Dagupan TAXATION

TAX - 1007 R. R. CAYABYAB, CPA

Accountancy

TAX ON CORPORATION
An Overview of Corporate Taxes
A corporation may be liable for at most seven (7) types of income taxes, namely:
Net Income Tax (on Ordinary Income)
Standard Income Tax-Final Withholding Tax (on Passive Income)
Capital Gains Tax (on “Capital Gains”)
Minimum Corporate Income Tax (“MCIT”)
Penalty Income Tax- Improperly Accumulated Earnings Tax (“IAET”)
Gross Income Tax (“GIT”)
Special Income Tax- Branch Profits Remittance Tax (“BPRT”)
Definition
Under Section 22(B) of the NIRC, the term “corporation” shall include:
a) partnerships, no matter how created or organized;
b) joint stock companies;
c) joint accounts (cuentas en participacion);
d) associations; or
e) insurance companies.
However, the term does not include:
a) General professional partnerships (GPPs)
AND
b) Joint venture or consortium formed for the purpose of (1) undertaking construction projects or (2)
engaging in energy operations pursuant to an operating or consortium agreement under a service
contract with the Government.
Classification of Corporations
(1) Domestic corporations.
(a) In general
(b) GOCCs EXC: SSS, GSIS, PHIC, LWDs
(c) Taxable partnerships
(d) Proprietary educational institutions/Non-profit hospitals;
(e) FCDUs of domestic banks
(f) Service contractors/subcontractors engaged in petroleum operations
(g) Ecozone enterprises
(h) Exempt corporations

(2) Resident Foreign corporations.

(a) In general
(b) Resident international carriers
(c) OBUs
(d) ROHQs/RHQs of MNCs
(e) Service contractors/subcontractors engaged in petroleum operations
(f) Ecozone enterprises

(3) Non-resident foreign corporation

(a) In general
(b) Non-resident owners/lessors of vessels chartered by Philippine national;
(c) Non-resident owners/lessors of aircraft, machineries, and other equipment;
(d) Non-resident cinematographic film owner, lessor or distributor;
(4) Exempt Corporations
Types of Income Subject to Tax
(a) Ordinary Income/Net Income- refer to “Ordinary Income” table
(b) Passive Income- refer to “Passive Income” and “Intercorporate Dividend” tables
(c) “Capital Gains”
Ordinary Income
Corporate Taxpayer Source of Taxable Tax Base Tax Rates
Income
1. Domestic Within and without the Net Income 30%
Philippines
2. RFC Within the Philippines Net Income 30%
only
3. NRFC Within the Philippines Gross Income Final withholding tax
only enumerated by law of 30%

PASSIVE INCOME
Passive Income DOMESTIC and RFC NRFC
Interest on currency bank 20% 30%
deposit

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Yield or any other monetary

benefit from:
(1) Deposit substitutes 20% 30%
(2) Trust funds, and similar 20% 30%
arrangements
Royalties 20% 30%
Interest from a depositary 7.5% (RFC) Exempt
bank under the expanded 15% (DC)
foreign currency deposit
system
Intercorporated Dividend
Payor Recipient Tax
1. Domestic Corporation Domestic Corporation Not taxable
2. Domestic Corporation RFC Not taxable
3. Domestic Corporation NRFC 15% final WT

Capital Gains Tax on Capital Gains

1. Sale, exchange, or other disposition of domestic shares of stock:
(a) Not traded at the stock exchange:

By Domestic Corporation:
Net capital gain 15%

By Foreign Corporation:
Net capital gain 15%
(b) Shares listed and traded at the stock exchange:

6/10 of 1% based on the gross selling price

Notes:
(1) Final tax on capital gains on the sale of shares of stock applies to all corporate taxpayers.
(2) The exceptions for individual taxpayers also apply for corporate taxpayers.

2. Sale of Real Property Classified as Capital Asset-

(a) Transaction subject – the sale, exchange, or other disposition of lands and buildings which ar not
actually used in the business of the corporation and treated as “capital assets”.
(b) Tax rate and base –
(1) Seller is domestic corporation – Final tax of 6% based on th gross selling price or FMV,
whichever is higher. The FMV is the higher between the Commissioner’s value and the
Assessor’s value.
(2) Seller is RFC – Gain on sale is returnable, and subject to normal tax rate (30%).
(3) Seller is NRFC – Final tax of 30% of the capital gain realized on the sale.
(c) Exemptions from the CGT –
(1) Sale of raw lands to be used for “socialized housing” projects, or sold under the Community
Mortgage Program under R.A. No. 7279 (Urban Development and Housing Act of 1992).
(2) Land transfers under the Comprehensive Agrarian Reform Law of 1998.
DOMESTIC COMPANIES SUBJECT TO SPECIAL TAX RATES
(1) Proprietary educational institutions
Proprietary educational institutions are subject to a special tax rate of 10% of taxable net income
within and without the Philippines

(2) Hospitals which are non-profit

Hospitals which non-profit are also subject to a special tax rate of 10% of taxable net income
within and without the Philippines

Provided – the gross income from unrelated trade, business, or other activity does not exceed 50%
of the total gross income derived from all sources. However, if it exceeds 50% the normal tax rate will
be applied on the entire taxable income (i.e. 30%)
(3) Final tax on income of a Foreign Currency Deposit Unit (“FCDU”) of a local bank under the
Expanded Foreign Currency Deposit System (“FCDS”)
a) Income from foreign currency loans granted to Philippine Residents, (other than OBUs or other
depository banks) – 10% final tax
b) Interest income from foreign currency interbank deposits – 10% final tax
c) Income from foreign currency transactions with non-residents, OBUs local commercial
banks, and branches of foreign banks authorized to transact business under the FCDS –
Exempt
Note: “Income from foreign currency transactions” shall include interest income from lending
operations, including bank charges, commissions, service feeds, and net foreign exchange transaction
gains.
(4) Service Contractors/Subcontractors Engaged in Petroleum Operations

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- Liable to an eight percent (8%) final tax on gross income derived from such contract in
petroleum operations

Provided, however, that any income received from all other sources within and without the
Philippines in the case of domestic contractors/subcontractors, shall be subject to the regular
income tax under Tax Code.
(5) Ecozone Enterprises

All business enterprises registered with the Philippine Economic Zone Authority (“PEZA”), SBMA, or
CDA and operating within the Special Economic Zones (“ECOZONE”) availing the 5% GIT incentive
shall be taxed 5% of gross income on registered activities. Three percent (3%) shall be paid to
the National Government; Two percent (2%) to the city or municipality where the enterprise is
located.
Notes:
(a) The exemption from all other taxes under the ITH and 5% GIT regimes does not include the following:
1) Withholding taxes at source (expanded withholding tax (“EWT”) and Final Withholding Tax
(“FWT”) on income payments by
PEZA – registered entities;
2) Withholding tax on compensation income of employees of
PEZA – registered entities; and
3) Fringe Benefits Tax (“FBT”) on fringe benefits given to managerial od supervisory employees of
PEZA – registered entities.

These taxes are not the taxes of a PEZA – registered entity. Instead, these are taxes of a PEZA –
registered entity’s payees which are withheld and remitted by the PEZA – registered enterprise.

(b) On the other hand, the BIR has ruled that all income payments received from its customers
related to its registered activities, by a PEZA – registered enterprise, whether availing the ITH or
5% GIT incentive, are exempt from the withholding tax.
(c) Income derived by an entity registered with the PEZA from its registered activities shall be subject
such treatment as may be specified in its terms of registration, i.e. (a) the ITH where such income
shall be exempt from the regular income tax; or (b) the 5% preferential GIT, if the same has been
approved.
However, the following shall be subject to the regular internal revenue taxes (i.e., regular corporate
income taxes; final taxes on bank deposits, capital gain taxes, etc.):
(1) Income realized by registered entities from activities which are not registered;
(2) Income of entities/individuals which are not registered (i.e. income payments to entities in the
Custom Territory, to shareholders, and to non-registered creditors, etc.)
(3) Income of Service Enterprises or providers (e.g. those providing customs brokerage,
transportation, parcel, janitorial, restaurant, banking, insurance services, etc.) which are required by
locator enterprises but which need not be physically based inside the ECOZONE.
(6) Tourism Enterprises registered with the tourism Infrastructure and Enterprise Zone
Authority (“TIEZA”)

As an alternative to the Income Tax Holiday (“ITH”) a new Registered Tourism Enterprise within a
Tourism Enterprise Zone may, in lieu of all national and local taxes except real estate taxes
and fees as may be imposed by the TIEZA, pay a tax of five percent (5%) on its gross income earned
from its registered activities.
The 5% gross income tax shall be remitted as follows:
(a) One-third to be proportionally allocated among affected cities or municipalities based on the area
of the RTE;
(b) One-third to the National Government; and
(c) One-third to the TIEZA

(7) Microfinance NGO

A duly registered and accredited Microfinance NGO shall pay a two percent (2%) tax based on its
gross receipts from microfinance operations in lieu of all national taxes. However, the non-
microfinance activities of Microfinance NGOs shall be subject to all applicable regular taxes.
RESIDENT FOREIGN CORPORATIONS SUBJECT TO SPECIAL TAX RATES
(1) International carriers doing business in the Philippines shall pay a tax of two and one half
percent (2 ½ %) of Gross Philippine Billings (“GPB”)
GPB – Gross revenue derived from carriage of persons, excess baggage,v cargo and 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 th ticket or passage document;
Rules:
(1) Tickets revalidated, exchange and/or indorsed to another international airline form part of the
Gross Philippine Billings if the passenger boards a plane in a port or point in the
Philippines;
(2) Provided, that for a flight or voyage which originates from the Philippines, but transhipment of
passenger takes place at any port outside the Philippines on another carrier, only the aliquot

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portion of the cost of the ticket corresponding to the leg flown from the Philippines to
the point of transhipment shall form part of the Gross Philippine Billings.

(3) Where a passenger, his excess baggage, cargo, and/or mail originally commencing his flight or
voyage from a foreign port alights or is discharge in any Philippine port, and thereafter boards or
is loaded on another airplane/vessel owned by the same international carrier, the flight or voyage
from the Philippines to any foreign port shall be considered “originating from the Philippines” if
the time intervening between arrival to and departure from the Philippines exceeds forty eight
(48) hours.
(a) If the failure to depart within 48 hours is due to reasons beyond the control of the passenger
such as when the next available flight or voyage leaves beyond 48 hours, or such failure is
due to force majeure, the flight or voyage from the Philippines shall not be considered
“originating from the Philippines”;
(b) If the second aircraft/vessel belongs to a different international carrier, the flight/voyage from
the Philippines shall be considered originating from the Philippines regardless of the length of
the intervening period between arrival to and departure from the Philippines.
Preferential Rates
Under R.A. No. 10378, an international carrier or shipper is subject to the Gross Philippine
Billings Tax of 2 ½ %, unless it is subject to a preferential rate or exemption on the basis of an
applicable tax treaty or international agreement to which Philippines is a signatory or on the
basis of reciprocity.
Note: However, such carriers may earn compensation or commission income from the sale passage
documents to cover off-line1 flights/voyages of its principal office, or on-line2 flights/voyages of other
carriers. Such income shall not be subject to the 2 ½ % GPB tax, but shall be subject to the regular
rates of income tax.
(2) Offshore Banking Units
An offshore banking unit(“OBU”) shall mean a branch, subsidiary, or affiliate of a foreign banking
corporation which is duly authorized by the BSP to transact offshore banking business of the
Philippines.
a. Income from foreign currency loans granted to Philippines residents, (other than OBUs or other
depository banks) – 10% final tax
b. Interest income from foreign currency interbank deposits – 10% final tax
c. Income from foreign currency transactions with non-residents, OBUs, local commercial
banks, and branches of foreign banks authorized to transact business under the FCDS –
Exempt.

(3) Regional or Area Headquarters, and Regional Operating Headquarters of Multinationals

(a) Regional or area headquarters (“RHQ”) of multinationals shall not be subject to income tax.
(b) Regional operating headquarters (“ROHQ”) shall pay a tax of ten percent (10%) of their taxable
income (in the ITR).
Note: Any income derived from Philippine sources by a ROHQ when remitted to the parent company
shall be subject to the tax on branch profit remittances.
(4) Service Contractors/Subcontractors Engaged in Petroleum Operations
- Liable to an eight percent 8% final tax on gross income derived from such contract in
petroleum operations
Off-line carriers refer to international carriers having no transportation operations to and from the
Philippines.
On-line carriers refer to international carriers having or maintaining transportation operations to
and from the Philippines.
Note: Any income received from all other sources within the Philippines in the case of foreign
subcontractors shall be subject to the regular income tax under the Tax Code.
(5) Ecozone Enterprises and TIEZA- registered enterprises
- Such enterprises availing the preferential 5% GIT shall be taxed at 5% of gross income from
registered activities in lieu of all taxes, national or local (see pages 6 and 7)
NON – RESIDENT FOREIGN CORPORATIONS SUBJECT TO SPECIAL TAX RATES
In general, a non-resident foreign corporation is subject to a final withholding tax of 30% based on
enumerated gross income from all sources within the Philippines, except –

Rate and Base

(1) Non-resident cinematographic film 25% of its gross income from
owner, lessor, or distributor all sources within the Philippines

(2) Non-resident owner or lessor of 4 ½ % of gross rentals or

vessels chartered by Philippine charter fees from leases or
nationals charters to Filipinos or corporations, as approved by
the Maritime Industry Authority

(3) Non-resident owner or lessor of 7 ½% of gross rentals or fees

aircraft, machineries, and other
equipment

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(4) Interest on foreign loans 20% of the amount of interest

contacted on or after August
1, 1986

(5) Income from transactions Exempt

with depository banks under the
expanded Foreign Currency
Deposit System

Note: Royalty is subject to the rate of 30% as it is not one of the items of income subject to a special rate.
EXEMPT CORPORATIONS
The following organizations shall not be subject to income tax in respect to income received by them
as such:
(A) Labor, agricultural or horticultural organizations not organized principally for profit;
(B) Mutual savings bank not having a capital stock represented by shares; and cooperative banks
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 fraternal organization operating under the lodge system, or a mutual aid association or a non-
stock 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 non-stock
corporation or their dependents;
(D) Cemetery company owned and operated exclusively for the benefits of its members;
(E) Non-stock corporation or association organize 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 stockholder or individual;
(G) Civic league or organization not organized for profit but operated exclusively for the promotion of
social welfare;
(H) A non-stock and non-profit educational institutions;
(I) Government educational institutions;
(J) Farmers or other mutual typhoon or fire insurance company, mutual ditch or irrigation company,
mutual 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 (Sec. 30, NIRC).
(L) Child caring or child placing institutions licensed and accredited by the Department of Social Welfare
and Development (“DSWD”) to implement the Foster Care Program under R.A No. 10165, otherwise
known as the “Foster Care Act 2012.”
(M) Duly registered cooperative on income from transactions with members and non-members as long as
the income related to its main business or purpose. Provided, those with accumulated reserves an
undivided net savings exceeding ₱10 Million shall be exempt only on income from transactions with
members.
(N) Homeowners Associations (“HOAs) Generally, fees, dues or contributions made to HOA are taxable.
However, the same are exempt when the LGU having jurisdiction over the HOA certifies the lack of
resources for the HOA to render its services.
(O) Non stock Savings Loans Associations (S&L). S&Ls accumulate savings of its members to b used for
the long term loans to members. These are exempt final taxes on interest income from deposits.
(P) Building & loan associations whose accounts are guaranteed by the Home Guaranty Corporation.
(Q) Other organizations exempt from income tax in accordance with special laws (exs. Phil. Red Cross;
PDIC; Sports facilities under the control of the Philippine Sports Commission; Veterans Federation of the
Philippines; National Commission for Culture and Arts, etc.)
Income of Exempt Organizations Subject to Tax
The following income, of whatever kind and character, of the foregoing organizations shall be subject to
income tax:
1. From any of their properties, real or personal; or
2. From any of their activities conducted for profit.
The said income shall be taxable regardless of disposition made of such income.
For – Profit Corporations Enjoying Exemptions from Tax
1. BOI-registered enterprise enjoying ITH.
(1) New registered pioneer firms – 6 years from commercial operations.
(2) New registered non-pioneer firms – 4 years from commercial operations.
(3) Expanding firms – 3 years from commercial operations of the expansion.
In exceptional cases, existing firms undertaking new activities distinct from existing operations may
qualify as new projects subjects to the setting up of separate books of account. In such cases, only
sales of such registered products shall be entitled to the ITH exemption.
Additional Period of Availment

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For new registered firms, the ITH incentive may be extended for an extra year for each of the
following cases, but in no case to exceed the total period of eight (8) years for pioneer registered
enterprises.
(1) If the average cost of indigenous raw materials used in the manufacture of the registered product
is at least fifty percent (50%) of the total cost of raw materials for the preceding years prior to the
extension unless the BOI prescribes a higher percentage; or
(2) If the annual or average net foreign exchange savings or earnings (“NFEE”) amount to at least
US$5000,000.00 during the first three (3) years of operating to be determined by the Board at the
end of such three-year period.
2. PEZA-registered and TIEZA-registered enterprises availing of the ITH.

To quality for BOI registration, the corporation, partnership or association must be engaged or is proposing to
engage.
1. In an area of activity listed in the Investment Priorities Plan (“IPP”);
2. If its area of activity not listed in the IPP, it is a domestic enterprise at least 60% owned by Filipinos with the
least 50% of its production for export;
3. A domestic enterprise less than 60% is owned by Filipinos but exporting at least 70% of its production or
3. Enterprises registered as Barangay Micro Business Enterprise (“BMBE”)
exporting part of its production under such terms and conditions and/or limited incentives as the Board may
A Barangay Micro Business Enterprises or BMBE refers to any domestic business entity or enterprise
determine;
engaged in the production, processing, or manufacturing of products or commodities, including agro-
4. Producing or manufacturing
processing a product
, trading, and services,which
whichisactivities
used as input to an export product;
are barangay-based and microbusiness in
5. Export trading
nature of export
, and whose products bought
total assets by it those
including from one or more
arising from export producers;
loans but exclusive of the land on which
the particular business entity’s office, plant and equipment are situated, shall not be more than Three
6. Rendering service to domestic and foreign tourists if listed in the IPP;
Million Pesos (₱3,000,000.00).
7. In rendering technical, professional or other services as may be determined by the Board which are paid for in
foreignRegistration
currency; or
8. In exporting televisionofand
The Department motion
Trade and pictures
Industry and musical
(“DTI”), recordings
through made or
the Negosyo produced
Center in theincity
theorPhilippines,
municipality,
shall have the sole power to issue the Certificate of Authority for BMBEs to avail of the benefits under
R.A. No. 9178.

Upon approval of registration of the BMBE, Negosyo Center shall issue the Certificate of Authority
which shall be renewable every two (2) years. The DTI, through the Negosyo Center, may charge a
fee therefore which shall not be more than One Thousand Pesos (₱1,000) to be remitted to the
National Government.

Tax Exemption

Income tax exemption from income arising from the operations of the enterprise.

A duly registered BMBE shall be exempt from income tax on income arising purely from its operations
as such BMBE. Provided, the income tax exemption shall not apply to (a) income subject to final
taxes, (b) capital gains subject to the capital gains tax, and (c) compensation income (d) income from
practice of a profession received directly from clients; and (e) other income not effectively connected
with the operations of the BMBE.

The LGUs are encouraged either to reduce the amount of local taxes, fees and charges imposed or to
exempt the BMBEs from local taxes, fees and charges (Sec. 7, R.A. No. 9178).

4. Entity or organization incorporated under Philippine laws, i.e. domestic entity.

5. The term “services”

PENALTY excludes ON
TAXES IMPOSED services rendered by juridical persons such as partnership or
CORPORATIONS
I. Minimum Corporate Income Tax (“MCIT”)
corporations engaged in consultancy, advisory, and similar services where the performance of such
1. Who are subject?
services are
(a)essentially
Domestic carried out through
corporations, and licensed professionals (DOF D.O. 17-04
(b) Resident foreign corporations.
2. Rate and Base – Two percent (2%) of gross income. The taxpayer shall pay whichever is higher
between the MCIT and the regular corporate income tax (“RCIT”).
3. Effectivity – The fourth (4th) taxable year immediately following the year in which such corporation
commended its business.
4. Carry forward of excess minimum tax – Any excess of the MCIT over the regular corporate income
tax(“RCIT”) in a particular year shall be carried forward and credited against the regular income tax for
the three (3) immediately succeeding taxable years.
5. Gross income (sale of goods) – 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.

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6. Gross income (sale services) – In the case of taxpayers engaged in the sale of services, “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, that in the case of banks, “cost of services” shall include
interest expense (Sec. 27( E) (4), NIRC)

Note: According to the regulations, the term “gross income” will also include all items of gross income
enumerated under Section 32, whether or not derived from the taxpayers core business, except:
(a) Income exempt from income tax; and
(b) Income subject to final withholding tax.
7. Domestic Corporations Not Subject to MCIT
The minimum corporate income tax (“MCIT”) shall apply only to domestic corporations subject to the
regular corporate income tax (30%). Accordingly, the following shall not be subject to MCIT –
(a) Domestic corporations operating as proprietary non-profit educational institutions subject to tax at
ten percent (10%) on their taxable income;

(b) Domestic corporations engaged in hospital operations which are non-profit subject to tax at ten
percent (10%) on their taxable income;

(c) Domestic corporations engaged in business as depository banks under the expanded foreign
currency deposit system, otherwise known as Foreign Currency Deposit Units (“FCDUs”) on their –

(1) Income from foreign currency transactions with non-residents, offshore banking units in the
Philippines, local commercial banks, including branches of foreign banks, and other
depository banks, and
(2) Interest income from foreign currency loans granted to residents of the Philippines under the
expanded foreign currency deposit system, subject to final tax at ten percent (10%) of such
income.
(d) Firms that are taxed under special income tax regimes such as those PEZA- and TIEZA- registered
firms availing of 5% GIT incentive
(e) REITs – Real Estate Investment Trusts. The only corporation which is subject to the 30% RCIT, but
not subject to the MCIT.
8. Resident Foreign Corporations Not Subject to MCIT –
The minimum corporate income tax shall apply only to resident foreign corporations which are
subject to the regular income tax (30%).
Accordingly, the MCIT shall not apply to the following –
(a) Resident foreign corporations engaged in business as “international carrier” subject to tax at
2.5% of their “Gross Philippine Billings”;
(b) Resident foreign corporations engaged in business as Offshore Banking Units (“OBU”) on their –
(1) Income from foreign currency transactions with non-residents, other offshore banking units,
local commercial banks, including branches of foreign banks, and
(2) Interest income from foreign currency loans granted to residents of the Philippines, subject to
final tax at ten percent (10%) of such income.
(c) Resident foreign corporations engaged in business as regional operating headquarters subject to
tax at ten percent (10%) of their taxable income;
(d) Firms that are taxed under special income tax regimes such as those PEZA- and TIEZA- registered
firms availing of the 5% GIT incentive.
9. Relief From the Minimum Corporate Income Tax
The Secretary of Finance, upon the recommendations of the Commissioner, may suspend imposition
of proof that the corporation sustained substantial losses on account of –
(a) A prolonged labor dispute;
(b) Because of “force majeure”;
(c) Because of legitimate business reverses.

Rules in Computation of MCIT

1) Excess MCIT, if any, for the year is computed annually, that is, in the 4th quarterly (annual) return.
2) The quarterly tax shall be the higher of the RCIT or the MCIT.

3) IF the quarterly tax due is the MCIT, the excess MCIT from previous taxable year(s) shall not be
allowed to be credited. However, (1) creditable withholding taxes, (2) quarterly income tax payments
paid in the previous quarter(s), and (3) excess tax credits of the prior year, are allowed as credits
against the quarterly MCIT due.
4) If the quarterly tax due is the RCIT, the (1) excess MCIT from previous taxable year(s), (2)
creditable taxes withheld, (3) quarterly income tax payments paid in previous quarter(s), and (4)
excess tax credits of the prior year, are allowed as credits against the quarterly RCIT due.

II. IMPROPERLY ACCUMULATED EARNINGS TAX

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Concept of the Tax

In order to compel corporations to distribute or pay dividends to stockholders, the retention or
accumulation of earnings or profit beyond the reasonable needs of the business is made
subject to tax.
The IAET is imposed upon corporations which are formed or availed of for the purpose of
avoiding the income tax with respect to its stockholders or the stockholders of any other
corporations by permitting earnings and profits to accumulate instead of being divided or
distributed (Sec. 29 (A), NIRC).
Corporations Subject to IAET
The tax is imposed on improperly accumulated taxable income earned
starting January 1, 1998 by domestic corporations (as defined under the Tax Code) which are
classified as closely-held corporations (Sec. 4, Rev. Regs. No. 2-2001).
Note: A branch of a foreign corporation is not liable for the IEAT the same being a resident
foreign corporation.
Closely-held Corporation Defined.
These are corporations where at least fifty percent (50%) in value of the outstanding capital
stock or at least fifty percent (50%) of the total combined voting power of all classes of stock entitled to vote
is owned directly or indirectly by or for not more than (20) individuals (Sec. 4, Rev. Regs. No.2-2001)
Corporations Not Subject to IAET
The IAET shall not apply to the following corporations:
(a) Banks and other non-bank financial intermediaries;
(b) Insurance companies;
(c) Publicly – held corporations;
(d) Taxable partnerships;
(e) General professional partnership;
(f) Non-taxable joint ventures; and
(g) Enterprises duly registered with the TIEZA under R.A. 9593, PEZA under R.A. 7916, and
enterprises registered pursuant to the Bases Conversion and Development Act of 1992 under R.A.
7227, as well as other enterprises duly registered under special economic zones declared by law
which enjoy payment of special tax rates on their registered operations or activities in lieu of
other taxes, national or local Sec. 4, Rev. Reg. 2-2001).
Circumstances Indicative of Purpose to Avoid the Tax
(1) Dealings between the corporation and its shareholders, such as withdrawals by the shareholders
as personal loans;
(2) Expenditure of funds by the corporation for the personal benefit of the shareholders;
(3) The investment by the corporation of undistributed earnings in assets having no reasonable
connection with the business;
(4) Advances in substantial sums made yearly to corporate officers who are at the same time the
stockholders;
(5) Investment of substantial earnings and profits of the corporation in an unrelated business or in the
stock or securities of an related business or in the stock or securities of an unrelated business;
(6) Investment in bonds and other long-term securities;
(7) Accumulations of earnings in excess of 100% of paid-up capital, not otherwise intended for the
reasonable needs of the business.
Proper Accumulations of Profits
The following constitute accumulation of earnings for the reasonable needs of the business:
(a) If retained for working capital needed by the business;
(b) Allowance for the increase in the accumulation of earnings up to 100% of the paid-up capital of
the corporation as of the balance sheet date, inclusive of accumulations taken from other years;
(c) Earnings reserved for definite corporate expansion projects or programs requiring considerable
capital expenditure as approved by the Board of Directors or equivalent body;
(a) Earnings reserved for building, plants, or equipment acquisition as approved by the Board of
Directors or equivalent body;
(b) Earnings reserved for compliance with any loan covenant or pre-existing obligation established
under a legitimate business agreement;
(c) Earnings required by law or applicable regulations to be retained by the corporation or in respect
of which there is a legal prohibition against its distribution;
(d) In the case of subsidiaries of foreign corporations in the Philippines, all undistributed earnings
intended or reserved for investments within the Philippines as can be proven by corporate records
and/or relevant documentary evidence.
Basilan Estates vs. Commissioners, GRL-22492, September 5, 1967
Sec. 3, RR2-2001

Tax Base or Basis of the Tax

The rate of the IAET is 10%. It is based upon the improperly accumulated taxable income for each
taxable year.
Formula –
Current Year’s Taxable Income
Plus: 1) Income exempt from tax;
2) Income excluded from gross income;
3) Income subject to final tax;

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4) Amount of NOLCO deducted.

Less: 1) Dividends actually or constructively paid from applicable year’s
taxable income;
1) Income taxes paid or payable for the taxable year (both income tax
in the ITR and final taxes; and
2) Amounts reserved for the reasonable needs of the business from the applicable year’s taxable income
Equals: IAET
Notes:
1) Once the profit has been rejected to IAET, the same shall no longer be subjected to IAET in later years
even if not declared as dividend.
2) Not with standing the imposition of IAET, profits which have been subjected to IAET, when finally
declared as dividends, shall never the less be subject to tax on dividends imposed under the Tax
Code except in those instances where the recipient is not subject there to.

Period For Payment of Dividend/Payment of IAET

The dividends must be declared and paid or issued not later than one (1) year following the close of
the taxable year. Otherwise, the IAET, if any, should be paid within fifteen (15) days thereafter.

SPECIAL INCOME TAXES

The Tax Code presently has two types of special income taxes, namely the branch profits remittance tax, and
the gross income tax.
I. BRANCH PROFITS REMITTANCE TAX (“BPRT”)
(a) Transaction subject – Any profit remitted by a branch of a foreign corporation to its head
office (Sec. 28 (A) (5), NIRC).
This includes any income derived from the Philippine sources by the Regional Operating Headquarters
of a multinational corporation when remitted to the percent company (R.A. No. 8756).
(b) Rate and Base – Fifteen percent (15%) of the total profits applied or earmarked for remittance
(gross of the BPRT), except those activities which are registered with the -
(1) Philippine Economic Zone Authority (“PEZA”)
(2) Subic Bay Metropolitan Authority (“SBMA”)
(3) Clark Development Authority (“CDA”)
(4) Tourism Infrastructure and Enterprise Zone Authority (“TIEZA”)
(c) Income not treated as branch profits – Income which are not connected with the trade or business
in the Philippines shall not be treated as “branch profits”.
(d) Tax treaties. The 15% rate may be reduced by international treaties to which the Philippines is a
signatory.
II. GROSS INCOME TAX (“GIT”)
Under Section 27(A) of the Tax Code, the President, upon recommendation of the Secretary of
Finance, may allow corporations the option to be taxed at fifteen percent (15%) of gross
income as defined in the Tax Code instead of the 30% net income tax.
(a) Corporations given the option – The option is available to domestic and resident
foreign corporations (Secs. 27 (A) and 28 (A) (1), NIRC).
(b) Requisite conditions – The option is available after following conditions have been
satisfied:
(1) A tax ratio effort 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.
(c) Additional Requisite – The option 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%)
(d) Period of irrevocability – The election of the gross income tax option by the corporation is
qualified under the scheme.
(e) Rate and Base – Fifteen percent (15%) of gross income where gross income shall be
equivalent to gross sales sales less returns, discounts, and allowances, and cost of goods
sold.

CORPORATE PAYEES EWT Rate

(1) Professionals (Lawyers, CPAs, Engineers, etc.)
- If gross income of payee for the current year did not 10%
exceed ₱720,00
- If gross income of payee exceeds ₱720,000 15%
(2) Professional Entertainers such as, but not limited to
actors, singers, lyricists, composers, emcees
- If gross income of payee for the current year did not 10%
exceed ₱ 720,000
- If gross income of payee exceeds ₱720,000 15%
(3) Professionals Athletes including basketball players
pelotaris, and jockeys
- If gross income of payee for the current year did not 10%
exceed ₱720,00

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- If gross income of payee exceeds ₱720,000 15%

(4) Directors and Producers involved in movies, stage, radio,
television, and musical productions
- If gross income of payee for the current year did not 10%
exceed ₱720,00
- If gross income of payee exceeds ₱720,000 15%
(5) Management and Technical Consultants
- If gross income of payee for the current year did not 10%
exceed ₱720,00
- If gross income of payee exceeds ₱720,000 15%
(6) Business and Bookkeeping Agents and Agencies
- If gross income of payee for the current year did not 10%
exceed ₱720,00
- If gross income of payee exceeds ₱720,000 15%
(7) Insurance Agents and Insurance Adjusters
- If gross income of payee for the current year did not 10%
exceed ₱720,00
- If gross income of payee exceeds ₱720,000 15%
(8) Other Recipients of Talent Fees
- If gross income of payee for the current year did not 10%
exceed ₱720,00
- If gross income of payee exceeds ₱720,000 15%
(9) Rentals: on gross rental or lease for the continued use or
possession of personal property in excess of Ten Thousand
Pesos (₱10,000) annually, and real property used in business 5%
which the payor or obligor has not taken title or is not taking
title to, or in which he has no equity; poles, satellites,
transmission facilities and billboards.
(10) Cinematographic film rentals, and other payments to 5%
resident corporate cinematographic film owners, lessors,
or distributors.
(11) Income payments to certain contractors 2%
(12) Gross commissions or service fees of customs, insurance,
stock, immigration and commercial brokers; fees of
agents of professional entertainers and real estate service
practitioners (RESPs) (i.e. real estate consultants, real
estate appraisers, and real estate brokers)
- If gross income of payee for the current year did not exceed 10%
₱720,000
- If gross income of payee exceeds ₱720,000 15%

(13) Professional fees paid to Medical Practitioners (includes

doctors of medicine, doctors of veterinary science, and
dentists) by hospitals and clinics or paid directly by Health
maintenance Organizations (HMOs) and/or similar
establishments
- If gross income of payee for the current year did not exceed 10%
₱720,000
- If gross income of payee exceeds ₱720,000 15%
(14) Income Payments made by Credit Card Companies 0.5%
(15) Income Payments made by the Government and
government-owned and controlled corporations (GOCCs)
- To its local/resident suppliers of goods other than those 1%
covered by other rates of withholding tax
- To its local/resident suppliers of services other than 2%
those covered by other rates of withholding tax
(16) Income Payments made by Top Withholdinng Agents
- To their local/resident suppliers of goods other than those 1%
covered by other rates of withholding tax
- To their local/resident suppliers of services other than those 2%
covered by other rates of withholding tax
(17) Commissions, Rebates, Discounts and other Similar
Considerations Paid/Granted to Independent and/or
Exclusive Sales Representatives and Marketing Agents
and Sub-Agents of Companies, including Multi-Level
Marketing Companies
- If gross income of payee for the current year did not 10%
exceed ₱720,00
- If gross income of payee exceeds ₱720,000 15%
(18) Payments by Pre-Need Companies for Funeral Parlors 1%
(19) Tolling Fees Paid to Refineries 5%

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(20) Income Payments Made to suppliers of Agricultural 1%

Products in Excess of Cumulative Amount of ₱ 300,000
Within the Same Taxable Year
(21) Income Payments on Purchases of Minerals, Mineral 5%
Products, and Quarry Resources, such as but not limited to
silver, gold, marble, granite, gravel, sand, boulders, and
other mineral products except purchases by the Bangko
Sentral ng Pilipinas
(22) Income Payments on Purchases of Minerals, Mineral 1%
Products, and Quarry Resources by the Bangko Sentral ng
Pilipinas from Gold Miners/Suppliers under P.D. No. 1899,
as amended by R.A. No.7076
(23) On Gross Amount of Refund Given by MERALCO to 25%
Customers with Active Contracts as Classified by MERALCO
(24) On Gross Amount of Refund Given by MERALCO to 32%
Customers with Terminated Contracts as Classified by
MERALCO
(25) On Gross Amount of Interest on the Refund of Meter 10%
Deposit Whether Paid Directly to the Customers or Applied
Against the Customer’s Billings of Residential and General
Service Customers Whose Monthly Electricity Consumption
Exceeds 200 KWH as Classified by MERALCO
(26) On Gross Amount of Interest on the Refund of Meter 10%
Deposit Whether Paid to the Customers or Applied Against
the Customer’s Billings of Non-Residential Customers
Whose Monthly Electricity Consumption Exceeds 200 KWH
as Classified by MERALCO
(27) On Gross Amount of Interest on the Refund of Meter 10%
Deposit Whether Paid to the Customers or Applied Against
the Customer’s Billings of Non-Residential Customers
Whose Monthly
(28) On Gross Amount of Interest on the Refund of Meter 20%
Deposit Whether Paid to the Customers or Applied Against
the Customer’s Billings of Non-Residential Customers
Whose Monthly Electricity Consumption Exceeds 200 KWH
as Classified by Other Electric Distribution Utilities (DUs)
(29) Income Payments Made by Political Parties and Candidates of Local
5%
and National Elections on all their Purchases of Goods and Services
Related to Campaign Expenditures, and Income Payments made by
Individuals or Juridical Persons for their Purchases of Goods and
Services Intended to be Given as Campaign Contributions to Political
Parties and Candidates.
(30) Income Payments Received by Real Estate Investments Trusts (REITs)
1%
(31) Interest Income Derived from any Debt Instrument Not Within the
20%
Coverage of Deposit Substitutes and Rev. Reg. No. 14-2012
(32) Income Payments on Locally Produced Raw Sugar 1%
Tax Particulars National Internal Revenue R.A. No. 10963
Code of 1997
Adjustments in corporate income tax provisions
Government-owned or The Government Service PCSO is not exempt from tax.
controlled corporations, Insurance System, the Social
agencies or Security System, the Philippine
instrumentalities Health Insurance Corporation,
the local water districts, and
the PCSO are exempt from
corporate income tax.
Passive income Interest income of a DC and Interest income of a DC from a
RFC from a depository bank depository bank under the
under the expanded foreign expanded foreign currency
currency deposit system is deposit system (EFCDS) is
subject to a final tax of 7.5%. subject to an increased final
tax of 15%.
Interest income of an RFC
from a depository bank under
the EFCDS remains to be
subject to a final tax of 7.5%.
Capital gains from sale of Capital gains tax of 5% on the Capital gains tax of a DC on
shares of stock not traded first ₱100,000 and 10% in sale, exchange or disposition

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in the local stock exchange excess thereof is imposed on of shares not traded in the
of domestic corporations sale, exchange or disposition local stock exchange is
of shares not traded in the increased to a flat rate of 15%.
local stock exchange.
Capital gains tax of an RFC or
NRFC on sale, exchange or
disposition of shares not
traded in the local stock
exchange remains to be 5% on
the first ₱100,000 of gain plus
10% of any amount in excess
of ₱100,000

CORPORATION - QUIZZER

1. ABC, a corporation registered in Norway, has a 50MW electric power plant in San Jose, Batangas.
Aside from ABC’s income from its power, which among the following is NOT considered as part of its
income from sources within the Philippines?
a. Gains from the sale to an Ilocos Norte power plant of generator bought from the uNited States.
b. Interests earned on its dollar deposits in a Philippine bank under the Expanded Foreign Currency
Deposit System.
c. Gain from the sale, in London, of shares of stock and other securities of San Miguel Corporation, a
domestic corporation.
d. Royalties from the use in Brazil of generator sets designed in the Philippines nby its engineers.

2. Applets corporation is registered under the laws of the Virgin Islands. It has extensive operations 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 Applets and
imposed a tax on Applets’s net income derived from its exports to Kim. Is the BIR correct?
a. Yes. Applets is a non-resident foreign corporation engaged in trade or business in Philippines.
b. No. The tax should have been computed on the basis of gross revenues and not net income.
c. No. Applets is a non-resident foreign corporation engaged in trade or business in the Philippines.
d. Yes. Applets is doing business in the Philippines through its exclusive distributor Kim’s Trading Inc.

3. ABC Inc., a corporation registered and holding office in Australia, not operating in the Philippines, may
be subject to Philippine income taxation on
a. Gains it derived from sale in Australia of an ore crusher it bought from the Philippines, with the
proceeds converted to pesos.
b. Gains it derived from sale in Australia of shares of stock of Philex Mining Corporation, a Philippine
corporation.
c. Dividends earned from investment in a foreign corporation that derived 40% of its gross income
from Philippine sources.
d. Interest derived from its dollar deposits in a Philippine bank under the Expanded Foreign Currency
Deposit System.

4. A corporation organized and created under the laws of a foreign country and is authorized to do
business/trade in the Philippines is:
a. Domestic corporation
b. Resident foreign corporation
c. Government owned and controlled corporation
d. Non-profit hospital

5. A domestic corporation may employ, as a basis for filing its annual corporate income tax return the:
a. Calendar year only c. Either calendar or fiscal year
b. Fiscal year only d. Neither calendar or Fiscal year

6. A corporation files a quarterly return within

a. 30 days after the end of each of the first 3 quarters
b. 60 days after the end of each of the first 3 quarters
c. 30 days after the end of each of the first 4 quarters
d. 60 days after the end of each of the first 4 quarters

7. A final or annual return is filed on or before the 15th day of the

a. Month following the close of the taxable
b. 2nd month following the close of the taxable year.
c. 3rd month following the close of the taxable year
d. 4th month following the close of the taxable year

8. One of the general principles of income taxation:

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a. A foreign corporation engaged in business in the Philippines is taxable on all income derived from
sources within and without the Philippines.
b. A foreign corporation engaged in business in the Philippines is taxable on all income derived from
sources within the Philippines only
c. A domestic corporation is taxable on income derived from sources within the Philippines only.
d. A domestic corporation is taxable on income derived from sources without the Philippines only.
9. One of the following foes not fall under the definition of a “corporation” for income tax purpose:
a. General partnership
b. Joint stock company
c. Insurance company
d. Sole proprietorship

10. Which of the following is subject to the income tax?

a. A non-stock and non-profit educational institution
b. Public educational institution
c. Civic league or organization not organized for profit and operated exclusively for the promotion of
social welfare
d. Mutual savings bank and cooperative bank having a capital stock represented by shares
organized and operated for mutual purposes and profit.

11. The Philippine Health Insurance Corporation (Philihealth), a government-owned corporation is:
a. Exempt from the corporate income tax
b. Subject to the preferential corporate income tax for special corporations.
c. Subject to the basic corporate income tax
d. Subject to final tax

12. Public educational institutions, like the University of the Philippines is deemed by law:
a. Subject to the preferential corporate income tax for special corporations.
b. Subject to the basic corporate income tax
c. Subject to both the preferential income tax and the basic corporate income tax.
d. Exempt from the corporate income tax

13. Which is not correct? The following are exempt from the corporate income tax:
a. Local water districts
b. Bureau of Internal Revenue
c. Government owned or controlled corporation
d. Social Security System

14. Which of the following may be subject to the corporate income tax?
a. A non-stock and non-profit educational institution
b. A public educational institution
c. A private educational institution
d. Government Service Insurance System

15. The improperly accumulated earnings tax shall apply to

a. Publicly held corporation
b. Banks and other non-bank financial intermediaries
c. Insurance companies
d. Closely held domestic corporations

16. Which of the following statements is not correct?

a. MCIT is not applicable to resident foreign corporations
b. The corporate quarterly return shall be filed within 60 days following the close of each of the first
three quarters of the taxable year.
c. Resident foreign corporations would be taxed on net income from within the Philippines only.
d. Non-resident foreign corporations are taxed on gross income from within the Philippines only.

17. The following income are subject to final tax, except

a. Royalty income received by a domestic corporation from a domestic corporation.
b. Cash dividends received by a non-resident foreign corporation from a domestic corporation
c. Cash dividends received by a domestic corporation from a domestic corporation.
d. Interest income from a Peso deposit received by resident foreign corporation from a Philippine
bank.
e. Branch profit remitted by a branch to the head office of a resident foreign corporation.

18. The MCIT shall not apply to the following resident foreign corporations, except
a. RFC engaged in business as international carrier subject to 2 ½% of their Gross Philippine Billings
b. RFC engaged in business as Offshore Banking Units on their income from foreign currency
transactions with local commercial banks
c. RFC engaged in business as regional operating headquarters
d. RFC engaged in hotel, motel and resort operations

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19. The president, upon recommendation of the Secretary of Finance, may allow corporations the option
to be taxed at 15% of gross income, after the following conditions, except one, have been satisfied.
Which is the exception?
a. A tax effort ratio of 20% of Gross National Product (GNP)
b. A ratio of 20% of income tax collection to total tax revenue
c. A vat tax effort of 4% of GNP
d. A 0.9% ratio of consolidated public sector financial position to GNP

20. Which of the following is not correct? The 15% gross income tax
a. Is optional to a qualified corporation
b. Is available if the ratio of cost of sales to gross sales or receipts from all sources does not exceed
55%
c. Shall be irrevocable for three consecutive taxable years that the corporation is qualified under the
scheme
d. Is compared with the normal income tax and minimum corporate income tax, and whichever is
the highest shall be paid.

21. If the gross income from unrelated activity exceeds 50% of the total gross income derived by any
private educational institution, the tax rate shall be the regular 30% based on the entire taxable
income. This is known as the
a. Constructive receipt
b. Tax benefit rule
c. End trust doctrine
d. Predominance test

22. For income taxation purposes, the term “corporation” excludes one of the following:
a. Ordinary partnership
b. An incorporated business organization
c. General professional partnership
d. Business partnership

23. A corporation’s record show:

Normal Taxes Excess MCIT Excess
Quarter Income Tax MCIT per Withheld per Prior Year Withholding
per Quarter Quarter Quarter Tax Prior Year
First P 100,000 P 80,000 P 20,000 P 30,000 P 10,000
Second 120,000 250,000 30,000
Third 250,000 100,000 40,000
Fourth 200,000 100,000 35,000
The income tax due and due income tax payable, respectively, for the first quarter are
a. ₱ 100,000; ₱ 100,000
b. ₱ 100,000; ₱ 80,000
c. ₱ 100,000; ₱ 50,000
d. ₱ 100,000; ₱ 40,000

24. The income tax due and income tax payable, respectively, for the second quarter are
a. ₱ 330,000; ₱ 120,000
b. ₱ 330,000; ₱ 250,000
c. ₱ 330,000; ₱ 150,000
d. ₱ 330,000; ₱ 230,000

25. The income tax due and income tax payable, respectively, for the third quarter are
a. ₱ 470,000; ₱ 250,000
b. ₱ 470,000; ₱ 100,000
c. ₱ 470,000; ₱ 140,000
d. ₱ 470,000; ₱ 70,000

26. The income tax due and income tax payable, respectively, for the year are
a. ₱ 670,000; ₱ 200,000
b. ₱ 670,000; ₱ 100,000
c. ₱ 670,000; ₱ 135,000
d. ₱ 670,000; ₱ 165,000

27. Using the preceding problem except that the normal income tax for the fourth quarter is P 50,000
(instead of P200,000), the income tax still due for the year is
a. ₱ 120,000
b. ₱ 55,000
c. ₱ 45,000
d. ₱ 75,000

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28. CPA University, a proprietary educational institution organized in 2006, had the following data for
2018.
Tuition Fees P 850,000
Rental Income (net of 5% cwt) 142,500
School related expenses 820,000

The income tax still due for 2018 is

a. P 54,000
b. P 10,500
c. P 18,000
d. P 46,500

29. CPA College, a proprietary educational institution organized in 2006, had the following data for 2018.
Tuition Fees P 480,000
Rental Income (net of 5% cwt) 494,000
School related expenses 945,000

The income tax still due for 2018 is

a. P 16,500
b. (P 9,500)
c. ( P 6,000)
d. P 20,000

30. CPA Airlines, a resident foreign international carrier has the following records of income for the period.
(The income represents gross billings.)
a. Continuous flight from Manila to Tokyo = 1,000 ticket at P2,000 per ticket
b. Flight from Manila to Taipei; transfer flight (on CPAR Airlines) from Taipei to Tokyo = 2,000 tickets
at P2,000 per ticket
c. Continuous flight from Manila to Taipei = 3,000 tickets at P1,000 per ticket
The income tax due is
a. P 225,000
b. P 125,000
c. P 100,000
d. P 175,000
31 – 40. The A Corporation provided the following data for the calendar year ending December 31,
2018 ($ 1 = P50)
Philippines U.S.A
Gross Income ₱ 4,000,000 $40,000
Deductions ₱ 2,500,000 $15,000
Income Tax Paid $ 3,000

31. If it is a domestic corporation, its income tax after tax credit is

a. P 812,500
b. P 675,000
c. P 962,500
d. P 480,000

32. If it is a resident foreign corporation, its income tax is

a. P 730,000
b. P 450,000
c. P 480,000
d. P 525,000

33. If it is a non-resident foreign corporation, its income tax is

a. P 730,000
b. P 1,280,000
c. P 1,200,000
d. P 1,400,000
34. Under No. 31, but it opts to claim the tax paid abroad as deduction from gross income, its income tax
is
a. P 910,000 c. P 237,000
b. P 832,000 d. P 780,000

35. If it is a resident international carrier, its income tax is s

a. P100,000 c. P 37,000
b. P 10,000 d. P 125,000

36. If it is a non-resident cinematographic film owner/lessor, its income tax is

a. P 1,000,000 c. P 300,000
b. P 100,000 d. P 128,000

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37. If it is a non-resident lessor of vessels, its income tax is

a. P 100,000 c. P 300,000
b. P 180,000 d. P 128,000

38. If it is a non-resident lessor of aircrafts, machineries and equipment, its income tax is
a. P 100,000 c. P 300,000
b. P 180,000 d. P 128,000

39. If it is a resident foreign corporation but its expenses within and outside the Philippines is P3m,
unallocated (disregard original data on expense) its income tax is
a. P 640,000
b. P 700,000
c. P 480,000
d. P 600,000

40. If it is a resident foreign corporation and it remitted 60% of its net profit to its head office abroad, its
total tax liability is (Original data)
a. P 480,000
b. P 571,800
c. P 544,500
d. P 612,750

41. A Corporation, a resident foreign corporation, provided the following data for taxable year 2018:

Philippines USA
Gross Income P 40M P 20M
Dividend from:
Domestic corporation 5M
Foreign corporation (100%
of its business is in the Phils.) 4M
Business expenses 12M 8M

A’s investment in the foreign corporation was deemed necessary for its own business.

The corporation remitted to its head office the P5M dividend income and 40% of its net profit to its
head office in USA. The corporation’s total tax liability including the tax on the profit remitted is
a. P10,240,000 c. P12,960,000
b. P12,448,000 d. P10,944,000

42. A Corporation has the following data for the year 2018:

Gross income, Philippines P1,000,000

Gross income, USA 500,000
Gross income, Japan 500,000
Expenses, Philippines 300,000
Expenses, USA 200,000
Expenses, Japan 100,000

Other Income:
Dividend from San Miguel Corp. 70,000
Dividend from Ford Motors, USA 120,000
Gain, sale of San Miguel shares directly to buyer 150,000
Royalties, Philippines 50,000
Royalties, USA 100,000
Interest income (other than from bank deposit) 60,000
Rent, land in USA 250,000
Other rental income (Phils.) 100,000
Prize, contest in Manila 200,000
Interest income ($ deposit in BDO) 50,000
The total tax liability as a domestic corporation is:
a. P709,000 c. P679,750
b. P669,000 d. None of the above

43. Based on the above problem, its total tax liability if it is resident foreign corporation is
a. ₱ 318,000 c. ₱ 328,750
b. ₱ 341,750 d. None of the above

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44. And if it is a non-resident foreign corporation, its total tax liability is

a. ₱ 433,500 c. ₱ 338,500
b. ₱ 443,500 d. None of the above

45. Any income from transactions with depository banks under the expanded banks under the expanded
foreign currency deposit system shall be exempt from income tax if derived by a
a. Domestic corporation
b. Resident foreign corporation
c. Non-resident foreign corporation
d. Resident alien

46. Selected cumulative balances were taken from the record of ABC Co., a domestic corporation, in its
fifth year of operations in 2018, which had an income tax refundable of P10,000 for the preceding
year for which there is a tax credit:

Q1 Q2 Q3 Q4
Gross profit from sale P800,000 P1,600,000 P2,400,000 P3,100,000
Capital gain on sale 50,000 50,000 50,000 100,000
directly to buyer of
shares of domestic
corporation
Dividend from domestic 10,000 10,000 20,000 20,000
corporation
Interest income on 5,000 10,000 15,000 20,000
Philippine Peso bank
deposits
Business expenses 600,000 1,200,000 1,700,000 2,100,000
Income 15,000 35,000 65,000 115,000
The income tax due and the income tax payable, respectively, at the end of first quarter
a. ₱ 16,000; ₱ 35,000
b. ₱ 60,000; ₱ 60,000
c. ₱ 60,000; ₱ 35,000
d. ₱ 16,000; ₱ 16,000

47. The income tax due and income tax payable, respectively, at the end of second quarter
a. ₱ 120,000; ₱ 75,000
b. ₱ 120,000; ₱ 85,000
c. ₱ 120,000; ₱ 40,000
d. ₱ 85,000; ₱ 85,000

48. The income tax due and income tax payable, respectively, at the end of third quarter
a. ₱ 210,000; ₱ 135,000
b. ₱ 210,000; ₱ 60,000
c. ₱ 48,000; (₱ 102,000)
d. ₱ 48,000; (₱ 38,000)

49. The income tax due and income tax payable, respectively, at the end of the year
a. ₱ 300,000; ₱ 52,000
b. ₱ 300,000; ₱ 30,000
c. ₱ 300,000; ₱ 260,000
d. ₱ 300,000; ₱ 40,000

50. A domestic corporation has the following data 2018:

Excess MCIT 2017 -P10,000

Q1 Q2
Income, net of 1% withholding tax P495,000 P792,000
Deductions 480,000 700,000

How much is the income tax still due and payable in the second quarterly return?
a. P 4,000
b. P 8,000
c. P 9,000
d. P 13,000

51. The record of a closely-held domestic cooperation show the following data for 2018:

Gross income P1,500,000

Business expenses 600,000
Gain on sale of business asset 60,000

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Interest on deposits with Metrobank, net of tax 5,000

Sale of shares of stocks, not listed and traded:
Selling price 150,000
Cost 115,000
Dividends from Victory Corporation, domestic
35,000
Dividends paid during the year
120,000
Reserved for building acquisition 300,000
In 2017, the corporation suffered an operating loss of P130,000. This amount was carried forward and
claimed as deduction from gross income 2018. The income tax due in 2018 is
a. P234,375
b. P249,000
c. P273,937
d. P288,000

52. The improperly accumulated earnings tax

a. P36,075
b. P34,765
c. P35,640
d. None of the above
53-57. The records of a domestic corporation organized in 2000 show:
2016 2017 2018
Gross income P2,000,000 P3,000,000
P4,000,000
Other income:
Capital gain from sale of commercial land 400,000 500,000
Interest income from bank deposit 80,000 96,000
Capital gain from sale of shares of stock – not 60,000
70,000
listed
Allowable deduction 1,940,000 3,100,000
3,500,000
53. The income tax payable I 2016 is
a. P138,000
b. P 40,000
c. P 42,000
d. P 18,000

54. What is the accounting entry for the excess MCIT in 2016?

a) Provision for income tax ₱ 18,000

Deferred charges – MCIT (2016) 22,000
Income tax payable ₱40,000
b) MCIT (2016) ₱18,000
Income tax payable ₱18,000
c) Income tax payable ₱40,000
Excess MCIT (2016) ₱22,000
Cash 18,000
d) None of the aove
55. The taxable income 2018 is
a. P400,000
b. P900,000
c. P1,000,000
d. P500,000
56. The income tax payable in 2018 is
a. P150,000
b. P120,000
c. P38,000
d. P68,000
57. What are the accounting entries to properly record the income tax payable in 2018?
a. Provision for income tax ₱120,000
Deferred charges – MCIT (2016,2017) ₱82,000
Income tax payable 38,000
b. Provision for income tax ₱38,000
Income tax payable ₱38,000
c. Income tax payable ₱120,000
Cash ₱120,000
d. None of the above
58. A calendar-year BOI-registered enterprise has the following data from its registered activity for 2018:
Total sales for year ₱90,000,000

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Cost of sales 45,000,000

Other business for the year 30,000,000
Taxable income for the year 15,000,000
Regular corporate tax rate 30%

I. If the enterprise is under the Income Tax Holiday (ITH) regime, compute the tax covered by
the ITH for the entire taxable year 2018.
a. ₱ 4,500,000
b. ₱27,000,000
c. ₱13,500,000
d. None of the above

II. If the enterprise is a PEZA-registered and under the 5% GIT, compute the tax payable:
a. ₱2,250,000
b. ₱2,700,000
c. ₱1,350,000
d. None of the above
59. James Lustre is the manager of a PEZA-registered enterprise availing of the preferential 5% GIT in lieu
of all other taxes, national or local. Besides his salary, he also receives fringe benefits which are
normally subject to the fringe benefits tax (FBT).

Statement 1: The manager’s salary is also subject to the 5% GIT.

Statement 2: The PEZA-registered enterprise is exempt from remitting the CWT on the manager’s
salary, and from payment of the FBT.
a. Both statements are true
b. Both statements are false
c. Only Statement 1 is true
d. Only Statement 2 is true

60. Statement 1: One the profit has been subjected to IAET, the same shall no longer be subjected to
IAET in later years even if not declared a dividend.
Statement 2: Notwithstanding the imposition of IAET, profits which have been subjected to IAET,
when finally declared as dividends, shall nevertheless be subject to tax on dividends
imposed under the TaxCode except in those instances where the recipient is not
subject thereto.
a. Both statements are true c. Only statement 1 is true
b. Both statements are false d. Only statement 2 is true

61. Income payments were made by Superman Corporation (domestic) to Darna Corporation, a PEZA-
registered entity under the 5% GIT Regime. The payments made were related to Darna;’s registered
activities. Superman withheld CWT from its payments. Darna claims that no tax should have been
withheld. Superman claims that withholding is proper because Darna is not under the ITH regime.
Who is correct?
a. Superman is correct. Only those PEZA-registered entities under the ITH are exempt from
withholding on their receipt of income.
b. Darna is correct. Under the 5% GIT regime, it is exempt from all local and national taxes (including
withholding on its income) and in lieu thereof, is only subject to the 5% special tax on gross
income.
c. Superman loves Wonder Woman
d. No comment.
62. One of the following corporations cannot claim tax credit for foreign taxes paid abroad.
a. Private Educational Institutions
b. Resident International Carriers
c. Investments companies
d. Domestic Hospitals
63. To record MCIT, the account deferred charges MCIT is:
a. Debited c. Memo entry only
b. Credited d. No entry required
64. Income derived by a depository bank under the expanded foreign currency deposit system from
foreign currency transactions with local commercial banks, shall be subject to a final tax rate of:
a. Seven- and one-half percent (7 ½ %)
b. Twenty percent (20%)
c. Ten percent (10%)
d. Five percent (5%)
65. A Resident Foreign Corporation provided the following data:

2018 2019 2020 2021

Gross sales P2,040,000 2,800,000 3,000,000 4,000,000
Sales returns 40,000 100,000
Cost of goods

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sold 1,000,000 700,000 1,500,000 1,500,000

Business
experiences 950,000 2,100,000 1,200,000 1,200,000
The income tax due after-tax credit, if any for taxable year 2020 is:
a. P 15,000 c. P 60,000
b. P 40,000 d. None of the above

66. 1st Statement: Foreign income tax may be treated by a corporate taxpayer as tax credit but not as
deduction from gross income.
2nd Statement: Being a holding company is not a conclusive evidence of improper accumulation of
profit.
a. True; True c. True; False
b. False; False d. False; True

67. AZEP Corporation secured an income tax holiday for 4 years as a pioneer industry. On the third year
of the tax holiday AZEP Corporation declared and paid cash dividends to its stockholders, all of whom
are individuals. Are the dividends taxable?
a. The dividends are taxable; the tax exemption of AZEP does not extend to its stockholders.
b. The dividends are tax exempt because of AZEP Corporation income tax holiday.
c. The dividends are taxable if they exceeded 50% of AZEP Corporations retained earnings.
d. The dividends are exempt if paid before the end of AZEP Corporation fiscal year.

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