Amendments to Revenue Regulations No. 2

October 29, 1975 REVENUE REGULATIONS NO. 08-75 SUBJECT : Amendments to Revenue Regula tions No. 2, or the Income T ax Regulations TO : All internal revenue officers and others concerned SECTION 1. Scope . Pursuant to Section 338 of the National Internal Revenue Code, the following regulations amending certain provisions of Revenue Regulations No. 2 or the Income Tax Regulations to implement the latest amendments to certain provisions of the same Code, particularly by Presidential Decree Nos. 778 and 785, are hereby promulgated and they shall be known as Revenue Regulations No. 8-75. cdt SECTION 2. Section 15 of Revenue Regulations No. 2 is hereby amended to read as follows: "Sec. 15. Income tax on corporations . (a)(1) On domestic corporation . The law imposes an annual income tax upon the taxable net income received during each taxable year from all sources by every domestic corporation and partnership, no matter how created or organized, but not including general professional partnership, in accordance with the following: "Twenty-five per cent upon the amount by which the taxable net income does not exceed P100,000; and "Thirty-five per cent upon the amount by which the taxable net income exceeds P100,000. "The tax is upon the taxable net income, which is determined by subtracting from the gross income, as defined in the law, the allowable deductions. "(2) An annual income tax of ten per cent shall be imposed on every private educational institution, whether stock or non-stock, upon its taxable net income derived from the operation of the school, related school activities, and on its passive investment income consisting of interest, dividends, royalties, and the like. "(3) The provisions of existing special or general laws to the contrary notwithstanding, all corporate taxpayers not specifically exempt under Section 27 of the Code shall pay the rates provided in subsection (a) of this section. All corporations, agencies, or instrumentalities owned or controlled by the Government, including the Government Service Insurance System and the Social Security System but excluding educational institutions, shall pay such rate of tax upon their taxable net income as are imposed by subsection (a) of this section upon associations or corporations engaged in a similar business or industry. "(b) Tax on resident foreign corporations . The law imposes the tax provided in subsection (a) of this section upon the total net income derived in the preceding taxable year from all sources within the Philippines by a corporation organized, authorized, or existing under the laws of a foreign country, engaged in trade or business within the Philippines, except the following: "(1) International carriers shall pay a tax of 2- of their 'gross Philippine billings'. "Other items of gross income enumerated in Section 39 of these regulations shall be subject to tax prescribed in subsection (a) of this Section. "(2) Profit remitted abroad by a branch office to its mother company shall be subject to 20% tax, except those registered with the Export Processing Zone Authority. The herein tax is in addition to the regular tax imposed under subsection (a) of this section. For the purpose of this subsection, any form of remittance, direct or indirect, made to the mother company abroad shall be presumed to have been made from the accumulated profits of the branch. "(c) On non-resident foreign corporation . The law imposes a tax equal to 35% of the gross income received during each taxable year by a non-resident foreign corporation from all sources within the Philippines as interest, dividends, rents, royalties, salaries, wages, premiums annuities, compensations, remunerations for technical services, emoluments or other fixed or determinable annual, periodical or casual gains, profits and income, and capital gains, except the following: "(1) Interest on foreign loans shall be subject to 15% tax; (See Revenue Regulations No. 4-75) "(2) Gross income which includes film rentals and all items of gross income under Section 39 of these regulations derived by cinematographic film owners, lessors or distributors shall be subject to 15% tax. "The following shall not be subject to the tax imposed by this subsection: "(1) Reinsurance premiums; "(2) Capital gains derived from buying and/or selling shares of stocks of Philippine corporations listed in the dollar or any acceptable foreign currency board of any stock exchange. (Section 34(g), Tax Code, as inserted by P. D. 779) "(3) Regional or area headquarters established in the Philippines by multinational corporations and which headquarters do not earn or derive income from the Philippines and which act as supervisory communications and conducting centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region. SECTION 3. Section 17 of Revenue Regulations No. 2 is hereby amended to read as follows: "Sec. 17. Intercorporate dividends . (a) Dividends received by a domestic or resident foreign corporation from a domestic corporation . Dividends received by a domestic corporation, resident foreign corporation or general co-partnership (except professional partnership) from a domestic corporation subject to tax under the National Internal Revenue Code, and a private educational institution, whether stock or non-stock, from a domestic or resident foreign corporation, are subject to a final tax of 10% on the total amount thereof which shall be collected and paid as provided in Section 205 of these regulations. Such dividends shall not be included in the determination of the gross income of the recipient corporation. (As amended by P. D. 778) "(b) Dividends received by a non-resident foreign corporation from a domestic corporation . Dividends received by a non-resident foreign corporation from a domestic corporation liable to corporate income tax under Section 15(a) of these regulations are subject to tax at 15% thereof to be collected under Section 205 of these regulations subject to the condition that the country in which the non-resident foreign corporation is domiciled shall allow a credit against the tax due from the non-resident foreign corporation, taxes deemed to have been paid in the Philippines equivalent to at least 20% which represents the difference between the regular tax (35%) on corporations and the tax of 15% on dividends as provided in this subsection." (As amended by P. D. 369) SECTION 4. Section 22 of Revenue Regulations No. 2 is hereby amended to read as follows: "Sec. 22. General Professional Partnerships . General professional partnerships are not subject to income tax, but are required to file returns of their income on BIR Form No. _________ for the purpose of furnishing information as to the share in the gains or profits which each partner shall include in his individual return. Individuals carrying on business in general professional partnerships are, however, taxable upon their distributive shares of the net income of such partnership, whether distributed or not, and are required to include such distributive shares in their individual returns. The returns of general professional partnerships should be rendered on or before April 15 of each year if on the calendar year basis or within 15 days of the fourth month following the end of the fiscal year." (As amended by P.D. 778). SECTION 5. Section 23 of Revenue Regulations No. 2 is hereby amended to read as follows: "Sec. 23. Distributive shares of partners . (a) Share of net profit of a partner in general professional partnership . The distributive share of the net profit of a general professional partnership must be included in the individual returns of the partners whether distributed or not. But where the result of partnership operation is a loss, the loss will be divisible by the partners in the same proportion as the net income would have been divisible (or, if the partnership agreement provides for the division of a gain, in the manner so provided) and may be taken by the individual partners in their respective returns of income. (As amended by P.D. 778). "(b) Share in the net profit or net loss of a partner in a partnership other than general professional partnership . The distributive share in a partnership other than a general professional partnership is equal to his distributive share of the net profit of the partnership after deducting the corresponding income tax which shall be returned and included in the individual returns of the partners whether distributed or not. In the event the partnership sustains a net operating loss, the partners shall be entitled to deduct their respective shares in the net operating loss from their individual gross income. "If an adjustment is made in the net income or net loss reported by the partnership in its return, a corresponding adjustment should be made in the individual partner's income tax liability insofar as it is affected by the adjustment in the partnership return." SECTION 6. Section 180 of Revenue Regulations No. 2 is hereby amended to read as follows: "Sec. 180. Individual rates . The following are required to file returns in duplicate: "(a) Resident individuals (whether citizens or aliens) deriving a gross income from within and without the Philippines of at least P1,800 for the taxable year; "(b) Non-resident Philippine citizen who is at least 18 years of age, regardless of whether or not he derived income from abroad. Where the non-resident citizen, though less than 18 years of age, derived income from abroad, an income tax return must nevertheless be filed by the parent or guardian; (See Revenue Regulations No. 9-73) "(c) Every non-resident alien engaged in trade or business in the Philippines regardless of the amount of gross income derived from sources within the Philippines; "(d) Aliens employed by regional area headquarters established in the Philippines by multinational corporations as defined by P.D. 218; "(e) Guardians, trustees, executors, administrators, receivers, conservators, and all others acting in any fiduciary capacity; "(f) The foregoing individuals, regardless of whether he derives any income or not for the taxable year, if he falls under any of the following categories: "(1) Is an official or employee of the government or has a contract with the Government of the Republic of the Philippines, or any of its agencies or instrumentalities, including government-owned or controlled corporations, regardless of the nature of his appointment or duration of his employment; "(2) Is a professional as defined hereinbelow; "(3) Is a registered or beneficial owner or mortgagee of any real property; "(4) Is a registered or beneficial owner, or mortgagee of any motor vehicle; "(5) Is a registered or beneficial owner, or mortgagee of any share of stock or security of a corporation, or any interest in a firm or partnership; "(6) Has travelled abroad, except children below eighteen years of age; "(7) Has filed a certificate of candidacy for any public office except barrio officials and municipal councilors; "(8) Is engaged in trade or commerce. "For purposes of this subsection, an individual is deemed a professional if, during a taxable year, he passes any government examination for the practice of a profession given by a board of examiners or by the Supreme Court, or remains a registered member of any profession covered by such examination, regardless of whether or not, during that taxable year, he actually practiced his profession. "For each calendar year, every person (except a non-resident alien), whether married or single, having a gross income from all sources of P1,800 or over, including dividends, excepting stock dividends, must make a return of income although the tax has been paid at source and the return shows no tax liability. Whether or not an individual is the head of a family or has dependents is immaterial in determining his liability to render a return. The husband shall include in his return the income derived not only from his services, labor, or industry or the income derived from the conjugal partnership but also the income of the wife derived from her industry or labor, as well as that derived from her separate, total, or paraphernal property. Where, however, the filing of one consolidated return is impracticable, married persons may file separate returns but the income declared in such returns will be consolidated and the tax computed on such consolidated income. "The law required that the income of unmarried minors derived from property received from a living parent shall be included in the return of the parent, except (1) when the gift tax imposed under Chapter II of Title III of the Code has been paid on such property, or (2) where the transfer of such property is exempt from the gift tax. "A signature affixed to a return is presumed to be genuine." SECTION 7. Section 181 of Revenue Regulations No. 2 is hereby amended to read as follows: cdta "Sec. 181. When and where to file individual return . (a) Individual returns shall be filed on the following dates covering income of the preceding taxable year: "(1) For individuals falling under Section 180(f) of these regulations, the return shall be filed on or before February 15 of each year; "(2) For individuals, whether citizens or aliens, whose income have been derived solely from salaries, wages, interest, dividends, allowances, commissions, bonuses, fees, pensions, or any combination thereof, the return shall be filed on or before March 15 of each year; "(3) For individuals not mentioned above, including non-resident citizens, the return shall be filed on or before April 15 of each year. "(b) The return must be filed with the Commissioner of Internal Revenue, Regional Director, Revenue District Officer, Collection Agent, duly authorized treasurer of the municipality, or authorized agent banks in which such persons have their legal residence or place of business in the Philippines, or if there is no legal residence or place of business in the Philippines, then with the Commissioner of Internal Revenue in Manila. "In the case of a non-resident citizen, his return may be filed with the Philippine Embassy or Consulate nearest his residence or place of business abroad; or if there is no such embassy or consulate, then with the Commissioner of Internal Revenue in Manila. "(c) When the last due date for filing falls on Sunday or legal holiday, the last due date will be held to be the day following Sunday or legal holiday, or if placed on the mails, it should be posted in ample time to reach the Commissioner of Internal Revenue, Regional Director, Revenue District Officer, or Collection Agent of the province, city or municipality in which the taxpayer has his legal residence or principal place of business, under ordinary handling of mail, on or before the date on which the return is required to be filed. When question is raised as to whether or not the return was posted in ample time to reach the proper official, the envelope in which the return was transmitted and the return should be submitted to the Commissioner of Internal Revenue with such comment and recommendation as the receiving officer may consider proper to make." SECTION 8. Section 183 of Revenue Regulations No. 2 is hereby amended to read as follows: "Sec. 183. Form of return . Individual returns shall be prepared on the following BIR Forms: "(a) BIR Form No. 1701-D for individuals filing their return on February 15; "(b) BIR Form No. 1701-A for individuals filing their return on March 15; "(c) BIR Form No. 1701 for individuals (except nonresident citizens) filing their return on April 15; "(d) BIR Form No. 1701-C for nonresident citizens with gross income of P1,800.00 or more to be filed on April 15; "(e) BIR Form No. 1701-D for nonresident citizens required to file return although not having a gross income of P1,800.00, to be filed on April 15. "The forms may be had from the Office of the Commissioner of Internal Revenue, Regional Director, Revenue District Officer, or Collection Agent. For non-resident citizens, forms may be had from the Philippine Embassy or Consulate concerned. "A taxpayer will not be excused from making a return by the fact that no return form has been furnished him. Taxpayers not supplied with the proper forms should make application therefor to the Commissioner of Internal Revenue or to his deputies in ample time to have their returns prepared and filed with the proper official on or before the due date. Each taxpayer should carefully prepare his return so as to fully and clearly set forth the data herein called for." SECTION 9. Section 190 of Revenue Regulations No. 2 is hereby amended to read as follows: "Sec. 190. Return of general professional partnership . General professional partnerships are required to render, in duplicate, a return of their earnings, profits and income, setting forth the items of the gross income and the deductions allowable, and the names and addresses of the individuals who would be entitled to the net earnings, profits, and income, if distributed." (See Sections 22 and 23 of these regulations.) SECTION 10. Section 194 of Revenue Regulations No. 2 is hereby amended to read as follows: "Sec. 194. Payment of tax . (a) The total amount of income tax shall be paid at the time the return is filed, such tax to 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 188 of these regulations), 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 14% per centum 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. Failure 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. "(b) Installment payments . When the tax due is in excess of P1,000, the taxpayer other than a corporation taxable under Section 24 and the withholding agents required to deduct and withhold the tax under Sections 53 and 54, all of Title II of the Tax Code, 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 15th 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. "(c) Installment payments for non-resident citizens . When the tax due from a non-resident citizen is in excess of two hundred dollars (U.S. $200.00), the taxpayer 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 15th 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." (As amended by P.D. 778). SECTION 11. Section 239 of Revenue Regulations No. 2 is hereby amended to read as follows: "Sec. 239. Penalty imposed upon person causing a false or fraudulent return to be filed . Any individual or any officer of any corporation, or general co-partnership (compania collectiva), required by law to make, render, sign, or verify any return or to supply any information, who makes any false or fraudulent return or statement with intent to defeat or evade the assessment required by the Code, shall be punished by a fine of not less than Five Thousand Pesos and imprisonment of not less than two years." (As amended by P. D. 785) SECTION 12. Repealing Clause . Sections 163 and 185 of Revenue Regulations No. 2 are hereby revoked. SECTION 13. Effectivity . These regulations shall take effect immediately subject to the following: (a.) Duly registered general co-partnerships (1.) Returns to be filed and schedule of filing returns Partnerships which were heretofore exempt from income tax shall file a separate return under BIR Form No. 17 . 04 covering their gross income or earnings and allowable deductions for the period from the beginning of their current taxable year up to August 23, 1975. Another return should be filed under BIR Form No. 17 . 02 covering their gross income or earnings and allowable deductions for the period from August 24, 1975 until the close of their current taxable year. Both returns must be filed on or before the 15th day of the 4th month following the close of their current taxable year. Hereunder is the schedule of the coverage of the two (2) returns mentioned above: Exempt Returns Taxable Returns Sept. 1, 1974 to Aug. 23, 1975 Aug. 24, 1975 to Aug. 31/75 Oct. 1, 1974 to Aug. 23, 1975 Aug. 24, 1975 to Sept. 30/75 Nov. 1, 1974 to Aug. 23, 1975 Aug. 24, 1975 to Oct. 31/75 Dec. 1, 1974 to Aug. 23, 1975 Aug. 24, 1975 to Nov. 30/75 Jan. 1, 1975 to Aug. 23, 1975 Aug. 24, 1975 to Dec. 31/75 Feb. 1, 1975 to Aug. 23, 1975 Aug. 24, 1975 to Jan. 31/76 Mar. 1, 1975 to Aug. 23, 1975 Aug. 24, 1975 to Feb. 29/76 Apr. 1, 1975 to Aug. 23, 1975 Aug. 24, 1975 to Mar. 31/76 May 1, 1975 to Aug. 23, 1975 Aug. 24, 1975 to Apr. 30/76 June 1, 1975 to Aug. 23, 1975 Aug. 24, 1975 to May 31/76 July 1, 1975 to Aug. 23, 1975 Aug. 24, 1975 to June 30/76 Aug. 1, 1975 to Aug. 23, 1975 Aug. 24, 1975 to July 31/76 (2.) Schedule of Quarterly Payments With respect to the quarterly payments to be made, there are listed hereunder the taxable years indicating the quarter for which payment should be made as well as the deadline for the payment of the same: Quarterly payments Taxable Year Ended Deadline Dec. 31, 1975 Aug. 24 to Sept. /75 December 15, 1975 Jan. 31, 1976 August 24 Sept. Oct. /75 January 2, 1976 Feb. 28, 1976 Aug. 24 Sept. Oct. Nov. /75 January 29, 1976 March 31, 1976 Aug. 24, Sept. /75 December 15, 1975 April 30, 1976 Aug. 24 Sept. Oct. /75 January 2, 1976 May 31, 1976 Aug. 24 Sept. Oct. Nov. /75 January 29, 1976 June 30, 1976 Aug. 24 Sept. /75 December 15, 1975 July 31, 1976 Aug. 24 Sept. Oct. /75 January 2, 1976 Taxable years ended November 30, 1975 and back years are not subject to quarterly payments. Succeeding payments are due 60 days following the end of the quarter. (b.) Building and Loan Associations (1.) Returns to be filed and schedule of filing returns Beginning August 24, 1975, building and loan association will be subject to the regular rate of 25/35% imposed on corporations. In view thereof, these corporations will also have to file separate returns under two (2) rates. One at 12% for periods prior to August 24, 1975 and another, from August 24, 1975 to the end of the taxable year. The two (2) returns to be filed will be subject to income tax at the rate of 12% and 25/35%, respectively. Rate at 12% Rate at 25/35% Sept. 1/74 to Aug. 23/75 Aug. 24/75 to Aug. 31/75 Oct. 1/74 to Aug. 23/75 Aug. 24/75 to Sept. 30/75 Nov. 1/74 to Aug. 23/75 Aug. 24/75 to Oct. 31/75 Dec. 1/74 to Aug. 23/75 Aug. 24/75 to Nov. 30/75 Jan.1/75 to Aug. 23/75 Aug. 24/75 to Dec. 31/75 Feb. 1/75 to Aug. 23/75 Aug. 24/75 to Jan. 31/76 Mar. 1/75 to Aug. 23/75 Aug. 24/75 to Feb. 29/76 Apr. 1/75 to Aug. 23/75 Aug. 24/75 to Mar. 31/76 May 1/75 to Aug. 23/75 Aug. 24/75 to Apr. 30/76 June 1/75 to Aug. 23/75 August 24/75 to May 31/76 July 1/75 to Aug. 23/75 Aug. 24/75 to June 30/76 Aug. 1/75 to Aug. 23, 1975 Aug. 24/75 to July 31/76 Quarterly Payments The quarterly payment under the new rates of tax imposed on building and loan associations should begin with the taxable year ending Dec. 31, 1975, with the same deadlines provided in subsection (a)(2) of this Section. (c.) Domestic Life Insurance Companies (1.) Returns to be filed and schedule of filing returns Beginning August 24, 1975, life insurance companies are subject to the rate of income tax on net income at 25/35%. Prior to this date, they were subject to tax on net investment income at 8 3/4%, or on net income at 25/35%, whichever is higher. In view thereof, life insurance companies will also file separate returns, one covering income subject to 8 3/4% on net investment income for periods prior to August 24, 1975 or 25/35% on net income, during the same period, whichever is higher, and another covering income, earned from August 24, 1975 to the end of the taxable year based on 25/35% on net income . Scheduled below are the periods covered and the corresponding rates of tax to be applied for taxable years ending August 31, 1975 up to the taxable year ending July 31, 1976: 8 3/4% on net investment income 25/35% on net income or 25/35% on net income Sept. 1/74 to Aug. 23/75 Aug. 24/75 to Aug. 31/75 Oct. 1/74 to Aug. 23/75 Aug. 24/75 to Sept. 30/75 Nov. 1/74 to Aug. 23/75 Aug. 24/75 to Oct. 31/75 Dec. 1/74 to Aug. 23/75 Aug. 24/75 to Nov. 30/75 Jan. 1/75 to Aug. 23/75 Aug. 24/75 to Dec. 31/75 Feb. 1/75 to Aug. 23/75 Aug. 24/75 to Jan. 31/76 Mar. 1/75 to Aug. 23/75 Aug. 24/75 to Feb. 29/76 Apr. 1/75 to Aug. 23/75 Aug. 24/75 to Mar. 31/76 May. 1/75 to Aug. 23/75 Aug. 24/75 to Apr. 30/76 June 1/75 to Aug. 23/75 Aug. 24/75 to May 31/76 July 1/75 to Aug. 23/75 Aug. 24/75 to June 30/76 Aug. 1/75 to Aug. 23/75 Aug. 24/75 to July 31/76 (2.) Schedule of Quarterly Payments The quarterly payment under the new rates for life insurance companies should begin with the taxable year ending December 31, 1975, with the same deadlines as that provided for in subsection (a)(2) of this section. CESAR VIRATA Secretary of Finance Recommended by: EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-1456-040-3