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NCR CUP 4: TAXATION

ELIMINATION ROUND
JUDGES’ COPY

EASY ROUND

1. Exempted from donor’s taxation are gifts made


a. For the use of the barangay.
b. In consideration of marriage.
c. To a school which is a stock corporation.
d. To a for-profit government corporation.

Explanation:
Section 101 (A) (2) of the Tax Code.

2. The primary purpose of taxation is:


a. To enforce contribution from its subject for private purpose
b. To raise revenue for the government
c. To achieve economic and social stability
d. To regulate the conduct of business

Explanation:
The primary purpose is to generate funds for the State to finance the needs of the citizenry and
to advance the common weal. (GR No. 112024 Phil. Bank of Communications vs CIR).

3. Which of the following is not an inherent limitation of the power of taxation?


a. Territoriality of taxation
b. International comity
c. Uniformity and equality of taxation
d. Inherently legislative

Explanation
Letter C is a constitutional limitation of the power of taxation. [Section 28(1) of Article VI of the
1987 Constitution].

4. The VAT on goods


a. Is based on collections
b. Is imposed only on goods for domestic consumption
c. Is a selling expense of the trader
d. Maybe due even if there is no actual sale of the goods

Explanation:
Section 106 (B) of the Tax Code (Transactions Deemed Sales).

5. Which of the following transactions is a VAT-exempt transaction?


a. Sale of gold to Bangko Sentral ng Pilipinas
b. Sale of parking lots by a real estate dealer
c. Sale of services under employer-employee relationship
d. All of the above
Explanation:
Section 109 (I) of the Tax Code.

6. When a legislative body taxes persons, property, rights, and privileges under the same
taxable category at the same rate, this is referred to as compliance with the constitutional
limitation of:
a. Equity
b. Uniformity
c. Due Process
d. Equal Protection Clause

Explanation:
Uniformity has been defined as that principle by which all taxable articles or kinds of property of
the same class shall be taxed at the same rate. (Churchill v. Conception. 34 Phil. 969 [1916])

7. The amount of funeral expense that may be deducted from the gross estate is
a. 5% of the gross estate or P200,000 whichever is lower
b. Actual funeral expense or P200,000 whichever is lower
c. 5% of the gross estate or the actual funeral expenses whichever is lower
d. 5% of the gross estate or the actual funeral expenses, whichever is lower, but in
no case to exceed P200,000.

Explanation:
Section 86(A)(1) of the Tax Code.

8. Shares of stock held as investment when sold not through the local stock exchange shall
be subject to:
a. 1/2 of 1% based on gross selling price or gross value in money.
b. 12% VAT based on gross income.
c. 5% on first P100,000 capital gain; 10% on excess of P100,000.
d. 4%; 2%; 1% based on gross selling price or gross value in money

Explanation:
Section 24(C) of the Tax Code.

9. Which of the following is a deductible expense for income tax purposes?


a. Salaries of domestic servants
b. Ordinary repair of the personal car
c. Provision for doubtful accounts
d. None of the above

Explanation:
A and B are not ordinary and necessary trade, business or professional expenses. While for C,
only debts actually ascertained to be worthless and charged off within the taxable year are
considered as deductible expense for income tax purposes.

10. If an importer paid 15% custom duties in the amount of P24,000 plus P134,000 charges
to the Bureau of Customs, what is the VAT on importation?
e. Zero b. 18,960 c. 35,280 d. 38,160
Explanation:
Customs duties is included in the tax base for VAT purposes. [Section 107(A) of the Tax Code]
[(Php24,000/15%)+Php24,000+PHP134,000]*12%

AVERAGE ROUND

1. The following are transactions and acquisitions exempt from tax from transfer taxes,
except
a. Transmission from the first heir or donee in favor of another beneficiary in
accordance with the desire of the predecessor.
b. Transmission or delivery of the inheritance or legacy by the fiduciary heir or
legatee to the fideicommissary.
c. The merger of the usufruct in the owner of the naked tide
d. All bequests, devises, legacies or transfers to social welfare, cultural and
charitable institutions

Explanation:
Section 87 of the Tax code.

2. After resigning in 2007, Mrs. Imelda Juanito immediately joined another company with a
reasonable pension plan but she was terminated in 2012 due to retrenchment. Is the
separation pay exempt?
a. No, because she did not met the employment term requirement.
b. No, because she was previously exempted in her retirement.
c. Yes, because the underlying reason of her resignation was beyond her
control.
d. Yes, because she had satisfied the age requirement by this time.

Explanation
Section 32(B)(6)(b) of the Tax Code.

3. The proceeds of insurance taken by a corporation on the life of an executive to


indemnify it against loss of his death is
a. Exempt from income tax
b. Part taxable income
c. Subject to final tax
d. Partly exempt, partly taxable

Explanation
Section 32 (B)(1) of the Tax Code and Section 62 of the Income Tax Regulation.

4. Mr. San Jose made the following cash donations to his legitimate son, 18 years old, on
account of his marriage on January 5, 2006:
Date of Donation Amount
December 23, 2005 P 5,000
January 5, 2006 3,000
January 5, 2007 10,000
How much was the exempt dowry on the gift made on January 5, 2007?

Answer:. P2,000

Explanation
Section 101 A(1) of the Tax code.

5. Mr. Sam Angelo donated P500,000 to the City of Manila and P100,000 to his best friend
who graduated summa cum laude. For donor’s tax purposes, how much shall be the
deductions from Sam’s gross income?
Answer: 500,000
Explanation
Section 34 (H) of the Tax Code.

6. Chi Ming Tsoi, a Chinese billionaire and a Canadian resident, died and left assets in China
valued at P80 billion and in the Philippines assets valued at P20 billion. For Philippine
estate tax purpose the allowable deductions for expenses, losses, indebtedness, and
taxes, property previously taxed, transfers for public use, and the share of his surviving
spouse in their conjugal partnership amounted to P15 billion. Tong's gross estate for
Philippine estate tax purposes is:

Answer: 20 billion

Explanation
Section 88 of the Tax code.

7. Bright University, a private education institution organized in 2000, had the following data
for 2017
Tuition fees P 850,000
Rental Income 150,000
School related expenses 820,000

The income tax due for 2017 is

Answer: 18,000

Explanation
Section 27 (B) of the Tax code.

Tuition fees P 850,000


Rental Income 150,000
School related expenses (820,000)
Income subject to tax 180,000
Preferential tax rate x 10%
Income tax due, 2017 18,000

8. Ka Pedring Matibag, a sole proprietor, buys and sells "kumot at kulambo" both of which
are subject to value-added tax. Since he is using the calendar year as his taxable year,
his taxable quarters end on the last day of March, June, September, and December. When
should Ka Pedring file the VAT quarterly, return for his gross sales or receipts for the
period of July 1 to September 30?
a. Within 25 days from September 30
b. Within 45 days from September 30
c. Within 15 days from September 30
d. Within 30 days from September 30

Explanation
Section 114 of the Tax code.

9.
Date assessment was received March 8, 2016
Date petition for reinvestigation was filed with BIR March 18, 2016
Date of filing of documents to support petition April 8, 2016
No decision on the protest is received as of October 1, 2016
The last day to appeal to the CTA is:

Answer: November 4, 2016

Explanation
Revenue Regulation No. 12-99 i.e., 30th day from the lapse of 180 days from the
submission of supporting documents

10. Gross receipts tax is business tax paid by a –


a. Hotel operator
b. Insurance company
c. Franchise holder
d. Bank

Explanation
Section 121 of the Tax code.

DIFFICULT ROUND
1. Tiger Airlines, a resident foreign international carrier has the following records of income
for the period. (The income represents gross Philippine billings)

 Continuous flight from Manila to Tokyo = 1,000 tickets at Php 2,000 per ticket
 Flight from Manila to Singapore; transfer flight from Singapore to Tokyo = 2,000 tickets
at Php 3,000 per ticket
 Continuous flight from Manila to Singapore = 3,000 tickets at Php 1,000 per ticket
The income tax due is

Answer: Php 225,000

Explanation
Section 28 of the Tax code.

Manila to Tokyo (1,000 x P2,000) P2,000,000


Manila to Singapore* (2,000 x P2,000) 4,000,000
Manila to Singapore (3,000 x P1,000) 3,000,000
Total p 9,000,000
Tax rate x 2.5%
Income tax due P 225,000

2. Statement 1: A BIR Ruling issued by a Commissioner of Internal Revenue which grants


tax exemption would create a perpetual exemption in favor of the taxpayer.
Statement 2: A tax exemption may be withdrawn anytime at the pleasure of the state.

a. True, false
b. False, true
c. True, true
d. False, false

Explanation
The overruling of decision is inherent in the interpretation of law. Thus Commissioner of
Internal Revenue could reverse the ruling of his predecessors. Moreover, erroneous
application of the law by public officer do not preclude subsequent correct application of
the statute. And the government is never estopped by mistakes or error on the part of its
agents.

Tax exemption is an act of liberality which could be taken back by the government provided
that such revocation does not violate certain provisions of the constitution such as the
non-impairment clause of the constitution.

3. An ordinary and necessary expenses which is fully documented and supported by


receipts may be fully deducted for income tax purposes over and above the limit set by
law

a. medical expense
b. contribution
c. representation
d. high school fee

Explanation
Section 86 of the Tax code.

4. Which importation/s is/are exempt from VAT?

I. Importation by books by a school


II. Importation of books by a student
III. Importation of books by a bookstore

Answer: I, II, III

Explanation
Section 109 of the Tax code.
5. Mr. Kwon imports Korean vegetables and sells them in domestic market for Korean
residents in the Philippines. The following data relates to his operations during the
period:
Total landed cost of importation P 800,000
Total sales 1,200,000
What is the VAT in importation?

Answer: Zero

Explanation
Section 109(A) of the Tax code.

6. Tony, a VAT registered taxpayer, reported P200,000 sales in the month of May. Tony’s
annual sales never exceeded P1,800,000. Compute the percentage tax.

Answer: Zero

Explanation
Section 105 of the Tax code.

7. Allan lines is engaged in provincial transport operation. It has the following gross
receipts in June:

Bus 1 (carriage of goods, P8,000) P100,000


Bus 2 (carriage of goods, P3,500) 65,000
Salaries of drivers and conductors 25,000
Cost of oil and gasoline 160,000
Taxi 30,000
Jeepney 22,000
Cargo truck 45,000
Sea vessel 250,000

During the month, Bus 1 was bumped by another bus owned by Chloe Lines and paid
Allan Lines P20,000 for the damage done.

The percentage tax due on Allan Line in June is –

Answer: P6,165

Explanation
Section 117 of the Tax code.

Bus 1 (100,000 – 8,000) P 92,000


Bus 2 (65,000 – 3,500) 61,500
Taxi 30,000
Jeepney 22,000
Total 205,500
Tax rate x3%
Percentage tax due P 6,165
8. I. An unpaid mortgage on the donated property assumed by the donee is a
deduction from the gross gifts of the donor.
II. The allowable donor’s tax credit is higher between the statutory limit and the actual
foreign donor’s tax.

a. I is true, II is false
b. II is true, I is false
c. Both are true
d. Both are false

Explanation
Section 86 (A) 1e and Section 101 (C)2 of the Tax code, respectively.

9. Statement 1: An amount equivalent to five percent (5%) of the excess of actual


collections of national internal revenue taxes over the collection goal shall accrue to the
special fund of the Bureau of Internal Revenue and shall be treated as receipts
automatically appropriated.

Statement 2: The said amount shall be utilized as incentive bonus for revenue
personnel, purchase of necessary equipment and facilities for the improvement of tax
administration, as approved by the Commissioner.

a. Statement 1 is true, Statement 2 is false


b. Statement 1 is false, Statement 2 is true
c. Both statements are true
d. Both statements are false

Explanation
Section 285 of the Tax code.

10. Mia, a compensation income earner, filed her income tax return for the taxable year 2010
on March 30, 2011. On May 20, 2014, Mia received an assessment notice and letter of
demand covering the taxable year 2010 but the postmark on the envelope shows April 10,
2014. Her return is not a false and fraudulent return. Can Mia raise the defense of
prescription?
a. No. The 3 year prescriptive period started to run on April 15, 2011, hence, it has
not yet expired on April 10, 2014.
b. Yes. The 3 year prescriptive period started to run on April 15, 20:1, hence, it had
already expired by May 20, 2014.
c. No. The prescriptive period started to run on March 30, 2011, hence, the 3 year period
expired on April 10, 2014.
d. Yes. Since the 3-year prescriptive period started to run on March 30, 2011,. it already
expired by May 20, 2014.

Explanation
Revenue Regulation No. 12-99
NCR CUP 4: TAXATION
FINAL ROUND
JUDGES’ COPY

EASY
1. A subdivision developer sold five (5) residential house and lots, each to different vendees,
for P3,000,000 per house and lot, or a total sales of P15,000,000 for the taxable period.
These sales shall be classified as:
a. 12% VAT transactions
b. 0% VAT transactions
c. VAT exempt transactions
d. None of the foregoing

Explanation:
Sale of house and lot amounting to PHP3,199,200 and below are considered as VAT-
exempt transactions. (RR No. 16-2011)

AVERAGE
2. Marian Alentajan, a resident citizen died leaving the following:
Net estate (before standard deduction):
Philippines P 5,000,000
USA 3,000,000
Australia 2,000,000
Estate tax paid:
USA 280,000
Australia 220,000

Required: Determine the estate tax due after tax credit.

Answer: 750,000

Explanation:
Section 86 E (2)b of the Tax code.

Tax of P10,000,000 = P1,215,000

Proration:
USA = 1,215,000 x 3/10 = 364,500 vs 280,000
Australia = 1,215,000 x 2/10 = 243,000 vs 220,000

280,000 + 220,000 = 500,000 vs 465,000

Tax due 1,215,000


Tax paid credit 465,000
Tax still due 750,000
DIFFICULT
3. The prescriptive period for the issuance of a formal letter of demand and final assessment
notice (FLD/FAN) may not ordinarily be stayed because of the lifeblood theory. However, there
are certain instances where the running of the prescriptive period may be suspended. Which of
the following is not among the recognized exceptions which suspend the prescriptive period within
which to assess?
a. Where the taxpayer requests for and is granted a reinvestigation by the
Commissioner.
b. If the taxpayer is out of the country.
c. If the taxpayer changes his address and informs the Commissioner of such
change.
d. When the Commissioner of Internal Revenue is prevented from making an
assessment and within 60 days thereafter.
Explanation
Section 223 of the Tax code.

EASY
4. That the President, upon the recommendation of the Secretary of Finance, may, effective
January 1, 2000, allow corporations the option to be taxed at fifteen percent (15%) of gross
income as defined herein, after the following conditions have been satisfied, except:
a. A tax effort ratio of twenty percent (20%) of Gross Domestic Product (GDP)
b. A ratio of forty percent (40%) of income tax collection to total tax revenues
c. A VAT tax effort of four percent (4%) of GNP
d. 0.9 percent (0.9%) ratio of the Consolidated Public Sector Financial Position
(CPSFP) to GNP

Explanation
Section 27A of the Tax code.

AVERAGE
5. Double taxation in its general sense means taxing the same subject twice during the same
taxing period. In this sense, double taxation:
a. Violates substantive due process
b. Does not violate substantive due process
c. Violates the right to equal protection
d. Does not violate the right to equal protection

Explanation
Section 1, Article 3 of the Philippine Constitution
DIFFICULT
6. Which cannot be a deductible as tax expense?
Interest on Foreign tax paid claimed Fringe benefit
delinquent tax as tax credit tax
a. Yes Yes Yes
b. Yes Yes No
c. No No Yes
d. No No No

Explanation
Chapter VII of the Tax code.

EASY
7. As regards a revenue bill, which of the following is not correct?
a. The Senate may propose amendments if the bill originates from the House of
Representatives.
b. The House of Representatives may propose amendments if the bill originates
from the Senate.
c. The President may recommend a revenue bill to Congress.
d. A House of Representative version and a Senate version approved separately and
then consolidated with both houses approving the consolidated version.

Explanation:
Under the Philippine Constitution, all appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and private bills shall originate
exclusively in the House of Representatives, but the Senate may propose or concur with
amendments. (Section 24, Article VI of the 1987 Constitution).

AVERAGE
8. On July 31, 2014, Esperanza received a preliminary assessment notice from the BIR
demanding that she pays P180,000 deficiency income taxes on her 2012. How many days from
July 31, 2014 should Esperanza respond to the notice?

Answer: 15 days

Explanation
Section 3.1.2 of RR No. 12-1999, as amended.

DIFFICULT
9. Which of the following losses cannot be initially deducted upon happening of the event?

I. Loss on Embezzlement pending investigation


II. Theft where the perpetrator is identified
III. Loss of income under the cash basis

Answer: I, II, III


Explanation
Section 34 (D) of the Tax code.

EASY
10. Congress passed a law subjecting government-owned and controlled corporations
(GOCCs) to income tax. Is the law valid?
a. Yes, because all government agencies and instrumentalities are subject to tax.
b. Yes, because GOCCs are not government agencies and are essentially
commercial in nature.
c. No, because the government agencies are exempt. This would pose a violation of the
equality clause in the constitution.
d. No, because GOCCs are constitutionally exempted from paying taxes.

Explanation:
General Rule: All corporations, agencies, or instrumentalities owned or controlled by the
government are taxable [Section 27(C) of the Tax Code].

AVERAGE
11. The reciprocity on exemption of intangible properties located in the Philippines of non-
resident aliens may apply on the following conditions, except when the foreign country where
the non-resident alien is a citizen
a. Do not have an estate tax law.
b. Has estate tax only to residents or citizens therein.
c. Has estate tax only to properties of a citizen thereon regardless of nature.
d. Has no income tax imposed on income earned by the estate but imposes transfer
taxes.

Explanation
Section 104 of the Tax Code.

DIFFICULT
12.. How many votes shall be necessary to reverse a decision of a Division of the Court of Tax
Appeals?
a. Five affirmative votes of the Justices present during the deliberation.
b. Simple majority of the Justices present during the deliberation.
c. Five affirmative votes of members of the Court en banc.
d. Votes unnecessary because decision of a Division cannot be reversed.

Explanation
Section 4 of the 1999 Internal Rules of the Court of Tax Appeals

EASY
13. An educational institution operated by a religious organization was being required by a
local government to pay real property taxes. Is the assessment valid?
a. Yes, with respect to all properties held by such educational purposes
b. Yes, with respect to properties not actually devoted by such educational
institution.
c. No, with respect to any properties held by such educational institution.
d. No, with respect to properties not actually devoted to educational purposes.

Explanation:
Only land, buildings and improvements which are actually, directly, and exclusively used
for religious, charitable, or educational purposes shall be exempt from taxation [Section
28(3) of Article VI of the 1987 Constitution].

AVERAGE
14. A, operates a ferryboat. During a particular quarter, its receipts consists of the following
Gross Receipts (without VAT)
Transport of passengers P1,000,000
Transport of goods 1,500,000
Transport of cargoes 500,000

The common carrier’s tax payable is

Answer: None

Explanation
Section 117 of the Tax code.

DIFFICULT
15. The records of a resident citizen revealed the following income (all amounts at gross) from
Philippine sources for the taxable year 2014:

Interest on bank deposit P30,000


Royalty from patented invention 50,000
Royalty from copyrighted books 40,000
Prize won in the Singing Bee contest 7,500
Share from professional partnership 25,000
Dividend from San Miguel Corporation 10,000
Lotto winnings 20,000

The total final income taxes withheld amount to:

Answer: 21,000

65/64 a 30,000 x 20% 6,000


50,000 x 20% 10,000
40,000 x 10% 4,000
10,000 x 10% 1,000
Total FT paid 21,000
EASY
16. The following income are subject to the final tax, except
a. Royalty income received by a domestic corporation from a domestic corporation
b. Cash dividends received by non-resident foreign corporation from a domestic
corporation
c. Cash dividends received by a domestic corporation from a domestic
corporation
d. Interest income received by resident foreign corporation from a Philippine bank

Explanation:
Section 27(D)(4) of the Tax Code.

AVERAGE
17.. A cellular company had the following receipts:
P2,000,000 - from domestic calls
P3,000,000 - incoming calls to the Philippines
P2,500,000 - outgoing calls abroad

What is the percentage tax?

Answer: 250,000

Explanation
Section 120 (A) of the Tax Code.

DIFFICULT
18. Kapuso Company which operates a water and radio broadcasting franchise provides the
following in 2014:
Gross receipts:
Water franchise P 2,000,000
Radio franchise 10,000,000
Operating expenses 5,000,000
Net income 7,000,000

The total percentage tax on franchise is:

Answer: 340,000

2,000,000 x 2% 40,000
10,000,000 x 3% 300,000
Total OPT 340,000

EASY
19. The power to decide disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties imposed in relation thereof, or other matters arising under the Tax
Code or other laws or positions thereof administered by the BIR is vested in the:
a. Regional Trial Court c. Secretary of Finance
b. Court of Tax Appeals d. Commissioner of Internal Revenue

Explanation:
Section 4 of the Tax Code.

AVERAGE
20.. The following data were gathered relative to the funeral expenses on the death of Bangkie:

Funeral parlor fees P 30,000


Cost of burial lot and mausoleum 70,000
Cost of coffin 120,000
Refreshments during wake 10,000
Refreshments during prayer after burial 15,000
Expenses for upkeep of burial place 12,000
Gross estate 5,000,000
The deductible funeral expenses amount to:
Answer: 200,000
. 30,000
70,000
120,000
10,000

Actual 230,000

Limit 5% x 5M 250,000
SM (allowed) 200,000

DIFFICULT
21. No deduction shall be allowed in respect of interest under following, except:

a. If within the taxable year an individual taxpayer reporting income on the


cash basis incurs an indebtedness on which an interest is paid in advance
through discount or otherwise.
b. If the indebtedness is incurred to finance petroleum exploration.
c. If both the taxpayer and the person to whom the payment has been made or is to
be made are persons specified under Section 36(B) – Items Not Deductible:
Losses from Sales or Exchange of property
d. None of the above
Explanation
Section 34 (B) 2a of the Tax code

EASY
22. The following are examples of corporate expenses deductible from gross income, except
one:
a. Representation expenses designed to promote business.
b. Bribes and kickbacks made in order to win a government contract.
c. Expenses paid to an advertising firm in order to create a favorable image for the
corporation.
d. Premiums on life insurance covering the life of an employee if the beneficiary is his
heirs.

Explanation:
Section 34 (A)(1)(c) of the Tax Code.

AVERAGE
23.. A domestic corporation sold its idle land located in the city of Manila. This land was acquired
5 years ago for P5,000,000 and was mortgaged at the local bank for P6,000,000. The land has
now (2014) a BIR zonal value of P10,000,000. The terms of the sale are as follows:

Cash downpayment, 10/1/14 P 500,000


Mortgage assumed by Vendee 6,000,000
Promissory note due, 10/1/15 500,000
Promissory note due, 10/1/16 500,000
Promissory note due, 10/1/17 500,000

The final capital gains tax due for the taxable year 2014 under the installment method is:
Answer: 300,000

94/94 d IP ≤ 25% of SP (1,500,000/8,000,000 or 18.75%)


Contract price: (8,000,000 – 6,000,000) +1,000,000 = 3,000,000
Final CGT 10,000,000 x 6% = 600,000
Payable in 2014: 600,000 x 1,500,000/3,000,000 =300,000

DIFFICULT.
24.. A request for reinvestigation was filed on May 10, 2014. When shall be the last day to
submit the required documents?

a. July 9,2015
b. July 10,2015
c. July 15, 2015
d. No need to submit documents because it is only a request for reinvestigation.

Explanation
Revenue Regulation No. 12-99