1999 BIR Rulings

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Transcript of 1999 BIR Rulings

  • DIGEST OF 1999 BIR RULINGS

    RP-NETHERLANDS TAX TREATY; Interest Payments - Hercules Ultramarine, Inc. (HUI) is a duly registered BOI enterprise while Heclem B.V. (HBV) is a non-resident foreign corporation organized under the laws of the Kingdom of Netherlands. To facilitate the importation of vital and specialized machineries and equipment, HUI decided to avail of HBV's standing offer of financial assistance in the form of a loan, in consideration of which HUI agreed to pay HBV interest at the prevailing rate. Considering that such interest payments is not in connection with any sale on credit of machineries and equipment or in respect of public issues of bonds, debentures or similar obligations plus the fact that HBV is not a banking institution, such interest payments to HBV is subject to the withholding tax rate of 15% pursuant to Art. 11(2)(b) of the RP-Netherlands Tax Treaty. (BIR Ruling No. 001-99 dated January 7, 1999)

    1.a MINIMUM CORPORATATE INCOME TAX - Taxpayer who is liable to the Minimum Corporate Income Tax (MCIT) and at the same time has an Expanded Withholding Tax (EWT) may deduct the EWT from the MCIT and if there is still an excess EWT, he may request for tax credit or refund of the tax withheld. (BIR DA-No. 001-99 dated January 5, 1999)

    INCOME TAX; GSIS Optional and PAG-IBIG 2 Contributions - Section 2.78(B)(12) of Revenue Regulations No. 2-98 explicitly exempts from withholding tax GSIS, SSS, Medicare, Pag-Ibig contributions. It is safe to conclude that GSIS Optional and Pag-Ibig 2 contributions are likewise excluded from the gross income of the taxpayer, hence, exempt from income tax. Under Sec. 34(M) of the Tax Code, only premiums payments in health and/or hospitalization insurance not exceeding P2,400.00 per family or P200.00 a month paid during the taxable year by the taxpayer for himself, including his family, is allowed as deduction from the gross income. The GSIS Educational Plan Premium and GSIS Memorial Plan Premium shall be considered as part of employee's compensation subject to withholding tax. (BIR Ruling No. 002-99 dated January 12, 1999)

    ISSUANCE OF RECEIPTS; Banks and Financial Institutions not Exempt - The practice of a bank in Davao City of requiring the client who availed of financing plan for the purchase of a motor vehicle to deposit the payments in the financier's account for which he was given a copy of the deposit slips in lieu of the corresponding receipts is not allowed. Under Section 238 of the Tax Code, banks and financial institutions are not exempt from issuing official receipts for payment made by their clients. (BIR Ruling No. 003-99 dated January 12, 1999)

    WITHHOLDING AGENTS; Individual Buyers Not Engaged In Trade - Under Section 2 of Revenue Regulations No. 6-85 as amended by Revenue Regulations No. 12-94, individual buyers not engaged in trade or business are also constituted as withholding agents, but they need not register as such. (BIR Ruling No. 004-99 dated January 15, 1999)

    VAT; Sale of Housing Units Valued at P1,000,000.00 - The sale of housing units by Laguna Properties Holdings, Inc.(LPHI) valued at P1,000,000.00 and below and which falls under the term "other residential dwellings" shall be exempt from VAT. Moreover, considering that LPHI is engaged in the real estate business and the selling of built-up housing units of a particular model constitutes the sale of real property, such activity is in the nature of real estate business and not as service contractor. (BIR Ruling No. 005-99 dated January 18, 1999)

    VAT; Importation of Passenger or Cargo Vessel - Under Sec. 109(g) of the Tax Code, the importation of a vessel shall be exempt from VAT if it is a passenger or cargo vessel of more than five thousand tonnage whether coastwise or oceangoing. Since the imported ship is intended to be used for cleaning the Pasig River, the same cannot be considered as passenger or cargo vessel, hence shall be subject to 10% VAT imposed under Sec. 107(A) of the Tax Code. (BIR Ruling No. 006-99 dated January 18, 1999)

  • INCOME TAX; Multinational Company - Iwatani International Corporation (ITC), a corporation formed under the laws of Japan, is registered as a representative office in the Philippines to gather information and disseminate information on the company and its products and not authorized to generate income in the Philippines. Pursuant to Section 25(C) of the Tax Code, the term "multi-national company" means a foreign firm or entity engaged in international trade with affiliates or subsidiaries or branch office is the Asia Pacific Region and other foreign markets. Accordingly, the income tax rate applicable to the resident manager of ITC is 15% pursuant to said Section 25(C) of the Tax Code. (BIR Ruling No. 007-99 dated January 15, 1999)

    INCOME TAX; Sale of Factory Building by Ecozone Enterprise - R.A. 7916 is a special law which grants exemption from payment of national taxes to PEZA-registered business establishments operating within the Ecozone except payment of the preferential tax rate of 5% on the gross income earned. Hence, the gross income earned by Kishi Philippine Corporation (KPC) on the sale of its factory building located within the ECOZONE in the course of winding up its registered business within the ECOZONE is subject to the 5% preferential tax rate based on the gross selling price minus the depreciated cost of the building as of the date of commercial operations. Moreover, as a duly registered ECOZONE export enterprise, KPC is not subject to documentary stamp tax on the sale of its building since the buyer is also a PEZA-registered company. (BIR Ruling No. 008-99 dated January 19, 1999)

    ESTATE TAX; Allowable Deductions - All items enumerated in Sec. 86(A) of the Tax Code are allowable deductions from the value of the gross estate of a resident decedent in computing the net estate. The enumerated items are authorized by law to be deducted as independent, separate and distinct items of deduction which may properly be deducted from the gross estate of a resident subject to limitations provided under each item. (BIR Ruling No. 009-99 dated January 22, 1999)

    INCOME TAX; Long-term Deposit or Investment - PAG-IBIG Mortgage Certificates having maturity of at least five (5) years and shall be denominated and marketed in units priced as low as P10,000.00, and which are listed and traded through the Philippine Stock Exchange (PSE) and enrolled with the Philippine Central Depository for scripless trading falls under the definition of long-term deposit or investment, the interest income of which is exempt from income tax pursuant to Section 24(B)(1) and 25(2) of the Tax Code of 1997. (BIR Ruling No. 010-99 dated January 22, 1999)

    CREDITABLE WITHHOLDING TAX; Sale of Capital or Ordinary Asset - Pursuant to RR 1-90, the sale, exchange or transfer of real property whether capital or ordinary asset by a corporation which is habitually engaged in the real estate business, certified as such by the Chamber of Real Estate Builders Association, Inc. (CREBA) and who is registered with HUDCC shall be subject to a creditable withholding tax of two and one-half percent (2.5%) based on the gross selling price or total amount of consideration or its equivalent paid to the seller/owner. The said RR 1-90 covers all types of sale, i.e., cash sale, sale on installment basis and sale on a deferred payment basis. (Citation omitted) The above pronouncement as to the basis of the expanded withholding tax (EWT) was clarified in BIR Ruling No. 019-96, i.e., the entire gross selling price and not only on the initial or downpayments if the initial or downpayments in the year of sale exceed twenty-five percent (25%).

    The term "downpayment" is not equal to the gross selling price or the total amount of consideration or its equivalent paid tot he seller/owner since it is actually a portion of the whole (i.e., of the gross selling price or the total amount of the consideration or its equivalent). The alternative use of the terms "gross selling price" or "total consideration or its equivalent paid to the seller/owner' is necessary to comprehend the payment other than money made by the buyer which, in all intents, from part of the consideration or selling price and for which the equivalent value therefor shall be considered in computing the creditable withholding tax.

    Thus, in all instances, whether the basis is denominated as gross selling price or total amount of consideration or its equivalent, if initial payment thereof is equivalent to 25% or more, the transaction is considered as cash sale for which the corresponding rate of the creditable withholding tax prescribed shall

  • be withheld based not on the amount initially paid (downpayment) but on the gross selling price or total consideration or its equivalent paid to the seller/buyer. (BIR Ruling No. 011-99 dated January 22, 1999)

    INCOME TAX; Maternity Benefits - Section 28(b)(7)(E) of the National Internal Revenue Code of 1997 [now Section 32(B)(6)(e) of the Tax Code of 1997] excludes from gross income and exempts from taxation payments of benefits made under the Social Security Act of 1954, as amended. Maternity benefits are among those benefits provided under the Social Security Act of 1954, as amended by Republic Act 8282, more particularly Section 14-A of the said Act. Accordingly, the maternity benefits advanced by the employer to the employee are excluded from gross income, hence, exempt from withholding tax. (BIR Ruling No. 012-99 dated January 18, 1999)

    EXCISE TAX; Petroleum products imported by PAL - Petroleum products purchased or imported by PAL from abroad can be used by it in its domestic operations without payment of tax since the said products were not a domestic purchase. The intention of LOI No. 1483 is to impose a tax on domestic petroleum products purchased by PAL for use in its domestic operations. The grant of such exemption is not contrary to E.O. No. 93 withdrawing the tax and duty, including the preferential treatment of all units of government and private entities, in view of Sec. 24 of P.D. 1590. (BIR Ruling No. 013-99 dated January 29, 1999)

    VAT; Local Purchases of Goods and Properties by PNRC - PNRC is exempt from the payment of the 10% VAT on its importation of goods under Section 107 of the Tax Code of 1997. Local purchases by PNRC of goods or properties, services and use or lease of properties are exempt from VAT pursuant to Section 109(q) of the Tax Code of 1997; and interest income derived by PNRC from currency bank deposits and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements are exempt from the 20% final tax imposed under Section 27(D)(1) of the Tax Code of 1997. This revokes BIR Rulings Nos. 026-96 and 064-98. (BIR Ruling No. 014-99 dated February 1, 1999)

    DOCUMENTARY STAMP TAX; Pledge Agreement -The Pledge Agreement is subject to the payment of documentary stamps tax imposed under Section 195 of the Tax Code of 1997. However, the execution of a supplemental Pledge Agreement by Teletronic System, Inc. (TSI) in favor of Qualcom which will only substitute the New Timco shares pledged under the original pledge agreement with a corresponding number of Retelcom shares owned by New Timco, without any change in the terms and conditions of the pledge agreement as well as the amount of the loan of TSI from Citibank N.A. guaranteed by Qualcom is no longer subject to the documentary stamp tax imposed under Section 195 of the Tax Code of 1997. (BIR Ruling No. 015-99 dated February 3, 1999)

    RP-NETHERLANDS TAX TREATY; Royalty Payments - Since Maple does not have a permanent establishment in the Philippines, the amount of $150,000.00 to be derived by Maple from Megalicious for the lost development opportunities in the Designated Territory and as a technical service fee for the services that Maple is obligated to provide under the MFA, and the 25% of any and all product commissions that will be collected and remitted by Megalicious from the franchised businesses as well as the unit franchise fees are considered business profits not subject to Philippine income tax consequently to the withholding tax under Section 28(B)(1) in relation to Section 57(A) both of the Tax Code of 1997.

    Moreover, since Maple is a non-resident foreign corporation and is not engaged in trade or business in the Philippines as envisioned under Section 28(B)(1) of the Tax Code of 1997, royalty payments made by Megalicious in the amount of $100,000.00 for the use of its trademarks and intellectual property rights including the system of Country Style donuts in the Philippines and the 2% franchised business monthly gross sales are subject to the Philippine income tax at the rate of 10% pursuant to Art. XII(2)(b)(ii) of the RP-Canada Tax Treaty in relation to Article 12(2)(b) of the RP-West Germany Tax Treaty. The said tax shall be withheld and paid in the same manner and subject to the same condition as provided in Section 57(B) of the Tax Code of 1997. (BIR Ruling No. 016-99 dated February 4, 1999)

  • AUTHORITY TO ADMINISTER OATHS - The phrase "shall have the power to administer oaths "includes the power to certify that a document was executed, sworn to or acknowledged before a competent officer. "JURAT" is that part of an affidavit where the officer certifies that the same was "sworn" to before him. Accordingly, all BIR Forms containing a "JURAT", e.g., ATRIG, Manufacturer's Declaration, can be subscribed and sworn to before any of the BIR officers authorized to administer oaths under Section 14 of the Tax Code. (BIR Ruling No. 017-99 dated February 5, 1999)

    INCOME TAX; Definition of Corporation; Joint Venture - Pursuant to Section 22(B) of the Tax Code of 1997, the term "corporation" shall include partnerships, no matter how created or organized, joint stock companies, joint accounts (cuental en participacion), associations 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 an other energy operations pursuant to an operating or consortium agreement under a service contract with the Government. Hence, the joint venture of MEGAWORLD and LA O' for the construction of "The Manhattan Square" is not subject to the corporate income tax under Section 27(A) of the Tax Code of 1997. However, the co-venturers are separately subject to the regular corporate income tax on their income during each taxable year respectively derived by them from the aforesaid construction project. Furthermore, the allocation of the units and the issuance of the corresponding Condominium Certificates of Title by the Registry of Deeds of Makati City to MEGAWORLD and LA O', representing their respective shares or participating interests in the projects as stipulated in the JVA, are not taxable events, therefore, not subject to income and/or expanded withholding tax, because it is only upon the sale or disposition of the units allocated to MEGAWORLD and LA O' to third parties that the gain realized by the parties in the said transaction will be subject to the regular 34% of income tax for the taxable year 1997 under Section 27(A) of the Tax Code of 1997 and to the expanded withholding tax under Revenue Regulations No. 6-85, as amended by RR 2-98. [BIR Ruling No. DA-488-98] (BIR Ruling No. 018-99 dated February 11, 1999)

    CREDITABLE WITHHOLDING; Seller not Registered with HLURB - Since the seller, Bagong Lipunan Community Association of Valle Verde and Valle Verde 1 (BLCA) Condominium Corporation is not registered with the HLURB as engaged in the socialized housing projects under RA No. 7279 but is engaged in the real estate business with a selling price of more than P2,000,000.00 per unit, the said sale shall be subject to the 5% creditable withholding tax imposed under said Regulations. Consequently, the buyer is hereby constituted as withholding agent and is required to withhold the 5% creditable withholding tax based on the gross selling price or total amount of consideration or its equivalent paid to Bagong Lipunan Community Association of Valle Verde and Valle Verde I (BLCA) Condominium Corporation. (BIR Ruling No. 019-99 dated February 19, 1999)

    RP-SINGAPORE TAX TREATY; Royalties - The payments to be made by SMART to Fujitsu Asia Pte. Ltd. as the assignee of WE SERV for the supply and delivery of Hardware and Software comprised within the Smart Integrated Business System are not in the nature "royalties" within the purview of Art. 12(3) of the RP-Singapore Tax Treaty.

    However, if Fujitsu Asia Pte Ltd. has a permanent establishment in this country as the term is defined in Article 5 of the aforesaid tax treaty, the profits of Fujitsu Asia Pte Ltd. may be taxed in this country but only so much of it as is attributable to the permanent establishment. However, it shall be understood that the delivery of the hardware and software comprised under the Smart Integrated Business System is subject to 10% VAT. (BIR Ruling No. 020-99 dated February 24, 1999)

    CAPITAL GAINS TAX; Sale of Capital Assets - Under Section 27(D)(5) of the Tax Code of 1997, a final tax of six percent (6%) is imposed on the gains presumed to have been realized in the sale, exchange or disposition of lands and/or buildings which are not actively used in the business of a corporation and which are treated as capital assets based on the gross selling price or fair market value as determined in accordance with Section 6(E) of the Tax Code of 1997, whichever is higher. Accordingly, the real properties located at Pioneer Street, Mandaluyong City, consisting of land with an aggregate area of 42, 223 square meters and the buildings and other improvements therein, may qualify as capital assets, and the

  • sale thereof may be subject to the final tax of six percent (6%). (BIR Ruling No. 021-99 dated February 25, 1999)

    VAT; Processing of Meat - Facilitator Foods Processing Philippines, Inc. which is engaged in the processing of meat imported from the U.S.A. and other countries, is exempt from VAT pursuant to Sec. 109(c) of the Tax Code of 1997. (BIR Ruling No. 022-99 dated February 25, 1999)

    EXCISE TAX; Purchase of Petrolem Products by ADB - Asian Development Bank, being an international organization is entitled to tax exemption privilege on the purchase of petroleum products for its official use. Accordingly, ADB is covered by the exempting provision of Section 135(c) of the Tax Code of 1997 which provides that entities which are by law exempt from direct and indirect taxes are exempt from excise tax. (BIR Ruling No. 023-99 dated February 25, 1999)

    CREDITABLE WITHHOLDING TAX; Specialty Contractor - Section 2.57.2(E)(3) of Revenue Regulations No. 2-98 provides that those whose operations pertain to the performance of construction work requiring special skill and whose principal contracting business involves the use of specialized building trades or crafts shall be subject to the 1% creditable withholding tax based on the gross payments of the contractors, whether individual or corporate. Since a national artist for sculptural works falls within the category of specialty contractor under Section 2.57.2(E)(3) of said Regulations, payments made by the Department of Foreign Affairs to a national artist, are subject to the 1% creditable withholding tax. (BIR Ruling No. 024-99 dated February 25, 1999)

    DOCUMENTARY STAMP TAX; Policies of Insurance - The purchase and affixture of documentary stamp tax by ISAP on all its policies of insurance or other instruments by whatever name the same may be called, by which insurance shall be made or renewed upon property of any description, including rents or profits, against peril by sea or in inland waters, or by fire or lighting, shall be in accordance with the provisions of Revenue Regulations No. 5-97. (BIR Ruling No. 025-99 dated March 09, 1999)

    INCOME TAX; Principle of Reciprocity; Salaries of Diplomatic Officials - The tax exemptions of diplomatic agents/representatives do not include exemption from dues and taxes on their private income having its source in the receiving State and capital taxes on investments made in commercial undertakings in the receiving State. However, under the principle of reciprocity, the Philippine Government through the Bureau of Internal Revenue may consider granting tax exemption to the Embassy of the Federative Republic of Brazil and their personnel on such private income having source in the receiving State and capital taxes on investments made in commercial undertakings in the receiving State, provided that they can submit to the Commissioner of Internal Revenue or his duly authorized representative a copy of the special designation or international agreement showing that their Government allows similar tax exemption to Filipino Embassy personnel receiving similar income in their territory.

    Moreover, since the salaries of the diplomatic officials and agents are not among the enumerated exceptions of exemption from taxes, the same are deemed exempt from income tax and consequently from the withholding tax on the host country, i.e., the Philippines. (BIR Ruling No. 026-99 dated March 9, 1999)

    DOCUMENTARY STAMP TAX; Original issue of Shares of Stock by Ecozone Enterprise - Mitsui Transnet (Phils.) Corporation, an Ecozone Facilities Enterprises, is liable to pay documentary stamp tax on the original issue of its shares of stock to the Corporation's stockholders since the liability for DST on the original issuance of shares by a corporation attaches from the moment such as corporation accepts subscription from its stockholders which occurs during the incorporation stage of the corporation and naturally prior to its registration with PEZA under RA 7916. Hence, Mitsui Transnet cannot be said to be already a business enterprise operating within the ECOZONE and thus exempt from DST by virtue of the 5% preferential tax rate and the "in lieu" provisions of RA 7916. (BIR Ruling No. 027-99 dated March 9, 1999)

  • VAT; Aboitiz Air and Transport Corp. No Longer Subject to 5% Franchise Tax but to 10% VAT - Under Sec. 11 of R.A. No. 7583, Aboitiz Air & Transport Corporation (AATC), a domestic corporation engaged in the business of carriage of goods, mail, cargoes & other property by air, is liable to pay 5% franchise tax on its gross revenues. However, the 5% franchise tax was replaced by 10% VAT hence, AATC is no longer subject to the 5% franchise tax but to the 10% VAT. Moreover, since VAT is an indirect tax AATC can pass on to its customers or shippers the said 10% VAT. (BIR Ruling No. 028-99 dated March 10, 1999)

    INCOME TAX; Filipinos Occupying Managerial or Technical Positions - Filipinos employed and are occupying managerial or technical positions as those of aliens employed by the Asian Development Bank which is not only a Regional Area Headquarters, but the Headquarters itself are subject to the preferential tax rate of 15% on their compensation income pursuant to Section 25(C) of the Tax Code of 1997. (BIR Ruling No. 029-99 dated March 11, 1999)

    INCOME TAX; Tax-Free Merger - The merger of Roche (Phils.) Inc. with Boehringer Mannhelm (Philippines), Inc. qualifies as tax-free merger within the contemplation of Sec. 40(C)(2) and (6)(b) of the Tax Code of 1997 because Roche acquired all the assets and liabilities of BMPI, the transaction undertaken being for a bona fide business purpose and not for the purpose of engaging the burden of taxation. Since no Roche shares of stock will be issued, no DST are due from such transaction but the transfer by BMPI of its certificates of stock and real properties to Roche shall be subject to DST imposed under Secs. 176 and 196 of the Tax Code of 1997.

    Moreover, the reorganization is not subject to gift tax as there is no intention to donate on the part of any of parties. Finally, the transactions are not subject to VAT (output tax) under Sec. 4.100-5(b)(1) of Rev. Regs. No. 7-95. (BIR Ruling No. 030-99 dated March 12, 1999)

    INCOME TAX; Conveyance by Trustee of Properties in Favor of Trustor - The transfer of the Pepsi Shares from the Trustee, Guoco Securities (Phils.), Inc. to the Trustors, HWI and GAPI, the real owners therefor, without monetary consideration and by virtue of the Deeds of Trust respectively executed by HWHI and GAPI is not subject to the capital gains tax. In BIR Ruling DA-125097, this Office held that the conveyance by the trustee in favor of the trustor of the subject properties which the former acquired by virtue of the trust agreement is not to be treated as another transfer separate and distinct from the sale between the original owner and the trustee. The conveyance is merely to be treated as a continuation and confirmation of title in favor of the ultimate and real beneficiary of the subject properties.

    Moreover, the said Deeds are not subject to the documentary stamp tax imposed under Section 176 of the Tax Code of 1997, but only to the documentary stamp tax on certificates under Section 188 of the same Code. (BIR Ruling No. 031-99 dated March 19, 1999)

    VAT; Donation of Farm Equipment and Printed Religious Materials - The donation of farm equipment and printed religious materials by the Korean Firefight Youth Society for Rural Restoration in favor of the Philippine Firefight Youth Society for Rural Restoration and Multi-Purpose Cooperative is exempt from VAT pursuant to Sec. 109 (r) of the Tax Code of 1997 and Sec. 4. 103-1 (B)(u) of Revenue Regulations No. 7-95. (BIR Ruling No. 032-99 dated March 23, 1999)

    VAT; Income Tax; Lease of Office Space Located Outside PEZA -From the provision of R.A. No. 7916, it is clear that the sale of services to PEZA-registered enterprises, for income and VAT purposes, should be rendered within the PEZA boundaries to be entitled to the benefits of Section 24 of R.A. No. 7916. Since the Liaison office space and Exacts house are located outside PEZA boundaries, the lease thereof is therefore subject to the 10% VAT imposed under Section 108(a) and to the corporate income tax prescribed under Section 27(A) both of the Tax Code of 1997. (BIR Ruling No. 033-99 dated March 23, 1999)

  • RETIREMENT PAY; Benefits Paid by GSIS - The application for optional retirement of Mrs. Erlinda L. Gutierrez under P.D. 1146, as amended is without legal basis and therefore, cannot be given due course. However, Mrs. Gutierrez shall be entitled to the return of her GSIS personal contributions pertaining to her retirement only and the corresponding shares of the government with interest earned pursuant to existing rules and regulations of GSIS in accordance with Section 4 of RA 6683. She shall likewise be entitled to the commutation of her unused vacation and sick leaves pursuant to the same provision. This shall include cash payment equivalent to eighteen (18) times her basic monthly pension and old-age pension benefit in accordance with Section 11, RA 8291 amending PD 1146, dividends as provided for in Section 25 of RA 8291; and premiums paid and interest earned on automatic life insurance and/or optional insurance under Section 24 and 26 of RA 8291. This is because where the benefits provided by RA 6683 for the same contingencies are less than the benefits provided under PD 1146 as amended by RA 8291, the GSIS shall pay only the difference (Section 55 of RA 8291). Moreover, the benefits paid by the GSIS shall be exempt from all taxes as provided by Section 39 of RA 8291. (BIR Ruling No. 034-99 dated March 24, 1999)

    IPO TAX; Demutualization; Listing of Shares - Pursuant to Section 127(B) of the NIRC, the IPO tax would apply only to corporations which are considered "closely held", meaning that at least 50% in value of the outstanding voting shares of all classes is owned directly or indirectly by or for not more than 20 individuals. In the case where the shares of stock in the corporation to be listed are owned by another corporation, such shares will be considered as being owned proportionately by the latter's shareholders.

    Since HoldCo would be wholly-owned by SLAC prior to demutualization and at the time the application to list the HoldCo shares is filed with the PSE, the corporation shareholding of SLAC in HoldCo will be considered, as being proportionately held by SLAC's "shareholders". Since the members of SLAC, who would effectively be considered as shareholders of the company, consist of hundred of thousands of Eligible Policyholders, HoldCo will not be a "closely held corporation" prior to SLAC's demutualization. Accordingly, the listing of shares of stock in HoldCo with the PSE in connection with the demutualization of SLAC will not be subject to the IPO tax because, at all material times both before and after demutualization, HoldCo will not be a closely held corporation as defined under Section 127(B) of the NICRC. (BIR Ruling No. 035-99 dated March 25, 1999)

    EXCISE TAX; Sale of Petroluem Products to NPC - Section 135 of the Tax Code of 1997 provides that the sale of petroleum products shall be exempt from excise tax if sold to an entity that enjoys exemption from indirect taxes. Hence, the sale of petroleum products by Petron Corporation to the National Power Corporation (NPC) to be used by Edison Bataan Cogeneration Corporation (EBCC) in generating electricity for the Bataan EPZA is exempt from excise tax. (BIR Ruling No. 036-99 dated March 29, 1999)

    VAT; Gross Receipts of MWSS from Connection Fees - The P3,000.00 fees charged for connections or reconnections to a water main or a public sewer which are located less than 25 meters from the connection point under Article 9.5(1) of the Concession Agreement of MWSS privatization is subject to the 10% value added tax based on the gross receipts from such "connection fees" which shall be exclusive of the value-added tax, pursuant to Sec. 108(A) of the Tax Code of 1997. (BIR Ruling No. 037-99 dated March 29, 1999)

    VAT; Remittance of Royalties - Since Technol Eight Philippines (TEP) is duly registered with the BOI and engaged in preferred areas of investment under the investment incentives laws of the Philippines, the payment of royalties by TEP to TEC will be subject to the preferential tax rate of 10% Philippine income tax based on the gross amount of royalties. However, the remittance by TEP to TEC of the said royalties shall be subject to the 10% value-added tax pursuant to Section 108(A)(1) of the Tax Code of 1997.

    TEP shall, before making payment of royalties to TEC, withhold and remit to this Bureau of 10% VAT due thereon by filing a separate VAT return for and in behalf of TEC. (BIR Ruling No. 038-99 dated March 30, 1999).

  • ESTATE TAX; Foreign Currency Deposits of Non-Resident Alien - The foreign currency deposits of a non-resident alien decedent including interest and all other income or earnings of such deposits are exempt from estate and all other taxes whatsoever as long as the deposits are eligible or allowed under R.A. No. 6426, as amended. (BIR Ruling No. 039-99 dated March 30, 1999).

    CAPITAL GAINS TAX; Sale of Principal Residence - Granting the request of Ms. Eufemia Lazaro for exemption from the payment of 6% capital gains tax on the sale of her principal residence in favor of the Republic of the Philippines through the Department of Public Works and Highways since she has manifested her intention to fully utilize the proceeds of the sale to buy another parcel of land where she will construct her new principal residence within the time required by law and has notified the Commissioner of Internal Revenue of the same within 30 days from the sale or deposition of the property. (BIR Ruling No. 040-99 dated March 30, 1999)

    INVENTORIES; Average Cost or Weighted Average Method - Orion-Square Capital, Inc., a non-stock and bond broker and dealer in securities, has been using the "first-in-first out" method in costing its inventories; that in order to accurately reflect its income, it has decided to shift its method of costing inventories to the "average cost" method of considering that the marketable securities which comprise its inventory are generic in nature, intangible and usually indistinguishable from each other; and that this method conforms with industry accounting practices and lends to a more accurate indication of income and financial position at any given period. The BIR allowed Orion to adopt the "average cost" or "weighted average" method pursuant to Section 41 of the Tax Code of 1997 and Section 148 of Revenue Regulations No. 2. (BIR Ruling No. 041-99 dated March 30, 1999)

    RP-JAPAN TAX TREATY; Payment of Royalties - The payments made by Mitsubishi Heavy Industries Phils. (Inc.) (MHIPI) to Mitsubishi Heavy Industries, Ltd. (MHIL) for the right to use its industrial knowledge and experience in manufacturing automobile air conditioning systems and parts under the inventions, drawings, specifications and other manufacturing and/or services information that it has gained over the years under the license and Technical Assistance Agreement shall be subject to the preferential tax rate of 25% under Article 12(2)(b) of the RP-Japan Tax Treaty. However, the remittance by MHIPI to MHIL of the said royalties shall be subject to the 10% value-added tax pursuant to Section 108(A)(1) of the Tax Code of 1997. MHIPI shall, before making payments of royalties to MHIL, withhold and remit to this Bureau the 10% VAT due thereon by filing a separate VAT return for in behalf of MHIL. (Sec. 4.110-3(b), Revenue Regulations No. 7-95) (BIR Ruling No. 042-99 dated March 30, 1999)

    EXCISE TAX ON MINERAL PRODUCTS; Holders of Coal Operating Contracts under P.D. No. 972 -The preferential tax treatment privilege granted or being enjoyed by Coal Operating Contract (COC) holders under Section 16(a) of P.D. No. 972 was first repealed by EO No. 93 which encompassingly withdrew the tax and duty incentives enjoyed by all persons, whether natural or judicial, including government-owned or-controlled corporations. The aforesaid incentives enjoyed by coal operating contractors were however, effectively restored on March 10, 1987 by FIRB Resolution No. 19-87. Granting that the status quo of COC existing as of the time R.A. No. 7160 took effect on January 1, 1992 was maintained by express provision of Section 5(d) of the aforesaid Act, Section 193 thereof withdrew these preferential tax exemption privileges granted to, or enjoyed by all persons, whether natural or judicial, including government-owned or-controlled corporations, except local water districts cooperatives duly registered under R.A. No. 6938, and non-stock and non-profit hospitals and educational upon its effectivity. Furthermore, the intention to withdraw all the privileges, including those enjoyed by COC holders, was, however, bolstered by Section 534 of the same Act which expressly repealed Section 16 of P.D. No. 972, as amended. Accordingly, this Office hereby holds that under Section 151 of the Tax Code, as amended, COC holders are subject to excise tax of Ten pesos (P10.00) per metric ton of coal produced/explored and removed from the locality where mined. (BIR Ruling No. 043-99 dated March 30, 1999)

    VAT; Non-Technical Day to Day, Administration Services - Kuehne & Nagel (Asia Pacific) will merely support the operations of Kuehne & Nagel (Phils.) in Asia Pacific excluding Philippines, through a non-technical day to day administration services which shall thereafter be charged to the latter on a reimbursement-of-cost- basis, is not subject to VAT. (BIR Ruling No. 044-99 dated March 30, 1999)

  • DST; Income Tax; Lease Purchase Agreement Subject to DST, Ordinary Asset Sold Subject to CWT - The Lease Purchase Agreement executed by and between Total Persons Care Foundation (TOPEC) and Mariano Gabor sometime in December, 1985, is subject to the documentary stamp tax imposed under Section 194 of the Tax Code, while on the other hand, the subsequent Deed of Sale executed in July, 1998, is likewise subject to the documentary stamp tax prescribed under Section 196 of the Tax Code of 1997. In other words, both Lease Purchase Agreement and deed of Absolute Sale are subject to the corresponding documentary stamp tax prescribed under the aforecited provisions of the Tax Code. Moreover, the tax base of documentary stamp tax due on the Deed of Absolute Sale, shall, under Section 196 of the Tax Code of 1997, be based on the consideration or value received or contracted to be paid for such realty after making proper allowance of any encumbrance or on its fair market value determined in accordance with Section 6(E) of the Tax Code of 1997 (zonal valuation), whichever is higher. Finally, since the property sold in favor of Mr. Mariano Gabor is an ordinary asset, the sale thereof is subject to the creditable withholding tax imposed under Section 4 of Revenue Regulations No. 8-98 implementing Section 57(B) of the Tax Code of 1997 based on the gross selling price/total amount of consideration or fair market value (zonal valuation) of the real property sold, whichever is higher. (BIR Ruling No. 045-99 dated April 7, 1999)

    AUTHORITY TO PRINT RECEIPTS - Granting the request of Meralco to forego the requirement of pre-printed number in its computerized collection operation under a system called Customer Management System (CMS) using the Portable Rover 200 Machine Receipt Generator usually brought along by the bill collectors in the remote areas where there are no authorized agent bank servicing facilities. (BIR Ruling No. 046-99 dated April 7, 1999)

    VAT; Tax Exemption of ICLARM does not Extend to Indirect Taxes - The tax exemption of ICLARM covers only taxes for which it is directly liable and does not extend to indirect taxes, like VAT. Pursuant to Section 105 of the Tax Code of 1997, VAT is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee of goods, properties or services. The VAT on the sale of car is the direct tax liability of Nissan Southwood. However, when passed on to ICLARM, it is no longer a tax but an additional cost which becomes a part of the amount of the contract price to be paid by ICLARM. (BIR Ruling No. 047-99 dated April 13, 1999)

    CAPITAL GAINS TAX; Venue of Payment -- Since the seller-transferor is registered or is required to be registered in the Marikina RDO or RDO No. 45 the payment of the capital gains tax including the documentary stamp taxes due on the sale transaction between Mr. Augusto Cruz as vendor and New Ventures Realty Corporation in December, 1997 should have been paid at RDO No. 45, Marikina City, and not at RDO No. 50, Makati City. On the other hand, the documentary stamp tax payment made by the vendee at RDO No. 50-Makati City relative to the above-mentioned sale transaction although made at a wrong venue should not, however, be subjected to the corresponding penalty provided for under then Section 248(a)(2) of the Tax Code, as amended. (BIR Ruling No. 048-99 dated April 13, 1999)

    R.A. No. 7916; Businesses Operating within the ECOZONE - The request of Mayor Ernest H. Weigel, Jr. to amend Section 2(i) of RR No. 12-97 by excluding therefrom "real estate taxes" was denied. Although the heading of Section 24 of RA No. 7916 states "Exemption from taxes under the National Internal Revenue Code", the body of the provisions in question also mentions "local taxes". Obviously, the local taxes referred to therein pertain not only to the business taxes, fees and charges imposed by LGUs by means of local ordinances but also to local taxes authorized to be levied by them pursuant to R.A. No. 7160, otherwise known as the "Local Government Code of 1991". In short, businesses operating within the ECOZONE are no longer subject to the internal revenue taxes imposed under the Local Government Code but only to the preferential tax rate of 5% based on the gross income earned. The 5% in lieu of all taxes is a commutation tax which effectively accords the grantee exemption from all other taxes. (BIR Ruling No. 049-99 dated April 13, 1999)

    AUTHORITY OF CIR TO COMPROMISE - Pursuant to Sec. 204 of the Tax Code, the request of the Development Bank of the Philippines (DBP) for the waiver of the aforementioned interest, penalties and surcharges is hereby granted. This waiver of penalties and interest however, shall not extend to interests

  • and surcharges that may hereafter be assessed or charged on any GRT and DST which the DBP may be liable to pay. (BIR Ruling No. 050-99 dated April 14, 1999)

    EXCISE TAX; Petroleum Products Sold to Tax-exempt Entities -The petroleum product withdrawals by Petron Corporation are for use by entities or agencies exempt from excise tax under Section 135 of the Tax Code of 1997, and that the petroleum products are to be delivered to the tax-exempt entities within ten (10) days (for the period of January 1, 1998 to June 30, 1998); within five (5) days (for the period July 1, 1998 to December 31, 1998) from the date of removal of such products; and before removal from the place of production of such products (from January 1, 1999 and thereafter). Accordingly, Petron is allowed to claim a tax credit/refund of the excise taxes paid on petroleum products sold to tax-exempt entities or agencies, subject to the two-year prescriptive period under Section 229 of the Tax Code of 1997. (BIR Ruling No. 051-99 dated April 19, 1999)

    DST; Issuance of Shares by a Foreign Corporation Outside of the Philippines -DST being in the nature of an excise tax, is imposed on the privilege of conducting a particular transaction or executing a particular document within the Philippines. The issuance of shares should be subject to DST under Sec. 175 only if the corporation issuing the shares is a domestic corporation whose principal office is within the Philippines. Consequently, where a foreign corporation whose principal office is outside the Philippines issues shares of stock, where the subscribers of the shares are residents of the Philippines, the DST should not be imposed because the transaction occurs outside of the Philippines since the Holdco shares which are to be exchanged for the membership rights of the eligible Philippine policyholders of Manulife, a Canadian corporation, and which right arose pursuant to the corporate charter of Manulife and the Canada corporate and regulatory regime which govern Manulife, are issued in Canada pursuant to the demutualization of Manulife under the Canadian corporate law, the provision of Section 175 of the 1997 Tax Code shall not apply to such issuance of Holdco common shares to eligible Philippine policyholders. Neither will the provision of Section 177 of the same Tax Code shall apply. The Holdco shares are issued in Canada, hence, the issuance did not arise from Philippine source. However, the sale by the eligible policyholders of their Holdco shares through the PSE is subject to the documentary stamp tax calculated pursuant to Section 176 of the Tax Code of 1997. Correspondingly, the original issue price of a no par value shares of stock shall be determined in accordance with the proviso of Section 175 of the same Tax Code. Such being the case, the DST on the sale of the shares shall be calculated as 25% of 1% (i.e., P2.00 on each P200.00) of the foreign issuance price or IPO price of the Holdco shares, whichever is higher. (BIR Ruling No. 052-99 dated April 19, 1999)

    INCOME TAX; Tax-free Exchange for Shares of Stock -No gain or loss shall be recognized both on the part of Sun Life Assurance Company of Canada (SLAC), the transferor, and Philco, the transferee, on the transfer by SLAC of its Philippine branch business in exchange for shares of stock in Philco, considering that after the exchange and as a result thereof, SLAC will gain control of Philco, the transferee, in accordance with Section 40(C)(2) of the Tax Code; SLAC shall not be considered to have withdrawn the remittable profits of its Philippine Branch when the same are transferred to Philco and therefore the 15% Branch Profits Remittance Tax (BPRT) on remittable profits of SLAC as of the date of transfer of its Philippine branch business to Philco shall not be imposed; The transfer of assets of the Philippine branch to Philco shall not be subject to the 10% Value Added Tax pursuant to Section 4.100-5(b) of Revenue Regulations No. 7-95, as amended; The transfer of Philco shares by SLAC to BVCo is exempt from Philippine income tax pursuant to Article 13(3) and (4) of the RP-Canada Tax Treaty Considering that the transfer of Philco shares will be made to BVCo, a wholly owned subsidiary of SLAC, there is no transfer of Philco shares to an unrelated third party. Therefore, the transfer of Philco shares to BVCo should not result in the 15% BPRT; The transfer of its investments in shares of stock in domestic corporations by SLAC to Philco shall be subject to documentary stamp tax (DST) pursuant to Section 176 of the Tax Code. The transfer of any real property by SLAC to Philco shall be subject to DST pursuant to Section 196 of the Tax Code. The issuance of shares of stock by Philo to SLAC shall be subject to DST under Section 175 of the Tax Code; and finally, the transfer by SLAC of Philco shares to BVCo shall be subject to DST under Section 176 of the Tax Code. (BIR Ruling No. 053-99 dated April 19, 1999)

  • INCOME TAX; Abandonment Losses - Section 34(D)(7)(a) of the Tax Code of 1997 allows as deduction from gross income losses actually sustained during the taxable year and not compensated for by insurance or otherwise. Accordingly, Coenco's writing of all its interests in Geophysical Survey & Exploration Contract (GSEC 72 and 92), the same being classified as abandonment losses, are deductible from its gross income under Sec. 34(D)(7)(a) of the Tax Code of 1997. (BIR Ruling No. 054-99 dated April 19, 1999)

    INCOME TAX; Meaning of Fringe Benefits - Fringe benefits means any goods, service or other benefit furnished or granted by an employer in cash or in kind, in addition to basic salaries, to an employee (except rank and file employee) such as housing. Section 33(a) of the Tax Code of 1997 stipulates that fringe benefits which are "required by the nature of, or necessary to the trade, business or profession of the employer, or when the fringe benefits is for the convenience or advantage of the employer" are not subject to the fringe benefit tax. If the living quarters are furnished to an employee for the convenience of the employer, the value thereof need not be included as part of compensation income subject to withholding. It appearing that the 3 kilometer distance was for purposes of complying with the state policies on the promotion of the health and welfare of workers (Articles 11, Sections 15 and 18 of the 1987 Constitution) and the constitutional mandate guaranteeing full protection to labor (Art. 13, Sections 3 and 14, ibid.), this situation falls within the purview of Section 33 of the Tax Code of 1997. Such being the case, the costs and related expenses associated with the lease of the condominium unit and residential house for the benefit of the employees are expenses directly attributable to the development, management, operation and/or conduct of the business pursuant to Section 34(A)(1) of the Tax Code, the same shall be deducted from the gross income of ABB Power, Inc. As such, and considering that it is a fringe benefit for the convenience and advantage of the employer, it shall not be included as part of compensation income of the employee subject to withholding neither will it be subject to the fringe benefit under Sec. 33 of the Tax Code of 1997 implemented by Revenue Regulations No. 3-98. (BIR Ruling No. 055-99 dated April 23, 1999)

    DONOR'S TAX; Exemption of US Embassy on Donation of Vehicle - The donation of a vehicle by the US Embassy in favor of the Central Records Division of the Department of Foreign Affairs is exempt from the payment of donor's tax pursuant to Section 101(A)(2) of the Tax Code of 1997 considering that the donee is a political subdivisions of the Government. The aforesaid Deed of Donation is also not subject to the documentary stamp tax of P15.00 imposed under Section 188 of the same Code. (BIR Ruling No. 056-99 dated April 23, 1999)

    VAT; Transaction "deemed sale" - First Unibond Food Corporation (FUFC) is a domestic corporation incorporated in 1996 by the same principals of Nikon Industrial Corporation (Nikon). Due to the Asian crisis, FUFC had to suspend its operation and as part of the rehabilitation plan of the company, Nikon being the parent company is proposing to buy all the machineries of FUFC. Held: pursuant to Section 106(B)(1) of the Tax Code of 1997, the sale not in the course if business of all properties which are originally intended for use in the ordinary course of business is transaction "deemed sale" which is subject to VAT. Hence, the sale by FUFC of all its machineries to Nikon is subject to the 10% VAT under Section 106(A) of the Tax Code. FUFC, may however, pass on the 10% VAT to Nikon. (BIR Ruling No. 057-99 dated April 27, 1999)

    INCOME TAX; DST; Issuance of Additional Shares of Stock - The issuance of additional shares of stock to Rodamco Philippines B.V. (RPBV) for the purpose of maintaining its 20% equity holding in KSA Realty Corporation is not a flow of wealth from KSA to RPBV. RPBV will not be enriched by the receipt of additional shares of KSA because in its books, investment in KSA will be maintained at the original cost of P1,565,000,000. There is, therefore, no income to speak of that will result in the imposition of income tax. Accordingly, the issuance of additional shares of stocks by KSA to RPBV to be effected by the reclassification of the APIC to capital stock and undertaken for the purpose of maintaining the 20% equity of RPBV in KSA pursuant to the Investment Agreement Provisions, shall not result in any income tax on the part of RPBV. Moreover, since RPBV will not pay anything for the issuance of the additional KSA shares, the cost basis of its capital investment in KSA will remain the same despite the increase in the number of KSA shares that it will hold, and RPBV's cost per share will be reduced. Accordingly, the cost basis of RPBV for all the shares of stock of KSA, including the additional shares received as a result of the

  • reclassification of KSA's APIC to capital stock, shall be the same amount of its original investment amounting to P1,565,000,000. Finally, pursuant to Section 175 of the Tax Code, the issuance of additional shares to RPBV is subject to documentary stamp tax at the rate of Two Pesos (P2.00) for each Two Hundred Pesos (P200.00) of the par value of the said shares. (BIR Ruling No. 058-99 dated April 27, 1999)

    CWT; Meaning of the term "Habitually Engaged in the Real Estate Business" - For purposes of RR No. 2-98, the term habitually engaged in the real estate business is not limited or restricted only to persons duly registered with the Housing and Land Use Regulatory Board (HLURB) or Housing & Urban Development Coordinating Council (HUDCC). This proviso simply means that any person duly accredited by the said government agencies shall be deemed habitually engaged in the real estate business. However, even in the absence of registration therewith, a person may also be treated habitually engaged in the real estate business upon a showing that he is in fact actually engaged in the said business. For example, a lessor of real properties may not be registered with the HLURB or the HUDCC. Nevertheless, such person is engaged in business as a lessor of real properties, hence, embraced by the provision "habitually engaged in the real estate business." There is no doubt that ACL Development Corporation is habitually engaged in the real estate business for purposes of Section 2.57.2(J) of Revenue Regulations No. 2-98. (BIR Ruling No. 059-99 dated April 30, 1999)

    VAT; Payment of Service Fees in Foreign Currency - Under Section 108(B)(2) of the Tax Code of 1997, services other than the processing, manufacturing or repacking of goods for other persons doing business outside the Philippines, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas, shall be subject to the value-added tax at zero percent (0%). Accordingly, since the payment of the services fees to Software Ventures International shall be in acceptable foreign exchange and accounted for in accordance with Section 1 of BSP Circular No, 1389, as amended, the said service fees shall be subject to VAT at 0%. (BIR Ruling No. 060-99 dated May 3, 1999)

    INCOME TAX; Overtime Meal Allowance - The overtime meal allowances of P80.00/P90.00/P100.00 given by Petron to its rank and file employees, who have actually rendered overtime work, are not considered as part of compensation subject to withholding tax since the same are of relatively small value. Likewise, the overtime meal allowance of One hundred fifty pesos (P150.00)given to supervisory, professional and technical employees are not considered as part of compensation subject to withholding tax since such overtime meal allowances are furnished to the employees for the convenience of Petron.

    Moreover, the said overtime meal allowances granted to rank and file employees and to supervisory, professional and technical employees are not subject to the fringe benefits tax pursuant to Section 33 (C) of the Tax Code of 1997 as implemented by Section 2.33 (C) of Revenue Regulations No. 3-98.

    In fine, the overtime meal allowances granted to the rank and file employees are not subject to the fringe benefits tax as these are specifically exempted from the application thereof. Likewise, the overtime meal allowances granted to the supervisory, professional and technical employees are not subject to the fringe benefits tax since the same are granted to the employees as required by the nature of, or necessary to your trade, or business and for your convenience. (BIR Ruling No. 061-99 dated May 5, 1999)

    INCOME TAX; Exemption of PHIC - Philippine Health Insurance Corporation (PHIC) is exempt from the payment of income tax, and that all donations, contributions, bequest, subsidy or financial aid which may be made to it shall be exempt from donor's tax and shall be allowable as deduction from the gross income of the donor for income tax purposes subject to the conditions set forth under Section 34 (H)(I) of the Tax Code of 1997. (BIR Ruling No. 062-99 dated May 5, 1999)

    RETURN OF CORPORATION CONTEMPLATING DISSOLUTION - The dissolution of the Joint Operating Agreement entered into on January 14, 1974 between Lepanto Consolidated Mining Company and Filmag (Phils.), Inc. for the mining and marketing of Bentonite ore from the mineral lobe and placer

  • claims of Lepanto, with Filmag as the operator, is not within the scope of Section 52 (C) of the Tax Code of 1997. Since the dissolution of the Joint Operating Agreement will not result in the corporate dissolution of any or all of the parties in the Joint Operating agreement, the parties are not required to secure a dissolution clearance from the Securities and Exchange Commission and a tax clearance from the Bureau of Internal Revenue. (BIR Ruling No. 063-99 dated May 5, 1999)

    INCOME TAX; Interest income from foreign currency deposits - The interest income to be earned by various investors from foreign currency denominated deposits shall not be applicable to foreign currency bonds. A bond is a security as provided for by Section 22 (T) of the Tax Code of 1997. Moreover, the interest income to be receive by said investors shall be governed by tax treaties entered into by the Philippines with their respective countries. (BIR Ruling No. 064-99 dated May 7, 1999)

    INCOME TAX; Exemption of a non-stock, non-profit educational institution - The Blessed Child Montessori Foundation, being a non-stock, non-profit educational institution is exempt from taxes and duties on all its revenues and assets used actually, directly and exclusively for educational purposes. However, it shall be subject to internal revenue taxes on its income from trade, business and other activity the conduct of which is not related to the exercise or performance of its educational purposes or functions. It must be emphasized that the tax exemption does not cover withholding taxes. As an educational institution, it is constituted as withholding agent for the government and required to withhold the tax on compensation income of its employees, or the expanded withholding tax on income payment to persons subject to tax pursuant to Section 59(b) of the Tax Code, as amended. (BIR Ruling No. 065-99 dated May 13, 1999)

    INCOME TAX; Local Compensation of a Jewelry Consultant - Under Article VII (5) of the Agreement on Cooperation between the International Organization for Migration and the Government of the Philippines, the latter will exempt Integrated Expert from personal income or other direct taxes on salary and stipends received solely and by reason of services rendered under the Official Development Assistance Program. Since the obligation to exempt the salary of an Integrated Expert is binding upon the Government of the Philippines, the local compensation income in the amount of P10,000.00 for a month of a jewelry consultant working at the San Eligious Jewelry Training Center as an Integrated Expert under the Program is exempt from income tax pursuant to Sec. 32 (B)(5) of the Tax Code of 1997. (BIR Ruling No. 066-99 dated May 13, 1999)

    INCOME TAX; Documentary Stamp Tax; Exemption of rural banks - The Garments and Textile Export Board (GTEB) is a government regulatory body which does not perform any business similar to a government-owned or controlled corporation; it does not exercise proprietary function like other agencies of the governments and it is performing strictly governmental functions. It also disclosed that the GTEB has been created and organized pursuant to the provisions of P.D. No. 1440, promulgated on June 10, 1978.

    Since the GTEB is an agency under the Office of the President and performing only purely governmental function, its revenue as such is exempt from income tax, pursuant to the provisions of Section 32(B)(7)(b) of the NIRC of the 1997. (BIR Ruling No. 067-99 dated May 13, 1999)

    CAPITAL GAINS TAX - Revenue Regulations No. 8-98 dated August 25, 1998 already repealed, amended or modified any revenue regulations, memorandum order, circular or any other issuance of the Bureau of Internal Revenue regarding the date and venue for the filing of capital gains tax returns and payment of taxes on transactions involving real properties classified as capital assets and likewise the date and venue for the filing and payment of creditable withholding tax on transaction involving real properties classified as ordinary assets. In the case of sale or disposition of a capital asset, the Capital Gains Tax Return shall be filed by the seller and payment made to an Authorized Agent Bank (AAB) located within the Revenue District Office having jurisdiction over the place where the property being transferred is located (Sec. 3, Rev. Regs. No. 6-98). On the other hand, the creditable withholding taxes deducted and withheld by the withholding agent/buyer on the sale, transfer or exchange of real property classified as ordinary asset shall be paid upon filing of the return with the Authorized Agent Bank located within the Revenue District Office having jurisdiction over the place where the property being transferred is located

  • within ten (10) days following the end of the month in which the transaction occurred (Sec. 5, Revenue Regulations No. 80-98). Accordingly, Resolution No. 98-24 of the Cordillera Regional Assembly calling for the non-implementation of Revenue Memorandum order No. 17-97 has been rendered moot and academic by Revenue Regulations No. 8-98. (BIR Ruling No. 068-99 dated May 18, 1999)

    INCOME TAX; Documentary Stamp Tax; Exemption of Rural Banks - Pursuant to Section 15 of R.A. No.7353, the Rural Bank of Alabang (Muntinlupa), Inc. is subject to the payment of corporate income tax and local taxes, fees and charges, but is exempt from the payment of all other taxes including documentary stamp tax imposed under Section 196 of the Tax Code of 1997 on the sale, exchange or disposition of real property through mortgage foreclosure sale but only for a period of 5 years from the date of commencement of its operations, which is from January 15, 1997. However, Section 173 of the same Code provides that, "whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto, who is not exempt shall be the one directly liable for the tax." Accordingly, since Rural bank of Alabang (Muntinlupa), Inc. is exempt from the documentary stamp tax, the owner-mortgagor is the one liable for the payment of the documentary stamp tax due on said foreclosure sale. (BIR Ruling No. 069-99 dated May 18, 1999)

    CAPITAL GAINS TAX; Redemption of Shares - The redemption by Keppel Fels Energy Holdings, Inc. (FEHI) of its 433,330 shares of stock from BV Power Limited (BVPL) and 66,665 shares from Okachi Investments, Limited (OIL) at the issue price of P2,500.00 per share or its equivalent of US$95.27 converted at the exchange rate of P26,241 to a US dollar, which is the same as the issue price or adjusted basis of said shares will not result to any capital gain on the part of BVPL and OIL.

    Since there is no taxable gain, the redemption by FEHI of the shares of BVPL and OIL will not be subject to capital gains tax. (BIR Ruling No. 070-99 dated May 19, 1999)

    INCOME TAX; Sale of Condominium Units - Hooven Philippines, Inc. has been holding the real estate properties (condominium units) conveyed to it by way of dacion en pago as part of its inventory, not intended for capital investment but carried as part of inventory available for sale or immediate liquidation. Accordingly, since the aforementioned condominium units are ordinary assets in the hands of HOOVEN pursuant to Sec. 39(A) of the Tax Code of 1997, the sale of these condominium units is not subject to the final capital gains tax imposed under Section 27(D)(5) of the said Code. Rather, the income from the sale of these real properties shall be subject to the normal corporate income tax imposed under Section 27(A) of the said Code. (BIR Ruling No. 071-99 dated May 25, 1999)

    VAT; Excise Tax; Importation of PVD Iodized Salt - Sodium Chloride/Pure Vacuum Dried (PVD) Iodized Salt does not fall under the definition of mineral products under Section 51(B)(3) of the Tax Code of 19897. Such being the case, the importation of Sodium Chloride/Pure Vacuum Dried (PVD) Iodized Sale is subject only to the 10% value-added tax prescribed under Sec. 107(A) of the Tax Code of 1997 but not to the excise tax imposed under Section 151 of the same Code. (BIR Ruling No. 072-99 dated May 24, 1999)

    EXCISE TAX; INCOME TAX; Sale of Topped Crude Oil, Wax, Asphalt - As a purchaser of topped crude oil, Engr. Benjamin 'Santos is not liable to pay any tax on said purchases. Furthermore, the sale of crude oil not being among those enumerated under Section 148 of the Tax Code of 1997 as excisable petroleum product, is not subject to excise tax. However, Shell, as seller of the said crude oil, shall be subject to income tax on whatever gain it may derive on the transaction. By buying and paying for the topped crude oil, Engr. Santos is technically the owner of the material . Hence, if instead of removing it, the same is further processed by Shell and out of which process base stocks become the yield, the removal of the latter is not subject to excise tax imposed under Section 148 of the Code because an inventor is exempt from excise taxes pursuant to Section 3 (c) of Revenue Regulations No. 1998 implementing R.A. No. 7459. As regards other yield not used for the commercialization such as, wax and asphalt, the sale shall be subject to the corresponding excise tax imposed under section 148 of the Tax Code of 1997, and the gains derived therefrom shall likewise be subject to the income tax imposed under Section 24(A)(c) of the Tax Code of 1997. (BIR Ruling No. 073-99 dated May 27, 1999)

  • VAT; Sale of Automobiles to PEZA, SBMA and other Eecozone Registered Enterprises - Under RMC No. 25-99 the sales of ordinary automobiles to PEZA, or SBMA and other ECOZONE registered enterprises are not entitled to VAT zero-rating because under Section 2(ii) of R.A. No. 7916, the term "Merchandise or Goods" shall collectively refer to raw materials, supplies, equipment, machineries, spare parts, packaging materials or wares of every description to be used in connection with the registered activity of an ECOZONE enterprise. The phrase "to be used in connection with the registered activity of an ECOZONE enterprise" in describing what comprises merchandise or goods imparts the presumption that the same are somehow utilized in the production activity of an ECOZONE enterprise.

    Such being the case, since the sale of locally assembled motor vehicle to Daeduck Philippines, Inc. is not directly related to its registered activity as PEZA enterprise the same could not be covered within the classification of goods or merchandise entitled to the benefit of tax exemption. Moreover, since value-added tax is an indirect tax, the amount of tax may be shifted or passed on to the buyer of the goods, properties or services. Accordingly, the sale of one (1) unit of motor vehicle to Daeduck Philippines, Inc. is subject to 10% value-added tax. (BIR Ruling No. 074-99 dated June 4, 1999)

    DST; Original Issuance by a Non-resident Foreign Corporation - Since both EG & G International Ltd. (transferor) and EG & G Vaetee Philippines Ltd. (transferee) are both non-resident foreign corporation, the original issuance by the transferee of its shares of stock to the transferor in exchange for its Philippine branch assets and liabilities is not subject to the documentary stamp tax imposed under Section 175 of the Tax Code of 1997. Moreover, considering that the "Asset Transfer Agreement" executed by the transferor in favor of the transferee does not include shares of stock of the transferor, the "Asset Transfer Agreement" is not subject to the documentary stamp tax imposed under Section 176 of the Tax Code of 1997. (BIR Ruling No. 075-99 dated June 16, 1999)

    FRINGE BENEFITS TAX; Car Plans to Managers and Executives - A company is granting ear plan to the managers and sales executive; that the company buys the car and retains the title for five years; that sixty percent (60%) of the cost is recorded as asset and depreciated for rive (5) years in the books of accounts; that forty percent (40%) of the cost is recorded as receivable from the employee and collected within five (5) years interest-free; and that at the end of the five (5) year period, when sixty percent (60%) of the cost of the ear is fully depreciated and the forty percent (40%) share of the employee is fully paid, title is transferred to the employee.

    The fringe benefit in this particular case is to be computed as follows:

    Acquisition cost x 60% x 50% = Annual FBT on motor vehicle 5 Years

    Additionally, the company is further liable to fringe benefits tax under Section 2.33(B)(5)(a) on interest free loan to the employee computed at the benchmark interest rate of twelve percent per annum. Thus, the annual fringe benefit tax on interest-free loan for the 40% of the acquisition cost of the car should likewise be computed, as follows:

    40% of the acquisition cost x 12% p,.a. x 5 years = Annual FBT on interest 5 Years

  • (BIR Ruling No. 076-99 dated June 16, 1999)

    INCOME TAX; Exemption of Home Insurance and Guaranty Corporation - Pursuant to the pertinent provision of Section 32 paragraph (b) of R.A. No. 7279, Home Insurance and Guaranty Corporation (HIGC) as trustee for the National Center Housing Project is exempt from the payment of capital gains tax and the creditable withholding tax imposed under Revenue Regulations No. 2-98 on the sale of properties intended for socialize housing projects.

    However, the documentary stamp tax is not one of the taxes covered by the tax exemption clause in Section 20 of R.A. No. 7279. Such being the case, HIGC shall be liable to pay the documentary stamp tax on the documents conveying the aforementioned properties imposed under Section 196 of the Tax Code of 1997, based on the actual consideration thereof. (BIR Ruling No. 077-99 dated June 16, 1999)

    ESTATE TAX; Conjugal Partnership Property - A parcel of land covered by TCT No. 158889 and registered in the name of both spouses, the late Emigdio N. Najera, Sr. and Resalina N. Najera, is conjugal property having been acquired during the marriage. Following the rule that proof of acquisition of the property during the marriage suffices to render the statutory presumption operative, the parcel of land covered by the Deed of Extra-Judicial Settlement pertains to conjugal partnership of the late Emigdio N. Najera, Sr. and Rosalina N. Najera.

    Accordingly, upon the death of the late Emigdio N. Najera, Sr. on December 1, 1986 only one-half of the property described therein shall form part of his gross estate for purposes of determining his net estate subject to estate tax which is governed by the statute in force at the time of his death and based on the value of the property at the time of his death. Under Art. 996 of the Civil Code, the share of the surviving spouse should always be computed as one child in the division of the testate estate. Consequently, upon the death of the late Emigdio N. Najera, Sr. his wife, Rosalina N. Najera was entitled to a share equal to the share of his children from his estate. In so long, the heirs of the late Rosalina N. Najera should include from the gross estate, her one-half part of the property, being a pro-indiviso owner of the property covered by the Deed of Extra-Judicial Settlement as well as her share in the estate of the late Emigdio N. Najera, Sr. Hence, the Estates of Emigdio N. Najera, Sr. and Rosalina N. Najera should be computed separately for estate tax purposes in accordance with the statute in force at that time. (BIR Ruling No. 078-99 dated June 17, 1999)

    INCOME TAX; Ordinary and Necessary Expences - All ordinary and necessary expenses paid or incurred during the taxable year in carrying on or which are directly attributable to the development, management, operation and/or conduct of the trade, business or exercise of a profession are deductible from gross income pursuant to Section 34(A)(1)(a) of the Tax Code of 1997. Considering that the Regional Management Fees paid by Kuehne & Nagel (Philippines), Inc. to the central headquarters is directly connected with and the proximately resulting from carrying on the business of Kuehne & Nagel (Philippines), Inc. and are appropriate and helpful in the development of its business, the said Regional Management Fees falls within the contemplation of ordinary and necessary expenses under Section 34(A)(1)(a) of the Tax Code of 1997 and is a deductible item in computing the taxable income subject to income tax, pursuant to Section 34(A)(1) of the Tax code of 1997. (BIR Ruling No. 079-99 dated June 22, 1999)

    INCOME TAX; Single and Isolated Sale of Property - The proceeds of the sale of a portion of property along Aurora Boulevard by the Good Shepherd Convent , Inc. a non-stock, non-profit religious corporation, to the Light Rail Transit authority (LRTA), which sale is not voluntary but compelled by public authority, is exempt from capital gains tax. Having been derived from a single and isolated transaction in furtherance of the purposes for which the Good Shepherd Convent, Inc. is organized, the proceeds from the sale of a portion of its property in Aurora Blvd., cannot be considered income from the productive use of its property. Moreover, on the basis of the same arguments, the use of the proceeds of the sale to redevelop its remaining property for the general improvement thereof, is in effect, use of the proceeds of the sale of real property for the furtherance of the purpose for which Good Shepherd Convent, Inc. was organized. Thus, the same shall be treated as a transaction of incidental character which does not constitute engaging in

  • business and not subject to capital gains tax. However, the said transaction is subject to documentary stamp tax imposed under Section 196 of the Tax Code of 1997. (BIR Ruling No. 080-99 dated June 22, 1999)

    VAT; Input Taxes - Section 4.104-5 of Revenue Regulations No. 7-95 provides that input taxes shall be allowed only if the domestic purchase of goods, properties or services is made in the course of trade or business. However, the input tax should be duly supported by an invoice or receipt showing the information required under Sections 113-(A) and 237 of the Tax Code of 1997. Since the invoices or receipts issued by the individual contractors who undertook the renovation of the building are admittedly in the name of the condominium corporation, the unit owners although VAT-registered companies cannot apply their payments for the renovation of the condominium as input VAT to be credited against their output VAT. Moreover, there is no law, rule or regulations prohibiting the condominium corporation from issuing a certification certifying the share of the individual unit owner in every official receipt issued by the contractor and attaching the photo copy of the said official receipt. However, the said certification cannot be used for the purpose of claiming input VAT by the unit owners although they can use the same as substantiation for deductibility of business expenses for income tax purposes. (BIR Ruling No. 081-99 dated June 22, 1999)

    SURCHARGE AND INTEREST - The imposition of surcharge and interest on delinquency is mandatory. The fact that the taxpayer filed his 1999 income tax return and paid the taxes due thereon merely for the sake of beating the deadline shows lack of good faith and neglect of duty in respect of payment of taxes on time. Accordingly, taxpayer's request for waiver of surcharges and interest on his deficiency taxes is denied. (BIR Ruling No. 082-99 dated June 22, 1999)

    CAPITAL GAINS TAX; Sale of Rights over Realty - The provision of Section 24(D)(1) of the Tax Code of 1997 is clear that the sale of rights over realty although classified as real property under the Civil Code, is not the realty contemplated in the said Section considering that to be subject to the capital gains tax imposed therein, the realty in question must be located in the Philippines while right over real property may or may not be located in the Philippines since such kind of realty follows the owner thereof who may or may not be located in the Philippines. Such being the case, this Office holds that transfer of rights over realty, is not subject to the capital gains tax. In this case, what is actually being sold is the right which the seller has over the said realty, so much so that whomsoever buys the said rights merely steps into the shoes of the seller and acquire whatever right he may have over the realty concerned, but title thereto, remains with the seller (realty company). (BIR Ruling No. 083-99 dated June 22, 1999)

    CREDITABLE WITHHOLDING TAX; Losses during the immediately preceding two (2) years - Under Section 4(d) of Revenue Regulations No. 12-94, the withholding of 1% creditable withholding tax shall not apply to income payments made to a payee who suffered net operating losses during the immediately preceding two (2) years. This provision is no longer provided under Section 2.57.5 of Revenue Regulations No. 2-98, hence the taxpayer's request for exemption from the 1% creditable withholding tax on the ground that he suffered net operating losses during the years 1996 and 1997 is denied for lack of legal basis. (BIR Ruling No. 084-99 dated June 22, 1999)

    VAT; Definition of Gross Receipts - Section 108(A) of the Tax Code of 1997 provides that there shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties. On the hand, Section 108(A)(8) of the a same Code defines "gross receipts" as "the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding value-added tax. WG&A, being the domestic corporation engaged in the transport of cargoes, is well within the coverage of Section 108(A)(8) of the Tax Code of 1997. Accordingly, WG& A is required by the Tax Code of 1997 to pay its VAT output liability based on its gross receipts pursuant to the aforecited provision. Furthermore, WG&A can book the said output VAT as deferred output VAT, apply the same upon payment of the output VAT on services actually collected from the customers, amend all VAT returns which incorrectly recognized the transaction on an accrual basis so as to reflect the deferred

  • output VAT as advance payment; and file the same in the RDO of Cebu where the principal place of business of WG&A is situated. (BIR Ruling No. 085-99 dated June 29, 1999)

    CREDITABLE WITHHOLDING TAX; Leasing of Motor Vehicle - YEP Rent-A-Car which is engaged in the business of leasing motor vehicle is a lessor of motor vehicles or a transportation contractor subject to 1% creditable withholding tax imposed under Section 2.57.2(E)(4)(c ) of Revenue Regulations No. 2-98; hence the lessee, Bonifacio Construction Management Corporation, is not required to withhold 5% from its gross payment to YEP Rent-A-Car but only 1%. (BIR Ruling No. 086-99 dated July 1, 1999)

    VAT; Exemption of Cooperatives - Pursuant to Articles 61 and 62 of the Cooperative Code in relation to Section 109(R) of the Tax Code of 1997, the Confederation of Sugar Producers Cooperatives, being a national umbrella organization representing primary agricultural cooperatives among sugar producers duly registered with the Cooperative Development Authority, is exempt from all taxes and fees imposed under the internal revenue laws including the Value Added Tax (VAT). (BIR Ruling No. 087-99 dated July 1, 1999)

    EXCISE TAX - Confirming BIR Ruling No. 072-99 dated May 24, 1999 to the effect that Sodium Chloride/Pure Vacuum Dried (PVI) Iodized Salt is not a mineral product under Section 157(B)(3) of the Tax Code of 1997, hence not subject to the excise tax imposed therein (BIR Ruling No. 088-99 dated July 6, 1999)

    INCOME TAX; Separation of Employee due to Redundancy - Under Section 32(B)(6)(b) of the Tax Code of 1997, any amount received by an official or employee or by his heirs from the employer as a consequence of separation of such official or employee from the service of the employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee shall not be included in the gross income and shall be exempt from taxation under Title II of the Tax Code of 1997 regardless of age or length of service. The phrase "for any cause beyond the control of said official or employee" connotes involuntariness on the part of the official or employee. The separation from the service of the official or employee must not be asked for or initiated by him.

    Since the separation of the employees/workers is due to redundancy program resulting in restructuring/reorganization, such separation is beyond the control of employees/workers. Hence, any and all amounts received as a result thereof, are exempt from all taxes and consequently from the withholding tax prescribed by Section 79, Chapter XIII, Title II of the Tax Code of 1997 and implemented by Revenue Regulations No. 2-98. (BIR Ruling No. 089-99 dated July 6, 1999)

    CAPITAL GAINS TAX; Reconveyance of Foreclosed Properties - By virtue of R.A. No. 7202 the foreclosure sales made by the Philippine National Bank, the Republic Planters Bank, the Development Bank of the Philippines and various government financial institutions over the mortgaged properties securing crop loans taken for years 1974-1975 to 1984-1985 by the sugar planters (as debtor-mortgagors) were deemed abrogated when the loans granted to the latter were effectively extended. While there was a valid foreclosure sale that had transpired at the time but on account of subsequent abrogation of the same by mandate of the said RA 7202, the foreclosure was revoked by operation of law. Essentially, therefore RA 7202 retroactively nullified the foreclosure sale through extension of loans, condonation of interest charged by the banks in excess of 12% per annum and the recomputation and amortization for another thirteen (13) years of said loans, it being admitted by the Government that the losses suffered by the sugar planters during the crop years 1974-1975 to 1984-1985 were due to fault/inaction on the part of the government agencies that had direct recourse in avoiding the losses.

    Such being the case, the reconveyance of the foreclosed properties to the original owner pursuant to the mandate of RA 7202, is not subject to the capital gains tax imposed under Sec. 27(D)(5) of the Tax Code of 1997 nor to the documentary stamp tax imposed under Section 196 also of the Tax Code of 1997) (BIR Ruling No. 090-99 dated July 7, 1999)

  • CAPITAL GAINS TAX; Pacto de retro - The terms of the agreement between CB-BOL and TMBC calling for the transfer of its assets, although denominated as Deed of Assignment with Right to Repurchase, is in reality an equitable mortgage created over the said properties. Instruments covering a sale with right to repurchase may be captioned or labeled as such. However, when any or more of the circumstances enumerated under Article 1602, Civil Code, obtain in the agreement, the contract shall be presumed as an equitable mortgage. (BIR Ruling No. 217-81 dated November 6, 1981). This is relevant in determining whether or not the transaction had is subject to the corresponding taxes, i.e. capital gains tax documentary stamp tax.

    Insofar as corporations are concerned, its liability to the capital gains tax imposed on the presumed gains realized from the sale, exchange or disposition of lands and/or buildings is governed by Section 27(D)(5) of the Tax Code of 1997. Thus, for a corporation to be liable to the tax, a true sale, exchange or disposition of capital assets must have transpired. Unlike in transactions made by individuals under Section 24(D)(1) of the Code, where all sales of real property classified as capital assets, including pacto de retro or other forms of conditional sales are subject to the capital gains tax, no similar qualifications exist for capital asset transaction of a corporation. Hence, the latter is subject to such tax only upon a close and completed transaction in which income is realized.

    Accordingly, this Office holds that only upon the executing of the final or absolute deed of sale covering the properties of the bank subject of the pacto de retro, will the payment of the 6% capital gains tax apply. By the same token, since no actual conveyance of real property is to be made, the stamp tax on deeds of sale and conveyances of real property imposed under Section 196 shall not apply. However, since the transaction is in the nature of an equitable mortgage and made primarily as a security for the payment of a pre-existing loan, the same is subject instead to the rate of documentary stamp tax imposed under Section 195. (BIR Ruling No. 091-99 dated July 8, 1999)

    CORPORATE INCOME TAX; Expanded Withholding Tax - Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94 as last amended by Revenue Regulations No. 2-98, implementing Section 64(B) of the Tax Code of 1997, does not apply to transfers in complete liquidation where the assets of the liquidating corporation are transferred to its stockholders in exchange for the surrender of the latter's a shares of stock for cancellation by the corporation. This conveyance is without consideration. Hence, the transfer by Fundamental Development Corporation of its assets to its controlling stockholders by way of liquidating dividends, is not subject to the expanded creditable withholding tax and consequently, to the corporate income tax.

    Under Section 189 of Revenue Regulations No. 26, a conveyance distributing in liquidation the assets of a corporation consisting of real estate without consideration to the majority owner of its capital stock is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. Accordingly, the distribution in liquidation of the assets of Fundamental Development Corporation to its controlling majority stockholders, is not subject to the documentary stamp tax prescribed under Section 196 of the Tax Code in 19987.

    The sale by the stockholders of Fundamental Development Corporation of the distributed asset received by them as return in investment immediately after title thereto is transferred to their names shall be subject to the final capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. (BIR Ruling No. 092-99 dated July 8, 1999)

    RP-US Tax Treaty; Income Tax - Pursuant to Section 180 of the Tax Code of 1997 (also then Section 180 of the Tax Code, as amended) there shall be collected a documentary stamp tax on loan agreements, including those signed abroad, of Thirty Centavos (P0.30) on each Two Hundred Pesos (P200.00), or fractional part thereof, of the principal amount of the loan. Hence, the US Dollar loan agreement between Morgan Guarantee Trust Company of New York (MGT) with a Philippine Domestic Corporation under the terms and conditions stated therein, whether it shall be signed in the Philippines or abroad, is subject to documentary stamp tax at rate prescribed above.

  • Under Section 12(2) of the RP-US Tax Treaty, the Lender shall be subject to income tax of 15% on its interest income on the loan which shall be withheld by the Borrower upon payment of the interest, i.e., either semi-annually or at the drawdown date in case of prepayment, pursuant to Section 57(A) of the Tax Code of 1997 and should be remitted to the BIR through its Collecting Agents or authorized Agent Banks subject to the conditions provided for in Section 58(A) of the same Code.

    Pursuant to Section 34(B)(1) and (2) of the Tax Code of 1997, the interest paid by the Borrower is an allowance deduction from the gross income subject to the conditions thus imposed therein. In relation to this, Section 45 of the 1997 Tax Code provides for the periods for which tax deduction and credits are to be taken. Accordingly, for income tax purposes, the Borrower shall deduct the interest expense in the year such payments are made. However, if he prepays the interest at loan drawdown date, the prepaid interest may be amortized over the required period. To fully reflect the revenues generated and expenses incurred, the expired portion is deducted from the prepaid interest as the expense for the taxable year within the required period. (BIR Ruling 093-99 dated July 8, 1999)

    VAT; Documentary Stamp Tax; Excess Baggage - The additional amount collected by Times Transportation Co., Inc. for the excess baggage of passengers by issuing ordinary bus tickets is subject to the 10% VAT pursuant to Section 108 of the Tax Code of 1997. However, freight tickets covering goods, merchandise or effects carried as accompanied baggage of passengers on land and water carriers primarily engaged in the transportation of passengers are not subject to the documentary stamp tax pursuant to Section 191 of the Tax Code of 1997. (BIR Ruling No. 094 dated July 8, 1999)

    DONOR'S TAX - Under Section 34(H)(2)(a) of the National Internal Revenue Code of 1997, the donor may deduct in full from his gross income, for income tax purposes, any donation to the government, subject to the conditions stated therein. Since TESDA is a government entity and the competition under its auspices is deemed embraced by the proviso "exclusively to finance, to provide for, or to be used in undertaking priority activities in education," this Office hold that donations to TESDA for the above mentioned purpose may be fully claimed by the donor as deduction from his gross income for income tax purposes, pursuant to Section 32(H)(2)(a) of the National Internal Revenue Code of 1997. (BIR Rul