Article 14p. 14

NATIONAL INTERNAL REVENUE CODE TAXATION, TARIFF and CUSTOMS LAWS

For a trading or merchandising concern, ' cost of goods

sold ' shall include the invoice cost of the goods sold, plus

import duties, freight in transporting the goods to the

place

where

the

goods

are

actually

sold

including

insurance while the goods are in transit.

For

a

manufacturing

concern,

' cost

of

goods

manufactured

and

sold '

shall

include

all

costs

of

production of finished goods, such as raw materials used,

direct labor and manufacturing overhead, freight cost,

insurance premiums and other costs incurred to bring

the raw materials to the factory or warehouse.

In the case of taxpayers engaged in the sale of service,

' gross income ' means gross receipts less sales returns,

allowances,

discounts

and

cost of services. ' Cost of

services '

shall

mean

all

direct

costs

and

expenses

necessarily incurred to provide the services required by

the customers and clients including (A) salaries and

employee

benefits

of

personnel,

consultants

and

specialists directly rendering the service and (B) cost of

facilities directly utilized in providing the service such as

depreciation or rental of equipment used and cost of

supplies: Provided, however, That in the case of banks,

' cost of services ' shall include interest expense.

SEC. 28. Rates of Income Tax on Foreign Corporations. -

[21]

(A) Tax on Resident Foreign Corporations. -

(1) In General. - Except as otherwise provided in this

Code,

a

corporation

organized,

authorized,

or

existing under the laws of any foreign country,

engaged in trade or business within the Philippines,

shall be subject to an income tax equivalent to

thirty-five

percent

(35%)

of

the taxable income

derived

in

the preceding taxable year from all

sources

within

the

Philippines:

Provided,

That

effective January 1, 2009, the rate of income tax shall

be thirty percent (30%). [22]

In the case of corporations adopting the fiscal-year

accounting period, the taxable income shall be

computed without regard to the specific date when

sales, purchases and other transactions occur. Their

income and expenses for the fiscal year shall be

deemed to have been earned and spent equally for

each month of the period.

The corporate income tax rate shall be applied on

the amount computed by multiplying the number

of months covered by the new rate within the fiscal

year by the taxable income of the corporation for the

period, divided by twelve. [23]

Provided,

however,

That

a

resident

foreign

corporation shall be granted the option to be taxed

at fifteen percent (15%) on gross income under the

same conditions, as provided in Section 27 (A).

(2) Minimum Corporate Income Tax on Resident

Foreign Corporations.

- A minimum corporate

income tax of two percent (2%) of gross income, as

prescribed under Section 27 (E) of this Code, shall be

imposed, under the same conditions, on a resident

foreign corporation taxable under paragraph (1) of

this Subsection.

(3) International Carrier. - An international carrier

doing business in the Philippines shall pay a tax of

two and one-half percent (2 1 / 2 %) on its ' Gross

Philippine Billings ' as defined hereunder:

(a) International Air Carrier. - ' Gross Philippine

Billings ' refers to the amount of gross revenue

derived

from

carriage

of

persons,

excess

baggage, cargo, and mail originating from the

Philippines in a continuous and uninterrupted

flight, irrespective of the place of sale or issue

and the place of payment of the ticket or

passage

document:

Provided,

That

tickets

revalidated,

exchanged

and/or

indorsed

to

another international airline form part of the

Gross

Philippine

Billings

if

the

passenger

boards

a

plane

in a port or point in the

Philippines: Provided, further, That for a flight

which

originates

from

the

Philippines, but

transshipment of passenger takes place at any

part outside the Philippines on another airline,

only the aliquot portion of the cost of the ticket

corresponding

to

the

leg

flown

from

the

Philippines to the point of transshipment shall

form part of Gross Philippine Billings.

(b) International Shipping. - ' Gross Philippine

Billings '

means

gross

revenue

whether for

passenger, cargo or mail originating from the

Philippines up to final destination, regardless of

the place of sale or payments of the passage or

freight documents.

Provided, That international carriers doing business

in the Philippines may avail of a preferential rate or

exemption from the tax herein imposed on their

gross revenue derived from the carriage of persons

and

their

excess

baggage

on

the

basis of an

applicable tax treaty or international agreement to

which the Philippines is a signatory or on the basis

of reciprocity such that an international carrier,

whose home country grants income tax exemption

to Philippine carriers, shall likewise be exempt from

the tax imposed under this provision.

(4) Offshore Banking Units. - The provisions of any

law to the contrary notwithstanding, income derived

by offshore banking units authorized by the Bangko

Sentral ng Pilipinas (BSP), from foreign currency

transactions

with

non-residents,

other

offshore

banking units, local commercial banks, including

branches of foreign banks that may be authorized

by the Bangko Sentral ng Pilipinas (BSP) to transact

business

with

offshore

banking

units

shall

be

exempt from all taxes except net income from such

transactions as may be specified by the Secretary of

Finance, upon recommendation of the Monetary

Board which shall be subject to the regular income

tax payable by banks: Provided, however, That any

interest income derived from foreign currency loans

granted to residents other than offshore banking

units or local commercial banks, including local,

branches of foreign banks that may be authorized

by

the

BSP

to transact business with offshore

banking units, shall be subject only to a final tax at

the rate of ten percent (10%). [24]

Any income of nonresidents, whether individuals or

corporations, from transactions with said offshore

banking units shall be exempt from income tax.

(5) Tax on Branch Profits Remittances. - Any profit

remitted by a branch to its head office shall be

subject to a tax of fifteen (15%) which shall be based

on

the

total

profits

applied

or

earmarked

for

remittance

without

any

deduction

for

the

tax

component thereof (except those activities which

are registered with the Philippine Economic Zone

Authority). The tax shall be collected and paid in the

same manner as provided in Sections 57 and 58 of

this Code: Provided, that interests, dividends, rents,

royalties,

including

remuneration

for

technical

services,

salaries,

wages

premiums,

annuities,

emoluments or other fixed or determinable annual,

periodic or casual gains, profits, income and capital

gains received by a foreign corporation during each

taxable year from all sources within the Philippines

shall not be treated as branch profits unless the

same are effectively connected with the conduct of

its trade or business in the Philippines.

(6) Regional or Area Headquarters and Regional

Operating

Headquarters

of

Multinational

Companies. -

(a) Regional or area headquarters as defined in

Section 22(DD) shall not be subject to income

tax.

© Compiled by RGL

14 of 201