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REVENUE REGULATIONS NO.

01-79
SUBJECT: Regulations Governing the Taxation of Non-resident Citizens
TO: All Internal Revenue Officers and Others Concerned

Pursuant to the provision of Section 326 in relation to Section 4 of the National Internal Revenue Code of
1977, as amended, the following regulations revising Revenue Regulations No. 9-73 to implement the
latest amendments to Section 20 of the same Code by P.D. No. 1457 are hereby promulgated.
SECTION 1. Scope. These amended regulations shall govern the manner of taxation of non-resident
citizens as provided for under Section 21 of the Tax Code, as amended, and shall be known as Revenue
Regulations No. 1-79.
SECTION 2. Who are considered as nonresident citizens.
The term "non-resident citizen" means one who establishes to the satisfaction of the Commissioner of
Internal Revenue the fact of his physical presence abroad with the definite intention to reside therein and
shall include any Filipino who leaves the country during the taxable year as:
(a) Immigrant one who leaves the Philippines to reside abroad as an immigrant for which a
foreign visa as such has been secured.
(b) Permanent employee one who leaves the Philippines to reside abroad for employment on a
more or less permanent basis.
(c) Contract worker one who leaves the Philippines on account of a contract of employment
which is renewed from time to time within or during the taxable year under such circumstances as to
require him to be physically present abroad most of the time during the taxable year. To be considered
physically present abroad most of the time during the taxable year, a contract worker must have been
outside the Philippines for not less than 183 days during such taxable year. aisa dc
Any such Filipino shall be considered a non-resident citizen for such taxable year with respect to the
income he derived from foreign sources from the date he actually departed from the Philippines.
A Filipino citizen who has been previously considered as a non-resident citizen and who arrives in the
Philippines at any time during the taxable year to reside therein permanently shall also be considered a
non-resident citizen for the taxable year in which he arrived in the Philippines with respect to his income
derived from sources abroad until the date of his arrival.
SECTION 3. Proof of intention. A Filipino citizen who leaves the Philippines to reside abroad either
as an immigrant or for permanent employment or a contract worker, shall submit to the Commissioner of
Internal Revenue proof of his intention of leaving the Philippines to reside permanently abroad. A
returning non-resident citizen, on the other hand, must present proof of his intention to return to and
reside permanently in the Philippines. Such proof of intention shall be attached to his income tax return
(BIR Form No. 1701C) and may consist of the following:
(a) In the case of an immigrant, photostat or xerox copy of his foreign visa.
(b) In the case of one leaving for permanent employment abroad, a certificate from his employer
showing the nature and duration of his employment.
(c) In the case of a contract worker
(1) Certificate of the employer; or
(2) Copy of the contract of employment; or
(3) Other documentary evidence.
(d) In the case of a returning non-resident citizen
(1) Xerox copy of his passport bearing the stamp of Philippine immigration authorities showing that
he is a returning resident as distinguished from a mere Balikbayan.
(2) Other documentary evidence.
SECTION 4. Manner of filing returns. Every non-resident citizen must file an income tax return
covering all his income earned abroad on BIR Form No. 1701C. When husband and wife are both non-
resident citizens, only one return containing their consolidated income is required to be filed on BIR Form
No. 1701C. cdta

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If aside from the foreign income, the non-resident citizen also derives income from Philippine sources,
two separate returns should be filed, one on BIR Form No. 1701C covering the income derived from
foreign sources and the other on BIR Form No. 1701 or 1701A, as the case may be, covering the income
from sources within the Philippines. However, if the Philippine income is derived solely from salaries,
wages, remunerations or other similar compensation for services rendered and such gross income does not
exceed P2,000, if the taxpayer is single, or P3,333.33, if married or a head of the family, the non-resident
citizen is exempt from filing an income tax return with respect to such income.
The income tax return of non-resident citizen covering his taxable income earned abroad shall be
accompanied by a copy of the income tax return filed with the national government of the foreign country
of his residence as well as the evidences of tax payment.
SECTION 5. Computation of income and tax.
A. On income derived from all sources outside the Philippines.
1. What to include as gross income. The gross income of a non-resident citizen derived from
sources outside the Philippines includes all income enumerated under Section 29 of the National Internal
Revenue Code, whether or not such income is exempted from income tax in the foreign country where it
was derived.
If the income is in foreign currency other than US dollars, it shall first be converted into US dollars at the
average annual rate of exchange of the foreign currency and the US dollar for the year in which the
income was earned.
2. Rate of tax. Beginning with the taxable year 1978, there shall be imposed on the adjusted
gross income of non-resident citizen a tax computed as follows:
On the amount not exceeding
$6,000 1%
On the amount exceeding $6,000
but not exceeding $20,000 $60.00 plus
2% of excess
over $6,000.
On the amount exceeding
$20,000$340.00 plus
3% of excess
over $20,000.
3. Computation of Adjusted Gross Income. The adjusted gross income is arrived at by deducting
from the gross income the following:
a. Personal exemption of $2,000 if the non-resident citizen is single or a married person legally
separated from his or her spouse, or $4,000 if married or head of a family;
b. The total amount of the national income tax actually paid to the national government of the
foreign country of his residence.
4. Head of Family. The term "head of family" is defined as "an unmarried man or woman with
one or both parents, or one or more brothers or sisters, or one or more legitimate, recognized natural, or
adopted children living with and dependent upon him or her for their chief support where such brothers,
sisters, or children are not more than twenty-one years of age, unmarried and not gainfully employed or
where such children are incapable of self-support because they are mentally or physically defective.
5. Computation of tax. The computation of the tax due from a non-resident citizen on income
derived abroad is illustrated as follows:
Mr. Juan de la Cruz, 35 years old, Filipino, married to Maria, with a dependent son, Jose and a resident of
Los Angeles, California.
For U.S. Federal Income Tax purposes, he filed a joint return containing the following data and claimed
the optional standard deductions and used the optional tax tablets:
Income:
Wage, Salaries, Tips, Others $7,814.65
Dividends received from qualified U.S.

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domestic corporation $482.50 less
exclusion $200.00 282.50
Interest Income on savings deposit 110.17
Income other than wages (Wife's prize
in photo contest) 200.00

TOTAL GROSS INCOME $8,407.32
LESS: Adjustment to income (moving
expenses) 60.00

Adjusted Gross Income $8,347.32
TAX DUE PER IRS TABLES $ 325.00
Tax payments and credits
Total Federal income tax
withheld $484.30
Other payments (gasoline
tax, etc.) 32.67

Total payments and credits $516.97

AMOUNT REFUNDABLE (191.97)
======
For Philippine income tax purposes, his income shall be computed as follows:
Gross Income $8,407.32
ADD: Excluded dividend income taxable
under Philippine Income Tax Law 200.00

Total Gross Income $8,607.32
LESS:
(a) Personal Exemption as
married $4,000
(b) Foreign National Income
Tax paid (Attach copy
of Federal Income Tax
Return and evidence
of payment) 325

Total Deductions [add (a) & (b)] 4,325.00

ADJUSTED GROSS INCOME SUBJECT TO TAX $4,282.32
=======
Tax Due:
Adjusted Gross Income $4,282.32
At 1% rate (not over $6,000.00) x .01

Amount payable $42.82

B. On income derived from sources within the Philippines.
The tax due on income derived by a non-resident citizen from sources within the Philippines shall be
computed in the same manner as the income tax payable by resident citizens and resident aliens.

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SECTION 6. When and where to file. The return must be filed, and the tax due, if any, must be paid
on or before April 15 following the year for which the return is being filed with the Philippine Embassy or
Office of the Consulate General nearest to the taxpayer's place of residence or direct to the Commissioner
of Internal Revenue, BIR Bldg., Diliman, Quezon City, Philippines.
If the return and payment, if any, are sent by mail, the same should be mailed on such a date as to reach
the Philippine Embassy, Philippine Consulate General or the Commissioner of Internal Revenue on or
before April 15. The payment should be made in the form of an international money order, bank draft or
manager's check payable to the Commissioner of Internal Revenue.
If the return is filed and payment of the tax made in the Philippines by or for the non-resident citizen, the
tax may be paid in Philippine currency, the dollar amount of the tax to be converted into pesos at the rate
of exchange prescribed by Revenue Memorandum Circular No. 21-78 for internal revenue tax purposes.
When the tax due is in excess of two hundred dollars (U.S.$200.00), the non-resident citizen may elect to
pay the tax in two equal installments in which case, the first installment shall be paid at the time the return
is filed and the second installment, on or before the fifteenth day of July following the close of the
calendar year. If any installment is not paid on or before the date fixed for its payment, the whole amount
of the tax unpaid becomes due and payable together with the delinquency penalties.
SECTION 7. Repealing Clause. These regulations supersede Revenue Regulations No. 9-73 dated
November 26, 1973. All existing rules, regulations, administrative orders and general circulars or portion
thereof, which are inconsistent herewith are hereby repealed, amended or modified accordingly.
SECTION 8. Effectivity. These regulations shall take effect immediately and shall apply to income
earned beginning January 1, 1978.

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REVENUE REGULATIONS NO. 05-01

SUBJECT : Revoking the Requirement for Non-Resident Citizens, Overseas Contract


Workers (OCWs) and Seamen to File Information Returns on Income Derived from Sources Outside the
Philippines.
TO : All Internal Revenue Officers and Others Concerned.
SECTION 1. Scope. Pursuant to Section 244 of the Tax Code of 1997, in relation to Section 23(B)
and (C) and Section 51(A)(2)(d) and (A)(3) of the same Code , these Regulations are hereby promulgated
to repeal Revenue Memorandum Order No. (RMO) 30-99 and Revenue Regulations No. (RR) 9-99 ,
prescribing the filing of information returns by non-resident citizens, overseas contract workers (OCWs)
and seamen with respect to their income derived from sources outside the Philippines. acCTSE
SECTION 2. Filing of Information Returns (BIR Form 1701C or BIR Form 1703) No Longer
Required. Non-resident citizens who are exempt from tax with respect to income derived from sources
outside the Philippines in accordance with Section 23(B) and (C), in relation to Section 22 (E) and
Section 51 (A)(2)(d) and (A)(3) of the Tax Code of 1997, but who are nevertheless mandated to file
information returns (BIR Form 1701C or the new computerized BIR Form 1703) pursuant to RMO 30-99
and RR 9-99, shall no longer be required to file the same on their income derived from sources outside
the Philippines beginning taxable year 2001.
SECTION 3. Repealing Clause. For purposes of these Regulations, RMO 30-99 and RR 9-99 are
hereby repealed accordingly.
SECTION 4. Effectivity Clause. These Regulations shall take effect (15) days after publication in
any newspaper of general circulation.

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September 5, 2000
BIR RULING NO. 033-00

22 (E) (3) 23 (c) 000-00


Technoserve International Company, Inc.
TIC Inc. Bldg., 1606 Trada St. cor. Investment Drive
Madrigal Business Park, Ayala Alabang
Muntinlupa City
Attention: Ms. B.K. Baria
VP & Administration Manager
Gentlemen :
This refers to your letter dated November 23, 1999 requesting for a clarification or ruling with regard to
the proper tax classification of your employees assigned abroad thru Secondment Agreement with your
overseas client.
It is represented that your company, Technoserve International Co., Inc. (TIC), is a domestic foreign
corporation engaged in rendering specialty and technical services for overseas or domestic projects in the
areas of engineering, procurement service and construction management and other related fields; that the
bulk of your revenue comes from work order contracts for design and engineering works for overseas
projects being awarded to you by your main client and parent company, JGC Corporation, having its
principal office at Yokohama, Japan; that the design works are being done here at your Alabang office but
there are also cases wherein you are required to send your qualified staff to Japan and other site office for
design and engineering works, thus the Secondment Agreement with your client; that the employee shall
be stationed at JGC offices for a certain period of time and shall perform his duties according to client's
instruction and without losing the status of employment with TIC; that usually, Intra-company
Transference Visas are being secured by the client and the work contracts pass thru Philippine Overseas
Employment Agency (POEA); that the client will provide for the accommodation, transportation, meal
and site allowances and other necessities while on overseas assignment; that the salaries, which are stated
in US dollar, are being paid here in the Philippines by TIC converted to pesos using the prevailing
exchange rate at the time of payment.
Consequently, and as stated in the Secondment Agreement, the manhour spent by the overseas' assignees
are billed to client at an agreed manhour billing rate based on their position level and salaries; that the
client then remits the payment and TIC converts the same to pesos through the Philippine Banking
System; that, in effect, of client of JGC Corporation is actually the one paying the salaries of overseas'
assignees through TIC; that for income tax purposes, all your employees who are assigned overseas for at
least 183 days in a taxable year were classified as non-residents since the situs of income whether within
or without was determined by the place where the service was rendered; that the income thus earned, even
if paid locally, were taxed based on the preferential rates of 1-2-3% before the taxable year 1998; that
with the implementation of the Comprehensive Tax Reform Program as of January 1, 1998, you now seek
clarifications as the proper tax treatment of your employees assigned abroad. DaTHAc
In reply, please be advised that Section 23(C) of the Tax Code of 1997 which took effect on January 1,
1998, provides as follows:
"(C) An individual citizen of the Philippines who is working and deriving income from abroad as an
overseas contract workers is taxable only on income from sources within the Philippines. . . " (Emphasis
supplied)
Corollary thereto, Section 22(E)(3) of the same Code provides one of the definitions of the term 'non-
resident citizen' of the Philippines, viz:
"(3) A citizen of the Philippines who works and derives income from abroad and whose employment
thereat requires him to be physically present abroad most of the time during the taxable year."
Thus, for purposes of exemption from income tax, a citizen must be deriving foreign-sources income for
being a non-resident citizen or for being an overseas contract worker (OCW). All your employees whose

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services are rendered abroad for being seconded or assigned overseas for at least 183 days may fall under
the first category and are therefore exempt from payment of Philippine income tax. In this connection, the
phrase "most of the time" which is used in determining when a citizen's physical presence abroad will
qualify him as non-resident, shall mean that the said citizen shall have stayed abroad for at least 183 days
in a taxable year. (Sec. (2) (c), Rev. Regs. 1-79)
The same exemption applies to an overseas contract worker but as such worker, the time spent abroad is
not material for tax exemption purposes. All that is required is for the worker's employment contract to
pass through and be registered with the Philippine Overseas Employment Agency (POEA).
You may, therefore, recognize the income tax exemption of your employees assigned abroad based on
either of the foregoing premises.
This ruling is being issued on the basis of the foregoing facts as represented. If upon investigation, it will
be disclosed that the facts are different, then this ruling shall be considered null and void. SDIaCT

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BIR RULING [DA-095-05]
Section 23; BIR Ruling No. 094-98
Mr. Jose O. Borromeo
15707 Pinyon Crk. Dr.
Houston, Texas 77095
U.S.A.
Sir:
This refers to your letter dated October 19, 2004 stating that you are very interested to apply for
Philippine Dual Citizenship under Republic Act No. 9225. THaAEC
You now pose the question whether you are required to pay taxes for income earned in the United States
(U.S.).
In reply, please be informed that Section 23(A) of the Tax Code of 1997 provides, viz:
"SEC. 23. General Principles of Income Taxation in the Philippines. Except as otherwise
provided in this Code:
(A) A citizen of the Philippines residing therein is taxable on all income derived from sources within
and without the Philippines;
(B) A nonresident citizen is taxable only on income derived from sources within the Philippines;"
Section 23 of the Philippine Tax Code espouses the source rule of income taxation, except for resident
citizens and domestic corporations that remain taxable on their world-wide income. In line with the
source rule, nonresident citizens and resident aliens are now taxed only on their Philippine-sourced
income. Under this provision, resident citizens are subject to Philippine tax on their income derived
within and without the Philippines, hence, income earned in the U.S. is subject to income tax in the
Philippines. On the other hand, non-resident citizens are subject to Philippine tax only on their income
within the Philippines. TAEDcS
Under the inherent limitation of territoriality of taxation, a state can only tax properties, activities or
services within its territory. If the flow of wealth proceeded from and occurred, within U.S. territory
enjoying the protection accorded by the U.S. Government or obtained by a person enjoying that
protection, the situs of the source of income is the United States of America. In consideration of such
protection, the flow of wealth should share the burden of the supporting government which is the U.S.
Government. Since income was derived without the Philippines, the situs of the income is without the
Philippines; hence, the Philippine Government has no jurisdiction over income derived outside the
Philippines by nonresident citizens not engaged in trade or business within the Philippines.
In view of the foregoing and since you will be a nonresident citizen, you will not be required to pay
Philippine tax for income earned in the United States. STaIHc
This ruling is being issued on the basis of the foregoing facts as represented. However, if upon
investigation, it will be disclosed that the facts are different, then this ruling shall be considered as null
and void.

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BIR RULING NO. 108-10
Sec. 22 (B); DA(JV-020)537-2009 dtd. 9/14/09
Avida Land Corp.
8/F Mondragon Building
324 Sen. Gil Puyat Avenue
Makati City
Attention: Atty. Arlene Montero
Legal Counsel
Gentlemen :
This refers to your letter dated July 01, 2010, requesting confirmation on the tax implications of the joint
venture for construction purposes between Aurora Properties, Inc. ("Aurora") and Avida Land Corp.
("Avida") for the joint development of a parcel of land located in Barangay Canlubang, Calamba City,
Laguna, into a residential subdivision. IcEACH
Background
Aurora is a corporation duly organized and existing under Philippine laws with principal place of business
at the 31/F Tower One Exchange Plaza, Ayala Triangle, Ayala Avenue, Makati City, and duly authorized
to engage in real estate business as provided in the Primary Purpose of its Amended Articles of
Incorporation, as follows:
"PRIMARY PURPOSE
To acquire, hold and dispose of by purchase, lease, exchange, mortgage, donation or in any other manner,
conditionally and absolutely, and to use, improve, develop, sub-divide, manage and hold for investment or
otherwise, real estate or any interest therein of any kind, whether improved or unimproved, and to erect or
cause to be erected on any real estate buildings or other similar structures, together with their
appurtenances."
On the other hand, Avida is also a corporation duly organized and existing under Philippine laws with
principal place of office at the 8/F Mondragon Building, 324 Sen. Gil Puyat Avenue, Makati City. The
primary purpose of Avida as duly authorized in its amended Articles of Incorporation is as follows:
SCETHa
"PRIMARY PURPOSE
To acquire by purchase, lease, donation or otherwise, and to own, use, improve, develop, subdivide, sell,
mortgage, exchange, lease, develop and hold for investment or otherwise, real estate buildings, houses,
apartments, and other structures of whatever kind, together with their appurtenances; to carry on and
conduct a general contracting business with any party, including the constructing, repairing, remodeling,
operation, maintenance, financing of, or otherwise to engage in, any work upon any and every kind and
description of public works, buildings, structures, earth construction and installations; to enter into and
execute contracts or to make or receive assignments of contracts therefore or relating thereto; and to
manufacture and/or furnish construction and building materials, equipment and supplied connected
therewith."
Aurora is the registered owner of a parcel of land (the "Property") with an area of approximately Two
Hundred Fifty-Nine Thousand One Hundred Fifty-Eight (259,158) square meters located in Barangay
Canlubang, Calamba City (the "Property") more or particularly described in and covered by Transfer
Certificate of Title No. T-681854 of the Registry of Deeds for Calamba City.
On January 13, 2010, Aurora and Avida entered into a Joint Development Agreement (the "JDA") for the
formation of a joint venture for construction purposes whereby Aurora, as registered owner of the
Property, shall contribute the Property to the joint venture, and Avida, shall contribute project
development services to construct and develop the Property into a residential subdivision (the "Project")
with shared amenities, utilities and facilities to be developed on the Property. STECDc

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In return for their respective contribution each party shall receive their respective allocation of Saleable
House and Lot Units/Saleable Lot Units from the Project. Aurora shall receive an allocation of eleven
percent (11%) of the saleable House and Lot Units and twenty-five percent (25%) of the Saleable Lots of
the Project. Avida shall receive an allocation of eighty-nine percent (89%) of the Saleable House and Lot
Units and seventy-five percent (75%) of the Saleable Lots of the Project.
In reply, please be informed as follows:
Section 22 (B) of the Tax Code of 1997, as amended, states as follows:
"Section 22. Definitions. When used in this Title:
xxx xxx xxx
(B) The term 'corporation' shall include partnerships, no matter how created or organized, joint-stock
companies, joint accounts (cuentas en participacion), associations, or insurance companies, but does not
include general professional partnerships and a joint venture or consortium formed for the purpose of
undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations
pursuant to an operating or consortium agreement under a service contract with the Government. 'General
professional partnerships' are partnerships formed by persons for the sole purpose of exercising their
common profession, no part of the income of which is derived from engaging in any trade or business."
(Emphasis supplied) TCacIA
The abovementioned exemption was initiated under Presidential Decree (PD) No. 929, dated May 4,
1976, which amended the definition of a "taxable" corporation in the Tax Code, as amended, to
specifically exclude joint ventures formed for the purpose of undertaking construction projects. Said PD
instituted the amendment of the definition of the term "taxable" corporation in recognition of the
following situations: (1) Local contractors contribute substantially to the development program of the
country; (2) Local contractors are at a disadvantage in competitive bidding with foreign contractors in
view of limited capital and financial resources; (3) In order to be able to compete with big foreign
contractors, it may be necessary for local contractors to enter into joint ventures to pool, their limited
resources in undertaking big construction projects. Hence, to assist the local contractors in achieving
competitiveness with foreign contractors, the joint ventures formed by said local contractors were thus
deemed as not falling under the definition of a "taxable" corporation, and thus not subject to income tax.
This was, and still is, the intention of the legislature.
Such being the case, the Development Agreement entered into by and between Aurora and Avida is not
subject to the income tax under Section 27 (A) of the Tax Code of 1997, as amended. cSTCDA
Moreover, the allocation of the saleable units between Aurora and Avida, which is done effectively in
consideration of their respective contributions, does not constitute a taxable event, as no income is
actually realized by either Aurora and/or Avida. The Partition Agreement or Deed of Allocation will be
executed without consideration, and will not be in connection with any sale between the said parties. As
has been ruled by the BIR on numerous occasions, income, in a broad sense, means all wealth which
flows into the taxpayer other than as a mere return of capital (Section 36, RR No. 2). Aurora and Avida,
having contributed to the development of the aforementioned real properties, will not realize any income
upon the allocation of the saleable units. Hence, the allocation of units arising from the Partition
Agreement is not subject to income tax, and consequently, to withholding tax. The said allocation,
likewise, is not subject to VAT. Under Section 105 of the 1997 Tax Code, as amended, any person who, in
the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services and
any person who imports goods shall be subject to VAT. However, by contributing the parcels of land,
Aurora and Avida neither sells, barters, exchanges goods, property nor renders services to be subject to
VAT. (BIR Ruling No. DA-240-2001 dated November 16, 2001; BIR Ruling No. DA-115-2001 dated
September 5, 2001). IHAcCS
Aurora and/or Avida will only realize income upon their respective sales of the saleable units allocated to
each of them. In this regard, said sales to third parties, if ever undertaken by Aurora and/or Avida, would
be subject to regular (corporate) income tax at the rate of 30%, in accordance with Section 27 (A) of the
1997 Tax Code, as amended, and consequently to withholding tax as implemented under Revenue
Regulations (RR) No. 2-98, as amended. The said sales by Aurora and/or Avida to third parties would

10
likewise be subject to the VAT at the rate of 12%, in accordance with Sections 106 and 109 of the 1997
Tax Code, as amended, and to the Documentary Stamp Tax (DST) at the rate fifteen pesos (P15.00) for
each one thousand pesos (P1,000.00), or fractional part thereof in excess of one thousand pesos
(P1,000.00) of such consideration or value, in accordance with Section 196 of the 1997 Tax Code, as
amended.
Further, the Partition Agreement or Deed of Allocation whereby Aurora and Avida will allocate unto each
other their share in the saleable units in consideration of their respective contributions, is not subject to
the DST imposed under Section 196 of the 1997 Tax Code, as amended, considering that, as stated earlier,
the allocation is made without monetary consideration and is not in connection with a sale. In this regard,
Section 185 of the Revised Documentary Stamp Tax Regulations (Regulations No. 26) provides that
"conveyances of realty not in connection with a sale, to trustees or other persons without consideration
are not taxable." Accordingly, since the aforementioned Partition Agreement will be executed without
consideration and not in connection with a sale between Aurora and/or Avida, no DST therefore is due
and collectible on said Partition Agreement or Deed of Allocation. However, the notarial acknowledgment
to said Partition Agreement or Deed of Allocation shall be subject to the DST pursuant to Section 188 of
the 1997 Tax Code, as amended, in the amount of P15.00. CEHcSI
On the other hand, since under the Joint Venture Agreement Avida undertakes to market the saleable lots
allocated to Aurora, by virtue of an exclusive marketing agreement, the marketing fees derived by Avida
thereof shall be subject to income tax imposed under Section 27 (A) of the Tax Code of 1997, as
amended, and consequently, to the withholding tax imposed under Revenue Regulations No. 2-98, as
amended, and to the VAT imposed under Section 108 of the same Tax Code. The sale by Avida of the lots
allocated to Aurora to third parties by virtue of the Marketing Agreement, shall be subject to income tax
and consequently, to the creditable withholding tax (CWT) and to VAT. The CWT attributable thereto
shall be credited against the income tax liability of Aurora. Moreover, said sale is subject to the DST
imposed under Section 196 of the same Tax Code at the rate above-mentioned. (BIR Ruling Nos. 660-
2007 dated December 18, 2007; 621-07 dated December 7, 2007; and 620-07 dated December 7, 2007)
This will authorize the Revenue District Officer (RDO) of the revenue district where the property is
located to issue the corresponding Certificate Authorizing Registration (CAR) and Tax Clearance
Certificate (TCL) involving the transfer of the titles to the parties based on their respective allocations
pursuant to the Deed of Partition/Partition Agreement, without need of the presentation of proof of
payment of the CWT, VAT and the corresponding DST. Provided, that the parties to the joint venture shall
cause the Register of Deeds to annotate on the TCT that a development project is being undertaken on the
land and is the object of the Joint Venture Agreement between the parties, and that the joint venture is
held to be a tax-exempt entity pursuant to this Ruling issued by this Office. Provided further, that parties
to the joint venture shall inform the Bureau of Internal Revenue, through the Law Division, of the
fulfillment of the requirement on the full distribution of the finished/saleable units in accordance with the
allocation ratio in the Joint Venture Agreement/Project Agreement. For this purpose, a compliance report
of the project indicating the number of units developed/finished, respective CCTs and the party in whose
name the corresponding title was issued. SEIcHa
Finally, since under the Joint Venture Agreement/Project Agreement the developer undertakes to market
the finished/saleable units allocated to the landowner by virtue of an exclusive marketing agreement, the
marketing fees derived by the developer thereof shall be subject to income tax imposed under Section 27
(A) of the Tax Code of 1997, as amended, and consequently, to the withholding tax imposed under
Revenue Regulations No. 2-98, as amended, and to the VAT imposed under Section 108 of the same Tax
Code. (BIR Ruling DA(JV-020)537-2009 dated September 14, 2009)

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BIR RULING NO. 322-87
21 (a) 34 (b) 119-84 322-87
Gentlemen :
This refers to your letter dated July 23, 1987 stating that your company is a trading concern and at present
it is in the process of liquidation; and that your individual stockholders will receive their liquidating
dividends in excess of their investment.
In reply, I have the honor to inform you that since the individual stockholders of your company will
receive upon its complete liquidation all its assets as liquidating dividends, they will thereby realize
capital gain or loss. The gain, if any, derived by the individual stockholders consisting of the difference
between the fair market value of the liquidating dividends and the adjusted cost to the stockholders of
their respective shareholdings in the said corporation (Sec. 83 (a), Sec. 256, Income Tax Regulations)
shall be subject to income tax at the rates prescribed under Section 21(a) of the Tax Code, as amended by
Executive Order No. 37. cda
Moreover, pursuant to Section 34(b) of the Tax Code, as amended by Executive Order No. 37, only 50%
of the aforementioned capital gain is reportable for income tax purposes if the shares were held by the
individual stockholders for more than twelve months and 100% of the capital gains if the shares were held
for less than twelve months.
Very truly yours,

12
BIR RULING NO. 479-11
000-00
Aguirre Pawnshop Company, Inc.
135 Dela Rosa St., Legaspi Village
Makati City
Attention: Michelina A. Olondriz
Director/Trustee
Gentlemen :
This refers to your letter dated 18 August 2010 requesting for the issuance of a Certificate Authorizing
Registration to allow for the transfer and registration of a parcel of land in the City of Manila with
Transfer Certificate of Title No. 46557, together with the improvements thereon from your corporation to
shareholder Marmitz, Inc. (MI).
It is represented that Aguirre Pawnshop Co. (APC), with Tax Identification Number 000-431-934, is a
corporation duly registered with the Securities and Exchange Corporation on 15 December 1956; that on
14 December 2006, the corporate term of APC expired and accordingly, APC ceased to exist as a
corporate entity and was dissolved ipso facto; that on 1 December 2009 a majority of the members of the
Board of Directors of APC in their capacity as Trustees of the corporate assets, approved and adopted a
resolution ordering the distribution of the remaining assets of APC to its stockholders by way of
liquidating dividend. CAIaDT
It is requested that a confirmation of your opinion be made as to the following issues: (1) APC is not
liable for income tax either on its transfer of the properties to MI as liquidating dividend or in its receipt
of the surrendered shares of MI, citing BIR Ruling No. 039-02 dated 11 November 2002; (2) No
documentary stamp tax (DST) is due on the surrender and cancellation of APC shares; (3) No DST is due
on the transfer of the properties from APC to MI; (4) MI shall realize capital gain or loss from the transfer
of properties by way of liquidating dividends.
In reply, please be informed that it is the position of this Office that your request cannot be granted for
lack of legal basis under the National Internal Revenue Code of 1997, as amended. Consequently, the
previously issued BIR Ruling No. 039-02 cited in your letter and the BIR Rulings cited in the said ruling
are reversed and set aside. ACTIHa

13
BIR RULING NO. 039-02
000-00
Puyat Jacinto & Santos
12/F Manilabank Building
6772 Ayala Avenue
Makati City
Attention: Atty. David B. Puyat
and
Atty. Virginia B. Viray
Gentlemen :
This refers to your letter dated July 24, 2001 on behalf of your clients, TA Bank of the Philippines, Inc.
("TA") and The Manila Banking Corporation ("TMBC"), the pertinent portion of which is quoted as
follows: aHTcDA
"TA is a corporation organized and existing under Philippines laws, engaged primarily in commercial
banking, and with principal address at the Grd. Floor Octagon Bldg., Emerald Avenue, Ortigas Center,
Pasig City.
"TA has a total authorized capital of Five Billion Pesos (PhP5,000,000,000.00) divided into Twenty Five
Million (25,000,000) common shares and Twenty Five Million (25,000,000) preferred shares, each with a
par value of PhP100.00 per share.
"Its outstanding capital consists of One Billion Two Hundred Fifty Million Pesos (PhP1,250,000,000.00),
divided into PhP625,000,000 in preferred shares 1 and PhP625,000,000 in common shares 2 .
"All of the outstanding shares of TA are wholly owned by TMBC and its nominees.
"TMBC is likewise a corporation organized and existing under Philippine laws, engaged in business
primarily as a thrift bank, and with principal address at the TMBC Building, 6772 Ayala Avenue, Makati
City 1226, Metro Manila.
"TA is planning to decrease its authorized capital stock to 1,129,020 common shares, with a par value of
PhP100.00 per share, and a total value of One Hundred Twelve Million Nine Hundred Two Thousand
Pesos (PhP112,902,000.00) ["Plan"].
"Under the Plan, all of TA's outstanding preferred shares, and 5,120,980 of its outstanding 6,250,000
common shares shall be surrendered by TMBC and cancelled immediately upon approval by the TA
stockholders, the Securities and Exchange Commission ("SEC") and the Bangko Sentral ng Pilipinas
("BSP") of the said decrease.
"In exchange for the surrender of the abovesaid shares by TMBC, TA shall transfer to TMBC both real
and personal, tangible and intangible properties listed hereunder, and referred to hereinafter as
"Distributed Assets."
LIST OF DISTRIBUTED ASSETS
A. LOAN PORTFOLIO 3
(Amounts in Thousand)
ACCOUNT NAME BALANCE OF PRINCIPAL
AS OF MAY 31, 2001
ANDRES BORJA 5,000
ATLANTA GROUP 91,563
PHILIPPINE WIRELESS 47,231
MONDRAGON 31,667
MARICHRIS/MA. THERESA 65,000
GOTESCO 190,000

14
SUSAN LIM 5,000
E. UYTIEPO 2,600
GEORGE GO 44,531
FIL-ESTATE LAND 6,928
ASIAN GLOBE 77,990
IPII 44,536
ACTIVE REALTY 13,251
METROPOLITAN 1,613
FIL-ESTATE LAND 200,000
J. RODRIGUEZ III 30,000
REYNOLDS PHIL. 6,576
LA. FIRMACION 2,744
DJJ & SONS 22,397
EL BUEN ASENSO 17,100
LU FIRMACION 6,800
JAIME CANCIO 300
C. QUIAMBAO 2,954
R. RUBIO 906
A. DOMINGO 300
AMA COMPUTER 925
ATSUSHI HARADA 1,094
CONCEPCION, PS 186
DAVID DALISAY 870
DE ROCA, DARLITO 925
DE ROCA, RIC650
MICLAT, ROMY & ANICETA 186
CORTEZ, FELIX & MARISSA 840

TOTAL922,663
=====
B. ACQUIRED ASSETS
FORMER OWNER DESCRIPTION/LOCATION

Active Realty Dev't Corp. 146 lots located at Town & Country Southville,
Bian, Laguna with a total area of 23, 604 sq.m.
9 lots located at Town & Country Southville,
Bian, Laguna with a total area of 1,193 sq.m.
6 lots located at Town & Country North Marilao,
Bulacan with a total areas of 2,696 sq.m.
8 Mount Malarayat Golf & Country Club shares

Agusan River Lot with residential building located at #57 12th


Street, New Manila, Quezon City with lot area of
1,001.5 sq.m.

DJJ and Sons 5 units located at the 14th Flr. World Trade
Exchange Center, Juan Luna St., Binondo

Fil Estate Land, Inc. A parcel of land situated in dela Paz, Antipolo,
Rizal with a lot area of 473 sq.m. and covered by
TCT-361115

15
12 lots situated in Parkridge Estate Phase V
Antipolo, Rizal (5,757.50 sq.m.)
6 lots situated in Sherwood Hills, Trece Martires
City, Cavite (4,254 sq.m.)

Ladislao Firmacion A parcel of land along Francisco Road, Brgy.


Francisco with area of 1,173 sq.m.

Gotesco Properties 148 lots located at Calamba, Laguna

Gloria Lanuza 2 storey old residential building at no. 348


Nanirahan St., Villarica Subdivision,
Mandaluyong City with lot area of 298 sq.m.

Gallardo Lopez 2 storey residential building located at #20-B Jose


Abad Santos St., Bayview Subd., Paraaque City
with lot area of 553.45 sq.m.

Ma. Theresa Commercial State Theater Building (5 storey) located at Rizal


avenue, Sta. Cruz, Manila with lot area of 1,238.67
sq.m.

Metropolitan Land Corp. 4 CCTs located at the 11th Flr., Trafalgar Plaza
HV dela Costa St., Salcedo Village, Makati City
with total area of 913.20 sq.m.

Meridien Dev/t. Inc. A parcel of land located at lot 2, Blk. 7, Fort


Bonifacio Global City, Taguig, Metro Manila with
area of 1,600 sq.m.
C. REAL ESTATE PROPERTY
DESCRIPTION/LOCATION

Upper Ground, Unit 2, World Trade


Exchange Building, No. 215 Juan Luna
St., Binondo, Manila with area of
294.72 sq.m.
with 2 parking slots
Based on the foregoing, you now request a confirmation of your opinion that:
"1. TA shall not be liable for income tax either for its receipt of the surrendered shares, or its transfer
of the Distributed Assets to TMBC as liquidating dividends.
"2. No documentary stamp tax under Section 176 of the Tax Code is due on the surrender by TMBC
of the TA shares and the subsequent cancellation thereof.
"3. The transfer by TA to TMBC of real property as liquidating dividend is not subject to
documentary stamp tax on sale or transfer of real property under Section 196 of the Tax Code.
"4. Transfer by TA of its Loan Portfolio to TMBC is not subject to documentary stamp tax under
Section 180 of the Tax Code.
"5. The transfer or assignment of any mortgage which stands as security for TA's Loan Portfolio shall
be subject to documentary stamp tax under Section 195 of the Tax Code, based on the outstanding balance
of the original loan.

16
"6. TMBC shall realize capital gain or loss when it surrenders its shares in TA in exchange for the
assets distributed by TA as liquidating dividends, and such capital gain or loss shall be subject to final tax
under Section 27(D)(2) of the Tax Code."
In reply, please be informed as follows:
1. TA shall not be liable for income tax either on its receipt of the surrendered shares, or its transfer
of the Distributed Assets to TMBC as liquidating dividends.
In BIR Ruling No. 171-92 dated May 28, 1992, this Office ruled that the transfer by the liquidating
corporation of its remaining assets to its stockholders is not considered a sale of these assets. Thus, a
liquidating corporation does not realize gain or loss in partial or complete liquidation. (W.P. Fox & Sons,
Inc., Petitioner v. Commissioner of Internal Revenue, Respondent, 15 BTA 115; Jordan Petroleum
Company, 13 AFTR 2d 1692; 227 F. Supp. 174; J.T.S. Brown & Son Company v. Commissioner of
Internal Revenue, 10 TC 840, cited in BIR Ruling No. 196-010-90-059-90 dated April 17, 1990).
Conversely, neither is a liquidating corporation subject to tax on its receipt of the shares surrendered by
its shareholders pursuant to a complete or partial liquidation (BIR Ruling No. 171-92, supra).
Accordingly, TA Bank is not liable for income tax on either the transfer of its assets to its stockholders, or
on its receipt of the shares surrendered by the shareholder, TMBC.
2. No documentary stamp tax ("DST") is due on the surrender and cancellation of the TA shares.
The Tax Code of 1997 imposes a DST on the sale, assignment or transfer of shares of stock under Section
176 thereof, which in part reads:
"Stamp tax on sales, agreements to sell, memoranda of sales, deliveries or transfer of due-bills,
certificates of obligations or shares or certificates of stock. On all sales, or agreements to sell, or
memoranda of sales, or deliveries, or transfer of due-bills, certificates of obligations, or shares or
certificates of stock in any association, company or corporation, or transfer of such securities by
assignment in blank, or by delivery, or by any paper or agreement, or memorandum or other evidences of
transfer or sale whether entitling the holder in any manner to the benefit of such due-bills, certificates of
obligation or stock, or to secure the future payment of money, or for the future transfer of any due-bill,
certificate of obligation or stock, there shall be collected a documentary stamp tax of One peso and fifty
centavos (P1.50) on each Two hundred pesos (P200.00), or fractional part thereof, of the par value of such
due-bill, certificate of obligation or stock. . . ." (emphasis supplied)
No DST under the above quoted provision shall be due on the surrender by TMBC of the shares of stock
to TA. The surrender of the shares does not constitute a sale, assignment or transfer because TA is not
taking title to the surrendered shares, and the shares are retired and not retained as treasury shares. In
effect, TA does not realize any benefit, as owner or otherwise, from its receipt of the shares.
3. Transfer by TA to TMBC of real property is not subject to DST on sale or transfer of real
property.
Section 189 of Revenue Regulation No. 26, otherwise known as the "Documentary Stamp Tax
Regulations" provides, viz:
"SEC. 189. Conveyances by Corporation to Owner of All the Capital. A conveyance of real estate
by a corporation without valuable consideration to an owner of all its capital stock in consequence of its
dissolution is not subject to tax." (Emphasis & italics supplied)
Under the above-quoted provision, a distribution in liquidation, without consideration, of the assets of a
corporation consisting of real estate is not subject to DST imposed under Section 196 of the Tax Code of
1997. Accordingly, the distribution of the assets of TA, consisting of among others, parcels of land, to its
controlling and sole stockholder, TMBC, without monetary consideration, is not subject to DST as
prescribed under Section 196 of the Tax Code of 1997. (BIR Ruling No. DA-214-96 dated June 26, 1996
and BIR Ruling No. 092-99 dated July 8, 1999 citing BIR Ruling No. 059-90.) In addition, Section 196 of
the Tax Code speaks of "all conveyances, deeds, instruments, or writings, . . ., whereby any land,
tenement or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to the
purchaser, or purchasers, or to any other person designated by such purchaser or purchasers, . . .". Since it
has been held that a corporation that distributes its assets to its shareholders as liquidating dividends is not
deemed to be selling such assets to the latter, then Section 196 of the Tax Code of 1997 shall not apply.

17
However, the notarial certification on this deed or deeds of assignment is subject to the documentary
stamp tax of P15.00, pursuant to Section 188 of the Tax Code of 1997. CEHcSI
4. Transfer by TA of its Loan Portfolio to TMBC is not subject to DST.
The pertinent provisions in the Tax Code of 1997 as regards this issue are as follows:
"Sec. 180. Stamp tax on all bonds, loan agreements, promissory notes, bill of exchange, drafts,
instruments and securities issued by the Government or any of its instrumentalities, deposits substitute
debt instruments, certificates of deposits bearing interest and others not payable on sight or demand.
On all bonds, loan agreements, including those signed abroad, wherein the object of the contract is
located or used in the Philippines, bills of exchange (between points within the Philippines), drafts,
instruments and securities issued by the Government or any of its instrumentalities, deposit substitute debt
instruments, certificates of deposits drawing interest, orders for the payment of any sum of money
otherwise than at sight or on demand, on all promissory notes, whether negotiable or non-negotiable,
except bank notes issued for circulation, and on each renewal of any such note, there shall be collected a
documentary stamp tax of P0.30 on each P200.00, or fractional part thereof, of the face value of any such
agreement, bill of exchange, draft, certificate of deposit or note. . ." (emphasis supplied)
SEC. 198. Stamp tax on assignments and renewals of certain instruments. Upon each and every
assignment or transfer of any mortgage, lease or policy of insurance, or the renewal or continuance of any
agreement, contract, charter, or any evidence of obligation or indebtedness by altering or otherwise, there
shall be levied, collected and paid a documentary stamp tax, at the same rate as that imposed on the
original instrument. (emphasis supplied)
The above-quoted Sections clearly provide for the imposition of DST on the renewal or continuance of
loan agreements and promissory notes. In the instant case, DST shall not be imposed on the assignment
by TA of its Loan Portfolio (loan agreements and promissory notes) to TMBC, since the same is not for
renewal or continuance (BIR Ruling No. 139-97 December 29, 1997). The term "assignment or transfer"
in Section 198 of the Tax Code of 1997 applies only to "mortgage, lease or policy of insurance". Thus, in
BIR Ruling No. 041-86 dated April 8, 1986, this Office defined the term "renew" within the context of
Section 198 of the Tax Code of 1997 as follows:
". . . One of the definitions of the word "renew" found in Webster's New International Dictionary is: "To
grant or obtain extension of; to continue in force for a fresh period; as to renew a note or a bond". As
commonly used with reference to notes and bonds, the word "renewal" imports a postponement of the
maturity of the obligation dealt with, an extension of the time in which that obligation may be discharged.
(Emphasis supplied, Campbell River Timber Co. v. Vierhus, 198 American Law Reports, 763; 86 F. (2d)
673) In other words, the term "extension" has the same connotation as "renewal" which means the
continuance of the old obligation."
5. Transfer or Assignment of any mortgage which stands as security for TA's Loan Portfolio shall be
subject to DST.
Pursuant to Section 198, as above quoted, the assignment of any mortgage shall be subject to DST at the
same rate as the original document.
Under Section 195 of the 1997 Tax Code, on every mortgage or pledge of lands, estate or property, real or
personal, there shall be collected a DST at the following rates:
(a) When the amount secured does not exceed P5,000.00, P20.00;
(b) On each P5,000.00, or fractional part thereof in excess of P5,000.00, an additional tax of P10.00.
Since the DST on mortgage is based on the amount secured, the DST on the assignment of mortgage, if
any, shall be based on the outstanding balance of the original loan at the time of the transfer or
assignment. (BIR Ruling No. 139-97, id.)
6. TMBC shall realize capital gain or loss when TA distributes its assets as liquidating dividends.
The tax treatment of liquidating dividends depends on the characterization of the income in the form of
such dividends received by shareholders as a result of the dissolution of the corporation in which they
hold shares.
The second paragraph of Section 73 (A) of the Tax Code of 1997 states:

18
"Where a corporation distributes all of its assets in complete liquidation or dissolution, the gain realized
or loss sustained by the stockholder, whether individual or corporate, is a taxable income or a deductible
loss, as the case may be."
In the case of Wise & Co., Inc., et al. vs. Bibiano L. Meer, Collector of Internal Revenue (78 Phil 655
[1947]), the Supreme Court, in interpreting a similarly worded provision as above cited as in Section
25(a) of Act No. 2833 ("Income Tax Law"), as amended by Section 4 of Act No. 3761 [which is partially
lifted from section 201(c) of the US Revenue Act of 1918], adopted the judicial construction of the US
Supreme Court in the case of Hellmich vs. Hellman (276 US 233), where it was held that the amounts
distributed in the liquidation of a corporation shall be treated as payments in exchange for stock or shares,
and any gain or profit realized thereby shall be taxed to the distributee as other gains or profits. The
Supreme Court also stated that "(W)hen the corporation was dissolved and in the process of complete
liquidation and its shareholders surrendered their stock to it and it paid the sums in question to them in
exchange, a transaction took place, which was no different in its essence from a sale of the same stock to
a third party who paid therefor".
In BIR Ruling No. 190-84 dated December 21, 1984, the issue raised was precisely whether the
liquidating gain (that is, the difference between the fair market value of the properties received and the
cost basis of the shares to the stockholders) derived by an individual stockholder is subject to the then
10%/20% tax rates under Section 34(g) of the then Tax Code or to the graduated income tax rates under
then Section 21(b). This Office ruled that such gain should be subject to the tax rates under then Section
21(b). The same conclusion was reached in other rulings of the BIR (BIR Ruling Nos. 322-87 dated
October 19, 1987; 136-88 dated April 12, 1988; 021-89 dated February 13, 1989; 270-91 dated December
23, 1991; DA-223-98). aSDCIE
In effect, following the interpretation of these rulings, liquidating gain is to be treated as the gain from the
sale or exchange of shares, consistent with the decision of the Supreme Court in Wise & Co., Inc., supra,
subject, however, not to the 5%/10% final tax rate under Sections 24(C), 25(A)(3) or (B), 27(D)(2), 28(A)
(7)(c) and (B)(5)(c) of the Tax Code of 1997, but to the ordinary income tax rates provided under Sections
24(A)(1), 25(A)(1) and (B) [that is, the 25% rate], 27(A) or (E), 28(A)(1) or (2) and (B)(1) of the Tax
Code of 1997, depending on the status of the shareholder/stockholder (for instance, whether the
shareholder is a corporation or an individual, resident or non-resident).
Finally, this Office also notes that a similar treatment has been given to corporate shareholders of a
dissolving corporation, in that the liquidating gain realized is subject to the ordinary corporate income tax
rate rather than to the then 10%/20%; or the current 5%/10% final tax rates. (see for instance BIR Ruling
Nos. DA-214-96 dated June 26, 1996 and 171-92 dated May 28, 1992)
This Office also takes note of BIR Ruling No. DA-367-99 dated January 24, 1999 issued under
designated authority, and similar rulings where the BIR departed from the above-mentioned rulings, and
ruled that the liquidating gain is subject to the 5%/10% capital gains tax rate. The basis for this ruling was
BIR Ruling No. 015-82 dated January 20, 1982, where the BIR held that the liquidating gain received by
individual shareholders is subject to the then 10%/20% final tax, but, this ruling was effectively
overturned in the subsequent BIR Ruling No. 190-84 and many other similar rulings mentioned above.
Thus, BIR Ruling No. DA-529-99 and rulings similar to it have no basis, having been based on a ruling
that had already been revoked.
Accordingly, this Office rules once and for all that:
1. Liquidating gain or loss is in the nature of capital gain or loss, as the case may be, and therefore
treated in the manner stated in Section 39 of the Tax Code of 1997.
2. Liquidating gain, while characterized as gain from sale or exchange of shares, is subject to the
ordinary income tax rates provided under Sections 24(A)(1)(c), 25(A)(1), 27(A) and (E), 28(A)(1) and (2)
and (B)(1) of the Tax Code of 1997, depending on the status of the shareholder, and not to the 5%/10%
final tax.

19
REVENUE MEMORANDUM CIRCULAR NO. 13-80

Subject : Treatment of Tax Refunds and Tax Credits When Received.


To : All Internal Revenue Officers and Others Concerned.
1. Refunds/Tax Credits under Section 295 of the Tax Code.
Taxes previously claimed and allowed as deductions, but subsequently refunded or granted as tax credit
pursuant to Section 295 of the Tax Code, should be declared as part of the gross income of the taxpayer in
the year of receipt of the refund or tax credit. However, the following taxes, when refunded or credited,
are not declarable for income tax purposes inasmuch as they are not allowable as deductions:
a. Income tax imposed in Title III of the Tax Code;
b. Income, war-profit and excess profits taxes imposed by authority of a 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 credit for taxes of foreign
countries); aisa dc
c. Estate and gift taxes;
d. Taxes assessed against local benefits of a kind tending to increase the value of the property
assessed;
e. Stock transaction tax;
f. Energy tax; and
g. Taxes which are not allowable as deductions under the law.
2. Special Tax Credits granted under R.A. 5186; R.A. 6135 and P.D. 535.
These tax credits and their tax consequences are as follows:
a. Sales, compensating and specific taxes are paid on supplies and raw materials imported by a
registered export producer. Said taxes are given as tax credit to be used in the payment of taxes, duties,
charges and fees due to the national government in connection with its operations. (Sec. 7(a), R.A. No.
6135)
The tax credits granted should form part of the gross income to the enterprise in the year of receipt of tax
credit as said taxes paid are considered allowable deductions for income taxes purposes.
b. In some cases, a registered BOI and tourism enterprise assumes payment of taxes withheld and
due from the foreign lender-remittee on interest payments on foreign loans. In such cases, the enterprise is
given a tax credit for taxes withheld subject to certain conditions. (Sec. 7(f), R.A. No. 5186; Sec. 8(c),
P.D. No. 535)
Said taxes assumed by the registered enterprise represent necessary and ordinary expenses incurred by the
enterprise; hence, deductible from its gross income. Therefore, the tax credits granted necessarily
constitute taxable income of the enterprise. casia
It is desired that this Circular be given as wide a publicity as possible.

20
BIR RULING [DA-(TAR-002) 128-08]
DA033-04
Pilipinas Shell Petroleum Corporation
Shell House
156 Valero Street, Salcedo Village
Makati City
Attention: Ms. Maycel Baltazar-Barata
Indirect Tax Planner
and
Atty. Nigel T. Avila
Country Tax Manager
Gentlemen :
This refers to your letter dated May 26, 2008 stating that Philippines Shell Petroleum Corporation
(PSPC), Shell Gas Trading (Asia Pacific), Inc. (SGTAP), and Shell Gas Eastern, Inc. (SGEI), collectively
referred to as "Shell Companies" are domestic corporations organized and existing under the laws of the
Philippines duly registered with the Securities and Exchange Commission (SEC) on various dates; that
the ultimate parent company of Shell Companies is Royal Dutch Shell Plc (RDS), a company
incorporated in the United Kingdom; that Shell Companies are primarily engaged in the manufacture,
importation, distribution and marketing of petroleum products in the Philippines and are using the
Weighted Average Method (WAVE) in the valuation of its inventories both for statutory and income tax
reporting; that RDS, and all its affiliates worldwide, is adopting a new computerized accounting system
based on Global Systems Application and Product Data Processing or GSAP; that this new system is
globally standardized and will only calculate inventory costs using First-In-First Out (FIFO) method,
which is widely accepted in the oil and gas industry worldwide; that under GSAP, the WAVE method of
inventory valuation will not be supported, as it is not compatible with the new system for Shell; and that
to be consistent with the accounting system used by its parent company and affiliates abroad, Shell
Companies will be adopting the use of the FIFO method of inventory valuation for taxable year 2008 for
SGTAP and SGEI and 2009 for PSPC. CacISA
Based on the foregoing representations, you now request for an authority to change the inventory method
used by Shell Companies from WAVE to FIFO. The change in inventory valuation will be used for
statutory and tax reporting purposes for the taxable year 2008 for SGTAP and SGEI, and taxable year
2009 for PSPC.
In reply thereto, please be informed that Section 41 of the Tax Code of 1997 provides that
"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 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: ECSaAc
(i) with the approval of the Commissioner, a change to a different method is authorized; or

21
(ii) the Commissioner finds that the nature of the stock on hand (e.g., its scarcity, liquidity,
marketability and price movements) us 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."
Corollarily, Section 2 of Revenue Regulations No. 3-80 provides that
"SEC. 2. Requirement to Change Inventory Valuation Method from LIFO to Weighted Average
Method. Pursuant to the authority vested in the Commissioner of Internal Revenue Code, as amended
by Batas Pambansa Blg. 41, all petroleum refining and marketing companies are hereby required to
change their inventory valuation method from last-in, first-out (LIFO) to weighted average method on a
per product basis. The change shall be effected by a gradual shift to the weighted average method of
inventory valuation in two stages as prescribed in Sections 3 and 4 of these regulations." SICDAa
Moreover, Section 7, supra provides that
"SEC. 7. Requirements for the Use of Weighted Average Method. The following requirements
shall be complied with in adopting the weighted average: (a) The weighted average method shall be
applicable to all inventory of 'petroleum products'; (b) The inventory shall be taken at cost, using the full
absorption method, regardless of market value; (c) The method shall be used consistently from year to
year, unless (i) A change to a different method is approved by the Commissioner; or (ii) A modification is
required by the Commissioner."
In the instant case, Shell Companies have been consistently using the weighted average method of
reporting inventory values for statutory and income tax purposes in compliance with Revenue
Regulations No. 3-80. However, since the WAVE method of costing inventory is no longer compatible
with the new accounting system to be introduced in the Philippines by 2009, and to be consistent with the
method of inventory costing used by its parent company and affiliates around the world, Shell Companies
will have to shift to FIFO method of inventory effective on the taxable year 2008 for SGTAP and SGEI,
and taxable year 2009 for PSPC. The earlier period is to allow SGEI and SGTAP to have annualized
values for its inventory at the end of taxable year 2008 which will be the value of its beginning inventory
for the taxable year 2009. On the other hand, since PSPC has a number of product inventories in its
various terminals and depots all over the country, it will be equipped to adopt FIFO valuation of
inventories only in 2009. EcTDCI
Considering that the purpose of Shell Companies' change in its inventory method will best conform to its
accounting practice as said valuation will clearly reflect the income of the said companies, this Office
hereby grants authority to Shell Companies the use of FIFO method in its inventory costing.
This ruling is being issued on the basis of the foregoing facts as represented. However, if upon
investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and
void. AHECcT

22
RA 9505

(g) "PERA Investment Product" refers to a unit investment trust fund, mutual fund, annuity contract,
insurance pension products, pre-need pension plan, shares of stock and other securities listed and traded
in a local exchange, exchange-traded bonds or any other investment product or outlet which the
concerned Regulatory Authority may allow for PERA purposes: Provided, however, That to qualify as a
PERA investment product under this Act, the product must be non-speculative, readily marketable, and
with a track record of regular income payments to investors. HISAET
The concerned Regulatory Authority must first approve the product before being granted tax-exempt
privileges by the BIR.
(h) "Regulatory Authority" refers to the Bangko Sentral ng Pilipinas (BSP) as regards banks, other
supervised financial institutions and trust entities, the Securities and Exchange Commission (SEC) for
investment companies, investment houses, stock brokerages and pre-need plan companies, and the Office
of the Insurance Commission (OIC) for insurance companies.
(i) "Overseas Filipino" refers to (1) an individual citizen of the Philippines who is working or
deriving income from abroad, including one who retained or reacquired his Philippine citizenship under
Republic Act No. 9225, otherwise known as the "Citizenship Retention and Reacquisition Act of 2003";
or (2) the legitimate spouse, whether or not said spouse is of Filipino ancestry, and the children of the
Filipino citizen mentioned in item (1) hereof.
SECTION 4. Establishment of a PERA. A Contributor may create and maintain a maximum of five
(5) PERA, at any one time: Provided, That the Contributor shall designate and maintain only one (1)
Administrator for all his PERA. ADCSEa
The Contributor shall make all investment decisions pertaining to his PERA. However, he has the option
of appointing an Investment Manager, either in writing or in electronic form, to make investment
decisions on his behalf without prior consultation.
SECTION 5. Maximum Annual PERA Contributions. A Contributor may make an aggregate
maximum contribution of One hundred thousand pesos (P100,000.00) or its equivalent in any convertible
foreign currency at the prevailing rate at the time of the actual contribution, to his/her PERA per year:
Provided, That if the Contributor is married, each of the spouses shall be entitled to make a maximum
contribution of One hundred thousand pesos (P100,000.00) or its equivalent in any convertible foreign
currency per year to his/her respective PERA: Provided, further, That if the Contributor is an overseas
Filipino, he shall be allowed to make maximum contributions double the allowable maximum amount.
A Contributor has the option to contribute more than the maximum amount prescribed herein: Provided,
That the excess shall no longer be entitled to a tax credit of five percent (5%). CAIaDT
The Secretary of Finance may adjust the maximum contribution from time to time, taking into
consideration the present value of the said maximum contribution using the Consumer Price Index as
published by the National Statistics Office, fiscal position of the government and other pertinent factors.

23
SECTION 6. Employer's Contribution. - A private employer may contribute to its employee's PERA
to the extent of the amount allowable to the Contributor: Provided, however, That the employer complies
with the mandatory Social Security System (SSS) contribution and retirement pay under the Labor Code
of the Philippines. Such contribution shall be allowed as a deduction from the employer's gross income.
The Contributor, however, retains the prerogative to make investment decisions pertaining to his PERA.
SECTION 7. Separate Asset. The PERA shall be kept separate from the other assets of an
Administrator/Custodian and shall not be part of the general assets of the Administrator/Custodian for
purposes of insolvency. ADSTCa
SECTION 8. Tax Treatment of Contributions. The Contributor shall be given an income tax credit
equivalent to five percent (5%) of the total PERA contribution: Provided, however, That in no instance
can there be any refund of the said tax credit arising from the PERA contributions. If the Contributor is an
overseas Filipino, he shall be entitled to claim tax credit from any tax payable to the national government
under the National Internal Revenue Code of 1997, as amended.
SECTION 9. Tax Treatment of Investment Income. All income earned from the investments and
reinvestments of the maximum amount allowed herein is tax exempt.
SECTION 10. Tax Treatment of Distributions. All distributions in accordance with Section 12 hereof
are tax exempt.
SECTION 11. Termination. Any premature termination shall be treated as an early withdrawal under
Section 13 hereof: Provided, That the penalties thereunder shall not apply if the entire proceeds therefrom
are immediately transferred to another PERA investment and/or another Administrator. AHDTIE
SECTION 12. Distributions Upon Retirement/Death. Distributions may be made upon reaching the
age of fifty-five (55) years: Provided, That the Contributor has made contributions to the PERA for at
least five (5) years. The distribution shall be made in either lump sum or pension for a definite period or
lifetime pension, the choice of which shall be at the option of the Contributor. The Contributor, however,
has the option to continue the PERA. Complete distribution shall be made upon the death of the
Contributor, irrespective of the age of the Contributor at the time of his death.
SECTION 13. Penalty on Early Withdrawal. Any early withdrawal shall be subject to a penalty, the
amount of which would be determined by the Secretary of Finance and payable to the government:
Provided, That the amount of the penalty shall in no case be less than the tax incentives enjoyed by the
Contributor. DCcHIS
No early withdrawal penalty shall be imposed on any withdrawal of any funds for the following purposes:
(a) For payment of accident or illness-related hospitalization in excess of thirty (30) days; and
(b) For payment to a Contributor who has been subsequently rendered permanently totally disabled
as defined under the Employees Compensation Law, Social Security Law and Government Service
Insurance System Law.
SECTION 14. Non-Assignability. No portion of the assets of a PERA may be assigned, alienated,
pledged, encumbered, attached, garnished, seized or levied upon. PERA assets shall not be considered
assets of the Contributor for purposes of insolvency and estate taxes. IcADSE
SECTION 15. Rules and Regulations. Consistent with the policy of promoting transparency in PERA
investment and thereby affording protection to the Contributor, the Department of Finance, the Bureau of
Internal Revenue and the concerned Regulatory Authorities, with the Bangko Sentral ng Pilipinas as lead
agency, shall coordinate to establish uniform rules and regulations pertaining to the following subject
matters:
(a) Qualification and disqualification standards for Administrators, Custodians and Investment
Managers, including directors and officers thereof;
(b) Qualified and/or eligible PERA investment products;
(c) Valuation standards for PERA investments;
(d) Disclosure requirements on the terms and conditions of the PERA investments;
(e) Minimum requirements imposed on the Administrators as regards inculcating financial literacy in
investors;
(f) Ascertainment of client suitability for PERA products;

24
(g) Fees to be charged by the Administrator, Custodian or Investment Manager shall always be
reasonable and approved by the concerned Regulatory Authority;
(h) Record-keeping, reporting and audit requirement of Administrators and Custodians pertaining to
records for all contributions, earnings and total account balances; and
(i) Other pertinent matters to be determined by the Regulatory Authorities. SACEca
SECTION 16. Administration of Tax Incentives. The BIR shall issue the implementing rules and
regulations regarding all aspects of tax administration relating to PERA. The BIR shall coordinate the
qualification standards of the Administrator with the Regulatory Authorities.
SECTION 17. Penalty. A fine of not less than Fifty thousand pesos (P50,000.00) nor more than Two
hundred thousand pesos (P200,000.00) or imprisonment of not less than six (6) years and one (1) day to
not more than twelve (12) years or both such fine and imprisonment, at the discretion of the court, shall
be imposed upon any person, association, partnership or corporation, its officer, employee or agent, who,
acting alone or in connivance with others, shall:
(a) Act as Administrator, Custodian or Investment Manager without being properly qualified or
without being granted prior accreditation by the concerned Regulatory Authority;
(b) Invest the contribution without written or electronically authenticated authority from the
Contributor, or invest the contribution in contravention of the instructions of the Contributor;
(c) Knowingly and willfully make any statement in any application, report, or document required to
be filed under this Act, which statement is false or misleading with respect to any material fact;
(d) Misappropriate or convert, to the prejudice of the Contributor, contributions to and investments or
income from the PERA;
(e) By gross negligence, cause any loss, conversion, or misappropriation of the contributions to, or
investments from, the PERA; or
(f) Violate any provision of this Act or rules and regulations issued pursuant to this Act.
Notwithstanding the foregoing, any willful violation by the accredited Administrator, Custodian or
Investment Manager of any of the provisions of this Act, or its implementing rules and regulations, or
other terms and conditions of the authority to act as Administrator, Custodian or Investment Manager may
be subject to the administrative sanctions provided for in applicable laws. ACEIac
The above penalties shall be without prejudice to whatever civil and criminal liability provided for under
applicable laws for the same act or omission.
SECTION 18. Abuse of the Tax Exemption and Privileges. Any person, natural or juridical, who
unduly avails of the tax exemption privileges herein granted, possibly by co-mingling PERA accounts in
an investment with other investments, when such person is not entitled hereto, shall be subject to the
penalties provided in Section 17 hereof. In addition, the offender shall refund to the government double
the amount of the tax exemptions and privileges enjoyed under this Act, plus interest of twelve percent
(12%) per year from the date of enjoyment of the tax exemptions and privileges to the date of actual
payment.
SECTION 19. Separability Clause. If any provision or part hereof is held invalid or unconstitutional,
the remainder of the law or the provision not otherwise affected shall remain valid and subsisting.
IHTaCE
SECTION 20. Repealing Clause. All laws, decrees, orders, rules and regulations or parts thereof
inconsistent with this Act are hereby amended or modified accordingly.
SECTION 21. Effectivity. This Act shall take effect fifteen (15) days following its publication in a
newspaper of general circulation: Provided, That the tax incentives granted hereunder shall take effect on
January 1, 2009.
Approved: August 22, 2008

25
REVENUE REGULATIONS NO. 005-11
SUBJECT : Further Amendments to Revenue Regulations Nos. 2-98 and 3-98, as Last
Amended by Revenue Regulations No. 5-2008, with Respect to "De Minimis Benefits"
TO : All Internal Revenue Officials and Others Concerned
Pursuant to Sections 4 and 244 in relation to Section 33 of the Tax Code of 1997, these Regulations are
hereby promulgated to further amend Revenue Regulations (RR) No. 2-98, as last amended by RR No. 5-
2008, with respect to "De Minimis" benefits which are exempt from income tax on compensation as well
as from fringe benefit tax.
SECTION 1. Section 2.78.1 (A) (3) (c) and (d) of RR 2-98, as last amended by RR 5-2008, is hereby
further amended to read as follows:
"Sec. 2.78.1. Withholding of Income Tax on Compensation Income. aCTADI
(A) ...
(1) ...
xxx xxx xxx
(3) Facilities and privileges of relatively small value. . . .
xxx xxx xxx
The following shall be considered as "de minimis" benefits not subject to income tax as well as
withholding tax on compensation income of both managerial and rank and file employees:
(a) Monetized unused vacation leave credits of private employees not exceeding ten (10) days during
the year;
(b) Monetized value of vacation and sick leave credits paid to government officials and employees;
(c) Medical cash allowance to dependents of employees, not exceeding P750 per employee per
semester or P125 per month; DIAcTE
(d) Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per month amounting to not more than
P1,500;
(e) Uniform and Clothing allowance not exceeding P4,000 per annum;
(f) Actual medical assistance, e.g., medical allowance to cover medical and healthcare needs, annual
medical/executive check-up, maternity assistance, and routine consultations, not exceeding P10,000.00
per annum;
(g) Laundry allowance not exceeding P300 per month;
(h) Employees achievement awards, e.g., for length of service or safety achievement, which must be
in the form of a tangible personal property other than cash or gift certificate, with an annual monetary
value not exceeding P10,000 received by the employee under an established written plan which does not
discriminate in favor of highly paid employees;
(i) Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per
employee per annum; aDcETC

26
(j) Daily meal allowance for overtime work and night/graveyard shift not exceeding twenty-five
percent (25%) of the basic minimum wage on a per region basis;
All other benefits given by employers which are not included in the above enumeration shall not be
considered as "de minimis" benefits, and hence, shall be subject to income tax as well as withholding tax
on compensation income.
xxx xxx xxx"
SECTION 2. Section 2.33 (C) of RR 3-98, as last amended by RR 5-2008, is hereby further amended
to read as follows:
"Sec. 2.33. Special Treatment of Fringe Benefits.
(A) Imposition of Fringe Benefits Tax . . .
xxx xxx xxx
(B) Definition of Fringe Benefit . . .
xxx xxx xxx
(C) Fringe Benefits Not Subject to Fringe Benefit Tax In general, the fringe benefit tax shall not be
imposed on the following fringe benefits: DcTaEH
xxx xxx xxx
The term "DE MINIMIS" benefits which are exempt from the fringe benefit tax shall, in general, be
limited to facilities or privileges furnished or offered by an employer to his employees that are of
relatively small value and are offered or furnished by the employer merely as a means of promoting the
health, goodwill, contentment, or efficiency of his employees. The following are considered as "de
minimis" benefits granted to each employee:
(a) Monetized unused vacation leave credits of private employees not exceeding ten (10) days during
the year;
(b) Monetized value of vacation and sick leave credits paid to government officials and employees;
(c) Medical cash allowance to dependents of employees, not exceeding P750 per employee per
semester or P125 per month;
(d) Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per month amounting to not more than
P1,500; cAaDHT
(e) Uniform and Clothing allowance not exceeding P4,000 per annum;
(f) Actual medical assistance, e.g., medical allowance to cover medical and healthcare needs, annual
medical/executive check-up, maternity assistance, and routine consultations, not exceeding P10,000.00
per annum;
(g) Laundry allowance not exceeding P300 per month;
(h) Employees achievement awards, e.g., for length of service or safety achievement, which must be
in the form of a tangible personal property other than cash or gift certificate, with an annual monetary
value not exceeding P10,000 received by the employee under an established written plan which does not
discriminate in favor of highly paid employees;
(i) Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per
employee per annum;
(j) Daily meal allowance for overtime work and night/graveyard shift not exceeding twenty-five
percent (25%) of the basic minimum wage on a per region basis;
All other benefits given by employers which are not included in the above enumeration shall not be
considered as "de minimis" benefits, and hence, shall be subject to income tax as well as withholding tax
on compensation income.
xxx xxx xxx"
SECTION 3. Transitory Provisions. The benefits herein provided shall apply to income earned
starting the year 2011.
SECTION 4. Repealing Clause. All existing rules and regulations or parts thereof which are
inconsistent with the provisions of these regulations are hereby revoked, repealed or modified
accordingly.

27
SECTION 5. Effectivity Clause. These Regulations shall take effect after fifteen (15) days
following its publication in any newspaper of general circulation. HAaECD

REVENUE REGULATIONS NO. 017-11


SUBJECT : Implementing the Tax Provisions of Republic Act No. 9505, Otherwise Known as
the "Personal Equity and Retirement Account (PERA) Act of 2008"
TO : All Internal Revenue Officers and Others Concerned
SECTION 1. Scope. Pursuant to Section 244 of the National Internal Revenue Code of 1997, as
amended (Tax Code), in relation to Sections 15 and 16 of Republic Act No. 9505, otherwise known as the
"Personal Equity and Retirement Account (PERA) Act of 2008," these Regulations are hereby
promulgated to implement the tax provisions of the said Act, thereby establishing uniform guidelines in
the administration of tax privileges and incentives providing rules on qualification and accreditation of
Administrators.
SECTION 2. Definition of Terms. Unless the context otherwise requires, the following terms shall
have the following meanings for purposes of these Regulations, viz.: DcCEHI
(a) "Administrator" shall refer to an entity which had been pre-qualified by the concerned
Regulatory Authority in accordance with the PERA Rules, and accredited by the Bureau of Internal
Revenue (BIR) in accordance with the provisions of these Regulations. The Administrator shall be
responsible for administering and overseeing the PERA of the Contributor.
(b) "BIR" shall refer to the Bureau of Internal Revenue.
(c) "Contributor" shall refer to a natural person who: (i) establishes and contributes to a PERA;
(ii) has a Tax Identification Number (TIN); and (iii) has the capacity to contract. A person over fifty-five
(55) years of age may still open a PERA and be a qualified Contributor.
(d) "Early Withdrawal" shall pertain to a withdrawal of the PERA Assets, whether in full or in
part, in such manner and at such time as to make the receipt of such PERA Assets not a Qualified PERA
Distribution.
(e) "Early Withdrawal Penalty" shall have the meaning ascribed to such term under Section 10 of
these Regulations. DcSACE
(f) "Overseas Filipino" shall refer to (1) an individual citizen of the Philippines who is working or
deriving income from abroad; (2) an individual who retained or reacquired his Philippine citizenship
under Republic Act No. 9225 , otherwise known as the "Citizenship Retention and Reacquisition Act of
2003" and is working or deriving income from abroad; or (3) the Overseas Filipino's legitimate spouse,
whether or not said spouse is of Filipino ancestry, who does not qualify under either (1) or (2) above and
whose spouse does not avail of the benefits of the PERA Act; and (4) the legitimate children of the
Overseas Filipino, who do not qualify under either (1) or (2) above and is joining his parent in
representing the spouse OFW opening a PERA Account. For the avoidance of doubt, any of the persons

28
mentioned in (1) to (4) above must meet the qualifications of a Contributor to avail of the benefits under
the PERA Act.
(g) "PERA Act" shall refer to Republic Act No. 9505, otherwise known as the "Personal Equity
and Retirement Account (PERA) Act of 2008."
(h) "PERA Assets" shall mean the aggregate assets of the Contributor in his PERA at any one
time, including the cash funds and the Qualified/Eligible PERA Investment Products into which the funds
of the PERA are invested and reinvested, and all the income earned therefrom. DISEaC
(i) "PERA Processing Office" shall refer to the Audit Information Tax Incentives and Exemption
Division of the Bureau of Internal Revenue which will be tasked to process all applications, reports, and
other transactions in connection with the PERA Act and these Regulations.
(j) "PERA Rules" shall refer to the rules and regulations implementing the PERA Act jointly
promulgated by the Regulatory Authorities.
(k) "PERA TCC" shall refer to a BIR issued Tax Credit Certificate which will serve as
entitlement by a qualified to the five percent (5%) tax credit for PERA related transaction as discussed in
Section 8 of these Regulations.
(l) "Personal Equity and Retirement Account (PERA)" shall refer to a Contributor's voluntary
retirement account established from the Qualified PERA Contributions and/or Qualified Employer
Contributions, for the purpose of being invested solely in Qualified/Eligible PERA Investment Products.
(m) "Qualified Employer's Contribution" shall refer to the contribution made by the employer
(whether as a single proprietor, a partnership, or a corporation) from the private sector to the PERA
established by his/its employee which, together with such employee's contribution, if any, shall not
exceed such employee's Qualified PERA Contribution; ITCcAD
(n) "Qualified PERA Contributions" shall refer to the contributions of the Contributor to his
PERA, which shall not exceed P100,000.00 per calendar year (if the Contributor is a non-Overseas
Filipino), or P200,000.00 per calendar year (if the Contributor is an Overseas Filipino or in representation
of an Overseas Filipino), and in accordance with the provisions of Section 6 of these Regulations, subject
to the adjustments authorized by the Secretary of Finance, taking into consideration the present value of
the contribution using the Consumer Price Index as published by the National Statistics Office, fiscal
position of the Government and other pertinent factors.
(o) "Qualified PERA Distribution" shall refer to the distribution of the PERA Assets, after the
Contributor and/or his employer has made Qualified PERA Contributions and/or Qualified Employer's
Contributions for at least five (5) years (which need not be consecutively made for five [5] years), and
after the Contributor reaches the age of fifty-five (55) years, or upon the death of the Contributor,
irrespective of the age of the Contributor and the number of yearly contributions made by the Contributor
at the time of his death. aCITEH
(p) "Qualified PERA Investment Income" shall refer to all the income earned by the PERA Assets.
(q) "Qualified/Eligible PERA Investment Products" shall refer to the investment products duly
approved by the concerned Regulatory Authority which could be any of the following:
(a) a unit investment trust fund (UITF);
(b) share of stock of mutual fund;
(c) annuity contract;
(d) insurance pension product;
(e) pre-need pension plan;
(f) shares of stock or other securities listed and traded in the local stock exchange;
(g) exchange-traded bond;
(h) government securities; ACIEaH
(i) any other category of investment product or outlet which the concerned Regulatory Authority
may allow for PERA purposes.
(r) "Regulatory Authorities" shall refer to the (1) Bangko Sentral ng Pilipinas (BSP) as regards
banks, trust entities, and other BSP-supervised financial institutions; (2) the Securities and Exchange

29
Commission (SEC), for investment companies, investment houses, stock brokerages; and (3) the Office of
the Insurance Commission (OIC), for insurance companies and pre-need plan companies.
SECTION 3. Accreditation of Administrator.
A. Qualifications
An entity may only act as Administrator after having been pre-qualified by the concerned Regulatory
Authority and upon compliance with the following requirements:
(1) It possesses adequate systems and technological capabilities and the necessary technical expertise
and personnel to ensure the proper recording of PERA transactions; TcDAHS
(2) It is duly registered with the BIR;
(3) It has regularly filed tax returns as required by law; and
(4) It has no unpaid final and executory national internal revenue tax assessment.
B. Documentary Requirements
For purposes of accreditation, the applicant-Administrator shall file an Application for Accreditation (BIR
Form No. ____) in triplicate copies (2 copies for the BIR and 1 file copy for the applicant) with the PERA
Processing Office, and shall pay an Accreditation Fee of Five Hundred pesos (P500.00). The Application
for Accreditation and the Official Receipt of payment of Accreditation Fee shall be accompanied by the
following documents:
(1) Qualification Certificate issued by the concerned Regulatory Authority;
(2) Copy of the current Certificate of BIR Registration;
(3) Clearance from RDO that taxpayer is a regular filer and has no unfiled return on record; and
aSTcCE
(4) Clearance from final and executory tax liability from the BIR.
SECTION 4. Establishment of a PERA. A Contributor must comply with the following
requirements in establishing a PERA:
(1) The Contributor's PERA must not exceed five (5) at any one time;
(2) The Maximum total of all Contributor's PERA should not exceed the amount stated in Section 6
of these Regulations;
(3) The Contributor shall designate and maintain only one (1) Administrator for all his PERA;
(4) Each PERA shall be confined to one category of investment product; and
(5) Submission of proof of income earnings for the year or to be earned for the year when the PERA
contribution was made.
If the Contributor is an Overseas Filipino, he/she shall submit the following supporting documents to the
Administrator as proof of his/her status as an Overseas Filipino: caSDCA
(1) For a non-resident citizen of the Philippines who is working or deriving income from abroad:
(i) Overseas Employment Certificate issued by the Philippine Overseas Employment Administration
(POEA); and
(ii) Any official document showing that he will earn or has earned income in a foreign country in the
year of PERA contribution.
(2) For an individual who has retained or reacquired his Philippine citizenship under R.A. No. 9225,
otherwise known as the "Citizenship Retention and Reacquisition Act of 2003":
(i) Identification Certificate issued by the Bureau of Immigration, to prove his reacquisition of
Philippine citizenship; and
(ii) Any official document showing that he will earn or has earned income in a foreign country in the
year of PERA contribution. EHTIcD
(3) For the legitimate spouse, subject to the consent given by the individual referred to in (1) and (2):
(i) the marriage certificate attesting his/her marriage with the individual referred to in (1) or (2); (ii) sworn
certification that he/she is opening a PERA for and in behalf of his/her spouse, who has not availed of the
benefits under the PERA Act; and (iii) the supporting documents under (1) or (2), as the case may be.
(4) For the child, subject to the consent given by the individual mentioned in (1) or (2): (i) the birth
certificate attesting that he/she is the child of an individual mentioned in (1) or (2); (ii) sworn certification
that he/she is opening a PERA for and in behalf of his/her parent who, being an individual mentioned in

30
(1) or (2) or the spouse of an individual mentioned in (1) or (2), has not availed of the benefits under the
PERA Act; and (iii) the supporting documents under (1) or (2), as the case may be.
SECTION 5. Annual and Quarterly Reporting of PERA Transactions: Contributions, Income,
Withdrawals and/or Terminations. The Administrator shall ensure that Contributors are under their
exclusive administration through an on-line validation with the PERA Contributor's database to be
established by the Bangko Sentral ng Pilipinas for this purpose. aCITEH
The Administrator shall record all the PERA contributions and related transactions under its
administration in a separate set of books of accounts, the income earned by the PERA Assets, and the
withdrawals made by the Contributor and/or termination of any PERA under its administration. Each
contribution, withdrawal and/or termination shall be supported by documentary proof of such
contribution/income/withdrawal/termination (such as official receipts, withdrawal slips, etc.) which shall
be kept in the Administrator's principal place of business as part of the books of accounts. The
Administrator is required to retain these documents subject to validation or submission to the Bureau of
Internal Revenue whenever requested.
The Administrator shall submit, not later than the fifteenth (15th) day following the close of every quarter,
a Quarterly Report of PERA transactions. Likewise the Administrator shall submit an Annual Report to
the PERA Processing Office of the Qualified PERA Contributions, income earned by the PERA Assets,
and withdrawals and terminations made by each Contributor under its administration due on or before
May 15 of every year.
SECTION 6. Maximum Annual PERA Contributions. Without limiting the scope and coverage of
the term "Qualified PERA Contributions" as defined under Section 2 (n), the aggregate maximum
Qualified PERA Contributions in one calendar year for purposes of illustration shall be as follows:
HAEDIS
Contributor Maximum Qualified PERA
Contribution in Peso*
Unmarried Filipino Citizen Php100,000.00
Married Filipino Citizen and both Php100,000.00 for each qualified
spouses qualify as a Contributor contributor
Married Filipino Citizen and only one Php100,000.00
spouse qualifies as a Contributor
Unmarried Overseas Filipino Php200,000.00
Married Overseas Filipino whose Php200,000.00
legitimate spouse is neither an
Overseas Filipino nor a qualified
Contributor
Married Overseas Filipino whose Php200,000.00, cumulative for the
legitimate spouse and children (not spouse and children in
otherwise disqualified as contributors) representation of the Overseas
of an Overseas Filipino who did not Filipino
directly open any PERA
Married Overseas Filipino whose P200,000.00 for each qualified
legitimate spouse is also an Overseas contributor
Filipino
Married Overseas Filipino whose Php200,000.00 for the Overseas
legitimate children are not Overseas Filipino
Filipinos and are not qualified
Contributors
* Or its equivalent in any convertible foreign currency at the prevailing rate at the time of actual
contribution.
If the Contributor is an Overseas Filipino, the person mentioned in Section 4 hereof shall submit to the
Administrator a sworn certification of his continuing status as an Overseas Filipino for the year. Any false

31
or misleading statement in such sworn certification shall subject the affiant to the penalties under Section
11 hereof. ETDSAc
Contributions to the PERA amounting to more than Php100,000.00 or Php200,000.00, as the case may be,
shall not be accepted by the Administrator under the PERA Account, however, they may be accepted by
the Administrator as other Savings/Investment Account after appropriate advice given to Contributor but
shall not be entitled to any benefit under the PERA Act.
SECTION 7. PERA Contributions and Tax Credit.
A. Contributor's Qualified PERA Contribution
A Qualified Contributor shall be entitled to a tax credit in the amount of five percent (5%) of the
aggregate Qualified PERA Contributions made in one calendar year.
An employee qualified contributor shall be issued a Certificate of Entitlement to 5% tax credit (Form No.
____) as mentioned in subsection C of these Section while a self-employed shall be issued a PERA TCC
by the Bureau as discussed under Section 8 of these Regulations. The entitlement to 5% tax credit for an
employee or one who is self-employed shall be allowed to be credited only against the Contributor's
income tax liability. cCSDTI
However, if the Contributor is an overseas Filipino, he shall be entitled to claim the 5% tax credit against
any national internal revenue tax liabilities (excluding the Contributor's withholding tax liabilities as
withholding agent).
Provided, that in no instance can there be any refund of the said tax credit arising from the PERA
contributions.
B. Qualified Employer's Contribution to the Employee's PERA. The Qualified Employer's
Contribution to his/its employee's PERA shall be in addition to, and not in lieu of, the employer's
contribution to the Social Security System (SSS) and its obligation to pay retirement benefits to his/its
employees under the Labor Code. The total of the employer's and the employee's contribution to his
PERA and all the benefits, including tax incentives and privileges arising therefrom, shall all belong to
the employee and shall not, in anyway, inure to the benefit of the employer. The employer shall not be
entitled to any 5% credit from its contribution to an employee's PERA. The employee also retains the
prerogative to make investment decisions pertaining to his PERA, including the contribution made in his
favor by the employer.
I. On the part of the employee The Qualified Employer's Contribution to his/its employee's
PERA shall not form part of the employee's taxable gross income, hence, exempted from the withholding
tax on income, whether withholding tax on compensation or fringe benefits. CEDScA
II. On the part of the employer The employer can claim the actual amount of his/its Qualified
Employer's Contribution as a deduction from his/its gross income, but only to the extent of the employer's
contribution that would complete the maximum allowable PERA contribution of an employee.
For example, Employee AAA already made PERA contribution for the year amounting to
P60,000. Employer XYZ Corp decided to contribute as well to its employee's PERA account and the
employer's contribution for the same period amounted to also to P60,000. In this case the employer can
only claim as deduction the amount of P40,000, that is only up to the extent needed to complete the
maximum allowable PERA contribution.
The Qualified Employer's Contribution allowable as deduction shall likewise be exempt from
withholding tax on compensation, the provisions of Section 34 (K) of the Tax Code notwithstanding. For
this purpose, the Administrator shall issue to the employer a certificate of the actual amount of Qualified
Employer's Contributions. AIHTEa
C. Employee's Qualified PERA Contributions In cases where an employee makes a Qualified
PERA Contribution (apart from his employer's Qualified Employer's Contribution), the Administrator
shall submit a Certification of the actual total amount of such Qualified PERA Contribution to the Bureau
of Internal Revenue within forty-five (45) days from the close of the calendar year.
The PERA Processing Office on the other hand shall issue a confirmation of an employee's entitlement to
5% tax credit of the Qualified PERA Contribution to be issued to his employer which shall serve as
authority for the employer to automatically adjust the withholding tax on the employee's compensation

32
income. For these purpose, the employer must secure his own employee's PERA tax credit entitlement
from the PERA Processing Office.
For the avoidance of doubt, the amount which the Administrator shall certify on shall, together with the
aggregate amount of the Qualified Employer's Contribution, not exceed such employee's Qualified PERA
Contribution.
SECTION 8. PERA Tax Credits Certificate (PERA-TCC).
A. Coverage The PERA-TCC may be issued only to a qualified Overseas Filipino and self-
employed contributor. ATCEIc
B. Application.
An Application for the PERA-TCC (BIR Form No. ____) duly signed by the Administrator shall
be submitted in three (3) copies by the Administrator.
The Application for PERA-TCC shall be filed with the PERA Processing Office not later than
ninety (90) days following the end of the calendar year.
C. Non-refundability of the PERA-TCC.
The tax credit arising from the PERA Contributions shall not be refundable or transferable.
SECTION 9. Tax Treatment of the PERA Investment Income. Investment income of the Contributor
consisting of all income earned from the investments and reinvestments of his PERA Assets in the
maximum amount allowed herein shall be exempt from the following taxes as may be applicable:
(1) The final withholding tax on interest from any currency bank deposit, yield or any other monetary
benefit from deposit substitutes and from trust funds and similar arrangements, including a depository
bank under the expanded foreign currency deposit system; aEHADT
(2) The capital gains tax on the sale, exchange, retirement or maturity of bonds, debentures or other
certificates of indebtedness;
(3) The 10% tax on cash and/or property dividends actually or constructively received from a
domestic corporation, including a mutual fund company;
(4) The capital gains tax on the sale, barter, exchange or other disposition of shares of stock in a
domestic corporation;
(5) Regular income tax.
Provided, that each specific investment products, as defined in Section 2 (q) hereof, must be approved by
the concerned Regulatory Authority in accordance with the provisions of PERA before its income or
distribution can be granted tax incentives and privileges herein provided.
Provided, further, that non-income taxes, if applicable, relating to the above investment income of the
PERA Account of a Contributor, shall remain imposable, including the following: AaEDcS
(1) Percentage taxes on persons exempt from value-added tax, domestic carriers and keepers of
garages, international carriers, franchise holders, overseas dispatch, message or conversation originating
from the Philippines, banks and non-bank financial intermediaries performing quasi-banking functions,
other non-bank finance intermediaries, life insurance premiums, agents of foreign insurance companies,
amusement, and winnings;
(2) Value-added tax;
(3) Stock transaction tax on the sale, barter, or exchange of shares of stock listed and traded through
the local stock exchange or through initial public offering; and
(4) Documentary stamp tax.
SECTION 10. PERA Distributions and Early Withdrawals.
A. Qualified PERA Distributions SHECcT
Qualified PERA Distributions received by the Contributor, or in case of the death of the Contributor, by
his heirs or beneficiaries, whether in a lump sum or pension for a definite period or lifetime pension, shall
be excluded from the gross income of the Contributor and shall not be subject to income tax. The same
shall also be excluded from the gross income in the hands of his heirs or beneficiaries, as the case may be,
and shall not be subject to estate tax.
B. Early Withdrawal
The following shall not be subject to the Early Withdrawal Penalty:

33
(1) Immediate transfer of proceeds to another Qualified/Eligible PERA Investment Product and/or
another Administrator, who have been dis-accredited either by the BIR or the concerned Regulatory
Agency, within two (2) working days from the withdrawal thereof;
(2) For payment of accident or illness-related hospitalization in excess of thirty (30) days, in which
case a duly notarized doctor's certificate attesting to the said event shall be attached to the Notice of
Termination/Withdrawal/Transfer to be submitted to the PERA Processing Office. SacDIE
(3) For payment to a Contributor who has been subsequently rendered permanently totally disabled
as defined under the Employees Compensation Law or Social Security System Law, in which case a
certification duly issued by a pertinent government agency that the Contributor had been permanently
totally disabled shall be attached to the Notice of Termination/Withdrawal/Transfer to be submitted to the
PERA Processing Office.
C. Imposition of Tax/Penalty. In case of Early Withdrawals not falling under any of the
circumstances under Section 10 (B) above, the Contributor shall pay the following Early Withdrawal
Penalties:
(1) The five percent (5%) tax credit availed by the Contributor for the entire period of the PERA;
(2) Withholding tax on compensation/Final Withholding Tax on Fringe Benefits due on the Qualified
Employer's Contribution;
(3) Income tax due on all income from investment and/or reinvestment; cSICHD
(4) The final withholding tax on interest from any currency bank deposit, yield or any other monetary
benefit from deposit substitutes and from trust funds and similar arrangements including a depository
bank under the expanded foreign currency deposit system;
(5) The 10% final tax on cash and/or property dividends actually or constructively received from a
domestic corporation, including a mutual fund company;
(6) The capital gains tax on the sale, barter, exchange or other disposition of shares of stock in a
domestic corporation;
(7) The stock transaction tax on the sale, barter, or exchange of shares of stock listed and traded
through the local stock exchange or through initial public offering;
(8) The capital gains tax on the sale, exchange, retirement or maturity of bonds, debentures or other
certificates of indebtedness; or
(9) Regular income tax. aHDTAI
The Administrator shall submit a quarterly report of such termination or withdrawal to the PERA
Processing Office, within sixty (60) days following the end of the quarter of the date of termination or
withdrawal.
Computation of tax on Early Withdrawal shall be reckoned from the date the benefit accrues to the
Contributor (e.g., on the date the tax credit has been claimed in the tax return; on the date the employer
contributed to the employee's PERA, etc.). In any case, unless the Contributor was able to prove that he
did not claim from such tax credit, the Administrator may presume that the Contributor availed of the tax
credit.
SECTION 11. Other Penalties. In addition to the penalties provided under the Tax Code, a fine of not
less than Fifty thousand pesos (P50,000.00) nor more than two hundred thousand pesos (P200,000.00) or
imprisonment of not less than six (6) years and one (1) day to not more than twelve (12) years or both
such fine and imprisonment, at the discretion of the court, shall be imposed upon any person, association,
partnership or corporation, its officer, employee or agent, who, acting alone or in connivance with others,
who shall:
(1) Act as Administrator without being accredited by the BIR; SECcIH
(2) Knowingly and willfully make any statement in any application, report, or document required to
be filed under these Regulations, which statement is false or misleading with respect to any material fact;
or
(3) Violate any provision of the PERA Act or these Regulations issued pursuant to the Act which
affects the administration of tax incentives.

34
Notwithstanding the foregoing, any willful violation by the accredited Administrator of any of the
provisions of the PERA Act and these Regulations may be subject to the administrative sanctions
provided for in applicable laws.
The above penalties shall be without prejudice to whatever civil and criminal liability provided for under
applicable laws for the same act or omission. SAaTHc
SECTION 12. Abuse of the Tax Exemption and Privileges. Any person, natural or juridical, who
unduly avails of the tax exemptions and privileges granted herein, possibly by co-mingling his
investments with the Contributor's PERA when such person is not entitled hereto or conniving with the
Administrator in circumventing the provisions of the PERA Act and the PERA Rules shall be subject to
the penalties provided in Section 11 hereof. In addition, the offender shall refund to the government
double the amount of the tax exemptions and privileges enjoyed under the PERA Act or these
Regulations, plus interest of twelve percent (12%) per annum from the date of enjoyment of the tax
exemptions and privileges to the date of actual payment.
SECTION 13. Grounds for Disqualification, Suspension or Revocation of Accreditation of
Administrator. The accreditation of an Administrator may be refused, revoked, suspended, or
limitations placed thereon by the BIR if, after due notice and hearing, the BIR determines that the
applicant or licensee:
(1) Has willfully violated any provision of the PERA Act, the PERA Rules, these Regulations, or any
order made, or any other law administered by the BIR, or has failed to supervise, another person who
commits such violation, with a view to prevent such violation; EDCcaS
(2) Has willfully made or caused to be made a materially false or misleading statement in the
application for prequalification or report filed with the BIR, or has willfully omitted to state any material
fact that is required to be stated therein or necessary to make the statement therein not misleading;
(3) Has failed to maintain the qualifications or requirements for accreditation prescribed under the
PERA Rules and these Regulations or has failed to maintain compliance with any of them;
(4) Any of its directors or officers has been convicted by a competent body of an offense involving
fraud, embezzlement, counterfeiting, theft, estafa, misappropriation, forgery, bribery, false oath, perjury,
or of a violation of securities, commodities, banking, real estate or insurance laws;
(5) Is enjoined or restrained by a competent body from engaging in securities, commodities, banking,
real estate or insurance activities; and
(6) Is subject to an order of a competent body refusing, revoking or suspending any license or other
permit under the PERA Act, the PERA Rules, these Regulations, and any other law or regulation
administered by the BIR. cDCSET
SECTION 14. Issuance of Guidelines and Procedure. A separate Revenue Memorandum Order
(RMO) shall be issued defining the guidelines and procedure for proper administrative reporting to the
Bureau of Internal Revenue of PERA Transactions involving Contributions, Income, Withdrawals and/or
Termination including the Administrators operational expenses relative to PERA management. The same
RMO shall include the procedure to guide the PERA Processing Office in all the matters involving BIR
PERA-related transactions including all the PERA related forms and formats of reporting.
SECTION 15. Repealing Clause. All existing rules, regulations, revenue issuances, rulings or parts
thereof, which are contrary to or inconsistent with the provisions of these Regulations are hereby
amended, modified or repealed accordingly.
SECTION 16. Effectivity. These regulations shall take effect on January 1, 2012. HTIEaS

35
REVENUE REGULATIONS NO. 008-12

SUBJECT : Further Amendments to Revenue Regulations Nos. 2-98 and 3-98, as Last
Amended by Revenue Regulations Nos. 5-2008 and 5-2011, with Respect to "De Minimis Benefits"
TO : All Internal Revenue Officials and Others Concerned
Pursuant to Sections 4 and 244 in relation to Section 33 of the Tax Code of 1997 and the FY 2012
General Appropriations Act, these Regulations are hereby promulgated to further amend Revenue
Regulations (RR) No. 2-98 , as last amended by RR Nos. 5-2008 and 5-2011 , with respect to "De
Minimis" benefits which are exempt from income tax on compensation as well as from fringe benefit tax.
EIASDT
SECTION 1. Section 2.78.1 (A) (3) (e) of RR 2-98, as last amended by RR 5-2008, is hereby further
amended to read as follows:
"Sec. 2.78.1. Withholding Tax on Compensation Income.
(A) ...
xxx xxx xxx
(3) Facilities and privileges of relatively small value.
xxx xxx xxx
(e) Uniform and Clothing allowance not exceeding P5,000 per annum;
xxx xxx xxx"
SECTION 2. Section 2.33 (C) (e) of RR 3-98, as last amended by RR 5-2008, is hereby further
amended to read as follows: DHSaCA
"Sec. 2.33. Special Treatment of Fringe Benefits.
xxx xxx xxx
(C) Fringe Benefits Not Subject to Fringe Benefit Tax.
xxx xxx xxx
(e) Uniform and Clothing allowance not exceeding P5,000 per annum;
xxx xxx xxx"
SECTION 3. Repealing Clause. All existing rules and regulations and other issuances or parts
thereof which are inconsistent with the provisions of these Regulations are hereby modified, amended or
revoked accordingly.
SECTION 4. Effectivity. These Regulations shall take effect starting January 1, 2012. cHDAIS

36
BIR RULING NO. 234-13

Section 60 (B) of the Tax Code of 1997;


ERP-267-07 dated September 21, 2007
Metropolitan Bank & Trust Company
Trust Banking Group, GT Tower International
6813 Ayala Ave., H.V. Dela Costa St.
Makati City
Attention: Josephine G. Cervero
Vice President
Gentlemen :
This refers to your letter dated 22 August 2011 requesting revalidation of the exemption from the 20%
and 7.5% final taxes on interest income from local bank deposits and foreign currency deposits of the
Nokia Siemens Networks Philippines, Inc.'s Retirement Plan. aHSAIT
Documents submitted show that BIR Ruling No. ERP-267-07 dated September 21, 2007 was issued in
favor of Nokia Siemens Networks Philippines, Inc.'s Retirement Plan, wherein the said retirement plan
was declared that, being a reasonable retirement trust, it is exempt from 20% final tax and 7.5% tax on
interest income from local banks deposits and foreign currency deposits.
In reply thereto, please be informed that the exemption of the abovementioned Retirement Plan from the
payment of the 20% and 7.5% final taxes on interest income from local bank deposits and foreign
currency deposits imposed under section 27 (D) (1) of the National Internal Revenue Code of 1997, as
amended, remains valid and subsisting. The retirement benefits to be received by the qualified employee-
member shall be exempt from income tax provided the two (2) conditions set forth under Section 32 (B)
(6) (a) of the Tax Code are met.
It is observed, however, that Section 1, Article V, of the Plan provides that the normal retirement date of a
member shall be the first day of the month coincident with or next following his sixtieth (60th) birthday
provided he has served the company for at least five (5) years of credited service. In such a case, the
retirement benefits payable to the retiring member shall not be exempt from income tax because Section
32 (B) (6) (a) of the Tax Code of 1997, as amended, requires the presence of these two conditions in order
that the employee benefits may be granted tax exemption: (1) the employee had been in the service of the

37
same private firm for at least ten (10) years; and (2) he is at least fifty (50) years old at the time of
retirement. caADSE
It is understood that all other benefits provided for under the Plan are not covered by this exemption
unless they are expressly exempt from tax pursuant to different provisions of the 1997 Tax Code.
It must also be emphasized that in its investment activities, no part of the corpus or income of the
Retirement Fund shall be used for or diverted to purposes other than for the exclusive benefit of the
member-employees/officials or their beneficiaries. Furthermore, the trustee bank should not in any way
use the Retirement Fund to invest/deposit in any of the employer's business ventures because it would
destroy the separate entity of the trust.
This ruling is being issued on the basis of the foregoing facts as represented. However, if upon
investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and
void. ITAaCc

38

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