Chapter 4 Taxation of Corporations

 Definition of Corporation
For income tax purposes, the term “corporation”
1. shall include:
 partnerships, no matter how created or organized
 joint stock companies
 joint accounts (cuentas en participacion)
 associations, or insurance companies
 mutual fund companies, regional operating headquarters of multinational
corporations
2. does not include:
 general professional partnerships
 joint venture or consortium formed for the purpose of undertaking
construction projects
 joint venture or consortium for engaging in petroleum, coal, geothermal
and other energy operations pursuant to an operating or consortium
agreement under a service contract with the Government. (Sec. 22 B, NIRC)

 Classification of Corporations
1. Domestic Corporation. A corporation created or organized in the Philippines or
under its laws.

2. Foreign Corporation. A corporation which is not domestic.

 Resident Foreign Corporation. A corporation engaged in trade or

business within the Philippines.

 Non-resident Foreign Corporation. A corporation not engaged in trade

or business within the Philippines. (Sec. 22 C,D,H,I, ibid.)

 Sources of Income

Corporation Within the Without the

Philippines Philippines
Domestic Corporation* Taxable Taxable
Resident Foreign Corporation Taxable
Non-resident Foreign Corporation Taxable
(Sec. 23, ibid.)

*Domestic Corporations are subject to any or some of the following:

1. Capital Gain Tax
2. Final Tax on passive income
3. Regular Corporate Income Tax (RCIT) or Normal Income Tax (RR 12-2007) or NCIT
4. Minimum Corporate Income Tax (MCIT)
5. Optional Gross Income Tax
6. Improperly Accumulated Earnings Tax (IAET)

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Chapter 4 Taxation of Corporations

 Classification of Income and Tax Rates

Domestic Resident Non-resident
Corporation Corporation Corporation
Capital gain:
1. Capital gains from sale of shares of On the net capital
stock of a domestic corporation not gain:
listed and traded thru a local stock
exchange, held as capital asset. 15% Final Tax
On the net capital gain:
Not over P100,000 5% Final Tax 5% Final Tax
On any amount in excess of P100,000 10% Final Tax 10% Final Tax

2. Capital gains from sale of land and/or SP-Cost=Gain SP-Cost=Gain SP-Cost=Gain

building held as capital asset in PH.
Note: If sold
On the gross selling price or FMV outside of PH
prevailing at the time of sale, subject to NCIT or NIT or MCIT NIT
zonal value, whichever is higher MCIT
6%Final Tax
Passive income:
1. From sources within the Philippines, on
passive income of:
Interest under the expanded foreign
currency deposit system (EFCDS) 15% Final Tax 7.5% Final Tax Exempt

2. From sources within the Philippines, on

passive income of:
Interest on any currency bank deposit,
yield or other monetary benefit from
deposit substitute, trust fund and
similar arrangement, royalty 20% Final Tax 20% Final Tax NIT

3. Dividend from domestic corporation

(Inter-company dividend) Exempt Exempt 15% Final Tax
*tax sparing credit
4. Interest on foreign loans 20% Final tax

Business income / other income:

Taxable Income Taxable Income Gross Income
within & without Within within
Normal Income Tax 30% 30% 30% Final Tax

But, beginning on the fourth year from

start of operations; whichever is higher of:
Normal Income Tax or
Minimum Corporate Income Tax (MCIT) 2% Gross Income 2% Gross Income

*Tax Sparing Credit. Example: Domestic Corporation paid cash dividend to non-resident foreign corporation (NRFC)
organized in Brazil. This shall form part of NRFC’s income therefore taxable also in Brazil. The dividend received shall only
be taxed at 15% in the Phils (instead of 30%). If Brazil will reduce/credit at least 20% of the tax imposed in the Phils from its
tax imposed in Brazil. Otherwise, subject to regular income tax of 30%. [See Sec. 28(B)(5)(b)]

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Chapter 4 Taxation of Corporations

 Tax Formula
Domestic and Resident Foreign Corporation

Gross Sales/Revenues/Receipts/Fees P xx
Less: Sales returns, allowances & discounts ( xx )
Cost of sales/services ( xx )
Gross income xx
Less : Allowable deductions for expenses or OSD ( xx )
Taxable income subject to normal income tax xx
X Tax rate %
Income tax due xx
Less : Tax credit / payment / withheld ( xx )
Income tax payable P xx

Illustration 1
J&J Corporation had the following data for the current year its first year of operation:

Gross income, Philippines……………..………………….. P750,000

Gross income, Singapore..………………………………… 625,000
Expenses, Philippines……………………………………… 375,000
Expenses, Singapore………………………………………. 375,000
Interest on Peso bank deposit with BDO, net of tax…….. 26,250

Compute the income tax due on business income and the final tax if J&J Corporation is a:

1. Domestic Corporation
2. Resident Foreign Corporation
3. Non-resident Foreign Corporation

1. Domestic Corporation
Gross income, Philippines…………………………… P750,000
Gross income, Singapore……………………………. 625,000
Total…………………………………………………….. 1,375,000
Less: Deductions
Expenses, Philippines…………. P375,000
Expenses, Singapore…………. 375,000 750,000
Taxable income……………………………………… 625,000
Tax rate………………………………………………… 30%
Income tax due…..…………………………………. 187,500

Interest on Peso bank deposit (26,250/80%)………. 32,812.50

Tax rate……………………...................................... 20%
Final tax………………………………………………. 6,563

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Chapter 4 Taxation of Corporations

2. Resident Foreign Corporation

Gross income, Philippines…………………………. P750,000
Less: Deductions
Expenses, Philippines………………………. 375,000
Taxable income……………………………………. 375,000
Tax rate………………………………………………. 30%
Income tax due…...……………………………….. 112,500

Interest on Peso bank deposit (26,250/80%)………. 32,812.50

Tax rate………………………………………………. 20%
Final tax……………………………………………… 6,563

3. Non-resident Foreign Corporation

Gross income, Philippines…………………………. P 750,000
Interest on Peso bank deposit (26,250/70%)…….. 37,500
Total gross income………………………………… 787,500
Tax rate……………………………………………….. 30%
Income tax due......………………………………… 236,250

 Minimum Corporate Income Tax

The following are the important points to be considered in the imposition of minimum
corporate income tax:
1. The tax applies only to domestic and resident foreign corporation
2. The tax rate is 2% of gross income
3. The effectivity shall commence on the 4th taxable year from start of operations
4. The tax shall be imposed whenever the corporation has zero or negative taxable
income or whenever the MCIT is greater than the normal income tax due from such
corporation
5. The computation and the payment shall apply at the time of filing the quarterly
corporation income tax (RR 12-2007)
Note: Commencement of Business Operation: Upon Issuance of BIR Certificate of Registration
Gross Income (for purposes of applying MCIT)
In the case of trading and manufacturing business:
Gross Sales P xx
Less: Sales returns, allowances & discounts ( xx )
Cost of sales/Cost of goods manufactured & sold ( xx )
Gross income subject to MCIT xx

In the case of service business:

Gross Revenues/Receipts/Fees P xx
Less: Sales returns, allowances & discounts ( xx )
Less: Direct costs of services ( xx )
Gross income subject to MCIT xx

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Chapter 4 Taxation of Corporations
Rationale: This is designed to prevent corporations from escaping being taxed by including frivolous expenses in their statement of
income (Ex. Over statement of depreciation expense)
Illustration 2
Excellence Inc. is a domestic corporation engaged in service activity. In its fourth year of
operations it had:

Gross revenues………………………………….. P1,350,000

Discounts and allowances ……………………… 75,000
Cost of services...………………………………… 573,000
Selling expenses ………………………………… 88,000
Administrative expenses ………………………… 136,000
The income tax due is computed as follows:

Gross revenues………..………………………….. P1,350,000

Less: Discounts and allowances………………… (75,000)
Net revenues……………………………………… 1,275,000
Less: Cost of services…………………………….. (573,000)
Gross income……………………………………… 702,000
Less: Operating expenses
Selling…………………………. 88,000
Administrative expenses……. 136,000 224,000
Taxable income……………..…………………… 478,000
Tax rate…………………………………………….. 30%
Normal income tax………………………….…… 143,400
MCIT (702,000 x 2%)……………………………… 14,040

Income tax due………………………………….. 143,400

 Quarterly Tax on Corporations

The corporate quarterly income tax return (BIR Form 1702Q) shall be filed with or without
payment within sixty (60) days following the close of each of the first three (3) quarters of
the taxable year whether calendar or fiscal year (Sec. 77 B, NIRC). The normal income tax and
the minimum corporate income tax are computed on the quarterly and final returns and
whichever is higher is paid. The tax computed on the quarterly or year-end taxable income
is decreased by the amount of tax paid for the preceding quarter or quarters. There may be
an income tax payable (but not refundable) in a quarterly return.

Passive income with final tax and capital gains with capital gain tax are not included in the
quarterly and year-end computations.

If the sum of the quarterly tax payments made during the year is not equal to the total tax
due on the final return, the corporation may: a) pay the balance of the tax still due or b)
carry-over the excess tax credit or c) be credited or refunded with the excess payment.

Illustration 3
Angeles Electric Corporation a domestic corporation in its fifth year of operations had the
following non-cumulative balances at the end of each quarter for the current year:

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Chapter 4 Taxation of Corporations

Tax Identification Number: 000-088-802-000

1st Q
Address: 1903 Robinsons-Equitable 2nd QAve. cor. Poveda
Tower, ADB 3rd QSt., Pasig City
Final
Gross income…………… Telephone
500,000 number: (02) 636-6483 1,237,500
975,000 1,500,000
Less: Business expenses 475,000 750,000 887,500 1,875,000
Taxable income………… Prior year
25,000 1st225,000
Q 2nd Q 350,0003rd Q (375,000)
4th Q
Gross income…………….… 500,000 475,000 262,500 262,500
Business expenses…………
Normal income tax……. 7,500 475,00067,500 275,000 137,500
105,000 987,500
-0-
Excess of MCIT……………
MCIT…………………… 12,000
10,000 19,500 24,750 30,000
The quarterly and annual income taxes due are computed as follow:
Income tax due (higher NIT/MCIT) 10,000 67,500 105,000 30,000
Less: Income tax paid
1st Q……………… (10,000) (10,000) (10,000)
2nd Q…………….. (45,500) (45,500)
3rd Q……………… (37,500)
Excess MCIT prior year (12,000) (12,000)

Income tax payable…..... 10,000 45,500 37,500 (63,000)

Note: The excess MCIT in prior year can only be credited against normal corporate income tax. (RR 12-2007)

 Excess MCIT Carry-Forward

Any excess of the minimum corporate income tax over the normal tax of a year will be
carried forward and credited against the normal tax for the three (3) immediately
succeeding taxable years. In the year to which carried forward, the normal tax should be
higher than the minimum corporate income tax. (Sec. 27 E2, NIRC)

Illustration 4
A domestic corporation had the following data on computations of the normal income tax
(NIT) and minimum corporate income tax (MCIT) for five years:

Year 4 Year 5 Year 6 Year 7 Year 8

NIT P25,000 P37,500 P50,000 P25,000 P87,500
MCIT 100,000 62,500 37,500 50,000 43,750

Income tax due 100,000 62,500 50,000 87,500

Less: Excess MCIT
Carry-forward
From Year 4: 75,000* (50,000)
From Year 5: 25,000** (25,000)
From Year 7: 25,000*** (25,000)

Income tax payable 100,000 62,500 -0- 50,000 37,500

*100,000 – 25,000
**62,500 – 37,500
***50,000 – 25,000

Journal entries:
Date Account titles and explanation Debit Credit
Year 4 (1) Provision for income tax 25,000
Income tax payable 25,000
To record income tax liability using the normal tax rate

(2) Deferred Charges - MCIT 75,000

Income Tax Payable 75,000
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To record excess MCIT (100,000 - 25,000)

(3) Income Tax Payable 100,000

Cash in bank 100,000
To record payment of income tax due for year 4

Year 5 (1) Provision for income tax 37,500

Income tax payable 37,500
To record income tax liability using the normal tax rate

(2) Deferred Charges - MCIT 25,000

Income Tax Payable 25,000
To record excess MCIT (62,500 - 37,500)

(3) Income Tax Payable 62,500

Cash in bank 62,500
To record payment of income tax due for year 5

Year 6 (1) Provision for income tax 50,000

Income tax payable 50,000
To record income tax liability using the normal tax rate

(2) Income Tax Payable 50,000

Deferred Charges - MCIT 50,000
To record application of excess MCIT against normal tax liability
Note: In case an excess MCIT expires. Its non-application is closed to RE. Dr. RE; Cr. Deferred Charges-MCIT

 Relief from MCIT

The Secretary of Finance is authorized to suspend the imposition of the minimum
corporate income tax on any corporation which suffers losses on account of:

1. Prolonged labor dispute means losses arising from a strike staged by employees
which lasted for more than six (6) months within a taxable period and which has
caused the temporary shutdown of business operations.
2. Force majeure means a cause due to an irresistible force as by "Act of God" like
lightning, earthquake, storm, flood and other natural calamities. This term would
also include armed conflicts like war or insurgency.
3. Legitimate business reverses shall include substantial losses due to fire, robbery,
theft or embezzlement, or for other economic reason as determined by the
Secretary of Finance. (Sec. 27 E3, ibid.)

 Special Corporations
Special Corporations Tax Base Rate
Domestic Corporation
Proprietary Educational Institution and Non-profit Hospital Taxable Income from 10%
all sources
 If gross income from unrelated trade, business or other
activity exceeds fifty percent (50%) of the total gross
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income derived from all sources, it will be taxed as an

ordinary corporation (predominance test).
Government-Owned or Controlled Corporation (GOCC)
All corporations, agencies, or instrumentalities owned or
controlled by the govt., shall pay same tax rate upon
their taxable income in a similar business, industry, or
activity. Except the following: (Sec. 27 C, ibid.)
 Social Security System (SSS)
 Government Service Insurance System (GSIS)
 Philippine Health Insurance Corporation (PHIC) Exempt
 Local Water Districts (LWD) (RA 10026)
Resident Foreign Corporation
International Carrier Gross Philippine 2 ½%
(International Air Carrier / International Shipping) Billings
Offshore Banking Units Gross Taxable Income on 10%
Foreign Currency Transaction
Income derived by offshore banking units authorized by not subjected to Final Tax
the Bangko Sentral ng Pilipinas (BSP) to transact
business with offshore banking units, including any Taxable Income Other Than
Foreign Currency Transaction
interest income derived from foreign currency loans 30%
granted to residents.
Branch Profit Remittances 15%
Any profit remitted by a branch to its head office, which
shall be based on the total profits applied or earmarked
for remittance without any deduction for the tax
component thereof, except those activities which are
registered with the Philippine Economic Zone Authority.
Regional or Area Headquarters Exempt
Regional Operating Headquarters of Multinational Philippine Taxable 10%
Corporation Income
Non-resident Foreign Corporation
Cinematographic Film Owner, Lessor or Distributor Gross Income from 25%
the Philippines
Owner or Lessor of Vessels Chartered by Philippine Gross rentals, lease or 4 ½%
Nationals charter fees from the
Philippines
Owner or Lessor of Aircraft, Machineries and Other Gross rentals or fees 7 ½%
Equipment from Philippines
Note: There is no minimum corporate income tax for special corporations.

Proprietary educational institution is any private school maintained and administered by

private individuals or groups with an issued permit to operate from the Department of Education (DEPED), or
the Commission on Higher Education (CHED), or the Technical Education and Skills Development Authority
(TESDA), as the case may be, in accordance with existing laws and regulations. (Sec. 27 B, NIRC)

International Air Carrier - Gross Philippine Billings refers to the amount of gross revenue derived from
carriage of persons, excess baggage, cargo and 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 the ticket or
passage document.

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International Shipping - Gross Philippine Billings means gross revenue whether for passenger, cargo or mail
originating from the Philippines up to final destination, regardless of the place of sale or payments of the
passage or freight documents. (Sec. 28 A3, ibid.)

Regional 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. (Sec. 22 DD, ibid.)

Regional operating headquarters shall mean a branch established in the Philippines by multinational
companies which are engaged in any of the following services: general administration and planning; business
planning and coordination; sourcing and procurement of raw materials and components; corporate finance
advisory services; marketing control and sales promotion; training and personnel management; logistic
services; research and development services and product development; technical support and maintenance;
data processing and communications; and business development. (Sec. 22 EE, ibid.)

Illustration 5
Fast Earning University is a private educational institution. During the year it had the
following data:

Tuition fees……………..……..……………………..….. P 9,000,000

Miscellaneous fees……………………………………… 1,350,000
Rent income from a building which is being leased to
commercial establishments……………..……………… 108,000
Dividend from domestic corporation…………………. 45,000
Allowable deductions…………………………………… 4,050,000

The income tax due from Fast Earning University is computed as follows:

1. Predominance test:
Related Unrelated
Tuition fees……………..……..……………………. 9,000,000
Miscellaneous fees………………………………... 1,350,000
Rent income ………..……………………………… 108,000
Dividend from domestic corporation…………….. 45,000
Totals……………………………………………….. 10,350,000 153,000

Percent of unrelated activity to 153,000 = 1.46%

total gross income 10,503,000

Applicable income tax rate………………………… 10%

2. Computation of income tax due:

Tuition fees……………..……..…………………… P 9,000,000

Miscellaneous fees………………………………. 1,350,000
Rent income.……………………………………… 108,000
Gross income……………………………………. 10,458,000
Less: Allowable deductions…………………….. (4,050,000)
Taxable income…………………………………. 6,408,000
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Tax rate……………………………………………. 10%

Income tax due………………………………….. 640,800

 Optional Gross Income Tax

Effective January 1, 2000 the President, upon the recommendation of the Secretary of
Finance, may allow corporations the option to be taxed at 15% of gross income after the
following conditions have been satisfied:

Tax effort ratio 20% of GNP

Ratio of income tax collection to total tax revenues 40%
VAT tax effort 4% of GNP
Ratio of the Consolidated Public Sector Financial Position (CPSFP) to GNP 0.9%
Ratio of cost of sales to gross sales or receipts from all sources Does not exceed 55%

The election of the gross income tax option by the corporation shall be irrevocable for 3
consecutive taxable years during which the corporation is qualified under the scheme.

 Improperly Accumulated Earnings Tax (IAET)

There is imposed for each taxable year, in addition to other taxes, a tax equal to 10% of
the improperly accumulated taxable income of corporations formed or availed of for the
purpose of avoiding the income tax with respect to its shareholders or the shareholders of
any other corporation, by permitting the earnings and profits of the corporation to
accumulate instead of dividing them among or distributing them to the shareholders.

Rationale
If the earnings and profits were distributed, the shareholders would then be liable for
income tax; if the distribution were not made to them, they would incur no tax in respect to
the undistributed earnings and profits of the corporation. It is a tax in the nature of a
penalty to the corporation for the improper accumulation of its earnings, and a deterrent to
the avoidance of tax upon shareholders who are supposed to pay dividends tax on the
earnings distributed to them.

Exception
The use of undistributed earnings and profits for the reasonable needs of the business
would not generally make the accumulated or undistributed earnings subject to the tax.
What is meant by “reasonable needs of the business” is determined by the Immediacy Test

Immediacy Test – It states that the “reasonable needs of the business” are the
1. Immediate needs of the business; and
2. Reasonably anticipated needs

How to prove the “reasonable needs of the business”: The Corporation should prove that
there is
1. An immediate need for the accumulation of the earnings and profits; or
2. A direct correlation of anticipated needs to such accumulation of profits.

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Chapter 4 Taxation of Corporations

The following constitute accumulation of earnings for the reasonable needs of the
business:
1. Allowance for the increase in the accumulation of earnings up to 100% of the paid-
up capital of the corporation as of Balance Sheet date, inclusive of accumulations
taken from other years;
2. Earnings reserved for definite corporate expansion projects or programs requiring
considerable capital expenditure as approved by the Board of Directors or
equivalent body;
3. Earnings reserved for building, plants or equipment acquisition as approved by the
Board of Directors or equivalent body;
4. Earnings reserved for compliance with any loan covenant or pre-existing obligation
established under a legitimate business agreement;
5. Earnings required by law or applicable regulations to be retained by the corporation
or in respect of which there is legal prohibition against its distribution;
6. In the case of subsidiaries of foreign corporations in the Philippines, all undistributed
earnings intended or reserved for investments within the Philippines as can be
proven by corporate records and/or relevant documentary evidence.

Covered corporations
Only domestic and closely-held corporations are liable for IAET.

Closely-held corporations are those:

 At least 50% in value of the outstanding capital stock; or
 At least 50% of the total combined voting power of all classes of stock
entitled to vote is owned directly or indirectly by or for not more than 20
individuals. Domestic corporations not falling under the aforesaid
definition are, therefore, publicly-held corporations.

Exempt corporations
The IAET shall not apply to the following corporations:
1. Banks and other non-bank financial intermediaries;
2. Insurance companies;
3. Publicly-held corporations;
4. Taxable partnerships;
5. General professional partnerships;
6. Non- taxable joint ventures; and
7. Enterprises that are registered:
 With the Philippine Economic Zone Authority (PEZA) under R.A. 7916;
 Pursuant to the Bases Conversion and Development Act of 1992 under
R.A. 7227; and
 Under special economic zones declared by law which enjoy payment of
special tax rate on their registered operations or activities in lieu of other
taxes, national or local.

Period for Payment of Dividend/Payment of IAET

The dividends must be declared and paid or issued not later than one year following the
close of the taxable year, otherwise, the IAET, if any, should be paid within 15 days
thereafter. (RR 2-2001)

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Chapter 4 Taxation of Corporations

Improperly accumulated earnings tax formula:

Taxable income P xx
Add: Income exempt from tax xx
Income excluded from gross income xx
Income subject to final tax xx
Net Operating Loss Carry-Over deducted (NOLCO) xx
Less:
Income tax paid/payable during the year (xx)
Dividend actually or constructive paid (xx)
Reserved for the reasonable needs of the business
emanating from the covered year’s taxable income (xx)
Improperly accumulated earnings xx
X Tax rate 10 %
Improperly accumulated earnings tax P xx

Illustration 6
After twelve years of operations Quejada Inc. a domestic corporation had a retained
earnings of P1,500,000. The Bureau of Internal Revenue is willing to concede that the
reasonable needs of the business would justify the retention of that amount by the
corporation. For the current year the corporation had:

Gross income………………………………………….. P 875,000

Dividend from domestic corporation………………… 12,500
Interest on Philippine currency bank deposit………. 25,000
Capital gain on sale of land at a selling
price of P3,750,000……………………………….. 375,000
Operating expenses………………………………….. 250,000
Capital gain tax on land………………………………. 225,000
Final tax on interest from bank deposit…………….. 5,000
Year-end income tax…..……………………………… 187,500
Quarterly income tax paid……………………………. 137,500
Dividend declared and paid………………………...... 312,500

The improperly accumulated earnings tax of Quejada Inc. is computed as follows:

Gross income………………………………………………… 875,000

Less: Operating expenses………………………………….. (250,000)
Taxable income………………………………………..…… 625,000
Add: Income exempt from tax -
Dividend from domestic corporation………….. 12,500
Income excluded from gross income -
Capital gain on sale of land…………………… 375,000
Income subject to final tax -
Interest on Philippine currency bank deposit… 25,000
Less:
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Income tax paid/payable during the year -

Capital gain tax on land………………………… (225,000)
Final tax on interest from bank deposit……….. (5,000)
Year-end income tax..………………………….. (187,500)
Dividend declared and paid……………………….. (312,500)

Improperly accumulated earnings……………………… 307,500

X Tax rate…………………………………………………… 10 %
Improperly accumulated earnings tax…………………. 30,750

 Optional Standard Deduction

In lieu of itemized deductions a domestic and resident foreign corporation may elect a
standard deduction in an amount not exceeding forty percent (40%) of it gross income.

Unless the corporation signifies in its return its intention to elect the optional standard
deduction, it shall be considered as having availed itself of the itemized deductions. Such
election when made in the return shall be irrevocable for the taxable year for which the
return is made

However, a corporation who availed and claimed this deduction is still required to submit its
financial statements when it files its annual tax return and to keep such records pertaining
to its gross income.

In the filing of the quarterly income tax returns, the taxpayer may opt to use either the
itemized deduction or OSD. However, in filing the final adjustment income tax return, the
taxpayer must make a choice as to what method of deduction it shall employ for the
purpose of determining its taxable net income for the entire year. The taxpayer is, thus, not
allowed to use a hybrid method of claiming its deduction for one taxable year. (RA 9504; RR 16-
2008)

Illustration 7
Galaxy Corporation had the following data:

Gross sales…………………………………… P 12,000,000

Sales returns…………………………………. 24,000
Cost of sales…………………………………. 7,200,000
Expenses……………………………………. 3,000,000

The income tax due from Galaxy assuming it availed the optional standard deduction is
computed as follows: TB Ampongan

Itemized Optional
Gross sales…………..………………………………. 12,000,000 12,000,000
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Less: Sales returns……….………………………… (24,000) (24,000)

Cost of sales……….…………………………. (7,200,000) (7,200,000)
Gross income...……………………………………… 4,776,000 4,776,000
Less: Expenses / OSD 40%................................... (3,000,000) (1,910,400)
Taxable income…………………………………….. 1,776,000 2,865,600
Tax rate………………………………………………. 30% 30%
Income tax due …………………………………….. 532,800 859,680

 Tax Credit (Same rules as Individual Taxpayer)

 Exemptions from Tax on Corporations

The following organizations shall not be taxed in respect to income received by them as
such:

1. Labor, agricultural or horticultural organization not organized principally for profit;

2. 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;

3. A beneficiary society, order or association, operating for the exclusive benefit of the
members such as a fraternal organization operating under the lodge system, or
mutual aid association or a non-stock corporation organized by employees providing
for the payment of life, sickness, accident, or other benefits exclusively to the
members of such society, order, or association, or non-stock corporation or their
dependents;

4. Cemetery company owned and operated exclusively for the benefit of its members;

5. Non-stock corporation or association organized and operated exclusively for

religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation
of veterans, no part of its net income or asset shall belong to or inures to the benefit
of any member, organizer, officer or any specific person;

6. 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 stock-
holder, or individual;

7. Civic league or organization not organized for profit but operated exclusively for the
promotion of social welfare;

8. A non-stock and nonprofit educational institution;

9. Government educational institution;

10. Farmers' or other mutual typhoon or fire insurance company, mutual ditch or
irrigation company, mutual or cooperative telephone company, or like organization
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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

11. 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;

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 tax imposed under NIRC. (Sec. 30, NIRC)

 Corporate Income Tax Returns

1. Quarterly Income Tax Return (See discussion on Quarterly Tax on Corporations)
 Place of filing (Same rules as Annual ITR)

2. Annual Income Tax Return (BIR Form 1702)

 Place of filing
a) Any Authorized Agent Bank (AAB) located within the territorial
jurisdiction of the Revenue District Office (RDO) where the
taxpayer’s principal office is registered.
b) In places where there are no AABs, the return shall be filed and
the tax shall be paid with the concerned Revenue Collection
Officer (RCO) under the jurisdiction of the RDO.
c) In case of “NO PAYMENT RETURNS” the same shall be filed
with the RDO where the taxpayer’s principal office is registered or
with the concerned RCO under the same RDO.
d) For Electronic Filing and Payment System (eFPS) taxpayer, the
return shall be e-filed and the tax shall be e-paid using the eFPS
facilities thru the BIR website http//www.bir.gov.ph.
 Time of filing
a) On or before the 15th day of the fourth month following the close
of the taxpayer's taxable year. (Sec. 77 B, ibid.)

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