SPECIAL TOPICS IN

INCOME TAXATION
INCOME TAX

• Kinds of taxpayers
• Individuals – purely compensation income earner, self-employed individual, self-
employed professional, and mixed income earner
• Corporations – corporations (whether stock or non-stock), one person corporation, GPPs
and other kinds of partnerships
• GPPs – exempt; pass through entity
INCOME TAX

• Kinds of taxpayers
• RC
• NRC
• RA
• NRAEITB - more than 180 days (aggregate)
• NRANEITB
• Estates
• Trusts
• DC – place of incorporation
• RFC
• NRFC
INCOME TAX

• NRC
1. A citizen of the Philippines who establishes to the satisfaction of the CIR the fact of his physical
presence abroad with a definite intention to reside therein
2. A citizen of the Philippines who leaves the Philippines during the taxable year to reside
abroad, either as an immigrant or for employment on a permanent basis - Seaman
3. A citizen of the Philippines who works and derives income from abroad and whose employment
thereat requires him to be physically present abroad most of the time (at least 183 days) during
the taxable year - OFW
4. A citizen who has been previously considered as non-resident citizen and who arrives in the
Philippines at any time during the taxable year to reside permanently in the Philippines
INCOME TAX

• Dual citizen?
• NRC – goes back to the Philippines in the middle of the year?
• RC – leaves the Philippines in the middle of the year?
INCOME TAX

• Income – anything that flows into the wealth of the taxpayer or anything that
increases the net worth of a taxpayer other than mere return of capital
• Realized or constructively received; not just paper profits
• Whether from legal or illegal sources
INCOME TAX

• Income
• Did you receive anything?
• In cash or in kind; all sources
• Is it income?
• Is it taxable?
• Source of income
• Kind of taxpayer
• Kind of income – excluded/exempt
INCOME TAX

• Income
• Ivanka Montes is a Filipino social media influencer and has a Youtube and IG account
• She started her social media accounts in 2018
• In 2020, she received jewelry worth Php1M and Php500K in cash in exchange for 3 IG posts
promoting the jewelry brand
• She also received total royalty income from Youtube in the amount of Php2M.
• She also received commissions from an Italian clothing brand based on the number of
customers who used the code that she posted upon checkout
• In 2020, she donated Php100K to GMA Kapuso Foundation.
• Is she subject to income tax and VAT in 2020?
INCOME TAX

• Income
• Heidilyn Diaz received prize money from the government for winning a gold medal in the
Olympics.
• She also received a condominium unit, cash, other real properties and gifts from various
individuals and corporations
• Are these income?
• If so, are they subject to income tax? Donor’s tax?
INCOME TAX

• Income
• You joined the raffle promo of Power Plant Mall last December 2021. You won the
grand prize – a luxury vehicle
• Are you subject to income tax?
• Is Power Plant Mall subject to donor’s tax and VAT for the transfer of the vehicle to you?
INCOME TAX

• Income
• Mr. X was an employee of ABC Corporation since January 1, 2010. He was a janitor and
receiving minimum wage
• In 2020, he received compensation income from January to June 30. On July 1, he received
a notice of termination effective August 1, 2020 from ABC Corporation due to financial losses
brought about by the pandemic.
• On August 1, 2020, he received ½ month pay for every year of service and accrued 13th
month pay as separation pay.
• On December 15, 2020, he won the jackpot in lotto in the amount of Php10Million.
• What are the taxable transactions of Mr. X in 2020?
INCOME TAX

• Sources of Income
• Sec. 42, Tax Code
• Interest – where the bank is located or where the debtor resides
• Compensation – where the service is rendered
• Real property income – location of real property
• Rentals – location of property
• Royalties - location of property
• Dividends – issued by a DC (within); issued by FC – within unless 3 years prior to release of
dividends, income from Phil sources is lower than 50% of its total income for the last 3 years
• Sale of personal property – shares of stock of DC – within; place of sale - others
INCOME TAX

• Rates of Income Tax

• Individuals – Graduated tax returns and
 PERSONAL INCOME TAX RATES
Effective Jan. 1, 2018

Income Bracket Tax Rate

1 0 -, 250,000 0,,
2 Over 250,000 -, 400,000 0 +, 20% of the excess over 250,000
3 Over 400,000 -, 800,000 30,000 +, 25% of the excess over 400,000
4 Over 800,000 -, 2,000,000 130,000 +, 30% of the excess over 800,000
5 Over 2,000,000 -, 8,000,000 490,000 +, 32% of the excess over 2,000,000
6 Over 8,000,000 2,410,000 +, 35% of the excess over 5,000,000

Effective Jan. 1, 2023

Income Bracket Tax Rate
1 0 -, 250,000 0,,
2 Over 250,000 -, 400,000 0 +, 15% of the excess over 250,000
3 Over 400,000 -, 800,000 22,500 +, 20% of the excess over 400,000
4 Over 800,000 -, 2,000,000 102,500 +, 25% of the excess over 800,000
5 Over 2,000,000 -, 8,000,000 402,500 +, 30% of the excess over 2,000,000
6 Over 8,000,000 , 2,202,500 +, 35% of the excess over 8,000,000
 PERSONAL INCOME TAX RATES

GROSS SALES 8% income tax on gross sales/receipts in excess of P250,000

OR
GROSS RECEIPTS

Rates for Compensation earners based on taxable income

 PERSONAL INCOME TAX RATES

Compensation Income Rates for Compensation earners based on

taxable income

Rates for Compensation earners based on

Taxable Income
Gross Sales/Receipts from business/
practice of profession 8% tax based on Gross Sales/Receipts and
other non-operating income

Rates for Compensation earners based on

taxable income
*at the option of the taxpayer
INCOME TAX

• Capital asset versus ordinary asset

• Capital Assets – properties held by the taxpayer (whether or not connected with his
trade or business), but does not include the following:
• Stock in trade;
• Property of a kind which would properly be included in the inventory;
• Property held primarily for sale to customers in the ordinary course of trade or business;
• Property used in the trade or business subject to depreciation; and
• Real property used in the trade or business. (Sec. 39(A)(1), Tax Code).
INCOME TAX

• The statutory definition of capital assets is negative in nature. If the asset is

not among the exceptions, it is a capital asset; conversely, assets falling within
the exceptions are ordinary assets. And necessarily, any gain resulting from
the sale or exchange of an asset is a capital gain or an ordinary gain
depending on the kind of asset involved in the transaction (Tomas Calasanz, et
al v. CIR, GR No. L-26284, October 9, 1986)
INCOME TAX

• Net Capital Gain – excess of the gains from the sales or exchanges of capital assets
over the losses from such sales or exchanges.
• Net Capital Loss – excess of the losses from sales or exchanges of capital assets over
the gains from such sales or exchanges.
• Note:
• Capital losses from sales or exchanges of capital assets shall be allowed only to the extent of
the gains from such sales or exchanges.
• Ordinary losses can be offset against net capital gains if they are subject to the same tax
rate.
INCOME TAX

• Capital Assets
• Real property located in the Philippines
• Shares of stock not traded in the stock exchange
• Other capital assets
INCOME TAX

• Real property as capital assets

• Capital gains tax
• All individual taxpayers and domestic corporations
• Includes exchanges or involuntary sales – expropriation or foreclosure sale
• For foreclosure sale, CGT will be due only after the expiration of the redemption period
• No need to compute for capital gain or loss (except if sold to the government or GOCCs and
individual elected to be taxed based only on capital gain)
• If selling price is below fair market value, there will be no donor’s tax under Sec. 100 of the
Tax Code
INCOME TAX
• Real property as capital assets
• Exemption – principal residence of resident taxpayers
• The proceeds from the sale, exchange or disposition of the principal residence must be fully
utilized in acquiring a new principal residence within 18 months
• This can only be availed of only once every 10 years
• The historical cost of his old principal residence shall be carried over to the cost basis of his new
residence
• If the principal residence is disposed in exchange for a condo, and if it used as his new residence,
the he is exempt
• The CGT must be deposited in escrow with an authorized agent bank
• The BIR shall be notified within 30 days from the date of sale or disposition
• No full utilization – unutilized portion shall be subject to CGT
INCOME TAX
• Real property as capital assets
• Mr. Amor is the owner of a parcel of land. He leased the property to Mr. Bernabe for a
monthly rental of Php20,000 and allowed the latter to construct a residential house
thereon.
• 10 years after, Mr. Amor and Mr. Bernabe decided to sell the house and lot to Mr. Cruz.
• What are the tax implications of the sale of the house and lot?
INCOME TAX
• Shares of stock held as capital asset – not traded in the stock exchange
• Capital gains tax on the net capital gain
• All taxpayers
• RR No. 6-2008, as amended by RR No. 6-2013 (as further amended by RR 20-20)
• In case the FMV of the shares of stock sold, bartered, or exchanged is greater than the
amount and/or fair market value of the property received, the excess of the FMV of the
shares of stock sold, bartered or exchanged over the consideration received shall be deemed
a gift subject to donor’s tax – IMPLIED OR DEEMED DONATION
• Sec. 100
• Different rule now under the TRAIN – made in the ordinary course of business; no
donative intent – no donor’s tax
INCOME TAX
• Shares of stock held as capital asset – not traded in the stock exchange
• Shares of stock traded in the stock exchange – exempt from income tax; subject to
percentage tax
• FMV of the shares of stock sold shall be:
• Listed shares sold, transferred, or exchanged outside of the trading system and/or facilities
of the Local Stock Exchange - the closing price on the day when the shares are sold,
transferred or exchanged or on the day nearest to the date of sale, transfer or exchange
• Unlisted shares – the value of the shares of stock at the time of the sale (using the book value
as fair market value)
INCOME TAX
• Company P, a non-stock, non-profit corporation committed to social
development, sold its 3 contiguous lots and building to Company X
• The lots and building are being used by Company P as its headquarters
• Is the sale subject to income tax?
INCOME TAX
• Other capital assets
• Subject to income tax at the graduated income tax rates or corporate income tax
• Holding period – Individuals – 50% of long-term capital gains/loss recognized; 100% -
short-term capital gains/loss (l12 months or less); corporations – 100%
• Losses from sales or exchanges shall be allowed only to the extent of the gains from such
sales or exchanges (ceiling or upper limit)
• Net capital loss carry over
INCOME TAX
• Kapamilya Foundation, non-stock, non-profit charitable institution
• It has a building and parcel of land in Quezon City. A portion of the land is being
leased to commercial establishments.
• It earns rental income, interest income from bank deposits and income from sale of
Kapamilya merchandise. It also receives donations from third parties
• RPT?
• Income tax?
• Donor’s tax?
• Is the donation deductible from the gross income of third parties?
INCOME TAX
• XY University – government educational institution.
• It has a building and parcel of land in Quezon City. A portion of the land is being
leased to commercial establishments.
• It earns Php1M rental income, interest income from bank deposits and Php2M income
from tuition and other fees. It also receives donations from third parties
• RPT?
• Income tax?
• Donor’s tax?
• Is the donation deductible from the gross income of third parties?
INCOME TAX
• AB University – non-stock, non-profit educational institution
• It has a building and parcel of land in Quezon City. A portion of the land is being
leased to commercial establishments.
• It earns Php1M rental income, interest income from bank deposits and Php2M income
from tuition and other fees. It also receives donations from third parties
• RPT?
• Income tax?
• Donor’s tax?
• Is the donation deductible from the gross income of third parties?
INCOME TAX
• CD University – proprietary educational institution
• It has a building and parcel of land in Quezon City. A portion of the land is being
leased to commercial establishments.
• It earns Php1M rental income, interest income from bank deposits and Php2M income
from tuition and other fees. It also receives donations from third parties
• RPT?
• Income tax?
• Donor’s tax?
• Is the donation deductible from the gross income of third parties?
 • To accelerate poverty reduction
COMPREHENSIVE • To sustainably address inequality
TAX REFORM • Generate additional (a more sustainable stream of
revenues)
PROGRAM
• By making the tax system simpler, fairer, and more
efficient
 • Package 1 - TRAIN
• January 1, 2018
• Lowered and simplified personal income taxes
• Simplified tax for small and micro self-employed and
COMPREHENSIVE professional (SEPS) taxpayers
• Simplified Estate and Donor’s Taxes
TAX REFORM • Expanded the VAT base
PROGRAM • Adjusted Automobile excise taxes
• Introduced excise tax on sweetened beverages
• Increased DST for certain transactions
• Increased stock transaction tax – 0.6% of GSP
• Increased CGT of non-traded stocks
 • Package 1B – Tax Amnesty
COMPREHENSIVE • Signed into law on February 14, 2019 (with line
TAX REFORM veto)
PROGRAM • Estate tax amnesty
• Tax amnesty on delinquencies
 • Package 1B – Tax Amnesty
• Estate tax amnesty
• Coverage – estate of decedents who died on or before December
31, 2017
• Tax rate – 6% of total net estates
• Immunity and privilege – immunity from payment of all estate taxes,
COMPREHENSIVE as well as any increments and additions thereto, arising from the

TAX REFORM failure to pay any and all estate taxes for the taxbale year 2017
and prior years, and from all civil, criminal, and admin cases and
PROGRAM •
penalties
Exceptions: (a) those under the jurisdiction of the PCGG; (b) those
involving unexplained wealth; (c) those invovling violations of the
AMLA; (d) those involving tax evasion and other criminal offenses
under the NIRC; and (d) those involving frauds, illegal exactions and
transactions, and malversation of public funds and property under the
RPC
• Deadline – June 14, 2021
 • Package 1B – Tax Amnesty
• Tax amnesty on delinquencies
• Coverage – All national internal revenue taxes – 2017 and
prior years
COMPREHENSIVE • Final and executory delinquencies and assessments – 40%
TAX REFORM • Tax cases subject to final and executory judgment by the

PROGRAM courts – 50%

• Pending criminal cases with the DOJ or the courts for tax
evasion and other criminal offenses – 60%
• Withholding tax agents with respect to unremitted withheld
taxes – 100%
 • Package 1B – Tax Amnesty
• Tax amnesty on delinquencies
• Immunity and privileges
• Immunity from the payment of all the balance of the basic, as
well as increments and additions thereto, and all civil, criminal,
COMPREHENSIVE and administrative cases and penalties under the NIRC;
• Termination of the criminal case and the corresponding civil or
TAX REFORM administrative case, if applicable;

PROGRAM • Immunity from all suits or actions, including payment of said

delinquency or assessment, as well as additions thereto, and all
civil, criminal, administrative cases and penalties;
• Cancellation fo any notice of levy, attachments and/or warrants
of garnishment
• December 31, 2020
• New deadline – June 30, 2021
 • Package 2 – CREATE
• Corporate Recovery and Tax Incentives for
Enterprises (CREATE) Act
COMPREHENSIVE • SB 1357 was approved on 3rd reading on
TAX REFORM November 26, 2020
PROGRAM • Immediate 5 ppt cut in the corporate income tax rate
starting July 2020
• Inclusion of one-person corporation in the definition of
“corporation”
 • CREATE Act – Key Objectives
• Improve the equity and efficiency of the corporate tax system by
lowering the rate, widening the tax base, and reducing tax
distortions and leakages
• Develop a more responsive and globally-competitive tax
COMPREHENSIVE incentives regime that is performance-based, targeted, time-
bound, and transparent
TAX REFORM • Provide support to businesses in their recovery from unforeseen
PROGRAM events such as an outbreak of communicable diseases or a global
pandemic and strengthen the nation’s capability for similar
circumstances in the future
• Create a more equitable tax incentive system that will allow for
inclusive growth and generation of jobs and opportunities in all the
regions of the country and ensure access and ease in the grant of
these incentives especially for applicants in least developed areas
 • Package 2+ – Sin Taxes
COMPREHENSIVE • Increase taxes on tobacco, alcohol and e-cigarette products
TAX REFORM • to fund universal health care
PROGRAM • to reduce the incidence on risks associated with the
consumption of “sin” products
 • Package 2+ – Mining Taxes
• Proposed reforms on mining and sin taxes
COMPREHENSIVE • Impose a differentiated royalty for mines inside and outside

TAX REFORM mineral reservations

• Impose a windfall profti tax based on profit margin
PROGRAM • Exempt pollution control devices from RPT
• Register small-scale mining with the Mining Board and Mines
and Geosciences Bureau
 • Package 3 – Real Property Valuation Reform
• Adopt international standards and rationalize the process of
valuation
• Establish a single valuation base of taxation, through the adoption of
the SMVs of LGUs, and use the updated values as benchmark for
other purposes, such as right-of-way acquisition, lease, rental, etc.;
COMPREHENSIVE • Insulate valuation at the local level from undue politicization.
However, LGUs shall continue to set, adjust, and regulate tax rates
TAX REFORM and assessment levels;
•
PROGRAM Recentralize the approval of the SMVs by the local Sanggunian back
to the Secretary of Finance, with review functions of the BLGF, in
coordination with the BIR, and improve oversight function in property
valuation and assessment by the BLGF;
• Establish a comprehensive database to support valuation function;
and
• Establish the Real Property Valuation Service in the BLGF to oversee
and manage valuation-related concerns of local governments
 • Package 4 – Passive Income and Financial
Intermediary Taxation Act (PIFITA)
• Reduction in the number of final withholding tax rates on
COMPREHENSIVE interest income
• Unification of tax rates on passive income
TAX REFORM
• Harmonization of business taxes on financial intermediaries
PROGRAM (GRT)
• Removal of the IPO tax - Removed under Section 6 of the
BARO Act
• Rationalization of DST to promote capital mobility
 • House Bill 6765
• Digital Economy Taxation Act of 2020 (DETA)
• Php29.1B annual incremental revenues
• Income tax and VAT on both local and cross-border digital transactions
• Section 57 (on withholding tax at source), by making a “network
orchestrator” – a person who creates a network of accredited
TAXATION OF service providers and service consumers and acts as an
intermediary – a withholing tax agent of the income of its service
THE DIGITAL providers
• Sections 105 and 108, by imposing VAT on services rendered
ECONOMY electronically in the ordinary course of trade or business, such as
digital advertising services, subscription-based services, and any
other supply services that can be delivered through an information
infractructure such as the intenet, either by a resident or nonresident
person
• Section 114 (on withholding VAT), by making a network orchestrator
or an electronic commerce plaform a withholding agent of the VAT.
 • DETA requires nonresident network orchestrators or
electronic commerce platforms and noresident suppliers of
digital services to be “domiciled” in the Philippines
• Allowed to render digital services in the Philippines only
through a resident representative office or agent

TAXATION OF • Issues:
THE DIGITAL • Situs of Taxation – not being proposed to be amended
• Income Tax – Sale of Service – Place where service was
ECONOMY rendered
• VAT – Sale of Service – Place where service was rendered
• Risk of double taxation
• Application of other local laws on corporations with
representative offices or agents
TRAIN – RA • Effectivity – January 1, 2018
10963 – TAX
REFORM FOR • Features:

ACCELERATIO • 1. New law applies to income and transactions beginning

Jan. 1, 2018
N AND • 2. Tax obligations falling in 2018 but pertaining to income
INCLUSION - earned and transactions done prior to 2018 are still
IT governed by old rules.
TRAIN – RA
10963 – TAX • Package 1A: Personal income tax, consumption tax,
REFORM FOR and transaction taxes
ACCELERATIO
N AND • Package 1B: Tax amnesty and motor vehicle user
INCLUSION - charge
IT
 • Changes introduced:
ØRestructuring of individual income taxation
TRAIN – RA ØMore equitable taxation for individuals – lower rate, wider
10963 – TAX bracket, for low/middle income but high tax rate (35%) for
REFORM FOR the higher income bracket (8M and above)

ACCELERATIO ØSubsistence income exempt up to 250K given across the

board regardless of status and in lieu of varied exemptions
N AND ØSimplified forms and bookkeeping requirements
INCLUSION - Ø8% presumptive tax for micro and small with 3M sales and
IT below
ØRemoval of special tax rates and exemptions
 • Individual Taxation
TRAIN – RA ØCompensation Earners – Only 1 Option: Graduated
10963 – TAX rates
REFORM FOR
ØSelf-Employed and Professionals
ACCELERATIO ØIf with gross sales/receipts over 3M – graduated rates
N AND ØIf with gross sales/receipts of 3M and below, 2 options:
INCLUSION - ØGraduated rates
IT Ø8% gross income tax
 • Individual Taxation
TRAIN – RA
10963 – TAX ØMixed Income (Compensation and Business)
ØCompensation income - graduated
REFORM FOR
ØBusiness Income
ACCELERATIO ØIf with gross sales/receipts over 3M – graduated rates
N AND ØIf with gross sales/receipts of 3M and below, 2 options:
INCLUSION - Ø Graduated rates
Ø 8% gross income tax
IT
TRAIN – RA 10963 – TAX REFORM FOR
ACCELERATION AND INCLUSION - IT
Applicability
Basis of IT
Allowed Deductions
Business Tax
Required Financial Statements
Graduated IT Rates
General Rule. Applicable to both
compensation and business income
Net taxable income
Allowed itemized deductions or OSD No deduction
Percentage Tax or VAT
If itemized: - FS – GM is 3M or less;
Audited FS – GM is more than 3M
If OSD – no FS
8% GIT
Applicable only for business income
and gross sales/receipts do not
exceed 3M
Gross sales/receipts in excess of
250K
In lieu of income tax and
percentage tax. No VAT
No FS Required
 • Personal and Additional Exemptions Removed
•
TRAIN – RA No more 50K personal exemption
• No more 25K additional deduction for dependents
10963 – TAX • No more 2,400 deduction for insurance premiums
REFORM FOR • No need to submit proof of status
ACCELERATIO
N AND Replaced by a single, uniform, across-the-board exemption of
INCLUSION - PHp250K

IT
Also, 13th month pay and other bonuses exemption is increased
from Php82K to Php90K
TRAIN – RA
10963 – TAX • Fringe Benefits Tax
REFORM FOR • Increased from 32% to 35%

ACCELERATIO • Basis retained – the grossed up monetary value of the

fringe benefit, which is determined by dividing the actual
N AND monetary value of the fringe benefit by 65%
INCLUSION -
IT
TRAIN – RA
• Optional Standard Deduction
10963 – TAX • No change. Still at 40% of gross sales for individuals and
REFORM FOR 40% of gross income for corporations
ACCELERATIO • Clarified that GPPs can claim only once, either at the
N AND partnership level or by the partners comprising the
partnership
INCLUSION -
IT
TRAIN – RA
10963 – TAX • Exemption from Filing ITR
REFORM FOR • Those with gross annual income not exceeding Php250K
ACCELERATIO • For those individuals using the graduated rates only

N AND • Not applicable to 8% GIT

INCLUSION -
IT
 • Substituted Filing
vPurely compensation income, regardless of amount
TRAIN – RA vFrom only one employer in the Philippines for the
10963 – TAX calendar year
REFORM FOR vThe income tax of which has been withheld correctly
ACCELERATIO vNot required to file annual ITRs
N AND
vThe certificate of withholding tax filed by the
INCLUSION - respective employers, duly stamped “received” by
IT the BIR is tantamount to the substituted filing of ITRs
by employees
 • Changes in Taxation of Certain Passive Income (except
RFC and NRFC)

TRAIN – RA vInterest Income from FCDU – Increased from 7.5% to

15%
10963 – TAX vCapital gains tax on the sale of shares of domestic
REFORM FOR corporations not traded in the stock exchange – from a
ACCELERATIO 5% - 10% (5% of the gain not exceeding Php100K and
10% in excess thereof) to a flat rate of 15%
N AND
INCLUSION - vPCSO – no longer tax-exempt (Exempt – GSIS, SSS,
PHIC, and the local water districts)
IT vWinnings from PCSO and Lotto above Php10K shall no
longer be exempt – under Prizes and Awards
 • Changes in Taxation of Certain Passive Income
(except NRFC)
TRAIN – RA
10963 – TAX vInterest Income from FCDU – Increased from 7.5% to
15%
REFORM FOR
ACCELERATIO vCapital gains tax on the sale of shares of domestic
N AND corporations not traded in the stock exchange – from
a 5% - 10% (5% of the gain not exceeding
INCLUSION -
Php100K and 10% in excess thereof) to a flat rate
IT of 15%
TRAIN – RA
10963 – TAX • Stock Transaction Tax for Listed Shares – Percentage
Tax
REFORM FOR
ACCELERATIO vIncreased from ½ of 1% (0.5%) to 6/10 of 1%
(0.6%) of the gross selling price or gross value in
N AND money of the shares of stock sold
INCLUSION -
IT
TRAIN – RA
10963 – TAX • Withholding Tax at Source
REFORM FOR vBeginning January 1, 2019, the rate of withholding
ACCELERATIO shall not be less than 1% but not more than 15% of
N AND the income payments
INCLUSION -
IT
 • Adjustment in withholding tax rate for individuals
• 5% - if gross income for the current year did not exceed
3M
TRAIN – RA • 10% - if gross income for the current year is more than 3M
10963 – TAX or VAT-registered regardless of amount
REFORM FOR Requirement:

ACCELERATIO • To be entitled to the 5% withholding tax, individual payees

to submit to all income payors/withholding agents not later
N AND than Jan. 15 of each year or at least prior to the payment
INCLUSION - of professional fees, talent fees, etc.
IT • Sworn declaration of his receipts
• Certificate of registration
TRAIN – RA • Keeping of books of accounts
10963 – TAX • Removed the reference to ledger and journal as required
set of bookkeeping and replaced by use of relevant and
REFORM FOR appropriate set of bookkeeping records
ACCELERATIO • Changed the threshold of requiring an audit of books of
N AND accounts by an independent CPA from gross quarterly sales
of Php150K to gross annual sales of Php3M
INCLUSION -
IT
 • Issuance of Receipts
• Mandatory issuance of receipts increased from Php25 to
TRAIN – RA Php100 per transaction
10963 – TAX • Mandatory issuance of electronic receipts – within 5 years
REFORM FOR from effectivity of the TRAIN, those in the export of goods
and services, engaged in e-commerce, and large taxpayers
ACCELERATIO are required to issue electronic receipts or sales or
N AND commercial invoices
INCLUSION - • Failure to transmit data – 1/10 of 1% of annual net
IT income/permanent closure
 • Interests
TRAIN – RA • Reduced from 20% annually to double the legal rate (2 x
6%), absence stipulation set by BSP, effective January 1,
10963 – TAX 2018
REFORM FOR • Deficiency interest computed from the time required to be
ACCELERATIO paid until full payment or upon notice of demand,
N AND whichever comes earlier
• In no case shall the deficiency and delinquency interests be
INCLUSION - imposed simultaneously
IT
 • Tax Evasion
TRAIN – RA Penalty increased to:
10963 – TAX Civil penalty – Fine of not less than Php500K but not more than
REFORM FOR Php10M; and

ACCELERATIO Criminal liability – imprisonment of not less than 6 years but not
more than 10 years
N AND
INCLUSION -
IT
 • Failure or Refusal to Issue Receipts
Penalties increased to:

TRAIN – RA Civil penalty – Fine of not less than Php500K but not more than
Php10M; and
10963 – TAX Criminal liability – imprisonment of not less than 6 years but not
REFORM FOR more than 10 years
ACCELERATIO
N AND Note: Printing of fraudulent receipts or sales or commercial

INCLUSION - invoices are now also penalized

IT
 PERSONAL INCOME TAX RATES
Effective Jan. 1, 2018

Income Bracket Tax Rate

1 0 -, 250,000 0,,
2 Over 250,000 -, 400,000 0 +, 20% of the excess over 250,000
3 Over 400,000 -, 800,000 30,000 +, 25% of the excess over 400,000
4 Over 800,000 -, 2,000,000 130,000 +, 30% of the excess over 800,000
5 Over 2,000,000 -, 8,000,000 490,000 +, 32% of the excess over 2,000,000
6 Over 8,000,000 2,410,000 +, 35% of the excess over 5,000,000

Effective Jan. 1, 2023

Income Bracket Tax Rate
1 0 -, 250,000 0,,
2 Over 250,000 -, 400,000 0 +, 15% of the excess over 250,000
3 Over 400,000 -, 800,000 22,500 +, 20% of the excess over 400,000
4 Over 800,000 -, 2,000,000 102,500 +, 25% of the excess over 800,000
5 Over 2,000,000 -, 8,000,000 402,500 +, 30% of the excess over 2,000,000
6 Over 8,000,000 , 2,202,500 +, 35% of the excess over 8,000,000
 PERSONAL INCOME TAX RATES

GROSS SALES 8% income tax on gross sales/receipts in excess of P250,000

OR
GROSS RECEIPTS

Rates for Compensation earners based on taxable income

 PERSONAL INCOME TAX RATES

Compensation Income Rates for Compensation earners based on

taxable income

Rates for Compensation earners based on

Taxable Income
Gross Sales/Receipts from business/
practice of profession 8% tax based on Gross Sales/Receipts and
other non-operating income

Rates for Compensation earners based on

taxable income
*at the option of the taxpayer
 PERSONAL INCOME TAX RATES
R
E Personal and additional exemptions

M
O Tax exemption on premium payments
on health and/or hospitalization

V
E Dowries or gifts made on account of
marriage

D
 FINAL TAX – ON PASSIVE INCOME
Old New

Interest Income under the

expanded foreign currency 7.5% FT 15% FT
deposit system

(a) Not over P100,000 - 5%

Net capital gains realized from
the sale of shares of stock not 15% FT
(b) On any amount in excess
traded in the stock exchange
of P100,000 - 10%
FINAL TAX – ON PASSIVE INCOME
Old New

Winnings from PCSO games

amounting to more than Exempt 20% FT
Php10,000

Winnings from PCSO games

amounting to Php10,000 or
Exempt Exempt
less
 TRANSFER TAXES
Sale of Shares
Sale of Capital Sale of Ordinary
Mode of Transfer of Stocks Donation Inheritance
Assets Assets
(Capital Asset)

15% on Net
Tax Rate 6% + 1.5% DST 25% + 12% VAT 6% + 1.5% DST 6%
Gain

Standard
Tax Deduction No Deduction No Deduction 250,000 Deduction/Family
Home
 CORPORATE TAXES
TAX PARTICULAR OLD CREATE

Income Tax on DCs In General 30% 25%

Net Taxable Income not exceeding

5M and assets not exceeding 10M
N/A 20%
(excluding land where office,
plant, and equipment are situated)

10%
Proprietary Educational Institutions
10%
and Hospitals Beginning July 1, 2020 –
June 30, 2023 – 1%
CORPORATE TAXES
 CORPORATE TAXES
TAX PARTICULAR OLD CREATE

Non-taxable

PROVIDED that for

Income Tax on DCs Intercorporate Dividends Non-taxable foreign-sourced dividends
to be exempt, should be
reinvested in the business
operations of the DC

2% of gross income

MCIT 2% of gross income Beginning July 1, 2020 –

June 30, 2023 – 1%
CORPORATE TAXES
 • A. The dividends actually received or remitted into the
Philippines are reinvested in the business operations of the
EXEMPTION DC within the next taxable year from the time the foreign-
FROM sourced dividends were received or remitted;

INCOME TAX • B. The dividends received shall only be used to fund the
working capital requirements, capital expenditures, dividend
ON payments, investment in domestic subsidiaries, and
infrastructure project; and
FOREIGN-
• C. The DC holds directly at least 20% in value of the
SOURCED outstanding shares of the FC and has held the shareholdings
DIVIDENDS uninterruptedly for a minimum of 2 years at the time of the
dividends distribution. In case the FC has been in existence for
RECEIVED BY less than 2 years at the time of dividends distribution, then the
DC must have continuously held directly at least 20% in
DCS value of the FC’s outstanding shares during the entire existence
of the corporation. (RR 5-2021)
 CORPORATE TAXES
TAX PARTICULAR OLD CREATE

Income Tax on FCs In General 30% 25%

2% of gross income

MCIT 2% of gross income Beginning July 1, 2020 –

June 30, 2023 – 1%

RHQ Non-taxable Non-taxable

 CORPORATE TAXES
TAX PARTICULAR OLD CREATE
10%
Income Tax on FCs ROHQ 10%
Effective December 31,
2021 – 25%

Interest from any currency

20%
deposits, deposit substitutes, trust 20%
funds

Interest from expanded FCDU 7.5% 15%

Capital Gains 5%, 10% 15%

 CORPORATE TAXES
TAX PARTICULAR OLD CREATE

Income Tax on
In General 30% 25%
NRFCs

Nonresident cinematographic film 25%

25%
owner, lessor, or distributor

Intercorporate dividends 30%/15% 25%/15%

Capital Gains 5%, 10% 15%

 • Capital Assets – properties held by the taxpayer
(whether or not connected with his trade or business),
but does not include the following:
• Stock in trade;
ORDINARY V. • Property of a kind which would properly be included in the
CAPITAL inventory;
• Property held primarily for sale to customers in the
ASSETS ordinary course of trade or business;
• Property used in the trade or business subject to
depreciation; and
• Real property used in the trade or business. (NIRC, Sec.
39(A)(1)).
 • The statutory definition of capital assets is negative
in nature. If the asset is not among the exceptions, it
is a capital asset; conversely, assets falling within the
ORDINARY exceptions are ordinary assets. And necessarily, any
VS. CAPITAL gain resulting from the sale or exchange of an asset
ASSETS is a capital gain or an ordinary gain depending on
the kind of asset involved in the transaction (Tomas
Calasanz, et al v. CIR, GR No. L-26284, October 9,
1986)
 • Net Capital Gain – excess of the gains from the sales
or exchanges of capital assets over the losses from
such sales or exchanges.
• Net Capital Loss – excess of the losses from sales or
ORDINARY exchanges of capital assets over the gains from such
VS. CAPITAL sales or exchanges.
ASSETS • Note:
• Capital losses from sales or exchanges of capital assets
shall be allowed only to the extent of the gains from such
sales or exchanges.
• Ordinary losses can be offset against net capital gains if
they are subject to the same tax rate.
 • RR No. 6-2008, as amended by RR No. 6-2013 (as
further amended by RR 20-20)
• In case the FMV of the shares of stock sold, bartered,
SHARES OF or exchanged is greater than the amount and/or fair
market value of the property received, the excess of
STOCK HELD
the FMV of the shares of stock sold, bartered or
AS CAPITAL exchanged over the consideration received shall be
ASSETS deemed a gift subject to donor’s tax

• Different rule now under the TRAIN – made in the

ordinary course of business; no donative intent
 • RR No. 6-2008, as amended by RR No. 6-2013 (as
further amended by RR 20-20)

SHARES OF • FMV of the shares of stock sold shall be:

•
STOCK HELD Listed shares sold, transferred, or exchanged outside of the
trading system and/or facilities of the Local Stock
AS CAPITAL Exchange - the closing price on the day when the shares
ASSETS are sold, transferred or exchanged or on the day nearest
to the date of sale, transfer or exchange
• Unlisted shares – the value of the shares of stock at the
time of the sale (using the book value as fair market value)
 • RR No. 6-2008, as amended by RR No. 6-2013 (as
further amended by RR 20-20)
• In the above case, the net assets of ”A” Corporation
SHARES OF is Php15M while the adjusted net asset is Php24.5M.
STOCK HELD As such, the adjusted value per share of stock of
AS CAPITAL Php2,450 (from Php1,500), the FMV of the shares
ASSETS sold was Php12,250,000 (5,000 shares at Php2,450
per share) – Adjusted Net Asset Method
• RR 20-20 – Based on latest AFS
 • RR No. 7-2003
• All real properties owned by taxpayers engaged in
real estate business – ordinary assets
REAL • If not registered with the HLURB or HUDCC, consummation
PROPERTIES during the preceding year of at least 6 taxable real estate
sale transactions, regardless of amount
• Registration as habitually engaged in real estate business
with the LGU or BIR
 • RR No. 7-2003
• All real properties which are for lease or being
offered for lease or otherwise, for use or being used
in the trade or business of a real estate lessor –
REAL ordinary assets
PROPERTIES • Real properties which are used or being used or
have been previously used in the trade or business of
the taxpayer of a taxpayer not engaged in the real
estate business - ordinary assets
 • RR No. 7-2003
• Taxpayers changing business from real estate
business to non-real estate business – the change
of business or amendment of the primary purpose of
the business shall not result in the re-classification of
REAL real property held by it from ordinary asset to
PROPERTIES capital asset
• Taxpayers originally registered to be engaged in
the real estate business but failed to subsequently
operate – all real properties originally acquired by
it shall continue to be treated as ordinary assets
 • RR No. 7-2003
• Abandoned and idle real properties – real properties
formerly forming part of the stock in trade of a taxpayer
engaged in the real estate business, or formerly being
used in the trade or business of a taxpayer engaged or
not engaged in the real estate business, which were later
REAL on abandoned and became idle, shall continue to be
PROPERTIES treated as ordinary assets
• However, properties classified as ordinary assets for being
used in business by a taxpayer not engaged in real estate
business are automatically converted into capital assets
upon showing of proof that the same have not been used
in business for more than 2 years prior to the
consummation of the taxable transactions involving said
properties
 • RR No. 7-2003
• Transfer of real properties that have been transferred to a
buyer/transferee – real properties classified as capital or
ordinary asset in the hands of the seller or transferor may
change their character in the hands of the buyer/transferee.
• Real property transferred through succession or donation to the heir
REAL or donee who is not engaged in the real estate business with respect
to the real property inherited or donated, and who does not
PROPERTIES subsequently use such property in trade or business – capital asset in
the hands of the heir/donee
• Real property received as dividends by the stockholders who are not
engaged in the real estate business and who do not subsequently use
such real property in trade or business – capital asset
• Real property received in an exchange shall be treated as ordinary
asset in the hands of the transferee in the case of a tax-free
exchange by taxpayer not engaged in real estate business to a
taxpayer who is engaged in real estate business
 • RR No. 7-2003
• Applicable Taxes
• 1. RC, NRC, RA, NRAETB
• 6% CGT – for real properties located in the Philippines
REAL and classified as capital asset (if buyer is Government or
GOCC, the tax liability may be computed at the option of
PROPERTIES the individual seller on the basis of either 6% CGT or the
graduated tax rates)
• Ordinary income tax – for real properties located in the
Philippines classified as ordinary assets
• Ordinary income tax – for real properties of RC located
outside the Philippines
 • RR No. 7-2003
REAL • Applicable Taxes
PROPERTIES • 2. NRANETB
• 6% CGT – for real properties located in the Philippines
and classified as capital asset
 • RR No. 7-2003
• Applicable Taxes
REAL • 3. DC
PROPERTIES • 6% CGT – for real properties located in the Philippines
and classified as capital asset
• Ordinary income tax – sale of real properties located in
and outside the Philippines classified as ordinary asset
 • RR No. 7-2003
• Applicable Taxes
REAL • 4. RFC
PROPERTIES • Ordinary income tax – sale of real properties located in
the Philippines regardless of classification
 • RR No. 7-2003
• Applicable Taxes
REAL • 5. NRFC
PROPERTIES • Final income tax – sale of real properties located in the
Philippines
 • BIR Ruling No. 263-2013, July 12, 2013
TAX • Issue: Whether the transfer of condominium units
EXEMPTION from a joint venture, upon its liquidation, to Venturer
ON THE D, and K, successor-in-interest of L, as their shares in
TRANSFER OF the JVA is subject to CGT, DST and income tax
CONDOMINI • Held: Yes. To be a tax-exempt Joint Venture
UM UNITS AS undertaking, a construction project must satisfy or
SHARE IN THE meet the conditions provided in Section 3, RR No. 10-
JVA 2012, implementing Section 22(B) of the Tax Code.
 • BIR Ruling No. 263-2013, July 12, 2013
• Held:
TAX • A joint venture or consortium formed for the purpose of
EXEMPTION undertaking construction projects which is not considered as
ON THE a corporation under Section 22 of the Tax Code should be:

TRANSFER OF • For the undertaking of a construction project;

• Should involve joining or pooling of resources by licensed
CONDOMINI local contractors that is licensed as general contractor by the
UM UNITS AS PCAB of the DTI;
•
SHARE IN THE The local contractors are engaged in construction business;
and
JVA • The JV itself must likewise be duly licensed as such by the
PCAB to the CIB
 • BIR Ruling No. 263-2013, July 12, 2013
• Held:
TAX • The transfer of the condominium units from the joint venture to
EXEMPTION K shall be subject to ordinary income tax based on the current
FMV of the condominium units less the FMV of the property
ON THE contributed to the joint venture at the moment of death of L,
TRANSFER OF considering that K acquired the property by inheritance
•
CONDOMINI Moreover, the transfer of condominium units by the JV to
Venturer D is subject to ordinary income tax on the part of the
UM UNITS AS latter based on the current FMV of the condominium units it
received less the costs it actually, directly and exclusively
SHARE IN THE incurred for the construction of the condominium project
JVA • The subsequent sale of K and Venturer D of the condominium
units are subject to ordinary income tax, CWT, VAT and DST
 • BIR Ruling DA (C-015) 071-2010, May 21, 201
• Issue: Whether the proceeds from the sale of real
properties by Company P, a non-stock, non-profit
corporation committed to social development, is not
SALE OF REAL subject to income tax, particularly, CGT
PROPERTY
CLASSIFIED • Held: Pursuant to Section 30 of the Tax Code, the income
AS CAPITAL of whatever kind and character of associations organized
ASSETS for non-profitable purposes from any of its properties,
real or personal, or from any of its activities conducted
for profit, regardless of the disposition made of such
income, shall be subject to tax.
 • BIR Ruling DA (C-015) 071-2010, May 21, 201
SALE OF REAL
PROPERTY • Held: Hence, the sale of Company P of its 3
contiguous lots is subject to CGT based on the gross
CLASSIFIED selling price or current FMV, whichever is higher.
AS CAPITAL
ASSETS
 • RR No. 9-2012
• In case of non-redemption of properties sold during
involuntary sales, regardless of the type of
NON-
proceedings and personality of mortgagees/selling
REDEMPTION persons or entities, the CGT imposed under the Tax
OF Code if the property is a capital asset shall become
PROPERTIES due.
SOLD • The buyer, who is deemed to have withheld the CGT
DURING due from the sale, shall then file the CGT return and
remit the said tax to the BIR within 30 days from the
INVOLUNTAR expiration of the applicable statutory redemption
Y SALES period.
NON-
REDEMPTION • RR No. 9-2012
OF
• The CGT shall be based on whichever is higher of the
PROPERTIES
consideration (bid price) or the FMV or zonal value
SOLD
DURING
INVOLUNTAR
Y SALES
 • BIR Ruling No. 067-2014, February 20, 2014
CGT • Issue: Whether the conveyance of the title of the
EXEMPTION property from the trustee to the trustor is exempt
ON THE from CGT
CONVEYANCE • Held: Yes. The transfer of the property by the
OF THE TITLE trustee to the trustor, as the true and beneficial
OF THE owner is without monetary consideration and is
PROPERTY TO merely a confirmation of title in favor of the
THE TRUSTOR beneficial owner thereof. Thus, the same is not
FROM THE subject to CGT.
TRUSTEE
 • BIR Ruling No. 178-2013, May 17, 2013
EXEMPTION • Issue: Whether the reconveyance of the TCTs from the sale of 2
parcels of land between A Co. and B Co., both DCs, due the
FROM CGT failure of B Co. to comply with certain obligations in the contract
AND DST OF resulting in the rescission of such by virtue of a court order, is
subject to CGT and DST
RECONVEYAN
CE OF TITLES • Held: No. The rescission of a contract would not give rise to a
taxable event for 2 reasons: (a) the result of rescission is as if
BY VIRTUE OF there was no sale, transfer or exchange; hence, no income is
THE realized; (b) the return of the object of the rescinded contract is
not for monetary consideration and is merely an
RESCISSION acknowledgment or confirmation of the title and ownership of
OF A the original owner of the property. Hence, the reconveyance of
TCTs by virtue of a rescission of the contract of sale is not
CONTRACT OF subject to CGT and DST.
SALE
 • Not Traded in the PSE
• A final tax at the rates prescribed below is imposed
upon the net capital gains realized during the
SALE OF taxable year from the sale, barter, exchange or
SHARES OF other disposition of shares of stock in DC
STOCK • First Php100K – 5%
CLASSIFIED • Greater than Php100K – 10%
AS CAPITAL • TRAIN – 15%
ASSETS • Same rates for all kinds of taxpayers – TRAIN and CREATE
amendment
 • Traded in the PSE
• A tax at the rate of ½ of 1% of the GSP or gross
value in money of the shares of stock, sold, bartered
or exchanged or otherwise disposed which shall be
SALE OF paid by the seller or transferor
SHARES OF
STOCK
CLASSIFIED • TRAIN – 6/10 of 1% of the GSP or gross value in
money of the shares of stock, sold, bartered or
AS CAPITAL exchanged or otherwise disposed which shall be
ASSETS paid by the seller or transferor
 • Subject to income tax at the graduated income tax
rates (if seller is individual) or at 25% RCIT (if seller
is a corporation).

OTHER
• Holding period – Individuals – 50% of long-term
CAPITAL capital gains recognized; 100% - short-term capital
ASSETS gains
 • BIR Ruling No. 363-2014, September 22, 2014
• Issue: Whether the transfer of Company P, the liquidating
corporation, of a parcel of land to its stockholder, Mr. X, by
way of liquidating dividend, (a) generates a gain or loss on the
part of Company P and (b) generates a capital gain or loss on
the part of Mr. X.

LIQUIDATING • Held: (a) No. The transfer by a liquidating corporation of its

assets to its stockholders in exchange for the surrender and
DIVIDEND cancellation of the shares held by the stockholders is not a sale,
and therefore is exempt from corporate income taxes,
creditable withholding tax and DST. Thus, a liquidating
corporation does not realize gain or loss in a partial or
complete liquidation. Conversely, a liquidating corporation is
not subject to tax on its receipt of the shares surrendered by its
shareholders pursuant to a partial or complete liquidation.
 • BIR Ruling No. 363-2014, September 22, 2014
• Held: (b) Yes. Under Section 73(A) of the Tax Code,
where a corporation distributes all of its assets in
complete liquidation or dissolution, the gain realized
or loss sustained by the stockholder shall be treated
LIQUIDATING as capital gain or loss subject to regular income tax
DIVIDEND rates under the Tax Code, and not to the CGT on the
sale of shares. The liquidating gain shall be the
difference between the adjusted cost basis of the
shares and the FMV of the property received as
liquidating dividends
 • Stock Dividend – Exempt from income tax; not an
income

• Cash and Property Dividends from a DC

• RC/RA – 10%
DIVIDENDS • NRAETB – 20%
• NRANETB – 25%
• DC – exempt
• RFC - exempt
• NRFC – 15% (tax sparing credit)

Cash and Property Dividends from a FC

 • MCQ (a Filipino citizen who is a compensation income
earner) holds shares of stock in C Corporation and
ADB Company Ltd (both DCs) as investments. In
2018, MCQ decided to sell 11,000 common shares
in C Corporation, bought in 2011 at Php550K to
CGT ON Joan Sunico at Php800K. Moreover, in the same
SHARES OF year, MCQ also sold the shares of ADB Company Ltd
STOCK through the local stock exchange at Php600K, which
is Php100K more than its cost and incidental
expenses.
• How much is the CGT on the sale of stock in C
Corporation and in ADB Company Ltd., if any?
SALE OF
CAPITAL
ASSETS OTHER
THAN REAL • The net capital gain realized from the sale of assets
PROPERTY AND (other than real property located in the Philippines)
SHARES OF and shares of stock of DCs classified as capital
STOCK THAT assets shall be subject to ordinary income tax
ARE SUBJECT
TO A SPECIAL
CGT RATE
 • DC and RFC
MCIT – • Whenever such corporation has zero or negative taxable
PERSONS income
LIABLE • Whenever the amount of MCIT is greater than the normal
income tax due from such corporation
 • The MCIT shall apply only to DCs and RFCs subject to
the normal corporate income tax
MCIT – • In the case of a DC whose operations or activities are
LIMITATIONS partly covered by the RCIT and a special income tax
system, the MCIT shall apply on operations covered
by the RCIT
 • Beginning on the fourth taxable year in which the
MCIT – corporation commenced business operations
COMMENCEME
NT • From the time of registration with the BIR, not the
start of commercial operations
 • DCs operating as proprietary educational institutions
subject to tax at 10% on their taxable income
• DCs engaged in hospital operations which are
MCIT – nonprofit subject to tax at 10% on their taxable
EXEMPTED income
ENTITIES • DCs engaged in business as depositary banks under
the expanded foreign currency deposit system on
their income from foreign currency transactions which
has been subjected to final income tax at 10%.
 • RFCs engaged in business as ”international carrier”
subject to tax at 2 ½% of their Gross Philippine
Billings
• RFCs engaged in business as Offshore Banking Units
MCIT – on their income from foreign currency transactions
EXEMPTED which has been subjected to a final income tax at
10% of such income
ENTITIES
• RFCs engaged in business as ROHQs subject to tax at
10% of their taxable income
• Firms that are taxed under a special income tax
system
 • To forestall the prevailing practice of DCs and RFCs
of overclaiming deductions in order to reduce their
income tax payments.
MCIT –
RATIONALE • As a tax on gross income, MCIT prevents tax evasion
and minimizes tax avoidance scheme achieved
through sophisticated and artful manipulations of
deductions
 • 2% of Gross Income
• Gross Income – equivalent to gross sales less sales
returns, discounts and allowances and COGS.
• COGS – includes all business expenses directly
MCIT – RATE incurred to produce the merchandise to bring them to
their present location and use
• Excluded from Gross Income – Income exempt from
income tax and those subjected to final withholding
tax
 • RR No. 12-2007
• If the quarterly MCIT 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
MCIT – corporate income tax return shall be the MCIT.
QUARTERLY • Items allowed to be credited against quarterly MCIT
COMPUTATIO due:
N • CWT
• Quarterly corporate income tax payments under the
normal IT
• MCIT paid in the previous quarters (previous years not
allowed)
 • The final comparison between the normal income tax
payable and the MCIT shall be made at the end of
the taxable year.
MCIT –
ANNUAL • The payable or excess payment in the Annual Income
Tax Return shall be computed taking into
COMPUTATIO
consideration corporate income tax payment made
N at the time of filing of quarterly corporate income
tax returns whether this be MCIT or normal income
tax
 • In the computation of annual income tax due, if the
normal income tax due is higher than the computed
annual MCIT, the following shall be allowed to be
MCIT – credited against the annual income tax:
ANNUAL • Quarterly MCIT payments
COMPUTATIO • Quarterly normal income tax payments
N • Excess MCIT in prior years (subject to the prescriptive
period)
• CWTs in the current year
• Excess CWTs in the prior year
 • If in the computation of the annual income tax due,
the computed annual MCIT due is higher than the
annual normal income tax due, the following may be
credited against annual MCIT due:
MCIT – • Quarterly MCIT payments
ANNUAL • Quarterly normal income tax payments
COMPUTATIO • CWTs in the current year
N • Excess CWTs in the prior year

• Excess MCIT from the previous taxable years shall not be

allowed to be credited against the annual MCIT due as the
same can only be applied against normal income tax.
MCIT – • Any excess of MCIT over the normal income tax can
EXCESS MCIT be carried forward on an annual basis – 3 years
 • BIR Ruling Nos. DA-147-2007 dated March 8, 2007
and DA S40M 018 436-08 dated November 18,
2008
MCIT – BIR • The excess MCIT credit balances of the absorbed
corporations in statutory merger of commonly-owned
RULINGS corporations may be transferred and carried over to the
surviving corporation

• BIR Ruling No. 041-00, September 15, 2000

• GOCCs are subject to MCIT
 • Section 27(E), Tax Code
• The Secretary of Finance, upon the recommendation of the
CIR, may suspend the imposition of the MCIT upon
RELIEF FROM submission of proof by the applicant-corporation that the
corporation sustained substantial losses on account of the
MCIT following:
• Prolonged labor dispute;
• Force majeure; and
• Legitimate business reverses
 • Section 34 (D)(3), Tax Code
• NOLCO shall mean the excess of allowable
NET deduction over gross income of the business in a
taxable year
OPERATING
• Can be carried over as a deduction from gross income for
LOSS CARRY the next 3 consecutive taxable years immediately following
OVER the year of such loss.
(NOLCO) • Any net loss incurred in a taxable year during which the
taxpayer was exempt from income tax shall not be allowed
as a deduction
 • Allowed only if there has been no substantial change
in the ownership of the business or enterprise in that
–
• No less than 75% in nominal value of the outstanding issued
NET shares, if the business is in the name of a corporation, is
OPERATING held by or on behalf of the same person; or
LOSS CARRY • Not less than 75% of the paid up capital of the
corporation, if the business is in the name of a corporation,
OVER is held by or on behalf of the same persons.
(NOLCO) • This rule shall only apply to a transfer or assignment of the
taxpayer’s NOL as a result of or arising from the said
taxpayer’s merger or consolidation or business combination
with another person
 • Rules for mines other than oil and gas wells
• A NOL without the benefit of incentives provided for under
the Omnibus Investments Code of 1987, incurred in any of
NET the first 10 years of operation may be carried overs as a
OPERATING deduction from taxable income for the next 5 years
immediately following the year of such loss
LOSS CARRY • The entire amount of the loss shall be carried over to the
OVER first of the 5 taxable years following the loss, and any
(NOLCO) portion of such loss, which exceeds the taxable income of
such first year shall be deducted in like manner from the
taxable income of the next remaining 4 years.
 • In general, NOLCO shall be allowed as a deduction from
the gross income of the same taxpayer who sustained and
accumulated the NOL regardless of the change in its
ownership. This rule shall also apply in the case of a
NET merger where the taxpayer is the surviving entity.
OPERATING
LOSS CARRY • Unless otherwise provided in the regulations, NOLCO of
OVER the taxpayer shall not be transferred or assigned to
(NOLCO) another person, whether directly or indirectly, such as, but
not limited to, the transfer or assignment thereof through a
merger, consolidation or any form of business combination
of such taxpayer with another person.
 • Examples:
• 1. Company X has NOLCO. Company Y purchased
from Company X stockholders all of their shares in
NET Company X.
OPERATING • Can Company X still use its existing NOLCO? YES.
LOSS CARRY
OVER • 2. Company A has NOLCO. It merged with
(NOLCO) Company B, with Company A as the surviving entity.
• Can Company A still use its NOLCO after merger?
YES.
 • Examples:
• 3. Company A has NOLCO. It merged with
Company B, with Company B as the surviving entity.
NET • Can Company B still use the NOLCO acquired from
OPERATING Company A?
LOSS CARRY • It depends. Company B can only use NOLCO from
OVER Company A if the shareholders of Company A gains
(NOLCO) control of at least 75% in the nominal value of the
outstanding issued shares or paid up capital of
Company B as transferee.
 • Sec. 2, RR No. 14-2001
• The 3-year period on the carry-over of NOLCO shall
continue to run notwithstanding the act that the
NET corporation paid its income tax under the MCIT
OPERATING computation
LOSS CARRY • NOLCO shall be availed of on a FIFO basis
OVER • The NOL incurred by a taxpayer in the year in which
(NOLCO) a substantial change in ownership in such taxpayer
occurs shall not be affected by such change in
ownership.
NET • Taxpayers Entitled to Deduct NOLCO (Sec. 4, RR No.
OPERATING 14-2011)
LOSS CARRY • DC and RFC subject to the normal income tax or
OVER preferential tax rates
(NOLCO)
 • Taxpayers Not Entitled to Deduct NOLCO (Sec. 4, RR No.
14-2011)
• OBU of a foreign banking corporation
NET • FCDU of a domestic or foreign banking corporation
OPERATING • BOI registered enterprises enjoying the ITH incentive on
their registered activities
LOSS CARRY
• Enterprises registered with the PEZA and SBMA on their
OVER registered activities
(NOLCO) • Foreign corporations engaged in international shipping or
air carriage business in the Philippines
• Other persons enjoying exemption from income tax
NET • Section 4(bbbb) of BARO Act
OPERATING • NOLCO for 2020 and 2021
LOSS CARRY • Deduction from gross income for the next 5 taxable years
OVER • RR No. 25-2020
(NOLCO)
 • Section 40(C)(2)
• Not limited to mergers or consolidations
TAX-FREE
EXCHANGE • Reorganizations and exchanges of property solely
for stock or securities in another corporation
 • Reorganization
• A corporation, which is a party to a merger or
consolidation, exchanges property solely for stock in a
corporation, which is a party to the merger or
consolidation; or
• The acquisition by 1 corporation of stock of another
TAX-FREE corporation, in exchange solely for all or a part of its
EXCHANGE voting stock, or in exchange solely for all or part of the
voting stock of a corporation which is in control of the
acquiring corporation, if immediately after the
acquisition, the acquiring corporation has control of such
other corporation (WON there was control before the
acquisition); or
 • Reorganization
• The acquisition by one corporation, in exchange solely for
all or a part of its voting stock or in exchange solely for all
or part of the voting stock of a corporation which is in
control of the acquiring corporation, of substantially all of
the properties of another corporation; or
TAX-FREE • A recapitalization – stocks and bonds of a corporation are
readjusted as to amount, income or priority or an
EXCHANGE agreement of all stockholders and creditors to change and
increase or decrease the capitalization or debts of the
corporation or both;
• A reincorporation – formation of the same corporate
business with the same assets and the same stockholders
surviving under a new charter
 • Transfer of property to a corporation by a person, alone
or together with others, not exceeding 4 persons, in
exchange for stock or unit of participation in such a
corporation of which as a result of such exchange, the
transferor or transferors, collectively, gains or maintains
control of said corporation
TAX-FREE • Control - ownership of stocks after the transfer of
EXCHANGE property possessing at least 51% of the total voting
power of all classes of stock entitled to vote (Collective
ownership of the transferors)
• BIR RULING shall not be required
• No Income tax and VAT
 • 1. Majority shareholders of Kareila Management Corporation
• 2. Business – Managers, managing agents, consignor,
concessionaire, or supplier of business engaged in the operation
of hotels, supermarkets, groceries and the like.

CIR V. CO, ET • 3. ACS – Php500M wherein 1.7M shares were subscribed and
fully paid. The Cos owned 99.9999%.
AL., GR NO. • 4. The Cos – also shareholders of Puregold Price Club, Inc. –
241424, 66.55%

FEBRUARY • 5. Puregold approved the issuance of 766.4M shares to Cos

and Sy in exchange for the transfer to Puregold of the 1.7M
26, 2020 shares of Kareila - share swap
• 6. Puregold acquired majority ownership of Kareila
• 7. The Cos and Sy increased stockholdings in Puregold from
66.57% to 76.83%
 • 8. They paid CGT
• 9. Within the 2 –year prescriptive period under
CIR V. CO, ET Section 204 of the Tax Code, they filed their
AL., GR NO. administrative claims for refund of the CGT
241424, •
FEBRUARY ISSUE: Whether the Cos and Sy are entitled to the
26, 2020 claim for refund for erroneously paid CGT.

• HELD: Yes.
 • The requisites for the non-recognition of gain or less
are as follows:
• (a) the transferee is a corporation
CIR V. CO, ET
AL., GR NO. • (b) the transferee exchanges its shares of stock for
property/ies of the transferor
241424,
FEBRUARY • (c) the transfer is made by a person, acting alone or
together with others, not exceeding four persons
26, 2020
• (d) as a result of the exchange, the transferor, alone
or together with others, not exceeding four, gains
control of the transferee
 • As regards the element of control, the SC clarified that it
is not necessary that, after the exchange, each of the
transferor gains further control of the transferee
corporation.
CIR V. CO, ET • The element of control is satisfied even if one of the
AL., GR NO. transferors is already owning at least 51% of the
241424, shares of the transferee corporation, as long as after the
exchange, the transferors, not more than 5, collectively
FEBRUARY increase their equity in the transferee corporation by
26, 2020 51% or more.

• See CIR v Filinvest Development Corporation, GR No.

163653, July 19, 2011
 • ISSUE: Whether prior confirmatory ruling from the BIR is
required for the tax exemption or refund.

• HELD: No.
CIR V. CO, ET
AL., GR NO.
• Rulings merely operate to “confirm” the existence of the
241424, conditions for exemptions provided under the law. If all the
FEBRUARY requirements for exemption set forth under the law are
complied with, the transaction is considered exempt, whether or
26, 2020 not a prior BIR ruling was secured by the TP.

• The BIR should not impose additional requirements not provided

by law, which would negate the availment of the tax exemption.
 • BIR Ruling No. 515-2012, August 3, 2012
• Issue: Whether the transfer by Mr. H of his shares in
Company O to Company U, giving him control by
owning 58.15% of the total voting stock of Company
TAX-FREE U, is exempt from CGT and DST
EXCHANGE • Whether the transfer by Mr. R of his shares in
Company P to Company U, giving him control by
owning 24.33% of the total voting stock of Company
U, is exempt from CGT and DST
 • BIR Ruling No. 515-2012, August 3, 2012
• Held: (a) Yes. Under Section 40(C)(2) and (6)(c) of the Tax Code,
no gain or loss shall be recognized if property is transferred to a
corporation by a person, in exchange for stock in such corporation,
as a result of such exchange, said person, alone or together with
others, not exceeding four persons, gain control of said corporation.
The term ”control” shall mean ownership of at least 51% of the
TAX-FREE total voting power of all classes of stocks entitled to vote. Control
EXCHANGE is determined by the amount of stocks received (i.e., total
subscribed by the transferor).
• In determining the 51% stock ownership, only those persons who
transferred property for stock in the same transaction may be
counted up to a maximum of five. In short, combining all the shares
to be received by the transferors, the same should total to at least
51% of the voting power of all classes entitled to vote.
 • BIR Ruling No. 515-2012, August 3, 2012
• Held: Applying the said provisions, it is clear that
with the exchange of share of Mr. H alone, he
already gains control of Company U as he acquires
58.15% of the outstanding capital stocks of the total
TAX-FREE voting power of all classes of stocks entitled to vote.
Hence, no gain or loss shall be recognized with
EXCHANGE respect to the transfer of shares by Mr. J in exchange
for shares of stock of the transferee corporation.
There is no need to combine Mr. H’s shares with that
of the other transferor to determine the 51% stock
ownership.
 • BIR Ruling No. 515-2012, August 3, 2012
• Held: However, Section 40(C)(2) and (6)(c) of the Tax Code
merely defers recognition of the gain or loss from such
transactions, for in determining the gain or loss from subsequent
transaction of the property or of the stocks involved in the
exchange, the original or historical cost of the property or stocks
is considered.
TAX-FREE • Thus, if Mr. H later sells or exchanges the shares of stock he
EXCHANGE acquired, he shall be subject to income tax on the gains he
derived from such sale or exchange, taking into consideration
that the cost basis of the shares shall be the same as the original
acquisition cost or adjusted cost basis to the transferors of the
properties exchanged therefor; and that the cost basis to the
transferee of the properties exchanged for stocks shall be the
same as it would be in the hands of the transferors.
 • BIR Ruling No. 515-2012, August 3, 2012
• Held: In order that the parties to the exchange can avail
of the non-recognition of gains provided, they should
comply with the following:
• Mr. H must file with his income tax return for the taxable year
in which the exchange transaction was consummated a
TAX-FREE complete statement of all facts pertinent to the exchange,
EXCHANGE including:
• A description of the properties he transferred, or his interest in
such properties, with a statement of the original acquisition
cost/adjustment cost basis or other basis at the time of transfer
• The kinds of stock received and preferences, if any
• The number of shares of each class received
• The FMV per share of each class at the date of the exchange
 • BIR Ruling No. 515-2012, August 3, 2012
• Held:
• Company U must file along with its ITR for the same
taxable year the following

TAX-FREE • A complete description of the properties received from the

transferor
EXCHANGE • A statement of the original acquisition cost or other basis of
the properties in the hands of the transferor and the
adjusted cost basis thereof at the time of the transfer
• Information with respect to the capital stock of the
corporation
 • BIR Ruling No. 515-2012, August 3, 2012
• Held:
• The assignors and Company U shall enclose with their
respective ITRs for the taxable year in which the tax-free
exchange occurred a copy of the request for ruling filed
with, and the corresponding ruling issued by the BUR, both
TAX-FREE duly stamped received by the appropriate office of the
EXCHANGE BIR. Such persons shall include as a note to their respective
audited FS a statement to the effect that they hold such
assets/shares acquired in a tax-free exchange and the
year in which such exchange occurred, and in the taxable
years until the subject property are subsequently
transferred to another transferee
 • BIR Ruling No. 515-2012, August 3, 2012
• Held:
• It is required that within 90 days from receipt of the BIR
ruling, the parties to the transaction must submit a certified
true copy of the duly annotated stock certificates in respect
TAX-FREE of the transferred shares of stock of transferee corporation.
EXCHANGE
• (b) No. The transfer by Mr. R, resulting in ownership
of only 24.33% of the total voting shares of Company U
shall be treated as a separate transfer subject to CGT and
DST
 • CTA Case No. 1150, May 12, 2015
• Issue: Whether the BIR certification/ruling
mentioned in RR No. 18-01 (Guidelines on the
Monitoring of the Basis of Property Transferred and
Shares Received, pursuant to a Tax-Free Exchange of
Property for Shares) is required to avail of a tax
TAX-FREE exemption in an exchange of property for shares of
EXCHANGE stock under Section 40(C)(2) of the Tax Code?
• Held: No. The BIR ruling/certification mentioned in
RR No. 18-01 is not a precondition to avail oneself
of the tax exemption under Section 40(C)(2) of the
Tax Code.
 • CTA Case No. 1150, May 12, 2015
• Held: RR No. 18-01 merely prescribes the guidelines in
monitoring the tax-free exchange of property, in order
that in subsequent transfers of said properties, they shall
be taxed accordingly. The issuance does not state a
requirement to apply for a ruling as a prerequisite for the
TAX-FREE entitlement of tax exemption. There is nothing in RR No.
EXCHANGE 18-01 that explicitly requires a party, in exchanging
property for shares of stock, to first secure a BIR
confirmatory certification or tax ruling before it can avail
of a tax exemption or refund.
• Thus, securing a BIR Ruling is not a condition sine qua non
for availing a tax exemption.
IMPROPERLY
ACCUMULATE • Repealed
D EARNINGS
TAX (IAET)
 • Sec. 42, Corporation Code (RCC)
• Stock corporations are prohibited from retaining surplus profits
in excess of one hundred (100%) percent of their paid-in
capital stock, except:
IMPROPERLY • (1) when justified by definite corporate expansion projects or
programs approved by the board of directors; or
ACCUMULATE • (2) when the corporation is prohibited under any loan
D EARNINGS agreement with any financial institution or creditor, whether
local or foreign, from declaring dividends without its/his consent,
TAX (IAET) and such consent has not yet been secured; or
• (3) when it can be clearly shown that such retention is necessary
under special circumstances obtaining in the corporation, such as
when there is need for special reserve for probable
contingencies.