Liability of Franchise Holders to Income Tax Under Section 24(d) of the Tax Code, as Inserted by Republic Act No. 5431

May 17, 1972 REVENUE MEMORANDUM ORDER NO. 15-72 SUBJECT : Liability of Franchise Holders to Income Tax Under Section 24(d) of the Tax Code, as Inserted by Republic Act No. 5431. TO : The Assessment Department, Particularly the Income Tax Division, Assessment Branches, Investigating Units, Particularly the Services & Miscellaneous (Audit) Division and others concerned: Section 24(d) of the Tax Code as inserted by Republic Act No. 5431, provides: "(d) The provisions of existing special or general laws to the contrary notwithstanding , all corporate taxpayers not specifically exempt under Sections 24 (c) (1) and 27 of this Code (referring to the National Internal Revenue Code) shall pay the rates provided in this section. All corporations, agencies, or instrumentalities owned or controlled by the Government, including the Government Service & Insurance System, Social Security System but excluding educational institutions, shall pay such rate of tax upon their taxable net income as are imposed by this section upon associations or corporations engaged in a similar business or industry." (Emphasis supplied) aisa dc Pursuant to the abovequoted provision of law, all corporations, except those specifically exempt under Sections 24(c)(1) and 27 of the Tax Code, are subject to income tax prescribed in Section 24 of the Tax Code. Accordingly even franchise holders whose franchises contain a provision that the franchise tax prescribed therein shall be in lieu of all taxes are subject to income tax for taxable years beginning after June 30, 1968 (see Section 10, Republic Act No. 5431). This stand is supported by the opinion of the Secretary of Justice, contained in his 3rd Indorsement to the Secretary of Finance, dated March 28, 1969, the pertinent portion of which is quoted hereunder: "The contention that Republic Act No. 5431 merely intended to change the existing rates of corporate tax applicable to corporations already subject to income tax and not to lift the tax exemptions granted by special law, is without merit, just as the argument that the term 'corporate taxpayer' should be construed as referring only to those corporations already subject to tax at the time of the amendment. For in providing for the general application of the new tax rates and expressly excluding therefrom 'all corporate taxpayers not specifically exempt under Section 27 of this Code' which significantly refer to entities wholly exempt from income tax, Section 24(d) was evidently meant to be applicable even to corporations enjoying income tax exemption before the enactment of RA 5431. Otherwise, there would have been no need for said exclusion. The resulting conclusion is that outside of those referred to in Section 24(c)(1) and 27 of the Tax Code, all corporations whose liability for income tax was before governed by general laws or special statutes applicable to designated classes or groups of corporate entities, are now subject to the rates prescribed in RA 5431." In view thereof, all investigating and assessment units concerned are hereby instructed to ascertain the income taxes due from franchise holders for the years 1968, 1969, 1970 and 1971 and to issue the corresponding assessments against them. All internal revenue officers and others concerned are enjoined to give this circular as wide a publicity as possible. MISAEL P. VERA Commissioner of Internal Revenue