IMPROPERLY ACCUMULATED EARNINGS TAX ** Once the profit has been

RMC 35-2011 & RR-2-2001, Sec. 29 NIRC subjected to IAET, the

--10% of the improperly accumulated taxable income of corporations formed or availed of for same shall no longer
the purpose of avoiding the income tax with respect to its shareholders or the be subjected to IAET
shareholders of any other corporation, by permitting the earnings and profits of the in later years even if
corporation to accumulate instead of dividing them among or distributing them to the not declared as
shareholders dividend.
--RATIONALE: The touchstone of the liability is the purpose behind the accumulation of the ** Profits subjected to IAET,
income and not the consequences of the accumulation. when finally declared
--Determination of Reasonable Needs of the Business. --"Immediacy Test as dividends, shall be
--Determination of Purpose to Avoid Income Tax. --- "HOLDING OR INVESTMENT subject to tax on
COMPANY" dividends except in
-- The following are prima facie instances of accumulation of profits beyond the reasonable those instances
needs of a business and indicative of purpose to avoid income tax upon shareholders: where the recipient is
a. Investment of substantial earnings and profits of the corporation in unrelated not subject thereto.
business or in stock or securities of unrelated business; ** To determine the source
b. Investment in bonds and other long-term securities; of earnings or profits
c. Accumulation of earnings in excess of 100% of paid-up capital, not otherwise declared or
intended for the reasonable needs of the business distributed from
d. The fact that a corporation is a mere holding company or investment company accumulated income
e. the fact that the earnings or profits of a corporation are permitted to accumulate for each taxable
beyond the reasonable needs of the business year:
** The corporation may, by clear preponderance of evidence in its favor, prove the contrary. -- the dividends shall be
** The controlling intention of the taxpayer is that which is manifested at the time of deemed to have
accumulation, not subsequently declared intentions which are merely the product of been paid out of the
afterthought. A speculative and indefinite purpose will not suffice. The mere recognition most recently
of a future problem or the discussion of possible and alternative solutions is not accumulated profits
sufficient. Definiteness of plan/s coupled with action/s taken towards its consummation or surplus
are essential. -- it shall constitute a part
---COVERAGE: Closely-held DC of the annual income
--determining whether the corporation is closely held corporation based on stock of the distributee for
ownership, the following rules: the year in which
1. Stock Not Owned by Individuals. - Stock owned directly or indirectly by or for a received pursuant to
corporation, partnership, estate or trust shall be considered as being owned Section 73(C) of the
proportionately by its shareholders, partners or beneficiaries. Code.
2. Family and Partnership Ownership. An individual shall be considered as owning -- Provided that where the
the stock owned, directly or indirectly, by or for his family, or by or for his partner. dividends declared
For purposes of this paragraph, the family of an individual includes his brothers or or portion thereof
sisters (whether by whole or half-blood), spouse, ancestors and lineal forms part of the
descendants. accumulated
3. Option to Acquire Stocks. - If any person has an option to acquire stock, such earnings or
stock shall be considered as owned by such person. For purposes of this emanates from the
paragraph, an option to acquire such an option and each one of a series of option accumulated income
shall be considered as an option to acquire such stock.
of a particular year
4. Constructive Ownership as Actual Ownership. - Stock constructively owned by
-- an exception to the
reason of the application of paragraph (1) or (3) hereof shall, for purposes of
applying paragraph (1) or (2), be treated as actually owned by such person; but preceeding **
stock constructively owned by the individual by reason of the application of -- such fact must be
paragraph (2) hereof shall not be treated as owned by him for purposes of again
applying such paragraph in order to make another the constructive owner of such
stock.

--TAX BASE: COMPUTATION OF IMPROPERLY ACCUMULATED TAXABLE INCOME

Taxable Income for the year (e.g., 2010) P xxxx

Add:
(a) Income subjected to Final Tax P xxx
(b) NOLCO xxx
(c) Income exempt from tax xxx
(d) Income excluded from gross income xxx xxxx
P xxxx
Less:
Income Tax paid P xxx
Dividends declared/paid xxx xxxx
Total P xxxx
Add: Retained Earnings from prior years P xxx
Accumulated Earnings as of December 31, 2010 xxx
Less: Amount that may be Retained
(100% of Paid-Up Capital as of December 31, 2010) (xxx) xxxx
IATI P xxxx
Multiply by: IAETax Rate 10%
Improperly Accumulated Earnings Tax (IAET) P xxxx

RATIONALE FOR THE ISSUANCE OF THE REGULATIONS re issuance of OR req of

Authority To Print Expiration:
1) The BIRs discovery of businesses registered with the tax agency that are not really
engaged in any business except to sell invoices thereby defrauding the government of
billions in tax revenues. These businesses sell their invoices to entities who are either
engaged in smuggling and/or purchasing of goods without receipts. When BIR looked for
these companies, mostly Small and Medium Enterprises, they cannot be found;
2) The BIRs finding that a lot of invoices that were printed in the 70s are still being used and
the need to clean these up by providing an expiry period;
3) The issuances are aimed at reforming the process of accrediting printers to address
complaints against some BIR personnel engaged in printing business who make it difficult
for taxpayers to register and/or secure authority to print unless they get to print the
receipts of said taxpayers. The regulations disqualify printers with relatives working in the
BIR.
PROCEDURE FOR PROTEST OF INTERNAL REVENUE TAXES
1. Notice to the Taxpayer of the Commissioners findings
2. Pre-Assessment Notice
Exceptions:
When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing on the face of the return
When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent
When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and
automatically applied the same amount claimed against the estimated tax liabilities for
the taxable quarter(s) of the succeeding taxable year
When the excise tax due on exercisable articles has not been paid
When an article locally purchased or imported by an exempt person, such as, but not
limited to, vehicles, capital equipment, machineries, and spare parts, has been sold,
traded, or transferred to non-exempt persons
--Taxpayers shall be informed in writing of the law and the facts on which the assessment
is made; otherwise the assessment shall be void.
3. Taxpayers Reply (within 15 days from notice)
4. Issuance of Final Assessment Notice (upon failure to reply)
5. PROTEST
-- File request for reconsideration or reinvestigation within 30 DAYS from receipt of the
assessment.
-- Submit all relevant supporting documents within 60 DAYS from filing of protest.
6. Appeal to the CTA
-- If the protest is denied in whole/part OR not acted upon w/in 180 DAYS from
submission of docs w/in 30 DAYS from receipt of the decision or from the lapse of the 180
DAY-period
-- If not appealed, the decision shall become final, executory, and demandable.
British American Tobacco vs. Camacho (GR No. 163583, August 20, 2008)
-- In our jurisdiction, the standard analysis of equal protection challenges in the main have
followed the rational basis test, coupled with a deferential attitude to legislative
classifications and a reluctance to invalidate a law unless there is a showing of a clear
and unequivocal breach of the Constitution.Under this test, a legislative classification, to
survive an equal protection challenge, must be shown to rationally further a legitimate
state interest. The classifications must be reasonable and rest upon some ground of
difference having a fair and substantial relation to the object of the legislation. Since every
law has in its favor the presumption of constitutionality, the burden of proof is on the one
attacking the constitutionality of the law to prove beyond reasonable doubt that the
legislative classification is without rational basis. The presumption of constitutionality can
be overcome only by the most explicit demonstration that a classification is a hostile and
oppressive discrimination against particular persons and classes, and that there is no
conceivable basis which might support it.
-- A legislative classification that is reasonable does not offend the constitutional guaranty of
the equal protection of the laws. The classification is considered valid and reasonable
provided that: (1) it rests on substantial distinctions; (2) it is germane to the purpose of the
law; (3) it applies, all things being equal, to both present and future conditions; and (4) it
applies equally to all those belonging to the same class.
British American Tobacco vs. Camacho (GR No. 163583, April 15, 2009)
-- A tax is uniform when it operates with the same force and effect in every place where the
subject of it is found. It does not signify an intrinsic but simply a geographical uniformity.
A levy of tax is not unconstitutional because it is not intrinsically equal and uniform in its
operation. The uniformity rule does not prohibit classification for purposes of taxation.
-- Uniformity of taxation, like the kindred concept of equal protection, merely requires that all
 subjects or objects of taxation, similarly situated, are to be treated alike both in privileges
and liabilities. Uniformity does not forbid classification as long as: (1) the standards that
are used therefor are substantial and not arbitrary, (2) the categorization is germane to
achieve the legislative purpose, (3) same as above, and (4) same as above.
SEC. 22. Definitions. - When used in this Title:

Fiduciary - means a guardian, trustee, executor, administrator, receiver,

conservator or any person acting in any fiduciary capacity for any person. Person

Withholding agent - any person required to deduct and withhold any tax Corporation
under Sec.57.

Shares of stock - include shares of stock of a corporation, warrants and/or GPP

options to purchase shares of stock, as well as units of participation in a
partnership (except GPP), joint stock companies, joint accounts, JV taxable as
corporations, associations and recreation or amusement clubs (golf, polo or Domestic
similar clubs), and mutual fund certificates.

Shareholder - include holders of a share/s of stock, warrants or options to Foreign

purchase shares of stock of a corporation, as well as a holder of a unit of
participation in a partnership (except GPP) in a joint stock company, a joint
account, a taxable JV, a member of an association, recreation or amusement NRC
club (golf, polo or similar clubs) and a holder of a mutual fund certificate, a
member in an association, joint-stock company, or insurance company.
RA
Fiscal year - an acctg period of 12months ending on the last day of any
month, not December

Paid or incurred'/Paid or accrued' - construed according to the method of

accounting upon the basis of which the net income is computed

Trade or business - includes the performance of the functions of a public

office

Securities - shares of stock in a corp and rights to subscribe for or to receive

such shares

-- includes bonds, debentures, notes or certificates, or other evidence or

indebtedness, issued by any corporation, including those issued by a
government or political subdivision thereof, with interest coupons or in
registered form.

Dealer in securities - a merchant of stocks or securities, whether an

individual, partnership or corp, w/ established place of business, regularly
engaged in the purchase of securities and the resale to customers; that is, one
who, as a merchant, buys securities and re-sells them to customers with a
view to the gains and profits that may be derived therefrom.

Bank - every banking institution defined in Section 2 of RA 337, General

banking Act.

--shall refer to entities engaged in the lending of funds obtained in the

form of deposits

--may either be a commercial bank, a thrift bank, a development bank,

a rural bank or specialized government bank.

Non-bank financial intermediary - a financial intermediary authorized by

BSP to perform quasi-banking activities

Quasi-banking activities - borrowing funds from 20 or more personal or

corporate lenders at any one time, through the issuance, endorsement, or
acceptance of debt instruments of any kind other than deposits for the
borrower's own account, or through the issuance of certificates of assignment
or similar instruments, with recourse, or of repurchase agreements for
purposes of relending or purchasing receivables and other similar obligations:

--Provided: commercial, industrial and other non-financial companies,

which borrow funds thru any of these means for the limited purpose of
financing their own needs or of their agents or dealers--not considered
performing quasi-banking function

Deposit substitutes:

Provided, however, That debt instruments issued for interbank call loans
with maturity of not more than 5days to cover deficiency in reserves
against deposit liabilities, including those between or among banks and
quasi-banks, shall not be considered as deposit substitute debt
instruments.

Ordinary income - includes any gain from the sale or exchange of property
which is not a capital asset or property
 Ordinary loss - includes any loss from the sale or exchange of property
which is not a capital asset

Rank and file employees - all employees who are holding neither
managerial nor supervisory position as defined under existing provisions of the
Labor Code of the Philippines, as amended.

Mutual fund company - an open-end and close-end investment company

Trade, business or profession - not include performance of services by TP

as an employee.

Regional or area headquarters - a branch established in PH by

multinational companies and which headquarters do not earn or derive income
from PH and w/c act as supervisory, communications and coordinating center
for their affiliates, subsidiaries, or branches in the Asia-Pacific Region and Minimum Wage
other foreign markets. Earner

Regional operating headquarters - a branch established in PH by -- a worker in the

multinational companies engaged in any of the following services: gen.admin private sector paid
& planning; business planning & coordination; sourcing & procurement of raw with the statutory
materials & components; corporate finance advisory services; mktg control & min. wage OR to an
sales promotion; training & personnel mgt; logistic services; research & devt employee in public
services & product devt; technical support & maintenance; data processing sector w/
and communications; and business devt. compensation
income of not more
than the statutory
min. wage in non-
Statutory minimum wage - the rate fixed by the Regional Tripartite Wage agricultural sector
and Productivity Board, as defined by the Bureau of Labor and Employment where he/she is
Statistics (BLES) of the Department of Labor and Employment (DOLE) assigned

RMC 35-2012: Clarifying the Taxability of Clubs

Organized & Operated Exclusively for Pleasure,
Recreation, & Other Non-Profit Purposes
--RECREATIONAL CLUBS
--subj to INCOME TAX and VAT
--doctrine of casus omissus pro omisso habendus est, a person object or thing
omitted from an enumeration must be held to have been omitted
intentionally.
--the income of recreational clubs from whatever source, including but not
limited to membership fees, assessment dues, rental income, and service
fees
--Hence, it is immaterial whether the primary purpose of a corporation
indicates that it receives payments for services rendered to its affiliates on a
reimbursement-on-cost basis only, without realizing profit, for purposes of
determining liability for VAT on services rendered. As long as the entity
provides service for a fee, remuneration or consideration, then the service
rendered is subject to VAT.
Clearly, the gross receipts of recreational clubs including but not limited to
membership fees, assessment dues, rental income, and service fees are
subject to VAT.

RR 13-98: Deductibility of Contributions or Gifts Actually

Paid or Made to Accredited Donee Institutions in Computing
Taxable Income
Non-stock, non-profit corporation or organization
--refer to a corp/assoc/orgn created or organized under Philippine laws
where no part of the net income or asset of which shall belong to or inure to
the benefit of any member, organizer, officer or any specific person, &
exclusively for one or more of the ff. purposes:
a. religious; e. cultural;
b. charitable; f. rehabilitation of veterans; and
c. scientific; g. social welfare
d. athletic;
h. Non-government Organization (NGO)
i. -- refer to a non-stock, non-profit domestic corporation or organization
organized and operated exclusively for B, C, D, E, G, research, educational,
character-building and youth development and health purposes, or a
combination thereof, no part of the net income of which inures to the benefit
of any private individual.
A. Which, not later than the 15th day of the third month after the close of the
NGO's taxable year in which contributions are received, makes utilization
directly for the active conduct of the activities constituting the
purpose/function for which it is organized and operated, unless an ** SoF may also designate
extended period is granted by the Sec. of Finance, upon recommendation an official of concerned govt
CIR; agency, e.g. DOST, to assist
B. The level of administrative expenses of which shall, on an annual basis, not the Board of Trustees in the
exceed30% of the total expenses for the taxable year; and accreditation of foundations.
C. The assets of which, in the event of dissolution, would be distributed to ** SoF shall designate an
another accredited NGO organized for similar purpose or purposes, or to entity as an Accrediting
the State for public purpose, or would be distributed by a competent Entity PROVIDED: it has
court of justice to another accredited NGO to be used in such manner as countrywide membership
in the judgment of said court shall best accomplish the general purpose composed of:
for which the dissolved organization was organized. (a) NGOs which belong to
j. Utilization by an accredited NGO the sector that the
A. Any amount in cash or in kind, including administrative expenses, paid or Private Accrediting Entity
intends to certify;
utilized by an accredited NGO to accomplish one or more purposes for
(b) NGOs which have been in
which it was created or organized; or
existence for at least 5
B. Any amount paid to acquire an asset used, or held for use, directly in yrs&
carrying out one or more purposes for which the accredited NGO was (c) NGOs not more than 50%
created or organized; or A. of Basic research
the members shall
belong to
C. Any amount set aside for a specific project which comes within one or more refer
other toexisting
an experimental
NGOs or
purpose or purposes for which the accredited NGO was created, but only orPAA theoretical work
if at the time such amount is set aside, the accredited NGO has undertaken primarily to
established to the satisfaction of the Commissioner of Internal Revenue acquire
**PH newfor
Council knowledge
NGO Cert, of
that the amount will be utilized for a specific project within a period not Inc.the (PCNC)--a underlying
non-stock,
to exceed five (5) years, and the project is the one which can be better foundations
non-profit corp established of
accomplished by setting aside such amount than by immediate payments by phenomena
several NGO networks and
observable
(e.g., Caucus of facts without
Devt NGO
of funds: Provided, That, the utilization requirements prescribed shall be
any particular
Networks application
(CODE-NGO); PH
complied with; or or use in
D. Any amount in cash or in kind invested in any activity related to the Business forview. It analyzes
Social Progress
props,
(PBSP); structures
Assoc. orof
purpose for which it was created or organized. relationships with a view
Foundations (AF); League of
E. Any amount in cash or in kind invested in capital sustaining and generating to formulating
Corporate and testing
Foundations (LCF);
activities, such as but not limited to, endowment funds, trust funds, hypothesis, Businessmen's
Bishops- theories or
money market placements, shares of stock and similar instruments: laws. Thefor
Conference results
Human of basic
Devt
Provided, That, any income derived from these investments shall be research
(BBC); and are
the not generally
Natl Council
exclusively used in activities directly related to one or more purposes for forsold
SocialbutDevt areFoundation
usually
which the accredited NGO was created or organized. published in scientific
(NCSD)
k. Accrediting Entity journals
---duly or circulars
designated by the SoFto
l. --a non-stock, non-profit organization composed of NGO networks, duly interested colleagues.
designated by SoF to establish and operationalize a system of accreditation B. Applied research shall
to determine the qualification of non-stock, non-profit corpo or orgn & NGOs refer to an original
investigation undertaken
for accreditation as qualified-donee institutions.
in order to acquire new
m. **SoF + CIR shall oversee, monitor & coordinate w/ Accrediting Entity to
knowledge. It is directed
ensure that the provisions are complied w/. In this connection, SoF/CIR/duly primarily towards a
auth rep shall sit as ex-officio member of the Board of Trustees of the specific practical aim or
Accrediting entity w/ right to vote. objective. It is undertaken
n. Religious purpose either to determine
o. -- refer to the promotion, propagation and accomplishment of any form of possible uses for the
religion, creed or religious belief recognized by the Government of the findings of basic research
Republic of the Philippines. or to determine new
p. Charitable Activity methods or ways of
q. -- refer to extending relief to the poor, distressed and underprivileged and achieving some specific &
shall include fighting against juvenile delinquency and community predetermined objectives.
deterioration. It involves the
r. Scientific and research purpose consideration of the
s. -- refer to undertaking or assisting in pure or basic, applied and scientific available knowledge and
its extension in order to
research in the field of agriculture, forestry, fisheries, industry, engineering,
solve particular problems.
energy development, food and nutrition, medicine, environment and Applied research
biological, physical and natural sciences for the public interest. develops ideas into
t. Character building and youth and sports development (or athletic) operational form.
purposes C. Scientific research will
u. --refer to and include conducting basic and applied research on youth be regarded as carried on
development, initiating and establishing youth organizations to promote and for public interest if the
results of such research
are made available to the
public on a non-
discriminatory basis; or if
 develop youth activities, including the establishment of summer camps or
centers for leadership training, conducting a program on physical fitness and
amateur sports development for the country; developing and maintaining
recreational facilities, playgrounds and sports centers; and conducting
training programs for the development of youth and athletes for national
and international competitions.
v. Cultural activity
w. --refer to and include undertaking and/or assisting in research activities on
all aspects of history, social system, customs and traditions; developing,
enriching and preserving Filipino arts and culture; developing and promoting
the visual and performing arts; and participating in vigorous implementation
of bilingual policy through translation and wider use of technical, scientific
and creative publications, development of an adaptive technical dictionary
and use of Filipino as the medium of instruction.
x. Educational activity
y. --refer to and include the granting of scholarships to deserving students and
professional chairs for the enhancement of professional courses, and
instructing or training of individuals either through formal and informal
methods, viz:
z. -- includes upgrading of existing facilities to support the conduct of the
activities below.
aa. A. Formal method of instruction refers to the institutionalized,
chronologically graded and hierarchically structured educational system at
all levels of education;
ab. B. Non-formal method of instruction refers to any deliberately
organized, systematic educational activity carried on outside the framework
of the formal system to provide selected types of learning to particular
subgroups of the population, particularly out-of-school youths and adults, for
the purpose of communicating ideas, developing skills, changing attitudes or
modifying behavior or improve their character and to provide them with
tools necessary for the achievement of a higher standard of living. For the
purpose of this section, a certification from the Technical Education and
Skills Development Authority (TESDA) is required for the accreditation of the
non-formal educational program which is implemented or carried out by a
non-stock, non-profit corporation, organization or an NGO.
ac. Rehabilitation of veterans
ad. -- include services extended to Philippine veterans and members of their
families because of financial difficulties and attendant problems; and
services extended to disabled veterans towards productive life.
ae. Social welfare purposes --refer to and include:
A. undertaking and/or assisting in the amelioration of the living conditions of
distressed citizens particularly those who are handicapped by reasons of
poverty, youth, physical and mental disability, illness, old age, and
natural disasters, including assistance to cultural minorities;
B. pursuing a program for the protection and development of children and
youth, such as providing services for drop-outs, pre-school children of
low-income working mothers, and physically handicapped children;
C. providing for the rehabilitation of the youth and disabled adults, released
prisoners, drug addicts, alcoholics, mentally retarded, hansenites and
similar cases; and
D. providing for services to squatter families and to displaced workers.
af. Health purposes -- refer to include the pursuit of any of the following:
A. control, prevention and treatment of communicable and degenerative
diseases, accidents and other health disabilities; Exempt from Donor's
B. family planning program designed to indicate knowledge and Tax --Donations and
understanding of population, human growth and development of family gifts made in favor of
life; accredited non-stock,
C. Environment sanitation, such as, public sewerage system and sanitary non-profit
Dealer corp/ NGOs
in securities
-- a merchant of
--PROVIDED: stocks
not moreor
toilets; and securities,
D. nutrition, which aims to reduce the prevalence of malnutrition and increase than 30% ofwhether an
the said
individual, par/corp w/
the energy and protein intake among households. donations & gifts for
an established place
theof taxable
business,year shall
regularly
ag. ** On the other hand, the accredited non-stock, non-profit corporation/NGO beengaged
used forin adminthe
shall file its annual information return not later than 15th day of 4th month after purposes.
purchase of securities
the close of its taxable year in order to maintain its status as an accredited non- and the resale to
stock, non-profit corporation/NGO. customers;
ah. -- one, who as merchant
buys securities and
ai. RR 6-2008, AA RR 6-2013: CAPITAL GAINS TAX: SHARES OF re-sells them to
STOCK customers with a view
aj. DEFINITION OF TERMS: to the gains and
ak. Stock Classified As Capital Assets profits that may be
derived therefrom
-- any person who buys &
sells securities for his
own account in
 al. -- all stocks and securities held by taxpayers other than dealers in
securities.
am. Shares of Stock
an. -- include shares of stock of a corp; warrants and/or options to purchase
shares of stock; as well as units of participation in a partnership (except
GPP), joint stock companies, joint accounts, JV taxable as corporations,
associations, and recreation or amusement clubs (such as golf, polo or
similar clubs); and mutual fund certificates.
ao. Option
ap. -- an option to acquire stock or an option to acquire such an option and each
one of a series of options to acquire stock
aq. -- contracts that give the buyer the right, but not the obligation, to buy or
sell an underlying security at a predetermined price (exercise or strike price)
on or before a predetermined date (expiry date), which can only be
extended by SEC upon stockholders approval.
ar. Shareholder
as. -- holders of shares of stock, warrants and/or options to purchase shares of
stock of a corporation, as well as a holder of a unit of participation in a
partnership (except GPP), in a joint stock company, a joint account, a taxable Initial Public Offering
JV, a member of an association, recreation or amusement club (golf, polo or (IPO)
similar clubs) and a holder of a mutual fund certificate, a member in an --a public offering of
association, joint stock company or insurance company. shares of stock
at. Stockbroker made for the first
time in the Local
au. -- includes all persons whose business is, for other brokers, to negotiate
Stock Exchange.
purchases or sales of stocks, or engaged in the business of effecting Follow-on/Follow-
transactions in securities for the account of others but does not include a through Offering
bank or underwriters for one or more investment companies of Shares
av. -- a person engaged in the business of buying and selling securities for the --an offering of
account of others. shares to the
aw. Local Stock Exchange investing public
subsequent to an
ax. -- any domestic organization, association, or group of persons, whether IPO.
incorporated or unincorporated, licensed or unlicensed, which constitutes, Primary Offering
maintains, or provides a market place or facilities for bringing together --the original sale made
purchasers and sellers of stocks, and includes the market place and the to the investing
market facilities maintained by such exchange. Exchange is an organized public by the issuer
domestic marketplace or facility that brings together buyers and sellers and corporation of its
executes trades of securities and/or commodities, duly registered with SEC unissued Shares of
Stock.
ay. Shares Listed and Traded through the Local Stock Exchange Secondary Offering
az. --all sales, trades or transactions of listed Shares of Stock executed through -- an offer for sale to the
the trading system and/or facilities of the Local Stock Exchange investing public by
ba. --includes block sale or other types of sales, trades or transactions in the Local
Stock Exchange and executed through the trading system and/or facilities of
the Local Stock Exchange in accordance with the rules of the Local Stock
Exchange as approved by SEC
bb. Net Capital Gain/Loss
bc. -- the excess of the gains/losses from sales or exchanges of capital assets over
the losses from such sales or exchanges.
bd. Closely-held Corporation
be. -- corporation at least 50% in value of the outstanding capital stock or of the Family of an
total combined voting power of all classes of stock entitled to vote is owned individual
directly or indirectly by or for not more than 20 individuals (See IAET) -- includes only
bf. Mutual Fund Company his brothers
bg. --an open-end and close-end investment company and sisters
bh. ACQUIRED when dealing with wash sales of shares of stock (whether by
bi. -- means acquired by purchase or by an exchange upon which the entire the whole or
amount of gain/loss was recognized by law, and comprehends cases where half-blood),
the taxpayer has entered into a contract or option w/in the 61-day period to spouse,
acquire by purchase or by such an exchange ancestors,
bj. Treasury Shares and lineal
bk. -- shares of stock which have been issued and fully paid for, but subsequently descendants
reacquired by the issuing corporation by purchase, redemption which is not .
for cancellation, donation or through some other lawful means. Such shares
may again be disposed of for a reasonable price fixed by the board of * For the 5% and 10% net
directors. CGT to apply, there must
bl. Redeemed Shares be an actual disposition of
bm. -- shares bought back by the issuing corp for the purpose of retirement or SOS held as CA, and the
CG and capital loss used
cancellation. as the basis in determining
bn. Shares Considered as Worthless net CG, must be derived &
bo. -- If the transferor of the shares is an individual, the rule on holding period and incurred from a sale,
capital loss carry-over will not apply. barter, exchange or other
disposition of shares of
stock.
 bp. -- shares when offered for sale or requested for share redemption, no
amount can be realized by the owner of the share
bq. -- Losses from shares of stock, held as capital asset, which have become worthless
during the taxable year shall be treated as capital loss as of the end of the year.
br. -- not deductible against the capital gains realized from the sale, barter, exchange or
other forms of disposition of shares of stock during the taxable year
bs. --must be claimed against other capital gains to the extent under S.34 NIRC
bt.
1. GROSS SELLING PRICE -- the total amount of money or its equivalent which FMV = Fair Market Value
the purchaser pays the seller as consideration for the shares of stock. BV = Book Value
bu. TYPE OF SALE bv. AMOUNT OF SELLING PRICE STE = Sale,
bw. A. Cash Sale bx. total consideration per deed of sale Transfer/Exchange
by. B. Partly in Money & Partly bz. sum of money + FMV of the property TS = Trading System
LSE = Local Stock
in Kind received BVPS -- VPS computed by
ca. C. Exchange cb. FMV of the property received dividing the total
cc. ** In case the FMV-SOS sold, bartered, or exchanged > money and/or FMV- SHE of a corporation
prop rcvd or net assets of the
company by the
cd. EXCESS = DEEMED gift subject to DONORs TAX number of
ce. outstanding shares
cf. 2. FAIR MARKET VALUE = Gross value in money or units of
cg. TYPE OF SOS ch. FMV participation in a
ci. 1. LISTED SHARES cj. company
IF w/ preferred shares
ck. A. STE OUTSIDE TS/LSE cl. CLOSING PRICE & common shares
cm. 1. on the day when the shares are STE --computed by deducting
cn. 2. No sale in LSE = on the day nearest to the liquidation value
date of STE of preferred shares
co. B. STE IN TS/LSE cp. actual SP at which the transaction was from the total equity
executed AND dividing the
result by the number
cq. cr. of outstanding
cs. 2. NOT LISTED & TRADED ct. The Adjusted Net Asset Method shall be common shares as of
in LSE used whereby all assets & liabilities are BS date.
adjusted to FMV LV of PS = equal to the
cu. = Adjusted NET Asset / Outstanding redemption price as of
Shares balance sheet date,
cv. 3. unit of participation in cw. SP OR
any association, recreation or cx. Bid Price
amusement club cy. --nearest to date of STE as published in
newspaper or publication of general
circulation
cz.
da. 3. GAIN OR LOSS
db. GAIN = amount realized therefrom > the basis or adjusted basis for * Cost of
determining gain Acquisition:
dc. LOSS = amount realized therefrom < the basis or adjusted basis for 1. Commissions
determining loss 2. DST
dd. AMOUNT REALIZED -- selling price + FMV of prop received 3. transfer fees
de. Amount of Consideration Contracted to be paid xx
df. LESS transferors basis for the property sold or disposed xx STOCK
dg. PLUS expenses of sale/disposition xx (xx) DIVIDEND
dh. GAIN(LOSS) xx --Cost of Orig SOS
di.
dj. 4. COST OF PROPERTY
property acquired by
dk. MODE OF dl. BASIS of TRANSFEROR bequest, devise or
ACQUISITION inheritance:
dm. 1. BY PURCHASE dn. Cost of the Property testamentary or intestate
succession
do. A. If SOS can be dp. = actual purchase price + all costs of --includes:
identified acquisition* (i) Property interests that TP
received as a result of a
dq. B. If SOS cannot be ds. = 1. Cost based on FIFO method transfer or creation of
properly dt. 2. Moving Average: If books of accounts trust, in contemplation of
dr. identified are or intended to take effect
in possession or enjoyment
du. maintained by the seller where at or after death
every (ii) property interests as TP has
dv. transaction of a particular SOS is received as the result of
exercise by a person of a
recorded general power of
dw. 2. BY DEVISE, dy. = FMV at time of DEATH of decedent appointment by will or by
BEQUEST OR deed executed in
contemplation of or
dx. INHERITANCE
dz. 3. BY GIFT ea. = 1. cost in the hands of DONOR
eb. 2. FMV, if #1 > FMV of property at the
 time of gift
ec. --for the purpose of determining the
loss
ed. 4. FOR INADEQUATE ef. = amount paid by the transfeREE
ee. CONSIDERATION
eg. * Finally, if the transferor
eh. RULES ON SUBSTITUTED BASIS IN CASES OF TAX-FREE EXCHANGES OF receives several kinds
of stock or securities,
SOS under S40c2 the Commissioner is
ei. Substituted Basis of Stock or Securities Received by the Transferor. The authorized to allocate
substituted basis of the stock or securities received by the transferor on a tax- the basis among the
several classes of
free exchange shall be as follows: stocks or securities.
ej. ** the property received as
ek. The original basis of the property, stock or securities transferred; 'boot' shall have as basis
its FMV.
xx BOOT-- the money &
el. Less: (a) money received xx other property rcvd in
em. (b) FMV of the other property received xx excess of the SOS
received by the
en. (c) liability assumed by transferee xx transferor on a tax-free
(xx) exchange
eo. *** (1-4 : cost of property)
5. The adjusted basis of 1-4, if
ep. Plus: (a) amount treated as dividend of SH xx the acquisition cost of
eq. (b) any gain recognized on the exchange** xx the property is increased
xx by the amount of
improvements that
er. A. Substituted Basis of Stock or Securities Received by the Transferor materially add to the
xx value of the property or
es. appreciably prolong its
life less accumulated
et. The original basis in the hands of the transferor***
xx
eu. Plus: the amount of gain recognized to the transferor on the transfer
xx
ev. B. Substituted Basis of the Transferred Property in the Hands of the
Transferee: xx
ew.
ex. G/L on a Subsequent Sale or Disposition of Property Subject of the
Tax-free Exchange
ey. = A - B = C x Tax Rate = Capital Gains Tax
ez. Limitation of Capital Losses
fa. --the capital losses realized from 5%-10% of transaction during the
taxable year are deductible only to the extent of capital gains from the same type
of transaction during the same period
fb.

fc. Losses from Wash Sales of Shares of Stock. The following rules
shall apply:
fd. (c.6.1) A taxpayer cannot deduct any loss claimed to have been sustained from
the sale or other disposition of stock, if, within a period beginning 30 days
before the date of such sale or disposition and ending 30 days after the 61-
day period, he has acquired (by purchase or by an exchange upon which the
entire amount of gain or loss was recognized by law), or has entered into a
contract or option so to acquire, substantially identical stock. However, this
prohibition does not apply in the case of a dealer in stock if the sale or other
disposition of stock is made in the ordinary course of the business of such
dealer.
fe. (c.6.2) Where more than one loss is claimed to have been sustained within the
taxable year from the sale or other disposition of stock or securities, the
provisions of this Section shall be applied to the losses in the order in which
the stock the disposition of which resulted in the respective losses were
disposed of (beginning with the earliest disposition). If the order of
disposition of stock disposed of at a loss on the same day cannot be
determined, the stock or securities will be considered to have been disposed
of in the order in which they were originally acquired (beginning with earliest
acquisition).
ff. (c.6.3) Where the amount of stock or securities acquired within the sixty-one
(61) day period is less than the amount of stock or securities sold or
otherwise disposed of, then the particular shares of stock or securities the
loss from the sale or other disposition of which is not deductible shall be
those with which the stock or securities acquired are matched in accordance
with this rule: The stock or securities sold will be matched in accordance with
the order of their acquisition (beginning with the earliest acquisition) with an
equal number of the shares of stock or securities sold or otherwise disposed
of.
fg. (c.6.4) Where the amount of stock or securities acquired within the sixty-one
 day period is not less than the amount of stock or securities sold or otherwise
disposed of, then the particular shares of stock or securities the acquisition of
which resulted in the non-deductibility of the loss shall be those with which
the stock or securities disposed of are matched in accordance with this rule:
The stock or securities sold or otherwise disposed of will be matched with an
equal number of the shares of stock or securities acquired in accordance with
the order of acquisition (beginning with the earliest acquisition) of the stock
or securities acquired.
fh. (c.6.5) The acquisition of any share of stock or any security which results in the
non-deductibility of a loss under the provisions of this Section shall be
disregarded in determining the deductibility of any other loss.
fi.

fj. TAXATION OF SURRENDER OF SHARES BY THE INVESTOR UPON

DISSOLUTION OF THE CORPORATION AND LIQUIDATION OF ASSETS
AND LIABILITIES OF SAID CORPORATION = Capital Gain (Loss) Applies
BUT subject to INCOME TAX RATES
fk. * If the investor is an individual, the rule on holding period shall apply and the
percentage of taxable capital gain or deductible capital loss shall depend on
the number of months or years the shares are held by the investor. Section 39
of the Tax Code, as amended, shall herein apply in all possible situations.
fl.

fm. TAXATION OF SHARES REDEEMED FOR CANCELLATION OR

RETIREMENT
fn. = Preferred SOS: Capital Gain (Loss) Applies BUT subject to INCOME TAX
RATES
fo. = Treasury SOS: Capital Gain (Loss) Applies subj to:
A. Stock Transaction Tax - traded in LSE - 1/2 or 1%
B. Capital Gains Tax - Not traded in LSE - 5%-10%
fp.

fq. TIME OF PAYMENT OF TAX AND MANNER OF FILING RETURNS.

fr. A. Tax on Sale of Shares of Stock Listed and Traded thru LSE,
Secondary Offering.
fs. --WHO FILES & COLLECTS? The stock broker, w/in 5days from collection
date
ft. --REMITTANCE? to the collecting bank/officer of the RDO where the broker
is registered
fu. B. Tax on Shares of Stock Sold or Exchanged through IPO.
fv. --WHO FILES & COLLECTS? Corporate Issuer, w/in 30 days from the date of
listing in LSE
fw. --REMITTANCE? to the RDO which has jurisdiction over said corporate
issuer
fx. C. Tax on Shares of Stock Not Traded through the Local Stock
Exchange.
fy. --WHO FILES? Persons deriving capital gains, w/in 30 days from transaction
date
fz.

ga. NON-PAYMENT OF TAX: No STE or similar transaction intended to convey

ownership/title to SOS be registered in the books of the corporation unless the
receipts of payment of the tax herein imposed is filed with and recorded by the
stock transfer agent or secretary of the corporation. It shall be the duty of the
aforesaid persons to inform the Bureau of Internal Revenue in case of non-
payment of tax.