SECTION R.A. 8424, as amended R.A.

11534 Summary

Section 20. Submission of (A) x x x (A) x x x

Report and Pertinent
Information by the (B) Report to Oversight (B) Submission of
Commissioner Committee. - The Tax-Related Information to
Commissioner shall, with the Department of Finance. -
reference to Section 204 of The Commissioner shall, upon
this Code, submit to the the order of the Secretary of
Oversight Committee referred Finance specifically identifying
to in Section 290 hereof, the needed information and
through the Chairmen of the justification for such order in
Committee on Ways and relation to the grant of
Means of the Senate and incentives under Title XIII,
House of Representatives, a furnish the Secretary pertinent
report on the exercise of his information on the entities
powers pursuant to the said receiving incentives under this
Section, every six (6) months Code: Provided, however, That
of each calendar year. the Secretary and the relevant
officers handling such specific
information shall be covered
by the provisions of Section
270 unless the taxpayer
consents in writing to such
disclosure.

(C) Report to Oversight

Committee. - The
Commissioner shall, with
reference to Section 204 of
this Code, submit to the
Oversight Committee referred
to in Section 290 hereof,
through the Chairmen of the
Committee on Ways and
Means of the Senate and
House of Representatives, a
report on the exercise of his
powers pursuant to the said
section, every six (6) months
of each calendar year.
Section 22. Definitions (A) x x x (A) x x x

(B) The term ‘corporation’ (B) The term 'corporation'

shall include partnerships, no shall include one person
matter how created or corporations, partnerships, no
organized, joint-stock matter how created or
companies, joint accounts organized, joint-stock
(cuentas en participacion), companies, joint accounts
associations, or insurance (cuentas en participacion),
companies, but does not associations, or insurance
include general professional companies, but does not
partnerships and a joint include general professional
venture or consortium formed partnerships and a joint
for the purpose of undertaking venture or consortium formed
construction projects or for the purpose of undertaking
engaging in petroleum, coal, construction projects or
geothermal and other energy engaging in petroleum, coal,
operations pursuant to an geothermal and other energy
operating or consortium operations pursuant to an
agreement under a service operating consortium
contract with the Government. agreement under a service
“General professional contract with the Government.
partnerships'' are 'General professional
partnerships formed by partnerships’ are
persons for the sole purpose partnerships formed by
of exercising their common persons for the sole purpose
profession, no part of the of exercising their common
income of which is derived profession, no part of the
from engaging in any trade income of which is derived
business. from engaging in any trade or
business.
Section 25. Tax on (A) x x x (A) x x x
Nonresident Alien
Individuals (1) x x x (1) x x x

(2) Cash and/or Property (2) Cash and/or Property

Dividends from a Domestic Dividends from a Domestic
Corporation or Joint Stock Corporation or Joint Stock
Company, or Insurance or Company, or Insurance or
Mutual Fund Company or Mutual Fund Company or
Regional Operating Regional Operating
Headquarters of Headquarter or Multinational
Multinational Company , or Company, or Share in the
Share in the Distributable Distributable Net Income of
Net Income of a Partnership a Partnership (Except a
(Except a General General Professional
Professional Partnership), Partnership), Joint Account,
Joint Account, Joint Venture Joint Venture Taxable as a
Taxable as a Corporation or Corporation or Association,
Association, Interests, Interests, Royalties, Prizes,
Royalties, Prizes, and Other and Other Winnings. - Cash
Winnings. - Cash and/or and/or property dividends from
property dividends from a a domestic corporation, or
domestic corporation, or from from a joint stock company, or
a joint stock company, or from from an insurance or mutual
an insurance or mutual fund fund company or from a
company or from a regional regional operating headquarter
operating headquarter of of multinational company, or
multinational company, or the the share of a nonresident
share of a nonresident alien alien individual in the
individual in the distributable distributable net income after
net income after tax of a tax of a partnership (except a
partnership (except a general general professional
professional partnership) of partnership) of which he is a
which he is a partner, or the partner, or the share of a
share of a nonresident alien nonresident alien individual in
individual in the net income the net income after tax of an
after tax of an association, a association, a joint account, or
joint account, or a joint venture a joint venture taxable as a
taxable as a corporation of corporation of which he is a
which he is a member or a member or a co-venturer;
co-venturer; interests; royalties interests; royalties (in any
(in any form); and prizes form); and prizes (except
(except prizes amounting to prizes amounting to Ten
Ten thousand pesos thousand pesos (P10,000.00)
(P10,000.00) or less which or less which shall be subject
shall be subject to tax under to tax under Subsection (B)(1)
Subsection (B)(1) of Section of Section 24) and other
24) and other winnings (except winnings (except winnings
Philippine Charity amounting to Ten thousand
Sweepstakes and Lotto pesos (P10,000.00) or less
winnings); shall be subject to from Philippine Charity
an income tax of twenty Sweepstakes Office (PCSO)
percent (20%) on the total games which shall be exempt);
amount thereof: Provided, shall be subject to an income
however, That royalties on tax of twenty percent (20%) on
books as well as other literary the total amount thereof:
works, and royalties on Provided, however, That
musical compositions shall be royalties on books as well as
subject to a final tax of ten other literary works, and
percent (10%) on the total royalties on musical
amount thereof: Provided, compositions shall be subject
further, That cinematographic to a final tax of ten percent
films and similar works shall be (10%) on the total amount
subject to the tax provided thereof: Provided, further, That
under Section 28 of this Code: cinematographic films and
Provided, furthermore, That similar works shall be subject
interest income from long-term to the tax provided under
deposit or investment in the Section 28 of this Code:
form of savings, common or Provided, furthermore, That
individual trust funds, deposit interest income from long-term
substitutes, investment deposit or investment in the
management accounts and form of savings, common or
other investments evidenced individual trust funds, deposit
by certificates in such form substitutes, investment
prescribed by the Bangko management accounts and
Sentral ng Pilipinas (BSP) other investments evidenced
shall be exempt from the tax by certificates in such form
imposed under thisprescribed by the Bangko
Subsection: Provided, finally, Sentral ng Pilipinas (BSP)
That should the holder of the shall be exempt from the tax
certificate pre-terminate the imposed under this
deposit or investment before Subsection: Provided, finally,
the fifth (5th) year, a final taxThat should the holder of the
shall be imposed on the entire certificate pre-terminate the
income and shall be deducted deposit or investment before
and withheld by the depository the fifth (5th) year, a final tax
bank from the proceeds of the shall be imposed on the entire
long-term deposit orincome and shall be deducted
investment certificate based and withheld by the depository
on the remaining maturity bank from the proceeds of the
thereof: long-term deposit or
investment certificate based
Four (4) years to less than five on the remaining maturity
thereof:
(5) years - 5%;
Four (4) years to less than five
Three (3) years to less than (5) years - 5%;
four (4) years - 12%; and
Three (3) years to less than
Less than three (3) years - four (4) years - 12%; and
20%.
Less than three (3) years -
 (3) x x x 20%.

(3) x x x

Section 27. Rates of Income (A) In General. — Except as (A) In General. — Except as Income tax rate of domestic
Tax on Domestic otherwise provided in this otherwise provided in this corporations changed from
Corporations. Code, an income tax of Code, an income tax rate of 35% to 25%. A different tax
thirty-five percent (35%) is twenty-five percent (25%) rate of 20% is imposed on
hereby imposed upon the effective July 1, 2020, is corporations with net taxable
taxable income derived during hereby imposed upon the income of P5,000.000 and with
each taxable year from all taxable income derived during total assets not exceeding
sources within and without the each taxable year from all P1,000,000.
Philippines by every sources within and without the
corporation, as defined in Philippines by every Removed the President’s
Section 22(B) of this Code and corporation, as defined in prerogative, upon
taxable under this Title as a Section 22(B) of this Code and recommendation of the
corporation, organized in, or taxable under this Title as a Secretary of Finance, to allow
existing under the laws of the corporation, organized in, or corporations to elect a gross
Philippines: Provided, That under the laws of the income tax option at 15%.
effective January 1, 2009, the Philippines: Provided, That
rate of income tax shall be corporations with net taxable The tax rate for Proprietary
thirty percent (30%). income not exceeding Five Educational Institutions &
million pesos and with total Hospitals and the MCIT of
assets not exceeding One domestic corporations is 1%
hundred million pesos (P from July 1, 2020 to June 30,
100,000,000.00), excluding 2023.
land on which the particular
business entity's ofice, plant, Guidelines are added for
and equipment are situated exemption of foreign-sourced
during the taxable year for dividends from tax.
which the tax is imposed, shall
be taxed at twenty percent
(20%).
xxx xxx

xxx xxx

Provided, further, That the

President, upon the
recommendation of the
Secretary of Finance, may,
effective January 1, 2000,
allow corporations the option
to be taxed at fifteen percent
(15%) of gross income as
defined herein, after the
following conditions have been
satisfied:
(1) A tax effort ratio of twenty
percent (20%) of Gross
National Product (GNP);
(2) A ratio of forty percent
(40%) of income tax collection
to total tax revenues;
(3) A VAT tax effort of four
percent (4%) of GNP; and
(4) A 0.9 percent (0.9%) ratio
of the Consolidated Public
Sector Financial Position
(CPSFP) to GNP.

The option to be taxed based

on gross income shall be
available only to firms whose
ratio of cost of sales to gross
sales or receipts from all
sources does not exceed
fifty-five percent (55%).
The election of the gross
income tax option by the
corporation shall be
irrevocable for three (3)
consecutive taxable years
during which the corporation is
qualified under the scheme.

For purposes of this Section,

the term ‘gross income’
derived from business shall be
equivalent to gross sales less
sales returns, discounts and
allowances and cost of goods
sold. ‘Cost of goods sold’ shall
include all business expenses
directly incurred to produce the
merchandise to bring them to
their present location and use.

For a trading or merchandising

concern, ‘cost of goods sold’
shall include the invoice cost
of the goods sold, plus import
duties, freight in transporting
the goods to the place where
the goods are actually sold,
including insurance while the
goods are in transit.

For a manufacturing concern,

‘cost of goods manufactured
and sold’ shall include all costs
of production of finished
goods, such as raw materials
used, direct labor and
manufacturing overhead,
freight cost, insurance
premiums and other costs
incurred to bring the raw
materials to the factory or
warehouse.

In the case of taxpayers

engaged in the sale of service,
‘gross income’ means gross
receipts less sales returns,
allowances and discounts. (B) Proprietary Educational
Institutions and Hospitals. -
(B) Proprietary Educational Proprietary educational
Institutions and Hospitals. — institutions and hospitals which
Proprietary educational are nonprofit shall pay a tax of
institutions and hospitals which ten percent (10%) on their
are nonprofit shall pay a tax of taxable income except those
ten percent (10%) on their covered by Subsection (D)
taxable income except those hereof: Provided, That
covered by Subsection (D) beginning July 1, 2020 until
hereof: Provided, That if the June 30, 2023, the tax rate
gross income from unrelated herein imposed shall be one
trade, business or other percent (1%): Provided,
activity exceeds fifty percent further, That if the gross
(50%) of the total gross income from 'unrelated trade,
income derived by such business or other activity'
educational institutions or exceeds fifty percent (50%) of
hospitals from all sources, the the total gross income derived
tax prescribed in Subsection by such educational or
(A) hereof shall be imposed on hospitals from all sources, the
the entire taxable income. tax prescribed in Subsection
(A) hereof shall be imposed on
the entire taxable income.
 xxx

xxx xxx

xxx (D) Rates of Tax on Certain

Passive Incomes. - x x x
(D) Rates of Tax on Certain
Passive Incomes. - xxx (4) Intercorporate Dividends. -
Dividends received by a
(4) Intercorporate Dividends. domestic corporation shall not
— Dividends received by a be subject to tax under this
domestic corporation from Title: Provided, That for
another domestic corporation foreign-sourced dividends to
shall not be subject to tax. be exempt, the funds from
such dividends actually
received or remitted into the
Philippines are reinvested in
the business operations of the
domestic corporation in the
Philippines within the next
taxable year from the time the
foreign-sourced dividends
were received and shall be
limited to funding the working
capital requirements, capital
expenditures, dividend
payments, investment in
domestic subsidiaries, and
infrastructure project:
Provided, further, That the
domestic corporation holds
directly at least twenty percent
(20%) of the outstanding
shares of the foreign
corporation and has held the
shareholdings for a minimum
 of two (2) years at the time of
the dividends distribution.

(5) Capital Gains Realized

from the Sale, Exchange or
Disposition of Lands and/or
Buildings. — A final tax of six
percent (6%) is hereby
imposed
on the gain presumed to have
been realized on the sale,
exchange or disposition of
lands and/or buildings which
are not actually used in the
business of a corporation and
are treated as capital assets,
based on the gross selling
price or fair market value as
determined in accordance with
Section 6(E) of this Code,
whichever is higher, of such
lands and/or buildings. (E) Minimum Corporate
Income Tax on Domestic
(E) Minimum Corporate Corporations.
Income Tax on Domestic (1) Imposition of Tax. — A
Corporations. — minimum corporate income tax
(1) Imposition of Tax. — A of two percent (2%) of the
minimum corporate income tax gross income as of the end of
of two percent (2%) of the the taxable year, as defined
gross income as of the end of herein, is hereby imposed on a
the taxable year, as defined corporation taxable under this
herein, is hereby imposed on a Title, beginning on the fourth
corporation taxable under this taxable year immediately
Title, beginning on the fourth following the year in which
 taxable year immediately such corporation commenced
following the year in which its business operations, when
such corporation commenced the minimum income tax is
its business operations, when greater than the tax computed
the minimum income tax is under Subsection (A) of this
greater than the tax computed Section for the taxable year:
under Subsection (A) of this Provided, That effective July 1,
Section for the taxable year. 2020 until June 30, 2023, the
rate shall be one percent (1%).

xxx

xxx

Section 28. Rates of Income (A) Tax on Resident Foreign The tax on resident foreign
Tax on Foreign Corporations. — corporations was reduced from
Corporations. (1) In General. — Except as (1) In General. — Except as 35% to 25%.
otherwise provided in this otherwise provided in this
Code, a corporation organized, Code, a corporation organized, MCIT of resident foreign
authorized, or existing under authorized, or existing under corporations are taxed at a
the laws of any foreign country, the laws of any foreign country, rate of 1% from July 1, 2020 to
engaged in trade or business engaged in trade or business June 30, 2023.
within the Philippines, shall be within the Philippines, shall be
subject to an income tax subject to an income tax Items 5, 6, and 7 of Part A
equivalent to thirty-five percent equivalent to twenty-five were renumbered to 4, 5, and
(35%) of the taxable income percent (25%) of the taxable 6 because the section
derived in the preceding income derived in the concerning ‘Offshore Banking
taxable year from all sources preceding taxable year from all Units’ was removed.
within the Philippines: sources within the Philippines
Provided, That effective effective July 1, 2020. Regional operating
January 1, 2009, the rate of headquarters will be taxed with
income tax shall be thirty regular corporate income tax
percent (30%). starting January 1, 2022.

xxx xxx Interest income of RFCs shall

be taxed at a rate of 15%
xxx xxx instead of 7.5%.

Provided, however, That a A flat tax rate of 15% is given

resident foreign corporation to capital gains from sale of
shall be granted the option to shares of stock not traded in
be taxed at fifteen percent the stock exchange.
(15%) on gross income under
the same conditions, as A nonresident foreign
provided in Section 27(A). corporation is taxed at 25%
instead of 35%.
(2) Minimum Corporate (2) Minimum Corporate
Income Tax on Resident Income Tax of Resident The allowed credit tax due in
Foreign Corporations. — A Foreign Corporations. — A the NRFC’s domiciliary country
minimum corporate income tax minimum corporate income tax is 15% instead of 20%, and
of two percent (2%) of gross of two percent (2%) of gross that starting July 1, 2020, the
income, as prescribed under income, as prescribed under creditable tax due shall be
Section 27(E) of this Code, Section 27(E) of this Code, equivalent to the difference
shall be imposed, under the shall be imposed, under the between the regular income
same conditions, on a resident same conditions, on a resident tax rate provided in Section
foreign corporation taxable foreign corporation taxable 28(B)(1) of this Code and the
under paragraph (1) of this under paragraph (1) of this 15% tax on dividends.
Subsection. Subsection: Provided, That
effective July 1, 2020 until A flat tax rate of 15% is the
June 30, 2023, the rate shall final tax rate.
be one percent (1%).

(3) xxx (3) x x x

(4) Offshore Banking Units. —

The provisions of any law to
the contrary notwithstanding,
income derived by offshore
banking units authorized by
the Bangko Sentral ng
Pilipinas (BSP), from foreign
currency transactions with
nonresidents, other offshore
banking units, local
commercial banks, including
branches of foreign banks that
may be authorized by the
Bangko Sentral ng Pilipinas
(BSP) to transact business
with offshore banking units
shall be exempt from all taxes
except net income from such
transactions as may be
specified by the Secretary of
Finance, upon
recommendation of the
Monetary Board which shall be
subject to the regular income
tax payable by banks:
Provided, however, That any
interest income derived from
foreign currency loans granted
to residents other than
offshore banking units or local
commercial banks, including
local branches of foreign
banks that may be authorized
by the BSP to transact
business with offshore banking
units, shall be subject only to a
final tax at the rate of ten
percent (10%).

Any income of nonresidents,

whether individuals or
corporations, from transactions
with said offshore banking
units shall be exempt from
income tax. (4) Tax on Branch Profits
Remittances. - x x x
(5) Tax on Branch Profits
Remittances. — "(5) Regional or Area
Headquarters and Regional
(6) Regional or Area Operating Headquarters of
Headquarters and Regional Multinational Companies. -
Operating Headquarters of
Multinational Companies. — (a) xxx

(a) xxx (b) Regional operating

headquarters as defined in
(b) Regional operating Section 22 (EE) shall pay a tax
headquarters as defined in of ten percent (10%) of their
Section 22(EE) shall pay a tax taxable income: Provided,
of ten percent (10%) of their That effective January 1, 2022,
taxable income. regional operating
headquarters shall be subject
to the regular corporate
income tax.

(6) Tax on Certain Incomes

Received by a Resident
(7) Tax on Certain Incomes Foreign Corporation. -
Received by a Resident
Foreign Corporation.— (a) Interest from Deposits and
Yield or any other Monetary
(a) Interest from Deposits and Benefit from Deposit
Yield or any other Monetary Substitutes, Trust Funds and
Benefit from Deposit Similar Arrangements and
Substitutes, Trust Funds and Royalties. — Interest from any
Similar Arrangements and currency bank deposit and
Royalties. — Interest from any yield or any other monetary
currency bank deposit and benefit from deposit
yield or any other monetary substitutes and from trust
benefit from deposit funds and similar
substitutes and from trust arrangements and royalties
funds and similar derived from sources within
arrangements and royalties the Philippines shall be subject
derived from sources within to a final income tax at the rate
the Philippines shall be subject of twenty percent (20%) of
to a final income tax at the rate such interest:
of twenty percent (20%) of Provided, however, That
such interest: interest income derived by a
Provided, however, That resident foreign corporation
interest income derived by a from a depository bank under
resident foreign corporation the expanded foreign currency
from a depository bank under deposit system shall be
the expanded foreign currency subject to a final income tax at
deposit system shall be the rate of fifteen percent
subject to a final income tax at (15%) of such interest income.
the rate of seven and one-half
percent (7 ½%) of
such interest income. (b) Income Derived under the
Expanded Foreign Currency
(b) Income Derived under the Deposit System. - x x x
Expanded Foreign Currency
Deposit System. xxx (c) Capital Gains from Sale of
Shares of Stock Not Traded in
(c) Capital Gains from Sale of the Stock Exchange. — A final
Shares of Stock Not Traded in tax at the rate of fifteen
the Stock Exchange. — A final percent (15%) is hereby
tax at the rates prescribed imposed upon the net capital
below is hereby imposed upon gains realized during the
the net capital gains realized taxable year from the sale,
during the taxable year from barter, exchange or other
the sale, barter, exchange or disposition of shares of stock
other disposition of shares of in a domestic corporation
stock in a domestic except shares sold or
corporation except shares sold disposed of through the stock
or disposed of through the exchange.
stock exchange:
Not over P100,000………..5%
On any amount in excess of
P100,000………..10%
(d) Intercorporate Dividends. -
(d) Intercorporate Dividends. x x x
— xxx
(B) Tax on Nonresident
(B) Tax on Nonresident Foreign Corporation. -
Foreign Corporation. —
"(1) In General. — Except as
(1) In General. — Except as otherwise provided in this
otherwise provided in this Code, a foreign corporation
Code, a foreign corporation not engaged in trade or
not engaged in trade or business in the Philippines,
business in the Philippines effective January 1, 2021, shall
shall pay a tax equal to pay a tax equal to twenty-five
thirty-five percent (35%) of the percent (25%) of the gross
gross income received during income received during each
each taxable year from all taxable year from all sources
sources within the Philippines, within the Philippines, such as
such as interests, dividends, interests, dividends, rents,
rents, royalties, salaries, royalties, salaries, premiums
premiums (except reinsurance (except reinsurance
premiums), annuities, premiums), annuities,
emoluments or other fixed or emoluments or other fixed or
determinable annual, periodic determinable annual, periodic
or casual gains, profits and or casual gains, profits and
income, and capital gains, income, and capital gains,
except capital gains subject to except capital gains subject to
tax under subparagraph 5(c): tax under subparagraph 5(c).
Provided, That effective
January 1, 2009, the rate of
income tax shall be thirty
percent (30%).
(2) x x x
(2) xxx (3) x x x
(3) xxx (4) x x x
(4) xxx
(5) Tax on Certain Incomes
(5) Tax on Certain Incomes Received by a Nonresident
Received by a Nonresident Foreign Corporation. -
Foreign Corporation. —
(a) Interest on Foreign Loans.
(a) Interest on Foreign Loans. - x x x
— xxx
(b) Intercorporate Dividends. -
(b) Intercorporate Dividends. A final withholding tax at the
— A final withholding tax at the rate of fifteen percent (15%) is
rate of fifteen percent (15%) is hereby imposed on the
hereby imposed on the amount of cash and/or
amount of cash and/or property dividends received
property dividends received from a domestic corporation,
from a domestic corporation, which shall be collected and
which shall be collected and paid as provided in Section
paid as provided in Section 57(A) of this Code, subject to
57(A) of this Code, subject to the condition that the country
the condition that the country in which the nonresident
in which the nonresident foreign corporation is
foreign corporation is domiciled, shall allow a credit
domiciled, shall allow a credit against the tax due from the
against the tax due from the nonresident foreign
nonresident foreign corporation taxes deemed to
corporation taxes deemed to have been paid in the
have been paid in the Philippines equivalent to
Philippines equivalent to fifteen percent (15%), which
twenty percent (20%), which represents the difference
represents the difference between the regular income
between the regular income tax and the fifteen percent
tax of thirty-five percent (35%) (15%) tax on dividends as
and the fifteen percent (15%) provided in this subparagraph:
tax on dividends as provided in Provided, That effective July 1,
this subparagraph: Provided, 2020, the credit against the tax
 That effective January 1, 2009, due shall be equivalent to the
the credit against the tax due difference between the regular
shall be equivalent to fifteen income tax rate provided in
percent (15%), which Section 28(B)(1) of this Code
represents the difference and the fifteen percent (15%)
between the regular income tax on dividends;
tax of thirty percent (30%) and
the fifteen percent (15%) tax
on dividends;
(c) Capital Gains from Sale of
(c) Capital Gains from Sale of Shares of Stock Not Traded in
Shares of Stock not Traded in the Stock Exchange. — A final
the Stock Exchange. — A final tax at the rate of fifteen
tax at the rates prescribed percent (15%) is hereby
below is hereby imposed upon imposed upon the net capital
the net capital gains realized gains realized during the
during the taxable year from taxable year from the sale,
the sale, barter, exchange or barter, exchange or other
other disposition of shares of disposition of shares of stock
stock in a domestic in a domestic corporation,
corporation, except shares except shares sold, or
sold, or disposed of through disposed of the stock
the stock exchange: exchange.
Not over P100,000………. 5%
On any amount in excess of
P100,000……….. 10%

Section 29. Imposition of (A) In General. — The REPEALED

Improperly Accumulated improperly accumulated
Earnings Tax. earnings tax imposed in the
preceding Section shall apply
to every corporation formed or
availed for the purpose of
avoiding the income tax with
respect to its shareholders or
the shareholders of any other
corporation, by permitting
earnings and profits to
accumulate instead of being
divided or distributed.

(B) Tax on Corporations

Subject to Improperly
Accumulated Earnings Tax. —
(1) In General. — The
improperly accumulated
earnings tax imposed in the
preceding Section shall apply
to every corporation formed or
availed for the purpose of
avoiding the income tax with
respect to its shareholders or
the shareholders of any other
corporation, by permitting
earnings and profits to
accumulate instead of being
divided or distributed.

(2) Exceptions. — The

improperly accumulated
earnings tax as provided for
under this Section shall not
apply to:
(a) Publicly-held corporations;
(b) Banks and other nonbank
financial intermediaries; and
(c) Insurance companies.

(C) Evidence of Purpose to

Avoid Income Tax. —
(1) Prima Facie Evidence. —
The fact that any corporation is
a mere holding company or
investment company shall be
prima facie
evidence of a purpose to avoid
the tax upon its shareholders
or members.

(2) Evidence Determinative of

Purpose. — The fact that the
earnings or profits of a
corporation are permitted to
accumulate beyond the
reasonable needs of the
business shall be
determinative of the purpose
to avoid the tax upon its
shareholders or members
unless the corporation, by the
clear preponderance of
evidence, shall prove to the
contrary

(D) Improperly Accumulated

Taxable Income. — For
purposes of this Section, the
term ‘improperly accumulated
taxable income’ means taxable
income adjusted by:
(1) Income exempt from tax;
(2) Income excluded from
gross income;
(3) Income subject to final tax;
and
(4) The amount of net
operating loss carry-over
deducted;
And reduced by the sum of:
(1) Dividends actually or
constructively paid; and
(2) Income tax paid for the
taxable year.
Provided, however, That for
corporations using the
calendar year basis, the
accumulated earnings tax shall
not apply on improperly
accumulated income as of
December 31, 1997. In the
case of corporations adopting
the fiscal year accounting
period, the improperly
accumulated income not
subject to this tax, shall be
reckoned, as of the end of the
month comprising the twelve
(12)-month period of fiscal
year 1997-1998.

(E) Reasonable Needs of the

Business. — For purposes of
this Section, the term
‘reasonable needs of the
business’ includes the
reasonably anticipated needs
of the business.