Publishing Republic Act Numbered 6110, Amending among others Sections 23(d); 24(b); 25(a); 27; 29(b)(7); 29(c); 30(a)(1); 30(h); 30(k); 45(a); 50 and 81, all of Title II, National Internal Revenue Code

February 18, 1970 REVENUE MEMORANDUM CIRCULAR NO. 05-70 SUBJECT : Publishing Republic Act Numbered 6110, Amending among others Sections 23(d); 24(b); 25(a); 27; 29(b)(7); 29(c); 30(a)(1); 30(h); 30(k); 45(a); 50 and 81, all of Title II, National Internal Revenue Code TO : All Internal Revenue Officers and All Concerned For the information and guidance of all concerned there is quoted hereunder pertinent sections of Republic Act 6110, amending certain sections of Title II of the National Internal Revenue Code, as amended, relating to income tax, viz.: Republic Act No . 6110 " An Act Amending Certain Provisions of the National Internal Revenue Code, As Amended " Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled : xxx xxx xxx SEC. 5. Subsection (d) of Section twenty-three of the same Act is hereby amended to read as follows: "(d) Change of status. "If the taxpayer married or should have additional dependents as defined in subsection (c) above during the taxable year the taxpayer may claim the corresponding personal exemptions in full for such year. "If the taxpayer should die during the taxable year, his estate may still claim the personal and additional deductions for himself and his dependents as if he died at the close of such year. "If the spouse or any of the dependents should die during the year, the taxpayer may still claim the same deductions as if they died at the close of such year." SEC. 6 Subsection (b) of Section twenty-four of the same Act is hereby amended to read as follows: "(b) Tax on foreign corporations . (1) Non-resident corporations . A foreign corporation not engaged in trade or business in the Philippines including a foreign life insurance company not engaged in the life insurance business in the Philippines shall pay a tax equal to thirty-five per cent of the gross income received during each taxable year from all sources within the Philippines, as interests, dividends, rents, royalties, salaries, wages, premiums, annuities, compensations, remunerations for technical services or otherwise, emoluments or other fixed or determinable annual, periodical or casual gains, profits, and income, and capital gains: Provided , however , That premiums shall not include reinsurance premiums. "(2) Resident corporations . A corporation, organized, authorized, or existing, under the laws of any foreign country, except a foreign life insurance company, engaged in trade or business within the Philippines, shall be taxable as provided in subsection (a) of this section upon the total net income received in the preceding taxable year from all sources within the Philippines." SEC. 7. Paragraph (a) of Section twenty-five of the same Act is hereby amended to read as follows: "SEC. 25. Additional tax on corporations improperly accumulating profits or surplus . (a) Imposition of tax . If any corporation, except banks, insurance companies or personal holding companies, whether domestic or foreign, is formed or availed of for the purpose of preventing the imposition of the tax upon its share-holders or members or the share-holders or members of another corporation, through the medium of permitting its gain and profits to accumulate instead of being divided or distributed, there is levied and assessed against such corporation, for each taxable year, a tax equal to twenty-five per centum of the undistributed portion of its accumulated profits or surplus which shall be in addition to the tax imposed by section twenty-four, and shall be computed, collected and paid in the same manner and subject to the same provisions of law, including penalties, as that tax." SEC. 8. Section twenty-seven of the same Act is hereby amended by adding at the end thereof a new paragraph to read as follows: "(1) Development banks as provided in Republic Act Numbered Four thousand ninety-three, as amended." SEC. 9. Subsection (b) (7) of Section twenty-nine of the same Act is hereby amended to read as follows: "SEC. 29 Gross Income . . . "(b) Exclusions from gross income xxx xxx xxx "(7) Miscellaneous items (A) . . . (B) . . . (C) Income derived as rewards under Republic Act Numbered Twenty-three hundred and thirty-eight." SEC. 10. Subsection (c) of Section twenty-nine of the same Act is hereby amended to read as follows: "(c) Dividends received from domestic corporations . In the case of dividends received by a domestic or resident foreign corporation from a domestic corporation liable to tax under this Code, only twenty-five per cent of such dividends shall be returnable for purposes of the tax imposed by Section twenty-four." SEC. 11. Paragraph (1) subsection (a) of Section thirty of the same Act is hereby amended to read as follows: "(a) Expenses: "(1) In general . All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered; traveling expenses while away from home in the pursuit of a trade or business, rentals or other payments required to be made as a condition to the continued use or possession, for the purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity. "In the case of an individual, ordinary and necessary entertainment expenses in an amount not in excess of one thousand pesos or five per centum of gross income, whichever is lesser, shall be allowed as deduction. Claims for such ordinary and necessary entertainment expenses in an amount exceeding this allowance shall be duly supported by the corresponding vouchers and/or receipts." SEC. 12. Section thirty (h) of the same Act is hereby amended to read as follows: "SEC. 30. (h). Charitable and other contributions . Contributions or gifts actually paid or made within the taxable year to or for the use of the Government of the Philippines or any political subdivision thereof for exclusively public purposes, or to domestic corporations or associations organized and operated exclusively for religious, charitable, scientific, athletic, cultural or educational purposes or for the rehabilitation of veterans, or to societies for the prevention of cruelty to children or animals, no part of the net income of which inures to the benefit of any private stockholder or individual to an amount not in excess of six per centum in the case of an individual, and three per centum in the case of a corporation, of the taxpayer's taxable net income as computed without the benefit of this paragraph. "Notwithstanding the foregoing, the following donations shall be deductible in full and shall not be included for purposes of computing the maximum amount deductible under the preceding paragraph: "(1) Any donation made to any school, college, or university recognized by the Government either for general or special purposes: Provided , That said donation is not for payment or granting of a salary increase, bonus, or personal benefits to any or all of the school officials, faculty, and personnel in case of a public school or to any of its stockholders, school officials, faculty, and personnel in case of private schools. "(2) Donations to the Artesian Well Fund as provided in Republic Act Numbered Nine hundred seventy-seven. "(3) Donations to the International Rice Research Institute as provided in Republic Act Numbered Two thousand seven hundred seven. "(4) Donations to the National Science Development Board and its agencies and to public or recognized private educational institutions, and scientific and research foundations, as provided in Republic Act Numbered Three thousand five hundred eighty-nine. "(5) Donations to the Ramon Magsaysay Award foundation, as provided in Republic Act Numbered Three thousand six hundred seventy-six. "(6) Donations to the University of the Philippines, and other state colleges and universities subject to the same limitations in paragraph one above. "(7) Donations to the Philippine Rural Reconstruction Movement. "(8) Donations to the Catholic Relief Services NCWC, and the Tools for Freedom Foundation as provided in Republic Act Numbered Four thousand four hundred eighty-one. "(9) Donations to the Cultural Center of the Philippines. "(10) Donations to the Philippine Amateur Athletic Federation. "(11) Donations to the Trustees of the Press Foundation of Asia, Inc. "(12) Donations to the National Commission on Culture. "(13) Donations to Humanitarian Science Foundation. "(14) Donations to Roxas Education and Welfare Committee, Inc. "The provisions of existing special laws to the contrary notwithstanding, all other contributions or donations shall be subject to the limitations provided in the first paragraph of this subsection. "Such contribution or gifts shall be allowable as deductions only if verified under rules and regulations prescribed by the Secretary of Finance." SEC. 13. Subsection (k) of Section thirty of the same Act is hereby amended to read as follows: "(k) Optional standard deduction. In lieu of the deduction allowed under this section an individual, other than a non-resident alien, may elect a standard deduction. Such optional standard deduction shall be in the amount of five thousand pesos or in an amount equal to ten per centum of his gross income, whichever is the lesser. Unless the taxpayer signifies in his return his intention to elect the optional standard deduction he shall be considered as having availed himself of the deductions allowed in the preceding subsection. The Secretary of Finance shall prescribe the manner of the election. Such election when made in the return shall be irrevocable for the taxable year for which the return is made." SEC. 14. Subsection (a) of Section forty-five of the same Act is hereby amended to read as follows: "SEC. 45 Individual returns . (a) Requirements . "(1) The following individuals are required to file an income tax return, if they have a gross income of at least one thousand eight hundred pesos for the taxable year; "(A) Every Filipino citizen, whether residing in the Philippines or abroad and, "(B) Every alien residing in the Philippines, regardless of whether the gross income was derived from sources within or outside the Philippines. "(2) Regardless of amount, every non-resident alien deriving income from sources within the Philippines shall file an income tax return. "(3) Notwithstanding the provisions of the preceding paragraph, a Filipino citizen, whether residing in the Philippines or abroad, or a resident alien, or a non-resident alien engaged in trade or business in the Philippines, shall file an income tax return if he falls under any of the following categories, regardless of whether he derives any income or not for the taxable year if, during that taxable year, he "(A) Is an official or employee of the government or has a contract with the Government of the Republic of the Philippines, or any of its agencies or instrumentalities, including government-owned or controlled corporations, regardless of the nature of his appointment or duration of his employment; "(B) Is a professional as defined hereinbelow; "(C) Is a registered or beneficial owner or mortgagee of any real property; "(D) Is a registered or beneficial owner, or mortgagee of any motor vehicle; "(E) Is a registered or beneficial owner, or mortgagee of any share of stock or security of a corporation, or any interest in a firm or partnership; "(F) Has travelled abroad, except children below eighteen years of age; "(G) Has filed a certificate of candidacy for any public office except barrio officials and municipal councilors; "(K) Is engaged in trade or commerce. "For purposes of this Section, an individual is deemed a professional if, during a taxable year, he passes any government examination for the practice of a profession given by a board of examiners or by the Supreme Court, or remains a registered member of any profession covered by such examination, regardless of whether or not, during that taxable year he actually practices his profession. "The income tax return shall be filed in duplicate, and shall set forth specifically the gross amount of income from all sources, except that of non-resident aliens which shall contain only such incomes derived from sources within the Philippines." SEC. 15. Section fifty of the same Act is hereby amended to read as follows: "SEC. 50. Verification of returns . The income tax returns shall contain a declaration that the taxpayer or his authorized representative made it under the penalties of perjury." SEC. 16. Section eighty-one of the same Act is hereby amended to read as follows: "SEC. 81 Disposition of income tax returns ; publication of lists of persons filing returns and paying taxes . After the assessment shall have been made, as provided in this Title, the returns, together with any corrections thereof which may have been made by the Commissioner, shall be filed in the office of the Commissioner of Internal Revenue and shall constitute public records and be open to inspection as such upon the order of the President of the Philippines under rules and regulations to be prescribed within sixty days from the date of the effectivity, of this Act by the Secretary of Finance. "The Commissioner of Internal Revenue may in each year cause to be prepared and published in any newspaper and otherwise make available to public inspection upon written request and pursuant to regulations to be prescribed by the Secretary of Finance, lists containing the names and addresses of persons who have filed income tax return with the amount of income declared and the income tax paid by each. The list of taxpayers for the preceding taxable year in each municipality or city shall be posted at the main entrance of the respective municipal building or city hall." xxx xxx xxx "SEC. 68 Effectivity clause . This Act shall take effect on September 1, 1969: Provided , That where at the time of death or within six months thereafter no schedule of values as provided in Section 17 of this Act has been fixed in the areas where the properties of the decedent are located, the assessed values as shown in the tax rolls shall be considered as the fair market value, unless the contrary is shown: Provide , further , That the provisions of Section 5, 10, 11, 12, 13, 14 and 15 of this Act shall apply to the entire taxable year in which this Act is approved: Provided , still further , That the provisions of Sections 64 and 65 of this Act shall be effective on July 1, 1970: Provided , finally , That Section 358 as amended by this Act, shall be effective only for a period of four years from July 1, 1969 unless extended. "APPROVED: August 4, 1969, . . ." FEATURES OF THE AMENDMENT 1 Section 23 (d) The amendment to this subsection changes the treatment of personal and additional exemptions; in case of death of taxpayer, spouse or dependents during the taxable year. Before the amendment to the law, apportionment is required in case of death of the taxpayer. Under this amendment there will be no more apportionment. (a) If the taxpayer marries during the year or should have additional qualified dependents, as defined in subsection (c) during the taxable year, he will be entitled to the corresponding additional and personal exemption for such year. EXAMPLE: Mr. X got married on February 1, 1969 and his first child was born on December 27, 1969. His personal and additional exemptions will be P4,000. (b) If the taxpayer should die during the year, his estate can claim full personal and additional exemptions for himself and his dependents on the returns to be filed covering the period from January 1 to the date of his death. This refers also to cases where both spouses have income of their own. EXAMPLE: Mr. X is married with no children in 1969. Both have income. X died on June 30, 1969. Two returns will be filed; one to cover the period from January 1 to June 30, 1969; another to cover the period from July 1 to December 31, 1969 by the surviving spouse. The exemption for the return covering the period from January 1 to June 30 is P3,000 whereas for the return of the surviving spouse, the exemption is P1,800, based on her status at the end of the year. However, if the estate derived income of P1,800 or more in 1969 a third return will have to be filed for the estate with a personal exemption of P1,800. (c) If during the year the spouse or any of the qualified dependents should die, the taxpayer may still claim personal and additional exemption as if the spouse and the dependent died at the close of such year. EXAMPLE: Mr. X, married and has four dependent children below 23 years in 1969. During the year, his wife and one child died. Under the amendment, he will still be entitled to claim personal and additional exemptions of P7,000. In this instance, the wife has no income of her own. 2. Section 24 (b) The amendments to this subsection is purely remedial to make clear that resident foreign corporations are subject to tax only on income from sources in the Philippines under the existing provisions as last amended by R.A. 5431. It would seem that resident foreign corporations are subject to tax on income from all sources. 3. Section 25 (a) The amendment to this subsection consists of the deletion of the proviso "provided that no such tax shall be levied upon any accumulated profits or surplus if they are invested in any dollar-producing or dollar-saving industry or in the purchase of bonds issued by the Central Bank of the Philippines." Under this amendment any such profits is now subject to tax. 4. Section 27 Section 27 has been amended by adding thereto subsection (1) on development banks as provided in R.A. 4093, as amended, as among the corporations not subject to tax. 5. Section 29 (b) (7) This subsection has been amended to include subparagraph (7) (C) which refers to income derived as rewards under Republic Act No. 2338, as among the exclusions from gross income. 6. Section 29 (c) Subsection (c) of Section 29 of the Tax Code, has been amended by Section 10 by limiting the amount subject to tax to 25% of dividends received by a domestic or resident foreign corporation from domestic corporations liable to tax under the Tax Code. The amendment broadened the application of the limitation to 25% of the amount subject to tax by including all kinds of payor domestic corporations which are liable to any tax imposed by the Tax Code. The provision before the amendment allows domestic or resident foreign corporations receiving dividends to declare for taxation only 25% of the dividends received, provided that the paying corporation is subject to the same rate of income tax of 25/35 as the recipient corporation. As amended, the only requisite to enable a domestic or resident foreign corporation can avail of the 25% limitation, is that payor corporation must be liable to any tax under the Code. 7. Section 30 (a) (1) This subsection has been amended by allowing the deductions by an individual of ordinary and necessary entertainment expenses in an amount not in excess of P1,000 or 5% of the gross income whichever is lesser. However, if he claims an amount in excess of P1,000, the whole amount claimed must be supported by vouchers and receipts. 8. Section 30 (h) The amendment consists of enumerating the entities, donations to which are deductible in full; it also provides that all other donations are subject to the limitation provided for by law. 9. Section 30 (k) The amendment consists in increasing the maximum amount for optional standard deduction from P1,000 to P5,000. 10. Section 45 (a) The amendment to Section 45 (a) broadens the requirements for the filing of income tax returns by including every Filipino citizen, resident, or non-resident alien, whether having any income or not during taxable year if he; (a) is an official or employee of the government or has a contract with the government of the Republic of the Philippines, or any of its agencies or instrumentalities, including government-owned or controlled corporations, regardless of the nature of his appointment or duration of his employment; (b) is a professional as defined hereinbelow; (c) is a registered or beneficial owner, or mortgagee of any real property; (d) is a registered or beneficial owner, or mortgagee of any motor vehicle; (e) is a registered or beneficial owner, or mortgagee of any share of stock or security of a corporation, or any interest in a firm or partnership; (f) has travelled abroad, except children below 18 years of age; (g) has filed a certificate of candidacy for any public office except barrio officials and municipal councilors; (h) is engaged in trade or commerce. An individual is deemed a professional if, during a taxable year, he passes any government examination for the practice of a profession given by a board of examiners or by the Supreme Court or remains a registered member of any profession covered by such examination, regardless of whether or not during that taxable year he actually practices his profession. 11. Section 50 The new income tax form now contains declaration that the same is made by the taxpayer or his authorized representative under the penalties of perjury. It need not be sworn to before a revenue officer or any other person authorized to administer oath. 12. Section 81 The amendment to this Section consists of the mere grant of authority to the Commissioner of Internal Revenue to publish lists of taxpayers containing information of the amount of income and the amount of taxes paid by them. EFFECTIVITY The amendments to Sections 23(d), 29(c), 30(a)(1), 30(h), 30(k), 45(a), and 50 of the National Internal Revenue Code shall apply to the entire taxable year in which this Act was approved. This Act was approved on August 4, 1969. ENFORCEMENT All internal revenue officers and others concerned are hereby enjoined to be guided accordingly and to give this circular as wide a publicity as possible. MISAEL P. VERA Commissioner of Internal Revenue APPROVED: CESAR VIRATA Secretary of Finance