompliance,theCommissionerisauthorized:

(A)Toexamineanybook,paper,record,orotherdatawhichmayberelevantor materialtosuchinquiry; (B)Toobtainonaregularbasisfromanypersonotherthanthepersonwhose internalrevenuetaxliabilityissubjecttoauditorinvestigation,orfromanyofficeor officerofthenationalandlocalgovernments,governmentagenciesand instrumentalities,includingtheBangkoSentralngPilipinasandgovernmentowned orcontrolledcorporations,anyinformationsuchas,butnotlimitedto,costsand volumeofproduction,receiptsorsalesandgrossincomesoftaxpayers,andthe names,addresses,andfinancialstatementsofcorporations,mutualfundcompanies, insurancecompanies,regionaloperatingheadquartersofmultinationalcompanies, jointaccounts,associations,jointventuresofconsortiaandregisteredpartnerships, andtheirmembers; (C)Tosummonthepersonliablefortaxorrequiredtofileareturn,oranyofficer oremployeeofsuchperson,oranypersonhavingpossession,custody,orcareof thebooksofaccountsandotheraccountingrecordscontainingentriesrelatingto thebusinessofthepersonliablefortax,oranyotherperson,toappearbeforethe Commissionerorhisdulyauthorizedrepresentativeatatimeandplacespecifiedin thesummonsandtoproducesuchbooks,papers,records,orotherdata,andtogive testimony; (D)Totakesuchtestimonyofthepersonconcerned,underoath,asmaybe relevantormaterialtosuchinquiry;and (E)Tocauserevenueofficersandemployeestomakeacanvassfromtimetotime ofanyrevenuedistrictorregionandinquireafterandconcerningallpersons thereinwhomaybeliabletopayanyinternalrevenuetax,andallpersonsowning orhavingthecare,managementorpossessionofanyobjectwithrespecttowhicha taxisimposed. Theprovisionsoftheforegoingparagraphsnotwithstanding,nothinginthis SectionshallbeconstruedasgrantingtheCommissionertheauthoritytoinquire intobankdepositsotherthanasprovidedforinSection6(F)ofthisCode. SEC.6.PoweroftheCommissionertoMakeassessmentsandPrescribe additionalRequirementsforTaxAdministrationandEnforcement.

(A)ExaminationofReturnsandDeterminationofTaxDue.Afterareturnhas beenfiledasrequiredundertheprovisionsofthisCode,theCommissionerorhis dulyauthorizedrepresentativemayauthorizetheexaminationofanytaxpayerand theassessmentofthecorrectamountoftax:Provided,however;Thatfailuretofilea returnshallnotpreventtheCommissionerfromauthorizingtheexaminationofany taxpayer. Anyreturn,statementofdeclarationfiledinanyofficeauthorizedtoreceivethe sameshallnotbewithdrawn:Provided,Thatwithinthree(3)yearsfromthedateof suchfiling,thesamemaybemodified,changed,oramended:Provided,further,That nonoticeforauditorinvestigationofsuchreturn,statementordeclarationhasin themeantimebeenactuallyserveduponthetaxpayer. (B)FailuretoSubmitRequiredReturns,Statements,Reportsandother Documents.Whenareportrequiredbylawasabasisfortheassessmentofany nationalinternalrevenuetaxshallnotbeforthcomingwithinthetimefixedbylaws orrulesandregulationsorwhenthereisreasontobelievethatanysuchreportis false,incompleteorerroneous,theCommissionershallassessthepropertaxonthe bestevidenceobtainable. Incaseapersonfailstofilearequiredreturnorotherdocumentatthetime prescribedbylaw,orwillfullyorotherwisefilesafalseorfraudulentreturnorother document,theCommissionershallmakeoramendthereturnfromhisown knowledgeandfromsuchinformationashecanobtainthroughtestimonyor otherwise,whichshallbeprimafaciecorrectandsufficientforalllegalpurposes. (C)AuthoritytoConductInventorytaking,surveillanceandtoPrescribe PresumptiveGrossSalesandReceipts.TheCommissionermay,atanytimeduring thetaxableyear,orderinventorytakingofgoodsofanytaxpayerasabasisfor determininghisinternalrevenuetaxliabilities,ormayplacethebusiness operationsofanyperson,naturalorjuridical,underobservationorsurveillanceif thereisreasontobelievethatsuchpersonisnotdeclaringhiscorrectincome,sales orreceiptsforinternalrevenuetaxpurposes.Thefindingsmaybeusedasthebasis forassessingthetaxesfortheothermonthsorquartersofthesameordifferent taxableyearsandsuchassessmentshallbedeemedprimafaciecorrect. Whenitisfoundthatapersonhasfailedtoissuereceiptsandinvoicesinviolationof therequirementsofSections113and237ofthisCode,orwhenthereisreasonto

believethatthebooksofaccountsorotherrecordsdonotcorrectlyreflectthe declarationsmadeortobemadeinareturnrequiredtobefiledunderthe provisionsofthisCode,theCommissioner,aftertakingintoaccountthesales, receipts,incomeorothertaxablebaseofotherpersonsengagedinsimilar businessesundersimilarsituationsorcircumstancesorafterconsideringother relevantinformationmayprescribeaminimumamountofsuchgrossreceipts,sales andtaxablebase,andsuchamountsoprescribedshallbeprimafaciecorrectfor purposesofdeterminingtheinternalrevenuetaxliabilitiesofsuchperson. (D)AuthoritytoTerminateTaxablePeriod.Whenitshallcometotheknowledgeof theCommissionerthatataxpayerisretiringfrombusinesssubjecttotax,oris intendingtoleavethePhilippinesortoremovehispropertytherefromortohideor concealhisproperty,orisperforminganyacttendingtoobstructtheproceedings forthecollectionofthetaxforthepastorcurrentquarteroryearortorenderthe sametotallyorpartlyineffectiveunlesssuchproceedingsarebegunimmediately, theCommissionershalldeclarethetaxperiodofsuchtaxpayerterminatedatany timeandshallsendthetaxpayeranoticeofsuchdecision,togetherwitharequest fortheimmediatepaymentofthetaxfortheperiodsodeclaredterminatedandthe taxfortheprecedingyearorquarter,orsuchportionthereofasmaybeunpaid,and saidtaxesshallbedueandpayableimmediatelyandshallbesubjecttoallthe penaltieshereafterprescribed,unlesspaidwithinthetimefixedinthedemand madebytheCommissioner. (E)AuthorityoftheCommissionertoPrescribeRealPropertyValues.The CommissionerisherebyauthorizedtodividethePhilippinesintodifferentzonesor areasandshall,uponconsultationwithcompetentappraisersbothfromtheprivate andpublicsectors,determinethefairmarketvalueofrealpropertieslocatedineach zoneorarea.Forpurposesofcomputinganyinternalrevenuetax,thevalueofthe propertyshallbe,whicheveristhehigherof: (1)thefairmarketvalueasdeterminedbytheCommissioner,or (2)thefairmarketvalueasshowninthescheduleofvaluesoftheProvincialand CityAssessors. (F)AuthorityoftheCommissionertoinquireintoBankDepositAccounts. NotwithstandinganycontraryprovisionofRepublicActNo.1405andothergeneral orspeciallaws,theCommissionerisherebyauthorizedtoinquireintothebank depositsof:

(1)adecedenttodeterminehisgrossestate;and (2)anytaxpayerwhohasfiledanapplicationforcompromiseofhistaxliability underSec.204(A)(2)ofthisCodebyreasonoffinancialincapacitytopayhistax liability. Incaseataxpayerfilesanapplicationtocompromisethepaymentofhistax liabilitiesonhisclaimthathisfinancialpositiondemonstratesaclearinabilityto paythetaxassessed,hisapplicationshallnotbeconsideredunlessanduntilhe waivesinwritinghisprivilegeunderRepublicActNo.1405orunderothergeneral orspeciallaws,andsuchwaivershallconstitutetheauthorityoftheCommissioner toinquireintothebankdepositsofthetaxpayer. (G)AuthoritytoAccreditandRegisterTaxAgents.TheCommissionershall accreditandregister,basedontheirprofessionalcompetence,integrityandmoral fitness,individualsandgeneralprofessionalpartnershipsandtheirrepresentatives whoprepareandfiletaxreturns,statements,reports,protests,andotherpapers withorwhoappearbefore,theBureaufortaxpayers.Withinonehundredtwenty (120)daysfromJanuary1,1998,theCommissionershallcreatenationaland regionalaccreditationboards,themembersofwhichshallserveforthree(3)years, andshalldesignatefromamongtheseniorofficialsoftheBureau,one(1)chairman andtwo(2)membersforeachboard,subjecttosuchrulesandregulationsasthe SecretaryofFinanceshallpromulgateupontherecommendationofthe Commissioner. Individualsandgeneralprofessionalpartnershipsandtheirrepresentativeswhoare deniedaccreditationbytheCommissionerand/orthenationalandregional accreditationboardsmayappealsuchdenialtotheSecretaryofFinance,whoshall ruleontheappealwithinsixty(60)daysfromreceiptofsuchappeal.Failureofthe SecretaryofFinancetoruleontheAppealwithintheprescribedperiodshallbe deemedasapprovaloftheapplicationforaccreditationoftheappellant. (H)AuthorityoftheCommissionertoPrescribeAdditionalProceduralor DocumentaryRequirements.TheCommissionermayprescribethemannerof compliancewithanydocumentaryorproceduralrequirementinconnectionwith thesubmissionorpreparationoffinancialstatementsaccompanyingthetaxreturns.

SEC.7.AuthorityoftheCommissionertoDelegatePower.TheCommissioner maydelegatethepowersvestedinhimunderthepertinentprovisionsofthisCode toanyorsuchsubordinateofficialswiththerankequivalenttoadivisionchiefor higher,subjecttosuchlimitationsandrestrictionsasmaybeimposedunderrules andregulationstobepromulgatedbytheSecretaryoffinance,upon recommendationoftheCommissioner:Provided,however,Thatthefollowing powersoftheCommissionershallnotbedelegated: (a)Thepowertorecommendthepromulgationofrulesandregulationsbythe SecretaryofFinance; (b)Thepowertoissuerulingsoffirstimpressionortoreverse,revokeormodify anyexistingrulingoftheBureau; (c)Thepowertocompromiseorabate,underSec.204(A)and(B)ofthisCode, anytaxliability:Provided,however,Thatassessmentsissuedbytheregionaloffices involvingbasicdeficiencytaxesofFivehundredthousandpesos(P500,000)orless, andminorcriminalviolations,asmaybedeterminedbyrulesandregulationstobe promulgatedbytheSecretaryoffinance,uponrecommendationofthe Commissioner,discoveredbyregionalanddistrictofficials,maybecompromisedby aregionalevaluationboardwhichshallbecomposedoftheRegionalDirectoras Chairman,theAssistantRegionalDirector,theheadsoftheLegal,Assessmentand CollectionDivisionsandtheRevenueDistrictOfficerhavingjurisdictionoverthe taxpayer,asmembers;and (d)Thepowertoassignorreassigninternalrevenueofficerstoestablishments wherearticlessubjecttoexcisetaxareproducedorkept. SEC.8.DutyoftheCommissionertoEnsuretheProvisionandDistributionof forms,Receipts,Certificates,andAppliances,andtheAcknowledgmentofPayment ofTaxes. (A)ProvisionandDistributiontoProperOfficials.Itshallbethedutyofthe Commissioner,amongotherthings,toprescribe,provide,anddistributetothe properofficialstherequisitelicensesinternalrevenuestamps,labelsallother

forms,certificates,bonds,records,invoices,books,receipts,instruments,appliances andapparatususedinadministeringthelawsfallingwithinthejurisdictionofthe Bureau.Forthispurpose,internalrevenuestamps,stripstampsandlabelsshallbe causedbytheCommissionertobeprintedwithadequatesecurityfeatures. Internalrevenuestamps,whetherofabarcodeorfusiondesign,shallbefirmlyand conspicuouslyaffixedoneachpackofcigarsandcigarettessubjecttoexcisetaxin themannerandformasprescribedbytheCommissioner,uponapprovalofthe SecretaryofFinance. (B)ReceiptsforPaymentMade.ItshallbethedutyoftheCommissionerorhisduly authorizedrepresentativeoranauthorizedagentbanktowhomanypaymentofany taxismadeundertheprovisionofthisCodetoacknowledgethepaymentofsuch tax,expressingtheamountpaidandtheparticularaccountforwhichsuchpayment wasmadeinaformandmannerprescribedthereforbytheCommissioner. SEC.9.InternalRevenueDistricts.WiththeapprovaloftheSecretaryof Finance,theCommissionershalldividethePhilippinesintosuchnumberofrevenue districtsasmayformtimetotimeberequiredforadministrativepurposes.Eachof thesedistrictsshallbeunderthesupervisionofaRevenueDistrictOfficer. SEC.10.RevenueRegionalDirector.Underrulesandregulations,policiesand standardsformulatedbytheCommissioner,withtheapprovaloftheSecretaryof Finance,theRevenueRegionaldirectorshall,withintheregionanddistrictoffices underhisjurisdiction,amongothers: (a)Implementlaws,policies,plans,programs,rulesandregulationsofthe departmentoragenciesintheregionalarea; (b)Administerandenforceinternalrevenuelaws,andrulesandregulations, includingtheassessmentandcollectionofallinternalrevenuetaxes,chargesand fees. (c)IssueLettersofauthorityfortheexaminationoftaxpayerswithintheregion;

(d)Provideeconomical,efficientandeffectiveservicetothepeopleinthearea; (e)Coordinatewithregionalofficesorotherdepartments,bureausandagencies inthearea; (f)Coordinatewithlocalgovernmentunitsinthearea; (g)Exercisecontrolandsupervisionovertheofficersandemployeeswithinthe region;and (h)Performsuchotherfunctionsasmaybeprovidedbylawandasmaybe delegatedbytheCommissioner. SEC.11.DutiesofRevenueDistrictOfficersandOtherInternalRevenueOfficers. ItshallbethedutyofeveryRevenueDistrictOfficerorotherinternalrevenue officersandemployeestoensurethatalllaws,andrulesandregulationsaffecting nationalinternalrevenuearefaithfullyexecutedandcompliedwith,andtoaidin theprevention,detectionandpunishmentoffraudsofdelinquenciesinconnection therewith. ItshallbethedutyofeveryRevenueDistrictOfficertoexaminetheefficiencyof allofficersandemployeesoftheBureauofInternalRevenueunderhissupervision, andtoreportinwritingtotheCommissioner,throughtheRegionalDirector,any neglectofduty,incompetency,delinquency,ormalfeasanceinofficeofanyinternal revenueofficerofwhichhemayobtainknowledge,withastatementofallthefacts andanyevidencesustainingeachcase. SEC.12.AgentsandDeputiesforCollectionofNationalInternalRevenueTaxes. ThefollowingareherebyconstitutedagentsoftheCommissioner: (a)TheCommissionerofCustomsandhissubordinateswithrespecttothe collectionofnationalinternalrevenuetaxesonimportedgoods;

(b)Theheadoftheappropriategovernmentofficeandhissubordinateswith respecttothecollectionofenergytax;and (c)BanksdulyaccreditedbytheCommissionerwithrespecttoreceiptof paymentsinternalrevenuetaxesauthorizedtobemadethrubank. Anyofficeroremployeeofanauthorizedagentbankassignedtoreceiveinternal revenuetaxpaymentsandtransmittaxreturnsordocumentstotheBureauof InternalRevenueshallbesubjecttothesamesanctionsandpenaltiesprescribedin Sections269and270ofthisCode. SEC.13.AuthorityofaRevenueOffices.subjecttotherulesandregulationsto beprescribedbytheSecretaryofFinance,uponrecommendationofthe Commissioner,aRevenueOfficerassignedtoperformassessmentfunctionsinany districtmay,pursuanttoaLetterofAuthorityissuedbytheRevenueRegional Director,examinetaxpayerswithinthejurisdictionofthedistrictinordertocollect thecorrectamountoftax,ortorecommendtheassessmentofanydeficiencytax dueinthesamemannerthatthesaidactscouldhavebeenperformedbythe RevenueRegionalDirectorhimself. SEC.14.AuthorityofOfficerstoAdministerOathsandTakeTestimony.The Commissioner,DeputyCommissioners,ServiceChiefs,AssistantServiceChiefs, RevenueRegionalDirectors,AssistantRevenueRegionalDirectors,Chiefsand AssistantChiefsofDivisions,RevenueDistrictOfficers,specialdeputiesofthe Commissioner,internalrevenueofficersandanyotheremployeeoftheBureau thereuntoespeciallydeputizedbytheCommissionershallhavethepowerto administeroathsandtotaketestimonyinanyofficialmatterorinvestigation conductedbythemregardingmatterswithinthejurisdictionoftheBureau. SEC.15.AuthorityofInternalRevenueOfficerstoMakeArrestsandSeizures. TheCommissioner,theDeputyCommissioners,theRevenueRegionalDirectors,the RevenueDistrictOfficersandotherinternalrevenueofficersshallhaveauthorityto makearrestsandseizuresfortheviolationofanypenallaw,ruleorregulation administeredbytheBureauofInternalRevenue.Anypersonsoarrestedshallbe forthwithbroughtbeforeacourt,theretobedealtwithaccordingtolaw.

SEC.16.AssignmentofInternalRevenueOfficersInvolvedinExciseTax FunctionstoEstablishmentsWhereArticlessubjecttoExciseTaxareProducedor Kept.TheCommissionershallemploy,assign,orreassigninternalrevenueofficers involvedinexcisetaxfunctions,asoftenastheexigenciesoftherevenueservice mayrequire,toestablishmentsorplaceswherearticlessubjecttoexcisetaxare producedorkept:Provided,Thataninternalrevenueofficerassignedtoanysuch establishmentshallinnocasestayinhisassignmentformorethantwo(2)years, subjecttorulesandregulationstobeprescribedbytheSecretaryofFinance,upon recommendationoftheCommissioner. SEC.17.AssignmentofInternalRevenueOfficersandOtherEmployeestoOther Duties.TheCommissionermay,subjecttotheprovisionsofSection16andthe lawsoncivilservice,aswellastherulesandregulationstobeprescribedbythe SecretaryofFinanceupontherecommendationoftheCommissioner,assignor reassigninternalrevenueofficersandemployeesoftheBureauofInternalRevenue, withoutchangeintheirofficialrankandsalary,tootherorspecialdutiesconnected withtheenforcementoradministrationoftherevenuelawsastheexigenciesofthe servicemayrequire:Provided,Thatinternalrevenueofficersassignedtoperform assessmentorcollectionfunctionshallnotremaininthesameassignmentformore thanthree(3)years;Provided,further,Thatassignmentofinternalrevenueofficers andemployeesoftheBureautospecialdutiesshallnotexceedone(1)year. SEC.18.ReportsofViolationofLaws.Whenaninternalrevenueofficer discoversevidenceofaviolationofthisCodeorofanylaw,ruleorregulations administeredbytheBureauofInternalRevenueofsuchcharacterastowarrantthe institutionofcriminalproceedings,heshallimmediatelyreportthefactstothe Commissionerthroughhisimmediatesuperior,givingthenameandaddressofthe offenderandthenamesofthewitnessesifpossible:Provided,Thatinurgentcases, theRevenueRegionaldirectororRevenueDistrictOfficer,asthecasemaybe,may sendthereporttothecorrespondingprosecutingofficerinthelattercase,acopyof hisreportshallbesenttotheCommissioner. SEC.19.ContentsofCommissioner'sAnnualReport.TheAnnualReportofthe CommissionershallcontaindetailedstatementsofthecollectionsoftheBureau withspecificationsofthesourcesofrevenuebytypeoftax,bymannerofpayment, byrevenueregionandbyindustrygroupanditsdisbursementsbyclassesof expenditures.

Incasetheactualcollectionexceedsorfallsshortoftargetassetintheannual nationalbudgetbyfifteenpercent(15%)ormore,theCommissionershallexplain thereasonforsuchexcessorshortfall. SEC.20.SubmissionofReportandPertinentInformationbytheCommissioner. (A)SubmissionofPertinentInformationtoCongress.TheprovisionofSection 270ofthisCodetothecontrarynotwithstanding,theCommissionershall,upon requestofCongressandinaidoflegislation,furnishitsappropriateCommittee pertinentinformationincludingbutnotlimitedto:industryaudits,collection performancedata,statusreportsincriminalactionsinitiatedagainstpersonsand taxpayer'sreturns:Provided,however,Thatanyreturnorreturninformationwhich canbeassociatedwith,orotherwiseidentify,directlyorindirectly,aparticular taxpayershallbefurnishedtheappropriateCommitteeofCongressonlywhen sittinginExecutiveSessionUnlesssuchtaxpayerotherwiseconsentsinwritingto suchdisclosure. (B)ReporttoOversightCommittee.TheCommissionershall,withreferenceto Section204ofthisCode,submittotheOversightCommitteereferredtoinSection 290hereof,throughtheChairmenoftheCommitteeonWaysandMeansofthe SenateandHouseofRepresentatives,areportontheexerciseofhispowers pursuanttothesaidsection,everysix(6)monthsofeachcalendaryear. SEC.21.SourcesofRevenue.Thefollowingtaxes,feesandchargesaredeemedto benationalinternalrevenuetaxes: (a)Incometax; (b)Estateanddonor'staxes; (c)Valueaddedtax; (d)Otherpercentagetaxes; (e)Excisetaxes; (f)Documentarystamptaxes;and (g)SuchothertaxesasareorhereaftermaybeimposedandcollectedbytheBureau ofInternalRevenue.

TITLEII TAXONINCOME CHAPTERI DEFINITIONS SEC.22.DefinitionsWhenusedinthisTitle: (A)Theterm"person"meansanindividual,atrust,estateorcorporation. (B)Theterm"corporation"shallincludepartnerships,nomatterhowcreatedor organized,jointstockcompanies,jointaccounts(cuentasenparticipacion), association,orinsurancecompanies,butdoesnotincludegeneralprofessional partnershipsandajointventureorconsortiumformedforthepurposeof undertakingconstructionprojectsorengaginginpetroleum,coal,geothermaland otherenergyoperationspursuanttoanoperatingconsortiumagreementundera servicecontractwiththeGovernment."Generalprofessionalpartnerships"are partnershipsformedbypersonsforthesolepurposeofexercisingtheircommon profession,nopartoftheincomeofwhichisderivedfromengaginginanytradeor business. (C)Theterm"domestic",whenappliedtoacorporation,meanscreatedor organizedinthePhilippinesorunderitslaws. (D)Theterm"foreign",whenappliedtoacorporation,meansacorporation whichisnotdomestic.

(E)Theterm"nonresidentcitizen"means: (1)AcitizenofthePhilippineswhoestablishestothesatisfactionofthe Commissionerthefactofhisphysicalpresenceabroadwithadefiniteintentionto residetherein. (2)AcitizenofthePhilippineswholeavesthePhilippinesduringthetaxableyear toresideabroad,eitherasanimmigrantorforemploymentonapermanentbasis. (3)AcitizenofthePhilippineswhoworksandderivesincomefromabroadand whoseemploymentthereatrequireshimtobephysicallypresentabroadmostof thetimeduringthetaxableyear. (4)Acitizenwhohasbeenpreviouslyconsideredasnonresidentcitizenandwho arrivesinthePhilippinesatanytimeduringthetaxableyeartoresidepermanently inthePhilippinesshalllikewisebetreatedasanonresidentcitizenforthetaxable yearinwhichhearrivesinthePhilippineswithrespecttohisincomederivedfrom sourcesabroaduntilthedateofhisarrivalinthePhilippines. (5)ThetaxpayershallsubmitprooftotheCommissionertoshowhisintentionof leavingthePhilippinestoresidepermanentlyabroadortoreturntoandresidein thePhilippinesasthecasemaybeforpurposeofthisSection. (F)Theterm"residentalien"meansanindividualwhoseresidenceiswithinthe Philippinesandwhoisnotacitizenthereof. (G)Theterm"nonresidentalien"meansanindividualwhoseresidenceisnot withinthePhilippinesandwhoisnotacitizenthereof. (H)Theterm"residentforeigncorporation"appliestoaforeigncorporation engagedintradeorbusinesswithinthePhilippines.

(I)Theterm'nonresidentforeigncorporation'appliestoaforeigncorporation notengagedintradeorbusinesswithinthePhilippines. (J)Theterm"fiduciary"meansaguardian,trustee,executor,administrator, receiver,conservatororanypersonactinginanyfiduciarycapacityforanyperson. (K)Theterm"withholdingagent"meansanypersonrequiredtodeductand withholdanytaxundertheprovisionsofSection57. (L)Theterm"sharesofstock"shallincludesharesofstockofacorporation, warrantsand/oroptionstopurchasesharesofstock,aswellasunitsof participationinapartnership(exceptgeneralprofessionalpartnerships),jointstock companies,jointaccounts,jointventurestaxableascorporations,associationsand recreationoramusementclubs(suchasgolf,poloorsimilarclubs),andmutualfund certificates. (M)Theterm"shareholder"shallincludeholdersofashare/sofstock,warrant/s and/oroption/stopurchasesharesofstockofacorporation,aswellasaholderofa unitofparticipationinapartnership(exceptgeneralprofessionalpartnerships)ina jointstockcompany,ajointaccount,ataxablejointventure,amemberofan association,recreationoramusementclub(suchasgolf,poloorsimilarclubs)anda holderofamutualfundcertificate,amemberinanassociation,jointstockcompany, orinsurancecompany. (N)Theterm"taxpayer"meansanypersonsubjecttotaximposedbythisTitle. (O)Theterms"including"and"includes",whenusedinadefinitioncontainedin thisTitle,shallnotbedeemedtoexcludeotherthingsotherwisewithinthemeaning ofthetermdefined. (P)Theterm"taxableyear"meansthecalendaryear,orthefiscalyearending duringsuchcalendaryear,uponthebasisofwhichthenetincomeiscomputed underthisTitle.'Taxableyear'includes,inthecaseofareturnmadeforafractional partofayearundertheprovisionsofthisTitleorunderrulesandregulations prescribedbytheSecretaryofFinance,uponrecommendationofthecommissioner, theperiodforwhichsuchreturnismade.

(Q)Theterm"fiscalyear"meansanaccountingperiodoftwelve(12)months endingonthelastdayofanymonthotherthanDecember. (R)Theterms"paidorincurred"and'paidoraccrued'shallbeconstrued accordingtothemethodofaccountinguponthebasisofwhichthenetincomeis computedunderthisTitle. (S)Theterm"tradeorbusiness"includestheperformanceofthefunctionsofa publicoffice. (T)Theterm"securities"meanssharesofstockinacorporationandrightsto subscribeforortoreceivesuchshares.Thetermincludesbonds,debentures,notes orcertificates,orotherevidenceorindebtedness,issuedbyanycorporation, includingthoseissuedbyagovernmentorpoliticalsubdivisionthereof,with interestcouponsorinregisteredform. (U)Theterm"dealerinsecurities"meansamerchantofstocksorsecurities, whetheranindividual,partnershiporcorporation,withanestablishedplaceof business,regularlyengagedinthepurchaseofsecuritiesandtheresalethereofto customers;thatis,onewho,asamerchant,buyssecuritiesandresellsthemto customerswithaviewtothegainsandprofitsthatmaybederivedtherefrom. (V)Theterm"bank"meanseverybankinginstitution,asdefinedinSection2of RepublicActNo.337,asamended,otherwiseknownastheGeneralbankingAct.A bankmayeitherbeacommercialbank,athriftbank,adevelopmentbank,arural bankorspecializedgovernmentbank. (W)Theterm"nonbankfinancialintermediary"meansafinancialintermediary, asdefinedinSection2(D)(C)ofRepublicActNo.337,asamended,otherwiseknown astheGeneralBankingAct,authorizedbytheBangkoSentralngPilipinas(BSP)to performquasibankingactivities. (X)Theterm"quasibankingactivities"meansborrowingfundsfromtwenty(20) ormorepersonalorcorporatelendersatanyonetime,throughtheissuance,

endorsement,oracceptanceofdebtinstrumentsofanykindotherthandepositsfor theborrower'sownaccount,orthroughtheissuanceofcertificatesofassignmentor similarinstruments,withrecourse,orofrepurchaseagreementsforpurposesof relendingorpurchasingreceivablesandothersimilarobligations:Provided, however,Thatcommercial,industrialandothernonfinancialcompanies,which borrowfundsthroughanyofthesemeansforthelimitedpurposeoffinancingtheir ownneedsortheneedsoftheiragentsordealers,shallnotbeconsideredas performingquasibankingfunctions. (Y)Theterm"depositsubstitutes"shallmeananalternativefromofobtaining fundsfromthepublic(theterm'public'meansborrowingfromtwenty(20)ormore individualorcorporatelendersatanyonetime)otherthandeposits,throughthe issuance,endorsement,oracceptanceofdebtinstrumentsfortheborrowersown account,forthepurposeofrelendingorpurchasingofreceivablesandother obligations,orfinancingtheirownneedsortheneedsoftheiragentordealer.These instrumentsmayinclude,butneednotbelimitedtobankers'acceptances, promissorynotes,repurchaseagreements,includingreverserepurchase agreementsenteredintobyandbetweentheBangkoSentralngPilipinas(BSP)and anyauthorizedagentbank,certificatesofassignmentorparticipationandsimilar instrumentswithrecourse:Provided,however,Thatdebtinstrumentsissuedfor interbankcallloanswithmaturityofnotmorethanfive(5)daystocoverdeficiency inreservesagainstdepositliabilities,includingthosebetweenoramongbanksand quasibanks,shallnotbeconsideredasdepositsubstitutedebtinstruments. (Z)Theterm"ordinaryincome"includesanygainfromthesaleorexchangeof propertywhichisnotacapitalassetorpropertydescribedinSection39(A)(1).Any gainfromthesaleorexchangeofpropertywhichistreatedorconsidered,under otherprovisionsofthisTitle,as'ordinaryincome'shallbetreatedasgainfromthe saleorexchangeofpropertywhichisnotacapitalassetasdefinedinSection 39(A)(1).Theterm'ordinaryloss'includesanylossfromthesaleorexchangeof propertywhichisnotacapitalasset.Anylossfromthesaleorexchangeofproperty whichistreatedorconsidered,underotherprovisionsofthisTitle,as'ordinaryloss' shallbetreatedaslossfromthesaleorexchangeofpropertywhichisnotacapital asset. (AA)Theterm"rankandfileemployees"shallmeanallemployeeswhoare holdingneithermanagerialnorsupervisorypositionasdefinedunderexisting provisionsoftheLaborCodeofthePhilippines,asamended.

(BB)Theterm"mutualfundcompany"shallmeananopenendandcloseend investmentcompanyasdefinedundertheInvestmentCompanyAct. (CC)Theterm"trade,businessorprofession"shallnotincludeperformanceof servicesbythetaxpayerasanemployee. (DD)Theterm"regionalorareaheadquarters"shallmeanabranchestablished inthePhilippinesbymultinationalcompaniesandwhichheadquartersdonotearn orderiveincomefromthePhilippinesandwhichactassupervisory, communicationsandcoordinatingcenterfortheiraffiliates,subsidiaries,or branchesintheAsiaPacificRegionandotherforeignmarkets. (EE)Theterm"regionaloperatingheadquarters"shallmeanabranch establishedinthePhilippinesbymultinationalcompanieswhichareengagedinany ofthefollowingservices:generaladministrationandplanning;businessplanning andcoordination;sourcingandprocurementofrawmaterialsandcomponents; corporatefinanceadvisoryservices;marketingcontrolandsalespromotion; trainingandpersonnelmanagement;logisticservices;researchanddevelopment servicesandproductdevelopment;technicalsupportandmaintenance;data processingandcommunications;andbusinessdevelopment. (FF)Theterm"longtermdepositorinvestmentcertificates"shallrefertocertificate oftimedepositorinvestmentintheformofsavings,commonorindividualtrust funds,depositsubstitutes,investmentmanagementaccountsandotherinvestments withamaturityperiodofnotlessthanfive(5)years,theformofwhichshallbe prescribedbytheBangkoSentralngPilipinas(BSP)andissuedbybanksonly(not bynonbankfinancialintermediariesandfinancecompanies)toindividualsin denominationsofTenthousandpesos(P10,000)andotherdenominationsasmay beprescribedbytheBS. CHAPTERII GENERALPRINCIPLES SEC.23.GeneralPrinciplesofIncomeTaxationinthePhilippines.Exceptwhen otherwiseprovidedinthisCode:

(A)AcitizenofthePhilippinesresidingthereinistaxableonallincomederived fromsourceswithinandwithoutthePhilippines; (B)Anonresidentcitizenistaxableonlyonincomederivedfromsourceswithin thePhilippines; (C)AnindividualcitizenofthePhilippineswhoisworkingandderivingincome fromabroadasanoverseascontractworkeristaxableonlyonincomederivedfrom sourceswithinthePhilippines:Provided,Thataseamanwhoisacitizenofthe Philippinesandwhoreceivescompensationforservicesrenderedabroadasa memberofthecomplementofavesselengagedexclusivelyininternationaltrade shallbetreatedasanoverseascontractworker; (D)Analienindividual,whetheraresidentornotofthePhilippines,istaxable onlyonincomederivedfromsourceswithinthePhilippines; (E)Adomesticcorporationistaxableonallincomederivedfromsourceswithin andwithoutthePhilippines;and (F)Aforeigncorporation,whetherengagedornotintradeorbusinessinthe Philippines,istaxableonlyonincomederivedfromsourceswithinthePhilippines. CHAPTERIII TAXONINDIVIDUALS SEC.24.IncomeTaxRates.

(A)RatesofIncomeTaxonIndividualCitizenandIndividualResidentAlienofthe Philippines. (1)Anincometaxisherebyimposed: (a)OnthetaxableincomedefinedinSection31ofthisCode,otherthan incomesubjecttotaxunderSubsections(B),(C)and(D)ofthisSection,derivedfor eachtaxableyearfromallsourceswithinandwithoutthePhilippinesbeevery individualcitizenofthePhilippinesresidingtherein; (b)OnthetaxableincomedefinedinSection31ofthisCode,otherthan incomesubjecttotaxunderSubsections(B),(C)and(D)ofthisSection,derivedfor eachtaxableyearfromallsourceswithinthePhilippinesbyanindividualcitizenof thePhilippineswhoisresidingoutsideofthePhilippinesincludingoverseas contractworkersreferredtoinSubsection(C)ofSection23hereof;and (c)OnthetaxableincomedefinedinSection31ofthisCode,otherthan incomesubjecttotaxunderSubsections(b),(C)and(D)ofthisSection,derivedfor eachtaxableyearfromallsourceswithinthePhilippinesbyanindividualalienwho isaresidentofthePhilippines. Thetaxshallbecomputedinaccordancewithandattheratesestablishedin thefollowingschedule: NotoverP10,000....5% OverP10,000butnotoverP30,000P500+10%oftheexcess overP10,000 OverP30,000butnotoverP70,000P2,500+15%oftheexcess overP30,000

OverP70,000butnotoverP140,000..P8,500+20%oftheexcess overP70,000 OverP140,000butnotoverP250,000P22,500+25%oftheexcess overP140,000 OverP250,000butnotoverP500,000P50,000+30%oftheexcess overP250,000 OverP500,000.....P125,000+34%oftheexcessover P500,000in1998. Provided,ThateffectiveJanuary1,1999,thetopmarginalrateshallbethirty threepercent(33%)andeffectiveJanuary1,2000,thesaidrateshallbethirtytwo percent(32%). Formarriedindividuals,thehusbandandwife,subjecttotheprovisionof Section51(D)hereof,shallcomputeseparatelytheirindividualincometaxbasedon theirrespectivetotaltaxableincome:Provided,Thatifanyincomecannotbe definitelyattributedtooridentifiedasincomeexclusivelyearnedorrealizedby eitherofthespouses,thesameshallbedividedequallybetweenthespousesforthe purposeofdeterminingtheirrespectivetaxableincome. (B)RateofTaxonCertainPassiveIncome. (1)Interests,Royalties,Prizes,andOtherWinnings.Afinaltaxattherateof twentypercent(20%)isherebyimposedupontheamountofinterestfromany currencybankdepositandyieldoranyothermonetarybenefitfromdeposit substitutesandfromtrustfundsandsimilararrangements;royalties,excepton books,aswellasotherliteraryworksandmusicalcompositions,whichshallbe imposedafinaltaxoftenpercent(10%);prizes(exceptprizesamountingtoTen thousandpesos(P10,000)orlesswhichshallbesubjecttotaxunderSubsection(A) ofSection24;andotherwinnings(exceptPhilippineCharitySweepstakesandLotto winnings),derivedfromsourceswithinthePhilippines:Provided,however,That interestincomereceivedbyanindividualtaxpayer(exceptanonresident individual)fromadepositorybankundertheexpandedforeigncurrencydeposit

systemshallbesubjecttoafinalincometaxattherateofsevenandonehalfpercent (71/2%)ofsuchinterestincome:Provided,further,Thatinterestincomefrom longtermdepositorinvestmentintheformofsavings,commonorindividualtrust funds,depositsubstitutes,investmentmanagementaccountsandotherinvestments evidencedbycertificatesinsuchformprescribedbytheBangkoSentralngPilipinas (BSP)shallbeexemptfromthetaximposedunderthisSubsection:Provided,finally, Thatshouldtheholderofthecertificatepreterminatethedepositorinvestment beforethefifth(5th)year,afinaltaxshallbeimposedontheentireincomeandshall bedeductedandwithheldbythedepositorybankfromtheproceedsofthelong termdepositorinvestmentcertificatebasedontheremainingmaturitythereof: Four(4)yearstolessthanfive(5)years5%; Three(3)yearstolessthan(4)years12%;and Lessthanthree(3)years20% (2)Cashand/orPropertyDividendsAfinaltaxatthefollowingratesshallbe imposeduponthecashand/orpropertydividendsactuallyorconstructively receivedbyanindividualfromadomesticcorporationorfromajointstock company,insuranceormutualfundcompaniesandregionaloperatingheadquarters ofmultinationalcompanies,orontheshareofanindividualinthedistributablenet incomeaftertaxofapartnership(exceptageneralprofessionalpartnership)of whichheisapartner,orontheshareofanindividualinthenetincomeaftertaxof anassociation,ajointaccount,orajointventureorconsortiumtaxableasa corporationofwhichheisamemberorcoventurer: Sixpercent(6%)beginningJanuary1,1998; Eightpercent(8%)beginningJanuary1,1999;and Tenpercent(10%beginningJanuary1,2000.

Provided,however,Thatthetaxondividendsshallapplyonlyonincomeearned onorafterJanuary1,1998.Incomeformingpartofretainedearningsasof December31,1997shallnot,evenifdeclaredordistributedonorafterJanuary1, 1998,besubjecttothistax. (C)CapitalGainsfromSaleofSharesofStocknotTradedintheStockExchange. TheprovisionsofSection39(B)notwithstanding,afinaltaxattheratesprescribed belowisherebyimposeduponthenetcapitalgainsrealizedduringthetaxableyear fromthesale,barter,exchangeorotherdispositionofsharesofstockinadomestic corporation,exceptsharessold,ordisposedofthroughthestockexchange. NotoverP100,000........5% OnanyamountinexcessofP100,00010% (D)CapitalGainsfromSaleofRealProperty. (1)InGeneral.TheprovisionsofSection39(B)notwithstanding,afinaltaxof sixpercent(6%)basedonthegrosssellingpriceorcurrentfairmarketvalueas determinedinaccordancewithSection6(E)ofthisCode,whicheverishigher,is herebyimposeduponcapitalgainspresumedtohavebeenrealizedfromthesale, exchange,orotherdispositionofrealpropertylocatedinthePhilippines,classified ascapitalassets,includingpactoderetrosalesandotherformsofconditionalsales, byindividuals,includingestatesandtrusts:Provided,Thatthetaxliability,ifany,on gainsfromsalesorotherdispositionsofrealpropertytothegovernmentoranyof itspoliticalsubdivisionsoragenciesortogovernmentownedorcontrolled corporationsshallbedeterminedeitherunderSection24(A)orunderthis Subsection,attheoptionofthetaxpayer. (2)Exception.Theprovisionsofparagraph(1)ofthisSubsectiontothe contrarynotwithstanding,capitalgainspresumedtohavebeenrealizedfromthe saleordispositionoftheirprincipalresidencebynaturalpersons,theproceedsof whichisfullyutilizedinacquiringorconstructinganewprincipalresidencewithin eighteen(18)calendarmonthsfromthedateofsaleordisposition,shallbeexempt fromthecapitalgainstaximposedunderthisSubsection:Provided,Thatthe historicalcostoradjustedbasisoftherealpropertysoldordisposedshallbecarried overtothenewprincipalresidencebuiltoracquired:Provided,further,Thatthe

Commissionershallhavebeendulynotifiedbythetaxpayerwithinthirty(30)days fromthedateofsaleordispositionthroughaprescribedreturnofhisintentionto availofthetaxexemptionhereinmentioned:Provided,stillfurther,Thatthesaidtax exemptioncanonlybeavailedofonceeveryten(10)years:Provided,finally,thatif thereisnofullutilizationoftheproceedsofsaleordisposition,theportionofthe gainpresumedtohavebeenrealizedfromthesaleordispositionshallbesubjectto capitalgainstax.Forthispurpose,thegrosssellingpriceorfairmarketvalueatthe timeofsale,whicheverishigher,shallbemultipliedbyafractionwhichthe unutilizedamountbearstothegrosssellingpriceinordertodeterminethetaxable portionandthetaxprescribedunderparagraph(1)ofthisSubsectionshallbe imposedthereon. SEC.25.TaxonNonresidentAlienIndividual. (A)NonresidentAlienEngagedintradeorBusinessWithinthePhilippines. (1)InGeneral.Anonresidentalienindividualengagedintradeorbusinessin thePhilippinesshallbesubjecttoanincometaxinthesamemannerasan individualcitizenandaresidentalienindividual,ontaxableincomereceivedfrom allsourceswithinthePhilippines.Anonresidentalienindividualwhoshallcometo thePhilippinesandstaythereinforanaggregateperiodofmorethanonehundred eighty(180)daysduringanycalendaryearshallbedeemeda'nonresidentalien doingbusinessinthePhilippines'.Section22(G)ofthisCodenotwithstanding. (2)Cashand/orPropertyDividendsfromaDomesticCorporationorJointStock Company,orInsuranceorMutualFundCompanyorRegionalOperating HeadquartersorMultinationalCompany,orShareintheDistributableNetIncomeof aPartnership(ExceptaGeneralProfessionalPartnership),JointAccount,Joint VentureTaxableasaCorporationorAssociation.,Interests,Royalties,Prizes,and OtherWinnings.Cashand/orpropertydividendsfromadomesticcorporation,or fromajointstockcompany,orfromaninsuranceormutualfundcompanyorfroma regionaloperatingheadquartersofmultinationalcompany,ortheshareofa nonresidentalienindividualinthedistributablenetincomeaftertaxofa partnership(exceptageneralprofessionalpartnership)ofwhichheisapartner,or theshareofanonresidentalienindividualinthenetincomeaftertaxofan association,ajointaccount,orajointventuretaxableasacorporationofwhichheis amemberoracoventurer;interests;royalties(inanyform);andprizes(except prizesamountingtoTenthousandpesos(P10,000)orlesswhichshallbesubjectto taxunderSubsection(B)(1)ofSection24)andotherwinnings(exceptPhilippine CharitySweepstakesandLottowinnings);shallbesubjecttoanincometaxof

twentypercent(20%)onthetotalamountthereof:Provided,however,that royaltiesonbooksaswellasotherliteraryworks,androyaltiesonmusical compositionsshallbesubjecttoafinaltaxoftenpercent(10%)onthetotalamount thereof:Provided,further,Thatcinematographicfilmsandsimilarworksshallbe subjecttothetaxprovidedunderSection28ofthisCode:Provided,furthermore, Thatinterestincomefromlongtermdepositorinvestmentintheformofsavings, commonorindividualtrustfunds,depositsubstitutes,investmentmanagement accountsandotherinvestmentsevidencedbycertificatesinsuchformprescribed bytheBangkoSentralngPilipinas(BSP)shallbeexemptfromthetaximposed underthisSubsection:Provided,finally,thatshouldtheholderofthecertificatepre terminatethedepositorinvestmentbeforethefifth(5th)year,afinaltaxshallbe imposedontheentireincomeandshallbedeductedandwithheldbythedepository bankfromtheproceedsofthelongtermdepositorinvestmentcertificatebasedon theremainingmaturitythereof: Four(4)yearstolessthanfive(5)years5%; Three(3)yearstolessthanfour(4)years12%;and Lessthanthree(3)years20%. (3)CapitalGains.Capitalgainsrealizedfromsale,barterorexchangeofshares ofstockindomesticcorporationsnottradedthroughthelocalstockexchange,and realpropertiesshallbesubjecttothetaxprescribedunderSubsections(C)and(D) ofSection24. (B)NonresidentAlienIndividualNotEngagedinTradeorBusinessWithinthe Philippines.Thereshallbelevied,collectedandpaidforeachtaxableyearuponthe entireincomereceivedfromallsourceswithinthePhilippinesbyeverynonresident alienindividualnotengagedintradeorbusinesswithinthePhilippinesasinterest, cashand/orpropertydividends,rents,salaries,wages,premiums,annuities, compensation,remuneration,emoluments,orotherfixedordeterminableannualor periodicorcasualgains,profits,andincome,andcapitalgains,ataxequaltotwenty fivepercent(25%)ofsuchincome.Capitalgainsrealizedbyanonresidentalien individualnotengagedintradeorbusinessinthePhilippinesfromthesaleofshares ofstockinanydomesticcorporationandrealpropertyshallbesubjecttothe incometaxprescribedunderSubsections(C)and(D)ofSection24.

(C)AlienIndividualEmployedbyRegionalorAreaHeadquartersandRegional OperatingHeadquartersofMultinationalCompanies.Thereshallbelevied, collectedandpaidforeachtaxableyearuponthegrossincomereceivedbyevery alienindividualemployedbyregionalorareaheadquartersandregionaloperating headquartersestablishedinthePhilippinesbymultinationalcompaniesassalaries, wages,annuities,compensation,remunerationandotheremoluments,suchas honorariaandallowances,fromsuchregionalorareaheadquartersandregional operatingheadquarters,ataxequaltofifteenpercent(15%)ofsuchgrossincome: Provided,however,ThatthesametaxtreatmentshallapplytoFilipinosemployed andoccupyingthesamepositionasthoseofaliensemployedbythesemultinational companies.ForpurposesofthisChapter,theterm'multinationalcompany'meansa foreignfirmorentityengagedininternationaltradewithaffiliatesorsubsidiariesor branchofficesintheAsiaPacificRegionandotherforeignmarkets. (D)AlienIndividualEmployedbyOffshoreBankingUnits.Thereshallbelevied, collectedandpaidforeachtaxableyearuponthegrossincomereceivedbyevery alienindividualemployedbyoffshorebankingunitsestablishedinthePhilippines assalaries,wages,annuities,compensation,remunerationandotheremoluments, suchashonorariaandallowances,fromsuchoffshorebankingunits,ataxequalto fifteenpercent(15%)ofsuchgrossincome:Provided,however,Thatthesametax treatmentshallapplytoFilipinosemployedandoccupyingthesamepositionsas thoseofaliensemployedbytheseoffshorebankingunits. (E)AlienIndividualEmployedbyPetroleumServiceContractorandSubcontractor. AnAlienindividualwhoisapermanentresidentofaforeigncountrybutwhois employedandassignedinthePhilippinesbyaforeignservicecontractororbya foreignservicesubcontractorengagedinpetroleumoperationsinthePhilippines shallbeliabletoataxoffifteenpercent(15%)ofthesalaries,wages,annuities, compensation,remunerationandotheremoluments,suchashonorariaand allowances,receivedfromsuchcontractororsubcontractor:Provided,however, ThatthesametaxtreatmentshallapplytoaFilipinoemployedandoccupyingthe samepositionasanalienemployedbypetroleumservicecontractorand subcontractor. AnyincomeearnedfromallothersourceswithinthePhilippinesbythealien employeesreferredtounderSubsections(C),(D)and(E)hereofshallbesubjectto thepertinentincometax,asthecasemaybe,imposedunderthisCode. SEC.26.TaxLiabilityofMembersofGeneralProfessionalPartnerships.Ageneral professionalpartnershipassuchshallnotbesubjecttotheincometaximposed

underthisChapter.Personsengaginginbusinessaspartnersinageneral professionalpartnershipshallbeliableforincometaxonlyintheirseparateand individualcapacities. Forpurposesofcomputingthedistributiveshareofthepartners,thenetincomeof thepartnershipshallbecomputedinthesamemannerasacorporation. Eachpartnershallreportasgrossincomehisdistributiveshare,actuallyor constructivelyreceived,inthenetincomeofthepartnership. CHAPTERIV TAXONCORPORATIONS SEC.27.RatesofIncometaxonDomesticCorporations. (A)InGeneral.ExceptasotherwiseprovidedinthisCode,anincometaxofthirty fivepercent(35%)isherebyimposeduponthetaxableincomederivedduringeach taxableyearfromallsourceswithinandwithoutthePhilippinesbyevery corporation,asdefinedinSection22(B)ofthisCodeandtaxableunderthisTitleasa corporation,organizedin,orexistingunderthelawsofthePhilippines:Provided, ThateffectiveJanuary1,1998,therateofincometaxshallbethirtyfourpercent (34%);effectiveJanuary1,1999,therateshallbethirtythreepercent(33%);and effectiveJanuary1,2000andthereafter,therateshallbethirtytwopercent(32%). Inthecaseofcorporationsadoptingthefiscalyearaccountingperiod,thetaxable incomeshallbecomputedwithoutregardtothespecificdatewhenspecificsales, purchasesandothertransactionsoccur.Theirincomeandexpensesforthefiscal yearshallbedeemedtohavebeenearnedandspentequallyforeachmonthofthe period. Thereducedcorporateincometaxratesshallbeappliedontheamountcomputed bymultiplyingthenumberofmonthscoveredbythenewrateswithinthefiscalyear bythetaxableincomeofthecorporationfortheperiod,dividedbytwelve.

Provided,further,ThatthePresident,upontherecommendationoftheSecretaryof Finance,mayeffectiveJanuary1,2000,allowcorporationstheoptiontobetaxedat fifteenpercent(15%)ofgrossincomeasdefinedherein,afterthefollowing conditionshavebeensatisfied: (1)Ataxeffortratiooftwentypercent(20%)ofGrossNationalProduct(GNP); (2)Aratiooffortypercent(40%)ofincometaxcollectiontototaltaxrevenues; (3)AVATtaxeffortoffourpercent(4%)ofGNP;and (4)A0.9percent(0.9%)ratiooftheConsolidatedPublicSectorFinancialPosition (CPSFP)toGNP. Theoptiontobetaxedbasedongrossincomeshallbeavailableonlytofirmswhose ratioofcostofsalestogrosssalesorreceiptsfromallsourcesdoesnotexceedfifty fivepercent(55%). Theelectionofthegrossincometaxoptionbythecorporationshallbeirrevocable forthree(3)consecutivetaxableyearsduringwhichthecorporationisqualified underthescheme. ForpurposesofthisSection,theterm'grossincome'derivedfrombusinessshallbe equivalenttogrosssaleslesssalesreturns,discountsandallowancesandcostof goodssold."Costofgoodssold"shallincludeallbusinessexpensesdirectlyincurred toproducethemerchandisetobringthemtotheirpresentlocationanduse. Foratradingormerchandisingconcern,"costofgoods"soldshallincludethe invoicecostofthegoodssold,plusimportduties,freightintransportingthegoods totheplacewherethegoodsareactuallysold,includinginsurancewhilethegoods areintransit. Foramanufacturingconcern,"costofgoodsmanufacturedandsold"shallinclude allcostsofproductionoffinishedgoods,suchasrawmaterialsused,directlabor andmanufacturingoverhead,freightcost,insurancepremiumsandothercosts incurredtobringtherawmaterialstothefactoryorwarehouse. Inthecaseoftaxpayersengagedinthesaleofservice,'grossincome'meansgross receiptslesssalesreturns,allowancesanddiscounts.

(B)ProprietaryEducationalInstitutionsandHospitals.Proprietaryeducational institutionsandhospitalswhicharenonprofitshallpayataxoftenpercent(10%) ontheirtaxableincomeexceptthosecoveredbySubsection(D)hereof:Provided, thatifthegrossincomefromunrelatedtrade,businessorotheractivityexceedsfifty percent(50%)ofthetotalgrossincomederivedbysucheducationalinstitutionsor hospitalsfromallsources,thetaxprescribedinSubsection(A)hereofshallbe imposedontheentiretaxableincome.ForpurposesofthisSubsection,theterm 'unrelatedtrade,businessorotheractivity'meansanytrade,businessorother activity,theconductofwhichisnotsubstantiallyrelatedtotheexerciseor performancebysucheducationalinstitutionorhospitalofitsprimarypurposeor function.A"Proprietaryeducationalinstitution"isanyprivateschoolmaintained andadministeredbyprivateindividualsorgroupswithanissuedpermittooperate fromtheDepartmentofEducation,CultureandSports(DECS),ortheCommission onHigherEducation(CHED),ortheTechnicalEducationandSkillsDevelopment Authority(TESDA),asthecasemaybe,inaccordancewithexistinglawsand regulations. (C)GovernmentownedorControlledCorporations,AgenciesorInstrumentalities. Theprovisionsofexistingspecialorgenerallawstothecontrarynotwithstanding, allcorporations,agencies,orinstrumentalitiesownedorcontrolledbythe Government,excepttheGovernmentServiceInsuranceSystem(GSIS),theSocial SecuritySystem(SSS),thePhilippineHealthInsuranceCorporation(PHIC),the PhilippineCharitySweepstakesOffice(PCSO)andthePhilippineAmusementand GamingCorporation(PAGCOR),shallpaysuchrateoftaxupontheirtaxableincome asareimposedbythisSectionuponcorporationsorassociationsengagedins similarbusiness,industry,oractivity. (D)RatesofTaxonCertainPassiveIncomes. (1)InterestfromDepositsandYieldoranyotherMonetaryBenefitfromDeposit SubstitutesandfromTrustFundsandSimilarArrangements,andRoyalties.Afinal taxattherateoftwentypercent(20%)isherebyimposedupontheamountof interestoncurrencybankdepositandyieldoranyothermonetarybenefitfrom depositsubstitutesandfromtrustfundsandsimilararrangementsreceivedby domesticcorporations,androyalties,derivedfromsourceswithinthePhilippines: Provided,however,Thatinterestincomederivedbyadomesticcorporationfroma depositorybankundertheexpandedforeigncurrencydepositsystemshallbe subjecttoafinalincometaxattherateofsevenandonehalfpercent(71/2%)of suchinterestincome. (2)CapitalGainsfromtheSaleofSharesofStockNotTradedintheStockExchange. Afinaltaxattheratesprescribedbelowshallbeimposedonnetcapitalgains

realizedduringthetaxableyearfromthesale,exchangeorotherdispositionof sharesofstockinadomesticcorporationexceptsharessoldordisposedofthrough thestockexchange: NotoverP100,000.....5% AmountinexcessofP100,000..10% (3)TaxonIncomeDerivedundertheExpandedForeignCurrencyDepositSystem. Incomederivedbyadepositorybankundertheexpandedforeigncurrencydeposit systemfromforeigncurrencytransactionswithlocalcommercialbanks,including branchesofforeignbanksthatmaybeauthorizedbytheBangkoSentralngPilipinas (BSP)totransactbusinesswithforeigncurrencydepositorysystemunitsandother depositorybanksundertheexpandedforeigncurrencydepositsystem,including interestincomefromforeigncurrencyloansgrantedbysuchdepositorybanks undersaidexpandedforeigncurrencydepositsystemtoresidents,shallbesubject toafinalincometaxattherateoftenpercent(10%)ofsuchincome. Anyincomeofnonresidents,whetherindividualsorcorporations,fromtransactions withdepositorybanksundertheexpandedsystemshallbeexemptfromincometax. (4)IntercorporateDividends.Dividendsreceivedbyadomesticcorporationfrom anotherdomesticcorporationshallnotbesubjecttotax. (5)CapitalGainsRealizedfromtheSale,ExchangeorDispositionofLandsand/or Buildings.Afinaltaxofsixpercent(6%)isherebyimposedonthegainpresumed tohavebeenrealizedonthesale,exchangeordispositionoflandsand/orbuildings whicharenotactuallyusedinthebusinessofacorporationandaretreatedas capitalassets,basedonthegrosssellingpriceoffairmarketvalueasdeterminedin accordancewithSection6(E)ofthisCode,whicheverishigher,ofsuchlandsand/or buildings. (E)MinimumCorporateIncomeTaxonDomesticCorporations. (1)ImpositionofTax.Aminimumcorporateincometaxoftwopercent(2%0of thegrossincomeasoftheendofthetaxableyear,asdefinedherein,ishereby imposedonacorporationtaxableunderthisTitle,beginningonthefourthtaxable yearimmediatelyfollowingtheyearinwhichsuchcorporationcommencedits businessoperations,whentheminimumincometaxisgreaterthanthetax computedunderSubsection(A)ofthisSectionforthetaxableyear. (2)CarryForwardofExcessMinimumTax.Anyexcessoftheminimum corporateincometaxoverthenormalincometaxascomputedunderSubsection(A) ofthisSectionshallbecarriedforwardandcreditedagainstthenormalincometax forthethree(3)immediatelysucceedingtaxableyears.

(3)RelieffromtheMinimumCorporateIncomeTaxUnderCertainConditions.The SecretaryofFinanceisherebyauthorizedtosuspendtheimpositionofthe minimumcorporateincometaxonanycorporationwhichsufferslossesonaccount ofprolongedlabordispute,orbecauseofforcemajeure,orbecauseoflegitimate businessreverses. TheSecretaryofFinanceisherebyauthorizedtopromulgate,upon recommendationoftheCommissioner,thenecessaryrulesandregulationthatshall definethetermsandconditionsunderwhichhemaysuspendtheimpositionofthe minimumcorporateincometaxinameritoriouscase. (4)GrossIncomeDefined.Forpurposesofapplyingtheminimumcorporate incometaxprovidedunderSubsection(E)hereof,theterm'grossincome'shall meangrosssaleslesssalesreturns,discountsandallowancesandcostofgoodssold. "Costofgoodssold'shallincludeallbusinessexpensesdirectlyincurredtoproduce themerchandisetobringthemtotheirpresentlocationanduse. Foratradingormerchandisingconcern,"costofgoodssold'shallincludethe invoicecostofthegoodssold,plusimportduties,freightintransportingthegoods totheplacewherethegoodsareactuallysoldincludinginsurancewhilethegoods areintransit. Foramanufacturingconcern,costof"goodsmanufacturedandsold"shallinclude allcostsofproductionoffinishedgoods,suchasrawmaterialsused,directlabor andmanufacturingoverhead,freightcost,insurancepremiumsandothercosts incurredtobringtherawmaterialstothefactoryorwarehouse. Inthecaseoftaxpayersengagedinthesaleofservice,'grossincome'meansgross receiptslesssalesreturns,allowances,discountsandcostofservices."Costof services"shallmeanalldirectcostsandexpensesnecessarilyincurredtoprovide theservicesrequiredbythecustomersandclientsincluding(A)salariesand employeebenefitsofpersonnel,consultantsandspecialistsdirectlyrenderingthe serviceand(B)costoffacilitiesdirectlyutilizedinprovidingtheservicesuchas depreciationorrentalofequipmentusedandcostofsupplies:Provided,however, Thatinthecaseofbanks,"costofservices"shallincludeinterestexpense. SEC.28.RatesofIncomeTaxonForeignCorporations. (A)TaxonResidentForeignCorporations. (1)InGeneral.ExceptasotherwiseprovidedinthisCode,acorporation organized,authorized,orexistingunderthelawsofanyforeigncountry,engagedin tradeorbusinesswithinthePhilippines,shallbesubjecttoanincometaxequivalent

tothirtyfivepercent(35%)ofthetaxableincomederivedintheprecedingtaxable yearfromallsourceswithinthePhilippines:Provided,ThateffectiveJanuary1, 1998,therateofincometaxshallbethirtyfourpercent(34%);effectiveJanuary1, 1999,therateshallbethirtythreepercent(33%),andeffectiveJanuary1,2000and thereafter,therateshallbethirtytwopercent(32%). Inthecaseofcorporationsadoptingthefiscalyearaccountingperiod,thetaxable incomeshallbecomputedwithoutregardtothespecificdatewhensales,purchases andothertransactionsoccur.Theirincomeandexpensesforthefiscalyearshallbe deemedtohavebeenearnedandspentequallyforeachmonthoftheperiod. Thereducedcorporateincometaxratesshallbeappliedontheamountcomputed bymultiplyingthenumberofmonthscoveredbythenewrateswithinthefiscalyear bythetaxableincomeofthecorporationfortheperiod,dividedbytwelve. Provided,however,Thataresidentforeigncorporationshallbegrantedtheoption tobetaxedatfifteenpercent(15%)ongrossincomeunderthesameconditions,as providedinSection27(A). (2)MinimumCorporateIncomeTaxonResidentForeignCorporations.A minimumcorporateincometaxoftwopercent(2%)ofgrossincome,asprescribed underSection27(E)ofthisCode,shallbeimposed,underthesameconditions,ona residentforeigncorporationtaxableunderparagraph(1)ofthisSubsection. (3)InternationalCarrier.AninternationalcarrierdoingbusinessinthePhilippines shallpayataxoftwoandonehalfpercent(21/2%)onits"GrossPhilippine Billings"asdefinedhereunder: (a)InternationalAirCarrier."GrossPhilippineBillings"referstotheamountof grossrevenuederivedfromcarriageofpersons,excessbaggage,cargoandmail originatingfromthePhilippinesinacontinuousanduninterruptedflight, irrespectiveoftheplaceofsaleorissueandtheplaceofpaymentoftheticketor passagedocument:Provided,Thatticketsrevalidated,exchangedand/orindorsed toanotherinternationalairlineformpartoftheGrossPhilippineBillingsifthe passengerboardsaplaneinaportorpointinthePhilippines:Provided,further, ThatforaflightwhichoriginatesfromthePhilippines,buttransshipmentof passengertakesplaceatanyportoutsidethePhilippinesonanotherairline,onlythe aliquotportionofthecostoftheticketcorrespondingtothelegflownfromthe PhilippinestothepointoftransshipmentshallformpartofGrossPhilippineBillings. (b)InternationalShipping."GrossPhilippineBillings"meansgrossrevenue whetherforpassenger,cargoormailoriginatingfromthePhilippinesuptofinal destination,regardlessoftheplaceofsaleorpaymentsofthepassageorfreight documents.

(4)OffshoreBankingUnits.Theprovisionsofanylawtothecontrary notwithstanding,incomederivedbyoffshorebankingunitsauthorizedbythe BangkoSentralngPilipinas(BSP)totransactbusinesswithoffshorebankingunits, includinganyinterestincomederivedfromforeigncurrencyloansgrantedto residents,shallbesubjecttoafinalincometaxattherateoftenpercent(10%)of suchincome. Anyincomeofnonresidents,whetherindividualsorcorporations,fromtransactions withsaidoffshorebankingunitsshallbeexemptfromincometax. (5)TaxonBranchProfitsRemittances.Anyprofitremittedbyabranchtoitshead officeshallbesubjecttoataxoffifteen(15%)whichshallbebasedonthetotal profitsappliedorearmarkedforremittancewithoutanydeductionforthetax componentthereof(exceptthoseactivitieswhichareregisteredwiththePhilippine EconomicZoneAuthority).Thetaxshallbecollectedandpaidinthesamemanner asprovidedinSections57and58ofthisCode:provided,thatinterests,dividends, rents,royalties,includingremunerationfortechnicalservices,salaries,wages premiums,annuities,emolumentsorotherfixedordeterminableannual,periodicor casualgains,profits,incomeandcapitalgainsreceivedbyaforeigncorporation duringeachtaxableyearfromallsourceswithinthePhilippinesshallnotbetreated asbranchprofitsunlessthesameareeffectivelyconnectedwiththeconductofits tradeorbusinessinthePhilippines. (6)RegionalorAreaHeadquartersandRegionalOperatingHeadquartersof MultinationalCompanies. (a)RegionalorareaheadquartersasdefinedinSection22(DD)shallnotbesubject toincometax. (b)RegionaloperatingheadquartersasdefinedinSection22(EE)shallpayataxof tenpercent(10%)oftheirtaxableincome. (7)TaxonCertainIncomesReceivedbyaResidentForeignCorporation. (a)InterestfromDepositsandYieldoranyotherMonetaryBenefitfromDeposit Substitutes,TrustFundsandSimilarArrangementsandRoyalties.Interestfrom anycurrencybankdepositandyieldoranyothermonetarybenefitfromdeposit substitutesandfromtrustfundsandsimilararrangementsandroyaltiesderived fromsourceswithinthePhilippinesshallbesubjecttoafinalincometaxattherate oftwentypercent(20%)ofsuchinterest:Provided,however,Thatinterestincome derivedbyaresidentforeigncorporationfromadepositorybankunderthe expandedforeigncurrencydepositsystemshallbesubjecttoafinalincometaxat therateofsevenandonehalfpercent(71/2%)ofsuchinterestincome. (b)IncomeDerivedundertheExpandedForeignCurrencyDepositSystem.Income derivedbyadepositorybankundertheexpandedforeigncurrencydepositsystem fromforeigncurrencytransactionswithlocalcommercialbanksincludingbranches offoreignbanksthatmaybeauthorizedbytheBangkoSentralngPilipinas(BSP)to

transactbusinesswithforeigncurrencydepositsystemunits,includinginterest incomefromforeigncurrencyloansgrantedbysuchdepositorybanksundersaid expandedforeigncurrencydepositsystemtoresidents,shallbesubjecttoafinal incometaxattherateoftenpercent(10%)ofsuchincome. Anyincomeofnonresidents,whetherindividualsorcorporations,fromtransactions withdepositorybanksundertheexpandedsystemshallbeexemptfromincometax. (c)CapitalGainsfromSaleofSharesofStockNotTradedintheStockExchange.A finaltaxattheratesprescribedbelowisherebyimposeduponthenetcapitalgains realizedduringthetaxableyearfromthesale,barter,exchangeorotherdisposition ofsharesofstockinadomesticcorporationexceptsharessoldordisposedof throughthestockexchange: NotoverP100,000......5% OnanyamountinexcessofP100,000.10% (d)IntercorporateDividends.Dividendsreceivedbyaresidentforeigncorporation fromadomesticcorporationliabletotaxunderthisCodeshallnotbesubjecttotax underthisTitle. (B)TaxonNonresidentForeignCorporation. (1)InGeneral.ExceptasotherwiseprovidedinthisCode,aforeigncorporationnot engagedintradeorbusinessinthePhilippinesshallpayataxequaltothirtyfive percent(35%)ofthegrossincomereceivedduringeachtaxableyearfromall sourceswithinthePhilippines,suchasinterests,dividends,rents,royalties,salaries, premiums(exceptreinsurancepremiums),annuities,emolumentsorotherfixedor determinableannual,periodicorcasualgains,profitsandincome,andcapitalgains, exceptcapitalgainssubjecttotaxundersubparagraphs(C)and(d):Provided,That effective1,1998,therateofincometaxshallbethirtyfourpercent(34%);effective January1,1999,therateshallbethirtythreepercent(33%);and,effectiveJanuary 1,2000andthereafter,therateshallbethirtytwopercent(32%). (2)NonresidentCinematographicFilmOwner,LessororDistributor.A cinematographicfilmowner,lessor,ordistributorshallpayataxoftwentyfive percent(25%)ofitsgrossincomefromallsourceswithinthePhilippines. (3)NonresidentOwnerorLessorofVesselsCharteredbyPhilippineNationals.A nonresidentownerorlessorofvesselsshallbesubjecttoataxoffourandonehalf percent(41/2%)ofgrossrentals,leaseorcharterfeesfromleasesorchartersto Filipinocitizensorcorporations,asapprovedbytheMaritimeIndustryAuthority. (4)NonresidentOwnerorLessorofAircraft,MachineriesandOtherEquipment. Rentals,chartersandotherfeesderivedbyanonresidentlessorofaircraft, machineriesandotherequipmentshallbesubjecttoataxofsevenandonehalf percent(71/2%)ofgrossrentalsorfees.

(5)TaxonCertainIncomesReceivedbyaNonresidentForeignCorporation. (a)InterestonForeignLoans.Afinalwithholdingtaxattherateoftwentypercent (20%)isherebyimposedontheamountofinterestonforeignloanscontractedon orafterAugust1,1986; (b)IntercorporateDividends.Afinalwithholdingtaxattherateoffifteenpercent (15%)isherebyimposedontheamountofcashand/orpropertydividendsreceived fromadomesticcorporation,whichshallbecollectedandpaidasprovidedin Section57(A)ofthisCode,subjecttotheconditionthatthecountryinwhichthe nonresidentforeigncorporationisdomiciled,shallallowacreditagainstthetaxdue fromthenonresidentforeigncorporationtaxesdeemedtohavebeenpaidinthe Philippinesequivalenttotwentypercent(20%)for1997,nineteenpercent(19%) for1998,eighteenpercent(18%)for1999,andseventeenpercent(17%)thereafter, whichrepresentsthedifferencebetweentheregularincometaxofthirtyfive percent(35%)in1997,thirtyfourpercent(34%)in1998,andthirtythreepercent (33%)in1999,andthirtytwopercent(32%)thereafteroncorporationsandthe fifteenpercent(15%)taxondividendsasprovidedinthissubparagraph; (c)CapitalGainsfromSaleofSharesofStocknotTradedintheStockExchange.A finaltaxattheratesprescribedbelowisherebyimposeduponthenetcapitalgains realizedduringthetaxableyearfromthesale,barter,exchangeorotherdisposition ofsharesofstockinadomesticcorporation,exceptsharessold,ordisposedof throughthestockexchange: NotoverP100,000............5% OnanyamountinexcessofP100,00010% SEC.29.ImpositionofImproperlyAccumulatedEarningsTax. (A)InGeneral.InadditiontoothertaxesimposedbythisTitle,thereishereby imposedforeachtaxableyearontheimproperlyaccumulatedtaxableincomeof eachcorporationdescribedinSubsectionBhereof,animproperlyaccumulated earningstaxequaltotenpercent(10%)oftheimproperlyaccumulatedtaxable income. (B)TaxonCorporationsSubjecttoImproperlyAccumulatedEarningsTax. (1)InGeneral.Theimproperlyaccumulatedearningstaximposedinthepreceding Sectionshallapplytoeverycorporationformedoravailedforthepurposeof avoidingtheincometaxwithrespecttoitsshareholdersortheshareholdersofany

othercorporation,bypermittingearningsandprofitstoaccumulateinsteadofbeing dividedordistributed. (2)Exceptions.Theimproperlyaccumulatedearningstaxasprovidedforunder thisSectionshallnotapplyto: (a)Publiclyheldcorporations; (b)Banksandothernonbankfinancialintermediaries;and (c)Insurancecompanies. (C)EvidenceofPurposetoAvoidIncomeTax. (1)PrimaFacieEvidence.thefactthatanycorporationisamereholdingcompany orinvestmentcompanyshallbeprimafacieevidenceofapurposetoavoidthetax uponitsshareholdersormembers. (2)EvidenceDeterminativeofPurpose.Thefactthattheearningsorprofitsofa corporationarepermittedtoaccumulatebeyondthereasonableneedsofthe businessshallbedeterminativeofthepurposetoavoidthetaxuponits shareholdersormembersunlessthecorporation,bytheclearpreponderanceof evidence,shallprovetothecontrary. (D)ImproperlyAccumulatedTaxableIncome.ForpurposesofthisSection,the term'improperlyaccumulatedtaxableincome'meanstaxableincome'adjustedby: (1)Incomeexemptfromtax; (2)Incomeexcludedfromgrossincome; (3)Incomesubjecttofinaltax;and (4)Theamountofnetoperatinglosscarryoverdeducted; Andreducedbythesumof: (1)Dividendsactuallyorconstructivelypaid;and (2)Incometaxpaidforthetaxableyear. Provided,however,Thatforcorporationsusingthecalendaryearbasis,the accumulatedearningsundertaxshallnotapplyonimproperlyaccumulatedincome asofDecember31,1997.Inthecaseofcorporationsadoptingthefiscalyear accountingperiod,theimproperlyaccumulatedincomenotsubjecttothistax,shall bereckoned,asoftheendofthemonthcomprisingthetwelve(12)monthperiodof fiscalyear19971998.

(E)ReasonableNeedsoftheBusiness.ForpurposesofthisSection,theterm 'reasonableneedsofthebusiness'includesthereasonablyanticipatedneedsofthe business. SEC.30.ExemptionsfromTaxonCorporations.Thefollowingorganizationsshall notbetaxedunderthisTitleinrespecttoincomereceivedbythemassuch: (A)Labor,agriculturalorhorticulturalorganizationnotorganizedprincipallyfor profit; (B)Mutualsavingsbanknothavingacapitalstockrepresentedbyshares,and cooperativebankwithoutcapitalstockorganizedandoperatedformutualpurposes andwithoutprofit; (C)Abeneficiarysociety,orderorassociation,operatingfortheexclusivebenefitof thememberssuchasafraternalorganizationoperatingunderthelodgesystem,or mutualaidassociationoranonstockcorporationorganizedbyemployeesproviding forthepaymentoflife,sickness,accident,orotherbenefitsexclusivelytothe membersofsuchsociety,order,orassociation,ornonstockcorporationortheir dependents; (D)Cemeterycompanyownedandoperatedexclusivelyforthebenefitofits members; (E)Nonstockcorporationorassociationorganizedandoperatedexclusivelyfor religious,charitable,scientific,athletic,orculturalpurposes,orfortherehabilitation ofveterans,nopartofitsnetincomeorassetshallbelongtoorinurestothebenefit ofanymember,organizer,officeroranyspecificperson; (F)Businessleaguechamberofcommerce,orboardoftrade,notorganizedfor profitandnopartofthenetincomeofwhichinurestothebenefitofanyprivate stockholder,orindividual;

(G)Civicleagueororganizationnotorganizedforprofitbutoperatedexclusivelyfor thepromotionofsocialwelfare; (H)Anonstockandnonprofiteducationalinstitution; (I)Governmenteducationalinstitution; (J)Farmers'orothermutualtyphoonorfireinsurancecompany,mutualditchor irrigationcompany,mutualorcooperativetelephonecompany,orlikeorganization ofapurelylocalcharacter,theincomeofwhichconsistssolelyofassessments,dues, andfeescollectedfrommembersforthesolepurposeofmeetingitsexpenses;and (K)Farmers',fruitgrowers',orlikeassociationorganizedandoperatedasasales agentforthepurposeofmarketingtheproductsofitsmembersandturningbackto themtheproceedsofsales,lessthenecessarysellingexpensesonthebasisofthe quantityofproducefinishedbythem; Notwithstandingtheprovisionsintheprecedingparagraphs,theincomeof whateverkindandcharacteroftheforegoingorganizationsfromanyoftheir properties,realorpersonal,orfromanyoftheiractivitiesconductedforprofit regardlessofthedispositionmadeofsuchincome,shallbesubjecttotaximposed underthisCode. CHAPTERV COMPUTATIONOFTAXABLEINCOME SEC.31.TaxableIncomeDefined.Thetermtaxableincomemeansthepertinent itemsofgrossincomespecifiedinthisCode,lessthedeductionsand/orpersonal andadditionalexemptions,ifany,authorizedforsuchtypesofincomebythisCode orotherspeciallaws. CHAPTERVI COMPUTATIONOFGROSSINCOME

SEC.32.GrossIncome. (A)GeneralDefinition.ExceptwhenotherwiseprovidedinthisTitle,grossincome meansallincomederivedfromwhateversource,including(butnotlimitedto)the followingitems: (1)Compensationforservicesinwhateverformpaid,including,butnotlimitedto fees,salaries,wages,commissions,andsimilaritems; (2)Grossincomederivedfromtheconductoftradeorbusinessortheexerciseofa profession; (3)Gainsderivedfromdealingsinproperty; (4)Interests; (5)Rents; (6)Royalties; (7)Dividends; (8)Annuities; (9)Prizesandwinnings; (10)Pensions;and (11)Partner'sdistributivesharefromthenetincomeofthegeneralprofessional partnership. (B)ExclusionsfromGrossIncome.Thefollowingitemsshallnotbeincludedin grossincomeandshallbeexemptfromtaxationunderthistitle: (1)LifeInsurance.Theproceedsoflifeinsurancepoliciespaidtotheheirsor beneficiariesuponthedeathoftheinsured,whetherinasinglesumorotherwise, butifsuchamountsareheldbytheinsurerunderanagreementtopayinterest thereon,theinterestpaymentsshallbeincludedingrossincome. (2)AmountReceivedbyInsuredasReturnofPremium.Theamountreceived bytheinsured,asareturnofpremiumspaidbyhimunderlifeinsurance, endowment,orannuitycontracts,eitherduringthetermoratthematurityofthe termmentionedinthecontractoruponsurrenderofthecontract.

(3)Gifts,Bequests,andDevises.Thevalueofpropertyacquiredbygift,bequest, devise,ordescent:Provided,however,Thatincomefromsuchproperty,aswellas gift,bequest,deviseordescentofincomefromanyproperty,incasesoftransfersof dividedinterest,shallbeincludedingrossincome. (4)CompensationforInjuriesorSickness.amountsreceived,throughAccident orHealthInsuranceorunderWorkmen'sCompensationActs,ascompensationfor personalinjuriesorsickness,plustheamountsofanydamagesreceived,whetherby suitoragreement,onaccountofsuchinjuriesorsickness. (5)IncomeExemptunderTreaty.Incomeofanykind,totheextentrequiredby anytreatyobligationbindingupontheGovernmentofthePhilippines. (6)RetirementBenefits,Pensions,Gratuities,etc. (a)RetirementbenefitsreceivedunderRepublicActNo.7641andthose receivedbyofficialsandemployeesofprivatefirms,whetherindividualor corporate,inaccordancewithareasonableprivatebenefitplanmaintainedbythe employer:Provided,Thattheretiringofficialoremployeehasbeenintheserviceof thesameemployerforatleastten(10)yearsandisnotlessthanfifty(50)yearsof ageatthetimeofhisretirement:Provided,further,Thatthebenefitsgrantedunder thissubparagraphshallbeavailedofbyanofficialoremployeeonlyonce.For purposesofthisSubsection,theterm'reasonableprivatebenefitplan'meansa pension,gratuity,stockbonusorprofitsharingplanmaintainedbyanemployerfor thebenefitofsomeorallofhisofficialsoremployees,whereincontributionsare madebysuchemployerfortheofficialsoremployees,orboth,forthepurposeof distributingtosuchofficialsandemployeestheearningsandprincipalofthefund thusaccumulated,andwhereinitsisprovidedinsaidplanthatatnotimeshallany partofthecorpusorincomeofthefundbeusedfor,orbedivertedto,anypurpose otherthanfortheexclusivebenefitofthesaidofficialsandemployees. (b)Anyamountreceivedbyanofficialoremployeeorbyhisheirsfromthe employerasaconsequenceofseparationofsuchofficialoremployeefromthe serviceoftheemployerbecauseofdeathsicknessorotherphysicaldisabilityorfor anycausebeyondthecontrolofthesaidofficialoremployee.

(c)Theprovisionsofanyexistinglawtothecontrarynotwithstanding,social securitybenefits,retirementgratuities,pensionsandothersimilarbenefitsreceived byresidentornonresidentcitizensofthePhilippinesoralienswhocometoreside permanentlyinthePhilippinesfromforeigngovernmentagenciesandother institutions,privateorpublic. (d)Paymentsofbenefitsdueortobecomeduetoanypersonresidinginthe PhilippinesunderthelawsoftheUnitedStatesadministeredbytheUnitedStates VeteransAdministration. (e)BenefitsreceivedfromorenjoyedundertheSocialSecuritySystemin accordancewiththeprovisionsofRepublicActNo.8282. (f)BenefitsreceivedfromtheGSISunderRepublicActNo.8291,including retirementgratuityreceivedbygovernmentofficialsandemployees. (7)MiscellaneousItems. (a)IncomeDerivedbyForeignGovernment.Incomederivedfrom investmentsinthePhilippinesinloans,stocks,bondsorotherdomesticsecurities, orfrominterestondepositsinbanksinthePhilippinesby(i)foreigngovernments, (ii)financinginstitutionsowned,controlled,orenjoyingrefinancingfromforeign governments,and(iii)internationalorregionalfinancialinstitutionsestablishedby foreigngovernments. (b)IncomeDerivedbytheGovernmentoritsPoliticalSubdivisions.Income derivedfromanypublicutilityorfromtheexerciseofanyessentialgovernmental functionaccruingtotheGovernmentofthePhilippinesortoanypolitical subdivisionthereof. (c)PrizesandAwards.Prizesandawardsmadeprimarilyinrecognitionof religious,charitable,scientific,educational,artistic,literary,orcivicachievement butonlyif:

(i)Therecipientwasselectedwithoutanyactiononhisparttoenterthe contestorproceeding;and (ii)Therecipientisnotrequiredtorendersubstantialfutureservicesasa conditiontoreceivingtheprizeoraward. (d)PrizesandAwardsinSportsCompetition.Allprizesandawardsgranted toathletesinlocalandinternationalsportscompetitionsandtournamentswhether heldinthePhilippinesorabroadandsanctionedbytheirnationalsports associations. (e)13thMonthPayandOtherBenefits.Grossbenefitsreceivedbyofficials andemployeesofpublicandprivateentities:Provided,however,Thatthetotal exclusionunderthissubparagraphshallnotexceedThirtythousandpesos (P30,000)whichshallcover: (i)Benefitsreceivedbyofficialsandemployeesofthenationalandlocal governmentpursuanttoRepublicActNo.6686; (ii)BenefitsreceivedbyemployeespursuanttoPresidentialDecreeNo. 851,asamendedbyMemorandumOrderNo.28,datedAugust13,1986; (iii)Benefitsreceivedbyofficialsandemployeesnotcoveredby PresidentialdecreeNo.851,asamendedbyMemorandumOrderNo.28,dated August13,1986;and (iv)OtherbenefitssuchasproductivityincentivesandChristmasbonus: Provided,further,ThattheceilingofThirtythousandpesos(P30,000)maybe increasedthroughrulesandregulationsissuedbytheSecretaryofFinance,upon recommendationoftheCommissioner,afterconsideringamongothers,theeffecton thesameoftheinflationrateattheendofthetaxableyear. (f)GSIS,SSS,MedicareandOtherContributions.GSIS,SSS,Medicareand Pagibigcontributions,andunionduesofindividuals.

(g)GainsfromtheSaleofBonds,DebenturesorotherCertificateof Indebtedness.Gainsrealizedfromthesameorexchangeorretirementofbonds, debenturesorothercertificateofindebtednesswithamaturityofmorethanfive(5) years. (h)GainsfromRedemptionofSharesinMutualFund.Gainsrealizedbythe investoruponredemptionofsharesofstockinamutualfundcompanyasdefinedin Section22(BB)ofthisCode. SEC.33.SpecialTreatmentofFringeBenefit. (A)ImpositionofTax.Afinaltaxofthirtyfourpercent(34%)effectiveJanuary1, 1998;thirtythreepercent(33%)effectiveJanuary1,1999;andthirtytwopercent (32%)effectiveJanuary1,2000andthereafter,isherebyimposedonthegrossed upmonetaryvalueoffringebenefitfurnishedorgrantedtotheemployee(except rankandfileemployeesasdefinedherein)bytheemployer,whetheranindividual oracorporation(unlessthefringebenefitisrequiredbythenatureof,ornecessary tothetrade,businessorprofessionoftheemployer,orwhenthefringebenefitisfor theconvenienceoradvantageoftheemployer).Thetaxhereinimposedispayable bytheemployerwhichtaxshallbepaidinthesamemannerasprovidedforunder Section57(A)ofthisCode.Thegrossedupmonetaryvalueofthefringebenefit shallbedeterminedbydividingtheactualmonetaryvalueofthefringebenefitby sixtysixpercent(66%)effectiveJanuary1,1998;sixtysevenpercent(67%) effectiveJanuary1,1999;andsixtyeightpercent(68%)effectiveJanuary1,2000 andthereafter:Provided,however,Thatfringebenefitfurnishedtoemployeesand taxableunderSubsections(B),(C),(D)and(E)ofSection25shallbetaxedatthe applicableratesimposedthereat:Provided,further,ThatthegrossedUpvalueof thefringebenefitshallbedeterminedbydividingtheactualmonetaryvalueofthe fringebenefitbythedifferencebetweenonehundredpercent(100%)andthe applicableratesofincometaxunderSubsections(B),(C),(D),and(E)ofSection25. (B)FringeBenefitdefined.ForpurposesofthisSection,theterm"fringebenefit" meansanygood,serviceorotherbenefitfurnishedorgrantedincashorinkindby anemployertoanindividualemployee(exceptrankandfileemployeesasdefined herein)suchas,butnotlimitedto,thefollowing: (1)Housing;

(2)Expenseaccount; (3)Vehicleofanykind; (4)Householdpersonnel,suchasmaid,driverandothers; (5)Interestonloanatlessthanmarketratetotheextentofthedifference betweenthemarketrateandactualrategranted; (6)Membershipfees,duesandotherexpensesbornebytheemployerforthe employeeinsocialandathleticclubsorothersimilarorganizations; (7)Expensesforforeigntravel; (8)Holidayandvacationexpenses; (9)Educationalassistancetotheemployeeorhisdependents;and (10)Lifeorhealthinsuranceandothernonlifeinsurancepremiumsorsimilar amountsinexcessofwhatthelawallows. (C)FringeBenefitsNotTaxable.Thefollowingfringebenefitsarenottaxable underthisSection: (1)fringebenefitswhichareauthorizedandexemptedfromtaxunderspecial laws; (2)Contributionsoftheemployerforthebenefitoftheemployeetoretirement, insuranceandhospitalizationbenefitplans; (3)Benefitsgiventotherankandfileemployees,whethergrantedundera collectivebargainingagreementornot;and (4)Deminimisbenefitsasdefinedintherulesandregulationstobe promulgatedbytheSecretaryofFinance,uponrecommendationofthe Commissioner. TheSecretaryofFinanceisherebyauthorizedtopromulgate,upon recommendationoftheCommissioner,suchrulesandregulationsasarenecessary tocarryoutefficientlyandfairlytheprovisionsofthisSection,takingintoaccount thepeculiarnatureandspecialneedofthetrade,businessorprofessionofthe employer.

CHAPTERVII ALLOWABLEDEDUCTIONS SEC.34.DeductionsfromGrossIncome.Exceptfortaxpayersearning compensationincomearisingfrompersonalservicesrenderedunderanemployer employeerelationshipwherenodeductionsshallbeallowedunderthisSection otherthanundersubsection(M)hereof,incomputingtaxableincomesubjectto incometaxunderSections24(A);25(A);26;27(A),(B)and(C);and28(A)(1), thereshallbeallowedthefollowingdeductionsfromgrossincome; (A)Expenses. (1)OrdinaryandNecessaryTrade,BusinessorProfessionalExpenses. (a)InGeneral.Thereshallbeallowedasdeductionfromgrossincomeallthe ordinaryandnecessaryexpensespaidorincurredduringthetaxableyearin carryingonorwhicharedirectlyattributableto,thedevelopment,management, operationand/orconductofthetrade,businessorexerciseofaprofession, including: (i)Areasonableallowanceforsalaries,wages,andotherformsofcompensationfor personalservicesactuallyrendered,includingthegrossedupmonetaryvalueof fringebenefitfurnishedorgrantedbytheemployertotheemployee:Provided,That thefinaltaximposedunderSection33hereofhasbeenpaid; (ii)Areasonableallowancefortravelexpenses,hereandabroad,whileawayfrom homeinthepursuitoftrade,businessorprofession; (iii)Areasonableallowanceforrentalsand/orotherpaymentswhicharerequired asaconditionforthecontinueduseorpossession,forpurposesofthetrade, businessorprofession,ofpropertytowhichthetaxpayerhasnottakenorisnot takingtitleorinwhichhehasnoequityotherthanthatofalessee,useror possessor; (iv)Areasonableallowanceforentertainment,amusementandrecreationexpenses duringthetaxableyear,thataredirectlyconnectedtothedevelopment, managementandoperationofthetrade,businessorprofessionofthetaxpayer,or thataredirectlyrelatedtoorinfurtheranceoftheconductofhisoritstrade, businessorexerciseofaprofessionnottoexceedsuchceilingsastheSecretaryof Financemay,byrulesandregulationsprescribe,uponrecommendationofthe Commissioner,takingintoaccounttheneedsaswellasthespecialcircumstances, natureandcharacteroftheindustry,trade,business,orprofessionofthetaxpayer:

Provided,Thatanyexpenseincurredforentertainment,amusementorrecreation thatiscontrarytolaw,moralspublicpolicyorpublicordershallinnocasebe allowedasadeduction. (b)SubstantiationRequirements.Nodeductionfromgrossincomeshallbeallowed underSubsection(A)hereofunlessthetaxpayershallsubstantiatewithsufficient evidence,suchasofficialreceiptsorotheradequaterecords:(i)theamountofthe expensebeingdeducted,and(ii)thedirectconnectionorrelationoftheexpense beingdeductedtothedevelopment,management,operationand/orconductofthe trade,businessorprofessionofthetaxpayer. (c)Bribes,KickbacksandOtherSimilarPayments.Nodeductionfromgrossincome shallbeallowedunderSubsection(A)hereofforanypaymentmade,directlyor indirectly,toanofficialoremployeeofthenationalgovernment,ortoanofficialor employeeofanylocalgovernmentunit,ortoanofficialoremployeeofa governmentownedorcontrolledcorporation,ortoanofficialoremployeeor representativeofaforeigngovernment,ortoaprivatecorporation,general professionalpartnership,orasimilarentity,ifthepaymentconstitutesabribeor kickback. (2)ExpensesAllowabletoPrivateEducationalInstitutions.Inadditiontothe expensesallowableasdeductionsunderthisChapter,aprivateeducational institution,referredtounderSection27(B)ofthisCode,mayatitsoptionelect either:(a)todeductexpendituresotherwiseconsideredascapitaloutlaysof depreciableassetsincurredduringthetaxableyearfortheexpansionofschool facilitiesor(b)todeductallowancefordepreciationthereofunderSubsection(F) hereof. (B)Interest. (1)InGeneral.Theamountofinterestpaidorincurredwithinataxableyearon indebtednessinconnectionwiththetaxpayer'sprofession,tradeorbusinessshall beallowedasdeductionfromgrossincome:Provided,however,Thatthetaxpayer's otherwiseallowabledeductionforinterestexpenseshallbereducedbyanamount equaltothefollowingpercentagesoftheinterestincomesubjectedtofinaltax: Fortyonepercent(41%)beginningJanuary1,1998; Thirtyninepercent(39%)beginningJanuary1,1999;and Thirtyeightpercent(38%)beginningJanuary1,2000; (2)Exceptions.Nodeductionshallbeallowedinrespectofinterestunderthe succeedingsubparagraphs: (a)Ifwithinthetaxableyearanindividualtaxpayerreportingincomeonthecash basisincursanindebtednessonwhichaninterestispaidinadvancethrough discountorotherwise:Provided,Thatsuchinterestshallbeallowedaadeductionin

theyeartheindebtednessispaid:Provided,further,Thatiftheindebtednessis payableinperiodicamortizations,theamountofinterestwhichcorrespondstothe amountoftheprincipalamortizedorpaidduringtheyearshallbeallowedas deductioninsuchtaxableyear; (b)Ifboththetaxpayerandthepersontowhomthepaymenthasbeenmadeoristo bemadearepersonsspecifiedunderSection36(B);or (c)Iftheindebtednessisincurredtofinancepetroleumexploration. (3)OptionalTreatmentofInterestExpense.Attheoptionofthetaxpayer,interest incurredtoacquirepropertyusedintradebusinessorexerciseofaprofessionmay beallowedasadeductionortreatedasacapitalexpenditure. (C)Taxes. (1)InGeneral.Taxespaidorincurredwithinthetaxableyearinconnection withthetaxpayer'sprofession,tradeorbusiness,shallbeallowedasdeduction, except (a)TheincometaxprovidedforunderthisTitle; (b)Incometaxesimposedbyauthorityofanyforeigncountry;butthisdeduction shallbeallowedinthecaseofataxpayerwhodoesnotsignifyinhisreturnhis desiretohavetoanyextentthebenefitsofparagraph(3)ofthissubsection(relating tocreditsfortaxesofforeigncountries); (c)Estateanddonor'staxes;and (d)Taxesassessedagainstlocalbenefitsofakindtendingtoincreasethevalueof thepropertyassessed. Provided,ThattaxesallowedunderthisSubsection,whenrefundedorcredited, shallbeincludedaspartofgrossincomeintheyearofreceipttotheextentofthe incometaxbenefitofsaiddeduction. (2)LimitationsonDeductions.Inthecaseofanonresidentalienindividual engagedintradeorbusinessinthePhilippinesandaresidentforeigncorporation, thedeductionsfortaxesprovidedinparagraph(1)ofthisSubsection(C)shallbe allowedonlyifandtotheextentthattheyareconnectedwithincomefromsources withinthePhilippines. (3)CreditAgainstTaxforTaxesofForeignCountries.Ifthetaxpayersignifiesinhis returnhisdesiretohavethebenefitsofthisparagraph,thetaximposedbythisTitle shallbecreditedwith:

(a)CitizenandDomesticCorporation.InthecaseofacitizenofthePhilippinesand ofadomesticcorporation,theamountofincometaxespaidorincurredduringthe taxableyeartoanyforeigncountry;and (b)PartnershipsandEstates.Inthecaseofanysuchindividualwhoisamemberof ageneralprofessionalpartnershiporabeneficiaryofanestateortrust,his proportionateshareofsuchtaxesofthegeneralprofessionalpartnershiporthe estateortrustpaidorincurredduringthetaxableyeartoaforeigncountry,ifhis distributiveshareoftheincomeofsuchpartnershiportrustisreportedfortaxation underthisTitle. Analienindividualandaforeigncorporationshallnotbeallowedthecreditsagainst thetaxforthetaxesofforeigncountriesallowedunderthisparagraph. (4)LimitationsonCredit.TheamountofthecredittakenunderthisSectionshall besubjecttoeachofthefollowinglimitations: (a)Theamountofthecreditinrespecttothetaxpaidorincurredtoanycountry shallnotexceedthesameproportionofthetaxagainstwhichsuchcreditistaken, whichthetaxpayer'staxableincomefromsourceswithinsuchcountryunderthis Titlebearstohisentiretaxableincomeforthesametaxableyear;and (b)Thetotalamountofthecreditshallnotexceedthesameproportionofthetax againstwhichsuchcreditistaken,whichthetaxpayer'staxableincomefrom sourceswithoutthePhilippinestaxableunderthisTitlebearstohisentiretaxable incomeforthesametaxableyear. (5)AdjustmentsonPaymentofIncurredTaxes.Ifaccruedtaxeswhenpaiddiffer fromtheamountsclaimedascreditsbythetaxpayer,orifanytaxpaidisrefunded inwholeorinpart,thetaxpayershallnotifytheCommissioner;whoshall redeterminetheamountofthetaxfortheyearoryearsaffected,andtheamountof taxdueuponsuchredetermination,ifany,shallbepaidbythetaxpayeruponnotice anddemandbytheCommissioner,ortheamountoftaxoverpaid,ifany,shallbe creditedorrefundedtothetaxpayer.Inthecaseofsuchataxincurredbutnotpaid, theCommissionerasaconditionprecedenttotheallowanceofthiscreditmay requirethetaxpayertogiveabondwithsuretiessatisfactorytoandtobeapproved bytheCommissionerinsuchsumashemayrequire,conditioneduponthepayment bythetaxpayerofanyamountoftaxfounddueuponanysuchredetermination.The bondhereinprescribedshallcontainsuchfurtherconditionsastheCommissioner mayrequire. (6)YearinWhichCreditTaken.ThecreditsprovidedforinSubsection(C)(3)of thisSectionmay,attheoptionofthetaxpayerandirrespectiveofthemethodof accountingemployedinkeepinghisbooks,betakenintheyearwhichthetaxesof theforeigncountrywereincurred,subject,however,totheconditionsprescribedin Subsection(C)(5)ofthisSection.Ifthetaxpayerelectstotakesuchcreditsinthe yearinwhichthetaxesoftheforeigncountryaccrued,thecreditsforallsubsequent

yearsshallbetakenuponthesamebasisandnoportionofanysuchtaxesshallbe allowedasadeductioninthesameoranysucceedingyear. (7)ProofofCredits.ThecreditsprovidedinSubsection(C)(3)hereofshallbe allowedonlyifthetaxpayerestablishestothesatisfactionoftheCommissionerthe following: (a)ThetotalamountofincomederivedfromsourceswithoutthePhilippines; (b)Theamountofincomederivedfromeachcountry,thetaxpaidorincurredto whichisclaimedasacreditundersaidparagraph,suchamounttobedetermined underrulesandregulationsprescribedbytheSecretaryofFinance;and (c)Allotherinformationnecessaryfortheverificationandcomputationofsuch credits. (D)Losses. (1)InGeneral.Lossesactuallysustainedduringthetaxableyearandnot compensatedforbyinsuranceorotherformsofindemnityshallbeallowedas deductions: (a)Ifincurredintrade,professionorbusiness; (b)Ofpropertyconnectedwiththetrade,businessorprofession,ifthelossarises fromfires,storms,shipwreck,orothercasualties,orfromrobbery,theftor embezzlement. TheSecretaryofFinance,uponrecommendationoftheCommissioner,ishereby authorizedtopromulgaterulesandregulationsprescribing,amongotherthings,the timeandmannerbywhichthetaxpayershallsubmitadeclarationoflosssustained fromcasualtyorfromrobbery,theftorembezzlementduringthetaxableyear: Provided,however,Thatthetimelimittobesoprescribedintherulesand regulationsshallnotbelessthanthirty(30)daysnormorethanninety(90)days fromthedateofdiscoveryofthecasualtyorrobbery,theftorembezzlementgiving risetotheloss. (c)NolossshallbeallowedasadeductionunderthisSubsectionifatthetimeofthe filingofthereturn,suchlosshasbeenclaimedasadeductionforestatetaxpurposes intheestatetaxreturn. (2)ProofofLoss.Inthecaseofanonresidentalienindividualorforeign corporation,thelossesdeductibleshallbethoseactuallysustainedduringtheyear incurredinbusiness,tradeorexerciseofaprofessionconductedwithinthe Philippines,whensuchlossesarenotcompensatedforbyinsuranceorotherforms ofindemnity.TheSecretaryofFinance,uponrecommendationoftheCommissioner, isherebyauthorizedtopromulgaterulesandregulationsprescribing,amongother things,thetimeandmannerbywhichthetaxpayershallsubmitadeclarationofloss sustainedfromcasualtyorfromrobbery,theftorembezzlementduringthetaxable

year:Provided,Thatthetimetobesoprescribedintherulesandregulationsshall notbelessthanthirty(30)daysnormorethanninety(90)daysfromthedateof discoveryofthecasualtyorrobbery,theftorembezzlementgivingrisetotheloss; and (3)NetOperatingLossCarryOver.Thenetoperatinglossofthebusinessor enterpriseforanytaxableyearimmediatelyprecedingthecurrenttaxableyear, whichhadnotbeenpreviouslyoffsetasdeductionfromgrossincomeshallbe carriedoverasadeductionfromgrossin