INCOME TAX – CORPORATIONS

SAMPLE PROBLEMS

1. A domestic corporation in its fourth year of operation had the following data:

Gross profit from sales 3,000,000

Expenses of operations 1,000,000
Quarterly income taxes paid 500,000
Dividends from domestic corporation 200,000
Interest on bank deposit 100,000
Shares of stocks of a domestic corporation traded directly to the buyer 250,000
on a selling price of P350,000 and cost of P100,000

How much is the income tax payable?

SOLUTIONS:

Gross profit from sales 3,000,000

Less: Expenses 1,000,000
Taxable income 2,000,000
Multiply by tax rate 25%
Total income tax due* 500,000
Less: Quarterly income taxes paid 500,000
Total income tax payable 0

*MCIT is P30,000; hence income tax due is RCIT.

**Dividends from domestic corp are exempt from income tax. Interest is subject to 20% final tax.
Gains on sale of shares of stocks is subject to 15% capital gains tax.
2. Two-Face Corporation had the following data for 2021:

Gross income, Philippines 975,000

Expenses, Philippines 750,000
Gross income, Malaysia 770,000
Expenses, Malaysia 630,000
Interest on bank deposit 25,000

Determine the income tax payable assuming the corporation is: (a) a domestic corporation; (b)
resident foreign corporation; and (c) nonresident foreign corporation.

Solutions:

Domestic RFC NRFC

Gross income, Philippines 975,000 975,000 975,000
Gross income, Malaysia 770,000 0 0
Other income – interest 0 0 25,000
Total gross income 1,745,000 975,000 1,000,000
Less: Allowable deductions
Expenses, Philippines 750,000 750,000 0
Expenses, Malaysia 630,000 0 0
Taxable income 365,000 225,000 1,000,000
Multiply by tax rate 25% 25% 25%
Total income tax payable 91,250 56,250 250,000
MCIT 17,450 9,750 0
3. A domestic corporation which commenced operations in 2016 provided the following data:

2020 2021 2022

Gross income 10,000,000 12,000,000 14,000,000
Allowable deductions 9,500,000 12,200,000 12,800,000

a. Determine the income tax due and payable for 2020, 2021 and 2022.
b. Assuming the corporation uses OSD instead of the itemized deductions. What is the income
tax due and payable for 2020, 2021, and 2022.

SOLUTIONS:

A.
2020 2021 2022
Gross income 10,000,000 12,000,000 14,000,000
Less: Allowable deductions 9,500,000 12,200,000 12,800,000
Taxable income (loss) 500,000 (200,000) 1,200,000
Less: NOLCO 0 0 200,000
Net taxable income (loss) 500,000 (200,000) 1,000,000
Multiply by RCIT rate (25% + 30%) /2* 27.5% 25% 25%
Income tax per RCIT 137,500 0 250,000

Gross income 10,000,000 12,000,000 14,000,000

Multiply by MCIT rate (1% + 2%) /2* 1.5% 1% 1%
Income tax per MCIT 150,000 120,000 140,000

Income tax due (higher) 150,000 120,000 250,000

Less: Tax credits (excess MCIT) 0 0 132,500
Income tax payable 150,000 120,000 132,500

*Under the CREATE law, the new corporate income tax rate of 25% (or 20%) shall begin on July
1, 2020. Hence, taxable income before CREATE law shall be subject to the old rate of 30%.
Consequently, the new MCIT rate of 1% shall be for the period July 1, 2020, until June 30, 2023.
Starting July 1, 2023, the MCIT rate shall revert to the old rate of 2%.
B.
2020 2021 2022
Gross income 10,000,000 12,000,000 14,000,000
Less: Allowable deductions (40%) 4,000,000 4,800,000 5,600,000
Taxable income (loss) 6,000,000 7,200,000 8,400,000
Less: NOLCO 0 0 0
Net taxable income (loss) 6,000,000 7,200,000 8,400,000
Multiply by RCIT rate (25% + 30%) /2* 27.5% 25% 25%
RCIT 1,650,000 1,800,000 2,100,000

Gross income 10,000,000 12,000,000 14,000,000

Multiply by MCIT rate (1% + 2%) /2* 1.5% 1% 1%
MCIT 150,000 120,000 140,000

Income tax due (higher) 1,650,000 1,800,000 2,100,000

Less: Tax credits 0 0 0
Income tax payable 1,650,000 1,800,000 2,100,000
4. A domestic corporation had the following cumulative data in the year:

Y5 Y6 Y7 Y8 Y9
MCIT 400,000 100,000 300,000 200,000 100,000
RCIT 100,000 200,000 200,000 100,000 400,000

How much is the income tax due and payable from Year 5 to Year 9?

SOLUTIONS:

Y5 Y6 Y7 Y8 Y9
Income tax due 400,000 200,000 300,000 200,000 400,000
Less: Tax credit (excess MCIT) 0 200,000 0 0 200,000
Income tax payable 400,000 0 300,000 200,000 200,000

Y5 Y6 Y7 Y8 Y9
MCIT 400,000 100,000 300,000 200,000 100,000
RCIT 100,000 200,000 200,000 100,000 400,000
Excess MCIT 300,000 0 100,000 100,000 0

Unutilized MCIT Y5 Y6 Y7 Y8 Y9
Y5 300,000 100,000 100,000 - -

(200,000 - (100,000 -
utilized) expired)
Y6
100,000 100,000 -
Y7
(100,000
– utilized)
100,000 -
Y8
(100,000
– utilized)
Y9
Total available MCIT 300,000 100,000 200,000 200,000 -
 5. A domestic corporation has the following historical results of operations:

2021 2022 2023 2024 2025

Gross income 1,000,000 1,500,000 3,400,000 800,000 2,500,000
Allowable deductions 1,600,000 2,200,000 1,000,000 1,000,000 1,400,000
Income (loss) (600,000) (700,000) 2,400,000 (200,000) 1,100,000

How much is the income tax due and payable from Year 5 to Year 9?

SOLUTIONS:

2021 2022 2023 2024 2025

Gross income 1,000,000 1,500,000 3,400,000 800,000 2,500,000
Allowable deductions 1,600,000 2,200,000 1,000,000 1,000,000 1,400,000
Taxable Income (loss) (600,000) (700,000) 2,400,000 (200,000) 1,100,000
Less: NOLCO 0 0 1,300,000 0 200,000
Net taxable income (loss) (600,000) (700,000) 1,100,000 (200,000) 900,000
Multiply by RCIT rate 25% 25% 25% 25% 25%
RCIT 0 0 275,000 0 225,000

Gross income 1,000,000 1,500,000 3,400,000 800,000 2,500,000

Multiply by MCIT rate 1% 1% 1.5% 2% 2%
MCIT 10,000 15,000 51,000 16,000 50,000

Income tax due 10,000 15,000 275,000 16,000 225,000

Less: Tax credit (excess MCIT) 0 0 25,000 0 16,000
Income tax payable 10,000 15,000 250,000 16,000 209,000

MCIT 10,000 15,000 51,000 16,000 50,000

RCIT 0 0 275,000 0 225,000
Excess MCIT 10,000 15,000 0 16,000 0

Unutilized MCIT 2021 2022 2023 2024 2025

Y5 10,000 10,000 0
(10,000 –
utilized)
15,000 0
Y6 (15,000 –
utilized)
Y7
16,000 0
Y8 (16,000 –
utilized)
Y9
Total available MCIT 10,000 25,000 0 16,000 0
Available NOLCO 2021 2022 2023 2024 2025
Y5 600,000 600,000 0
(600,000
– utilized)
700,000 0
Y6 (700,000
– utilized)
Y7
200,000 0
Y8 (200,000
– utilized)
Y9
Total available NOLCO 600,000 1,300,000 0 200,000 0
6. A domestic corporation has the following historical results of operations:

Y5 Y6 Y7 Y8 Y9
Income (loss) (600,000) (700,000) 400,000 (200,000) 100,000

How much is the available NOLCO for each year?

SOLUTIONS:

Y5 Y6 Y7 Y8 Y9
Taxable Income (loss) (600,000) (700,000) 400,000 (200,000) 100,000
Less: NOLCO 0 0 400,000 0 100,000
Net taxable income (loss) (600,000) (700,000) 0 (200,000) 0

Available NOLCO Y5 Y6 Y7 Y8 Y9
Y5 600,000 600,000 200,000 0
(400,000 (200,000
– utilized) – expired)
700,000 700,000 700,000 0
(100,000
– utilized
Y6
600,000 -
expired)
Y7
Y8 200,000 200,000
Y9
Total available NOLCO 600,000 1,300,000 900,000 900,000 200,000
7. A domestic corporation has the following historical results of operations:

2020 2021 2022 2023 2024

Income (loss) (600,000) (700,000) 400,000 (200,000) 100,000

How much is the available NOLCO for each year?

SOLUTIONS:

2020 2021 2022 2023 2024

Taxable Income (loss) (600,000) (700,000) 400,000 (200,000) 100,000
Less: NOLCO 0 0 400,000 0 100,000
Net taxable income (loss) (600,000) (700,000) 0 (200,000) 0

Available NOLCO 2020 2021 2022 2023 2024

2020 600,000 600,000 200,000 200,000 200,000
(400,000
– utilized)
700,000 700,000 700,000 600,000
2021 (100,000
– utilized)
2022
2023 200,000 200,000
2024
Total available NOLCO 600,000 1,300,000 900,000 1,100,000 1,000,000

Pursuant to Revenue Regulations No. 25-2020, NOLCO incurred during the year 2020 and 2021
are allowed to be carried over as a deduction from gross income for the next five (5) years, instead
of the usual 3 years, immediately following the year of such loss. This is in consideration of the
impact of the pandemic.
8. Compairs Corp is engaged in computer sales, reporting the following income and expenses
during the year:

Net sales 1,700,000

Cost of sales 500,000
Salaries expense 90,000
Rent expense 60,000
Representation expense 10,000

a) How much is the income tax due?

b) Assuming the corporation opted to use OSD, what is the income tax due?

SOLUTIONS:

Itemized OSD
Net sales 1,700,000 1,700,000
Less: Cost of sales 500,000 500,000
Gross profit 1,200,000 1,200,000
Less: Allowable deductions 158,500 680,000
Salaries 90,000
Rent 60,000
Representation expense 8,500*
Taxable income 1,041,500 520,000
Multiply by RCIT rate 25% 25%
RCIT 260,375 130,000

Gross profit 1,200,000 1,200,000

Multiply by MCIT rate 1% 1%
MCIT 12,000 12,000

Income tax due and payable 260,375 130,000

*Computation for limitations Goods

Representation expense 10,000
Limit (0.5% x P1,700,000) 8,500
Non-deductible expense 1,500
9. Compairs Inc is engaged in computer repairs and maintenance, reporting the following income
and expenses during the year:

Net revenue 1,300,000

Cost of services 300,000
Salaries expense 90,000
Rent expense 60,000
Representation expense 10,000

a) How much is the income tax due?

b) Assuming Compairs opted to use OSD, what is the income tax due?

SOLUTIONS:

Itemized OSD
Net revenue 1,300,000 1,300,000
Less: Cost of services 300,000 300,000
Gross profit 1,000,000 1,000,000
Less: Allowable deductions 160,000 520,000
Salaries 90,000
Rent 60,000
Representation expense 10,000*
Taxable income 840,000 480,000
Multiply by RCIT rate 25% 25%
RCIT 210,000 120,000

Gross profit 1,000,000 1,000,000

Multiply by MCIT rate 1% 1%
MCIT 10,000 10,000

Income tax due and payable 210,000 120,000

*Computation for limitations Services

Representation expense 10,000
Limit (1% x P1,300,000) 13,000
Non-deductible expense 0
10. The net operating loss reported in the GAAP income statement is P50,000 after P200,000
operating expense. Part of the operating expense is a P10,000 bad debts based on estimate and
interest expense from bank loan of P2,000. During the year, the final tax on interest income
from bank deposit is P800. How much NOLCO can be deducted in the succeeding periods?

SOLUTION:

Net operating loss per GAAP (50,000)

Add: Operating expenses 200,000
Gross profit 150,000
Less: Allowable deductions
Operating expenses 200,000
Less: Nondeductible bad debts provisions 10,000
Nondeductible interest expense 800 189,200
Taxable income (loss) (39,200)

Non-deductible interest expense:

Final tax on interest income 800
Divide by final tax rate 20%
Gross interest income 4,000
Multiply by tax arbitrage rate 20%
Non-deductible interest expense 800