Tax on Corporation

INCOME (TAX) subject; provided income is realized

- Taxable PP
- Non Taxable PP (GPP, JV)

GPP not taxable on Income but taxable for other kinds of taxes (e.g. filing
returns [sec55], VAT [for sale of services for a fee made in the course of
trade])
Non stock/non profit Org - considered as corporation liable for income tax;
[Sec 30]; exempt corporaitons; exemption from income tax. NOT ABSOLUTE
limited to income received as such organization/institution.
o Exemption depends upon the SOURCE; else if conducted for profit it
is taxable.
o Exempt corporation justified for not paying tax if income came from
property but to be used for primary purposes of such organization?
NO; regardless of disposition -> that is not important. Note SOURCE
of income.
o actually, directly, and exclusively under the constitution; looks at
how income is to be disposed of, regardless of source.
o Charitable institution: St. Lukes case; non stock and non profit
hospital; providing services for both paying and non paying; if activity
is taxable what tax should apply? Sec 30: relate to Sec 27 onwards.
Sec 27: there may also be final tax; applied only to specific kind
of incomes like PASSIVE (interest, dividends, etc)
Interest income: can be treated as income from property (or
activity for profit); not corporate tax; covers many forms of
taxes on income.
o School cannot be exempted if income is not utilized for educational
purposes
Tuition fee exempted from income tax? NO; Sec 30 is
irrelevant. Tax treatment? Tax based on net income; rate: 10%
(qualified by: not more than 50% income comes from
unrelated trade or business); else: 30% on net income.
Not limited to schools; apply also to hospital.
How was the tuition fee disposed?
Section 27 (A): not limited to schools, hospitals, etc.
Section 30: limited; only for EXEMPT Corporations
Section 27 (B): confined to schools and hospitals
Section 27 (C): does NOT speak of exemption for tax; rule that govt
agencies/GOCCs are subject to tax; except GSIS, SSS, PHIC, and PCSO.
o Amended by VAT law
o In place of PAGCOR Water Districts (2012); exclusion; accruing
does not qualify public utility.
o Any other: liable for tax on income; exemption is possible if income if
of the type in Sec. 32(B) (7) (b) public utility or essential
governmental functions.
Title 2: national tax; imposing authority BIR; levy made by Congress.
o Limitations: removing from LGU the ability to collect certain kinds of
local taxes, fees, and charges. (e.g. internal revenue taxes,








































December 7, 2013

Corporation (includes partnerships) shareholder, individual (unit of participation;
receives profits; coming from the corporation); tax treatment is that applicable to
individual taxation. [Art. 24 par B No. 2]; citizens and resident aliens
corporation is a different taxable entity
2 layers of taxation: corporate and individual income tax
tax treatment:
o corporate profits
domestic Sec 27 (taxable income: items of gross income less
deductions only; no personal exemption)
partnership (annual tax; ordinary taxation/normal corporate
income tax) 32% [Sec 24 B 2]
partnership outside RP: cannot apply final tax on distributive
share; treated as dividend coming from foreign corporation;
can still be subject to RP income tax when income is
earned from income w/in the RP; when partner is
resident citizen (only person made liable for income
from sources within the RP)
tax treatment to be given on distributive share of a partner?
Payor is a partnership is established in the RP: General
Professional Partnership
Sec 22 B: GPP is excluded (tax on corporation)
Distributive share of a partner
10%: resident alien or citizen
apply withholding Sec 57 A
GPP: each partner should declare in partnership as
gross income (amount received as distributive share)
o DOMESTIC CORPORATION: stockholder is another domestic
corporation
In general, normal corp tax or minimum corp income tax
Inter-corporate dividend
Sec27 D: exemption is given to this kind of income
Sec 28 A b:
Sec 25 B: 25% based on gross amount of income to be
applies (not 10%)
Resident Foreign Corporation: exemption is the tax treatment
given by law
Non resident foreign corporation Sec 28B
Inter-corporate dividends Sec28B5b; not exempt but
subject to final tax equivalent to 30%;
o 15 % first; conditional.
o Preferential rate of 10%: not more than 50% of
gross income must not come from unrelated
trade or business (dominancy test)
Reciprocity: dependent on law outside the Philippines;
foreign law recognizes deemed paid tax against foreign
income tax; apply rate: 15%
o Foreign corporation must be doing business in
the Philippines
Tax treatment of foreign taxes paid by Domestic Corporations?
Allowance of US tax credit on taxes against amount due in the
Philippines
Sec 34 C
Tax payer must substantiate the same
Dividend earned by NRFC from DC: class if income? Dividend.
Income earner is NRFC earning from coming from
sources from within coming from DC
Tax treatment? Conditional 15% based on gross
If outside the RP there is a law recognizing RP tax as tax
credit against foreign tax; apply 15%
deemed paid as tax credit (tax sparing rule)
else, no application
15% collect, other 15% is spared/waived
o Sec 28 par. A no. 5: remittances made to the parent company outside
the Philippines (branch profit remittances)
FC operates as a branch conducting business in the Philippines
(30% or MCIT 2%)
Final tax on gross amount if branch profits
Branch profit? Only those profits effectively connected
with the business of the corporation;
else not subject; if it has a deposit account? Interest
income will be subject to final tax when such interest
later on remitted, not considered as branch profits
(Marubeni case)
Taxable income: how to determine amount (computation)
o Items that may be deducted from gross income (sec34 and 35; subject
to ordinary taxation)
Sec 35: Personal and additional (DC and RFC not relevant)
Sec 34: persons engaged in trade or business or who are
professionals (pure compensation income earners;
compensation is just gross income)
Relate to fringe benefits (sec 33) not subject to ordinary
but final tax
Regular emoluments derived from employer and
employee relationship: ordinary tax; NET TAXABLE
COMPENSATION INCOME
o DEDUCTIONS: Sec 34 M; Sec 35 (personal and
additional exemptions);
o Entire amount may not be considered subject to
limitation
Example-- Business expense: has to be
necessary and ordinary (that which is
reasonable).
Capital expenditure/outlay: non
deductible (like properties to be used for
business or buildings) (Sec 36 A par 2 and
3)
How is the portion recognized as
deduction? Current year and years
beyond; DEPRECIABLE ASSET some
portions of capital expenditure may be
deductible.
INTEREST EXPENSE: limitation is that it
should be necessary and ordinary it must
be reduced by a certain portion by the
interest income earned subject to final
tax.
TAX BENEFIT RULE: taxes are recognized as deductions on income when
incurred in connection with conduct of business.
o Sec 34 E: corporation has receivables;
o None was claimed?
o Sec 34 D: losses; recognized as deductions subject to Sec 39 C losses
allowed as deduction to the extent of gains;
o Securities becoming worthless result in capital loss
o Sec 36 B: related parties incur expenses;
Standard deduction Sec 34 L: 40% of gross sale/receipt (individual); 30%
corporation; if claimed other deductions are waived.
o Amount actually incurred will not be deduction against income by
opting the standard deduction.

TRANSFER TAXES

Subject matter: transmission of property; transmission that occurs upon death by
way of gift inter vivos; transfer without valuable consideration;

Persons liable? ESTATE
a.
b.
c.
d.

Amount as of the time of death;

May estate tax be paid at a later time? Say 5 year? Yes. Depends how an estate is to
be settled. What is the value of the property? Value at the time of death.
Transmission happens at the time of death.

Gross Estate: Sec 85 (definition); the amount of gross estate (do not apply Sec 104
only when citizen is a citizen or resident of the Philippines)

Gross Estate- properties wherever situated. Share of stock of DC or FC? Can both be
treated as property within and without the RP.

Sec. 104: basis for exempting transmission of property at death or gift inter vivos
when property was intangible personal property in a country where the person is a
resident of both.