REVENUE MEMORANDUM CIRCULAR NO. 62-2021 issued on May 17, 2021 clarifies certain provisions of Revenue Regulations (RR) No. 5-2021 relative to Corporate Income Taxation
         To qualify for the reduced Corporate Income Tax rate of twenty percent (20%), the total assets should not be more than P 100,000, 000, exclusive of the land. Total assets shall be net of depreciation and allowance for bad debts, if any. Further, the land where the business entity’s office, plant and equipment are situated is excluded in computing for the total assets.
         If the cost of acquisition of the land is reflected in the Financial Statements (FS), that cost shall be excluded in determining the total assets. But if the land is reflected in the FS at its fair market value (FMV), such FMV shall be excluded in the computation of the total assets, for purposes of determining if the corporation is qualified to the reduced Corporate Income Tax rate of 20%.
          The value of the land which shall be excluded in determining the total assets of the corporation is limited to that particular land where the business entity’s office, plant and equipment are situated during the taxable year for which the 20% Income Tax is imposed. Thus, if the land is being held primarily for sale to customers or land held for investment purposes, the value of these types of land should not be excluded in the determination of the business entity’s total assets.
        In order to determine the value of the land that shall be excluded in the computation of total assets, the percentage of the floor area devoted to the entity’s office shall be multiplied with the total value of the land.
        Private educational institutions distributing dividends to shareholders are taxable at the regular Corporate Income Tax rates of either 25% or 20%. The law is very specific that the preferential rate of 10% or l% starting from July 1, 2020 to June 30, 2023 shall be imposed to Proprietary Educational Institution, which is defined as “any private schools which are non-profit, maintained and administered by private individuals or groups, with an issued permit to operate from Department of Education (DepEd) or Commission on Higher Education (CHED) or Technical Education and Skills Development Authority (TESDA), as the case may be, under existing regulations”.
          The CREATE law did not prescribe new tax treatment for proprietary educational institutions and private hospital since it is already provided in the Tax Code of 1997, as amended. The CREATE Act merely reduced the tax rate from 10% to 1% effective July 1, 2020 to June 30, 2023 for such institutions which are non-profit
        The provision on RR No. 5-2021 regarding unutilized dividends should be read as “if the Certification shall state non-utilization of the dividends received, the unutilized dividends shall be declared as taxable income, and the corresponding tax due shall be subject to interest, surcharges
and penalties”.
        The tax treatment of dividends received by a domestic corporation from a resident foreign corporation (RFC) will depend on the sources of income of the RFC. Under Section 42(A)(2)(b) of the Tax Code, as amended, “dividend received from a foreign corporation shall be treated as income derived from sources within the Philippines, unless less than fifty percent (50%) of the gross income of the foreign corporation for the three-year period ending with the close of its taxable year preceding the declaration of such dividends (or for such part of the period as the corporation has been in existence) was derived from sources within the Philippines xxx xxx”.
          The phrase “4th year of business operations” in the illustration specified in Section 9.B of RR No. 5-2021 should be construed to mean “fourth taxable year immediately following the year in which such corporation commenced its business operation” as indicated under Section 3 of RR No. 5-2021 on Minimum Corporate Income Tax (MCIT). Thus, if the corporation commenced its business operations in 2017, MCIT may be imposed beginning the year 2021, if it exceeds the regular Income Tax. The taxable year in which business operations commenced shall be the year in which the corporation is registered with the BIR, as provided under RR No. 9-98.
           The law provides no distinction as to which type of industry can claim the additional allowable deduction of one-half (1/2) of the value of labor training expenses. There are, however, requirements that must be complied with before this deduction can be claimed. These are:
        a. The labor training expenses shall not be more than 10% of the Direct Labor Wage;
        b. The labor training expenses are incurred for skills development of enterprise-based trainees;
        c. The enterprise-based trainees are enrolled in public senior high school, public higher                              education institutions, or public technical and vocational institutions for the taxable year in                    which the labor training expenses are claimed. The training is covered by an apprenticeship                  agreement under Presidential Decree (PD) No. 442 or the Labor Code of the Philippines; and
        d. The Company claiming the additional deduction is granted an authority to offer training
            program for skills development as certified by the DepED, TESDA or CHED, as applicable
          Moreover, since the training is covered by an apprenticeship agreement, it follows that training expenses which pertain to training/s of employees under supervisory, managerial, administrative and support functions should not be included in the computation of the additional allowable deduction of one-half (1/2) of the value of labor training expenses. The resulting amount then shall be subject to a cap of not more than 10% of the Direct Labor Wage. The “direct labor” is that portion of salaries and wages which can be identified with and charged directly to a product or to a project or service on a consistent basis. Thus, it does not only apply to a manufacturing industry.