AMENDING CERTAIN SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE OF 1977, AS AMENDED.

WHEREAS, there
is a need to further amend certain
provisions of the National Internal Revenue Code of 1977, as amended, to
make them more responsive to current conditions, more specifically to
the petroleum operations presently being conducted in the
Philippines;.

NOW, THEREFORE, I, FERDINAND E.
MARCOS, President of
the Philippines by virtue of the powers vested in me by the
Constitution, do hereby order and decree the following:

SECTION 1. Section 20, paragraph
(b) of the National Internal Revenue Code is hereby amended to read as
follows:

“(b) The term ‘corporation’ includes partnerships, no matter
how
created or organized, joint-stock companies, joint accounts (cuentas en
participation), associations or insurance companies, but does not
include general professional partnerships and a joint venture formed for
the purpose of undertaking construction projects or engaging in
petroleum operations pursuant to an operating agreement under a service
contract with the Government. General professional partnerships are
partnerships formed by persons for the sole purpose of exercising their
common profession, no part of the income of which is derived from
engaging in any trade or business.”

SEC. 2. Section 24, paragraph (b)
(2) of the
National Internal Revenue Code is hereby further amended by adding
thereto a proviso to read as follows:

XX XX XX

“‘Provided, That any profit remitted
abroad by a branch
office to its mother company shall be subject to tax at fifteen per cent
(15%) (except those registered with the Export Processing Zone
Authority); PROVIDED FURTHER, That any profit
remitted by a
branch office to its mother company authorized to engage in petroleum
operations in the Philippines shall be subject to tax at seven and
one-half per cent (7.5%).”

SEC. 3. Section 29(b) (8) of the
National Internal
Revenue Code is hereby amended by adding thereto a new subparagraph to
read as follows:

(8) Miscellaneous items. —

XX XX XX

(E) Filipino participation incentive allowance received by a
Philippine corporation pursuant to an operating agreement under a
petroleum service contract entered into between a service contractor and
the Government under Presidential Decree No. 87.”

SEC. 4. Section 30(b) (3) of the
National Internal
Revenue Code, as amended, is hereby further amended by adding a new
sub-paragraph thereto to read as follows:

“(C) If the indebtedness is incurred to finance petroleum
exploration.”

SEC. 5. Section 30, paragraph (d)
of the National
Internal Revenue Code is hereby amended by adding a new paragraph
thereto to read as follows:

“(d) Losses:

“XX XX XX

“(7) Abandonment Losses. — (A) In the
event a contract
area where petroleum operations are undertaken is partially or wholly
abandoned, all accumulated exploration and development expenditures
pertaining thereto shall be allowed as a deduction; Provided however,
That accumulated expenditures incurred in that area prior to January 1,
1979 shall be allowed as a deduction only from any income derived from
the same contract area. In all cases, notices of abandonment shall be
filed with the Commissioner of Internal Revenue.

“(B) In case a producing well is subsequently abandoned, the
unamortized costs thereof, as well as the undepreciated costs of
equipment directly used therein shall be allowed as a deduction in the
year such well, equipment or facility is abandoned by the contractor;
Provided however,
That if such abandoned well is reentered and production is resumed, or
if such equipment or facility is restored into service, the said costs
shall be included as part of gross income in the year of resumption or
restoration and shall be amortized or depreciated, as the case may
be.

SEC. 6. Section 30, paragraph (f)
is hereby amended by adding a new paragraph thereto to read as
follows:

“(f) Depreciation.

“XX XX XX

“(3) Depreciation of Properties Used in Petroleum Operations.
An
allowance for depreciation in respect to all properties directly related
to production of petroleum initially placed in service in a taxable
year under the straight-line or double-declining balance method of
depreciation at the option of the service contractor. However, if the
service contractor initially elects the double-declining method, it may,
at any subsequent date, shift to the straight-line method. The useful
life of properties used in or related to production of petroleum shall
be ten (10) years or such shorter life as may be permitted by the
Commissioner of Internal Revenue.

Properties not used directly in the production of petroleum
shall be
depreciated under the straight-line method on the basis of an estimated
useful life of five (5) years.”

SEC. 7. Section 30, paragraph (g)
(1) of the National Internal Revenue Code, is hereby amended to read as
follows:

“(g) Depletion of oil and gas wells and
mines:

“(1) In general. — In the case of oil and gas
wells
and mines, a reasonable allowance for depletion or amortization
computed in accordance with the cost depletion method shall be granted
under rules and regulations to be prescribed by the Minister of Finance:
Provided, That when the allowances shall equal the
capital invested no further allowance shall be granted:
Provided, Further,
That after production in commercial quantities has commenced, certain
intangible exploration and development drilling costs (i) shall be
deductible in the year incurred if such expenditures are incurred for
non-producing wells or (ii) shall be deductible in full in the year paid
or incurred or, at the election of the taxpayer, may be capitalized and
amortized, if such expenditures incurred are not producing wells in the
same contract area.

Intangible costs in petroleum operations refer to any cost
incurred
in petroleum operations which in itself has no salvage value and which
is incidental to and necessary for the drilling of wells and preparation
of wells for the production of petroleum:
Provided, That said
cost shall not pertain to the acquisition or improvement of property of a
character subject to the allowance for depreciation except that the
allowances for depreciation on such property, shall be deductible under
this subsection.

Any intangible exploration; drilling and development expenses
allowed
as a deduction in computing taxable income during the year shall not be
taken into consideration in computing the adjusted cost basis for the
purpose of computing allowable cost depletion.

SEC. 8. Section 31(a) (2) of the
National Internal Revenue Code is hereby amended to read as
follows:

“SECTION 31 (a) (2). Any amount
paid out for new
buildings or for permanent improvements or betterments made to increase
the value of any property or estate.

“This sub-section shall not apply to intangible drilling and
development cost incurred in petroleum operations which are deductible
under sub-section
(g) (1) of Section 30 of this Code.”

SEC. 9. Applicability
Clause. — The
pertinent provisions of Title II of the National Internal Revenue Code
of 1977, as amended, and the implementing regulations promulgated
thereunder shall apply to any corporation authorized to engage in
petroleum operations in the Philippines pursuant to a service contract
entered into by said corporation and the Government for ?

1. Contracts entered into pursuant to
   Presidential Decree No. 87 and amended after January 1, 1979; and
2. New contracts entered into after January 1,
   1979.

SEC. 10. Repealing
Clause.—All other laws, decrees, regulations and others
inconsistent herewith are hereby modified or amended
accordingly.

SEC. 11. Effectivity
Date. — This Decree shall take effect as of January 1,
1979.

Done in the City of Manila, this 13th day of March, in the year
of Our Lord, nineteen hundred and eighty.

			(Sgd.) FERDINAND E. MARCOS President of the Philippines
	By the President:
	(Sgd.) JOAQUIN T. VENUS, JR.
		Presidential Staff Director