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REVIEWER TAX

FINALS

March 11, 2016

DIVIDEND INCOME
1) Definition:
i) Dividend income are earnings derived from the profits of the corporation to be distributed to
the stockholders. This pertains to dividends declared by foreign corporations.
ii) It is an income received either by individuals or corporation representing return of capital or
investment. The same may either be taxable or exempt either in the form of cash or
property. The nationality of the taxpayer, the source of income whether form sources within
or without bears important determining the tax consequence of the dividends.
iii) Any distribution made by a corporation to its shareholders out of its earnings or profits and
payable to its shareholders, whether in money or property.

2) Dividends declared by domestic Corporation


a) GR: subject to 10% final tax if the recipient is an individual tax payer and exempt if the recipient
is a domestic or a resident foreign corporation. Cash, property and script dividends from foreign
corporations are items of gross income subject to regular income. (Banggawan)
1. Example: Php 5.00 Declared 5 pesos / share (Came from Unrestricted retained
earnings of a corporation, only Unreserved)
A- Stockholder who has 1,000 shares / common stocks meron tayong preferred at common share. If
preferred Mas mauunang magreceive ng share tong mga to kesa sa mga Common.
Meaning 1,000 shares x 5 / shares = 5000 dividend income of A.
b) Retained Earnings Naiwan na profit ng Corporation while Unrestricted Retained Earnings
Yung mga corporation pwede niyang itabi for future expansion / investment or eto yung mga
FREE portion of the Retained earnings eto yung pwedeng idistribute sa shareholders.
2. Example: On 2015, may naiwan na RE Php1,000,000 nagissue ng 100,000 shares
yung Php 1,000,000 ay madidistribute sa may 100,000 shares.

Ang dividend income ay: PHP1,000,000 / Php 100,000 = 10 Pesos / Share

c) Reckoning Period: Upon the declaration kahit may declaration for the year 2015 pero
babayarin nya yung mga shareholders for the following year (2016), kelan niya idedeclare yung
dividend income? 2015.
3) Forms of Dividend Income: Cash, Property and Stock dividends
FOR TAXATION

PURPOSES

a) Cash Bibigay ng company for each shareholder TAXABLE


b) Property Investment sa ibang company called Property Dividend TAXABLE
c) Stock Own shares to be distributed Stock Dividend NOT TAXABLE
d) Upon dissolution ng Corporation, all assets ay ipupunin ng Company at ididistribute yan. Then it
is called Liquidating Dividend. Liquidating Dividend are not considered income because it is only a
mere return of investment / capital.
e) CASH and PROPERTY Mababawasan asset ng company kaya deemed as Income of the
income earner. Kung Cash yan na 1,000,000 nailabas mo sa corporation, nabawasan ang
Corporation ng Php 1,000,000. Same through kapag Property.
f) STOCK DIVDEND Yung inissue mong common shares ay common shares din ng company
naiwan rin lang within the company yung retained earnings. However kapag Stocks naman ang
naissue sayo within that company parin naiiwan ang retained earnings.
4) First Treatment of Dividend Income :
Three Kinds of Taxability of Dividend Income:
a. Interest Income without Exempt,
b. subject to Final or
c. Subject to Normal Tax.

Subject to Normal Received in the Ordinary Course of Trade


I. Tax Exempt
a. Inter corporate dividends (Section 27 (D) 4 )
Intercorporate Dividends Received by a domestic corporation from another domestic
corporation shall NOT be subject to tax.

Example: Jollibee Food Corporation issued dividend income to San Miguel Corporation
(NOT SUBJECT to Tax)

b. Resident Foreign Corporation from Domestic Corporation


(Section 28(A) (7) (d)

Intercorporate Dividends Dividends received by a RESIDENT FOREIGN CORPORATION


from a DOMESTIC CORPORATION liable to tax under this Code shall NOT be subject to
tax under this title.

c. Pure Liquidating Dividend in cases of Dissolution of a Corporation. Section


73(A)
Reason why not Taxable: Mere Return of Stockholders Investment. It arises from the
distribution of assets by a Corporation to its stockholders upon dissolution.

d. Dividends received from a Cooperative R.A 6938


- Any Interest earned by the Cooperative on the Loan of its Members are Exempt
from the Tax. (EXEMPTED)
- Dividends declared for the members of the Cooperatives (EXEMPTED)
Exempted on the Interest income and Dividend Income

e. STOCK Dividends
General Rule: Not Taxable
Reason: There is no flow of wealth so no realized gain. It is just transfer of Surplus
account to the capital account.

Exceptions:
a. Change in the Stockholders Interest in the net equity of the Corporation.
Changes on the three things:
a. Net Income or Losses, b. Payment of Dividends, and c. Share issuance or
repurchase.

Examples: Stock Holder A owns 1,000shares 10% of the total shares


Upon declaration of the Dividend Income diba nadagdagan ng 100 shares. Pero
lahat ng shareholders nadagdagan din ng same amount so magbabago yung
interest nya sa company? NO. The same 10%

The exception dito change of interest, instead of 10% due to the dividend
income naging owner na siya ng 15% ng corporation ibig sabihin merong
income. Kaya siya exempted. Kasi may income dapat 10% lang siya, upon
declaration may 15% may income on the part of the stockholder meaning may
additional profit. TAXABLE
NOTE: Always take note kung may additional profit on the part of the taxpayer,
kung may additional profit or income then TAXABLE sya except provided by law,
special law, rules or under NIRC.

b. When it is received by a usufructuary (Skipped)

Stock dividends cannot be issued to a person who is not a stockholder in


payment for services rendered. Stock dividends can be issued only to
stockholders and not to strangers or non-stockholders
c. Board of Directors declared dividend not in accordance with the
Corporation Code of the Philippines.

d. Redemption or cancellation of the Stock dividend distributed. Reason:


Resorting to devious means to circumvent the law and evade the tax.

e. Disguised dividends

II. FINAL TAX FROM DOMESTIC CORPORATION


10 % - RESIDENT CORPORATION, NON RESIDENT CORPORATION,
RESIDENT ALIEN
15 % - NON RESIDENT FOREIGN CORPORATION (W/ RECIPROCITY)
20 % - NON RESIDENT ALIEN ENGAGED IN TRADE OR BUSINESS
25 % - NON RESIDENT ALIEN NOT ENGAGED IN TRADE OR BUSINESS
30 % - NON RESIDENT FOREIGN CORPORATION W/O RECIPROCITY

NOTE:

DIVIDENDS RECEIVED BY A RESIDENT FOREIGN CORPORATION FROM DOMESTIC


CORPORATION EXEMPT

DIVIDENDS RECEIVED BY A DOMESTIC CORPORATION FROM A FOREIGN


CORPORATION ARE SUBJECT TO CORPORATE TAX

Under Reciprocity: When one country gives country to other person which are foreign
country, the other country must also give same exemption

Example case of Pacquiao : Pacquiao earn income from boxing and under US law he is
subject to an income tax.

Resident Citizen All income derived within and without the Philippines.

300,000 TAX DUE. May binayaran na siya sa US. Pwede niya ng iclaim as Tax Credit. For
example binayaran mo 50,000. Ang babayaran niya nalang is 250,000.

Such is subject to reciprocity rule, under the US Law kung may na earn ang citizen nila
dito kung makakaclaim ng credit dito sa ating bansa ay makakaclaim din ang Pinoy sa
ibang bansa.

III. NORMAL TAX

1. From Resident Foreign Corporation or Non Resident Foreign Corporation (PHIL.


INCOME AT LEAST 50% OF WORLD INCOME)

2. RECEIVED BY PARTNERS IN GPP


GPP v. GPT

General Professional Partnership v. General Partnership engaged in Trade.

GPT Treated as Corporation subject to a Normal tax of 30%


GPP Practice of Profession not considered as Corporation which is Taxable
Magbabayad parin in the form yung mismong partners ay magdedeclared ng
income nila as income so kung ano ang dinistribute ng GPP. It is called Dividend
Income.
For example: 100,000 naiwan to be distributed to A and B tig 50,000. Kung
may common fund ay ipapasok mo lahat items subject to normal tax and add it
to get total taxable income. Kung si A nakatanggap ng 50,000 ilalagay niya sa
Common fund subject to Normal Tax Rate (5% TO 32%)
2) ANNUITIES: (Section 32 A(8) Installments payments received for life insurance sold by
insurance company.

a) The excess of Annuity payments received by the recipient over premium paid is taxable
income in the year of receipt.
i) General Rule: Taxable if it represents mere Interest.
ii) Exception: However if the annuity represents only a mere return of Capital or
Premium it is non-taxable AMOUNT and NOT INCOME.

Example : Andrew purchased an annuity contract for P100,000 which shall pay him P10,000
annually until he dies.
The receipt of the first 10 annuity payments is a return of Capital . 10,000x10 = P100,000 (Mere
return of Investment) . Any further receipt from year 11 and onward is an item of gross income
subject to regular income tax.

3) PRIZES and WINNINGS: Section 32A(9)

a) PRIZES
i) DEFINITION: A reward for a contest or a competition. In other words, a prize is a
remuneration of an effort reflecting ones superiority, like prize money of a boxing
contest. Prizes and Winnings that are exempted from final tax are not items of gross
income subject to regular income tax.

ii) GR : Taxability of Prizes: More than Php10,000 Subject to Final Tax 20%
*If a person gets Php 15,000, the whole 15,000 shall be subject to 20%

iii) EXCEPTIONS : 32 (B) (7) (C)

PRIZES AND AWARDS MADE PRIMARILY IN RECOGNITION OF RELIGIOUS, CHARITABLE,


SCIENTIFIC, EDUCATIONAL, ARTISTIC, LITERARY, OR CIVIL ACHIEVEMENT BUT ONLY IF :

(i) The recipient was selected without any action on his part to enter the
contest or proceeding; and (Ex. Outstanding women league )

(ii) The recipient is not required to render substantial future services as a


condition to receiving the prize or award.

d. All prizes and awards granted to athletes in local and international sports
competitions and tournaments whether held in the Philippines or abroad and
sanctioned by their sports associations.

Less than Php 10,000 Subject to Normal Tax shall be


included on Common Fund.

b) Winnings:
i) Definition: A reward for an event that depends by chance.

For example: Winnings from Gamblings, Lottery, or Raffle Ticket.


ii) GR: Winnings regardless of Any amount are subject to Final Tax of 20%
iii) Exceptions: Lotto and PCSO
If deal or no deal it is subject to Final Tax of 20% because only Lotto and
PCSO are exempted.

Resident Citizen won outside the Philippines Subject to Normal Tax. Section 24 (B)
(1)
ILLUSTRATION: Regine Velasquez won the following prizes / winnings during the year:
FIRST PRIZE Singing Contest P 10,000
FIRST PRIZE Philippine Charity Sweepstakes Winning P1, 000, 000
THIRD PRIZE: : Raffle Ticket Winnings P 5, 000
Which of the prizes is subject to normal tax, final tax and tax exempt?
Answer: The prize from singing contest being earned in a contest and within threshold
amount of Php 10,000 and below is subject to Normal Tax (Section 24 (A), NIRC).
The winning on raffle ticket being earned by chance is subject to final tax of 20% even if
the amount is less than P10,000 and
PENSIONS
the winning from the Philippine Charity Sweepstake is tax exempt.
This pertains to pensions and retirement benefits that fail to meet the exclusion
criteria and hence subject to regular tax.

OTHER SOURCES OF INCOME (March 12, 2016)


1. BAD DEBTS Definition: A portion of account receivable of a company which is already
unrecoverable or worthless.
Requisites for Recovery of Bad Debts:

CUBAN

C- Charged of or written of against the books of the tax payer

U The amount written off must be uncollectible in the near future, no slim chance of recovery collecting such
an amount.

B- It must arise from business trade / profession

A- Ascertain to be worthless

N- Not arising from transactions between related taxpayers.

ILLUSTRATION:

Example: Nestle Philippines as the seller we have Tax Payer A a sari sari store owner as the Buyer.

Nestle Philippines Seller (TAXPAYER A) Sari-Sari Store Owner A Buyer

SCENARIO: Nestle nagbenta siya ng grocery kay A worth Php100,000 upon the selling of the Goods, the
seller must declare the goods as the Sale which is subject to Tax. However, these goods were sold on
CREDIT, under the books of the Seller, irerecognize niya as account receivable or PAUTANG or
Collectible the amount of 100,000 from A assuming it is done on 2012.

On 2013, hindi niya na malocate si A. Now anong mangyayari sa Pautang? It is deemed paid off on the
part of the Seller since hindi niya na makolekta on the year 2012 which is subjected to the corporate tax.
As a claim for deduction the amount of 100k shall be recognized as BAD DEBTS. Kung merong masamang
utang ang isang buyer ang gagawin ng seller is to 1.) Charged off or written off against the books of the
Tax Payer which is tatanggalin niya na yung utang ni Buyer.

For the year 2013, Nestle reported sales of Php50,000 from the other buyer , sabi natin pwede siyang
mag claim ng worthless account na Php 100,000. In effect yung taxable income niya naging wala na kasi
dun sa worthless account.

If hindi niya clinaim yung recovery sa Bad debts magbabayad sana siya ng 50,000 subject to 30%
(Corporate Tax) . Yung clinaim niya yung Bad Debts natanggal na yung babayaran mo.
Pano naman siya nagiging income? Nag abroad kasi. Upon recovery of the bad debts, theres a
deemed income on the part of tax payer. However may condition yun , up to the extent of the tax
benefit or principle of tax benefit or Recapture Rule.

Meaning of UP TO THE EXTENT OF THE TAX BENEFIT

On the year 2016, si Nestle nag report ng income amounting to Php 100,000 and then narecover niya
yung na write off niya or charged off dati na utang ni Buyer kaya idadag niya as an ITEM OF GROSS
INCOME so iadd niya as item of gross income yung bad debts recovered amounting to 100k . Doon na
papasok yung tax benefit rule. Magkano ba yung nabenefit ng tax payer dito? Only the amount of 50k
kasi eto lang yung inabsorb niya. Etong 50k lang ang inabsorb niya nag karoon ng benefit ng tax payer.
Kaya ang iclaclaim niya dito ay only 50k

. At the year of the claim of Bad Debts, magkano dapat ang due mo? 15k sana. 50,000 x 30% (Corporate
Tax) = 15,000. Pero mag kano sana yung actually na binayaran mo = 0. Kasi recovery of bad debts.
Magkano yung benefit mo 15,000/tax rate. Yun lang yung extent na pwede mong iclaim.

2012
NESTLE PHILIPPINES
Hindi na malocate si Tax Payer A
(SELLER) sold Php
100,000 grocery to Hindi niya na macocollecta yung utang ni A kasi nga nag
A- (Sari-Sari Store) abroad siya ma write off na ito at considered as BAD
DEBTS.
b
2013
2016
Php50,000 na collect niya from Narecover niya yung 100,000 na bad debts
other sales. niya or yung utang na 100k from 2012.
Dahil may 100k siyang Bad Ngayon iadd mo yung Tax Benefit mo nuong
Debts, ang magiging TAX DUE 2013 na 15,000. (50,000 x 30% = 15,000
niya ay 0. benefited.

SO ANG GROSS INCOME MO AY 115,000.

PRINCIPLE OF TAX BENEFIT RULE KNOWN AS RECAPTURE RULE


- States that : If a tax payer deducted an item on his income tax return and enjoyed a tax benefit
and in the subsequent year recovers all or part of that item, he will recognize gross income in the
year the deducted item is recovered.
2. TAX REFUND / CREDIT
GR : Refunds from taxes are Taxable
EXCEPTION: Refunds of taxes paid in estate or donors tax, Philippine Income Tax, Stock
Transaction Tax and VAT
- It shall be included as part of gross in the year of receipt to the extent of the income tax benefit
of said deduction.
3. OTHER SOURCES: ILLEGALLY OBTAINED INCOME ALL INCOME FROM
WHATEVER SOURCES (LEGAL OR ILLEGAL). EX. Gambling, Kidnapping.

EXCLUSIONS FROM GROSS INCOME


Section 32 (b) Exclusions from Gross Income The following items shall not be included in gross
income and shall be exempt from taxation under this Code.
EXCLUSIONS FROM GROSS INCOME Refer to a flow of wealth to the taxpayer which are
not treated as part of gross income due to the following reasons:
a.EXCLUSIONS FROM
It is exempted by GROSS INCOME
the Fundamental Refer to a flow of wealth to the taxpayer which
Law (Constitution);
are not treated as part of gross income due to the following reasons:
b. It is exempted by the Statute;
a. It is exempted by the Fundamental Law (Constitution);
c. It does not come within the definition of the income.
b. It is exempted by the Statute;
c. It does not come within the definition of the income.
While Deductions from gross income are those amounts w/c the law allows to be deducted from
1. Life Insurance The proceeds of life insurance. It is a contract of Indemnity. Interest
payments shall be included in the Gross Income. Indemnifying the life insured, it is considered
as Gross Income.
GR : Proceeds from the Life Insurance is Included in the Determination of Gross Estate.
EXCLUDED: If the designation of the beneficiary is IRREVOCABLE and if represents
proceeds from Group Insurance Policy.

Example: Ikaw yung heir, namatay yung tatay nila and then yung anak nakatanggap ng proceeds
from the life insurance ng father. Yung heir additional income ba on his part? It is a contract of
indemnity because iniindemnify yung life ng tatay.
It shall not included as the Gross Income Section (32)(B)(1) but however it shall form part
as Gross Estate Section 85(E) of the deceased person. Kung ang beneficiary mo ay Revocable,
pwedeng mapalitan, however kapag namatay na hindi na pwedeng palitan. Ang mangyayari is
macocollate na sya sa estate ng decedent. ALWAYS EXCLUDED IN THE IRRESPECTIVE
OF THE BENEFICIARY DESIGNATED IN THE POLICY

INSURANCE PREMIUMS PAID BY THE EMPLOYER

INSURANCE PREMIUMS PAID BY THE EMPLOYER


IF THE BENEFICIARY DESIGNATED:
EMPLOYEE can claim as
1. Family, Executor or COMPENSATION INCOME IF : The
Administrator or Heirs employee is RANK AND FILE.

If the employee is a manager or


supervisor such insurance paid by
EMPLOYER CAN CLAIM AS AN
the employe will be treated as
EXPENSE
FRINGE BENEFIT.

2. Amount Received by Insured as Return of Premium The amount received by the insured
as a return of Premiums paid by him under life insurance, endowment or annuity of contracts,
either during the term or at the maturity of the term mentioned in the contract or upon surrender
of the contract. Dito papasok yung return of Capital / return of premium paid
REASON: It is just a mere return of Capital.
EXAMPLE

In life insurance, endowment or annuity payments, either during or at the maturity of the contract

Annuity payment represents INTEREST Annuity payment represents RETURN OF PREMIUM


TAXABLE NOT TAXABLE
CASH SURRENDER VALUE OF THE POLICY

- NOT TAXABLE

But , if the amount received exceeds the aggregate premiums paid, the excess shall be included in the Gross
Income and is taxable.

3. Gifts, Bequests and Devises The value of property acquired by gift , bequest, devise or
descent : Provided, however, That income from such property as well as gift , bequest, devise or
descent of income from any property in cases of transfers of divided interest, shall be included in
gross income.

DONOR DONEE

DONATION LIABLE FOR DONORS TAX NEITHER SUBJECT TO DONORS TAX


INTERVIVOS NOR INCOME TAX

DONATION MORTIS LIABLE FOR ESTATE TAX NEITHER SUBJECT TO DONORS TAX
CAUSA NOR INCONME TAX OR ESTATE TAX

Reason : It is NOT a product of capital or industry. They are gratuitously given and they are already
subject to Donors tax in case Donation Intervivos / Estate in case of Donation Mortis Causa where in
both instance the Donee neither subject to Donors Tax nor Income Tax nor Estate Tax. Thats the reason
why Gifts, Bequests and Devises are excluded from Gross Income.
- It is not a product of a Capital or services rendered, wala kang pinuhanan dito, binigyan ka ng Gift na
merong value. That value does not form part of the Gross Income. However, when the property donated
earns income, that income shall form part of the Gross income subject to tax.
4. Compensation for Inuries or Sickness Amounts received, through accident or health insurance or
under workmens compensation acts, as a compensation for personal injuries or sickness, plus the
amounts of any damages received, whether by suit or agreement, on account of such injuries or sickness.
Compensation for persons sickness or injuries, when yung inaward is compensation for personal
injuries then it is not subject to tax. But when the award was the loss of income earned because of
incapacity, the award for that loss shall be subject to tax.
Reason: It is Compensatory, NOT GAIN / PROFIT. It adds nothing to the individual.

SUMMARY:
SUMMARY:
MORAL DAMAGES NOT TAXABLE
EXEMPLARY DAMAGES NOT TAXABLE / EXEMPT
Damages for Loss of Earnings / Income - TAXABLE

5. Income exempt under Treaty Income of any kind, to the extent required by any treaty obligation
binding upon the Government of the Philippines. (SECTION 32 (B) (5)
REASON: Adherence to the Generally Accepted Principle.
6. Retirement, Benefits, Pensions, Gratuities - Under R.A. 7641
-Separation benefits due to death , sickness or other physical disability or any causes beyond the control
of the said official or employee.
Conditions: at least 10 years service, at least 50 years of age at the time of retirement.
Under R.A 7651: retirement benefit of the employee who is retiring at 60 65 years old, and has rendered
service for at least 5 years.
MISCELLANEOUS ITEMS (G)
G. Gains from the sale of Bonds, Debentures or other certificate of Indebtedness gains from realized
from the sale or exchange or retirement of bonds, debentures or other certificate of indebtedness with a
maturity of more than five (5) years. Kapag binili mo yung bonds na yun, to earn an income kelangan
mong ibenta yun . Yung certificate of Indebtedness kailangan mong ibenta yun, it is not important kung
gano mo katagal nahawakan yung bond nay un as long as it has a maturity of five years then it is
exempted to five (5) years.
H. Gains from Redemption of Shares in Mutual Fund Gains realized by the investor upon redemption of
shares of stock in a mutual fund company as defined in Section 22(BB) of this code.
22- BB The term mutual fund company shall mean an open end and close end investment company
as defined under Investment Company Act.
I. (Additional from Maam Ngoslab) Income received by Minimum Wage earners (RA 9504)

CORPORATE INCOME TAX


KINDS OF CORPORATIONS:
1. Domestic Section 27.
Note: Under Royalties (SECTION 27(D) on Passive Income Rate 20% :
Except : Literary Works, Books and Musical (10%) however under Corporation hindi
dinistinguished yung LBM it is therefore understood na lahat ng Royalties Acquired by domestic
are tax at 20%.
2. Foreign Resident Foreign Corporation and Non Resident Foreign Corporation
3. Partnership . General partnership engaged in trade and
General Professional Partnership( not considered as Corporation)
Co-Ownership are not considered as Corporation however they are considered as Corporation when the
Co-Ownership becomes an Unregistered Corporation.
Co-Ownership per se refers to the ownership of the property by two or more individuals. NOT INCOME
GENERATING.
UNREGISTERED PARTNERSHIPS: TAXABLE if the following requisites are present : - 1.There
must be an agreement, oral or in writing, to contribute money , property or industry to a common fund;
2. There is an intention to divide the profits.
A and B co-ownership GR : It is not Corporation which is taxable however when the CO-OWNED
PROPERTY is already: 1. income generating and 2. No proper registration as partnership between A
and B so that it will become unregistered partnership. Hindi enough na income generating lang pero
walang intention yung co-owners to registers it as partnership
Therefore: The Co-Ownership shall be taxable if it is Converted to Unregistered Parnetship.
-If the properties and income are used as common fund with intention to produce profits after the co-
ownership partitioned, the shares of the heirs are held under a single management for profit making.
4. Other kinds of Corporation under Section 22 (B) The term corporation shall include partnerships
(GPT) , no matter how created or organized, joint-stock companies, joint accounts, associations or
insurance companies but does not include general professional partnership and a joint venture or
consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal,
geothermal and other energy operations pursuant to an operating or consortium agreement under a service
contract with Government.
General Professional partnerships are partnerships formed by persons for the sole purpose of exercising
their common profession, no part of the income of which is derived from engaging in any trade or
business.
5. GOCCs (Section 27)(C) The provisions of existing special or general laws to the contrary
notwithstanding, all corporations, agencies or instrumentalities owned or controlled by the Government
except GSIS, SSS, Phil health Insurance Corporation, the local water districts, LWDs and Philippine
Charity Sweepstakes Office shall pay such rate tax upon their taxable income as are imposed by this
Section upon Corporations or Associations engaged in A similar business, industry or activity which
INCLUDES UNDER SPECIAL LAW PAGIBIG
GR: Taxable
EXCEPT: GSIS, SSS, PhilHealth, PCSO, Local Water District, Pagibig (Special Law)
PAGCOR Under RA 9337, PAGCOR was deleted as GOCC and subject to Income tax and subject to
Franchise tax of 5% of its Gross Earnings.
6. EXEMPT on Tax Corporation UNDER SECTION 30 from A K (not for profit)
However the last paragraph states The 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 imposed under this Code.
Example : Education institution pinaparent nila yung real property nila. Any income derived from that
property shall be subject to tax.
NOTE : Even though they are included as Exempted Under Section 30, they are not automatic
because the Corporation or Entities requires confirmatory ruling issued by the BIR stating they are
exempted from the Income Tax.

TAX LIABILITY
1. Domestic Corporation are taxed Within and Without the Philippines subject to
the rate of 30% , rate on their taxable income or net income.(Section 27)

Note: Under Royalties (SECTION 27(D) on Passive Income Rate 20% : Except : Literary
Works, Books and Musical (10%) however under Corporation hindi dinistinguished yung LBM it
is therefore understood na lahat ng Royalties Acquired by domestic are tax at 20%.

SPECIAL KINDS OF DOMESTIC CORPORATIONS:


1. Proprietary Educational Institutions SECTION 27 (B)
2. Non Profit Hospitals
They are taxed at 10% on their taxable income except those covered by Subsection (D) hereof. They
are considered as Special because they are enjoying the Preferential rate of 10% instead of the
General Rate of 30%.
Kung may binigay na educational institution huwag agad sasagot kasi Under Section 30, nakalagay na
NONSTOCK & NON-PROFIT INSTITUTIONS EDUCATIONAL INSTITUTION AND
GOVERNMENT EDUCATIONAL INSTITUTION where they are exempted from the TAX however if it
is Proprietary (Can be owned by Individual or by the Corporation) tax rate is 10%.
SECTION 27 (B) Provided Provided that if the gross income from unrelated trade, business or
other activity exceeds fifty percent (50%) of the total gross income derived by such educational
institutions or hospitals from all sources, the tax prescribed in Subsections A hereof shall be
imposed on the entire taxable income.
MEANING: If the Proprietary Educational Institutions or Non Profit Hospital has unrelated trade,
we need to determine the gross income from the UNRELATED TRADE.

EXAMPLE:
PROPRIETARY EDUCATIONAL INSTITUTION
Source of Income: Tuition Fees 80 %
Unrelated Trade of: a. Operation of Canteen 20 %
b. Bookstore
c. Related Space
________________________________________
GROSS INCOME: 100 %gross income subject to 10% TAX
THE UNRELATED TRADE DOES NOT EXCEED 50 % SHALL BE SUBJECT TO 10% TAXABLE of
THEIRINCOME

Source of Income: Tuition Fees 40 %


Unrelated Trade of: a. Operation of Canteen 60 %
b. Bookstore
c. Related Space
________________________________________
GROSS INCOME : 100% subject to 30% TAX
THE UNRELATED TRADE DOES EXCEED 50% SUBJECT TO 30% OF THEIR TAXABLE
INCOME. YUNG PREFERENTIAL DOMESTIC CORPORATION or the PROPPRIETARY
EDUCATIONAL INSTUTION ay naconvert na sa GENERAL DOMESTIC CORPORATION.
RATIONALE: Para hindi privilege on the part of Hospital or Educational Institution having a
lower rate of Tax they must also charge lower the tuition fees or hospital expenses.

2. RESIDENT FOREIGN CORPORATION


Taxable on sources within the Philippines at the rate of 30% based taxable income/net income.
(Section 28 (A)).
Tax Liability: 30% of their Net Income / Taxable Income
General Rule: A corporation organized, authorized or existing under the laws of any foreign
country, engaged in trade or business within the Philippines (Definition)
Beginning January 01, 2009- The taxable rate of Resident Foreign Corporation (RFC) shall be
30% based on taxable income.
Special Resident Foreign Corporation Includes (Section28 (A) (3) (4) (5) (6))
Special Resident Foreign Corporation (SRFC) It is called Special Resident Foreign
Corporation because they are taxed at a different rate than the normal tax rate of 30%. The
different kind of SRFC are as follows: (NO NEED TO REVIEW just a quick reference to
SRFC and these are not discussed during the lectures)
a. International Carrier 2 % Tax on its Gross Philippine Billings.
b. Offshore Banking Units 10% Final Tax Rate
c. Tax on Branch Profits Remittances 15% which is based on the total profits applied or
earmarked for remittance without any deduction for the tax component thereof.
d. Regional or Area Headquarters and Regional Operating HeadQuarters of Multinational
Companies
-Under Section 22 (DD) Those Established in the Philippines by multinational companies and
which headquarters do not earn or derive income from the Philippines and which act as
supervisory, communications and the like are exempted from the Tax.
-Under Section 22(EE) Engaged in general administration and planning, business planning and
coordination, sourcing and procurement of raw materials and components, corporate finance,
marketing control and sales promotion subject to 10%- Taxable on their Taxable income of 10%

3. NON RESIDENT FOREIGN CORPORATION


-Taxed on all sources derived from WITHIN the Philippines.
Tax Liability: 30% based on their Gross Income

4. SPECIAL NON-RESIDENT FOREIGN CORPORATION (SEC. 28(B)


a. Nonresident Cinematographic Film Owner Lessor Owner or Distributor 25% of its gross
income from all sources within the Philippines
b. Nonresident Owner or Lessor of Vessels Chartered by Philippine Nationals 4 % of gross
rentals, lease or charter fees from leases or charters to Filipino Citizens or Corporations
APPROVED BY MARITIME INDUSTRY AUTHORITY.
c. Nonresident Owner or Lessor of Aircraft, Machineries and Other Equipments 7 % of
gross rentals or fees
______________________________________________________________
MINIMUM CORPORATE TAX ON DOMESTIC CORPORATION (MCIT) Section 27 E.

A.-Section 27 E A minimum corporate income tax of two percent of the gross income as of the
end of the taxable year, as defined herein is hereby imposed on corporation taxable under this
Title, beginning on the fourth taxable year immediately following the year in which such
corporation commenced its business operations, when the minimum income tax is greater than
that tax computed under Subsection (A) of this Section for the taxable year.

NOTE: MCIT is
a. only applicable to Domestic Corporation and Resident Foreign Corporation on
b. the tax rate of 2% of gross income and applicable only to the
c. 4th year of registration on Bureau of Internal Revenue.

Example:

You registered on January 01, 2010, when is your fourth year of Operation?

2010 2011 2012 2013

First Year of Operation 2nd year 3rd year 4th year

2013 IS THE 4TH YEAR OF OPERATION