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    BIR Ruling 184-90

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    Anonymous ensCwq
    The Bureau of Internal Revenue (BIR) denied a request to exempt liquidated damages from income tax. Intel Philippines Mfg., Inc. had breached a contract with the lessor by failing to construct a building on the lessor's land as agreed. The lessor and Intel Philippines Mfg., Inc. then agreed that the lessee would pay liquidated damages for actual and compensatory damages suffered as a result of the breach. The BIR ruled that such liquidated damages constitute taxable income to the recipient to the extent they represent a loss of anticipated profits, not a return of capital or investment. Therefore, the request for exemption of the liquidated damages payment was denied.

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    BIR Ruling 184-90

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    Anonymous ensCwq
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    The Bureau of Internal Revenue (BIR) denied a request to exempt liquidated damages from income tax. Intel Philippines Mfg., Inc. had breached a contract with the lessor by failing to construct a building on the lessor's land as agreed. The lessor and Intel Philippines Mfg., Inc. then agreed that the lessee would pay liquidated damages for actual and compensatory damages suffered as a result of the breach. The BIR ruled that such liquidated damages constitute taxable income to the recipient to the extent they represent a loss of anticipated profits, not a return of capital or investment. Therefore, the request for exemption of the liquidated damages payment was denied.

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    The Bureau of Internal Revenue (BIR) denied a request to exempt liquidated damages from income tax. Intel Philippines Mfg., Inc. had breached a contract with the lessor by failing to construct a building on the lessor's land as agreed. The lessor and Intel Philippines Mfg., Inc. then agreed that the lessee would pay liquidated damages for actual and compensatory damages suffered as a result of the breach. The BIR ruled that such liquidated damages constitute taxable income to the recipient to the extent they represent a loss of anticipated profits, not a return of capital or investment. Therefore, the request for exemption of the liquidated damages payment was denied.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    208 views1 page

    BIR Ruling 184-90

    Uploaded by

    Anonymous ensCwq
    The Bureau of Internal Revenue (BIR) denied a request to exempt liquidated damages from income tax. Intel Philippines Mfg., Inc. had breached a contract with the lessor by failing to construct a building on the lessor's land as agreed. The lessor and Intel Philippines Mfg., Inc. then agreed that the lessee would pay liquidated damages for actual and compensatory damages suffered as a result of the breach. The BIR ruled that such liquidated damages constitute taxable income to the recipient to the extent they represent a loss of anticipated profits, not a return of capital or investment. Therefore, the request for exemption of the liquidated damages payment was denied.

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    September 20, 1990

    BIR RULING NO. 184-90


    30 169-84 184-90
    Gentlemen :
    This refers to your letter dated August 20, 1990 requesting in effect a ruling confirming your
    opinion that liquidated damages to be paid to you by Intel Philippines Mfg., Inc. for breach of
    contract is exempt from income tax. cdasia
    It is represented that on May 20, 1983, Intel Phils. Mfg., Inc., entered into a contract of lease
    with you (lessor) whereby it was agreed, among others, that the lessee will construct a 3 to 4storey building on your land; that the lessee failed to comply with the said undertaking; and that
    you and the aforenamed lessee agreed to a proposed amended contract of lease whereby it was
    agreed that you will be paid liquidated damages for actual and compensating damages you
    suffered as a result of the aforementioned breach of contract.
    In reply, please be informed that damages from a breach of contract constitute taxable income to
    the recipient thereof in the year received only to the extent that such damages constitute a loss of
    anticipated profits and non-taxable to the extent that the same represent a return of capital or
    investment. (BIR Ruling dated September 8, 1954)
    Such being the case, and since the liquidated damages to be paid to you by Intel Philippines
    Mfg., Inc. for the breach of your contract of lease do not represent a return of capital or
    investment but constitute a loss of anticipated profits, they are therefore, considered taxable
    income in the year received. Accordingly, your request for exemption has to be, as it is hereby
    denied for lack of legal basis. cdtai
    Very truly yours,
    (SGD.) JOSE U. ONG
    Commissioner

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