This document outlines various types of income that are included or not included in gross income for Philippine tax purposes. It discusses income such as business income, royalty income, dividends, prizes, partnership income, recoveries of past deductions, refunds, reimbursements, and cancellation of debt that are included in gross income. It also discusses special considerations like accounting methods, situs rules, VAT, and withholding taxes. Transfer pricing for associated enterprises is discussed, outlining acceptable methods like comparable uncontrolled price, resale price, cost plus, profit split, and transactional net margin.
This document outlines various types of income that are included or not included in gross income for Philippine tax purposes. It discusses income such as business income, royalty income, dividends, prizes, partnership income, recoveries of past deductions, refunds, reimbursements, and cancellation of debt that are included in gross income. It also discusses special considerations like accounting methods, situs rules, VAT, and withholding taxes. Transfer pricing for associated enterprises is discussed, outlining acceptable methods like comparable uncontrolled price, resale price, cost plus, profit split, and transactional net margin.
This document outlines various types of income that are included or not included in gross income for Philippine tax purposes. It discusses income such as business income, royalty income, dividends, prizes, partnership income, recoveries of past deductions, refunds, reimbursements, and cancellation of debt that are included in gross income. It also discusses special considerations like accounting methods, situs rules, VAT, and withholding taxes. Transfer pricing for associated enterprises is discussed, outlining acceptable methods like comparable uncontrolled price, resale price, cost plus, profit split, and transactional net margin.
This document outlines various types of income that are included or not included in gross income for Philippine tax purposes. It discusses income such as business income, royalty income, dividends, prizes, partnership income, recoveries of past deductions, refunds, reimbursements, and cancellation of debt that are included in gross income. It also discusses special considerations like accounting methods, situs rules, VAT, and withholding taxes. Transfer pricing for associated enterprises is discussed, outlining acceptable methods like comparable uncontrolled price, resale price, cost plus, profit split, and transactional net margin.
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INCLUSION IN GROSS INCOME
Business income subject to special tax
- PEZA and TIEZA registered = 5% Gross income tax
- SEP or Self-Employed Individual = opted 8% income tax
Business income not subject to final tax by the payor
- Subcontractors of Petroleum service contractors = 8% final tax
- FCDUs or OBUs (offshore Banking Unit) = 10% final tax
Active royalty income and earned from outside of PH = RIT
Cash, property and scrip dividend = RIT
Stock dividend = exempt not until when redeemed = taxable
Liquidating income = not income
Earned from source
Prizes: Within Abroad
10k and below RT RT More than 10k FT RT PSCO and lotto, exceeding 20k FT N/A PSCO and lotto, not exceeding 20k Exempt N/A Winnings from other sources FT RT
General professional Partnership
Share in net income = RIT
OTHER SOURCES OF GROSS INCOME SUBJECT TO RIT
1. Income distribution from taxable estates and trust
2. Share from the net income of other pass through entities: a. Exempt joint venture b. Exempt co-ownership 3. Farming income - Animal raising expense = deduct to gross income 4. Recovery of past deductions 1. Previously claimed bad debt expense 2. Local tax expense 3. Foreign tax previously claimed as deduction 4. Recommissioning of abandoned petroleum service contracts or mining tenements 5. Release of reverse funds of insurance companies 6. Interest expense which subsequently condoned by the lender
Note: reverted back to Gross income
Under our tax law, the excess of deductions over gross income in a taxable year is carried over = deduction against the net income of the next 3 years of operation (NOLCO)
Almost all prior year deductions have tax benefits; hence there is RECOVERY TAXABLE
Refund of non-deductible expenses
- Not included in GI or Not taxable;
a. Philippine income tax b. Estate or donor’s tax c. Income tax paid or incurred to a foreign country if the taxpayer claimed a credit for such tax in the year it was paid or incurred d. Stock transaction tax in disposing stocks through the Philippine Stock Exchange e. Special Assessment
5. Reimbursement of expenses - paid by customers or client
6. Cancellation of indebtedness for a consideration
a. Inconsideration of service or goods (income) b. As an act of gratuity (gift, not income) c. As capital transaction such as forfeiting the right to receive dividends in exchange of the debt (dividend income)
7. Special considerations in reporting of gross income
1. Accounting methods - Advance collection Included (more on cash basis) 2. Situs rules 3. Effect of VAT 4. Creditable withholding tax 5. Power of the CIR to redistribute income and expenses
Note: VAT taxpayer shall revert back to gross income amounts of withholding tax but excludes therefrom the amount of VAT charged to customers or clients
The arm’s length principle
a. Cross-border transaction between associated enterprises – advanced pricing agreement (BIR)
b. Domestic transaction between associated enterprises Transfer pricing method
1. Comparable uncontrolled price (CUP) method
2. Resale price method (RPM) 3. Cost plus method (CMP) 4. Profit split method (PSM) a. Residual profit split approach b. Contribution profit split approach 5. Transactional net margin method (TNMM) – similar CMP
