April 10, 1980

REVENUE MEMORANDUM CIRCULAR NO. 13-80

SUBJECT : Treatment of Tax Refunds and Tax Credits when Received

TO : All Internal Revenue Officers and Others Concerned

1. Refunds/Tax Credits under Section 295 of the Tax Code. —

Taxes previously claimed and allowed as deductions, but
subsequently refunded or granted as tax credit pursuant to Section 295 of
the Tax Code, should be declared as part of the gross income of the
taxpayer in the year of receipt of the refund or tax credit. However, the
following taxes, when refunded or credited, are not declarable for income
tax purposes inasmuch as they are not allowable as deductions:
a. Income tax imposed in Title III of the Tax Code;
b. Income, war-pro t and excess pro ts taxes imposed by authority of a
foreign country; but this deduction shall be allowed in the case of a
taxpayer who does not signify in his return his desire to have to any
extent the bene ts of paragraph (3) of this subsection (relating to
credit for taxes of foreign countries); aisa dc

c. Estate and gift taxes;

d. Taxes assessed against local bene ts of a kind tending to increase the
value of the property assessed;
e. Stock transaction tax;
f. Energy tax; and
g. Taxes which are not allowable as deductions under the law.
2. Special Tax Credits granted under R.A. 5186; R.A. 6135 and P.D. 535 . —
These tax credits and their tax consequences are as follows:
a. Sales, compensating and speci c taxes are paid on supplies and raw
materials imported by a registered export producer. Said taxes are
given as tax credit to be used in the payment of taxes, duties, charges
and fees due to the national government in connection with its
operations. (Sec. 7(a), R.A. No. 6135)
The tax credits granted should form part of the gross income to
the enterprise in the year of receipt of tax credit as said taxes paid are
considered allowable deductions for income taxes purposes.
b. In some cases, a registered BOI and tourism enterprise assumes
payment of taxes withheld and due from the foreign lender-remittee
on interest payments on foreign loans. In such cases, the enterprise is
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 given a tax credit for taxes withheld subject to certain conditions.
(Sec. 7(f), R.A. No. 5186; Sec. 8(c), P.D. No. 535)
Said taxes assumed by the registered enterprise represent
necessary and ordinary expenses incurred by the enterprise; hence,
deductible from its gross income. Therefore, the tax credits granted
necessarily constitute taxable income of the enterprise.
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It is desired that this Circular be given as wide a publicity as possible.

EFREN I. PLANA
Acting Commissioner

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