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12th Annual Charlwin Lee Cup

National Federation of Junior Philippine Institute of Accountants – National Capital Region


Philippine Taxation Questions

ELIMINATION ROUND
EASY 1
A de facto merger involves the acquisition by one corporation of all or substantially all the properties of
another solely for stock. In addition, to constitute a de facto merger, the following elements must
concur: (1) there must be a transfer of all or substantially all of the properties of the transferor
corporation solely for stock, and (2) it must be undertaken for a bona fide business purpose and not
solely for the purpose of escaping the burden of taxation.

What is/are the tax consequence/s of the above?

I. Income Tax - The Transferor shall not recognize any gain or loss on the transfer of the
property to the Transferee.
II. Donor’s Tax - The Transferor is not subject to donor's tax, regardless of whether the value
of the property transferred exceeds the par/stated value of the Transferee shares issued to
the Transferor, there being no intent to donate on the part of the Transferor.
III. Value-Added Tax - The Transferor is subject to value-added tax ("VAT") on the transfer of
the property if it is not engaged in a business that is subject to the VAT under Title IV of the
Tax Code of 1997. Even if the Transferor is engaged in an activity that is subject to VAT, it
is nonetheless not subject to VAT on the transfer of the property to the Transferee.
IV. Documentary Stamp Tax - If the Transferor's shares are with par value, the documentary
stamp tax is imposed at the rate of P2 on each P200 or fractional part thereof of the par
value of such shares, regardless of whether the shares are issued at par value or for a
premium (that is, for a consideration in excess of par value).

A. I & II
B. III & IV
C. I only
D. II only

ANSWER: A.

Reference: REVENUE MEMORANDUM RULING NO. 01-02

Pursuant to the above, the following are the tax consequences of a de facto merger:

 Income tax. The Transferor shall not recognize any gain or loss on the transfer of the property
to the Transferee. Consequently, the Transferor will not be subject to capital gains tax, income
tax, nor to creditable withholding tax on the transfer of such property to the Transferee. Neither
may the Transferor recognize a loss, if any, incurred on the transfer.
 Donor's tax. The Transferor is not subject to donor's tax, regardless of whether the value of the
property transferred exceeds the par/stated value of the Transferee shares issued to the
Transferor, there being no intent to donate on the part of the Transferor.
 Value-added tax. The Transferor is not subject to value-added tax ("VAT") on the transfer of
the property if it is not engaged in a business that is subject to the VAT under Title IV of the
Tax Code of 1997. Even if the Transferor is engaged in an activity that is subject to VAT, it is
nonetheless not subject to VAT on the transfer of the property to the Transferee.
 Documentary stamp tax. The documentary stamp tax consequences of the transfer are as
follows:
xxx xxx xxx

4.1.4 If the Transferee's shares are with par value, the documentary stamp tax is imposed at
the rate of P2 on each P200 or fractional part thereof of the par value of such shares,
regardless of whether the shares are issued at par value or for a premium (that is, for a
consideration in excess of par value).

xxx xxx xxx


EASY 2
Which of the following statement/s is/are correct?
I. A member of the private sector participating in socialized housing projects is exempt from
Capital Gains Tax (CGT) on the transfer of raw lands used for such projects.
II. The 12% VAT imposed on all sales of goods and services, including those sales to
government, shall be assumed by the Philippine Government or its executing agencies
pursuant to the Exchange of Notes.
III. Input taxes arising from transactions attributable to activities unrelated to the OECF-funded
project shall be allowed or be credited against the output tax on gross receipts from the
project.
IV. A person with disability availing promotional fares for domestic air travel today shall be
entitled to 20% discount and VAT exemption.

ANSWER: I and II

Reference:
 I and II are correct pursuant to BIR Ruling No. 414-16 and RMC No. 08-17, respectively.
 III is wrong since RMC No. 08-17 specifically provides that in no case shall input taxes arising
from transactions attributable to activities unrelated to the OECF-funded project shall be
allowed or be credited against the output tax on gross receipts from the project.
 Pursuant to RMC No. 135-2016 as implemented by Republic Act No. 10754, Section 12 of
Rule IV provides that in the purchase of goods and services which are on promotional
discount, persons with disability can avail of the offered discount or the 20% discount provided
herein, whichever is higher and more favorable.

EASY 3
GSM Corporation assigned Mr. Bantigue, one of its employees, in the Makati head office. The
Company provided for the residential house of the manager paying a monthly condominium rental and
condominium dues amounting to PhP 34,000 and PhP 6,000, respectively. In addition, one of the cars
which was acquired by the Company at a cost of PhP 1,228,629 was allowed as service vehicle of Mr.
Bantigue. Its book value during the year amounted to PhP 634,000 with a remaining useful life of 6
years.

Compute for the deductible expense from the gross income of GSM Corporation in CY 2016.

ANSWER: PhP 790,563.09

Solution:
Condominium rentals::
Grossed-up monetary value PhP 300,000
Tax Rate 32%
Fringe Benefit Tax PhP 96,000
Fringe Benefit Expense 408,000
Condominium dues:
Grossed-up monetary value PhP 105,882.35
Tax Rate 32%
Fringe Benefit Tax 33,882.35
Fringe Benefit Expense 72,000
Car:
Grossed-up monetary value PhP 180,680.74
Tax Rate 32%
Fringe Benefit Tax 57,817.84
Fringe Benefit Expense 122,862.90
Deductible expense PhP 790,563.09
EASY 4
Which of the following is subject to advance business tax (VAT or percentage tax)?

A. Physical inventories of raw sugar and refined sugar covered by Quedans dated before
May 1, 2015
B. Raw sugar produced in the milling operations if it is sold to another person or entity.
C. Only A
D. Only B
E. None of the choices

ANSWER: D

References: REVENUE MEMORANDUM CIRCULAR NO. 025-15

 The physical inventories of raw sugar and refined sugar covered by Quedans dated before
May 1, 2015 are not subject to the imposition of the advance business tax (VAT or percentage
tax).
 In case where the taxpayer is engaged in integrated operation of milling and refining of sugar,
the advance business tax (VAT or percentage tax) prescribed under RR No. 6-2015 shall be
imposed on raw sugar produced in the milling operations if it is sold to another person or entity.

EASY 5
Which of the following discount/s may be deductible from gross selling price for VAT purposes?

I. Prompt payment discount


II. 5% discount, if paid within 7 days after delivery
III. Discounts for meeting quota
IV. Trade discount granted at the time of sale and stated on the face of the invoice
V. Bulk purchase orders

ANSWER: IV only

Reference:

 Sales Discount - may only be deducted from gross sales or receipts within the same
month/quarter it was given provided:

a. It is determined and granted at the time of sale


b. The discount is expressly indicated in the invoice
c. Amount thereof should form part of gross sales duly recorded in the books
d. The granting of the discount does not depend on the happening of a future event.

EASY 6
Which of the following statements is/are true regarding marginal income earners?

I. They are exempt from the payment of annual registration fee.


II. They are exempt from the payment of business taxes.
III. They are required to register their books of accounts.
IV. They are required to file and pay the annual income tax return using BIR Form No. 1701
similar to any other self – employed individuals.

ANSWER: B

Reference:

As clarified by the RMC No. 07-2014, the incidence of being a MIE as required under RR No. 7-2012
covers the following privileges and minimum registration and tax compliance requirements:

1. Registration with the Bureau using BIR Form No. 1901 with the following minimal documentary
requirements:
a. Sworn Statement of Income for the year; and
b. NSO Certified or Local Civil Registry Birth Certificate.
2. Exemption from the payment of Annual Registration Fee;
3. Registration of Books of Accounts (e.g., two-column journal or other simplified books for daily
expenses and revenues);
4. Issuance of registered principal receipts/sales invoices as prescribed under Revenue
Memorandum Order No. 12-2013 ;
5. Filing and Payment of Annual Income Tax Return using BIR Form No. 1701 similar to any
other self-employed individuals; and
6. Exemption from payment of business taxes (i.e., VAT or any Percentage Tax).

EASY 7
GSM Corporation has the following sale of real properties for the calendar year (CY) 2015.

Block/Lot Type of Aggregate Contract Recognized Output


Name of Buyer Threshold
No. Sale* Price tax
Mercado, O. 009-005 1 PhP 1,919,500 PhP 3,754,085 PhP -
009-006 2 3,199,200
Orcena, J. 008-0011 2 3,199,200 5,337,675 540,861
008-0012 1 1,919,500
Santos, M. 001-0022 1 1,919,500 3,410,700 -
001-0023 1 1,919,500
1Sale of lot only
2Sale of house and lot

As the tax consultant of the Company, you were asked to compute for the deficiency VAT. How much
would be the potential tax exposure (exclusive of the interest) of the above sales?

ANSWER: PhP 959,434

Reference:

Under Section 4.106-3 of RR No. 16-05, as amended by RR No. 13-12, the sale of real properties held
primarily for sale to customers or held for lease in the ordinary course of trade or business of the seller
shall be subject to VAT.

This includes sale, transfer or disposal within a 12-month period of two (2) or more adjacent residential
lots, house and lots or other residential dwellings in favor of one buyer from the same seller, for the
purpose of utilizing the lots, house and lots or other residential dwellings as one residential area
wherein the aggregate value of the adjacent properties exceeds
PhP 1,919,500.00 for residential lots and PhP 3,199,200.00 for residential house and lots or other
residential dwellings. Adjacent residential lots, house and lots or other residential dwellings although
covered by separate titles and/or separate tax declarations, when sold or disposed to one and the same
buyer, whether covered by one or separate Deed/s of Conveyance, shall be presumed as a sale of one
residential lot, house and lot or residential dwelling.

Based on the foregoing, the sale of adjacent residential properties in favor of one buyer during the year
shall be treated as a sale of one residential property and shall be subjected to 12% VAT if the aggregate
value of the adjacent properties exceeds PhP 1,919,500 for residential lots and PhP 3,199,200 for
residential house and lots or other residential dwellings.

Block/Lot Type of Aggregate Contract Recognized Output


Name of Buyer Threshold Deficiency VAT
No. Sale* Price tax
Mercado, O. 009-005 1 PhP 1,919,500 PhP 3,754,085 PhP - PhP 450,490
009-006 2 3,199,200
Orcena, J. 008-0011 2 3,199,200 5,337,675 540,861 99,660
008-0012 1 1,919,500
Santos, M. 001-0022 1 1,919,500 3,410,700 - 409,284
001-0023 1 1,919,500
Total PhP 959,434
1Sale of lot only
2Sale of house and lot

EASY 8
Filipinos exercising the option to be taxed at fifteen percent (15%) preferential rate for occupying the
same managerial or technical position as that of an alien employed in an ROHQ or RHQ must meet
which of the following requirements?

I. The employee must occupy a managerial position or technical position or actually


exercising such managerial or technical functions pertaining to said position.
II. The employee must have received or is due to receive under a contract of employment, a
gross annual taxable compensation of at least PhP 975,000.
III. The Filipino managerial or technical employee must be working for the ROHQ as a
consultant or contractual personnel.

ANSWER: II only

Reference:
 RR No. 11-2010

EASY 9
Which of the following transaction/s shall be subject to VAT?

I. Corporation’s use of its own lumber produced to repair its administrative building
II. Donation of real properties by Company A which is engaged in real estates to a religious
corporation
III. Consignment of goods the actual sale of which is not made within 60 days following the
date such goods were manufactured
IV. Retirement from or cessation of business, with respect to all goods on hand, whether
capital goods, stock-in-trade, supplies or materials as of the date of such retirement or
cessation, whether or not the business is continued by the new owner or successor

ANSWER: II and IV

Reference:

 VAT Ruling No. 049-90 - The lumber of your own manufacture and used to repair the
Corporation's administration building is not a "deemed sale" transaction, since the
Corporation's use and consumption thereof is in the course of its business, (i.e., to repair its
administration building). Hence, this is not subject to VAT.
 Consignment of goods the actual sale of which is not made within 60 days following the date
such goods were consigned

EASY 10
Please refer to the following assumptions:

A. Ow Co., an advertiser shall pay PhP 100,000 to the Denver Co., the media supplier, inclusive
of 12% VAT;
B. Denver Co. is a TV and radio block timer selling TV and radio commercial spot and payments
to it are subject to the 2% creditable withholding tax; and
C. The advertising agency, G Co., will receive a commission of 15% of the advertising contract
price, inclusive of 12% VAT, from the media supplier.

Upon receipt of income payment, Denver Co. issued VAT Official Receipt (OR) to Ow Co.. Meanwhile,
G Co. issued VAT OR to Denver Co. for the amount of commission received. Based on the foregoing,
how much is VAT due from Denver Co. on the particular transaction?

ANSWER: PhP 9,107.15

Reference:
 RMC No. 63-2012

Entries in the books of Denver Co.:

Billing to Client-Advertiser for the Media placement


Accounts Receivable-Advertiser 100,000
Income/Fees-Media Placement 89,285.71
Deferred VAT Payable 10,714.29

Receipt of Income Payment from Advertiser


Cash 98,214.29
Creditable IT Withheld 1,785.71
Accounts Receivable-Advertiser 100,000
Deferred VAT Payable 10,714.29
Output VAT 10,714.29
Receipt of Billing from Ad Agency for Commission (inclusive of VAT)
Commissions-advertising (PhP 15,000/1.12) 13,392.86
Deferred Input VAT 1,607.14
Accounts Payable – Ad Agency 15,000

Payment for Commission to Ad Agency


Accounts Payable – Ad Agency 15,000
Creditable IT Withheld 267.86
Cash 14,732.14
Input VAT 1,607.14
Deferred Input VAT 1,607.14
EASY 11
Which of the following may qualify for tax exemption of separation benefits received by an official or
employee as a consequence of separation from employment?

I. Redundancy
II. Retrenchment
III. Installation of cost-savings devices
IV. Cessation of Operation

ANSWER: I, II, IV

Reference:
 RMO No. 66-2016

EASY 12
The following data pertain to a VAT-registered taxpayer for February:

Sales, total invoice price P 1,223,419.56


Domestic purchases from a VAT supplier,
gross of VAT 400,820.15
In January, there is an importation of goods to be sold, with a landed cost of P 512,000. There are no
sales in January.

How much is the value-added tax due in February?

ANSWER: P 26,695.65

Solution:

Output tax (P 1,223,419.56 X 12/112) P 131,080.67


Less: Input taxes
VAT on importation carried over from
previous period (P512,000 X 12%) P 61,440.00
Purchases (P 400,820.15 X 12/112) 42,945.02 104,385.02
VAT payable P 26,695.65

EASY 13
In which of the following cases shall a pre-assessment notice not be required under Section 228 of the
1997 Tax Code, as amended?

I. When the finding for any deficiency tax is the result of mathematical error in the computation of
the tax as appearing on the face of the return.
II. When a discrepancy has been determined between the tax withheld and the amount actually
remitted by the withholding agent.
III. When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax
for a taxable period was determined to have not carried over and automatically applied the
same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of
the succeeding taxable year.
IV. When the excise tax due on excisable articles has not been paid.
V. When an article locally purchased or imported by an exempt person, such as, but not limited to,
vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred
to another exempt person.

ANSWER: I, II and IV only

Reference:

III. When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding
tax for a taxable period was determined to have carried over and automatically applied the
same amount claimed against the estimated tax liabilities for the taxable quarter or quarters
of the succeeding taxable year.

V. When an article locally purchased or imported by an exempt person, such as, but not
limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded
or transferred to non-exempt persons.

EASY 14
Which of the following statements is/are true regarding marginal income earners?

I. They are exempt from the payment of annual registration fee.


II. They are exempt from the payment of business taxes.
III. They are required to register their books of accounts.
IV. They are required to file and pay the annual income tax return using BIR Form No. 1701
similar to any other self – employed individuals.

ANSWER: All of the above

As clarified by the RMC No. 07-2014, the incidence of being a MIE as required under RR No. 7-2012
covers the following privileges and minimum registration and tax compliance requirements:

1. Registration with the Bureau using BIR Form No. 1901 with the following minimal documentary
requirements:
a. Sworn Statement of Income for the year; and
b. NSO Certified or Local Civil Registry Birth Certificate.
2. Exemption from the payment of Annual Registration Fee;
3. Registration of Books of Accounts (e.g., two-column journal or other simplified books for daily
expenses and revenues);
4. Issuance of registered principal receipts/sales invoices as prescribed under Revenue
Memorandum Order No. 12-2013 ;
5. Filing and Payment of Annual Income Tax Return using BIR Form No. 1701 similar to any
other self-employed individuals; and
6. Exemption from payment of business taxes (i.e., VAT or any Percentage Tax).

EASY 15
Which of the following will be allowed as a deduction in cases where no withholding of tax was made?

A. The recipient/payee failed to report the income but the withholding agent/taxpayer pays the tax
at the time of the original audit and investigation;
B. The recipient/payee failed to report the income on the due date thereof, but the withholding
agent/taxpayer pays the tax, including the interest incident to the failure to withhold the tax and
surcharges, if applicable, after the original audit and investigation;
C. The withholding agent erroneously underwithheld the tax but pays the difference between the
correct amount and the amount of tax withheld, including the interest, incident to such error,
and surcharges, if applicable, at the time of the original audit and investigation.
D. All of the above

ANSWER: C.

Section 2.58.5 Requirement for Deductibility provides that any income payment which is otherwise
deductible under the Code shall be allowed as a deduction from the payor's gross income only if it is
shown that the income tax required to be withheld has been paid to the Bureau in accordance with
Secs. 57 and 58 of the Code .In addition, a deduction will also be allowed in the following cases where
no withholding of tax was made
:
1. The payee reported the income and the withholding agent/taxpayer pays the tax,
including the interest incident to the failure to withhold the tax, and surcharges, if applicable, at the
time of the original audit and investigation;

2. The recipient/payee failed to report the income on the due date thereof, but the
withholding agent/taxpayer pays the tax, including the interest incident to the failure to withhold the tax
and surcharges, if applicable, at the time of the original audit and investigation;

3. The withholding agent erroneously underwithheld the tax but pays the difference
between the correct amount and the amount of tax withheld, including the interest, incident to such
error, and surcharges, if applicable, at the time of the original audit and investigation.

EASY 16
Which of the following are allowed to use the 40% Optional Standard Deduction (OSD) in the
computation of taxable income for income tax purposes?

I. Corporations formerly enjoying income tax holiday incentive


II. Barangay Micro Business Enterprises
III. PEZA – registered entities
IV. The partners of a General Professional Partnership (GPP) if the GPP availed OSD
V. Self-employed individuals

ANSWER: I and V only

Barangay Micro Business Enterprises – exempt under the 1997 Tax Code, as amended; hence, not
entitled to avail OSD [Section 5 (B) (1) of RR No. 2-2014].

PEZA – registered entities – mandated to use the itemized deduction [Section 5 (A) (2) of RR No. 2-
2014].

The partners of a General Professional Partnership (GPP) if the GPP availed OSD - If the GPP availed
the OSD in computing its net income, the partners are not allowed to claim the OSD from their share in
the net income (RR No. 02-2010).

EASY 17
Which of the following is not incorrect with regard VAT on PEZA-registered entities under 5% GIT
regime?

I. Export sales of registered products shall be zero-rated.


II. Sale of services to a buyer from customs territory shall be subject to VAT.
III. Sale of registered services to a PEZA-entity under ITH regime shall be zero-rated.
IV. Importation of goods shall be zero-rated.

ANSWER: II only

Reference:
 I is incorrect since exports sales of registered products shall be exempt from VAT.
 III is incorrect since sale of services to other PEZA-entities shall be exempt.
 IV is incorrect since importation of goods shall be VAT-exempt.

EASY 18
The following information taken from the books of a VAT-registered enterprise was provided to you:

Domestic sales of goods P 3,000,000


Sales of packaging materials to an export-
oriented enterprise whose export sales did not
exceed 70% of the total annual production 2,000,000
Local sales of goods to Asian Development
Bank (ADB) 500,000
Consignment of goods (not returned within
60 days following the date of consignment) 200,000
Goods transferred for the personal use of the owner 100,000

Compute for the output tax.

ANSWER: P 636,000

Solution:

Taxable sales Rate Output tax


Domestic sale of goods P 3,000,000 12% P 360,000
Sales of packaging materials
to export-oriented enterprise 2,000,000 12% 240,000
Local sales of goods to ADB 500,000 0% -
Consignment of goods (deemed sold) 200,000 12% 24,000
Goods transferred for the personal
use of the owner (deemed sold) 100,000 12% 12,000
Total P 5,800,000 P 636,000

EASY 19
Which of the following returns require to be filed with Monthly Alphalist of Payees (MAP)?

I. BIR Form No. 1601E


II. BIR Form No. 2550M
III. BIR Form No. 1702Q
IV. BIR Form No. 1601F

ANSWER: I and II

Reference:
 RR No. 02-2006

EASY 20
Which of the following is/are correct pursuant to Article 39 of Executive Order No. 226 on the
incentives granted to entities registered with the Board of Investments?

I. Income Tax Holiday - For six (6) years from commercial operation for pioneer firms and
four (4) years for non-pioneer firms, new registered firms hall be fully exempt from income
taxes levied by the National Government.
II. Additional Deduction for Labor Expense. - For the first five (5) years from registration a
registered enterprise shall be allowed an additional deduction from the taxable income of
fifty percent (50%) of the wages corresponding to the increment in the number of direct
labor for skilled and unskilled workers if the project meets the prescribed ratio of capital
equipment to number of workers set by the Board
III. Tax and Duty Exemption on Imported Capital Equipment - Within five (5) years from the
effectivity of this Code, importations of machinery and equipment and accompanying spare
parts of new and expanding registered enterprises shall be exempt to the extent of one
hundred percent (100%) of the customs duties and national internal revenue tax payable
thereon
IV. Simplification of Customs Procedures - Customs procedures for the importation of
equipment, spare parts, raw materials and supplies, and exports of processed products by
registered enterprises shall be simplified by the Bureau of Customs

ANSWER: All of the following

Reference: Executive Order No. 226 as amended by Republic Act No. 79182
AVERAGE 1
Ged Corporation, a closely-held domestic corporation, was in its fifteenth year of operations. It had a
retained earnings at the beginning of 2015 of PhP 3,000,000 (in profits in 2014), even as there was a
net loss in 2014 of PhP 200,000. The BIR was imposing the improperly accumulated earnings tax on
the accumulation of profits. The paid-up capital at the end of 2015 was PhP 3,500,000. For 2015, Ged
Corporation had:

Net Sales PhP 4,200,000


Cost of Sales 1,200,000
Business Expenses 1,000,000
Dividends from domestic corporation 200,000
Quarterly income tax paid (for the 1st-3rd Quarters) 510,000
Income Tax Due, end of the year 90,000
Dividend declared in 2014 (paid in 2015) 500,000

Compute for the Improperly Accumulated Earnings.

ANSWER: PhP 1,060,000

Reference: RMC No. 35-11

Net Sales PhP 4,200,000


Cost of Sales 1,200,000
Gross Profit 3,000,000
Business Expenses 1,000,000
Income before NOLCO 2,000,000
Less: NOLCO 200,000
Net Income 1,800,000

MCIT (P3,000,000 x 2%) 60,000


NT (P1,800,000 x 30%) 540,000
Whichever is higher 540,000

Taxable Income at the end of the year 1,800,000


Add: Dividend from domestic corporation 200,000
NOLCO 200,000 400,000
Total 2,200,000
Less: Normal Income Tax 540,000
Balance 1,660,000
Add: RE Beginning of the year 3,000,000
Total 4,660,000
Less: Paid-up capital at the end of the year 3,500,000
Improperly accumulated earnings PhP 1,060,000

AVERAGE 2
Which of the following information/s is/are required in the preparation of Summary List of Importations
(SLI)?

I. Date of payment of landed cost


II. Dutiable value
III. Date of importation
IV. Date of VAT payment
V. Country of origin

ANSWER: II, III, IV, V

Reference:
 RR No. 01-2012

AVERAGE 3
The 2015 income tax return (ITR) of MSG Corporation shows the following data:

Income tax due P 250,000


Less: Tax credits
Quarterly payments for the first three quarters ( 300,000)
Excess tax payments (P 50,000)
MSG Corporation opts to claim the excess payments in 2015 as tax credit to be carried over to
succeeding quarters of 2016.
The following cumulative data are presented:
First Second Third
Quarter Quarter Quarter Year

Sales, gross of 1%
withholding tax P 500,000 P 1,100,000 P 1,500,000 P 2,200,000
Cost 250,000 650,000 800,000 1,200,000
Operating expenses 50,000 150,000 300,000 500,000

How much is the income tax due to the BIR in April 15, 2017?

ANSWER: P 23,000

Solution:

Annual Return

Sales P 2,200,000
Less: Cost of sales ( 1,200,000)
Gross income from operation P 1,000,000
Add: Non-operating and other income -
Total gross income P 1,000,000
Less: Deductions ( 500,000)
Taxable income P 500,000
Tax rate 30%
Income tax due P 150,000
Less: Tax credits/payments
Prior year’s excess credits ( 50,000)
Tax payments, first 3 quarters ( 55,000)
Creditable tax withheld, first 3 quarters ( 15,000)
Creditable tax withheld, fourth quarter ( 7,000)
Tax payable (overpayment) P 23,000

Quarterly Declarations (Returns)


First Q Second Q Third Q
Sales P 500,000 P 600,000 P 400,000
Less: Cost of sales ( 250,000 ) ( 400,000) ( 150,000 )
Gross income 250,000 200,000 250,000
Add: Other income - - -
Total gross income 250,000 200,000 250,000
Less: Deductions ( 50,000) ( 100,000) ( 150,000 )
Taxable income, this quarter 200,000 100,000 100,000
Add: Taxable income,
previous quarters - 200,000 300,000
Total taxable income to date P 200,000 P 300,000 P 400,000
Tax rate 30% 30% 30%
Tax due P 60,000 P 90,000 P 120,000
Less: Tax credits/payments
Prior year’s excess tax credit ( 50,000) ( 50,000) ( 50,000 )
Tax payments, previous Qs ( - ) ( 5,000) ( 29,000 )
Creditable tax withheld,
previous quarters ( - ) ( 5,000) ( 11,000 )
Creditable tax withheld,
this quarter ( 5,000) ( 6,000) ( 4,000 )
Tax payable (overpayment) P 5,000 P 24,000 P 26,000

AVERAGE 4
Which of the following is/are considered as exempt transaction/s for VAT purposes?

I. Sale of marinated bangus


II. Sale or importation of feeds for aquarium fish
III. Services rendered by domestic common carriers by land for the transport of passengers
and keepers of garages
IV. Purchase of motor vehicle by the Director of World Health Organization (WHO) from the
Senior Social Specialist of the Asian Development Bank (ADB)
V. Sale of patented invention of an accredited member of the Filipino Inventors Society (FIS)
through Corporation S

ANSWER: III only

Reference:
 The sale of marinated milkfish is not exempt from VAT pursuant to Section 4.109-1 (B) (1) (a)
RR No. 16-05 which provides that the sale of agricultural and marine food products in their
original state is exempt from VAT.
 Sale or importation of specialty feeds is not am exempt transaction.
 While WHO is an organization exempt from VAT, such exemption applies only to vehicles
purchased under the name of WHO for its official use. Thus, sale by privileged seller, the
Senior Specialist of ADB to the Director of WHO, being non-privileged buyer, is subject to VAT
pursuant to Section 106 of the Tax Code.
 The sale of patented invention is not exempt from VAT since the only tax exemption granted to
an accredited member of the FIS merely refers to income tax [Final Resolution of the Office of
the President (OP), OP Case No. 03-g-422 dated February 2, 2004].

AVERAGE 5
JKL, Inc. has a principal office in Iligan City. Its products include paper rolls and corrugated carton
boxes. JKL, Inc. has manufacturing plants in (1) Cagayan de Oro, which manufactures paper rolls of
scrap carton boxes as raw materials, and (2) Bukidnon, where such paper rolls undergo further
processing to produce corrugated carton boxes. No sales were made in Bukdnon plant. All sales were
made in Iligan City but there is nothing in the books of JKL, Inc. in Iligan City to determine the gross
sales in Cagayan de Oro and Bukidnon.

What is the allocation (in percentage) of sales to be subjected to local business tax (LBT) to each
Local Government Unit (LGU)?

ANSWER: Iligan City – 30%, CDO – 35%, Bukidnon – 35%

Reference:
 DOF-BLGF Opinion dated February 12, 2007

AVERAGE 6
Which of the following is/are requirement/s for the deductibility of interest?

I. Treated as capital expenditure.


II. Actually sustained and charged off during the taxable year
III. Connected with the taxpayer's trade, business or exercise of profession
IV. It must be for property arising out of its use in the trade or business, or out of its not being
used temporarily during the year

ANSWER: III only

AVERAGE 7
Which of the following will be allowed as a deduction in cases where no withholding of tax was made?

A. The recipient/payee failed to report the income but the withholding agent/taxpayer pays the tax
at the time of the original audit and investigation;
B. The recipient/payee failed to report the income on the due date thereof, but the withholding
agent/taxpayer pays the tax, including the interest incident to the failure to withhold the tax and
surcharges, if applicable, after the original audit and investigation;
C. The withholding agent erroneously underwithheld the tax but pays the difference between the
correct amount and the amount of tax withheld, including the interest, incident to such error,
and surcharges, if applicable, at the time of the original audit and investigation.
D. All of the above

ANSWER: C.

Section 2.58.5 Requirement for Deductibility provides that any income payment which is otherwise
deductible under the Code shall be allowed as a deduction from the payor's gross income only if it is
shown that the income tax required to be withheld has been paid to the Bureau in accordance with
Secs. 57 and 58 of the Code .In addition, a deduction will also be allowed in the following cases where
no withholding of tax was made
:
1. The payee reported the income and the withholding agent/taxpayer pays the tax,
including the interest incident to the failure to withhold the tax, and surcharges, if applicable, at the
time of the original audit and investigation;

2. The recipient/payee failed to report the income on the due date thereof, but the
withholding agent/taxpayer pays the tax, including the interest incident to the failure to withhold the tax
and surcharges, if applicable, at the time of the original audit and investigation;

3. The withholding agent erroneously underwithheld the tax but pays the difference
between the correct amount and the amount of tax withheld, including the interest, incident to such
error, and surcharges, if applicable, at the time of the original audit and investigation.

AVERAGE 8
Mr. and Mrs. Juan Jose made the following donations during the calendar year 2011 (common
property unless otherwise stated):

Date Donations
January 2 To Alice, legitimate daughter, on account of her forthcoming marriage,
10,000 shares which are not traded in the stock exchange. The book value
at the time of donation was P50 per share.
To Jewel, family friend of couple, on account of her birthday, P20,000.
February 3 To Aevon, legitimate daughter, on account of her marriage on February 1,
2010, a piece of antique jewelry from the capital property of Mr. Jose. The
pawn value of the jewelry was P50,000.
To Janina, legitimate daughter, on account of her graduation, a piece of land
costing P500,000.

The fair market value per BIR at the time of donation was P1,000,000. Its
assessed value was P1,200,000. The piece of land had an unpaid
mortgage of P100,000 which was assumed by the donee.
To Anna, Mrs. Jose’s sister, on account of her forthcoming marriage, cash
P100,000.
October 4 To ReSA Colleges, a non-profit educational institution, P250,000.
To Belmont Shipping Company, a piece of land valued at P700,000.
To John, legitimate son, on account of his forthcoming marriage, cash of
P200,000.

How much is the tax due and payable of Mr. Juan Jose on gifts made on October 4?

ANSWER: PhP 111,000

Solution:

STRANGER RELATIVE
JANUARY 2:
TO ALICE (P500,000 X ½) P - P 250,000
TO JEWEL (P20,000 X ½) 10,000 -
GROSS GIFTS P 10,000 P 250,000
LESS: DOWRY - 10,000
TAXABLE NET GIFTS P 10,000 P 240,000
TAX DUE P 3,000 P 3,600
AGGREGATE TAX DUE P 6,600

FEBRUARY 3:
TO AEVON (P50,000 X 3) P - P 150,000
TO JANINA (P1,200,000 X ½) - 600,000
TO ANNA (P100,000 X ½) 50,000 -
GROSS GIFTS P 50,000 P 750,000
LESS: DEDUCTIONS
UNPAID MORTGAGE ASSUMED BY
DONEE (P100,000 X ½) - 50,000
NET GIFT P 50,000 P 700,000
ADD: PRIOR NET GIFTS 10,000 240,000
TOTAL TAXABLE NET GIFTS P 60,000 P 940,000

TAX DUE P 18,000 P 40,400


AGGREGATE TAX DUE P 58,400
LESS: PAYMENTS FOR PRIOR GIFTS 6,600
TAX PAYABLE P 51,800

OCTOBER 4:
TO RESA COLLEGE (P250,000 X ½) P 125,000 P -
TO BELMONT SHIPPING (P700,000 X ½) 350,000 -
TO JOHN (P200,000 X ½) - 100,000
GROSS GIFTS P 475,000 P 100,000
LESS: DEDUCTIONS
DOWRY - 10,000
DONATION TO NON-PROFIT
EDUCATIONAL INSTITUTION 125,000 -
NET GIFTS P 350,000 P 90,000
ADD: PRIOR NET GIFTS 60,000 940,000
TOTAL TAXABLE NET GIFTS P 410,000 P 1,030,000
TAX DUE P 123,000 P 46,400
AGGREGATE TAX DUE P 169,400
LESS: PAYMENTS FOR PRIOR GIFTS 58,400
TAX PAYABLE P 111,000

AVERAGE 9
Which of the following industries fall under Group C of the staggered e-filing?

I. Real Estate Activities


II. Computer and Related Activities
III. Air Transport
IV. Banking Institutions
V. Retail Sale
VI. Wholesale Trade and Commission Trade

ANSWER: I, II, V, VI

Reference:
 RR No. 26-2002

AVERAGE 10
Which of the following holds true as to date?

I. Submission of hard or physical copies of alphalists is no longer allowed.


II. Unutilized creditable input taxes attributable to zero-rated sales can only be recovered
through application for refund or tax credit.
III. Once an electronic Letter of Authority or any other notice of audit is received, taxpayers are
barred from making amendments.
IV. In all principal and supplementary receipts/invoice which can still be used until October 31,
2013, the term “valid until October 31, 2013 only” shall be stamped prominently on the face
of the receipts or invoices.

ANSWER: All of the above


References:
 RMC No. 05-2014
 RMC No. 57-2013
 RMC No. 50-2013
 RMC No. 52-2013

AVERAGE 11
On August 14, 2013, Mr. Harvey Spectra Lozano, died leaving his house and lot in New York, Cubao
to his son, Mike Rossas, a bachelor. The estate tax corresponding to the transmission of these
properties were paid. The fair market value (FMV) of the properties and the amount of unpaid
mortgage at the time of death of Harvey Spectra were PhP 2,400,000 and PhP 240,000, respectively.

On October 19, 2016, Mike Rossas followed the footsteps of his father and died, leaving a total gross
estate, including the house and lot, amounting to PhP 9,600,000. The house and lot, at this date had
an FMV of PhP 2,550,000, while the unpaid mortgage amounted to PhP 30,000.

The total of his deductions amounted to PhP 3,600,000.00, including PhP 600,000 of medical
expenses and PhP 1,200,000 amount he received under Republic Act (RA) No. 4917.

Based on the above information, how much is the total allowable vanishing deduction of Mike Rossas?

ANSWER: PhP 696,000

Reference:

Value taken of House & Lot (lower between the FMV at the time of death and PhP 2,400,000
the FMV at the time of inheritance)
Less: Mortgage paid by Mike Rossas 210,000
Initial basis 2,190,000
Less: Additional deduction [(PhP 2.4M/PhP 9.6M)*PhP 1,800,000] 450,000
Final basis 1,740,000
Applicable percentage (more than 3 years but not more than 4) 40%
Allowable vanishing deduction PhP 696,000

AVERAGE 12
Which of the following authorities of Local Government Units (LGUs) is/are correct?

I. The Sanggunian may impose a surcharge not exceeding twenty-five percent (25%) of the
amount of taxes, fees or charges not paid on time and an interest at the rate not exceeding two
percent (2%) per month of the unpaid taxes, fees or charges including surcharges, until such
amount is fully paid but in no case shall the total interest on the unpaid amount or portion
thereof exceed thirty-six (36) months.
II. LGUs may, through ordinances duly approved, grant tax exemptions, incentives or reliefs under
such terms and conditions as they may deem necessary
III. LGUs shall have no authority to adjust the tax rates as prescribed not oftener than once every
five (5) years, but in no case shall the adjustment exceed ten percent (10%) of the rates fixed
by the Local Government Code

ANSWER: I and II only

Reference:

“SECTION 168. Surcharges and Penalties on Unpaid Taxes, Fees, or Charges. — The
sanggunian may impose a surcharge not exceeding twenty-five (25%) of the amount of taxes, fees or
charges not paid on time and an interest at the rate not exceeding two percent (2%) per month of the
unpaid taxes, fees or charges including surcharges, until such amount is fully paid but in no case shall
the total interest on the unpaid amount or portion thereof exceed thirty-six (36) months.

SECTION 191. Authority of Local Government Units to Adjust Rates of Tax Ordinances. —
Local government units shall have the authority to adjust the tax rates as prescribed herein not oftener
than once every five (5) years, but in no case shall such adjustment exceed ten percent (10%) of the
rates fixed under this Code.

SECTION 192. Authority to Grant Tax Exemption Privileges. — Local government units may,
through ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and
conditions as they may deem necessary.”

AVERAGE 13
Which of the following statement/s is/are correct?

Statement I: When any individual who has paid the annual registration fee dies, and the same
business is continued by the person or persons interested in his estate, no additional payment shall be
required for the residue of the term of which the tax was paid.

Statement II: The term “minimum wage earner” shall refer to a worker in the private sector paid the
statutory minimum wage or to an employee in the public sector with compensation income of not more
than the statutory minimum wage in the agricultural sector where he/she is assigned.

Statement III: Gains realized from the sale or exchange or retirement of bonds, debentures or other
certificate of indebtedness with a maturity of five (5) years shall be exempt from income tax.

ANSWER: I only

Reference:

 The term “minimum wage earner” shall refer to a worker in the private sector paid the statutory
minimum wage or to an employee in the public sector with compensation income of not more
than the statutory minimum wage in the non-agricultural sector where he/she is assigned.

 Gains realized from the sale or exchange or retirement of bonds, debentures or other
certificate of indebtedness with a maturity of more than five (5) years shall be exempt from
income tax.

AVERAGE 14
Revenue Memorandum Order No. 19 – 2015 prescribes the policies, guidelines and procedures to be
observed in the audit/investigation of tax returns to enhance taxpayers’ voluntary compliance. Which
of the following are considered as mandatory cases?

I. Taxpayers with claims for income tax refund or issuance of tax credit certificate
II. Request for tax clearance of taxpayers due to retirement/cessation of business with
gross sales/receipts exceeding P 1,000,000.00 or gross assets exceeding P
2,000,000.00
III. Taxpayers with claims for Value-Added Tax (VAT) refund/credit
IV. Request for tax clearance of taxpayers undergoing merger/consolidation/splitup/spin-off
and other types of corporate reorganizations
V. Cases with unresolved Letter Notices (LNs)

ANSWER: I, III, IV, V

As per RMO No. 19 – 2015, the following are considered as mandatory cases:

1.1 Taxpayers with claims for income tax refund or issuance of tax credit certificate (Selection
Code: ITR for income tax refund and ITC for tax credit certificate)

1.2 Taxpayers with claims for Value-Added Tax (VAT) refund/credit (Selection Code: VTR for
VAT refund and VTC for VAT credit certificate)

1.3 Claims for tax refund/credit of excise tax under Title VI of the Tax Code, as amended,
regardless of amount (Selection Code: ETRS for excise tax refund and ETCS for Excise tax
credit certificate)
1.4 Claims for tax refund/credit on erroneous/double payment of taxes, regardless of amount
(Selection Code: ERTR claims for tax refund and ERTC for claims for tax credit certificate)

1.5 Request for tax clearance of taxpayers due to retirement/cessation of business with gross
sales/receipts exceeding P 1,000,000.00 or gross assets exceeding P 3,000,000.00 (Selection
Code: TRC)

1.6 Request for tax clearance of taxpayers undergoing merger/consolidation/splitup/spin-off


and other types of corporate reorganizations (Selection Code: TMC)

1.7 Cases with unresolved Letter Notices (LNs) (Selection Code: LNA)

1.8 Estate tax returns with other tax liabilities (Selection Code: EOT) 1.9 Policy cases covered
by written directive of the Commissioner (Selection Code: CIR)

AVERAGE 15
Consider the following:

 Amount of tax due is PhP 923,410


 No return was filed for CY 2015.
 A trouble ticket was secured.
 Filed the annual income tax return and paid the tax thereon in full on April 30, 2016.
 Received an assessment notice and demand from BIR to pay a deficiency tax of PhP 700,298.
 Date of Final Decision on Disputed Assessment (FDDA) is October 15, 2016.

Assuming that the tax was paid on March 31, 2017, the total amount payable excluding compromise
penalty is: (Use 365 days)

ANSWER: PhP 1,447,351.25

Solution:

Deficiency Tax PhP 700,298.00


Surcharge for a fraudulent return 350,149.00
Interest (700,298x20%x183/365) 70,221.66
Amount due as of October 15, 2016 PhP1,120,668.66
Surcharge for late payment (1,120,668.66x20%) 224,133.73
Interest (1,120,668.66x20%x167/365) 102,548.86
Amount due as of March 31, 2017 PhP1,447,351.25
AVERAGE 16
Customer M purchased luxury goods through its official broker, Broker Y. During the current month,
the following events from one of Customer M’s purchase transactions occurred:

► Customer M purchased goods amounting to PhP 15,000 (net of VAT) from Supplier Z through
Broker Y.
► Broker Y paid Supplier Z.
► Supplier Z issued VAT OR to Broker Y in the name of Customer M.
► Broker Y forwarded the VAT OR to Customer M.
► Customer M reimbursed Broker Y a certain amount.
► Broker Y issued a non-VAT OR representing the amount reimbursed by Customer M.

Assuming Customer M is notified as one of the Top 20,000 Private Corporations and the transaction
was consummated in accordance with the applicable tax regulations, determine the following:

1. Amount paid by Broker Y to Supplier Z; and


2. Amount reimbursed by Customer M to Broker Y.

ANSWER: PhP 16,650; PhP 16,650

Reference: RMC No. 9-06

Amount of goods, net of VAT PhP 15,000


Multiply: EWT rate 1%
Amount required to be withheld PhP 150

Amount of goods, net of VAT PhP 15,000


Multiply: 1.12
Billed amount PhP 16,800
Less: Amount required to be withheld 150
Amount paid to Supplier Z/reimbursed to Broker Y PhP 16,650

RMC No. 9-06 provides that if the proper taxes are deducted and withheld from such payments to
third-party service providers, the following conditions/procedures must be complied with, to wit:

1. xxx xxx xxx

2. Upon making the payments to the third–party service providers, the brokers shall compute and
deduct the EWT due on the said payments. xxx xxx xxx

3. In the subsequent claim for reimbursement of the said payments, the broker shall demand from
the Customers only the amount actually paid to the third-party service providers (which is
already net of the EWT) with instructions to said Customers to remit to the BIR the amount of
EWT on the said payments;

Moreover, the same Circular states that if reimbursable expenses and/or advanced payments by the
broker on behalf of customers are receipted directly in the name of the Customers by the person
performing such service (i.e., third-party service provider) and the subsequent claim by the broker for
reimbursement from the customer is covered by the broker's Non-VAT Official Acknowledgment
Receipt acknowledging the collection of the previously recorded account "RECEIVABLE FOR CASH
ADVANCES ON BEHALF OF CUSTOMERS" with no mention of quantity and description of the
services rendered but just the value thereof and the name of the third-party service provider that
rendered the service, the same shall not form part of the gross receipts of the broker and therefore,
shall not be subject to VAT on the part of the broker.

AVERAGE 17
Which of the following statements is correct regarding standard input tax?

I. Input tax that can be directly attributable to VAT on sales of goods and services to
the Government shall be credited against output taxes arising from sales to non-
Government entities
II. The government or any of its political subdivisions, instrumentalities or agencies
as well as purchasers in the course of trade or business shall deduct and withhold
a final VAT due at the rate of five percent (5%) of the gross payment
III. Should actual input VAT attributable to sale to government exceeds seven
percent (7%) of gross payments, the excess must be closed to expense or cost
IV. The standard input tax is in lieu of the actual input VAT directly attributable or
ratably apportioned to sales of goods or services to government or any of its
political subdivisions, instrumentalities on agencies including GOCCs

ANSWER: IV only

AVERAGE 18
The dramatic increase in globalization of trade has also led to harmful tax practices that have resulted
in tremendous losses of tax revenues for governments. The most significant international tax issue
emerging from globalization confronting tax administrations worldwide is transfer pricing. RR 2-2013
prescribes guidelines in determining the appropriate revenues and taxable income of the parties in the
controlled transaction by providing for the methods of establishing an arm’s length price. Which of the
following is/are deemed appropriate as enumerated in the above regulation?

I. Resale Price Method


II. Cost Plus Method
III. Transactional Net Margin Method
IV. Gross Margin Method
V. Comparable Uncontrolled Price Method
VI. Profit Split Method

A. All of the following


B. All except one of the following
C. Only one of the following
D. None of the following

ANSWER: B

Reference: REVENUE REGULATIONS NO. 2-2013

AVERAGE 19
Justin Trudeau, a Canadian Prime Minister, visited in the Philippines for the Asia-Pacific Economic
Cooperation Leader’s Meeting on November 18, 2015. Hotel A accommodated Mr. Trudeau during his
stay in the Philippines. Note that the BIR granted Mr. Trudeau a VAT Exemption Certificate on his
local purchases of goods and services. How will Hotel A treat the sale of hotel services to Mr. Trudeau
for VAT purposes?

A. VAT exempt
B. Subject to 0% VAT
C. Subject to 12% VAT
D. Either “a” or “c”

ANSWER: B

Purchases of diplomatic agents:

Purchases by embassies, consular officers, employees and members of their families forming part of
their households of goods and/or services shall be subject to VAT prescribed under Section 106 and
108 of the 1997 Tax Code, as amended by Section 104 and 106 of the Republic Act (RA) No. 9337.
However, applying the principle of reciprocity under Section (A)(2)(a)(5)(c) of the 1997 Tax Code, as
amended, the BIR may grant VAT exemption to embassy, consular officers, employees and members
of their families forming part of their households on its local purchases of goods and services it
appearing from the list submitted by the Department of Foreign Affairs (DFA) that the concern country
represented by the Embassies/Embassies’ agents allows similar exemption to Philippine Embassy on
its purchases of goods and services in their country.

Sales to diplomatic agents:

As regards the seller of goods or services, the BIR, in its various rulings, ruled that the VAT-registered
entity under the above circumstances shall be treated as effectively zero-rated transactions pursuant
to Section 4.106-5 (c) and Section 4.108-6 of RR No. 16-05 as follows:

“SEC. 4.106-5. Zero-Rated Sales of Goods or Properties.- xxx

(c) “Sales to Persons or Entities Deemed Tax-exempt under Special Law or International Agreement”.
- Sales of goods or property to persons or entities who are tax exempt under special laws, e.g. sales to
enterprises duly registered and accredited with the Subic Bay Metropolitan Authority (SBMA) pursuant
to R.A. No. 7227, sales to enterprises duly registered and accredited with the Philippine Economic
Zone Authority (PEZA) or international agreements to which the Philippines is signatory, such as,
Asian Development Bank (ADB), International Rice Research Institute (IRRI), etc., shall be effectively
subject to VAT at zero-rate. xxx”

AVERAGE 20
What is the Filipino term of Bureau of Internal Revenue (BIR)?

ANSWER: Kawanihan ng Rentas Internas

DIFFICULT 1
The following data were provided by the Estate of Amer Ika, head of family, a resident of New York,
Cubao. Mr. Ika died intestate on September 30, 2016.

Land and house (family home) P 3,000,000


Agricultural land inherited from his father
who died 2 ½ years before his death 800,000
Other real properties 1,000,000
Other tangible personal properties 200,000
Bank deposit, PNB-Manila representing amount
received by heirs under R.A. No. 4917 500,000
Obligations of and charges against certain properties follow:
Medical expenses of last illness (unpaid as of
the time of death, supported by bills and
statements from hospital) P 600,000
Actual funeral expenses (30% paid for from the
estate, 70% paid for by relatives) 500,000
Judicial expenses incurred within six (6) months
after death 100,000
Claims against the estate other than
unpaid mortgage 250,000
Unpaid mortgage on inherited agricultural land 30,000
Claims against insolvent persons 100,000
Unpaid real estate tax for the 4th quarter of 2016 20,000

The agricultural land was inherited by the present decedent. Its value at the time of inheritance was P
500,000. It had an unpaid mortgage of P 80,000.

How much was the taxable net estate?

ANSWER: P 1,711,339

Solution:

Personal property (P 200,000 + P 500,000 + P 100,000) P 800,000


Real property (P 3,000,000 + P 800,000 + P 1,000,000) 4,800,000
Gross estate P 5,600,000
Less: Deductions ( 1,388,661 )
Estate before special deductions P 4,211,339
Less: Family home (maximum) ( 1,000,000 )
Standard deduction ( 1,000,000 )
Medical expenses ( 500,000 )
Taxable net estate P 1,711,339

Schedule of deductions:
Funeral expenses (actual) (P 500,000 X 30%) P 150,000
Judicial expenses 100,000
Claims against the estate 250,000
Taxes 20,000
Claims against insolvent 100,000
Unpaid mortgage 30,000 P 650,000
Vanishing deduction 238,661
Amount received under RA 4917 500,000
Total P 1,388,661

DIFFICULT 2
Which of the following transactions are exempt for VAT purposes?

I. Sale of ingredients of finished feeds


II. Sale of house and lot utilized for socialized housing with a unit price of PhP 500,000
III. Interest income from loans extended to an affiliated incorporated in Singapore
IV. Sale of fuel, goods, and supplies by persons engaged in international shipping or air
transport operations
V. Services rendered by individuals pursuant to an employer-employee relationship

ANSWER: V only
Reference:
 Some ingredients of finished feeds may also be used for the production of food for human
consumption and shall be subject to VAT. To be exempt from VAT, there must be a proof that
the feeds or ingredients sold are unfit for human consumption or that the ingredients cannot be
used for the production of food for human consumption as certified by the Food and Drug
Administration (FDA). (RMC No. 55-2014, RMC No. 66-2014)
 Sale of real properties utilized for socialized housing as defined under RA No. 7279 and other
related laws, such as RA No.7835 and RA No. 8763, wherein the price ceiling per unit is
P225,000* or as may from time to time be determined by the HUDCC and the NEDA and other
related laws (HUDCC Memorandum Circular No. 1, dated December 11, 2008 and RMC No.
30-2009 dated May 14, 2009)
 Interest income from loans extended to non-residents shall be zero-rated.
 Importation of fuel, goods and supplies by persons engaged in international shipping or air
transport operations

DIFFICULT 3
Which of the following is/are incorrect with regard the Personal Equity and Retirement Account
(PERA)?

I. The aggregate maximum qualified PERA contribution in one calendar year for an
unmarried Filipino citizen is PhP 200,000.
II. The employer can claim the actual amount of its qualified employer’s contribution as a
deduction from its gross income regardless of the amount contributed.
III. The qualified employer’s contribution to its employee’s PERA shall not form part of the
employee’s taxable gross income but shall be subject to either withholding tax on
compensation or benefits should the employer opt to claim its contribution.
IV. In case of early withdrawals not falling under any of the circumstances under Section 10
(B) of RR No. 17-2011, the Contributor shall pay the withholding tax on compensation/final
withholding tax on fringe benefits due on the qualified employer’s contribution.

ANSWER: I, II, III, IV

Reference:
 RR No. 17-2011 and RR No. 10-2016

DIFFICULT 4
Which of the following is/are incorrect with regard the Personal Equity and Retirement Account
(PERA)?

I. The aggregate maximum qualified PERA contribution in one calendar year for an
unmarried Filipino citizen is PhP 200,000.
II. The employer can claim the actual amount of its qualified employer’s contribution as a
deduction from its gross income regardless of the amount contributed.
III. The qualified employer’s contribution to its employee’s PERA shall not form part of the
employee’s taxable gross income but shall be subject to either withholding tax on
compensation or benefits should the employer opt to claim its contribution.
IV. In case of early withdrawals not falling under any of the circumstances under Section 10
(B) of RR No. 17-2011, the Contributor shall pay the withholding tax on compensation/final
withholding tax on fringe benefits due on the qualified employer’s contribution.

ANSWER: I, II, III, IV

Reference:
 RR No. 17-2011 and RR No. 10-2016

DIFFICULT 5
Oliver Corporation, a retailer of goods, uses the accrual method of accounting in declaring its income
and expenses under a calendar year basis.

For the period January to June 30, 2008, it reported a net income of PhP 300,000.00 using the
itemized method of deduction where its gross sales for the period amounted to PhP 1,000,000.00 and
its cost of sales for the same period amounted to PhP 600,000.00.

With the effectivity of RA 9504, it decided to use the 40% OSD in claiming its business expenses for
the third quarter covering July 1 to September 30, 2008. Its gross income for said period amounted to
PhP 400,000.00 with actual operating expenses of PhP 50,000.00.

For the last quarter of CY 2008, its net income amounted to PhP 150,000.00. The gross sales and
operating expenses for the same last quarter amounted to PhP 600,000.00 and PhP 150,000.00,
respectively.

If Reiss Corporation decides to use the OSD method of deduction when it files its annual income tax
return, how much will be the net income for CY 2008?

ANSWER: PhP 720,000

Gross Income
January to June (P1,000,000 - P600,000) P 400,000
Third Quarter 400,000
Fourth Quarter (P150,000 + P150,000) 300,000 P 1,100,000

Less: Deductions
Itemized deductions from January 1 to June 30* P 100,000
OSD deduction from July 1 to September 30 160,000
OSD deduction from October 1 to December 31 120,000 P 380,000

Net Income P 720,000

* For taxable period 2008 which is the initial year of the implementation of the 40% OSD under RA
9504 which modified the OSD for individuals from 10% of gross income to 40% of gross sales/gross
receipts and introduced the OSD as an alternative deduction for corporations, the 40% maximum
deduction shall only cover the period beginning the effectivity of RA 9504. RA 9504 became effective
July 06, 2008. However, in order to simplify and provide ease of administration during the transition
period, July 1, 2008 shall be considered as the start of the period when the 40% OSD may be allowed.
(Section 8, RR No. 16-08)

Hence, itemized deductions was used for the period January to June 30, 2008 computed as follows:
P1,000,000 – P600,000 = P400,000 – P300,000 = P100,000.

OSD deduction from July 1 to September 30


Gross Income P 400,000
OSD rate 40%
OSD 160,000

OSD deduction from October 1 to December 31


Gross Income (P150,000 + P150,000) P 300,000
OSD rate 40%
OSD 120,000

Reference: RR 16-08 dated November 26, 2008

DIFFICULT 6
Which of the following is not an incentive to regional or area headquarters and Regional Operating
Headquarters?

I. Regional operating headquarters shall be subject to a tax rate of ten percent (10%) of their
taxable income and any income derived from Philippine sources by the ROHQ when
remitted to the parent company shall be subject to the tax on branch profit remittances.
II. The regional or area headquarters and regional operating headquarters of multinational
companies shall be exempt from all kinds of local taxes, fees, or charges imposed by a
local government.
III. The regional or area headquarters and regional operating headquarters established in the
Philippines by multinational companies shall be exempted from the value-added tax.
IV. Regional or area headquarters and regional operating headquarters shall be entitled to the
importation of new motor vehicles subject to the payment of the corresponding taxes and
duties.

ANSWER: II and III only

DIFFICULT 7
Which of the following transaction/s is/are subject to zero (0%?) VAT?

I. Processing, manufacturing or repacking goods for other persons doing business in the
Philippines, which goods are subsequently exported, where the services are paid for in
acceptable foreign currency and accounted for in accordance with the rules and
regulations of the BSP
II. Services other than processing, manufacturing or repacking rendered to a person
engaged in business conducted in the Philippines or to a non-resident person not
engaged in business who is in the Philippines when the services are performed, the
consideration for which is paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP
III. Transactions which are exempt under international agreements to which the Philippines
is a signatory or under special laws, except those under Presidential Decree No. 529
IV. Services performed by subcontractors and/or contractors in processing, converting, or
manufacturing goods for an enterprise whose export sales exceed seventy percent (70%)
of the total production
V. Revenue from gaming operations of a PAGCOR’s contractee

ANSWER: None of the above

Reference:

1. Revenue Regulations No. 16-05

 The following services performed in the Philippines by a VAT-registered person shall be subject
to zero percent (0%) VAT rate:

1. Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines, which goods are subsequently exported, where the services are paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of
the BSP;
2. Services other than processing, manufacturing or repacking rendered to a person engaged
in business conducted outside the Philippines or to a non-resident person not engaged in
business who is outside the Philippines when the services are performed, the consideration for
which is paid for in acceptable foreign currency and accounted for in accordance with the rules
and regulations of the BSP;
3. Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such
services to zero percent (0%) rate;
4. Services performed by subcontractors and/or contractors in processing, converting, or
manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of the
total annual production;

2. General Register (GR) No. 212530 dated August 10, 2016 [Bloomberry Resorts and Hotels,
Inc. (BRHI) vs. Bureau of Internal Revenue (BIR)]

 All contractees and licenses of PAGCOR, upon payment of the 5% franchise tax, shall likewise
be exempted from all other taxes, including the 12% VAT.
DIFFICULT 8
The following are the revenue items in the Income Statement of a domestic corporation for the year
2016:
Sales P1,000,000
Cost of sales 500,000
Gain from sale of an office equipment 20,000
Gain from sale of land not used in business
(selling price P300,000) 100,000
Gain from sale of shares of stock directly to
the buyer 50,000
Gain from sale of shares of stock through the
stock exchange (selling price, P200,000) 10,000
Interest income from bank deposit, Philippines 40,000
Yield from deposit substitute, Philippines 80,000
Interest income received from depository bank
under EFCDS, Philippines 60,000
Interest income from bank deposit, USA 400,000
Interest on trade notes receivable, Philippines 30,000
Advance rent for two (2) years, Philippines 600,000
Royalties, Philippines 70,000
Royalties, USA 300,000
Dividend received from domestic corporation 150,000
Dividend received from a foreign corporation 350,000
Prizes and winnings, Philippines 400,000
Refund of Philippine value-added tax 100,000
Bad debt recovery 50,000

With regard the recovery of bad debts, please note that the related write-off of bad debts was treated
as non-deductible expense in CY 2015.

Compute for the total gross income subject to regular corporate income tax (RCIT) for CY 2016.

ANSWER: P 2,600,000

Solution:

Sales P 1,000,000
Less: Cost of sales ( 500,000 )
Gross income P 500,000
Other income
Gain from sale of an office equipment 20,000
Interest income from bank deposit, USA 400,000
Interest on trade notes receivable, Philippines 30,000
Advance rent for two (2) years, Philippines 600,000
Royalties, USA 300,000
Dividend received from a foreign corporation 350,000
Prizes and winnings, Philippines 400,000
Total gross income P 2,600,000

DIFFICULT 9
Anna Corporation has the following sale of goods during the first month of CY 2017:

Sale to PEZA-registered corporations formerly enjoying GIT incentive P 292,100


Sale to foreign embassies 365,190
Sale to PWDs 23,000
Sale to PEZA-registered corporations enjoying ITH incentive 76,000
Sale to private corporations 552,123
Sale of equipment to the Mayor’s Office 396,150

The following input taxes were passed on by its VAT suppliers:

Input tax on vatable goods P 25,000


Input tax on zero-rated sales 10,000
Input tax on sale of exempt goods 2,500.00
Input tax on sale to government 5,000.00
Input tax on depreciable capital goods not attributable to any specific 100,000
activity

How much is the VAT still payable or excess tax credits for the month (to the nearest peso)?

ANSWER: P (9,104) [EXCESS TAX CREDITS]

Solution:
Output tax
Sales to private corporations (552,123x12%) P 66,255
Sale to PEZA-registered corporations formerly enjoying GIT 35,052
incentive (292,100x12%)
Sales to foreign embassies (365,190x0%) -
Sale to PEZA-registered corporations enjoying ITH incentive -
(76,000x0%)
Sales to PWDs -
Sales to government (396,150X12%) 47,538 P 148,845

Less: Input tax


Vatable goods [(844,223/1,704,563)x100,000]=49,527+25,000 P 74,527
Zero-rated sales [(441,190/1,704,563)X100,000]=25,883+10,000 35,883
Exempt goods -
VAT withheld by the government (396,150x5%)* 19,808
Standard input VAT (396,150x7%)** 27,731 157,949

VAT payable/ (excess tax credits) P (9,104)

*5% VAT withheld by the government under RMC No. 23-2007.


**Standard input VAT of 7% on sales to government as provided in Section 4.114-2 (a) of
RR No. 04-07.

Sale of goods and services to the government adopts a withholding VAT mechanism where the seller will have zero VAT
liability insofar as the transaction is concerned. Therefore, any payment of VAT by the seller relating to the transaction would
constitute erroneous payment of tax. [CTA Case No. 8216 dated September 16, 2014 (Unisys Public Sector Services
Corporation vs Commissioner of Internal Revenue)].

1. DIFFICULT 10
2. Mr. Devin, CPA practitioner, is also employed with a retailer company and receives the following for
the year:

Salary PhP 216,000


Overtime Pay 53,400
13th Month Pay One month basic pay
Rice subsidy per month 2,000
Birthday gift (i.e., cake) 2,200
Renewal of CPA license borne by the employer 3,500
Performance-based bonus 9,800
Foregone interest on loans extended by the employer 15,000
to Mr. Devin
Retainer fee per month 72,000

How much is subject to withholding tax on compensation?

ANSWER: PhP 362,100

Solution:

Salary PhP 216,000


Overtime Pay 53,400
Birthday gift (i.e., cake) 2,200
Renewal of CPA license borne by the employer 3,500
Foregone interest on loans extended by the 15,000
employer to Mr. Devin
Retainer fee per month 72,000
Total compensation subject to withholding tax PhP 362,100