Month: May 2021

• Total Assets is net of:
• Depreciation and
• Allowance for bad debts
• Excluded: Land where the business entity’s office, plant and equipment are situated; amount to be excluded: Cost/fair market value, depending on what is reflected in the financial statements
• Included:
• Land held primarily for sale to customers or land held for investment purposes;
•  Land being used as banana plantation
• Land being leased
• Portion is used in business; rest is on lease = prorate the amount of land based on the area.

• Rate is either 25% or 20%
• 1% is applicable to non-profit schools*

• If the Certification shall state non-utilization of the dividends received, the unutilized dividends shall be declared as taxable income, and the corresponding tax due shall be subject to interest, surcharges and penalties

• Tax treatment depends on the source of income of the RFC
• Treated as derived from sources within PH (Exempt from income taxes)
• Exception:
• Less than fifty percent (50%) of the gross income of the foreign corporation for the three-year period ending with the close of its taxable year preceding the declaration of such dividends (or for such part of the period as the corporation has been in existence) was derived from sources within the Philippines – (Considered sourced without and must comply with Section 5 to avail of income tax exemption)

• Means fourth taxable year immediately following the year in which such corporation commenced its business operation
• Thus, if the corporation commenced its business operations in 2017, MCIT may be imposed beginning the year 2021, if it exceeds the regular income tax. The taxable year in which business operations commenced shall be the year in which the corporation is registered with the BIR

• No distinction as to which type of industry can claim the deduction, subject to requirements:
• The labor training expenses shall not be more than ten percent (10%) of the Direct Labor Wage;
• The labor training expenses are incurred for skills development of enterprise-based trainees;
• The enterprise-based trainees are enrolled in public senior high school, public higher education institutions, or public technical and vocational institutions for the taxable year in which the labor training expenses are claimed;  The training is covered by an apprenticeship agreement under Presidential Decree (PD) No. 442 or the Labor Code of the Philippines; and:
• The Company claiming the additional deduction is granted an authority to offer training programs for skills development as certified by the Department of Education (DepED), Technical Education and Skills Development Authority (TESDA) or Commission on Higher Education (CHED), as applicable.
•  Training expenses which pertain to training/s of employees under supervisory, managerial, administrative and support functions should not be included in 'the computation
• The resulting amount then shall be subject to a cap of not more than ten percent (10%) of the Direct Labor Wage. The "direct labor" is that portion of salaries and wages which can be identified with and charged directly to a product or to a project or service on a consistent basis.

• It is required to file an Annual ITR
• It has transactions with related party (domestic or foreign) during the concerned period; AND
• It falls under ANY of the following categories:
  • (a) Large taxpayers*
  • (b) Taxpayers enjoying incentives (i.e. Board of Investments-registered and ECOZONE*** enterprises, enjoying ITH or subject to preferential income tax rate**
  • (c) taxpayers reporting net operating losses***** for the current taxable year and the immediately preceding two (2) consecutive taxable years
• A related party that has transactions with (a) (b) (c) (it is imperative to check whether the related party with whom ordinary corporation transacts falls under this category)

• No threshold if taxpayer is required to file the RPT Form; disclosure of all related party transaction irrespective of the amount is a must;
• Relevant only as to who is required to prepare a Transfer Pricing Documentation;
• Taxpayer who meets the threshold but is not required to submit RPT Form = not required to submit TPD

• Similar transactions with the same related party transactions must be segregated, if possible.
• TPD and other supporting documents shall no longer be attached to the RPT Form but shall be made available during audit
• Actual amount must declared. Reasonable estimate is not allowed. Declaration is subject to perjury clause.

**Taxpayer subject to preferential income tax rate –

Corporate taxpayer subject to regular corporate income tax but has transactions subject to preferential income tax rate under tax treaty or Tax Code is not required to file an RPT Form

Examples of taxpayers subject to preferential income tax rate:

• proprietary educational institutions and hospitals;
• and regional operating headquarters
• International carriers

***Not required to file RPT Form if ECOZONE enterprise is subject to RCIT. Only those subject to ITH or 5% special tax are required to file RPT Form, unless it falls under (a) (c) or (d).

****Tax exempt –

• Those exempt under Section 30 or similar provisions of the Tax Code or special laws;
• Regional or area headquarters and representative offices of foreign corporations that are not allowed by law to derive income from the Philippines
• Post-employment benefit plans (if their related party transactions consist only of the contributions from their sponsor employers)

*****Net operating loss for tax purposes and not the amount per AFS

• Means excess of allowable deductions over the gross income of the business in a taxable year
• Allowable deductions - ordinary and necessary expenses paid or incurred during the taxable year (directly attributable to the development, management, operation and/or conduct of trade, business or exercise of profession)
• Registration fees, business permits, and licenses and taxes, (except Section 34 (c) (1) of Tax Code) are allowable deductions

Domestic corporation not required to report if the related party suffering loss is a NRFC.

• Share in the net income of an associate is akin to dividend; not required to be reported in the RPT Form
• If taxpayer is required to prepare a TPD for 2020 RPT transaction, it shall also be required to prepare TPD for 2021 transaction despite not meeting any materiality threshold.
• Failure to supply material information  - RPT Form is treated not filed and penalty for failure to file will be imposed
• Currency – foreign currency and its equivalent, unless several currencies were used and it seems impractical to indicate all of them in RPT Form
• Exchange rate – Rate of transaction