Corporation as a Taxpayer

Corporation
As 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.
CORPORATE INCOME TAXATION

 For Income Tax purposes, CORPORATION

includes partnerships no matter how created or
organized, joint stock companies, joint accounts,
associations or insurance companies but does not
include general professional partnerships and joint
venture or consortium formed for the purpose of
undertaking constructions project or engaging in
petroleum, coal, geothermal and other energy
operations pursuant to an operating or consortium
agreement under a service contract with the
government.
CLASSIFICATION OF CORPORATION
Domestic Corporation
Foreign Corporation
Resident Corporation
Non resident Corporation
Special Corporation
Domestic Corporation
Domestic – created or organized in the Phil. or
under Phil. laws. Source of taxable income
are from within and outside the Philippines.
Rate and base (except those subject to final
tax) are:
 Effective January 1, 2000 – 32% of taxable income
 Effective November 1, 2005 – 35% of taxable
income
 Effective January 1, 2009 – 30% of taxable income
Income tax rules
On sale of shares of stock of a domestic corporation
held as capital assets:
 Not listed and traded thru a local stock exchange,
on the net capital gain:
Final tax of 15%
 Listed and traded thru a local Stock exchange, On
selling price - Percentage tax of 6/10 of 1%
 On sale of land and / or building held as capital
assets.
 On the gross selling price or current fair market
value, whichever is higher - Final tax of 6%
 From sources within the Philippines, On passive
income of
◦ Interest under the expanded foreign currency deposit
system - Final tax of 7 ½
◦ Interest on Phil. currency bank deposit; yield or other
monetary benefit from deposit substitute, trust fund and
similar arrangement and royalty
 - Final tax of 20%
◦ Dividend received from domestic corporation
 - Exempt
Foreign Corporation-
 created or organized under laws other than Phil.
laws.

Resident Corporation – foreign corporations engaged

in business in the Philippines. Source of taxable
income are from within the Phils. Rate and base –
(except those subject to final tax)
 Effective January 1, 2000 – 32% of taxable income
 Effective November 1, 2005 – 35% of taxable
income
 Effective January 1, 2009 – 30% of taxable income
 Non-Resident Corporation – foreign
corporation not engaged in business in the
Philippines. Source of taxable income are
from within the Philippines. Rate and base –
(except those subject to final tax)
 Effective January 1, 2000 – 32% of taxable income
 Effective November 1, 2005 – 35% of taxable income
 Effective January 1, 2009 – 30% of taxable income
 Taxability of corporations
Corporation Income Income Tax base
within without

Domestic Taxable Taxable Taxable

income

Resident Taxable Not taxable Taxable

foreign income
Non- resident
foreign Taxable Not taxable Gross Income
Problem
Katya Corporation had the following data in
2019:
Gross income, Philippines P600,000
Gross income, USA 500,000
Expenses, Philippines 300,000
Expenses, USA 300,000
Interest from time deposit 10,000
Interest on money market placement, net of
tax 21,000
Required:
Compute the income tax due and the final
taxes paid if Katya Corporation is a:
a. Domestic corporation
b. Resident foreign corporation
c. Nonresident foreign corporation
Answer
a. Taxpayer is a domestic corporation
Income tax due P150,000
Final withholding tax on interest P 2,000
Interest on money market(21,000/.80%)
26,250
20%
5,250
b. Resident foreign corporation
Income tax due 90,000
Interest on time deposit& Interest on money market
(same with domestic corp)
c. Non resident corporation
Gross income, Philippines P600,000
Interest on time deposit 10,000
Interest on money market
(21,000/70%) 30,000
640,000
30%
192,000
Tax Imposed
 MCIT (minimum corporate income tax)
 Beginning with the 4th year from start of operations
 Normal tax vs. MCIT = which ever is higher
 MCIT = gross income x 2%
 Normal tax = Taxable income x 30%
 Coverage:
 Existing corporations
 New corporations from the 4th year of their
operations
Exceptions:
 Proprietary educational institutions and
hospitals subject to 10% tax.
 Foreign currency deposit units
 International carriers
 Offshore banking units
 Regional operating headquarters

 Tax rate - 2% on gross income

Gross income - gross sales less sales returns
discounts and allowances and cost of goods
sold.
Cost of goods sold is:
 For traders
 Invoice cost
 Import duties
 Freight

For manufacturers
b.
 Raw materials used
 Direct labor
 Manufacturing overhead
 Freight cost
 Insurance
 c. For sellers of services
Salaries
Employees benefits
Depreciation or rental of facilities
Cost of supplies
 d. For banks
Salaries
Employees benefits
Depreciation or rental of facilities
Cost of supplies
Interest expense
Manner of payment - to be paid only if the
MCIT is higher than the regular corporate
income tax, per taxable quarter basis and
covered by the corporation’s quarterly
adjustment income tax return.
Carry forward of Excess MCIT over normal
income tax to be carried forward and credited
against the normal income tax for 3
immediately succeeding taxable years.
 Problem
Champion Company has been operating
since January 2015. Data pertinent to its
operations covering 2017 to 2019 are as
follows:
2017 2018 2019

Gross Sales P3,080,000 P4,100,000 P5,200,000

Sales returns, 80,000 100,000 200,000

discounts/
allowances
Cost of Sales 1,500,000 2,000,000 2,500,000

Operating 1,450,000 1,900,000 2,100,000

expenses
Answer
2017 2018 2019
Gross Sales 3,080,000.00 4,100,000.00 5,200,000.00
Sales Returns & Allow 80,000.00 100,000.00 200,000.00
Net Sales 3,000,000.00 4,000,000.00 5,000,000.00
Cost of Sales 1,500,000.00 2,000,000.00 2,500,000.00
Gross Income 1,500,000.00 2,000,000.00 2,500,000.00
Operating expenses 1,450,000.00 1,900,000.00 2,100,000.00
Net Taxable Income 50,000.00 100,000.00 400,000.00
Multiply by Normal Tax 30% 30% 30%
Normal Income Tax 15,000.00 30,000.00 120,000.00
MCIT rate 2% 2% 2%
MCIT 22500000000 40,000.00 50,000.00
Whichever is higher 15,000.00 40,000.00 120,000.00
Less Excess of MCIT - - 10,000.00
Income tax due & payable 15,000.00 40,000.00 110,000.00
Relief from MCIT - Relief may be granted
by the Secretary of Finance for the following
causes.
 Sustained losses on account of prolonged labor dispute.
 Force majeure

 Special Corporations - corporation which are taxed on a different
tax base and/ or different tax rate:
Taxpayer Base Rate
a. Proprietary educational institution and non-profit hospital (If Taxable income from all 10%
the income from unrelated trade, business or other activity sources
exceeds fifty percent (50%) of the total gross income derived from

all sources they shall be tax ordinary corporation).

b. Regional operating headquarters of multi national company Philippine taxable 10%
income

c. Resident international carrier Gross Phils. Billings 2 ½%

d. Non-resident cinematographic film owner, lessor or distributor Gross income from the
25%
Philippines
e. Non-resident owner or lessor of vessels Gross rentals, lease and
charter fees from the 4 ½%
Phils.
Gross rentals, charges 7 ½%
f. Non-resident lessor of aircraft machinery and other equipment and other fees from

Philippine sources
Quarterly computation & payment of
MCIT
In the filing of the quarterly income tax
return for the taxable quarter, the
computation of the MCIT shall be done on
cumulative basis covering not only the
current taxable quarter but also the previous
taxable quarters of the same year. Such
computed MCIT shall be compared with the
cumulative normal income tax, whereupon
the higher amount between the two shall the
basis of the quarterly income tax payment to
be made for the said taxable quarter.
 Illustration:

Yvonne Corporation had the following data

during the taxable year:
1st Q 2nd Q 3rd Q Year
Gross profit from sales 400,000 780,000 990,000 1,200,000
Business expenses 380,000 600,000 710,000 1,500,000
Required:
Compute for the quarterly income tax and
the annual income tax payable by the
corporation.
 Answer

Yvonne Corporation had the following data

during the taxable year:
1st Q 2nd Q 3rd Q Year
Gross profit from sales 400,000 780,000 990,000 1,200,000
Business expenses 380,000 600,000 710,000 1,500,000
Taxable Income 20,000 180,000 280,000 (300,000)
MCIT 8,000 15,600 19,800 24,000
NT 6,000 54,000 84, 000 0
Whichever is higher 8,000 54,000 84,000 24,000
Less: Income tax paid
1st Q (8,000) (8,000) (8,000)
2nd Q (46,000) (46,000)
3rd Q (30,000)
Due 8,000 46,000 30,000 (60,000)