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Q: What is the rate of income tax on domestic corporation?

A: Effective January 1, 2009, the rate of income tax shall be THIRTY PERCENT (30%)

Q: How will corporations adopting the fiscal-year accounting period reflect the changing rates?

A: The taxable income shall be compjted w/o regard to the specific date when specific sales, purchased and other
transactions occur. Their income and expenses for the fiscal year shall be deemed to have been earned and spent
equally for each month of the period.

Q: What is a gross income tax?

A: It is a 15% tax on gross income of coporations

Q: Who has the power to impose the 15% tax on gross income? What are the conditions before it may
be adopted?

A: The President, upon the recommendation of the Sec of Finance may effective Jan 1,2000 allow corp the option to
be taxed at 15% of gross income after the ff conditions have been satisfied:

1) A tax effort of 20% of GNP

2) A ration of 40% of income tax collection to total tax revenues

3) A VAT tax effort of 4% GNP

4) 0.9% ratio of the consolidated publio sector financial position to GNP


Q: Who are qualified to avail the option to be taxed based on gross income? Is it revocable?

A: The option to be taxed based on gross income shall be available only to firms whose ratio of cost of sales to gross
sales or receipts from all sources does not exceed fifty-five percent 55%. The election of the gross income tax option
by the corporation shall be irrevocable for 3 consecutive taxable yrs during w/c the corp is qualified under the
scheme

Q: What is gross income?

A: Gross income is equivalent to gross sales less sales returns, discounts and allowances and cost of goods sold

Q: What is cost of goods sold?

A: Cost of goods sold shall include all business expenses directly incurred to produce the merchandise to being them
to their present location and use

Q: What consist the cost of the goods sold of trading or merchandising business?

A: For a trading or merchandising concern, cost of goods sold shall include the invoice cost of the goods sold , plus
import duties, freight in transporting the goods to the place where the goods are actually sold, including insurance
while the goods are in transit

Q: What consist the cost of goods sold of a manufacturing business?

A: For a manufacturing concern, cost of goods manufactured and sold shall include all costs of production of finished
goods such as raw materials used, direct labor and manufacturing over-head, freight cost, insurance premiums and
other costs incurred to bring the raw materials to the factory or warehouse
Note: Transpo expense to bring the goods to the warehouse is part of the cost of goods sold but not
transportation expense to bring the goods to customers because it is a selling expense.

Q: What is gross income of a service business?

A: In the case of taxpayers engaged in the sale of service, gross income means gross receipts less sales returns,
allowances and discounts.

Note: Is there a sales return in a service business? Is its inclusion in the definition on oversight? It is
submitted that sales returns in a service business may actually mean an undoing of work or a refund in
case unsatisfactory service.

4-A-3 PASSIVE INCOME

Q: What are the tax rates on passive income of a corp?

A: The Rates of Tax on Certain Passive Income

1. A final tax at the rate of 20% is imposed upon

a) The amount of interest on currency bank deposit

b) Yield or any other monetary benefit from deposit substitutes and from trust funds and similar
arrangements received by domestic corporations

c) Royalties derived from sources within the Phils

2. A final income tax at the rate of seven and one-half percent (7.5%) is imposed upon:
a) Interest income derived by a domestic corp from s depository bank under the expanded foreign
currency deposit system

4-A-4 Capital Gains

Q: What is the tax rate on capital gains from the sale of shares of stock not traded in the stock
exchange?

A: A final tax at the rates prescribed below shall be imposed on net capital gains realized during the taxable year
from the sale, exchange, or other disposition of shares of stock in a domestic corp EXCEPT shares sold or disposed of
through the stock exchange

Not over 100,000 --- 5%

Amount in excess of 100,000 --- 10%

Q: What is the tax on capital gains realized from the sale, exchange or disposition of lands and/or
buildings?

A: A final tax of 6% is imposed on the gain presumed to have been realized on the sale, exchange or disposition of
lands and/or buildings which are not actually used in the business of a corporation and are treated as capital assets,
based on the gross selling price or fair market value whichever is higher, of such lands and/or buildings

Q: A corp authorized B, its president and owner of 99.91% of its issued and outstanding capital stock to
sell its building and two parcels of land for an amount not less than 90M. B purportedly sold the
property for 100M to C who in turn, sold the same property for 100M to C who in turn, sold the same
property on the same day to another corporation for 200M. A corp reported gains from sale of the real
property. C on the other hand reported capital gains and paid capital gains tax for 100M gain. IS the
tax saving devices to avoid the 35% corporate tax on the total gain of 110M a tax avoidance or tax
evasion?
A: It is obvious that the objective of the sale to C was to reduce the amount of tax be paid especially that the
transfer from him to another corporation would the subject the income to only 5% individual capital gains tax, and
not the 35% corporate income tax. Cs sole purpose of acquiring and transferring title of the subject properties on
the same day was to create a tax shelter. C never controlled the property and did not enjoy the normal benefits and
burdens of ownership. The sale to him was merely a tax ploy, a sham and without business purpose and economic
substance. Doubtless, the execution of the two sales was calculated to mislead the BIR with the end in view of
reducing the consequent income tax liability. The intermediary transaction (sale to C) which was prompted more on
the mitigation of tax liabilities than for legitimate business purpose constitutes one of tax evasion.

Note: There will be no tax evasion in case of a bona fide intermediary

Q: How are tax consequences arising from gains on sale of property determined?

A: Generally, a sale or exchange of assets will have an income tax incidence only when it is consummated. The
incidence of taxation depends upon the substance of a transaction. The tax consequence arising from gains from a
sale of property must be viewed as a whole, and each step from the commencement of negotiations to the
consummations of the sale is relevant. A sale by one person cannot be transformed for tax purposed into a sale by
another by using the latter as a conduit through which to pass title.

4-A-5 INTERCORPORATE DIVIDENDS

Q: Are dividends received by a domestic corporation from another domestic corporation taxable?

A: Dividends received by a domestic Corporation from another domestic corporation shall be not subject to tax
Note: Dividends received by a DC from a foreign corp are subject to the corporate income tax (35%
under the new law)

4-A-6 MINIMUM CORPORATE INCOME TAX

Q: What is the Minimum Corporate Tax (MCIT) on domestic corp?

A: Minimum Corporate Tax of 2% (Two percent) of gross income as of the end of the taxable year is imposed upon on
a corporation beginning on the fourth taxable yr immediately following the year in which such corp commenced its
business operations, when the minimum income tax os greater than the tax computed using the corporate income
tax (30% as of January 1, 2009) for the taxable year.

Note: For purposes of the MCIT, the taxable year in which business operations commenced shall be the
year in which the domestic corp registered with the BIR

Q: What is carry forward of excess minimum tax?

A: Any excess of the minimum corporate income tax over the normal income tax shall be carried forward and
credited against the normal income tax for the three (3) immediately succeeding taxable years
ILLUSTRATION:

YEAR NORMAL INCOME TAX MCIT EXCESS OF MCIT OVER


THE NORMAL INCOME
TAX
1998 50,000 75,000 25,000
1998 Amount of tax payable 75,000
1999 60,000 100,000 40,000
1999 Amount of tax payable 100,000
2000 100,000 60,000

Computation of Net Amount of Tax Payable in 2000:

Amount of Tax Payable 100,000

Less:

1998 excess MCIT (25,000)


1999 excess MCIT (40,000) 65,000

Net amount of tax payable 35,000

The taxpayer shall pay the MCIT whenever it is greater than the regular or normal corporate income tax. The
comparison between the normal income tax payable by the corporation and the MCIT shall be made at the end of
the taxable year. Thus, under the example, the taxpayer will pay the MCIT of 75,000 since this amount is greater
than the normal income tax of 50,000 in 1998.

In 1999, the firm will also pay the MCIT since the MCIT of 100,000 is greater than teh nor,al income tax of
60,000.

In the year 2000, where the normal or regular corporate income tax of 100,000 is greater than the MCIT of
60,000 the firm will pay the normal income tax.

The corporation can credit the excess of its MCIT over the normal income tax of 1998 (ie 25k) and 1999
(ie40k) or a total amount of 65,000 from the amount of income tax which is payable by the firm in the year 2000.
Thus, the amount of income tax payable by the firm is 35,000 after deducting 65,000 from 100,000.

The excess MCIT is creditable against the normal income tax within the next three years from payment
thereof. Thus, in the illustration above where the corporation had an excess MCIT of 25,000 over its normal income
tax in 1998, the 25,000 can be claimed as a tax credit against the normal income tax up to the year 2001 and only
when the normal income tax is greater than the MCIT. The excess MCIT cannot be claimed as a credit against the
MCIT itself or against any other losses.

Q: May imposition of the Minimum Corporate Income Tax be suspended? Who may suspend it?

A: The Sec of Finance is authorized to suspend the imposition of the minimum corporate income tax on any
corporation which suffers losses on account of prolonged labor dispute, or because of force majeure, or because of
legitimate business reverses.
Note: The Sec of Finance is authorized to promulgate upon recommendation of the Commissioner, the necessary
rules and regulations that shall define the terms and conditions under which he may suspend the imposition of the
minimum corporate income tax in a meritorious case

Q: What is gross income for purposes of the Minimum Corporate Income Tax?

A: For purposes of applying the MCIT the term gross income means gross sales less sales returns, discounts and
allowances and cost of good sold

Q: What is cost of goods sold for purposes of MCIT?

A: Cost of goods sold shall include all business expenses directly incurred to produce the merchandise to bring them
to their present location and use

4-B RESIDENT FOREIGN CORPORATION

4-B-1 NORMAL INCOME TAX

Q: What is the tax on income of resident foreign corp?

A: A corporation organized, authorized or existing under the laws of any foreign country, engaged in trade or
business within the Philippines is subject to an income tax equivalent to 30% of the taxable income derived in the
preceding taxable year from all sources w/in the PH.
Q: What is the criterion to determine if a foreign corp is doing or engaging or transacting business?

A: There is no specific criterion as to what constitutes doing or engaging in or transacting business. Each case
must be judged in the light of its peculiar environmental circumstances. It implies continuity of commercial dealings
and arrangements and contemplates to the extent, the performance of acts or works or the exercise of some of the
functions normally incident to, and in progressive prosecution of commercial gain or for the purpose and object of
the business organization.

4-B-2 GROSS INCOME TAX

Q: May a resident foreign corp opt for the gross income tax?

A: Yes. A resident foreign corporation is granted the privilege to opt to be taxed at fifteen percent (15%) on gross
income under the same conditions as domestic corp

4-B-3 MINIMUM CORPORATE INCOME TAX

Q: Is the MCIT imposed on resident foreign corp?

A: An MCIT of two percent (2%) of gross income, as prescribed on domestic corp. Is imposed under the same
conditions, on a resident foreign corp

4-B-4 PASSIVE INCOME


Q: What are the rates on tax on passive incomes received by a resident foreign corp?

1. 20%

a) Interest from currency bank deposits

b) Yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements

c) Royalties derived from sources within the PH

2. 7.5% on interest income derived by a resident foreign corp from a depository bank under the expanded foreign
currency deposits

3. 10% on income derived by a depository bank under the expanded foreign currency deposit system from foreign
currency transactions with local commercial banks including branches of foreign banks that may be authorized by
the BSP to transact business with foreign currency deposit units and other depository banks under the expanded
foreign currency deposit system, including interest income from foreign currency deposit system, including interest
income from foreign currency loans granted by such depository banks under said expanded foreign currency deposit
system to residents

Q: Is income of non residents from transactions with the depository banks under the expanded foreign
currency system subject to tax?

A: No. Any income of non residents whether individuals or corporations from transactions with depositary banks
under the expanded foreign system shall be exempt from income tax.

4-B-5 CAPITAL GAINS


Q: What is the tax on capital gains from sale of shares of stocks in a DC not traded in the stock
exchange?

A: The final tax rates are imposed upon the capital net capital gains during the taxable year from the sale, barter,
exchange or other disposition of shares of stocks in a domestic corp. except shares sold or disposed of through the
stock exchange

Not over 100k 5%

Amount in excess of 100K10%

4-B-6 INTERCORPORATE DIVIDENDS

Q: Are dividends received by a resident foreign corporation from a DC subject to tax?

A: No, not taxable

4-C NON-RESIDENT FOREIGN CORP

Q: What is the rate on income of non-resident foreign corp?

A: 30%
Q: What is the rate on interest on foreign loans received by a non resident foreign corporation?

A: A final withholding tax at the rate of 20% is imposed on the amount of interest on foreign loans contracted after
Aug 1, 1986

4-C-2 INTERCORPORATE DIVIDENDS

Q: What is the rate of tax on intercorporate dividends received by a non-resident foreign corp?

A: Credit against the tax due shall be equivalent to 15% which represent the diff between the regular income tax of
30% and the 15% tax on dividends

Q: What is the rationale in reducing tax rate in negotiating tax treaties?

A: The reason is that the PH will give up a part of the tax in the expectation that the tax given up for this particular
investment is not taxed by the other country

Q: When is the reduced 15% applied?

A: If the country of the domicile of the foreign stockholder corp shall allow such foreign corp a tax credit for taxed
deemed paid in the PH applicable against the tax payable to the domiciliary country by the foreign stockholder
corp.

Q: What is the purpose of the most favored nation clause in tax treaties?
A: It is to grant the contracting party treatment not less favourable that that which has been or may be granted to
the most favored among other countries. It is intended to establish the principle of equality of intl treatment by
providing that the citizens or subjs of the contracting nations may enjoy the privileges accorded by either party to
those most favored nation. It is to allow the taxpayer in one state to avail of more liberal provisions granted in
another tax treaty to which the country of residence of such taxpayer is also a party provided that the subj matter
of taxation is the same as that in the tax treaty under w/c taxpayer is liable.

Q:A is a subsidiary corporation of B, a foreign corp. A declared dividends in favor of B and withheld the
corresponding taxes pursuant to the NIRC. It was discovered later that there was an overpayment of
withholding tax because the foreign country allowed tax credit for taxes deemed paid in the PH. A filed
a claim for refund or credit in behalf of B. BIR denied the claim on the ground that A is not proper party
to claim the refund. Is the BIR correct?

A: No, the claim is untenable. The fact that it became a withholding agent of the govt which was not by choice but
by compulsion under the Tax code , cannot by any stretch of the imagination be considered as an abdication of its
responsibility to its mother company. The SC in construing the NIRC held that the obligation imposed thereunder
upon the withholding agents is compulsory. It is a device to insure the collection by the Phil Govt of taxes on
incomes, derived from sources in the PH by aliens who are outside the taxing jurisdiction of this Court. In fact, the
subsidiary corp may be assessed for deficiency withholding tax at source, plus penalties consisting of surcharge and
interest. Therefore, as the PH counterpart, the subsidiary corp is the proper entity who should claim for the refund or
credit of overpaid withholding tax on dividends paid or remitted by the mother company.

4-C-3 CAPITAL GAINS

Q: What is the rate if tax on caputla gains from sale of shares of stock not traded in the stock
exchange?
A: The final tax rates are imposed upon the capital net capital gains during the taxable year from the sale, barter,
exchange or other disposition of shares of stocks in a domestic corp. except shares sold or disposed of through the
stock exchange

Not over 100k 5%

Amount in excess of 100K10%

4-D IMPOSITION OF IMPROPERLY ACCUMULATED EARNINGS TAX

Q: What is an IMPROPERLY ACCUMULATED EARNINGS TAX?

A: 10% of the improperly accumulated taxable income

Q: Who are liable for the IMPROPERLY ACCUMULATED EARNINGS TAX?

A: It shall apply to every corporation formed or availed for the purpose of avoiding the income tax with respect to its
shareholders or the shareholders of any other corp by permitting earning and profits to accumulate instead of being
divided or distributed

Q: What is the basis of the liability behind the accumulation of income?


A: The touchstone liability is the purpose behind the accumulation of the income and not the consequences of the
accumulation. Thus, if the failure to pay dividends were for the purpose of using the undistributed earnings and
profits for the reasonable needs of teh business, that purpose would not fall within the interdiction of the statute

Q: What is the prerequisite for the imposition of the tax on improperly accumulated earnings?

A: That the corp be formed or availed of for the purpose of avoiding the income tax (or surtax) on its shareholders or
on the shareholders of any other corporation by permitting the earnings and profits of the corp to accumulate
instead of dividing them among or distributing them to the shareholders. If the earnings and profits were distributed,
the shareholders would be required to pay an income tax thereon whereas, if the distribution were not made to
them, they would incur no tax in respect to the undistributed earnings and profits of the corp.

Q: Who are exempted from the IAET?

A: The improperly accumulated earnings tax shall not apply to:

a) Publicly-held corp

b) Banks and other non bank financial intermedriaries

c) Insurance Companies

Q: What are the kinds of evidence on the purpose to avoid income tax?

A: The kinds of evidence on the purpose to avoid income tax are as follows:

1) Prima Facie Evidence the fact that any corp is a mere holding company or investment company shall be
prima facie evidence of purpose to avoid the tax upon its shareholders or members
2) Evidence Determinative of Purpose the fact that earnings or profits of a corp are permitted to accumulate
beyond the reasonable needs of business shall be determinative of the purpose to avoid the tax upon its
shareholders or members unless the corp, ny the xlear preponderance of evidence shall prove to the contrary

Q: What is improperly accumulated taxable income?

A: The term improperly accumulated taxable income means taxable income adjusted by:

1) Income exempt from tax

2) Income excluded from gross income

3) Income subject to the final tax; and

4) The amount of net operating loss carry-over deducted

And reduced by the sum of:

1) Dividends actually or constructively paid; and

2) Income tax paid for the taxable year

Q: Is the improperly accumulated earnings tax retroactive in application?

A: For calendar basis, the accumulated earnings tax shall not apply on improperly accumulate income as of Dec 1,
1997. For fiscal year accounting period, the improperly accumulated income not subject to this tax shall be
reckoned, as of the end of the month comprising the 12 month period of fiscal year 1997-98.
Q: What does reasonable needs of the business include for purposes of the improperly accumulated
earnings tax?

A: It includes the reasonably anticipated needs of the business.

Q: How is reasonable needs of the business determined?

A: Court of the United States have invented the so called Immediacy Test which construed the words reasonable
needs of the business to mean the immediate needs of the business, and it was generally held that if the
corporation did not prove immediate need for the accumulation of the earnings and profits, the accumulation was
not for the reasonable needs of the business and the penalty tax would apply. American cases likewise hold that
investment of the earnings and profits of the corporation in stock or securities of an unrelated business usually
indicates an accumulation beyond the reasonable needs of the business.

Q: What should be taken into account in determining if accumulations of earnings are within the
reasonable needs?

A:It is necessary to take into account prior accumulations, since accumulations prior to the year involved may have
been sufficient to cover the business needs and additional accumulations during the year involved would not
reasonably necessary.

Q: What intention of the taxpayer is controlling in determining liability for improperly accumulated
earnings tax?

A: That which is manifested at the time of accumulation and not subsequently declared intentions which are merely
the product of afterthought. Definiteness of plan coupled with action taken towards its consummation are essential
Q: May a partnership treated as corporation be subjected to the IAET?

A: No. The taxable income declared by a partnership, other than a general professional partnership, for a taxable
year after deducting the corporate income tax imposed therein shall be deemed to have been actually or
constructively received by the partners in the same taxable year and shall be taxed to them in their individual
capacity, whether actually distributed or not.

4-E SPECIAL CORPORATIONS

Q: What is the rate of tax of income of proprietary educational institutions and hosp?

A: They shall pay a tax of 10% on their taxable income except those subject to final tax.

Q: What is the tax rate if the gross income of proprietary educational institutions and hospitals from
unrelated trade business or other activity exceeds 50% of the total gross income derived from all
sources?

A: If the gross income from unrelated trade business or other activity exceeds 50% of the total gross income derived
such by educational institutions or hospitals from all sources, the corporate income tax (35% based on the new law)
is imposed on the entire taxable income.

Q: What is unrelated trade, business or other activity?

A: It means any trade, business or other activity, the conduct of which is not substantially related to the exercise or
performance by such educational institution or hospital of its primary purpose or function.

Q: What is proprietary educational institution?


A: It is any private school maintained and administered by private individuals or groups with an issued permit to
operate from the DepEd, CHED, TESDA as the case may be, in accordance with existing laws and regulations

Q: What is an educational institution?

A: Under the Education Act of 1982, such term refers to schools. The school system is synonymous with formal
education, which Refers to the hierarchically structured and chronologically graded learnings organized and
provided by the formal school system and for which certification is required in order for the learner to progress
through the grades or move to the higher levels

Q: What is the tax rate on income of Govt owned and controlled corporation, agencies or
instrumentalities?

A: All corporations, agencies, or instrumentalities owned or controlled by the Govt except the GSIS, the SSS, the
PHIC, AND the PCSO shall pay such rate of tax upon their taxable income as are imposed by the NIRC upon
corporations or associations engaged in a similar business, industry or activity.

Q: What is the tax on income derived by a depository bank under the expanded foreign currency
deposit system?

A: Subject to the final income tax at the rate of 10% of such income.

Q: Are income of non residents from transactions with depository banks under the expanded system
taxable?
A: No. Any income of non-residents, whether individuals or corporations from transactions with depository banks
under the expanded system shall be exempt from income tax.

Q: What is the tax on international carriers doing business in the PH?

A: An Intl carrier doing business in the PH shall pay a tax of 2.5% on its Gross Philippine Billings

Q: What is Gross Philippine Billings?

A: Gross Philippine Billing means ---

a) International Air Carrier refers to the amount of gross revenue derived from carriage of persons, excess
baggage, cargo and mail originating from the PH in a continuous and uninterrupted flight, irrespective of the place of
sale or issue and the place of payment of the ticket or passage document. Provided, that tickets revalidated,
exchanged and/or indorsed to another intl airline form part of the Gross Philippine Billings if the passenger boards a
plane in a port or point in the PH. Provided, further, that for a flight which originates from the PH but transhipment of
passenger takes place at any port outside the PH on another airline, only the aliquot portion of the cost of the ticket
corresponding to the leg flown from the PH to the point of transhipment shall form part of Gross Philippine Billings.

b) International Shipping means gross revenue whether passenger, cargo or mail originating from the PH up to
final destination, regardless of the place of sale or payments of the passage or freight documents

Q: BOAC is a non-resident corporation engaged in the airline industry. Through its sales agent in the
PH, it performed 1) selling and issuing tickets 2) breaking down the whole trip into series of trips
each trip in the series corresponding to a different airline company 3) receiving the fare from the whole
trip 4) Consequently allocating to the various airline companies on the basis of their participation in
the services rendered in the PH. Is BOAC considered engaged in business in the PH?
A: The activities that were mentioned were in the exercise of the functions which are normally incident to, and are in
progressive pursuit of, the purpose and object of its organization as in international air carrier. In fact, the regular
sale of tickets, its main activity, is the very lifeblood of the airline business, the generation of sales being the
paramount objective. There should be no doubt then that BOAC was engaged in business in the PH through a local
agent during the period covered by the assessments. Accordingly, it is a resident foreign corp subject to tax upon its
total net income received in the preceding taxable year from all sources w/in the PH.

Q: How is the source of income of foreign airline selling tickets in the PH determined?

A: It is sufficient that the income derived from activity within the Philippines is the activity that produces the income.
The tickets exchanged hands here and payments for fares were also made here in PH currency. The site of the
source of payments in the PH. The flow of wealth proceeded from, and occurred w/in the PH territory enjoying the
protection accorded by the PH Govt. In consideration of such protection, the flow of wealth should share the burden
of supporting the govt.

Q: An intl airline with no landing rights in the PH sold tickets in the PH for air transportation. Is income
derived from such sales of tickets considered taxable income of teh said Intl air carrier from PH
sources under the tax code? Explain.

A: Applying the SC ruling in the BOAC Case, the airline has PH source income. But there is no taxable income. Sec
28(A)(3) of the NIRC provies a self contained tax rule for Intl airlines which imposes Gross Philippine Billings Tax on
revenues from carriage of persons, excess baggage, cargo and mail originating from the PH in a continuous and
uninterrupted flight.

Although the CTA has ruled in at least three 2005 cases that Section (28)(A)(3) of the NIRC is not really self
contained it is submitted that the proper interpretation of the provision is that only revenues from carriage of
persons, excess baggage, cargo and mail originating from the PH are subject to tax. This is because tax laws are
construed strictly against the govt.
Q: What does Gross Philippine Billing include?

A: It includes gross revenue realized from uplifts anywhere in the world by any intl carrier doing business in the PH
of passage documents sold therein, whether for passenger, excess baggage, cargo or mail, provided the cargo or
mail originates from the PH. The gross revenues realized from the said cargo shall include the gross freight charges
up to final destination. Gross revenues from chartered flights originating from the PH shall likewise from part of
Gross Philippine Billings regardless of the place of sale or payment of the passage docs.

Q: How will resident foreign corporations adopting the fiscal-year accounting period reflect the
changing rates under the NIRC as amended by RA 9337?

A: For corp adopting fiscal year the taxable income shall be computed w/o regard to the specific date when sales,
purchases and other transactions occur. Income and expenses for the fiscal year shall be deemed to have been
earned and spent equally for each month of the period.

The reduced corporate income tax rate shall be applied on the amount computed by multiplying the number of
months covered by the new rates w/in the fiscal year by the taxable income of the corp for the period, divided by 12.

Q: What is the tax on income of Offshore Banking Units?

A: It shall be subject to a final income tax rate of 10%.

Q: Are income of non-residents from transactions with offshore banking units taxable?

A: No. Any income of non-residents whether individuals or corporations, from transactions with offshore banking
units shall be exempt from income tax.

Q: What is the tax on branch profits remittances?


A: Any profit remitted by a branch to its head office shall be subject to a tax of 15% which shall be based on the total
profits applied or earmarked for remittance without any deduction for the tax component thereof (except those
activities which are registered with the PEZA)

Q: How shall the tax on branch profits remittances be collected and paid?

A: The tax shall be collected by withholding at source and shall be covered by a return and paid by the branch as the
withholding agent.

Q: Are all remittances to foreign corporations considered branch profits?

A: No, only those effectively connected with the conduct of its trade or business in the PH are considred.

Q: Are regional or area headquarters of multinational companies subject to income tax?

A: No. Regional or areas HQ of multinational companies are not subject to income tax.

Q: Are regional operating HQ of multinational companies subject to income tax?

A: Yes, 10% of their taxable income.

Q: What is the rate of tax on non-resident cinematographic film owner, lessor or distributor?

A: 25% of its gross income from all sources within the PH.
Q: What is the rate of tax on income of non-residents owner or lessor of vessels chartered by the PH
nationals?

A: 4.5% of gross rentals, lease, or charter fees from leases or charters to Filipino citizens or corp as approved by the
Maritime Industry Authority

Q: What is the rate of tax on income of non-resident owner or lessor of aircraft, machineries and other
equipment?

A: 7.5% of gross rental or fees.

VI. EXEMPT CORPORATIONS

Q: What corporations are exempted from income tax?

A: (A) Labor, agricultural or horticultural organization not organized principally for profit;

(B) Mutual savings bank not having a capital stock represented by shares, and cooperative bank without capital
stock organized and operated for mutual purposes and without profit;

(C) A beneficiary society, order or association, operating fort he exclusive benefit of the members such as a fraternal
organization operating under the lodge system, or mutual aid association or a nonstock corporation organized by
employees providing for the payment of life, sickness, accident, or other benefits exclusively to the members of such
society, order, or association, or nonstock corporation or their dependents;
(D) Cemetery company owned and operated exclusively for the benefit of its members;

(E) Nonstock corporation or association organized and operated exclusively for religious, charitable, scientific,
athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall belong to
or inures to the benefit of any member, organizer, officer or any specific person;

(F) Business league chamber of commerce, or board of trade, not organized for profit and no part of the net income
of which inures to the benefit of any private stock-holder, or individual;

(G) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare;

(H) A nonstock and nonprofit educational institution;

(I) Government educational institution;

(J) Farmers' or other mutual typhoon or fire insurance company, mutual ditch or irrigation company, mutual or
cooperative telephone company, or like organization of a purely local character, the income of which consists solely
of assessments, dues, and fees collected from members for the sole purpose of meeting its expenses; and

(K) Farmers', fruit growers', or like association organized and operated as a sales agent for the purpose of marketing
the products of its members and turning back to them the proceeds of sales, less the necessary selling expenses on
the basis of the quantity of produce finished by them;

Q: Does the exception of exempt corporations cover income of their properties and income from other
activities conducted for profit?

A: No. Income of whatever kind and character of the foregoing organizations from any of their properties, real or
personal, or from any of their activities conducted for profit regardless of the disposition made of such income, shall
be subject to tax.

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