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RMC No. 138-2020

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REVENUE MEMORANDUM CIRCULAR NO. 138-2020 issued on December 23, 2020 clarifies Revenue Regulations (RR) No. 25-2020 on the availment of the Net Operating Loss Carry-Over (NOLCO) for taxpayers adopting fiscal year.

RR No. 25-2020 was issued to implement Section 4 (bbbb) of the “Bayanihan to Recover as One Act” (RA No. 11494) relative to the NOLCO incurred by businesses for taxable years 2020 and 2021. The said Regulations, in conformity with the law, stated that, “unless otherwise disqualified from claiming the deduction, the business or enterprise which incurred net operating loss for taxable years 2020 and 2021 shall be allowed to carry over the same as a deduction from its gross income for the next five (5) consecutive taxable years immediately following the year of such loss.”

Under existing revenue issuances, a fiscal year (FY) will fall on a particular taxable year depending on the number of months it has on the two (2) years involved. Thus, a FY ending on March 31, 2020 will fall on taxable year 2019 since it has nine (9) months in 2019 and only three (3) months in 2020. In the case of FY ending on June 30, 2021, the beginning of which is July 1, 2020, it is considered as taxable year 2020 since it has more days in 2020 (184 days) than in 2021 (181 days).

Based on the foregoing, those companies with fiscal years ending before July 31, 2020 and fiscal years ending after June 30, 2022 which incurred net operating loss are only allowed to carry-over the loss as a deduction from its gross income for the next three (3) consecutive taxable years under Sec. 34 (D)(3) of the Tax Code, as amended. They cannot avail of the extended period to carry-over the loss for another two (2) years

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