Ce Tax

CORPORATE INCOME TAXATION
August 28, 2022

DEFINITION
The term ‘corporation’ shall
include
- one person corporations (OPCs);
- partnerships;
- joint-stock companies;
- joint accounts (cuentas en participation);
- associations; or
- insurance companies
but excludes
- general professional partnerships (GPPs);
- joint venture or consortium formed for the purpose of undertaking construction projects; and
- joint venture or consortium engaging in petroleum, coal, geothermal and other energy
operations pursuant to an operating consortium agreement under a service contract with the
Government.
General Professional Partnerships (GPPs) [1/2]
• GPPs are partnerships 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.
• The GPP as such is not subject to income tax pursuant to Sec. 26 of the Tax
Code, as amended. However, the partners shall be liable to pay income tax
on their separate and individual capacities for their respective distributive
share in the net income of the partnership.
General Professional Partnerships (GPPs) [2/2]
• The GPP is not a taxable entity for income tax purposes since it is only
acting as a “pass-through” entity where its income is ultimately taxed to the
partners comprising it.
• For purposes of computing the distributive share of the partners, the net
income of the GPP shall be computed in the same manner as a corporation.
• Every GPP shall file, in duplicate, a return of its income, except income
exempt under Sec. 32(B) of the Tax Code, setting forth the items of gross
income and of deductions allowed, and the names, Taxpayer Identification
Numbers (TIN), addresses and shares of each of the partners.
Tax Liability of Members of GPPs
A partner in a GPP:
• shall report as gross income his distributive share in the net income of the GPP;
• shall not be allowed to avail of the 8% income tax rate option;
• can no longer claim further deduction from his distributive share in the net income
of the GPP; and
• may claim either the itemized deductions or Optional Standard Deduction (OSD)
with respect to his other income derived from trade, business or practice of
profession apart and distinct from the share in the net income of the GPP.
• may avail of the OSD only once, either by the GPP or the partners comprising the
partnership.
Joint Venture or Consortium formed for the
purpose of undertaking construction projects [1/3]
• A joint venture or consortium formed for the purpose of undertaking
construction projects not considered as corporation under Sec. 22 of
the Tax Code, as amended, should be:
(1) for the undertaking of a construction project;
(2) should involve joining or pooling of resources by licensed local contractors,
i.e., licensed as general contractor by the Philippine Contractors
Accreditation Board (PCAB) of the Department of Trade and Industry
(DTI);
(3) these local contractors are engaged in construction business; and
(4) the Joint Venture itself must likewise be duly licensed as such by the PCAB.
• Joint ventures involving foreign contractors may also be treated as a
non-taxable corporation only if
(a) the member foreign contractor is covered by a special license as contractor
by the PCAB; and
(b) 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 pursuant to the implementing rules
and regulations of R.A. No. 4566 otherwise known as Contractor’s License
Law.
• Absent any one of the said requirements, the joint venture or consortium
formed for the purpose of undertaking construction projects shall be
considered as taxable corporations.
• The member to a Joint Venture not taxable as corporation shall each be

responsible in reporting and paying appropriate income taxes on their
respective share to the joint ventures profit.
• The tax-exempt joint venture or consortium shall not include those who are
mere suppliers of goods, services or capital to a construction project.
Domestic or Foreign?
• The term ‘domestic’, when applied to a corporation, means created or
organized in the Philippines or under its laws.
• The term ‘foreign’, when applied to a corporation, means a

corporation which is not domestic.
RFC vs. NRFC [1/3]
• The term ‘resident foreign corporation’ applies to a foreign
corporation engaged in trade or business within the Philippines.
• The term ‘nonresident foreign corporation’ applies to a foreign

corporation not engaged in trade or business within the Philippines.
RFC vs. NRFC [2/3]
• A foreign corporation may conduct business in the Philippines through a
branch office or by setting up a domestic subsidiary.
• Setting up a domestic subsidiary involves incorporation under Philippine

laws. By incorporation, the domestic subsidiary acquires a juridical
personality that is separate and distinct from that of its parent company.
• From the viewpoint of taxation, the subsidiary becomes a domestic

corporation while the parent company remains a nonresident foreign
corporation.
RFC vs. NRFC [3/3]
• Doing business through a branch office involves the securing by the foreign
corporation of a license to do business in the Philippines.
• Unlike a domestic subsidiary, a branch office does not acquire a separate

juridical personality but becomes merely an extension of its parent
company.
• From the viewpoint of taxation, the foreign company upon obtaining a

license to do business through a branch office becomes a resident foreign
corporation with respect to the transactions that are effectively connected
with its business in the Philippines.
General Principles (Sec. 23, NIRC)
• A domestic corporation is taxable on all income derived from sources
within and without the Philippines.
• A foreign corporation, whether or not engaged in trade or business in

the Philippines, is taxable only on income derived from sources within
the Philippines.
Question:
Republic Act No. 11534, otherwise known as the “Corporate Recovery
and Tax Incentives for Enterprises (CREATE) Act”, took effect on
A. January 1, 1998
B. January 1, 2018
C. July 1, 2020
D. April 11, 2021
Answer:
D. April 11, 2021
The CREATE Act was passed into law on 26 March, effective on 11

April 2021 (15 days after its publication on March 27).
Question:
Which of the following is not a salient feature of the CREATE Law?
A. Corporate income tax rate is reduced from 30% to 25% or, subject to
certain conditions, 20%.
B. The imposition of minimum corporate income tax (MCIT) is
suspended effective July 1, 2020 until June 30, 2023.
C. The improperly accumulated earnings tax (IAET) shall no longer be
imposed on corporations upon its effectivity.
D. A non-stock and non-profit educational institution is still exempt
from income tax.
Answer:
B. The imposition of minimum corporate income tax (MCIT) is
suspended effective July 1, 2020 until June 30, 2023.
The imposition of MCIT is not suspended. However, the MCIT rate was
reduced to 1% effective July 1, 2020 until June 30, 2023.
Classification of Corporations
DC RFC NRFC
Source of income Worldwide income Philippine-source income Philippine-source income
Basis of imposition Sec. 27 Sec. 28(A) Sec. 28(B)
RCIT Yes Yes Yes
MCIT Yes Yes No
Tax on branch profit remittances No Yes No
Rates of Income Tax on Domestic Corporations (Sec. 27, NIRC, as amended)
Domestic corporations may be classified into the following:

a. Domestic corporations (in general)
b. Proprietary educational institutions
c. Nonprofit hospitals
d. Government-owned or -controlled corporations (GOCCs)
Domestic Corporations (in general)
• Every taxable domestic corporations shall be subject to income tax imposed under
Title II of the Tax Code, computed based on the following:
Tax Base Taxable income (as defined in Sec. 31 of the Tax Code)
Tax Rate 25% (effective July 1, 2020)
20% if the following criteria are met (effective July 1, 2020):
(1) net taxable income does not exceed P5,000,000;
(2) total assets, excluding land, does not exceed P100,000,000
How to apply the corporate income tax rates? [1/2]
• In the case of corporations adopting the fiscal-year accounting period,

the taxable income shall be computed without regard to the specific
date when specific sales, purchases and other transactions occur. Their
income and expenses for the fiscal year shall be deemed to have been
earned and spent equally for each month of the period.
• The corporate income tax rate shall be applied on the amount

computed by multiplying the number of months covered by the new
rate within the fiscal year by the taxable income of the corporation for
the period, divided by twelve.
How to apply the corporate income tax rates? [1/2]
• When transitioning to the new corporate income tax rates under the CREATE Law,
the tax due using the regular income tax rate shall be computed as follows:
a. Divide the taxable income for the year by 12 months
b. Multiply the number of months applicable to old rate by the resulting monthly taxable
income; then multiply by 30%
c. Multiply the number of months applicable to the new rate by the resulting monthly taxable
income; then multiply by either 25% or 20%, as applicable
d. Add the computed regular income tax under item b. and c.
Illustrative example:
ABC Corporation, a domestic retailer, has gross sales of
P1,400,000,000.00 with cost of sales of P560,000,000.00 and allowable
deductions of 150,000,000.00 for calendar year 2020, its 4th year of
business operations. Its total assets of P180,000,000.00 includes the land
and building in which the business is situated, amounting to
P50,000,000.00 and P25,000,000.00, respectively.
Computation of Tax:
Net Taxable Income (P840,000,000 – 150,000,000) P690,000,000.00
Divide by 12 months ÷12
Taxable Income per month 57,500,000.00
Tax Due: Jan 1 to Jun 30, 2020 (P57.5M x 6) x 30% 103,500,000.00
Jul. 1, 2020 to Dec. 31, 2020 (P57.5M x 6) x 25% 86,250,000.00
Total Tax Due - RCIT P189,750,000.00
Gross Income P840,000,000.00

Divide by 12 months ÷12
Gross Income per month 70,000,000.00
Tax Due: Jan 1 to Jun 30, 2020 (P70.0M x 6) x 2% 8,400,000.00
Jul. 1, 2020 to Dec. 31, 2020 (P70.0M x 6) x 1% 4,200,000.00
Total Tax Due - MCIT P12,600,000.00
Income Tax Payable (Higher between RCIT and MCIT) P189,750,000.00
Proprietary Educational Institutions (PEIs) [1/2]
• PEIs refer to any private schools maintained and administered by
private individuals or groups, with an issued permit to operate from
the Department of Education (DepEd) or the Commission on Higher
Education (CHED) or the Technical Education and Skills
Development Authority (TESDA), as the case may be, in accordance
with existing laws and regulations.
Proprietary Educational Institutions (PEIs) [2/2]
Tax Rate 10% (reduced to 1% beg. Jul. 1, 2020 until Jun. 30, 2023)
if the gross income from ‘unrelated trade, business or other
activity’ does not exceed 50% of the total gross income derived
from all sources.
20%/25%, as applicable, pursuant to Sec. 27(A) of the Tax
Code, if the gross income from ‘unrelated trade, business or
other activity’ exceeds 50% of the total gross income derived
from all sources.
Nonprofit Hospitals [1/2]
• Nonprofit hospitals refer to any private hospitals, which are non-profit,
maintained and administered by private individuals or groups.
Nonprofit Hospitals [2/2]
Tax Rate 10% (reduced to 1% beg. Jul. 1, 2020 until Jun. 30, 2023)
if the gross income from ‘unrelated trade, business or other
activity’ does not exceed 50% of the total gross income derived
from all sources.
20%/25%, as applicable, pursuant to Sec. 27(A) of the Tax
Code, if the gross income from ‘unrelated trade, business or
other activity’ exceeds 50% of the total gross income derived
from all sources.
Government-owned or –controlled Corporations
(GOCCs)
• 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 Sec. 27 of the Tax Code upon corporations or associations engaged in a similar
business, industry, or activity.
• Exempt GOCCs:
1. Government Service Insurance System (GSIS);
2. Social Security System (SSS);
3. Home Development Mutual Fund (HDMF);
4. Philippine Health Insurance Corporation (PHIC); and
5. Local water districts (Sec. 7 of the TRAIN Law excluded the PCSO and included local water districts)
Minimum Corporate Income Tax (MCIT)
• The MCIT shall be applicable for both DCs and RFCs and shall be
imposed on the gross income as of the end of the taxable year,
beginning on the fourth taxable year immediately following the year in
which such corporation commenced its business operations, when the
MCIT for the taxable year is greater than the RCIT.
• Effective July 1, 2020 until June 30, 2023, the rate shall be one percent
(1%)
Rates of Income Tax on RFCs [Sec. 28(A), NIRC, as amended]
• Corporations organized, authorized, or existing under the laws of any foreign
country, engaged in trade or business within the Philippines, shall be subject to
income tax equivalent to 25% of the taxable income derived in the preceding
taxable year from all sources within the Philippines effective July 1, 2020.
Tax Base Taxable income

Tax Rate 25% (effective Jul. 1, 2020)
Rates of Income Tax on RFCs [Sec. 28(A), NIRC, as amended]
Income CIT rate (%)
Income of international carriers on their gross Philippine billings 2.5
Interest income from foreign currency loans granted to residents other than offshore 10
banking units (OBUs) or other FCDUs of depository banks
Income of FCDUs of depository banks from foreign currency transactions with non- Exempt
residents, OBUs or other FCDUs, and local commercial banks (including branches of
foreign banks) authorized by the Bangko Sentral ng Pilipinas (BSP) to transact
business with FCDUs
Regional operating headquarters (ROHQs) earning income from the Philippines 10
25 (beginning
Jan. 1, 2022)
Regional or area headquarters of multinational companies that do not earn or derive Exempt
income from the Philippines, and that act as supervisory, communications, and
coordinating centres for their affiliates, subsidiaries, or branches in the Asia-Pacific
region and other foreign markets
Rates of Income Tax on NRFCs [Sec. 28(A), NIRC, as amended]
• The following corporate tax rates apply to NRFCs with respect to gross income derived from
sources within the Philippines:
Tax Type Tax rate (%)
Income tax (in general) 25 (beginning
Jan. 1, 2021)
Reinsurance premiums Exempt
Interest on foreign loans 20
Dividends from domestic corporations if the country in which the foreign 15
corporation is domiciled does not impose income tax on such dividends, or
allows a tax deemed paid credit of 15% or the difference between the CIT and
15% tax on dividends
Rentals and charter fees payable to non-resident owners of vessels chartered 4.5
by Philippine nationals
Rentals, charters, and other fees derived by non-resident lessors of aircraft, 7.5
machinery, and other equipment
Lower rates or exemption on the above income may be available under an applicable tax treaty
Tax-Exempt Entities [1/3]
The following organizations shall not be taxed in respect to income received by
them as such:
a) Labor, agricultural or horticultural organization not organized principally for profit;
b) 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;
c) A beneficiary society, order or association, operating for the exclusive benefit of the
members such as a fraternal organization operating under the lodge system, or
mutual aid association or a nonstock corporation organized by employees providing
for the payment of life, sickness, accident, or other benefits exclusively to the
members of such society, order, or association, or nonstock corporation or their
dependents;
d) Cemetery company owned and operated exclusively for the benefit of its members;
them as such:
e) Nonstock corporation or association organized and operated exclusively for
religious, charitable, scientific, athletic, or cultural purposes, or for the
rehabilitation of veterans, 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;
f) 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 stock-holder, or individual;
g) Civic league or organization not organized for profit but operated
exclusively for the promotion of social welfare;
h) A nonstock and nonprofit educational institution;
them as such:
i) Government educational institution;
j) Farmers' or other mutual typhoon or fire insurance company, mutual ditch or
irrigation company, mutual or cooperative telephone company, or like
organization of a purely local character, the income of which consists solely
of assessments, dues, and fees collected from members for the sole purpose
of meeting its expenses; and
k) Farmers', fruit growers', or like association organized and operated as a sales
agent for the purpose of marketing the products of its members and turning
back to them the proceeds of sales, less the necessary selling expenses on the
basis of the quantity of produce finished by them.
Characteristics and Nature of Organizations and
Corporations Under Sec. 30 of the NIRC, as amended.
A. Labor, agricultural or horticultural organization not organized principally for profit.
Characteristics:
a. It is organized as a non-stock, non-profit corporation;
b. Operated either as a labor, or agricultural, or horticultural organization;
Corporate Purposes:
a. Labor organization – refers to an association of workers who have combined to protect and
promote the interests of its members by bargaining collectively with their employers to
secure better working conditions, wages and similar benefits. A legitimate labor organization
is one duly registered with the Department of Labor and Employment (DOLE) and includes
any branch or local thereof.
b. Agricultural and horticultural organization – refers to an association of persons engaged
in raising livestock, harvesting crops or aquatic resources, cultivating useful or ornamental
plants, or similar pursuits. Horticulture concerns the cultivation of gardens or orchards and
the growing of fruits, vegetables, flowers and ornamental plants.
Actual operation:
To be entitled to exemption from income tax, the corporation must carry out activities primarily to
improve the working conditions of its members, improve the grade of their products, and/or develop
a higher degree of efficiency in their respective occupations or the improvement of production
techniques.
B. 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.
With the passage of Republic Act No. (RA) 8367, otherwise known as “Revised Non-Stock
Savings and Loan Association Act of 1997”, which grants tax exemption to non-stock
savings and loan associations, and RA 6938, otherwise known as the “Cooperative Code of
the Philippines”, as amended by RA 9520, otherwise known as “Philippine Cooperative
Code of 2008”, which grants tax incentives to cooperative banks, recognition of tax
exemptions of non-stock savings and loan associations and cooperative banks are now
governed by RA 8367 and RA 9520, respectively.
C. A beneficiary society, order or association, operating for the exclusive benefit of the
members such as a fraternal organization operating under the lodge system, or mutual aid
association or a non-stock corporation organized by employees providing for the payment
of life, sickness, accident, or other benefits exclusively to the members of such society,
order, or association, or non-stock corporation or their dependents.
Characteristics:
a. It is organized as –
i. A beneficiary society, order or association, operating for the exclusive benefit of the members such as a
fraternal organization operating under the lodge system; or
ii. A mutual aid association or a non-stock corporation organized by employees providing for the payment of
life, sickness, accident, or other benefits exclusively to the members of such society, order, or association, or
non-stock corporation or their dependents.
b. It must be operating for the exclusive benefit of the members or providing for the payment
of life, sickness, accident, or other benefits exclusively to the members of such society,
order, or association or their dependents.
Corporate purposes: The organization should be operated to assist their members through the
provision of benefits through an established system of benefit payments to its members and their
dependents.
Actual operation: The association must be operated either as –

a. A fraternal organization under the lodge system or a mutual aid association providing for the
exclusive benefit of the members, or a non-stock corporation organized by employees
providing for the payment of life, sickness, accident, or other benefits exclusively to the
members of such society, order, or association, or non-stock corporation or their dependents;
and
b. It should have an established system of benefit payments to its members and their
dependents or established system for the payment of life, sickness, accident, or other
benefits to its members or their dependents.
D. Cemetery company owned and operated exclusively for the benefit of its members.
Characteristics:
a. It is organized as non-stock corporation and not operated for profit;
b. Owned by and operated exclusively for the benefit of its lot owners;
c. It is chartered solely for burial purposes and not permitted by its charter to engage in any
business not necessarily incident to that purpose; and
d. No part of its net earnings inures to the benefit of any private shareholder or individual.
Corporate purposes:
The corporation is organized as a cemetery company for the exclusive benefit of its members, solely
for the purpose of the disposal of bodies by burial and that its Articles of Incorporation does not
permit it to engage in any business not necessarily incident to that purpose; and that no part of its net
earnings inures to the benefit of any private shareholder or individual.
Actual operation:
It is operated solely for burial purposes and not permitted by its charter to engage in any business not
necessarily incident to that purpose. No part of its net earnings should inure to the benefit of any
private shareholder or individual. Earnings of the company may be used for the operation,
maintenance, and improvement of the cemetery.
E. Non-stock corporation or association organized and operated exclusively for religious,
charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no
part of its net income or asset belongs to or inures to the benefit of any member, organizer,
officer or any specific person.
Characteristics:
a. A non-stock corporation or association
b. Organized and operated exclusively for:
i. religious;
ii. charitable;
iii. scientific;
iv. athletic; or
v. cultural purposes; or
vi. the rehabilitation of veterans
c. No part of its net income or asset belongs to or inures to the benefit of any member,
organizer, officer or any specific person
Corporate purposes:
a. Religious purposes – refers to the promotion, propagation and accomplishment of any form
of religion, creed or religious belief recognized by the Government of the Republic of the
Philippines.
b. Charitable purposes – refers to activities extending relief to the poor, distressed and
underprivileged and shall include fighting against juvenile delinquency and community
deterioration, and provision for free goods and services to the public.
c. Scientific purposes - refers to undertaking or assisting in pure or basic, applied and
scientific research in the field of agriculture, forestry, fisheries, industry, engineering, energy
development, food and nutrition, medicine, environment and biological, physical and natural
sciences for the public interest.
Corporate purposes:
d. Athletic purposes – refers to and include conducting a program on physical fitness and
amateur sports development for the country; developing and maintaining recreational
facilities, playgrounds and sports centers; and conducting training programs for the
development of youth and athletes for national and international competitions.
e. Cultural purposes – refers to and include undertaking and/or assisting in research activities
on all aspects of history, social system, customs and traditions; developing, enriching and
preserving Filipino arts and culture; developing and promoting the visual and performing
arts; and participating in vigorous implementation of bilingual policy through translation and
wider use of technical, scientific and creative publications, development of an adaptive
technical dictionary and use of Filipino as the medium of instruction.
f. Rehabilitation of veterans – refers to services extended to Philippine veterans and members
of their families because of financial difficulties and attendant problems; and services
extended to disabled veterans towards productive life.
Actual operation:
A corporation is exempt from tax on its income if it meets two tests:
(a) It is organized and operated for one or more of the above-specified purposes; and
(b) No part of its net income or assets inures to the benefit of private stockholders or
individuals.
F. 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 stock-holder, or
individual.
Characteristics:
a. Organized as a business league, chamber of commerce, or board of trade;
b. Operated as an association of persons having some common business interest, which limits
its activities to work for such common interest;
c. It does not engage in a regular business of a kind ordinarily carried on for profit;
d. It is non-profit; and
e. No part of its net income or asset shall belong to or inures to the benefit of any member,
organizer, officer or any specific person.
Corporate purposes:
To promote such common interest and not to engage in a regular business of a kind ordinarily carried
on for profit. It is an organization of the same general class as a chamber of commerce or board of
trade.
Actual operations:
Its activities should be directed to the improvement of business conditions of one or more lines of
business and should not engage in a regular business of a kind ordinarily carried on for profit. No part
of its net income or asset shall belong to or inures to the benefit of any member, organizer, officer or
any specific person.
G. Civic league or organization not organized for profit but operated exclusively for the
promotion of social welfare.
Characteristics:
a. It is organized as a non-stock corporation and not for profit;
b. Itis exclusively operated for the promotion of social welfare; and
c. It has no net earnings or assets which inure to the benefit of any member, organizer, officer
or any specific person.
Corporate purposes:
The organization must be primarily engaged in promoting the common good and general welfare of
the people of the community, i.e., for the purpose of bringing about civic betterment and social
improvement.
Actual operations:
To be entitled to the exemption, the regular activities of the corporation must be exclusively for
promotion of social welfare. No part of its net income or asset shall belong to or inures to the benefit
of any member, organizer, officer or any specific person.
H. A non-stock and nonprofit educational institution.
I. Government educational institution.
Characteristics:
a. It is established by law or a local government unit;
b. It is administered and financially subsidized by the government or the local government
concerned;
c. It is governed by the Board of Trustees or Board of Regents; and
d. It is supervised by DepEd or CHED.
Corporate purposes:
It is established as an educational institution financed and operated by an agency of the government
which does not charge tuition fees; instead, financing is obtained through taxes or other government-
collected revenues.
Actual operations:
The institution operates as a primary or secondary school, a college, or a professional or trade school
that has a regularly scheduled curriculum, a regular faculty, and a regularly enrolled student body in
attendance at a place where the educational activities are regularly carried on.
J. Farmers' or other mutual typhoon or fire insurance company, mutual ditch or irrigation
company, mutual or cooperative telephone company, or like organization of a purely local
character, the income of which consists solely of assessments, dues, and fees collected from
members for the sole purpose of meeting its expenses.
Characteristics:
a. It is organized as a non-stock, non-profit organization;
b. It is organized as a farmers' or other mutual typhoon or fire insurance company, mutual ditch
or irrigation company, mutual or cooperative telephone company, or like organization of a
purely local character;
c. Income consists solely of assessments, dues, and fees collected from members; and
d. Its income is for sole purpose of meeting its expenses.
Corporate purposes:
It is established for the operation of a mutual typhoon or fire insurance company, mutual ditch or
irrigation company, mutual or cooperative telephone company. Organizations, other than mutual life
insurance associations, must be organized and operated on a mutual basis i.e., it is owned by its
members and policy holders who are banded together to provide themselves a mutually desirable
service approximately at cost and on a mutual basis.
Actual operations:
a. A mutual insurance company owned entirely by its policy holders; or association of farmers,
direct beneficiaries of the operation of an irrigation project/system; or a telephone company
owned and operated by the members to provide telephone services for the benefit of the
members.
b. These organizations are operated on a mutual basis and must use their income solely to
cover losses and expenses, with any excess being returned to members or retained to cover
future losses and expenses.
c. A mutual life insurance organization cannot have policyholders other than its members.
K. Farmers', fruit growers', or like association organized and operated as a sales agent for the
purpose of marketing the products of its members and turning back to them the proceeds
of sales, less the necessary selling expenses on the basis of the quantity of produce finished
by them.
Characteristics:
a. It is organized as a non-stock, non-profit organization;
b. It is organized as an association or organization whose members are engaged in farming,
fruit growing, or similar occupations;
c. Its income is for sole purpose of meeting its expenses.
Corporate purposes:
To act as a sales agent for the purpose of marketing the products of its members and turning back to
them the proceeds of sales, less the necessary selling expenses on the basis of the quantity of produce
finished by them.
Actual operations:
a. Associations, acting as sales agents for farmers-members, must establish that they have no
net income for their own account.
b. It should return to the members the proceeds of sales after deducting the necessary selling
expenses on the basis of the quantity of produce finished by them.
c. The proceeds of the business should be distributed on such proportionate basis.
Operational & Organizational Tests in
Determining Entitlement to Exemption
A corporation claiming tax exemption must be able to show clearly that is organized
and operated for the purposes under Sec. 30 of the NIRC, and that its income is
derived pursuant thereto.
Organization Test: 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.
Operational Test: 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
corporation or association fails to meet this test if the corporation has no activities conducted in
furtherance of the purpose for which it was organized, or if a substantial part of its operations
constitutes "activities conducted for profit".
Non-Profit, Inurement Prohibition [1/2]
The following are considered “inurements” of such nature:
1. The payment of compensation, salaries, or honorarium to its trustees or
organizers;
2. The payment of exorbitant or unreasonable compensation to its employees;
3. The provision of welfare aid and financial assistance to its members. An
organization is not exempt from income tax if its principal activity is to
receive and manage funds associated with savings or investment programs,
including pension or retirement programs. This does not cover a society,
order, association, or nonstock corporation under Section 30(C) of the NIRC
providing for the payment of life, sickness, accident and other benefits
exclusively to its members or their dependents;
Non-Profit, Inurement Prohibition [2/2]
The following are considered “inurements” of such nature:
4. Donation to any person or entity (except donations made to other entities
formed for the purpose/purposes similar to its own);
5. The purchase of goods or services for amounts in excess of the fair market
value of such goods or value of such services from an entity in which one or
more of its trustees, officers or fiduciaries have an interest; and
6. When upon dissolution and satisfaction of all liabilities, its remaining assets
are distributed to its trustees, organizers, officers or members. Its assets must
be dedicated to its exempt purpose.
Income Tax Exemption, Not Absolute
• Income tax exemption covers only the income derived by the
corporation in furtherance of the purposes for which it was organized
under Sec. 30 of the NIRC of 1997.
• Section 30 corporations are still subject to the corresponding internal

revenue taxes imposed under the NIRC of 1997 on income derived
from any of their properties, real or personal, or any activity conducted
for profit regardless of the disposition thereof, which income should
be reported for taxation purposes.
Corporate Income Tax Returns
When to file and pay?
• Quarterly Filing – The corporate quarterly income tax return (BIR Form No.
1702Q) shall be filed, with or without payment, within sixty (60) days following
the close of each of the first three (3) quarters of the taxable year whether calendar
or fiscal year.
• Annual Filing – The corporate annual income tax return (BIR Form No. 1702-
RT/1702-EX/1702-MX) shall be filed, with or without payment, on or before the
15th day of the 4th month following the close of the taxpayer’s taxable year.
Where to file and pay?
• The return shall be filed with any Authorized Agent Bank (AAB) located within
the territorial jurisdiction of the Revenue District Office (RDO) where the
taxpayer is required to register/which has jurisdiction over the location of the
principal office of the “CORPORATION” filing the return.
• In places where there are no AABs, the return shall be filed directly with the
Revenue Collection Officer or duly Authorized City or Municipal Treasurer within
the Revenue District Office where the taxpayer is required to register/which has
jurisdiction over the location of the principal office of the “CORPORATION”
filing the return.
• For EFPS Taxpayers, the deadline for electronically filing and paying the taxes
due thereon shall be in accordance with the provisions of existing applicable
revenue issuances.

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CORPORATE INCOME TAXATION

August 28, 2022

• The member to a Joint Venture not taxable as corporation shall each be

• The term ‘foreign’, when applied to a corporation, means a

• The term ‘nonresident foreign corporation’ applies to a foreign

• Setting up a domestic subsidiary involves incorporation under Philippine

• From the viewpoint of taxation, the subsidiary becomes a domestic

• Unlike a domestic subsidiary, a branch office does not acquire a separate

• From the viewpoint of taxation, the foreign company upon obtaining a

• A foreign corporation, whether or not engaged in trade or business in

The CREATE Act was passed into law on 26 March, effective on 11

Domestic corporations may be classified into the following:

• In the case of corporations adopting the fiscal-year accounting period,

• The corporate income tax rate shall be applied on the amount

Gross Income P840,000,000.00

Tax Base Taxable income

Actual operation: The association must be operated either as –

• Section 30 corporations are still subject to the corresponding internal

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