THE AWESOME NOTES

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TAX ON CORP

PRELIMINARY

T H E T E R M C O R P O R AT I O N S H A L L
MINIMUM CORPORATE INCOME TAX

(MCIT)

INCLUDE: RATION: to discourage corp from claiming too

1. partnership, no matt how created or many too many deductions to avoid the
organized
2. joint-stock companies
3. joint accounts

payment of tax

TAX RATE:
4. associations

5. insurance company
2% OF THE GROSS INCOME

( F O R M A N U FA C T U R E R S A N D
IT SHALL NOT INCLUDE
1. GPP
2. joint venture and consortium

TRADERS)

GROSS INCOME
formed for the purpose of gross sales,
undertaking: LESS: sales return, discounts and
construction project
engaging in petroleum, coal,
geothermal and other energy

allowances and cost of goods sold.

COST OF GOODS SOLD

operation all business expense directly incurred to
= pursuant to a consortium produce the merchandise and bring them
agreement under a service

contract with the Gov't
to their present location and use.

for trading and merchandising concern

HENCE: the term corporation is shall include
broader in NIRC than in Corporation 1. invoice of the goods sold

Code. 2. import duties

3. freight in transporting the goods to the
place where the goods are actually
TAX ON DOMESTIC CORP sold

4. insurance while the goods are in transit

for manufacturing concerns

shall include
TAX PAYABLE 1. all cost of production of a finished
goods
2. raw materials used
3. d i r e c t l a b o r a n d m a n u f a c t u r i n g
REGULAR TAX; IN GENERAL overhead

30% CORPORATE INCOME TAX

TAX BASE:
4. freight cost
5. insurance premiums and
6. other costs incurred in bringing the raw
Net Taxable Income
- pertinent items of gross income, from
sources within and without the
materials to the factory or warehouse.

(FOR TAXPAYER ENGAGED IN SALE OR

Philippines, less deductions.

NOTE: personal exemption does not apply to

SERVICE)

GROSS INCOME
corporation, as it only applies to individual tax all direct costs and expenses necessarily

payer. incurred to provide the services required

by the customers and clients

IT SHALL INCLUDE
salaries and employees benefits
- of personnel, consultants and specialist

directly rendering the service

cost of the facilities

- directly utilized in providing the service
such as depreciation or rentalof equipment

used and cost of supplies.

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TAX ON CORP

NOTE: FOR BANKS; cost of service shall over kasi yung 100k excess of MCIT on the

include expense interest

pervious taxable year to present.

IMPOSITION OF MCIT

MCIT APPLIES ONLY TO THE FF:

RELIEF FROM MCIT UNDER CERTAIN
CONDITIONS
the Sec of Finance is authorized to suspend
1. DC the imposition of MCIT on any corp

2. RFC

APPLICATION OF MCIT IS PROPER WHEN

which suffer losses on account of:
1. prolonged labor dispute
2. force majure
1. when the minimum income tax is greater
than the tax computed under Sec. 27 A for
the taxable year. when MCIT is greater than
3. legitimate business reverse

subject to rules and regulations

NIT promulgations submitted by the same,
2. applicable only beginning on the 4th which shall define the terms and
taxable year immediately following the year conditions under which it may suspend

which the corp started its operations

HENCE: from #1

MCIT in a meritorious cases.

RATIONALE:
- it can be concluded that NIT and kasi, MCIT applies even if the net income is
MCIT cannot be applied negative, kasi nga ang basis is the gross

RR 9-98
simultaneously.
INSTANCES WHEN MCIT IS APPLIED
1. when taxable income is zero
2. when taxable income is negative or at loss
3. when net taxable income is positive but is
income.
- hence; to avoid the danger should the corp is
suffering from business reverse inimical to its
continued existence, the Sec of Finance may
suspend the application of MCIT. (opinion
lamang ito)

lower than 2% of the gross income.

CARRY FORWARD OF EXCESS MINIMUM

TAX
any excess of the minimum corporate income
tax over the normal tax as computed,
shall be carried forward and credited
against the normal income tax
CORPORATION EXEMPT FROM MCIT
1. stock and non-profit proprietary educational
institutions and hospitals
2. int'l air carriers and int'l shipping
3. offshore banking unit
4. R/AHQ or ROHQ of multinational company
5. other entities registered under PEZA

- F O R 3 I M M E D I AT E LY

SUCCEEDING TAXABLE YEAR
RATION: different tax treatment kasi.

APPLICABILITY OF THE MCIT WHERE

KASI; IN MCIT CORPORATION IS GOVERNED BOTH
the payment of tax under MCIT is made UNDER THE REGULAR TAX SYSTEM AND
quarterly.
- so per quarter, titingnan which is higher
between MCIT or NIT.

A SPECIAL TAX SYSTEM

- supposing NIT is higher on the first quarter

then MCIT, NIT shall be applied
- supposing on the end of the taxable year,
twise mas mataas ang NIT and the remaining
quarter mas mataas ang MCIT, at yung total
mas mataas parin MCIT, yung NIT paid shall

be credited to the MCIT liability

IN RE: CARRY FORWARD OF THE EXCESS

- dito, ang titingnan, hindi yung quarterly, pero
yung aggregate nung MCIT at the end of the

taxable year.

so supposing at the end of the taxable year,

MCIT is 200k at NIT is only 100k. MCIT yung
babayaran for that year. on the next taxable
year, mas mataas ng 200k yung NIT,
- bale for that taxable year, the tax liability of
the taxpayer corp shall only be 100k. kinirry

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TAX ON CORP

ALLOWABLE DEDUCTION

ROYALTIES

TAX RATE

20% FIT

NOTE: the 10% FIT for royalties on

ITEMIZED DEDUCTION books, musical composition and
all items enumerated in Sec. 34 (A) to (J) and literary works only applies to individual

(M). note, Sec. 34 (L) only applies to individual.

OPTIONAL STANDARD DEDUCTION

taxpayer.

CAPITAL GAIN FROM SALE OF SHARES

instead of availing of the itemized deduction, OF STOCK NOT TRADED IN THE STOCK
- to claim a deduction in an amount not

exceeding 40% of their gross income
EXCHANGE

TAX RATE
REQ: taxpayer must signify in his return his 5% FIT; not over 100k
intention to elect the OSD
OTHERWISE: failure to elect, deemed
10% FIT; in excess of 100k

to have chosen itemized deduction

NOTE: once election has been made,

NOTE: to be deemed passive income, the
share of stock traded must be of a Domestic

it shall be irrevocable for the taxable

Corp.

year for which the return was made.

WHO ARE ENTITLED TO AVAIL OSD

TAX ON INCOME DERIVED UNDER EFCDS

IF THE INCOME EARNER IS THE

ONLY:
1. DC
DEPOSITARY BANK

2. RFC

di entitled yung NRFCNET/B

TAX RATE

30% NIT

WHEN EXEMPT FROM NIT

when the depositary bank under the
EFCDS transact with the ff
TAX ON PASSIVE INCOME 1. NR
2. OBU of the Phil
3. local commercial banks
4. branches of foreign banks that
IN GENERAL: the ff passive income subject may be authorized by the BSP to
to tax transact business with foreign
1. interest from deposit and yield or any other currency deposit system units; and
monetary benefit from deposit substitutes 5. other depositary bank under the
and from trust funds and similar
arrangements
2. capital gains from the sale of shares of

HOWEVER:
EFCDS

stock not traded in the stock exchange
3. income derived under the EFCD System
4. inter-corporate dividend
5. capital gains realized from the sale,
exchange, or disposition of lands and/or
10% FIT WILL APPLY
with regard to foreign currency loans granted
by such depositary bank under said EFCDS to:
1. residents, other than OBU in the Phil
2. other depositary banks under the expanded

buildings.

INTEREST
system

NOTE: ALWAYS EXEMPT WHEN THE

to be considered as passive income, for banks, INCOME DERIVED BY DEPOSITARY BANK
CAME FROM

it must be derived from sources within.

TAX RATE:
- NR
- and vise versa. as well as the NR's income

20% FIT

NOTE: no exemption for corporation for final

from banks under EFCDS

income tax on interest income derived from

long-term deposit.
- the exemption only applies to individual
taxpayer

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TAX ON CORP

INTER-CORPORATE DIVIDEND

when a corp is a stock holder of another corp

EXEMPT FROM TAX

TAXATION ON CAPITAL GAINS

- when DC is a stock holder of another DC

WHEN SUBJECT TO GIT INCOME FROM SALE OF SHARES OR

- when it is a SH of a FC

STOCK

EXE: 3 YEARS 50% RULE

CAPITAL GAIN REALIZED FROM SALE,
EXCHANGE OR DISPOSITION OF LAND OR

BUILDING


SAME TREATMENT IN 24(A) TAXPAYER.

ANG NAIBA LANG
- this is limited only to land and buildings, while
for 24(A) Taxpayers, all immovables mentioned

in Art. 415
TAX RATE:
INCOME FROM THE SALE OF REAL

6% FIT

PROPERTY SITUATED IN THE PHILIPPINES

PASSIVE INCOME NOT SUBJECT TO TAX

INCOME FROM THE SALE, EXCHANGE OR
OTHER DISPOSITION OF OTHER CAPITAL
ASSETS

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TAX ON CORP

TA X AT I O N O F R E S I D E N T
TAX ON PROPRIETARY FOREIGN CORPORATION
EDUCATION INSTITUTION

TAX RATE: GEN RULE

10% NIT

REQUISITES:
1. it must be a stock and non-profit institution TAX RATE IN GENERAL
2. it must be private educational institution or
hospital
3. their gross income from unrelated trade,

30% NIT/RCIT

TAX BASE
business or other activity, if any, does not
exceed 50% of their gross income from all
taxable income from sources within

sources; (dominancy test) and

4. must have been issued a permit to operate
MCIT APPLIES ALSO.

from DECS, CHED or TESDA

NOTE:
WITH RESPECT TO THEIR INCOME FROM

SOURCES WITHIN

if non-stock and non-profit, or it is a govt

educational or hospital institution, it shall be

exempt from tax.

UNRELATED TRADE, BUSINESS OR OTHER
ACTIVITY
any trade, business or other activity, the
conduct of which is not substantially related t
the exercise or performance by such

educational institution or hospital of its primary

purpose or function.

NOTE: if it exceeds 50% of its income from

unrelated trade or business or other activity
TAX ON CERTAIN INCOME
- 30% NIT/RCIT will apply.

IN RE PASSIVE INCOME/CAPITAL GAINS

TAX ON GOCC, AGENCIES OR
INSTRUMENTALITIES

- same treatment sa DC

THE ONLY DIFFERENCE IS:

- if from sources without, exempt from tax na.
- also, for inter-corporate dividend, if dividend
IN GENERAL; from DC, exempt from tax.

LIABLE TO 30% NIT

WHEN EXEMPT FROM TAX:

talaga?

1. SSS
2. GSIS
3. PCSO


4. PHIC

ALSO; MAY BE EXEMPT FROM TAX IF THE

FF CONDITIONS HAS BEEN MET
1. it is a public utility; or
2. exercise of any essential governmental
function accruing both to the Govt of the

Phil or to any of its political subdivision.

query: can LGU tax public utility?

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TAX ON CORP

TA X O N N O N - R E S I D E N T which represent the difference

between the regular income tax of
FOREIGN CORPORATION

30% and the 15% tax on dividend

IN SHORT: TAX SPARRING RULE IS

APPLIED WHEN:
GEN RULE 1. the country of domicile of the
NRFC tax its citizens on its
income from sources within and
without, and allows tax credit of
TAX RATE 20% or 15% for the tax deemed

30% FIT

TAX BASE
paid in the Phil; or
2. if the country of domicile of NRFC
does not tax its citizen on its
GROSS INCOME
- from all sources within the Phil received
during the taxable year.
income from sources without

CAPITAL GAIN FROM SALE OF SHARES

OF STOCKS NOT TRADED IN STOCK

EXCHANGE

TAX ON CERTAIN INCOME

same rules for DC

INTEREST ON FOREIGN LOANS
EXEMPT CORPORATION
TAX RATE:
20% FWT

- the lender here is a NRFC and the borrower

see: page 35 NIRC notes

is a DC.

IF THE BORROWER IS NR TAXATION OF PARTNERSHIP

- deemed income without

query: what if the borrower is a RFC, or pasok

- same treatment as a corporation. hence,
subject to RCIT.
- And the share of the partner in the net

sa 3YEAR 50% RULE? income shall be treated as a dividend subject
NOTE: THE FF INCOME ARE EXCLUDED
FROM THE GROSS

to FIT

income received from investment in Philippine

in loans, stocks, bonds, or other domestic TAXATION OF GPP
securities, or from interest in deposits in banks - see notes on NIRC pg. 36
in the Philippines by:
1. foreign govt

2. financing institution owned, controlled or
enjoying refinancing from foreign govt
3. int'l or regional financing institution

established by foreign govt

INTER-CORPORATE DIVIDEND

IN GENERAL

30% FWT

EXE: when 15% FWT

TAX SPARRING RULE/ TAX DEEMED PAID
CREDIT RULE:
- when the country in which the NRFC is
domiciled, shall allow a credit against the tax

due from NRFC.

IN HERE: taxes deemed to have been paid in

the Phil, equivalent to 15%

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 THE AWESOME NOTES
TAX ON CORP
IMPROPERLY ACCUMULATED
EARNING TAX
IN GENERAL
10% IAETax
imposed for each taxabke year on improperly
accumulated income of a corporation,
IN ADDITION TO
to other taxes imposed by this title (RCIT/
MCIT/GIT, FIT)
IMPROPERLY ACCUMULATED TAXABLE
INCOME; defined
taxable income,
adjusted by:
1. income exempt from tax
2. income excluded from gross income
3. income subject to FIT
4. amount of net operating loss carry
over deducted
and reduced by the sum of
1. dividend actually or constructively
paid
2. income tax paid for the taxable year;
other economic zones
and
3. the amount reserved for reasonable
needs of the business
IMMEDIACY TEST
for determining reasonable needs of the
business
- the immediate needs of the business
including reasonably anticipated needs
PURPOSE OF IMPOSITION OF IAET
to compel corporation to declare dividend
as otherwise; it avoids income tax due
with respect to shareholders of the corp by
permitting the earnings to accumulate
instead of being divided and distributed.
HENCE: IMPOSITION OF IAET IS PROPER
WHEN
no dividend declared and paid or issued for
more than 1 year following the close of the
taxable year.
NOTE: if no dividend declared after the lapse
of 1 year following the close the taxable year
- IAET must be paid within 15 days therefrom.
NOTE: IAET APPLIES ONLT TO
1. DC
2. Closely-Held Corp
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CLOSELY-HELD CORPORATION
corp at least 50% in value of OCS or at
least 50% of the total combined voting
power of all classes of stocks entitled to
vote
is owned directly or indirectly
- by or for not more than 20
individuals.
EXCEPTION
IAET SHALL NOT BE APPLIED WITHOUT
QUALIFICATION TO THE FF
1. publicly held corporation
2. banks and other non-bank financial
intermediaries
3. insurance company
RR 2-2001
IAET SHALL NOT BE APPLIED TO THE FF
WIH QUALIFICATION:
1. taxable partnership
2. non-taxable joint ventures
3. GPP
4. enterprises located within the PEZA and
IAET SHALL BE IMPOSED IF:
- reasonable anticipated needs of the
business. must be established.
I N S TA N C E S W H E N C O R P M AY
ACCUMULATE EARNINGS AND NOT TO BE
SUBECT TO IAET
1. allowance for the increase in the
accumulation of earnings up to 10% of the
paid-up capital of the corporation as of
Balance Sheet date, inclusive of
accumulations taken from other years
2. earnings reserved for definite corporate
expansion projects or programs requiring
considerable capital expenditure as
approved by the BOD or equivalent body
3. earning reserved for bldg, plants or
equipment acquisition as approved by the
BOD or equivalent body
4. earning reserved for the compliance with
any loan covenant or pre-existing
obligation established under a legitimate
business agreement
5. earnings acquired by law or applicable
regulations to be retained by the
corporation or in respect of which there is
legal prohibition against its distribution
6. in case of subsidiaries of FC in the Phil, all
undistributed earnings intended or
reserved for investments within the Phil as
can be proven by corporate records and/or
relevant documentary evidence
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TAX ON CORP

EVIDENCE OF PURPOSE TO
AVOID INCOME TAX

NOTE:
intention at the time of the accumulation is
controlling,
whether the profit are accumulated

beyond the needs of the business

ESSENTIAL
definiteness of the plan, couples with

actions taken towards its consummation.

PRIMA FACIE EVIDENCE

of the purpose to avoid tax
1. the fact that the company is mere holding
company or investment company
2. the fact that the earnings or profit of the
corporation are permitted to accumulate
beyond the reasonable needs of the

business.

NOTE: intention is material.

UNLESS: established under the circumstances

enumerated in RR 2-2001, which would justify

the accumulation of profit.

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