Professional Documents
Culture Documents
Foreign currency translation In the computation of the Gross Philippine Billings, tickets in foreign currencies are translated at whichever is
higher of the following conversion rate: 1. Monthly average Airline Rate in the Bank Settlement Plan (BSP) Monthly sales report 2.
Bankers Association of the Philippines (BAP) rate
Treatment of income Other Than Income from International Transport The other income of international carriers other than from
international transport is subject to the appropriate type of income tax. Active income such as demurrage fees, which are in the nature of a
rent for the use of property of the carrier in the Philippines, detention fees and other charges relating to outbound and inbound cargoes as
charges for the use of property or rendition of services are subject to the regular corporate tax.
Off-line international carriers Off-line international carriers are those without flights or voyage starting from or passing through any point
in the Philippines (i.e. no landing rights. The branch or sales agent in the Philippines of off-line international carriers which sells passage
documents for compensation or commission to cover off-line flights or voyages of its head office or other airline or sea carriers covering
flight or voyages originating from Philippine ports or off-line flights or voyages is subject to the regular corporate income tax.
1. Definition of terms
a. Offshore banking- shall refer to the conduct of banking transactions in foreign currencies involving the receipt
of funds from external sources and the utilization of such funds. (PD 1035)
b. Offshore banking unit – shall mean a branch subsidiary or affiliate of a foreign banking corporation which is duly authorized by the
Central Bank of the Philippines to transact offshore banking business in the Philippines. (PD1035)
2. Distinction:
OBU – is a division of foreign bank which is authorized to conduct foreign currency denominated transactions.
FCDU – is a division of a domestic corporation bank. (Limited to short term foreign currency transactions)
EFCDU – may be a division of a domestic bank or a resident foreign bank to conduct banking under the expanded foreign currency
deposit system.(Allowed to both short term and long term foreign currency denominated transactions)
DOMESTIC BANK
c. Any income of non-resident (individual or
corporation) from OBUS
Income exempt from tax
EXCEPTION: (Not Treated as Branch Profit) Profits from activities which are registered with the Philippine
Economic Zone Authority; a) Interest b) Dividends c) Rents d) Royalties e) Remuneration from technical services f)
Salaries, wages, premiums, annuities, emoluments g) Other fixed or determinable annual, periodic or casual gains,
income and capital gains
If the above enumerated incomes are effectively connected with the conduct of its trade or business in the Philippines, they will be
treated as branch profits subject to BPRT upon remittance.
• For purposes of branch profit remittance, income items which are not effectively connected with the conduct of its trade or
business in the Philippines are not considered branch profits.
Petroleum subcontractor is not exempted from 15% BPRT According to the BIR, while a foreign subcontractor providing
maintenance and engineering services to a service contractor engaged in petroleum operation is entitled to the 8% preferential
final withholding tax (instead of the 30% regular tax) in lieu of any and all taxes, it is not exempt from the 15% BPRT. The 8% final tax
in lieu of any and all taxes as provided under PD No. 1354 applies only to a subcontractor’s gross income derived from contracts with a
service contractor engaged in petroleum operations in the Philippines. On the other hand, the BPRT is a tax on profit realized for
remittance abroad. (BIR Ruling No. 122-2015 dated 17 April 2015)
Regional or area headquarters is a branch established in the Philippines by multinational companies and which headquarters do not earn
or derive income from Philippines and which act as supervisory, communications and coordinating center for their affiliates, subsidiaries or
branches in the Asia Pacific Region and other foreign markets.
Tax base Tax rate Exempt from tax -
Regional operating headquarters is a branch established in the Philippines by multinational companies which are engaged in different
services (e.g. general administration and planning, business planning and coordination, marketing control and sales promotion, etc.)
Tax base Tax rate Taxable income 10%
Exercises: a. (Adapted): Singapore Airlines, an international carrier doing business in the Philippines provided you the following data: Gross
ticket sales(passengers) in the Philippines (Manila to Macau flight) P2,000,000 Gross ticket sales(cargoes) in China (Manila to Beijing flight)
2,000,000 Gross ticket sales(passengers) in the Philippines (Macau to Manila flight) 1,000,000 Gross ticket sales(cargoes) in China (Beijing to
Manila flight) 1,000,000 Value of fares on non-revenue passenger (Outbound flights) *150,000 Fares cancelled and refunded (Outbound flights)
200,000 Value of fares on non-revenue passenger (Inbound flights) 50,000 Fares cancelled and refunded (Inbound flights) 50,000 Rental
income(earned in the Philippines), net of withholding tax 950,000 Expenses connected to rental income 500,000
Required: 1. How much was the total Philippine income tax due?
What is the amount of Jacky Lipad’s income tax payable in the Philippines?
In year 200B, Abbott earmarked for remittance to its head office in North Carolina, USA some of its income as follows:
Operating net income after tax P24,000,000 Dividend income from Pharma Co. ___-
7,000,000 Total branch profit remittance P31,000,000
Required: 1. How much is the branch profit remittance tax and the total amount to be remitted after tax? 2. Assuming all activities
registered with PEZA. How much is the tax on the branch profit remittances, if any?
Star Diamond Corporation’s taxes payable (income tax and percentage tax) on sales of capital assets assuming the taxpayer is a:
1. Domestic corporation (DC). 2. Resident foreign
corporation (RFC). 3. Non-resident foreign corporation
(NRFC).
1. What is the total amount of final income taxes of Philippine Commercial Bank? 2. What is the total amount of
normal corporate income tax of Philippine Commercial Bank?
Amount of Tax for Seller of Goods: Gross Sales PXXX Sales Returns and
Allowances and
Discounts (XXX) Cost of Goods Sold (XXX) Gross income from operation XXX Other
income XXX Gross Income PXXX Rate 2% MCIT PXXX
1. Trader or Merchandiser:
Invoice Cost PXXX Import Duties XXX Freight XXX Insurance XXX COS
PXXX
2. Manufacturer:
Raw Materials Used PXXX Direct Labor XXX Manufacturing Overhead XXX
Freight Cost XXX Insurance Premiums XXX Other Costs* XXX Cost of
Goods Manufactured and Sold PXXX
NOTE*: Other costs must be incurred in bringing the raw materials to the factory or warehouse.
NOTE: In case of BANKS, other than the items enumerated above, it shall also include Interest expense.
Simply stated, MCIT applies on the X+4th year of operations. For instance, a corporation which started operations at any day in 20X2 will be
covered by MCIT in 20X6.
6. Tax due
The tax due is the higher between the minimum corporate income tax and normal or regular corporate income tax.
b. Once the option to carry-over has been made, such option shall be considered irrevocable for that taxable
period
Large Taxpayers who will e-pay shall enroll with any EFPS AAB authorized to serve them and who are capable to accept e-payments.
E-payments shall be made within the day the return was electronically filed following the “pay as you file system”. Unless otherwise
notified by the Commissioner of Internal Revenue, for all returns that will be filed starting August 1, 2002, e-payment of the taxes due
thereon thru EFPS shall become mandatory (RR 9-2002).
For Non-Large Taxpayers who intend to e-pay, electronic payment shall be made through the internet banking facilities of any AAB.
The volunteering two hundred (200) or more Non-Large Taxpayers previously identified by the BIR to have availed of the option to file
their return under EFPS shall nevertheless continue to file their returns under such method. (RR No. 10-2007). However, upon receipt
of a notification letter duly signed by the Commissioner of Internal Revenue, it becomes mandatory for them, including their branches
located in the computerized revenue district offices, to file their returns and pay their taxes thru EFPS. (RR No. 10-2007). The filing of
the return ahead of the payment of the tax due thereon is still in accordance with “pay as you file” as long as the payment of the tax is
made on or before the due date of the applicable tax.
Non-large taxpayers shall have the option to file a consolidated return in the head office following the procedure in RR No. 1-98 or to
file returns on a per branch or facility basis. Provided, however, that they shall update their registration with the affected or concerned
revenue district officers by filing BIR Registration Update Form (BIR FORM 1905) before they change their manner of filing returns.
• RR 9-2001 defines EFPS as the system developed and maintained by the BIR for electronically filing tax returns, including
attachments, if any, and paying taxes due thereon, specifically through the internet.
• Upon filing, a Filing Reference Number is issued by EFPS as a control number to acknowledge that a tax return, including
attachments, has been successfully filed electronically. This shall serve as evidence of filing and the date of filing of the return.
• Upon payment of the tax due to an authorized agent bank (AAB) under EFPS, the AAB shall issue Acknowledgement Number as
a control number to the BIR to confirm that tax payment has been credited to the account of the government or recognized as revenue
(internal revenue tax collection) by the Bureau of Treasury.
• Likewise, a Confirmation Number shall be issued by the AAB as a control number to the taxpayer and BIR to acknowledge that the
taxpayer’s account has been successfully debited electronically in payment of his tax liability. This shall serve as evidence of the fact of
payment of the taxpayer’s liability to the extent of the amount reflected in the confirmation number and the date of payment by the
taxpayer.
Group B 14 days following the end of the month 24 days following end of the month Group C 13 days following the
end of the month 23 days following end of the month Group D 12 days following the end of the month 22 days
following end of the month Group E 11 days following the end of the month 21 days following end of the month
2. As to financial condition Gross sales/receipts P1,000,000,000 per year Net worth P300,000,000 at the close of each
calendar or fiscal year Gross purchases P800,000,000 Per S.E.C lists Top corporations as listed and published by the
Securities and Exchange Commission
Non-Large Taxpayers
• Volunteering 200 or more Non-Large Taxpayers
• Top 20,000 private corporations (starting April, 2009)
Other Taxpayers:
• Corporation with paid-up capital of P10,000,000 and above
• Corporation with complete computerized system
• Taxpayers joining public bidding pursuant to E.O. No. 398 as implemented by RR 3-2005.
Enterprises enjoying fiscal incentives granted by other government agencies such as those registered with:
• PEZA (Philippine Economic Zone Authority)
• BOI (Board of Investments)
• Various zone authorities
• Cagayan Special Economic Zone Authority
• Export Development Council
• Tourism Infrastructure and Enterprise Zone Authority; and
• PHIVIDEC Industrial Authority
Failure to comply with the provisions on e-filing and e-payment shall be penalized under Section 275 of the Tax Code. However, only
the first and second offenses may be compromised. For the third and subsequent offenses, no compromise shall be entertained or
allowed.
eBIRForms Software Package (also known as Offline eBIRForms Package) — is a tax preparation software that allows the
taxpayer and Accredited Tax Agent (ATA) to accomplish or fill up tax forms offline. It is an alternative mode of preparing tax returns
which deviates from the conventional manual process of filling-up tax returns on pre-printed forms that is highly susceptible to
human error. Taxpayers/ATAs can directly encode data, validate, edit, save, delete, view and print the tax returns. The form
package has automatic computations and has the capability to validate information inputted by the taxpayers/ATAs.
Online eBIRForms System — is a filing infrastructure that accepts tax returns submitted online and automatically computes
penalties for tax returns submitted beyond due date. The System creates secured user accounts thru enrollment for use of the online
System, and allows ATAs to file on behalf of their clients. The System also has a facility for Tax Software Providers (TSPs) to test
and certify the data generated by their tax preparation software (certification is by form). It is capable of accepting returns data filed
using certified TSP's tax preparation software.
Mandatory eBIR Forms and Mandatory e-FIling Only those non-EFPS filers are covered
RR 6-2014, particularly the following :
• ACCREDITED TAX AGENTS/ PRACTITIONERS & all its client-taxpayers who authorized them to file in their behalf
• ACCREDITED PRINTERS of Principal and Supplementary Receipts/Invoices
• One-Time Transaction (ONETT) taxpayers
• Those engaged in business, or those with mix income (both compensation and business income) who shall file a “NO
PAYMENT” Return (exception under RMC No. 12-2015)
• Government-Owned or Controlled Corporations (GOCCs)
• Local Government Units (LGUs), except barangays
• Cooperatives, registered with National Electrification Administration (NEA) and Local Water Utilities Administrations (LWUA)
Taxpayers who are not covered by the regulation may opt to file their returns using the manual filing or eBIR forms
Those exempted and may file manually Under Sec. 4(3) of RR 6-2014 and RR 5-2015 mandating the use of eBIRForms and
electronically filing “No
Payment Returns”, the following can file manually their “No Payment Returns”:
• Senior Citizen (SC) or Persons with Disabilities (PWDs) filing for their own return
• Employees deriving purely compensation income whether from one or more employers, whether or not they have any tax due
that need to be paid
a. Objective: To force corporations to distribute dividends to shareholders in order that related tax in dividends will be collected.
b. 10% of improperly accumulated taxable income (In addition to other taxes imposed, there is imposed for each year on the
improperly accumulated taxable income of each corporation an improperly accumulated earning tax equal to 10% of the improperly
accumulated taxable)
c. Only Domestic Corporations not public listed are covered by the IAET.
a. Publicly held corporation b. Banks and other non-bank financial intermediaries c. Insurance Companies d. Taxable partnership e.
General professional partnership f. Non-taxable joint ventures g. Enterprise registered with PEZA and under Bases Conversion and
Development Act (BCDA) and special
economic zones
5. Closely-held corporations
The ownership of a corporation for the purpose of determining whether it is a closely held corporation or a publicly held corporation is
ultimately traced to the individual shareholders of the parent company. Where at least 50% of the outstanding capital stock or at least
50% of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or for not mo re than 20
or more individuals, the corporation is a publicly held corporation. Domestic corporation not falling under the aforementioned definition
are, therefore, closely-held corporations (BIR Ruling 25-02).
8. Earning or profits of a corporation are permitted to accumulate beyond the reasonable needs
The fact that the earning or profits of a corporation are permitted to accumulate beyond the reasonable needs of a business shall be
determinative of the purpose to avoid the tax upon its shareholders or members, unless the corporation, by clear preponderance of
evidence, shall prove to the contrary.
Immediacy Test - under this test of determining justified accumulation, "Reasonable needs of the business" means the immediate
needs of the business. If the corporation does not prove an immediate need for the accumulation of the earnings and profits, then the
accumulation is not for the reasonable needs of the business and the penalty tax would apply. Reasonable needs of the business
include the reasonably anticipated needs of the business. (immediacy test)
(RMC 35-2011) The amount that may be retained, taking into consideration the accumulated earnings within the “reasonable needs of
the business” shall be 100% of the paid-up capital or the amount contributed to the corporation representing the par value of the shares
of stock, hence, any excess capital over and above the par shall be excluded and therefore must be part of the income declared as
dividends. (Additional paid in capital is now removed from the equation). Any excess capital over and above the par shall be excluded
which is in contrast with the principle of “immediacy test”
Section 3 of RR No. 2-2001 provides that the following shall constitute accumulation of earnings of “reasonable needs” of the
business:
- Reasonable needs of the business is determined by the “immediacy test” (immediate needs of the business, including reasonably
anticipated needs - There should be PROOF of immediacy or direct correlation of anticipated needs
a) (Up to 100% of the paid up capital of the corporation for reserve purposes) Allowance for the increase in the accumulation of
earnings up to 100% of the paid-up capital of the corporation as of balance sheet date, inclusive of accumulations taken from other
years, under RMC 35-2011 paid up capital shall refer to the par value of the shares.
b) (For definite corporate expansion projects as approved by the BOD) Earnings reserved for the definite corporate expansion
project or programs requiring considerable capital expenditure as approved by the board of directors or equivalent body.
c) (For building, plants or equipment acquisition as approved by the BOD) Earnings reserved for
building, plants or equipment acquisition as approved by the board of directors or equivalent body.
d) (For compliance with any loan covenant or pre-existing obligation established under a legitimate business agreement)
Earnings reserved for compliance with any loan covenant or pre-existing obligation established under a legitimate business agreement.
e) (Required by law or applicable regulations to be retained by the corporation or in respect of which there is legal prohibition
against its distribution) Earnings required by law or applicable regulations to be retained by the corporation or in respect of which
there is legal prohibition against its distribution.
f) (SUBSIDIARIES OF FC: investments in the Philippines as proven by corporate records) In the case of subsidiaries of foreign
corporations in the Philippines, all undistributed earnings intended or reserved for the investments within the Philippines as can be
proven by corporate records and/or relevant documentary evidence.
Less: Corporate income tax due (xxx) Add: Net operating loss carry- over Pxxx
Earnings from regular income , net of tax Pxxx Passive income, net of final tax xxx
Capital gains, net of capital gain tax xxx Exempt or excluded income xxx
Add: Retained earnings from prior years xxx Less: Amount that may be retained
Exercise:
a. (Adapted) The record of a closely held corporation, registered with BIR in 2009, reveals the following:
2015: Gross income P3,000,000 Less: Expenses 3,800,000 Net operating loss (P800,000)
2016: Gross income P5,000,000 Expenses 3,000,000 Rent income, net of 5% withholding tax 475,000 Interest on money market
placement, net of 20% withholding tax 80,000 Capital gain on shares of stock, net of capital gain tax 230,000 Inter-corporate dividends
received 500,000 Dividends paid by the corporation 1,500,000
It had a capital stock of P5,000,000 and share premium of P700,000 as of December 31, 2016. Upon examination of the 2016 return, the BIR
concludes that there is an improper accumulation of profit. The corporation fails to show proof to prove the contrary. Required: 1. How much is
the tax payable of the corporation per return in the year 2016? 2. How much is the tax on the improper accumulated income in 2016?