Report on Tanhhx 1

7/29/2019 Report on Tanhhx 1

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Michael Evans C Pastor


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It is an artificial being created by

operation of law, having the rights

of succession and the powers,attributes and properties,expressly authorized by law or

incident to its existence. (Sec. 2,BP No. 68 Corporation Code)


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Section 22(B),NIRC - corporation shall includepartnerships, no matter how created or organized,joint-stock companies, joint accounts ( cuentas en

participacion ), associations or insurancescompanies, but does not include Generalprofessional partnerships, Joint venture &consortium formed for the purpose of undertaking

construction projects or Joint venture & consortiumformed for the purpose of engaging petroleum,coal geothermal and other energy operationspursuant to an operating or consortium agreement

under a service contract with the Government.


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GR: taxable no matter how created or

organized. Exception:

1. General professional partnerships;2. Joint venture & consortium formed for the

purpose of undertaking construction projects; or3. Joint venture & consortium formed for the

purpose of engaging petroleum, coalgeothermal and other energy operations

pursuant to an operating or consortiumagreement under a service contract with the

Government.


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A, and other 15 individuals Put up money tobuy a sweepstakes ticket for the sole purposeof dividing equally the prize which they may

win as they did in fact the amount ofP50,000.00.

Is the prize taxable?

YES. An unregistered partnership was formed inthis case therefore the prize they won therein istaxable.


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A and B are co-owners of inherited properties.They agreed to use the said properties and theincome derived therefrom as a common fundwith the intention to produce profits for them in

proportion of their respective shares in theinheritance.

Is there a co-ownership or partnership?

There is co-ownership which was automaticallyconverted into a partnership as the heirs allowtheir shares to be held in a common fund undera single management and be used to theintent of making profit which shall be divided

among themselves.


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A, bought two lots and then transferred his rights tohis four children, B,C,D, and E , to enable them tobuild their residences. B resold the two lots after ayear to F for a higher price treating the profit ascapital gains and paying an income tax of their

respective shares of the profit. The Commissionerrequired them to pay corporate income tax.

Is there a partnership liable for corporate tax?

NO. the division of profits was merely incidental. Cand his siblings were merely co-owners.

NOTE: Article 1769(3) of the Civil Code provides that "the sharing of grossreturns does not of itselfestablish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived". Theremust be an unmistakable intention to form a partnership or joint venture.


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Exception:

General professional partnership (GPP)- is

a partnership formed by persons for the

sole purpose of exercising their commonprofession, no part of the income of which

is derived from engaging in any trade or

business (Section 22(B), NIRC)

shall be liable for income tax in their

separate and individual capacities


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GR: Joint accounts or Joint ventures formed forprofit are taxable.

Ex. Joint Emergency operation although no

legal personality may have been created bythe joint emergency operation, neverthelesssaid joint venture or joint managementoperated the business affairs of the 2

companies as though they constituted asingle entity, company or partnership,thereby obtaining substantial economy andprofits in the operation. (Collector vs Batangas

Transportation Co., G.R. No. L-9692,January 6, 1958)


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Exception:

Joint venture undertaking

construction activity(BIR Ruling No. 317-92)

;and

Joint venture engaged in energy-related activities with operatingcontract with the government.


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1. Domestic corporation corporations

created or organized in the Philippines or

under its laws.(Section 22 (c), NIRC)

2. Foreign corporation corporations createdor organized under the laws of a foreign

country.

1) Resident foreign corporation - a foreign

corporation engaged in trade or business withinthe Philippines; or

2) Non-resident foreign corporation - a foreigncorporation not engaged in trade or business

within the Philippines


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1) Domestic Corporation taxable net income fromsources within and outside the Philippines.

Net taxable income = gross income ( - ) allowable

deductions.

1) Foreign Corporationa) Resident Foreign Corporation - taxed similarly as a

domestic corporation on incomes derived fromsources within the Philippines.b) Non-resident Foreign Corporation - taxable upon the

entire gross income received from all sources within

the Philippines.


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Gross Income = Gross Sales( - ) Sales returns,discounts and allowances( - ) Cost of goods sold

If taxpayer is engaged in sale of service:Gross Income = Gross receipts( - ) Sales

returns, allowances and

discounts


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The following are not included in the computation of the grossincome of taxpayers:

1) Proceeds of life insurance policies but not the interest paid to

the heirs or beneficiaries;2) Amount received by the insured as return of premium;3) Value of property acquired by gratuitous transfer but not the

income from such property;

4) Compensation for injuries or sickness including damagesreceived;5) Income exempt under treaty;6) Retirement benefits, pensions, gratuities, etc. under certain

conditions;


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7) Income derived by foreign governments, financing institutionsowned, controlled or enjoying financing from foreigngovernments, and international or regional financing institutionsestablished by foreign governments, from their investments inloans, stocks, bonds or other domestic securities or from intereston their deposits in banks in the Philippines;

8) Income derived from any public utility or from the exercise of anyessential government function accruing to the Philippinegovernment or to any political subdivision;

9) Prizes and awards made primarily in recognition of religious,charitable, scientific, educational, artistic, literary, or civicachievement but only if the recipient was selected without anyaction on his part to enter the contest or proceeding, and is notrequired to render substantial future services as a condition to

receiving the prize or award


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1) Domestic Corporation

Same deductions allowed for individual taxpayers

2) Resident Foreign Corporation

Same deductions allowed domestic corporations and conditions

and limitations except on the following items of deductions:1. Taxes

2. Losses

3. Bad debts

4. Depreciation5. Depletion of oil and gas wells and mines

3) Non-resident Foreign Corporation

No deductions are allowed.


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The following are exempt from the payment of corporate income tax,subject to certain conditions:

1) Labor, agricultural, or horticultural organizations not organizedprincipally for profit;

2) Mutual savings bank not having a capital stock represented byshares, and cooperative bank without capital stock organized andoperated for mutual purposes and without profit;

3) A beneficiary society, order, or association, such as fraternalorganization, or a mutual aid association or a non-stock corporation,organized and operated exclusively for the benefit of its members;

4) Cemetery company owned and operated exclusively for the benefitof its members;

5) Religious, charitable, scientific, athletic, and cultural organizationsor those organized for the rehabilitation of veterans, under certainconditions;


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6) Business league, chamber of commerce, or board of trade,not organized for profit and no part of the net income ofwhich inures to the benefit of any private individual;

7) Civic league or organization organized for profit but

operated exclusively for the promotion of social welfare;8) Non-stock and non-profit educational institutions;9) Government educational institutions;10) Farmers or other mutual typhoon or fire insurance company

or like organization of purely local character; and11) Farmers, fruit growers, or like associations organized and

operated as sales agent, under certain conditions.


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Domestic Corporations 30% Taxable Income

Proprietary educational

institutions and hospital which

are non profit

10% if total gross income from

unrelated trade, business, or

activity DOES NOT EXCEED 50%

of total income

35% if total gross income fromunrelated trade, business, or

activity EXCEED 50% of total

income

GOCC, Agencies and

Instrumentalities, including

PAGCOR

32%(2000-2005)

35%(2006)

Same tax rate upon their

taxable income in a

similar business, industry, oractivity

GSIS/ SSS / PHIC/ PCSO Exempt

Depository Banks 10% On interest income from foreign

currency transactions including

interest income from foreign

loans


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Resident ForeignCorporations

30% Taxable Income derived from all sources within thePhilippines

Internationalcarriers

2.5% On Gross Philippine Billings

Offshore banking

units

10% Any interest income derived from foreign currency

loans granted to residents other than offshorebanking units or local commercial banks, includinglocal branches of foreign banks that may beauthorized by the BSP to transact business withoffshore banking Units

Offshorebanking units

Exempt Income derived by offshore banking unitsauthorized by the BSP, from foreign currencytransactions with Non-residents, other offshorebanking units, local commercial banks, includingbranches of foreign banks that may be authorized by

the BSP to transact business with offshore bankingunits.


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Branch profitsremittances

15% 15% on any profit remitted by a branch to its head officeabroad, except profit remitted by enterprises which areregistered with the Philippine Economic Zone Authority(PEZA).

Regional/Area

Headquarters

Exempt

Regional OperatingHeadquarters ofMultinationalcompanies

10% On taxable income

Depository banksunder the ExpandedForeign CurrencyDeposit System

(EFCDS)

Exempt Except: Interest income from foreign currency loansgranted by such depository banks under said expandedsystem to residents other than offshore banking units inthe Philippines or other depository banks under the

expanded system- 10% final tax


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Refers to the amount of gross revenuederived from carriage of persons, excessbaggage, cargo and mail originating

from the Philippines in a continuous anduninterrupted flight, irrespective of theplace of sale or issue and the place ofpayment of the ticket or passage

document.(Section 28 (A)(3)(a), NIRC) Originating Rule to form part of GPB,

passenger/cargo must originate from thePhilippines (does not apply to domestic corp.)


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Imposed to any profit remitted by abranch to its head office.

If subsidiary amounts received byNRFC would be treated as dividends it becomes part of its Gross Incomefrom within taxable at 35%

Branch first subjected to 35% ordinarycorporate tax as RFC ,then to 15%BRPT


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Non-ResidentForeignCorporations

30% Gross Income derived from all sources within thePhilippines

CinematographicFilm owner, lessoror distributor

25% On gross income

Owner or lessorsof vessel chartedby Philippine

Nationals

4.5% On gross income

Owner or lessorsof aircraft,machineries and

other equipment

7.5% On gross income


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Rate : 2% of Gross income Purpose: to prevent the prevailing practice

of corporations of over-claiming deductions

in order to reduce their income taxpayments.

Covers only Domestic and Resident ForeignCorporations.

Applicable on the 4th year of operation Excess MCIT carried over to the next 3

succeeding years ; (Note: only if Regularincome tax is greater than MCIT on the 4th

year)


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Secretary of Finance may suspend MCIT

upon recommendation of BIR Commissioner

in any of the following cases:

1) Sustained losses from prolonged labor

dispute

2) Force Majeure

3) Legitimate Business reverses Paid on Quarterly and Yearly Basis


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10% IAET imposed on improperly accumulated

taxable income earned by domestic corporationas defined under the Tax Code and which are

classified as closely held corporations.

Closely Held Corporations are corporations at least 50

% in value of the outstanding capital stock or at least50% of the total combined voting power of all classes ofstock entitled to vote is owned directly or indirectly by

not more than 20 individuals.


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Imposed as a form of penalty to corporations retaining earnings for

more than the reasonable needs of business in order to recoup the

lost taxes.

Except:1) publicly-held corporations

2) banks and other nonbank financial intermediaries

3) insurance companies

4) Taxable Partnerships5) General Professional Partnership

6) Non-taxable joint ventures

7) Enterprises duly registered with the Philippine Economic Zone

Authority (PEZA)

Report on Tanhhx 1

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