Determining “net worth”
- Section 2 defines net worth as assets (including real and personal property and/or cash in banks), credits, interests and rights, less liabilities incurred in carrying on a trade or business or acquiring property.
- Section 2 excludes from assets amounts received during December 8, 1941 to February 26, 1945 as proceeds of life insurance policies issued on or before December 31, 1941.
- Section 2 excludes from credits, interests, and rights war damage claims and other claims against the Government of the Republic of the Philippines and foreign governments or their instrumentalities.
- Section 2 provides a recovery rule: if a taxpayer later receives payment on account of excluded war damage claims or other governmental claims, the amount/value of the payment is considered part of assets on February 26, 1945.
- Section 2 sets valuation rules:
- For real property, value means the assessed value.
- For personal property and real property not yet assessed for taxation, value means fair market value.
- Section 2 requires consistent inventory declarations for property acquired on or before December 8, 1941 and still held on February 26, 1945:
- Such property is declared at the same value in inventories as of December 8, 1941 and February 26, 1945.
- Improvements made during the period are included in the February 26, 1945 inventory at their fair market value.
- Section 2 applies a gift/inheritance continuity rule: where title to property acquired on or before December 8, 1941 passes after that date by gift or inheritance to another person, the recipient (or any person taking through a series of the same mode) is deemed to have acquired the property on or before December 8, 1941.
Allowed deductions from excess net worth
- Section 3 allows a deduction in computing the tax imposed under Section 1: an amount equivalent to 6% per annum on the taxpayer’s net worth on December 8, 1941, computed for December 8, 1941 to February 26, 1945 (both dates inclusive).
- Section 3 limits the total deduction under that paragraph: it may not exceed 75% of the excess of net worth on February 26, 1945 over net worth on December 8, 1941.
- Section 3 provides a special stockholding deduction:
- Where a taxpayer acquired after December 8, 1941 and still holds on February 26, 1945 shares of stock of a corporation subject to the tax, the taxpayer is allowed a deduction equal to the proportion of the corporation’s taxable amount corresponding to the taxpayer’s shares relative to the total shares issued and outstanding.
- Section 3 requires fair allocation where there are two or more stock classes: the tax is fairly allocated among classes and the deduction is taken accordingly, with approval of the Collector of Internal Revenue.
- Section 3 imposes a corporate duty tied to shareholder computation: the corporation must issue appropriate statements to its stockholders prior to the last day for filing returns so stockholders can compute the deduction under this section.
Filing and amendment of returns
- Section 4(a) requires every individual, partnership, company, or corporation subject to the tax, or one that acquired real and/or personal property in excess of PHP 6,000 in value during December 8, 1941 to February 26, 1945, to render in duplicate a true and accurate return in the manner and form prescribed by the Collector of Internal Revenue with the approval of the Secretary of Finance.
- Section 4(a) requires returns to contain facts and information necessary to determine the amount subject to tax and to carry out the Act.
- Section 4(a) mandates corporate/partnership signing:
- The return must be filed by the President, Vice-President, Manager, or other principal officer and be sworn by that officer and by the Treasurer or Assistant Treasurer.
- Section 4(b) requires the return to be filed on or before the last day of the third month following the date of approval of this Act.
- Section 4(b) allows/mandates an amended return when new war-claim payments are received:
- If a taxpayer receives payment on account of war damage or other claims after filing, the taxpayer must file an amended return within 30 days from receipt of payment to include the payment as part of net worth.
- Section 4(c) designates filing venues:
- File with the Collector of Internal Revenue, the Provincial Revenue Agent, or the treasurer of the province, city or municipality where the taxpayer has legal residence or principal place of business; or
- If there is no legal residence or principal place of business in the Philippines, file with the Collector of Internal Revenue in Manila.
- The receiving officer must transmit returns forthwith to the Collector of Internal Revenue.
- Section 4(d) governs married persons:
- Only one consolidated return is filed by either spouse; if it is impracticable to file one consolidated return, each spouse files separate returns that are consolidated for purposes of the tax.
- Section 4(e) addresses unmarried minors:
- The assets and liabilities of unmarried minors are included in the return of the parent or parents or guardians.
Assessment, payment, and extensions
- Section 5(a) requires that all assessments be made by the Collector of Internal Revenue.
- Section 5(a) mandates notice timing: taxpayers must be notified of the amount for which they are liable on or before the last day of the fifth month following the approval of this Act.
- Section 5(b) sets the main payment deadline: the total tax must be paid on or before the last day of the sixth month following the approval of the Act.
- Section 5(b) sets payment timing for amended-return deficiencies:
- Any deficiency tax due on an amended return filed under Section 4(b) (because of later war damage or governmental claims payments) must be paid within 30 days from the receipt of the assessment.
- Section 5(b) imposes consequences for unpaid amounts:
- Unpaid sums after the prescribed payment date incur a surcharge of 15% of the unpaid tax and interest at 1% per month on the tax from the time it becomes due.
- Section 5(c) authorizes payment relief:
- If the Collector of Internal Revenue finds payment by the due date would impose undue hardship, the Collector may extend payment of the tax or part thereof not to exceed 5 years under terms and conditions required by the Collector.
- When extended, the unpaid tax earns interest at 0.5% per month from the due date until paid.
Surcharges for return failures
- Section 6 requires a surcharge when returns are not properly filed or are fraudulent.
- Section 6 imposes a 50% surcharge on the tax if there is willful neglect to file the return within the time prescribed under the Act.
- Section 6 also imposes a 50% surcharge on the tax if a false or fraudulent return is willfully made.
- Section 6 allows filing time extension:
- The Collector of Internal Revenue may grant a reasonable extension in meritorious cases for filing returns required by the Act.
Tax lien on acquired property
- Section 7 establishes that the war profits tax amount constitutes a superior lien in favor of the Government on all property acquired by the taxpayer during the period December 8, 1941 to February 26, 1945.
- Section 7 sets lien effectiveness: the lien becomes effective August 2, 1946.
- Section 7 provides a fallback effectiveness rule:
- If the lien is declared ineffective with respect to any mortgagee, purchaser, or judgment creditor, the lien becomes effective on the date of approval of this Act.
Criminal penalties for evasion/violations
- Section 8 imposes criminal punishment on:
- Any individual or responsible officer of a partnership, company, or corporation who violates any provision of the Act or regulations promulgated under it; and
- Any person who connives with such individual or responsible officer for the purpose of evading the tax.
- Section 8 provides penalties upon conviction:
- Imprisonment from 5 years to 20 years; and/or
- A fine of not less than PHP 5,000 but not more than PHP 30,000; or both, as the court may decide.
Administrative remedies and adoption of tax laws
- Section 9 extends administrative frameworks governing national internal revenue taxes to this war profits tax.
- Section 9 applies “all administrative, special and general provisions of law” related to assessment, remission, collection, and refund of national internal revenue taxes to the provisions and tax imposed by the Act, provided they are not inconsistent with the Act.
Separability, appropriation, effectivity
- Section 10 contains a separability rule: if any clause, sentence, paragraph, or part is adjudged invalid by a court, the invalidity affects only the clause, sentence, paragraph, or part directly involved, leaving the remainder operative.
- Section 11 appropriates PHP 50,000 (or so much as may be necessary) from the National Treasury not otherwise appropriated to cover traveling and other expenses in enforcing the Act.
- Section 11 prohibits use of any portion of the appropriation for salaries of additional personnel.
- Section 12 provides effectivity: the Act takes effect upon its approval.
- The Act was approved on October 15, 1946.