PART III In 1974, or after having held the two lots for more than a year, the petitioners
TAX resold them to the Walled City Securities Corporation and Olga Cruz Canada
B. EXEMPT ENTITIES – GENERAL PRINCIPLE – EXEMPTION
STRICTLY CONSTRUED
A. PARTNERSHIP (SEC. 26)
SEC. 26. Tax Liability of Members of General Professional Partnerships-
A general professional partnership as such shall not be subject to
the income tax imposed under this Chapter. Persons engaging in business as
partners in a general professional partnership shall be liable for income tax
only in their separate and individual capacities.
For purposes of computing the distributive share of the partners, the
net income of the partnership shall be computed in the same manner as a
corporation. Each partner shall report as gross income his distributive share,
actually or constructively received, in the net income of the partnership.
Professional Partnership of Real Estate Brokers Exempt from Income
Tax (Ruling No. 294-88, July 5, 1988) - REVIEWER
Ruling No. 294-88, July 5, 1988
A professional partnership of real estate brokers is exempt from income tax
pursuant to Section 24(a) of the Tax Code, as amended. Accordingly, the
commissions that will be paid to said partnership for professional services
rendered are exempt from the withholding tax provisions of Revenue
Regulations No. 6-85 otherwise known as the revised and Consolidated
Expanded Withholding Tax Regulations implementing Section 50(b) of the
Tax Code, as amended.
B. CO-OWNERSHIP
OBILLES vs. CIR (copied under def. of corporation)
G.R. No. L-681185, October 20, 1985
Facts:
On March 2, 1973 Jose Obillos, Sr. bought two lots with areas of 1,124 and
963 square metersof located at Greenhills, San Juan, Rizal. The next day he
transferred his rights to his four children, the petitioners, to enable them to
build their residences. The Torrens titles issued to them showed that they
were co-owners of the two lots.
for the total sum of P313,050. They derived from the sale a total profit of P134,
341.88 or P33,584 for each of them. They treated the profit as a capital gain
and paid an income tax on one-half thereof or of P16,792.
In April, 1980, the Commissioner of Internal Revenue required the four
petitioners to pay corporate income tax on the total profit of P134,336 in
addition to individual income tax on their shares thereof.The petitioners are
being held liable for deficiency income taxes and penalties totalling
P127,781.76 on their profit of P134,336, in addition to the tax on capital gains
already paid by them.
The Commissioner acted on the theory that the four petitioners had formed an
unregistered partnership or joint venture The petitioners contested the
assessments. Two Judges of the Tax Court sustained the same. Hence, the
instant appeal.
Issue:
Whether or not the petitioners had indeed formed a partnership or joint venture
and thus liable for corporate tax
Held:
The Supreme Court held that the petitioners should not be considered to have
formed a partnership just because they allegedly contributed P178,708.12 to
buy the two lots, resold the same and divided the profit among themselves.
To regard so would result in oppressive taxation and confirm the dictum that
the power to tax involves the power to destroy. That eventuality should be
obviated.
As testified by Jose Obillos, Jr., they had no such intention. They were co-
owners pure and simple. To consider them as partners would obliterate the
distinction between a co-ownership and a partnership. The petitioners were
not engaged in any joint venture by reason of that isolated transaction.
*Article 1769(3) of the Civil Code provides that "the sharing of gross
returns does not of itself establish a partnership, whether or not the
persons sharing them have a joint or common right or interest in any
property from which the returns are derived". There must be an
unmistakable intention to form a partnership or joint venture.*
Their original purpose was to divide the lots for residential purposes. If later
on they found it not feasible to build their residences on the lots because of
the high cost of construction, then they had no choice but to resell the same
to dissolve the co-ownership. The division of the profit was merely incidental
to the dissolution of the co-ownership which was in the nature of things a
temporary state. It had to be terminated sooner or later.
They did not contribute or invest additional ' capital to increase or expand the
properties, nor was there an unmistakable intention to form partnership or joint
venture.
WHEREFORE, the judgment of the Tax Court is reversed and set aside. The
assessments are cancelled. No costs.
All co-ownerships are not deemed unregistered partnership.—Co-
Ownership who own properties which produce income should not
automatically be considered partners of an unregistered partnership, or a
corporation, within the purview of the income tax law. To hold otherwise, would
be to subject the income of all
Co-ownerships of inherited properties to the tax on corporations, inasmuch as
if a property does not produce an income at all, it is not subject to any kind of
income tax, whether the income tax on individuals or the income tax on
corporation.
As compared to other cases:
Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74,
where after an extrajudicial settlement the co-heirs used the inheritance or the
incomes derived therefrom as a common fund to produce profits for
themselves, it was held that they were taxable as an unregistered partnership.
C. SEC. 30 CORPORATIONS
Sec. 23. Distributive Shares of partners- Under present laws and
regulations the distributive shares of partners are subject to the final
withholding tax of 15%.
Sec. 24. Proof of exemption – In order to establish its exemption, and thus will
be relieved from the duty of filing returns of income and paying the tax, it is
necessary that every organization claiming an exemption file an affidavit with
the CIR, showing the character of the organization, the purpose for which it
was organized, its actual activities, the sources of its income and disposition,
whether or not any of its income is credited t surplus or inures or may incur to
the benefit of any private shareholder or individual, in general, all facts
relating to its operations which affects its rights of exemption. TO such affidavit
should be attached a copy of the charter or articles of incorporation, the by-
laws of the organization, and the latest financial statement showing the assets,
liabilities, receipts, and disbursements of the organization.
Upon receipt of the affidavit and other papers by the CIR, the
organization will be informed whether or not it is exempt. When an
organization has established its right to exemption, it need not thereafter make
and file a return of income as required under Section
46 of the Tax Code. However, the organization, should file on or before April
15 of each year, an annual information under oath, stating its gross income
and expenses incurred during the preceding year, and a certificate showing
that there has not been any substantial change in its By-laws, Articles of
Incorporation, manner of operation, and activities as well as sources of
disposition of income.
Sec. 25. Agriculture and horticultural organizations. The organization
contemplated by subsection (a) of Section 27 of the Code as entitled to
exemption from income taxation are those which (1) have no net income
inuring to the benefit of any member; (2) are education or instructive in
character; and (3) have their objects the betterment of the conditions of those
engaged in such pursuits, the improvement of the grade of their products, and
the development of a higher degree of efficiency in their respective
occupations. Organizations such as provincial fairs and like associations of a
quasi-public character, which are designed to encourage the development of
better agricultural and horticultural products through a system of awards,
prizes, or premiums, and whose income derived from gate receipts, entry fees,
donations, etc., is used exclusively to meet the necessary expenses of upkeep
and operation, are thus exempt. On the other hand, associations which have
for their purpose, for example, holding of periodical race meets, the profits
from which may inure to the benefit of their shareholders, are not exempt.
Similarly, corporations engaged in growing agricultural or horticultural
products or raising livestock or similar products for profits are not exempt from
tax under this paragraph.
on issues “voting shares,” which entitle the holders upon the
dissolution of the corporation to receive the proceeds of its property, including
accumulated income, the right to exemption ceases to exist,
even though the by-laws provide that the shareholders shall not receive any
dividend or other return upon their shares.
Section 31. Business leagues. -A business league is an association of
persons having some common business interest, which limits its activities to
work for such common interest and does not engage in a regular business of
a kind ordinarily carried on for profit. Its work need not be similar to that of a
chamber of commerce or board of trade. If it engages in a regular business of
a kind ordinarily carried on for profit, the fact that the business is conducted
on a cooperative basis or produces only sufficient income to be self-
sustaining, is not ground for exemption. An association engaged in furnishing
information to prospective investors, to enable them to make sound
investments, is not exempt, since its members have no common business
interest, even though all of its income is devoted to the purpose stated. A
clearing house association, not organized for profit, no part of the net income
for which inures to any private shareholder or individual, is exempt provided
its activities are limited to the exchange of checks, and similar work for the
common benefit of its members. An association of persons who are engaged
in the transportation business, whether by land or water, which is designed to
promote the legitimate objects of such business, and all of the income of which
is derived from membership dues and is expended for office expenses is
exempt from tax.
Section 32. Civic leagues. – Civic leagues entitled to exemption comprise
those not organized for profit but operated exclusively for purposes beneficial
to the community as a whole. In general, organizations engaged in promoting
the welfare of mankind are exempt from tax.
Section 33. Social clubs. - The exemption applies to practically all
social and recreation clubs which are supported by membership fees, dues,
and assessments. If a club, by reason of the comprehensive powers granted
in the charter, engages in business or in agriculture or horticulture, for profit,
such club is not organized and operated exclusively for pleasure, recreation,
or social purposes, and any profit realized from such activities is subject to tax
Section 34. Mutual insurance companies and like organizations. - It is
necessary to exemption that the income of the company be derived solely
from assessments, dues, and fees collected from members. If income is
received from other sources, the corporation is not exempt. Income, however,
from sources other than those specified does not prevent exemption where its
receipt is a mere incident of the business of the company. Thus the receipt of
interest upon a working bank balance, or of the proceeds of the sale of
badges, office supplies, or equipment, will not defeat the exemption. The
same is true of thereceipt of interest upon Government bonds, where they
were purchased and were afterwards sold. Where, however, such bonds are
bought as a permanent investment, the receipt of the interest destroys the
exemption. The receipt of what is, in substance, an entrance fee, charged by
a mutual life insurance company as a condition of membership, does not
render the company taxable, although this fee is called a premium. If an
organization issues policies for stipulated cash premiums, or if it requires
advance deposits to cover the cost of the insurance and maintains
investments from which income is derived, it is not entitled to exemption. On
the other hand, an organization may be entitled to exemption, although it
makes advance assessment for the sole purpose of meeting future losses and
expenses, provided that the balance of such assessments remaining on hand
at the end of the year is retained to meet losses and expenses or is returned
to members. An organization of a purely local character is one whose
business activities are confined to a particular community, place, or district,
irrespective, however, of political subdivisions.
Section 35. Farmers' cooperative marketing and purchasing
association - Cooperative associations, acting as sales agents for farmers or
others, in order to come within the exemption must establish that for their own
account they have no net income. Cooperative dairy companies, which are
engaged in collecting milk and disposing of it or the products thereof and
distributing the proceeds, less necessary operating expenses, among their
members are exempt from the tax. If the proceeds of the business are
distributed in any other way that on such a proportionate basis, the company
will be subject to tax. A farmer’s association is not exempt from taxation where
in accounting to farmers furnishing produce for the proceeds of sales it
deducts more than the necessary selling expenses incurred. Cooperative
associations acting as purchasing agents are not expressly exempt from tax,
but rebates made to purchasers, whether or not members of the associations,
in proportion to their purchase may be excluded from gross income in
computing the net income subject to tax. Any profits made from non-members
and distributed to members in the guise of rebates are, of course, subject to
tax. Cooperative marketing associations duly incorporated under Act No.
3425, known as the Cooperative Marketing Law are exempt from income tax.
SINCO V. CIR, 100 PHIL 127 – REVIEWER
Appellee is a non-profit institution and since its organization it has never
distributed any dividend or profit to its stockholders. Only part of its income
went to the payment of its teachers or professors and to the other expenses
of the colleges incident to an educational institution but none of the income
had never been channeled to the benefit of any individual stockholders.
Held: Whatever payment is made to those who work for a school or college
as a remuneration for their services is not considered as distribution of profit
as would make the school one conducted for profit.
The proof of exemption required by section 243, Regulation No. 2, Department
of Finance is intended to relieve the tax-payer of the duty of filing returns and
paying the tax. The failure to observe the requirement called for therein can
not constitute a waiver of the right to enjoy the exemption. To hold otherwise
would be tantamount to incorporating into the tax laws same legislative matter
by administrative regulation.
CIR VS. SINCO GR NO. L-9276, OCT. 23, 1956
Facts:
In June, 1949, Vicente G. Sinco established and operated an educational
institution known as Foundation College of Dumaguete. On September 21,
1951, the V. G. Sinco Educational Institution was organized. This corporation
was non-stock and was capitalized by V. G. Sinco and members of his
immediate family. This corporation continued the operations of Foundation
College of Dumaguete. Since its operation, this college derived, by way of
tuition fees, the gross profits.
The Collector of Internal Revenue assessed against the college an income
tax for the years 1950 and 1951 in the aggregate sum of P5,364.77, which
was paid by the college. Two years thereafter, the corporation commenced an
action in the Court of First Instance of Negros Oriental for the refund of this
amount alleging that it is exempt from income tax under section 27 (e) of the
National Internal Revenue Code.
CIR claims that part of its net profits accumulated by Sinco Educ. Corp. inured
to the benefit of Vicente Sinco as the president and founder of the corporation
Issues:
beyond the purview of the law. Thus, this Court has held that “the amount of
fees charged by a school, college or university depends, ultimately, upon the
policy and a given administration, at a particular time. It is not conclusive of
the purposes of the institution. Otherwise, such purpose would vary with the
particular persons in charge of the administration of the organization.”
On acquisition of additional facilities:
While the acquisition of additional facilities, such as buildings and equipment,
may redound to the benefit of the institution itself, it cannot be positively
asserted that the same will redound to the benefit of its stockholder, for no
one can predict the financial condition of the institution upon its dissolution. At
any rate, it has been held by several authorities that the mere provision for the
distribution of its assets to the stockholders upon dissolution does not remove
the right of an educational institution from tax exemption,
Thus, in the case of U.S. vs. Pickwick Electric Membership Corp., 158 F. 2d
272, 277, it was held—"The fact that the members may receive some benefit
on dissolution upon distribution of the assets is a contingency too remote to
have any
material bearing upon the question where the association is admittedly not a
scheme to avoid taxation and its good faith and honesty of purpose is not
challenged.”

Whether Sinco Educational Corp. is exempt from payment of income tax for it
is organized and maintained exclusively for the educational purposes and no
part of its income inures to the benefit of any private individual

Ruling:

YES.

Whatever payment is made to those who work for a school or college as a

remuneration for their services is not considered as distribution of profit as
would make the school one conducted for profit. In the case of Mayor and
Common Council of Borough of Princeton vs. State Board of Taxes &
Assessments, et al., 115 Atl., 342, wherein the principal officer of the school
was formerly its owner and principal and as such principal he was given a
salary for his services, the court held that that school is not conducted for profit
merely because moderate salaries were paid to the principal and to the
teachers.

The act that the appellee charges tuition fees and other fees for the different
services it renders to the students, which is its only source of income, does
not in itself make the school a profit-making enterprise that would place it
RMO No. 20-2013 (July 22, 2013)
Prescribing the Policies and Guidelines in the Issuance of Tax
Exemption Rulings to Qualified Non-Stock, Non-Profit Corporations and
Associations Under Section 30 of the National Internal Revenue Code of
1997, As Amended
SECTION 1. Background. — Under Section 30 of the National Internal
Revenue Code of 1997 (NIRC), as amended, certain corporations and
associations are exempt from paying on income received by them as
such. The Bureau of Internal Revenue (Bureau) accords tax-exempt
status to these corporations and associations by way of confirmatory BIR
rulings or certificates of tax exemption which are issued after due
evaluation of documents submitted by said corporations and
associations.
By reason of the privilege granted by law, it is important for the
Bureau to enhance monitoring of these corporations and associations in
order to meet the following objectives:
a. Ensure compliance with the conditions attached to the tax
exemption
b. Ascertain the existence of other income derived from non-
exempt activities and provide proper tax treatment thereon
c. Enforce the payment of other taxes for which no exemption
was granted under Philippine tax laws (e.g., withholding
taxes, fringe benefits tax, and documentary stamp tax)
d. Minimize tax leakages arising from inaccurate
interpretation of relevant tax laws and administrative
issuances
This Order is hereby issued to prescribe policies and guidelines
in the processing of tax exemption applications and for the revalidation
of tax exemption rulings/certificates of corporations and associations
listed under Section 30 of the NIRC, as amended.
SECTION 2. Applications for Tax Exemption and Revalidation.—
Corporations and associations enumerated under Section 30 of the
NIRC, as amended, including those which have been issued tax
exemption rulings/certificates prior to June 30, 2012, shall file their
respective Applications for Tax Exemption/Revalidation with the
Revenue District Office (RDO) where they are registered. Only
corporations or associations that are duly qualified under Section 30 of
the NIRC, as amended, shall be issued Tax Exemption Rulings.
SECTION 3. General Documentary Requirements. – A corporation or
association shall submit the following documents:
a. Original copy of application letter for issuance of Tax
Exemption Ruling. The letter shall cite the particular
paragraph of Section 30 of the NIRC, as amended, under
which the application for exemption/revalidation is being
based;
b. Certified true copy of the latest Articles of Incorporation and
By-Laws issued by the Securities and Exchange
Commission;
c. Original copy of Certification under Oath by an executive
officer of the corporation or association as to: (i) all previous
amendments/changes in the Articles of Incorporation and By-
Laws, (ii) manner of activities, and (iii) the sources and
disposition of income, if any, of the subject corporation or
association. If there are no amendments/changes, the
Certification shall state this fact;
d. Certified true copy of the Certificate of Registration with the BIR;
e. Original copy of the Certification under Oath by the Treasurer
of the corporation or association as to the amount of income,
compensation, salaries or any emoluments paid by the
corporation or association to its trustees, officers and other
executive officers. Provided, that, a corporation sole, which,
by its nature, does not have trustees, corporate officers or
executive officers need not submit the certification required
under this subparagraph.
f. Original copy of the Certification issued by the RDO where
the corporation or association is registered that the
corporation or association is not the subject of any pending
investigation, on-going audit, pending tax assessment,
administrative protest, claim for refund or issuance of tax
credit certificate, collection proceedings, or a judicial appeal;
 or if thereby be any, the Original copy of the Certification
issued by the RDO on the status thereof;
g. Certified true copies of the Income Tax Returns or Annual
Information Returns and Financial Statements of the
corporation or association for the last three (3) years; and
h. Original copy of a statement under Oath by an executive
officer of the corporation or association as to its modus
operandi which shall include:
i. A full description of the past, present, and proposed
activities of the corporation or association;
ii. A narrative description of anticipated receipts and
contemplated expenditures; and
iii. A detailed description of all revenues which it seeks to
be exempted from income tax. All other revenues which
are not included in the statement/ application shall be
subject to income tax.
SECTION 4. Additional Requirements for Educational Institutions. —
A non-stock and non-profit educational institution under Section 30(H) of
the NIRC, as amended, shall submit the following documents in addition to
those required under Section 4 hereof:
a. Certified true copy of government
recognition/permit/accreditation to operate as an educational
institution issued by the Commission on Higher Education
(CHED), Department of Education (DepEd), or Technical
Education and Skills Development Authority (TESDA);
b. If the government recognition/permit/accreditation to operate
as an education institution was issued more than five (5)
years prior to the application for tax exemption/revalidation,
an original copy of a current Certificate of Operation/Good
Standing, or other equivalent document, issued by the
appropriate government agency (i.e., CHED, DepEd, or
TESDA) shall be submitted as proof that the non-stock and
non-profit educational institution is currently operating as
such; and
c. Original copy of Certificate of utilization of annual revenues
and assets by the Treasurer or his equivalent of the non-stock
and non-profit educational institution. In accordance with the
guidelines set forth in Section 1.3 of Department of Finance
(DOF) Order No. 137-87, the Certificate shall provide a
breakdown of the following:
i. Any amount in cash or in kind (including administrative
expenses) paid or utilized to accomplish one or more
purposes for which the educational institution was
created or organized, including grant of scholarship to
deserving students and professorial chairs for the
enhancement of professional course.
ii. Any amount paid to acquire an asset used (or held for
use) directly in carrying out one or more purposes for
which it was created or organized, including the
upgrading of existing facilities to support the conduct
of the above activities.
iii. Any amount in cash or in kind invested in an activity
related to the educational purposes for which it was
created or organized.
iv. Any amount set aside for a specific project, which must
be supported by a Board Resolution issued by the
school administration on proposed projects (i.e.,
construction and/or improvement of school buildings
and facilities, acquisition of equipment, books and the
like) to be funded out of the money deposited in banks
or placed in money markets, on or before the 15th day
of the fourth month following the end of its taxable
year.
SECTION 5. General Guidelines in the Evaluation of the Applications
for Tax Exemptions/Revalidation. — The Revenue District Officer (RDO)
shall:
a. Ascertain whether or not the corporation or association falls
under any of the organizations enumerated under Section 30
of the NIRC, as amended, by examining its Articles of
Incorporation and By-Laws and other constitutive documents.
The Articles of Incorporation must clearly state that:
 i. It is a non-stock, non-profit corporation or association;
ii. The purpose for which it was created is one of those
enumerated under Section 30 of the NIRC, as
amended;
iii. No part of the corporation or association’s net income
shall inure to the benefit of any private individual; and
iv. The trustees of the non-profit corporation or
association do not receive any compensation or
remuneration.
The corporation or association’s constitutive documents shall:
i. Limit its purpose to those described in Section 30
of the NIRC, as amended;
ii. Not expressly permit activities that do not further its
tax-exempt purposes; and
iii. Permanently dedicate its assets to its tax-exempt
purposes.
A branch office of a foreign non-stock, non-profit
corporation cannot qualify as a tax-exempt corporation under
Section 30 of the NIRC, as amended.
b. Determine whether or not the corporation or association is
operating as an organization under Section 30 of the NIRC,
as amended, by examining its modus operandi, financial
statements and other relevant documents. The examination
must show that:
i. Its earnings do not inure to the benefit of any
private individual;
ii. It does not operate for the benefit of private
interest such as those of its founder or the
founder’s family; and
iii. It does not operate for the purpose of
conducting a trade or business that is not
related to its tax-exempt purpose.
c. Verify the corporation or association’s sources of revenues
and other transactions to determine which are taxable and
non-taxable. Despite its being a tax-exempt institution, it is
subject to the corresponding internal revenue taxes imposed
under the NIRC, as amended, on its income derived from
any of its properties, real or personal, or any activity
conducted for profit regardless of the disposition thereof
(i.e., rental payment from their building/premises), which
income is subject to income tax.
d. Verify whether or not the corporation or association has stop-
filer cases, accounts receivable (AR) cases, etc. and require
compliance by the corporation or association.
e. Verify whether or not the corporation or association is the
subject of any pending investigation, on-going audit, pending
tax assessment, administrative protest, claim for refund or
issuance of tax credit certificate, collection proceedings, or a
judicial appeal; and determine if the issues involved therein
warrant a denial of the application for tax
exemption/revalidation.
SECTION 6. Specific Guidelines in the Evaluation of the Application
of Corporations or Associations under Section 30(E) of the NIRC, as
amended.—
Corporations or associations which apply for tax exemption ruling
under
Section 30(E) of the NIRC, as amended, must meet all the following
requirements:
a. It must be a non-stock corporation or association
organized and operated exclusively for religious,
charitable, scientific, athletic, or cultural purposes, or for
the rehabilitation of veterans.
b. It should meet the following tests:
i. Organizational Test -- requires that the corporation or
association’s constitutive documents exclusively limit its
purposes to one or more of those described in paragraph
(E) of Section 30 of the NIRC, as amended.
ii. Operational Test -- mandates that the regular activities
of the corporation or association be exclusively devoted
 to the accomplishment of the purposes specified in
paragraph (E) of Section 30 of the NIRC, as amended. A
corporation or association fails to meet this test if a
substantial part of its operations may be considered
“activities conducted for profit’.
c. All the net income or assets of the corporation or
association must be devoted to its purpose/s and no part
of its net income or asset accrues to or benefits any
member or specific person. Any profit must be plowed back
and must be devoted or used altogether for the furtherance
of the purpose for which the corporation or association was
organized.
d. It must not be a branch of a foreign non-stock, non-profit
corporation.
SECTION 7. Request for Additional Documents. — In the course of
review of the application for tax exemption/revalidation, the Bureau may
require additional information or documents as the circumstances warrant.
SECTION 8. Procedure. —
a. Upon receipt of the complete documentary requirements
(docket) for the application for tax exemption/revalidation, the
RDO shall pre-evaluate the same and shall determine
whether or not the applicant qualifies as an exempt
corporation or association under Section 30 of the NIRC, as
amended.
i. If based on the pre-evaluation, the RDO is of the position
that the corporation or association is qualified, he shall
prepare a written recommendation stating the factual
and legal bases therefor and endorse the docket to the
Office of the Regional Director for review. If the Regional
Director concurs with the RDO’s recommendation, the
docket shall be forwarded to the Office of the Assistant
Commissioner, Legal Service, Attention: Law Division.
Otherwise, the docket shall be returned to the RDO for
appropriate action.
The Law Division shall further review and evaluate the
documents submitted by the applicant and the RDO’s
recommendation. If the same is in order, it shall prepare
the appropriate Tax Exemption Ruling for approval and
signature of the Commissioner or his duly authorized
representative. Otherwise, the docket shall be returned
to the Regional Director for appropriate action.
ii. If based on the pre-evaluation, the RDO is of the
position that the corporation or association does not
qualify, he shall notify in writing the applicant of such
findings, stating the factual and legal bases for the
denial. The applicant may appeal the denial to the
Regional Director within thirty (30) days from the date
of receipt of the written notice of denial.
If the application for tax exemption/revalidation is denied,
the corporation or association shall be held liable for income tax
and shall be accordingly assessed for deficiency taxes, inclusive
of penalties and interest.
b. If there is incomplete submission of the documentary
requirements, the corporation or association shall be notified of
such findings and the documents already submitted shall be
returned to the applicant for submission/completion.
SECTION 9. Validity of the Tax Exemption Ruling. — A Tax Exemption
Ruling issued under this Order shall be valid for a period of three (3) years
from the date of effectivity specified in the Ruling, unless sooner revoked
or cancelled.
The Tax Exemption Ruling shall be deemed revoked if there are
material changes in the character, purpose, or method of operation of the
corporation or
association which are inconsistent with the basis for its income tax
exemption. The revocation takes effect as of the date of the material
change.
SECTION 10. Renewal of Tax Exemption Rulings. —Tax Exemption
Rulings may be renewed upon filing of a subseguent. Application for Tax
Exemption/Revalidation, under same requirements and procedures
provided herein. Otherwise, the exemption shall be deemed revoked upon
the expiration of the Tax Exemption Ruling. The new Tax Exemption Ruling
shall be valid for another period of three (3) years, unless sooner revoked
or cancelled.
SECTION 11. Effect of Failure to File Annual Information Return. — If
a corporation or association which has been issued a Tax Exemption
Ruling fails to file its annual information return, it shall automatically lose its
income tax-exempt status beginning the taxable year for which it failed to
file an annual information return, in addition to the sanctions imposed under
Section 250 of the NIRC, as amended.
SECTION 12. Transitory Provisions. — Tax exemption rulings or
certificates issued to corporations or associations listed under Section 30
of the NIRC, as amended, prior to June 30, 2012 shall be valid until
December 31, 2013. Tax exemption rulings or certificates issued after June
30, 2012 shall continue to be valid for a period of three (3) years form date
of issuance, unless sooner revoked or cancelled.
SECTION 13. Repealing Clause. — Any revenue issuance which is
inconsistent with this Order is deemed revoked, repealed, or modified
accordingly.
SECTION 14. Effectivity. — This Order shall take effect immediately.
RMC 28-2013
Revocation of BIR Ruling No. SH (044) 261-2008 dated October 30, 2008
pursuant to BIR Ruling No. 433-2012 dated June 25, 2012
In BIR Ruling No. SH (044) 261-2008 dated October 30, 2008, it was
held that “NHA is exempt from the payment of creditable withholding tax
imposed under Section 57(B) of the Tax Code of 1997, as implemented by
Section 2.57.2(J) of Revenue Regulations No. 2-98, or capital gains tax under
Section 27(b)(5) of the Tax Code of 1997, whichever is applicable on its sale
of the aforementioned parcel of land (commercial lot) to Wilbert S. Ramos.
The NHA is likewise exempt from the payment of the documentary stamp tax
imposed under Section 196 of the Tax Code of 1997.”
However, in BIR Ruling No. 433-2012 dated June 25, 2012, it was
ruled that “the sale of commercial lot to Sy E. Him, Antonio Sy and Manuel
Sy, although certified by the NHA as within its low cost housing project, is
nevertheless outside the definition of a “socialized housing” in relation to the
tax incentives for the NHA under Section 19 of R.A. 7279.”
Section 19 of Republic Act (R.A.) No. 7279, otherwise known as the
Urban Development and Housing Act of 1992 provides as follows:
Sec. 19. Incentives for the National Housing Authority. — The
National Housing Authority, being the primary government
agency in charge of providing housing for the underprivileged
and homeless, shall be exempted from the payment of all fees
and charges of any kind, whether local or national, such as
income and realty taxes. All documents or contracts executed
by and in favor of the National Housing Authority shall also be
exempt from the payment of documentary stamp tax and
registration fees, including fees required for the issuance of
transfer certificates of title."
The above provision must be read in connection with Section 3(r) of R.A. No.
7279 which defines “socialized housing” as follows:
“(r) "Socialized housing" refers to housing programs and
projects covering houses and lots or homelots only undertaken
by the Government or the private sector for the underprivileged
and homeless citizens which shall include sites and services
development, long-term financing, liberalized terms on interest
payments, and such other benefits in accordance with the
provisions of this Act;” (Underscoring supplied)
It is apparent that the tax incentive provision granting incentives for
NHA is limited to housing projects only with a view to reduce the cost of
housing units for the benefit of the underprivileged and homeless.
Accordingly, applying Sections 3(r) and 19 of R.A. No. 7279, Section
27(D)(5) of the 1997 Tax Code, as amended by R.A. No. 9337 in connection
with Sections 32(B)(7)(b), 196 of the same Code and BIR Ruling No. 433-
2012 dated June 25, 2012, the sale of commercial lot, although certified by
the NHA as within its low cost housing project, is nevertheless outside the
definition of a “socialized housing” in relation to the tax incentives for the NHA
under Section 19 of R.A. No. 7279, thus, subject to capital gains tax and
documentary stamp tax.
 In view of the foregoing, this Office hereby revokes BIR Ruling No.
SH (044) 261-2008 dated October 30, 2008.
All other existing rulings inconsistent herewith are likewise
considered REVOKED.
All concerned are hereby enjoined to be guided accordingly and give
this circular as wide a publicity as possible.
RMC 34-2014
Clarification Regarding Doubtful Validity of Assessment Relative to
its Application to the Provisions of Revenue
Regulations No. 30-2002
This Circular is issued to clarify the rule on whether or not an
assessment resulting from jeopardy/arbitrary assessment or which was
based on “best evidence obtainable” method could be considered as a
“doubtful assessment” contemplated in Section 3 of Revenue regulations
No. 30-2002 in so far as compromise settlement application is concerned.
Revenue Regulations No. 30-2002 cited two grounds wherein
taxpayers could avail of the compromise settlement pursuant to Section
204 (A) of the Tax Code, namely: “financial incapacity” and “doubtful
validity of the assessment”. It was provided under Section 3.1 of the
aforesaid regulations that -
“x x x
The offer to compromise a delinquent account or
disputed assessment on the ground of reasonable
doubt as to the validity of the assessment may be
accepted when it is shown that:
(a) The delinquent account or disputed assessment is
one resulting from a jeopardy assessment (For this
purpose, “jeopardy assessment” shall refer to a tax
assessment which was assessed without the
benefit of complete or partial audit by an authorized
revenue officer, who has reason to believe that the
assessment and collection of deficiency tax will be
jeopardized by delay because of the taxpayer’s
failure to comply with the audit and investigation
requirements to present his books of accounts
and/or pertinent records, or to substantiate all or
any of the deductions, exemptions, or credits
claimed in his return); or
(a) The assessment seems to be arbitrary in nature,
appearing to be based on presumptions and there
is reason to believe that it is lacking legal and/or
factual basis; or
xxx
(g) Assessments made based on the “Best Evidence
Obtainable Rule” and there is reason to believe that
the same can be disputed by sufficient and
competent evidence; or
x x x”
It is, however, clarified that an assessment based on “Best
Evidence Obtainable Rule” should not be automatically considered as a
doubtful assessment. Scrutiny as to the surrounding circumstances that
led to the issuance of such an assessment (e.g., assessments based on
Revenue Memorandum Circular No. 23-2000, RMC No. 99-2010, etc.)
should be thoroughly evaluated. The taxpayer’s failure to present or
submit the required documents necessary to make the assessment of its
tax liability makes it incumbent to the Bureau to resort to the application
of the best evidence obtainable method to recover unpaid taxes due the
government. Therefore, any assessment made as a result thereof is
presumed prima facie correct and sufficient for all legal purposes.
All revenue officials and employees are enjoined to give this
Circular the most extensive publicity as possible.
RMC 51-2014 (June 6, 2014) Inurement Prohibition (cinrop ko beh, di ko
ma-word)
D. RP-US INCOME TAX TREATY (Signed Oct. 1, 1976, effective Jan. 1,
1983)
Article 15
INDEPENDENT PERSONAL SERVICES
1. Income derived by an individual who is a resident of one of the
Contracting States from the performance of personal services in an
independent capacity may be taxed by that Contracting State.
Except as provided in paragraph 2,such income shall be exempt from
tax by the other Contracting State.
2. Income derived by an individual who is a resident of one of the
Contracting States from the performance of personal services
in an independent capacity in the other Contracting State may
be taxed by that other Contracting State, if:
a) He has a fixed base regularly available to him in the other
Contracting State for the purpose of performing his
activities; in that case, only so much of the income as is
attributable to that fixed base may be taxed in that other
Contracting State;
b) He is present in that other Contracting State for a period or
periods aggregating 90 days or more in the taxable year; or
c) The gross remuneration derived in the taxable year from
residents of that other Contracting State for the
performance of such services in the other Contracting State
exceeds 10,000 United States dollars or its equivalent in
Philippine pesos or such higher amount as may be
specified and agreed in letters exchanged between the
competent authorities of the Contracting States.
3. The term “income” as used in paragraph 2 means net income.
Article 16
DEPENDENT PERSONAL SERVICES
1. Except as provided in Article 20 (Governmental Functions), wages,
salaries, and similar remuneration derived by an individual who is a resident
of one of the Contracting States from labor or personal services performed as
an employee, including income from services performed by an officer of a
corporation, may be taxed by that Contracting State. Except as provided by
paragraphs 2 and 3 and in Articles 20 (Governmental Functions), 21
(Teachers), and 22 (Students and Trainees), such remuneration derived from
sources within the other Contracting State may also be taxed by that other
Contracting State.
2. Remuneration described in paragraph 1 derived by an individual who
is a resident of one of the Contracting States shall be exempt from tax by the
other Contracting State if -
a) He is present in that other Contracting State for a period or periods
aggregating less than 90 days in the taxable year;
b) He is an employee of a resident of, or of a permanent establishment
maintained in, the first-mentioned Contracting State; and
c) The remuneration is not borne as such by a permanent
establishment which the employer has in that other Contracting State.
3. Notwithstanding the preceding provisions of this Article,
remuneration derived by an employee of a resident of one of the Contracting
States for labor or personal services performed as a member of the regular
complement of a ship or aircraft operated in international traffic by a resident
of that Contracting State may be taxed only by that Contracting State.
Article 17
ARTISTES AND ATHLETES
1. Notwithstanding the provisions of Articles 15 (Independent
Personal Services) and 16 (Dependent Personal Services),
income derived by public entertainers such as theater, motion
picture, radio or television artistes, and musicians, and by
athletes, from their personal activities as such may be taxed in
 the Contracting State in which these activities are exercised
provided that -
a) Such income exceeds 100 United States dollars or its
equivalent in Philippine pesos per day, or
b) Such income exceeds in the aggregate 3,000 United States
dollars or its equivalent in Philippine pesos during the
taxable year.
1. Where income in respect of personal activities as such of a
public entertainer or athlete accrues not to that entertainer or
athlete himself but to another person, that income may,
notwithstanding the provisions of Articles 8 (Business Profits),
15 (Independent Personal Services) and 16 (Dependent
Personal Services), be taxed in the Contracting State in which
the activities of the entertainer or athlete are exercised.
2. Notwithstanding the provisions of paragraph 1 and Articles 15
(Independent Personal Services) and 16 (Dependent Personal
Services), income derived from activities performed in a
Contracting State by public entertainers or athletes shall be
exempt from tax in that Contracting State if the visit to that State
is substantially supported or sponsored by the other Contracting
State and the public entertainer or athlete is certified as qualified
under this provision by the competent authority of the sending
State.
Article 18
PRIVATE PENSIONS AND ANNUITIES
1. Except as provided in Article 20 (Governmental Functions),
pensions and other similar remuneration paid to an individual in
consideration of past employment shall be taxable by the
Contracting State where the service is rendered.
2. Annuities paid to an individual who is a resident of one of the
Contracting States shall be taxable only in that Contracting State.
3. Child support payments made by an individual who is a resident
of one of the Contracting States to an individual who is a
resident of the other Contracting State shall be exempt from tax
in that other Contracting State.
4. The term “pensions and other similar remuneration,” as used in
this Article, includes periodic payments other than social
security payments covered in Article 19 (Social Security
Payments) made -
a) By reason of retirement or death and in consideration for
services rendered or
b) By way of compensation for injuries or sickness received in
connection with past employment.
5. The term “annuities,” as used in this Article, means a stated sum
paid periodically at stated times during life, or during a specified
number of years, under an obligation to make the payments in
return for adequate and full consideration (other than services
rendered).
6. The term “child support payments,” as used in this Article,
means periodic payments for the support of a minor child made
pursuant to a written separation agreement or a decree of
divorce, separate maintenance, or compulsory support.
Article 19
SOCIAL SECURITY PAYMENTS
Social security payments and other public pensions paid by one
of the Contracting States to an individual who is a resident of the
other Contracting State (or in the case of such payments by the
Philippines to an individual who is a citizen of the United States)
shall be taxable only in the first-mentioned Contracting State.
This Article shall not apply to payments described in Article 20
(Governmental Functions).

Article 20
GOVERNMENTAL FUNCTIONS
Wages, salaries and similar remuneration, including pensions,
annuities, or similar benefits, paid from public funds of one of
the Contracting States:
a) To a citizen of that Contracting State, or
To a citizen of a State other than a Contracting State who comes to the other
Contracting State expressly for the purpose of being employed by the first-
mentioned Contracting State
for labor or personal services performed as an employee of the
national Government of that Contracting State, or any agency
thereof, in the discharge of functions of a governmental nature
shall be exempt from tax by the other Contracting State.
Article 21
TEACHERS
1. Where a resident of one of the Contracting States is invited by
the Government of the other Contracting State, a political
subdivision or local authority thereof, or by a university or other
recognized educational institution in that other Contracting State
to come to that other Contracting State for a period not expected
to exceed 2 years for the purpose of teaching or engaging in
research, or both, at a university or other recognized educational
institution and such resident comes to that other Contracting
State primarily for such purpose, his income from personal
services for teaching or research at such university or
educational institution shall be exempt from tax by that other
Contracting State for a period not exceeding 2 years from the
date of his arrival in that other Contracting State.
2. This Article shall not apply to income from research if such
research is undertaken not in the general interest but primarily
for the private benefit of a specific person or persons.
Article 22
STUDENTS AND TRAINEES
1. a) An individual who is a resident of one of the Contracting
States at the time he becomes temporarily present in the
other Contracting State and who is temporarily present in
that other Contracting State for the primary purpose of
(i) Studying at a university or other recognized
educational institution in that other Contracting State,
or
(ii) Securing training required to qualify him to practice a
profession or professional specialty, or
(iii)Studying or doing research as a recipient of a grant,
allowance, or award from a governmental, religious,
charitable, scientific, literary, or educational
organization,
shall be exempt from tax by that other Contracting State
with respect to amounts described in subparagraph (b) for
a period not exceeding 5 taxable years from the date of his
arrival in that other Contracting State.The amounts referred
to in subparagraph (a) are
(i) Gifts from abroad for the purpose of his maintenance,
education, study, research, or training;
(ii) The grant, allowance, or award; and
(iii)Income from personal services performed in that other
Contracting State in an amount not in excess of 3,000
United States dollars or its equivalent in Philippine
pesos for any taxable year.
2. An individual who is a resident of one of the Contracting States
at the time he becomes temporarily present in the other
Contracting State and who is temporarily present in that other
Contracting State as an employee of, or under contract with, a
resident of the first-mentioned Contracting State, for the primary
purpose of -
a) Acquiring technical, professional, or business experience
from a person other than that resident of the first-mentioned
 Contracting State or other than a person related to such
resident, or
b) Studying at a university or other recognized educational
institution in that other Contracting State,
shall be exempt from tax by that other Contracting State for a
period not exceeding 12 consecutive months with respect to his
income from personal services in an aggregate amount not in
excess of 7,500 United States dollars or its equivalent in
Philippine pesos for any taxable year.
3. An individual who is a resident of one of the Contracting States
at the time he becomes temporarily present in the other
Contracting State and who is temporarily present in that other
Contracting State for a period not exceeding 1 year, as a
participant in a program sponsored by the Government of that
other Contracting State, for the primary purpose of training,
research, or study, shall be exempt from tax by that other
Contracting State with respect to his income from personal
services in respect of such training, research, or study
performed in that other Contracting State in an aggregate
amount not in excess of 10,000 United States dollars or its
equivalent in Philippine pesos in any taxable year.
4. The benefits provided under Article 21 (Teachers) and
paragraph 1 of this Article shall, when taken together, extend
only for such period of time, not to exceed 5 taxable years from
the date of arrival of the individual claiming such benefits, as
may reasonably or customarily be required to effectuate the
purpose of the visit. The benefits provided under Article 21
(Teachers) shall not be available to an individual if, during the
immediately preceding period, such individual enjoyed the
benefits of paragraph 1 of this Article.
E. Omnibus Investment Code- Income Tax Holiday Treaty as amended
by EO 226
TITLE III
INCENTIVES TO REGISTERED ENTERPRISES
Article 39. Incentives to Registered Enterprises. All registered enterprises
shall be granted the following incentives to the extent engaged in a preferred
area of investment;
(a) Income Tax Holiday.
(1) For six (6) years from commercial operation for pioneer
firms and four (4) years for non-pioneer firms, new
registered firms shall be fully exempt from income taxes
levied by the National Government. Subject to such
guidelines as may be prescribed by the Board, the income
tax exemption will be extended for another year in each of
the following cases:
i. the project meets the prescribed ratio of
capital equipment to number of workers
set by the Board;
ii. utilization of indigenous raw materials
at rates set by the Board;
iii. the net foreign exchange savings or
earnings amount to at least
US$500,000.00 annually during the first
three (3) years of operation.
The preceding paragraph notwithstanding, no
registered pioneer firm may avail of this incentive
for a period exceeding eight (8) years.
(2) For a period of three (3) years from commercial
operation, registered expanding firms shall be
entitled to an exemption from income taxes levied
by the National Government proportionate to their
expansion under such terms and conditions as the
 Board may determine; Provided, however, That
during the period within which this incentive is
availed of by the expanding firm it shall not be
entitled to additional deduction for incremental
labor expense.
(3) The provision of Article 7 (14) notwithstanding,
registered firms shall not be entitled to any
extension of this incentive.
(b) Additional Deduction for Labor Expense. For the first five
(5) years from registration a registered enterprise shall be
allowed an additional deduction from the taxable income of
fifty percent (50%) of the wages corresponding to the
increment in the number of direct labor for skilled and
unskilled workers if the project meets the prescribed ratio of
capital equipment to number of workers set by the Board:
Provided, That this additional deduction shall be doubled if
the activity is located in less developed areas as defined in
Art. 40.
(c) Tax and Duty Exemption on Imported Capital
Equipment. Within five (5) years from the effectivity of this
Code, importations of machinery and equipment and
accompanying spare parts of new and expanding
registered enterprise shall be exempt to the extent of one
hundred percent (100%) of the customs duties and national
internal revenue tax payable thereon: Provided, That the
importation of machinery and equipment and
accompanying spare parts shall comply with the following
conditions:
(1) They are not manufactured
domestically in sufficient quantity, of
comparable quality and at reasonable
prices;
(2) They are reasonably needed and will
be used exclusively by the registered
enterprise in the manufacture of its
products, unless prior approval of the
Board is secured for the part-time
utilization of said equipment in a non-
registered activity to maximize usage
thereof or the proportionate taxes and
duties are paid on the specific equipment
and machinery being permanently used
for non-registered activities; and
(3) The approval of the Board was
obtained by the registered enterprise for
the importation of such machinery,
equipment and spare parts.
In granting the approval of the importations under
this paragraph, the Board may require
international canvassing but if the total cost of the
capital equipment or industrial plant exceeds
US$5,000,000, the Board shall apply or adopt the
provisions of Presidential Decree Numbered 1764
on International Competitive Bidding.
If the registered enterprise sells, transfers or
disposes of these machinery, equipment and
spare parts without prior approval of the Board
within five (5) years from date of acquisition, the
registered enterprise and the vendee, transferee,
or assignee shall be solidarily liable to pay twice
the amount of the tax exemption given it.
The Board shall allow and approve the sale,
transfer or disposition of the said items within the
said period of five (5) years if made:
(aa) to another registered
enterprise or registered
domestic producer enjoying
similar incentives;
(bb) for reasons of proven
technical obsolescence; or
(cc) for purposes of
replacement to improve and/or
 expand the operations of the
registered enterprise.
(d) Tax Credit on Domestic Capital Equipment. A tax credit
equivalent to one hundred percent (100%) of the value of
the national internal revenue taxes and customs duties that
would have been waived on the machinery, equipment and
spare parts, had these items been imported shall be given
to the new and expanding registered enterprise which
purchases machinery, equipment and spare parts from a
domestic manufacturer: Provided, That (1) That the said
equipment, machinery and spare parts are reasonably
needed and will be used exclusively by the registered
enterprise in the manufacture of its products, unless prior
approval of the Board is secured for the part-time utilization
of said equipment in a non-registered activity to maximize
usage thereof; (2) that the equipment would have qualified
for tax and duty-free importation under paragraph (c)
hereof; (3) that the approval of the Board was obtained by
the registered enterprise; and (4) that the purchase is made
within five (5) years from the date of effectivity of the Code.
If the registered enterprise sells, transfers or disposes of
these machinery, equipment and spare parts, the
provisions in the preceding paragraph for such disposition
shall apply.
(e) Exemption from Contractor's Tax. The registered
enterprise shall be exempt from the payment of contractor's
tax, whether national or local.
(f) Simplification of Customs Procedure. Customs
procedures for the importation of equipment, spare parts,
raw materials and supplies, and exports of processed
products by registered enterprises shall be simplied by the
Bureau of Customs.
(g) Unrestricted Use of Consigned Equipment. Provisions
of existing laws notwithstanding, machinery, equipment and
spare part consigned to any registered enterprises shall not
be subject to restrictions as to period of use of such
machinery, equipment and spare parts Provided, that the
appropriate re-export bond is posted unless the importation
is otherwise covered under subsections (c) and (m) of this
Article. Provided, further, that such consigned equipment
shall be for the exclusive use of the registered enterprise.
If such equipment is sold, transferred or otherwise disposed
of by the registered enterprise the related provision of
Article 39 (c) (3) shall apply. Outward remittance of foreign
exchange covering the proceeds of such sale, transfer or
disposition shall be allowed only upon prior Central Bank
approval.
(h) Employment of Foreign Nationals. Subject to the
provisions of Section 29 of Commonwealth Act Number
613, as amended, a registered enterprise may employ
foreign nationals in supervisory, technical or advisory
positions for a period not exceeding five (5) years from its
registration, extendible for limited periods at the discretion
of the Board: Provided, however, That when the majority of
the capital stock of a registered enterprise is owned by
foreign investors, the position of president, treasurer and
general manager or their equivalents may be retained by
foreign nationals beyond the period set forth herein.
Foreign nationals under employment contract within the
purview of this incentive, their spouses and unmarried
children under twenty-one (21) years of age, who are not
excluded by Section 29 of Commonwealth Act Numbered
613, as amended, shall be permitted to enter and reside in
the Philippines during the period of employment of such
foreign nationals.
A registered enterprise shall train Filipinos as understudies
of foreign nationals in administrative, supervisory and
technical skills and shall submit annual reports on such
training to the Board.
(i) Exemption on Breeding Stocks and Genetic Materials.
The importation of breeding stocks and genetic materials
within ten (10) years from the date of registration or
commercial operation of the enterprise shall be exempt
from all taxes and duties: Provided, That such breeding
stocks and genetic materials are (1) not locally available
and/or obtainable locally in comparable quality and at
reasonable prices; (2) reasonably needed in the registered
activity; and (3) approved by the Board.
(j) Tax Credit on Domestic Breeding Stocks and Genetic
Materials. A tax credit equivalent to one hundred percent
(100%) of the value of national internal revenue taxes and
customs duties that would have been waived on the
breeding stocks and genetic materials had these items
been imported shall be given to the registered enterprise
which purchases breeding stocks and generic materials
from a domestic producer: Provided, 1) That said breeding
stocks and generic materials would have qualified for tax
and duty free importation under the preceding paragraph;
2) that the breeding stocks and genetic materials are
reasonably needed in the registered activity; 3) that the
approval of the board has been obtained by the registered
enterprise; and 4) that the purchase is made within ten (10)
years from date of registration or commercial operation of
the registered enterprise.
(k) Tax Credit for Taxes and Duties on Raw Materials. Every
registered enterprise shall enjoy a tax credit equivalent to
the National Internal Revenue taxes and Customs duties
paid on the supplies, raw materials and semi-manufactured
products used in the manufacture, processing or production
of its export products and forming part thereof, exported
directly or indirectly by the registered enterprise: Provided,
however, that the taxes on the supplies, raw materials and
semi- manufactured products domestically purchased are
indicated as a separate item in the sales invoice.
Nothing herein shall be construed as to preclude the Board
from setting a fixed percentage of export sales as the
approximate tax credit for taxes and duties of raw materials
based on an average or standard usage for such materials
in the industry.
(l) Access to Bonded Manufacturing/Trading Warehouse
System. Registered export oriented enterprises shall have
access to the utilization of the bonded warehousing system
in all areas required by the project subject to such
guidelines as may be issued by the Board upon prior
consultation with the Bureau of Customs.
(m) Exemption from Taxes and Duties on Imported Spare
Parts. Importation of required supplies and spare parts for
consigned equipment or those imported tax and duty free
by a registered enterprise with a bonded manufacturing
warehouse shall be exempt from customs duties and
national internal revenue taxes payable thereon, Provided,
However, That at least seventy percent (70%) of production
is exported; Provided, further, that such spare parts and
supplies are not locally available at reasonable prices,
sufficient quantity and comparable quality; Provided, finally,
That all such spare parts and supplies shall be used only in
the bonded manufacturing warehouse of the registered
enterprise under such requirements as the Bureau of
Customs may impose.
(n) Exemption from Wharfage Dues and any Export Tax,
Duty, Impost and Fee. The provisions of law to the contrary
notwithstanding, exports by a registered enterprise of its
non- traditional export products shall be exempted of its
non-traditional export products shall be exempted from any
wharfage dues, and any export tax, duty, impost and fee.
TITLE IV
INCENTIVES TO LESS-DEVELOPED-AREA REGISTERED ENTERPRISE
Article 40. A registered enterprise regardless of nationality located in a less-
developed-area included in the list prepared by the Board of Investments after
consultation with the National Economic & Development Authority and other
appropriate government agencies, taking into consideration the following
criteria: low per capita gross domestic product; low level of investments; high
rate of unemployment and/or underemployment; and low level of
infrastructure development including its accessibility to develop urban centers,
shall be entitled to the following incentives in addition to those provided in the
preceding article:
(a) Pioneer incentives. An enterprise in a less-developed-area
registered with the Board under Book I of this Code, whether
proposed, or an expansion of an existing venture, shall be entitled to
the incentives provided for a pioneer registered enterprise under its
law of registration.
(b) Incentives for necessary and Major Infrastructure and Public
Utilities. Registered enterprise establishing their production,
 processing or manufacturing plants in an area that the Board
designates as necessary for the proper dispersal of industry or in
area which the Board finds deficient in infrastructure, public utilities,
and other facilities, such as irrigation, drainage or other similar
waterworks infrastructure may deduct from taxable income an
amount equivalent to one hundred percent (100%) of necessary and
major infrastructure works it may have undertaken with the prior
approval of the Board in consultation with other government
agencies concerned; Provided, That the title to all such infrastructure
works shall upon completion, be transferred to the Philippine
Government: Provided, further, That any amount not deducted for a
particular year may be carried over for deduction for subsequent
years not exceeding ten (10) years from commercial operation.
Special Economic Zone Act of 1995 (RA 7916)
SECTION 24.Exemption from Taxes Under the National Internal Revenue
Code. — Any provision of existing laws, rules and regulations to the contrary
notwithstanding, no taxes, local and national, shall be imposed on business
establishments operating within the ECOZONE. In lieu of paying taxes, five
percent (5%) of the gross income earned by all businesses and enterprises
within the ECOZONE shall be remitted to the national government. This five
percent (5%) shall be shared and distributed as follows:
(a) Three percent (3%) to the national government;
(b) One percent (1%) to the local government units affected by
the declaration of the ECOZONE in proportion to their population,
land area, and equal sharing factors; and
(c) One percent (1%) for the establishment of a development
fund to be utilized for the development of municipalities outside and
contiguous to each ECOZONE: Provided, however, That the
respective share of the affected local government units shall be
determined on the basis of the following formula:
(1) Population — fifty percent (50%);
(2) Land area — twenty-five percent (25%); and
(3) Equal sharing — twenty-five percent (25%)
F. CIR vs. CA,CTA, YMCA, G.R. NO. 124043, OCT. 14, 1998
REVIEWER
Whether the earnings of YMCA from leasing out a portion of its
premises to small shop owners like restaurants and canteen operators and
the parking fees collected from non-members are exempt from taxation based
on Sec 27 of the NIRC.
Held: NO, The exemption claimed by YMCA is expressly disallowed
by the very wordings of the last paragraph of then Sec 27 which mandates
that the income of exempt organizations from any of their properties, whether
real or personal, be subject to tax imposed by the same Code. Further, it is
exempt from paying property tax and not income tax.
The bare allegations alone that it is a non-stock, non-profit educational
institution is insufficient to justify its exemption from the payment of income
tax. YMCA is not a school or educational institution.
CIR vs. CA,CTA, YMCA, G.R. NO. 124043, OCT. 14, 1998
Facts:
YMCA is a non-stock, non-profit institution, which conducts various
programs and activities that are beneficial to the public, especially the young
people, pursuant to its religious, educational and charitable objectives.
In 1980, private respondent earned, among others, an income of
P676,829.80 from leasing out a portion of its premises to small shop owners,
like restaurants and canteen operators, and P44,259.00 from parking fees
collected from non-members.
On July 2, 1984, the commissioner of internal revenue (CIR) issued
an assessment to private respondent, in the total amount of P415,615.01
including surcharge and interest, for deficiency income tax, deficiency
expanded withholding taxes on rentals and professional fees and deficiency
withholding tax on wages.
Private respondent formally protested the assessment and, as a
supplement to its basic protest, filed a letter dated October 8, 1985.
CIR- denied YMCA’s claim
CTA- ruled in favor of YMCA. T]he leasing of [private respondent's] facilities
to small shop owners, to restaurant and canteen operators and the operation
of the parking lot are reasonably incidental to and reasonably necessary for
the accomplishment of the objectives of YMCA.
CA- in favor of CIR
CA reconsideration- reversed itself. Ruled in favor of YMCA
Issues: Whether or not the rental income of YMCA taxable?
Ruling: YES.
SEC. 27. Exemptions from tax on corporations.—The following organizations
shall not be taxed under this Title in respect to income received by them as
such—
xxx xxx xxx
(g)Civic league or organization not organized for profit but operated
exclusively for the promotion of social welfare;
(H) Club organized and operated exclusively for pleasure, recreation, and
other non-profitable purposes, no part of the net income of which inures to the
benefit of any private stockholder or member;
xxx xxx xxx
Notwithstanding the provisions in the preceding paragraphs, the income of
whatever kind and character of the foregoing organizations from any of their
properties, real or personal, or from any of their activities conducted for profit,
regardless of the disposition made of such income, shall be subject to the
tax imposed under this Code. (As amended by Pres. Decree No. 1457)”
In the instant case, the exemption claimed by the YMCA is expressly
disallowed by the very wording of the last paragraph of then Section 27 of the
NIRC which mandates that the income of exempt organizations (such as the
YMCA) from any of their properties, real or personal, be subject to the tax
imposed by the same Code. Because the last paragraph of said section
unequivocally subjects to tax the rent income of the YMCA from its real
property, the Court is duty-bound to abide strictly by its literal meaning and to
refrain from resorting to any convoluted attempt at construction.
Private respondent also invokes Article XIV, Section 4, par. 3 of the
Charter, claiming that the YMCA “is a non-stock, non-profit educational
institution whose revenues and assets are used actually, directly and
exclusively for educational purposes so it is exempt from taxes on its
properties and income.” We reiterate that private respondent is exempt from
the payment of property tax, but not income tax on the rentals from its
property. The bare allegation alone that it is a non-stock, non-profit
educational institution is insufficient to justify its exemption from the payment
of income tax.
YMCA is not a school or an educational institution.—The term
“educational institution” or “institution of learning” has acquired a well-known
technical meaning, of which the members of the Constitutional Commission
are deemed cognizant. Under the Education Act of 1982, such term refers to
schools. The school system is synonymous with formal education, which
“refers to the hierarchically structured and chronologically graded learnings
organized and provided by the formal school system and for which certification
is required in order for the learner to progress through the grades or move to
the higher levels.” The Court has examined the “Amended Articles of
Incorporation” and “By-Laws” of the YMCA, but found nothing in them that
even hints that it is a school or an educational institution.
G. Jewellery Industry Development Act of 1998 (RA 8502) implemented
by RR No. 1-99
Section 3. Development incentives. – The following incentives shall be
available to qualified jewelry enterprises in the jewelry industry:
a) Entitlement to zero (0) duty on imported raw materials which
include precious metals, loose gems, precious stones, jewelry parts,
accessories and supplies for use by jewelry enterprise, as
specifically mentioned in Chapter 5 of Sec. I, Chapter 12 of Sec. II,
Chapters 25, 26 and 27 of Sec. V, Chapters 28, 34 and 38 of Sec.
VI, Chapter 70 of Sec. XIII, Chapter 71 of Sec. XIV, Chapter 83 of
Sec. XV, and Chapter 96 of Sec. XX of the Tariff and Customs Code,
as amended;
 b) Exemption from the imposition of excise tax on all goods
commonly or commercially known as jewelry, whether real or
imitation pearls, precious and semi-precious stones and imitations
thereof; all goods made of, or ornamented, mounted or fitted with
precious metals or imitations thereof, as specifically mentioned in
Sec. 150(a) of the National Internal Revenue Code of the Philippines,
as amended;
c) Entitlement to zero (0) duty on imported capital equipment,
including spare parts and toolings thereof falling within Chapter 69 of
Sec. XIII, Chapter 82 of Sec. XV, Chapters 84 and 85 of Sec. XVI,
and Chapter 90 of Sec. XVIII of the Tariff and Customs Code, as
amended;
d) Additional deduction from taxable income of fifty percent (50%) of
expenses incurred in training schemes approved by the appropriate
agency and which shall be deductible during the financial year the
expenses were incurred;
e) Gold and silver sales by the Bangko Sentral ng Pilipinas to jewelry
enterprises wider minimal margins;
f) Authority for jewelry enterprises to buy gold and silver directly from
other sources;
g) Inclusion of locally-manufactured jewelry in the government's
tourist duty free shops including the promotion, advertisement and
sale thereof; and
h) Jewelry enterprises availing of incentives provided under this Act
shall still be eligible to incentives provided by other special laws such
as Republic Act No. 7844 (Export Development Act of 1994),
Republic Act No. 7916 (Special Economic Zone Act of 1995),
Executive Order 226 (BOI Omnibus Investments Code), among
others: Provided, That the activity is export-oriented and that there is
no double availment of the same incentives.
RULE 3.IMPLEMENTATION OF THE EXCISE TAX EXEMPTION OF
QUALIFIED JEWELRY ENTERPRISES PURSUANT TO SECTION 3(b) of
RA 8502
SECTION 1. Exemption from Excise Tax. — A Qualified Jewelry Enterprise
shall be exempt from excise tax on its manufacture and removal of jewelry
from its place of production or factory for sale, consumption or for any other
disposition. It shall also be exempt from excise tax on its importation of raw
materials and supplies, such as but not limited to gemstone and precious
metals, or imitations thereof, for use in its manufacture or production of fine or
imitation jewelry, or for disposition to another Qualified Jewelry Enterprise for
the latter's use in the manufacture or production of fine or imitation jewelry,
subject to the provisions of the joint Department of Finance-Bureau of
Customs (DOF-BOC) Order implementing the provisions of R.A. No. 8502 on
the importation made by such Qualified Jewelry Enterprise. In general,
manufactured or produced jewelry, if shown to have been purchased from a
Qualified Jewelry Enterprise, shall be presumed exempt from the excise tax,
provided for under this Section, in the hands of the purchaser or the possessor
thereof.
Provided, however, that such Qualified Jewelry Enterprise shall be liable
to the Value Added Tax and such other applicable internal revenue taxes
on its sale, barter, exchange or other transactions, pursuant to the
provisions of the National Internal Revenue Code of 1997.
Provided, further, that the Qualified Jewelry Enterprise shall submit to the
Bureau of Internal Revenue (BIR) a certified true copy of its Certificate of
Accreditation as a Qualified Jewelry Enterprise, issued by the Board of
Investment (BOI), in order to avail of the exemption from excise tax herein
provided.
SECTION 2. Registration of the Factory or Place of Manufacture. — Pursuant
to Section 154 of the NIRC of 1997, the jewelry manufacturing plant of the
Qualified Jewelry Enterprise shall, before commencing operations, be first
registered with the Revenue District Office having jurisdiction over the area
where such manufacturing plant is located. The Revenue District Officer
concerned shall accordingly issue a Permit to Operate the Jewelry
Manufacturing Plant. For Qualified Jewelry Enterprises that are already
operational prior to their accreditation with BOI, submission of a copy of the
Permit previously issued by the BIR would suffice.
SECTION 3. Requirements and Procedures for Importations. —
1. The importer must register with the Revenue District Office having
jurisdiction over the importer's principal place of business in accordance
with existing regulations. For every importation, he must file a written
application for Permit to Import with the Revenue District Office where his
principal place of business is registered, which shall be accompanied by
the following documents:
 . BIR Certificate of Exemption from Excise Tax;
. Name and Address of Supplier(s)/Consignors;
. List of Jewelries (with description) to be imported; and
. Pro-Forma Invoice.
2. Upon arrival of the goods in Custom's Custody, the importer shall apply
for Authority to Release Imported Goods (ATRIG) with the Revenue
District Office having jurisdiction over the port of entry which shall be
accompanied by the following documents:
. Permit to Import;
. Commercial Invoice, Letter of Credit (LC), Bill of
Lading, Packing List, and other importations
documents, where applicable; and
. Import Entry and Internal Revenue Declarations.
3. Upon issuance of the ATRIG, the concerned RDO shall assign
Revenue Officer(s) to supervise the release of imported goods from
Custom's Custody and shall submit a report thereafter.
4. Permit to Import and Authority to Release Imported Goods
(ATRIG) for raw materials and supplies which are exempt from excise tax
pursuant to Section 1 of the Rule 3 hereof shall be stamped "EXCISE TAX
EXEMPT".
5. Revenue District Officers charged with the processing of all
applications for Permit to Import and/or ATRIG shall compile a list of
approved application, which must tally with the withdrawal certificate/gate
pass or other documents issued by the Bureau of Customs upon release of
the imported goods. Any discrepancy noted must immediately be reconciled
and an assessment of additional excise tax, if warranted, shall be issued
immediately.
SECTION 4. Manufacturer's or Producer's or Importer's Sworn Statement. —
The provisions of Section 130 (C) of the NIRC of 1997 to the contrary
notwithstanding, every Qualified Jewelry Enterprises shall file with the
Commissioner of Internal Revenue or his duly authorized representative every
January 15th and July 15th of each year a sworn semestral report showing,
among other information, the products manufactured, produced or imported
during the period and their corresponding gross selling price or the market
value thereof. The term "gross selling price" means the total amount of money
or its equivalent which the purchaser pays or is obligated to pay to the seller
in consideration of the sale, barter or exchange made by such Enterprise,
excluding the value added tax thereon.
Provided, however, that for purposes of the value added tax, sales discount
granted and indicated in the sales invoice at the time of sale and the grant of
which does not depend upon the happening of a future event, may be
excluded in computing for such gross selling price, pursuant to the provisions
of Section 106 of the NIRC of 1997
RULE 4.IMPLEMENTATION OF THE ADDITIONAL DEDUCTION OF
FIFTY PERCENT FOR TRAINING EXPENSES INCURRED BY A
QUALIFIED JEWELRY ENTERPRISE PURSUANT TO SEC. 3(d) OF RA
8502
SECTION 1. Additional Deduction For Training Expense. — A Qualified
Jewelry Enterprise providing training to its employees may avail of the
additional deduction equivalent to fifty percent (50%) of the expenses
incurred in training schemes for the purpose of computing the taxable
income. The additional deduction of fifty percent (50%) shall be in addition
to the allowable ordinary and necessary expenses on training which are
fully deductible as a business expense in accordance with the provision of
the NIRC of 1997. Provided, however, that the benefit arising from the said
50% additional deduction shall not be treated as a taxable income of the
Enterprise in computing for its taxable income.
SECTION 2. Conditions for Availment of the Tax Incentive. —
1. A Qualified Jewelry Enterprise must submit a certified true copy
of its Certificate of Accreditation issued by the BOI Managing
Head or his duly authorized representative to the BIR.
2. The training scheme must be approved by the Technical
Education and Skills Development Authority (TESDA).
3. The TESDA must certify as to the description (objectives, type of
training to be given, course syllabus, among others) and the cost of the
training program. The TESDA must likewise certify that the training program
was actually conducted and was instrumental to the acquisition of appropriate
skills by recipient trainees employed in the accredited jewelry enterprise. A
certification from the TESDA as to the accreditation of, and the actual conduct
of, the training program must be secured and submitted to the BIR.
4.
5. In-house training conducted by the qualified jewelry enterprise
should also be accredited and approved by the TESDA. A certification from
the TESDA must likewise be submitted to the BIR in cases of in-house
training.
SECTION 3. Period Considered for Tax Deduction. — The additional
deduction for training expenses shall be claimed in the taxable year in
which the training expenses have been incurred.
SECTION 4. Documentary Requirements. — The tax deduction may be
availed of by the Qualified Jewelry Enterprise upon filing of the
quarterly/final income tax return accompanied with the following supporting
documents to the BIR:
1. Certified true copy of BOI accreditation;
 2. Certifications from TESDA as to registration of training
program and actual conduct of training; and
3. Official Receipts of Training Expenses.
RULE 5.REQUIREMENT TO KEEP BOOKS OF ACCOUNTS AND
OTHER ACCOUNTING RECORDS
All Qualified Jewelry Enterprises availing of tax incentives under RA 8502
shall keep books of accounts and other pertinent records pursuant to the
provisions of Title IX, Chapter 1, Section 235 of the National Internal
Revenue Code of 1997. These records shall be subject to inspection and
verification by any duly authorized revenue officer for the purpose of
ascertaining compliance with the conditions under which they have been
granted the tax incentives, and their tax liability, if any.
H. Cooperative Code of the Philippines (RA 6983) as implemented by
RR 20-2001
Art. 61. Tax Treatment of Cooperatives. - Duly registered
cooperatives under this Code which do not transact any business
with nonmembers or the general public shall not be subject to any
government taxes or fees imposed under the internal revenue laws
and other tax laws. Cooperatives not falling under this article shall be
governed by the succeeding section.
Art. 62. Tax and Other Exemptions. - Cooperatives transacting business
with both members and nonmembers shall not be subject to tax on their
transactions to members. Notwithstanding the provisions of any or regulation
to the contrary, such cooperatives dealing with nonmembers shall enjoy the
following tax exemptions:
1. Cooperatives with accumulated reserves and undivided net savings of
not more than Ten million pesos (P10,000,000.00) shall be exempt from
all national, city, provincial, municipal or barangay taxes of whatever
name and nature. Such cooperatives shall be exempt from customs
duties, advance sales or compensating taxes on their importation of
machineries, equipment and spare parts used by them and which are not
available locally as certified by the Department of Trade and Industry. All
tax-free importations shall not be transferred to any person until after five
(5) years, otherwise, the cooperative and the transferee or assignee
shall be solidarily liable to pay twice the amount of the tax and/or
duties thereon.
2. Cooperatives with accumulated reserves and undivided net savings of
more than Ten million pesos (P10,000,000.00) shall pay the following
taxes at the full rate:
(a) Income Tax - On the amount allocated for interest on capitals:
Provided, That the same tax is not consequently imposed on interest
individually received by members:
(b) Sales Tax - On sales to nonmembers: Provided, however, That all
cooperatives, regardless of classification, are exempt from the
payment of income and sale taxes for a period of ten (10) years.
For cooperatives whose exemptions were removed by Executive Order No.
93, the ten-year period shall be reckoned from the effectivity date of said
executive order. Cooperatives created after the approval of this Code shall be
granted the same exemptions, the period of which shall be reckoned from the
date of registration with the Authority: Provided, That at least twenty-five per
centum (25%) of the net income of the cooperatives is returned to the
members in the form of interest and/or patronage refunds:
. All other taxes unless otherwise provided herein; and
. Donations to charitable, research and educational institutions and
reinvestment to socioeconomic projects within the area of operation
of the cooperative may be tax deductible.
2. All cooperatives, regardless of the amount of accumulated reserves and
undivided net savings shall be exempt from payment of local taxes and
taxes on transactions with banks and insurance companies: Provided,
That all sales or services rendered for nonmembers shall be subject to
the applicable percentage taxes except sales made by producers,
marketing or service cooperatives: Provided, further, That nothing in this
article shall preclude the examination of the books of accounts or other
accounting records of the cooperative by duly authorized internal
revenue officers for internal revenue tax purposes only, after previous
authorization by the Authority.
3. Any judge in his capacity as notary public, ex-officio, shall render service,
free of charge, to any person or group of persons requiring either the
administration of oath or the acknowledgment of articles of cooperation
of a cooperative applicant for registration and instruments of loan from
cooperative not exceeding Fifty thousand pesos (P50,000.00).
4. Any register of deeds shall accept for registration, free of charge,
any instrument relative to a loan made under this Code which does not
exceed Fifty thousand pesos (P50,000.00) or the deeds of title of any
property acquired by the cooperative or any paper or document drawn in
connection with any action brought by the cooperative or with any court
judgment rendered in its favor or any instrument relative to a bond of any
accountable officer of a cooperative for the faithful performance of his
duties and obligations.
Cooperatives shall be exempt from the payment of all court sheriff's fees
payable to the Philippine Government for and in connection with all actions
brought under this Code, or where such action is brought by the Cooperative
Development Authority before the court, to enforce the payment of obligations
contracted in favor of the cooperative.
All cooperatives shall be exempt from putting up a bond for bringing an
appeal against the decision of an inferior court or for seeking to set aside
any third party claim: Provided, That a certification of the Authority showing
that the net assets of the cooperative are in excess of the amount of the
bond required by the court in similar cases shall be accepted by the court
as a sufficient bond.
Any security issued by cooperatives shall be exempt from the provisions
of the Securities Act provided such security shall not be speculative.
SECTION 3. Exemption From Taxes. —
3.1 Duly registered cooperatives dealing/transacting business with members
only shall be exempt from paying the following taxes for which they are
directly liable, viz:
1. Income Tax on income from operations;
2. Value-Added Tax (VAT) under Section 109 pars. (r), (s), (t) and
(u) of the Tax Code of 1997;
3. 3% Percentage Tax under Section 116 of the Tax Code of
1997;
4. Donor's tax on donations to duly accredited charitable, research
and educational institutions and reinvestment to socio-economic
projects within the area of operation of the cooperatives;
5. Excise tax under Title VI of the Tax Code of 1997;
6. Documentary Stamp Tax imposed under Title VII of the Tax Code
of 1997, provided, however, that the other party to the taxable
document/transaction who is not exempt shall be the one directly
liable for the tax; and
7. Annual Registration Fee of P500.00 under Section 236(B) of the Tax
Code of 1997.
3.2 Taxability/Exemption of duly registered cooperatives
dealing/transacting business with both members and non-
members:
For cooperatives with accumulated reserves and undivided net
savings of not more than Ten Million Pesos (P10,000,000.00)
1. Exemption from all national internal revenue taxes for which they are
directly liable, as enumerated under Sec. 3.1 of these Regulations.
For cooperatives with accumulated reserves and undivided net
savings of more than Ten Million Pesos (P10,000,000.00) —
2. Exemption from income tax for a period of ten (10) years from the
date of registration with the CDA, provided, that at least twenty-five
percent (25%) of the net income of the cooperative is returned to the
members in the form of interest and/or patronage refund.
For cooperatives whose exemptions were removed by
Executive Order No. 93, the ten-year period shall be reckoned from
March 10, 1987 (meaning, tax exemption is valid only until March
10, 1997). ASETHC
After the lapse of the above ten-year period, they shall be
subject to income tax at the full rate on the amount allocated for
interests on capital, provided that the same is not consequently
imposed on interest individually received by members;
The tax base for all cooperatives liable to income tax shall be
the net surplus arising from business transactions with non-
members after deducting the amounts for the statutory reserve
funds as provided for in the Cooperative Code and other laws.
3. Exemption from VAT under Section 109 (r), (s), (t) and (u), 3%
percentage tax under Section 116, and the P500.00 annual
registration fee imposed under Section 236 (B), all of the Tax Code
of 1997;
4. Subject to all other internal revenue taxes unless otherwise
provided by law; and
5. Entitled to limited or full deductibility from the gross income of
amount donated to duly accredited charitable, research and
educational institutions and reinvestment to socio-economic
projects within the area of operation of the cooperative.
Notwithstanding the foregoing, all income of the cooperative not related to its
main/principal business/es shall be subject to all the appropriate taxes under
the Tax Code of 1997. This is applicable to all types of cooperatives, whether
dealing purely with members or both members and non-members.
In any event, all types of cooperatives are required to register with
the Bureau of Internal Revenue.
SECTION 4. Taxability Of Cooperatives To Other Internal Revenue Taxes.
— All Cooperatives, regardless of classification shall be subject to:
1. 20% final income tax on interest from any currency bank deposit and
yield or any other monetary benefit from deposit substitutes and from
trust funds and similar arrangements and royalties derived from
sources within the Philippines;
2. 7.5% final income tax on interest income derived from a depository
bank under the expanded foreign currency deposit system;
3. Capital Gains Tax on sales or exchanges of real property
classified as capital assets or shares of stock;
4. Documentary Stamp Taxes on transactions of cooperatives
dealing with non-members when the accumulated reserves and
undivided net savings of such cooperatives exceed Ten Million
Pesos (P10,000,000.00);
 5. VAT billed on purchases of goods and services, except the VAT on
the importation by agricultural cooperatives of direct farm inputs,
machineries and equipment, including spare parts thereof, to be
used directly and exclusively in the production and/or processing of
their produce, and importation by electric cooperatives of
machineries and equipment, including spare parts, which shall be
directly used in the generation and distribution of electricity, pursuant
to Section 109 (r) and (s) of the Tax Code of 1997 but which are not
available locally as certified by the Department of Trade and Industry.
All tax-free importations shall not be transferred to any person until
five years, otherwise, the cooperative and the transferee or assignee
shall be solidarily liable to pay twice the amount of the tax and/or the
duties thereon;
members only or with both members and non-members,
whichever is applicable;
4. Original copy of the Certificate of Good Standing from the
CDA;
5. Certification under oath by the Chairman/President/General
Manager of the Cooperative (if previously registered as
above stated) as certified by the CDA, as to the amount of
accumulated reserves and undivided net savings, and that at
least 25% of the net income is returned to the members in
the form of interest and/or patronage refund;

6. All other taxes for which the cooperatives are not otherwise 6. Certification under oath of the list of members and the
expressly exempted by any law. share capital contribution of each member; and

Moreover, all cooperatives, regardless of classification, are
considered as withholding agents and are required to file withholding tax
returns and remit withholding taxes on all income payments that are subject
to withholding.
SECTION 5. Taxability Of Members/Stockholders Of Cooperatives.
— The exemption of the cooperatives does not extend to their individual
members. Thus, members of cooperatives are liable to pay all the necessary
internal revenue taxes under the National Internal Revenue Code, including
the tax on earnings derived from their capital contribution. Provided, however,
that interests received by members of a cooperative with accumulated
reserves and undivided net savings greater than Ten Million Pesos
(P10,000,000.00), after the lapse of the ten-year exemption under Sec. 3.2 (II)
above, shall no longer be taxable in the hands of such members.
7. Latest Financial Statements duly audited by an
independent CPA.
SECTION 7. Validity Of Tax Exemption Certificate. — The Tax
Exemption Certificate shall be valid during such period that the
Cooperative is in good standing as ascertained by the CDA on an
annual basis.
SECTION 8. Annual Return And Documents To Be Filed With The Bureau Of
Internal Revenue. — A copy of the Certificate of Good Standing issued by the
CDA to the cooperative shall, together with the Annual Information Return (for
non-taxable cooperative) or Income Tax Return (for taxable cooperative) and
Financial Statements, be submitted to the Bureau of Internal Revenue on or
before the 15th day of the fourth month following the close of the taxable year.

SECTION 6. Documents To Be Attached To The Letter-Application For The SECTION 9. Verification Of Annual Information Return/Income Tax Return,
Issuance Of Tax Exemption Certificate. — A Letter-Application signed by the Financial Statements, Attachments And Records. — Pursuant to the last
President/General Manager of the Cooperative, or his duly authorized paragraph of Section 235 of the Tax Code of 1997, any provision of existing
representative, should be submitted to the Legal Division of the Revenue
general or special law to the contrary notwithstanding, the books of accounts
Region having jurisdiction over the principal place of business of the
and other pertinent records, as well as the operations of all cooperatives, may
cooperative, attaching thereto the following documents:
1. Articles of Cooperation and By-Laws; be examined by the Bureau of Internal Revenue annually for purposes of
2. Certified true copy of the Certificate of Registration issued by the ascertaining compliance with the conditions under which they have been
Certified
CDA
under (in true
P.D.
the CDA;
copy
175,
case of Cooperative
P.D.
of the Certificate
775, of Confirmation
and E.O.already
898, before
existing of Registration
theand
creation
previously from the
of the CDA);
registered granted tax exemptions or tax incentives, and their tax liabilities, if any, upon
3. Certificate under oath by the President/General Manager previous consultation with the CDA.
whether the Cooperative is transacting business with
I. RA 9178, Barangay Micro Business Enterprise (BMBEs),
implemented by DO 17-04, April 20, 2004
INCENTIVES AND BENEFITS
Section 7. Exemption from Taxes and Fees – All BMBEs shall be exempt
from tax for income arising from the operations of the enterprise.
The LGUs are encouraged either to reduce the amount of local taxes, fees
and charges imposed or to exempt BMBEs from local taxes, fees and charges.
DO 17-04
GUIDELINES TO IMPLEMENT THE REGISTRATION OF
BARANGAY MICRO BUSINESS ENTERPRISES AND THE
AVAILMENT OF TAX INCENTIVES UNDER R.A. 9178,
OTHERWISE KNOWN AS THE “BARANGAY MICRO BUSINESS
ENTERPRISES (BMBEs) ACT OF 2002”
RULE 3.
GUIDELINES IN THE AVAILMENT OF INCOME TAX EXEMPTION
Sec. 1. Exemption from Income Tax - A duly registered BMBE shall
be exempt from income tax on income arising purely from its
operations as such BMBE: Provided, That this income tax exemption
shall not apply to the following:
(a) Interest, including those from any currency bank
deposit and yield or any other monetary benefit from deposit
substitutes and from trust funds and similar arrangements;
(b) Royalties;
(c) Prizes and other winnings:
(d) Cash and/or property dividends;
(e) Capital gains from the sale of shares of stock not
traded through the stock exchange;
(f) Capital gains from the sale or other disposition of real
property;
(g) The share of an individual in the net income after tax of
an association, a joint account, or a joint venture or consortium;
(h) The share of an individual in the distributable net
income after tax of a taxable partnership of which he is a partner;
(i) Income from the practice of profession received
directly from the clients or from the professional partnership of which
the individual is a partner;
(j) Compensation; and
(k) All other forms of passive income and income from
revenues not effectively connected with or arising from operations of
the BMBEs as such.
Sec. 2. Determination of the Value of Assets of the BMBE for Income Tax
Exemption Purposes - For the purpose of exemption from income tax, the
total assets of the BMBE, which shall not exceed Three Million Pesos shall
include all kinds of properties, both personal properties and real properties
(but excluding land on which the particular business entity’s office, plant and
equipment are situated) that are owned and used/to be used, or even if not
owned but used/to be used, by the BMBE and/or its affiliates for the conduct
of its/their business/es: Provided, That the term “affiliate” shall refer to any
person or business enterprise/entity that, directly or indirectly through one of
more intermediaries, controls or is controlled by, or is under common control
with, the BMBE concerned. The rules provided in Sec. 36 (B) of the National
Internal Revenue Code shall be used in determining whether such affiliation
exists, and the rules prescribed in Sec. 127 (B) of the same Code for stock
attribution shall be used in determining beneficial ownership of an
incorporated enterprise: Provided, further, That the value of the assets of the
BMBE for the purpose of this Section shall be determined in accordance with
the valuation rules set forth in Rule 2, Sec. 2 hereof.
Section 3. Availment of Tax Incentives. - For purposes of availing of
the tax incentives, the BMBE shall register as such BMBE with the BIR
RDO where the principal office or place of business of the BMBE is
located. Its application for registration shall be supported by the following
documents:

a. Copy of the BMBE’s Certificate of Authority duly authenticated
by the Office of the City or Municipal Treasurer;
b. Sworn Statement of the values of assets owned and/or used/to
be used by the BMBE and/or its affiliates reflecting the current
values thereof. The Sworn Statement shall be supported by
pertinent information and documents such as:
a. Acquisition cost, date of acquisition and
depreciated value for existing assets
b. Invoices and/or official receipts for newly-
acquired assets not yet depreciated;
c. Duly-notarized copy of Contract of Lease for
assets used in the conduct of business
covered by lease agreement; and
d. Copy of Loan Contract/s, if any, and Duly-
Notarized Certification of Amortization
Payments on the Loan
c. Certified list of branches, sales outlets, places of production,
warehouse and storage places, or such other facility owned
and/or operated by the BMBE indicating their respective
addresses, whether located in the same municipality or city
where the principal place of business is located, or elsewhere.
d. Certified list of affiliates, indicating addresses, line of business
and responsible officers thereof;
e. Latest Audited Financial Statement, or Account Information
Form or its equivalent containing data lifted from audited
financial statements.
If the BMBE is currently registered with the BIR under or pursuant to
existing registration rules and regulations, its registration as a BMBE
shall be duly recorded by the BIR in the pertinent registration file of
the BMBE, and its registration certificate be accordingly amended to
reflect its registration likewise as a BMBE. If the BMBE has not been
registered under or pursuant to existing registration, the BMBE shall
register for each type of internal revenue tax, except income tax, but
including withholding taxes for which it is liable.
For purposes of exemption from the creditable withholding tax on
income payments, the BMBE shall furnish its customers with a
certified true copy of its amended BIR registration certificate.
If a BMBE is also entitled to exemption from income tax under any
law other than the Act, it shall so state this fact in its registration form
and indicate whether it shall avail itself thereof or the privilege under
the Act. The choice so made shall bind the BMBE for the entire
period of validity of its registration with the BIR. No BMBE shall be
allowed double or multiple availment of income tax exemption
privileges.
An annual registration fee in the amount of Five Hundred Pesos
(P500.00) shall be paid by a BMBE upon its registration as such, and
every year thereafter on or before the last day of January: Provided,
however, That a BMBE which is in the form of a cooperative or a
marginal income earner as defined in Revenue Regulation No. 11-
2000 shall be exempt from payment of this registration fee.
The registration fee shall be paid to an authorized agent bank (AAB)
located within the revenue district or, in places where there are no
AABs, to the Revenue Collection Officer (RCO), or duly authorized
Treasurer of the City or Municipality where the principal place of
business is registered.
Sec. 4. Filing of Annual Information Return –
(a) Requirements. - Every BMBE entitled to full income tax
exemption is required to file an Annual Information Return, together
with an Account Information Form, or its equivalent, containing data
lifted from audited financial statements and a sworn statement of
assets owned and/or used in business.
(b) Where to File. - Except in cases where the
Commissioner otherwise permits, the return shall be filed with the
Revenue District Officer or the Revenue Collection Officer or the duly
authorized Treasurer of the city or municipality in which the BMBE
has its principal place of business.

( c) When to File. - The Return specified above shall be filed on
or before the fifteenth (15th) day of the fourth month following the close of
the taxable year.
Sec. 5. Revocation of Income Tax Exemption Privilege - The BIR shall
revoke the income tax exemption privilege of a BMBE for any of the
causes set forth in Rule 2, Sec. 8 hereof. The BIR shall notify the BMBE
in writing of its findings and require it to pay the corresponding income
tax, without prejudice to the filing of administrative or criminal complaints
if warranted.
The BIR shall notify the Office of the City or Municipal Treasurer
concerned of its action, whereupon the City or Municipal Treasurer shall
make a determination within fifteen days from receipt of the BIR's notice,
whether the BMBE's Certificate of Registration issued by the Treasurer
must likewise be cancelled.
Sec. 6. Applicability of Other Internal Revenue Taxes and Compliance
Requirements - A BMBE shall be subject to all other taxes and compliance
requirements prescribed under the National Internal Revenue Code (NIRC) of
1997, as amended, and its implementing rules and regulations. It shall also
update its registration information/status with the BIR in case it or any of its
affiliates transfers its principal place of business, any other offices, or
branches.
RULE 4.
GUIDELINES ON THE AVAILMENT OF EXEMPTION
FROM GROSS RECEIPTS TAX
Sec. 1. Exemption from Gross Receipts Tax - Interests,
commissions and discounts derived from the loans granted by the
LBP, DBP, PCFC and SBGFC to duly-registered BMBEs, as well as
loans extended by the GSIS and
SSS to their respective member-employees for the purpose of
establishing BMBEs, shall be exempt from gross receipts tax (GRT).
Sec. 2. Disqualification from GRT Exemption. In case the amount
of loan extended by the above-mentioned credit institution/s to a
BMBE borrower resulted to the BMBE’s total assets exceeding the
P3 million asset threshold, the said credit institution/s is/are
disqualified to enjoy exemption from GRT.
Sec. 3. Reportorial and Documentary Requirements - To avail of
the exemption, certified copy of the BMBE's registration with the BIR
as such BMBE shall be submitted to the lending institution
concerned. The BIR shall also devise a reporting scheme to be
followed by all concerned credit institutions on all loan transactions
with BMBEs for purposes of availing the GRT exemption within thirty
(30) days from the effectivity of this Order.
J. Tourism Act of 2009 (RA 9593, June 2009)
Section 57. Exemption From Payment of Corporate Income Tax. -
Notwithstanding any provision of existing laws, decrees, executive orders to
the contrary, the TPB shall be exempt from the payment of corporate income
tax, as provided under the National Internal Revenue Code (NIRC) of 1997,
as amended. NOTE: (TPB stands for Tourism Promotions Board)
Section 74. Exemption from Payment of Corporate Income Tax. -
Notwithstanding any provision of existing laws, decrees, executive orders to
the contrary, the TIEZA shall be exempt from the payment of corporate income
tax, as provided under the NIRC.NOTE: (TIEZA - Tourism Infrastructure and
Enterprise Zone Authority)
SUBCHAPTER V - A. INCENTIVES FOR TEZ OPERATORS AND
REGISTERED TOURISM ENTERPRISES
Section 86. Fiscal Incentives Available to TEZ Operators and Registered
Enterprises. - The following incentives may, in the discretion of the TIEZA
Board, be granted to registered tourism enterprises within TEZs:
(a) Income Tax Holiday. New enterprises in Greenfield and Browdeld Tourism
Zones shall, from the start of business operations, be exempt from tax on
income for a period of six (6) years. This income tax holiday may be extended
if the enterprise undertakes a substantial expansion or upgrade of its facilities
prior to the expiration of the first six (6) years.
This extension shall consider the cost of such expansion or upgrade in relation
to the original investment, but shall in no case exceed an additional six (6)
years. These enterprises shall likewise be allowed to carry over as deduction
from the gross income for the next six (6) consecutive years immediately
following the year of the loss, their net operating losses for any taxable year
immediately preceding the current taxable year which had not been previously
offset as deduction from gross income.
An existing enterprise in a Brownfield Tourism Zone shall likewise enjoy the
incentives extended to new enterprises in Green6eld and Brownfield Tourism
Zones mentioned in the preceding paragraph. An existing enterprise in a
Brownfield Tourism Zone shall be entitled to avail of a non - extendible income
tax holiday if it undertakes an extensive expansion or upgrade of facilities.
Such an income tax holiday shall consider the cost of such expansion or
upgrade in relation to the original investment, but shall in no case exceed six
(6) years to be counted from the time of completion of the expansion or
upgrade: Provided, That capital expenditures subject to income tax holiday
shall be understood to mean money spent to acquire or upgrade physical
assets, such as buildings, machinery and equipment, intended to extend the
life of an asset or increase the capacity or efficiency of a tourism enterprise
that benefit the current and future periods: Provided, further, That in case of
expansion involving the improvement of existing structures or constructing
new ones, such expansion shall consider the substantial amount infused, the
substantial number of rooms added or constructed and, where applicable,
their change in classification from three - star to five - star establishments.
The provisions of this subsection shall likewise apply to tourism enterprises
outside the zones.
(b) Gross Income Taxation. In lieu of all other national and local taxes, license
fees, imposts and assessments, except real estate taxes and such fees as
may be imposed by the TIEZA, a new enterprise shall pay a tax of five percent
(5%) on its gross income earned, which shall be distributed as follows:
(1) One - third to be proportionally allocated among affected LGUs;
(2) One - third to the national government; and
(3) One - third to the TIEZA for the funding of its operations and its programs
in the TEZs, which shall include the protection, maintenance and enrichment
of the environment, tangible cultural and historical heritage, and the intangible
cultural heritage of communities within and surrounding the TEZs.
Gross income as used herein is defined under Section 27(A) of the NIRC, and
further defined under relevant rules and regulations.
Section 87. Non - fiscal Incentives Available to TEZ Operators and Registered
Tourism Enterprises. - The following incentives may, in the discretion of the
TIEZA Board, be granted to registered tourism enterprises within TEZs:
(c) Capital Investment and Equipment. Subject to rules and
regulations which properly define capital investments and equipment
necessary for various kinds of tourism enterprises, registered
enterprises shall be entitled to an exemption of one hundred percent
(100%) of all taxes and customs duties on importations of capital
investment and equipment.
(d) Transportation and Spare Parts. Importation of transportation and
the accompanying spare parts of new and expanding registered
enterprises shall be exempt from customs duties and national taxes:
Provided, That they are not manufactured domestically in sufficient
quantity, of comparable quality and at reasonable prices, and that
they are reasonably needed and will be used exclusively by an
accredited tourism enterprise.
(e) Goods and Services. Subject to rules and regulations which
properly define goods and services necessary for various kinds of
tourism enterprises, registered enterprises shall be entitled to the
following:
(1) Importation of goods actually consumed in the
course of services actually rendered by or through
registered enterprises within a TEZ shall enjoy one hundred
percent (100%) exemption from all taxes and customs
duties: Provided, however, That no goods shall be imported
for the purpose of operating a wholesale or retail
establishment in competition with the DFPC; and
(2) A tax credit equivalent to all national internal revenue
taxes paid on all locally - sourced goods and services
directly or indirectly used by the registered enterprise for
services actually rendered within the TEZ.
(f) Social Responsibility Incentive. A registered enterprise shall be
entitled to a tax deduction equivalent to a reasonable percentage,
not exceeding fifty percent (60%), of the cost of environmental
protection or cultural heritage preservation activities, sustainable
livelihood programs for local communities, and other similar
activities.ten.lihpwal
(a) Employment of Foreign Nationals. A registered enterprise may
employ foreign nationals in executive, supervisory, technical or
advisory positions for such reasonable periods and under such terms
as may be provided by the TIEZA Board, with due regard for the
proper protection and representation of foreign investments in
registered enterprises, and the need to ensure easy travel into and
out of the Philippines by such nationals and their immediate families;
(b) Special Investor’s Resident Visa. Under such terms as may be
provided by the TIEZA Board, a foreign national who shall have
made an investment with a value of at least Two hundred thousand
dollars (USD200,OOO.OO) in a registered enterprise shall be
entitled to a special investor’s resident visa. With such visa, the
foreign national shall be entitled to reside in the Philippines while his
or her investment subsists. Subject to regulations to be issued by the
Bureau of Immigration (BI), the TIEZA shall issue working visas
renewable every two (2) years to foreign personnel and other aliens,
possessing highly - technical skills which no Filipino within the TEZ
possesses, after they have secured Alien Employment Permits
(AEP) from the DOLE. The names of aliens granted permanent
resident status and working visas by the TIEZA shall be reported to
the BI within thirty (30) days after issuance thereof;
(c) Foreign Currency Transactions. Subject to the provisions of
Section 72 of Republic Act No. 7653, as amended, otherwise known
as the New Central Bank Act:
(1) Repatriation of Investments. In the case of foreign
investments, the right to repatriate the entire proceeds of
the liquidation of the investment in the currency in which the
investment was originally made and at the exchange rate
prevailing at the time of repatriation.
(2) Remittance of Foreign Exchange. The right to remit
earnings from a foreign investment in the currency in which
the investment was originally made and at the exchange
rate prevailing at the time of remittance.
(3) Foreign Loans and Contracts. The right to remit at the
exchange rate prevailing at the time of remittance such
sums as may be necessary to meet the payments of interest
and principal on foreign loans and foreign obligations
arising from technological assistance contracts.
(d) Requisition of Investment. There shall be no requisition of the
property of registered enterprises, except in the event of war or
national emergency, and only for the duration thereof. In any case,
the affected person shall be entitled to just compensation, and shall
have the right to repatriate such compensation as provided in
paragraph (c) above; and (e) Lease and Ownership of Land. Without
prejudice to existing laws regulating the ownership of land by
individuals and corporations, and consistent with the provisions of
Republic Act No. 7652, otherwise known as the Investor’s Lease Act,
lands and buildings in each TEZ may be leased to foreign investors
for a period not exceeding fifty (50) years, renewable once for a
period of not more than twenty - five (25) years. The leasehold right
acquired under long - term contracts may be sold, transferred or
assigned, subject to the conditions set forth under the Investor’s
Lease Act.
SUBCHAPTER V - B. TOURISM ENTERPRISES OUTSIDE TEZS
Section 88. Incentives Available to Tourism Enterprises Outside TEZs. -
The grant of fiscal and other incentives to tourism enterprises not located
within TEZB shall be governed by the following provisions:
(a) Upon compliance with the requirements provided by law, they
shall be entitled to avail of any economic incentives found under
existing laws, such as Executive Order No. 226 (1987), otherwise
known as the Omnibus Investments Code; Republic Act No. 7042,
as amended by Republic Act No. 8179, otherwise known as the
Foreign Investments Act; the Special Economic Zone Act; and the
Bases Conversion and Development Act, among others, subject to
the last paragraph of Section 86(a), at the option of the said
enterprises.
(b) Subject to rules and regulations jointly promulgated by the
Department and the TIEZA, an existing accommodation
establishment not located within a TEZ shall be entitled to claim an
income tax holiday for up to six (6) years for any significant
expansion, renovation or upgrade in its facilities in relation to the
amount of the original investment. They shall also be entitled to
import capital equipment free of taxes and duties when necessary
for such expansion, renovation or upgrade.
(c) Tourism enterprises may avail of incentives under the Omnibus
Investments Code: Provided, That:
(1) Tourism activities shall always be included in the Investment Priorities
Plan;

(2) Rules and regulations concerning the grant of incentives to tourism

enterprises shall be jointly formulated by the Board of Investments and the
Department;

(3) The income tax holiday provided under Section 39.1 of the Omnibus
Investments Code shall also apply to existing accommodation enterprises
undergoing substantial capital infusion for expansion or substantial upgrade
of facilities; and

(4) Accredited tourism enterprises shall be entitled to import transportation

and accompanying spare parts free of taxes and duties: Provided, however,
That such transportation shall be exclusively used by the enterprise in its
operations, and: Provided, further, That such are not manufactured
domestically in sufficient quantity, comparable quality and prices.

(d) Tourism enterprises located in special economic zones, created under the
Special Economic Zone Act or by special charter, shall continue to be
governed by the same.

(e) The incentives offered under this Act shall be without prejudice to the
availment of other incentives provided under other laws, such as, but not
limited to, those concerning infrastructure, or micro - , small - and medium
enterprises. However, where such laws provide for similar incentive schemes
as those contained herein, the investor may elect to avail of the scheme
provided only under one particular law, decree or issuance.

Section 95. Duty and Tax Exemptions. - Consistent with the nature of its
operations and primary function to operate as a tax - and duty - free
merchandising system, and to enable it to compete in the international tax -
and duty - free market, DFPC shall be entitled to exemption from the following:

(a) Duties and taxes, including excise and VAT, relative to the importation of
merchandise for sale;
(b) Local taxes and fees imposed by the LGUs; and
(c) Corporate income taxation.

NOTE: DFPC – Duty Free Philippines Corp.