Article 27p. 27

NATIONAL INTERNAL REVENUE CODE TAXATION, TARIFF and CUSTOMS LAWS

(a) The term " securities " means bonds and

debentures but not ' notes ' of whatever class or

duration.

(b) The term " merger " or " consolidation ", when

used in this Section, shall be understood to

mean: (i) the ordinary merger or consolidation,

or (ii) the acquisition by one corporation of all or

substantially

all

the

properties

of

another

corporation solely for stock: Provided, That for a

transaction to be regarded as a merger or

consolidation

within

the

purview

of

this

Section, it must be undertaken for a bona fide

business purpose and not solely for the purpose

of escaping the burden of taxation: Provided,

further, That in determining whether a bona

fide business purpose exists, each and every

step of the transaction shall be considered and

the whole transaction or series of transaction

shall be treated as a single unit: Provided, finally

, That in determining whether the property

transferred constitutes a substantial portion of

the

property

of

the

transferor,

the

term

"property" shall be taken to include the cash

assets of the transferor.

(c)

The

term

" control ",

when

used in this

Section, shall mean ownership of stocks in a

corporation

possessing

at

least

fifty-one

percent (51%) of the total voting power of all

classes of stocks entitled to vote.

(d)

The

Secretary

of

Finance,

upon

recommendation

of

the

Commissioner,

is

hereby

authorized

to

issue

rules

and

regulations for the purpose "substantially all"

and for the proper implementation of this

Section.

SEC. 41. Inventories. - whenever in the judgment of the

Commissioner, the use of inventories is necessary in order

to

determine

clearly

the

income

of

any

taxpayer,

inventories shall be taken by such taxpayer upon such

basis as the Secretary of Finance, upon recommendation

of the Commissioner, may, by rules and regulations,

prescribe as conforming as nearly as may be to the best

accounting practice in the trade or business and as most

clearly reflecting the income.

If a taxpayer, after having complied with the terms and a

conditions

prescribed

by

the

Commissioner,

uses

a

particular method of valuing its inventory for any taxable

year, then such method shall be used in all subsequent

taxable years unless:

(i) With the approval of the Commissioner, a change

to a different method is authorized; or

(ii) The Commissioner finds that the nature of the

stock

on

hand

(e.g.,

its

scarcity,

liquidity,

marketability and price movements) is such that

inventory gains should be considered realized for tax

purposes and, therefore, it is necessary to modify the

valuation method for purposes of ascertaining the

income, profits, or loss in a more realistic manner:

Provided, however, That the Commissioner shall not

exercise

his

authority

to

require

a

change

in

inventory method more often than once every three

(3) years: Provided, further, That any change in an

inventory valuation method must be subject to

approval by the Secretary of Finance.

SEC. 42. Income from Sources Within the Philippines. -

(A)Gross Income from Sources Within the Philippines. -

The following items of gross income shall be treated as

gross income from sources within the Philippines:

(1) Interests. - Interests derived from sources within

the Philippines, and interests on bonds, notes or

other

interest-bearing

obligation

of

residents,

corporate or otherwise;

(2) Dividends. - The amount received as dividends:

(a) From a domestic corporation; and

(b) From a foreign corporation, unless less than

fifty percent (50%) of the gross income of such

foreign corporation for the three-year period

ending

with

the

close

of

its

taxable

year

preceding the declaration of such dividends or

for such part of such period as the corporation

has

been

in

existence)

was

derived

from

sources within the Philippines as determined

under the provisions of this Section; but only in

an amount which bears the same ratio to such

dividends

as

the

gross

income

of

the

corporation

for

such

period

derived

from

sources within the Philippines bears to its gross

income from all sources;

(3)

Services.-

Compensation

for

labor

or

personal services performed in the Philippines;

(4) Rentals and Royalties. - Rentals and royalties

from property located in the Philippines or

from any interest in such property, including

rentals or royalties for -

(a) The use of or the right or privilege to

use

in

the

Philippines

any

copyright,

patent,

design

or

model,

plan,

secret

formula or process, goodwill, trademark,

trade brand or other like property or right;

(b) The use of, or the right to use in the

Philippines any industrial, commercial or

scientific equipment;

(c)

The

supply

of

scientific,

technical,

industrial or commercial knowledge or

information;

(d) The supply of any assistance that is

ancillary

and

subsidiary

to,

and

is

furnished as a means of enabling the

application

or enjoyment of, any such

property

or

right

as

is

mentioned

in

paragraph (a), any such equipment as is

mentioned in paragraph (b) or any such

knowledge or information as is mentioned

in paragraph (c);

(e) The supply of services by a nonresident

person or his employee in connection with

the use of property or rights belonging to,

or the installation or operation of any

brand,

machinery

or

other

apparatus

purchased from such nonresident person;

(f) Technical advice, assistance or services

rendered

in

connection

with technical

management

or

administration of any

scientific,

industrial

or

commercial

undertaking, venture, project or scheme;

and

(g) The use of or the right to use:

(i) Motion picture films;

(ii) Films or video tapes for use in

connection with television; and

(iii) Tapes for use in connection with

radio broadcasting.

(5) Sale of Real Property. -Gains, profits and

income from the sale of real property located in

the Philippines; and

(6) Sale of Personal Property. - Gains; profits

and income from the sale of personal property,

as determined in Subsection (E) of this Section.

(B)

Taxable

Income

From

Sources

Within

the

Philippines. -

(1) General Rule. - From the items of gross income

specified in Subsection (A) of this Section, there shall

be

deducted

the

expenses,

losses

and

other

deductions properly allocated thereto and a ratable

part

of

expenses,

interests,

losses

and

other

deductions effectively connected with the business

or

trade

conducted

exclusively

within

the

© Compiled by RGL

27 of 201