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TAX > Corporation > Flashcards

Corporation Flashcards

1
Q

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.

A

Corporation

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2
Q

Corporation shall include:

A
  1. One person corporation
  2. Patnership, no matter how created or organized
  3. Joint stock companies
  4. Joint accounts
  5. Associations
  6. Insurance companies
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3
Q

A corporation with a single stockholder

A

One Person Corporation

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4
Q

Who can form a one person corporation?

A

ONLY a natural person, trust or an estate

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5
Q

A partnership formed by persons for the sole purpose of exercising their common profession

A

General Professional Partnership

This is not considered as a corporation.

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6
Q

Formed for the purpose of undertaking construction projects to assist local contractors in achieving competitiveness with foreign contractors and for engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating consortium agreement under a service contract with the government.

A

Joint Venture or Consortium

This is not considered as a corporation.

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7
Q

A commercial undertaking by two or more persons, differing from a partnership in that.it relates to the disposition of a single lot of goods or the completion of a single project.

A

Joint Venture or Consortium

In general, it is taxable as a corporation.

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8
Q

Can a foreign contractor be treated as a non-taxable corporation?

A

YES, provided:

  1. The member foreign contractor is covered by a special license as contractor by the PCAB;
  2. The construction project is certified by the appropriate Tendering Agency (government office) that the project is a foreign financed/ internationally-funded project and that international bidding is allowed under the Bilateral Agreement entered into by and between the Philippine Government and the foreign /international financing institution
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9
Q

Constituted when a group of individuals, acting jointly, establish and operate business enterprise under an artificial name, with an invested capital divided into transferable shares, an elected board of directors, and other corporate characteristics, but operating without formal government authority.

A

Joint stock companies

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10
Q

Constituted when one interests himself in the business of another by contributing capital thereto, and sharing in the profits or losses in the proportion agreed upon.

A

Joint accounts

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11
Q

Labor, agricultural or horticultural organizations not organized for profits.

A

Tax-exempt Corporation

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12
Q

Mutual savings bank not having a capital stock represented by shares, and cooperative bank without capital stock, organized and operated for mutual purposes and without profit.

A

Tax-exempt Corporation

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13
Q

A beneficiary, society, order or association, operating for the exclusive benefit of the members

A

Tax-exempt Corporation

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14
Q

Cemetery company owned and operated exclusively for the benefit of its members.

A

Tax-exempt Corporation

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15
Q

Non-stock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or rehabilitation of veterans

A

Tax-exempt Corporation

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16
Q

Business league, chamber of commerce, or board of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stockholder or individual.

A

Tax-exempt Corporation

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17
Q

Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare.

A

Tax-exempt Corporation

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18
Q

A non-stock nonprofit educational institution

A

Tax-exempt Corporation

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19
Q

Government educational institution

A

Tax-exempt Corporation

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20
Q

Farmers or other mutual typhoon or fire insurance company, mutual ditch or irrigation company, mutual or cooperative telephone company, or like organizations of a purely local character

A

Tax-exempt Corporation

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21
Q

Grant is strictly construed against the taxpayer because an exemption restricts the collection of taxes necessary for the existence of the government.

True or False

A

True

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22
Q

The income of whatever kind and character of the foregoing organizations from any of their properties, real or personal or from any of their activities for profit regardless of the disposition made of such income shall not be subject to tax

True or False

A

False

It shall be subject to tax.

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23
Q

The tax exemption granted does not cover withholding taxes on compensation income of the employees of the corporation or the withholding tax on income payments

A

True

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24
Q

Purchase of goods or properties or services and importation of goods by a corporation organized and operated as a Tax-exempt Corporation shall be subject to the 12% VAT.

A

True

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25
Q

This requires that the corporation or association’s constitutive documents (SEC Registration, Articles of Incorporation and By-Laws) must show that its primary purpose/s of incorporation fall under Section 30 of the NIRC.

A

Organizational Test

The organization must serve a public rather than a private purpose.

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26
Q

This requires that the regular activities of the corporation or association be exclusively devoted to the accomplishment of the purposes specified in Section 30 of the NIRC.

A

Operational Test

Corporations falling under Sec. 30 of the NIRC must be non-profit.

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27
Q

Being a non-stock non-profit corporation does not, by this sole reason alone, exempt an institution from tax. The entity should prove by actual operation that it is really a corporation contemplated under Section, 30(E) of the Tax Code, as amended.

A

True

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28
Q

Non-profit recreational clubs are not subject to income tax and VAT.

True or False

A

False

The fees constitute contributions to and/or replenishment of the funds for the maintenance and operations of the facilities offered by recreational clubs to exclusive members.

To be exempted, it must not be operated or organized for the benefit of private interests.

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29
Q

Types of Corporation

A
  1. Domestic (DC) - within and without PH (net income)
  2. Resident Foreign Corporation (RFC) - within PH (net income)
  3. Nonresident Foreign Corporation - (NRFC) - within PH (gross income)
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30
Q

A corporation organized or incorporated by a foreign law.

A

Foreign Corporation

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31
Q

What and where should a foreign corporation secure to be able to operate in the Philippines?

A

A license to operate from the Securities and Exchange Commission.

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32
Q

Passive Income

A

ONLY interest income, royalties, and dividends

prizes or winnings are subject to RCIT

33
Q

Corporate Income Tax Rates on Regular Income

A

RCIT - DC
- 20% MSMEs
- 25% Non-MSMEs

RFC
- 25% of Net Income within PH

NRFC
- 25% of Gross Income within PH

34
Q

Corporate Income Tax Rates on Regular Income

A

MCIT

July 1, 2020 - June 30, 2023

DC and RFC - 1%

NFRC - not applicable

35
Q

Corporate Income Tax Rates on Regular Income

A

MCIT

beg July 1, 2023

DC & RFC - 2%

NRFC - not applicable

Prior to July 1, 2020 - 2%

36
Q

Effectivity of revised RCIT rates

A

DC & RFC - July 1, 2020

NRFC - January 1. 2021

37
Q

MSMEs or Micro Small and Medium Enterprises

A

a) Net taxable income of NOT more than 5,000,000
b) Assets of NOT more than 100,000,000 (excluding land on which the particular business entity’s office, ppe are situated during the taxable year)

38
Q

When shall MCIT be computed?

A

Beginning on the 4th year of operations immediately following the taxable year.

The tax due shall be the HIGHER between the RCIT and MCIT.

39
Q

Taxable income of NRFC

A
  1. Interests
  2. Rents
  3. Premiums (except reinsurance prems)
  4. Annuities
  5. Emoluments
  6. Other fixed or determinable annuities
  7. Periodic or casual gains
  8. Profit and income
  9. Capital gains (except those subject to CGT)
40
Q

All corporations, agencies, or instrumentalities owned or controlled by the Government.

A

Government Owned and Controlled Corporations

41
Q

Tax-exempt GOCCs

A

GSIS, SSS, PHIC, Local Water Districts, HDMF/PAG-IBIG

42
Q

Corporations created by special laws or charters shall be taxed based on

A

The provisions of the special law or charter creating them or applicable to them

Example: BSP

43
Q

BSP shall be exempt from al national internal revenue taxes on income derived from its governmental functions, specifically:

A

a) Income from its activities or transactions in the exercise of its supervision over the operations of banks and its regulatory and examination powers over non-bank financial institutions performing quasi-banking functions, money service businesses, credit granting businesses and payment system operators;

b) Income inpursuit of its primary objective to maintain price stability conducive to a balanced and sustainable growth of the economy, and the promotion and maintenance of monetary and ineretet stability and the convertibility of the peso.

44
Q

Income of a government agency arising from proprietary functions are

A

TAXABLE

45
Q

Transition period Tax Rates

RCIT

A

DCs other than MSME: 27.5%

MSME: 25%

46
Q

When shall MCIT be imposed?

A

a) The corporation has zero taxable income; or

b) The corporation has a negative taxable income

c) Whenever the amount of MCIT is greater than the RCIT due

MCIT is always computed and compared to RCIT starting on the 4th year of operations.

47
Q

Transition period MCIT rates

A

2020: 1.5%

2023: 1.5%

48
Q

What shall be the treatment for the excess MCIT?

A

Any excess of the MCIT over RCIT shall be carried forward and credited against the RCIT for the 3 immediately succeeding taxable years.

49
Q

Gross Income

A

In case of sales of goods:
- Gross sales less sales returns, discounts, allowances, and COGS

In case of sale of services:
- Gross receipts less sales returns, discounts, allowances, and cost of services/direct cost

All income exempt from tax and income subject to final taxes shall be excluded in the determination of gross income for MCIT purposes.

50
Q

Cost of Sales

A

Seller of goods:
Invoice cost, Import duties, Freight, Insurance

Manufacturer:
Raw materials used, DL, FOH, Freight cost, Insurance prems, Other prod. cost

51
Q

NOLCO

A

Deductible for the next three succeeding years following the years the loss was incurred.

For 2020 and 2021, NOLCO shall be a deduction from gross income for the next 5 consecutive years immediately following the year of loss.

52
Q

Quarterly and Annual Corporate Tax Due

A

Excess MCIT shall not be allowed to be credited.

Expanded withholding tax and quarterly income tax payments under regular income tax and the MCIT paid in the previous taxable quarters are allowed to. be applied against the quarterly MCIT due.

53
Q

Relief from MCIT

A

Secretary of Finance - authorized to suspend the imposition of MCIT on any corporation due to:

  1. Losses on account of prolonged disputes
  2. Force majeure
  3. Legitimate business reverses
54
Q

Means losses arising from a strike staged by the employees that lasted for more than six (6) months within a taxable period and the strike resulted to temporary shutdown of business operations.

A

Substantial losses from a “prolonged labor dispute”

55
Q

Corporations exempt from MCIT

A
  1. Domestic corporation
    a. Proprietary Educational Institutions
    b. Non-profit hospitals
    c. Domestic corporations engaged in depository banks under FCDU
  2. RFC
    a. International Carriers
    b. ROHQs up to 2021 taxable year
  3. PEZA and BCDA
56
Q

Royalty generated in the active pursuit and performance of the corporation’s primary purpose

A

Subject to basic tax

57
Q

Tax Sparing Rule

A

Without tax sparing - 25% (20% prior to CREATE law)

With tax sparing - 15%

58
Q

Situs of Dividend Income

A

From a DC - within the PH

From a FC:
- at least 50% - entire dividend within PH - exempt
- less than 50% - entire dividend - abroad - exempt under certain conditions

59
Q

Requirements for exemption of foreign-sourced dividend received by a domestic corporation

A
  1. The dividends actually received or remitted in to the Philippines are reinvested in the business
    operations of the domestic corporation within the next taxable year
  2. The dividends received shall only be used to fund the WC requirements, capital expenditures, dividend payments, inv in domestic subsidiaries, and infrastructure project
  3. DC holds directly at least 20% in value of the outs. shares of the FC and has held the shareholdings uninterruptedly for a minimum of 2 years at the time of distribution

*If less than 2 years, at least 20% in value during the entire existence

Absent any of one of the above conditions: TAXABLE

60
Q

Share in the Net Income of a Joint Venture or Consortium

A

Taxable Joint Venture - tax-exempt

Tax-exempt Joint Venture - RCIT

61
Q

Tax Treatment of Income derived by a Depository Bank under expanded FCDS

A

Income derived by a depository bank under FCDS from foreign currency transactions with **nonresidents, OBUs in the PH, local commercial bank inc. foreign bank branches* - EXEMPT

Int. inc. from foreign currency loans granted by a depository bank under FCDS to residents - 10% FWT

Income of nonresidents, individual of corporations, with depository banks under expanded FCDS - exempt

62
Q

Requisites - CGT on Sale of Shares of Stock of a Domestic Corporation

A
  1. Must be from a domestic corp
  2. Must be not through the local stock exchange
  3. Seller should not be a dealer in securities
  4. Should result to a capital gain based on CGT computation
63
Q

CGT Formula

A

DC: SP - Cost = Capital Gain x 15% = CGT

RFS: SP - Cost = Capital Gain x 5&10% = CGT**

NRFC: SP - Cost = Capital Gain x 15% = CGT

**5% on 1st 100k capital gains and 10% in excess of 100k

64
Q

Requisites - CGT from Sale, Exchange, or Disposition of Lands and/or Buildings

A
  1. Must be a capital asset
  2. Must be located in the PH

Not usually used in the business of a corporation

65
Q

When is capital gains tax due?

A

Within 30 days from date of sale

66
Q

Branch Profit Remittance Tax (BPRT)

A

15% based on the total profits applied or earmarked for remittance without any deduction for the tax component thereof

Applicable only to RFC which is a branch of a NRFC

67
Q

Proprietary Educational Institutions and Non Profit Hospitals

A

10% - before July 1, 2020
1% - July 1, 2020 to June 30, 2023
10% - July 1, 2023

RI > URI = rates above
URI > RI = RCIT 25%

68
Q

Examples of Related Income

Proprietary Educational Institutions and Nonprofit Hospitals

A
  • Income from tuition fees and misc school fees
  • Income from hospital where medical graduates are trained for residency
  • Income from canteen situated within the school campus
  • Income from bookstore situated within the school campus
69
Q

Special rules on Capital expenditures of Proprietary Educational Institutions

A

Capital expenditures for expansion of school facilities may not be capitalized but instead claimed as outright expense

At its option, it may elect either:
- Capitalize and depreciate (depreciate the amount then deduct from gross income)

or

  • Claim or deduct outright (whole amount is deducted from gross income)
70
Q

Proprietary Educational Institutions

A

any private schools maintained and administered by private individuals or groups, with an issued permit to operate from the (DepEd) or the (CHED) or the (TESDA)

71
Q

Non-Stock, Non-Profit Educational Institutions

whose net income or assets accrue/inure to or benefit any member or specific person

A

RI > URI = 1% based on taxable income

RI < URI - 25% RCIT or 20% MSME

72
Q

Government Educational Institution

A

Income from related activities - EXEMPT

On income not exempt by law - 25% RCIT or 20% MSME

73
Q

Non-stock, Non-Profit Educational Institution

NO PART of ifs net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person

A
  • On the portion of its revenue or assets USED actually, directly or exclusively for educational purposes - EXEMPT
  • On the portion of its revenue or assets NOT USED actually, directly or exclusively for educational purposes - 25% RCIT or 20% MSME
74
Q

Charitable institutions, churches, parsonages or covenants appurtenant thereto, mosques, nonprofit or religious cemeteries and al lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable or educational purposes.

A

Exempt from Real Property Tax

75
Q

Any private hospitals, which are
non-profit, maintained and administered by private individuals or groups.

A

Proprietary Hospitals

76
Q

Requisites in order to be entitled to the exemption from income tax:

Non-stock nonprofit

A
  • It is a non-stock corporation
  • Operated and organized exclusively for charitable purposes
  • No part of its net income or asset shall belong to or inure to
    the benefit of any member, organizer, officer or any specific person.
77
Q

International carriers may avail of a preferential rate (lower than 2.5%) or exemption on the basis of:

A

a. Tax Treaty
b. International agreement
c. Reciprocity

78
Q

Income Tax of Common Carriers

A

Domestic Common Carrier
Higher: 20/25% RCIT or MCIT
- TRAIN: 30%
- CREATE: 20% MSME; 20% Non-MSME

International Carriers
- GR: 2.5% GBP or preferential % or exempt on the basis of a treaty or reciprocity

TAX (6 decks)

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