Improperly Accumulated Earnings Tax ; RationaleSection 25 of the National Internal Revenue Code discouraged tax avoidance through corporate surplus accumulation. When corporations do not declare dividends, income taxes are not paid on the undeclared dividends received by the shareholders. The tax on improper accumulation of surplus is essentially a penalty tax designed to compel corporations to distributeearningsso that the saidearningsby shareholders could, in turn, be taxed. (Cynamid Philippines, Inc. vs CA. G.R. No. 108067. January 20, 2000.)Once the profit has been subjected to IAET, the same shall no longer be subjected to IAET in later years even if not declared as dividend. Notwithstanding the imposition of IAET, profits which have been subjected to IAET, when finally declared as dividends, shall nevertheless be subjected to tax on dividends imposed under the Tax Code of 1997 except in those instances where the recipient is not subject thereto. (Mamalateo, Philippine Income Taxation)Fringe Benefits TaxImposition of Fringe Benefits Tax A final withholding tax is hereby imposed on the grossed-up monetary value of fringe benefit furnished, granted or paid by the employer to the employee, except rank and file employees as defined in these Regulations, whether such employer is an individual, professional partnership or a corporation, regardless of whether the corporation is taxable or not, or the government and its instrumentalitiesexcept when: (1) the fringe benefit is required by the nature of or necessary to the trade, business or profession of the employer; or (2) when the fringe benefit is for the convenience or advantage of the employer. (Revenue Regulations No. 3-98)Definition of Fringe Benefit In general, except as otherwise provided under these regulations, for purposes of this Section, the term "FRINGE BENEFIT" means any good, service, or other benefit furnished or granted by an employer in cash or in kind, in addition to basic salaries, to an individual employee(except rank and file employeeas defined in these regulations) such as, but not limited to the following:(1) Housing;(2) Expense account;(3) Vehicle of any kind;(4) Household personnel, such as maid, driver and others;(5) Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted;(6) Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations;(7) Expenses for foreign travel;(8) Holiday and vacation expenses;(9) Educational assistance to the employee or his dependents; and(10) Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows.Source RulesKinds of IncomeSource (Tax Situs)

Service or Compensation IncomePlace of performance of service

RentLocation of property (Real or Personal)

Royalties (copyright, patent, design trademark, etc.)Place of use of intangibles

MerchandisingPlace of sale

Gain on sale of personal propertyPlace of sale

Gain on sale of real propertyLocation of property

Mining incomeLocation of the mines

Farming IncomePlace of farming activities

Gain on sales of domestic stockIncome within the Philippines

InterestResidence of debtor

(Dimaampao, 2005)