CORPORATE TAXES
DEDUCTIONS
Depreciation and depletion/Depreciation is generally computed on a straight-line basis, although any reasonable method may be elected if the aggregate amount of depreciation plus salvage value at the end of the useful life of the property will equal the cost of the property. Gain on the sale of depreciated property is taxable as ordinary income. Generally, book depreciation should conform with tax depreciation, unless the latter includes incentives. Properties used in petroleum operations may be depreciated over a period of ten years using the straight-line or declining-balance method at the option of the service contractor.
Properties used mining operations may be depreciated over any number of years between five years and the expected life if the latter is more than ten years, and the depreciation thereon is allowed as a deduction from taxable income.
A cost depletion allowance is available as follows.
1. For oil and gas wells-Based on actual reduction in flow and production ascertained not by flush flow but by the settled production or regular flow.
2. For mines-An amount not to exceed the market value as used for purposes of imposing the mining ad valorem taxes on the products mined and sold during the year.
Net operating loses/A net operating loss for any taxable year immediately preceding the current taxable year that had not been previously offset as a deduction from gross income may be carried over as a deduction from gross income for the next three consecutive taxable years immediately following the year of this loss(except losses during the period when the taxpayer was tax exempt), provided there has been no substantial change in the ownership of the business or enterprise. Previously, loss carryovers were allowed only for enterprises registered with the Board of Investments under the incentives law prior to 1987 as pioneer or preferred enterprises and contractors in mineral agreements and financial or technical assistance agreements under the Philippine Mining Act of 1995.
Loss carrybacks are not allowed.
Payments to foreign affiliates/A Philippine corporation can claim a deduction for royalties, management service fees and interest charges paid to foreign affiliates, provided such amounts are equal to what it would pay an unrelated entity and the appropriate withholding taxes are withheld and remitted. The registration of licensing and management agreements, now
known as technology transfer arrangements (TRAs), has been leberalized.
Only TRAs not conforming with certain provisions of the Intellectual Property Code require approval by and registration with the Documentation, Information and Technology Transfer Bureau of the Intellectual Property Office (formerly Bureau of Patents, Trademarks and Technology Transfer) to render the contracts enforceable.
Taxes/Corporate taxpayers can claim a deduction for all taxes paid or accrued within the taxable year in connection with their trade or business except for the following.
1. Income tax.
2. Income taxes imposed by authority of any foreign country.
3. Estate and donors taxes.
4. Taxes assessed against local benefits of kind tending to increase the value of the property assessed.
In the case of foreign corporation, deductions for taxes are allowed only if they are connected with income from sources within the Philippines.
Special deductions/A resident foreign corporation is allowed to claim allocated head office expenses as a deduction, subject to compliance with certain requirements.
Other significant items/The deduction for charitable contributions ordinarily may not exceed 5% of taxable income. However, contributions to certain institutions are 100% deductible, subject to certain conditions.
Special deductions are allowed for certain businesses, e.g., insurance, mining and petroleum. The allowable deduction for interest expense is reduced by an amount equal to 39% of interest income subject to final tax, beginning January, 1,1999(38% beginning January 1,2000).
GROUP TAXATION
Group taxation is not permitted.
TAX INCENTIVES
Inward investment/See "Capital investment" below.
Capital investment/Tax incentives available to export enterprises registered with the Board of Investments are as follows.
1. Income tax holiday giving full exemption from corporate income tax for six years for pioneer firms and those locating in less-developed areas and four years for nonpioneer firms from the date of commercial operation or target date of operation, whichever is earlier; expanding export-oriented
firms are given three years. Subject to certain exceptions, new and expansion projects located in the National Capital Region (NCR) or Metro Manila are no longer entitled to the income tax holiday and to incentives on capital equipment.
2. Full exemption from taxes and duties
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