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Week 10B Corporate Tax Rates
Week 10B Corporate Tax Rates
Corporate Taxation
TX901
Income Taxation Page 2 of 4
d. Option to be taxed based The option to be taxed based on gross income shall be available only to firms whose ratio
on gross income of cost of sales to gross sales or receipts from all sources does not exceed 55%.
e. Election of the gross The election of the gross income option by the corporation shall be irrevocable for the
income shall be three (3) consecutive taxable years during which the corporation is qualified under the
irrevocable scheme.
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 P 50,000
Minimum corporate income tax 80,000 250,000 100,000 120,000
REQ: Compute the annual income tax payable of the corporation for the year end?
4. IMPROPERLY ACCUMULATED EARNINGS TAX (FOR CLOSELY HELD CORPORATIONS)
a. Imposition of In addition to other taxes imposed, there is imposed for each year on the
improperly accumulated improperly accumulated taxable income of each corporation an improperly
earnings tax accumulated earnings tax equal to 10% of the improperly accumulated taxable
income.
b. Not subject to improperly The improperly accumulated earnings tax shall not apply to:
accumulated earnings tax 1) Publicly held corporations;
2) Banks and other non-bank 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 The fact that any corporation is a mere holding company or investment company
tax upon the shareholders 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
TAXATION – Corporation: Income Tax Rates
Team Magis
Income Taxation Page 4 of 4
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. Earnings or profits of a The fact that the earnings or profits of a corporation are permitted to accumulate
corporation are permitted to beyond the reasonable needs of a business shall be determinative of the purpose
accumulate beyond the to avoid the tax upon its shareholders or members, unless the corporation, by
reasonable needs clear preponderance of evidence, shall prove to the contrary.
g. Pro forma computation of Taxable income xxx
improperly accumulated taxable Add: Income exempt from tax xxx
income Income excluded from gross income xxx
Income subject to final tax xxx
Amount of net operating loss carry over deducted xxx xxx
Total xxx
Less: Dividends, actually or constructively paid xxx
Income tax paid for the whole year xxx
Amount reserved for the reasonable needs of the business xxx xxx
Improperly accumulated taxable income xxx
h. Reasonable need of the Reasonable needs of the business include the reasonably anticipated needs of the
business business.
i. Profits subjected to IAET no Once the profits have been subjected to IAET, the same shall no longer be
longer subject to same tax in subjected to IAET in later years even if not declared as dividends.
later years
j. Profits subjected to IAET still Profits which have been subjected to IAET when finally declared as dividends shall
subject to tax on dividends be subject to tax on dividends.
k. Declaration of dividend to avoid The dividend must be declared and paid or issued not later than one (1) year
IAET following the close of the taxable year.
l. Payment of IAET 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.
m. Exercise
1. The record of a closely held corporation, registered with the BIR in 2008, reveals the following:
2013: Gross income P 3,000,000
Less: Operating Expenses 3,800,000
Net Operating Loss (800,000)
Accumulated retained earnings, end of 2010 P 6,000,000
2014: Gross Income P 5,000,000
Expenses: 3,000,000
Rent Income, net of 5% withholding tax 475,000
Interest on money market placement, net of 20% withholding tax 80,000
Inter-corporate dividends received 500,000
Dividends paid by the Corporation 1,500,000
Retained earnings appropriated for sinking fund 300,000
It had a paid-up capital stock of P5,000,000 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.
Q1: How much is the tax payable and the tax payable of the Corporation per return in the year 2014?
Q2. How much is the tax on the improperly accumulated income in 2014?
Illustration
The 2011 records of Alpine Corporation, a domestic Corporation show the following:
Gross Sales, net of 1% withholding tax P 4,950,000
Cost of Goods Sold 2,575,000
Expenses 350,000
Taxes paid for the first three quarters 25,000
Royalties, net of 20% final withholding tax 52,000
Dividend from a domestic company 75,000
Gain on sale of business asset 37,500
The Corporation suffered a net operating loss of P125,000 in 2010 which was carried over as a deduction from gross
income in 2011.
Out of the earnings during the year, P500,000 was paid as dividends to its shareholders, while P700,000 was reserved
for construction of new building and acquisition of new equipment.
REQUIRED: Compute the following:
1. The regular income tax for 2011
2. The additional tax on improperly accumulated earnings
3. The final tax on dividends declared and issued by Alpine Corporation.