Article 16p. 16

NATIONAL INTERNAL REVENUE CODE TAXATION, TARIFF and CUSTOMS LAWS

(A) In General. - In addition to other taxes imposed by

this Title, there is hereby imposed for each taxable year on

the improperly accumulated taxable income of each

corporation

described

in

Subsection

B

hereof,

an

improperly

accumulated

earnings

tax

equal

to

ten

percent (10%) of the improperly accumulated taxable

income.

(B)

Tax

on

Corporations

Subject

to

Improperly

Accumulated Earnings Tax. -

(1)

In

General.

-

The

improperly

accumulated

earnings tax imposed in the preceding Section shall

apply to every corporation formed or availed for the

purpose of avoiding the income tax with respect to

its shareholders or the shareholders of any other

corporation, by permitting earnings and profits to

accumulate instead of being divided or distributed.

(2)

Exceptions.

-

The

improperly

accumulated

earnings tax as provided for under this Section shall

not apply to:

(a) Publicly-held corporations;

(b)

Banks

and

other

nonbank

financial

intermediaries; and

(c) Insurance companies.

(C) Evidence of Purpose to Avoid Income Tax. -

(1)

Prima

Facie

Evidence.

- the fact that any

corporation

is

a

mere

holding

company

or

investment company shall be prima facie evidence

of a purpose to avoid the tax upon its shareholders

or members.

(2) Evidence Determinative of Purpose. - The fact

that the earnings or profits of a corporation are

permitted to accumulate beyond the reasonable

needs of the business shall be determinative of the

purpose to avoid the tax upon its shareholders or

members

unless

the

corporation,

by

the

clear

preponderance

of

evidence,

shall

prove

to

the

contrary.

(D) Improperly Accumulated Taxable Income. - For

purposes

of

this

Section,

the

term

' improperly

accumulated taxable income ' means taxable income

adjusted by:

(a) Income exempt from tax;

(b) Income excluded from gross income;

(c) Income subject to final tax; and

(d)

The amount of net operating loss carry-over

deducted;

And reduced by the sum of:

(a) Dividends actually or constructively paid; and

(b) Income tax paid for the taxable year.

Provided,

however,

That

for

corporations

using

the

calendar year basis, the accumulated earnings tax shall

not apply on improperly accumulated income as of

December 31, 1997. In the case of corporations adopting

the

fiscal

year

accounting

period,

the

improperly

accumulated income not subject to this tax, shall be

reckoned, as of the end of the month comprising the

twelve (12)-month period of fiscal year 1997-1998.

(E) Reasonable Needs of the Business. - For purposes of

this

Section,

the

term

' reasonable

needs

of

the

business ' includes the reasonably anticipated needs of

the business.

SEC. 30. Exemptions from Tax on Corporations. - The

following organizations shall not be taxed under this Title

in respect to income received by them as such:

(A)

Labor, agricultural or horticultural organization not

organized principally for profit;

(B)

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;

(C)

A beneficiary society, order or association, operating

for the exclusive benefit of the members such as a

fraternal organization operating under the lodge system,

or mutual aid association or a nonstock corporation

organized by employees providing for the payment of life,

sickness, accident, or other benefits exclusively to the

members

of

such

society,

order,

or

association,

or

nonstock corporation or their dependents;

(D)

Cemetery company owned and operated exclusively

for the benefit of its members;

(E)

Nonstock corporation or association organized and

operated exclusively for religious, charitable, scientific,

athletic, or cultural purposes, or for the rehabilitation of

veterans, no part of its net income or asset shall belong to

or inure to the benefit of any member, organizer, officer

or any specific person;

(F)

Business league chamber of commerce, or board of

trade, not organized for profit and no part of the net

income of which inures to the benefit of any private

stock-holder, or individual;

(G)

Civic league or organization not organized for profit

but operated exclusively for the promotion of social

welfare;

(H) A nonstock and nonprofit educational institution;

(I) Government educational institution;

(J)

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; and

(K)

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 finished

by them;

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 tax imposed under this

Code.

CHAPTER V COMPUTATION OF TAXABLE

INCOME

SEC. 31. Taxable Income Defined. - The term 'taxable

income' means the pertinent items of gross income

specified in this Code, less deductions, if any, authorized

for such types of income by this Code or other special

laws. (as amended by RA No 10963)

CHAPTER VI COMPUTATION OF GROSS

INCOME

SEC. 32. Gross Income. -

(A)

General

Definition.

-

Except

when

otherwise

provided in this Title, gross income means all income

derived from whatever source, including (but not limited

to) the following items:

(1) Compensation for services in whatever form paid,

including, but not limited to fees, salaries, wages,

commissions, and similar items;

(2) Gross income derived from the conduct of trade

or business or the exercise of a profession;

(3) Gains derived from dealings in property;

(4) Interests;

(5) Rents;

© Compiled by RGL

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