e. Investment company If the activities further include, or consist substantially of, buying and selling stocks, securities, real estate, or other investment property (whether upon an outright or a marginal basis) so that the income is derived not only from the investment yield but also from profits upon market fluctuations, the corporation shall be considered an investment company. f. Earnings or profits of a corporation are permitted to accumulate beyond the reasonable needs The fact that the earnings or profits of a corporation are permitted to accumulate beyond the reasonable needs of a business shall be determinative 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. g. Pro forma computation of improperly accumulated taxable income Taxable income xxx Add: Income exempt from tax xxx Income excluded from gross income xxx Income subject to final tax xxx Amount of net operating loss carry over deducted xxx xxx Total xxx Less: Dividends, actually or constructively paid xxx Income tax paid for the whole year xxx Amount reserved for the reasonable needs of the business xxx xxx Improperly accumulated taxable income xxx h. Reasonable need of the business Reasonable needs of the business include the reasonably anticipated needs of the business. i. Profits subjected to IAET no longer subject to same tax in later years Once the profits have been subjected to IAET, the same shall no longer be subjected to IAET in later years even if not declared as dividends. TAXATION – Corporation: Income Tax Rates(BATCH 22) TX-602
R e SA: The Review School of Accountancy Page 5 of 5 j. Profits subjected to IAET still subject to tax on dividends Profits which have been subjected to IAET when finally declared as dividends shall be subject to tax on dividends. k. Declaration of dividend to avoid IAET The dividend must be declared and paid or issued not later than one (1) year following the close of the taxable year. l. Payment of IAET Improperly accumulated earnings tax shall be paid within 15 days after one year following the close of the taxable year if dividends are not declared and paid or issued. m. Exercise A closely-held domestic corporation registered with the BIR in 2003 had the following data for the calendar year 2009: Sales P 6,000,000 Cost of sales 1,500,000 Business expenses 800,000 Net operating loss carry over 100,000 Dividend from a domestic corporation 300,000 Selling price of land (capital asset) costing P3,500,000 4,000,000 Interest on Philippine currency bank deposit, gross of 20% final withholding tax 40,000 Dividends declared and paid 800,000 Retained earnings appropriated for expansion 250,000 Tax paid for the first three (3) quarters 300,000 Excess MCIT in 2006 100,000 The BIR upon investigation found out that there was improper accumulation of earnings. The corporation did not contest the findings of the BIR. How much is the tax payable and the tax on improperly accumulated earnings for the year? - = E N D = - jb TAXATION – Corporation: Income Tax Rates(BATCH 22) TX-602
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- Spring '16
- PROF ZARA
- Taxation in the United States