ESTATE AND DONOR’S TAX ■ Preferred Shares: behaves like a loan

■ Par value in articles of incorporation

ESTATE TAX ● Deductions for Citizens and Residents
● Higher estate tax 1. Standard Deduction- Special Deduction
○ Provide a mechanism for the distribution of society’s wealth ● 5 million
○ Encourage transfer of properties since other transfers usually have lower taxes 2. Claims against the decedent’s estate- Ordinary deduction
● Allowable deduction in the Philippines is very low. Standard deduction of P5million. Family home deduction of ● Personal obligation existing at the time of death
P10million ● In good faith+ full consideration
● Lower estate tax: Fruit of hard work and already previoused taxed ● Debt is valid and legally enforceable
● Higher estate tax: Unfair that certain select few woould have a windfall solely by birth while others works hard to survive ● Not condoned by the creditor and not prescribed
● Transfer Taxes: imposed when private property is gratuitously disposed 3. Claims of the decedent against insolvent persons- Ordinary deduction
Kinds of Death Taxes ● Included as part of his gross estate
○ Estate Tax - right to transmit estate ● Must be proven debtor’s incapacity to pay
○ [Inheritance Tax: right to inherit] 4. Unpaid mortgages, taxes and casualty losses- Ordinary deduction
○ Philippines tax law imposes an only estate tax ● Fair market value of the mortgaged property was initially included in the gross estate
Nature of Estate Tax 5. The property previously taxed (vanishing deductions)- Special Deduction
○ The right of the decedent to transmit his estate ● The amount allowed to reduce the taxable estate of a decedent
○ applies when the property passes from the decedent to the estate and is based on the fair market value ○ Received by him prior decedent by gift
of the property ○ Transferred to him as a gift
○ Nothing to do with income ○ Object to a previous transfer taxation
Purpose of Estate Tax ○ Vanishing deductions
○ Reduce wealth concentration ■ 1 year=100%
○ The principle of ability to pay; unearned wealth ■ 2 years= 80%
● Net Estate = gross estate - allowable deductions and specific exemptions=net estate ■ 3 years= 60%
Rates and Compilation of estate tax= 6% net estate ■ 4 years= 40%
■ 5 years= 20%
Formula 6. Transfers for public use (Special deduction)
Gross estate (exclusive and conjugal/community) ● Transfer to or for the use of the Government of the Republic of the Philippines
Less: Allowable deductions 7. Family home
=Estate after deductions ● Deduction for family home not to exceed P10 million
Gross estate ● Family home must have been the decedent’s family home as ceretified by the barangay captain
● Total property (real, personal, tangible or intangible, (i.e share of stocks) ● Husband, Wife, or head of the family can avail family home allowance
● Belonging to the decedent at the time of his death 8. The amount received by heirs under RA 4917 (Retirement pay)- Special Deduction
● Situated within or outside the Philippines, where such decedent was a resident or citizen of the Philippines 9. The net share of surviving spouse
● Non-resident decedent= include only property situated in the Philippines ● The ½ net share of surviving spouse
● Example: Decedent Craig is a non-resident alien. He died in while on vacation. At the time of his death, he had ● After deducting allowable deductions appertaining to conjugal or community properties in the gross estate. The share of
○ Condo in PH- P6M survivin spouse must be removed to ensure the decedent interest in the estate is taxed
○ Land in Us- $80k
○ A bank account in the PH- P3.5M Exemption from tax
○ A bank account in Singapore- SGD10k ● Those who are only declared exempt from estate tax
○ Shares of stock in a UK company- 15k Euro ○ I.E-insurance
○ The only condo in PH and Bank account will be included Filing of return
● Example 2: The decedent Jose is a resident Philippine Citizen. He died in Italy while on vacation. At the time of his ● Needs to file a return in all cases of transfers that are subject to estate tax OR regardless of value, if the state consists of
death, he had- Same as the example on example 1= all will be included registered assets such as (real property car, shares of stock, etc) which requires clearance from BIR before the transfer
● Clearance= Certificate Authorizing Registration
The property included in the gross estate ● Deadline: Within 1 year from death
● Property to the extent of decedent’s interest ● Extension of FILING- Not exceeding 30 days for meritorious (i.e- Didn’t know the relative have passed away, because of
● Inter Vivos transfers of property testamentary in nature this, you can request from BIR and show proof)
Properties included in Gross estate Payment of Tax
● Property to the extent of decedent’s interest ● Deadline: Pay at the time the return is filed
○ Ex: Mario is a ¼ co-owner of a piece of land worth 1 million. The value of his interest is P250,000 which ● Extension: Causes undue hardship
will be only part of his estate when he passes away ○ Not exceeding 5 years if estate settled through the courts
● Inter Vivos transfers of property testament in nature ○ Not exceeding 2 years if the estate is settled extrajudicially
○ Ex: Maria is terminally ill and to save on estate taxes, she transfers to her only daughter a piece of ● Instalment
agricultural land by selling it to Luisa for one peso. ○ Cash instalments within 2 years, can be properties also
○ Terminally ill- automatic transfer of inheritance if there’s a serious agreement ○ Partial disposition of estate and application of its proceeds to the estate tax due
● To be free from the estate tax, the transfer inter vivos must involve the actual transfer of ownership
○ The transfer must be absolute Place of filing return and payment of tax
○ Bona fide Transfer for an adequate and full consideration ● In the case of resident decedent, the return shall be filed with the Revenue District Office (RDO) where the decedent was
Determination of value of estate tax domiciled (used to live) at the time of his death
● Fair market value at the time of the death ● The tax shall be paid to the Accredited Agent Bank
● There’s no required value at the gross estate Filing of return and payment of tax
● For real properties, whichever is higher of: ● Certification of CPA
○ The fair market value determined by of BIR ○ Required if gross estate exceeds P5 million
○ The fair market value determined by Provincial or City Assessor Payment of tax antecedent to the transfer of shares, bond, rights, and bank deposits withdrawal
● For share of stocks: - If the bank has knowledge of the death of a person who maintained an account with them, it shall allow withdrawal but
○ Listed- the arithmetic mean between the highest and lowest quotation at a date nearest the date of death impose a withholding tax of 6%
■ Shares listed in PSE Donor’s Tax
○ Unlisted: common shares are based on book value while preferred shares are based on par value.
■ Common Shares: function like an interest ● Donation- is an act of liberality whereby a person disposes gratuitously of a thing or right in of another who accepts it
Kinds of donation - In the case of Gifts made by a Resident- A gift which is in favor of an educational, charitable, religious, cultural, social
● Inter Vivos- during the lifetime of the donor welfare, institution, accredited non government organization, philpanthropic organization. Provided however, that not more
● Mortis causa- takes effect upon the death of the donor than 30% of said gifts shall be used by such done for administration purposes.One example would be a donation to
ONLY DONATIONS INTER VIVOS ARE SUBJECT TO DONOR’S TAX school not exceeding more than 30%

DONATION MORTIS CAUSE ARE SUBJECT TO ESTATE TAX Other exemptions

- Contributions to candidates or political parties are not subject to donor’s tax (provided it meets requirements).
Meaning of a gift tax - Unutilized/excess campaign funds shall be subject to income tax
● Gift tax is imposed on a gift or the transfer without consideration of property between two or more persons who are living - Candidate must file with the Comelec a statement of expenditures
at the time of the transfer is mad Filing of a return and payment of tax
Kinds of gift taxes - When- within 30 days after the gift is made. Tax is paid at the time the return is filed
1.) Donor’s Tax- imposed on the act of giving - Where- Where the donor was domiciled at the time of the transfer or if no legal residence, with the office of commissioner
2.) Donee’s Tax- imposed on the act of receiving of interval revenue. In case of non-resident alien donor, with the Philippine embassy or consulate of his domicile.
Nature of gift tax
1.) Excise (privilege) tax- the privilege of the donee to receive VALUE ADDED TAX
2.) Without the reference to the death of the donor  Value-added tax (VAT) is a uniform tax imposed on each sale, barter, exchange, or lease of goods, properties or services
Purpose of gift tax in the course of trade or business as they pass along the production and distribution chain, the tax being limited only to
1.) Supplements estate and inheritance taxes the value added to such goods, properties, or services by the seller, transferor, or lessor. It is also levied on every
a.) Transferring properties while alive to prevent taxes importation of goods, whether or not in the course of trade or business.
“in the course of trade or business”
2.) Prevent avoidance of income tax
-Regular conduct or pursuit of a commercial or economic activity. Example: restaurant, doctors, saleof cars, grocery, hardware etc.
a.) Gift= no tax which is contrary to law - But also includes transactions incidental thereto.
b.) A form of a donation to do service instead of giving them a salary to prevent income taxes Example: Sale of vehicle used in the business like a
Requisites of a taxable gift  delivery truck
1.) Capacity of the donor- insane persons, PWD Nature of VAT
2.) Donative intent- anyone who make donation because you want to do something good 1. VAT is a privilege tax - Privilege of selling or importing goods or properties, or rendering services for a consideration
3.) Delivery, whether actual or constructive 2. It is a percentage tax – 12%
3. It is an indirect tax - it may be passed on to the buyer
4.) Acceptance
4. It is a tax on consumption - applies only to the value added by the seller, at each stage as the goods or services pass along the
distribution chain.
Transfers and persons subject to donor’s tax:
1. Transfers in trust or otherwise Persons liable to the tax
2. The transfer is direct or indirect • Persons who, in the course of trade or business, sells goods or properties, or renders services
3. Property is real or personal • Person who imports goods, whether for business or nonbusiness purposes
• The tax is paid by the seller, person rendering the service, lessor, or importer. (But burden can be passed on to buyer)
4. Property is tangible or intangible
• To be liable, the annual gross sales or receipts must exceed P3,000,000.00 and the transactions are not exempt from VAT.
5. Transfer for less than adequate consideration Rate and base of VAT
6. Resident or non-resident donor  On sale, etc., of goods or properties. The tax is equivalent to 12% of the gross selling price or gross value in money of the
goods or properties sold, bartered or exchanged.
Transfer for less than adequate consideration  Barter or exchange is categorized in the same way as sale.
- Applies to property other than real property  Generally, VAT applies to all goods or properties sold or imported at all levels of distribution including those subject to
which are not a capital asset excise taxes.
- Does not appear to be bona fide and the intent  On importation of goods. The tax is equivalent to 12% based
to donate is apparent. on:
1. The total value used by the Bureau of Customs in determining customs duties, excise taxes and other charges payable by the importer.
- Other words: Consideration OR
- Why Transfer: There’s a relationship 2. If, under the law, the customs duties are determined on the basis of the quantity or volume of the goods, the VAT shall be based on the
Distinctions between donor’s tax and estate tax landed cost of the goods plus excise tax, if any.
1.) Donor’s tax is privilege to transmit property during life, while estate tax is the privilege to transmit property upon one’s  Landed cost consists of the amount, customs duties, freight insurance and other charges.
death  If the goods imported are subject to excise tax, the tax shall form part of the tax base.
2.) In donor’s tax, extension of payment is not provided white estate tax an extension is allowed  On sale of services and use or lease of properties. – The tax is equivalent to 12% of gross receipts derived by any person
Meaning of net gift engaged in the sale or exchange of services for a fee or consideration including the use or lease of properties, whether
- The total amount of gifts less than allowable deductions and specific exemptions real or personal.
Tax imposed on net gift
- 6% is the basis of the total net gifts made during the calendar year
- Net gifts amounting P250,000 or less is exempted
- Fair market is used Computation of the tax
- Formula  • Input tax credited against output tax.
Under the VAT system, the “input tax” already paid is allowed to be credited against the “output tax” due on the
transaction.
 The term 'input tax' means the value-added tax due from or paid by a VAT-registered person in the course of his trade or
business on importation of goods or local purchase of goods or services, including lease or use of property, from a VAT
registered person. (Goods or services bought)
Computation of the tax
 VAT payable. The VAT payable is the excess of the output tax on sale, etc. of goods properties orservices over the input
tax with respect to the latter.
 The following formulas may be used:
 Gross sales or receipts x 12% = Output tax
 Purchase of goods, properties, services x 12% = Inputtax
Important
 Output tax – Input tax = VAT payable
- Donor’s tax is computed on a cumulative basis over a period of 1 calendar year  Credit or refund of excess input tax – If the input tax exceeds the output tax, the excess shall, at the option of the
- Donor is allowed a credit for prior gifts taxes paid taxpayer, be refunded, or credited against any internal revenue taxes, or refunded in part and credited for the balance.
- Tip: to lower taxes, one can split the donation between two years. Example would be December 31 and January 1 Output VAT 0
Exemptions Input VAT 1,000,000
- In the case of gifts made by resident- gifts made for the use of National Government or any entity created by any of its Excess input VAT 1,000,000 Refund or Tax Credit
agencies which is not conducted for profit. One example would be school building  If the sales are zero-rated, the taxpayer can claim a refund of the input tax or credit against his other tax liability.
 On the other hand, no tax credit is allowed if the sales are exempt from VAT
  VAT Zero-rated sales. Considered taxable transactions for purposes of the VAT but the seller is not liable to pay output P100 P150
tax. However, he is allowed to credit or deduct his input tax from his other tax liability. +12(VAT) +0 (VAT)
Examples of zero rated sales of goods P112 P150
- Export sales Lease of property by a VAT-registered taxpayer
- Foreign currency denominated sale 1. Residential units – If monthly rental is P15,000 or less the lease is VAT exempt regardless of annual gross receipts.
- Under special laws or international If monthly rental is more than P15,000:
 Agreements a. Subject to VAT if aggregate annual gross receipt exceed P3,000,000
Export sale: b. Subject to 3% percentage tax if aggregate annual gross receipt do not exceed P3,000,000
 Exporters of rattan furniture for export to US and Europe
Exporters of canned fish for export to 2. Non-Residential units – Subject to VAT
 Europe Registration of VAT taxpayers
Foreign currency denominated sale  Any person subject to VAT is required to register with the BIR through the appropriate Revenue District Office
 Sale to a nonresident of goods for delivery to a resident in the Philippines paid in acceptable foreign currency and in  Any person subject to VAT is required to register with the BIR through the appropriate Revenue District Office
accordance with BSP rules.  Optional registration – a person engaged in specified activities exempt from VAT may apply for registration
Under special laws or international agreements Who are subject to VAT?
 Subic Bay Metropolitan Authority (SBMA)  Any person or entity who, in the course of his trade or business, sells, barters, exchanges, leases goods or properties and
 Philippine Economic Zone Authority (PEZA) renders services subject to VAT, if the aggregate amount of actual gross sales or receipts exceed P3,000,000
 Asian Development Bank (ADB),  A person required to register as VAT taxpayer but failed to register
 International Rice Research Institute (IRRI)  Any person, whether or not made in the course of his trade or business, who imports goods
Examples of zero-rated sales of services: Filing of return and payment of tax
 Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country  Quarterly VAT return – within 25 days following the close of each taxable quarter
 VAT Exempt sales. An exempt sale is not subject to the VAT but the seller is not allowed tax credit for input tax. Export  Monthly VAT return – not later than the 20th day following the end of each month.
sales are exempt from the VAT if the taxpayer is not a VAT-registered person.  Effective 1 January 2023, the filing and payment of VAT shall be done within 25 days following the close of each taxable
• Examples of VAT exempt sales quarter.
- Agricultural and marine food products in their original state  Filed and paid where the taxpayer is registered
- Sale or importation of fertilizers, seeds, seedlings
- Importation of personal and household effects
-Educational services OTHER PERCENTAGES
-Added the exemption for association dues, membership fees, and other assessments and charges collected by homeowners Meaning of percentage taxes
associations and condominium corporations  Percentages taxes are taxes measured by a certain percentage of a gross selling price or
- Beginning 1 January 2019, sale of drugs and medicines prescribed for diabetes, high cholesterol and hypertension would be gross value in money of goods or services.
included as VAT exempt transactions. Nature of percentage taxes
- Services of employees  Privilege tax
- Services of banks subject to percentage tax  Privilege to sell commodities or services
Basis of percentage taxes
 Based on gross receipts
Normal Vat Transaction  EXCEPT where the basis of the tax is the total premium collected
Andres sells to Boris Boris sells to Chuck Boris paid to Andres Meaning of gross receipts
Wood Rocking Chair P12 as VAT. P12 is  All amounts received by the prime or principal contractor undiminished by any amount paid to
Boris’ input VAT. When any subcontractor under a subcontractor arrangement.
Boris sold the rocking  For amusement taxes, it means all the receipts of the proprietor, lessee or operator of the amusement place.
chair to Chuck, Boris  Includes income from television, radio and motion picture rights, if any.
received P18 as VAT. Persons or enterprises liable to percentage taxes
P18 is Boris’ output  Tax on small business enterprises (most common)
VAT. So in essence, o Those that are exempt from VAT because their annual gross sales or receipts do not exceed P3,000,000
Boris recovered the P12 and are not VAT registered are liable
he paid to Andres. VAT o 3% of their gross quarterly sales or receipts
payable by Boris is P6. o Note: VAT exempt taxpayers may elect to be covered by the VAT system
VAT Taxable VAT taxable  Tax on domestic carriers and keepers of garage
P100 P150 o Cars for rent or hire driven by the lessee, transportation contractors, including persons who transport
+12 (VAT) +18 (VAT) passengers for hire, and other domestic carriers of passengers by land (except owners of animal-drawn
P112 P168 two-wheeled vehicle) and keepers of garages
o 3% of their quarterly gross receipts which should not be less than minimum provided in the Tax Code
 Tax on international carriers
o International carriers, air or shipping, doing business in the Philippines
o 3% of their gross quarterly receipts
VAT Zero Rated
 Tax on franchise grantees
Andres sells to Boris Boris sells to Chuck Boris paid to Andres P12 as VAT. P12 is o Franchise holders or grantees of radio and/or television whose annual gross receipts of the preceding
Wood Rocking Chair Boris’ input VAT. When Boris sold the year does not exceed P10 million - 3% of gross receipts derived from the business covered by; the law
rocking chair to Chuck, the sale was VAT granting the franchise
ZERO-RATED. So Boris did not receive o Franchise holders or grantees of electric, gas and water utilities whose annual gross receipts of the
anything to offset his VAT payment to preceding year does not exceed P10 million - 2% of gross receipts derived from the business covered by
Andres. Boris has an output of zero and the law granting the franchise
an Input of P12. Boris can  Overseas communications tax
apply for refund or tax credit for P12. o Persons paying for transmission of overseas dispatches, messages or conversations by telephone,
VAT Taxable VAT ZERO-RATED telegraph, telewriter exchange, wireless and other communication equipment services
P100 P150 o 10% on the amount paid for such services.
+P12 (VAT) +0(VAT) o To be collected and remitted by the person rendering the services.
P112 P150  Tax on banks and non-bank financial intermediaries performing quasi-banking functions
VAT EXEMPT o Note: Banks are not subject to VAT but are subject to “other percentage tax” called “gross receipts tax”
or GRT
Andres sells to Boris Boris sells to Chuck Boris paid to Andres P12 as VAT. P12 is
o On interest, commissions and discounts from lending activities as well as income from financial leasing,
Wood Rocking Chair Boris’ input VAT. When Boris sold to
Chuck, the sale was VAT EXEMPT. So on the basis of remaining maturities of instruments from which such receipts arederived:
Boris did not receive anything to offset his o Maturity period is 5 years or less – 5%
o Maturity period is more than 5 years – 1%
VAT payment to Andres. He has an output
o Pretermination: maturity period reckoned to end as of the date of pretermination
of zero and an Input of P12. However,
o On dividends and equity shares in net income of subsidiaries- 0%
Boris CANNOT apply for
o On royalties, rentals of property, real or personal, profits, from exchange and all other items treated as
refund or credit.
gross income under Section 32 of the Tax Code - 5%
VAT Taxable VAT Exempt
 o On net trading gains within the taxable year on foreign currency, debt securities, derivatives and other
similar financial instruments – 5% 'General professional partnerships' are partnerships formed by persons for the sole purpose of exercising their common profession, no
 Tax on other non-bank financial intermediaries part of the income of which is derived from engaging in any trade or business
o Finance companies and other non-bank financial intermediaries doing business in the Philippines from
interest, discounts and all other items treated as gross income under the Tax Code
Partnership
o Interests, commissions and discounts from lending activities, as well as income from financial leasing,
shall be taxed on the basis of the remaining maturities of the instruments from which such receipts are • Partnerships may be either taxable or not taxable.
derived, in accordance with the following schedule: • Business partnership - taxable as a corporation
 Maturity period is 5 years of less – 5% • General professional partnership - exempt from income tax.
 Maturity period is more than 5 years – 1% • However, persons engaged in business as partners in a
o Pretermination: maturity period reckoned to end as of the date of pretermination general professional partnership shall be liable for income
 Tax on life insurance companies and agents of foreign insurance companies tax only in their separate and individual capacities.
o Life insurance companies - 2% of the total premiums collected
o Agents of foreign insurance companies (Note: refers to non-life insurance such as fire and marine
insurance)
o Agents of non-resident foreign insurance companies - 10% of the total premiums received, except
premiums paid upon reinsurance where the tax thereon has already been paid
o Owners of property who obtain insurance directly with foreign companies - 5% of the
o total premiums paid.
 Amusement taxes
o Proprietor, lessee or operator of amusement places
o 18% of gross receipts for cockpits, cabarets, and night or day clubs
o 10% of gross receipts for boxing exhibition 15% for professional basketball games
o 30% for jai-alai and race tracks
 Tax on winnings
 10% of winnings or dividends in race horses or jai-alai
 4% for double, forecast/quinella and trifecta bets
 10% for owners of winning race horses
 Sale, barter or exchange of shares of stock
o Sale of shares listed and traded through the local stock exchange – 6/10 of 1% of gross selling price or
gross value in money of shares sold
Filing of return and payment of percentage taxes
 When: Filed and the tax shall be paid within 25 days after the end of each taxable quarter, except:
o Overseas communication tax and amusement tax – 20 days after the end of each quarter
 Tax on winnings – 20 days for the date the tax was deducted and withheld
 Tax on sale of shares listed and traded in a local stock exchange – 5 banking days from collection
 IPO tax – 30 days from date of listing of the shares in the local stock exchange
 Where: Taxpayer has the option to: (1) file a separate return for each branch or place of business; or (2) a consolidated
return for all branches or place of business, with an authorized agent bank, RDO, Revenue Collection Officer or duly
authorized treasurer or principal place of business is located, as the case may be. Tax on Corporations
- Classification of Corporations:
Tax on Corporation 1. Domestic corporation: created or organized in the Philippines, or under its
Classification of taxpayers laws
1. Individuals 2. Foreign: not domestic; organized, authorized or existing under any laws
2. Corporation other than Philippine law.
3. General partnerships
4. Estates and trusts Classes of foreign corporations:
1. Resident foreign – engaged in trade or business within the Philippines or having
- A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties an office or place of business therein.
expressly authorized by law or incident to its existence. Examples: Branch, representative office
2. Nonresident foreign – not engaged in trade or business in the Philippines.
For income taxation purposes, the term 'corporation'
shall include: c. Nonresident foreign corporation – not incorporated in the Philippines; not regularly
1. partnerships, no matter how created or organized engaged in trade or business in the Philippines
2. joint-stock companies, Example: Korean firm which provided tech
3. joint accounts (cuentas en participacion), services to a Philippine company.
4. association, or Different income tax rates for corporations/
5. insurance companies partnerships
• It is an unorganised partnership 1. 30% tax rate on taxable income on domestic and
subject to income tax resident foreign corporations
2. 30% tax rate on gross income for nonresident
“Corporations” for taxation purposes foreign corporations
excludes: 3. Special tax rates of special corporations
1. general professional partnerships 4. Minimum corporate income tax
2. a joint venture or consortium under an 5. Passive income tax
operating consortium agreement under a 6. Capital gains tax
service contract with the Government
(petroleum, coal, etc.)
Tax base and tax rates
Partnership Corporation Income Tax base
• By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with taxable
the intention of dividing the profits among Domestic Within and 30% on TI
themselves. without
• Two or more persons may also form a partnership for the exercise of a profession (Article 1767 of the Civil Code). Resident Foreign Within 30% on TI
Nonresident Foreign Within 30% on gross
income Nonresident foreign corporations
1. Nonresident cinematographic film owner, lessor or distributor – 25% of gross income
Allowable deductions for domestic corporations and 2. Nonresident owner/lessor of vessels chartered by Philippine nationals – 4.5% of gross rentals, lease or charter fees
resident foreign corporations: 3. Nonresident owner or lessor of aircraft, machineries and other equipment – 7.5% of gross rentals or fees
a. Itemized deductions
b. Optional standard deduction: 40% of gross income Special corporate income tax base and rates: Capital gains from sale of shares of stock not
traded in the stock exchange
Itemized deductions Tax Rate: 15%
1. Expenses in general Tax Base: net capital gains
2. Interest Minimum corporate income tax of 2% on gross
3. Taxes income –
4. Losses
5. Bad debts Minimum corporate income tax (MCIT)
6. Depreciation  To ensure that a business entity that perennially reports a loss is somehow made to share in the burden of taxation.
7. Depletion of oil and gas wells and mines  Government services are universally given, regardless of whether the beneficiary entity is earning an income or incurring
8. Charitable and other contributions a loss.
9. Research and development  To deter avoiding payment of taxes by perpetually reporting a loss.
10. Pension trust  Imposed when:
1. Zero or negative taxable income or
Optional standard deduction 2. MCIT is greater than the normal income tax due
• Objective of the OSD: To simplify income tax laws and encourage  Zero or negative taxable income
compliance Gross Income P10,000,000.00
• Benefits: (1) No substantiation and (2) Less probability of tax audit by Deductions 10,500,000.00
BIR ------------------------------------------
• In lieu of the itemized deductions that may be claimed by the Taxable income (P500,000.00)
corporation, a corporation may elect a standard deduction in an  MCIT is greater than the normal income tax due
amount not exceeding 40% of its gross income o Normal corporate income tax: P12,000
o MCIT: 20,600
 The MCIT is payable beginning on the fourth taxable year immediately following the year when a corporation commenced
its business operations.
 It is payable when the MCIT, which is equivalent to 2% of the corporation’s gross income is greater than the regular
income tax of 30% computed based on net taxable income.
 Any excess of the MCIT paid over the computed regular tax can be carried forward as tax credit for the 3 immediately
succeeding taxable years.

Certain passive income

a. 20% final tax imposed on domestic and/or resident foreign corporation (does not apply to nonresident foreign corporation; see item
6(c) below)
i. interest on any currency bank deposit
ii. yield or any other monetary benefit from deposit substitutes
Taxation of special corporations iii. yield from trust funds and similar arrangements
 Non-stock, non profit private educational iv. royalties
institutions. All revenues and assets used actually, b. 15 % of interest income of domestic and/or resident foreign corporation from a depository bank under the expanded foreign
directly, and exclusively for educational purposes currency deposit system
shall be exempt from taxes and duties.
c. 30% on gross income from nonresident foreign corporations:
 Income from any activity conducted for profit,
i. interest, dividends, rents, royalties, salaries;
regardless of the disposition made of such income,
ii. premiums, except reinsurance premiums
shall be subject to tax.
iii. annuities, emoluments or other fixed or determinable annual, periodic or casual gains, profits and income; and
 Proprietary educational institutions and private hospitals. Proprietary educational institutions and hospitals which are
iv. capital gains, except capital gains on sale of shares of stock in a domestic corporation not traded in the stock exchange
nonprofit shall pay a tax of 10% on their taxable income
 Provided income from unrelated activities does not exceed 50% of gross income
Special corporate income tax base and rates:
 NON-PROFIT means no net income or asset accrues to or benefits any member or specific person, with all the net
Improperly accumulated earnings tax –
income or asset devoted to the institution’s purposes and all its activities conducted for net profit.
 surcharge or penalty
 Government-owned or controlled corporations – generally subject to tax unless exempt under a law
 if earnings and profits accumulate instead of being divided or Distributed
 avoid 10% income tax due on the dividends (for individual share holders)
Special corporate income tax base and rates:
 10% of the improperly accumulated taxable income
Resident foreign corporations
(1) International carrier – 2.5% on gross Philippine billings  Defense against imposition: reasonable needs of the business
(2) Offshore banking units – 10% on gross amount  It is in the nature of a surcharge or penalty imposed on corporations that allow their earnings and profits to accumulate
(3) Branch profit remittances – 15% of profits remitted instead of being divided or distributed, thereby avoiding the 10% income tax due on the dividends that may be received by
(4) Regional or area headquarters shall not be subject to tax individual shareholders.
(5) Regional operating headquarters – 10% of taxable income  The improperly accumulated earnings tax (IAET) is equivalent to 10% of the improperly accumulated taxable income of a
Offshore banking units – 10% on gross amount corporation.
1. BNP Paribas  If the failure to pay dividends is due to some other causes, such as the use of undistributed earnings and profits for the
2. J.P. Morgan International Finance, Limited reasonable needs of the business, such purpose would not generally make the accumulated or undistributed earnings
3. Taiwan Cooperative Bank subject to the tax.
Regional operating headquarters – 10% of taxable income
Example: Hewlett-Packard AP (Hongkong) Ltd – Phil ROHQ The IAET is imposed on domestic corporations and which are classified
as closely-held corporations. However, this tax does not apply to the
following:
• Banks and non-banks intermediaries
• Insurance companies
• Publicly-held corporations
• Taxable partnerships
• General professional partnerships
• Non-taxable joint ventures
• Those registered with PEZA, SBMA, CDA and in special economic zones

Exemption from corporate income tax

 Labor, agricultural or horticultural organization not organized principally for profit
 Cemetery company owned and operated exclusively for the benefit of its members
 Nonstock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or
cultural purposes
 Business league chamber of commerce, or board of trade,
 Civic league or organization not organised for profit
 A non-stock and non-profit educational institution
 Government educational institution
 Mutual savings bank not having a capital stock represented by shares and cooperative banks without capital stock
organised and operated for mutual purposes and without profit; and development banks
 General professional partnerships
NOTE: Income from any of their properties or
 activities conducted for profit regardless of
 the disposition made of such income, shall be
 subject to tax imposed under this Code.

Filing of tax returns and payment of tax

 Quarterly returns within 60 days following the close of each of the first 3 quarters
 Final adjustment return on or before April 15, or 15th day of the fourth month following the close of the fiscal year
 The declaration or return shall be filed at an Authorized Agent Bank, Revenue District Officer, Revenue Collection Officer,
or authorized treasurer of the city or municipality at the location of the principal office or place where the main books of
accounts and other data are kept.
 Income tax due shall be paid at the time and place of filing of the declaration or return

Tax on Corporations IMPLEMENTATION

Company X
• P359 million tax evasion for its failure to file accurate information on its income tax returns for 2011, 2012 and 2013.
• food supplements, cosmetics and pharmaceutical products and
beverages.
• Company X received income payments from various banks including the Bank of Philippine Islands (P141.60 million), Metrobank
(P468.55 million) and Banco de Oro (P171.07 million).
• The company, however, only declared in its ITR gross sales amounting to P39.14 million in 2011, P106.69 million in 2012 and P196.68
million in 2013.

Tax on Corporations POLICY UPDATES

 Tax Reform for Attracting Better and High-
 Quality Opportunities - TRABAHO Bill
 Objectives:
- To encourage investment by GRADUALLY bringing down the corporate income tax rate from 30% to 20%
- To amend fiscal incentives
 OSD is limited to MSMEs