TAXATION ON CORPORATIONS (lecture notes) https://www.youtube.com/watch?

v=WdrGYKIMpNo&t=620s

Comprehensive Tax Reform Program (CTRP)

 R.A. 10963 TRAIN Law (effective 2018)

 R.A 11534 CREATE Law (March 26, 2021)
 Bayanihan Act 1 & 2

CORPORATIONS

CLASSE PH Abroad RCIT Tax

S (w/in) (w/o) base
1. DC / / 25%/20% Taxable
Income
2.RFC / x 25% Taxable
Income
3. NRFC / x 25% Gross
(FWT) Income

Domestic Corporation

- Created and organized under PH laws

- e.g., BDO, BPI, PLDT, Globe, Jollibee…
- Income earned abroad are still taxed by PH laws

Resident Foreign Corporation (RFC)

- Created and organized under foreign laws

- Engaged in business in the PH
- e.g., McDonald’s, Coca-Cola, Toyota...

Nonresident Foreign Corporation (NRFC)

- created and organized under foreign laws

- not engaged in business in the PH
- e.g., Bank Central Asia
- income earned thru passive income (interest, dividends, rents)

Types of Income Tax

1. Basic Income Tax

a. Regular Corporate Income Tax (RCIT)
i. from 30%- TRAIN Law to 25% -CREATE Law
ii. 20% if domestic corporation (DC); Net Taxable Income does not exceed 5M;
and Total Assets (excluding land value) do not exceed 100M (threshold for
MSMEs)
b. Minimum Corporate Income Tax (MCIT)
i. 1% of Gross Income (July 1, 2020 – June 30, 2023) back to 2% after
1. Applies only to DC and RFC
2. Effective beginning the fourth taxable year following year of
commencement
 3. Excess MCIT (MCIT > RCIT) can be carried over for 3 years and can be
credited against RCIT (RCIT>MCIT)
4. Computed quarterly and annually
c. Improperly Accumulated Earnings Tax (IAET)
i. 1% but depleted
2. Final Withholding Tax
3. Capital Gains Tax

Format for Computing Income Tax:

Gross Income

Less: Allowable Deductions

Taxable Income

x RCIT (25%)

Tax Due

 Gross Income
o Sale of goods
 Gross sales – Sales R,A&D – COS = Gross Income
o Sale of services
 Gross receipts – A & D – Cost of services = Gross Income
o Excludes income subject to Final Withholding Tax & Capital Gains Tax
 Allowable Deductions – chosen at 1st quarter, irrevocable for the succeeding quarters
o Itemized Deductions
 Actual expenses
 With supporting documents (receipts)
o Optional Standard Deduction
 Estimated expense
 40% of Gross Income

3-step Framework:

1. Check if DC, RFC, NRFC

2. Compute Total Assets and Net Taxable Income
3. Compute MCIT
EXERCISES:

Scenario 1: DC

Solution: RCIT or MCIT whichever is HIGHER

PH Japan TOTAL
Gross Income 3,700,000 2,270,000 5,970,000
Less: Deductible (1,000,000) (500,000) (1,500,000)
Expenses
Taxable Income 2,700,000 1,770,000 4,470,000
RCIT (25%) 1,117,500
MCIT (1% of GI) 59,700

Scenario 2: RFC

Solution:

PH Japan TOTAL
Gross Income 3,700,000 2,270,000 5,970,000
Less: Deductible (1,000,000) (500,000) (1,500,000)
Expenses
Taxable Income 2,700,000 1,770,000 4,470,000
RCIT (25%) 675,000
MCIT (1% of GI) 37,000
Scenario 3: NRFC

Solution:

PH Japan TOTAL
Gross Income 3,700,000 2,270,000 5,970,000
Less: Deductible (1,000,000) (500,000) (1,500,000)
Expenses
Taxable Income 2,700,000 1,770,000 4,470,000
RCIT (25% of GI) 925,000
MCIT (n/a for NRFC)

Scenario 4: DC with total assets of 90 million

Solution:

PH Japan TOTAL
Gross Income 3,700,000 2,270,000 5,970,000
Less: Deductible (1,000,000) (500,000) (1,500,000)
Expenses
Taxable Income 2,700,000 1,770,000 4,470,000
RCIT (20%) 894,000
MCIT (1% of GI) 59,700

Scenario 5: DC availing OSD

Solution:

PH Japan TOTAL
Gross Income 3,700,000 2,270,000 5,970,000
Less: OSD (40%) (1,480,000) (908,000) (2,388,000)
Taxable Income 2,220,000 1,362,000 3,582,000
RCIT (25%) 895,500
MCIT (1% of GI) 59,700
 2021 2022 2023 2024
Total Assets 90M 100M 115M 95M
(excluding land)
Taxable Income 4,500,000 5,500,000 (250,000) 1,500,000
RCIT rate 20% 25% 25% 20%
RCIT 900,000 1,375,000 0 300,000 –
Net operating loss 105,000 =
195,000
MCIT 80,000 100,000 35,000 (based on 210,000
1%) + 70,000
(based on 2%) =
105,000
Accdg. to
Bayanihan Act –
carried over by 5
years
Excess MCIT 105,000