REGULAR INCOME TAXATION: 4. 0.

9% ratio of Consolidated Public

REGULAR CORPORATION Sector Financial Position (CPSFP) TO
GNP.
General Rule: COST RATIO LIMIT
 30% Regular Corporate Income Tax (RCIT)  15% Gross Income tax is only applicable
is applicable to ALL TAXABLE INCOME of when the ratio of cost of sales to gross
CORPORATIONS receipts from all sources does not exceed
Exception: 55%
 Income subject to Final Tax (FT) or Capital LOCK-IN PERIOD
Gains Tax (CGT)  Election of CGIT is IRREVOCABLE FOR 3
CONSECUTIVE TAXABLE YEARS during
CORPORATE TAX SCHEMES ON REGULAR which the corporation is qualified under
CORPORATION the scheme.
NOTE:
 Gross income tax OR 15% CGIT-still as law & not in practice since the
Domestic  30% RCIT subject to 2% conditions were never met.
Corporation(DC) Minimum Corporate
Income Tax (MCIT) MINIMUM CORPORATE INCOME TAX (MCIT)
 30% RCIT subject to 2%  2% of total grosss income subject to
Resident
Minimum Corporate regular income tax
Corporation (RC)
Income Tax (MCIT) EXCEPTION: Subject to FT & CGT
 Applicable to the BEGINNING of 4th
CORPORATE GROSS INCOME TAX (CGIT) taxable year following the date of
 Effectivity Date: January 1,2000 commencement. (X+4)
 it allows the DOMESTIC CORPORATION  Start of operation: JUNE 2011
the option to be taxed at 15% of gross (2011+4 years)
income, provided that the following  MCIT: JANUARY 1, 2015
conditions have been satisfied:  Applicable to any corporation subject to
1. Tax effort ratio of 20% Gross National 30% RCIT, including those exempt from
Product (GNP) 30% RCIT, with respect to their taxable
2. Ratio of 40% of income tax collection income subject to RCIT, but not to their
to the total revenue income subject to special tax rates
3. VAT tax effort of 4% of GNP & Instances when it is payable:
 1. Corporation has zero or negative Gross sales Total consideration for the sale
taxable income of goods;
2. MCIT > RCIT cash and account sales
MCIT EXEMPT ENTITIES Gross receipts Cash collection for service
1. Real Estate Investment Trust or REIT under rendered or to be rendered;
RA 9856 Reimbursement by the client
2. Domestic Corporations which opted to be for out-of-pocket expenses
taxed under 15% CGIT incurred by service provider
3. Domestic or resident corporations subject Cost of Goods ALL business expenses
to special tax rate: Sold (COGS) DIRECTLY INCURRED to
 Proprietary Educational Institution, & produce the merchandise &
non-profit hospitals bring them to the present
 FCDUs and OBUs location
 Regional Operating Headquarters of  TRADING/MERCHANDISI
multinational companies NG
 International carriers  Invoice cost
 Firms subject to special tax such as  Import duties
PEZA & BCDA locators  Freight in
4. All non-resident foreign corporations  Insurance (while in
(NRFC) transit)
 MANUFACTURING
MCIT GROSS INCOME UNDER NIRC  All the costs included
For corporations in COGS formula for
“GROSS INCOME” means
involved in: manufacturing
Gross sales LESS sales  Other costs incurred
1. Sale of GOODS returns, discounts, to bring the raw materials
allowances and COGS to the factory or
Gross receipts LESS warehouse.
sales returns, discounts, Cost of ALL direct costs & expenses
2. Sale of SERVICE
allowances and Cost of Service necessarily incurred to provide
Service the service.
 Salaries, employee
NOTE: benefits those who are
directly rendering the
 service. RULES FOR MCIT CARRY-OVER
 cost of facilities used to 1. Carry-over is deductible only to RCIT,
provide the service HENCE, cannot be applied to MCIT tax due.
NOTE: 2. Carry-over can be deducted in full amount.
In case of BANKS; cost of 3. Tax crediting shall be made in FIFO BASIS,
service includes interest in case of several excess MCIT.
expense. 4. Carry-over is allowed only for 3 succeeding
years, otherwise EXPIRED.
How to compute?
Gross Sales/Receipts xx QUARTERLY FILING OF INCOME TAX RETURN
Less: Sales Returns xx  For first 3 quarters---> on or before 60
Sales Discounts xx days from the end of each quarter
Sales Allowances xx xx
Gross Income from operation xx TAKE NOTE:
Add: Other gross income  For quarterly ITR--> used the cumulative
Not subject to final tax xx balance of MCIT, RCIT and prior CWT.
Total Gross Income xx
Less: COGS/ RELIEF FROM MCIT
Cost of Service xx  Upon recommendation of CIR, the
Gross Income xx Secretary of Finance may suspend the
Multiply: MCIT RATE 2% imposition of MCIT upon submission of
MCIT XX proof that corporation sustained
substantial losses on account of:
NOTE: 1. Prolonged labor dispute
For corporation, income from secondary or 2. Force majuere
incidental operation will be included under 3. Legitimate business reserves
sales/revenue/receipts/revenues/fees.
REPORTING FOR CORPORATIONS SUBJECT TO
EXCESS MCIT CARRY-OVER REGULAR TAX
 Excess of MCIT over RCIT in any year is a  Regular corporations, domestic/resident
tax credit that is deductible against any foreign, may choose either:
RCIT tax due in the immediately  Itemized deduction
succeeding 3 years.  Optional standard deduction
 Income is reported in BIR FORM 1702-RT
 BIR FORM 1702-MX-->for income subject  Direct correlation of the business
to special tax rates needs to the
accumulation/appropriation of profits
THE IMPROPERLY ACCUMULATED INCOME
TAX (IAET) INSTANCES OF REASONABLE
 10% Penalty tax and not in lieu of dividend ACCUMULATION OF EARNINGS
tax,HENCE, those that are subjected to 1. Allowance for the increase in the
IAET will still be subject to dividend tax. accumulation of earnings up to 100% of
 Imposed on the improperly accumulation the paid-up capital of the corporation as of
of corporate earnings beyond the needs of Balance Sheet date, inclusive of
business. accumulations taken from the other years.
 Used to defeat the 10% dividend tax by 2. Reserved for PPE, expansion
mere non-declaration of dividends. project/programs as approved by BOD or
 NOT AUTOMATIC equivalent body
 Only upon formal assessment of BIR 3. loan covenant or pre-existing obligation
under a legitimate business agreement
SCOPE OF IAET 4. Earnings required by law or ap[plicable
 Improperly accumulated earning or profits regulations.
of DOMESTIC CORPORATIONS ONLY 5. Undistributed earnings intended or
whether regular or special. reserved for investment, for subsidiaries of
XP: subject to appropriation foreign corporation

Exempt appropriations of earnings PRIMA FACIE INSTANCES OF IMPROPERLY

1. Mandatory- required by law ACUMULATION OF EARNINGS
2. Contractual- required by contract 1. Investment of substantial profit in unrelated
3. Reasonable- for reasonable needs of business or stocks or securities of unrelated
business business.
What is reasonable appropriation of earnings? 2. Investment in bonds and other long-term
-->those that pass to the following tests securities
1. Immediacy Test 3. Accumulation of earnings in excess of 100%
 Immediate need of paid-up capital
business/reasonable anticipated
needs
2. Correlation Test
ENTITES PRESUMED IMPROPERLY HOW TO COMPUTE IAET?
ACCUMULATING EARNINGS Gross Income xx
1. Holding Companies Less: Regular Allowable xx
 Formed for the purpose of owning a Itemize Deductions xx xx
controlling stake in another Taxable Net Income xx
corporation Less: Corporate Income Tax due xx
 Focused toward long-term capital gain Profits from regular income xx
transformation rather than dividend Add: Passive income,net of FT xx
collection Capital gains, net of CGT xx
2. Investment Companies Exempt/excluded income xx xx
 Primarily engaged in the business of Total Earnings xx
investing, reinvesting, and trading in Less: Dividends declared xx
securities Reasonable appropriation xx xx
 Pool money form different investors TOTAL xx
and invest in different securities Add: Retained earnings.prior year xx
 It includes mutual funds. Less: amount retained for 100% xx
3. Closely held Corporations Paid-up capital as of year end
 at least 50% of the value of their Improperly Accumulated Earnings xx
capital stock or total voting power is Multiply: IAET Rate 10%
not owned directly or indirectly by not IAET xx
more than 20 individuals
 PUBLIC CORPORATION IAET EXEMPT ENTITIES
 Ownership of top 20 SHS is below *UNDER NIRC*
50% Note: PFBIs!
 Owned by publicly-listed 1. Publicly-listed corportions
corporation 2. Finance companies
3. Banks
HOW TO REBUT PRIMA FACIE PRESUMPTION? 4. Insurance companies
 Illustrate definiteness of plans in support of *BY NATURE*
the accumulation supported by actions 1. Taxable partnership
taken demonstrating their execution. 2. General professional partnership
3. Taxable and non-taxable joint ventures
4. ECOZONE-registerd entities (PEZA, BCDA,
etc.)
PERIOD OF PAYMENT DIVIDEND OR IAET
 Diviend--> must be declared within 1 year
from the close of taxable year
 IAET--> Paid within 15 days from the end
of the following year
2. transfer of net profits to increase the branch
assigned capital account
NOTE: LOAN of affiliates NOT A REMITTANCE
Branch capital account=HOME OFFICE

changed by:
BRANCH PROFIT REMITTANCE TAX A. Assigned net Increase-
 15% based on total profits Capital investment of addt'l
applied/earmarked for remittance without Accounsts the home investent of
any deduction for tax component office to the home office
 BRANCH-Philippines; HEAD OFFICE-Abroad branch Decrease-
 Final tax withheld at source by branch of withdrawal of
foreign corporation home office
 Applicable for active income ONLY or B. net balance of
income from business related to trade or Accumulated unremitted,
business Profit/loss retained or
 PASSIVE INCOME & GAINS--->EXCLUDED accumulated
 Income must be derived from actual P/L of the
operation of the trade or business. branch since
 Remittance of prior year is still taxable inception of
since NIRC used the term “any profit operation
remitted”
DIFFERENTIATION ON FOREIGN PROFIT
SCOPE OF BRANCH PROFIT REMITTANCE TAX REMITTANCE
 ALL RFC, including ROHQs of multinational Remitting entity to its
TAX RATE
companies, EFCDU or OBU of foreign banks head office
and international carriers except Branch of RFC 15% branch
PEZA-registered entities. remittance
Subsidiary of a foreign
30% FT, 15% if the tax
INDIRECT REMITTANCE corporation through
sparring rule applies
 increase of home office’s capital or dividend declaration
investment Branch of domestic
Not subject to tax
1. Remittance of resident affiliate/Phil ROHQ corporation
of the home office