AMENDING CERTAIN SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE OF 1977, AS AMENDED.

• Number: Presidential Decree No. 1682
• Sections: 12

Preamble

WHEREAS, there

is a need to further amend certain

provisions of the National Internal Revenue Code of 1977, as amended, to

make them more responsive to current conditions, more specifically to

the petroleum operations presently being conducted in the

Philippines;.

NOW, THEREFORE, I, FERDINAND E.

MARCOS, President of

the Philippines by virtue of the powers vested in me by the

Constitution, do hereby order and decree the following:

Section 1

SECTION 1. Section 20, paragraph

(b) of the National Internal Revenue Code is hereby amended to read as

follows:

"(b) The term 'corporation' includes partnerships, no matter

how

created or organized, joint-stock companies, joint accounts (cuentas en

participation), associations or insurance companies, but does not

include general professional partnerships and a joint venture formed for

the purpose of undertaking construction projects or engaging in

petroleum operations pursuant to an operating agreement under a service

contract with the Government. General professional partnerships are

partnerships formed by persons for the sole purpose of exercising their

common profession, no part of the income of which is derived from

engaging in any trade or business.''

Section 2

SEC. 2. Section 24, paragraph (b)

(2) of the

National Internal Revenue Code is hereby further amended by adding

thereto a proviso to read as follows:

XX XX XX

"'Provided, That any profit remitted

abroad by a branch

office to its mother company shall be subject to tax at fifteen per cent

(15%) (except those registered with the Export Processing Zone

Authority); PROVIDED FURTHER, That any profit

remitted by a

branch office to its mother company authorized to engage in petroleum

operations in the Philippines shall be subject to tax at seven and

one-half per cent (7.5%)."

Section 3

SEC. 3. Section 29(b) (8) of the

National Internal

Revenue Code is hereby amended by adding thereto a new subparagraph to

read as follows:

(8) Miscellaneous items. —

XX XX XX

(E) Filipino participation incentive allowance received by a

Philippine corporation pursuant to an operating agreement under a

petroleum service contract entered into between a service contractor and

the Government under Presidential Decree No. 87."

Section 4

SEC. 4. Section 30(b) (3) of the

National Internal

Revenue Code, as amended, is hereby further amended by adding a new

sub-paragraph thereto to read as follows:

"(C) If the indebtedness is incurred to finance petroleum

exploration."

Section 5

SEC. 5. Section 30, paragraph (d)

of the National

Internal Revenue Code is hereby amended by adding a new paragraph

thereto to read as follows:

"(d) Losses:

"XX XX XX

"(7) Abandonment Losses. — (A) In the

event a contract

area where petroleum operations are undertaken is partially or wholly

abandoned, all accumulated exploration and development expenditures

pertaining thereto shall be allowed as a deduction; Provided however,

That accumulated expenditures incurred in that area prior to January 1,

1979 shall be allowed as a deduction only from any income derived from

the same contract area. In all cases, notices of abandonment shall be

filed with the Commissioner of Internal Revenue.

"(B) In case a producing well is subsequently abandoned, the

unamortized costs thereof, as well as the undepreciated costs of

equipment directly used therein shall be allowed as a deduction in the

year such well, equipment or facility is abandoned by the contractor;

Provided however,

That if such abandoned well is reentered and production is resumed, or

if such equipment or facility is restored into service, the said costs

shall be included as part of gross income in the year of resumption or

restoration and shall be amortized or depreciated, as the case may

be.

Section 6

SEC. 6. Section 30, paragraph (f)

is hereby amended by adding a new paragraph thereto to read as

follows:

"(f) Depreciation.

"XX XX XX

"(3) Depreciation of Properties Used in Petroleum Operations.

An

allowance for depreciation in respect to all properties directly related

to production of petroleum initially placed in service in a taxable

year under the straight-line or double-declining balance method of

depreciation at the option of the service contractor. However, if the

service contractor initially elects the double-declining method, it may,

at any subsequent date, shift to the straight-line method. The useful

life of properties used in or related to production of petroleum shall

be ten (10) years or such shorter life as may be permitted by the

Commissioner of Internal Revenue.

Properties not used directly in the production of petroleum

shall be

depreciated under the straight-line method on the basis of an estimated

useful life of five (5) years."

Section 7

SEC. 7. Section 30, paragraph (g)

(1) of the National Internal Revenue Code, is hereby amended to read as

follows:

"(g) Depletion of oil and gas wells and

mines:

"(1) In general. — In the case of oil and gas

wells

and mines, a reasonable allowance for depletion or amortization

computed in accordance with the cost depletion method shall be granted

under rules and regulations to be prescribed by the Minister of Finance:

Provided, That when the allowances shall equal the

capital invested no further allowance shall be granted:

Provided, Further,

That after production in commercial quantities has commenced, certain

intangible exploration and development drilling costs (i) shall be

deductible in the year incurred if such expenditures are incurred for

non-producing wells or (ii) shall be deductible in full in the year paid

or incurred or, at the election of the taxpayer, may be capitalized and

amortized, if such expenditures incurred are not producing wells in the

same contract area.

Intangible costs in petroleum operations refer to any cost

incurred

in petroleum operations which in itself has no salvage value and which

is incidental to and necessary for the drilling of wells and preparation

of wells for the production of petroleum:

Provided, That said

cost shall not pertain to the acquisition or improvement of property of a

character subject to the allowance for depreciation except that the

allowances for depreciation on such property, shall be deductible under

this subsection.

Any intangible exploration; drilling and development expenses

allowed

as a deduction in computing taxable income during the year shall not be

taken into consideration in computing the adjusted cost basis for the

purpose of computing allowable cost depletion.

Section 8

SEC. 8. Section 31(a) (2) of the

National Internal Revenue Code is hereby amended to read as

follows:

"SECTION 31 (a) (2). Any amount

paid out for new

buildings or for permanent improvements or betterments made to increase

the value of any property or estate.

"This sub-section shall not apply to intangible drilling and

development cost incurred in petroleum operations which are deductible

under sub-section

(g) (1) of Section 30 of this Code.''

Section 9 Applicability Clause.

SEC. 9. Applicability

Clause. — The

pertinent provisions of Title II of the National Internal Revenue Code

of 1977, as amended, and the implementing regulations promulgated

thereunder shall apply to any corporation authorized to engage in

petroleum operations in the Philippines pursuant to a service contract

entered into by said corporation and the Government for ?

Contracts entered into pursuant to

Presidential Decree No. 87 and amended after January 1, 1979; and

New contracts entered into after January 1,

1979.

Section 10 Repealing Clause.

SEC. 10. Repealing

Clause.—All other laws, decrees, regulations and others

inconsistent herewith are hereby modified or amended

accordingly.

Section 11 Effectivity Date.

SEC. 11. Effectivity

Date. — This Decree shall take effect as of January 1,

1979.

Done in the City of Manila, this 13th day of March, in the year

of Our Lord, nineteen hundred and eighty.

(Sgd.)

FERDINAND E. MARCOS

President of the Philippines

By the President:

(Sgd.) JOAQUIN T. VENUS,

JR.

Presidential Staff Director