RR 8-2000
Sec. 2 – The following shall be considered as “De Minimis” benefits and is not subject to withholding tax on compensation income of both managerial and rank and file employees.
1. Monetized unused vacation leave credits not exceeding 10 days during the year;
2. Medical cash allowance to dependents of employees not exceeding P750.00 per employee per semester or P125.00 a month;
3. Rice subsidy of P1,000 or 1 sack of 50kg rice per month amounting to not more than P1,000;
4. Uniforms and clothing allowance not exceeding P3,000 per annum;
5. Actual yearly medical benefits not exceeding P10,000 per annum;
6. Laundry allowance not exceeding P300 per month;
7. Employees achievement awards which must be in the form of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000 received by the employee under an established written plan which does not discriminate in favor of highly paid employees;
8. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per annum;
9. Flowers, fruits, books or similar items given to employees under special circumstances; and
10. Daily meal allowance for overtime work not exceeding 25% of the basic minimum wage.
RR 10-2000
The following shall be considered as “de minimis” benefits subject to Income Tax as well as withholding tax in compensation income of both managerial and rank and file employees:
1. Monetized unused vacation leave credits not exceeding 10 days during the year and the monetized value of leave credits paid to government officials and employees;
2. Medical cash allowance to dependents of employees not exceeding P750.00 per employee per semester or P125.00 a month;
3. Rice subsidy of P1,000 or 1 sack of 50kg rice per month amounting to not more than P1,000;
4. Uniforms and clothing allowance not exceeding P3,000 per annum;
5. Actual yearly medical benefits not exceeding P10,000 per annum;
6. Laundry allowance not exceeding P300 per month;
7. Employees achievement awards which must be in the form of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000 received by the employee under an established written plan which does not discriminate in favor of highly paid employees;
8. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per annum;
9. Flowers, fruits, books or similar items given to employees under special circumstances; and
10. Daily meal allowance for overtime work not exceeding 25% of the basic minimum wage.
11. Fixed or variable transportation, representation and other allowances;
· The excess of advances made over actual expenses shall constitute taxable income if such amount is not returned to the employer
· Vacation and sick leave allowances – constitute compensation unless considered as #1
De Minimis Benefits
Part 3
D. TAX ON CORPORATIONS
SEC. 28. Rates of Income Tax on Foreign Corporations. —
(A) Tax on Resident Foreign Corporations. —
(1) In General. — Except as otherwise provided in this Code, a corporation organized, authorized, or existing under the laws of any foreign country, engaged in trade or business within the Philippines, shall be subject to an income tax equivalent to thirty-five percent (35%) of the taxable income derived in the preceding taxable year from all sources within the Philippines: Provided, That effective January 1, 1998, the rate of income tax shall be thirty-four percent (34%); effective January 1, 1999, the rate shall be thirty-three percent (33%); and effective January 1, 2000 and thereafter, the rate shall be thirty-two percent (32%).
In the case of corporations adopting the fiscal-year accounting period, the taxable income shall be computed without regard to the specific date when sales, purchases and other transactions occur. Their income and expenses for the fiscal year shall be deemed to have been earned and spent equally for each month of the period.
The reduced corporate income tax rates shall be applied on the amount computed by multiplying the number of months covered by the new rates within the fiscal year by the taxable income of the corporation for the period, divided by twelve.
Provided, however, That a resident foreign corporation shall be granted the option to be taxed at fifteen percent (15%) on gross income under the same conditions, as provided in Section 27(A).
(2) Minimum Corporate Income Tax on Resident Foreign Corporations. — A minimum corporate income tax of two percent (2%) of gross income, as prescribed under Section 27(E) of this Code, shall be imposed, under the same conditions, on a resident foreign corporation taxable under paragraph (1) of this Subsection.
(3) International Carrier. — An international carrier doing business in the Philippines shall pay a tax of two and one-half percent (2 1/2%) on its 'Gross Philippine Billings' as defined hereunder:
(a) International Air Carrier. — 'Gross Philippine Billings' refers to the amount of gross revenue derived from carriage of persons, excess baggage, cargo and mail originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the ticket or passage document: Provided, That tickets revalidated, exchanged and/or indorsed to another international airline form part of the Gross Philippine Billings if the passenger boards a plane in a port or point in the Philippines: Provided, further, That for a flight which originates from the Philippines, but transshipment of passenger takes place at any port outside the Philippines on another airline, only the aliquot portion of the cost of the ticket corresponding to the leg flown from the Philippines to the point of transshipment shall form part of Gross Philippine Billings.
(b) International Shipping. — 'Gross Philippine Billings' means gross revenue whether for passenger, cargo or mail originating from the Philippines up to final destination, regardless of the place of sale or payments of the passage or freight documents.
(4) Offshore Banking Units. — The provisions of any law to the contrary notwithstanding, income derived by offshore banking units authorized by the Bangko Sentral ng Pilipinas (BSP), from foreign currency transactions with local commercial banks, including branches of foreign banks that may be authorized by the Bangko Sentral ng Pilipinas (BSP) to transact business with offshore banking units, including any interest income derived from foreign currency loans granted to residents, shall be subject to a final income tax at the rate of ten percent (10%) of such income.
Any income of nonresidents, whether individuals or corporations, from transactions with said offshore banking units shall be exempt from income tax.
(5) Tax on Branch Profits Remittances. — Any profit remitted by a branch to its head office shall be subject to a tax of fifteen percent (15%) which shall be based on the total profits applied or earmarked for remittance without any deduction for the tax component thereof (except those activities which are registered with the Philippine Economic Zone Authority). The tax shall be collected and paid in the same manner as provided in Sections 57 and 58 of this Code: Provided, That interests, dividends, rents, royalties, including remuneration for technical services, salaries, wages, premiums, annuities, emoluments or other fixed or determinable annual, periodic or casual gains, profits, income and capital gains received by a foreign corporation during each taxable year from all sources within the Philippines shall not be treated as branch profits unless the same are effectively connected with the conduct of its trade or business in the Philippines.
(6) Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies. —
(a) Regional or area headquarters as defined in Section 22(DD) shall not be subject to income tax.
(b) Regional operating headquarters as defined in Section 22(EE) shall pay a tax of ten percent (10%) of their taxable income.
(7) Tax on Certain Incomes Received by a Resident Foreign Corporation. —
(a) Interest from Deposits and Yield or any other Monetary Benefit from Deposit Substitutes, Trust Funds and Similar Arrangements and Royalties. — Interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements and royalties derived from sources within the Philippines shall be subject to a final income tax at the rate of twenty percent (20%) of such interest: Provided, however, That interest income derived by a resident foreign corporation from a depository bank under the expanded foreign currency deposit system shall be subject to a final income tax at the rate of seven and one-half percent (7 1/2%) of such interest income.
(b) Income Derived under the Expanded Foreign Currency Deposit System. — Income derived by a depository bank under the expanded foreign currency deposit system from foreign currency transactions with local commercial banks including branches of foreign banks that may be authorized by the Bangko Sentral ng Pilipinas (BSP) to transact business with foreign currency deposit system units and other depository banks under the expanded foreign currency deposit system, including interest income from foreign currency loans granted by such depository banks under said expanded foreign currency deposit system to residents, shall be subject to a final income tax at the rate of ten percent (10%) of such income.
Any income of nonresidents, whether individuals or corporations, from transactions with depository banks under the expanded system shall be exempt from income tax.
(c) Capital Gains from Sale of Shares of Stock Not Traded in the Stock Exchange. — A final tax at the rates prescribed below is hereby imposed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation except shares sold or disposed of through the stock exchange:
Not over P100,000 5%
On any amount in excess of P100,000 10%
(d) Intercorporate Dividends. — Dividends received by a resident foreign corporation from a domestic corporation liable to tax under this Code shall not be subject to tax under this Title.
(B) Tax on Nonresident Foreign Corporation. —
(1) In General. — Except as otherwise provided in this Code, a foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to thirty-five percent (35%) of the gross income received during each taxable year from all sources within the Philippines, such as interests, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities, emoluments or other fixed or determinable annual, periodic or casual gains, profits and income, and capital gains, except capital gains subject to tax under subparagraphs 5(c) and (d): Provided, That effective January 1, 1998, the rate of income tax shall be thirty-four percent (34%); effective January 1, 1999, the rate shall be thirty-three percent (33%); and, effective January 1, 2000 and thereafter, the rate shall be thirty-two percent (32%).
(2) Nonresident Cinematographic Film Owner, Lessor or Distributor. — A cinematographic film owner, lessor, or distributor shall pay a tax of twenty-five percent (25%) of its gross income from all sources within the Philippines.
(3) Nonresident Owner or Lessor of Vessels Chartered by Philippine Nationals. — A nonresident owner or lessor of vessels shall be subject to a tax of four and one-half percent (4 1/2%) of gross rentals, lease or charter fees from leases or charters to Filipino citizens or corporations, as approved by the Maritime Industry Authority.
(4) Nonresident Owner or Lessor of Aircraft, Machineries and Other Equipment. — Rentals, charters and other fees derived by a nonresident lessor of aircraft, machineries and other equipment shall be subject to a tax of seven and one-half percent (7 1/2%) of gross rentals or fees.
(5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. —
(a) Interest on Foreign Loans. — A final withholding tax at the rate of twenty percent (20%) is hereby imposed on the amount of interest on foreign loans contracted on or after August 1, 1986;
(b) Intercorporate Dividends. — A final withholding tax at the rate of fifteen percent (15%) is hereby imposed on the amount of cash and/or property dividends received from a domestic corporation, which shall be collected and paid as provided in Section 57(A) of this Code, subject to the condition that the country in which the nonresident foreign corporation is domiciled, shall allow a credit against the tax due from the nonresident foreign corporation taxes deemed to have been paid in the Philippines equivalent to twenty percent (20%) for 1997, nineteen percent (19%) for 1998, eighteen percent (18%) for 1999, and seventeen percent (17%) thereafter, which represents the difference between the regular income tax of thirty-five percent (35%) in 1997, thirty-four percent (34%) in 1998, thirty-three percent (33%) in 1999, and thirty-two percent (32%) thereafter on corporations and the fifteen percent (15%) tax on dividends as provided in this subparagraph;
(c) Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange. — A final tax at the rates prescribed below is hereby imposed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares sold, or disposed of through the stock exchange:
Not over P100,000 5%
On any amount in excess of P100,000 10%
1. The Taxpayer
2. Exemption from the tax
SEC. 30. Exemptions from Tax on Corporations. — The following organizations shall not be taxed under this Title in respect to income received by them as such:
(A) Labor, agricultural or horticultural organization not organized principally for profit;
(B) Mutual savings bank not having a capital stock represented by shares, and cooperative bank without capital stock organized and operated for mutual purposes and without profit;
(C) A beneficiary society, order or association, operating for the exclusive benefit of the members such as a fraternal organization operating under the lodge system, or a mutual aid association or a nonstock corporation organized by employees providing for the payment of life, sickness, accident, or other benefits exclusively to the members of such society, order, or association, or nonstock corporation or their dependents;
(D) Cemetery company owned and operated exclusively for the benefit of its members;
(E) Nonstock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person;
(F) Business league, chamber of commerce, or board of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stockholder or individual;
(G) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare;
(H) A nonstock and nonprofit educational institution;
(I) Government educational institution;
(J) Farmers' or other mutual typhoon or fire insurance company, mutual ditch or irrigation company, mutual or cooperative telephone company, or like organization of a purely local character, the income of which consists solely of assessments, dues, and fees collected from members for the sole purpose of meeting its expenses; and
(K) Farmers', fruit growers', or like association organized and operated as a sales agent for the purpose of marketing the products of its members and turning back to them the proceeds of sales, less the necessary selling expenses on the basis of the quantity of produce finished by them;
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for profit regardless of the disposition made of such income, shall be subject to tax imposed under this Code.
E. EXEMPT ENTITIES – GENERAL PRINCIPLE – EXEMPTION STRICTLY CONSTRUED
1. Partnership (Sec. 26)
SEC. 26. Tax Liability of Members of General Professional Partnerships. — A general professional partnership as such shall not be subject to the income tax imposed under this Chapter. Persons engaging in business as partners in a general professional partnership shall be liable for income tax only in their separate and individual capacities.
For purposes of computing the distributive share of the partners, the net income of the partnership shall be computed in the same manner as a corporation.
Each partner shall report as gross income his distributive share, actually or constructively received, in the net income of the partnership.
Professional Partnership of Real Estate Brokers Exempt from Income Tax (Ruling No. 294-88, July 5, 1988)
Ruling No. 294-88, July 5, 1988
A professional partnership of real estate brokers is exempt from income tax pursuant to Section 24(a) of the Tax Code, as amended. Accordingly, the commissions that will be paid to said partnership for professional services rendered are exempt from the withholding tax provisions of Revenue Regulations No. 6-85 otherwise known as the revised and Consolidated Expanded Withholding Tax Regulations implementing Section 50(b) of the Tax Code, as amended.
2. Co-Ownership
OBILLOS v. COMMISSIONER, L-68118. October 29, 1985
This is about the tax liability of 4 brothers & sisters who sold 2 parcels of land which they had acquired from their father. In 1973, Jose Obillos Sr bought 2 parcels of land from Ortigas & Co & transferred his rights to his 4 children to enable them to build their residences. In 1974, the 4 children resold the lots to Walled City Securities Corp & earned profit. CIR assessed the 4 children with corporate income tax.
HELD: It is error to hold that petitioners (Obillos) have formed a taxable unregistered partnership simply because they contributed in buying the lots, resold the same & divided the profit among themselves. They are simply co-owners. They were not engaged in any joint venture by reason of the isolated transaction. The original purpose was to divide the lots for residential purposes. The division of the profit was merely incidental to the dissolution of the co-ownership.
3. Sec. 30 Corporations
Sec. 23-35, RR2
Sec. 23. Distributive Shares of partners- Under present laws and regulations the distributive shares of partners are subject to the final withholding tax of 15%.
Sec. 24. Proof of exemption – In order to establish its exemption, and thus will be relieved from the duty of filing returns of income and paying the tax, it is necessary that every organization claiming an exemption file an affidavit with the CIR, showing the character of the organization, the purpose for which it was organized, its actual activities, the sources of its income and disposition, whether or not any of its income is credited t surplus or inures or may incur to the benefit of any private shareholder or individual, in general, all facts relating to its operations which affects its rights of exemption. TO such affidavit should be attached a copy of the charter or articles of incorporation, the by-laws of the organization, and the latest financial statement showing the assets, liabilities, receipts, and disbursements of the organization.
Upon receipt of the affidavit and other papers by the CIR, the organization will be informed whether or not it is exempt. When an organization has established its right to exemption, it need not thereafter make and file a return of income as required under Section 46 of the Tax Code. However, the organization, should file on or before April 15 of each year, an annual information under oath, stating its gross income and expenses incurred during the preceding year, and a certificate showing that there has not been any substantial change in its By-laws, Articles of Incorporation, manner of operation, and activities as well as sources of disposition of income.
Sec. 25. Agriculture and horticultural organizations. The organization contemplated by subsection (a) of Section 27 of the Code as entitled to exemption from income taxation are those which (1) have no net income inuring to the benefit of any member; (2) are education or instructive in character; and (3) have their objects the betterment of the conditions of those engaged in such pursuits, the improvement of the grade of their products, and the development of a higher degree of efficiency in their respective occupations. Organizations such as provincial fairs and like associations of a quasi-public character, which are designed to encourage the development of better agricultural and horticultural products through a system of awards, prizes, or premiums, and whose income derived from gate receipts, entry fees, donations, etc., is used exclusively to meet the necessary expenses of upkeep and operation, are thus exempt. On the other hand, associations which have for their purpose, for example, holding of periodical race meets, the profits from which may inure to the benefit of their shareholders, are not exempt. Similarly, corporations engaged in growing agricultural or horticultural products or raising livestock or similar products for profits are not exempt from tax under this paragraph.
on issues “voting shares,” which entitle the holders upon the dissolution of the corporation to receive the proceeds of its property, including accumulated income, the right to exemption ceases to exist, even though the by-laws provide that the shareholders shall not receive any dividend or other return upon their shares.
Section 31. Business leagues. -A business league is an association of persons having some common business interest, which limits its activities to work for such common interest and does not engage in a regular business of a kind ordinarily carried on for profit. Its work need not be similar to that of a chamber of commerce or board of trade. If it engages in a regular business of a kind ordinarily carried on for profit, the fact that the business is conducted on a cooperative basis or produces only sufficient income to be self-sustaining, is not ground for exemption. An association engaged in furnishing information to prospective investors, to enable them to make sound investments, is not exempt, since its members have no common business interest, even though all of its income is devoted to the purpose stated. A clearing house association, not organized for profit, no part of the net income for which inures to any private shareholder or individual, is exempt provided its activities are limited to the exchange of checks, and similar work for the common benefit of its members. An association of persons who are engaged in the transportation business, whether by land or water, which is designed to promote the legitimate objects of such business, and all of the income of which is derived from membership dues and is expended for office expenses is exempt from tax.
Section 32. Civic leagues. – Civic leagues entitled to exemption comprise those not organized for profit but operated exclusively for purposes beneficial to the community as a whole. In general, organizations engaged in promoting the welfare of mankind are exempt from tax.
Section 33. Social clubs. - The exemption applies to practically all social and recreation clubs which are supported by membership fees, dues, and assessments. If a club, by reason of the comprehensive powers granted in the charter, engages in business or in agriculture or horticulture, for profit, such club is not organized and operated exclusively for pleasure, recreation, or social purposes, and any profit realized from such activities is subject to tax.
Section 34. Mutual insurance companies and like organizations. - It is necessary to exemption that the income of the company be derived solely from assessments, dues, and fees collected from members. If income is received from other sources, the corporation is not exempt. Income, however, from sources other than those specified does not prevent exemption where its receipt is a mere incident of the business of the company. Thus the receipt of interest upon a working bank balance, or of the proceeds of the sale of badges, office supplies, or equipment, will not defeat the exemption. The same is true of the receipt of interest upon Government bonds, where they were purchased and were afterwards sold. Where, however, such bonds are bought as a permanent investment, the receipt of the interest destroys the exemption. The receipt of what is, in substance, an entrance fee, charged by a mutual life insurance company as a condition of membership, does not render the company taxable, although this fee is called a premium. If an organization issues policies for stipulated cash premiums, or if it requires advance deposits to cover the cost of the insurance and maintains investments from which income is derived, it is not entitled to exemption. On the other hand, an organization may be entitled to exemption, although it makes advance assessment for the sole purpose of meeting future losses and expenses, provided that the balance of such assessments remaining on hand at the end of the year is retained to meet losses and expenses or is returned to members. An organization of a purely local character is one whose business activities are confined to a particular community, place, or district, irrespective, however, of political subdivisions.
Section 35. Farmers' cooperative marketing and purchasing association - Cooperative associations, acting as sales agents for farmers or others, in order to come within the exemption must establish that for their own account they have no net income. Cooperative dairy companies, which are engaged in collecting milk and disposing of it or the products thereof and distributing the proceeds, less necessary operating expenses, among their members are exempt from the tax. If the proceeds of the business are distributed in any other way that on such a proportionate basis, the company will be subject to tax. A farmer’s association is not exempt from taxation where in accounting to farmers furnishing produce for the proceeds of sales it deducts more than the necessary selling expenses incurred. Cooperative associations acting as purchasing agents are not expressly exempt from tax, but rebates made to purchasers, whether or not members of the associations, in proportion to their purchase may be excluded from gross income in computing the net income subject to tax. Any profits made from non-members and distributed to members in the guise of rebates are, of course, subject to tax.
Cooperative marketing associations duly incorporated under Act No. 3425, known as the Cooperative Marketing Law are exempt from income tax.
Sinco v. CIR, 100 Phil 127
Appellee is a non-profit institution and since its organization it has never distributed any dividend or profit to its stockholders. Only part of its income went to the payment of its teachers or professors and to the other expenses of the colleges incident to an educational institution but none of the income had never been channeled to the benefit of any individual stockholders.
Held: Whatever payment is made to those who work for a school or college as a remuneration for their services is not considered as distribution of profit as would make the school one conducted for profit.
The proof of exemption required by section 243, Regulation No. 2, Department of Finance is intended to relieve the tax-payer of the duty of filing returns and paying the tax. The failure to observe the requirement called for therein can not constitute a waiver of the right to enjoy the exemption. To hold otherwise would be tantamount to incorporating into the tax laws same legislative matter by administrative regulation.
4. RP- US Income Tax Treaty
ARTICLE 15 INDEPENDENT PERSONAL SERVICES
(1) Income derived by an individual who is a resident of one of the Contracting States from the performance of personal services in an independent capacity may be taxed by that Contracting State. Except as provided in paragraph (2), such income shall be exempt from tax by the other Contracting State.
(2) Income derived by an individual who is a resident of one of the Contracting States from the performance of personal services in an independent capacity in the other Contracting State may be taxed by that other Contracting State, if:
(a) He has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other Contracting State;
(b) He is present in that other Contracting State for a period or periods aggregating 90 days or more in the taxable year; or
(c) The gross remuneration derived in the taxable year from residents of that other Contracting State for the performance of such services in the other Contracting State exceeds 10,000 United States dollars or its equivalent in Philippine pesos or such higher amount as may be specified and agreed in letters exchanged between the competent authorities of the Contracting States.
(3) The term "income" as used in paragraph (2) means net income.
ARTICLE 16 DEPENDENT PERSONAL SERVICES
(1) Except as provided in Article 20 (Governmental Functions), wages, salaries, and similar remuneration derived by an individual who is a resident of one of the Contracting States from labor or personal services performed as an employee, including income from services performed by an officer of a corporation, may be taxed by that Contracting State. Except as provided by paragraph (2) and (3) and in Articles 20 (Governmental Functions), 21 (Teachers), and 22 (Students and Trainees), such remuneration derived from source within the other Contracting State may also be taxed by that other Contracting State.
(2) Remuneration described in paragraph (1) derived by an individual who is a resident of one of the Contracting States shall be exempt from tax by the other Contracting State if —
(a) He is present in that other Contracting State for a period or periods aggregating less than 90 days in the taxable year;
(b) He is an employee of a resident of, or of a permanent establishment maintained in, the first-mentioned Contracting State; and
(c) The remuneration is not borne as such by a permanent establishment which the employer has in that other Contracting State.
(3) Notwithstanding the preceding provisions of this Article, remuneration derived by an employee of a resident of one of the Contracting States for labor or personal services performed as a member of the regular complement of a ship or aircraft operated in international traffic by a resident of that Contracting State may be taxed only by that Contracting State.
ARTICLE 17 ARTISTES AND ATHLETES
(1) Notwithstanding the provisions of Article XV (Independent Personal Services) and XVI (Dependent Personal Services), income derived by public entertainers such as theater, motion picture, radio or television artistes, and musicians, and by athletes, from their personal activities as such may be taxed in the Contracting State in which these activities are exercised provided that -
(a) Such income exceeds 100 United States dollars or its equivalent in the Philippine pesos per day, or
(b) Such income exceeds in the aggregate 3,000 United States dollars or its equivalent in Philippine pesos during the taxable year.
(2) Where income in respect of personal activities as such of a public entertainer or athlete accrues not to that entertainer or athlete himself but to another person, that income may, notwithstanding the provisions of Articles 8 (Business Profits), 15 (Independent Personal Services) and 16 (Dependent Personal Services), be taxed in the Contracting State in which the activities of the entertainer or athlete are exercised.
(3) Notwithstanding the provisions of paragraph (1) and Articles 15 (Independent Personal Services) and 16 (Dependent Personal Services), income derived from activities performed in a Contracting State by public entertainers or athletes shall be exempt from tax in that Contracting State if the visit to that State is substantially supported or sponsored by the other Contracting State and the public entertainer or athlete is certified as qualified under this provision by the competent authority of the sending State.
ARTICLE 18 PRIVATE PENSIONS AND ANNUITIES
(1) Except as provided in Article 20 (Governmental Functions), pensions and other similar remuneration paid to an individual in consideration of past employment shall be taxable by the Contracting State where the service is rendered.
(2) Annuities paid to an individual who is a resident of one of the Contracting States shall be taxable only in that Contracting State.
(3) Child support payments made by an individual who is resident of one of the Contracting States to an individual who is resident of the other Contracting State shall be exempt from tax in that other Contracting State.
(4) The term "pensions and other similar remuneration", as used in this article, includes periodic payments other than social security payments covered in Article XIX (Social Security Payments) made -
(a) By reason of retirement or death and in consideration for services rendered or
(b) By way of compensation for injuries or sickness received in connection with past employment.
(4) The term "annuities", as used in this article, means a stated sum paid periodically at stated times during life, or during a specified number of years, under an obligation to make the payments in return for adequate and full consideration (other than services rendered).
(5) The term "child support payments", as used in this article, means periodic payments for the support of a minor child made pursuant to a written separation agreement or a decree of divorce, separation maintenance, or compulsory support.
ARTICLE 19 SOCIAL SECURITY PAYMENTS
Social Security payments and other public pensions paid by one of the Contracting States to an individual who is a resident of the other Contracting State (or in the case of such payments by the Philippines to an individual who is a citizen of the United States) shall be taxable only in the first-mentioned Contracting State. This article shall not apply to payments described in Article XX (Governmental Functions).
ARTICLE 20 GOVERNMENTAL FUNCTIONS
Wages, salaries and similar remuneration, including pensions, annuities, or similar benefits, paid from public funds of one of the Contracting States;
(a) To a citizen of that Contracting State, or
(b) To a citizen of a State other than a Contracting State who comes to the other Contracting State expressly for the purpose of being employed by the first-mentioned Contracting State.
for labor or personal services performed as an employee of the national Government of that Contracting State, or any agency thereof, in the discharge of functions of a governmental nature shall be exempt from tax by the Contracting State.
ARTICLE 21 TEACHERS
(1) Where a resident of one of the Contracting States is invited by the Government of the other Contracting State, a political subdivision or local authority thereof, or by a university or other recognized educational institution in that other Contracting State to come to that other Contracting State for a period not expected to exceed 2 years for the purpose of teaching or engaging in research, or both, at a university or other recognized educational institution and such resident comes to that other Contracting State primarily for such purpose, his income from personal services for teaching or research at such university or educational institution shall be exempt from tax by that other Contracting State for a period not exceeding 2 years from the date of his arrival in that other Contracting State.
(2) This article shall not apply to income from research if such research is undertaken not in the general interest but primarily for the private benefit of a specific person or persons.
ARTICLE 22 STUDENTS AND TRAINEES
(1) (a) An individual who is a resident of one of the Contracting States at the time he becomes temporarily present in the other Contracting State and who is temporarily present in that other Contracting State for the primary purpose of —
(ii) Studying at a university or other recognized educational institution in that other Contracting State, or
(iii) Securing training required to qualify him to practice a profession or professional specialty, or
(iv) Studying or doing research as a recipient of a grant, allowance, or award from a governmental, religious, charitable, scientific, literary, or educational organization, shall be exempt from tax by that other Contracting State with respect to amounts described in subparagraph (b) for a period not exceeding 5 taxable years from the date of his arrival in that other Contracting State.
(b) The amounts referred to in paragraph (a) are —
(i) Gifts from abroad for the purpose of his maintenance, education, study, research, or training;
(ii) The grant, allowance, or award; and
(iii) Income from personal services performed in that other Contracting State in an amount not in excess of 3,000 United States dollars or its equivalent in Philippine pesos for any taxable year.
(2) An individual who is a resident of one of the Contracting States at the time he becomes temporarily present in the other Contracting State and who is temporarily present in that other Contracting State as an employee of, or under contract with, a resident of the first-mentioned Contracting State, for the primary purpose of —
(a) Acquiring technical, professional, or business experience from a person other than that resident of the first-mentioned Contracting State or other than a person related to such resident, or
(b) Studying at a university or other recognized educational institution in that other Contracting State,
shall be exempt from tax by that Contracting State for a period not exceeding 12 consecutive months with respect to his income from personal services in an aggregate amount not in excess of 7,500 United States dollars or its equivalent in the Philippine pesos for any taxable year.
(3) An individual who is a resident of one of the Contracting States at the time he becomes temporarily present in the other Contracting State and who is temporarily present in that other Contracting State for a period not exceeding 1 year, as a participant in a program sponsored by the Government of that other Contracting State, for the primary purpose of training, research, or study, shall be exempt from tax by that other Contracting State with respect to his income from personal services in respect of such training, research, or study performed in that other Contracting State in an aggregate amount not in excess of 10,000 United States dollars or its equivalent in Philippine pesos in any taxable year.
(4) The benefits provided under Article 21 (Teachers) and paragraph (1) of this Article shall, when taken together, extend only for such period of time, not to exceed 5 taxable years from the date of arrival of the individual claiming such benefits, as may reasonably or customarily be required to effectuate the purpose of the visit. The benefits provided under Article 21 (Teachers) shall not be available to an individual if, during the immediately preceding period, such individual enjoyed the benefits of paragraph (1) of this Article.
5. Omnibus Investment Code – Income Tax Holiday Incentive, as amended by EO 206
TITLE III - INCENTIVES TO REGISTERED ENTERPRISES
Art. 39. Incentives to Registered Enterprises. - All registered enterprises shall be granted the following incentives to the extent engaged in a preferred area of investment;
(a) Income Tax Holiday. –
(1) For six (6) years from commercial operation for pioneer firms and four (4) years for non-pioneer firms, new registered firms shall be fully exempt from income taxes levied by the National Government. Subject to such guidelines as may be prescribed by the Board, the income tax exemption will be extended for another year in each of the following cases:
i. the project meets the prescribed ratio of capital equipment to number of workers set by the Board;
ii. utilization of indigenous raw materials at rates set by the Board;
iii. the net foreign exchange savings or earnings amount to at least US$500,000.00 annually during the first three (3) years of operation.
The preceding paragraph notwithstanding, no registered pioneer firm may avail of this incentive for a period exceeding eight (8) years.
(2) For a period of three (3) years from commercial operation, registered expanding firms shall be entitled to an exemption from income taxes levied by the National Government proportionate to their expansion under such terms and conditions as the Board may determine; Provided, however, That during the period within which this incentive is availed of by the expanding firm it shall not be entitled to additional deduction for incremental labor expense.
(3) The provision of Article 7 (14) notwithstanding, registered firms shall not be entitled to any extension of this incentive.
(b) Additional Deduction for Labor Expense. - For the first five (5) years from registration a registered enterprise shall be allowed an additional deduction from the taxable income of fifty percent (50%) of the wages corresponding to the increment in the number of direct labor for skilled and unskilled workers if the project meets the prescribed ratio of capital equipment to number of workers set by the Board: Provided, That this additional deduction shall be doubled if the activity is located in less developed areas as defined in Art. 40.
(c) Tax and Duty Exemption on Imported Capital Equipment. - Within five (5) years from the effectivity of this Code, importations of machinery and equipment and accompanying spare parts of new and expanding registered enterprise shall be exempt to the extent of one hundred percent (100%) of the customs duties and national internal revenue tax payable thereon: Provided, That the importation of machinery and equipment and accompanying spare parts shall comply with the following conditions:
(1) They are not manufactured domestically in sufficient quantity, of comparable quality and at reasonable prices;
(2) They are reasonably needed and will be used exclusively by the registered enterprise in the manufacture of its products, unless prior approval of the Board is secured for the part-time utilization of said equipment in a non-registered activity to maximize usage thereof or the proportionate taxes and duties are paid on the specific equipment and machinery being permanently used for non-registered activities; and
(3) The approval of the Board was obtained by the registered enterprise for the importation of such machinery, equipment and spare parts.
In granting the approval of the importations under this paragraph, the Board may require international canvassing but if the total cost of the capital equipment or industrial plant exceeds US$5,000,000, the Board shall apply or adopt the provisions of Presidential Decree Numbered 1764 on International Competitive Bidding.
If the registered enterprise sells, transfers or disposes of these machinery, equipment and spare parts without prior approval of the Board within five (5) years from date of acquisition, the registered enterprise and the vendee, transferee, or assignee shall be solidarily liable to pay twice the amount of the tax exemption given it.
The Board shall allow and approve the sale, transfer or disposition of the said items within the said period of five (5) years if made:
(aa) to another registered enterprise or registered domestic producer enjoying similar incentives;
(bb) for reasons of proven technical obsolescence; or
(cc) for purposes of replacement to improve and/or expand the operations of the registered enterprise.
(d) Tax Credit on Domestic Capital Equipment. - A tax credit equivalent to one hundred percent (100%) of the value of the national internal revenue taxes and customs duties that would have been waived on the machinery, equipment and spare parts, had these items been imported shall be given to the new and expanding registered enterprise which purchases machinery, equipment and spare parts from a domestic manufacturer: Provided, That (1) That the said equipment, machinery and spare parts are reasonably needed and will be used exclusively by the registered enterprise in the manufacture of its products, unless prior approval of the Board is secured for the part-time utilization of said equipment in a non-registered activity to maximize usage thereof; (2) that the equipment would have qualified for tax and duty-free importation under paragraph (c) hereof; (3) that the approval of the Board was obtained by the registered enterprise; and (4) that the purchase is made within five (5) years from the date of effectivity of the Code. If the registered enterprise sells, transfers or disposes of these machinery, equipment and spare parts, the provisions in the preceding paragraph for such disposition shall apply.
(e) Exemption from Contractor's Tax. - The registered enterprise shall be exempt from the payment of contractor's tax, whether national or local.
(f) Simplification of Customs Procedure. - Customs procedures for the importation of equipment, spare parts, raw materials and supplies, and exports of processed products by registered enterprises shall be simplified by the Bureau of Customs.
(g) Unrestricted Use of Consigned Equipment. - Provisions of existing laws notwithstanding, machinery, equipment and spare part consigned to any registered enterprises shall not be subject to restrictions as to period of use of such machinery, equipment and spare parts Provided, that the appropriate re-export bond is posted unless the importation is otherwise covered under subsections (c) and (m) of this Article. Provided, further, that such consigned equipment shall be for the exclusive use of the registered enterprise.
If such equipment is sold, transferred or otherwise disposed of by the registered enterprise the related provision of Article 39 (c) (3) shall apply. Outward remittance of foreign exchange covering the proceeds of such sale, transfer or disposition shall be allowed only upon prior Central Bank approval.
(h) Employment of Foreign Nationals. - Subject to the provisions of Section 29 of Commonwealth Act Number 613, as amended, a registered enterprise may employ foreign nationals in supervisory, technical or advisory positions for a period not exceeding five (5) years from its registration, extendible for limited periods at the discretion of the Board: Provided, however, That when the majority of the capital stock of a registered enterprise is owned by foreign investors, the position of president, treasurer and general manager or their equivalents may be retained by foreign nationals beyond the period set forth herein.
Foreign nationals under employment contract within the purview of this incentive, their spouses and unmarried children under twenty-one (21) years of age, who are not excluded by Section 29 of Commonwealth Act Numbered 613, as amended, shall be permitted to enter and reside in the Philippines during the period of employment of such foreign nationals.
A registered enterprise shall train Filipinos as understudies of foreign nationals in administrative, supervisory and technical skills and shall submit annual reports on such training to the Board.
(i) Exemption on Breeding Stocks and Genetic Materials. - The importation of breeding stocks and genetic materials within ten (10) years from the date of registration or commercial operation of the enterprise shall be exempt from all taxes and duties: Provided, That such breeding stocks and genetic materials are (1) not locally available and/or obtainable locally in comparable quality and at reasonable prices; (2) reasonably needed in the registered activity; and (3) approved by the Board.
(j) Tax Credit on Domestic Breeding Stocks and Genetic Materials. - A tax credit equivalent to one hundred percent (100%) of the value of national internal revenue taxes and customs duties that would have been waived on the breeding stocks and genetic materials had these items been imported shall be given to the registered enterprise which purchases breeding stocks and generic materials from a domestic producer: Provided, 1) That said breeding stocks and generic materials would have qualified for tax and duty free importation under the preceding paragraph; 2) that the breeding stocks and genetic materials are reasonably needed in the registered activity; 3) that the approval of the board has been obtained by the registered enterprise; and 4) that the purchase is made within ten (10) years from date of registration or commercial operation of the registered enterprise.
(k) Tax Credit for Taxes and Duties on Raw Materials. - Every registered enterprise shall enjoy a tax credit equivalent to the National Internal Revenue taxes and Customs duties paid on the supplies, raw materials and semi-manufactured products used in the manufacture, processing or production of its export products and forming part thereof, exported directly or indirectly by the registered enterprise: Provided, however, that the taxes on the supplies, raw materials and semi- manufactured products domestically purchased are indicated as a separate item in the sales invoice.
Nothing herein shall be construed as to preclude the Board from setting a fixed percentage of export sales as the approximate tax credit for taxes and duties of raw materials based on an average or standard usage for such materials in the industry.
(l) Access to Bonded Manufacturing/Trading Warehouse System. –
Registered export oriented enterprises shall have access to the utilization of the bonded warehousing system in all areas required by the project subject to such guidelines as may be issued by the Board upon prior consultation with the Bureau of Customs.
(m) Exemption from Taxes and Duties on Imported Spare Parts. - Importation of required supplies and spare parts for consigned equipment or those imported tax and duty free by a registered enterprise with a bonded manufacturing warehouse shall be exempt from customs duties and national internal revenue taxes payable thereon, Provided, However, That at least seventy percent (70%) of production is exported; Provided, further, that such spare parts and supplies are not locally available at reasonable prices, sufficient quantity and comparable quality; Provided, finally, That all such spare parts and supplies shall be used only in the bonded manufacturing warehouse of the registered enterprise under such requirements as the Bureau of Customs may impose.
(n) Exemption from Wharfage Dues and any Export Tax, Duty, Impost and Fee. - The provisions of law to the contrary notwithstanding, exports by a registered enterprise of its non- traditional export products shall be exempted of its non-traditional export products shall be exempted from any wharfage dues, and any export tax, duty, impost and fee.
TITLE IV - INCENTIVES TO LESS-DEVELOPED-AREA REGISTERED ENTERPRISE
Art. 40. A registered enterprise regardless of nationality located in a less-developed-area included in the list prepared by the Board of Investments after consultation with the National Economic & Development Authority and other appropriate government agencies, taking into consideration the following criteria: low per capita gross domestic product; low level of investments; high rate of unemployment and/or underemployment; and low level of infrastructure development including its accessibility to develop urban centers, shall be entitled to the following incentives in addition to those provided in the preceding article:
(a) Pioneer incentives. - An enterprise in a less-developed-area registered with the Board under Book I of this Code, whether proposed, or an expansion of an existing venture, shall be entitled to the incentives provided for a pioneer registered enterprise under its law of registration.
(b) Incentives for necessary and Major Infrastructure and Public Utilities. - Registered enterprise establishing their production, processing or manufacturing plants in an area that the Board designates as necessary for the proper dispersal of industry or in area which the Board finds deficient in infrastructure, public utilities, and other facilities, such as irrigation, drainage or other similar waterworks infrastructure may deduct from taxable income an amount equivalent to one hundred percent (100%) of necessary and major infrastructure works it may have undertaken with the prior approval of the Board in consultation with other government agencies concerned; Provided, That the title to all such infrastructure works shall upon completion, be transferred to the Philippine Government: Provided, further, That any amount not deducted for a particular year may be carried over for deduction for subsequent years not exceeding ten (10) years from commercial operation.
6. Special Economic Zone Act of 1995 (RA 7916)
Sec. 24. Exemption from Taxes Under the National Internal Revenue Code. - Any provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu of paying taxes, five percent (5%) of the gross income earned by all businesses and enterprises within the ECOZONE shall be remitted to the national government. This five percent (5%) shall be shared and distributed as follows:
(a) Three percent (3%) to the national government;
(b) One percent (1%) to the local government units affected by the declaration of the ECOZONE in proportion to their population, land area, and equal sharing factors; and
(c) One percent (1%) for the establishment of a development fund to be utilized for the development of municipalities outside and contiguous to each ECOZONE: Provided, however, That the respective share of the affected local government units shall be determined on the basis of the following formula:
(1) Population - fifty percent (50%);
(2) Land area - twenty-five percent (25%); and
(3) Equal sharing - twenty-five percent (25%).
7. CIR v. CA, CTA & YMCA, GR. No. 124043, Oct. 14, 1998
Whether the earnings of YMCA from leasing out a portion of its premises to small shop owners like restaurants and canteen operators and the parking fees collected from non-members are exempt from taxation based on Sec 27 of the NIRC.
Held: NO, The exemption claimed by YMCA is expressly disallowed by the very wordings of the last paragraph of then Sec 27 which mandates that the income of exempt organizations from any of their properties, whether real or personal, be subject to tax imposed by the same Code. Further, it is exempt from paying property tax and not income tax.
The bare allegations alone that it is a non-stock, non-profit educational institution is insufficient to justify its exemption from the payment of income tax. YMCA is not a school or educational institution.
8. Jewelry Industry Dev. Act of 1998 (RA 8502, as implemented by RR 1-99, Jan. 6, 1999)
SECTION 3. Development Incentives. — The following incentives shall be available to qualified jewelry enterprises in the jewelry industry:
a) Exemption from the imposition of excise tax on all goods commonly or commercially known as jewelry, whether real or imitation pearls, precious and semi-precious stones and imitations thereof; all goods made of, or ornamented, mounted or fitted with precious metals or imitations thereof, as specifically mentioned in Section 150(a) of the National Internal Revenue Code of the Philippines, as amended;
d) Additional deduction from taxable income of fifty percent (50%) of expenses incurred in training schemes approved by the appropriate agency and which shall be deductible during the financial year the expenses were incurred;
RULE 3. IMPLEMENTATION OF THE EXCISE TAX EXEMPTION OF QUALIFIED JEWELRY ENTERPRISES PURSUANT TO SECTION 3(b) of RA 8502
SECTION 1. Exemption from Excise Tax. — A Qualified Jewelry Enterprise shall be exempt from excise tax on its manufacture and removal of jewelry from its place of production or factory for sale, consumption or for any other disposition. It shall also be exempt from excise tax on its importation of raw materials and supplies, such as but not limited to gemstone and precious metals, or imitations thereof, for use in its manufacture or production of fine or imitation jewelry, or for disposition to another Qualified Jewelry Enterprise for the latter's use in the manufacture or production of fine or imitation jewelry, subject to the provisions of the joint Department of Finance-Bureau of Customs (DOF-BOC) Order implementing the provisions of R.A. No. 8502 on the importation made by such Qualified Jewelry Enterprise. In general, manufactured or produced jewelry, if shown to have been purchased from a Qualified Jewelry Enterprise, shall be presumed exempt from the excise tax, provided for under this Section, in the hands of the purchaser or the possessor thereof.
Provided, however, that such Qualified Jewelry Enterprise shall be liable to the Value Added Tax and such other applicable internal revenue taxes on its sale, barter, exchange or other transactions, pursuant to the provisions of the National Internal Revenue Code of 1997.
Provided, further, that the Qualified Jewelry Enterprise shall submit to the Bureau of Internal Revenue (BIR) a certified true copy of its Certificate of Accreditation as a Qualified Jewelry Enterprise, issued by the Board of Investment (BOI), in order to avail of the exemption from excise tax herein provided.
SECTION 2. Registration of the Factory or Place of Manufacture. — Pursuant to Section 154 of the NIRC of 1997, the jewelry manufacturing plant of the Qualified Jewelry Enterprise shall, before commencing operations, be first registered with the Revenue District Office having jurisdiction over the area where such manufacturing plant is located. The Revenue District Officer concerned shall accordingly issue a Permit to Operate the Jewelry Manufacturing Plant.
For Qualified Jewelry Enterprises that are already operational prior to their accreditation with BOI, submission of a copy of the Permit previously issued by the BIR would suffice.
SECTION 3. Requirements and Procedures for Importations. —
1. The importer must register with the Revenue District Office having jurisdiction over the importer's principal place of business in accordance with existing regulations. For every importation, he must file a written application for Permit to Import with the Revenue District Office where his principal place of business is registered, which shall be accompanied by the following documents:
a. BIR Certificate of Exemption from Excise Tax;
b. Name and Address of Supplier(s)/Consignors;
c. List of Jewelries (with description) to be imported; and
d. Pro-Forma Invoice.
2. Upon arrival of the goods in Custom's Custody, the importer shall apply for Authority to Release Imported Goods (ATRIG) with the Revenue District Office having jurisdiction over the port of entry which shall be accompanied by the following documents:
a. Permit to Import;
b. Commercial Invoice, Letter of Credit (LC), Bill of Lading, Packing List, and other importations documents, where applicable; and
c. Import Entry and Internal Revenue Declarations.
3. Upon issuance of the ATRIG, the concerned RDO shall assign Revenue Officer(s) to supervise the release of imported goods from Custom's Custody and shall submit a report thereafter.
4. Permit to Import and Authority to Release Imported Goods (ATRIG) for raw materials and supplies which are exempt from excise tax pursuant to Section 1 of the Rule 3 hereof shall be stamped "EXCISE TAX EXEMPT".
5. Revenue District Officers charged with the processing of all applications for Permit to Import and/or ATRIG shall compile a list of approved application, which must tally with the withdrawal certificate/gate pass or other documents issued by the Bureau of Customs upon release of the imported goods. Any discrepancy noted must immediately be reconciled and an assessment of additional excise tax, if warranted, shall be issued immediately.
SECTION 4. Manufacturer's or Producer's or Importer's Sworn Statement. — The provisions of Section 130 (C) of the NIRC of 1997 to the contrary notwithstanding, every Qualified Jewelry Enterprises shall file with the Commissioner of Internal Revenue or his duly authorized representative every January 15th and July 15th of each year a sworn semestral report showing, among other information, the products manufactured, produced or imported during the period and their corresponding gross selling price or the market value thereof. The term "gross selling price" means the total amount of money or its equivalent which the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or exchange made by such Enterprise, excluding the value added tax thereon. Provided, however, that for purposes of the value added tax, sales discount granted and indicated in the sales invoice at the time of sale and the grant of which does not depend upon the happening of a future event, may be excluded in computing for such gross selling price, pursuant to the provisions of Section 106 of the NIRC of 1997.
RULE 4. IMPLEMENTATION OF THE ADDITIONAL DEDUCTION OF FIFTY PERCENT FOR TRAINING EXPENSES INCURRED BY A QUALIFIED JEWELRY ENTERPRISE PURSUANT TO SEC. 3(d) OF RA 8502
SECTION 1. Additional Deduction For Training Expense. — A Qualified Jewelry Enterprise providing training to its employees may avail of the additional deduction equivalent to fifty percent (50%) of the expenses incurred in training schemes for the purpose of computing the taxable income. The additional deduction of fifty percent (50%) shall be in addition to the allowable ordinary and necessary expenses on training which are fully deductible as a business expense in accordance with the provision of the NIRC of 1997. Provided, however, that the benefit arising from the said 50% additional deduction shall not be treated as a taxable income of the Enterprise in computing for its taxable income.
SECTION 2. Conditions for Availment of the Tax Incentive. —
(a) A Qualified Jewelry Enterprise must submit a certified true copy of its Certificate of Accreditation issued by the BOI Managing Head or his duly authorized representative to the BIR.
(b) The training scheme must be approved by the Technical Education and Skills Development Authority (TESDA).
The TESDA must certify as to the description (objectives, type of training to be given, course syllabus, among others) and the cost of the training program. The TESDA must likewise certify that the training program was actually conducted and was instrumental to the acquisition of appropriate skills by recipient trainees employed in the accredited jewelry enterprise. A certification from the TESDA as to the accreditation of, and the actual conduct of, the training program must be secured and submitted to the BIR.
In-house training conducted by the qualified jewelry enterprise should also be accredited and approved by the TESDA. A certification from the TESDA must likewise be submitted to the BIR in cases of in-house training.
SECTION 3. Period Considered for Tax Deduction. — The additional deduction for training expenses shall be claimed in the taxable year in which the training expenses have been incurred.
SECTION 4. Documentary Requirements. — The tax deduction may be availed of by the Qualified Jewelry Enterprise upon filing of the quarterly/final income tax return accompanied with the following supporting documents to the BIR:
(a) Certified true copy of BOI accreditation;
(b) Certifications from TESDA as to registration of training program and actual conduct of training; and
(c) Official Receipts of Training Expenses.
RULE 5. REQUIREMENT TO KEEP BOOKS OF ACCOUNTS AND OTHER ACCOUNTING RECORDS
All Qualified Jewelry Enterprises availing of tax incentives under RA 8502 shall keep books of accounts and other pertinent records pursuant to the provisions of Title IX, Chapter 1, Section 235 of the National Internal Revenue Code of 1997. These records shall be subject to inspection and verification by any duly authorized revenue officer for the purpose of ascertaining compliance with the conditions under which they have been granted the tax incentives, and their tax liability, if any.
9. Cooperative Code of the Phils. (RA 6983, as implemented by RR 20-2001)
Art. 61. Tax Treatment of Cooperatives. - Duly registered cooperatives under this Code which do not transact any business with nonmembers or the general public shall not be subject to any government taxes or fees imposed under the internal revenue laws and other tax laws. Cooperatives not falling under this article shall be governed by the succeeding section.
Art. 62. Tax and Other Exemptions. - Cooperatives transacting business with both members and nonmembers shall not be subject to tax on their transactions to members. Notwithstanding the provisions of any or regulation to the contrary, such cooperatives dealing with nonmembers shall enjoy the following tax exemptions:
(1) Cooperatives with accumulated reserves and undivided net savings of not more than Ten million pesos (P10,000,000.00) shall be exempt from all national, city, provincial, municipal or barangay taxes of whatever name and nature. Such cooperatives shall be exempt from customs duties, advance sales or compensating taxes on their importation of machineries, equipment and spare parts used by them and which are not available locally as certified by the Department of Trade and Industry. All tax-free importations shall not be transferred to any person until after five (5) years, otherwise, the cooperative and the transferee or assignee shall be solidarily liable to pay twice the amount of the tax and/or duties thereon.
(2) Cooperatives with accumulated reserves and undivided net savings of more than Ten million pesos (P10,000,000.00) shall pay the following taxes at the full rate:
(a) Income Tax - On the amount allocated for interest on capitals: Provided, That the same tax is not consequently imposed on interest individually received by members:
(b) Sales Tax - On sales to nonmembers: Provided, however, That all cooperatives, regardless of classification, are exempt from the payment of income and sale taxes for a period of ten (10) years.
For cooperatives whose exemptions were removed by Executive Order No. 93, the ten-year period shall be reckoned from the effectivity date of said executive order. Cooperatives created after the approval of this Code shall be granted the same exemptions, the period of which shall be reckoned from the date of registration with the Authority: Provided, That at least twenty-five per centum (25%) of the net income of the cooperatives is returned to the members in the form of interest and/or patronage refunds:
(c) All other taxes unless otherwise provided herein; and
(d) Donations to charitable, research and educational institutions and reinvestment to socioeconomic projects within the area of operation of the cooperative may be tax deductible.
(3) All cooperatives, regardless of the amount of accumulated reserves and undivided net savings shall be exempt from payment of local taxes and taxes on transactions with banks and insurance companies: Provided, That all sales or services rendered for nonmembers shall be subject to the applicable percentage taxes except sales made by producers, marketing or service cooperatives: Provided, further, That nothing in this article shall preclude the examination of the books of accounts or other accounting records of the cooperative by duly authorized internal revenue officers for internal revenue tax purposes only, after previous authorization by the Authority.
(4) Any judge in his capacity as notary public, ex-officio, shall render service, free of charge, to any person or group of persons requiring either the administration of oath or the acknowledgment of articles of cooperation of a cooperative applicant for registration and instruments of loan from cooperative not exceeding Fifty thousand pesos (P50,000.00).
(5) Any register of deeds shall accept for registration, free of charge, any instrument relative to a loan made under this Code which does not exceed Fifty thousand pesos (P50,000.00) or the deeds of title of any property acquired by the cooperative or any paper or document drawn in connection with any action brought by the cooperative or with any court judgment rendered in its favor or any instrument relative to a bond of any accountable officer of a cooperative for the faithful performance of his duties and obligations.
(6) Cooperatives shall be exempt from the payment of all court sheriff's fees payable to the Philippine Government for and in connection with all actions brought under this Code, or where such action is brought by the Cooperative Development Authority before the court, to enforce the payment of obligations contracted in favor of the cooperative.
(7) All cooperatives shall be exempt from putting up a bond for bringing an appeal against the decision of an inferior court or for seeking to set aside any third party claim: Provided, That a certification of the Authority showing that the net assets of the cooperative are in excess of the amount of the bond required by the court in similar cases shall be accepted by the court as a sufficient bond.
(8) Any security issued by cooperatives shall be exempt from the provisions of the Securities Act provided such security shall not be speculative.
SECTION 3. Exemption From Taxes. —
3.1 Duly registered cooperatives dealing/transacting business with members only shall be exempt from paying the following taxes for which they are directly liable, viz:
a. Income Tax on income from operations;
b. Value-Added Tax (VAT) under Section 109 pars. (r), (s), (t) and (u) of the Tax Code of 1997;
c. 3% Percentage Tax under Section 116 of the Tax Code of 1997;
d. Donor's tax on donations to duly accredited charitable, research and educational institutions and reinvestment to socio-economic projects within the area of operation of the cooperatives;
e. Excise tax under Title VI of the Tax Code of 1997;
f. Documentary Stamp Tax imposed under Title VII of the Tax Code of 1997, provided, however, that the other party to the taxable document/transaction who is not exempt shall be the one directly liable for the tax; and
g. Annual Registration Fee of P500.00 under Section 236(B) of the Tax Code of 1997.
3.2 Taxability/Exemption of duly registered cooperatives dealing/transacting business with both members and non-members:
For cooperatives with accumulated reserves and undivided net savings of not more than Ten Million Pesos (P10,000,000.00)
a. Exemption from all national internal revenue taxes for which they are directly liable, as enumerated under Sec. 3.1 of these Regulations.
For cooperatives with accumulated reserves and undivided net savings of more than Ten Million Pesos (P10,000,000.00) —
a. Exemption from income tax for a period of ten (10) years from the date of registration with the CDA, provided, that at least twenty-five percent (25%) of the net income of the cooperative is returned to the members in the form of interest and/or patronage refund.
For cooperatives whose exemptions were removed by Executive Order No. 93, the ten-year period shall be reckoned from March 10, 1987 (meaning, tax exemption is valid only until March 10, 1997). ASETHC
After the lapse of the above ten-year period, they shall be subject to income tax at the full rate on the amount allocated for interests on capital, provided that the same is not consequently imposed on interest individually received by members;
The tax base for all cooperatives liable to income tax shall be the net surplus arising from business transactions with non-members after deducting the amounts for the statutory reserve funds as provided for in the Cooperative Code and other laws.
b. Exemption from VAT under Section 109 (r), (s), (t) and (u), 3% percentage tax under Section 116, and the P500.00 annual registration fee imposed under Section 236 (B), all of the Tax Code of 1997;
c. Subject to all other internal revenue taxes unless otherwise provided by law; and
d. Entitled to limited or full deductibility from the gross income of amount donated to duly accredited charitable, research and educational institutions and reinvestment to socio-economic projects within the area of operation of the cooperative.
Notwithstanding the foregoing, all income of the cooperative not related to its main/principal business/es shall be subject to all the appropriate taxes under the Tax Code of 1997. This is applicable to all types of cooperatives, whether dealing purely with members or both members and non-members.
In any event, all types of cooperatives are required to register with the Bureau of Internal Revenue.
SECTION 4. Taxability Of Cooperatives To Other Internal Revenue Taxes. — All Cooperatives, regardless of classification shall be subject to:
a) 20% final income tax on interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements and royalties derived from sources within the Philippines;
b) 7.5% final income tax on interest income derived from a depository bank under the expanded foreign currency deposit system;
c) Capital Gains Tax on sales or exchanges of real property classified as capital assets or shares of stock;
d) Documentary Stamp Taxes on transactions of cooperatives dealing with non-members when the accumulated reserves and undivided net savings of such cooperatives exceed Ten Million Pesos (P10,000,000.00);
e) VAT billed on purchases of goods and services, except the VAT on the importation by agricultural cooperatives of direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and exclusively in the production and/or processing of their produce, and importation by electric cooperatives of machineries and equipment, including spare parts, which shall be directly used in the generation and distribution of electricity, pursuant to Section 109 (r) and (s) of the Tax Code of 1997 but which are not available locally as certified by the Department of Trade and Industry. All tax-free importations shall not be transferred to any person until five (5) years, otherwise, the cooperative and the transferee or assignee shall be solidarily liable to pay twice the amount of the tax and/or the duties thereon;
f) All other taxes for which the cooperatives are not otherwise expressly exempted by any law.
Moreover, all cooperatives, regardless of classification, are considered as withholding agents and are required to file withholding tax returns and remit withholding taxes on all income payments that are subject to withholding.
SECTION 5. Taxability Of Members/Stockholders Of Cooperatives. — The exemption of the cooperatives does not extend to their individual members. Thus, members of cooperatives are liable to pay all the necessary internal revenue taxes under the National Internal Revenue Code, including the tax on earnings derived from their capital contribution. Provided, however, that interests received by members of a cooperative with accumulated reserves and undivided net savings greater than Ten Million Pesos (P10,000,000.00), after the lapse of the ten-year exemption under Sec. 3.2 (II) above, shall no longer be taxable in the hands of such members.
SECTION 6. Documents To Be Attached To The Letter-Application For The Issuance Of Tax Exemption Certificate. — A Letter-Application signed by the President/General Manager of the Cooperative, or his duly authorized representative, should be submitted to the Legal Division of the Revenue Region having jurisdiction over the principal place of business of the cooperative, attaching thereto the following documents:
a) Articles of Cooperation and By-Laws;
b) Certified true copy of the Certificate of Registration issued by the CDA;
c) Certified true copy of the Certificate of Confirmation of Registration from the CDA (in the case of Cooperative already existing and previously registered under P.D. 175, P.D. 775, and E.O. 898, before the creation of the CDA);
d) Certificate under oath by the President/General Manager whether the Cooperative is transacting business with members only or with both members and non-members, whichever is applicable;
e) Original copy of the Certificate of Good Standing from the CDA;
f) Certification under oath by the Chairman/President/General Manager of the Cooperative (if previously registered as above stated) as certified by the CDA, as to the amount of accumulated reserves and undivided net savings, and that at least 25% of the net income is returned to the members in the form of interest and/or patronage refund;
g) Certification under oath of the list of members and the share capital contribution of each member; and
h) Latest Financial Statements duly audited by an independent CPA.
SECTION 7. Validity Of Tax Exemption Certificate. — The Tax Exemption Certificate shall be valid during such period that the Cooperative is in good standing as ascertained by the CDA on an annual basis.
SECTION 8. Annual Return And Documents To Be Filed With The Bureau Of Internal Revenue. — A copy of the Certificate of Good Standing issued by the CDA to the cooperative shall, together with the Annual Information Return (for non-taxable cooperative) or Income Tax Return (for taxable cooperative) and Financial Statements, be submitted to the Bureau of Internal Revenue on or before the 15th day of the fourth month following the close of the taxable year.
SECTION 9. Verification Of Annual Information Return/Income Tax Return, Financial Statements, Attachments And Records. — Pursuant to the last paragraph of Section 235 of the Tax Code of 1997, any provision of existing general or special law to the contrary notwithstanding, the books of accounts and other pertinent records, as well as the operations of all cooperatives, may be examined by the Bureau of Internal Revenue annually for purposes of ascertaining compliance with the conditions under which they have been granted tax exemptions or tax incentives, and their tax liabilities, if any, upon previous consultation with the CDA.
D. INCLUSIONS AND EXCLUSIONS FROM GROSS INCOME
SEC. 32. Gross Income. —
(A) General Definition. — Except when otherwise provided in this Title, gross income means all income derived from whatever source, including (but not limited to) the following items:
(1) Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, commissions, and similar items;
(2) Gross income derived from the conduct of trade or business or the exercise of a profession;
(3) Gains derived from dealings in property;
(4) Interests;
(5) Rents;
(6) Royalties;
(7) Dividends;
(8) Annuities;
(9) Prizes and winnings;
(10) Pensions; and
(11) Partner's distributive share from the net income of the general professional partnership.
(B) Exclusions from Gross Income. — The following items shall not be included in gross income and shall be exempt from taxation under this Title:
(1) Life Insurance. — The proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured, whether in a single sum or otherwise, but if such amounts are held by the insurer under an agreement to pay interest thereon, the interest payments shall be included in gross income.
(2) Amount Received by Insured as Return of Premium. — The amount received by the insured, as a return of premiums paid by him under life insurance, endowment, or annuity contracts, either during the term or at the maturity of the term mentioned in the contract or upon surrender of the contract.
(3) Gifts, Bequests, and Devises. — The value of property acquired by gift, bequest, devise, or descent: Provided, however, That income from such property, as well as gift, bequest, devise, or descent of income from any property, in cases of transfers of divided interest, shall be included in gross income.
(4) Compensation for Injuries or Sickness. — Amounts received, through Accident or Health Insurance or under Workmen's Compensation Acts, as compensation for personal injuries or sickness, plus the amounts of any damages received, whether by suit or agreement, on account of such injuries or sickness.
(5) Income Exempt under Treaty. — Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines.
(6) Retirement Benefits, Pensions, Gratuities, etc. —
(a) Retirement benefits received under Republic Act No. 7641 and those received by officials and employees of private firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained by the employer: Provided, That the retiring official or employee has been in the service of the same employer for at least ten (10) years and is not less than fifty (50) years of age at the time of his retirement: Provided, further, That the benefits granted under this subparagraph shall be availed of by an official or employee only once. For purposes of this Subsection, the term 'reasonable private benefit plan' means a pension, gratuity, stock bonus or profit-sharing plan maintained by an employer for the benefit of some or all of his officials or employees, wherein contributions are made by such employer for the officials or employees, or both, for the purpose of distributing to such officials and employees the earnings and principal of the fund thus accumulated, and wherein it is provided in said plan that at no time shall any part of the corpus or income of the fund be used for, or be diverted to, any purpose other than for the exclusive benefit of the said officials and employees.
(b) Any amount received by an official or employee or by his heirs from the employer as a consequence of separation of such official or employee from the service of the employer because of death, sickness or other physical disability or for any cause beyond the control of the said official or employee.
(c) The provisions of any existing law to the contrary notwithstanding, social security benefits, retirement gratuities, pensions and other similar benefits received by resident or nonresident citizens of the Philippines or aliens who come to reside permanently in the Philippines from foreign government agencies and other institutions, private or public.
(d) Payments of benefits due or to become due to any person residing in the Philippines under the laws of the United States administered by the United States Veterans Administration.
(e) Benefits received from or enjoyed under the Social Security System in accordance with the provisions of Republic Act No. 8282.
(f) Benefits received from the GSIS under Republic Act No. 8291, including retirement gratuity received by government officials and employees.
(7) Miscellaneous Items. —
(a) Income Derived by Foreign Government. — Income derived from investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on deposits in banks in the Philippines by (i) foreign governments, (ii) financing institutions owned, controlled, or enjoying refinancing from foreign governments, and (iii) international or regional financial institutions established by foreign governments.
(b) Income Derived by the Government or its Political Subdivisions. — Income derived from any public utility or from the exercise of any essential governmental function accruing to the Government of the Philippines or to any political subdivision thereof.
(c) Prizes and Awards. — Prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement but only if:
(i) The recipient was selected without any action on his part to enter the contest or proceeding; and
(ii) The recipient is not required to render substantial future services as a condition to receiving the prize or award.
(d) Prizes and Awards in Sports Competition. — All prizes and awards granted to athletes in local and international sports competitions and tournaments whether held in the Philippines or abroad and sanctioned by their national sports associations.
(e) 13th Month Pay and Other Benefits. — Gross benefits received by officials and employees of public and private entities: Provided, however, That the total exclusion under this subparagraph shall not exceed Thirty thousand pesos (P30,000) which shall cover:
(i) Benefits received by officials and employees of the national and local government pursuant to Republic Act No. 6686;
(ii) Benefits received by employees pursuant to Presidential Decree No. 851, as amended by Memorandum Order No. 28, dated August 13, 1986;
(iii) Benefits received by officials and employees not covered by Presidential Decree No. 851, as amended by Memorandum Order No. 28, dated August 13, 1986; and
(iv) Other benefits such as productivity incentives and Christmas bonus: Provided, further, That the ceiling of Thirty thousand pesos (P30,000) may be increased through rules and regulations issued by the Secretary of Finance, upon recommendation of the Commissioner, after considering, among others, the effect on the same of the inflation rate at the end of the taxable year.
(f) GSIS, SSS, Medicare and Other Contributions. — GSIS, SSS, Medicare and Pag-Ibig contributions, and union dues of individuals.
(g) Gains from the Sale of Bonds, Debentures or other Certificate of Indebtedness. — Gains realized from the sale or exchange or retirement of bonds, debentures or other certificate of indebtedness with a maturity of more than five (5) years.
(h) Gains from Redemption of Shares in Mutual Fund. — Gains realized by the investor upon redemption of shares of stock in a mutual fund company as defined in Section 22(BB) of this Code.
Section 39. What gross income includes – Repealed by BP 135 and RR 6-82 as amended.
Section 40. Composition of personal – Repealed by Ibid.
Section 41. Compensation paid other than cash - Ibid.
Section 42. Compensation paid in promissory notes. - Promissory notes or other evidence of indebtedness received in payment for services and not merely as security for such payment constitute income to the amount of their fair market value. A taxpayer receiving as compensation a note regarded as good for its face value at maturity but not bearing interest, shall treat as income as of the time of receipt the fair discounted value of the note at that time. Thus, if it appears that such a note is or could be discounted on a 6 per cent basis, the recipient shall include such note in his gross income to the amount of its face value less discount computed at the prevailing rate for such transactions.
If the payment due on a note so accounted for are met as they become due there should be included as income in respect of each such payment so much thereof as represents recovery for the discount originally deducted.
Section 43. Gross income from business. - In the case of a manufacturing, merchandising, or, mining business, “gross income” means the total sales less the cost of goods sold plus any income from investments and from incidental or outside operations or sources. In determining the gross income, subtractions should not be made for depreciation, depletion, selling expenses or losses, or for items not ordinarily used in computing the cost of goods sold.
Section 44. Long-term contracts. - Income from long-term contracts is taxable for the period in which the income is determined. such determination depending upon the nature and terms of the particular contract. As used herein the term “long-term” contracts means building, installation, or construction contracts covering a period in excess of one year. Persons whose income is derived in whole or in part from such contracts may, as to such income, prepare their returns upon the following bases:
(a) Gross income derived from such contracts may be reported upon the basis of percentage of completion. In such case there should accompany the return certificate of architects or engineers showing the percentage of completion during the taxable year of the entire work performed under contract. There should be deducted from such gross income all expenditures made during the taxable year on account of the contract, account being taken of the material and supplies period for use in connection with the work under the contract but not yet so applied. If upon completion of a contract, it is found that the taxable net income arising thereunder has not been clearly reflected for any year or years, the Commissioner of Internal Revenue may permit or require an amended return.
(b) Gross income may be reported in the taxable year in which the contract is finally completed and accepted if the taxpayer elects as a consistent practice to so treat such income, provided such method clearly reflects the net income. If this method is adopted there should be deducted from gross income all expenditures during the life of the contract which are properly allocated thereto, taking into consideration any material and supplies charged to the work under the contract but remaining on hand at the time of the completion.
Where a taxpayer has filed his return in accordance with the method of accounting regularly employed by him in keeping his books and such method clearly reflects the income. he will not be required to change to either of the methods above set forth. If a taxpayer desires to change his method of accounting in accordance with paragraphs (a) and (b) above, a statement showing the composition of all items appearing upon his balance sheet and used in connection with the method of accounting formerly employed by him should accompany his return.
Section 45. Gross income of farmers. - A farmer reporting on the basis of receipts and disbursements (in which no inventory to determine profits is used) shall include in his gross income for the taxable year (1) the amount of cash or the value of merchandise or other property received from the sale of live stock and produced which were raised during the taxable year or prior years; (2) the profits from the sale of any live stock or other items which were purchased, and (3) gross income from all other sources. The profit from the sale of live stock or other items which were purchased is to be ascertained by deducting the cost from the sale price in the year in which the sale occurs, except that in the case of the sale of animals purchased as draft or work animals or solely for breeding or dairy purposes and not for resale, the profit shall be the amount of any excess of the sales price over the amount representing the difference between the cost and the depreciation theretofore sustained and allowed as a deduction in computing net income.
In the case of a farmer reporting on the accrual basis (in which an inventory is used to determine profits), his gross profits are ascertained by adding to the inventory value of live stock and products on hand at the end of the year the amount received from the sale of live stock products, and miscellaneous receipts for hire of teams, machinery, and the like, during the year, and deducting from this sum the inventory value of live stock and products on hand at the beginning of the year and the cost of the live stock and products purchased during the year. In such cases all live stock raised or purchased for sale shall be included in the inventory at their proper valuation determined in accordance with the method authorized and adopted for the purpose. Also, live stock acquired for drafts, breeding, or dairy purposes and not for sale may be included in the inventory, instead of being treated as capital assets subject to depreciation, provided such practice is followed consistently by the taxpayer. In case of the sale of any live stock included in an inventory their cost must not be taken as an additional deduction in the return of income, as such deduction will be reflected in the inventory.
In every case of the sale of machinery, farm equipment, or other capital assets (which are not to be included in an inventory if one is used to determine profits) any excess over the cost thereof less the amount of depreciation therefore sustained and allowed as a deduction in computing net income, shall be included as gross income. Where farm products is exchanged for merchandise, groceries, or the like, the market value of the article received in exchange is to be included in gross income.
Rents received in crop shares shell be returned as of the year in which the crop shares are reduced to money or a money equivalent. Proceeds of insurance, such as fire and typhoon insurance on growing crops, should be included in gross income if the amount received in cash or its equivalent for the crop injured or destroyed. If a farmer is engaged in producing crops which take more than a year from the time of planting to the time of gathering and disposing, the income therefrom may be computed upon the crop basis; but in any such cases the entire cost of producing the crop must be taken as a deduction in thc year in which the gross income from the crop is realized.
As herein used the term “farm” embraces the farm in the ordinarily accepted sense, and includes stock, dairy, poultry fruit, and truck farms, also plantations, ranches, and all land used for farming operations. All individuals, partnerships, or corporations that cultivate, operate, or manage farms for gain or profit either as owners, or tenants, are designated farmers. A person cultivating or operating a farm for recreations or pleasure, the result of which is a continual loss from year to year, is not regarded as a farmer.
Section 46. Sales of patents and copyrights. - A taxpayer disposing of patents or copyrights by sale should determine the profit or loss arising therefrom by computing the difference between the selling price and the cost. The taxable income in the case of patents or copyrights acquired prior to March 1, 1913, should be ascertained in accordance with the provisions of section 136 of these regulations. The profit or loss thus ascertained should be increased or decreased, as the case may be, by the amounts deducted on account of depreciation of such patent or copyrights since March 1, 1913, or since the date of acquisition or subsequent thereto.
Section 47. Sale of goodwill. - Gain or loss from a sale of goodwill results only when the business, or a part of it, to which the goodwill attaches is sold, in which case the gain or loss will be determined by comparing the sale price with the cost or other basis of the assets, including goodwill. If specific payment was not made for goodwill acquired after March 1, 1913, there can be no deductible loss with respect thereto, but gain may be realized from the sale of goodwill built up through expenditures which have been currently deducted. It is immaterial that goodwill may never have been carried on the books as an asset, but the burden of proof is on the taxpayer to establish the cost or fair market va1ue on March 1, 1913 of the goodwill sold.
Section 48. Annuities and insurance policies. - Annuities paid by religious, charitable, and educational corporations under an annuity contract are subject to tax to the extent that the aggregate amount of the payments to the annuitant exceeds the amounts paid by him as consideration for the contract. An annuity charged upon devised land is taxable to a donee-annuitant, whether paid by the devisee out of the rents of the land or from other sources. The devisee is not required to return as gross income the amount of rent paid to the annuitant, and he is not entitled to deduct from his gross income any sums paid to the annuitant. Amounts received by an insured as a return of premiums paid by him under life insurance, endowment, or annuity contracts, such as the so-called “dividends” of a mutual insurance company, which may be credited against the current premium, are not subject to tax. Distributions on paid-up policies which are made out of earnings of the insurance company subject to tax are in the nature of corporate dividends and should be included in the taxable income of the individual, without any credit for the amount of tax paid by the corporate at source.
Section 49. Improvements by lessees. - When buildings are erected or improvements made by a lessee in pursuance of an agreement with the lessor, and such buildings or improvements are not subject to removal by the lessee, the lessor may at his option report the income therefrom upon either of the following bases:
(a) The lessor may report as income at the time when such buildings or improvements are completed the fair market value of such buildings or improvements subject to the lease.
(b) The lessor may spread over the life of the lease the estimated depreciated value of such buildings or improvements at the termination of the lease and report as income for each of the lease all adequate part thereof.
If for any other reason than a bona fide purchase from the lessee by the lessor the lease is terminated, so that the lessor comes into possession or control of the property prior to the time originally fixed for the termination of the lease, the lessor receives additional income for the year in which the lease is so terminated to the extent that the value of such buildings or improvements when he became entitled to such possession exceeds the amount already reported as income on account of the erection of such buildings or improvements. No appreciation in value due to causes other than the pre-mature termination of the lease shall be included. Conversely, if the building or improvements are destroyed prior to the expiration of the lease, the lessor is entitled to deduct as a loss for the year when such destruction takes place the amount previously reported as income because of the erection of such buildings or improvements, less any salvage value subject to the lease to the extent that such loss was not compensated for by insurance. If the buildings or improvements destroyed were acquired prior to March 1, 1913, the deduction shall be based on the cost or the value subject to the lease to the extent that such loss was not compensated for by insurance.
Section 50. Forgiveness of indebtedness. - The cancellation and forgiveness of indebtedness may amount to a payment of income, to a gift, or to a capital transaction, dependent upon the circumstances. If, for example, an individual performs services for a creditor, who, in consideration thereof cancels the debt, income to that amount is realized by the debtor as compensation for his service. If, however, a creditor merely desires to benefit a debtor and without any consideration therefor cancels the debt, the amount of the debt is a gift from the creditor to the debtor and need not be included in the latter's gross income. If a corporation to which a stockholder is indebted forgives the debt, the transaction has the effect of the payment of a dividend.
Section 51. When income is to be reported. - Gains, profits, and income are to be included in the gross income for the taxable year in which they are received by the taxpayer, unless they are included when they accrue to him in accordance with the approved method of accounting followed by him. If a person sues in one year on a pecuniary claim or for property, and money or property is recovered on a judgment therefor in a later year, income is realized in that year, assuming that the money or property would have been income in the earliest year if then received. This is true of a recovery for patent infringement. Bad debts or accounts charged off subsequent to March 1,1913, because of the fact that they were determined to be worthless, which are subsequently recovered, whether or not by suit, constitute income for the year in which recovered, regardless of the date when amounts were charged off.
Section 52. Income constructively received. - Income which is credited to the account of or set apart for a taxpayer and which may be drawn upon by him at any time is subject to tax for the year during which so credited or set apart, although not then actually reduced to possession. To constitute receipt in such a case the income must be credited to the taxpayer without any substantial limitation or restriction as to the time or manner of payment or condition upon which payment is to be made. A book entry, if made, should indicate an absolute transfer from one account to another. If the income is not credited, but is set apart, such income must be unqualifiedly subject to the demand of the taxpayer. Where a corporation contingently credits its employees with bonus stock, but the stock is not available to such employees until some future date the mere crediting on the books of the corporation does not constitute receipt.
Section 53. Examples of constructive receipt - When interest coupons have matured and are payable, but have not been cashed, such interest payment, though not collected when due and payable, is nevertheless available to the taxpayer and should therefore be included in his gross income for the year during which the coupons matured. This is true if the coupons are exchanged for other property instead of eventually being cashed. Defaulted coupons are income for the year in which paid. The distributive share of the profits of a partner in a general co-partnership duly registered is regarded as received by him, although not distributed. Interest credited on savings bank deposits, even though the bank nominally has a rule, seldom or never enforced, that it may require so many days' notice in advance of cashing depositors' checks, is income to the depositor when credited. An amount credited to shareholders of a building and loan association, when such credit passes without restriction to the shareholder, has a taxable status as income for the year of the credit. Where the amount of such accumulations has not become available to the shareholder until the maturity of a share, the amount of any share in excess of the aggregate amount paid in by the shareholder is income for the year of the maturity of the share.
Section 54. Creation of corporate sinking fund. - If a corporation in order solely to secure payment of its bonds or other indebtedness, places property in trust or set aside certain amounts in a sinking fund under the control of a trustee who may be authorized to invest and reinvest such sums, from time to time, the property or fund thus set aside by the corporation and held by the trustee is an asset of the corporation and any gain arising therefrom is income of the corporation and shall be included as such in its annual return.
Section 55. Acquisition or disposition by a Corporation of its own capital stock. - Where the acquisition or disposition by a corporation of share of its own capital stock gives rise to taxable gain or deductible loss depends upon the real nature of the transaction, which is to be ascertained from all its facts and circumstances. The receipt by a corporation of the subscription price of share of its capital stock upon their original issuance gives rise to neither taxable gain nor deductible loss whether the subscription or issue price be in excess of or less than the par or stated value of such stock.
But if a corporation deals in its own shares as it might in the shares of another corporation, the resulting gain or loss is to be computed in the same manner as though the corporation were dealing in the shares of another. So also if the corporation receives its own stock as consideration upon the sale of property by it, or in satisfaction of indebtedness to it, the gain or loss resulting is to be computed in the same manner as though the payment had been made in any other property. Any gain derived from such transaction is subject to tax and any loss sustained is allowable as deduction where perimitted by the provisions of Title II.
Section 56. Contribution by shareholders. - Where a corporation requires additional funds for conducting its business and obtains such needed money through voluntary process payments by its shareholders, the amounts so received being credited to its surplus account or to a special capital account will not be considered income, although there is no increase in the outstanding shares of stock of the corporation. The payments in such circumstances are in the nature of voluntary assessments upon, and represent an additional price paid for, in shares of stock held by the individual shareholders, and will be treated as an addition to and as a part of the operating capital of the company.
Section 57. Sale and retirement of corporate bonds. - (I) (a) If bonds are issued by a corporation at their face value, the corporation realizes no gain or loss. (b) If thereafter the corporation purchases and retires any of such bonds at a price in excess of the issuing price or face value, the excess of the purchase price over the issuing price or face value is a deductible expense for the taxable year. (c) If, however, the corporation purchases and retires any of such bonds at a price less than the issue price or face value, the excess of the issuing price or face value over the purchase price is income for the taxable year.
(2) (a) If bonds are issued by a corporation at a premium, the net amount of such premium gain or income which should be prorated or amortized over the life of the bond. (b) If thereafter the corporation purchases and retires any of such bonds at a price in excess of the issuing price minus any amount of premium already returned as income, the excess of the purchase price over the issuing price minus any amount of premium already returned as income (or over the face value plus any amount of premiums not yet returned as income) is a deductible expense for the taxable year. (c) If, however, corporation purchases and retires any of such bonds at a price less than the issuing price minus any amount of premium already returned as income, the excess of the issuing price minus any amount of premium already returned as income (or of the face value plus any amount of premium not yet returned as income) over the purchase price is gain or income for the taxable year.
(3) (a) If bond are issued by a corporation at a discount, the net amount of such discount is deductible and should be prorated or amortized over the life of the bonds. (b) If thereafter the corporation purchases and retires any of such bond at a price in excess of the issuing price plus any amount of discount already deducted, the excess of the purchase price over the issuing price plus any amount of discount already deducted, (or over the face value minus any amount of discount not yet deducted) is a deductible expense for the taxable year. (c) If, however, the corporation purchases and retires any of such bonds at a price less than the issuing price plus any amount of discount already deducted, the excess of the issuing price plus any amount of discount already deducted (or of the face value minus any amount of discount not yet deducted) over the purchase price is gain or income for the taxable year.
Section 58. Income of Corporation from leased property. - Where a corporation has leased its property in consideration that the lessee shall pay in lieu of other rental an amount equivalent to a certain rate of dividend on the lessor’s capital stock or the interest on the lessor’s outstanding indebtedness, together with taxes, insurance or other fixed charges, such payments shall be considered rental payments and shall be returned by the lessor corporation as income, notwithstanding the fact that the dividend and interest are paid by the lessee directly to the shareholders and bondholders of the lessor. The fact that a corporation had conveyed or let its property and has parted with its management and control, or has ceased to engage in the business for which it was originally organized, will not relieve it from liability to the tax. While the payment made by the lessee directly to the bond-holders or shareholders of the lessor are rentals to both the lessee and lessor (rentals paid in one case and rentals received in the other), to the bondholders and the shareholders, such amounts are interest and dividend payments received as from the lessor and as such shall be accounted for in their returns.
Section 59. Group income of a corporation in liquidation. - When a corporation is dissolved, its affairs are usually wound up by a receiver or trustees in dissolution. The corporate existence is continued for the purpose of liquidating the assets and paying the debts, and such receiver or trustee stands in the stead of the corporation for such purposes. Any sales of property by them are to be treated as if made by the corporation for the purpose of ascertaining the gain or loss.
Section 60. Gross income of foreign corporation. - The gross income of a foreign corporation subject to tax consists of its gross income from sources within the Philippines. Gross income from sources within the Philippines, as applied to foreign corporations, shall include interest received on bonds, notes, or other interest-bearing obligations issued by residents, corporate or otherwise, as well as income derived from dividends on the capital stock or from the net earnings of domestic or resident foreign corporations, joint stock companies, associations, or insurance companies, dividends from other foreign corporations to the extent provided in section 37 of the Code, and likewise income from rentals and royalties from all Sources within the Philippines.
1. Definition of Gross Income
What is income?
A) Definition under the NIRC: all income derived from whatever source, including (but not limited) to the following items:
1) compensation for services in whatever form paid, including but not limited to fees, salaries, wages, commissions and similar items
2) gross income derived from the conduct of trade or business or the exercise of a profession
3) gains derived from dealings in property
4) interests
5) rents
6) royalties
7) dividends
8) annuities
9) prizes and winnings
10) pensions
11) partner's distributive share from the net income of the general professional partnership
NOTE: Everything which falls under this definition is part of gross income. BUT, that does not necessarily mean that it is taxable
B) Haig-Simmons Definition
· Personal income may be defined as the algebraic sum of
1) the market value of rights exercised in consumption; and
2) the change in value of the store or property rights between the beginning and the end of the period in question
· The problem with the definition given:
1) what are property devaluation (e.g. car value depreciation) - who decides the value of one's property rights
2) liquidity - without a sale of one's property, an individual may not have available cash to pay for tax on the property, even though the assessed value has increased.
C) Eisner v. Macomber definition
· The gain derived from capital, from labor, or from both combined (this is very restrictive)
· Net income should include dividends and also gains or profits and income derived from any source whatever, but this does NOT include stock dividends
D) Commissioner v. Glenshaw
· 3 part test to determine the income (this expanded the Eisner definition of income)
1) an accession to wealth (is A richer?)
2) clearly realized (has some event happened such that A received money?)
3) compete dominion over the money
· Sec 32 of the NIRC follows the Glenshaw definition
2. Exclusions from Gross Income
1) life insurance proceeds (benefits)
2) amount received by insured as return of premium
3) value of property acquired as gifts, bequests, and devises (but its doesn't include income from such property)
4) compensation for injuries or sickness plus damages received
5) income exempt under treaty obligations
6) retirement benefits, pensions, gratuities
7) amount received as a consequence of separation
8) miscellaneous items
a) income derived from foreign governments – social security benefits, retirement gratuities, pensions and other similar benefits
b) benefits due under the laws of the US administered by the US Veterans Administration
c) income from investment in the Philippines in loans, bonds or other domestic securities, or from deposits in banks in the Philippines
d) income derived by the government or its political subdivisions – public utility
e) prizes and awards
i. the recipient was selected without any action on his part
ii. recipient not required to render service as a condition
f) prizes and awards in sport competition
g) 13th month pay and other benefits
h) GSIS, SSS, Medicare and other contributions
i) Gains from the sale of bonds, debentures or other certificates of indebtedness
j) Gains from redemption of shares in mutual fund
Section 61. Exclusion from gross income. - The term “gross income” as used in the Act does not include those items of income exempted by statute or by fundamental law. Such tax-free income should not be included in the income tax return unless information regarding it is specifically called for. The exclusion of such income should not be confused with the reduction of gross income by the application of allowable deductions.
Section 62. Proceeds of Insurance. - The proceeds of life-insurance policies, paid by reason of the death of an insured to his estate or to any beneficiary (individual, partnership, or corporation, but not a transferee for a valuable consideration), directly or in trust, are excluded from the gross income of the beneficiary. It is immaterial whether the proceeds are received in a single sum or in installments. If, however, such proceeds are held by the insurer under an agreement to pay interest thereon, the interest payments must be included in gross income. Amounts received (other than amounts paid by reason of the death of the insured and interest payments on such amounts) under a life insurance endowment, or annuity contract are excluded from gross income, but if such amounts (when added to amounts received before the taxable year under such contract) exceed the aggregate premiums or consideration paid (whether or not paid during the taxable year) then the excess shall be included in gross income. However, in the case of a transfer for a valuable consideration, by assignment or otherwise of a life insurance, endowment, or annuity contract, or any interest therein, only the actual value of such consideration and the amount of the premiums and other sums subsequently paid by the transferee are exempt from taxation.
Section 63. Amount received as compensation for injuries or sickness. - Thc amounts received by an insured or his estate or beneficiaries through accident or health insurance or under workmen’s compensation acts as compensation for personal injuries or sickness are excluded from the gross income of the insured, his estate, and other beneficiaries. Any damages recovered by suit or agreement on account of such injuries or sickness are similarly excluded from the gross income of the individual injured or sick, if living, or of his estate or other beneficiaries entitled to receive such damages, if dead.
Section 64. Gifts and bequests. - Property received as a gift or received under a will or testament or through legal succession, is exempt from the income tax, although the income therefrom or income derived from its investment, sale, or otherwise is not. An amount of principal paid under a marriage settlement is a gift. Neither alimony nor an allowance based on a separation agreement is taxable.
CIR v. CA and Castaneda
· Terminal leave pay, although part of income, is NOT taxable. In the exercise of sound personnel policy, the Government encourages unused leaves to be accumulated. The Government recognizes that for most public servants, retirement pay is always less than generous if not meager and scrimpy. Terminal leave payments are given not only at the same time but also for the same policy considerations governing retirement benefits
REPUBLIC ACT NO. 4917: AN ACT PROVIDING THAT RETIREMENT BENEFITS OF EMPLOYEES OF PRIVATE FIRMS SHALL NOT BE SUBJECT TO ATTACHMENT, LEVY, EXECUTION, OR ANY TAX WHATSOEVER
The retirement benefits received by officials and employees of private firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained by the employer shall be exempt from all taxes and shall not be liable to attachment, garnishment, levy or seizure by or under any legal or equitable process whatsoever except to pay a debt of the official or employee concerned to the private benefit plan or that arising from liability imposed in a criminal action: Provided, That the retiring official or employee has been in the service of the same employer for at least 10 yrs and is not less than 50 yrs of age at the time of his retirement: Provided, further, That the benefits granted under this Act shall be availed of by an official or employee only once: Provided, finally, That in case of separation of an official or employee from the service of the employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee, any amount received by him or by his heirs from the employer as a consequence of such separation shall likewise be exempt as hereinabove provided.
The term "reasonable private benefit plan" means a pension, gratuity, stock bonus or profit sharing plan maintained by an employer for the benefit of some or all of his officials and employees, wherein contributions are made by such employer or officials and employees, or both, for the purpose of distributing to such officials and employees the earnings and principal of the fund thus accumulated, and wherein it is provided in said plan that at no time shall any part of the corpus or income of the fund be used for, or be diverted to, any purpose other than for the exclusive benefit of the said officials and employees. (June 17, 1967)
REPUBLIC ACT NO. 7641: AN ACT AMENDING ARTICLE 287 OF PRESIDENTIAL DECREE NO. 442, AS AMENDED, OTHERWISE KNOWN AS THE LABOR CODE OF THE PHILIPPINES, BY PROVIDING FOR RETIREMENT PAY TO QUALIFIED PRIVATE SECTOR EMPLOYEES IN THE ABSENCE OF ANY RETIREMENT PLAN IN THE ESTABLISHMENT
In the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment, an employee upon reaching the age of 60 years or more, but not beyond 65 years which is hereby declared the compulsory retirement age, who has served at least five (5) years in the said establishment, may retire and shall be entitled to retirement pay equivalent to at least one-half (1/2) month salary for every year of service, a fraction of at least six (6) months being considered as one whole year.
Unless the parties provide for broader inclusions, the term one-half (1/2) month salary shall mean fifteen (15) days plus one-twelfth (1/12) of the 13th month pay and the cash equivalent of not more than five (5) days of service incentive leaves.
Retail, service and agricultural establishments or operations employing not more than (10) employees or workers are exempted from the coverage of this provision. (December 9, 1992)
3. Exclusions from 13th Month Pay
REPUBLIC ACT NO. 7833: AN ACT TO EXCLUDE THE BENEFITS MANDATED PURSUANT TO RA NO. 6686 AND PD NO. 851, AS AMENDED, AND OTHER BENEFITS FROM THE COMPUTATION OF GROSS COMPENSATION INCOME FOR PURPOSES OF DETERMINING TAXABLE COMPENSATION INCOME, AMENDING FOR THE PURPOSE SECTION 28(B)(8) OF THE NIRC, AS AMENDED
A new sub-paragraph to be known as sub-paragraph (F) is hereby inserted at the end of Section 28(b)(8) of the National Internal Revenue Code, as amended, which shall read as follows:
(F) 13th month pay and other benefits.
(i) Benefits received by officials and employees of the national and local governments pursuant to Republic Act No. 6686;
(ii) Benefits received by employees pursuant to Presidential Decree No. 851, as amended by Presidential Memorandum Order No. 28 dated August 13, 1986 (requiring all employers to pay all their rank-and-file employees a 13th month pay not later than December 24 of every year);
(iii) Benefits received by officials and employees not covered by P.D. No. 851, as amended; and
(iv) Other benefits such as productivity incentives and Christmas bonus in an amount not exceeding P12,000.00 which shall be integrated in the 13th month pay solely for purposes of R.A. No. 7833.
Provided, however, that the exclusion shall only apply to the first P30,000.00.
SALIENT FEATURES of RA 7833
1. Before the amendment of Section 28 (b) (8) of the NIRC by R.A. No. 7833, the benefits received by officials and employees of both public (national and local) and private offices, viz:
(F) 13th month pay and other benefits.
a. Annual Christmas bonus equivalent to one (1) month basic salary and additional cash gift of One Thousand Pesos (P1,000.00) received by National and Local Government officials and employees starting CY 1988 in accordance with R.A. No. 6686;
b. Benefits received by employees pursuant to P.D. No. 851 , as amended by Presidential Memorandum Order No. 28 dated August 13, 1986 requiring all employers to pay all their rank-and-file employees a 13th month pay not later than December 24 of every year;
c. Benefits received by officials and employees not covered by P.D. No. 851, as amended; and
d. Other benefits such as productivity incentives and Christmas bonus in an amount not exceeding Twelve Thousand Pesos (P12,000.00) which shall be integrated in the 13th month pay solely for purposes of R.A. No. 7833.
were taxable compensation income under Section 21(a) in relation to Section 72, both of the NIRC, as amended, subject to withholding tax under Revenue Regulations No. 6-82, as amended by Revenue Regulations No. 4-93.
2. Under sub-paragraph (F) of Section 28 (b) (8) of the NIRC, as amended by R.A. No. 7833, the 13th month pay and other benefits aforestated, received by officials and employees of the National Government, LGUs and agencies, including GOCCs, as well as by officials and employees of private corporations and entities, are exempt from income tax, and consequently from the withholding tax on wages. Provided, that the exclusions/exemptions from gross compensation income shall cover the 13th month pay and "other benefits" in the aggregate amount not exceeding P30,000 received by the officials and employees paid or accrued beginning January 1, 1994. (April 17, 1998).
REVENUE REGULATIONS NO. 2-95: Implementing Republic Act No. 7833, An Act to Exclude the Benefits Mandated Pursuant to Republic Act No. 6686 and Presidential Decree No. 851, as Amended, and other Benefits from the Computation of Gross Compensation Income for the Purposes of Determining Taxable Compensation Income, Amending for the Purpose Section 28 (b) (8) of the National Internal Revenue Code, as Amended. (January 3, 1995)
Scope. — Pursuant to Section 245 and 72 of the NIRC, as amended, in relation to Section 3 of Republic Act No. 7833, these Regulations are hereby promulgated to implement the provisions of Section 28 (b) (9) (6) of the NIRC, as amended, excluding from the computation of gross compensation income, for purposes of determining taxable compensation income, the 13th month pay and other benefits.
Definition of Terms. — For purposes of these Regulations, the following definitions of words and phrases are hereby adopted:
b) "Exclusions" — shall mean the total benefits which are not included in the computation of gross compensation income for purposes of determining taxable compensation income and are, therefore, exempt from the withholding tax on wages.
c) "Gross compensation income" — means all remunerations for services performed by an employee for his employer, whether paid in cash or in kind, unless specifically excluded under Secs. 27 and 28 of the NIRC, as amended.
e) "Other benefits" — refer to all benefits other than the 13th month pay, such as, the annual Christmas bonus given by private offices, 14th month pay, mid-year productivity incentive bonus, gifts in cash or in kind and other similar benefits received by an official or employee for one calendar year in an amount not exceeding Twelve Thousand Pesos (P12,000.00) as maximum limit.
g) "13th month pay" — refers to the mandatory one month basic salary of an official or employee of the National Government, Local Government Units, agencies and instrumentalities, including government-owned and -controlled corporations, and of private offices received after the 12th month pay.
Benefits Exempted from Income Tax. — For purposes of determining the taxable compensation income, the following benefits shall be excluded from the gross compensation income, viz:
a) 13th month pay equivalent to the mandatory 1 mo. basic salary of officials and employees of the Government (whether national or local), including goccs, and of private offices received after the 12th month pay beginning CY 1994; and
b) Other benefits, such as, Christmas bonus given by, private offices to their officials and employees, productivity incentives bonus, loyalty award, gifts in cash or in kind and other benefits of similar nature actually received by officials and employees of both Government and private offices in an amount not exceeding P12,000.00 for 1 calendar year.
The above-stated exclusions [(a) and (b)] shall cover benefits paid or accrued beginning January 1, 1994 but shall be limited only to an amount not exceeding P12,000.00 in the case of the "other benefits" contemplated under paragraph (b) above, provided, however, that when added to the 13th month pay, the total amount of tax exempt benefits shall not exceed P30,000.00.
Refund/Credit of Taxes Withheld from employees Separated from Employment. — a) An employee separate from the service of his previous employer but is presently employed by another employer shall be refunded/credited the taxes withheld on his exempt 13th month pay and other benefits by his present employer.
(b) An employee who has been separated from a previous employer but has no present employment shall claim his refund of excess tax withheld on his 13th month pay and other benefits by filing with the BIR a refundable income tax return for CY 1994, provided that the refundable ITR for 1994 reflects the taxes withheld on his 13th month pay and other benefits.
Concurrent Multiple Employments. — An employee is employed by two or more employers at the same time during the taxable year shall be refunded/credited the taxes withheld on his 13th month pay and "other benefits" by his main employer, e.g., the employer paying the highest wage/salary. The said main employer shall determine the maximum allowable 13th month pay and "other benefits" received from both main and secondary employer/s in annualizing the taxable compensation income at year-end adjustment. For this purpose, the secondary employer/s shall furnish the main employer a certification as to the amount of the 13th month pay and other benefits received by the employee.
REVENUE MEMORANDUM CIRCULAR NO. 36-94: Publishing the full text of Republic Act No. 7833 - an Act excluding the benefits mandated pursuant to Republic Act No. 6686 and Presidential Decree No. 851, as amended, and other benefits from the computation of gross compensation income for purposes of determining taxable compensation income, amending for the purpose Section 28 (b) (8) of the National Internal Revenue Code, as amended. (December 14, 1994 )
REVENUE REGULATIONS No. 02-98
SECTION 2.78.1. Withholding of Income Tax on Compensation Income. —
(B) Exemptions from withholding tax on compensation. — The following income payments are exempted from the requirement of withholding tax on compensation:
(11) Thirteenth (13th ) month pay and other benefits. —
(a) Thirteenth (13th) month pay equivalent to the mandatory one (1) month basic salary of officials and employees of the government, (whether national or local), including government-owned or controlled corporations, and or private offices received after the twelfth (12th) month pay; and
(b) Other benefits such as Christmas bonus, productivity incentive bonus, loyalty award, gifts in cash or in kind and other benefits of similar nature actually received by officials and employees of both government and private offices.
The above stated exclusions (a) and (b) shall cover benefits paid or accrued during the year provided that the total amount shall not exceed thirty thousand pesos (P30,000.00) which may be increased through rules and regulations issued by the Secretary of Finance, upon recommendation of the Commissioner, after considering, among others, the effect on the same of the inflation rate at the end of the taxable year.
REPUBLIC ACT NO. 7459: Investors and Invention Incentives Act of the Philippines
Tax Incentives. — Inventors, as certified by the Filipino Inventors Society and duly confirmed by the Screening Committee, shall be exempt from payment of license fees, permit fees and other business taxes in the development of their particular inventions. This is an exception to the taxing power of the local government units. The certification shall state that the manufacture of the invention is made on a commercial scale. Inventors shall exempt from paying any fees involved in their application for registration of their inventions.
Tax Exemption. — To promote, encourage, develop and accelerate commercialization of technologies developed by local researchers or adapted locally from foreign sources including inventions, any income derived from these technologies shall be exempted from all kinds of taxes during the first ten (10) years from the date of the first sale, subject to the rules and regulations of the Department of Finance: Provided, that this tax exemption privilege pertaining to invention shall be extended to the legal heir or assignee upon the death of the inventor. The technologies, their manufacture or sale, shall also be exempt from payment of license, permit fees, customs duties and charges on imports. (Approved: April 28, 1992)
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