12th Annual Charlwin Lee Cup National Federation of Junior Philippine Institute of Accountants – Accountants – National National Capital Region Philippine Taxation Questions ELIMINATION ROUND EASY 1 A de facto merger involves involves the acquisition acquisition by one one corporation of all or substantially substantially all the properties 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 consequence/s of the above? I. II.
III.
IV.
Income Tax - The Transferor shall not recognize any gain or loss on the t ransfer of the property to the Transferee. Donor’s Tax - The T he Transferor is not subject to donor's tax, regardless of whether the value of the property transferred exceeds 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 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 - 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. B. C. D.
I & II III & IV I only 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 withholding tax on the t he transfer of such property to the T ransferee. 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 transferred exceeds the par/stated par/stated value of of the Transferee shares shares issued to the Transferor, there being no intent to donate on the part of the Transferor. Value-added 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 subject to VAT on the transfer of the property to the Transferee. Documentary stamp tax. The documentary stamp tax consequences of the t ransfer are as follows: xxx xxx xxx 4.1.4
If the Transferee's Transferee's shares shares are with par value, the documentary documentary stamp tax is imposed 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 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 against the output tax o n 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 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 Tax Rate Fringe Benefit Tax Fringe Benefit Expense Condominium dues: Grossed-up monetary value Tax Rate Fringe Benefit Tax Fringe Benefit Expense Car: Grossed-up monetary value Tax Rate Fringe Benefit Tax Fringe Benefit Expense Deductible expense
PhP
300,000 32% PhP
96,000 408,000
PhP 105,882.35 32% 33,882.35 72,000 PhP 180,680.74 32% 57,817.84 122,862.90 PhP 790,563.09
EASY 4 Which of the following f ollowing is subject to advance business tax (VAT or percentage tax)? A.
Physical inventories inventories of raw sugar and refined refined sugar covered covered by Quedans dated before May 1, 2015
B. C. D. E.
Raw sugar produced in the milling operations if it is sold to another person or entity. Only A Only B 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. II. III. IV. V.
Prompt payment discount 5% discount, if paid within 7 days after delivery Discounts for meeting quota Trade discount granted at the time of sale and stated on the face of the invoice 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. b. c. d.
It is determined and granted at the time of sale The discount is expressly indicated in the invoice Amount thereof should form part of gross sales duly recorded in the books 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. II. III. IV.
They are exempt from the payment of annual registration fee. They are exempt from the payment of business taxes. They are required to register their books of accounts. 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.
Mercado, O.
009-005 009-006 008-0011 008-0012 001-0022 001-0023
Orcena, J. Santos, M.
1 Sale
1 2 2 1 1 1
PhP 1,919,500 3,199,200 3,199,200 1,919,500 1,919,500 1,919,500
PhP 3,754,085
PhP
-
5,337,675
540,861
3,410,700
-
of lot only
2 Sale 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 t he 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.
Mercado, O.
009-005 009-006 008-0011 008-0012 001-0022 001-0023
Orcena, J. Santos, M.
1 Sale
1 2 2 1 1 1
PhP 1,919,500 3,199,200 3,199,200 1,919,500 1,919,500 1,919,500
PhP 3,754,085
PhP
-
PhP
450,490
5,337,675
540,861
99,660
3,410,700
-
409,284
of lot only
2 Sale 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. II. III.
The employee must occupy a managerial position or technical position or actually exercising such managerial or technical functions pertaining to said position. 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. 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. II. III. IV.
Corporation’s use of its own lumber produced to repair its administrative building Donation of real properties by Company A which is engaged in real estates to a religious corporation Consignment of goods the actual sale of which is not made within 60 days following the date such goods were manufactured Retirement from or cessation of business, with respect to all goods on hand, whether capital goods, stock-in-trade, supplies or materials as of t he 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 Income/Fees-Media Placement Deferred VAT Payable Receipt of Income Payment from Advertiser Cash Creditable IT Withheld Accounts Receivable-Advertiser Deferred VAT Payable Output VAT
100,000 89,285.71 10,714.29
98,214.29 1,785.71 100,000 10,714.29 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 Payment for Commission to Ad Agency Accounts Payable – Ad Agency Creditable IT Withheld Cash Input VAT Deferred Input VAT
15,000
15,000 267.86 14,732.14 1,607.14 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. II. III. IV.
Redundancy Retrenchment Installation of cost-savings devices 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 Domestic purchases from a VAT supplier, gross of VAT
P 1,223,419.56 400,820.15
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) 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 VAT payable
P 131,080.67
104,385.02 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 t he 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 t axable 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 t axable 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, t raded or transferred to non-exempt persons.
EASY 14 Which of the following statements is/are true regarding marginal income earners? I. II. III. IV.
They are exempt from the payment of annual registration fee. They are exempt from the payment of business taxes. They are required to register their books of accounts. 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 t he 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 t ime 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 t he 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 t ime 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. II. III. IV. V.
Corporations formerly enjoying income tax holiday incentive Barangay Micro Business Enterprises PEZA – registered entities The partners of a General Professional Partnership (GPP) if the GPP availed OSD 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. II. III. IV.
Export sales of registered products shall be zero-rated. Sale of services to a buyer from customs territory shall be subject to VAT. Sale of registered services to a PEZA-entity under ITH regime shall be zero-rated. 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 exportoriented enterprise whose export sales did not exceed 70% of the total annual production Local sales of goods to Asian Development Bank (ADB) Consignment of goods (not returned within 60 days following the date of consignment) Goods transferred for the personal use of the owner
2,000,000 500,000 200,000 100,000
Compute for the output tax. ANSWER: P 636,000 Solution: Domestic sale of goods Sales of packaging materials to export-oriented enterprise Local sales of goods to ADB Consignment of goods (deemed sold) Goods transferred for the personal use of the owner (deemed sold) Total
Taxable sales P 3,000,000
Rate 12%
Output tax P 360,000
2,000,000 500,000 200,000
12% 0% 12%
240,000 24,000
100,000
12%
12,000
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. II. III. IV.
BIR Form No. 1601E BIR Form No. 2550M BIR Form No. 1702Q 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.
II.
III.
IV.
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. 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 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 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 Cost of Sales Business Expenses Dividends from domestic corporation Quarterly income tax paid (for the 1 st-3rd Quarters) Income Tax Due, end of the year Dividend declared in 2014 (paid in 2015)
PhP
4,200,000 1,200,000 1,000,000 200,000 510,000 90,000 500,000
Compute for the Improperly Accumulated Earnings. ANSWER: PhP 1,060,000 Reference: RMC No. 35-11 Net Sales Cost of Sales Gross Profit Business Expenses Income before NOLCO Less: NOLCO Net Income
PhP
MCIT (P3,000,000 x 2%) NT (P1,800,000 x 30%) Whichever is higher
Taxable Income at the end of the year Add: Dividend from domestic corporation NOLCO Total Less: Normal Income Tax Balance Add: RE Beginning of the year Total Less: Paid-up capital at the end of the year
Improperly accumulated earnings
4,200,000 1,200,000 3,000,000 1,000,000 2,000,000 200,000 1,800,000 60,000 540,000 540,000
1,800,000 200,000 200,000
400,000 2,200,000 540,000 1,660,000 3,000,000 4,660,000 3,500,000 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. II. III. IV. V.
Date of payment of landed cost Dutiable value Date of importation Date of VAT payment 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 Less: Tax credits Quarterly payments for the first three quarters Excess tax payments
P
250,000
( (P
300,000) 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 Quarter Sales, gross of 1% withholding tax Cost Operating expenses
P 500,000 250,000 50,000
Second Quarter
Third Quarter
P 1,100,000 650,000 150,000
P 1,500,000 800,000 300,000
How much is the income tax due to the BIR in April 15, 2017? ANSWER: P 23,000 Solution: Annual Return Sales Less: Cost of sales Gross income from operation Add: Non-operating and other income Total gross income Less: Deductions Taxable income Tax rate Income tax due Less: Tax credits/payments Prior year’s excess credits Tax payments, first 3 quarters Creditable tax withheld, first 3 quarters Creditable tax withheld, fourth quarter Tax payable (overpayment)
P 2,200,000 1,200,000) P 1,000,000 P 1,000,000 ( 500,000) P 500,000 30% P 150,000
(
( ( ( ( P
50,000) 55,000) 15,000) 7,000) 23,000
Quarterly Declarations (Returns) Sales Less: Cost of sales Gross income Add: Other income Total gross income Less: Deductions Taxable income, this quarter Add: Taxable income, previous quarters Total taxable income to date Tax rate Tax due Less: Tax credits/payments Prior year’s excess tax credit Tax payments, previous Qs Creditable tax withheld, previous quarters Creditable tax withheld, this quarter Tax payable (overpayment)
AVERAGE 4
First Q P 500,000 ( 250,000 ) 250,000 250,000 ( 50,000) 200,000
Second Q P 600,000 ( 400,000) 200,000 200,000 ( 100,000) 100,000
Third Q P 400,000 ( 150,000 ) 250,000 250,000 ( 150,000 ) 100,000
P 200,000 30% P 60,000
200,000 P 300,000 30% P 90,000
300,000 P 400,000 30% P 120,000
( (
50,000) )
( (
50,000) 5,000)
( (
50,000 ) 29,000 )
(
-
)
(
5,000)
(
11,000 )
(
5,000) 5,000
(
6,000) 24,000
(
4,000 ) 26,000
P
P
P
Year
P 2,200,000 1,200,000 500,000
Which of the following is/are considered as exempt transaction/s for VAT purposes? I. II. III. IV. V.
Sale of marinated bangus Sale or importation of feeds for aquarium fish Services rendered by domestic common carriers by land for the transport of passengers and keepers of garages Purchase of motor vehicle by the Director of World Health Organization (WHO) from the Senior Social Specialist of the Asian Development Bank (ADB) 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. II. III. IV.
Treated as capital expenditure. Actually sustained and charged off during the taxable year Connected with the taxpayer's trade, business or exercise of profession 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 t he 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 t ime 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 t o 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 t ime 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 January 2
February 3
October 4
Donations 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. 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. 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
JANUARY 2: TO ALICE (P500,000 X ½) TO JEWEL (P20,000 X ½) GROSS GIFTS
P P
RELATIVE
P 10,000 10,000 P
250,000 250,000
LESS: DOWRY TAXABLE NET GIFTS TAX DUE AGGREGATE TAX DUE FEBRUARY 3: TO AEVON (P50,000 X 3) TO JANINA (P1,200,000 X ½) TO ANNA (P100,000 X ½) GROSS GIFTS LESS: DEDUCTIONS UNPAID MORTGAGE ASSUMED BY DONEE (P100,000 X ½) NET GIFT ADD: PRIOR NET GIFTS TOTAL TAXABLE NET GIFTS TAX DUE AGGREGATE TAX DUE LESS: PAYMENTS FOR PRIOR GIFTS TAX PAYABLE OCTOBER 4: TO RESA COLLEGE (P250,000 X ½) TO BELMONT SHIPPING (P700,000 X ½) TO JOHN (P200,000 X ½) GROSS GIFTS LESS: DEDUCTIONS DOWRY DONATION TO NON-PROFIT EDUCATIONAL INSTITUTION NET GIFTS ADD: PRIOR NET GIFTS TOTAL TAXABLE NET GIFTS TAX DUE AGGREGATE TAX DUE LESS: PAYMENTS FOR PRIOR GIFTS TAX PAYABLE
10,000 P 3,000 P P
10,000 240,000 3,600 6,600
P 50,000 50,000 P
150,000 600,000 750,000
P
50,000 P 10,000 60,000 P
50,000 700,000 240,000 940,000
P
18,000
P P
P
P
P
P
P
P P P
40,400 58,400 6,600 51,800
125,000 P 350,000 475,000 P
100,000 100,000
-
P P P
125,000 350,000 60,000 410,000 123,000
10,000 90,000 940,000 P 1,030,000 P 46,400 P 169,400 58,400 P 111,000 P
AVERAGE 9 Which of the following industries fall under Group C of the staggered e-filing? I. II. III. IV. V. VI.
Real Estate Activities Computer and Related Activities Air Transport Banking Institutions Retail Sale 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. II. III. IV.
Submission of hard or physical copies of alphalists is no longer allowed. Unutilized creditable input taxes attributable to zero-rated sales can only be recovered through application for refund or tax credit. Once an electronic Letter of Authority or any other notice of audit is received, taxpayers are barred from making amendments. 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 RMC RMC RMC
No. No. No. No.
05-2014 57-2013 50-2013 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 the FMV at the time of inheritance) Less: Mortgage paid by Mike Rossas Initial basis Less: Additional deduction [(PhP 2.4M/PhP 9.6M)*PhP 1,800,000] Final basis Applicable percentage (more than 3 years but not more than 4) Allowable vanishing deduction
PhP
2,400,000
PhP
210,000 2,190,000 450,000 1,740,000 40% 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. II.
III. IV.
V.
Taxpayers with claims for income tax refund or issuance of tax credit certificate 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 Taxpayers with claims for Value-Added Tax (VAT) refund/credit Request for tax clearance of taxpayers undergoing merger/consolidation/splitup/spin-off and other types of corporate reorganizations 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 Surcharge for a fraudulent return Interest (700,298x20%x183/365) Amount due as of October 15, 2016 Surcharge for late payment (1,120,668.66x20%) Interest (1,120,668.66x20%x167/365) Amount due as of March 31, 2017
PhP 700,298.00 350,149.00 70,221.66 PhP1,120,668.66 224,133.73 102,548.86 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 Amount required to be withheld Amount of goods, net of VAT Multiply: Billed amount Less: Amount required to be withheld Amount paid to Supplier Z/reimbursed to Broker Y
1% 150
PhP PhP PhP PhP
15,000 1.12 16,800 150 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 nonGovernment 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. II. III. IV.
Resale Price Method Cost Plus Method Transactional Net Margin Method Gross Margin Method
V. Comparable Uncontrolled Price Method VI. Profit Split Method
A. B. C. D.
All of the following All except one of the following Only one of the following 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. B. C. D.
VAT exempt Subject to 0% VAT Subject to 12% VAT 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 P hilippine 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 tr eated 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 th Unpaid real estate tax for the 4 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) Real property (P 3,000,000 + P 800,000 + P 1,000,000) Gross estate Less: Deductions Estate before special deductions Less: Family home (maximum) Standard deduction Medical expenses Taxable net estate
P
800,000 4,800,000 P 5,600,000 ( 1,388,661 ) P 4,211,339 ( 1,000,000 ) ( 1,000,000 ) ( 500,000 ) 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. II. III. IV. V.
Sale of ingredients of finished feeds Sale of house and lot utilized for socialized housing with a unit price of PhP 500,000 Interest income from loans extended to an affiliated incorporated in Singapore Sale of fuel, goods, and supplies by persons engaged in international shipping or air transport operations 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 t he 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. II. III.
IV.
The aggregate maximum qualified PERA contribution in one calendar year for an unmarried Filipino citizen is PhP 200,000. 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. 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. 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 r egard the Personal Equity and Retirement Account (PERA)? I. II. III.
IV.
The aggregate maximum qualified PERA contribution in one calendar year for an unmarried Filipino citizen is PhP 200,000. 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. 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. 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 f or 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) Third Quarter Fourth Quarter (P150,000 + P150,000) Less: Deductions Itemized deductions from January 1 to June 30* OSD deduction from July 1 to September 30 OSD deduction from October 1 to December 31 Net Income
P
P
400,000 400,000 300,000
P 1,100,000
100,000 160,000 120,000
P
380,000
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 OSD rate OSD
P 400,000 40% 160,000
OSD deduction from October 1 to December 31 Gross Income (P150,000 + P150,000) OSD rate OSD
P 300,000 40% 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.
II.
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. 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. The regional or area headquarters and regional operating headquarters established in the Philippines by multinational companies shall be exempted from the value-added tax. 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.
III. IV.
ANSWER: II and III only DIFFICULT 7 Which of the following transaction/s is/are subject to zero (0%?) VAT? I.
II.
III. IV.
V.
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 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 t he BSP 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 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 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 Cost of sales Gain from sale of an office equipment Gain from sale of land not used in business (selling price P300,000) Gain from sale of shares of stock directly to the buyer Gain from sale of shares of stock through the stock exchange (selling price, P200,000) Interest income from bank deposit, Philippines Yield from deposit substitute, Philippines Interest income received from depository bank under EFCDS, Philippines Interest income from bank deposit, USA Interest on trade notes receivable, Philippines Advance rent for two (2) years, Philippines Royalties, Philippines Royalties, USA Dividend received from domestic corporation Dividend received from a foreign corporation Prizes and winnings, Philippines Refund of Philippine value-added tax Bad debt recovery
P1,000,000 500,000 20,000 100,000 50,000 10,000 40,000 80,000 60,000 400,000 30,000 600,000 70,000 300,000 150,000 350,000 400,000 100,000 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 Less: Cost of sales Gross income Other income Gain from sale of an office equipment Interest income from bank deposit, USA Interest on trade notes receivable, Philippines Advance rent for two (2) years, Philippines Royalties, USA Dividend received from a foreign corporation Prizes and winnings, Philippines Total gross income
P 1,000,000 ( 500,000 ) P 500,000 20,000 400,000 30,000 600,000 300,000 350,000 400,000 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 Sale to foreign embassies Sale to PWDs Sale to PEZA-registered corporations enjoying ITH incentive Sale to private corporations Sale of equipment to the Mayor’s Office
P
292,100 365,190 23,000 76,000 552,123 396,150
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 Input tax on sale of exempt goods Input tax on sale to government Input tax on depreciable capital goods not attributable to any specific activity
10,000 2,500.00 5,000.00 100,000
How much is the VAT still payable or excess tax credits for t he month (to the nearest peso)? ANSWER: P (9,104) [EXCESS TAX CREDITS] Solution: Output tax Sales to private corporations (552,123x12%) Sale to PEZA-registered corporations formerly enjoying GIT incentive (292,100x12%)
P
66,255 35,052
Sales to foreign embassies (365,190x0%) Sale to PEZA-registered corporations enjoying ITH incentive (76,000x0%)
-
Sales to PWDs Sales to government (396,150X12%) Less: Input tax Vatable goods [(844,223/1,704,563)x100,000]=49,527+25,000 Zero-rated sales [(441,190/1,704,563)X100,000]=25,883+10,000 Exempt goods VAT withheld by the government (396,150x5%)* Standard input VAT (396,150x7%)**
47,538
P
P
74,527 35,883 19,808 27,731
VAT payable/ (excess tax credits)
148,845
157,949 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 th e 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 P ublic Sector Services Corporation vs Commissioner of Internal Revenue)].
DIFFICULT 10 Mr. Devin, CPA practitioner, is also employed with a retailer company and receives the following for the year: Salary Overtime Pay 13th Month Pay Rice subsidy per month Birthday gift (i.e., cake) Renewal of CPA license borne by the employer Performance-based bonus Foregone interest on loans extended by the employer to Mr. Devin Retainer fee per month
PhP
216,000 53,400 One month basic pay 2,000 2,200 3,500 9,800 15,000 72,000
How much is subject to withholding tax on compensation? ANSWER: PhP 362,100 Solution: Salary Overtime Pay Birthday gift (i.e., cake)
PhP
216,000 53,400 2,200
Renewal of CPA license borne by the employer Foregone interest on loans extended by the employer to Mr. Devin Retainer fee per month Total compensation subject to withholding tax
3,500 15,000
PhP
72,000 362,100
