Amendments to C.A. No. 466 Re: Tax on Non-resident Aliens and Foreign Corporations

June 22, 1963

REPUBLIC ACT NO. 3841

AN ACT TO AMEND CERTAIN SECTIONS OF COMMONWEALTH ACT NUMBERED FOUR HUNDRED SIXTY-SIX, OTHERWISE KNOWN AS THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED

SECTION 1. Subsection (b) of Section twenty-two of Commonwealth Act Numbered Four hundred sixty-six, as amended, is hereby further amended to read as follows:

"(b) Non-resident alien not engaged in trade or business within the Philippines. — There shall be levied, collected and paid for each taxable year upon the entire income received from all sources within the Philippines by every non-resident alien individual not engaged in trade or business within the Philippines as interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical or casual gains, profits and income, and capital gains a tax to twenty per centum of such income: Provided, That if the total income received by such non-resident alien individual from all sources within the Philippines exceeds twenty-three thousand eight hundred pesos, the rates established in Section twenty-one shall apply, but in no case shall the tax imposed under this subsection be less than twentyper centum of the total income." casia

SECTION 2. Subsection (b) (1) of Section twenty-four of the same Act, as amended, is further amended to read as follows:

"(b) Tax on foreign corporations. — (1) Non-resident corporations. — There shall be levied, collected and paid for each taxable year, in lieu of the tax imposed by the preceding paragraph, upon the amount received by every foreign corporation not engaged in trade or business within the Philippines, from all sources within the Philippines, as interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical or casual gains, profits and income, and capital gains, a tax equal to thirty per centum of such amount." cd i

SECTION 3. Paragraph (a), (b) and (d) of the section thirty four of the same Act, are hereby amended to read as follows:

"(a)  Definition, — As used of this title—

"(1)  Capital assets.— The term "capital asset" means property held by the taxpayer but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business.

"(2)  Net capital gain. — The term "net capital gain" means the excess of the gains from sale or exchanges of capital assets over the losses from such sale or exchanges.

"(3)  Net capital loss. — The term "net capital loss" means the excess of the losses from the sale or exchanges of capital assets over the gains from such sales or exchanges.

"(b) Percentage taken into account. — Only the following percentages of a gain or loss recognized upon the sale or exchange of a capital asset shall be taken into account in computing net capital gain, net capital loss and net income:

"(1) One hundred per centum if the capital asset has been held for not more than twelve months;

"(2) Fifty per centum if the capital asset has been gain for more than twelve months;

"(3) Zero per centum in the case of a bona fide sale of a capital asset which has been held for more than twelve months and acquired by the taxpayer before January first, nineteen hundred and sixty-three: Provided, however, That this latter condition shall not apply to the sale of capital assets acquired through inheritance on or after January first, nineteen hundred and sixty-three and acquired by the decedent prior to that date: Provided, further, That at least eighty per cent of the net proceeds from the sale of the capital asset is directly and actually invested, within one year from such sale or within ninety days from the receipt of a installment payment in case of an installment sale or reinvested within ten days from the receipt of the proceeds to be reinvested in the purchase of government bond or bonds guaranteed by the Government of the Republic of the Philippines, or in domestic Filipino-owned or controlled enterprise as defined in this section and such investment shall not for a period of five years be withdrawn, sold or transferred in such wise as would defeat the purpose of the exemption contained herein: Provided still Further, That the proceeds of the sale of a capital asset or any portion thereof shall not be repatriated: Provided still further. That the requirement for investment does not apply to the sale of a capital asset the net proceeds of which does not exceed ten thousand pesos: Provided, furthermore, That when the taxpayer is a non resident alien or corporation, the gain derived by him from the sale of a capital asset shall be subject to income tax to be withheld and collected at source according to existing laws but the tax so paid shall be refunded upon satisfactory proof of investment of at least eighty per cent of the net proceeds in the Philippines in domestic Filipino-owned or controlled enterprise is defined in this section or in government bond guaranteed by the Government of the Republic of the Philippines: Provided, Finally, That depreciable property or real property used in the trade or business of a taxpayer shall be treated as ordinary asset if the proceeds of the sale thereof are not invested in the manner provided in this section. casia

"(A) Requirements. — (1) To be entitled to the exemption herein provided, the sale of capital assets or the receipt of the installment payments shall be reported to the Commissioner of Internal Revenue not less than ten days immediately before said sale or before receipt of said installment payment. The written notice shall contain a description of the capital asset to be sold, the name of the prospective buyer and the price agreed upon, or the amount of the installment being collected. No conveyance or transfer of a capital asset or receipt of an installment payment shall be affected without the presentation of evidence or proof to establish compliance with this provision.

 "In all cases of the sale of the capital assets, though the gains therefrom are exempt from income tax, the taxpayer shall within thirty days after the date of sale or receipt of an installment payment, in case of installment sales, file with the Bureau of Internal Revenue a return prescribed for this purpose setting forth specifically in the case of sale of real property, the area classification and location of the property sold, the name and address of the buyer, the selling price the expenses of the sale and the net proceeds thereof, together with the certified true copy of the corresponding document of sale of shares of stock, bonds or other securities the name and address of the buyer, the amount of the selling price and commission of the broker, if any together with a certificate of the secretary of the corporation confirming the sale of such shares of stock, bond and other securities, and in the case of sale of depreciable assets, the costs of acquisition, the total amount of depreciation claimed, if any the selling price, the name and address of the purchaser, and in the case of installment payment the amount collected, the name of the payor and such other matters as would help the bureau of Internal Revenue to efficiently enforce and administer the purpose of this section.

"(2)  In order to enable the Commissioner of Internal Revenue to fully verify the manner of investment, reinvestment or other disposition of the proceeds of the sale of capital assets receiving the benefit of exemption under this section, the taxpayer shall submit a proof of the investment, reinvestment or other disposition to the Bureau of Internal Revenue within thirty days after each investment, reinvestment or disposition to be made by him.

"The Secretary of Finance shall prescribe rules and regulation necessary to accomplish the aims and purposes of this section.

" The Commissioner of Internal Revenue, through the Secretary of Finance, shall submit to the presiding officers of both Houses of Congress, an annual report not later than December first, nineteen hundred and sixty-four and every year thereafter, showing in detail in number and nature of capital assets transaction that benefited from the tax-exemption grant, the categories of the field of investments, the total amount of the investments, the total taxes waived and such other data as would enable Congress to properly assess the effects of this grant. casia

"(3) Definition used in this section —

"(1) 'Enterprises' means any corporation, partnership or single proprietorship engaged in agricultural, industrial financial and export activities and in public utilities.

"(2) 'Agricultural' shall include the cultivation of the soil, the rearing and breeding of poultry and livestock, dairying, mining, fishing, real estate development and real used for commercial purpose purposes

"(3) 'Industrial' shall include all kinds of manufacturing as defined in paragraph (x), Section 194 of the National Internal Revenue Code.

"(4) 'Financial' shall include the establishment of any form of banking institution, including financing and/or investment companies.

"(5) 'Export' means the transportation of goods from the Philippines to a foreign country for the purpose of sale, trade or disposition.

"(6) 'Public utilities' shall include land water and air transportation, power, and communications.

"(7) 'Net proceeds' means the total selling price of the asset less commission not exceeding five per cent thereof, expenses in the preparation and registration of the document of sale and cost of the corresponding documentary stamps. Where the asset is sold on the installment basis, net proceeds shall mean each installment payment received by the seller, which is due and demandable within five year period of suspension and provided for in this section.

"(8) 'Bona fide sale' means the sale of the principal asset for an adequate and full consideration in money.

"(9) 'Invested', 'Investment', and 'reinvestment' mean the setting up of an enterprise by the taxpayer as an entrepreneur, or as partner, or the purchase of shares of stock financial and export activities or public utilities, or purchase of the government bonds and bonds guaranteed by the Government of the Republic of the Philippines.

"(c) Penalty. — Any person who violates any provisions of this section or any regulation of the Department of Finance made in conformity with the same, or any individual conniving with the person for the purpose of defeating the provisions of this section shall be punished by a fine of not more than five thousand pesos or by imprisonment of not more than one year, or both; and, in addition the taxpayer shall pay the income tax due, plus a surcharge of fifty per centum, and interest of one per centum per month from the date the income tax became due were it not for the exemption until such time as said tax is paid: Provided, however, That said income tax surcharge and interest shall constitute a lien on the capital asset until payment thereof: Provided, further, That if the violator is a corporation or a partnership, the president, vice-president, director or manager thereof, who is responsible for said violation, shall be liable: Provided, finally that in case of an alien, shall in addition, be subject, upon final conviction and service of sentence to deportation without further deportation proceedings.

"(d) Net capital loss carry over. — If any taxpayer sustains in any taxable year a net capital loss, such loss (in an amount not in excess of the net income for such year) shall be treated in the succeeding taxable year as a loss from the sale or exchange of a capital asset held for nor more than four months." casia

SECTION 4. This Act shall take effect upon its approval with the exception of the amendments provided under the preceding section which shall remain in effect up to December thirty-first nineteen hundred and sixty-eight, after which, the old provision, before its amendment, shall again be in force.

Approved: June 22, 1963

Published in the Official Gazette, Vol. 60, No. 8, p. 1095 on February 24, 1964