Article 28p. 28

NATIONAL INTERNAL REVENUE CODE TAXATION, TARIFF and CUSTOMS LAWS

Philippines which cannot definitely be allocated to

some items or class of gross income: Provided, That

such items of deductions shall be allowed only if

fully substantiated by all the information necessary

for its calculation. The remainder, if any, shall be

treated in full as taxable income from sources within

the Philippines.

(2) Exception. - No deductions for interest paid or

incurred abroad shall be allowed from the item of

gross income specified in subsection (A) unless

indebtedness was actually incurred to provide funds

for use in connection with the conduct or operation

of trade or business in the Philippines.

(C)

Gross

Income

From

Sources

Without

the

Philippines. - The following items of gross income shall

be

treated

as

income

from

sources

without

the

Philippines:

(1) Interests other than those derived from sources

within the Philippines as provided in paragraph (1) of

Subsection (A) of this Section;

(2) Dividends other than those derived from sources

within the Philippines as provided in paragraph (2)

of Subsection (A) of this Section;

(3) Compensation for labor or personal services

performed without the Philippines;

(4)

Rentals

or

royalties

from

property

located

without the Philippines or from any interest in such

property including rentals or royalties for the use of

or for the privilege of using without the Philippines,

patents, copyrights, secret processes and formulas,

goodwill, trademarks, trade brands, franchises and

other like properties; and

(5) Gains, profits and income from the sale of real

property located without the Philippines.

(D)

Taxable

Income

From

Sources

Without

the

Philippines. - From the items of gross income specified

in Subsection (C) of this Section, there shall be deducted

the

expenses,

losses, and other deductions properly

apportioned or allocated thereto and a ratable part of any

expense, loss or other deduction which cannot definitely

be allocated to some items or classes of gross income.

The remainder, if any, shall be treated in full as taxable

income from sources without the Philippines.

(E) Income From Sources Partly Within and Partly

Without

the

Philippines. -

Items

of

gross

income,

expenses,

losses

and

deductions,

other

than

those

specified in Subsections (A) and (C) of this Section, shall

be allocated or apportioned to sources within or without

the

Philippines,

under

the

rules

and

regulations

prescribed

by

the

Secretary

of

Finance,

upon

recommendation of the Commissioner. Where items of

gross income are separately allocated to sources within

the Philippines, there shall be deducted (for the purpose

of

computing

the

taxable

income

therefrom)

the

expenses,

losses

and

other

deductions

properly

apportioned or allocated thereto and a ratable part of

other expenses, losses or other deductions which cannot

definitely be allocated to some items or classes of gross

income. The remainder, if any, shall be included in full as

taxable income from sources within the Philippines. In

the case of gross income derived from sources partly

within and partly without the Philippines, the taxable

income

may

first

be

computed

by

deducting

the

expenses, losses or other deductions apportioned or

allocated thereto and a ratable part of any expense, loss

or other deduction which cannot definitely be allocated

to some items or classes of gross income; and the portion

of such taxable income attributable to sources within the

Philippines may be determined by processes or formulas

of general apportionment prescribed by the Secretary of

Finance. Gains, profits and income from the sale of

personal property produced (in whole or in part) by the

taxpayer within and sold without the Philippines, or

produced (in whole or in part) by the taxpayer without

and sold within the Philippines, shall be treated as

derived

partly

from sources within and partly from

sources without the Philippines.

Gains, profits and income derived from the purchase of

personal

property

within

and

its

sale

without

the

Philippines, or from the purchase of personal property

without and its sale within the Philippines shall be

treated

as

derived

entirely

form sources within the

country in which sold: Provided, however, That gain from

the sale of shares of stock in a domestic corporation shall

be treated as derived entirely form sources within the

Philippines regardless of where the said shares are sold.

The

transfer

by

a

nonresident

alien

or

a

foreign

corporation to anyone of any share of stock issued by a

domestic corporation shall not be effected or made in its

book

unless:

(1)

the

transferor

has

filed

with

the

Commissioner

a

bond

conditioned

upon the future

payment by him of any income tax that may be due on

the

gains

derived

from

such

transfer,

or

(2)

the

Commissioner has certified that the taxes, if any, imposed

in this Title and due on the gain realized from such sale or

transfer have been paid. It shall be the duty of the

transferor and the corporation the shares of which are

sold

or

transferred,

to advise the transferee of this

requirement.

(F) Definitions. - As used in this Section the words ' sale '

or ' sold ' include ' exchange ' or ' exchanged '; and the word

' produced '

includes

' created ',

' fabricated ',

' manufactured ', ' extracted ', ' processed ', ' cured ' or ' aged '.

CHAPTER VIII ACCOUNTING PERIODS AND

METHODS OF ACCOUNTING

SEC. 43. General Rule. - The taxable income shall be

computed

upon

the

basis

of the taxpayer's annual

accounting period (fiscal year or calendar year, as the

case

may

be)

in

accordance

with

the

method

of

accounting regularly employed in keeping the books of

such taxpayer, but if no such method of accounting has

been so employed, or if the method employed does not

clearly reflect the income, the computation shall be made

in accordance with such method as in the opinion of the

Commissioner

clearly

reflects

the

income.

If

the

taxpayer's annual accounting period is other than a fiscal

year, as defined in Section 22(Q), or if the taxpayer has no

annual accounting period, or does not keep books, or if

the taxpayer is an individual, the taxable income shall be

computed on the basis of the calendar year.

SEC.

44.

Period

in which Items of Gross Income

Included. - The amount of all items of gross income shall

be included in the gross income for the taxable year in

which received by the taxpayer, unless, under methods of

accounting

permitted

under

Section

43,

any

such

amounts are to be properly accounted for as of a different

period. In the case of the death of a taxpayer, there shall

be included in computing taxable income for the taxable

period in which falls the date of his death, amounts

accrued up to the date of his death if not otherwise

properly includible in respect of such period or a prior

period.

SEC. 45. Period for which Deductions and Credits

Taken. - The deductions provided for in this Title shall be

taken for the taxable year in which ' paid or accrued ' or

' paid

or

incurred ', dependent upon the method of

accounting upon the basis of which the net income is

computed, unless in order to clearly reflect the income,

the deductions should be taken as of a different period. In

the case of the death of a taxpayer, there shall be allowed

as deductions for the taxable period in which falls the

date of his death, amounts accrued up to the date of his

death if not otherwise properly allowable in respect of

such period or a prior period.

SEC. 46. Change of Accounting Period. - If a taxpayer,

other than an individual, changes his accounting period

from fiscal year to calendar year, from calendar year to

fiscal year, or from one fiscal year to another, the net

income shall, with the approval of the Commissioner, be

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