Publishing the Press Release Reminding Taxpayers of Recent Changes in our Tax Laws Namely Presidential Decree No. 1351, Batas Pambansa Blg. 37 and Batas Pambansa Blg. 41

April 10, 1980 REVENUE MEMORANDUM CIRCULAR NO. 16-80 SUBJECT : Publishing the Press Release Reminding Taxpayers of Recent Changes in our Tax Laws Namely Presidential Decree No. 1351, Batas Pambansa Blg. 37 and Batas Pambansa Blg. 41 TO : All Internal Revenue Officers and Others Concerned For the information and guidance of all concerned, there is published hereunder the press release reminding taxpayers of the following changes in our tax laws which should be followed in preparing their income tax returns for 1979 on or before April 15. 1. Nondeductibility of net operating loss sustained in one line of business (including practice of profession) from gross income derived from other sources . The law disallows deduction of losses incurred in connection with an individual's business and such losses represent the excess over the business income, of allowable expenses and other deductions directly or proximately attributable to the production or earning of such business income. Thus, if in 1979 an individual derived income from salary and at the same time was engaged in the business of farming but his farming expenses exceeded his farming income, he cannot offset his net loss from farming against his salary income. However, if he commenced his farming business in 1979, he is entitled to carry over his net operating loss from farming in 1979 to the next two years beginning 1980. In other words, he can deduct the net loss incurred in 1979 from his farming income in 1980 and 1981. 2. Nondeductibility of certain payments if withholding of tax thereon when required is not remitted to the BIR . Under the law, a person making certain payments, including salaries and wages, is required to withhold tax at the prescribed rates. Failure of the payor to withhold the tax and remit the same to the BIR will disqualify him from deducting the payment (as an expense) from his gross income. 3. Documentary substantiation of entertainment expenses . Before the amendment, deductions for entertainment expenses could be allowed even in the absence of receipts or documentary proof. Under previous jurisprudence, if the taxpayer could show that by the nature of his business, he must necessarily incur entertainment expenses although its exact amount could not be determined, the court, as well as the BIR, could make "as close an approximation as it can, bearing heavily if it chooses upon the taxpayer whose inexactitude is of his own making." Under the amendment, an entertainment expense, although ordinary and necessary business expense, is presumed nondeductible unless the taxpayer proves the following elements: (a) the amount of such expenses or other items, (b) the date and place of entertainment, amusement or recreation, (c) the business purpose of the expense or other items, and (d) the business relationship to the taxpayer of the persons entertained or using the facility with official receipts or by adequate records or by sufficient evidence corroborating his own statement. This contemplates that no deduction shall be allowed on the basis of approximations ( Cohan rule) of his unsupported claims. 4. Final capital gains tax . The final schedular capital gains tax at reduced rates of 10% on the first P100,000 and 20% on the excess over P100,000 capital gains realized from sales of real property took effect on September 7, 1979. Batas Pambansa Blg. 37 provides that if an individual realized capital gains from sales of real property before September 7, 1979, and has not reported such gain or a portion thereof, he has until September 7, 1980 within which to declare the same and avail of the low final capital gain tax rates. However, capital gains realized from sales between January 1, 1979 and September 6, 1979 may, at the option of the seller, include the same in his 1979 income tax return if he does not avail of the privilege to have such gain taxed under the new law. If real property is sold to the government or government-owned or controlled corporations, the seller may pay either the final capital gains tax or the regular graduated income tax. In the latter case, he must include his capital gains in the usual manner in his annual income tax returns covering his other income. cd i 5. Place of filing . An individual is now required to file his income tax return only with the Revenue District Officer, Collection Agent, or duly authorized municipal treasurer having jurisdiction over the individual taxpayer's legal residence or principal place of business. If the taxpayer has no legal residence or place of business in the Philippines, then his return may be filed with the Office of the Commissioner of Internal Revenue. Legal residence . The legal residence of an individual taxpayer is the address where the taxpayer normally resides. Principal place of business . This term shall be understood to mean the place where the main business activity of the taxpayer is conducted. (a) For individuals practicing their profession, this is the place where his main office is located, and (b) For employees the principal place of business is their place of work. In the case of corporations, the adjustment income tax return, as well as the corporate quarterly income tax return, shall be filed with the Revenue District Officer, or Collection Agent, or duly authorized Municipal Treasurer having jurisdiction over the principal office and place where the books of accounts of the corporation are kept. The filing of the income tax return in a place outside the jurisdiction of the internal revenue officer or municipal treasurers mentioned above is subject to a surcharge of 25% based on the tax due per return in addition to the compromise penalty. If there is no tax due per return, only the compromise penalty will be imposed. casia ENFORCEMENT All internal revenue officers and others concerned are enjoined to be guided accordingly and give this circular as wide a publicity as possible. EFREN I. PLANA Acting Commissioner PRESS RELEASE BIR REMINDS TAXPAYERS OF NEW TAX LAWS The Bureau of Internal Revenue is reminding taxpayers of these new changes in the tax laws which should be followed in preparing income tax returns for 1979 on or before April 15. 1. Nondeductibility of net operating loss sustained in one line of business (including practice of profession) from gross income derived from other sources . The law disallows deduction of losses incurred in connection with an individual's business and such losses represent the excess over the business income, of allowable expenses and other deductions directly or proximately attributable to the production or earning of such business income. Thus, if in 1979 an individual derived income from salary and at the same time was engaged in the business of farming but his farming expenses exceeded his farming income, he cannot offset his net loss from farming against his salary income. However, if he commenced his farming business in 1979, he is entitled to carry over his net operating loss from farming in 1979 to the next two years beginning 1980. In other words, he can deduct the net loss incurred in 1979 from his farming income in 1980 and 1981. casia 2. Nondeductibility of certain payments if withholding of tax thereon when required is not remitted to the BIR . Under the law, a person making certain payments, including salaries and wages, is required to withhold tax at the prescribed rates. Failure of the payor to withhold the tax and remit the same to the BIR will disqualify him from deducting the payment (as an expense) from his gross income. 3. Documentary substantiation of entertainment expenses . Before the amendment, deductions for entertainment expenses could be allowed even in the absence of receipts or documentary proof. Under previous jurisprudence, if the taxpayer could show that by the nature of his business, he must necessarily incur entertainment expenses although its exact amount could not be determined, the court, as well as the BIR, could make "as close an approximation as it can, bearing heavily if it chooses upon the taxpayer whose inexactitude is of his own making." Under the amendment, an entertainment expense, although ordinary and necessary business expense, is presumed nondeductible unless the taxpayer proves the following elements: (a) the amount of such expenses or other items, (b) the date and place of entertainment, amusement or recreation, cdt (c) the business purpose of the expense or other items, and (d) the business relationship to the taxpayer of the persons entertained or using the facility with official receipts or by adequate records or by sufficient evidence corroborating his own statement. This contemplates that no deduction shall be allowed on the basis of approximations ( Cohan rule) of his unsupported claims. 4. Final capital gains tax . The final schedular capital gains tax at reduced rates of 10% on the first P100,000 and 20% on the excess over P100,000 capital gains realized from sales of real property took effect on September 7, 1979. Batas Pambansa Blg. 37 provides that if an individual realized capital gains from sales of real property before September 7, 1979, and has not reported such gain or a portion thereof, he has until September 7, 1980 within which to declare the same and avail of the low final capital gain tax rates. However, capital gains realized from sales between January 1, 1979 and September 6, 1979 may, at the option of the seller, include the same in his 1979 income tax return if he does not avail of the privilege to have such gain taxed under the new law. cda If real property is sold to the government or government-owned or controlled corporations, the seller may pay either the final capital gains tax or the regular graduated income tax. In the latter case, he must include his capital gains in the usual manner in his annual income tax returns covering his other income. 5. Place of filing . An individual is now required to file his income tax return only with the Revenue District Officer, Collection Agent, or duly authorized municipal treasurer having jurisdiction over the individual taxpayer's legal residence or principal place of business. If the taxpayer has no legal residence or place of business in the Philippines, then his return may be filed with the Office of the Commissioner of Internal Revenue. Legal residence . The legal residence of an individual taxpayer is the address where the taxpayer normally resides. Principal place of business . This term shall be understood to mean the place where the main business activity of the taxpayer is conducted. (a) For individuals practicing their profession, this is the place where his main office is located, and (b) For employees the principal place of business is their place of work. acd In the case of corporations, the adjustment income tax return, as well as the corporate quarterly income tax return, shall be filed with the Revenue District Officer, or Collection Agent, or duly authorized Municipal Treasurer bearing jurisdiction over the principal office and place where the books of accounts of the corporation are kept. The filing of the income tax return in a place outside the jurisdiction of the internal revenue officer or municipal treasurers mentioned above is subject to a surcharge of 25% based on the tax due per return in addition to the compromise penalty. If there is no tax due per return, only the compromise penalty will be imposed. April 8, 1980