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The Philippine government is still implementing quarantine protocols across various regions, including the most significant business district, Metro Manila. In response to the business communities’ prayer for government help from the difficulty of their business operations due to the Covid 19 Pandemic, the government has passed the Republic Act No. 11494, also known as the “Bayanihan to Recover as One Act”.
One of the features to help the businesses’ growing uncertainties and losses is a provision relative to Net Operating Loss Carry-Over (NOLCO) Under Section 34 (D) (3) of the National Internal Revenue Code (NIRC), as Amended and the Bureau of Internal Revenue (BIR) has already issued the Revenue Regulations No. 25-2020 dated September 30, 2020, to put the amendment into effect.
Notwithstanding the provision of existing laws to the contrary, the net operating loss of the business or enterprise for taxable years 2020 and 2021 shall be carried over as a deduction from gross income for the next five (5) consecutive taxable years immediately following the year of such loss; Provided, that this subsection shall remain in effect even after the expiration of this Act.”
Prior to the issuance of RR No. 25-2020, Section 34 (D) (3) of the NIRC, the NOLCO can only be carried over to the next three (3) consecutive taxable years immediately following the year of such loss.
Under the present law RA 11494, this is now extended to the next five (5) consecutive taxable years following the year of such loss. However, this is only applicable to the registered Corporation and taxable partnerships and not including the businesses operating under a “Sole Proprietor” set up.
NET OPERATING LOSS as defined in Section 3 (3.3) in RR 25-2020, means the excess of the allowable deductions over gross income of the business in a taxable year.
In reporting the NOLCO to the income tax return and Notes to Financial Statements, the taxpayer corporation must be careful to comply with the requirement so as not to disqualify them from claiming the NOLCO.
Presentation of NOLCO in Tax Return and Unused NOLCO in the Income Statement. – The NOLCO shall be separately shown in the taxpayer’s income tax return (also shown in the Reconciliation Section of the Tax Return) while the unused NOLCO shall be presented in the Notes to the Financial Statements showing, in detail, the taxable year in which the net operating loss was sustained or incurred, and any amount thereof claimed as NOLCO deduction within five (5) consecutive years immediately following the year of such loss. The NOLCO for taxable years 2020 and 2021 shall be presented in the Notes to Financial Statements separately from the NOLCO of the other taxable years. Failure to comply with this requirement will disqualify the taxpayer from claiming the NOLCO.
With this, the NOLCO incurred in the taxable year 2020, can be carried over to the next five (5) consecutive taxable years from 2021 to 2025 while the NOLCO incurred in the taxable year 2021 can be carried over to the next five (5) consecutive taxable years 2022 to 2026.
If you have any questions regarding the above, please do not hesitate to leave your inquiry at contact@orbis-alliance.com and a member of our team of experts will get back to you shortly.