national internal revenue code for 7in tab

8/11/2019 National Internal Revenue Code for 7in Tab

1/322

NATIONAL INTERNAL REVENUE CODE, AS AMENDED

TITLE IOrganization and Function of the Bureau of Internal

Revenue

TITLE IITax on Income

Chapter I

Definitions

Chapter IIGeneral Principles

Chapter IIITax on Individuals

Chapter IV

Tax on Corporations

Chapter VComputation of Taxable Income

Chapter VIComputation of Gross Income

Chapter VIIAllowable Deductions

Chapter VIIIAccounting Periods and Methods of Accounting

Chapter IXReturns and Payment of Tax

Chapter XEstates and Trusts

Chapter XIOther Income Tax Requirements
http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c3http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c3http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c4http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c4http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c5http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c5http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c6http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c6http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c7http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c7http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c8http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c8http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c9http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c9http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c10http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c10http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c11http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c11http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c11http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c10http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c9http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c8http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c7http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c6http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c5http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c4http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c3http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t1


2/322

Chapter XIIQuarterly Corporate Income Tax Annual Declaration and

Quarterly Payments of Income Taxes

Chapter XIIIWithholding on Wages

TITLE IIIEstate and Donor's Taxes

Chapter IEstate Tax

Chapter IIDonor's Tax

TITLE IVValue Added Tax

Chapter I

Imposition of TaxChapter II

Compliance Requirements

TITLE VOther Percentage Taxes

TITLE VI

Excise Tax on Certain Goods

Chapter IGeneral Provisions

Chapter IIExemption or Conditional Tax-Free Removal of Certain

Articles

Chapter IIIExcise Tax on Alcohol Products

Chapter IVExcise Tax on Tobacco Products
http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c12http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c12http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c12http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c13http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c13http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t3http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t3http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t3c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t3c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t3c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t3c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t4http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t4http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t4c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t4c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t4c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t4c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t5http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t5http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c3http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c3http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c4http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c4http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c4http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c3http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t5http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t4c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t4c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t4http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t3c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t3c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t3http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c13http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c12http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t2c12


3/322

Chapter VExcise Tax on Petroleum Products

Chapter VIExcise Tax on Miscellaneous Articles

Chapter VIIExcise Tax on Mineral Products

Chapter VIIIAdministrative Provisions Regulating Business ofPersons Dealing in Articles Subject to Excise Tax

TITLE VIIDocumentary Stamp Tax

TITLE VIIIRemedies

Chapter I

Remedies in GeneralChapter II

Civil Remedies for Collection of Taxes

Chapter IIIProtesting an Assessment, Refund, etc.

TITLE IX

Compliance Requirements

Chapter IKeeping of Books of Accounts and Records

Chapter IIAdministrative Provisions

Chapter IIIRules and Regulations

TITLE XStatutory Offenses and Penalties
http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c5http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c5http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c6http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c6http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c7http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c7http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c8http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c8http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c8http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t7http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t7http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t8http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t8http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t8c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t8c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t8c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t8c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t8c3http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t8c3http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t9http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t9http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t9c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t9c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t9c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t9c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t9c3http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t9c3http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t10http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t10http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t10http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t9c3http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t9c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t9c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t9http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t8c3http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t8c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t8c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t8http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t7http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c8http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c8http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c7http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c6http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t6c5


4/322

Chapter IAdditions to the Tax

Chapter IICrimes, Other Offenses and Forfeitures

Chapter IIIPenalties Imposed on Public Officers

Chapter IVOther Penal Provisions

TITLE XIAllotment of Internal Revenue

Chapter IADisposition and Allotment of National Internal Revenue

in General

Chapter II

Special Disposition of Certain National Internal RevenueTaxes

TITLE XIIOversight Committee

TITLE XIIIRepealing Provisions

TITLE XIVFinal Provisions

Republic of the PhilippinesCongress of the Philippines

Metro Manila

Tenth Congress
http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t10c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t10c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t10c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t10c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t10c3http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t10c3http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t10c4http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t10c4http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t11http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t11http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t11c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t11c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t11c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t11c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t11c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t11c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t12http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t12http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t13http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t13http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t14http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t14http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t14http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t13http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t12http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t11c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t11c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t11c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t11c1http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t11http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t10c4http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t10c3http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t10c2http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html#t10c1


5/322

Republic Act No. 8424 December 11, 1997

AN ACT AMENDING THE NATIONAL INTERNALREVENUE CODE, AS AMENDED, AND FOR OTHER

PURPOSES

Be it enacted by the Senate and House of Representativesof the Philippines in Congress assembled::

Section 1.Short Title. - This Act shall be cited as the "TaxReform Act of 1997".

Section 2.State Policy. - It is hereby declared the policy ofthe State to promote sustainable economic growth throughthe rationalization of the Philippine internal revenue taxsystem, including tax administration; to provide, as much aspossible, an equitable relief to a greater number of taxpayersin order to improve levels of disposable income and increaseeconomic activity; and to create a robust environment forbusiness to enable firms to compete better in the regional as

well as the global market, at the same time that the Stateensures that Government is able to provide for the needs ofthose under its jurisdiction and care.

Section 3.Presidential Decree No. 1158, as amended by,among others, Presidential Decree No. 1994 and ExecutiveOrder No. 273, otherwise known as the National InternalRevenue Code, is hereby further amended.

Section 4.The Secretary of Finance shall, uponrecommendation of the Commissioner of Internal Revenue,promulgate and publish the necessary rules and regulationsfor the effective implementation of this Act.

Section 5.Transitory Provisions- Deferment of theEffectivity of the Imposition of VAT on Certain Services. -

The effectivity of the imposition of the value-added tax onservices as prescribed in Section 17(a) and (b) of RepublicAct No. 7616, as amended by Republic Act. 8241, is herebyfurther deferred until December 31, 1999, unless Congressdeems otherwise: Provided, That the said services shallcontinue to pay the applicable tax prescribed under the


6/322

present provisions of the National Internal Revenue Code,as amended.

Section 6.Separability Clause. - If any provision of this Actis subsequently declared unconstitutional, the validity of theremaining provisions hereof shall remain in full force andeffect.

Section 7.Repealing Clauses. -(A) The provision of Section17 of Republic Act No. 7906, otherwise known as the "ThriftBanks Acts of 1995" shall continue to be in force and effectonly until December 31, 1999.

Effective January 1, 2000, all thrift banks, whether inoperation as of that date or thereafter, shall no longer enjoytax exemption as provided under Section 17 of R.A. No.7906, thereby subjecting all thrift banks to taxes, fees andcharges in the same manner and at the same rate as banksand other financial intermediaries.

(B) The provisions of the National InternalRevenue Code, as amended, and all other laws,including charters of government-owned orcontrolled corporations, decrees, orders, orregulations or parts thereof, that are inconsistentwith this Act are hereby repealed or amendedaccordingly.

Section 8.Effectivity- This Act shall take effect on January1, 1998.

TITLE IORGANIZATION AND FUNCTION OF THE BUREAU OF

INTERNAL REVENUE

Section 1.Title of the Code. - This Code shall be known as

the National Internal Revenue Code of 1997.

Section 2.Powers and duties of the Bureau of InternalRevenue. - The Bureau of Internal Revenue shall be underthe supervision and control of the Department of Financeand its powers and duties shall comprehend the assessmentand collection of all national internal revenue taxes, fees,


7/322

and charges, and the enforcement of all forfeitures,penalties, and fines connected therewith, including theexecution of judgments in all cases decided in its favor by

the Court of Tax Appeals and the ordinary courts. TheBureau shall give effect to and administer the supervisoryand police powers conferred to it by this Code or other laws.

Section 3.Chief Officials of the Bureau of Internal Revenue.- The Bureau of Internal Revenue shall have a chief to beknown as Commissioner of Internal Revenue, hereinafterreferred to as the Commissioner and four (4) assistant chiefs

to be known as Deputy Commissioners.Section 4.Power of the Commissioner to Interpret Tax Lawsand to Decide Tax Cases. - The power to interpret theprovisions of this Code and other tax laws shall be under theexclusive and original jurisdiction of the Commissioner,subject to review by the Secretary of Finance.

The power to decide disputed assessments, refunds of

internal revenue taxes, fees or other charges, penaltiesimposed in relation thereto, or other matters arising underthis Code or other laws or portions thereof administered bythe Bureau of Internal Revenue is vested in theCommissioner, subject to the exclusive appellate jurisdictionof the Court of Tax Appeals.

Section 5.Power of the Commissioner to Obtain

Information, and to Summon, Examine, and Take Testimonyof Persons. - In ascertaining the correctness of any return, orin making a return when none has been made, or indetermining the liability of any person for any internalrevenue tax, or in collecting any such liability, or inevaluating tax compliance, the Commissioner is authorized:

(A) To examine any book, paper, record, or other

data which may be relevant or material to suchinquiry;

(B) To Obtain on a regular basis from any personother than the person whose internal revenue taxliability is subject to audit or investigation, or from


8/322

any office or officer of the national and localgovernments, government agencies andinstrumentalities, including the Bangko Sentral ng

Pilipinas and government-owned or -controlledcorporations, any information such as, but notlimited to, costs and volume of production, receiptsor sales and gross incomes of taxpayers, and thenames, addresses, and financial statements ofcorporations, mutual fund companies, insurancecompanies, regional operating headquarters ofmultinational companies, joint accounts,

associations, joint ventures of consortia andregistered partnerships, and their members;

(C) To summon the person liable for tax orrequired to file a return, or any officer or employeeof such person, or any person having possession,custody, or care of the books of accounts andother accounting records containing entries

relating to the business of the person liable for tax,or any other person, to appear before theCommissioner or his duly authorizedrepresentative at a time and place specified in thesummons and to produce such books, papers,records, or other data, and to give testimony;

(D) To take such testimony of the person

concerned, under oath, as may be relevant ormaterial to such inquiry; and

(E) To cause revenue officers and employees tomake a canvass from time to time of any revenuedistrict or region and inquire after and concerningall persons therein who may be liable to pay anyinternal revenue tax, and all persons owning or

having the care, management or possession ofany object with respect to which a tax is imposed.

The provisions of the foregoing paragraphs notwithstanding,nothing in this Section shall be construed as granting theCommissioner the authority to inquire into bank depositsother than as provided for in Section 6(F) of this Code.


9/322

Section 6.Power of the Commissioner to Makeassessments and Prescribe additional Requirements for Tax

Administration and Enforcement. -

(A) Examination of Returns and Determination ofTax Due. - After a return has been filed asrequired under the provisions of this Code, theCommissioner or his duly authorizedrepresentative may authorize the examination ofany taxpayer and the assessment of the correctamount of tax: Provided, however; That failure to

file a return shall not prevent the Commissionerfrom authorizing the examination of any taxpayer.

The tax or any deficiency tax so assessed shall bepaid upon notice and demand from theCommissioner or from his duly authorizedrepresentative.

Any return, statement of declaration filed in any

office authorized to receive the same shall not bewithdrawn: Provided, That within three (3) yearsfrom the date of such filing , the same may bemodified, changed, or amended: Provided, further,That no notice for audit or investigation of suchreturn, statement or declaration has in themeantime been actually served upon the taxpayer.

(B) Failure to Submit Required Returns,Statements, Reports and other Documents. -When a report required by law as a basis for theassessment of any national internal revenue taxshall not be forthcoming within the time fixed bylaws or rules and regulations or when there isreason to believe that any such report is false,incomplete or erroneous, the Commissioner shallassess the proper tax on the best evidenceobtainable.

In case a person fails to file a required return orother document at the time prescribed by law, orwillfully or otherwise files a false or fraudulent


10/322

return or other document, the Commissioner shallmake or amend the return from his ownknowledge and from such information as he can

obtain through testimony or otherwise, which shallbe prima facie correct and sufficient for all legalpurposes.

(C)Authority to Conduct Inventory-taking,surveillance and to Prescribe Presumptive GrossSales and Receipts. - The Commissioner may, atany time during the taxable year, order inventory-

taking of goods of any taxpayer as a basis fordetermining his internal revenue tax liabilities, ormay place the business operations of any person,natural or juridical, under observation orsurveillance if there is reason to believe that suchperson is not declaring his correct income, salesor receipts for internal revenue tax purposes. Thefindings may be used as the basis for assessing

the taxes for the other months or quarters of thesame or different taxable years and suchassessment shall be deemed prima facie correct.

When it is found that a person has failed to issuereceipts and invoices in violation of therequirements of Sections 113 and 237 of thisCode, or when there is reason to believe that the

books of accounts or other records do notcorrectly reflect the declarations made or to bemade in a return required to be filed under theprovisions of this Code, the Commissioner, aftertaking into account the sales, receipts, income orother taxable base of other persons engaged insimilar businesses under similar situations orcircumstances or after considering other relevant

information may prescribe a minimum amount ofsuch gross receipts, sales and taxable base, andsuch amount so prescribed shall be prima faciecorrect for purposes of determining the internalrevenue tax liabilities of such person.


11/322

(D)Authority to Terminate Taxable Period. _When it shall come to the knowledge of theCommissioner that a taxpayer is retiring from

business subject to tax, or is intending to leave thePhilippines or to remove his property therefrom orto hide or conceal his property, or is performingany act tending to obstruct the proceedings for thecollection of the tax for the past or current quarteror year or to render the same totally or partlyineffective unless such proceedings are begunimmediately, the Commissioner shall declare the

tax period of such taxpayer terminated at any timeand shall send the taxpayer a notice of suchdecision, together with a request for the immediatepayment of the tax for the period so declaredterminated and the tax for the preceding year orquarter, or such portion thereof as may be unpaid,and said taxes shall be due and payableimmediately and shall be subject to all the

penalties hereafter prescribed, unless paid withinthe time fixed in the demand made by theCommissioner.

(E)Authority of the Commissioner to PrescribeReal Property Values. - The Commissioner ishereby authorized to divide the Philippines intodifferent zones or areas and shall, upon

consultation with competent appraisers both fromthe private and public sectors, determine the fairmarket value of real properties located in eachzone or area. For purposes of computing anyinternal revenue tax, the value of the property shallbe, whichever is the higher of;

(1) the fair market value as determined by the

Commissioner, or

(2) the fair market value as shown in theschedule of values of the Provincial and City

Assessors.


12/322

(F) Authority of the Commissioner to inquire intoBank Deposit Accounts. - Notwithstanding anycontrary provision of Republic Act No. 1405 and

other general or special laws, the Commissioner ishereby authorized to inquire into the bank depositsof:

(1) a decedent to determine his gross estate;and

(2) any taxpayer who has filed an applicationfor compromise of his tax liability under Sec.

204 (A) (2) of this Code by reason of financialincapacity to pay his tax liability.

In case a taxpayer files an application tocompromise the payment of his tax liabilities onhis claim that his financial position demonstrates aclear inability to pay the tax assessed, hisapplication shall not be considered unless and

until he waives in writing his privilege underRepublic act NO. 1405 or under other general orspecial laws, and such waiver shall constitute theauthority of the Commissioner to inquire into thebank deposits of the taxpayer.

(G) Authority to Accredit and Register Tax Agents.- The Commissioner shall accredit and register,

based on their professional competence, integrityand moral fitness, individuals and generalprofessional partnerships and their representativeswho prepare and file tax returns, statements,reports, protests, and other papers with or whoappear before, the Bureau for taxpayers. Withinone hundred twenty (120) days from January 1,1998, the Commissioner shall create national andregional accreditation boards, the members ofwhich shall serve for three (3) years, and shalldesignate from among the senior officials of theBureau, one (1) chairman and two (2) membersfor each board, subject to such rules andregulations as the Secretary of Finance shall


13/322

promulgate upon the recommendation of theCommissioner.

Individuals and general professional partnershipsand their representatives who are deniedaccreditation by the Commissioner and/or thenational and regional accreditation boards mayappeal such denial to the Secretary of Finance,who shall rule on the appeal within sixty (60) daysfrom receipt of such appeal. Failure of theSecretary of Finance to rule on the Appeal within

the prescribed period shall be deemed as approvalof the application for accreditation of the appellant.

(H) Authority of the Commissioner to PrescribeAdditional Procedural or DocumentaryRequirements. - The Commissioner may prescribethe manner of compliance with any documentaryor procedural requirement in connection with thesubmission or preparation of financial statementsaccompanying the tax returns.

Section 7.Authority of the Commissioner to DelegatePower. - The Commissioner may delegate the powersvested in him under the pertinent provisions of this Code toany or such subordinate officials with the rank equivalent toa division chief or higher, subject to such limitations andrestrictions as may be imposed under rules and regulationsto be promulgated by the Secretary of finance, uponrecommendation of the Commissioner: Provided, However,That the following powers of the Commissioner shall not bedelegated:

(a) The power to recommend the promulgation ofrules and regulations by the Secretary of Finance;

(b) The power to issue rulings of first impression orto reverse, revoke or modify any existing ruling ofthe Bureau;

(c) The power to compromise or abate, under Sec.204 (A) and (B) of this Code, any tax liability:


14/322

Provided, however, That assessments issued bythe regional offices involving basic deficiencytaxes of Five hundred thousand pesos (P500,000)

or less, and minor criminal violations, as may bedetermined by rules and regulations to bepromulgated by the Secretary of finance, uponrecommendation of the Commissioner, discoveredby regional and district officials, may becompromised by a regional evaluation boardwhich shall be composed of the Regional Directoras Chairman, the Assistant Regional Director, the

heads of the Legal, Assessment and CollectionDivisions and the Revenue District Officer having

jurisdiction over the taxpayer, as members; and

(d) The power to assign or reassign internalrevenue officers to establishments where articlessubject to excise tax are produced or kept.

Section 8.Duty of the Commissioner to Ensure theProvision and Distribution of forms, Receipts, Certificates,and Appliances, and the Acknowledgment of Payment ofTaxes.-

(A) Provision and Distribution to Proper Officials. -It shall be the duty of the Commissioner, amongother things, to prescribe, provide, and distributeto the proper officials the requisite licenses internalrevenue stamps, labels all other forms,certificates, bonds, records, invoices, books,receipts, instruments, appliances and apparatusused in administering the laws falling within the

jurisdiction of the Bureau. For this purpose,internal revenue stamps, strip stamps and labelsshall be caused by the Commissioner to be printed

with adequate security features.

Internal revenue stamps, whether of a bar code orfuson design, shall be firmly and conspicuouslyaffixed on each pack of cigars and cigarettessubject to excise tax in the manner and form as


15/322

prescribed by the Commissioner, upon approval ofthe Secretary of Finance.

(B) Receipts for Payment Made. - It shall be theduty of the Commissioner or his duly authorizedrepresentative or an authorized agent bank towhom any payment of any tax is made under theprovision of this Code to acknowledge thepayment of such tax, expressing the amount paidand the particular account for which such paymentwas made in a form and manner prescribed

therefor by the Commissioner.Section 9.Internal Revenue Districts. - With the approval ofthe Secretary of Finance, the Commissioner shall divide thePhilippines into such number of revenue districts as mayform time to time be required for administrative purposes.Each of these districts shall be under the supervision of aRevenue District Officer.

Section 10.Revenue Regional Director. - Under rules andregulations, policies and standards formulated by theCommissioner, with the approval of the Secretary ofFinance, the Revenue Regional director shall, within theregion and district offices under his jurisdiction, amongothers:

(a) Implement laws, policies, plans, programs,

rules and regulations of the department oragencies in the regional area;

(b) Administer and enforce internal revenue laws,and rules and regulations, including theassessment and collection of all internal revenuetaxes, charges and fees.

(c) Issue Letters of authority for the examination oftaxpayers within the region;

(d) Provide economical, efficient and effectiveservice to the people in the area;


16/322

(e) Coordinate with regional offices or otherdepartments, bureaus and agencies in the area;

(f) Coordinate with local government units in thearea;

(g) Exercise control and supervision over theofficers and employees within the region; and

(h) Perform such other functions as may beprovided by law and as may be delegated by theCommissioner.

Section 11.Duties of Revenue District Officers and OtherInternal Revenue Officers. - It shall be the duty of everyRevenue District Officer or other internal revenue officersand employees to ensure that all laws, and rules andregulations affecting national internal revenue are faithfullyexecuted and complied with, and to aid in the prevention,detection and punishment of frauds of delinquencies in

connection therewith.

It shall be the duty of every Revenue District Officer toexamine the efficiency of all officers and employees of theBureau of Internal Revenue under his supervision, and toreport in writing to the Commissioner, through the RegionalDirector, any neglect of duty, incompetency, delinquency, ormalfeasance in office of any internal revenue officer of which

he may obtain knowledge, with a statement of all the factsand any evidence sustaining each case.

Section 12.Agents and Deputies for Collection of NationalInternal Revenue Taxes. - The following are herebyconstituted agents of the Commissioner:

(a) The Commissioner of Customs and his

subordinates with respect to the collection ofnational internal revenue taxes on imported goods;

(b) The head of the appropriate government officeand his subordinates with respect to the collectionof energy tax; and


17/322

(c) Banks duly accredited by the Commissionerwith respect to receipt of payments internalrevenue taxes authorized to be made thru bank.

Any officer or employee of an authorized agent bankassigned to receive internal revenue tax payments andtransmit tax returns or documents to the Bureau of InternalRevenue shall be subject to the same sanctions andpenalties prescribed in Sections 269 and 270 of this Code.

Section 13.Authority of a Revenue Offices. - subject to therules and regulations to be prescribed by the Secretary of

Finance, upon recommendation of the Commissioner, aRevenue Officer assigned to perform assessment functionsin any district may, pursuant to a Letter of Authority issuedby the Revenue Regional Director, examine taxpayers withinthe jurisdiction of the district in order to collect the correctamount of tax, or to recommend the assessment of anydeficiency tax due in the same manner that the said actscould have been performed by the Revenue RegionalDirector himself.

Section 14.Authority of Officers to Administer Oaths andTake Testimony. - The Commissioner, DeputyCommissioners, Service Chiefs, Assistant Service Chiefs,Revenue Regional Directors, Assistant Revenue RegionalDirectors, Chiefs and Assistant Chiefs of Divisions, RevenueDistrict Officers, special deputies of the Commissioner,internal revenue officers and any other employee of theBureau thereunto especially deputized by the Commissionershall have the power to administer oaths and to taketestimony in any official matter or investigation conducted bythem regarding matters within the jurisdiction of the Bureau.

Section 15.Authority of Internal Revenue Officers to MakeArrests and Seizures. - The Commissioner, the DeputyCommissioners, the Revenue Regional Directors, theRevenue District Officers and other internal revenue officersshall have authority to make arrests and seizures for theviolation of any penal law, rule or regulation administered bythe Bureau of Internal Revenue. Any person so arrested


18/322

shall be forthwith brought before a court, there to be dealtwith according to law.

Section 16.Assignment of Internal Revenue OfficersInvolved in Excise Tax Functions to Establishments Where

Articles subject to Excise Tax are Produced or Kept. - TheCommissioner shall employ, assign, or reassign internalrevenue officers involved in excise tax functions, as often asthe exigencies of the revenue service may require, toestablishments or places where articles subject to excise taxare produced or kept: Provided, That an internal revenue

officer assigned to any such establishment shall in no casestay in his assignment for more than two (2) years, subject torules and regulations to be prescribed by the Secretary ofFinance, upon recommendation of the Commissioner.

Section 17.Assignment of Internal Revenue Officers andOther Employees to Other Duties. - The Commissioner may,subject to the provisions of Section 16 and the laws on civilservice, as well as the rules and regulations to be prescribedby the Secretary of Finance upon the recommendation of theCommissioner, assign or reassign internal revenue officersand employees of the Bureau of Internal Revenue, withoutchange in their official rank and salary, to other or specialduties connected with the enforcement or administration ofthe revenue laws as the exigencies of the service mayrequire: Provided, That internal revenue officers assigned to

perform assessment or collection function shall not remain inthe same assignment for more than three (3) years;Provided, further, That assignment of internal revenueofficers and employees of the Bureau to special duties shallnot exceed one (1) year.

Section 18.Reports of violation of Laws. - When an internalrevenue officer discovers evidence of a violation of this Code

or of any law, rule or regulations administered by the Bureauof Internal Revenue of such character as to warrant theinstitution of criminal proceedings, he shall immediatelyreport the facts to the Commissioner through his immediatesuperior, giving the name and address of the offender andthe names of the witnesses if possible: Provided, That in


19/322

urgent cases, the Revenue Regional director or RevenueDistrict Officer, as the case may be, may send the report tothe corresponding prosecuting officer in the latter case, a

copy of his report shall be sent to the Commissioner.

Section 19.Contents of Commissioner's Annual Report. -The annual Report of the Commissioner shall containdetailed statements of the collections of the Bureau withspecifications of the sources of revenue by type of tax, bymanner of payment, by revenue region and by industrygroup and its disbursements by classes of expenditures.

In case the actual collection exceeds or falls short of targetas set in the annual national budget by fifteen percent (15%)or more, the Commissioner shall explain the reason for suchexcess or shortfall.

Section 20.Submission of Report and Pertinent Informationby the Commissioner.

(A) Submission of Pertinent Information toCongress. - The provision of Section 270 of thisCode to the contrary notwithstanding, theCommissioner shall, upon request of Congressand in aid of legislation, furnish its appropriateCommittee pertinent information including but notlimited to: industry audits, collection performancedata, status reports in criminal actions initiated

against persons and taxpayer's returns: Provided,however, That any return or return informationwhich can be associated with, or otherwiseidentify, directly or indirectly, a particular taxpayershall be furnished the appropriate Committee ofCongress only when sitting in Executive SessionUnless such taxpayer otherwise consents inwriting to such disclosure.

(B) Report to Oversight Committee. - TheCommissioner shall, with reference to Section 204of this Code, submit to the Oversight Committeereferred to in Section 290 hereof, through theChairmen of the Committee on Ways and Means


20/322

of the Senate and House of Representatives, areport on the exercise of his powers pursuant tothe said section, every six (6) months of each

calendar year.

Section 21.Sources of Revenue. - The following taxes, feesand charges are deemed to be national internal revenuetaxes:

(a) Income tax;

(b) Estate and donor's taxes;

(c) Value-added tax;

(d) Other percentage taxes;

(e) Excise taxes;

(f) Documentary stamp taxes; and

(g) Such other taxes as are or hereafter may beimposed and collected by the Bureau of InternalRevenue.

TITLE IITAX ON INCOME

CHAPTER I - DEFINITIONS

Section 22.Definitions- When used in this Title:

(A) The term 'person' means an individual, a trust,estate or corporation.

(B) The term 'corporation' shall includepartnerships, no matter how created or organized,

joint-stock companies, joint accounts (cuentas en

participacion), association, or insurancecompanies, but does not include generalprofessional partnerships and a joint venture orconsortium formed for the purpose of undertakingconstruction projects or engaging in petroleum,coal, geothermal and other energy operations


21/322

pursuant to an operating consortium agreementunder a service contract with the Government.'General professional partnerships' are

partnerships formed by persons for the solepurpose of exercising their common profession, nopart of the income of which is derived fromengaging in any trade or business.

(C) The term 'domestic,' when applied to acorporation, means created or organized in thePhilippines or under its laws.

(D) The term 'foreign,' when applied to acorporation, means a corporation which is notdomestic.

(E) The term 'nonresident citizen' means:

(1) A citizen of the Philippines whoestablishes to the satisfaction of the

Commissioner the fact of his physicalpresence abroad with a definite intention toreside therein.

(2) A citizen of the Philippines who leaves thePhilippines during the taxable year to resideabroad, either as an immigrant or foremployment on a permanent basis.

(3) A citizen of the Philippines who works andderives income from abroad and whoseemployment thereat requires him to bephysically present abroad most of the timeduring the taxable year.

(4) A citizen who has been previously

considered as nonresident citizen and whoarrives in the Philippines at any time duringthe taxable year to reside permanently in thePhilippines shall likewise be treated as anonresident citizen for the taxable year inwhich he arrives in the Philippines with


22/322

respect to his income derived from sourcesabroad until the date of his arrival in thePhilippines.

(5) The taxpayer shall submit proof to theCommissioner to show his intention ofleaving the Philippines to reside permanentlyabroad or to return to and reside in thePhilippines as the case may be for purpose ofthis Section.

(F) The term 'resident alien' means an individual

whose residence is within the Philippines and whois not a citizen thereof.

(G) The term 'nonresident alien' means anindividual whose residence is not within thePhilippines and who is not a citizen thereof.

(H) The term 'resident foreign corporation' applies

to a foreign corporation engaged in trade orbusiness within the Philippines.

(I) The term 'nonresident foreign corporation'applies to a foreign corporation not engaged intrade or business within the Philippines.

(J) The term 'fiduciary' means a guardian, trustee,

executor, administrator, receiver, conservator orany person acting in any fiduciary capacity for anyperson.

(K) The term 'withholding agent' means anyperson required to deduct and withhold any taxunder the provisions of Section 57.

(L) The term 'shares of stock' shall include sharesof stock of a corporation, warrants and/or optionsto purchase shares of stock, as well as units ofparticipation in a partnership (except generalprofessional partnerships), joint stock companies,

joint accounts, joint ventures taxable ascorporations, associations and recreation or


23/322

amusement clubs (such as golf, polo or similarclubs), and mutual fund certificates.

(M) The term 'shareholder' shall include holders ofa share/s of stock, warrant/s and/or option/s topurchase shares of stock of a corporation, as wellas a holder of a unit of participation in apartnership (except general professionalpartnerships) in a joint stock company, a jointaccount, a taxable joint venture, a member of anassociation, recreation or amusement club (such

as golf, polo or similar clubs) and a holder of amutual fund certificate, a member in anassociation, joint-stock company, or insurancecompany.

(N) The term 'taxpayer' means any person subjectto tax imposed by this Title.

(O) The terms 'including' and 'includes', when used

in a definition contained in this Title, shall not bedeemed to exclude other things otherwise withinthe meaning of the term defined.

(P) The term 'taxable year' means the calendaryear, or the fiscal year ending during suchcalendar year, upon the basis of which the netincome is computed under this Title. 'Taxable year'

includes, in the case of a return made for afractional part of a year under the provisions of thisTitle or under rules and regulations prescribed bythe Secretary of Finance, upon recommendationof the commissioner, the period for which suchreturn is made.

(Q) The term 'fiscal year' means an accounting

period of twelve (12) months ending on the lastday of any month other than December.

(R) The terms 'paid or incurred' and 'paid oraccrued' shall be construed according to the


24/322

method of accounting upon the basis of which thenet income is computed under this Title.

(S) The term 'trade or business' includes theperformance of the functions of a public office.

(T) The term 'securities' means shares of stock ina corporation and rights to subscribe for or toreceive such shares. The term includes bonds,debentures, notes or certificates, or otherevidence or indebtedness, issued by anycorporation, including those issued by a

government or political subdivision thereof, withinterest coupons or in registered form.

(U) The term 'dealer in securities' means amerchant of stocks or securities, whether anindividual, partnership or corporation, with anestablished place of business, regularly engagedin the purchase of securities and the resale thereof

to customers; that is, one who, as a merchant,buys securities and re-sells them to customerswith a view to the gains and profits that may bederived therefrom.

(V) The term 'bank' means every bankinginstitution, as defined in Section 2 of Republic ActNo. 337, as amended, otherwise known as the

General banking Act. A bank may either be acommercial bank, a thrift bank, a developmentbank, a rural bank or specialized governmentbank.

(W) The term 'non-bank financial intermediary'means a financial intermediary, as defined inSection 2(D)(C) of Republic Act No. 337, as

amended, otherwise known as the GeneralBanking Act, authorized by the Bangko Sentral ngPilipinas (BSP) to perform quasi-banking activities.

(X) The term 'quasi-banking activities' meansborrowing funds from twenty (20) or more personal


25/322

or corporate lenders at any one time, through theissuance, endorsement, or acceptance of debtinstruments of any kind other than deposits for the

borrower's own account, or through the issuanceof certificates of assignment or similar instruments,with recourse, or of repurchase agreements forpurposes of relending or purchasing receivablesand other similar obligations: Provided, however,That commercial, industrial and other non-financialcompanies, which borrow funds through any ofthese means for the limited purpose of financing

their own needs or the needs of their agents ordealers, shall not be considered as performingquasi-banking functions.

(Y) The term 'deposit substitutes' shall mean analternative from of obtaining funds from the public(the term 'public' means borrowing from twenty(20) or more individual or corporate lenders at any

one time) other than deposits, through theissuance, endorsement, or acceptance of debtinstruments for the borrowers own account, for thepurpose of relending or purchasing of receivablesand other obligations, or financing their own needsor the needs of their agent or dealer. Theseinstruments may include, but need not be limitedto bankers' acceptances, promissory notes,

repurchase agreements, including reverserepurchase agreements entered into by andbetween the Bangko Sentral ng Pilipinas (BSP)and any authorized agent bank, certificates ofassignment or participation and similarinstruments with recourse: Provided, however,That debt instruments issued for interbank callloans with maturity of not more than five (5) days

to cover deficiency in reserves against depositliabilities, including those between or amongbanks and quasi-banks, shall not be considered asdeposit substitute debt instruments.


26/322


27/322

by multinational companies which are engaged inany of the following services: generaladministration and planning; business planning

and coordination; sourcing and procurement ofraw materials and components; corporate financeadvisory services; marketing control and salespromotion; training and personnel management;logistic services; research and developmentservices and product development; technicalsupport and maintenance; data processing andcommunications; and business development.

(FF) The term 'long-term deposit or investmentcertificates' shall refer to certificate of time depositor investment in the form of savings, common orindividual trust funds, deposit substitutes,investment management accounts and otherinvestments with a maturity period of not less thanfive (5) years, the form of which shall be

prescribed by the Bangko Sentral ng Pilipinas(BSP) and issued by banks only (not by nonbankfinancial intermediaries and finance companies) toindividuals in denominations of Ten thousandpesos (P10,000) and other denominations as maybe prescribed by the BSP.

CHAPTER II - GENERAL PRINCIPLES

Section 23.General Principles of Income Taxation in thePhilippines. - Except when otherwise provided in this Code:

(A) A citizen of the Philippines residing therein istaxable on all income derived from sources withinand without the Philippines;

(B) A nonresident citizen is taxable only on income

derived from sources within the Philippines;

(C) An individual citizen of the Philippines who isworking and deriving income from abroad as anoverseas contract worker is taxable only onincome derived from sources within the


28/322

Philippines: Provided, That a seaman who is acitizen of the Philippines and who receivescompensation for services rendered abroad as a

member of the complement of a vessel engagedexclusively in international trade shall be treatedas an overseas contract worker;

(D) An alien individual, whether a resident or not ofthe Philippines, is taxable only on income derivedfrom sources within the Philippines;

(E) A domestic corporation is taxable on all

income derived from sources within and withoutthe Philippines; and

(F) A foreign corporation, whether engaged or notin trade or business in the Philippines, is taxableonly on income derived from sources within thePhilippines.

CHAPTER III - TAX ON INDIVIDUALS

Section 24.Income Tax Rates.

(A) Rates of Income Tax on Individual Citizen andIndividual Resident Alien of the Philippines.

(1) An income tax is hereby imposed:

(a) On the taxable income defined inSection 31 of this Code, other thanincome subject to tax under Subsections(B), (C) and (D) of this Section, derivedfor each taxable year from all sourceswithin and without the Philippines beevery individual citizen of the Philippinesresiding therein;

(b) On the taxable income defined inSection 31 of this Code, other thanincome subject to tax under Subsections(B), (C) and (D) of this Section, derivedfor each taxable year from all sources


29/322

within the Philippines by an individualcitizen of the Philippines who is residingoutside of the Philippines including

overseas contract workers referred to inSubsection(C) of Section 23 hereof; and

(c) On the taxable income defined inSection 31 of this Code, other thanincome subject to tax under Subsections(b), (C) and (D) of this Section, derivedfor each taxable year from all sources

within the Philippines by an individualalien who is a resident of thePhilippines.

The tax shall be computed in accordancewith and at the rates established in thefollowing schedule:

Not overP10,000

5%

Over P10,000 but not overP30,000

P500+10% of the excessP10,000


P2,500+15% of the excesP30,000


P8,500+20% of the excesP70,000


P22,500+25% of the exceover P140,000


P50,000+30% of the exceover P250,000

Over P500,000

P125,000+34% of the excover P500,000 in 1998.

Provided, That effective January 1, 1999, thetop marginal rate shall be thirty-three percent(33%) and effective January 1, 2000, the saidrate shall be thirty-two percent (32%).


30/322

For married individuals, the husband andwife, subject to the provision of Section 51(D) hereof, shall compute separately their

individual income tax based on theirrespective total taxable income: Provided,That if any income cannot be definitelyattributed to or identified as incomeexclusively earned or realized by either of thespouses, the same shall be divided equallybetween the spouses for the purpose ofdetermining their respective taxable income.

(B) Rate of Tax on Certain Passive Income.

(1) Interests, Royalties, Prizes, and OtherWinnings. - A final tax at the rate of twentypercent (20%) is hereby imposed upon theamount of interest from any currency bankdeposit and yield or any other monetarybenefit from deposit substitutes and fromtrust funds and similar arrangements;royalties, except on books, as well as otherliterary works and musical compositions,which shall be imposed a final tax of tenpercent (10%); prizes (except prizesamounting to Ten thousand pesos (P10,000)or less which shall be subject to tax under

Subsection (A) of Section 24; and otherwinnings (except Philippine CharitySweepstakes and Lotto winnings), derivedfrom sources within the Philippines: Provided,however, That interest income received by anindividual taxpayer (except a nonresidentindividual) from a depository bank under theexpanded foreign currency deposit system

shall be subject to a final income tax at therate of seven and one-half percent (7 1/2%)of such interest income: Provided, further,That interest income from long-term depositor investment in the form of savings, commonor individual trust funds, deposit substitutes,


31/322


32/322

Eight percent (8%) beginning January 1,1999;

Ten percent (10% beginning January 1,2000.

Provided, however, That the tax on dividendsshall apply only on income earned on or afterJanuary 1, 1998. Income forming part ofretained earnings as of December 31, 1997shall not, even if declared or distributed on orafter January 1, 1998, be subject to this tax.

(C) Capital Gains from Sale of Shares of Stock notTraded in the Stock Exchange. - The provisions ofSection 39(B) notwithstanding, a final tax at therates prescribed below is hereby imposed uponthe net capital gains realized during the taxableyear from the sale, barter, exchange or otherdisposition of shares of stock in a domestic

corporation, except shares sold, or disposed ofthrough the stock exchange.

Not overP100,000

5%

On any amount in excess ofP100,000

10%

(D) Capital Gains from Sale of Real Property. -

(1) In General. - The provisions of Section39(B) notwithstanding, a final tax of sixpercent (6%) based on the gross selling priceor current fair market value as determined inaccordance with Section 6(E) of this Code,whichever is higher, is hereby imposed uponcapital gains presumed to have been realizedfrom the sale, exchange, or other dispositionof real property located in the Philippines,classified as capital assets, including pactode retro sales and other forms of conditional


33/322

sales, by individuals, including estates andtrusts: Provided, That the tax liability, if any,on gains from sales or other dispositions of

real property to the government or any of itspolitical subdivisions or agencies or togovernment-owned or controlled corporationsshall be determined either under Section 24(A) or under this Subsection, at the option ofthe taxpayer.

(2) Exception. - The provisions of paragraph

(1) of this Subsection to the contrarynotwithstanding, capital gains presumed tohave been realized from the sale ordisposition of their principal residence bynatural persons, the proceeds of which is fullyutilized in acquiring or constructing a newprincipal residence within eighteen (18)calendar months from the date of sale or

disposition, shall be exempt from the capitalgains tax imposed under this Subsection:Provided, That the historical cost or adjustedbasis of the real property sold or disposedshall be carried over to the new principalresidence built or acquired: Provided, further,That the Commissioner shall have been dulynotified by the taxpayer within thirty (30) days

from the date of sale or disposition through aprescribed return of his intention to avail ofthe tax exemption herein mentioned:Provided, still further, That the said taxexemption can only be availed of once everyten (10) years: Provided, finally, that if thereis no full utilization of the proceeds of sale ordisposition, the portion of the gain presumed

to have been realized from the sale ordisposition shall be subject to capital gainstax. For this purpose, the gross selling priceor fair market value at the time of sale,whichever is higher, shall be multiplied by afraction which the unutilized amount bears to


34/322

the gross selling price in order to determinethe taxable portion and the tax prescribedunder paragraph (1) of this Subsection shall

be imposed thereon.Section 25.Tax on Nonresident Alien Individual. -

(A) Nonresident Alien Engaged in trade orBusiness Within the Philippines. -

(1) In General. - A nonresident alienindividual engaged in trade or business in the

Philippines shall be subject to an income taxin the same manner as an individual citizenand a resident alien individual, on taxableincome received from all sources within thePhilippines. A nonresident alien individualwho shall come to the Philippines and staytherein for an aggregate period of more thanone hundred eighty (180) days during any

calendar year shall be deemed a 'nonresidentalien doing business in the Philippines'.Section 22 (G) of this Code notwithstanding.

(2) Cash and/or Property Dividends from aDomestic Corporation or Joint StockCompany, or Insurance or Mutual FundCompany or Regional Operating Headquarter

or Multinational Company, or Share in theDistributable Net Income of a Partnership(Except a General Professional Partnership),Joint Account, Joint Venture Taxable as aCorporation or Association., Interests,Royalties, Prizes, and Other Winnings. -Cash and/or property dividends from adomestic corporation, or from a joint stockcompany, or from an insurance or mutualfund company or from a regional operatingheadquarter of multinational company, or theshare of a nonresident alien individual in thedistributable net income after tax of apartnership (except a general professional


35/322

partnership) of which he is a partner, or theshare of a nonresident alien individual in thenet income after tax of an association, a joint

account, or a joint venture taxable as acorporation of which he is a member or a co-venturer; interests; royalties (in any form);and prizes (except prizes amounting to Tenthousand pesos (P10,000) or less which shallbe subject to tax under Subsection (B)(1) ofSection 24) and other winnings (exceptPhilippine Charity Sweepstakes and Lotto

winnings); shall be subject to an income taxof twenty percent (20%) on the total amountthereof: Provided, however, that royalties onbooks as well as other literary works, androyalties on musical compositions shall besubject to a final tax of ten percent (10%) onthe total amount thereof: Provided, further,That cinematographic films and similar works

shall be subject to the tax provided underSection 28 of this Code: Provided,furthermore, That interest income from long-term deposit or investment in the form ofsavings, common or individual trust funds,deposit substitutes, investment managementaccounts and other investments evidencedby certificates in such form prescribed by the

Bangko Sentral ng Pilipinas (BSP) shall beexempt from the tax imposed under thisSubsection: Provided, finally, that should theholder of the certificate pre-terminate thedeposit or investment before the fifth (5th)year, a final tax shall be imposed on theentire income and shall be deducted andwithheld by the depository bank from theproceeds of the long-term deposit orinvestment certificate based on the remainingmaturity thereof:

Four (4) years to less than five(5) years -

5%;


36/322

Three (3) years to less thanfour (4) years -

12%; and

Less than three (3) years - 20%.

(3) Capital Gains. - Capital gains realizedfrom sale, barter or exchange of shares ofstock in domestic corporations not tradedthrough the local stock exchange, and realproperties shall be subject to the taxprescribed under Subsections (C) and (D) ofSection 24.

(B) Nonresident Alien Individual Not Engaged inTrade or Business Within the Philippines. - Thereshall be levied, collected and paid for each taxableyear upon the entire income received from allsources within the Philippines by everynonresident alien individual not engaged in tradeor business within the Philippines as interest, cash

and/or property dividends, rents, salaries, wages,premiums, annuities, compensation, remuneration,emoluments, or other fixed or determinable annualor periodic or casual gains, profits, and income,and capital gains, a tax equal to twenty-fivepercent (25%) of such income. Capital gainsrealized by a nonresident alien individual notengaged in trade or business in the Philippines

from the sale of shares of stock in any domesticcorporation and real property shall be subject tothe income tax prescribed under Subsections (C)and (D) of Section 24.

(C) Alien Individual Employed by Regional or AreaHeadquarters and Regional OperatingHeadquarters of Multinational Companies. - There

shall be levied, collected and paid for each taxableyear upon the gross income received by everyalien individual employed by regional or areaheadquarters and regional operating headquartersestablished in the Philippines by multinationalcompanies as salaries, wages, annuities,


37/322

compensation, remuneration and otheremoluments, such as honoraria and allowances,from such regional or area headquarters and

regional operating headquarters, a tax equal tofifteen percent (15%) of such gross income:Provided, however, That the same tax treatmentshall apply to Filipinos employed and occupyingthe same position as those of aliens employed bythese multinational companies. For purposes ofthis Chapter, the term 'multinational company'means a foreign firm or entity engaged in

international trade with affiliates or subsidiaries orbranch offices in the Asia-Pacific Region and otherforeign markets.

(D) Alien Individual Employed by Offshore BankingUnits. - There shall be levied, collected and paidfor each taxable year upon the gross incomereceived by every alien individual employed by

offshore banking units established in thePhilippines as salaries, wages, annuities,compensation, remuneration and otheremoluments, such as honoraria and allowances,from such off-shore banking units, a tax equal tofifteen percent (15%) of such gross income:Provided, however, That the same tax treatmentshall apply to Filipinos employed and occupying

the same positions as those of aliens employed bythese offshore banking units.

(E) Alien Individual Employed by PetroleumService Contractor and Subcontractor. - An Alienindividual who is a permanent resident of a foreigncountry but who is employed and assigned in thePhilippines by a foreign service contractor or by a

foreign service subcontractor engaged inpetroleum operations in the Philippines shall beliable to a tax of fifteen percent (15%) of thesalaries, wages, annuities, compensation,remuneration and other emoluments, such ashonoraria and allowances, received from such


38/322

contractor or subcontractor: Provided, however,That the same tax treatment shall apply to aFilipino employed and occupying the same

position as an alien employed by petroleumservice contractor and subcontractor.

Any income earned from all other sources within thePhilippines by the alien employees referred to underSubsections (C), (D) and (E) hereof shall be subject to thepertinent income tax, as the case may be, imposed underthis Code.

Section 26.Tax Liability of Members of GeneralProfessional Partnerships. - A general professionalpartnership as such shall not be subject to the income taximposed under this Chapter. Persons engaging in businessas partners in a general professional partnership shall beliable for income tax only in their separate and individualcapacities.1avvphil.et

For purposes of computing the distributive share of thepartners, the net income of the partnership shall becomputed in the same manner as a corporation.

Each partner shall report as gross income his distributiveshare, actually or constructively received, in the net incomeof the partnership.

CHAPTER IV - TAX ON CORPORATIONS

Section 27.Rates of Income tax on Domestic Corporations.-

(A) In General. - Except as otherwise provided inthis Code, an income tax of thirty-five percent(35%) is hereby imposed upon the taxable income

derived during each taxable year from all sourceswithin and without the Philippines by everycorporation, as defined in Section 22(B) of thisCode and taxable under this Title as a corporation,organized in, or existing under the laws of thePhilippines: Provided, That effective January 1,


39/322

1998, the rate of income tax shall be thirty-fourpercent (34%); effective January 1, 1999, the rateshall be thirty-three percent (33%); and effective

January 1, 2000 and thereafter, the rate shall bethirty-two percent (32%).

In the case of corporations adopting the fiscal-yearaccounting period, the taxable income shall becomputed without regard to the specific date whenspecific sales, purchases and other transactionsoccur. Their income and expenses for the fiscal

year shall be deemed to have been earned andspent equally for each month of the period.

The reduced corporate income tax rates shall beapplied on the amount computed by multiplyingthe number of months covered by the new rateswithin the fiscal year by the taxable income of thecorporation for the period, divided by twelve.

Provided, further, That the President, upon therecommendation of the Secretary of Finance, mayeffective January 1, 2000, allow corporations theoption to be taxed at fifteen percent (15%) of grossincome as defined herein, after the followingconditions have been satisfied:

(1) A tax effort ratio of twenty percent (20%)

of Gross National Product (GNP);

(2) A ratio of forty percent (40%) of incometax collection to total tax revenues;

(3) A VAT tax effort of four percent (4%) ofGNP; and

(4) A 0.9 percent (0.9%) ratio of theConsolidated Public Sector Financial Position(CPSFP) to GNP.

The option to be taxed based on gross incomeshall be available only to firms whose ratio of cost


40/322


41/322

(50%) of the total gross income derived by sucheducational institutions or hospitals from allsources, the tax prescribed in Subsection (A)

hereof shall be imposed on the entire taxableincome. For purposes of this Subsection, the term'unrelated trade, business or other activity' meansany trade, business or other activity, the conductof which is not substantially related to the exerciseor performance by such educational institution orhospital of its primary purpose or function. A'Proprietary educational institution' is any private

school maintained and administered by privateindividuals or groups with an issued permit tooperate from the Department of Education, Cultureand Sports (DECS), or the Commission on HigherEducation (CHED), or the Technical Educationand Skills Development Authority (TESDA), as thecase may be, in accordance with existing laws andregulations.

(C) Government-owned or Controlled-Corporations, Agencies or Instrumentalities. - Theprovisions of existing special or general laws tothe contrary notwithstanding, all corporations,agencies, or instrumentalities owned or controlledby the Government, except the GovernmentService Insurance System (GSIS), the Social

Security System (SSS), the Philippine HealthInsurance Corporation (PHIC), the PhilippineCharity Sweepstakes Office (PCSO) and thePhilippine Amusement and Gaming Corporation(PAGCOR), shall pay such rate of tax upon theirtaxable income as are imposed by this Sectionupon corporations or associations engaged in ssimilar business, industry, or activity.

(D) Rates of Tax on Certain Passive Incomes. -

(1) Interest from Deposits and Yield or anyother Monetary Benefit from DepositSubstitutes and from Trust Funds and Similar


42/322

Arrangements, and Royalties. - A final tax atthe rate of twenty percent (20%) is herebyimposed upon the amount of interest on

currency bank deposit and yield or any othermonetary benefit from deposit substitutes andfrom trust funds and similar arrangementsreceived by domestic corporations, androyalties, derived from sources within thePhilippines: Provided, however, That interestincome derived by a domestic corporationfrom a depository bank under the expanded

foreign currency deposit system shall besubject to a final income tax at the rate ofseven and one-half percent (7 1/2%) of suchinterest income.

(2) Capital Gains from the Sale of Shares ofStock Not Traded in the Stock Exchange. - Afinal tax at the rates prescribed below shall

be imposed on net capital gains realizedduring the taxable year from the sale,exchange or other disposition of shares ofstock in a domestic corporation exceptshares sold or disposed of through the stockexchange:

Not over

P100,000

5%

Amount in excess ofP100,000

10%

(3) Tax on Income Derived under theExpanded Foreign Currency Deposit System.- Income derived by a depository bank underthe expanded foreign currency deposit

system from foreign currency transactionswith local commercial banks, includingbranches of foreign banks that may beauthorized by the Bangko Sentral ng Pilipinas(BSP) to transact business with foreigncurrency depository system units and other


43/322


44/322

commenced its business operations, whenthe minimum income tax is greater than thetax computed under Subsection (A) of this

Section for the taxable year.

(2) Carry Froward of Excess Minimum Tax. -Any excess of the minimum corporate incometax over the normal income tax as computedunder Subsection (A) of this Section shall becarried forward and credited against thenormal income tax for the three (3)

immediately succeeding taxable years.(3) Relief from the Minimum CorporateIncome Tax Under Certain Conditions. - TheSecretary of Finance is hereby authorized tosuspend the imposition of the minimumcorporate income tax on any corporationwhich suffers losses on account of prolongedlabor dispute, or because of force majeure, orbecause of legitimate business reverses.

The Secretary of Finance is herebyauthorized to promulgate, uponrecommendation of the Commissioner, thenecessary rules and regulation that shalldefine the terms and conditions under whichhe may suspend the imposition of theminimum corporate income tax in ameritorious case.

(4) Gross Income Defined. - For purposes ofapplying the minimum corporate income taxprovided under Subsection (E) hereof, theterm 'gross income' shall mean gross salesless sales returns, discounts and allowancesand cost of goods sold. "Cost of goods sold'shall include all business expenses directlyincurred to produce the merchandise to bringthem to their present location and use.


45/322

For a trading or merchandising concern, 'cost ofgoods sold' shall include the invoice cost of thegoods sold, plus import duties, freight in

transporting the goods to the place where thegoods are actually sold including insurance whilethe goods are in transit.

For a manufacturing concern, cost of 'goodsmanufactured and sold' shall include all costs ofproduction of finished goods, such as rawmaterials used, direct labor and manufacturing

overhead, freight cost, insurance premiums andother costs incurred to bring the raw materials tothe factory or warehouse.

In the case of taxpayers engaged in the sale ofservice, 'gross income' means gross receipts lesssales returns, allowances, discounts and cost ofservices. 'Cost of services' shall mean all directcosts and expenses necessarily incurred toprovide the services required by the customersand clients including (A) salaries and employeebenefits of personnel, consultants and specialistsdirectly rendering the service and (B) cost offacilities directly utilized in providing the servicesuch as depreciation or rental of equipment usedand cost of supplies: Provided, however, That in

the case of banks, 'cost of services' shall includeinterest expense.

Section 28.Rates of Income Tax on Foreign Corporations. -

(A) Tax on Resident Foreign Corporations. -

(1) In General. - Except as otherwiseprovided in this Code, a corporation

organized, authorized, or existing under thelaws of any foreign country, engaged in tradeor business within the Philippines, shall besubject to an income tax equivalent to thirty-five percent (35%) of the taxable incomederived in the preceding taxable year from all


46/322

sources within the Philippines: provided, Thateffective January 1, 1998, the rate of incometax shall be thirty-four percent (34%);

effective January 1, 1999, the rate shall bethirty-three percent (33%), and effectiveJanuary 1, 2000 and thereafter, the rate shallbe thirty-two percent (32%).

In the case of corporations adopting thefiscal-year accounting period, the taxableincome shall be computed without regard to

the specific date when sales, purchases andother transactions occur. Their income andexpenses for the fiscal year shall be deemedto have been earned and spent equally foreach month of the period.

The reduced corporate income tax rates shallbe applied on the amount computed bymultiplying the number of months covered bythe new rates within the fiscal year by thetaxable income of the corporation for theperiod, divided by twelve.

Provided, however, That a resident foreigncorporation shall be granted the option to betaxed at fifteen percent (15%) on grossincome under the same conditions, asprovided in Section 27 (A).

(2) Minimum Corporate Income Tax onResident Foreign Corporations. - A minimumcorporate income tax of two percent (2%) ofgross income, as prescribed under Section27 (E) of this Code, shall be imposed, underthe same conditions, on a resident foreigncorporation taxable under paragraph (1) ofthis Subsection.

(3) International Carrier. - An internationalcarrier doing business in the Philippines shallpay a tax of two and one-half percent (2


47/322

1/2%) on its 'Gross Philippine Billings' asdefined hereunder:

(a) International Air Carrier. - 'GrossPhilippine Billings' refers to the amountof gross revenue derived from carriageof persons, excess baggage, cargo andmail originating from the Philippines in acontinuous and uninterrupted flight,irrespective of the place of sale or issueand the place of payment of the ticket or

passage document: Provided, Thattickets revalidated, exchanged and/orindorsed to another international airlineform part of the Gross Philippine Billingsif the passenger boards a plane in a portor point in the Philippines: Provided,further, That for a flight which originatesfrom the Philippines, but transshipment

of passenger takes place at any portoutside the Philippines on anotherairline, only the aliquot portion of thecost of the ticket corresponding to theleg flown from the Philippines to thepoint of transshipment shall form part ofGross Philippine Billings.

(b) International Shipping. - 'GrossPhilippine Billings' means gross revenuewhether for passenger, cargo or mailoriginating from the Philippines up tofinal destination, regardless of the placeof sale or payments of the passage orfreight documents.

(4) Offshore Banking Units. - The provisionsof any law to the contrary notwithstanding,income derived by offshore banking unitsauthorized by the Bangko Sentral ng Pilipinas(BSP) to transact business with offshorebanking units, including any interest income


48/322

derived from foreign currency loans grantedto residents, shall be subject to a final incometax at the rate of ten percent (10%) of such

income.

Any income of nonresidents, whetherindividuals or corporations, from transactionswith said offshore banking units shall beexempt from income tax.

(5) Tax on Branch Profits Remittances. - Anyprofit remitted by a branch to its head office

shall be subject to a tax of fifteen (15%)which shall be based on the total profitsapplied or earmarked for remittance withoutany deduction for the tax component thereof(except those activities which are registeredwith the Philippine Economic Zone Authority).The tax shall be collected and paid in thesame manner as provided in Sections 57 and58 of this Code: provided, that interests,dividends, rents, royalties, includingremuneration for technical services, salaries,wages premiums, annuities, emoluments orother fixed or determinable annual, periodicor casual gains, profits, income and capitalgains received by a foreign corporation

during each taxable year from all sourceswithin the Philippines shall not be treated asbranch profits unless the same are effectivelyconnected with the conduct of its trade orbusiness in the Philippines.

(6) Regional or Area Headquarters andRegional Operating Headquarters of

Multinational Companies. -

(a) Regional or area headquarters asdefined in Section 22(DD) shall not besubject to income tax.


49/322

(b) Regional operating headquarters asdefined in Section 22(EE) shall pay atax of ten percent (10%) of their taxable

income.

(7) Tax on Certain Incomes Received by aResident Foreign Corporation. -

(a) Interest from Deposits and Yield orany other Monetary Benefit from DepositSubstitutes, Trust Funds and Similar

Arrangements and Royalties. - Interest

from any currency bank deposit andyield or any other monetary benefit fromdeposit substitutes and from trust fundsand similar arrangements and royaltiesderived from sources within thePhilippines shall be subject to a finalincome tax at the rate of twenty percent(20%) of such interest: Provided,however, That interest income derivedby a resident foreign corporation from adepository bank under the expandedforeign currency deposit system shall besubject to a final income tax at the rateof seven and one-half percent (7 1/2%)of such interest income.

(b) Income Derived under the ExpandedForeign Currency Deposit System. -Income derived by a depository bankunder the expanded foreign currencydeposit system from foreign currencytransactions with local commercialbanks including branches of foreign

banks that may be authorized by theBangko Sentral ng Pilipinas (BSP) totransact business with foreign currencydeposit system units, including interestincome from foreign currency loansgranted by such depository banks under


50/322

said expanded foreign currency depositsystem to residents, shall be subject toa final income tax at the rate of ten

percent (10%) of such income.

Any income of nonresidents, whetherindividuals or corporations, fromtransactions with depository banksunder the expanded system shall beexempt from income tax.

(c) Capital Gains from Sale of Shares of

Stock Not Traded in the StockExchange. - A final tax at the ratesprescribed below is hereby imposedupon the net capital gains realizedduring the taxable year from the sale,barter, exchange or other disposition ofshares of stock in a domesticcorporation except shares sold ordisposed of through the stock exchange:

Not overP100,000

5%

On any amount in excess ofP100,000

10%

(d) Intercorporate Dividends. - Dividendsreceived by a resident foreigncorporation from a domestic corporationliable to tax under this Code shall not besubject to tax under this Title.

(B) Tax on Nonresident Foreign Corporation. -

(1) In General. - Except as otherwiseprovided in this Code, a foreign corporationnot engaged in trade or business in thePhilippines shall pay a tax equal to thirty-fivepercent (35%) of the gross income receivedduring each taxable year from all sources


51/322

within the Philippines, such as interests,dividends, rents, royalties, salaries, premiums(except reinsurance premiums), annuities,

emoluments or other fixed or determinableannual, periodic or casual gains, profits andincome, and capital gains, except capitalgains subject to tax under subparagraphs (C)and (d): Provided, That effective 1, 1998, therate of income tax shall be thirty-four percent(34%); effective January 1, 1999, the rateshall be thirty-three percent (33%); and,

effective January 1, 2000 and thereafter, therate shall be thirty-two percent (32%).

(2) Nonresident Cinematographic FilmOwner, Lessor or Distributor. - Acinematographic film owner, lessor, ordistributor shall pay a tax of twenty-fivepercent (25%) of its gross income from all

sources within the Philippines.

(3) Nonresident Owner or Lessor of VesselsChartered by Philippine Nationals. - Anonresident owner or lessor of vessels shallbe subject to a tax of four and one-halfpercent (4 1/2%) of gross rentals, lease orcharter fees from leases or charters to

Filipino citizens or corporations, as approvedby the Maritime Industry Authority.

(4) Nonresident Owner or Lessor of Aircraft,Machineries and Other Equipment. - Rentals,charters and other fees derived by anonresident lessor of aircraft, machineriesand other equipment shall be subject to a tax

of seven and one-half percent (7 1/2%) ofgross rentals or fees.

(5) Tax on Certain Incomes Received by aNonresident Foreign Corporation. -


52/322

(a) Interest on Foreign Loans. - A finalwithholding tax at the rate of twentypercent (20%) is hereby imposed on the

amount of interest on foreign loanscontracted on or after August 1, 1986;

(b) Intercorporate Dividends. - A finalwithholding tax at the rate of fifteenpercent (15%) is hereby imposed on theamount of cash and/or propertydividends received from a domestic

corporation, which shall be collectedand paid as provided in Section 57 (A)of this Code, subject to the conditionthat the country in which the nonresidentforeign corporation is domiciled, shallallow a credit against the tax due fromthe nonresident foreign corporationtaxes deemed to have been paid in the

Philippines equivalent to twenty percent(20%) for 1997, nineteen percent (19%)for 1998, eighteen percent (18%) for1999, and seventeen percent (17%)thereafter, which represents thedifference between the regular incometax of thirty-five percent (35%) in 1997,thirty-four percent (34%) in 1998, and

thirty-three percent (33%) in 1999, andthirty-two percent (32%) thereafter oncorporations and the fifteen percent(15%) tax on dividends as provided inthis subparagraph;

(c) Capital Gains from Sale of Shares ofStock not Traded in the Stock

Exchange. - A final tax at the ratesprescribed below is hereby imposedupon the net capital gains realizedduring