CORPORATE INCOME TAXATION: TYPES, TAX BASE, TAX RATES 3.
3. At the end of each calendar year, all gross receipts and expenses were determined
DEFINITION: CORPORATION
Section 22 (B), Tax Code
The term “corporation” shall include partnerships, no matter how created or organized, joint-
stock companies, joint accounts (cuentas en participacion), associations, or insurance
companies, but does not include general professional partnerships and a joint venture or
consortium formed for the purpose of undertaking construction projects or engaging in
petroleum, coal, geothermal and other energy operations pursuant to an operating or
consortium agreement under a service contract with the Government.
DEFINITION: CORPORATION
 'General professional partnerships' 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.
 Entities treated as a corporation for income tax purposes:
1. Partnerships, no matter how created or organized
2. Joint-stock companies
3. Joint-accounts (cuentas en participacion)
4. Associations
5. Insurance companies
Partnerships no matter how created or organized. Registered or unregistered
“ By the contract of partnership, two or more persons bind themselves to contribute money,
property or industry to a common fund with the intention of dividing the profits among
themselves .” (Article 1767, Civil Code)
Joint Venture
 In Kilosbayan et.al vs. Guingona (G.R. No. 113375 dated May 5, 1994), a joint venture
has been defined as:
o “an association
• “a an association of persons or companies jointly undertaking some commercial enterprise;
generally all contribute assets and share risks. It requires a community of interest in the
performance of the subject matter, a right to direct and govern the policy in connection
therewith, and duty, which may be altered by agreement to share both in profit and losses. “
Joint Emergency Operation is a Joint Venture.
Collector of Internal Revenue vs. Batangas Transportation Company and Laguna-Tayabas
Bus Company (GR. No. L-9692 dated January 6, 1958)
FACTS:
Batangas Transportation and Laguna Bus, two distinct and separate corporations entered
into a “Joint Emergency Operations”
1. The companies were placed under one sole management and operated jointly
2. The purpose of the agreement was to allow the companies to economize in
overhead expenses
and the net profits were transferred fifty-fifty to the books of accounts of each
corporation.
4. Each corporation then prepared its own income tax return from the fifty percent
(50%) gross receipts and expenditures, assets and liabilities and paid the
corresponding income taxes thereon separately.
ISSUE: Whether or not the two transportation companies are liable to the payment of
income tax as a corporation on the ground that the “Joint Emergency Operation” organized
and operated by them is a corporation within the meaning of the Internal Revenue Code.
DECISION:
The “Joint Emergency Operation” is considered a joint venture. Consequently, it is liable to
pay corporate income tax.
When the Tax Code includes "partnerships" among the entities subject to the tax on
corporations, it must refer to organizations which are not necessarily partnerships in the
technical sense of the term, and that furthermore, said law defined the term "corporation" as
including partnerships no matter how created or organized,thereby indicating that "a joint
venture need not be undertaken in any of the standard forms, or in conformity with the usual
requirements of the law on partnerships, in order that one could be deemed constituted for
purposes of the tax on corporations"; that besides, said section 84 (b) provides that the term
"corporation" includes "joint accounts" (cuentas en participacion) and "associations", none of
which has a legal personality independent of that of its members. xxx
What was actually done in this case was that, although no legal personality may have been
created by the Joint Emergency Operation, nevertheless, said Joint Emergency Operation,
joint venture, or joint management operated the business affairs of the two companies as
though they constituted a single entity, company or partnership, thereby obtaining
substantial economy and profits in the operation.
Essential factors to constitute a “joint venture”:
1. Each party to the venture must make a contribution, not necessarily of capital, but by
way of services, skill, knowledge, material or money;
2. profits must be shared among the parties;
3. there must be a joint proprietary interest and right of mutual control over the subject
matter of the enterprise;
4. usually, there is single business transaction rather than a general or continuous
transaction" (Words and Phrases, Vol. 23, p. 230)” BIR Rulings No. 254-91 dated
November 26, 1991, No. 317-92 dated October 28, 1992, and DA-081-99 dated
February 9, 1999
Associations
Afisco Insurance Corporation, et. al. vs. Court of Appeals (G.R. No. 112675 dated January
25, 1999)
FACTS: A number of local insurance firms formed themselves a “pool” to facilitate the
handling of business with a nonresident foreign reinsurance company.
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 progressive prosecution of, commercial gain or of the purpose and object of the
ISSUE: Whether or not the pool of machinery insurers was a partnership taxable as a business organization.
corporation.  Provided, however, That the phrase “doing business” shall not be deemed to include
mere investments as a shareholder by a foreign entity in domestic corporation duly
DECISION: registered to do business and or the exercise of rights as such investor nor having a
The “pool” is an association taxable as a corporation. nominee director or officer to represent its interests in such corporation; nor appointing
The ceding companies entered into a Pool Agreement or an association that handled all the a representative or distributor domiciled in the Philippines which transacts business in
insurance businesses covered under their reinsurance treaty with a nonresident foreign its own name for its own account.
corporation. The following factors unmistakably indicate a partnership or an association
covered by Section 24 of the NIRC: TYPES OF CORPORATIONS
The following acts shall not bee deemed “doing business “ in the acts Philippines:
“(1) The pool has a common fund, consisting of money and other valuables that are 1. Mere Invesment as a shareholder by a foreign entity in domestic corporation duly
deposited in the name and credit of the pool. This common fund pays for the administration registered to do business, and/pr the exercise of rights as such investor;
and operation expenses of the pool. 2. Having a nomiee director or officer to represent its interest in such corporation
3. Appointing a representative or distributor domiciled in the Philippines which
(2) The pool functions through an executive board, which resembles the board of directors of transacts business in the representative's or distributor's own name and account;
a corporation, composed of one representative for each of the ceding companies. 4. The publication of a general advertisement through any print or broadcast media;
5. Maintaining a stock of goods in the Philippines solely for the purpose of having the
(3) True, the pool itself is not a reinsurer and does not issue any insurance policy; however, same processed by another entity in the Philippines;
its work is indispensable, beneficial and economically useful to the business of the ceding 6. Consignment by a foreign entity of equipment with a local company to be used in
companies and Munich, because without it they would not have received their premiums. the processing of products for export
The ceding companies share "in the business ceded to the pool" and in the "expenses" 7. Collecting information in the Philippines; and
according to a "Rules of Distribution" annexed to the Pool Agreement. Profit motive or 8. Performing services auxiliary to an existing isolated contract of sale which are not
business is, therefore, the primordial reason for the pool's formation. on a continuing basis, such as installing in the Philippines machinery it has
manufactured or exported to the Philippines, servicing the same, training domestic
The fact that the pool does not retain any profit or income does not obliterate an antecedent workers to operate it, and similar incidental services.
fact, that of the pool being used in the transaction of business for profit. It is apparent, and
petitioners admit, that their association or coaction was indispensable [to] the transaction of TYPES OF CORPORATIONS
the business. . . If together they have conducted business, profit must have been the Non-resident foreign corporation- a foreign corporation that is not engaged in or doing
objectas, indeed, profit was earned. Though the profit was apportioned among the members, business in the Philippines.
this is only a matter of consequence, as it implies that profit actually resulted.
TAX BASE
TYPES OF CORPORATIONS TAX BASE
1. Domestic Corporation- a corporation organized under the laws of the Republic of the Domestic Corporation Worldwide Income
Philippines
2. Foreign corporation shall mean one which is formed, organized or existing under laws Resident Foreign Corporation (RFC) Income from within the Philippines
other than those of the Philippines. (Implementing regulations, FIA)
Non Resident Foreign Corporation Income from within the Philippines
 Resident Foreign Corporation – a foreign corporation that is engaged in or doing (NRFC)
business in the Philippines
 “doing business” shall include soliciting orders, service contracts, opening offices, TAX RATES
whether called “liaison” offices or branches appointing representatives or distributors DOMESTIC and RESIDENT FOREIGN CORPORATIONS
domiciled in the Philippines or who is any calendar year stay in the country for a period In General
or periods totaling one hundred eighty (180) days or more; participation in the  Regular Corporate Income Tax (RCIT)
management, supervision or control of any domestic business, firm, entity or o Effective January 1, 2009 – 30% of Taxable Income
corporation in the Philippines, any other act or acts that imply a continuity of  Minimum Corporate Income Tax (MCIT)
commercial dealings or arrangements and contemplate to that extent the performance o 2% of Gross Income
of acts or works, or the exercise of some of the funtions normally incident to, and in (Whichever is higher)
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TAX RATES
RESIDENT FOREIGN CORPORATION:
 Branch profit remittance tax
NOT TAXABLE AS A CORPORATION
General Professional Partnerships (GPPs)
 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. (Rev.
Regs. No. 16-2008)
 A GPP shall not be subject to income tax since it is the individual partners who shall be
subject to income tax in their separate and individual capacities. (RMC No. 3- 2012)
NOT TAXABLE AS A CORPORATION
Joint Venture for Construction:
The exclusion of joint venture for construction projects from the term “corporation” was
introduced as amendment to the Tax Code by Pres. Decree (PD) No. 929, May 4. 1976.
The “Whereas clauses” embody the rationale for the said exclusion:
 WHEREAS, local contractors contribute substantially to the development program
of the country;
 WHEREAS, local contractors are at a disadvantage in competitive bidding with
foreign contractors in view of limited capital and financial resources;
 WHEREAS, in order to be able to compete with big foreign contractors, it may be
necessary for them to enter into joint ventures to pool their limited resources in
undertaking big construction projects;
 WHEREAS, to assist them in achieving competitiveness with foreign contractors,
the joint ventures formed by them should not be considered an additional income
tax;
 WHEREAS, the corporate income tax is imposed on joint ventures as well as on the
entities composing such joint ventures;
 WHEREAS, the 3% contractor's tax is based both on the total contract price
received by a principal contractor and on the portion of such contract price which is
allocated by the said principal contractor to and received by, a subcontractor;
 WHEREAS, the double taxation of gross receipts to a principal contractor and sub-
contractor also diminishes the competitive capability of local contractors against
foreign contractors;
Joint Venture for Construction
BIR Ruling No. 108-10, October 19, 2010
FACTS: On January 13, 2010, Aurora and Avida entered into a Joint Development Agreement
(the "JDA") for the formation of a joint venture for construction purposes whereby Aurora, as
registered owner of the Property, shall contribute the Property to the joint venture, and
Avida, shall contribute project development services to construct and develop the Property
into a residential subdivision (the "Project") with shared amenities, utilities and facilities to
be developed on the Property.
In return for their respective contribution, each party shall receive their respective allocation
of Saleable House and Lot Units/Saleable Lot Units from the Project. Aurora shall receive an
allocation of 11% of the saleable House and Lot Units and 25%of the Saleable Lots of the
Project. Avida shall receive an allocation of 89% of the Saleable House and Lot Units and 75%
of the Saleable Lots of the Project.
RULING:
The Development Agreement entered into by and between Aurora and Avida is not subject
to the income tax.
1. The allocation of the saleable units between Aurora and Avida, which is done effectively
in consideration of their respective contributions, does not constitute a taxable event, as
no income is actually realized by either Aurora and/or Avida.
2. The Partition Agreement or Deed of Allocation will be executed without consideration,
and will not be in connection with any sale between the said parties.
3. Aurora and Avida, having contributed to the development of the aforementioned real
properties, will not realize any income upon the allocation of the saleable units. Hence,
the allocation of units arising from the Partition Agreement is not subject to income tax,
and consequently, to withholding tax.
4. Aurora and/or Avida will only realize income upon their respective sales of the saleable
units allocated to each of them.
REVENUE REGULATIONS NO. 10-2012-
Joint Venture or Consortium Formed For The Purpose Of Undertaking Construction Projects
and Mandatory Enrollment of Local Contractors in the Electronic Filing and Payment
System (EFPS)
Requirements to be considered as a JV for construction:
1. Formed for the undertaking of a construction project; and
2. should involve joining or pooling of resources by licensed local contractors; that is,
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 Philippine
Contractors Accreditation Board (PCAB) of the Department of Trade and Industry (DTI)
 The tax-exempt joint venture or consortium as herein defined shall not include those
who are mere suppliers of goods, services or capital to a construction project.
 The members 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.
Joint ventures involving foreign contractors may also be treated as a non-taxable
corporation only if
1. the member foreign contractor is covered by a special license as contractor by the
Philippine Contractors Accreditation Board (PCAB) of the Department of Trade and
Industry (DTI); and
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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
pursuant to the implementing rules and regulations of Republic Act No. 4566 otherwise
known as Contractor’s License Law.

INCOME; SOURCES OF INCOME

Income Principle From Sources within

Interest Where the capital is
employed
Dividends Where the capital is
employed
Services Where service is performed
Rentals and Royalties Location of property interest
in such property
Sale of Real Property Location of property
Sale of personal Property
For property purchased or
sold- place of sale
For property produced and
sold- apportioned
 if derived within the
Philippines
 Includes interests on
bonds, notes or other
interest bearing
obligations of residents
 Received from domestic
corporation
 Received from foreign
corporation, if 50% or
more of the gross
income of said
corporation for the
immediately preceding
3 year period was
Philippine sourced
 If performed within the
Philippines
 If property is located in
the Philippines
 If property is located in
the Philippines
 Sale of shares in
domestic corporation
 Personal property
purchased in or outside
the Philippines but sold
within
 For personal property
produced in whole or in
part and sold outside;
or produced in whole or
in part of and sold
within; gain is
considered derived
from partly within and
without the Philippines
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