TAXATION Individual and Corporate Income Taxpayers Definition of Terms: Terms : (A) The term 'person' means an individual, a trust, estate or corporation. (B) The term 'corporation' 'corporation' shall include partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participacion), association, or insurance companies, but does not include general professional partnerships and a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating consortium agreement under a service contract with the Government.. 'General professional partnerships' are Government partnerships formed by persons for the sole purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or business. (C) The term 'domestic,' 'domestic,' when applied to a corporation, means created or organized in the Philippines or under its laws. (D) The term 'foreign,' when applied to a corporation, corpor ation, means a corporation which is not domestic. (E) The term 'nonresident citizen' means: citizen' means: (1) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein. (2) A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a permanent basis. (3) A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year. (4) A citizen who has been previously considered as nonresident citizen and who arrives in the Philippines at any time during the taxable year to reside permanently in the Philippines shall likewise be treated as a nonresident citizen for the taxable year in which he arrives in the Philippines with respect to his income derived from sources abroad until the date of his arrival in the Philippines. (5) The taxpayer shall submit proof to the Commissioner to show his intention of leaving the Philippines to reside permanently abroad or to return to and reside in the Philippines as the case may be for purpose of this Section.(F) The term 'resident alien' means alien' means an individual whose residence is within the Philippines and who is not a citizen thereof.
ATTY. MACMOD, C.P.A.
(I) The term 'nonresident foreign corporation'applies corporation' applies to a foreign corporation not engaged in trade or business within the Philippines. (J) The term 'fiduciary' means a guardian, trustee, executor, administrator, receiver, conservator or any person acting in any fiduciary capacity for any person. (K) The term 'withholding agent' means any person required to deduct and withhold any tax under the provisions of Section 57. (L) The term 'shares of stock' shall include shares of stock of a corporation, warrants and/or options to purchase shares of stock, as well as units of participation in a partnership (except general professional partnerships), joint stock companies, joint accounts, joint ventures taxable as corporations, associations and recreation or amusement clubs (such as golf, polo or similar clubs), and mutual fund certificates. (M) The term 'shareholder 'shareholder'' shall include holders of a share/s of stock, warrant/s and/or option/s to purchase shares of stock of a corporation, as well as a holder of a unit of participation in a partnership (except general professional partnerships) in a joint stock company, a joint account, a taxable joint venture, a member of an association, recreation or amusement club (such as golf, polo or similar clubs) and a holder of a mutual fund certificate, a member in an association, joint-stock company, or insurance company. (N) The term 'taxpayer' means any person subject to tax imposed by this Title. (O) The terms 'including' and 'includes', when used in a 'includes', when definition contained in this Title, shall not be deemed to exclude other things otherwise within the meaning of the term defined. (P) The term 'taxable year' year' means the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the net income is computed under this Title. 'Taxable year' includes, in the case of a return made for a fractional part of a year under the provisions of this Title or under rules and regulations prescribed by the Secretary of Finance, upon recommendation of the commissioner, the period for which such return is made. (Q) The term 'fiscal year' means year' means an accounting period of twelve (12) months ending on the last day of any month other than December. (R) The terms 'paid or incurred' and 'paid or accrued' shall be construed according to the method of accounting upon the basis of which the net income is computed under this Title.
(G) The term 'nonresident alien' means an individual whose residence is not within the Philippines and who is not a citizen thereof.
(S) The term 'trade or business' includes performance of the functions of a public office.
(H) The term 'resident foreign corporation' applies corporation' applies to a foreign corporation engaged in trade or business within the Philippines.
(T) The term 'securities' means shares of stock in a corporation and rights to subscribe for or to receive such shares. The term includes bonds, debentures, notes or certificates, or other evidence or indebtedness, issued by
the
any corporation, including those issued by a government or political subdivision thereof, with interest coupons or in registered form.
other provisions of this Title, as 'ordinary loss' shall be treated as loss from the sale or exchange of property which is not a capital asset.
(U) The term 'dealer in securities' means securities' means a merchant of stocks or securities, whether an individual, partnership or corporation, with an established place of business, regularly engaged in the purchase of securities and the resale thereof to customers; that is, one who, as a merchant, buys securities and re-sells them to customers with a view to the gains and profits that may be derived therefrom.
(AA) The term 'rank and file employees' shall employees' shall mean all employees who are holding neither managerial nor supervisory position as defined under existing provisions of the Labor Code of the Philippines, as amended.
(V) The term 'bank' means every banking institution, as defined in Section 2 of Republic Act No. 337, as amended, otherwise known as the General banking Act. A bank may either be a commercial bank, a thrift bank, a development bank, a rural bank or specialized government bank.
(CC) The term 'trade, business or profession' shall profession' shall not include performance of services by the taxpayer as an employee.
(W) The term 'non-bank financial intermediary'means intermediary' means a financial intermediary, as defined in Section 2(D)(C) of Republic Act No. 337, as amended, otherwise known as the General Banking Act, authorized by the Bangko Sentral ng Pilipinas (BSP) to perform quasi-banking activities. (X) The term 'quasi-banking activities' means activities' means borrowing funds from twenty (20) or more personal or corporate lenders at any one time, through the issuance, endorsement, or acceptance of debt instruments of any kind other than deposits for the borrower's own account, or through the issuance of certificates of assignment or similar instruments, with recourse, or of repurchase agreements for purposes of relending or purchasing receivables and other similar obligations: Provided, however, That commercial, industrial and other nonfinancial companies, which borrow funds through any of these means for the limited purpose of financing their own needs or the needs of their agents or dealers, shall not be considered as performing quasi-banking functions. (Y) The term 'deposit substitutes' shall mean an alternative from of obtaining funds from the public (the term 'public' means borrowing from twenty (20) or more individual or corporate lenders at any one time) other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrowers own account, for the purpose of relending or purchasing of receivables and other obligations, or financing their own needs or the needs of their agent or dealer. These instruments may include, but need not be limited to bankers' acceptances, promissory notes, repurchase agreements, including reverse repurchase agreements entered into by and between the Bangko Sentral ng Pilipinas (BSP) and any authorized agent bank, certificates of assignment or participation and similar instruments with recourse: Provided, however, That debt instruments issued for interbank call loans with maturity of not more than five (5) days to cover deficiency in reserves against deposit liabilities, including those between or among banks and quasi-banks, shall not be considered as deposit substitute debt instruments. (Z) The term 'ordinary income' income' includes any gain from the sale or exchange of property which is not a capital asset or property described in Section 39(A)(1). Any gain from the sale or exchange of property which is treated or considered, under other provisions of this Title, as 'ordinary income' shall be treated as gain from the sale or exchange of property which is not a capital asset as defined in Section 39(A)(1). The term 'ordinary loss' includes any loss from the sale or exchange of property which is not a capital asset. Any loss from the sale or exchange of property which is treated or considered, under
(BB) The term 'mutual fund company' shall mean an open-end and close-end investment company as defined under the Investment Company Act.
(DD) The term 'regional or area headquarters' shall headquarters' shall mean a branch established in the Philippines by multinational companies and which headquarters do not earn or derive income from the Philippines and which act as supervisory, communications and coordinating center for their affiliates, subsidiaries, or branches in the AsiaPacific Region and other foreign markets. (EE) The term 'regional operating headquarters'shall headquarters' shall mean a branch established in the Philippines by multinational companies which are engaged in any of the following services: general administration and planning; business planning and coordination; sourcing and procurement of raw materials and components; corporate finance advisory services; marketing control and sales promotion; training and personnel management; logistic services; research and development services and product development; technical support and maintenance; data processing and communications; and business development. (FF) The term 'long-term deposit or investment certificates' shall refer to certificate of ti me deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments with a maturity period of not less than five (5) years, the form of which shall be prescribed by the Bangko Sentral ng Pilipinas (BSP) and issued by banks only (not by nonbank financial intermediaries and finance companies) to individuals in denominations of Ten thousand pesos (P10,000) and other denominations as may be prescribed by the BSP.
Summary of New Income Tax Rules for Individual and Corporate Income Taxpayers TAXPAYER 1. Resident Citizens
TAXBASE a. Taxable income, World b. Passive income
c. Special Income
TAXRATE/(S) 5% - 32% 20%; 7.5% 5% - 12% 20%; 10%; 6 - 8 - 10% 6%; 5% & 10%
PASSIVE INCOME Interest Income from Phil. bank deposits
RC / RA / NRC
NRA
–
ETB
NRA NOT ETB
Yields from deposit substitutes Royalty Income
2. Non-Resident Citizens/ Resident Aliens
a. Taxable income, Phils. b. Passive income c. Special income
same 1-a
3. Non-Resident Alien engaged in trade or business
a. Taxable income, Phils. b. Passive income
same 1-a
c. Special Income 4. Non-Resident Alien not engaged in trade or business 5. Special Alien Employees: a. Multinational Corporations b. Offshore banking units
c. Petroleum Contractors/ subcontractors
same 1-b same 1-c
same 1-b but without 6 – 8 10% & 7.5% same 1-c
a. Gross income, Phils (including passive income) b. Special income
25% final tax
a. Gross compensation income, Phils. b. Other gross income, Phils. including passive income c. Special income
15% final tax
same 1-c
Rates of Income Tax on Individual Citizen and Individual Resident Alien of the Philippines Sec.24 (A) – The tax shall be computed on taxable income in accordance with and at the rates established in the following schedule:
Over P10,000 30,000 70,000 140,000 250,000 500,000
The tax shall be 5% P500 2,500 8,500 22,500 50,000 125,000
Dividend income from domestic corp Distributive share of a partner – NIAT Of a taxable partnership
Format of computation of Taxable income: a. Pure compensation income earner Gross compensation income Less: Basic personal exemption Additional exemption Health insurance premiums Taxable compensation income
same 1-c
A non-resident alien individual who comes to the Philippines and stays therein of an aggregate period of more than 180 days during any calendar year shall be deemed a non-resident alien doing business in the Philippines.
But not over P10,000 30,000 70,000 7 0,000 140,000 250,000 500,000 -
Winnings ( except from PC80 )
25% final tax
Note: 1. The following are non-resident citizen: a. One who establishes to the satisfaction of the commissioner the fact of his physical presence abroad with a definite intention to reside therein; b. One who leaves Philippines during the taxable year to reside abroad; c. One who works and derives income from abroad whose job there requires him to be physically abroad most of the time (during the taxable year). 2.
Awards / Prizes ( over P10T )
Plus 10% 15% 20% 25% 30% 32%
Of excess over P10,000 30,000 70,000 140,000 250,000 500,000
Pxxx Pxxx xxx xxx
Income tax due [ Sec.24 (A) ] Less: Tax withheld from compensation Income tax payable
b.
Pxxx xxx Pxxx
Pure business/professional income earner Gross business income Less: Deductions allowed (Sec.34) Income before personal exemptions Less: Basic personal exemption Pxxx Additional exemption xxx Taxable Net income Income tax due [ Sec.24 (A) ] Less: Creditable withholding tax at source Income tax payable
c.
xxx Pxxx
Pxxx xxx Pxxx xxx Pxxx Pxxx xxx Pxxx
Mixed income earner ( compensation from employment and business/professional income ). Gross business income Gross compensation income Total Less: Deduction allowed [ Sec. 34 ] Income before personal exemptions Less: Basic personal exemption Additional exemption Taxable Net income
Pxxx xxx xxx xxx xxx Pxxx xxx
xxx Pxxx
Income tax due [ Sec.24 (A) ] Pxxx Less: Tax withheld from compensation Pxxx Creditable withholding tax at source xxx xxx Income tax payable Pxxx
Simplified Summary Rules KINDS Ordinary Corporations: 1. Domestic Corporations 2. Resident Foreign Corporations 3. Non-Resident Foreign Corporations Special Corporations: 1. Private Educational Institutions & NonStock/Non-Profit Hospitals 2. Resident International Carriers 3. Non-Resident Cinematographic Film Owner/Lessor 4. Non-Resident Owner/Lessor of Vessels 5. Non-Resident Owner/Lessor of Aircrafts, Machineries and Equipment 6. Offshore Banking Units
for Corporations TAX BASE Taxable Net income, World Taxable Net income, Phils. Gross Income, Phils.
c. d. e.
TAX RATE 38% 3. the same the same
Improperly Accumulated Earnings Tax ( IAET ) Taxable Net income, World (unless Resident Corp.) Gross Billings, Phils. Gross Income, Phils.
10% 1.
Imposed on corporations starting January January 1,1998 on their improperly accumulated earnings (accumulated Retained Earnings which are not declared/distributed as dividends without justifiable reasons).
2.
Not applicable to the following: a. b. c. d. e.
3.
Certain circumstances indicating Improper accumulation of profits: a. Substantial changes to corporate officers who are are stockholders at the same time/Personal loans. b. Radical change in the nature nature of business after a considerable surplus has been accumulated. c. Investment is unrelated business or activity. d. Substantial expenditures of corporations for the personal benefit of stockholders only.
4.
In general, an accumulation of earnings or profits is unreasonable or improper if it is not required for the purposes of the business. a. If to be used as working capital needed needed by the business. b. If needed for plant expansion of the business. c. If, in accordance with contractual obligations, placed to the credit of a sinking fund for the purpose of retiring bonds issued by the corporation.
5.
Formula for IAET Taxable Net income Add: Passive Income Special income Tax-exempt income Total
2½% 25%
Gross income from rentals, leases, charter, fees, Phils. The same (#4)
4½%
Interest income from Foreign Currency transactions
10%
7½%
IMPORTANT NOTES TO REMEMBER: For Private Educational Institutions and Hospitals: If their gross income from unrelated trade or business exceed 50% of their gross income from all sources the rule on ordinary corporation (30% rates) shall apply. For Resident Corporations: Subject to additional tax of 15% for every profit remittance made to their head office abroad. (exempt if registered with EPZA). For Non-Resident Corporations: Unless, otherwise, provided a foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to 35% of the gross income received during the taxable year from all sources within the Philippines such as interests, rents, salaries, premium (except reinsurance premiums), annuities, emoluments, or other fixed or determinable annuities. Periodical or casual gains, profits and income and capital gains, except income subject to Capital gains tax.
Less: All taxes paid (not claimed as deductions) Dividends paid/declared Appropriations of Retained Earnings Improperly Accumulated Earnings Multiplied by Improperly Accumulated Earnings tax
Formula for computation: Gross Income ( within the Philippines ) Multiplied by: Tax rate Income tax due
Pxxx 30% Pxxx
Minimum Corporate Income tax rule ( MCIT ) – beginning January 1, 1998 corporations which are already in their 4th year of operations, shall be subject to income tax of 30% on their taxable net income or 2% of their gross income whichever is higher. 1.
With tax credit benefits for the excess of the 2% MCIT over the normal/regular income tax (Deductible vs. Normal income tax in the succeeding three years).
2.
2% MCIT i s corporations. a. b.
not
But corporations corporations subject to 2% MCIT may still ask for relief or exemption under the following: a. b. c.
app licable
to
t he
following
F.
Pxxx Pxxx xxx xxx
xxx Pxxx
xxx xxx xxx
xxx Pxxx 10% Pxxx
Special and passive income for Corporations: Domestic Resident Non-resident Special income 1. Sale of shares 5% and 10% of of stocks of a the Net Capital domestic Corp. Gains held as capital assets, not thru Local stock exchange. 2. Sale of Real 6% of the GSP SP-Cost x Property in the or FMV (higher) 30% Philippines held (included in as capital asset. other income)
1. 2. 3. 4. 5.
Passive income Interest income from Phil. Bank deposits Yields, monetary benefits from deposits substitutes Royalty income Intercorporate dividends Interest income from expanded foreign currency deposit
Time of filing – Quarterly returns – shall be filed within 60 days following the close of each of the first three quarters. 20% 20% 20% Exempt
1.5%
20% 20% 20% Exempt
1.5%
30% 30% 30% 15%
Exempt
G. The following corporations are exempted from tax on corporations: 1. Labor, agricultural or horticultural organization not organized principally for profit; 2. Mutual savings bank not having a capital stock represented by share, and cooperative bank without capital stock organized and operate for mutual purposes and without profit; 3. A beneficiary society, ord er or association operating for the exclusive benefit of the members such as fraternal organization operating under the lodge system, or a mutual and association or a nonstick corporation organized by employees providing for the payment of life, sickness, accident, or other benefits exclusively to the members of such society, order, or association, or nonstick corporation or their dependents; 4. Cemetery company owned and operated exclusively for the benefits of its members; 5. Non-stock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall belong to or inure to the benefit of any member organizer, officer or any specific person; 6. Business league, chamber chamber of commerce, or board of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stockholder or individual; 7. Civic league or organization not organize for profit but operated exclusively for the promotion of social welfare; 8. A non-stock and non-profit educational institution; 9. Government educational institution; 10. Farmers’ or other mutual typhoon or fire insurance company, mutual ditch or irrigation company, mutual or cooperative telephone company, or like organization of a purely local character, the income of which consists solely of assessments, dues, and fees collected from members for the sole purposes of meeting its expenses; and 11. Farmers’, fruit growers’ or like association organized and operated as a sales agent for the purpose of marketing the products of its members and turning back to them the proceeds of sales, less the necessary selling expenses on the basis of the quantity of products finished by them; “ Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for profit regardless of the disposition made of such income, shall be subject to tax imposed under the Tax Code.” QUARTERLY CORPORATE INCOME TAX RETURN Corporation are required to file in duplicate a quarterly, summary declaration of its gross income and deductions on a cumulative basis. The tax so computed shall be decreased by the amount with tax previously paid or assessed during the preceding quarter.
Final returns – shall be filed on or before the 15th of the fourth month following the closed of the taxable (fiscal or calendar year). Income Taxation Multiple Choice: Choose the best possible answer. 1. One of them is not considered non-resident citizen. a. A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein. b. A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on permanent basis. c. A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year. d. A citizen of the Philippines who went on a business trip abroad and stayed therein most of the time during the year. 2.
DINA, nonresident citizen, arrived in the Philippines on July 1, 2000 to reside here permanently after working as nurse in the United States of America for many years. Which of the following statements is correct with respect to her classification for income tax purposes? a. She shall be classified as nonresident citizen for the year 2000 with respect to her income derived from sources abroad from January 1,2000 until the date of her arrival in the Philippines. b. She shall be classified as nonresident citizen for the whole year of 2000. c. She shall be classified as resident citizen for the whole year 2000. d. She shall be classified as neither resident nor nonresident citizen for the year 2000.
3.
JESS, an expert expert American Physicist was hired by a Philippine corporation to assist in its organization and operation for which he had to stay in the Philippines for an indefinite period. His coming to the Philippines was for a definite purpose which in its nature would require an extended stay and to that end makes his home temporarily in the Philippines for around 300 days during the calendar year. The American management expert intends to to leave the Philippines as soon as his job is finished. For income tax purposes, the American management expert shall be classified as: a. Resident alien. b. Nonresident alien engaged in trade or business. c. Nonresident alien not engaged in trade or business. d. Resident citizen.
4.
ASSUNTA, an American singer, was engaged to sing for one week at the Western Philippine Plaza after which she returned to USA. For income tax purposes, she shall be classified as: a. Resident alien. b. Nonresident alien engaged in trade or business. c. Nonresident alien not engaged in trade or business. d. Resident citizen.
5.
SITUS OF TAXATION TAXATION IS WORLD/GLOBAL TAXATION? a. Resident alien c. Nonresident alien
b. Nonresident citizen 6.
d. Resident citizen
It is important to know the source of income for income tax purposes (i.e. from within and without the Philippines) because: a. Some individuals and corporate taxpayers are taxed on their worldwide income while others are taxable only upon income from sources within the Philippines. b. The Philippine imposes income tax only on income from sources within. c. Some individual taxpayers are citizens while others are aliens. d. Export sales are not subject to income tax.
7.
An exemption exemption allowed to a taxpayer who has qualified legitimate, illegitimate or legally adopted children. a. Additional exemption. b. Special additional personal exemption. c. Optional standard deduction. d. Basic personal exemption.
8.
The following except one may claim personal exemption. a. Nonresident alien not engaged in trade or business. b. Nonresident alien engaged in trade or business. c. Resident alien. d. Citizens.
9. Which of the following taxpayers whose personal exemption is subject to the law on reciprocity under the Tax Code? a. Nonresident citizen with respect to his income derived from outside the Philippines. b. Nonresident alien who shall come to the Philippines and stay herein for an aggregate period of more than 180 days during any calendar year. c. Resident alien deriving income from a foreign country. d. Nonresident alien not engaged in trade or business in the Philippines whose country allows personal exemption to Filipinos who are not residing but are deriving income from said country. 10. Under the Tax Code, who of the spouse is the proper claimant of the additional exemption with respect to any of the dependent children? a. The husband if his income is higher than the income of the wife. b. The spouse who has has the bigger income. c. The husband. d. The wife if her income income is higher than the income of the husband.
c. d.
Legally separated taxpayer supporting a brother, 27 years old, physically incapacitated. Widower supporting his mother in law, 55 years old.
13. A taxpayer, single has the following dependents who live with him: a. Tony, brother, 25 years old taking up Engineering Engineering course. b. Inday, sister, 16 years old. c. Lina, adopted child, gainfully employed. d. Berto, not related to taxpayer, 65 years old, qualified senior citizen. For income tax purposes, the taxpayer can claim: Basic personal exemption Additional exemption a. P50,000 Zero b. P50,000 P25,000 c. P50,000 P50,000 d. P50,000 P75,000 14. The taxpayer is a married nonresident alien engaged in business in the Philippines with two (2) qualified dependent children. His country gives a nonresident Filipino with income therefrom a basic personal exemption of P20,000 & P4,000 additional personal exemption for each qualified dependent child. He is entitled to total personal exemptions of: a. P50,000 c. P28,000 b. P75,000 d. P100,000 15. One of the following is not qualified as dependent for income tax purposes. a. Illegitimate child, 16 years old, living in the United States due to his studies. b. Legitimate child, 21 years old, with a monthly income of P2,000, living with the taxpayer in Manila. c. Senior citizen, not related to the taxpayer, with a yearly income of P80,000, living with and taken of by the taxpayer. d. Brother, 24 years old, incapable of self self support because of physical disability. 16. Life insurance premiums paid by an individual taxpayer is deductible from gross income for a maximum amount of P2,400 provided the family’s gross income for the year does not exceed P250,000. The premium on health and/or hospitalization insurance is deductible by the spouse who claimed the additional exemption in case of married taxpayers. a. True, True c. False, False b. True, False d. False, True
11. Taxpayer, married, supports the following: a. Vanessa, legitimate child, 21 years old. b. Arli, recognized recognized natural child, 18 years old. c. Lorelie, stepchild, daughter daughter of wife by a former marriage, 23 years old. d. Widowed mother of her wife, 62 years old.
17. Which of the follo wing will change t he status of the taxpayer? a. Marriage of a dependent within the taxable year. b. Dependent becoming becoming 21 years old during the year. year. c. Dependent gaining employment during the year. d. Marriage of taxpayer himself during the year.
For income tax purposes, the taxpayer can claim: Basic personal exemption Additional exemption a. P50,000 P100,000 b. P50,000 P 75,000 c. P50,000 P 50,000 d. P50,000 P 0
18. Filipino as well as alien employees of regional or area headquarters established in the Philippines by multinational companies shall be subject to final tax of 15% on the gross business income in the Philippines.
12. One of the fol lowing is not a head of the family for income tax purposes: a. Unmarried taxpayer supporting his mother, 50 years old. b. Married but legally separated separated taxpayer supporting a legitimate child, 6 years old.
Generally, nonresident aliens not engaged in trade or business are subject to 25% creditable withholding tax on their gross income in the Philippines. a. True, True c. True, False b. False, False d. False, True 19. “Global 19. “Global system of income income taxation” means: a. All types of income except those subject to final tax are aggregated to arrive at gross income.
b.
Separate graduated rates are imposed on different types of income. Capital gains are exclude in determining gross income. Compensation income and business/professional income are taxed at different places in the world.
a.
20. Which of the following income of an individual taxpayer is subject to final tax? a. P10,000 prize in Manila won by a resident citizen. b. Dividend received by a resident resident citizen from a resident corporation. c. Shares in the net income income of a general professional partnership received by a resident alien. d. Dividend received by a non-resident alien from a domestic corporation.
d.
c. d.
21. Interest received by nonresident individuals from a depository bank under the expanded foreign currency deposit system is exempt from tax. Passive income received by a resident citizen from sources outside the Philippines shall be generally subject to Section 24 (A) and not to final tax. a. True, True c. False, False b. True, False d. False, True 22. A nonresident al ien deriving income from Philippine sources claims that he is entitled to personal exemptions. Which of the following is not a condition for the allowance of personal exemptions to said taxpayer? a. That he has stayed in the Philippines for an aggregate period of more than 180 days. b. That his country has an income tax law that allows personal exemptions to Philippines not residing therein. c. That he has filed a true and accurate return of his total income from all sources within the Philippines. d. That he is married to a Filipina. 23. Which of the following statements is incorrect? a. To be subject subject to final tax passive income must be from Philippine sources. b. An income which is subject to final tax is excluded from the computation of income subject to Section 24 (A). c. Lotto winnings in foreign countries are exempt from income taxation in the Philippines. d. An income which is subject to non creditable withholding tax is excluded in the computation of income subject to Section 24 (A). 24. Proceeds of sale of real property classified as capital asset are exempt from the 6% capital gains tax if used to build a new principal residence within 18 months from the date of sale or of disposition. Gain from sale of real property classified as capital asset to the Government may be taxed under Section 24 (A) at the option of the individual taxpayer. a. True, True c. False, False b. True, False d. False, True 25. One of the following is not a deposit substitute. a. Baker’s acceptance. b. Promissory notes. c. Repurchase agreements. d. Debt instruments issued for interbank call loans with maturity of not more than 5 days to cover deficiency in reserves against deposit liabilities. 26. Which of the following statements is not correct?
b. c.
Interest income from long term deposit is exempt from income tax. Winnings from Philippine Charity Sweepstakes Sweepstakes are exempt from income tax. Royalties on books, literary works and musical composition are subject to 10% non-creditable withholding tax. A prize of P10,000 is subject to 20% final tax.
27. Cash and/or property dividends received from domestic corporation by a nonresident alien not engaged in trade or business are subject to 25% final tax. Share of an individual in after tax of a general subject to final tax. a. True, True b. True, False
the distributed net income professional partnership is c. False, False d. False, True
28. 1st Statement – Nonresident individual taxpayer are also subject to 7.5% final tax on their income from expanded foreign currency deposit. 2nd Statement- There can be a 6% capital gains tax on sale of a real property in USA. a. True, True c. False, False b. True, False d. False, True 29. Which is covered by gross income taxation? a. Resident alien b. Nonresident alien engaged engaged in trade or business without reciprocity law. c. Nonresident alien not engaged in trade or business. d. Nonresident citizen 30. Which is governed by modified gross income taxation? a. A resident Filipino with compensation income only. b. NRA-engaged in trade or business with the benefit of reciprocity law. c. A non-resident citizen with business income only. d. A resident citizen who is considered a mixed income earner. 31. Mr. Valdez, resident Filipino taxpayer single supporting three minor (illegitimate) children one of them living abroad showed the following data for taxable year 200A. Salary from ABC Co. (net of P40,000 withholding tax) P350,000 Professional fee from various schools (net of 10% withholding tax) 135,000 Expenses incurred-practice of profession (Living expenses including tuition fees of children 25% thereof) 80,000 Health and/or hospitalization insurance premium paid 5,000 The income tax due after tax credit if any is: a. P51,700 c. P43,300 b. P49,300 d. P34,000 32. Based on the above problem, his taxable income assuming his salary from ABC Co. is P80,000 (gross): a. P126,600 c. P121,000 b. P129,000 d. P67,600 33. Benjie sold his residential house to Ms. Papaya for P5,000,000. Its FMV when he inherited it was P6,000,000 although its presents FMV is P8,000,000. The tax on the above transaction is: a. P360,000 capital gains tax b. P480,000 capital gains tax c. 30% donor’s tax
d.
Value added tax
34. But assuming that Benjie used ¼ of the proceeds of the said house to buy a new principal residence 10 days after the above sale and he properly informed BIR about it, the tax shall only be: a. P120,000 capital gains tax b. P240,000 capital gains tax c. P360,000 capital gains tax d. P480,000 capital gains tax 35. Continuing no. 35, but assuming the residential house is located abroad, the capital gains tax is: a. P360,000 c. P120,000 b. P480,000 d. P0 36 to 41 are based on the following data: Mr. Pogi, married supporting 10 minor children 7 of which are gainfully employed had the following data for taxable year 2010: ($1-P50). Philippines Abroad Business income P1,000,000 $20,000 Professional income 400,000 10,000 Salaries (net of P18,500 withholding Tax) 181,500 Business and professional expenses 250,000 8,000 Income tax paid abroad: 4,000 2,575,000 354,245 36. If Mr. Pogi i s a resident citizen, his in come tax due after tax credit is: a. P789,000 c. P589,000 b. P570,500 d. P490,500 37. If he is a resident alien, his income tax due after tax credit, if any is: a. P360,580 c. P384,380 b. P358,020 d. P 338,500 38. If he is a non-resident citizen, his income tax due after tax credit, if any is: a. P360,580 c. P384,380 b. P358,020 d. P338,500 39. If he is a non-resident alien engaged in trade or business in the Philippines but without the benefit of Reciprocity Law, the income tax due after tax credit, if any is: a. P397,000 c. P405,500 b. P378,500 d. P338,500 40. If he is a Non-resident alien not engaged in trade or business, disregarding professional & business data, the income tax still due is: a. P50,000 c. P31,500 b. P18,500 d. P338,500 41. And if he is a Special Alien Employee, disregarding professional and business data the income tax that should be withheld from his income is: a. P18,500 c. P11,500 b. P30,000 d. None 42. Mr. and Mrs. Robino, both CPA’s and residents of the Philippines had the following data for taxable year 2000: Salaries, Mrs. P150,000 Bonus (13th month pay), Mrs. 94,000 Income from practice of Profession,
Mr. and Mrs. (net of 10% withholding tax) Expenses – professional practice Rental income (net of 5% withholding tax Rental expenses Other income, Mr.
450,000 120,000 190,000 80,000 80,000
20% of the other income is non-taxable while 15% of the professional expenses is non-deductible. They have 12 minor children. The taxable income of Mr. is: a. P173,000 c. P266,000 b. P275,000 d. P234,000 43. The taxable income of Mrs. is: a. P371,000 c. P419,000 b. P357,000 d. P410,000 44. Mr. Dimple Pastrana had the following data for taxable year 2015: (Exchange rate $1-P40)
Salaries Income from merchandise Business expenses Interest income: Personal receivable From expanded FCDS On bank deposits (20% long-term) Royalty income (20% from books) Prize won in contest Dividend income: From domestic corporation From resident corporation From non-resient Winnings from Charity sweepstakes Shares of stocks of domestic corp. sold to a buyer (cost P10,000)
Philippines P165,000 450,000 120,000
Abroad $2,000 6,000 1,500
10,000 $2,500 25,000
3,000
22,000 10,000
1,000
7,000 5,000 8,000 80,000
30,000
Mr. Dimple is married with the following children as dependents: Haze, born March 15,1990, Diane, born April 5,1992, Christine and Pat, born May 6,1995, and Batman, born February 27,1998. He also sold a condominium unit in Manila (residential) for P2,000,000 although its FMV is P3,000,000 but with a zonal value of P4,000,000. The taxable income of Mr. Dimple is: a. P798,000 c. P724,000 b. P892,000 d. P716,000 45. Mr. Dimple’s total final taxes on his passive income is: a. P16,160 c. P15,460 b. P16,020 d. P8,520 46. His total capital gain’s taxes gain’s taxes is: a. P241,000 c. P240,000 b. P251,720 d. P257,000 47. If he is a Non-resident citizen his to tal final tax on passive income is: a. P16,020 c. P16,160 b. P15,460 d. P8,520
48. If he is a Non-resident alien not engaged in trade or business his total combined taxes on all income from Philippines is: (excluding business income) a. P83,000 c. P324,000 b. P241,000 d. P340,000 49. A Malaysian who is an employee in the regional area headquarter of a multinational corporation had the following data for taxable year 2009. Salaries received P120,000 Other emoluments 50,000 Interest income from Philippine Bank Deposit 20,000 Winnings from Lotto 50,000 Winnings from Tournament 100,000 Gain from sale of shares of stock sold directly to a buyer (stocks of a domestic corporation) 175,000 The capital gain’s tax is: a. P12,000 b. P12,500
c. P7,500 d. P17,500
50. The total combined taxes on all other income from Philippines is: a. P23,500 c. P68,000 b. P42,500 d. P80,500 51. Mr. de Vega, married, left Philippines in the middle of the year on July 1,2014 to go abroad and work there as a contract worker for two years, the following data were provided as of December 31,2014: (Assume all data from abroad only) Gross Income Deductions January 1 to June 30 P300,000 P100,000 July 1 to December 31 P1,000,000 P125,000 His taxable income is: ($1-P50) a. P150,000 c. P843,000 b. P1,403,000 d. P200,000 52. If , assuming he arrived from abroad on July 1,2014 to permanently resettle in the Philippines, after working abroad for 2 years, his taxable income as of December 31,2009 is: a. P168,000 c. P843,000 b. P1,043,000 d. P825,000 53. If he did not leave Philippines at all, his taxable income is: a. P168,000 c. P843,000 b. P1,043,000 d. P1,025,000 The Rainbow Corporation provided the following data for calendar year ending December 31, 2015: ($1-50) Philippines Abroad Gross Income P4,000,000 $40,000 Deductions P2,500,000 $15,000 Income tax paid 3,000 54. If it is a domestic corporation, its income tax after tax credit is: a. P675,000 c. P880,000 b. P832,000 d. P480,000 55. If is a resident corporation, its income tax is: a. P450,000 c. P880,000 b. P1,280,000 d. P480,000
a. b.
P780,000 P832,000
c. P880,000 d. P480,000
58. If it is i s a private educational institution like FEU, its income tax after tax credit: a. P730,000 c. P275,000 b. P832,000 d. P150,000 59. If it is non profit hospital, its income tax after t ax credit is: a. P730,000 c. P275,000 b. P832,000 d. P150,000 60. If it is a resident international carrier, its income tax is: a. P100,000 c. P37,000 b. P10,000 d. P125,000 61. If it is a non-resident cinematographic owner/lessor, its income tax is: a. P1,000,000 c. P300,000 b. P100,000 d. P128,000
film
62. If it is non-resident lessor of vessel, its income is: a. P100,000 c. P300,000 b. P180,000 d. P128,000 63. If it is a non-resident lessor of aircrafts, machineries and equipment, its income tax is: a. P100,000 c. P300,000 b. P180,000 d. P128,000 64. If it is a resident corporation but its expenses within and without is P3,000,000, unallocated (disregard original data on expenses), its income tax is: a. P600,000 c. P480,000 b. P320,000 d. P128,000 65. If it is a resident corporation and it remitted 60% of its net profit to its head office abroad, it total tax liability is: (ORIGINAL DATA) a. P544,500 c. P196,000 b. P571,800 d. P676,000 66. If it is a private educational institution but P3,500,000 of its total gross income is from lease & restaurant business, its income tax is: a. P730,000 c. P150,000 b. P675,000 d. P832,000 67. If it is a domestic corporation but its total expenses is P5,800,000 (disregard original data on expenses), its income tax is: a. P730,000 c. P120,000 b. P64,000 d. P85,000 68. If under # 67, but the domestic corporation is a nonprofit hospital, (disregard tax paid abroad) its income tax is: a. P20,000 c. P10,909 b. P64,000 d. P120,000 69. If the corporation is a non-stock educational institution which uses all its revenues or income for educational & charitable purpose, its income tax is: a. P0 c. P120,000 b. P730,000 d. P64,000
56. If it is a non-resident corporation, its income tax is: a. P1,200,000 c. P880,000 b. P1,280,000 d. P480,000
70. For purposes of computing the MCIT, which will not form part of cost of goods sold for traders: a. Invoice cost c. Freight b. Import duties d. Wharfage
57. Under # 54 but it opts to claim the tax paid abroad as deductions from gross income,its income tax is:
71. Under # 70, but the taxpayer is a manufacturer: a. Raw materials used
b. c. d.
Direct labor and overhead Freight and insurance Import duties
72. Under # 70, but the taxpayer is a seller of services: a. Salaries and supplies b. Employee benefits c. Depreciation and rental expenses d. Interest expense 73. The MCIT is only effective in the 5 th year following the year in which the corporation commenced its business. Non-resident corporation are also covered by MCIT. a. True, True c. False, True b. False, False d. True, False 74. Non-resident corporations need not file any income tax returns. Tax-exempt corporations are also required to file an ITR for administrative purposes only. a. True, True c. False, True b. False, False d. True, False 75. To record MCIT, the account deferred charges MCIT is: a. Debited c. Memo entry only b. Credited d. No entry required 76. To record application of excess MCIT vs. NORMAL income tax, what account is credited? a. Income tax payable c. Retained earnings b. Cash in bank d. Deferred charges MCIT 77. To record expired portion o f MCIT, what account is debited: a. Retained earnings c. Deferred charges MCIT b. Income tax payable d. Provision for income tax 78. One of the following is not accepted basic relief from the MCIT: a. Prolonged labor dispute b. Force majeure problems c. Legitimate business reverse d. Law suits filed by the company 79. Which is not a characteristics of corporate income tax: a. Progressive tax c. General tax b. Direct tax d. National tax 80. 1st Statement: Non-stock/non-profit corporations are tax-exempt from their income from all operations. 2nd Statement: Intercorporate dividends are taxexempt if the recipient is a foreign corporation. a. True, True c. False, True b. False, False d. True, False 81. Which is governed by gross income taxation. a. Domestic corporation b. Resident corporation c. Non-resident corporation d. Educational institutions 82. One of the following corporations cannot claim tax credit for foreign taxes paid abroad. a. Private educational institutions b. Resident International Carriers c. Investment companies d. Domestic Hospitals 83. 1st Statement: Foreign income tax may be treated by a taxpayer as tax credit but not as deduction from gross income under the new law. 2nd Statement: Being a holding company is conclusive evidence of improper accumulation of profit. a. True, True c. True, False
b.
False, False
d. False, True
84. The improperly accumulated earnings tax shall not apply to the following, except: a. Insurance companies b. Corporations formerly registered with PEZA c. Publicly held corporations d. Bank and Non-bank Financial Intermediaries 85. 1st Statement: Domestic corporation not falling under the definition of closely held corporations are considered publicly held corporations. 2nd Statement: A closely held corporation under the Tax Code and a close corporation under the Corporation Code are the same. a. True, True c. True, False b. False, False d. False, True 86. It is a test used in determining the reasonable needs of a business to justify the accumulation of earnings which will exempt the corporation from paying Improperly accumulated earnings tax: a. Urgency test c. Immediacy test b. Reasonable needs test d. Control test 87. The improperly accumulated earnings tax is essentially a: a. General tax c. Regulatory or Penalty tax b. Property tax d. Excise tax 88. Zaidia Corporation, a domestic corporation had the following data for taxable year 2010: Sales P5,000,000 Cost of goods sold 2,000,000 General selling and administrative expenses 500,000 Interest income from Philippine bank deposit 100,000 Rental income (net of 5% withholding tax) 190,000 Dividend Income: From domestic corporation 60,000 From foreign corporation 50,000 Winnings from charity sweepstakes 1,000,000 Capital gains from sale of domestic shares of stocks sold Directly to buyer 75,000 Dividend declared and paid during the year 500,000 Retained earnings, beginning of the year (subjected to Improperly accumulated earnings tax last year) 1,000,000 Note: The board of directors approved a resolution reserving P1,500,000 of its net profit for the year for plant expansion. The income tax due after tax credit if any is: a. P825,000 c. P899,200 b. P815,000 d. P819,200 89. Based on the foregoing problem, the Improperly accumulated earnings tax is: a. P208,125 c. P113,625 b. P108,125 d. P105,125 90. Haidia corporation, an educational institution provided the following data for the current year: Income from tuition fees P3,500,000 School miscellaneous fees 1,500,000 Dividend income: Domestic corporation 2,000,000 Foreign corporation 2,000,000 Rent income (net of 5% withholding tax) 1,900,000
Operating expenses
4,000,000
The income tax due of the school is: a. P1,600,000 c. P1,500,000 b. P1,500,000 d. P1,400,000 91. MEDINA corporation, a resident corpo ration provided the following data for taxable year 2010: Philippines USA Gross income P40,000,000 P20,000,000 Dividends from: Domestic corporation 5,000,000 Foreign corporation 4,000,000 Business expenses 12,000,000 8,000,000
a. b.
98.
The corporation’s total tax liability including the tax on the profit remitted is: a. P10,944,000 c. P15,960,000 b. P11,545,600 d. P12,475,000 the foregoing problem, if it is registered with EPZA, BPRT: P10,240,000 c. P11,545,600 P 9,600,000 d. P 0
93. The follo wing dat a were taken from the financial statement of Topnotcher Kah corporation for taxable for the current year: Philippines Abroad Gross sales P950,000 P2,000,000 Sales returns 25,000 Cost of goods sold 425,000 300,000 Interest income from trade receivable 10,000 50,000 Interest income from bank deposits, Phil. 20,000 Dividend income from domestic corporation 15,000 Dividend income from foreign corporation 25,000 Royalty income 20,000 Sale of shares of stocks of domestic corp. held as capital asset thru local stock exchange 70,000 Operating expenses 250,000 300,000 Income from money market placement 35,000 100,000 Sale of real property in the Phil. not used in 5,000,000 business, cost P4,000,000 30% of the operating expenses is nondeductible The FMV of the real property sold was P8,000,000 at the time of the sale. Its income tax on ordinary taxable income is: a. P640,000 c. P680,000 b. P600,000 d. P580,000 94. Its total tax on passive income is: a. P15,000 c. P4,000 b. P8,000 d. P11,000 95. Its capital gains tax is: a. P480,000 b. P495,000
c. P300,000 d. P60,000
96. Based on the abo ve problem, its total combined tax liability if it is a resident corporation:
c. P403,000 d. P423,350
97. And if it is i s a non-resident cor poration, its total combined taxes is: a. P485,450 c. P517,450 b. P515,200 d. P485,600
The corporation remitted to its head office the P5,000,000 dividend income and 40% of its net profit to its head office in USA.
92. In its a. b.
P435,200 P450,000
A corporation has the following data for the current year: Gross income, Phil. P1,000,000 Gross income, USA 500,000 Gross income, Japan 500,000 Expenses, Phil. 300,000 Expenses, USA 200,000 Expenses, Japan 100,000 Other income: Dividend from San Miguel Corp. 70,000 Dividend from Ford Motors, USA 120,000 Gain on sale of San Miguel shares directly to buyers 150,000 Royalties, Phils. 50,000 Royalties, USA 100,000 Interest (other than from banks) 60,000 Rent, land in USA 250,000 Other rent income 100,000 Prize, contest in Manila 200,000 Land sold in Philippines 2,000,000 The cost of the land not used in business is P1,000,000, its FMV is P3,000,000. Its total tax liability as a domestic corporation is: a. P733,600 c. P963,600 b. P913,600 d. P869,000
99.
Based on # 100, its total tax liability if it is a resident corporation: a. P539,200 c. P659,200 b. P679,200 d. P638,000
100. And if it is a non-resident corporation, its total tax liability is: a. P471,700 c. P791,200 b. P791,700 d. P743,500 101. A domestic corporation corporation has the following data for the year 2015 (fourth year of operation): Sales P5,000,000 Cost of sales 1,500,000 Business expenses 800,000 Dividend from domestic corporation 50,000 Selling price of land classified as capital asset(cost, P3,500,000) 4,000,000 Interest on Philippine currency bank deposit 40,000 Dividend declared and paid 500,000 Tax paid for the first three quarters 550,000 The BIR, upon investigation, found out that there is improper accumulation of earnings. The Improperly accumulated earnings tax is: a. P167,800 c. P517,800 b. P187,000 d. P173,200 102. The income tax still due in the final return is: a. P260,000 c. P410,000 b. P433,200 d. P510,000 103. STAR Corporation, a domestic corporation, had the following data:
YEAR 2011 2012 2013 2014 2015
GROSS INCOME P1,000,000 2,000,000 3,000,000 1,000,000 980,000
DEDUCTIONS P1,200,000 1,900,000 2,950,000 1,100,000 500,000
The taxable income in 2015 is: a. P380,000 c. P100,000 b. P0 d. P50,000
“The things that come most quickly into your life are the things that you BELIEVE in the most. You can bring to you only what you BELIEVE, so you must BELIEVE to receive what you want .”
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The Secrets by Rhonda Byrne
