Tax On Corporations

TAX ON CORPORATIONS
Name of Presenter Position Department/College (click View>>Master>>Slide Master to edit)
Corporations, defined (Tax Code)

For income tax purposes, the term corporation shall include partnerships, no matter how created or organized, joint stock companies, joint accounts (cuentas en participacion), associations or insurance companies.
Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City
Corporations, defined (Tax Code)

The term corporation includes also mutual fund companies, regional operating headquarters of multinational companies and joint accounts.
Not to be treated as corporations

1. A general professional partnership 2. A joint venture or consortium formed for the purpose of undertaking construction projects
Not to be treated as corporations

3. A joint venture or consortium for engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract with the Government
Types of Corporations, defined

Domestic corporation a corporation created or organized in the Philippines or under its laws Foreign corporation a corporation which is not domestic Resident corporation a foreign corporation engaged in business in the Philippines
Types of Corporations, defined

Non-resident corporation a foreign corporation not engaged in business in the Philippines but deriving income from the Philippines
Tax on Domestic Corporations

Capital gain tax Final tax on passive income Normal tax (NT or RCIT) Minimum corporate income tax (MCIT) Gross income tax (GIT) Improperly accumulated earnings tax (IAET)

(a) On sale of shares of stock of a domestic corporation not listed and traded thru a local stock exchange held as capital assets On the net capital gain Not over P100,000 On any amount in excess of P100,000
Final tax of 5% Final tax of 10%

(b) On sale of land and building held as capital asset On the gross selling price, or the current fair market value at the time of the sale, whichever is higher
Final tax of 6%

Income Tax Rules - Corporations.docx
Minimum Corporate Income Tax

2% of the minimum corporate income tax gross income
Minimum Corporate Income Tax Gross Income (Merchandising)

Net Sales Less: Cost of Sales Equals: Gross Profit from sales subject to MCIT
Minimum Corporate Income Tax Gross Income (Manufacturing)

Net Sales Less: Cost of goods sold Equals: Gross Profit from sales subject to MCIT
Minimum Corporate Income Tax Gross Income (Service)

Gross receipts or revenues Less: Direct costs of the services ** Equals: Gross income subject to the MCIT * * Direct cost of services Examples are: Salaries of personnel directly rendering the services; expenses on the facilities directly utilized and cost of supplies
Quarterly Tax on Corporations

Within sixty (60) days after the end of each of the first three quarters of the year, a corporation files an income tax return. On or before the fifteenth day of the fourth month following the close of the taxable year, a final or annual income tax return is filed.

The normal income tax and the minimum corporate income tax are computed on the quarterly and final tax returns, and whichever is higher is paid. The tax computed on the quarterly or yearend taxable income is decreased by the amount of tax paid for the preceding quarter or quarters.

There may be an income tax payable (but not refundable) in a quarterly return. Passive income with final tax and capital gains with capital gain tax are not included in the quarterly and year-end computations.
Excess MCIT carry-forward

Any excess of the minimum corporate income tax over the normal tax of a year will be carried forward and credited against the normal tax for the three immediately succeeding taxable years. In the year to which carried forward, the normal tax should be higher than the minimum corporate income tax.
The gross income tax

The President of the Philippines, upon recommendation of the Secretary of Finance, may, effective 2000, allow domestic and resident corporations the option to be taxed on gross income, as follows:

a. The tax is 15%; b. Available only to firms whose cost of sales to gross sales or receipts from all sources does not exceed 55%; c. Shall be irrevocable for 3 consecutive years during which the corporation is qualified under the scheme.

Gross income for purposes of the GIT is (a) For trading or manufacturing concerns, gross profit from sales and (b) For service concerns, gross receipts less sales allowances and discounts.

To date, the President of the Philippines had not made available the optional Gross Income Tax.
The income tax expense

The income tax expense for a year of a corporation would be the total of the three taxes of:
Capital gain tax Final tax on passive income Normal income tax
Tax on Resident Corporations

Tax on Non-resident corporations

Special Corporations
Taxpayer Proprietary educational institution and non-profit hospital Resident international carrier Tax Base Taxable income from all sources Gross Philippines billings Rate 10% 2%
Non-resident owner or lessor of vessel

Non-resident cinematographic film owner, lessor or distributor
Gross rentals, lease and charter fess from the Philippines

Gross income from the Philippines
4% 25%
Taxpayer Non-resident lessor of aircraft, machinery and other equipment Regional operating headquarters of a multinational corporation Tax Base Gross receipts, charges and other fees from Philippine sources Rate 7%
Philippine taxable income
10%
All revenues of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes.
If the gross income of a proprietary educational institution or hospital from unrelated trade, business or other activity exceeds fifty percent (50%) of the total gross income derived from all sources, will be taxes as an ordinary corporation (predominance test).
Regional headquarters vs. regional operating headquarters

A regional headquarters of a multinational company will not be subject to income tax. A regional headquarters is a branch established in the Philippines by a multinational company and which headquarters do not earn or derive income from the Philippines and which act as supervisory, communications and coordinating center for its affiliates, subsidiaries or branches in the AsiaPacific region and other foreign markets.

A regional operating headquarters of a multinational company will pay a tax of ten percent (10%) of its net income. A ROHQ is a branch established in the Philippines by a multinational company which is engaged in any of the following qualifying services: general administration and planning, business planning and coordination, sourcing/procurement of raw materials and components, corporate finance advisory services,

marketing control and sales promotion, training and personnel management, logistic services, research development services and project development, technical support and maintenance, data processing and communication and business development.
Improperly accumulated earnings tax

Presumptions of improper accumulation:
1. When the corporation is a mere holding company 2. When the corporation is an investment company 3. When the corporation permits is profits to accumulate beyond the reasonable needs of the business

Under the Income Tax Regulations, an accumulation of profits (including undistributed profits of prior years) is unreasonable if its is not required fro legitimate business purposes, considering all the circumstances of the case. The law would not prohibit an accumulation for:

1. 2. 3. 4. Additional working capital Expansion, improvement and repairs Debt retirement Acquisition of a related business, or the purchase of stock of a related business where a subsidiary relationship is established 5. Anticipated losses or reserves in business

Under the Corporation Code of the Philippines, a corporation can retain profits not exceeding 100% of its paid-in capital. The improperly accumulated profits tax is not computed and applied by the corporation itself. The BIR makes the computation on its allegation of improper accumulation of profits by the corporation.
Exempt from the IAET

1. Publicly-owned corporations 2. Banks and other nonbank financial intermediaries 3. Insurance companies

10% if the improperly accumulated earnings
Profits remittance tax

Any profit remitted by a branch to its head office shall be subject to a final tax at 15% which shall be based on the total profit applied or earmarked for remittance, without any deduction for the tax component thereof, except those activities which are registered with the Philippine Economic Zone Authority (PEZA).
Government Owned or Controlled Corporation (GOCC)

All corporations, agencies or instrumentalities owned or controlled by the Government shall pay such rate of tax upon their taxable income as are imposed upon corporations or associations engaged in a similar business, industry or activity, except the following:
Government Owned or Controlled Corporation (GOCC)

1. Government Service Insurance System (GSIS) 2. Social Security System (SSS) 3. Philippine Health Insurance Corporation (PHIC) 4. Philippine Charity Sweepstakes (PCSO)
Exempt Associations
Not subject to income tax on received by them from undertakings which are essential to or necessarily connected with the purposes for which they were organized and operated, but Subject to income tax on income of whatever kind and character 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:
Exempt Associations
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;
Exempt Associations
c. Beneficiary society, order or association operating for the exclusive benefit of the members, such as fraternal organization operating under the lodge system, or mutual aid association or a non-stock corporation organized by employees providing for the payment of life, sickness, accident or other benefits exclusively to the members of such society, order, association or non-stock corporation, or their dependents
Exempt Association
d. Cemetery company owned and operated exclusively for its members e. Non-stock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of the net income or assets of which shall belong to or inure to the benefit of any member, organizer, officer or a specified person
Exempt Association
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 stockholder or individual g. Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare h. A non-stock and non-profit and educational institution
Exempt Association
i. j. Government educational institution Farmers and 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, duties and fees collected from members for the sole purpose of meeting its expenses
Exempt Association
k. Farmers, fruit growers, or like association organized and operated as a sales agent, for the purpose of marketing the product 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 furnished by them

Tax On Corporations

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Tax On Corporations

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TAX ON CORPORATIONS

Name of Presenter Position Department/College (click View>>Master>>Slide Master to edit)

Corporations, defined (Tax Code)

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City

Corporations, defined (Tax Code)

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City

Not to be treated as corporations

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City

Not to be treated as corporations

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City

Types of Corporations, defined

Types of Corporations, defined

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City

Tax on Domestic Corporations

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City

Tax on Domestic Corporations

Final tax of 5% Final tax of 10%

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City

Tax on Domestic Corporations

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City

Tax on Domestic Corporations

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City

Minimum Corporate Income Tax

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City

Minimum Corporate Income Tax Gross Income (Merchandising)

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City

Minimum Corporate Income Tax Gross Income (Manufacturing)

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City

Minimum Corporate Income Tax Gross Income (Service)

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City

Quarterly Tax on Corporations

Quarterly Tax on Corporations

Quarterly Tax on Corporations

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City

Excess MCIT carry-forward

The gross income tax

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City

The gross income tax

The gross income tax

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City

The gross income tax

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City

The income tax expense

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City

Tax on Resident Corporations

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City

Tax on Non-resident corporations

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City

Non-resident owner or lessor of vessel

Gross rentals, lease and charter fess from the Philippines

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City

Philippine taxable income

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City

Regional headquarters vs. regional operating headquarters

Regional headquarters vs. regional operating headquarters

Regional headquarters vs. regional operating headquarters

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City

Improperly accumulated earnings tax

Improperly accumulated earnings tax

Improperly accumulated earnings tax

Improperly accumulated earnings tax

Frian Johannes D. Alday, CPA Instructor University of Batangas Lipa City