C. Tax Rates

1. Individuals a. Graduated income tax rates on taxable incomeb. Capital gains flat ratei . on sales of shares of stock of domestic corporation (except dealers in securities)aa. of 1% Gross Selling price listed shares

bb. 5% for 1st 100,000 and 10% in excess of 100,00 of net Capital gains shares not listed and exchanged in stock exchange

ii. On sale of real property classified as capital asset by individual flat rate 6%

c. Passive income subject to final tax at preferential rates

2. Corporations

a. Domestici . Regular of normal income tax rate flat rate 30% starting 2009ii. MCIT

SEC 27 NIRC Rates of Income tax on Domestic Corporations. -

(E) Minimum Corporate Income Tax on Domestic Corporations. -

(1) Imposition of Tax. - A minimum corporate income tax of two percent (2%0 of the gross income as of the end of the taxable year, as defined herein, is hereby imposed on a corporation taxable under this Title, beginning on the fourth taxable year immediately following the year in which such corporation commenced its business operations, when the minimum income tax is greater than the tax computed under Subsection (A) of this Section for the taxable year.

(2) Carry Froward of Excess Minimum Tax. - Any excess of the minimum corporate income tax over the normal income tax as computed under Subsection (A) of this Section shall be carried forward and credited against the normal income tax for the three (3) immediately succeeding taxable years.

(3) Relief from the Minimum Corporate Income Tax Under Certain Conditions. - The Secretary of Finance is hereby authorized to suspend the imposition of the minimum corporate income tax on any corporation which suffers losses on account of prolonged labor dispute, or because of force majeure, or because of legitimate business reverses.

The Secretary of Finance is hereby authorized to promulgate, upon recommendation of the Commissioner, the necessary rules and regulation that shall define the terms and conditions under which he may suspend the imposition of the minimum corporate income tax in a meritorious case.

(4) Gross Income Defined. - For purposes of applying the minimum corporate income tax provided under Subsection (E) hereof, the term 'gross income' shall mean gross sales less sales returns, discounts and allowances and cost of goods sold. "Cost of goods sold' shall include all business expenses directly incurred to produce the merchandise to bring them to their present location and use.

REVENUE REGULATIONS 12-07 SEC. 2. AMENDATORY PROVISION. Pertinent portions ofSec.2.27(E)

of Revenue Regulations No. 9-98are hereby amendedto read as follows:

Sec. 2.27(E)MINIMUMCORPORATEINCOMETAX(MCIT)ON

DOMESTIC CORPORATIONS

(1) Imposition of the Tax. - A minimum corporate income tax (MCIT) of two percent (2%) of the gross income as of the end of the taxable year (whether calendar or fiscal year, depending on the accounting period employed) is hereby imposed upon any domestic corporation beginning on the fourth (4th) taxable year immediately following the taxable year in which such corporation commenced its business operations. The MCIT shall be imposed whenever such corporation has zero or negative taxable income or whenever the amount of minimum corporate income tax is greater than the normal income tax due from such corporation. XXX

For purposes of these Regulations, the term, normal income tax means the income tax rates prescribed under Sec. 27 (A) and Sec. 28(A)(1) of the Code at 34% on January 1, 1998; 33% effective January 1, 1999; at 32% effective January 1, 2000 and 35% effective November 1, 2005 and thereafter.

Provided, however, that effective January 1, 2009 the rate of income tax shall be thirty percent (30%), pursuant to RA No. 9337.

In the case of a domestic corporation xxx xxx xxx

(2) Carry forward of excess minimum corporate income tax xxx xxx xxx

Illustration on howto carry forward excess minimum corporate income tax

presentedon annualized basis -

Excess of MCIT

Normal IncomeOver the Normal

YearTaxMCITIncome Tax

1998P50,000P 75,000P25,000

1998amount of tax payableP 75,000

1999P60,000P100,000P40,000

1999amount of tax payableP100,000

2000P100,000P60,000

Computation of Net Amount of Tax Payable in 2000:

Amount of tax payableP100,000

Less:

1998 excess MCIT(25,000)

1999 excess MCIT(40,000)P65,000

Net amount of tax payableP35,000

The taxpayer shall pay the MCIT whenever it is greater than the regular or normal corporate income tax which is imposed under Sec. 27(A) and Sec. 28(A)(1) of the Code. The final comparison between the normal income tax payable by the corporation and the MCIT shall be made at the end of the taxable year and the payable or excess payment in the Annual Income Tax

Return shall be computed taking into consideration corporate income tax payment made at the time of filing of quarterly corporate income tax returns whether this be MCIT or normal income tax Thus, under the example, the taxpayer should have paid the MCIT of P75,000.00 since this amount is greater than the normal income tax of P50,000.00 in 1998.

xxxxxxxxx

(3) Relief from the Minimum Corporate Income Tax under Certain Conditions

xxx xxx xxx

xxx xxx xxx

(4) Definition of Terms

(a) Gross income defined For purposes of the minimum corporate income tax prescribed under this Subsection, the term gross income means gross sales less sales returns, discounts, and allowances and cost of goods sold, in case of sale of goods, or gross revenue less sales returns, discounts, allowances and cost of services/direct cost, in case of sale of services . This rule, notwithstanding, if apart from deriving income from these core business activities there are other items of gross income realized or earned by the taxpayer during the taxable period which are subject to the normal corporate income tax, the same items must be included aspart of the taxpayers gross income for computing MCIT. This means that the term gross income will also include all items of gross income enumerated under Section 32(A) of the Tax Code, as amended, except income exempt from jncome tax and income subject to final withholding tax described in the succeeding subparagraph.

Gross sales shall include only sales contributory to income taxable under Sec. 27(A) of the Code. Cost of goods sold shall include all business expenses directly incurred to produce the merchandise to bring them to their present location and use. Gross Revenue shall include income from sale of services, likewise, taxable under Sec. 27(A). Cost of Services or Direct Cost of Services shall include business expenses directly incurred or related to the gross revenue from rendition of services.

Passive incomes which are subject to final tax at source shall not form part of gross income for purposes of minimum corporate income tax.

xxx xxx (5) Specific Rules for Determining the Period When a Corporation Becomes

Subject to the MCIT-

xxx xxx xxx

(6) Manner of filing and payment The minimum corporate income tax (MCIT) shall be paid in the same manner prescribed for the payment of the normal corporate income tax which is on a quarterly and on a yearly basis. It shall be covered by a tax return designed for the purpose which will be submitted together with the corporation's annual final adjustment income tax return. Domestic corporations shall be required to pay the minimum corporate income tax on a quarterly basis, pursuant to the provisions of Sec. 75 and Sec. 77 of the

Code in relation toSection245 of the same Code, as amended.

xxx xxxxxx

SEC.3. TRANSITORY PROVISIONS. Inthe filing ofthequarterly

income tax return for thetaxable quarter which is due for filing after the effectivity

of these Regulations,thecomputation of the MCITshall be doneoncumulative

basis covering not only thecurrent taxable quarterbut also theprevious taxable

quarters of the same taxable year. Such computed MCIT shall be compared with the cumulative normal income tax, whereupon the higher amount between the two shall be the basis of the quarterly income tax payment to be made for said taxable quarter.

Thus, for those using calendar year basisaccounting period, in the filing of the

quarterly income tax return for thethird quarterended September 2007which is due

for filingon or before November29, 2007, the gross incomeforthe 1st and 2nd

quartersshall be added to the gross income for the quarter endedSeptember 2007, the

total of which shall be the basis of the 2% MCITwhich shall then be compared with

the computed cumulative normalincome tax. The cumulative MCIT for the three (3)

said quarters shall be paid in case the same appears to be higher than the normal income tax computed for the same period. Excess normal income tax carried over from previous taxable year and payments made for the previous quarters of the same taxable year, including withholding tax credits claimed for said previous quarters of same taxable year shall be credited against the computed tax due in the cumulative quarterly tax return.

MAMALATEO: MCIT

Gross receipt and cost of services per industry

For purposes of applying MCIT the gross receipts and cost of services of taxpayers engaged in the following types of services, or any other kind but of a similar nature, shall be determined as follows:

i) banks and non bank financial intermediaries performing quasi banking activities pursuant to sec V,W, and X of NIRC xxxxii) insurance and pension funding companiesiii) finance companies and other financial intermediaries not performing quasi banking activitiesiv) brokers of securities (excluding banks)v) customs, insurance, real estate, immigration, and commercial brokersvi) general engineering and/or building contractorsvii) common carriers or transportation contractorsviii)hotel, motel, rest/pension/lodging house and resort operatorsix) food service establishmentsx) lessors of propertyxi) telephone and telegraph electric gas, and water utilitiesxii) radio and/or television broadcasting xiii) relief from minimum corporate income tax under certain conditionsxv) specific rules for determining period when a corporation becomes subject to MCITxvi) manner and filing and paymentxvii) accounting treatment of the excess minimum corporate income tax paidxviii) exceptions

iii. Improperly Accumulated Earnings Tax (IAET)

Section 29. Imposition of Improperly Accumulated Earnings Tax. -

(A) In General. - In addition to other taxes imposed by this Title, there is hereby imposed for each taxable year on the improperly accumulated taxable income of each corporation described in Subsection B hereof, an improperly accumulated earnings tax equal to ten percent (10%) of the improperly accumulated taxable income.

(B) Tax on Corporations Subject to Improperly Accumulated Earnings Tax. -

(1) In General. - The improperly accumulated earnings tax imposed in the preceding Section shall apply to every corporation formed or availed for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of any other corporation, by permitting earnings and profits to accumulate instead of being divided or distributed.

(2) Exceptions. - The improperly accumulated earnings tax as provided for under this Section shall not apply to:

(a) Publicly-held corporations;(b) Banks and other nonbank financial intermediaries; and

(c) Insurance companies.

(C) Evidence of Purpose to Avoid Income Tax. -

(1) Prima Facie Evidence. - the fact that any corporation is a mere holding company or investment company shall be prima facie evidence of a purpose to avoid the tax upon its shareholders or members.(2) Evidence Determinative of Purpose. - The fact that the earnings or profits of a corporation are permitted to accumulate beyond the 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 contrary.(D) Improperly Accumulated Taxable Income. - For purposes of this Section, the term 'improperly accumulated taxable income' means taxable income' adjusted by:

(1) Income exempt from tax;(2) Income excluded from gross income;(3) Income subject to final tax; and(4) The amount of net operating loss carry-over deducted;

And reduced by the sum of:

(1) Dividends actually or constructively paid; and(2) Income tax paid for the taxable year.

Provided, however, That for corporations using the calendar year basis, the accumulated earnings under tax shall not apply on improperly accumulated income as of December 31, 1997. In the case of corporations adopting the fiscal year accounting period, the improperly accumulated income not subject to this tax, shall be reckoned, as of the end of the month comprising the twelve (12)-month period of fiscal year 1997-1998.

(E) Reasonable Needs of the Business. - For purposes of this Section, the term 'reasonable needs of the business' includes the reasonably anticipated needs of the business.

Rev Regulations 2-2001 Digest

REVENUE MEMORANDUM ORDER NO. 2-2001 issued January 18, 2001 defines and delineates the functions and processes of the National Office Management Information System (NOMIS)-Management Reporting through Executive Information System (EIS) Capability (Release 4).

The following officials will have access on the NOMIS (Release 4):1) Commissioner;2) Deputy Commissioners;3) concerned Assistant Commissioners;4) concerned Head Revenue Executive Assistants;5) Regional Directors;6) Asst. Regional Directors of Metro Manila and Cebu City; and7) selected Division Chiefs and Section Chiefs.The reports and screens that can be generated, printed or viewed through NOMIS (Release 4) are specified in the Order, including the Office Scorecard that will be used in the monitoring of performance of concerned BIR offices.

Notes: IAET! in addition to other income taxes imposed under Income tax, an improperly accumulated earnings tax equal to 10% of the improperly accumulated taxable income for each taxable year is imposed.

CONCEPT OF IMPROPERLY ACCUMULATED EARNINGS TAXa tax equal to 10% of the improperly accumulated taxable income of corporation formed or availed of for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of any corporation to accumulate instead of dividing them among or distributing them to the shareholders is imposed. The rationale is that if the earnings and profits were distributed, the shareholders would then be liable to income tax thereon, whereas if the distribution were not made to them they would not incur in respect to the undistributed earnings and profits of the corporation. Thus a tax being imposed in the nature of a penalty to the corporation for the improper accumulation of its earnings and as a form of deterrent to the avoidance of tax upon shareholders who are supposed to pay dividends tax on the earnings distributed to them . If there is a determination that a corporation has accumulated income beyond the reasonable needs of the business , the 10% improperly accumulated earnings tax shall be imposed.

DETERMINATION OF REASONABLE NEEDS OF THE BUSINESSAn accumulation of earnings or profits (including undistributed earnings or profits of prior years ) is unreasonable if it is not necessary for the purpose of the business , considering all the circumstances of the case.To determine the reasonable needs of the business in order to justify an accumulation of earnings, these Regulations hereby adhere to the so-called Immediacy test. Accordingly, the term reasonable needs means the immidate needs of the business, including reasonably anticipated needs. In either case, the corporation should be able to prove an immediate need for the accumulation of the earnings and profits , or the direct correlation of anticipated needs to such accumulation of profits. Otherwise such accumulation would be deemed to be not for the reasonable needs of the business, and the penalty tax would apply.

The following constitute accumulation of earnings for the reasonable needs of the business:a) allowance for increase in the accumulation of earnings up to 100% of the paid up capital of the corporation as of Balance sheet date inclusive of accumulations taken from the years.b) earnings reserved for definite corporate expansion projects or programs requiring considerable capital expenditures as approved by the BOD or equivalent bodyc)Earnings reserved for building, plants or equipment acquisition as approved by the BOD or equiv bodyd) earnings body reserved for compliance with any loan covenant or pre existing obligation established under a legitimate business agreemente) earnings required by law or applicable regulations to be retained by the corporation or in respect of which there is a legal prohibition against its distributionf) in the case of subsidiaries of foreign corporations in the Ph, all undistributed earnings intended or reserved for investments within the Ph as can be proven by corporate records and / or relevant documentary evidence.

THE 10% IAET imposed on improperly accumulated taxable income earned starting 1998 Jan 1 by domestic corporation as defined under NIRC and which are classified as closely-held corporations. However, IAET shall not apply to the ff corps:a) banks and other non bank financial intermediariesb) insurance companiesc) publicly held corpsd) taxable partnershipse) GPPf) non taxable JVsg) enterprises duly registered with PEZA under RA 7916 and enterprises registered pursuant to the Bases Conversion and Devt Act as well as other enterprises duly registered under special economic zones declared by law which enjoy payment of a special tax rate on their registered operations or activities in lieu of other taxes, national or local.

For purposes of there Regulations, closely held corporations are those corporations atleast 50% in value of the OCS or atleast 50% of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or for not more than individuals.Domestic corporations not falling under the aforesaid definitions are, therefore, publicly-held corporations.

When is a corporation a closely held corp = p. 466

Tax base of improperly accumulated earnings tax: For corporations subject to tax, the Improperly Accumulated Taxable income for a particular year is first determined by adding to that years taxable income the following:

a) income exempt from taxb) income excluded from gross income c) income subject to final tax; andd) the amount of NOLCO deducted

The taxable income as thus determined shall be reduced by the sum of:a) income tax paid/payable during the taxable yearb) dividends actually or constructively paid / issued from the applicable years taxable income;c) amount reserved for the reasonable needs of the business as defined in these Regulations emanating from the covered years taxable income.

The resulting Improperly Accumulated Taxable income is thereby multiplied by 10% to get the Improperly accumulated earnings tax. Once the profit has been subjected to IAET, the same shall no longer be subjected to IAET in later years even if not declared as dividend. Profits which have been subjected to IAET when finally declared as dividends shall nevertheless be subject to Tax on dividends imposed under NIRC except those instances where the recipient The dividends shall be deemed to have been paid out of the most recently accumulated profits or surplus and shall constitute a part of the annual income of the distributee for the year in which received pursuant to Sec 73 C Dividends must be declared and paid or issue not later than one year following the close of the taxable year otherwise the IAET if any should be paid within 15 days thereafter. The following are prima facie instances of accumulation of profits beyond the reasonable needs of a business and indicative of purpose to avoid income tax upon shareholders:a) investment of substantial earnings and profits of the corporation in unrelated business or in stock or securities of unrelated business

b) investment in bonds and other long term securities

c) accumulation of earnings in excess of 100% of paidup capital not otherwise intended for the reasonable needs of the business as defined in these Regulations.

In order to determine whether profits are accumulated for the reasonable needs of the business as to avoid the imposition of the improperly accumulated earnings tax, the controlling intention of the taxpayer is that which is manifested at the time of the accumulation , not subsequently declared intentions which are merely product of afterthought.

iv. Domestic Corporations entitled to preferential tax rates

aa. Proprietary educational institutions 10% of taxable income

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

(B) Proprietary Educational Institutions and Hospitals. - Proprietary educational institutions and hospitals which are nonprofit shall pay a tax of ten percent (10%) on their taxable income except those covered by Subsection (D) hereof: Provided, that if the gross income from unrelated trade, business or other activity exceeds fifty percent (50%) of the total gross income derived by such educational institutions or hospitals from all sources, the tax prescribed in Subsection (A) hereof shall be imposed on the entire taxable income. For purposes of this Subsection, the term 'unrelated trade, business or other activity' means any trade, business or other activity, the conduct of which is not substantially related to the exercise or performance by such educational institution or hospital of its primary purpose or function. A 'Proprietary educational institution' is any private school maintained and administered by private individuals or groups with an issued permit to operate from the Department of Education, Culture and Sports (DECS), or the Commission on Higher Education (CHED), or the Technical Education and Skills Development Authority (TESDA), as the case may be, in accordance with existing laws and regulations.

bb. Foreign currency deposit unit of local universal or commercial bank - 10% final tax

Section 27. Rates of Income tax on Domestic Corporations. - (D) Rates of Tax on Certain Passive Incomes. -

(3) Tax on 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 depository 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.

cc. Firms taxed under special income tax regimes eg registered entities under PEZA law and Bases Conversion Development Act - 5% final tax on gross income

v. Resident Foreign Corporations aa. General Rule : 30% of the net taxable income from sources within the Philippines

Section 22. Definitions - When used in this Title: (H) The term 'resident foreign corporation' applies to a foreign corporation engaged in trade or business within the Philippines.

Section 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.

(5) Tax on Branch Profits Remittances. - Any profit remitted by a branch to its head office shall be subject to a tax of fifteen (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.

bb. Exempt entities

1. Regional or Area HQs

22 (DD) The term 'regional or area headquarters' shall mean a branch established in the Philippines by multinational companies and which headquarters do not earn or derive income from the Philippines and which act as supervisory, communications and coordinating center for their affiliates, subsidiaries, or branches in the Asia-Pacific Region and other foreign markets.

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

(A) Tax on Resident Foreign Corporations. -

(6) Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies. -

(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 P100,0005%

On any amount in excess of P100,00010%

2. Representative Office

cc. RFCs subject to preferential tax rates

1. International carrier = 28 A (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: xxxxx

RA 10378. SEC. 28. Rates of Income Tax on Foreign Corporations.

(A) Tax on Resident Foreign Corporations. XX

(3). International Carrier. An international carrier doing business in the Philippines shall pay a tax of two and one-half percent (21/2 %) 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 part 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.

Provided, That international carriers doing business in the Philippines may avail of a preferential rate or exemption from the tax herein imposed on their gross revenue derived from the carriage of persons and their excess baggage on the basis of an applicable tax treaty or international agreement to which the Philippines is a signatory or on the basis of reciprocity such that an international carrier, whose home country grants income tax exemption to Philippine carriers, shall likewise be exempt from the tax imposed under this provision.

2. OBUS 10% FINAL TAX

28 A (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) 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.

3. Regional Operating HQs - 10% taxable income

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

(A) Tax on Resident Foreign Corporations. - (6) Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies. - (b) Regional operating headquarters as defined in Section 22(EE) shall pay a tax of ten percent (10%) of their taxable income.Section 28. Rates of Income Tax on Foreign Corporations. -

(A) Tax on Resident Foreign Corporations. - (6) Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies. - (b) Regional operating headquarters as defined in Section 22(EE) shall pay a tax of ten percent (10%) of their taxable income.

4. Foreign currency deposit unit in Ph of foreign bank 10% final tax

Section 28. Rates of Income Tax on Foreign Corporations. - (A) Tax on Resident Foreign Corporations. - (7) Tax on Certain Incomes Received by a Resident Foreign Corporation. -(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, 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.

5. Branch of foreign corp registered with PEZA, SBMA , CDA, etc 5% final tax on gross income

6. Qualified service contractor or subcontractor engaged in petroleum operations in the PH 8% of gross income in lieu of any and all local and international taxesPD 87, PD 1354

dd. Branch Profits remittance tax (BPRT)

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

(A) Tax on Resident Foreign Corporations. - (5) Tax on Branch Profits Remittances. - Any profit remitted by a branch to its head office shall be subject to a tax of fifteen (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.

1. Entities exempt from BPRT: PEZA, SBMA registered entities

2. Not deemed remittance of profit: remittable profit transferred to Ph Corporation; remittance of assigned capital

3. Deemed Profit remittance

Revenue Memo Ruling No 1-2001

MARUBENI V CIR : Marubeni Corporation is a Japanese corporation licensed to engage in business in the Philippines.When the profits on Marubenis investments in Atlantic Gulf and Pacific Co. of Manila were declared, a 10% final dividend tax was withheld from it, and another 15% profit remittance tax based on the remittable amount after the final 10% withholding tax were paid to the Bureau of Internal Revenue. Marubeni Corp. now claims for a refund or tax credit for the amount which it has allegedly overpaid the BIR

Issues and Ruling: 1. W/N the dividends Marubeni received from Atlantic Gulf are effectively connected with its conduct or business in the Philippines as to be considered branch profits subject to 15%profit remittance tax imposed under NIRC 24(b)(2) NO!

Pursuant to Sec 24(b)(2), only profits remitted abroad by a branch office to its head office which are effectively connected with its trade or business in the Philippines are subject to the 15% profit remittance tax. The dividends received by Marubeni from Atlantic Gulf are not income arising from the business activity in which Marubeni is engaged. Accordingly, said dividends if remitted abroad are not considered branch profits for purposes of the 15% profit remittance tax imposed by Section 24(b)(2).

2. Whether Marubeni is a resident or NRFC -- NRFC, with respect to the transaction. Marubenis head office in Japan is a separate and distinct income taxpayer from the branch in the Phil. The investment on Atlantic Gulf was made for purposes peculiarly germane to the conduct of the corporate affairs of Marubeni in Japan, but certainly not of the branch in the Phil.

3. At what rate should Marubeni be taxed? 15%. The applicable provision is Sec 24(b)(1)(iii) in conjunction with the Philippine-Japan Tax Treaty of 1980. As a general rule, it is taxed 35% of its gross income from all sources within the Phil. However, a discounted rate of 15% is given to Marubeni on dividends received from Atlantic Gulf on the condition that Japan, its domicile state, extends in favor of Marubeni a tax credit of not less than 20% of the dividends received. This 15% tax rate imposed on the dividends received under Section 24(b)(1)(iii) is easily within the maximum ceiling of 25% of the gross amount of the dividends as decreed in Article 10(2)(b) of the Tax Treaty.

Notes:Each tax has a different tax basis. Under the Philippine-Japan Tax Convention, the 25% rate fixed is the maximum rate, as reflected in the phrase shallnot exceed. This means that any tax imposable by the contracting state concerned should not exceed the 25%limitation and said rate would apply only if the tax imposed by our laws exceeds the same.

vi. Non-resident Foreign corporations NRFC

aa. General Rule: 30% of gross income Section 22. Definitions - When used in this Title: (I) The term 'nonresident foreign corporation' applies to a foreign corporation not engaged in trade or business within the Philippines.

Section 28. Rates of Income Tax on Foreign Corporations. - (B) Tax on Nonresident Foreign Corporation. -xx

bb. NRFCs subject to preferential tax rates

1. Non resident Cinematographic film onwer, lessor, or distributor - 25% gross income

28 B (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.

2. Nonresident owner or lessor of vessels chartered of Ph nationals - 4.5% of gross rentals or charter fees

28 B (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.

3. Nonresident owner on Lessor of Aircraft Machineries and other Equipment - 7.5% of gross rentals or fees

Section 28. Rates of Income Tax on Foreign Corporations. - (B) Tax on Nonresident Foreign Corporation. -

(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.

VIII. RETURNS AND PAYMENT OF TAX

a. Individual return NIRC 51, 56, 74

1. Who are required to file

(a) Every Filipino citizen residing in the Philippines;(b) Every Filipino citizen residing outside the Philippines, on his income from sources within the Philippines;(c) Every alien residing in the Philippines, on income derived from sources within the Philippines; and(d) Every nonresident alien engaged in trade or business or in the exercise of profession in the Philippines.

2. Who are not required to file ITR:

(a) An individual whose gross income does not exceed his total personal and additional exemptions for dependents under Section 35: Provided, That a citizen of the Philippines and any alien individual engaged in business or practice of profession within the Philippine shall file an income tax return, regardless of the amount of gross income;

(b) An individual with respect to pure compensation income, as defined in Section 32 (A)(1), derived from sources within the Philippines, the income tax on which has been correctly withheld under the provisions of Section 79 of this Code: Provided, That an individual deriving compensation concurrently from two or more employers at any time during the taxable year shall file an income tax return: Provided, further, That an individual whose compensation income derived from sources within the Philippines exceeds Sixty thousand pesos (P60,000) shall also file an income tax return;

(c) An individual whose sole income has been subjected to final withholding tax pursuant to Section 57(A) of this Code; and

(d) An individual who is exempt from income tax pursuant to the provisions of this Code and other laws, general or special.

3. Where to file: Except in cases where the Commissioner otherwise permits, the return shall be filed with an authorized agent bank, Revenue District Officer, Collection Agent or duly authorized Treasurer of the city or municipality in which such person has his legal residence or principal place of business in the Philippines, or if there be no legal residence or place of business in the Philippines, with the Office of the Commissioner.

4. When to file:

(1) The return of any individual specified above shall be filed on or before the fifteenth (15th) day of April of each year covering income for the preceding taxable year.

(2) Individuals subject to tax on capital gains;

(a) From the sale or exchange of shares of stock not traded thru a local stock exchange as prescribed under Section 24(c) shall file a return within thirty (30) days after each transaction and a final consolidated return on or before April 15 of each year covering all stock transactions of the preceding taxable year; and(b) From the sale or disposition of real property under Section 24(D) shall file a return within thirty (30) days following each sale or other disposition.

5. Where to pay: Section 56. Payment and Assessment of Income Tax for Individuals and Corporation. -

(A) Payment of Tax. -

(1) In General. - The total amount of tax imposed by this Title shall be paid by the person subject thereto at the time the return is filed. In the case of tramp vessels, the shipping agents and/or the husbanding agents, and in their absence, the captains thereof are required to file the return herein provided and pay the tax due thereon before their departure. Upon failure of the said agents or captains to file the return and pay the tax, the Bureau of Customs is hereby authorized to hold the vessel and prevent its departure until proof of payment of the tax is presented or a sufficient bond is filed to answer for the tax due.

(2) Installment of Payment. - When the tax due is in excess of Two thousand pesos (P2,000), the taxpayer other than a corporation may elect to pay the tax in two (2) equal installments in which case, the first installment shall be paid at the time the return is filed and the second installment, on or before July 15 following the close of the calendar year. If any installment is not paid on or before the date fixed for its payment, the whole amount of the tax unpaid becomes due and payable, together with the delinquency penalties.

6. Capital gains on shares of stock and real estate: 56 (3)

(3) Payment of Capital Gains Tax. - The total amount of tax imposed and prescribed under Section 24 (c), 24(D), 27(E)(2), 28(A)(8)(c) and 28(B)(5)(c) shall be paid on the date the return prescribed therefor is filed by the person liable thereto: Provided, That if the seller submits proof of his intention to avail himself of the benefit of exemption of capital gains under existing special laws, no such payments shall be required : Provided, further, That in case of failure to qualify for exemption under such special laws and implementing rules and regulations, the tax due on the gains realized from the original transaction shall immediately become due and payable, subject to the penalties prescribed under applicable provisions of this Code: Provided, finally, That if the seller, having paid the tax, submits such proof of intent within six (6) months from the registration of the document transferring the real property, he shall be entitled to a refund of such tax upon verification of his compliance with the requirements for such exemption.

"In case the taxpayer elects and is qualified to report the gain by installments under Section 49 of this Code, the tax due from each installment payment shall be paid within (30) days from the receipt of such payments.

7. Quarterly declaration of income tax - Section 74

Section 74. Declaration of Income Tax for Individuals. -

(A) In General. - Except as otherwise provided in this Section, every individual subject to income tax under Sections 24 and 25(A) of this Title, who is receiving self-employment income, whether it constitutes the sole source of his income or in combination with salaries, wages and other fixed or determinable income, shall make and file a declaration of his estimated income for the current taxable year on or before April 15 of the same taxable year. In general, self-employment income consists of the earnings derived by the individual from the practice of profession or conduct of trade or business carried on by him as a sole proprietor or by a partnership of which he is a member. Nonresident Filipino citizens, with respect to income from without the Philippines, and nonresident aliens not engaged in trade or business in the Philippines, are not required to render a declaration of estimated income tax. The declaration shall contain such pertinent information as the Secretary of Finance, upon recommendation of the Commissioner, may, by rules and regulations prescribe. An individual may make amendments of a declaration filed during the taxable year under the rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner.

(B) Return and Payment of Estimated Income Tax by Individuals. - The amount of estimated income as defined in Subsection (C) with respect to which a declaration is required under Subsection (A) shall be paid in four (4) installments. The first installment shall be paid at the time of the declaration and the second and third shall be paid on August 15 and November 15 of the current year, respectively. The fourth installment shall be paid on or before April 15 of the following calendar year when the final adjusted income tax return is due to be filed.

(C) Definition of Estimated Tax. - In the case of an individual, the term 'estimated tax' means the amount which the individual declared as income tax in his final adjusted and annual income tax return for the preceding taxable year minus the sum of the credits allowed under this Title against the said tax. If, during the current taxable year, the taxpayer reasonable expects to pay a bigger income tax, he shall file an amended declaration during any interval of installment payment dates.

NOTES:Income tax returns covering income, profits, and gains1. Individuals deriving purely compensation income must file his income tax return (BIR FORM 1701) not later than April 15 of the following year.2. This requirement of filing tax returns is no longer required beginning 2002. 3. SUBSTITUTED FILING OF TAX RETURNS: is allowed where an employee receives purely compensation income from a single employer who deducted and remitted to the BIR the correct amount of withtholding tax from the employees compensation income during the year.4. In lieu of the regular tax returns to be filed by the employees, BIR FORM 1643 shall be filed by the employer with the BIR.5. NRC who receive purely foreign source income are no longer required to file their PH income tax returns, although they must still file an income tax return covering the income from sources within the PH6. MARRIED INDIVIUDAL ETB may die during the year in this case two income tax returns must be filed by his executor or administrator (1) regular ITR covering his business from Jan 1 up to date he lived, and (2) regular ITR to be filed by the estate of the deceased covering business income from the date of death up to December 31. There will also be two exemptions allowed :50 k as married, claimed by the taxpayer in his ITR50 k claimed by the estate in its tax return.

RMC 1-2003 SUBSTITUTED FILING SYSTEM The Bureau of Internal Revenue (BIR), in its mission of providing an efficient and convenient service to its taxpayers, is implementing a hassle-free method of filing Individual Income Tax Returns (BIR Form 1700). This method of filing recognizes under certain circumstances, the employers Annual Information Return (BIR Form No. 1604CF) as the substitute income tax return filed by the employee since it contains the same information found in the income tax return ordinarily filed.

This Circular aims to provide some basic information and answers to questions frequently asked on substituted filing.

What is Substituted Filing?

Substituted Filing is when the employers annual return (BIR Form 1604CF) may be considered as the substitute Income Tax Return (ITR) of employee inasmuch as the information provided in his income tax return (BIR Form 1700) would exactly be the same information contained in the employers annual return (BIR Form No. 1604-CF).

How is Substituted Filing different from Non-Filing?

Under substituted filing, an individual taxpayer although required under the law to file his income tax return, will no longer have to personally file his own income tax return but instead the employers annual information return filed will be considered as the substitute income tax return of the employee inasmuch as the information in the employers return is exactly the same information contained in the employees return.

Non-filing is applicable to certain types of individual taxpayers who are not required under the law to file an income tax return. An example is an employee whose pure compensation income does not exceed P60,000, and has only one employer for the taxable year and whose tax withheld is equivalent to his tax due.

Who are qualified and under what conditions will substituted filing of BIR Form No. 1700 apply?

Substituted filing applies only to individuals who meet all the following conditions:

The employee receives purely compensation income (regardless of amount) during the taxable year

The employee receives the income only from one employer in the Philippines during the taxable year

The amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer

The employees spouse also complies with all three (3) conditions stated above.

The employer files the annual information return (BIR Form No. 1604-CF)

The employer issues BIR Form 2316 (Oct 2002 ENCS) version to each employee

Who are not qualified for substituted filing of BIR Form 1700? The following individuals are not qualified for substituted filing:

Individuals deriving compensation income from two or more employees, concurrently or successively at anytime during the taxable year

Employees deriving compensation income, regardless of amount, whether from a single or several employers during the calendar year, the income tax of which has not been withheld correctly (i.e. tax due is not equal to the tax withheld) resulting to a collectible or refundable return

Employees whose monthly gross compensation income does not exceed Five Thousand Pesos (P5,000) or the statutory minimum wage, whichever is higher, and opted for non-withholding of tax on said income

Individuals deriving other non-business, non-profession-related income in addition to compensation not otherwise subject to final tax

Individuals deriving purely compensation income from a single employer, although the income of which has been correctly subjected to withholding tax, but whose spouse is not entitled to substituted filing

Non-resident aliens engaged in trade or business in the Philippines deriving purely compensation income or compensation income and other business or profession related income

2

Part I Employee Information (items 3 to 12)This refers to employees personal information as declared by him in the Certificate of Update of Exemption and Employers and Employees Information (BIR Form 2305). The same information should likewise be consistent with the information in the Annual Information Return (BIR Form 1604CF).5. What will be presented in case an ITR is required?

BIR Form 2316 (Oct 2002 ENCS version) is a statement signed by both the employee and the employer and serves the same purpose as if BIR Form No. 1700 had been filed. This, however, is not to be submitted or filed with the BIR if the employee is qualified for substituted filing.

7. Who shall prepare and issue BIR Form 2316?

In general, every employer or other person who is required to deduct and withhold the tax on compensation including fringe benefits given to rank and file employees, shall furnish every employee from whose compensation taxes have been withheld the Certificate of Compensation Payment/Tax Withheld (BIR Form 2316 Oct 2002 ENCS version).

8. When should the employer issue BIR Form 2316?

Employers should issue BIR Form 2316 to the employee on or before January 31 of the succeeding calendar year, or if employment is terminated before the close of such calendar year, on the day on which the last payment of compensation is made.

9. What is contained in the Substituted Filing signature box in BIR Form 2316?

The lowest portion of BIR Form 2316 (Oct 2002 ENCS version) shall be accomplished only for substituted filing. It consists of two parts namely, matters certified to by the employer and matters certified to by the employee. The employer and employee, under the pain of perjury, shall sign the boxes for substituted filing.

10. For substituted filing, what are the matters being certified to by the EMPLOYER?

The matters being certified to by the employer are as follows:

a. That the information contained in BIR Form 2316 (Oct 2002 ENCS version) are the same as reported and declared in BIR Form 1604 CF, i.e.,

The employees information is the same as that declared by the employee in BIR Form 2305

If employee had previous employer/s, the previous employers information is the same as that declared in previous employers BIR Form 2316 issued to said employee

The information pertaining to the present employer is true and correct

The details of compensation and taxes withheld is true and correct

b. That the employer filed with the BIR the Annual Information Return (BIR Form 1604CF)

11. For substituted filing, what are the matters being certified to by the EMPLOYEE?

The matters being certified to by the employee are as follows:

a. That the employee is qualified under the substituted filing of income tax returns (BIR Form 1700), i.e.,

The employee receives purely compensation income (regardless of amount) during the taxable year

The employee receives the income only from one employer in the Philippines during the taxable year The amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer

If married, that the employees spouse also complies with all three (3) conditions stated above.

That the employee has none of the instances for disqualification for substituted filing. (refer to question no. 4 of this issuance)

That the BIR Form 1604CF filed by his employer shall constitute as his income tax return

That BIR Form 2316 (Oct 2002 ENCS version) shall serve as the same purpose as if BIR Form 1700 had been filed pursuant to the provisions of RR 3-2002 as amended by RR 19-2002.

For other government agencies and other offices, public and private, requiring presentation of individual income tax return (BIR Form 1700) as proof of income earnings, what would be a replacement for BIR Form 1700 for those qualified for substituted filing?

For those qualified for substituted filing, BIR Form 1700 should no longer be required as proof of financial capacity or proof of income earnings. Presentation of BIR Form 2316 (Oct 2002 ENCS version) is sufficient proof of income earnings since it is a statement signed by both the employee and the employer and it shall serve the same purpose as if BIR Form No. 1700 had been filed.

What is the use of the BIR Form 2316, for those qualified for substituted filing?

The BIR Form 2316 (Oct 2002 ENCS version) can be used for the following purposes:

As proof of financial capacity for purposes of loan, credit card, or other application

As proof of payment of tax or for availing tax credit in the employees home country

In securing travel permits and travel tax exemptions when necessary; and

For other purposes to meet the requirements of various government/private agencies

When does substituted filing take effect?

It took effect for taxable year 2001 on a voluntary basis and is mandatory for income/compensation earned starting taxable year 2002. Thus, employees who qualify for substituted filing for taxable year 2002 and beyond will no longer file BIR Form 1700 on or before the 15th of April of every year. What will an employee do with BIR Form 2316 issued by the employer?

If the BIR Form 2316 was issued by a previous employer as a result of termination of employment and the employee has been subsequently employed within the same calendar year, the employee should submit a copy of BIR Form 2316 issued by the previous employer to his present employer, for consolidation with his current compensation received from the present employer.

If the employee is qualified for substituted filing, the employee concerned should sign the substituted filing signature box of BIR Form 2316 and have the same signed by the employer. A copy of BIR Form 2316 signed both by the employer and employee shall be retained and kept by the employer and the employee.

If an employee is not qualified for substituted filing, he is required by law to file his income tax return (BIR Form 1700 or BIR Form 1701). BIR Form 2316 should be attached as proof of his compensation income and withholding taxes as well as other necessary and applicable attachments, like financial statements, certificate of creditable withholding taxes.

For those qualified for substituted filing, is it necessary to have BIR Form 2316 notarized?

No, it is not necessary to have BIR Form 2316 notarized for those qualified for substituted filing.

Can an employee file an ITR (BIR Form No. 1700) even if he is qualified for substituted filing?

No, for taxable year 2002 and beyond, substituted filing is mandatory for qualified employees.

B. CORPORATE REGULAR RETURNS (SEC 52, 53, 56 )

1. Quarterly income taxSection 52. Corporation Returns. -

(A) Requirements. - Every corporation subject to the tax herein imposed, except foreign corporations not engaged in trade or business in the Philippines, shall render, in duplicate, a true and accurate quarterly income tax return and final or adjustment return in accordance with the provisions of Chapter XII of this Title. The return shall be filed by the president, vice-president or other principal officer, and shall be sworn to by such officer and by the treasurer or assistant treasurer.

2. Final adjustment return Section 76. Final Adjustment Return. - Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either:

(A)Pay the balance of tax still due; or

(B)Carry-over the excess credit; or

(C)Be credited or refunded with the excess amount paid, as the case may be.

In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefor.

3. When to file : Section 77. Place and Time of Filing and Payment of Quarterly Corporate Income Tax. - (B) Time of Filing the Income Tax Return. - The corporate quarterly declaration shall be filed within sixty (60) days following the close of each of the first three (3) quarters of the taxable year. The final adjustment return shall be filed on or before the fifteenth (15th) day of April, or on or before the fifteenth (15th) day of the fourth (4th) month following the close of the fiscal year, as the case may be.

4. Where to file : Section 77. Place and Time of Filing and Payment of Quarterly Corporate Income Tax. -

(A) Place of Filing. -Except as the Commissioner other wise permits, the quarterly income tax declaration required in Section 75 and the final adjustment return required I Section 76 shall be filed with the authorized agent banks or Revenue District Officer or Collection Agent or duly authorized Treasurer of the city or municipality having jurisdiction over the location of the principal office of the corporation filing the return or place where its main books of accounts and other data from which the return is prepared are kept.

5. When to Pay: Section 77. Place and Time of Filing and Payment of Quarterly Corporate Income Tax. -(C) Time of Payment of the Income Tax. - The income tax due on the corporate quarterly returns and the final adjustment income tax returns computed in accordance with Sections 75 and 76 shall be paid at the time the declaration or return is filed in a manner prescribed by the Commissioner.

6. Capital gains on shares of stock: Shares of stock of a domestic corporation

Listed and traded in a local stock exchange : the transaction is exempt from income tax, but subject to of 1% stock transaction tax, which is required to be withheld and deducted by the stockbroker handling the transaction and remitted to the BIR within 5 working days from the date of sale

Unlisted, or listed but traded outside a local stock exchange: the capital gains tax must be filed within 30 days from the date of sale with the RDO where the principal place of business of the seller is located.

NOTES: ELECTRONIC FILING AND PAYMENT SYSTEM

3.1 Large Taxpayers. (a) Beginning the calendar year 2001 and all fiscal years as well as calendar years thereafter, Large Taxpayers shall e-file their final adjustment income tax returns for the said calendar/fiscal years and e-pay the taxes due thereon through the EFPS on or before the 15th day of the fourth month following the close of the taxable year. Nonetheless, e- payment shall be optional for tax returns that will be filed until July 31, 2002. Thus, until July 31, 2002, if a taxpayer does not opt to pay electronically, payment shall be made manually. (b) Beginning July 1, 2002, Large Taxpayers shall e-file all the tax returns that can be filed electronically through the EFPS but e-payment shall nonetheless remain optional until July 31, 2002. However, unless otherwise notified by the Commissioner of Internal Revenue (CIR), for all returns that will be filed starting August 1, 2002, e-payment of the taxes due thereon thru EFPS shall become mandatory.

NOTES: thus, based on the above provisions since July 1 2002 there has been no instance where large taxpayers would have manually filed their tax returns nor would have paid their taxes manually since Aug 1 2002/

8.1 Large Taxpayers. - (a) Large Taxpayers who will e-pay shall enroll with any EFPS AAB authorized to serve them and who is capable to accept e-payments. E-payments shall be made within the day the return is electronically filed following the pay-as-you- file principle. Accreditation of an existing BIR AAB as an EFPS AAB authorized to service taxpayers classified and notified by the BIR as large taxpayers shall be opened to such number of commercial/universal banks as may be necessary to provide efficient and effective service to all the large taxpayers.Notes: with respect to payment of large taxpyers the same must be made only thru EFPS authorized agent banks AAB and not thru Revenue Collection Officers.Thus all large taxpayers are hereby reminded to refrain from manually paying their taxes thru the RCOs and to strictly comply with the Regulations mandating them to e-pay their taxes thru their EFPS AABs. Other wise the penalty of 25% surcharge for wrong venue is provided for under Sec 248 (a)(2) as amended shall be imposed.

9.1 e-Filing and e-Payment. - The return is deemed filed, on the date appearing in, and after a Filing Reference Number is generated and issued to the taxpayer via the EFPS. The tax due thereon is deemed paid after a Confirmation Number is issued to the taxpayer and to the BIR by the AAB. In addition, an Acknowledgement Number shall be issued by the AAB to the BIR to confirm that the tax payment has been credited to the account of 3 the government or recognized as revenue (internal revenue tax collection) by the Bureau of Treasury.

IX. WITHHOLDING TAX

withholding taxes of income tax on compensation income on certain income payments made to resident taxpayers and on income made to NR taxpayers is impt because the obligation to withhold and remit the tax is mandatory. the amount of withholding tax that should have been withheld and remitted to the BIR plus penalties are assessed by the BIR against the withholding agent. expenses claimed as deductions from gross income may however be allowed as deductions

A. final withholding tax at source sec 57 (entire)

Section 57. Withholding of Tax at Source. xx

(B) Withholding of Creditable Tax at Source. - The Secretary of Finance may, upon the recommendation of the Commissioner, require the withholding of a tax on the items of income payable to natural or juridical persons, residing in the Philippines, by payor-corporation/persons as provided for by law, at the rate of not less than one percent (1%) but not more than thirty-two percent (32%) thereof, which shall be credited against the income tax liability of the taxpayer for the taxable year.

Notes: Since withholding taxes are deducted by withholding agents (who have control custody or receipt of funds) when the income payments are paid or payable, they are described as withholding taxes at source. In other words the income tax of the recipient of the income is withheld and deducted atr the source and at the time of accrual or payment of the expense by the withholding agent-payor of income The withholding of income tax is particularly significant where the payee is a NRA ind or NRFC over whom the Ph gov has no jurisdiction and cannot therefore enforce collection of deficiency tax assessments. Withholding of tax is also an effective way of collecting income tax on interest on bank deposits of taxpayers who enjoy confidentiality of their deposits under RA No 1405.B. CREDITABLE WITHHODOING TAX here taxes withheld on certain income payments are intended to equal or atleast approximate the tax due of the payee on said income. the income tax recipient is still required to file quarterly and annual ITR to report income and/or to pay the difference between the tax withheld and the tax due on the income.taxes withheld on income payments covered by the expanded withholding tax and compensation income are creditable in nature against the income tax liability for the year, provided the same are evidenced by the appropriate withholding tax certificate (BIR 2317) that is attached to the income tax return filed with the BIR.

There are 3 types of creditable withholding taxes, namely:(1) expanded withholding tax on certain income payments made by private persons to resident taxpayers;(2) withholding tax on compensation income for services done in the PH and(3) withholding tax on money payments made by the government.

1. Expanded withholding tax: 390-392

Essential Requisites for EWT

An income payment is subject to the expanded withholding tax, if the ff conditions concur:

a. An expense is paid or payable by the taxpayer, which is income to the recipient thereof subject to income tax;b. income is fixed or determinable at the time of payment;c. the income is one of the income payments listed in the regulations that is subject to withholding tax; If the payor of income is one of the top 20000 corporations, the income payment, although not listed as subject to EWT under the regulations is subject to CWT of 1% if it insolves purchase of goods, or 2% if it insolves purchase of services.d. the income recipient is a resident of the Ph liable to income taxe. the payor-withholding agent is also a resident of the PH.

An expense is paid or payable by the taxpayer , which is income to the recipient thereof subject to income tax. The payment must represent income to the recipient thereof and it is subject to income tax. Unless income gain or profit is expressly exempt under the Tax Code or special law, it is presumed to be taxable.

The withholding of creditable withholding tax shall not apply to income payments made to the ff: pp 394

REVENUE REGULATION 2-98

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

SECTION 2.57. Withholding of Tax at Source(A) Final Withholding Tax. Under the final withholding tax system the amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income tax due from the payee on the said income. The liability for payment of the tax rests primarily on the payor as a withholding agent. Thus, in case of his failure to withhold the tax or in case of under withholding, the deficiency tax shall be collected from the payor/withholding agent. The payee is not required to file an income tax return for the particular income. The finality of the withholding tax is limited only to the payee's income tax liability on the particular income. It does not extend to the payee's other tax liability on said income, such as when the said income is further subject to a percentage tax. For example, if a bank receives income subject to final withholding tax, the same shall be subject to a percentage tax.

(B) Creditable Withholding Tax. Under the creditable withholding tax system, taxes withheld on certain income payments are intended to equal or at least approximate the tax due of the payee on said income. The income recipient is still required to file an income tax return, as prescribed in Sec. 51 and Sec. 52 of the NIRC, as amended, to report the income and/or pay the difference between the tax withheld and the tax due on the income. Taxes withheld on income payments covered by the expanded withholding tax (referred to in Sec. 2.57.2 of these regulations) and compensation income (referred to in Sec. 2.78 also of these regulations) are creditable in nature.

SECTION 2.57.1. Income Payments Subject to Final Withholding Tax. The following forms of income shall be subject to final withholding tax at the rates herein specified;

(A) Income payments to a citizen or to a resident alien individual;

(1) Interest from any peso bank deposit, and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements; royalties (except on books as well as other literary works and musical compositions), prizes (except prizes amounting to ten thousand pesos (P10,000.00) or less which shall be subject to tax under Sec. 24 (A) of the Code) and other winnings (except Philippine Charity Sweepstakes winnings and lotto winnings) derived from sources within the Philippines Twenty percent (20%).

(2) Royalties on books, as well as other literary works and musical compositions Ten percent (10%).

(3) Interest income received by a resident individual taxpayer from a depository bank under the Foreign Currency Deposit System Seven and one-half percent (7.5%).

(4) Interest income from long-term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates in such form prescribed by the Bangko Sentral ng Pilipinas which was pre-terminated by the holder before the fifth (5th) year at the rates herein prescribed to be deducted and withheld from the proceeds thereof based on the length of time that the instrument was held by the taxpayer Holding Period RateFour (4) years to less than five (5) years 5%Three (3) years to less than four (4) years 12%Less than three (3) years 20%

(5) Cash and/or property dividends actually or constructively received from a domestic corporation, joint stock company, insurance or mutual fund companies or on the share of an individual partner in the distributable net income after tax of a partnership (except general professional partnership) or on the share of an individual in the net income after tax of an association, a joint account or a joint venture or consortium of which he is a member or a co-venturer.6% - beginning January 1, 19988% - beginning January 1, 1999 and10% - beginning January 1, 2000 and thereafterThe tax on cash and property dividends shall only be imposed on dividends which are declared from profits of corporations made after December 31, 1997.

(6) On capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales based on the gross selling price or fair market value as determined in accordance with Sec. 6(E) of the Code (i.e. the authority of the Commissioner to prescribe the real property values), whichever is higher Six percent (6%).

In case of dispositions of real property made by individuals to the government or any of its political subdivisions or agencies or to government-owned or controlled corporations, the tax to be imposed shall be determined either under Section 24(A) of the Code for normal income tax for individual citizens and residents or under Section 24(D)(1) of the Code for the final tax on capital gains from sale of property at six percent (6%), at the option of the taxpayer.

WITHHOLDING AGENT: SECTION 2.57.3. Persons Required to Deduct and Withhold. The following persons are hereby constituted as withholding agents for purposes of the creditable tax required to be withheld on income payments enumerated in Section 2.57.2:

(A) In general, any juridical person, whether or not engaged in trade or business;(B) An individual, with respect to payments made in connection with his trade or business. However, insofar as taxable sale, exchange or transfer of real property is concerned, individual buyers who are not engaged in trade or business are also constituted as withholding agents;(C) All government offices including government-owned or controlled corporations, as well as provincial, city and municipal governments.

SECTION 2.57.4. Time of Withholding. The obligation of the payor to deduct and withhold the tax under Section 2.57 of these regulations arises at the time an income is paid or payable, whichever comes first, the term "payable" refers to the date the obligation become due, demandable or legally enforceable.

SECTION 2.57.5. Exemption from Withholding. The withholding of creditable withholding tax prescribed in these Regulations shall not apply to income payments made to the following:

(A) National government and its instrumentalities, including provincial, city or municipal governments;(B) Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special, such as but not limited to the following:(1) Sales of real property by a corporation which is registered with and certified by the Housing and Land Use Regulatory Board (HLURB) or HUDCC as engaged in socialized housing project where the selling price of the house and lot or only the lot does not exceed one hundred eighty thousand pesos (P180,000) in Metro Manila and other highly urbanized areas and one hundred fifty thousand pesos (P150,000) in other areas or such adjusted amount of selling price for socialized housing as may later be determined and adopted by the HLURB, as provided under Republic Act No. 7279 and its implementing regulations;

(2) Corporations registered with the Board of Investments and enjoying exemption from the income tax provided by Republic Act No. 7916 and the Omnibus Investment Code of 1987;

(3) Corporations which are exempt from the income tax under Sec. 30 of the NIRC, to wit: the Government Service Insurance System (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO) and the Philippine Amusement and Gaming Corporation (PAGCOR); However, the income payments arising from any activity which is conducted for profit or income derived from real or personal property shall be subject to a withholding tax as prescribed in these regulations.

2. WITHHOLDING TAX ON COMPENSATION

REVREG 2-98SECTION 2.78. Withholding Tax on Compensation. The withholding of tax on compensation income is a method of collecting the income tax at source upon receipt of the income. It applies to all employed individuals whether citizens or aliens, deriving income from compensation for services rendered in the Philippines. The employer is constituted as the withholding agent.

SECTION 2.78.1. Withholding of Income Tax on Compensation Income. (A) Compensation Income Defined. In general, the term "compensation" means all remuneration for services performed by an employee for his employer under an employer-employee relationship, unless specifically excluded by the Code.The name by which the remuneration for services is designated is immaterial. Thus, salaries, wages, emoluments and honoraria, allowances, commissions (e.g. transportation, representation, entertainment and the like); fees including director's fees, if the director is, at the same time, an employee of the employer/corporation; taxable bonuses and fringe benefits except those which are subject to the fringe benefits tax under Sec. 33 of the Code; taxable pensions and retirement pay; and other income of a similar nature constitute compensation income.

The basis upon which the remuneration is paid is immaterial in determining whether the remuneration constitutes compensation. Thus, it may be paid on the basis of piece-work, or a percentage of profits; and may be paid hourly, daily, weekly, monthly or annually. repRemuneration for services constitutes compensation even if the relationship of employer and employee does not exist any longer at the time when payment is made between the person in whose employ the services had been performed and the individual who performed them.

(1) Compensation paid in kind. Compensation may be paid in money or in some medium other than money, as for example, stocks, bonds or other forms of property. If services are paid for in a medium other than money, the fair market value of the thing taken in payment is the amount to be included as compensation subject to withholding. If the services are rendered at a stipulated price, in the absence of evidence to the contrary, such price will be presumed to be the fair market value of the remuneration received. If a corporation transfers to its employees its own stock as remuneration for services rendered by the employee, the amount of such remuneration is the fair market value of the stock at the time the services were rendered.

(2) Living quarters or meals. If a person receives a salary as remuneration for services rendered, and in addition thereto, living quarters or meals are provided, the value to such person of the quarters and meals so furnished shall be added to the remuneration paid for the purpose of determining the amount of compensation subject to withholding. However, if living quarters or meals are furnished to an employee for the convenience of the employer, the value thereof need not be included as part of compensation income.

(3) Facilities and privileges of a relatively small value. Ordinarily, facilities and privileges (such as entertainment, medical services, or so called "courtesy" discounts on purchases), furnished or offered by an employer to his employees generally, are not considered as compensation subject to withholding if such facilities or privileges are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees.Where compensation is paid in property other than money, the employer shall make necessary arrangements to ensure that the amount of the tax required to be withheld is available for payment to the Commissioner.

(4) Tips and gratuities. Tips or gratuities paid directly to an employee by a customer of the employer which are not accounted for by the employee to the employer are considered as taxable income but not subject to withholding.

(5) Pensions, retirement and separation pay. Pensions, retirement and separation pay constitute compensation subject to withholding, except those provided under Subsection B of this section.

(6) Fixed or variable transportation, representation and other allowances

(a) IN GENERAL, fixed or variable transportation, representation and other allowances which are received by a public officer or employee or officer or employee of a private entity, in addition to the regular compensation fixed for his position or office, is compensation subject to withholding.

(b) Any amount paid specifically, either as advances or reimbursements for travelling, representation and other bonafide ordinary and necessary expenses incurred or reasonably expected to be incurred by the employee in the performance of his duties are not compensation subject to withholding, if the following conditions are satisfied:

(i) It is for ordinary and necessary travelling and representation or entertainment expenses paid or incurred by the employee in the pursuit of the trade, business or profession; and(ii) The employee is required to account/liquidate for the foregoing expenses in accordance with the specific requirements of substantiation for each category of expenses pursuant to Sec. 34 of the Code. The excess of actual expenses over advances made shall constitute taxable income if such amount is not returned to the employer. Reasonable amounts of reimbursements/ advances for travelling and entertainment expenses which are pre-computed on a daily basis and are paid to an employee while he is on an assignment or duty need not be subject to the requirement of substantiation and to withholding.

(7) Vacation and sick leave allowances. Amounts of "vacation allowances or sick leave credits" which are paid to an employee constitute compensation. Thus, the salary of an employee on vacation or on sick leave, which are paid notwithstanding his absence from work, constitutes compensation. However, the monetized value of unutilized vacation leave credits of ten (10) days or less which were paid to the employee during the year are not subject to income tax and to the withholding tax.

(8) Deductions made by employer from compensation of employee. Any amount which is required by law to be deducted by the employer from the compensation of an employee including the withheld tax is considered as part of the employee's compensation and is deemed to be paid to the employee as compensation at the time the deduction is made.

(9) Remuneration for services as employee of a nonresident alien individual or foreign entity. The term "compensation" includes remuneration for services performed by an employee of a nonresident alien individual, foreign partnership or foreign corporation, whether or not such alien individual or foreign entity is engaged in trade or business within the Philippines. Any person paying compensation on behalf of a non-resident alien individual, foreign partnership, or foreign corporation which is not engaged in trade or business within the Philippines is subject to all provisions of law and regulations applicable to an employer.

(10) Compensation for services performed outside the Philippines. Remuneration for services performed outside the Philippines by a resident citizen for a domestic or a resident foreign corporation or partnership, or for a non-resident corporation or partnership, or for a non-resident individual not engaged in trade or business in the Philippines shall be treated as compensation which is subject to tax.A non-resident citizen as defined in these regulations is taxable only on income derived from sources within the Philippines. In general, the situs of the income whether within or without the Philippines, is determined by the place where the service is rendered.

(B) Exemptions from withholding tax on compensation. The following income payments are exempted from the requirement of withholding tax on compensation:

(1) Remunerations received as an incident of employment, as follows:

(a) Retirement benefits received under Republic Act under 7641 and those received by officials and employees of private firms, whether individual or corporate, under a reasonable private benefit plan maintained by the employer which meet the following requirements:(i) The plan must be reasonable;(ii) The benefit plan must be approved by the Bureau;(iii) The retiring official or employee must have 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 retirement; and(iv) The retiring official or employee should not have previously availed of the privilege under the retirement benefit plan of the same or another employer.

(b) Any amount received by an official or employee or by his heirs from the employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee, such as retrenchment, redundancy, or cessation of business. repThe phrase "for any cause beyond the control of the said official or employee" connotes involuntariness on the part of the official or employee. The separation from the service of the official or employee must not be asked for or initiated by him. The separation was not of his own making. Whether or not the separation is beyond the control of the official or employee, being essentially a question of fact, shall be determined on the basis of prevailing facts and circumstances. It shall be duly established by the employer by competent evidence which should be attached to the monthly return for the period in which the amount paid due to the involuntary separation was made.

Amounts received by reason of involuntary separation remain exempt from income tax even if the official or the employee, at the time of separation, had rendered less than ten (10) years of service and/or is below fifty (50) years of age.

Any payment made by an employer to an employee on account of dismissal, constitutes compensation regardless of whether the employer is legally bound by contract, statute, or otherwise, to make such payment.

(c) Social security benefits, retirement gratuities, pensions and other similar benefits received by residents or non-resident 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 law of the United States administered by the United States Veterans Administration;

(e) Payments of benefits made under the Social Security System Act of 1954 as amended; and

(f) Benefits received from the GSIS Act of 1937, as amended, and the retirement gratuity received by government officials and employees.

(2) Remuneration paid for agricultural labor

(a) Remuneration for services which constitute agricultural labor and paid entirely in products of the farm where the labor is performed is not subject to withholding. In general, however, the term, "agricultural labor" does not include services performed in connection with forestry, lumbering or landscaping.

(b) Remuneration paid entirely in products of the farm where the labor is performed by an employee of any person in connection with any of the following activities is excepted as remuneration for agricultural labor:(i) The culti