BB-1

TAXATION LAW COMMITTEE: Chairperson: Rhodaline Regoso; Asst. Chairperson & EDP: Maricel Alisuag; Subject
Heads:unelet Mataro! Michelle Al"are#! E$ren Di#on! %han &uieb; Me'bers: Alexis Cervantes. Leizl Calimaran, Berna
Quibal, Noreli De Claro, Jocelyn Gamboa, Albert Rodriuez, !arla Cabel, Rodol"o Quitolbo, Liam #adananan, #aul
La$rence Lim, Alder Delloro, Jo%n &van 'ablizo, Ria &baviosa, #anc%o (as)uez, Aileen Roxas, Lei" *+i,a
MEMORY AID IN TAXATION LAW
SAN BEDA COLLEGE OF LAW 2003 CENTRALIZED BAR OPERATIONS
Reproduction in any form of this copy is strictly prohibited!!!
MEMORY AID IN TAXATION LAW
SAN BEDA COLLEGE OF LAW 2003 CENTRALIZED BAR OPERATIONS
Reproduction in any form of this copy is strictly prohibited!!!
ANNEX BB: NET OPERATING LOSS CARRY-OVER (NOLCO)
(Re"enue Regulation )*+,--).
A. CONCEPT OF NET OPERATING LOSS CARRY-OVER
The net operating loss of the business or enterprise for any taxable year immediately preceding the
current taxable year, which had not been previously offset as deduction from gross income shall be carried
over as a deduction from gross income for the next t%ree -./ consecutive taxable years immediately
following the year of such loss.
!R "#$%& !T'%R T'($ !#) ($* +(& ,%))&
( net operating loss without the benefit of incentives provided for under %xecutive !rder $o. --.,
otherwise /nown as the !mnibus #nvestments 0ode of 1123, as amended, incurred in any of the first ten
4156 years of operation may be carried over as a deduction from taxable income for the next five 476 years
immediately following the year of such loss.
8rovided, that the entire amount of the loss shall be carried over to the first of the five 476 taxable years
following the loss, and any portion of such loss which exceeds the taxable income of such first year shall
be deducted in li/e manner from the taxable income of the next remaining 496 four years.
B. GENERAL PRINCIPLES AND POLICIES
The allowance for deduction of $!)0! &'()) B% )#"#T%* !$): T! $%T !8%R(T#$+ )!&&%& (00;";)(T%*
B%+#$$#$+ <($;(R: 1, 1112.
T#"% ! *%T%R"#$(T#!$ ! &;B&T($T#() 0'($+% #$ !,$%R&'#8 ! T'% B;&#$%&&
The substantial change in the ownership of the business or enterprise shall be determined as
o" t%e end o" t%e taxable year when $!)0! is to be claimed as deduction.
$!$-TR($&%R(B#)#T: ! $!)0!
;nless otherwise provided in these Regulations, $!)0! of the taxpayer s%all not be
trans"erred or assined to anot%er +erson, whether directly or indirectly, such as, but not limited to, the
transfer or assignment thereof through a merger, consolidation or any form of business combination of
such taxpayer with another person.
;nless otherwise provided in these Regulations, an individual 4including estate or trust6 engaged in
trade or business or in the exercise of profession, or a domestic or resident foreign corporation may be
allowed to claim deduction of his=its corresponding $!)0!>
8rovided, however, that an individual who claims t%e 012 o+tional standard deduction s%all
not simultaneously claim deduction of the $!)0!>
8rovided, further, that the three-year reglementary period shall continue to run
notwithstanding the fact that the aforesaid individual availed of the 15? optional standard deduction
during the said period.
The three-year reglementary period on the carry-over of $!)0! shall continue to run notwithstanding
the fact that the corporation paid its income tax under the @"inimum 0orporate #ncome Tax@
computation.
$!)0! shall be availed of on a @#R&T-#$, #R&T-!;T@ basis.
C. EXEMPTED FROM COVERAGE
16 $et loss incurred in a taxable year during which the taxpayer was exempt from income taxA
-6 ,hen there is substantial change in the ownership of the business or enterprise.
&;B&T($T#() 0'($+% #$ T'% !,$%R&'#8 ! T'% B;&#$%&& !R %$T%R8R#&% shall refer to a change
in the ownership of the business or enterprise as a result of or arising from its merger or consolidation
or combination with another person>
4b6 Less t%an seventy3"ive +ercent -452/ in nominal value of outstanding issued shares, if the
business is in the name of a corporation, is held by or on behalf of the same personsA or
4c6 Less t%an seventy3"ive +ercent -452/ of the paid up capital of the corporation, if the business is in
the name of a corporation, is held by or on behalf of the same persons.
D. TAXABLE ENTITIES - COVERAGE
1. #ndividual 4including estate or trust6 engaged in trade or business or in the exercise of professionA
-. *omestic corporationA
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TAXATION LAW COMMITTEE: Chairperson: Rhodaline Regoso; Asst. Chairperson & EDP: Maricel Alisuag; Subject
Heads:unelet Mataro! Michelle Al"are#! E$ren Di#on! %han &uieb; Me'bers: Alexis Cervantes. Leizl Calimaran, Berna
Quibal, Noreli De Claro, Jocelyn Gamboa, Albert Rodriuez, !arla Cabel, Rodol"o Quitolbo, Liam #adananan, #aul
La$rence Lim, Alder Delloro, Jo%n &van 'ablizo, Ria &baviosa, #anc%o (as)uez, Aileen Roxas, Lei" *+i,a
MEMORY AID IN TAXATION LAW
SAN BEDA COLLEGE OF LAW 2003 CENTRALIZED BAR OPERATIONS
Reproduction in any form of this copy is strictly prohibited!!!
MEMORY AID IN TAXATION LAW
SAN BEDA COLLEGE OF LAW 2003 CENTRALIZED BAR OPERATIONS
Reproduction in any form of this copy is strictly prohibited!!!
B. Resident foreign corporation
BB-B
TAXATION LAW COMMITTEE: Chairperson: Rhodaline Regoso; Asst. Chairperson & EDP: Maricel Alisuag; Subject
Heads:unelet Mataro! Michelle Al"are#! E$ren Di#on! %han &uieb; Me'bers: Alexis Cervantes. Leizl Calimaran, Berna
Quibal, Noreli De Claro, Jocelyn Gamboa, Albert Rodriuez, !arla Cabel, Rodol"o Quitolbo, Liam #adananan, #aul
La$rence Lim, Alder Delloro, Jo%n &van 'ablizo, Ria &baviosa, #anc%o (as)uez, Aileen Roxas, Lei" *+i,a
MEMORY AID IN TAXATION LAW
SAN BEDA COLLEGE OF LAW 2003 CENTRALIZED BAR OPERATIONS
Reproduction in any form of this copy is strictly prohibited!!!
MEMORY AID IN TAXATION LAW
SAN BEDA COLLEGE OF LAW 2003 CENTRALIZED BAR OPERATIONS
Reproduction in any form of this copy is strictly prohibited!!!
E. EXEMPTED TAXABLE ENTITIES
1. !ffshore Ban/ing ;nit 4!B;6 of a foreign ban/ing corporation, and oreign 0urrency *eposit ;nit
40*;6 of a domestic or foreign ban/ing corporation, duly authoriCed as such by the Bang/o &entral
ng 8ilipinas 4B&86A
-. (n enterprise registered with the Board of #nvestments 4B!#6 with respect to its B!#-registered activity
enDoying the #ncome Tax 'oliday incentive. #ts accumulated net operating losses incurred or sustained
during the period of such #ncome Tax 'oliday shall not Eualify for purposes of the $!)0!A
B. (n enterprise registered with the 8hilippine %conomic Fone (uthority 48%F(6, pursuant to R.(. $o.
311., as amended, with respect to its 8%F(-registered business activity. #ts accumulated net operating
losses incurred or sustained during the period of its 8%F( registration shall not Eualify for purposes of
the $!)0!A
9. (n enterprise registered under R.(. $o. 3--3, otherwise /nown as the Bases 0onversion and
*evelopment (ct of 111-, e.g., &B"(-registered enterprises, with respect to its registered business
activity. #ts accumulated net operating losses incurred or sustained during the period of its said
registered operation shall not Eualify for purposes of the $!)0!A
7. oreign corporations engaged in international shipping or air carriage business in the 8hilippinesA and
.. #n general, any person, natural or Duridical, enDoying exemption from income tax, pursuant to the
provisions of the 0ode or any special law, with respect to its operation during the period for which the
aforesaid exemption is applicable. #ts accumulated net operating losses incurred or sustained during
the said period shall not Eualify for purposes of the $!)0!.
F. !ARTERLY AND ANN!AL AVAILMENT OF NOLCO
$!)0! shall be allowed as deduction in computing the taxpayerGs income taxes per Euarter and
annual final adDustment income tax returns>
8rovided, however, that if per the taxpayerGs final annual adDustment income tax return, the entire
operations for the year resulted to a net operating loss, such net operating loss may be claimed as $!)0!
deduction in the immediately succeeding taxable year>
8rovided, further, that $!)0! may be claimed as deduction only within a period of three 4B6
consecutive taxable years immediately following the year the net operating loss was sustained or incurred.
#n order that compliance with this three-year statutory reEuisite may be effectively monitored, the
taxpayer shall, at all times, show its $!)0! deduction, in its income tax return, as a separate item of
deduction. #n no case may $!)0! be claimed, as a part of the taxpayerGs other itemiCed deductions, li/e
under deduction of @losses,@ in general.
G. NOLCO IN RELATION TO T"E MINIM!M CORPORATE INCOME TAX (MCIT)
#n general, domestic and resident foreign corporations subDect to the normal income tax rate are liable
to the -? "0#T, if applicable, computed based on gross income, whenever the amount of the "0#T is
greater than the normal income tax due 4computed with the benefit of $!)0!, if any6, pursuant to &ections
-3 or -2 of the 0ode.
Thus, such corporation cannot enDoy the benefit of $!)0! for as long as it is subDect to "0#T in any
taxable year.
8rovided, however, that the running of the three-year period for the expiry of $!)0! is not interrupted
by the fact that such corporation is subDect to "0#T in any taxable year during such three-year period.
". PRESENTATION OF NOLCO IN T"E TAX RET!RN AND !N!SED NOLCO IN T"E INCOME STATEMENT
The $!)0! shall be separately shown in the taxpayerGs income tax return 4also shown in the
Reconciliation &ection of the Tax Return6 while the ;nused $!)0! shall be presented in the $otes to the
inancial &tatements showing, in detail, the taxable year in which the net operating loss was sustained or
incurred, and any amount thereof claimed as $!)0! deduction within three 4B6 consecutive years
immediately following the year of such loss.
ailure to comply with this reEuirement will disEualify the taxpayer from claiming the $!)0!.