Clarifying Revenue Regulation No. 25-2020 on the Availment of NOLCO for Taxpayers Adopting Fiscal Year
Headline 1: Clarification of RR No. 25-2020 relative to NOLCO incurred by businesses
Headline 2: Availment of NOLCO for Taxpayers Under Fiscal Year
Summary:
- Businesses or enterprises which incurred net operating loss for taxable year 2020 and 2021 will be allowed to carry over the same as a deduction from its gross income for the next 5 consecutive taxable years
- Companies with fiscal years ending BEFORE July 31,2020 and 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 3 taxable years
- FY taxable year table
The Bureau of Internal Revenue (BIR) as of December 22, 2020 released Revenue Memorandum No. 138-2020 (RMC No. 138-2020) which is effective immediately to clarify the previously released Revenue Regulation No. 25-2020 on the Availment of NOLCO for Taxpayers Adopting Fiscal Year.
Businesses or enterprises which incurred net operating loss for taxable year 2020 and 2021 will 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. The term taxable year and fiscal year are defined in Sec. 3 of the Regulations as follows:
“3.5 Taxable Year- means that calendar year, or the fiscal year ending during such calendar year, upon basis of which the net income is computed under Title II of Tax Code of 1997, as amended. TAxable year includes, in the case of a return made for a fractional part of a year, the period for which such return is made.
3.6 Fiscal Year- means an accounting period of twelve (12) months ending on the last day of any month other than December. Taxable year 2020 and 2021 shall include all those corporations with fiscal years ending on or before June 30, 2021 and June 30, 2022, respectively.”
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. Therefore, FY ending on March 31,2020 will fall on taxable yer 2019 since it has nine (9) months in 2019 and only three (3) months in 202. In the case of FY ending on June 30, 2021, the beginning of which is July 1, 2020, it shall be considered as taxable year 2020 since it has more days in 2020 (184 days) than 2021 (181 days).
Based on the information given above, the following FY ending on the stated months are counted as:
| Taxable year 2020 | Taxable year 2021 | ||
| FY ending July 31, 2020 | FY ending Jan. 31, 2020 | FY ending July 31, 2021 | FY ending Jan. 31, 2022 |
| FY ending Aug. 31, 2020 | FY ending Feb. 28, 2021 | FY ending August 31, 2021 | FY ending Feb. 28, 2022 |
| FY ending Sept. 30, 2020 | FY ending March 31, 2020 | FY ending September 30, 2021 | FY ending March 31, 2022 |
| FY ending October 31, 2020 | FY ending April 30, 2021 | FY ending OCtober 31, 2021 | FY ending April 30, 2022 |
| FY ending Nov. 30, 2020 | FY ending May 31, 2021 | FY ending November 30, 2021 | FY ending May, 31,2022 |
| FY ending June 30, 2021 | FY ending June 30, 2022 | ||
Companies with fiscal years ending BEFORE July 31,2020 and 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. Companies cannot vail of the extended period to carry-over the loss for another two (2) years.
