RMC No. 81-2025 Digest

RMC No. 81-2025 (issued September 3, 2025) restates the criteria and guidelines for deducting ordinary and necessary expenses under Section 34(a)(1)(a) of the 1997 National Internal Revenue Code. It lists the taxpayers entitled to Section 34 deductions and sets four conditions: the expense must be ordinary and necessary, paid or incurred within the taxable year, attributable to the trade, business, or profession, and supported by invoices, records, or other pertinent papers; unsubstantiated claims are disallowed. Inordinately large or disproportionate expenses may fail the 'ordinary' test even if necessary, and amounts must be reasonable. Costs not tied to Philippine business earnings (e.g., remittances to an overseas head office) are not deductible, and deductions must fall in the year the related revenue is earned (matching principle). Since passive income is taxed finally at source and excluded from gross income, expenses must be segregated between active and passive income activities, classified by the degree, frequency, and intent of participation under the Capital Markets Efficiency Promotion Act and cited jurisprudence. The provided text is truncated.