INCOME TA X OF

CORPORATIONS
CORPORATION
Legal entity that is separate and distinct from its owners.

It enjoys most of the rights and responsibilities that an individual

possesses such enter in to a contract, loan and borrow money,
sue and be sued, hire employees, own assets and PAY TAXES.

LIMITED Liability – shareholders have the right to participate in

the profits, through dividends, but are not held personally liable
for the Company’s debts.
CLASSES OF CORPORATION

- Stock Corporation – where the ownership of the Corporation is

expressed in terms of shares of stocks.
> For profit organization
- Non-Stock Corporation – not for profit organization
CERTIFICATE OF STOCKS
 A. Domestic Corporation – organized and
existing under Philippine laws
CLASSIFICATION ➢Taxable on all income from sources
OF CORPORATE within and outside the Philippines
TAXPAYER B. Foreign Corporation – a corporation
organized and existing under the laws of
foreign country irrespective of the
nationality of its stockholders.
➢Taxable only on income from sources
within the Philippines.
b.1 Resident Foreign Corporation –
engage in trade or business
b.2 Non Resident Foreign Corporation –
not engage in trade or business in the
Philippines
SPECIAL CORPORATIONS

• Corporations that are subject

to special tax treatment or
preferential tax rates lower
than the 30% regular
Corporate Income Tax
SUBCLASSIFICATION

A. Domestic Corporation
B. Resident Foreign
Corporation
C. Non-resident foreign
Corporation
A. DOMESTIC CORPORATION

1. EXEMPT DOMESTIC 2. SPECIAL DOMESTIC

CORPORATION CORPORATION

a. Exempt non-profit a. Proprietary educational

corporation under the institution and non-profit
NIRC hospitals
b. Government agencies and b. Foreign currency deposits
instrumentalities units (FCDUs) and
c. Certain government-owned Expanded FCDUs
and controlled c. PEZA or BOI-registered
corporations. enterprises
B. RESIDENT FOREIGN
CORPORATION
1. SPECIAL RESIDENT 2. REGULAR RESIDENT
FOREIGN CORPORATION FOREIGN CORPORATION
a. Offshore banking units
(OBU) and Expanded FCDUs
b. Regional Area Headquarters
and Regional Operating
Headquarters of
Multinational Companies
c. International carrier
d. BOI or PEZA – registered
enterprizes
C. NON-RESIDENT FOREIGN
CORPORATIONS
1. SPECIAL NON - 2. REGULAR NON -
RESIDENT FOREIGN RESIDENT FOREIGN
CORPORATION CORPORATION
a. Non-resident
cinematographic film owner,
lessor or distributor
b. Non-resident lessor of
vessels, chartered by
Philippine nationals
c. Non-resident owner or
lessor of aircraft, machineries
and other equipment.
EXEMPT Exempt non-profit
DOMESTIC corporations under the NIRC
CORPORATIONS

Government agencies and

instrumentalities

Exempt government-owned
and controlled corporations

Cooperatives
TAX EXEMPT CORPORATION UNDER NIRC
 QUALIFICATION OF TAX
EXEMPTION
➢ It relates only to Income from
related activities.
➢ Related activities – TAX
EXEMPT
➢ Unrelated activities - TAXABLE
subject to regular income tax
ILLUSTRATION: EXEMPT
CORPORATION
Bahay Bata Foundation, non profit corporation, reported the following
statement of income and expenses. Compute the income tax due of the
Corporation.

Related Unrelated Total

Activities Activities
Gross Income 1,000,000 500,000 1,500,000

Less: Expenses 600,000 300,000 900,000

Net Income 400,000 200,000 600,000

ILLUSTRATION: EXEMPT
CORPORATION
Bahay Bata Foundation, non profit corporation, reported the following
statement of income and expenses

Net Income from Unrelated activities 200,000

Corporate Tax rate 30%

Regular Corporate income tax 60,000

REQUISITE FOR EXEMPTION OF
NON-STOCK, NON-PROFIT
CORPORATIONS
➢ 1. It must be ORGANIZED
and OPERATED
EXCLUSIVELY for
RELIGIOUS,
CHARITABLE,
SCIENTIFIC, ATHLETIC,
or CULTURAL
PURPOSES or for the
REHABILITATION of
VETERANS
REQUISITE FOR EXEMPTION OF NON-STOCK, NON-
PROFIT CORPORATIONS
2. NON STOCK, NON PROFIT SHOULD MEET THE FOLLOWING TESTS

ORGANIZATIONAL TEST OPERATIONAL TEST

➢ its documents exclusively limit The regular activities of the

its purposes to one or more Corporation must be
of the following: exclusively devoted to the
Religious, charitable, accomplishment of its
scientific, athletic, cultural purposes.
purposes, or for
rehabilitation of veterans
REQUISITE FOR EXEMPTION OF
NON-STOCK, NON-PROFIT
CORPORATIONS
3. All net income and assets must 4. It must not be a branch of a
be devoted for its purpose foreign non-stock, non-profit
➢ No part of its net income or corporation.
assets accrues to or benefit
any member
EXCEPTION TO THE
CL ASSIFICATION RULE:
NON PROFIT EDUCATIONAL
INSTITUTION

• Net income from unrelated operations

of these Institutions is still exempt from
income tax if used for educational
purposes.
CERTIFICATE OF TAX
EXEMPTION RULING
➢ Non-profit corporations must
secure a Tax Exemption ruling
from the BIR to enjoy Tax
exemption
➢ The ruling shall be valid for a
period of 3 years, unless
sooner revoked or cancelled.
GOVERNMENT AGENCIES
AND INSTRUMENTALITIES
➢ Government agencies and Government-Owned and
instrumentalities are inherently Controlled Corporation
non-profit because of public (GOCCs)
service function – EXEMPT ➢ generally proprietary or
from INCOME TAX commercial in nature – subject
➢ Income from unrelated to RCIT
activities– SUBJECT TO • Except
INCOME TAX
1. GSIS
2. SSS
3. PHIC
4. Local Water District
COOPERATIVES

Autonomous association of
persons who voluntarily joined
together to achieve their social,
economic and cultural needs and
aspirations by making equitable
contributions to the capital
required, patronizing their
products and services and
accepting a fair share of risks and
benefits of the undertaking.
CLASSIFICATION OF REGISTERED
COOPERATIVES FOR TAXATION
PURPOSES
C O O P W H I CH T R A N S ACT COOP W H I CH T R A NSACT
BU S I N ES S O N LY W I T H W I T H B OT H M EM B ERS A N D
MEMBERS N ON -MEMB ERS

➢ Not subject to any taxes ➢ Not more than P10M accumulated

reserve and undivided net savings –
EXEMPT from TAX
➢ More than P10M – subject to the
following tax at full rate
a. Income tax
b.VAT transaction on non-
members
c. Percentage tax
transaction on non-
members
ALLOCATION OF COMMON EXPENSES OF
EXEMPT CORPORATIONS
➢ Expenses of an exempt
corporation that are not
directly traceable to either
related and unrelated activities
are allocated based on gross
income.
ALLOCATION OF COMMON EXPENSES OF
EXEMPT CORPORATIONS

Related Unrelated Total

Activities Activities
Gross Income 1,000,000 500,000 1,500,000

Less: Direct 600,000 300,000 900,000

Expenses
Common 300,000
Expenses
Net Income 400,000 200,000 300,000
ALLOCATION OF COMMON EXPENSES OF
EXEMPT CORPORATIONS

Gross income from unrelated P500,000

activities
Less:

Direct Expenses 300,000

Allocated common expense 100,000 400,000

(500K/1,500K)x300K
Taxable net income 100,000
SPECIAL DOMESTIC
CORPORATION
a. Proprietary educational institution and non-profit hospitals
b. Foreign currency deposits units (FCDUs) and Expanded FCDUs
c. PEZA or BOI-registered enterprises
PROPRIETARY EDUCATIONAL
INSTITUTION AND NON-PROFIT
HOSPITALS
➢ subject to 10% tax on world
taxable income subject to the
pre- dominance test
PRIVATE OR PROPRIETARY EDUCATIONAL
INSTITUTION

➢ Any private school maintained

and administered by private
individuals or groups with an
issued permit to operate from
any of the following:
a. DEPED
b. CHED
c. TESDA
PRE-DOMINANCE TEST

➢ If GROSS INCOME from UNRELATED TRADE means any

UNRELATED TRADE trade, business, the conduct of
EXCEEDS 50% of the total which is not substantially related
Gross Income derived by such to the exercise or performance
educational institutions or by such educational institution.
hospitals from all sources -
30% RCIT
 Related Unrelated Total
Activities Activities

Gross Income 1,000,000 500,000 1,500,000

ILLUSTRATION Less: Expenses 600,000 300,000 900,000

Net Income 400,000 200,000 600,000

The Gross Income from UNRELATED PARTIES passes the pre dominance
test (500,000/1,500,000) = 33.33%

Taxable net income P 600,000

Corporate tax rate 10%

Income tax due 60,000

 Related Unrelated Total
Activities Activities

Gross Income 500,000 1,500,000 2,000,000

ILLUSTRATION Less: Expenses 300,000 600,000 900,000

Net Income 200,000 900,000 1,100,000

The Gross Income from UNRELATED PARTIES failed the pre dominance
test (1,500,000/2,000,000) = 75%

Taxable net income P 1,100,000

Corporate tax rate 30%

Income tax due 330,000

SUMMARY OF TAX RULES ON EDUCATIONAL
INSTITUTIONS AND HOSPITALS SUBJECT TO PRE-
DOMINANCE TEST
FOREIGN/EXPANDED
CURRENCY DEPOSIT UNIT
Foreign currency deposit Local Bank – commercial bank,
units (FCDUs) and universal bank, and thrift bank
Expanded FCDUs (EFCDUs) organized under the laws of the
– refer to a unit or department Philippines.
of a local bank or a local branch ➢ The bank shall secure a TIN
of a foreign bank authorized by for its EFCDU or FCDU
the BSP to engage in foreign separate from TIN of Regular
currency-denominated Business Unit (RBU)
transactions
FOREIGN/EXPANDED
CURRENCY DEPOSIT UNIT
FCDU EFCDU

➢ limited to short-term foreign ➢ allowed both short-term and

currency transactions. longer-term foreign currency –
➢ Division of a domestic bank denominated transactions
➢ Maybe a division of a domestic
bank or a resident foreign
bank authorized to conduct
banking under expanded
OBU foreign currency deposit
system
➢ Division of a foreign bank which is
authorized to conduct foreign
currency denominated transactions.
SUMMARY OF TAX RULES ON
FCDU/EFCDU/OBU
ALLOCATION OF COST AND
EXPENSE OF BANKS
A. Specific Identification
B. Pro-rata allocation

➢ Only expenses traceable or reasonably allocable to RBU and FCDU

income subject to regular tax are deductible in the determination of
taxable net income.
PEZA OR BOI REGISTERED
ENTERPRISES
BOI REGISTERED PEZA – REGISTERED
ENTERPRISES ENTERPRISES
➢ Board of Investments (BOI) ➢ Philippine Economic Zone
➢ Enjoy Income Tax holiday Authority (PEZA)
(Income tax exemption) for 6 ➢ All business enterprises
years for pioneer firms and 4 operating within the PEZA or
years for non pioneer firms simply ECOZONE shall pay tax
➢ The income tax holiday. of 5% of gross income earned in
lieu of all taxes, local and
national, except real property
tax on land of developers
➢ The 5% is divided into 3% -
national government; 2% - local
government.
PEZA OR BOI REGISTERED
ENTERPRISES
GROSS INCOME DEFINED

Gross Revenue PXXX

Less: Net sales, discounts, returns, and allowances (XXX)

Less: Cost of Sales (XXX)

Gross Income PXXX

 Offshore Banking units and
Expanded FCDUs

Regional Area Headquarters and

Regional Operating Headquarters
SPECIAL of Multinational Companies
RESIDENT
FOREIGN
CORPORATIONS International Carriers

PEZA-registered foreign
corporations
OFFSHORE BANKING UNITS
AND EXPANDED FCDUS
OFFSHORE BANKING – refer to the conduct of banking transactions
in foreign currencies involving the receipts of funds from external
sources and the utilization of such funds.
OFFSHORE BANKING UNIT – branch, subsidiary or affiliate of a
foreign banking corporation which is duly authorized by the BSP to
transact offshore banking business in the Philippines.
➢ OBU of a resident foreign bank is subject to the same tax rules
applicable to FCDUs of dometic banks.
➢ Except that all their offshore income is exempt from Income tax
because foreign Corporation are taxable only on income within the
Philippines.
➢ The Taxable income of OBU shall include Gross Income subject to
regular tax from within the Philippines less deduction directly
attributable and common expense reasonably allocable.
REGIONAL AREA HEADQUARTERS AND
REGIONAL OPERATING HEADQUARTERS
OF MULTINATIONAL COMPANIES
RAH/RHQ ROH/ROHQ
➢ Regional or area ➢ Regional Operating Headquarters
headquarters ➢ Branch established in the
➢Branch established in the Philippines by Multinational
Philippines by Multinational Companies which are engaged in
Companies which any of the following:
headquarters do not earn – General admin
or derive income from the
– Planning
Philippines and which acts
as a supervisory, – Sourcing and procurement
communication and – Marketing
coordinating center for – Training
their affiliates, subsidiaries
and branches – Technical support and
maintenance
REGIONAL AREA HEADQUARTERS AND
REGIONAL OPERATING HEADQUARTERS
OF MULTINATIONAL COMPANIES

RAH/RHQ ROH/ROHQ

➢ EXEMPT from Income tax ➢ Subject to 10% Income tax

➢ Because they are merely ➢ Allowed to derive income on
administrative office their services to their affiliates.
➢ Exempt from all kinds of local ➢ Exempt from all kinds of local
taxes and other fees by local taxes and other fees by local
government. government.
➢ Except RPT on land ➢ Except RPT on land
improvements and equipment. improvements and equipment.
INTERNATIONAL CARRIERS
➢ Also called International ➢ Income tax rate
Common Carrier ✓ General rule – 2 1/2% of the
➢ Entities that transport Gross Philippine Billing
passengers, mails and excess ✓ Exception rule – Preferential
cargoes or baggage from the rate or exemption
Philippines to any destination
abroad and vice versa.
➢ Two types
a. International Air Carrier
b. International Sea or shipping
carrier
 GROSS PHILIPPINE
BILLINGS
INTERNATIONAL AIR INTERNATIONAL
CARRIERS SHIPPING CARRIER
GBP – amount of gross revenue GPB – gross revenue, whether
derived from carriage of persons, for passenger, cargo or mail
excess baggage, cargo and mail originating from the Philippines
originating from the Philippines in a up to final destination, regardless
continuous and uninterrupted flight, of the place of sale or payments
irrespective of the place of sale or of the passage or freight
issue and the place of payment of documents.
the ticket or passage document.
RULE ON REVALIDATED, EXCHANGED, OR
ENDORSED TICKET

Tickets revalidated, exchanged

and or endorsed to another
international airline form part of
the Gross Philippine Billings of
carrying airline if the passenger
boards a plane or a port or
point in the Philippines.
EXCLUSION IN GROSS
PHILIPPINE BILLINGS
1. Non-revenue passengers –
those passengers qualifying
under the free mileage
programs of the air carriers
2. Refunded tickets
RULE ON TRANSSHIPMENTS OR
INTERRUPTED FLIGHTS OR VOYAGE
➢ For a flight which originates
from the Philippines, but
transshipment of passenger
takes place at any port outside
the Philippines on another
airline, only the portion of the
cost of the ticket
corresponding to the leg flown
from the Philippines to the
point of transshipment shall
form part of Gross Philippine
Billing.
THE “48-HOUR RULE ON
TRANSIENT PASSENGERS
➢ Flight or voyages of passengers, ➢ The 48 hour rule will not
mails, or excess baggage apply when delayed by force
commencing from foreign majeure
countries which will be ➢ The portion of the ticket
interconnected in the Philippines pertaining to outgoing flight -
for continuance of the flight or shall be excluded from GPB
voyage to a foreign destination
by the same international carrier ➢ If continuation of the flight or
shall not be considered voyage to a foreign destination
originating from the Philippines is made by another airline
if the actual departure is made company - the cost of the
within 48 hours from outgoing flight or voyage shall
embarkation in the Philippines be included in GPB of the new
Airline
SPECIAL NON RESIDENT
FOREIGN CORPORATIONS
A. Cinematographic film owner = Tax rate- 25% of Gross Income
B. Lessor of Machinery, equipment, aircraft and others = 7 ½ % of
gross income
C. Lessor of Vessels chartered by Philippine Nationals = 4.5% of gross
income
NON-RESIDENT CINEMATOGRAPHIC FILM
OWNER, LESSOR OR DISTRIBUTOR
Cinematographic film – includes
motion picture films, films, tapes,
discs and such other similar
products.
➢ subject to 25% final tax on
gross income from all sources
within the Philippines
➢ “Form all sources within”
includes taxable income ,
passive or active income.
NON-RESIDENT LESSOR OF VESSELS
CHARTERED BY PHILIPPINE NATIONALS
➢ subject to 4 ½% final tax on
gross rentals, lease or charter
fees from leases or charters to
Filipino residents or
corporations as approved by
the Maritime Industry
Authority.
NON-RESIDENT OWNER OR LESSOR OF
AIRCRAFT, MACHINERIES, AND OTHER
EQUIPMENT
• subject to 7 ½% final tax on
rentals, charters, and other
fees.
SUMMARY

Gross Philippine Income = Gross receipts less direct cost of services

Gross Philippine Billing – Gross Receipts

INCOME TAX RATE

Normal Corporate tax = 30% based on net income

Minimum Corporate Income tax = 2% of gross income
Gross Income tax = 15% of gross income
TAX COMPUTATIONS

ABC Corporations

Sales PXXX
Less: Cost of Sales P(xxx)
Gross Income PXXX MCIT, GIT
Less: Expenses (xxx)
Taxable Income PXXX Normal tax
 REGULAR CORPORATE
INCOME TAX (RCIT)
➢ Applies to all Corporations in
general.
➢ It covers all taxable income of
Corporations that are not
subject to Final Tax or Capital
Gains Tax
➢ RCIT is 30% of taxable income

Domestic Corporation Gross income tax OR RCIT

subject to MCIT

Resident Corporation RCIT subject to MCIT

GROSS INCOME TAX

• Domestic Corporation may opt to be at 15% of Gross Income.

- Tax ratio of 20% of GNP
- Ratio of 40% of income tax collection to total tax revenues
- VAT tax effort of 4% of GNP
- Firms whose ratio of Cost of sales to Gross Sales or receipts from all
sources do not exceed 55%
- Irrevocable for three consecutive years
MCIT
- For Domestic and resident Corporations only
- 2% of Gross Income
- Applicable also to Non-profit, exempt, and special Corporation that are
subject to RCIT
- Incurred a net loss or zero taxable income, or a normal tax that is lesser
than MCIT
- MCIT is payable when
a. The Corporation has zero or negative taxable income
b. MCIT is greater than the Regular Corporate Income Tax
- The Secretary of Finance can suspend MCIT
a. A corporation that suffer losses because of prolonged labor
dispute
b. Loss due to Force majeure
c. Loss due to legitimate business reverses.
MCIT
➢ Imposed beginning on the fourth taxable year immediately following
the year in which such Corporation commenced its Operations
➢ X+4th year of operations
➢ Example: A corporation who started Operation on March 2019,can
only avail of MCIT on Jan 1,2023.
➢ The rule is to enable the business to obtain Competitive traction
before being subjected to MCIT.
MCIT

Carry Forward of Excess of MCIT – Any excess of MCIT over the

normal tax shall be carried forward and credited against the normal
tax immediately for the three (3) succeeding taxable years.
Any amount of the excess MCIT that has not or cannot be so credited
against normal tax for the three-year period shall lose its credibility.
MCIT EXEMPT ENTITIES
1. Real Estate Investment Trusts or REITs under RA 9856
2. Domestic Corporation which opted to be taxed under the 15%
Corporate Income Tax (Gross Income Tax)
3. Domestic or resident corporations subject to special tax rates
a. Proprietary educational institutions, and non non-profit hospitals
b. FCDUs and OBUs
c. Regional Operating Headquarters of Multinational Companies
d. International carriers
e. Firms subject to special income tax such as PEZA and BCDA locators
4. All non-resident foreign corporations
EXCESS MCIT CARRY-OVER
➢ The excess of the MCIT in
any year is a tax credit that is
deductible against any RCIT
tax due in the immediately
succeeding three years.
EXCESS MCIT CARRY-OVER RULES
a. Excess MCIT can be used c. When there are several
only as a tax credit against Excess MCIT from prior
RCIT tax due in any of the years, tax crediting shall be
three subsequent years. made in a first in-first out
– Excess MCIT cannot be basis.
deducted against MCIT tax d. Unused Excess MCIT at the
due. end of the three-year period
b. Credit for the Excess MCIT shall expire and will no longer
from prior years can be taken used.
up to the full amount of RCIT
tax due in the next three
years
– This means that the income
tax payable when credit is
made can get below the
amount of MCIT for that year.
ILLUSTRATION - MCIT
ILLUSTRATION - MCIT
EXERCISES – QUARTERLY
MCIT
EXERCISES – QUARTERLY
MCIT
 PROBLEM
ABC Corporation, a domestic corporation has the following data.
The Company is already existing for the past three years

Philippine Income
Sales 1,000,000.00
Cost of Sales 500,000.00
Expenses 200,000.00

A. Compute for the Gross Income

B. Compute for the Net taxable income
C. Compute for MCIT
D. Compute for the Normal tax due
E. Compute for the tax due
F. Compute for the Net income after tax
PROBLEM
A.
Sales 1,000,000.00
Cost of Sales 500,000.00
Gross Income 500,000.00

B.
Sales 1,000,000.00
Cost of Sales 500,000.00
Gross Income 500,000.00
Expenses 200,000.00
Net Taxable Income 300,000.00

C. Zero - The Company is only existing for three years only

PROBLEM
D.
Sales 1,000,000.00
Cost of Sales 500,000.00
Gross Income 500,000.00
Expenses 200,000.00
Net Taxable Income 300,000.00
Normal tax 90,000.00

E. 90,000.00

F
Sales 1,000,000.00
Cost of Sales 500,000.00
Gross Income 500,000.00
Expenses 200,000.00
Net Taxable Income 300,000.00
Normal tax 90,000.00
Net Income 210,000.00
IMPROPERLY ACCUMULATED
EARNINGS TAX (IAET)
➢ 10% penalty tax
➢ Imposed on the improper
accumulation of Corporate
earnings beyond the needs of
the business
➢ Deterrent for Corp. intending
to defeat the 10% dividend tax
by mere non-declaration of
Dividend.
➢ Imposition is not Automatic
➢ Due only upon formal
assessment by BIR.
IMPROPERLY ACCUMULATED
EARNINGS TAX (IAET)
➢ It covers only Exempt appropriation earnings
• Regular Domestic 1. Mandatory – required by
Corporation. law
• Special Domestic Ex. To cover cost of treasury
Corporation.
stock
➢ Certain appropriations of
2. Contractual – required by
earnings are not subject to
IAET. contract
➢ Appropriation - means setting Ex. Bond sinking fund by
aside or earmarking of profits creditors
for a particular purpose. 3. Reasonable – needs of the
business.
INSTANCES OF REASONABLE
ACCUMULATION OF EARNINGS
1. Allowance for the increase 4. Compliance with any loan
in the accumulation of agreements/covenants or pre
earnings up to 100% of the existing obligations.
paid up capital 5. Earnings required by law or
2. Corporate applicable regulations to be
Expansion/projects/Capital retained.
expenditures
3. Reserved for building, plants
or equipment acquisition
ENTITIES PRESUMED IMPROPERLY
ACCUMULATED EARNINGS
A. Holding Companies Holding Companies – purpose of
B. Investment Companies owning a controlling stake in
another corporation
C. Closely held Corporations

Investment Companies – engaged

in investing, reinvesting and trading
in securities

Closely held Corp. – 50% of the

value of their capital stock or total
voting power is not owned
directly or indirectly by not more
than 20 stockholders
IAET UNDER NIRC

➢ Publicly – held corporations Other entities exempt from

➢ Finance Companies IAET

➢ Banks 1. Taxable partnership

➢ Insurance Companies 2. General professional

partnership
3. Taxable and non-taxable
joint ventures
4. ECOZONE – registered
entities (PEZA, BCDA)
PROFORMA COMPUTATION OF IAET
(REVISED UNDER RMC 35-2011)
 BRANCH PROFIT
REMITTANCE TAX
➢ Any profit remitted by a branch ➢ Scope of the Branch Profit
to its head office abroad shall be Remittance Tax
subject to a tax of 15% based on a. ROHQ of Multinational
the total profits applied or Companies
earmarked for remittance
b. FCDU or OBU of foreign
without any deduction.
banks
➢ Final tax which is required to
c. International carriers
be withheld at source by the
branch of a foreign corporation
 BRANCH PROFIT
REMITTANCE TAX
➢ Remittance from prior year ➢ Indirect remittance such as the
earnings is still taxable following are still subject to
branch profit remittance tax
a. Remittance of profits to a
resident affiliate or to
Philippine Regional Operating
Headquarters of the home
office
b. Transfer of net profits to
increase the branch assigned
capital accounts.
c. The profit capitalization is a
form of indirect remittance
subject to the branch profit
remittance tax.
TAXABLE ESTATES
Estate
- Properties, rights, and
obligations of a deceased
person not extinguished by
his death
- Estate is taxable on the
income of the properties left
by decedent.

82
TAXABLE ESTATES
EXTRA JUDICIAL
JUDICIAL SETTLEMENT SETTLEMENT

- Estate under extrajudicial

- Estate under judicial settlement are exempt
settlement are treated as entities.
individual taxpayers. - The income of the properties
- Estate is taxable on the under extrajudicial settlement
income of the properties left is taxable to the heirs
by decedent.
- Use of graduated tax table

- .

83
TAXABLE INCOME OF THE
ESTATE
 TERMINATION OF
JUDICIAL/EXTRAJUDICIAL SETTLEMENT
➢ After the termination of the
Judicial and Extrajudicial
settlement of the Estate –
Unregistered partnership is
created and the estate becomes
liable for payment of Corporate
Income Tax.
➢ If the heirs simply divide the
fruits thereof between/among
themselves – Co-ownership is
created
– Individual Income tax is
imposed on the income
received by each of the heirs
 TAXABLE TRUSTS
Trust
➢ Arrangement whereby on person
(grantor or trustor) transfers (donates)
property to another person
(beneficiary), which will be held under
the management of a third party
(trustee or fiduciary).
➢ Right on property, real or personal, held
by one party for the benefit of another.

- Irrevocable Trust – treated in taxation as

if it is an individual taxpayer
- a. The income of the property held in
trust is taxable to the trust

Revocable Trust – not taxable entities hence

not a taxpayer
a. Taxable to the grantor
*Silent = Presumed revocable transfer
86
TAXABLE
TRUSTS
Parties to a Trust
a. Trustor – person who establishes a trust
b. Trustee – One in whom confidence is reposed as
regards property for the benefit of another
person.
c. Beneficiary – Person for whose benefit trust is
created.
d. Fiduciary – any person or Corporation that holds
in trust an estate of another person or persons
– A fiduciary may exist only if a legal trust is
created.

87
TAXABILITY OF INCOME OF
TRUSTS ➢ Taxable to the Beneficiaries
➢ The income of a trust may be ➢ The income of the trust is
taxable to the trustee, taxable to the beneficiaries if
beneficiary or grantor. income is to be distributed to
the beneficiaries
➢ Taxable to the Trustee
➢ if the income is to be
accumulated or held for future
distribution
➢ Taxable to the Grantor/Trustor
➢ Revocable trust – the title to any
part of the principal of the trust
may be revested to the grantor.
➢ The income of the trust may be
held or distributed for the benefit
of the grantor
➢ The income of the trust shall be
applied for the benefit of the
grantor.
COMPUTATION OF TAXABLE
INCOME - TRUSTS
• Trust’s taxable income is computed in the same manner as an
individual taxpayer.
CLASSIFICATION OF TRUST

ORDINARY REVOCABLE EMPLOYEES

TRUST TRUST TRUST
ORDINARY TRUST
Under the tax code, ordinary trust is
➢ The income and corpus of the trust any of the following:
do not revert to the grantor.
✓ Trust where the income is
➢ The trust income is accumulated accumulated or held for future
and held for distribution to the distribution under the terms of a
beneficiaries. will trust.
✓ Where the income is to be
distributed currently by the
fiduciary to the beneficiaries.
✓ Where the income is accumulated
for the benefit of unascertained
person or persons with contingent
interest
✓ Where the income is collected by a
guardian of an infant is held or
distributed as the court may direct.
✓ A trust where the income, is at the
discretion of fiduciary, may be either
distributed to the beneficiaries or
accumulated.
REVOCABLE TRUST
➢ trust where at any time, the ➢ The income of such part of
power to revest in the grantor, the trust shall be included in
title to any part of the corpus computing the taxable income
of the trust is vested: of the grantor.
– In the Grantor either alone
or in conjunction with any
person not having a
substantial adverse interest.
– Any person not having
substantial interests.
EMPLOYEE TRUSTS
➢ Income tax shall not apply to Requisites for Tax Exemption:
employees trust which forms • The trust must form part of a
part of pension, stock bonus, pension, stock bonus, or profit
or profit-sharing plan of an sharing plan of an employer.
employer for the benefit of
some or all of his employees. • Contributions are made to the
trust by such employer, or
➢ Any amount actually employees, or both.
distributed to any employees
• The contributions are made
or distribute shall be taxable
for the purpose of distributing
to him in the year of
to such employees the
distribution, to the extent that
earnings and principal of the
it exceeds the amount
fund.
contributed by such employee.
• It is impossible to used for,
diverted to purposes other
than for the exclusive benefit
of his employees.
OTHER CORPORATE
TAXPAYERS Types of JV
2. Joint Venture – business
undertaking for a particular a. Exempt JV – for purposes of
purpose. It may be partnership undertaking construction
or a Corporation. projects or engaging
petroleum coal, geothermal and
➢ Formed for the purpose of other energy operations
undertaking construction
projects to assists local
contractors in achieving b. Taxable joint ventures-
competitiveness with foreign taxable as Corporations
contractors by pooling their
resources in undertaking big
construction projects
➢ Joint venture for engaging in
petroleum, coal, geothermal and
other energy operations.

94
EXEMPT JOINT VENTURE
1. Formed for the purpose of
undertaking construction
projects to assists local
contractors in achieving
competitiveness with foreign
contractors by pooling their
resources in undertaking big
construction projects
2. Joint venture for engaging in
petroleum, coal, geothermal and
other energy operations.

95
EXEMPT JOINT VENTURE
JV not considered as Corporation ➢ The tax exempt joint venture
under Sec 22 of the Tax Code shall not include those who are
a. JV was formed for the mere suppliers of goods,
purpose of undertaking services or capital to a
construction project construction.

b. Should involve joining/pooling ➢ Absent any one the said

of resources by licensed local requirements - JV shall be
contracts that is license as considered as taxable
general contractor by PCAB corporations.

c. The local contractors are ➢ The members of JV shall b

engaged in construction responsible in reporting and
business paying appropriate income taxes
on their respective share to the
d. The JV itself must likewise be
JV profit.
duly license as such by PCAB
96
EXEMPT JOINT VENTURE
JV involving foreign contractors
may also be treated as a non-
taxable Corporations
➢ The member foreign
contractor is covered by a
special license as contractor
by PCAB.
➢ The construction project is
certified by the appropriate
tendering agency that the
project is foreign financed.

97
OTHER CORPORATE
TAXPAYERS
3. Co-ownership – joint ownership
of a property formed for the
purpose of preserving the same
or/and dividing its income.
a. Property preservation/income
collection Co-ownership – not
a taxable entity and tax
exempt
• Co owners are taxable on
their share on the net income
of the co-owned property.
b. Re-investment to income
producing properties - Taxable
like a Corporation.
98
OTHER CORPORATE
TAXPAYERS
1. Partnership – business organization owned by two or more persons
who contribute their industry or resources to a common fund for
the purposes of dividing the profits from the venture.
Types of Partnership
a. General Professional Partnership – formed for the exercise of a
common profession
• Not treated as a Corporation and not a taxable entity
• Exempt from Income tax
• Partners are taxable in their individual Capacity with
respect to their share in the income of the partnership
b. Business Partnership – formed for profit
• Taxable as a Corporation 99
INCOME TAX PARTNERSHIP
➢ Defined as a contract
Kinds of partnership for Tax
whereby two or more persons
Purposes:
bind themselves to contribute
money, property, or industry A. General Professional
to a common fund, with the Partnership (GPP)
intention of dividing the B. General Partnership
profits among themselves. (Commercial Partnership)
GENERAL PROFESSIONAL
PARTNERSHIP ➢ The tax exemption of GPP shall
➢ Partnership formed by persons for pertain only to its ordinary income.
the purpose of exercising their
➢ A GPP is subject to final
common profession, no part of
withholding taxes on its passive
income of which is derived from
income as well as capital gains tax.
engaging in trade or business.
➢ Partners comprising the GPP can no
➢ Not subject to income tax and to
longer claim further deductions
creditable withholding tax.
from their distributive share in the
➢ Net income of a GPP shall be net income and are not allowed to
computed in the same manner as a avail the 8% income tax rate option
Corporation. since it is already net of costs and
expenses.
➢ The partner can avail of itemized
and OSD as deduction that can be
claimed from other income.
GENERAL PARTNERSHIP
➢ Considered as Corporation
for tax purposes.
➢ Partner are considered
shareholders, therefore, profits
are considered dividends
subject to final withholding
tax.
EXERCISES
A. Compute taxable income
and Tax due assuming the
partnership is a GPP
A.1 Compute taxable income
and tax due of Marcus and Lucas
assuming net Income is divided
equally
B. Compute taxable income and
Tax due assuming the
partnership is a General
Partnership.
B.1 Compute taxable income
and tax due of Marcus and Lucas
assuming net Income is divided
equally.
A.COMPUTE TAXABLE INCOME AND
TAX DUE ASSUMING THE
PARTNERSHIP IS A GPP
A.1 COMPUTE TAXABLE INCOME AND TAX DUE
OF MARCUS AND LUCAS ASSUMING NET
INCOME IS DIVIDED EQUALLY
B. COMPUTE TAXABLE INCOME AND TAX
DUE ASSUMING THE PARTNERSHIP IS A
GENERAL PARTNERSHIP
B.1 COMPUTE TAXABLE INCOME AND TAX DUE
OF MARCUS AND LUCAS ASSUMING NET
INCOME IS DIVIDED EQUALLY