You are on page 1of 22

INCOME TAXATION

I. General Principles Basis: Symbiotic relationship. The jurisdiction, state or political unit that gives
protection has the right to demand support.
Features of Philippine Income Taxation
1) Income tax is a direct tax because the tax burden is borne by the The situs of taxation is determined by a number of factors
income recipient upon whom the tax is imposed. a) Subject matter- or what is being taxed. He may be a person or it may
be a property, an act or activity;
2) Income tax is a progressive tax since the tax base increases as b) Nature of tax- or which tax to impose. It may be an income tax, an
the tax rate increases. (ability to pay principle) import duty or a real property tax;
c) Citizenship of the taxpayer
3) The Philippines has adopted the most comprehensive system of d) Residence of the taxpayer.
imposing income tax by adopting the citizenship principle, resident
principle and the source principle. Only resident citizens and domestic corporations are taxable on their
- renders citizens, regardless of residence, and resident worldwide income (both income inside and outside the Philippines) while the
aliens subject to income tax liability on their income from all other types of individual and corporate taxpayers (i.e. non-resident citizen,
sources) and of the generally accepted and internationally non-resident alien, foreign corporation) are taxable only on income derived
recognized income taxable base (that can subject non-resident from sources within the Philippines.
aliens and foreign corporations to income tax on their income from
Philippine sources. Situs of taxation literally means place of taxation.

4) The Philippines follows the semi-schedular or semi-global GR: The taxing power cannot go beyond the territorial limits of the taxing
system of income taxation. Under which,all compensation and authority. Basically, the state where the subject to be taxed has a situs may
other income not subject to final tax are added together to arrive at rightfully levy and collect the tax; and the situs is necessarily in the state
the gross income, and after deducting the sum of allowable which has jurisdiction or which exercises dominion over the subject in
deductions from business or professional income, capital gain and question.
passive income, and other income not subject to final tax, in the ·
case of corporation, as well as personal and additional exemptions, Resident citizens and domestic corporation are taxable on all income
in the case of individual taxpayers, the taxable income(gross derived from sources within or withoutthe Philippines.
income less allowable deductions and exemptions) is subjected to · A non-resident citizen is taxable on all income derived from
one set of graduated tax rates (if an individual) or normal corporate sources within the Philippines.
income tax rate (if a corporation). · An alien whether a resident or not of the Philippines and a foreign
corporation, whether engaged or not in trade or business in the Philippines
are also taxable only from sources within the Philippines.
5) The Philippine income tax law is a law of American origin. Hence
the decisions of the US courts have force and persuasive effect in The taxable situs will depend upon the nature of income as follows:
the Philippines. 1) Interests- Interest income is treated as income from within the
Philippines if the debtor or lender whether an individual or
Tax Situs - literally means the place of taxation, or the country that has corporation is a resident of the Philippines.
jurisdiction to levy a particular tax on persons, property, rights or business.
2) Dividends Note: Progressive and Regressive Systems of Taxation are different from Progressive and
Regressive Rates.
Ø Dividends received from a domestic corporation are treated as income Progressive Rate Regressive rate
from sources within the Philippines. Tax the rate of which increases as the tax Tax the rate of which decreases as the tax
base or bracket increases. base or bracket increases.

Ø Dividends received from a foreign corporation are treated as income from 2. Global vs. Schedular System of Taxation (pg 45 PM Rev)
sources within the Philippines, unless 50% of the gross income of the foreign
corporation for the three-year period preceding the declaration of such Global tax System Schedular Tax System
Where the taxpayer is required to lump all Where there are different tax treatments of
dividends was derived from sources within the Philippines; but only in an items of income earned during a taxable different types of income so that a separate
amount which bears the same ratio to such dividends as the gross income of period and pay under a single set of income tax return is required to be filed for each type
tax rates on these different items of income of income and the tax is computed on a per
the corporation for such period derived from sources within the Philippines return or per schedule basis
bears to its gross income from all sources. One rate for all types of gross income Varying taxes are imposed on passive income
All income receive by the taxpayer are The various types of income (compensation;
grouped together, without any distinction as to business/professional income) are classified
3) Services- Services performed in the Philippines shall be treated type or nature of the income, and accordingly and are accorded different tax
as income from sources within the Philippines treatments, in accordance with schedules
characterized by graduated tax rates.
after deducting therefrom expenses and other Since these types f income are treated
4) Rentals and Royalties- Gain or income from property or allowable deductions, are subject to tax at a separately, the allowable deductions shall
interest located or used in the Philippines is treated as income graduated or fixed rate. likewise vary for each type of income
Can be found in the income taxation of Found in the income taxation of individuals
from sources within the Philippines. corporations where the tax rates are progressive in
character

5) Sale of Real Property- Gain from sale of real property located


within the Philippines is considered as income within the TAX ON INCOME
Philippines.
CHAPTER I - DEFINITIONS
6) Sale of Personal Property- Gain, profit or income from sale of Section 22. Definitions
shares of stocks of a domestic corporation is treated as derived Person' means an individual, a trust, estate or corporation.
entirely from sources within the Philippines, regardless of where
the said shares are sold Gains from sale of other personal Corporation' shall include partnerships, no matter how created or organized,
property can be considered income from within or without or partly joint-stock companies, joint accounts (cuentas en participacion), association,
within or partly without depending on the rules provided in Sec. 42 or insurance companies, but does not include general professional
E of the Tax Code. partnerships and a joint venture or consortium formed for the purpose of
undertaking construction projects or engaging in petroleum, coal, geothermal
The source of an income is the property, activity or service that produced and other energy operations pursuant to an operating consortium agreement
the income. It is the physical source where the income came from. under a service contract with the Government. 'General professional
partnerships' are partnerships formed by persons for the sole purpose of
1. Progressive vs. Regressive System of Taxation (pg 44 PM Rev) exercising their common profession, no part of the income of which is derived
from engaging in any trade or business.
Progressive System of taxation Regressive System of taxation
tax laws shall place emphasis on direct taxes exists when there are more indirect taxes Domestic,' when applied to a corporation, means created or organized in the
rather than on indirect taxes imposed than direct taxes Philippines or under its laws.
Foreign,' when applied to a corporation, means a corporation which is not Withholding agent' means any person required to deduct and withhold any
domestic. tax under the provisions of Section 57.

The term 'non-resident citizen' means: Shares of stock' shall include shares of stock of a corporation, warrants
1) A citizen of the Philippines who establishes to the satisfaction of the and/or options to purchase shares of stock, as well as units of participation in
Commissioner the fact of his physical presence abroad with a definite a partnership (except general professional partnerships), joint stock
intention to reside therein. companies, joint accounts, joint ventures taxable as corporations,
2) A citizen of the Philippines who leaves the Philippines during the associations and recreation or amusement clubs (such as golf, polo or similar
taxable year to reside abroad, either as an immigrant or for employment on a clubs), and mutual fund certificates.
permanent basis.
3) A citizen of the Philippines who works and derives income from abroad Shareholder' shall include holders of a share/s of stock, warrant/s and/or
and whose employment thereat requires him to be physically present abroad option/s to purchase shares of stock of a corporation, as well as a holder of a
most of the time during the taxable year. unit of participation in a partnership (except general professional
4) A citizen who has been previously considered as non-resident citizen partnerships) in a joint stock company, a joint account, a taxable joint
and who arrives in the Philippines at any time during the taxable year to venture, a member of an association, recreation or amusement club (such as
reside permanently in the Philippines shall likewise be treated as a non- golf, polo or similar clubs) and a holder of a mutual fund certificate, a
resident citizen for the taxable year in which he arrives in the Philippines with member in an association, joint-stock company, or insurance company.
respect to his income derived from sources abroad until the date of his arrival
in the Philippines. Taxpayer' means any person subject to tax imposed by this Title.
5) The taxpayer shall submit proof to the Commissioner to show his
intention of leaving the Philippines to reside permanently abroad or to return Taxable year' means the calendar year, or the fiscal year ending during
to and reside in the Philippines as the case may be for purpose of this such calendar year, upon the basis of which the net income is computed
Section. under this Title. 'Taxable year' includes, in the case of a return made for a
fractional part of a year under the provisions of this Title or under rules and
Resident alien' means an individual whose residence is within the regulations prescribed by the Secretary of Finance, upon recommendation of
Philippines and who is not a citizen thereof. the commissioner, the period for which such return is made.

Non-resident alien' means an individual whose residence is not within the Fiscal year' means an accounting period of twelve (12) months ending on
Philippines and who is not a citizen thereof. the last day of any month other than December.

Resident foreign corporation' applies to a foreign corporation engaged in Ordinary income' includes any gain from the sale or exchange of property
trade or business within the Philippines. which is not a capital asset or property described in Section 39(A)(1). Any
gain from the sale or exchange of property which is treated or considered,
Non-resident foreign corporation' applies to a foreign corporation not under other provisions of this Title, as 'ordinary income' shall be treated as
engaged in trade or business within the Philippines. gain from the sale or exchange of property which is not a capital asset as
defined in Section 39(A)(1). The term 'ordinary loss' includes any loss from
Fiduciary' means a guardian, trustee, executor, administrator, receiver, the sale or exchange of property which is not a capital asset. Any loss from
conservator or any person acting in any fiduciary capacity for any person. the sale or exchange of property which is treated or considered, under other
provisions of this Title, as 'ordinary loss' shall be treated as loss from the sale
or exchange of property which is not a capital asset.
B. General Principles of Income Taxation (pg 55 PM Rev) Capital Income
Section 23, National Internal Revenue Code A fund A flow
A fund of property existing at an instant of time A flow of services rendered by that capital by
the payment of money from it or any other
Sec. 23. General Principles of Income Taxation in the Philippines. - Except benefit rendered by a fund of capital in relation
when otherwise provided in this Code: to such fund through a period of time
A wealth The service of wealth
a) A citizen of the Philippines residing therein is taxable on all income All the wealth which flows into the taxpayer
derived from sources within and without the Philippines; other than a mere return on capital
b) A nonresident citizen is taxable only on income derived from Is a fund or property existing at one distinct A flow of wealth during a definite period of
point in time time
sources within the Philippines;
c) An individual citizen of the Philippines who is working and deriving Gain derived and severed from capital
income from abroad as an overseascontract worker is taxable only on
income from sources within the Philippines: Provided, That a seaman who is "The fact is that property is a tree, income is the fruit; labor is a tree, income
a citizen of the Philippines and who receives compensation for services the fruit; capital is a tree, income the fruit." A tax on income is not a tax on
rendered abroad as a member of the complement of a vessel engaged property. "Income," as here used, can be defined as "profits or
exclusively in international trade shall be treated as an overseas contract gains." (Madrigal v. Rafferty)
worker;
d) An alien individual, whether a resident or not of the Philippines, is A "stock dividend" shows that the company's accumulated profits have been
taxable only on income derived from sources within the Philippines; capitalized, instead of distributed to the stockholders or retained as surplus
e) A domestic corporation is taxable on all income derived from available for distribution in money or in kind should opportunity offer. Far
sources within and without the Philippines; and from being a realization of profits of the stockholder, it tends rather to
f) A foreign corporation, whether engaged or not in trade or business in postpone such realization, in that the fund represented by the new stock has
the Philippines, is taxable only on income derived from sources within the been transferred from surplus to capital, and no longer is available for actual
Philippines. distribution.

C. Scope of Income Taxation The essential and controlling fact is that the stockholder has received nothing
out of the company's assets for his separate use and benefit; on the contrary,
II. Income every dollar of his original investment, together with whatever accretions and
accumulations have resulted from employment of his money and that of the
Income means the gain derived from capital, from labor, or from both other stockholders in the business of the company, still remains the property
combined, including profits gained from dealings in property or as well as any of the company, and subject to business risks which may result in wiping out
asset clearly realized whether earned or not. the entire investment. Having regard to the very truth of the matter, to
substance and not to form, he has received nothing that answers the
Income may be defined as the amount of money coming to a person or definition of income.
corporation within a specified time, whether as payment for services, interest
or profit from investment. Yet, without selling, the shareholder, unless possessed of other resources,
1. Difference between Capital & Income has not the wherewithal to pay an income tax upon the dividend stock.
a) Madrigal v. Rafferty 38 Phil 14 Nothing could more clearly show that to tax a stock dividend is to tax a
capital increase, and not income, than this demonstration that, in the nature
of things, it requires conversion of capital in order to pay the tax.
Tax is imposed not upon the stock dividend, but rather upon the must await that disposition." Taxable Income, pp. 339-340. The same
stockholder's share of the undivided profits previously accumulated by the explanation may be applied to Farmers' & Merchants' Bank v. Commissioner,
corporation, the tax being levied as a matter of convenience at the time such supra, which relied on the Strother case in finding no gain. The recovery in
profits become manifest through the stock dividend. that case had been to compensate for the injury to good will and business
reputation of the plaintiff bank inflicted by defendant reserve banks' wrongful
A stockholder has no individual share in accumulated profits, nor in any conduct in collecting checks drawn on the plaintiff bank by employing "agents
particular part of the assets of the corporation, prior to dividend declared. who would appear daily at the bank with checks and demand payment
thereof in cash in such a manner as to attract unfavorable public comment".
Thus, neither under the Sixteenth Amendment nor otherwise has Congress Since the plaintiff bank's business was not destroyed but only injured and
power to tax without apportionment a true stock dividend made lawfully and since it continued in business, it would have been difficult to require the
in good faith, or the accumulated profits behind it, as income of the taxpayer to prove what part of the basis of its good will should be attributed
stockholder. The Revenue Act of 1916, insofar as it imposes a tax upon the to the recovery. In the case at bar, on the contrary, the entire business and
stockholder because of such dividend, contravenes the provisions of Article I, good will were destroyed so that to require the taxpayer to prove the cost of
§ 2, cl. 3, and Article I, § 9, cl. 4, of the Constitution, and to this extent is the good will is no more impractical than if the business had been sold. We
invalid notwithstanding the Sixteenth Amendment. conclude that the portion of the $410,000 attributable to the suit is taxable
income.
i. Raytheon Production Corp vs. CIR 144 F2d 110
b) Income from whatever source
But, to say that the recovery represents a return of capital in that it takes the
place of the business good will is not to conclude that it may not contain a Despite the broad parameters provided, however, we find that the CIR's
taxable benefit. Although the injured party may not be deriving a profit as a powers of distribution, apportionment or allocation of gross income and
result of the damage suit itself, the conversion thereby of his property into deductions under Section 43 of the 1993 NIRC and Section 179 of Revenue
cash is a realization of any gain made over the cost or other basis of the Regulation No. 2 does not include the power to impute "theoretical interests"
good will prior to the illegal interference. Thus A buys Blackacre for $5,000. It to the controlled taxpayer's transactions. Pursuant to Section 28 of the 1993
appreciates in value to $50,000. B tortiously destroys it by fire. A sues and NIRC,[42] after all, the term “gross income” is understood to mean all income
recovers $50,000 tort damages from B. Although no gain was derived by A from whatever source derived, including, but not limited to the following
from the suit, his prior gain due to the appreciation in value of Blackacre is items: compensation for services, including fees, commissions, and similar
realized when it is turned into cash by the money damages. items; gross income derived from business; gains derived from dealings in
property;” interest; rents; royalties; dividends; annuities; prizes and winnings;
Compensation for the loss of Raytheon's good will in excess of its cost is pensions; and partner’s distributive share of the gross income of general
gross income. professional partnership.[43] While it has been held that the phrase "from
whatever source derived" indicates a legislative policy to include all income
Where the cost basis that may be assigned to property has been wholly not expressly exempted within the class of taxable income under our laws,
speculative, the gain has been held to be entirely conjectural and not taxable. the term "income" has been variously interpreted to mean "cash received or
A trespasser had taken coal and then destroyed the entries so that the its equivalent", "the amount of money coming to a person within a specific
amount of coal taken could not be determined. Since there was no way of time" or "something distinct from principal or capital."[44] Otherwise stated,
knowing whether the recovery was greater than the basis for the coal taken, there must be proof of the actual or, at the very least, probable receipt or
the gain was purely conjectural and not taxed. Magill explains the result as realization by the controlled taxpayer of the item of gross income sought to
follows: "as the amount of coal removed could not be determined until a final be distributed, apportioned or allocated by the CIR.
disposition of the property, the computation of gain or loss on the damages
i. Sec 50 Regulations No. 2 (A) Application of Tax. - The tax imposed by this Title upon individuals shall
apply to the income of estates or of any kind of property held in trust,
SECTION 50. Forgiveness of indebtedness. — The cancellation and including:
forgiveness of indebtedness may amount to a payment of income, to a gift, or 1) Income accumulated in trust for the benefit of unborn or unascertained
to a capital transaction, dependent upon the circumstances. If, for example, person or persons with contingent interests, and income accumulated or held
an individual performs services for a creditor, who, in consideration thereof for future distribution under the terms of the will or trust;
cancels the debt, income to that amount is realized by the debtor as 2) Income which is to be distributed currently by the fiduciary to the
compensation for his services. If, however, a creditor merely desires to beneficiaries, and income collected by a guardian of an infant which is to be
benefit a debtor and without any consideration therefor cancels the debt, the held or distributed as the court may direct;
amount of the debt is a gift from the creditor to the debtor and need not be 3) Income received by estates of deceased persons during the period of
included in the latter's gross income. If a corporation to which a stockholder administration or settlement of the estate; and
is indebted forgives the debt, the transaction has the effect of the payment of 4) Income which, in the discretion of the fiduciary, may be either
a dividend. distributed to the beneficiaries or accumulated.
CIR vs. PROCTER & GAMBLE
The term "taxpayer" is defined in our NIRC as referring to "any person (B) Exception. - The tax imposed by this Title shall not apply to employee's
subject to tax imposed by the Title [on Tax on Income]." It thus becomes trust which forms part of a pension, stock bonus or profit-sharing plan of an
important to note that under Section 53 (c) of the NIRC, the withholding employer for the benefit of some or all of his employees (1) if contributions
agent who is "required to deduct and withhold any tax" is made " personally are made to the trust by such employer, or employees, or both for the
liable for such tax" and indeed is indemnified against any claims and purpose of distributing to such employees the earnings and principal of the
demands which the stockholder might wish to make in questioning the fund accumulated by the trust in accordance with such plan, and (2) if under
amount of payments effected by the withholding agent in accordance with the the trust instrument it is impossible, at any time prior to the satisfaction of all
provisions of the NIRC. The withholding agent, P&G-Phil., is directly and liabilities with respect to employees under the trust, for any part of the corpus
independently liable for the correct amount of the tax that should be withheld or income to be (within the taxable year or thereafter) used for, or diverted to,
from the dividend remittances. The withholding agent is, moreover, subject to purposes other than for the exclusive benefit of his employees: Provided,
and liable for deficiency assessments, surcharges and penalties should the That any amount actually distributed to any employee or distributee shall be
amount of the tax withheld be finally found to be less than the amount that taxable to him in the year in which so distributed to the extent that it exceeds
should have been withheld under law. the amount contributed by such employee or distributee.

A "person liable for tax" has been held to be a "person subject to tax" and (C) Computation and Payment. -
properly considered a "taxpayer." The termsliable for tax" and "subject to (1) In General. - The tax shall be computed upon the taxable income of the
tax" both connote legal obligation or duty to pay a tax. It is very difficult, estate or trust and shall be paid by the fiduciary, except as provided in
indeed conceptually impossible, to consider a person who is statutorily made Section 63 (relating to revocable trusts) and Section 64 (relating to income
"liable for tax" as not "subject to tax." By any reasonable standard, such a for the benefit of the grantor).
person should be regarded as a party in interest, or as a person having
sufficient legal interest, to bring a suit for refund of taxes he believes were (2) Consolidation of Income of Two or More Trusts. - Where, in the case of
illegally collected from him. two or more trusts, the creator of the trust in each instance is the same
person, and the beneficiary in each instance is the same, the taxable income
CHAPTER X - ESTATES AND TRUSTS of all the trusts shall be consolidated and the tax provided in this Section
Section 60. Imposition of Tax. - computed on such consolidated income, and such proportion of said tax shall
be assessed and collected from each trustee which the taxable income of the
trust administered by him bears to the consolidated income of the several accomplishment, and to that end the alien makes his home temporarily in the
trusts. Philippines, he becomes a resident, though it may be his intention at all times
to return to his domicile abroad when the purpose for which he came has
III. Classification of Income Taxpayers been consummated or abandoned.

The Tax Code classifies taxpayers into four main groups, namely: b) Non-resident Alien
1) Individuals,
2) Corporations, 3. General Professional Partnership Section 22(B), NIRC
3) Estates under Judicial Settlement and The term 'corporation' shall include partnerships, no matter how
4) Irrevocable Trusts (irrevocable both as to corpus and as to income). created or organized, joint-stock companies, joint accounts (cuentas en
participacion), association, or insurance companies, but does not include
A. Individuals general professional partnerships and a joint venture or consortium formed
1. Citizens for the purpose of undertaking construction projects or engaging in
Sections 1 and 2, Article IV, 1987 Constitution petroleum, coal, geothermal and other energy operations pursuant to an
operating consortium agreement under a service contract with the
Section 1. The following are citizens of the Philippines: Government. 'General professional partnerships' are partnerships formed by
1. Those who are citizens of the Philippines at the time of the adoption of persons for the sole purpose of exercising their common profession, no part
this Constitution; of the income of which is derived from engaging in any trade or business.
2. Those whose fathers or mothers are citizens of the Philippines;
3. Those born before January 17, 1973, of Filipino mothers, who elect
Philippine Citizenship upon reaching the age of majority; and ALIENS
4. Those who are naturalized in the accordance with law. 1. Resident Aliens
2. Non-resident Aliens
Section 2. Natural-born citizens are those who are citizens of the Philippines a) Engaged in trade or business (NRAE)
from birth without having to perform any act to acquire or perfect their b) Not engaged in trade or business (NRANE)
Philippine citizenship. Those who elect Philippine citizenship in accordance
with paragraph (3), Section 1 hereof shall be deemed natural-born citizens. RA NRAE NRANE
Tax rates Subject to Subject to 25% on income
graduated graduated income within the Philippines
a) Resident Citizens income tax rates tax rates (flat tax)
Deductions Can avail of Cannot avail
deductions
Sec 5 last par, Revenue Regulations No. 2 Allowed personal Entitled to personal
Exemptions
An alien actually present in the Philippines who is not a mere transient or and additional exemptions only by
sojourner is a resident of the Philippines for purposes of the income tax. exemptions way of reciprocity
and not to
Whether he is a transient or not is determined by his intentions with regard to additional
the length and nature of his stay. A mere floating intention indefinite as to exemptions
time, to return to another country is not sufficient to constitute him a transient.
If he lives in the Philippines and has no definite intention as to his stay, he is
a resident. One who comes to the Philippines for a definite purpose which in RC NRC RA NRA
its nature may be promptly accomplished is a transient. But if his purpose is Without Immigrant – resides Stay in the Stays for a
intention of abroad an immigrant for Philippines is definite short
of such a nature that an extended stay may be necessary for its transferring which a foreign visa has either: period of time
his physical been secured 1. definite and
presence extended
abroad
whether to 2. indefinite
Section 23 of the Tax Code
stay Sec. 23. Tax liability of members of general professional partnerships. — (a)
permanently Persons exercising a common profession in general partnership shall be
or
temporarily liable for income tax only in their individual capacity, and the share in the
as an net profits of the general professional partnership to which any taxable
overseas
contract partner would be entitled whether distributed or otherwise, shall be returned
worker for taxation and the tax paid in accordance with the provisions of this Title.
Permanent employee – Lives in the Transient –
employment on a more Philippines and has comes to the
X x x x x
or less permanent basis no definite intention Philippines for a
as to his stay definite purpose, There is, then and now, no distinction in income tax liability between a
Overseas contract which in its
worker - time spent nature may be person who practices his profession alone or individually and one who does it
abroad is immaterial as promptly through partnership (whether registered or not) with others in the exercise of
long as the worker’s accomplished
employment contract a common profession. Indeed, outside of the gross compensation income tax
passed through and Note: A mere and the final tax on passive investment income, under the present income
registered with the floating intention
POEA indefinite as to tax system all individuals deriving income from any source whatsoever are
time to return to treated in almost invariably the same manner and under a common set of
another country rules.
is NOT sufficient
to constitute him
as a transient. We can well appreciate the concern taken by petitioners if perhaps we were
Contract worker: Purpose is of such
a. leaves the country on a nature that an to consider Republic Act No. 7496 as an entirely independent, not merely as
account of a contract for extended stay may an amendatory, piece of legislation. The view can easily become myopic,
employment which is be necessary for its
renewed from time to accomplishment,
however, when the law is understood, as it should be, as only forming part of,
time under such and to that end the and subject to, the whole income tax concept and precepts long obtaining
circumstance as to alien makes the under the National Internal Revenue Code. To elaborate a little, the phrase
require him to be Philippines his
physically present temporary home, "income taxpayers" is an all embracing term used in the Tax Code, and it
abroad most of the although he intends practically covers all persons who derive taxable income. The law, in levying
time (not less than 183 to return to his
days) domicile abroad. the tax, adopts the most comprehensive tax situs of nationality and
residence of the taxpayer (that renders citizens, regardless of residence,
and resident aliens subject to income tax liability on their income from all
sources) and of the generally accepted and internationally recognized
GENERAL PROFESSIONAL PARTNERSHIP income taxable base (that can subject non-resident aliens and foreign
corporations to income tax on their income from Philippine sources).
TAN vs. CIR
GPP Ordinary business partnership Partnerships are, under the Code, either
The income tax is imposed not on the treated as a corporation for income tax 1. "taxable partnerships" or
professional partnership, which is tax exempt, purposes and so subject to the corporate
but on the partners themselves in their income tax Ordinarily, partnerships, no matter how created or organized, are subject to
individual capacity computed on their income tax (and thus alluded to as "taxable partnerships") which, for
distributive shares of partnership profits
purposes of the above categorization, are by law assimilated to be within the
not itself an income taxpayer; income tax- Itself a taxpayer for corporate income tax
exempt context of, and so legally contemplated as, corporations. Except for few
variances, such as in the application of the "constructive receipt rule" in the
derivation of income, the income tax approach is alike to both juridical Given the fact that the dividends are returns of the trust estate and not of the
persons. Obviously, SNIT is not intended or envisioned, as so correctly grantor company, we must say that petitioner misconceived the import of the
pointed out in the discussions in Congress during its deliberations on law when he assessed said dividends as part of the income of the company.
Republic Act 7496, aforequoted, to cover corporations and partnerships Similarly, the tax court should not have considered them at all as the
which are independently subject to the payment of income tax. company's "receipts, revenues and profits" which are exempt from income
tax.
2. "exempt partnerships."
"Exempt partnerships," upon the other hand, are not similarly identified as 2. As we look back at the resolution creating the employees' reserve fund
corporations nor even considered as independent taxable entities for income and having in mind the company's admission that it is "solely for the benefit
tax purposes. A GPP is such an example. Here, the partners themselves, of the employees" and that the company is holding said fund "merely as
not the partnership (although it is still obligated to file an income tax return trustee of its employees,"11 we reach the conclusion that the fund may not be
[mainly for administration and data]), are liable for the payment of income tax diverted for other purposes, and that the trust so created is irrevocable. For,
in their individual capacity computed on their respective and distributive really nothing in respondent company's acts suggests that it reserved the
shares of profits. In the determination of the tax liability, a partner does so as power to revoke that fund or for that matter appropriate it for itself. The trust
an individual, and there is no choice on the matter. In fine, under the Tax binds the company to its employees. The trust created is not therefore a
Code on income taxation, the general professional partnership is deemed to revocable trust a provided in Section 59 of the Tax Code.12 Nor is it a trust
be no more than a mere mechanism or a flow-through entity in the contemplated in Section 60, the income from which is for the benefit of the
generation of income by, and the ultimate distribution of such income to, grantor.
respectively, each of the individual partners.
The assessment made by petitioner and the ruling of the CTA on lack of
Section 6 of Revenue Regulation No. 2-93 did not alter, but merely income tax liability were on a mistaken premise, but that the trust established
confirmed, the above standing rule as now so modified by Republic Act by respondent should pay the taxes imposed upon individuals.
No. 7496 on basically the extent of allowable deductions applicable
to all individual income taxpayers on their non-compensation income. There
is no evident intention of the law, either before or after the amendatory CIR vs. CA, CTA, GCL RETIREMENT PLAN, 1992
legislation, to place in an unequal footing or in significant variance the In so far as employees' trusts are concerned, the foregoing provision
income tax treatment of professionals who practice their respective should be taken in relation to then Section 56(b) (now 53[b]) of the Tax Code,
professions individually and of those who do it through a general professional as amended RA 1983. This provision specifically exempted employee's
partnership. trusts from income tax and is repeated hereunder for emphasis:
Sec. 56. Imposition of Tax. — (a) Application of tax. — The taxes imposed by
ESTATES and TRUST this Title upon individuals shall apply to the income of estates or of any kind
of property held in trust.
CIR vs.VISAYAN ELECTRIC COMPANY and CTA, 1968 xxx xxx xxx
(b) Exception. — The tax imposed by this Title shall not apply to employee's
And, for tax purposes, the employees' reserve fund is a separate taxable trust which forms part of a pension, stock bonus or profit-sharing plan of an
entity.8 Respondent company then, while retaining legal title and employer for the benefit of some or all of his
custody9 over the property, holds it in trust for the beneficiaries mentioned in employees . . .
the resolution creating the trust, in the absence of any condition therein
which would, in effect, destroy the intention to create a trust.
The tax-exemption privilege of employees' trusts, as distinguished from of income taxes by requiring its payment at the source. If an employees' trust
any other kind of property held in trust, springs from the foregoing provision. like the GCL enjoys a tax-exempt status from income, we see no logic in
It is unambiguous. Manifest therefrom is that the tax law has singled out withholding a certain percentage of that income which it is not supposed to
employees' trusts for tax exemption. pay in the first place.

And rightly so, by virtue of the raison de'etre behind the creation of CORPORATIONS
employees' trusts. Employees' trusts or benefit plans normally provide
economic assistance to employees upon the occurrence of certain PASCUAL vs. CIR
contingencies, particularly, old age retirement, death, sickness, or disability.
It provides security against certain hazards to which members of the Plan DOCTRINE: The sharing of returns does not in itself establish a partnership
may be exposed. It is an independent and additional source of protection for whether or not the persons sharing therein have a joint or common right or
the working group. What is more, it is established for their exclusive benefit interest in the property. There must be a clear intent to form a partnership,
and for no other purpose. the existence of a juridical personality different from the individual partners,
and the freedom of each party to transfer or assign the whole property.
The tax advantage in Rep. Act No. 1983, Section 56(b), was conceived in
order to encourage the formation and establishment of such private Plans for FACTS: Petitioners Mariano Pascual and Renato Dragon bought 2 parcels of
the benefit of laborers and employees outside of the Social Security Act. land from Santiago Bernardino, and they bought another 3 parcels of land
Enlightening is a portion of the explanatory note to H.B. No. 6503, now R.A. from Juan Roque. The first two parcels of land were sold by petitioners in
1983, reading: 1968 to Marenir Development Corporation, while the three parcels of land
Considering that under Section 17 of the social Security Act, all contributions were sold by petitioners to Erlinda Reyes and Maria Samson on 1970.
collected and payments of sickness, unemployment, retirement, disability Petitioners realized a net profit in the sale made in 1968 in the amount of
and death benefits made thereunder together with the income of the pension P165,224.70, while they realized a net profit of P60,000.00 in the sale made
trust are exempt from any tax, assessment, fee, or charge, it is proposed that in 1970. The corresponding capital gains taxes were paid by petitioners in
a similar system providing for retirement, etc. benefits for employees outside 1973 and 1974 by availing of the tax amnesties granted in the said years.
the Social Security Act be exempted from income taxes. (Congressional
Record, House of Representatives, Vol. IV, Part. 2, No. 57, p. 1859, May 3, However petitioners were assessed and required to pay a total amount of
1957; cited in Commissioner of Internal Revenue v. Visayan Electric Co., et P107,101.70 as alleged deficiency corporate income taxes for the years
al., G.R. No. L-22611, 27 May 1968, 23 SCRA 715); emphasis supplied. 1968 and 1970. Petitioners protested the said assessment asserting that
they had availed of tax amnesties way back in 1974.
It is evident that tax-exemption is likewise to be enjoyed by the income of the
pension trust. Otherwise, taxation of those earnings would result in a In a reply, respondent Commissioner informed petitioners that in the years
diminution accumulated income and reduce whatever the trust beneficiaries 1968 and 1970, petitioners as co-owners in the real estate transactions
would receive out of the trust fund. This would run afoul of the very formed an unregistered partnership or joint venture taxable as a corporation
intendment of the law. under Section 20(b) and its income was subject to the taxes prescribed
under Section 24, both of the NIRC that the unregistered partnership was
There can be no denying either that the final withholding tax is collected subject to corporate income tax as distinguished from profits derived from the
from income in respect of which employees' trusts are partnership by them which is subject to individual income tax; and that the
declared exempt (Sec. 56 [b], now 53 [b], Tax Code). The application of the availment of tax amnesty under P.D. No. 23, as amended, by petitioners
withholdings system to interest on bank deposits or yield from deposit relieved petitioners of their individual income tax liabilities but did not relieve
substitutes is essentially to maximize and expedite the collection
them from the tax liability of the unregistered partnership. Hence, the It is thus incontrovertible that petitioners did not, contrary to their contention,
petitioners were required to pay the deficiency income tax assessed. merely limit themselves to holding the properties inherited by them. Indeed, it
is admitted that during the material years herein involved, some of the said
Petitioners filed a petition for review with the respondent CTA which affirmed properties were sold at considerable profit, and that with said profit,
the decision of the respondent commissioner. It ruled that an unregistered petitioners engaged, thru Lorenzo T. Oña, in the purchase and sale of
partnership was in fact formed by petitioners which like a corporation was corporate securities. It is likewise admitted that all the profits from these
subject to corporate income tax distinct from that imposed on the partners. ventures were divided among petitioners proportionately in accordance with
their respective shares in the inheritance. In these circumstances, it is Our
In a separate dissenting opinion, Associate Judge Roaquin stated that considered view that from the moment petitioners allowed not only the
considering the circumstances of this case, although there might in fact be a incomes from their respective shares of the inheritance but even the inherited
co-ownership between the petitioners, there was no adequate basis for the properties themselves to be used by Lorenzo T. Oña as a common fund in
conclusion that they thereby formed an unregistered partnership which made undertaking several transactions or in business, with the intention of deriving
"them liable for corporate income tax under the Tax Code. profit to be shared by them proportionally, such act was tantamonut to
actually contributing such incomes to a common fund and, in effect, they
ISSUE: WON petitioners formed an unregistered partnership subject to thereby formed an unregistered partnership within the purview of the above-
corporate income tax. mentioned provisions of the Tax Code.

HELD: NO. In the present case, there is clear evidence of co- It is but logical that in cases of inheritance, there should be a period when the
ownership between the petitioners. There is no adequate basis to support heirs can be considered as co-owners rather than unregistered co-partners
the proposition that they thereby formed an unregistered partnership. The within the contemplation of our corporate tax laws aforementioned. Before
two isolated transactions whereby they purchased properties and sold the the partition and distribution of the estate of the deceased, all the income
same a few years thereafter did not thereby make them partners. They thereof does belong commonly to all the heirs, obviously, without them
shared in the gross profits as co- owners and paid their capital gains taxes becoming thereby unregistered co-partners, but it does not necessarily follow
on their net profits and availed of the tax amnesty thereby. Under the that such status as co-owners continues until the inheritance is actually and
circumstances, they cannot be considered to have formed an unregistered physically distributed among the heirs, for it is easily conceivable that after
partnership which is thereby liable for corporate income tax, as the knowing their respective shares in the partition, they might decide to continue
respondent commissioner proposes. holding said shares under the common management of the administrator or
executor or of anyone chosen by them and engage in business on that basis.
And even assuming for the sake of argument that such unregistered Withal, if this were to be allowed, it would be the easiest thing for heirs in any
partnership appears to have been formed, since there is no such existing inheritance to circumvent and render meaningless Sections 24 and 84(b) of
unregistered partnership with a distinct personality nor with assets that can the National Internal Revenue Code.
be held liable for said deficiency corporate income tax, then petitioners can
be held individually liable as partners for this unpaid obligation of the It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated, among
partnership. However, as petitioners have availed of the benefits of tax the reasons for holding the appellants therein to be unregistered co-partners
amnesty as individual taxpayers in these transactions, they are thereby for tax purposes, that their common fund "was not something they found
relieved of any further tax liability arising therefrom. already in existence" and that "it was not a property inherited by them pro
indiviso," but it is certainly far fetched to argue therefrom, as petitioners are
doing here, that ergo, in all instances where an inheritance is not actually
LORENZO T. OÑA vs. CIR, 1972 divided, there can be no unregistered co-partnership. As already indicated,
for tax purposes, the co-ownership of inherited properties is automatically
converted into an unregistered partnership the moment the said common proper that the income of such shares should be considered as the part of
properties and/or the incomes derived therefrom are used as a common fund the taxable income of an unregistered partnership. This, We hold, is the clear
with intent to produce profits for the heirs in proportion to their respective intent of the law.
shares in the inheritance as determined in a project partition either duly
executed in an extrajudicial settlement or approved by the court in the Likewise, the third question of petitioners appears to have been adequately
corresponding testate or intestate proceeding. The reason for this is simple. resolved by the Tax Court in the aforementioned resolution denying
From the moment of such partition, the heirs are entitled already to their petitioners' motion for reconsideration of the decision of said court.
respective definite shares of the estate and the incomes thereof, for each of Pertinently, the court ruled this wise:
them to manage and dispose of as exclusively his own without the In support of the third ground, counsel for petitioners alleges:
intervention of the other heirs, and, accordingly he becomes liable Even if we were to yield to the decision of this Honorable Court that the
individually for all taxes in connection therewith. If after such partition, he herein petitioners have formed an unregistered partnership and, therefore,
allows his share to be held in common with his co-heirs under a single have to be taxed as such, it might be recalled that the petitioners in their
management to be used with the intent of making profit thereby in proportion individual income tax returns reported their shares of the profits of the
to his share, there can be no doubt that, even if no document or instrument unregistered partnership. We think it only fair and equitable that the various
were executed for the purpose, for tax purposes, at least, an unregistered amounts paid by the individual petitioners as income tax on their respective
partnership is formed. This is exactly what happened to petitioners in this shares of the unregistered partnership should be deducted from the
case. deficiency income tax found by this Honorable Court against the unregistered
partnership. (page 7, Memorandum for the Petitioner in Support of Their
ISSUE: As regards the second question raised by petitioners about the Motion for Reconsideration, Oct. 28, 1961.)
segregation, for the purposes of the corporate taxes in question, of their
inherited properties from those acquired by them subsequently, We consider In other words, it is the position of petitioners that the taxable income of the
as justified the following ratiocination of the Tax Court in denying their motion partnership must be reduced by the amounts of income tax paid by each
for reconsideration: petitioner on his share of partnership profits. This is not correct; rather, it
In connection with the second ground, it is alleged that, if there was an should be the other way around. The partnership profits distributable to the
unregistered partnership, the holding should be limited to the business partners (petitioners herein) should be reduced by the amounts of income tax
engaged in apart from the properties inherited by petitioners. In other words, assessed against the partnership. Consequently, each of the petitioners in
the taxable income of the partnership should be limited to the income derived his individual capacity overpaid his income tax for the years in question, but
from the acquisition and sale of real properties and corporate securities and the income tax due from the partnership has been correctly assessed. Since
should not include the income derived from the inherited properties. It is the individual income tax liabilities of petitioners are not in issue in this
admitted that the inherited properties and the income derived therefrom were proceeding, it is not proper for the Court to pass upon the same.
used in the business of buying and selling other real properties and corporate
securities. Accordingly, the partnership income must include not only the Petitioners insist that it was error for the Tax Court to so rule that whatever
income derived from the purchase and sale of other properties but also the excess they might have paid as individual income tax cannot be credited as
income of the inherited properties. part payment of the taxes herein in question. It is argued that to sanction the
view of the Tax Court is to oblige petitioners to pay double income tax on the
Besides, as already observed earlier, the income derived from inherited same income, and, worse, considering the time that has lapsed since they
properties may be considered as individual income of the respective heirs paid their individual income taxes, they may already be barred by
only so long as the inheritance or estate is not distributed or, at least, prescription from recovering their overpayments in a separate action. We do
partitioned, but the moment their respective known shares are used as part not agree. As We see it, the case of petitioners as regards the point under
of the common assets of the heirs to be used in making profits, it is but discussion is simply that of a taxpayer who has paid the wrong tax, assuming
that the failure to pay the corporate taxes in question was not deliberate. Of Essential elements of a partnership are two, namely:
course, such taxpayer has the right to be reimbursed what he has (a) an agreement to contribute money, property or industry to a common
erroneously paid, but the law is very clear that the claim and action for such fund; and
reimbursement are subject to the bar of prescription. And since the period for (b) intent to divide the profits among the contracting parties. The first element
the recovery of the excess income taxes in the case of herein petitioners has is undoubtedly present in the case at bar, for, admittedly, petitioners have
already lapsed, it would not seem right to virtually disregard prescription agreed to, and did, contribute money and property to a common fund. Hence,
merely upon the ground that the reason for the delay is precisely because the issue narrows down to their intent in acting as they did. Upon
the taxpayers failed to make the proper return and payment of the corporate consideration of all the facts and circumstances surrounding the case, we are
taxes legally due from them. In principle, it is but proper not to allow any fully satisfied that their purpose was to engage in real estate transactions for
relaxation of the tax laws in favor of persons who are not exactly above monetary gain and then divide the same among themselves, because:
suspicion in their conduct vis-a-vis their tax obligation to the State. 1) Said common fund was not something they found already in existence.
It was not property inherited by them pro indiviso. They created it purposely.
EVANGELISTA vs. COLLECTOR OF INTERNAL REVENUE, 1957 What is more they jointly borrowed a substantial portion thereof in order to
establish said common fund.
ISSUE: Whether petitioners are subject to the tax on corporations provided 2) They invested the same, not merely not merely in one transaction, but
for in section 24 of Commonwealth Act. No. 466, otherwise known as the in a series of transactions. On February 2, 1943, they bought a lot for
National Internal Revenue Code, as well as to the residence tax for P100,000.00. On April 3, 1944, they purchased 21 lots for P18,000.00. This
corporations and the real estate dealers fixed tax. With respect to the tax on was soon followed on April 23, 1944, by the acquisition of another real estate
corporations, the issue hinges on the meaning of the terms "corporation" and for P108,825.00. Five (5) days later (April 28, 1944), they got a fourth lot for
"partnership," as used in section 24 and 84 of said Code, the pertinent parts P237,234.14. The number of lots (24) acquired and transactions undertaken,
of which read: as well as the brief interregnum between each, particularly the last three
purchases, is strongly indicative of a pattern or common design that was not
SEC. 24. Rate of tax on corporations.—There shall be levied, assessed, limited to the conservation and preservation of the aforementioned common
collected, and paid annually upon the total net income received in the fund or even of the property acquired by the petitioners in February, 1943. In
preceding taxable year from all sources by every corporation organized in, or other words, one cannot but perceive a character of habitually peculiar to
existing under the laws of the Philippines, no matter how created or business transactions engaged in the purpose of gain.
organized but not including duly registered general co-partnerships 3) The aforesaid lots were not devoted to residential purposes, or to other
(compañias colectivas), a tax upon such income equal to the sum of the personal uses, of petitioners herein. The properties were leased separately
following: . . . to several persons, who, from 1945 to 1948 inclusive, paid the total sum of
P70,068.30 by way of rentals. Seemingly, the lots are still being so let, for
SEC. 84 (b). The term 'corporation' includes partnerships, no matter how petitioners do not even suggest that there has been any change in the
created or organized, joint-stock companies, joint accounts (cuentas en utilization thereof.
participacion), associations or insurance companies, but does not include 4) Since August, 1945, the properties have been under the management
duly registered general copartnerships. (compañias colectivas). of one person, namely Simeon Evangelista, with full power to lease, to collect
rents, to issue receipts, to bring suits, to sign letters and contracts, and to
Article 1767 of the Civil Code of the Philippines provides: indorse and deposit notes and checks. Thus, the affairs relative to said
By the contract of partnership two or more persons bind themselves to properties have been handled as if the same belonged to a corporation or
contribute money, properly, or industry to a common fund, with the intention business and enterprise operated for profit.
of dividing the profits among themselves.
5) The foregoing conditions have existed for more than ten (10) years, or, aforementioned personality — have been expressly excluded by law
to be exact, over fifteen (15) years, since the first property was acquired, and (sections 24 and 84 [b] from the connotation of the term "corporation" It may
over twelve (12) years, since Simeon Evangelista became the manager. not be amiss to add that petitioners' allegation to the effect that their liability
6) Petitioners have not testified or introduced any evidence, either on in connection with the leasing of the lots above referred to, under the
their purpose in creating the set up already adverted to, or on the causes for management of one person — even if true, on which we express no opinion
its continued existence. They did not even try to offer an explanation therefor. — tends to increase the similarity between the nature of their venture and
that corporations, and is, therefore, an additional argument in favor of the
Although, taken singly, they might not suffice to establish the intent imposition of said tax on corporations.
necessary to constitute a partnership, the collective effect of these
circumstances is such as to leave no room for doubt on the existence of said Under the Internal Revenue Laws of the United States, "corporations" are
intent in petitioners herein. Only one or two of the aforementioned taxed differently from "partnerships". By specific provisions of said laws, such
circumstances were present in the cases cited by petitioners herein, and, "corporations" include "associations, joint-stock companies and insurance
hence, those cases are not in point. companies." However, the term "association" is not used in the
aforementioned laws.
Petitioners insist, however, that they are mere co-owners, not co-partners,
for, in consequence of the acts performed by them, a legal entity, with a For purposes of the tax on corporations, our National Internal Revenue
personality independent of that of its members, did not come into existence, Code, includes these partnerships — with the exception only of duly
and some of the characteristics of partnerships are lacking in the case at bar. registered general co-partnerships — within the purview of the term
This pretense was correctly rejected by the Court of Tax Appeals. "corporation." It is, therefore, clear to our mind that petitioners herein
constitute a partnership, insofar as said Code is concerned and are subject
To begin with, the tax in question is one imposed upon "corporations", which, to the income tax for corporations.
strictly speaking, are distinct and different from "partnerships". When our
Internal Revenue Code includes "partnerships" among the entities subject to As regards the residence of tax for corporations, section 2 of
the tax on "corporations", said Code must allude, therefore, to organizations Commonwealth Act No. 465 provides in part:
which are not necessarily "partnerships", in the technical sense of the term. Entities liable to residence tax.-Every corporation, no matter how created or
Thus, for instance, section 24 of said Code exempts from the aforementioned organized, whether domestic or resident foreign, engaged in or doing
tax "duly registered general partnerships which constitute precisely one of business in the Philippines shall pay an annual residence tax of five pesos
the most typical forms of partnerships in this jurisdiction. Likewise, as defined and an annual additional tax which in no case, shall exceed one thousand
in section 84(b) of said Code, "the term corporation includes partnerships, no pesos, in accordance with the following schedule: . . .
matter how created or organized." This qualifying expression clearly
indicates that a joint venture need not be undertaken in any of the standard The term 'corporation' as used in this Act includes joint-stock
forms, or in conformity with the usual requirements of the law on company, partnership, joint account (cuentas en participacion), association
partnerships, in order that one could be deemed constituted for purposes of or insurance company, no matter how created or organized.
the tax on corporations. Again, pursuant to said section 84(b), the term
"corporation" includes, among other, joint accounts, (cuentas en Considering that the pertinent part of this provision is analogous to that of
participation)" and "associations," none of which has a legal personality of its section 24 and 84 (b) of our National Internal Revenue Code (commonwealth
own, independent of that of its members. Accordingly, the lawmaker could Act No. 466), and that the latter was approved on June 15, 1939, the day
not have regarded that personality as a condition essential to the existence immediately after the approval of said Commonwealth Act No. 465 (June 14,
of the partnerships therein referred to. In fact, as above stated, "duly 1939), it is apparent that the terms "corporation" and "partnership" are used
registered general copartnerships" — which are possessed of the
in both statutes with substantially the same meaning. Consequently, Ineludibly, the Philippine legislature included in the concept of
petitioners are subject, also, to the residence tax for corporations. corporations those entities that resembled them such as unregistered
partnerships and associations. Parenthetically, the NLRC’s inclusion of such
AFISCO INSURANCE CORP vs. CIR, 1999 entities in the tax on corporations was made even clearer by the Tax Reform
Pool Taxable as a Corporation Act of 1997, which amended the Tax Code. Pertinent provisions of the new
law read as follows:
ISSUE: WON pool or clearing house was an informal partnership, which was “SEC. 27. Rates of Income Tax on Domestic Corporations. --
taxable as a corporation under the NIRC. They point out that the reinsurance (A) In General. -- Except as otherwise provided in this Code, an income tax
policies were written by them “individually and separately,” and that their of thirty-five percent (35%) is hereby imposed upon the taxable income
liability was limited to the extent of their allocated share in the original risks derived during each taxable year from all sources within and without the
thus reinsured. Hence, the pool did not act or earn income as a Philippines by every corporation, as defined in Section 22 (B) of this Code,
reinsurer. Its role was limited to its principal function of “allocating and and taxable under this Title as a corporation xxx.”
distributing the risk(s) arising from the original insurance among the
signatories to the treaty or the members of the pool based on their ability to “SEC. 22. -- Definition. -- When used in this Title:
absorb the risk(s) ceded[;] as well as the performance of incidental functions, xxx xxx xxx
such as records, maintenance, collection and custody of funds, etc.” (B) The term ‘corporation’ shall include partnerships, no matter how
created or organized, joint-stock companies, joint accounts (cuentas en
Petitioners belie the existence of a partnership in this case, because (1) participacion), associations, or insurance companies, but does not include
they, the reinsurers, did not share the same risk or solidary general professional partnerships [or] a joint venture or consortium formed
liability;[14] (2) there was no common fund;[15] (3) the executive board of the for the purpose of undertaking construction projects or engaging in
pool did not exercise control and management of its funds, unlike the board petroleum, coal, geothermal and other energy operations pursuant to an
of directors of a corporation;[16] and (4) the pool or clearing house “was not operating or consortium agreement under a service contract without the
and could not possibly have engaged in the business of reinsurance from Government. ‘General professional partnerships’ are partnerships formed
which it could have derived income for itself.” by persons for the sole purpose of exercising their common profession, no
part of the income of which is derived from engaging in any trade or
The Court is not persuaded. This Court rules that the Court of Appeals, business.
in affirming the CTA which had previously sustained the internal revenue xxx xxx xxx."
commissioner, committed no reversible error. Section 24 of the NIRC, as
worded in the year ending 1975, provides: Thus, the Court in Evangelista v. Collector of Internal Revenue[22] held
that Section 24 covered these unregistered partnerships and
“SEC. 24. Rate of tax on corporations. -- (a) Tax on domestic even associations or joint accounts, which had no legal personalities apart
corporations. -- A tax is hereby imposed upon the taxable net income from their individual members. The Court of Appeals astutely
received during each taxable year from all sources by every corporation applied Evangelista:
organized in, or existing under the laws of the Philippines, no matter how “xxx Accordingly, a pool of individual real property owners dealing in real
created or organized, but not including: estate business was considered a corporation for purposes of the tax in
1. duly registered general co-partnership (compañias colectivas), sec. 24 of the Tax Code in Evangelista v. Collector of Internal Revenue,
2. general professional partnerships, supra. The Supreme Court said:
3. private educational institutions, and
4. building and loan associations xxx.”
‘The term ‘partnership’ includes a syndicate, group, pool, joint venture or members, this is only a matter of consequence, as it implies that profit
other unincorporated organization, through or by means of which any actually resulted.”
business, financial operation, or venture is carried on.
The petitioners’ reliance on Pascual v. Commissioner is misplaced, because
Article 1767 of the Civil Code recognizes the creation of a contract of the facts obtaining therein are not on all fours with the present
partnership when “two or more persons bind themselves to contribute case. In Pascual, there was no unregistered partnership, but merely a co-
money, property, or industry to a common fund, with the intention of dividing ownership which took up only two isolated transactions. The Court of
the profits among themselves.”[25] Its requisites are: “(1) mutual contribution Appeals did not err in applying Evangelista, which involved a partnership that
to a common stock, and (2) a joint interest in the profits.”[26] In other words, engaged in a series of transactions spanning more than ten years, as in the
a partnership is formed when persons contract “to devote to a common case before us.
purpose either money, property, or labor with the intention of dividing the
profits between themselves.”[27] Meanwhile, an association implies c) Co-ownership Art. 484 Civil Code
associates who enter into a “joint enterprise x x x for the transaction of Art. 484. There is co-ownership whenever the ownership of an
business.” undivided thing or right belongs to different persons.

In the case before us, the ceding companies entered into a Pool IV. Tax Base & Tax Rates
Agreement[29] or an association[30] that would handle all the insurance
businesses covered under their quota-share reinsurance treaty[31]and surplus A. Individuals
reinsurance treaty[32]with Munich. The following unmistakably indicates a
partnership or an association covered by Section 24 of the NIRC: 1. Resident Citizens & Resident Aliens Section 24, NIRC
(1) The pool has a common fund, consisting of money and other valuables Not over 5%
that are deposited in the name and credit of the pool. This common fund P10,000………………………
pays for the administration and operation expenses of the pool.
Over P10,000 but not over P500+10% of the excess over
(2) The pool functions through an executive board, which resembles the
P30,000…… P10,000
board of directors of a corporation, composed of one representative for each
of the ceding companies. Over P30,000 but not over P2,500+15% of the excess over
(3) True, the pool itself is not a reinsurer and does not issue any insurance P70,000…… P30,000
policy; however, its work is indispensable, beneficial and economically useful
Over P70,000 but not over P8,500+20% of the excess over
to the business of the ceding companies and Munich, because without it they
P140,000… P70,000
would not have received their premiums. The ceding companies share “in
the business ceded to the pool” and in the “expenses” according to a “Rules Over P140,000 but not over P22,500+25% of the excess over
of Distribution” annexed to the Pool Agreement. Profit motive or business is, P250,000… P140,000
therefore, the primordial reason for the pool’s formation. As aptly found by Over P250,000 but not over P50,000+30% of the excess over
the CTA: P500,000… P250,000
“xxx The fact that the pool does not retain any profit or income does not
Over P500,000 P125,000+34% of the excess over
obliterate an antecedent fact, that of the pool being used in the transaction of
…………………………… P500,000 in 1998.
business for profit. It is apparent, and petitioners admit, that their association
or coaction was indispensable [to] the transaction of the business. x x x If
together they have conducted business, profit must have been the object as,
indeed, profit was earned. Though the profit was apportioned among the
TAX ON INDIVIDUALS any currency bank deposit and yield or any other monetary benefit from
Section 24. Income Tax Rates. deposit substitutes and from trust funds and similar arrangements; royalties,
except on books, as well as other literary works and musical compositions,
(A) Rates of Income Tax on Individual Citizen and Individual Resident Alien which shall be imposed a final tax of ten percent (10%); prizes (except prizes
of the Philippines. amounting to Ten thousand pesos (P10,000) or less which shall be subject to
tax under Subsection (A) of Section 24; and other winnings (except
(1) An income tax is hereby imposed: Philippine Charity Sweepstakes and Lotto winnings), derived from sources
a) On the taxable income defined in Section 31 of this Code, other than within the Philippines: Provided, however, That interest income received by
income subject to tax under Subsections (B), (C) and (D) of this Section, an individual taxpayer (except a nonresident individual) from a depository
derived for each taxable year from all sources within and without the bank under the expanded foreign currency deposit system shall be subject to
Philippines be every individual citizen of the Philippines residing therein; a final income tax at the rate of seven and one-half percent (7 1/2%) of such
b) On the taxable income defined in Section 31 of this Code, other than interest income: Provided, further, That interest income from long-term
income subject to tax under Subsections (B), (C) and (D) of this Section, deposit or investment in the form of savings, common or individual trust
derived for each taxable year from all sources within the Philippines by an funds, deposit substitutes, investment management accounts and other
individual citizen of the Philippines who is residing outside of the Philippines investments evidenced by certificates in such form prescribed by the Bangko
including overseas contract workers referred to in Subsection(C) of Section Sentral ng Pilipinas (BSP) shall be exempt from the tax imposed under this
23 hereof; and Subsection: Provided, finally, That should the holder of the certificate pre-
c) On the taxable income defined in Section 31 of this Code, other than terminate the deposit or investment before the fifth (5th) year, a final tax shall
income subject to tax under Subsections (b), (C) and (D) of this Section, be imposed on the entire income and shall be deducted and withheld by the
derived for each taxable year from all sources within the Philippines by an depository bank from the proceeds of the long-term deposit or investment
individual alien who is a resident of the Philippines. certificate based on the remaining maturity thereof:
Four (4) years to less than five (5) years - 5%;
The tax shall be computed in accordance with and at the rates established in Three (3) years to less than (4) years - 12%; and
the following schedule: Less than three (3) years - 20%

Provided, That effective January 1, 1999, the top marginal rate shall be thirty- (2) Cash and/or Property Dividends - A final tax at the following rates shall be
three percent (33%) and effective January 1, 2000, the said rate shall be imposed upon the cash and/or property dividends actually or constructively
thirty-two percent (32%). received by an individual from a domestic corporation or from a joint stock
company, insurance or mutual fund companies and regional operating
For married individuals, the husband and wife, subject to the provision of headquarters of multinational companies, or on the share of an individual in
Section 51 (D) hereof, shall compute separately their individual income tax the distributable net income after tax of a partnership (except a general
based on their respective total taxable income: Provided, That if any income professional partnership) of which he is a partner, or on the share of an
cannot be definitely attributed to or identified as income exclusively earned or individual in the net income after tax of an association, a joint account, or a
realized by either of the spouses, the same shall be divided equally between joint venture or consortium taxable as a corporation of which he is a member
the spouses for the purpose of determining their respective taxable income. or co-venturer:

(B) Rate of Tax on Certain Passive Income. Six percent (6%) beginning January 1, 1998;
Eight percent (8%) beginning January 1, 1999;
(1) Interests, Royalties, Prizes, and Other Winnings. - A final tax at the rate of Ten percent (10% beginning January 1, 2000.
twenty percent (20%) is hereby imposed upon the amount of interest from
Provided, however, That the tax on dividends shall apply only on income exemption can only be availed of once every ten (10) years: Provided, finally,
earned on or after January 1, 1998. Income forming part of retained earnings that if there is no full utilization of the proceeds of sale or disposition, the
as of December 31, 1997 shall not, even if declared or distributed on or after portion of the gain presumed to have been realized from the sale or
January 1, 1998, be subject to this tax. disposition shall be subject to capital gains tax. For this purpose, the gross
selling price or fair market value at the time of sale, whichever is higher, shall
(C) Capital Gains from Sale of Shares of Stock not Traded in the Stock be multiplied by a fraction which the unutilized amount bears to the gross
Exchange. - The provisions of Section 39(B) notwithstanding, a final tax at selling price in order to determine the taxable portion and the tax prescribed
the rates prescribed below is hereby imposed upon the net capital gains under paragraph (1) of this Subsection shall be imposed thereon.
realized during the taxable year from the sale, barter, exchange or other
disposition of shares of stock in a domestic corporation, except shares sold, Revenue Regulation No. 10-98
or disposed of through the stock exchange. Issued September 2, 1998 prescribes the regulations to implement RA No.
Not over P100,000…………………………… 5% 8424 relative to the imposition of income taxes on income derived under the
Foreign Currency Deposit and Offshore Banking Systems. Specifically,
On any amount in excess of P100,000…… 10%
interest income which is actually or constructively received by a resident
citizen of the Philippines or by a resident alien individual from a foreign
(D) Capital Gains from Sale of Real Property. - currency bank deposit will be subject to a final withholding tax of 7.5%. The
(1) In General. - The provisions of Section 39(B) notwithstanding, a final tax depository bank will withhold and remit the tax. If a bank account is jointly in
of six percent (6%) based on the gross selling price or current fair market the name of a non-resident citizen, 50% of the interest income from such
value as determined in accordance with Section 6(E) of this Code, whichever bank deposit will be treated as exempt while the other 50% will be subject to
is higher, is hereby imposed upon capital gains presumed to have been a final withholding tax of 7.5%. The Regulations will apply on taxable income
realized from the sale, exchange, or other disposition of real property located derived beginning January 1, 1998 pursuant to the provisions of Section 8 of
in the Philippines, classified as capital assets, including pacto de retro sales RA 8424. In case of deposits which were made in 1997, only that portion of
and other forms of conditional sales, by individuals, including estates and interest which was actually or constructively received by a depositor starting
trusts: Provided, That the tax liability, if any, on gains from sales or other January 1, 1998 is taxable.
dispositions of real property to the government or any of its political
subdivisions or agencies or to government-owned or controlled corporations Revenue Regulation No. 8-98
shall be determined either under Section 24 (A) or under this Subsection, at Issued September 2, 1998 amends pertinent portions of Revenue
the option of the taxpayer. Regulations Nos. 11-96 and 2-98 relative to the tax treatment of the sale,
transfer or exchange of real property. Specifically, the Capital Gains Tax
(2) Exception. - The provisions of paragraph (1) of this Subsection to the (CGT) Return will be filed by the seller within 30 days following each sale or
contrary notwithstanding, capital gains presumed to have been realized from disposition of real property. Payment of the CGT will be made to an
the sale or disposition of their principal residence by natural persons, the Authorized Agent Bank (AAB) located within the Revenue District Office
proceeds of which is fully utilized in acquiring or constructing a new principal (RDO) having jurisdiction over the place where the property being transferred
residence within eighteen (18) calendar months from the date of sale or is located. Creditable withholding taxes, on the other hand, deducted and
disposition, shall be exempt from the capital gains tax imposed under this withheld by the withholding agent/buyer on the sale, transfer or exchange or
Subsection: Provided, That the historical cost or adjusted basis of the real real property classified as ordinary asset will be paid by the withholding
property sold or disposed shall be carried over to the new principal residence agent/buyer upon filing of the return with the AAB located within the RDO
built or acquired: Provided, further, That the Commissioner shall have been having jurisdiction over the place where the property being transferred is
duly notified by the taxpayer within thirty (30) days from the date of sale or located. Payment will have to be done within 10 days following the end of the
disposition through a prescribed return of his intention to avail of the tax month in which the transaction occurred, provided, however, that taxes
exemption herein mentioned: Provided, still further, That the said tax
withheld in December will be filed on or before January 25 of the following presumption about his true residential address, the certification of the
year. Barangay Chairman, or Building Administrator (in case of condominium unit),
to the contrary notwithstanding, in accordance with the doctrine of admission
Revenue Regulation No. 13-99 against interest or the principle of estoppel.
Issued September 14, 1999 prescribes the regulations for the exemption of
a citizen or a resident alien individual from the payment of the 6% Capital The seller/transferor's compliance with the preliminary conditions for
Gains Tax on the sale, exchange or disposition of his principal residence. In exemption from the 6% capital gains tax under Sec. 3(1) and (2) of the
order for a person to be exempted from the payment of the tax, he should Regulations will be sufficient basis for the RDO to approve and issue the
submit, together with the required documents, a Sworn Declaration of his Certificate Authorizing Registration (CAR) or Tax Clearance Certificate (TCC)
intent to avail of the tax exemption to the Revenue District Office having of the principal residence sold, exchanged or disposed by the aforesaid
jurisdiction over the location of his principal residence within (30) days from taxpayer. Said CAR or TCC shall state that the said sale, exchange or
the date of the sale, exchange or disposition of the principal residence. The disposition of the taxpayer's principal residence is exempt from capital gains
proceeds from the sale, exchange or disposition of the principal residence tax pursuant to Sec. 24 (D)(2) of the Tax Code, but subject to compliance
must be fully utilized in acquiring or constructing the new principal residence with the post-reporting requirements imposed under Sec. 3(3) of the
within eighteen (18) calendar months from the date of the sale, exchange or Regulations.
disposition. In case the entire proceeds of the sale is not utilized for the
purchase or construction of a new principal residence, the Capital Gains Tax REVENUE REGULATIONS NO. 9-2012 issued on June 1, 2012 implements
will be computed based on the formula specified in the Regulations. Sections 24(D)(1), 27(D)(5), 57, 106 and 196 of the National Internal
Revenue Code (NIRC) of 1997 relative to the non-redemption of properties
If the seller fails to utilize the proceeds of sale or disposition in full or in part sold during involuntary sales. In case of non-redemption of properties sold
within the 18-month reglementary period, his right of exemption from the during involuntary sales, regardless of the type of proceedings and
Capital Gains Tax did not arise on the extent of the unutilized amount, in personality of mortgagees/selling persons or entities, the Capital Gains Tax
which event, the tax due thereon will immediately become due and (CGT), if the property is a capital asset; or the Creditable Withholding Tax
demandable on the 31st day after the date of the sale, exchange or (CWT), if the property is an ordinary asset; the Value-Added Tax (VAT) and
disposition of the principal residence. the Documentary Stamp Tax (DST) shall become due.

If the individual taxpayer's principal residence is disposed in exchange for a The buyer of the subject property, who is deemed to have withheld the CGT
condominium unit, the disposition of the taxpayer's principal residence will or CWT due from the sale, shall then file the CGT return and remit the said
not be subjected to the Capital Gains Tax herein prescribed, provided that tax to the BIR within 30 days from expiration of the applicable statutory
the said condominium unit received in the exchange will be used by the redemption period, or file the CWT return and remit the said tax to the BIR
taxpayer-transferor as his new principal residence. within 10 days following the end of the month after expiration of the
applicable statutory redemption period, provided that, for taxes withheld in
Revenue Regulation No. 14-2000 December, the CWT return shall be filed and the taxes remitted to the BIR on
Issued December 29, 2000 amends Sections 3(2), 3 and 6 of RR No. 13-99 or before January 15 of the following year. If the property sold through
relative to the sale, exchange or disposition by a natural person of his involuntary sale is under the circumstances which warrant the imposition of
"principal residence". VAT, the said tax must be paid to the BIR by the VAT-registered
owner/mortgagor on or before the 20th day or 25th day, whichever is
The residential address shown in the latest income tax return filed by the applicable, of the month following the month when the right of redemption
vendor/transferor immediately preceding the date of sale of said real property prescribes.
shall be treated, for purposes of these Regulations, as a conclusive
The DST return shall be filed and the said tax paid to the BIR within 5 days the total amount thereof: Provided, however, that royalties on books as well
after the close of the month after the lapse of the applicable statutory as other literary works, and royalties on musical compositions shall be
redemption period. The CGT/CWT/VAT and DST shall be based on subject to a final tax of ten percent (10%) on the total amount thereof:
whichever is higher of the consideration (bid price of the higher bidder) or the Provided, further, That cinematographic films and similar works shall be
fair market value or the zonal value as determined in accordance with subject to the tax provided under Section 28 of this Code: Provided,
Section 6(E) of the Tax Code. furthermore, That interest income from long-term deposit or investment in the
form of savings, common or individual trust funds, deposit substitutes,
Non-resident Aliens investment management accounts and other investments evidenced by
Sec. 25, NIRC certificates in such form prescribed by the Bangko Sentral ng Pilipinas (BSP)
shall be exempt from the tax imposed under this Subsection: Provided,
Section 25. Tax on Nonresident Alien Individual. - finally, that should the holder of the certificate pre-terminate the deposit or
investment before the fifth (5th) year, a final tax shall be imposed on the
(A) Nonresident Alien Engaged in trade or Business Within the Philippines. - entire income and shall be deducted and withheld by the depository bank
1) In General. - A nonresident alien individual engaged in trade or from the proceeds of the long-term deposit or investment certificate based on
business in the Philippines shall be subject to an income tax in the same the remaining maturity thereof:
manner as an individual citizen and a resident alien individual, on taxable
income received from all sources within the Philippines. A nonresident alien Four (4) years to less than five (5) years - 5%;
individual who shall come to the Philippines and stay therein for an
Three (3) years to less than four (4) years - 12%; and
aggregate period of more than one hundred eighty (180) days during any
calendar year shall be deemed a 'nonresident alien doing business in the Less than three (3) years - 20%.
Philippines'. Section 22 (G) of this Code notwithstanding.
(3) Capital Gains. - Capital gains realized from sale, barter or exchange of
2) Cash and/or Property Dividends from a Domestic Corporation or Joint shares of stock in domestic corporations not traded through the local stock
Stock Company, or Insurance or Mutual Fund Company or Regional exchange, and real properties shall be subject to the tax prescribed under
Operating Headquarter or Multinational Company, or Share in the Subsections (C) and (D) of Section 24.
Distributable Net Income of a Partnership (Except a General Professional
Partnership), Joint Account, Joint Venture Taxable as a Corporation or (B) Nonresident Alien Individual Not Engaged in Trade or Business Within
Association., Interests, Royalties, Prizes, and Other Winnings. - Cash and/or the Philippines. - There shall be levied, collected and paid for each taxable
property dividends from a domestic corporation, or from a joint stock year upon the entire income received from all sources within the Philippines
company, or from an insurance or mutual fund company or from a regional by every nonresident alien individual not engaged in trade or business within
operating headquarter of multinational company, or the share of a the Philippines as interest, cash and/or property dividends, rents, salaries,
nonresident alien individual in the distributable net income after tax of a wages, premiums, annuities, compensation, remuneration, emoluments, or
partnership (except a general professional partnership) of which he is a other fixed or determinable annual or periodic or casual gains, profits, and
partner, or the share of a nonresident alien individual in the net income after income, and capital gains, a tax equal to twenty-five percent (25%) of such
tax of an association, a joint account, or a joint venture taxable as a income. Capital gains realized by a nonresident alien individual not engaged
corporation of which he is a member or a co-venturer; interests; royalties (in in trade or business in the Philippines from the sale of shares of stock in any
any form); and prizes (except prizes amounting to Ten thousand pesos domestic corporation and real property shall be subject to the income tax
(P10,000) or less which shall be subject to tax under Subsection (B)(1) of prescribed under Subsections (C) and (D) of Section 24.
Section 24) and other winnings (except Philippine Charity Sweepstakes and
Lotto winnings); shall be subject to an income tax of twenty percent (20%) on
(C) Alien Individual Employed by Regional or Area Headquarters and subject to the pertinent income tax, as the case may be, imposed under this
Regional Operating Headquarters of Multinational Companies. - There shall Code.
be levied, collected and paid for each taxable year upon the gross income
received by every alien individual employed by regional or area headquarters a) Not engaged in trade or business
and regional operating headquarters established in the Philippines by
multinational companies as salaries, wages, annuities, compensation, Republic Act No. 10378
remuneration and other emoluments, such as honoraria and allowances, AN ACT RECOGNIZING THE PRINCIPLE OF RECIPROCITY AS BASIS
from such regional or area headquarters and regional operating FOR THE GRANT OF INCOME TAX EXEMPTIONS TO INTERNATIONAL
headquarters, a tax equal to fifteen percent (15%) of such gross income: CARRIERS AND RATIONALIZING OTHER TAXES IMPOSED THEREON
Provided, however, That the same tax treatment shall apply to Filipinos BY AMENDING SECTIONS 28(A)(3)(a), 109, 118 AND 236 OF THE
employed and occupying the same position as those of aliens employed by NATIONAL INTERNAL REVENUE CODE (NIRC), AS AMENDED, AND
these multinational companies. For purposes of this Chapter, the term FOR OTHER PURPOSES
'multinational company' means a foreign firm or entity engaged in
international trade with affiliates or subsidiaries or branch offices in the Asia- Section 1. Section 28(A)(3)(a) of Republic Act No. 8424, otherwise known as
Pacific Region and other foreign markets. the National Internal Revenue Code of 1997, as amended, is hereby further
amended to read as follows:
(D) Alien Individual Employed by Offshore Banking Units. - There shall be "SEC. 28. Rates of Income Tax on Foreign Corporations. —
levied, collected and paid for each taxable year upon the gross income "(A) Tax on Resident Foreign Corporations. —
received by every alien individual employed by offshore banking units "(1) xxx
established in the Philippines as salaries, wages, annuities, compensation, "(2) xxx
remuneration and other emoluments, such as honoraria and allowances, "(3). International – Carrier. — An international carrier doing business in the
from such off-shore banking units, a tax equal to fifteen percent (15%) of Philippines shall pay a tax of two and one-half percent (21/2 %) on its ‘Gross
such gross income: Provided, however, That the same tax treatment shall Philippine Billings’ as defined hereunder:
apply to Filipinos employed and occupying the same positions as those of
aliens employed by these offshore banking units. a) International Air Carrier. — ‘Gross Philippine Billings’ refers to the
amount of gross revenue derived from carriage of persons, excess baggage,
(E) Alien Individual Employed by Petroleum Service Contractor and cargo, and mail originating from the Philippines in a continuous and
Subcontractor. - An Alien individual who is a permanent resident of a foreign uninterrupted flight, irrespective of the place of sale or issue and the place of
country but who is employed and assigned in the Philippines by a foreign payment of the ticket or passage document: Provided, That tickets
service contractor or by a foreign service subcontractor engaged in revalidated, exchanged and/or indorsed to another international airline form
petroleum operations in the Philippines shall be liable to a tax of fifteen part of the Gross Philippine Billings if the passenger boards a plane in a port
percent (15%) of the salaries, wages, annuities, compensation, remuneration or point in the Philippines: Provided, further, That for a flight which originates
and other emoluments, such as honoraria and allowances, received from from the Philippines, but transshipment of passenger takes place at any part
such contractor or subcontractor: Provided, however, That the same tax outside the Philippines on another airline, only the aliquot portion of the cost
treatment shall apply to a Filipino employed and occupying the same position of the ticket corresponding to the leg flown from the Philippines to the point of
as an alien employed by petroleum service contractor and subcontractor. transshipment shall form part of Gross Philippine Billings.

Any income earned from all other sources within the Philippines by the alien b) International Shipping. — ‘Gross . Philippine Billings’ means gross
employees referred to under Subsections (C), (D) and (E) hereof shall be 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 be adjusted to its present value using the Consumer Price Index, as
passage or freight documents. published by. the National Statistics-Office (NSO);
"x x x."
"Provided, That international carriers doing business in the Philippines may
avail of a preferential rate or exemption from the tax herein imposed on their Section 3. Section 118 of the National Internal Revenue Code of 1997, as
gross revenue derived from the carriage of persons and their excess amended, is hereby further amended to read as follows:
baggage on the basis of an applicable tax treaty or international agreement "SEC. 118. Percentage Tax on International Carriers. —
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 "(A) International air carriers doing; business in the Philippines on their gross
Philippine carriers, shall likewise be exempt from the tax imposed under this receipts derived from transport of cargo from the Philippines to another
provision. country shall pay a tax of three percent (3%) of their quarterly gross receipts.
"x x x."
"(B) International shipping carriers doing business in the Philippines on their
Section 2. Section 109 of the National Internal Revenue Code of 1997, as gross receipts derived from transport of cargo from the Philippines to another
amended, is hereby further amended to read as follows: country shall pay a tax equivalent to three percent (3%) of their quarterly
gross receipts."
"SEC. 109. Exempt Transactions. - The following shall be exempt from the
value-added tax: Section 4. Section 236 of the National Internal Revenue Code of 1997, as
amended, is hereby further amended to read as follows:
"(A) xxx; "SEC. 236. Registration Requirements. —

"xxx "(A) Requirements. — x x x

"(S) Transport of passengers by international carriers; "xxx

"(T) Sale, importation or lease of passenger or cargo vessels and aircraft, "(G) Persons Required to Register for Value-Added Tax. —
including engine, equipment and spare parts thereof for domestic or
international transport operations; "(1) Any person who, in the course of trade or business, sells, barters or
exchanges goods or properties, or engages in the sale or exchange of
"(U) Importation of fuel, goods and supplies by persons engaged in services, shall be liable to register for value-added tax if:
international shipping or air transport operations;
"(a) His gross sales or receipts for the past twelve (12) months, other than
"(V) Services of bank, non-bank financial intermediaries performing quasi- those that are exempt under Section 109(A) to (V), have exceeded One
banking functions, and other non-bank financial intermediaries; and million five hundred thousand pesos (P1,500,000); or

"(W) Sale or lease of goods or properties or the performance of services "(b) There are reasonable grounds to believe that his gross sales or receipts
other than the transactions mentioned in the preceding paragraphs, the gross for the next twelve (12) months, other than those that are exempt under
annual sales and/or receipts do not exceed the amount of One million five Section 109(A) to (V), will exceed One million five hundred thousand pesos
hundred thousand pesos (P1,500,000): Provided, That not later than January (P1,500,000).
31, 2009 and every three (3) years thereafter, the amount herein stated shall