Improperly Accumulated Earnings Tax (Closely held Corporations)

Revenue Memorandum Circular (RMC) No. 35-2011 has issued by the bureau for the clarification of issues concerning the Imposition of Improperly Accumulated Earnings Tax Pursuant to Section 29 of the Tax Code of 1997, in relation to Revenue Regulations No. 2-2001.

1. In addition to other taxes imposed, there is imposed for each year on the improperly accumulated taxable income of each corporation an improperly accumulated earnings tax equal to 10% of the improperly accumulated taxable income. The objective of imposing improperly accumulated earnings tax is to force corporations to distribute dividends to shareholders in order that related tax in dividends will be collected.

2. Improperly accumulated earnings tax is imposed on improperly accumulated taxable income earned starting January 1, 1998 by domestic corporations as defined under the Tax Code and which are classified as closely held corporations. The improperly accumulated earnings tax shall NOT APPLY TO:

a. Publicly held corporation;

b. Banks and other non-bank financial intermediaries;

c. Insurance companies;

d. Taxable partnerships;

e. General professional partnerships;

f. Non-taxable joint venture; and

g. Enterprises registered with PEZA and under Bases Conversion and Development Act, special economic zones.

Closely held corporations are those corporations at least 50% in value of the outstanding capital stock or at least 50% of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or for not more than 20 individuals. Domestic corporations not falling under the aforementioned definition are, therefore, publicly-held corporations.

Certain Circumstances indicating Improper accumulation of profits:

1. Substantial changes to corporate officers who are stockholders at the same time/Personal loans.

2. Radical change in the nature of business after a considerable surplus has been accumulated.

3. Investment is unrelated business or activity.

4. Substantial expenditures of corporations for the personal benefit of stockholders only.
                       

PRESUMPTIONS of Improper Accumulation
a. The fact that any corporation is a mere holding company; or investment company shall be prima facie evidence of a purpose to avoid the tax upon its shareholders or members.

“Holding or Investment Company” shall refer to a corporation having practically NO ACTIVITIES except holding property, and collecting the income therefrom or investing the same

b. The fact that the earnings or profits of a corporation are permitted to accumulate beyond the reasonable needs of a business shall be determinable of the purpose to avoid the tax upon its shareholders or members, unless the corporation, by clear preponderance of evidence, shall prove to the contrary.

When is accumulation of profits Unreasonable?

If it is not required for legitimate business purposes, considering all circumstances of the case. 

The following are considered LEGITIMATE BUSINESS PURPOSES.

a. For additional working capital needed by the business.

b. For plant expansion of the business.

c. If, in accordance with contractual obligations, placed to the credit of a sinking fund for the purpose of retiring bonds issued by the corporation.

3. EFFECT of IAET: Once the profit has been subjected to IAET, the same shall no longer be subjected to IAET in later years, even if not declared as dividends. Notwithstanding the imposition of the IAET, profits which have been subjected to IAET, when finally declared as dividends, shall nevertheless be subject to tax on dividends under the Tax Code, except in those circumstances where the recipient is not subject thereto.

4. Proforma computations of improperly accumulated taxable income.

Taxable Income for the year (e. g., 2010)                                                     P xxx
Add:
 (a) Income subjected to Final Tax                           P xxx
 (b) Income exempt from tax                                       xxx
 (c) Income excluded from gross income                    xxx
 (d) NOLCO                                                                 xxx                                 xxx

Less: 
Dividends, actually or constructively paid                   xxx 

Income tax paid for the whole year                              xxx                                 xxx
Total                                                                                                                    xxx  
Add: Retained Earnings from prior years

Accumulated Earnings as of December 31, 2010
Less: Amount that may be Retained

          (100% of Paid-Up Capital as of December 31, 2010)
          or Amount reserved for the reasonable needs for the business                  xxx 

Improperly accumulated earnings or

Improperly Accumulated Taxable Income                                                 P   xxx

Multiply by: Tax Rate                                                                                          10%

Improperly accumulated earnings tax                                                         P  xxx

5. Reasonable needs of the business include the reasonably anticipated needs of the business.

6. The IAET is not computed and applied by the corporation on itself in its income tax return for a taxable year. The BIR makes the computation on its allegation of improper accumulation of profits by the corporation. The BIR makes a computation a year or years after the improper accumulation shall have taken place.

SOURCE: http://www.bir.gov.ph/images/bir_files/old_files/pdf/59678RMC%20No%2035-2011.pdf and http://www.bir.gov.ph/images/bir_files/old_files/pdf/rr02_01.pdf

Requirements on the Processing of Applications for Cash Conversion of Tax Credit Certificates

The Bureau just recently issued the Revenue Memorandum Circular no. 77-2014, clarifying certain requirements on the processing of applications for cash conversion of tax credit certificates.

It is clarified in the circular the all applications for cash conversion of TCCs which have been filed with the concerned revenue Office that issued the said TCC before the expiration of the validity period, as indicated on the face of the TCC, shall no longer be required to be revalidated for purposes of continuance of the processing of applications for TCC cash conversion.

The provisions of Section 5 b) of Revenue Regulations No. 5-200 dated July 19, 200 is clear that: "Any request for conversion into cash refund of unutilized tax credits may be allowed during the validity period of any TCC.xxx" (underscoring ours).

On the other hand, the provisions of Section 5 c) and d) of the same regulations governing revalidation only apply to any TCC whose validity period is about to expire and the same needs to be revalidated by reason that the holder of the TCC has to apply the unutilized portion thereof on its/his/her tax liabilities, subject to the prescribed exception where the TCC has already been previously revalidated.

Accordingly, the processing of all applications for TCC cash conversion filed before the expiration of the validity period of the TCC with the TCC-issuing Office and remained pending with and withheld by the concerned processing revenue Office as of the date of expiration thereof by reason of the above issue shall proceed accordingly, whether for verification, approval or for payment, without the need for revalidation of the covered TCC.

Refer http://www.bir.gov.ph/images/bir_files/internal_communications_2/RMC%20No%2077-2014.pdf of the full tex of the said circular.

Revenue Regulations No. 5-2000 was issued in August 15, 2000 governing the manner of the issuance of Tax Credit Certificates (TCCs) and the conditions for their use, revalidation and transfer. It is stated in the regulations that a TCC may be used in the by the grantee or his assigneee in the payment of his direct internal revenue tax liability but in no case shall the TCC be use in the payment of the following:

1. Payment or remittance for any kind of withholding tax;

2. Payment arising from the availment of tax amnesty declared under a legislative enactment;

3. Payment of deposits on withdrawal of exciseable articles;

4. Payment of taxes not administered or collected by the Bureau of Internal Revenue; and

5. Payment of compromise penalty

Besides, in no case shall a tax refund or TCC be given resulting from availment of incentives granted pursuant to special laws for which no actual tax payment was made.  

BIRissued TCCs may be transferred in favor of an assignee subject only to the following conditions: 

1) the transfer of a valid TCC must be with prior approval of the Commissioner or his duly authorized representative; 

2) the transfer should be limited to one transfer only; and 

3) the transferee shall use the TCC assigned to him strictly in payment of his direct internal revenue tax liability and in no case shall the same be available for conversion to cash in his hands. 

Any TCC issued which remains unutilized after five (5) years from the date of issue shall, unless revalidated before the end of the fifth year, be considered invalid. This means that the TCC shall not be allowed for use in payment of any of the taxpayer's internal revenue tax liability nor allowed to be transferred and the unutilized amount thereof shall revert to the General Fund of the National Government. The revalidated TCC shall be valid for a period of five years from the date of issue. Any request for conversion into cash refund of unutilized tax credits may be allowed during the validity period of the TCC, subject to conditions specified in the Revenue Regulations. Any TCC issued prior to January 1, 1998, may be submitted for revalidation by the holder within six (6) months prior to the end of the fifth (5th) year. No revalidated TCC shall be issued unless the Commissioner's duly authorized representative has certified that the applicant taxpayer has no outstanding tax liability. If the holder has any outstanding tax liability, said liability should be applied first against the TCC sought to be revalidated through the issuance of a Tax Debit Memo.

Special Corporations

SPECIAL CORPORATIONS

Taxpayer		Tax Base	Tax Rate
·        Proprietary educational institution and non-profit hospital		Taxable income from all sources	10%
·         Resident international carrier		Gross Philippine Billings	2 ½ %
· Regional Operating headquarters of multinational corporation		Philippine Taxable Income	10%
·         Nonresident owner or lessor of vessel		Gross rentals, lease and charter fees from the Philippines. ·         Only from charters or leases of the vessels to Filipino citizens or corporations approved by the Maritime Industry Authority.	4 ½ %
·    Nonresident cinematographic film owner, lessor or distributor		Gross income from the Philippines	25%
·     Nonresident lessor of aircraft, machinery   and other equipment		Gross rentals, charges and other fees from Philippine sources	7 ½ %
· Regional Operating headquarters of multinational corporation		Philippine taxable income	10 %

REMINDER:

-        MCIT is not applicable to Special Corporations

-  If the Gross income of a proprietary educational institution or hospital fromunrelatedtrade, business, or other activity exceeds 50% of the total gross income derived from all sources, such educational institution or hospital will be taxed as an ordinary corporation.

-     Nonresident owners of vessels are treated as special corporations only from charters or leases of the vessels to Filipino citizens or corporations approved by the Maritime Industry Authority.

-  All revenues of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes.

Gross Philippine Billings

For international Air carrier	Refers to the amount of gross revenue derived from carriage of persons, excess baggage, cargo or mail originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or payment of the ticket or passage document.
For International Shipping	Means gross revenue whether for passenger, cargo, or mail originating from the Philippines up to final destination, regardless of the place of sale or payment of freight documents.

Private Educational Institutions and Hospitals:

·         If their gross income from unrelated trade or business exceed 50% of their gross income from all sources the rule on ordinary corporation (30% rates) shall apply.

For Non-Resident Corporations:

·         Unless, otherwise, provided a foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to 30% of the gross income received during the taxable year from all sources within the Philippines such as interests, rents, salaries, premium (except reinsurance premiums), annuities, emoluments, or other fixed or determinable annuities. Periodical or casual gains, profits and income and capital gains, except income subject to Capital gains tax.

Optional Corporate Income Tax (Gross Income Tax)

Optional Corporate Income Tax (Gross Income Tax)

1.       The President, upon the recommendation of the Secretary of Finance may, effective January 1, 2000,            allow corporation to be subjected to optional corporation tax.

2.       The tax rate of 15% on the gross income.

3.       The following conditions shall have to be satisfied in the allowance of optional corporate tax:

a.        A tax effort ration of 20% of Gross National Product (GNP);

b.       A ratio of 40% of income tax collection of total tax revenue;

c.        A VAT effort of 4% of GNP; and

d.       A 0.9 ratio of the Consolidated Public Sector Financial Position to GNP.

4.       The option to be taxed based on gross income shall be available only to firms whose ratio of cost of      sales to gross sales or receipts from all sources does not exceed 55%.

5.       The election of the gross income option by the corporation shall be irrevocable for the three (3)          consecutive taxable years during which the corporation is qualified under the scheme.

6.       For purposes of the gross income tax, “Gross Income” derived from the business shall be equivalent to Gross Sales less sales returns, discounts and allowances and cost of goods sold.  “Cost of Goods Sold” shall include all business expenses directly incurred to produce the merchandise to bring them to their present location.  For trading concern, Cost of Goods Sold shall include the invoice cost of the goods sold, plus import duties, freight in transporting the goods to the place where the goods are actually sold including insurance while goods are in transit.

Minimum Corporate Income Tax

Minimum Corporate Income Tax (MCIT):

1.       A tax rate is 2% based on:

a)       Gross income within and without – Domestic corporation

b)       Gross income within – Resident foreign corporation

Computation of the Gross Income used as a basis in computing the MCIT:

Merchandising/Manufacturing Concerns			Service Concerns
Net Sales	Pxxx		Gross receipts/revenue	Pxxx
Less: Cost of Sales	xxx		Less: Direct cost of services	xxx
Gross Income subject to MCIT	Pxxx		Gross income subject to MCIT	Pxxx

-  “Gross Income” shall include all income earned or realized during the taxable year that is subject to normal tax, including gross income derived outside of the main activities of the taxpayer (RR 12-2007).

-  “Direct Cost of Services” includes salaries of personnel rendering the services, expenses on the facilities directly utilized, cost of supplies, and the like.

2.       The tax is imposed beginning on the fourth taxable year immediately following the year in         which such corporation commercial its business operation.

3.       The tax due is the higher between the minimum corporate income tax and normal or regular           corporate income tax.

4.       Any excess of the minimum corporate income tax over the normal corporate income tax shall be  carried forward and credited against the normal income tax for the three succeeding taxable  years.  In addition, the normal tax should be higher than the minimum corporate tax in the year  to which the excess MCIT is forwarded.

5.       The Secretary of Finance is authorized to suspend the imposition of minimum corporate income    tax on any corporation due to:

-  losses on account of prolonged labor disputes

-  force majeure

-  legitimate business reverses.

6.       DOMESTIC corporations NOT subject to MCIT

-  Corporations under PEZA and Bases Conversion Development Act

-  Proprietary Educational Institutions

-  Non-profit hospitals

-  Domestic corporations engaged in depository banks under the expanded foreign currency deposit unit (FCDUs) on their income from foreign currency transactions with local commercial banks and other depository banks under the foreign currency deposit system.

7.       RESIDENT FOREIGN corporations NOT subject to MCIT

-  International carriers

-  OBUs

-  ROHQ

-  Those under PEZA and BCDA

Domestic Corporation, Foreign Corporation, Government Owned and Controlled Corporation (GOCCs) and Cooperatives

Domestic Corporation

-         Is a corporation created or organized in the Philippines or under its laws.

Foreign Corporation

-         A corporation which is not domestic, and may be a resident (engaged in business in the Philippines) or nonresident corporation (not engaged in business in the Philippines.

Government Owned and Controlled Corporations (GOCCs)

-         All corporations, agencies, or instrumentalities owned or controlled by the Government, shall pay such tax rate of tax upon their taxable income as are imposed upon corporations or associations engaged in similar business, industry or activity, except the following:

a.        Government Service Insurance System (GSIS)

b.       Social Security System (SSS)

c.        Philippine Health Insurance Corporation (PHIC); and

d.       Philippine Charity Sweepstakes Office (PCSO)

COOPERATIVES

-  A duly registered association of persons with common bond of interest, who have voluntarily joined together to achieve a lawful common social or economic end, making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles.  (RA 6938)

TAX EXEMPT	1.       Income tax on income from operations. 2.       Output VAT on sale 3.       3% percentage tax 4.       Donors tax to duly accredited charitable research and educational institutions, and re-investment to socio-economic projects within the area of operation of the cooperatives. 5.       Excise tax 6.       Annual registration fee of P500.
TAXABLE	1.       20% final tax on interest in any currency bank deposit, yield or any monetary benefit from deposit substitute and from trust fund and other similar arrangements and royalties from sources within the Philippines. 2.       7.5% Interest income derived from depository bank under expanded foreign currency deposit system. 3.       Capital gains tax on sales or exchanges of real property classified as capital assets or shares of stocks. 4.       Documentary stamp taxes on transactions of cooperatives dealing with non-members when the accumulated reserves and undivided net savings on such cooperatives exceed P10,000,000; and 5.       Vat on purchases of goods and services.

Corporation

·         The term “Corporation” shall include partnerships, no matter how created or organized, joint stock companies, joint accounts (ceuntas en participacion), associations, or insurance companies. It also includes mutual fund companies, regional operating headquarters of multinational corporations, and joint accounts.

The term “Corporation” does not include the following:

1.       A general professional partnership – a partnership formed by persons for the sole purpose of exercising their common profession.

2.       A joint venture or consortium formed for the purpose of undertaking construction projects.

3.       A joint or consortium for engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating consortium agreement under a service contract with the government.

Joint venture	Is a commercial undertaking by two or more persons, differing from a partnership in that it relates to the disposition of a single lot of goods or the completion of a single project.
	Generally, joint ventures are subject to tax (taxable joint ventures) Exempt joint ventures presented in A2 and A3 above
	The share in a taxable joint venture’s net income is treated as inter-corporate dividend which is generally exempt from income tax.  In case of individual venturer, it is subject to 10% final tax.
	The share in a non-taxable joint venture’s net income is subject to corporate income tax or Sec. 24A, in case of individual co-venturer.
Under Section 3 of RR 20-2012, Effective June 2012, a joint venture or consortium formed for the purpose of undertaking construction projects not considered as corporation under Sec 22 of the NIRC of 1997 as amended, should be: -  For the undertaking of a construction project; and -  Should involve joining or pooling of resources by licensed local contracts; that is, licensed as general contractor by the Philippine Contractors Accreditation Board (PCAB) of the Department of Trade and Industry (DTI); -  These local contractors are engaged in construction business; and -  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) Mandatory Enrollment to the BIR’s EFPS All licensed local contractors are required to enroll themselves to the Bureau of Internal Revenue’s Electronic Filing and Payment System (EFPS). The enrollment should be done at the Revenue District Office (RDO) where the local contractors are registered as taxpayers. Joint ventures involving foreign contractors may also be treated as a non-taxable corporation provided: -  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 -  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. Absent any one the aforesaid requirements, the joint venture or consortium formed for the purpose of undertaking construction projects shall be considered as taxable corporations. In addition, 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 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.
Joint stock companies	Are constituted when a group of individuals, acting jointly, establish and operate business enterprise under an artificial name, with an invested capital divided into transferable shares, an elected board of directors, and other corporate characteristics , but operating without formal government authority.
Joint accounts (cuentas en participacion)	Is constituted when one interests himself in the business of another by contributing capital thereto, and sharing in the profits or losses in the proportion agreed upon.  They are not subject to any formality and may be privately contracted orally or in writing.

Installment Sale

 INSTALLMENT SALE

a.              Installment payment of Capital Gain Tax is applicable only to sale of shares of stock not  traded in   the local stock exchange and real asset considered as capital asset (initial  payment must   not exceed 25% of selling price)

b.               The 25% rule is applicable also to personal capital asset and ordinary asset but only to  determine whether gain on sale is to be recognized on a deferred basis (Initial payment  must not exceed 25% of selling price) or not

c.                Apply the rule on holding period for personal capital assets

Initial payment refers to the total payments receive in cash or property (other than evidences of indebtedness) by the seller upon or before the execution of the instrument of sale during the taxable year of the disposition of the real property. It also includes the excess of mortgage assumed by the buyer over the basis (cost) to the seller.

Down payment                                                  xxx

Add: installment payments in the year of sale    xxx

Less: Excess of mortgage assumed by
          buyer over the cost of the seller              xxx

Initial payments                                               xxx

Contract price is usually:

·         The selling price

·         The selling price reduced by the mortgage assumed by the buyer on the property     that he purchased.

·         The selling price reduced by the mortgage assumed by the buyer and increased by   the excess of mortgage assumed by the buyer over the basis (cost) of the seller.

Selling price                                                               xxx
Less: mortgaged assumed by the buyer, if any             xxx
Balance                                                                      xxx
Add: excess of mortgage over the cost of the seller     xxx
Contract price                                                            xxx

Selling price                                                                                              
Cash received                                                            xxx
FMV of property received                                           xxx
Installment obligations of the buyer
(evidence of indebtedness)                                         xxx
Mortgage assumed by the buyer                                  xxx

Tax Due and Payable:

Tax due = Capital Gains Tax  / Contract Price x Payment received or collection

Dealings in Property

Dealings in property refers to the disposal through sale or exchange of ordinary assets or capital assets. 

Under the tax code, the following are ORDINARY ASSETS:

1.       Stock in trade of the taxpayer or other property of a kind which would properly be      included in the inventory of the taxpayer properly held by the taxpayer primarily for    sale such as:

      a.       Merchandise inventory

      b.      Real estate held or being sold by real estate dealers.

      c.       Securities held or being sold by dealers in securities.

2.       Properly used in trade or business subject to depreciation (property, plant and                equipment).

3.       Real property used in trade or business by the taxpayer (including real property held    for rent).

Capital assets

·         Include all other property held by the taxpayer, whether or not connected with      his trade or business not included in the definition or ordinary assets above.

Examples:

-   Stock and securities held by taxpayers other than dealers in securities.

-   Interest in partnership and joint venture

-   Goodwill

-   Real property not used in trade or business (i. e., residential house and lot)

-   Investment property

Property classification of an asset as capital or ordinary is important because of the special tax rules or gains and losses from sales or exchanges of capital assets which do not apply to gains and losses from sale or exchanges of ordinary assets.

“Gains and Losses from dealings in property”

Difference between the amount of value received by the taxpayer over the determined value of the property he has disposed of arising from sale, and/or exchange of assets. Gains and losses may be classified as capital gain (loss) or ordinary gain (loss).

DEFINITION OF TERMS

Capital gain – Gain from the sale, exchange, or other disposition of capital asset

Ordinary gain – Gain realized from the sale or exchange of ordinary asset including gains from performance of services and business.

Capital loss – Loss from the sale, exchange, or other disposition of capital asset.

Ordinary loss – Loss incurred from the sale or exchange of ordinary asset. (It also means the excess of deductions over the gross income of a taxpayer during a taxable year, or net operating loss).

Net Capital Gain – Excess of the gains from sales or exchanges of capital assets over the losses from such sales or exchanges.

Holding Period – Length of time the asset was held by the taxpayer. It covers the period from the date of acquisition to the date of sale or exchange.

Net Capital Loss – Excess of the losses from sales or exchanges of capital assets over the gains from such sales or exchanges

Dealers in Securities – All persons, who for their own account are engaged in the sale of stocks, bonds, exchanges, bullions, coined money, bank notes, promissory notes, or other securities as licensed by the SEC.

TAX IMPLICATIONS

a       Subject to percentage taxes.

1.       Sale, barter, or exchanges of shares of stocks listed or traded through the local stock          exchange. – ½ of 1% of the gross selling price or gross value in money of the shares of  stock sold.

2.       Shares of stock sold or exchange through initial public offering.

 -          On sale, exchange, or other disposition through initial public offering of shares of         stocks in closely held corporation, based on the gross selling price or gross value in     money of the shares of stock sols, etc., in accordance with the proportion of the             shares of stock sold, etc., to the total outstanding shares of stock after listing in the       local stock exchange.

Up to 25%                                                   4%

Over 25% but not over 33 1/3%                   2%

Over 33 1/3                                                 1%

b      Subject to final income tax – CAPITAL GAINS TAX:

1.       Capital gains from the sale of shares of stock not traded in the stock exchange

Not over P100,000                                                    5%

Over any amount in excess of P100,000                   10%

2.       Capital gains from the sale in excess of P100,000

Based on gross selling price or fair market value

Whichever is higher                                                   6%

c        Subject to REGUAR INCOME TAX – all other capital asset transactions

Tax RULES on capital gains and losses:

1.       The transaction must involve property classified as capital asset.

2.       The transaction must arise, generally, from sale or exchange.

3.       Net capital gain is added to ordinary gain, however, if the result is a net capital loss, such loss can only be deducted from the net capital gain.

Individual Taxpayers              
                                               

1-       Percentage to be recognized based on holding period            

(the length of time the asset was held by the taxpayer                 

·         100% - if capital asset has been held for 12 months or less

·        50% - if capital asset has been held for more than 12 months

2-       Capital Losses shall be allowed only to the extent of capital gains                                           

                                                                                                              

3-       Net Capital loss carry over is allowed                                             

  

·         If any taxpayer other than a corporation, Sustains in any taxable year a net capital

loss (in an amount not in excess of the net income for such year, shall be treated in

the succeeding year as a short term capital loss (100% deductible form of capital gain).

·         The net income referred to is BEFORE Personal exemptions

4-       Capital losses are deductions only from capital gains                       

 

Corporations

1. Percentage to be recognized of the holding period

2. Capital losses shall be allowed to the extent of capital gains.

3. Net Capital loss carry is NOT allowed.

4. Capital losses are allowed only to the extent of capital gains.

Any loss sustained by a domestic or any trust company from sale of bonds, debentures, notes, or certificate or other evidences of indebtedness issued by any corporation, including those issued by the government is considered as these are subject to final capital gains taxes.