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1. SEC. 127.

Tax on Sale, Barter or Exchange of Shares (E) Services subject to percentage tax under Title V;
of Stock Listed and Traded through the Local Stock
Exchange or through Initial Public Offering. - (F) Services by agricultural contract growers and milling
(A) Tax on Sale, Barter or Exchange of Shares of Stock for others of palay into rice, corn into grits and sugar
Listed and Traded through the Local Stock Exchange.- cane into raw sugar;
There shall be levied, assessed and collected on every
sale, barter, exchange, or other disposition of shares of (G) Medical, dental, hospital and veterinary services
stock listed and traded through the local stock exchange except those rendered by professionals. [56]
other than the sale by a dealer in securities, a tax at the
rate of one-half of one percent (1/2 of 1%) of the gross (H) Educational services rendered by private educational
selling price or gross value in money of the shares of institutions, duly accredited by the Department of
stock sold, bartered, exchanged or otherwise disposed Education(DepED), the Commission on Higher Education
which shall be paid by the seller or transferor. (CHED), the Technical Education and Skills Development
2. Section 109 should be read in relation to Section Authority (TESDA)and those rendered by government
116 educational institutions; [57]
."SEC. 109. Exempt Transactions. - [54]
(I) Services rendered by individuals pursuant to an
(1) Subject to the provisions of Subsection (2) hereof, the employer-employee relationship;
following transactions shall be exempt from the value-
added tax. (J) Services rendered by regional or area headquarters
established in the Philippines by multinational
(A) Sale or importation of agricultural and marine food corporations which act as supervisory, communications
products in their original state, livestock and poultry of and coordinating centers for their affiliates, subsidiaries
or king generally used as, or yielding or producing foods or branches in the Asia-Pacific Region and do not earn or
for human consumption; and breeding stock and genetic derive income from the Philippines;
materials therefor.
(K) Transactions which are exempt under international
Products classified under this paragraph shall be agreements to which the Philippines is a signatory or
considered in their original state even if they have under special laws, except those under Presidential
undergone the simple processes of preparation or Decree No. 529; [58]
preservation for the market, such as freezing, drying,
salting, broiling, roasting, smoking or stripping. Polished (L) Sales by agricultural cooperatives duly registered
and/or husked rice, corn grits, raw cane sugar and with the Cooperative Development Authority to their
molasses, ordinary salt and copra shall be considered in members as well as sale of their produce, whether in its
their original state; [55] original state or processed form, to non-members; their
importation of direct farm inputs, machineries and
(B) Sale or importation of fertilizers; seeds, seedlings equipment, including spare parts thereof, to be used
and fingerlings; fish, prawn, livestock and poultry feeds, directly and exclusively in the production and/or
including ingredients, whether locally produced or processing of their produce;
imported, used in the manufacture of finished feeds
(except specialty feeds for race horses, fighting cocks, (M) Gross receipts from lending activities by credit or
aquarium fish, zoo animals and other animals generally multi-purpose cooperatives duly registered with the
considered as pets); Cooperative Development Authority;

(C) Importation of personal and household effects (N) Sales by non-agricultural, non- electric and non-
belonging to the residents of the Philippines returning credit cooperatives duly registered with the Cooperative
from abroad and nonresident citizens coming to resettle Development Authority: Provided, That the share capital
in the Philippines: Provided, That such goods are exempt contribution of each member does not exceed Fifteen
from customs duties under the Tariff and Customs Code thousand pesos (P15, 000) and regardless of the
of the Philippines; aggregate capital and net surplus ratably distributed
among the members;
(D) Importation of professional instruments and
implements, wearing apparel, domestic animals, and (O) Export sales by persons who are not VAT-registered;
personal household effects (except any vehicle, vessel,
aircraft, machinery other goods for use in the (P) Sale of real properties not primarily held for sale to
manufacture and merchandise of any kind in commercial customers or held for lease in the ordinary course of
quantity) belonging to persons coming to settle in the trade or business or real property utilized for low-cost
Philippines, for their own use and not for sale, barter or and socialized housing as defined by Republic Act No.
exchange, accompanying such persons, or arriving 7279, otherwise known as the Urban Development and
within ninety (90) days before or after their arrival, Housing Act of 1992, and other related laws, residential
upon the production of evidence satisfactory to the lot valued at One million pesos (P1,500,000) [59] and
Commissioner, that such persons are actually coming to below, house and lot, and other residential dwellings
settle in the Philippines and that the change of residence valued at Two million five hundred thousand pesos (P2,
is bona fide; 500, 000) [60] and below: Provided, That not later than
January 31, 2009 and every three (3) years thereafter,
the amount herein stated shall be adjusted to their (A) Nonresident Alien Engaged in trade or Business
present values using the Consumer Price Index, as Within the Philippines. -
published by the National Statistics Office (NSO); [61] (1) In General. - A nonresident alien individual engaged
in trade or business in the Philippines shall be subject to
(Q) Lease of a residential unit with a monthly rental not an income tax in the same manner as an individual
exceeding Ten thousand pesos (P10, 000): [62]Provided, citizen and a resident alien individual, on taxable income
That not later than January 31, 2009 and every three (3) received from all sources within the Philippines. A
years thereafter, the amount herein stated shall be nonresident alien individual who shall come to the
adjusted to its present value using the Consumer Price Philippines and stay therein for an aggregate period of
Index as published by the National Statistics Office more than one hundred eighty (180) days during any
(NSO); [63] calendar year shall be deemed a 'nonresident alien doing
business in the Philippines'. Section 22 (G) of this Code
(R) Sale, importation, printing or publication of books notwithstanding.
and any newspaper, magazine review or bulletin which
appears at regular intervals with fixed prices for
subscription and sale and which is not devoted Deductions available to RFC
principally to the publication of paid advertisements;

(S) Transport of passengers by international carriers; Definition found in jurisprudence of 'engaged in doing
business' as regards RFC (note that the defn found in
(T) Sale, importation or lease of passenger or cargo Section 22(H) is defective)
vessels and aircraft, including engine, equipment and
spare parts thereof for domestic or international
transport operations; Schedular vs global

(U) Importation of fuel, goods and supplies by persons


engaged in international shipping or air transport SEC. 26. Tax Liability of Members of General
operations; Professional Partnerships. - A general professional
partnership as such shall not be subject to the income tax
(V) Services of bank, non-bank financial intermediaries imposed under this Chapter. Persons engaging in
performing quasi-banking functions, and other non-bank business as partners in a general professional
financial intermediaries; an partnership shall be liable for income tax only in their
separate and individual capacities.
(W) Sale or lease of goods or properties or the For purposes of computing the distributive share of the
performance of services other than the transactions partners, the net income of the partnership shall be
mentioned in the preceding paragraphs, the gross annual computed in the same manner as a corporation.
sales and/or receipts do not exceed the amount of One Each partner shall report as gross income his
million five hundred thousand pesos (P1,500,000): distributive share, actually or constructively received, in
Provided, That not later than January 31, 2009 and every the net income of the partnership.
three (3) years thereafter, the amount herein stated shall
be adjusted to its present With footnote in the book Section 32(A) - property income
value using the Consumer Price Index, as published by. SEC. 32. Gross Income. -
the National Statistics-Office (NSO); (A) General Definition. - Except when otherwise
provided in this Title, gross income means all income
(2) A VAT-registered person may elect that Subsection derived from whatever source, including (but not limited
(1) not apply to its sale of goods or properties or to) the following items:
services: Provided, that an election made under this (1) Compensation for services in whatever form paid,
subsection shall be irrevocable for a period of three (3) including, but not limited to fees, salaries, wages,
years from the quarter the election was made. [64] commissions, and similar items;
"SEC. 116. Tax on Persons Exempt from Value-Added Tax (2) Gross income derived from the conduct of trade or
(VAT). - Any person whose sales or receipts are exempt business or the exercise of a profession;
under Section 109 (V) of this Code from the payment of (3) Gains derived from dealings in property;
value-added tax and who is not a VAT-registered person (4) Interests;
shall pay a tax equivalent to three percent (3%) of his (5) Rents;
gross quarterly sales or receipts: Provided, That (6) Royalties;
cooperatives shall be exempt from the three percent (7) Dividends;
(3%) gross receipts tax herein imposed (8) Annuities;
(9) Prizes and winnings;
Define and explain gross income taxation (10) Pensions; and
(11) Partner's distributive share from the net income of
the general professional partnership.
Advantages of gross income taxation

Section 33(B)(10)
SEC. 25. Tax on Nonresident Alien Individual. - (B) Fringe Benefit Defined. - For purposes of this
Section, the term 'fringe benefit' means any good, (2) Expense account;
service or other benefit furnished or granted in cash or (3) Vehicle of any kind;
in kind by an employer to an individual employee (4) Household personnel, such as maid, driver and
(except rank and file employees as defined herein) such others;
as, but not limited to, the following: (5) Interest on loan at less than market rate to the extent
(1) Housing; of the difference between the market rate and actual rate
(2) Expense account; granted;
(3) Vehicle of any kind; (6) Membership fees, dues and other expenses borne by
(4) Household personnel, such as maid, driver and the employer for the employee in social and athletic
others; clubs or other similar organizations;
(5) Interest on loan at less than market rate to the extent (7) Expenses for foreign travel;
of the difference between the market rate and actual rate (8) Holiday and vacation expenses;
granted; (9) Educational assistance to the employee or his
(6) Membership fees, dues and other expenses borne by dependents; and
the employer for the employee in social and athletic (10) Life or health insurance and other non-life
clubs or other similar organizations; insurance premiums or similar amounts in excess of
(7) Expenses for foreign travel; what the law allows.
(8) Holiday and vacation expenses;
(9) Educational assistance to the employee or his Section 39(A)(1)
dependents; and SEC. 39. Capital Gains and Losses. -
(10) Life or health insurance and other non-life (A) Definitions. - As used in this Title -
insurance premiums or similar amounts in excess of (1) Capital Assets. - The term 'capital assets' means
what the law allows. property held by the taxpayer (whether or not connected
with his trade or business), but does not include stock in
Section 33(A)(1) vs 33(A) trade of the taxpayer or other property of a kind which
SEC. 33. Special Treatment of Fringe Benefit. - would properly be included in the inventory of the
(A) Imposition of Tax. - A final tax of thirty-four percent taxpayer if on hand at the close of the taxable year or
(34%) effective January 1, 1998; thirty-three percent property held by the taxpayer primarily for sale to
(33%) effective January 1, 1999; and thirty-two percent customers in the ordinary course of his trade or
(32%) effective January 1, 2000 and thereafter, is hereby business, or property used in the trade or business, of a
imposed on the grossed-up monetary value of fringe character which is subject to the allowance for
benefit furnished or granted to the employee (except depreciation provided in Subsection (F) of Section 34; or
rank and file employees as defined herein) by the real property used in trade or business of the taxpayer.
employer, whether an individual or a corporation
(unless the fringe benefit is required by the nature of, or Section 34(D)(3) vs 39(D)
necessary to the trade, business or profession of the (D) Losses. -
employer, or when the fringe benefit is for the (1) In General. - Losses actually sustained during the
convenience or advantage of the employer). The tax taxable year and not compensated for by insurance or
herein imposed is payable by the employer which tax other forms of indemnity shall be allowed as deductions:
shall be paid in the same manner as provided for under (a) If incurred in trade, profession or business;
Section 57 (A) of this Code. The grossed-up monetary (b) Of property connected with the trade, business or
value of the fringe benefit shall be determined by profession, if the loss arises from fires, storms,
dividing the actual monetary value of the fringe benefit shipwreck, or other casualties, or from robbery, theft or
by sixty-six percent (66%) effective January 1, 1998; embezzlement.
sixty-seven percent (67%) effective January 1, 1999; and The Secretary of Finance, upon recommendation of the
sixty-eight percent (68%) effective January 1, 2000 and Commissioner, is hereby authorized to promulgate rules
thereafter: Provided, however, That fringe benefit and regulations prescribing, among other things, the
furnished to employees and taxable under Subsections time and manner by which the taxpayer shall submit a
(B), (C), (D) and (E) of Section 25 shall be taxed at the declaration of loss sustained from casualty or from
applicable rates imposed thereat: Provided, further, That robbery, theft or embezzlement during the taxable year:
the grossed -up monetary value of the fringe benefit shall Provided, however, That the time limit to be so
be determined by dividing the actual monetary value of prescribed in the rules and regulations shall not be less
the fringe benefit by the difference between one hundred than thirty (30) days nor more than ninety (90) days
percent (100%) and the applicable rates of income tax from the date of discovery of the casualty or robbery,
under Subsections (B), (C), (D), and (E) of Section 25. theft or embezzlement giving rise to the loss.
(c) No loss shall be allowed as a deduction under this
Section 33(B)(1) - FBT specifically adjacent houses Subsection if at the time of the filing of the return, such
provided to ee by er loss has been claimed as a deduction for estate tax
(B) Fringe Benefit Defined. - For purposes of this purposes in the estate tax return.
Section, the term 'fringe benefit' means any good, (2) Proof of Loss. - In the case of a nonresident alien
service or other benefit furnished or granted in cash or individual or foreign corporation, the losses deductible
in kind by an employer to an individual employee shall be those actually sustained during the year
(except rank and file employees as defined herein) such incurred in business, trade or exercise of a profession
as, but not limited to, the following: conducted within the Philippines, when such losses are
(1) Housing; not compensated for by insurance or other forms of
indemnity. The secretary of Finance, upon (6) Wagering Losses. - Losses from wagering
recommendation of the Commissioner, is hereby transactions shall be allowed only to the extent of the
authorized to promulgate rules and regulations gains from such transactions.
prescribing, among other things, the time and manner by (7) Abandonment Losses. -
which the taxpayer shall submit a declaration of loss (a) In the event a contract area where petroleum
sustained from casualty or from robbery, theft or operations are undertaken is partially or wholly
embezzlement during the taxable year: Provided, That abandoned, all accumulated exploration and
the time to be so prescribed in the rules and regulations development expenditures pertaining thereto shall be
shall not be less than thirty (30) days nor more than allowed as a deduction: Provided, That accumulated
ninety (90) days from the date of discovery of the expenditures incurred in that area prior to January 1,
casualty or robbery, theft or embezzlement giving rise to 1979 shall be allowed as a deduction only from any
the loss; and income derived from the same contract area. In all cases,
(3) Net Operating Loss Carry-Over. - The net operating notices of abandonment shall be filed with the
loss of the business or enterprise for any taxable year Commissioner.
immediately preceding the current taxable year, which (b) In case a producing well is subsequently abandoned,
had not been previously offset as deduction from gross the un-amortized costs thereof, as well as the un-
income shall be carried over as a deduction from gross depreciated costs of equipment directly used therein ,
income for the next three (3) consecutive taxable years shall be allowed as a deduction in the year such well,
immediately following the year of such loss: Provided, equipment or facility is abandoned by the contractor:
however, That any net loss incurred in a taxable year Provided, That if such abandoned well is re-entered and
during which the taxpayer was exempt from income tax production is resumed, or if such equipment or facility is
shall not be allowed as a deduction under this restored into service, the said costs shall be included as
Subsection: Provided, further, That a net operating loss part of gross income in the year of resumption or
carry-over shall be allowed only if there has been no restoration and shall be amortized or depreciated, as the
substantial change in the ownership of the business or case may be.
enterprise in that - 39D
(i) Not less than seventy-five percent (75%) in nominal (D) Net Capital Loss Carry-Over. - If any taxpayer,
value of outstanding issued shares., if the business is in other than a corporation, sustains in any taxable year a
the name of a corporation, is held by or on behalf of the net capital loss, such loss (in an amount not in excess of
same persons; or the net income for such year) shall be treated in the
(ii) Not less than seventy-five percent (75%) of the paid succeeding taxable year as a loss from the sale or
up capital of the corporation, if the business is in the exchange of a capital asset held for not more than twelve
name of a corporation, is held by or on behalf of the same (12) months.
persons.
For purposes of this subsection, the term 'net operating Section 24(D) vs 27(D)(5)
loss' shall mean the excess of allowable deduction over (D) Rates of Tax on Certain Passive Incomes. -
gross income of the business in a taxable year. (1) Interest from Deposits and Yield or any other
Provided, That for mines other than oil and gas wells, a Monetary Benefit from Deposit Substitutes and from
net operating loss without the benefit of incentives Trust Funds and Similar Arrangements, and
provided for under Executive Order No. 226, as Royalties. - A final tax at the rate of twenty percent
amended, otherwise known as the Omnibus Investments (20%) is hereby imposed upon the amount of interest on
Code of 1987, incurred in any of the first ten (10) years currency bank deposit and yield or any other monetary
of operation may be carried over as a deduction from benefit from deposit substitutes and from trust funds
taxable income for the next five (5) years immediately and similar arrangements received by domestic
following the year of such loss. The entire amount of the corporations, and royalties, derived from sources within
loss shall be carried over to the first of the five (5) the Philippines: Provided, however, That interest income
taxable years following the loss, and any portion of such derived by a domestic corporation from a depository
loss which exceeds the taxable income of such first year bank under the expanded foreign currency deposit
shall be deducted in like manner form the taxable system shall be subject to a final income tax at the rate of
income of the next remaining four (4) years. seven and one-half percent (7 1/2%) of such interest
(4) Capital Losses. - income.
(a) Limitations. - Loss from sales or Exchanges of (2) Capital Gains from the Sale of Shares of Stock Not
capital assets shall be allowed only to the extent Traded in the Stock Exchange. - A final tax at the rates
provided in Section 39. prescribed below shall be imposed on net capital gains
(b) Securities Becoming Worthless. - If securities as realized during the taxable year from the sale, exchange
defined in Section 22 (T) become worthless during the or other disposition of shares of stock in a domestic
taxable year and are capital assets, the loss resulting corporation except shares sold or disposed of through
therefrom shall, for purposes of this Title, be considered the stock exchange:
as a loss from the sale or exchange, on the last day of Not over P 100,000 5%
such taxable year, of capital assets. Amount in excess of P 100,000 10%
(5) Losses From Wash Sales of Stock or Securities. - (3) Tax on Income Derived under the Expanded
Losses from 'wash sales' of stock or securities as Foreign Currency Deposit System. - Income derived by
provided in Section 38. a depository bank under the expanded foreign currency
deposit system from foreign currency transactions with
nonresidents, offshore banking units in the Philippines,
local commercial banks including branches of foreign (E) Alien Individual Employed by Petroleum Service
banks that may be authorized by the Bangko Sentral ng Contractor and Subcontractor. [14] - An Alien individual
Pilipinas (BSP) to transact business with foreign who is a permanent resident of a foreign country but
currency deposit system shall be exempt from all taxes, who is employed and assigned in the Philippines by a
except net income from such transactions as may be foreign service contractor or by a foreign service
specified by the Secretary of Finance, upon subcontractor engaged in petroleum operations in the
recommendation by the Monetary Board to be subject to Philippines shall be liable to a tax of fifteen percent
the regular income tax payable by banks: Provided, (15%) of the salaries, wages, annuities, compensation,
however, That interest income from foreign currency remuneration and other emoluments, such as honoraria
loans granted by such depository banks under said and allowances, received from such contractor or
expanded system to residents other than offshore subcontractor: Provided, however, That the same tax
banking units in the Philippines or other depository treatment shall apply to a Filipino employed and
banks under the expanded system, shall be subject to a occupying the same position as an alien employed by
final tax at the rate of ten percent (10%). [20] petroleum service contractor and subcontractor.
Any income of nonresidents, whether individuals or Any income earned from all other sources within the
corporations, from transactions with depository banks Philippines by the alien employees referred to under
under the expanded system shall be exempt from income Subsections (C), (D) and (E) hereof shall be subject to the
tax. pertinent income tax, as the case may be, imposed under
(4) Intercorporate Dividends. - Dividends received by this Code.
a domestic corporation from another domestic
corporation shall not be subject to tax. Offline international airlines
(5) Capital Gains Realized from the Sale, Exchange or
Disposition of Lands and/or Buildings. - Afinal tax of
six percent (6%) is hereby imposed on the gain Remedies: All but focus on
presumed to have been realized on the sale, exchange or
disposition of lands and/or buildings which are not
actually used in the business of a corporation and are CIR v Aichi
treated as capital assets, based on the gross selling price
of fair market value as determined in accordance with
Section 6(E) of this Code, whichever is higher, of such RPT remedy & payment under protest
lands and/or buildings.

Section 25(C) (D) (E) Section 187 of the LGC


(C) Alien Individual Employed by Regional or Area - focus on basics and read recent jurisprudence
Headquarters and Regional Operating Headquarters
of Multinational Companies. - There shall be levied,
collected and paid for each taxable year upon the gross
income received by every alien individual employed by
regional or area headquarters and regional operating
headquarters established in the Philippines by
multinational companies as salaries, wages, annuities,
compensation, remuneration and other emoluments,
such as honoraria and allowances, from such regional or
area headquarters and regional operating headquarters,
a tax equal to fifteen percent (15%) of such gross
income: Provided, however, That the same tax treatment
shall apply to Filipinos employed and occupying the
same position as those of aliens employed by these
multinational companies. For purposes of this Chapter,
the term 'multinational company' means a foreign firm
or entity engaged in international trade with affiliates or
subsidiaries or branch offices in the Asia-Pacific Region
and other foreign markets.
(D) Alien Individual Employed by Offshore Banking
Units. - There shall be levied, collected and paid for each
taxable year upon the gross income received by every
alien individual employed by offshore banking units
established in the Philippines as salaries, wages,
annuities, compensation, remuneration and other
emoluments, such as honoraria and allowances, from
such off-shore banking units, a tax equal to fifteen
percent (15%) of such gross income: Provided, however,
That the same tax treatment shall apply to Filipinos
employed and occupying the same positions as those of
aliens employed by these offshore banking units.

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