What is Net Operating Loss Carry-Over (NOLCO)?

NOLCO refers to the excess of allowable deduction

over gross income. It can be carried over as a
deduction from gross income for the next three (3)
consecutive years immediately following the year
of such loss.
 Illustrations:

In this case, the NOL of P100,000.00 in 2010 can be carried over

up to year 2013, and that of P100,000.00 in 2011 up to year 2014.
Year Gross Income Deductions NOLCO
2010 P 100,000.00 P 200,000.00 P 100,000.00
2011 P 150,000.00 P 250,000.00 P 100,000.00
2012 P 250,000.00 P 100,000.00 ----
P 500,000.00 P 550,000.00

In the year 2012, the remaining NOL is P50,000.00 : P 200,000 [P100,000 + P100,000 P 150,000][P250,00 P
100,000]) which can be utilized as a deduction up to year 2014 since it arose in 2011.
 What are the requisites in order to avail the
NOLCO?
1. The net loss had not been previously offset as deduction from gross
income.
2. The taxpayer was not exempt from income tax in the year of such net
operating loss. (Marcelo Doctrine)
3. No substantial change in the ownership of the business or enterprise, i.e.,
a. Not less than 75% in nominal value of the outstanding issued shares, if
the business is a corporation and is held by or on behalf of the same
person [75% or more in nominal value],
b. Not less than 75% of the paid-up capital of the corporation, if the
business is a corporation and is held by or on behalf of the same person
[75% or more interest]
 What is meant by Substantial Change in the Ownership of the
Business or Enterprise?
This refers to a change in the ownership of the business or enterprise as a result
of or arising from its merger or consolidation or combination with another person
in a manner provided by law.
There is no substantial change in the ownership of the business or enterprise if
the stockholders of the transferor or the transferor, to whom the net operating loss
is attributed, gains control or at least 75% or more interest in the business of the
transferee-assignee after such merger, consolidation or combination. Thus, there is
substantial change in the business of the stockholders of the transferor or the
transferor gains control of the transferee-assignee only to the extent of less than
75% of its interest.
Illustration:
X corporation owns Y Corporation that has an unused NOLCO. X
Corporation transfer its shares of Y Corporation to Z Corporation in
exchanged for 100% of Y Corporations share.

Held: Y Corporations NOLCO is retained because its shares are held by Z

Corporation on behalf of X Corporation, the original owner. Z can use
the NOLCO.

No actual change in ownership is involved in case the transfer involves change from
direct ownership to indirect ownership, or vice-versa.
Illustration:
A Corporation owns 100% of B Corporation.
B Corporation owns 100% of C Corporation.
C Corporation has NOLCO. C Corporation is merged into B Corporation.

Held: Cs NOLCO should be retained and transferred to A Corporation.

Prior to the merger, A Corporation indirectly owned C Corporation. (The
shares of C were held by B on behalf of A. After the merger, A
Corporation directly owns C Corporation, which continues to exists in B
Corporation)
No actual change in ownership is involved as in the case of merger of the
subsidiary into the parent corporation.
 Who may avail of NOLCO?

1.Individual taxpayer (including estate and trust) engaged

in trade or business
2.Individual taxpayers engaged in the exercise of
profession
3.Domestic corporation
4.Resident corporation
 Who may NOT claim
NOLCO?
1. Offshore banking Unit (OBU) of a foreign banking
institution/corporation.
2. Foreign Currency Deposit Unit (FCDU) of a domestic or foreign
banking corporation, duly authorized by the BSP.
3. Enterprises registered with the BOI enjoying tax holiday.
4. Enterprises registered with PEZA enjoying tax holidays.
5. Enterprises registered with SBMA enjoying tax holidays.
6. Foreign corporation engaged in international shipping or air carriage
business in the Philippines; and
7. Any person, entity enjoying tax exemption from income tax pursuant
to the Tax Code and other Special Law.
 What is the relationship of NOLCO to the MCIT?

Corporations covered by an MCIT cannot enjoy the

benefit of NOLCO for as long as it is subject to MCIT in any
taxable year. The running of the three year period for the
expiry of the NOLCO is not interrupted by the fact that such
corporation is subject to MCIT in any taxable year during the
reglamentary period of three (3) years.