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COMPREHENSIVE

CORPORATE TAXATION;
COMPREHENSIVE VAT
TAXATION
Knowledge Sharing Session

First Philippine Holdings Corporation
Comptrollership Group
August 12, 2014
DEFINITION OF INCOME TAX
Is a tax on yearly profits arising from property,
professions, trades or offices, or as a tax on a persons
income, emoluments, profits. Income tax is a direct tax
on actual or presumed income (gross or net) of a
taxpayer received, accrued or realized during the
taxable year.

KINDS OF INCOME TAX
Personal income tax on individuals
Regular corporate income tax on corporations
Minimum corporate income tax on corporations
Capital gains tax on sale of shares of stocks of a
domestic corporation by a person who is not a dealer
in securities
Tax on passive investment income, such as interest,
dividend and royalty
Fringe benefits tax
Branch profit remittance tax on Philippine branches of
foreign corporations


KINDS OF INCOME TAX
Tax on improperly accumulated earnings tax of
corporations
Final withholding income tax on certain income from
sources within the Philippines payable to resident (e.g.
interest on bank deposits) or non-resident persons


REQUISITES
There must be a gain or profit, whether in cash or its
equivalent
The gain must be realized or received


EXCLUSIONS UNDER TAX CODE
Proceeds from life insurance
Amount received by the insured as return of premium
Gifts, bequests, and devises
Compensation for inquiries or sickness
Income exempt under treaty
Retirement benefits, pensions, gratuities, etc. and
Miscellaneous items

COMPUTATION
Taxpayer Individuals Corporations
Income Professional /
Business income
Business income
Deductions Itemized deductions or
OSD based on gross
sales or gross receipts
from business or
profession
Itemized deductions or
OSD based on gross
income
Personal exemptions Basic = P50,000;
Additional = P25,000
each child (max. of 4)
-----
Tax rate Tabular tax on
Individuals
Normal corporate
income tax (30%) or
MCIT (2%)
TAX ON INDIVIDUALS
GROSS COMPENSATION INCOME
Salaries & Wages
Overtime Pay
Emergency Pay
Loyalty Pay
Directors Pay
Allowances
Representation & transportation
Cost of living
Clothing
Housing
Medical
Laundry & others

GROSS COMPENSATION INCOME
Vacation Leave
Bonus & Incentives
Christmas bonus
Incentive pay
Productivity bonus
Anniversary bonus
Commission
Profit-sharing
Retirement Benefit


TAX RATES
TAX ON CORPORATIONS
CORPORATIONS
Include partnerships, no matter how created or
organized, joint stock companies, joint accounts,
association, or insurance companies, except:

Joint construction venture
General professional partnerships
Joint venture for engaging in petroleum, coal,
geothermal and other energy operations pursuant to
an operating consortium agreement with the
Government.
TAX CORPORATIONS
Domestic Corporation
- Domestic Corporation
- General Partnership
- Proprietary Educational Institutions and
Hospitals

Foreign Corporation
CORPORATE TAX RATE
Classificatio
n
Sources Tax Base Rate
1. Domestic
Corp
All sources
w/in & w/out
the Phils.
Net income 30%
2. Resident
Foreign Corp
All sources
w/in the Phils.
only
Net income

30%
3. Non-
resident
Foreign Corp.
All sources
w/in the Phils.
only
Gross income 30% withheld
by payer
4. Private
Educ. Ins.
(stock)
All sources
w/in & w/out
the Phils.
Net income

10% of
taxable
income
GOVERNMENT-OWNED & CONTROLLED
CORPORATIONS
All government-owned and controlled corporations,
agencies or instrumentalities, shall be subject to
income tax, except:

1. Social Security System (SSS)
2. Government Service Insurance System (GSIS)
3. Philippine Health Insurance Corporation (PHIC)
4. Philippine Charity Sweepstakes Office (PCSO)
5. Local water districts (LWD)
EXEMPT FROM INCOME TAX
1. Labor, agricultural or horticultural organization not
organized principally for profit;

2. Mutual savings bank not having a capital stock
represented by shares, and cooperative bank
without capital stock organized and operated for
mutual purposes and without profit;

3. A beneficiary society, order or association,
operating fort he exclusive benefit of the members
EXEMPT FROM INCOME TAX
4. Cemetery company owned and operated
exclusively for the benefit of its members;

5. Nonstock corporation or association organized and
operated exclusively for religious, charitable,
scientific, athletic, or cultural purposes.
MINIMUM CORPORATE INCOME TAX
1. Imposition of Tax - A minimum corporate income tax
of two percent (2%) of the gross income as of the end
of the taxable year, beginning on the fourth taxable
year immediately following the year in which such
corporation commenced its business operations.
MINIMUM CORPORATE INCOME TAX
Gross Income defined - 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.
WHEN DOES MCIT COMMENCE?
2000 2001 2002 2003 2004

Date of
registration
1st taxable
year


2nd taxable
year
3rd taxable
year


4th taxable
year


with BIR
(any date
within the
year)
Subject to MCIT
starting taxable
year 2004
MINIMUM CORPORATE INCOME TAX
2. Carry Froward of Excess Minimum Tax - Any excess
of the minimum corporate income tax over the normal
income tax shall be carried forward and credited
against the normal income tax for the three (3)
immediately succeeding taxable years.
MINIMUM CORPORATE INCOME TAX
3. Exemptions:
Proprietary educational institutions

Non-profit hospitals subject to 10% on their taxable
income

Banks under the foreign currency deposit system

Corporations enjoying tax benefits under the Bases
Conversion Development Act (RA 7227) and the PEZA
Law (RA 7916)

DEDUCTIONS FROM GROSS INCOME
Optional Standard Deduction (OSD)
Itemized deductions
Special deductions and in special laws like BOI law
(E.O.226)



OPTIONAL STANDARD DEDUCTIONS
Allowed to Individuals and Corporations in computing
their taxable income

If individual, 40% of gross sales (if accrual basis of
accounting) or gross receipts (if cash basis of
accounting) during the taxable year
If corporation, 40% of gross income (gross sales
less cost of goods sold)



OSD: PERSONS COVERED
1. Individuals
Resident Citizen
Non-resident Citizen
Resident Alien
Taxable Estates and Trusts

2. Corporations
Domestic Corporation
Resident Foreign Corporation



BUSINESS EXPENSES
A. Connected with the Taxpayers trade or business

Expenses
Interest
Taxes
Losses
Bad debts
Depreciation
Depletion
Research & development
Contribution to pension trusts
BUSINESS EXPENSES
B. Not connected with the Taxpayers trade or business

Charitable and other contributions
Optional standard deduction
Premium payment on health and/or hospitalization
insurance


BUSINESS EXPENSES
There shall be allowed as deduction from gross income
all the ordinary and necessary expenses paid or incurred
during the taxable year in carrying on or which are
directly attributable to, the development, management,
operation and/or conduct of the trade, business or
exercise of a profession

It must be supported with adequate invoices or receipts

The tax required to be withheld on the expense paid or
payable

INTERESTS
The amount of interest paid or incurred within a taxable
year on indebtedness in connection with the taxpayer's
profession, trade or business shall be allowed as
deduction from gross income: Provided, however, That
the taxpayer's otherwise allowable deduction for interest
expense shall be reduced by an amount equal to 33% of
the interest income subjected to final tax
TAXES
Taxes paid or incurred within the taxable year in
connection with the taxpayer's profession, trade or
business, shall be allowed as deduction, except:
Income tax
Estate tax
Energy tax
Special assessment tax
Value added tax
Amnesty tax
10% penalty tax on undue accountabilities of profit
Penalty (25% surcharge, 50% surcharge compensation
payment)
LOSSES
Requisites for the deductibility of a loss:
Incurred in trade, profession or business
Actually sustained within the taxable year
Evidenced by a closed and completed transaction
Must not be compensated for by insurance or other
form of indemnity
Taxpayer has filed a sworn declaration of loss within
45 days after the date of the occurrence of casualty or
robbery, theft or embezzlement
NET OPERATING LOSS CARRY OVER
(NOLCO)
The net operating loss of the business or enterprise for
any taxable year immediately preceding the current
taxable year, which had not been previously offset as
deduction from gross income shall be carried over as a
deduction from gross income for the next three (3)
consecutive taxable years immediately following the
year of such loss
NET OPERATING LOSS CARRY OVER
(NOLCO)
Conditions:
NOLCO shall be allowed as a deduction from the gross
income of the same taxpayer who sustained and
accumulated the net operating losses regardless of the
change in its ownership. This rule shall also apply in the
case of a merger where the taxpayer is the surviving
entity.

Unless otherwise provided in the Regulations, NOLCO of
the taxpayer shall not be transferred or assigned to
another person, whether directly or indirectly, such as,
but not limited to, the transfer or assignment thereof
through a merger, consolidation or any form of business
combination of such taxpayer with another person.


NET OPERATING LOSS CARRY OVER
(NOLCO)
Conditions:
Any net loss incurred in a taxable year during which the
taxpayer was exempt from tax shall not be allowed



BAD DEBTS
Requisites for deductibility:
There must be an existing indebtedness due to the
taxpayer which must be valid and legally demandable

The same must be connected with the taxpayers trade,
business or practice of profession

The same must not be sustained in transactions entered
into between related parties



BAD DEBTS
Requisites for deductibility:
The same must be actually charged off the books of
accounts of the taxpayer as of the end of the taxable
year

Partial writing-off is not allowed, it must be charged-off in
full or not at all.

DEPRECIATION
Requisites for deductibility:
The allowance for depreciation must be reasonable

It must be for property used in the trade or business

It must be charged off during the taxable year; and

A statement on the allowance must be attached to the
return

RESEARCH & DEVELOPMENT
Taxpayer has the option to treat research and
development expenditures under one of the two
methods

Currently deductible as ordinary and necessary expense
Treatment as deferred expenses
Over a period not less than 60 consecutive months
beginning with the month the taxpayer realized benefits
from the expenditures
CHARITABLE & OTHER
CONTRIBUTIONS
Corporation or association to whom contributions or gifts
may be made or paid and claimed as deduction, the
amount of which is subject to limitations

The limitation is 10% for individuals and 5% for
corporations, of the taxable income derived from trade,
business or profession

The amount of contributions of property other than
money shall be based on the acquisition cost of the said
property

CHARITABLE & OTHER
CONTRIBUTIONS
Contributions deductible in FULL:

Donation to the Government
Donation to Certain Foreign Institutions or
International Organizations
Donation to Accredited Non-government Organizations
- Organized and operated exclusively for scientific,
research, educational, character-building and youth
and sports development, health, social welfare, cultural
or charitable purposes, or a combination thereof
- Administrative expense of which <30% of total
expenses
ITEMS NOT DEDUCTIBLE
Personal, living or family expenses
Any amount paid out for new buildings or for
permanent improvements, or betterments made to
increase the value of any property or estate
Any amount expended in restoring property or in
making good the exhaustion thereof for which an
allowance is or has been made; or
Premiums paid on any life insurance policy covering
the life of any officer or employee, or of any person
financially interested in any trade or business carried
on by the taxpayer, individual or corporate, when the
taxpayer is directly or indirectly a beneficiary under
such policy
END