CHAPTER 5 – INCOME TAX FOR CORPORATIONS

PROBLEM SOLVING:
(P5.1)
CASE A (Domestic Corporation) – TRAIN Law:

1. P1,674,000
2. P92,500
3. P562,500

Solution
Philippines Abroad Total
Gross sales P10,000,000 P5,000,000 P15,000,000
Sales returns 200,000 (200,000)
Cost of goods sold 3,500,000 2,250,000 (5,750,000)
Operating expenses 2,800,000 1,100,000 (3,900,000)
Interest income from trade receivable 100,000 50,000 150,000
Interest income from BPI deposits-USA - 80,000 80,000
Interest income from money market placement 100,000 100,000
Dividend income-resident foreign corp. 45,000 - 45,000
Dividend income-non-resident foreign corp. - 30,000 30,000
Royalty income - 25,000 25,000
Taxable income P5,580,000
Tax rate 30%
Normal Corporate Income Tax Due P1,674,000

Philippines Final Tax

Interest income from BPI deposits-Phils. @ 20% 100,000 P20,000
Interest income from FCDS @ 15% 150,000 22,500
Income from money market placement @ 20% 200,000 40,000
Royalty income @ 20% 50,000 10,000
Final tax on passive income P92,500

Capital Gains Tax

Gain on sale of shares sold directly to a buyer [(150,000x 15%) P22,500
Sale of real property in the Philippines (SP of P9M** x 6%) 540,000
Total Capital Gains Tax P562,500
**SP = Cost + Gain = P4M + 5M = P9M; SP is higher than FMV
 CASE B (Resident Foreign Corporation) – TRAIN Law:

4. P1,093,500
5. P81,250
6. P10,00

Solution:

Gross sales P10,000,000

Sales returns (200,000)
Cost of goods sold (3,500,000)
Operating expenses (2,800,000)
Interest income from trade receivable 100,000
Dividend income-resident foreign corp. 45,000
Taxable income P3,645,000
Tax rate 30%
Normal Corporate Income Tax Due P1,093,500

Philippines Final Tax

Interest income from BPI deposits-Phils. @ 20% 100,000 P20,000
Interest income from FCDS @ 7.5% (not amended) 150,000 11,250
Income from money market placement @ 20% 200,000 40,000
Royalty income @ 20% 50,000 10,000
Final tax on passive income P81,250

Capital Gains Tax

Gain on sale of shares sold directly to a buyer [(100,000 x 5%) + (50,000 x 10%)] P10,000

(P5.2)

P0. A foreign corporation is taxable only on its income derived from sources within the Philippines.
The incomes provided in the problem were all derived in U.S.

(P5.3) RFC –TRAIN Law:

Current account, BDO @ 20% P120,000

Savings deposit, BPI @ 20% 100,000
Interest income from government bonds @ 20% 40,000
Royalty income from various domestic corporations @ 20% 20,000
US dollar deposit, FCDU @ 7.5% 60,000
Total final taxes on passive income P340,000
(P5.4) – TRAIN Law
Q1 Q2 Q3 Q4
Gross profit from sales P1,600,000 P3,200,000 P4,800,000 P6,200,000
Business expenses (1,200,000) (2,400,000) (3,400,000) (4,200,000)
Taxable income 400,000 800,000 1,400,000 P2,000,000
RCIT 120,000 240,000 420,000 600,000
MCIT (Gross Profit x 2%) 32,000 64,000 96,000 124,000

TAX DUE (Higher) P120,000 P240,000 P420,000 P600,000

Less: Income tax withheld (30,000) (70,000) (130,000) (230,000)
Tax Paid Q1 - (90,000) (90,000) (90,000)
Tax Paid Q2 (80,000) (80,000)
Tax Paid Q3 - (120,000)
Income Tax Payable P90,000 P80,000 P120,000 P80,000

(P5.5)

Year 4 Year 5 Year 6 Year 7 Year 8

MCIT 100,000 60,000 50,000 40,000 20,000
RCIT 30,000 70,000 60,000 30,000 90,000
TAX DUE (Higher) P100,000 P70,000 P60,000 P40,000 P90,000
Excess MCIT
Year 4 - (70,000) - - -
Year 7 (10,000)
Income Tax Payable P100,000 P0 P60,000 P40,000 P80,000

(P5.6)

1. P120,000
2. P690,000
3. P210,000
4. P495,000

Q1 Q2 Q3 Q4
Tax Due 2018 NCIT P300,000 MCIT P990,000 NCIT P1,410,000 NCIT P2,010,000
Excess MCIT 2017 (90,000) - (90,000) (90,000)
Excess W/holding Tax 2017 (30,000) (30,000) (30,000) (30,00)
W/holding - 2018 (60,000) (150,000) (270,000) (375,000)
Quarterly Tax Payments (120,000) (810,000) (1,020,000)
Tax Payable P120,000 P690,000 P210,000 P495,000
(P5.7)
Case A (Taxable Joint Venture)
1. Taxable income of the joint venture = P20M
2. Income tax payable of the joint venture = P6M
3. Taxable income of ABC Company = P10M
4. Income tax payable of ABC Company = P3M
5. Taxable income DEF Company = P5M
6. Income tax payable of DEF Company = P1.5M

Joint Venture ABC Co. DEF Co.

Gross income P50,000,000 P30,000,000 P20,000,000
Business expenses (30,000,000) (20,000,000) (15,000,000)
Taxable income P20,000,000 P10,000,000 P5,000,000
Tax Rate (RCIT) 30% 30% 30%
Tax Due P6,000,000 P3,000,000 P1,500,000

Case B (Tax Exempt Joint Venture)

7. Taxable income of the joint venture = nil; tax exempt
8. Income tax payable of the joint venture = nil; tax exempt
9. Taxable income of ABC Company = P24M
10. Income tax payable of ABC Company = P7.2M
11. Taxable income DEF Company = P11M
12. Income tax payable of DEF Company = P3.3M

Joint Venture ABC Co. DEF Co.

Gross income P50,000,000 P30,000,000 P20,000,000
Business expenses (30,000,000) (20,000,000) (15,000,000)
Share in the income of the joint - 14,000,000 6,000,000
venture
Taxable income P20,000,000 P24,000,000 P11,000,000
Tax Rate (RCIT) 30% 30% 30%
Tax Due P0 P7,200,000 P3,300,000

(P5.8)
Case A:
1. Taxable income of the joint venture = P20M
2. Tax due of the joint venture = P6,000,000
3. Taxable income of Bryan = P10M
4. Taxable income Rianne = P5M
5. Final tax due of Bryan (10%) = P980,000
6. Final tax due of Rianne (10%) = P420,000

Joint Venture Bryan Rianne

Gross income P50,000,000 30,000,000 20,000,000
Business expenses (30,000,000) (20,000,000) (15,000,000)
Taxable income P20,000,000 P10,000,000 P5,000,000
Less: Tax Due @ 30% (6,000,000)
Distributable income P14,000,000
Share in income
Bryan @ 70% x 10% P9,800,000 P980,000
Rianne @ 30% x 10% 4,200,000 P420,000
 Case B:
7. Taxable income of the joint venture = nil; tax exempt
8. Income tax payable of the joint venture = nil; tax exempt
9. Taxable income of Bryan = P24,000,000
10. Taxable income Rianne = P11,000,000
11. Final tax due of Bryan = P0 ; subject to basic and creditable withholding tax
12. Final tax due of Rianne = P0 ; subject to basic and creditable withholding tax

Joint Venture Bryan Rianne

Gross income P50,000,000 30,000,000 20,000,000
Business expenses (30,000,000) (20,000,000) (15,000,000)
Net Income P20,000,000 P10,000,000 P5,000,000

Distributable income P20,000,000

Share in income
Bryan @ 70% P14,000,000 14,000,000
Rianne @ 30% 6,000,000 6,000,000
Taxable Income P24,000,000 P11,000,000

(P5.9)

Hananiah Corporation provided the following data for calendar year ending December 31, 2017 : ($1 = P45)

Philippines Abroad
Gross Income P6,000,000 $50,000
Deductions P4,000,000 $20,000

Determine the following:

1. Income tax due assuming the company is a domestic corporation
2. Income tax due assuming the company is a resident corporation
3. Income tax due assuming the company is a non-resident corporation
4. Income tax due assuming the company is an international carrier
5. Income tax due assuming the company is an international carrier subject to a preferential income tax rate of 1.5%
based on a tax treaty
6. Income tax due assuming the company is a non-resident cinematographic film owner/lessor
7. Income tax due assuming the company is a non-resident lessor of vessel
8. Income tax due assuming the company is a non-resident lessor of aircrafts, machineries and equipment
9. Income tax due assuming the company is a non-profit hospital
10. Income tax due assuming the company is a GOCC

Solutions:
1. [(P6M-4M) + (($50,000-$20,000)x45)] = P3,350,000 x 30% = P1,005,000
2. (P6M-4M) x 30% = P600,000
3. P6M x 30% = P1,800,000
4. P6M x 2.5% = P150,000
5. P6M x 1.5% = P90,000
6. P6M x 25% = P1,500,000
7. P6M x 4.5% = P270,000
8. P6M x 7.5% = P450,000
9. *P3,350,000 x 10% = P335,000; * from #1
10. P1,005,000; same computation with #1
11. nil; exempt