CORPORATE INCOME TAXES

A. Minimum Corporate Income Tax

(MCIT) – a tax imposed on
corporations (DC and RFC),
beginning in the fourth taxable
year following the year of
commencement of business
operations. MCIT is imposed where
the RCIT at 30% is less than 2%
MCIT on gross income.
The MCIT liability begins only
immediately at the 4th year
beginning its operations, reckoned
from the date of its registration
with the BIR.

This is not an additional tax on

corporations, it is a normal income
tax on corporations.
The MCIT is applicable only when:
a.) The corporation declares zero
income; or,
b.) The corporation declares
negative taxable income (net loss)
or,
c.) The MCIT is greater than the
regular corporate income tax.
Exempt corporations:
1. RFC – international carriers (air and sea);
2. RFC – off-shore banking units and
regional operating HQs;
3. Entities under special income tax regime
(e.g. PEZA registered corp.);
4. Proprietary Educational Institutions;
5. Non-profit hospitals;
6. Depositary banks under FCDU;
7. Real Estate Investment Trusts (RA 9856);
8. NRFC
Carry-over rule – any excess of the MCIT
over the regular corporate income tax of a
year shall be carried forward and credited
against the RCIT for the three immediately
succeeding taxable years.

Case: CREBA v. Romulo, GR No. 160756,

3/10/2010
Computation:
Year 4 Year 5 Year 6 Year 7

A.) MCIT (2% of Gross P 200.00 P 400.00 P 100.00 P 100.00

Income)
B.) Normal Corporate P 100.00 P 200.00 P 300.00 P 200.00
Income Tax (30% of
Net Income)

Tax Payable (A or B, P 200.00 P 400.00 P 300.00 P 200.00

whichever is higher )

Excess MCIT (over (P 100.00) (P 100.00) (P 300.00) 0

CIT)/ Apply Carry (P 200.00)
over-rule
Tax Due and P 200.00 P 400.00 P 0.00 P 200.00
Demandable
Relief from MCIT (Non-application of MCIT)
Losses due to:
1.) Losses on account of prolonged labor
dispute;
2.) Force majeure
3.) Legitimate business reverses.
MCIT may be suspended by the SoF, upon
recommendation of CIR, upon submission of
proof by applicant-corporation, verified by the
CIR or representative, that the corporation has
suffered substantial losses due to above-cited
reasons.
B. Gross Philippine Billings (RA 10378) –
Applicable only to International Carriers (2.5% of GPB)

1.) GPB on Int’l Air Carriers includes:

i. Gross revenue derived from carriage of persons, excess
baggage, cargo and mail originating from the Philippines in a
continuous and uninterrupted flight;
ii. Tickets revalidated, exchanged and/or indorsed to another
international airline, provided that the passenger boards the
airline in a port or point in the Philippines; and,

iii. Transhipment of passenger to another airline outside the

Philippines, only the aliquot portion of the cost of the ticket
corresponding to the leg flown from the Philippines to the point
of transhipment shall form part of the GPB.
2. International Shipping
i. Gross revenue whether for passenger,
cargo or mail originating from the Philippines
up to final destination;

International carriers may avail of preferential

tax rates or exemptions in treaties where the
Philippines is a signatory.
Cases:
CIR v. BOAC, GR No. L-65773, 4/30/87
SAA v. CIR, GR No. 180356, 2/16/2010
C. Improperly Accumulated Earnings Tax
(IAET) Sec. 29 of A and B of NIRC – an
additional tax (10% of the improperly
accumulated taxable income) on
corporations formed or availed for the
purpose of avoiding the income tax with
respect to its shareholders. (Dividend
income on the part of the shareholders)
When is an income deemed improperly
accumulated by a corporation?

The (old) corporation code prohibits stock

corporations from retaining or accumulating
surplus profits in excess of its paid-in capital
(capital stock and additional paid in capital
combined).
Question – is this applicable to the One
Person Corporation under the RA 11232
(RCC)?
The IAET is not a tax on the accumulation
itself but on the purpose of the
accumulation, thus an accumulation for
reasonable business needs is legal.

Reasonable Business Need (Sec. 29 E):

a. Allowance for increase in accumulated
retained earnings up to 100% of its paid-up
capital;
b. Earning reserved for building, plant or
equipment acquisitions as approved by the
BOD;
c. Earning reserved for compliance of any
loan or obligations established under a
legitimate business agreement;

d. In case of subsidiaries of FC in the

Philippines, all undistributed earnings
intended or reserved for investment in the
Philippines;

e. Earning required by law to be retained.

Corporations not covered by IAET

1.) Publicly-held corporations, To be

considered a publicly-held corporation
exempt from IAET, the actual number of
majority individual stockholders (who own
at least 50 percent in value of outstanding
capital stock or of the total combined
voting power of all classes of stock entitled
to vote) should be more than 20 individual
shareholders.
2.) Banks and other financial institutions;

3.) Insurance and pre-need companies;

4.) Taxable partnerships

5.) General professional partnerships;

6.) Non-taxable joint ventures;
7.) Enterprises registered with PEZA, BCDA
and other economic zones.
Cases:

CPI v. CTA, GR No. 108067, 1/20/2000

MWM v. CIR, GR No. L-26145 2/20/84
CIR v. Tuason, GR No. 85749, 5/15/89
D. Branch Profit Remittance Tax (BPRT) – at
the rate of 15% of the total profits applied
or earmarked (not the actual remittance)
for remittance by a Philippine branch to a
foreign corporation.

It is not proper to apply the BPRT to the

entire accumulated profits of the branch as
a constructive remittance of profits.

BPRT is not applicable to PEZA registered

companies.
Not included as branch profits (unrelated
business):
- Interest income
- Dividends
- Rents
- Royalties
- Payment of technical services
- Salaries and wage premiums
- Annuities, emoluments or other fixed or
determinable casual gains
- Profits, income and capital gains.
Special Rules on Proprietary Educational
Institutions and Hospitals (as distinguished
from NSNPS – tax exempt)

Preferential Rate of 10% of taxable income

(except passive income) if:
a.) PEI and PH are non-profit.
Non-profit means no net income or asset
accrues to or benefits any member or specific
person, with all its net income or asset
devoted to the institution’s purposes and all
its activities conducted not for profit. (CIR v.
St. Luke’s Medical Center, Inc., GR No.
195909, 9/26/12
b.) Income from unrelated trade, business
or other activities must not exceed 50% of
its gross taxable income.

Two tests to be applied:

1.) Nature of operations (Profit or non-

profit); and;

2.) Source of income test.

If the PEI or hospital fails the two tests, its
TOTAL taxable income shall be subject to
regular corporate income tax rate.

For PEI, it must be:

a. maintained/ owned by private
individuals or groups; and,

b. Issued permit by DepEd, CHED or TESDA.