ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 42  October 2021 CPA Licensure Exam  Week No. 6

TAXATION

A. Tamayo  G. Caiga  C. Lim  K. Manuel  E. Buen

TAX-702: INCOME TAX RATES -

CORPORATIONS
1. TAX RATES

Cost of Land on which the particular business office, plant and equipment are situated shall be accounted separately in
the AFS.
Should not be lumped or consolidated with the other fixed assets. [RR 5-
2021]

For Taxable Year (TY) 2020, regardless of accounting period, in the computation of the taxable income, income and expenses
for the year shall be deemed earned and spent equally for each month of period (RR No. 5-2021).

NOTE: CREATE Act repealed the provision that allows corporations to have the option to be taxed at 15% of gross income after
certain conditions have been.
satisfied

b. Minimum corporate income tax (under CREATE Act)

DC RFC NRFC

Tax rate 2% 2%

Effective July 1, 2020 until June 30,
2023, the 2% MCIT rate shall be
reduced to 1% on gross income.
Thereafter, it shall revert back to the
2% MCIT rate.
Effective July 1, 2020 until June
30, 2023, the 2% MCIT rate shall
be reduced to 1% on gross Not
income. Thereafter, it shall revert Applicable
back to the 2% MCIT rate.

Tax base Gross income within and without PH Gross income within PH

For TY 2020, regardless of accounting period, in the computation of the gross income, income and expenses for the year
shall be deemed earned and spent equally for each month of period.
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Week 6: INCOME TAX RATES – CORPORATIONS

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c. On certain passive income derived from Philippines sources (under CREATE Act)

DC RFC NRFC
Interest in any currency bank deposit 20% final tax 20% final tax
Yield or any monetary benefit from deposit 20% final tax 20% final tax
substitute 25% final tax
Yield or any monetary benefit from trust fund
and other similar arrangements 20% final tax 20% final tax
Royalties 20% final tax 20% final tax
Interest income derived from depository
bank under EXPANDED FOREIGN CURRENCY Not
DDEPOSIT SYSTEM Applicable
15% final tax 15 final tax
%

d. Capital gains taxes (under CREATE Act)

D RF NRF
C C C
1. Capital gains from sale of shares of GT
stock not traded in the local stock
exchange (on net capital gains)
2. Capital gains from sale, barter,
transfer and/or assignment of
shares of stock of publicly-listed
companies not compliant with
15% CGT 15% C 15% CGT
mandatory minimum public
ownership (10% of the
publiclylisted companies’ issued
and outstanding shares, exclusive
of any treasury shares) (RR No.
162012) (on net capital gains)

3. Gains realized from sale or

exchange or disposition of land
and/or building
Capital asset - on gross selling price
or fair market value whichever is
6% CGT
higher
Ordinary asset
On gross selling price/total amount of
consideration or the fair market
value, whichever is higher
1) where the seller/transferor is
habitually engaged in the real
estate business with selling price:

a) P500,000 or less
b) More than P500,000 but not 1.5% creditable
more than P2,000,000 withholding tax
c) More than P2,000,000 3.0% creditable
withholding tax
2) Where the seller/transferor is not 5.0% creditable
habitually engaged in the real withholding tax

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-702
Week 6: INCOME TAX RATES – CORPORATIONS
estate business 6% creditable withholding
tax

f. Tax on income derived under expanded foreign currency deposit system by depository bank

D RF NRF
C C C
1. Income derived by a depository bank
from foreign currency transactions with Exempt from all taxes Exempt from all taxes
non-residents, OBUs in the Philippines, except net income from except net income from
local commercial bank including branches Exempt
transactions specified by transactions specified by
of foreign banks Sec. of Finance Sec. of Finance
2. Interest income from foreign currency
loan granted by depository banks under
expanded system to residents other than
OBUs in the Philippines and other 10% Exempt
depository bank 10%
3. Any income of non-residents (individual
or corporation) from transactions with Exempt from income tax
depository banks under expanded system
- -

g. Inter-corporate dividends received from domestic corporation (under CREATE ACT)

Recipient Corporation Tax rate

1. DC Not subject to tax

Provided, that for foreign-sourced dividends to be exempt, the funds from such
dividends actually received or remitted into the Philippines are reinvested in the
business operations of the domestic corporation in the Philippines within the
next taxable year from the time the foreign-sourced dividends were received
and shall be limited to funding the working capital requirements, capital
expenditures, dividend payments, investment in domestic subsidiaries, and
infrastructure project: Provided, further, That the DC holds directly at least
20% of the outstanding shares of the foreign corporation and has held the
shareholdings for
a minimum of 2 years at the time of the dividends .
distribution
2. RFC Not subject to tax
3. NRFC 15% final tax

subject to the condition that the country in which the NRFC is domiciled, shall
allow a credit against the tax due from the NRFC taxes deemed to have been
paid in the Philippines equivalent to 15%, which represents the difference
between the regular income tax and the 15% tax on dividends as provided in
this subparagraph: Provided, That effective July 1, 2020, the credit against the
tax due shall be equivalent to the difference between the RCIT provided in
Section 28(B)(1) of this Code and the 15% tax on dividends

h. Interest on foreign loans contracted on or after August 1, 1986 (under CREATE ACT)

Recipient Corporation Tax rate

NRFC 20% final tax

i. Exercises:

1. Identify whether the following are subject to final tax or not. Taxpayer is DOMESTIC CORPORATION unless otherwise
stated (Y/N).

Final tax? Rate

1) Interest from peso bank deposit, Equitable – PCIB, Makati
2) Interest from Japanese yen bank deposit, Sumitomo Bank, Japan

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-702
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3) Interest from USA dollar bank deposit, First USA Bank, New York
4) Interest income from a debt instrument not within the coverage of deposit substitute, Philippines
5) Interest income from a debt instrument within the coverage of a deposit substitute, Philippines
6) Interest on government debt instrument and securities (regardless of number of lenders at the time of
the origination)
7) Interest from overdue accounts receivable, Philippines
8) Royalties, in general, Manila
9) Prize amounting to P30,000, Philippines
10) Prize amounting to P10,000, Philippines
11) Prize amounting to P40,000, USA
12) Winnings amounting to P30,000, Philippines
13) Winnings amounting to P10,000, Philippines
14) Interest received from depository bank under expanded foreign currency deposit system
15) Interest income from long-term deposit or investment evidenced by certificates issued by BSP
16) Interest income from long-term deposit or investment evidenced by certificates issued by BSP
received by RESIDENT FOREIGN CORPORATION
17) Interest income from long-term deposit or investment evidenced by certificates issued by BSP
received by NON-RESIDENT FOREIGN CORPORATION
18) Gain from sale of shares of stock not through the stock exchange
19) Gain from sale of shares of stock not through the local stock exchange received by RESIDENT
FOREIGN CORPORATION
20) Gain from sale of shares of stock not through the local stock exchange received by NON-RESIDENT
FOREIGN CORPORATION
21) Presumed capital gain from sale of piece of land classified as capital asset
22) On selling price of sale of building classified as ordinary asset (seller not habitually engaged in real
estate business)
23) On selling price of sale of building classified as ordinary asset (seller is habitually engaged in real
estate business), selling price is P500,000
24) On selling price of sale of building classified as ordinary asset (seller is habitually engaged in real
estate business), selling price is P2,000,000
25) On selling price of sale of building classified as ordinary asset (seller is habitually engaged in real
estate business), selling price is more than P2,000,000
26) Gain from sale of real property by a corporation which is registered with and certified by the Housing
and Land Use Regulatory Board (HLURB) or the Housing and Urban Development Coordinating
Council (HUDCC)
27) Income derived by a depository bank from foreign currency transactions with non-residents, OBUs in
the Philippines, local commercial bank including branches of foreign banks
28) Interest income from foreign currency loan granted by depository banks under expanded system to
residents other than OBUs in the Philippines and other depository bank
29) Dividend from a domestic corporation
30) Dividend from a foreign corporation
31) Dividend received from domestic corporation by a NON-RESIDENT FOREIGN CORPORATION (no tax
sparing credit)
32) Dividend received from domestic corporation by a NON-RESIDENT FOREIGN CORPORATION
33) Interest on foreign loans contracted on or after August 1, 1986 received by non-resident foreign
corporation
34) Interest income received by RESIDENT FOREIGN CORPORATION from a depository bank under
expanded foreign currency deposit system
35) Interest income received by a NON-RESIDENT FOREIGN CORPORATION from a depository bank
under expanded foreign currency deposit system

2. ABC Corporation was created in accordance with Philippines laws. During the calendar year 2021, it has the following data on
income and expenses:
Gross income, Philippines (gross sales, P15,000,000) P10,000,000
Business expenses, Philippines 2,000,000
Gross income, USA (gross sales, P8,000,000) 5,000,000
Business expenses, USA 1,500,000
Interest income, Bank of PI-Manila, Philippines 300,000
Interest income from long-term deposit, Philippines 80,000
Dividend from a domestic corporation 150,000
Interest income from domestic depository bank under EFCDS 120,000
Interest income, JP Morgan-Chase Bank, USA 100,000
Prizes, Manila 200,000
Interest income from loans, Philippines 300,000
Gain from sale of shares of stock directly to the buyer (par value is P200,000)
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Week 6: INCOME TAX RATES – CORPORATIONS
100,000 Gain from sale of land/real property (ordinary asset) seller not habitually engaged in real estate
business, Philippines, gross of applicable withholding tax (selling price, P500,000) 250,000
Gain from sale of land/real property (capital asset), Philippines, gross of applicable
withholding tax (selling price, P600,000; FMV time of sale, P800,000) 100,000
Rent income from equipment, Philippines, gross of applicable withholding tax 1,000,000
Payments, first three (3) quarters 500,000

Question 1 – How much is the Philippine income tax payable?

2 – How much is the total final withholding tax?
3 – How much is the Philippine income tax payable using OSD?
4 – How much is the documentary stamp tax on the sale of real property?
5 – How much is the documentary stamp tax on sale of shares of stock?
6 – Disregarding certain information that are not relevant and assuming the above corporation is a foreign corporation
engaged in trade or business in the Philippines, how much is the Philippine income tax payable?
7 – Disregarding certain information which are not applicable and assuming the corporation is not engaged in business
in the Philippines, how much is the final withholding taxes in the Philippines?

3. A corporation has the following income for the current year:

Interest income derived from depository bank under Expanded Foreign Currency
Deposit System (EFCDS) P100,000
Capital gain from sale of shares of stock not traded in the local stock exchange 200,000
Dividend from a domestic corporation 300,000

How much is the final tax on the passive income and the capital gains tax, assuming the corporation is a: a)
resident foreign corporation or
b) non-resident foreign corporation?

2. OPTIONAL CORPORATE INCOME TAX – DELETED UNDER CREATE ACT

3. MINIMUM CORPORATE INCOME TAX (MCIT)

a. Corporations subject to 1) Domestic corporation

MCIT 2) Resident foreign corporation
b. Corporations not subject to 1) Proprietary educational institution subject to 10% tax;
MCIT 2) Non-profit hospital subject to 10% tax;
3) Domestic corporation engaged in business as a depository bank under EFCDS;
4) Firms taxed under a special income tax regime (PEZA Law and the Bases Conversion
Development Act);
5) Special resident foreign corporations;
6) Non-resident foreign corporations
c. Tax base and tax rate Effective July 1, 2020 until June 30, 2023, the 2% MCIT rate shall be reduced to 1%
on
gross income. Thereafter, it shall revert back to the 2% MCIT
rate.
1) Gross income within and without – Domestic corporation;
2) Gross income within – Resident foreign corporation
d. Gross income defined (RR 12- 1) For the purpose of the MCIT, the term “gross income” means gross sales less sales
2007) published returns, discounts, and allowances and cost of goods sold, in case of sale of goods, or
October 19, 2007 gross revenue less sales returns, discounts, allowances and cost of services/direct cost, in
the case of sale of services.
2) The term “gross income” will also include all items of gross income enumerated under
Sec. 32 (A) of the Tax Code, as amended, except income exempt from income tax and
income subject to final withholding tax.
e. MCIT imposed on the 4th The tax is imposed beginning on the fourth taxable year immediately following the year in
taxable year which such corporation commenced its business operation.
f. Tax due The tax due is the higher between the minimum corporate income tax and normal or regular
corporate income tax.
g. Quarterly computation of 1) The computation and the payment of MCIT, shall likewise apply at the time of filing of the
MCIT (RR 12-2007) quarterly corporate income tax.
published October 19, 2) In the computation of the tax due for the taxable quarter, if the computed quarterly MCIT
2007 is higher than the quarterly normal income tax, the tax due to be paid for such taxable
quarter at the time of filing the quarterly corporate income tax return shall be the MCIT.
3) In the payment of the quarterly MCIT (MCIT is greater than normal corporate income tax),
excess MCIT from the previous taxable year/s shall not be allowed to be credited.
4) Expanded withholding tax, quarterly corporate income tax, payments under the normal
income and the MCIT paid in the previous taxable quarter/s are allowed to be applied
against the quarterly MCIT due.
h. Excess MCIT as carry forward Any excess of the minimum corporate income tax over the normal corporate income tax shall
be carried forward and credited against the normal income tax for the three succeeding
taxable years.
i. The Secretary of Finance is authorized to suspend the imposition of minimum
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Suspension of imposition of corporate income tax on any corporation, which suffers losses on account of prolonged labor
MCIT disputes, or because of force majeure, or because of legitimate business reverses.
j. Exercises
1. Panday Corporation’s computed normal income tax and MCIT, and creditable income taxes withheld from first quarter to fourth
quarter including excess MCIT and excess withholding taxes from prior year/s are as follows:
First Q Second Q Third Q Fourth Q
Normal income tax P100,000 P120,000 P250,000 P200,000
Minimum corporate income tax 80,000 250,000 100,000 100,000
Taxes withheld 20,000 30,000 40,000 35,000

Additional information: Excess MCIT, prior year, P30,000; Excess withholding tax prior year, P10,000

REQ: Compute the income tax payable for the first three (3) quarters and the year end.

2. Using the same data in number 1 except that the normal income tax and the MCIT for the quarters are as follows:
First Q Second Q Third Q Fourth Q
Normal income tax P100,000 P120,000 P250,000 P 50,000
Minimum corporate income tax 80,000 250,000 100,000 120,000

REQ: Compute the annual income tax payable of the corporation for the year end?

3. The following data are presented to you:

Year Normal income tax Minimum corporate income tax
2017 P 50,000 P 75,000
2018 60,000 100,000
2019 50,000 60,000
2020 80,000 90,000
2021 100,000 70,000

Compute the tax payable for the years 2014 to 2018 and prepare the necessary journal entries?

4. IMPROPERLY ACCUMULATED EARNINGS TAX (FOR CLOSELY HELD CORPORATIONS) – DELETED UNDER CREATE ACT

END

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