The Corporate Development Tax Regulations

March 16, 1981 REVENUE REGULATIONS NO. 07-81 SUBJECT : The Corporate Development Tax Regulations TO : All Internal Revenue Officers and Others Concerned SECTION 1 . Scope . These regulations, promulgated pursuant to Section 326 in relation to Section 4 of the National Internal Revenue Code, shall govern the implementation of Section 24(e) of the said Code, as amended by Presidential Decree No. 1773. SECTION 2 . The Corporate Development Tax . (a) Corporations liable to pay the additional tax . In addition to the income tax imposed in paragraph (b) of Section 24 of the Tax Code, a corporation shall be liable to pay a corporate development tax equivalent to 10% of its taxable net income if it qualifies as a "closely-held corporation" as defined in Section 24 (e) of the National Internal Revenue Code under these regulations. A "closely-held corporation" is a corporation, (a) at least 50% in value of the total combined 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 paragraph (b) and (c) of Section 66 of this Code shall be applied. casia (b) Applicability of the stock ownership test . (1) Stock ownership by an individual . The stock ownership test prescribed by Section 24(e) for the purpose of determining whether a corporation is a closely-held corporation applies only to corporations and not to partnerships no matter how created or organized. In determining whether an individual owns a share of a stock in a corporation, directly or indirectly, the attribution rules prescribed by paragraph (b) and (c) of Section 66 of the Tax Code shall be applied. (c) The corporate ownership by a person, other than an individual . In determining whether a person, other than an individual, such as a juridical person, owns a share of stock in a corporation, directly or indirectly, the rule of attribution of stock ownership prescribed by paragraph (a) of Section 66 shall be applied. Thus, in cases of stock now owned by individuals, stock owned directly or indirectly by or for a corporation, estate or trust shall be considered as being owned proportionately by its shareholder, partners or beneficiaries. Under this rule, a subsidiary of a local and foreign corporation shall not be considered as owned by a parent corporation but by the shareholders of the said parent corporation. (d) The corporate development tax 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 stocks of banks unless (A) more than twenty (20%) per cent of all classes of stock entitled to vote of such corporation is held by; (i) persons related to each other within the third degree of consanguinity or affinity, or (ii) a corporation the majority of the shares are owned by such related persons, or (iii) two or more corporations the majority of the shares are owned by the same person or so related persons. SECTION 3 . Time and Manner of Payment of the Corporate Development Tax . The corporate development tax imposed in Section 24(e) shall be paid together with the normal corporate income tax imposed in Section 24(a), on or before the fifteenth day of April if on a calendar year basis or on or before the fifteenth day of the fourth month following the close of the taxable year if on the fiscal year basis, and shall be reported in the final return required to be filed under Section 84. If the sum of the quarterly payments made by the corporation during the taxable year is not equal to the total tax (which is the sum of the normal corporate income tax and the corporate development tax) due on the entire net taxable income for 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 excess quarterly income taxes paid, the refundable amount shown in its final return may be credited against its income tax liabilities for the taxable quarters of the succeeding taxable years. SECTION 4 . Repealing Clause . All regulations, ruling or orders, or portions thereof which are inconsistent with the provisions of these regulations are hereby revoked. SECTION 5 . Effectivity . These Regulations shall take effect on taxable years beginning 1981. EFREN I. PLANA Acting Minister of Finance Recommended by: RUBEN B. ANCHETA Acting Commissioner