Anchor Banking Corporation, which was organized in 2000 and
existing under the laws of the Philippines and owned by the Sy Family of
Makati City, set up in 2010 a branch office in Shanghai City, China, to take
advantage of the presence of many Filipino workers in that area and its
booming economy . During the year, the bank management decided not to
include the P20 Million net income of the Shanghai Branch in the annual
Philippine income tax return filed with the BIR, which showed a net taxable
income of ~30 Million, because the Shanghai Branch is treated as a foreign
corporation and is taxed only on income from sources within the
Philippines, and since the loan and other business transactions were done
in Shanghai, these incomes are not taxable in the Philippines.
a) Is the bank correct in excluding the net income of its
Shanghai Branch in the computation of its annual
corporate income tax for 201 0? Explain your answer.
b) Should the Shanghai Branch of Anchor Bank remit profit
to its Head Office in the Philippines in 2011, is the branch
liable to the 15°/o branch profit remittance tax imposed
under Section 28 (A)(5) of the 1997 Tax Code?
Explain your answer. (5°/o)
Guys and Ladies, May i know your answers? a simple yes or no with a one sentence legal justification to your answer may suffice.
Question 1 (question a) is a little bit tricky
1. because the examiner is spoonfeeding you with the wrong reasons. you can answer the said question by just answering that anchor bank is correct because a a domestic bank, including its branches abroad (offshore banking unit of a domestic bank) should be taxable from sources within and without the Philippines. but you may not notice that the examiner is asking for more.
the bank may be correct in excluding the income from abroad but it was made for the wrong reason.
clue: fcdu and rbu are separate entities for taxation reporting purposes.
b. for those who can observe, the examiner is also testing your knowledge if you know how to treat the income of an overseas branch of a domestic bank (fcdu with non-residents) for tax purposes?
NOTE: THE bar examiner who framed this question must be a guy who is a stickler for details. this topic has never been asked in the previous bar exams.
NOTE: please take note that the law on this topic has been amended twice already.from 7.5percent final withholding to exempt for non-residents. the bar examiner is testing you if you are updated with the law.
NOTE: this topic is a little bit unfair because this is a difficult provision of law . all books in taxation (except for the book of atty. du-balladad) has never explained this aspect (regarding fcdu, rbu, etc etc)
NOTE: focus your answer on income tax only. dont mention the gross receipts aspect because that is a business tax.
as you may know, all individuals and corporations (assuming they are not exempt) are liable to pay :
1. income tax
2. business tax (either VAT or percentage tax)
(either exempt or Zerorated VAT)
(either exempt from percentage tax)
in the case of banks and similar institutions,there are also these two aspects:
1. income tax
2. business tax in the form of a percentage tax. that percentage tax is called gross receipts tax (5%).
since question number 1 is talking about income tax only, your answer should focus on income tax aspect only, and not on gross receipts (business tax). secondly, the focus of taxation should only be philippine income tax and not Shanghai income tax or shanghai profit remittance tax.
Question 1 (question b)is a simple question that will test your knowledge about what the term "branch profit remittance tax" means. you may also include in your answer the the proper treatment of the income of the said branch in so far as income tax is concerned.
I hope others would give their answers first before I will present mine.
Last edited by taxconsultantdavao on Mon Dec 31, 2012 11:22 pm; edited 1 time in total