Legal basis and authority
- The President is authorized under subparagraph 4 of Section 25 (b) of the National Internal Revenue Code, as amended, to prescribe the tax on rentals, charter and other fees earned by non-resident lessors of aircraft, machineries and other equipment, upon recommendation of the Secretary of Finance.
- Executive Order No. 437 exercises the President’s authority under subparagraph 4 of Section 25 (b) of the National Internal Revenue Code, as amended, by adjusting the preferential tax rates for specified non-resident lessor incomes.
Policy and intent statements
- Executive Order No. 437 is premised on lessening the regressivity of the income tax system by increasing the 7.5% preferential tax on rental income of non-resident lessors of teased aircraft.
- Executive Order No. 437 is justified by the increase of the common carrier’s tax of 2% basis by one percentage point through Presidential Decree No. 1959 in 1984.
- Executive Order No. 437 is designed to maintain the preferential tax treatment of non-resident lessors’ rental-related income when compared with the normal corporate income tax rate of 35%.
Tax imposition on non-resident aircraft lessors
- Section 1 imposes a tax rate of 8.5% on rentals, charter and other fees derived by non-resident lessors of aircraft.
- Section 1 applies to the income categories specifically stated: rentals, charter and other fees.
Tax rate retained for non-resident equipment lessors
- Section 2 retains a tax rate of 7.5% on rentals and other fees derived by non-resident lessors of machineries and other equipment.
- Section 2 limits the retained rate to the income categories stated: rentals and other fees.
Implementation, penalties, and other procedural rules
- Executive Order No. 437 does not provide any filing requirements, administrative procedures, or hearing processes.
- Executive Order No. 437 does not establish any penalties, fines, or sanctions for non-compliance.
Final clauses and transitional effect
- Executive Order No. 437 contains a transitory effectivity rule: it becomes effective two (2) days after completion of publication in a national newspaper of general circulation.
- Executive Order No. 437 does not include any separability, repealing, or sunset clause.