TAX ON CORPORATION

Presented by:
Ms. Arlene F. Sabado
Corporation
includes also mutual fund
companies, regional operating
headquarters of multinational
corporations, and joint accounts.
The term “Corporation” does not include:
A. A general professional partnership
B. Ajoint venture or consortium formed for the purpose
of undertaking construction projects
C. Ajoint venture or consortium for engaging in
petroleum, coal, geothermal and other energy
operations pursuant to an operating or consortium
agreement under a service contract with the
government.
Domestic Corporations are subject to
any or some of:
A. Capital gain tax
B. Final tax on passive income
C. Normal tax (acronym of NT or RCIT)
D. Minimum corporate income tax (acronym of
MCIT)
E. Improper accumulated earnings tax (acronym
of IAET).
Figure 3.1
Capital gain tax on domestic corporations
A. On sale of Shares of stock of a domestic corporation not listed and
traded thru the local stock exchange, held as a capital assets.
On the net capital gain:
On any amount within the first 100,000 Final tax of 5%
On any amount exceeding the first 100,000 Final tax of 10%
B. On sale of land and/or building held as capital asset.
On the gross selling price or current fair market value prevailing at
the time of sale, whichever is higher. Final tax of 6%
Figure 3.2
Income tax rules on domestic corporations
A. Same as (a) and (b) on Figure 3.1
B. From sources within the Philippines, on passive income of:
Interest under the expanded foreign currency deposit system
Final tax of 7.5%
C. From sources within the Philippines, on passive income of:
Interest on any currency bank deposit, yield or other
monetary benefit from deposit substitute, trust fund and
similar arrangement, royalty
Final tax 20%
Figure 3.2
Income tax rules on domestic corporations
D. Dividend from domestic corporation (intercompany dividend)
-Exempt-
E. Taxable income (NET) from all sources within and outside in the
Philippines-
Normal Tax 30% (But, beginning with the fourth year from start
operations, whichever is higher of:
Normal Tax 30%
Minimum Corporate Income Tax (MCIT), on MCIT gross income 2%
Tax Formula for the normal tax:
Gross income xxxx
Less: allowable deductions for expenses and looses (xxx)
Taxable income subject to the normal tax Pxxx
Figure 3.3 Categories of Income subject to tax
of a domestic corporation
Category A Category B Category C
Capital gain with capital Passive income with final Other income
gain tax of tax: Normal tax of 30%
(a)5% and 10% (a)7.5%
But beginning with the fourth
(b)6% (b)20%
year of operations, whichever
is higher of:
The normal tax of 30% and the
The tax in (a) is due minimum corporate income
withing 30 days from the tax of 2%
date of sale. The tax in (b) The tax is withheld at The normal income tax (NT)
is withheld at source source. The income and the minimum corporate
(installment received is tax paid already income tax (MCIT) are
payment/withholding computed and shown in the
quarterly and annual income
under certain conditions)
tax returns.
Illustration:
ABC Company, a domestic corporation in its second year
of operations, had the following data for the year
Gross Income from business P2,000,000
Business expenses and losses 1,000,000
Capital gain on land sold for P5,000,000 900,000
Interest on Philippine currency bank deposit 20,000
The normal tax should have been computed as follows:

Gross income from business P2,000,000

Less: Business expenses and losses 1,000,000
Taxable Income subject to normal tax 1,000,000
Income Tax at 30% P300,000
Figure 3.4 Minimum Corporate income tax
gross income
In the case of merchandising concerns (from
statutory definition):

Net Sales
Less: Cost of Sales
Equals: Gross profit from sales subject to MCIT
Illustration, Accounting: On assumed accounting data for a trading concern:
Gross Sales P800,000
Less: Sales Returns and allowances P20,000
Sales Discounts 5,000 25,000
Net Sales P775,000
Less: Inventory, January 1 P30,000
Add: Purchases P250,000
Less: Purchase returns and allowances P10,000
Purchase Discounts 2,000 12,000
Net Purchases 238,000
Add: Freight In 5,000 P243,000
Cost Available for sale P273,000
Less: Inventory, end 15,000
Cost of sales P258,000
Gross Profit from sales P517,000
MCIT (P517,000 x 2%) P 10, 340
In the case of manufacturing concerns:

Net Sales
Less: Cost of Goods manufactured and sold
Equals: Gross Profit from sales subject to the MCIT
Illustration, Accounting: On assumed accounting data for a manufacturing concern:
Gross Sales P875,00
Less: Sales Returns and allowances P20,000
Sales discounts 5,000 25,000
Net Sales P850,000
Less: Raw materials:
Inventory, January 1 P30,000
Add: Net Purchases 100,000
Materials available for use 130,000
Less: Inventory, December 31 15,000
Raw materials used P115,000
Add: Labor 50,000
Manufacturing overhead 30,000
Total manufacturing costs P195,000
Total Manufacturing costs P195,000
Add: Work in Process inventory,
January 1 50,000
Cost of goods put in process P245,000
Less: Work In process inventory
December 31 40,000
Cost of goods manufactured P205,000
Add: Finished goods inventory
January 1 60,000
Total good available for sale P265,000
Less: Finished goods inventory,
December 31 45,000
Cost of goods manufactured and sold P220,000
Gross profit from sales (P850,000-220,000) P630,000
MCIT (P630,000 x 2%) P12,600
In the Case of service concerns:

Gross Receipts or Revenues

Less: Direct costs of the services
Equals: Gross income subject to the MCIT
Illustration:
ABC Company, a domestic corporation, is a service enterprise. In its
Fourth year of operations, it had:
Gross revenues P900,000
Discounts and allowances 50,000
Salaries of service personnel 160,000
Depreciation of equipment used in rendering services 10,000
Rental of Office 140,000
Supplies used 12,000
Lights, water, and telephone 55,000
Repairs 5,000
Other operating expenses 110,000
The computation for the minimum corporate income tax:
Gross revenue P900,000
Less: Discounts and allowances 50,000
Net revenues P850,000
Less: Direct cost of services
Salaries of service personnel P160,000
Depreciation of equipment 10,000
Rental of Office 140,000
Supplies used 12,000
Light, water and telephone 55,000
Repairs 5,000 382,000
Gross income P468,000
MCIT (468,000 x 2%) P9,360
Another illustration: A corporate tax payer had a gross profit
from sales of P500,000 and a gain on sale of an asset of
P100,000. How much was the minimum corporate income tax
computed according to Revenue Regulations No. 12-2007?

Gross profit from sales P500,000

Gain on sale of an asset 100,000
Total P600,000
MCIT (P600,000 x 2%) P12,000
Another Illustration: ABC Company. A domestic corporation, in its
fourth year of operations had a gross profit from sales of P300,000 and
net taxable income of P100,000. How much was the income tax of the
corporation for the year?

Minimum corporate income tax (P300,000 x 2%) P6,000

Normal income tax (P100,000 x 30%) P30,000
Income tax for the year (whichever is higher) P30,000
Quarterly Tax On Corporations
• The quarterly and year-end returns
report cumulative income and
deductions
• Income with final tax or capital gain
with capital gain tax is not in the
quarterly and year end returns
Illustration: G Co., a domestic corporation, in its fourth year of the operations in 2012, had the
following cumulative balances at the end of each quarter, and at the end, of the year (in the
Philippine pesos):

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

Gross profit from sales 350,000 530,000 790,000 995,000

Interest on Philippine currency bank 4,000 8,000 12,000 16,000

deposit
Capital gains on sale directly to buyers
of:
Land 900,000
Shares of Domestic corporation 150,000 150,000 150,000

Dividend from domestic corporation 10,000 10,000 20,000 20,000

Business Expenses 200,000 310,000 380,000 490,000

Illustration: G Co., a domestic corporation, in its fourth year of the operations in 2012, had the
following cumulative balances at the end of each quarter, and at the end, of the year (in the
Philippine pesos):
Income tax at the end of 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Gross profit from sales 350,000 530,000 790,000 995,000
Business expenses 200,000 310,000 380,000 490,000
Taxable Income 150,000 220,000 410,000 505,000

MCIT at 2% 7,000 10,600 15,800 19,900

NT at 30% 45,000 66,000 123,000 151,500
Less: Income tax of
1st qtr (45,000) (45,000) (45,000)
2nd Qtr (21,000) (21,000)
3rd Qtr __________ ____________ _________ (57,000

Income tax due 45,000 21,000 57,000 28,500

Excess MCIT carry forward

Excess MCIT of a year is carried

forward to the next three
years, to the extent that it can
be absorbed by NT of such
years.
Illustration:
A domestic corporation had the following data on
computations of the normal tax and minimum
corporate income tax (MCIT) for five years:
Year 4 Year 5 Year 6 Year 7 Year 8

MCIT P80,000 P50,000 P30,000 P40,000 P35,000

NT 20,000 30,000 40,000 20,000 70,000

The excess MCITs over NTs carry-forward are shown in Figure 3.5
Year 4 Year 5 Year 6 Year 7 Year 8
MCIT 80,000 50,000 30,000 40,000 35,000
NT 20,000 30,000 40,000 20,000 70,000

NT is 40,000 70,000
higher

Less:
Excess
MCIT carry-
forward

Year 4 40,000
Year 5 20,000
Year 7 20,000

Year tax 80,000 50,000 0 40,000 30,000

The Income tax of the year
The income tax of a year of a corporation
may be the total of the three taxes of:
1. Capital Gain tax
2. Final tax on passive income
3. Normal Income tax
Illustration: I Co. a domestic corporation, a trading concern, in its fifth year of
operations in 2012, had the following:
Gross Sales P40,000,000
Interest on Philippine currency bank deposit 100,000
Dividend from domestic corporation 50,000
Dividend from resident foreign corporation 40,000
Capital gain on sale directly to buyer or shares of stock
Of a domestic corporation on a selling price of P600,000 80,000
Capital gain on sale of land and building on a selling price
At the prevailing market value of P5,000,000 P 1,000,000
Interest on trade notes receivable 20,000
Sales Returns and allowances 700,000
Sales Discounts 800,000
Cost of sales P18,500,000
Business Expenses P19,000,000
The income taxes of the corporation should have been:
Final tax on passive income
On interest on Philippine currency bank deposit (P100,000 x 20%) P20,000
Capital gain tax:
On shares of stock of domestic corporation (P80,000 x 5%) P 4,000
On land and building (P5,000,000 x 6%) P300,000
Income tax on other income:
Normal tax
Gross sales P40,000,000
Less: Sales returns and allowances P700,000
Sales discount P800,000 P1,500,000
Net Sales P38,500,000
Less: cost of sales P18,500,000
Gross profit from sales P20,000,000
Gross profit from sales P20,000,000
Add: Dividend from foreign corporation 40,000
Interest on trade notes receivable 20,000
Gross IncomeP20,060,000
Less: Deductions for business expenses P19,000,000
Taxable Income P1,060,000
Normal tax income (P1,060,000 x 30%) P 318,000
MCIT (20,060,000 x 2%) per Rev. reg. no. 12-2007 P 401,200
Income tax (whichever is higher) P 401,200
Income tax expense of the year
Final tax on passive income 20,000
Capital gain tax on shares 4,000
Capital gain tax on land and building 300,000 304,000
Normal income tax 318,000
Total P642,000
And a deferred Charge – MCIT of 83,200
Total P725,200
The IAET, or improperly accumulated
earnings tax
The IAET is ten percent (10%) of the improperly
accumulated taxable income (IATI) of the year.
Formula per revenue Memorandum Circular 35-2011
Taxable income for the year (e.g., 2018) P xxx
Add:
a. Income subjected to final tax Pxxx
b. NOLCO xxx
c. Income excluded from gross incomexxx
d. Income exempt from tax xxx
e. Income excluded from gross incomexxx xxx
Pxxx
Less:
f. Income taxes paid xxx
g. Dividends declared/paid xxx xxx
h. Total Pxxx
i. Add: Retained earnings from prior years xxx
j. Accumulated earnings as of Dec 31, 2018 Pxxx
k. Less: Amount that may be retained (100% of paid up capital as of Dec 31, 2018) xxx
l. IATI (Improperly accumulated taxable income) Pxxx
m. IAET (10% of IATI) Pxxx