THE NATIONAL INTERNAL REVENUE CODE OF THE PHILIPPINES regional operating headquarters of multinational companies, joint accounts,

[Tax Reform Act of 1997] Republic Act No. 8424 associations, joint ventures of consortia and registered partnerships, and
their members;
3. To summon the person liable for tax or required to file a return, or any
AN ACT AMENDING THE NATIONAL INTERNAL REVENUE CODE, AS officer or employee of such person, or any person having possession,
AMENDED, AND FOR OTHER PURPOSES
custody, or care of the books of accounts and other accounting records
containing entries relating to the business of the person liable for tax, or
SEC. 2. State Policy. – It is hereby declared the policy of the State to promote
any other person, to appear before the Commissioner or his duly authorized
sustainable economic growth through the rationalization of the Philippine internal
representative at a time and place specified in the summons and to
revenue tax system, including tax administration; to provide, as much as possible,
produce such books, papers, records, or other data, and to give testimony;
an equitable relief to a greater number of taxpayers in order to improve levels of
4. To take such testimony of the person concerned, under oath, as may be
disposable income and increase economic activity; and to create a robust relevant or material to such inquiry; and
environment for business to enable firms to compete better in the regional as well 5. To cause revenue officers and employees to make a canvass from time to
as the global market, at the same time that the State ensures that Government is time of any revenue district or region and inquire after and concerning all
able to provide for the needs of those under its jurisdiction and care. persons therein who may be liable to pay any internal revenue tax, and all
persons owning or having the care, management or possession of any
object with respect to which a tax is imposed.
TITLE I Nothing shall be construed as granting the Commissioner the authority to inquire
ORGANIZATION AND FUNCTION OF THE BUREAU OF INTERNAL REVENUE into bank deposits other than as provided for in Section 6(F) of this Code.

SEC. 6. Power of the Commissioner to Make assessments and Prescribe

SEC. 2. Powers and Duties of the Bureau of Internal Revenue. - The Bureau of
additional Requirements for Tax Administration and Enforcement. -
Internal Revenue shall be under the supervision and control of the Department of
1. Examination of Returns and Determination of Tax Due.
Finance and its powers and duties shall comprehend the assessment and collection
a. Failure to Submit Required Returns, Statements, Reports and other
of all national internal revenue taxes, fees, and charges, and the enforcement of all
Documents. -When a report required by law as a basis for the
forfeitures, penalties, and fines connected therewith, including the execution of
judgments in all cases decided in its favor by the Court of Tax Appeals and the assessment of any national internal revenue tax shall not be
ordinary courts. The Bureau shall give effect to and administer the supervisory and forthcoming within the time fixed by laws or rules and regulations or
police powers conferred to it by this Code or other laws. when there is reason to believe that any such report is false,
incomplete or erroneous, the Commissioner shall assess the proper tax
SEC. 3. Chief Officials of the Bureau of Internal Revenue. - The Bureau of on the best evidence obtainable.
Internal Revenue shall have a chief to be known as Commissioner of Internal b. In case a person fails to file a required return or other document at the
Revenue, hereinafter referred to as the Commissioner and four (4) assistant chiefs to time prescribed by law, or willfully or otherwise files a false or
be known as Deputy Commissioners. fraudulent return or other document, the Commissioner shall make or
amend the return from his own knowledge and from such information
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax as he can obtain through testimony or otherwise, which shall be prima
Cases. - The power to interpret the provisions of this Code and other tax laws shall facie correct and sufficient for all legal purposes.
be under the exclusive and original jurisdiction of the Commissioner, subject to 2. Authority to Conduct Inventory-taking, surveillance and to Prescribe
Presumptive Gross Sales and Receipts.
review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees 3. Authority to Terminate Taxable Period.
or other charges, penalties imposed in relation thereto, or other matters arising 4. Authority of the Commissioner to Prescribe Real Property Values.
under this Code or other laws or portions thereof administered by the Bureau of a. For purposes of computing any internal revenue tax, the value of the
Internal Revenue is vested in the Commissioner, subject to the exclusive appellate property shall be, whichever is the higher of:
jurisdiction of the Court of Tax Appeals. o the fair market value as determined by the Commissioner, or
o the fair market value as shown in the schedule of values of the
Provincial and City Assessors.
SEC. 5. Power of the Commissioner to Obtain Information, and to Summon, 5. Authority of the Commissioner to inquire into Bank Deposit Accounts. -
Examine, and Take Testimony of Persons. - In ascertaining the correctness of Notwithstanding any contrary provision of Republic Act No. 1405 and other
any return, or in making a return when none has been made, or in determining the general or special laws, the Commissioner is hereby authorized to inquire
liability of any person for any internal revenue tax, or in collecting any such liability, into the bank deposits of:
or in evaluating tax compliance, the Commissioner is authorized: a. a decedent to determine his gross estate; and
1. To examine any book, paper, record, or other data which may be relevant or b. any taxpayer who has filed an application for compromise of his tax
material to such inquiry; liability under Sec. 204 (A) (2) of this Code by reason of financial
2. To obtain on a regular basis from any person other than the person whose incapacity to pay his tax liability.
internal revenue tax liability is subject to audit or investigation, or from any
office or officer of the national and local governments, government In case a taxpayer files an application to compromise the payment of his tax
agencies and instrumentalities, including the Bangko Sentral ng Pilipinas liabilities on his claim that his financial position demonstrates a clear inability to pay
and government-owned or -controlled corporations, any information such the tax assessed, his application shall not be considered unless and until he waives
as, but not limited to, costs and volume of production, receipts or sales and in writing his privilege under Republic Act No. 1405 or under other general or special
gross incomes of taxpayers, and the names, addresses, and financial laws, and such waiver shall constitute the authority of the Commissioner to inquire
statements of corporations, mutual fund companies, insurance companies, into the bank deposits of the taxpayer.
 6. Authority to Accredit and Register Tax Agents SEC. 10. Revenue Regional Director. - Under rules and regulations, policies and
a. Individuals and general professional partnerships and their standards formulated by the Commissioner, with the approval of the Secretary of
representatives who are denied accreditation by the Commissioner Finance, the Revenue Regional director shall, within the region and district offices
and/or the national and regional accreditation boards may appeal such under his jurisdiction, among others:
denial to the Secretary of Finance, who shall rule on the appeal within  Implement laws, policies, plans, programs, rules and regulations of the
sixty (60) days from receipt of such appeal. Failure of the Secretary of department or agencies in the regional area;
Finance to rule on the Appeal within the prescribed period shall be  Administer and enforce internal revenue laws, and rules and
deemed as approval of the application for accreditation of the regulations, including the assessment and collection of all internal
appellant. revenue taxes, charges and fees.
7. Authority of the Commissioner to Prescribe Additional Procedural or  Issue Letters of authority for the examination of taxpayers within the
Documentary Requirements. region;
 Provide economical, efficient and effective service to the people in the
SEC. 7. Authority of the Commissioner to Delegate Power. - The area;
Commissioner may delegate the powers vested in him under the pertinent
 Coordinate with regional offices or other departments, bureaus and
provisions of this Code to any or such subordinate officials with the rank equivalent
agencies in the area;
to a division chief or higher, subject to such limitations and restrictions as may be
imposed under rules and regulations to be promulgated by the Secretary of finance,  Coordinate with local government units in the area;
upon recommendation of the Commissioner: Provided, however, That the following  Exercise control and supervision over the officers and employees
powers of the Commissioner shall not be delegated: within the region; and
1. The power to recommend the promulgation of rules and regulations by the  Perform such other functions as may be provided by law and as may be
Secretary of Finance; delegated by the Commissioner.
2. The power to issue rulings of first impression or to reverse, revoke or
modify any existing ruling of the Bureau; SEC. 11. Duties of Revenue District Officers and Other Internal Revenue
3. The power to compromise or abate, under Sec. 204 (A) and (B) of this Code, Officers. –
any tax liability: Provided, however, That assessments issued by the 1. to ensure that all laws, and rules and regulations affecting national internal
regional offices involving basic deficiency taxes of Five hundred thousand revenue are faithfully executed and complied with, and
pesos (P500,000) or less, and minor criminal violations, as may be 2. to aid in the prevention, detection and punishment of frauds of
determined by rules and regulations to be promulgated by the Secretary of delinquencies in connection therewith.
finance, upon recommendation of the Commissioner, discovered by 3. to examine the efficiency of all officers and employees of the Bureau of
regional and district officials, may be compromised by a regional evaluation Internal Revenue under his supervision, and
board which shall be composed of the Regional Director as Chairman, the 4. to report in writing to the Commissioner, through the Regional Director,
Assistant Regional Director, the heads of the Legal, Assessment and any neglect of duty, incompetency, delinquency, or malfeasance in office
Collection Divisions and the Revenue District Officer having jurisdiction over of any internal revenue officer of which he may obtain knowledge, with a
the taxpayer, as members; and statement of all the facts and any evidence sustaining each case.
4. The power to assign or reassign internal revenue officers to establishments
where articles subject to excise tax are produced or kept. SEC. 12. Agents and Deputies for Collection of National Internal Revenue
Taxes. -
1. The Commissioner of Customs and his subordinates with respect to the
SEC. 8. Duty of the Commissioner to Ensure the Provision and Distribution collection of national internal revenue taxes on imported goods;
of forms, Receipts, Certificates, and Appliances, and the Acknowledgment
2. The head of the appropriate government office and his subordinates with
of Payment of Taxes.- respect to the collection of energy tax; and
1. Provision and Distribution to Proper Officials. - It shall be the duty of the 3. Banks duly accredited by the Commissioner with respect to receipt of
Commissioner, among other things, to prescribe, provide, and distribute to payments internal revenue taxes authorized to be made thru bank.
the proper officials the requisite licenses internal revenue stamps, labels all 4. Any officer or employee of an authorized agent bank assigned to receive
other forms, certificates, bonds, records, invoices, books, receipts, internal revenue tax payments and transmit tax returns or documents to
instruments, appliances and apparatus used in administering the laws
the Bureau of Internal Revenue shall be subject to the same sanctions and
falling within the jurisdiction of the Bureau. For this purpose, internal
penalties prescribed in Sections 269 and 270 of this Code.
revenue stamps, strip stamps and labels shall be caused by the
Commissioner to be printed with adequate security features. SEC. 13. Authority of a Revenue Offices. - subject to the rules and regulations to
2. Receipts for Payment Made. - It shall be the duty of the Commissioner or be prescribed by the Secretary of Finance, upon recommendation of the
his duly authorized representative or an authorized agent bank to whom Commissioner, a Revenue Officer assigned to perform assessment functions in any
any payment of any tax is made under the provision of this Code to district may, pursuant to a Letter of Authority issued by the Revenue Regional
acknowledge the payment of such tax, expressing the amount paid and the Director, examine taxpayers within the jurisdiction of the district in order to collect
particular account for which such payment was made in a form and manner the correct amount of tax, or to recommend the assessment of any deficiency tax
prescribed therefor by the Commissioner. due in the same manner that the said acts could have been performed by the
Revenue Regional Director himself.
SEC. 9. Internal Revenue Districts. - With the approval of the Secretary of
Finance, the Commissioner shall divide the Philippines into such number of revenue SEC. 14. Authority of Officers to Administer Oaths and Take Testimony. - The
districts as may from time to time be required for administrative purposes. Each of Commissioner, Deputy Commissioners, Service Chiefs, Assistant Service Chiefs,
these districts shall be under the supervision of a Revenue District Officer. Revenue Regional Directors, Assistant Revenue Regional Directors, Chiefs and
Assistant Chiefs of Divisions, Revenue District Officers, special deputies of the - A citizen of the Philippines who works and derives income from abroad
Commissioner, internal revenue officers and any other employee of the Bureau and whose employment thereat requires him to be physically present
thereunto especially deputized by the Commissioner shall have the power to abroad most of the time during the taxable year.
administer oaths and to take testimony in any official matter or investigation - A citizen who has been previously considered as nonresident citizen
conducted by them regarding matters within the jurisdiction of the Bureau. and who arrives in the Philippines at any time during the taxable year
to reside permanently in the Philippines shall likewise be treated as a
nonresident citizen for the taxable year in which he arrives in the
SEC. 15. Authority of Internal Revenue Officers to Make Arrests and Philippines with respect to his income derived from sources abroad
Seizures. - The Commissioner, the Deputy Commissioners, the Revenue Regional until the date of his arrival in the Philippines.
Directors, the Revenue District Officers and other internal revenue officers shall have - The taxpayer shall submit proof to the Commissioner to show his
authority to make arrests and seizures for the violation of any penal law, rule or intention of leaving the Philippines to reside permanently abroad or to
regulation administered by the Bureau of Internal Revenue. Any person so arrested return to and reside in the Philippines as the case may be for purpose
shall be forthwith brought before a court, there to be dealt with according to law. of this Section.
 "resident alien" – an individual whose residence is within the Philippines
SEC. 18. Reports of Violation of Laws. - When an internal revenue officer and who is not a citizen thereof.
discovers evidence of a violation of this Code or of any law, rule or regulations  "nonresident alien" – an individual whose residence is not within the
administered by the Bureau of Internal Revenue of such character as to warrant the Philippines and who is not a citizen thereof.
institution of criminal proceedings, he shall immediately report the facts to the  "resident foreign corporation" – applies to a foreign corporation engaged in
Commissioner through his immediate superior, giving the name and address of the trade or business within the Philippines.
offender and the names of the witnesses if possible: Provided, That in urgent cases,  'nonresident foreign corporation' – applies to a foreign corporation not
the Revenue Regional director or Revenue District Officer, as the case may be, may engaged in trade or business within the Philippines.
send the report to the corresponding prosecuting officer in the latter case, a copy of  "ordinary income" – includes any gain from the sale or exchange of
his report shall be sent to the Commissioner. property which is not a capital asset or property described in Section 39(A)
(1).
SEC. 21. Sources of Revenue. - The following taxes, fees and charges are deemed
to be national internal revenue taxes: CHAPTER II
(a) Income tax; GENERAL PRINCIPLES
(b) Estate and donor's taxes;
(c) Value-added tax; SEC. 23. General Principles of Income Taxation in the Philippines. - Except
(d) Other percentage taxes; when otherwise provided in this Code:
(e) Excise taxes;  A citizen of the Philippines residing therein is taxable on all income derived
(f) Documentary stamp taxes; and from sources within and without the Philippines;
(g) Such other taxes as are or hereafter may be imposed and collected by the  A nonresident citizen is taxable only on income derived from sources within
Bureau of Internal Revenue. the Philippines;
 An individual citizen of the Philippines who is working and deriving income
from abroad as an overseas contract worker is taxable only on income
TITLE II derived from sources within the Philippines: Provided, That a seaman who is
TAX ON INCOME a citizen of the Philippines and who receives compensation for services
rendered abroad as a member of the complement of a vessel engaged
CHAPTER I exclusively in international trade shall be treated as an overseas contract
DEFINITIONS worker;
 An alien individual, whether a resident or not of the Philippines, is taxable
SEC. 22. Definitions - When used in this Title: only on income derived from sources within the Philippines;
 "corporation" – shall include partnerships, but does not include general  A domestic corporation is taxable on all income derived from sources within
professional partnerships and a joint venture or consortium formed for the and without the Philippines; and
purpose of undertaking construction projects or engaging in petroleum,  A foreign corporation, whether engaged or not in trade or business in
coal, geothermal and other energy operations pursuant to an operating the Philippines, is taxable only on income derived from sources within
consortium agreement under a service contract with the Government. the Philippines.
 "General professional partnerships" – partnerships formed by persons for
the sole purpose of exercising their common profession, no part of the
income of which is derived from engaging in any trade or business. CHAPTER III
 "nonresident citizen" TAX ON INDIVIDUALS
- A citizen of the Philippines who establishes to the satisfaction of the
Commissioner the fact of his physical presence abroad with a definite SEC. 24. Income Tax Rates. -
intention to reside therein. Rates of Income Tax on Individual Citizen and Individual Resident Alien of the
- A citizen of the Philippines who leaves the Philippines during the Philippines.
taxable year to reside abroad, either as an immigrant or for The tax shall be computed in accordance with and at the rates established in the
employment on a permanent basis. following schedule:
Not over P10,000…………………………….5%
 Over P10,000 but not over P30,000………P500+10% of the excess over P10,000 fiscal year shall be deemed to have been earned and spent equally for each month
Over P30,000 but not over P70,000………P2,500+15% of the excess over of the period.
P30,000 The reduced corporate income tax rates shall be applied on the amount
Over P70,000 but not over P140,000……..P8,500+20% of the excess over computed by multiplying the number of months covered by the new rates within the
P70,000 fiscal year by the taxable income of the corporation for the period, divided by
Over P140,000 but not over P250,000……P22,500+25% of the excess over twelve.
P140,000
Over P250,000 but not over P500,000……P50,000+30% of the excess over
P250,000 Provided, further, That the President, upon the recommendation of the Secretary of
Over P500,000 ……………………….P125,000+34% of the excess over P500,000 Finance, may effective January 1, 2000, allow corporations the option to be taxed at
in 1998. fifteen percent (15%) of gross income as defined herein, after the following
conditions have been satisfied:
Provided, That effective January 1, 1999, the top marginal rate shall be thirty-three (1) A tax effort ratio of twenty percent (20%) of Gross National
percent (33%) and effective January 1, 2000, the said rate shall be thirty-two Product (GNP);
percent (32%). (2) A ratio of forty percent (40%) of income tax collection to
total tax revenues;
For married individuals, the husband and wife, subject to the provision of Section 51
(3) A VAT tax effort of four percent (4%) of GNP; and
(D) hereof, shall compute separately their individual income tax based on their
(4) A 0.9 percent (0.9%) ratio of the Consolidated Public
respective total taxable income: Provided, That if any income cannot be definitely
attributed to or identified as income exclusively earned or realized by either of the Sector Financial Position (CPSFP) to GNP.
The option to be taxed based on gross income shall be available only to firms whose
spouses, the same shall be divided equally between the spouses for the purpose of
ratio of cost of sales to gross sales or receipts from all sources does not exceed fifty-
determining their respective taxable income. five percent (55%).
The election of the gross income tax option by the corporation shall be irrevocable
SEC. 25. Tax on Nonresident Alien Individual. - Nonresident Alien Engaged in for three (3) consecutive taxable years during which the corporation is qualified
trade or Business Within the Philippines. under the scheme.
a. In General. - A nonresident alien individual engaged in trade or business in
the Philippines shall be subject to an income tax in the same manner as an SEC. 28. Rates of Income Tax on Foreign Corporations. -
individual citizen and a resident alien individual, on taxable income received 1. Tax on Resident Foreign Corporations. -
from all sources within the Philippines. A nonresident alien individual who a. In General. - Except as otherwise provided in this Code, a corporation
shall come to the Philippines and stay therein for an aggregate period of more organized, authorized, or existing under the laws of any foreign
than one hundred eighty (180) days during any calendar year shall be country, engaged in trade or business within the Philippines, shall be
deemed a 'nonresident alien doing business in the Philippines'. Section 22 (G) subject to an income tax equivalent to thirty-five percent (35%) of the
of this Code notwithstanding.
taxable income derived in the preceding taxable year from all sources
within the Philippines: Provided, That effective January 1, 1998, the
SEC. 26. Tax Liability of Members of General Professional Partnerships. - A
general professional partnership as such shall not be subject to the income tax rate of income tax shall be thirty-four percent (34%); effective January
imposed under this Chapter. Persons engaging in business as partners in a general 1, 1999, the rate shall be thirty-three percent (33%), and effective
professional partnership shall be liable for income tax only in their separate and January 1, 2000 and thereafter, the rate shall be thirty-two percent
individual capacities. (32%).
a. For purposes of computing the distributive share of the partners, the net b. In the case of corporations adopting the fiscal-year accounting period,
income of the partnership shall be computed in the same manner as a the taxable income shall be computed without regard to the specific
corporation. date when sales, purchases and other transactions occur. Their income
b. Each partner shall report as gross income his distributive share, actually or and expenses for the fiscal year shall be deemed to have been earned
constructively received, in the net income of the partnership. and spent equally for each month of the period.
c. The reduced corporate income tax rates shall be applied on the
CHAPTER IV amount computed by multiplying the number of months covered by
TAX ON CORPORATIONS the new rates within the fiscal year by the taxable income of the
corporation for the period, divided by twelve.
SEC. 27. Rates of Income tax on Domestic Corporations. - Provided, however, That a resident foreign corporation shall be
granted the option to be taxed at fifteen percent (15%) on gross
In General. - Except as otherwise provided in this Code, an income tax of
income under the same conditions, as provided in Section 27 (A).
thirty-five percent (35%) is hereby imposed upon the taxable income derived during
each taxable year from all sources within and without the Philippines by every
2. Tax on Nonresident Foreign Corporation. -
corporation, as defined in Section 22(B) of this Code and taxable under this Title as a
In General. - Except as otherwise provided in this Code, a foreign
corporation, organized in, or existing under the laws of the Philippines: Provided,
corporation not engaged in trade or business in the Philippines shall pay a
That effective January 1, 1998, the rate of income tax shall be thirty-four percent
tax equal to thirty-five percent (35%) of the gross income received during
(34%); effective January 1, 1999, the rate shall be thirty-three percent (33%); and
each taxable year from all sources within the Philippines, such as interests,
effective January 1, 2000 and thereafter, the rate shall be thirty-two percent (32%).
dividends, rents, royalties, salaries, premiums (except reinsurance
In the case of corporations adopting the fiscal-year accounting period, the
premiums), annuities, emoluments or other fixed or determinable annual,
taxable income shall be computed without regard to the specific date when specific
periodic or casual gains, profits and income, and capital gains, except
sales, purchases and other transactions occur. Their income and expenses for the
capital gains subject to tax under subparagraphs (C) and (d): Provided, That
 effective 1, 1998, the rate of income tax shall be thirty-four percent (34%); 2. Mutual savings bank not having a capital stock represented by shares, and
effective January 1, 1999, the rate shall be thirty-three percent (33%); and, cooperative bank without capital stock organized and operated for mutual
effective January 1, 2000 and thereafter, the rate shall be thirty-two purposes and without profit;
percent (32%). 3. A beneficiary society, order or association, operating fort he exclusive
benefit of the members such as a fraternal organization operating under
the lodge system, or mutual aid association or a nonstock corporation
SEC. 29. Imposition of Improperly Accumulated Earnings Tax. - organized by employees providing for the payment of life, sickness,
1. In General. - In addition to other taxes imposed by this Title, there is hereby accident, or other benefits exclusively to the members of such society,
imposed for each taxable year on the improperly accumulated taxable order, or association, or nonstock corporation or their dependents;
income of each corporation described in Subsection B hereof, an improperly 4. Cemetery company owned and operated exclusively for the benefit of its
accumulated earnings tax equal to ten percent (10%) of the improperly members;
accumulated taxable income. 5. Nonstock corporation or association organized and operated exclusively for
2. Tax on Corporations Subject to Improperly Accumulated Earnings Tax. - religious, charitable, scientific, athletic, or cultural purposes, or for the
a. In General. - The improperly accumulated earnings tax imposed in the rehabilitation of veterans, no part of its net income or asset shall belong to
preceding Section shall apply to every corporation formed or availed or inures to the benefit of any member, organizer, officer or any specific
for the purpose of avoiding the income tax with respect to its person;
shareholders or the shareholders of any other corporation, by 6. Business league chamber of commerce, or board of trade, not organized for
permitting earnings and profits to accumulate instead of being divided profit and no part of the net income of which inures to the benefit of any
or distributed. private stock-holder, or individual;
b. Exceptions. - The improperly accumulated earnings tax as provided for 7. Civic league or organization not organized for profit but operated
under this Section shall not apply to: exclusively for the promotion of social welfare;
i. Publicly-held corporations; 8. A nonstock and nonprofit educational institution;
ii. Banks and other nonbank financial 9. Government educational institution;
intermediaries; and 10. Farmers' or other mutual typhoon or fire insurance company, mutual ditch
iii. Insurance companies. or irrigation company, mutual or cooperative telephone company, or like
3. Evidence of Purpose to Avoid Income Tax. - organization of a purely local character, the income of which consists solely
a. Prima Facie Evidence. - the fact that any corporation is a mere holding of assessments, dues, and fees collected from members for the sole
company or investment company shall be prima facie evidence of a purpose of meeting its expenses; and
purpose to avoid the tax upon its shareholders or members. 11. Farmers', fruit growers', or like association organized and operated as a
b. Evidence Determinative of Purpose. - The fact that the earnings or sales agent for the purpose of marketing the products of its members and
profits of a corporation are permitted to accumulate beyond the turning back to them the proceeds of sales, less the necessary selling
expenses on the basis of the quantity of produce finished by them;
reasonable needs of the business shall be determinative of the purpose
to avoid the tax upon its shareholders or members unless the
corporation, by the clear preponderance of evidence, shall prove to the Notwithstanding the provisions in the preceding paragraphs, the income of whatever
contrary. kind and character of the foregoing organizations from any of their properties, real
4. Improperly Accumulated Taxable Income. - For purposes of this Section, the or personal, or from any of their activities conducted for profit regardless of the
term 'improperly accumulated taxable income' means taxable income' disposition made of such income, shall be subject to tax imposed under this Code.
adjusted by:
CHAPTER V
(1) Income Exempt from tax; COMPUTATION OF TAXABLE INCOME
(2) Income excluded from gross income;
(3) Income subject to final tax; and
(4) The amount of net operating loss SEC. 31. Taxable Income Defined. – the pertinent items of gross income less the
carry-over deducted; deductions and/or personal and additional exemptions, if any, authorized for such
And reduced by the sum of: types of income by this Code or other special laws.
(1) Dividends actually or constructively paid; and
(2) Income tax paid for the taxable year. CHAPTER VI
Provided, however, That for corporations using the calendar year basis, the COMPUTATION OF GROSS INCOME
accumulated earnings under tax shall not apply on improperly accumulated
income as of December 31, 1997. In the case of corporations adopting the
SEC. 32. Gross Income. –
fiscal year accounting period, the improperly accumulated income not
- all income derived from whatever source, including (but not limited to) the
subject to this tax, shall be reckoned, as of the end of the month following items:
comprising the twelve (12)-month period of fiscal year 1997-1998. (1) Compensation for services in whatever form paid, including, but not limited
to fees, salaries, wages, commissions, and similar items;
SEC. 30. Exemptions from Tax on Corporations. - The following organizations (2) Gross income derived from the conduct of trade or business or the exercise
shall NOT be taxed under this Title in respect to income received by them as such: of a profession;
1. Labor, agricultural or horticultural organization not organized principally for (3) Gains derived from dealings in property;
profit; (4) Interests;
 (5) Rents; effective January 1, 1999; and sixty-eight percent (68%) effective January 1, 2000
(6) Royalties; and thereafter: Provided, however, That fringe benefit furnished to employees and
(7) Dividends; taxable under Subsections (B), (C), (D) and of Section 25 shall be taxed at the
(8) Annuities; applicable rates imposed thereat: Provided, further, That the grossed -Up value of
(9) Prizes and winnings; the fringe benefit shall be determined by dividing the actual monetary value of the
(10) Pensions; and fringe benefit by the difference between one hundred percent (100%) and the
(11) Partner's distributive share from the net income of the general professional applicable rates of income tax under Subsections (B), (C), (D), and (E) of Section 25.
partnership.
Fringe Benefit – any good, service or other benefit furnished or granted in cash or
Exclusions from Gross Income. - The following items shall not be included in in kind by an employer to an individual employee (except rank and file employees as
gross income and shall be exempt from taxation under this title: defined herein) such as, but not limited to, the following:
1. Life Insurance a. Housing;
2. Amount Received by Insured as Return of Premium. b. Expense account;
3. Gifts, Bequests, and Devises. c. Vehicle of any kind;
4. Compensation for Injuries or Sickness d. Household personnel, such as maid, driver and others;
5. Income Exempt under Treaty. - e. Interest on loan at less than market rate to the extent of the difference
6. Retirement Benefits, Pensions, Gratuities, etc.- between the market rate and actual rate granted;
7. Miscellaneous Items. - f. Membership fees, dues and other expenses borne by the
a. Income Derived by Foreign Government. - Income derived from employer for the employee in social and athletic clubs or other
investments in the Philippines in loans, stocks, bonds or other similar organizations;
domestic securities, or from interest on deposits in banks in the g. Expenses for foreign travel;
Philippines by (i) foreign governments, (ii) financing institutions h. Holiday and vacation expenses;
owned, controlled, or enjoying refinancing from foreign i. Educational assistance to the employee or his dependents; and
governments, and (iii) international or regional financial j. Life or health insurance and other non-life insurance premiums or similar
institutions established by foreign governments. amounts in excess of what the law allows.
b. Income Derived by the Government or its Political Subdivisions.
c. Prizes and Awards. - Prizes and awards made primarily in Fringe Benefits Not Taxable. - The following fringe benefits are not taxable under
recognition of religious, charitable, scientific, educational, artistic, this Section:
literary, or civic achievement but only if: (1) fringe benefits which are authorized and exempted from tax under special
i. The recipient was selected without any action on his part laws;
to enter the contest or proceeding; and (2) Contributions of the employer for the benefit of the employee to retirement,
ii. The recipient is not required to render substantial future insurance and hospitalization benefit plans;
services as a condition to receiving the prize or award. (3) Benefits given to the rank and file employees, whether granted under a
d. Prizes and Awards in Sports Competition. - All prizes and awards collective bargaining agreement or not; and
granted to athletes in local and international sports competitions (4) De minimis benefits as defined in the rules and regulations to be
and tournaments whether held in the Philippines or abroad and promulgated by the Secretary of Finance, upon recommendation of the
sanctioned by their national sports associations. Commissioner.
e. 13th Month Pay and Other Benefits. - Gross benefits received by
officials and employees of public and private entities: Total The Secretary of Finance is hereby authorized to promulgate, upon recommendation
exclusion under this subparagraph shall not exceed Thirty of the Commissioner, such rules and regulations as are necessary to carry out
thousand pesos (P30,000) efficiently and fairly the provisions of this Section, taking into account the peculiar
f. GSIS, SSS, Medicare and Other Contributions. nature and special need of the trade, business or profession of the employer.
g. Gains from the Sale of Bonds, Debentures or other Certificate of
Indebtedness.
h. Gains from Redemption of Shares in Mutual Fund.

SEC. 33. Special Treatment of Fringe Benefit.-

Imposition of Tax.- A final tax of thirty-four percent (34%) effective January 1,
1998; thirty-three percent (33%) effective January 1, 1999; and thirty-two percent
(32%) effective January 1, 2000 and thereafter, is hereby imposed on the grossed-up
monetary value of fringe benefit furnished or granted to the employee (except rank
and file employees as defined herein) by the employer, whether an individual or a
corporation (unless the fringe benefit is required by the nature of, or necessary to
the trade, business or profession of the employer, or when the fringe benefit is for
the convenience or advantage of the employer). The tax herein imposed is payable
by the employer which tax shall be paid in the same manner as provided for under
Section 57 (A) of this Code. The grossed-up monetary value of the fringe benefit
shall be determined by dividing the actual monetary value of the fringe benefit by
sixty-six percent (66%) effective January 1, 1998; sixty-seven percent (67%)