BIR extends NOLCO period to 5 years

MANILA, Philippines — The Bureau of Internal Revenue (BIR) has extended to five years the carry-over period for net operating losses incurred by businesses in 2020 and 2021 due to the impact of the coronavirus pandemic.

On Sept. 30, Finance Secretary Carlos Dominguez and Internal Revenue Commissioner Caesar Dulay signed Revenue Regulation 25-2020, implementing Section 4 of the Bayanihan To Recover As One or Bayanihan 2 Act, particularly on the net operating loss carry-over (NOLCO) of companies.

This allows businesses to deduct from their gross income the net losses they suffered in 2020 and 2021 within five years, instead of the usual three years.

“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 consecutive taxable years immediately following the year of such loss,” the RR stated.

“The net operating loss for said taxable years may be carried over as a deduction even after the expiration of Republic Act 11494 (Bayanihan 2), provided the same are claimed within the next five consecutive taxable years,” it said.

In line with this, the BIR said the NOLCO should be separately shown in the taxpayer’s income tax return.

The BIR said unused NOLCO should also be presented in the “notes to the financial statements” showing in detail the taxable year in which the net operating loss was incurred and any amount claimed as NOLCO deduction within the next five years following the year of loss.

“The NOLCO for taxable years 2020 and 2021 shall be presented in the notes to the financial statements separately from the NOLCO for other taxable years. Failure to comply with this requirement will disqualify the taxpayer from claiming the NOLCO,” the BIR said.

Economic managers have been pushing for the extension of the NOLCO period to five years to provide relief to local enterprises affected by the coronavirus pandemic.

It was originally proposed to be included in the Corporate Recovery and Tax Incentives for Enterprises (CREATE bill).

Meanwhile, the BIR also released RR 23-2020, repealing the taxes on stocks sold or traded through initial public offerings (IPO) pursuant to the Bayanihan 2 Law.

“Thus, every sale, barter, exchange or other disposition through IPO of shares of stock in closely held corporations shall no longer be subject to the tax imposed under Section 127(B) (of the National Internal Revenue Code) upon the effectivity of RA 11494,” the BIR said.

It also issued RR 24-2020, exempting from the documentary stamp tax loans extended or credits restructured under the Bayanihan to Recover as One Act.