Gross Income RRs

7/26/2019 Gross Income RRs

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IV. GROSS INCOMEA. Gross income

SEC. 32. Gross Income. -(A) General Defnition. - Except when otherwise provie in this !itle" #ross income means all income

erive $rom whatever so%rce" incl%in# (&%t not limite to) the $ollowin# items'() Compensation $or services in whatever $orm pai" incl%in#" &%t not limite to $ees" salaries" wa#es"

commissions" an similar items (2) Gross income erive $rom the con%ct o$ trae or &%siness or theexercise o$ a pro$ession (3) Gains erive $rom ealin#s in propert* (+) Interests (,) ents ()o*alties (/) Diviens (0) Ann%ities (1) ries an winnin#s (4) ensions an () artner5sistri&%tive share $rom the net income o$ the #eneral pro$essional partnership.

6. 7et income

8 #ross income less stat%tor* e%ctions an exemptions m%st &e comp%te with respect to a fxe perioor taxa&le *ear

SEC. 3. !axa&le Income Defne. - !he term taxa&le income means the pertinent items o$ #ross incomespecife in this Coe" less the e%ctions an9or personal an aitional exemptions" i$ an*" a%thorie $ors%ch t*pes o$ income &* this Coe or other special laws.

. Compensation income

SEC. 32. Gross Income. -(A) () Compensation $or services in whatever $orm pai" incl%in#" &%t not limite to $ees" salaries"

wa#es" commissions" an similar items

Sec. 2.78 RR 2-98Compensation means all rem%neration $or services per$orme &* an emplo*ee $or his emplo*er %ner anemplo*ee-emplo*er relationship

Convenience o$ the emplo*er r%le 8 test applie to etermine whether meals" lo#in#" transportation orother wor:-relate expenses $%rnishe &* an emplo*er $or emplo*ees are taxa&le. An* emplo*ee expensespai $or &* the emplo*er m%st &e solel* $or the convenience o$ the emplo*er. I$ this is the case" then thoseexpenses are not incl%e in the emplo*ee;s income.

i. ective ?an " 2444 an therea$ter" is here&* impose on the #rosse-%p monetar* val%e o$ $rin#e &eneft$%rnishe or #rante to the emplo*ee (except ran: an fle emplo*ees as efne herein) &* the emplo*er"whether an inivi%al or a corporation (%nless the $rin#e &eneft is re@%ire &* the nat%re o$" or necessar*to the trae" &%siness or pro$ession o$ the emplo*er" or when the $rin#e &eneft is $or the convenience oravanta#e o$ the emplo*er)

(6)


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(A) Imposition o$ ective ?an%ar*" 110 - 3+= E>ective ?an%ar* " 111 - 33= E>ective ?an%ar* " 2444 - 32=.

!he tax impose %ner Sec. 33 o$ the Coe shall &e treate as a fnal income tax on the emplo*ee whichshall &e withhel an pai &* the emplo*er on a calenar @%arterl* &asis as provie %ner Sec. ,/ (A)(Hithholin# o$ erence &etween the mar:et rate anact%al rate #rante () em&ership $ees" %es an other expenses &orne &* the emplo*er $or theemplo*ee in social an athletic cl%&s or other similar or#aniations (/) Expenses $or $orei#n travel (0)Bolia* an vacation expenses (1) E%cational assistance to the emplo*ee or his epenents an (4)i$e or health ins%rance an other non-li$e ins%rance premi%ms or similar amo%nts in excess o$ what thelaw allows.

ii. 6on%ses" 3thmonth pa* an other &enefts %nless exempt %ner Sec. 32 (6)

(6) Excl%sions $rom Gross Income. - !he $ollowin# items shall not &e incl%e in #ross income an shall &eexempt $rom taxation %ner this title'(e) 3th onth a* an Fther 6enefts. - Gross &enefts receive &* oMcials an emplo*ees o$ p%&lic anprivate entities' rovie" !hat the total excl%sion %ner this s%&para#raph shall not excee 34"444 whichshall cover'(i) 6enefts receive &* oMcials an emplo*ees o$ the national an local #overnment p%rs%ant to ep%&licAct 7o. 0(ii) 6enefts receive &* emplo*ees p%rs%ant to resiential Decree 7o. 0," asamene &* emoran%mFrer 7o. 20" ate A%#%st 3" 10


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(iii) 6enefts receive &* oMcials an emplo*ees not covere &* resiential ecree 7o. 0," as amene&* emoran%m Frer 7o. 20" ate A%#%st 3" 10 an(iv) Fther &enefts s%ch as pro%ctivit* incentives an Christmas &on%s' rovie"$%rther" !hat the ceilin#o$ 34"444 ma* &e increase thro%#h r%les an re#%lations iss%e &* the Secretar* o$


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3. ro$essional income 8 $ees receive &* a pro$essional $rom the practice o$ his pro$ession" proviethat there in no emplo*er-emplo*ee relationship

+. Income $rom ealin#s in propert*

SEC. 32. Gross Income. -(A) (3) Gains erive $rom ealin#s in propert*

i. !*pe o$ propertiesa. Frinar* assets

SEC. 31. Capital Gains an osses. -(A) () Capital Assets. - !he term capital assets means propert* hel &* the taxpa*er (whether or notconnecte with his trae or &%siness)" &%t oes not incl%e stock in t!"eo$ the taxpa*er or otherpropert* o$ a :in which wo%l properl* &e incl%e in the invento#o$ the taxpa*er i$ on han at theclose o$ the taxa&le *ear" or $o$et# %e&" '# t%e t!($!#e $i)!i *o s!&e to custo)es in t%eo"in!# couse o* %is t!"e o 'usiness+ o $o$et# use" in t%e t!"e o 'usiness+ o* !c%!!cte ,%ic% is su'ect to t%e !&&o,!nce *o "e$eci!tion $ovi"e" in Su'section / o*Section 3 o e!& $o$et# use" in t!"e o 'usiness o* t%e t!($!#e.

&. Capital assets

SEC. 31. Capital Gains an osses. -(A) () Capital Assets. - !he term capital assets means propert* hel &* the taxpa*er (whether or notconnecte with his trae or &%siness) Qexcept those specifcall* ientife as orinar* assetsQ

RR 07-03SEC. 2. DE


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&. !axpa*er not en#a#e in the real estate &%siness. - In the case o$ a taxpa*er not en#a#e in the realestate &%siness" real properties" whether lan" &%ilin#" or other improvements" which are %se or &ein#%se or have &een previo%sl* %se in the trae or &%siness o$ the taxpa*er shall &e consiere as orinar*assets. !hese incl%e &%ilin#s an9or improvements s%&Lect to epreciation an lans %se in the trae or&%siness o$ the taxpa*er.

A eprecia&le asset oes not lose its character as an orinar* asset" $or p%rposes o$ the instant provision"even i$ it &ecomes $%ll* epreciate" or there is $ail%re to ta:e epreciation %rin# the perio o$ ownership.

onetar* consieration or the presence or a&sence o$ proft in the operation o$ the propert* is notsi#nifcant in the characteriation o$ the propert*. So lon# as the propert* is or has &een %se $or &%sinessp%rposes" whether $or the &eneft o$ the owner or an* o$ its mem&ers or stoc:holers" it shall still &econsiere as an orinar* asset. eal propert* %se &* an exempt corporation in its exempt operations"s%ch as a corporation incl%e in the en%meration o$ Section 34 o$ the Coe" shall not &e consiere %se$or &%siness p%rposes" an there$ore" consiere as capital asset %ner these e#%lations.

eal propert*" whether sin#le etache townho%se or conomini%m %nit" not %se in trae or &%siness asevience &* a certifcation $rom the 6aran#a* Chairman or $rom the hea o$ aministration" in case o$conomini%m %nit" townho%se or apartment" an as valiate $rom the existin# availa&le recors o$ the6%rea% o$ Internal even%e" owne &* an inivi%al en#a#e in &%siness" shall &e treate as capital asset.

c. !axpa*ers chan#in# &%siness $rom real estate &%siness to non-real estate &%siness. 8 In the case o$ ataxpa*er who chan#e its real estate &%siness to a non-real estate &%siness" or who amene its Articleso$ Incorporation $rom a real estate &%siness to a non-real estate &%siness" s%ch as a holin# compan*"man%$act%rin# compan*" train# compan*" etc." the chan#e o$ &%siness or amenment o$ the primar*p%rpose o$ the &%siness shall not res%lt in the re-classifcation o$ real propert* hel &* it $rom orinar*asset to capital asset.


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2. eal propert* receive as ivien &* the stoc:holers who are not en#a#e in the real estate &%sinessan who o not s%&se@%entl* %se s%ch real propert* in trae or &%siness shall &e treate as capital assetsin the hans o$ the recipients even i$ the corporation which eclare the real propert* ivien is en#a#ein real estate &%siness.

3. !he real propert* receive in an exchan#e shall &e treate as orinar* asset in the hans o$ thetrans$eree in the case o$ a tax$ree exchan#e &* taxpa*er not en#a#e in real estate &%siness to a taxpa*erwho is en#a#e in real estate &%siness" or to a taxpa*er who" even i$ not en#a#e in real estate &%siness"will %se in &%siness the propert* receive in the exchan#e.

#. !reatment o$ real propert* s%&Lect o$ invol%ntar* trans$er. - In the case o$ invol%ntar* trans$ers o$ realproperties" incl%in# expropriation or $oreclos%re sale" the invol%ntariness o$ s%ch sale shall have no e>ecton the classifcation o$ s%ch real propert* in the hans o$ the invol%ntar* seller" either as capital asset ororinar* asset" as the case ma* &e.


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corporations shall &e etermine either %ner Section 2+ (A) or %ner this S%&section" at the option o$the taxpa*er.

SEC. 2/ (D) ates o$ !ax on Certain assive Incomes. -(,) Capital Gains ealie $rom the Sale" Exchan#e or Disposition o$ ans an9or 6%ilin#s. - A fnal tax o$

six percent (=) is here&* impose on the #ain pres%me to have &een realie on the sale" exchan#e orisposition o$ lans an9or &%ilin#s which are not act%all* %se in the &%siness o$ a corporation an aretreate as capital assets" &ase on the #ross sellin# price o$ $air mar:et val%e as etermine inaccorance with Section (E) o$ this Coe" whichever is hi#her" o$ s%ch lans an9or &%ilin#s.

SEC. 44. !rans$er $or ess !han Ae@%ate an


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() General %le. - Except as herein provie" %pon the sale or exchan#e or propert*" the entire amo%nt o$the #ain or loss" as the case ma* &e" shall &e reco#nie.

ExceptionsQ Hhere no #ain9loss shall &e reco#nieSEC +4 (C) (2) Exception. - 7o #ain or loss shall &e reco#nie i$ in p%rs%ance o$ a plan o$ mer#er orconsoliation -(a) A corporation" which is a part* to a mer#er or consoliation" exchan#es propert* solel* $or stoc: in acorporation" which is a part* to the mer#er or consoliation or(&) A shareholer exchan#es stoc: in a corporation" which is a part* to the mer#er or consoliation" solel*$or the stoc: o$ another corporation also a part* to the mer#er or consoliation or(c) A sec%rit* holer o$ a corporation" which is a part* to the mer#er or consoliation" exchan#es hissec%rities in s%ch corporation" solel* $or stoc: or sec%rities in s%ch corporation" a part* to the mer#er orconsoliation.

7o #ain or loss shall also &e reco#nie i$ propert* is trans$erre to a corporation &* a person in exchan#e$or stoc: or %nit o$ participation in s%ch a corporation o$ which as a res%lt o$ s%ch exchan#e sai person"alone or to#ether with others" not exceein# $o%r (+) persons" #ains control o$ sai corporation' rovie"

!hat stoc:s iss%e $or services shall not &e consiere as iss%e in ret%rn $or propert*.

eanin# o$ tax-$ree exchan#e9mer#er9consoliation9e $acto mer#er

SEC. +4 (C) () Defnitions. -(a) !he term sec%rities means &ons an e&ent%res &%t not notes o$ whatever class or %ration.(&) !he term mer#er or consoliation" when %se in this Section" shall &e %nerstoo to mean' (i) the

orinar* mer#er or consoliation" or (ii) the ac@%isition &* one corporation o$ all or s%&stantiall* all theproperties o$ another corporation solel* $or stoc:' rovie" !hat $or a transaction to &e re#are as amer#er or consoliation within the p%rview o$ this Section" it m%st &e %nerta:en $or a &ona fe &%sinessp%rpose an not solel* $or the p%rpose o$ escapin# the &%ren o$ taxation' rovie" $%rther" !hat ineterminin# whether a &ona fe &%siness p%rpose exists" each an ever* step o$ the transaction shall &econsiere an the whole transaction or series o$ transaction shall &e treate as a sin#le %nit' rovie"fnall* " !hat in eterminin# whether the propert* trans$erre constit%tes a s%&stantial portion o$ thepropert* o$ the trans$eror" the term 5propert*5 shall &e ta:en to incl%e the cash assets o$ the trans$eror.

(c) !he term control" when %se in this Section" shall mean ownership o$ stoc:s in a corporationpossessin# at least f$t*-one percent (,=) o$ the total votin# power o$ all classes o$ stoc:s entitle tovote.

() !he Secretar* o$


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SEC!IF7 2. 6asis. 8

A. S%&stit%te 6asis o$ Stoc: or Sec%rities eceive &* the !rans$eror. !he s%&stit%te &asis o$ the stoc: orsec%rities receive &* the trans$eror on a tax-$ree exchan#e shall &e as $ollows'

. !he ori#inal &asis o$ the propert*" stoc: or sec%rities to &e trans$erre

2. ess' (a) mone* receive" i$ an*" an (&) the $air mar:et val%e o$ the other propert* receive" i$ an*

3. l%s' (a) the amo%nt treate as ivien o$ the shareholer" i$ an*" an (&) the amo%nt o$ an* #ain thatwas reco#nie on the exchan#e" i$ an*.

Bowever" the propert* receive as 5&oot5 shall have as &asis its $air mar:et val%e. !he term &oot re$ers tothe mone* receive an other propert* receive in excess o$ the stoc: or sec%rities receive &* thetrans$eror on a tax-$ree exchan#e.

I$ the trans$eree o$ propert* ass%mes" as part o$ the consieration to the trans$eror" a lia&ilit* o$ thetrans$eror or ac@%ires $rom the latter propert* s%&Lect to a lia&ilit*" s%ch ass%mption or ac@%isition (in theamo%nt o$ the lia&ilit*) shall" $or p%rposes o$ comp%tin# the s%&stit%te &asis" &e treate as mone*receive &* the trans$eror on the exchan#e.


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- !he application $or Certifcation9%lin# on the tax conse@%ence o$ the exchan#e o$ propertiesescri&e in the Frer shall &e fle with the 6I aw Division %sin# the $orm provie $or thep%rpose" to#ether with a transmittal letter containin# a &rie$ overview o$ the transaction an three(3) copies o$ each o$ the oc%ments specife in the Frer. In the case o$ exec%te an9orcomplete transactions" either ori#inal exec%te an notarie copies or certife tr%e copies o$ thespecife oc%ments m%st &e s%&mitte" to#ether with a proo$ o$ pa*ment o$ the applica&leDoc%mentar* Stamp !axes (DS!) on the transactions. In the case o$ iss%ance o$ shares9%nit o$participation &* the trans$eree" the %e ates $or the pa*ment o$ the corresponin# DS! prescri&e%ner F 7o. 0-10" as amene" shall appl*. So$t cop* o$ the $orm o$ re@%est $or r%lin# ancertifcation is availa&le at the !axpa*ers In$ormation an E%cation Division an aw Division o$the 6I. It ma* also &e ownloae $rom the 6I we&site at www.&ir.#ov.ph. I$ the application is to&e si#ne an s%&mitte not &* the taxpa*er himsel$" &%t onl* &* his a%thorie representative" theappropriate special power o$ attorne* shall &e s%&mitte with the application $or a certifcation-r%lin#. In the case o$ a L%riical person" the corporate secretar* shall iss%e a sworn statement thatthe si#nin# oMcer has &een a%thorie &* the 6oar o$ Directors to represent the compan* an haspersonal :nowle#e o$ the $acts o$ the exchan#e transaction. 6e$ore flin# the re@%est $orcertifcation-r%lin#" the taxpa*er9applicant shall pa* frst the applica&le processin# an certifcation$ee as provie in 7o. 0-244. Sai $ee shall &e aL%ste accorin#l* i$ aitional trans$ercertifcates o$ title9conomini%m certifcates o$ title9certifcates o$ stoc: are s%&mitte $orprocessin#. !he Certifcate A%thoriin# e#istration9!ax Clearance $or the real propert* or share o$stoc:9%nit o$ participation9interest involve in the exchan#e shall &e iss%e &* the even%e DistrictFMcer or &* the a%thorie Internal even%e FMcer" on the &asis o$ the certifcation-r%lin# iss%e&* the Commissioner or his %l* a%thorie representative to the e>ect that the transaction@%alifes as a tax-$ree exchan#e or corporate reor#aniation.

Rev Me)o O"e 17-2002

- rescri&es the moife #%ielines $or implementin# 7o. 0-244 on the proce%re in flin# theapplication an Loint certifcation" esi#nates the ven%e $or the pa*ment o$ processin# $ee" anprovies the #%ielines $or the iss%ance o$ a preliminar*-letter r%lin# in certain re@%ests $or r%lin#.

- 7o application $or a 6I certifcation on the tax conse@%ence o$ a tax-$ree exchan#e shall &eaccepte &* the 6I aw Division %nless the same has &een completel* flle %p" accompanie &*all the oc%ments en%merate in F 7o. 32-244" an the processin# $ee has &een %l* pai.An* o$ the trans$eror9 a&sor&e corporation o$ the trans$eree9 s%rvivin# corporation shall pa* thenecessar* processin# an certifcation $ee with the even%e District FMce or an* %l* accreitea#ent &an: havin# L%risiction over the trans$eror9a&sor&e corporation or the trans$eree9 s%rvivin#

corporation. Sai $ees amo%ntin# to ,"444 shall &e pai in avance $or each application notinvolvin# more than ten (4) real properties an9or Certifcates o$ Stoc:. An aitional $ee o$ 44shall &e pai $or ever* !rans$er Certifcate o$ !itle9Conomini%m Certifcate o$ !itle9 Certifcate o$Stoc: in excess o$ ten (4).A preliminar* letter-r%lin# statin# that the re@%est $or r%lin# @%alifes as a tax $ree exchan#e shall&e iss%e &* the Assistant Commissioner" e#al Service (ACI" S) %pon written re@%est o$ thetaxpa*er" %ner the conitions specife in the Frer.7o Certifcate A%thoriin# e#istration9!ax Clearance (CA9!C) shall &e iss%e $or p%rposes o$re#istration o$ the properties involve in the sai tax-$ree exchan#e with the e#ister o$ Dees onthe &asis o$ the certifcation iss%e &* ACI" S.

Rev Me)o Ru&ing 2-2002

Q!ransaction where #ain is reco#nie &%t not the loss

Exchange not solely in kindSEC. +4(3) Exchan#e 7ot Solel* in Jin. -

(a) I$" in connection with an exchan#e escri&e in the a&ove exceptions" an inivi%al" a shareholer" asec%rit* holer or a corporation receives not onl* stoc: or sec%rities permitte to &e receive witho%t thereco#nition o$ #ain or loss" &%t also mone* an9or propert*" the #ain" i$ an*" &%t not the loss" shall &ereco#nie &%t in an amo%nt not in excess o$ the s%m o$ the mone* an $air mar:et val%e o$ s%ch otherpropert* receive' rovie" !hat as to the shareholer" i$ the mone* an9or other propert* receive hasthe e>ect o$ a istri&%tion o$ a taxa&le ivien" there shall &e taxe as ivien to the shareholer an


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amo%nt o$ the #ain reco#nie not in excess o$ his proportionate share o$ the %nistri&%te earnin#s anprofts o$ the corporation the remainer" i$ an*" o$ the #ain reco#nie shall &e treate as a capital #ain.

(&) I$" in connection with the exchan#e escri&e in the a&ove exceptions" the trans$eror corporationreceives not onl* stoc: permitte to &e receive witho%t the reco#nition o$ #ain or loss &%t also mone*an9or other propert*" then (i) i$ the corporation receivin# s%ch mone* an9or other propert* istri&%tes itin p%rs%ance o$ the plan o$ mer#er or consoliation" no #ain to the corporation shall &e reco#nie $romthe exchan#e" &%t (ii) i$ the corporation receivin# s%ch other propert* an9or mone* oes not istri&%te itin p%rs%ance o$ the plan o$ mer#er or consoliation" the #ain" i$ an*" &%t not the loss to the corporationshall &e reco#nie &%t in an amo%nt not in excess o$ the s%m o$ s%ch mone* an the $air mar:et val%e o$s%ch other propert* so receive" which is not istri&%te.

(+) Ass%mption o$ ia&ilit*. 8

(a) I$ the taxpa*er" in connection with the exchan#es escri&e in the $ore#oin# exceptions" receives stoc:or sec%rities which wo%l &e permitte to &e receive witho%t the reco#nition o$ the #ain i$ it were the soleconsieration" an as part o$ the consieration" another part* to the exchan#e ass%mes a lia&ilit* o$ thetaxpa*er" or ac@%ires $rom the taxpa*er propert*" s%&Lect to a lia&ilit*" then s%ch ass%mption or ac@%isitionshall not &e treate as mone* an9or other propert*" an shall not prevent the exchan#e $rom &ein# withinthe exceptions.

(&) I$ the amo%nt o$ the lia&ilities ass%me pl%s the amo%nt o$ the lia&ilities to which the propert* iss%&Lect excee the total o$ the aL%ste &asis o$ the propert* trans$erre p%rs%ant to s%ch exchan#e" thens%ch excess shall &e consiere as a #ain $rom the sale or exchan#e o$ a capital asset or o$ propert* whichis not a capital asset" as the case ma* &e.

Wash sales/compared with short selling

DE


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A short sale is a sale o$ real estate in which the procees $rom sellin# the propert* will $all short o$ the&alance o$ e&ts sec%re &* liens a#ainst the propert*" an the propert* owner cannot a>or to repa* theliens5 $%ll amo%nts an where the lien holers a#ree to release their lien on the real estate an accept lessthan the amo%nt owe on the e&t.UV An* %npai &alance owe to the creitors is :nown as a efcienc*.Short sale a#reements o not necessaril* release &orrowers $rom their o&li#ations to repa* an* short$allson the loans" %nless specifcall* a#ree to &etween the parties. A short sale is o$ten %se as an alternativeto $oreclos%re &eca%se it miti#ates aitional $ees an costs to &oth the creitor an &orrower. 6oth o$tenres%lt in a ne#ative creit report a#ainst the propert* owner.

Transactions between related taxpayers

SEC. 3. Items 7ot De%cti&le.-

(6) osses $rom Sales or Exchan#es o$ ropert*. - In comp%tin# net income" no e%ctions shall in an* case&e allowe in respect o$ losses $rom sales or exchan#es o$ propert* irectl* or inirectl* 8

() 6etween mem&ers o$ a $amil*.


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an* loss res%ltin# $rom s%ch sale shall not &e s%&Lect to the $ore#oin# limitation an shall not &e incl%ein eterminin# the applica&ilit* o$ s%ch limitation to other losses.

7et loss Carr*-Fver %le (applica&le onl* to inivi%als)SEC 31 Capital Gains an osses. -(D) 7et Capital oss Carr*-over. - I$ an* taxpa*er" other than a corporation" s%stains in an* taxa&le *ear a

net capital loss" s%ch loss (in an amo%nt not in excess o$ the net income $or s%ch *ear) shall &e treate inthe s%cceein# taxa&le *ear as a loss $rom the sale or exchan#e o$ a capital asset hel $or not more thantwelve (2) months.

iv. Income $rom ealin#s in capital asset s%&Lect to special r%lesa. Dealin#s in real propert* sit%ate in the hilippines- i$ the seller is a real estate ealer" the real propert* sol is an orinar* asset" an the #ain is s%&Lect to

#ra%ate income tax (i$ an inivi%al who is a citien" or a resient or non-resient alien en#a#e intrae or &%siness in the hilippines" or 2,= fnal tax i$ a non-resient alien not en#a#e in trae or&%siness in the hilippines) or to the normal corporate income tax (i$ a omestic corporation or a resien$orei#n corporation)

- i$ the seller is not a real estate ealer" etermine whether the real propert* sol or trans$erre is (a) %sein the taxpa*er;s trae" &%siness or pro$ession" or (&) treate as fxe asset %se in his trae" &%siness orpro$ession" s%&Lect to epreciation. I$ the answer in either is in the aMrmative" the real propert* shall &etreate as an orinar* asset" an the #ain is s%&Lect to the #ra%ate income tax rates or to the normalcorporate income tax rate. I$ the answer is in the ne#ative" the real propert* is treate as a capital asset"an shall &e s%&Lect to the fnal capital #ains tax o$ =.

RR 07-03roviin# the G%ielines in Determinin# Hhether a artic%lar eal ropert* is a Capital Asset or anFrinar* Asset %rs%ant to Section 31(A)() o$ the 7ational Internal even%e Coe o$ 11/ $or %rposes o$Imposin# the Capital Gains !ax %ner Sections 2+(D)" 2,(A)(3)" 2,(6) an 2/(D)(,)" or the Frinar* Income

!ax %ner Sections 2+(A)" 2,(A) W (6)" 2/(A)" 20(A)() an 20(6)()" or the inim%m Corporate Income !ax(CI!) %ner Sections 2/(E) an 20(A)(2) o$ the same Coe

SEC!IF7 3. G%ielines in Determinin# Hhether a artic%lar eal ropert* is a Capital Asset or Frinar*Asset. a. !axpa*ers en#a#e in the real estate &%siness. eal propert* shall &e classife with respect totaxpa*ers en#a#e in the real estate &%siness as $ollows'. eal Estate Dealer. All real properties ac@%ire &* the real estate ealer shall &e consiere asorinar* assets.2. eal estate Developer. All real properties ac@%ire &* the real estate eveloper" whetherevelope or %nevelope as o$ the time o$ ac@%isition" an all real properties which are fel &* the realestate eveloper primaril* $or sale or $or lease to c%stomers in the orinar* co%rse o$ his trae or &%sinessor which wo%l properl* &e incl%e in the inventor* o$ the taxpa*er i$ on han at the close o$ the taxa&le*ear an all real properties %se in the trae or &%siness" whether in the $orm o$ lan" &%ilin#" or otherimprovements" shall &e consiere as orinar* assets.3. eal Estate essor. All real properties o$ the real estate lessor" whether lan an9orimprovements" which are $or lease9rent or &ein# o>ere $or lease9rent" or otherwise $or %se or &ein# %sein the trae or &%siness shall li:ewise &e consiere as orinar* assets.+. !axpa*ers ha&it%all* en#a#e in the real estate &%siness. All real properties ac@%ire in theco%rse o$ trae or &%siness &* a taxpa*er ha&it%all* en#a#e in the sale o$ real estate shall &e consiere

as orinar* assets. e#istration with the BO6 or BODCC as a real estate ealer or eveloper shall &es%Mcient $or a taxpa*er to &e consiere as ha&it%all* en#a#e in the sale o$ real estate. I$ the taxpa*er isnot re#istere with the BO6 or BODCC as a real estate ealer or eveloper" he9it ma* nevertheless &eeeme to &e en#a#e in the real estate &%siness thro%#h the esta&lishment o$ s%&stantial relevantevience (s%ch as cons%mmation %rin# the precein# *ear o$ at least six () taxa&le real estate saletransactions" re#arless o$ amo%nt re#istration as ha&it%all* en#a#e in real estate &%siness with theocal Government Onit or the 6%rea% o$ Internal even%e" etc.).A propert* p%rchase $or $%t%re %se in the &%siness" even tho%#h this p%rpose is later thwarte &*circ%mstances &e*on the taxpa*er5s control" oes not lose its character as an orinar* asset. 7or oes amere iscontin%ance o$ the active %se o$ the propert* chan#e its character previo%sl* esta&lishe as a&%siness propert*.&. !axpa*er not en#a#e in the real estate &%siness. In the case o$ a taxpa*er not en#a#e in the


14/27

real estate &%siness" real properties" whether lan" &%ilin#" or other improvements" which are %se or&ein# %se or have &een previo%sl* %se in the trae or &%siness o$ the taxpa*er shall &e consiere asorinar* assets. !hese incl%e &%ilin#s an9or improvements s%&Lect to epreciation an lans %se inthe trae or &%siness o$ the taxpa*er.A eprecia&le asset oes not lose its character as an orinar* asset" $or p%rposes o$ the instant provision"even i$ it &ecomes $%ll* epreciate" or there is $ail%re to ta:e epreciation %rin# the perio o$ ownership.onetar* consieration or the presence or a&sence o$ proft in the operation o$ the propert* is notsi#nifcant in the characteriation o$ the propert*. So lon# as the propert* is or has &een %se $or &%sinessp%rposes" whether $or the &eneft o$ the owner or an* o$ its mem&ers or stoc:holers" it shall still &econsiere as an orinar* asset. eal propert* %se &* an exempt corporation in its exempt operations"s%ch as a corporation incl%e in the en%meration o$ Section 34 o$ the Coe" shall not &e consiere %se$or &%siness p%rposes" an there$ore" consiere as capital asset %ner these e#%lations.eal propert*" whether sin#le etache townho%se or conomini%m %nit" not %se in trae or &%siness asevience &* a certifcation $rom the 6aran#a* Chairman or $rom the hea o$ aministration" in case o$conomini%m %nit" townho%se or apartment" an as valiate $rom the existin# availa&le recors o$ the6%rea% o$ Internal even%e" owne &* an inivi%al en#a#e in &%siness" shall &e treate as capital asset.c. !axpa*ers chan#in# &%siness $rom real estate &%siness to non-real estate &%siness. In the case o$a taxpa*er who chan#e its real estate &%siness to a non-real estate &%siness" or who amene its Articleso$ Incorporation $rom a real estate &%siness to a non-real estate &%siness" s%ch as a holin# compan*"man%$act%rin# compan*" train# compan*" etc." the chan#e o$ &%siness or amenment o$ the primar*p%rpose o$ the &%siness shall not res%lt in the re-classifcation o$ real propert* hel &* it $rom orinar*asset to capital asset. ect on the classifcation o$ s%ch real propert* in the hans o$ the invol%ntar* seller" either as capitalasset or orinar* asset" as the case ma* &e.


15/27

shall" $or p%rposes o$ eterminin# the applica&le tax on s%ch $oreclos%re sale" &e treate as orinar*assets. Fn the other han" the nat%re o$ s%ch real propert* in the hans o$ the $oreclos%re &%*er shall &eetermine in accorance with the r%les state in s%&-para#raph ($) hereo$.

SEC!IF7 +. Applica&le !axes on Sale" Exchan#e or Fther Disposition o$ eal ropert*. Gains9Incomeerive $rom sale" exchan#e" or other isposition o$ real properties shall" %nless otherwise exempt" &es%&Lect to applica&le taxes impose %ner the Coe" epenin# on whether the s%&Lect properties areclassife as capital assets or orinar* assets.a. In the case o$ inivi%al citiens (incl%in# estates an tr%sts)" resient aliens" an non-resientaliens en#a#e in trae or &%siness in the hilippines.(i) Capital #ains pres%me to have &een realie $rom the sale" exchan#e" or other isposition o$ realpropert* locate in the hilippines" classife as capital assets" shall &e s%&Lect to the six percent (=)capital #ains tax impose %ner Sec. 2+(D)() or 2,(A)(3) o$ the Coe" as the case ma* &e" &ase on the#ross sellin# price or c%rrent $air mar:et val%e as etermine in accorance with Sec. (E) o$ the Coe"whichever is hi#her" provie" that i$ the &%*er is the Government or an* o$ its political s%&ivisions ora#encies or a #overnment-owne-or-controlle corporation" the tax lia&ilit* shall" at the option o$ theinivi%al seller (incl%in# estate or tr%st)" &e comp%te on the &asis o$ either the six percent (=) capital#ains tax %ner Sec. 2+(D)()92,(A)(3) or the #ra%ate tax rates %ner Sec. 2+(A)()(c) or 2,(A)() " all o$the Coe.(ii) !he sale o$ real propert* locate in the hilippines" classife as orinar* assets" shall &e s%&Lect tothe creita&le withholin# tax (expane) %ner Sec. 2.,/.2(?) o$ ev. e#s. 7o. 2-10" as amene" &aseon the #ross sellin# price or c%rrent $air mar:et val%e as etermine in accorance with Section (E) o$ theCoe" whichever is hi#her" an conse@%entl*" to the orinar* income tax impose %ner Sec. 2+(A)()(c) or2,(A)() o$ the Coe" as the case ma* &e" &ase on net taxa&le income.&. In the case o$ non-resient aliens not en#a#e in trae or &%siness in the hilippines. Capital#ains pres%me to have &een realie &* non-resient aliens not en#a#e in trae or &%siness in thehilippines on the sale o$ real propert* locate in the hilippines shall &e s%&Lect to the six percent (=)capital #ains tax impose %ner Sec. 2,(6)" in relation to Sec. 2+(D)()" o$ the Coe" &ase on the #rosssellin# price or c%rrent $air mar:et val%e as etermine in accorance with Sec. (E) o$ the Coe"whichever is hi#her.c. In the case o$ omestic corporations. (i) Capital #ains pres%me to have &een realie $rom the sale" exchan#e or isposition o$ lans an9or&%ilin#s locate in the hilippines" which are classife as capital assets" shall &e s%&Lect to a capital #ainstax o$ six percent (=) &ase on the #ross sellin# price or c%rrent $air mar:et val%e as etermine inaccorance with Sec. (E) o$ the Coe" whichever is hi#her" o$ s%ch lan an9or &%ilin#s p%rs%ant to Sec.2/(D)(,) o$ the Coe.

(ii) !he sale o$ lan an9or &%ilin# classife as orinar* asset an other real propert* (other than lanan9or &%ilin# treate as capital asset)" re#arless o$ the classifcation thereo$" all o$ which are locate inthe hilippines" shall &e s%&Lect to the creita&le withholin# tax (expane) %ner Sec. 2.,/.2(?) o$ ev.e#s. 7o. 2-10" as amene" an conse@%entl*" to the orinar* income tax %ner Sec. 2/(A) o$ the Coe.In lie% o$ the orinar* income tax" however" omestic corporations ma* &ecome s%&Lect to the minim%mcorporate income tax (CI!) %ner Sec. 2/(E) o$ the Coe" whichever is applica&le.. In the case o$ resient $orei#n corporations. eal propert* locate in the hilippines" re#arless oclassifcation" sol &* a resient $orei#n corporation shall &e s%&Lect to the creita&le withholin# tax(expane) %ner Sec. 2.,/.2(?) o$ ev. e#s. 7o. 2-10" as amene" an conse@%entl*" to the orinar*income tax %ner Sec. 20(A)() or to the CI! %ner Sec. 20(A)(2)" &oth o$ the Coe" whichever isapplica&le.e. In the case o$ non-resient $orei#n corporations. !he #ain $rom the sale o$ real propert* locatein the hilippines &* a non-resient $orei#n corporation shall &e s%&Lect to the fnal withholin# tax at the

rate o$ thirt*-two percent (32=) impose %ner Sec. 2.,/.(I) o$ ev. e#s. 7o. 2-10" as amene" inrelation to Sec. 20(6)() o$ the Coe.$. Income on sale o$ real propert* not locate in the hilippines. Gain realie $rom the sale"exchan#e" or other isposition o$ real propert* not locate in the hilippines" re#arless o$ classifcation" &*resient citiens or omestic corporations shall &e s%&Lect to the income tax impose in Sec. 2+(A)()" orSec. 2/(A) or (E) o$ the Coe" as the case ma* &e. S%ch income9#ain shall &e exempt p%rs%ant to Sec.23(6) " (D) an (


16/27

Exemption o$ Certain Inivi%als $rom the Capital Gains!ax on the Sale" Exchan#e or Disposition o$ arincipal esience %ner Certain Conitions

(2) rincipal esienceT shall re$er to the wellin# ho%se" incl%in# the lan on which it is sit%ate"where the h%s&an an wi$e or an %nmarrie inivi%al" whether or not @%alife as hea o$ $amil*" anmem&ers o$ his $amil* resie. Act%al occ%panc* o$ s%ch principal resience shall not &e consiereinterr%pte or a&anone &* reason o$ the inivi%al;s temporar* a&sence there$rom %e to travel orst%ies or wor: a&roa or s%ch other similar circ%mstances. S%ch principal resience m%st &echaracterie &* permanenc* in that it m%st &e the wellin# ho%se to which" whenever a&sent" the saiinivi%al intens to ret%rn

(3)


17/27

(c) A certife cop* o$ the 6%ilin# ermit iss%e &* the FMce o$ the 6%ilin# FMcial o$ the Cit* or%nicipalit* where his new principal resience shall &e constr%cte" as well as photocopies o$ oc%ments(e.#. &%ilin# specifcation plan" constr%ction plans" constr%ction cost estimates) s%&mitte with hisapplication $or sai permit

() In case his new principal resience is ac@%ire &* p%rchase" a %plicate ori#inal cop* o$ the Dee o$A&sol%te Sale coverin# the p%rchase o$ his new principal resience.

(3) !he tax exemption herein #rante ma* &e availe o$ onl* once ever* ten (4) *ears

(+) !he historical cost or aL%ste &asis o$ his ol principal resience sol" exchan#e or ispose shall &ecarrie over to the cost &asis o$ his new principal resience an

(,) I$ there is no $%ll %tiliation o$ the procees o$ sale" exchan#e or isposition o$ his ol principalresience $or the ac@%isition or constr%ction o$ his new principal resience" he shall &e lia&le $orefcienc* capital #ains tax which shall &e comp%te in accorance with Sec. (+) hereo$ . Accorin#l*"onl* a $ractional part (which the %tilie amo%nt &ears to the #ross sellin# price) o$ the historical cost o$the ol principal resience sol shall &e carrie over to the cost &asis o$ the new principal resience.

SEC!IF7 +. Determination o$ Capital Gains !ax D%e i$ the rocees o$ Sale" Exchan#e or Disposition o$ hisrincipal esience has not 6een


18/27

(&) !o comp%te $or the &asis o$ his new principal resience. Since the $air mar:et val%e o$ his olprincipal resience is e@%al to the cost to ac@%ire his new principal resience" the historical cost o$ his olprincipal resience shall &e the &asis o$ his new principal resience" comp%te as $ollows'

Bistorical cost o$ ol principal resience"444"444.44

A' Aitional cost to ac@%ire new principal resienceCost to ac@%ire his new principal resience+"444"444.44

ess' GS o$ ol principal resience(+"444"444.44)

8

AL%ste Cost 6asis o$ 7ew rincipal esience"444"444.44

(3) In case the procees $rom the sale o$ his ol principal resience has not &een $%ll* %tilie to ac@%irehis new principal resience. I$ r. 6%enia ac@%ire his new principal resience within the 0-monthre#lementar* perio &%t i not" however" %tilie the entire procees o$ the sale in ac@%irin# his newprincipal resience &eca%se he onl* %se 3"444"444 thereo$ in ac@%irin# his new principal resience"that portion o$ the #ross sellin# price not %tilie in the ac@%isition or constr%ction o$ his new principalresience shall &e s%&Lect to capital #ains tax.

Comp%tations'

Bistorical cost o$ ol principal resience "444"444.44Gross sellin# price (GS) +"444"444.44


19/27

x

=

+"444"444

Z

2,=

x

,"444"444

x

=

Z

/,"444.44

!he capital #ains tax %e $rom r. 6%enia $or the sai %n%tilie portion shall &e /,"444 o%t o$ the totalo$ 344"444 capital #ains tax otherwise %e $rom the sale o$ his ol principal resience (i.e." ,"444"444 x= Z 344"444). Bowever" he shall &e exempt $rom capital #ains tax to the extent alloca&le to thatportion which he act%all* %tilie to ac@%ire his new principal resience (i.e." capital #ains tax portion o$22,"444)" as shown &elow'


20/27

YYYYYYYYYYYYYYYYYYY

x

Bistorical Cost o$ Fl rincipal esience

Z

Amo%nt to &e Carrie Fver to the Cost 6asis o$ 7ew rincipal esience

GS o$ Fl rincipal esience

applie as $ollows'

(+"444"444 8 "444"444)

YYYYYYYYYYYYYYYYY

x

"444"444

Z

/,4"444

+"444"444

SEC!IF7 ,. Disposition o$ the rincipal esience in Exchan#e $or ropert* Fther than Cash. () I$ theinivi%al taxpa*er;s principal resience is ispose in exchan#e $or a conomini%m %nit" the ispositiono$ the taxpa*er;s principal resience shall not &e s%&Lecte to the capital #ains tax herein prescri&e"provie that the sai conomini%m %nit receive in the exchan#e shall &e %se &* the taxpa*er-trans$eror as his new principal resience. In this partic%lar case" the exempt provision o$ Sec. 2+(D)(2) o$the 11/ !ax Coe shall onl* appl* to the trans$eror o$ the principal resience an not to the trans$ereewho shall &e s%&Lect to the capital #ains tax in case his9its conomini%m %nit is treate as capital assetor to the income tax which shall &e withhel in accorance with Sec. 2.,/.2(?) o$ even%e e#%lations 7o.

2-10" as amene" in case the conomini%m %nit is treate as an orinar* asset. Bowever" i$ theconomini%m %nit is similarl* treate &* an inivi%al owner as his principal resience" then the sameshall also &e covere &* the exempt provision %ner Sec. 2+(D)(2) o$ the same Coe.

Example' r. 6%enia assi#ne an conve*e his principal resience to A6C ealt* Corporation inexchan#e $or a conomini%m %nit which r. 6%enia will %se as his new principal resience. !h%s" r.6%enia is exempt the $rom imposition o$ capital #ains tax on the exchan#e o$ his new principalresience while A6C ealt* Corporation" on the other han" shall &e s%&Lect to income tax" on itsexchan#e o$ the conomini%m %nit.

(2) I$ the sai taxpa*er;s principal resience is ispose o$ in exchan#e $or a parcel o$ lan an s%ch lanreceive in the exchan#e shall &e %se $or the constr%ction o$ his new principal resience" no income taxor capital #ains tax shall &e impose %pon the owner o$ the principal resience. Bowever" the owner o$

the lan shall &e s%&Lect to capital #ains tax or to income tax" as the case ma* &e.

(3) I$ in the ac@%isition o$ his new principal resience" the taxpa*er exchan#e his ol principal resiencepl%s cash or other propert*" the %n%tilie portion s%&Lect to capital #ains tax shall &e etermine &* thei>erence &etween the total consieration mae on the conve*ance o$ ol principal resiencetrans$erre (


21/27

principal resience. !he historical cost o$ the ol principal resience o$ r. 6%enia is "444"444 whilethe historical cost o$ the ol principal resience o$ r. Ka&%t is ,44"444.

(a) Comp%tation o$ capital #ains tax %e on the exchan#e o$ propert* &* r. 6%enia 7o capital #ainstax is %e $rom r. 6%enia $or the reason that there has &een $%ll %tiliation o$ the val%e o$ his olprincipal resience exchan#e where in aition to $air mar:et val%e o$ his ol principal resience o$+"444"444" he still pai cash o$ 2"444"444 to ac@%ire as his new principal resience the ol principalresience o$ r. Ka&%t val%e at ,"444"444.

(&) Comp%tation o$ cost &asis o$ the new principal resience o$ r. 6%enia

Bistorical cost o$ ol principal resience"444"444.44

A' Aitional cost to ac@%ire new principal resienceCost to ac@%ire his new principal resience"444"444.44

ess'


22/27

Z

4"444.44

() Comp%tation o$ the aL%ste cost &asis o$ the new principal resience o$ r. Ka&%t In comp%tin# $orthe aL%ste cost &asis o$ the new principal resience o$ r. Ka&%t" onl* that portion o$ historical costcorresponin# to the %n%tilie portion o$ the val%e receive shall &e consiere. In this case" theaL%ste cost &asis o$ the new principal resience is comp%te as $ollows'

Z

,"444"444

YYYYYYYYYYYYYYYYYYYYYYYY

x

,44"444

"444"444

Z

+"/

In orer to avail o$ the tax exemption $rom capital #ains tax with respect to s%ch exchan#es" the a$oresaitaxpa*er is nevertheless re@%ire to ac@%ire his new principal resience within the ei#hteen (0) monthre#lementar* perio" otherwise" he shall &e lia&le to pa* the capital #ains tax on the isposition o$ hisprincipal resience.

In all cases o$ exchan#e o$ principal resience $or another real propert*" the lia&ilit* o$ oc%mentar* stamptax provie %ner Sec. 1 o$ the 11/ Coe shall accr%e to &oth parties involve in the exchan#e.

SEC!IF7 . Iss%ance o$ Certifcate A%thoriin# e#istration (CA) or !ax Clearance Certifcate (!C). !hetaxpa*er;s flin# o$ the Sworn Declaration o$ Intent to avail o$ the capital #ains tax exemption in the

manner prescri&e %ner Sec. (3) hereo$ shall &e a s%Mcient &asis o$ the DF to approve an iss%e theCA or !C o$ the principal resience sol" exchan#e or ispose &* the a$oresai taxpa*er. Sai CA or

!C shall state that on the sale" exchan#e or isposition o$ the taxpa*er;s principal resience is exempt$rom capital #ains tax p%rs%ant to Sec. 2+(D)(2) o$ the Coe.

SEC!IF7 /. epealin# Cla%se. All existin# r%les an re#%lations or parts thereo$ which are inconsistentwith the provisions o$ these e#%lations are here&* amene" moife or repeale accorin#l*.

SEC!IF7 0. E>ectivit*. !he provisions o$ these e#%lations shall ta:e e>ect f$teen (,) a*s a$terp%&lication in the FMcial Gaette or in an* newspaper o$ #eneral circ%lation witho%t preL%ice" however"to those persons who have availe o$ the capital #ains tax exemption on acco%nt o$ s%ch sale orisposition %rin# the perio $rom ?an%ar* " 110 to the ate o$ e>ectivit* o$ these e#%lations'rovie" however" that s%ch persons shall &e re@%ire to compl* with the oc%mentar* re@%irements

herein prescri&e within thirt* (34) a*s $rom ate o$ e>ectivit* hereo$.

RR 8-98

INCOME 45654ION O/ S5E+ 4R5NS/ER OR E6C5NGE O/ RE5 ROER4:

!he even%e e#%lations #overn the tax treatment on the sale" trans$er or exchan#e o$ real propert* an$or this p%rpose revise the ate an ven%e $or the flin# o$ re@%ire tax ret%rns an pa*ment o$ taxes%e on transactions involvin# real properties classife as capital assets an orinar* assets.

Capital Gains


23/27

A fnal tax o$ six percent (=) is impose on capital #ains pres%me to have &een realie &* the seller$rom the sale" exchan#e or other isposition o$ real properties locate in the hilippines which areclassife as capital assets. !his tax rate also applies to pacto e retro sales an other $orms o$conitional sales. !he tax is comp%te &ase on the #ross sellin# price or $air mar:et val%e o$ thepropert* as etermine &* the 6I Commissioner in accorance with Section (E) o$ the !ax Coe.

In case o$ isposition o$ real propert* mae &* an inivi%al to the #overnment or to an* o$ its politicals%&ivisions or a#encies or to #overnment-owne or controlle corporations" the seller ma* elect tocomp%te the tax on the #ain erive $rom s%ch sale %ner the normal income tax rate" or %ner a fnalcapital #ains tax o$ six percent (=).

!he capital #ains tax o$ = m%st &e pai within thirt* (34) a*s $ollowin# each sale or isposition. !heCapital Gains !ax et%rn shall &e fle &* the seller an pa*ment mae to an A%thorie A#ent 6an:(AA6) locate within the 6I even%e District FMce havin# L%risiction over the place where the propert*&ein# trans$erre is locate.

Frinar* Assets

!he sale o$ real propert* consiere as an orinar* asset is s%&Lect to creita&le withholin# tax. !hewithholin# tax is comp%te &ase on the #ross sellin# price" or total amo%nt o$ consieration" or the $airmar:et val%e" whichever is hi#her" pai to the seller $or the sale" trans$er or exchan#e o$ real propert*consiere as orinar* asset. !he &%*er is constit%te as the withholin# a#ent" an th%s" is lia&le toe%ct s%ch tax $rom his pa*ment to the seller o$ the propert*" an remit these taxes to the 6I.

!he $ollowin# withholin# tax rates will appl*'

Hhere the seller9trans$eror is ha&it%all* en#a#e in the real estate &%siness as per proo$ o$ re#istrationwith the BO6 or BODCC" i$ the sellin# price is

,44"444 or less

.,=

ore than ,44"444 &%t not more than 2.4 illion

3.4=

ore than 2.4 illion

,.4=

Hhere the seller9trans$eror is not ha&it%all* en#a#e in the real estate &%siness

/.,=


24/27

Hhere the seller9trans$eror is exempt $rom creita&le withholin# tax

Exempt

Creita&le withholin# taxes e%cte an withhel &* the &%*er on the sale" trans$er or exchan#e o$ realpropert* classife as orinar* asset sho%l &e pai %pon the flin# o$ the ret%rn with the A%thorieA#ent 6an: (AA6) locate within the 6I even%e District FMce havin# L%risiction over the place wherethe propert* &ein# trans$erre is locate. a*ment m%st &e mae within ten (4) a*s $ollowin# the eno$ the month in which the transaction occ%rre. Bowever" taxes withhel in Decem&er shall &e fle on or&e$ore ?an%ar* 2, o$ the $ollowin# *ear.

In the case o$ ar#e !axpa*ers" the creita&le withholin# tax shall &e remitte twent* fve (2,) a*s a$terthe close o$ the month in which the transaction occ%rre.

resentation o$ the Capital Gains !ax et%rn or Creita&le Hithholin# !ax et%rn with a &an: valiationeviencin# $%ll pa*ment o$ the capital #ains tax or the creita&le withholin# tax %e" as the case ma*&e" is re@%ire &e$ore the 6I even%e District FMce where the propert* &ein# trans$erre is locate williss%e the corresponin# !ax Clearance (!C) or Certifcate A%thoriin# e#istration (CA).

RMC ;-02---

&. Dealin#s in shares o$ stoc: o$ hilippine corporationDefnition o sharesSEC. 22 () !he term shares o$ stoc: shall incl%e shares o$ stoc: o$ a corporation" warrants an9or

options to p%rchase shares o$ stoc:" as well as %nits o$ participation in a partnership (except #eneralpro$essional partnerships)" Loint stoc: companies" Loint acco%nts" Loint vent%res taxa&le as corporations"associations an recreation or am%sement cl%&s (s%ch as #ol$" polo or similar cl%&s)" an m%t%al $%ncertifcates.

SEC. 2+ (C) Capital Gains $rom Sale o$ Shares o$ Stoc: not !rae in the Stoc: Exchan#e. - !he provisionso$ Section 31(6) notwithstanin#" a fnal tax at the rates prescri&e &elow is here&* impose %pon thenet capital #ains realie %rin# the taxa&le *ear $rom the sale" &arter" exchan#e or other isposition o$

shares o$ stoc: in a omestic corporation" except shares sol" or ispose o$ thro%#h the stoc: exchan#e7ot over 44"444\\\\\\\\\\\........ ,=Fn an* amo%nt in excess o$ 44"444\\\\ 4=

SEC. 2/ (D) (2) Capital Gains $rom the Sale o$ Shares o$ Stoc: 7ot !rae in the Stoc: Exchan#e. - A fnaltax at the rates prescri&e &elow shall &e impose on net capital #ains realie %rin# the taxa&le *ear$rom the sale" exchan#e or other isposition o$ shares o$ stoc: in a omestic corporation except sharessol or ispose o$ thro%#h the stoc: exchan#e'

7ot over 44"444\\\\\\\\\\..... ,=Amo%nt in excess o$ 44"444\\\\\.. 4=

SEC. 20. ates o$ Income !ax on


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isposition o$ shares o$ stoc: liste an trae thro%#h the local stoc: exchan#e other than the sale &* aealer in sec%rities" a tax at the rate o$ one-hal$ o$ one percent (92 o$ =) o$ the #ross sellin# price or#ross val%e in mone* o$ the shares o$ stoc: sol" &artere" exchan#e or otherwise ispose which shall&e pai &* the seller or trans$eror.

(6) !ax on Shares o$ Stoc: Sol or Exchan#e !hro%#h Initial %&lic F>erin#. - !here shall &e levie"assesse an collecte on ever* sale" &arter" exchan#e or other isposition thro%#h initial p%&lic o>erin#o$ shares o$ stoc: in closel* hel corporations" as efne herein" a tax at the rates provie here%ner&ase on the #ross sellin# price or #ross val%e in mone* o$ the shares o$ stoc: sol" &artere" exchan#eor otherwise ispose in accorance with the proportion o$ shares o$ stoc: sol" &artere" exchan#e orotherwise ispose to the total o%tstanin# shares o$ stoc: a$ter the listin# in the local stoc: exchan#e'

Op to twent*-fve percent (2,=) +=Fver twent*-fve percent (2,=) &%t not over thirt*-three

an one thir percent (33 93=) 2=Fver thirt*-three an one thir percent (33 93=) =

!he tax herein impose shall &e pai &* the iss%in# corporation in primar* o>erin# or &* the seller inseconar* o>erin#.

erin#" the provision o$ S%&section (C)() o$this Section shall appl* as to the time an manner o$ the pa*ment o$ the tax.

(D) Common rovisions. - An* #ain erive $rom the sale" &arter" exchan#e or other isposition o$ shares o$stoc: %ner this Section shall &e exempt $rom the tax impose in Sections 2+(C)" 2/(D)(2)" 20(A)(0)(c)"an 20(6)(,)(c) o$ this Coe an $rom the re#%lar inivi%al or corporate income tax. !ax pai %ner thisSection shall not &e e%cti&le $or income tax p%rposes.

Shares liste an trae in the stoc: exchan#e- i$ the seller is a ealer in sec%rities" the shares o$ soc: shall &e treate as orinar* assets s%&Lect to

#ra%ate income tax rates9normal corporate income tax- i$ the seller is not a ealer in sec%rities" the shares o$ stoc: are re#are as capital asset'


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Q i$ the shares o$ stoc: are liste an trae in the local stoc: exchan#e" the transaction is exempt $romincome tax &%t is s%&Lect to P o$ = stoc: transaction taxQ i$ the shares o$ stoc: are not liste" or the* are liste &%t not trae in the local stoc: exchan#e" thenet capital #ains shall &e s%&Lect to the fnal capital #ains tax o$ ,= o$ the net capital #ains notexceein# 44J" an 4= on an* amo%nt in excess o$ 44J

Shares not liste an trae in the stoc: exchan#eSee precein# &%llet (i$ the shares o$ stoc: are not liste" or the* are liste &%t not trae in the local stoc:

exchan#e" the net capital #ains shall &e s%&Lect to the fnal capital #ains tax o$ ,= o$ the net capital

#ains not exceein# 44J" an 4= on an* amo%nt in excess o$ 44J)

SEC ;; RR 2

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RR -2008

RR -2013

Amenin# Certain rovision o$ even%e e#%lations 7o. 4-2440 Entitle Consoliate e#%lationsrescri&in# the %les on the

!axation o$ Sale" 6arter" Exchan#e or Fther Disposition o$ Shares o$ Stoc: Bel as Capital Assets

SEC!IF7 . Scope. %rs%ant to provisions o$ Sec. 2++ o$ the 7ational Internal even%eCoe o$ 11/" as amene" in relation to Secs. 2+ (C)" 2, (A)(3)" 2, (6)" 2/ (D) (2)" 20 (A) (/)(C)" 20 (6) (,) (C) o$ the 7ational Internal even%e Coe (!ax Coe)" as Amene." thesee#%lations are here&* prom%l#ate to amen certain provisions o$ even%e e#%lations ()7o. 4-2440 relative to the imposition o$ tax $or the sale" &arter" exchan#e or other isposition o$shares not trae thro%#h the ocal Stoc: Exchan#e.SEC!IF7 2. Sale" 6arter or Exchan#e o$ Shares o$ Stoc: 7ot !rae !hro%#h a ocal Stoc:Exchan#e %rs%ant to Secs. 2+ (C)" 2, (A)(3)" 2, (6)" 2/ (D) (2)" 20 (A) (/) (C)" 20 (6) (,) (C) o$

!he !ax Coe" as Amene. Sec. / o$ 7o. 4-2440 is here&* amene to rea as $ollows'SEC. /. Sale" 6arter or Exchan#e o$ Shares o$ Stoc: 7ot !rae !hro%#h aocal Stoc: Exchan#e %rs%ant to Secs. 2+ (C)" 2, (A)(3)" 2, (6)" 2/ (D) (2)" 20(A) (/) (C)" 20 (6) (,) (C) o$ !he !ax Coe" as Amene. xxx xxx xxx(c.2) Defnition o$ $air mar:et val%e o$ the Shares o$ Stoc:.


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v. Sale o$ principal resienceSEC. 2+. Income !ax ates. 8 (D) Capital Gains $rom Sale o$ eal ropert*. -(2) Exception. - !he provisions o$ para#raph () o$ this S%&section to the contrar* notwithstanin#" capital

#ains pres%me to have &een realie $rom the sale or isposition o$ their principal resience &* nat%ralpersons" the procees o$ which is $%ll* %tilie in ac@%irin# or constr%ctin# a new principal resiencewithin ei#hteen (0) calenar months $rom the ate o$ sale or isposition" shall &e exempt $rom thecapital #ains tax impose %ner this S%&section' rovie" !hat the historical cost or aL%ste &asis o$the real propert* sol or ispose shall &e carrie over to the new principal resience &%ilt or ac@%ire'rovie" $%rther" !hat the Commissioner shall have &een %l* notife &* the taxpa*er within thirt* (34)a*s $rom the ate o$ sale or isposition thro%#h a prescri&e ret%rn o$ his intention to avail o$ the taxexemption herein mentione' rovie" still $%rther" !hat the sai tax exemption can onl* &e availe o$once ever* ten (4) *ears' rovie" fnall*" that i$ there is no $%ll %tiliation o$ the procees o$ sale orisposition" the portion o$ the #ain pres%me to have &een realie $rom the sale or isposition shall &es%&Lect to capital #ains tax.

Gross Income RRs

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