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COMPUTATION FOR
CORPORATE TAXPAYERS
What is a corporation?
Corporation – is an artificial being created by law,
having the rights of succession and the powers,
attributes and properties authorized by law or
incident to its existence.
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A corporation does not include –
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Foreign Corporation
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B. Non-resident foreign
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Corporations may be subjected to the
following taxes:
Answer: 1. ___________________
2. ____________________
Minimum Corporate
Income Tax
(MCIT)
(RR No. 9-98 as amended by
RR No. 12-07)
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Sec. 27(E) and 28 (A)(2) of the NIRC:
Imposed on:
2 % on Gross Inc.
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Gross income
include all items of gross income
enumerated under Section 32(A) of the Tax
Code, as amended, except income exempt from
income tax and income subject to final
withholding tax.
“Gross sales”
shall include only sales contributory to
income taxable under Sec. 27(A) of the Code.
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“Gross Revenue”
shall include income from sale of services,
likewise, taxable under Sec. 27(A).
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Bungga-Bungga Corporation has been
operating since January 1, 2006. Data
pertinent to its operations covering 2008 to
2010 are as follows:
2008 2009 2010
Gross Sales 3,080,000 4,100,000 5,200,000
Sales Ret., Disc. & Allow. 80,000 100,000 200,000
Cost of Sales 1,500,000 2,000,000 2,500,000
Operating Expenses 1,450,000 1,900,000 2,100,000
2009 2010
Gross Income 2,000,000 2,500,000
X MCIT rate 2% 2%
MCIT 40,000 50,000
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Carry forward of Excess MCIT
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Carry forward of Excess MCIT (cont.)
The final comparison between the normal income
tax payable and the MCIT shall be made at the end of
the taxable year
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Rules on crediting of tax payments & taxes withheld
Annual Computation
Normal Income Tax (NIT) MCIT
is higher than MCIT is higher than Normal Income Tax
Excess MCIT from prior year can Excess MCIT from prior years
be deducted from the NIT due cannot be deducted from the
MCIT due
Excess withholding tax from prior Excess withholding tax from prior
year can be deducted from the NIT year can be deducted from the
due MCIT due
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Rules on crediting of tax payments & taxes withheld
Annual Computation
Normal Income Tax (NIT) MCIT
is higher than MCIT is higher than Normal Income Tax
Note: The final comparison between the NIT and MCIT shall be made at
the end of the taxable year
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Rules on crediting of tax payments & taxes withheld (cont.)
Quarterly computation
Normal Income Tax (NIT) MCIT
is higher than MCIT is higher than Normal Income Tax
Excess MCIT from prior year Excess MCIT from prior year
can be deducted from the cannot be deducted from the
quarterly NIT due quarterly MCIT due
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Rules on crediting of tax payments & taxes withheld (cont.)
Quarterly computation
Normal Income Tax (NIT) MCIT
is higher than MCIT is higher than Normal Income Tax
Note: Quarterly comparison to determine whichever is higher between the NIT and MCIT
shall be done on a cumulative basis
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Illustration 1 - Normal income tax at year end is higher
than MCIT
Panday Corporation’s computed normal income tax and
MCIT, and creditable income taxes withheld from 1st to 4th
quarters including excess MCIT and excess withholding taxes
from prior year/s are as follows:
Excess Excess
Normal Taxes MCIT W/tax
Qtr. Inc. Tax MCIT Withheld Prior Years Prior Years
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Computation
1st Quarter
=======
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Computation (cont.)
2nd Quarter
Excess
Excess
Normal Taxes MCIT W/tax
Qtr. Inc. Tax MCIT Withheld Prior Years Prior Years
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Computation (cont.)
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Computation (cont.)
3rd Quarter
Excess
Excess
Normal Taxes MCIT W/tax
Qtr. Inc. Tax MCIT Withheld Prior Years Prior Years
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Computation (cont.)
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Computation (cont.)
Annual Income Tax (NIT)
Excess Excess
Normal Taxes MCIT W/tax
Qtr. Inc.Tax MCIT W/held Prior Years Prior Years
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Computation (cont.)
Annual corporate income tax due
(higher amount between normal income tax
and MCIT) – Normal Income Tax P670,000
Excess Excess
Normal Taxes MCIT W/tax
Qtr. Inc. Tax MCIT Withheld Prior Years Prior Years
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Computation
Annual Income Tax (MCIT)
For 2013
Provision for Income Tax P8,000
Income Tax Payable P8,000
To record IT liability using the normal
rate.
For 2013
Income Tax Payable P8,000
Deferred Charges-MCIT P8,000
To record application of excess MCIT against
normal IT for year 2013.
For 2015
Retained Earnings P12,000
Deferred Charges-MCIT P12,000
To record the expired portion of the
Deferred Charges-MCIT
Suspension of MCIT
Instances when MCIT may be suspended
Substantial losses on account of –
Prolonged labor dispute
Force majeure
Legitimate business reverses
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Suspension of MCIT
Required documentation
Submission of proof by the corporation
Duly verified by the CIR’s duly authorized
representative
Definition of Terms
Substantial losses from prolonged labor dispute – Losses
arising from strike which lasted for more than 6 months
and which ahs caused the temporary shutdown of business
operations
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Definition of Terms
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IMPROPERLY
ACCUMULATED
EARNINGS TAX (IAET)
RA 8424 / RR 2-2001
CONCEPT OF IAET
Taxpayer is a corporation
Non-distribution of earnings/profits to
stockholders
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IAET is in addition to other taxes imposed under
Title II (Income Tax);
10% tax is imposed for permitting the earnings and
profits of the corporation to accumulate instead
of distributing them to the shareholders;
As a form of deterrent to the avoidance of tax upon
shareholders who are supposed to pay dividend tax;
Tax is imposed in the nature of penalty to a corporation
for improper accumulation of earnings beyond the
reasonable needs of the business.
Touchstone of Liability
PURPOSE (NOT CONSEQUENCE) of accumulation
of income
◦ Use of undistributed earnings for reasonable needs of business
◦ Determination of accumulation beyond reasonable needs of
business
Reasonable Needs of Business:
◦ Immediate needs of business, including reasonably
anticipated needs (Immediacy Test)
Unreasonable Accumulation
◦ Not necessary for the purpose of the business
considering all circumstances of the case
Earnings up to 100% of paid-up capital of corp.,
inclusive of accumulation taken from other years
Earnings Reserved
◦ for definite corporate expansion projects
◦ for building, plant or equipment acquisition
◦ for compliance with loan covenant or pre-
existing obligation established under a
legitimate business agreement.
Investment of substantial earnings and profits
of the corporation in unrelated business or in
stock or securities of unrelated business;
Investment in bonds and other long term
securities; and
Accumulation of earnings in excess of 100%
of paid-up capital.
Banks and non-bank financial intermediaries
Insurance companies
Publicly held corporations
taxable partnerships
GPP
Non-taxable joint ventures
Firms registered under RA 7916, 7227, and other
special ecozones
IMPOSITION OF IAET
corporations
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Closely-held corporations:
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Attachments Required:
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NOTE:
Installment Payments
** Applicable to individual
taxpayer only and NOT ON
CORPORATIONS.
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Stamping of ITRs and
Attachments
Revenue Memorandum
Order No. 6-2010
Policies and Guidelines: