Module 6 TAXATION OF CORPORATIONS PDF

Module 6
TAXATION OF CORPORATIONS
Overview
This module deals with the taxation of corporations and provides illustrations on how to
compute for the taxable income and income tax due. Taxation of special corporations and exempt
associations are also discussed. The Minimum Corporate Income Tax (MCIT), Gross Income Tax
(GIT) and Improperly Accumulated Earnings Tax (IAET) are illustrated and the students are given
comprehensive exercises for these topics. Quarterly and annual filing of corporate income tax
returns are also illustrated.
Advance Study Questions
1. What is the definition of “corporation” under the NIRC.

2. What are the classifications of corporations?
3. Enumerate exempt associations under Sec. 30 of the NIRC.
4. Identify the formula for taxable income and tax rates of domestic corporations.
5. Identify the formula for taxable income and tax rates of resident foreign corporations.
6. Identify the formula for taxable income and tax rates of non-resident foreign corporations.
7. Differentiate the tax treatment of proprietary educational institutions, non-stock non-profit
educational institutions and government educational institutions.
8. What is the minimum corporate income tax and how is it applied to domestic and resident
foreign corporations?
9. What is the Gross Income Tax and how may corporations qualify to the scheme?
10. Why is Improperly Accumulated Earnings Tax (IAET) considered a penalty tax? What is the
rate of tax and its formula under the NIRC and under the regulations?
11. How is the Optional Standard Deduction (OSD) for corporations computed?
12. How does NOLCO affect the computation of taxable income and corporate income tax?
DISCUSSION
Corporation and Other Terms Defined

Definition of corporation in the Corporation Code
Corporation is 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.
Definition of corporation in the Tax Code

The term “corporation” shall include partnerships no matter how created or organized,
joint, stock companies, joint accounts (cuentas en participacion), associations, or insurance
companies, but does not include general professional partnerships and a joint venture or
consortium formed for the purpose of undertaking construction projects or engaging in petroleum,
coal, geothermal and other energy operations pursuant to an operating or consortium agreement
under a service contract with the government.
Included in the term corporation
• Partnerships, no matter how created or organized;

• Joint stock companies;
• Joint accounts (cuentas en participacion);
• Associations, or insurance companies.
Not included in the term corporation
• General professional partnerships; and

• Joint venture or consortium formed for the purpose of undertaking (1)
construction projects* or (2) engaging in petroleum, coal, geothermal and other
energy operations pursuant to an operating or consortium agreement under a
service contract with the government. 1
*should involve licensed general contractors by the Philippine Contractors

Accreditation Board (PCAB) and the Department of Trade and Industry (DTI) or a
member foreign contractor granted special license by the PCAB pursuant to RA 4566
also known as Contractor’s License Law.
Other Definitions
General professional partnerships are partnerships formed by persons for sole purpose of
exercising their common profession, no part of the income of which is derived from engaging in
any trade or business.
Joint venture is a commercial undertaking by two or more persons, differing from a partnership
in that it relates to the disposition of a single lot of goods or the completion of a single project.
Joint stock companies are constituted when a group of individuals, acting jointly, establish and
operate a business enterprise under an artificial name, with an invested capital divided into
transferable shares, an elected board of directors, and other corporate characteristics, but operating
without formal governmental authority.
Joint accounts (cuentas en participacion) are constituted when one interests himself in the
business of another by contributing capital thereto, and sharing in the profits or losses in the
proportion agreed upon. They are not subject to any formality and may be privately contracted
orally or in writing.
‘Associations’ includes all organizations which have substantially the salient features of a
corporation to be a taxable as a “corporation”
RAHQ vs. ROHQ
The Term ‘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.
The term '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.
“'Multinational company' means a foreign firm or entity engaged in international trade with
affiliates or subsidiaries or branch offices in the Asia-Pacific Region and other foreign markets.
Offshore banking units, a division of a foreign bank which is authorized to transact banking
transactions in foreign currencies in the Philippines.
Classification of Corporations
Domestic corporations (Sec. 27)
The term “domestic”, when applied to a corporation, means created or organized in the Philippines
or under its laws
Foreign corporations- the term “foreign”, when applied to corporation, means a corporation
which is not domestic.
1. Resident foreign corporation (Sec 28 A) - The term “resident foreign corporation”

applies to a foreign corporation engaged in trade or business within the Philippines.
2. Non-resident foreign corporation Sec. 28 B)– The term “non-resident foreign
corporation” applies to a foreign corporation not engaged in trade or business within the
Philippines.
Tax base and Tax Rate

The final taxes of corporations were already discussed in Chapter 2.
TAX RATES FOR CORPORATIONS
Domestic Corporations (DC)
On their taxable income within and without
1) a. In General – on net taxable income 30%

b. Minimum Corporate Income Tax (MCIT)* – on gross income 2%
c. Improperly Accumulated Earnings – on improperly accumulated
10%
taxable income
2) Proprietary Educational Institution and Non-profit Hospitals 10%
- In general (on net taxable income) 10%
- If the gross income from unrelated trade, business or other activity
30%
exceeds 50% of the total gross income from all sources
3) GOCC, Agencies & Instrumentalities**
a. In General - on net taxable income 30%
b. Minimum Corporate Income Tax – on gross income 2%
10%
taxable income
4) Taxable Partnerships
a. In General – on net taxable income 30%
10%
taxable income
5) Exempt Corporation***
a. On Exempt Activities 0%
b. On Taxable Activities 30%
6) Corporation covered by Special Laws Rate specified
under the
respective
special laws
General Professional Partnerships
General Professional Partnerships 0%

*MCIT is imposed beginning on the 4th year immediately following the year in which such
corporation commenced its business operations, when the minimum corporate income tax (MCIT)
is greater than the tax computed using the normal income tax.
**Sec. 27 C, as amended under TRAIN Law

(C) Government-owned or –Controlled Corporations, Agencies or Instrumentalities. – The provisions of existing special
or general laws to the contrary notwithstanding, all corporations, agencies, or instrumentalities owned or controlled by
the Government, except the
- Government Service Insurance System (GSIS),
- Social Security System (SSS),
- Philippine Health Insurance Corporation (PHIC), and
- the local water districts
shall pay such rate of tax upon corporations or associations engaged in a similar business, industry, or activity.
*** Exempt Corporations (Sec. 30 NIRC)
Resident Foreign Corporation (RFC)
On their taxable income within
1) a. In General – on net taxable income 30%

10%
taxable income
2.50%
2) International Carriers – on gross Philippine billings
3) Regional Operating Headquarters on gross income 10%
4) Regional Area Headquarters on gross income Exempt
5) Corporation Covered by Special Laws Rate specified

under the
respective
special laws
6) Offshore Banking Units (OBUs) on gross income Exempt
Interest income from foreign currency loans granted to residents other
than OBUs or local commercial banks 10% FWT
7) Foreign Currency Deposit Units (FCDU) on gross income 10%

8) Tax on branch profit remittance (except on activities registered with
PEZA) on the Total profits applied or earmarked for remittance without 15%
deduction for the tax component
Non-Resident Foreign Corporation (NRFC)
On their gross income within, NRFCs are subject to final withholding tax (FWT)
1) Non-resident cinematographic film owner, lessor, or distributor on

25%
gross income from Philippine sources
2) Gross rental of fees derived within the Philippines 7½%
3) Non-resident owner or lessor of vessels chartered by Philippine
nationals on their Gross rentals, lease or charter fees from leases or
4 1/2%
charters to Filipinos citizens or corporations, as approved by Maritime
Industry Authority
Gross Income Tax (GIT) Sec. 27 (A) and Sec. 28 (A) (1)
Provided, further, That the President, upon the recommendation of the Secretary of Finance, may effective January 1, 2000, allow
corporations the option to be taxed at fifteen percent (15%) of gross income as defined herein, after the following conditions have
been satisfied:
(1) A tax effort ratio of twenty percent (20%) of Gross National Product (GNP);
(2) A ratio of forty percent (40%) of income tax collection to total tax revenues;
(3) A VAT tax effort of four percent (4%) of GNP; and
(4) A 0.9 percent (0.9%) ratio of the Consolidated Public Sector Financial Position (CPSFP) to GNP.
The option to be taxed based on gross income shall be available only to firms whose ratio of cost of sales to gross sales or receipts
from all sources does not exceed fifty-five percent (55%).
The election of the gross income tax option by the corporation shall be irrevocable for three (3) consecutive taxable years during
which the corporation is qualified under the scheme.
For purposes of this Section, the term 'gross income' derived from business shall be equivalent to gross sales less sales returns,
discounts and allowances and cost of goods sold. 'Cost of goods sold' shall include all business expenses directly incurred to produce
the merchandise to bring them to their present location and use.
For a trading or merchandising concern, 'cost of goods sold' shall include the invoice cost of the goods sold, plus import duties,
freight in transporting the goods to the place where the goods are actually sold, including insurance while the goods are in transit.
For a manufacturing concern, 'cost of goods manufactured and sold' shall include all costs of production of finished goods, such
as raw materials used, direct labor and manufacturing overhead, freight cost, insurance premiums and other costs incurred to bring
the raw materials to the factory or warehouse.
In the case of taxpayers engaged in the sale of service, 'gross income' means gross receipts less sales returns, allowances and
discounts.
Sec. 28 (A) (1)
….. Provided, however, that a resident foreign corporation shall be granted the option to be taxed at fifteen
percent (15%) on gross income under the same conditions, as provided in Section 27 (A).
GIT - OPTIONAL CORPORATE INCOME TAX

a. Imposition of optional corporate income tax
The resident upon the recommendation of the Secretary of Finance may,
effective January 1, 2000, allow corporation to be subjected to optional corporation
tax.
b. Tax base and tax rate
The tax rate is 15% based on the gross income.
c. Conditions for the imposition of optional corporate income tax
The following conditions shall have to be satisfied in the allowance of
optional corporate tax:
1) A tax effort ration of 20% of Gross National Product (GNP);
2) A ratio of 40% of income tax collection of total tax revenue;
3) A VAT tax effort of 4% of GNP; and
4) A 0.9% ratio of the Consolidated Public Sector Financial Position to GNP.
d. Option to be taxed based on gross income
The option to be taxed based on gross income shall be available only to firms
whose ratio of cost of sales to gross sales or receipts from all sources does not
exceed 55%
e. Election of the gross income shall be irrevocable
The election of the gross income option by the corporation shall be irrevocable
for the three (3) consecutive taxable years during which corporation is qualified
under the scheme.
Minimum corporate income tax [Sec. 27 (E) and 28 (A) (2)]
Sec. 27 (E) Minimum Corporate Income Tax on Domestic Corporations
(1) Imposition of Tax. - A minimum corporate income tax of two percent (2%) of the gross income as of the
end of the taxable year, as defined herein, is hereby imposed on a corporation taxable under this Title, beginning
on the fourth taxable year immediately following the year in which such corporation commenced its business
operations, when the minimum income tax is greater than the tax computed under Subsection (A) of this
Section for the taxable year.
(2) Carry Forward of Excess Minimum Tax. - Any excess of the minimum corporate income tax over the
normal income tax as computed under Subsection (A) of this Section shall be carried forward and credited
against the normal income tax for the three (3) immediately succeeding taxable years.
(3) Relief from the Minimum Corporate Income Tax Under Certain Conditions. - The Secretary of
Finance is hereby authorized to suspend the imposition of the minimum corporate income tax on any
corporation which suffers losses on account of prolonged labor dispute, or because of force majeure, or because
of legitimate business reverses.
The Secretary of Finance is hereby authorized to promulgate, upon recommendation of the Commissioner, the
necessary rules and regulation that shall define the terms and conditions under which he may suspend the
imposition of the minimum corporate income tax in a meritorious case.
(4) Gross Income Defined. - For purposes of applying the minimum corporate income tax provided under
Subsection (E) hereof, the term 'gross income' shall mean gross sales less sales returns, discounts and
allowances and cost of goods sold. 'Cost of goods sold' shall include all business expenses directly incurred to
produce the merchandise to bring them to their present location and use.
For a trading or merchandising concern, 'cost of goods sold' shall include the invoice cost of the goods sold, plus import duties,
freight in transporting the goods to the place where the goods are actually sold including insurance while the goods are in transit.
For a manufacturing concern, 'cost of goods manufactured and sold' shall include all costs of production of finished goods, such
as raw materials used, direct labor and manufacturing overhead, freight cost, insurance premiums and other costs incurred to bring
the raw materials to the factory or warehouse.
In the case of taxpayers engaged in the sale of service, 'gross income' means gross receipts less sales returns, allowances, discounts
and cost of services. 'Cost of services' shall mean all direct costs and expenses necessarily incurred to provide the services required
by the customers and clients including (A) salaries and employee benefits of personnel, consultants and specialists directly
rendering the service and (B) cost of facilities directly utilized in providing the service such as depreciation or rental of equipment
used and cost of supplies: Provided, however, That in the case of banks, 'cost of services' shall include interest expense.
Sec. 28 (A) (2)
(2) Minimum Corporate Income Tax on Resident Foreign Corporations
A minimum corporate income tax of two percent (2%) of gross income, as prescribed under Section 27 (E) of this Code,
shall be imposed, under the same conditions, on a resident foreign corporation taxable under paragraph (1) of this Subsection.
Sec. 27 (E) Sec. 28 (A) (2) NONRESIDENT

DOMESTIC RESIDENT FC. FC
2% of gross 2% of gross
income within and income within
without
MINIMUM CORPORATE INCOME TAX
Period the Corporation is subject to MCIT

Beginning on the 4th taxable year immediately following the year of commencement of
operations. Commencement of business shall be reckoned from the day when the first sale
transaction occurred or within thirty (30) calendar days from the issuance of Mayor's Permit/PTR
by LGU, or Certificate of Registration issued by the Securities and Exchange Commission
(SEC), whichever comes earlier.
Illustration
CASE A CASE B
First Sale transaction November 15, 2019 March 7, 2020
Issuance of Mayor’s Permit/PTR January 4, 2020 January 4, 2020
SEC Certificate of Registration December 15, 2019 November 15,
issuance 2019
Date of BIR Registration January 12, 2020 January 14, 2020
Date of Commencement November 15, 2019 December 15,
2019
Subject to MCIT beginning January 1, 2023 January 1, 2023
The date of BIR registration is not a reckoning period because a corporation need not be registered
with the BIR to be taxable.
IS THE MINIMUM CORPORATE INCOME TAX (MCIT) AN ADDITION TO THE

REGULAR OR NORMAL INCOME TAX?
No, the MCIT is not an additional tax. An MCIT of 2% of the gross income as of the end of taxable
year (whether calendar or fiscal year, depending on the accounting period employed)
is imposed on a corporation taxable under Title II of the Tax Code, as amended, beginning on the
4th taxable year immediately following the taxable year in which such corporation commenced its
business operations when the MCIT is greater than the regular income tax.
The MCIT is compared with the regular income tax, which is due from a corporation. If the regular
income is higher than the MCIT, then the corporation does not pay the MCIT but the amount of
the regular income tax.
Notwithstanding the above provision, however, the computation and the payment of MCIT, shall
likewise apply at the time of filing the quarterly corporate income tax as prescribed under Section
75 and Section 77 of the Tax Code, as amended. Thus, in the computation of the tax due for the
taxable quarter, if the computed quarterly MCIT is higher than that quarterly normal income tax,
the tax due to be paid for such taxable quarter at the time of filing the quarterly income tax return
shall be the MCIT which is two percent (2%) of the gross income as of the end of the taxable
quarter. In the payment of said quarterly MCIT, excess MCIT from the previous taxable year/s
shall not be allowed to be credited. Expanded withholding tax, quarterly corporate income tax
payments under the normal income tax, and the MCIT paid in the previous taxable quarter/s are
allowed to be applied against the quarterly MCIT due.
WHO ARE COVERED BY MCIT?
The MCIT covers domestic and resident foreign corporations which are subject to the regular
income tax. The term “regular income tax” refers to the regular income tax rates under the Tax
Code. Thus, corporations which are subject to a special corporate tax system do not fall within the
coverage of the MCIT.
For corporations whose operations or activities are partly covered by the regular income tax and
partly covered by the preferential rate under special law, the MCIT shall apply on operations by
the regular income tax rate. Newly established corporations or firms which are on their first 3 years
of operations are not covered by the MCIT.
When does a corporation start to be covered by the MCIT?
A corporation starts to be covered by the MCIT on the 4th year of its business operations. The
period of reckoning which is the start of its business operations is the year when the corporation
was registered with the BIR. This rule will apply regardless of whether the corporation is using
the calendar year or fiscal year as its taxable year.
When is the MCIT reported and paid? Is it quarterly?
The MCIT is paid on an annual basis and quarterly basis. The rules are governed by Revenue
Regulations No. 12-2007.
How is MCIT computed?
The MCIT is 2% of the gross income of the corporation at the end of the year.
“Gross income” means gross sales less sales returns, discounts and cost of goods sold. Passive
income, which have been subject to a final tax at source do not form part of gross income for
purposes of the MCIT.
Cost of goods sold includes all business expenses directly incurred to produce the merchandise to
bring them to their present location and use.
For trading or merchandising concern, cost of goods sold means the invoice cost of goods sold,
plus import duties, freight in transporting the goods to the place where the goods are actually sold,
including insurance while the goods are in transit.
For a manufacturing concern, cost of goods manufactured and sold means all costs of production
of finished goods such as raw materials used, direct labor and manufacturing overhead, freight
cost, insurance premiums and other costs incurred to bring the raw materials to the factory or
warehouse.
For sale of services, gross income means gross receipts less sales returns, allowances, discounts
and cost of services which cover all direct costs and expenses necessarily incurred to provide the
services required by the customers and clients including:
• Salaries and employees benefits of personnel, consultants and specialists directly

rendering the service;
• Cost of facilities directly utilized in providing the service such as depreciation or
rental of equipment used;
• Cost of supplies
Interest Expense is not included as part of cost of service, except in the case of banks and other
financial institutions.
“Gross Receipts” means amounts actually or constructively received during the taxable year.
However, for taxpayers employing the accrual basis of accounting, it means amounts earned as
gross income.
What is the carry forward provision under the MCIT?
Any excess of the MCIT over the normal income tax may be carried forward on an annual basis
and be credited against the normal income tax for 3 immediately succeeding taxable years.
How would the MCIT be recorded for accounting purposes?
Any amount paid as excess minimum corporate income tax should be recorded in the corporation’s
books as an asset under account title “Deferred charges-MCIT”
MINIMUM CORPORATE INCOME TAX (MCIT)

a. Corporations subject to MCIT
1) Domestic corporation
2) Resident foreign corporation
b. Corporations not subject to MCIT
1) Proprietary educational institution subject to 10% tax;
2) Non-profit hospital subject to 10% tax;
3) Domestic corporation engaged in business as a depository bank under EFCDS;
4) Firms taxed under a special income tax regime (PEZA Law and the Bases
Conversation Development Act);
5) Special resident foreign corporations;
6) Non-resident foreign corporations
c. Tax base and tax rate
The tax rate is 2% based on:
1) Gross income within and without- Domestic corporation;
2) Gross income within- Resident foreign corporation
d. Gross income defined (RR 12-2007) published October 19, 2007
1) For the purpose of the MCIT, the term “gross income” means gross sales less
sales returns, discounts, and allowances and cost of goods sold, in case of sale
of goods, or gross revenue less sales returns, discounts, allowances and cost of
services/direct cost, in the case of the sale of services.
2) The term “gross income” will also include all items of gross income enumerated
under Sec. 32 (A) of the Tax Code, as amended, except income exempt from
income tax and income subject to final withholding tax.
e. MCIT imposed on the 4th taxable year
The tax imposed beginning on the fourth taxable year immediately following
the year in which such corporation commended its business operation.
f. Tax due
The tax due is the higher between the minimum corporate income tax and
normal or regular corporate income tax.
g. Quarterly computation of MCIT (RR 12-2007) published October 19, 2007
1) The computation and the payment of MCIT, shall likewise apply at the time of
filing of the quarterly corporate income tax.
2) In the computation of the tax due for the taxable quarter, if the computed
quarterly MCIT is higher than the quarterly normal income tax, the tax due to
be paid for such taxable quarter at the time of filing corporate income tax return
shall be the MCIT.
3) In the payment of the quarterly MCIT (MCIT is greater than the normal
corporate income tax), excess MCIT from the previous taxable year/s shall not
be allowed to be credited.
4) Expanded withholding tax, quarterly corporate income tax, payments under the
normal income and the MCIT paid in the previous taxable quarter/s are allowed
to be applied against the quarterly MCIT due.
h. Excess MCIT as carry forward
Any excess of the minimum corporate income tax over the normal corporate
income tax shall be carried forward and credited against the normal income tax for
the three succeeding taxable years.
i. Suspension of imposition of MCIT
The Secretary of Finance is authorized to suspend the imposition of minimum
corporate income tax on any corporation, which suffers losses on account of
prolonged labor disputes, or because of force majeure, or because of legitimate
business reverses.
j. Exercises
1. Panday Corporation’s computed normal income tax and MCIT, are creditable
income taxes withheld from first quarter to fourth quarter including excess MCIT
and excess withholding taxes from prior year/s are as follows:
First Q Second Q Third Q Fourth Q
Normal income tax P100,000 P120,000 P250,000 P200,000
Minimum 80,000 250,000 100,000 100,000
corporate income
tax
Taxes withheld 20,000 30,000 40,000 35,000
Additional information: Excess MCIT, prior year, P30,000; Excess withholding tax
prior year, P10,000
REQ: Compute the income tax payable for the first three (3) quarters and the year
end.
2. Using the same data in number 1 except that the normal income tax and the MCIT
for the quarters are as follows:
First Q Second Q Third Q Fourth Q
Normal income tax P100,000 P120,000 P250,000 P50,000
Minimum 80,000 250,000 100,000 120,000
corporate income
tax
REQ: Compute the annual income tax payable of the corporation for the year end.
3. The following data are presented to you:
Year Normal income tax Minimum corporate
income tax
1998 P50,000 P75,000
1999 60,000 100,000
2000 50,000 60,000
2001 80,000 90,000
2002 100,000 70,000
Compute the tax payable for the years 1998 to 2002 and prepare the necessary
journal entries.
Tax income derived under expanded foreign currency deposit system by

depository bank
TAX ON OBU/FCDU
Final tax on interest income from loans to resident borrower is a direct liability of FCDU
Failure of local borrower to withhold and remit the final withholding tax does not exempt
OBU/FCDU on onshore interest income (ING Bank v CIR, 2005).
The withholding agent-borrower may also be assessed deficiency withholding tax as penalty for
failure to withhold (RCBC v. CIR, CTA Case 2004).
Sec. 27 (D) (3) Sec. 28 (A) (7) NON-

DOMESTIC (b) RESIDENT RESIDENT FC
FC
1. Income derived Exempt from all Exempt from all Exempt
by a depository taxes except net taxes except net
bank from income from income from
foreign currency transactions transactions
transactions specified by Sec. specified by Sec.
with non- of Finance of Finance
residents, OBUs,
in the
Philippines,
local commercial
bank including
branches of
foreign banks
2. Interest income 10% 10% Exempt
from foreign
currency loan
granted by
depository
banks under
expanded
system to
residents other
than OBUs in
the Philippines
and other
depository bank
3. Any income on Exempt from
non-residents income tax
(individual or
corporation)
from
transactions
with depository
banks under
expanded
system
Special Domestic Corporations
(B) Proprietary Educational Institutions and Hospitals. -

Proprietary educational institutions and hospitals which are nonprofit shall pay a tax of ten percent (10%) on their taxable income
except those covered by Subsection (D) hereof: Provided, that if the gross income from 'unrelated trade, business or other activity'
exceeds fifty percent (50%) of the total gross income derived by such educational institutions or hospitals from all sources, the tax
prescribed in Subsection (A) hereof shall be imposed on the entire taxable income. For purposes of this Subsection, the term
'unrelated trade, business or other 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 of its primary purpose or function. A '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, Culture and Sports (DECS) , 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.
• A '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, Culture and Sports (DECS) , 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.
• Proprietary educational institutions and hospitals which are nonprofit shall pay a tax of ten
percent (10%) on their taxable income; except those subject to final taxes.
• Provided, that if the gross income from 'unrelated trade, business or other activity' exceeds
fifty percent (50%) of the total gross income derived by such educational institutions or
hospitals from all sources, the 30% RIT shall be imposed on the entire taxable income.
• In determining the percentage of unrelated income, all income must be accounted for
including those which are not taxable.
• For purposes of this Subsection, the term 'unrelated trade, business or other 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 of its primary
purpose or function.
Treatment of capital outlays for expansion of school facilities

a) Deducted as expenditures; or
b) Depreciated over the estimated life.
The pre-dominance test of income of proprietary educational institution
If the gross income from unrelated activity exceeds 50% of the total gross income, the
total taxable income of the school (from related and unrelated activities) shall be taxed at 30%.
Otherwise, taxable income shall be subject to 10% special income tax rate.
In the table above, gross income of P200,000 is only 16.67% (P200,000/P1,200,000). Therefore,
the school’s taxable income of P550,000 shall be taxed at only 10%. Tax due shall be P55,000.
Assuming that the school had the following data:
Gross Income
Related/not for profit 1,000,000
Unrelated/for profit 1,200,000
Deductions
Related 600,000
Unrelated 50,000
The ratio of gross income from unrelated activity to the total gross income is 54.5%
(P1,200,000/P2,200,000), therefore the taxable income computed, thus, (P2,200,000 minus
P650,000) amounting to P1,550,000 shall be taxed at 30%. Tax due shall be P465,000.
Illustration – Proprietary educational institutions
Proprietary educational institutions have the option to claim as depreciation expense amounts
1. (Phil. CPA Modified) The following information were written from the records of the
Central Plain University, Inc., a private educational institution, for the fiscal year ended
May 31, 2018:
Income: Tuition Fees P362,600
Miscellaneous Fees 2,843,100
Income from rents 60,000
Net income, school canteen 36,200
Net income, book store 24,800
Dividends from domestic corporation 15,000
Interest on time deposit 45,000
Expenses Payroll and administrative salary 1,425,420
Other operating expenses 844,430
Depreciation, new six-room building 37,500
Income Tax Payments, first three (3)
quarters 20,000
The capital outlay of P750,000 for the new six-room building would be expensed outright.
How much was the income tax due from the Central Plain University, Inc. for the fiscal
year ended May 31, 2014?
Sol.
Tuition P2,843,100
Miscellaneous 362,600
Rent 60,000
Canteen 36,200
Bookstore 24,800
Total Gross Income P3,326,700
Less: Payroll 1,425,420
Capital Expenditure for building construction 750,000 3,019,850
Taxable Income P306,850
Tax Due (10%) P30,685
Less: quarterly tax payments 20,000
Tax Payable P10,685
2. A proprietary private educational institution has presented the following data for the
calendar year 2018:
Gross income, related activities P5,000,000

Gross income, unrelated activities (including P2,000,000 7,000,000
rent from commercial spaces, gross of 5% withholding tax)
Expenses, related activities 2,000,000
Expenses, unrelated activities 3,000,000
Dividend from a domestic corporation 100,000
Payments, first three (3) quarters 1,000,000
How much is the taxable payable?
Gross income, related activities P5,000,000

Gross income, unrelated activities 7,100,000
P7,000,000 -1,900,000 = P5.1M + 2M (1.9M/.95)
Expenses, related activities (2,000,000)
Expenses, unrelated activities (3,000,000)
Taxable Income 7,100,000
Tax (30%)* 2,130,000
Less; creditable withholding tax on rent (100,000)
Payments, first three (3) quarters (1,000,000)
Tax Payable 1,030,000
Tax Rate is 30% because the income from related activity
Distinction between non-stock non-profit educational institutions and

proprietary educational institutions
The exempt corporations enumerated in Sec. 30 of the NIRC must not engage in other activities
conducted for profit. If conducted for profit, the income from these activities shall be subject to
30% regular corporate income tax, while those from exempt activities, shall continue to be exempt.
Income from profitable activities of these entities are taxable regardless of the disposition of the
income. As for non-stock non-profit educational institutions, the income from unrelated activities
are still exempt if they will be used for educational purposes. The proprietary educational
institutions, however, shall be taxable at 30% of the entire taxable income if the income from
unrelated activities exceed 50% of the total gross income.
Special resident foreign corporation
International carriers
a. International air carrier

➢ A foreign airline corporation doing business in the Philippines having been
granted landing rights in any Philippine port to perform international air
transportation services/activities or flight operations anywhere in the
world
b. International sea carrier
➢ A foreign shipping corporation during business in the Philippines, having
touched or intention of touching any Philippine port to perform
international sea transportation services/activities from the Philippines to
anywhere in the world and vice versa, in the case of on-line carrier.
Offshore banking units
➢ A branch, subsidiary or affiliate of a foreign banking corporation which is duly

authorized by the Bangko Sentral ng Pilipinas (BSP) to transact offshore banking
business in the Philippines
c. Preferential rate and exemption

➢ International carriers may now avail of preferential rates of exemption
from income tax on their gross revenues derived from the carriage of
persons and their excess baggage based on the principle of reciprocity or
an applicable tax treaty or international agreement to which the
Philippines is a signatory.
d. Gross Philippine Billings of International Air Carrier
➢ In computing for “Gross Philippine Billings” of international air carriers, there
shall be included the amount of gross revenue derived from passage of persons,
excess baggage, cargo and/or mail, originating from the Philippines in a
continuous and uninterrupted flight, irrespective of the place of sale or issue and
the place of payment of the passage documents.
➢ Gross Philippine Billings shall be determined by computing the monthly
average net fare of all the tax coupons of plane of tickets issued for the month
per point of final destination, per class of passage (i.e., first class, business class,
or economy class) and per classification of passenger (i.e., adult, child or
infant), and multiplied by the corresponding total number of passengers flown
for the month as declared in the flight manifest.
➢ Passage documents or tickets revalidated, exchanged and/or endorsed to another
on-line international airline shall be included in the taxable base of the carrying
airline and shall be subject to Gross Philippine Billings tax if the passenger is
lifted/boarded on an aircraft from any port or point in the Philippines towards a
foreign destination.
➢ In the case of the passenger’s passage documents or flights from any port or
point in the Philippines and back, that portion of revenue pertaining to the return
trip to the Philippines shall not be included as part of “Gross Philippine
Billings”
➢ In case of flight that originates from the Philippines but transhipment of
passenger, excess baggage, cargo and/or mail takes place elsewhere in another
aircraft belonging to a different airline company, the Gross Philippine Billings
shall be determined based on that portion of the revenue corresponding to the
leg flown from any point in the Philippines to the point of transhipment.
Gross Philippine Billings of international sea carriers

➢ In computing the “Gross Philippine Billings” of international sea carriers, there
shall be included the total amount of gross revenue whether for passenger,
cargo, and/or mail originating from the Philippines up to final destination,
regardless of the place of sale or payments of the passage or freight documents
e. Non-revenue passengers and refunded tickets
➢ Non-revenue passengers shall not be given value for purposes of computing the
taxable base subject to tax
➢ Refunded tickets shall likewise not be included in the computation of Gross
Philippine Billings.
INTERNATIONAL AIR CARRIER
➢ On outbound trip: Flight from Phil to foreign destination, income is treated as
from Philippine sources; hence, subject to 2.5% on GPB
➢ Continuous and uninterrupted flight
➢ If transshipment of passenger in another country on another foreign airline
takes place: GPB tax applies only on aliquot portion of revenue on Philippine
leg (Phil to foreign country)
➢ On inbound trip: Flight from foreign country to the Phil, income is treated as
from foreign sources; hence, exempt from Phil income tax
➢ INTERNATIONAL SHIPPING LINE
➢ From Phil to final foreign destination: entire income is taxable, even if
transhipment of cargoes took place in another country
➢ From foreign country to Phil: exempt
EXERCISES International Carrier
The following data were provided by Air America, international carrier doing
business in the Philippines:
Gross receipts, sales of tickets in the
Philippines to passengers (Manila to Taipei
flight)
Gross receipts, sales of tickets in Japan to
passengers (only P5,000,000 actually flown)
(Manila to Tokyo flight)
Gross receipts, transport of goods, sales of

tickers in Japan (Manila to Tokyo flight)
Philippines (Manila to Hongkong flight),
passengers were endorsed by another
international airline.
Philippines (Manila to Los Angeles flight) m
passengers were transhipped in Tokyo to
Los Angeles by another airline (flight from
Manila to Tokyo- 5 hours; flight from Tokyo
to Los Angeles -10 hours)
Expenses, sales of tickets, Philippines
Rental income, Philippines, gross of 5%
withholding tax
Interest income, bank deposit, Philippines
Expenses connected to rental income,
Philippines (net of VAT)
Payments, first three (3) quarters
Compute the following:
1) Income tax due and payable;
2) Total percentage tax;
3) VAT payable assuming VAT-registered; and
4) Final withholding tax
Special non-resident foreign corporation

Special NFRC TAX Base Tax Rate
1) Non-resident Gross income from 25%
cinematographic film Philippine sources
owner, lessor, or
distributor
2) Non-resident owner or Gross rental of fees 7 ½%
lessor of aircraft, derived within the
machineries and other Philippines
equipment
3) Non-resident owner or Gross rentals, lease or 4 ½%
lessor of vessels charter fees from leases or
chartered by Philippine charters to Filipinos
nationals citizens or corporations, as
approved by Maritime
Industry Authority
EXERCISE:
A corporation has the following data for the calendar year 2014:
Gross income, Philippines P2,500,000
Gross income, Japan 1,500,000
Expenses, Philippines 1,000,000
Expenses, Japan 500,000
How much is the final withholding Philippine income tax, assuming the corporation is
a:
a. Non-resident cinematographic film owner, lessor or distributor?
b. Non-resident owner or lessor of vessels chartered by Philippine nationals?
c. Non-resident owner or lessor of aircraft, machineries and other equipment?
d. Non-resident owner or lessor of vessels chartered by Japanese nationals?
Exempt Corporations/Organizations
Required Readings: Sec. 30 NIRC as amended, RMO 38-2019, RMC 44-

2016
https://www.bworldonline.com/new-guidelines-for-tax-exemption-of-non-stock-non-profits/
Corporations are the most highly-taxed entities under the NIRC. A proportional tax of 30% is
imposed the taxable income which is referred to as the Regular Corporate Income Tax (RCIT). It
is therefore, important for tax planning purposes to identify which types of corporations or
associations/organizations and their activities will not be subject to this burden.
The following organizations shall not be taxed with respect to income received by them as such:
(A) Labor, agricultural or horticultural organization not organized principally for profit;
(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 a fraternal organization operating under the lodge system, or mutual aid
association or a nonstock 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 nonstock corporation or their dependents;
(D) Cemetery company owned and operated exclusively for the benefit of its members;
(E) Nonstock 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 inure to the benefit of any member, organizer, officer or
any specific person;
(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 stock-holder, or individual;
(G) Civic league or organization not organized for profit but operated exclusively for the
promotion of social welfare;
(H) A nonstock and 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 organization 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;
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.
Revenue Memorandum Order (RMO) No. 38-2019 provides new guidelines for the processing
and issuance of Certificates of Exemption (CTE) to clarify the nature, character, and tax
treatment of corporations under Section 30 of the Tax Code.
*The constitutional provision (Art. XIV, Sec. 4, par.3) for exemption of non-stock non-profit
educational institutions states that in claiming tax exemption, a non-stock non-profit educational
institution should present proof that its revenues will be actually, directly and exclusively used for
educational purposes. The Constitution has not made any distinction with respect to the source
of revenues. It merely distinguished as to its utilization. RMC 44-2016 implements the
requirements for issuing tax exemption certificates to non-stock non-profit educational
institutions.
Philippine Constitution Art. XIV, Sec. 4 paragraph 3
(3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly,
and exclusively for educational purposes shall be exempt from taxes and duties. Upon the
dissolution or cessation of the corporate existence of such institutions, their assets shall be
disposed of in the manner provided by law.
Proprietary educational institutions, including those cooperatively owned, may likewise be

entitled to such exemptions, subject to the limitations provided by law, including restrictions on
dividends and provisions for reinvestment.
Additional notes:
1. According to Domondon, page 976 Primus Taxation, Volume II-B, Income Taxation, the
annual surpluses shown in the Statement of Financial Position including prior years’
accumulated surpluses of non-stock non-profit institutions should be subject to income
tax if the schools could not show that these surpluses are restricted for actual, direct and
exclusive use for educational purposes.
2. Exemption from final tax on passive income earned shall be granted upon submission of
Board Resolution on proposed project to be funded out of the money deposited in banks
or placed in money market placements and certification of actual utilization of said
income, and inclusion in annual information return and duly audited financial statements
of certification from depository banks as to the amount of interest income earned from
passive investments not subject to final withholding tax, (Finance Department Order
149-95).
3. Non-profit organizations derive income. They engage in activities conducted for profit.
Ex. A hospital charges its patients in its pay wards to recover the cost of operations. (St.
Lukes) Non-profit simply means that no part of the income inures to the benefit of any
individual, the members of the Board of Trustees receive no compensation and dividends
are not declared.
Illustration on exempt associations
A to K H. I. Proprietary
(except H Non-stock Government educational
and I) non-profit Educational Institution
educational Institution
institution
Gross Income
Related/not for profit 1,000,000 1,000,000 1,000,000 1,000,000
Unrelated/for profit 200,000 200,000 200,000 200,000
Deductions
Related 600,000 600,000 600,000 600,000
Unrelated 50,000 50,000 50,000 50,000
Taxable Income – 0 0 0 400,000
related/not for profit
Taxable Income – 150,000 150,000 150,000 150,000
unrelated/for profit
Disposition Regardless of Used for Regardless of Regardless of
disposition - educational disposition – disposition –
taxable purposes/Non- taxable subject to pre-
educational dominance test
purposes
Taxable Income 150,000 0/150,000 150,000 550,000*
Tax Due (30%) 45,000 0/45,000 45,000 See succeeding
paragraphs
Computation of Tax Payable
Sales/Revenues/ Receipts/Fees Xxxx

Less: Cost of Sales/services xxxx
Gross income from operations xxxx
Add: Non-operating and taxable other income xxxx
Total Gross income xxxx
Less: Deductions xxxx
Taxable income xxxx
Regular corporate income tax (Taxable Income x 30%) xxxx
Minimum corporate income tax (Gross Income x 2%) xxxx
Tax due (whichever is higher) xxxx
Less: Unexpired excess of prior year’s MCIT over normal income tax
rate xxxx
Balance xxxx
Add: Tax due to the BIR on transactions under special rate xxxx
Aggregate income tax due xxxx
Less: Tax credit/payments
Prior year’s excess credits other than MCIT xxxx
Tax payments for the first three quarters xxxx
Creditable tax withheld for the first three quarters xxxx
Creditable tax withheld for the fourth quarter xxxx
Foreign tax credits, if applicable xxxx
Tax paid in return previously field, if this is an amended return xxxx
Tax payable (overpayment) xxxx/(xxxx)
Illustration – Income Tax Expense of Corporation
A domestic corporation had the following data in its second year of operation.
Capital gain on sale of land in Malaysia on a selling price
at fair market value of P5,000,000. P1,000,000
Capital loss on sale of land and building in the
Philippines on a selling price of P4,000,000 500,000
Capital gain on direct sale to buyer of shares of
a stock of a domestic corporation. 150,000
Gross profit from sales 5,000,000
Interest on bank deposit 50,000
Expenses on operations 3,000,000
The capital gain taxes? __________________

The final tax on passive income? ___________________
The year-end tax (RCIT)? __________________________
The income tax expense of the year? ____________________
Sol.
Capital gain taxes:
On sale of land and building in the Philippines ( P4,000,000 X 6%) P 240,000

On sale of shares of stock (P150,000 X 15%) 22,500
Total P262,500
Final tax on passive income

On interest on bank deposit (P50,000 X 20%) P 10,000
Year-end tax:
Gross profit from sales P 5,000,000
Add: Capital gain on sale of land in Malaysia 1,000,000
Less: Business expenses (3,000,000)
Taxable income P 3,000,000
Income tax at 30% P 900,000
Income tax expenses for the year P 1,172,500
Optional Standard Deductions (OSD) for DC and RFC (RR No. 16-2008 as
amended by RR No. 2-2010)
In the case of corporate taxpayers, the OSD allowed shall be in an amount not exceeding
forty percent (40%) of their gross income. “Gross income” shall mean the gross sales less sales
returns, discounts and allowances and cost of goods sold. In the case of sellers or services, the term
“gross income” means “gross receipts” less sales returns, allowances, discounts and cost of
services. The items of gross 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 - OSD
The taxpayer is a domestic corporation:
Gross sales P 935,000
Sales returns and allowances 25,000
Sales discounts 10,000
Interest income on trade notes receivable 15,000
Capital gain on asset held for 2 years 50,000
Cost of sales 400,000
Operating expenses with voucher and receipts 50,000
Operating expenses without voucher and receipts 200,000
Taxable income, if choosing the Optional
Standard and Deduction?
Solution
Gross sales P935,000

Less: Sales returns and allowances P25,000
Sales discounts 10,000 35,000
Net sales P900,000
Less: Cost of Sales 400,000
Gross profit from sales P500,000
Interest on trade notes receivable 15,000
Capital gain 50,000
Total gross income P565,000
Less: Optional Standard Deduction (40% of
565,000) 226,000
Taxable income, if choosing Optional Standard
Deduction P339,000
EXERCISE:
A resident foreign corporation has the following data on its income, expenses
and remittances:
Gross sales, Philippines P9,000,000
Cost of sales, Philippines 2,000,000
Gross sales, USA 7,000,000
Cost of sales, USA 2,000,000
Business expenses, Philippines 2,000,000
Business expenses, USA 1,000,000
Royalties on Philippine copyrights 500,000
Interest on time deposit, PNB, Manila, 100,000
Philippines
Remittances of profit during the year, net 170,000
of the applicable tax
Payments, first three (3) quarters 100,000
QUESTIONS:
1- Determine the Philippine income tax due and payable using itemized deduction
2- Determine the Philippine income tax due and payable using Optional Standard
Deduction
3- Determine the tax on the branch profit remittances, if any?
Illustration
1. A domestic corporation has the following data for the fiscal year starting June 1,
2018 and ending May 31, 2019:
Gross income, Philippines P5,000,000

Gross income, USA 10,000,000
Deductions, Philippines 2,000,000
Deductions, USA 4,000,000
Payments, first three (3) 1,000,000
quarters
How much is the tax payable for the fiscal year ending May 31, 2009?
2. ABC Corporation was created in accordance with Philippines laws. During the
calendar year 2019, it has the following data on income and expenses:
Gross income, Philippines (gross sales, P10,000,000
P15,000,000)
Business expenses, Philippines 2,000,000
Gross income, USA (gross sales, 5,000,000
P8,000,000)
Business expenses, USA 1,500,000
Interest income, Bank of PI-Manila, 300,000
Philippines
Interest income from long-term deposit, 80,000
Philippines
Interest income from domestic 120,000
depository bank under EFCDS
Interest income, JP Morgan-Chase 100,000
Bank, USA
Prizes, Manila 200,000
Interest income from loans, Philippines 300,000
Rent income from equipment, 1,000,000
Philippines, gross of applicable
withholding tax
Payments, first three (3) quarters 500,000
QUESTIONS:
1- How much is the Philippine income tax payable?
2- How much is the total final withholding tax?
3- How much is the Philippine income tax payable using OSD?
4- Assuming the above corporation is a foreign corporation engaged in trade or
business in the Philippines, how much is the Philippine income tax payable?
5- Disregarding certain information which is not applicable and assuming the
corporation is not engaged in business in the Philippines, how much is the
final withholding taxes in the Philippines?
3. A corporation has the following income:
Interest income derived from P100,000
depository bank under Expanded
Foreign Currency Deposit System
(EFCDC)
Capital gain from sale of shares of 200,000
stock not traded in the local stock
exchange
IMPROPERLY ACCUMULATED EARNINGS TAX (FOR CLOSELY HELD

CORPORATIONS)
a. Imposition of improperly accumulated earnings tax

In addition to other taxes imposed, there is imposed for each year on the
improperly accumulated taxable income of each corporation an improperly
accumulated earnings tax equal to 10% of the improperly accumulated taxable
income.
b. Not subject to improperly accumulated earnings tax
The improperly accumulated earnings tax shall not apply to;
1) Publicly held corporations;
2) Banks and other non-banks financial intermediaries;
3) Insurance companies;
4) Taxable partnerships;
5) General professional partnerships;
6) Non-taxable joint ventures; and
7) Enterprises registered with PEZA and under Bases Conversion and Development
Act, special economic zones.
c. Prima facie evidence to avoid the tax upon the shareholders
The fact that any corporation is a mere holding company or investment
company shall be prima facie evidence of a purpose to avoid the tax upon its
shareholders or members.
d. Holding company
A holding company is a corporation having practically no activities except
holding property and collecting the income therefrom or investing therein.
e. Investment company
If the activities further include, or consist substantially of, buying and selling
stocks, securities, real estate, or other investment property (whether upon an outright
or a marginal basis) so that the income is derived not only from the investment yield
but also from profits upon market fluctuations, the corporation shall be considered an
investment company.
f. Earning or profits of a corporation are permitted to accumulate beyond the
reasonable needs
The fact that the earnings or profits of a corporation are permitted to
accumulate beyond the reasonable needs of a business shall be determinative of the
purpose to avoid the tax upon its shareholders or members, unless the corporation, by
clear preponderance of evidence, shall prove to the contrary.
g. Pro forma computation of improperly accumulated taxable income
Taxable income xxx

Add: Income exempt from tax xxx
Income excluded from gross xxx
income
Income subject to final tax xxx
Amount of net operating loss carry xxx xxx
over deducted
Total xxx
Less: Dividends, actually or constructively xxx
paid
Income tax paid for the whole year xxx
Amount reserved for the reasonable needs xxx xxx
of the business
Retained earnings, end xxx
Add: Retained earnings from prior years xxx
Accumulated retained earnings xxx
Less: Amount that may be retained (100% 10%
of paid-up capital)
Improperly accumulated earnings tax xxx
m. Exercise
The record of a closely held corporation, registered with BIR in 2008, reveals
the following:
2013 Gross income P3,000,000
Less: Expenses 3,800,000
Net operating loss (P800,000)
Accumulated retained P6,000,000
earnings, end of 2013
2014 Gross income P5,000,000
Expenses 3,000,000
Rent income, net of 5% 475,000
withholding tax
Interest on money market 80,000
placement, net of 20%
Inter-corporate dividends 500,000
received
Dividends paid by the 1,500,000
corporation
Retained earnings 300,000
appropriated for sinking
fund
It had paid-up capital stock of P6,000,000 as of December 31, 2014.
Upon examination of the 2014 return, the BIR concludes that there is an improper
accumulation of profit. The corporation fails to show proof to prove the contrary.
Question:
1- How much is the tax payable of the corporation per return in the year 2014?
2- How much is the tax on the improperly accumulated income in 2014?
Improperly Accumulated Earnings Tax For Corporations

Tax Form
BIR Form 1704 - Improperly Accumulated Earnings Tax Return (For Corporations)
Documentary Requirements
1. Photocopy of Annual Income Tax Return (BIR Form 1702) with Audited Financial
Statements and/or Account Information Form of the covered taxable year duly received by
the BIR; and
2. Sworn declaration as to dividends declared taken from the covered year's earnings and
the corresponding tax withheld, if any
Corporate Returns
a. Filing of quarterly and final or adjustment return
➢ Every corporation subject to tax shall render in duplicate a true and accurate
quarterly return and final or adjustment return.
b. Non-resident foreign final corporation
➢ Corporation not engaged in trade or business in the Philippines (NRFC) shall
not be required to file income tax return.
c. Who shall file the corporate return?
1) President
2) Vice-president or
3) Other principal officers
The return shall be sworn to by above officer and by the treasurer or assistant treasurer.
d. Corporate declarations and returns
➢ Declaration of quarterly corporate income tax on a cumulative basis not later
than sixty (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.
e. Final adjustment return
➢ 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.
f. Some quarterly payment not equal to the total tax due for the 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.
g. Corporation is entitled to tax refund or credit
1) In case the corporation is entitled to a tax refund or credit of the excess estimated
quarterly income tax paid, the excess amount shown on its final adjustment return
may be carried over and credited against the estimated quarterly 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
h. Filing of the income tax return
➢ The quarterly income tax declaration and final adjustment shall be filed with:
1) Authorized agent banks, or
2) Revenue district office, or
3) Collection agent, or
4) 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 preferred or kept.
i. Payment of the income tax
➢ The income tax due shall be paid at the time the declaration or return is filed.
Account Information Form For Corporations And Partnerships
Tax Form
BIR Form 1702 AIF - Account Information Form (For Corporations and Partnerships)
NOTE: Pursuant to Revenue Memorandum Circular No. 6 – 2001, corporations, companies

or persons whose gross quarterly sales, earnings, receipts or output exceed P 150,000.00
may not accomplish this form. In lieu thereof, they may file their annual income tax returns
accompanied by balance sheets, profit and loss statement, schedules listing income-
producing properties and the corresponding income therefrom, and other relevant
statements duly certified by an independent CPA.
Annual Income Information Form for General Professional Partnerships

Sec. 55. Returns of General Professional Partnership (Tax Code of 1997, as amended)
Every general professional partnership shall file, in duplicate, a return of its income, except
income exempt under Section 32 (B) of this Title, setting forth the items of gross income
and of deductions allowed by this Title, and the names, Taxpayer Identification Numbers
(TIN), addresses and shares of each of the partners.
Exercise Filing of Corporate Returns
The 2013 and 2014 calendar year data of Alice Corporation are shown below:
Income tax due 2013 P250,000

Less: Tax credits
Quarterly payments for the first three 300,000
quarters
Excess tax payments (to be carried (P50,000)
over as chosen by the corporation)
2014 data First Q Second Q Third Q Year

Sales, gross of P500,000 P1,100,000 P1,500,000 P2,200,000
1% withholding
tax
Cost of sales 250,000 650,000 800,000 1,200,000
Operating 50,000 150,000 300,000 500,000
expenses
REQ: Compute the following income tax payable and the due dates under:
a. Itemized deductions
b. Optional standard deduction, the corporation’s fiscal year starts March 1, 2013 to February
28, 2014
ASSESSMENT
Exercises: Corporations
TRUE OR FALSE
1. Domestic corporations are taxed on net income from sources with the Philippines only.
2. Resident foreign corporations are on net income from sources within the Philippines only.
3. Non-resident foreign corporations are taxed on gross income within and outside the
Philippines only.
4. Interest income from a debt instrument not within the coverage of deposit substitute from
Philippine sources received by a domestic corporation is subject to final tax.
5. Interest income from a debt instrument within the coverage of deposit substitute from
Philippine sources received by a domestic corporation is subject to final tax.
6. Interest on government debt instrument and securities (regardless of number of lenders at
the time of the organization) received by corporations is subject to final tax.
7. Interest from overdue accounts receivable in the Philippines received by domestic and
resident foreign corporations shall be subject to regular corporate income tax.
8. Capital gains from sale of shares of stock not traded in the local stock exchange are subject
to capital gains provided the corporation is a domestic corporation.
9. Capital, gains from sale, barter, transfer and/or assignment of shares of stock of publicly-
listed companies not compliant with mandatory minimum public ownership (10% of the
publicly-listed companies issued and outstanding shares, exclusive of any treasury shares)
is subject to capital gains tax or percentage tax, at the option of the taxpayer.
10. All income, whether or not passive income, received by a non-resident foreign corporation
shall be subject to final tax except interest income from transactions with depository banks
under expanded system and income from foreign currency transactions with non-residents,
OBUs in the Philippines, local commercial bank including branches of foreign banks.
11. Dividend received from a domestic corporation by a non-resident foreign corporation is
subject to 15% final tax subject to condition that the country where the non-resident foreign
corporation is domiciled allows a credit for taxes deemed paid in the Philippines equivalent
to 15%.
12. Dividends from a domestic corporation received by domestic and resident foreign
corporations are exempt from Philippine income tax.
13. Interest on foreign loans contracted on or after August 1, 1986 received by non-resident
foreign corporation is subject to 20% final tax.
14. Interest received from depository bank under expanded foreign currency deposit system
received by domestic and resident foreign corporation shall be subject to 7 ½% final tax.
15. Interest income from long-term deposit or investment evidenced by certificates issued by
BSP received by domestic and resident foreign corporation shall be subject to regular
corporate income tax.
16. Interest income from long-term deposit or investment evidenced by certificates issued by
BSP received by non-resident foreign corporation is subject to 30% final tax.
17. Gain from sale of real property classified as capital asset located in the Philippines by
domestic corporation is subject to 6% capital gain tax.
18. Gain from sale of real property classified as ordinary owned by domestic corporation is
subject to creditable withholding tax and therefore subject to regular corporate income tax.
19. Income derived from a depository bank from foreign currency transactions with non-
residence OBUs in the Philippines, local commercial bank including branches of foreign
banks shall be exempt from Philippine income tax.
20. Interest income from foreign currency loan granted by domestic and resident-foreign
depository bank under expanded system to residents other than OBUs in the Philippines
and other depository bank shall be subject to 10% final tax.
21. The president, upon the recommendation of the Secretary of Finance may, effective
January 1, 2000 allow corporation to be subjected to optional corporation tax.
22. The tax rate optional income tax is 10% based on the gross income.
23. The option to be taxed based on gross income shall be available only to firms whose ratio
of cost of sales to gross sales or receipts from all sources does not exceed 55%.
24. The election of the gross income option by the corporation shall be irrevocable for the five
(5) consecutive taxable years during which the corporation is qualified under scheme.
25. The minimum corporate income tax (MCIT) is imposed on all corporations including non-
resident foreign corporation.
26. The MCIT is based on the gross income from Philippine sources of both domestic and
27. Special domestic corporations such as proprietary educational institutions and non-profit
hospital shall not be covered by MCIT as long as they are tax at the preferential rate of
10% subject to MCIT.
29. For the purpose of MCIT, the term “gross income” means gross sales less sales return,
discounts and allowances and cost of goods sold in case of sale of goods, or gross revenue
less sales return, discounts, allowances and costs of services/direct cost, in the case of sale
of services.
30. The term “gross income” for MCIT purposes will also include income exempt from income
tax and income subject to final withholding tax.
31. A domestic corporation that registers with the BIR in the year 2015 shall be covered by
MCIT starting 2018.
32. With the imposition of MCIT, a corporation with net loss shall still pay tax.
33. The tax due shall be lower between the regular corporate income tax and the minimum
corporate income.
34. The computation and the payment of MCIT, shall apply at the time of filing of the annual
corporate income tax return.
35. Any excess of the minimum corporate income tax over the normal corporate income tax
shall be carried forward and credited against the minimum income tax for the three (3)
succeeding taxable years.
36. The Secretary of Finance is authorized to suspend the imposition of minimum corporate
income tax on any corporation which suffers losses provided such corporation has not
committed any fraudulent act in filing previous years income tax returns.
37. In addition to other tax imposed, there is imposed for each year on the improperly
accumulated taxable income of each corporation an improperly accumulated earnings tax
equal to 10% of the improperly accumulated taxable income.
38. The improperly accumulated earnings tax shall apply to all corporations except non-
39. The fact that any corporation is a mere holding company or investment company shall be
conclusive evidence of a purpose to avoid the tax upon its shareholders or members.
40. The fact that the earnings of profits of a corporation are permitted to accumulate beyond
the reasonable needs of a business shall be determinative of the purpose to avoid the tax
upon its shareholders or members, and such determination made by the BIR cannot be
disputed.
41. When a corporation appropriates retained earnings for expansion, such appropriation shall
not be considered as improper accumulation of profit.
42. Once the profits have been subjected to IAET in later years even if not declared as
dividends.
43. Profits which have been subjected to IAET when finally declared as dividends shall no
longer be subject to tax on dividends.
44. To avoid the payment of IAET, dividend must be declared and paid or issued not later than
one (1) year following the close of the taxable year.
45. Improperly accumulated earnings tax shall be paid within 15 days after one year following
the close of the taxable year if dividends are not declared and paid or issued.
Exercises – Corporation
True/False
Indicate whether the statement is true or false.
____ 1. Income tax exemptions of exempt corporations relate only to income from related activities.
Income from unrelated activities will be subjected to regular income tax, regardless of the
disposition made of such income, except in the case of a non-stock, non-profit educational
institution whose income from unrelated activities when used for educational purposes are also
exempt.
____ 2. The MCIT is applicable to very corporation taxable to the 30% regular corporate income tax
including non-profit, exempt, and special corporations with respect to their taxable income
subject to regular corporate income tax but not to their income subject to special tax rates.
____ 3. Income tax exemptions of exempt corporations relate only to income from related activities.
Income from unrelated activities will be subjected to regular income tax, regardless of the
disposition made of such income, except in the case of a non-stock, non-profit educational
institution whose income from unrelated activities when used for educational purposes are also
exempt.
____ 4. Expenses of an exempt corporation that are not directly traceable to either related and unrelated
activities are allocated based on net income.
____ 5. The option to be taxed based on gross income shall be available only to firms whose ratio of
cost of sales to gross sales or receipts from all sources does not exceed 55%.
____ 6. The election of GIT shall be irrevocable for 3 consecutive taxable years during which the
corporation is qualified under the scheme.
____ 7. The MCIT is applicable to every corporation taxable to the 30% regular corporate income tax
including non-profit, exempt, and special corporations with respect to their taxable income
subject to regular corporate income tax but not to their income subject to special tax rates.
____ 8. Domestic corporation is taxable on all income derived from sources within and outside the
Philippines
____ 9. Foreign corporation is created and organized under the laws of countries other than the
Philippines.
____ 10. Domestic corporation is created or organized under Philippine laws.
____ 11. Non-resident foreign corporation aaplies to a foreign corporation engaged in trade or business
withi the Philippines.
____ 12. Foreign corporation, whether engaged in business in the Philippines or not, is taxable on income
derived from sources within and without the Philippines.
____ 13. Resident foreign corporation applies to a foreign corporation not engaged in trade or business
within the Philippines.
____ 14. Corporation on their income, are taxed, generally, from 30% to 35% depending on the taxable
year.
____ 15. Exempt corporation may not be income tax-exempt on its other activities which tax rates shall be
30% to 35% depending on the taxable year.
____ 16. If the gross income from unrelated trade, business or other activity of a proprietary educational
institution or non-profit hospital exceed 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.
____ 17. For domestic and resident corporations adopting the fiscal-year accounting period, the taxable
income shall be computed without regard to the specific date when the specific sales, purchases
and other transactions occur such that their income and expenses for the fiscal year shall be
deemed to have been earned and spent equally for each month of the period.
____ 18. The 10% tax on the taxable income of a proprietary educational institution and non-profit
hospital is absolute.
____ 19. International carrier and international shipper doing business in the Philippines shall pay a tax
10% on its gross Philippine billings.
____ 20. Income derived by offshore banking units authorized by the BSP, from foreign currency
transactions with local commercial banks is subject to 10% final tax.
____ 21. Non-resident foreign corporation recieves the same tax treatment as domestic and resident
foreign corporations with regard to capital gains from sale of shares of stock not traded in the
exchange.
____ 22. Non-resident cinematographic film owner, lessor or distributor is taxed at 15% of gross income.
____ 23. Non-resident owner or lessor of vessels chartered by Philippines nationals is taxed at 4.50% of
gross rentals, lease or charter fees from leases or charters to Filipino citizens or corporations, as
approved by the Maritime Industry Authority.
____ 24. Subject to the provisions of existing special laws or general laws, all corporations, agencies, or
instrumentalities owned or controlled by the Government shall pay such rate of tax upon their
taxable income as are imposed by the Code upon corporations or associations engaged in a
similar business, industry or activity.
____ 25. Non-resident owner or lessor of aircraft, machinery and other equipment is taxed at 7.50% of
gross rentals, characters and other fees.
____ 26. A return showing the cumulative income and deductions need not be filed if the operations for
the quarter and the preceding quarters yielded no income tax due.
____ 27. Any profit remitted by a branch to its head office shall be subject to a 15% tax which shall be
based on the total profits applied or earmarked for remittance without deduction for the tax
component thereof, except those activities which are registered with the Philippine Economic
Zone Authority.
____ 28. Interests on foreign loans contracted on or after Aug. 1, 1986 by a non-resident foreign
corporation are taxed at 10% final tax.
____ 29. Dividends received from a domestic corporation by a non-resident foreign corporation are
subject to a final withholding tax of 15% on certain condition.
____ 30. A domestic, resident foreign and non-resident foreign corporations may deduct from their
business income, itemized deductions under the Tax Code.
____ 31. 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.
____ 32. Regional area headquarters of multinational companies are subject to income tax at 10% of
taxable income.
____ 33. A domestic carrier is taxable at 2.5% of the gross Philippine billings.
____ 34. 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 aliquot 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 Billings.
____ 35. The term 'corporation' shall include partnerships, no matter how created or organized, joint-stock
companies, joint accounts (cuentas en participacion), association, or insurance companies, but does
not include general professional partnerships and a joint venture or consortium formed for the
purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other
energy operations pursuant to an operating consortium agreement under a service contract with the
Government.
____ 36. The term 'domestic,' when applied to a corporation, means created or organized in the
Philippines or under its laws.
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____ 37. For purposes of income taxation, which of the following is not considered as a corporation?
a. General professional partnership c. Unregistered partnership
b. Business partnership d. Joint stock companies
____ 38. Which of the following businesses is not taxable as a corporation?
a. Andrea, Bara, and Criselda contributed P500,000 each and opened up a department
store in the downtown. They agreed that whatever net profit is earned will be
distributed equally to them. They did not bother to register the business with the
securities and exchange commission.
b. Gigi and Jayjay, two senior staff auditors of a big accounting and auditing firm,
resigned from their job and organized a new firm which they named as Gigi,
Jayjay and Company, CPAs.
c. Lavinia, Dorina Rosa Mia and Capicat formed a business organization with the
following agreed features: (1) They are deprived of their general agency to act on
behalf of their ventures; (2) The powers of management are vested in the board of
trustees; (3) The ownership is represented in transferable certificates; (4) The
business continues for its fixed term notwithstanding the death or disability of one
of them; and (5) The liability of the partners is not limited to their contributions.
d. A group of five entepreneurs had organized, filed and registered the articles of
incorporation of Cojangkuha Corporation. It has an autorized capital stock og P10
million divided into 100,000 shares each share having a par value of P100.
____ 39. Which of the following is subject to income tax?
a. SSS and GSIS
b. Philippine Health Insurance Corporation (PHIC)
c. Local water districts
d. Philippine amusement and Gaming Corporation (PAGCOR)
____ 40. A resident corporation is one that is: (BEQ)
a. Organized under the laws of the Philippines that does business in another country;
b. Organized under the laws of a foreign country that sets up a regional headquarter
in the Philippines doing product promotion and information dissemination;
c. Organized under the laws of the Philippines that engages business in the special
economic zone;
d. Organized under the laws of a foreign country that engages in business in Makati
City, Philippines.
____ 41. “Taxable net income received during each year from all resources” is the tax base for income tax
purposes of this class of taxpayers (RPCPA)
a. Domestic corporations
b. Resident corporations
c. Resident foreign corporations engaged in trade or business in the Philippines.
d. Resident foreign corporations not engaged in trade or business in the Philippines.
____ 42. One of the following is taxed on gross income
a. domestic corporation c. non-profit cemetery
b. resident foreign corporation d. nonresident foreign corporation
____ 43. Aplets corporation is registered under the laws of the Virgin Islands. It has extensive operation in
Southeast Asia. In the Philippines, Its products are imported and sold at a mark-up by its exclusive
distributor, Kim’s Trading, inc. The BIR Compiled a record of all the imports of Kim from aplets
and impose a tax on Aplets net income derived from its exports to Kim. Is the BIR correct? (BEQ)
a. Yes, Aplets is a non-resident foreign corporation engaged in trade or business in
the Philippines.
b. No, The tax should have been computed in the basis gross revenues and not net
income.
c. No, Aplets is non-resident foreign corporation not engaged in trade or business in
the Philippines.
d. Yes, Aplets is doing business in the Philippines through its exclusive distributor
Kim’s Trading. Inc.
____ 44. Interest income of domestic commercial bank derived from a peso loan to a domestic corporation
in 2018 is: (BEQ)
a. Subject to the 30% income tax based on its net taxable income;
b. Subject to the 20% final withholding tax;
c. Subject to the 15% final withholding tax;
d. Subject to the 10% final withholding tax;
____ 45. Valimento Corporation, a domestic corporation has the following records of income and
expenses in 2014:
Gross income, net of 1% withholding tax P1,435,500
Expenses 756,000
Rent income, net of 5% withholding tax 136,800
Exoenses on rent 34,600
Dividend from domestic corporation 25,000
Royalty 80,000
Interest from bank deposit with PNB, gross of tax 15,000
The income tax payable by Valimento Corporation is-

a. P 241,020 b. 219,320 c. P 803,400 d. 259,490
____ 46. Based on the date in Number __ above, the total final taxes payable on Valimento Corporation is
-
a. P 19,000 b. P21,500 c. P 33,250 d. P 3,000
____ 47. ANG Corporation, a corporation engaged in business in the Philippines and abroad, has the
following data in 2018:
Gross income, Philippines P 975,000
Expenses, Philippines 750,000
Gross income, U.S.A. 770,000
Expenses, U.S.A 630,000
Interest on bank deposit 25,000
The income tax due if the corporational is -

Domestic Resident foreign Nonresident foreign
a. P116,800 P72,000 P320,000
b. 127,750 78.750 350,000
c. 312,000 515,850 116,800
d. 109,500 67,500 300,000
____ 48. Which of the following statements is wrong on corporation?
a. Domestic corporations are taxable in the Philippines on income derived from Japan
and Philippine sources.
b. Resident foreign corporation are taxable in the Philippines on income earned in the
United States.
c. Non resident foreign corporations are taxable in the Philippines income derived
from sources in the Philippines only.
d. Domestic corporations are taxable in the Philippines on income earning from
business operation in the United States.
____ 49. RECTO Corporation, a domestic corporation has the following record of income and expenses
during the year.
Gross Income P1,540,000
Expenses 654,000
Dividend from a resident foreign corporation 95,000
Royalties, Philippines 230,000
Royalties, U.S. 175,000
Interest on time deposit with metro bank 18,000
Interest on money market placement 25,000
The taxable income on Recto Corporation is-

a. P886,000 b. 1,156,000 c. P641,000 d. 616,000
____ 50. The total final withholding taxes on RECTO Corporation is -
a. P 51,475 b. P72,600 c. P103,120 d. P148,100
____ 51. Number _____ to ____ are based on the following information:
Supermom Corporation which started with its operations in 2000 has the following
records in 2018:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Gross Profit P 500,000 P 850,000 P800,000 P770,000
Expenses 400,000 770,000 640,000 575,000
Dividend-domestic company 15,000 15,000 20,000 20,000
Interest-peso bank deposit 3,000 5,000 3,750 2,250
Income tax withheld 5,000 7,000 8,000 6,750
Rent income, gross of 5% w/tax 36,000 36,000 48,000 48,000
The company had an excess payment of P12,500 in 2017 from which it decided to claim
tax credit on the excess.
The income tax payable at the end of first quarter is-

a. P40,800 c. P28,300
b. 36,720 d. 21,500
____ 52. The income tax payable at the end of first quarter is-
a. P40,800 b. P36,720 c. P28,300 d. P 21,500
____ 53. The income tax payable at the end of the third quarter is-
a. P 52,000 c. P 12,640
b. 62,400 d. None
____ 54. The income tax payable/refund at the end of the year is-
a. P 25,090 c. P 75,900
b. P 63,750 d. P 68,610
____ 55. Villamar Company, a domestic corporation has the following data:
Income tax for 2017 P110,000
Less: Tax Credits 125,000
Excess tax credits 15,000
2018 1st Quarter

Income net 1% withholding tax P 495,000
Deductions 460,000
For the first quarter of 2018, the corporation will report: (RPCPA)
a. Excess tax credit of P6,000 c. Excess tax credit of P8,000
b. Tax payable of P7,000 d. Tax payable of P2,000
____ 56. A domestic corporation has the following data:
Excess tax credits from 2014 P 15,000
For the year 2015: 1st Quarter 2nd Quarter
Income, net of 1% withholding tax P495,000 P792,000
Deductions 460,000 700,000
How much is the income tax still due and payable in the second quarter? (RPCPA)
a. P21,000 c. P10,400
b. 14,000 d. 29,440
____ 57. If the gross income from unrelated activity exceeds 50% of the total gross income derived by any
educational institution. The rate shall be 30% based on the entire taxable income. This principle
is known as
a. constructive receipt c. end result doctrine
b. tax benefit rule d. predominance test
____ 58. What is the rule on the taxability of income that a government educational institution derives
from its school operations? Such income is
a. subject to 10% tax on its net taxable income as if it is a proprietary educational
insitution.
b. exempt from income taxation if it is actualy, directly, and exclusively used for
educational purposes.
c. subject to the ordinary income tax rate with respect to incomes derived from
educational activities.
d. exempt from income taxation in the same manner as government-owned and
controlled corporations.
____ 59. Numbers ____ and _____ are based on the following information:
The Quin School of Business and Arts (BSBA), is a private educational institution
recognized by the government. The following are the financial data for its fiscal year ending June
30, 2018:
Tuition fees P12,800,000
Miscellaneous fees 1,800,000
Interest on bank deposits 12,300
Rent income of school facilities to outsiders 350,000
Salary and Bonuses, all personnel 7,500,000
Other operating expenses 3,500,000
Repayment of loan 400,000
Quarterly (three quarters) income tax paid 48,000
A building was constructed on April 2, 2018 at a cost of P2,000,000 with a depreciable life
of 50 years.
Assuming the cost of construction is treated as an expense, the income tax payable by the
school for the year ended June 30, 2018 is
a. P343,000 b. P147,000 c. P576,000 d. P160,000
____ 60. The income tax payable if the cost of building construction is capitalized:
a. P346,000 c. P1,203,200 d. 345,667
b. 147,000
____ 61. In 2018, Villanueva Corporation, a domestic corporation, had a net income of P2,000,000. It paid
a corporate tax of 30% leaving a distributable income of P1,400,000. If a dividend is declared by
the corporation and received by the following stockholders, which of the following statements is
false?
a. Nonresident aliens engaged in trade or business are liable to pay 30% dividend tax.
b. Nonresident aliens not engaged in trade or business are liable to pay 25% dividend
tax.
c. Resident citizens are liable to pay 10% dividend tax.
d. Resident foreign corporations are exempt from the payment of dividend tax.
____ 62. Which of the following statements is true? Dividends received by a
a. domestic corporation from a resident foreign corporation are subject to final
withholding tax.
b. resident foreign corporation from another resident foreign corporation are subject
to schedular income tax in the Philippines.
c. non-resident foreign corporation from a domestic corporation maybe subject to a
tax sparing credit.
d. domestic corporation from another domestic corporation are subject to final
withholding tax.
____ 63. A resident international carrier has the following data for the current year: Gross income of
P700,000 and expenses of P200,000 from the Philippines Gross income of P500,000 and
expenses of P100,000 from Hongkong. How much is the tax payable of the corporation?
(RPCPA)
a. P288,000 c. P160,000
b. 17,500 d. 30,000
____ 64. Which of the following statements is false? International carriers are
a. subject to income tax on income derived from sources within the Philippines.
b. subject toan income tax based on preferential rate of 2.5% of gross Philippine
billings.
c. exempt from income tax on the basis of reciprocity such that is home coutry grants
income tax exemption to Philippine carriers.
d. not taxable in the Philippines even if they are engaged in business in the
Philippines.
____ 65. One of the following is exempt from income tax
a. Proprietary educational institutions c. Government educational institutions
b. Private cemeteries d. Mutual savings bank
____ 66. The minimun corporate income tax (MCIT) is based on-
a. 2% of gross income c. 5% of gross income
b. 10% of gross income d. 15% of gross income
____ 67. The minimum corporate income tax (MCIT) is imposed on -
a. proprietary educational corporations taxable at 10% of gross income
b. depository banks under the expanded foreign currency deposit system
c. business partnerships
d. offshore banking units subject to final tax of 10%
____ 68. Which of the following corporations is subject to the minimum corporate income tax?
a. Proprietary educational institutions subject to tax at 10% of their taxable income.
b. Non-profit hospitals subject to tax at 10% of their taxable income.
c. Domestic airline companies operating within the Phiippines only.
d. Depository banks under the expanded foreign currency deposit system.
____ 69. The imposition of minimum corporate income tax shall not be suspended whenever the
corporation suffers losses due to
a. Prolonged labor dispute c. Legitimate business reverses
b. Force Majeure d. Mismanagement
____ 70. A corporation which was registered with the Bureau of Internal Revenue in May, 2011 shall be
covered by MCIT in
a. 2014 c. 2016
b. 2015 d. 2017
____ 71. JABO Corporation which commenced business operations in 2004 has a gross income of
P632,000 and allowable deductions of P610,000 in 2015. Its income tax payable during the year
is -
a. P 7,700 c. P 6,600
b. 7,040 d. P12,640
____ 72. Lumibao Corporation has the following data:
2017 2018
Sales P1,700,000 P2,300,000
Cost of sales 1,050,000 1,425,000
Operating expenses 615,000 480,000
The income tax payable in 2018 is -
a. P 13,000 b. P12,250 c. P 35,000 d. P10,500
____ 73. In the number ____, the income tax payable by Lumibao Corporation in 2018 is -
a. P 118,500 c. P 116,000
b. P17,500 d. P137,500
____ 74. In number ____ above, the journal entry in 2018 to record excess MCIT is-
a. Deferred charges-MCIT (13,000-10,500) P2,500
Income tax payable P 2,500
b. Deferred charges-MCIT 13,000
Income tax payable 13,000
c. Provision for income tax 11,200
Income tax 11,200
d. Income tax payable 13,000
Cash 13,000
____ 75. In number ____ above, the accounting entry in 2018 to record the carry forward of excess MCIT
against normal income tax liability in 2017 is -
a. Deferred charges - MCIT P1,800
b. Provision for income tax P124,600
c. Income tax payable 2,500
Deferred charges - MCIT 2,500
d. Retained earnings 1,800
Deferred charges - MCIT 1,800
____ 76. Statement 1: If the quarterly income tax is based on MCIT, the excess MCIT from the previous
taxable year/s shall not be allowed to be credited.
Statement 2: Expanded withholding tax, quarterly corporate income tax payments under the
normal income tax, and the MCIT paid in the previous taxable quarters are allowed to be applied
against the quarterly MCIT due.
a. False, False c. True, False
b. False, True d. True, True
____ 77. Gaudie Corporation has the followigg data during the year:
1st Quarter 2nd Quarter
Normal income tax P10,000 P12,000
Minimum corporate income tax 8,000 25,000
Taxes withheld during the quarter 2,000 3,000
Excess MCIT prior year 3,000
Excess W/Tax prior year 1,000
The income tax payable by Gaudie Corporation for the 1st quarter is-
a. P7,000 c. 3,000
b. 4,000 d. 2,000
____ 78. In number ____, the income tax payable for the 2nd quarter is -
a. P15,000 c. 27,000
b. 20,000 d. 23,000
____ 79. Capili Corporation had the following items of income and expenses during the year:
Gross receipts P1,000,000
Cost of services 850,000
Dividends from a domestic company 35,000
General and administrative expenses 120,000
The income tax due of Capili Corporation is-

a. P10,500 b. 3,000 c. P9,000 d. 30,000
____ 80. Which of the following is not an exempt corporation?
a. government agencies and c. GSIS
instrumentalities
b. non-profit cemetery d. proprietary educational institution
____ 81. The President, upon the recommendation of the Secretary of Finance, may effective January 1,
2000, allow corporations the option to be taxed at fifteen percent (15%) of gross income as
defined herein, after the following conditions have been satisfied, except one. Which is it?
a. A tax effort ratio of twenty percent (20%) of Gross Domestic Product (GDP);
b. A ratio of forty percent (40%) of income tax collection to total tax revenues;
c. A VAT tax effort of four percent (4%) of GNP
d. A 0.9 percent (0.9%) ratio of the Consolidated Public Sector Financial Position
(CPSFP) to GNP
____ 82. Which of the following is not an exempt corporation?
a. government agencies and instrumentalities
b. non-profit cemetery
c. GSIS
d. proprietary educational institution
____ 83. The President, upon the recommendation of the Secretary of Finance, may effective January 1,
2000, allow corporations the option to be taxed at fifteen percent (15%) of gross income as
defined herein, after the following conditions have been satisfied, except one. Which is it?
a. A tax effort ratio of twenty percent (20%) of Gross National Product (GNP);
b. A ratio of forty percent (40%) of income tax collection to total tax revenues;
c. A VAT tax effort of four percent (4%) of Gross Domestic Product (GDP)
d. A 0.9 percent (0.9%) ratio of the Consolidated Public Sector Financial Position
(CPSFP) to GNP
____ 84. Double taxation of corporate income may be avoided by
a. hiring shareholders as employees.
b. renting property from shareholders.
c. borrowing money from shareholders.
d. all of the above
____ 85. Corporation does not include
a. joint stock companies.
b. joint account
c. general professional partnership.
d. insurance companies.
____ 86. One of the statements is false. Which is it? Non-stock, non-profit corporations are
a. exempt form income tax on income received as such corporation.
b. exempt from internal revenue taxes on their income derived from any of their
properties.
c. not exempt from internal revenue taxes on their income derived from any activity
conducted for profit.
d. not exempt from taxes on their passive income from interests and royalties.
____ 87. To be exempt from taxation revenues derived from assets used in the operation of cafeterias/
canteens and bookstores by non-profit, non-stock educational institutions should be
a. owned by such educational institution.
b. operated by the educational institution as ancillary activities.
c. located within the school premises.
d. all of the above
____ 88. All the statements below are true except one. Which is the exception? Non-profit, non-stock
educational institutions are exempt from
a. internal revenue taxes on all revenues and assets used actually, directly, and
exclusively for educational purposes.
b. final withholdings taxes on interest income when used actually, directly, and
exclusively for educational purposes.
c. internal revenue taxes on income from trade, business or other activity, the conduct
of which is not for educational purposes.
d. none of the above
____ 89. Interest received as passive income by domestic and resident foreign corporations may be subject
to which tax rate?
a. 20%
b. 15%
c. 10%
d. all of the above
____ 90. The following domestic corporations are generally taxed at the same rate. Which is not?
a. proprietary educational institutions
b. government-owned and controlled corporations
c. taxable partnerships
____ 91. Dividends received by domestic and foreign corporations from a domestic corporation is subject
to which income tax rate?
a. 20%
b. 6%
c. Exempt
____ 92. Which corporation does not receive the same treatment with regard to the income tax imposed on
the net capital gain from sale, exchange or other disposition of shares of stock in a domestic
corporation not traded in the stock exchange?
a. domestic corporations
b. resident foreign corporations
c. non-resident foreign corporation
____ 93. Which of the following non-resident foreign corporations is imposed the highest income tax
rate?
a. owner or lessor of vessels chartered by Philippine nationals
b. owner or lessor of aircraft, machinery and other equipment
c. cinematographic film owner, lessor or distributor
d. same for all
____ 94. Which of the following is not an income tax on corporations?
a. normal tax
b. minimum corporate income tax
c. gross income tax
d. stock transaction tax
____ 95. The normal tax of an ordinary corporation is
a. 35%
b. 32%
c. 30%
d. all of the above
____ 96. Which of the following is authorized to issue permit to operate proprietary educational
institutions?
a. DECS
b. CHED
c. TESDA
d. all of the above
____ 97. Which of the following corporations is imposed the least income tax rate?
a. offshore banking units
b. international carriers
c. regional operating headquarters
d. branch profit remittances
____ 98. The following may constitute gross income of a non-resident foreign corporation. Which one
cannot?
a. Dividends
b. Royalties
c. Emoluments
d. Reinsurance premiums
____ 99. If the sum of the quarterly tax payments made during the said taxable year is not equal to the
total tax due on the entire taxable income of that year, the corporation shall either
a. pay the balance of tax still due.
b. carry over the excess credit.
c. be credited or refunded with the excess amount paid.
d. all of the above
____100. Which is not true?
a. Non-resident cinematographic film owner, lessor or distributor is taxed at 25% of
gross income.
b. Non-resident owner or lessor of vessels chartered by Philippine nationals is taxed
at 4.50% of gross rentals, lease fees from leases characters to Filipino citizens or
corporations, as approved by the Maritime Industry Authority.
c. Non-resident owner or lessor of aircraft, machinery and other equipment is taxed at
7.50% of gross rentals, character and other fees.
d. None of the above
____101. Which is not true about resident foreign corporations?
a. Gross Philippine billings, in case of international shipping, means gross revenue
whether for passenger, cargo or mail originating from the Philippines up to final
destination.
b. Gross Philippine billings, in case of international carrier, 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.
c. Any profit remitted by a branch to its head office shall be subject to a tax of 15%
which shall be based on the net profits applied or earmarked for remittance with
deduction for the tax component thereof.
____102. Which of the following domestic corporations is exempt from income tax?
a. Labor, agricultural or horticultural organization organized principally for profit
b. Cemetery company owned and operated not exclusively for the benefit of its
members
c. Civic league or organization organized for profit and operated not exclusively for
the promotion of social welfare
d. Non-stock and non-profit educational institution
____103. One of the following statements is correct. Which is it? The minimum corporate income tax of a
corporation is computed
a. in the quarterly and the annual returns of the corporation.
b. only in the quarterly return of the corporation.
c. only in the annual income tax return of the corporation.
d. in all the taxable years of operations of the corporation.
____104. Cost of services for MCIT purposes means all direct costs and expenses necessarily incurred to
provide the services required by the customers and clients including
a. salaries and employee benefits of personnel, consultants and specialists directly
rendering the services.
b. cost of facilities directly utilized in providing the services such as depreciation or
rental of equipment used and cost of supplies.
c. interest expenses in the case of banks and other financial institutions.
d. all of the above
____105. Which of the following may not be deducted from gross sales to arrive at gross income for
purposes of computing the MCIT of a merchandising/manufacturing concern?
a. Sales returns and allowances
b. Sales discounts
c. Cost of goods sold
____106. Which of the following may not be deducted from gross receipts to arrive at gross income for
purposes of computing the MCIT of a taxpayer engaged in the sale of services under the cash
basis?
a. Sales returns and allowances
b. Sales discounts
c. Cost of services
____107. The Quin School of Business, is a private educational institution recognized by the government. The following
are the financial data for its fiscal year ending June 30, 2018:
Tuition fees P12,800,000
Miscellaneous fees 1,800,000
Interest on bank deposits 12,300
Rent income of school facilities to outsiders 350,000
Salary and Bonuses, all personnel 7,500,000
Other operating expenses 3,500,000
Repayment of loan 400,000
Quarterly (three quarters) income tax paid 48,000
A building was constructed on April 2, 2018 at a cost of P2,000,000 with a depreciable life of 50 years.
Assuming the cost of construction is treated as an expense, the income tax payable by the school for the year
ended June 30, 2018 is
a. P343,000 b. P147,000 c. P576,000 d. P160,000
____108. Siopao Corporation, in its 5th year of operation, has the following data:
2017 2018
Sales P1,700,000 P2,300,000
Cost of sales 1,050,000 1,425,000
Operating expenses 615,000 480,000
The income tax payable in 2017 is -
a. P 13,000 b. P12,250 c. P 35,000 d. P10,500

____109. In relation to number 27, the income tax payable by Siopao Corporation in 2018 is -
a. P 118,500 c. P 116,000
b. P17,500 d. P137,500
____110. In number 27 above, the journal entry in 2017 to record excess MCIT is-
a. Deferred charges-MCIT P2,500
Income tax payable P 2,500
b. Deferred charges-MCIT 13,000
c. Provision for income tax 11,200
d. Income tax payable 13,000
Cash 13,000
____111. In number 28 above, the accounting entry in 2018 to record the carry forward of excess MCIT against normal
income tax liability in 2017 is -
a. Deferred charges - MCIT P1,800
Income tax payable P1,800
b. Provision for income tax P124,600
Income tax payable P124,600
c. Income tax payable P2,500
Deferred charges - MCIT P2,500
d. Retained earnings P1,800
Deferred charges - MCIT P1,800
____112. CPA University, a private educational institution organized in 2010, had the following data
For 2017.
Tuition fees P 850, 000
Rental income 150, 000
School related expenses 820, 000
The income tax due for 2017 is
a. P 57, 000 b. P 9, 600 c. P 18, 000 d. P 20, 000

____113. How much is the taxable net income if a domestic corporation has the following data on gross
income and expenses?
2011 2012 2013 2014 2015
Gross Income
350,000 450,000 300,000 350,000 400,000
Business
Expenses 450,000 480,000 275,000 340,000 300,000
What is the taxable income after deducting allowable net-operating loss carry-over (NOLCO) of
prior years for the taxable year 2015?
a. P100,000 b. P70,000 c. P5,000 d. zero

____114. Statement I. A corporation that incorporates in the Philippines is a domestic corporation under
the incorporation test even if the same is controlled by foreigners.
Statement II. A foreign transaction that transacts business with residents through a resident
branch is taxable on such transactions as a resident foreign corporation through its branch.
Statement III. If it transacts directly to residents outside its branch, it is taxable as a NRFC on
the direct transactions.
a. All statements are correct. c. Only on statement is incorrect.

b. Only one statement is correct. d. All statements are incorrect.
____115. Statement I. A domestic corporation is taxable on all income derived from sources within and
without the Philippines;
Statement II. A foreign corporation, whether engaged or not in trade or business in the
Philippines, is taxable only on income derived from sources within the Philippines.
a. Both are true. c. I is true, II is false
b. Both are false d. I is false, II is true
____116. Statement I. The term 'resident foreign corporation' applies to a foreign corporation engaged
in trade or business within the Philippines.
Statement II. The term 'nonresident foreign corporation'applies to a foreign corporation not
engaged in trade or business within the Philippines.
a. Both are true. c. I is true, II is false

b. Both are false d. I is false, II is true
____117. Corporations include the following, except
a. business partnerships
b. joint-stock companies and joint accounts (cuentas en participacion)
c. insurance companies
d. joint venture or consortium formed for the purpose of undertaking construction
projects or engaging in petroleum, coal, geothermal and other energy operations
pursuant to an operating consortium agreement under a service contract with the
Government
____118. Which of the following is not correct about intercorporate dividends?

a. There is intercorporate dividend when a dividend is declared by one corporation
and received by another corporation which is a stockholder to the former.
b. Dividends received by a resident foreign corporation from a domestic corporation
is taxable.
c. Dividends received by a domestic corporation from another domestic corporation
is exempt from tax.
____119. CPA University, a private educational institution organized in 2010, had the following data
For 2017.
Tuition fees P 850, 000
Rental income 150, 000
School related expenses 820, 000
The income tax due for 2017 is

a. P 57, 000 b. P 9, 600 c. P 18, 000 d. P 20, 000
Problem
120. During 2015, a corporation had the following data:
Philippines Abroad Total

Gross Income 300,000 2,500,000
2,200,000
Less: Business Expenses 200,000 1,400,000
1,200,000
Net Income from Operation 100,000 1,100,000
1,000,000
Add: Dividend from domestic 30,000
corporation 100,000 130,000
Net Income 1,100,000 130,000 1,230,000
_________________ The regular income tax , if taxpayer is a domestic corporation
121. _____________________________ The regular income tax, if a resident foreign corporation
122. _____________________________ The final tax, if a non-resident foreign corporation
123. A non-stock non-profit corporation organized for the rehabilitation of veterans reported income
from related and unrelated activities of P500,000 and P300,000, respectively. It had expenses
pertaining to related and unrelated activities of P400,000 and P100,000, respectively. The
income tax due of the corporation shall be ________________________________
124. If the taxpayer is a non-stock, non-profit educational institution, the net income from unrelated
activities of which were used to construct a library, the income tax due is
________________________________
125. If the net income from unrelated activities were used for non-educational purposes, the income
tax due is ________________________________
126. If the taxpayer is a proprietary educational institution, the income tax due is
________________________________
127. A proprietary educational institution reported income from related and unrelated activities of
P300,000 and P500,000, respectively. It had expenses pertaining to related and unrelated activities
of P100,000 and P400,000, respectively. The income tax due of the corporation shall be
________________________________
128. During 2015, a corporation in its sixth (6th) year of operations, had the following data:
Philippines Abroad Total
Gross Income 2,500,000
2,200,000 300,000
Less: Business Expenses 2,350,000
2,100,000 250,000
Net Income from Operation 100,000 50,000 150,000
Add: Dividend from domestic
corporation 130,000 130,000
Net Income 230,000 50,000 280,000
_________________ Tax due, if taxpayer is a domestic corporation
129. _____________________________ The regular income tax, if a resident foreign corporation
130. _____________________________ The final tax, if a non-resident foreign corporation
131. A non-stock non-profit organization for the rehabilitation of veterans reported income from
related and unrelated activities of P500,000 and P300,000, respectively. It had expenses
pertaining to related and unrelated activities of P400,000 and P100,000, respectively. The
income tax due of the corporation shall be ________________________________
132. If the taxpayer is a proprietary educational institution, the income tax due is
________________________________
133. A proprietary educational institution reported income from related and unrelated activities of
P300,000 and P500,000, respectively. It had expenses pertaining to related and unrelated
activities of P100,000 and P400,000, respectively. The income tax due of the corporation shall
be ________________________________
134. A corporation in its fifth year of operation with fiscal year ending October 31 had the following
data in 201.
Excess Tax Credits of Prior Year 10,000

Excess MCIT of previous year 15,000
1st qtr 2nd qtr 3rd qtr YR

Gross Income 1,500,000 1,750,000 2,105,000 2,765,000
Business Epenses 675,000 787,000 1,999,000 2,800,000
Taxable Income
Normal Tax
MCIT
Tax Due
Less: Tax Credits
Excess Tax Credits of Prior Year
Excess MCIT of previous year
Income Taxes withheld 75,000 87,500 105,250 138,250
Tax paid in previous quarters
1st
2nd
3rd
Total Tax Credits
Tax Payable/(Excess Tax Credits)
135. A proprietary educational institution had the following data in 2015

Income Miscellaneous fees 345,600
Tuition fees 3,763,000
Rent Income 65,000
Net income, school canteen 35,600
Net income, bookstore 45,000
Dividends 12,000
Interest on time deposit 45,500
Expenses Payroll and administrative salary 1,567,500
Depreciation, new classroom building 50,000
The building had a construction cost of P1,250,000 and an estimated useful life of 25 years to be
depreciated using the straight-line method.
a. Compute the income tax due if the school chooses to deduct the capital expenditure in the
year incurred. _________________
b. Compute the income tax due if the school chooses to deduct by way of depreciation.
_____________
c. Compute the allowable Optional Standard Deduction if the school wants to claim OSD.
___________
136. In year 2015, a domestic corporation had the following data:

Sales 2,000,000
Cost of Sales 750,000
Business Expense 1,200,000
The corporation chose the GIT scheme in 2013 for the first time. The income tax due of the
corporation in 2015 is ________________
137. La Pacita, Inc., a domestic corporation in its 5th year of operations, had the following data:
MCIT NORMAL TAX

2012 40,000 28,000
2013 8,000 10,000
2014 30,000 40,000
1. How much is the tax payable in 2012? ______________________

138. Give the journal entries in Problem 10.
2012
2013
2014
139. The records of a closely-held corporation, registered with the BIR in 2005, reveals the following.
It had a paid-up share capital of P5,000,000 as of December 31,2015.
2014
Less Expenses 4,200,000
Net Operating Loss (700,000)
Retained Earnings, balance 7,000,000
2015
Less Expenses 3,200,000
Rent income, net of 5% withholding tax 570,000
Interest on money market placement, net of 20% withholding tax 80,000
Inter-corporate dividend received 600,000
Dividends paid by the corporation 1,700,000
Upon examination of the 2015 return, the BIR concludes that there is improper accumulation of
profit. The corporation failed to show proof to the contrary.
Compute:
1. The tax payable per return in 2015 __________________________
2. The improperly accumulated earnings tax in 2015 _____________________
140. Monster University, a non-stock, non-profit educational institution, collected P5,000,000 tuition
fees and other assessments to students. It also earned P400,000 from rent and realized gain of
P500,000 in the sale of its properties. The rent income was utilized for educational purposes while
the proceeds of the sale on other unrelated activities. Expenses of the educational institution in
relation to educational activities were P2,000,000 while expenses related to rent income amounted
to P300,000 and expenses related to the properties sold amounted to P50,000.
1. Compute the tax due _____________________
2. Compute the tax due assuming it is a government educational institution _____________
3. Compute the tax due assuming it is a proprietary educational institution.
_________________
141. The expanded foreign currency deposit unit of a domestic commercial bank derived the following
income from its foreign currency and other transactions:
RECEIVED FROM
Non-
OBUs or Other residents
FCDUs/EFCDUs Residents
Interest income from foreign
currency loans and receivables 5,100,000 11,000,000 4,444,000
Interest income - foreign
currency deposits 200,000
Forex trading gains 350,000 250,000 150,000
Consultancy fees 300,000 450,000 100,000
Rent Income 60,000 140,000 85,000
1. Exempt Income ___________________

2. Gross Income subject to final tax _____________________
3. Gross Income subject to regular tax ____________________
142. A corporation which became subject to MCIT in 2013 had the following data:
2014 2015
Gross Income 350,000 550,000
Deductions, excluding NOLCO 450,000 275,000
Net Income (100,000) 275,000
1. Tax payable in 2014 _______________

2. Tax payable in 2015 _______________
REFERENCES
http://boi.gov.ph/ufaqs/regional-headquarters-regional-operating-headquarters-rhqs-rohqs/
https://www.bir.gov.ph/index.php/registration-requirements/primary-registration/application-for-
tin.html#related
https://philippinesbusinessregistration.com/company-registration/requirements/

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Module 6

Advance Study Questions

1. What is the definition of “corporation” under the NIRC.

Corporation and Other Terms Defined

Definition of corporation in the Tax Code

Included in the term corporation

• Partnerships, no matter how created or organized;

• General professional partnerships; and

*should involve licensed general contractors by the Philippine Contractors

RAHQ vs. ROHQ

Domestic corporations (Sec. 27)

1. Resident foreign corporation (Sec 28 A) - The term “resident foreign corporation”

Tax base and Tax Rate

Domestic Corporations (DC)

On their taxable income within and without

1) a. In General – on net taxable income 30%

General Professional Partnerships

General Professional Partnerships 0%

**Sec. 27 C, as amended under TRAIN Law

- Government Service Insurance System (GSIS),

- Social Security System (SSS),

- Philippine Health Insurance Corporation (PHIC), and

- the local water districts

*** Exempt Corporations (Sec. 30 NIRC)

Resident Foreign Corporation (RFC)

On their taxable income within

1) a. In General – on net taxable income 30%

5) Corporation Covered by Special Laws Rate specified

7) Foreign Currency Deposit Units (FCDU) on gross income 10%

Non-Resident Foreign Corporation (NRFC)

1) Non-resident cinematographic film owner, lessor, or distributor on

Sec. 28 (A) (1)

GIT - OPTIONAL CORPORATE INCOME TAX

Minimum corporate income tax [Sec. 27 (E) and 28 (A) (2)]

Sec. 27 (E) Minimum Corporate Income Tax on Domestic Corporations

Sec. 28 (A) (2)

(2) Minimum Corporate Income Tax on Resident Foreign Corporations

Sec. 27 (E) Sec. 28 (A) (2) NONRESIDENT

MINIMUM CORPORATE INCOME TAX

Period the Corporation is subject to MCIT

IS THE MINIMUM CORPORATE INCOME TAX (MCIT) AN ADDITION TO THE

WHO ARE COVERED BY MCIT?

When does a corporation start to be covered by the MCIT?

When is the MCIT reported and paid? Is it quarterly?

How is MCIT computed?

• Salaries and employees benefits of personnel, consultants and specialists directly

What is the carry forward provision under the MCIT?

How would the MCIT be recorded for accounting purposes?

MINIMUM CORPORATE INCOME TAX (MCIT)

Tax income derived under expanded foreign currency deposit system by

Sec. 27 (D) (3) Sec. 28 (A) (7) NON-

Special Domestic Corporations

(B) Proprietary Educational Institutions and Hospitals. -

• A 'proprietary educational institution' is any private school maintained and administered

Treatment of capital outlays for expansion of school facilities

Illustration – Proprietary educational institutions

Gross income, related activities P5,000,000