Article 19p. 19

NATIONAL INTERNAL REVENUE CODE TAXATION, TARIFF and CUSTOMS LAWS

ceilings as the Secretary of Finance may,

by rules and regulations prescribe, upon

recommendation

of

the Commissioner,

taking into account the needs as well as

the

special

circumstances,

nature

and

character of the industry, trade, business,

or profession of the taxpayer: Provided,

That

any

expense

incurred

for

entertainment, amusement or recreation

that is contrary to law, morals public policy

or public order shall in no case be allowed

as a deduction.

(b)

Substantiation

Requirements.

-

No

deduction from gross income shall be allowed

under

Subsection

(A)

hereof

unless

the

taxpayer

shall

substantiate

with

sufficient

evidence,

such as official receipts or other

adequate

records:

(i)

the

amount

of

the

expense being deducted, and (ii) the direct

connection or relation of the expense being

deducted to the development, management,

operation and/or conduct of the trade, business

or profession of the taxpayer.

(c)

Bribes,

Kickbacks

and

Other

Similar

Payments. - No deduction from gross income

shall be allowed under Subsection (A) hereof for

any payment made, directly or indirectly, to an

official

or

employee

of

the

national

government, or to an official or employee of any

local

government

unit, or to an official or

employee

of

a

government-owned

or

-controlled

corporation,

or to an official or

employee

or

representative

of

a

foreign

government, or to a private corporation, general

professional partnership, or a similar entity, if

the payment constitutes a bribe or kickback.

(2) Expenses Allowable to Private Educational

Institutions. - In addition to the expenses allowable

as

deductions

under

this

Chapter,

a

private

educational institution, referred to under Section 27

(B) of this Code, may at its option elect either: (a) to

deduct

expenditures

otherwise

considered

as

capital outlays of depreciable assets incurred during

the taxable year for the expansion of school facilities

or (b) to deduct allowance for depreciation thereof

under Subsection (F) hereof.

(B) Interest. -

(1)

In General. - The amount of interest paid or

incurred within a taxable year on indebtedness in

connection with the taxpayer's profession, trade or

business shall be allowed as deduction from gross

income:

Provided,

however,

That

the

taxpayer's

otherwise allowable deduction for interest expense

shall be reduced by forty-two percent (42%) of the

interest income subjected to final tax: Provided, That

effective January 1, 2009, the percentage shall be

thirty-three percent (33%). [29]

(2) Exceptions. - No deduction shall be allowed in

respect

of

interest

under

the

succeeding

subparagraphs:

(a) If within the taxable year an individual

taxpayer reporting income on the cash basis

incurs an indebtedness on which an interest is

paid in advance through discount or otherwise:

Provided, That such interest shall be allowed as

a

deduction in the year the indebtedness is

paid: Provided, further, That if the indebtedness

is

payable

in

periodic

amortizations,

the

amount of interest which corresponds to the

amount of the principal amortized or paid

during the year shall be allowed as deduction in

such taxable year;

(b) If both the taxpayer and the person to

whom the payment has been made or is to be

made are persons specified under Section 36

(B); or

(c) If the indebtedness is incurred to finance

petroleum exploration.

(3) Optional Treatment of Interest Expense. - At

the option of the taxpayer, interest incurred to

acquire property used in trade business or exercise

of a profession may be allowed as a deduction or

treated as a capital expenditure.

(C) Taxes. -

(1) In General. - Taxes paid or incurred within the

taxable

year

in

connection

with

the

taxpayer's

profession, trade or business, shall be allowed as

deduction, except:

(a) The income tax provided for under this Title;

(b) Income taxes imposed by authority of 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

credits

for taxes of

foreign countries);

(c) Estate and donor's taxes; and

(d) Taxes assessed against local benefits of a

kind

tending

to

increase the value of the

property assessed.

Provided, That taxes allowed under this Subsection,

when refunded or credited, shall be included as part

of gross income in the year of receipt to the extent of

the income tax benefit of said deduction.

(2) Limitations on Deductions. - In the case of a

nonresident alien individual engaged in trade or

business in the Philippines and a resident 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.

(3)

Credit

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 income

taxes paid or incurred during the taxable year

to any foreign country; and

(b) Partnerships and Estates. - In the case of

any such individual who is a member of a

general

professional

partnership

or

a

beneficiary

of

an

estate

or

trust,

his

proportionate share of such taxes of the general

professional partnership or the estate or trust

paid or incurred 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.

An alien individual and a foreign corporation shall

not be allowed the credits against the tax for the

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 to the

tax paid or incurred to any country shall not

exceed the same proportion of the tax against

which such credit is taken, which the taxpayer's

taxable

income

from

sources

within

such

country under this Title bears to his entire

taxable 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

taxable

income

from

sources

without

the

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19 of 201