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INCOME TAX ON CORPORATIONS

Krimean Corporation, a domestic corporation, had the following data for taxable years
2005 to 2010. Year 2005 is the corporations fourth year of operation. Compute for the
missing amounts for each year, assuming that for 2005-2008, the income tax rate is
35%, and for 2009 and above, 30%. Krimean Corporation was organized in the year
1998.
Year

Gross
Income

Net Income

MCIT

Normal Tax

Income Tax
Due

2005
2006
2007
2008
2009
2010

2,000,000
2,500,000
5,000,000
5,000,000
4,000,000
3,000,000

100,000
200,000
400,000
100,000
200,000
100,000

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NT

ITD

ITL

Income
Tax
Liabilities
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Answer:
Year
MCIT over NT
2005
2006
2007
2008
65,000
2009

MCIT
40,000
5,000
50,000
100,000
100,000

80,000
20,000
2010
60,000
30,000

Excess

35,000

40,000

40,000

70,000

70,000

65,000

140,000
35,000

140,000
140,000
100,000
100,000

60,000
30,000

80,000
60,000

80,000

60,000

Notes:
MCIT = 2% of Gross Income & NT = 30% (or 35%) of Net Income
A minimum corporate income tax (MCIT) of 2% is imposed upon any domestic
corporation beginning on the fourth (4th) taxable year of business operations
The income tax due shall be the MCIT or NT, whichever is higher
Excess of MCIT over the NT tax shall be carried forward & credited against normal
income tax for the 3 succeeding years
o 2006 ITL = 70,000 (NT) less 3,000 (excess MCIT carryforward) = P 65,000

Crimson Corporation, a domestic corporation, revealed the following net income for
years 200A and 200B, its 4th and 5th year or operations respectively, in the Philippines:
200A
200B
Gross Income
10,000,000
10,000,000
Operating Expenses
10,200,000
3,900,000
How much is the income tax still due and payable in 200B?

Answer:
1,770,000

P 10,000,000 3,900,000 200,000 (NOLCO) = 5,900,000 x 30% = P


Income Tax Still Due = P 1,770,000 200,000 (200A MCIT) = P 1,570,000

Notes:

The Net Operating Loss of P 200,000 in 200A which can be deducted on future on
Taxable Income
In 200A, the corporation is subject to 2% MCIT, or P 200,000
The P 200,000 MCIT in 200A is deductible in 200B income tax due, provided NT >
MCIT
Konoha Corporation, having sources of income from two different countries, presented
the following data for the computation of its correct income tax for 200A:
Gross income (Philippines)
900,000
Gross income (USA)
560,000
Business expenses (Philippines)
252,000
Business expenses (USA)
288,000
Compute for the income tax due assuming Konoha is a (1) domestic corporation, (2)
resident foreign corporation, & (3) non-resident foreign corporation.
Answer:

(1)

MCIT = (P 900,000 + 560,000) x 2% = P 29,200


NT = (P 900,000 + 560,000 252,000 288,000) x 30% = P

276,000 (higher)
(2)
(3)

MCIT = P 900,000 x 2% = P 18,000


NT = (P 900,000 252,000) x 30% = P 194,400 (higher)
P 900,000 x 30% = P 270,000

Notes:
A domestic corporation is taxable on income both within and without
A resident foreign corporations is taxable on income within
o Likewise, a RFC is subject to 2% MCIT on gross income within
A nonresident foreign corporations is subject to 30% tax on gross income within

Flygon Corporation, a domestic corporation, had the following data for the year 2009:
Gross Sales
Cost of Sales
Business Expenses
Dividend from another domestic
corporation
Interest income from bank deposit
Capital gains on sale of land (SP: P3M,
FMV: P2.5M)
Royalty Income
Dividend income from a foreign
corporation
Dividend paid during the year
Amount set aside for legal cases in court

10,560,000
5,250,000
4,456,000
450,000
50,000
300,000
20,000
100,000
120,000
500,000

Compute for the amount of improperly accumulated earnings tax.


Answer:
954,000

Taxable income = P 10,560,000 5,250,000 4,456,000 + 100,000 = P


Income Tax Due = P 954,000 x 30% = P 286,200
Taxable Income
954,000
Add: Dividends for DC
450,000
Interest Income
50,000
Capital Gains
300,000
Royalty
20,000
820,000
Total
1,774,000
Less: Income Tax Due
286,200
FT on Interest (50,000 x 20%)
10,000
FT on Royalty (20,000 x 20%)
4,000
CGT (3M x 6%)
180,000
Dividends Paid
120,000
Appropriation
500,000
1,100,200
Improperly Accumulated Earnings
P 673,800
IAET: P 673,800 x 10% = P 67,380

The following data were reported for 2011 business activities of Ninja Academy, a private
educational institution:
Tuition fees
P 3,000,000
Miscellaneous fees (lab fees, PE fees, etc.)
200,000
Rent income, net of 5% withholding tax
475,000
Cash dividends from a domestic corporation
200,000
Interest income, net of 20% final tax
80,000
Operating expenses
1,200,000
Compute for the amount of income tax payable for 2011.
Answer:
Income Tax Due: P 3,000,000 + 200,000 + 500,000 1,200,000 =
2,500,000 x 10% = P 250,000
Income Tax Payable: P 250,000 25,000 (WT on rent) = P 225,000
Suicune Corporation, Phils., a branch of a foreign corporation located in New Zealand
doing business in the Philippines, reported the following during the year:
Net operating income after tax
P 7,000,000
Dividends from a domestic corporation
2,000,000
The following year, the branch earmarked for remittance to the head office in New
Zealand the P 2,000,000 dividends and P 5,000,000 of its net operating income after tax.
Compute for the total amount to be remitted.
Answer:

P 5,000,000 x (1 15%) + 2,000,000 = P 6,250,000

Tactical, Inc. Philippines is engaged in research & development services and product
development related to computer and aircrafts parts. During the year, the company
reported the following income and expenses:
Sales
P 10,000,000
Cost of sales
4,000,000
Operating expenses
2,500,000
Interest income, net of final tax
200,000
Dividend income from a domestic corporation
800,000
Assuming that Tactical, Inc. is a regional operating HQ of a multi-national company,
compute for the amount of income tax due for the year.
Answer:

P 10,000,000 4,000,000 2,500,000 = P 3,500,000 x 10% = P 350,000

Indigo League, a special non-resident foreign corporation, reveals its income and
expenses within the Philippines for the year 2012 as follows:
Gross receipts
P 5,000,000

Operating expenses

2,000,000

Compute the income taxes due assuming Indigo League is a (1) cinematographic film
distributor, (2) lessor of aircraft, and (3) lessor of vessels chartered by Philippine
Nationals.
Answer:
Film distributor
5,000,000
25%

Lessor of Aircraft
5,000,000
7.5%

Lessor of Vessels
5,000,000
4.5%

P 1,250,000

P 375,000

P 225,000