Tax (Corporation Topic) PDF

Tax on Corporations
Definition of Corporation (Par (b), Section 22, NIRC)
The term “corporation” shall include partnership no matter how created or

organized, joint-stock companies, joint accounts, associations, or insurance companies,
but does not include general professional partnerships and a joint venture or a
consortium formed for the purpose of undertaking construction projects or engaging in
petroleum, coal, geothermal, & other energy operations pursuant to an operating or
consortium agreement under a service contract with the Government. “General
professional partnership” are partnerships formed by persons for the sole purpose of
exercising their common profession, no part of the income of which is derived from
engaging in any trade or business.
Case # 1: Collector of Internal Revenue v. Batangas Transport Company and

Laguna-Tayabas Bus Company (1958)
Joint Emergency Operation; ruling based on an agency case
Doctrines:
A joint venture need not be undertaken in any of the standard form, or in
conformity with the usual requirements of the law on partnerships, in order that one
could be deemed constituted for the purposes of the tax on corporations. Although no
legal personality may have been created by the Joint Emergency Operation,
nevertheless, said Joint Emergency Operation joint venture, or joint management
operated the business affairs of the two companies as though they constituted a single
entity, company or partnership, thereby obtaining substantial economy and profits in the
operation.
Facts:
This case is an appeal of the CTA decision which reversed the assessment and
decision of the Collector of Internal Revenue (CIR) assessing and demanding from
respondents Batangas Transportation and Laguna Bus the amount of Php54,143.54
which represent deficiency income tax and compromise for the year 19461949. Pending
then appeal to the CTA, the assessment was increased to P148,890.14 Respondent
bus companies are 2 distinct and separate corporations, engaged in the business of
land transportation by means of motor busses and operating distinct and separate lines.
Incorporation Paid up capital (each) Pre – war Head Office Manager Connection &
Page 1 of 42 Pray, hope and do not worry… Prepared by: Szia Darene Martin
close relation: President and owner of 30% stock of each corporation Batangas Transpo
1918 Php1,000,000.00 Batangas, Batangas Joseph Benedict Laguna Bus 1928
Php1,000,000.00 San Pablo, Laguna Martin Olsen Max Blouse
During the war, the two companies lost their respective businesses. Post-war,
they were able to acquire 56 auto busses from the US Army which they divided equally.
Two years later, Martin Olsen resigned as manager and Joseph Benedict was appointed
as Manager of both companies by their respective Board of Directors. According to
Benedict, the purpose of the joint management called “Joint Emergency Operation” was
to economize in overhead expenses. At the end of each calendar year, all gross receipts
and expenses of both companies are determined and the net profit were divided 50-50
then transferred to the book of accounts of each company, and each company prepares
its own income tax return from their 50% share. The CIR theorizes that the 2 companies
pooled their resources in the establishment of the Joint Emergency Operation thereby
forming a joint venture. He believes that a corporation exists, distinct from the 2
respondent companies. The CTA held that the Joint Emergency Operation is not a
corporation within the contemplation of the NIRC, much less a partnership, association
or insurance company, and therefore was not subject to income tax separately and
independently of respondent companies.
Issues:
1. W/N the 2 transportation companies involved are liable to the payment of income tax
as a corporation on the theory that the joint emergency operation organized and
operated by them is a corporation within the meaning of Sec 84 of the Revised Internal
Revenue Code.
2. NOT RELATED: W/N the CIR, after the appeal from his decision has been perfected,
and after the CTA has acquired jurisdiction over the same, but before the CIR has filed
an answer with the court, may still modify his assessment subject of the appeal by
increasing the same, on the ground that he committed error in good faith in making said
appealed assessment.
Held/Ratio:
1. YES, although no legal personality may have been created by the Joint Emergency
Operation, nevertheless said joint venture or joint management operated the
business affairs of the 2 companies as though they constituted a single entity,
company or partnership, thereby obtaining substantial economy and profits in the
operation.
The Court ruled on this issue by citing the case of Eufemia Evangelista, et. al v.
CIR – agency case. This involved the 3 sisters who borrowed from their father
money which they invested in land and then improved upon and later sold. The
sisters also hired their brother to oversee the buy-and-sell of land. Contrary to their
claim that said operation was merely a co-ownership, the Court ruled that
considering the facts and circumstances surrounding the said case, the 3 sisters
had purpose to engage in real estate transactions for monetary gain and then divide
the profits among themselves, making them co-partners. When the Tax Code
included “partnerships” among the entities subject to the tax on corporations, it must
refer to organizations which are not necessarily partnerships in the technical sense
of the term, and that furthermore, said law defined the term "corporation" as
including partnerships no matter how created or organized.
Further, from the standpoint of income tax law, the procedure and practice of the
2 bus companies in determining the net income of each was arbitrary and
unwarranted. After all, the 2 companies operates in 2 different lines, in different
provinces or territories, with different equipment and personnel it cannot possibly be
true and correct to say that the end of each year, the gross receipts and income in
the gross expenses of two companies are exactly the same for purposes of the
payment of income tax.
Thus, the Court held that the Joint Emergency Operation or sole management or
joint venture in this case falls under the provisions of section 84 (b) of the Internal
Revenue Code, and consequently, it is liable to income tax provided for in section 24
of the same code. * But they were exempted from paying 25% surcharge for failure
to file a tax return, because of their honest belief (based on advice of their attorneys
and accountants) that they are not required to do so.
2. YES, pending appeal in the Court of Tax Appeals of an assessment made by the
Collector of Internal Revenue, the Collector, pending hearing before said court, may
amend his appealed assessment and include the amendment in his answer before
the court, and the latter may on the basis of the evidence presented before it,
redetermine the assessment.
Case # 2: LORENZO T. OÑA vs CIR
Facts:
Julia Buñales died leaving as heirs her surviving spouse, Lorenzo Oña and her
five children. A civil case was instituted for the settlement of her state, in which Oña was
appointed administrator and later on the guardian of the three heirs who were still
minors when the project for partition was approved. This shows that the heirs have
undivided ½ interest in 10 parcels of land, 6 houses and money from the War Damage
Commission.
Although the project of partition was approved by the Court, no attempt was
made to divide the properties and they remained under the management of Oña who
used said properties in business by leasing or selling them and investing the income
derived therefrom and the proceeds from the sales thereof in real properties and
securities. As a result, petitioners’ properties and investments gradually increased.
Petitioners returned for income tax purposes their shares in the net income but they did
not actually receive their shares because this left with Oña who invested them.
Based on these facts, CIR decided that petitioners formed an unregistered partnership
and therefore, subject to the corporate income tax, particularly for years 1955 and 1956.
Petitioners asked for reconsideration, which was denied hence this petition for review
from CTA’s decision.
Issue:
1. W/N there was a co-ownership or an unregistered partnership

2. W/N the petitioners are liable for the deficiency corporate income tax
Held:
1. Unregistered partnership. The Tax Court found that instead of actually distributing
the estate of the deceased among themselves pursuant to the project of partition,
the heirs allowed their properties to remain under the management of Oña and let
him use their shares as part of the common fund for their ventures, even as they
paid corresponding income taxes on their respective shares.
2. Yes. For tax purposes, the co-ownership of inherited properties is automatically

converted into an unregistered partnership the moment the said common properties
and/or the incomes derived therefrom are used as a common fund with intent to
produce profits for the heirs in proportion to their respective shares in the inheritance as
determined in a project partition either duly executed in an extrajudicial settlement or
approved by the court in the corresponding testate or intestate proceeding. The reason
is simple. From the moment of such partition, the heirs are entitled already to their
respective definite shares of the estate and the incomes thereof, for each of them to
manage and dispose of as exclusively his own without the intervention of the other
heirs, and, accordingly, he becomes liable individually for all taxes in connection
therewith. If after such partition, he allows his share to be held in common with his co-
heirs under a single management to be used with the intent of making profit thereby in
proportion to his share, there can be no doubt that, even if no document or instrument
were executed, for the purpose, for tax purposes, at least, an unregistered partnership
is formed.
For purposes of the tax on corporations, our National Internal Revenue Code
includes these partnerships —
The term “partnership” includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business, financial
operation, or venture is carried on… (8 Merten’s Law of Federal Income Taxation, p.
562 Note 63; emphasis ours.)
with the exception only of duly registered general copartnerships — within the purview
of the term “corporation.” It is, therefore, clear to our mind that petitioners herein
constitute a partnership, insofar as said Code is concerned, and are subject to the
income tax for corporations. Judgment affirmed.
Case # 3: BIR RULING 317-92 , October 28, 1992 (see attached copy)
Case # 4: G.R. No. L-68118 October 29, 1985

JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS
P. OBILLOS, brothers and sisters, petitioners vs. CIR & CTA
Facts:
On March 2, 1973 Jose Obillos, Sr. bought two lots with areas of 1,124 and 963
square meters of located at Greenhills, San Juan, Rizal. The next day he transferred his
rights to his four children, the petitioners, to enable them to build their residences. The
Torrens titles issued to them showed that they were co-owners of the two lots.
In 1974, or after having held the two lots for more than a year, the petitioners
resold them to the Walled City Securities Corporation and Olga Cruz Canada for the
total sum of P313,050. They derived from the sale a total profit of P134, 341.88 or
P33,584 for each of them. They treated the profit as a capital gain and paid an income
tax on one-half thereof or of P16,792.
In April, 1980, the Commissioner of Internal Revenue required the four petitioners
to pay corporate income tax on the total profit of P134,336 in addition to individual
income tax on their shares thereof. The petitioners are being held liable for deficiency
income taxes and penalties totalling P127,781.76 on their profit of P134,336, in addition
to the tax on capital gains already paid by them.
The Commissioner acted on the theory that the four petitioners had formed an
unregistered partnership or joint venture The petitioners contested the assessments.
Two Judges of the Tax Court sustained the same. Hence, the instant appeal.
Issue:
Whether or not the petitioners had indeed formed a partnership or joint venture
and thus liable for corporate tax.
Held:
The Supreme Court held that the petitioners should not be considered to have
formed a partnership just because they allegedly contributed P178,708.12 to buy the
two lots, resold the same and divided the profit among themselves. To regard so would
result in oppressive taxation and confirm the dictum that the power to tax involves the
power to destroy. That eventuality should be obviated.
As testified by Jose Obillos, Jr., they had no such intention. They were co-owners
pure and simple. To consider them as partners would obliterate the distinction between
a co-ownership and a partnership. The petitioners were not engaged in any joint venture
by reason of that isolated transaction.
*Article 1769(3) of the Civil Code provides that "the sharing of gross
returns does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property from which
the returns are derived". There must be an unmistakable intention to form a
partnership or joint venture.*
Their original purpose was to divide the lots for residential purposes. If later on
they found it not feasible to build their residences on the lots because of the high cost of
construction, then they had no choice but to resell the same to dissolve the co-
ownership. The division of the profit was merely incidental to the dissolution of the co-
ownership which was in the nature of things a temporary state. It had to be terminated
sooner or later.
They did not contribute or invest additional ' capital to increase or expand the
properties, nor was there an unmistakable intention to form partnership or joint venture.
WHEREFORE, the judgment of the Tax Court is reversed and set aside. The
assessments are cancelled. No costs.
All co-ownerships are not deemed unregistered partnership.—Co-

Ownership who own properties which produce income should not automatically be
considered partners of an unregistered partnership, or a corporation, within the purview
of the income tax law. To hold otherwise, would be to subject the income of all
Co-ownerships of inherited properties to the tax on corporations, inasmuch as if a

property does not produce an income at all, it is not subject to any kind of income tax,
whether the income tax on individuals or the income tax on corporation.
As compared to other cases:
Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74, where
after an extrajudicial settlement the co-heirs used the inheritance or the incomes
derived therefrom as a common fund to produce profits for themselves, it was held that
they were taxable as an unregistered partnership.
This case is different from Reyes vs. Commissioner of Internal Revenue, 24

SCRA 198, where father and son purchased a lot and building, entrusted the
administration of the building to an administrator and divided equally the net income,
and from Evangelista vs. Collector of Internal Revenue, 102 Phil. 140, where the three
Evangelista sisters bought four pieces of real property which they leased to various
tenants and derived rentals therefrom. Clearly, the petitioners in these two cases had
formed an unregistered partnership.
Case # 5: RR 10-2012 (see attached copy)
Classification of Corporations and Taxes
A. In general, Section 27-28 as amended by RA 9337, effective July 1, 2005,

implemented by RR 16-2005 (Nov 1 2005), increase to 35% Corporate Income
Tax
DOMESTIC= SEC. 27. Rates of Income Tax on Domestic Corporations. -
(A) In General. - Except as otherwise provided in this Code, an income tax of thirty-five
percent (35%) is hereby imposed upon the taxable income derived during each taxable
year from all sources within and without the Philippines by every corporation, as defined
in Section 22(B) of this Code and taxable under this Title as a corporation, organized in,
or existing under the laws of the Philippines: Provided, That effective January 1, 2009,
the rate of income tax shall be thirty percent (30%).
"In the case of corporations adopting the fiscal-year accounting period, the taxable
income shall be computed without regard to the specific date when specific sales,
purchases and other transactions occur. Their income and expenses for the fiscal year
shall be deemed to have been earned and spent equally for each month of the period.
The corporate income tax rate shall be applied on the amount computed by multiplying
the number of months covered by the new rate within the fiscal year by the taxable
income of the corporation for the period, divided by twelve.
"Provided, further, That the President, upon the recommendation of the Secretary of
Finance, may, effective January 1, 2000, allow corporations the option to be taxed at
fifteen percent (15%) of gross income as defined herein, after the following conditions
have been satisfied:
"(1) A tax effort ratio of twenty percent (20%) of Gross National Product (GNP);
"(2) A ratio of forty percent (40%) of income tax collection to total tax revenues;
"(3) A VAT tax effort of four percent (4%) of GNP; and
"(4) A 0.9 percent (0.9%) ratio of the Consolidated Public Sector Financial Position
(CPSFP) to GNP.
"The option to be taxed based on gross income shall be available only to firms whose
ratio of cost of sales to gross sales or receipts from all sources does not exceed fifty-five
percent (55%).
"The election of the gross income tax option by the corporation shall be irrevocable for
three (3) consecutive taxable years during which the corporation is qualified under the
scheme.
"For purposes of this Section, the term 'gross income' derived from business shall be
equivalent to gross sales less sales returns, discounts and allowances and 'cost of
goods sold.' Cost of good sold' shall include all business expenses directly incurred to
produce the merchandise to bring them to their present location and use.
"For a trading or merchandising concern, 'cost of goods sold' shall include the invoice
cost of the goods sold, plus import duties, freight in transporting the goods to the place
where the goods are actually sold, including insurance while the goods are in transit.
"For a manufacturing concern, 'cost of goods manufactured and sold' shall include all
costs of production of finished goods, such as raw materials used, direct labor and
manufacturing overhead, freight cost, insurance premiums and other costs incurred to
bring the raw materials to the factory or warehouse.
"In the case of taxpayers engaged in the sale of service, 'gross income' means gross
receipts less sales returns, allowances and discounts.
"(B) Proprietary Educational Institutions and Hospitals. - Proprietary educational

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

The provisions of existing special or general laws to the contrary notwithstanding, all
corporations, agencies, or instrumentalities owned or controlled by the Government,
except the Government Service and Insurance System (GSIS), the Social Security
System (SSS), the Philippine Health Insurance Corporation (PHIC), and the Philippine
Charity Sweepstakes Office (PCSO), shall pay such rate of tax upon their taxable
income as are imposed by this Section upon corporations or associations engaged in a
similar business, industry, or activity.
"(D) Rate of Tax on Certain Passive Incomes. -
"(1) Interest from Deposits and Yield or any other Monetary Benefit from Deposit
Substitutes and from Trust Funds and Similar Arrangements, and Royalties. - A final tax
at the rate of twenty percent (20%) is hereby imposed upon the amount of interest on
currency bank deposit and yield or any other monetary benefit from deposit substitutes
and from trust funds and similar arrangements received by domestic corporations, and
royalties, derived from sources within the Philippines: Provided, however, That interest
income derived by a domestic corporation from a depository bank under the expanded
foreign currency deposit system shall be subject to a final income tax at the rate of
seven and one-half percent (7 1/2%) of such interest income.
"(2) Capital Gains from the Sale of Shares of Stock Not Traded in the Stock Exchange. -
A final tax at the rates prescribed below shall be imposed on net capital gains realized
during the taxable year from the sale, exchange or other disposition of shares of stock
in a domestic corporation except shares sold or disposed of through the stock
exchange:
"Not over P100,000 ........................................ 5%
"Amount in excess of P100,000 ....................... 10%
"(3) Tax on Income Derived under the Expanded Foreign Currency Deposit System. -
Income derived by a depository bank under the expanded foreign currency deposit
system from foreign currency transactions with nonresidents, offshore banking units in
the Philippines, local commercial banks including branches of foreign banks that may be
authorized by the Bangko Sentral ng Pilipinas (BSP) to transact business with foreign
currency deposit system units and other depository banks under the expanded foreign
currency deposit system shall be exempt from all taxes, except net income from such
transactions as may be specified by the Secretary of Finance, upon recommendation by
the Monetary Board to be subject to the regular income tax payable by banks: Provided,
however, That interest income from foreign currency loans granted by such depository
banks under said expanded system to residents other than offshore banking units in the
Philippines or other depository banks under the expanded system shall be subject to a
final tax at the rate of ten percent (10%).
"Any income of nonresidents, whether individuals or corporations, from transactions with

depository banks under the expanded system shall be exempt from income tax.
"(4) Intercorporate Dividends. - Dividends received by a domestic corporation from
another domestic corporation shall not be subject to tax.
"(5) Capital Gains Realized from the Sale, Exchange or Disposition of Lands and/or
Buildings. - A final tax of six percent (6%) is hereby imposed on the gain presumed to
have been realized on the sale, exchange or disposition of lands and/or buildings which
are not actually used in the business of a corporation and are treated as capital assets,
based on the gross selling price or fair market value as determined in accordance with
Section, 6(E) of this Code, whichever is higher, of such lands and/or buildings.
"(E) Minimum Corporate Income Tax on Domestic Corporations. -
"(1) Imposition of Tax. - A minimum corporate income tax of two percent (2%) of the
gross income as of the end of the taxable year, as defined herein, is hereby imposed on
a corporation taxable under this Title, beginning on the fourth taxable year immediately
following the year in which such corporation commenced its business operations, when
the minimum income tax is greater than the tax computed under Subsection (A) of this
Section for the taxable year.
"(2) Carry Forward of Excess Minimum Tax. - Any excess of the minimum corporate
income, tax over the normal income tax as computed under Subsection (A) of this
Section shall be carried forward and credited against the normal income tax for the
three (3) immediately succeeding taxable years.
"(3) Relief from the Minimum Corporate Income Tax Under Certain Conditions. - The
Secretary of Finance is hereby authorized to suspend the imposition of the minimum
corporate income tax on any corporation which suffers losses on account of prolonged
labor dispute, or because of force majeure, or because of legitimate business reverses.
"The Secretary of Finance is hereby authorized to promulgate, upon recommendation of
the Commissioner, the necessary rules and regulations that shall define the terms and
conditions under which he may suspend the imposition of the minimum corporate
income tax in a meritorious case.
"(4) Gross Income Defined. - For purposes of applying the minimum corporate income
tax provided under Subsection (E) hereof, the term 'gross income' shall mean gross
sales less sales returns, discounts and allowances and cost of goods sold. 'Cost of
goods sold' shall include all business expenses directly incurred to produce the
merchandise to bring them to their present location and use.
"For a trading or merchandising concern, 'Cost of goods sold' shall include the invoice
of the goods sold, plus import duties, freight in transporting the goods to the place
where the goods are actually sold including insurance while the goods are in transit.
"For a manufacturing concern, 'cost of goods manufactured and sold' shall include all
costs of production of finished goods, such as raw materials used, direct labor and
manufacturing overhead, freight cost, insurance premiums and other costs incurred to
bring the raw materials to the factory or warehouse.
"In the case of taxpayers engaged in the sale of service, 'gross income' means gross
receipts less sales returns, allowances, discounts and cost of services. 'Cost of
services' shall mean all direct costs and expenses necessarily incurred to provide the
services required by the customers and clients including (A) salaries and employee
benefits of personnel, consultants and specialists directly rendering the service and (B)
cost of facilities directly utilized in providing the service such as depreciation or rental of
equipment used and cost of supplies; Provided, however, That in the case of banks,
'cost of services' shall include interest expense."
"SEC. 28. Rates of Income Tax on Foreign Corporations. -
(A) Tax on Resident Foreign Corporations. -
(1) In General. - Except as otherwise provided in this Code, a corporation organized,

authorized, or existing under the laws of any foreign country, engaged in trade or
business within the Philippines, shall be subject to an income tax equivalent to thirty-five
percent (35%) of the taxable income derived in the preceding taxable year from all
sources within the Philippines: Provided, That effective January 1, 2009, the rate of
income tax shall be thirty percent (30%).
"In the case of corporations adopting the fiscal-year accounting period, the taxable
income shall be computed without regard to the specific date when sales, purchases
and other transactions occur. Their income and expenses for the fiscal year shall be
deemed to have been earned and spent equally for each month of the period.
"The corporate income tax rate shall be applied on the amount computed by multiplying
the number of months covered by the new rate within the fiscal year by the taxable
income of the corporation for the period, divided by twelve.
"Provided, however, That a resident foreign corporation shall be granted the option to
be taxed at fifteen percent (15%) on gross income under the same conditions, as
provided in Section 27(A).
"(2) Minimum Corporate Income Tax on Resident Foreign Corporations. - A minimum

corporate income tax of two percent (2%) of gross income, as prescribed under Section
27(E) of this Code, shall be imposed, under the same conditions, on a resident foreign,
corporation taxable under, paragraph (1) of this Subsection.
"(3) International Carrier. - An international carrier doing business in the Philippines shall
pay a tax of two and one-half percent (2 1/2%) on its 'Gross Philippine Billings' as
defined hereunder:
"(a) International Air Carrier. - 'Gross Philippine Billings' refers to the amount of gross
revenue derived from carriage of persons, excess baggage, cargo and mail originating
from the Philippines in a continuous and uninterrupted flight, irrespective of the place of
sale or issue and the place of payment of the ticket or passage document: Provided,
That tickets revalidated, exchanged and/or indorsed to another international airline form
part of the Gross Philippine Billings if the passenger boards a plane in a port or point in
the Philippines: Provided, further, That for a flight which originates from the Philippines,
but transshipment of passenger takes place at any port outside the Philippines on
another airline, only the aliquot portion of the cost of the ticket corresponding to the leg
flown from the Philippines to the point of transshipment shall form part of Gross
Philippine Billings.
"(b) International Shipping. - 'Gross Philippine Billings' means gross revenue whether for
passenger, cargo or mail originating from the Philippines up to final destination,
regardless of the place of sale or payments of the passage or freight documents.
"(4) Offshore Banking Units. - The provisions of any law to the contrary notwithstanding,
income derived by offshore banking units authorized by the Bangko Sentral ng Pilipinas
(BSP), from foreign currency transactions with nonresidents, other offshore banking
units, local commercial banks, including branches of foreign banks that may be
authorized by the Bangko Sentral ng Pilipinas (BSP) to transact business with offshore
banking units shall be exempt from all taxes except net income from such transactions
as may be specified by the Secretary of Finance, upon recommendation of the
Monetary Board which shall be subject to the regular income tax payable by banks:
Provided, however, That any interest income derived from foreign currency loans
granted to residents, other than offshore banking units or local commercial banks,
including local branches of foreign banks that may be authorized by the BSP to transact
business with offshore banking units, shall be subject only to a final; tax at the rate of
ten percent (10%).

said offshore banking units shall be exempt from income tax.
"(5) Tax on Branch Profits Remittances. - any profit remitted by a branch to its head
office shall be subject to a tax of fifteen percent (15%) which shall be based on the total
profits applied or earmarked for remittance without any deduction for the tax component
thereof (except those activities which are registered with the Philippine Economic Zone
Authority). The tax shall be collected and paid in the same manner as provided in
Sections 57 and 58 of this Code: Provided, That interests, dividends, rents, royalties,
including renumeration for technical services, salaries, wages, premiums, annuities,
emoluments or other fixed or determinable annual, periodic or casual gains, profits,
income and capital gains received by a foreign corporation during each taxable year
from all sources within the Philippines shall not be treated as branch profits unless the
same are effectively connected with the conduct of its trade or business in the
Philippines.
"(6) Regional or Area Headquarters and Regional Operating Headquarters of

Multinational Companies. -
"(a) Regional or area headquarters as defined in Section 22(DD) shall not be subject to
income tax.
"(b) Regional operating headquarters as defined in Section 22(EE) shall pay a tax of ten
percent (10%) of their taxable income.
"(7) Tax on Certain Incomes Received by a Resident Foreign Corporation. -
"(a) Interest from Deposits and Yield or any other Monetary Benefit from Deposit
Substitutes, Trust Funds and Similar Arrangements and Royalties. - Interest from any
currency bank deposit and yield or any other monetary benefit from deposit substitutes
and from trust funds and similar arrangements and royalties derived from sources within
the Philippines shall be subject to a final income tax at the rate of twenty percent (20%)
of such interest: Provided, however, That interest income derived by a resident foreign
corporation from a depository bank under the expanded foreign currency deposit
system shall be subject to a final income tax at the rate of seven and one-half percent (7
1/2%) of such interest income.
"(b) Income Derived under the Expanded Foreign Currency Deposit System. - Income
derived by a depository bank under the expanded foreign currency deposit system from
foreign currency transactions with nonresidents, offshore banking units in the
Philippines, local commercial banks including branches of foreign banks that may be
authorized by the Bangko Sentral ng Pilipinas (BSP) to transact business with foreign
currency deposit system units and other depository banks under the expanded foreign
currency deposit system shall be exempt from all taxes, except net income from such
transactions as may be specified by the Secretary of Finance, upon recommendation by
the Monetary Board to be subject to the regular income tax payable by banks: Provided,
however, That interest income from foreign currency loans granted by such depository
banks under said expanded system to residents other than depository banks under the
expanded system shall be subject to a final tax at the rate of ten percent (10%).
depository banks under the expanded system shall be exempt from income tax.
"(c) Capital Gains from Sale of Shares of Stock Not Traded in the Stock Exchange. - A
final tax at the rates prescribed below is hereby imposed upon the net capital gains
realized during the taxable year from the sale, barter, exchange or other disposition of
shares of stock in a domestic corporation except shares sold or disposed of through the
stock exchange:
"Not over P100,000 ................................... 5%

"On any amount in excess of P100,000 ....... 10%
"(d) Intercorporate Dividends. - Dividends received by a resident foreign corporation

from a domestic corporation liable to tax under this Code shall not be subject to tax
under this Title.
"(B) Tax on Nonresident Foreign Corporation. -
"(1) In General. - Except as otherwise provided in this Code, a foreign corporation not
engaged in trade or business in the Philippines shall pay a tax equal to thirty-five
percent (35%) of the gross income received during each taxable year from all sources
within the Philippines, such as interests, dividends, rents, royalties, salaries, premiums
(except reinsurance premiums), annuities, emoluments or other fixed or determinable
annual, periodic or casual gains, profits and income, and capital gains, except capital
gains subject to tax under subparagraph 5(c): Provided, That effective January 1, 2009,
the rate of income tax shall be thirty percent (30%).
"(2) Nonresident Cinematographic Film Owner, Lessor or Distributor. - A

cinematographic film owner, lessor, or distributor shall pay a tax of twenty-five percent
(25%) of its gross income from all sources within the Philippines.
"(3) Nonresident Owner or Lessor of Vessels Chartered by Philippine Nationals. - A

nonresident owner or lessor of vessels shall be subject to a tax of four and one-half
percent (4 1/2%) of gross rentals, lease or charter fees from leases or charters to
Filipino citizens or corporations, as approved by the Maritime Industry Authority.
"(4) Nonresident Owner or Lessor of Aircraft, Machineries and Other Equipment. -

Rentals, charters and other fees derived by a nonresident lessor of aircraft, machineries
and other equipment shall be subject to a tax of seven and one-half percent (7 1/2%) of
gross rentals or fees.
"(5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. -
"(a) Interest on Foreign Loans. - A final withholding tax at the rate of twenty percent
(20%) is hereby imposed on the amount of interest on foreign loans contracted on or
after August 1, 1986;
"(b) Intercorporate Dividends. - A final withholding tax at the rate of fifteen percent (15%)
is hereby imposed on the amount of cash and/or property dividends received from a
domestic corporation, which shall be collected and paid as provided in Section 57(A) of
this Code, subject to the condition that the country in which the nonresident foreign
corporation is domiciled, shall allow a credit against the tax due from the nonresident
foreign corporation taxes deemed to have been paid in the Philippines equivalent to
twenty percent (20%), which represents the difference between the regular income tax
of thirty-five percent (35%) and the fifteen percent (15%) tax on dividends as provided in
this subparagraph: Provided, That effective January 1, 2009, the credit against the tax
due shall be equivalent to fifteen percent (15%), which represents the difference
between the regular income tax of thirty percent (30%) and the fifteen percent (15%) tax
on dividends;
"(c) Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange. - A
final tax at the rates prescribed below is hereby imposed upon the net capital gains
realized during the taxable year from the sale, barter, exchange or other disposition of
shares of stock in a domestic corporation, except shares sold, or disposed of through
the stock exchange:
"Not over P100,000 .................................... 5%

"On any amount in excess of P100,000............... 10%"
B. Special Corporations
I. Private Educational Institutions and Non-Profit Hospitals
Constitution, Article XIV Section 4 (3)
ARTICLE XIV
EDUCATION, SCIENCE AND TECHNOLOGY, ARTS, CULTURE AND SPORTS
EDUCATION
Section 4. (3) All revenues and assets of non-stock, non-profit educational institutions
used actually, directly, and exclusively for educational purposes shall be exempt from
taxes and duties. Upon the dissolution or cessation of the corporate existence of such
institutions, their assets shall be disposed of in the manner provided by law.
Proprietary educational institutions, including those cooperatively owned, may likewise
be entitled to such exemptions, subject to the limitations provided by law, including
restrictions on dividends and provisions for reinvestment.
Finance Department Order 137-87 (see attached)
Department Order 149-95, November 24, 1995: Non-profit/ Non Stock

Educational institutions regarding exemption of interest from deposits &
deposit substitute
November 24, 1995 DOF ORDER NO. 149-95
SUBJECT : Amending Department Order No. 137-87 as Amended by Department Order

No. 92-88 Implementing Section 4(3), Article XIV of the New Constitution
SECTION 1. Section 2(2.1) of Department Order No. 137-87 as amended Order No.
92-88 is hereby amended to read as follows:
"2.1 NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTIONS ARE EXEMPT

FROM TAXES ON ALL THEIR REVENUES AND ASSETS USED ACTUALLY,
DIRECTLY, AND EXCLUSIVELY FOR EDUCATIONAL PURPOSES. They shall,
however, be subject to internal revenue taxes on income from trade, business or other
activity the conduct of which is not related to the exercise or performance by such
educational institution of its educational purpose or function."
"2.1.1 To ensure that the exempt interest income from Philippine currency deposits and
yield from deposit substitute instruments are used actually, directly, and exclusively for
educational purposes, the said educational institutions shall, on annual basis submit to
the Revenue District Officer, together with the annual information return and duly
audited financial statement, the following: cd
a) Certification from their depository banks as to the amount of interest income earned
from passive investments not subject to the 20% final withholding tax imposed by
Section 24(e) of the Tax Code, as amended;
• b) Certification of actual utilization of the said income; and
• c) Board Resolution by the school administration on proposed projects. (i.e.

construction and/or  
improvement of school building and facilities; acquisition of equipments, books and the
like) to be funded out of money deposited in banks or placed in money markets.
The RDO shall conduct an audit of the annual information return filed to determined
compliance with the conditions set forth in the Certificate of exemption and the tax
liabilities, if any.
SECTION 2. Repealing Clause. — All orders, circulars, rules and regulations

inconsistent herewith are hereby revoked or modified accordingly.
SECTION 3. Effectivity. — This Order shall take effect immediately.
(SGD.) ROBERTO F. DE OCAMPO 

Secretary
Case # 6: Commissioner of Internal Revenue vs. St Luke's Medical Center
Facts:
St. Luke’s Medical Center, Inc. (St. Luke’s) is a hospital organized as a non-stock and
non-profit corporation. St. Luke’s accepts both paying and non-paying patients. The BIR
assessed St. Luke’s deficiency taxes for 1998 comprised of deficiency income tax,
value-added tax, and withholding tax. The BIR claimed that St. Luke’s should be liable
for income tax at a preferential rate of 10% as provided for by Section 27(B). Further,
the BIR claimed that St. Luke’s was actually operating for profit in 1998 because only
13% of its revenues came from charitable purposes. Moreover, the hospital’s board of
trustees, officers and employees directly benefit from its profits and assets.
On the other hand, St. Luke’s maintained that it is a non-stock and non-profit institution
for charitable and social welfare purposes exempt from income tax under Section 30(E)
and (G) of the NIRC. It argued that the making of profit per se does not destroy its
income tax exemption.
Issue:
The sole issue is whether St. Luke’s is liable for deficiency income tax in 1998
under Section 27(B) of the NIRC, which imposes a preferential tax rate of 10^ on the
income of proprietary non-profit hospitals.
Ruling:
Section 27(B) of the NIRC does not remove the income tax exemption of
proprietary non-profit hospitals under Section 30(E) and (G). Section 27(B) on one
hand, and Section 30(E) and (G) on the other hand, can be construed together
without the removal of such tax exemption.
Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1)
proprietary non-profit educational institutions and (2) proprietary non-profit
hospitals. The only qualifications for hospitals are that they must be proprietary and
non-profit. “Proprietary” means private, following the definition of a “proprietary
educational institution” as “any private school maintained and administered by
private individuals or groups” with a government permit. “Non-profit” means no net
income or asset accrues to or benefits any member or specific person, with all the
net income or asset devoted to the institution’s purposes and all its activities conducted
not for profit.
“Non-profit” does not necessarily mean “charitable.” In Collector of Internal Revenue

v. Club Filipino Inc. de Cebu, this Court considered as non-profit a sports club organized
for recreation and entertainment of its stockholders and members. The club was
primarily funded by membership fees and dues. If it had profits, they were used for
overhead expenses and improving its golf course. The club was non-profit because of
its purpose and there was no evidence that it was engaged in a profit-making
enterprise.
The sports club in Club Filipino Inc. de Cebu may be non-profit, but it was not
charitable. The Court defined “charity” in Lung Center of the Philippines v.
Quezon City as “a gift, to be applied consistently with existing laws, for the benefit
of an indefinite number of persons, either by bringing their minds and hearts under the
influence of education or religion, by assisting them to establish themselves in life or
[by] otherwise lessening the burden of government.” However, despite its being a tax
exempt institution, any income such institution earns from activities conducted for profit
is taxable, as expressly provided in the last paragraph of Sec. 30.
To be a charitable institution, however, an organization must meet the substantive test

of charity in Lung Center. The issue in Lung Center concerns exemption from real
property tax and not income tax. However, it provides for the test of charity in our
jurisdiction. Charity is essentially a gift to an indefinite number of persons which lessens
the burden of government. In other words, charitable institutions provide for
free goods and services to the public which would otherwise fall on the
shoulders of government. Thus, as a matter of efficiency, the government forgoes
taxes which should have been spent to address public needs, because certain
private entities already assume a part of the burden. This is the rationale for the tax
exemption of charitable institutions. The loss of taxes by the government is
compensated by its relief from doing public works which would have been funded by
appropriations from the Treasury
The Constitution exempts charitable institutions only from real property taxes. In the
NIRC, Congress decided to extend the exemption to income taxes. However, the way
Congress crafted Section 30(E) of the NIRC is materially different from Section 28(3),
Article VI of the Constitution.
Section 30(E) of the NIRC defines the corporation or association that is exempt from
income tax. On the other hand, Section 28(3), Article VI of the Constitution does not
define a charitable institution, but requires that the institution “actually, directly and
exclusively” use the property for a charitable purpose.
To be exempt from real property taxes, Section 28(3), Article VI of the Constitution
requires that a charitable institution use the property “actually, directly and exclusively”
for charitable purposes.
To be exempt from income taxes, Section 30(E) of the NIRC requires that a
charitable institution must be “organized and operated exclusively” for charitable
purposes. Likewise, to be exempt from income taxes, Section 30(G) of the NIRC
requires that the institution be “operated exclusively” for social welfare.
However, the last paragraph of Section 30 of the NIRC qualifies the words “organized
and operated exclusively” by providing that:
Notwithstanding the provisions in the preceding paragraphs, the income of whatever

kind and character of the foregoing organizations from any of their properties, real or
personal, or from any of their activities conducted for profit regardless of
the disposition made of such income, shall be subject to tax imposed under
this Code.
In short, the last paragraph of Section 30 provides that if a tax exempt charitable
institution conducts “any” activity for profit, such activity is not tax exempt even as its
not-for-profit activities remain tax exempt.
Thus, even if the charitable institution must be “organized and operated exclusively” for
charitable purposes, it is nevertheless allowed to engage in “activities conducted for
profit” without losing its tax exempt status for its not-for-profit activities. The only
consequence is that the “income of whatever kind and character” of a charitable
institution “from any of its activities conducted for profit, regardless of the
disposition made of such income, shall be subject to tax.” Prior to the introduction of
Section 27(B), the tax rate on such income from for-profit activities was the ordinary
corporate rate under Section 27(A). With the introduction of Section 27(B), the tax rate
is now 10%.
The Court finds that St. Luke’s is a corporation that is not “operated exclusively” for
charitable or social welfare purposes insofar as its revenues from paying patients are
concerned. This ruling is based not only on a strict interpretation of a provision granting
tax exemption, but also on the clear and plain text of Section 30(E) and (G). Section
30(E) and (G) of the NIRC requires that an institution be “operated exclusively” for
charitable or social welfare purposes to be completely exempt from income tax. An
institution under Section 30(E) or (G) does not lose its tax exemption if it earns
income from its for-profit activities. Such income from for-profit activities, under the
last paragraph of Section 30, is merely subject to income tax, previously at the ordinary
corporate rate but now at the preferential 10% rate pursuant to Section 27(B).
St. Luke’s fails to meet the requirements under Section 30(E) and (G) of the NIRC to be
completely tax exempt from all its income. However, it remains a proprietary non-profit
hospital under Section 27(B) of the NIRC as long as it does not distribute any of its
profits to its members and such profits are reinvested pursuant to its corporate
purposes. St. Luke’s, as a proprietary non-profit hospital, is entitled to the preferential
tax rate of 10% on its net income from its for-profit activities.
St. Luke’s is therefore liable for deficiency income tax in 1998 under Section 27(B) of
the NIRC. However, St. Luke’s has good reasons to rely on the letter dated 6 June 1990
by the BIR, which opined that St. Luke’s is “a corporation for purely charitable and social
welfare purposes” and thus exempt from income tax.
In Michael J. Lhuillier, Inc. v. Commissioner of Internal Revenue, the Court said that
“good faith and honest belief that one is not subject to tax on the basis of previous
interpretation of government agencies tasked to implement the tax law, are sufficient
justification to delete the imposition of surcharges and interest.”
WHEREFORE, St. Luke’s Medical Center, Inc. is ORDERED TO PAY the deficiency
income tax in 1998 based on the 10% preferential income tax rate under Section
27(8) of the National Internal Revenue Code. However, it is not liable for surcharges
and interest on such deficiency income tax under Sections 248 and 249 of the
National Internal Revenue Code. All other parts of the Decision and Resolution of
the Court of Tax Appeals are AFFIRMED.
Case # 7: PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR),

petitioner, vs. THE BUREAU OF INTERNAL REVENUE, March 1, 2011
-SEE FULL CASE
Case # 7.5: PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR),
petitioner, vs. THE BUREAU OF INTERNAL REVENUE, respondents. G.R. No.
215427 dated December 10, 2014
FACTS:
• On April 17, 2006, petitioner filed a Petition for Review on Certiorari and
Prohibition seeking the declaration of nullity of Section 1 of RA 9337 insofar as it
amends Section 27(c) of RA 8424, otherwise known as the NIRC by excluding
petitioner from the enumeration of government-owned or controlled corporations
(GOCCs) exempted from liability for corporate income tax.
• On March 15, 2011, SC partly granted the petition insofar as it held that the BIR
Revenue Regulation No. 16-2005 which subjects PAGCOR to 10% VAT is null
and void for being contrary to the NIRC. It also held that Section 1 of RA 9337 is
valid and constitutional.
• BIR issued RMC No. 33-2013 on April 17, 2013 pursuant to the decision which
clarifies the “Income Tax and Franchise Tax Due from PAGCOR, its Contractees
and Licensees.” It now subjects the income from PAGCOR’s operations and
licensing of gambling casinos, gaming clubs and other similar recreation or
amusement places, gaming pools, and other related operations, to corporate
income tax under the NIRC.
• PAGCOR filed a Motion for Clarification in the case entitled PAGCOR vs The
Bureau of Internal Revenue, et al., which was promulgated on March 15, 2011
which also prays for the issuance of a TRO and/or writ of Preliminary Injunction
against BIR in the implementation of BIR Revenue Memorandum Circular No.
33-2013 dated April 17, 2013. PAGCOR alleges that said RMC is an erroneous
interpretation and application of the aforesaid decision.
ISSUE:
1. Whether PAGCOR’s gaming income is subject to both 5% franchise tax and
income tax?
2. Whether PAGCOR’s income from operation of related services is subject to both
income tax and 5% franchise tax.
HELD:
1. Gaming Income: Franchise Tax – YES; Income Tax - NO
Under PD 1869, as amended, petitioner is subject to income tax only with respect to its
operations of related services. Accordingly, the income tax exemption ordained under
Section 27(c) of RA 8424 clearly pertains only to petitioner’s income from operation of
related services. Such income tax exemption could not have been applicable to
petitioner’s income from gaming operations as it is already exempt therefrom under PD
1869.
There was no need for Congress to grant tax exemption to petitioner with respect to its
income from gaming operating as the same is already exempted from all taxes of any
kind or form, income or otherwise, whether national or local, under its Charter, save only
for the five percent (5%) franchise tax. The exemption attached to the income from
gaming operations exists independently would be downright ridiculous, if not
deleterious, since petitioner would be in a worse position if the exemption was granted
(then withdrawn) then when it was not granted at all in the first place.
2. Income from Operation of related services: Income tax - YES ; Franchise tax -
NO
Petitioner’s Charter is not deemed repealed or amended by RA 9337; petitioner’s

income derived from gaming operation is subject only to the five percent (5%) franchise
tax, in accordance with PD 1869, as amended. With respect to petitioner’s income from
operation of other related services, the same is subject to income tax only. The five
percent (5%) franchise tax finds no application with respect to petitioner’s income from
other related services, in view of the express provision of Section 14(5) of PD 1869, as
amended.
Thus, it would be the height of injustice to impose franchise tax upon petitioner for its
income from other related services without basis therefor.
SC granted the petition and ordered the respondent to cease and desist the
implementation of RMC No. 33-2013 insofar as it imposes corporate income tax on
petitioner’s income derived from its gaming operations; and franchise tax on petitioner’s
income from other related services.
II. Non-Resident Cinematographic Film Owner, lessor or Distributor
REPUBLIC ACT NO. 9294

AN ACT RESTORING THE TAX EXEMPTION OF OFFSHORE BANKING UNITS
(OBUs) AND FOREIGN CURRENCY DEPOSIT UNITS (FCDUs), AMENDING FOR
THE PURPOSE SECTION 27 (D) AND SECTION 28, PARAGRAPHS (A) (4) AND (A)
(7) (b) OF THE NATIONAL INTERNAL REVENUE CODE AS AMENDED.
"(2) Nonresident Cinematographic Film Owner Lessor or Distributor. - A
cinematographic film owner, lessor, or distributor shall pay a tax of twenty-five percent
(25%) of its gross income from all sources within the Philippines.
III. International Carriers
Case # 8: CIR VS. BRITISH OVERSEAS AIRWAYS CORPORATION and CTA
FACTS:
BOAC is a British Government-owned corporation organized and existing under
the laws of the United Kingdom. It is engaged in the international airline business. It did
not carry passengers or cargo to or from the Philippines, although during the period
covered by the assessments, it maintained a general sales agent in the Philip. —
Wamer Barnes and Company, Ltd., and later Qantas Airways — which was responsible
for selling BOAC tickets covering passengers and cargoes.
It is admitted that BOAC had no landing rights for traffic purposes in the
Philippines, and was not granted a Certificate of public convenience, except for a nine-
month period, partly in 1961 and partly in 1962, when it was granted a temporary
landing permit .
Petitioner assessed BOAC for deficiency income taxes covering the years 1959
to 1963. BOAC paid the assessment under protest.
CTA DECISION: The Tax Court held that the proceeds of sales of BOAC passage
tickets in the Philippines do not constitute BOAC income from Philippine sources "since
no service of carriage of passengers or freight was performed by BOAC within the
Philippines" and, therefore, said income is not subject to Philippine income tax.
RESPONDENT’S MAIN ARGUMENT: BOAC's service of transportation is performed

outside the Philippines, the income derived is from sources without the Philippines and,
therefore, not taxable under our income tax laws.
ISSUES: Whether the revenue derived by BOAC from sales of tickets in the Philippines
for air transportation, while having no landing rights here, constitute income of BOAC
from Philippine sources, and, accordingly, taxable.
HELD:YES. Sales of tickets in the Philippines is taxable.

The source of an income is the property, activity or service that produced the
income. For the source of income to be considered as coming from the Philippines, it is
sufficient that the income is derived from activity within the Philippines. The absence of
flight operations to and from the Philippines is not determinative of the source of income
or the site of income taxation.
In BOAC's case, the sale of tickets in the Philippines is the activity that produces
the income:
1. The tickets exchanged hands and payments for fares were also made in
Philippine currency.
2. The site of the source of payments is the Philippines.
3. The flow of wealth proceeded from, and occurred within, Philippine territory,
enjoying the protection accorded by the Philippine government.
4. In consideration of such protection, the flow of wealth should share the burden of
supporting the government.
The definition of gross income under section 32 of tax code is broad and
comprehensive to include proceeds from sales of transport documents.
NOTE: Pursuant to Presidential Decree No. 69, international carriers are now taxed of
2-½ per cent on their cross Philippine billings.
Case # 9: RR 15-2002 (see attached RR)
Case # 10: Air Canada vs CIR, CTA EB No.86 (see attached EB ruling)
Case # 11: United Airline Inc. vs CIR CTA EB No. 297
Case # 12: South African Airways v. CIR G.R. No. 180356 February 16, 2010
Lessons Applicable: Taxes can be offset if intimately related, unless exempted
assumed within the purview of general rule, liabilities and tax credit must first be
determined before offset can take place
Facts:
• South African Airways, a foreign corporation with no license to do business
in the Philippines, sells passage documents for off-line flights through
Aerotel Limited, general sales agent in the Philippines
• Feb 5, 2003: Petitioner filed a claim for refund erroneously paid tax on
Gross Philippine Billing (GPB) for the year 2010.
• CTA: denied - petitioner is a resident foreign corp. engaged in trade or
business in the Philippines and therefore is NOT liable to pay tax on GPB
under the Sec. 28 (A) (3) (a) of the 1997 NIRC but cannot be allowed
refund because liable for the 32% income tax from its sales of passage
documents.
• This is upheld by the CTA and CTA En Banc
Issue:
1. W/N petitioner is engaged in trade or business in the Philippines is subject to
32% income tax.
2. W/N petitioner is entitled to refund
HELD: CTA En Banc decision is set side
1. Yes. Since it does not maintain flights to or from the Philippines, it is not
taxable under Sec. 28(A)(3)(a) of the 1997 NIRC. This much was also found by
the CTA. But petitioner further posits the view that due to the non-applicability of
Sec. 28(A)(3)(a) to it, it is precluded from paying any other income tax for its sale
of passage documents in the Philippines. But, Sec. 28 (A)(1) of the 1997 NIRC
does not exempt all international air carriers from the coverage of Sec. 28 (A) (1)
of the 1997 NIRC being a general rule. Petitioner, being an international carrier
with no flights originating from the Philippines, does not fall under the exception.
As such, petitioner must fall under the general rule. This principle is embodied in
the Latin maxim, exception firmat regulam in casibus non exceptis, which means,
a thing not being excepted must be regarded as coming within the purview of the
general rule.
2. Underterminable. Although offsetting of tax refund with tax deficiency is

unavailing under Art. 1279 of the Civil Code, in CIR v. CTA it granted when
deficiency assessment is intimately related and inextricably intertwined with the
right to claim for a tax refund. Sec. 72 Chapter XI of 1997 NIRC is not applicable
where petitioner's tax refund claim assumes that the tax return that it filed were
correct because petitioner is liable under Sec. 28 (A)(1), the correctness is now
put in doubt and refund cannot be granted. It cannot be assumed that the
liabilities for two different provisions would be the same. There is a necessity for
the CTA to receive evidence and establish the correct amount before a refund
can be granted.
Another digest for South African Airways v. CIR
Facts:
South African Airways (SAA) is a foreign corporation organized and existing
under and by virtue of the laws of the Republic of South Africa. Its principal office is
located at Airways Park, Jones Road, Johannesburg International Airport, South Africa.
In the Philippines, it is an internal air carrier also having NO LANDING RIGHTS

in the country. And like both previous airlines Petitioner herein has a general sales
agent in the Philippines in the person of Aerotel Limited Corporation (Aerotel). No
they weren't selling tickets. Aerotel sells passage documents for compensation or
commission for petitioner’s off-line flights for the carriage of passengers and cargo
between ports or points outside the territorial jurisdiction of the Philippines.
The thing was, petitioner is not registered with the SEC as a corporation, branch
office, or partnership. It is not licensed to do business in the Philippines. It paid a
corporate tax in the rate of 32% of its gross billings.
However, it subsequently claim for refund contending that its income should be
taxed at the rate of 2 1/2% of its gross billings.
ISSUE:
Is petitioner’s income sourced within the Philippines and is to be taxed at 32% of
the gross billings?
HELD:
The answer was YES!
Court said in the instant case, the General Rule is that resident foreign
corporations shall be liable for a 32% income tax on their income from within the
Philippines, Except for resident foreign corporations that are international carriers that
derive income “from carriage of persons, excess baggage, cargo and mail originating
from the Philippines” which shall be taxed at 2 1/2% of their Gross Philippine
Billings.
Petitioner, being an international carrier with no flights originating from the

Philippines, does not fall under the exception. As such, petitioner must fall under the
general rule.
(This principle is embodied in the Latin maxim, exception firmat regulam in

casibus non exceptis, which means, a thing not being excepted must be regarded as
coming within the purview of the general rule.)
To reiterate, the correct interpretation of the above provisions is that, if an

international air carrier maintains flights to and from the Philippines, it shall be
taxed at the rate of 2 1/2% of its Gross Philippine Billings, while international air
carriers that do not have flights to and from the Philippines but nonetheless earn
income from other activities in the country will be taxed at the rate of 32% of such
income.
See RA 10378, July 23, 2012 (Reciprocal Exemption of GPB Tax)
IV. Non Resident Owner of Vessels
"(3) Nonresident Owner or Lessor of Vessels Charactered by Philippine Nationals. - A

nonresident owner or lessor of vessels shall be subject to a tax of four and one-half
percent (41/2%) of gross rentals, lease or charter fees from leases or charters to Filipino
citizens or corporations, as approved by the Maritime Industry Authority.
V. Non Resident Lessor of Aircraft, Machineries, and other Equipment
(4) Nonresident Owner or Lessor of Aircraft, Machineries and Other Equipment. -

Rentals, charter and other fees derived by a nonresident lessor of aircraft, machineries
and other equipment shall be subject to a tax of seven and one-half percent (71/2%) of
gross rentals or fees.
VI. Foreign Currency Deposit System / Offshore Banking units
a. RR 10-76
December 14, 1976 
REVENUE REGULATIONS NO. 10-76
SUBJECT : Regulations Governing Taxation of Offshore Banks and Foreign Currency

Deposit Units of Depository Banks Established under P.D. 1034 and 1035, respectively
TO : All Internal Revenue Officers and Others Concerned
SECTION 1. Scope. — Pursuant to Section 338 of the National Internal Revenue Code,
as amended, the following regulations are hereby promulgated to govern the manner of
taxation of offshore banks and the expanded Foreign Currency Deposit Units of
depository banks established under Presidential Decrees No. 1034 and 1035,
respectively. These regulations shall be known as Revenue Regulations No. 10-76.
SECTION 2. Definition of Terms. —
(1) "Offshore Banking" shall refer to the conduct of banking transactions in foreign
currencies involving the receipt of funds principally from external sources and the
utilization of such funds as provided in Presidential Decree No. 1034.
(2) "Offshore Banking Unit" hereinafter referred to as OBU, shall mean a branch,
subsidiary or affiliate of a foreign banking corporation which is duly authorized by the
Central Bank of the Philippines, as a separate accounting unit, to transact offshore
banking business in the Philippines in accordance with the provisions of P.D. 1034 as
implemented by Central Bank Circular No. 546.
(3) "Deposits" shall mean funds in foreign currencies which are accepted and held by
an off-shore banking unit in the regular course of business, with the obligation to return
an equivalent amount to the owner thereof, with or without interest.  
(4) "Resident" shall mean — 

(a) an individual citizen of the Philippines residing therein; or 
(b) an individual who is not a citizen of the Philippines but is permanently residing
therein; or 
(c)a corporation or other juridical person organized under the laws of the
Philippines. 
(d) a branch, subsidiary, affiliate, extension office or any other unit of corporations
or juridical persons organized under the laws of any foreign country operating in the
Philippines.
(5) "Non-resident" shall mean an individual, corporation or other juridical person not
included in the above definition of  
"residents".  
(6) "Foreign Currency Deposit Unit" (FCDU) shall mean an accounting unit or
department in a local bank or in an existing local  
branch of foreign banks, which is authorized by the Central Bank of the Philippines to
operate under the expanded foreign currency deposit system, in accordance with the
provisions of P.D. 1035, as implemented by Central Bank Circular No. 547. The FCDU
authority shall be distinguished from the authority to accept foreign currency deposits
under R.A. No. 6426, as implemented by Central Bank Circular No. 343.  
(7) "Gross offshore income" shall mean all income arising from transactions allowed by
the Central Bank of the Philippines conducted by and between —
(a) in the case of an offshore banking unit with another offshore banking unit or
with an expanded Foreign Currency Deposit unit or with a non-resident;
(b) in the case of an expanded Foreign Currency Deposit Unit with another
expanded Foreign Currency Deposit Unit or with an Offshore Banking Unit or with a
non-resident.
(8) "Gross onshore income" shall mean gross interest income arising from foreign
currency loans and advances to and/or investments with residents made by Offshore
Banking Units or expanded Foreign Currency Deposit Units. Such gross interest income
shall include all fees, commissions and other charges which are integral parts of the
income from the above transactions.
SECTION 3. Rates of income tax to be imposed. — 

The rates or income tax to be imposed, which shall be in lieu of all other taxes such as,
but not limited to privilege tax, gross receipts tax, documentary and science stamp tax
and profit remittance tax, are as followers:
(a) On offshore income, there shall be imposed an income tax of five percent (5%)
based on net offshore income as computed in Section 4. Income realized by
offshore banking units on transactions with local commercial banks including
branches of foreign banks that may be authorized by the Central Bank of the
Philippines to transact business with offshore banking units shall likewise be subject
to the same tax, except net income from such transactions as may be specified by
the Secretary of Finance, upon recommendation of the Monetary Board, to be
subject to the usual income tax payable by banks.
(b) In the case of gross onshore income as defined in Section 2(h) above, the tax shall
be ten percent (10%) thereof and shall be a final tax.  
(c) Income not covered by paragraphs (a) and (b) above shall be subject to the usual
corporate taxes imposed by the National Internal Revenue Code, as amended.  
SECTION 4. Manner of computation of net income. — 
(1) Net offshore income for purposes of Section 3, paragraph (a) above, shall be the
amount remaining after deducting from the gross offshore income during the taxable
year the following items: 
(a) the proportion of total interest expenses for the same period based on the
ratio of offshore interest income which bears to the total gross interest income; 
(b) the proportion of general administrative expenses based on the ratio of net
offshore income which bears to the total net
income after deducting only interest expenses mentioned in sub-paragraph (1) above. 
(c)Likewise, there shall be allowed a reasonable amount of head office expenses
in accordance with the ratio specified in subparagraph (2) above. 
(2) In the case of onshore income, the gross interest income without the benefit of any
deduction corresponding to the allocable onshore income, shall be the amount upon
which the ten percent (10%) withholding income tax shall be computed. SECTION 5.
Manner of filing returns and payment of taxes. — Within sixty (60) days after the end of
each of the first three quarters of the calendar or fiscal year.
(a) for offshore income and other income mentioned In Section 3(c) —a return of
net taxable offshore income shall be filed with, and the tax due thereon paid, to the
Commissioner of Internal Revenue, Revenue Regional Director, Revenue District Officer
or the Collection Agent of the City or Municipality where the corporation's principal office
is located and where its books of accounts and other data from which the return is
prepared are kept, by every offshore banking units and expanded Foreign Currency
Deposit Units, regardless of whether there is tax due or not. For these purposes, B.I.R.
Form No. 17.02-Q shall be used and the appropriate rates, as enumerated in Section 3
above, shall be applied accordingly.
(b) for onshore income —in the case of onshore income realized by an offshore
banking unit or by an expanded Foreign Currency Deposit Unit, the income need not be
included in the quarterly income tax return to be filed as required above as the payor-
borrower under Section 53, in relation to Section 54, of the National Internal Revenue
Code, is constituted as the withholding agent charged with the obligation of deducting,
withholding and remitting to the Commissioner of Internal Revenue the income tax due
thereon within the period prescribed by law with the appropriate return in accordance
with existing revenue and Central Bank regulations.
A copy of the quarterly return filed, together with the copy of the official receipt
denoting payments thereon, shall be furnished direct to the offshore banking unit or
foreign currency deposit unit concerned, which shall in turn submit to the Bureau of
Internal Revenue said documents accompanied by statement showing a list of all its
domestic borrowers, amount borrowed and interest income thereon. The statement with
its attachments, shall be filed together with the quarterly return required above.
A final consolidated return or an adjustment return on B.I.R. Form 1702 covering

the total taxable onshore and offshore income for the preceding calendar or fiscal year
shall be filed on or before the 15th day of the fourth month following the close of the
calendar or fiscal year.
The return shall include all the items of gross income and deductions for the
whole taxable year. The tax shown on the final or adjustment return, after deducting
therefrom the quarterly income taxes paid and withheld during the preceding three
quarters of the same taxable year, shall either be paid upon filing, or refunded as the
case may be.
SECTION 6. Statement to be attached to the return. —
There shall be attached to the final consolidated return or adjustment return of

the taxpayer for such taxable year a sworn statement, a specimen form of which is
hereto attached, by a responsible officer setting forth in summarized form the pertinent
information required by these regulations with respect to the computation of the net
offshore income, gross onshore income and taxes paid or withheld.
SECTION 7. Records to be kept. —
Every offshore banking unit, as well as expanded Foreign Currency Deposit Unit,
which is duly authorized by the Central Bank of the Philippines to transact offshore
banking business in the Philippines shall maintain books of account which shall be kept
in the place of its principal place of business for inspection.
In addition, all the supporting data which were used in compiling the summary
statement required to be attached to the income tax returns to be filed as prescribed
under Section 6 hereof must likewise be made readily available at its principal place of
business.
SECTION 8. Income of non-resident. —
Any income of non-residents from transactions with either an offshore banking

unit or with an expanded Foreign Currency Deposit Unit shall be exempt from any and
all taxes.
SECTION 9. Income of foreign personnel. —
There shall be levied, collected and paid for each taxable year upon the gross
income received by every alien individual employed by offshore banking units in the
Philippines as salaries, wages, annuities, compensations, remunerations and
emoluments from such offshore banking units a tax equal to fifteen (15%) percent of
such gross income. The aforesaid tax shall be deducted and withheld at source in the
same manner and condition as that provided under Supplement "A" — Withholding on
Wages of Commonwealth Act No. 466, as amended.
SECTION 10. Privileges of the offshore banking units. —
The offshore banking units shall be exempt from all forms of local licenses, fees,
dues, imposts or any other local taxes or burdens.
The license fee paid by offshore banking units shall be allowed as a deduction in
accordance with Section 4 of these regulations. SECTION 11. Registration. —
Offshore a Banking Units and expanded Foreign Currency Deposit Units shall,
upon receipt of advice from the Central Bank, register with the Bureau of Internal
Revenue its business name for the purpose of —
• registering its trade name;
• registering as an employer pursuant to the provision of R. A. 466;
• registering its name for the purpose of securing its taxpayer account number
(TAN).
SECTION 12. Repealing Clause. —
All regulations, rulings or orders or portion thereof, which are inconsistent with
the provisions of these regulations are hereby revoked.
SECTION 13. Effectivity. — 

These regulations shall apply to income received beginning with taxable year
starting after January 1, 1977.
b. RR 14-77
 
SUBJECT : Amending Revenue Regulations No. 10-76 
TO : All Internal Revenue Officers and others Concerned Pursuant to Section 338 of the
National Internal Revenue Code as amended, the following regulations are hereby
promulgated to amend certain sections of Revenue Regulations No. 10-76. 
SECTION 1. Section 2(h) is hereby amended to read as follows: 
"SEC. 2(h). Gross onshore income shall mean gross interest income arising from
foreign currency loans and advances to and/or investments with residents made by
offshore banking units or expanded foreign currency deposit units. In the case of foreign
currency loan transactions, such gross interest income shall refer only to the stipulated
interest and shall not include any and all fees, commissions and other charges which
are integral parts of the income from the above transactions."  
SECTION 2. Section 3(b) is hereby amended to read as follows: 
"SEC. 3(b). In the case of gross onshore income as defined in Section 2(h) above, the
tax shall be ten percent (10%) thereof and shall be a final tax. Any and all fees,
commissions and other charges which are integral parts of the charges imposed on
foreign currency loan transactions are exempt from the tax herein imposed." 
SECTION 3. Section 5(b) is hereby amended to read as follows: 

"SEC. 5(b). For onshore income — In the case of onshore income realized by an
offshore banking unit or by an expanded Foreign Currency Deposit Unit, the income
need not be included in the quarterly income tax return to be filed as required above as
the payor-borrower under Section 53, in relation to Section 54, of the National Internal
Revenue Code, is constituted as the withholding agent charged with the obligation of
deducting, withholding and remitting to the Commissioner of Internal Revenue the
income tax due thereon within the period prescribed by law with the appropriate return
in accordance with existing revenue and Central Bank regulations. Regardless,
therefore, of whether the accounting method of an OBU-creditor in cash or accrual
basis, the withholding tax will be withheld and remitted only after the due date of
payment of the interest incurred by an onshore borrower. 
SECTION 4. Effectivity. — This regulation shall apply to income received beginning with
taxable year starting after January 1, 1977
c. RR 10-98
August 25, 1998 
REVENUE REGULATIONS NO. 10-98
 
SUBJECT : Implementing the Provisions of the National Internal Revenue Code, As
Amended By Republic Act No. 8424, Relative to the Imposition of Income Taxes on
Income Derived Under the Foreign Currency Deposit and Offshore Banking Systems
TO : All Internal Revenue Officers and Others Concerned 
SCOPE — Pursuant to Section 244, in relation to Sections 24, 25, 27 and 28 of the
National Internal Revenue Code of 1997, as amended by R.A. No. 8424, these
Regulations are hereby promulgated to govern the imposition of income taxes on
income derived under the Foreign Currency Deposit and Offshore Banking Systems.
cdphil
SECTION 2.22. Definition of Terms. — 

(A) Foreign Currency Deposit System — shall refer to the conduct of banking
transactions whereby any person whether natural or
juridical may deposit foreign currencies forming part of the Philippine international
reserves, in accordance with the provisions of Republic Act No. 6426 entitled "An Act
Instituting a Foreign Currency Deposit System in the Philippines, and For Other
Purposes."
• (B) Foreign Currency Deposit Unit (FCDU) — shall refer to that unit of a local
bank or of a local branch of a foreign bank authorized by the Bangko Sentral Ng
Pilipinas (BSP) to engage in foreign currency-denominated transactions,
pursuant to the provisions of R.A. 6426, as amended. ("Local bank" shall refer to
a thrift bank or a commercial bank organized under the laws of the Republic of
the Philippines. "Local branch of a foreign bank" shall refer to a branch of a
foreign bank doing business in the Philippines, pursuant to the provisions of R.A.
No. 337 , as amended).
• (C) Offshore Banking System — shall refer to the conduct of banking

transactions in foreign currencies involving the receipt of funds principally from
external and internal sources and the utilization of such fund pursuant to
Presidential Decree No. 1034 as implemented by CB (now BSP) Circular No.
1389, as amended.
• (D) Offshore Banking Unit (OBU) — shall mean a branch, subsidiary or affiliate
of a foreign banking corporation which is duly authorized by the Bangko Sentral
Ng Pilipinas (BSP) to transact offshore banking business in the Philippines in
accordance with the provisions of Presidential Decree No. 1034 as implemented
by CB (now BSP) Circular No. 1389, as amended.
• (E) Deposits — shall mean funds in foreign currencies which are accepted and
held by an Offshore Banking Unit or Foreign Currency Deposit Unit in the regular
course of business, with the obligation to return an equivalent amount to the
owner thereof, with or without interest.  
• (F) Resident — shall mean 

(1) an individual citizen of the Philippines residing therein; or 
(2) an individual who is not a citizen of the Philippines but is permanently residing
therein; or 
(3) a corporation or other juridical person organized under the laws of the
Philippines; or 
(4) a branch, subsidiary, affiliate, extension office or other unit of corporations or
juridical persons organized under the laws  
of any foreign country operating in the Philippines.
• (G) "Non-resident" — shall mean an individual, corporation or other juridical

person not included in the above definition of  
"resident".
• (H) Filipino Overseas Contract Worker (OCW) — means an individual citizen of

the Philippines referred to under Section 23(C) of  
the Code.  
A Filipino Seaman is a citizen of the Philippines who receives compensation for
services rendered abroad as a member of the complement of an ocean-going
vessel engaged exclusively in international trade as referred to under Section
23(C) of the Code.
SECTION 2.24. Income Tax Rate of Interest Income from Foreign Currency Deposit. — 
(A) Individual Income Tax on Interest Income from a Depository Bank under the Foreign
Currency Deposit System
(1) Interest income which is actually or constructively received by a resident citizen of

the Philippines or by a resident alien individual from a foreign currency bank deposit
shall be subject to a final withholding tax of seven and one-half percent (7.5%). The
depository bank shall withhold and remit the tax pursuant to Sections 57 and 58
(withholding tax at source) of the Code.
(2) If a bank account is jointly in the name of a non-resident citizen such as an overseas
contract worker, or a Filipino seaman, and his spouse or dependent who is a resident in
the Philippines, fifty percent (50%) of the interest income from such bank deposit shall
be treated as exempt while the other fifty percent (50%) shall be subject to a final
withholding tax of seven and one-half percent (7.5%). cdll
• (B) Compliance and Administrative Procedures for Non-Resident Citizen and

Non-Resident Alien. The tax on interest income from foreign currency deposit
shall be imposed unless the depositor who is a non-resident citizen or a non-
resident alien can present documentary evidence that he is not a resident of the
Philippines. Such evidence shall consist of the original or certified copy of any of
the following:  
(1) an immigration visa issued by the foreign government in the country where he
is a resident of; or
• (2) a certificate of residency which is issued by the Philippine Embassy or

Consulate in the foreign country of his residence;  
or
• (3) a certificate of the contract of employment of an overseas contract

worker which is duly registered with the Philippine  
Overseas Employment Agency (POEA); or a Seaman's Certificate, in the
case of a Filipino seaman; or
• (4) a certification from the Bureau of Immigration of the Philippines that a

non-resident alien is not a resident of the  
Philippines; or
• (5) a certification from the Department of Foreign Affairs (DFA) of the

Philippines that the individual is a regular member of  
the diplomatic corps of a foreign government and is entitled to income tax
exemption under an international agreement  
to which the Philippines is a signatory.
• (C) Name of the Foreign Currency Bank Account — To be entitled to an

exemption from the tax on interest income on foreign  
currency deposit, the Foreign Currency Bank Account shall be in the name of the
non-resident individual or non-resident  
corporation. Otherwise, the interest income therefrom shall be considered as
subject to the tax imposed herein.
• (D) Illustration.  
Mr. Juan de la Cruz, a Filipino citizen who is residing in the Philippines has a US
dollar account with ABC Bank. His gross interest earnings from his bank deposit
for the first quarter of 1998 (i.e. from January 1 to March 31, 1998) amounted to
US$1,000.00. This gross interest earning shall be considered as constructively
received by Mr. De la Cruz during the first quarter of 1998 and shall be subject to
a seven and one-half percent (7.5%) final withholding tax. The 7.5% final
withholding tax which is due thereon is US$75.00.
SECTION 2.27 and SECTION 2.28 — Corporate Income Tax on Interest Income from a
Depository Bank under the Foreign Currency Deposit System.
(A) Interest income which is actually or constructively received by a domestic

corporation or a resident foreign corporation from a foreign currency bank deposit shall
be subject to a final withholding tax at the rate of seven and one-half percent (7.5%)
based on the gross amount of such interest income. The depository bank shall withhold
and remit the tax pursuant to the provisions of Sections 57 and 58 (withholding tax at
source) of the Code.
(B) Compliance and Administrative Procedures for a Non-resident Corporation. The tax
on interest income from foreign currency deposit shall be imposed unless the depositor,
which is a non-resident corporation, can present documentary evidence that it is not a
resident of the Philippines. Such evidence shall consist of the original or certified copy
of all the following requirements:  
(1) Certificate of registration of the corporation abroad; and 
(2) Certification from the Securities and Exchange Commission (SEC) that the non-
resident corporation is not licensed to do  
business in the Philippines.
(C) Taxation of Income of an FCDU or OBU from Foreign Currency Transactions. In

general, income derived by an FCDU or an OBU  
from foreign currency transactions with residents of the Philippines, including local
commercial banks, local branches of foreign banks, and other depository banks under
the foreign currency deposit system, shall be subject to a final withholding tax of ten
percent (10%) based on gross income pursuant to Sec. 27(D)(3) and Sec. 28(A)(4) of
the Code. Income from foreign currency transactions shall include interest income from
lending operations, including bank charges, commissions, service fees, and net foreign
exchange transaction gains. 
Income from foreign currency transactions with non-residents of the Philippines shall not
be subject to income tax. 
The person making the income payment shall withhold and remit the tax withheld
pursuant to the provisions of Sections 57 and 58 of the Code. Thus, in the case of
interest payment by a resident of the Philippines on a foreign currency loan from an
OBU or an FCDU, the withholding agent shall be the said resident. 
(D) Taxation of Other Incomes of an FCDU or an OBU . Income derived by an FCDU or

an OBU from activities other than foreign
currency transactions shall be subject to the pertinent income tax/taxes prescribed

under Section 27 or Section 28 of the Code. To illustrate: Income derived by an FCDU
from consultancy services and rentals shall be subject to an income tax based on net
income at the tax rates prescribed under Section 27(A) of the Code. Capital gains
derived from the sale, barter, exchange or disposition of shares of stocks in a domestic
corporation shall be subject to tax prescribed under Section 27(D) of the Code.
The aforesaid depository bank shall file its corporate income tax return for income
referred to in the preceding paragraph in accordance with the provisions of Section 52
of the Code. It shall also declare thereunder all other incomes derived during the
taxable period which are subject to the final withholding taxes, the fact that such final
withholding taxes have been withheld therefrom by the payor notwithstanding, indicating
the following information:
(a) Name of the withholding agent; 

(b) His/its address; 
(c) His/its Taxpayer Identification Number (TIN); 
(d) Period covered; 
(e) Gross Income; 
(f) Rate of final withholding tax applied; and 
(g) Amount of final withholding tax withheld. 
The submission of the foregoing information shall not be required with respect to its
interest income derived from bank deposits. LLphil
SECTION 2.58. Information Requirement for Depositors/Taxpayers Exempt from

Withholding Tax on Interest Income from Foreign Currency Deposits. — The Depository
Bank shall submit with its quarterly withholding tax remittance prescribed under Sec.
58(A) of the Code a list of all persons and corporations who were given exemption from
the tax on interest income on foreign currency deposits. 
To avail of the exemption from the tax on interest income from foreign currency deposit,
the depositor is required to execute a written permission allowing its depository bank to
inform the Commissioner of Internal Revenue that as a non-resident, the depositor is
exempt from the tax. A depositor who fails to comply with this requirement, which
constitutes a limited waiver of the confidentiality of foreign currency deposits, shall not
be entitled to the exemption privilege.
EFFECTIVITY CLAUSE. These Regulations shall apply on taxable income derived

beginning January 1, 1998 pursuant to the provisions of Section 8 of RA 8424. In case
of deposits which were made in 1997, only that portion of interest which was actually or
constructively received by a depositor starting January 1, 1998 is taxable.
TRANSITORY PROVISION. No penalty shall be imposed for late payment of the tax
herein prescribed for the first three quarters of calendar year 1998, provided, however,
that the taxpayer's corresponding tax returns for the said taxable quarters are filed and
the taxes due are paid not later than October 25, 1998.

Tax (Corporation Topic) PDF

Enviado por

Dados do documento

Direitos autorais

Formatos disponíveis

Compartilhar este documento

Compartilhar ou incorporar documento

Opções de compartilhamento

Você considera este documento útil?

Este conteúdo é inapropriado?

Direitos autorais:

Formatos disponíveis

Tax (Corporation Topic) PDF

Enviado por

Direitos autorais:

Formatos disponíveis

Tax on Corporations

Definition of Corporation (Par (b), Section 22, NIRC)

The term “corporation” shall include partnership no matter how created or

Case # 1: Collector of Internal Revenue v. Batangas Transport Company and

Joint Emergency Operation; ruling based on an agency case

1. W/N there was a co-ownership or an unregistered partnership

2. Yes. For tax purposes, the co-ownership of inherited properties is automatically

Case # 4: G.R. No. L-68118 October 29, 1985

All co-ownerships are not deemed unregistered partnership.—Co-

Co-ownerships of inherited properties to the tax on corporations, inasmuch as if a

As compared to other cases:

This case is different from Reyes vs. Commissioner of Internal Revenue, 24

Case # 5: RR 10-2012 (see attached copy)

Classification of Corporations and Taxes

A. In general, Section 27-28 as amended by RA 9337, effective July 1, 2005,

"(B) Proprietary Educational Institutions and Hospitals. - Proprietary educational

"(C) Government-owned or -Controlled Corporations, Agencies or Instrumentalities. -

"Any income of nonresidents, whether individuals or corporations, from transactions with

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

"SEC. 28. Rates of Income Tax on Foreign Corporations. -

(A) Tax on Resident Foreign Corporations. -

(1) In General. - Except as otherwise provided in this Code, a corporation organized,

"(2) Minimum Corporate Income Tax on Resident Foreign Corporations. - A minimum

"Any income of nonresidents, whether individuals or corporations, from transactions with

"(6) Regional or Area Headquarters and Regional Operating Headquarters of

"(7) Tax on Certain Incomes Received by a Resident Foreign Corporation. -

"Not over P100,000 ................................... 5%

"(d) Intercorporate Dividends. - Dividends received by a resident foreign corporation

"(B) Tax on Nonresident Foreign Corporation. -

"(2) Nonresident Cinematographic Film Owner, Lessor or Distributor. - A

"(3) Nonresident Owner or Lessor of Vessels Chartered by Philippine Nationals. - A

"(4) Nonresident Owner or Lessor of Aircraft, Machineries and Other Equipment. -

"(5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. -

"Not over P100,000 .................................... 5%

I. Private Educational Institutions and Non-Profit Hospitals

Constitution, Article XIV Section 4 (3)

Finance Department Order 137-87 (see attached)

Department Order 149-95, November 24, 1995: Non-profit/ Non Stock

November 24, 1995 DOF ORDER NO. 149-95

SUBJECT : Amending Department Order No. 137-87 as Amended by Department Order

"2.1 NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTIONS ARE EXEMPT

• b) Certification of actual utilization of the said income; and

• c) Board Resolution by the school administration on proposed projects. (i.e.

SECTION 2. Repealing Clause. — All orders, circulars, rules and regulations

SECTION 3. Effectivity. — This Order shall take effect immediately.

(SGD.) ROBERTO F. DE OCAMPO

“Non-profit” does not necessarily mean “charitable.” In Collector of Internal Revenue

To be a charitable institution, however, an organization must meet the substantive test

Notwithstanding the provisions in the preceding paragraphs, the income of whatever

Case # 7: PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR),

Petitioner’s Charter is not deemed repealed or amended by RA 9337; petitioner’s

II. Non-Resident Cinematographic Film Owner, lessor or Distributor

REPUBLIC ACT NO. 9294

III. International Carriers

Case # 8: CIR VS. BRITISH OVERSEAS AIRWAYS CORPORATION and CTA

RESPONDENT’S MAIN ARGUMENT: BOAC's service of transportation is performed

HELD:YES. Sales of tickets in the Philippines is taxable.

Case # 9: RR 15-2002 (see attached RR)

Case # 11: United Airline Inc. vs CIR CTA EB No. 297

HELD: CTA En Banc decision is set side

2. Underterminable. Although offsetting of tax refund with tax deficiency is

Another digest for South African Airways v. CIR

In the Philippines, it is an internal air carrier also having NO LANDING RIGHTS

The answer was YES!

(SGD.) ROBERTO F. DE OCAMPO 

(4) "Resident" shall mean — 

SECTION 3. Rates of income tax to be imposed. — 

SECTION 4. Manner of computation of net income. — 

SECTION 13. Effectivity. — 

SECTION 2. Section 3(b) is hereby amended to read as follows: 

SECTION 3. Section 5(b) is hereby amended to read as follows: 

TO : All Internal Revenue Officers and Others Concerned 

SECTION 2.22. Definition of Terms. — 

• (F) Resident — shall mean 

(a) Name of the withholding agent; 