Nirc Better Form

8/3/2019 Nirc Better Form

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SEC% /%Power of the Commissioner to Otain Information! and to Summon! "xamine! andTa#e Testimony of Persons.- In ascertaining the correctness of any return! or in ma$ing a returnwhen none has been made! or in determining the liability of any person for any internal revenue ta!or in collecting any such liability! or in evaluating ta compliance! the 4ommissioner is authorized97A8 To eamine any boo$! paper! record! or other data which may be relevant or material tosuchin#uiry"

758 To obtain on a regular basis from any person other than the person whose internal revenue taliability is sub&ect to audit or investigation! or from any office or officer of the national and localgovernments! government agencies and instrumentalities! including the 5ang$o Sentral ng Pilipinasand government-owned or -controlled corporations! any information such as! but not limited to!costs and volume of production! receipts or sales and gross incomes of tapayers! and the names!addresses! and financial statements of corporations! mutual fund companies! insurance companies!regional operating head#uarters of multinational companies! &oint accounts! associations! &ointventures of consortia and registered partnerships! and their members"

748 To summon the person liable for ta or re#uired to file a return! or any officer or employee ofsuch person! or any person having possession! custody! or care of the boo$s of accounts and other

accounting records containing entries relating to the business of the person liable for ta! or anyother person! to appear before the 4ommissioner or his duly authorized representative at a timeand place specified in the summons and to produce such boo$s! papers! records! or other data!and to give testimony"

7'8 To ta$e such testimony of the person concerned! under oath! as may be relevant ormaterial tosuch in#uiry" and

78 To cause revenue officers and employees to ma$e a canvass from time to time of anyrevenuedistrict or region and in#uire after and concerning all persons therein who may beliable to pay anyinternal revenue ta! and all persons owning or having the care! management or possession of anyob&ect with respect to which a ta is imposed.

The provisions of the foregoing paragraphs notwithstanding! nothing in this Section shall beconstrued as granting the 4ommissioner the authority to in#uire into ban$ deposits other than asprovided for in Section :768 of this 4ode.

SEC% 0% Power of the Commissioner to $a#e assessments and Prescrie additionalRe%uirements for Tax &dministration and "nforcement. -7A8 Examination of Returns and Determination of Tax Due.- After a return has been filed asre#uiredunder the provisions of this 4ode! the 4ommissioner or his duly authorizedrepresentative mayauthorize the eamination of any tapayer and the assessment of the correct amount ofta9 Provided, howeverThat failure to file a return shall not prevent the 4ommissioner from

authorizing the eamination of any tapayer.Any return! statement of declaration filed in any office authorized to receive the same shall not bewithdrawn9 Provided, Thatwithin three 728 years from the date of such filing! the same may bemodified! changed! or amended9 Provided, further, That no notice for audit or investigation of suchreturn! statement or declaration has in the meantime been actually served upon the tapayer.758!aiure to #u$mit Re%uired Returns, #tatements, Re&orts and other Documents. - ;hen areport re#uired by law as a basis for the assessment of any national internal revenue ta shall notbe forthcoming within the time fied by laws or rules and regulations or when there is reason to


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believe that any such report is false! incomplete or erroneous! the 4ommissioner shall assess theproper ta on the best evidence obtainable.In case a person fails to file a re#uired return or other document at the time prescribed by law! orwillfully or otherwise files a false or fraudulent return or other document! the 4ommissioner shallma$e or amend the return from his own $nowledge and from such information as he can obtainthrough testimony or otherwise! which shall be prima facie correct and sufficient for all legal

purposes.

748Authorit' to (onduct )nventor'-ta*in+, surveiance and to Prescri$e Presum&tive ross#aesand Recei&ts. - The 4ommissioner may! at any time during the taable year! orderinventory-ta$ingof goods of any tapayer as a basis for determining his internal revenue ta liabilities! or may placethe business operations of any person! natural or &uridical! under observation or surveillance if thereis reason to believe that such person is not declaring his correct income! sales or receipts forinternal revenue ta purposes. The findings may be used as the basis for assessing the taes forthe other months or #uarters of the same or different taable years and such assessment shall bedeemed&rima facie correct.;hen it is found that a person has failed to issue receipts and invoices in violation of there#uirements of Sections ))2 and 021 of this 4ode! or when there is reason to believe that the

boo$s of accounts or other records do not correctly reflect the declarations made or to be made in areturn re#uired to be filed under the provisions of this 4ode! the 4ommissioner! after ta$ing intoaccount the sales! receipts! income or other taable base of other persons engaged in similarbusinesses under similar situations or circumstances or after considering other relevant informationmay prescribe a minimum amount of such gross receipts! sales and taable base! and such amountso prescribed shall be prima facie correct for purposes of determining the internal revenue taliabilities of such person.

7'8Authorit' to Terminate Taxa$e Period.- ;hen it shall come to the $nowledge ofthe4ommissioner that a tapayer is retiring from business sub&ect to ta! or is intending to leave thePhilippines or to remove his property therefrom or to hide or conceal his property! or is performingany act tending to obstruct the proceedings for the collection of the ta for the past or current

#uarter or year or to render the same totally or partly ineffective unless such proceedings are begunimmediately! the 4ommissioner shall declare the ta period of such tapayer terminated at any timeand shall send the tapayer a notice of such decision! together with a re#uest for the immediatepayment of the ta for the period so declared terminated and the ta for the preceding yearor #uarter! or such portion thereof as may be unpaid! and said taes shall be due and payableimmediately and shall be sub&ect to all the penalties hereafter prescribed! unless paid within thetime fied in the demand made by the 4ommissioner.

78Authorit' of the (ommissioner to Prescri$e Rea Pro&ert' aues.- The 4ommissioner isherebyauthorized to divide the Philippines into different zones or areas and shall! uponconsultation withcompetent appraisers both from the private and public sectors! determine the fair mar$et value ofreal properties located in each zone or area. 6or purposes of computing any internal revenue ta!

the value of the property shall be! whichever is the higher of9

7)8 the fair mar$et value as determined by the 4ommissioner! or708 the fair mar$et value as shown in the schedule of values of the Provincial and 4ityAssessors.

768Authorit' of the (ommissioner to in%uire into an* De&osit Accounts.- (otwithstandinganycontrary provision of 3epublic Act (o. )


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7)8 a decedent to determine his gross estate" and708 any tapayer who has filed an application for compromise of his ta liability underSec. 0


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7c8 5an$s duly accredited by the 4ommissioner with respect to receipt of payments internalrevenuetaes authorized to be made thru ban$.

Any officer or employee of an authorized agent ban$ assigned to receive internal revenue tapayments and transmit ta returns or documents to the 5ureau of Internal 3evenue shall be sub&ectto the same sanctions and penalties prescribed in Sections 0:, and 01< of this 4ode.SEC% 1,% &uthority of a Revenue Offices. - sub&ect to the rules and regulations to be prescribed

by the Secretary of 6inance! upon recommendation of the 4ommissioner! a 3evenue /fficerassigned to perform assessment functions in any district may! pursuant to a @etter of Authorityissued by the 3evenue 3egional 'irector! eamine tapayers within the &urisdiction of the district inorder to collect the correct amount of ta! or to recommend the assessment of any deficiency tadue in the same manner that the said acts could have been performed by the 3evenue 3egional'irector himself.SEC% 1'%&uthority of Officers to &dminister Oaths and Ta#e Testimony. - The 4ommissioner!'eputy 4ommissioners! Service 4hiefs! Assistant Service 4hiefs! 3evenue 3egional 'irectors!

Assistant 3evenue 3egional 'irectors! 4hiefs and Assistant 4hiefs of 'ivisions! 3evenue 'istrict/fficers! special deputies of the 4ommissioner! internal revenue officers and any other employee ofthe 5ureau thereunto especially deputized by the 4ommissioner shall have the power to administeroaths and to ta$e testimony in any official matter or investigation conducted by them regarding

matters within the &urisdiction of the 5ureau.SEC% 1/%&uthority of Internal Revenue Officers to $a#e &rrests and Sei)ures. -The4ommissioner! the 'eputy 4ommissioners! the 3evenue 3egional 'irectors! the 3evenue 'istrict/fficers and other internal revenue officers shall have authority to ma$e arrests and seizures for theviolation of any penal law! rule or regulation administered by the 5ureau of Internal 3evenue. Anyperson so arrested shall be forthwith brought before a court! there to be dealt with according to law.SEC% 10%&ssi'nment of Internal Revenue Officers Involved in "xcise Tax *unctions to"stalishments +here &rticles su,ect to "xcise Tax are Produced or -ept. -The4ommissioner shall employ! assign! or reassign internal revenue officers involved in ecise tafunctions! as often as the eigencies of the revenue service may re#uire! to establishments orplaces where articles sub&ect to ecise ta are produced or $ept9Provided! That an internal revenueofficer assigned to any such establishment shall in no case stay in his assignment for more than two

708 years! sub&ect to rules and regulations to be prescribed by the Secretary of 6inance! uponrecommendation of the 4ommissioner.SEC% 17%&ssi'nment of Internal Revenue Officers and Other "mployees to Other Duties.- The 4ommissioner may! sub&ect to the provisions of Section ): and the laws on civil service! aswell as the rules and regulations to be prescribed by the Secretary of 6inance upon therecommendation of the 4ommissioner! assign or reassign internal revenue officers and employeesof the 5ureau of Internal 3evenue! without change in their official ran$ and salary! to other orspecial duties connected with the enforcement or administration of the revenue laws as theeigencies of the service may re#uire9 Provided,That internal revenue officers assigned to performassessment or collection function shall not remain in the same assignment for more than three 728years"Provided, further! That assignment of internal revenue officers and employees of the 5ureauto special duties shall not eceed one 7)8 year.

SEC% 1&% Reports of .iolation of Laws. - ;hen an internal revenue officer discovers evidence of aviolation of this 4ode or of any law! rule or regulations administered by the 5ureau of Internal3evenue of such character as to warrant the institution of criminal proceedings! he shallimmediately report the facts to the 4ommissioner through his immediate superior! giving the nameand address of the offender and the names of the witnesses if possible9 Provided,That in urgentcases! the 3evenue 3egional director or 3evenue 'istrict /fficer! as the case may be! may sendthe report to the corresponding prosecuting officer in the latter case! a copy of his report shall besent to the 4ommissioner.


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SEC% 19% Contents of Commissioner/s &nnual Report. - The Annual 3eport of the 4ommissionershall contain detailed statements of the collections of the 5ureau with specifications of the sourcesof revenue by type of ta! by manner of payment! by revenue region and by industry group and itsdisbursements by classes of ependitures.

In case the actual collection eceeds or falls short of target as set in the annual national budget by

fifteen percent 7)*B8 or more! the 4ommissioner shall eplain the reason for such ecess orshortfall.

SEC% (% Sumission of Report and Pertinent Information y the Commissioner.7A8 #u$mission of Pertinent )nformation to (on+ress. - The provision of Section 01< of this4ode tothe contrary notwithstanding! the 4ommissioner shall! upon re#uest of 4ongress and in aid oflegislation! furnish its appropriate 4ommittee pertinent information including but not limited to9industry audits! collection performance data! status reports in criminal actions initiated againstpersons and tapayerCs returns9 Provided, however, That any return or return information which canbe associated with! or otherwise identify! directly or indirectly! a particular tapayer shallbe furnished the appropriate 4ommittee of 4ongress only when sitting in ecutive Session nlesssuch tapayer otherwise consents in writing to such disclosure.

758 Re&ort to /versi+ht (ommittee. - The 4ommissioner shall! with reference to Section 0


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but does not include general professional partnerships and a &oint venture or consortium formed forthe purpose of underta$ing construction pro&ects or engaging in petroleum! coal! geothermal andother energy operations pursuant to an operating consortium agreement under a service contractwith the %overnment% "enera &rofessiona &artnershi&s" are partnerships formed by persons forthe sole purpose of eercising their common profession! no part of the income of which is derivedfrom engaging in any trade or business.

748 The term"domestic"! when applied to a corporation! means created or organized in thePhilippines or under its laws.

7'8 The term"forei+n",when applied to a corporation! means a corporation which is not domestic.

78 The term"nonresident citien"means9

7)8 A citizen of the Philippines who establishes to the satisfaction of the 4ommissioner the fact ofhis physical presence abroad with a definite intention to reside therein.708 A citizen of the Philippines who leaves the Philippines during the taable year to reside abroad!either as an immigrant or for employment on a permanent basis.728 A citizen of the Philippines who wor$s and derives income from abroad and whose employmentthereat re#uires him to be physically present abroad most of the time during the taable year.78 A citizen who has been previously considered as nonresident citizen and who arrives in thePhilippines at any time during the taable year to reside permanently in the Philippines shallli$ewise be treated as a nonresident citizen for the taable year in which he arrives in thePhilippines with respect to his income derived from sources abroad until the date of his arrival in thePhilippines.7*8 The tapayer shall submit proof to the 4ommissioner to show his intention of leaving thePhilippines to reside permanently abroad or to return to and reside in the Philippines as the casemay be for purpose of this Section.768 The term "resident aien"means an individual whose residence is within the Philippines and whois not a citizen thereof.7%8 The term "nonresident aien"means an individual whose residence is not within the Philippinesand who is not a citizen thereof.7?8 The term"resident forei+n cor&oration"applies to a foreign corporation engaged in trade orbusiness within the Philippines.7I8 The term 34o4re5$6e4t fore$4 cororat$o43applies to a foreign corporation not engaged intrade or business within the Philippines.7=8 The term "fiduciar'"means a guardian! trustee! eecutor! administrator! receiver! conservator orany person acting in any fiduciary capacity for any person.7F8 The term"withhodin+ a+ent"means any person re#uired to deduct and withhold any ta underthe provisions of Section *1.7@8 The term "shares of stoc*"shall include shares of stoc$ of a corporation! warrants and>oroptions to purchase shares of stoc$! as well as units of participation in a partnership 7eceptgeneral professional partnerships8! &oint stoc$ companies! &oint accounts! &oint ventures taable ascorporations! associations and recreation or amusement clubs 7such as golf! polo or similar clubs8!and mutual fund certificates.7D8 The term"sharehoder"shall include holders of a share>s of stoc$! warrant>s and>or option>s topurchase shares of stoc$ of a corporation! as well as a holder of a unit of participation in apartnership 7ecept general professional partnerships8 in a &oint stoc$ company! a &oint account! ataable &oint venture! a member of an association! recreation or amusement club 7such as golf! polo


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or similar clubs8 and a holder of a mutual fund certificate! a member in an association! &oint-stoc$company! or insurance company.7(8 The term"tax&a'er"means any person sub&ect to ta imposed by this Title.

7/8 The terms "incudin+"and"incudes"+when used in a definition contained in this Title! shall notbe deemed to eclude other things otherwise within the meaning of the term defined.

7P8 The term"taxa$e 'ear"means the calendar year! or the fiscal year ending during such calendaryear! upon the basis of which the net income is computed under this Title. CTaable yearC includes! inthe case of a return made for a fractional part of a year under the provisions of this Title or underrules and regulations prescribed by the Secretary of 6inance! upon recommendation of thecommissioner! the period for which such return is made.7G8 The term"fisca 'ear"means an accounting period of twelve 7)08 months ending on the last dayof any month other than 'ecember.738 The terms"&aid or incurred"and Cpaid or accruedC shall be construed according to the method ofaccounting upon the basis of which the net income is computed under this Title.7S8 The term "trade or $usiness"includes the performance of the functions of a public office.7T8 The term"securities"means shares of stoc$ in a corporation and rights to subscribe for or to

receive such shares. The term includes bonds! debentures! notes or certificates! or other evidenceor indebtedness! issued by any corporation! including those issued by a government or politicalsubdivision thereof! with interest coupons or in registered form.78 The term "deaer in securities"means a merchant of stoc$s or securities! whether an individual!partnership or corporation! with an established place of business! regularly engaged in thepurchase of securities and the resale thereof to customers" that is! one who! as a merchant! buyssecurities and re-sells them to customers with a view to the gains and profits that may be derivedtherefrom.7E8 The term"$an*"means every ban$ing institution! as defined in Section 0 of 3epublic Act (o.221! as amended! otherwise $nown as the %eneral ban$ing Act. A ban$ may either be a commercialban$! a thrift ban$! a development ban$! a rural ban$ or specialized government ban$.7;8 The term "non-$an* financia intermediar'"means a financial intermediary! as defined in

Section 07'8748 of 3epublic Act (o. 221! as amended! otherwise $nown as the %eneral 5an$ingAct! authorized by the 5ang$o Sentral ng Pilipinas 75SP8 to perform #uasi-ban$ing activities.7H8 The term "%uasi-$an*in+ activities"means borrowing funds from twenty 70


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reserves against deposit liabilities! including those between or among ban$s and #uasi-ban$s! shallnot be considered as deposit substitute debt instruments.7J8 The term "ordinar' income"includes any gain from the sale or echange of property which is nota capital asset or property described in Section 2,7A87)8. Any gain from the sale or echange ofproperty which is treated or considered! under other provisions of this Title! as Cordinary incomeCshall be treated as gain from the sale or echange of property which is not a capital asset as

defined in Section 2,7A87)8. The term Cordinary lossC includes any loss from the sale or echange ofproperty which is not a capital asset. Any loss from the sale or echange of property which istreated or considered! under other provisions of this Title! as Cordinary lossC shall be treated as lossfrom the sale or echange of property which is not a capital asset.7AA8 The term "ran* and fie em&o'ees"shall mean all employees who are holding neithermanagerial nor supervisory position as defined under eisting provisions of the @abor 4ode of thePhilippines! as amended.7558 The term "mutua fund com&an'"shall mean an open-end and close-end investment companyas defined under the Investment 4ompany Act.7448 The term "trade, $usiness or &rofession"shall not include performance of services by thetapayer as an employee.7''8 The term "re+iona or area head%uarters"shall mean a branch established in the Philippines

by multinational companies and which head#uarters do not earn or derive income from thePhilippines and which act as supervisory! communications and coordinating center for theiraffiliates! subsidiaries! or branches in the Asia-Pacific 3egion and other foreign mar$ets.78 The term "re+iona o&eratin+ head%uarters"shall mean a branch established in the Philippinesby multinational companies which are engaged in any of the following services9 generaladministration and planning" business planning and coordination" sourcing and procurement of rawmaterials and components" corporate finance advisory services" mar$eting control and salespromotion" training and personnel management" logistic services" research and developmentservices and product development" technical support and maintenance" data processing andcommunications" and business development.

7668 The term "on+-term de&osit or investment certificates"shall refer to certificate of time deposit

or investment in the form of savings! common or individual trust funds! deposit substitutes!investment management accounts and other investments with a maturity period of not less than five7*8 years! the form of which shall be prescribed by the 5ang$o Sentral ng Pilipinas 75SP8 andissued by ban$s only 7not by nonban$ financial intermediaries and finance companies8 toindividuals in denominations of Ten thousand pesos 7P)

CHAPTER II*ENERAL PRINCIPLESSEC% (,% 0eneral Principles of Income Taxation in the Philippines1- cept when otherwiseprovided in this 4ode97A8 A citizen of the Philippines residing therein is taable on all income derived from sources within

and without the Philippines"758 A nonresident citizen is taable only on income derived from sources within the Philippines"748 An individual citizen of the Philippines who is wor$ing and deriving income from abroad as anoverseas contract wor$er is taable only on income derived from sources within thePhilippines9 Provided,That a seaman who is a citizen of the Philippines and who receivescompensation for services rendered abroad as a member of the complement of a vessel engagedeclusively in international trade shall be treated as an overseas contract wor$er"7'8 An alien individual! whether a resident or not of the Philippines! is taable only on incomederived from sources within the Philippines"


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78 A domestic corporation is taable on all income derived from sources within and without thePhilippines" and768 A foreign corporation! whether engaged or not in trade or business in the Philippines! is taableonly on income derived from sources within the Philippines.

CHAPTER III

TA2 ON INDIVIDUALS

SEC% ('%Income Tax Rates1-

7A8 Rates of )ncome Tax on )ndividua (itien and )ndividua Resident Aien of the Phii&&ines.

7)8 An income ta is hereby imposed97a8 /n the taable income defined in Section 2) of this 4ode! other than income sub&ect to taunder Subsections 758! 748 and 7'8 of this Section! derived for each taable year from all sourceswithin and without the Philippines be every individual citizen of the Philippines residing therein"7b8 /n the taable income defined in Section 2) of this 4ode! other than income sub&ect to taunder Subsections 758! 748 and 7'8 of this Section! derived for each taable year from all sourceswithin the Philippines by an individual citizen of the Philippines who is residing outside of thePhilippines including overseas contract wor$ers referred to in Subsection748 of Section 02 hereof"and7c8 /n the taable income defined in Section 2) of this 4ode! other than income sub&ect to taunder Subsections 7b8! 748 and 7'8 of this Section! derived for each taable year from all sourceswithin the Philippines by an individual alien who is a resident of the Philippines.The ta shall be computed in accordance with and at the rates established in the followingschedule9(ot over P)

/ver P1

6or married individuals! the husband and wife! sub&ect to the provision of Section *) 7'8 hereof!shall compute separately their individual income ta based on their respective total taableincome9 Provided, That if any income cannot be definitely attributed to or identified as incomeeclusively earned or realized by either of the spouses! the same shall be divided e#ually betweenthe spouses for the purpose of determining their respective taable income.

758 Rate of Tax on (ertain Passive )ncome.7)8 )nterests, Ro'aties, Pries, and /ther 2innin+s. - A final ta at the rate of twenty percent 70


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winnings 7ecept Philippine 4harity Sweepsta$es and @otto winnings8! derived from sources withinthe Philippines9 Provided, however! That interest income received by an individual tapayer 7ecepta nonresident individual8 from a depository ban$ under the epanded foreign currency depositsystem shall be sub&ect to a final income ta at the rate of seven and one-half percent 71 )>0B8 ofsuch interest income9Provided, further! That interest income from long-term deposit or investment inthe form of savings! common or individual trust funds! deposit substitutes! investment management

accounts and other investments evidenced by certificates in such form prescribed by the 5ang$oSentral ng Pilipinas 75SP8 shall be eempt from the ta imposed under this Subsection9 Provided,fina'! That should the holder of the certificate pre-terminate the deposit or investment before thefifth 7*th8 year! a final ta shall be imposed on the entire income and shall be deducted and withheldby the depository ban$ from the proceeds of the long-term deposit or investment certificate basedon the remaining maturity thereof9

6our 78 years to less than five 7*8 years - *B"Three 728 years to less than 78 years - )0B" and@ess than three 728 years - 0

based on the gross selling price or current fair mar$et value as determined in accordance withSection :78 of this 4ode! whichever is higher! is hereby imposed upon capital gains presumed tohave been realized from the sale! echange! or other disposition of real property located in thePhilippines! classified as capital assets! including pacto de retro sales and other forms ofconditional sales! by individuals! including estates and trusts9 Provided! That the ta liability! if any!on gains from sales or other dispositions of real property to the government or any of its politicalsubdivisions or agencies or to government-owned or controlled corporations shall be determinedeither under Section 0 7A8 or under this Subsection! at the option of the tapayer.


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708 Exce&tion.- The provisions of paragraph 7)8 of this Subsection to the contrary notwithstanding!capital gains presumed to have been realized from the sale or disposition of their principalresidence by natural persons! the proceeds of which is fully utilized in ac#uiring or constructing anew principal residence within eighteen 7)+8 calendar months from the date of sale or disposition!shall be eempt from the capital gains ta imposed under this Subsection9 Provided! That thehistorical cost or ad&usted basis of the real property sold or disposed shall be carried over to the

new principal residence built or ac#uired9 Provided, further! That the 4ommissioner shall have beenduly notified by the tapayer within thirty 72or property dividends from a domesticcorporation! or from a &oint stoc$ company! or from an insurance or mutual fund company or from aregional operating head#uarters of multinational company! or the share of a nonresident alienindividual in the distributable net income after ta of a partnership 7ecept a general professionalpartnership8 of which he is a partner! or the share of a nonresident alien individual in the net incomeafter ta of an association! a &oint account! or a &oint venture taable as a corporation of which he isa member or a co-venturer" interests" royalties 7in any form8" and prizes 7ecept prizes amounting toTen thousand pesos 7P)


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be deducted and withheld by the depository ban$ from the proceeds of the long-term deposit orinvestment certificate based on the remaining maturity thereof96our 78 years to less than five 7*8 years - *B"Three 728 years to less than four 78 years - )0B" and@ess than three 728 years - 0


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may be! imposed under this 4ode.

SEC% (0% Tax Liaility of $emers of 0eneral Professional Partnerships. - A generalprofessional partnership as such shall not be sub&ect to the income ta imposed under this 4hapter.Persons engaging in business as partners in a general professional partnership shall be liable forincome ta only in their separate and individual capacities.

6or purposes of computing the distributive share of the partners! the net income of the partnershipshall be computed in the same manner as a corporation.

ach partner shall report as gross income his distributive share! actually or constructively received!in the net income of the partnership.

CHAPTER IVTA2 ON CORPORATIONS

SEC% (7% Rates of Income tax on Domestic Corporations1 2

7A8 )n enera. -cept as otherwise provided in this 4ode! an income ta of thirty-five percent72*B8 is hereby imposed upon the taable income derived during each taable year from allsources within and without the Philippines by every corporation! as defined in Section 00758 of this4ode and taable under this Title as a corporation! organized in! or eisting under the laws of thePhilippines9Provided! That effective =anuary )! ),,+! the rate of income ta shall be thirty-fourpercent 72B8" effective =anuary )! ),,,! the rate shall be thirty-three percent 722B8" and effective=anuary )! 0


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6or purposes of this Section! the term Cgross incomeC derived from business shall be e#uivalent togross sales less sales returns! discounts and allowances and cost of goods sold. "(ost of +oodssod"shall include all business epenses directly incurred to produce the merchandise to bring themto their present location and use.

6or a trading or merchandising concern! "cost of +oods"sold shall include the invoice cost of the

goods sold! plus import duties! freight in transporting the goods to the place where the goods areactually sold! including insurance while the goods are in transit.

6or a manufacturing concern! "cost of +oods manufactured and sod"shall include all costs ofproduction of finished goods! such as raw materials used! direct labor and manufacturing overhead!freight cost! insurance premiums and other costs incurred to bring the raw materials to the factoryor warehouse.

In the case of tapayers engaged in the sale of service! Cgross incomeC means gross receipts lesssales returns! allowances and discounts.

758 Pro&rietar' Educationa )nstitutions and 5os&itas. - Proprietary educational institutions andhospitals which are nonprofit shall pay a ta of ten percent 7)


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708 (a&ita ains from the #ae of #hares of #toc* 4ot Traded in the #toc* Exchan+e. - A final taat the rates prescribed below shall be imposed on net capital gains realized during the taable yearfrom the sale! echange or other disposition of shares of stoc$ in a domestic corporation eceptshares sold or disposed of through the stoc$ echange9(ot over P)Amount in ecess of P)728 Tax on )ncome Derived under the Ex&anded !orei+n (urrenc' De&osit #'stem. - Incomederived by a depository ban$ under the epanded foreign currency deposit system from foreigncurrency transactions with local commercial ban$s! including branches of foreign ban$s that may beauthorized by the 5ang$o Sentral ng Pilipinas 75SP8 to transact business with foreign currencydepository system units and other depository ban$s under the epanded foreign currency depositsystem! including interest income from foreign currency loans granted by such depository ban$sunder said epanded foreign currency deposit system to residents! shall be sub&ect to a finalincome ta at the rate of ten percent 7)


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freight cost! insurance premiums and other costs incurred to bring the raw materials to the factoryor warehouse.In the case of tapayers engaged in the sale of service! Cgross incomeC means gross receipts lesssales returns! allowances! discounts and cost of services. "(ost of services"shall mean all directcosts and epenses necessarily incurred to provide the services re#uired by the customers andclients including 7A8 salaries and employee benefits of personnel! consultants and specialists

directly rendering the service and 758 cost of facilities directly utilized in providing the service suchas depreciation or rental of e#uipment used and cost of supplies9 Provided, however,That in thecase of ban$s! "cost of services"shall include interest epense.

SEC% (&% Rates of Income Tax on *orei'n Corporations1 2

7A8 Tax on Resident !orei+n (or&orations. -

7)8 )n enera. - cept as otherwise provided in this 4ode! a corporation organized! authorized! oreisting under the laws of any foreign country! engaged in trade or business within the Philippines!shall be sub&ect to an income ta e#uivalent to thirty-five percent 72*B8 of the taable incomederived in the preceding taable year from all sources within the Philippines9 Provided, That

effective =anuary )! ),,+! the rate of income ta shall be thirty-four percent 72B8" effective=anuary )! ),,,! the rate shall be thirty-three percent 722B8! and effective =anuary )! 0orindorsed to another international airline form part of the %ross Philippine 5illings if the passengerboards a plane in a port or point in the Philippines9 Provided, further! That for a flight which

originates from the Philippines! but transshipment of passenger ta$es place at any port outside thePhilippines on another airline! only the ali#uot portion of the cost of the tic$et corresponding to theleg flown from the Philippines to the point of transshipment shall form part of %ross Philippine5illings.7b8)nternationa #hi&&in+. - "ross Phii&&ine iin+s"means gross revenue whether for passenger!cargo or mail originating from the Philippines up to final destination! regardless of the place of saleor payments of the passage or freight documents.78 /ffshore an*in+ 6nits. - The provisions of any law to the contrary notwithstanding! incomederived by offshore ban$ing units authorized by the 5ang$o Sentral ng Pilipinas 75SP8 to transact


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20/45


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708 Exce&tions.- The improperly accumulated earnings ta as provided for under this Section shallnot apply to9

7a8 Publicly-held corporations"7b8 5an$s and other nonban$ financial intermediaries" and7c8 Insurance companies.

748Evidence of Pur&ose to Avoid )ncome Tax. -7)8 Prima !acie Evidence. - the fact that any corporation is a mere holding company or investmentcompany shall be prima facie evidence of a purpose to avoid the ta upon its shareholders ormembers.708 Evidence Determinative of Pur&ose. - The fact that the earnings or profits of a corporation arepermitted to accumulate beyond the reasonable needs of the business shall be determinative of thepurpose to avoid the ta upon its shareholders or members unless the corporation! by the clearpreponderance of evidence! shall prove to the contrary.7'8 )m&ro&er' Accumuated Taxa$e )ncome. - 6or purposes of this Section! the term Cimproperlyaccumulated taable incomeC means taable incomeC ad&usted by97)8 Income eempt from ta"708 Income ecluded from gross income"

728 Income sub&ect to final ta" and78 The amount of net operating loss carry-over deducted"

And reduced by the sum of97)8 'ividends actually or constructively paid" and708 Income ta paid for the taable year.Provided, however! That for corporations using the calendar year basis! the accumulated earningsunder ta shall not apply on improperly accumulated income as of 'ecember 2)! ),,1. In the caseof corporations adopting the fiscal year accounting period! the improperly accumulated income notsub&ect to this ta! shall be rec$oned! as of the end of the month comprising the twelve 7)08-monthperiod of fiscal year ),,1-),,+.78Reasona$e 4eeds of the usiness. - 6or purposes of this Section! the term Creasonable needsof the businessC includes the reasonably anticipated needs of the business.

SEC% ,% "xemptions from Tax on Corporations%- The following organizations shall not be taedunder this Title in respect to income received by them as such9

7A8 @abor! agricultural or horticultural organization not organized principally for profit"

758 Dutual savings ban$ not having a capital stoc$ represented by shares! and cooperative ban$without capital stoc$ organized and operated for mutual purposes and without profit"

748 A beneficiary society! order or association! operating fort he eclusive benefit of the memberssuch as a fraternal organization operating under the lodge system! or mutual aid association or anonstoc$ corporation organized by employees providing for the payment of life! sic$ness! accident!or other benefits eclusively to the members of such society! order! or association! or nonstoc$corporation or their dependents"

7'8 4emetery company owned and operated eclusively for the benefit of its members"

78 (onstoc$ corporation or association organized and operated eclusively for religious! charitable!scientific! athletic! or cultural purposes! or for the rehabilitation of veterans! no part of its net income


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or asset shall belong to or inures to the benefit of any member! organizer! officer or any specificperson"

768 5usiness league chamber of commerce! or board of trade! not organized for profit and no part ofthe net income of which inures to the benefit of any private stoc$-holder! or individual"

7%8 4ivic league or organization not organized for profit but operated eclusively for the promotionof social welfare"

7?8 A nonstoc$ and nonprofit educational institution"

7I8 %overnment educational institution"

7=8 6armersC or other mutual typhoon or fire insurance company! mutual ditch or irrigation company!mutual or cooperative telephone company! or li$e organization of a purely local character! theincome of which consists solely of assessments! dues! and fees collected from members for thesole purpose of meeting its epenses" and

7F8 6armersC! fruit growersC! or li$e association organized and operated as a sales agent for thepurpose of mar$eting the products of its members and turning bac$ to them the proceeds of sales!less the necessary selling epenses on the basis of the #uantity of produce finished by them"

(otwithstanding the provisions in the preceding paragraphs! the income of whatever $ind andcharacter of the foregoing organizations from any of their properties! real or personal! or from any oftheir activities conducted for profit regardless of the disposition made of such income! shall besub&ect to ta imposed under this 4ode.

CHAPTER VCO)PUTATION OF TA2A.LE INCO)E

SEC% ,1% Taxale Income Defined18 The term taable income means the pertinent items of grossincome specified in this 4ode! less the deductions and>or personal and additional eemptions! ifany! authorized for such types of income by this 4ode or other special laws.

CHAPTER VICO)PUTATION OF *ROSS INCO)ESEC% ,(% 0ross Income1 2

A: 0eneral Definition. - cept when otherwise provided in this Title! gross income means allincome derived from whatever source! including 7but not limited to8 the following items9

7)8 4ompensation for services in whatever form paid! including! but not limited to fees!salaries! wages! commissions! and similar items"708 %ross income derived from the conduct of trade or business or the eercise of a profession"728 %ains derived from dealings in property"78 Interests"7*8 3ents"7:8 3oyalties"718 'ividends"


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7+8 Annuities"7,8 Prizes and winnings"7)


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7f8 5enefits received from the %SIS under 3epublic Act (o. +0,)! including retirement gratuityreceived by government officials and employees.718 0isceaneous )tems. -7a8 )ncome Derived $' !orei+n overnment.- Income derived from investments in the Philippinesin loans! stoc$s! bonds or other domestic securities! or from interest on deposits in ban$s in thePhilippines by 7i8 foreign governments! 7ii8 financing institutions owned! controlled! or en&oying

refinancing from foreign governments! and 7iii8 international or regional financial institutionsestablished by foreign governments.7b8 )ncome Derived $' the overnment or its Poitica #u$divisions. - Income derived from anypublic utility or from the eercise of any essential governmental function accruing to the%overnment of the Philippines or to any political subdivision thereof.7c8 Pries and Awards.- Prizes and awards made primarily in recognition of religious! charitable!scientific! educational! artistic! literary! or civic achievement but only if97i8 The recipient was selected without any action on his part to enter the contest orproceeding" and7ii8 The recipient is not re#uired to render substantial future services as a condition to receiving theprize or award.7d8 Pries and Awards in #&orts (om&etition.- All prizes and awards granted to athletes in localand international sports competitions and tournaments whether held in the Philippines or abroad

and sanctioned by their national sports associations.7e8 1;th0onth Pa' and /ther enefits. - %ross benefits received by officials and employees ofpublic and private entities9 Provided, however,That the total eclusion under this subparagraphshall not eceed Thirty thousand pesos 7P2

three percent 722B8 effective =anuary )! ),,," and thirty-two percent 720B8 effective =anuary )!0


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sity-seven percent 7:1B8 effective =anuary )! ),,," and sity-eight percent 7:+B8 effective=anuary )! 0


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A: "xpenses. -

1: Ordinary and (ecessary Trade! Business or Professional "xpenses.-7a8 )n enera. - There shall be allowed as deduction from gross income all the ordinary andnecessary epenses paid or incurred during the taable year in carrying on or which are directlyattributable to! the development! management! operation and>or conduct of the trade! business or

eercise of a profession! including97i8 A reasonable allowance for salaries! wages! and other forms of compensation for personalservices actually rendered! including the grossed-up monetary value of fringe benefit furnished orgranted by the employer to the employee9 Provided, That the final ta imposed under Section 22hereof has been paid"7ii8 A reasonable allowance for travel epenses! here and abroad! while away from home in thepursuit of trade! business or profession"7iii8 A reasonable allowance for rentals and>or other payments which are re#uired as a condition forthe continued use or possession! for purposes of the trade! business or profession! of property towhich the tapayer has not ta$en or is not ta$ing title or in which he has no e#uity other than that ofa lessee! user or possessor"7iv8 A reasonable allowance for entertainment! amusement and recreation epenses during the

taable year! that are directly connected to the development! management and operation of thetrade! business or profession of the tapayer! or that are directly related to or in furtherance of theconduct of his or its trade! business or eercise of a profession not to eceed such ceilings as theSecretary of 6inance may! by rules and regulations prescribe! upon recommendation of the4ommissioner! ta$ing into account the needs as well as the special circumstances! nature andcharacter of the industry! trade! business! or profession of the tapayer9Provided,That anyepense incurred for entertainment! amusement or recreation that is contrary to law! morals publicpolicy or public order shall in no case be allowed as a deduction.7b8 #u$stantiation Re%uirements. - (o deduction from gross income shall be allowed underSubsection 7A8 hereof unless the tapayer shall substantiate with sufficient evidence! such asofficial receipts or other ade#uate records9 7i8 the amount of the epense being deducted! and 7ii8the direct connection or relation of the epense being deducted to the development! management!

operation and>or conduct of the trade! business or profession of the tapayer.7c8 ri$es, =ic*$ac*s and /ther #imiar Pa'ments.- (o deduction from gross income shall beallowed under Subsection 7A8 hereof for any payment made! directly or indirectly! to an official oremployee of the national government! or to an official or employee of any local government unit! orto an official or employee of a government-owned or -controlled corporation! or to an official oremployee or representative of a foreign government! or to a private corporation! generalprofessional partnership! or a similar entity! if the payment constitutes a bribe or $ic$bac$.(: "xpenses &llowale to Private "ducational Institutions. - In addition to the epensesallowable as deductions under this 4hapter! a private educational institution! referred to underSection 01 758 of this 4ode! may at its option elect either9 7a8 to deduct ependitures otherwiseconsidered as capital outlays of depreciable assets incurred during the taable year for theepansion of school facilities or 7b8 to deduct allowance for depreciation thereof under Subsection

768 hereof..: I4tere5t%81: In 0eneral. - The amount of interest paid or incurred within a taable year on indebtedness inconnection with the tapayerCs profession! trade or business shall be allowed as deduction fromgross income9 Provided, however! That the tapayerCs otherwise allowable deduction for interestepense shall be reduced by an amount e#ual to the following percentages of the interest incomesub&ected to final ta96orty-one percent 7)B8 beginning =anuary )! ),,+"Thirty-nine percent 72,B8 beginning =anuary )! ),,," and


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Thirty-eight percent 72+B8 beginning =anuary )! 0


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7b8 The total amount of the credit shall not eceed the same proportion of the ta against whichsuch credit is ta$en! which the tapayerCs taable income from sources without the Philippinestaable under this Title bears to his entire taable income for the same taable year./:&d,ustments on Payment of Incurred Taxes. - If accrued taes when paid differ from theamounts claimed as credits by the tapayer! or if any ta paid is refunded in whole or in part! thetapayer shall notify the 4ommissioner" who shall redetermine the amount of the ta for the year or

years affected! and the amount of ta due upon such redetermination! if any! shall be paid by thetapayer upon notice and demand by the 4ommissioner! or the amount of ta overpaid! if any! shallbe credited or refunded to the tapayer. In the case of such a ta incurred but not paid! the4ommissioner as a condition precedent to the allowance of this credit may re#uire the tapayer togive a bond with sureties satisfactory to and to be approved by the 4ommissioner in such sum ashe may re#uire! conditioned upon the payment by the tapayer of any amount of ta found dueupon any such redetermination. The bond herein prescribed shall contain such further conditions asthe 4ommissioner may re#uire.0:3ear in +hich Credit Ta#en.- The credits provided for in Subsection 748728 of this Section may!at the option of the tapayer and irrespective of the method of accounting employed in $eeping hisboo$s! be ta$en in the year which the taes of the foreign country were incurred! sub&ect! however!to the conditions prescribed in Subsection 7487*8 of this Section. If the tapayer elects to ta$e such

credits in the year in which the taes of the foreign country accrued! the credits for all subse#uentyears shall be ta$en upon the same basis and no portion of any such taes shall be allowed as adeduction in the same or any succeeding year.7: Proof of Credits. - The credits provided in Subsection 748728 hereof shall be allowed only if thetapayer establishes to the satisfaction of the 4ommissioner the following97a8 The total amount of income derived from sources without the Philippines"7b8 The amount of income derived from each country! the ta paid or incurred to which is claimed asa credit under said paragraph! such amount to be determined under rules and regulationsprescribed by the Secretary of 6inance" and7c8 All other information necessary for the verification and computation of such credits.D: Losses1 21: In 0eneral.- @osses actually sustained during the taable year and not compensated for by

insurance or other forms of indemnity shall be allowed as deductions97a8 If incurred in trade! profession or business"7b8 /f property connected with the trade! business or profession! if the loss arises from fires!storms! shipwrec$! or other casualties! or from robbery! theft or embezzlement.The Secretary of 6inance! upon recommendation of the 4ommissioner! is hereby authorized topromulgate rules and regulations prescribing! among other things! the time and manner by whichthe tapayer shall submit a declaration of loss sustained from casualty or from robbery! theft orembezzlement during the taable year9 Provided, however! That the time limit to be so prescribed inthe rules and regulations shall not be less than thirty 72


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ninety 7,


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4ode9 Provided! That recovery of bad debts previously allowed as deduction in the preceding yearsshall be included as part of the gross income in the year of recovery to the etent of the income tabenefit of said deduction.(: Securities Becomin' +orthless. - If securities! as defined in Section 00 7T8! are ascertained tobe worthless and charged off within the taable year and are capital assets! the loss resultingtherefrom shall! in the case of a tapayer other than a ban$ or trust company incorporated under

the laws of the Philippines a substantial part of whose business is the receipt of deposits! for thepurpose of this Title! be considered as a loss from the sale or echange! on the last day of suchtaable year! of capital assets.F: Depreciation1 21: 0eneral Rule. - There shall be allowed as a depreciation deduction a reasonable allowance forthe ehaustion! wear and tear 7including reasonable allowance for obsolescence8 of property usedin the trade or business. In the case of property held by one person for life with remainder toanother person! the deduction shall be computed as if the life tenant were the absolute owner of theproperty and shall be allowed to the life tenant. In the case of property held in trust! the allowablededuction shall be apportioned between the income beneficiaries and the trustees in accordancewith the pertinent provisions of the instrument creating the trust! or in the absence of suchprovisions! on the basis of the trust income allowable to each.

(:4se of Certain $ethods and Rates. - The term "reasona$e aowance"as used in thepreceding paragraph shall include! but not limited to! an allowance computed in accordance withrules and regulations prescribed by the Secretary of 6inance! upon recommendation of the4ommissioner! under any of the following methods97a8 The straight-line method"7b8 'eclining-balance method! using a rate not eceeding twice the rate which would have beenused had the annual allowance been computed under the method described in Subsection 768 7)8"7c8 The sum-of-the-years-digit method" and7d8 any other method which may be prescribed by the Secretary of 6inance uponrecommendationof the 4ommissioner.,:&'reement as to 4seful Life on +hich Depreciation Rate is Based. -;here under rules andregulations prescribed by the Secretary of 6inance upon recommendation of the 4ommissioner! the

tapayer and the 4ommissioner have entered into an agreement in writing specifically dealing withthe useful life and rate of depreciation of any property! the rate so agreed upon shall be binding onboth the tapayer and the national %overnment in the absence of facts and circumstances notta$en into consideration during the adoption of such agreement. The responsibility of establishingthe eistence of such facts and circumstances shall rest with the party initiating the modification.

Any change in the agreed rate and useful life of the depreciable property as specified in theagreement shall not be effective for taable years prior to the taable year in which notice in writingby certified mail or registered mail is served by the party initiating such change to the other party tothe agreement9Provided, however! that where the tapayer has adopted such useful life and depreciation rate forany depreciable and claimed the depreciation epenses as deduction from his gross income!without any written ob&ection on the part of the 4ommissioner or his duly authorized

representatives! the aforesaid useful life and depreciation rate so adopted by the tapayer for theaforesaid depreciable asset shall be considered binding for purposes of this Subsection.': Depreciation of Properties 4sed in Petroleum Operations. - An allowance for depreciation inrespect of all properties directly related to production of petroleum initially placed in service in ataable year shall be allowed under the straight-line or declining-balance method of depreciation atthe option of the service contractor.?owever! if the service contractor initially elects the declining-balance method! it may at anysubse#uent date! shift to the straight-line method.


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The useful life of properties used in or related to production of petroleum shall be ten 7)


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depreciation of properties directly used in the mining operations. This paragraph shall not apply toependitures for the ac#uisition or improvement of property of a character which is sub&ect to theallowance for depreciation.In no case shall this paragraph apply with respect to amounts paid or incurred for the eplorationand development of oil and gas.The term"ex&oration ex&enditures"means ependitures paid or incurred for the purpose of

ascertaining the eistence! location! etent or #uality of any deposit of ore or other mineral! andpaid or incurred before the beginning of the development stage of the mine or deposit.The term "deveo&ment ex&enditures"means ependitures paid or incurred during the developmentstage of the mine or other natural deposits. The development stage of a mine or other naturaldeposit shall begin at the time when deposits of ore or other minerals are shown to eist in sufficientcommercial #uantity and #uality and shall end upon commencement of actual commercialetraction.,: Depletion of Oil and 0as +ells and $ines Deductile y a (onresident &lien individual or*orei'n Corporation.- In the case of a nonresident alien individual engaged in trade or businessin the Philippines or a resident foreign corporation! allowance for depletion of oil and gas wells ormines under paragraph 7)8 of this Subsection shall be authorized only in respect to oil and gas wellsor mines located within the Philippines.

H: Charitale and Other Contriutions1 21: In 0eneral. - 4ontributions or gifts actually paid or made within the taable year to! or for theuse of the %overnment of the Philippines or any of its agencies or any political subdivision thereofeclusively for public purposes! or to accredited domestic corporation or associations organized andoperated eclusively for religious! charitable! scientific! youth and sports development! cultural oreducational purposes or for the rehabilitation of veterans! or to social welfare institutions! or to non-government organizations! in accordance with rules and regulations promulgated by the Secretaryof finance! upon recommendation of the 4ommissioner! no part of the net income of which inures tothe benefit of any private stoc$holder or individual in an amount not in ecess of ten percent 7)


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combination thereof! no part of the net income of which inures to the benefit of any privateindividual"708 ;hich! not later than the )*thday of the third month after the close of the accreditednongovernment organizations taable year in which contributions are received! ma$es utilizationdirectly for the active conduct of the activities constituting the purpose or function for which it isorganized and operated! unless an etended period is granted by the Secretary of 6inance in

accordance with the rules and regulations to be promulgated! upon recommendation of the4ommissioner"728 The level of administrative epense of which shall! on an annual basis! conform with the rulesand regulations to be prescribed by the Secretary of 6inance! upon recommendation of the4ommissioner! but in no case to eceed thirty percent 72


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The election provided by paragraph 708 hereof may be made for any taable year beginning afterthe effectivity of this 4ode! but only if made not later than the time prescribed by law for filing thereturn for such taable year. The method so elected! and the period selected by the tapayer! shallbe adhered to in computing taable income for the taable year for which the election is made andfor all subse#uent taable years unless with the approval of the 4ommissioner! a change to adifferent method is authorized with respect to a part or all of such ependitures. The election shall

not apply to any ependiture paid or incurred during any taable year for which the tapayer ma$esthe election.,:Limitations on Deduction%- This Subsection shall not apply to97a8 Any ependiture for the ac#uisition or improvement of land! or for the improvement of property tobe used in connection with research and development of a character which is sub&ect todepreciation and depletion" and7b8 Any ependiture paid or incurred for the purpose of ascertaining the eistence! location! etent!or #uality of any deposit of ore or other mineral! including oil or gas.


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(otwithstanding the provision of the preceding Subsections! The Secretary of 6inance! uponrecommendation of the 4ommissioner! after a public hearing shall have been held for this purpose!may prescribe by rules and regulations! limitations or ceilings for any of the itemized deductionsunder Subsections 7A8 to 7=8 of this Section9 Provided,That for purposes of determining suchceilings or limitations! the Secretary of 6inance shall consider the following factors9 7)8 ade#uacy ofthe prescribed limits on the actual ependiture re#uirements of each particular industry" and 708

effects of inflation on ependiture levels9Provided, further,That no ceilings shall further be imposedon items of epense already sub&ect to ceilings under present law.

SEC% ,/%&llowance of Personal "xemption for Individual Taxpayer1 2

A: In 0eneral%- 6or purposes of determining the ta provided in Section 0 7A8 of this Title! thereshall be allowed a basic personal eemption as follows9

6or single individual or married individual &udicially decreed as legallyseparated with no #ualified dependents P0

In the case of married individuals where only one of the spouses is deriving gross income! onlysuch spouse shall be allowed the personal eemption.

6or purposes of this paragraph! the term"head of fami'"means an unmarried or legally separatedman or woman with one or both parents! or with one or more brothers or sisters! or with one ormore legitimate! recognized natural or legally adopted children living with and dependent upon himfor their chief support! where such brothers or sisters or children are not more than twenty-one 70)8years of age! unmarried and not gainfully employed or where such children! brothers or sisters!regardless of age are incapable of self-support because of mental or physical defect.

.:&dditional "xemption for Dependents%- There shall be allowed an additional eemption ofight thousand pesos 7P+!


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If the spouse or any of the dependents dies or if any of such dependents marries! becomes twenty-one 70)8 years old or becomes gainfully employed during the taable year! the tapayer may stillclaim the same eemptions as if the spouse or any of the dependents died! or as if suchdependents married! became twenty-one 70)8 years old or became gainfully employed at the closeof such year.

D: Personal "xemption &llowale to (onresident &lien Individual1- A nonresident alienindividual engaged in trade! business or in the eercise of a profession in the Philippines shall beentitled to a personal eemption in the amount e#ual to the eemptions allowed in the income talaw in the country of which he is a sub&ect - or citizen! to citizens of the Philippines not residing insuch country! not to eceed the amount fied in this Section as eemption for citizens or resident ofthe Philippines9 Provided, That said nonresident alien should file a true and accurate return of thetotal income received by him from all sources in the Philippines! as re#uired by this Title.

SEC% ,0% Items (ot Deductile12

A: 0eneral Rule. - In computing net income! no deduction shall in any case be allowed in respectto -

7)8 Personal! living or family epenses"708 Any amount paid out for new buildings or for permanent improvements! or bettermentsmade toincrease the value of any property or estate"This Subsection shall not apply to intangible drilling and development costs incurred in petroleumoperations which are deductible under Subsection 7%8 7)8 of Section 2 of this 4ode.728 Any amount epended in restoring property or in ma$ing good the ehaustion thereof forwhichan allowance is or has been made" or78 Premiums paid on any life insurance policy covering the life of any officer or employee! or of anyperson financially interested in any trade or business carried on by the tapayer! individual orcorporate! when the tapayer is directly or indirectly a beneficiary under such policy..: Losses from Sales or "xchan'es of Property%- In computing net income! no deductions shall

in any case be allowed in respect of losses from sales or echanges of property directly or indirectly-7)8 5etween members of a family. 6or purposes of this paragraph! the family of an individual shallinclude only his brothers and sisters 7whether by the whole or half-blood8! spouse! ancestors! andlineal descendants" or708 cept in the case of distributions in li#uidation! between an individual and corporation morethan fifty percent 7*


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A: Special Deduction &llowed to Insurance Companies% - In the case of insurance companies!whether domestic or foreign doing business in the Philippines! the net additions! if any! re#uired bylaw to be made within the year to reserve funds and the sums other than dividends paid within theyear on policy and annuity contracts may be deducted from their gross income9Provided,however, That the released reserve be treated as income for the year of release.

.: $utual Insurance Companies. - In the case of mutual fire and mutual employersC liability andmutual wor$menCs compensation and mutual casualty insurance companies re#uiring theirmembers to ma$e premium deposits to provide for losses and epenses! said companies shall notreturn as income any portion of the premium deposits returned to their policyholders! but shallreturn as taable income all income received by them from all other sources plus such portion of thepremium deposits as are retained by the companies for purposes other than the payment of lossesand epenses and reinsurance reserves.

C: $utual $arine Insurance Companies.- Dutual marine insurance companies shall include intheir return of gross income! gross premiums collected and received by them less amounts paid topolicyholders on account of premiums previously paid by them and interest paid upon thoseamounts between the ascertainment and payment thereof.

D:&ssessment Insurance Companies.- Assessment insurance companies! whether domestic orforeign! may deduct from their gross income the actual deposit of sums with the officers of the%overnment of the Philippines pursuant to law! as additions to guarantee or reserve funds.

SEC% ,&%Losses from +ash Sales of Stoc# or Securities1 2

7A8 In the case of any loss claimed to have been sustained from any sale or other disposition ofshares of stoc$ or securities where it appears that within a period beginning thirty 72


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property of a $ind which would properly be included in the inventory of the tapayer if on hand at theclose of the taable year! or property held by the tapayer primarily for sale to customers in theordinary course of his trade or business! or property used in the trade or business! of a characterwhich is sub&ect to the allowance for depreciation provided in Subsection 768 of Section 2" or realproperty used in trade or business of the tapayer.(: (et Capital 0ain. - The term "net ca&ita +ain"means the ecess of the gains from sales or

echanges of capital assets over the losses from such sales or echanges.,: (et Capital Loss.- The term"net ca&ita oss"means the ecess of the losses from sales orechanges of capital assets over the gains from such sales or echanges..: Percenta'e Ta#en Into &ccount. - In the case of a tapayer! other than a corporation! only thefollowing percentages of the gain or loss recognized upon the sale or echange of a capital assetshall be ta$en into account in computing net capital gain! net capital loss! and net income97)8 /ne hundred percent 7)


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gain if it were the sole consideration! and as part of the consideration! another party to theechange assumes a liability of the tapayer! or ac#uires from the tapayer property! sub&ect to aliability! then such assumption or ac#uisition shall not be treated as money and>or other property!and shall not prevent the echange from being within the eceptions.7b8 If the amount of the liabilities assumed plus the amount of the liabilities to which the property issub&ect eceed the total of the ad&usted basis of the property transferred pursuant to such

echange! then such ecess shall be considered as a gain from the sale or echange of a capitalasset or of property which is not a capital asset! as the case may be./: Basis87a8 The basis of the stoc$ or securities received by the transferor upon the echange specified inthe above eception shall be the same as the basis of the property! stoc$ or securities echanged!decreased by 7)8 the money received! and 708 the fair mar$et value of the other property received!and increased by 7a8 the amount treated as dividend of the shareholder and 7b8 the amount of anygain that was recognized on the echange9Provided! That the property received as "$oot" shallhave as basis its fair mar$et value< Provided, further! That if as part of the consideration to thetransferor! the transferee of property assumes a liability of the transferor or ac#uires form the latterproperty sub&ect to a liability! such assumption or ac#uisition 7in the amount of the liability8 shall! forpurposes of this paragraph! be treated as money received by the transferor on the echange