Blt 134 chapter 4

1. 1. INCOME TAXATION Chapter 4 - Ballada

2. 2. CHAPTER IV – MINIMUM CORPORATE INCOME TAX, IAET AND GITMINIMUM CORPORATE INCOME TAX (MCIT) Two percent (2%) of the gross income as of the end of the
taxable year is imposed upon any domestic corporation beginning the fourth (4th) taxable year (whether calendar or fiscal yea, depending on the accounting periodemployed)
immediately following the taxable year in which such corporation commenced its business operations. The MCIT shall be imposed whenever:a. Such corporation has zero or
negative taxable income; orb. The amount of minimum corporateincome tax is greater than the normal income tax due from such corporation.Relief from MCIT under Certain
ConditionsThe Secretary of Finance, upon recommendation of the Commissioner,may suspend the imposition of MCIT upon submission of proof by the applicant-corporation, duly
verified by the Commissioner’s authorized representative, that the corporation sustained substantial losses on account of a prolonged labor dispute or because of “force majeure” or
because of legitimate business reverses.
3. 3. PERIOD SUBJECT TO MCITFor purposes of the MCIT, the taxable year in which business operations commenced shall be the year in which the domestic registered with the
BIR. Firms which were registered with BIR in 1994 and earlier years shall be covered by the MCIT beginning Jan. 1, 1998. Firms which were registered with BIR in any month in
1998 shall be covered by the MCIT in 2002 after the lapse of three calendar years from 1998.The reckoning point for firms using the fiscal year shall also be 1998. For example, a
firm which registered with the BIR on July 1, 1998 shall be subject to MCIT on his gross income earned for the entire fiscal year ending in the year 2002.
4. 4. ACCOUNTING TREATMENT OF EXCESS MCIT PAIDAny amount paid as excess MCIT shall be recorded in the corporation’s books as an asset under account title “Deferred
Charges – MCIT”. This asset account shall be carried forward and may be credited against the normal income tax due for a period not exceeding three (3) taxable years immediately
succeeding the taxable year/s in which the same has been paid.Any amount of the excess MCIT which has not or cannot be credited against the normal income taxes due for the 3-
year reglementary period shall lose its creditability. Such amount shall be removed and deducted from “Deferred charges – MCIT” account by a debit entry to “Retained Earnings”
account and a credit entry to “Deferred Charges-MCIT” account since this tax is not allowable as deduction from gross income it being an income tax.
5. 5. LA PAGAYO CORPORATIONYEAR JOURNAL ENTRIES DR. CR. 2003 a Provision for Income Tax 25,000.00 Income Tax Tapayable 25,000.00 b Deferred Charges - MCIT
75,000.00 Income Tax Payable 75,000.00 c Income Tax Payable 100,000.00 Cash In Bank 100,000.00
6. 6. Deferred Charges - MCIT2003(b) 75,000.00 Income Tax Payable2003(c) 100,000.00 25,000.00 2003(a) 75,000.00 2003(b) 100,000.00 100,000.00
7. 7. YEAR JOURNAL ENTRIES DR. CR. 2004 a Provision for Income Tax 130,000.00 Income Tax Tapayable 130,000.00 b Deferred Charges - MCIT 20,000.00 Income Tax Payable
20,000.00 c Income Tax Payable 150,000.00 Cash In Bank 150,000.00
8. 8. Deferred Charges - MCITBB 75,000.002004(b) 20,000.00 95,000.00 Income Tax Payable2004(c) 150,000.00 130,000.00 2004(a) 20,000.00 2004(b) 150,000.00 150,000.00
9. 9. YEAR JOURNAL ENTRIES DR. CR. 2005 a Provision for Income Tax 200,000.00 Income Tax Tapayable 200,000.00 b Income Tax Payable 95,000.00 Deferred Charges - MCIT
95,000.00 c Income Tax Payable 105,000.00 Cash In Bank 105,000.00
10. 10. Deferred Charges - MCITBB 95,000.00 95,000.00 2005(b) Income Tax Payable2004(b) 95,000.00 200,000.00 2005(a)2004(c) 105,000.00 200,000.00 200,000.00
11. 11. YEAR JOURNAL ENTRIES DR. CR. 2006 a Deferred Charges - MCIT 300,000.00 Income Tax Payable 300,000.00 b Income Tax Payable 300,000.00 Cash In Bank 300,000.00
12. 12. Deferred Charges - MCIT2006(a) 300,000.00 Income Tax Payable2006(b) 300,000.00 300,000.00 2006(a)
13. 13. YEAR JOURNAL ENTRIES DR. CR. 2007 a Provision for Income Tax 10,000.00 Income Tax Tapayable 10,000.00 b Deferred Charges - MCIT 40,000.00 Income Tax Payable
40,000.00 c Income Tax Payable 50,000.00 Cash In Bank 50,000.00
14. 14. Deferred Charges - MCITBB 300,000.002007(B) 40,000.00 340,000.00 Income Tax Payable2007(c) 50,000.00 10,000.00 2007(a) 40,000.00 2007(b) 50,000.00 50,000.00
15. 15. YEAR JOURNAL ENTRIES DR. CR. 2007 a Provision for Income Tax 10,000.00 Income Tax Tapayable 10,000.00 b Deferred Charges - MCIT 40,000.00 Income Tax Payable
40,000.00 c Income Tax Payable 50,000.00 Cash In Bank 50,000.00
16. 16. Deferred Charges - MCITBB 300,000.002007(B) 40,000.00 340,000.00 Income Tax Payable2007(c) 50,000.00 10,000.00 2007(a) 40,000.00 2007(b) 50,000.00 50,000.00
17. 17. YEAR JOURNAL ENTRIES DR. CR. 2008 a Provision for Income Tax 15,000.00 Income Tax Tapayable 15,000.00 b Deferred Charges - MCIT 45,000.00 Income Tax Payable
45,000.00 c Income Tax Payable 60,000.00 Cash In Bank 60,000.00
18. 18. Deferred Charges - MCITBB 340,000.002008(B) 45,000.00 385,000.00 Income Tax Payable2008(c) 60,000.00 15,000.00 2008(a) 45,000.00 2008(b) 60,000.00 60,000.00
19. 19. YEAR JOURNAL ENTRIES DR. CR. 2009 a Provision for Income Tax 8,000.00 Income Tax Tapayable 8,000.00 b Deferred Charges - MCIT 32,000.00 Income Tax Payable
32,000.00 c Income Tax Payable 40,000.00 Cash In Bank 40,000.00 d Retained Earnings 300,000.00 Deferred Charges - MCIT 300,000.00
20. 20. Deferred Charges - MCITBB 385,000.00 300,000.00 2009(d)2009(B) 32,000.00 417,000.00 300,000.00 117,000.00 Income Tax Payable2009(c) 40,000.00 8,000.00 2009(a)
32,000.00 2009(b) 40,000.00 40,000.00
 21. 21. YEAR JOURNAL ENTRIES DR. CR. 2010 a Provision for Income Tax 1,000.00 Income Tax Tapayable 1,000.00 b Deferred Charges - MCIT 49,000.00 Income Tax Payable
49,000.00 c Income Tax Payable 50,000.00 Cash In Bank 50,000.00
22. 22. Deferred Charges - MCITBB 117,000.00 2010(a)2010(B) 49,000.00 166,000.00 Income Tax Payable2010(c) 50,000.00 1,000.00 2010(a) 49,000.00 2010(b) 50,000.00
50,000.00
23. 23. QUARTERLY NORMAL INCOME TAX VS. MCITExcess MCIT is allowed to be credited against normal income tax only when normal income tax is greater than MCIT.However,
if in the computation of the annual income tax due, the computed annual MCIT due appears to be highe than the annual normal income tax due, what may be credited against the
annual MCIT due shall only be the quarterly MCIT payments of the current taxable quaters, the quarterly normal income tax payments in the quarters of the current taxable year, the
expanded withholding taxes in the current year and excess expanded withholding taxes in the prior years. Excess MCIT from the previous taxable year/s shall not be allowed to be
credited therefrom as the same can only be appied against normal income tax. (Revenue regulations 12-2007, Oct. 10, 2007)
24. 24. IMPROPERLY ACCUMULATED EARNINGS TAX (IAET)

Blt 134 chapter 3

1. 1. TAXATION OF CORPORATION Chapter 3 - Ballada
2. 2. DEFINITION OF TERMSCORPORATION – it includes partnerships, no matter how created or organized, joint- stock companies, joint accounts (cuentas en participacion),
associations, or insurance companies, but does not include general professional partneships and a joint venture or consortium formed for the purpose of undetaking construction
projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract with the Government.
3. 3. DEFINITION OF TERMSDOMESTIC CORPORATION – means created or organized in the Philippines or under its laws.FOREIGN CORPORATION – means a coporation which
is not domestic.RESIDENT FOREIGN CORPORATION – applies to a foreign corporation engaged in trade or business within the Philippines.NON-RESIDENT FOREIGN
CORPORATION – applies to a foreign corporation not engaged in trade or business within the Philippines.
4. 4. SOURCES OF INCOME Corporation Sources of Income Within the Phils. Without the Phils.1. Domestic √ √2. Foreign √
5. 5. CATEGORIES OF INCOME AND TAX RATES1. Business Income – generally, business income earned by a corporation is taxd at the following rates (Sections 27(A), 28(A)(1)
and 28(B)(1)): Year Tax Rate 1997 35% 1998 34% 1999 33% 2000-Oct. 2005 32% Nov. 2005-2008 35% 2009 30%2. Passive Income – passive income is subject to separate and
final tax. These are taxed at fixed rates ranging from 5% to 20%. Passive income is not to be included in the gross income computation.
6. 6. DOMESTIC AND RESIDENT FOREIGN CORPORATIONSPRO-FORMA COMPUTATION OF NORMAL INCOME TAX: Gross Income P xxx Less: Allowable Deductions xxx Net
income P xxx Multiply by tax rate (2009) 30% Tax Due P xxx
7. 7. DOMESTIC CORPORATION, IN PARTICULARPROPRIETARY EDUCATIONAL INSTITUTIONS AND NON-PROFIT HOSPITALS - The 10% tax on the taxable income is subject
to limitation. If the gross income from unrelated trade, business or other activity exceeds fifty percent (50%) of the total gross income derived from all sources, the tax prescribed
under Section 27(A) shall be imposed on the entire taxable income.Unrelated trade, business or other activity – means any activity which are not subtantially related to the exercise
or performance by such educational institution or hosital of its primary purpose or function.
8. 8. ILLUSTRATIONS 1:SGB University, a proprietary educational institution, has a gross income for the taxable year 2009 of P15M. Of the gross income, P5 million was derived from
unrelated trade or business. Total deductions amount to P3million. Gross Income 15,000,000 Less: Deductions 3,000,000 Net Income 12,000,000 Multiply by tax rate 10% Tax Due
1,200,000
9. 9. ILLUSTRATIONS 2:SGB University, a proprietary educational institution, has a gross income for the taxable year 2009 of P15M. Of the gross income, P9 million was derived from
unrelated trade or business. Total deductions amount to P3million. Gross Income 15,000,000 Less: Deductions 3,000,000 Net Income 12,000,000 Multiply by tax rate 30% Tax Due
3,600,000
10. 10. GOVERNMENT-OWNED OR –CONTROLLED CORPORATIONS, AGENCIES OR INSTRUMENTALITIESSubject to the provisions of existing special laws or general laws, all
corporations, agencies, or instrumentalities owned or controlled by the Government shall pay such rate of tax upon their taxable income as are imposed by the Code upon
corporations or associations engaged in a similar business, industry or activity. The following are exempted: 1. GSIS 2. SSS 3. PHIC 4. LWD 5. PCSO
11. 11. MUTUAL LIFE INSURANCE COMPANIESThese Companies are now subject to the regular corporate income tax rates.
12. 12. RESIDENT FOREIGN CORPORATIONS, IN PARTICULARINTERNATIONAL SHIPPING - Gross Philippine Billings – 2.50%OBUs – income authorized by BSP from foreign
currency transactions rest income derived from with local commercial banks, including branches of foreign banks that may may be authorized by BSP, including any interest from
foreign currency loans granted to residents, shall be subject to a final income tax at ten percent (10%) of such income.BRANCH PROFITS REMITTANCES – any profit remitted by a
 branch to its head office shall be subject to a tax of fifteen percent (15%) which shall be based on the total profits applied or earmarked for remittances without deduction for the tax
component thereof (except those activities which are registered with PEZA).
13. 13. RESIDENT FOREIGN CORPORATIONS, IN PARTICULARREGIONAL OPERATING HEADQUARTERS – shall mean a branch established in the Philippines by multinational
comanies which are engaged in various services. TEN PERCENT (10%) OF TAXABLE INCOMEREGIONAL OR AREA HEADQUARTERS – shall mean a branch established in the
Philippines by multinational companies and which headquarters do not earn or derive income from the Philippines and which act as supervisory, communications and coordinating
center for their affiliates, subsidiaries, or branches in the Asia-Pacific Region and other foreign markets. EXEMPT FROM INCOME TAX
14. 14. RESIDENT FOREIGN CORPORATIONS, IN PARTICULARINTERNATIONAL AIR CARRIER refer to a foreign airline corporation doing business in the Philippines having been
granted landing rights in any Philippine port to perform international air transportation services/ activities or flight operations anywhere in the world.Generally, subject to GROSS
PHILIPPINE BILLING TAX of 2.50% unless subject to a different tax rate under the applicable treaty to which the Philippines is a signatory.
15. 15. DETERMINATION OF GROSS PHILIPPINE BILLINGSIn computing for gross Philippine billings, the following should be included: a. Gross revenue deerived from passage of
persons b. Excess baggage c. Cargo and/or 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 passage documents.
16. 16. NON-RESIDENT FOREIGN CORPORATION, IN GENERALThe basis of tax for non-resident foreign corporations is gross income from sources within the Philippines, such as
interests, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities, emoluments or othe fixed or determinable annual, periodic or casual gains, profits
and income, and capital gains. Gross Income P xxx Multiply by tax rate 2009 30% Tax Due P xxx
17. 17. NON-RESIDENT FOREIGN CORPORATION, IN PARTICULARCINEMATOGRAPHIC FILM OWNER, LESSOR OR DISTRIBUTOR – 25% of GROSS INCOMEOWNER OR
LESSOR OF VESSELS CHARTERED BY PHILIPPINE NATIONS - 4.5% of GOSS RENTALS, LEASE OR CHARTER FEES FROM LEASES OR CHARTERS TO FILIPINO
CITIZENS OR CORPORATIONS, AS APPROVED BY THE MARTIME INDUSTRY AUTHORITY.OWNER OR LESSOR OF AIRCRAFT, MACHINERY AND OTHER EQUIPMENT –
7.5% OF GROSS RENTALS, CHARTERS AND OTHER FEES.
18. 18. PASSIVE INCOME OF NON-RESIDENT FOREIGN CORPORATIONS1. Interest on foreign loans contracted on or after August 1, 1986 are taxed at 20%.2. Income derived by a
depository bank under the exanded foreign currency deposit system from foreign currency transaction with local commercial banks, including branches of foreign that may be
authorized by the BSP, incuding interest income from foreign currency loans are EXEMPT.3. Dividends received from a domestic corporation – final withholding tax at 15% on the
condition that the country in which the non-resident foreign corporation is domiciled, shall allow a credit against the tax due from the non-resident foreign corporation taxes deemded
to have been paid in the Philippines equivalent to: 2009 – 15%
19. 19. PASSIVE INCOME OF NON-RESIDENT FOREIGN CORPORATIONS4. CAPITAL GAINS from sale of shares of stock not traded in the stock exchange. A final taxt at the rates
prescribed below is imposed upon the net caita gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic
corporation, except shares sold, or disposed of through the stock exchange: Not over P100,000 5% On any amount in excess of P100,00 10%
20. 20. ALLOWABLE DEDUCTIONSAllowable deductions are items or amounts which the law allows to be deducted from gross income in order to arrive at the taxable income. A
domestic or resident foreign corporation may dduct from its business income, itemized deductions under the Tax Code, or, these corporations may elect a standard deduction in an
amount not exceeding forty percent (40%) of its gross income (RA 9504). Non-resident foreign corporations are not allowed deductions from gross income.
21. 21. TAXABLE INCOME AND TAX DUEIn case of corporations, TAXABLE INCOME is th pertinent items of gross income less the deductions authorized for such types of income.
Taxable income is the amount or tax base uon which tax rate is applied to arrive at the tax due. Depending on the taxpayer involved and for purposes of computing the income tax
liability of a cororation, taxable income may refer to either one of the following:1. NET INCOME – the income arrived at after subtracting from the gross income the deductions of the
taxayer. For domestic and resident foreign corporations, in genera; and other corporations from whose gross income deductions are allowed:
22. 22. PRO-FORMA COMPUTATIONSales/Revenues/Receipts/Fees xxxLess: Cost of Sales/services xxxGross Income from Operation xxxAdd: Non-Operating and Taxable Other
Income xxxTotal Gross Income xxxLess: Deductions Optional Standard Deduction or Itemized Deduction xxxTaxable Income xxxMultiply by: Tax Rate %Tax Due xxx
23. 23. TAXABLE INCOME AND TAX DUE2. GROSS INCOME – the entire or gross income from business without any deductions for either optional standard deduction or itemized
deduction. For domestic and resident foreign corporations subject to the MCIT; and non- resident foreign corporation not subject to the normal income tax rate (section 28(B)(1)).
Gross Income xxx Multiply by: Tax Rate x% Tax Due xxx
24. 24. CORPORATIONS EXEMPT FROM INCOME TAX (Sec. 30, NIRC)GENERALLY , CORPORATIONS ESTABLISHED NOT FOR PROFIT ARE EXEMPTED FROM INCOME
TAX. PLEASE REFER TO PAGE 3-14 – 3-17
25. 25. TAXATION FOR COOPERATIVESCooperatives with accumulated reserves and undivided net savings of not more than TEN MILLION PESOS (P10M) – EXEMPT FROM ALL
NATIONAL INTERNAL REVENUE TAXES FOR HICH THESE COOPRATIVES ARE LIABLE.Cooperatives with accumulated reserves and undivided net savings of more than TEN
MILLION PESOS (P10M) – please refer to page 3-19-20
26. 26. DECLARATION OF QUARTERLY INCOME TAXEvery corporation shall file in duplicate a quarterly summary declaration of its gross income and deductions on a cumulative
basis for the preceding quarter or quarters upon which the income tax shall be levied, collected and paid. The income tax computed decreased by the amount of tax previously paid
or assessed during the preceding quarters shall be paid and the return filed not later than sixty (60) days from the close of each of the first three (3) quarters of the taxable year,
whether calendar or fiscal .A return showing the cumulative income and deductions shall still be filed even if the operations for the quarter and the preceding quarters yielded no tax
due.
27. 27. DECLARATION OF QUARTERLY INCOME TAX (cont’d)Every taxable corporation is likewise required to file a final adjustment return covering the total taxable income of the
corporation for the preceding calendar or fiscal year, which is required to be filed and paid on or before April 15, or on or before the 15th day of the 4th month following the close of
the fiscal year, as the case may be. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that
year, the corporation shall either: 1. Pay the balance of tax still due; or 2. Carry over the excess credit; or 3. Be credited or refunded with the excess amount paid.
28. 28. ILLUSTRATIONThe result of operations of a corporation for 2010 whose taxable year in on a calendar basis is asfollows: Gross Income Deductions Net Income1st Quarter (Jan-
March) 500,000.00 300,000.00 200,000.002nd Quarter (April-June) 600,000.00 350,000.00 250,000.003rd Quarter (July-Sept.) 700,000.00 400,000.00 300,000.004th Quarter (Oct.-
Dec.) 800,000.00 450,000.00 350,000.00 2,600,000.00 1,500,000.00 1,100,000.00Tax credit for overpaid income tax for the preceding year is P50,000.
29. 29. 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter TOTALGross Income this quarter 500,000.00 600,000.00 700,000.00 800,000.00 2,600,000.00 previous quarter/s 500,000.00
1,100,000.00 1,800,000.00Total Gross Income 500,000.00 1,100,000.00 1,800,000.00 2,600,000.00 2,600,000.00Less: Deductions this quarter 300,000.00 350,000.00 400,000.00
450,000.00 previous quarter/s 300,000.00 650,000.00 1,050,000.00Total Deductions 300,000.00 650,000.00 1,050,000.00 1,500,000.00 1,500,000.00Taxable Income 200,000.00
450,000.00 750,000.00 1,100,000.00 1,100,000.00Tax Rate 30% 30% 30% 30% 30%Tax Due 60,000.00 135,000.00 225,000.00 330,000.00 330,000.00Less: Previous Tax
Payments/Credits 50,000.00 60,000.00 135,000.00 225,000.00 225,000.00Tax Still Due 10,000.00 75,000.00 90,000.00 105,000.00 105,000.00
30. 30. CHAPTER IV – MINIMUM CORPORATE INCOME TAX, IAET AND GITMINIMUM CORPORATE INCOME TAX (MCIT) Two percent (2%) of the gross income as of the end of
the taxable year is imposed upon any domestic corporation beginning the fourth (4th) taxable year (whether calendar or fiscal yea, depending on the accounting periodemployed)
immediately following the taxable year in which such corporation commenced its business operations. The MCIT shall be imposed whenever:a. Such corporation has zero or
negative taxable income; orb. The amount of minimum corporateincome taxis greater than the normal income tax due from such corporation.Relief from MCIT under Certain
ConditionsThe Secretary of Finance, upon recommendation of the Commissioner,may suspend the imposition of MCIT upon submission of proof by the applicant-corporation, duly
verified by the Commissioner’s authorized representative, that the corporation sustained substantial losses on account of a prolonged labor dispute or because of “force majeure” or
because of legitimate business reverses.