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MINIMUM CORPORATE INCOME TAX: A BANE OR A BOON?

By ROSALINO G. FONTANOSA, CPA, MBA


REVENUE REGULATIONS NO. 9-98 issued September 2, 1998
prescribes the regulations to implement new Comprehensiive Tax
Reform program R! "o# 8$2$% relative to the imposition of the
&inimum Corporate 'ncome Tax &C'T% of 2( of the gross income on
domestic corporations and resident foreign corporations#
This refers to the gross income as of the end of the taxable )ear
beginning the $th taxable )ear immediatel) following the taxable
)ear in which such corporation commenced its business operations#
*or purposes of the &C'T, the taxable )ear in which business
operations commenced shall be the )ear upon registration with
+ureau of 'nternal Revenue#
*or purposes of the minimum corporate income tax,
1# Gross I!o"#$ means gross sales less sales returns,
discounts and
allowances and # cost of good sold#
2# ,Gross S%&#s$ shall include onl) sales contributor) to income
-## Cos' o( Goo)s So&)$ shall include all business expenses
directl) incurred
to produce the merchandise to bring them to their present location
and use#
$# *or a trading or merchandising concern, ,Cos' o( Coo)s So&)$
-means the
invoice cost of goods sold, plus import duties, freight in transporting
the goods
to the place where the goods are actuall) sold, including insurance
while the
goods are in transit#
.# *or a manufacturing concern, Cos' o( Goo)s M%*(%!'*r#)
%) So&)$
means all costs of production of /nished goods, such as raw materials
used,
direct labor and manufacturing overhead, freight cost, insurance
premiums and
other costs incurred to bring the raw materials to the factor) or
warehouse#
0# 'n the case of sales of services, the term Gross I!o"#$ means
gross
receipt less sales returns, allowances, discounts and cost of services#
1# Cos' o( S#r+,!#s$ means all directs costs and expenses
necessaril)
incurred to provide the services re2uired b) the customers and
clients
including a% salaries and emplo)ee bene/ts of personnel,
consultants and
specialists directl) rendering the service, and b% cost of facilities
directl)
utili3ed in providing the service such as depreciation or rental of
e2uipment
used and cost of supplies4
8# Cos' o( S#r+,!#s$ shall include interest expense except in
the case of
ban5s and other /nancial institutions#
9# The term Gross R#!#,-'s$ as used herein means amounts
actuall) or
constructivel) received during the taxable )ear6
17# The term Gross R#!#,-'s$ shall mean amount earned as
gross income#
The &C'T will be imposed whenever such operation has 3ero or
negative taxable income or whenever the amount of &C'T is greater
than the normal income tax due from such operation# 'n the case of a
domestic corporation whose operations or activities are partl)
covered b) the regular income tax s)stem and partl) covered under a
special income tax s)stem, the &C'T will appl) on operations covered
b) the regular income tax s)stem#
The term, or"%& ,!o"# '%.$ means the income tax rates which
are -$(
on 8anuar) 1, 19986 --( e9ective 8anuar) 1, 19996 and at -2(
e9ective
8anuar) 1, 2777 through :ctober 277. and -.( e9ective "ovember
277. and
through ;ecember 2778##
/For '0# (*&& '#.' o( RR 9-98, -&#%s# r#(#r 'o '0# %''%!0"#'1.
The logic behind the &C'T is eas) to understand# *or so man) )ears,
some
companies have been lording it over b) showing )ear<in and )ear<out,
losses in
their business operations# =ith the help of their unscrupulous and
ver)
,creative> accountants, a compan) can show annual losses
consistentl) even
for successive ten )ears of operations# !nd )et the) still continue
operations# 'f
that is not glutton) for punishment, then ' do not 5now what is# =ith
the
losses, no taxable income and therefore no tax mone) going to the
co9ers of
the government# :r if )ou are dealing with sa), group of companies
under
same ownership, the pro/ts of the pro/table /rms can be tapered o9
b) the
losses of non<pro/table /rms# :r in other words, it is a good form of
tax shield#
The +'R has gotten wise to this modus operandi# Thus the imposition
of the
&C'T#
=ith the &C'T, even if the bottomline shows a negative /gure, the
compan)
has still to pa) tax, particularl), the &C'T#
=hile we can follow the mind frame of the +'R re4 unscrupulous
accountants in
the practice of ,creative> accounting, what the) failed to consider is
the natural
business c)cle of some industries# *or example, some industries are
capital
intensive<the utilit) industries li5e power, water, transport and
telecommunications#
These industries, being capital intensive, re2uire huge investment in
terms
of capital e2uipment?expenditures# This means b) the nature of long
recover)
period, having losses for the /rst - )ears of operations could be a
natural
expectation# The imposition of &C'T on these industries is not onl)
repressive
but also counter productive# The impact of &C'T is to discourage
investors
from going into long<recover) industries and encourage them to go
into
industries that re2uire moderate investment and give them fast
recover) on
their investment#
This is de/nitel) a case of one hand not 5nowing what the other hand
is doing#
=hile we encourage investors to go into utilit) industries since a
developing
econom) li5e the @hilippines depend to a large extent in the growth
of utilit)
industr), the &C'T e9ect is simpl) the opposite# The signi/cance of
power,
water, transport and telecommunications in the progress of a nation
can not
be overemphasi3ed#
=hat ' recommend is to give tax holida)s to these industries, rather
than in
one sweep include them in ordinar) domestic corporation subAect to
&C'T after
- )ears from starting operations#
The same rule applies to resident foreign corporations who are
li5ewise subAect
to &C'T# =hile the governmentBs pronounced polic) is to attract
foreign
investors , the imposition of &C'T wor5s in reverse# *oreign
investment brings
in so man) bene/ts to our people, the multiplier e9ect of Aob
opportunities and
emplo)ment, development of the countr)side, etc# are pleasant
realities that go
with foreign investment#
=hat ' suggest further is for the +'R together with other government
agencies
li5e "C;!?+:'?;T' to ma5e a stud) b) industr) and come out with
reasonable
recover) period before the) can show pro/table operations%# =hile
m)
example deals onl) with utilit) industries, there are de/nitel) some
other
industries under similar situation#
+ased on the stud), ' further suggest that appl) a speci/c &C'T<free
)ears for each industr) as applicable#
'n conclusion, &C'T is a double<edge sword# 't hurts# The onl) trouble
is it can hurt the wrong part)# 'n a seminar ' attended on tax last
)ear, no less than the ;irector of Tax Research Council, ;r# ;ante S),
expressed apprehension on the logic?validit) of &C'T# ! legitimate,
honest<to<goodness businessman who invests in long<recover)
industries undul) su9ers from this tax# *or the cheating, unscrupulous
businessman, he deserves the &C'T#
!ugust 25,1998
REVENUE REGULATIONS NO. 9-98
SUBJECT: Implementing Republi At N!. 8"#"$ % An At Amen&ing t'e
N(ti!n(l Inte)n(l Re*enue C!&e$ (+ (men&e&, Rel(ti*e t! t'e
Imp!+iti!n !- t'e .inimum C!)p!)(te In!me T(/ 0 .CIT 1 !n
2!me+ti C!)p!)(ti!n+ (n& Re+i&ent 3!)eign C!)p!)(ti!n+

TO: All Inte)n(l Re*enue O--ie)+ (n& Ot'e)+ C!ne)ne&
Pursuant to Section 244, in relation to Section 27(E) and Section 28(A)(2), these
Regulations are hereb !ro"ulgated to go#ern the i"!osition o$ the "ini"u"
cor!orate inco"e ta% on do"estic and resident $oreign cor!orations&
Se #.#40E1 .INI.U. COR5ORATE INCO.E TA6 0.CIT1 ON
2O.ESTIC COR5ORATION-
071 Imp!+iti!n !- t'e T(/8 A "ini"u" cor!orate inco"e ta% ('()*) o$
t+o !ercent (2,) o$ the gross inco"e as o$ the end o$ the ta%able ear (+hether
calendar or $iscal ear, de!ending on the accounting !eriod e"!loed) is hereb
i"!osed u!on an do"estic cor!oration beginning the $ourth (4
th
) ear
i""ediatel $ollo+ing the ta%able ear in +hich such cor!oration co""enced
its business o!erations& *he '()* shall be i"!osed +hene#er such cor!oration
has -ero or negati#e ta%able inco"e or +hene#er the a"ount o$ "ini"u"
cor!orate inco"e ta% is greater than the nor"al inco"e ta% due $ro" such
cor!oration&
.or !ur!oses o$ these Regulations, the ter", %n!)m(l in!me t(/, "eans the
inco"e ta% rates !rescribed under Sec& 27(A) and Sec& 28(A)(1) o$ the (ode at
/4, on 0anuar 1, 19981 //, e$$ecti#e 0anuar 1, 19991 and at /2, e$$ecti#e
0anuar 1, 2222 and therea$ter&
)n the case o$ a do"estic cor!oration +hose o!erations or acti#ities are !artl
co#ered b the regular inco"e ta% sste" and !artl co#ered under a s!ecial
inco"e ta% sste", the '()* shall a!!l on o!erations co#ered b the regular
inco"e ta% sste"& .or e%a"!le, i$ a 34)5registered enter!rise has a
6registered7 and an 6unregistered7 acti#it, the '()* shall a!!l to the
unregistered acti#it&
0#1 C())9 -!):()& !- e/e++ minimum !)p!)(te in!me t(/- An e%cess
o$ the "ini"u" cor!orate inco"e ta% ('()*) o#er the nor"al inco"e
ta% as co"!uted under Sec& 27(A) o$ the (ode shall be carried $or+ard
on an annual basis and credited against the nor"al inco"e ta% $or the
three (/) i""ediatel succeeding ta%able ears&
Illu+t)(ti!n !n '!: t! ())9 -!):()& e/e++ minimum !)p!)(te
in!me t(/ 8
E/e++ !- .CIT
;e() N!)m(l In!me O*e) t'e N!)m(l
T(/ .CIT In!me T(/
1998 P52,222 P75,222 P25,222
1998 a"ount o$ ta% !aable P75,222
1999 P82,222 P122,222 P42,222
1999 a"ount o$ ta% !aable P122,222
2222 P122,222 P82,222
(o"!utation o$ 9et A"ount o$ *a% Paable in 2222:
A"ount o$ ta% !aable P122,222
;ess:
1998 e%cess '()* (25,222)
1999 e%cess '()* (42,222) P85,222
9et a"ount o$ ta% !aable P/5,222
*he ta%!aer shall !a the '()* +hene#er it is greater than the regular or
nor"al cor!orate inco"e ta% +hich is i"!osed under Sec& 27 (A) o$ the (ode& *he
co"!arison bet+een the nor"al inco"e ta% !aable b the cor!oration and the '()*
shall be "ade at the end o$ the ta%able ear& *hus, under the e%a"!le, the ta%!aer +ill
!a the '()* o$ P75,222 since this a"ount is greater than the nor"al inco"e ta% o$
P52,222 in 1998&
)n 1999, the $ir" +ill also !a the '()* since the '()* o$ P122,222&22 is
greater than the nor"al inco"e ta% P82,222&
)n the ear 2222, +here the nor"al or regular cor!orate inco"e ta% o$
P122,222&22 is greater than the '()* o$ P82,222&22, the $ir" +ill !a the nor"al
inco"e ta%&
*he cor!oration can credit the e%cess o$ its '()* o#er the nor"al inco"e ta%
$or 1998(i&e& P25,222) and 1999 (i&e& P42,222), or a total a"ount o$ P85,222 $ro" the
a"ount o$ nor"al inco"e ta% +hich is !aable b the $ir" in the ear 2222& *hus, the
a"ount o$ inco"e ta% !aable b the $ir" is P/5,222 a$ter deducting P85,222 $ro"
P122,222&
*he e%cess '()* is creditable against the nor"al inco"e ta% +ithin the ne%t
three (/) ears $ro" !a"ent thereo$& *hus, in the illustration abo#e +here the
cor!oration had an e%cess '()* o$ P25,222 o#er its nor"al inco"e ta% in 1998, the
and onl +hen the nor"al inco"e ta% is greater than the '()*& *he e%cess '()*
cannot be clai"ed as a credit against the '()* itsel$ or against an other losses&
0<1 Relie- -)!m t'e .inimum C!)p!)(te In!me T(/ un&e) Ce)t(in
C!n&iti!n+ 8 *he Secretar o$ .inance, u!on reco""endation o$ the (o""issioner,
"a sus!end i"!osition o$ the '()* u!on sub"ission o$ !roo$ b the a!!licant5
cor!oration, dul #eri$ied b the (o""issioner<s authori-ed re!resentati#e, that the
cor!oration sustained substantial losses on account o$ a !rolonged labor dis!ute or
because o$ 6$orce "a=eure7 or because o$ legiti"ate business re#erses&
0"1 2e-initi!n !- Te)m+
(a) %G)!++ In!me, &e-ine& 8 .or !ur!oses o$ the "ini"u"
cor!orate inco"e ta% !rescribed under this Subsection, the ter" %g)!++ in!me, "eans
gross sales less sales returns, discounts and allo+ances and cost o$ good sold& 6G)!++
+(le+, shall include onl sales contributor to inco"e ta%able under Sec& 27(A) o$ the
(ode& %C!+t !- g!!&+ +!l&, shall include all business e%!enses directl incurred to
!roduce the "erchandise to bring the" to their !resent location and use&
Passi#e inco"es +hich ha#e been sub=ect to a $inal ta% at source shall not $or"
!art o$ gross inco"e $or !ur!oses o$ the "ini"u" cor!orate inco"e ta%&
.or a trading or "erchandising concern, 6!+t !- g!!&+ +!l&, "eans the in#oice
cost o$ goods sold, !lus i"!ort duties, $reight in trans!orting the goods to the !lace
+here the goods are actuall sold, including insurance +hile the goods are in transit&
.or a "anu$acturing concern, %!+t !- g!!&+ m(nu-(tu)e& (n& +!l&, "eans
all costs o$ !roduction o$ $inished goods, such as ra+ "aterials used, direct labor and
"anu$acturing o#erhead, $reight cost, insurance !re"iu"s and other costs incurred to
bring the ra+ "aterials to the $actor or +arehouse&
)n the case o$ sales o$ ser#ices, the ter" %g)!++ in!me, "eans gross recei!t
less sales returns, allo+ances, discounts and cost o$ ser#ices& %C!+t !- +e)*ie+, "eans
all directs costs and e%!enses necessaril incurred to !ro#ide the ser#ices re>uired b
the custo"ers and clients including (a) salaries and e"!loee bene$its o$ !ersonnel,
consultants and s!ecialists directl rendering the ser#ice, and (b) cost o$ $acilities
directl utili-ed in !ro#iding the ser#ice such as de!reciation or rental o$ e>ui!"ent
used and cost o$ su!!lies: Pro#ided, ho+e#er, that %!+t !- +e)*ie+, shall include
interest e%!ense e%ce!t in the case o$ ban?s and other $inancial institutions& *he ter"
%g)!++ )eeipt+, as used herein "eans a"ounts actuall or constructi#el recei#ed
during the ta%able ear1 Pro#ided, that $or ta%!aers e"!loing the accrual basis o$
accounting, the ter" %g)!++ )eeipt+, shall "ean a"ount earned as gross inco"e&
(b) *he ter" %+ub+t(nti(l l!++e+ -)!m ( p)!l!nge& l(b!)
&i+pute, "eans losses arising $ro" a stri?e staged b the e"!loees +hich lasted $or
"ore than si% (8) "onths +ithin a ta%able !eriod and +hich has caused the te"!orar
shutdo+n o$ business o!erations&
(c) *he ter" %-!)e m(=eu)e, "eans a cause due to an irresistible $orce as
b 6Act o$ @od7 li?e lightning, earth>ua?e, stor", $lood and the li?e& *his ter" shall
also include ar"ed con$licts li?e +ar or insurgenc&
(d) *he ter" %legitim(te bu+ine++ )e*e)+e+, shall include substantial losses
sustained due to $ire, robber, the$t or e"be--le"ent, or $or other econo"ic reason as
deter"ined b the Secretar o$ .inance&
0>1 Spei-i Rule+ -!) &ete)mining t'e 5e)i!& ?'en ( C!)p!)(ti!n Be!me+
Sub=et t! t'e .CIT -
.or !ur!oses o$ the '()*, the ta%able ear in +hich business o!erations
co""enced shall be the ear in +hich the do"estic cor!oration registered +ith the
3ureau o$ )nternal Re#enue (3)R)&
.ir"s +hich +ere registered +ith 3)R in 1994 and earlier ears shall be co#ered
b the '()* beginning 0anuar 1, 1998&
.ir"s +hich +ere registered +ith 3)R in an "onths in 1998 shall be co#ered
b the '()* three calendar ears therea$ter (i&e& a$ter the la!se o$ three calendar ears
$ro" 1998)& .or e%a"!le, a $ir" +hich +as registered in 'a 1998 shall be co#ered
b the '()* in 2222&
*he rec?oning !oint $or $ir"s using the $iscal ear shall also 1998& .or e%a"!le,
a $ir" +hich registered +ith the 3)R on 0ul 1, 1998 shall be sub=ect to an '()* on his
gross inco"e earned $or the entire $iscal ear ending in the ear 2222&
T)(n+it!)9 Rule -!) &ete)mining t'e .CIT -!) 7998 !n -i)m+ :'i' ()e
t(/(ble !n ( -i+(l 9e() b(+i+. .or $ir"s using the $iscal ear basis and +hose $irst
ta%able !eriod under the "ini"u" cor!orate inco"e ta% co#ers "onthA"onths in 1997
shall be co"!uted using an a!!ortion"ent $or"ula& *he ratio to be a!!lied is the
nu"ber o$ "onths in 1998 to t+el#e (12) "onths (i&e& the total nu"ber o$ "onths in a
$iscal ear)&
Illu+t)(ti!n. .ir" A registered +ith the 3)R in 0ul 1994& )t beco"es sub=ect to
the '()* in 1998& Since it is using a $iscal ear as basis o$ its ta%able !eriod, a !art o$
the ta% base $or the '()* +as earned b the cor!oration in 1997 !rior to the i"!osition
o$ the '()* (i&e& gross inco"e $ro" 0ul to Bece"ber 1997)& *he '()* +hich is due
$ro" the $ir" is co"!uted using the gross inco"e o$ the $or" $or 1998 (0anuar to
0une) +hich is co"!uted on an a!!ortion"ent basis as $ollo+s:
@ross inco"e o$ the $ir" $or the entire $iscal ear
'ulti!l: 2&52 (i&e& ratio o$ 8 "onths in 1998 to 12 "onths co#ering .C 97598)
E>uals: *a% base o$ the '()* $or 1998
'ulti!l1 2, (i&e& '()* ta% rate)
E>uals: '()* $or 1998&
0@1 .(nne) !- -iling (n& p(9ment 8 *he "ini"u" cor!orate inco"e ta%
('()*) shall be !aid on a ta%able ear basis& )t shall be co#ered b a ta% return
designed $or the !ur!ose +hich +ill be sub"itted together +ith the cor!oration<s annual
$inal ad=ust"ent inco"e ta% return& Bo"estic cor!orations shall not be re>uired to !a
the "ini"u" cor!orate inco"e ta% on a >uarterl basis, the !ro#isions o$ Sec& 75 o$ the
(ode not+ithstanding&
041 A!unting t)e(tment !- t'e e/e++ minimum !)p!)(te in!me t(/
p(i& 8 An a"ount !aid as e%cess "ini"u" cor!orate inco"e ta% shall be recorded in
the cor!oration<s boo?s as an asset under account title 6de$erred charges5"ini"u"
cor!orate inco"e ta%7& *his asset account shall be carried $or+ard and "a be credited
against the succeeding the ta%able earAs in +hich the sa"e has been !aid& An a"ount
o$ the e%cess "ini"u" cor!orate inco"e ta% +hich has not or cannot be so credited
against the nor"al inco"e ta%es due $or the /5ear regle"entar !eriod shall lose its
creditabilit& Such a"ount shall be re"o#ed $ro" 6de$erred charges5"ini"u"
cor!orate inco"e ta%7 account b a debit entr to 6retained earnings7 account and a
credit entr to 6de$erred charges5"ini"u" cor!orate inco"e ta%7 account since this ta%
is not allo+able as deduction $ro" gross inco"e it being an inco"e ta%&
Illu+t)(ti!n !n t'e (!unting t)e(tment !- t'e e/e++ minimum !)p!)(te
in!me t(/ p(i& 8 Assu"e that A3( (or!oration co""enced business o!erations in
calendar ear 1991& )t is alread "ore than $our (4) ears in o!eration as o$ calendar
ear 1998 hence, sub=ect to the "ini"u" cor!orate inco"e ta% beginning ta%able ear
1998& Assu"e, $urther, that its inco"e ta%es during the ears $ro" 1998 to ear 2225
are as $ollo+s:
E6CESS O3
.CIT OVER
NOR.AL INCO.E NOR.AL
;EAR TA6 .CIT INCO.E TA6
1998 P 25,222 P122,222 P75,222
1999 1/2,222 152,222 22,222
2222 222,222 192,222 5
2221 5 /22,222 /22,222
2222 12,222 52,222 42,222
222/ 15,222 82,222 45,222
2224 8,222 42,222 /2,222
2225 1,222 52,222 49,222
)n this case, A3( (or!oration shall not be allo+ed to carr $or+ard and credit
the 1998 e%cess '()* against the inco"e ta% liabilit $or 1999 since the 1999 '()* is
greater than the nor"al inco"e ta% $or said ear& Do+e#er, $or ear 2222, +here the
nor"al inco"e ta% is greater than the co"!uted '()*, A3( (or!oration shall be
allo+ed to a!!l the e%cess '()* o$ 1998 and 1999 a"ounting to P95,222 (P75,222
!lus P22,222) against the nor"al inco"e ta% liabilit o$ P222,222&
*he e%cess '()* $or the ear 2221 (P/22,222) "a onl be credited against
nor"al inco"e ta% liabilities $or the succeeding three ears $ro" 2222 to 2224&
Do+e#er, since the nor"al inco"e ta% liabilities $or these succeeding ears are less
than the res!ecti#e '()*s, the e%cess '()* $or the ear 2221 o$ P/22,222 loses its
creditabilit b the ear 2225 hence, "ust be re"o#ed and deducted $ro" the 6Be$erred
charges E '()*7 account and be charged to 6Retained Earnings7 account&
Illu+t)(ti*e (!unting ent)ie+ t! )e!)& e/e++ .CIT 8
0(1 3!) t(/(ble 9e() 7998 :'en .CIT i+ g)e(te) t'(n t'e n!)m(l
in!me t(/ li(bilit9 !- t'e !mp(n9
7998
(1) Bebit: Pro#ision $or inco"e ta% P25,222
(redit: )nco"e ta% !aable P25,222
*o record inco"e ta% liabilit using the nor"al inco"e ta% rate
(2) Bebit: Be$erred (harges5'()* P75,222
(redit: )nco"e *a% !aable P75,222
*o record e%cess '()* (P122,222 E 25,222)
(/) Bebit: )nco"e *a% Paable P122,222
(redit: (ash in 3an? P122,222
*o record !a"ent o$ inco"e ta% due $or 1998
0b1 3!) t(/(ble 9e() #AAA :'en e/e++ .CIT 07998 (n& 79991 i+ (pplie&
(g(in+t n!)m(l in!me t(/ li(bilit9
#AAA
(1) Bebit: Pro#ision $or inco"e ta% P222,222
(redit: )nco"e *a% Paable P222,222
*o record inco"e ta% liabilit using the nor"al inco"e ta% rate
(2) Bebit: )nco"e ta% !aable P95,222
(redit: Be$erred (harges5'()*
(P75,222 !lus P22,222) P95,222
*o record a!!lication o$ e%cess '()* against nor"al inco"e ta%
liabilit $or ta%able ear 2222
(/) Bebit: )nco"e *a% Paable P125,222
(redit: (ash in 3an? P125,222
*o record !a"ent o$ inco"e ta% due (P222,222 less P95,222)
01 3!) t(/(ble 9e() #AA> :'en t'e e/pi)e& p!)ti!n !- e/e++ .CIT
05<AA$AAA1 -!) t(/(ble 9e() #AA7 i+ l!+e& t! t'e )et(ine& e()ning+ (m!unt &ue t!
it+ n!n-(ppli(ti!n.
#AA>
Bebit: Retained Earnings P/22,222
(redit: Be$erred (harges5'()* P/22,222
*o record the e%!ired !ortion o$ Be$erred (harges5'()*
081 E/epti!n+ 8 *he "ini"u" cor!orate inco"e ta% ('()*) shall a!!l
onl to do"estic cor!orations sub=ect to the nor"al cor!orate inco"e ta% !rescribed
under these Regulations& Accordingl, the "ini"u" cor!orate inco"e ta% shall not be
i"!osed u!on an o$ the $ollo+ing:
(a) Bo"estic cor!orations o!erating as !ro!rietar educational institutions
sub=ect to ta% at ten !ercent (12,) on their ta%able inco"e1 or
(b) Bo"estic cor!orations engaged in hos!ital o!erations +hich are
non!ro$it sub=ect to ta% at ten !ercent (12,) on their ta%able inco"e1 and
(c) Bo"estic cor!orations engaged in business as de!ositor ban?s under
the e%!anded $oreign currenc de!osit sste", other+ise ?no+n as .oreign (urrenc
Be!osit Fnits (.(BFs), on their inco"e $ro" $oreign currenc transactions +ith local
co""ercial ban?s, including branches o$ $oreign ban?s, authori-ed b the 3ang?o
Sentral ng Pili!inas (3SP) to transact business +ith $oreign currenc de!osit sste"
units and other de!ositor ban?s under the $oreign currenc de!osit sste", including
their interest inco"e $ro" $oreign currenc loans granted to residents o$ the Phili!!ines
under the e%!anded $oreign currenc de!osit sste", sub=ect to $inal inco"e ta% at ten
!ercent (12,) o$ such inco"e&
(d) .ir"s that are ta%ed under a s!ecial inco"e ta% regi"e such as those in
accordance +ith RA 7918 and 7227 (the PEGA la+ and the 3ases (on#ersion
Be#elo!"ent Act, res!ecti#el)&
Se. #$#80A10#1 .INI.U. COR5ORATE INCO.E TA6 0.CIT1 ON
RESI2ENT 3OREIGN COR5ORATION 8 A "ini"u" cor!orate inco"e ta% o$ t+o
!ercent (2,) o$ the gross inco"e $ro" sources +ithin the Phili!!ines is hereb
i"!osed u!on an resident $oreign cor!oration, beginning on the $ourth (4
th
) ta%able
ear (+hether $ollo+ing the ta%able ear in +hich the cor!oration co""enced its
business o!erations, +hene#er the a"ount o$ the "ini"u" cor!orate inco"e ta% is
greater than the nor"al inco"e ta% due $or such ear&
)n co"!uting $or the "ini"u" cor!orate inco"e ta% due $ro" a resident $oreign
cor!oration, the rules !rescribed under Sec& 2&27(E) o$ these Regulations shall a!!l:
Pro#ided, ho+e#er, that onl the gross inco"e $ro" sources +ithin the Phili!!ines shall
be considered $or such !ur!oses&
E/epti!n+ 8 *he "ini"u" cor!orate inco"e ta% shall onl a!!l to resident
$oreign cor!orations +hich are sub=ect to nor"al inco"e ta%& Accordingl, the
"ini"u" cor!orate inco"e ta% shall not a!!l to the $ollo+ing resident $oreign
cor!orations:
(a) Resident $oreign cor!orations engaged in business as 6international
carrier7 sub=ect to ta% at t+o and one5hal$ !ercent (2 H,) o$ their 6@ross Phili!!ine
3illings71
(b) Resident $oreign cor!orations engaged in business as 4$$shore 3an?ing
Fnits (43Fs) on their inco"e $ro" $oreign currenc transactions +ith local
co""ercial ban?s, including branches o$ $oreign ban?, authori-ed b the 3ang?o
Sentral ng Pili!inas (3SP) to transact business +ith 4$$shore 3an?ing Fnits (43F<s),
including interest inco"e $ro" $oreign currenc loans granted to residents o$ the
Phili!!ines, sub=ect to a $inal inco"e ta% at ten !ercent (12,) o$ such inco"e1 and
(c) Resident $oreign cor!orations engaged in business as regional o!erating
head>uarters sub=ect to ta% at ten !ercent (12,) o$ their ta%able inco"e&
(d) .ir"s that are ta%ed under a s!ecial inco"e ta% regi"e such as those in
accordance +ith RA 7918 and 7227 (the PEGA la+ and the 3ases (on#ersion
Be#elo!"ent Act, res!ecti#el)&
E33ECTIVEL; CLAUSE. *hese Regulations shall a!!l to do"estic and
resident $oreign cor!orations on their a$ore"entioned ta%able inco"e deri#ed beginning
0anuar 1, 1998 !ursuant to the !ertinent !ro#isions o$ RA 8424, !ro#ided, ho+e#er,
that cor!orations using the $iscal ear accounting !eriod and +hich are sub=ect to '()*
on inco"e deri#ed !ertaining to an "onth or "onths o$ the ear 1998 shall not be
i"!osed +ith !enalties $or late !a"ent o$ the ta%&
Edgardo 3& Es!iritu
Secretar o$ .inance
Reco""ending A!!ro#al:
3eetho#en ;& Rualo
(o""issioner o$ )nternal Re#enue


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