PROVIDING FOR THE TAXATION OF CERTAIN PASSIVE INCOME

WHEREAS, there is a need to raise capital to hasten the
industrialization of our developing economy;

WHEREAS, it is a more desirable policy to raise the needed
capital through equity investment and at the same time to broaden the base of
equity ownership of existing corporations;

WHEREAS, there is a need to restructure our tax system on
investment income by realigning the taxation of dividend income and interest
income;

WHEREAS, there is a need to simplify the collection of taxes
on all types of investment income through a withholding tax system.

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

SECTION 1. Section 21 of the National Internal Revenue Code
is hereby amended by adding a new paragraph to read as follows:

“SEC. 21. Rates of tax on citizens or residents.
—

xxx xxx xxx xxx

“Dividends received by an individual who is a citizen or resident of the
Philippines from a domestic corporation, shall be subject to a final tax at the
rate of fifteen (15%) per cent on the total amount thereof, which shall be
collected and paid as provided in Sections 53 and 54 of this
Code;”

SEC. 2. Section 24, paragraph (c) of the National Internal
Revenue Code is hereby amended to read as follows:

xxx xxx xxx xxx

“(c) Rate of tax on certain dividends. — Dividends received by a
domestic or resident H foreign corporation from a domestic corporation liable to
tax under this Code —

1. Shall be subject to a final tax of 10% on the total amount thereof, which
   shall be collected and paid as provided in Sections 53 and 54 of this
   Code: Provided, That if the recipient of such dividend is exempt form income
   taxation, no tax shall be imposed and that if the recipient is enjoying
   preferential income tax treatment, the preferential tax rates so provided shall
   apply;
2. Shall not be included in the determination of the gross income of the
   recipient corporation: Provided, however, That interest paid or
   incurred on indebtedness abroad by a domestic or resident foreign corporation,
   which indebtedness was incurred to provide funds for investment in a domestic
   corporation shall be allowed as a deduction from the inter corporate dividends
   before computing the 10% final tax. Any excess of the interest herein allowed as
   a deduction from inter corporate dividends may be deducted from the other gross
   income of the recipient corporation, subject to the provisions of Section 30 (b)
   of this Code.

The above deduction of interest from inter corporate dividends shall be
allowed only if the recipient domestic or resident foreign corporation submits
an authenticated copy of the foreign loan agreement stipulating the end-use of
the loan proceeds and such other information as may be required for its
determination.

SEC. 3. Sub-paragraph (b) (8) of Section 29 of the same Code
is hereby amended by adding subparagraph (b) (8) (E) to read as follows:

“SEC. 29. Gross income. —

xxx xxx xxx

“(E) Dividends received from a domestic corporation subjected to the final
tax under Sections 21 and 24 of this Code.”

SEC. 4. Section 53, paragraph (c) of the National Internal
Revenue Code is hereby amended to read as follows”

xxx xxx xxx

“(c) Withholding tax on royalties. — Royalties (except payments of
any kind to mining claim-owners or lessees of mining rights pursuant to any kind
of agreement) received by individuals residing in the Philippines and domestic
and/or resident foreign corporations from any person whether natural or
juridical shall be subject to withholding tax at source at the race of fifteen
(15%) per cent thereof. The tax shall be withheld by the payor-corporation
and/or person and paid in the same manner and subject to the same conditions as
provided in Section 54 of the National Internal Revenue Code:
Provided, however, That the tax withheld under this sub-paragraph shall
be credited against the income tax liability of the recipient-taxpayer for the
taxable year.

SEC. 5. Section 53, paragraph (d) of the National Internal
Revenue Code is hereby amended to read as follows:

“(d) Withholding tax on dividends. — The tax imposed by Sections 21
and 24(c) of this Code on dividends shall be withheld by the payor-corporation
and paid in the same manner and subject to the same conditions as
provided in Section 54 of this Code.”

SEC. 6. Effectivity. — This Decree shall take
effect on passive income earned beginning January 1, 1981.

Done in the City of Manila, this 16th day of January, in the year of Our
Lord, nineteen hundred and eighty-one.

			(Sgd.) FERDINAND E. MARCOS President of the Philippines
	By the President:
	(Sgd.) JUAN C. TUVERA
		Presidential Executive Assistant

Vol. 25, Vital Documents, Presidential Decree 1980-1981