TAXATION I

SECOND SEMESTER, A.Y. 2020 – 2021

CORPORATE RECOVERY AND TAX INCENTIVES FOR

ENTERPRISES ACT (CREATE ACT) AMENDING THE
NIRC OF 1997.
A comparison between the Corporate Income Tax provisions in the old law, NIRC of 1997, and
the new law, CREATE Act.

Submitted to:

Atty. Bernardino T. Amago IV

School of Law and Governance
University of San Carlos
Cebu City, Philippines

Submitted by:

EH 304

May 2021
 OLD LAW CREATE ACT CHANGES

SEC. 22. Definitions. — When used in this SEC. 22. Definitions. — When used in this As amended by the CREATE Law, One
Title: Title: Person Corporation is subsumed under the
term “corporation” in addition to those
(A) x x x (A) x x x enumerated under Section 22 (b) of the NIRC.

(B) The term ‘corporation’ shall include (B) The term 'corporation' shall include one Prior to such amendment, the term
partnerships, no matter how created or person corporations, partnerships, no “corporation” pertains only to the following:
organized, joint-stock companies, joint matter how created or organized, joint-
accounts (cuentas en participacion), stock companies, joint accounts (cuentas (a) partnerships, no matter how created or
associations, or insurance companies, but en participacion), associations, or organized;
does not include general professional insurance companies, but does not include (b) Joint-stock companies;
partnerships and a joint venture or general professional partnerships and a (c) Joint accounts
consortium formed for the purpose of joint venture or consortium formed for the (d) Associations; and
undertaking construction projects or purpose of undertaking construction (e) Insurance companies.
engaging in petroleum, coal, geothermal projects or engaging in petroleum, coal,
and other energy operations pursuant to an geothermal and other energy operations However, no amendment/s were introduced in
operating or consortium agreement under a pursuant to an operating consortium relation to the exemptions provided in the
service contract with the Government. agreement under a service contract with same section, to wit:
‘General professional partnerships’ are the Government. 'General professional
partnerships formed by persons for the partnerships' are partnerships formed by (1) General Professional Partnerships
sole purpose of exercising their common persons for the sole purpose of exercising (GPP)
profession, no part of the income of which their common profession, no part of the (2) Joint venture or consortium formed for
is derived from engaging in any trade or income of which is derived from engaging the purpose of undertaking construction
business. in any trade or business. projects or engaging in petroleum and
other energy operations under a
service agreement with the
Government.

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SEC. 25. Tax on Nonresident Alien SEC. 25. Tax on Nonresident Alien As amended by CREATE Law, winnings of a
Individual. — Individual. — Nonresident Alien Individual amounting to Ten
thousand pesos (P10,000.00) or less from
(A) x x x (A) x x x Philippine Charity Sweepstakes Office (PCSO)
games shall be exempt from the income tax of
(1) x x x (1) x x x twenty percent (20%).

(2) Cash and/or Property Dividends from a (2) Cash and/or Property Dividends from Prior to such amendment, the law did not
Domestic Corporation or Joint Stock a Domestic Corporation or Joint Stock specifically provide for a Ten thousand pesos
Company, or Insurance or Mutual Fund Company, or Insurance or Mutual (P10,000) threshold for the tax exemption on
Company or Regional Operating Fund Company or Regional Operating PCSO winnings.
Headquarter of Multinational Company, Headquarter or Multinational
or Share in the Distributable Net Company, or Share in the
Income of a Partnership (Except a Distributable Net Income of a
General Professional Partnership), Partnership (Except a General
Joint Account, Joint Venture Taxable as Professional Partnership), Joint
a Corporation or Association, Interests, Account, Joint Venture Taxable as a
Royalties, Prizes, and Other Winnings. Corporation or Association, Interests,
— Cash and/or property dividends from Royalties, Prizes, and Other Winnings.
a domestic corporation, or from a joint — Cash and/or property dividends
stock company, or from an insurance or from a domestic corporation, or from a
mutual fund company or from a joint stock company, or from an
regional operating headquarter of insurance or mutual fund company or
multinational company, or the share of from a regional operating headquarter
a nonresident alien individual in the of multinational company, or the share
distributable net income after tax of a of a nonresident alien individual in the
partnership (except a general distributable net income after tax of a
professional partnership) of which he is partnership (except a general
a partner, or the share of a nonresident professional partnership) of which he
alien individual in the net income after is a partner, or the share of a
tax of an association, a joint account, or nonresident alien individual in the net
a joint venture taxable as a corporation income after tax of an association, a
of which he is a member or a co- joint account, or a joint venture taxable
venturer; interests; royalties (in any as a corporation of which he is a
form); and prizes (except prizes member or a co-venturer; interests;
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amounting to Ten thousand pesos royalties (in any form); and prizes
(P10,000) or less which shall be subject (except prizes amounting to Ten
to tax under Subsection (B)(1) of thousand pesos (P10,000.00) or less
Section 24); and other winnings (except which shall be subject to tax under
Philippine Charity Sweepstakes and Subsection (B)(1) of Section 24) and
Lotto winnings), shall be subject to an other winnings (except winnings
income tax of twenty percent (20%) on amounting to Ten thousand pesos
the total amount thereof: Provided, (P10,000.00) or less from Philippine
however, That royalties on books as Charity Sweepstakes Office (PCSO)
well as other literary works, and games which shall be exempt); shall
royalties on musical compositions shall be subject to an income tax of twenty
be subject to a final tax of ten percent percent (20%) on the total amount
(10%) on the total amount thereof: thereof: Provided, however, That
Provided, further, That cinematographic royalties on books as well as other
films and similar works shall be subject literary works, and royalties on musical
to the tax provided under Section 28 of compositions shall be subject to a final
this Code: Provided, furthermore, That tax of ten percent (10%) on the total
interest income from long-term deposit amount thereof: Provided, further,
or investment in the form of savings, That cinematographic films and similar
common or individual trust funds, works shall be subject to the tax
deposit substitutes, investment provided under Section 28 of this
management accounts and other Code: Provided, furthermore, That
investments evidenced by certificates in interest income from long-term deposit
such form prescribed by the Bangko or investment in the form of savings,
Sentral ng Pilipinas (BSP) shall be common or individual trust funds,
exempt from the tax imposed under this deposit substitutes, investment
Subsection: Provided, finally, That management accounts and other
should the holder of the certificate pre- investments evidenced by certificates
terminate the deposit or investment in such form prescribed by the Bangko
before the fifth (5th) year, a final tax Sentral ng Pilipinas (BSP) shall be
shall be imposed on the entire income exempt from the tax imposed under
and shall be deducted and withheld by this Subsection: Provided, finally, That
the depository bank from the proceeds should the holder of the certificate pre-
of the long-term deposit or investment terminate the deposit or investment
certificate based on the remaining before the fifth (5th) year, a final tax
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 maturity thereof: shall be imposed on the entire income
and shall be deducted and withheld by
Four (4) years to less 5% the depository bank from the proceeds
than five (5) years of the long-term deposit or investment
Three (3) years to 12% certificate based on the remaining
less than four (4) maturity thereof:
years
Less than three (3) 20% Four (4) years to less than five (5)
years years — 5%;
Three (3) years to less than four (4)
years — 12%; and
Less than three (3) years — 20%.

(3) x x x.

SEC. 27. Rates of Income tax on Domestic SEC. 27. Rates of Income Tax on Domestic Section 6 of CREATE Act amended Section 27
Corporations. — Corporations. — of the NIRC. The following are the
amendments:
(A) In General. — Except as otherwise (A) In General. — Except as otherwise
provided in this Code, an income tax of provided in this Code, an income tax rate SECTION 27 (A)- INCOME TAX RATES ON
thirty-five percent (35%) is hereby imposed of twenty-five percent (25%) effective July DOMESTIC CORPORATIONS
upon the taxable income derived during 1, 2020, is hereby imposed upon the
each taxable year from all sources within taxable income derived during each There are noticeable changes pertaining to the
and without the Philippines by every taxable year from all sources within and income tax rates of Domestic Corporations.
corporation, as defined in Section 22(B) of without the Philippines by every
this Code and taxable under this Title as a corporation, as defined in Section 22(B) of Section 27 of the NIRC provides that the
corporation, organized in, or existing under this Code and taxable under this Title as a normal income tax rate of a corporation follows
the laws of the Philippines: Provided, That corporation, organized in, or existing the following rules:
effective January 1, 2009, the rate of under the laws of the Philippines.
income tax shall be thirty percent (30%).

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In the case of corporations adopting the Provided, That corporations with net General rule: An income tax of 30% is
fiscal-year accounting period, the taxable taxable income not exceeding Five million imposed upon the taxable income of a
income shall be computed without regard pesos (P5,000,000.00) and with total domestic corporation derived during each
to the specific date when specific sales, assets not exceeding One hundred million taxable year.
purchases and other transactions occur. pesos (P100,000,000.00), excluding land
Their income and expenses for the fiscal on which the particular business entity's Exceptions:
year shall be deemed to have been office, plant, and equipment are situated 15% optional corporate tax on gross income;
earned and spent equally for each month during the taxable year for which the tax is and
of the period. imposed, shall be taxed at twenty percent 2% minimum corporate income tax.
(20%).
The corporate income tax rates shall be However, Section 6 of the CREATE Act
applied on the amount computed by In the case of corporations adopting the amended Section 27 of the NIRC and provided
multiplying the number of months covered fiscal-year accounting period, the taxable that starting July 1, 2020. Under the Create
by the new rates within the fiscal year by income shall be computed without regard Law, the new tax rate for domestic
the taxable income of the corporation for to the specific date when specific sales, corporations is 25% but there are exceptions to
the period, divided by twelve. purchases and other transactions occur. such.
Their income and expenses for the fiscal
Provided, further, That the President, upon year shall be deemed to have been Exceptions:
the recommendation of the Secretary of earned and spent equally for each month
Finance, may effective January 1, 2000, of the period. 1. 20% upon the net income for domestic
allow corporations the option to be taxed at corporations with net taxable income
fifteen percent (15%) of gross income as The corporate income tax rate shall be not exceeding P5,000,000.00 and with
defined herein, after the following applied on the amount computed by total assets not exceeding
conditions have been satisfied: multiplying the number of months covered P100,000,000.00, excluding land on
by the new rate within the fiscal year by which the particular business entity’s
(1) A tax effort ratio of twenty percent the taxable income of the corporation for office, plant, and equipment are
(20%) of Gross National Product the period, divided by twelve. situated during the taxable year; and
(GNP);
(2) ratio of forty percent (40%) of income 2. 1% minimum corporate income tax rate
tax collection to total tax revenues; (B) Proprietary Educational Institutions and As can be seen, the 15% optional
(3) A VAT tax effort of four percent (4%) of Hospitals. — Proprietary educational corporate tax on gross income is
GNP; and institutions and hospitals which are already removed.
(4) A 0.9 percent (0.9%) ratio of the nonprofit shall pay a tax of ten percent
Consolidated Public Sector Financial (10%) on their taxable income except
Position (CPSFP) to GNP. those covered by Subsection (D) hereof:
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 Provided, That beginning July 1, 2020 SECTION 27 (B) PROPRIETARY
The option to be taxed based on gross until June 30, 2023, the tax rate herein EDUCATIONAL INSTITUTIONS AND
income shall be available only to firms imposed shall be one percent (1%): HOSPITALS
whose ratio of cost of sales to gross sales Provided, further, That if the gross income
or receipts from all sources does not from 'unrelated trade, business or other The NIRC provides special tax rules for special
exceed fifty-five percent (55%). activity' exceeds fifty percent (50%) of the corporations. Among the special corporations
total gross income derived by such is the proprietary educational institution and
The election of the gross income tax option educational institutions or hospitals from non-profit hospital (PEI & NPH). The tax rules
by the corporation shall be irrevocable for all sources, the tax prescribed in applicable for PEI & NPH are as follows:
three (3) consecutive taxable years during Subsection (A) hereof shall be imposed on
which the corporation is qualified under the the entire taxable income.
scheme. General Rule: Tax rate of 10% on their net
For purposes of this Subsection, the term income except those covered Subsection (D)
For purposes of this Section, the term 'unrelated trade, business or other activity' of Section 27 or those from certain passive
'gross income' derived from business shall means any trade, business or other income.
be equivalent to gross sales less sales activity, the conduct of which is not
returns, discounts and allowances and cost substantially related to the exercise or Exception: NIT shall be imposed on the entire
of goods sold "Cost of goods sold" shall performance by such educational taxable income when the gross income from
include all business expenses directly institution or hospital of its primary unrelated trade, business or other activity
incurred to produce the merchandise to purpose or function. exceeds 50% of the total gross income derived
bring them to their present location and by such educational institutions or hospitals
use. 'Proprietary' means a private hospital, or from all sources.
any private school maintained and
For a trading or merchandising concern, administered by private individuals or However, CREATE Act provided that
"cost of goods" sold shall include the groups with an issued permit to operate beginning July 1, 2020 until June 20, 2023,
invoice cost of the goods sold, plus import from the Department of Education non-profit proprietary educational institutions
duties, freight in transporting the goods to (DepEd), or the Commission on Higher and hospitals shall be taxed at 1%, instead of
the place where the goods are actually Education (CHED), or the Technical 10%.
sold, including insurance while the goods Education and Skills Development
are in transit. Authority (TESDA), as the case may be, in Also provided under the Create Law, if the
accordance with existing laws and gross income from “unrelated trade”, business
For a manufacturing concern, "cost of regulations. or other activity' exceeds fifty percent (50%) of
goods manufactured and sold" shall the total gross income derived by such
include all costs of production of finished educational institutions or hospitals from all
goods, such as raw materials used, direct sources, The tax rate to be used is 25% as
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 labor and manufacturing overhead, freight (C) Government-owned or -Controlled prescribed in subsection (A), prior to the
cost, insurance premiums and other costs Corporations, Agencies or CREATE law the tax rate under subsection (A)
incurred to bring the raw materials to the Instrumentalities. — The provisions of is 30%.
factory or warehouse. existing special or general laws to the
contrary notwithstanding, all corporations,
In the case of taxpayers engaged in the agencies, or instrumentalities owned or SECTION 27 (C) GOVERNMENT-OWNED OR
sale of service, 'gross income' means controlled by the Government, except the CONTROLLED CORPORATIONS,
gross receipts less sales returns, Government Service Insurance System AGENCIES OR INSTRUMENTALITIES
allowances and discounts. (GSIS), the Social Security System (SSS),
the Home Development Mutual Fund The Former list Government-owned or
(B) Proprietary Educational Institutions and (HDMF), the Philippine Health Insurance Controlled-Corporations, Agencies or
Hospitals. - Proprietary educational Corporation (PHIC), and the local water Instrumentalities under the NIRC consists of
institutions and hospitals which are districts shall pay such rate of tax upon the following:
nonprofit shall pay a tax of ten percent their taxable income as are imposed by 1. Government Service Insurance System
(10%) on their taxable income except those this Section upon corporations or (GSIS),
covered by Subsection (D) hereof: associations engaged in a similar 2. Social Security System (SSS),
Provided, that if the gross income from business, industry, or activity. 3. Philippine Health Insurance
unrelated trade, business or other activity Corporation (PHIC), and
exceeds fifty percent (50%) of the total 4. the local water districts
gross income derived by such educational (D) Rates of Tax on Certain Passive Incomes.
institutions or hospitals from all sources, —xxx While under the CREATE Act maintained the
the tax prescribed in Subsection (A) hereof same agencies but with the addition of Home
shall be imposed on the entire taxable (1) x x x Development Mutual Fund (HDMF)
income. (2) x x x
(3) x x x SECTION 27 (D) RATES OF TAX ON
CERTAIN PASSIVE INCOMES
For purposes of this Subsection, the term (4) Intercorporate Dividends. — Dividends
'unrelated trade, business or other activity' received by a domestic corporation Here, there are differences in terms of
means any trade, business or other shall not be subject to tax under this intercorporate dividends under the old law and
activity, the conduct of which is not Title: Provided, That for foreign- the Create Law.
substantially related to the exercise or sourced dividends to be exempt, the
performance by such educational institution funds from such dividends actually In the old law, dividends received by a
or hospital of its primary purpose or received or remitted into the domestic corporation from another domestic
function. Philippines are reinvested in the corporation shall not be subject to tax.
business operations of the domestic
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 corporation in the Philippines within Dividends Domes Resident Non
A "Proprietary educational institution" is the next taxable year from the time the issued tic Foreign resident
any private school maintained and foreign-sourced dividends were by: Corp. Corp. Foreign
administered by private individuals or received and shall be limited to
Corp.
groups with an issued permit to operate funding the working capital
from the Department of Education, Culture requirements, capital expenditures, Tax EXEMPT DUMPING DUMPING
and Sports (DECS), or the Commission on dividend payments, investment in Rules: GROUND GROUND
Higher Education (CHED), or the Technical domestic subsidiaries, and COMPUT COMPUTA
Education and Skills Development infrastructure project: Provided, ATION TION
Authority (TESDA), as the case may be, in further, That the domestic corporation
accordance with existing laws and holds directly at least twenty percent
regulations. (20%) of the outstanding shares of the On the other hand, Create Law domestic
foreign corporation and has held the corporations shall also not be taxed. However
(C) Government-owned or Controlled- shareholdings for a minimum of two it was added that for foreign-sourced dividends
Corporations, Agencies or Instrumentalities (2) years at the time of the dividends to be exempt, certain condition must be met :
— The provisions of existing special or distribution. 1. The funds from such dividends actually
general laws to the contrary received or remitted into the Philippines
notwithstanding, all corporations, agencies, (5) x x x are reinvested in the business
or instrumentalities owned or controlled by operations of the domestic corporation
the Government, except the Government (E) Minimum Corporate Income Tax on in the Philippines within the next
Service Insurance System (GSIS), the Domestic Corporations. taxable year from the time the foreign-
Social Security System (SSS), the sourced dividends were received; and
Philippine Health Insurance Corporation (1) Imposition of Tax. — A minimum 2. The dividends shall be used to funding
(PHIC), the Philippine Charity Sweepstakes corporate income tax of two percent the working capital requirements,
Office (PCSO) and the Philippine (2%) of the gross income as of the end capital expenditures, dividend
Amusement and Gaming Corporation of the taxable year, as defined herein, payments, investment in domestic
(PAGCOR), shall pay such rate of tax upon is hereby imposed on a corporation subsidiaries, and infrastructure project;
their taxable income as are imposed by this taxable under this Title, beginning on and
Section upon corporations or associations the fourth taxable year immediately 3. The domestic corporation holds directly
engaged in similar business, industry, or following the year in which such at least twenty percent (20%) of the
activity. corporation commenced its business outstanding shares of the foreign
operations, when the minimum income corporation and has held the
tax is greater than the tax computed shareholdings for a minimum of two (2)
under Subsection (A) of this Section years at the time of the dividends
for the taxable year: Provided, That distribution.

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(D) Rates of Tax on Certain Passive Incomes. effective July 1, 2020 until June 30,
—xxx 2023, the rate shall be one percent
(1%).
(1) x x x
(2) x x x (2) x x x
(3) x x x (3) x x x
(4) x x x.
(4) Intercorporate Dividends. - Dividends
received by a domestic corporation
from another domestic corporation
shall not be subject to tax.

(5) x x x

(E) Minimum Corporate Income Tax on

Domestic Corporations.

(1) Imposition of Tax - A minimum

corporate income tax of two percent
(2%0 of the gross income as of the end
of the taxable year, as defined herein,
is hereby imposed on a corporation
taxable under this Title, beginning on
the fourth taxable year immediately
following the year in which such
corporation commenced its business
operations, when the minimum income
tax is greater than the tax computed
under Subsection (A) of this Section for
the taxable year.

(2) x x x
(3) x x x
(4) x x x

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SEC. 28. Rates of Income Tax on Foreign SEC. 28. Rates of Income Tax on Foreign TAX ON INCOME RECEIVED BY A
Corporations. — Corporations. — RESIDENT FOREIGN CORPORATION
Old law: Section 27, 7(a)
(A) Tax on Resident Foreign Corporations – (A) Tax on Resident Foreign Corporations – The old law only provided for 7.5% tax for
interest income derived by a resident foreign
(1) In General. - Except as otherwise (1) In General. — Except as otherwise corporation from a depository bank under the
provided in this Code, a corporation provided in this Code, a corporation expanded foreign currency deposit system.
organized, authorized, or existing under organized, authorized, or existing CREATE LAW: Section 28 6(a)
the laws of any foreign country, under the laws of any foreign country, CREATE LAW doubled the tax on that interest
engaged in trade or business within the engaged in trade or business within income from 7.5% to 15 percent.
Philippines, shall be subject to an the Philippines, shall be subject to an
income tax equivalent to thirty-five income tax equivalent to twenty-five
percent (35%) of the taxable income percent (25%) of the taxable income Tax for capital gains and shares of stocks
derived in the preceding taxable year derived in the preceding taxable year not traded in the stock exchange
from all sources within the Philippines: from all sources within the Philippines Old law: Section 27, 7(c)
Provided, That effective January 1, effective July 1, 2020. Before, under 7(c) , the final tax rates for
1998, the rate of income tax shall be Capital Gains from Sale of shares of Stock Not
thirty-four percent (34%); effective In the case of corporations adopting Traded in the stock exchange were subject to
January 1, 1999, the rate shall be thirty- the fiscal-year accounting period, the thresholds:
three percent (33%), and effective taxable income shall be computed Not over P100,000………….… 5%
January 1, 2000 and thereafter, the rate without regard to the specific date On any amount in excess of
shall be thirty-two percent (32%). when sales, purchases and other P100,000…….10%
transactions occur.
In the case of corporations adopting the CREATE LAW: Section 28, 6 (c)
fiscal-year accounting period, the Their income and expenses for the CREATE LAW disposed of the thresholds and
taxable income shall be computed fiscal year shall be deemed to have imposes a uniform 15% tax
without regard to the specific date when been earned and spent equally for
sales, purchases and other each month of the period.
transactions occur. TAX ON NONRESIDENT FOREIGN
The corporate income tax rate shall be CORPORATIONS
Their income and expenses for the applied on the amount computed by For taxes on nonresident foreign corporations
fiscal year shall be deemed to have multiplying the number of months not engaged in trade or business in the
been earned and spent equally for each covered by the new rate within the Philippines, the old law prescribed 35% upon
month of the period. fiscal year by the taxable income of implementation, which cascaded down yearly
the corporation for the period, divided to 34%, 33%, and finally 32%. of the gross
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 The reduced corporate income tax by twelve. income received during each taxable year from
rates shall be applied on the amount all sources within the Philippines.
computed by multiplying the number of
months covered by the new rates within (2) Minimum Corporate Income Tax of CREATE LAW reduced it to 25% flat.
the fiscal year by the taxable income of Resident Foreign Corporations. — A
the corporation for the period, divided minimum corporate income tax of two
by twelve. Provided, however, That a percent (2%) of gross income, as
resident foreign corporation shall be prescribed under Section 27(E) of this INTERCORPORATE DIVIDENDS
granted the option to be taxed at fifteen Code, shall be imposed, under the For intercorporate dividends, the old law
percent (15%) on gross income under same conditions, on a resident foreign allowed a credit against the tax due from the
the same conditions, as provided in corporation taxable under paragraph nonresident foreign corporation taxes deemed
Section 27 (A). (1) of this Subsection: Provided, That to have been paid in the Philippines equivalent
effective July 1, 2020 until June 30, to twenty percent (20%) for 1997, nineteen
(2) Minimum Corporate Income Tax on 2023, the rate shall be one percent percent (19%) for 1998, eighteen percent
Resident Foreign Corporations. - A (1%). (18%) for 1999, and seventeen percent (17%)
minimum corporate income tax of two thereafter
percent (2%) of gross income, as (3) x x x
prescribed under Section 27 (E) of this (4) Tax on Branch Profits Remittances. — CREATE LAW sets a uniform tax credit rate at
Code, shall be imposed, under the xxx 15%
same conditions, on a resident foreign
corporation taxable under paragraph (5) Regional or Area Headquarters and
(1) of this Subsection. Regional Operating Headquarters of
Multinational Companies. —
(3) x x x
(4) Tax on Branch Profits Remittances. — (a) Regional or area headquarters as
xxx defined in Section 22(DD) shall not
be subject to income tax.
(5) Tax on Branch Profits Remittances. -
Any profit remitted by a branch to its (b) Regional operating headquarters
head office shall be subject to a tax of as defined in Section 22(EE) shall
fifteen (15%) which shall be based on pay a tax of ten percent (10%) of
the total profits applied or earmarked their taxable income: Provided,
for remittance without any deduction That effective January 1, 2022,
for the tax component thereof (except regional operating headquarters
those activities which are registered shall be subject to the regular
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 with the Philippine Economic Zone corporate income tax.
Authority).
(6) Tax on Certain Incomes Received by
The tax shall be collected and paid in a Resident Foreign Corporation. —
the same manner as provided in
Sections 57 and 58 of this Code: (a) Interest from Deposits and Yield or
provided, that interests, dividends, Any Other Monetary Benefit from
rents, royalties, including remuneration Deposit Substitutes, Trust Funds
for technical services, salaries, wages and Similar Arrangements and
premiums, annuities, emoluments or Royalties. — Interest from any
other fixed or determinable annual, currency bank deposit and yield or
periodic or casual gains, profits, any other monetary benefit from
income and capital gains received by deposit substitutes and from trust
a foreign corporation during each funds and similar arrangements
taxable year from all sources within and royalties derived from sources
the Philippines shall not be treated as within the Philippines shall be
branch profits unless the same are subject to a final income tax at the
effectively connected with the conduct rate of twenty percent (20%) of
of its trade or business in the such interest: Provided, however,
Philippines. That interest income derived by a
resident foreign corporation from a
(6) Regional or Area Headquarters and depository bank under the
Regional Operating Headquarters of expanded foreign currency deposit
Multinational Companies. — system shall be subject to a final
income tax at the rate of fifteen
(a) Regional or area headquarters as percent (15%) of such interest
defined in Section 22(DD) shall not income.
be subject to income tax.
(b) Income Derived under the
(b) Regional operating headquarters Expanded Foreign Currency
as defined in Section 22(EE) shall Deposit System. — x x x
pay a tax of ten percent (10%) of
their taxable income. (c) Capital Gains from Sale of Shares
of Stock Not Traded in the Stock
Exchange. — A final tax at the rate
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(7) Tax on Certain Incomes Received by a of fifteen percent (15%) is hereby
Resident Foreign Corporation. — imposed upon the net capital gains
realized during the taxable year
(a) Interest from Deposits and Yield or from the sale, barter, exchange or
any other Monetary Benefit from other disposition of shares of stock
Deposit Substitutes, Trust Funds in a domestic corporation except
and Similar Arrangements and shares sold or disposed of through
Royalties - Interest from any the stock exchange.
currency bank deposit and yield or
any other monetary benefit from
deposit substitutes and from trust (d) Intercorporate Dividends. — x x x
funds and similar arrangements and
royalties derived from sources (B) Tax on Nonresident Foreign Corporation.
within the Philippines shall be —
subject to a final income tax at the
rate of twenty percent (20%) of (1) In General. — Except as otherwise
such interest: Provided, however, provided in this Code, a foreign
That interest income derived by a corporation not engaged in trade or
resident foreign corporation from a business in the Philippines, effective
depository bank under the January 1, 2021, shall pay a tax equal
expanded foreign currency deposit to twenty-five percent (25%) of the
system shall be subject to a final gross income received during each
income tax at the rate of seven and taxable year from all sources within
one-half percent (7 1/2%) of such the Philippines, such as interests,
interest income. dividends, rents, royalties, salaries,
premiums (except reinsurance
premiums), annuities, emoluments or
(b) Income Derived under the other fixed or determinable annual,
Expanded Foreign Currency periodic or casual gains, profits and
Deposit System – x x x income, and capital gains, except
capital gains subject to tax under
subparagraph 5(c).

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 (c) Capital Gains from Sale of Shares (2) x x x
of Stock Not Traded in the Stock (3) x x x
Exchange. - A final tax at the rates (4) x x x
prescribed below is hereby imposed
upon the net capital gains realized (5) Tax on Certain Incomes Received by
during the taxable year from the a Nonresident Foreign Corporation. —
sale, barter, exchange or other
disposition of shares of stock in a (a) Interest on Foreign Loans. — x x x
domestic corporation except shares
sold or disposed of through the (b) Intercorporate Dividends. — A final
stock exchange: withholding tax at the rate of fifteen
percent (15%) is hereby imposed
Not over P100,000………….… 5% on the amount of cash and/or
On any amount in excess of property dividends received from a
P100,000…….10% domestic corporation, which shall
be collected and paid as provided
(d) Intercorporate Dividends. – x x x in Section 57(A) of this Code,
subject to the condition that the
(B) Tax on Nonresident Foreign Corporation. country in which the nonresident
— foreign corporation is domiciled,
shall allow a credit against the tax
(1) In General. - Except as otherwise due from the nonresident foreign
provided in this Code, a foreign corporation taxes deemed to have
corporation not engaged in trade or been paid in the Philippines
business in the Philippines shall pay a equivalent to fifteen percent (15%),
tax equal to thirty-five percent (35%) of which represents the difference
the gross income received during each between the regular income tax
taxable year from all sources within the and the fifteen percent (15%) tax
Philippines, such as interests, on dividends as provided in this
dividends, rents, royalties, salaries, subparagraph: Provided, That
premiums (except reinsurance effective July 1, 2020, the credit
premiums), annuities, emoluments or against the tax due shall be
other fixed or determinable annual, equivalent to the difference
periodic or casual gains, profits and between the regular income tax
income, and capital gains, except rate provided in Section 28(B)(1) of
14
 capital gains subject to tax under this Code and the fifteen percent
subparagraphs (C) and (d): Provided, (15%) tax on dividends;
That effective 1, 1998, the rate of
income tax shall be thirty-four percent
(34%); effective January 1, 1999, the (c) Capital Gains from Sale of Shares
rate shall be thirty-three percent (33%); of Stock Not Traded in the Stock
and, effective January 1, 2000 and Exchange. — A final tax at the rate
thereafter, the rate shall be thirty-two of fifteen percent (15%) is hereby
percent (32%). imposed upon the net capital gains
realized during the taxable year
(2) x x x from the sale, barter, exchange or
(3) x x x other disposition of shares of stock
(4) x x x in a domestic corporation, except
shares sold, or disposed of
(5) Tax on Certain Incomes Received by a through the stock exchange."
Nonresident Foreign Corporation. –

(a) Interest on Foreign Loans. – x x x

(b) Intercorporate Dividends - A final

withholding tax at the rate of fifteen
percent (15%) is hereby imposed
on the amount of cash and/or
property dividends received from a
domestic corporation, which shall
be collected and paid as provided in
Section 57 (A) of this Code, subject
to the condition that the country in
which the nonresident foreign
corporation is domiciled, shall allow
a credit against the tax due from the
nonresident foreign corporation
taxes deemed to have been paid in
the Philippines equivalent to twenty
percent (20%) for 1997, nineteen
15
 percent (19%) for 1998, eighteen
percent (18%) for 1999, and
seventeen percent (17%) thereafter,
which represents the difference
between the regular income tax of
thirty-five percent (35%) in 1997,
thirty-four percent (34%) in 1998,
and thirty-three percent (33%) in
1999, and thirty-two percent (32%)
thereafter on corporations and the
fifteen percent (15%) tax on
dividends as provided in this
subparagraph;

(c) Capital Gains from Sale of Shares

of Stock not Traded in the Stock
Exchange. - A final tax at the rates
prescribed below is hereby imposed
upon the net capital gains realized
during the taxable year from the
sale, barter, exchange or other
disposition of shares of stock in a
domestic corporation, except
shares sold, or disposed of through
the stock exchange:

Not over P100,000…………..5%

On any amount in excess of
P100,000………… 10%

16
SEC. 29. Imposition of Improperly SECTION 8. Section 29 of the National Pursuant to the Republic Act No. 11534,
Accumulated Earnings Tax — Internal Revenue Code of 1997, as otherwise known as CREATE Law, the Capital
amended, on the imposition of improperly Gains Tax on unlisted share is increased from
(A) In General. - In addition to other taxes accumulated earnings tax, is hereby repealed. five percent (5 %) / ten percent (10 %) to
imposed by this Title, there is hereby fifteen percent (15 %).
imposed for each taxable year on the
improperly accumulated taxable income of The Old Law imposed a final tax of five
each corporation described in Subsection percent (5 %) for those not over P100, 000
B hereof, an improperly accumulated or ten percent (10 %) on any amount in
earnings tax equal to ten percent (10%) of excess of P100, 000 upon the net capital
the improperly accumulated taxable gains realized during the taxable year from the
income. sale, barter, exchange or other disposition of
shares of stock in a domestic corporation,
(B) Tax on Corporations Subject to Improperly except shares sold, or disposed of through the
Accumulated Earnings Tax. - stock exchange. The New Law,
notwithstanding the amount, now fixed the tax
(1) In General - The improperly rate at fifteen percent (15 %)
accumulated earnings tax imposed in
the preceding Section shall apply to
every corporation formed or availed for Basically, Section 29 of the National Internal
the purpose of avoiding the income tax Revenue Code of 1997, provides the
with respect to its shareholders or the imposition of an improperly accumulated
shareholders of any other corporation, earnings tax equal to ten percent (10%) of
by permitting earnings and profits to the improperly accumulated taxable
accumulate instead of being divided or income. Pursuant to Republic Act No. 11534,
distributed. otherwise known as CREATE Law, such
(2) Exceptions - The improperly imposition and all the rules provided therein
accumulated earnings tax as provided are now ineffective as it is hereby repealed.
for under this Section shall not apply to:

(a) Publicly-held corporations;

(b) Banks and other nonbank financial
intermediaries; and
(c) Insurance companies.

17
(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:

(1) Income exempt from tax;

(2) Income excluded from gross income;
(3) Income subject to final tax; and
(4) The amount of net operating loss carry-
over deducted;

18
 And reduced by the sum of:

(1) Dividends actually or constructively

paid; and
(2) Income tax paid for the taxable year

Provided, however, That for corporations

using the calendar year basis, the
accumulated earnings under 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.

19
SEC. 34. Deductions from Gross Income. — SEC. 34. Deductions from Gross Income. Under Ordinary and Necessary Trade,
Except for taxpayers earning compensation — Except for taxpayers earning Business or Professional Expenses as an item
income arising from personal services compensation income arising from personal deductible from Gross Income, the fifth (5th)
rendered under an employer-employee services rendered under an employer- item under Section 34(A)(1)(a) is non-
relationship where no deductions shall be employee relationship where no deductions existent in the National Internal Revenue
allowed under this Section, in computing shall be allowed under this Section, in Code.
taxable income under Sections 24(A); 25(A); computing taxable income subject to income
26; 27(A), (B), and (C); and 28(A)(1), there tax under Sections 24(A); 25(A); 26; 27(A),
shall be allowed the following deductions from (B), and (C); and 28(A)(1), there shall be Under the new Republic Act No. 11534,
gross income: allowed the following deductions from gross otherwise known as CREATE Law, Section 9
income: therein provides for an amendment in Section
(A) Expenses. — 34(A)(1)(a)(v), which adds a new deductible
item enunciated under the aforementioned
(1) Ordinary and Necessary Trade, (A) Expenses. — section, where an additional allowable
Business or Professional Expenses. — deduction from taxable income of one-half
(1) Ordinary and Necessary Trade, value of the value of the labor training
(a) In General. – Business or Professional Expenses. expenses is incurred for the skills
— development of enterprise-based trainees
(i) x x x enrolled in public senior high schools, public
(ii) x x x (a) x x x higher education institutions or public technical
(iii) x x x and vocational institutions which must be duly
(iv) x x x (i) x x x covered by an apprenticeship agreement as
(ii) x x x provided for under the Labor Code of the
(iii) x x x Philippines, as amended, however, subject to
(B) Interest. — (iv) x x x certain conditions;
a. That such enterprise/s must first secure
(1) In General. - The amount of interest (v) An additional deduction from a proper certification from DepEd,
paid or incurred within a taxable year taxable income of one-half TESDA or CHED for additional
on indebtedness in connection with the (1/2) of the value of labor deductions for enterprise-based training
taxpayer's profession, trade or training expenses incurred for of students from public educational
business shall be allowed as deduction skills development of institutions;
from gross income: Provided, however, enterprise-based trainees b. Such deductions shall not exceed 10%
That the taxpayer's otherwise allowable enrolled in public senior high of the value of the direct labor wage.
deduction for interest expense shall be schools, public higher
reduced by forty-two percent (42%) of education institutions, or public
20
 the interest income subjected to final technical and vocational B. Interest
tax: Provided, That effective January 1, institutions and duly covered by Taxpayer’s allowable deduction for interest
2009, the percentage shall be thirty- an apprenticeship agreement expense is reduced to 20% in the new law.
three percent (33%). under Presidential Decree No. There is a specific percentage provided in the
442, series of 1974, or the old law, while in the new law there is a
'Labor Code of the Philippines,' prescribed standard formula in adjusting
(2) x x x as amended, shall be granted interest income tax in the future.
to enterprises: Provided,
(C) Taxes. — x x x further, That for the additional 2. XXX
(D) Losses. — x x x deduction for enterprise-based The old law provides exceptions and optional
(E) Bad Debts. — x x x training of students from public treatment of interest expense as well. . There
(F) Depreciation. — x x x educational institutions, the are three situations listed wherein deductions
(G) Depletion of Oil and Gas Wells and Mines. enterprise shall secure proper shall not be allowed. The new law deleted
—xxx certification from the DepEd, these exceptions. Optional Treatment Expense
(H) Charitable and Other Contributions. — x x TESDA, or CHED: Provided, is deleted in the new law as well. This means
x finally, That such deduction the taxpayer does not have an option anymore
(I) Research and Development. — x x x shall not exceed ten percent to treat the interest incurred to acquire property
(J) Pension Trusts. — x x x (10%) of direct labor wage. used in trade or business or exercise of
(K) Additional Requirements for Deductibility profession to be deducted or to be treated as a
of Certain Payments. — x x x (B) Interest. — capital expenditure.
(L) Optional Standard Deduction (OSD). — x x
x." (1) In General. — The amount of interest C. TAXES
paid or incurred within a taxable year In the old law there are taxes incurred that are
on indebtedness in connection with allowed as deductions. There are kinds of
the taxpayer's profession, trade or taxes specifically listed in this provision.
business shall be allowed as However, in the new this provision about taxes
deduction from gross income: is deleted. Aside from it, other sections like the
Provided, however, That the limitations on deduction, the credit against tax
taxpayer's otherwise allowable for taxes of foreign countries, the limitations on
deduction for interest expense shall be credit, the adjustments on payment of incurred
reduced by twenty percent (20%) of taxes, the year on which credit taken, and the
the interest income subjected to final proof of credit were as well deleted in the new
tax: Provided, finally, That if the law.
interest income tax is adjusted in the
future, the interest expense reduction
21
 rate shall be adjusted accordingly D. LOSSES
based on the prescribed standard The old law provides a section for losses which
formula as defined in the rules and can be deducted, a section for proof of loss,
regulations to be promulgated by the net operating loss carry-over capital losses,
Secretary of Finance, upon the losses from wash sales of stock or securities,
recommendation of the Commissioner wagering losses and abandonment losses, in
of Internal Revenue. which these sections were no longer included
in the new law.
(2) x x x
E. BAD DEBTS
(C) Taxes. — x x x The section for bad debts was as well removed
(D) Losses. — x x x in the new law.
(E) Bad Debts. — x x x
(F) Depreciation. — x x x F. DEPRECIATION
(G) Depletion of Oil and Gas Wells and Mines. New law no longer provides information on
—xxx how securities become worthless, rules on
(H) Charitable and Other Contributions. — x x depreciation, usage of methods and rates,
x useful life and depreciation, depreciation of
(I) Research and Development. — x x x properties in petroleum operations and mining
(J) Pension Trusts. — x x x operation, depreciation deductible by non-
(K) Additional Requirements for Deductibility resident aliens engaged in trade or business or
of Certain Payments. — x x x resident foreign corporations.
(L) Optional Standard Deduction (OSD). — x
x x. G. Depletion of Oil and Gas Wells and
Mines. — x x x

H. Charitable and Other Contributions. — x

xx

I.Research and Development. — x x x

J.Pension Trusts. — x x x

K.Additional Requirements for

Deductibility of Certain Payments. — x x x
22
 L.Optional Standard Deduction (OSD). — x
x x."
(“ G” TO “ L”)
The following succeeding sections are all
deleted in the new law. Only the old law
provides sections for election to deduct
exploration and development expenditures, a
section for depletion of oil and gas wells and
mines by a non-resident alien individual or
foreign corporation, section for contributions,
donations and amortizations and other
requirements and limitations.

SEC. 40. Determination of Amount and SEC. 40. Determination of Amount and Scenarios for tax-free exchange broadened.
Recognition of Gain or Loss. — Recognition of Gain or Loss. — The amendment in Section 40 (C) (2) talks
about a plan of reorganization and further
(A) x x x (A) x x x specifies the definition of reorganization in
(B) x x x (B) x x x Section 40 (C) (2) (a) to (e). While the old law
mentions only of a plan of merger and
(C) Exchange of Property. - x x x (C) Exchange of Property. — x x x consolidation, the new law is broader as it now
includes acquisition, recapitalization and
(1) General Rule. - x x x (1) General Rule. — x x x reincorporation.

(2) Exception. - No gain or loss shall be (2) Exception. — No gain or loss shall be To specifically illustrate:
recognized if in pursuance of a plan of recognized on a corporation or on its
merger or consolidation – stock or securities if such corporation is Under NIRC, the scenarios for tax free
a party to a reorganization and exchange are: (1) merger or consolidation; and
(a) A corporation, which is a party to a exchanges property in pursuance of a (2) transfer or exchange of property for stock
merger or consolidation, exchanges plan of reorganization solely for stock resulting in corporate control. Under CREATE,
property solely for stock in a or securities in another corporation that the scenarios for tax free exchange are: (1)
corporation, which is a party to the is a party to the reorganization. reorganization; and (2) transfer or exchange of
merger or consolidation; or property for stock resulting in corporate control.

23
(b) A shareholder exchanges stock in a In other words, while the second scenario is
corporation, which is a party to the A reorganization is defined as: retained in the new law, the first scenario of
merger or consolidation, solely for merger or consolidation in the old law was
the stock of another corporation (a) A corporation, which is a party to a expanded into a concept of reorganization in
also a party to the merger or merger or consolidation, exchanges the new law, thus:
consolidation; or property solely for stock in a
corporation, which is a party to the Under NIRC, merger or consolidation covers
merger or consolidation; or the following:
(c) A security holder of a corporation, (1) between corporation which are parties to
which is a party to the merger or (b) The acquisition by one corporation, the merger or consolidation (property for
consolidation, exchanges his in exchange solely for all or a part stock); or
securities in such corporation, of its voting stock, or in exchange (2) between a stockholder of a corporation
solely for stock or securities in such solely for all or part of the voting party to a merger or consolidation and the
corporation, a party to the merger or stock of a corporation which is in other party corporation (stock for stock); or
consolidation. control of the acquiring corporation, (3) between a security holder of a corporation
of stock of another corporation if, party to the merger or consolidation and the
No gain or loss shall also be immediately after the acquisition, other corporation (securities for securities or
recognized if property is transferred to the acquiring corporation has stock).
a corporation by a person in exchange control of such other corporation
for stock or unit of participation in such whether or not such acquiring
a corporation of which as a result of corporation had control immediately In comparison, under CREATE, merger or
such exchange said person, alone or before the acquisition; or consolidation is now subsumed under the
together with others, not exceeding four broader concept of reorganization, which is
(4) persons, gains control of said (c) The acquisition by one corporation, defined as:
corporation: Provided, That stocks in exchange solely for all or a part (1) merger or consolidation - between
issued for services shall not be of its voting stock or in exchange corporation which are parties to the merger or
considered as issued in return for solely for all or part of the voting consolidation (property for stock); or
property. stock of a corporation which is in (2) acquisition by a corporation of stock of
control of the acquiring corporation, another corporation in exchange for shares, if,
of substantially all of the properties immediately after the acquisition, the acquiring
Sale or exchanges of property used for of another corporation. In corporation has control of the acquired
business for shares of stock covered determining whether the exchange corporation; or
under this Subsection shall not be is solely for stock, the assumption
subject to value-added tax. by the acquiring corporation of a

24
 In all of the foregoing instances of liability of the others shall be (3) acquisition by a corporation in exchange of
exchange of property, prior Bureau of disregarded; or shares, of substantially all of the properties of
Internal Revenue confirmation or tax another corporation; or
ruling shall not be required for purposes (d) A recapitalization, which shall mean (4) recapitalization; or
of availing the tax exemption. an arrangement whereby the stock (5) reincorporation.
and bonds of a corporation are
(3) x x x readjusted as to amount, income, or
(4) x x x priority or an agreement of all VAT exemption expressly mentioned.
(5) x x x stockholders and creditors to CREATE expressly mentions that sale or
change and increase or decrease exchanges of property used for business for
(6) Definitions. - the capitalization or debts of the shares of stock covered under this Subsection
corporation or both; or shall not be subject to value-added tax, a
(a) x x x paragraph that is conspicuously absent in the
(b) x x x (e) A reincorporation, which shall mean old provision.
the formation of the same corporate
(c) The term “control”, when used in business with the same assets and BIR tax ruling is dispensed with for tax-free
this Section, shall mean ownership the same stockholders surviving exchange transactions.
of stocks in a corporation after the under a new charter. The new law is less cumbersome insofar as it
transfer of property possessing at expressly states that no prior BIR confirmation
least fifty-one percent (51%) of the or tax ruling is required for transactions exempt
total voting power of all classes of under the law to be tax-free.
No gain or loss shall also be
stocks entitled to vote: Provided,
recognized if property is transferred to
That the collective and not the “Control” specified.
a corporation by a person, alone or
individual ownership of all classes The term “control” is now more specified. The
together with others, not exceeding four
of stocks entitled to vote of the 51% is inclusive of ownership after the transfer
(4) persons, in exchange for stock or
transferor or transferors under this of property which was not clear in the old law
unit of participation in such a
Section shall be used in as it only mentions of ownership of stocks in a
corporation of which as a result of such
determining the presence of control. exchange the transferor or transferors, corporation possessing at least 51% of the
total voting power of all classes of stocks
collectively, gains or maintains control
xxx xxx xxx. entitled to vote. The new law further qualifies
of said corporation: Provided, That
stocks issued for services shall not be what shall be used for the determination of the
presence of control: the collective and not the
considered as issued in return for
individual ownership of all classes of stocks
property.
entitled to vote of the transferor.

25
 Sale or exchanges of property used for
business for shares of stock covered
under this Subsection shall not be
subject to value-added tax.

In all of the foregoing instances of

exchange of property, prior Bureau of
Internal Revenue confirmation or tax
ruling shall not be required for purposes
of availing the tax exemption.

(3) x x x
(4) x x x
(5) x x x

(6) Definitions. —

(a) x x x
(b) x x x

(c) The term 'control,' when used in this

Section, shall mean ownership of
stocks in a corporation after the
transfer of property possessing at
least fifty-one percent (51%) of the
total voting power of all classes of
stocks entitled to vote: Provided,
That the collective and not the
individual ownership of all classes
of stocks entitled to vote of the
transferor or transferors under this
Section shall be used in
determining the presence of control.

xxx xxx xxx

26
SEC. 57. Withholding of Tax at Source. — SEC. 57. Withholding of Tax at Source. —

(A) x x x (A) x x x
(B) x x x (B) x x x
(C) x x x (C) x x x

The Department of Finance shall review, at The Department of Finance shall review, at
least once every three (3) years, regulations least once every three (3) years, regulations
and processes for the withholding of and processes for the withholding of
creditable tax under this Code, and direct the creditable tax under this Code, and direct the
Bureau of Internal Revenue to amend rules Bureau of Internal Revenue to amend rules
and regulations for the same, should it be and regulations for the same, should it be
found during the review that the existing rules, found during the review that the existing rules,
regulations, and processes for the withholding regulations, and processes for the withholding
of creditable tax under this Code adversely of creditable tax under this Code adversely
and materially impact the taxpayer. and materially impact the taxpayer.

SEC. 11. Duties of Revenue District SEC. 11. Section 57 of the National Internal 1. Having a set interval for review enables
Officers and Other Internal Revenue Revenue Code of 1997, as amended, is the law to adapt and evolve through the
Officers. – hereby further amended to read as follows: years, rather than have it set in stone
until the end of time. This ensures that
It shall be the duty of every Revenue District “Sec. 57. Withholding of Tax at Source. - the best interest of the taxpayers is
Officer or other internal revenue officers and taken with utmost importance and
employees to ensure that all laws, and rules sincerity.
and regulations affecting national internal A. Xxx
revenue are faithfully executed and complied B. Xxx 2. Enabling the Department of Finance to
with, and to aid in the prevention, detection C. Xxx review regulations and processes for
and punishment of frauds of delinquencies in the withholding of creditable tax and
connection therewith. It shall be the duty of “The Department of Finance shall review, at directing the BIR to amend materially
every Revenue District Officer to examine the least for every three (3) years, regulations and adverse rules, regulations and
efficiency of all officers and employees of the processes for the withholding of creditable tax processes at a set time period also
Bureau of Internal Revenue under his under this Code, and direct the Bureau of prevents the BIR to remain stagnant
supervision, and to report in writing to the Internal Revenue to amend rules and and risk it becoming ineffective and out-
27
Commissioner, through the Regional Director, regulations for the same, should it be found dated.
any neglect of duty, incompetency, during the review that the existing rules,
delinquency, or malfeasance in office of any regulations, and processes for the withholding
internal revenue officer of which he may obtain of creditable tax under this Code adversely and 3. The NIRC already provides the
knowledge, with a statement of all the facts materially impact the taxpayer.” Department of Finance the power of
and any evidence sustaining each case. supervision and control over the BIR.
What the amendment introduced by
SEC. 57. Withholding of Tax at Source. - Section 11 of the CREATE Law is the
(A) Withholding of Final Tax on Certain responsibility of the Department to
Incomes. - practice the power given to it over the
BIR to ensure that equity and fairness
Subject to rules and regulations the Secretary may be served to the taxpayer affected
of Finance may promulgate, upon the by the regulations and processes
recommendation of the Commissioner, subjected to review herein.
requiring the filing of income tax return by
certain income payees, the tax imposed or 4. While Section 11 of RA 11534 retained
prescribed by Sections 24(B)(1), 24(B)(2), the substantive provisions of Section 57
24(C), 24(D)(1); 25(A)(2), 25(A)(3), 25(B), of the NRIC, it added a mandate and
25(C), 25(D), 25(E), 27(D)(1), 27(D)(2), power to the Department of Finance in
27(D)(3), 27(D)(5), 28 (A)(4), 28(A)(5), determining, upon review, as to
28(A)(7)(a), 28(A)(7)(b), 28(A)(7)(c), 28(B)(1), whether or not existing revenue
28(B)(2), 28(B)(3), 28(B)(4), 28(B)(5)(a), regulations and processing as regards
28(B)(5)(b), 28(B)(5)(c); 33; and 282 of this creditable tax have negatively affected
Code on specified items of income shall be the taxpayers.
withheld by payor-corporation and/or person
and paid in the same manner and subject to 5. The amendatory provision likewise
the same conditions as provided in Section 58 provides, as a corollary to the review of
of this Code. the Department of Finance, the Bureau
of Internal Revenue the duty to
exercise its powers in amending the
(B) Withholding of Creditable Tax at
rules which have adverse impacts
Source. –
concerning the processes in
withholding of creditable taxes under
The Secretary of Finance may, upon the
the NRIC.
recommendation of the Commissioner, require
the withholding of a tax on the items of income
28
payable to natural or juridical persons, residing
in the Philippines, by payor-
corporation/persons as provided for by law, at
the rate of not less than one percent (1%) but
not more than thirty-two percent (32%) thereof,
which shall be credited against the income tax
liability of the taxpayer for the taxable year:
Provided, That, beginning January 1, 2019,
the rate of withholding shall not be less than
one percent (1%) but not more than fifteen
percent (15%) of the income payment. [4]

(C)Tax-free Covenant Bonds. –

In any case where bonds, mortgages,

deeds of trust or other similar obligations of
domestic or resident foreign corporations,
contain a contract or provisions by which
the obligor agrees to pay any portion of the
tax imposed in this Title upon the obligee
or to reimburse the obligee for any portion
of the tax or to pay the interest without
deduction for any tax which the obligor
may be required or permitted to pay
thereon or to retain therefrom under any
law of the Philippines, or any state or
country, the obligor shall deduct bonds,
mortgages, deeds of trust or other
obligations, whether the interest or other
payments are payable annually or at
shorter or longer periods, and whether the
bonds, securities or obligations had been
or will be issued or marketed, and the
interest or other payment thereon paid,
29
within or without the Philippines, if the
interest or other payment is payable to a
nonresident alien or to a citizen or resident
of the Philippines.

30