BIR Ruling

April 14, 1969 Tax Service of the Philippines A. Soriano Building 8776 Paseo de Roxas Makati, Rizal Gentlemen : This refers to the effectivity date of Republic Act No. 5431 which had been the subject of some communications from you to this Office. prcd In this connection, I have the honor to inform you that it is the position of this Office that the increased rates of corporate income tax took effect on July 1, 1968. You projected the view that the increased rates shall commence only for fiscal periods beginning July 1, 1968 so that income derived by corporations whose fiscal periods began before June 30, 1968 and ending after July 1, 1968 are still subject to the old rates. Inferentially, you also project the view that, as regards calendar year corporations, the increased rates begin on January 1, 1969. As justification, you rely supposedly on the historical progress of similar legislations in the United States. We have perused the supposed history of similar legislations in the United States as expounded in Sections 13.22 and 13.23 of Merten's Law of Federal Income Taxation and we observed that the implementation in the United States of similar legislations bolters rather our position more than that of yours. We also observed that in cases of changes in tax rates within the taxable period, the United States implementation admits of apportionment reckoned by the number of days before and after the effectivity date on the basis of the tax for the entire taxable year computed under the old and new rates. This implementation is similar to the formula adopted by the Bureau, the only difference being that the reckoning period is on the basis of months before and after and on the basis of taxable net income. The application of these two formulas, however, will result more or less to the same amount of tax. We further observed from the U.S. implementation that where a legislation provides for an effectivity date applicable to taxable years ending after a certain date the effectivity date is deemed to be the next day. Your justification, therefore, of your position tends more to justify our own position. You would want us to understand that in providing for the effectivity date of the new rates of corporate income tax, Congress had in mind the 1934 Internal Revenue Act of the United States. According to you, under the Revenue Act of 1934, new rates apply to taxable years beginning after December 31 of the year preceding that in which the new Act was enacted. Such provisions on effectivity date had, however, been considered as beginning the next day, that is January 1. Your justification, therefore, again bolsters our own position. The problem facing the adoption of a most equitable effectivity date of changes in tax rates finally culminated in the enactment in the 1934 Internal Revenue Code of the United States of a provision contained in Section 21 thereof to the effect that "if the rate changes for taxable years "beginning after" or "ending after" a certain date, the following day shall be considered the effective date of the change." In implementing such effectivity date, the 1954 Federal Revenue Code provides for apportionment. The historical progress of the effectivity dates of changes in tax rates in the United States, therefore, tends on the contrary to support or justify our position. In the ultimate analysis, Congressional records bear out the fact that in providing for the effectivity date of Republic Act No. 5431 by the use of the words "The provisions of this Act shall apply to income from taxable years beginning after June 30, 1968" Congress meant July 1, 1968. It should be noted that when Senator Almendras asked what is the meaning of "taxable years", Senator Lagumbay answered: A taxable year, normally, is a calendar year from January 1 to December 31, 1969. It will be noted that Senator Lagumbay merely referred to calendar year when asked about the meaning of the term "taxable years". The date "December 31, 1968" in the bill as approved by the Senate was changed to "June 30, 1968" in the bill as finally approved by both the House and the Senate and enacted into law and it is evident that the purpose of said change is to accelerate the effective date of the law without distinction between calendar year and fiscal year. If we are to follow your position, the acceleration of the effective date of the law from "taxable years beginning after December 31, 1968" to "taxable years beginning after June 30, 1968" would have been an empty gesture. But we are not free to presume that Congress would do a futile act. As to the purpose and intention of Republic Act No. 5431 as expressed in the explanatory note thereto, it has been held that the controlling principle in statutory construction and interpretation of laws must ever be to promote, not to frustrate, the objective the law intends to achieve. (Chu Hoi Horn vs. Hon. Court of Tax Appeals, et al., G.R. No. L-22046, Oct. 29, 1968) All considerations taken into account, it is believed that the position of the Bureau is very much defensible. It is requested that you advise your clients accordingly. cdtech Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue