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Michael Evans C Pastor

It is an artificial being created by operation of law, having the rights of succession and the powers, attributes and properties, expressly authorized by law or incident to its existence. (Sec. 2, BP No. 68 Corporation Code)

Section 22(B),NIRC - corporation shall include partnerships, no matter how created or organized, joint-stock companies, joint accounts ( cuentas en participacion ), associations or insurances companies, but does not include General professional partnerships, Joint venture & consortium formed for the purpose of undertaking construction projects or Joint venture & consortium formed for the purpose of engaging petroleum, coal geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract with the Government.

GR: taxable no matter how created or organized. Exception: 1. General professional partnerships; 2. Joint venture & consortium formed for the purpose of undertaking construction projects; or 3. Joint venture & consortium formed for the purpose of engaging petroleum, coal geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract with the Government.

A, and other 15 individuals Put up money to buy a sweepstakes ticket for the sole purpose of dividing equally the prize which they may win as they did in fact the amount of P50,000.00. Is the prize taxable?

YES. An unregistered partnership was formed in this case therefore the prize they won therein is taxable.

A and B are co-owners of inherited properties. They agreed to use the said properties and the income derived therefrom as a common fund with the intention to produce profits for them in proportion of their respective shares in the inheritance. Is there a co-ownership or partnership? There is co-ownership which was automatically converted into a partnership as the heirs allow their shares to be held in a common fund under a single management and be used to the intent of making profit which shall be divided among themselves.

A, bought two lots and then transferred his rights to his four children, B,C,D, and E , to enable them to build their residences. B resold the two lots after a year to F for a higher price treating the profit as capital gains and paying an income tax of their respective shares of the profit. The Commissioner required them to pay corporate income tax. Is there a partnership liable for corporate tax? NO. the division of profits was merely incidental. C and his siblings were merely co-owners.
Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or c ommon right or interest in any property from which the returns are derived". There must be an unmistakable intention to form a partnership or joint venture.
NOTE:

Exception: General professional partnership (GPP)- is a partnership 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 (Section 22(B), NIRC) shall be liable for income tax in their separate and individual capacities

GR: Joint accounts or Joint ventures formed for profit are taxable. Ex. Joint Emergency operation although no legal personality may have been created by the joint emergency operation, nevertheless said joint venture or joint management operated the business affairs of the 2 companies as though they constituted a single entity, company or partnership, thereby obtaining substantial economy and profits in the operation. (Collector vs Batangas
Transportation Co., G.R. No. L-9692,January 6, 1958)

Exception:
Joint

venture undertaking construction activity (BIR Ruling No. 317-92); and Joint venture engaged in energyrelated activities with operating contract with the government.

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2.

Domestic corporation corporations created or organized in the Philippines or under its laws.(Section 22 (c), NIRC) Foreign corporation corporations created or organized under the laws of a foreign country.
1) Resident foreign corporation - a foreign corporation engaged in trade or business within the Philippines; or 2) Non-resident foreign corporation - a foreign corporation not engaged in trade or business within the Philippines

1) Domestic Corporation taxable net income from sources within and outside the Philippines.
Net taxable income = gross income ( - ) allowable deductions.

1) Foreign Corporation a) Resident Foreign Corporation - taxed similarly as a domestic corporation on incomes derived from sources within the Philippines. b) Non-resident Foreign Corporation - taxable upon the entire gross income received from all sources within the Philippines.

Gross Income = Gross Sales( - ) Sales returns, discounts and allowances ( - ) Cost of goods sold

If taxpayer is engaged in sale of service: Gross Income = Gross receipts( - ) Sales returns, allowances and discounts

The following are not included in the computation of the gross income of taxpayers: Proceeds of life insurance policies but not the interest paid to the heirs or beneficiaries; Amount received by the insured as return of premium; Value of property acquired by gratuitous transfer but not the income from such property; Compensation for injuries or sickness including damages received; Income exempt under treaty; Retirement benefits, pensions, gratuities, etc. under certain conditions;

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2) 3)
4) 5) 6)

7)

8)

9)

Income derived by foreign governments, financing institutions owned, controlled or enjoying financing from foreign governments, and international or regional financing institutions established by foreign governments, from their investments in loans, stocks, bonds or other domestic securities or from interest on their deposits in banks in the Philippines; Income derived from any public utility or from the exercise of any essential government function accruing to the Philippine government or to any political subdivision; Prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement but only if the recipient was selected without any action on his part to enter the contest or proceeding, and is not required to render substantial future services as a condition to receiving the prize or award

Domestic Corporation Same deductions allowed for individual taxpayers 2) Resident Foreign Corporation Same deductions allowed domestic corporations and conditions and limitations except on the following items of deductions: 1. Taxes 2. Losses 3. Bad debts 4. Depreciation 5. Depletion of oil and gas wells and mines 3) Non-resident Foreign Corporation No deductions are allowed.
1)

The following are exempt from the payment of corporate income tax, subject to certain conditions: Labor, agricultural, or horticultural organizations not organized principally for profit; 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; A beneficiary society, order, or association, such as fraternal organization, or a mutual aid association or a non-stock corporation, organized and operated exclusively for the benefit of its members; Cemetery company owned and operated exclusively for the benefit of its members; Religious, charitable, scientific, athletic, and cultural organizations or those organized for the rehabilitation of veterans, under certain conditions;

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4) 5)

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 individual; 7) Civic league or organization organized for profit but operated exclusively for the promotion of social welfare; 8) Non-stock and non-profit educational institutions; 9) Government educational institutions; 10) Farmers or other mutual typhoon or fire insurance company or like organization of purely local character; and 11) Farmers, fruit growers, or like associations organized and operated as sales agent, under certain conditions.
6)

Domestic Corporations

30%

Taxable Income if total gross income from unrelated trade, business, or activity DOES NOT EXCEED 50% of total income if total gross income from unrelated trade, business, or activity EXCEED 50% of total income Same tax rate upon their taxable income in a similar business, industry, or activity

Proprietary educational 10% institutions and hospital which are non profit 35%

GOCC, Agencies and 32%(2000-2005) Instrumentalities, including 35%(2006) PAGCOR GSIS/ SSS / PHIC/ PCSO Exempt

Depository Banks

10%

On interest income from foreign currency transactions including interest income from foreign loans

Resident Foreign 30% Corporations International carriers 2.5%

Taxable Income derived from all sources within the Philippines On Gross Philippine Billings Any interest income derived from foreign currency loans granted to residents other than offshore banking units or local commercial banks, including local branches of foreign banks that may be authorized by the BSP to transact business with offshore banking Units Income derived by offshore banking units authorized by the BSP, from foreign currency transactions with Non-residents, other offshore banking units, local commercial banks, including branches of foreign banks that may be authorized by the BSP to transact business with offshore banking

Offshore banking 10% units

Offshore banking units

Exempt

Branch profits 15% remittances

15% on any profit remitted by a branch to its head office abroad, except profit remitted by enterprises which are registered with the Philippine Economic Zone Authority (PEZA).

Regional/Area Headquarters

Exempt

Regional Operating 10% Headquarters of Multinational companies Depository banks Exempt under the Expanded Foreign Currency Deposit System (EFCDS)

On taxable income

Except: Interest income from foreign currency loans granted by such depository banks under said expanded system to residents other than offshore banking units in the Philippines or other depository banks under the expanded system- 10% final tax

Refers to the amount of gross revenue derived from carriage of persons, excess baggage, cargo and mail originating from the Philippines 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.(Section 28 (A)(3)(a), NIRC)
Originating Rule to form part of GPB, passenger/cargo must originate from the Philippines (does not apply to domestic corp.)

Imposed to any profit remitted by a branch to its head office. If subsidiary amounts received by NRFC would be treated as dividends it becomes part of its Gross Income from within taxable at 35% Branch first subjected to 35% ordinary corporate tax as RFC ,then to 15% BRPT

Non-Resident Foreign Corporations

30%

Gross Income derived from all sources within the Philippines On gross income

Cinematographic 25% Film owner, lessor or distributor Owner or lessors of vessel charted by Philippine Nationals 4.5%

On gross income

Owner or lessors of aircraft, machineries and other equipment

7.5%

On gross income

Rate : 2% of Gross income Purpose: to prevent the prevailing practice of corporations of over-claiming deductions in order to reduce their income tax payments. Covers only Domestic and Resident Foreign Corporations. Applicable on the 4th year of operation Excess MCIT carried over to the next 3 succeeding years ; (Note: only if Regular income tax is greater than MCIT on the 4th year)

Secretary of Finance may suspend MCIT upon recommendation of BIR Commissioner in any of the following cases: 1) Sustained losses from prolonged labor dispute 2) Force Majeure 3) Legitimate Business reverses Paid on Quarterly and Yearly Basis

10% IAET imposed on improperly accumulated taxable income earned by domestic corporation

as defined under the Tax Code and which are classified as closely held corporations.

Closely Held Corporations are corporations at least 50 % in value of the outstanding capital stock or at least 50% of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by not more than 20 individuals.

Imposed as a form of penalty to corporations retaining earnings for more than the reasonable needs of business in order to recoup the lost taxes. Except: 1) publicly-held corporations 2) banks and other nonbank financial intermediaries 3) insurance companies 4) Taxable Partnerships 5) General Professional Partnership 6) Non-taxable joint ventures 7) Enterprises duly registered with the Philippine Economic Zone Authority (PEZA)