INCOME TAX

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					INCOME TAX

     Presented by:


     LILYBETH A. GANER, CPA, MBA
     Revenue Officer
     RR-19, Davao City




                                   1
Business Income
o Any income not related to an employer-
  employee relationship
o Generally taxable on the net income
o Includes gains, profits and income in
  whatever form derived from any source,
  legal or illegal, such as –
  n   Exercise of profession or vocation
  n   Trade, business or commerce
  n   Dealings in property
  n   Fruits of the ownership or use of property
  n   Interest, rent, dividends, securities
  n   Other transactions of the business for gain or
      profit
                                                       2
Gross income
o All income from whatever source
  derived, including but not limited to
  the following items:
  n Compensation for services, including
    fees, commissions and similar items
  n Gross income derived from business or
    exercise of profession
  n Gains from dealings in property
  n Interest
  n Rents
                                            3
Gross income (cont.)
 n   Royalties
 n   Dividends
 n   Annuities
 n   Prizes and winnings
 n   Pensions
 n   Partner’s distributive share in the net
     income of general professional
     partnership


                                               4
Net Income
o The realized gross profit after deducting all the
  deductions allowed by law, statutes or generally
  accepted accounting principles.

                      Exclusions
o The total benefits which is not included in the
  computation of gross income for the purpose of
  determining taxable income.

                    Deductions
o Items or amounts which the law allows to be
  deducted from gross income to arrive at the taxable
  income.
                                                        5
Allowable Deductions
o There shall be allowed as deduction
  from gross income, other than
  compensation income, expenses
  incurred in the conduct of trade or
  business to arrive at the net income.
o At the taxpayers option, deductions
  for expenses may either be—
  n Itemized deduction
  n Optional Standard Deduction (OSD) –
    40%
                                          6
Requisites for Deductibility of Expenses
o Ordinary and necessary
o Paid or incurred within the taxable year
o Incurred in the conduct of trade or business
o Not contrary to law, morals, public policy or
  public order
o Substantiated by sufficient proof
o Subjected to withholding tax, if applicable



                                              7
Itemized Deduction
1. Ordinary and necessary trade,
   business or professional expenses
  n   Salaries & wages
  n   Travel expenses
  n   Rental expenses
  n   Entertainment, amusement and
      recreation expenses
2. Interest
3. Taxes

                                       8
Itemized Deduction (cont.)
4. Losses
  n Net Operating Loss Carry Over (NOLCO)
  n Capital losses
  n Losses from wash sales of stocks or
    securities
  n Wagering losses
  n Abandonment losses



                                            9
Itemized Deduction (cont.)
5. Bad debts
6. Depreciation
7. Depletion of oil and gas wells and
   mines
8. Charitable and other contributions
9. Research and development
10.Pension trusts

                                        10
Ordinary and necessary trade,
business or professional expenses
o Substantiation requirements
  n Supported by official receipts or
    adequate records
  n The direct connection or relation of the
    expenses to the development,
    management, operation or conduct of
    business

  Note :   No deduction from gross income
           shall be allowed if the payment
           constitutes bribe or kickback.
                                               11
Interest
 n There must be a valid and existing
   indebtedness;
 n The indebtedness must be that of the
   taxpayer;
 n The interest must be legally due and stipulated
   in writing;
 n The interest expense must be paid or incurred
   during the taxable year;
 n The indebtedness must be connected with the
   taxpayer's trade, business or exercise of
   profession;

                                                12
Interest
 n The interest payment arrangement must not
   be between related taxpayers.
 n The interest is not expressly disallowed by
   law to be deducted from the taxpayer’s
   gross income (e.g., interest on indebtedness
   to finance petroleum operations); and
 n The amount of interest deducted from gross
   income does not exceed the limit set forth in
   the law.



                                                   13
Interest
o Limitation
     The amount of interest expense paid or incurred
 from an existing indebtedness shall be reduced by an
 amount equivalent the following percentages of the
 interest income earned during the year which had
 been subjected to final withholding tax
 Jan. 1998   -   41%
                        Applies regardless of the date the
 Jan. 1999   -   39%    interest bearing loan and the date
 Jan. 2000   -   38%    when the investment was made for
                        as long as, during the taxable year
 Nov 2005    -   42%    there is an interest expense
 Jan. 2009   -   33%    incurred and an interest income
                        earned.
                                                      14
Interest
EXCEPTIONS
• Deductible in full from gross income
  Interest on unpaid taxes – interest paid or incurred on all unpaid
  business-related taxes shall be deductible in full

• Not deductible from gross income
  a. Interest incurred on indebtedness of taxpayer using cash basis,
     where the interest is paid in advance thru discount or otherwise
       i. Allowed as a deduction in the year the indebtedness was paid
       ii. If amortized – amount corresponding to the principal
           amortized shall be allowed as deduction during the year
                                                                       15
Interest
•   Not deductible from gross income

    b. Interest payments between related parties as
       specified in Sec. 36(B) of the Tax Code

    c. Interest expense paid or incurred by Service
       Contractor engaged in the discovery or production
       of indigenous petroleum in the Phil.

    d. Interest incurred on capital expenditures (optional)
        • Interest expense
        • Capital expenditure

                                                       16
Interest
RELATED PARTY TRANSACTIONS
[Sec. 36(B)]


• Between members of the same family
• Between a corporation and an individual who owns more
than
   50% of the outstanding stock of the former
• Between 2 corporations more than 50% of the outstanding
   stock were owned by the same individual
• Between grantor and fiduciary of any trust
• Between 2 fiduciaries of trust if the same person is the
   grantor of each trust
• Between fiduciary and beneficiary of the same trust        17
Taxes
o All business related taxes
o Non-deductible taxes
  n Income tax paid in the Phils.
  n Income tax imposed by authority of foreign
      country – tax credit with limitation
  n Estate and donor’s taxes
  n Tax assessment which increases the value of the
      property assessed
  n Electric energy consumption tax under B.P. 36
  n VAT
o Tax credits
  n Taxes paid in foreign countries subject to
      limitation
                                                 18
Taxes
o Interest or surcharge imposed on taxes are not
  deductible as taxes, but as an item of interest.

o Only the person upon whom taxes are imposed
  may claim them as deduction, except: (1) Taxes
  upon an individual upon his interest as
  shareholder of corporation which are paid by
  corporation without reimbursement; and (2)
  Corporate bonds or other obligations containing
  a tax-free covenant clause, the corporation
  paying the tax or any part of it for someone else
  (Sec. 80, RR 2).



                                                 19
Taxes
o Refund of tax payment
  n Taxes refunded shall be included in the
    year of receipt to the extent of the income
    tax benefit of such deduction (tax benefit
    rule)




                                             20
Taxes

oDisclosure requirement on taxes
 (Notes to FS) RR 15-2010
  n The notes of f/s shall include info on
    taxes, duties and license fees paid or
    accrued during the taxable year
    oThe amount of VAT Output tax and the
     account title and amount/s upon which the
     same was based,



                                             21
Losses
o Requisites for deductibility
  n Incurred in trade, business or profession
  n Not compensated by insurance or other form of
    indemnity
  n In case of property, for losses arising from fire,
    storm, shipwreck, other casualty, robbery, theft,
    embezzlement, the property must be used in
    trade, business or profession and reported
    within forty-five (45) days from date of
    occurrence of such loss.
  n Not claimed as deduction for estate tax purposes

                                                    22
Net Operating Loss Carry-over
(NOLCO) RR 14-2001

  n Net operating loss - means the
    excess of allowable deduction over gross
    income of the business in a taxable year




                                           23
Bad Debts
o Requisites for valid deduction
  n There must be an existing indebtedness due to
    the taxpayer
  n It must be valid and legally demandable
  n It must be connected with the taxpayer’s trade,
    business or practice of profession
  n It must not be sustained in a transaction entered
    into between related parties
  n It must be actually charged off from the books of
    accounts as of the end of the taxable year
  n It must be ascertained to be worthless and
    uncollectible as of the end of the year
                                                   24
Depreciation
o A reasonable allowance/reduction in service
  value for the exhaustion, wear and tear of
  property used in trade, business or practice
  of profession.

o Methods of depreciation
  n   Straight line method
  n   Declining balance method
  n   Sum of the year’s digit method
  n   Any other method which may be prescribed
                                                 25
Depreciation
oRequirements for deductibility
  n The allowance for depreciation must be
    reasonable;
  n It must be for property arising out of its
    use in the trade or business, or out of its
    not being used temporarily during the
    year; and
  n It must be charged off during the taxable
    year from the taxpayer’s books of
    accounts.
                                              26
Charitable and other Contributions
o Donations with limited deductibility
  n For the use of government exclusively for public
    purpose
  n To accredited domestic corporation or
    association organized and operated exclusively
    for religious, charitable, scientific, youth and
    sports development, cultural or educational
    purposes
  n For the rehabilitation of veterans
  n For social welfare institutions
  n To non-government organization

                                                   27
Charitable and other Contributions
o Rate of deduction

  n Individual donor     -        10% of net income
                                  before deducting
                                  donations

  n Corporate donor      -        5% of net income before
                                  deducting donations

                             OR

               Actual contribution/donation

                WHICHEVER IS LOWER
                                                       28
Charitable and other Contributions
o Donations deductible in full
  n Donations to the government exclusively to
    finance or to be used in undertaking priority
    activities in education, health, youth and sports
    development, human settlements, science and
    culture and in economic development according
    to the National Priority Plan determined by NEDA.
  n Donations to foreign institution or international
    organizations
  n Donations to accredited non-government
    organizations



                                                  29
Entertainment, Amusement &
Recreational (EAR) Expenses
o Includes representation expense and/or
  depreciation or rental expense relating to
  entertainment facilities.
o Representation expense shall refer to
  expenses incurred in entertaining, providing
  amusement and recreation to, or meeting
  with guest or guests at dining place, place
  of amusement, country club, theater,
  concert, play, sporting event and similar
  events or places.

                                            30
Entertainment, Amusement &
Recreational (EAR) Expenses
o Expenses NOT considered EAR
 n Expenses treated as compensation or fringe benefits
 n Expense for charitable or fund raising events
 n Expense for bonafide business meeting of
   stockholders, partners or directors
 n Expenses for attending or sponsoring employee to a
   business league or professional organization
   meeting
 n Expenses for events organized for promotion
   marketing and advertising including concerts,
   conferences, seminars, workshops, convention, and
   other similar event.
 n Other expense of similar nature
                                                    31
Entertainment, Amusement &
Recreational (EAR) Expenses
o The taxpayer should maintain receipts and
  adequate records that indicate the
   o The amount of expense
   o Date and place of expense
   o Purpose of expense
   o Professional or business relationship of
     expense
   o Name of person and company entertained
     with contact details


                                                32
Entertainment, Amusement &
Recreational (EAR) Expenses
o Requirements for deductibility
    o Paid or incurred during the taxable year
    o Business connected
    o Not contrary to law, morals, good customs,
      public policy or public order
    o Does not constitute a bribe, kickback or
      other similar payment
    o Duly substantiated by adequate proof
    o Subjected to withholding tax, if applicable



                                                33
  Entertainment, Amusement &
  Recreational (EAR) Expenses
o Imposition of Ceiling [Sec. 34(A)(1)(a)(iv) of NIRC)
   & RR 10-2001]

Actual entertainment, amusement and recreation expense

                           OR

  o .5% of net sales for sellers of goods and properties
     o 1% of net revenues for sellers of services

               WHICHEVER IS LOWER

                                                      34
TAXPAYER ENGAGED IN BOTH
SALE OF GOODS AND SERVICES

Allowable EAR expense shall be determined based on
apportionment formula –

Percentage of net sales/net revenue to the total net sales/net
revenue multiplied by the actual EAR expense

         Net sales/net revenue        x   Actual expense
        Total net sales/revenue

Note:
    In no case shall the total EAR exceed the maximum percentage ceiling
                                                                    35
Illustration:
ERA Corporation is engaged in the sale of goods and
services with net sales/net revenue of P200,000 and
P100,000 respectively. The actual EAR for the year 2010
totaled P3,000

Computation:
*Apportionment formula
Sale of goods (P200,000/P300,000) x P3,000 = P2,000
Sale of service (P100,000/300,000) x P3,000 = P1,000

**Maximum percentage ceiling
Sale of goods P200,000 x 0.50% = P1,000
Sale of service P100,000 x 1%  = P1,000
                                                          36
Computation:

                                                        Allowable
                          EAR expense    Maximum        amount to
                           based on      percentage     be claimed
                         apportionment    ceiling of   as EAR (w/c
            Net sales/                                    ever is
           net revenue     formula*        EAR**
                                                          lower)
Sale of     P200,000        P2,000         P1,000        P1,000
goods
Sale of     P100,000        P1,000         P1,000        P1,000
services
Total       P300,000        P3,000         P2,000        P2,000


ERA Corporation can only claim a total of P2,000 as EAR
                                                                  37
Optional Standard Deduction

 In lieu of the itemized deductions enumerated under
 Sec. 34(A) to (J) and (M) and Sec. 37 of the Tax
 Code and other special laws (if applicable) .




                                                       38
Optional Standard Deduction
o Individuals
  n Resident citizen
  n Non-resident citizen
  n Resident Alien
  n Taxable estates and trusts


o Corporations (subject to normal income tax rate)
  n Domestic corporation
  n Resident foreign corporation

                                                39
Optional Standard Deduction
                    Individual        Corporation
Rate             40% of gross       40% Gross
                 sales/revenues     income
Tax Base         Excluding          Excluding
                 passive income     passive income
                 subject to final   subject to final
                 withholding tax    withholding tax

Cost of          Not allowed to     Allowed to
sales/services   deduct             deduct
                 COS/services       COS/services
                                                   40
Optional Standard Deduction
oRules for GPP (RR 2-2010)
 n If the GPP availed of the itemized deduction
   in computing its net income, the partners are
   not allowed to claim the OSD, but may still
   claim itemized deductions.
 n If the GPP availed of the OSD in computing its
   net income, the partners can no longer claim
   further deduction from said share.
 n The type of deduction chosen by the GPP
   must be the same type of deduction that can
   be availed of by the partners.

                                               41
Optional Standard Deduction
o Rules for GPP
  n If the partner also derives other income from
    trade, business or practice of profession,
    deduction to be claimed should be the same
    deduction availed of from his partnership
    income.
  n If the GPP opts for the OSD, the individual
    partner may still claim 40% OSD on income
    from trade, business or practice of profession.


                                                 42
Optional Standard Deduction
o Disclosure of election to use the OSD
  (RMC 16-2010)
  n Taxpayers availing of the OSD are
    required to check the appropriate box in
    the ITR for the first quarter of the
    taxable year 2009.
  n Failure to indicate the election to avail of
    the OSD shall be considered as having
    availed of the itemized deduction.


                                              43
Optional Standard Deduction
o Disclosure of election to use the OSD
  (RMC 16-2010)
  n The same type of deduction must be
    consistently    applied   for   all the
    succeeding quarterly returns and in the
    final ITR for the taxable year.
  n New registrants shall disclose their
    election to avail OSD in their initial
    quarterly ITR.


                                          44
Optional Standard Deduction
o Implication of OSD
  n Option is irrevocable for the taxable year
    for which the return is made.
  n Any subsequent amendment of ITR filed for
    the first/initial quarter shall not affect the
    irrevocable character of the election to avail
    of the OSD or itemized deduction.
  n Individual claiming the OSD is not required
    to submit financial statements but shall
    keep records of his gross sales/receipts

                                                45
Illustration 1
Mr. Era , a retailer of goods uses the accrual method of
accounting in reporting his income and expenses. For
the year 2010, the following are his recorded income
and expenses
                               Cost of     Operating
                 Gross sales    sales        exp
  Jan-June       P1,000,000    P600,000
  July-Sept         700,000     200,000       P50,000
  Oct-Dec           900,000     400,000       100,000

Mr. Era uses the OSD as indicated on his 1st quarter
ITR. Compute for the allowable deductions for each of
the quarters of 2010 and the net income for the
taxable year.
                                                        46
Computation 1

a) Allowable deductions
                    Jan. – June   July – Sept    Oct - Dec
Gross sales         P1,000,000    P700,000       P900,000
Less: Cost of sales      -0-        -0-               -0–
Gross sales/income  P 1,000,000   P700,000       P900,000
X OSD rate                 40%         40%            40%

OSD                  P 400,000    P280,000       P360,000
                       ======     =======        =======

b) Net income for 2010

  Gross sales (Jan – Dec)                       P2,600,000
  OSD (40%)                                       1,040,000
  Net income                                     1,560,000
                                                ========
                                                        47
Illustration 2
GSV Corporation, a retailer of goods, uses the accrual
method in declaring its income and expenses. For the
calendar year 2010, the following are the records of its
income and expenses:

                                  Cost of       Operating
                 Gross sales       sales          exp
Jan-June          P1,000,000       P700,000       P100,000
July-Sept            700,000        300,000        200,000
Oct-Dec              900,000        600,000        100,000

GSV Corp. uses the OSD. Compute for the quarterly
allowable deductions (cost and expenses) and the net income
for 2010.

                                                            48
Computation 2

 a) Allowable deduction
                          Jan – June   July – Sept   Oct – Dec
    Gross sales          P1,000,000    P700,000      P900,000
    Less Cost of sales      700,000     300,000        600,000
    Gross income            300,000    P400,000       P300,000
    X OSD rate                40%           40%            40%
    OSD/Operating expenses P120,000    P160,000       P120,000
    Add: Cost of sales      700,000     200,000         100,000

    Total deductions       P820,000    P360,000      P220,000
                          =======      =======       =======
 b) Net income
    Gross sale                                       P2,600,000
    Cost of sales                                     1,600,000
    Gross income                                      1,000,000
    OSD (40%)                                           400,000

    Net income                                       P 600,000
                                                      =======

                                                              49
Taxation of Mixed Income
o It follows the compartmentalized approach
  for returnable income.
o Personal exemptions are first deducted
  from compensation income.
o Excess of PE over compensation income are
  deductible from net income from business.
o Separate computation of income tax
  liability for husband and wife.
o Only one spouse will claim additional
  personal exemption.

                                          50
                                               50
Taxation of Mixed Income
o Taxable compensation income is added to
  taxable income from business and the
  aggregate taxable income is subjected to
  the graduated tax rates.
o Loss from business can not be offset
  against compensation income but can be
  carried over as NOLCO.
o One consolidated income tax return for
  husband and wife.
o Pay-as-you-file, but installment is allowed if
  tax due exceeds P2,000 [Sec. 56(A)(2)].
                                              51
Taxation of
Marginal Income Earners         (RR 11-00)

o Individuals not deriving compensation income
o Self-employed
o Deriving gross sales/receipts not exceeding
  P100,000 during any 12-month period
o Principally earning for subsistence or livelihood
o Exempt from VAT and any percentage tax
o Not required to pay the registration fee
o Required to register as taxpayer
o Exempt from the invoicing requirements

                                                  52
Taxation of
Marginal Income Earners       (RR 11-00)

o Exempt from maintaining books of accounts
o Required to file the Annual Income Tax Return
  (Form 1700) but not required to attach
  Financial Statements or Account Information
  Form to the filed ITR
o May or may not be liable to tax




                                              53
Income Tax Computation

   Corporate Taxpayer




                         54
What is a corporation?
Corporation – is an artificial being created by law, having
the rights of succession and the powers, attributes and
properties authorized by law or incident to its existence.

For taxation purposes, corporation shall include –
   Ø Partnerships

   Ø Joint-stock companies

   Ø Joint accounts

   Ø Associations

   Ø Insurance companies
                                                          55
A corporation does not include –

 •General Professional Partnership

 •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




                                                56
MINIMUM CORPORATE INCOME TAX
(MCIT)
RR No. 9-98, as amended by RR no. 12-07




                                          57
Sec. 27(E) and 28 (A)(2) of the NIRC
Imposed on:

   Domestic & Resident Foreign

         2% on Gross Income


       if: - in the 4th year of operation
       - net loss/zero taxable income/
         MCIT is greater than NCIT

                                            58
Gross income
Include all items of gross income enumerated under Section
32(A) of the Tax Code, as amended, except income exempt from
income tax and income subject to final. withholding tax.

For Sale of goods
     Gross sales – (cost of goods sold + sales returns +
                   discounts+ allowances)
“Gross sales”
Include only sales contributory to income taxable under Sec.
27(A) of the Code.

“Cost of goods sold”
Include all business expenses directly incurred to produce the
merchandise to bring them to their present location and use.

                                                                 59
For sale of services

   Gross revenue – (cost of services/direct cost + sales
            returns + discounts + allowances)

“Gross Revenues”
Include income from sale of services, likewise, taxable
under Sec. 27(A)

“Cost of services or Direct cost of Services”
Include all business expenses directly incurred or related
to the gross revenue from rendition of services.



                                                             60
Illustration


Gross sales/ revenues                 1,000,000.00
Less: Sales Ret., Disc & Allow.          25,000.00
      Cost of Goods Sold/ services      500,000.00
Gross Income from operation             475,000.00
Add: Other Income not subject to
      Final Tax or Capital Gains Tax    100,000.00
Total Gross Income subject to MCIT 575,000.00
                                     ========

                                                     61
Carry forward of Excess MCIT

• Excess of MCIT over normal income tax shall be
  carried forward on an annual basis and credited
  against the normal income tax for the 3 immediately
  succeeding taxable years.

• Excess MCIT can only be credited against the
  income tax due if the normal income tax is higher
  than the MCIT


                                                 62
Carry forward of Excess MCIT

• Excess MCIT which has not or cannot be so
  credited against the normal income tax due
  for the 3-year period shall lose its credibility.

• Excess MCIT cannot be claimed as a credit
  against the MCIT itself or against any other
  losses




                                                63
Carry forward of Excess MCIT

• The final comparison between the normal
  income tax payable and the MCIT shall be
  made at the end of the taxable year.

• The payable or excess payment in the
  Annual Income Tax Return shall be
  computed taking into consideration income
  tax payment made at the time of filing of
  quarterly income tax returns whether this be
  MCIT or normal income tax

                                           64
Suspension of MCIT
•   Instances when MCIT may be suspended
      Substantial losses on account of –
      v Prolonged labor dispute
      v Force majeure
      v Legitimate business reverses

•   Who may suspend
      v Secretary of Finance upon
        recommendation of the CIR



                                           65
Suspension of MCIT

•   Required documentation
      v Submission of proof by the corporation
      v Duly verified by the CIR’s duly authorized
        representative




                                                 66
 IMPROPERLY ACCUMULATED
     EARNINGS TAX      (IAET)
RA 8424/ RR No. 2-2001/RMC 35-2011




                               67
CONCEPT OF IAET
• Taxpayer is a corporation
• Improper accumulation of taxable income beyond
  the reasonable needs of the business
• Non-distribution of earnings/profits to stockholders
• The purpose of accumulation is to avoid the
  payment of the income tax
• Imposition of tax equivalent to 10% of the
  improperly accumulated taxable income
• The tax imposed is in the nature of penalty to a
  corporation for improper accumulation of earnings
  beyond the reasonable needs of the business

                                                   68
EVIDENCE OF PURPOSE TO AVOID
THE TAX

• The corporation is a mere holding or
  investment company

• Earnings or profits are permitted to
  accumulate beyond the reasonable
  needs of the business




                                         69
Reasonable vs. Unreasonable Accumulation

o Reasonable Needs of Business:
  n Immediate needs of business, including
    reasonably anticipated needs (Immediacy
    Test)

o Unreasonable Accumulation
  n Not necessary for the purpose of the
    business considering all circumstances of
    the case


                                                70
Reasonable Needs of Business
o 100% of the paid up capital or the amount
  contributed to the corporation representing
  the par value of the shares of stock, hence,
  any excess capital over & above the par shall
  be excluded (RMC 35-2011).




                                           71
Reasonable Needs of Business
o Earnings Reserved
  n for definite corporate expansion projects
  n for building, plant or equipment acquisition
  n for compliance with loan covenant or pre-
    existing obligation established under a
    legitimate business agreement.
  n Required by law to be retained or with legal
    prohibition
  n In case of foreign corporation subsidiaries,
    intended for investments within the
    Philippines
                                               72
Unreasonable accumulation of Profits

o Investment of substantial earnings and
  profits of the corporation in unrelated
  business or in stock or securities of
  unrelated business;
o Investment in bonds and other long term
  securities; and
o Accumulation of earnings in excess of
  100% of paid-up capital or contribution
  representing the par value of the shares
  of stock.

                                         73
Corporation Exempt from IAET
o   Banks and non-bank financial intermediaries
o   Insurance companies
o   Publicly held corporations
o   Taxable partnerships
o   GPP
o   Non-taxable joint ventures
o   Firms registered under RA 7916, 7227, and other
    special ecozones

                                                      74
IMPOSITION OF IAET

Tax rate                  10%


Corporations liable       Closely-held domestic
                          corporations

Deadline                   15th day after the
             end of he year following the
              close of the taxable year



                                                  75
Closely-held corporations:

  n are corporations at least 50% in value
    of the outstanding capital stock or at
    least 50% of the total combined
    voting power of all classes of stocks
    entitled to vote is owned directly or
    indirectly by or for not more than 20
    individuals




                                             76
TAX BASE OF IAET
(Improperly Accumulated Taxable Income)

Taxable income                                      P xxx
Add:
(a)Income subject to final tax               Pxxx
(b)NOLCO                                      xxx
(c)Income exempt from tax                     xxx
(d)Income excluded from gross income         xxx      xxx
Total                                               P xxx
Less: Income tax paid for the year           xxx
       Div. actually or const. paid/issued   xxx     xxx
Total                                                xxx
Less : Amount that can be retained                   xxx

IATI                                                Pxxx
                                                    ===
                                                        77
Payment of IAET
o Dividend must be declared and paid not later
  than one year following the close of the taxable
  year

o Otherwise, IAET should be paid within 15 days
  thereafter
Once the profit has been subjected to IAET, the same shall no
longer be subjected to IAET in later years, even if not declared as
dividend.

Profits subjected to IAET, when finally declared as dividends, shall
be nevertheless be subject to 10% final withholding tax

                                                                  78
Income Tax Forms and
           Due Dates




                   79
 Income Tax Forms

 Form       Form Name          Deadline for Filing    No. of
  No.                                                 Copies
1702    Annual Income Tax    On or before April      3 copies
        Return               15
        (For Corporations,
        Partnerships and     On or before the
        Other Non-           15th day of the 4th
        individual           month following
        Taxpayers)           the close of the
                             fiscal year

                                                               80
Form No.         Form Name          Deadline for Filing No. of Copies


1702Q      Quarterly Income Tax     60 days               3 copies
           Return                   following the
           (For Corporations,       close of the first
           Partnerships and Other   3 taxable
           Non-individual           quarters
           Taxpayers)
1704       Improperly           On or before the          3 copies
           Accumulated Earnings 15th day of the
           Tax Return           following year
                                following the
                                taxable year

                                                                 81
NOTE:



Installment Payments
•Applicable to individual taxpayer
only and NOT TO CORPORATION




                                     next
                                        82
New Income Tax Forms

  Presented by:

  LILYBETH A. GANER
  Revenue Officer
  ASSESSMENT DIVISION
  RR 19-DAVAO CITY
Revised Forms
o BIR Form 1700 ( Purely Compensation
                        Income )
o BIR Form 1701 (Self-Employed
  Individual,                Estate and
  Trust)
o BIR Form 1702 ( Corporations,
  Partnership and Other Non- Individual
  Taxpayer
     Effectivity
-Income tax filing covering and starting with calendar
year
  2011, due for filing on or before April 15. 2012

- Juridical entities on FY basis are to use
        starting with those FY ending January 31, 2012
Features
o To be read by an optical character
  reader
o Use Nov. 2011 version
o Box Type
o Shading
o All information must be written in
  capital letters
o Orientation is landscape (horizontal)
o e-mail address of taxpayer
features
o Field No. 47 – for filer’s new address
o With supplemental information
  (optional)
  n Schedule of gross income subjected to
    final tax

  n Schedule of gross income/receipts exempt
    from income tax
“Knowing is not enough; we must apply.
Willing is not enough; we must do.”
                    Johann Wolfgang von Goethe




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