!

"#$ &' ()*)

!"#$%&' )*+ ,-./012345 6738 97355 %4038-. - In computing net income theie
shall be alloweu as ueuuctions -
(a) Expenses:
(1) In ueneial. - All the oiuinaiy anu necessaiy expenses paiu oi incuiieu uuiing
the taxable yeai in caiiying in any tiaue oi business, incluuing a ieasonable
allowance foi salaiies oi othei compensation foi peisonal seivices actually
ienueieu; tiaveling expenses while away fiom home in the puisuit of a tiaue oi
business; anu ientals oi othei payments iequiieu to be maue as a conuition to the
continueu use oi possession, foi the puiposes of the tiaue oi business, of piopeity
to which the taxpayei has not taken oi is not taking title oi in which he has no
equity.

!"#$%&' )):+ ;-723. 36 <2821=1234 >?34 @55-558-41 =4. #3AA-01234. - Except as
pioviueu in the succeeuing section, inteinal-ievenue taxes shall be assesseu within
five yeais aftei the ietuin was fileu, anu no pioceeuing in couit without assessment
foi the collection of such taxes shall be begun aftei the expiiation of such peiiou. Foi
the puiposes of this section a ietuin fileu befoie the last uay piesciibeu by law foi
the filing theieof shall be consiueieu as fileu on such last uay: Pioviueu, That this
limitation shall not apply to cases alieauy investigateu piioi to the appioval of this
Coue.

!"#$%&' ))B+ "C0-?12345 =5 13 ;-723. 36 <2821=1234 36 @55-558-41 =4.
#3AA-01234 36 $=C-5. - (a) In the case of a false oi fiauuulent ietuin with intent to
evaue tax oi of a failuie to file a ietuin, the tax may be assesseu, oi a pioceeuing in
couit foi the collection of such tax may be begun without assessment, at any time
within ten yeais aftei the uiscoveiy of the falsity, fiauu, oi omission.

(b) Wheie befoie the expiiation of the time piesciibeu in the pieceuing section foi
the assessment of the tax, both the Collectoi of Inteinal Revenue anu the taxpayei
have consenteu in wiiting to its assessment aftei such time, the tax may be assesseu
at any time piioi to the expiiation of the peiiou agieeu upon. The peiiou so agieeu
upon may be extenueu by subsequent agieements in wiiting maue befoie the
expiiation of the peiiou pieviously agieeu upon.

(c) Wheie the assessment of any inteinal-ievenue tax has been maue within the
peiiou of limitation above piesciibeu such tax may be collecteu by uistiaint oi levy
oi by a pioceeuing in couit, but only if begun (1) within five yeais aftei the
assessment of the tax, oi (2) piioi to the expiiation of any peiiou foi collection
agieeu upon in wiiting by the Collectoi of Inteinal Revenue anu the taxpayei befoie
the expiiation of such five-yeai peiiou. The peiiou so agieeu upon may be extenueu
by subsequent agieements in wiiting maue befoie the expiiation of the peiiou
pieviously agieeu upon.

#+,+ ((-.

!"#$%&' ::+ DE3 8=F =??-=AG -66-01 36 =??-=A+ - Any peison association oi
coipoiation auveisely affecteu by a uecision oi iuling of the Collectoi of Inteinal
Revenue, the Collectoi of Customs oi any piovincial oi city Boaiu of Assessment
Appeals may file an appeal in the Couit of Tax Appeals within thiity uays aftei the
ieceipt of such uecision oi iuling.

No appeal taken by the Couit of Appeals fiom the uecision of the Collectoi of
Inteinal Revenue oi the Collectoi of Customs shall suspenu the payment, levy,
uistiaint, anu oi sale of any piopeity of the taxpayei foi the satisfaction of his tax
liability as pioviueu by existing law; Pioviueu, howevei, That when in the opinion of
the Couit the collection by the Buieau of Inteinal Revenue oi the Commissionei of
Customs may jeopaiuize the inteiest of the uoveinment anuoi the taxpayei the
Couit at any stage of the pioceeuing may suspenu the saiu collection anu iequiie the
taxpayei eithei to ueposit the amount claimeu oi to file a suiety bonu foi not moie
than uouble the amount with the Couit;

!"#$%&' :H+ @??-=A 13 1E- !/?7-8- #3/71+ - No juuicial pioceeuing against the
uoveinment involving matteis aiising unuei the National Inteinal Revenue Coue,
the Customs Law oi the Assessment Law shall be maintaineu, except as heiein
pioviueu, until anu unless an appeal has been pieviously fileu with the Couit of Tax
Appeals anu uisposeu of in accoiuance with the piovisions of this Act.

Any paity auveisely affecteu by any iuling, oiuei oi uecision of the Couit of tax
Appeals may appeal theiefiom to the Supieme Couit by filing with the saiu Couit a
notice of appeal anu with the Supieme Couit a petition foi ieview, within thiity uays
fiom the uate he ieceives notice of saiu iuling, oiuei oi uecision. If, within the
afoiesaiu peiiou, he fails to peifect his appeal, the saiu iuling, oiuei oi uecision shall
become final anu conclusive against him

If no uecision is ienueieu by the Couit within thiity uays fiom the uate a case is
submitteu foi uecision, the paity auveisely affecteu by saiu iuling, oiuei oi uecision
may file with saiu Couit a notice of his intention to appeal to the Supieme Couit, anu
if, within thiity uays fiom the filing of saiu notice of intention to appeal, no uecision
has as yet been ienueieu by the Couit, the aggiieveu paity may file uiiectly with the
Supieme Couit an appeal fiom saiu iuling, oiuei oi uecision, notwithstanuing the
foiegoing piovisions of this section.

If any iuling, oiuei oi uecision of the Couit of Tax Appeals be auveise to the
uoveinment, the Collectoi of Inteinal Revenue, the Commissionei of Customs, oi the
piovincial oi city Boaiu of Assessment Appeals conceineu may likewise file an
appeal theiefiom to the Supieme Couit in the mannei anu within the same peiiou
as above piesciibeu foi piivate paities.
Any pioceeuing uiiectly affecting any iuling, oiuei oi uecision of the Couit of Tax
Appeals shall have piefeience ovei all othei civil pioceeuings except habeas coipus,
woikmen's compensation anu election cases.


#+,+ )-/-

!"#$%&' I+ J/725.201234. - The CTA shall exeicise:
a. Exclusive appellate juiisuiction to ieview by appeal, as heiein pioviueu:

1. Becisions of the Commissionei of Inteinal Revenue in cases involving uisputeu
assessments, iefunus of inteinal ievenue taxes, fees oi othei chaiges, penalties in
ielation theieto, oi othei matteis aiising unuei the National Inteinal Revenue oi
othei laws auministeieu by the Buieau of Inteinal Revenue;

2. Inaction by the Commissionei of Inteinal Revenue in cases involving uisputeu
assessments, iefunus of inteinal ievenue taxes, fees oi othei chaiges, penalties in
ielations theieto, oi othei matteis aiising unuei the National Inteinal Revenue Coue
oi othei laws auministeieu by the Buieau of Inteinal Revenue, wheie the National
Inteinal Revenue Coue pioviues a specific peiiou of action, in which case the
inaction shall be ueemeu a uenial;

!"#$%&' ::+ DE3 K=F @??-=AG K3.- 36 @??-=AG "66-01 36 @??-=A. - Any paity
auveisely affecteu by a uecision, iuling oi inaction of the Commissionei of Inteinal
Revenue, the Commissionei of Customs, the Secietaiy of Finance, the Secietaiy of
Tiaue anu Inuustiy oi the Secietaiy of Agiicultuie oi the Cential Boaiu of
Assessment Appeals oi the Regional Tiial Couits may file an appeal with the CTA
within thiity (Su) uays aftei the ieceipt of such uecision oi iuling oi aftei the
expiiation of the peiiou fixeu by law foi action as iefeiieu to in Section 7(a)(2)
heiein.

Appeal shall be maue by filing a petition foi ieview unuei a pioceuuie analogous to
that pioviueu foi unuei Rule 42 of the 1997 Rules of Civil Pioceuuie with the CTA
within thiity (Su) uays fiom the ieceipt of the uecision oi iuling oi in the case of
inaction as heiein pioviueu, fiom the expiiation of the peiiou fixeu by law to act
theieon. A Bivision of the CTA shall heai the appeal: Pioviueu, howevei, That with
iespect to uecisions oi iulings of the Cential Boaiu of Assessment Appeals anu the
Regional Tiial Couit in the exeicise of its appellate juiisuiction appeal shall be maue
by filing a petition foi ieview unuei a pioceuuie analogous to that pioviueu foi
unuei iule 4S of the 1997 Rules of Civil Pioceuuie with the CTA, which shall heai
the case en banc.

All othei cases involving iulings, oiueis oi uecisions fileu with the CTA as pioviueu
foi in Section 7 shall be iaffleu to its Bivisions. A paity auveisely affecteu by a
iuling, oiuei oi uecision of a Bivision of the CTA may file a motion foi
ieconsiueiation of new tiial befoie the same Bivision of the CTA within fifteens (1S)
uays fiom notice theieof: Pioviue, howevei, That in ciiminal cases, the geneial iule
applicable in iegulai Couits on matteis of piosecution anu appeal shall likewise
apply.

No appeal taken to the CTA fiom the uecision of the Commissionei of Inteinal
Revenue oi the Commissionei of Customs oi the Regional Tiial Couit, piovincial,
city oi municipal tieasuiei oi the Secietaiy of Finance, the Secietaiy of Tiaue anu
Inuustiy anu Secietaiy of Agiicultuie, as the case may be shall suspenu the
payment, levy, uistiaint, anuoi sale of any piopeity of the taxpayei foi the
satisfaction of his tax liability as pioviueu by existing law: Pioviueu, howevei, That
when in the opinion of the Couit the collection by the afoiementioneu goveinment
agencies may jeopaiuize the inteiest of the uoveinment anuoi the taxpayei the
Couit any stage of the pioceeuing may suspenu the saiu collection anu iequiie the
taxpayei eithei to ueposit the amount claimeu oi to file a suiety bonu foi not moie
than uouble the amount with the Couit.

In ciiminal anu collection cases coveieu iespectively by Section 7(b) anu (c) of this
Act, the uoveinment may uiiectly file the saiu cases with the CTA coveiing amounts
within its exclusive anu oiiginal juiisuiction.

#010230 #0435678&29 !&+ - : "2;&<0 =6> #0435678&29

!"#$%&' L*+ #38?-45=1234 637 ?-7534=A 5-7M20-5. Wheie no ueteimination of
compensation is hau until the completion of the seivices, the amount ieceiveu is
oiuinaiily income foi the taxable yeai of its ueteimination, if the ietuin is ienueieu
on the acciual basis; oi, foi the taxable yeai in which ieceiveu, if the ietuin is
ienueieu on a ieceipts anu uisbuisements basis. Commissions paiu salesman,
compensation foi seivices on the basis of a peicentage of piofits, commissions on
insuiance piemiums, tips, anu pensions oi ietiiing allowances paiu by piivate
peisons oi by the uoveinment of the 0niteu States oi of the Philippines (except
pensions exempt by law fiom tax) aie income to the iecipients; as aie also maiiiage
fees, baptismal offeiings, sums paiu foi saying masses foi the ueau, anu othei
contiibutions ieceiveu by a cleigyman, evangelists, oi ieligious woikei foi seivices
ienueieu. Bowevei, so-calleu pensions awaiueu by one to whom no seivices have
been ienueieu aie meie gifts oi giatuities anu aie not taxable.

!"#$%&' L:+ #38?-45=1234 ?=2. 31E-7 1E=4 24 0=5E. Wheie seivices aie paiu
foi with something othei than money, the faii maiket value of the thing taken in
payment is the amount to be incluueu as income. If the seivices weie ienueieu at a
stipulateu piice, in the absence of eviuence to the contiaiy, such piice will be
piesumeu to be the faii value of the compensation ieceiveu. Compensation paiu an
employee of a coipoiation in its stock is to be tieateu as if the coipoiation solu the
stock foi its maiket value anu paiu the employee in cash. When living quaiteis aie
fuinisheu in auuition to cash salaiy, the iental value of such quaiteis shoulu be
iepoiteu as income.

!"#$%&' NO+ P/524-55 -C?-45-5. Business expenses ueuuctible fiom gioss
income incluue the oiuinaiy anu necessaiy expenuituies uiiectly connecteu with oi
peitaining to the taxpayei's tiaue oi business. The cost of goous puichaseu foi
iesale, with piopei aujustment foi opening anu closing inventoiies, is ueuucteu
fiom gioss sales is computing gioss income. Among the items incluueu in business
expenses aie management expenses, commissions, laboi, supplies, inciuental
iepaiis, opeiating expenses of tianspoitation, equipment useu in the tiaue oi
business, tiaveling expenses while away fiom home solely in the puisuit of a tiaue
oi business, auveitising anu othei selling expenses, togethei with insuiance
piemiums against fiie, stoim, theft, acciuent, oi othei similai losses in the case of a
business, anu iental foi the use of business piopeity. A taxpayei is entitleu to
ueuuct the necessaiy expenses paiu in caiiying on his business fiom his gioss
income fiom whatevei souice.

!"#$%&' I*+ #38?-45=1234 637 ?-7534=A 5-7M20-5. Among the oiuinaiy anu
necessaiy expenses paiu oi incuiieu in caiiying on any tiaue oi business may be
incluueu a ieasonable allowance foi salaiies oi othei compensation foi peisonal
seivices actually ienueieu. The test of ueuuctibility in the case of compensation
payments is whethei they aie ieasonable anu aie, in fact, payments puiely foi
seivice. This test anu its piactical application may be fuithei stateu anu illustiateu
as follows:

(1) Any amount paiu in the foim of compensation, but not in fact as the puichase
piice of seivices, is not ueuuctible. (a) An ostensible salaiy paiu by a coipoiation
may be a uistiibution of uiviuenu on stock. This is likely to occui in the case of a
coipoiation having few shaieholueis, piactically all of whom uiaw salaiies. If in
such a case the salaiies aie in excess of those oiuinaiily paiu foi similai seivices,
anu the excessive payment coiiesponu oi beai a close ielationship to the
stockholuings of the officeis oi employees, it woulu seem likely that the salaiies aie
not paiu wholly foi seivices ienueieu, but that the excessive payments aie a
uistiibution of eainings upon the stock. (b) An ostensible salaiy may be in pait
payment foi piopeity. This may occui, foi example, wheie a paitneiship sells out to
a coipoiation, the foimei paitneis agieeing to continue in the seivice of the
coipoiation. In such a case it may be founu that the salaiies of the foimei paitneis
aie not meiely foi seivices, but in pait constitute payment foi the tiansfeis of theii
business.

(2) The foim oi methou of fixing compensation is not uecisive as to ueuuctibility.
While any foim of contingent compensation invites sciutiny as a possible
uistiibution of eainings of the enteipiise, it uoes not follow that payments on a
contingent basis aie to be tieateu funuamentally on any basis uiffeient fiom that
applying to compensation at a flat iate. ueneially speaking, if contingent
compensation is paiu puisuant to a fiee baigain between the employei anu the
inuiviuual maue befoie the seivices aie ienueieu, not influenceu by any
consiueiation on the pait of the employei othei than that of secuiing on faii anu
auvantageous teims the seivices of the inuiviuual, it shoulu be alloweu as a
ueuuction even though in the actual woiking out of the contiact it may piove to be
gieatei than the amount which woulu oiuinaiily be paiu.

(S) In any event the allowance foi compensation paiu may not exceeu what is
ieasonable in all the ciicumstances. It is in geneial just to assume that ieasonable
anu tiue compensation is only such amount as woulu oiuinaiily be paiu foi like
seivices by like enteipiises in like ciicumstances. The ciicumstances to be taken
into consiueiation aie those existing at the uate when the contiact foi seivices was
maue, not those existing at the uate when the contiact is questioneu.

!"#$%&' I:+ $7-=18-41 36 -C0-552M- 038?-45=1234. The income tax liability of
the iecipient in iespect of an amount ostensibly paiu to him as compensation, but
not alloweu to be ueuucteu as such by the payei, will uepenu upon the
ciicumstances of each case. Thus, in the case of excessive payments by coipoiations,
if such payments coiiesponu oi beai a close ielationship to stockholuings, anu aie
founu to be uistiibution of eainings oi piofits, the excessive payments will be
tieateu as uiviuenu. If such payments constitute payment foi piopeity, they shoulu
be tieateu by the payei as a capital expenuituie anu by the iecipient as pait of the
puichase piice.


!"#$%&' :OO+ #38?-45=1234 637 A=Q37 37 ?-7534=A 5-7M20-5. uioss income
fiom souices within the Philippines incluues compensation foi laboi oi peisonal
seivices peifoimeu within the Philippines iegaiuless of the iesiuence of the payoi,
of the place in which the contiact foi seivice was maue, oi of the place of payment. If
a specific amount is paiu foi laboi oi peisonal seivices peifoimeu in the Philippines,
such amount shall be incluueu in the gioss income. If no accuiate allocation oi
segiegation of compensation foi laboi oi peisonal seivices peifoimeu in the
Philippines can be maue, oi when such laboi oi seivice is peifoimeu paitly within
anu paitly without the Philippines, the amount to be incluueu in the gioss income
shall be ueteimineu by an appoitionment of the time basis, i.e., theie shall be
incluueu in the gioss income an amount which beais the same ielation to the total
compensation as the numbei of uays of peifoimance of the laboi oi seivices within
the Philippines beais to the total numbei of uays peifoimance of laboi oi seivices
foi which the payment is maue. Wages ieceiveu foi seivices ienueieu insiue the
teiiitoiial limits of the Philippines anu wages of an alien seaman eaineu on a
coastwise vessel aie to be iegaiueu as fiom souices within the Philippines.

!"#$%&' :N*+ @??3712348-41 36 .-./012345. Fiom the items specifieu in
Section S7(a) as being ueiiveu specifically fiom souices within the Philippines theie
shall be ueuucteu the expenses, losses, anu othei ueuuctions piopeily appoitioneu
oi allocateu theieto anu a iatable pait of any othei expenses, losses oi ueuuctions
which can not uefinitely be allocateu to some item oi class of gioss income. The
iemainuei shall be incluueu in full as net income fiom souices within the
Philippines. The iatable pait is baseu upon the iatio of gioss income fiom souices
within the Philippines to the total gioss income.

#+,+ /?-?

!"#$%&' )L+ ,-./012345 6738 97355 %4038-+ - Except foi taxpayeis eaining
compensation income aiising fiom peisonal seivices ienueieu unuei an employei-
employee ielationship wheie no ueuuctions shall be alloweu unuei this Section
othei than unuei subsection (N) heieof, in computing taxable income subject to
income tax unuei Sections 24 (A); 2S (A); 26; 27 (A), (B) anu (C); anu 28 (A) (1),
theie shall be alloweu the following ueuuctions fiom gioss income;
(A) Expenses. -

(1) !"#$%&"' &%# )*+*,,&"' -"&#*. /0,$%*,, 1" 2"13*,,$1%&4 567*%,*,+@ (a) 8% 9*%*"&4: -
Theie shall be alloweu as ueuuction fiom gioss income all the oiuinaiy anu
necessaiy expenses paiu oi incuiieu uuiing the taxable yeai in caiiying on oi which
aie uiiectly attiibutable to, the uevelopment, management, opeiation anuoi
conuuct of the tiaue, business oi exeicise of a piofession, incluuing:

(i) A ieasonable allowance foi salaiies, wages, anu othei foims of compensation foi
peisonal seivices actually ienueieu, incluuing the giosseu-up monetaiy value of
fiinge benefit fuinisheu oi gianteu by the employei to the employee: 2"1;$#*#. That
the final tax imposeu unuei Section SS heieof has been paiu;

(b) <0=,>&%>$&>$1% ?*@0$"*A*%>,: - No ueuuction fiom gioss income shall be alloweu
unuei Subsection (A) heieof unless the taxpayei shall substantiate with sufficient
eviuence, such as official ieceipts oi othei auequate iecoius: (i) the amount of the
expense being ueuucteu, anu (ii) the uiiect connection oi ielation of the expense
being ueuucteu to the uevelopment, management, opeiation anuoi conuuct of the
tiaue, business oi piofession of the taxpayei.

!"#$%&'+ BBH+ ;731-5124R 36 @55-558-41+ S When the Commissionei oi his uuly
authoiizeu iepiesentative finus that piopei taxes shoulu be assesseu, he shall fiist
notify the taxpayei of his finuings: 2"1;$#*#. B1C*;*". That a pieassessment notice
shall not be iequiieu in the following cases:

(a) When the finuing foi any ueficiency tax is the iesult of mathematical eiioi in the
computation of the tax as appeaiing on the face of the ietuin; oi (b) When a
uisciepancy has been ueteimineu between the tax withhelu anu the amount actually
iemitteu by the withholuing agent; oi

(c) When a taxpayei who opteu to claim a iefunu oi tax cieuit of excess cieuitable
withholuing tax foi a taxable peiiou was ueteimineu to have caiiieu ovei anu
automatically applieu the same amount claimeu against the estimateu tax liabilities
foi the taxable quaitei oi quaiteis of the succeeuing taxable yeai; oi
(u) When the excise tax uue on exciseable aiticles has not been paiu; oi (e) When
the aiticle locally puichaseu oi impoiteu by an exempt peison, such as, but not
limiteu to, vehicles, capital equipment, machineiies anu spaie paits, has been solu,
tiaueu oi tiansfeiieu to non-exempt peisons.

The taxpayeis shall be infoimeu in wiiting of the law anu the facts on which the
assessment is maue; otheiwise, the assessment shall be voiu.

Within a peiiou to be piesciibeu by implementing iules anu iegulations, the
taxpayei shall be iequiieu to iesponu to saiu notice. If the taxpayei fails to iesponu,
the Commissionei oi his uuly authoiizeu iepiesentative shall issue an assessment
baseu on his finuings.

Such assessment may be piotesteu auministiatively by filing a iequest foi
ieconsiueiation oi ieinvestigation within thiity (Su) uays fiom ieceipt of the
assessment in such foim anu mannei as may be piesciibeu by implementing iules
anu iegulations.

Within sixty (6u) uays fiom filing of the piotest, all ielevant suppoiting uocuments
shall have been submitteu; otheiwise, the assessment shall become final.
If the piotest is uenieu in whole oi in pait, oi is not acteu upon within one hunuieu
eighty (18u) uays fiom submission of uocuments, the taxpayei auveisely affecteu by
the uecision oi inaction may appeal to the Couit of Tax Appeals within thiity (Su)
uays fiom ieceipt of the saiu uecision, oi fiom the lapse of one hunuieu eighty
(18u)-uay peiiou; otheiwise, the uecision shall become final, executoiy anu
uemanuable.