TAXATION LAW (PRELIM) - PDF

TAXATION LAW (PRELIM) CREATE ACT: RA NO. 11534 (MARCH 26, 2021) alien individual engaged in trade or business within the Philippines, based on the gross amoun...

TAXATION LAW (PRELIM) CREATE ACT: RA NO. 11534 (MARCH 26, 2021) alien individual engaged in trade or business within the Philippines, based on the gross amount thereof and at the tax rates prescribed therefor: SEC. 2. Declaration of Policy. — It is hereby declared the policy of the State to develop the national economy towards global competitiveness by implementing tax policies (1) On Certain Passive Income – A tax of twenty percent (20%) is hereby imposed instrumental in attracting investments, which will result in productivity enhancement, on certain passive income received from all sources within the Philippines. employment generation, countrywide development, and a more inclusive economic growth, while at the same time maintaining fiscal prudence and stability. (a) Cash and property dividend from a domestic corporation or from a joint stock company, or from an insurance or mutual fund company or from a regional operating To achieve these objectives, the State shall: headquarter of a multinational company; Improve the equity and efficiency of the corporate tax system by lowering the (b) Share in distributable net income after tax of a partnership (except general rate, widening the tax base, and reducing tax distortions and leakages; professional partnership) of which he is a partner, or share in the net income after tax of an association, a joint account, or a joint venture of which he is a member or a co- Develop, subject to the provisions of this Act, a more responsive and globally- venturer; competitive tax incentives regime that is performance-based, targeted, time- bound, and transparent; (c) Interests from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements; Provide support to business in their recovery from unforeseen events such as (d) Royalties (except royalties on books, as well as other literary works and musical an outbreak of communicable diseases or a global pandemic, and strengthen compositions which shall be subject to 10% final withholding tax); the nation's capability for similar circumstances in the future; and (e) Prizes (except prizes amounting to Ten thousand pesos [₱10,000] or less which Create a more equitable tax incentive system that will allow for inclusive growth shall be subject to tax under Subsection [B] of Section 24 of the Tax Code, as and generation of jobs and opportunities in all the regions of the country, and amended) and other winnings(except winnings from Philippine Charity Sweepstakes ensure access and ease in the grant of these incentives especially for Office [PCSO] games amounting to ₱10,000or less which shall be exempt from applicants in least developed areas. income tax) (E) Income payments to a Resident Foreign Corporation.– The following forms of RR no. 2-2021: income shall be subject to a final withholding tax in the hands of a foreign SECTION 2.57.1. Income Payments Subject to Final Withholding Tax. The following corporation, based on the gross amount thereof and at the rate of tax prescribed forms of income shall be subject to final withholding tax at the rates herein specified: therefor: (B) Income Payments to Non-resident Aliens Engaged in Trade or Business in the (1) Tax on Branch Remittances - On any profit remitted by the Philippine branch of a Philippines.– The following forms of income derived from sources within the foreign corporation to its head office abroad based on the total profits applied or Philippines shall be subject to final withholding tax in the hands of a non-resident earmarked for remittance without any deduction for the tax component thereof except those registered with the Philippine Economic Zone Authority (PEZA)– Fifteen (b) does not impose any income tax on dividends received from a domestic percent (15%) corporation. (2) Interest on any currency bank deposit and yield or any other monetary benefit (7) Capital Gains from sale of Shares of Stock Not Traded in the Stock Exchange. – from deposit substitutes and from trust funds and similar arrangements and royalties ONNET capital gains realized during the taxable year from the sale, barter, derived from sources within the Philippines –Twenty percent (20%) exchange or other disposition of shares of stock in a domestic corporation – Fifteen percent (15%) (3) Interest income derived from a Depository Bank under the Expanded Foreign Currency Deposit System – Fifteen percent (15%) Purchases made by Government-Owned and Controlled Corporations, National Government Agencies, Local Governments, and other government instrumentalities, (6) Capital Gains from Sale of Shares of Stock Not Traded in the Stock Exchange. - from persons/entities subject to Percentage Tax pursuant to Section 116 of the Tax On the net capital gains realized during the taxable year from the sale, barter, Code, as amended, shall be subject to One percent (1%) withholding tax for the exchange or other disposition of shares of stock in a domestic corporation – Fifteen period July 1, 2020 until June 30, 2023. Any taxes withheld from persons/entities Percent (15%) where the withholding agents used the rate higher than what are imposed in the (F) Income Derived From all Sources Within the Philippines by Non-Resident Foreign Regulations, may be claimed as tax refund by the withholding agents if the withheld Corporation (NRFC)– The following shall be subject to final withholding tax based on taxes have already been remitted, provided that, in case the withholding agents or the gross amount of income and at the rate of tax prescribed therefor: other persons/entities shall file the claim for refund for and on behalf of the payees, they must be duly authorized by said payees. The claim for refund shall be filed with (1) In general – on gross income derived from all sources within the Philippines such the Revenue District Office/Large Taxpayer Service having jurisdiction over the as interests, dividends, rents, royalties, salaries, premiums (except reinsurance withholding agents. premiums), annuities, emoluments, or other fixed or determinable annual, periodic or casual gains, profits and income and capital gains (except capital gains realized from RR no. 3 2021: sale, exchange, disposition of shares of stock in any domestic corporation which is Pursuant to Section 20 (B) of the Tax Code, as amended by CREATE, the Secretary subject to capital gains tax under item 7 hereof) – January 1, 2021 onwards – of Finance may order the Commissioner of Internal Revenue (CIR) to furnish the Twenty-five percent (25%) Department of Finance (DOF)such specifically identified information related to (6) Dividends received from a domestic corporation – In general, it is subject to entities receiving incentives under Title Xlll of the Tax Code of 1997, as amended, Twenty-five percent (25%) final withholding tax. However, a reduced rate of Fifteen with justification clearly stated therefor. A request for tax related and pertinent percent (15%) shall be applied, subject to the condition that the country in which the information of entities receiving incentives under Title Xlll of the Tax Code of 1997, non-resident foreign corporation is domiciled (a) shall allow a credit against the tax as amended, shall be made uponauthority of the Secretary of Finance and shall be due from the said non-resident foreign corporation which are equivalent to taxes addressed to the CIR. It shall identify the specific information sought, as well as the deemed to have been paid in the Philippines equal to ten percent (10%) effective reason or justification for the request for information related to the incentives granted January 1, 2021, which represents the difference between the regular income tax to a particular entity under Title Xlll of the Tax Code of 1997, as amended. Should a rate for non-resident foreign corporation under Section 28(8)(1) of the NIRC of 1997, request for official information or document be received by another office within the as amended, and the fifteen percent (15%) tax on dividends as herein provided; or, BIR, it shall immediately be transmitted to the Office of the Commissioner for appropriate action. All responses to requests for tax related and pertinent information shall be coursed through the CIR. Under no circumstance shall a revenue official or The Excise Tax or VAT paid, as the case may be, for petroleum and petroleum employee provide or make known, in any manner, official information or documents products that are exported outside the Philippines or transferred, delivered and sold to the DOF, specifically on information relative to the grant incentives, without the to the following: prior written approval of the CIR. The Secretary of Finance and the relevant officers For VAT: (i) to a registered export enterprise and have been directly and exclusively and employees in the DOF handling such specific information obtained from the used in its registered export project/activity; or (ii) to entities engaged in international CIRshall be covered by the provisions of Section 270 of the Tax Code of 1997, as shipping or air transport operations and have been actually used therefor; or (iii) to amended, unless the taxpayer consents in writing to such disclosure. entities that are statutorily zero-rated for VAT under special laws or international RR no. 4-2022 agreements to which the Philippines is a signatory; On May 26, 2022 implements Section 295(F), in relation to Section 294, both of the For Excise Tax: (i) international carriers of Philippine or foreign registry on their use National Internal Revenue Code (NIRC) of 1997, as amended by Republic Act (RA) or consumption outside the Philippines; or (ii) exempt entities or agencies covered by No. 11534 (Corporate Recovery and Tax Incentives for Enterprises [CREATE Act]), tax treaties, conventions and other international agreements for their use of on the tax treatment of the importation of petroleum and petroleum products into, and consumption; or (iii) entities which are by law exempt from direct and indirect taxes subsequent transfer, transport and/or withdrawal through and from Freeport Zones and Economic Zones. may be refunded by filing a claim for credit or refund with the BIR for verification and evaluation. Once approved, the claim shall be forwarded to the BOC for cash Pursuant to Section 244, in relation to Section 245 of the Tax Code, these payment or issuance of a tax credit certificate, as applicable. No claim for refund Regulations are promulgated in order to prescribe the following: shall be granted unless it is properly shown to the satisfaction of the BIR that said petroleum or petroleum products have actually been transferred, delivered, sold, and a. the tax administration treatment of all petroleum products entered and/or imported used by, the foregoing entities for the above-stated purposes. into Philippine Freeport Zones or Economic Zones; In case the Zone registered enterprise shall subsequently (i) sell/introduce the b. the strict monitoring of the movement of all petroleum and petroleum products petroleum or petroleum products, or part of the volume thereof, into the customs within the aforementioned Zones and the subsequent transfer, transport and/or territory (except sales of fuel for use in international operations), or (ii) sell to another withdrawal of the same therefrom; and Zone registered business enterprise and/or party not enjoying tax privileges, no c. the refund of Value-Added Tax (VAT) and Excise Taxes paid for transactions refund for taxes shall be granted for the product sold. In any event, the possessor of statutorily zero-rated or exempt therefrom. petroleum or petroleum products must be able to present sufficient evidence that the proper taxes due thereon have been paid, otherwise all the taxes due on said goods The VAT and Excise Tax which are due on all petroleum and petroleum products shall be collected from said possessor/user. The importation, however, of petroleum that are entered and/or imported into the Zones shall be paid by the party which products by a registered export enterprise to be used directly and exclusively for its entered the same or the importer thereof, as the case may be, to the Bureau of project or activity shall be VAT exempt but subject to Excise Tax. Moreover, the Customs (BOC) prior to any and all subsequent Transfer, Transport and/or importation by a Philippine refinery enjoying fiscal incentives with an Investment Withdrawal of the same after its entry or importation. Promotion Agency (IPA) of crude petroleum to be refined at its refinery inside the Zone, shall be exempt from payment of applicable duties and taxes under Section 295(G) of the Tax Code. The importation, however, of petroleum products by a registered export enterprise to b. pay the VAT and Excise Tax, as the case may be and computed at the time of be used directly and exclusively for its project or activity shall be VAT exempt but Transfer, Transport and Withdrawal; subject to Excise Tax. Moreover, the importation by a Philippine refinery enjoying c. obtain a Withdrawal Certificate from the BIR Excise LT Field Office Division fiscal incentives with an Investment Promotion Agency (IPA) of crude petroleum to (ELTFOD) for petroleum and petroleum products entered into the Zones. The be refined at its refinery inside the Zone, shall be exempt from payment of applicable Withdrawal Certificate shall, at all times, accompany each and every Transfer, duties and taxes under Section 295(G) of the Tax Code. Upon lifting of the petroleum Transport and/or Withdrawal of petroleum products regardless of the mode of products produced from the imported crude oil, the applicable duties and taxes under conveyance. Section 295(G) of the Tax Code. Upon lifting of the petroleum products produced from the imported crude oil, the applicable duties and taxes shall be paid thereon, For Excise Tax purposes, all importers of petroleum and petroleum products shall thus: secure a Permit to Operate with the BIR's ETRD. Such permit shall prescribe the appropriate terms and conditions which shall include, among others, the issuance of a. during Income Tax Holiday (ITH), the Excise Tax or VAT paid, as the case may a Withdrawal Certificate and the submission of liquidation reports, for the Permitee's be, on petroleum products sold to entities entitled to 0% VAT or Excise Tax strict compliance. All tank facilities, depots or terminals throughout the Philippines, exemption may be claimed for refund under this rules; and including those located within the Freeport Zones as well as within the Economic b. during 5% Special Corporate Income Tax (SCIT)/Gross Income Earned (GIE), the Zones shall be registered by the owners, lessors or operators thereof with the export sales and sales inside the Zones shall be exempt from VAT and Excise appropriate BIR Office having jurisdiction over the said facilities. Taxes. In cases where said facilities will be used for the storage of petroleum or petroleum The introduction into the customs territory of petroleum products produced from the products or other goods subject to Excise Taxes, a Permit to Operate from the BIR imported crude oil by the said refinery to the extent of its local sales allowance shall shall be issued. Said permit shall prescribe the appropriate terms and conditions be subject to applicable duties and taxes payable by the importer thereof; Provided which shall include, among others, the maintenance of Official Register Books or that the Excise Tax or VAT paid, as the case may be, paid on sale to entities entitled their equivalent, issuance of Withdrawal Certificate for every removal from the to 0% VAT or Excise Tax exemption may be claimed for refund under this rules; refinery or customs custody to the point of destination and succeeding transfer of Provided finally, that importations of petroleum products produced from imported petroleum products, joint supervision over the facilities with the BIR, through the crude oil by registered export enterprises located outside the Zones and used assignment of Revenue Officers, and stocktaking/physical inventory taking of directly and exclusively in their registered project or activity shall be exempt from petroleum and petroleum products stored therein. The monitoring requirements VAT but subject to Excise Taxes. For each and every Transfer, Transport and/or prescribed in this Section and in the permit granted shall likewise be strictly Withdrawal of petroleum and petroleum products, the party which entered the same observed. A facility which will not be used for storage of petroleum or petroleum or the importer thereof, as the case may be, shall before the release thereof from products or other articles subject to Excise Taxes, if satisfactorily established to the Customs custody and the respective Zone Authority: BIR, will be issued a Permit to Operate Exempt Facility. This notwithstanding, both Permit to Operate and Permit to Operate Exempt Facility should categorically state a. secure the prescribed Authority to Release Imported Goods (ATRIG) from the the goods stored therein, and should any changes be planned, an application for BIR's Excise Tax Regulatory Division (ETRD) for petroleum and petroleum products new permit should be made. imported into the Zones; All owners, lessors or operators of tank facilities, depots or terminals shall submit the The previous EDR under the CREATE Act allowed additional deductions for following copies of documents to the appropriate BIR Offices according to Section 4 companies. Under the CREATE MORE Act, the 20% tax rate will effectively reduce of these Regulations within fifteen (15) days from the date of effectivity of these overall tax liabilities of companies while benefiting from ED on qualifying expenses at Regulations: the same time. a. BIR Certificate of Registration; This change can be seen as a response to the Organization for Economic Co- operation and Development’s (OECD) Pillar Two Global Minimum Tax (GMT) rate b. Latest Blueprint of the Perspective Design of the whole storage facility, depot or requirement of fifteen percent (15%). By introducing the 20% tax rate under the EDR, terminal specifically containing, among others, the tanks located therein, duly the Philippines creates a clear tax structure that makes it easier for businesses to approved by a licensed professional authorized by law to issue such document; align with global standards while still enjoying significant deductions on R&D, c. Lease or Operating Agreement, in case the whole facility, depot or terminal is training, and other qualifying expenses. actually being leased or operated by another person or entity other than the owner Expanded deductions under Enhanced Deductions Regime: thereof; Another salient amendment is the increasing of the percentage of deductible d. Terminalling, Lease, or Storage Agreement(s) with the lessee-owner(s) of the expense items under the EDR to further incentivize businesses. As an example, the content(s) of the respective tank(s); and Act increased the additional deduction for power expenses to 100% from 50%, e. Notarized undertaking(s) executed jointly with the respective lesseeowner(s) of the making it more attractive for businesses to invest in energy-intensive industries such content(s) of the storage tank(s) within the facility, depot or terminal containing the as manufacturing and logistics. This increased deduction on power expenses tank number, description of the product and the volume of inventory thereof as of the effectively cut costs, addressing concerns about high electricity costs in the date of effectivity of these Regulations. Philippines that have been one of the major considerations of businesses in investing in energy-intensive industries. The concerned BIR Offices shall issue the duly approved Permits to Operate, after evaluation/validation of the foregoing documents and the conduct of verification and Additionally, the Act introduces new deductible expense items related to trade fairs ocular inspection of the facilities, depots and terminals, within thirty (30) days from and exhibitions, which can help businesses expand their market reach and promote receipt of such documents. their products both locally and internationally. The Act also now allows Net Operating Loss to be carried over as a deduction within the next five (5) consecutive taxable RA 12066-CREATE MORE ACT (NOVEMBER 11, 2024) years immediately following the last year of the Income Tax Holiday (ITH) period of Corporate income tax rate for Registered Business Enterprises: the project instead of carrying it over within the next five consecutive taxable years immediately following the year of such loss. One of the major amendments is the introduction of the twenty percent (20%) Corporate Income Tax (CIT) Rate for Registered Business Enterprises (RBEs) under These adjustments are intended to provide businesses with more significant tax the Enhanced Deductions Regime (EDR) on their taxable income derived from relief, encouraging them to invest in R&D, employee development, and market registered projects or activities during the taxable year. expansion while also supporting industries critical to the country’s economic growth. Eligibility criteria for Registered Business Enterprises: VAT Exempt: Importation of goods by an REE whose export sales are at least 70% of the total annual production of the preceding taxable year; Under the CREATE Act, incentives were available for only registered export 0% VAT: Sale of goods and services to/for REE whose export sales are at enterprises (REEs) and domestic market enterprises (DMEs). The CREATE MORE least 70% of the total annual production of the preceding taxable year; or Act eases this requirement by expanding the scope of eligible businesses to 0% VAT: Sales to bonded manufacturing warehouses of REE encompass “registered business enterprises,” which now includes both foreign and local businesses subject to certain conditions. This amendment is going to broaden This clarification ensures that companies understand which services are eligible for the range of companies that will qualify for the EDR and SCIT options in a bid to VAT relief, preventing abuse of the incentive and ensuring that only activities directly promote the Philippines as an ideal investment destination for both local and foreign related to the core operations of a business benefit from VAT exemptions or zero- investors. rating. VAT exemption and zero-rating: 3. VAT Treatment on the sale, transfer, or disposal of previously VAT-exempt importation 1. Eligibility Criteria for VAT Exemption and Zero-Rating The CREATE MORE Act clarifies VAT treatment on the sale, transfer, or disposal of VAT incentives will be applicable to goods and services that are “directly attributable” previously VAT-exempt imported capital equipment, raw materials, spare parts, and to the registered project or activity of a registered company. This clarifies the rules accessories shall be subject to the following conditions: governing VAT incentives provided in the CREATE Act, which are rather vague and subject to various interpretations that led to issues in its implementation. 0% VAT: Purchaser is an REE (regardless of location); 0% VAT: Seller is a DME, and purchaser is an REE (regardless of location); The CREATE MORE Act specifies that the following goods and services, if used or directly in the registered activity, will qualify for VAT exemptions or zero-rating: 12% VAT: If the seller is a DME (regardless of location), VAT shall be based on the net book value of the capital goods or materials. Janitorial services Security services 4. Special Provisions for High-Value Domestic Market Enterprises (HVDME) Financial services Consultancy services Under the CREATE MORE Act, DMEs that have investment capital of at least PHP Marketing and promotional services 15 billion and are either import-substituting or catering to non-resident markets OR Administrative operations, including human resources, legal, and accounting those with export sales of at least USD 100 million will enjoy enhanced 0% VAT on services local purchases and VAT exemption on importation. 2. Conditions for VAT Exemption and Zero-Rating This provision may attract major investments in sectors that are critical for economic development, such as infrastructure, heavy industries, and export-oriented Further, the CREATE MORE Act specifies the conditions under which VAT manufacturing. exemption and zero-rating will apply. Registered Business Enterprises Local Tax: CASES: Companies that are eligible for tax incentives, including those enjoying income tax LUNG CENTER OF THE PHILIPPINES VS. QUEZON CITY holidays (ITH) or EDR, would be subject to a local tax of up to 2% of gross income, G.R. NO: 144104 (2004) in lieu of all other local taxes and fees. This will reduce the substantial administrative and financial burden on companies, allowing them to concentrate more on their FACTS: operations rather than dealing with different local taxes with varying complexities. The Lung Center of the Philippines (LCP), a non-stock, non-profit hospital, contested This would be applicable during the ITH or EDR period, provided the RBE is real property taxes imposed by Quezon City in 1993, claiming exemption as a registered and maintains such registration throughout the duration of its ITH or EDR charitable institution. However, the Local and Central Boards of Assessment period with the appropriate IPA and meet the criteria set forth, such as engaging in Appeals, as well as the Court of Appeals, ruled against LCP, citing its commercial export activities or critical domestic market services. leases and non-exclusive charitable use. LCP appealed to the Supreme Court, but the government argued it failed to prove its purely charitable nature. The courts As businesses take advantage of these tax incentives, it is anticipated that the consistently ruled that LCP’s property was not used "actually, directly, and Philippines will experience enhanced flow of foreign investments, employment in exclusively" for charitable purposes, disqualifying it from tax exemption. high value-added industries, and the continued expansion of key sectors. Hopefully, the CREATE MORE Act will place the Philippines as one of the more competitive ISSUE: players in the global marketplace, making it an ideal location for businesses looking to invest, expand, and thrive in the region. WON the real properties of the Lung Center exempt from real property taxes? (https://www.grantthornton.com.ph/insights/articles-and-updates1/lets-talk-tax/the- RULINGS: create-more-act-ra-12066-a-new-chapter-for-tax-incentives-and-economic- The petition is partially granted. development-in-the-philippines/) A charitable institution does not lose its tax-exempt status simply because it earns income from paying patients or receives government subsidies, as long as all funds are used for charitable purposes and not for private gain. The Supreme Court acknowledged that the Lung Center of the Philippines (LCP) is a charitable institution, given its expenditures on patient care and hospital operations. However, it ruled that portions of LCP’s property leased to private entities are not exempt from real property taxes, as they are not "actually, directly, and exclusively" used for charitable purposes. The decision follows the strict interpretation of tax exemptions, requiring clear legal basis for claims. The Lung Center of the Philippines (LCP) is not exempt from real property taxes under its charter, Presidential Decree No. 1823. While the decree grants tax exemptions for equipment purchases and donations, it does not include real property tax exemptions. Applying the legal principle expressio unius est exclusio alterius (the express mention of one thing excludes others), the status, income from such activities remains taxable. SLMC, having generated court ruled that since property tax exemption was not explicitly stated in the law, LCP significant revenue from paying patients, was thus deemed liable for deficiency is not entitled to it. This strict interpretation reinforces that tax exemptions must be income tax at the preferential 10% rate. However, due to its reliance on a prior BIR clearly provided by law. ruling that classified it as a purely charitable institution, SLMC was not subjected to surcharges, interest, or compromise penalties. The case was ultimately rendered CIR VS. St. Luke’s Medical Center G.R No. 195909, 15960 (2012) moot due to SLMC’s payment of the assessed taxes. FACTS: CIR VS. WANDER PH INC G.R No. L-68275 (1988) The St. Luke’s Medical Center, Inc. (SLMC), which was assessed deficiency income FACTS: taxes for 2005 and 2006 by the Bureau of Internal Revenue (BIR). SLMC contested the assessments, claiming tax exemption as a non-stock, non-profit charitable The petition for review of the Court of Tax Appeals' (CTA) January 19, 1984 decision institution under Section 30(E) and (G) of the 1997 National Internal Revenue Code in favor of Wander Philippines, Inc., a domestic corporation wholly owned by Glaro (NIRC). The Court of Tax Appeals (CTA) Division ruled in SLMC’s favor, canceling S.A. Ltd., a Swiss corporation. Wander remitted dividends to Glaro in 1975 and the tax assessments. The CTA En Banc upheld this decision, affirming SLMC’s tax- 1976, withholding and paying a 35% tax to the Bureau of Internal Revenue (BIR). exempt status. The Commissioner of Internal Revenue (CIR) sought reconsideration, Wander later claimed a refund, arguing it was only liable for a 15% withholding tax but the CTA En Banc denied the motion, maintaining SLMC’s exemption from under Section 24(b)(1) of the Tax Code, as amended by Presidential Decrees 369 income tax. and 778. After the BIR failed to act, Wander filed a petition with the CTA, which ruled in its favor, ordering a refund of P115,440. The BIR's motion for reconsideration was ISSUE: denied, leading to this petition. WON St. Luke’s Medical Center, Inc. is entitled to exemption from income tax ISSUE: under Sections 30(E) and (G) of the NIRC. WON if not exempt, whether St. Luke’s is subject to the preferential 10% tax WON the proper party to claim the refund; and (2) Whether or not Switzerland allows rate on its taxable income under Section 27(B) of the NIRC. as tax credit the "deemed paid" 20% Philippine Tax on such dividends. RULINGS: RULINGS: SLMC is liable for income tax under Section 27(B) of the 1997 NIRC insofar The Bureau of Internal Revenue (BIR) argued that Glaro, not Wander, was the as its revenues from paying patients are concerned taxpayer and entitled to the refund. However, this argument was raised for the first time on appeal and was not considered. The court ruled that Wander, as the The Supreme Court ruled that St. Luke’s Medical Center (SLMC) is subject to a 10% withholding agent, had the right to claim the refund.The BIR also contended that the income tax rate under Section 27(B) of the 1997 NIRC for revenues earned from 15% preferential tax rate applied only if Switzerland granted a tax credit equivalent to paying patients. Although SLMC is a non-stock, non-profit hospital, it is not 20%, but Switzerland did not tax Glaro’s dividends. The court held that this satisfied considered "operated exclusively" for charitable purposes, as required under Section the condition, as previously affirmed in a 1977 ruling. Since the Court of Tax 30(E) and (G) to be fully tax-exempt. The court clarified that while charitable Appeals’ decision aligned with established tax law interpretation, the Supreme Court institutions can engage in profit-generating activities without losing their tax-exempt upheld it, dismissing the petition for lack of merit.  COMPARISON OF CREATE ACT AND CREATE MORE (WITH OLD PROVISION) OLD PROVISION (NIRC 1997) CREATE ACT CREATE MORE ACT Section 20: Submission of Report and Section 20. Submission of Report and Pertinent Pertinent Information by the Commissioner Information by the Commissioner. – B. Report to Oversight Committee. – The Commissioner shall, with reference to (B) Submission of Tax-Related Information to the Section 204 of this Code, submit to the Department of Finance. - The Commissioner shall, upon Oversight Committee referred to in Section the order of the Secretary of Finance specifically 290 hereof, through the Chairmen of the identifying the needed information and justification for Committee on Ways and Means of the such order in relation to the grant of incentives under title Senate and House of Representatives, a XIII, furnish the Secretary pertinent information on the report on the exercise of his powers entities receiving incentives under this pursuant to the said Section, every six (6) Code: Provided, however, That the Secretary and the months of each calendar year. relevant officers handling such specific information shall be covered by the provisions of Section 270 unless the taxpayer consents in writing to such disclosure. (C) Report to Oversight Committee. - The Commissioner shall, with reference to Section 204 of this Code, submit to the Oversight Committee referred to in Section 290 hereof, through the Chairpersons of the Committees on Ways and Means of the Senate and House of Representatives, a report on the exercise of his powers pursuant to the said Section, every six (6) months of each calendar year." Section 22. Definitions Section 22. Definitions. (B) The term ‘corporation’ shall include (B) The term 'corporation' shall include one person partnerships, no matter how created or corporations, partnerships, no matter how created or organized, joint-stock companies, joint organized, joint-stock companies, joint accounts (cuentas accounts (cuentas en participacion), en participation), associations, or insurance companies, associations, or insurance companies, but but does not include general professional partnerships does not include general professional and a joint venture or consortium formed for the purpose partnerships and a joint venture or of undertaking construction projects or engaging in consortium formed for the purpose of petroleum, coal, geothermal and other energy operations pursuant to an operating consortium agreement under a undertaking construction projects or service contract with the Government. 'General engaging in petroleum, coal, geothermal and professional partnerships' are partnerships formed by other energy operations pursuant to an persons for the sole purpose of exercising their common operating consortium agreement under a profession, no part of the income of which is derived from service contract with the Government. engaging in any trade or business. ‘General professional partnerships’ 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 Section 25. Tax on Non-resident Alien Section 25. Tax on Nonresident Alien Individual. Individual. (2) Cash and/or Property Dividends from a (2) Cash and/or Property Dividends from a Domestic Domestic Corporation or Joint Stock Corporation or Joint Stock Company, or Insurance or Company, or Insurance or Mutual Fund Mutual Fund Company or Regional Operating Company or Regional Operating Headquarter or Multinational Company, or Share in the Headquarters of Multinational Company, or Distributable Net Income of a Partnership (Except a Share in the Distributable Net Income of a General Professional Partnership), Joint Account, Joint Partnership (Except a General Professional Venture Taxable as a Corporation or Association, Partnership), Joint Account, Joint Venture Interests, Royalties, Prizes, and Other Winnings. - Cash Taxable as a Corporation or Association, and/or property dividends from a domestic corporation, or Interests, Royalties, Prizes, and Other from a joint stock company, or from an insurance or mutual fund company or from a regional operating Winnings. – Cash and/or property dividends headquarter of multinational company, or the share of a from a domestic corporation, or from a joint nonresident alien individual in the distributable net stock company, or from an insurance or income after tax of a partnership (except a general mutual fund company or from a regional professional partnership) of which he is a partner, or the operating headquarter of multinational share of a nonresident alien individual in the net income company, or the share of a non-resident after tax of an association, a joint account, or a joint alien individual in the distributable net venture taxable as a corporation of which he is a member income after tax of a partnership (except a or a co-venturer; interests; royalties (in a.ny form); and general professional partnership) of which prizes (except prizes amounting to Ten thousand pesos he is a partner, or the share of a non- (P10,000.00) or less which shall be subject to tax under resident alien individual in the net income Subsection (B)(l) of Section 24) and other winnings after tax of an association, a joint account, (except winnings amounting to Ten thousand pesos or a joint venture taxable as a corporation of (P10,000.00) or less from Philippine Charity Sweepstakes which he is a member or a co-venturer; Office (PCSO) games which shall be exempt); shall be interests; royalties (in any form); and prizes subject to an income tax of twenty percent (20%) on the (except prizes amounting to Ten thousand total amount thereof: Provided, however, That royalties pesos (PhP10,000) or less which shall be on books as well as other literary works, and royalties on subject to tax under Subsection (B)(1) of musical compositions shall be subject to a final tax of ten Section 24); and other winnings (except percent (10%) on the total amount Philippine Charity Sweepstakes and Lotto thereof: Provided, further, That cinematographic films and winnings); shall be subject to an income tax similar works shall be subject to the tax provided under of twenty percent (20%) on the total amount Section 28 of this Code: Provided, furthermore, That interest income from long-term deposit or investment in thereof: Provided, however, That royalties the form of savings, common or individual trust funds, on books as well as other literary works, and deposit substitutes, investment management accounts royalties on musical compositions shall be and other investments evidenced by certificates in such subject to a final tax of ten percent (10%) on form prescribed by the Bangko Sentral ng Pilipinas (BSP) the total amount thereof: Provided, further, shall be exempt from the tax imposed under this That cinematographic films and similar Subsection: Provided, finally, That should the holder of works shall be subject to the tax provided the certificate pre-terminate the deposit or investment under Section 28 of this Code: Provided, before the fifth (5th) year, a final tax shall be imposed on furthermore, That interest income from long- the entire income and shall be deducted and withheld by term deposit or investment in the form of the depository bank from the proceeds of the long-term savings, common or individual trust funds, deposit or investment certificate based on the remaining deposit substitutes, investment management maturity thereof: accounts and other investments evidenced by certificates in such form prescribed by the "Four (4) years to less than five (50 years - 5%; Bangko Sentral ng Pilipinas (BSP) shall be exempt from the tax imposed under this "Three (3) years to less than four (4) years - 12%; Subsection: Provided, finally, that should the holder of the certificate pre-terminate the "Less than three (3) years - 20%. deposit or investment before the fifth (5th) year, a final tax shall be imposed on the entire income and shall be deducted and withheld by the depository bank from the proceeds of the long-term deposit or investment certificate based on the remaining maturity thereof: Four (4) years to less than five (5) years..... 5%; Three (3) years to less than four (4) years..12%; and Less than three (3) years.............................20%. Section 27. Rates of Income Tax on "SEC. 27. Rates of Income Tax on Domestic “SEC. 27. Rates of Income Tax on Domestic Corporations. — (A) In Domestic Corporations Corporations. - General. — Except as otherwise provided in this Code, an income tax (A) In General. – Except as otherwise rate of twenty-five percent (25%) effective July 1, 2020 is hereby provided in this Code, an income tax "(A) In General, — Except as otherwise provided in this imposed upon the taxable income derived during each taxable year of thirty-five percent (35%) is hereby Code, an income tax rate of twenty-five percent (25%) from all sources within and without the Philippines by every imposed upon the taxable income effective July 1, 2020, is hereby imposed upon the corporation, as defined in Section 22(B) of this Code and taxable derived during each taxable year taxable income derived during each taxable year from under this Title as a corporation, organized in, or existing under the from all sources within and without all sources within and without the Philippines by every laws of the Philippines: Provided, That corporations with net taxable the Philippines by every corporation, corporation, as defined in Section 22(B) of this Code income not exceeding Five million pesos (P5,000,000.00) and with as defined in Section 22(B) of this and taxable under this title as a corporation, organized total assets not exceeding One hundred million pesos Code and taxable under this Title as in, or under the laws of the Philippines. (P100,000,000.00), excluding land on which the particular business a corporation, organized in, or entity's office, plant, and equipment are situated during the taxable existing under the laws of the "Provided, That corporations with net taxable income year for which the tax is imposed, shall be taxed at twenty percent Philippines: Provided, That effective not exceeding Five million pesos and with total assets (20%): Provided, further, That registered business enterprises under January 1, 2009, the rate of income not exceeding One hundred million pesos (P the enhanced deductions regime as provided in Section 249(C) of this tax shall be thirty percent (30%). 100,000,000.00), excluding land on which the Code shall be taxed at a rate equivalent to twenty percent (20%) on In the case of corporations adopting particular business entity's ofice, plant, and equipment their taxable income derived from registered projects or activities the fiscal-year accounting period, the are situated during the taxable year for which the tax is during each taxable year. taxable income shall be computed imposed, shall be taxed at twenty percent (20%). without regard to the specific date when specific sales, purchases and "In the case of corporations adopting the fiscal-year other transactions occur. Their accounting period, the taxable income shall be income and expenses for the fiscal computed without regard to the specific date when year shall be deemed to have been specific sales, purchases and other transactions occur. earned and spent equally for each Their income and expenses for the fiscal year shall be month of the period. deemed to have been earned and spent equally for The corporate income tax rate shall each month of the period. be applied on the amount computed by multiplying the number of months "The corporate income tax rate shall be applied on the covered by the new rate within the amount computed by multiplying the number of months fiscal year by the taxable income of covered by the new rate within the fiscal year by the the corporation for the period, divided by twelve. Provided, further, That the taxable income of the corporations for the period, President, upon the recommendation divided by twelve. of the Secretary of Finance, may, effective January 1, 2000, allow "(B) Proprietary Educational Institutions and Hospitals. corporations the option to be taxed at - Proprietary educational institutions and hospitals fifteen percent (15%) of gross which are nonprofit shall pay a tax of ten percent income as defined herein, after the (10%) on their taxable income except those covered by following conditions have been Subsection (D) hereof: Provided, That beginning July satisfied: 1, 2020 until June 30, 2023, the tax rate herein (1) A tax effort ratio of twenty percent imposed shall be one percent (1%): Provided, further, (20%) of Gross National Product That if the gross income from 'unrelated trade, (GNP); business or other activity' exceeds fifty percent (50%) (2) A ratio of forty percent (40%) of of the total gross income derived by such educational income tax collection to total tax or hospitals from all sources, the tax prescribed in revenues; Subsection (A) hereof shall be imposed on the en&e (3) A VAT tax effort of four percent taxable income. For purposes of this Subsection, the (4%) of GNP; and (4) A 0.9 percent term 'unrelated trade, business or other activity' means (0.9%) ratio of the Consolidated any trade, business or other activity, the conduct of Public Sector Financial Position which is not substantially related to the exercise or (CPSFP) to GNP. performance by such educational institution or hospital The option to be taxed based on of its primary purpose or function. 'Proprietary' means gross income shall be available only a private hospital, or any private school maintained to firms whose ratio of cost of sales and administered by private individuals or groups with to gross sales or receipts from all an issued permit to operate from the Department of sources does not exceed fifty-five Education (DepEd), or the Commission on Higher percent (55%). The election of the Education (CHED), or the Technical Education and gross income tax option by the Skills Development Authority (TESDA), as the case corporation shall be irrevocable for may be, in accordance with existing laws and three (3) consecutive taxable years regulations. during which the corporation is qualified under the scheme. For "(C) Government-owned or -Controlled Corporations, purposes of this Section, the term Agencies or Instrumentalities. - The provisions of ‘gross income’ derived from business existing special or general laws to the contrary shall be equivalent to gross sales notwithstanding, all corporations, agencies, or owned less sales returns, discounts and or controlled by the Government, except the allowances and cost of goods sold. Government Service Insurance System (GSIS), the  ‘Cost of goods sold’ shall include all Social Security System (SSS), the Home Development business expenses directly incurred Mutual Fund (HDMF), the Philippine Health Insurance to produce the merchandise to bring Corporation (PHIC), and the local water districts shall them to their present location and pay such rate of tax upon their taxable income as are use. For a trading or merchandising imposed by this Section upon corporations or concern, ‘cost of goods sold’ shall associations engaged in a similar business, industry, include the invoice cost of the goods or activity. sold, plus import duties, freight in transporting the goods to the place "(D) Rates of Tax on Certain Passive Incomes where the goods are actually sold, including insurance while the goods "(4) Intercorporate Dividends. - Dividends received by are in transit. For a manufacturing a domestic corporation shall not be subject to tax concern, ‘cost of goods under this title: Provided, That for foreign-sourced manufactured and sold’ shall include dividends to be exempt, the funds from such dividends all costs of production of finished actually received or remitted into the Philippines are goods, such as raw materials used, reinvested in the business operations of the domestic direct labor and manufacturing corporation in the Philippines within the next taxable overhead, freight cost, insurance year from the time the foreign-sourced dividends were premiums and other costs incurred to received and shall be limited to funding the working bring the raw materials to the factory capital requirements, capital expenditures, dividend or warehouse. In the case of payments, investment in domestic subsidiaries, and taxpayers engaged in the sale of infrastructure project: Provided, further, That the service, ‘gross income’ means gross domestic corporation holds directly at least twenty receipts less sales returns, percent (20%) of the outstanding shares of the foreign allowances and discounts. corporation and has held the shareholdings for a minimum of two (2) years at the time of the dividends (B) Proprietary Educational Institutions distribution. and Hospitals. – Proprietary educational institutions and hospitals which are non-profit shall pay a tax of "(E) Minimum Corporate Income Tax on Domestic ten percent (10%) on their taxable Corporations. income except those covered by Subsection (D) hereof: Provided, "(1) Imposition of Tax. — A minimum corporate income That if the gross income from tax of two percent (2%) of the gross income as of the unrelated trade, business or other end of the taxable yea.r, as defined herein, is hereby activity exceeds fifty percent (50%) of i.mposed on a corporation taxable under this title,  the total gross income derived by beginning on the fourth taxable year immediately such educational institutions or following the year in which such corporation hospitals from all sources, the tax commenced its business operations, when the prescribed in Subsection (A) hereof minimum income tax is greater than the tax computed shall be imposed on the entire under Subsection (A) of this Section for the taxable taxable income. For purposes of this year: Provided, That effective July 1, 2020 until June Subsection, the term ‘unrelated 30, 2023, the rate shall be one percent (1%). 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 Insurance System (GSIS), the Social Security  System (SSS), the Philippine Health Insurance Corporation (PHIC), and the local water districts (LWD) 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) Rates of Tax on Certain Passive Incomes. (4) Intercorporate Dividends. – Dividends received by a domestic corporation from another domestic corporation shall not be subject to tax. (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. Section 28. Rates of Income Tax on Foreign "SEC. 28. Rates of Income Tax on Foreign "SEC. 28. Rates of Income Tax on Foreign Corporations. - Corporations. Corporations. - (1) In General. – Except as otherwise (A) Tax on Resident Foreign Corporations. provided in this Code, a corporation "(1) In General. — Except as otherwise provided in this organized, authorized, or existing Code, a corporation organized, authorized, or existing (1) In General. — Except as otherwise provided  under the laws of any foreign under the laws of any foreign country, engaged in in this Code, a corporation organized, authorized, or country, engaged in trade or trade or business within the Philippines, shall be existing under the laws of any foreign country, business within the Philippines, shall subject to an income tax equivalent to twenty-five engaged in trade or business within the Philippines, be subject to an income tax percent (25%) of the taxable income derived in the shall be subject to an income tax equivalent to equivalent to thirty-five percent (35%) preceding taxable year from all sources within the twenty-five percent (25%) of the taxable income of the taxable income derived in the Philippines effective July 1, 2020. derived in the preceding taxable year from all preceding taxable year from all sources within the Philippines effective July 1, 2020: sources within the Philippines: "In the case of corporations adopting the fiscal-year Provided, That registered business enterprises under Provided, That effective January 1, accounting period, the taxable income shall be the enhanced deductions regime as provided in 2009, the rate of income tax shall be computed without regard to the specific date when Section 294(C) of this Code, shall be subject to a tax thirty percent (30%). In the case of sales, purchases and other transactions occur. Their rate equivalent to twenty percent (20%) of their corporations adopting the fiscal-year income and expenses for the fiscal year shall be taxable income derived from registered projects or accounting period, the taxable deemed to have been earned and spent equally for activities during each taxable year. income shall be computed without each month of the period. regard to the specific date when sales, purchases and other "The corporate income tax rate shall be applied on the transactions occur. Their income and amount computed by multiplying the number of months expenses for the fiscal year shall be covered by the new rate within the fiscal year by the deemed to have been earned and taxable income of the corporation for the period, spent equally for each month of the divided by twelve. period. The corporate income tax rate shall be applied on the amount "(2) Minimum Corporate Income Tax of Resident computed by multiplying the number Foreign Corporations. — A minimum corporate income of months covered by the new rate tax of two percent (2%) of gross income, as prescribed within the fiscal year by the taxable under Section 27(E) of this Code, shall be imposed, income of the corporation for the under the same conditions, on a resident foreign period, divided by twelve. Provided, corporation taxable under paragraph (1) of this however, That a resident foreign Subsection: Provided, That effective July 1, 2020 until corporation shall be granted the Ju.ne 303 2023, the rate shall be one percent (1%). option to be taxed at fifteen percent (15%) on gross income under the "(5) Regional or Area Headquarters and Regional same conditions, as provided in Operating Headquarters of Multinational Companies. - Section 27(A). (2) Minimum Corporate Income Tax on "(a) Regional or area headquarters as defined in Resident Foreign Corporations. – A Section 22 (DD) shall not be subject to income tax. minimum corporate income tax of  two percent (2%) of gross income, as "(b) Regional operating headquarters as defined in prescribed under Section 27(E) of Section 22 (EE) shall pay a tax of ten percent (10%) of this Code, shall be imposed, under their taxable income: Provided, That effective January the same conditions, on a resident 1, 2022, regional operating headquarters shall be foreign corporation taxable under subject to the regular corporate income tax. paragraph (1) of this Subsection "(6) Tax on Certain Incomes Received by a Resident Foreign Corporation. - (5) Tax on Branch Profits Remittances. – any profit remitted by a branch to its head "(a) Interest from Deposits and Yield or any other office shall be subject to a tax of fifteen Monetary Benefit from Deposit Substitutes, Trust percent (15%) which shall be based on the Funds and Similar Arrangements and Royalties. — total profits applied or earmarked for Interest from any currency bank deposit and yield or remittance without any deduction for the tax any other monetary benefit from deposit substitutes component thereof (except those activities and from trust funds and similar arrangements and which are registered with the Philippine royalties derived from sources within the Philippines Economic Zone Authority). The tax shall be shall be subject to a final income tax at the rate of collected and paid in the same manner as twenty percent (20%) of such interest: Provided, provided in Sections 57 and 58 of this Code: however, That interest income derived by a resident Provided, That interests, dividends, rents, foreign corporation from a depository bank under the royalties, including remuneration for expanded foreign currency deposit system shall be technical services, salaries, wages, subject to a final income tax at the rate of fifteen premiums, annuities, emoluments or other percent (15%) of such interest income. fixed or determinable annual, periodic or casual gains, profits, income and capital "(c) Capital Gains from Sale of Shares of Stock Not gains received by a foreign corporation Traded in the Stock Exchange.ℒαwρhi৷ — A final tax at during each taxable year from all sources the rate of fifteen percent (15%) is hereby imposed within the Philippines shall not be treated as upon the net capital gains realized during the taxable branch profits unless the same are year from the sale, barter, exchange or other effectively connected with the conduct of its disposition of shares of stock in a domestic corporation trade or business in the Philippines. except shares sold or disposed of through the stock exchange. (6) Regional or Area Headquarters and Regional Operating "(B) Tax on Nonresident Foreign Corporation. - Headquarters of Multinational Companies. – (a) Regional or area headquarters as "(1) In General. — Except as otherwise provided in this defined in Section Code, a foreign corporation not engaged in trade or 22(DD) shall not be subject to income tax. business in the Philippines, effective January 1, 2021, (c) Capital Gains from Sale of Shares of shall pay a ta.x equal to twenty-five percent (25%) of Stock Not Traded in the Stock Exchange. – the gross income received during each taxable year A final tax at the rates prescribed below is from all sources within the Philippines, such as hereby imposed upon the net capital gains interests, dividends, rents, royalties, salaries, realized during the taxable year from the premiums (except reinsurance premiums), annuities, sale, barter, exchange or other disposition of emoluments or other fixed or determinable annual, shares of stock in a domestic corporation periodic or casual gains, profits and income, and except shares sold or disposed of through capital gains, except capital gains subject to tax under the stock exchange: subparagraph 5(c). Not over PhP100,000................................... 5% On any amount in excess of "(5) Tax on Certain Incomes Received by a PhP100,000.... 10 Nonresident Foreign Corporation. -. (B) Tax on Non-resident Foreign "(b) Intercorporate Dividends. - A final withholding tax Corporation. – at the rate of fifteen percent (15%) is hereby imposed (1) In General. – Except as otherwise on the amount of cash and/or property dividends provided in this Code, a foreign corporation received from a domestic corporation, which shall be not engaged in trade or business in the collected and paid as provided in Section 57(A) of this Philippines shall pay a tax equal to thirty-five Code, subject to the condition that the country in which percent (35%) of the gross income received the nonresident foreign corporation is domiciled, shall during each taxable year from all sources allow a credit against the tax due from the nonresident within the Philippines, such as interests, foreign corporation taxes deemed to have been paid in dividends, rents, royalties, salaries, the Philippines equivalent to fifteen percent (15%), premiums (except reinsurance premiums), which represents the difference between the regular annuities, emoluments or other fixed or income tax and the fifteen percent (15%) tax on determinable annual, periodic or casual dividends as provided in this subparagraph: Provided, gains, profits and income, and capital gains, That effective July 1, 2020, the credit against the tax except capital gains subject to tax under due shall be equivalent to the difference between the subparagraph 5(c): Provided, That effective regular income tax rate provided in Section 28(B)(1) of January 1, 2009, the rate of income tax shall this Code and the fifteen percent (15%) tax on be thirty percent (30%). dividends; (5) Tax on Certain Incomes Received by a "(c) Capital Gains from Sale of Shares of Stock Not Non-resident Foreign Corporation. – Traded in the Stock Exchange. — A final senior high (b) Intercorporate Dividends. – A final schools, public higher education tax at the rate of withholding tax at the rate of fifteen percent fifteen percent (15%) is hereby imposed upon the net (15%) is hereby imposed on the amount of capital gains realized during the taxable year from the cash and/or property dividends received sale, barter, exchange or other disposition of shares of from a domestic corporation, which shall be stock in a domestic corporation, except shares sold, or collected and paid as provided in Section disposed of the stock exchange. 57(A) of this Code, subject to the condition that the country in which the non-resident foreign corporation is domiciled, shall allow a credit against the tax due from the non- resident 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 PhP100,000................................. 5% On any amount in excess of PhP100,000..... 10% Section 32. Gross Income Section 32 Gross Income (B) Exclusions from Gross Income. – The B. Exclusion for Gross Income-The following items shall not be following items shall not be included in gross included in the gross income and shall be exempt from taxation under income and shall be exempt from taxation this title: under this Title: (5) Income Exempt under Treaty. - Income of any kind, to the extent (5) Income Exempt under Treaty. – Income required by any treaty obligation, including agreements entered into by of any kind, to the extent required by any the President with economies and administrative regions, subject to treaty obligation binding upon the the concurrence of the Senate, binding upon the Government of the Government of the Philippines. Philippines. Section 34. Deductions from Gross Income. SEC. 34. Deductions from Gross Income. - Except for SEC. 34. Deductions from Gross Income. – Except for taxpayers earning taxpayers earning compensation income arising from (8) Input Tax Attributable to VAT-Exempt Sales. - Input tax paid on compensation income arising from personal personal services rendered under an employer-employee local purchases attributable to VAT-exempt sales shall be deductible services rendered under an employer- relationship where no deductions shall be allowed under from the gross income of the taxpayer. employee relationship where no deductions this Section, in computing taxable income subject to shall be allowed under this Section, in income tax under Sections 24(A); 25(A); 26; 27(A), (B), computing taxable income subject to income and (C); and 28(A)(I), there shall be allowed the following tax under Sections 24(A); 25(A); 26; 27(A), deductions from gross income: (B), and (C); and 28(A)(1), there shall be allowed the following deductions from gross "(A) Expenses. - income: "(1) Ordinary and Necessary trade: (v) An (B) Interest. – (1) In General. – The amount additional deduction from taxable income of one- of interest paid or incurred within a taxable half (1/2) of the value of labor training expenses year on indebtedness in connection with the incurred for skills development of enterprise- taxpayer’s profession, trade or business based trainees enrolled in public senior high schools, public higher education institutions, or shall be allowed as deduction from gross public technical and vocational institutions and income: Provided, however, That the duly covered by an apprenticeship agreement taxpayer’s otherwise allowable deduction for under Presidential Decree No. 442, series of interest expense shall be reduced by forty- 1974, or the 'Labor Code of the Philippines', as two percent (42%) of the interest income amended, shall be granted to subjected to final tax: Provided, That enterprises: Provided, further, That for the additional deduction foe enterprise-based training effective January 1, 2009, the percentage of students from public educational institutions, shall be thirtythree percent (33%). the enterprise shall secure proper certification from the DepEd, TESDA, or CHED: Provided, finally, That such deduction shall not exceed ten percent (10%) of direct labor wage. "(B) Interest. - "(1) In General. - The amount of interest paid or incurred within a taxable year on indebtedness in connection with the taxpayer's profession, trade or business shall be allowed as deduction from gross income: Provided, however, That the taxpayer's otherwise allowable deduction for interest expense shall be reduced by twenty percent (20%) of the interest income subjected to final tax: Provided, finally, That if the interest income tax is adjusted in the future, the interest expense reduction rate shall be adjusted accordingly based on the prescribed standard formula as defined in the rules and regulations to be promulgated by the Secretary of Finance, upon the recommendation of the Commissioner of Internal Revenue. Section 40. Determination of Amount and SEC. 40. Determination of Amount and Recognition of Recognition of Gain or Loss Gain or Loss (C) Exchange of Property. (C) Exchange of Property. – (2) Exception. – No gain or loss shall be recognized if in pursuance of a plan of (2) Exception. - No gain or loss shall be recognized on a merger or consolidation – (a) A corporation, corporation or on it stocks or securities if such corporation which is a party to a merger or is a party to a reorganization and exchanges property in consolidation, exchanges property solely for pursuance of a plan of reorganization solely for stock or stock in a corporation, which is a party to the securities in another corporation that is a party to the merger or consolidation; or reorganization. A reorganization is defined as: (b) A shareholder exchanges stock in a corporation, which is a party to the merger or consolidation, solely for the stock of "(a) A corporation, which is a party to a merger or another corporation also a party to the consolidation, exchanges property solely for stock merger or consolidation; or in a corporation, which is a party to the merger or (c) A security holder of a corporation, which consolidation; or is a party to the merger or consolidation, exchanges his securities in such "(b) The acquisition by one corporation, in corporation, solely for stock or securities in exchange solely for all or a part of its voting stock, another corporation, a party to the merger or or in exchange solely for all or part of the voting consolidation. No gain or loss shall also be stock of a corporation which is in control of the recognized if property is transferred to a acquiring corporation, of stock of another corporation by a person in exchange for corporation if, immediately after the acquisition, stock or unit of participation in such a the acquiring corporation has control of such other corporation whether or not such acquiring corporation of which as a result of such corporation had control immediately before the exchange said person, alone or together acquisition; or with others, not exceeding four (4) persons, gains control of said corporation: Provided, "(c) The acquisition by one corporation, in That stocks issued for services shall not be exchange solely for all or a part of its voting stock considered as issued in return for property. or in exchange solely for all or part of the voting stock of a corporation which is in control of the (6) Definitions. acquiring corporation, of substantially all of the (c) The term ‘control’, when used in this properties of another corporation. In determining Section, shall mean ownership of stocks in a whether the exchange is solely for stock, the corporation possessing at least fifty-one assumption by the acquiring corporation of a percent (51%) of the total voting power of all liability of the others shall be disregarded; or classes of stocks entitled to vote. "(d) A recapitalization, which shall mean an arrangement whereby the stock and bonds of a corporation are readjusted as to amount, income, or priority or an arrangement of all stockholders and creditors to change and increase or decrease the capitalization or debts of the corporation or both; or "(e) A reincorporation, which shall mean the formation of the same corporate business with the  same assets and the same stakeholders surviving under a new charter. "No gain or loss shall also be recognized if property is transferred to a corporation by a person, alone or together with others, not exceeding four (4) persons, in exchange for stock or unit of participation in such a corporation of which as a result of such exchange the transferor or transferors, collectively, gains or maintains control of said corporation: Provided, That stocks issued for services shall not be considered as issued in return for property. "Sale or exchange of property used for business for shares of stock covered under this Subsection shall not be subject to value-added tax. "In all of the foregoing instances of exchange of property, prior Bureau of Internal Revenue confirmation or tax ruling shall not be required for purposes of availing the tax exemption. (6) Definitions. – (c) The term 'control', when used in this Section, shall mean ownership of stocks in a corporation after the transfer of property possessing at least fifty-one percent (51%) of the total voting power of all classes of stocks entitled to vote: Provided, That the collective and not the individual ownership of all classes of stocks entitled to vote of the transferor or transferors under this Section shall be used in determining the presence of control. Section 57. Withholding of Tax at Source. SEC. 57. Withholding of Tax at Source. (C) Tax-free Covenant Bonds. - In any case (C) Tax-free Covenant Bonds. - In any case where where bonds, mortgages, deeds of trust or bonds, mortgages, deeds of trust or other similar other similar obligations of domestic or obligations of domestic or resident foreign corporations, resident foreign corporations, contain a contain a contract or provisions by which the obligor contract or provisions by which the obligor agrees to pay any portion of the tax imposed in this Title agrees to pay any portion of the tax imposed upon the obligee or to reimburse the obligee for any in this Title upon the obligee or to reimburse portion of the tax or to pay the interest without deduction the obligee for any portion of the tax or to for any tax which the obligor may be required or permitted pay the interest without deduction for any to pay thereon or to retain therefrom under any law of the tax which the obligor may be required or Philippines, or any state or country, the obligor shall permitted to pay thereon or to retain deduct bonds, mortgages, deeds of trust or other therefrom under any law of the Philippines, obligations, whether the interest or other payments are or any state or country, the obligor shall payable annually or at shorter or longer periods, and deduct and withhold a tax equal to thirty whether the bonds, securities or obligations had been or will be issued or marketed, and the interest or other percent (30%) of the interest or other payment thereon paid, within or without the Philippines, if payments upon those bonds, mortgages, the interest or other payment is payable to a nonresident deeds of trust or other obligations, whether alien or to a citizen or resident of the Philippines. the interest or other payments are payable The Department of Finance shall review, at least once annually or at shorter or longer periods, and every three (3) years, regulations and processes for the whether the bonds, securities or obligations withholding of creditable tax under this Code, and direct had been or will be issued or marketed, and the Bureau of Internal Revenue to amend rules and the interest or other payment thereon paid, regulations for the same, should it be found during the within or without the Philippines, if the review that the existing rules, regulations, and processes interest or other payment is payable to a for the withholding of creditable tax under this Code non-resident alien or to a citizen or resident adversely and materially impact the taxpayer. of the Philippines. (NOTHING MORE) Section 108. Value-added Tax on Sale of SEC. 108. Value-Added Tax on the Sale of Services, Including Digital Services and Use or Lease of Properties. Services, and the Use or Lease of Properties. (B) Transactions Subject to Zero Percent (B) Transactions Subject to Zero Percent (0%) Rate - The following (0%) Rate. – The following services services performed in the Philippines by VAT- registered persons shall performed in the Philippines by VAT- be subject to zero percent (0%) rate. registered persons shall be subject to zero (5) Services performed for an export-oriented enterprise whose export percent (0%) rate: sales is at least seventy percent (70%) of the total annual production (5) Services performed by subcontractors of the preceding taxable year: Provided, That such services are and/or contractors in processing, converting, directly attributable to the export activity of the export-oriented or manufacturing goods for an enterprise enterprise: Provided, further, That the Export Marketing Bureau of the whose export sales exceed seventy percent DTI shall determine compliance with the aforementioned threshold. (70%) of total annual production; Any export-oriented enterprise that fails to meet the threshold shall be (8) Services rendered to: disqualified from availing of VAT zero-rating in the immediately Provided, That the Department of Finance succeeding year: Provided, finally, That input tax otherwise due on shall establish a VAT refund center in the VAT zero-rated local purchases attributable to VAT-exempt sales shall Bureau of Internal Revenue (BIR) and in the be paid and deductible from the gross income of the taxpayer. For this Bureau of Customs (BOC) that will handle purpose, 'directly attributable' shall follow the same definition under the processing and granting of cash refunds Section 106 of this Code; of creditable input tax. (8) Sales subject to zero percent (0%) VAT under special laws. The DOF shall establish a VAT refund center in the BIR and in the BOC that will handle the electronic processing and granting of cash refunds of creditable input tax. SEC. 109. Exempt Transactions. SEC. 109. Exempt Transactions. SEC. 109. Exempt Transactions. (1) Subject to the provisions of (1) Subject to the provisions of Subsection (2) hereof, (1) Subject to the provisions of Subsection (2) hereof, the following subsection (2) hereof, the fol