Title II — TAX ON INCOME (c) If the indebtedness is incurred to finance petroleum exploration. (3) Optional Treatment of Interest Expense. — At the option of the taxpayer, interest incurred to acquire property used in trade, business or exercise of a profession may be allowed as a deduction or treated as a capital expenditure. (C) Taxes. — (1) In General. — Taxes paid or incurred within the taxable year in connection with the taxpayer’s profession, trade or business, shall be allowed as deduction, except: (a) The income tax provided for under this Title; (b) Income taxes imposed by authority of any 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 benefits of paragraph (3) of this Subsection (relating to credits for taxes of foreign countries); (c) Estate and donor’s taxes; and (d) Taxes assessed against local benefits of a kind tending to increase the value of the property assessed. Provided, That taxes allowed under this Subsection, when refunded or credited, shall be included as part of gross income in the year of receipt to the extent of the income tax benefit of said deduction. (2) Limitations on Deductions. — In the case of a nonresident alien individual engaged in trade or business in the Philippines and a resident foreign corporation, the deductions for taxes provided in paragraph (1) of this Subsection (C) shall be allowed only if and to the extent that they are connected with income from sources within the Philippines. (3) Credit Against Tax for Taxes of Foreign Countries. — If the taxpayer signifies in his return his desire to have the benefits of this paragraph, the tax imposed by this Title shall be credited with: (a) Citizen and Domestic Corporation. — In the case of a citizen of the Philippines and of a domestic corporation, the amount of income taxes paid or incurred during the taxable year to any foreign country; and (b) Partnerships and Estates. — In the case of any such individual who is a member of a general professional partnership or a beneficiary of an estate or trust, his proportionate share of such taxes of the general professional partnership or the National Internal Revenue Code of 1997 (as amended by the TRAIN Law, RAs 11256, 11346 and 11467) 47

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