SEC. 10. (a) There shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding calendar year from all sources by every corporation, joint-stock company, partnership, joint-account (cuenta en participacion), association, or insurance company, organized in the Philippine Islands, no matter how created or .organized, but not including duly registered general co-partnerships (compañias colectivas), a tax of two per centum upon such income; and a like tax shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding calendar year from all sources within the Philippine Islands by every corporation, joint-stock company, partnership, joint-account (cuenta en participacion), association, or insurance company, organized, authorized, or existing under the laws of any foreign country, including interest on bonds, notes, or other interest bearing obligations of residents, corporate or otherwise, and including the income derived from dividends or net profits subject to the tax established in this subsection.
For the purpose of ascertaining the gain derived or loss sustained from the sale or other disposition by a corporation, joint-stock company, partnership, joint-account (cuenta en participacion), association, or insurance company, of property, real, personal, or mixed, acquired before March first, nineteen hundred and thirteen, the fair market price or value of such property as of March first, nineteen hundred and thirteen, shall be the basis for determining the amount of such gain derived or loss sustained.
The foregoing tax rate shall apply to the net income received by every taxable corporation, joint-stock company, partnership, joint-account (cuenta en participacion), association, or insurance company, in the calendar year nineteen hundred and nineteen, and in each year thereafter.
EXEMPTIONS.
SEC. 11. (a) There shall not be taxed under this Law any income received by any—
First. Labor, agricultural, or horticultural organization.
Second. Mutual savings bank not having a capital stock represented by shares, and cooperative bank without capital stock organized and operated for mutual purposes and without profit.
Third. Fraternal beneficiary society, order or association, operating under the lodge system or for the exclusive benefit of the members of a fraternity itself operating, under the lodge system, and providing for the payment of life, sick, accident, or other benefits to the members of such society, order, or association or their dependents.
Fourth. Loan and building association organized under the Corporation Law.
Fifth. Cemetery company owned and operated exclusively for the benefit of its members.
Sixth. Corporation or association organized and operated exclusively for religious, charitable, scientific, or educational purposes, no part of the net' income of which inures to the benefit of any private stockholder or individual: Provided, however, That the income of whatever kind and character from any of its properties, real or personal, except income expressly exempted by this Law, shall be liable to the tax imposed under this chapter.
Seventh. Business league, chamber of commerce, or board of trade, not organized for the profit and no part of the net income of which inures to the benefit of any private stockholder or individual.
Eighth. Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare.
Ninth. Club organized and operated exclusively for pleasure, recreation, and other nonprolitable purposes, no part of the net income of which inures to the benefit of any private stockholder or member.
Tenth. Farmers', or other mutual typhoon or fire insurance company, mutual ditch or irrigation company, mutual or cooperative telephone company, or like organization of a purely local character, the income of which consists solely of assessments, dues, and fees collected from members for the sole purpose of meeting its expenses.
Eleventh. Farmers', fruit growers', or like association organized and operated as a sales agent for the purpose of marketing the products of its members and turning back to them the proceeds of sales, less the necessary selling expenses, on the basis of the quantity of produce furnished by them.
Twelfth. Corporation or association organized for the exclusive purpose of holding title to property, collecting income therefrom, and turning over the entire amount thereof, less expenses, to an organization which itself is exempt from the tax imposed by this law; or Thirteenth. Joint-stock land bank as to income derived -from bonds or debentures of other joint-stock land bank or any land bank belonging to such joint-stock land bank.
(b) There shall not be taxed under this Law any income -derived from any public utility or from the exercise of any essential governmental function accruing to the government of the Philippine Islands or of any political subdivision of the Philippine Islands: Provided, That whenever any -province, city or any political subdivision of a province has, prior to the passage of this Law, entered in good faith into a contract with any person or corporation, the object and purpose of which is to acquire, construct, operate, or maintain a public utility, no tax shall be levied under the provisions of this Law upon the income derived from the operation of such public utility, so far as the payment thereof will impose a loss or burden upon such province, city or a political subdivision of a province; but this provision is not intended to confer upon such person or corporation any financial gain or exemption or to relieve such person or corporation from the payment of a tax as provided for in this Law upon the part or portion of the said income to which such person or corporation shall be entitled under such contract.
DEDUCTIONS.
SEC. 12. (a) In the case of a corporation, joint-stock company, partnership, joint-account (cuenta en participacion), association, or insurance company, organized in the Philippine Islands, such net income shall be ascertained by deducting from the gross amount of its income received within the year from all sources—
First. All the ordinary and necessary expenses paid within the year in the maintenance and operation of its business' and properties, including rentals or other payments for the continued use or possession of property to which the corporation has not taken or is not taking title, or in which it has no equity.
Second. All losses actually sustained and charged off within the year and not compensated by insurance or otherwise, including a reasonable allowance for the depreciation of property arising out of its use or employment in the business or trade: (a) in the case of oil and gas wells a reasonable allowance for actual reduction in flow and production to be ascertained not by the flush flow, but by the settled production or regular flow; (b) in the case of mines a reasonable allowance for depletion thereof not to exceed the market value in the mine of the product thereof which has been mined and sold during the year for which the return and computation are made, such reasonable allowance to be made in the case of both (a) and (b) under rules and regulations to be prescribed by the Collector of Internal Revenue with the approval of the Secretary of Finance: Provided, That when the allowance authorized in (a) and (b) shall equal the capital originally invested, or in case of purchase made prior to March first, nineteen hundred and thirteen, the fair market value as of that date, no further allowance shall be made; and (c) in the case of insurance companies, the net addition, if any, required by law to be made within the year to reserve funds and the sums other than dividends paid within the year on policy and annuity contracts: Provided, That no deduction shall be allowed for any amount paid out for new buildings, permanent improvements, or betterments made to increase the value of any property or estate, and no deduction shall be made for any amount of expense of restoring property or making good the exhaustion thereof for which an allowance is or has been made: Prodded further, That mutual fire and mutual employers' liability and mutual workmen's compensation and mutual casualty insurance companies requiring their members to make premium deposits to provide for losses and expenses shall not return as income any portion of the premium deposits returned to their policyholders, but shall return as taxable income all income received by them from all other sources plus such portion of the premium deposits as are retained by the companies for purposes other than the payment of losses and expenses and reinsurance reserves: Provided, further. That mutual marine insurance companies shall include in their return of gross income gross premiums collected and received by them less amounts paid for reinsurance, but shall be entitled to include in deductions from gross income amounts repaid to policyholders on account of premiums previously paid by them and interest paid upon such amounts between the ascertainment thereof and the payment thereof, and life insurance companies shall not include as income in any year such portion of any actual premium received from any individual policyholder as shall have been paid back or credited to such individual policyholder, or treated as an abatement of premium of such individual policyholder, within such year.
Third. The amount of interest paid within the year on its indebtedness, except on indebtedness incurred for the purchase of obligations or securities the interest upon which is exempt from taxation as income under this Law, to an amount of such indebtedness not in excess of the sum of (a) the entire amount of the paid-up capital stock outstanding at the close of the year, or, if no capital stock, the entire amount of capital employed in the business at the close of the year, and (b) one-half of its interest-bearing indebtedness then outstanding: Provided, That for the purpose of this Law preferred capital stock shall not be considered interest bearing indebtedness, and interest or dividends paid upon this stock shall not be deductible from gross income: Provided further, That in cases wherein shares of capital stock are issued without par or nominal value, the amount of paid-up capital stock within the meaning of this section, as represented by such shares, will be the amount of cash, or its equivalent, paid or transferred to the corporation as a consideration for such shares: Provided further, That in the case of indebtedness wholly secured by property collateral, tangible or intangible, the subject of sale or hypothecation in the ordinary business of such corporation, joint-stock company, partnership, joint-account (cuenta en participacion), or association as a dealer only in the property constituting such collateral, or in loaning the funds thereby procured, the total interest paid within the year on any such indebtedness may be deducted as a part of its expenses of doing business, but interest on such indebtedness shall only be deductible on an amount of such indebtedness not in excess of the actual value of such property collateral: Provided further, That in the case of bonds or other indebtedness, which have been issued with t a guaranty that the interest payable thereon shall be free from taxation, no deduction for the payment of the tax herein imposed, or any other tax paid pursuant to such guaranty, shall be allowed; and in the case of a bank, banking association, loan or trust company, interest paid within the year on deposits or on moneys received for investment and secured by interest-bearing certificates of indebtedness issued by such bank, banking association, loan or trust company shall be deducted.
Fourth. Taxes paid within the year imposed by any foreign government, by the Government of the Philippine Islands, or by any province, city, municipality, or township, not including those assessed against local benefits.
(b) In the case of a corporation, joint-stock company,-partnership, joint-account (cuenta en participacion), association, or insurance company, organized, authorized, or existing under the laws of any foreign country, such net income shall be ascertained by deducting from the gross amount of its income received within the year from all sources within the Philippine Islands—
First. All the ordinary and necessary expenses actually; paid or deducted within the year out of earnings in the maintenance and operation of its business and property within the Philippine Islands, including rentals or other payments for the continued use or possession of property to which the corporation has not taken or is not taking title, or in which it has no equity.
Second. All losses actually sustained and charged off within the year in business or trade conducted by it within the Philippine Islands and not compensated by insurance or otherwise, including a reasonable allowance for the depreciation of property arising out of its use or employment in the business or trade: (a) and in the case of oil and gas wells a reasonable allowance for actual reduction in flow and production to be ascertained not by the flush flow, but by the settled production or regular flow: (b) in the case of mines a reasonable allowance for depletion thereof not to exceed the market value in the mine of the product thereof which has been mined and sold during the year for which the return and computation are made, such reasonable allowance to be made in the case of both (a) and (b) under rules and regulations to be prescribed by the Collector of Internal Revenue with the approval of the Secretary of Finance: Provided, That when the allowances authorized in (a) and (b) shall equal the capital originally invested, or in case of purchase made prior to March first, nineteen hundred and thirteen, the fair market value as of that date, no further allowance shall be made; and (c) in the case of insurance companies, the net addition, if any, required by law to be made within the year to reserve funds and the sums other than dividends paid .within the year on policy and annuity contracts: Provided, That no deduction shall be allowed for any amount paid out for new buildings, permanent improvements, or betterments, made to increase the value of any property, and no deduction shall be made for any amount of expense of restoring property or making good the exhaustion thereof for which an allowance is or has been made: Provided, further. That mutual fire and mutual employers' liability and mutual workmen's compensation and mutual casualty insurance companies requiring their members to make premium deposits to provide for losses and expenses shall not return as income any portion of the premium deposits returned to their policyholders, but shall return as taxable income all income received by them from all other sources plus such portion of the premium deposits as are retained by the companies for purposes other than the payment of losses and expenses and reinsurance reserves: Provided further, That mutual marine insurance companies shall include in their return of gross income gross premiums collected and received by them less amounts paid for reinsurance, but shall be entitled to include in deductions from gross income amounts repaid to policyholders on account of premiums previously paid by them, and interest paid upon such amounts between the ascertainment thereof, and the payment thereof, and life insurance companies shall not include as income in any year such portion of any actual premium received from any individual policyholder as shall have been paid back or credited to such individual policyholder, or treated as an abatement of premium of such individual policyholder, within such year.
Third. The amount of interest paid within the year on its indebtedness, except on indebtedness incurred for the purchase of obligations or securities the interest upon which is exempt from taxation as income under this Law, to an amount of such indebtedness not in excess of the proportion of the sum of (a) the entire amount of the paid-up capital stock outstanding at the close of the year, or, if no capital stock, the entire amount of the capital employed in the business at the close of the year, and (b) one-half of its interest-bearing indebtedness then outstanding, which the gross amount of its income for the year from business transacted and capital invested within the Philippine Islands bears to the gross amount of its income derived from all sources within and without the Philippine Islands: Provided, That in the case of bonds or other indebtedness which have been issued with a guaranty that the interest payable thereon shall be free from taxation, no deduction for the payment of the tax herein imposed or any other tax paid pursuant to such guaranty shall be allowed; and in case of a bank, banking association, loan or trust company, or branch thereof, interest paid within the year on deposits by or on moneys received for investment from either citizens or residents of the Philippine Islands and secured by interest-bearing certificates of indebtedness issued by such bank, banking association, loan or trust company, or branch thereof shall be deducted.
Fourth. Taxes paid within the year in the Philippine Islands, imposed by the Government of the United States, by the Government of the Philippine Islands, or by any province, city, municipality or township, not including those assessed against local benefits.
(b) In the case of assessment insurance companies whether domestic or foreign, the actual deposit of sums with the officers of the Government of the Philippine Islands, pursuant to law, as additions to guarantee or reserve funds shall be treated as being payments required by law to reserve funds.
RETURNS.
SEC. 13. (a) The tax shall be computed upon the net-income, ascertained in accordance with the foregoing provisions, received within each preceding calendar year ending December thirty-first: Provided, That any corporation, joint-stock company, partnership, joint-account (cuenta en participacion), association, or insurance company, subject to this tax, may designate the last day of any month in the year as the day of the closing of its fiscal year and shall be entitled to have the tax payable by it computed upon the basis of the net income ascertained as herein provided for the year ending on the day so designated in the year preceding the date of assessment instead of upon the basis of the net income for the calendar year preceding the date of assessment; and it shall give notice of the day it has thus designated as the closing of its fiscal year to the Collector of Internal Revenue at any time not less than thirty days prior to the first day of March of the year in which its return would be filed if made upon the basis of the calendar year.
(b) Every corporation, joint-stock company, partnership,-joint-account (cuenta en participacion), association, or insurance company, subject to the tax herein imposed, shall, on or before the first day of March, nineteen hundred and twenty, and the first day of March in each year thereafter, or if it has designated a fiscal year, then within sixty days after the close of such fiscal year ending prior to December thirty-first, nineteen hundred and twenty, and the close of each such fiscal year thereafter, render a true and accurate return of its annual net income in the manner and form to be prescribed by the Collector of Internal Revenue with the approval of the Secretary of Finance, and containing such facts, data, and information as are appropriate and in the opinion of the Collector necessary to determine the correctness of the net income returned and to carry out the provisions of this Law. The return shall be sworn to by the president, vice-president, or other principal officer,' and by the treasurer or assistant treasurer. The return shall be made to the Collector or to the treasurer of the province in which is located the principal office of the corporation, joint-stock company, partnership, joint-account (cuenta en participacion), or association, where are kept its books of account and other data from which the return is prepared, or in the case of a foreign corporation, joint-stock company, partnership, joint-account (cuenta en participation) , or association, to the Collector or to the treasurer of the province in which is located its principal place of business in the Philippine Islands, or if it have no office of any kind or agency in the Philippine Islands, then to the Collector of Internal Revenue. All such returns shall as received be transmitted forthwith by the officer receiving them to the Collector of Internal Revenue.
(c) In cases wherein receivers, trustees in bankruptcy, or assignees are operating the property or business of corporations, joint-stock companies, partnerships, joint accounts (cuentas en participacion), associations or insurance companies, subject to tax imposed by this Law, such receivers, trustees, or assignees shall make returns of net income as and for such corporations, joint-stock companies, partnerships, joint-accounts (cuentas en participacion), associations, and insurance companies, in the same manner and form as such organizations are hereinbefore required to make returns, and any tax due on the income as returned by receivers, trustees, or assignees shall be assessed and collected in the same manner as if assessed directly against the organizations of whose businesses or properties they have custody and control.
(d) A corporation, joint-stock company, partnership, joint-account (cuenta en participacion), association, or insurance company, keeping account upon any basis other than that of actual receipts and disbursements, unless such other basis does not clearly reflect its income, may, subject to regulations made by the Collector of Internal Revenue with the approval of the Secretary of Finance, make its return upon the basis upon which its accounts are kept, in which case the tax shall be computed upon its income as so returned.
(e) All the provisions of this Law relating to the tax required to be deducted and withheld and paid to the internal revenue officer authorized to receive the same from the income of nonresident alien individuals from sources within the Philippine Islands shall be made applicable to the tax imposed by subdivision (a) of section ten upon incomes derived from interest upon bonds and mortgages or deeds of trust or similar obligations of domestic or other resident corporations, joint-stock companies, partnerships, joint-accounts (cuentas en participacion), associations, and insurance companies by nonresident alien firms, copart nerships, companies, corporations, joint-stock companies, partnerships, and insurance companies, not engaged in business or trade within the Philippine Islands and not having any office or place of business therein.
(f) Likewise, all the provisions of this Law relating to the tax required to be deducted and withheld and paid to the officer of the Government of the Philippine Islands authorized to receive the same from the income of nonresident alien individuals from sources within the Philippine Islands shall be made applicable to income derived from dividends upon the capital stock or from the net earnings of domestic or other resident corporations, joint-stock companies, partnerships, joint-accounts (cuentas en participacion), associations, and insurance companies by nonresident alien firms, corporations, joint-stock companies, partnerships, joint-accounts (cuentas en participacion), associations, and insurance companies, not engaged in business or trade within the Philippine Islands and not having any office or place of business therein.
ASSESSMENT.
SEC. 14. (a) All assessments shall be made by the Collector of Internal Revenue, and the several corporations, joint-stock companies, partnerships, joint-accounts (cuentas en participacion), associations, and insurance companies shall be notified of the amount for which they are respectively liable on or before the first day of June of each year, and said assessment shall be paid on or before the fifteenth day of June: Provided, That every corporation, joint-stock company, partnership, joint-account y (cuenta en participacion), association, and insurance company, computing taxes upon the income of the fiscal year which it may designate in the manner herein before provided, shall pay the taxes due under its assessment within one hundred and five days after the date upon which it is required to file its list or return of income for assessment; except in cases of refusal or neglect to make such return, and in cases of erroneous, false, or fraudulent returns, in which cases the Collector of Internal Revenue shall, upon the discovery thereof, at any time within three years after said return is made or due, make a return upon information obtained as provided for in this Law or by existing law or require the return made to be corrected and the assessment made by the Collector of Internal Revenue thereon shall be paid by such corporation, joint-stock company, partnership, joint-account (cuenta en participaci6n), association, or insurance company immediately upon notification of the amount of such assessment; and to the tax due and unpaid after the fifteenth day of June of any year, or after one hundred and five days from the date on which the return of income is required to be made by the taxpayer, and after ten days' notice and demand thereof by the Collector, there shall be added five per centum on the amount and interest at the rate of one per centum per month upon the said tax, from the time the same becomes due: Provided, That upon the examination of any return of income made pursuant to this Law, if it shall appear that amounts of tax have been paid in excess of those properly due, the taxpayers shall be permitted to present a claim for refund thereof.
(b) After the assessment shall have been made, as provided in this Law, the returns together with any corrections thereof which may have been made by the Collector, shall be filed in the Office of the Collector of Internal Revenue and shall constitute public records and be open to inspection as such upon the order of the Governor-General under rules and regulations to be prescribed by the Secretary of Finance.
(c) If any of the corporations, joint-stock companies, partnerships, joint-accounts (cuentas en participacion), associations, or insurance companies aforesaid shall refuse or neglect to make a return at the time or times herein before specified in each year, or shall render a false or fraudulent return, such corporation, joint-stock company, partnership, joint-account (cuenta en participaci6n), association, or insurance company shall be liable to a penalty of not exceeding P20,000: Provided, That the Collector of Internal Revenue shall have authority to grant a reason able extension of time in meritorious cases, as he may deem proper.
(d) When a second assessment is made in case of any list, statement, or return, which in the opinion of the Collector was false or fraudulent, or contained any understatement or undervaluation, no tax collected under such-assessment shall be recovered by any suit unless it is proved that the .said list, statement, or return was not false nor fraudulent and did not contain any understatement or undervaluation; but this provision shall not apply to statements or returns made or to be made in good faith regarding annual depreciation of oil or gas wells and mines.
Source: Supreme Court E-Library, Republic of the Philippines. Philippine laws are public documents (works of the government).
