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Taxation-on-Corporations
Income Taxation (Ateneo de Davao University)
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ULOC: TAXATION ON CORPORATION
Metalanguage
In this section, the most essential terms relevant to the study of curriculum and to
demonstrate ULOc will be operationally defined to establish a common frame of reference
as to how the texts work in your chosen field or career. You will encounter these terms
as we go through the study of taxation. Please refer to these definitions in case you will
encounter difficulty in the understanding educational concepts.
1. Corporation. An artificial being created by operation of law, having the right of
succession and the powers, attributes and properties expressly authorized by
law or incident to its existence.
2. Domestic Corporation. One incorporated under the laws of the Philippines.
2.1 Domestic Corporation, in general
2.2 Government-owned and controlled corporations.
2.3Taxable Partnerships
2.4Proprietary Educational Institutions
2.5 Non-profit Hospital
3. Foreign Corporation. One formed, organized, or exiting under any laws other
than those of the Philippines
3.1 Resident. Those engaged in trade or business within the Philippines.
3.2 Non-resident. Those not engaged in trade or business within the
Philippines.
I. TAXATION OF CORPORATIONS
1.1. KINDS OF CORPORATE TAXPAYERS
Corporation
Domestic Corporation
Foreign Corporation
Resident Foreign Corporation
Non-Resident Foreign Corporation
Sources of Taxable Income
Within
Without
√
√
√
√
Note: Just like in individual taxation, it is important to determine the source of income
of corporate taxpayer- whether from within the Philippines or without- because not all
corporate taxpayers are taxed on all their income, as illustrated above.
1.1.1. DOMESTIC CORPORATION (Sec. 27)
1.1.1.2 IN GENERAL
Tax rates:
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
30% of taxable income from all sources within and without the PH; or
Sales/Revenues/Receipts/Fees
Less: Cost of sales/services
Gross income from operations
Add: Non-operating and taxable other income
Total gross income
Less: Deductions (Itemized or OSD)
xxx
Taxable income
Multiply by tax rate
Regular corporate income tax

xxx
30%
xxx
2% of gross income if MCIT applies; (See discussion and illustration later)
Sales/Revenues/Receipts/Fees
Less: Cost of sales/services
Gross income from operations
Add: Non-operating and taxable other income
Total gross income
Less: Deductions Itemized or OSD)
Taxable income
Multiply by tax rate
Regular corporate income tax
Minimum corporate income tax
Tax due (whichever is higher)

xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
30%
xxx
xxx
xxx
15% of gross income if the ratio of COGS to Gross sales/receipts does NOT
exceed 55% and the ff. conditions are met:
o Tax effort ratio of 20% GNP
o Ratio of 40% of income tax collection to total tax revenues
o VAT effort of 4% of GNP; and
o 0.9% ratio of CPSFP to GNP
Illustration 1: JEJAMNFLIG, a domestic corporation has the following data on its
income and expenses for 2019.
Gross income, Philippines
P7,000,000
Gross income, USA
5,000,000
Business expenses, Philippines
2,000,000
Business expenses, USA
1,000,000
Royalties on Philippine copyrights
500,000
Interest on time deposit, PNB-Manila, Philippines
100,000
Payments, first three (3) quarters
100,000
Compute the taxable income and tax due
Gross Business Income:
Philippines
P7, 000, 000
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United States
5, 000, 000 12, 000, 000
Less: Allowable Deductions
Philippines
2, 000, 000
United States
1, 000, 000
3, 000, 000
Taxable Income
P 9, 000, 000
Tax Due
Multiply by tax rate:
Tax Due
Less: Payments, 3 quarters
Tax Payable
9, 000, 000
_
30%
2, 700, 000
100, 000
2, 600, 000
Notes:
(1) Since the taxpayer is a domestic corporation, it is taxable on its income within
and without the Philippines.
(2) Interest on time deposit and Royalties were not included in the computation of
taxable income because this two are passive income and therefore subject to
separate final tax.
(3) In computing for the total tax payable, any taxes paid in the previous quarters
are deducted to the total annual tax due.
Illustration 2: Jean Company opted to use Optional Standard Deduction (OSD) in
computing its tax due. The following relates to its results of operations.
Gross Sales
Sales Return and Allowances
Sales Discounts
Cost of Sales
Recorded Admin. & Selling ex.
Dividend from domestic corp.
4, 000, 000
100, 000
50, 000
2, 500, 000
760, 000
50, 000
Compute the taxable income and tax due
Gross Sales
Less:Sales Return and Allowances
Sales Discounts
Net Sales
Less: Cost of Sales
4, 000, 000
100, 000
50, 000
150, 000
3, 850, 000
2, 500, 000
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Gross Income
Less: OSD (1, 350, 000 x 40%)
Taxable Income
Multiply by tax rate
Tax due
1, 350, 000
540, 000
810, 000
30%
243, 000
Note Unlike in the computation of the taxable income under OSD for individual
taxation, Cost of Sales is deducted to compute the gross income for corporate
taxpayer.
Optional Standard Deductions for Corporations (OSD) (RR No. 16-2008 as amended by RR No. 2-2010)
Determination of the
amount of OSD for
domestic corporation
and resident foreign
corporation
a) In the case of corporate taxpayers, the OSD allowed shall
be in an amount not exceeding forty percent (40%) of their
gross income.
b) “Gross income” shall mean the gross sales less sales
returns, discounts and allowances and cost of goods sold,
unlike OSD in individual taxpayer.
c) In the case of sellers of services, the term “gross income”
means “gross receipts” less sales returns, allowances,
discounts and cost of services.
d) The items of gross income under Section 32 (A) of the Tax
Code, as amended, which are required to be declared in the
income tax return of the taxpayer for the taxable year are
part of the gross income against which the OSD may be
deducted in arriving at taxable income. Passive income
which have been subjected to a final tax at source shall not
form part of the gross income for purposes of computing the
forty percent (40%) optional standard deduction.
Illustration 3: Mia Corp., a domestic corporation opts to be taxed under the gross
income taxation for the taxable year 2019. Its financial records show the following:
Gross Sale
Sales Returns and Allowances
Sales Discounts
Cos of Goods Sold
Deductions
P15, 000, 000
600, 000
450, 000
6, 750, 000
3, 375, 000
Compute for the gross income and the gross income tax.
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(Step 1) Test whether the cost of goods sold ratio does not exceed 55% of the
gross sales or receipts.
(6, 750, 000/ 15, 000, 000) 45%
(Step 2) Compute for the gross income and gross income tax.
Gross Sales
Less: Sales Returns and allowances 600, 000
Sales Discounts
450, 000
Net Sales
Less: Cost of Goods Sold
Gross Income
Multiply by
Gross Income Tax Due
P15, 000, 000
1, 050, 000
13, 950, 000
6, 750, 000
7, 200, 000
15%
P 1, 080, 000
Note: The gross income computation for purposes of gross income tax is the same
in the case of Trading or Merchandising; and Manufacturing concerns But in the
case of service business using cash basis, to arrive at a gross income, cost of
service is no longer deducted to the gross receipts or net receipts.
Illustration 4: For taxable year 2019, JJ Company providing massage services
opts for gross income taxation and has the following data:
Gross Receipts
P11, 200, 000
Sales Returns and Allowances
300, 000
Sales Discounts
150, 000
Cos of Services
4, 450, 000
Deductions
2, 670, 000
Compute for the gross income and the gross income tax.
(Step 1) Test whether the cost of goods sold ratio does not exceed 55% of the
gross sales or receipts.
(4, 450, 000/ 11, 200, 000) 44.20%
(Step 2) Compute for the gross income and gross income tax.
Gross Receipts
Less: Sales Returns and allowances 300, 000
Sales Discounts
150, 000
P11, 200, 000
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450, 000
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Gross Income
Multiply by
Gross Income Tax Due
10, 750, 000
15%
P 1, 612, 500
A. PROPRIETARY NON-PROFIT EDUCATIONAL INSTITUTION AND
HOSPITAL
Tax rate:
 10% of taxable income except for passive income; or
 30% on entire taxable income if gross income from unrelated trade or
activities exceed 50% of the total gross income.
Proprietary – private
Non-profit – NO net income or asset accrues to any member or specific person.
All net income or asset are devoted to the institution’s purposes and all its activities
conducted not for profit. (CIR v St. Lukes 2012)
Proprietary educational institution
Refers to any private school maintained by private individuals with an issued permit
from DECS or CHED or TESDA.
Requisites to be entitled to reduced 10% corporate income tax:
1. Must be both proprietary and non-profit;
2. Income from unrelated activities must NOT exceed 50% of total gross
income
Unrelated trade, business or activity- means any trade, business or other
activity, the conduct of which is not substantially related to the exercise or
performance by such educational institution or hospital from its primary purpose or
function.
Illustration 4: Abakada University, a non-profit educational institution reported the
following during the year:
Gross Income
Less: Deductions
Net Income
Related Activities
1, 700, 000
900, 000
800, 000
Unrelated Activities
Total
1, 500, 000
3, 200, 000
1, 000, 000
1, 900, 000
500, 000
1, 300, 000
Compute for tax due.
(Step 1) Predominance Test
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(1,500, 000 / 3, 200, 000) 41.66%
It is qualified to use 10% tax rate because the income from unrelated
activities does not exceed 50%
(Step 2) Compute for the tax due.
Total taxable income
Multiply by tax rate
Tax due
1, 300, 000
10%
130, 000
Illustration 5: Romantic Doctor Hospital, a non-profit hospital institution reported
the following during the year:
Related Activities Unrelated Activities
Total
Gross Income
1, 600, 000
3, 500, 000
5, 100, 000
Less: Deductions
900, 000
1, 000, 000
1, 900, 000
Net Income
700, 000
2, 500, 000
3, 200, 000
(Step 1) Predominance Test
(3,500, 000 / 5, 100, 000) 68.63%
It is not qualified to use 10% tax rate because the income from unrelated
activities exceeds 50%, therefore it will use 30% in computing its tax due
(Step 2) Compute for the tax due.
Total taxable income
Multiply by tax rate
Tax due
3, 200, 000
30%
960, 000
B. GOCCs, AGENCIES, INSTRUMENTALITIES
Tax rate: 30% corporate income tax rate on taxable income
Except:
 GSIS
 SSS
 PHIC
 LWD
PASSIVE INCOME
DOMESTIC CORPORATION
Final Tax Rate
Interest income on any current bank deposit, deposit substitute etc. 20%
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Royalties of all types within Philippines
Interest income on FCD
Dividends received from another domestic corporation
20%
15%
Exempt
DEPOSITORY BANK
Final Tax Rate
Interest income on FCD from transaction with non-residents, Exempt
OBUs, etc.
Interest income on foreign currency loans granted to residents 10%
other than OBUs
CAPITAL GAINS
SHARES OF STOCKS
Tax Rate
Sale of Shares of Stock not traded in the Stock CGT: 15% of the net
Exchange
capital gains
Sale of Shares of Stock listed and traded in the Stock Stock transaction tax:
Exchange
6/10 of 1% or 0.006% of
GSP or Gross Value in
money of shares of stock
REAL PROPERTY(Lands and Buildings only)
Tax Rate
Sale of Real Property in the Philippines held as Capital CGT: 6% of GSP or CMV,
Asset
whichever is higher
Sale made to Government or to GOCCs
Taxpayer may choose
either: 6% or Graduated
Rates
SALE OF REAL PROPERTIES HELD AS ORDINARY ASSETS
RC, NRC, RA AND DC
Creditable Withholding
Tax
Seller is habitually engaged in real estate business
Selling price:
 Less than 500k – 1.5%
 500k to 2M – 3%
 Above 2M – 5% of GSP
or CMV, whichever is
higher
Seller is NOT habitually engaged in real estate 7.5% of GSP or CMV,
business
whichever is higher
If seller is exempt from CWT
Exempt
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MINIMUM CORPORATE INCOME TAX (MCIT) – applicable to both DC and
RFC
MCIT is implemented on domestic and resident foreign corporations when:
a. They have zero or negative taxable income; or
b. MCIT is greater than the regular corporate income tax due.
Beginning with the 4th year of operations, a DC and RFC is taxed by whichever is
higher between:
 RCIT or normal tax of 30% of taxable income; or
 MCIT of 2% of gross income
Illustration 6: A corporate taxpayer, operated on its 5th year of operation has the
following data:
Gross Sale
Sales Returns and Allowances
Sales Discounts
Cos of Goods Sold
Deductions
Interest income from bank deposits
Rental income from vacant premises
P15, 000, 000
600, 000
450, 000
6, 750, 000
3, 375, 000
20, 000
60, 000
Compute for the Regular Corporate Income Tax (RCIT), Minimum Corporate
Income Tax (MCIT) and Tax due.
Regular Corporate Income Tax (RCIT)
Gross Sales
Less: Sales Returns and allowances 600, 000
Sales Discounts
450, 000
Net Sales
Less: Cost of Goods Sold
Gross Income from operations
P15, 000, 000
Add: Other taxable income not subject to final tax
Rental Income
Total Gross Income
Less: Deductions
Taxable Income
Multiply by Regular tax rate
Regular Corporate Tax
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1, 050, 000
13, 950, 000
6, 750, 000
7, 200, 000
60, 000
7, 260, 000
3, 375, 000
3, 885, 000
30%
1, 165, 500
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
The interest income is not included because it is subject to final tax.
Minimum Corporate Income Tax (MCIT)
Gross Sales
Less: Sales Returns and allowances 600, 000
Sales Discounts
450, 000
Net Sales
Less: Cost of Goods Sold
Gross Income from operations
Add: Other taxable income not subject to final tax
Rental Income
Total Gross Income
Multiply by MCIT rate
Minimum Corporate Income Tax
P15, 000, 000
1, 050, 000
13, 950, 000
6, 750, 000
7, 200, 000
60, 000
7, 260, 000
2%
145, 200
Tax due
Regular Corporate Income Tax (RCIT)
Minimum Corporate Income Tax (MCIT)
1, 165, 500
145, 200
Tax due is higher between RCIT or MCIT, therefore tax due is 1, 165, 500.
Any excess of the MCIT over the normal tax of a year shall be carried forward
and credited against the normal tax for the 3 immediately succeeding taxable
years.
Hence, compute both MCIT and RCIT first; then apply whichever is higher:
MCIT (2% on GI)
RCIT (30% on TI)
Tax payable
Excess MCIT
Year 4
200
100
200
(100)
Year 5
400
200
400
Y4(100)
Y5(200)
Year 6
100
300
0
0
Year 7
100
200
200
0
Relief from MCIT
Secretary of Finance may suspend imposition of MCIT when a corporation suffers
losses on account of:
1. Prolonged labor dispute
2. Force majeure
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3. Legitimate business reverses
Entities exempted from MCIT:
a. RFC engaged in international carriers
b. RFC engaged in OBU
c. ROHQ
d. Firms taxed under special income tax regime (i.e. those under PEZA)
e. Proprietary Non-profit Educational Institution
f. Non-profit hospitals
g. Depositary banks under FCDS
h. Real Estate Investment Trusts
i. NRFC
1.1.2 RESIDENT FOREIGN CORPORATION (RFC) (Sec. 28A)
IN GENERAL
Tax rates:
 30% of Taxable Income from all sources within the PH;
 2% of Gross Income, if MCIT applies.
**TRAIN Law did NOT amend Sec. 28 of NIRC which covers both RFC and NRFC.
Tax rates from old code applies.
Illustration 7: JEJAMNFLIG, a resident foreign corporation has the following data on
its income and expenses for 2019.
Gross income, Philippines
Gross income, USA
Business expenses, Philippines
Business expenses, USA
Royalties on Philippine copyrights
Interest on time deposit, PNB-Manila, Philippines
Payments in the PHI, first three (3) quarters
P7,000,000
5,000,000
2,000,000
1,000,000
500,000
100,000
100,000
Compute the taxable income and tax due
Gross Business Income:
Less: Allowable Deductions
Taxable Income
Taxable Income
Multiply by tax rate:
Tax Due
Less: Payments, 3 quarters
Philippines
Philippines
P7, 000, 000
2 , 000, 000
P 5, 000, 000
5, 000, 000
_
30%
1, 500, 000
100, 000
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Tax Payable
1, 400, 000
Note: Since tha tax payer is a resident foreign corporation, therefore it is taxable on
their income only within the Philippines and is allowed to deduct business expenses.
PASSIVE INCOME
RFC
Final Tax Rate
Interest income from deposits and yield from deposit subs, trust 20%
funds, similar arrangements
Royalties of all types within Philippines
20%
Interest income from FCD
7.5%
Intercorporate dividends from domestic corporation
Exempt
DEPOSITORY BANK
Final Tax Rate
Interest income on FCD from transaction with non-residents, Exempt
OBUs, etc.
Interest income on foreign currency loans granted to residents 10%
other than OBUs
CAPITAL GAINS
Sale of shares of stock not traded in the Stock  Not over 100k – 5%
Exchange
 Over 100k – 10%
Sale of real property held as capital
30% - since there is no provision
for capital gains on sale of realty.
INTERNATIONAL CARRIER
Tax rate: 2.5% of Gross Philippine billings.
Gross Philippine billings
 Gross revenue derived from carriage of persons, excess baggage, cargo, and
mail;
 Originating from Philippines in a continuous and uninterrupted flight;
 Irrespective of place of sale and payment of ticket or passage documents.
Passenger flights from any point in the Philippines and back
The portion of revenue pertaining to the return trip to the Philippines is NOT included
in the GPB. (RR 15-2002)
OFF-SHORE BANKING UNITS
Income from foreign currency transactions with non-residents, Exempt
other OBU, local commercial banks, etc.
Interest income from foreign currency loans granted to residents, Final tax rate of
other than OBU or local commercial banks
10%
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OBU – a branch of a foreign bank authorized by BSP to transact offshore banking
business in the Philippines.
FOREIGN CURRENCY DEPOSIT
Tax Rate on Interest Income from FCD
Interest income received by RC, RA, and DC
Interest income received by NRC, OCW, and NRA
Interest income received by RFC
Bank account in joint names of an OCW and spouse
Final tax 15%
Exempt
Final tax 7.5%
50%
exempt
and
50%
subject to 15%
final tax.
BRANCH PROFIT REMITTANCES
Tax rate: 15% of total profits applied or earmarked for remittance to the head office
without any deduction for the tax component.
Except: those registered within PEZA
NOT treated as branch profits:
 Passive income (interest, royalties, rents, and dividends)
 Remuneration for technical services
 Salaries and wages
 Premiums, annuities, emoluments and other periodic or casual gains, profits,
income, and capital gains
Except if the above are connected with the conduct of a foreign corporation’s trade or
business in the Philippines.
RAHQs and ROHQs
Tax rates:
1. RAHQ – exempt
2. ROHQ – 10% on taxable income
RAHQ – branch established by multi-national companies and which headquarters do
NOT derive income from the Philippines and merely acts as supervisory,
communications, and coordinating center for their affiliates and subsidiaries.
ROHQ – branch established by multi-national companies engaged in any of the ff.
 General admin and business planning
 Sourcing and procurement of materials
 Corporate finance advisory services
 Marketing
 Training
 Logistics
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



R&D and Product development
Tech support and maintenance
Data processing and communications
Business development
MCIT
Same with DC.
1.1.3 NON-RESIDENT FOREIGN CORPORATION (NRFC) (Sec. 28B)
IN GENERAL
Tax rate: 30% on Gross Income.
Foreign corporation that transacts business in the Philippines independently of its
branch in the country, the principal-agent relationship is set aside. The foreign
corporation is considered a non-resident foreign corporation for that isolated
and independent transaction. (Marubeni v CIR)
Illustration 8: JEJAMNFLIG, a non resident foreign corporation has the following
data on its income and expenses for 2019.
Gross income, Philippines
Gross income, USA
Business expenses, Philippines
Business expenses, USA
Royalties on Philippine copyrights
Interest on time deposit, PNB-Manila, Philippines
P7,000,000
5,000,000
2,000,000
1,000,000
500,000
100,000
Compute the taxable income and tax due
Taxable Income
Multiply by tax rate
Tax due
7, 000, 000
30%
2, 100, 000
*Royalties and Interest in deposits are subject to final tax.
Note: Since the taxpayer is a non resident foreign corporation, it is only taxable
only to its income within the Philippines but is not allowed to deduct business
expenses.
Engaged in trade or business
Business transactions must be continuous. (Royal Interocean Lines v CIR)
PASSIVE INCOME
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NRFC
Interest on foreign loans
Intercorporate dividends received from
domestic corporation
Final Tax Rate
20%
15% subject to the condition that the
domicile country of NRFC allows a 15% tax
credit due to NRFC taxes deemed paid in
the Philippines. Otherwise, dividends will
be taxed at 30% RCIT.
If the domicile of the NRFC does NOT impose any tax on dividends received from
foreign sources, preferential tax rate of 15% on intercorporate dividends will apply.
(BIR Ruling DA-145-07)
CAPITAL GAINS
Sale of shares of stock not traded in the Not over 100k – 5% of net capital gains
Over 100k – 10% of net capital gains
Local Stock Exchange
Sale of real property in the Philippines 30%
held as capital asset
SPECIAL CORPORATIONS
Non-resident cinematographic film
owner, lessor, or distributor
Non-resident owner or lessor of
vessels chartered by PH nationals
Non-resident owner or lessor of
aircraft, machineries and other
equipments
Proprietary non-profit educational
institution and hospitals
Resident international carriers
ROHQ
RAHQ
Domestic and Resident Foreign
depository banks (FCDU)
Off-shore Banking Units
25% of gross income from all sources
within the Philippines
4.5% of gross rentals from leases to
Filipinos
7.5% of gross rentals or fees
10% of Taxable Income
2.5% of Gross Philippine Billings
10% of PH Taxable Income
Exempt
 Interest income from foreign currency
transactions with non-residents –
Exempt
 Interest income on foreign currency
transactions granted to residents other
than OBUs – 10% Final tax
 Income
from
foreign
currency
transactions with non-residents, other
OBUs, or local commercial banks, etc. –
Exempt
 Income from foreign currency loans
granted to residents, other than OBUs
and local commercial banks – 10% final
tax
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**NOMCIT for Special Corporations.
1.2 IMPROPERLY ACCUMULATED EARNINGS TAX (IAET) (Sec. 29)
Tax rate: 10% of the Improperly Accumulated Taxable Income
Improperly accumulated taxable income – earnings or profits accumulated
beyond the reasonable needs of the business.
(Read Sec. 29 D)
Immediacy test
Reasonable needs means thee immediate needs of the business including
reasonably anticipated needs.
Reasonable: 100%-EIR-LID
 Accumulated earnings up to 100% of the paid-up capital
 Earnings reserved for expansion, improvement, and repairs approved by
the BOD
 Earnings reserved for compliancy with any loan obligation under a
legitimate business agreement (debt retirement)
 Earnings required by law to be retained.
 In case of subsidiaries of foreign corporations – undistributed earnings
reserved for investments in the Philippines
Who are covered:
All domestic corporations classified as closely-held corporations.
 Closely-held corporation – one where at least 50% of OCS or at least
50% of total voting shares is owned, directly or indirectly, by not more than
20 individuals.
NOT applicable to: (PBI)
 Publicly-held corporations;
 Banks and other nonbank financial intermediaries; and
 Insurance companies
 Enterprises registered with PEZA, BCDA, or with other special economic
zones (RR 2-2001)
 Taxable partnerships
 GPP
 Non-taxable joint ventures
1.3 TAX-EXEMPT CORPORATIONS and CORPORATE RETURNS
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a. Filing of quarterly and final
or adjustment return
b. Non-resident foreign
corporations
c.Who shall file the corporate
return?
d.Corporate declarations and
returns
e. Final adjustment return
f. Sum of quarterly payments
not equal to the total tax due
for the year
g. Corporation is entitled to
tax refund or credit
Every corporation subject to tax shall
render, in duplicate a true and accurate
quarterly return and final or adjustment
return.
Corporations not engaged in trade or
business in the Philippines (NRFC) shall
not be required to file income tax return.
1) President;
3) Other
principal officers.
2) Vice – President; or
The return shall be sworn to by above
officer and by the Treasurer or Assistant
Treasurer.
Declaration of quarterly corporate
income tax on a cumulative basis not
later than 60 days from the close of each
of the first three quarters of the taxable
year, whether, calendar or fiscal year.
The tax so computed shall be
decreased by the amount of tax
previously paid or assessed during the
preceding quarters.
Covers the total taxable income for the
preceding calendar or fiscal year filed on
or before 15th day of the 4th month
following the close of the taxable year.
If the sum of the quarterly tax payments
made during the taxable year is not
equal to the total tax due on the entire
taxable income of that year, the
corporation shall either pay the balance
of tax still due, or carry over the excess
credit, or be credited or refunded with
the excess amount paid.
1) In case the corporation is entitled
to a tax refund or credit of the excess
estimated quarterly income taxes
paid, the excess amount shown on its
final adjustment return may be
carried over and credited against the
estimated quarterly income tax
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h. Filing of the return
i. Payment of the income tax
liabilities for the taxable quarters of
the succeeding taxable years.
2) Once the option to carry-over has
been made, such option shall be
considered irrevocable for that
taxable period.
The quarterly income tax declaration
and the final adjustment shall be filed
with:
1) Authorized agent banks, or
2) Revenue District Office, or
3) Collection Agent, or Duly authorized
Treasurer of the city or municipality
having jurisdiction over the location of
the principal office of the corporation
filing the return or place where the
main books of accounts and other
data from which the return is
prepared are kept.
The income tax due shall be paid at
the time the declaration or return is
filed.
Sec. 30 Exemption from Tax on Corporation. – The following organizations shall
not be taxed in respect to income received by them as such:
(A)
Labor, agricultural or horticultural organizations not organized principally
for profits;
(B)
Mutual savings bank not having a capital stock represented by shares,
and cooperative bank without capital stock, organized and operated for mutual
purposes and without profit;
(C)
A beneficiary society, order or association, operating for the exclusive
benefit of the members such as fraternal organization operating under the lodge
system, or a mutual aid association or a non-stock corporation organized by
employees providing for the payment of life, sickness, or other benefits
exclusively to the members of such society, order, or association, or non-stock
corporations or their dependents;
(D)
Cemetery company owned and operated exclusively for the benefit of its
members;
(E)
Non-stock corporation or association organized and operated exclusively
for religious, charitable, scientific, athletic, or cultural purposes, or rehabilitation
of veterans, no part of its net income or asset shall belong or inure to the benefit
of any member, organizer, officer or any specific person;
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(F) Business league, chamber of commerce, or board of trade, not organized
for profit and no part of the net income of which inures to the benefit of any
private stockholder or individual;
(G)
Civic league or organization not organized for profit but operated
exclusively for the promotion of social welfare;
(H)
A non-stock nonprofit educational institution;
(I)
Government educational institution;
(J)
Farmers or other mutual typhoon or fire insurance company, mutual ditch
or irrigation company, mutual or cooperative telephone company, or like
organizations of a purely local character, the income of which consists solely of
assessments, dues, and fees collected from members for the sole purpose of
meeting its expenses; and
(K)
Farmers, fruit growers, or like association organized and operated as a
sales agent for the purpose of marketing the products of its members and
turning back to them the proceeds of sales, less the necessary selling expenses
on the basis of the quantity of produce finished by them.
Note: Notwithstanding the provisions in the preceding paragraphs, 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
corporation tax.
Self Help: You can also refer to the sources below to help
you further understand the lesson.
Ballada, W., & Ballada, S. (2019). Income taxation: made easy (17th ed.). Philippines:
DomDane Publishers & Made Easy Books.
Valencia, E., & Roxas, G. (2016). Income taxation: Principles and laws with accounting
application. Baguio: Valencia Educational Supply.
Ampongan, O. (2015). CPA Reviewer in taxation. Manila: Conanan Educational Supply.
Let’s Check
Activity 1. Now that you have understood matters regarding Corporate Taxation, let us
try to check your understanding. Determine whether the statement is True or False.
1. Foreign corporation, whether engaged in business in the Philippines or not, is
taxable on income derived from sources within and without the Philippines.
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2. Domestic, resident foreign and non-resident foreign corporations may deduct from
their business income, itemized deductions under the Tax Code.
3. Non-resident foreign corporation receives the same tax treatment as domestic and
resident foreign corporations with regard to capital gains from sale of shares of
stock not traded in a stock exchange.
4. The 10% on the taxable income of a proprietary educational institution and nonprofit hospital is absolute.
5. Subject to 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.
6. Non-resident cinematographic film owner, lessor or distributor is taxed and 15% of
gross income.
7. International carrier and international shipper doing business in the Philippines
shall pay a tax of 10% on its gross Philippines billings.
8. Every 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.
9. If the gross income from the unrelated trade, business other activity of proprietary
educational institution or non-profit hospital exceeds 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.
10. Domestic corporation is created or organized under Philippine laws.
Let’s Analyze
Activity 1. Getting acquainted with the essential terms in the study of corporate taxation
is not enough, what also matters is you should also be able to explain its concepts. Now,
I will require you to explain thoroughly your answers.
1. Explain the extent of tax liabilities of the different corporate taxpayers.
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2. Differentiate the computation of Optional Standard Deduction (OSD) under individual
taxpayer and corporate taxpayer.
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3. When can a corporate taxpayer be taxed under Minimum Corporate Income Tax
(MCIT)?
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4. Why does Improperly Accumulated Earnings Tax being imposed?
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Activity 2. Answer the given problems.
1. Mr. ABC Company had the following data in 2019:
Philippines
Gross Income from Sales
4, 000, 000
Business Expenses
2, 000, 000
Rent Income
1, 000, 000
Dividend- Domestic
50, 000
Royalties
80, 000
Abroad
6, 000, 000
3, 600, 000
1, 200, 000
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Compute for the following:
a. Taxable income and Tax due
a. Domestic Corporation
b. Resident Foreign Corporation
c. Non-Resident Foreign Corporation
b. Final tax if the taxpayer is a Domestic Corporation.
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2. Brighter Minds College, a private educational corporation, has the following
financial data for the year 2019:
Income from tuition fees
Other income derived from
School activities
Rental income from commercial spaces
Located outside the school
Business expenses allowed as deductions
P6,000,000
3,000,000
2,000,000
5,000,000
Compute for the following:
a.
How much is the income tax due of the corporation?
b.
If aside from the above income and expenses, the school also owns
a dormitory and earned gross income of P 7,500.000 and incurred related
expenses of P2,000,000, the income tax due of the corporation is
3. In 2018, the company’s fourth year of operations, Forever Inc., a domestic
corporation has the following financial data:
Business Expenses
Minimum Corporate Income Tax (MCIT)
975, 000
25, 000
Compute for the following:
a. Gross Income
b. Normal tax taxable income
c. Income tax due
4. In 2018, Corona Inc., a resident foreign corporation, was on its sixth year of
operation. The following data pertain to its operation in the Philippines for the years
2018 and 2019:
Gross profit from sales
Business Expenses
2018
1, 620, 000
730, 000
2019
1, 720, 000
850, 000
Compute for the following:
a. Normal Income tax for 2018
b. Income tax due for 2018
c. Normal Income tax for 2019
d. Income tax due for 2019
5. For the taxable year 2019, the company’s sixth year of operations, the records
of Magic Power Corporation., a domestic corporation, show the following:
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Gross sales
Sales returns & allowances
Sales discounts
Cost of goods manufactured and sold
Operating expenses
Interest from Philippines savings
Royalty income
Capital gain (sale of shares)
5,000,000
20,000
225,000
1,500,000
980,000
3,000,000
1,000,000
500,000
Answer the following:
a.
b.
c.
d.
e.
f.
The gross income at the end of the taxable year 2019 is?
What is the minimum corporate income tax due of Magic Power
Corp. for 2019?
How much is the normal tax?
How much is the tax due?
If Magic Power Corporation opted to used for year 2019 the gross
income taxation, what is the income tax due for 2019:
Total passive income.
In a Nutshell
Activity 1. The study of the individual taxation is indeed pre-requisite to understand more
in depth topics in taxation. It is a very complicated and highly scientific document which
requires content and teaching expertise including knowledge outside the classroom and
school.
Based from the discussion of the individual taxation and the learning exercises that you
have done, please feel free to write your arguments or lessons learned below
1.
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2. ________________________________________________________________
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3.
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4.
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5.
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6.
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7.
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8.
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9.
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10.
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Q and A
In this section you are going to list what boggles you in this unit. You may indicate your
questions but noting you have to indicate the answers after your questions is being
raised and clarified. You can write your questions below:
Questions/ Issues
Answers
1.
2.
3.
4.
5.
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Keywords
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Corporation
Domestic Corporation
Foreign Corporation
Government-owned and controlled corporations.
Non-profit Hospital
Non-resident Foreign Corporation
Proprietary Educational Institutions
Resident Foreign Corporation
Taxable Partnerships
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