August 20 Tax

8/12/2019 August 20 Tax

http://slidepdf.com/reader/full/august-20-tax 1/5

 August 20, 2013

We are now on the rates of foreign corporation (section

28). We have the resident foreign corporation and the

non- resident foreign corporation.

 As regards to foreign non- resident corporation they are

taa!"e on gross without the !enefit of the ta ee#ption.

$o you have Section 28.  Rates of Income Tax on

Foreign Corporations. $ection 28 A ta"%s a!out &esident'oreign orporation and $ection 28 is on *on- resident

foreign corporation.

+n the case of $ection 28 A(), you have there the&egiona" or Area eaduarters and &egiona" /peratingeaduarters of u"tinationa" o#panies. +t is theoperating headuarters which is taa!"e. +t has apreferentia" rate of 10 on its taa!"e inco#e.

he *on- resident foreign corporation is taa!"e at 30gross without the !enefit of deduction. 'oreigncorporations, whether resident or non- resident, aretaa!"e on"y on sources earned within the hi"ippines. $ofor non- resident foreign corporations, other than nu#!ers2 (ini#u# orporate +nco#e a on &esident 'oreignorporations), 3 (+nternationa" arrier) and 4(+nternationa" Air arrier), these non- resident foreigncorporations are taa!"e at 30. ut in the case ofsection 28 (2) Nonresident Cinematographic FilmOwner, Lessor or Distributor , it is taed at 25 gross. he(3) Nonresident Owner or Lessor of essels Chartered b!"hilippine Nationals, is taed at 4.5 of gross renta"swhereas (4) Nonresident Owner or Lessor of #ircraft,$achineries and Other %&uipment , is taed at 6.5 ofgross renta"s.

We have interest on foreign "oans !y non- resident foreigncorporations(*&') there ta is at 20. (section 28(5a)).

*ow for intercorporate dividends (sec.28 (5!)), these aredividends received !y non- resident foreign corporationfro# the do#estic corporation. *ow the ta rate is at 30,un"ess the non- resident foreign corporation is entit"ed to ata sparing treat#ent euiva"ent to 15. $o the ta rateof the dividends is on"y 15. $o in the other words, theta credit of *&' dividends received fro# do#esticcorporations is not su!7ect to a ta sparing credit, the ratewi"" !e 30 !ut if it is entit"ed to a ta sparing credit, ta ofthe dividend wi"" on"y !e 15 and the ta credita!"e iseuiva"ent to 15. +t is !ecause the rate is nor#a""y 30%aso %ung #ay ta sparing credit a 15 then the rate isthe difference which is on"y 15.

 *ow, the operation of ta credit is not auto#atic. here#ust !e a ta agree#ent or a treaty entered into !y thehi"ippines and the country where this *&' ho"ds office.

et us go !ac% to the treat#ent of the + or theini#u# orporate +nco#e a ($ec. 26 9(1) ).

 As a ru"e, the + app"ies on"y to taa!"e corporationsu!7ect to the regu"ar rate of 30 taa!"e inco#e. $pag-do#estic corporation it is taed at 30 inc"uding thresident foreign corporations which are a"so taed at 30on their taa!"e inco#e, then the + is app"ica!"e the#.

his + is different fro# the optiona" 15 ta on groshe + app"ies when the corporate tapayer co#puteits taa!"e inco#e or ta due on the !asis of the nor#corporate inco#e ta (*+) as against the +. +f th+ is higher then the ta to !e paid is the +. utthe ta due is co#puted on the nor#a" corporate inco#ta rate (*+) and it is higher then it is paid using th*+ or the nor#a" corporate inco#e ta rate.

:ou have the ru"es on the app"ication of the + that th#ini#u# corporate inco#e ta of 2 of gross inco#e aof the end of the taa!"e year, here!y i#posed on corporation taa!"e, !eginning on the fourth taa!"e yeai##ediate"y fo""owing the year in which such corporatioco##enced its !usiness operations, so #eaning if th!usiness is in operation for #ore than 4years then th

+ is app"ied. $o if it was app"ied on 1;;8 to thoscorporations operating for #ore than 4years then th+ app"ies to the#. ut for new"y organi<ecorporations where it has not !een operating for #orthan 4years or #ag-!egin pa"ang a sa %ani"ang i%a- thiryear then the + is not app"ied. ut again if sa %ani"ani%a- fourth taa!"e year i##ediate"y fo""owing the year thcorporation co##enced its !usiness operations wherethe #ini#u# corporate inco#e ta is greater than tha#ount co#puted in su!section A ($ec. 26) or of thsection or on section 28A, in the case of resident foreigcorporation.

$o you have a case here. (p"ease refer to the ta!"e)

= corporation. +f in 200; the ta due co#puted under thnor#a" corporate inco#e ta was 50,000.00 and the tadue co#puted using the + was 80,000.00. thus, thta paya!"e in 200; is 80,000.00, which is the +. other words, at the end of the year, corporate tapayeco#pute their inco#e ta due on 2 ways. 1) on the !asof the nor#a" rate of 30 and 2) on the !asis of + 2 of the gross inco#e. echnica""y, the corporatioshou"d on"y pay inco#e ta on the !asis of its actuinco#e. $o technica""y it shou"d on"y pay 50,000.00 !app"ying + you are now paying higher. +t is !ecause

the + is higher than the *+, then the ta that yowi"" pay is the + since it is higher. $o in this case, thta to !e paid is 80,000.00 or the + since it is highehere is recognition of the ecess on the + in 200; 30,000.00. +t is the difference !etween 80,000.00 an50,000.00. in other words, you paid over 30,000.00. $there is an ecess +. $o what is the statutoprovision on the ecess>

$ec. 26.

'() Carr! Froward of %xcess $inimum Tax* + #n! excesof the minimum corporate income tax oer the norm

income tax as computed under -ubsection '#) of th

8/12/2019 August 20 Tax

http://slidepdf.com/reader/full/august-20-tax 2/5

-ection shall be carried forward and credited against thenormal income tax for the three '.) immediatel!succeeding taxable !ears*

+n other words, this ecess + is credita!"e to the *+if higher than + for the net 3 years. $o your 30% iscredita!"e if the *+ for the net 3years is higher thanthe +. so the 30% is credita!"e on 2010, 2011, 2012.owever, on 200;, the + is higher, then you pay the80%. if sa 2010 the *+ is ;0,000.00 and the + is140,000.00 then the ta paya!"e in 2010 is the +which 140,000.00. now, in 2010, can you now app"y theecess sa 30> */, since the + is higher. $o di #o#aga#it ang ecess na 30% sa 2010 !ut you sti"" have 2#ore years. so, in 2010 since you are now paying the+ which is higher, then there is a recognition of theecess + !etween 140% and ;0%, then there is anecess of 50%, yung difference niya. his 50% wi"" !ecredita!"e to the + in the net 3 years if during the 3su!seuent years the *+ wou"d !e higher than the+. $o the 50% is credita!"e on 2011, 2012 and 2013.*ow, if in 2011 the ta due on the *+ is 150,000.00and the ta due on the + is 120,000.00 then the ta

paya!"e in 2011 is 150,000.00. *ow, can you app"y theecess + now> :9$, you can app"y the 30% !ecausepaso% pa a sa 2011. :ou can app"y a"so the 50% since itis sti"" credita!"e for the net 3 years, inc"uding 2011. $o,the 150% ta due co#puted on the *+ "ess thecredita!"e ecess, which is 30% and 50% a tota" of 80%, theecess + fro# 200; and 2010, the a#ount you gonnapay now is the !a"ance of 60%.

150,000.000---- A= A:A9 in 2011

- 80,000.00 ---- ecess + fro# 200; and2010

 ???????????? 

60,000.00 ----- / 9 A+@ '/& 2011

hat is how you app"y the +. hat was done annua""y.*ow, in your revenue regu"ations you have in thereadings assigned the app"ication is now on a uarter"y!asis. $o, yung record #as epanded yun. +# 7ustpresenting to you the annua" version !ut the #anner ofapp"ying it now is BCA&9&: na !ecause thecorporations are reuired to fi"e their inco#e ta uarter"y.

$o usua""y 3 uarter"y then yung i%a- 4

th

  is theconso"idated or the annua". his is now the app"ication of+.

*ow, what happens if that there !e in the net 3years the+ is sti"" higher> $o at the end of 2012, hindi #aga#ityung 30%, #a!ahaw na yan a. +t wi"" "apse. $o #aiwanna"ang is yung 50%. if pag%a- 2013 higher pa rin ang +then #a!ahaw na rin yung 50%, #ag"apse yung credita!"esana na 50%. $o, as "ong as during the net 3 years of theecess higher yung *+ %aysa + then #agaga#ityung ecess.

Can !ou suspend the effects of the application of th$CIT/ +n the *+&, you can as% for the suspension of th+ under $ec. 26 (3).

-ec* (0 '.) Relief from the $inimum Corporate IncomTax 1nder Certain Conditions* + The -ecretar! oFinance is hereb! authori2ed to suspend the imposition the minimum corporate income tax on an! corporatiowhich suffers losses on account of prolonged labodispute, or because of force ma3eure, or because olegitimate business reerses*

The -ecretar! of Finance is hereb! authori2ed t promulgate, upon recommendation of the Commissionethe necessar! rules and regulation that shall define thterms and conditions under which he ma! suspend thimposition of the minimum corporate income tax in meritorious case*

Dasi dito, "ugi ta"aga yung ta payer. a%it %#ag!a!ayad ng so!ra %ung ang ta due #o yun "ang, co#puted on the !asis of a nor#a" ta rate. :ou havhere the app"ication of the +. it app"ies a"so the sa#ways as to those resident foreign corporation.

*ow, another is $ec. 2;. $ec. 2; is the app"ication oi#proper"y accu#u"ated earning ta. his is an ea#pof what we ca"" the pena"ty ta or sur ta. What is a sta> +t is a pena"ty ta, ea#p"e is $ection 2;. hese arpena"ties i#posed on corporations who are accu#u"atinearnings is !eyond the reasona!"e needs of the !usiness

a payers are a""owed to accu#u"ate earnings !ut the#ust !e a reasona!"e need for such accu#u"ation. $othere is a reasona!"e !usiness need, then you a

a""owed to accu#u"ate earning. ut if the accu#u"ation a"ready done and you have a"ready set aside for ea#p"you need wor%ing capita" purpose, for epansion, fasset or property acuisition !ecause you want to epanyour !usiness or you want to construct or #a%i#prove#ents, so you are a""owed to accu#u"ate. +t !ecause one way of sourcing funds to !e use in th!usiness is interna" sources or eterna" sources. +nternsources is fro# your own earnings and profits. 9ternayou #ay !orrow #oney or issue !onds so that peop"e w!uy !onds and you are to receive the cash proceeds an#a%e interest so you have #enu of funds to !e use foyour !usiness, whether you source it througaccu#u"ation or fro# eterna" sources.

*ow if you are going to accu#u"ate fro# your owearnings and as you wi"" now !e accu#u"ating there now sufficient funds for its purpose then you need naccu#u"ate further. /therwise, the further accu#u"atiowi"" !e su!7ect to this i#proper"y accu#u"ated earningta. /r if you accu#u"ate and there is no !usiness needthen you wi"" a"so !e su!7ect to i#proper"y accu#u"ateearnings ta.

What is the reason for this> :ou a"so have to pay youinvestors. :ou have to pay your stoc%ho"ders and shathe profits to other co- owners of the corporation&e#e#!er, in the distri!ution of profits, for earnings !

8/12/2019 August 20 Tax

http://slidepdf.com/reader/full/august-20-tax 3/5

8/12/2019 August 20 Tax

http://slidepdf.com/reader/full/august-20-tax 4/5

8/12/2019 August 20 Tax

http://slidepdf.com/reader/full/august-20-tax 5/5

ero sa ran% and fi"e, i!a yun. he e#p"oyee is "ia!"e forthe ta.

' and MC are deducta!"e to the gross inco#e.

9=A /K9&AM9 +$ $9+/* 22- 33