TAXATION 1 Transcripts - Atty. KMA - A.Y. 2020 - 2021: University of San Carlos School of Law and Governance 1

TAXATION 1 Transcripts | Atty. KMA | A.Y.
2020 - 2021
- Insurance companies
MODULE 7
The term corporation also covers Joint Ventures.
We will tackle corporate income taxation. However similar to partnership, there are joint
Primarily, we will focus our discussion on ventures which are considered exempt and there
corporate income taxpayers. We will have to are also joint ventures which are considered
define what is a corporation as an overview when taxable. This is more like a partnership gihapon
a corporation is taxable or when a corporation is for a particular undertaking for the management
exempt, what are the taxable incomes of a and operation of a particular undertaking.
particular corporation, and of course, we will
discuss the allowable deductions for both A joint venture could be:
taxpayers-- individual or corporate taxpayers.
- Registered Joint Venture
Overview of a corporation. When we talk of a - Unregistered Joint Venture
definition of a corporation in a tax code, there is
no concrete definition as to what a corporation is It’s registered class if a separate corporate entity
simply because the tax code is not the governing is organized by the partnering establishment to
law of corporate entities. If you look at the strict oversee that particular project and its registered
definition of a corporation, you can find it in the with the Securities and Exchange Commission as
Revised Corporation Code. You will see when a separate entity. Registered perhaps in the
you study corporation law, that a corporation is shareholdings, 50% is owned by this entity and
primarily defined as those that have juridical the other 50% is owned by another entity.
personality and it has its own capacity to
acquire and own properties etc. It has its own Why do companies in the first place enter into
right under the Revised Corporation Code. joint venture. You might ask, why don't they just
form another corporation? It’s really a matter of
What then is governed under the definition of business decision. And is a matter of who is an
a corporation under Section 22(B) of the Tax expert who has the capital. This are some things
Code? that are taken into consideration and it’s a
matter of, do we want to have a long term
The definition is not more on the definition but relationship because if your business partnership
rather an enumeration as to what is considered is only for that particular project and one entity
as a corporation or corporate income taxpayers has the expertise to undertake the project but
in the tax code. TN: the concept of corporation for doesn't have the money, the wisest thing to do is
taxation purposes is quite loose as compared to maybe to enter into a joint venture.
the corporation under the Revised Corporation
Code because when it comes to the Internal Why not loan? It's a matter of business decision
Revenue Code, a corporation is a : because when you take up a loan there will be
fixed obligations involved in a loan transaction.
- Partnership, no matter how created or Whereas in a joint venture, it's like a joint
organized (it doesn/t take into investment by two parties.
consideration whether it is primarily for
the exercise of the profession or profit or Registered Joint Venture - If they registered it
business purposes. We are not talking separately
here whether taxable or exempt. We are
talking here of the concept of Unregistered Joint Venture - Mere agreement
corporation. between two corporations entered into joint
- Covers joint stock companies ( project, wherein one manages the finances and
- Joint accounts (bank accounts jointly the other one manages the construction
held by several individuals not divided
into, invested to a particular undertaking Why do we need to determine if it is a
which earns income or profit in such a registered joint venture unregistered joint
case that becomes taxable. venture?
- Association
UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

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TAXATION 1 Transcripts | Atty. KMA | A.Y. 2020 - 2021
Primarily, on the taxability of the transaction. A corporation may be a partnership, no matter

Because if it is registered as a joint venture, there how created -- even if the partnership is
is a new entity registered with the SEC. registered formally w/ SEC or mere verbal
agreement of a partnership -- then it can be
Example: If the joint venture earns income, that deemed as a taxable corporate entity. If we base
income will be reported and taxed to that it under the Revised Corporation Code, you don't
registered entity. Whereas in an unregistered fall under the definition of corporation. But for
joint venture, there is no entity registered before income tax purposes, you’re considered a
the BIR or before the SEC and if the joint venture corporation. Except if you're a GENERAL
earns income, it follows that the income will have PROFESSIONAL PARTNERSHIP.
by the partner entities
to be reported separately and they have to be
taxed separately on the income that they have In a GENERAL PROFESSIONAL
earned from that joint venture. PARTNERSHIP (GPP), there are 2 types:
GCP is taxable
❏ GCP (GENERAL CO-PARTNERSHIP) -
the usual trading/business partnership,
When should it be proper to be registered or main purpose of which is to earn profit.
unregistered? It depends on the situation. If it is
a big project, for example it involves billions of
pesos, billions of potential income and billions of
potential expenses, you really need a dedicated ❏ The other type of Partnership is the GPP
team to separately account for that, separate or the General Professional
from the usual business, might as well register Partnership - from the word professional,
that. But if it is not very big, you just entered a what’s your main objective or your main
joint venture with a landowner, ikaw tanan nag goal? Your main objective or goal is to
gasto, profit and etc. exercise your profession. Exercising
your profession is different from trading
or business venture wherein the main
goal is profit.
Then perhaps, you only have the unregistered.
Because according to several authors and even
The common thing now is they enter into a the Supreme, for GPP, the main purpose is not to
registered JV. earn profit, but the main purpose daw is service.
So, strictly, it cannot be considered as a
EXAMPLE OF REGISTERED JV: GMR corporate entity subject to tax.
MEGAWIDE Cebu Airport Corp. - a JV of
corporations aimed @ developing the airport.
SEC. 22 (B), NIRC CORPORATION DEFINED Besides, as what we’ll be discussed later, even if
the GPP is not taxed as a corporate entity, the
Particularly provides details as to what types are ones who will ultimately bears the burden of
NOT COVERED, NOR CONSIDERED A paying the tax are the partners in a GPP. So, in
“CORPORATION”, thereby NOT subject to that sense, the GPP merely acts as a pass
corporate income tax. through entity. Pero, for us to ascertain how
much is the tax liability for the individual partners
★ GPPs ; exercising their profession, you have to compute
★ JV/consortium formed for the purpose of how much is the distributable income of the GPP.
undertaking construction projects OR
engaging in petroleum, coal, geothermal
& other energy operations pursuant to
an operating consortium agreement For joint venture or consortium, duha:
under a service contract w/ the gvt.

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types of corporation for tax purposes this covers other

1. If is it formed for the purpose Types of Corporations (juridical personality but entities even if
not registered
of undertaking construction projects; not necessarily and not strictly the corporation with the SEC but
or under the RCC) 2 types: operates or earns
1. domestic income as if it
2. foreign has a juridical
a. Domestic corporation – incorporated personality
under the Philippine laws (local companies,
Take note however, for a joint venture to subsidiaries of Multi-national corporations)
undertake construction project to the exempted
from income taxation, it must be a joint venture Incorporated – it means that the company is
between contractors who are PCAB registered as registered and organized following the RCC
required in one of the RMC issued by Henares. or it could be a partnership that is primarily
They must be duly PCAB registered; it must be governed by the Civil code.
for the purpose of undertaking construction
project, etc. With the revision of the RCC, primarily we
now have the ordinary stock corporation and
the One Person Corporation which is
composed of solely one shareholder.
2. Engaging in petroleum, coal,
geothermal and other energy Domestic vs foreign.
operations pursuant to an operating
consortium agreement under a So when we talk about foreign corporation,
service contract with the Government. what's the difference? The primary difference is
that a foreign corporation is registered and
organized abroad. Or following the incorporation
laws, following the civil laws of a foreign country.
The other exempt is consortium or joint venture It originated abroad.
gyapon, wherein the other partner is the
government for the purpose of undertaking
petroleum, coal, geothermal and other energy
operations. If dili musugot
musulod ani na conditions and Take note, even if a corporation is composed of
joint venture or consortium, then, by all means, it Filipinos but that corporation was registered and
is taxable as corporate entity, except of course if organized in the US and that it operates here in
there is an exemption provided under a particular the Philippines, that is foreign corporation. That
law. can never be domestic corporation.
On the other hand, even if that corporation is

owned by a US citizen (American) but is
So, unsa na to? Corporation, Partnership – to be registered or organized here in the Philippines,
specific, what is taxed as a corporation is the still that is considered as a domestic corporation.
General Co-Partnership, business or trading In short, to ascertain whether it's domestic or
partnership, and not a general professional foreign, we don't look at the nationality of the
partnership, joint accounts, associations, joint owners or the shareholders. Rather, we look at
ventures, and consortium. The only joint venture the place where the corporation was organized
that cannot be taxed is for the purpose of and registered.
undertaking construction projects duly registered
with the Philippine Contractors Accreditation
Board—an arm of the DTI. And, of course if it is
for the consortium for the purpose of undertaking Now, if that corporation is foreign, we further
petroleum, coal, geothermal and other energy divide that into two.
operations between a private entity and the
government. A. Resident Foreign Corporation
B. Non-resident Foreign Corporation

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RFC vs NRFC
● Branch pertains to a resident foreign
corporation. It has the license to do
Why? To ascertain whether we require BIR business in the Philippines. Its
registration from this foreign corporation, whether representative office has the license to
we expect tax return filing from this foreign
do business in the Philippines on limited
corporation. Because once that foreign
corporation is engaged in trade or business in the transactions.
Philippines (there is a commercial activity ● Subsidiary is a domestic corporation
between that foreign corporation and the owned by a multinational corporation.
Philippines) then that corproration could become When we say owned, 99 or at least
a resident foreign corporation. And that's on a majority of the shares is being owned by
regular basis, not on an isolated basis.
the multinational corporation. But in a
subsidiary set-up, the multinational
corporation will create or register another
If the foreign corporation is not engaged in trade corporation in the Philippines before the
or business in the Philippines, siguro naa lang Securities and Exchange Commission.
siya'y one time investment (isolated investment) ○ So if let’s say, for example,
diri sa Pilipinas, then that corporation can be Taiheiyo Cement Corp. (TCC)
classified as non-resident foreign corporation. which is based in Japan and
Because it has no commercial activity in the
Philippines, then we do not expect this foreign TCC wants to enter the
corporation to file its tax returns here. Philippines, they created another
entity in the Philippines which is
"Sir, if that foreign corporation earns income and Taiheiyo Cement Philippines, Inc
it's non-resident, naa na siyay investment sa (TCPI) which is now based in the
Philippines, do we subject them to tax?" we do not expect that non-
Philippines. If you look at the
resident to file a tax return, but
we subject the income to tax. ownership of the shareholding of
The answer is YES. We subject that to tax, it's
TCPI, 99% is practically owned
just that the manner of collecting the tax is
through final withholding. by TCC, Japan. In this set-up,
who is the subsidiary? This is
Who will withhold? The person within the now what we call as
Philippines transacting with the non-resident parent-subsidiary relationship.
foreign corporation. TCC owning 99% of TCPI is
known as the parent and TCPI is
Going back to resident foreign corporation. the subsidiary.
Common example of a resident foreign
corporations are branches of foreign corporations Why do I need to explain that? Because for the
and off-shore banking units. subsidiary, in so far as the TCPI is concerned, it
is considered as a domestic corporation even if
Off-shore banking units 99% is owned by a foreign corporation.
Off-shore banking units deals with foreign

currencies. This is a particular division of a What’s the peculiarity under this arrangement?
multinational bank which accepts foreign Under this arrangement, and you will learn that in
deposits, etc. your corporation law. Under our corporation law,
BRANCHES OF FOREIGN CORP.
the personality of the shareholder is considered
Subsidiary - which becomes a
Subsidiary v. Branch domestic corporation
separate and distinct from the personality of the
Branch - which simply makes a corporation itself. In short, insofar as this parent
foreign corporation a resident FC. subsidiary setup is concerned, the personality of
What’s the difference between a subsidiary and a
Taiheiyo Cement Corporation based in Japan is
branch?

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considered separate and distinct from the EXCEPTION: If the case involves criminal
personality of Taiheiyo Cement Philippines Inc. violations to which the shareholder/s could be
held liable.
NOTE TO THE PERSON BEFORE OSORIO OR

So pasabot, si TCPI domestic corporation, si TO THE EDITOR. Or y’know. you can just not
TCC, remains to be a foreign corporation. edit this part. no hard feelings. promise.
HAHAHAHAHA: Please input the next
proceeding number for the “reasons why
companies opt to organize a subsidiary”
Nahimo ba nga resident foreign corporation si
TCC or non resident gihapon? But prior to that let *insert number here* Required under a Special
us understand that they having different Law which grants incentives.
personality doesn’t mean that Taiheiyo Japan is - This was especially sought after during
already commercially engaged in an activity in the ‘olden days’ when the Corporation Code was
the PH. In short, under this situation kay separate not yet revised.
man sila, it doesn’t make Taiheiyo Japan a
resident foreign corporation. Still Taiheiyo Japan FOREIGN CORPORATION
under this setupbasta walay other commercial What a foreign corporation can establish:
activity is considered as a non resident foreign a. Branch - license to do business in the
corporation or NRFC. Philippines
b. Representative Office - license to do
business in the Philippines on limited
transactions.
What’s the tax consequence? For TCPI, it is
wholly taxable for its income earned within the BRANCH
PH and outside of the PH, if ever there is any but The foreign corporation can…
since it is just a subsidiary, all income is earned - have its own operations in the Philippines.
here in the PH. - it can earn income in the Philippines.
- it can incur expenses.
REQUISITES:
Is is required to report this income to the BIR? 1. Registered
YES. How about Taiheiyo Japan? Not 2. License
necessarily as long as it is not engaged in a
commercial activity in the PH. EXAMPLE: Citibank is a US based company*
and established a branch in the Philippines
bearing the same name - Citibank - of its head
office.
What’s the advantage if the foreign corporation *Not really based in the USA. This is just for
establishes a subsidiary in the PH? There are illustration purposes.
several pros and cons. The usual turning point
why foreign corporations would opt to have just a The relationship here, is not any more parent
subsidiary here in the PH instead of a branch is subsidiary, rather the relationship is that of head
really more on potential exposures. Because office branch. Unlike the parent subsidiary
under this arrangemen (parent-subsidiary), they relationship, under the head office branch
are separate personalities. So, whatever relationship both entities are considered one
liabilities incurred by the subsidiary, it need not entity, ang pasabot that the liability of branch is
necessarily be a liability of the parent company. the liability of the head office. When it comes to
management kung kinsa ang president and
GENERAL RULE: Even if there be cases filed in director sa head office would be the same
court against the subsidiary in the Philippines, the director of the branch it will have the same
majority shareholders are protected - they cannot management, so what the head office dictates,
be directly held liable. the branch will simply follow. It is different from a

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Parent subsidiary, management-wise lahi ang registered branch or representative office in the
managing board, compared to Parent office plays Philippines.
the managing board while the subsidiary has a
different office. There is more flexibility when it TYPES OF CORPORATION: CO-OWNERSHIP vs PARTNERSHIP
comes in a parent-subsidiary relationship it could
be an advantage it could be a disadvantage Another thing that you need to remember is also
especially if the local managers here in the when it comes to the types of corporations is the
Philippines cannot be trusted. There is a distinction of partnership and co-ownership.
tendency nga basin dili sila mo-follow, mao na When we talk about co-ownership generally, it
ang uban they prefer the head office branch is not considered as taxable entity, it is tax
G E N E R A L
relationship, one downside is that the liability of exempt, it is organized not for profit but RULE
one branch is the liability of the head office. The primarily common preservation of the
point is, under this situation both the head office property, if you recall your civil law discussion
and the branch are deemed one entity then the you’ve learned there that co-ownership is
branch in itself is not considered as a domestic primarily governed by the civil code, there is no
entity or corporation rather the city bank entire intention to divided or earn profit, otherwise it
corporation is deemed as a resident foreign would become partnership.
corporation, doing business here having income
and expenses in the Philippines. However are there instances when a
EXCEPTIONS
co-ownership to be subject to corporate income
tax? (1) When the income of the co-ownership is
REPRESENTATIVE OFFICE invested by the co-owners in another income
Another arrangement na pwede ninyo makit-an in producing activity and earn income, or (2) there is
practice is also the establishment of the no intent attempt to divide the inherited property
representative office, more or less similar to a for more than 10 years and the said property was
branch in a representative office it makes the under no administration or held entrust an
foreign corporation resident foreign unregistered partnership is deemed to exist.
corporation. The difference lang is a
representative office, although licensed to do
business here in the Philippines Limited ang
transaction ma enter niya unlike sa branch. The other type of taxable entity is the Partnership:
Limited in a sense that the representative The GPP (General Professional Partnership) the
RO - cannot
earn income
office cannot earn income in the Philippines purpose is the exercise of the profession and the
mao matic sila although required to present to the BIR, they Taxable or business Partnership.
exempted sa are licensed to do marketing or client
t a x a t i o n
although they assistance but never looking for clients
are required to (marketing & client Support).
report to the
BIR Module 7.2
Why do we need to know if a foreign corporation
is a branch or representative office in the The recording was cut last time, so let me
Philippines specially if nay subsidiary sa continue the discussion on the types of
Philippines? Under this situation once a foreign partnership. To continue, last meeting, we
corporation has a branch or representative office distinguished on the different types of corporation
in the Philippines, this is usually a ground for that are covered under the Corporate Income
the foreign corporation not to avail a Taxation Rule. We’ve discussed co-ownership
particular provision in tax treaties, and it is and tackled on partnership.
common in tax treaties that a tax exemption is
provided to a particular foreign corporation There are 2 types of partnership-- (1) General
that has no permanent establishment here in Professional Partnership; (2) Taxable or
the Philippine, in short in can be availed by Business Partnership.
non-resident foreign corporation. One way in
determining that foreign corporation is a What we’ve discussed so far, the GPP or the
non-resident foreign corporation is if it has General Professional Partnership does not fall

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under the taxable corporations as specified under Taxibility of the General Professional
the tax code or the NIRC. Partnership (GPP)
Again, when we talk of General Professional 1. It is not subject to corporate income tax -
Partnership, we are talking about a primarily because it is considered a pass through
partnership that is duly registered with the entity, meaning the income ultimately goes to the
BIR and a copy of the partnership is formally partners of the GPP in exercising their profession.
submitted to the securities and exchange The primary responsible for the filing and
commissions (SEC). But we know that a payment of the taxes are the partners themselves
partnership exists as long as there is an comprising the GPP. However, as a way to prove
agreement, but there is some sort of formality to it. if the income declared by the partners are the
We have to distinguish the General Professional correct income, the GPP shall have to compute
Partnership from what we call as a Loose how much its net distributable income to its
Partnership. When we talk about Loose partners and it will be even use as attachment to
Partnership, it simply means that these the income tax return that will have to be filed by
professionals, lawyers for example, are just the partner to the BIR.
sharing their fixed expenses but are not
acting as one entity. TAKE NOTE: The computation of the net income
of the GPP based on either actual income
received by the partner or constructive income
In a GPP, what happens there is that if you are a received by the partner.
client of the firm, even if you’re dealing with 1
particular partner, all the proceeds or income is Constuctive Income received by the partner
not recorded in the name of the partner, but in GPP - Wala pa may actual na nadawat pero
recorded and reported in the name of the firm naa na nacompute na distributable income si
together with the expenses in reaction
relation to that partnership. How to compute? Similar to the
engagement. In a Loose partnership on the other computation of the income of the corporation,
hand, to each his own when it comes to client naa pay allowable deductions.
generation or accounting of their income from
that particular engagement, but when it comes
now to the sharing of expenses or payment of the It could either be itemized/OSD and the hare in
fixed expenses that is being shared, In a loose the income shall be reported by the partner.
partnership,which is very common in the legal
profession, each of the lawyers there are How will the partner report the income?
registered with the BIR and they are reporting
individually and separately their income. Not as compensation -- bec. partner gud ka,
you’re an owner -- but as
GPP on the other hand, though they are is BUSINESS/PROFESSIONAL INCOME. A
exempted from the payment of income tax,it does self-employed individual.
not necessarily mean nga dili na mag compute si
GPP ug net income niya or wala na siyay If a person
taxpayer reports as a self-employed individual,
compliance report nga buhaton to the BIR. there maka deduct gihapon siya.
is still is.
Now, this share received by the partner in the
Samot if you are a taxable or business GPP, can his claim for deduction?
partnership because essentially you are similar
to a corporate tax payer. You are subject to the NOT ANYMORE -- because the amount to be
same corporate tax rate treated basically as a reported by the partner as his income in
domestic corporation. business/ in his exercise of profession is
already of the NET OF THE DEDUCTIONS
Let’s discuss on the Taxability of the GPP. being claimed/being reported by the GPP.
Because we will focus man later on the...
Being a NET OF THE DEDUCTIONS, it follows
that the individual partner cannot avail of the 8%

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option, even if he’s considered as self-employed So, kung makakita ka ng AB & Partners, and then
and even if he doesn’t exceed the 3M. that partnership is not even registered with the
BIR, then, usually, that partnership is just a loose
Why? The income he’s reporting, even if he partnership. That’s not the GPP that we are
indicates that in the gross portion na talking about here.
business/professional income, that’s already net
of the expenses w/c has been claimed by the In law practice, big law firms are GPPs. Like
GPP. ACCRA, Sisip Law, Romulo-Robanta (?), these
are usually GPPS. But the medium sized and
To give you an overview on how a GPP or a small firms, as much as Atty knows, these are
partner in a GPP is subjected to tax, we have this loose partnerships.
illustration:
In accounting practice, there’s this requirement.
Atty. Sardy Nas is a partner of Qua Ran Tin & Because in the practice of profession, usually,
Associates (QRT&A), a general professional these are governed man by special law. So, there
partnership boutique law firm, and owns 25%. are some profession that required sila na if they
Following is the detail of QRT &A’s financial are going to establish a firm, it has to be GPP. So,
performance in 2020: in accounting practice, GPP is common. Not
more on lose (?) partnership. Going back, you
are asked in this illustration to discuss the tax
liability or liabilities of the foregoing. As regards to
QRT&A, as regards to the GPP and as regards to
Atty. Sardy Nas is a partner of Qua Ran Tin the partner of the GPP.
& Associates (QRT&A), a general
professional partnership boutique law firm, QRT&A is not subject to corporate income tax
and owns 25%. Following is the detail of (SEC 26, NIRC). However, it is subject to
QRT &A’s financial performance in 2020: Business tax (VAT or OPT). take note that even if
the GPP is exempted from corporate income
Gross Receipts - P 10 Million taxation, the GPP as an entity could be subject to
business tax which could either be percentage
Cost of Services - P 2.75 Million tax if not exceeding 3 million or VAT is already
exceeding 3 million or they have voluntarily
Operating Expenses - P 1.5 Million registered.
Discuss the tax liability/es of the foregoing GPP - The GPP has to compute how much is its
as regards to QRT&A and Atty. Nas distributable net income, and to arrive at that
figure, the GPP has to compute similar to the
computation or manner of computation of income
for domestic corporations. may elect itemized
deduction or OSD which is irrevocable for the
taxable year. So this is how we compute the
distributive shares.
If you notice, all the income is reported in the firm.

All the expenses and exercise of the profession is
also reported in the firm. The GPP or the firm
mismo is considered supposedly as taxpayer, but
it’s just that an exempt taxpayer.
Sir, naa bay TIN ang GPP? Yes.

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Gross receipts of P10M, deduct the cost of either OST or itemized, however, it should only
services, deduct the operating expenses, you get pertain to expenses in relation to that particular
P5M. This presupposes nga ang gipili niya nga business income of Atty. Nas, not to the
manner of deduction is Itemized Deduction. OW,
distributive share of Atty. Nas in the General
another option is from the gross income (because
this is corporate taxpayer), you just have to Professional Partnership.
compute how much is 40% of that and then use it
as a deduction or 60% of P7.25M. Summary: Liability of Partners (Liabilities of
Partners in a GPP and a Taxable or Business
So how about the tax liability of the partner or the Partnership)
tax liability of Atty. Nas?
● General Professional Partnership (GPP)
● Taxable or Business Partnership – also
known as General Corporation
Partnership (GCP)
In GPP again, ang distributive share niya in the

GPP is reported as gross business income
actually or constructively received. Once that is
being distributed, to the partner in the GPP that is
subject to a creditable withholding tax of 10%.
On the other hand, if you re a partner in a general

Of course, the P321,250 that's annual. So kung co-partnership or taxable business partnership,
naa'y gina report nga income on a monthly basis ang share nimo sa net income sa partnership will
si Atty. Nas, usually on the growings niya, or be subject to a final tax of 10%.
naa'y creditable withholding tax na gi-report on a
monthly basis, that will have to be deducted on
the P321, 250 whichever is the net, that is the
amount that will have to be paid to the BIR. TN: GPP is creditable withholding tax and GCP is
final tax.
The individual partner is not allowed deduction on
his distributive share because the distributive
share is already the net of the expenses which
Why creditable? When we talk about creditable
has been claimed by the GPP.
withholding tax, simply put that’s just advance
payment of tax. Mao na nga once you computed
It follows that Atty. Nas is also not allowed to avail the annual tax liability, what you will do is to
of the 8% income tax rate option since her deduct the creditable withholding tax. It is
distributive share from the GPP is already net of creditable because ultimately, it is the partner
cost and expenses. The 8% is multiplies to the who will carry the burden of paying the tax.
gross receipts or the gross sales, no deductions,
whatsoever. The only thing you can deduct is the
250K. Since this is already the net of cost and
Why final in a trading partnership? Because in a
expenses, this figure is no more 8%. trading partnership, the taxpayer is the
partnership mismo, as if it is a corporation. Of
course ang treatment niya, when it comes to situs
of taxation is treated as a domestic corporation.
What if Atty. Nas has other business income? Is Final because it is as if dividend, in the nature of
still there no deductions? Yes, she can deduct,

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dividend ang nadawat nga share ni partner in a Payments made to partners of a GPP for services
taxable trading or business partnership. rendered shall be considered as ordinary
business income subject to Sec. 24(a).
NOTE: These payments are common in GPPs -

If you recall, kato discussion nato final managing partners. Sometimes, there are
withholding tax of dividend diba. Depende sa partners who are given additional responsibilities
classification nimo of course usually ang mag making them not just mere capital and industry
partnership nga mag do ug businesssa Plipinas partners but they are also considered as
usually these are resident citizens but depending managing partners. They have added roles in the
on your classification. partnership so they are compensated. In other
words, they received an additional amount of
money.
In the Philippines, usually, the parties who enter
into business partnership are resident citizens. If you are a managing partner in a law firm, and
But as per our discussion on Passive Income, the you receiving something, then that additional
rate for dividend distribution to individuals is… payment for your services to the GPP will have to
be recorded still as ordinary business income. So,
e-add nimo sa gross income nimo. Nganu man?
Because you are a partner of the firm.
(Atty. KMA did not provide for the above

illustrative table. The student inserted it for
reference and recollection of the previous It is a different story in a general co-partnership,
discussion) because as what I mentioned, general
co-partnership is treated as if it is a corporate
…(a) 10% if the recipient is RC, (b) 10% if the entity, separate. Kung e-serve si partner as an
recipient is NRC, (c) 10% if the recipient is RA, (d) employee like siya gihapon ang manager sa
20% if the recipient is NRA-ETB, and 25% if the partnership, siya ang tig-bantay sa restaurant, or
recipient is NRA-NETB. Basically, this is the siya ang nag-manage sa store ninyo, because of
applicable final tax. that he receives a fix salary, that one it has to be
recorded as a compensation income of the
Share on Losses partner who is considered employed under the
● GPP general co-partnership. So it has to be recorded
Can be taken up on the tax return of the individual as compensation income or as here it shall be
partner. This is because the partner and the GPP recorded as ordinary or business income. GPP - ordinary income
GCP - compensation income
are liable in their separate and individual
capacity. Always remember: you must first identify what
● GCP kind of partnership whether it is a
May still be taken up on the tax return of the general-professional partnership or the exercise
individual partner. BUT, not as if it is an ordinary of profession then that it is exempt from corporate
loss, rather it is more of a loss on a particular income taxation, but still subject to business tax
investment or on a capital investment. because it is a mere (pastoral)
pass through entity and it is the
partner who has the burden to pay the tax. For a
general Co-partnership/trading/ business

10
partnership it is deemed as normal corporate When we talk of under special laws, if dili totally
taxpayer. exempted it could be partially exempted. When it
total
comes to exemption under special laws, we have
this Philippine Investors Act, this is a special law
Ultimately had the burden to pay the tax which basically encourages invention in the
Philippines and one of the incentives provided
For GCP/Trading/Business Partnership is under this special law is that if you have a
deemed as it is a normal corporate tax payer so it patented invention in the Philippines you can
pays its own tax as a taxable entity. The partners exercises total exemption from corporate
when they received shares in the trading incomes taxation, so dili ka subject to the 30%
partnership and more or less the same with corporate taxes. This is quite an old law but not
shareholders and investors. Therefore, that widely publicized there are few who are availing
whatever share that they received from the of this. Of course you have the partial exemptions,
partnership that will be subjected to final tax. because they are given preferential tax rates and
we have those registered PEZA companies and
BOI and for both PEZA and BOI there could be a
certain time that they are totally exempted sila if
the project qualifies of what we call as income tax
holiday meaning they will not be subjected to
corporate tax for a certain period it could be either
be 4 years or 6 years of ceasefire of collection of
30%. So it follows that if income tax holiday is
enjoyed by corporate taxpayers supposedly there
is no withholding tax on that particular income
Other than GPP na mention naman nato no kani because it is not being subject to tax.
“Per NIRC Definition of Corporation e.g. GPP ''.
Tulo to atong gi identify we have: GPP, Joint For BOI, after income tax holiday what will
ventures for the purpose of undertaking usually happen is you are already subject to the
construction projects, the constructors doing the regular corporate income tax.
venture must be duly registered by the PECA
which is required by the BIR and Joint consortium
for the purpose of undertaking thermal and The BIR basically uses what we call as the
energy related projects, the other party involved organizational test, how are you going to
must be the Republic of the Philippines. These SEC
be organized before STC, and operational
are the exempt Corporations under the NIRC
test, how are you operating for the past three
Definition. Other than the three we have: Special
Types of Corporations under Section 27. The 3 years. Are you distributing dividends or are
Special Types of Corporation they are not totally you giving big honorariums or salaries to
exempt rather they are partially exempted your trustees or to your directors diba?
because they are subject to Preferential Tax Rate These are basically the distribution of the
at a certain condition. dividends, giving honorarium to the directors
or trustees, these are deemed
There are also some entities that are exempted manifestations that even if muingon ang
totally from corporate income taxation provided articles nimo nga non-profit ka, but if you are
under Section 30 of the NIRC and I think if you doing this, these are manifestations that you
can recall our discussion on the De La Salle case
are operating as if you are a profit entity. So if
we’ve discussed this, but that is focused on
non-stock, non-profit education institutions. So, makit-an ka ni BIR, aw dili ka qualify under
this time around we have another exempt entities Section 30.
under Section 30 and of course under special
laws. Then you’ll ask, unsaon man pagkita sa BIR
sir? The BIR requires audited financial
statement. We look at your AFS usually for
the next three years, or for the past three

11
years. Then you will ask, Niya ngano

kinahanglan paman na sir checkon ni BIR?
Because class your exemption under
Section 30 IS NOT AUTOMATIC.It means
that if you’re an entity, as enumerated here,
the safest and the most prudent act for you
para dili ka iquestion ni BIR ang status, get a
certification of exemption from the BIR.
BIR will check on your articles, how you’re

being registered, your financial statements, #3
how you are operating for the past three You also have this a beneficiary society
years, together with some documentation to order or association, operating for the
determine whether you fall under this exempt exclusive benefit of the members such as
corporation. That’s an exposure that you fraternal organization operating under the
lodge system, when we say lodge system, there
should be ready when the BIR questions the is some sort of mother corporation or mother
legality of the exemption that you are identity, and there are some sort of mga chapters
currently claiming. But, the wisest thing to do lang. So whatever activities these chapters are
really is to get a certificate of exemption. So doing, usually it’s in accordance with the direction
mao to ang tanawn niya is ang operational of the head office or mother entity under a lodge
and organizational test. system.
EXEMPT CORPORATIONS under SECTION 30

Say for example in number 2, tanawn niya, of the Tax Code
registered ba ka as a stock or as a non-stock? TYPE OF NSNP EXAMPLES
Alright? Kay mumatter man na. Kay natural
kung sa articles nimo naa kay shares of 1. Labor, agricultural • Labor organization –
stocks, then you are a stock corporation. or horticultural Trade or labor unions
Diba? And in your articles or somewhere in organization not • Agricultural – Poultry
your by laws, there is a declaration there that organized and livestock
principally for profit; associations,
you will be distributing dividends, oh di you grower’s associations,
are registered as for profit entity. Ngano man? etc.
You do not distribute dividends if you don’t • Horticultural –
have profit. So that’s a big indicator that you Bonsai Society
do not qualify under that particular
exemption. 2. Mutual savings • Mutual savings
bank not having a bank – Savings and
So mao na nga usually ang muqualify ani capital stock loan associations
nga number 2, kaning mga cooperative represented by • Cooperative bank –
banks or mutual savings bank where therein shares, and Cooperative Bank of
cooperative bank Nueva Ecija (BIR
membership ang mumatter. Dili ang shares
without capital stock Ruling No. DA 520-03)
of stocks. organized and
operated for mutual
purposes and
without profit;
For No. 2, we look unto two things:

1. Organization wise

12
2. Operation wise We move on to the fourth exempt non-stock

non-profit corporation and that is a cemetery
In Section 30, the BIR is consistent in applying company owned and operated exclusively for
two tests to determine if you qualify for the benefit of its members. This is a no-brainer,
exemption under this Section. the cemetery company should not be engaged in
proprietary activity which sells properties to
non-members. In one BIR ruling before, the
Usually it is under a mother entity. A mutual aid cemetery company was declared not exempt by
association or a non-stock, non-profit corporation the BIR for the mere fact that the cemetery
for the payment of life, sickness, accident, or company issued in previous years dividends to its
other benefits EXCLUSIVELY to the members of members. That’s one thing the BIR looks at-- not
society or their dependents. For example like just how you are organized, but also how you are
Knights of Columbus or Fraternal Organizations, operating.
if you notice, the recurring requirement there is
EXCLUSIVE TO THE MEMBERS, for the benefit Essentially the BIR will check during the course
of the members. In short, you do not offer that of your operation where if you are able to huge
benefit to the public. So, the member comes in honorarium to your trustees, say for example, or
and the member makes a contribution. It is more did you distribute sums of money which is
like a sinking fund in nature and whatsoever tantamount to the distribution of dividends to the
proceeds, it will be used for the exclusive benefit members of the organization.
of the members.
Fifth, you have non stock corporation or
Now, no. 3 is quite tricky, mao ni usually ang na association organized and operated exclusively
abuse if you can recall the cases of Organico, for religious, charitable, scientific, athletic, or
katong mga cases where they register as cultural purposes, or for the rehabilitation of
beneficiaries entity or they register as a religious veterans, no part of its net income or asset shall
society, non-stock, non-profit and then they will belong to or inure to the benefit of any member,
entice you to become a member because they organizer, officer, or any specific person.
will promise you that you will get this/that benefit
but really ang nahitabo networking na. You entice Same, you are organized as this entity and you
more people, they need to make this particular are operating or so as a religious charitable,
amount of investment, they make money scientific or athletic. Now, please be mindful of
kunuhay. Mao na when you register with the SEC this phrase “ No part of its net income or asset
it is quite strict now. They are really checking shall belong to or inure “ . two things that you
word for word you application and there is even must remember here. During the operation of the
indicates mismo in the certificate of incorporation entity, it simply means class, na usually ang
of a corporate entity whether stock or non-stock tan-awon sa BIR si whether ni exceed ba ug 30%
that if you are going to the public to invite of its asset ang gi sweldo because definitely you
investors to the business or for financing might have staff here. But they should be
purposes, it needs a secondary license from the receiving minimal amount. Usually ang tan-awon
SEC. In short, di ka pwede mag-invite maski si ni BIR is whether it exceeds 30% of the assets of
kinsa to invest in your company. the company and whether the trustees or the
#4 cemetery company owned and board managing the non stock corporation is
operated exclusively for the benefit of
MODULE 8 its members receiving from the corporation may it be an
honorarium or per dime or whatsoever, and asa
We’ve discussed the third and fourth type of na makit an ni BIR in its checking? Audited financial statements
non-stock non-profit institutions which fall under
the exempt corporations per Section 30 of the By the time this institution will be dissolved - it is a
NIRC. basic rule that the asset of the institution must not
go to a private person or private entity. If you are
Do not forget the rule in determining whether a charitable institution and you get dissolved for
that corporation is an exempt corporation. We whatsoever purpose, your asset is expected to
have the (1) organizational test and the (2) go to another charitable institution of similar
operational test.

13
nature and similar purpose as a non stock and They are a civic league because they are not
nonprofit institution. organized for profit, because in their article there
is no mention that they will be distributing
Examples: dividends to their members, and according to
them, they are operating for social welfare
● Forest Hills Ladies Circle, Inc. because among the projects undertaken by
● Carlos Palanca Foundation MACEA is to develop the vicinity – the Makati
Area – which ultimately trickle (?) down to the
Usually, in foundations, diri sila musulod sa benefit of the public. In essence, that is their
educational institution or charitable institution. argument.
#6 Then you have a business league, chamber of But really, if you look at this MACEA Association,
commerce not organized for profit gihapon and just to give you a background. This is an
no part of its income inures to the benefit of any organization that earns millions, if not billions, of
private stockholder or individual. pesos because this is located in Makati. Now,
same explanation with #5 what happens is that the association has already
Organization wise - there should be no a huge sum of money in its earnings. Because
statement in your articles that you were typically in this type of organization, if you are
distributing dividends or whatsoever returns to going to construct a building, say for example in
your members. that area, which is within the jurisdiction of the
organization, you need to get permission for the
Operation wise - you should not be paying or association. And for you to have that permission
giving material honorarium or per dime, or certification, you need to pay something. That
whatsoever to your trustees or to your board. payment is quite material – payment will depend
Usually, it could be in kind. Some organizations, kung gano kataas ang building nimo. They have
as members of the board, don't receive anything a limit threshold and if you wanna go higher, you
but we received some sort of a token at the end of will be paying per floor. So, you will have an idea
our service. how it’s generating its funds. Not to mention the
fun runs, if you do fun runs in these areas, you
Another thing, during the dissolution of these have to pay to the association because you need
institutions. to get a permit. Not to mention the parking
fees—if you go to business parks say for
As mentioned in no. 5, the assets must NOT go to example or if you go to IT park, this is really one
a private entity. The least, it should go to a source of income of the association—the
similarly organized/operating institution. common income areas which they use for public
parkings. So, point is, the association is incurring
EXAMPLE: PH Chamber of Commerce & minimal expenses because of course the
Industry; Cebu Chamber of Commerce & maintenance is just minimal for construction of
Industry; Cebu IT BPM Org. waiting shed for example.
7th type: CIVIC LEAGUE/ORGANIZATION NOT Now, they are trying to as for an exemption for
ORGANIZED FOR PROFIT BUT OPERATED taxation. According to them, they are for
EXCLUSIVELY FOR THE PROMOTION OF promotion of social welfare because ultimately it
SOCIAL WELFARE will benefit or for the welfare of the public with the
development of these areas. The BIR
EXAMPLE: PH Foundation of Blessed Mother of unfortunately did not agree, the BIR has as an
the Poor issue, no issue on the organization but the BIR
has an issue on the operation test. According to
ACTUAL CASE IN POINT: MACEA or the Makati the BIR, they failed the operational test because
Commercial Estate Association - association of essentially, MACEA is organized for the
bldg owners/lessors in Makati Area. they asked promotion and for the welfare of the association’s
for tax exemption from the BIR first, right? Their member not for the promotion of the social
ground for tax exemption is because they are a welfare. Why? Because according to the BIR,
civic league. when we talk of social welfare, it means that your

14
operation is geared towards benefiting the Then you have number 8, a nonstock and
public—the marginalized. Since MACEA did not nonprofit educational institution, like Ateneo and
get a favorable ruling from the BIR, MACEA went De la Salle, we will heavily discuss this in the De
to the Department of Finance. Remember, when
la Salle Case. Our takeaway here in so far as the
you ask for a revenue ruling, you go to the BIR.
If the revenue ruling of the BIR is adverse to De la Salle case is concerned is that this
you or you want to be exempted but BIR said you provision in Section 30 is a mere surplusage of
are not exempted. the exemption provided under the Constitution to
nonstock, nonprofit educational institution.
You do not go to the CTA immediately. You go
first to the Department of Finance (DOF). So Number 9 is government educational institution
that's what MACEA did. MACEA went up to the like UP, PUP and MSU. They are exempt
DOF asking the DOF that it's a civic league (more corporation from income taxation and even from
or less the same arguments etc). And the DOF business taxation because the inherent limitation
disagreed with MACEA and agreed with BIR. And that the government institution and any of its
for the sole reason that it is operating for the agencies and political subdivisions and
benefit of its members, and not for the promotion instrumentalities are exempt from taxation.
of social welfare. That DOF opinion came up in
2019. Up to now, I am not sure whether they have
appealed it to the regular courts. But if you ask
me, I would agree to that ruling/opinion. Even if
you look at NGOs, usually unsa ang basis nimo
to say that you are a civic league or organization
for the promotion of social welfare? In practice,
you have to get a certification from the DSWD. It's
the DSWD who will basically say that your
organization is for social welfare to help the
children or senior citizens. To me and in practice,
this certification from the DSWD is given weight 10) Take note of the word mutual
and is the best proof that you are operating as a
social welfare institution. And if you have this What do we mean by this mutual typhoon, mutual
certification and the BIR disagrees or the BIR ditch? We just form an organization, we pull our
says that you are not exempted, then there is funds so that we have a fixed assessment. Unsa
something wrong there with the BIR. ang gamit sa kani nga kwarta? Ang gamit is if
anyone of us suffers from the effects of typhoon
In short, unsa ang tan-awon nimo under number or fire, we use these funds to help that particular
7? You look at if it is for social welfare or if it is for member. With that, it is technically not for profit
the benefit of the member because unlike the purposes rather it acts more of an insurance and
other organization like a cemetary or beneficiary you will only receive proceeds thereof if you
suffered a loss. Technically, you are not earning
society, etc., which benefits their members,
a taxable income or taxable profit, therefore,
number 7 is not for the benefit of the members exempt ang entity itself.
rather it is for social welfare.
So ang nahitab didto, ni-ingon si DOF, dili na

social welfare although naka-benefit ka sa public, 11) Sales agent meaning this is common in
but it is merely incidental because the direct Mindanao. Naa silay sales area or stores area
beneficiary are your members located within the where the farmers will just leave their harvests
and then they will just pay a certain sum of money
association’s jurisdiction because it is defined by
to the association which is equivalent more or
metes and bounds where you can construct your less to the selling expenses so in that case, they
building, where the association can develop. are exempted. Say for example kaning mga
producers and retailers association to encourage

15
agriculture in the PH. Usa mana sa mandate sa

F. Business league chamber of
government, to help the farmers.
commerce, or board of trade, not
organized for profit and no part of the
If they organize an association, operating
net income of which inures to the
only as a sales agent, then they are exempted.
benefit of any private stock-holder, or
individual;
NOTE: The two purposes - (1) marketing the G. Civic league or organization not
products of its members and (2) turning back to organized for profit but operated
them the proceeds of sales - gives us the concept exclusively for the promotion of social
of some sort of consignment. The farmer or the welfare;
fruit grower consigned his/her products. And out H. A nonstock and nonprofit educational
of which, the farmer or fruit grower will pay a fee institution;
to the consignee. It is different if the association I. Government educational institution;
actually purchased the products and sells it with a J. Farmers' or other mutual typhoon or
profit. In such case, it may already be deemed as fire insurance company, mutual ditch
a taxable activity.
or irrigation company, mutual or
cooperative telephone company, or
SEC. 30. Exemptions from Tax on like organization of a purely local
Corporations. - The following organizations character, the income of which
shall not be taxed under this Title in respect to consists solely of assessments, dues,
income received by them as such: and fees collected from members for
A. Labor, agricultural or horticultural the sole purpose of meeting its
organization not organized principally expenses; and
for profit; K. Farmers', fruit growers', or like
B. Mutual savings bank not having a association organized and operated as
capital stock represented by shares, a sales agent for the purpose of
and cooperative bank without capital marketing the products of its members
stock organized and operated for and turning back to them the proceeds
mutual purposes and without profit; of sales, less the necessary selling
C. A beneficiary society, order or expenses on the basis of the quantity
association, operating for the of produce finished by them;
exclusive benefit of the members such Notwithstanding the provisions in the
as a fraternal organization operating preceding paragraphs, the income of whatever
under the lodge system, or mutual aid kind and character of the foregoing
association or a nonstock corporation organizations from any of their properties, real
organized by employees providing for or personal, or from any of their activities
the payment of life, sickness, accident, conducted for profit regardless of the
or other benefits exclusively to the disposition made of such income, shall be
members of such society, order, or subject to tax imposed under this Code.
association, or nonstock corporation or
their dependents;
D. Cemetery company owned and
operated exclusively for the benefit of
its members; SEC. 30 -Tax Treatment
E. Nonstock corporation or association GENERAL RULE under Sec. 30:
organized and operated exclusively for 1. Exempt from income - on “income
religious, charitable, scientific, athletic, received by them as such”
or cultural purposes, or for the 2. Subject to income tax - income of
rehabilitation of veterans, no part of its whatever kind and character from any
net income or asset shall belong to or of their properties, real or personal, or
inure to the benefit of any member, from any of their activities conducted
organizer, officer or any specific for profit regardless of the disposition
person; made of such income.

16
NOTE: Sec. 30 is composed of two paragraphs. paragraph applies to the 10 but this paragraph
The first paragraph enumerated the entities, do not apply to non-stock and non-profit
institutions, or the non-stock, non-profit educational institution. I think we’ve discussed
organizations exempted from income tax on their that in the De Lasalle case, so long as the
income received for the purpose kung asa sila non-stock and non-profit educational institution
gi-organize (The student do not understand how that can show that its revenue and its asset is
to translate this into english). HOWEVER, this actually, direct and exclusively used for
exemption is not automatic because we follow educational purpose then it is exempted from
the double-nexus rule. income taxation even in business taxation.
DOUBLE-NEXUS RULE:
e.g.#4 cemetery
1. Present proof that there is a provision in But you conducted an activity for profit, let say for
the Tax Code granting you the tax example fun run, for a fee and the proceeds of
exemption. the fun run will be used to repaint or renovate the
2. Present proof to the BIR that you qualify cemetery. In such cases that could be subjected
for the exemption. to tax by the BIR.
If you are going to further elaborate the coverage

of Section 30, Par. 2. Kanus-a ma taxable ang
institutions or entities mentioned under Section
30.
NOT EXEMPT FROM INCOME TAX
You have to prove for you to be exempted that

there is a provision in the tax code granting you
the tax exemption and you have to prove to the
BIR that you qualify or you fall under that
provision. Therefore, it follows especially in
practice that you need to get a certificate of On #1: Let’s say for example association of fruit
exemption from the BIR or a BIR ruling. As growers they are only exempted insofar as the
lawyers anhi na mosud ang analysis nato on payment of the members for the necessary
whether these entities qualifies an exempt entity selling expenses. But if the association owns a
under Sec. 30. building or the business league let’s say for
example owns a building and rented it out.
Always remember, although 11 ni ka item ang Pwede ba sila ma subject to tax? Yes, regardless #2
gi-mention sa Sec. 30 in effect that is only 10, of the disposition. For example, if naa silay
because we have to take out No.8 a non-stock parking lot/area, income from any activity
and non-profit educational institution, because conducted for profit magpa concert sila for a fee
insofar as these non-stock and non-profit and the purpose is to be used for the operation of
educational institution its exemption is governed whatsoever causes, BIR can say this is taxable
by no less by the Philippine Constitution. pursuant to the 2nd paragraph so Section 30.
When it comes to the second paragraph of Sec

30 which states that, “income of whatever kind Kana kung gi report nila as income because in
and character from any of their properties real several instances, when it comes to these
or personal or from many of their activities Non-stock, Non-profit organizations if they
conducted for profit regardless of the earned something from a particular activity they
disposition made of such income“ this do not immediately reflect it in their tax returns.

17
They usually retained it. They do not show it in answer is YES. Because that is required under
their tax return for a particular project or for a the law. If the association or organization gets a
particular purpose. professional speaker, or whatsoever nga
So that when they reflect it in their Tax Return, professional, and bayaran na niya with a
sobra pas negative kay nagasto naman for that professional fee. Required ba siya muwithhold ug
particular project. mu set off na ang proceeds and expenses 5% or 10%? the answer would be YES. So, still
covered with the concept of withholding.
3. Interest income from bank deposits and
yield from deposit substitutes, trust funds
and similar arrangement.
So for EXEMPTION under RMO 20-2013, it was
4. Royalties derived from sources within the clarified, it was during the time of Henares, it was
Philippines during her time, she issued RRR class, which
invalidated previous certificate of exemptions or
Question: If you belong under Section 30, kay previous rulings declaring exemptions under
exempted man ka pasabot ba ana dili naka
magpa register sa BIR? Ofcourse, dili.
Remember if you’re going to register an So, Henares became strict. So gi invalidate to
association, an organization non-stock, non-profit, niya and gi ingnon niya ang kato na mga entities
you have to register it for the Securities and na they need to get new Certificate of
Exchange Commission (SEC). Once you are Exemptions or new BIR Ruling for you not to be
registered, it follows that you will be required to subjected to BIR audit. There are many
get a Tax Identification Number(TIN) and that non-stock, non-profit corporations who complied
alone will put you under the reach of the BIR. and there are also those who did not comply nga
Such that you are subject to the compliance of nag huwat nalang ug audit from the BIR.
BIR’s requirements.
RMC 76-03 - Liabilities of NSNPs Q: So, what are the CONDITIONS FOR
1. Maintenance of books of accounts EXEMPTION?
-cash receipts journal, disbursement
journal and etc
2. Annual registration fee - dapat mubayad ka

for the the renewal of your BIR registration fee,
for the renewal of your business permit, etc.
3. Issuance of BIR-registered receipts or

invoices - usually you issue ug
acknowledgement receipts. Sir kinahanglan ba ni
BIR registered? The answer is YES and most
importantly and I tell you mao ni usually ang
makalimtan by several organizations. You are
still even if you’re not subject to income tax, you
are still considered as a withholding agent.
A: The following are the Conditions for
Meaning to say you are required to withhold
Exemptions (RMO 20-2013):
creditable withholding tax or expanded
1. It is a non-stock, non-profit corporation or
withholding tax on every payments nimo,
association organized and operated exclusively
specified in the tax code nga subject to
for religious, charitable, scientific, athletic, or
withholding tax. Commonly, compensation to
cultural purposes, or for the rehabilitation of
your employees or income payments to
veterans. this is where the organizational and operational test comes in.
individuals or corporation subject to withholding
tax. Like let’s say for example, the organization or
2. The purpose for which it was created is one of
association is paying a rent for an office base.
those enumerated under Section 30 of the NIRC
Kinahanglan ba ka magwithhold ug 5%? The
(This is where the Double Nexus Rule will be

18
applied because when your purpose is not the National Internal Revenue Code
enumerated in Section 30, then there can be no (NIRC) of 1997.
exemption)
In order for an entity to qualify as a
3. Regular activities are devoted to the non-stock and/or non-profit
accomplishment of its purpose. (Not qualified if corporation/association/organization
substantial operations are “activities conducted exempt from Income Tax under Section
for profit”) this is MACEA in that ruling fell short bec substantial
operation was for the benefit of its members not for
30 of the NIRC, as amended, its earnings
social welfare or assets shall not inure to the benefit of
4. No part of the net income shall inure to the any of its trustees, organizers, officers,
benefit of any private individual. members or any specific person. The
following are considered “inurements” of
5. The trustees do not receive any compensation such nature:
or remuneration. (Kani mao ni usually ang reason
ngano ma deny ang application for certification of a. Payment of compensation, salaries, or
exemption) honorarium to its trustees or organizers;
b. Payment of exorbitant or
In no. 3, Regular activities are devoted to the unreasonable compensations to its
accomplishment of its purpose. (Not qualified if employees;
substantial operations are “activities conducted
for profit”), this is where the case of Macea fell c. Provision of welfare aid and financial
short because in that case the substantial assistance to its members;
operations are conducted for the benefit of its
members not for social welfare. d. Donation to any person or entity
(except donations made to other entities
In no. 5, The trustees do not receive any formed for
compensation or remuneration. (Kani mao ni
usually ang reason ngano ma deny ang the purpose/s similar to its own);
application for certification of exemption). When
we say man gud compensation or remuneration, e. Purchase of goods or services for
this is on a regular basis. Take note ha, amounts in excess of the fair market
TRUSTEES pero pwede pud mga Employees. value of such
Some organizations, they have this so-called
“Executive Director”, these employees and goods or value of such services from an
Executive Director pwede sila mu dawat ug entity in which one or more of its trustees,
salary but understandably, their salary must be
reasonable and it should not be very big sad na officers or fiduciaries has an interest; and
ma unreasonable na.
f. Distribution of entity’s remaining assets
to its trustees, organizers, officers or
Module 8.2 members upon dissolution and
satisfaction of all liabilities.”
We left off on the conditions for exemptions. If
you look at these conditions, one thing is for sure, Subsequently, the BIR issued a Revenue
the government or the BIR simply do not want Memorandum Circular clarifying what is covered
inurement to private properties or private by the term “inurement.” The BIR clarified that if
persons. the entity pays compensation, salaries, or
honorarium to its trustees or organizers, it is
“REVENUE MEMORANDUM considered inurement. Also, when they pay
CIRCULAR NO. 51-2014 clarifies the exorbitant or unreasonable compensation to its
inurement prohibition under Section 30 of employees. Point is, for trustees or organizers
payment, basta naa’y sweldo, even if you say it’s

19
minimum wage lang ang honorarium, if they During solution

Dissolution - asset must not go to the
received any amount, that is deemed inurement. trustees, must not go to the private entity rather it
must go to a similar institution or similar
What’s the consequence if it is deemed organized association.
“inurement”? The obvious consequence is that
your application for exemption will be Exemptions by Educational Institution under
disallowed by the BIR. But if the recipient of the Section 30 and distinguished with the Exemptions
compensation or the salary are employees of the by Educational Institution under Section 27.
institution, then we have to determine if it is
exorbitant or unreasonable. Usually, based on Under Tax Code, two types of educational
the non-profit organizations that I’m a part of, institution:
trustees do not receive any salaries, they are just
given tokens of appreciation at the end of the 1. Non-stock, non profit educational institutions
term. But for employees who are there... under Section 30 of the NIRC and under
Constitution
On a daily basis, say for example the secretariat
or the Executive Director, they receive 2. Proprietary educational institutions - Under
reasonable salaries. Per experience, usually we Section 27 of the NIRC
give only minimum wage esp at staff level. Ofc if
executive director ka, you are given a much What's the difference?
higher wage reasonable to your position but staff
level is minimum wage. Ngano man? Para wala Non-stock, non profit educational institutions are
nay hasol ang organization in withholding etc. exempt from income taxation whereas
Proprietary educational institutions are subject to
Third is provision of welfare aid and financial income tax but at preferential rate of 10% subject
assistance to its members (except if such is to some conditions.
the principal activity exclusively for members)
esp for mutual aid association. Non-stock, nonprofit educational institutions
- Section 30 of the NIRC is a mere retairation of
Fourth, donation to any person or entity the constitutional exemption pertaining to this
(except entities formed for similar purpose) institution. As discussed in the De La Salle Case,
so long as the revenues and the asset of these
- We are talking here of private persons or nonstock and non-profit institutions are used
private entity. That is deemed fADR
ADE for educational purpose, it shall be exempt
inurement. from taxes and duties. Without any other
qualifications. Not required that the revenues
Fifth, purchase of goods/services in excess and assets come from tuition fees. What’s
of Fair Market Value from an entity in which important is that we refer NOT from the
one or more of its trustees, officers or source; rather, we refer for its utilization.
fiduciaries has an interest
Which is why in the De la Salle case, 2nd par,
That’s considered inurement because that is Sec. 30 -- which looks at the source of the
circumvention on the prohibition against income generated and subjects it to tax if it’s
inurement. an activity for profit or in the disposition of
property - real/personal - -- does NOT APPLY
Sixth, when upon the dissolution and to non-stock non-profit educational
satisfaction of all liabilities, its remaining institutions.
assets are distributed to its trustees,
organizers, officers or members. Its assets Their tax exemption is NOT LIMITED TO
must be dedicated to its exempt purpose. INCOME TAXES BUT ALSO COVERS
BUSINESS & DONOR’S TAXES.
Mao ni akong giingon ninyo ganeha during
operation and during solution. In the same case, the RMC issued by Henares
requiring that -- a canteen/bookstore must be

20
owned/operated by the institution & must be Educational Institutions need to maintain books
located w/in the premises -- before it can avail of of accounts, needs to register with BIR, and of
exemption, is likewise NULL & VOID. course need to issue BIR-registered receipts or
invoices.
NOTE: Even if they’re exempt from income
taxation, it does not mean that it shall not
register w/ the BIR.
So, if you look at your receipts from payment of
RMC 76-03 – Tax Liabilities tuition fees, that’s BIR-registered of course.
1. Taxes on income from activities not

related to the educational purposes (ex.
Rental from buildings or premises) For number 1 and 2, pwede ba sya masubject to
taxes on income from activities not related to
2. VAT on activities involving sale of goods educational purposes? Say for example, rentals
and services from buildings or premises? The answer is not
necessarily, following the De La Salle Case.
3. Liability as withholding agent
· On payment of compensation to
employees Why? So long as it can be shown that theses
income from activities not related for educational
· On income payments to purposes are actually, directly, and exclusively
individuals or corporations subject to used for educational purposes, then that will be
withholding tax under RR2-98 exempted from income taxation. But, if it is not
actually, directly, and exclusively used for
4. Maintenance of books of accounts educational purpose, pwede sya masubject to
tax.
5. Annual registration fee of P500
It is a defense on the part of the educational
6. Issuance of BIR-registered receipts institution. So, its defense is that the proceeds of
or invoices the rent are used (ex: first floor of usc is being
rented by Jollibee), can it be subject to tax? The
So, as Non-stock Non-profit organization, liable answer is YES if USC cannot show that the
ba gyapon sya as withholding agent? The answer proceeds are actually and exclusively used for
is yes. Withholding agent, especially on the educational purposes. But, if it can be shown that
payment of compensation to its employees and the proceeds are used to construct a classroom
on income payments to individuals or or purchased computer for educational purposes,
corporations subject to withholding tax. Rents for then, by all means, they should be exempted
example. Professional fees to professorial from income taxation. Especially following the
lecturers na dili employee, visiting professors recent De La Salle case, it can be subject to VAT
lang for a fee. So, kailangan ba sya mag withhold? on activities involving sale of goods and services,
The answer is yes. the answer is YES. Take note that the nature of
VAT is different from the nature of income taxes,
however, if the asset or the revenue is used
actually directly and exclusively for educational
USC for example, is withholding our purposes, it can be shown in the proofs, then this
compensation as employees and withholding VAT will have to be eliminated—it will not be
payments made to professorial lecturers, kaning subject to business tax. But, if it cannot be shown
dili employees gyud but are employed on a actually, directly, and exclusively, then that’s the
contractual basis. time it can be subject to VAT.
So, we already discussed the Dela Salle case,

“all revenues” is unqualified by reference to the

21
source. So, as I said earlier, good thing for might say nganong wala man na gi-follow ni BIR
non-stock and profit educational institutions, we in the Ateneo Case or in the De la Salle Case?
don’t look at the source, rather, we look at the use Simply because the CIR who ruled during this
thereof as to where it is being used. But such is
time is not Henares and when it comes to ruling, it
not the case for the other 10
enumerated—non-stock, non-profit entities under can be amended or overturned by the new
section 30. Why? Their exemption is basically Commissioner. Ang nahitabo, paglingkod ni
qualified or limited by the second paragraph of Henares, she issued a Revenue Regulation
the very same section na ug tan-awon, diin gikan. invalidating previously issued Certificate of
So kung gikan na nga revenue sa disposition of Exemptions or previously issued rulings granting
property, whether real or personal, or kung gikan tax exemptions to nonstock, nonprofit entities
na sa activity or profit, it is subject to income tax.
specifically under Section 30 and requiring these
Even if it's used for charity, whatsoever, etc. ni
entities to apply for new certifications or to apply
Last paragraph of Sec. 30 does not apply to for new ruling. In that dira na niya gisulod ang
NSNP educational institutions. requirements under the Revenue Memorandum
Order and the definition for (inaudible)
inurements under the
Same is true for assets so long as it is used memorandum circular plus katong RMC on
actually, directly and exclusively for educational canteens and bookstore.
purposes.
For USC, you might ask why is there no ruling for
In a CTA case involving Ateneo De Manila, this
was way back 2010, it was declared that the USC? Because the SVD priests before owns a
canteen need not be owned and operated by the canteen. That canteen was under the SVD, it was
educational institution to be exempt under the located in the gym, kanang ubos sa gym gyud I
Constitution. Requirement that the property is think gigamit na na sa mga varsity karon but that
owned and operated by the educational big area that used to be a canteen way back 2007
institution is without basis under the Constitution. or 2006, they stopped the operation of the
canteen. SVD priests also is a religious
organization also owns Catholic trade selling
In this Ateneo De Manila case although napildi sa mga religious articles and bibles etc. located na
ani nga portion ni BIR, the BIR did not appeal to sa first floor kanang sa schotel karon, eventually
the SC during this time. Nganu man? On going they stopped perhaps someone advised them
ang mga assessments niya pertaining to that couldcomplicate matter although during that
non-profit educational institutions. It is not only time lax pa siguro si BIR, but eventually that
Ateneo but also pertaining to De La Salle and
would have been a bigger problem in 2010
material. Only when napildi siya sa De La Salle
case nga ni appeal si CIRR to the SC. And that's because gigukod naman sila ni Henares and
when the SC finally decided invalidating that definitely those entities are owned by the SVD,
RMC requiring that the canteen and the religious priests and it’s not within their purpose
bookstore must be owned, operated and located to operate these entities so pwede gyud sila ig on
within the premises of the school nga non-profit under the 2nd paragraph of Section 30. Ma subject
institution. sila to income tax and ma subect sila to VAT.
Mao na ang kato previous staff sa Catholic trade,
In 2009, there was already a previous ruling
coming from the BIR that the exemption from if you notice kana sila run sila nanay naa sa
income taxation extends to incidental income canteen sa quadrangle kanang mga tigulang they
derived from canteen, bookstore, and dormitory wer previously connected to the Catholic trade.
facilities. (BIR Ruling No [NSNP-(S30H-042) Gitabangan gihapon sila, gihatagan sila pwesto
229-09] issued to St. Theresa’s College) but that is not anymore owned by the SVD by
USC, I think sila na ang tag iya anha, sila na ang
However, this involves STC in Cebu, this was
nagpadagan siguro they are just paying a
way back 2009 and this involves a ruling. So you

22
minimal amount to the University. So gi stop to

nila because of these recent developments.
How about hospitals by NSNP educational

institutions? Tax exempt?
NOTE: Not all NSNPs are run by religious

institutions. There are many NSNP educational
institutions owned by private individuals but
organized as foundations. How about income from investment in stocks of
an NSNP education institution? It is unrelated, or
EXAMPLE: Like, University of Southern if it is not actually, directly, exclusively used for
Philippines Foundation (USPF), they are educational purpose then it will be subject to
organized as a NSNP entity. Now, if they own either the capital gains tax of 15% or the stocks
hospitals, both revenues derived and assets are transactions (STT) of .6 of 1% if listed and traded
tax exempt IF the operation of such hospitals is in PSE (De Lasalle Case gihapon ang guide).
an indispensable requirement in the operation Basta actually, directly, exclusively used for
and maintenance of its medical school. educational purpose it can be proven then the
exemption will have to extend.
DOF Opinion 16-2019 citing Section 2,
Finance Department Order No. 137-87, as
amended by Finance Department Order No.
92-88
Operation of hospitals by the NSNP

educational institution, as long as it is an
indispensable requirement in the operation and
maintenance of its medical school - both
revenues derived and assets are tax exempt.
For propriety educational institution, as what I’ve
To clarify, if it is an indispensable requirement in mentioned this is covered under section 27 which
the operation and maintenance of its medical states that a 10% tax will be applied on the
school, then, it is tagged as part of the operation taxable income provided that the gross income
NSNP educational institution. So, the exemption from unrelated trade business or other activity
that the revenue and assets of the NSNP exceeds 50% of the total gross income, so let’s
educational institution that are actually, directly, analyse section 27. Duha ka entity ang covered
and exclusively used for educational purpose anhi although nagfocus lang siya sa proprietary
SHOULD still apply. educational institution. First entity is ths
proprietary educational institution, the second are
(By analogy, this is what USC is doing right now. the hospitals which are non-profit. What are
We have ScHotel. If you check-in at that hotel, these proprietary institutions? These are private
you have to pay. But, since it is considered as educational institutions duly licensed by the
part of the training of the students under a DepEd, CHED, TESDA. Hospitals which are
particular department, it is considered considered non-profit usually, these are usually
indispensable. So, the exemption also extend to operated by religious institutions, Example,
this.) Choing Hua, although mahal, it is considered
non-profit hospital or even Perpetual Succor.
It is considered a non-profit hospital or even

Perpetual Succor. So, there are subject lang
instead of 30% under taxable income, they are
subject to a preferential rate of 10%. Because the

23
government cannot afford to build so many

schools and hospitals so they want the private
sector to come in. One way to encourage the Then you do not fall under the definition of a
private sector to build more schools and hospitals proprietary educational institution who can
is to provide a preferential rate as a way to entice avail of the 10% differential
preferential rate. So as it is,
them. However, it is not absolute. Dapat ang ang applicable nimo is the 30% regular
gross (meaning wala pay deduction) income do
not exceed 50% of the total gross income.
corporate income tax. So the tax treatment
Because the moment the gross income of again, 10% of the entire net income so long
unrelated trade, business or other activity as the income from man related activities
exceeds 50% then that would be subjected to the does not exceed of the 50% total gross
regular corporate income tax of 30%. income. Again, when we talk of total class,
that’s gross of any expenses or deduction.
Again, what is proprietary education institutions? Walay deduction. Okay? Otherwise if the
income, if the gross income from unrelated
activities exceed 50%, of total gross income,
then you will be subject to regular corporate
income tax. So example lang of proprietary
educational institution again is UC. That’s
very obvious. If you go to UC Banilad, ang
first floor ana nila kay giparentahan na diba?
So when it comes to gross income, wala pay
deduction of course, ang related activity,
proceeds niya from tuition. Rental, let’s say
“With permit to operate” → this is very important for example of commercial spaces, these are
basically proceeds from unrelated activity.
Dili lang with registration SAC, because when it So kung ang total tuition niya nga nacollect is
comes to school we have this so called ESL 5 million class, total rental nga nacollect niya
Schools, we even have Tutorial Sectors, even is also 5 million which gives us total gross
mga ginagmay na tutorial sectors for high income of 10 million, the percentage of the
schools or elementary students. total unrelated activity if we look at this
scenario is only 50%. Ni exceed or wala? It
does not. Since it does not exceed, then in this
Question: Can these ESL Schools or tutorial
case the applicable tax rate is 10%.
schools avail of the preferential rate? No if
they do not have a permit to operate from
DEP-ED, CHED or TESDA.
Q:10% for the entire total or 10% lang for the
tuition?
Question: So are they illegal? No. Pwede man
A: That is for the TOTAL INCOME because when
mag ESL or mag tutorial center with registration
you report that in your ITR, di mana nimo
lang sa SEC og sa DTI kung individual ka. The
i-breakdown if related or unrelated. If naa man
condition with the SEC is that you don’t need a
gani breakdown mahitabo na usually in the
permit to operate if you do not offer a particular
assessment process kung tanawon ni BIR or
curriculum or even if you have a curriculum but
kung i-audit ka ni BIR.
you do not issue a diploma/TOR (no graduation).
When there is graduation that is where DEP-ED
So, in this case, since it does not exceed 50%
and CHED comes in.
man ang income from unrelated activity, of
course, naa pa kay deduction. Kay ang 10% nimo
In such cases, they were just treated as normal
kay net income man na, so naa pa kay deduction.
domestic corporations. So kung in-ana ang kaso
Whatever is the net there, that’s what is being
nga ang imong studyante naas gawas na
subjected to 10% tax. Again, that’s your TAX
everything is online could be possible with the
PAYABLE.
new technologies now.

24
purpose which has nothing to do with the

Q: So, what if ang nahitabo ang unrelated nimo is education of your students, then that can be
6M, and what if kani na himo ang tuition ug 1M, so considered as unrelated. But if it has something
if you look at the Retal mahimo na ug 60%. to do with the “training” of your BA students, for
example on how to market, how to sell mao
gihatagan nimo ug pwesto sa first floor for murag
simulation or sa DHM students nimo on how to
cook or how to clean a room, etc. Mao na naa kay
Schootel, then obviously that is still considered
related.
Although, I am not talking about USC because

USC di man siya proprietary educational
institution but what if lang ba you have that.
Another example is if you have a Review Center,

pwede ka mu argue na it is related because the
review center is part of your curriculum. Lahi
mana usually ang payment sa review centers
nganha.
So to summarize, “How is a Corporate Taxpayer

A: it already exceeds the 50% and so in such is being Taxed?”. We will discuss this on the next
case, you do not anymore subject the entire episode.
amount to 10% tax but you subject it to the
REGULAR CORPORATE INCOME TAX of 30%.
So, di pasabot na ang i-30% ra nimo ang

unrelated unya ang related 10% gihapon. It must
be the entire amount. So kani na entire portion
imo i-subject to 30%.
So diri Taxes on Passive Income which is the PART 9.1

interest, capital gains from shares, capital gains
from real properties not used in business, this is Just a quick recap, we’ve discussed the
subject to the usual final withholding tax. distinctions between a non-stock non-profit
educational institution and the preferential rate
applicable for the proprietary educational
institution. All under the discussion on what is
meant by a corporate taxpayer covered under the
provision on corporate income taxation.
This time around, we focus on the normal

corporation. How a normal corporate taxpayer is
taxed. In this discussion, we can recap individual
income taxation. We compare the taxability of a
corporation versus the taxability of a sole
proprietorship. Again, when it comes to
corporations, it is subject to tax rates such as the
30% normal income tax also known as the regular
corporate income tax (NIT/RCIT). We have the
2% Minimum Corporate Income tax (MCIT). Take
So, if the primary purpose is to provide for note, that this is not an option. Unlike if you are a
Education and you rented it out for Commercial sole proprietorship and you earn business

25
income or professional income, it can be 1. To use itemized deductions.

subjected to 0%-35% or he may exercise an
option to be taxed at 8% of the gross sales 2. To use optional standard deductions.
provided it does not exceed P3,000,000. It is an
or. Classification of Corporate Taxpayers:
1. Domestic Corporation
ALFAJARDO Part 9.1 2:00-4:00 2. Resident Foreign Corporation
However, for corporate taxpayers, it’s a different 3. Non-resident Foreign Corporation

story. Unlike sole proprietorship nga si individual
taxpayer ang mu choose whether to be taxed at TAKE NOTE: Non-resident Foreign Corporation
0-35% or 8%. For corporate tax payer, it is the is subject to tax on its gross income, being tax on
Tax Code which provides the rule when a gross simply means that it cannot avail any
taxpayer may be subject to RCIT or MCIT. deduction whether itemized or OSD.
Moving forward, for our lecture, I will be using Maka opt for itemized or OSD, it would only be a
RCIT or MCIT (Minimal Corporate Income TAx) DC or RFC.
to shorten the terminologies. But then again,
please do not use these acronyms in the Take note: When it comes to OSD, although
examination. same rate sila when it comes to individual and
corporate, however, the tax base is different.
Its the tax code which will determine whether the Because for corporate tax payer, again, the tax
taxpayer will be taxed on 30% or 2% MCIT. base where the 40% would be multiplies is the
Gross Income of the Corporate taxpayer,
Take note: these two rates always go hand in whereas for the individual taxpayer, the tax base
hand. If a corporate taxpayer is not subject to the where it will be multiplied it is the Gross Receipts
RCIT perhaps because it is exempt or subject to or Sales of the Individual tax payer.
a preferential rate lower than 30% say for
example 5% or 10% it follows that corporate I am not sure what is the intention, but that is
taxpayer is not subject also to 2% MCIT. what is being provided by the Tax Code.
You might ask, “Sir is that 2% MCIT is that Gross income ang basis sa corporate taxpayer
applicable immediately the moment a taxpayer meaning to say, net of cost of sales. Whereas, for
registers to the BIR? Take note class, the individual taxpayer, there is no deduction other
answer is no. There is a specified period when than the discount or the return because the tax
the 2% MCIT will apply and usually it applies base there is your Gross Sales/Receipts.
after the so-called Development Stage of the
Corporate Entity. Another thing that you have to remember, when it
comes to tax rates, very different si sole
Corporate taxpayers similar to sole proprietors proprietor ug si corporate, magkapreha lang sila
for its final tax on its passive income. perhaps on the tax base. Ang isa 30% ang isa
0-35%, and there is even an option to be taxed at
Same for sole proprietors individual 8%, provided the conditions are met.
taxpayers, corporate taxpayers are being tax
on it's net taxable income - the tax based where Take note: That 8% applies only to individual
you will multiply the normal income tax of 30% taxpayers earning business income or
was the net of the applicable expenses or the professional income and qualifying or provided it
allowable deductions. meets the conditions for him/her to avail of the
8% portion. That is not applicable to corporate
To avail of this allowable deductions a taxpayer.
corporate taxpayer has two option:

26
So, in the examination, kung mangutana ang income. And how do we compute this gross
examiner about ABC Corp, earning income for income? This gross income is basically the net of
this particular year, and you will be asked, may your sales and cost of sales. So, sales, less cost
ABC Corp avail of the 8% option? Automatic, the of sales, you get there your gross income. Why is
answer there is no because the option there is it that there is MCIT (Minimum Corporate Income
limited only to individual taxpayer. Kung muingon Tax? The MCIT was introduced only when the tax
ka na it depends, sayop na. You don’t determine code was amended in 1997. The BIR noticed that
if ni-meet ba si ABC Corp sa conditions because there are some companies who have been
it is not applicable for corporate taxpayers. reporting losses for the past 10 years or 20 years.
So, it’s basically a question of going concern. And
So, when it comes to the computation of tax base, what did these company do? They would simply
more or less, similar si corporation ug sole overstate their allowable deductions portion
proprietorship/business income earner. Because because usually these allowable deductions are
they can deduct – they have allowable indirect expenses. Whereas, these custom sales
deductions. As a rule, allowable deductions for usually pertain to direct expenses or those are
corporate taxpayer and individual taxpayer directly incurred in connection with the sales
earning business income are more or less the transaction. That is why to go away with that
same. practice, 2% will be multiplied with gross income
because usually under normal circumstances,
your will just sell your capital at a profit. So,
normal circumstances, you will really have gross
income. The magic comes in when the
recognition of the indirect expenses is already in
whole. So, that is why mao na nga i-apply niya to
Sales, Net Discounts the gross income.
Less: (Cost of Sales) Going back, kung pila ang result, pila ang
ma-compute ng tax liability under 30% and pila
________________ ang ma-compute nga tax liability under 2%,
whichever is higher, that will be the tax payable or
Gross Income tax liability ni corporate tax payer.
Less: (Allowable Deductions) For sole proprietor or individual proprietor tax

payer, we’ve discussed this already when it
________________ comes to the business income of that sole
proprietor either 0-35% or 8% option and there
Net Taxable Income are allowable deductions also. Whereas if that
sole proprietor is a mixed income earner, also
earning compensation income, it’s the
compensation income that is subjected to the
graduated tax rate of 0-35%. The 8% option will
only apply to his/her business income. But being
a mixed income earner, there is no longer
So, on the rate, 30% will be multiplied to the net deduction of 250k because there is a presumption
taxable income. To get Net Taxable Income, that the 250k was already exhausted in the
that is basically sales less cost of sales less computation of the applicable tax in the
allowable deductions, you get the net taxable compensation income of the mixed income
income. earner.
MCIT (Minimum Corporate Income Tax), on So, when it comes to regular corporate income
the other hand, the MCIT is only 2%. Makaingon tax rate, if that corporate tax payer, say domestic
mu gamay ra kay 2%, but the thing is ang tax corporation, it is taxable worldwide – within and
base for MCIT is not the net taxable income, without at 30% on its net taxable income. Being a
rather, the tax base for your MCIT is the gross net taxable income, that domestic has allowable

27
deductions and the method of deduction is either When it comes to Corporate payer, it can be
itemized or OSD. domestic or foreign.
For resident foreign corporation, taxable only…
Domestic:
1)Organized and registered in the PH (SEC);
2)Taxable for its income within & without; and
3)The tax based is net taxable income therefore

deductions for expenses, outflows in relation to
trade or business within & without can be availed
of.
Resident foreign corporation (RFC) Foreign
Resident foreign corporation can be taxable only 1)Organized & registered abroad but it may or
for its income earn within the PH 30% of its net may not be doing business in the PH;
taxable income. So it follows that a resident
foreign corporation can avail of deduction for its 2)If it earns income here in the PH whether
expenses incurred within the PH. isolated or an irregular basis that income is
subject to tax in the PH.
OSORIO (Part 9.1 16:00-18:30)

The method of deduction could either be itemized
deduction or optional standard deduction. …in the Philippines, *inaudible* whether
isolated earned on a regular basis, such
income is subject to tax in the Philippines.
Non resident foreign corporation (NRFC)
alien Resident Foreign Corporation (RFC)
More or less similar to a non resident not
engaged in trade or business is taxable for its
However, if the foreign corporation is
income earned within the PH at a tax rate of 30% regularly doing business - has license to do
of its gross income.TN: Gross - meaning no business - it becomes RFC.
allowable deduction.
● Allowed to make deductions on its
income made in the Philippines
So if you will be asked X corporation a NRFC ● Taxed at NET INCOME
earns income in the PH then you will be asked ● Net Income is taxed at 30%
what method of deduction can it avail? OSD or is
it itemized? There’s no point of determining the
method of deduction in such a case. Ngano man?
Kay non resident foreign corporation man siya so Non-Resident Foreign Corporation (NRFC)
the tax based in the first place is the gross
income. ● No allowable deduction on its
income.
Summary:
● Taxed at GROSS INCOME
● Gross income is taxed at 30%

28
go below 730 days to recover the full

Other Common Income of a Corporate value of the property
Taxpayer
(other than business income) BAR Question:
Common Income of a Corporate Taxpayer: Distinguish operating lease from finance

lease or full pay-out lease.
1. Business Income
2. Gains from Dealings in Property 2. Royalties vs. Business Profit
3. Interests 3. Dividends
Other Common Income of a Corporate Distinguish Operating Lease v. Finance Lease or

Full operational Lease
Taxpayer:
Operating Lease – This is the type of
1. Rent Income arrangement or agreement between the Lessor
and Lessee, wherein the Lessee will pay an
amount to the Lessor, where the possession,
Two Types of Rent Income/Leases: enjoyment, use of that particular leased
property for a specified period. At the end of
the specified lease term or lease period, there
a. Operating Lease - type of is an understanding between the two, that the
arrangement or agreement between ownership retained by the Lessor, the Lessee
the lessor and the lessee wherein the do not become the owner of the property
lessee will pay an amount to the instead the option of the Lessee is to extend
the lease agreement or move out of the leased
lessor for the possession, the property. So, in such transaction the payment
enjoyment or the use of that made by the Lessee to the Lessor will have to be
particular leased property at a reported by the Lessor as Rent Income. This
Lessor could either be an individual tax payer or
specified period.
corporate tax payer. On the other hand, Si
Lessee, (this has something to do with trade or
business), then the Lessee can recognize that
And at the end of that specified lease Lease payment to the Lessor as expense
term/period, there is an understanding provided that the appropriate withholding taxes
have been withheld by the Lessee.
between the two that the ownership is
retained by the lessor. IOW, the lessee do The other type of Lease is the Finance Lease or
not become an owner of the property, Full pay-out Lease - in Layman’s term this is
instead the option of the lessee is either to what we usually know, as the “rent-to-own”
arrangement. Unlike the operating Lease that
extend the lease agreement or to move out there has no agreement to transfer of ownership,
of the leased property. while in a Finance Lease or Full pay-out Lease
(rent-to-own) so there is already an
agreement nga some sort of instalment
*you can start your trans here if you want :)*
payment ang rental nimo, because at the end of
the lease period or agreed period, there is an
b. Finance Lease or Full Pay-out agreement that the ownership of the Leased
Lease - the owner of the property property will now have to be transferred to the
expects over the lease period not to lessee, which is why in a Finance Lease or the
owner of the property expect over the lease

29
period not to go below 730 days to recover the full On the other hand, if there is no proprietary
value of the property interest transferred imparting special knowledge
and experience which will remain unrevealed to
the public then it is a mere business profit. It is
For income tax recognition: just like selling a product.
QUESTION: How do we recognize income in a Example: Franchise of Julie’s bakeshop. If you

finance lease? franchise Julie’s bakeshop, you are not just
ANSWER: As a rule, the lessor/owner of the buying the bread. Julie's basically provides
property, usually property developer in a real everything, the know-how, technical knowledge
estate business, do not recognize as rent income. and train people in order to have the very same
Because for taxation purposes rent is related to product.
operating lease, instead that in flow will be
recorded as part of the sales of the owner. On the You do not just purchase the finished output
part of the lessee instead of recording rent rather you know-how to create that output.
expense, he cannot do so. Because what he/she
did in advance installment payment. The Again, if it is a transfer of know-how then that is
payment under Finance agreement, could form what you called as Royalties and you pay for that
part in the purchases of the taxpayer/lessee. which is called as the royalty payment.
ROYALTIES. A corporate taxpayer which is What is the point of knowing whether it is

similar to an individual taxpayer may also earn royalties or whether it is business profits?
what we call these royalties. But then again, This has something to do with treaty
these royalties could be either ordinary income or arrangements or treaty agreements involving
passive income. Even if it is just an isolated non-resident foreign corporations.
transaction then passive income. If he is actively
marketed and develop by the Corporate taxpayer In treaty arrangements or treaty agreements,
that when a royalties become and ordinary what is usually covered are royalty payments
income subject to the RCIT – Regular Corporate given to non-resident foreign corporations.
Income Tax
Usually in a treaty, kung ang ka deal ni domestic
corporation in the PH is a non-resident foreign
So before we distinguish royalties from business corporation, it requires a technical know-how
profit. from somebody in the US. Of course supposedly
kung wala treaty, mobayad ngadto og royalties
Royalties that subject to to Final Withholding Tax (FWT)
Know-how concept - all the undivulged technical which is 30% because base man ang gross niya
information, whether capable of being patented non-resident foreign corporation.
or not, that is necessary for the industrial
reproduction of a product or process, directly and
under the same conditions; inasmuch as it is
derived from experience, know-how represents
what a manufacturer cannot know from mere
examination of the product and mere knowledge
of the progress of technique.
Examples: Copyright, Patent, Trademark,

Technology, Secret formula or process
There is proprietary interest on the part of the

seller. There is special knowledge and
experience imparted to the buyer.
But to address double taxation usually covered
na sa treaty and of course to encourage cross
border commercial activities. So, it’s either in a

30
reduced rate, referential rate, usually kanang A: Usually if it is the bread and butter of the
usually 10% or exemption but it does not usually corporate taxpayer to do investments. Dili siya
cover business profit. Kay kung business profit, capital investment rather ordinary investment.
ma classify na siya as business profit, there is
already a presumption that, that foreign Q: Unsa na mga corporations involved?
corporation is already doing business here in the
Philippines. Meaning to say, gibaligya na na diri A: Mao na usually ang mga HOLDING
sa Philippines ang finished product or finished COMPANIES. The “Umbrella Companies”, the
output niya. parent company located here in the Philippines
na walay lain operations but to make investments
Let’s have a specific example, kato atong in several subsidiaries and out of these
illustration before na “Parent Company” unya ang investments, it receives dividends from its
“Subsidiary” niya kay naa diri sa Philippines, diri subsidiaries. So, it becomes ordinary.
ang manufacturing. Pwede ban ga si parent
company mu create, diri mag assemble unya ang On the other hand, if the primary purpose of the
uban raw materials didto i-create sa parent corporate taxpayer is not for investment
company and then this subsidiary, di ba purposes but for something else, let’s say
remember they’re different taxable entities. So, manufacturing for example, and then it just
when this subsidiary pays to the parent company decided to create a one time subsidiary and it
for the manufacture of some of the raw materials earns dividends from that subsidiary, in that case
which will have to be assembled here, into pwede pa siya mu sulod sa concept of passive
finished outputs. income. Again, remember if it’s considered
Q: Pwede ba to ma consider na ROYALTIES? passive income, meaning isolated investment na,
capital investment na niya, in such a case, that
A: YES. This is because tendency, the parent will be subject lang to FINAL WITHHOLDING
company will have to teach the subsidiary how to TAX. It will not be subject to the regular corporate
create that, or at least the nuisances, or the income tax.
secret process involved para inig assemble dir
isa Philippines dali na. DIFFERENT TYPES OF DIVIDENDS:
1.Cash Dividend
Q: Pwede ba mu avail ug treaty exempting that 2.Stock Dividend
one? 3.Liquidating Dividend
4.Property Dividend
A: YES. To avail the treaty, you can ask for a 5.Disguised Dividend
Ruling.
So, take note this also applies to individual
So, that’s on the difference between the taxpayer but sa individual taxpayer man gud
Royalties and Business Profit. Again, all these, I usually kung maka dawat siya ug dividends,
think na discuss na to nato ang concept of passive gyud UNLESS if he is working in a Local
Withholding, so the one nga ka deal must be Tax Exchange but that is a different story.
based here in the Philippines. The income must Normally, pag individual, passive investments,
be earned here in the Philippines for it to be mao to mu sulod ang 10, 10, 20 25 but for
subjected to tax here in the Philippines. So, naa corporate taxpayer it could be “Ordinary”. There
diri ang customer or client. are corporations created for investment purposes
or it could be “Passive”.
So, other than Rent Income, Royalties, we also
have Dividends. This is commonly earned by a
corporation. Dividends can be considered
“passive” or can be considered “ordinary income” PART 9.2
for a corporate taxpayer.
For this lecture, we continue with our discussion
Q: When does it become an “Ordinary Income” of on the other income of corporate taxpayers.
a corporate taxpayer? We’ve discussed so far on rent income, and the
difference between an operating lease and a

31
finance lease. We’ve also discussed royalties individual, you have another corporate
and how to distinguish if it is a royalty or if it is a shareholder and etc. Remember, a
business profit. Again, if it is a transfer of corporation can become a shareholder of
technical know-how, then it’s a royalty. If regular another corporation. So if there is a cash
transfer of technical know-how, it becomes dividend it will be subject to 10% tax. If
ordinary income. But if it is just an isolated there is a property dividend, si A
transfer of technical know-how, then it is a corporation as the issuing corporation
passive income subject to final withholding tax. will withhold 10%.
We’ve ended discussing the different types of
dividends and their taxability. Cash dividend example:
Let’s discuss first the types of dividends under Kung gin issue na dividend ni A corporation is P
taxability, whether passive or ordinary. If the 100, 000. This P 100, 000 will not entirely be given
dividend is an ordinary income, it is not subject to to shareholders but mag withhold siya 10%
final withholding tax, rather it is subject to regular thereof. So it will only distribute to the
corporate income tax. But again, usually, passive shareholder will be the net of 10% tax.
mani, so we still discuss it.
Property dividend example:
As to the types of dividends, we have (1) cash
dividends, (2) stock dividends, (3) liquidating Real estate business, so A corporation instead
dividends, (4) property dividends and (5) distributes cash ang gindistribute niya ang House
disguised dividends. and Lot as dividend. One shareholder = one
kani si cash and property dividend… house and lot. The 10% withholding would have
Once cash dividends or property dividends are to be paid in cash by the shareholder to the
received by the stockholder, will this be subject to issuing corporation. It is being shouldered by the
tax? The answer is YES. It is subject to tax. As a stock/shareholder based on the value of the
rule, a corporation registered under…. property that was distributed by the issuing
corporation to the shareholders. So, if these
THE REVISED CORPORATION CODE. as a house and lot, let’s say, valued at 2 million, 1M
rule, it can distribute dividends out to its will have to be paid by the shareholder to A Corp
unappropriated retail earnings or provided in the before A Corpo will have to usually release the
sufficient retail earnings. Dividends are in effect house and lot to the stockholder.
some sort of a return to the investment of the
stockholder or on the investment of the Not, much of a problem with cash dividend and
shareholder. property dividend. Unsa ang nigawas sa bar
exam? It was in relation to property dividend.
For cash dividends, ang gi distribute is cash.
Property dividends on the other hand, ang gi To be clear, a corporation can be a shareholder
distribute is property ni corporation with whom of another corporation. In short, kung ako si A
the shareholder/stockholder has an investment . corporation, pwede ang shareholder nako si B
Corp.
What’s the rule when it comes to these types of
dividends? (cash and property) Let’s have this example: We have A Corporation.
Pwede ang shareholders ni A Corp si Mr. X, Mr. Y,
- As a rule, it is subject to a withholding tax and si XYZ Corporation. So, being shareholders
of 10%. The moment that the cash or of A Corporations, it simply means that XYZ Corp
property dividend is distributed by the is the owner of A Corporation up to the extent of
issuing corporation, the latter will have to his share. So, let’s say for example, nay 100
withhold 10% CWT Creditable. This shares si X, 100 shares si Y out of A Corp, ug nay
presupposes the tax withheld ug i report 500 shares si XYZ Corp, which is issued by A
na, say for example, ni A corporation, say Corp. So, the extent of ownership of XYZ Corp is
for example ang stockholder ni A up to 500 shares.
corporation.So for A corporation there
are several shareholders - you have an

32
What does it mean? It means that these 500 investment in another corporation. So meaning to
shares is owned or is a property of XYZ say, let’s say for example, same situation, in this
Corporation. Kay property man siya ni XYZ, case, ang gi-distribute niya 500 shares ownership
pwede ba muingon si XYZ na it will distribute from A corporation mao na property na ni XYZ
property dividends? Na since it owns 500 shares corporation. But if XYZ corporation, out of its own
in A Corp, pwede ba muingon na I will distribute shares, distribute 100 shares to all shareholders
property shares out of these 500 shares from A of XYZ, and this 100 shares is taken from XYZ
Corp? corporation, that becomes a stock dividend.
Let’s say for example na ang shareholder ni XYZ Why do we need to distinguish whether it is a
kay individuals, let’s say A, B, C, D, E. So, pwede stock or property dividend? Because there are
ba sya muingon, na I will distribute property different rules. If it is considered as property
dividend shares of 100 shares to you A, another dividend, it is subject to the withholding tax of
100 to B, then same to C, D, E. Pwede ba sya 10%.
muingon ana? Is it allowed that way? Yes,
because this is property ownership of
XYZ—these are just shares of A corporation. So,
in this case, what is being distributed by XYZ to
its shareholders ABCDE? Is it cash dividends?
No, because what is being given is ownership in
a corporation. Is it stock dividend? No, because it
cannot qualify as a stock dividend because the
distributed shares to ABCDE who are
shareholders of XYZ corporation are not the
shares issued by XYZ corporation. Rather, these
are shares or A corporation which is a property of
XYZ corporation. So, what is being distributed is If it is a stock dividend as a rule it is not taxable.
a Property dividend. Being a property dividend, is Ngano dili man taxable? Because if all the
this subject to tax? Yes, 10% would have to be shareholders receive the same percentage of
withheld by XYZ because XYZ is the one who stock dividends there is really no profit or no
issued, so, XYZ is the withholding agent of the taxable income to speak of kay pareho raman
government. That 10% will be withheld based on ang percentage increase sa ownership or sa
the value of the shares. A is not included in the shares nila sa issuing corporation. However, if
withholding corporation because A corporation is the stock dividends are subsequently canceled or
just an issuing corporation of the 500 shares. But redeemed by the corporation, meaning to say
the one who declared the 500 shares a s property ‘gipalit’ ni corporation, gi buyback ni issuing XPN
dividend is XYZ corporation. XYZ declared it to its corporation, gi bayran ug kwarta si stock holder
shareholders. What does A corporation have to then that becomes a taxable income. Or if it leads
do with it? Unsa may labot ni A corporation sa to substantial alteration in the proportion of
shareholders ni XYZ. So, if there is somebody corporate ownership, in short, it leads to a dilution
who will have to withhold 10% on the value of the in the corporate ownership of other stockholders
shares issued as property dividends, it will have or shareholders so in such a case, the
to be XYZ corporation. So that’s an example of a stockholder benefited will have to be subjected to
property dividend. tax.
Stock Dividends
Again, unsay kalahian ani nga situation sa

normal stock dividend issuance? In a normal
dividend issuance, same requirements, there
must be sufficient retained earnings. But you call
it stock dividends if the stocks issued to the
ILLUSTRATION:
shareholders are shares of stocks owned by the
issuing corporation. Dili ownership niya from its

33
existing 400 shares of each of the

shareholders.
Hence, the shares of each of the

shareholders are now 500 shares, for a total
of 2,500 shares.
The previous percentage (20%) of ownership

of each of the shareholder is still the same
after the distribution of additional 100 shares
per shareholder.
Paid-up capital - capital nga gi bayaran, gi shell
out ni stockholder
500 shares/2,500 shares = 20%
Retained Earnings - these are income that was

retained or nibalik sa corporation gi pundo niya Shareholders %
for the past several years.
Sardy Nas 20 400+100
Tina Pa 20 400+100
EXAMPLE: Distribution of Stock Dividends
per Percentage So Tang Hon 20 400+100
Ee Sy Que 20 400+100
NOW, let’s say their investments are equal
which is 400,000 upon incorporation. Mis Wa 20 400+100
Each shareholder invested an equal amount of
So, 400,000 investment x 5 persons = 400,000 upon incorporation
2,000,000 paid-up capital.
2000 - total of 400
2500 - total of 500
If Coviduvidapdap decided to distribute 10%
stock dividends, there will be an additional 400/2000 = 20%
10% to each of the shareholders’ current 500/2500 = 20%
percentage ownership.
Four hundred (400) divided by two thousand
(2,000), but this becomes five hundred (500). So if
EXAMPLE: Distribution of Stock Dividends you divide five hundred (500) to two thousand (2,
per Share 500) that still gives you 20%. Tag 20% gihapon
ang ownership nila sa corporation, in short walay
income. Since there is no income, there is no
NOW, let’s say each of the five shareholders tax to speak of, there is no taxable income, so
own 400 shares, for a total of 2,000 shares. there is no tax to be collected.
If Coviduvidapdap decided to distribute 100

shares stock dividends for each shareholder, Shareholders %
there will be an additional 100 shares to the Sardy Nas 20 400+100

34
Tina Pa 20 400+100
So Tang Hon 20 400+CD
Ee Sy Que 20 400+CD
Mis Wa 20 400+CD
CD = Cash Dividend
It would be a different story kung mo-ingon si QUESTION: When are you going to receive the
corporation, magdistribute lng ko 400 shares, liquidating dividend?
kung mo-ingon si corporation na 100 shares ANSWER: This is usually received when the
dividends, 100 shares kang Ms. Tina Pa the rest corporation is in the process of dissolution.
from Mr. So Tang Hon to Ms. Mis Wa cash
dividends namo. In this case there will be a
dilution of ownership.
If Coviduvidapdap owned shares in a corporation,

the distributed dividends to its shareholder are its
shares owned by a corporation does not stock
dividends rather it is a property dividend. If it is a
property dividend we don’t look at the exception:
If subsequently cancelled or redeemed by the
corporation or If lead in the proportion of
corporate ownership, because automatic, it will
be taxable based on the value distributed as
dividends.
Another types of dividends:

EXAMPLE: Since the corporation started your
investment is 2M. Year 2020 the net worth 2M
grew into 4M which means naa nay ginansya na
2M. Then in 2020 you decided to close, the first
thing will happen is you will pay liabilities and the
remaining 4M will go to the shareholders. So
there is a capital income because this type of
dividend is received during liquidation or
dissolution.
For example, if lima kabouk so tag 400K but

pagclose sa 2020, 400K was doubled so there’s a
capital here of 400K, this is taxable income
subject to 0-35% na ang nadawat niya which is
800k. So definitely there is a capital income of
400k and is taxable income subject to 0-35%.
Why not the entire 800k? Why only 400k?

Because the first 400k is just a return of capital
and if it is just a RETURN OF capital and not
RETURN ON TOP of capital, it is not taxable.

35
because in such a case he is considered

Knowledge Check: Problem 1:
to be a mixed-income earner because he
It has come to the attention of Atty.C, a
is earning compensation income and
practicing lawyer, that under the TRAIN Law, a
professional income.
self-employed professionals may avail of the
8% preferential rate in lieu of the graduated
B. No. As a teacher, he is just a mere
rate. Atty. C is the managing partner of his law
employee and if you are earning a
firm and at the same time teaches at the
compensation income under
University of St. Carl. During your meeting, the
employer-employee relationship , you
following conversation transpired:
are subject to the graduated tax rate of
0-35%.
Atty. C: Good morning panyero. Congrats on
the remarkable feat of your school in the recent
bar exams. Knowledge Check: Problem 2:
ABC, a domestic corporation entered into a
You: Thank you, Nyor. software license agreement with XYZ, a
non-resident foreign corporation based in the
Atty. C: I come to you to inquire on two US.
important things based on what I have heard
under the TRAIN Law. Under the agreement which the parties forged
in the US, XYZ granted ABC the right to use a
You: Sure, Sir. What do you want to know? computer system program and to avail of
technical know-how relative to such program.
Atty. C: I have two sources of income. One,
from my firm and the other from my salary at In consideration for such rights, ABC agreed to
University of St. Carl. I just would want to know pay 5% of the revenues it receives from
on the following: customers who will use and apply the program
A. What are the conditions, if any, for me in the Philippines. Discuss the tax implication
to avail the 8% tax rate in lieu of the of the transaction. (8%)
0-35% graduated ratE? Explain (%)
B. Can I use 8% on the salary that I
receive from University of St. Carl?
Take note, the right to use a computer system
(5%)
program and to avail of technical know-how
relative to such program. Kana pa lang na part,
In this case, he is exercising his profession. Make it gives you an idea that this is not just a mere
sure when you enumerate the conditions (like sale of a finished product talking about business
gross receipts must not exceed 3M, must not be profit but this pertains to Royalties.
VAT registered) and make sure you mention he
must not be a partner in a general professional So, XYZ again, is a non-resident foreign
partnership. corporation. So, automatically this is subject to
30% Tax on the Gross Income. So, whatever
In this problem, although naay gi mention law firm amount ABC remits to XYZ, it shall be Net of the
but it is not clear if it is a GPP because in the 30% withholding tax UNLESS, there is a
exercise of law, it can be loose partnership lang favorable treaty, calling for a lower tax rate or
or it can really be GPP. allowing for a lower withholding tax rate and the
parties have applied for an appropriate ruling.
Answer:
A. If GPP, if the law firm is a General You have to analyze, underline, take note of the
Professional Partnership then you given facts para dili ma overwhelmed.
cannot avail of the 8% option.
If not GPP, then you can avail of the 8%

option. It's just that if you avail of the 8%
option there is no 250k deduction

36

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TAXATION 1 Transcripts | Atty. KMA | A.Y.

UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

Primarily, on the taxability of the transaction. A corporation may be a partnership, no matter

UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

types of corporation for tax purposes this covers other

On the other hand, even if that corporation is

B. Non-resident Foreign Corporation

UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

Off-shore banking units deals with foreign

UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

NOTE TO THE PERSON BEFORE OSORIO OR

UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

If you notice, all the income is reported in the firm.

Sir, naa bay TIN ang GPP? Yes.

UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

In GPP again, ang distributive share niya in the

On the other hand, if you re a partner in a general

UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

NOTE: These payments are common in GPPs -

(Atty. KMA did not provide for the above

UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

years. Then you will ask, Niya ngano

BIR will check on your articles, how you’re

EXEMPT CORPORATIONS under SECTION 30

For No. 2, we look unto two things:

UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

2. Operation wise We move on to the fourth exempt non-stock

UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

So ang nahitab didto, ni-ingon si DOF, dili na

UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

agriculture in the PH. Usa mana sa mandate sa

UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

If you are going to further elaborate the coverage

You have to prove for you to be exempted that

When it comes to the second paragraph of Sec

UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

2. Annual registration fee - dapat mubayad ka

3. Issuance of BIR-registered receipts or

UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

minimum wage lang ang honorarium, if they During solution

UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

1. Taxes on income from activities not

So, we already discussed the Dela Salle case,

UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

minimal amount to the University. So gi stop to

How about hospitals by NSNP educational

NOTE: Not all NSNPs are run by religious

Operation of hospitals by the NSNP

It is considered a non-profit hospital or even

UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

government cannot afford to build so many

UNIVERSITY OF SAN CARLOS SCHOOL OF LAW AND GOVERNANCE

purpose which has nothing to do with the