CHAPTER 3 Flashcards
TAXATION OF CORPORATION
Enumerate the 3 classifications of Income Taxpayer
- Corporations
- General Professional Partnership
- Estates & Trust
Those created or organized under and by virtue of Philippine laws
Domestic
Those organized in accordance with laws of their respective countries
Foreign
It is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence
Corporation
It allows any person, partnership, association or corporation, singly or jointly with others but not more than 15 in number, may organize a corporation for any lawful purpose(s).
Section 10 of the RCCP
It includes one-person corporations, partnerships, no matter how created or organized, joint-stock companies, joint accounts, associations, or insurance companies, but does not include general professional partnerships and a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract with the Government
Corporation
It states that a joint venture or consortium formed for the purpose of undertaking construction projects not taxable as corporation under Sec. 22 of the NIRC of 1997
Section 3 of RR 10-2012
Formed for the purpose of undertaking construction projects pursuant to an operating or consortium agreement is not subjected to the regular corporate income tax
Joint venture or Consortium
They are separately subject to the regular corporate income tax under Section 27(A) of the Tax Code on their taxable income during each taxable year respectively derived by them from the Join Venture
Co-venturers
It means created or organized in the Philippines or under its laws
Domestic
It is a new type of corporation under the Revised Corporation Code of the Philippines (effective March 8, 2019).
One Person Corporation
It is a corporation with a single stockholder, who may be a natural person, a trust or an estate.
One Person Corporation
It may incorporate two or more OPCs.
One Person
It means a corporation which is not domestic.
Foreign
Applies to a foreign corporation engaged in trade or business within the Philippines.
Resident Foreign Corporation
Applies to a foreign corporation not engaged in trade or business within the Philippines.
Non-Resident Foreign Corporation
It must obtain a license and a certificate from the appropriate government agency before it can transact business in the Philippines.
Foreign corporation
It provides than it cannot maintain any action or proceeding before Philippine courts.
Section 133
States that “doing business” shall include “soliciting orders, service contracts, opening offices, whether called ‘liaison’ offices or branches
RA 7042 or Foreign Investment Act of 1991
Partnership formed by persons for the sole purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or business
General Professional Partnership
All corporations, agencies, or instrumentalities owned or controlled by the Government
Government-owned or Controlled Corporations (GOCCs), Agencies or Instrumentalities
Dividends received from non-resident foreign corporations
Foreign-sourced dividends
Enumerate the Sources of Income
- Domestic Corporations
- Foreign Corporations
A source of income which are taxable on income from sources within and without the Philippines
Domestic Corporations
A source of income whether resident or non-resident, which are taxable only on income from Philippine sources
Foreign Corporations
Earned by a corporation
Business income
It was signed into law on March 26, 2021, published on March 27, 2021, and took effect on April 11, 2021.
Corporate Recovery and Tax Incentives for Enterprises (CREATE) or RA 11534
It is subject to a separate and final tax. These are taxed at fixed rates ranging from 6% to 20%.
Passive Income
It is not to be included in gross income computation.
Passive Income
True or False:
Income tax treatments for domestic and resident foreign corporations are almost the same.
TRUE
True or False:
Resident Foreign Corporations are taxable on income from sources within and without the Philippines.
FALSE, only on their income within the PH.
What are dividends received from non-resident foreign corporations called?
Foreign-sourced dividends
It holds directly at least 20% in value of the outstanding shares of the foreign corporation and has held the shareholdings uninterruptedly for a minimum of 2 years at the time of the dividends distribution.
Domestic corporation
Applies to every transaction in the primary or secondary market.
20 lender rule
Domestic Corporations is classified as
Micro, Small and Medium Enterprises (MSMEs)
It is a stock corporation established in accordance with the Corporation Code of the Philippines and the rules and regulations promulgated by the SEC, principally for the purpose of owning income-generating real estate assets.
REIT or Real Estate Investment Trust
It means real property which is held for the purpose of generating a regular stream of income such as rentals, toll fees, user’s fees and the like, as may be further defined and identified by the SEC.
Income-generating real estate
It mean shares of stock issued by a REIT or derivatives thereof.
Investor securities
It refers to an individual citizen of the Philippines who is working abroad, including one who ahs retained or reacquired his Philippine citizenship under RA 9225
Overseas Filipino Investor
It means a stockholder who is, directly or indirectly, the beneficial owner of more than 10% of any class of investor securities of the REIT combined.
Principal Stockholder
It means a company listed with the Exchange and which, upon and after listing, have at least 1,000 public shareholders each owning at least 50 shares of any class and who, in the aggregate, own at least one-third of the outstanding capital shock of the REIT.
Public Company
It means net income earned for the taxable year, as adjusted for unrealized gains & losses/expenses and impairment losses and other items in accordance with internationally accepted accounting standards.
Distributable Income
means gross income less all allowable deductions and the dividends distributed by a REIT out of its distributable income as of the end of the taxable year
Taxable Net Income
It shall be taxable on all income derived from sources within and without the Philippines at the applicable income tax rate of 30%
REIT
True or False:
All income payments to a REIT shall be subject to a lower creditable withholding tax of 1%
TRUE
True or False:
REIT shall be subject to the minimum corporate income tax.
FALSE
Refer to any private school, maintained and administered by private individuals or groups, with an issued permit to operate from the DepEd or the CHED or the TESDA, as the case may be, under existing laws a7 regulations.
Proprietary Educational Institutions
Refer to any private hospitals, which are non-profit for the purpose of these regulations, maintained and administered by private individuals or groups.
Hospitals which are non-profit
are those institutions mentioned in the 1st paragraph of section (4)3, article xiv of the 1987 constitution and section 30 (h) of the NIRC, as amended, whose revenues and assets that are used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties.
Non-Stock, Non-Profit (NSNP) Educational Institutions
As used in the definition of NSNP Educational Institutions and Proprietary Hospitals, means that no net income or asset accrues to or benefits any member or specific person, with all the net income or assets devoted to the institution’s processes and all its activities conducted not for profit.
Non-Profit
means any trade, business, or other activity, the conduct of which is not substantially related to the exercise or performance by such educational institution or hospital of its primary purpose or function
Unrelated Trade, Business or Other Activity
This provision as it applies to proprietary educational institutions has been removed with the passage of RA 11635.
which are non-profit
Which government-owned and controlled corporations (GOCCs) are exempted from paying such a rate of tax?
- GSIS
- SSS
- PHIC
- HDMF
- LWD
This law mandates that the amount saved due to the exemption shall be used by the local water districts for capital equipment expenditure that will result to an expanded water services coverage and improved water quality in the provinces, cities, and municipalities
RA 10026
It is no longer exempt from income tax under TRAIN.
PCSO or Philippine Charity Sweepstake Office
It is subject to the corporate income tax following the provision of RA 9337 that removed PAGCOR from the list of GOCCs, which are exempted from the payment of income tax.
PAGCOR or Philippine Amusement and Gaming Corporation
classified PAGCOR’s income into 2:
(1) income form its operations conducted under its franchise and;
(2) income from its operation of necessary and related services
Presidential Decree (PD) 1869
True or False:
PAGCOR’s other income that are not connected with the foregoing operations are not subjected to corporate income tax, VAT and other applicable taxes under the NIRC.
FALSE, it is subjected
It is the online and/or remote or off-site wagering/betting on live cockfighting matches, events, and/or activities streamed or broadcasted live from cockpit arena/s licenses or authorized by the Local Government Units having jurisdiction thereof.
Electronic Sabong/E-Sabong
This ruling in the previous section apply to e-Sabong
Bloomberry
These companies are now subject to the regular corporate income tax rates
Mutual Life Insurance Companies
It is an acting taxing Philippine Offshore Gaming Operations (POGO).
RA 11590
Refers to any natural person regardless of citizenship or residence, or juridical person regardless of place of organization, which provides ancillary services to an Offshore Gaming Licensee (OGL) or any other offshore gaming operator with license acquired from other jurisdications.
Accredited Service Provider
Refers to the amount that is derived after dividing the minimum monthly fee or its equivalent, as imposed by a POGO Licensing Authority, by the rate of prescribed regulatory fee.
Agreed Pre-Determined Minimum Monthly Revenue from Gaming Operations
means gross wagers less payouts
Gross Gaming Revenue or Receipts (GGR)
refer to the total amount of money that offshore gaming customers wager
Gross Wagers
refers to income or earnings realize or derived from operating online games of chance or sporting events via the internet using a network and software or program
Income from Gaming Operations
refers to any other income or earnings realized or derived within the Philippines by foreign-based OGLs, and all other income or earnings realized or derived by Philippine-based OGLs that are not classified as income from gaming operations
Income from Non-Gaming Operations
refers to an offshore gaming operator, whether organized in the Philippines or abroad, duly licensed and authorized through a gaming license issued by a POGO Licensing Authority to conduct offshore gaming operations, including the acceptance of bets from offshore customers.
Offshore Gaming Licensee (OGL)
Refers to a representative in the Philippines of a foreign-based OGL who shall act as a resident agent for the mere purpose of receiving summons, notices, and other legal processes for the OGL and to comply with the disclosure requirements of the Securities and Exchange Commissions (SEC).
OGL-Gaming Agent
It shall not be involved with the business operations of the OGL ad shall derived no income therefrom.
OGL-Gaming Agent
refers to the total amount paid out to offshore gaming customers for winning
Payouts
refers to the operation by an OGL of online games of chance or sporting events via the internet using a network and software or program, exclusively for offshore customers/players who are non-filipinos
POGO or Philippine Offshore Gaming Operation
Shall also refer to OGLs and Accredited Service Providers
POGO Entities
refer to PAGCOR or any special economic zone authority, tourism zone authority or freeport authority authorized by their respective charters to issue gaming licenses and accreditation to POGO entities
POGO Licensing Authority
refers to a consultant or entity engaged by a POGO Licensing Authority to determine the GGR of OGLs.
Third-Party Auditor
it refers to the amount of gross revenue derived from passage of persons, excess baggage, cargo, and mail, irrespective of the place of sale or issue and the place of payment of the passage documents
Gross Philippine Billings [International Air Carrier]
it means gross revenue whether for passenger, cargo or mail originating from the Philippines up to final destination, regardless of the place of sale or payments of the passage or freight documents
Gross Philippine Billings
[International Shipping]
refers to a foreign airplane corporation doing business in the Philippines which has been granted landing rights in any Philippine port to perform international air transportation services/activities or flight operations anywhere in the world.
International Air Carrier
refer to international air carriers having or maintaining flight operations to and from the Philippines.
On-line carrier
refer to international carriers having no flight operations to and from the Philippines.
Off-line carrier
refers to a foreign shipping corporation doing business in the Philippines, having touched or with the intention of touching any Philippine port, to perform international sea transportation services/activities from the Philippines to anywhere in the world and vice cersa.
International Sea Carrier
True or False:
Any profit remitted by a branch to its head office shall be subject to a tax of 10% which shall be based on the total profits applied or earmarked for remittance without deduction for the tax component thereof.
False, 15% not 10.
shall mean a branch established in the Philippines by multinational companies which are engaged in any of the ff. services; general administration and planning; business planning and coordination; and so on.
ROHQs or Regional Operating Headquarters
shall mean a branch established in the Philippines by multinational companies and which headquarters do not earn or derive income from the Philippines and which act as supervisory, communications and coordinating center for their affiliates, subsidiaries or branches in the Asia-Pacific Region and other foreign markets.
RHQs or Regional or Area Headquarters
True or False:
ROHQs shall be taxed at 25% of their taxable income, effective on Jan. 1, 2022.
TRUE
shall not be subject to income tax.
RHQs
What is the basis of tax for non-resident corporations from sources within the Philippines.
Gross Income
True or False:
Income from services performed by a non-resident foreign corporation entirely outside the Philippines is exempt from Philippine
TRUE
Who is taxed at 25% of their gross income in relation to cinematographic films?
Non-Resident Cinematographic Film Owner, Lessor, or Distributor
Who is taxed at 4.5% of gross rentals, lease or charter fees from leases or charters to Filipino citizens or corporations, as approved by the Maritime Industry Authority
Non-Resident Owner or Lessor of Vessels Chartered by Philippine Nationals
Who is taxed at 7.5% of gross rentals, charters and other fees.
Non-Resident Owner or Lessor of Aircraft, Machinery and Other Equipment
True or False:
Interest arising from a loan extended by a US corporation to a domestic corporation, which is guaranteed by the US Eximbank, is not exempted from Philippine income tax.
FALSE, it is exempted
It is imposed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stocks in a domestic corporation, except shares sold, or disposed of through the stock exchange and taxed at 15%
Capital gains from sale of shares of stock not traded in the stock exchange
An items or amounts which the law allows to be deducted from gross income in order to arrive at the taxable income.
Allowable Deductions
It is the pertinent items of gross income less the deductions authorized for such types of income.
Taxable Income
It is the amount or tax base upon which tax rate is applied to arrive at the tax due.
Taxable Income
The income arrives at after subtracting from the gross income the deductions of the taxpayer.
Net Income
The entire or gross income from business without any deductions for either optional standard deduction or itemized deduction.
Gross Income
Means no part of its income is distributable as dividends to its members, trustees or officers, and that any profit obtained as an incident to its operations shall, whenever necessary or proper, be used for the purpose or purposes for which the NSNP was organized.
Non-stock
True or False:
A BIR Certificate of Tax Exemption is required for a non-stock, non-profit educational institution to enjoy the income tax exemption provided under Sec. 4, Art. XIV of the Constitution and Sec. 30 of the Tax Code.
FALSE, it is not required
True or False:
Philippine Red Cross is exempted from payment of all direct and indirect taxes, all provisions of law to the contrary notwithstanding, including VAT, fees and other charges of all kinds on all income from its operations, including the use, lease or sale of its real property, and provision of services
TRUE
True or False:
BSP shall be exempt from all national internal revenue on income derived from its governmental functions
TRUE
It refers to an autonomous and duly registered association of persons, with a common bond of interest, who have voluntarily joined together - to achieve their social, economic, and cultural needs and aspirations by making equitable contributions to the capital required, patronizing their products & services & accepting a fair share of the risks and benefits, of the undertaking in accordance with universally accepted cooperative principles.
Cooperative
refers to the accumulated amount of money annually deducted from the net surplus, which shall be less than 50% for the first five years of operation after registration and at least 10 per centum of the net surplus thereafter, intended not for the allocation or distribution to the members but got the protection and stability of the cooperative, commonly referred to as the reserve fund
Accumulated Reserves
refers to any business activity or livelihood engaged in by the cooperative where such cooperative generates savings
Business Transaction
refers to the property held by the taxpayer, but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or property, used in the trade or business, of a character which is subject to the allowance for depreciation.
Capital Assets
refers to the certificate issued annually by the CDA to cooperatives which comply with the requirements provided in CDA-Memorandum Circular 2008-03, and any subsequent amendments thereto.
Certificate of Good Standing
refers to the certificate/ruling issued by BIR granting exemption to a cooperative, which is valid for a period of 5 years from the date of issue.
Certificate of Tax Exemption/Ruling
refers to the government agency created under RA 6939 mandated to register, regulate and develop cooperatives.
Cooperative Development Authority
refers to the interest earned by the member’s paid-up to the capitalization of the cooperative.
Interest on Share Capital
refers to the refund or return to the members of net savings generated from the operations of the cooperative.
Patronage Refund
refers to the operative act granting juridical personality to a proposed cooperative as evidenced by a Certificate of Registration issued by the CDA
Registration
refers to the transactions of cooperatives which are part of the objectives and purposes, as enumerated in the Articles of Cooperation.
Related Operations/Transactions
refers to the cooperative activity that provides goods and services to members where the cooperative generates net savings/surplus
Transaction with members
refers to the cooperative activity that provides goods and services to non-members where the cooperative generates net savings/surplus
Transaction with non-members
refers to the net amount arising from the operations of the cooperative after deducting the operational expenses from revenue generated, not construed as profits, but as excess of payments made by the members for the loans borrowed or the goods and services bought
Undivided Net Surplus/Undivided Net Savings
refers to transactions of cooperatives which are not part of the objectives and purposes as enumerated in the Articles of Cooperation
Unrelated Transactions
all sales of goods and/or services rendered to non-members shall be subject to the applicable percentage taxes imposed by title V of the NIRC, as amended, except sales made by producers, marketing or service cooperatives
Percentage Tax
True or False:
A return showing the cumulative income and deductions need not be filed if the operations for the quarter and the preceding quarters yielded no income tax due.
False, still be filed
True or False:
Effective Jan. 1, 2021, all dividends received from a domestic corporation by a non-resident foreign corporation are subject to a final withholding tax of 15%
True
True or False:
Subject to the provisions of existing special laws or general laws, all corporations, agencies, or instrumentalities owned or controlled by the Government shall pay such rate of tax upon their taxable income as are imposed by the Code upon corporations or associations engaged in a similar business, industry or activity.
True
True or False:
Any profit remitted by a branch to its head office shall be subject to a 15% tax which shall be based on the total profits applied or earmarked for remittance without deduction for the tax component thereof, except those activities which are registered with the Philippine Economic Zone Authority.
True
True or False:
Corporations on their income, are taxed, generally, from 30% to 35% depending on the taxable year.
False, 35% to 25%
What do you mean by Domestic Corporation?
Those created or organized under and by virtue of Philippine laws
What do you mean by Foreign Corporation?
Those organized in accordance with laws of their respective countries
What is One Person Corporation?
It is a corporation with a single stockholder, who may be a natural person, a trust or an estate.
Explain Public Company
It means a company listed with the Exchange and which, upon and after listing, have at least 1,000 public shareholders each owning at least 50 shares of any class and who, in the aggregate, own at least one-third of the outstanding capital shock of the REIT.
Explain Cooperative
refers to an autonomous and duly registered association of persons, with a common bond of interest, who have voluntarily joined together
What is Electronic Sabong/E-Sabong
It is the online and/or remote or off-site wagering/betting on live cockfighting matches, events, and/or activities streamed or broadcasted live from cockpit arena/s licenses or authorized by the Local Government Units having jurisdiction thereof.
