Publishing the Amendments of Certain Sections in Titles I, II and III of the National Internal Revenue Code Effected by Presidential Decree Nos. 1705 and 1773

July 17, 1981 REVENUE MEMORANDUM CIRCULAR NO. 24-81 SUBJECT : Publishing the Amendments of Certain Sections in Titles I, II and III of the National Internal Revenue Code Effected by Presidential Decree Nos. 1705 and 1773 TO : All Internal Revenue Officers and Others Concerned For the information and guidance of all concerned, the following amendments to the Tax Code, are quoted as follows: TITLE I ORGANIZATION OF THE BUREAU "Sec. 7. Power of the Commissioner of Internal Revenue to Obtain Information, Examine, Summon and Take Testimony. "(a) From government officers or agencies . When it comes to the knowledge of the Commissioner of Internal Revenue that certain offices or officers of the National and Local Governments such as the Office of the Register of Deeds, the Securities and Exchange Commission, the Philippine Patent Office, the Government Service Insurance System, the Social Security System, the Philippine Medical Care Commission, mayors and treasurers and others, possess valuable information for discovery of potential taxpayers, the Commissioner or his authorized representative shall obtain that information upon proper request from the offices or officers concerned. It shall be the duty of those offices or officers to furnish the desired information within thirty days from receipt of the request of the Commissioner of Internal Revenue or his authorized representative. "(b) From other persons . For the purpose of ascertaining the correctness of any return where none has been made, determining the liability of any person for any internal revenue tax or collecting any such liability, the Commissioner or his authorized representative is empowered: "(1) To examine any book, paper, or record, or other data which may be relevant or material to such inquiry; "(2) To summon any person having possession, custody, or care of books of accounts containing entries, or of any information relating to the tax liability of any person to appear before the Commissioner or his authorized representative at a time and place specified in the summons and to produce such books, papers, records, or other data, and to give testimony; and "(3) To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry." "Any person who neglects or refuses to obey such summons, or to produce books, papers, records or other data, or give testimony, as required, shall be liable to the penalties prescribed by Section 337 hereof." (as amended by Presidential Decree Nos. 1705 and 1773) acd "Sec. 16. Power of the Commissioner of Internal Revenue to make assessments. "(a) Failure to submit required reports, statements, etc . When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by law or regulation, or when there is reason to believe that any such report, is false, incomplete, or erroneous, the Commissioner of Internal Revenue shall assess the proper tax on the best evidence obtainable. "(b) Authority to conduct surveillance . The Commissioner of Internal Revenue may place the business operations of any person, natural or juridical, under observation or surveillance for a period of two months if there are reasons to believe that such person is not declaring his correct income and receipts for internal revenue tax purposes. The findings for this period may be used as a basis for assessing the taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct. "(c) Authority to terminate taxable period . When it shall come to the knowledge of the Commissioner of Internal Revenue that a taxpayer is retiring from the business subject to tax or intends to leave the Philippines, or remove his property therefrom, or hide or conceal his property, or perform any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year, or render the same totally or partly ineffective unless such proceedings are begun immediately, the Commissioner of Internal Revenue shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision, together with a request for the immediate payment of the tax for the period so declared terminated and the tax for the preceding year or quarter, or such portion thereof as may be unpaid, and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed, unless paid within the time fixed in the demand made by the Commissioner of Internal Revenue." (As amended by Presidential Decree Nos. 1705 and 1773.) TITLE II INCOME TAX "Sec. 23. Amount of personal exemptions allowable to individuals. For the purpose of the tax provided for in this Title, there shall be allowed in the nature of a deduction from the amount of net income the following personal exemptions: "(a) Personal exemptions of single individuals . The sum of Three Thousand pesos, if the person making the return is a single person or a married person judicially decreed as legally separated from his or her spouse. "(b) Personal exemption of married persons or heads of family . The sum of Six Thousand pesos, if the person making the return is a married man or a married woman, or Four thousand five hundred pesos if the person making the return is the head of a family: Provided , That only one exemption of Six thousand pesos shall be made from the aggregate income of both husband and wife when not legally separated. For the purpose of this section, the term "head of the family" means an unmarried man or woman with one or both parents, or with one or more brothers or sisters, or with one or more legitimate, recognized natural, or adopted children living with and dependent upon him or her for their chief support where such brothers, sisters, or children are not more than twenty-one years of age, unmarried, and not gainfully employed, or where such children are incapable of self-support because of mental or physical defect. "(c) Additional exemption for dependents . The sum of Two thousand pesos for each legitimate, recognized natural or adopted child wholly dependent upon and living with the taxpayer if such dependents are not more than twenty-one years of age, unmarried, and not gainfully employed or incapable of self-support because of mental or physical defect. The additional exemption under this subsection shall be allowed only if the person making the return is either married or head of the family: Provided, however , That the total number of dependents for which additional exemptions may be claimed shall not exceed four dependents: Provided, further , That an additional exemption of One thousand pesos shall be allowed for each child who otherwise qualified as dependent prior to January 1, 1980." "(d) Change of Status . . . . . "(e) Allowances for Adjustment . Upon the recommendation of the Minister of Finance, the President may, not often than once every three years, adjust the personal and additional exemptions taking into account, among others, the movements in consumer price indices, levels of minimum wages, and bare subsistence levels." "(f) Personal exemptions allowable to a non-resident alien individual . . . . ." (As amended by Presidential Decree No. 1773.) "Sec. 24. Rates of tax on corporations. (a) . . . (b) Tax on foreign corporations . (1) . . . (2) Resident corporations . - (i) . . . . (ii) Tax on branch profits remittances . - Any profit remitted abroad by a branch to its head office shall be subject to a tax of fifteen per cent (15%) (except those registered with the Export Processing Zone Authority): Provided , That any profit remitted by a branch to its head office authorized to engage in petroleum operations in the Philippines shall be subject to tax at seven and one-half per cent (7.5%): And Provided, Further , That interests, dividends, rents, royalties, including remunerations for technical services, salaries, wages, premiums, annuities, emoluments or other fixed or determinable annual, periodical or casual gains, profits, income, and capital gains received by a foreign corporation during each taxable year from all sources within the Philippines shall not be considered as branch profits unless the same are effectively connected with the conduct of its trade or business in the Philippines." "(e) Corporation Development Tax. In addition to the tax imposed in subsection (a) of this Section, an additional tax in an amount equivalent to 10% of the same taxable net income shall be paid by a domestic or a resident foreign corporation which qualifies as a closely-held corporation as defined herein. The term "closely-held corporation" means any corporation, (a) at least 50% in value of the outstanding stock or (b) at least 50% of the total combined voting power of all classes of stock entitled to vote, at any time during the taxable year, is owned directly or indirectly by or for not more than five persons, natural or juridical. For the purpose of determining whether an individual indirectly owns shares of stock in a corporation, the attribution rules prescribed by paragraphs (b) and (c) of Section 66 of this Code shall be applied. The additional corporate income tax imposed in this Subsection shall be collected and paid at the same time and in the same manner as the tax imposed in subsection (a) of this Section. "The foregoing provisions shall not apply to banks, non-bank financial intermediaries or corporations organized primarily, and authorized by the Central Bank of the Philippines to hold shares of stock of banks unless - (A) More than twenty (20%) per cent of all classes of stock entitled to vote of such corporation is held by (1) persons related to each other within the third degree of consanguinity or affinity, or (2) a corporation, the majority of the shares are owned by such related persons or (3) two or more corporations the majority of the shares are owned by the same person or so related persons." "(f) Tax on transactions by offshore banking units and under the expanded foreign currency deposits system . "(1) Offshore Banking Units . The provisions of any law to the contrary notwithstanding, income derived by offshore banking units authorized by the Central Bank of the Philippines from foreign currency transactions with non-residents, other offshore banking units, local commercial banks, including branches of foreign banks that may be authorized by the Central Bank to transact business with offshore banking units shall be exempt from all taxes except net income from such transactions as may be specified by the Minister of Finance, upon recommendation of the Monetary Board, to be subject to the usual income tax payable by banks: Provided , however , That any interest income derived from foreign currency loans granted to residents other than offshore banking units or local commercial banks, including local branches of foreign banks that may be authorized by the Central Bank of the Philippines to transact business with offshore banking units, shall be subject only to a 10% final withholding tax." "Any income of non-residents from transactions with said offshore banking units shall be exempt from income tax." "(2) Expanded Foreign Currency Deposit System . Income derived by a depository bank under the expanded foreign currency deposit system from foreign currency transaction with non-residents, offshore banking units in the Philippines, local commercial banks including branches of foreign banks that may be authorized by the Central Bank to transact business with foreign currency deposit system units and other depository banks under the expanded foreign currency deposit system shall be exempt from all taxes, except net income from such transactions as may be specified by the Minister of Finance, upon recommendation of the Monetary Board to be subject to the usual income tax payable by banks: Provided, however , That interest income from foreign currency loans granted by such depository banks under said expanded system to residents (other than offshore banking units in the Philippines or other depository banks under the expanded system) shall be subject to a 10% final withholding tax," "Any income of non-residents from transactions with depository banks under the expanded system, shall be exempt from income tax." (As amended by Presidential Decree Nos. 1705 and 1773.) "Sec. 26. Tax liability of members of general professional partnerships. (a) Persons exercising a common profession in general partnership shall be liable for income tax only in their individual capacity, and the share in the net profits of the general professional partnership to which any taxable partner would be entitled, whether distributed or otherwise, shall be returned for taxation and the tax paid in accordance with the provisions of this Title. "(b) In determining his distributive share in the net income of the partnership, each partner "(1) Shall take into account separately his distributive share of the partnership's income, gain, loss deduction, or credit to the extent provided by the pertinent provisions of this code; and "(2) Shall be deemed to have elected the itemized deductions, unless he declares his distributive share of the gross income undiminished by his share of the deductions." (As amended by Presidential Decree No. 1705.) "Sec. 30. Deductions from gross income. . . . ." "(c) Taxes . xxx xxx xxx" "(F) Taxes paid on articles imported by the taxpayer where such importation is not connected with his trade or business." "(G) Excess electric energy consumption tax imposed by Batas Pambansa Blg. 36." xxx xxx xxx" (k) Optional standard deduction . In lieu of the deductions allowed under this section, an individual other than a non-resident alien, may elect a standard deduction in an amount not exceeding 10% per centum of his gross income. 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 Minister 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." "xxx xxx xxx" "Notwithstanding the provisions of the preceding paragraphs, the Minister of Finance upon recommendation of the Commissioner, may for tax audit purposes prescribe by regulations, limitations or ceilings for any of the itemized deductions under this Section." (As amended by Presidential Decree Nos. 1705 and 1773.) "Sec. 35. Determination of gain or loss from the sale or other disposition of property. "xxx xxx xxx" "(b) In the case of property acquired on or after March first, nineteen hundred and thirteen, the cost thereof if such property was acquired by purchase or the fair market price or value as of the date of the acquisition if the same was acquired by inheritance. If the property was acquired by gift the basis shall be the same as it would be in the hands of the donor, or the last preceding owner by whom it was not acquired by gift, except that if such basis is greater than the fair market value of the property at the time of the gift then for the purpose of determining loss the basis shall be such fair market value." (As amended by Presidential Decree No. 1773.) "(c) Exchange of property . "(1) General rule . Except as herein provided, upon the sale or exchange of property, the entire amount of the gain or loss, as the case may be, shall be recognized. "(2) Exception . No gain or loss shall be recognized if in pursuance of a plan of merger or consolidation (a) a corporation which is a party to a merger or consolidation exchanges property solely for stock in a corporation which is a party to the merger or consolidation, (b) a shareholder exchanges stock in a corporation which is a party to the merger or consolidation solely for the stock of another corporation also a party to the merger or consolidation, or (c) a security holder of a corporation which is a party to the merger or consolidation exchanges his securities in such corporation solely for stock or securities in another corporation, a party to the merger or consolidation. No gain or loss shall also be recognized if property is transferred to a corporation by a person in exchange for stock in such a corporation of which as a result of such exchange said person, alone or together with others, not exceeding four persons, gains control of said corporation; Provided , That stocks issued for services shall not be considered as issued in return for property. "(3) Exchange not solely in kind . "(a) If, in connection with an exchange described in the above exceptions, an individual, a shareholder, security holder or corporation receives not only stock or securities permitted to be received without recognition of gain or loss, but also money and/or other property, the gain, if any, but not the loss, shall be recognized but in an amount not in excess of the sum of the money and the fair market value of such other property received: Provided , That as to the shareholder, if the money and/or other property received has the effect of a distribution of a taxable dividend, there shall be taxed as dividend to the shareholder an amount of the gain he recognized not in excess of his proportionate share of the undistributed earnings and profits of the corporation; the remainder, if any, of the gain recognized shall be treated as a capital gain. "(b) If, in connection with the exchange described in the above exceptions, the transferor corporation received not only stock permitted to be received without the recognition of gain or loss but also money and/or other property, then (1) if the corporation receiving such money and/or other property distributed it in pursuance of the plan of merger or consolidation, no gain to the corporation shall be recognized from the exchange, but (2) if the corporation receiving such other property and/or money does not distribute it in pursuance of the plan of merger or consolidation, the gain if any, but not the loss to the corporation shall be recognized but in an amount not in excess of the sum of such money and the fair market value of such other property so received, which is not distributed. "(4) Assumption of Liability . - (a) If the taxpayer, in connection with the exchanges described in the foregoing exceptions, receives stock or securities which would be permitted to be received without the recognition of the gain if it were the sole consideration, and as a part of the consideration, another party to the exchange assumes a liability of the taxpayer, or acquires from the taxpayer property subject to a liability, then such assumption or acquisition shall not be treated as money and/or other property, and shall not prevent the exchange from being within the exceptions. "(b) If the amount of the liabilities assumed, plus the amount of the liabilities to which the property is subject, exceed the total of the adjusted basis of the property transferred pursuant to such exchange, then such excess shall be considered as a gain from the sale or exchange of a capital asset or of property which is not a capital asset, as the case may be. "(5) Basis . - (a) The basis of the stock or securities received by the transferor upon the exchange specified in the above exception shall be the same as the basis of the property, stock or securities exchanged, decreased by (1) the money received, and (2) the fair market value of the other property received, and increased by (a) the amount treated as dividend of the shareholder and (b) the amount of any gain that was recognized on the exchange; Provided , That the property received as "boot" shall have as basis its fair market value: Provided, Further , That if as part of the consideration to the transferor, the transferee of property assumes a liability of the transferor or acquires from the latter property subject to a liability, such assumption or acquisition (in the amount of the liability) shall, for purposes of this paragraph be treated as money received by the transferor on the exchange: Provided, finally , That if the transferor received several kinds of stock or securities, the Commissioner of Internal Revenue is hereby authorized to allocate the basis among the several classes of stocks or securities. "(b) The basis of the property transferred in the hands of the transferee shall be the same as it would be in the hands of the transferor, increased by the amount of the gain recognized to the transferor on the transfer. "(6) Definitions . - (a) The term "securities" means bonds and debentures but not "notes" of whatever class or duration. "(b) The term "merger" or "consolidation", when used in this section, shall be understood to mean; (1) the ordinary merger or consolidation or (2) the acquisition by one corporation of all or substantially all the properties of another corporation solely for stock; Provided , That for a transaction to be regarded as a merger or consolidation within the purview of this section, it must be undertaken for a bonafide business purpose and not solely for the purpose of escaping the burden of taxation: Provided, further , That in determining whether a bonafide business purpose exists each and every step of the transaction shall be considered and the whole transaction or series of transactions shall be treated as a single unit: Provided, finally , That in determining whether the property transferred constitutes a substantial portion of the property of the transferor, the term "property" shall be taken to include the cash assets of the transferor. cd "(c) The term "control" when used in this Section shall mean ownership of stocks in a corporation possessing at least fifty-one per cent of the total voting power of all classes of stocks entitled to vote. "(d) The Minister of Finance upon recommendation of the Commissioner of Internal Revenue is hereby authorized to issue rules and regulations for the purpose of determining the proper amount of transferred assets which meet the standard of the phrase "substantially all" and for the proper implementation of this section." (As amended by Presidential Decree Nos. 1705 and 1773.) "Sec. 45. Individual returns. . . . "(c) When to file . The return of: "(1) Residents of the Philippines, whether citizens or aliens, whose income had been derived solely from salaries, wages, interests, dividends, allowances, commissions, bonuses, fees, pensions, or any combination thereof shall be filed on or before the eighteenth day of March of each year, covering income for the preceding taxable year. "(2) All other individuals not mentioned above, including non-resident citizens shall be filed on or before the fifteenth day of April of each year covering income of the preceding taxable year. "Individuals subject to the final schedular tax on net capital gains from the sale or other disposition of real property under Section 34(b) of this Code, shall file or cause to be filed a separate return prescribed therefor by the Commissioner within thirty (30) days following each sale or other disposition of capital assets." (As amended by Presidential Decree Nos. 1705 and 1773.) "Sec. 46. Corporation returns. . . . "(b) Fiscal year of corporations. Every corporation (other than partnerships, no matter how created or organized) may designate the last day of any month in the year as the day of the closing of its fiscal year, and shall be entitled to have the tax payable by it computed upon the basis of the net income ascertained as herein provided for the year ending on the day so designated in the year preceding the date of assessment instead of upon the basis of the net income for the calendar year preceding the date of assessment; and it shall give notice of the day it has thus designated as the closing of its fiscal year to the Commissioner of Internal Revenue at any time not less than thirty days prior to the fifteenth day of April of the year in which its return would be filed if made upon the basis of the calendar year." (As amended by Presidential Decree No. 1705.) "Sec. 51. Payment and assessment of income tax. (a) Payment of tax. (1) In general . The total amount of tax imposed by this Title shall be paid at the time the return is filed. Such tax shall be paid by the person subject thereto. If the return is filed after the time prescribed by law (including cases in which an extension of time for filing the return has been granted under section forty-seven of this Code), there shall be paid at the time of such filing the tax or installment which would have been payable on or before such time if the return had been filed within the time prescribed by law, and the remaining installment shall be paid at the time at which, and in the amount in which, it would have been payable if the return had been so filed, subject to the payment of interest at twenty per centum per annum from the original due date. In the case of tramp vessels, the shipping agents and/or the husbanding agents, and in their absence, the captains thereof are required to file the return herein provided and pay the tax due thereon before their departure. Upon failure of the said agents or captains to file the return and pay the tax, the Bureau of Customs is hereby authorized to hold the vessel and prevent its departure until proof of payment of the tax is presented or a sufficient bond is filed to answer for the tax due." "(2) Installment payment . When the tax due is in the excess of two thousand pesos, the taxpayer other than a corporation taxable under Section twenty-four, self-employed individuals who may be required to pay estimated income tax under Chapter X, and the withholding agents required to deduct and withhold the tax under Sections 53 and 54, all of this Title, may elect to pay the tax in two equal installments, in which case, the first installment shall be paid at the time the return is filed and the second installment, on or before the eighteenth day of July following the close of the calendar year. If any installment is not paid on or before the date fixed for its payment, the whole amount of the tax unpaid becomes due and payable, together with the delinquency penalties." "(d) Interest on deficiency. Interest upon the amount determined as a deficiency shall be assessed at the same time as the deficiency and shall be paid upon notice and demand from the Commissioner and shall be collected as a part of the tax at the rate of twenty per centum per annum from the date prescribed for the payment of the tax, (or, if the tax is paid in installment from the date prescribed for the payment of the first installment) to the date the deficiency is assessed: Provided , That the maximum amount that may be collected as interest on the deficiency shall in no case exceed the amount corresponding to a period of three years, the present provisions regarding prescription to the contrary notwithstanding." "(e) Additions to the tax in case of non-payment. (1) Tax shown on the return . Where the amount determined by the taxpayer as the tax imposed by this Title or any installment thereof, or any part of such amount or installment, is not paid on or before the date prescribed for its payment, there shall be collected as a part of the tax, interest upon such unpaid amount at the rate of twenty per centum per annum from the date prescribed for its payment until it is paid: Provided , That the maximum amount that may be collected as interest on deficiency shall in no case exceed the amount corresponding to a period of three years, the present provisions regarding prescription to the contrary notwithstanding." "(2) Deficiency . Where a deficiency, or any interest assessed in connection therewith under paragraph (d) of this section, or any addition to the taxes provided for in Section seventy-two of this Code is not paid in full within thirty days from the date of notice and demand from the Commissioner of Internal Revenue, there shall be collected upon the unpaid amount as part of the tax, interest at the rate of twenty per centum per annum from the date of such notice and demand until it is paid: Provided , That the maximum amount that may be collected as interest on deficiency shall in no case exceed the amount corresponding to a period of three years, the present provisions regarding prescription to the contrary notwithstanding. (As amended by Presidential Decree No. 1705) casia "(3) Surcharge . If any amount of tax shown on the return is not paid in full on or before the date prescribed for its payment under paragraph (a) of this Section, or any amount of deficiency, and any interest assessed on connection therewith, is not paid in full within the period prescribed in the assessment notice and demand required under paragraph (b) of this Section, there shall be collected in addition to the interest prescribed herein and in paragraph (d) above and as part of the tax a surcharge of ten per centum of the amount of tax unpaid." (As amended by PD No. 1705) "Sec. 53. Withholding of tax at source. . . . "(c) Resident individuals and corporations . Dividends received by individuals residing in the Philippines from a domestic corporation, as well as royalties (except payments of any kind to mining claim - owners or lessees of mining rights pursuant to any kind of agreement) received by such individuals and domestic and/or resident foreign corporations from any person whether natural or juridical shall be subject to withholding tax at source at the rate of 10% thereof. A tax shall be withheld by the payer-corporation and/or person and paid in the same manner and subject to the same conditions as provided in Section 54 of the National Internal Revenue Code: Provided, however , That the tax withheld under this subparagraph shall be credited against the income tax liability of the recipient-taxpayer for the taxable year." (As amended by Presidential Decree No. 1705). "Sec. 54. Returns and payment of taxes withheld at source. . . . "(b) Penalties for failure to render returns; for rendering false or fraudulent returns; and for non-payment of taxes withheld . - The surcharges and the penalties imposed in Sections Seventy-two and Seventy-three, respectively, of this Title shall apply to failure to file returns, to filing false or fraudulent returns or failure to pay the tax required under this Section. "In case the taxes deducted and withheld are not paid within the time prescribed, there shall be added to the amount of the unpaid tax a surcharge of twenty-five per centum plus interest at the rate of twenty per centum per annum from the date the same became due until paid." "If the withholding agent is the government or any of its agencies political subdivisions or instrumentalities, or a government-owned or controlled corporation, the employee thereof responsible for the withholding and remittance of the tax shall be personally liable for the surcharge and interest imposed herein." (As amended by Presidential Decree Nos. 1705 and 1773). "Sec. 72. Surcharges for failure to render returns and for rendering false and fraudulent returns . . . . "(b) In case the return is filed with a person other than that mentioned in Sections 45(b) and 87(a) of this Code; and" (As amended by Presidential Decree NO. 1773) "Sec. 83. Distribution of dividends or assets by corporations. . . . "(d) Net income of a partnership deemed constructively received by partners . The net income declared by a partnership for a taxable year which is subject to tax under Section 24(a) of this Code, after deducting the corporate income tax imposed therein, shall be deemed to have been actually or constructively received by the partners in the same taxable year and shall be taxed to them in their individual capacity, whether actually distributed or not." (As amended by Presidential Decree No. 1705) "Sec. 84. DECLARATION OF INCOME TAX FOR INDIVIDUALS. "(a) IN GENERAL . Except as otherwise provided in this Section, every individual subject to income tax under Sections 21 and 22 (a) of this title, receiving self-employment income whether it constitutes the sole source of his income or in combination with salaries, wages, and other fixed or determinable income shall make and file a declaration of this estimated income for the current taxable year on or before April 15 of the same taxable year. In general, self-employment income consist of the earnings derived by the individual from the practice of profession or conduct of trade or business carried on by him as a sole proprietor or by a partnership of which he is a member. Non-resident Filipino citizens, with respect to income from without the Philippines, and non-resident aliens not engaged in trade or business in the Philippines, are not required to render a declaration of estimated income tax. The declaration shall contain such pertinent information as the Minister of Finance may by forms and/or regulations prescribed. An individual may make amendments of a declaration filed during the taxable year under the regulations prescribed by the Minister of Finance." "(b) Return and payment of estimated income tax by individuals . The amount of estimated tax (as defined in paragraph (c)) with respect to which a declaration is required under paragraph (a) shall be paid in four installment. The first installment shall be paid at the time of the declaration and the second and third shall be paid on August 15 and November 15 of the current year, respectively. The fourth installment shall be paid on or before April 15 of the following calendar year when the final income tax return is due to be filed." "(c) Definition of Estimated Tax . In the case of an individual, the term "Estimated Tax" means the amount which the individual declared as income tax in his final and annual income tax return for the preceding taxable year, minus the sum of the credits allowed under this title, against the said tax. If, during the current taxable year, the taxpayer reasonably expect to pay a bigger income tax, he shall file an amended declaration during any interval of installment payment dates." (As amended by Presidential Decree No. 1705.) "Sec. 85. Declaration of Corporate Quarterly Income Tax. Every corporation shall file in duplicate a quarterly summary declaration of its gross income and deductions on a cumulative basis for the preceding quarter or quarters upon which the income tax, as provided in Title II of this Code shall be levied, collected and paid. The tax so computed shall be decreased by the amount of tax previously paid or assessed during the preceding quarters and shall be paid not later than sixty (60) days from the close of each of the first three (3) quarters of the taxable year, whether calendar or fiscal year." (As amended by Presidential Decree No. 1705) "Sec. 86. Final Adjustment Return. Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either: "(a) Pay the excess tax still due; or "(b) Be refunded the excess amount paid, as the case may be "In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year." (As amended by Presidential Decree No. 1705.) "Sec. 87. (a) Place of Filing. The quarterly income tax declaration required in Section 85 and the final adjustment return required in Section 86 shall be filed with the Revenue District Officer, or the Collection Agent or duly authorized treasurer of the municipality having jurisdiction over the location of the principal office of the corporation filing the return or place where its main books of accounts and other data from which the return is prepared are kept." "(b) Time of filing the income tax return . The corporate quarterly declaration shall be filed within sixty (60) days following the close of each of the first three quarters of the taxable year. The final adjustment return shall be filed on or before the 15th day of April or on or before the 15th day of the 4th month following the close of the fiscal year, as the case may be." "(c) Time of payment of the income tax . The income tax due on the corporate quarterly returns and the final income tax returns computed in accordance with Sections 85 and 86 shall be paid at the time the declaration or return is filed in a manner prescribed by the Commissioner of Internal Revenue." (As amended by Presidential Decree No. 1705.) "Sec. 88. Civil penalties. (a) Individuals . (1) Addition to the tax . In the case of underpayment of the estimated tax, there shall be added to the tax an amount determined at the rate of 20% per annum upon the amount of the underpayment (determined under subsection (b)(2) for the period of the underpayment (determined under subsection (b)(3). "(2) Amount of Underpayment . For purposes of subsection (b)(1), the amount of the underpayment shall be the excess of (A) The amount of the installment which would be required to be paid if the estimated tax were equal to 80% of the tax shown on the return for the taxable year or; if no return was filed, 80% of the tax for such year, over , (B) The amount, if any, of the installment paid on or before the last day prescribed for such payment. "(3) For purposes of applying subsections (a)(1) and (a)(2) "(A) The estimated tax shall be computed without any reduction for the amount which the individual estimates as his credit for taxes withheld at source on wages, dividend and interest, and "(B) The amount of the creditable taxes for the taxable year shall be deemed a payment of estimated tax, and an equal part of such amount shall be deemed on each installment date for such taxable year, unless all amounts were actually withheld, in which case the amounts so withheld shall be deemed payments of estimated tax on the dates which such amounts were actually withheld. "(4) Period of Underpayment . The period of underpayment shall run from the date the installment was required to be paid to whichever of the following dates is the earlier. "(A) The 15th day of March following the close of the taxable year. "(B) With respect to any portion of the underpayment, the date on which such portion is paid. For purposes of this paragraph, a payment of estimated tax on any installment date shall be considered a payment of any previous underpayment only to the extent that such payment exceeds the amount of the installment determined under subsection (2)(A) for such installment date. "(b) Corporations (1) Deficiency, defined . As used, and in respect of the tax referred to in Section 85, the term "Deficiency" means: "(i) The amount by which eighty per centum of the tax referred to in Section 85 exceeds the amount shown by the taxpayer as the tax on its quarterly return, including tax credit allowable; "(ii) If no amount is shown by the taxpayer as tax on its return, or if no return is filed by the taxpayer, and the taxpayer has tax credit allowable against such tax; or "(iii) If no amount is shown by the taxpayer as tax on its return, and the taxpayer has no tax credit allowable, eight per centum of the estimated tax referred to in Section 85. "(2) (i) Interest . Interest upon the amount determined as a deficiency shall be assessed at the same time as the deficiency; and shall be paid upon notice and demand from the Commissioner of Internal Revenue; and shall be collected as part of the tax at the rate of twenty per centum per annum from the date prescribed for the payment of the tax to the date the deficiency is assessed: Provided , That the maximum amount that may be collected as interest on deficiency shall in no case exceed the amount corresponding to a period not later than the fifteenth day of April or the fifteenth day of the fourth month following the close of the taxable year: Provided, further , That no interest on deficiency quarterly income tax shall be assessed at any time after assessment of the actual income tax due for the taxable year. "(ii) Addition to estimated tax in case of non-payment . (1) Tax shown on the quarterly return . Where the amount shown by the taxpayer as tax on its quarterly return or part of such amount, is not paid on or before the date prescribed for its payment; there shall be collected, as part of the tax interest upon such unpaid amount at the rate of twenty per centum per annum from the date prescribed for its payment until it is paid but not later than the fifteenth day of April or the fifteenth day of the fourth month following the close of the taxable year. "(2) Deficiency . Where the deficiency or interest on deficiency, assessed under subsection (a) of this Section, or part thereof, is not paid in full within thirty days from the date of receipt by the taxpayer of the notice and demand from the Commissioner of Internal Revenue, there shall be collected upon such unpaid amount, as part of the tax, interest at the rate of twenty per centum per annum from the date of receipt by the taxpayer of such notice and demand until it is paid not later than the fifteenth day of April or the fifteenth day of the fourth month following the close of the taxable year." (As amended by Presidential Decree No. 1705.) "Sec. 89. Declaration under penalties of perjury. (1) The declaration and return required under this Chapter shall, in lieu of an oath, contain a written declaration that they are made under the penalties of perjury. "(2) Any person who willfully files a declaration or return containing information which is not true and correct as to every material matter shall, upon conviction, be subject to the penalties prescribed for perjury under the Revised Penal Code." (As amended by Presidential Decree No. 1705.) "Sec. 96. Surcharges for failure to render returns; filing false or fraudulent returns; delinquency in payment of taxes; and failure to deduct and withhold. "The surcharges and penalties prescribed in Sections 72 and 73 of this Title in cases of failure to render returns and for filing false or fraudulent returns shall apply to returns required under Sections 93 and 94." "In case the taxes deducted and withheld by the employer are not paid within the time prescribed, there shall be added a surcharge of twenty-five per centum and interest at the rate of twenty per centum per annum from the time the same became due until paid. "If the employer, in violation of the provisions of Section 91 hereof fails to deduct and withhold the tax required, he shall be liable to pay a surcharge of twenty-five per centum . However, if the failure is due to willful neglect or with intent to defraud the government, a surcharge of fifty per centum shall be imposed. Interest at the rate of twenty per centum per annum shall likewise be imposed from the time the tax is required to be withheld until the date of assessment." "If the withholding agent is the government or any of its agencies, political subdivisions, or instrumentalities, or is a government-owned or controlled corporation, the employee or officer thereof responsible for the withholding and/or remittance of the tax shall be personally liable for the surcharge and interest imposed herein." (As amended by Presidential Decree No. 1773.) "Sec. 97. Penalties. "(a) Penalties for failure to file; for filing false or fraudulent returns or statements; failure to deduct and withhold; and failure to remit . Any person who fails to file a return or statement as required in this Chapter, or who renders a false or fraudulent return, or who fails to deduct and withhold or fails to remit to the Commissioner of Internal Revenue the amount withheld by such agent, shall upon conviction, for each act or omission, be fined not less than One thousand pesos nor more than Two thousand pesos and imprisoned for not more than One year." (As amended by Presidential Decree No. 1773.) TITLE III ESTATE & DONOR'S TAXES "Sec. 100. Gross Estate. (a) . . . ." "(b) Transfer in contemplation of death . To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, or of which he has at any time made a transfer, by trust of otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact and before his death (1) the possession or enjoyment of, or the right to the income from the property, or (2) the right, either alone or in conjunction with any person, to designate the person who shall possess or enjoy the property or the income therefrom; except in case of a bona fide sale for an adequate and full consideration in money or money's worth." (As amended by Presidential Decree No. 1705.) "Sec. 101. Net Estate. . . .." "(d) Miscellaneous provisions . No deduction shall be allowed in the case of a non-resident not a citizen of the Philippines unless the executor, administrator, or anyone of the heirs, as the case may be, includes in the return required to be filed under Section 105 the value at the time of his death of that part of gross estate of the non-resident not situated in the Philippines." (As amended by Presidential Decree No. 1705.) "Sec. 105. Returns. . . . ." "(b) Time for filing . For the purpose of determining the estate tax provided for in Section 99 of this Code, the estate tax return required under the preceding subsection (a) shall be filed within nine months after the decedent's death; but if judicial testamentary or intestate proceedings shall be instituted for the settlement of the decedent's estate prior to the expiration of said period, the return shall be filed within twenty-one months after the decedent's death." "A certified copy of the schedule of partition and the order of the court approving the same shall be furnished the Commissioner of Internal Revenue by the Clerk of Court within thirty days after the promulgation of such order." "(d) Place of filing . Except in cases where the Commissioner of Internal Revenue permits, the return required under subsection (a) shall be filed with the Revenue District Officer, Collection Agent or duly authorized treasurer of the city or municipality in which the decedent was domiciled at the time of his death or if there be no legal residence in the Philippines, then with the Office of the Commissioner of Internal Revenue." (As amended by Presidential Decree Nos. 1705 and 1773.) "Sec. 107. Payment of tax. "(a) Time of payment . The estate tax imposed by Section 99 shall be paid at the time the return is filed by the executor, administrator or the heirs." (As amended by Presidential Decree No. 1773.) "Sec. 111. Interest on Extended Payment. "(a) Tax shown on the return . If the time for payment of the estate tax or any part thereof is extended as provided in subsection (b) of Section 107, there shall be collected, as part of such amount, interest thereon at the rate of twenty per centum per annum from the day following the due date of the tax to the expiration of period of the extension." "(b) Deficiency . In case an extension for the payment of a deficiency is granted for the payment, there shall be collected, as a part of the tax, interest on the part of the deficiency, the time for the payment of which is so extended, at the rate of twenty per centum per annum for the period of the extension." (As amended by Presidential Decree No. 1773.) "Sec. 112. Interest on deficiency. Interest upon the amount determined as a deficiency, assessed at the same time as the deficiency, shall be paid upon notice and demand from the Commissioner of Internal Revenue, and shall be collected as a part of the tax, at the rate of twenty per centum per annum , from the due date of the tax to the date the deficiency is assessed: Provided , That the maximum amount that may be collected as interest on deficiency shall in no case exceed the amount corresponding to a period of three years, the present provisions regarding prescription to the contrary notwithstanding." (As amended by Presidential Decree No. 1773.) "Sec. 113. Additions to the tax in case of non-payment. "(a) Tax shown on the return . "(1) Payment not extended . Where the amount of the tax imposed by this Chapter, or any part of such amount is not paid on the due date of the tax, there shall be collected as part of the tax, interest upon such unpaid amount at the rate of twenty per centum per annum , from the due date until it is paid: Provided , That the maximum amount that may be collected as interest on delinquency shall in no case exceed the amount corresponding to a period of three years, the present provisions regarding prescription to the contrary notwithstanding." "(2) Payment extended . Where an extension of time for payment of the amount of the tax has been granted, and the amount. the time for the payment of which has been extended, and the interest thereon determined under subsection (a) of Section 111 is not paid in full prior to the expiration of the period of the extension, interest at the rate of twenty per centum per annum , shall be collected on such unpaid amount from the date the same was originally due until it is paid." "(b) Deficiency . "(1) Payment not extended . Where a deficiency, or any interest assessed in connection therewith under Section 112, or any addition to the taxes provided for in Section 114 is not paid in full within thirty days from the date of the notice and demand from the Commissioner, there shall be collected as part of the tax, interest upon the unpaid amount at the rate of twenty per centum per annum from the date of such notice and demand until it is paid: Provided , That the maximum amount that may be collected as interest on deficiency shall in no case exceed the amount corresponding to a period of three years, the present provisions regarding prescription to the contrary notwithstanding." "(2) Payment extended . If the part of the deficiency the time for payment of which is extended is not paid in accordance with the terms of the extension, there shall be collected, as part of the tax, interest on such unpaid amount at the rate of twenty per centum per annum from the date the same was originally due until it is paid." "(c) Surcharge . If any amount of tax shown on the return is not paid in full on or before the date prescribed for its payment under paragraph (a) of this section, or any amount of deficiency, or any interest assessed in connection therewith is not paid in full within the period prescribed in the assessment notice and demand required under paragraph (b) of this section, there shall be collected in addition to the interest prescribed herein and in Sections 111 and 112 as part of the tax surcharge of ten per centum of the unpaid amount." (As amended by Presidential Decree Nos. 1705 and 1773.) "Sec. 114 . Ad Valorem Penalties. (a) Failure to file return/etc . The Commissioner shall add to the tax twenty-five per centum (25%) of each amount: "(i) In case of any failure to make and file a return within the time prescribed by law or by the Commissioner except that when a return is voluntarily and without notice from the Commissioner filed after such time, and it is shown that the failure to file it was due to a reasonable cause, no such addition shall be made to the tax: "(ii) In case the return is filed with a person other than that mentioned in Section 105(d) of this Code. "(b) False or Fraudulent Return . In case a false or fraudulent return is made, the Commissioner of Internal Revenue shall add to the tax or to the deficiency tax, in case any payment has been made the basis of such return before the discovery of the falsity or fraud, a surcharge of fifty per centum of its amount shall be added to the tax." (As amended by Presidential Decree No. 1705.) "Sec. 118. Payment of tax antecedent to the transfer of shares, bonds or rights. . . .." "If a bank has knowledge of the death of a person who maintained a bank deposit account alone, or jointly with another it shall not allow any withdrawal from the said deposit account, unless the Commissioner has certified that the taxes imposed thereon by this Title have been paid, Provided, however , that the administrator of the estate or any one of the heirs of the decedent may upon authorization by the Commissioner of Internal Revenue, withdrawn an amount not exceeding P10,000 without the said certification. For this purpose, all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors." (As amended by Presidential Decree No. 1705.) "Sec. 121. Rates of tax payable by donor. "(a) In general . The tax for each calendar year shall be computed on the basis of the total net gifts made during the calendar year, in accordance with the following schedule: If the net gift is The tax shall be Over But not over Plus of Excess Over P 1,000 Exempt P 1,000 50,000 1.5% P 1,000 50,000 75,000 735 2.5% 50,000 75,000 100,000 1,360 3% 75,000 100,000 150,000 2,110 6% 100,000 150,000 200,000 5,110 9% 150,000 200,000 300,000 9,610 12% 200,000 300,000 400,000 21,610 15% 300,000 400,000 500,000 36,610 18% 400,000 500,000 625,000 54,610 21% 500,000 625,000 750,000 80,860 24% 625,000 750,000 875,000 110,860 28% 750,000 875,000 1,000,000 145,860 32% 875,000 1,000,000 2,000,000 185,860 36% 1,000,000 2,000,000 3,000,000 545,860 38% 2,000,000 3,000,00 925,860 40% 3,000,000 "(b) Tax Payable by Donor if Donee is a Stranger . - When the donee or beneficiary is a stranger, the tax payable by the donor shall be either the amount computed in accordance with the preceding paragraph (a) or twenty per cent (20%) of the net gifts, whichever is higher. For the purpose of this tax, a stranger is a person who is not a: "(i) Brother, sister (whether by whole or half-blood), spouse, ancestor, and lineal descendant, or "(ii) A relative by consanguinity in the collateral line within the fourth degree of relationship." (As amended by Presidential Decree No. 1773.) "Sec. 122. Transfer for less than adequate and full consideration. Where property is transferred for less than an adequate and full consideration in money or money's worth, then the amount by which the fair market value of the property exceeded the value of the consideration shall, for the purpose of the tax imposed by this Chapter, be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year." (As amended by Presidential Decree No. 1773.) "Sec. 125. Returns. . . .." "(b) Time and Place of filing . The return of the donor required in this section shall be filed within thirty days after the date the gift is made and, except in cases where the Commissioner permits the return shall be filed with the Revenue District Officer, Collection Agent or duly authorized Treasurer of the municipality in which the donor was domiciled at the time of the transfer or if there be no legal residence in the Philippines, then with the Office of the Commissioner of Internal Revenue." (As amended by Presidential Decree No. 1705.) "Sec. 126. Payment of tax. "(a) Time and place of payment of tax. The donor's tax imposed by Section 121 shall be paid at the time the return is filed. The tax shall be paid by the donor to the Revenue District Officer, Collection Agent or duly authorized treasurer of the city or municipality of which the donor was domiciled at the time of the transfer or if there is no legal residence in the Philippines, with the Office of the Commissioner of Internal Revenue." (As amended by Presidential Decree No. 1773.) "Sec. 128. Interest on extended payments. "(a) Tax shown on the return . If the time for the payment of the amount determined as the tax by the donor is extended under the authority of subsection (b) of Section 126, there shall be collected, as a part of such amount, interest thereon at the rate of twenty per centum per annum from the date when such payment should have been made if no extension had been granted until the expiration of the period of the extension." "(b) Deficiency . In case an extension for the payment of a deficiency is granted, there shall be collected, as a part of the tax, interest on the part of the deficiency, the time for payment of which is so extended at the rate of twenty per centum per annum , for the period of the extension." (As amended by Presidential Decree No. 1773.) "Sec. 129. Interest on deficiency. Interest upon the amount determined as deficiency, shall be paid upon notice and demand from the Commissioner, and shall be collected as a part of the tax, at the rate of twenty per centum per annum , from the due date of the tax to the date the deficiency is assessed. Provided , That the maximum amount that may be collected as interest on deficiency shall in no case exceed the amount corresponding to a period of three years, the present provisions regarding prescription to the contrary notwithstanding." (As amended by Presidential Decree No. 1773.) "Sec. 130. Additions to the tax in case of non-payment. "(a) Tax shown on the return . "(1) Payment not extended . Where the amount of the tax determined by the donor as the tax or any part of such amount is not paid on the due date of the tax, there shall be collected as part of the tax, interest upon such unpaid amount at the rate of twenty per centum per annum , from due date until it is paid: Provided , That the maximum amount that may be collected as interest on delinquency shall in no case exceed the amount corresponding to a period of three years, the present provisions regarding prescription to the contrary notwithstanding." "(2) Payment extended . Where an extension of the time for payment of the amount so determined as the tax by the donor has been granted, and the amount, the time for the payment of which has been extended and the interest thereon determined under subsection (a) of this Section 128 is not paid in full prior to the expiration of the period of extension, interest at the rate of twenty per centum per annum , shall be collected on such unpaid amount from the date when the same was originally due until it is paid." "(b) Deficiency . "(1) Payment not extended . Where a deficiency, or any interest assessed in connection therewith, or any addition to the tax provided for in Section 131 is not paid in full within thirty days from the date of the notice and demand from the Commissioner, there shall be collected as part of the tax, interest upon the unpaid amount at the rate of twenty per centum per annum , from the date of such notice and demand until it is paid: Provided , That the maximum amount that may be collected as interest on delinquency shall in no case exceed the amount corresponding to a period of three years, the present provisions regarding prescription to the contrary notwithstanding." "(2) Payment extended . If any part of the deficiency the time for payment of which is extended is not paid in accordance with the terms of the extension, there shall be collected, as a part of the tax, interest on such unpaid amount at the rate of twenty per centum per annum , from the date the same was originally due until it is paid." "(c) Surcharge . If any amount of tax shown on the return by the donor is not paid in full on or before the date prescribed for its payment under paragraph (a) of this section, or any amount of deficiency, or any interest assessed in connection therewith is not paid in full within the period prescribed in the assessment notice and demand required under paragraph (b) of this section, there shall be collected in addition to the interest prescribed herein and in Sections 128 and 129 and as part of the tax a surcharge of ten per centum of the unpaid amount." (As amended by Presidential Decree No. 1773.) "Sec. 131. Ad valorem penalties. (a) Failure to file return, etc . The Commissioner shall add to the tax twenty-five per centum (25%) of each amount: "(i) In case of any failure to make and file a return within the time prescribed by law or by the Commissioner, except that when a return is voluntarily and without notice from the Commissioner filed after such time, and it is shown that the failure to file it was due to a reasonable cause and not to willful neglect no such addition shall be made to the tax; "(ii) In case the return is filed with a person other than that mentioned in Section 125(b) of this Code. "(b) False or fraudulent return . In case a false or fraudulent return is made, the Commissioner of Internal Revenue shall add to the tax or to the deficiency tax, in case any payment has been made on the basis of such return before the discovery of the falsity or fraud, a surcharge of fifty per centum of its amount shall be added to the tax." (As amended by Presidential Decree No. 1705.) FEATURES OF THE AMENDMENTS TITLE I ORGANIZATION OF THE BUREAU 1. Section 7 as amended by PD Nos. 1705 & 1773 . The amendment specifically empowers the Commissioner to issue Subpoena Duces Tecum and Subpoena Ad Testificandum . With this direct grant of authority, summons proceedings initiated by the Commissioner will no longer be subject to the review of the Office of the Solicitor General. In addition, he can exercise other powers to obtain vital information for the discovery of potential taxpayers. In case of neglect or refusal to obey such summons, penalties are provided therefor. Further, the term "deputies" is changed to "authorized representative". 2. Section 16 as amended by PD 1773 . The last paragraph on the procedure for protesting an assessment has been transferred from Section 16 to Section 319 and designated as Section 319-A, the latter provision being more germane to the subject. The phrase "best evidence obtainable" to qualify assessments being protested under Section 16(d) of the Tax Code, as amended by P.D. 1705, has been deleted to make the procedure on protests applicable to all kinds of assessments, whether based on "best evidence obtainable" or not. TITLE II INCOME TAX 1. Section 23(a)(b)(c) and (e) as amended by PD 1773 . The personal and additional exemptions have been increased as follows: (i) single individuals from P1,800 to P3,000; (ii) head of family from P3,000 to P4,500; (iii) married taxpayers from P3,000 to P6,000; (iv) additional exemption for each dependent from P1,000 to P2,000. The total number of dependents for purposes of the additional exemption is limited to four. However, a taxpayer may still claim as additional exemption of P1,000 for each child in excess of four, who qualified as a dependent prior to January 1, 1980. A new paragraph, subsection (e), was incorporated in Section 23. The amendment introduces in the Philippines the so-called "indexation scheme" whereby personal and additional exemptions may be adjusted, not oftener than once every three years, on the basis of the movements in consumer price indices, levels of minimum wages, and bare subsistence levels. 2. Section 24(b)(2)(a) as amended by PD Nos. 1705 and 1773 . As amended by PD 1705 branch profits remittances are covered by Revenue Memorandum Circular No. 55-80 dated December 3, 1980. As amended by PD 1773 mention of Section 24(b)(1) and Section 53(b)(2) have been eliminated so as to avoid confusion considering that both these sections refer to income of non-resident foreign corporations. The amendment now clearly enumerates the kinds of gains, profits, emoluments, etc. which shall be considered in the determination of what constitutes branch profits of resident foreign corporations. 3. Section 24(e) as amended by PD 1773 . To stimulate the formation of open corporations in the Philippines, vis-a-vis the disincentive to closely-held corporations; the corporate development tax has been increased from 5% to 10%; and the return of investment (ROI) test is eliminated. This is already covered by Revenue Regulations No. 7-81. 4. Section 24(f) as amended by PD 1773 . With certain exceptions, income derived from foreign currency transactions by offshore banking units and under the expanded foreign currency deposit system are exempt from all taxes. The extent or coverage of this amendment will be treated in a separate regulation. 5. Section 26 as amended by PD 1705 . Under the amendment, a partner in a tax-exempt general professional partnership, who is required to return for taxation his distributive share in the income of the partnership, shall be entitled to avail of the 10% Optional Standard Deduction only if he declares his distributive share of the gross income of the partnership, undiminished by his share of the deductions. Hence, if the partner declares his share in the net income of the partnership, whether it be distributed or otherwise, he shall be deemed to have elected the itemized deduction and may no longer claim the Optional Standard Deduction. 6. Section 30(c), subparagraphs (F) and (G) . As amended by PD 1705 this is already covered by Revenue Memorandum Circular No. 56-80. As amended by PD 1773 the amendment is merely corrective. 7. Section 30(k) as amended by PD 1773 . To encourage more taxpayers to opt for standard deduction instead of the itemized deduction thereby simplifying tax administration, the ceiling deduction of P5,000 is eliminated. 8. Section 30 as amended by PD 1773 . This is a new provision empowering the Minister of Finance upon recommendation of the Commissioner to prescribe by regulations, limitations or ceilings for any of the itemized deductions, for tax audit purposes. 9. Section 35(b) as amended by PD 1773 . The amendment by Presidential Decree No. 1773 modified the basis for determining gain or loss from sale of property previously acquired thru donation by the seller. Prior to the amendment, the fair market value of the property at the time of donation (acquisition) constitutes the basis for determining gain or loss. Under the amendment, the basis shall be the same ("substituted basis") as it would be in the hands of the donor, or the last preceding owner by whom it was not acquired by gift. However, if such basis is greater than the fair market value of the property at the time of the gift then for the purpose of determining loss the basis shall be such fair market value. 10. Section 35(c) as amended by PD Nos. 1705 and 1773 . In order that the income tax incidence on the exchange of property may be postponed until its subsequent sale or disposition, the transferor must transfer the property directly to a corporation in exchange for its stock. Before the amendment by PD 1773, Section 35(c)(3)(c) of the Tax Code provided for only two of the effects of an assumption of liabilities as part of the exchange of property, i.e., that it would not affect by itself, the tax-free character of the exchange and would not be considered as "boot". The provision of Section 35(c)(3)(c) covers only the case where the liability transferred does not exceed the transferor's basis for the property transferred. The amendments, therefore, to Section 35(c)(3)(c) (as Sec. 35(c)(4)) and Section 35(c)(4) (as Section 35(c) (5)) are more codifications of the rulings issued by the Bureau of Internal Revenue on the effect of assumption of liability as "boot" in determining the basis to the recipient of the stock. For purposes only of determining the basis to the transferor of property, of the stock received by him in exchange, where the transferee of the property assumes a liability of the transferor or acquires from him property subject to a liability, the amount of such liability is to be treated as money received by the transferor upon the exchange. A separate regulations on the implementation of the provisions of Section 35(c) of the Tax Code, as amended, will be issued for the guidance of all concerned. 11. Section 45(c) as amended by PD Nos. 1705 & 1773 . - Provides for the time for filing of income tax returns by: a) Residents of the Philippines , whether citizens or aliens, with fixed income or whose income had been derived solely from salaries, wages, interests, dividends, allowances, commissions, bonuses, fees, pensions, or any combination thereof March 18 . b) All other individuals not mentioned in paragraph (a) of Section 45 including non-resident citizens April 15 . Individuals subject to the final schedular tax on net capital gains from the sale or other disposition of real property under Section 34(h) of the Tax Code are required to file a separate return (BIR Form No. ______) within thirty (30) days from each sale or disposition of capital assets. 12. Section 46(b) as amended by PD 1705 . To synchronize the filing of returns of partnerships with the individual partners, partnerships are now required to file their income tax returns on the calendar year basis only . To effect the transition from fiscal to calendar year basis, partnerships shall be required to file a fractional return for less than twelve months in the filing of their income tax returns. 13. Section 51 as amended by PD 1705 . As in the case of estate and donor's taxes, the deficiency and delinquency interest rates on income tax had been increased from 14% to 20%; and surcharge for non-payment of tax has been increased from 5% to 10%. The 10% surcharge can now be imposed in case of non-payment of income tax even without a previous assessment notice and letter of demand. Under the amendment, a taxpayer other than a corporation taxable under Section 24 of the Tax Code, self-employed individuals who may be required to pay estimated income tax and the withholding agents required to deduct and withhold the tax under Sections 53 and 54 of the same Code, may elect to pay income tax in two equal installments when the tax due is in excess of P2,000 (P1,000 before the amendment), in which case, the first installment shall be paid at the time the return is filed and the second installment, on or before the eighteenth day of July following the close of the calendar year. 14. Section 53(c) as amended by PD 1705 . The amendment removes from the preferential withholding tax treatment of 10% royalty payments to mining claim owners or lessees of mining rights pursuant to any kind of agreement. Such payment, generally treated as "no sweat" income, will instead be taxed at the ordinary individual or corporate rate level. 15. Section 54(b) as amended by PD Nos. 1705 and 1773 . The amendment is clerical as well as substantial. As amended by PD 1705, Section 54 speaks of surcharges prescribed in Sec. 73 of the Code. However, the correct designation thereof should have been Sec. 72 instead of Sec. 73. The substantial amendment consists of the addition of interest to the existing surcharge which the law imposes as a personal liability of the government employee/officer who fails to remit the taxes withheld on wages on time. 16. Section 72(b) as amended by PD 1733 . The amendment to paragraph (b), Sec. 72 of the National Internal Revenue Code, as amended by Batas Pambansa Blg. 36 is only corrective in nature in order to change Sec. 86 to Sec. 87, thereof. 17. Section 83 as amended by PD 1705 . The amendment added a new paragraph to Sec. 83 providing that the net income of a partnership (after corporate income tax) for the taxable year shall be deemed actually or constructively received by the partners in the same taxable year, taxable to them in their individual capacity, whether actually distributed or not. 18. Section 84 as amended by PD 1705 . The requirement for self-employed individuals to pay estimated income tax shall take effect only upon promulgation of the implementing rules and regulations by the Minister of Finance. However, implementation of the said tax shall be held in abeyance pending the outcome of the gross income proposed under Cabinet Bill No. 34. 19. Sections 85, 86 and 87 as amended by PD 1705 . The amendments are mostly corrective. In case of a corporation, the income tax due on its corporate quarterly returns and final adjustment returns shall be paid at the time the returns or declarations are filed (pay-as-you-file system) with the Revenue District Officer, or the Collection Agent or duly authorized treasurer of the municipality having jurisdiction over the principal office and place where the books of accounts and other data of the corporation are kept. 20. Sections 84 and 88(a) and (b) as amended by PD 1705 . The provisions on estimated income tax and returns as well as on civil penalties in case of underpayment of the estimated tax by individual taxpayers shall be covered by separate regulations for the guidance of all concerned. The delinquency and deficiency interest rates in case of non-payment of corporate estimated income tax was also increased from 15% to 20%. 21. Section 96 as amended by PD 1773 . The statutory penalties for delinquency in the payment of taxes withheld on wages had been increased from 5% to 25% in the case of surcharge and from 1% per month to 20% per annum in the case of interest. For the failure to deduct and withhold the tax on wages of its employees, the employer shall be liable to 25% surcharge. However, if the failure is due to willful neglect or with intent to defraud the government a surcharge of 50% and 20% interest per annum is imposed. If the withholding agent is the government or any of its agencies, political subdivisions, or instrumentalities, or is a government-owned or controlled corporations, the employee or officer responsible for withholding and/or remittance of the tax is made personally liable to pay the penalties, i.e. surcharge and interest. 22. Section 97(a) as amended by PD 1773 . Under the amendment, failure to deduct and withhold and failure to remit are now penalized with a fine of not less than P1,000 nor more than P2,000 and imprisonment for not more than one year. TITLE III ESTATE AND DONOR'S TAX 1. Section 100 as amended by PD 1705 . The integration of donor's and donee's taxes and the reduction of the estate tax rates under Presidential Decree No. 69 were designed to encourage the transfer of properties during the lifetime of an individual. To harmonize, therefore, such intendment in the law, the amendment removes the presumption under the old law that any transfer of a material portion of decedent's death without adequate and full consideration within 3 years prior to decedent's death is in contemplation of death. The effect of this deletion is to require establishment or proof of the fact that the transfer was actually made in contemplation of death. 2. Section 101(d) as amended by PD 1705 . For estate tax purposes, deduction shall be allowed in the case of a non-resident alien decedent if the value at the time of his death of that part of his gross estate not situated in the Philippines is declared in the return filed for the estate. 3. Section 105 as amended by PD Nos. 1705 & 1773 . The estate tax return shall now be filed with the Revenue District Officer, Collection Agent or duly authorized treasurer of the municipality in which the decedent was domiciled at the time of his death or if there is no legal residence in the Philippines, then with the Office of the Commissioner of Internal Revenue. Time for filing estate tax returns was changed from 6 to 9 months after the decedent's death when there are no judicial/testamentary proceedings and from 12 to 21 months after the decedent's death - when there are judicial testamentary or intestate proceedings. 4. Section 107 as amended by PD 1773 . Like income and other internal revenue taxes, the estate tax is now payable under the "pay-as-you-file" system. 5. Sections 111, 112 and 113(a)(b)(c) as amended by PD 1773 . Interest rates on estate taxes had been increased from 14% to 20% on: a) extended payment of the tax per return b) extended payment of a deficiency c) deficiency interest d) delinquency interest Section 113(c) as amended by PD 1705 is further amended by PD 1773 so that the 10% surcharge (formerly 5%) can now be imposed in case of non-payment of estate tax even without a previous assessment notice and letter of demand. 6. Section 114 as amended by PD 1705 . The amendment strengthens the jurisdictional requirement in the filing of income tax returns to harmonize with the other Titles of the Tax Code. 7. Section 118 as amended by PD 1705 . As a rule, banks are prohibited to allow the withdrawal of deposits of decedents unless certification of tax payment is first presented. Considering that there are instances where the heirs of the decedents depend upon the cash deposits of their chief support let alone the fact that estate proceedings in court are sometimes protracted, the heirs should therefore be allowed to withdraw an amount to provide for their upkeep. 8. Section 121 as amended by PD 1773 . A new paragraph is added providing for the tax payable by the donor if the donee is a stranger. Donees not coming within the degree of relationship specified in the amendment are now classified as "strangers". Under the amendment of Section 121(b), the donor's tax computed on the amount representing insufficiency of consideration of property sold to a stranger would actually be equal to the capital gains tax on gains from real estate transaction thus discouraging underdeclaration of the selling price of real property and availment of the lower donor's tax on insufficiency of consideration. 9. Section 122 as amended by PD 1773 . The amendment harmonizes the provisions of our gift tax laws, particularly Sections 122 and 124 of the Tax Code on the valuation of property transferred, e.g. gifts made in property. Hence, for gift tax purposes, Section 122 as amended, not only dispensed with the test of "donative intent" but formulated as well as much more workable external test that "where property is transferred for less than an adequate and full consideration in money or money's worth", the excess of the fair market value of the property transferred over the consideration given therefor shall be deemed a gift subject to the donor's tax. 10. Sections 125(b) and 131 as amended by PD 1705 . The provision as to the place of filing donor's tax return is amended. As in the case of other internal revenue taxes, the donor's tax return shall now be filed with the Revenue District Officer, Collection Agent or duly authorized treasurer of the municipality in which the donor was domiciled at the time of the transfer or if there is no legal residence in the Philippines, then with the Office of the Commissioner of Internal Revenue. In case the return is filed with a person other than the aforementioned officials, a surcharge of 25% shall be imposed. 11. Section 126(a) as amended by PD 1773 . Under the amendment, the donor's tax like other internal revenue taxes shall now be paid by the donor to the Revenue District Officer, Collection Agent or duly authorized treasurer of the city or municipality in which the donor was domiciled at the time of the transfer or if there is no legal residence in the Philippines, with the Office of the Commissioner of Internal Revenue. 12. Sections 128, 129 and 130 as amended by PD 1773 . Interest rates on donor's taxes had been increased from 14% to 20% on: a) extended payment of the tax per return b) extended payment of a deficiency c) deficiency interest d) delinquency interest The 10% surcharge (formerly 5%) can now be imposed if the donor's tax or deficiency donor's tax is not paid in full on or before the date prescribed for its payment, even without a previous assessment notice and letter of demand. Effectivity . 1) P.D. 1705 took effect on August 1, 1980; and 2) P.D. 1773 took effect on January 16, 1981. Enforcement . It is desired that this Circular be given as wide a publicity as possible. RUBEN B. ANCHETA Acting Commissioner