TAX ON CORPORATIONS

A. Domestic Corporation

B. Resident Foreign Corporation

1. International Carrier
2. Regional or Area Headquarters And Regional Operating Headquarters of
Multinational Companies
3. Branch Profits Remittance Tax

C. Non-resident Foreign Corporation

D. Educational Institution

E. Government-owned and Controlled Corporation

F. Tax Exempt Corporations

G. Partnership

H. Joint Ventures

DOMESTIC CORPORATION
• Inter-Corporate Dividends
• Capital Gains from the Sale of Shares of Stock Not Traded in the Stock Exchange
• Capital Gains Realized from the Sale, Exchange, or Disposition of Lands and/or
Buildings

RESIDENT FOREIGN CORPORATION

• Inter-Corporate Dividends
• Capital Gains from the Sale of Stock Not Traded in the Stock Exchange
• Capital Gains Realized from the Sale, Exchange or Disposition of Lands and/or
Buildings
INTERNATIONAL CARRIER
A. International Air Carrier – refers to a foreign airline corporation doing business in
the Philippines, having been granted landing rights in any Philippine port to perform
international air transportation services/activities or flight operations anywhere in the
world. As the foreign airline corporation is doing business in the Philippines,
international air carrier is a resident foreign corporation.
Types of International Air Carrier
1. On-Line Carrier – refers to international air carriers having or maintaining
flight operations to and from the Philippines.
2. Off-Line Carrier – refer to international air carriers having no flight
operations to and from the Philippines.

* Off-line carrier and On-Line carrier are taxed differently.

Tax of On-Line Carrier

1. Gross Philippine Billings – An on-line carrier or international air
carrier having flights or voyages originating from any port or point in the Philippines,
irrespective of the place where passage documents are sold or issued, is subject to the
Gross Philippine Billings Tax of 2 1/2 % imposed under Section 28(A)(3)(a) of the Tax
Code.
2. Other Income – All items of income derived from on-line carriers
that do not form part of Gross Philippine Billings, as defined hereunder, are subject to
tax under the pertinent provisions of the Tax Code, as amended. This means the income
other than those forming part of Gross Philippine Billings shall be taxed under the rules
applicable to resident foreign corporation.

Gross Philippine Billings of International Air Carriers

In computing for “Gross Philippine Billings” of international air carriers,
there shall be included the total amount of gross revenue derived from:
(1) carriage of persons
(2) excess baggage
(3) cargo and/or mail
 Originating from the Philippines in a continuous and uninterrupted flight,
irrespective of the place of sale or issue and the place of payment of the passage
documents.

Off-Line Carrier – An off-line carrier, despite not having voyage operations to

and from the Philippines, may still earn income from the Philippines. An off-line
carrier having a branch/office or a sales agent in the Philippines which sells passage
documents for compensation or commission to cover off-line voyages of its
principal or head office, or for other airlines/sea carriers voyages originating from
Philippine ports or off-line voyages, is NOT considered engaged in business as an
international carrier in the Philippines and is therefore, NOT subject to Gross
Philippine Billings Tax provided for in Section 28(A)(3) of the NIRC.

Nevertheless, an off-line international carrier shall be subject to the regular rate

of income tax under Section 28(A)(1) of the NIRC, based on its taxable income from
sources within the Philippines, or the regular corporate income tax of 30%.

In fine, an off-line carrier is NOT subject to Gross Philippine Billings Tax but to
regular corporate income tax of 30%.

Preferential Income Tax Rate or Exemption of International Carrier with

Flights or Voyage Originating from Philippine Ports – Under Section 28(A)(3) of
the Tax Code, international carriers doing business in the Philippines may avail of
a preferential income tax rate or income tax exemption on their gross revenues
derived from the carriage of persons and their excess baggage on the basis of:
1. applicable tax treat to which the Philippines is a signatory
2. reciprocity

B. International Shipping – International see carrier refers to a foreign corporation

doing business in the Philippines, having touched or intention of touching any Philippine
port to perform international sea transportation services/activities from the Philippines to
anywhere in the worlds and vice versa, in the case of online carrier, or having maintained
business establishment, agent, or representative office in the Philippines for the sale of
owned tickets/passage documents or tickets/passage documents of other shipping
 companies, which shipping companies operate without touching any Philippine port, in
the case of off-line carrier.

1. On-Line Carrier
2. Off-Line Carrier

Branch Profits Remittance Tax – Only branch offices in the Philippines of foreign
corporations abroad are liable to pay 15% branch profit remittance tax based on total
profits applied or earmarked for remittance without any deduction for the tax
component. For this tax to apply, the profit remitted by the branch office to its head
office must be effectively connected with the conduct of its trade or business in the
Philippines.

Non-Resident Foreign Corporation

I. Gross Income Tax – Non-resident foreign corporation shall pay a tax equal to 30%
of the gross income received during each taxable year from all sources within the
Philippines. The 30% tax is based on the total gross income without any deduction
allowed.

The net capital gains realized during the taxable year from the sale, exchange or other
disposition of shares of stock in a domestic corporation not traded in local stock
exchange is subject to a final tax of 5% for the first P100,000 and 10% in the excess of
P100,000. (Section 28(B)(5)(c), NIRC)

Like resident foreign corporation, the final tax on this capital gain is not changed or
modified by the TRAIN Law.

Intercorporate Dividends
Under Section 28(B)(5)(b) of the Tax Code, a dividend, whether cash or property
dividend, received by a non-resident foreign corporation from a domestic corporation is
subject to payment of 15% final income tax, subject to the condition that:
The country in which the non-resident foreign corporation is domiciled allows
a credit against the tax due from the non-resident foreign corporation taxes deemed to
have been paid in the Philippines equivalent to 15%. THIS IS CALLED THE TAX-SPARING
RULE.

MINIMUM COPORATE INCOME TAX

- MCIT of 2% of the gross income as of the end of the taxable year is imposed
upon any domestic corporation and resident foreign corporation beginning the
4th taxable year immediately following the taxable year in which such corporation
commenced its business operations.
- MCIT is imposed wherever such corporation has zero or negative taxable income
or whenever the amount of minimum corporate income tax is greater than the
normal income tax due from such corporation.
- MCIT is not a new or additional tax for domestic and resident foreign
corporation. MCIT is a tax in lieu of the regular corporate income tax subject to
conditions stated above. X

PERIOD WHEN CORPORATION BECOMES SUBJECT TO MCIT

MCIT is imposed to domestic and resident foreign corporation beginning on the 4th
taxable year immediately following the year in which such corporation commenced its
business operations. The taxable year in which business operations commenced is the year
in which the corporation is registered with the BIR.

To illustrate, a newly formed corporation is registered with the BIR on 2011. In 2011, the
corporation is considered to commence its business operations.

Thus, the corporation will commence to be liable to MCIT on year 2015, the 4th year
immediately following the year it commenced its operations.

CORPORATIONS COVERED BY IMPOSITION OF IAET

- Only domestic corporations which are classified as closely-held corporations are
subject to the imposition of IAET.
EVIDENCE OF PURPOSE TO AVOID INCOME TAX
There are two instances considered as prima facie evidence of a purpose to avoid
IAET, to wit:
1. The fact that a corporation is a mere holding company or investment company
2. The fact that the earnings or profits of a corporation are permitted to accumulate
beyond the reasonable needs of the business.

JOINT VENTURES
Joint venture is defined as an association of persons or companies jointly
undertaking some commercial enterprise; generally, all contribute assets and share risks. It
requires a community of interest in the performance of the subject matter, a right to direct
and govern the policy in connection therewith, and duty, which may be altered by
agreement to share both in profit and losses.