CORPORATE
INCOME
TAXATION
Definition
CORPORATION includes partnerships,
joint stock companies, joint accounts,
associations or insurance companies
except:
Joint Construction Venture (2007 Bar)
General Professional Partnership
Joint Venture for engaging in petroleum,
coal, geothermal and other energy
operations
Unregistered or Registered
Partnership
Taxable provided that the following
requisites concur:
Agreement, oral or writing, to contribute
money, property or industry to a
common fund
Intention to divide the profits
Joint accounts or joint ventures
formed for profits
Joint Emergency Operation
Joint Stock Companies
Major Groups of Corporation
for Income Purposes
Domestic Corporations
Source: Within and without
Tax base:
Taxable income
Tax rate:
30% effective January 1, 2009
(RA No. 9337)
I. Special Domestic
Corporations
Private Educational Institution
subject to 10% on their taxable
income
Provided:
gross income from unrelated trade, business
or other activity does not exceeds 50%;
subject to 35% if it exceeds 50%.
*Private educational institution any private
school maintained and administered by private
individuals or groups issued a permit to operate.
*Unrelated trade, business, or other activity the
conduct of which is not substantially related to
the exercise or performance by educational
institution of its educational purpose or function
*Related activities include income derived from
auxiliary activities - School owned canteen,
cafeteria, dormitory and bookstore within the
school premises
Non-profit hospital
Same rule as private educational institution
Unrelated trade, business, or other activity
>> St. Lukes Medical Center, Inc.
- as a propriety non-profit hospital
- entitled to preferential rate of 10%
II. Resident Foreign Corporations
Source: Within
Tax base: Taxable income
Tax rate: 30% effective January 1, 2009
(RA No. 9337)
Special Resident Foreign Corporations
International Carries within Gross Philippines
Billings 2.5%;
Offshore banking unit within Gross onshore
income 10%
Foreign currency deposit unit within Gross
onshore income 10%
Transacting business
Continuity of commercial dealings and
arrangements
Gross Philippine Billings
Amount of gross revenue realized 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 (2005 Bar)
Foreign Airline Companies Without Flights
Starting from or Passing through any point in
the Philippines
Not considered engaged in business as an
international air carrier in the Philippines and is,
therefore not subject to Gross Philippine Billings
Tax
International Air Carrier and International
Shipping
Shall be taxed on the basis of their Gross
Philippine Billings
Off-line international airline is subject to
corporate income tax
If an international air carrier maintains flights
to and from the Philippines, it shall be taxed at
the rate of 2 % of its Gross Philippines
Billings, while international air carriers that do
not have flights to and from other activities in
the country will be taxed at the rate of 32% of
such income.
III. Non-resident foreign
corporations
Source:Within
Tax base: Gross income
Tax rate: 30% effective January 1, 2009
(RA No. 9337)
Special non-resident foreign corporations:
a. NR lessor of cinematographic film within Gross
income 25% final tax;
b. NR owner or lessor of vessels chartered by Phil.
Nationals within Gross rental 4.5% final tax;
c. NR owner or lessor of aircraft, machinery &
equipment within Gross rental 7.5% final tax
MINIMUM CORPORATE INCOME
TAX
Concept and Rationale of the MCIT
Means to ensure that everyone will make
some minimum contribution to the
support of the public sector
Purpose of MCIT (2001 Bar)
To forestall the prevailing practice of
corporations of over claiming deductions
to reduce income tax payments
Nature of MCIT
An estimate of the income tax that is due
from a firm
Equal to 2% of the gross income of a
corporation
Corporation should pay MCIT when it regular
(normal) income is lower than the MCIT
Regular income tax is paid when higher than
the MCIT
Coverage of MCIT (2001 Bar)
Domestic and resident foreign corporations
which are subject to the regular income tax
regular income tax refers to the regular
income tax rates under the Tax Code
Tax rate is 30% effective January 2009
When does a corporation start to be
covered by the MCIT?
Fourth (4th) year of its business operations
Firms that were registered in 1994 and earlier
years are covered by the MCIT beginning
January 1, 1998
Firms registered with the BIR in any month in
1998 after the lapse of three calendar years
Suspension of the
payment of MCIT
Sustained losses from prolonged labor
dispute;
Force majeure;
Legitimate business reverses
How is the MCIT
computed?
MCIT is equal to 2% of the gross income of the
corporation at the end of the taxable quarter
Gross income
Gross Sales
xxx
Less: Sales returns, discounts & allowances
xxx
Cost of goods sold
xxx
Gross Income
xxx
When is the MCIT reported & paid?
Quarterly and on a yearly basis
Shall pay whenever it is greater than the
regular or normal corporate income tax
Can the company claim the MCIT it paid
as a deduction from gross income?
NO
What is the carry-forward provision
under the MCIT?
Any excess of the MCIT over the normal
income tax may be carried forward on an
annual basis and be credited against the
normal income tax for the three immediately
succeeding taxable years
Illustration:
2000
2001
2002
Normal IT
50,000
60,000
100,000
MCIT
75,000
100,00
0
60,000
Amt. of tax to be
paid
75,000
100,00
0
100,000
Less: Excess MCIT
2000 25,000
2001 40,000
Net amount of tax
payable
65,000
75,000
100,00
0
35,000
IMPROPERLY ACCUMULATED
EARNINGS TAX of 10%
Coverage:
The 10% IAET is imposed on improperly
accumulated taxable income earned by
domestic corporation which are classified as
closely held corporations
>>Closely-held Corporations
-are those 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.
OTHER CORPORATE TAX RATES
Common tax rates
Capital gain from sale of share of stock
If not listed and traded through stock
exchange:
Net capital gain not over P100,000 5%
Any amount in excess of P100,000 10%
Domestic Corporations
Corporations have the option to be taxed at
15% of gross income on the following conditions
Tax effort ratio of 20% of Gross National Product
(GNP)
Ratio of 40% of income tax collection to total tax
revenues
VAT tax effort of 4% of GNP
0.9% ratio of the Consolidated Public Sector Financial
Position to GNP
20% Final Tax interest on currency deposit and
royalties derived from sources within the
Philippines
Resident Foreign Corporations
Branch Profit Remittance Tax
Tax
Base: Profits applied for or earmarked for
remittance
Tax rate: 15% final tax
Condition: Branch profits are effectively
connected with the conduct of its trade or
business in the Philippines
Exempt profits permitted: PEZA
Purpose of Remittance Tax: to equalize the
income tax burden on foreign corporations
maintaining local branch offices and organizing
subsidiary domestic corporations.
Non-Resident Foreign Corporations
Interest on foreign loan 20% final tax
Dividend received from domestic
corporation/tax sparing credit rule
Tax rate: 15% Final Tax
Condition: foreign government shall allow
credit against the tax due from the foreign
corporation taxes deemed to have been
paid
Tax credit allowed: 15% effective January 1,
2005
TAX EXEMPT
CORPORATIONS UNDER
THE NIRC
Labor, agriculture, or horticultural
organization not organized principally for
profit
Provincial fairs and like associations of a quasi-
public character designed to encourage
development through system of awards, prizes
or premiums whose income derived from gate
receipts, entry fees, donations, etc.
Mutual Savings Banks and
Cooperative Banks
Requisites for exemption:
No capital stock represented by shares
Earnings, less only the expenses of
operating are distributable wholly among
the depositors
Operated for mutual purposes and without
profit
Fraternal Beneficiary Society, Order or
Association
Requisites for exemption:
Operated under lodge system
Established system of payment to its members or their
dependents of life, sick, accident, or other benefits
No part of the net income inures to the benefit of the
stockholders or members.
Grand lodge established for the care of the
members, their dependents and members of an
affiliated lodge unable to earn a livelihood
Mutual protective societies not operating under
the lodge system and travelers association
providing for a fix death benefits.
Cemetery companies
Requisites for exemption
Owned and operated exclusively for the
benefit of owners
Not operated for profit
Religious, Charitable, Scientific,
Athletic or Cultural Corporations
Requisites for exemption:
Organized and operated for one or more of
the specified purposes
No part of its net income must inure to the
benefit of private stockholders or individuals
Business, Chamber of Commerce, or
Board of Trade
Requisites for exemption:
Association of persons having some common
business interest
Limited its activities to work for such common
interests
Not engaged in a regular business for profit
No part of the net income inures to the benefit of
any private stockholder or individual
Civic League
Requisites for exemption
Not organized for profit but operated exclusively for
purposes beneficial to the community as a whole
Sworn affidavit with the BIR showing the following:
Character of the league or organization
Purpose of which it was organized
Actual activities
Sources of income and disposition there
All facts relating to the operation of the organization
which affects its right to exemption.
Non-Stock, Non-Profit Educational
Institutions (Revenue Memorandum
Circular No. 76-2003)
The exemption of non-stock, non-profit
educational institutions refers to internal revenue
taxes imposed on all revenues and assets used
actually, directly and exclusively for educational
purposes
Subject to internal revenue taxes on income from
trade, business or other activity, the conduct of
which is not related to the exercise or
performance by such educational institutions of
their educational purposes or functions
Government Education Institution
UP is subject to 20% final tax.
Reason: income from 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.
Mutual Fire Insurance Companies and Like
Organizations
Requisites for exemption
Income is derived solely from assessments , dues
and fees collected from members
Fees collected from members are for the sole
purpose of meeting its expenses.
Farmers, Fruit Growers or Like
Association
Requisites for exemption
Formed and organized as sales agent or the purpose
of marketing the product of its members
No net income to the members
Proceeds of the sale shall be turned over to the less
necessary selling expenses on the basis of the
quantity of produce finished by them
COMMON REQUISITES
Objectives: betterment of the conditions engaged
in such pursuits, the improvement of the grade of
their product and the development of a higher
degree of efficiency in their respective occupations
Not organized and operated principally for profit
No part of the net income inures to the benefit of
any member or individual
No capital represented by shares of stock
Educational or instructive in character
COMMON LIMITATIONS
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 (2002 Bar)
Tax-exempt government-owned and
controlled corporations (GOCC)
GSIS
SSS
PHIC
PCSO
Tax-exempt corporations under special laws
Cooperatives are exempted from taxes
subject to certain conditions under RA 6938
Foundation created for scientific
advancement is exempt from tax under
Section 24 of RA 2067.
End
of
Report
