Deductions from gross income.
Section 30
SEC. 30. Deductions from gross income. — In computing net income there shall be allowed as deduction — (a) Expenses — (1) In General. — All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other. Compensation for personal services actually rendered; traveling expenses while away from home in the pursuit of a trade or business; and rentals or other payments required to be made as a condition to the continued use or possession, for the purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity. (2) Expenses allowable to non-resident alien individuals and foreign corporations. — In the case of a non-resident alien individual or a foreign corporation, the expenses deductible are the necessary expenses paid or incurred in carrying on any business or trade conducted within the Philippines exclusively. (b) Interest — (1) In General. — The amount of interest paid within the taxable year on indebtedness, except on indebtedness incurred or continued to purchase or carry obligations the interest upon which is exempt from taxation as income under this Title. (2) Interest allowable to non-resident aliens. — In the case of a non-resident alien Individual or a foreign corporation, the amount of interest allowable is the proportion of the amount of interest paid within the year on indebtedness, except on indebtedness incurred or continued to purchase or carry obligations, the interest upon which is wholly exempt from taxation as income under this Title, which the gross amount of income for the year derived from sources within the Philippines bears to the gross amount of income derived all sources within and without the Philippines; but this deduction shall be allowed only if such non-resident alien individual or foreign corporation includes in the return required by this Title all the information necessary for its calculation. (c) Taxes — (1) In General. — Taxes paid or accrued within the taxable year, except- (A) The income tax provided for under this Title; (B) Income, war-profits, and excess-profits taxes imposed by the authority of the United States, a possession of the United States, or any foreign country; but this deduction shall be allowed in the case of a taxpayer who does not signify in his return his desire to have to any extent the benefits of paragraph (3) of this subsection relating to credit for taxes of foreign countries); (C) Estate, inheritance and gift taxes; and (D) Taxes assessed against local benefits of a kind tending to increase the value of the property assessed. (2) Limitations and deductions. — (A) In the case of a non-resident alien individual and a foreign corporation, the deductions for taxes provided in paragraph (1) of this subsection (c) shall be allowed only if and to the extent that they are connected with income from sources within the Philippines, and (B) In the case of a citizen of a foreign country residing in the Philippines whose income from sources within such foreign country is not taxable under this Title, only that portion of the taxes paid to such foreign country which corresponds to his net income taxable under this Title shall be allowed as deduction. (3) Credits against tax for taxes of foreign countries. — If the taxpayer signifies in his return his desire to have the benefits of this paragraph, the tax imposed by this Title shall be credited with — (A) Citizen and domestic corporation. — In the case of a citizen of the Philippines and of a domestic corporation, the amount of any income, war-profits, and excess profits taxes paid or accrued during the taxable year to any foreign country; (B) Alien resident of the Philippines. — In the case of an alien resident of the Philippines, the amount of any such taxes paid or accrued during the taxable year to any foreign country, if the foreign country of which such alien resident is a citizen or subject, in imposing such taxes, allows a similar credit to citizens of the Philippines residing in such country; and (C) Partnership and estates. — In the case of any such individual who is a member of a partnership or a beneficiary of an estate or trust, his proportionate share of such taxes of the partnership or the estate or trust paid or accrued during the taxable year to a foreign country, if his distributive share of the income of such partnership or trust is reported for taxation under this Title. (D) Non-resident aliens and foreign corporations. — Non-resident alien individuals and foreign corporations shall not be allowed the credits against the tax for taxes of foreign countries allowed under this paragraph. (4) Limitations on credit. — The amount of the credit taken under this section shall be subject to each of the following limitations: (A) The amount of the credit in respect of the tax paid or accrued to any country shall not exceed the same proportion of the tax against which such credit is taken, which the taxpayer's net income from sources within such country taxable under this Title bears to his entire net income for the same taxable year; and (B) The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken, which the taxpayer's net income from sources without the Philippines taxable under this Title bears to his entire net income for the same taxable year. (5) Adjustments on payment of accrued taxes. — If accrued taxes when paid differ from the amounts claimed as credits by the taxpayer, or if any tax paid is refunded in whole or in part, the taxpayer shall notify the Collector of Internal Revenue, who shall predetermine the amount of the tax for the year or years affected, and the amount of tax due upon such re-determination, if any, shall be paid by the taxpayer upon notice and demand by the Collector, or the amount of tax overpaid, if any, shall be credited or refunded to the taxpayer. In the case of such a tax accrued but not paid, the Collector as a condition precedent to the allowance of this credit may require the taxpayer to give a bond with sureties satisfactory to and to be approved by the Collector in such sum as he may require, conditioned upon the payment by the taxpayer of any amount of tax found due upon any such re-determination. The bond herein prescribed shall contain such further conditions as the Collector may require. (6) Year in which credit taken. — The credits provided for in paragraph (3) of this subsection may, at the option of the taxpayer and irrespective of the method of accounting employed in keeping his books, be taken in the year in which the taxes of the foreign country accrued, subject, however, to the conditions prescribed in paragraph 5 of this subsection. If the taxpayer elects to take such credits in the year in which the taxes of the foreign country accrued, the credits for all subsequent years shall be taken upon the same basis, and no portion of any such taxes shall be allowed as a deduction in the same or any succeeding year (7) Proof of credits. — The credits provided in paragraph (3) of this subsection shall be allowed only if the taxpayer establishes to the satisfaction of the Collector (1) the total amount of income derived from sources without the Philippines, (2) the amount of income derived from each country, the tax paid or accrued to which is claimed as a credit under said paragraph, such amount to be determined under rules and regulations prescribed by the Secretary of Finance, and (3) all other information necessary for the verification and computation of such credits. (8) Taxes of foreign subsidiary. — For the purposes of this subsection a domestic corporation which owns a majority of the voting stock of a foreign corporation from which it receives dividends in any taxable year shall be deemed to have paid the same proportion of any income, war-profits, or excess-profits taxes paid by such foreign corporation to any foreign country, upon or with respect to the accumulated profits of such foreign corporation from which such dividends bears to the amount of such accumulated profits: Provided, That the amount of tax deemed to have been paid under this subsection shall in no case exceed the same proportion of the tax against which credit is taken which the amount of such dividends bears to the amount of the entire net income of the domestic corporation in which such dividends are included. The term "accumulated profits" when used in this subsection in reference to a foreign corporation, means the amount of its gains, profits, or income in excess of the income. war-profits, and excess-profits taxes imposed upon or with respect to such profits or income; and the Collector of Internal Revenue shall have full power to determine from the accumulated profits of what year or years such dividends were paid; treating dividends were paid; treating dividends paid in the first sixty days of any year as having been paid from the accumulated profits of the preceding year or years (unless to his satisfaction shown otherwise), and in other respects treating dividends as having been paid from the most recently accumulated gains, profits, or earnings. In the case of a foreign corporation. the income, war-profits, and excess-profits taxes of which are determined on the basis of an accounting period of less than one year, the word "year" as used in this subsection shall be construed to mean such accounting period. (9) Taxes of shareholder paid by corporation. — The deduction for taxes allowed by subsection (c) shall be allowed to a corporation in the case of taxes imposed upon a shareholder of the corporation upon his interest as shareholder, for the amount of such taxes. (d) Losses — (1) By individuals. — In the case of an individual, losses actually sustained during the taxable year and not compensated for by insurance or otherwise — (A) If incurred in trade or business; or (B) If incurred in any transaction entered into for profit, though not connected with the trade or business; or (C) Of property not connected with the trade or business, if the loss arises from fires, storms, shipwreck, or other casualty, or from robbery, theft, or embezzlement no loss shall be allowed as a deduction under this paragraph if at the time of the filing of the return such loss has been claimed as a deduction for estate or inheritance tax proposes in the estate or inheritance tax return (2) By corporations. — In the case of a corporation, all losses actually sustained and charged off within the taxable year and not compensated for by insurance or otherwise (3) By non-resident aliens or foreign corporations. — In the case of. a non-resident alien individual or a foreign corporation, the losses deductible are those actually sustained during the year incurred in business or trade conducted within the Philippines, and losses of property within the Philippines arising from fires, storms, shipwreck, or other casualty, and from robbery, theft, or embezzlement, and losses actually sustained during the year in transactions entered into for profit in the Philippines although not connected with their business or trade, when such losses are not compensated for by insurance or otherwise. (4) Capital losses. — (A) Limitation. — Losses from sales or exchanges of capital assets shall be allowed only to the extent provided in section 34. (B) Securities becoming worthless. — If any securities as defined in section 84 become worthless during the taxable year and are capital assets, the loss resulting therefrom shall, for the purposes of this Title, be considered as a loss from the sale or exchange, on the last day of such taxable year, of capital assets. (5) Losses on wash sales of stock or securities. — Losses on "wash sales" of stock or securities as provided in section 33. (6) Wagering losses. — Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions. (e) Bad debts — (1) In general. — Debts due to the taxpayer actually ascertained to be worthless and charged off within the taxable year. (2) Bad debts deductible by non-resident aliens or foreign corporations. — In the case of a non-resident alien individual or a foreign corporation, bad debts are deductible if any have arisen in the course of business or trade conducted within the Philippines and actually ascertained to be worthless and charged off within the year. (3) Securities becoming worthless. — If any securities as defined in section 84 are ascertained to be worthless and charged off within the taxable year and are capital assets, the loss resulting therefrom shall, in the case of a taxpayer other than a bank or trust company incorporated under the laws of the Philippines or the United States a substantial part of whose business is the receipt of deposits, for the purposes of this Title, be considered as a loss from the sale or exchange, on the last day of such taxable year, of capital assets. (f) Depreciation — (1) In general. — A reasonable allowance for deterioration of property arising out of its use or employment in the business or trade, or out of its not being used: Provided, That when the allowance authorized under this subsection shall equal the capital invested by the taxpayer or, in the 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. In the case of property held by one person for life with remainder to another person, the deduction shall be computed as if the life tenant were the absolute owner of the property and shall be allowed to the life tenant. In the case of property held in trust, the allowable deduction shall be apportioned between the income beneficiaries and the trustee in accordance with the pertinent provisions of the instrument creating the trust, or, in the absence of such provisions, on the basis of the trust income allowable to each. (2) Depreciation deductible by non-resident aliens or foreign corporations. — In the case of a non-resident alien individual or a foreign corporation, a reasonable allowance for the deterioration of property arising out of the use or employment or its non-use in the business or trade shall be permitted only when such property is located within the Philippines. (g) Depletion of oil and gas wells and mines: (1) In general. — (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. The allowances shall be made under rules and regulations to be prescribed by the Secretary of Finance: Provided, That when the allowances shall equal the capital 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. (2) Depletion of oil and gas wells and mines deductible by non-resident aliens or foreign corporations. — In the case of a non-resident alien individual or a foreign corporation, allowance for depletion of oil and gas wells or mines under paragraph (1) shall be authorized only in respect to oil and gas wells origins located within the Philippines. (h) Charitable and other contributions. — Contributions or gifts actually paid or made within the taxable year or for use of the Government of the Philippines or any political subdivision thereof for exclusively public purposes, or to domestic corporations or associations organized and operated exclusively for religious, charitable, scientific, athletic, cultural or educational purposes, or to societies for the prevention of cruelty to children or animals, no part of the net income of which is distributed to any private stockholder or individual to an amount not in excess of six per centum in the case of an individual, and three per centum in the case of a corporation, of the taxpayer's taxable net income as computed without the benefit of this paragraph. Such contributions or gifts shall be allowable as deductions only if verified under rules and regulations prescribed by the Secretary of Finance. (i) Conditions under which a non-resident alien individual may receive benefit of deductions. — A non-resident alien individual shall receive the benefit of the deductions provided for in this section only by filing or causing to be filed with the Collector of Internal Revenue a true and accurate return of his total income, received from all sources, corporate or otherwise, in the Philippines, in the manner prescribed by this Code; and in case of his failure to file such return the Collector of Internal Revenue shall collect the tax on such income. (j) Pension trusts. — General rule. — An employer establishing or maintaining a pension trust to provide for the payment of reasonable pensions to his employees shall be allowed as a deduction (in addition to the contributions to such trusts during the taxable year to cover the pension liability accruing during the year, allowed as a deduction under subsection (a) of this section) a reasonable amount transferred or paid into such trust during the taxable year in excess of such contributions, but only if such amount (1) has not heretofore been allowable as a deduction, and (2) is apportioned in equal parts over a period of ten consecutive years beginning with the year in which the transfer or payment is made.