TAXATION SUMMARY OF CODAL PROVISIONS NATIONAL INTERNAL REVENUE CODE Organization and Function of t! "IR Po#!r and Duti!$ of t! "IR (Sec 2) 1. Under the supervi supervision sion and and control control of the the Departme Department nt of Financ Finance e 2. Powe Powers rs and and dut dutie ies s are are the the ff: ff: a. Comprehen Comprehend d the assessment assessment and collecti collection on of all national national intern internal al revenue revenue taxes, fees fees and charges . !nforcement of all forfeitures, penalties and and fines, including the the execution of "udgments in all cases decided # the Court of $ax $ax %ppeals and the ordinar# courts c. &ive effec effectt to and admini administer ster the the supervisor supervisor# # and police police powers powers conferred conferred upon upon it Ci!f Officia%$ of t! "IR (Sec 3) 1. Commis Commissio sioner ner of the the 'ntern 'nternal al (eve (evenue nue 2. Depu Deput# t# Com Commi miss ssio ione ners rs )*+ )*+ Po#!r of t! Co&&i$$ion!r 1. Int!r'r!t %a#$ and d!cid! ta( ca$!$ (Sec 4) a. $o interpre interprett the provisions provisions of this Code Code exclusive exclusive and original original "urisdicti "urisdiction on of the Commissioner $u)*!ct to r!+i!# ), t! S!cr!tar, of Financ! )- $o decide disputed assessments, refunds of internal revenue taxes, fees or others charges, penalties imposed and other matters, $u)*!ct to !(c%u$i+! a''!%%at! *uri$diction of t! Court of A''!a%$ .- O)tain O)tain infor&at infor&ation ion and to $u&&o $u&&on/ n/ !(a&in! !(a&in! and ta0! t!$ti&o t!$ti&on, n, of '!r$on$ '!r$on$ (Sec 5) a- Pur'o$! 1 %certain correctness correctness of an# return -aing return when none has een made Determine the liailit# of an# person for an# internal revenue tax Collect an# such liailit# !valuate tax compliance . Co&&i$$ion!r i$ autoriz!d to: to : E(a&in! an# E(a&in! an# oo, paper, record, other relevant or material data O)tain infor&ationon infor&ation on a regular asis from : Fro& #o& : #o& : o an# person an# office or officer of the national and local government, government agencies o and instrumentalities, including the /ango0entral and governmentowned and controlled corporations, an# information 2at 2at an# information information such as, ut not limited to: o Cost and volume of production (eceipts or sales and gross income of taxpa#ers o ames, addresses and financial statements of : o corporations, mutual fund companies, insurance companies, regional operating head3uarters of multinational companies, "oint accounts, associations, "oint ventures of consortia and registered partnerships and their memers •
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Su&&on t! '!r$on liale '!r$on liale for tax or re3uired to file a return, or an# officer or emplo#ee, or an# person having possession, custod# or care of the oos of accounts and other accounting records or an# other person, to appear efore the Commissioner or his representative at a time an place specified in the summons and to 'roduc! such 'roduc! such oos, papers, records or other data or to gi+! t!$ti&on, Ta0! t!$ti&on, of t!$ti&on, of the person of the person concerned, under oath, as ma# e relevant or material to such in3uir# Cau$! r!+!nu! offic!r$ and !&'%o,!!$to&a0! a can+a$$and can+a$$ and in3uire concerning all persons who ma# e liale to pa# an# internal revenue tax and all persons owning or having care, management or possession of an# o"ect with respect to which a tax is imposed. ***Note : ***Note : The foregoing shall not be construed as granting the Commissioner the authority to inquire into bank deposits other than provided in Sec 6(F) o f !"C# to $it: % decedent to determine his gross estate& and %ny ta'payer $ho has has filed an application application for compromise compromise of his ta' liability under Sec *(%)() of this Code by reason of financial incapacity to pay his ta' liability • •
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Ma0! a$$!$$&!nt$ and 'r!$cri)! additiona% r!3uir!&!nt$ r!3uir!&!nt$ for ta( ad&ini$tration and !nforc!&!nt (Sec 6) a. E(a&ination of R!turn$ and D!t!r&ination of Ta( Du! %fter return has een filed, ma# authori5e the examination of an# taxpa#er and the assessment of the correct amount of tax, su"ect to the following conditions: Failure to return shall not prevent Commissioner from authori5ing such examination %n# return filed filed $a%% not )! #itdra#n 6owever, a return ma# )! a&!nd!d #itin 4 ,!ar$ from ,!ar$ from the date of such filing 'ro+id!d tat no notic! for audit or in+!$tigation has een actuall# served . Fai%ur! to Su)&it R!3uir!d R!turn$/ Stat!&!nt$/ R!'ort$ and ot!r Docu&!nt$ 5 Commissioner shall : A$$!$$ t! 'ro'!r ta( on ta( on the )!$t !+id!nc! o)taina)%! o)taina)%! where: % report report shall not e forthcoming within within the time fixed fixed # laws7rules7regulations laws7rules7regulations $here is reason to elieve that such report is false, incomplete or erroneous Ma0! or a&!nd t! r!turn from r!turn from his nowledge fro& i$ o#n 0no#%!dg! and infor&ation o)tain!d troug t!$ti&on, or otherwise, which shall e prima facie and sufficient, where a person: Fails to file a re3uired return or other document prescried # law Files a false or fraudulent return return or other document c. Conduct In+!ntor,6Ta0ing/ Sur+!i%%anc! and Pr!$cri)! Pr!$u&'ti+! 7ro$$ Sa%!$ and R!c!i't$ R!c!i't$ %t an# time during during the taxale #ear, #ear, as a asis for determining tax liailities liailities and where there is reason to elieve that a person is not declaring his correct income : Ord!r in+!ntor, ta0ing of ta0ing of goods Place the usiness operations und!r o)$!r+ation or $ur+!i%%anc! +++Findings ma be used as basis for other months or quarters of the same or different ta'able years& such assessment shall be deemed prima facie correct. %fter taing into into account sales7receipt7income sales7receipt7income of similar similar usinesses under similar situations or circumstances, Commissioner &a, 'r!$cri)! a &ini&u& a&ount of gro$$ r!c!i't$8$a%!$ and ta(a)%! )a$! con$id!r!d a$ 'ri&a faci! corr!ct for corr!ct for computing tax liailities where : % person person has failed to issue receipts and invoices invoices in violation violation of 0ec 114 114 and 248 • •
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$here is reason to elieve that the oos of accounts or other records do not correctl# reflect the declarations made d. T!r&inat! Ta(a)%! P!riod P!riod Commissioner shall declare the tax period terminated at an# time and send notice to taxpa#er together with the immediate pa#ment of tax due su"ect to penalties when it shall come to his nowledge that a taxpa#er is: (etiring from usiness su"ect to tax 'ntending to leave the Philippines, to remove his propert# therefrom Performing an# act tending to ostruct the proceedings proceedings for collection of tax !- Pr!$cr Pr!$cri) i)! ! R!a% R!a% Pro' Pro'!rt !rt, , Ta( Ta(!$ !$ Divide into different 5ones or areas and shall determine the fair maret value of real properties in each 5one or area For computation of internal revenue taxes, the value of the propert# shall e whichever is higher of: F-9 as determined # the Commissioner ;( F-9 as shown in the schedule of values of the provincial and cit# assessors f- In3u In3uir! ir! into into "an0 "an0 D!'o D!'o$it $it Accou Account$ nt$ 6 Commissioner, notwithstanding (% 1*<=, Commissioner is authori5ed to in3uire into an deposits of: Decedent to determine his gross estate $axpa#er $axpa#er who filed for compromise under 0ec 2<*)%+)2+ # reason of financial incapacit# his application to such will not e considered unless he #ai+!$in #riting his #riting his privilege under (% 1*<= g. Accr!dit and R!gi$t!r Ta( Ag!nt$ the Commissioner shall: Accr!dit and r!gi$t!r r!gi$t! r individuals and general professional partnerships and their representatives who prepare and file tax returns, statements, reports, protests and other papers $hose who are denied # # the Commissioner and7or the national or regional accreditation oards ma# appeal such denial to the 0ecretar# 0ecretar# of Finance who shall rule within >< da#s from receipt of appeal Failure to rule within within such period shall e deemed as approval of the application Cr!at! nationa% and r!giona% accr!ditation )oard$ , the memers of which shall serve for 4 #ears h. Pr!$cri)! Additiona% Proc!dura% or Docu&!ntar, R!3uir!&!nt$ in connection with the sumission or preparation of financial statements accompan#ing tax retursn •
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Autorit, to d!%!gat! 'o#!r (Sec 7) 7) Commissioner ma# : a. D!%!gat! to D!%!gat! to an# suordinate with a ran e3uivalent to a division chief or higher, su"ect to limitations promulgated # the 0ecretar# of Finance . Not d!%!gat! the d!%!gat! the following powers: (ecommend the promulgation of rules and regulations # the 0ecretar# of Finance 'ssue rulings of first impression or to reverse, revoe or modif# an# existing ruling of the /ureau Compromise or aate, under 0ec 2<* )%+ and )/+, an# tax liailit#, liailit#, however asic deficienc# of P=<<,<<< or less and minor criminal violations ma# e compromised # a regional evaluation oard composed of the : (egional Director Chairman, o o %ssistant (egional (egional Director memer 6eads of ?egal, %ssessment and Collection Divisions memer o o the (evenue District ;fficer having "urisdiction over the taxpa#er memer %ssign or reassign internal revenue officers officers to estalish estalish where articles articles su"ect to excise excise tax are produced or ept • •
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En$ur! t! 'ro+i$ion and di$tri)ution of for&$/ r!c!i't$/ c!rtificat!$ and a''%ianc!$ and t! ac0no#%!dg!&!nt of payment of payment of ta(!$ (Sec ta(!$ (Sec 8) a. Prescrie Prescrie,, provide and distriut distriute e to the proper proper officials officials the re3uisite re3uisite licenses licenses internal internal revenue revenue stamps, laels, all other forms, certificates, onds records, invoices, oos, receipts, instruments, appliances and apparatus used in administering the laws 'nternal revenue stamps and strip stamps and laels shall e printed with ade3uate securit# features 'nternal revenue stamps, # ar code or fusion design, shall e firml# and conspicuousl# affixed on each pac of cigars adn cigarettes su"ect to excise tax . %cnowled %cnowledge ge the pa#ment pa#ment of tax expressi expressing ng the amount amount paid and particul particular ar account account for which which pa#ment was made )can also e done # his d ul# authori5ed representative or an authori5ed agent+ •
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Int!rna% R!+!nu! Di$trict$ (Sec 9) 9) Commissioner, with approval of the 0ecretar# of Finance, shall divide the Phils into such numer of revenue districts as ma# e re3uired for administrative purposes each of the district shall e under the supervision of a (evenue District ;fficer R!+!nu! R!giona% Dir!ctor (Sec 10) 5 10) 5 shall: 1. 'mplement 'mplement laws, laws, policies, policies, plans, plans, programs, programs, rules rules and regulations regulations of the department department or agencies agencies in the regional area 2. %dminist %dminister er and enforce enforce internal internal revenue revenue laws laws and rules and regulat regulations ions,, including including the assessment and collection of all internal revenue taxes, charges and fees 4. 'ssue ?etter ?etters s of %uthori %uthorit# t# for the examina examination tion of taxpa#er taxpa#ers s within within the region region *. Provide Provide economi economical, cal, efficient efficient and effec effectiv tive e service service =. Coordinat Coordinate e with regional regional offic offices es or other departm departments, ents, ureaus ureaus and and offices offices in the area area >. Coordinat Coordinate e with with local local government government units units in the area area 8. !xercise !xercise control control and supervi supervision sion over the the officers officers and emplo# emplo#ees ees within within the region region @. Perform Perform such such other functi function on as ma# e provide provided d # law and and as ma# e delegate delegated d # the Commissioner R!+!nu! Di$trict Offic!r and ot!r Int!rna% R!+!nu! Offic!r$ ,- $o ensure that all internal revenue laws, rules and regulations are faithfull# executed and complied with (Sec 11) 2. $o aid in the prevention, detection and punishment of frauds or delin3uencies (Sec 11) R!+!nu! Di$trict Offic!r$ 1. $o examine the efficienc# of all officers and emplo#ees of the /'( under his supervision (Sec 11) - $o report in writing to the Commissioner, Commission er, through the (egional Director, an# neglect of dut#, incompetenc#, incompetenc#, delin3uenc# or malfeasance in office of an# internal revenue officer (Sec 11 Ag!nt$ and D!'uti!$ for Co%%!ction (Sec 12) ,- Commissioner of Customs Customs and his suordinates for the collection of national internal revenue taxes on imported goods - 6ead of the appropriate government office and his suordinates for the collection of energ# tax .- /ans dul# accredited # the Commissioner for internal revenue taxes authori5ed to e made thru the an +++%ny authori/ed officer# employee employee or agent bank shall be sub0ect to the same sanctions and penalties prescribed in Sec 61 and Sec 2 Autorit, of R!+!nu! Offic!r$ 1. Pursuant to a ?etter of %uthorit# issued # the (evenue (egional Director, examine examine taxpa#ers within the "urisdiction of the district(Sec district (Sec 13) 4
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(ecommend the assessment of an# deficienc# tax due in the same manner as such acts have een performed # the (evenue (egional Director himself (Sec 13) .- $he following shall have the power to administer oaths and to tae testimon# in an# official matter or investigation conducted # them(Sec 14) : a- Commissioner b- Deput# Commissioner c- 0ervice Chiefs d- %ssistant 0ervice Chiefs e- (evenue (egional Directors f- %ssistant (evenue (egional Directors g- Chiefs and %ssistant Chiefs of Divisions h- (evenue District ;fficers i- 0pecial deputies of the Commissioner 0- 'nternal (evenue ;fficers k- %n# other emplo#ee especiall# deputi5ed # the Commissioner 4. $he following shall have authorit# to &a0! arr!$t$ and $!izur!$ for the violation of an# penal law, rule or regulation administered # the /'( (person arrested shall be brought before a court to be dealt $ith according to the la$) (Sec 15) a. CommissionerA . Deput# Commissioners c. (evenue (egional Directors d. (evenue District ;fficers e. ;ther 'nternal (evenue ;fficers Int!rna% R!+!nu! Offic!r$ 1. A$$ign&!nt a. E(ci$! ta( function$ (Sec 16)! assigned to estalishments or places where articles su"ect to excise tax are produced or ept not &or! tan . ,!ar$ b. ;ther or special duties connected with enforcement and administration of the revenue laws without change in their official ran and salar# (Sec 17) For a$$!$$&!nt and co%%!ction function not more than 4 #ears S'!cia% duti!$ not more than 1 #ear 2. Sa%% i&&!diat!%, r!'ort an, fact$ of +io%ation of this Code or an# law, rules or regulations of the /'( that warrant institution of criminal proceedings to the Commissioner through his immediate supervisor giving the name of the offender and the witnesses in urgent cases, (egional Direcotr or (evenue District ;fficer ma# send the report to the corresponding prosecuting officer, with a cop# of the report sent to the Commissioner (Sec 18) • •
R!'ort$ ), t! Co&&i$$ion!r 9- Annua% R!'ort (Sec 19) 0hall contain detailed statements of the collections of the /ureau with sources of revenue # : t#pe of tax, o o manner of pa#ment, revenue region o o industr# group disursements # classes of expenditures 'f collection exceeds or falls short of target in annual udget # 1=B or more, he shall explain the reason for such excess or shortfall .- To Congr!$$ (Sec20) Furnish the appropriate Committee : Upon re3uest of Congress 'n aid of legislation • •
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Pertinent information including ut not limited to: 'ndustr# audits Collection performance data 0tatus reports in criminal actions against persons and taxpa#erAs returns 6owever, an# return or information associated with directl# or indirectl# with a particular taxpa#er shall e furnished in !xecutive 0ession unless taxpa#er consents in writing to such disclosure otwithstanding the provision of 0ection 28< • • •
4- To O+!r$igt Co&&itt!! (Sec 20) 0umit through the Chairmen of the ;versight Committee of a#s and -eans of the 0enate and 6ouse of (epresentatives % report on the exercise of his power pursuant to the said action ever# > months of each calendar #ear ith reference to 0ection 2<* Nationa% Int!rna% R!+!nu! Ta(!$ (Sec 21) 1. 'ncome $ax 2. !state and DonorAs $ax 4. 9alueadded $ax *. ;ther Percentage $axes =. !xcise $axes >. Documentar# 0tamp $axes 8. 0uch other taxes as ma# e imposed and collected # the /'(
INCOME TAXATION Inco&! Ta( on Indi+idua%$ D!finition of T!r&$ (Sec 22) refer to '(C 7!n!ra% Princi'%!$ of Inco&! Ta(ation(Sec 23) Ta('a,!r T,'! Sourc! of Ta(a)%! Inco&! Citi5en of the Phils residing therein %ll income derived from sources within and without the Phils onresident citi5en 'ndividual citi5en of the Phils woring aroad as o+!r$!a$ contract #or0!r inc%ud!$ a $!a&an who is a citi5en and who receives compensation as memer of the complement of the vessel engaged in international trade %lien individual, whether resident or not Domestic Corporation
'ncome derived from sources within the Phils 'ncome derived from sources within the Phils
'ncome derived from sources within the Phils %ll income derived from sources within and without the Phils
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Foreign Corporation, whether engaged or not in trade or usiness
'ncome derived from sources within the Phils.
Inco&! Ta( on R!$id!nt or Non6R!$id!nt Citiz!n 8 R!$id!nt A%i!n :S!c .;< 1. A''%ication a. 'ndividual Citi5en for all sources within and without the Phils . 'ndividual Citi5en residing outside of the Phils, including overseas contract worer for all income within Phils c. (esident %lien for all sources within the Phils .- Marri!d Indi+idua%$ a. 6usand and wife, su"ect to 0ec =1)D+, shall compute separatel# income tax returns . 'f an# income cannot e identified as exclusivel# earned # either, it shall e divided e3uall# etween the spouses 3.
Mini&u& 2ag! Earn!r$ a. D!finition (Sec 22 ("")) a #or0!r in t! 'ri+at! $!ctor or to an !&'%o,!! in t! 'u)%ic $!ctor with compensation not more than the statutor# minimum wage in the nonagricultural sector where he7she is assigned . Sa%% )! !(!&'t from income tax for their ta(a)%! inco&!, including: 6olida# pa#, ;vertime pa#, ight shift differential pa# and 6a5ard pa# • • • •
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T,'! of Inco&! and corr!$'onding Ta( Rat!$ NIRC Pro+i$ion Particu%ar$ $axale 'ncome defined in 0ec 41 except income under 0ec 2* )/+, )C+, )D+ Sec ., 3 ta'able income means S!c .; :A< gross income less deductions and4or personal and additional e'emptions •
S!c .;:"<:9< 5 Pa$$i+! Inco&!: !nterest# "oyalties# 5ri/es and ther 7innings
a. 'nterest from an# currenc# an deposit from deposit sustitutes and from trust funds and similar arrangements . (o#alties, in general c. Pri5es d. ;ther innings (o#alties on oos, other literar# wors and musical compositions Pri5es amounting to 1<,<<< or less innings from Phil Charit# 0weepstaes and ?otto 'nterest 'ncome # individual taxpa#er (e#cept non re$ident) from an under an expanded foreign currenc# deposit s#stem
Ta( Rat! (efer to tax tale 0ec 2*%)2+ as amended # (% =<*
Final tax rate of 2
Final tax of 1
$ax $ale 0ec 2*)%+ exempt
Final tax of 8EB
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'nterest income from long term deposit or investment in the form of savings, trust funds, deposit sustitutes, investment management accts other investments Ca$8'ro'!rt, di+id!nd actua%%, or con$tructi+!%, received # an indi+idua% from a : o Domestic corporation Ioint stoc compan# o o 'nsurance or mutual fund co. (egional operating head3uarters o of multinational companies Sar! of indi+idua% in t! di$tri6)uta)%! n!t inco&! aft!r ta( of a 'artn!r$i' of which he is a partner **%#cept &enera' rof artner$ip 0hare of an individual in the net income after tax of an association, "oint account or "oint venture or consortium taxale as a corporation of which he is a memer or coventurer et capital gains reali5ed during the taxale #ear from the sale, arter, exchange or other disposition of shares of stoc in a domestic corp E(c!'t1 a. 0hares sold through stoc exchange . 0ec 4)/+ stoc in trade included in the inventor# or in the ordinar# course of usiness Capital gains from sale, exchange or other disposition of real propert# located in the Phils classified as capital assets, including pacto de retro and other forms of conditional sales, # individuals, including estates or trusts &ains from sales or other d ispositions of real propert# to t! go+t or an, 'o%itica% $u)di+i$ion$ or ag!nci!$ or to 7OCC$ 7ain$ fro& $a%! or di$'o$ition of 'rinci'a% r!$id!nc! of natura% '!r$on$ , su"ect to the following conditions: Proceeds full# utili5ed in ac3uiring or constructing new residence within 1@ months from sale or disposition $he historical cost or ad"usted asis shall e carried over to the new principal residence Commissioner shall e notified within 4< da#s from date of sale or disposition $ax exemption can onl# e availed of once ever# 1< #ears
G = #rs * to H = #rs 4 to H * #rs H 4 #rs
exempt =B 12B 2
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S!c .;:"<:.< 5 Pa$$i+! Inco&!1Cash or 5roperty 8ividends
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S!c .;:C< 5Capital ;ains from Shares of Stock not traded in the Stock <'change
S!c .;:D< Capital ;ains from Sale of "eal 5roperty
Fina% ta(: >B eg of Ian 1, 1@ @B eg of Ian 1, 1 1
G 1<<,<<< =B J 1<<,<<< 1
Final tax of >B on the &ross 0elling Price or Current Fair -aret 9alue, whichever is higher
(ate under 0ec 2*)%+ or 0ec 2*)D+, at the option of the taxpa#er !xempt
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'f not full# utili5ed, capital gains tax shall e ased on the portion of gain presumed to e reali5ed , such computed # multipl#ing &0P or F-9, whichever is higher, multiplied # a unutili5ed fraction Inco&! Ta( on Non6R!$id!nt A%i!n (Sec 25) 1. Engag!d in Trad! or "u$in!$$ #itin t! Pi%i''in!$ (Sec 25()) a- D!finition one who come to the Philippines and sta# therein for an aggr!gat! '!riod of &or! tan 9=> da,$ during an, ca%!ndar ,!ar •
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Ta( Rat!$ NIRC Pro+i$ion
Particu%ar$ •
S!c .?:A<:9<
'n &eneral
Ca$8'ro'!rt, di+id!nd actua%%, or con$tructi+!%, received # an indi+idua% from a : o Domestic corporation Ioint stoc compan# o o 'nsurance or mutual fund co. (egional operating head3uarters o of multinational companies Sar! of indi+idua% in t! di$tri6)uta)%! n!t inco&! aft!r ta( of a 'artn!r$i' of which he is a partner **%#cept &enera' rofe$$iona' artner$ip 0hare of an individual in the net income after tax of an association, "oint account or "oint venture or consortium taxale as a corporation of which he is a memer or coventurer a. 'nterest from an# currenc# an deposit from deposit sustitutes and from trust funds and similar arrangements . (o#alties, in general c. Pri5es d. ;ther innings, except Phil Charit# 0weepstaes and ?otto 'nterest income from long term deposit or investment in the form of savings, trust funds, deposit sustitutes, investment management accts other investments (o#alties on oos, other literar# wors, musical compositions Pri5es amounting to 1<,<<< or less ;ther winnings except Phil Charit# 0weepstaes and ?otto
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Ta( Rat! 0ame as individual citi5en and resident alien ;n taxale income received from all sources within the Phils
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Final $ax of 2
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S!c .?:A<:.<
Final $ax of 2
G = #rs exempt * to H = #rs =B 4 to H * #rs 12B H 4 #rs 2
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Capital gains from sale, arter or exchange of shares of stoc in domestic corporations not traded through stoc S!c .?:A<:4< exchange Capital gains from sale, arter or exchange of real propert# Not Engag!d in Trad! or "u$in!$$ #itin t! Pi%i''in!$ (Sec 25(+)) a- Co+!rag! of Ta(a)%! Inco&! all sources within the Philippines b. Ta( Rat!$ NIRC Pro+i$ion
Particu%ar$ 'nterest Cash7Propert# Dividends (ents 0alaries ages Premiums %nnuities Compensation (emuneration !moluments ;ther fixed or determinale annual or periodic or casual gains Profits and income Capital &ains
0ame as 0ec 2*)C+ 0ame as 0ec 2*)D+
Ta( Rat!
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2=B of gross income
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S!c .?:"<
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Capital gains from sale of shares of stoc in domestic corporations
0ame as 0ec 2*)C+
Capital gains from sale of real propert#
0ame as 0ec 2*)D+
S'!cia% A%i!n$ (Sec 25 (,)- ()- (%)) NIRC Pro+i$ion Particu%ar$ E&'%o,!d ), r!giona% or ar!a !ad3uart!r$ and r!giona% o'!rating !ad3uart!r$ !$ta)%i$!d in t! Pi%$ ), &u%tinationa% co&'ani!$ )salaries, wages, annuities, compensation, remuneration and other emoluments such as honoraria and allowances+ S!c .? :C< ***/'tinationa' company 3 foreign entity engaged in international trade $ith affiliates 4subsidiaries 4 branch office in the %sia=5acific region and other foreign markets S!c .? :D<
Ta( Rat! 9?@ of gro$$ inco&!/ provided that the same tax treatment shall appl# to Filipinos emplo#ed and occup#ing the same position as those aliens emplo#ed # these multinationals (ta# parity r'e)
E&'%o,!d ), off$or! )an0ing unit$ !$ta)%i$!d in t! Pi%$ )salaries, wages, annuities, compensation, remuneration and other emoluments such 10
as honoraria and allowances+ S!c .? :E<
E&'%o,!d ), P!tro%!u& S!r+ic! Contractor and Su)contractor a permanent resident of a foreign countr# emplo#ed and assigned in the Phils
M!&)!r$ of 7!n!ra% Prof!$$iona% Partn!r$i'$ (Sec 26) ,- &eneral Professional Partnership )&PP+ shall not e su"ect to income tax - Partners of &PPs shall e liale for income tax on their separate and individual capacities. .- et income of &PPs shall e computed in the same manner as a corporation in order to compute partnerAs distriutive shares. 4. !ach partner shall report as gross income his distriutive share, actua%%, or con$tructi+!%, r!c!i+!dInco&! Ta( on Cor'oration$ Do&!$tic Cor'oration$ :S!c .< 1. D!finition (Sec 22(+)) a- 0hall include : partnerships, "oint stoc corporations, "oint accounts, association or insurance companies, )- /ut does not include : general professional partnerships and "oint venture or consortium formed for undertaing construction pro"ects or engaging in petroleum, coal, geothermal and other energ# operations pursuant to an operating consortium agreement under a service contract with the &overnment • • • • •
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Sco'! of Ta(a)%! Inco&! (Sec 27()) from all sources within and without the Philippines
4- Ta( Rat!$ on Cor'oration$ in 7!n!ra% NIRC Pro+i$ion
Particu%ar$
S!c .:A<
'n &eneral
S!c . :D< 65assive !ncome
'nterest on currenc# an deposit and #ield or monetar# enefit from deposit sustitutes and from trust funds and similar arrangements (o#alties Int!r!$t fro& a d!'o$itar, )an0 under the expanded foreign currenc# deposit et capital gains from sale, exchange or disposition of shares of stoc
Ta( Rat! 4
Final tax of 2
<'cept : shares sold through stock e'change Inco&! ), a d!'o$itar, )an0 under the expanded foreign currenc# deposit from foreign currenc# transactions with
!xempt
11
onresidents ;ffshore aning units in the Phils ?ocal commercial ans including foreign ans authori5ed # the /0P to transact usiness with foreign currenc# deposit s#stem ;ther depositor# ans under the expanded foreign currenc# deposit s#stem Inco&! ), a d!'o$itar, )an0 from such transactions as ma# e specified # the 0ecretar# of Finance, upon recommendation of the -onetar# /oard 'nterest income from foreign currenc# loans granted # such depositar# ans under such expanded s#stem to residents other than offshore aning units in the Phils or other depositor# ans under the expanded s#stem 'ntercorporate Dividends received # a domestic corp from another • • •
•
Capital gains from sale, exchange or disposition of lands and7or uildings, which are not actuall# used in usiness
*.
(egular income tax pa#ale # ans
Final tax of 1
!xempt Final tax of >B of ross selling price or fair maret value, whichever is higher
Pr!$id!nt &a,, upon recommendation of the 0ecretar# of Finance, a%%o# cor'oration$ t! o'tion to )! ta(!d at 9?@ of gro$$ inco&! (Sec 27) a. 0u"ect to the following conditions: $ax effort ratio of 2
•
•
?- Ta( Rat!$ of C!rtain Cor'oration$ NIRC Pro+i$ion S!c . :"< 5 5roprietary ospitals
Particu%ar$ •
•
&ross income from unrelated trade or usiness does not exceed =
Ta( Rat!
9>@ of ta(a)%! inco&! !xceptions 1. Passive income taxale under 0ec 28)D+ 2. hen gross income from unrelated trade or activit# exceeds =
administered by private individuals or groups $ith an issued permit to operate from the 8<8 or T
income is su"ect to 0ec 28)%+ or 4
S!c . :C< 5 4>@ of ta(a)%! inco&! ;overnment !xcept : $ned 4Con= 1. &0'0 trolled Corps# 2. 000 %gencies or 4. P6'C !nstrumentalities *. PC0; 6. Mini&u& Cor'orat! Inco&! Ta( : Sec 27(%)) a. R!3ui$it!$ 2B of gross income as of end of taxale #ear 'mposed eginning of the *th taxale #ear immediatel# following the #ear of commencement of usiness operations hen minimum income tax is greater than the tax computed under 0ec 28)%+ . Carr, For#ard of E(c!$$ Mini&u& Ta( excess of -C'$ over the normal income tax shall e carried forward and credited against the normal income tax for the 4 immediatel# succeeding taxale #ears c. R!%i!f fro& MCIT $he 0ecretar# of Finance is authori5ed to suspend imposition of -C'$ on an# corporation which suffers losses on account of : o Prolonged laor dispute Force ma"eure o o ?egitimate usiness reverses $he 0ecretar# of Finance is authori5ed to promulgate, upon recommendation of the Commissioner, rules and regulations to define terms and conditions under which he ma# suspend the imposition of -C'$. •
•
• •
•
•
•
For!ign Cor'oration$ (Sec 28) 1. R!$id!nt For!ign a. Sco'! income from all sources within the Philippines .
D!finition corporation organi/ed# authori/ed or e'isting under the la$s of any foreign country# engaged in trade or business $ithin the 5hilippines
c-
Ta( rat!$ NIRC Pro+i$ion S!c .= :A< S!c .= :A< :<
Particu%ar$ 'n general
Ta( Rat! 4
'nterest from an# currenc# an deposit from deposit sustitutes and from trust funds and similar arrangements
Final tax of 2
(o#alties
Final tax of 2
'nterest from a depositor# an under the expanded foreign currenc# deposit s#stem 'nterest derived # a depositor# an under the expanded foreign currenc# deposit s#stem from foreign currenc# transactions with nonresidents,
Final tax of 8E B !xempt
•
13
•
•
•
offshore aning units in the Phils, local commercial ans including ranches of foreign ans authori5ed # /0P to transact usiness with foreign currenc# deposit s#stem units and other depositor# ans under the expanded foreign currenc# deposit s#stem
Inco&! ), a d!'o$itar, )an0 from such transactions as ma# e specified # the 0ecretar# of Finance, upon recommendation of the -onetar# /oard 'nterest income from foreign currenc# loans granted # such depositor# ans under said expanded s#stem to residents other than depositor# ans under the expanded s#stem %n# income of individual or corporation nonresidents from transactions under the expanded s#stem Capital gains from sale, arter, exchange or other disposition of shares of stoc in a domestic corporation except shares sold through the stoc exchange Dividends from a domestic corporation
(egular income tax pa#ale # ans
Final tax of 1
!xempt
ot over 1<<,<<< =B ;ver 1<<,<<< 1
d- O'tion of 9?@ on gro$$ inco&! und!r S!c .:A< a''%i!$ !- Mini&u& Cor'orat! Inco&! Ta( 5 same as 0ec 28)!+ f-
S'!cia% r!$id!nt for!ign cor'oration$ NIRC Pro+i$ion S!c .= :A<:4< 5 !nternational Carrier S!c .= :A<:;< 5 ffshore ?anking @nits
Particu%ar$ • •
'nternational %ir Carrier 'nternational 0hipping
Inco&! d!ri+!d ), off$or! )an0ing unit authori5ed # the /0P from foreign currenc# transaction s with : onresidents ;ther offshore aning units ?ocal commercial ans 'ncluding ranches of foreign ans authori5ed # the /0P
Ta( Rat! 2E B of &ross Philippine /illings
• •
!xempt
• •
Int!r!$t inco&! d!ri+!d fro& for!ign curr!nc, %oan$ granted to residents other than offshore aning
Final tax of 1
14
units or local commercial ans including local ranches of foreign ans authori5ed # /0P to transact with offshore aning units Inco&! of non6r!$id!nt indi+idua%$ or cor'oration$ from transactions !xempt with offshore aningunits an# profit remitted # ranch to its head office includes the following effectivel# connected with the conduct of its trade or usiness in the Phils: o interests 1=B of the total profits dividends o applied or earmared o rents for remittance without ro#alties o an# deduction for the o renumeration for technical S!c .= :A< :?< 5 tax component ?ranch 5rofits services !xcept : P!K% "emittances o salaries registered activites wages o $ax shall e collected o premiums and paid as provided annuities o under 0ec =8 and =@ o emoluments or other fixed or determinale annual, period or casual gains o profits o income o capital gains (egional or %rea 6ead3uarters as !xempt defined in 0ec 22)DD+ S!c .= :A< :B< (egional ;perating 6ead3uarters as 1
•
•
•
•
•
2.
Nonr!$id!nt For!ign a- Sco'! 5 all sources within the Philippines )- Ta( Rat!$ NIRC Pro+i$ion S!c .=:"<:9<
Particu%ar$ 'ncome received such as 'nterests
Ta( Rat!$ 4
•
15
• • • • •
• • •
• •
Dividends (ents (o#alties 0alaries Premiums )except reinsurance premiums+ %nnuities !moluments ;ther fixed or determinale annual, periodic or casual gains Profits and income Capital gains
'nterest on foreign loans contracted on or after %ugust 1, 1@>
Final withholding tax of 2
S!c .= :"< :?<
Cash and7or propert# dividends received from a domestic corporation
et capital gains on sale, arter, exchange or other disposition of shares of stoc in domestic corp except shares sold through the stoc exchange
c-
sub0ect to the condition that the country in $hich the non=resident foreign corporation is domiciled# shall allo$ a credit against ta' due to A $hich represents the difference bet$een the regular income ta' of .BA& effective 9an ,# 1# represents the difference bet$een regular ta' of .A and ,BA ta' on dividends ot over 1<<,<<< ;ver 1<<,<<<
=B 1
S'!cia% Nonr!$id!nt For!ign cor'oration$ NIRC Pro+i$ion S!c .= :"<:.<
S!c .= :"< :4<
Particu%ar$ onresidentCnematographic Film ;wner, ?essor or Distriutor
onresident ;wner or ?essor of 9essels Chartered # Philippine ationals
Ta( Rat!$ .?@ of gross income ; @ of gross rentals, lease or charter fees from leases or charters to Filipino citi5ens or corp as approved # -aritime 'ndustr# %uthorit#
16
S!c .= :"< :4<
onresident ;wner or ?essor of %ircraft, -achineries and ;ther !3uipment
@ of gross rentals or fees
I&'ro'!r%, Accu&u%at!d Earning$ :S!c .< 1. 0hall appl# to !+!r, cor'oration for&!d or a+ai%!d for t! 'ur'o$! of a+oiding t! inco&! ta( #it r!$'!ct to it$ $ar!o%d!r$ or t! $ar!o%d!r$ of ot!r cor'oration , # permitting earnings and profits to accumulate instead of eing divided or distriuted 2. Ta( Rat! 1. Co&'utation of i&'ro'!r%, accu&u%at!d inco&! : Ta(a)%! inco&! Ad*u$t!d ),: o 'ncome exempt from tax o 'ncome excluded from gross income o 'ncome su"ect to final tax o et operating loss carr# over deducted R!duc!d ), : o Dividends actuall# or constructivel# paid o 'ncome tax paid for the taxale #ear •
•
Cor'oration$ E(!&'t fro& Inco&! Ta( (Sec 30) 1. ?aor, agricultural or horticultural organi5ation not organi5ed principall# for profit 2. -utual savings an not having a capital stoc represented # shares, and cooperative an without capital stoc organi5ed and operated for mutual purposes and without profit 4. % eneficiar# societ#, order or association, operating for the exclusive enefit of the memers such as a fraternal organi5ation operating under the lodge s#stem, or mutual aid association or a nonstoc corporation organi5ed # emplo#ees providing for the pa#ment of life, sicness, accident or other enefits exclusivel# to the memers of such societ#, order, or association or nonstoc corporation or their dependents *. Cemeter# compan# owned and operated exclusivel# for the enefit of its memers =. onstoc corporation or association organi5ed and operated exclusivel# for religious, charitale, scientific, athletic or cultural purposes, for the rehailitation of veterans, no part of its net income or asset shall elong to or inures to the enefit of an# memer, organi5er, officer or an# specific person >. /usiness league, chamer of commerce or oard of trade, not organi5ed for profit and no part of the net income of which inures to the enefit of an# private stocholder, or individual 8. Civil league or organi5ation not organi5ed for profit ut operated exclusivel# for the promotion of social welfare @. % nonstoc and nonprofit educational institution . &overnment educational institution 17
1<. FarmersA or other mutual t#phoon or fire insurance compan#, mutual ditch or irrigation compan#, mutual or cooperative telephone compan#, or lie organi5ation of a purel# local character, teh income of which consists solel# of assessments, dues and fees collected from memers for the sole purpose of meeting its expenses and 11. FarmersA fruit growersA, or lie association organi5ed and operated as a sales agent for the purpose of mareting teh products of its memers adn turning ac to them the proceeds of sales, less the necessar# selling expenses on the asis of the 3uantit# of produce finished # them Not! 1 t! inco&! of #at!+!r 0ind and caract!r of t! a)o+! conduct!d for 'rofit r!gard%!$$ of t! di$'o$ition &ad! of $uc inco&! $a%% )! $u)*!ct to ta(- : oeerti$ doe$ not app'y to 8 non$tocnonprofit edcationa' in$tittion ic i$ e#empt a$ proided for in te ,on$tittion)
Ta(a)%! Inco&!(Sec 31) -eans the pertinent items of gross income less the deductions and7or personal and additional exemptions, if an#, authori5ed for such t#pes of income # this Code or other special la ws
7ro$$ Inco&! Inc%u$ion$ :S!c 4.A< 5 means all income derived from whatever source, including, ut not limited to, the following : ,- Compensation for services in whatever form paid, including ut not limited to fees, salaries, wages, commissions and similar items - &ross income derived from the conduct of trade and usiness or the exercise of a profession .- &ains from dealings in propert# *- 'nterests B- (ents 6- (o#alties 2- Dividends - %nnuities 1- Pri5es and winnings ,- Pensions and ,,- PartnerAs distriutive share from the net income of the general professional partnership E(c%u$ion$ fro& gro$$ inco&! (Sec 32+) 5 the following shall e excluded from gross income and shall e exempt: 1. Lif! In$uranc! (e3uisites: a. Proceeds of life insurance policies paid to the heirs or eneficiaries upon the death of the insured . hether in a single sum or otherwise c. 'f held # insurer to e paid at an interest, such interest shall e included in the gross income -
A&ount R!c!i+!d ), In$ur!d a$ R!turn of Pr!&iu& (e3uisites: a. %mount received # the insured . %s return of premium c. Under life insurance, endowment or annuit# contracts d. !ither during the term or at the maturit# or surrender of the contract
.-
7ift$/ "!3u!$t$ and D!+i$!$ value of propert# ac3uired as mentioned, provided that income from such, in case of transfers of divided interest, shall e included in the gross income
4.
Co&'!n$ation for In*uri!$ or Sic0n!$$ 18
a. %mounts received through : %ccident insurance 6ealth insurance ormenAs compensation acts . %s compensation for personal in"uries or sicness '%u$ a&ount$ of an, da&ag!$ received c- 2!t!r ), $uit or agr!!&!nt • • •
B-
Inco&! E(!&'t Und!r Tr!at, income of an# ind to the extend re3uired # an# treat# oligation inding upon the &ovt of the Phils
6.
R!tir!&!nt "!n!fit$/ P!n$ion$/ 7ratuiti!$/ !tc a- R!tir!&!nt )!n!fit$ und!r RA B;9 and # officials and emplo#ees of private firms: 'n accordance with a reasonale p rivate enefit plan maintained # the emplo#er (etiring official or emplo#ee : o 6as een in the service for at least 1< #ears ot less than =< #ears of age at the time of retirement o 0uch enefits granted shall e availed f # an official or emplo#ee on%, onc! b. A&ount r!c!i+!d ), an officia% or !&'%o,!! or i$ !ir$ fro& t! !&'%o,!ra$ a con$!3u!nc! of $!'aration du! to d!at/ $ic0n!$$ or ',$ica% di$a)i%it, or an, cau$! )!,ond t! contro% of $uc officia% or !&'%o,!! c- Socia% $!curit, )!n!fit$/ r!tir!&!nt/ gratuiti!$/ '!n$ion$ and ot!r $i&i%ar )!n!fit$ received # resident or nonresident citi5en or aliens who permanentl# reside in the Philsfro& for!ign go+!rn&!nt ag!nci!$ and other institutions, private or pulic d- /enefits due to an# person residing in the Phils under the laws of the U0 administered # the US V!t!ran$ Ad&ini$tration e- /enefits received from or en"o#ed und!r t! SSS in accordance with (% @2@2 f- /enefits received from the 7SIS und!r RA =.9 including retirement gratuit# received # government officials and emplo#ees • •
•
7.
Mi$c!%%an!ou$ It!&$ a- Inco&! d!ri+!d fro& For!ign 7o+!rn&!nt income from investments in Phil loans, stocs, onds, securities or an deposits # a+ foreign governments + financing institutions owned, controlled or en"o#ing refinancing from foreign governments and c+ international and regional financial institutions b-
Inco&! d!ri+!d ), t! 7o+!rn&!nt or it$ Po%itica% Su)di+i$ion income from an# pulic utilit# or from exercise of essential governmental function
c.
Priz!$ and A#ard$ 'n recognition of : o (eligious o Charitale o 0cientific !ducational o o %rtistic ?iterar# o o Civic achievement Provided further that recipient : o 0elected without an# action on his part to enter ot re3uired to render sustantial future services as condition for award7pri5e o •
•
d-
Priz!$ and A#ard$ in S'ort$ Co&'!tition granted to athletes: local and international sports competitions and tournaments whether held in the Phils or aroad • •
19
•
e-
sanctioned # their national sports association )associated $ith 5hil lympic %ssociation+
94t Mont Pa, and Ot!r "!n!fit$ shall not exceed P4<,<<< which shall cover enefits received : Pursuant to (% >>@> Pursuant to PD @=1 as amended # -emo ;rder o 2@ dated %ug 14, 1@> ot covered # PD @=1 0uch as productivit# incentives and Christmas onus the ceiling of P4<,<<< ma# e increased # issuance of 0ecretar# of Finance, upon recommendation of the Commissioner • • • •
f-
7SIS/ SSS/ M!dicar! and Ot!r Contri)ution$ includes union dues
g-
7ain$ fro& Sa%! of "ond$/ D!)!ntur!$ or ot!r C!rtificat!$ of Ind!)t!dn!$$ from the sale or exchange or retirement of onds, deentures, etc with maturit# of more than = #ears
. 7ain$ fro& R!d!&'tion of Sar!$ in Mutua% Fund gains # investor upon redemption of shares of stoc in mutual fund per 0ec 22)//+ Fring! "!n!fit$ (Sec 33) 1. D!finition means an# good, service or other enefit furnished or granted in cash or in ind # an emplo#er to an emplo#ee such as ut not limited to : a. 6ousing . !xpense account c. 9ehicle of an# ind d. 6ousehold personnel, such as maid, driver and others e. 'nterest on loan at less than maret rate to the extent of the difference etween the maret rate and actual rate granted f. -emership fees, dues and other expenses orne # the emplo#er for the emplo#ee in social and athletic clus or other similar organi5ations g. !xpenses for foreign travel h. 6olida# and vacation expenses i. !ducational assistance to the emplo#ee or his dependents and ". ?ife or health insurance and other nonlife insurance premium or similar accounts in excess of what the law allows 2. E(c!'tion where : a. 't is gi+!n to ran0 and fi%! OR . 't is r!3uir!d ), t! natur! of/ or n!c!$$ar, to t! trad! , usiness or profession of the emplo#er OR c. $he fringe enefit is for the con+!ni!nc! or ad+antag! of t! !&'%o,!r d. Fring! )!n!fit$ not ta(a)%! : Fringe enefits which are autoriz!d and !(!&'t!d fro& ta( under special laws Contriutions of the emplo#er for the enefit of the emplo#ee to r!tir!&!nt/ in$uranc! and o$'ita%ization )!n!fit '%an$ "!n!fit$ gi+!n to ran0 and fi%! !&'%o,!!$, whether granted under collective argaining agreement or not D! &ini&i$ )!n!fit as defined in the rules and regulations promulgated # the 0ecretar# of Finance 4. Ta( Rat! a. 'n general 4.@ of t! gro$$!d u' &on!tar, +a%u! of fringe enefit furnished or granted to the emplo#ee, ere %ctual monetar# value &rossed up monetar# value L 1<
20
NIRC Pro+i$ion S!c .? "
S!c .? C
Particu%ar$ on resident individual not engaged in trade or usiness in the Phils
Ta( Pa,a)%! %mount of fringe enefit x 2=B 1 2=B
%lien !mplo#ed # (egional or %rea 6ead3uarters adn (egional ;perating of -utinational Companies
S!c .? D
%lien 'ndividual !mplo#ed # ;ffshore /aning Units
S!c .? E
%lien 'ndividual !mplo#ed # Petroleum 0ervice Contractor and 0ucontractor
%mount of fringe enefit x 1=B 1 1=B
;- $ax is 'a,a)%! ), t! !&'%o,!r such tax to e paid under 0ec =8)%+ A%%o#a)%! D!duction$ D!duction$ fro& 7ro$$ Inco&! :S!c 4;< A- It!&iz!d D!duction$ 9- E('!n$!$ a- R!3ui$it!$ ;rdinar# ecessar# Paid during the taxale #ear %ttriutale to the development, management, operation and7or conduct of the trade, usiness or exercise of a profession (easonale . Inc%ud!$ : Sa%ari!$/ 2ag!$ and ot!r for&$ of co&'!n$ation o For personal services actuall# rendered o 'ncludes grossed up monetar# value of fringe enefit, provided that final tax under 0ec 44 has een paid •
Tra+!% E('!n$!$ 'ncurred in the Phils and aroad o o 'n the pursuit of trade, usiness or profession R!nta%$ and ot!r 'a,&!nt$ r!3uir!d to continu! u$! or 'o$$!$$ion o For purposes of trade, usiness o r profession (elates to propert# for which the taxpa#er : o has not taen or is not taing or in which he has no e3uit# other than that of a lessee, user or possessor Ent!rtain&!nt/ A&u$!&!nt and R!cr!ation o 'ncurred during the taxale #ear Directl# connected to the development, management and operation of trade, o usiness or profession of the taxpa#er o Directl# related to or in furtherance of the conduct of his or its trade, usiness or exercise of profession 21
o
o
c.
ot to exceed such ceilings prescried # the 0ecretar# of Finance, upon recommendation of the Commissioner, taing into account the needs as well as the special circumstances, nature and character of the industr#, trade, usiness or profession of the taxpa#er 0hould not e contrar# to law,morals, pulic polic# or pulic order
Su)$tantiation R!3uir!&!nt$ re3uires sufficient evidence such as official receipts or other ade3uate records: $he amount of expense eing deducted Direct connection or relation to the development, management, operation and7or conduct of the trade, usiness or profession of the taxpa#er • •
d.
"ri)!$/ Gic0)ac0$ and Ot!r Si&i%ar Pa,&!nt$ NOT ALLO2ED e. Pri+at! Educationa% In$titution$(5roprietary
.-
Int!r!$t R!3ui$it!$ Paid or incurred #itin a ta(a)%! ,!ar ;n indetedness connected with the taxpa#erAs profession, trade or usiness A%%o#a)%! d!duction $a%% )! 44@(rate as of 9anuary ,# 1# the previous rate $as *A) of the interest income su"ected to final tax • • •
E(c!'tion$ where : here individual taxpa#er reports income on cash asis and the interest on indetedness is paid in advance through a discount or otherwise such interest onl# deductile in the #ear the indetedness is paid here indetedness is pa#ale in periodic amorti5ations, the interest which corresponds to the amount of the principal amorti5ed or paid during the #ear is allowed as deduction 'f taxpa#er and creditor are r!%at!d 'arti!$ as provided for under S!c 4B" to wit: "!t#!!n fa&i%, &!&)!r$ which refers to rothers and sisters )full o lood or half lood+, spouse, ancestors and lineal descendants o "!t#!!n an indi+idua% and cor'oration more than =
•
•
O'tiona% Tr!at&!nt 'nterest ac3uired to ac3uire propert# used in trade, usiness or exercise of profession ma# e allowed as a+ deduction or + capital expenditure, at the option of the taxpa#er
22
4-
Ta(!$ R!3ui$it!$ : 'ncurred within taxale #ear 'n connection with profession, trade or usiness 'n case of nonresident alien individual engaged in trade or usiness and resident foreign corporations, deductions for taxes shall e a llowed onl# if and to the extend that the# are connected with income sources within the Philippines $he following taxes are not d!ducti)%!: 'ncome tax 'ncome taxes imposed # authorit# of an# foreign countr#, however, deduction shall e allowed where a taxpa#er does not signif# in his return to have the enefits of tax credit for taxes of foreign countries !state and donorAs taxes $axes assessed against local enefits of a ind tending to increase the value of the propert# assessed R!fund!d or cr!dit!d ta(!$ e included as part of gross income (Ta' ?enefit "ule) 'n the #ear of receipt $o the extent of the income tax enefit of said deduction
• • •
• •
• •
• •
Cr!dit ta( for Ta(!$ 'aid in For!ign Countri!$ if taxpa#er desires to have these enefits, the tax imposed shall e credited with : Gind of Ta('a,!r A+ai%&!nt :A&ount< of Ta( Cr!dit Citi5en and Domestic Corporation 'ncome tax paid or incurred during the taxale #ear to an# foreign countr# 'ndividual memer of a general Proportionate share of the taxes of the professional partnership or a eneficiar# of general professional partnership, estate or an estate or trust trust paid or incurred during the taxale #ear to a foreign countr# %lien individual or foreign corporation $ax credit not allowed
Li&itation$ on Cr!dit 5 Sec 34 ,(4) Ad*u$t&!nt$ on Pa,&!nt of Incurr!d ta(!$ 5 Sec 34 (5) Y!ar in #ic Cr!dit ta0!n 5 Sec 34 ,(6) Proof of Cr!dit$ Foreign tax credits shall allowed onl# if the taxpa#er estalishes the following : a. $otal amount of income derived from sources without the Phils . %mount of income derived from each countr#, the tax paid or incurred to which is claimed as a credit c. %ll other information necessar# for the verification and computation of such credits 4.
Lo$$!$ (Sec 34 ) R!3ui$it!$ : a. ?osses actuall# sustained during the taxale #ear . ot compensated for # insurance or other forms of indemnit# c. 'ncurred in trade, profession or usiness d. ;f propert# connected with the trade usiness or profession e. ?oss arises from fires, storms, shipwrec, or other casualties or from roer#, theft or eme55lement f. Declaration of loss sumitted within *= da#s from date of discover# of casualt# or roer# (such period as prescribed by the Secretary of Finance $hich shall not be less than . nor more than 1 days) g. 0uch loss has not een deducted for estate tax purposes 23
For nonresident alien individual or foreign corporation applies to losses sustained related to trade or profession conducted within the Phils not compensated # insurance or other indemnit# Ot!r Lo$$!$1 a- N!t O'!rating Lo$$ Carr, O+!r :NOLCO< (efers to the excess of allowale deduction over gross income of the usiness in a taxale #ear et operating loss for the taxale #ear immediatel# preceding the current taxale #ear, which had not een previousl# offset as deduction from gross income $a%% )! carri!d o+!r a$ a d!duction fro& gro$$ inco&! for t! n!(t 4 con$!cuti+! ta(a)%! ,!ar$ immediate following the #ear of loss / provided that : o %n# net loss incurred in a taxale #ear which a taxpa#er was exempt shall not e allowed as a deduction o $here is no sustantial change in ownership of the usiness or enterprise, in that: ot less than 8=B in nominal value of outstanding issued shares is held # or on ehalf of the same persons or ot less than 8=B of the paid up capital of the corporation, is held # or on ehalf of the same persons. o Min!$ ot!r oi% and ga$ #!%%$ 5 its ;?C; incurred in an# of the first 1< #ears ma# e carried over as a deduction from the taxale income for the next = #ears )read further Sec .* 8(.)) )- Ca'ita% Lo$$!$ %llowed up to the amount provided for in Sec 39 'f securities which are capital assets ecome worthless during the taxale assets, such loss shall e considered as a loss from the sale or exchange, on the last da# of such taxale #ear, of capital assets c-
Lo$$!$ fro& 2a$ Sa%!$ of Stoc0$ or S!curiti!$ 5 refer to Sec 38
d.
2ag!ring Lo$$!$ allowed onl# up to the extent of the gains from such transactions
!- A)andon&!nt Lo$$!$ 5 read 0ec 4*D )8+
5.
"ad D!)t$ (Sec 34%) Dets due actuall# ascertained to worthless and charged off within the taxale #ear !xceptions : o Dets not connected with profession, trade or usiness $hose sustained etween related parties as provided for in 0ec 4>)/+ o "equisites: alid debt o o @ncollectible after due diligence %ctually $ritten off& mere provision does not qualify o R!co+!r, of )ad d!)t$ shall e included as part of the gross income in the #ear of recover#, provided, 0uch had een previousl# allowed as a deduction in the preceding #ears o o (ecover# recogni5ed up to the !(t!nt of t! inco&! ta( )!n!fit of $aid d!duction ( +%N%: ;<=%) S!curiti!$ "!co&ing 2ort%!$$ loss shall e considered as a loss from the sale or exchange on the last da# of such capital assets where: o 0ecurities ascertained to worthless and charged off within the taxale #ear • •
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o o
0uch are capital assets 0hall not come from a an or trust compan# incorporated under the laws of the Phils a sustantial part of its usiness is the receipt of deposits
B- D!'r!ciation (easonale allowance for the exhaustion, wear and tear )osolescence+ of propert# used in usiness %llowale methods: o 0traight line Declining alance o o 0um of the #ears digit %n# other method prescried # the 0ecretar# of Finance o here the taxpa#er and the Commissioner have entered into an agreement on the useful life and the rate of depreciation, such shall e inding on oth in the asence of facts and circumstances not taen into consideration during the adoption of such agreement an# change in the agreed rates shall not e effective for taxale #ears prior to the taxale #ear in which notice # certified mail or registered mail is served here taxpa#er has adopted such depreciate method without an# written o"ection from the Commissioner or his representative, such shall e considered inding. Depreciation of properties related to P!tro%!u& Production : o 0hall e allowed under the $traigt %in! or d!c%ining )a%anc! &!tod at the option of the service contractor o 'f declining alance is initiall# selected, it ma# shift to straight line at an# suse3uent date Useful life of 1< #ears or shorter as ma# e permitted # the Commissioner while o properties not used directl# in petroleum production shall e depreciated using straight line method at an estimated useful life of = #ears Depreciation of properties used in Mining O'!ration$ : o %t normal rate of depreciation is expected life is 1< #ears or less Depreciation over an# numer of #ears etween = #rs and the expected life if the o latter is more than 1< #ears, provided that the contractor notifies the Commissioner at the eginning of the depreciation period Depreciation ), Nonr!$id!nt A%i!n$ Engag!d in Trad! or "u$in!$$ or R!$id!nt For!ign Cor'oration$ 1 o % reasonale allowance for the deterioration of propert# of propert# in the usiness, trade or profession shall e permitted when such propert# is located in the Philippines •
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7.
D!'%!tion of Oi% and 7a$ 2!%%$ and Min!$ 5 Sec 34&
=- Carita)%! and Ot!r Contri)ution$ 5 Sec 34" R!3ui$it!$ : o Contriutions or gifts actuall# paid or made within the taxale #ear For use of : o Phil government or an# of its agencies or political sudivision exclusivel# for pulic purposes %ccredited domestic corporation or associations organi5ed and operated for religious, charitale, scientific, #outh and sports development, cultural or educational purposes or for the rehailitation of veterans 0ocial welfare institutions •
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on government associations o o part of the income of which inures to the enefit of an# private individual Rat!$: 9>@ of taxale income Indi+idua% o o ?@ of taxale income Cor'oration D!ducti)%! in Fu%% donations to: o a- 7o+!rn&!nt for priorit# activities according to the ational Priorit# Plan as determined # !D% for : !ducation, 6ealth, Mouth and sports development, 6uman settlements 0cience and culture !conomic development )- For!ign In$titution$ or Int!rnationa% Organization$ 6 those in compliance with agreement, treaties or commitments entered into # the &ovt of the Phils and the foreign institutions or international organi5ations c- Accr!dit!d Nongo+!rn&!nt Organization$ means a nonprofit domestic corporation: ;rgani5ed exclusivel# for scientific, research, educational, characteruilding and #outh and sports development, health, social welfare, cultural or charitale purposes o part of net income which inures to the enefit of an# private individual -aes utili5ation for the active conduct of the activities not later than the 1=th da# of the 4rd month after the close of its taxale #ear utili5ation means: %n# amount in cash or in ind paid or utili5ed to accomplish one or more purposes for which such was created %n# amount paid to ac3uire an asset used directl# in carr#ing out one or more purposes for which such is created 'ts administrative expense should not exceed 4
- R!$!arc and D!+!%o'&!nt R!3ui$it!$: o Paid or incurred during the taxale #ear o 'n connection with trade, usiness or p rofession o D!duct!d a$ ordinar, and n!c!$$ar, !('!n$!$ not carg!a)%! to ca'ita% account $he following ma# e d!f!rr!d !('!n$!$ at the election of the taxpa#er, those: o Paid or incurred in connection with trade , usiness or profession o ot treated as expenses o Carg!d to ca'ita% account ut not chargeale to propert# which is su"ect to depreciation or depletion +++Such election shall not apply to any e'penditure paid or incurred during any ta'able year for $hich the ta'payer makes the decision$he following expenses do not appl#: •
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%c3uisition or improvement of land, or for the improvement of propert# to e used in connection with research and development %scertaining the existence, location, extent or 3ualit# of an# deposit of ore or other mineral including oil or gas.
9>- P!n$ion Tru$t$ consist of a reasonale amount transferred or paid into the pension trust where such amount: 6as not een allowed as a deduction o 's apportioned in e3ual parts over a period of 1< #ears from the #ear which the transfer is o made 99- Cang!$ in It!&iz!d D!duction$ 0ecretar# of Finance ma# prescrie rules and regulations, limitations or ceilings for an# of the itemi5ed deductions (e3uires pulic hearing Factors to e considered : o %de3uac# of the prescried limits on the actual expenditure re3uirements of each particular industr# o !ffects of inflation •
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"- Inco&! and D!duction$ of In$uranc! Co&'ani!$/ 2!t!r Do&!$tic or For!ign :S!c 4< +++read the provision
C- Lo$$!$ fro& 2a$ Sa%!$ :S!c 4=< 5 No d!duction for %o$$ $u$tain!d fro& an, $a%! or di$'o$ition of $ar!$ of $toc0 #!r! : o 0uch transaction occurred within a period eginning 4< da#s efore the date and of such sale and 4< da#s after such date o $axpa#er has ac3uired or entered into a contract or option (even if not e'cercised) to so ac3uire sustantiall# identical stoc or securities o %#ception : $hen claim is made by a dealer in stock or securities in the ordinary course of business D- Ca'ita% 7ain$ and Lo$$!$ :S!c 48;>< T!r&$ Ca'ita% A$$!t$ propert# held # the taxpa#er ut does not include : o 0toc in trade of the taxpa#er or 'nventor# on hand at the close of the #ear Propert# held primaril# for sale to customers in the ordinar# course of trade or usiness Propert# used in trade or usiness which is su"ect to depreciation (eal propert# used in trade or usiness o N!t Ca'ita% 7ain excess of the gains from sale or exchange of capital assets over losses N!t Ca'ita% Lo$$ excess of losses from sale or exchange of capital assets over the o gains For indi+idua%$, the following percentages of the gain or loss recogni5ed shall e taen into account: o 1<
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?osses shall e allowed onl# to the extent of the gains from such sales or e xchanges Sa%% not co+!r $a&! tran$action$ of a )an0 or tru$t co&'an, incorporated in the Phils, a sustantial part its usiness is the receipt of deposits, sells an# ond, deenture, note or certificate or other evidence of indetedness issued # an corporation N!t Ca'ita% Lo$$ Carr,6o+!r an individual which sustains a net capital loss, such loss shall e treated in the succeeding taxale #ear as a loss from the sale or exchange of a capital asset held for not more than 12 months. R!tir!&!nt of "ond$ amounts received # holder upon retirement of onds, deentures, notes or certificate or other evidences of indetedness issued # an# corporation with interest coupons or in registered form shall e considered as amounts received in exchange therefor &ains or losses from short sales of propert# shall e considered as gains or losses from sales or exchanges of capital assets &ains or losses attriutale to the failure to exercise privileges or options to u# or sell propert# shall e considered as capital gains or losses
E- In+!ntori!$ (Sec 41) a particular method of valuing inventor# shall e used in all suse3uent #ears unless: % change to different methods is authori5ed with the approval of the Commissioner Commissioner finds that the nature of stoc on hand is such that inventor# gains should e considered reali5ed for tax purposes provided that he shall not exercise his authorit# more often than once ever# 4 #ears and that an# change in valuation method must e su"ect to approval # the 0ecretar# of Finance. • •
Additiona% R!3uir!&!nt$ for D!ducti)i%it, :S!c 4; :G<< an# deductile amount shall e allowed as a deduction onl# if the tax re3uired to e deducted and withheld therefrom has een paid in accordance with 0ec =@ and @1. O'tiona% Standard D!duction (Sec 34(=)) in lieu of allowale itemi5ed deductions, taxpa#er ma# chose optional standard deduction 2o &a, a+ai%: 'ndividual other than a nonresident alien *
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Ot!r D!duction$ for Indi+idua% Ta('a,!r$ A- P!r$ona% E(!&'tion :S!c 4?< /asic Personal !xemption P=<,<<< %dditional !xemptions for Dependents P2=,<<< each, not !(c!!ding ; $o e claimed # onl# one spouse o o 'n case of legall# separated spouses, exemption to e claimed # the spouse who has custod# of the chidren, p rovided total amount shall not exceed the maximum o ependent legitimate, illegitimate, or legall# adopted child chiefl# dependent upon and living with the taxpa#er if such dependent is : not more than 21 #ears old unmarried not gainfull# emplo#ed • •
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OR regardless of age, incapale of se lfsupport ecause of mental or ph#sical defect Personal and additional exemptions ma# e claimed in full regardless of the following changes in status during the taxale #ear: $axpa#er marries or dies during the taxale #ear o o %dditional dependent 0pouse or dependent dies o o Dependent marries or ecomes 21 #rs old or ecomes gainfull# emplo#ed %llowed to a nonresident alien engaged in trade, usiness or profession for an amount : o !3ual to the exemptions allowed in the income tax law in the countr# of which he is su"ect or citi5en o ot to exceed the amount provided herein NNNonresident alien should file a true and accurate return of the total income from all sources in the Philippines
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"- Pr!&iu& on H!a%t and8or Ho$'ita%ization In$uranc! of an Indi+idua% Ta('a,!r :S!c 4; :M<< ot to exceed P2,*<< per famil# per taxale #ear 0aid famil# has gross income of not more than P2=<,<<< for the taxale #ear 'n case of married taxpa#er, the spouse claiming the additional exemption shall e entitled to this deduction • • •
It!&$ not d!ducti)%! (Sec 36) a- $he following ar! not d!ducti)%! in computing net income : Personal, living or famil# expenses %n# amount paid out for new uildings or for permanent improvements, or etterments made to increase the value of an# propert# or estate $his 0usection shall not a''%, to intangi)%! dri%%ing and d!+!%o'&!nt co$t$ incurred in petroleum operations #ic ar! d!ducti)%! und!r Su)$!ction :7< :9< of S!ction 4; of ti$ Cod! %n# amount expended in r!$toring 'ro'!rt, or in &a0ing good t! !(au$tion t!r!of for which an allowance is or has een made or Premiums paid on an# life insurance polic# covering the life of an# officer or emplo#ee, or of an# person financiall# interested in an# trade or usiness carried on # the taxpa#er, individual or corporate, when the taxpa#er is directl# or indirectl# a eneficiar# under such polic#. • •
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)- ?osses from sale or exchanges of propert# direct or indirectl# are not a%%o#!d when such transaction occurs : /etween memers of a famil#. For purposes of this paragraph, the famil# of an individual shall include onl# his rothers and sisters )whether # the whole or halflood+, spouse, ancestors, and lineal descendants OR /etween an individual and corporation more than fift# percent )=
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/etween the fiduciar# of and the fiduciar# of a trust and the fiduciar# of another trust if the same person is a grantor with respect to each trust OR /etween a fiduciar# of a trust and eneficiar# of such trust
D!t!r&inatin of A&ount and R!cognition of 7ain or Lo$$ (Sec 40)
Situ$ of Ta(ation (Sec 42)
ESTATE TAX
Sco'! of E$tat! Ta( (Sec 84) o et !state ;f a decedent, whether resident or nonresident o o $ax rates per 0ec @* 7ro$$ E$tat! (Sec 85) 1. $he value of the gross estate $a%% con$i$t of : a. Va%u! at t! ti&! of d!at such value to e determined as follows (Sec 88) : Usufruct in accordance with the latest /asic 0tandard -ortalit# $ale, to e approved # the 0ecretar# of Finance, upon recommendation of the 'nsurance Commissioner Properties appraised at its fair maret value as of the time of death such value shall e the higher of the : o Fair maret value as determined # the Commissioner, or Fair maret value in the schedule of values fixed # the Provincial and Cit# %ssessors o . Of a%% 'ro'!rt, real or personal, tangile or intangile c- 2!r!+!r $ituat!d d. 6owever, if non6r!$id!nt d!c!d!nt )not a citi5en+ propert# situated in the Phils •
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.- Inc%u$ion$ :E(c%u$ion$< a- D!c!d!nt$ Int!r!$t to the extent of the interest therein of the decedent at the time of his death )- Tran$f!r in Cont!&'%ation of D!at 30
Inc%ud!$ tran$f!r ), t! d!c!d!nt/ ), tru$t or ot!r#i$!, : 'n contemplation of or intended to tae effect in possession or en"o#ment at or after o death o Under which he has retained, for his life or for an# period which does not end efore his death, an# of the following : Possession or en"o#ment or right to income from the propert# (ight, either alone or with others, to designate the person who shall possess or en"o# the propert# or income therein, E(c!'tion : in case of a onafide sale for an ade3uate and full consideration c- R!+oca)%! Tran$f!r $ransfer # trust or otherwise, where en"o#ment thereof was su"ect to an# change through the exercise of a power, # the decedent alone or with others, to alter, amend, revoe or terminate, or where an# such power is relin3uished in contemplation of the decedentAs death. 0uch power to alter, amend or revoe shall e considered to exist on the date of the decedentAs death !xception : in case of a onafide sale for an ade3uate and full consideration d- Pro'!rt, Pa$$ing Und!r 7!n!ra% Po#!r of A''oint&!nt %n# propert# passing under a general power of appointment exercised # the decedent : /# will o o /# deed executed in contemplation of or intended to tae effect in possession or en"o#ment at or after his death o /# deed under which he has retained for his life or an# pe riod not ascertainale without reference to his death or an# period which does not end efore his death Propert# includes the following : $he possession or en"o#ment of, or the right to the income from the propert# o o $he right, either alone or in con"unction with an# person, to designate the persons who shall possess or en"o# the propert# or the income therefrom E(c!'tion : in case of a ona fide sale for an ade3uate and full consideration in mone# or mone#As worth •
!- Proc!!d$ of Lif! In$uranc! amounts receivale # : $he !$tat!/ t! !(!cutor or ad&ini$trator as taen out # the decedent upon his own life, irrespective whether or not the insured retained the power of revocation /# an, )!n!ficiar,, e#cept en it i$ e#pre$$'y $tip'ated tat $c beneficiary i$ irreocab'e f-
Prior Int!r!$t$ 5 (efers to transfers, trusts, estates, interests, rights, powers and relin3uishment of powers related to : o $ransfers in contemplation of death o (evocale transfer o Proceeds of life insurance -ade, created, arising, existing, exercised or relin3uished efore or after the effectivit# of this Code
g- Tran$f!r$ for In$uffici!nt Con$id!ration (elates to those transfers, trust... under : o $ransfers in contemplation of death (evocale $ransfers o •
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Propert# passing under a &eneral Power of %ppointment $hat are not onafide sale for an ade3uate and full consideration o $he amount included in the gross estate shall e the excess of the fair maret value at the time of death o
h.
Ca'ita% of t! Sur+i+ing S'ou$! not deemed part of the decedentAs gross estate
N!t E$tat! (Sec 86) A- D!duction$ A%%o#!d to a Citiz!n or R!$id!nt D!c!d!nt 9- E('!n$!$/ Lo$!$/ Ind!)t!dn!$$ and Ta(!$ a. Funeral !xpenses an amount e3ual to =B of the gross estate or P2<<,<<< whichever is lower . Iudicial !xpenses related to testamentar# or intestate proceedings c. Claims against !state Det instrument was dul# notari5ed at the time of indetedness 'f loan was contracted within 4 #ears efore death, a statement showing disposition of the proceeds is executed d. Claims against 'nsolvent Persons where the value of decedentAs interest is included in the value of the gross estate e. Unpaid -ortgages 9alue, undiminished # such mortgage, is included in the value of the gross estate Does not include an# income tax upon income received after death f. ?osses 'ncurred during the settlement of the estate %rising from fires, storms, shipwrec or other casualties, from roer#, theft or eme55lement ot compensated # insurance or otherwise ot claimed as a deduction for income tax purposes 'ncurred not later than the last da# for the pa#ment of the estate tax • •
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Pro'!rt, Pr!+iou$%, Ta(!d :Vani$ing D!duction$< a. $hose propert# : Forming part o the gross estate situated in the Philippines of an# person who died with = #ears prior to the death of the decedent or $ransferred to the decedent within = #ears prior to his death •
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. %mount of deduction to e deducted from the gross estate: D!ducti)%! Va%u! Ti&! of d!at of 'rior d!c!d!nt to d!at of 'r!$!nt d!c!d!nt 1<
Deductions shall e allowed: here a donorAs tax or estate tax imposed was finall# determined and paid 0uch deduction shall e reduced # the same ratio as to the a mounts allowed as deductions here propert# consists of 2 or more items, the aggregate value of such items shall e used • •
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4- Tran$f!r$ for Pu)%ic U$! a. %ll e3uests, legacies, devises or transfers . $o or for use of the &ovt of the Phils or an# political sudivision thereof c. !xclusivel# for pulic purposes ;-
Fa&i%, Ho&! a. Fair maret value of the decedentAs famil# home . Up to P1,<<<,<<<, the excess of which shall e su"ect to estate tax c. 0uch famil# home must e certified as such # the aranga# captain of the localit#
?- Standard D!duction 5 up to P1,<<<,<<< B- M!dica% E('!n$!$ a. 'ncurred # the decedent within 1 #ear prior to decedentAs death . Dul# sustantiated with receipts c. 0hall not exceed P=<<,<<< - A&ount r!c!i+!d ), H!ir$ und!r RA ;9 a. (eceived # the heirs from the decedentemplo#ee as a conse3uence of death of the decedentemplo#ee . 'n accordance with (% *18 c. 0uch amount is included in the gross estate of the decedent
"- D!duction$ A%%o#!d to a Nonr!$id!nt D!c!d!nt A%%o#a)%! D!duction$ o E('!n$!$/ Lo$$!$/ Ind!)t!dn!$$ and Ta(!$ o Pro'!rt, Pr!+iou$%, Ta(!d same as that deductile from the estate of a resident or citi5en decedent o Tran$f!r$ for Pu)%ic U$! o deduction shall e allowed unless the executor, administrator or an# heir includes the return re3uired the value of the gross estate of the decedent at the time of his death not situated in the Philippines. C- Sar! in t! Con*uga% Pro'!rt, 5 shall e deducted from the net estate of the decedent : 1. et share of the surviving spouse in the con"ugal partnership propert# 2. Diminished # the oligations chargeale to such propert# •
D- Ta( Cr!dit for E$tat! Ta( 'aid to a For!ign Countr, 1. $he estate tax due shall e credited with the amounts of an# estate tax imposed # a foreign countr# 2. ?imitations of $ax Credit the amount of credit shall not exceed: a. $he same proportion of the tax against which such credit is taen, which the decedentAs net estate situated within such countr# taxale under this $itle ears to his entire net estate . $he same proportion of the tax against which such credit is taen, which the decedentAs net estate situated outside the Philippines taxale under this $itle ears to his entire net estate.
E(!&'tion$ (Sec 87) $he following shall not e taxed : 1. -erger of usufruct in the owner of the naed title 2. $ransmission or deliver# of the inheritance or legac# # the fiduciar# heir or legatee to the fideicommissar# 4. $ransmission from the first heir, legatee or done in favor of another eneficiar#, in accordance with the desire of the predecessor and
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%ll e3uests, devises, legacies or transfers to social welfare, cultural and charitale institutions provided that : o part of the net income of which inures to the enefit of an# individual and ot more than 4
Proc!dur! 1. Notic! of D!at (Sec 89) executor, administrator or legal heir of decedent is re3uired when &ross value of the estate exceeds P2<,<<< ithin 2 months after decedentAs death or within a lie period after 3ualif#ing as executor or administrator 2. E$tat! Ta( ;etrn (Sec 90) &ross estate exceeds P2<<,<<< or regardless of value, estate consists of registered or registrale propert# (i-e- real property# motor vehicle# shares of stock) % return under oath must e filed stating: 9alue of the gross estate o o Deductions allowed ;ther supplemental data o o 6owever, when gross value exceeds P2,<<<,<<<, it shall e supported # certified statement # a CP% containing: 'temi5ed assets of decedent with corresponding value at time of deat 'temi5ed deductions from gross estate %mount of tax due whether paid or still due and outstanding ithin > months from the decedentAs death % certified cop# of the schedule of partition and the order of the court shall e furnished the Commissioner within 4< da#s such partition or order E(t!n$ion not exceeding 4< da#s f rom filing of return for meritorious cases P%ac! of Fi%ing %uthori5ed agent an or (D;, Collection ;fficer or dul# authori5ed $reasurer of the cit# o of municipalit# where the decedent was domiciled ;( o ;ffice of the Commissioner, if there e no legal residence 3. Pa,&!nt of E$tat! Ta( (Sec 91) Pa#ment shall e made at the time the return is filed E(t!n$ion when pa#ment would impose undue hardship upon the estate or heirs, Commissioner ma# extend time for pa#ment o = #ears if estate is settled through the courts 2 #ears if estate is settled extra"udiciall# o o /# such extension, the running of the 0tatute of ?imitations for assessment per 0ec 2<4 shall e suspended for the period of such e xtension 'n addition, ma# e re3uired to furnish a ond or sureties for an amount not o exceeding doule the amount of tax o extension shall e granted # reason of negligence, intentional disregard of rules o and regulations or fraud !state tax imposed shall e paid efore distriution of the estate the )!n!ficiar, $a%% )! $u)$idiari%, %ia)%! for the pa#ment of the portion of his estate tax as his share ears to the value of the total assets • •
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Accounta)i%iti!$ 8 Rigt$ of C!rtain P!r$on$ 9- E(!cutor or Ad&ini$trator (Sec 92) -a# mae a written application to the Commissioner for the determination of the amount of estate tax due and discharge from personal liailit# therefore shall e notified within 1 #ear from maing such application or from the filing of the return 0hall e discharged from personal liailit# for an# deficienc# and shall e entitled to a receipt or writing showing such discharge •
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.- Judg! (Sec 94) shall not authori5e deliver# of distriutive shares unless there is a certification from the Commissioner that the estate tax has een paid 3.
R!gi$t!r of D!!d$ (Sec 95) shall not register an# document transferring real propert# or real rights therein # wa# of gifts inter vivos or mortis causa unless there is a certification from the Commissioner that the tax due thereon has een paid
4.
La#,!r$/ Notar, Pu)%ic or an, 7o+!rn&!nt Offic!r (Sec 96) shall have the dut# of furnishing the Commissioner, (egional Director or appropriate officer of the place where he has his principal office with copies of such documents and an# information which ma# facilitate the collection of said taxes
?- D!)tor of a D!c!a$!d (Sec 96) shall not pa# his dets to the heir, legatee, devisee, executor or administrator unless : $here is a certification from the Commissioner that tax thereon has een paid ;( 0uch credit is included in the inventor# of the estate of the deceased 6.
Cor'oration$/ Soci!dad Anoni&a/ Partn!r$i'/ "u$in!$$ or Indu$tr, organiz!d in t! Pi%$ (Sec 97) no transfer to an# new owner in the oos of corporations or organi5ations upon an# share, oligation, ond or right # wa# of gift inter vivos or mortis causa unless there is a certification from the Commissioner that the taxes thereon have een paid.
7.
"an0$ (Sec 97) /an that has nowledge of the death of the person who has a an deposit account alone or "ointl# with another shll not allow withdrawal unless the Commissioner has certified that the taxes imposed have een paid %n authori5ed withdrawal not exceeding P2<,<<< ma# e made without authori5ation hence, all withdrawal slips shall contain a statement that all the "oint depositors are still living at the time of withdrawal # one of the "oint depositors and shall e under oath # said depositors •
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N!# O)%igation$ of D!c!d!nt aft!r Pa,&!nt of E$tat! Ta( (Sec 96) if after pa#ment of estate tax, new oligations of the decedent shall appear and have een satisfied, a right to the restitution of the proportional part of the tax paid shall accrue
DONORS TAX
I&'o$ition of Donor$ Ta( R!3ui$it!$ (Sec 98) o $ransfer of an# person, resident or nonresident of propert# # gift hether the gift is in trust or otherwise o o hether such gift is direct or indirect hether propert# is real or pe rsonal, tangile or intangile o Tran$f!r for L!$$ tan Ad!3uat! and Fu%% Con$id!ration (Sec 100) o 7!n!ra% Ru%! : $he excess of the fair maret value of the propert# over the value of the consideration shall e deemed a gift and shall e included in computing the amount of gifts made during the taxale #ear o E(c!'tion : (eal propert# per 0ec 2*)D+ Va%uation (Sec 102) fair maret value at the time of the gift for real propert# refer to 0ec @@)/+ Rat!$ (Sec 99) "a$i$ 1 Tota% N!t 7ift 35
Donor$ Ta( Ta)%! applicale to relatives, to wit: /rother, sister )whether whole or halflood+, spouse, ancestor and lineal descendant o o (elative # consanguinit# in the collateral line within the fourth de gree Donation to a Strang!r 5 4>@ of tota% n!t gift Contri)ution to Candidat!/ Po%itica% Part, or Coa%ition of Parti!$ for campaign purposes governed # the !lection Code E(!&'tion (Sec 101) !xempted gifts •
7ift
R!$id!nt
Non6r!$id!nt Non6 Citz!n
Do#ri!$ or gift$: ;n account of marriage and efore its celeration ;( &iven within 1 #ear from marriage !xempted ot !xempted $o legitimate, recogni5ed natural or adopted children ot exceeding P1<,<<< -ade to and for the use of ational &overnment or an# entit# created # an# of its !xempted !xempted agencies which is not conducted for profit, or to an# of its political sudivision &ifts in favor of : $he following corporations, institutions, accredited &;, trust or philanthropic or research organi5ation dedicated to %dcationa'- ,aritab'e- ;e'iio$,'tra'- Socia' >e'fare purposes Provided that: ot more than 4
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Fi%ing of R!turn and Pa,&!nt of Ta( (Sec 103) Fi%ing of R!turn o 0hall e under oath 'n duplicate o 36
(eturn shall contain: !ach gift made during the calendar #ear Deductions claimed and allowale Previous net gifts during the same calendar #ear ame of the done ;ther information as re3uired # the rules and regulations Ti&! and P%ac! of Pa,&!nt $ime : within 4< da#s after the date the gift is made tax must e paid therein o o Place : %uthori5ed agent an (evenue District ;fficer Collection ;fficer Dul# authori5ed $reasurer of the cit# or municipalit# where the donor was domiciled at the time of transfer ;ffice of the Commissioner , if no legal residence in the Phils 'f nonresident, the return ma# e filed with : the Philippine !mass# or Consulate in the countr# where he is domiciled at the time of transfer ;( direct with the ;ffice of the Commissioner
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7ro$$ E$tat! and 7ift$ (Sec 104) inc%ud!1 9R!a% and P!r$ona% Pro'!rt, hether tangile or intangile or mixed herever situated here decedent or donor is a non6r!$id!nt a%i!n at the time of death or donation, r!a% or '!r$ona% 'ro'!rt, out$id! t! Pi%i''in!$ i$ not inc%ud!d 2. Franci$!/ $ar!$/ o)%igation$ or )ond$/ $ar!$ or rigt$ in )u$in!$$ are situated in the Philippines when: 'ssued # an# corporation organi5ed and constituted in the Philippines ;( 'ssued # foreign corporations where @=B of its usiness is located in the Phils ;( 'ssued # foreign corporations ac3uiring usiness situs in the Philippines 4. Intangi)%! A$$!t$ however, no ta( $a%% )! i&'o$!d where: Decedent or donor was a citi5en and resident of a foreign countr# which did not impose a transfer tax for intangile propert# of citi5ens of the Philippines not residing in that foreign countr# ;( $he laws of the foreign countr# of the decedent or donor allows a similar exemption from transfer or death taxes in respect to intangiles owned # citi5ens of the Philippines not residing in that foreign countr# • •
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REMEDIES R!&!di!$ in 7!n!ra% 1. Con+!,anc! to Purca$!r (Sec 202) where taxpa#er fails to redeem propert#, the (D; shall execute a deed conve#ing to purchaser so much of the propert# sold, free from all liens such deed shall recite all the proceedings upon which the validit# of the sale depends .- A$$!$$&!nt and Co%%!ction (Sec 203) 7!n!ra% Ru%! : 'nternal (evenue taxes shall e assessed #itin 4 ,!ar$ : o 'f filed within the period prescried # law aft!r t! %a$t da, prescried # law for filing, provided that a r!turn fi%!d )!for! t! %a$t da, 'r!$cri)!d $a%% )! con$id!r!d fi%!d on t! %a$t da, o 'f return is filed e#ond the period prescried # law fro& t! da, t! r!turn #a$ fi%!d •
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E(c!'tion : 0ec 222
4- Co&'ro&i$! (Sec 204) -a# e entered into when there is : 7round Mini&u& Co&'ro&i$! Rat! (easonale dout as to the validit# of the claim 9>@ of )a$ic a$$!$$!d ta( against the taxpa#er $axpa#erAs clear inailit# to pa# as shown # his ;>@ of )a$ic a$$!$$!d ta( financial capacit# 0hall e $u)*!ct to a''ro+a% of the !valuation /oard composed of the Commissioner and his * Deputies when: o /asic tax exceeds P1,<<<,<<< ?; o 0ettlement offered is less than the prescried minimum compromise rate %ll criminal violations ma# e compromised except: o $hose alread# filed in court ?; o $hose involving fraud 4.
A)at!&!nt (Sec 204) where: $ax appears to e un"ustl# or excessivel# assessed ;( %dministration and collection costs do not "ustif# the collection of the amount due
5.
Cr!dit or R!fund Ta(!$ (Sec 204) %llowed when taxpa#er files in writing with the Commissioner a claim #itin . ,!ar$ aft!r t! 'a,&!nt thereof % return showing an overpa#ment shall e considered a written claim for credit or refund $ax Credit Certificate validl# issued : o -a# e applied against an # revenue tax, excluding withholding taxes o 0u"ect to 0ec 24< of the '(C o Certificate showing creditale alance must e surrendered for cancellation o tax refund shall e given resulting from availment of incentives granted for which no actual pa#ment was made Commissioner shall sumit to ever# six months a report on the exercise of his powers under 0ec 2<* : o $o the Chairmen of the Committee on a#s and -eans of oth the 0enate and the 6ouse of (epresentatives o 0tating the following facts: ames and addresses of taxpa#ers su"ect of compromise or aatement %mount involved %mount compromised or aated (easons for the exercise of such power o 0uch report shall e presented to the ;versight Committeee in Congress to determine whether such powers were reasonal# exercised and that the government was not undul# deprived of revenues Ci+i% R!&!di!$ :7o+!rn&!nt< $he following remedies for collection of internal revenue taxes, fees or charges, alternativel# or ll simultaneousl# (Sec 205) : 1. Di$traint of good$/ catt!%$ or !ff!ct$ and ot!r '!r$ona% 'ro'!rt, , including stocs and other securities, dets, credits, an accounts and interest in and rights to personal propert# o Sa%% not )! a+ai%!d of #!r! t! a&ount of ta( in+o%+!d i$ not &or! tan P9>>->> o Con$tructi+! Di$traint (Sec 206) -a# e done # Commissioner to the propert# of a taxpa#er who is: Delin3uent (etiring from an# usiness su"ect to tax •
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'ntending to : 6 leave the Philippines 6 remove his propert# 6 hide or conceal his propert# 6 an# act tending to ostruct the proceedings for collecting the tax 0hall e effected # re3uiring the taxpa#er or an# person having possession thereof to : 0ign a receipt covering the distrained propert# Preserve the same intact and unaltered ot dispose of the same without express authorit# of Commissioner 'n case the taxpa#er or person in possession refuses or fails to sign, the revenue officer shall proceed to : Prepare a list of such propert# and ?eave a cop# in the premises in the presence of two )2+ witnesses Su&&ar, R!&!di!$ (Sec 207) a- Upon delin3uenc# of taxpa#er, the Commissioner or his representative (if ta' due is in e'cess of 5,##) or the (D; (if ta' due is 5,## or less) shall di$traint an, good$/ catt!%$ and '!r$ona% 'ro'!rt, sufficient to satisf# the tax, its increment due to delin3uenc# and expenses of distraint and suse3uent sale b- ithin 1< da#s from receipt of the warrant, a report on the distraint shall e of sumitted to the (D; and (evenue (egional Director 0ecretar# of Finance upon recommendation of Commissioner shall have the power to lift distraint Proc!dur! a. Di$traint and 7arni$&!nt (Sec 208) ;fficer serving the warrant shall &a0! an account of the propert# distrained, a cop# shall e left with the owner or person in possession Mann!r of Di$traint o Stoc0$ and ot!r $!curiti!$ # serving a cop# of the warrant upon : $axpa#er AND President, manager, treasurer or responsile officer of the corporation, compan# or association o D!)t$ and Cr!dit$ leaving with the person owing the dets or having possession or control over the credits a cop# of the warrant of distraint such shall e sufficient authorit# to pa# the Commissioner the amount of such "an0 Account$ serving a warrant of garnishment upon the taxpa#er o and upon president, manager, treasurer or responsile officer of the an which shall turn over to Commissioner the amount sufficient to satisf# the claim b. Sa%! of Pro'!rt, and Di$'o$ition (Sec 209) (evenue officer shall cause a notice to e exhiited in not less than 2 pulic places in the municipalit# or cit# where the distraint is made one place for posting shall e the ;ffice of the -a#or of the cit# or municipalit# where propert# is distrained otice shall specif# the time and place of sale $he time of sale shall not e less than 2< da #s after notice %t the time and place fixed in such notice, the properties shall e sold at pulic auction to the highest idder for cash with the approval of the Commissioner For sale of stocs and securities, the officer maing the sale shall execute a ill of sale and furnish a cop# to the issuing corporation or association which shall mae the corresponding entr# in its oos 39
c.
%n# residue over the claim and other expenses shall e returned to the owner of the propert# sold no charges shall e imposed upon services of the local internal revenue officer or his deput#
R!%!a$! of Di$train!d Pro'!rt, (Sec 210) the properties shall e restored # to the owner if all proper charges are paid to the officer conducting the sale prior to its consummation
d- R!'ort of Sa%! to "IR (Sec 211) a report on the proceedings shall e sumitted in writing #itin . da,$ aft!r $a%! e.
2.
Purca$! ), 7o+!rn&!nt (Sec 212) Commissioner or his deput# ma# purchase the propert# in ehalf of the national government when the amount id for the propert# is : ot e3ual to the amount of the tax 9er# much less than the actual maret value of the articles offered for sale 0uch propert# ma# e resold # the Commissioner or his deput#, its net proceeds shall e remitted to the ational $reasur# $he forfeiture of chattels and removale fixtures shall e enforced # the sei5ure and sale or destruction of the specific forfeited propert# (Sec 224)
L!+, u'on r!a% 'ro'!rt, and interest in rights to real propert# Su&&ar, R!&!di!$ (Sec 207) (eal propert# &a, )! %!+i!d u'on )!for!/ $i&u%tan!ou$%, or aft!r t! di$traint of personal propert# if lev# done after distraint,the revenue officer shall proceed with lev# #itin 4> da,$ aft!r t! !(!cution of t! di$traint 'nternal revenue officer designated shall prepare a dul# authenticated certificate showing the name of the taxpa#er and the amounts of the tax and penalt# $uc c!rtificat! $a%% o'!rat! a$ a %!ga% !(!cution trougout t! Pi%i''in!$ ritten notice shall e given to the: a+ (egister of Deeds of the province or cit# where the propert# is located + Delin3uent taxpa#er c+ 'f taxpa#er asent from the Phils, notice is given to : 6is agent or manager of the usiness ;( $he occupant of the propert# in 3uestion ithin 1< da#s after receipt of warrant, a report on the lev# shall e sumitted to the Commissioner or his representative consolidated report ma# e re3uired as necessar# Commissioner shall have the authorit# to lift warrants of lev# issued Proc!dur! : a. Ad+!rti$!&!nt and Sa%! (Sec 213) ithin 2< da#s after lev#, the officer shall proceed to advertise the propert# for a period of at least 4< da#s %dvertisement shall e done # posting a notice at the main entrance of the municipal uilding or cit# hall and in pulic and conspicuous place in the arrio or district in which the real estate lies Pulication shall e done once a wee for 4 wees in a n ewspaper of general circulation •
$he advertisement shall contain a statement of the: amount of taxes and penalties place of sale name of taxpa#er 40
$axpa#er ma# discontinue the proceedings an#time efore the date of sale # pa#ing the taxes, interest and penalties 0ale shall e held at the main entrance of the municipal uilding or cit# hall or on the premises to e sold ithin = da#s after sale, a return shall e entered upon the records of the /'( $he excess of the proceeds over the claims shall e turned over to the owner of the propert#
)- R!d!&'tion (Sec 214) ithin 1 #ear from the date of sale, the delin3uent taxpa#er shall have the right to redeem the propert# # pa#ing the : taxes, penalties interest thereon from the date of delin3uenc#, interest on said purchase price at 1=B per annum from the date of purchase to the date of redemption (D; shall pa# over to the purchaser the amount of such propert# redeemed and
c.
said propert# shall e free from the lien of such taxes and penalties $he owner shall not e deprived of the possession of such and shall e entitled to rents and other income during the redemption period.
Forf!itur! to 7o+!rn&!nt (Sec 215) 'n case there is no idder or if highest idder is for an insufficient amount, the revenue officer shall declare the propert# forfeited to the government ithin 2 da#s, he shall mae a return of his proceedings and the forfeiture shall e recorded (egister of Deeds shall register the transfer of the propert# forfeited to the &overnment without the necessit# of an order from a competent court ithin 1 #ear from the forfeiture, the taxpa#er ma# redeem said propert# # pa#ing the Commissioner the full amount of taxes and penalties together with interests 'f propert# is not redeemed, the forfeiture shall ecome asolute $he forfeiture of real propert# shall e enforced # a "udgment of condemnation and sale in a legal action or proceeding, civil or criminal, as the case ma# re3uire (Sec 224)
d. R!$a%! of R!a% E$tat! (Sec 216) Commissioner shall have charge of an# real estate otained # the government Upon giving of not less than 2< da#s notice, ma# sell and d ispose of the same of pulic auction or with prior approval of the 0ecretar# of Finance -a# dispose the same at 'ri+at! $a%! Proceeds shall e deposited with the ational $reasur#
4- Ci+i% or Cri&ina% Action o shall e (Sec 220) : rought in the name of the &overnment conducted # legal officers of the /'( approved # the Commissioner efore an# action or enforcement is made
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$he remed# for enforcement of statutor# penalties shall e # criminal or civil action su"ect to the approval # the Commissioner (Sec 221)
Furt!r Di$traint or L!+, (Sec 217) ma# e repeated if necessar# until the full amount due, including expenses, is collected No court $a%% a+! t! autorit, to grant an in*unction to restrain the collection of an# internal revenue tax, fee or charges (Sec 218) hen a taxpa#er is liale for taxes and neglects or refuses to pa# the same after demand, t! a&ount $a%% )! a %i!n in favor of &overnment from the time when assessment was made until paid the %i!n $a%% not )! +a%id again$t an, &ortgag!! 'urca$!r or *udg&!nt cr!ditor unti% notic! of $uc %i!n $a%% )! fi%!d ), t! Co&&i$$ion!r #it t! R!gi$t!r of D!!d$ (Sec 219) Pr!$cri'tion of Action P!riod to Pr!$cri)! (Sec 222) o Condition Pr!$cri'tion P!riod Ot!r Di$cu$$ion$ %ssessment or filing of a+ False or fraudulent 'n a fraud assessment which has action for collection without return with intent to ecome final and executor, the assessment ma# e made evade tax or failure to fact of fraud shall e "udiciall# within 1< #ears after file a return taen cogni5ance discover# + /efore period has prescried, Period so agreed upon ma# e Commissioner and extended # suse3uent written taxpa#er has agreed ithin the time agreed upon agreement efore the expiration in writing to its of the period previousl# agreed assessment after upon such time Distraint or lev# # a c+ 'nternal revenue tax competent court within = assessed within the #ears following the period per par )a+ assessment $ax ma# e collected # Period so agreed ma# e d+ 'nternal revenue tax distraint or lev# within the extended # suse3uent written assessed per par )+ period agreed upon efore agreements the expiration of = #ears *** No e#amination and ine$tiation or in@iry $a'' be made into any ta# retrn fi'ed in accordance it te proi$ion$ of any ta# amne$ty- 'a or decree. o
Su$'!n$ion of Running of Statut! of Li&itation (Sec 223) the prescription period per 0ec 2<4 and 0ec 222 shall e suspended : During the period when the Commissioner is prohiited from maing the assessment or eginning distraint or lev# and for >< da#s thereafter hen taxpa#er re3uests for reinvestigation granted # the Commissioner hen taxpa#er cannot e located in the address given # him, except when the taxpa#er had informed the Commissioner of an# change in address hen the warrant of distraint or lev# is dul# served, no propert# could e located hen the taxpa#er is out of the Philippines
Sa%! or D!$truction of Pro'!rt, (Sec 225) 0ales of forfeited chattels and removale fixtures shall e effected in the same manner and o under the same conditions as the pulic notice and manner of sale as are prescried for sales of personal propert# distsrained for nonpa#ment of taxes. 42
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Distilled spirits, li3uors, cigars, cigarettes, toacco products and apparatus, upon forfeiture, lma# e destro#ed # order of the Commissioner when the sale for consumption would e in"urious to pulic health or pre"udicial to the enforcement of the law %ll other articles su"ect to excise tax, which were manufactured or removed in violation of the '(C, as well as dies for printing of internal revenue stamps ma# e sold or destro#ed in the discretion of the Commissioner. Forfeited propert# shall not e destro#ed until at least 2< da#s after sei5ure.
Judg&!nt R!co+!r!d Again$t an, Int!rna% R!+!nu! Offic!r (Sec 227) o hen an action is rought against an# 'nternal (evenue ;fficer to recover damages, the "udgment, damages or costs shall e paid # the Commissioner upon the following conditions: 0uch action was rought in relation to the performance of his official dut# $he Commissioner is notified of such action in time to mae defense through the 0olicitor &eneral %pproval of the 0ecretar# of Finance o such "udgment, damages or costs shall e paid or reimursed in ehalf of a person who o has acted negligentl# or in ad faith or with wilful oppression.
R!&!di!$ :Ta('a,!r< Prot!$ting of A$$!$$&!nt (Sec 228) o Pr!a$$!$$&!nt Preassessment notice shall not e re3uired in the following: hen the finding is the result of mathematical error in the computation of the tax appearing on the face of the return or hen a discrepanc# has een determined etween the tax withheld and the amount actuall# remitted # the withholding agent or hen a taxpa#er who opted to claim a refund or tax credit of e xcess of creditale withholding tax for a taxale period was determined to have carried over and automaticall# applied the same amount claimed against the estimated tax liailities for the taxale 3uarter or 3uarters of the succeeding taxale #ear or hen the excise tax due on exciseale articles has not een paid or hen the article locall# purchased or imported # an exempt person, such as, ut not limited to vehicles, capital e3uipment, machineries and spare parts, has een sold, traded or transferred to nonexempt persons Commissioner shall e informed in writing of the la w and the facts on which the assessment is made, otherwise the assessment is void. $he taxpa#er is re3uired to respond to such notice within a period provided in the implementing rules and regulations upon failure to respond, Commissioner shall issue a n assessment ased on his findings. o A$$!$$&!nt %ssessment ma# e protested administrativel# # filing within 4< da#s from receipt thereof of : R!3u!$t for r!con$id!ration ;( R!3u!$t for r!in+!$tigation, provided all relevant supporting documents shall e sumitted within >< da#s from filing of such, otherwise, the assessment shall e final %ppeal to the C$% ma# e made within 4< da#s from : $he receipt of the denial, in whole or in part, of the protest $he lapse of 1@< da#s from the sumission of documents +++ther$ise# the decision shall become final# e'ecutor and demandableR!co+!r, of Ta( Erron!ou$%, or I%%!ga%%, Co%%!ct!d (Sec 229) 43
