Taxation of Corporation

In previous discussion we talked about the rudimentary principles of taxation, its legal basis, and
its nature. In addition to that we utterly discussed taxation for individuals and its classification,
its applicability, and its principles. Moving forward, we will proceed to our significant topic
which is taxation of corporation.
In corporation we have:
 Domestic Corporation
 Foreign Corporation
Domestic corporation refers to Corporations that are currently situated, and
operates in the country in which it was organized. Like all corporations, it must abide by domesti
c regulations and business practices. Many corporations operate in multiple countries, and are co
nsidered domestic corporations only in the home country.
On the other hand, A foreign
corporation that operates in one country but was organized and is based in a different country. Fo
reign corporations must abide by domestic regulations and business practices, but may (or may n
ot, depending on the specific organization) submit their profits to shareholders in the home count
ry.
In article 2 of the Corporation code, corporation define as an artificial being created by operation
of law, having the right of succession and the powers, attributes and properties expressly
authorized by law or incident to its existence. While the definition of NIRC of corporation
includes partnership, joint stock companies’ associations, and insurance companies.
A general professional partnership does not include because a general professional partnership is
not taxable that was clearly stated in NIRC memorandum under Sec 26 of the National Internal
Revenue Code (NIRC) of 1997, as amended, a general professional partnership as such shall not
be subject to income tax. However, persons engaging in business as partners in a general
professional partnership shall be liable for income tax only in their separate and individual
capacities.
Why persons engaging in business as partners in a general professional partnership is still
taxable? Because of the rudimentary Doctrine of Separation of Juridical Personality.
Classification of Corporation
1. Domestic Corporations
 Domestic corporation in general:
e.g: San Miguel Corporation, Nestle Philippines, and SM investment Corp.
 Government owned and control corporation: (GOCC)
e.g: Land Bank of the Philippines, Cebu Port Authority, amd UCPB.
 Taxable Partnership: exclude general professional partnership as stated under
Sec.26.
 Propriety Educational Institution
 Non-profit Hospital
Now you might wonder why government owned corporations are included in the list of taxable
corporations? Simply because, while it is true, that the government cannot tax itself, only when
the government is performing a governmental function, if the government exercise its proprietary
function then that’s the time that the government step into the shoes of a regular tax payer.
2. Foreign Corp.
 Resident (FC)- Those engage in trade or business within the Philippines.
 Non-resident (FC)- Those not engage in trade or business within the Philippines
3. General Property Partnership
4. Estate and Trust Corp.

KIND OF CORPORATE TAXES:

• Normal Tax or NT/Net Income Tax (Proportional)

• Optional Corporate Income Tax or Gross Income Tax (GIT)
• Minimum Corporate Income Tax (MCIT)
• Improperly Accumulated Earning Tax (IAET)
• Final Income Tax
• Capital Gains Tax
• Profit Remittance Tax

Normal Tax(30% Net Income Tax Formula:

Gross Income (Excluding Passive & Capital Gains)

Less:

Allowable deductions(XX)/XX Net Taxable Income

Multiplay By TAX RATE (30%)/XX Net Income Tax Due

Less:

Tax Credit if Any (XX)/XX Tax Still Due, If Any

"NT (30%) OR MCIT (2%) WHICH IS HIGHER"

GROSS INCOME OF CORPORATION

• Gross income from trade or business
• Gains from dealing in property
• Interest
• Rents
• Royalties
• Dividends
• Annuities
• Prizes and winnings
ALLOWABLE DEDUCTIONS:
• Ordinary and necessary expenses
• Interest, taxes, losses, bad debts, depreciations
• Depletion of oil and gas well and mines
• Charitable and other contributions
• Research and development
• Pensions trust contributions of employees

NOTE: The only allowable deductions for corporation is Itemized Deductions or

Optional Standard Deduction (OSD)
CORPORATE TAXES:

• MINIMUM CORPORATE INCOME TAX (MCIT)

Whenever such corporations has zero or negative taxable income

Whenever the amount of MCIT is greater than the normal income tax due from such
corporation

CORPORATIONS MAY RELIEF FROM MCIT:

Prolonged labor disputes

Force majeure
Legitimate business reverses

• SITUS OF TAXABLE INCOME:

Domestic Corporationw/in w/out Tax Base

RF Corporation yes no Taxable Income
NRF Corporation yes no Gross Income

Note: TAX RATE IS 30% EFFECTIVE JANUARY 1,2009

• MINIMUM CORPORATE INCOKE TAX (MCIT)
Effectivity
Carry Forward of excess minimum, corporate income tax
Limitation on carry over
TAX RATE AND BASES FOR MCIT:2% OF GROSS INCOME or taxable base
pertinent to a trading/merchandising concern or service entity.