TAMAYO_Reviewer In Taxation_Book 2_2012e.pdf

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2012 Edition

Asser S.Temayo

2012 Edition

Asser S. Tamayo

CFA KE_VIEWEK IN TAXATION:

500K2

5Y ASSE_K SAMSON TAMAYO BSC 1\ccounting, CPA l\IBA (candidate) CPA Rc,"iC\\Tr, The Rc,"icw School of Accountancy (RcSJ\), ::\Ianila Partner, Pellejera and Tamayo, Certified Public Accountants, l\Iarikina City

Philippine Copyrip-ht, 2009

~All rights resern~d. Printed in the Philippines.

No part of this book may be used or reproduced in any form and by any means, or stored in a data base or retrieYa! system, \Yithout prior written permission from the author . . \ny copy of this bouk without the signature of the author on this page shall be considered as coming from an illegal source.

To my father, Mr. Ruben Yanson Tamayo(+) and my mother, Mrs. Esperanza Samson-Tamayo (+) To my father-in-law, Col. Samuel Demeterio Paler (+) and my mother-in-law, Mrs. Felicisima Martinez-Paler (+)

"Honor your father and your mother, and you will live a long time in the land I am giving you." -Exodus 20:12 (Contemporary English Version)

PREFACE CPA Reviewer In Taxation: Book 2 (2012 Edition) is intended primarily to help reviewees who will take the CPA Licensure Examination. But it is also a good resource material for fellmv teachers handling taxation at the undergraduate level. The author backs each correct ans\ver with \\·ell-researched material to establish its technical basis. References used are taken from the .\'ational Internal Revenue Code of 1997, as amended, Revenue Regulations issued by the Bureau of Internal Revenue (BIR}, Civil Code of rhe Philippines, The Family Code of the Philippines and court rulings and decisions when applicable. Each test item deals \Yith the basic concepts, rules and principles vvhich the author believes should be \Yithin the competence level of candidates \\·ho will be taking the CPA licensure exam. As much as possible, he a\·oids giving pis personal view or opinion unless these are properly supported by laws and regulations. This review material adheres closely to the syllabus on Taxation issued by the Professional Board of Accountancy. It is the \\Titer's wish that Taxation reviewees and students will find \·aluable information and practical application of principles in this work. He has taken extra effort to make taxation challenging and hopefully less of an ordeal for them. The encouragement and positive feedback from his current and former students gave him the boost to finally come up with a reviewer. To them, he is ,·ery grateful. The author wishes to thank Ms. Janina S. Baquiran, CPA, for helping him organize the materials and giving him some insightful advice on the contents of the book. He also thanks Mr. Edilberto B. Bagnes, CP.A, for the cowr design. The author is indebted to Mrs. Lorna S. Roque, Office Manager of ReSA Review School, for gathering the reference materials for the book. Special mention goes to Mrs. Cynthia Paler-Tamayo for making this reviewer more readable and easily understood even by laymen.

This work would not have come into fruition, were it not for the encouragement of the author's fellow reviewers in ReSA Review School, namely: Mr. Antonio J. Dayag, Mr. Conrado 0. Uberita, Mr. Charlwin P. Lee, Dean Jose M. Ireneo, Mrs. Shirley Cordova-lreneo, Atty. Marceliano S. Bonafe, Mr. George R. James, Mr. Christopher T. Espenilla and Mr. Gorgonio D. Macariola. The author also expresses his gratitude to Atty. Conrado T. Valix for inspiring nevv· authors to come up with their own work which will help make the study of accounting and taxation easier. And above all, the greatest praise goes to his Lord and Savior Jesus Christ for the gift of writing. Feedback, comments and suggestions for improvement are most welcome and would contribute to a better future edition.

A.S.T

THE CPA LICENSURE EXAMINATION

SYLLABUS ON TAXATION (50% of Business Law and Taxation)

(Effective October 2006 Examination) This subject tests the candidates' conceptual knowledge and proficiency in the practical application of the basic principles of taxation as they relate to accounting practice. The emphasis is on the application of the theory and principles in solving tax problems. Candidates are expected to know, understand and be able to apply the laws on income tax, business taxes (value-added and percentage taxes), estate tax, donor's tax, as well as Revenue Regulations and Court of Tax Appeals and Supreme Court decisions. Candidates should know the tax rates for computing taxes, except for the follmYing vvhere the tax rates will be given: - schedular income tax rates for individuals - schedular estate tax rates; and - schedular donor's tax rates. Each examination will contain a minimum of 25 and maximum of 35 multiple choice questions allocated to the different subject areas, as indicated below. 1. 0

Principles of Taxation and its Remedies 1.1 Nature, scope, classification, and essential characteristics 1 . 2 Principles of sound tax system 1.3 Limitations of the power of taxation (inherent limitations and constitutional limitations) 1.4 Differences between taxation and police power 1.5 Differences between taxation and eminent domain 1.6 Similarities among taxation, police power and eminent domain 1.7 Tax evasion vs. tax avoidance 1.8 Sites/place of taxation 1.9 Double taxation (direct and indirect) 1.10 Taxes a. Essential characteristics b. Classification c. Tax vs. other charges (toll, special assessment, license fee, debt)

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2.0

Povv'ers and Authority of the Commissioner of Internal Revenue under Section 4 to 7, Title 1 of the Tax Code

3.0

Authority of the Commissioner to Compromise Tax Payments, Abate or Cancel Tax Liability and Refund or Credit Taxes

4.0

Tax Remedies 4.1 Remedies of the government (State) a. Definition, scope, prescriptive period b. Administrative remedies (tax lien, compromise, levy and c. 4.2

i

I

distraint) Judicial actions (ci\·il or criminal)

Remedies of the taxpayer a. Prescriptive periods b. Administrative remedies 1. Against an assessment (protest, request for 2.

4.3

reinvestigation) Request for refund or credit of taxes (recovery of erroneouslY or illegally collected taxes, forfeiture of

cash refund and tax credit) Expanded jurisdiction of the Court of Tax Appeals (limited to jurisdiction)

5.0

Income Tax (refer to Reviewer in TCL-x:ation Book 1)

6.0

Compliance Requirements (refer to Reviewer in TCLvltion Book 1)

7. 0

Transfer Taxes 7. 1 Estate taxes a. Gross estate b. Deductions allmncd to estate (ordinary and special deductions) c. Tax credit for estate tax paid to a foreign country d. Filing of estate tax returns, payment of estate tax requirements e. Attachments to the estate tax return, including CPA certificate 7.2 Donor's ta.'< a. Gross gift b. Exemption of certain gifts and other deductions from gross gift c. Tax rates in general and ·when the donee is a stranger d. Filing of donor's tax returns, pa\·ment and requirements

SC

\ alue Added T
8.1

8.2 8.3

8.4 8.5

9.0

VAT-subject transactions . a. Sale of goods or properties (actual sales, deemed sales, zero rated sales) b. Sale of services and lease of properties (actual sales or lease, zero rated sales) c. Importation VAT exempt transactions Input value added taxes a. Passed-on VAT b. Transitional VAT input c. Presumptive VAT input d. Withholding VAT (creditable and final) e. Excess VAT input in previous return Refund of VAT input (zero rated sales, purchase of land and capital goods) Compliance requirements (invoicing, returns and payment of value addcci tax; pov,er of the Commissioner to suspend business)

Percentage Taxes 9.1 Taxpayer. tax base and tax rates 9.2 Tax on persons exempt from value added tax (annual gross sales or receipts do not exceed P550,000.00) 9.3 Tax on domestic or international carrier (including exemptions) 9.4 Tax on franchise 9.5 Overseas communications tax (including exemptions) 9.6 Tax on banks and non-bank financial intermediaries performing quasi-banking functions 9. 7 Tax another non-bank financial intermediaries 9.8 Tax on life insurance 9. 9 Tax on agents of foreign insurance companies 9.10 Amusement taxes 9.11 Tax on winnings 9. 12 Stock transaction tax 9. 13 Returns and payment of percentage tax (regular and electronic filing)

10.0 Community Tax (computation of basic, additional and optional community tax for individuals and corporations and the maximum amount due) 11.0 Additions to Tax 11.1 Surcharges (late filingjpayment, wrong venue, \Villful neglect, false or fraudulent returns) 11.2 Interests (on deficiency, on delinquency, on extended payments) 11.3 Compromise penalties, amount to be specified in the problem.

TABLE OF CONTENTS Chapter

Title

Page

1

Gross Estate-----------------------------------------------

1

2

Deductions from Gross Estate--------------------------

19

3

Estate Tax Cases -----------------------------------------

43

4

Tax Credit for foreign Estate Tax-----------------------

61

5

Filing of Estate Tax Returns, and Payment of Estate Tax-------------------------------

68

Attachments to the Estate Tax Return, Including CPA Certificate ---------------------------

78

7

Gross Gifts-------------------------------------------------

82

8

Exemption of Certain Gifts and Other Deductions fmm Gross Gifts------------------------------~-------

95

9

Donor's Tax Rates and Donor's Tax Cases -----------

104

10

Filing of Donor's Tax Returns, Payment and Requirements -----------------------------------------

125

A1

VAT -Subject Transactions ------------------------------

131

/12

VAT- Exempt Transactions ------------------------------

165

13

Input Value-Added Taxes

--------------------~---------

182

14

Refund of Value-Added Tax-----------------------------

195

.15

Value-Added Tax Cases ---------------------------------

200

16

VAT Compliance Requirements ------------------------

220

%7

Other Percentage Taxes ---------------------------------

239

.AS

Percentage Tax Cases------------------------------------

261

19

Returns and Payment of Percentage Taxes-----------

278

20

Community Tax-------------------------------------------

287

21

Additions to Tax-------------------------------------------

298

22

Remedies in General -------------------------------------

315

23

Civil Remedies for Collection of Taxes-----------------

331

6

Chapter

Title

Page

24

Protesting an Assessment, Refund, Etc.---------------

349

25

Jurisdiction of the Court of Tax Appeals -------------

366

26

Inherent Powers of the State----------------------------

372

27

Limitations on the Power of Taxation------------------

380

28

Tax and Other Charges----------------------------------

398

29

Powers and Authority of the Commissioner of Internal Revenue--------------------------------------

412

Chapter 1 GROSS ESTATE "Wisdom is /(pawing wfiat to do, s/{j[[ is K.J1ouing fimv to do it, and surccss is doing it. "-;1nonymous

Multiple Choice: Choose the best possible answer.

1. A mode of acquisition by virtue of which the property, rights and obligations to the extent of the value of the inheritance, of a person are transmitted through his death to another or others either by his will or by operation of lm':. a. Succession c. Inheritance b. Donation d. Liquidation

Answer: A <.- -- :;:: ' Reference: Art. 774, Civil Code of the Philippines

2. The general term applied to the person whose property is transmitted through succession, \Vhether he left a will or failed to do so. a. Successor c. Trustor b. Decedent d. Administrator

Answer: B Reference: Art. 775, Civil Code of the Philippines

3.

A person ,,·hose property is transmitted through succession in accordance with a will he left. a. lntestak c. Testator h. Heir d. Executor

Answer: C Reference: Art. 775, Civil Code of the Philippines -- - - - - - --------------------------------A person is soid to hove rliecl intestate if no 1uill was left.

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4.

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A person called to succession either bY the provision of a will or by operation of law. a. Successor c. De,·isee b. Heir d. Lr:'gatee

Chapter 1: Gross Estate

--------------------------------------------------

Answer: B Reference: Art. 782, Civil Code of the Philippines

Devisees and legatees are persons to whom gifts of real and I personal property are respPctively given by virtue of a will. 1

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An act wherebv a person is permitted, v.·ith the formalities prescribed by lavv, to control to a certain degree the disposition of his estate, to take effect after his death. a. Contract c. Will b. Trust d. Legacy

Answer: C Reference: Art. 783, Civil Code of the Philippines

6.

It refers to the mass of all property, rights and ohligat10ns of a person v;hich are not extinguished by his death.

a. b.

Estate Trust

c. d.

Co-ownership Partnership

Answer: A Reference: Art. 776, ~!_vi.!_~_od~of the }Jhilippines Art. 776. The inhen'tance includes all the property, n'ghts and obligations of a person which are not extinguished by his death.

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7. The gross estate of a decedent shall be comprised of the following properties and interest therein at the time of his death, including revocable transfers and transfers for insufficient consideration: I - Residents and citizens ~ all properties, real or pE'rsonal, tangible or intangible, vYherever situated; II - Non-resident aliens~ only properties situated in the Philippines provided, that, with respect to intangible personal property, its inclusion in the gross estate is subject to the rule of reciprocity. a. b.

Both I and II are correct Both I and II are incorrect

c. d.

Onlv I is correct Only II is correct

Answer: A References: Section 85, NIRC, as amended Section 104, NIRC, as amended Section 4, Revenue Regulations 2-2003

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8. The gross estate of this decedent shall only be comprised of properties situated in the Philippines. a. Filipino residing in the Philippines b. American residing in the Philippines c. Filipino residing in the US d. American residing in the US

Answer: D References: Section 85, NIRC, as amended Section 4, Revenue Regulations 2-2003

9. Which a. b. c. d.

of the following is not included in the decedent's gross estate? Extent of decedent's interest in property Transfer in contemplation of death Revocable transfer Property passing under special power of appointment

Answer: D Reference: Section 85 (A), (B), (C) and (Dj,__!\liRC, as amended I What is included in the gross estate is a property passing und::ris I\ general power of appointment. A gene. ral power of appointment is one which may be exercised in favor of anybody.

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10. Which of the following proceeds from a life insurance shall be included in the decedent's gross estate? I -To the extent of the amount to be received by the estate of the deceased, his executor, or administrator, as insurance under policies taken out by the decedent upon his own life, irrespective of whether or not the insured retained the poYver of revocation; II - To the extent of the amount to be received by any beneficiary designated in the policy of insurance, except when it is expressly stipulated that the designation of the beneficiary is irrevocable. a. b.

l only II only

c. d.

Neither I nor II Both I and II

Answer: D Reference: Section 85 (E), NIRC, as amended

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11. Which of the folloYving proceeds shall be included in the taxable gross estate? a. Insurance proceeds from SSS and GSIS b. Amount receivable by any beneficiary, irrevocably designated in the policy by the insured c. Amount receivable by any beneficiary designated in the insurance policy d. Proceeds of group insurance taken out by a company for its employees

Answer: C Reference: Section 85 (E), NIRC, as amended The designation of the beneficiary in letter cis not clear. Under the Insurance Code, when the designation is not clear, it is presumed to be revocable. Hence, the amount receivable is included in the gross estate. Under Section 85 (E) of the NIRC proceeds of life insurance is included to the extent ofthe amount receivable by any beneficiary designated in the policy of insurance, except when it is expressly stipulated that th.e designation o[the beneficiary is irrevocable.

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12. If transfer in contemplation of death, revocable transfer or property passing under general power of appointment is made, created, exercised or relinquished for consideration in money or money's worth, but there is no bona fide sale for an adequate and full consideration in money or money's worth, the gross estate will include: a. fair market value of such property at the time of transfer. b. historical cost of such property at the time acquired. c. excess of the fair market value of the property at the time of death over the value of the consideration received therefor. d. fair market value or the assessed value of such property, at the time of death, whichever is higher.

Answer: C Reference: Section 85 (G), NIRC, as amended

13. One of a. b. c. d.

the following transfers is not included in the gross estate. Transfer with reservation and retention of certain rights Transfer passing under general power of appointment Transfer for adequate and full consideration Transfer in contemplation of death

Answer: C Reference: Section 85 (G), NIRC, as amended

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14. X, decedent, O\vns a property valued at Pl ,500,000 at the time of his death. The said property was sold by X during his lifetime toY for P700,000 when its ·value was Pl ,200,000. It was agreed by X and Y that the transfer of ownership will take effect after X's death. For Philippine estate tax purposes, which of the following statements is correct? a. The transaction is a transfer for inadequate consideration, hence, the amount of PSOO,OOO shall be included in the gross estate. b. The transaction is a bona fide sale for adequate consideration, hence, no amount shall be included in the gross estate. c. The transaction is a transfer in contemplation of death, hence, the amount of Pl,SOO,OOO shall be included in the gross estate. d. The transaction is a transfer for inadequate consideration, hence, the amount of the PSOO,OOO shall be included in the gross estate.

Answer: A Reference: Section 85 (G), NIRC, as amended 15. A property which is firmly fixed, settled or fastened is called: a. real or immovable property. b. tangible personal property. c. intangible property. d. none of the choices.

Answer: A The Civil Code of the Philippines does not define immovable property. It simply enumerates the immovable property. Under Art. 415 of the Civil Code of the Philippines, the following are immovable property: (1) Land, buildings, roads and constructions of all kinds adhered to the soil; (2) Trees, plants, and growing fruits, while they are attached to the land or form an integral part of an immovable; (3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object; (4) Statues, reliefs, paintings, or other objects for use or ornamentation, placed in buildings or on lands by the owner ! of the immovable in such a manner that it reveals the intention I to attach them permanently to the tenements; I (5) Machinery, receptacles, instruments or implements intended I by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs ofthe said industry or works; t

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(6)

Animal houses, pigeon-houses, beehives, fish ponds or breeding places of similar nature, in case their owner has placed them cr preserves them with the intention to have them permanently attached to the land, and fomling a permanently attached to the land, and forming a permanent part of it; the animals in these places are included; (7) Fertilizer actually used on a piece of land; (8) Mines, quarries, and slag dumps, while the matter thereof forms part of the bed, and waters either running or stagnant; (9) Docks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, I 1

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lake, or coast;

(1 OJ Contracts for public works, and servitudes and other real

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rights over immovable property. --~~~--------------------16. Which of the following things are deemed to be personal property? a. Those movables susceptible of appropriation which are not included under Article 415 of the Civil Code b. Real property ·which by any special provision of law is considered "lS personalty c. Forces of nature which are brought under control by science d. All of the above

Answer: D Reference: Art. 416 Civil Code of the----~~-----------------, Philippines Art. 416. The following things are deemed to be personal property: (1) Those movables susceptible of appropn'ation which are not included under Article 415 of the Civil Code; (2) Real property which by any special provision of law is considered as personalty; (3) Forces of nature which are brought under control by science; (4) In general, all things which can be transported from place to place without impaim1ent of the real property to which they are fixed.

17. Which of the following shall also be considered as personal property? I - Obligations and actions which have for their object movables or demandable sums II - Shares of stock of agricultural, commercial and industrial entities, although they may have real estate

a. b.

Both I and II Neither I nor II

c. I only d. II only

Answer: A Reference: Art. 417, Civil Code of the Philippines

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18. One of the following is not an intangible personal property situated in the Philippines. a. Shares, obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws b. Shares, obligations or bonds issued by any foreign corporation 85% of the business of which is located in the Philippines c. Shares, obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired business situs in the Philippines d. Shares, obligations or bonds issued by a non-resident foreign corporation

Answer: D Reference: Section 104, NIRC, as amended The shares, obligations or bonds in letter d are not classified as intangible within the Philippines because there is no mention that the issuing foreign corporation's business is 85% located in the Philippines. The same shares, obligations or bonds have not also acquired business situs in the Philippines.

19. For esta,te tax purposes, one of the following is not an intangible personal property. c. Bank deposit a. Accounts receivable b. Investment in stock d. Livestock

Answer: D Livestock is not an intangible personal property because it can be perceived by human senses. Intangible personal property are personal property that cannot be seen and touched. They represent rights or pn.vileges.

20. For estate tax purposes, the rule of reciprocity applies: I - When the decedent is a non-resident alien II - With respect to intangible personal properties situated in the Philippines a. b. c. d.

Only I is correct Only II is correct Both I and II are correct Neither I nor II are correct

Answer: C Reference: Section 104, NIRC, as amended

7

r Chapter 1: Gross Estate

21. John Johnson, an American domiciled in South Africa, died in 2011. He left the following property: a. Rest house in Hawaii; b. A villa in Switzerland; c. Shares of stock in LA Corporation, USA; d. Shares of stock in San Miguel Corporation, Philippines; e. Shares of stock in Union Corp, a foreign corporation where 85% of its business is in the Philippines; f. Time deposit, Philippine National Bank, Manila; g. Lease contract over his Manhattan, New York, USA apartment leased to the Philippine Consulate. John Johnson's Philippine gross estate shall consist of: a. All property enumerated above b. Only property d, e, and f c. Only property a, b, and d d. None of the property enumerated above

22. Using the data in preceding question, assuming there is reciprocity, John Johnson's Philippine gross estate shall consist of: a. All properties enumerated above b. Only properties d, e, and f c. Only property f d. None of the properties enumerated above

21. Answer: B 22. Answer: D Reference: Section 104, NIRC, as amended The gross estate of non-resident aliens includes properties situated in the Philippines provided, that, with respect to intangible personal property, its inclusion in the gross estate is subject to the rule of reciprocity.

"xxx No tax shall be collected xxx in respect of intangible personal property: (a) if the decedent at the time of his death was a citizen and resident of a foreign country which at the time of his death did not impose a transfer tax of any character, in respect of intangible personal property of the citizens of the Philippines not residing in that foreign country, or (b) ifthe laws oftheforeign country ofwhich the decedent was a citizen and resident at the time of his death allows similar exemption from transfer or death taxes of every character or description in respect of intangible personal property owned by citizens of the Philippines not resid1:ng in that foreign country.

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23. Mr. Juan Cruz, Filipino citizen, died in the United States of America in :2011. He left the following properties: a. House and lot, California, USA; b. Shares of stock in PLDT, domestic corporation; c. Bank deposit, First Bank of California, USA; d. Bank deposit, BPI-Manila; e. Tax-free long term Philippine Government bonds; f. Car, registered in the name of his 21-year old son. The Philippine gross estate shall consist of: a. All properties enumerated above b. All properties enumerated above except f c. All properties enumerated above except e and f d. Only properties a and d Answer: B I The gross estate of residents and citizens includes all properties,

I real or personal,

tangible or intangible, wherever situated to the extent of the interest therein of the decedent at the time of his · I death. I

II

The tax-free long term Philippine Government bonds are exempted from income tax but not from estate tax.

I The car in letter (is not owned hy the decedent at the time of his

[ death. It is registered in the name of his 21-year old son . .

24. Case I- X transfers shares of stock toY on the condition that X shall receive or enjoy the dividends during X's lifetime, thereafter toY or his estate. Case II- B makes a transfer of property in trust, income payable to himself for six (o) years. thereafter to C or his estate. B dies before the six (6) years lapsed. a.

Both transfers are with retention and reservation of certain rights, hence, taxable. b. Both transfers are exempt from estate tax. c. The first tr2.nsfer is taxable, the second is exempt. d. The first transfer is exempt, the second is taxable. Answer: A Reference: Section 85 (B), NIRC, as amended

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25. One of the following is not a motive which precludes a transfer from category of one made in contemplation of death. a. To relieve the donor from burden of management b. To settle family litigated and unlitigated disputes c. To reward services rendered d. To save on donor's and estate tax

Answer: D

26. One of the following is not included in the gross estate of a decedent. a. Cash dividend that accrued before death b. Shares of stock transferred in contemplation of death c. Land held in trust but in decedent's possession before death d. Rent income on property that accrued before death

Answer: C Reference: Section 85 (A), NIRC, as amended -------------------, A property held in trust is not owned by the decedent at the time of his death.

27. The widow and children of a passenger who died in an airplane crash ·were paid P3,500,000 by the airline. This figure \vas released after negotiation between the heirs of the deceased and the insurer of the airline, the latter having received indubitable evidence that the deceased had a net income of P350,000 at the time of his death and that 10 productive years would have insured financial stability for his family. Should the heirs declare this amount in the estate tax return? a. No. The hei1s should not declare the P3,500,000 in the estate tax return because the amount is not part of the decedent's property at the time of death. b. No. The heirs should not declare the P3,500,000 in the estate tax return because it was a result of a negotiation between the heirs and the airline company. c. Yes. The heirs should declare the P3,500,000 in the estate tax return because the designation of the beneficiary is not known, hence, revocable. d. Yes. The heirs should declare the P3,500,000 in the estate tax return because the amount would have been earned by the decedent if he did not die.

Answer: A Reference: Section 85 (A), NIRC, as amended

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.28. The following are transactions and acquisitions exempt from transfer ta.xes except: a. transmission from first heir or donee in favor of another beneficiary in accordance with the desire of the predecessor. b. transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary. c. the merger of usufruct in the owner of the naked title. d. all bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions.

Answer: D Reference: Section 87 (A), (B), (C) and (D), NIRC, as amended Letter d is not exempted because bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions to be exempted must satisfy two requirements: 7) The recipient institution is non-profit. hence, no part of the net income inures to the benefit of any individual; and 2) That not more than JO"b ofthe said bequests, devises, legacies or transfers shall be used by such institutions for administration purposes. _________j

..29. Which of the follmdng exempt transactions \\·ill still require the inclusion of the property in the gross estate? a. Merger of the usufruct in the owner of the naked title. b. Bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions the administration expenses of which do not exceed 30% of such bequests, devises, legacies or transfers. c. Transfer from the first heir to a second heir designated b_y the decedent. d. Death benefits received from SSS and GSIS.

Answer: B Refere_!lce: Section__~7 (A), (B), (C) and (D), NIRC, as amended The exemption of bequests, devises, legacies or transfers to social welfare. culturol and charitable institutions is not automatic because of the two requirements mentioned in the preceding number.

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30. Case I- Y devised in his will a piece of land; naked title to B and usufruct to C for as long as C lives, thereafter to B. The transmission from Y to B and Cis subject to estate tax but the merger of the usufruct and the naked title in B upon of the death of Cis exempt. Case II - Z devised in his will real property to his brother D who is entrusted with the obligation to preserve and to transmit the property toE, a son of D, when he becomes of age. The transmission from D to his son E is subject to tax. a. Both statements as to the taxability and non-taxability of the transmissions are correct b. Both statements as to the taxability and non-taxahility of the transmissions are incorrect c. Only the first statement as to the taxability and non-taxability of the transmissions is correct d. Only the second statement as to the taxability and nontaxability of the transmissions is correct

Answer: C Reference: Section 87 (A), (B), NIRC, as amended

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31. The properties comprising the gross estate shall be valued based on their: a. historical cost at the time of death. b. adjusted cost at the time of death. c. fair market value at the time of death. d. book value at the time of death.

Answer: C References: Section 88 (B), NIRC, as amended Section 5, Revenue Regulations 2-2003

32. If the property included in the gross estate is a real property, which shall be the fair market value? a. Zonal value b. Assessed value c. Zonal value or assessed value whichever is higher d. Zonal value or assessed value whichever is lower

Answer: C References: Section 88 (B), NIRC, as amended Section 5, Revenue Regulations 2-2003

12


33. X died in 1990 leaving a will which directed all real estate owned by him not to be sold or disposed of for a period of ten ( 10) years after his death and ordered that the property be given to Y upon the expiry of the 10-year period. In 1990, the estate left by X had a fair market \·alue of Pl ,000,000. In 2002, the fair market value of said estate increased to P3,000,000 and the Commissioner of Internal Revenue assessed thereon estate tax based on P3,000,000. Is the Commissioner's assessment based on P3,000,000 correct? a. Yes. The assessment of the Commissioner is correct because on matters of assessment he has the authority to determine the value to be assessed. b. No. The assessment of the Commissioner is incorrect because the assessment should have been based on the fair market value at the time of death which is P1,000,000. c. Yes. The assessment of the Commissioner is correct because it was based on the value at the time of assessment. d. No. The assessment of the Commissioner is incorrect because estate tax is not subject to any assessment.

Answer: B References: Section 88 (B), NIRC, as amended Section 5, Revenue Regulations 2-2003

~-+-

\Vhich of the following value is not generally used for estate valuation purposes'? a. Fair market value at the time of death b. Fair market value at the time the return is filed c. Fair market value, assessed value or zonal value whichever is the highest in case of real property d. Book value, in case of common shares of stock not traded in the local stock exchange

Answer: B References: Section 88 (B), NIRC, as amended Section 5, Revenue Regulations 2-2003 35. Statement I: Unlisted common shares are valued based on their book value while unlisted preferred shares are valued at par value; Statement II: For shares which are listed in the stock exchanges, the fair market value shall be the arithmetic mean between the highest and lowest quotation at a date nearest the date of death, if none is available on the date of death itself. a. Both I and II are correct c. Only I is correct b. Both I C).ncl II are incorrect d. Only II is correct

Answer: A Reference: Section 5, Revenue Regulations 2-2003

13


36. Mr. X died. He was survived by his wife and children. The couple had exclusive and common properties. The gross estate of Mr. X would include: a. common and capital properties. b. common and paraphernal properties. c. common, capital and paraphernal properties. d. common properties only. Answer: A Reference: Section 85 (H), NIRC, as amended The capital of the surviving spouse of a decedent shall not, for the purpose ofestate tax, be deemed part of his or her gross estate.

37. In the absence of a marriage settlement, or when the regime agreed upon is void, the property relations of the spouses who married on or after August 3, 1988 shall be governed by: a. conjugal partnership of gains. b. absolute community of properties. c. complete separation of properties. d. none of the choices. Answer: B References: Article 75, Family Code of the Philippines Section 1, Revenue Re ulations 2-2003 In the absence of a marriage settlement, or when the regime agreed upon is void, the property relations of the spouses who married before August 3, 1988 shall be governed by conjugal partnership of gains.

38. Under this system there is a merger of all the properties of the husband and the wife owned by them at the time of the celebration of the marriage, or those acquired thereafter. a. Conjugal partnership of gains b. Absolute community of properties c. Complete separation of properties d. None of the choices Answer: B Reference: Comments on Art. 75, Family Code of the Philippines Annotated, Dean Ernesto L. Pineda

14


39. Under this system the spouses retain the ownership of the property \Yhich they respectively brought to the marriage as well as those they acquired during the marriage by gratuitous title or by right of redemption, barter or exchange with separate property and those ,,·hich they purchased with their own money. a. Conjugal partnership of gains b. Absolute community of properties c. Complete separation of properties d. None of the choices

Answer: A Reference: Comments on Art. 75, Family Code of the Philippines ·Annotated, Dean Ernesto L. Pineda

-tO. Properties owned before marriage and brought into the marriage are generally classified as: I - conjugal properties under conjugal partnership of gains. II- exclusive properties under absolute community of properties. a. b.

Only I is correct Only II is correct

c. Both I and II are correct d. Both I and II are incorrect

Answer: D References: Art. 91, Family Code of the Philippines Art. 109 (1), Family Code of the Philippines

41. The net fruits as \\ell as the mcome received during the marriage from the exclusi,·e properties of the spouses are classified as: I - conjugal properties vnder conjugal partnership of gains. IJ- exclusive properties under absolute community of properties. a. b.


c. Both I and II are correct d. Both I and II are incorrect

Answer: C References: Art. 92 (1) & (3), & Art. 117 (3) Family Code of the Philippines

42. During their last anniversary, the wife bought an expensive coat for her husband using salary she earned during the marriage. Shortly thereafter, the husband died. For Philippine estate tax purposes, the expensive coat shall be classified as: a. common property. b. exclusive property of the husband-decedent. c. exclusive property of the wife-surviving spouse. d. exclusion from the gross estate.

15


Answer: B Reference: Art. 92 (2), Family Code of the Philippines

43. The communitv properties shall consist of all property owned by the spouses at the time of the celebration of the marriage or acquired thereafter. One of the follm\ ing, however, is not a community property. a. Properties inherited by the spouses before the marriage b. Properties acquired by th<~ spouses as donation bt>fore the marriage c. Properties acquired using the salary earned by either spouse before the marriage d. Properties acquired before marriage bv either spouse who had legitimate descendants by a former marriage

Answer: D References: Art. 91, Family of the Philippines Art. 92 (3), Family Code of the Philippines Arl. 92 (Family Code). The following shu/lbe excluded from the community property: (1) Property acquired during the marriage by gratuitous title by either spouse, and thefmits as well as the income thereof, if any, unless it is expressly provided by the donor, testator, or grantor that they shall fonn part of the community property; (2} Property for personal and exclusive use of either spouse: · J:1QJA.l.f:_l!_ei.,_)fw~liif.'sha1Lfonn part of the community property; · l (3) Property acquired before the marriage by either spouse Luho has legitimate descendants by a jom1er marriage, and the fmits as well as the income, if any, of such property. ~

-,1.

I

1

I

fcFO ph-U i'·:·t: :/'·':·~- ;_;4-t~~~

~

,:1

1

.II

44. During the engagement ceremony before their marriage, the man gifted his woman an expensive diamond necklace. The necklace was for the exclusive use of the woman. How would this necklace be classified for Philippine estate tax purpose, assuming the man died and was survived by the woman and they were under absolute community of properties? a. Communal property b. Exclusive property of the decedent c. Exclusive property of the surviving spouse d. Excluded from the gross estate

Answer: A Reference: Art. 92 (2), Family Code of the Philippines

16


45. Under conjugal partnership of gains, which of the following is an exclusive property? a. Property acquired during the marriage using common fund for the exclusive use of one of the spouses b. Properties acquired through occupation such as fishing or hunting c. Properties acquired during the marriage by gratuitous title d. Properties acquired by chance, such as winning from gambling or betting

Answer: C References: Art. 109 (2), Family Code of the Philippines I

I Art.

-l

109 (Family Code) The following shall be an exclusive property

i of each spouse: (1) That which is brought to the marriage as his or her own;

(2) That which each acquires during the marn·age by gratuitous title; (3) That which is acquired by right of redemption, by barter, or by exchange witt'1 property belonging to only one of the spouses; and (4) That which is purchased with exclusive money of the wife or of the husband.

i I Art. 11 7 {Family Code) The following are conjugal partnership I: propertzes: (1) Those acquired by onerous title during the marriage at the i expense ofthe common fund, whether the acquisition be for the partnership, or for only one of the spouses; I (2) Those obtained from the labor, industry, work or profession of I either or both spouses; ; (3) The fruits, natural, industrial, or civil, due or received during the marriage from the common property, as well as the net fruits from the exclusive property of each spouse; I (4) The share of either spouse in the hidden treasure which the law awards to the finder or owner ofthe property where the treasure is found; I (5) Those acquired through occupation such as fishing or hunting: (6) Livestock existing upon the dissolution of the partnership in I excess of the number of each kind brought to the marriage by either spouse; and I (7) Those which are acquired by chance. such as winmngs from gambling or betting. However, losses therefrom shall be borne I, exclusively by the loser-spouse. 1

·1

1

1 1

L__________ _

17


46. Are properties acquired during the marriage by the spouses presumed to belong to the common property, unless they are proven to be excluded therefrom? A. Yes, under conjugal partnership of gains; B. Yes, under absolute community of properties. a. b.

Both answers are correct Both answers are incorrect

c. Only A is correct d. Only B is correct

Answer: A References: Art. 93, Family Code of the Philippines Art. 116, Family Code of the Philippines

4 7. Estate a. b. c. d.

taxation is governed by the statute in force at the time: of death of the decedent. the executor or administrator shall have qualified. the return is filed. the heirs are known.

Answer: A Re(erence: Sec. 3, Revenue Regulations 2-2003

48. Statement I: The estate tax accrues as of the death of the decedent and the accrual of the tax is distinct from the obligation to pay the same. Statement II: Upon the death of the decedent, succession takes place and the right of the State to tax the privilege to transmit the estate vests instantly upon death. a. Both I and II are correct c. Only I is correct b. Both I and II are incorrect d. Only II is correct

Answer: A Reference: Sec. 3, Revenue Regulations 2-2003

18

Chapter 2 DEDUCTIONS FROM GROSS ESTATE "&oaa·i[( nc·r·ergice )'OU a dream witfiout gzcing you tlie a6iHty and qua(i_ficutions to accompHsfi tfi,zt dream. "-)ltzonymous


Statement 1: Any amount for funeral expenses that exceed the P200,000 threshold, whether the same had actually been paid or still payable, shall not be allowed as a deduction from the gross estate. Statement 2: The unpaid portion of the funeral expenses incurred which is in excess of P200,000 threshold shall not be allowed as a deduction under "claims against the estate''. a. Only statement 1 is correct b. Only statement 2 is correct c. Both statements are correct d. Both statements are incorrect Answer: C Reference: Section 6 (A) ( 1), Revenue Regulations 2-2003

2. The deductible funeral expenses shall be the actual funeral expenses (\Yhether paid or unpaid) up to the time of interment, or an amount equal to 5% of the gross estate, whichever is lower, but in no case to exceed: c. p 500,000. a. P 100,000. b. p 200,000. d. p 1,000,000. Answer: B References: Section 86 (A) (1) (a), NIRC, as amended . Section 6 (A) ( 1), Revenue Regulations 2-2003

3. The follov,·ing data are presented to enable you to compute the deductible funeral expenses. p 1,000,000 Gross estate Actual funeral expenses 70,000 The deductible funeral expense is: a. P 200,000. b. p 100,000.

c. d.

p 70,000. p 50,000.

19

r Chapter 2: Deductions from Gross Estate

Answer: D

Actual funeral expenses Limit (Pl,OOO,OOO X 5%) Allowed (lower)

4.

Given the following data: 5% of gross estate Amount of actual funeral expenses (P20,000 still unpaid)

p

J_Q,_Q_QQ

p =·20..flQ_Q £___ ~_Q~QQJ2

p 100,000 150,000

How much shall be allowed as deduction from gross estate? Funeral expenses Claims against the estate a. P 150,000 P 50,000 b. p 130,000 p 20,000 c. P 130,000 Zero d. P 100,000 Zero

Answer: D References: Section 86 (A) (1) (a), NIRC, as amended ,--------S_ection 6 (A) (1), Revenue Regulations 2-2003

The deductible funeral expenses shall be the actualfunera:J expenses (whether paid or unpaid) up to the time of interment, or an amount equal to five per cent (5%) of the gross estate, whicheuer is lower, but in no case to exceed ?200, 000.

5.

The gross estate left by the decedent amounted to P5,000,000. The actual funeral expenses paid for from the estate by the administrator amounted to P300,000. How much was the deductible funeral expenses? c. P200,000 a. P300,000 b. P250,000 d. PlOO,OOO

Answer: C

Actual funeral expenses Limit (P5, 000,000 X 5%) Allowed (maximum)

20

p 300,000 p 250,000 E~2QO~Qf}_Q

Chapter 2: Deductions from Gross Estate

6. The following were incurred in connection with the wake and burial of a decedent: p 10,000 Mourning clothing of grandchildren 15,000 Mourning clothing of the decedent's married children 30,000 Expenses of the wake preceding the burial 5,000 Publication charges for death notices Telecommunication expenses incurred in informing 3,000 relatives of the deceased Cost of the three (3) burial plots (one was used as 30,000 burial site of the decedent) 12,000 Interment fees and charges Expenses for the performance of the rites and 5,000 ceremonies incident to interment 3,000 Expenses incurred for prayers after the interment 50,000 Medical expenses of the last illness The value of the gross estate vvas P2,000,000. The deductible funeral expenses should be: p 90,000. a. P200,000. c. p 65,000. b. PIOO,OOO. d.

Answer: D

Expenses of the wake preceding the burial Publication charges for deatb. notices Telecommunication expenses incurred in irtjom1ing relatives ofthe deceased Cost of the three (3) burial plots (one was used as burial site of the decedent) (P30,000/ 3) Intemlentfees and charges Expenses for the performance of the rites and ceremonies incident to intemwnt

p

Total actual funeral expenses

p

65,000

Limit (?2, 000, 000 X 5?a}

p

100,000

Allowed (lower)

P _65._QOO

30,000

5,000 3,000 10,000 12,000

5 000

7. Which of the following will not be included in the term "funeral expenses"? a. Upkeep of the burial plot, tombstones, monument or mausoleum b. Expenses incurred after interment, such as for prayers, masses, entertainment, or the like c. Any portion of the funeral and burial expenses borne or defrayed by relatives and friends of the deceased d. All of the above

21


Answer: D Reference: Section 6 (A) ( 1), Revenue Regulations 2-2003 The term "FUNERAL EXPENSES" is not confined to its ordinary or usual meaning. They include: {a) The mourning apparel of the surviving spouse and unmam·ed minor children of the deceased bought and used on the occasion ofthe burial; {b) Expenses for the deceased's wake, including food and drinks; {c) Publication charges for death notices; (d) Telecommunication expenses incurred in informing relatives of the deceased; {e) Cost of burial plot, tombstones, monument or mausoleum but not their upkeep. In case the deceased owns a family estate or several burial lots, only the value corresponding to the plot where he is buried is deductible; (f) Interment and/ or cremation fees and charges; and {g) All other expenses incurred for the perfonnance of the rites and ceremonies incident to interment.

Expenses incurred after the interment, such as for prayers, masses, entertainment, or the like are not deductible. Any portion of the funeral and burial expenses borne or defrayed by relatives and friends ofthe deceased are not deductible. Medical expenses as of the last illness will not form part of the funeral expenses but should be claimed under "Medical Expenses". _ _ _ ___j

8.

First statement: The deductible judicial expenses are those incurred during the settlement of the estate but not beyond the last day prescribed by law, or the extension thereof, for the filing of the estate tax return. Second statement: Any unpaid amount for the cost and expenses claimed under "judicial expenses" should be supported by a sworn statement of account issued and signed by the creditor. a. Both statements are correct b. Both statements are incorrect · c. Only the first statement is correct d. Only the second statement is correct Answer: A Reference: Section 6 (A) (2), Revenue Regulations 2-2003

22


9.

Which of the follmving incurred expenses shall not be deducted under the category of judicial expenses? a. Expenses for the inventory-taking of the assets comprising the gross estate b. Expenses for the administration and payment of debts of the estate c. Expenses for the distribution of the estate among the heirs d. Expenses a<> of the last illness of the decedent

Answer: D Reference: Section 6 (A) (2), Revenue Regulations 2-2003 Judicial expenses may include: (a) Fees of executor and administrator; (b) Attorney's fees; (c) Court fees; (d) Accountant's fees; (e) Appraiser's fees; (f) Clerk hire; (g) Costs of preserving and distributing the estate; (h) Costs of storing or maintaining prope11y of the estate; and (i) Brokerage fees for selling property of the estate.

----------------~

10. One of the following is not a requisite for deduction from gross estate

of losses. a. Losses are incurred during the settlement of the estate arising from fires, storms, ship\\Teck, or other casualties, or from robbery, theft or embezzlement. · b. Losses are not compensated for by insurance or otherwise. c. Losses have been claimed as a deduction for the income tax purposes in an income tax return. . d. Losses are incurred not later than the last for the payment of the estate tax.

Answer: C References: Section 86 (A) ( 1) (e), NIRC, as amended Section 6 (A) (5) (c), Revenue Regulations 2-2003 ~-------------------~: Letter__s: is not a requirement. It shall be "At the time ofthefiling of i the estate tax return such losses have not been claimed as a : deduction for the income tCL'( purposes in an income tax return." L _ __ _ , _ -

...

·--------·----

---------------------------------'

23

r


11. (Phil. CPA) Y, a Filipino resident, died on November 5, 2003, and his estate incurred losses: First loss: from fire on February 2, 2003 of improvement on his property, not compensated by insurance; Second loss: from flood on February 25, 2004 of household furniture also not compensated by insurance.

a. b. c. d.

First loss is Both losses Both losses First loss is

not deductible. but second loss is deductible are not deductible from the gross estate are deductible from the gross estate deductible, but second loss is not deductible

Answer: A

12. Which of the following losses incurred during the settlement of the estate shall be deductible from the gross estate? I - Losses arising from fires, storms, ship\\reck, or other casualties II - Losses from robbery, theft or embezzlement a. b.

I and II I only

c. d.

II only Neither I nor II

Answer: A

13. (Phil. CPA) The following are the requisites in order for claims against the decedent's estate to be deductible. except which one? a. They must be existing against the estate. b. They must be reasonably certain as to amount. c. They must have been prescribed. d. They must be enforced by the claimant.

I

Answer: C Reference: Section 6 (A)(3)(i), ~evenue Regulations 2-2_0_0_3 _ __ ~ites for deductibility of claims against the estate: I {~}-'rh~ liability represents a personal obligation of the deceased existing at the time of his death (except unpaid funeral expenses and unpaid medical expenses which are classified under different category of deductions}; . (b) The liability was contracted in good faith and for adequate and full consideration in money or money's w011h; (c) I The claims must be a debt or claim which is valid in law and I enforceable in court; . (d) The indebtedness must not have been condoned by the creditor or tl:e actwn to collect from the decedent must not ilave 1 I I l_ _ prescribed~--~- ___ --------·---- _ _ _ _ _ _ _ _j

f

;

1

24


14. Claims against the estate or indebtedness with respect to property may arise out of the following: I - contract; II - tort; III - operation of law. a. b.

I, II and Ill I and II only

c. d.

II and III only III only

Answer: A Reference: Section 6 (A)(3), Revenue Regulations 2-2003

15. In case of a simple loan, which of the following requirements/

documents need to be complied with or submitted? I - Debt instrument duly notarized at the time the indebtedness was incurred; II - Duly notarized Certification from the creditor as to the unpaid balance as of the time of death; III - Proof of financial capacity of the creditor to lend the amount at the time the loan \vas granted, as well as its latest audited balance sheet v,;ith a detailed schedule of its receivable showing the unpaid balance of the decedent-debtor; IV - A statement under oath executed by the administrator or executor of the estate reflecting the disposition of the proceeds of the loan if said loan was contracted within three (3) years prior to the death of the decedent. a. b.

I, II, III and IV I and II onlv

c. d.

III and IV only I and IV only

Answer: A Reference: Section 6 (A) (3) (ii), Revenue Regulations 2-2003

16. Nati Guok died on June 30, 2011, leaving among others,

the follmving charges and obligations: Real property tax for the calendar year 2011 Notarized interest bearing promissory note Accrued interest on the promissory note at the time of death Interest to accrue on tht> promissory note from the date of death to the date of maturity

p 50,000 60,000

2,000 500

How much were the deductions from the gross estate? a. Pl 12,500 c. PllO,OOO P1 12,0W1 d. p 62,500

25 ~--------------------------------------------------------


Answer: A Real. property tax for the colendar year 2011 Notarized interest beanng promissory note Accrued interest on the promissory note m the time of death Interest to arcme on the promissory note from the date of death to the date of matunty

p

50,000 60.000

Total deductions

f_J~~~Q

2,000

. sou

Real property tax accrues at the start oftlte year which may be payable quarterly. Interest to accrue on the promissory note from the date of death to the date ofmatun'ty is part of a personal obligation of the deceased existing at the time of his death.

17. You were appointed by court as an administrator of the Estate of N.A. Mete. N.A. Mete died on March 15, 2011. The following unpaid taxes were presented to you: Unpaid real estate tax for the second, third p 90,000 and fourth quarters of 2011 Unpaid tax on the income received by the 20,000 estate of N .A. Mete Estate tax on the Estate of N.A. Mete 50,000 Unpaid tax on income received by N.A. Mete 3,000 for the period January 1 to March 14, 2011 Ho\\. much should be the deductible unpaid taxes? a. Pl63,000 c. P 90,000 b. P 93,000 d. None

Answer: B Unpwcl real estate tux for tile second, third andfourth quorters of20 11 Unpaid tax 011 income recei11ed by N.A. Mete for the period Jonuury 1 to March 14, 2011

p

90,000 3 000

Deductible unpnirl tcvces


26

of the following taxes is not deductible from the gross estate? Income tax paid on income received before death Property tax accrued prior to death Estate tax paid to a foreign country Donor's tax accrued prior to death

'\.


Answer: C Reference: Section 6 (A)(S}(b), Revenue Regulations No. 2-2003 The value of the net estate shall be determined by deducting from the value ofthe gross estate taxes which have accrued as ofthe death of the decedent which u;ere unpaid as of the time of death. This deduction will not include income tax upon income receiued after death, or property taxes not accrued before his death, or the estate tax due from the transmission of his estate.

~

9. Which of the following taxes shall be deductible from the gross estate of the decedent? a. Income tax for income received after death b. Income tax for income received before death c. Property taxes not accrued before his death d. Estate tax due from the transmission of his estate

s Answer: B Reference: Section 6 (A)(S)(b), Revenue Regulations No. 2-2003

20. Which of the follovYing statements is incorrect? A claim against an insolvent person, which is not collectible in full: a. is included in the gross estate. b. is not included in the taxable net estate. c. must be notarized if arising out of a debt instrument of the insolvent. d. needs no preliminary filing of a case against the insolvent. Answer: C References: Section 86 (A) (1) (d), NIRC, as amended Section 6 (A) (4), Revenl!_~~:g~_&!J.lations No. 2-2003 The value of the net estate shall be detemnned by deducting from the value ofthe gross estate claims ofthe deceased against insolvent persons where the value ofthe decedent's interest therein is included in the ualue ofthe gross estate.

'

The requirement for notarization of debt instrument is for the I deductibility ofthe "claims against the estate". __j -----

27

, Chapter 2: Deductions from Gross Estate

21. The following selected data were taken from the Estate of Ed Sados: Claim against an insolvent person (fully uncollectible) P 500,000 Claim against a person vvho absconded (fully uncollectible) 300,000 Claim against an insolvent person (20% collectible) 100,000 How much should be included in and deducted from the gross estate? , Amount to be included Amount to be deducted a. P900,000 P580,000 b. P900,000 P880,000 P400,000 PlOO,OOO c. p 80,000 d. PlOO,OOO Answer: A Amounts to be Included Deducted Claim against an insoluent person (fully uncollectible) Claims against a person who absconded (fully uncollectible) Claims against insoluent person (20% collectible)

Total

p

500,000

p

500.000

300,000 1 00 000

80 000

f:c=9/]~()Q_Q

[~ __58Q.J,IOJ2

The full value of the claims against insolvent persons are included in the gwss estate whether fully or partially uncollectible. The deduction allowedfrom the gross estate is the uncollectible amount. Claims against persons who absconded are also included in but cannot be deducted from the gross estate because the persons who absconded are not insolvent. The insolvency ofthe debtors must not be merely alleged but must be factual.

22. A piece of land was included in the gross estate at a value of P2,000,000. Upon closer examination, you found out that the value used was net of P500,000 unpaid mortgage on the same land. How much should have been included and deducted from the gross estate? Amount to be included Amount to be deducted a. P2,500,000 P500,000 b. P2,000,000 P500,000 c. P2,000,000 None d. Pl,500,000 None

28


Answer: A References: Section 86 (A) (1) (e), NIRC, as amended Section 6 (A) (5) (a), Revenue Regulations No. 2-2003

23. A real property ovvned by the decedent was acquired for Pl ,000,000. Its fair market value was Pl,SOO,OOO at the time of the decedent's death. Said property was mortgaged for P300,000 which remained unpaid at the time of death. For estate tax purposes, what value would be included in the gross estate of the decedent? a. PI ,000,000 c. Pl,500,000 b. Pl ,200,000 d. None of the choices

Answer: C References: Section 86 (A) (1) (e), NIRC, as amended _~_____§_ection 6 (A) (5) (a), Revenl!_~Re ulations No. 2-2003 The value of the net estate shall be determined by deducting from the value ofthe gross estate unpaid mortgages upon, or any indebtedness in respect to, property where the value ofthe decedent's interest therein, undiminished by such mortgage or indebtedness, is i'1cluded in the value ofthe gross estate. r

The deduction herein allowed in case of claims against the estate, unpaid mortgage or any indebtedness shall, when founded upon a promise or agreement, be limited to the extent that they were . contracted bona [ide and [or an adequate and full consideration in iI money or money's worth. ' 1

1

24. First statement: In case unpaid mortgage payable is being claimed by the estate, verification must be made as to who was the beneficiary of the loan proceeds. Second statement: If the loan is found to be merely an accommodation loan where the loan proceeds went to another person. the value of the unpaid loan must be included as a receivable of the estate. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

Answer: A Reference: Section 6 (A) (5), Revenue Regulations No. 2-2003

29

~----------------------------------------


25. First statement: If there is a legal impediment to recognize the accommodation loan as receivable of the estate, the unpaid obligation or mortgage payable shall not be recognized as a deduction from the gross estate. Second statement: In all instances, the mortgaged property, to the extent of the decedent's interest therein, should always form part of the gross taxable estate. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

Answer: A Reference: Section. 6 (A) (5), Revenue Regulations No. 2-2003

26. First statement: An oral transfer to the National Government exclusively for public purposes to take effect after the decedent's death is deductible from the gross estate. Second statement: In case of non-resident alien decedents, deduction for transfer for public purposes from the gross estate is allowed only when the property transferred is situated in the Philippines. a. True, True c. True, False b. False, False d. False, True

Answer: D References: Section 86 (A) (3), NIRC, as amended Section 86 (B) (3), NIRC, as amended

27. (Phil. CPA Modified) The following are the requisites for vanishing deduction to be allO\'-'·able, except one. a. The estate tax of the prior succession must have been finally determined and paid. b. The present decedent died within five (5) years from date of death of the prior decedent. c. The property with respect to which deduction is sought can be identified as having been received by the present decedent from the prior decedent. d. The property must have formed part of the gross estate situated outside the Philippines of the prior decedent.

Answer: D Reference: Section 86 (A) (2), NIRC, as amended

30

i

I

n

m


.28. (Phil. CPA) Rudolfo, a citizen of the Philippines and resident of Bacolod City, died testate on May 10, 1991. Among his gross estate \\·ere properties inherited from his deceased father who died on April 4, 1988. What percentage of the deduction would be used in computing the amount of vanishing deduction? a. 80% b. 60% c. 40% d. 20%

Answer: C Reference: Section 86 (A) (2), NIRC, as amended Date of present decedent's death Date of prior decedent's death Distance between two (2) deaths More than 3 years but not more than 4 years

YY-MM-DD 1991-05-10 1988-04-04 3-01-06 40%

Deduction for property previously taxed in an amount equal to: One hundred percent (1 00%) of the value, if the prior decedent died within one (1) year prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death; Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not more than two (2) years prior to the death o_fthe decedent, or if the property was transferred to him by gift within the same period prior to his death; Si:dy percent (60°6) of the value, if the prior decedent died more than two (2) years but not more than three (3) years prior to the death of the decedent, or if·the property was transferred to him by gift within the same period prior to his death; Forty percent (40%) of the value, if the prior decedent died more than three (3) years but not more than four (4) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death; Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but not more them five (5) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death;

31


29. An unmarried decedent died leaving properties he inherited 4 Y2 years ago which had fair market value of P800,000 at the time of his death (P650,000 at the time of inheritance, and unpaid mortgage of P50,000 paid by the present decedent). Other properties in his gross estate had fair market value of P1 ,000,000. The total expenses, losses, indebtedness, taxes and transfer for public purpose amounted to P300,000. How much was the vanishing deduction? a. P 500,000 c. b. p 225,000 d.

p 200,000 p 100,000

Answer: D Value Less: Initial Less:

to take Mortgage paid basis Proportional deduction (P600,000/ PI ,800,000 X P300,000) Final basis Rate

p

650,000 50 000

600.000 100.000

500,000 20"o

Vanishing deduction

30. First statement: R.A. No. 4917 provides that retirement benefits given to employees of private firms shall not be subject to attachment, levy, execution, or any tax whatever. Second statement: Any amount received by the heirs from the decedent's employer as a consequence of the death of decedentemployee in accordance with R.A. No. 4917 is allowed as deduction provided that the amount of the separation benefit is included as part of the gross estate of the decedent. a. True, True c. True, False b. False, False d. False, True

Answer: A Reference: Section 86 (A) (7), NIRC, as amended

31. First statement: The value of the net estate shall be determined by deducting from the value of the gross estate an amount equivalent to the current fair market value of the decedent's family home, provided, that if the said current fair market value exceeds Pl,OOO,OOO, the excess shall be subject to estate tax. Second statement: As a sine qua non condition for the exemption or deduction, the family home must have been the decedent's family home as certified by the Barangay Captain of the locality. a. True, True c. True, False b. False, False d. False, True

32


Answer: A Reference: Section 86 (A) (4), NIRC, as amended Section 6 (D), Revenue Regulations No. 2-2003

32 First statement: The family home is deemed constituted on the house and lot from the time it is actually occupied as a family residence and is considered as such for as long as any of its beneficiaries actually resides therein. Second statement: Actual occupancy of the house or house and lot as the family residence shall not be considered interrupted or abandoned in such cases as the temporary absence from the constituted family home due to travel or studies or work abroad, etc. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct Answer: A Reference: Section 6 (D), Revenue Regulations No. 2-2003

33. For purposes of availing of a family home deduction to the extent allowable, a person may constitute: a. as many family homes as possible. b. only one family hnJ""· c. one family home fo; each spouse. d. one family for each child.

Answer: B Reference: Section 6 (D), Revenue Regulations No. 2-2003

34. The beneficiaries of a family home are: I - The husband and \Vife, or the head of a family. II -Their parents, ascendants, descendants including legally adopted children, brothers and sisters, whether the relationship be legitimate or illegitimate, who are living in the family home and who depend upon the head of the family for legal support. a. b.


c. d.


Answer: A Reference: Section 6 (D), Revenue Regulations No. 2-2003

33


35. The following real properties were owned b.\ a decedent, he~d of family, who was a Filipino citizen at the time of his death: Vacation house, USA P 2,000,000 Beach house, Bohol 1,500,000 House and lot (family home), Masbate 900,000 House and lot (dwelling place \'~<·hen in the city), Manila 2,500,000 How much should be included in and deducted from the gross estate? Amount to be included Family home deduction p 6,900,000 a. p 1,000,000 p 4,900,000 p 1,000,000 b. p 6,900,000 p 900,000 c. p 900,000 p 900,000 d.

Answer: C Vacation house, USA Beach house, Bohol House and lot (family home), Masbate House and lot (dwelling place when in the city), Manila

p :2,000,000 1,500,000

Total amount to be included

~~Q~_Q_Q

Family home deduction

P

goo,ooo

2 500 000

-~.2cili1D_Q_Q

36. The actual residential home of the decedent and his family at the time of his death, as certified by the Barangay Captain of the locality where the family home is situated has a fair market value of P1,500,000. The family home is part of the common property of the spouses. How much is the family home deduction? a. Pl ,500,000 c. P750,000 b. P1,000,000 d. P500,000

Answer: C

34

Amount declared in the gross estate Extent of the decedent's interest

p 1,500,000 p 750 000

Lower amount

p

Maximum family home deduction

p 1,000,000


p

750 000

750.000


3-. Which of the following statements is incorrect in connection with family home deduction? a. Family home deduction shall be allowed only if such family home is situated in the Philippines b. The total value of the family home must be included as part of the gross estate of the decedent c. For purposes of availing family home deduction, a person may constitute only one family home d. Family home deduction may not be lower than Pl,OOO,OOO Answer: D Reference: Section 6 (D), Revenue Re ulations No. 2-2003 Conditions for the allowance of FAMILY HOME as deduction from the gross estate: 1. The family home must be the actual residential home of the decedent and his family at the time of his death, as certified by the Barangay Captain ofthe locality where the family home is situated; 2. The total value of the family home must be included as part of the gross estate; and 3. Allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared or included in the gross estate, or the extent of the decedent's interest (whether conjugal/ community or exclusive property), whichever is lower, but not exceeding P 1, 000, 000.

~~5.

The actual residential home of the decedent and his family at the :::ne of his death, as certified by the Barangay Captain of the locality ·,\here the family home is situated, has a fair market value of P3.000,000. The family home is part of the common property of the S?QUSes. How much is the family home deduction? a. Pl ,500,000 c. P750,000 b. Pl,OOO,OOO d. PSOO,OOO

Answer: B Amount declared in the gross estate Extent of the decedent's interest (PJ,OOO,OOO X 1/2}

p 3,000,000 p 1,500,000

Lower amount

p 1,500,000

.l!aximumfamily home deduction

p 1,000,000


P 1 OOQJ)OO

35

r


39. The actual residential home of the decedent and his family at the time of his death, as certified by the Barangay Captain of the locality where the family home is situated, has a fair market value of P500,000. The family home is part of the exclusive property of the decedent. How much is the family home deduction? a. P1,500,000 c. P750,000 b. Pl,OOO,OOO d. P500,000 Answer: D Amount declared in the gross estate Extent of the decedent's interest

p p

sao ooo


p

1,000,000


p

50Q,OOO

500 000

40. The fair market value of the family home which is partly exclusive and partly common is as follows: Family lot (exclusive) p 500,000 Family house (common) 900 000 Total

~.OQJKJO

How much is the deductible amount for family home? a. Pl ,400,000 c. P950,000 b. Pl,OOO,OOO d. P700,000 Answer: C Extent of the decedent's interest in the family lot Extent of the decedent's interest in the family house (?900?000 X 1/2)

p

500,000

450 000

Total

p

950 000


p

1 000 000


P

950,QOO

41. Which of the following statements is incorrect regarding standard deduction? a. A deduction in the amount of Pl,OOO,OOO shall be allowed as an additional deduction without need of substantiation. b. The full amount of Pl ,000,000 shall be allowed as deduction for the benefit of the decedent. c. Standard deduction is a deduction from the conjugal or community properties of married decedents. d. Standard deduction is not allowed to decedents who are nonresident aliens.

36

Chapter 2: Deductions from Gross E?tate

Answer: C References: Section 86 (A) (5), NIRC, as amended Section 6 (E), Revenue Regulations No. 2-2003

y

One of the following is not deductible a. Cost of medicine b. Hospital bills

.lS

medical exrpenses. c. Doctorls fees d. None Of the choices

Answer: D Reference: Section 6 (F), Revenue Regulations No. 2-2003

.c,.::

::-~e

\·alue of the net estate shall be determined by deducting from the of the gross estate all medical expenses: incurred (whether paid or unpaid) within one (1) year before the death of the decedent; - duly substantiated with official receipts for services rendered by the decedent's attending physicians, invoices, statements of account duly certified by the hospital, and such other documents in support thereof; - the total amount thereof, \vhether paid or unpaid, does not exceed PSOO,OOO.

_ I:"'

~~

=:

a.. J.

c. d.

Only I and II and correct Only III is correct Only I and Ill are correct I, II and III are correct

ADswer: D References: Section 86 (A) (6), NIRC, as amended Section 6 (F), Revenue Regulations No.2-2003

"'-' S:-:::.rement I: If the actual amount of medical expenses incurred is

?250,000, then only P250,000 shall be allowed as deduction and :wt to the extent of the P500,000 threshold amount; S~a:ement

II: If the actual amount of medical expenses incurred '.\-ithin the year prior to decedent's death is P600,000, only the rr:.aximum amount of P500,000 shall be allowed as deduction. If in case the excess of PlOO,OOO (P600,000- P500,000) is still unpaid, such amount shall not be allowed to be deducted from the gross estate as "claims against the estate". a. Both I and II are correct c. Only I is correct b. Both I and II are incorrect d. Only II is correct

Answer: A Reference: Section 6 (F), Revenue Regulations No. 2-2003

37

Chapter 2: Deductions from Gross t::state

--------------------------------------

45. One of the following is not allovved as deduction from the gross estate of a non-resident alien decedent. a. Vanishing deduction c. Medical expenses d. Transfer for public use b. Share of surviving spouse

Answer: C Reference: Section 7, Revenue Regulations No. 2-2003

46. All of the following are allowed as deductions !'rom the gross estate of a non-resident ·alien, but are prorated betw~en Philippine gross estate and the total or ,.,·orld gross estate, except: a. funeral expenses. b. claims against the estate. c. unpaid taxes. d. transfers for public purpose.

Answer: D Reference: Section 7, Revenue Regulations No. 2-2003 The value of the net estate of a decedent who is a non-resident alien in the Philippines shall be determined by deducting from the value of that part of his gross estate which at the time of his death is situated in the Philippines the following items of deductions: (1) Expenses, losses, indebtedness and tax:es- xxx Philippine gross estate ---------------------------------- X Expenses, loss('s. indebtedness & tcoces World gross estate

I

!'

(2) Property previously taxed; (3) Transfers for public use; (4) Net share of the surviving spouse in the conjvgal property or I community property. ____j

47. The value of the net estate of a decedent who is a non-resident alien in the Philippines shall be determined by deducting from the value of that part of his gross estate which at the time of his death is situated in the Philippines the following items of deduction: I - that proportion of the total expenses, losses, indebtedness, and. taxes which the value of such part bears to the value of his entire gross estate wherever situated; II - property previously taxed or vanishing deduction; III - transfer for public use; IV - net share of the surviving spouse in the conjugal property or community property. a. b. c. d.

38

All of the above are deductible None of the above is deductible Only I, II, and III are deductible Only I and II are deductible


------------------------------------~

Answer: A Reference: Section 86 (B) (1), (2), and (3), NIRC, as amended

48. First statement: No deduction shall be allowed in the case of a nonresident decedent \Vho is not a citizen of the Philippines, unless the executor, administrator, or anyone of the heirs, as the case may be, includes in the rPturn required to be filed under the Tax Code, the value at the time of the decedent's death of that part of his gross estate not situated in the Philippines. Second statement: Special deductions such as family home, standard deduction and medical expenses shall not be allowed as deduction from the gross estate of non-resident alien decedents. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

Answer: A Reference: Section 7, Revenue Regulations No. 2-2003

49. One of the following deductions physically diminishes the gross estate of the decedent. a. Standard deduction c. Vanishing deduction b. Family home d. Medical expenses

Answer: D

50. A non-rcsiclent alien decedent \\·ho is unmarried, left the following properties: Car, M;:mila p 500,000 Car, USA 600,000 Shares of stock, USA 600,000 Shares of stock, Manila 400,000 House and lot, USA 800,000 Bank deposit, PNB-Manila 100,000 The administrator claimed the following deductions: Actual funeral expenses Judicial expenses Claims against the estate Transfer for public use

40,000 30,000 20,000 10,000

How much was the total deductions from Philippine gross estate in connection with Philippine estate tax? a. PlOO,OOO c. p 43,333 b. p 90,000 d. p 40,000

39


Answer: D Funeral expenses Actual Limit (Pl,OOO,OOO X 5'"a) Allowed (lower) Judicial expenses Claims against the estate

40

p p

40.000

50 000 p

40,000 30,000 20 0()0

Total expenses, losses, indebtedness, taxes, etc

p _;;JOJ1JJI2

Deductible expenses, losses, indebtedness, taxes, etc (Pl,OOO,OOO/P3,000,000 X ?90,000) Transfer for public use

p

30,000 10 000

Total deductions from Philippine gross estate

P

4_G,QOO


51. Classify the following into exclusive deduction or conjugal/ communal deduction a. Funeral expenses CONJUGAL/ COMMUNAL b. Judicial expenses CONJUGAL/ COMMUNAL c. Loss of exclusive properties EXCLUSIVE d. Loss of conjugal/ communal properties CONJUGAL/ COMMUNAL EXCLUSIVE e. Claims against exclusive properties . f. Claims against conjugal/communal CONJUGAL/ properties COMMUNAL g. Unpaid taxes on exclusive properties EXCLUSIVE , h. Unpaid taxes on conjugal/communal CONJUGAL/ properties COMMUNAL 1. Claims against insolvent exclusive debtor EXCLUSIVE j. Claims against insolvent conjugal/ communal CONJUGAL/ debtor COMMUNAL EXCLUSIVE k. Unpaid mortgage on exclusive :ero:eerties 1. Unpaid mortgage on conjugal/communal CONJUGAL/ COMMUNAL properties EXCLUSIVE m. Transfers for public purpose EXCLUSIVE n. Vanishing deduction on properties inherited or received as donation before marriage (under conjugal partnershi:e of gains) EXCLUSIVE o. Vanishing deduction on properties inherited or received as donation during marriage (under conjugal :eartnership of gains) p. Vanishing deduction on properties inherited CONJUGAL/ COMMUNAL or received as donation before marriage I (under absolute community of properties) q. Vanishing deduction on properties inherited EXCLUSIVE or received as donation during marriage (under absolute community of properties) r. Amount received under RA No. 4917 CONJUGAL/ COMMUNAL (?) SPECIAL s. Fam~me t. Standard deduction SPECIAL u. Medical expenses SPECIAL

41

~-----------------------------------


52. Under the Family Code, the following are either charge against exclusive or conjugal/ communal property Identify each one. CONJUGAL/ ~~~- Suppoct of spouses, theic common ehiidcen COMMUNAL and legitimate children of either spouse b. All debts and obligations contracted during CONJUGAL/ COMMUNAL the marriage by the designated administrator-spouse for the benefit of the conjugal partnership of gain or community, or by both spouses, or by one spouse with the consent of the other ' c. Debts and obligations contracted by either CONJUGAL/ spouse without the consent of the other to COMMUNAL the extent that the family may have been benefited d. All taxes, liens, charges and expenses, CONJUGAL/ including major and minor repairs, upon the COMMUNAL conjugal/ community property e. All taxes and e.xpenses for mere preservation CONJUGAL/ made during the marriage upon the separate COMMUNAL I property of either spouse used by the family f. Expenses to enable either spouse to CONJUGAL/ commence or complete a professional or COMMUNAL vocational course, or other activity for selfimprovement g. Ante nuptial debts of either spouse insofar as CONJUGAL/ they have redounded to the benefit of the COMMUNAL family h. Value of what is donated or promised by both CONJUGAL/ spouses in favor of their legitimate children COMMUNAL for the exclusive purpose of commencing or completing a professional or vocational course or other activity for self-improvement i. Expenses of litigation between the spouses CONJUGAL/ unless the suit is found to be groundless COMMUNAL j. Ante nuptial debts of either spouse that did EXCLUSIVE not redound to the benefit of the family k. Support of illegitimate children of either EXCLUSIVE spouse 1. Liabilities incurred by either spouse by EXCLUSIVE reason of crime or quasi-delict m.Loss during the marriage in any game of EXCLUSIVE chance, betting, sweepstakes, or any other kind of gambling whether permitted or prohibited by law

l

42

Chapter 3 ESTATE TAX CASES 'ri 11iat tlic min a of man ran concdc:e ana 6e[iew, tlie mind' of man can ,1.-liiecc. - :Napo[eon J{i[[


1. The decedent is an unmarried head of family with the following data: Real and personal properties P 5,000,000 Family home 2,000,000 Ordinary deductions p 200,000 Funeral expenses 1,500,000 Other deductions 1,300,000 600,000 Medical expenses The taxable net estate is: a. P 4,000,000. b. p 3,000,000.

Answer: B Reference: Section 8, Revenue

c. d.

p 2,900,000. p 1 ,500,000.

Reguh~tions

No. 2-2003 p 7,000,000

Gross estate Less: Deductions Estate after deductions Less: Special deductions Family home Standard deductions Medical expenses

(

1,500,000) p 5,500,000

1,000,000) 1 ,000,000) 500 000) p 3,000.000

Taxable net estate

2. The decedent is an unmarried head of family with the following data: Real and personal properties P 2,700,000 Family home 300,000 Ordinary deductions p 200,000 Funeral expenses Other deductions 1,000,000 1,200,000 The taxable net estate is: a. P 1 ,550,000. b. p 550,000.

c. p d. (P

500,000. 50,000.)

43

Chapter 3: Estate Tax Cases

Answer: B Reference: Section 8, Revenue Regulations No. 2-2003 Gross estate Less: Deductions Estate after deductions Less: Special deductions Family home Standard deductions

p 3,000,000 1 150 000) p 1,850,000

(

300,000) 1 ,000,000)

Taxable net estate

p ;

.

Deductions: Funeral expenses (5% x:3,000,00dJ lower Other deductions L. ---· -· Total deductions

550 000

!.'

p

150,000 1,000,000 p 1,150.000

3. The decedent is a married man with a surviving spouse \vith the following data: p 5,000,000 Conjugal real properties Exclusive family home 2,000,000 Other exclusive properties 2,500,000 Conjugal ordinary deductions p · ' Funeral expenses 150,000 Other deductions 1,300,000 1,450,000 Medical expenses 500,000 The taxable net estate is: a. P 4,750,000. b. p 3,775,000.

c. d.

p 3,750,000. p 2,250,000.

Answer: B Reference: Section 8, Revenue Regulations No. 2-2003 Exclusive

Gross estate Less: Deductions Estate after deductions Less: Share of surviving spouse Estate before special deductions Less: Special deductions Family home Standard deductions Medical expenses Taxable net estate

44

Conjugal

Total

P 4,500,000

P 5,000,000 P 9,500,000 ( ) ( ' 1 ,450,000) ( 1 ,450,000) P 4,500,000 P 3,550,000 P 8,050,000 _ _ _ _) ( p 4,500,000

1,775,000) ( p 1,775,000

1 775 000)

p 6,275,000

··4: (

( (

1 ,000,000) 1,000,000) 500 000)

E_3J75,000


4. The decedent is a _married man with a surviving spouse with the following data: p 5,000,000 Conjugal real properties Exclusive family home 2,000,000 Other exclusive properties 2,500,000 Conjugal ordinary deductions p 150,000 Funeral expenses Other deductions 1,300,000 1,450,000 Medical expenses (including unpaid hospital bills amounting to P200,000 incurred two (2) years before death) 500,000 The taxable net estate is: a. P 4,075,000. b. p 3,975,000.

c. d.

p 3,750,000.

p 2,775,000.

Answer: B

c, : ~J ~~

Exclusive Con iuqal Gross estate p 4,500,000 p 5,000,000 Less: Deductions ( J( 1 450 ooof Estate after deductions p 4,500,000 p 3,550,000 Less: Share of surviving _ _ _ _) ( 1 775 000) spouse Estate before :>pecial p 4 500 000 p 1 775 000 deductions Less: Special deductions Family home (maximum) Standard deductions Medical expenses (P500,000- P200,000) Taxable net estate

Total p 9,500,000

.

(

1 450 ooo) p 8,050,000

(

1 775 000) p 6,275,000

1,000,000)* -" 1 ,000,000) 300 000)

P ~27'5~DOQ

5. The decedent is a married man with a surviving spouse with the following data: Conjugal real properties p 5,000,000 Conjugal family home 1,500,000 Exclusive properties 2,500,000 Conjugal ordinary deductions p Funeral expenses 200,000 Other deductions 1 000 000 1,200,000 Medical expenses 500,000 Additional information: a. 20 % of the funeral expenses were borne by the estate. b. Other deductions includes P200,000 judicial expenses incurred to settle the conflicting claims of the heirs. The taxable net estate is: a. P 3,400,000. b. p 3,200,000.

c. d.

p 3,080,000. p 2,750,000.

45

''"·;'

Chapter 3: Estate Tax

C'lSt'S ------------------------

Answer: C

---------------------------------------, l~xciusiue _ r.m ;unul ___ IsJjQ)__

Gross estak Less: Declue< ions Es[atc after deductions Ll:ss: Share of surviving spouse

P :2,500,000

P h,SUU.OOO

f' :?,SOO,OOO (

P 5_()()0,000

P~.?,S,lp_"Q_QQ

P 5,330.000

Ec3±0cB,Q,cP_QQ

*Cor;Jugal deductions F
"~c t ~

p

40,000 800 000

I; c8~.9~0SJQ

:__ ' '

The decedent is a married man wnh a survi\ing spouse \\ith the follmving data: p 5,000,000 Conjugal real properties 1,000,000 Conjugal famil:> house 400,000 Exclusiw famil:-· lot 2,500,000 Other exclusiye properties Conjugal ordinary deductions p 2UO,OOO Funeral expenses 1,500,000 Other deductions 500,000 Medical expenses The taxable net estate is: a. P 4,750,000. b. p 3,750,000.

46

) .830 UOO)

750,000) l ,000.000) 500 0001

Taxable net estr:tc

7.

P 8.160,000

)i')JU 000) (

)(

EstHtt' bdon· spt•cin_l deductions P_2~~0Q"O_Qi) Less: Spcci
6.

P 9,000,000

( _ _-___ ) (__ _ji_~_QSJOU) ( __ K40 000)

Using estate a. b.

c. d.

p 3,250,000. p 2,750,000.

the same data in the preceding number, how tnU(h is the tax payable? p (_ 272,500 P 437,500 2] 7,500 d. p p 327,500


6. Answer: D Exclusive Conjugal Gross estate p 2,900,000 p 6,000,000 Less: Deductions ( ) ( 1 ,500,000) Estate after deductions p 2,900,000 p 4,500,000 Less: Share of surviving _ _ _ _ ) ( 2,250,000) spouse Estate before special p 2,900,000 p 2,250.000 deductions Less: Special deductions Family home [(1/2 X P1,000,000) + P400,000] Standard deductions Medical expenses

Total p 8,900,000

(

1 ,500,000) p 7,400,000

( 2,250,000) p 5,150,000

( 900,000) (. 1,000,000) ( 500,000) p 2.750.000

Taxable net estate

7. Answer: D Taxable net estate Taxable due and payable p 2,000,000 750,000 X 11%,

8.

p 135,000

82 500

Mr. J. Santos, resident decedent, married, died, leaving the following properties: Real and personal properties acquired during the marriage P 3,000,000 House and land inherited from the father one year and 3 months before he died (fair market value when inherited, P1,500,000) used as decedent's family home 2,000,000 Car purchased vvith cash received as gift from the mother during the year the decedent died 500,000 Cash (inclusive of P500,000 received as inheritance from the father) 1,500,000 The following obligations and expenses were also made available: Claims against conjugal properties 600,000 Unpaid mortgage on the inherited house and land (original mortgage was for P600,000) 100,000 How much was the vanishing deduction? a. P 1,530,000 c. b. P 1,080,000 d.

P 1,000,000 None of the choices

47


Answer: A Inherited property [rom the [ather Value to take li:l~u fiJ q\ .L,"' ''"" ·h·• ·. House and land · ' · . ··' ·; Cash Total Less: Mortgage paid Initial basis Less: Proportional deduction Pl,500,000jP7,000,000 x P700,000 Final basis c,, 1 ~ ~: ;,,.!. Rate ., ..

P 1,500,000 500 000 P 2,000,000 ( 500 000) P 1,500,000 (

150 000) p 1,350,000 -----'8"'-'0"--'Yc'-"o P 1 , 080,000

Car purchased with cash received from mother Value to take/ Initial basis P 500,000 Less: Proportional deduction P500,000/P7,000,000 x P700,000 (_ ____,5'-"0'-L0"-'0'--=-0) p 4~0,000 Final basis Rate lOO'Yo r; J

Vanishing deduction

450 000

E1 53o.ooo

9. to 12. are based on the following: The following data were provided by the Estate of Jose Juan, head of family, a resident of Quezon City. Mr. Juan died intestate on September 30, 2011. p 3,000,000 Land and house (family home) Agricultural land inherited from his father 800,000 who died 2 v2 years before his death 1,000,000 Other real properties 200,000 Other tangible personal properties Bank deposit, PNB-Manila representing amount 500,000 received by heirs under R.A. No. 491 7 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 250,000 unpaid mortgage Unpaid mortgage on inherited agricultural land 30,000 100,000 Claims against insolvent persons Unpaid real estate tax for the 4th quarter of 2011 20,000 The agricultural land was inherited by the present decedent. Its value at the time of inheritance was P500,000. It had an unpaid mortgage of PSO,OOO.

48


9.

How much was the vanishing deduction? a. P 265,178 c. b. p 238,661 d.

159,107 p None of the choices

10. How much was the total deduction excluding family home, standard deduction and medical expenses? a. P 1,415,178 c. p 1,309,107 b. p 1,388,661 d. None of the choices 11. How much was the taxable net estate? a. P 1,684,822 b. p 1,711,339

c. d.

12. How much was the estate tax payable? c. a. P 109,786 b. p 118,271 d.

1,790,893 None of the choices

p

p 111,907 None of the choices

9. Answer: B Value to take Less: Mortgage paid Initial basis Less: Proportional deduction (P450,000/P5,600,000) X P650,000 Final basis l · Rate )tl(__ ,_.,-·.._,,;

p 500,000 (_ _50,000) p 4'50,000 ( p

_,,

52,232) 397,768 60%

Vanishing deduction·

10. Answer: B Schedule of deductions l.'<.di
~ :- :

_i

:r · J

<~

P650,000 EL T 238,661 500 000 ...

: ·, ;

11. Answer: B Personal property (P200,000 + PSOO;OOO + Pl 00,000) Real property (P3,000,000 + P800,000 + P1 ,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) P4,211,339 ( 1,000,000) ( 1,000,000) ( 500 000) El]lL::t~

49

Chapter 3:- Estate Tax Cases

12. Answer : C 500,000 1,211,339X8%,

p

15,000 96 907

Tax due and payable

p

111 907

p

13. to 20. are based on the following: A married decedent who was under absolute community of properties died on October 15, 2011. His estate provided the following information: Real properties inherited before the marriage from his father who died 3 years before the present decedent's death Real property given as gift by his uncle during the marriage 4 1/2 years before the present decedent's death Land inherited during the marriage from an aunt who died 6 years before the present decedent's death House built on the inherited land using communal fund Cash income from the real property received as gift Real properties rec~ived by the surviving spouse before the marriage Real properties acquired by the spouses during the marriage Personal properties acquired during the marriage

p 500,000

1,500,000

500,000 900,000 100,000 1,800,000 1,500,000 1,000,000

The following were considered as deductions from the gross estate: Actual funeral expenses P 100,000 Judicial expenses 150,000 Medical expenses 200,000 " Obligations incurred before marriage that benefited the community properties 250,000 Claims against an insolvent debtor 50,000 Unpaid mortgage on inherited land 100,000 Loss of car through theft on December 31, 2011 (part of personal properties acquired during marriage) 300,000 Unpaid realty tax on real property received as gift from his uncle 30,000 The value of the real properties at the time of inheritance was P300,000. The value of the real property received as gift from an uncle was P1,000,000 at the time of donation. The inherited land and the house built on it were certified as the family home of the decedent and his family by the Barangay Captain in the locality where they were situated.

so


13. How much was the total exclusive property? a. P 2,100,000 c. P 3,100,000 b. P 2,600,000 d. None of the choices 14. How much was the total community property? a. P 5,700,000 c. P 5,750,000 b. P 5,250,000 d. None of the choices 15. How much was the exclusive vanishing deduction? a. P 280,058 c. P 174,872 b. P 175,032 d. None of the choices 16. How much was the total exclusive deductions? a. P 41 0,051 c. P 304,872 b. P 305,032 d. None of the choices 17. How much was the community vanishing deduction? a. P 157,529 c. PO b. P 157,385 d. None of the choices 18. How much was the total community deductions? a. P 1,007,529 c. P 600,000 b. P 757,385 d. None of the choices 19. How much was the taxable net estate? a. P 2,369,949 b. p 2,116,435

c. p 2,016,203 d. None of the choices

20. How much the estate tax payable? a. P 175,694 b. p 14 7,807

c. d.

p

136,782 None of the choices

13. Answer: A Real property given during the marriage by his uncle as gift 4 V" years before the present decedent's death Land inherited during the marriage from an aunt who died 6 years before the present decedent's death Cash income from the real property received as gift Total exclusive property

p 1,500,000

500,000 100 000 P 2, LOQ.,ill)_Q

51


14. Answer: C Real properties inherited before the marriage from his father who died 3 years before present decedent's death House built on the inherited land using communal fund Real properties received by surviving spouse before the marriage Real properties acquired by the spouse during the marriage Personal properties acquired by the spouse during the marriage Claims against an insolvent debtor

p

500,000 900,000 1,800,000 1,500,000 1,000,000 50 000

p 5,750.000

Total community property

15. Answer: B Gift (Exclusive) p 1,000,000

Value to take/ Initial basis Less: Proportional deduction Final basis Rate

p

124 841) 875,159 20%

Vanishing deduction

p

175,032

Taxes Unpaid mortgage Vanishing deduction

p

30,000 100,000 175 032

Total

p

305.032

(Pl,OOO,OOO/P7,850,000) X P980,000

(

16. Answer: B

17. Answer: A Inheritance (Communittt) p 300,000

Value to take/ Initial basis Less: Proportional deduction Final basis Rate

37 452) 262,548 -----"6'-00"-''Yr..:oo-t, h~

Vanishing deduction

p

(P300,000 / P7 ,850,000) X P980,000

52

(

p

157,529

-t;


18. Answer: A Schedule of Deductions Funeral expenses (actual) Judicial expenses Losses Claims against the estate Claims against insolvent Vanishing deduction

Community 100,000 150,000 300,000 250,000 50,000 157 529

p

p 1,007,529

Total

19. Answer: C Exclusive Community Gross estate P 2,100,000 P 5,750,000 P Less:Deductions ( 305032)( 1,007,529)( Estate after deductions P 1,794,968 P 4,742,471 P Less: Share of surviving _ _ _ _ ) ( ?,371,236) ( spouse Estate before special deductions P 1 794 968 P 2,371,235 P Less: Special deductio9_s~ ,, ·;.;~:~-~-·, t-"+ Family home (1/2x 900,000) + 500,000 Standard deductions Medical expenses

Total 7,850,000 1,312,561) 6,537,439 2,371,236) 4,166,203 950,000) 1 ,000,000) 200 000)

Taxable net estate

20. Auswer: C p 2,000,000

p

135,000 1 782

p

136 782

16,203 X 11 °;(,

Tax due and payable

53

r


21. to 24. are based on the following: An unmarried non-resident alien, died intestate on November 2, 2011. The following data were provided by his estate: p House and lot, USA (family home) 2,000,000 Investment in stock, Philippines 800,000 Investment in stock, USA 1,000,000 Investment in bonds, USA (85% of the business of the USA corporation is in the Philippines) 700,000 Cash in bank, Philippines 300,000 Cash on hand, Philippines 50,000 Accounts receivable from a debtor who resides in USA (fully uncollectible) 200,000 Car, Philippines 800,000 Actual funeral expenses 150,000 Judicial expenses 300,000 Unpaid Philippine income tax for income in 2010 120,000 Loss on December 31, 2011 due to theft of cash on hand 10,000 ·~< Loss on sale of a portion of investment in stock, Philippines 20,000 70,000 Devise to Quezon City for children's playground 500,000 Medical expenses 21. How much was the Philippine gross estate? a. P 2,850,000 c. P 1,950,000 b. P 2,650,000 d. None of the choices 22. How much was the total deductions from the Philippines gross estate? a. P 332,735 c. P 286,517 b. P 324,808 d. None of the choices 23. How much was the net taxable estate in the Philippine? a. P 2,363,483 · c. P 2,317,265 b. P 2,325,192 d. None of the choices 24. How much was the estate tax payable in the Philippine? a. P 174,983 c. P 169,899 b. P 170,771 d. Noneofthechoices

21. Answer: B

54

800,000

Investment in stock, Philippines Investment in bonds, USA (85% of the business of the USA corporation is in the Philippines) Cash in bank, Philippines Cash on hand, Philippines Car, Philippines

p

Philippine gross estate

:E. 2~6_;)0,Q_OQ

700,000 300,000 50,000 800 000


22. Answer: B Schedule of Deductions

?

1\'

~I ' '

Funeral expenses (P2,650,000 X 5°/r,) Judicial expenses Losses -• i+'"j;' )•- ... , ,.Taxes . 1-~t.·_· c_,,y ':( Total ELITE

p

p

132,500 300,000 10,000 120 000 562.500

#> Deductible ELITE

(P2,650.000/P5,850,000) X P562,500 Transferforpublicuse "1'-f:T l:,,- ,_,_•'_,_,), J J; Total

p

p

254,808 70 000 '-_· _3~24

8_08

23. Answer: B Gross estate Less: Deductions

p 2,650,000 ( 324 808)

Taxable net estate

P=2 ..32_5.J_92

24. Answer: B p

2,000,000 325,192 X 11'%

p

135,000 35 771

Tax due and payable

25. to 31. are based on the following: A married non-resident alien, died on September 11, 2011. He left the following: p Conjugal properties, Philippines 3,000,000 Exclusive properties, Philippines 2,000,000 Conjugal properties, Foreign Country 4,000,000 Exclusive properties, Foreign Country 1,000,000 The following deductions \\-ere claimed: Actual funeral expenses Judicial expenses Claims against the conjugal estate Claims against the exclusive estate Transfer for public use Medical expenses Losses (part of exclusive properties in the Philippines)

100,000 300,000 500,000 150,000 200,000 600,000 100,000

Included in the Philippine gross estate were the following: Domestic sharE's P 600,000 Share in a partnership 300,000 Other tangible personal properties 2,100,000

55


The Philippine exclusive properties were all tangible personal properties. These included a car, which was inherited 3 1/2 years before the present decedent's death, and had a fair market value of P400,000. The foreign country where the decedent was a citizen and a resident at the time of his death did not impose transfer taxes of any character on the intangible personal properties of Filipinos not residing therein. 25. How much was the taxable exclusive property in the Philippines? a. P 1,900,000 c. P 3,000,000 b. P 2,000,000 d. None of the choices 26. How much was the taxable conjugal property in the Philippines? a. P 3,000,000 c. P 2,100,000 b. P 2,400,000 d. None of the choices 27. How much was the vanishing deduction? a. P 200,693 c. b. P 133,795 d.

P 133,140 None of the choices

28. How much was the total deductions from the exclusive gross estate in Philippines? c. p 436,650 a. P 503,193 b. p 436,295 d. None of the choices 29. How much was the total deductions from the conjugal gross estate in the Philippines? a. P 900,000 c. P 369,000 b. P 410,000 d. Noneofthechoices 30. How much was the Philippine taxable net estate? a. P 2,429,205 c. P 2,096,807 b. P 2,341,807 d. None of the choices 31. How much was the estate tax payable in the Philippines? a. P 182,213 c. P 145,649 b. P 172,599 d. None of the choices

25. Answer: B Exclusive properties, Philippines

p 2,000,000

26. Answer: C

56

Conjugal properties, Philippines Less: Intangible personal properties, Philippines Domestic shares Shares in a partnership

p 3,000,000

Taxable conjugal properties, Philippines

_P 2 lOO,OOQ

600,000) 300 000)


27. Answer: B Value to take/ Initial basis Less: Proportional deduction (P400,000/P4,100,000) X P671,500Final basis '--' Rate fLIT, fl-.~~t -\

p

400,000

( p

65 512) 334,488 40%

p

133_,_795

p

100,000 150 000 250,000

\\)l_\

Vanishing deduction ~'.

.:

,;: ~' ~

:

28. Answer: B Schedule ofExclusive Deductions Losses Claims against the estate Total ELITE

\'•"

p

DeductiqJe--ELITE ~ ./' •· c'J·::, "'!J·-~ rt,.•,,;f1'·'' tc "· (P4)00,000/Pl0,000,000) X P250,000 Transfer for public use "' il:+(l_j (,.t;_ Vanishing deduction

--·:.,.>.,

Total

p

102,500 200,000 133 795

E

4_36.22_~

p

100,000 300,000 500 000 900 000

29. Answer: C Schedule of Conjugal Deductions Funeral expenses (actual) Judicial expenses Claims against the estate Total ELITE

p

Deductible ELITE (P4,100,000/Pl0,000,000) X P900,000

30. Answer: A Gross estate Less: Deductions Estate after deductions Less: Share of surviving spouse

Exclusive

Conjugal

Total

p 2,000,000

p 2,100,000

p 4,100,000

(

436 295) (

p 1,563,705

369 000) ( p 1,731,000

805,295) p 3,294,705

865 500)

31. Answer: A p 2,000,000 424,205 X 11 '%

p

135,000 47 213

Tax due and payable

57

Chapter 3: Estate Tax Cases -lou, Cho,~

i.l.

1\:i:'·\t;.Ci•Y:

!).~'

32. to 36. are based on the following: Mr. E. Cruz died intestate on September 30, 2011. He was survived by his wife and his two children. He and his wife were under conjugal partnership of gains. He left the following properties: Land (900 sq. m.) inherited form the decedent's father who died on June 15, 2006; FMV per tax declaration, P1,900,000; Zonal value, P3,000 per sq. m.; Car inherited from the decedent's father, FMV, P500,000; Cost, P700,000; House and lot acquired during the marriage (family home), Zonal value, P4, 100,000; assessed value, P3,300,000; Household furniture and appliances acquired during the marriage, FMV, P500,000; ~~' Other tangible personal properties (mode of acquisition unknown), FMV, P1 ,800,000. The following were considered as deductions from the gross estate: Actual funeral expenses P 480,000 Judicial expenses 100,000 Other claims against the conjugal properties 500,000 Claims against insolvent persons 50,000 Medical expenses 120,000 The estate of the decedent's father paid the estate on the land at the fair market value of P2,500,000 and on the car, P700,000. During the marriage, Mr. E. Cruz mortgaged the inherited land for P700,000 for the benefit of the family. He paid P350,000 before he died. 32. How much was the total exclusive property? a. P 3,400,000 c. P 3,000,000 b. P 3,200,000 d. None of the choices 33. How much was the total conjugal property? a. P 6,450,000 c. P 5,650,000 b. P 6,400,000 d. None of the choices 34. How much was the total exclusive deductions? a. P 595,404 c. P 525,389 b. P 560,415 d. None of the choices 35. How much was the total conjugal deductions? a. P 1,725,389 c. P 850,000 b. P 1,200,000 d. None of the choices 36. How much was the taxable net estate? a. P 3,309,596 b. p 3,179,611

58

c. d.

p 3,144,585 None of the choices


32. Answer: B Land (900 sq.m.x P3,000) inherited from the father Car inherited from the father ·

p 2,700,000 500 000

Total exclusive property

.E_.Q.,200,0QQ

33. Answer: A

*

House and lot acquired during the marriage (family home) Other tangible personal properties (q~gde (E acquisition unknown) House"fioldfurniture ~nd appliances acquired during the marriage Claims against insolvent persons

p 4,100,000

1,800,000 500,000 50 000

Total conjugal property ~

34. Answer: C 35. Answer: B Schedule of deductions Exclusive p Funereal expenses (maximum) Judicial expenses Claims against the estate Claims against insolvent <--Unpaid mortgage (P700,000- P350,000) Vanishing deduction 525 389 p_ 52.5_,389.

•=.

p

Conjugal 200,000 100,000 500,000 50,000

*

350,000 #- ;

p 1 200.000

i(, t. ,;h, ,,, q c Vanishing deduction ' " " Value to take ;r
Vanishing deduction

i·""'

p

59

r


36. Answer: B Exclusive

Gross estate P 3,200,000 Less: Deductions ( 525,389) Estate after deductions P 2,674,611 Less: Share of surviving (_ _ _ _ _ ) spouse Estate before special deductions P2,674,6ll Less: Special deductions Family home (maximum) Standard deductions Medical expenses

Conjugal Total P 6.450,000 P 9,650,000 ( 1,200.000) ( 1 725 389) P 5,250,000 P 7,924,611

(

2 6'75 000) ( - ),625,000) P'7,6?5,000 P 5,299,611 1 ,000,000) 1,000,000) 120 000)

Taxable net estate

I'~~l_:LM-U

ESTATE TAX RATES If the net estate is:

OVER

I I

BUT NOT OVER

p 200,000 200,000 \ 500,000 500,000 \ 2,000,000 2,000,000 5,000,000 5,000,000 10,000,000 110,000,000

p

60

!

!

THETAX ' PLUS SHALL BE I p

Exempt 0 15,000 135,000 465,000 1,215,000 i

5%, 8% 11% 15% 20%

OF~ EXCESS I OVER

I I p

200,000 500,000 2,000,000 5,000,000 10,000,000

Chapter 4 TAX CREDIT FOR FOREIGN ESTATE TAX "'11iey wlio are tlie most persistent, and wort( in tlie true spirit,

wi[[inmn·a6[y 6e tlie most successfuL "-SamueCSmi£es


) . In computing the Philippine estate tax, which of the following shall not be allowed estate tax credit? a. Resident alien decedent b. Non-resident alien decedent c. Resident citizen decedent d. Non-resident citizen decedent Answer: B

1

2.

Statement I: The amount of the credit with respect to the tax paid to any country shall not exceed the same proportion of the tax against which such credit is taken, which the decedent's net estate situated within such country subject to estate tax bears to his entire net estate; Statement II: The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken, which the decedent's net estate situated outside the Philippines subject to estate tax bears to his entire net estate. a. Both I and II are correct b. Both I and II are incorrect c. Only I is correct d. Only II is correct Answer: A

3. and 4. are based on the following: A decedent left the following: Net estate Philippines P 600,000 Net estate, USA (after estate tax) 1,300,000 Estate tax, USA 100,000 "' 3.

How much was the Philippine estate tax payable assuming the decedent was a non-resident citizen? a. P 135,000 c. P 40,500 b. p 94,500 d. p 23,000

61

Chapter 4: Tax Credit for Foreign Estate Tax

4.

How much was the Philippines estate tax payable assuming the decedent was a non-resident alien? a. P 135,000 c. p 40,500 b. p 94,500 d. p 23,000

3. Answer: C Net estate, Philippines , Net estate, USA (P1,300,000 + P100,000) Total taxable net estate ·

p

600,000 1 400 000 p 2,000,000

Tax due Less: Estate tax credit Actual foreign estate tax Limit [(1 ,400,000/ P2 ,000,000) X P135,000]

p

135,000

p 100,000 p

94 500

94 500)

p - 4Q50Q

Tax payable

4. Answer: D p

Net estate, Philippines Tax due and payable

\-

600 000

P~-

2_3_,00Q

5. and 6. are based on the following: Art Angeles, single resident citizen, died in the city of Makati on March 16, 2011, leaving the following: Net estate, Philippines P 300,000 Net estate, Country A 150,000 Estate tax paid, Country A 8,200 Net estate, Country B 100,000 Estate tax paid, Country B 4,600 Net estate, Country C 250,000 Estate tax paid, Country C 16,250 /5.

How much is the allowable estate tax credit? a. P 39,000 c. P 14,899 b. P 24, 101 d. Choice not given

/6.

How much is the Philippine estate tax payable after tax credit for foreign estate taxes? a. P 39,000 c. P 14,899 b. P 24,101 d. Choice not given

62

_j


5. Answer: B Limit (a)- By country A-150,000/800,000 X 39,000 B-100,000/800,000 X 39.000 C-250,000/800.000 X 39,000 Total

p

Limit (b) - B\· total 500,000/800.000 X 39,000

Limit 7,313 4,875 12,188

p

24,375

Actual Allowed 8,200 p 7,313 4,600 4,600 16,250 12 188 p 24 101 p 24 375

29,050

Allowed (lower)

P

_:?1,HLl

6. Answer: C Net estnte, Philippines Net estate, Country A Net estate, Country B Net estate, Count1>; C Taxable net estate

300,000 150,000 100,000 250 000 800 000

p

p

39,000 24 101)

p

Tnx due Less: Tax credit for foreign estate tnxes

(

Tax payable

~t'!J32~

p

,J: The follmYing data are made available from the estate of a resident citizen decedent: Net (fstate, Philippines Net estate, Country A (after P12,000 estate tax paid) Net estate, Country B (before P8,()00 estate tax paid)

p 1,200,000 188,000 100,000

Hovv much is the allowable estate tax credit? a. P 95,000 c. P 18,333 b. P 19,000 d. None of the choices

Answer: C Nt>t estate, Philippines ..... rhi:: i~ ~()X~i.lt ··~t ~J'"'';r Net esillte, Country A (PlSR,OOO + Pl2.000) Net estate, Country B Total (world) nt·t estate

1

'0"

p 1,200,000

200,000 100.000 P 1 :=iOO 000

Estate tax due Linnt (a) -By country A- P200.000;P1.500,000 X P95,000 B- Pl 00,000; P1.500,000 X P95,000

e:r

_F>_

p

Limit 12,66 ( 6.333

-~-~2~JbO_Q

_t.ctual_ p

12.000 8.000

Total

Allowed p

12,000

___lic333 ~J33

Limit (b) -BY total

p:wo,ooo IPJ.soo,ooo x P95.ooo

Allom:'cl (lower)

19,000

20,000

p

19 000

p

18,333

63


8. to 15. are based on the following: Mr. E. Cruz died intestate on September 30, 2011. He was survived by his wife and two children. He and his wife were under conjugal partnership of gains. He left the following properties situated in the Philippines: a. Land (900 sq. m.) inherited from the decedent's father who died on June 15, 2006; FMV per tax declaration, P1, 900,000; zonal value, P3,000 per sq. m.; b. Car inherited from the decedent's father, FMV, P500,000; Cost, P700,000; c. House and lot acquired during the marriage (family home), Zonal value, P4, 100,000; assessed value, P3,300,000; d. Household furniture and appliances acquired during the marriage, FMV, P500,000; e. Other tangible personal properties (mode of acquisition unknown), FMV, P1,800,000. His wife also owned a real property in USA valued at P1,500,000. It had an unpaid mortgage of P300,000 at the time of his death.

The estate of Mr. E. Cruz paid P120,000 estate tax to the US Government. The following were considered as deductions from the gross estate in the Philippines: a. Actual funeral expenses, P480,000; b. Judicial expenses, Pl 00,000; c. Other claims against the conjugal properties, P500,000; d. Claims against insolvent persons, P50,000; e. Medical expenses, P120,000. The estate of the decedent's father paid the estate on the land at fair market value of P2,500,000 and on the car, P700,000. During the marriage, Mr. E. Cruz mortgaged the inherited land for P700,000 for the benefit of the family. He paid P350,000 before he died.

*

8.

How much is the total exclusive properties? a. P 3,400,000 c. P 2,600,000 b. p 3,200,000 d. p 2,400,000

9.

How much is the total conjugal properties? a. P 7,950,000 c. P 6,450,000 b. p 7,900,000 d. p 6,150,000

10. How much is the vanishing deduction? c. a. P 519,283 b. p 458,700 d.

64

p 415,426 None of the above


-t

11. How much is the total exclusive deductions? a. P 519,283 c. P 415,426 b. P 458,700 d. None of the above

t 12. How much is the total conjugal deductions?

a.

b.

)3.

~

P 1,780,000 P 1,500,000

c.

d.

P 850,000 None of the above

How much is the total special deductions? a. P 2,770,000 c. P 1,770,000 b. P 2,120,000 d. Noneoftheabove

14. How much is the allowable tax credit? a. P 105,057 b. p 20,000

c. d.

p 0

15. How much is the estate tax payable? · a. P 331,280 b. p 322,853

c. d.

p 226,372 None of the above

None of the above

8. Answer: B Land (900 sq. m. x P3,000) inherited from the decedent's fathe1' Car inherited from the decedent's father

p 2,700,000 500 000

Total exclusive properties

p 3,200,000

9. Answer: A House and lot acquired during the marriage (family home) Household furniture and appliances acquired during the marriage Other tangible personal properties (mode of acquisition unknown) Real property in USA Claims against insolvent persons

p 4,100,000

500,000 1,800,000 1,500,000 50 000

Total conjugal properties

65


10. Answer: A Value to take Land p 2,500,000 500 000 p 3,000,000 Car Less: Mortgage paid ( ) p 3,000,000 Initial basis ( 403,587) Less: f(P3,000,000/Pll,l50,000) X P1,500,000] Final basis 2,596,413 20"!(, Rate

*

Vanishing deduction

11. Answer: A

I

Total Exclusive Deduction

p

519_,?8_3

p

200,000* 100,000 500,000 50,000 650 000

12. Answer: B Schedule of deductions Funeral expenses (maximum) Judicial expenses Claims against the estate Claims against insolvent Unpaid mortgage [(P700,000-P350,000)+P300,000]

p__L~()Q,Q,QQ

Total "'

,; !

'\

,~

~

' , .....

13. Answer: B Special deductions Family home (maximum) Standard deduction Medical expenses

p 1,000,000 i,OOO,OOO 120 000

Total

~2"1_20~QDO

14. Answer: A Tax credit for foreign estate tax Actual foreign estate tax Limit(P1,200,000*/P3,785,717) X P331,429

66

120.000

p

105 057

~-__1_05

Lower (Actual) *Net estate. USA (Pl,SOO,OOO- P300,000) ,,

p

=

Pl.200,000

osz


15. Answer: C Exclusiue

Gross estate P 3,200,_()00 P Less: Deductions ( 519 283) ( p 2,680,717 p Estate after deductions Less: Share of surviving )( spouse Est8 te before spt·cial deductions P 2 oso 717 P Less: Spec~] deductions Family home (maximum) Standard deductions Medical t•xpenses

____

Conjugal

Total

7,9.')0,000 Pll,l50,000 1 500 000) ( 2.019 283) 6,450.000 p 9,130,717 3 225,000) ( 3.225,000) 3 225,ooo

p 5.90.5,717

1 ,000,000) 1,000,000) 120 000)

Taxable net estate

f __3, 'l§i? ,1-LZ

Tax due Less: Tax credit for foreign estate tax p 1.20.000 Actual Limit -<: (Pl ,200,000* /PlJ_8_5,7l):J X P33l ,429 P 1o;; 057 Lo\\ er (actunl) L7 +"xc>~H v'<1- ~. '""'{ ,, 1 , ~;;: 1

p

Tax payable

E~=bZ£~32~

'Net estate. liSA (P1 ,500,000- P300,000)

=

331,429

105.057

Pl 200.000

67

r Chapter 5 FILING OF ESTATE TAX RETURNS AND PAYMENT OF ESTATE TAX It is fiard- tofili(, 6ut it is 'Worse nccer to fiacc tried" to succeed. f[ficod"orc 'JZposece(t


1.

How much of the net estate is exempt from estate tax? a. PlOO,OOO and below c. P500,000 and below b. P200,000 and below d. P1,500,000 and below

Answer: B References: Section 84, NIRC, as amended Section 2, Revenue Regulations No. 2-2003

* 2.

Under what cases \\-ill a written notice of death required to be filed? I - In all cases of transfers subject to tax II - In all cases '"'here, though exempt from tax, the gross value of the gross estate exceeds twenty thousand pesos (P20,000) a. b.


c. d.


Answer: A Reference: Section 89, NIRC, as amended

3. When should the written notice of death be filed? a. Within two (2) months after the decedent's death. b. Within two (2) months after the decedent's death, or within a like period after qualifying as such executor or administrator. c. Within six (6) months after the decedent's death. d. Within two (2) years after qualifying as such executor or administrator.

Answer: B Reference: Section 89, NIRC, as amended

68

Chapter 5: Filing of Estate Tax Returns, and Payment of Estate Tax

4.

Who of the following shall file the written notice of death? a. Executor b. Administrator c. Legal heirs d. Any of the above

Answer: D Reference: Section 89, NIRC, as amended

"'5.

When there is a will, a person appointed in in carrying out the wishes of the testator is a. administrator. c. b. executor. d.

such will to take charge called: trustee. heir.

Answer: B References: Comment on Article 881, Civil Code of the Philippines Annotated, Justice Edgardo L. Paras Chapter 1, Philippine Transfer and Business Taxes, Atty. Virgilio D. Reyes

~

6.

If the person appointed by the testator refused to accept the

appointment, or failed to quali(y under the la\\, or the last will and testament did not appoint anybody, and the court appointed somebody, the person appointed is called: a. administrator. c. trustee. b. executor. d. heir.

Answer: A References: Comment on Article 881, Civil Code of the Philippines Annotated, Justice Edgardo L. Paras Chapter 1, Philippine Transfer and Business Taxes, Atty. Virgilio D. Reyes

69


10. In case the estate tax return required is to be supported with a statement duly certified to by a Certified Public Accountant, what shall the statement contain? a. Itemized assets of the decedent with their corresponding gross value at the time of his death, or in the case of nonresident, who is not a citizen of the Philippines, the value of that part of his gross estate situated in the Philippines b. Itemized deductions from gross estate allowed under Section

86 c.

The amount of tax due whether paid or still due and outstanding d. All of the choices

Answer: D Reference: Section 90 (A), NIRC, as amended

11. Who of the following shall file the estate tax return? a. Executor b. Administrator c. Legal heirs d. Any of the above


12. When a. b. c. d.

is the time for filing of the estate tax return? Thirty (30) days from the decedent's death Two (2) months from the decedent's death Six (6) months from the decedent's death Two (2) ~ears from the decedent's death

Answer: C Reference: Section 90 (B), NIRC, as amended

13. When should the Commissioner of Internal Revenue be furnished \vith a certified copy of the schedule of partition and the order of the court approving the same? a. Within thirty (30) days from the decedent's death b. Within thirty (30) davs after the promulgation of the order c. Within two (2) months from the decedent's death d. Within six (6) months from the decedent's death

Answer: B Reference: Section 90 (B), NIRC, as amended

71


14. Can the filing of estate tax return be extended b\ the Commissioner of Internal Revenue? a. Yes, the Commissioner shall have authority to grant, in meritorious cases, a reasonable extension not exceeding sixty (60) days for filing the return. b. Yes, the Commissioner shall have authority to grant, in meritorious cases, a reasonable extension not exceeding thirty (30) days for filing the return. c. No, the Commissioner shall no longer be authorized to grant, even in meritorious cases, a reasonable extension for the filing the return under the new provisions of the Tax Code. d. No, the Commissioner cannot extend the filing of the estate tax return because only the Secretary of Finance can.

Answer: B ~·'.c1Lt\r.\-~\G(\ ~·cl.::.\\q\_1- ."\_: .. ·. ~1.d~~ r,·-~·~Reference: S~ction 90 NIRC, ~s ~~end:ed. ..

fC),

,.

•.

·'.

j

-·"l

.')

15. In case of a resident decedent, the administrator or executor shall register the estate of the decedent and secure a new TIN therefor from the: a. Office of the Commissioner. b. ROO where the decedent was domiciled at the time of his death. c. ROO where the executor or administrator is registered. d. duly authorized Treasurer of the city or municipality vvhere the decedent is domiciled at the time of his death.

Answer: B Reference: Section 9 (C), Revenue Regulations No. 2-2003

71'

16. In case of a resident decedent, the administrator or executor shall file the estate tax return and pay the tax with any of the following, where the decedent was domiciled at the time of his death, except: a. Office of the Commissioner through RDO No. 39-South Quezon City. b. Accredited Agent Bank (AAB). c. Revenue District Officer and Collection Officer. d. duly authorized Treasurer of the city or the municipality.

Answer: A Reference: Section 9 (C), Revenue Regulations No. 2-2003

72


*

17. In case of a non-resident decedent, whether a non-resident citizen or a non-resident alien, with executor or administrator in the Philippines, the estate tax return shall be filed \Vith and the TIN for the estate shall be secured from the: a. Office of the Commissioner. b. RDO where the decedent was domiciled at the time of his death. c. RDO where the executor or administrator is registered. d. RDO having jurisdiction over the executor or administrator's legal residence.

Answer: C Reference: Section 9 (C), Revenue Regulations No. 2-2003

.,._

18. In case of a non-resident decedent, whether a non-resident citizen or a non-resident alien, with executor or administrator in the Philippines who is not registered, the estate tax return shall be filed with and the TIN for the estate shall be secured from the: a. Office of the Commissioner through RDO No. 39- South Quezon Citv. b. RDO where the decedent was domiciled at the time of his death. c. RDO where the executor or administrator is registered. d. RDO having jurisdiction over the executor or administrator's legal residence.

Answer: D Reference: Section 9 (C), Revenue Regulations No. 2-2003

19. In case of a non-resident decedent, whether a non-resident citizen or a non-resident alien, who does not have an executor or administrator in the Philippines, the estate tax return shall be filed with and the TIN for the estate shall be secured from the: a. Office of the Commissioner through RDO No. 39- South Quezon Citv. b. RDO where the decedent was domiciled at the time of his death. c. RDO where the executor or administrator is registered. d. RDO having jurisdiction over the executor or administrator's legal residence.

Answer: A Reference: Section 9 (C), Revenue Regulations No. 2-2003

73

'



is the estate ta" paid? Within six (6) months from the decedent's death Within two (2) months from the decedent's death As the return is filed None of the choices

Answer: C References: Section 91 (A), NIRC, as amended -''t' ckJ. r , ·.section 9 (D), Revenue Regulation No. 2-2003 -" .\ ,: ..... ' :_'.> ', '

-'-' '

...

']i._ ,_;

:r-\' ;_

-. \_

-·~

..

21. Can the Commissioner of Internal Revenue extend the time for payment of the estate tax? I - Yes, not to exceed five (5) years, in case the estate is settled through the courts II - Yes, not to exceed two (2) years, in case the estate is settled extra-judicially a. b. c. d.

Only I is correct Only II is correct Both I and II are correct Neither I nor II is correct

Answer: C ;>.c,:_ '-- J:>- ·1 '"'c,, ·
22. The Commissioner of Internal Revenue may extend the time for payment of the estate tax: I - when the Commissioner finds that the payment on the due date of the estate tax or of any part thereof would impose undue hardship upon the estate or any of the heirs. II - where the taxes are assessed by reason of negligence, intentional disregard of rules and regulations, or fraud on the part of the taxpayer. a. b. c. d.


Answer: A References: Section 91 (B), NIRC, as amended Section 9 (E), Revenue Regulations 2-2003

74


-r 23. The application for extension of time to file the estate tax return and extension of time to pay f'State tax shall be filed with the: a. Office of the Commissioner. b. Revenue District Office (RDO) \vhere the estate is required to secure its Taxpayer Identification Number (TIN) and file the ta.x returns of the estate. c. Revenue District Office (RDO) where the executor or administrator is required to register. d. duly authorized Treasurer of the city or municipality where the decedent is domiciled at the time of his death. Answer: B References: Section 9 (B), Revenue Regulations No. 2-2003 Section 9 (E), Revenue Regulations No. 2-2003

.:. 24. If extension is granted, the Commissioner or his duly authorized representative may require the executor, administrator or beneficiary as the case may be, to furnish a bond in such amount: a. exceeding double the amount of the tax and with such sureties as the Commissioner deems necessary. b. not exceeding double the amount of the tax and with such sureties as the Commissioner deems necessary. c. not exceeding P2,000,000. d. none of the choices.

Answer: B Reference: Section 9 (E), Revenue Regulations No. 2-2003

25. Any amount paid after the statutory due date of the estate tax, but within the extension period, shall be subject to: I - interest. II - surcharge. a. b.


c. d.

I only II only

Answer: C Reference: Section 9 (E), Revenue Regulations No. 2-2003

75

Chapter 5: Filing of Estate Tax Returns, <111d Payment of Estate Tax

26. Can the estate tax be paid in installment? a. Yes, in case the available cash of the estate is not sufficient to pay its total estate tax liability, the estate may be allm\·ed to pay the tax in installment and a clearance shall be released only to the property where the corresponding/ computed tax has been paid. b. Yes, the administrator or executor can request paving on installnwnt basis if the heirs request for such mode of pavment. c. No, payment of estate tax in installment is not possible because the collection of tax cannot be delayed under any circum stance. d. None of the choices.

Answer: A Reference: Section 9 (F), Revenue Regulations No. 2-2003

27. In case of installment payment of estate tax: I - the computation of the estate tax shall always be on the cumulative amount of the net taxable estate. II - any amount paid after the statutory due date of the tax shall be imposed the corresponding applicable penalty thereto. a. b. c. d.


Answer: C Reference: Section 9 (F), Revenue Regulations 2-2003

28. Which of the following statements is incorrect? a. The estate tax imposed under the Tax Code shall be paid by the executor or administrator before the delivery of the distributive share in the inheritance to any heir or beneficiary. b. Where there are two or more executors or administrators, all of them are severally liable for the payment of the estate tax. c. The estate tax clearance issued by the Commissioner or the Revenue District Officer having jurisdiction over the estate, will serve as the authority to distribute the remaining or distributable properties or shares in the inheritance to the heir or beneficiary. d. None of the choices.

Answer: D Reference: Section 9 (G), Revenue Regulations 2-2003

76


29. Who has the primary obligation to pay the estate tax? a. Heir or beneficiary b. Executor or administrator c. Surviving spouse d. None of the choices

Answer: B References: Section 91 (C), NIRC, as amended Section 9 (G), Revenue Regulations 2-2003

~

30. Who has the subsidiary liability for the payment of estate tax? a. Heir or beneficiary b. Executor or administrator c. Surviving spouse d. None of the choices

Answer: A References: Section 91 (C), NIRC, as amended Section 9 (G), Revenue Regulations 2-2003

"'- 31. Under the Tax Code, the term "executor" or "administrator" means: l - the executor or administrator of the decedent. II - if there is no executor or administrator appointed, qualified, and acting within the Philippines, then any person in actual or constructive possession of any property of the decedent. a. b. c. d.

Only I is correct Only II is correct Both I and JI are correct Neither I nor II is correct

Answer: C Reference: Section 91 (C), NIRC, as amended

77

Chapter 6 ATTACHMENTS TO THE ESTATE TAX RETURN, INCLUDING CPA CERTIFICATES ·T ~'lien you finut u liM you tfiin~._yo,I ,-,w lo, you rclll{y fimit a·lilll you r,w ,z,-rompCzsli- 3nonymous-


1.

A Notice of Death is required for deaths occurring on or after January 1, 1998 if the taxable estate exceeds: a. P 20,000. c. PlO,OOO. b. p 15,000. d. p 3,000.

Answer: A Reference: BIR Form No. 1801 ~ 2.

A Notice of Death is required for deaths occlJrring prior to .January 1, 1998 if the taxable estate exceeds: a. P20,000. c. PlO,OOO. b. p 15,000. d. p 3,000.

Answer: D Reference: BIR Form No. 1801

_,. 3.

What attachment is required if the estate had been settled judicially? a. Affidavit of self adjudication b. Deed of extra-judicial settlement of the estate c. Court order d. S\vorn declaration of all properties of the estate

Answer: C Reference: BIR Form No. 1801

:.\:.

4.

78

When should the Commissioner of Internal Revenue be furnished with a certified copy of the schedule of partition and order of the court approving the same? a. Within thirty (30) daYs from the df'cedent's death b. Within thirty (30) clays after the promulgation of the order c. Within two (2) months from the decedent's death d. Within six (6) months from the decedent's death

Chapter 6: Attachments to the Estate Tax Return, Including CPA Certificates


5.

What attachment is required where declared properties have no declared improvement? a. Certified copy of schedule of partition b. Certified true copy of transfer of real properties c. Certified true copy of the latest tax declaration of real properties d. Certificate of no improvement issued by the assessor's office

Answer: D Reference: BIR Form No.. 1801

6.

For listed stock, what proof of valuation of shares at the time of death shall be attached to the estate tax return? a. Newspaper clippings/ certification from the stock exchange b. Latest audited financial statements of issuing corporation with computation of book value per share c. Stockbroker's financial statements d. None of the choices

Answer: A Reference: BIR Form No. 1801

~

7.

For unlisted stock, what proof of valuation of shares at the time of death shall be attached to the estate tax return? a. Ne\vspaper clippings/certification from the stock exchange b. Latest audited financial statements of issuing corporation with computation of book value pt>r share c. Stockbroker's financial statements d. None of the choices

Answer: B Reference: BIR Form No. 1801

8.

In what case shall the estate tax returns be supported v\·ith a statement duly certified to bv a Certified Public Accountant? a. In case where it shows a gross value of P2,000,000 and below b. In case where it shows a gross value of P2,000,000 and above c. In case where it shm\·s a gross value exceeding P2,000,000 d. None of the choices

Answer: C Reference: Section 90 (A), NIRC, as amended

79


9. When an estate tax return should be supported with a statement duly certified to by a Certified Public Accountant, what shall the statement contain? a. Itemized assets of the decedent with their corresponding gross value at the time of his death, or in the case of nonresident who is not a citizen of the Philippines, of that part of his gross estate situated in the Philippines b. Itemized deductions from gross estate allowed under Section 86 c. The amount of tax due whether paid or still due and outstanding d. All of the choices Answer~D

Reference: Section 90 (A), NIRC, as amended

;,; 10. Claimed family home deduction shall be certified by: a. Revenue District Office where the decedent was domiciled at the time of death. b. Duly authorized city or municipal Treasurer vvhere the decedent was domiciled at the time of death. c. Barangay Captain of the place where the family home is situated. d. None of the choices.

Answer: C Reference: Section 6 (D), Revenue Regulations No. 2-2003

Attachment to. the Estate Tax Return (per BIR Form No. 18011 1. Certified tru(e"'copy of the DEATH CERTIFICATE; 2. NOTICE OF DEATH duly received by the BIR, if gross taxable estate exceeds P20,000 for deaths occurring on or after Jan. 1, 1998; or if the gross taxable estate exceeds P3,000 for deaths occurring prior to Jan. 1, 1998; 3. Any of the following: a) Affidavit of Self Adjudication; b) Deed of Extra-Judicial Settlement of the Estate, if the estate had been settled extra-judicially; c) Court order if settled judicially; d) Sworn Declaration of all properties of the Estate; 4. A certified copy of the schedule of partition of the estate and the order of the court approving the same, if applicable; 5. Certified true copy/ ies of the Transfer/ Original/Condominium Certificate of Title/ s of real property/ ies (front and back pages), if applicable; 6. Certified true copy of the latest Tax Declaration of real properties at the time of death, if applicable;

80


7. 8. 9. 10.

11. 12. 13.

14.

15. 16. 17. 18. 19.

20.

"Certificate of No Improvement" issued by the Assessor's Office where declared properties have no declared improvement; Certificate of Deposit/Investment/Indebtedness owned by the decedent and the surviving spouse, if applicable; Photo copy of Certificate of Registration of vehicles and other proofs showing the correct value of the same, if applicable; Proof of valuation of shares of stocks at the time of death, if applicable; For listed stocks- newspapers clippings/ certification from the STOCK EXCHANGE For unlisted stocks - latest audited Financial Statements of issuing corporation with computation of book value per share Xerox copy of certificate of stocks, if applicable; Proof of valuation of other t:vpes of personal property, if applicable; Proof of Claimed Tax Credit, if applicable; CPA Statement on the itemized assets of the decedent, itemized deductions from gross estate and the amount due if the gross value of the estate exceeds two million pesos (P2,000,000); Certification of the Barangay Captain for the claimed Family Home; Duly notarized Promissor_y Note for "Claims Against the Estate" arising from Contract of Loan; Accounting of the proceeds of loan contracted within three (3) years prior to death of the decedent; Proof of the claimed "Property Previously Taxed''; Proof of the claimed "Transf~:r for Public Usc··. Copy of Tax Debit Memo used as payment, if applicable.

These re(]uirements must be submitted upon field or office audit of the tax case before the Tax Clearance Certificate/Certificate Authorizing Registration can be released to the taxpayer. Additional requirements may be requested for presentation during the audit of the tax case depending upon existing audit procedures.

Note: All background information must be properly filled up. • All returns filed by an accredited tax representative on behalf of a taxpayer shall bear the following information A. For CPA's and others (individual practitioners, members of GPPs); A.l Taxpayer Identification Number (TIN); and A.2 Certificate of Accreditation Number, Date of Issuance. and Date of Expirv. B. For Members of the Philippine Bar (individual practitioners, members of GPPs); B.l Taxpa:.er Identification Number (TIN): and B.2 Attorney's Roll Number or Accreditation Number, if any • TIN =Taxpayer Identification Number. • The last 3 digits of the 12-digit TIN refers to the. branch code.

81

Chapter 7 GROSS GIFTS 'Tiie (l'fio{e secret of u successju{ {ijc is to fin a out wfiat is one's acstiny to ao, ana tficn ao it. -Henry 'Fora


1. An act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it. a. Succession · c. Inheritance b. Donation d. Liquidation

Answer: B '· :.' :.<... - · Reference: Article 725, Civil Code of the Philippines

2. When the donor intends that the donation shall take effect during the lifetime of the donor, though the property shall be delivered till after the donor's death, this shall be a: a. donation mortis causa. b. donation inter vivos. c. donation propter nuptias. d. none of the choices.

Answer: B Reference: Article 729, Civil Code of the Philippines

3. When is the donation perfected? a. The moment the donor knows of the acceptance by the donee b. The moment the thing donated is delivered, either actually or constructively, to the donee c. Upon payment of the donor's tax d. Upon execution of the deed of donation

Answer: A '"'fi" .· _... ·, .. Reference: Article 734, Civil Code of the Philippines

4.

82

(Phil. CPA) The following are the requisites of a donation for purposes of the donor's tax, except one. a. Capacity of the donor b. Capacity of the donee c. Delivery of the subject matter or gift d. Donative intent

Chapter 7: Gross Gifts

Answer: B References: Article 741, Civil Code of the Philippines Article 742, Civil Code of the Phi_li_.p"-"p._i_n_e._s_ _ _ __, Letter b is the best choice because a minor and even an unborn child can be a donee. (Art. 741 and Art, 742, Civil Code of the Philippines)

However, according to Justice Edgardo L. Paras in his annotation ofthe Civil Code of the Philippines, Art. 737 would in some cases be inconsistent with Art. 734 which states that "the donation is perfected from the moment the donor knows of the acceptance by the donee." To avoid a contradiction, the rule may be stated thus: "at the time the donation is perfected, both the donor and the donee m.ust be capacitated (Civil Code of the Philippines, Annotated by Justice Edgardo L. Paras, 15' 1' edition, 2002 Volume 2, page 880).

_ 5.

For the donation to be considered valid, acceptance of the donation must be made: a. during the lifetime of the donor only. b. during the lifetime of the donee only. c. during the lifetime of the donor and the donee. d. none of the choices.

Answer: C Reference: Article 746, Civil Code of the Philippines

6.

Which of the following donations inter vivos may not require that it be made in \Hiting? a. Donation of personal (movable) property, the value of which exceeds P5,000 b. Donation of personal (movable) property, the value of which is P5,000 c. Donation of real (immovable) property, the value of which is less than P5,000 d. Donation of real (immovable) property, the value of which exceeds P5,000

83


Answer: B Reference: Article 748, Civil Code of the Philippines Art. 748. The donation of a movable may be made orally or in writing.

An oral donation requires simultaneous delivery of the thing or of the document representing the right donated.

If the value of the personal property donated exceeds five thousand pesos, the donation and acceptance shall be made in writing. Otherwise, the donation shall be void.

7. Which of the following statements regarding donation of an immovable property is incorrect? a. The donation must be made in a public document specifying therein the property donated and the value of the charges which the donee must satisfy. b. The acceptance may be made in the same Deed of Donation or in a separate public document, but it shall not take effect unless it is done during the lifetime of the donor. c. If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be noted in both instruments. d. None of the choices. Answer: D References: Article 749, Civil Code of the Philippines Section 11, Revenue Regulations No. 2-2003

*'

8.

One of the following is not a distinction between donation inter vivos and donation mortis causa. a. Donation inter vivos takes effect during the lifetime of the grantor while donation mortis causa takes effect after the death of the grantor. b. Donation inter vivos is subject to donor's tax while donation mortis causa is subject to estate tax. c. Donation inter vivos requires a public document while donation mortis causa may not require a public document. d. Donation inter vivos is valued at fair market value at the time the property is given while donation mortis causa is valued at the fair market value at the time of the death of the grantor. Answer: C References: Article 748, Civil Code of the Philippines Article 749, Civil Code of the Philippines

84


9.

Motivated by love, Mr. D donated a car to his brothers, Mr. E and Mr. F, the naked title to Mr. E and usufruct to Mr. F for one year. Is the transfer of the car, naked title to Mr. E and usufruct to Mr. Fa valid donation? a. Yes the transfer of the naked title to E and usufruct to F is a valid donation, provided all the donees are living at the time of donation. b. No, the donation is not valid because it is specifically provided in the Civil Code that such donation is not allowed. c. Yes the donation is valid provided that Mr. E agrees to the donation of usufruct to Mr. F. d. No, the donation is not valid because a right (usufruct) cannot be donated.

Answer: A Reference: Article 756, Civil Code of the Philippines

10. The tax imposed on the transfer of property without consideration between two or more persons who are living at the time the transfer is made. c. Business tax a. Estate tax b. Donor's tax d. Property tax

Answer: B Reference: Section 11, Revenue Regulations No. 2-2003 The donor's tax is not a property tax, but is a tax imposed on the transfer of property by way of gift inter vivos. (Lladoc us. Commissioner of Internal Revenue, L-1921 0, June 16, 1965; 14 SCRA, 292).

-tY.

11. Donor's tax is: a. a property tax. b. a personal tax.

c. d.

a business tax. an excise tax.

Answer: D

12. First statement: Donor's tax shall be levied, assessed, collected and paid upon the transfer of property by any person, resident or nonresident, as a gift. Second statement: The donor' tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. a. True, True c. True, False b. False, False d. False, True

85


Answer: A Reference: Section 98 (A) and (B), NIRC, as amended

13. For purposes of donor's tax, a "stranger" is a person who is not a: I - brother, sister (whether by whole or half blood), spouse, ancestor, and lineal descendant. II - relative by consanguinity in the collateral line within the fourth degree of relationship. a. b.

Both are correct Both are incorrect

c. d.

Only I is correct Onlv II is correct

Answer: A References: Section 99 (B), NIRC, as amended Section 10 (B) ( 1) (2), Revenue Regulations No. 2-2003

14. First statement: A legally adopted child is entitled to all the rights and obligations of legitimate children as provided by lm.\· and therefore, donation to him shall not be considered a donation made to a stranger. Second statement: Donation made between business organizations and those made between an individual and a business organization shall be considered as donation made to a stranger. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

Answer: A Reference: Section 10 (B), Revenue Regulations No. 2-2003


of the following is a stranger for donor's tax purposes? The son of the donor's first cousin The donor's grandmother The donor's spouse A child born out of vYedlock of parents who are legally impeded to marry each other at the time the child is being conceived

Answer: A

86


l 6. Statement I: Any contribution in cash or in kind to any candidate, political party or coalition of parties for campaign purposes, shall be governed by the Election Code, as amended. Statement II: Any provision of law to the contrary notwithstanding, any contribution in cash or in kind to any candidate or political party or coalition of parties for campaign purposes duly reported·to the COMELEC shall not be subject to the payment of any gift tax. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

Answer: A References: Section 99 (C), NIRC, as amended Section 10 (C), Revenue Regulations No. 2-2003 Section 13, R.A. No. 7166 ~e absence of an express exempting provision of law, political I ~;!,':!.,ributions in the Philippines are subject to donor's or gift tax , (BIR Ruling No. 344, July 20, 1988).

1

j 1

Any prouision of lazD to the contrary notwithstanding any contribution in cash or in kind to any candidate or political party or coalition of parties for campaign purposes, duly reported to the ·Commission on Election shall not be subject to the payment of any gift tax (Sec. 13, R.A. No. 7166, approved November 26, 199 I).

17. First statement: The donor's tax shall not apply unless and until there is a completed gift. Second statement: The Jaw in force at the time of the completion of the donation shall govern the imposition of the donor's tax. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct


.i<

18. When is the donation completed? a. The moment the donor knows of the acceptance by the donee b. The moment the thing donated is delivered, either actually or constructively, to the donee c. Upon payment of the donor's tax d. Upon execution of the deed of donation

87


Answer: B Reference: Section 11, Revenue Regulations No. 2-2003

19. A gift that is incomplete because of reserved po\\·ers, becomes

complete \Vhen: I - the donor renounces the po\',·er. II - his right to exercise the reserved pov.:er ceases because of some event or contingenC\ o~ the fulfillment of some condition, other than the donor's death. True in both l and II b. Not tnw in both l and II

a.

c. cl.

True in l onlv True in Il only


'" •

20. Which of the foliO\ving renunciations shall not be subject to donor's

ta.x? a. Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute communitY aftf'r the dissolution of the marriage in favor of the heirs of the deceased spouse or any other person! s b. Gt>neral renunciation by an heir, including the surviving spouse. of hisjher share in the hereditarv estate left by the deceden1 c. Renunciation by an heir, including the surviving spouse. of his/ her share in the hereditary estate left by the decedent categorically in favor of idt>ntified heir/ s to the exclusion or disadvantage of the other co-heirs d. None of the choices

Answer: B Reference: Section 11, Revenue Regulations No. 2-2003

21. John sold his car to Sam for P200,000. John's car cost P500,000, and had a fair value of P400,000 at the time of sale. What \\as the

ta.x consequence of the sale? a. There was a taxable gift of P300,000 b. There was a taxable gift of P200,000 c. The transfer was for insufficient consideration, hence, not subject to donor's ta.'\: d. The transfer involved a personal property, hence, not subject to donor's tax

88


Answer: B Reference: Section 100, NIRC, as amended Section 11, Revenue Regulations No. 2-2003 Where property, other than a real property that has been subjected to the final capital gains tax, is transferred for less than an adequate and full consideration in money or money's worth, then the amount by which the fair market value of the property at the time oft he execution of the Contract to Sell or execution of the Deed of Sale which is not preceded by a Contract to Sell exceeded the value of the agreed or actual consideration or selling price shall be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year. (Sec. 11, R.R. No. 2-2003)

22. First statement: A transfer is gratuitous or without consideration and accordingly qualifies as a donation, if no economic benefit measurable in money or money's worth flmved to the transferor from the transferee. Second statement: A gratuitous transfer is always subject to donor's tax. a. True, True c. True, False b. False, False d. False, True

Answer: C Donation._::_m_o_rt_i_s_c_a_l_is_a_w_h_ic-.r-t·-is-a-ls-o--a-g-ra_t_u_i_to_L_l_S_t-it-le-is_s_u_b_lject to

I

estate tax and not to donors tax. -··

.

----------~--

23. (Phil. CPA) The common characteristic of transfer taxes is the transfer of property: a. is onerous. b. takes effect during the lifetime of the transferor. c. takes effect upon the death of the transferor. d. is gratuitous.

Answer: D

24. Who is a. b. c. d.

not subject to donor's tax? An individual making a donation A corporation making a donation A partnership making a donation An individual who pays premiums on the life insurance of another

89


Answer: D Reference: Section 98 ~), NIRC, as amende::.:d=----------JThere shall be levied, assessed, collected and paid upon the I transfer by any person, resident or non-resident, on the property I, by gift, a tax, computed as provided in Section 99 (Sec. 98 (A), I NIRC, as amended). I Before its amendment by Republic Act No. 6110 (Omnibus Tax

L. aw). Section 120 (now Section 98) ofthe Tax Code taxed only gifts made by individuals. The word "individual" was changed to "person" indicating that the donor's tax applies now to both \ natural and juridical persons. II

1

25. When an indebtedness is cancelled without any service rendered by the debtor in favor of the creditor, the forgiveness of debt will result to: a. taxable income. b. distribution of dividend. c. taxable indirect donation. d. taxable estate.

Answer: C Reference: Section 50, Revenue Regulations No. 2

26. First statement: The gross gifts of a donor who is a citizen or resident of the Philippines will include all properties wherever situated. Second statement: The gross gifts of a donor who is not a citizen, and not a resident of the Philippines will include only properties situated in the Philippines. c. True, False a. True, True d. False, True b. False, False


27. (Phil. CPA Modified) Which of the following examples is not taxable? a. A Filipino citizen donated a parcel of land located in the United States to B, non-resident alien. b. On June 1, 1993, A made a gift of P200,000 to his daughter on account of her marriage celebrated on May 1, 1992. c. Mr. Ramos gives his girlfriend a diamond ring worth Pl 00,000 as a birthday gift. d. A and B are the only heirs of C. A renounces his share of inheritance in favor of B.

90

Chapter 7: Gross Gifts ---~

1\.\j.\(._\

r\ J,

'}.,

Answer: D .\u .u' .· . . ; . .·."· ··• · --. -· Reference: Section 11, Revenue Regulations No. 2-2003 ., 28. A non-resident citizen donor is taxed on his donation of properties: a. situated in the Philippines only. b. \Vherever situated. c. situated outside the Philippines only. d. situated in the Philippines only subject to the rule of reciprocity.


29. The rule of reciprocity that applies to estate tax also applies to: I - non-resident alien donor. If - intangible personal property situated in the Philippines. a. b.


c. d.



30. Every donation or grant of gratuitous advantage, direct and indirect, betYveen the spouses during the marriage, shall be void, except: a. moderate gifts which the spouses may give each other on the occasion of any family rejoicing. b. donation mortis causa. c. donation propter nuptias which are given before the marriage. d. all the choices are correct exceptions.

Answer: D Reference: Article 87, Family Code of the Philippines The Family Code of the Philippines Annotated, Dean Ernesto L. Pineda Every donation or grant of gratuitous advantage, direct or indirect. between the spouses during the marriage shall be void, except moderate gifts which the spouses may give each other on the occasion of any family rejoicing. The prohibition shall also apply to persons living together as husband and wife without a valid marriage (Article 87, Family Code ofthe Philippines).

What is moderate is relative, as it depends upon the financial capability and social standing ofthe donor. ------------------~

91


'f

31. Neither spouse may donate any conjugal partnership or community property without the consent of the other. However, either spouse may, without the consent of the other, make moderate donations from the community property: I - for charity. II - on occasions of family rejoicing or family distress. a. b. c. d.

Neither I nor II is a correct exception Both I·and II are correct exceptions Only I is a correct exception Only II is a correct exception

Answer: B References: Articles 98 and 125, The Family Code of the Philippines, The Family Code of the Philippines, Annotated, Dean Ernesto L. Pineda What is moderate depends upon the financial and social standing of the family and must not at all substantially affect the value of the communal assets. In other words, it must be frugal and abstemnious.

The prohibition against spouses to donate any community property without the consent of the other should also apply with equal force to those who are living as husband and wife without the benefit of marriage or under a void marriage, insofar as their properties held in co-ownership are concerned.

32. 1st statement: In all cases, void donations are not subject to donor's tax. 2nd statement: Every donation between the spouses during the marriage shall be void. a. Both statements are true b. Both statements are false c. First statement is true while second statement is false d. First statement is false while second statement is true

Answer: C

92


~

33. Question No. 1 -Is donative intent always essential to constitute a gift? No. Where the property, other than real property classified as capital assets, is transferred for less than an adequate and full consideration in money or money's worth, the difference between the fair market value at the time of transfer and the consideration received is subject to donor's tax. Question No. 2- HO\v is the donation made by the spouses from their conjugal properties treated for donor's tax purposes? The donation is taxable to the husband being head of family, as long as the wife gives consent to it. a. True, True c. True, False b. False, False d. False, True

Answer: C Reference: Sections 11 and 12, Revenue Regulations No. 2-2003

34. One of the follO\ving statements is correct. a. A donation inter vivos by the husband and the wife jointly during the marriage is a donation of conjugal property that will require one computation of the donor's tax, if the spouses are under the system of conjugal partnership of gains. b. A donation inter vivos by the husband and wife jointly during the marriage is a donation of community property that will require one computation of the donor's tax, if the spouses are under the system of absolute community of properties. c. A donation inter vivos by the husband and the wife jointly during the marriage is a donation of exclusive property by either spouse that will require one computation of the donor's tax, if the spouses are under the system of conjugal partnership of gains. d. A donation inter vivos by the husband and the wife jointly during the marriage is a donation of each spouse to the extent of one-half that will require separate computations for two donor's taxes, under v\·hichever property relationship exists between the spouses.

Answer: D ~ence: Section 12, Revenue Regulations. No. 2-2003 I Husband and wife are considered as separate and distinct

taxpayers for purposes of the donor's tax. However, if what is donated is a conjugal or community property and only the huslJand signs the deed of donation, there is only one donor for donor's tax purposes, without prejudice to the right of the wife to question to validity of the donation without hf?r consent pursuant to the pr11inent provisions of the Civil Code of the Philippines and the Family Code of the Philippines. (Sec. 12, R. R. No. 2-2003) __

_

_:_

~

93


35. First statement: If properties are given as a gift, they shall be appraised at its fair market value as of the time of donation. Second statement: In valuing properties for donor's ta.'<:, the principles on valuation of properties for estate tax shall apply. a. True, True c. True, False b. False, False d. False, True


36. First statement: In showing gross gifts in the donor's tax return, real property should be valued at the current and fair market value, as shown in the assessment rolls, or the fair market value, as determined by the Commissioner of Internal Revenue, vvhichever is higher. Second statement: In showing gross gifts in the donor's tax return, personal property should be valued at current fair market value or at cost, whichever is lower. a. True, True c. True, False b. False, False d. False, Trw~


37. (Phil. CPA) Mr. King \Vas the President of a highly profitable corporation, which was engaged in the marketing of cars. When Mr. King's daughter got married to the son of a government official, the corporation gave the newly wed couple a brand new car worth P500,000, and entered the wedding gift in its books as an advertising expense. First statement: The car is not taxable income to the couple because-it is truly a wedding gift, but the couple should pay the tax. Second statement: The donor-corporation should pay the donor's ta.'<, and deduct it from its gross income. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

Answer: B

I The do.:..n-=o'-r-'s-ta-x-is_p_a_y_a_b_le_b_y_t_h_e_._d_o_n_o_r_a_1_1d_i_t_i_s_n_o_t-deductible

I

\ from the gross income for income tax purposes_._ _ _ _ _ _ _ _ j

94

Chapter 8 EXEMPTIONS OF CERTAIN GIFTS AND OTHER DEDUCTIONS FROM GROSS GIFTS On{y tfiose wfio wi[[ risf(goinlJ too far can possi6fyfindout fioafarone can go. -T.S. C£[{iot

Multiple Choice: Choose the best possible answer .

., 1.

Dowries or gifts made on account of marriage of children shall be exempt from donor's tax if given by parents: I - before its celebration. II - within one year thereafter. a. b.

Both I and II are correct Neither I nor II is correct

c. d.


Answer: A Reference: Section 101 (A) (1), NIRC, as amended

2.

The amount of the exempt dowry is to the extent of the first: a. P32,000. c. P20,000. b. p 25,000. d. p] 0,000.

Answer: D Reference: Section 101 (A) (1), NIRC, as amended

3.

One of the following is an incorrect statement regarding dowry. a. The donor must be the natural or adopting parent of the child. b. The donee must be a legitimate, recognized natural or legally adopted child of the donor. c. The dowry or gift on account of marriage must be given before the celebration of the marriage or within two (2) years thereafter. d. The exemption allowed is to the extent of the first PlO,OOO.

Answer: C ,

95

r Chapter 8: Exemptions of Certain Gifts and Other Deductions from Gross Gifts

.4. One of the following will not entitle the donor-parent to a PlO,OOO dowry a. b. c. d.

exemption. Legitimate child Recognized natural child Adopted child None of the choices

Answer: D Reference: Section 101 (A) (1), NIRC, as amended law classified children into: ---------~ a. Legitimate- Those conceived and born during the marriage of I parents who are lawfully married. Or. those who are I 1 conceived before the marriage but born during the marn·age. b. lllegitimate -- Those conceived and born outside of valid marriage {Art 165, The Family Code ofthe Philippines). I c. Legitimated~ Those conceived of parents who at the time of conception were not disqualified by any impediment to marry I each other and who are later considered legitimate by reason I of subsequent marriage of their parents {Arts. 177 and 178, The Family Code of the Philippines). d. Adopted. ~ Those who whether related by blood or not to the adopter. by fiction of law, are made legitimate children of the 1 latter. _j

1:he

1

1

1

5.

A married couple donated a conjugal property to their son who is getting married. Which of the following statements is incorrect in connection with the donation? a. The husband is the proper claimant of the dowry, being head of the familv. b. The husband and wife shall file two separate donor's tax returns. c. The husband and the wife can claim PlO,OOO dowry each. d. The gross gift of the husband shall be one-half of the value of the donated conjugal property.

Answer: A

6.

A donation on account of marriage will give the donor a deduction from the gross gifts made if the donee is: a. a legitimate child. b. a stepchild. c. the son of the donor's second cousin. d. the legitimate father of the donor.

Answer: A

96

I I

__j

Chapter 8: Exemptions of Certain Gifts and Other Deductions from Gross Gifts

~

7. Which of the following gifts or donations shall be exempt from donor's tax? I - Those made to or for the use of the National Government or any entity created by its agencies which is not conducted for profit II - Those made to any political subdivision of the Government a.

b.

I only II only

c. d.


Answer: C Reference: Section 101 (A) (2}, NIRC, as amended

8.

First statement: Transfers inter vivos in favor of non-profit educational institutions are exempt from donor's tax. Second statement: Transfers mortis causa in favor of non-profit educational institutions are exempt from estate tax. a. True, Tr.ue c. True, False b. False. False d. False, True Answer: C Reference: Section 101 (A) (3}, NIRC, as amend_e'-d'-'----~ection 101. Exemption of Certain Gifts.- Thefollowing gifts or donations shall be exempt from the tax prouidedfor in this ! Chapter.

I

1

I A) !n the Case of Gifts !\!fade by a Resident (3) Gifts infauor of an educational and/or charitable, religious,

cultural or social welfare corporation, institution, accredited nongouemment organization. trust or philanthropic organization or research institution or organization: Provided, howeuer, That not more .Uwn thirty percent (JO"o} of said gifts shall be used by such donee for administration purposes.

I I

I I

i / ·

For the purpose ofthe exemption, a ·non-profit educational and/or charitable corporation, institution, accredited non-government organization, tru.st or philanthropic organization and/ or research institution or organization· is a school, college or uniuersity and/ or charitable corporation, accredited non-government organization. trust or philanthropic organization and/ or research institution or orgnnization,JrJcmporated as a non-stock entitlf. paying no diuidend2,_ gouern~d blLJJl.Jstees who receiue no compensation, i and QfiJOting all its income, whether student.< fees or gifts. · dorwti__on, subsidies or other [onns o[philonthroJ!y. to the arcomJ!lishment and_J;!IQmotion o[the purpo~es enumerated in its Articles o[Incorporution. [Section 70 7 (A) {3), N!RC as wnendeclj. 1

i

Transfers mortis causa to non-profit educotionnl institutions an~ not exef!lpt frorn'!'stc~!e to;c__f:!;_~~-§ection §_?_j_D).'_ji/_[_RC, aS_!3!!_U::!_1clf!'_cij._~-

97


·.,.. 9.

Mr. J. Cruz donated P200,000 to a religious institution.· During the year, the total receipts from donations of the religious institution was P5,000,000. Its total administrative expenses amounted to P2,000,000. Hm~V· much was the exempt gift to the religious institution? a. Zero c. PlOO,OOO b. PlO,OOO d. P200,000

Answer: A The gift was not exempted because the administmtive expenses~ the donee-institution exceed 30% ofthe total expenses (P2, 000,000/ P5, 000,000 = 40°i,).

10. Since donation to a charitable institution has no ceiling as a deduction for donor's tax purposes, ]st statement: The net gift will be zero, so that in computing the donor's tax, the donation may be omitted in gross gifts if it is likewise omitted in deductions. 2"d statement: The gross gifts shall be reported and the deduction shall be claimed. a. Both statements are true b. Both statements are false c. First statement is true while second statement is false d. First statement is false while second statement i.s true

Answer: D

:k

11. One of the following is not an exempt gift or a deduction from the gross gift of a non-resident alien donor. a. Dowries or gifts made on account of marriage b. Gifts made to or for the use of the National Government or to any of its political subdivision c. Gifts in favor of an educational and/ or charitable, religious, cultural or social welfare corporation, institution, accredited non-government organization, trust or philanthropic organization or research institution or organization d. Encumbrance on the property donated, if assumed by the donee

Answer: A Reference: Section 101 (B), NIRC, as amended

98


- 12. A married non-resident alien donates shares of stock valued at P300,000 to his son who is getting married to a Filipina in the Philippines. Assuming there is reciprocity, how much is the gross gift and the exempt dowry? Gross Gift Dowrv p 10,000 a. P 300,000 b. p 300,000 Zero c. p 150,000 Zero d. Zero Zero

Answer: D

!

Tf;-gro~s~g-iji::-t-is-z;;,.o for Philippine donor's tax purposes becau~

i the donor is a non-resident alien and the property donated is an · intangible personalproperty situated in the Philippines. When there is reciprocity, donations of intangible personal property situated in the PhilljJpines hy a non-resident alien donor are not i subject to donor's tax. Lf2owry

e~emption ~-?._not

allowed to non-resident

aj_~n

donors.

[

I 1

I 1

~-__j

13. Which of the following is not a deduction from the gross gifts? a. Unpaid mortgage on the donated property assumed by the donee b. Unpaid real estate tax on the propertY donated assumed by the donee c. Diminution on the donated propert,· specifically provided by the donor d. Unpaid donor's tax on the donated property assumed by the donee

Answer: D ,i The follou•ing are not found in the Tcvc Code but are nevertheless -

--------~----~~~---------~--------,

' allowed as deductions from gross gifts: a. Encumbrance on the property donated if assumed by the donee; [b. Those specljlcaily provided by the donor as a diminution from ~~ the_p_roperty d0/}:9__f!!E__ ~-------------------- --~----' 1 1

1

14. Which a. b. c.

of the following is a taxable gift? Donations to the Intramuros Administration Donations to the Communitv Chest Donations to the Philippine Institute of Certified Public Accountants d. Donations to International Rice ResFarch Institute

99


Answer: C

I The following are exempted from

wi~er special!~~~=-~

donor's tax 1. Donations to the Philippine Government for scientzfic, i 1 engineering, and technological research, invention and I ' development (R.A. No. 7606). 2. Donations to social welfare, cultural and chmitable institutions (P.D. No. 50 7, see R.A. I'-lo. 1916). 3. Donations to the International Rice Research Institute (R.A. No. 2 70 7, P.D. No. 1620). 4. Donations to the Ramon Magsaysay Awards Foundation (R.A. No. 3076). 5. Donations to the National Museum, the National Library, and the archives ofthe Notional Historical Institute (P.D. No. 373). 6. Donations to the Southern Philippines Development Administratzon (P.D. No. 690). 7. Irrevocable donations of American-owned private lands acquired under the Laurel- Langley Agreement in favor of the National Government or any entity created by any of its agencies which is not conducted for profit or to any politica.l subdivision of the said Government, or any charitable or scientific organization with a nationwide scope of activities and widely recognized as such as the Philippine National Red Cross, Community Chest, Boy Scouts of the Philippines and the Philippine Heart Foundation (P.D. No. 762). 8. Donations to the Museum of Philippine Costumes (P.D. No. 1349, as amended by P.D. No. 1388). 9. Donations to the lntramuros Administraton (.P.D. No. 1616). I

15. (Phil. CPA) The following are exempt from the donor's tax. Which is the exception? a. P200,000 cash given by a non-resident alien donor to his legitimate son who is getting married in the Philippines to a Filipina. b. PlO,OOO cash given by a resident alien to his legitimate son who is getting married in the Philippines. c. Donation of a condominium in Hongkong to a Filipina by a British national not residing in the Philippines. d. P 150,000 donation to a non-profit school.

100


Answer: A 1 Letter a is the answer because non-resident aliens are not allowed ~ dowry exemption, hence, the donation of cash on account of I marriage of his legitimate son is subject to Philippine donor's tax. I Letter b is an exempt dowry. I Letter cis not taxable in the Philippines because non-resident aliens are subject to Philippine donor's tax only when the donated property is situated in the Philippines. Letter dis one of the exemptions under Section 101 (A) (3) and (B)

~)of the Tax Code.

"'·'·J

'! ,.

_:,

.

·.. _· . . •

~·

••·

·

.

' 16. A resident citizen of the Philippines made the following donations on one date: Donations on account of marriage: p 100,000 To legitimate son To a legitimate daughter and her 15,000 husband-to-be, on account of marriage 30,000 To a recognized natural son 60,000 To an adopted child 40,000 To an illegitimate daughter 12,000 To a sister 20,000 To a charitable institution The deductions from gross estate is: a. P67,500. b. P60,000.

c. P57,500. d. P30,000.

Answer: C 'i<

Legitimate son (dmny) Legitimate daughter and her husband-to-be (dowry)

f'_

;

---

10,000 7,500* 10,000 10,000 20 000

(1 /2 X Pl5.000)

Recognized natural son (dowry) Adopted child (dowry) D9nation to charitable institution H· ···-· . ·. t-"-; .·._, J • _:~· ,_ . _._, ~ Total deductions · ,'l·

p

••

Stranger

Relative

Gross ;;ift Less: Dowry

p

7,500

p 7,500 ( _ ___,_7-'-"5=0-'CO)*

Taxable net gift

p

7 500

_,__P_ _ _ __

101


------------

---, I .

Summary of Exemptions of Certain Gifts/ Deductions from Gross Gifts

I 1. Found in the Tax Code ~~----

]R~-;i~f~-n-t___,- Non-

Ji or Citizen

1

!

1 1

I a. Dowries oc g;fts made on account ~ of marnage b. Gifts made to or for the use of the National Government or any

I

1

·~1

Resi.dent Ahen ~ Donor I Allo"·ed-~-- Not ~ - u-------L- allo~~9~ I Donor

1

1·

1

i 1

!

1

1

1

entity created by any of its · Allowed agencies which is not conducted I Allowed for profit, or to any political I subdivision of the said I Government ------- --------------+-c. Gifts in favor of an educational ·1 I and I or charitable, religious, cultural or social welfare I corporation, institution, / accredited non-government Allowed ! Allowed organization, trust or philanthropic organization or / research institution or 1 1 i L orgarnzat10n_ _ ____ _______L _______ ~I__________ j 1

1

,

a. Ceiling of . ~-~ase of gifts made to certain i~~titutio;~~-l administration ! (~o. 1 c above), in order to be exempt, not ! expenses I more than 30% of said gifts shall be used I bv such donee for administration purposes.~ b. Definition of 1,A non-stock educational and/ or charitable non-stock corporation, institution, accredited non1 educational , government organization, etc. (no.l c above) and/or is a school, college or university andjor charitable charitable corporation, accredited noncorporation, etc government organization, etc. (no. 1 c above)! a) incorporated as a non-stock entity, I b) paying no dividends, c) governed by trustees who receive no compensation, and d) devoting all its income to the accomplishment and promotion of the purpose enumerated in its Articles of I _j__lncorpora tio_n_._______ _j ': 1

c . __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

102

J


2. Other deductions

a. Encumbrance on the property donated if assumed by the donee b. Those specifically provided by the donor as a diminution from the roperty donated

Resident or Citizen Donor

NonResident Alien Donor

AllmYed

Allowed

Allowed

Allowed

103

Chapter 9 DONOR'S TAX RATES AND DONOR'S TAX CASES 'lfie more you fi"
Multiple Choice: Choose the best possible answer. /1.

First statement: When the donee or beneficiary is a stranger, the tax payable by the donor shall be thirty percent (30%) of the net gifts. Second statement: When the donee or beneficiary is a relative, the tax payable by the donor shall be based on the schedular rates of donor's tax provided in Section 99 of the Tax Code. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct Answer: A References: Section 99 (A) and (B), NIRC, as amended Section 10 (A) and (B), Revenue Regulations No. 2-2003

2.

When the donee is net gift? a. PSOO,OOO b. P200,000

no_L~~f>.!r~DK~L

how much is the exempted c.

d.

Pl 00,000 None

Answer: C References: Section 99 (A), NIRC, as amended Section 10 (A), Revenue Regulations No. 2-2003

3. When the donee is a stranger, how much is the exempted net gift? a. PSOO,OOO c. PlOO,OOO b. P200,000 d. None

Answer: D References: Section 99 (B), NIRC, as amended ,-------S~e.ction 10 (B), Revenue Regulations No. 2-2003 When the donee or beneficiary is a stranger, the tax payable by the donor shall be thirty per cent (30%) of the net gifts.

The exemption from donor's tax of the P 1 00, 000 net gift does not apply when the donee is a stranger.

104

Chapter 9: Donor's Tax Rates and Donor's Tax Cases

4.

First statement: The computation of the donor's tax is on a cumulative basis over a period of one calendar year. Second statement: Husband and wife are considered as separate and distinct taxpayers for purposes of the donor's tax. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct Answer: A Reference: Section 12, Revenue Regulations No. 2-2003

-" 5. Which a. b. c.

statements is wrong? The donor's tax: is computed on the basis of the net gifts of a calendar year. becomes proportionately bigger on later donations. is computed separately for each spouse in case of a joint donation. d. is computed and paid within thirty (30) days from the date of donation.

Answer: B _., +tt«

6.

Which of the following statements is wrong? A donation by husband and wife out of conjugal community property to a brother of the wife is: a. one-half a donation to a non-stranger by the wife. b. one-half a donation to a stranger by the husband. c. a donation on which the husband must pay a donor's tax of 30% on his net gift. d. a donation on which the husband must pay the graduated donor's tax on his net gift.

Answer: D A gift made to a brother-in-law or any other relative by c!ffinjjy is a gift to a stranger, hence, subject to 30% tax on the net g{]fT.

105


* 7.

A donation on account of forthcoming marriage \\'as made. The dowry was properly claimed as a deduction and the applicable donor's tax return was filed. The marriage did not materialize. What action should be taken with respect to the filed donor's tax return? a. The donor may file an amended return with no deduction for dowry and pay additional donor's tax. b. The donee may call the attention of the BIR and file a donor's tax return. c. The donor and the donee may agree on who will pay the donor's tax because it was not the donor's fault that the marriage did not materialize. d. No action shall be taken because the donor's tax return filed was correct and in order at the time of its filing.

Answer: A References: Articles 82 and 86 (1), Family Code of the Philippines The Family Code of the Philippines Annotated, Dean Ernesto L. Pineda Donation made before the celebration of marriage is called donation propter nuptias. Propter means before. To be efficacious, it must be, (a) made before the celebration ofthe marn·age, (b) in consideration of the marriage, and (c) in favor of one or both of the future spouses. If any of the above essential elements is absent, there is no donation propter nuptias although there might be an ordinary donation.

Donation proper nuptias may entitle the donor to an exempt dowry to the extent of the first Pl 0,000 provided that the donation is made by a parent to a legitimate, recognized natural or adopted child. Ordinary donations will not entitle the donor to the P 1 0, 000 exempt dowry.

*

8.

On one date, Lara made donations of property in the Philippines to a non-stranger, and of property outside the Philippines to a stranger. In taking a credit for the foreign donor's tax paid, the credit shall be against the Philippine donor's tax on the: a. donation to the non-stranger plus that to the stranger. b. donation to the non-stranger. c. donation to the stranger. d. none of the options given.

Answer: A

106


9. to 11. are based on the following: The following donations during the calendar year 2011 are ~cie to relatives: Date January 30, 2011 March 30, 2011 August 15,2011 -~·

Amount p 2,000,000 1,000,000 500,000

How much -is the tax due on the gift made on January 30, 2011? a. P 204,000 c. P 80,000 b. p 124,000 d. p 50,000

10. How much is the tax due on the gift made on March 30, 20 11? a. P 204,000 c. P 80,000 b. p 124,000 d. p 50,000 11. Hovv much is the tax due on the gift made on August 15, 2011? a. P 204,000 c. P 80,000 b. p 124,000 d. p 50,000

9. Answer: B 10. Answer: C 11. Answer: D Reference: Section 12, Revenue Regulations No. 2-2003 January 30, 2011 : Taxable net gift

March 30,2011

August 15, :2011

_e_ 2__,_i)O~Q.OOQ

Tax due and payable

p =~_2_4"QQQ

Net gift Add: Previous net gift

p l ,000,000

Total taxable net gifts

E_3_,_Q_09. O_Q0

2 000 000

204,000 124 000)

Tax due on total net gift Less: Tax paid on prior gifts

(

Tax payable

P-~~~Q.O.DD

Net gift Add: Total prior net gifts

p

500,000 3,000,000


p

J£}illtPJloQ

p

254,000 -;04.000)

Tax due on total net gift Less: Tax paid on prior gifts

(

Tax payable

P=-~~CLQQQ

p

107


,w: On January

15, 2011, Daisy gave a piece of land to her brother-inlaw who is getting married on February 14, 2011. The assessed value and zonal value of the land were P750,000 and P1 ,000,000 respectively. The land had an unpaid mortgage of P200,000, which was not assumed by the donee and an unpaid realty tax of P10,000 which was assumed by the donee. How much was the donor's tax due? a. P 297,000 b. p 237,000

c. d.

p 43,400 p 31,400

Answer: A Gross gift Less: Unpaid reFllty tax assumed by donee

p 1,000,000

Taxable net gift

p==9;JQ='Q_Q_Q

Tax due and payable (30% X P990,000)

P~ c~c~J.>cOQQ

10.000

13. to 15. are based on the following: Mr. Jose San Jose made the following cash donations to his legitimate son, 18 years old, v\110 got married on January 5, 2011: Date of Donation December 23, 2010 January 5, 2011 January 5, 2012

Amount p 5,000 3,000 10,000

,13. How much was the exempt dowry on the gift made on December 23, 2010? a. P 10,000 c. P 5,000 b. P 8,000 d. None. )4. How much was the exempt dowry on the gift made on January 5, 2011? a. P 10,000 c. p 3,000 b. p 5,000 d. None.

)5. How much was the exempt dowry on the gift made on J;:muary 5, .

2012? a. P 10,000 b. p 8,000

108

c.

d.

p p

3,000 2,000


13. Answer: C The exempt dowry is equivalent to the amount ofthe actual dowry given. Each donee will entitle the donor to ?10,000 exempt dowry. 14. Answer: C The donor can claim an additional exempt dowry of ?3,000. The dowry is given to the same donee in the preceding number. Total exempt dowry so far is ?8,000 (PS,OOO + ?3,000). 15. Answer: D The donor can claim an exempt dowry of P2, 000 only because he has already been allowed exempt dowry of ?8,000 (PS,OOO + P3, 000) in the preceding numbers. The exempt dowry is to the e;dent of the first P 10,000 only.

16. Mr. Oscar Azucar donated the following cash donations to his legally adopted daughter, 30 years old, who got married on June 10, 2011: Date of Donation June 10,2011 August 11, 2011 October 10, 2011

Amount p 6,000 4,000 5,000

How much was the exempt dowry on the donation made on October 10, 2011? a. P15,000 c. P 5,000 b. PlO,OOO d. None

Answer: D The donor could no longer claim exempt dowry on the gift made on October 10, 201 1 because he had already claimed P 1 0, 000 exemption on dowries made to the same donee on June 1 0, 2011 (?6,000) and on August 11, 2011 (?4,000).

Each donee would entitle the donor to an exempt dowry to the

I e:dent ofthefirst ?10,000. I The age ofthe donee, in this case 30 years old, would not be a L factor

in the allowance oft he exempt dowry .

.....17. On June 10, 2011 Mr. Paolo Sao donated P50,000 cash to his favorite g~c_:nds()n who is getting married on June 16, 201 1. For donor's tax purposes the exempt dowry shall be: a. P50,000. r:. P5,000. b. P1 0,000. d. none.

109


Answer: D Reference: Section 101 (A) (1), NIRC, as amended Dowries or gifts made on account of marriage and before its ~ celebration or within one year thereafter b11 parents to each of their legitimate, recognized natural, or adopted children to the extent of the first Ten thousand pesos (PlO,OOO) [Section 101 (A) {1), NJRC, as amended are exempted from tax. ~~~~~~~~~~~~~~~~~~

~

18. Mr. Pantaleon de Leon donated a piece of land to his best friend, German La Germania. The land had an assessed value of P1,000,000 and zonal value of P800,000 at the time of donation. It was also encumbered with an unpaid mortgage of P300,000 which was assumed by the donee. In addition, the donee agreed to pay the applicable donor's tax ofP210,000. For donor's tax purposes, how much was the total deductions? a. P510,000 c. P210,000 b. P300,000 d. None

Answer: B Mortgage assumed by the donee

'\'. 19. Mr. Nguyen Gandaipen, a !1on-residept alieu; donates a brand new car valued at P1,200,000 to his legitimate son who is getting married in the Philippines. The son agrees to pay the unpaid tax of Pl20,000 on the car. For Philippine donor's tax purposes, the total amount of deduction shall be: a. P130,000. c. P10,000. b. P120,000. d. none.

Answer: B Unpaid tax assumed by the donee ~~ :{{Ju..:..i1

>t

h. .. .J;:v.)•

._••

.:(.

<:.[·,:)._

,·1\l,ol~rr'.

20. Mr. George Jorge donated P500,000 to the City of Manila and P100,000 to his best friend who graduated summa cum laude. For donor's tax purposes, how much shall be the: gross gifts? deductions? a. P 600,000 P 500,000 b. p 500,000 p 500,000 c. p 600,000 p 100,000 d. p 500,000 p 100,000

Answer: A

110

;)_

'-·f~r,(.{


21. Ms. Josie Pruitt made the following gifts in the year 2011: Date

Donations

June 6, 2011

P50,000 to Jaimee, purely illegitimate daughter on account of her marriage celebrated on June 8 2010.

August 11, 2011

A piece of jev,;elry purchased by Ms. Pruitt for P100,000 (but with a fair market value of P150,000 at the time of donation) given to her husband.

October 12, 2011

P50,000 to Maritz, her legitimate daughter, on account of her marriage on December 25 2010.

December 25, 2011

P20,000 cash donation to a non-profit philanthropic organization.

The total taxable net gifts of Ms. Pruitt as of December 25, 2011 were: a. P200,000. c. P90,000. b. P140,000. d. zero.

Answer: C Gross gift Less: Donation to philanthropic organization Net gilt Add: Prior net gifts clune 6, 2011 P 50,000 August 11. 2011 (void donation) October 2o, 2011 (50,000- I 0,000) 40.000 December 25, 2011 (20,000 ~ 20.000) Total taxable net gifts, December 25, 2007

p

20,000 20 000

90 000 p_~Q,QOQ

22. (Phil. CPA) In 2011, Jose made the following gifts: a. On June 1, 2011, Pl50,000 to Anton, his son, on account of his marriage celebrated May 1, 2009; b. On July 10, 2011, a parcel of land worth P180,000 to his father, subject to the condition that his father would assume the mortgage indebtedness of Jose in the amount of P40,000; c. On September 30, 2011, P150,000 dm\T~' to his daughter Dana, on account of her scheduled marriage on October 25, 2011, and another wedding gift \vorth P20,000 on November 23, 2011. How much was the total net gifts? a. PSOO,OOO b. P460,000

c. d.

P450,000 P430,000

111


Answer: C November 23. 201 1: Net gift Add: Prior net gifts June 1, 2011 July10,2011 (P180,000- P40,000) September 30, 2011 (Pl5 1J,OOO- PlO,OOO)

p

20,000

p 150,000 140,000 430 000

140 000

P~1_5c(kQQQ

Total net gifts

23. On January 5, 2011, Emma Crema, resident donor, made the following donations: a. To Crispina, recognized natural child, land in the Philippines valued at P31 0,000, on account of her forthcoming marriage; b. To Francisco, legitimate son, car in San Diego, California, USA valued at P500,000 (donor's tax paid in USA, P20,000). For Philippine donors tax purposes, the donor's tax due after tax credit shall be: a. P32,000. c. P12,000. b. P20,000. d. none.

Answer: C To Crispina To Francisco Total gross gifts Less: Dowry

p 310,000 soo 000 810,000 10 000

Taxable net gifts

PcBQQ_J)J2_J2

Tax due Less: Tax credit for foreign donor's tax Actual foreign donor's tax Limit (P500,000/P800,000) X P32,000

p

Tax payable

~= ~()_,Q_QQ f'~~()_,Q<:JQ

32,000

20 000 P~J2_,_QQQ

24. Mitch is a citizen and resident of the Philippines. On July 8, 2011, she made donations to Yeng, a friend, of properties in Australia and Thailand. Donor's taxes paid in Australia and USA amounted to P95,000 and P50,000, respectively. The propert~· in Australia had a fair market value of P300,000 while the property in US had a market value of P200,000. How much was the donor's tax still due after credit for foreign donor's taxes? a. P 145,000 c. p 10,000 d. p 0 b. p 15,000

112


Answer: C Net gift, Australia Net gift, USA

p

300,000 200 000

Taxable net gifts

P

~SOQ_._QQ_Q

Tax due (P500,000 X 30%,) Less: Tax credit foreign donor's tax

p

150,000 140 000

Tax payable

~-

Tax credit

lQ.D_QQ

Actual

Allowed

Limit (a) - B11 country

Australia (PJOO,OOOjP500,000) X P150,000

p

90,000

p

95,000

p

90,000

p

50 000 140 000

p

145 000

p

140"00_9

USA (P200,000/P500,000) X Pl50,000

60,000

50,000

Total Limit (b)- By toto/ (Po00,000/P500,000) X P150,000

p 150,000

p 145,000

Allowed (iower betwePn limit a and limit b)

25. Mr. James Jayme, non-resident citizen donor, made the following donations on July 15, 2011: a. To Charles, a legally adopted child, on accourtt of his marriage on July 31, 2011, a property in Indonesia (donor's tax paid in Indonesia, P70,000), fair market value, P510,000; b. To Adjanto, best friend in the Philippines, a property \\'ith an unpaid mortgage of P30,000 assumed by the donee, fair market value, P230,000. For Philippine donor's tax purposes, the allowable tax credit is: a. P74,000. c. P52,857. b. P70,000. d. P21, 143. Answer: C

Gross gifts Less: Dowry Mortgage assumed by donee

Stranger

Relative

(lidjcmto/ p 230.000

(Charles/ p 510,000

(

Taxable net gifts

t'200~D.QQ

Tax due Total tax due

p

Donor's tax credit Actual foreign donor's tax Limit [(P500.000jP700,000) X P74,000J AllmYed (lower)

10,000)

30.000)

60 000

p 14 000 f'_ 7_ 4:_,00()_ p p

70 000 5') 857

fc=J)?,_~51

113


26. A resident alien donor donated to a Philippine domestic corporation a property located abroad valued at P500,000. The foreign donor's tax on the donation was P100,000. A donation earlier withir. the same calendar year, was donated to a legitimate daughter, a property valued at P300,000. How much was the tax payable? a. P 58,500 b. p 56,250

c. d.


Answer: C Stranger Net gifts Add: Prior net gifts

p 500,000

Relative p

300 000

Taxable net gifts

!"'3QQJ)Q_Q p 150 000

Tax due Total tax due Less: Tax payments/ credits Payments for prior gifts Foreign donor's tax

p

6,000 97 500

p 6 000 p 156,000

103 500

Total tax due

J:'__

Donor's tax credit Actual foreign donor's tax Limit [(P500,000/P800,000) X P156,000] Allowed (lower)

p 100 000 p 97 500

5~.50_Q

J"=9Z~O.Q

27. The following donations were made by a resident citizen donor during the current year: Date Donations July 22

To Milan, legitimate daughter, on account of forthcoming marriage in the USA, car valued at P850,000 (US donor's tax paid was P40,000). To Bryan, adopted son in the Philippines, cash P500 000.

November 11

To Samuel, legitimate son, land in the Philippines valued at P300,000 (unpaid mortgage of P50,000 vvas assumed by the donee).

Question 1: How much was the donor's tax payable on the gifts made a. b.

114

on July 22? P 71,200 P 31,200

c. d.

P 20,000 None of the choices


Question 2: How much was the donor's tax payable on the gifts made on November 11? a. P 71,200 c. P 20,000 b. P 31,200 d. None of the choices Answers: Question 1: B Question 2: C July 22:

Gross gifts (P850,000 + PSOO,OOO) Less: Dowry

(

Taxable net gift

p 1,340.000

Tax due Less: Tax credit for foreign donor's tax

P 71,200 (___4'--'0'-'-"'0-"'0-"'-0) ~p==3b1,,2""'0~0

Tax payable NovEmber 11: Gross gift Less: Mortgage assumed by donee Net gift Add: Total prior net gifts

p (

300,000 50 000) p 250,000 1 340 000

P 1.,.5_9D,OOQ

Total taxablE net gifts Tax due Less: Payments for prior gifts Tax credit for foreign donor's tax Tax payable

P 91,200 ( 31,200) (___4'-'0'--L.=O=O=O) P

Computation for tax credit for foreign donor's tax: July 22: Actual foreign donor's tax P40 000 Limit (P840,000/P1,340,000 X P71,200) P44 633 November 11: Actual foreign donor's tax Limit (P840,000 / P1 ,590,000 X P91 ,200)

p 1,350,000 10 000)

P40.000 P48 181

2..Q,D_QQ

Lower

Lower

28. On January 15, 201 1, Daisy gave a piece of land to her son who is getting married on Februar:y 14, 2011. The assessed value and zonal value of the land were P750,000 and Pl,OOO,OOO respectively. The land had an unpaid mortgage of P200,000, which was assumed by the donee and an unpaid realtv tax of PlO,OOO which was not assumed by the donee. The donor's tax due was: a. P44,000. c. P29,000. b. P31 ,400. d. Pl6,400.

115

r Chapter 9: Donor's Tax Rates and Donor's Tax Cases

Answer: B Gross gift Less: Deduction Dq\\TY Unpaid mortgage Taxa blc net gift

Pl,OOO.OOO p

10,000 200.000

210 000 p __z:2J_U)~Q

Tax due and payable

29. On March 12, 2011, Faith gave a piece of land to her best friend who is a graduate of Agricultural Engineering. The land had a fair market value of PSO,OOO and had an unpaid tax of PlO,OOO which was assumed by the donee. How much was the donor's tax due? a. Pl5,000 c. Exempt b. Pl2,000 d. None of the choices Answer: B Gross gift

p

50.000 10 000

.P

40 000

Less: Unpaid tax Taxable net gift Tax due and payable (P40,000 X 30%)

30. Donations of property and cash were all done, on one date by Vincent, father, as follows: To Lizzy, a legitimate daughter on account of her marriage, land \'\'ith a fair market value of PSOO,OOO but subject to a mortgage of PlOO,OOO which was assumed by Lizzy. To Alex, a legitimate son, on account of his marriage, cash of P200,000. The net gifts made were: a. P680,000. c. P590,000. b. P700,000. d. P580,000. Answer: D

116

To Lizzy (P500,000- P100.000- PlO,OOO) To Alex (P200,000- P10,000)

p 390,000

Total net gifts

p_~SO,QQ_Q

190 000


31. With the consent of his wife and on account of the son's forthcoming marriage, Carlo donated a conjugal real property to his son. The zonal value of the property vvas Pl ,000,000 and its value per tax declaration was Pl ,500,000. Unpaid mortgage on the property was P300,000 and unpaid realty tax was PlOO,OOO which were assumed by the donee. The taxable net gift of Carlo was: a. P550,000. c. P340,000. b. P540,000. d. none of the choices.

Answer: B Gross gift (Pl ,500,000 X 'l2) Less: Dowry Unpaid mortgage assumed by donee (P300,000 X 'l2) Unpaid realty tax (PJOO,OOO X V2)

p 750,000 p

10,000 150,000 50 000

210,000 p 540.000

Taxable net gift

32. On account of the marriage of Arnie] Sy and Ana Dinio, son and daughter-in-law, Mr. Allan Sy donated a real property with a fair market value of Pl ,500,000, but subject to a mortgage of P300,000 which was assumed by the donees. The donor's tax is: a. P77,750. c. P185,950. b. P84,950. d. Pl99,400.

Answer: D

Gross gift Less: Dowry Mortgage assumed by donees

Stranger

Relative

(/\.na Dlnio/ p 750,000

(Amlel Sui p 750,000

150 000)

( (

10,000) 150.000)

Taxable net gift

P 6QQ..Q_OO

P

5_QOQ~Q

Tax due

p 180 000

p

19 400

Total tax due

.e_l9.9~~i2Q

117


33. to 36. are based on the following: During the current calendar year, Hope had the following donations/ transactions:

Date

Donations

January 15

Donated a P150,000 diamond ring to her sister who was getting married in March 15 of the same year.

March 15

Sold her personal car. valued at P500,000 for P200 000 to his uncle.

April 15

Sold his residential house to his brother for P1,500,000. The fair market value of the residential house at the time of sale was P2,000,000.

June 15

Donated PlOO,OOO to Quezon City for public purpose and P50,000 to her brother who graduated from Aten eo.

33. How much was the donor's tax for the gift made on January 15? a. P 30,000 c. P 800 b. P 1,000 d. None of the choices 34. How much was the donor's tax for the gift made on March 15? a. P 81,000 c. P 11,000 b. P 12,000 d. None of the choices 35. How much was the donor's tax for the gift made on April 15? a. P 12,000 c. P 1,000 b. P 11,000 d. None of the choices 36. How much was the donor's tax for the gift made on June 15? a. P 32,000 c. P 2,000 b. P 14,000 d. None of the choices

118


Answers:

33.B 34.C 35. D 36.C p 150,000

January l5:Gross gift Less: Deduction

March 15:

Taxable net gift

p 150 000

Tax due and payable

p_~_l,_Q_QQ

Gross gift (P500,000-P200,000) Less: Deduction Net gift Add: Prior net gifts

p 300,000


p 450,000

Tax due Less: Payments for prior gifts

p

12,000 1 000

Tax payable

p

11 000

p 300,000 150 000

April 15:

Not subject to donor's tax because the transaction was subject to 6% capital gains tax.

June 15:

Gross gifts Less: Deductions Transfer to Quezon City government Net gifts Add: Prior net gifts

Stranger

Total tax net gifts

P 100,000

Relative P

50,000

p

p

50,000 450 000

E~-=--~

E..~~O~OQQ

100 000


P

14,000 12 000

Tax payable

p_

_2,QQQ

119


37. to 40. are based on the following: Mr. Rodolfo Felix made the following gifts in 20 11: Date

Donations

January 2

P500,00 to Ana, his acknowledged natural daughter on account of her marriage celebrated on Januarv 1 2010.

March 9

A diamond ring purchased by Mr. Felix at the cost of P5,000 (but with a fair market value of P9,000 at the time of donation) given to his wife as a birthdav oift.

June 20

P150,000 to Boy, his legitimate son on account of his marriage on December 12, 2010.

December 25 P120,000 cash donation to the Hospicio de San Jose, acharitable institution. 37. How much is the donor's tax due for the gift made on January 2? a. P 14,000 c. P 12,000 b. P 13,600 d. None of the choices 38. Hovv much is the donor's tax due for the gift made on March 9? a. P 240 c. Zero b. P 160 d. None of the choices 39. How much is the donor's tax due for the gift made on June 20? a. P 9,800 c. r 7,800 b. P 8,400 d. None of the choices 40. Hmv much is the donor's tax due·for the gift made on December 25? c. Zero a. P 36,000 d. None of the choices b. p 7,200

120


Answers:

37.A 38.C 39.B

40.C Relative

Stranger January 2: Gross gift Less: Dowr~y

p

p

500,000

p

p

500 000

p

p

150,000 10 000

p

p

140,000 500 000


p

640,000


p

22,400 14 000

Tax payable

p

8,400

Net gift Tax due and payable

March 9: No donor's tax due. Donations made between spouses are void except:: a. Moderate gifts on account of family rejoicing; b. Donation mortis causa. June 20: Gross gift Less: Dowry Net gift Add: Prior net gifts

December 25: Gross gift Less: Deduction Donation to charitable institution

p

p

120,000 120 000

Net gift Add: Prior net gifts Total taxable nee gifts Tax due Less: Payments for prior gifts Tax payable

640 000 p

~~~=

p

(

640,000 22,400 22 400)

p

121


41. to 43. are based on the following: Mr. and Mrs. Juan Jose made the follmving donations during the calendar year 2011 (common property unless otherwise stated): Date January 2

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 birthdav P20 000.

February 3

To Aevon, legitimate daughter, on account of her marriage on February 1, 2010, a piece of antique jewelry from the capital property of Mr. Jose. The pawn value of the jewelry was P50,000. To Janina, legitimate daughter, on account of her graduation, a piece of land costing P500,000. The fair market value per BIR at the time of donation was P1,000,000. Its assessed value was P1,200,000. The piece of land had an unpaid mortgage of PlOO,OOO which was assumed by the donee. To Anna, Mrs. Jose's sister, on account of her forthcoming marriage, cash P100,000.

October 4

To ReSA Colleges, a non-profit educational institution, P250,000. To Belmont Shipping Company, a piece of land valued at P700,000. To John, legitimate son, on account of his forthcoming marriage, cash of P200,000.

41. How much is the tax due and payable of Mr. Juan Jose on gifts made on January 2? a. P 19,600 c. P 6,600 b. P 7,000 d. None of the choices 42. How much is the tax due and payable of Mr. Juan Jose on gifts made on February 3? c. p 36,800 a. P 58,400 b. p 51,800 d. None of the choices 43. How much is the tax due and payable of Mr. Juan Jose on gifts made on October 4? a. P 126,000 c. P 111,000 b. P 111,800 d. None of the choices

122


Answers: 41. c 42.B

43.C Relative

Stranger January 2: To Alice (PSOO,OOO X 1/2) To Jewel (P20,000 X 1/2) Gross gifts Less: Dowry

p p

10 000 10,000

p

3 000

p

250,000

p

250,000 10 000

Taxable net gifts Tax due Aggregate tax due February 3: To Aevon (PSO,OOO X 3) To ,Janina (Pl,200,000 X 1/1) To Anna (PlOO,OOO X V2) Gross gifts Less: Deductions Unpaid mortgage assumed by Donee (PlOO,OOO X Vcz) Net gift Add: Prior net gifts

p

p

50 000 50,000

_,__P_ _--"3'-'-6"'""0"'-0-"-

p

6,600

p

150,000 600,000

p

7SO,OOO

50 000 700,000 240 000

p

oO,OOO 10 000

P

p

18 000

_,_P__4-'-0"'-'-'4-""0-"-0 p 58,400 6 600

p

125,000 3SO,OOO

p

p

475,000

p

Total taxable net gifts Tax due Aggregate tax due Less: Payments for prior gifts Tax payable October 4: To ReSA College (P250,000 X '/2) To Belmont Shipping (P700,000 X 1/:d To John (P200,000 X 1/2) Gross gifts Less: Deductions Dowry Donation to non-profit educational institution Net gifts Add: Prior net gifts

100 000 100,000 10,000

p

125 000 350,000 60 000

p


P_

4~\;LQQg

_ELQ~P~QQD

Tax due Aggregate tax due Less: Payments for prior gifts

p

1 23 000

p p

90,000 940 000

46.400 169,400 58 400

Tax payable

123

' Chapter 9: Donor's Tax Rates and Donor's Tax Cases

DONOR'S TAX RATES If the net gift is:

BUT NOT OVER

OVER

THE TAX SHALL BE

p p

100,000 200,000 500,000 1,000,000 3,000,000 5,000,000 10,000,000

124

100,000 200,000 500,000 1,000,000 3,000,000 5,000,000 10,000,000

p

EXEMPT 0 2,000 14,000 44,000 204,000 404,000 1,004,000

OF EXCESS OVER

PLUS 2% 4% 6% 8% 10% 12% 15%

p

100,000 200,000 500,000 1,000,000 3,000,000 5,000,000 10,000,000

Chapter 10 FILING OF DONOR'S TAX RETURNS, PAYMENT AND REQUIREMENTS "cDo niiat tfie Lord wants andJ{e wi[[giw you your fieart 's desire" - 1Psuim 37:-1


1. First statement: Any person making a donation (whether direct or indirect), is required to accomplish under oath a donor's tax return for every donation, unless the donation is specifically exempted under the Tax Code or other special laws. Second statement: The computation of the donor's tax is on a cumulative basis over a period of one calendar year. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

Answer: A References: Section 103 (A), NIRC, as amended Sections (12) and 13 (A), Revenue Regulations No. 2-2003 2. Which of the following information shall be set forth in the donor's tax return? I - Each gift made during the calendar year which is to be included in computing net gifts; II - The deductions claimed and allmvable; III - Any previous net gifts made during the same calendar year; IV - The name of the donee; V - Relation of the donor to the donee; VI - Such further information as the Commissioner may require. a. b.

All of the above None of the above

c. d.

I, II, III and IV only I, II and III only

Answer: A References: Section 103 (A), NIRC, as amended Section 13 (A), Revenue Regulations No. 2-2003 3. The donor's tax return shall be filed and the tax due paid \Nithin how many days after the date the donation was made or completed? a. 60 days c. 30 days b. 40 days d. 10 days

125

Chapter 10: Filing of Donor's Tax Returns, Payment and Requirements

Answer: C Reference: Section 103 (B), NIRC, as amended 4.

First statement: A donation with an unpaid donor's tax is not a valid donation. Second statement: The title to the donated real property cannot be transferred to the donee in the Register of Deeds unless the donor's tax on the donation had been paid. a. True, True c. True, False b. False, False d. False, True Answer: D References: Section 95, NIRC, as amended The Law on Transfer and Business Taxation, 1998 edition. Hector de Leon Payment of donor's tax is not a requisite for a valid donation. The requisites for valid donation for donor's tax purposes are: a. Capacity ofthe donor; b. Donative intent, or intent on the part of the donor to make a gift; c. Delivery, whether actual or constructive, of the subject matter of the gift; and d. Acceptance ofthe gift by the donee.

5. A resident citizen has a property in Quezon City. His legal residence is in Masbate City. While in Cebu City on a business trip, he donated his property in Quezon City to a relative who is long-time resident of Cebu City. Where will the donor file the donor's tax return? a Quezon City c. Masbate City b. Cebu City d. Any of the three cities

Answer: C Reference: Section 103 (B), NIRC, as amended 6.

126

First statement: In the case of gifts made by a non-resident alien, the return shall be filed with the Philippine Embassy or Consulate in the country where he is domiciled at the time of the transfer, or directly with the Office of the Commissioner. Second statement: The term "Office of the Commissioner" shall refer to Revenue District Office (RDO) having jurisdiction over the ErRNational Office which houses the Office of the Commissioner, or presently, to the Revenue District Office No. 39-South Quezon City. a. True, True c. True, False b. False, False d. False, True


Answer: A Reference: Section 13 (B), Revenue Regulations No. 2-2003

7.

First statement: In order for donations to be exempt from donor's tax and claimed in full as deduction, the donee-institution must be duly accredited by the Philippine Council for NGO Certification (PCNC). Second statement: The donor engaged in business shall give a notice of donation on every donation worth at least P50,000 to the Revenue District Office, which has jurisdiction over his place of business within 30 days after receipt of the qualified doneeinstitution's duly issued Certificate of Donation. a. True, True c. True, False b. False, False d. False, True Answer: D References: Section 13 (C), Revenue Regulations No. 2-2003 Section 1, Executive Order No. 67, dated October 22, 2007 The Philippine Council for NGO Certification (PCNC) had been divested of its function to accredit donee-institutions (see Section 1, E.O. No. 67.)

Section 1. Accrediting Entity - The following Departments are hereby designated Accrediting Entities to determine the qualification of nonstock, non-profit corporations, non-govemmental organizations, associations, and foundations for accreditation as qualified donee institutions to wit: a. Department of Social Welfare and Development for charitable and/ or social welfare organizations, foundations and associations including but not limited to those engaged in youth, child, wome1,1., family, disabled persons, older persons welfare and development; b. Department of Science and Technology -for organizations, associations and foundation primarily engaged in research and other scientific activities; c. Philippine Sports Commission- for organizations, foundations and associations primarily engaged in sports development; d. National Council for Culture and Arts -for organizations, foundations, and associations primarily engaged in cultural activities e. Commission on Higher Education- for organizations, foundations and association primarily engaged in educational activities

127

Chapter 10: Filing of Donor's Tax Returns, Payment and Requireme-nts

8.

First statement: When a donor's tax return filed is found by the BIR to have errors resulting in deficiency donor's tax, the donor may be required to pay the deficiency although he does not possess or own the property anymore. Second statement: The Government is not bound by any agreement between the donor and the donee that the latter shall pay the donor's tax instead of the former. a. True, True c. True, False b. False, False d. False, True Answer: A Reference: Section 103 (B), NIRC, as amended [ For donor's tax purposes, it is the donor who is liable to pay the donor's tax.

l 1

I

The return o[the donor reqvired in this Section shall be filed within 1 thirty (30) days after the date the gift is made and the tax due 1 thereon shall be paid at the time of filing [Section 1 O]j_B)]. __1

9.

Unless the Commissioner otherwise permits, the donor's tax return shall be filed with and the tax paid to which of the following? a. Authorized Agent Bank b. Revenue District Officer or Revenue Collection Officer c. Duly authorized city or municipal Treasurer d. Any one of the choices

Answer: D References: Section 103 (B), NIRC, as amended Section 13 (B), Revenue Regulations No. 2-2003

10. When the donor has no legal residence in the Philippines, the donor's tax return shall be filed with the: a. authorized agent bank. b. Revenue District Officer '"·here the donor is domiciled. c. Revenue Collection Officer vvhere the donee is domiciled. d. Office of the Commissioner.

Answer: D References: Section 103 (B), NIRC, as amended Section 13 (B), Revenue Regulations No. 2-2003

128


11. (Phil. CPA) Gifts may or may not be covered by ta..xes. One of these statements is false. a. The donor's tax for each calendar year is computed on the basis of the total net gifts made during the calendar year. b. Gifts on property shall be valued at fair market value of the property at the date of donation. c. A gift to the Development Academy of the Philippines is exempt from tax. d. A gift out of conjugal property is always deemed as made by both spouses.

Answer: D Reference: Section 12, Revenue Regulation No. 2-2003 If what was donated is a conjugal or community property and only the husband signed the deed of donation, there is only one donor for donor's tax purposes, without prejudice to the right of the wife to question the validity of the donation without her consent pursuant to the pertinent provisions of the Civil Code of the Philippines and the Family Code qf the Philippines {Sec. 12, Revenue Regulations No. 2-:..._70_0_3'--).______________

1

1

12. (Phil. a. b. c. d.

__j

CPA) Donor's tax as distinguished from estate tax. Exemption is P100,000 There is no optional valuation date Payment is made as the return is filed Notice is not needed

Answer: A References: Sections 84 and 99 (A), NIRC, as amended

13. First statement: A separate return shall be filed by each donor for each gift or donation made on different dates during the year reflecting therein any previous net gifts made in the same calendar year. Second statement: Only one return shall be filed for several gift or donations by a donor of the different donees on the same date. a. True, True c. True, False b. False, False d. False, True

Answer: A Reference: BIR Form No. 1800 (Donor's Tax Return)

129


14. Who of the following shall file a separate return? I - Each spouse donating conjugal/ community property II - Co-owners donating co-ownership property a. b.

I only II only

c. d.


Answer: D Reference: BIR Form No. 1800 (Donor's Tax Return)

15. Which proof of valuation is valid for donor's tax purposes? I - For listed stocks - newspaper eli ppings /certification issued by the Stock Exchange as to the value of the share II - For unlisted stocks - latest audited Financial Statements of the issuing corporation with computation of the book value per share a. b.

I only II only

c. d.


Answer: D Reference: BIR Form No. 1800 (Donor's Tax Return)

130

··' Chapter·ll VAT-SUBJECT TRANSACTIONS 'Ifie greater dangerfor most of us is not tfiat our aim is too fiigfi and we miss it, 6ut tfiat it is too (ou: and we reacfi it. -:Micfie(ange(o


y'Which of the following shall be subject to Value-Added Tax? a.

Any person who, in the course of his trade or business, sells, barters, exchanges or leases goods or properties b. Any person who, in the course of his trade or business, renders service c. Any person who imports goods d. All of the choices

Answer: D Reference: Section 4.105-1, Revenue Regulations No. 16-2005

In the case of6ortatiQj:) of taxable goods, who shall be liable to ya'I? a. mporter whether an individual or corporatiop and .,}Vhether o ot made in the course of his trade or busin~ss b. Importer if made in the course of trade or business only c. Importer if corporation and only when made in the course of trade or business d. None of the choices 4

Answer: A ~eference:

.--._._·1. -

Section 4.105-1, Revenue Regulations No. 16-2005

First statement: For VAT purposes, a taxable person is '1ny pers_£n

liable to pay the VAT, whether registered or registra.£le in accordance with the Tax Code. Second statement: The status of a "VAT-registered person" as a VATreg~stered pers911 shall continue ~til the cancellation of sue~ reg1strahcw. v"' ~- Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

v

Answer: A Reference: Section 4.105-1, Revenue Regulations No. 16-2005

131

r Chapter 11: VAT-Subject Transactions

hao)§)~

Y.who shall be@tutonly for the tax on sale of goods or properties and sale of services a"Fid'lease of properties? a. c. Consumer b. elle d. None of the choices

®

Answer: B Reference: Section 4.105-2, Revenue Regulations No. 16-2005

y

Value-Added Tax is: a. a specific tax. b. an indirect tax.

c. d.

a local tax. none of the choices.


~. 0 h e term "in the course of trade or business" does not include: a.

regular conduct or pursuit of a commercial or economic activity. b. incidental transactions. c. transactions by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private . organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members. or their. .guest,:>), or government entity. d. none of the choices.


7./ First statement: Non-resident persons who perform services in the Philippines are deemed to be making sales in the course of trade or business, even if the performance of service is not regular. / Second statement: VAT is imposed and collected on every sale, barter . or exchq.nge,.. or transactiqps "deemed sale" of taxable goods or • propertie~at the rate of 12% of the gross selling price or gross value" in money of the goods C:r properties sold, bartered, or exchanged, or deemed sold in the Philippines. Y/,. a. Both statements are C<{rrect b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

/·

Answer: A Reference: Section 4.105-3 and 4.106-1, Revenue Regulations No. 16-2005

132

Chapter 11: VAT -Subject Transactions

~ Which of the following shall not be included in the term "goods or properties"? _ -" ' , , a. Real properiies(notheld primarily for sale to customers or not held for lease in the ordinary course of trade or business b. The right or privilege to use patent, copyright, design or model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or right c. The right or the privilege to use any industrial, commercial or scientific equipment d. The right or the privilege to use motion picture film, films, tapes and discs

Answer: A Reference: Section 4.106-2, Revenue Re ulations No. 16-2005 The term "goods or properties" refers to all tangible and{intcmgible obJects which are capable of pecuniary estTrnation and-shall - - include, among others: (1) Real properties held primarily for sale to customers or held for lease in the ordinary course oftrade or business; (2) The right or the privilege to use patent, copyright, design or model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or right; (3) The right or the privilege to use any industrial, commercial or scientific equipment; (4) The right or the privilege to use motion picture films, films, tapes and discs; and (~) Radio, television, satellite transmission and cable television I tzme. _____j -~~~~~~~~~~~~--------------.

~ ~ Which of the follov.·i~g s~all be subject to VAT? V a. Sale of a res1dentml house and lot -1 ,,, b. Sale of an apartment house c. Sale of a private car by its owner d. All of the above

,-

Answer: B Reference: Section 4.106-3, Revenue Regulations No. 16-2005 ·;; @ n the estate a. b.

case of sale of real properties on the installment plan, the real dealer shall be subject to VAT on the: selling price. installment payments, excluding interest and penalties, actually or constructively received by the seller. c. selling price or fair market value whichever is higher. d. installment payments, including interest and penalties, actually or constructively received by the seller.

"'I'!

,...,, I


.•

Answer: D Reference: Section 4.106-3, Revenue Regulations No. 16-2005 •

11. Which of the following sales of residential property where the instrument of sale (whether the instrument is nominated as a deed of absolute sale, deed of conditional sale or otherwise) is executed on or after July 1, 2005, shall be subject to VAT? I- Sale of[r~e!'i_d~~~tia_lJ~~ exceeding P1,919,500 (used to be Pl,500,000.00) II - Sale of residential house and lot or other residential dwellings exceeding P3, 199,200 (used to be P2,500,000.00) a. b.

I only II only

c. d.


Answer: C Reference: Section 4.106-3, Revenue Regulations No. 16-2005 as amended by Section 2, Revenue Regulations No. 16-2011

12. Sale of real property by a real estate dealer, the initial payments of which do not exceed twenty-five percent (25%) of the gross selling price in the year of sale. a. Sale of real property by a real estate dealer on a deferred payment basis, not on installment b. Sale of real property on installment plan c. Initial payments d. None of the choices

Answer: B - '' , ~ l;< ' Reference: Section 4.106-3, Revenue Regulations No. 16-2005

13. Sale of real property, the initial payments of which exceed twenty-five percent (25%) of the gross selling price in the year of sale. a. Sale of real property by a real estate dealer on a deferred payment basis, not on installment b. Sale of real property on installment plan c. Initial payments d. None of the choices


134

Chapter 11: VAT-Subject Transactions

14. Which of the following is not subject to value-added tax? a. Transmission of property to a trustee if the property is to be merely held in trust for the trustor and/ or beneficiary b. Property transferred is one for sale, lease or use in the ordinary course of trade or business and the transfer constitutes a completed gift c. A zero-rated sale of goods or properties by a VAT-registered person ? <'"" d. None of the choices

Answer: A Reference: Section 4.106-3 and 4.106-5, Revenue Regulations No. 16-2005

;f 15 ..M:t. Andres, VAT-registered real estate dealer, transferred a parcel of land ~

16. Which of the following is not included in the term "gross selling price"? a. Total amount of money or its equivalent paid by the purchaser b. Delivery, freight and insurance paid by the purchaser c. Value-added tax passed on by the seller to the buyer d. Excise tax

Answer: C Refer_~I1£~: Se_~tion 4.10~-4,~eve,nue R~gulations No. 16-2005 !The term "gross selling price" means the total amount of money or its equivalent which the purchaser pays or is obligated to pay to the sel/Pr in consideration of the sale, barter or exchange of the II goods or properties, excluding VAT. The excise tax, if any, on such i I goods or properties shall fomL part of the gross selling price. ____j

i

1

1

135


17. In case of sale, barter or exchange of real property subject to VAT, the term "fair market value" shall mean: a. the fair market value as determined by the Commissioner of Internal Revenue (zonal value). b. the fair market value as shown in the schedule of values of the Provincial and City Assessors (real property ta.x declaration). c. vvhichever is lower between the zonal value and the value per real property tax declaration. d. whichever is higher between the zonal value and the value per real property tax declaration.


;r;

18. In which of the following cases shall the selling price be deemed inclusive of VAT? I - If the gross selling price is based on the zonal value or market value of the property II - If the VAT is not billed separately a. b.

I only II only

c. d.

Both 1 and II Neither I nor II

Answer: B Reference: Section 4.106-4, Revenue Regulations No. 16-2005 as amended by Section 4 Revenue Regulations No. 4-2007 If the gross selling price-is_b_a_s_e_d_o_n_t_h_e_z-onal value or market value oft he property, the zonal or market value shall be deemed exclusive of VAT. If the VAT is not billed separately, the selling price stated in the sales document shall be deemed to be inclusive I ofVAT." ____ j

l

,I

'¥ 19. Which of the following statements i~in9orrect? lt.i ~o.x'"'' fb. • · ~-1U.

C\\\;. • .\

'l ·.

136

~ a.

A zero-rated sale of goods or p-roperties (by a VAT-registered . person) is a taxable transaction for VAT purposes, but shall ~/1\ not result in any output tax. , b. The input tax on purchases of goods, properties or services, related to zero-rated sales, shall be available as tax credit only in accordance with the Regulations. c. The input ta.x on purchases of goods, properties or services, related to such zero-rated sale, shall be available as tax credit or refund in accordance with the Regulations. d. Any enterprise whose export sales exceed 70% of the total annual production of the preceding taxable year shall be considered an export-oriented enterprise.



.}. 20. The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported is an export sales if: I - paid for in acceptable foreign currency or its equivalent in goods or services. !¥ II - accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). a. b.


c. d.


Answer: C Reference: Section 4.106-5 (a) (1), Revenue Regulations No. 16-2005

21. The sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer's goods is an export sale if: I - paid for in acceptable foreign currency. II - accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). a. b.


c. d.


Answer: C Reference: Section 4.106-5 (a) (2), Revenue Regulations No. 16-2005 22. Which of the following i~ not an export sale? a. The sale of raw materials or packaging materials to an exportoriented enterprise whose export sales exceed seventy percent (70%) of total annual production ~ · ': :,:~•A ~ <~-- b. Sale of gold to .the Bangko Sentral ng Pilipinas (BSP) c. Transactions considered export sales under Executive Order No. 226, othenYise known as the Omnibus Investments Code of 1987, and other special laws d. The exportation of goods on consignment where the export products consigned are in fact not sold by the consignee l<

.t

137


Answer: D Reference: Section 4.106-5 (a) (3), (4) and (5), Revenue Regulations No. 16-2005 I "Export Sales" shall mean: (1)

I

The sale and actual shipment of goods from the PhilippineS. to a I foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the I transfer of ownership of the goods so exported, paid for in I acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); 1

(2)

The sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines ofthe said buyer's goods, paid for in acceptable foreign currency, and accounted for in accordance with the rules and regulations of the BSP;

(3) The sale of raw materials or packaging materials to an exportoriented enterprise whose export sales exceed seventy percent (70%) of total annual production; Any enterprise whose export sales exceed 70% ofthe total annual production of the preceding taxable year shall be considered an export-oriented enterprise.

?K (4) Sale of gold to the BSP; and (5)

Transactions considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investments Code of 198 7, and other special laws.

(6) The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations; Provided, that the same is limited to goods, supplies, equipment and fuel pertaining to or attributable to the transport of goods and passengers from a port {n the - -·-Philippines directly to a forf!ig7]J20rt or vice versa, without do~5!11.E Q!__~~C!P_E_ir::g_at_af"L!J_O~her porf_Jri t':_ePl_lil~ppiT1f!S unless the docking or stopping at any other Philippine port is for the purpose of unloading passengers and/ or cargoes that on·ginated from abroad, or to load passengers and/ or cargoes bound for abroad; Provided, further, that if any po_rtio_n_gf_§yc,;.h fuel, goods or supplies is used for purposes other tharJ that mentioned in this paragraph, such portion of fuel goods and supplies shalHies-u7)jeci to-twelve percent (12%) output VAT starting February 1, 2006. (as amended by RR No. 4-2007) 0

1-\ -.:;JJ) Lr<;\

"'C\9 <:>alA ""\·9 r~Jr(h'UG \~:' r~ ~~'-' rt\;_

t'-(1 .~~~

138


't'-

23. "Considered export sales under Executive Order No. 226" shall mean: I - the Philippine port F.O.B. value determined from invoices, bills of lading, inward letters of credit, landing certificates, and other commercial documents, of export products exported directly by registered export producer. II - the net selling price of export products sold by a registered export producer to another export producer, or to an export trader that subsequently exports the same. a. b.


c. d.


.Answer: C Reference: Section 4.106-5 (a) (5), Revenue Regulations No. 16-2005

24. Without actual exportation, which of the following shall be considered constructively exported for purposes of VAT? a. Sales to bonded manufacturing warehouses of export-oriented manufacturers b. Sales to export processing zones c. Sales to registered export traders operating bonded trading warehouses supplying raw materials in the manufacture of export products under guidelines to be set by the Board of Investment ·(BOI) in consultation with the Bureau of Internal Revenue (BIR) and Bureau of Customs (BOC) d. All of the choices

Answer: D Reference: Section 4.106-5 (a) (5), Revenue Regulations No. 16-2005_________~ I xxx without actual exportation the following shall be considered I constructively exported for purposes of these provisions: I (1) sales to bonded manufacturing warehouses of export-oriented manufacturers; (2) sales to export processing zones; I 1 (3) sales to registered export traders operating bonded trading warehouses supplying raw materials in the manufactur~ of 0 ....l. · ·T export. products under gwdelmes to be set by the Board m consultation with the Bureau of Internal Revenue (BIR) and the , 0~ Bureau of Customs (BOC); - ~ (4) sales to diplomatic missions and other agencies and/ or instrumentalities granted tax immunities. of locally manufactured, assembled or repacked products -whether paid -.::.......... ./l!!:JI.l foreign c;urrency_g!_JWf.

: ,,J,

tJ

==~~-----

139

r


I

25. It means the sale to a non-resident of goods, except automobiles and non-essential goods, assembled or manufactured in the Philippines for delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. a. Export sale b. Foreign currency denominated sale c. Effectively zero-rated sale d. Transaction deemed sale

Answer: B. Reference: Section 4.106-5 (b), Revenue Regulations No. 16-2005

26. Which of the following shall be considered export sale? I - Sales of goods, properties or services made by a VAT -registered supplier to BOI-registered manufacturer or producer whose J;. iY,Yt, :ct products are 100% exported II - Sales of locally manufactured and assembled goods for household and personal use !o Filipino~ ab_rQe£ and other nonresidents of the Philippines as well as returning Overseas Filipinos under the Internal Export Program of the government paid for in convertible foreign currency and accounted for in accordance with the rules and regulations of the BSP

t"t\fvt\

y,
a. b.


c. d.

I only II only

Answer: B Reference: Sections 4.106-5 (a) (5) and 4.106-5 (b), Revenue Regulations No. 16-2005

ii.

~\c'\td.

P(l J"

27. First statement: The term "effectively zero-rated sale of goods and properties" shall refer to the export sale of goods and properties by a VAT-registered person to a person or entity who was granted indirect tax exemption under special laws or international agreement. "i' Second statement: Except for export sales and foreign currency denominated sale, other cases of zero-rated sales shall require prior application \vith the appropriate BIR office for effective zero-rating and without an approved application for effective zero-rating, the transaction otherwise entitled to zero-rating shall be considered exempt. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

140


Answer: C Reference: Sec~ion 6, Revenue Regulations No. 4-2007 Section 6. EFFECTIVELY ZERO-RATED. - Sec. 4.106-6 of RR No. 16-2005 is hereby amended to read as follows:

"SEC. 4.106-6. Meaning oft he term 'Effectively Zero-Rated Sale of Goods and Properties'. -The term 'effectively zero-rated sale of goods and properties' shall refer to the local sale of goods and £!2Pertifl?.)J]J_9_ }'_AT registere,d Pf!C5_on to ape,r~-on a·r:··entz~y who was granted indirect tax exemption under special laws or iii.ternatzonal agreement." (R.R. No:-4-2007) The following provision in RR No. 16-2005 is deleted in Section 6, RR No. 4-2007: "Except for Export Sale under Sec. 4.1 06-5(a) and Foreign Currency Denominated Sale under Sec. 4.1 06-5(b), other cases of zero-rated sales shall require prior application with the appropriate BJR office for effective zero-rating. Without an approved application for effective zero-rating, the transaction othenuise entitled to zerorating shall be considered exempt. The foregoing rule notwithstanding, the Commissioner may prescribe such rules to I effectively implement the processing of applications for effective 1

~era-rating."

j

i- 28. Which of the following local sales of goods or property and services

v\"ill not be effectively subject to VAT at zero-rate? a. Sales to enterprises duly registered and accredited v;ith the Subic Ba.v Metropolitan Authority (SBMA) b. Sales to enterprises duly registered and accredited with the Philippine Economic Zone Authority (PEZA) c. Sales to Development Bank of the Philippines (DBP) As::io~· ~fV.,Jt) d. Sales to International Rice Research Institute (IRRI)

Answer: C Reference: Section 4.106-5 (c) and 4.108-6, Revenue Regulations No. 16-2005 ~ Sales of goods or property cmd services to persons or entities who ' are tax-exempt under special laws, e.g. sales to enterprises duly I registered and accredited with the Subic Bay Metropolitan I 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 Deuelopment Bank (ADB), I International Rice Research Institute (JRRJ), etc., shall be effectively I subject to VAT at zero-rate. 1

1

____j

141


29. Transfer, use or consumption not in the course of business of goods or properties originally intended for sale or for use in the course of business is an example of: a. actual sale of goods or properties. b. effectively zero-rated sale of goods or properties. c. deemed sale of goods or properties. d. none of the choices. 'Jj ttl() ~. ~ ,,_

'q

l~Qt{.. S\.i:V)· ~' '.~\ -j\J•'C :~>"',, kC',., .. Answer: C l_;-,F -L. ~'d _:<.

+"~ ~~·--"'

.t.,

.,

Reference: Section 4·.1o6:7'(a) (l), ., · Revenue Regulations No. 16-2005

""' 30. Which of the following circumstances shall give rise to transactions "deemed sale"? 'I' I - Change of ownership of the business. There is a change in the / Cl 1 • ownership of the business when a single proprietorship / ~ incorporates; or the proprietor of a single proprietorship sells feMJ -t'i.i'(\ ck.wq.._ his entire business . I J . "' ' f ''···-··' II- Dissolution of a partnership and creation of a new partnership LJ": :J< -;._, "h\ which takes over the business. a. b.

I only II only

c. d.


Answer: D Reference: Section 4.106-7 (a) (4) (i) and (ii), Revenue Regulations No. 16-2005

31. Which of the following shall be considered "deemed sale" transactions? a. Distribution or transfer to shareholders or investors share in the profits of VAT -registered person b. Distribution or transfer to creditors in payment of debt or obligation c. Consignment of goods if actual sale is not made within 60 days following the date such goods were consigned d. All of the choices

d.;\\'(\

142


Answer: D Reference: Section 4.106-7 (a) (2) (i) and (ii) and (3) ,-------R--'evenue Regulations No. 16-2005 SEC. 4. 106-7. Transactions Deemed Sale. (a) The following transactions shall be "deemed sale" pursuant to Sec. 106 (B) of the Tax Code: (1) Transfer, use or consumption not in the course of business of

goods or properties originally intended for sale or for use in the course of business. Transfer of goods or properties not in the course ofbusiness can take place when VAT-registeredperson withdraws goods from his business for his personal use; (2) Distribution or transfer to: i. Shareholders or investors share in the profits of VATregistered person; Property dividends which constitute stocks in trade or properties primarily held for sale or lease declared out of retained eamings on or after January 1, 1996 and distributed by the company to its shareholders shall be subject to VAT based on the zonal value or fair market value at the time of distribution, whicheuer is applicable. ii. Creditors in payment of debt or obligation.

I

I I

I

1

(3) Consignment of goods if actual sale is not made within 60 I days following the date such goods were consigned. , Consigned goods re1JJTllf:?CLlJy thf;JQ/i!?_ig_ry?e within the 6Qcday _, period are rwLdeemed;>o]d; I

I (4) Retirement from or cessation of business with respect to all

,

goods on hand, whether capital goods, stock-in-trade, supplies or materials as of the date of such retirement or cessation, I ·~l whether or not the business is continued by the new owner or I ._ {"·o· successor. The following circumstances shall, among others, I . 1 give rise to transactions "deemed sale" for purposes of this · .9(_,,v I' Section; _ u, 1 ,.~·!:f!'j't /i rJ L Jf 4: i. Change of ownership ofthe business. There is a change in , - ·~ ; . .' the ownership of the business when a single proprietorship incorporates; or the proprietor of a smgle proprietorshzp sells his entzre business. I ii. Dissolution of a partnership and creatwn of a new __partnership which takes over the busmess. __j

' j

·,. 1

J1'r· '

1

\! l '

; ..

_1,

1-+3


32. In what cases shall the Commissioner of Internal Revenue determine the appropriate tax base? a. In cases where a transaction is deemed a sale, barter or exchange of goods or properties b. Where the gross selling price is unreasonably lower than the actual market value (lower by more than 30% of the actual market value) c. Both a and b d. Neither a nor b

Answer: C Reference: Section 4.106-7 (b), Revenue Regulations No. 16-2005 r---T_h_e_C_o_n__l_m_r_·s-s-io_r_w_r of Internal Revenue shall det-e-rn_l_in-e-th-.e-

l

. appropriate tax base in cases where a transaction is deemed a sale, barter or exchange of goods or properties under Sec. 4.106-7 I paragraph (a) of R.R. No. 16-2005, or where the gross selling price is unreasonably lower than the actual market value. The gross I selling price is unreasonably lower than the actual market value if it is lower by more than 30'?(, of the actual market value of the I same goods of the same quantity and quality sold in the immediate I locality on or nearest the date of sale. J 1 !I

1

33. For deemed sale transactions, other than retirement or cessation of ;. business, the output tax shall be based on the: a. selling price of the goods deemed sold as of the time of the occurrence of the transactions. b. market value of the goods deemed sold as of the time of the occurrence of the transactions. c. acquisition cost of the goods deemed sold. d. acquisition cost -or the current market price of the goods whichever is lower.

l(l

Answer: B Reference: Section 4.106-7 (b), Revenue Regulations No. 16-2005 ,-F-o_r_t-ra_n_s_a--c-tz-.o-n-s deemed sale. the output tax shall be based-;~?.the-l market value ofthe goods deemed sold as ofthe time ofthe occurrence of the transactions enumerated in Sec. 4.1 06-7(a)(1 ).(2), and (3) ofR.R. No. 16·2005. However, in the case ofretirement or rnw'fu,t. cessation of business, the tax base shall be the acquisition cost or ·"' 4;~, ;.. the current market price of the goods or properties, whichever is

~

"·'C'-i.:c.'-.J<,,

·'

.)• ' nJ

144

In the case of a sale where the gross selling price is unreasonably lower than the fair market value, the actual market value shall be [ the tax base. _____j 1


34. A VAT -registered person engaged in a taxable activity as a wholesaler of goods decides to discontinue the activity and engages instead in life insurance business, a business not subject to VAT. What is the tax consequence on his goods or properties originally intended for sale or use in business, and capital goods which already existed when he decided to change his business? a. The goods are not subject to VAT because the taxpayer is already VAT-exempt. b. The goods are subject to VAT as deemed sale transaction. c. The goods are not subject to VAT because wholesalers are generally exempt from VAT. d. The goods are subject to VAT only when they are actually sold by the new owner.

Answer: B Reference: Section 4.106-8 (a), Revenue Regulations No. 16-2005_ _ __ I SEC. 4. 106-8. Change or Cessatio~ of Status as VA 1'-regis~ered Person. I., (a) Subject to output tax

The VAT provided for in Sec. 106 ofthe Tax Code shall apply to goods nr properties originally intended for sale or use in business, ' I and capital goods which are existing as of the occurrence of the following: I 7. Cha,;_ge of business activity from VAT taxable status to VATexempt status. An example is a VAT-registered person engaged in a taxable activity like wholesaler or retailer who decides to ! discontinue such activity and engages instead in life insurance business or in any other business not subject to VAT; 2. Approval of a request for cancellation of registration due to reversion to exempt status. 3. Approval of a request for cancellation of registration due to a desire to revert to exempt status after the lapse of three (3) consecutive years from the time of registration by a person who voluntarily registered despite being exempt under Sec. 109 (2) oftlle Tax Code. 4. Approval of a request for cancellation of registration of one who commenced business with the expectation of gross sales or receipts exceeding Pl,500,000.00, but who failed to exceed this I [_____a_mount during the first twelve months of operation. 1 f

!

I 1

I]

145


38. Which of the following statements is incorrect? a. In case the valuation used by the Bureau of Customs in computing customs duties is based on volume or quantity of the imported goods, the landed cost shall be the basis for computing VAT. b. Landed cost consists of the invoice amount, customs duties, freight, insurance and other charges. c. If the goods imported are subject to excise tax, the excise tax shall not form part of the tax base. d. The same valuation rule applies to technical importation of goods sold by a person located in a Special Economic Zone to a customer located in a customs territory.

Answer: C Reference: Section 4.107-1 (a), Revenue Regulations No. 16-2005 SEC. 4. 10 7-1. VAT on Importation of Goods. - · (a) In general. - VAT is imposed on goods brought into the Philippines, whether for use in business or not. The tax shall be based on the total value used by the BOC in determining tariff and customs duties, plus customs duties, excise tax, if any, and other charges, such as postage, commission, and similar charges, prior to the release of the goods from customs custody.

In case the valuation used by the BOC in computing customs duties is based on volume or quantity of the imported goods, the landed cost shall be the basis for computing VAT. Landed cost consists of the invoice amount, customs duties, freight, insurance and other charges. ![the goods imported are subject to excise tax, the excise tax shall [omL part o[the tax base. The same rule applies to technical importation of goods sold by a person located in a Special Economic Zone to a customer located in a customs territory.

~~

No VAT shall be collected on importation of goods which are exempted under Sec. 109 (1) of the Tax Code.

~ecifically

148

Jl


39. Which one is not included in the tax base of VAT on importation? a. Value used by Bureau of Customs in determining tariff and customs duties b. Customs duties c. Excise tax d. Other charges after.Jhe release of imported goods from Bureau of Customs~~ _ , .. ~ji;\j "\J -'!) l~ji\J~.·; ~~~ 1

i

Answer: D Reference: Section 4.107-1 (a), Revenue Regulations No. 16-2005

40. First statement: The rates for VAT prescribed under the Tax Code shall be applicable to all importations withdrawn from customs custody unless exempted. Second statement: The VAT on importation shall be paid by the importer prior to the release of such goods from customs custody. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct Answer: A Reference: Section 4.107-1 (b), Revenue Regulations No. 16-2005

41. Who of the following shall be considered an importer for Value-Added Tax purposes? I - Any person who brings goods into the Philippines, whether or not made in the course of his trade or business II - Non-exempt persons or entities who acquire tax-free imported goods from exempt persons, entities or agencies a. b.


c. d.

I only II only

Answer: A Reference: Section 4.107-1 (b), Revenue Regulations No. 16-2005

149

Chapter 11: VAT-Subject Transactions /

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42. First state~nt: In the case of goods imported into the Philippines by VAT-exempt persons, entities or agencies \Yhich are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entities, the latter shall be considered the importer thereof and shall be liable for VAT due on such importation. Second statement: The tax on such importation (first statement above) shall constitute a lien on the goods, superior to all charges or liens, irrespective of the possessor of said goods. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

Answer: A Reference: Section 4.107-1 (c), Revenue Regulations No. 16-2005

43. Ms. Consuelo Dimagulo receives a package of goods from her sister who lives in California, United States of America. Ms. Consuelo will use the goods for personal purposes. She is not VAT-registered. Which of the following statements is correct in connection with the receipt of a package? a. Ms. Consuelo shall be subject to VAT on importation. b. Ms. Consuelo shall not be subject to VAT on importation because she is not VAT-registered. c. Ms. Consuelo shall not be subject to VAT on importation but shall be subject to VAT on safes. d. None of the choices.

44. In determining the tax base one of the following is excluded from other charges prior to release of goods from Bureau of Customs. a. Wharfage dues c. Brokerage fees b. Arrastre charges d. Facilitation fees .,.

Answer: D 45. An importer enjoys 90% exemption from customs duties. The total customs duties of the imported goods is P500,000. For VAT purposes, how much shall be the customs duty that shall be included in the computation of the tax base? a. P500,000 c. P 50,000 b. P450,000 d. None

Answer: C I

150

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46. Bigay Gabay, Inc. enjoys tax exemption for its importations. During a particular month, it imported goods from Japan. After the release from Customs custody, Bigay Gabay, Inc. transferred the imported goods to Todo Bigay Trading, a VAT-registered entity. ForVAT purposes, the VAT on importation shall be paid by: a. hath Bigay Gabay, Inc, and Todo Bigay Trading. b. neither Bigay. Gabay, Inc, nor Todo Bigay Trading. c. Bigay Gabay only. d. Todo Bigay only.

Answer: D

>-,

47. Mr. Jaime Jayme, VAT-registered, imported goods from South Korea. After the release from Customs custody, he sold them to LBT Importt>rs, Inc. Mr. Jayme would be liable to: a. b.oth VAT on importation and VATon sale of goods. b. neither VAT on importation nor VAT on sale of goods. c. VAT on importation only. d. VAT on sale of goods only.

Answer: A

48. The VAT on importation of goods which are sold in the course of trade or business by a shall be treated as: c. a. expense. d. b. inventoriable cost.

subsequently used or VAT -registered importer tax credit. none of the choices.

Answer: C

4·9. Which a. b. c. d.

statement is incorrect? VAT on importation of goods: is imposed on an importation for sale or for use in business. is imposed on an importation for personal use. shall be paid prior to removal from customs custody. may not be available as input tax.

Answer: D

151


50. Which of the following shall be subject to Value-Added Tax? I - Sale or exchange of services II - Use or lease of properties a. b.

I only II only

c. d.


Answer: C Reference: Section 4.108-1, Revenue Regulations No. 16-2005

SEC. 4. 108-1. VAT on the Sale of Services and Use or Lease of Properties - Sale or exchange of services, as well as the use or lease of properties, as defined in Sec. 108 (A) of the Tax Code shall be subject to VAT, equivalent to 12% ofthe gross receipts (excluding VAT).

51. Which of the following shall be subject to Value-Added Tax on sale or exchange of services? a. Construction and service contractors b. Stock, real estate, commercial, customs and immigration brokers c. Lessors of property, whether personal or real d. All of the choices

Answer: D Reference: Section 4.108-2, Revenue Regulations No. 16-2005 'I

SEC. 4.108-2. Meaning of "Sale or Exchange of Services". -- Th~e term "sale or exchange of services" means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, whether in kind or in cash, II including those performed or rendered by the following: I (1) construction and service contractors; (2) stock, real estate, commercial, customs and immigration I brokers·, I' (3) lessors of property, whether personal or real; (4) persons engaged in warehousing services; (5) lessors or distributors of cinematographic films; I (6) persons engaged in milling, processing, manufacturing or repacking goods for others; (7) proprietors, operators, or keepers of hotels, motels, rest houses, pension houses, inns, resorts, theaters, and movie houses; (8) proprietors or operators of restaurants, refreshment parlors, . cafes and other eating places, including clubs and caterers; (9) dealers in securities; (1 0) lending investors; 1 1

'

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1 1

152


1

(1 1) transportation contractors on their transp~rt of goods or

cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes; ( 12) cornmon carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines; (13) sales of electricity by generation, transmission, and/ or distribution companies; (14) franchise grantees of electric utilities, telephone and telegraph, radio and/ or television broadcasting and all other franchise grantees. except franchise grantees of radio and/ or television broadcasting whose annual gross receipts of the preceding year do not exceed Ten Million Pesos (P 1 0, 000, 000. 00), and franchise grantees of gas and water utilities; ~ . (1 5) non-life insurance companies (except their crop inszg:EJJ..fes), including surety, fidelity, indemnity and bonding companies; and (16) similar services regardless of whether or not the performance thereof calls for the Pxercise or use of the physical or mental faculties ..

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52. Which of the following common carriers shall not be subject to ValueAdded Tax? a. Transportation contractors on their transport of goods or cargoes b. Common carriers by land relative to their transport of goods or cargoes c. Common carriers by land relative to their transport of passengers d. Common carriers by air and sea relative to their transport of passengers, goods or cargoes

Answer: C Reference: Section 4.108-2, Revenue Regulations No. 16-2005

53. Which of the follov.ing franchise grantees shall not be subject to Value-Added Tax? a. Franchise grantees of electric utilities ~'\OFT:'~ r, '.Pi b. Franchise grantees of gas and water c. Franchise grantees of telephone and telegraph d. Franchise grantees of radio and/ or television broadcasting

3~ :j1~ o. -.:A-


153


-t 54. Which of the following non-life insurance companies shall not be

subject to Value-Added Tax? a. Crop insurance companies b. Surety companies

c. d.

Fidelity companies Bonding companies


55. The phrase "sale or exchange of services" shalilikevvise include which of the following? a. The lease or the use of or the right or privilege to use any copyright, patent, design, or model plan, secret formula or process, goodwill, trademark, trade brand or other like property or right b. The lease or the use of, or the right to use any industrial, commercial or scientific equipment c. The supply of scientific, technical, industrial or commercial knowledge or information d. All of the choices

Answer: D Reference: Section 4.108-2, Revenue Regulations No. 16-2005 The phrase "sale or exchange of services" sllall likewise include: (1) The lease or the use of or the right or privilege to use any copyright. patent, design or model, plan, secret fomlUla or process, goodwill, trademark, trade brand or other like property or right; (2) The lease or the use of, or the right to use any industrial, commercial or scientific equipment; (3) The supply of scientific, technical, industrial or commercial knowledge or information; {4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the application or enjoyment of any such property, or right as is mentioned in subparagraph (2) hereof or any such knowledge or infomwtion as is mentioned in subparagraph (3) hereof,· (5) The supply of services by a non-resident person or his employee in connection with the use of property or rights belonging to, or the installation or operation of any brand, machinery or other apparatus purchased from such nonresident person; (6) The supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme; {7) The lease of motion picture films, films, tapes, and discs; and (8) The lease or the use of, or the right to use, radio, television, satellite transmission and cable television time. ~~~

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154


56. Which of the following statements is incorrect? a. Lease of property shall be subject to VAT regardless of the place where the contract of lease or licensing agreement was executed if the property leased or used is located in the Philippines. b. VAT on rental and/or royalties payable to non-resident foreign 'j)r"
- '.1:-


* 57. Which of the following advance payments by the lessee may be subject to VAT? a. A loan to the lessor from the lessee b. An option money for the property c. A security deposit to insure the faithful performance of certain obligations of the lessee to the lessor ~ t--q'-(>'\:lO,\.,!< k•;i +., d. Pre-paid rental


-¥: 58. It means rendering personal services such as engaging in the business of receiving and storing goods of others for compensation or profit; receiving goods and merchandise to be stored in his warehouse for hire keeping or storing goods for others, as a business and for use. c. Lending investor a. Warehousing service b. Common carrier d. Miller

Answer: A Reference: Section 4.108-3 (b), Revenue Regulations No. 16-2005 59. Which a. b. c. d.

of the following milling jobs shall not be exempt frbm VAT? palay into rice ~-·~ I<. CiJl.j {. VI\ lcorn into corn grits wheat into flour sugar cane into raw sugar

Answer: C Reference: Section 4.108-3 (c), Revenue Regulations No. 16-2005

r Chapter 11: VAT -Subject Transactions

*

60. Which of the following statements is incorrect? a. If the miller is paid in cash for his services, VAT shall be based on his gross receipts for the month or quarter. b. If the miller receives a share of the milled products instead of cash, VAT shall be based on the actual market value of his share in the milled products. c. Sale by the owner or the miller of his share of the milled products shall be subject to VAT. d. A miller is a person engaged in milling for himself and is subject to VAT on sale of services.

Answer: D Reference: Section 4.108-3 (c), Revenue Re ulations No. 16-2005 A miller, who is a person engaged in milling [or others (except palay into rice, corn into corn grits, and sugarcane into raw sugar), is subject to VAT on sale o services. __j


of the following shall be subject to 0% Value-Added Tax? Sale of electricity by generation companies Sale of electricity by transmission companies Sale of electricity by distribution companies Sale of power or fuel generated through renewable sources of energy

Answer: D Reference: Section 4.108-3 (f), Revenue Regulations No. 16-2005

62. This refers to persons or entities authorized Commission (ERC) to operate facilities used electricity. a. Generation companies c. b. Transmission companies d.

by the Energy Regulatory in the generation of Distribution companies None of the choices

Answer: A Reference: Section 4.108-3 (f), Revenue Regulations No. 16-2005 63. This refers to any person or entity that owns and conveys electricity through the high voltage backbone system and/ or sub-transmission assets, e.g. NPC or TRANSCO. a. Generation companies c. Distribution companies b. Transmission companies d. None of the choices

Answer: B Reference: Section 4.108-3 (f), Revenue Regulations No. 16-2005

156


64. This refers to persons or entities which operate a distribution system in accordance with the provision of EPIRA. a. Generation companies c. Distribution companies b. Transmission companies d. None of the choices

Answer: C Reference: Section 4.108-3 (f), Revenue Regulations No. 16-2005

65. First statement: Gross receipts for generation~ transmission and # distribution companies shall refer to the total amount charged by these companies. Second statement: The universal charge passed on and collected by distribution companies and electric cooperatives shall be excluded from the computation of the Gross Receipts. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

Answer: A Reference: Section 4.108-3 (f), Revenue Regulations No. 16-2005 (-; ~· \

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~

"' 66. For dealers in securities, the term "gross receipts" means: a. gross selling price. b. gross selling price less cost of the securities sold. c. gross receipts without any deduction. d. none of the choices.

Answer: B Reference: Section 4.108-3 (g), Revenue Regulations No. 16-2005

67. It means a merchant of stocks or securities, \\:hether an individual partnership or corporation, with an established place of business, regularly engaged in the purchase of securities and their resale to customers, that is, one '"·ho as a merchant buys securities and sells them to customFrs \>.·ith a view to the gains and profits that may be derived therefrom. a. Dealers in ~ecurities c. Stock brokers b. Lending investors d. Common carriers

Answer: A Reference: Section 4.108-3 (g), Revenue Regulations No. 16-2005

15 7

Chapter 11: VAT-SubjectTransactions

68. It includes all persons other than banks, non-bank financial intermediaries, finance companies and other financial intermediaries not performing quasi-banking functions who make a practice of lending money for themselves or others at interest. a. Dealers in securities c. Stock brokers b. Lending investors d. Common carriers

Answer: B Reference: Section 4.108-3 (g), Revenue Regulations No. 16-2005 69. Which of the following is not subject to Value-Added Tax? a. Franchise grantees of toll road opr:'rations b. The Philippine Amusement and Gaming Corporation (PAGCOR), and its licensees or franchisees c. Franchise grantees of telephone and telegraph utilities d. Amounts received for overseas dispatch, message, or conversation originating from the Philippines

Answer: D Reference: Section 4.108-3 (h), Revenue Regulations No. 16-2005

70. Which of the following is not subject to Value-Added Tax? a. Non-life reinsurance premiums b. Insurance and reinsurance commissions, whether life or non-life c. Life insurance premiums d. Reinsurance premiums

Answer: C \Cj) \,. •... '· Reference: Section 4.108-3 (i), Revenue Regulations No. 16-2005

71. This term including surety, fidelity, indemnity and bonding companies, shall include all individuals, partnerships, associations, or corporations, including professional reinsurers defined in Sec. 280 of the Insurance Code of the Philippines (P.D. 612), mutual benefit associations and government-owned or controlled corporations, engaging in the business of property insurance, as distinguished from insurance on human lives, health, accident and insurance appertaining thereto or connected therewith which shall be subject to the percentage tax under Sec. 123 of the Tax Code. a. Non-life insurance companies b. Life insurance companies c. Pre-need companies d. Health Maintenance Organizations

Answer: A Reference: Section 4.108-3 (i), Revenue Regulations No. 16-2005

158


~..,

i 72. The VAT on non-life insurance is based on: a. total premiums collected, whether paid in money, notes, credits or any substitute for money. ~" ~i1 ·: c, ,:n :::;, ·" :t· b. total premiums collected in money. c. premiums or payments received from the plan holders. -'1' 'if·· d. total amount received as enrollment fee from their members plus other charges received. · '• " { ' ._. .:q ·.

Answer: A Reference: Section 4.108-3 (i), Revenue Regulations No. 16-2005

~

73. These are corporations registered with the Securities and Exchange Commission (SEC) and authorized/licensed to sell or offer for sale pre-need plans, whether a single plan or multi-plan. a. Non-life insurance companies b. Life insurance companies c. Pre-need companies d. Health Maintenance Organizations

Answer: C Reference: Section 4.108-3 U), Revenue Regulations No. 16-2005

74. The VAT on pre-need companies is based on: 8. total premiums collected, Yvhether paid in money, notes, credits or any substitute for money. ""'J ·.; c.~. b. total premiums collected in money. c. premiums or payments received from the plan holders. a. total amount received as enrollment fee from their members plus other charges received.

Answer: C Reference: Section 4.108-3 U), Revenue Regulations No. 16-2005 75. These are entities, organized in accordance with the provisions of the Corporation Code of the Philippines and licensed by the appropriate government agency, \Yhich arranges for coverage or designated managed care services needed by plan holders/members for fixed prepaid membership fees and for a specified period of time. a. 1\on-liff' insurance companies b. Life inslJrance companies c. Pre-need companies d. Health Maintenance Or~anizations

Answer: D Reference: Section 4.108-3 (k), Revenue Regulations No. 16-2005

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Chapte: 11: VAT-Subject Transactions

76. The VAT on Health Maintenance Organizations is based un: a. total premiums collected, \vhether paid in money, notes, cr(Cdits or anv substitute for mont'\. b. total premiums collected in money. c. premiums or payments received from the plan holders. d. total amount received as enrollment fee from their members plus other charges received. Answer: D Reference: Section 4.108-3 (k), Revenue Regulations No. 16-2005

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77. Which of the follov;ing shall not be included in the term "gross receipts"? a. Total amount of money or its equivalent representing the contract price, cornpensation, service fee, rental or royalty. b. Amount charged for materials supplied with the sf'rvices. c. Advance pavments actually or constructivelv received during the taxable period for the services performed or to be performed for another person. d. Value-added tax.

f',Jf~"

Answer: D Reference: Section 4.108-4, Revenue Regulations No. 16-2005 as amended by Section 11, Revenue Regulations ;---.-:-. ·;--No. 4-2007' -------/Sect10n 7 1. GRUSS RECEIPTS. -Sec. 4.108--1 oj RR No. 1 b-.::.OOo 1s : hereby omended to read as follows: · r SEC. 4. 708-4. Definition of Gross Receipts. - 'Gross receipts' re(ers to the total amount ofnwney or its equivalent representing the contract price. compensation, service fee, rental or royalty. including the amount charged for materials supplied with the services and deposits applied as payments for services rendered and advance payments actually or constructively receiued during the taxablP penod i for I he services petforrneci or to be perfonned for another person, excluding the VAT, except those amounts eannarkerl for payment to unrelated third (3rrl) pw1y or received as reimbursement for culuance pny111ent on behulf of another which do not rt:clou.nd to the lwnejit of the payor. ~

160

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78. "Constructive receipt" occurs when the money consideration or its equivalent is placed at the control of the person who rendered the $e1Vice without restrictions by the payor. Which of the following shall not be considered as constructive receipt? a. Deposit in banks which are made available to the seller of services vvithout restrictions. b. Issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by the seller as payment for services rendered. c. Transfer of the amounts retained by the payor to the account of the contractor. d. Collection of receivables earned in previous period. \

A

Answer: D ._,. +~C-'1-J:JJ 'u Reference: Section 4.108-4 (1), (2) and (3), Revenue Regulations No. 16-2005

-1'..

79. Which of the following zero-rated services performed in the Philippines require that they be paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)? I - Processing, manufacturing, or repacking goods for other persons doing business outside the Philippines, \Vhich goods are subsequently exported II - 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

a. Both I and II b.

Neither l nor II

c. d.

I only II only

Answer: A Reference: Section 4.108-5 (b) ( 1), (2) and (3), Revenue Regulations No. 16-2005 as amended by Section 12, Revenue Regulations No. 4-2007

r-SEC. 4. I 08-S. Zero-Rated Sale of Services. In general. -A zero-rated sale of service (by a VAT-registered (a} person) is a taxable transaction for VAT purposes, but shall not result in any output tux. However, 'the input tax on purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with these Regulations.

I

Transactions Subject to Zero Percent (O'Jn) FAT Rate. - The following services perfomi.ed m the Philippines by a FAT~ l______r-t:__gistere_{!_J2erson shall be subject to zero percent (0°i) 1fAT m_t_e__:__ . j

(b)

1

161


( 1) Processing, manufacturing or repacking goods for other

(2)

(3)

(4)

(5)

! I

(6)

(7)

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 ofthe BSP; Services other than processing, manufacturing or repacking rendered to a person engaged rn business conducted outside the Philippines or to a non-resident person not engaged in business who is outside the Philippines when the services are perjom1ed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP; 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; Services rendered to persons engaged in international shipping or air transport operations, including leases of property for use thereof; Provided, however, that the services referred to herein shall not pertain to those made to common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines, the same being subject to 12% VAT under Sec. 108 ofthe Tax Code; Services perfonned 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; Transport of passengers and cargo by domestic air or sea carriers from the Philippines to a foreign country. Gross receipts of international air carriers doing business in the Philippines and international sea carriers doing business in the Philippines are still liable to a percentage tax of three percent (3%) based on their gross receipts as provided for in Sec. 118 of the Tax Code but shall not to be liable to VAT; and Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothennal and steam, ocean energy, and other emerging sources using technologies such as fuel cells and hydrogen fuels; Provided, however, that zero-rating shall apply strictly to the sale of power or fuel generated through I renewable sources of energy, and shall not extend to the sa:e of services related to the maintenance or operation of plants generating said power.

I

162


J.:-so. Which of the following is incorrect? a.

In a sale of goods or properties, the output tax is computed by multiplying the gross st:_l!_ing price as defined in the Regulations by the regular rate of VAT. b. For sellers of services, the output tax is computed by multiplying the gross receipts as defined in the Regulations by the regular rate of VAT. c. In all cases where the basis for computing the output tax is either the gross selling price or the gross receipts, but the amount of VAT is erroneously billed in the invoice, the total invoice amount shall be presumed to be comprised of the gross selling pricejgross receipts plus the correct amount of VAT. d. None of the choices.


81. At the end of any taxable quarter if the output tax exceeds the input tax, the excess shall be: a. carried over the succeeding quarter by the VAT- registered person. b. claimed as tax credit and shall be deducted from the output tax of the succeeding quarters by the VAT-registered person. c. paid by the VAT-registered person. d. none of the choices.

Answer: C Reference: Section 4.110-7 (a), Revenue Regulations No. 16-2005

163


82. If the input tax inclusive of input tax carried over from the previous quarter exceeds the output tax, the excess input tax shall be: a. credited in every quarter but not to exceed seventy percent (70%) of the output tax. b. carried over to the succeeding quarter or quarters. c. disregarded because carry over is no longer allowed under the new regulations. d. deducted from income tax due.

Answer: B Reference: Section 4.110-7 (b), Revenue Regulations No. 16-2005 as amended by Section 2, Revenue Regulations No. 2-2007 Section 2. VAT PAYABLE. -Sec. 4.110-7 of RR No. 16-2005 is hereby amended to read as follows: "SEC. 4.110-7. VAT Payable (Excess Output) or Excess Input Tax. Xxxxxxxxx.

(b) If the input tc::x inclusive of input tax car~!!:_9.1!.!:!I.fro11}_t}2e previous quarter exceeds the output tax, the excess input tax shah be carried over to the succeeding quarter orqw.Irters; Provided-:h;;;;~~~~) that any znpuTt~ ~ttrib~t~ble to ;~;o--rated sales by a VAT-registered person may at his option be refunded or applied for a tax credit certificate which may be used in the payment of internal revenue taxes, subject to the limitations as may be provided for by law, as well as, other implementing rules."

164

Chapter 12 VAT-EXEMPT TRANSACTIONS "(f)esire is tfie starting point of a[[ acfiic'r;cment, not a fiope, not a U'isfi, 6ut a /(fen pulSating desire, wfiicfi transcends e'r;erytfiing. "-JVapo[eon J{i[[


1. This refers to the sale of goods or properties and/ or services and the use or lease of properties that is not subject to VAT (output tax) and the seller is not allowed any tax credit of VAT (input tax) on purchases. c. Deemed sales a. VAT-exempt sales d. Taxable sales b. Zero-rated sales Answer: A Reference: Section 4.109-1 (A), Revenue Regulations No. 16-2005

2.

Which of the following goods when sold or imported shall not be exempt from VAT? a. Agricultural and marine foods products in their original state. b. Livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption. c. Breeding stock and genetic materials therefore. d. Processed or manufactured agricultural and marine food products. Answer: D Reference: Section 4.109-1 (B) (1) (a), Revenue Regulations No. 16-2005

3.

Which of the following shall not be considered livestock for VATexempt transactions purposes? a. Cows c. Sheep b. Bulls and calves d. Race horses Answer: D Reference: Section 4.109-1 (B) (1) (a), Revenue Re ulations No. 16-2005 Livestock shall incluc/.e cows, bulls and calves, pigs, sheep, goats and rabbits [Section 4.109-1 {B) {1) {a), Revenue Regulations No. i 16-2005). __j 1

1

165

Chapter 12: VAT- Exempt Transactions

4.

Which of the following shall not be considered as poultry for VATexempt transactions purposes? a. Fowls c. Fighting cocks b. Ducks and geese d. Turkey

Answer: C Reference: Section 4.109-1 (B) (1) (a), Revenue Regulations No. 16-2005 Poultry shall include fowls, ducks, geese and turkey. Livestock or poultry does not include fighting cocks, race horses, zoo animals and other animals generally considered as pets [Section 4.109-1 (B) (1) (a), Revenue Regulations No; 16-2005).

5.

Marine food products shall include fish and crustaceans. Which of the following is not exempt fromVAT? a. Eels c. Prawns b. Trout d. Aquarium fish

Answer: D Reference: Section 4.109-1 (B) (1) (a), Revenue Re ulations No. 16-2005 Marine food products shall include fish and crustaceans, such as, but not limited to, eels, trout, lobster, shrimps, prawns, oysters~ mussels and clams (Section 4.1 09-1 (B) (1) (a), Revenue Regulations No. 16-2005}.

l

6.

Meat, fruit, fish, vegetables and other agricultural and marine food products shall be considered in their original state even if they have undergone the simple processes of preparation or preservation for the market. Which of the following shall not be considered as simple processes of preparation or preservation for the market? a. Freezing c. Roasting b. Drying d. Canning

Answer: D Reference: Section 4.109-1 (B) (1) (a), Revenue Regulations No. 16-2005 Meat, fruit, fish, vegetables and other agricultural and marine food products classified under this paragraph shall be considered in their original date even if they have undergone the simple processes of preparation or preservation for the market, such as freezing, drying, salting, broiling, roasting. smoking or stripping, including those using advanced technological means of packaging, such as shrink wrapping in plastjcs, vacuum packing, tetra-pack, and other similar packaging methods [Section 4.109-1 (B) (1) (a), Revenue Regulations No'-.-'--1-'-6....::-2=-.:0:__0_5_Lj_. _ _ _ _ _ _ _

_____!

166

Chapter 12: VAT-Exempt Transactions

7.

Meat, fruit, fish, vegetables and other agricultural and marine food products shall be considered in their original state even if they have undergone advanced technological means of packaging. Which of the following shall not be considered as advanced technological means of packaging? a. Shrink wrapping in plastics c. Tetra-pak d. None of the choices b. Vacuum packing

Answer: D Reference: Section 4.109-1 (B) (1) (a), Revenue Regulations No. 16-2005 8.

Which of the following shall not be considered as agricultural product in its original state and therefore subject to VAT? a. Polished and/ or husked rice c. Copra b. Raw cane sugar and molasses d. Bagasse

Answer: D Reference: Section 4.109-1 (B) (1) (a), Revenue Regulations No. 16-2005 Polished and/ or husked rice, corn grits; raw cane sugar and molasses, ordinary salt and copra shall be considered as agricultural food products in their original state.

Bagasse is not included in the exemption provided for under this section [Section 4.109-1 (B) (1) (a), Revenue Regulations No. 162005]. Bagasse (also spelled bagass) is the fiber left over after the juice has been squeezed out of sugarcane stalks. As biomass, it holds promise as a fuel source since it can produce more than enough heat energy to supply the needs of a common sugar mill.

i

A waste product, it is also used as a locally-grown source for

L manufacturing cellulosic ethanol.

-------------------------------~

9.

Which of the following processed cane sugar shall be presumed, for internal revenue purposes, to be refined sugar? a. Product of a refining process b. Products of a sugar refinery c. Product of a production line of sugar mill accredited by BIR to be producing and/ or capable of producing sugar with polarimeter reading of 99.5 degree and above, and for which the quedan issued therefor, and verified by the Sugar Regulatory Administration, identifies the same to be of a polarimeter reading of 99.5 degree and above d. All of the above

167


Answer: D Reference: Section 4.109-1 (B) (1) (a), Revenue Regulations No. 16-2005 10. Which of the following sale or importation of goods shall not be exempt from VAT? a. Fertilizers b. Seeds, seedlings and fingerlings c. Fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished feeds d. Specialty feeds

Answer: D Reference: Section 4.109-1 (B) (1) (b), Revenue Regulations No. 16-2005 11. This refers to non-agricultural feeds and foods for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets. a. Fish and prawn feeds b. Specialty feeds c. Livestock and poultry feeds d. None of the choices

Answer: B Reference: Section 4.109-1 (B) (1) (b), Revenue Regulations No. 16-2005 12. Importation of personal and household effects shall be exempt from

VAT if: I- belonging to residents of the Philippines returning from abroad and non-resident citizens coming to resettle in the Philippines. II - such goods (personal and household effects) are exempt from customs duties under the Tariff and Customs Code of the Philippines. a. b.


c. d.


Answer: A Reference: Section 4.109-1 (B) (1) (c), Revenue Regulations No. 16-2005

168

Chapter 12-: VAT-Exempt Transactions

----------------------------------------------

13. Importation of professional instruments and implements, wearing apparel, domestic animals, and personai household effects shall be exempt from VAT if: I - belonging to persons coming to settle in the Philippines, for their own use and not for sale, barter or exchan~~---. ¥II - accompanying such persons', or arriving withi,!{90~ before or after their arrival, upon the production of eVlcrence satisfactory to the Commissioner of Internal Revenue, that such persons are actually coming to settle in the Philippines and that the change of residence is bonafide. a. b.


c. Only I is correct d. Only II is correct

Answer: A Reference: Section 4.109-1 (B) (1) (d), Revenue Regulations No. 16-2005 14. The following goods when imported shall be subject to VAT, except: a. vehicle. c. machinery. b. vessel. d. professional instruments. Answer: D Reference: Section 4.109-1 (B) (1) (d), Revenue Re ulations No. 16-2005 Importation of professional instruments and implements, wearing apparel, domestic animals, and personal household effects (except any vehicle, vessel, aircraft, machinery and other goods [or use in the manufacture and merchandise o[ any kind in commercial quantity) belonging to persons coming to settle in the Philippines, for their own use and not for sale, barter or exchange, accompanying such persons, or arriving within ninety (90) days I before or after their arrival, upon the production of evidence satisfactory to the Commissioner of Internal Revenue, that such I. persons are actually coming to settle in the Philippines and that the / change of residence is bonafide. 15. First statement: Services subject to (other) percentage taxes shall not be subject to VAT. · Second statement: Services by agricultural contract growers and milling of palay into rice, corn into grits, and sugar cane into raw sugar are exempt from VAT. ' a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

169


Answer: A Reference: Section 4.109-1 (B) (1) (e) and (f), Revenue Regulations No. 16-2005 16. This refers to those persons producing for others poultry, livestock or other agricultural and marine food products in their original state. a. Agricultural contract growers c. Millers b. Agricultural cooperatives d. Fishpond operators

Answer: A Reference: Section 4.109-1 (B) (1) (f), Revenue Regulations No. 16-2005 17. Which a. b. c.

of the following is subject to Value-Added Tax? Medical, dental, hospital and veterinary services Laboratory services Sale of drugs and medicine in the hospital's pharmacy or drug store d. Medicines administered to a patient confined in the hospital

Answer: C Reference: Section 4.109-1 (B) (1) (g), Revenue Regulations No. 16-2005 18. Educational services are exempt from VAT if rendered by: I - private educational institutions duly accredited by DepED, CHED and TESDA. II- government educational institutions. a. b.


c. d.


Answer: A Reference: Section 4.109-;1. (B) (1) (h), Revenue Regulations No. 16-2005

19. The exemption from VAT of educational services does not include: a. seminars and review classes. b. in-service training. c. other similar services rendered by persons who are not accredited by DepED, the CHED and/ or the TESDA. d. all of the choices.

Answer: D Reference: Section 4.109-1 (B) (1) (h), Revenue Regulations No. 16-2005

170


20. Which of the following shall not be exempt from Value-Added Tax? a. Services rendered by individual pursuant to an employeremployee relationship. b. Services rendered by regional or area headquarters established in the Philippines by multinational corporations which act as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia Pacific Region and do not earn or derive income from the Philippines. c. Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws. d. Services rendered by professionals such GPAs, engineers, lawyers, etc.

Answer: D Reference: Section 4.109-1 (B) (1) (i), U) and (k), Revenue Regulations No. 16-2005 -i. 21. All of the following cooperatives enjoy VAT exemption on their sales or receipts except: a. agricultural cooperatives. b. credit and multi-purpose cooperatives. c. non-agricultural, non-electric and non-credit cooperatives. d. electric cooperatives. Answer: D CD ~i
.;.;

).

c· "ot

22. Which of the following transactions by agricultural coo;~'ffitives duly registered and in good standing with the Cooperative Development Authority (CDA) shall be ex;empt from VAT? 1 _' v.; ··-~;:t· I - Sales to their memoers, as well as sale oLth~ir pro_"' II - Importation of direct farm inputs, machineries anCt-ecfuipment, including spare parts thereof, to be used directly and exclusively in the production and/ or processing of their produce

·.''

a. b.

Both I and JI Neither I nor II

c. d.

I only II only

Answer: A Reference: Section 4.109-1 (B) (1) (1), Revenue Regulations No. 16-2005

171


*

23. Which of the following statements is incorrect? a. Sale by agricultural cooperatives to non-members can only be exempted from VAT if the producer of the agricultural products sold is the cooperative itself. b. If the cooperative is not the producer (e.g., trader), then only those sales to its members shall be exempted from VAT. c. The sale or importation of agricultural food products in their original state is exempt from VAT irrespective of the seller and buyer thereof. d. None of the choices.

Answer: D Reference: Section 4.109-1 (B) (1) (1), Revenue Regulations No. 16-2005, as amended by Section 14, Revenue Regulations No. 4-200.7 ;t::

24. Which of the following transactions by certain cooperatives duly registered and in good standing with the Cooperative Development Authority (CDA) shall not be exempt from VAT? a. Gross receipts from lending activities by credit or multipurpose cooperatives b. Sales by non-agricultural, non-electric and non-credit cooperatives c. Importation by non-agricultural, non-electric and non-credit cooperatives of machineries and equipment, including spare parts thereof, to be used by them d. None of the choices

Answer: C Reference: Section 4.109-1 (B) (1) (m) and (n), Revenue Regulations No. 16-2005 25. Sales by non-agricultural, non-electric and non-credit cooperatives ~+ shall be exempt from VAT provided: I - that the share capital contribution of each member does not exceed Pl5,000. II - regardless of the aggregate capital and net surplus ratably distributed among the members. a. b.

Both I and. II Neither I nor II

c. d.

I only II only

Answer: A Reference: Section 4.109-1 (B) (1) (n), Revenue Regulations No. 16-2005

172


+26. Which of the following shall be exempt from VAT?. I- Export sales by persons who are not VAT-registered -"' \li\\CX''"~+ II - Export sales by persons who are VAT- registered ·'V -le•o '(~,,:{ a. b.

Both I and II are correct Neither I nor II

c. d.

I only II only

Answer: C Reference: Section 4.109-1 (B) (1) (0), Revenue Regulations No. ,6~~,0~5 ___ ~ ~.

.

'

".

.'·

.

,.

27. Which of the following sales of real properties shall not be exempt from VAT? a. Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business. r_f T b. Sale of real properties utilized for low-cost and socialized housing. 'J.i>' t ·· w , ·· c. Sale of real properties utilized for commercial purposes. d. Sale of residential lot valued at PI ,919,500 (used to be P1,500,000) and below, or house and lot and other residential dwellings valued at P3, 199,200 (used to be P2,500,000) and below.

Answer: C Reference: Section 4.109-1 (B) (1) (p) (1), (2), (3) and (4) Revenue Regulations No. 16-2005 as amended by Section 2, Revenue Regulations No. 16-2011 28. If two or more adjacent lots are sold or disposed in favor of one buyer, for the purpose of utilizing the lots as one residential lot, the sale shall be exempt from VAT only if the aggregate value of the lots does not exceed: a. P3,838,900. c. P2,559,200. b. P3,199,200.-v,;tJ< d. P1,919,500.-r-~c.f-

Answer: D Reference: Section 4.109-1 (B) (1) (p) (4), Revenue Regulations No. 16-2005 as amended by Section 2, Revenue Regulations No. 16-2011_ _ _ _ _ _ _ _ _ __ If two or more adjacent residential lots are sold or disposed in I favor of one buyer, for the purpose of utilizing the lots as one residential lot, the sale shall be exempt from VAT only if the . aggregate value ofthe lots do not exceed Pl,SOO,OOO.OO.,;, : , ,

l

j

Adjacent residential lots, 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 of Conveyance, shall be presumed as a sale of one residential lot.

173


29. Which of the following lease of real property is not exempt from VAT? a. Lease of residential units with a monthly rental per unit not exceeding P12,800, but the amount of aggregate rentals received by the lessor during the year exceed Pl ,919,200 b. Lease of residential units where the monthly rental per unit exceeds P12,800 but the aggregate of such rentals of the lessor during the year do not exceed P1,919,200 c. Lease of commercial units with a monthly rental per unit not exceeding P12,800 but the aggregate of such rentals of the lessor during the year exceed P1,919,200 d. Lease of commercial units with a monthly rental per unit not exceeding P12,800 but the aggregate of such rentals of the lessor during the year do not exceed P1 ,919,200

Answer: C Reference: Section 4.109-1 (B) (1) (q), Revenue Regulations No. 16-2005 as amended by Section 3 (q) Revenue Regulations No. 16-2011 30. In cases where a lessor has several residential units for lease, some of which are leased out for a monthly rental not exceeding P12,800 per unit while others are leased out for more than Pl2,800 per unit, his tax liability will be as follows: I- The gross receipts from rentals not exceeding P12,800 per month per unit shall be exempt from VAT regardless of the aggregate annual gross receipts. II -The gross receipts from rentals exceeding P12,800 per month per unit shall be subject to VAT if the aggregate annual gross receipts from said units only (not including the gross receipts from units leased for not more than P12,800) exceeds the VAT threshold amount. a. Both I and II are correct b. Neither I nor II is correct

c. d.


Answer: A Reference: Section 4.109-1 (B) (1) (q), Revenue Regulations No. 16-2005 as amended by Section 3 (q) Revenue Regulations No. 16-2011

31. This term refers to apartments and houses and lots used for residential purposes and buildings or parts or units thereof solely as dwelling places (e.g. dormitories, rooms and bed spaces) except motels, motel rooms, hotels and hotel rooms. a. Residential units c. Condominium units b. Commercial units d. None of the choices

174


Answer: A Reference: Section 4.109-1 (B) (1) (q), Revenue Regulations No. 16-2005 :Y,32. In the a. b. c. d.

case of one of these, the term "unit" shall mean per person. Apartments Residential houses Dormitories, boarding houses and bed spaces Rooms for rent

Answer: C Reference: Section 4.109-1 (B) ( 1) (q), _ _ _ _R_e~ve.nue Regulations No. 16-2005 !The term 'unit' shall mean an apartment unit in the case of apartments, house in the case of residential houses; per person in the case of dormitories, boarding houses and bed spaces; and per room in case of rooms for rent. 33. Sale, importation, printing and publication of books and any newspaper, magazine, revievv, or bulletin shall be exempt from VAT if the latter: I - appears at regular intervals with fixed prices for subscription and sale. II - is not devoted principally to the publication of paid advertisements. a. b.

Only I is correct Onlv II is correct

c. d.

Neither I nor II is correct Both I and II are correct

Answer: D Reference: Section 4.109-1 (B) (1) (r), Revenue Regulations No. 16-2005 ~

34. For VAT exemption purposes, the age limit of passenger and/or cargo vessels at the time of acquisition counted from the date of the vessel's original commissioning shall be: a. 20 years old. c. 10 years old. b. 15 years old. d. 5 vears old. ~

Answer: B Reference: Section 4.109-1 (B) (1) (s), Revenue Regulations No. 16-2005

-'¥ 35. The exemption from VAT on the importation and local purchase of passenger and/or cargo vessels shall be limited to those of: a. 200 tons and above. c. 150 tons and below. b. 150 tons and above. d. 50 tons and above.

175


Answer: B Reference: Section 4.109-1 (B) (1) (s), Revenue Regulations No. 16-2005 Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for domestic or international transport operations; Provided, that the exemption from VAT on the importation and local purchase of passenger and/ or cargo vessels shall be limited to those of one hundred fifty (150) tons and above, including engine and spare parts of said vessels; Provided, further, that the vessels to be imported shall comply with the age limit requirement, at the time of acquisition counted from the date of the vessel's original commissioning, as follows: (i) for passenger and/ or cargo vessels, the age limit is fifteen (15) years old, (ii) for tankers, the age limit is ten (1 0) years old, and (iii) For high-speed passenger crafts, the age limit is five (5) years old; Provided, finally, that exemption shall be subject to the provisions of Section 4 of Republic Act No. 9295, otherwise known as "The Domestic Shipping Development Act of 2004"; 36. Which of the following importations used for shipping transport operations shall be VAT-Exempt? a. Importation of life-saving equipment b. Importation of safety and rescue equipment and communication and navigational safety equipment ;t; c. Importation of steel plates and other metal plates including marine-grade aluminum plates d. All of the choices Answer: D Reference: Section 4.109-1 (B) (1) (t), Revenue Regulations No. 16-2005 as amended by Section 14, Revenue Regulations No. 4-2007 Importation of life-saving equipment, safety and rescue equipment and communication and navigational safety equipment, steel plates and other metal plates including marine-grade aluminum plates, used for shipping transport operations; Provided, that the I exemption shall be subject to the provisions of Section 4 of Republic ~ Act. No. 9295, otherwise known as 'The Domestic Shipping Development Act of 2004 '. . ~------'

l76


37. Which of the following importations used in the construction, repair, renovation or alteration of any merchant marine vessel operated or to be operated in the domestic trade shall be exempt? a. Importation of capital equipment, machinery, spare parts b. Importation of lifesaving and navigational equipment c. Importation of steel plates and other metal plates including marine-grade aluminum plates d. All of the choices

Answer: D Reference: Section 4.109-1 (B) (1) (u), Revenue Regulations No. 16-2005 as amended by Section 14, Revenue Re ulations No. 4-2007 Importation of capital equipment, machinery, spare parts, lifesaving and navigational equipment, steel plates and other metal plates including marine-grade aluminum plates to be used in the construction, repair, renovation or alteration of any merchant marine vessel operated or to be operated in the domestic trade. Provided, that the exemption shall be subject to the provisions of Section 19 of Republic Act. No. 9295, otherwise known as 'The Domestic Shipping Development Act of 2004.

38. First statement: The importation of fuel, goods and supplies by

persons engaged in international shipping or air transport operations shall be exempt if such fuel, goods and supplies shall be used exclusively or shall pertain to the transport of goods and/ or passengers from a port in the Philippines directly to a foreign port without stopping at any other port in the Philippines. Second statement: If any portion of such fuel, goods or supplies is used for purposes other than transporting goods and/ or passengers from a port in the Philippines directly to a foreign country, such portion of fuel, goods and supplies shall be subject to 12% VAT. a. Both statements are correct b. Only the first statement is correct c. Both statements are incorrect d. Only the second statement is correct


Answer: A Reference: Section 4.109-1 (B) (1) (v), Revenue Regulations No. 16-2005 as amended by Section 14, Revenue Regulations No. 4-2007 ITI).portation offuel, goods and supplies by persons engaged in international shipping or air transport operations; Provided, that the said fuel, goods and supplies shall be used exclusively or shall pertain to the transport of goods and/ or passenger from a port in the Philippines directly to a foreign port, or vice versa, without docking or stopping at any other port in the Philippines unless the docking or stopping at any other Philippine port is for the purpose of unloading passengers and/ or cargoes that originated from abroad, or to load passengers and/ or cargoes bound for abroad; Provided, further, that if any portion of such fuel, goods or supplies is used for purposes other than that mentioned in this paragraph, such portion offuel, goods and supplies shall be subject to twelve percent (12%) VAT starting February 1, 2006 [Section 4.109-1 (B) (1) (v}, Revenue Regulations No. 16-2005 as amended by Section 14, Revenue Regulations No. 4-2007}. I ~·· \

;¥:- 39. Which of the following shall be exempt from Value-Added Tax? a. Services of banks b. Services of non-bank financial intermediaries performing quasi-banking functions c. Services of other non-bank financial intermediaries, such as money changers and pawnshops d. All of the choices Answer: D Reference: Section 4.109-1 (B) (1) (w), Revenue Regulations No. 16-2005 as amended by Section 14, Revenue Regulations No. 4-2007 Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries, such as money changers and pawnshops, subject to percentage t~ under Sees. 121 and 122 , respectively, of the Tax Code are exempt from value-added tax. 40. Sale or lease of goods or properties or the performance of services other than the transactions mentioned under Sec. 109 (a) to (w), is exempt from VAT if the gross annual sales andjor receipts do not exceed the amount of: a. P6,398,300. c. P1,919,500. b. P3,199,200. d. P1,279,600.

178


Answer: C Reference: Section 4.109-1 (B) (1) (x), Revenue Regulations No. 16-2005 as amended by Section 14, Revenue Regulations No. 4-2007 and further amended by Section 3 (e) (1), Revenue Regulations No. 16-2011

-t 41. During a

particular year, the husband's gross receipts from his practice of profession subject to VAT is Pl,OOO,OOO. His wife has a gross sales of P920,000 from her VATable transactions. For VAT purposes, assuming they are not VAT-registered, will they be subject to VAT? a. Yes, they are subject to VAT because their aggregate receipts/sales exceed the VAT threshold amount. b. No, they are not subject to VAT because for purposes of the VAT threshold amount, the husband and the wife shall be considered separate taxpayers and ~~r on~~Qf_t_h~!ll exceeded the said threshold amount. ~-,,·d' ·,_._·"c\·"-; ·;,,<; -o'., c. Yes;H1ey-are-subject to VAT because their transattions eire VA Table. d. Answer not given.

Answer: B Reference: Section 4.109-1 (B) (1) (x), Revenue Regulations No. 16-2005 as amended by Section 14, Revenue Regulations No. 4-2007 and further amended by Section 3 (e) (1), Revenue Regulations No. 16-2011

42. During a particular year, the following gross sales/receipts subject to VAT are recorded by a taxpayer: Gross receipts, transport of goods and <;arg()eS ·- P 1 ,ooo,oool Gross receipts, practice of profession 700,000 i 'JS· ~-· 800,000J Gross sales, grocery store Gross sales, agricultural food products in their 30'¢,000 origin
179


Answer: B Reference: Section 4.109-1 (B) (1) (x), Revenue Regulations No. 16-2005 as amended by Section 14, Revenue Regulations No. 4-2007 and further amended by Section 3 (e) (1), Revenue Regulations No. 16-2011 Sale or lease of goods or properties or the perfonnance of services · other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/ or receipts do not exceed the amount of One Million Five Hundred Thousand Pesos (?1,500,000.00). Provided, that not later than January 31, 2009 and every three (3) years thereafter, the amount of Pl,SOO,OOO.OO .· shall be adjusted to its present value using the Consumer Price Index, as published by the NSO. /_.

n

:

-~·~

For purposes ofthe threshold of Pl,SOO,OOO.OO, the husband and the wife shall be considered separate taxpayers. However, the aggregation rule for each taxpayer shall apply, for instance, if a professional, aside from the practice of his profession, also derives revenue from other lines of business which are otherwise subject to VAT, the same shall be combined for purposes of determining whether the threshold has been exceeded. Thus, the VAT-exempt sale shall not be included in detennining the threshold."

43. In which of the following situations will a person be mandatorily required to register under the VAT system? I- His gross sales or receipts for the past twelve (12) months, other than those that are exempt under Sec. 109 (1)(A) to (W) of the Tax Code, have exceeded the VAT threshold amount. II - There are reasonable grounds to believe that his gross sales or receipts for the next twelve (12) months, other than those that are exempt under Sec. 109 (l)(A) to (W) of the Tax Code, will exceed the VAT threshold amount. a. b.

I only II only

c. d.


Answer: C Reference: Section 9.236-1 (b), Revenue Regulations No. 16-2005 as amended by Section 3 (e) ( 1), Revenue Regulations No. 16-2011

180


44. Which of the follov..·ing shall be allowed optional VAT registration? a. Any person who is VAT-exempt.because the annual sales or receipts do not exceed the threshold amount [Sec. 109 (x)] b. Any person who is VAT-registered but enters into transactions \Vhich are exempt from VAT (mixed transactions), with respect to his transactions which would have been exempt under Sec. 109 (1) of the Tax Code c. Franchise grantees of radio and/ or television broadcasting whose annual gross receipts of the preceding year do not exceed P10,000,000 d. All of the choices Answer: D Reference: Section 9.236-1 (c) (1), (2) and (3), Regulations No. 16-2005

*'

45. Any person who elects tooptionally register under the VAT system, other than franchise gran tees of radio and/ or television broadcasting, shall not be allowed to cancel his registration for the next: a. 5 years. c. 2 years. b. 3 years. d. 1 year. Answer: B Reference: Section 9.236-1 (c) (3), Regulations No. 16-2005

">\.- 46. The taxpayers who are qualified to optionally register may apply for

VAT registration not later than how many days before the beginning of the calendar quarter? a. 30 days c. 15 days b. 25 days d. 10 days Answer: D Reference:

~

S~ction

9.236-1 (c) (3), Regulations No. 16-2005

47. Once optionally registered as a VAT person, the taxpayer shall be liable to output tax and be entitled to input tax credit beginning on the: a. first day of .the month following the registration. b. first day of the month follovving the close of the first quarter after registration. c. tenth day of the month following the registration. d. t\\"enty-fifth day following the dose of the quarter. Answer: A Reference: Section 9.236-1 (c) (3), Regulations No. 16-2005

181

Chapter 13 INPUT VALUE-ADDED TAXES ";1[[ suc.-csiuf peop[c. men ,wa women, urc 6(q arcamers.

1. It means the VAT due or paid by a VAT -registered person on importation of goods or local purchases of goods, properties, or services, including lease or use of properties, in the course of trade or business. a. Output tax c. Deferred input tax b. Input tax d. VAT payable Answer: B Reference: Section 4.110-1, Revenue Regulations No. 16-2005 ~---

1

'

'

SEC. 4.110-1. Credits For Input Tax.-- ·'Input tax" means the

VAT due on or paid by a VAT-registered person on importation of goods or local purchases of goods, properties, or services, including lease or use of properties, in the course of his trade or business. It shall also include the transitional input tax and the presumptive input tax detennined in accordance with Sec. 111 of the Tax Code.

\

i

It includes input taxes which can be directly attributed to / transactions subject to the VAT plus a ratable portion of any input I tax which cannot be directly attributed to either the taxable o__jrI exempt activity. -

2.

.

Any input tax on the purchases or importation of goods in the course of trade or business shall be creditable against the output tax if: I - evidenced by a VAT invoice or official receipt. II- issued by a VAT-registered person. a. b.

I and II are correct Neither I nor II is correct

c. d.



182

Chapter 13: Input Value-Added Taxes

3. Which of the following transactions evidenced by a VAT invoice or official receipt issued by a VAT-registered person in accordance with Sees. 113 and 237 of the Tax Code shall be creditable against the output tax? a. Purchase or importation of goods for sale b. Purchase or importation goods for conversion into or intended to form part of a finished product for sale, including packaging materials c. Purchase m- importation of goods for use as supplies in the course of business d. All of the choices

Answer: D Reference: Section 4.110-1 (a) (1), (2) and (3) Revenue Regulations No. 16-2005 Any input tax on the following transactions evidenced by a VAT invoice or official receipt issued by a VAT-registered person in accordance with Sections 113 (Invoicing and Accounting Requirements for VAT-Registered Persons) and 237 (Issuance of Receipts or Sales or Commercial Invoice) of the Tax Code shall be creditable against the output tax: (a) Purchase or importation of goods (1) For sale; or (2) For conversion into or intended to form part of a finished product for sale, including packaging materials; or (3) For use as supplies in the course of business; or (4) For use as raw materials supplied in the sale of services; or (5) For use in trade or business for which deduction for depreciation or amortization is allowed under the Tax Code,

4.

Which of the following transactions in the course of trade or business requires actual payment of VAT before an input tax is allowed as tax credit from the output tax? a. Purchase of services b. Transactions deemed sale c. Domestic purchase of goods for use as raw materials supplied in the sale of services d. Domestic purchase of goods for use in trade or business for which deduction for depreciation or amortization is allowed under the Tax Code

Answer: A Reference: Section 4.110-1 (c), Revenue Regulations No. 16-2005

183

....


! Any input tax on the following transactions evidenced by a

VAT invoice or official receipt issued by a VAT-registered person in accordance with Sections 113 (Invoicing and Accounting Requirements for VAT-Registered Persons) and 237 (Issuance of Receipts or Sales or Commercial Invoice) of the Tax Code shall be creditable against the output tax: a. Xxx

b. Purchase of real properties for which a VAT has actually been paid; c. Purchase of services in which a VAT has actually been paid; d. Transactions "deemed sale" under Sec. 106 (B) of the Tax Code; e. Transitional input tax allowed under Sec. 4.111 (a) of these Regulations; f Presumptive input tax allowed under Sec. 4.111 (b) of these Regulations; g. Transitional input tax credits allowed under the transitory and otherprovisions of these Regulations.

5. The input tax credit on importation of goods or local purchases of goods, properties or services by a VAT-registered person shall be creditable to which of the following? a. To the importer upon payment of VAT prior to the release of goods from customs custody b. To the purchaser of the domestic goods or proper"Lies upon consummation of the sale c. To the purchaser of services or the lessee or licensee upon payment of the compensation, rental, royalty, or fee d. All of the choices Answer: D Reference: Section 4.110-2, Revenue Regulations No. 16-2005

6. Where a VAT-registered person purchases or imports capital goods, which are depreciable assets for income tax purposes, the aggregate acquisition cost of which (exclusive of VAT) exceeds Pl,OOO,OOO in a calendar month regardless of the acquisition cost of each capital good, shall be claimed as credit: a. over a period of 60 months regardless of the estimated life. b. over a period of 60 months unless the estimated life is less than 5 years in which case over the actual number of months comprising the estimated life. c. in full in the month acquired, if the estimated life is less than 5 years. d. in full in the quarter acquired unless the estimated life is less than 5 years, in which case over the actual number of months comprising the estimated life.

184


Answer: B Reference: Section 4.110-3 (a), Revenue Regulations No. 16-2005

7. The aggregate acquisition cost of a depreciable asset in any calendar month refers to the: a. total price agreed upon for one or more assets acquired during the calendar month. b. payments actually made during the calendar month. c. total price agreed upon for one asset only acquired during the calendar month. d. initial payments made if purchased on installment plan. Answer: A Reference: Section 4.110-3 (b), Revenue Regulations No. 16-2005 The aggregate acquisition cost of a depreciable asset in any· calendar month refers to the total price agreed upon for one or more assets acquired and not on the payments actually made during the calendar month.

ofj

Thus . an asset acquired in installment for an acquisition cost of more than P 1, 000,000.00 will be subject to the amortization input tax despite the fact that the monthly payments or installments may not exceed#/ 1, 000, 000.00.

-------------------------

8.

If the depreciable capital good is sold or transferred within a ~eriod of 5 years or prior to the exhaustion of the amortizable input tax thereon the unamortized input tax on the capital goods sold or transferred can be: a. claimed as input tax credit in its entirety during the month or quarter when the sale or transfer was made. b. amortized over the remaining life of the capital good. c. claimed as input tax credit in its entirety or amortized over the remaining life of the capital good at the option of the taxpayer. d. expensed fully in the month or quarter the sale or transfer was made. Answer: A Reference: Section 4.110-3 (b), Revenue Regulations No. 16-2005

185


9. A VAT-registered person who is also engaged in transactions not subject to VAT shall be allowed to recognize input tax credit on transactions subject to VAT as follows: I - All the input taxes that can be directly attributed to transactions subject to VAT II- Ratable portion pertaining to transactions subject to VAT a. b.


c. d.



10. Which of the following input taxes shall not be credited against output taxes arising from sales to non-government entities? a. Input tax on purchase of real properties for which VAT has actually been paid b. Input tax on purchase of service in which VAT has actually been paid c. Transitional and presumptive input taxes d. Input taxes that can be directly attributable to VAT taxable sales of goods and services to the government or any of its political subdivisions, instrumentalities or agencies, including GOCCs Answer: D Reference: Section 4.110-4, Revenue Regulations No. 16-2005

\ 11. First statement: The input tax attributable to VAT-exempt sales shall not be allowed as credit against the output tax but should be treated as part of cost or expense. Second statement: For persons engaged in both zero-rated sales under the Tax Code and non-zero rated sales, the aggregate input , taxes shall be allocated ratably between the zero-rated sale and non-zero-rated sale. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct Answer: A Reference: Section 4.110-4, Revenue Regulations No. 16-2005

186


12. Which of the following statements is incorrect? a. In all cases where the basis for computing the output tax is either the gross selling price or the gross receipts, but the amount of VAT is erroneously billed in the invoice, the total invoice amount shall be presumed to be comprised of the gross selling price/ gross receipts plus the correct amount of VAT. b. The output tax, in case where the amount of VAT is erroneously billed, shall be computed by multiplying the total invoice amount by a fraction using the rate of VAT as numerator and one hundred per cent (100%) plus rate of VAT as denominator. c. The input tax that can be claimed by the buyer shall be the corrected amount of VAT computed in accordance with the formula in letter b above. d. The buyer cannot claim input tax because the erroneous VAT is·considered illegally collected. Answer: D Reference: Section 4.110-6, Revenue Regulations No. 16-2005

13. Any input tax attributable to zero-rated sales by a VAT-registered person may at his option be: I - refunded. II - applied for a tax credit certificate which may be used in payment of internal revenue taxes. a. b.

Both I and II are \orrect Neither I nor II is correct

c. d.


Answer: A Reference: Section 4.110-7 (b), Revenue Regulations No. 16-2005

14. Input taxes for the importation of goods made in the course of trade or business, whether such input taxes shall be credited against zerorated sales, non-zero-rated sales, or subjected to the 5% Final Withholding Tax, must be substantiated and supported by: a. import entry or other equivalent document showing actual payment of VAT on the imported goods. b. invoice showing the information required under the Tax Code. c. public instrument i.e., deed of absolute sale, deed of conditional sale, contract/ agreement to sell, etc., together with VAT invoice issued by the seller. d. official receipt showing the information required under the Tax Code.

187


Answer: A Reference: Section 4.110-8 (a), Revenue Regulations No. 16-2005 SEC. 4.110-8. Substantiation of Input Tax Credits. --

(a) Input taxes for the importation of goods or the domestic purchase of goods, properties or services is made in the course of trade or business, whether such input taxes shall be credited against zero-rated sale, non-zero-rated sales, or subjected to the 5% Final Withholding VAT, must be substantiated and supported by the following documents, and must be reported in the information returns required to be submitted to the Bureau: 1) For the importation of goods- import entry or other equivalent document showing actual payment of VAT on the imported goods. 2) For the domestic purchase of goods and properties- invoice showing the information required under Sees. 113 and 237 of the Tax Code. 3) For the purchase of real property- public instrument i.e., deed of absolute sale, deed of conditional sale, contract/ agreement to sell, etc., together with VAT invoice issued by the seller. 4) For the purchase of services - official receipJ showing the information required under Sections 113 anCl237 ofthe Tax Code. A cash register machine tape issued to a registered buyer shall constitute valid proof of substantiation of tax credit only if it shows the infomwtion required under Sections 113 and 237 ofthe Tax Code.

15. Which of the following substantiation of input tax is correct? a. Transitional input tax shall be supported by inventory of goods as shown in a detailed list to be submitted to BIR b. Input tax from payments made to non-residents (such as for services, rentals and royalties) shall be supported by a copy of the Monthly Remittance Return of VAT Withheld (BIR From 1600) filed by the resident payor in behalf of the non-resident evidencing remittance of VAT due which was withheld by the payor c. Advance VAT on sugar shall be supported by the Payment Order showing payment of the advance VAT d. All of the choices

188


Answer: D Reference: Section 4.110-8 (b), (c), (d) and (e), Revenue Regulations No. 16-2005 SEC. 4.11 0-8. Substantiation of Input Tax Credits.XXX

a. b.

c.

d.

Transitional input tax shall be supported by an inventory of goods as shown in a detailed list to be submitted to the BIR. Input tax on "deemed sale" transactions shall be substantiated with the invoice required under Sec. 4.113-2 of these Regulations. Input tax from payments made to non-residents (such as for services, rentals and royalties) shall be supported by a copy of the Monthly Remittance Return of Value Added Tax Withheld (BIR Fom1 1600) filed by the resident payor in behalf of the non-resident evidencing remittance of VAT due1which was withheld by the payor. Advance VAT on sugar shall be supported by the Payment Order showing payment of the advance VAT.

16. Which of the following shall be entitled to transitional input tax credits on beginnirtg inventories? I- Taxpayers who became '\AT-registered persons upon exceeding the minimum turnover of P1,500,000 in any 12-month period II - Taxpayers who voluntarily register even if their turnover does not exceed P1 ,500,000 (except franchise grantees of radio and television broadcasting whose threshold is P10,000,000) a. b.


c. d.

I only II only

Answer: A Reference: Section 4.111-1 (a), Revenue Regulations No. 16-2005

17. Which of the following shall be included in the beginning inventory for purposes of transitional input tax? a. Goods purchased for resale in their present condition b. Materials purchased for further processing, but which have not yet undergone processing c. Goods which have been manufactured by the taxpayer d. All of the choices

189


Answer: D . Reference: Section 4.111-1 (a), Revenue Regulations No. 16-2005 SEC. 4.111-1. TRANSITIONAL/PRESUMPTIVE INPUT TAX

CREDITS.-(a) Transitional Input Tax Credits on Beginning Inventories Taxpayers who became VAT-registered persons upon exceeding the-minimum turnoverofP1,500,000.00 in any 12-monthperiod, or who voluntarily register even if their turnover does not exceed PI, 500,000.00 (except franchise grantees of radio and television broadcasting whose threshold is P 1 0, 000, 000. 00) shall be entitled to a transitional input tax on the inventory on hand as of the effectivity oftheir VAT registration, on the following: 1) goods purchased for resale in their present condition; 2) materials purchased for further processing, but which have not yet undergone processing; 3) goods which have been manufactured by the taxpayer; 4) goods in process for sale; or 5) goods and supplies for use in the course ofthe taxpayer's trade or business as a VA T-regis~ed person.

18. The transitional input tax shall be: a. four percent (4%) of the value of the beginning inventory on hand or actual VAT paid on such goods, materials and supplies, whichever is lower. b. actual VAT paid on goods, materials and supplies comprising the beginning inventory. c. two percent (2%) of the value of the beginning inventory on hand or actual VAT paid on such goods, materials and supplies, whichever is higher. d. none of the choices. Answer: C Reference: Section 4.111-1 (a), Revenue Regulations No. 16-2005 The transitional input tax shall be two percent (2%) of the value of -~

the beginning inventory on hand or actual VAT paid on such, i goods, materials and supplies, whichever is higher, which amount shall be creditable against the output tax of VAT-registered person. The value allowed for income tax purposes on inventories shall be the basis for the computation of the 2% transitional input tax, excluding goods that are exempt from VAT under Sec. 109 of the Tax Code.

190


19. Presumptive input tax is equivalent to: a. ten percent ( 1 0%) of the gross value in money of the purchases of primary agricultural products used as inputs to the production. b. five percent (5%) of the gross value in money of the purchases of primary agricultural products used as inputs to the production. c. four percent (4%) of the gross value in money of the purchases of primary agricultural products used as inputs to the production. d. two percent (2%) of the gross value in money of the purchases of primary agricultural products used as inputs to the production.

Answer: C Reference: Section 4.111-1 (b), Revenue Re ulations No. 16-2005 SEC. 4.111-1. TRANSITIONAL/PRESUMPTIVE INPUT TAX CREDITS.(a) xxx (b) Presumptive Input Tax Credits

Persons or jinTls engaged in the processing of sardines, mackerel, and milk, and in manufacturing refined sugar, cooking oil and packed noodle-based instant meals, shall be allowed a presumptive input tax, creditable against the output tax, equivalent to four percent (4%) of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production.

o:rJ

I

As used in this paragraph, the term processing shall mean pasteurization, canning and activities which through physical chemical process alter the exterior texture or form or inner substance of a product in such manner as to prepare it fur special use to which it could not have been put in its original fonn or

I

~ndition.

------~~---------------------------------------

20. Which of the following shall not be allowed presumptive input tax? a. Persons or firms engaged in the processing of sardines, mackerel and milk b. Persons or firms engaged in the processing of canned fruits and vegetables c. Persons or firms manufacturing refined sugar and cooking oil d. Persons or firms manufacturing packed noodle-based instant meals

Answer: B Reference: Section 4.111-1 (b), Revenue Regulations No. 16-2005

191


21. The government or any of its political subdivisions, instrumentalities or agencies, including government-owned or controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods andjor services subject to VAT, deduct and withhold a final VAT due at the rate of: a. twelve percent (12%) of the gross payment thereof. b. seven percent (7%) of the gross payment thereof. c. five percent (5%) of the gross payment thereof. d. four percent (4%) of the gross payment thereof.

Answer: C Reference: Section 4.114-2 (a), Revenue Regulations No. 16-2005 SEC. 4.114·2. Withlwlding of VAT on Government Money I Payments and Payments to Non-Residents. -

(a) The government or any of its political subdivisions, instrumentalities or agencies, including government-owned or controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods and/ or of services taxed at 12% VAT pursuant to Sees. 106 and 108 of the Tax Code, deduct and withhold a .final VAT due at the rate of five percent (5%) o[the gross payment thereo(.

, iI

I

i I I

22. Which of the following statements is incorrect? a. The five percent (5%) final VAT withholding rate shall represent the net VAT payable of the seller. b. The remaining seven percent (7%) effectively accounts for the standard input VAT for sales of goods or services to government or any of its political subdivisions, instrumentalities or agencies including GOCCs. c. 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 or agencies including GOCCs. d. None of the choices.


23. Should actual input VAT exceed standard input tax.(7% of gross payments): a. the excess may form part of the sellers' expense or cost. b. the difference must be closed to expense or cost. c. the excess shall be claimed as input tax credit from output tax on other sales/ receipts. d. none of the choices.

192


Answer: A Reference: Section 4.114-2 (a), Revenue Regulations No. 16-2005

24. If actual input VAT is less than the standard input tax (7% of gross payment): a. the excess may form part of the sellers' expense or cost. b. the difference must be closed to expense or cost. , c. the excess shall be claimed as input tax credit from output tax on other sales/receipts. d. none of the choices.

Answer: B Reference: Section 4.114-2 (a), Revenue Regulations No. 16-2005

25. The government or any of its political subdivisions, instrumentalities or agencies including GOCCs, as well as private corporations individuals, estates and trusts whether large or non-large taxpayers, shall withhold 12% VAT with respect with which of the following payments? a. Lease or use of properties or property rights owned by nonresidents b. Services rendered to local insurance companies, with respect to reinsurance premiums payable to non-residents c. Other services rendered in the Philippines by non-residents d. All of the choices

Answer: D Reference: Section 4.114-2 (b), Revenue Regulations No. 16-2005

26. VAT withheld and paid for the non-resident recipient which VAT is passed on to the resident withholding agent by the non-resident recipient of the income, may be claimed as: a. input tax by said VAT-registered withholding agent upon filing his own VAT Return. b. part of the cost or expenses of the said VAT-registered agent upon filing his own VAT Return. c. income of the said VAT -registered agent upon filing his income tax return. d. none of the choices.

193


Answer: A Reference: Section 4.114-2 (b), Revenue Regulations No. 16-2005 VAT withheld and paid for the non-resident recipient {remitted 1 using BIR Fom1 No. 1600), which VAT is passed on to the resident withholding agent by the non-resident recipient of the income, may I be claimed as input tax by said VAT-registered withholding agent uponfiling his own VAT Retum, subject to the rule on allocation of input ta.:x: among taxable sales, zero-rated sales and exempt sales. The duly filed BIR Form No. 7600 is the proof or documentary substantiation for the claimed input tax or input VAT.

27. If the resident withholding agent is a non-VAT taxpayer, said passedon VAT by the non-resident recipient of the income, evidenced by duly filed BIR Form No. 1600, shall be treated as an: a. asset or expense, whichever is applicable, of the resident withholding agent. b. input tax of the resident withholding agent. c. income of the resident withholding agent. d. none of the choices. Answer: A Reference: Sectio_n 4.114-2 (b), Revenue Regulations No. 16-2005 Nonetheless, if the resident withholding agent is a non- VAT I taxpayer, said passed-on VAT by the non-resident recipient of the ·ncome, evidenced by the duly filed BIR Form No. 1600, shall form part ofthe cost of purchased services, which may be treated either as an "asset" or "expense", whichever is applicable, of the resident withholding agent. ·

U

28. VAT withheld by a resident withholding agent on payments to nonresidents shall be remitted within how many days following the end of the month the withholding was made? a. 25 days c. 15 days b. 20 days d. 10 days Answer: D Reference: Section 4.114-2 (b), Revenue Regulations No. 16-2005

194

Chapter 14 REFUND OF VALUE-ADDED TAX "'R_ra( success is !(no wing wliLZt

~'od u·ants you

to do and doing it."- finonymous


1. Who may apply for the issuance of a tax credit certificate/refund? a. A VAT-registered person whose sales of goods, properties or services are zero-rated or effectively zero-rated b. A VAT-registered person who purchases capital goods in the course of trade or business c. A VAT-registered person who purchases land in the course of trade or business d. A VAT-exempt person on his purchases where value-added tax is passed on by the seller

Answer: A References: Section 112 (A), NIRC, as amended Section 4.112.1 (a), Revenue Regulations No. 16-2005

2. Which of the following input taxes cannot be claimed as refund or tax credit certificate? a. Input tax attributable to zero-rated sales b. Input tax attributable to effectively zero-rated sales c. Input tax that has been applied against output tax d. None of choices

Answer: C References: Section 112 (A) NIRC, as amended Section 4.112.1 (a), Revenue Regulations No. 16-2005

3. When a. b. c.

shall the application for tax credit certificate or refund be filed? Within fifteen ( 15) days after the close of the month Within twenty (20) days after the close of the quarter Within two (2) years after the close of the taxable quarter when such sales were made d. Within two (2) years after the close of the taxable month when such sales were made

Chapter 14: Refund of Value-Added Tax

Answer: C References: Section 112 (A), NIRC, as amended Section 4.112.1 (a), Revenue Regulations No. 16-2005

4. Which of the following zero-rated sales require payments in acceptable foreign currency duly accounted for in accordance with the BSP rules and regulations? a. The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported b. Sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer's goods c. Sale to a non-resident of goods, except automobiles and nonessential goods, assembled or manufactured in the Philippines for delivery to a resident in the Philippines d. All of the choices Answer: D References: Section 112 (A), NIRC, as amended Section 4.112.1 (a), Revenue Regulations No. 16-2005

5. Where the taxpaye:- is engaged in both zero-rated or effectively zerorated sales and in taxable (including sales subject to final withholding VAT) or exempt sales of goods, properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, which input taxes can be claimed for refund or issuance of a tax credit certificate? a. Proportionate share of input taxes allocated to zero-rated or effectively zero-rated sales b. Proportionate share of input taxes allocated to exempt sales c. Proportionate share of input taxes allocated to taxable sales d. Total input taxes Answer: A References: Section 112 (A), NIRC, as amended Section 4.112.1 (a), Revenue Regulations No. 16-2005

196


6. A VAT-registered person whose registration has been cancelled due to retirement.from or cessation of business, or due to changes in or cessation of status under Sec. 106 (C) of the Tax Code may, within two (2) years from the date of cancellation: I - apply for the issuance of a tax credit certificate for any unused input tax which he may use in payment of his other internal revenue taxes. II - be entitled to a refund if he has no internal revenue tax liabilities against which the tax credit certificate may be utilized. a. Only I is correct b. Only II is correct c. Both I and II are correct d. Neither I nor II is incorrect Answer: C References: Section 112 (B), NIRC, as amended Section 4.112.1 (b), Revenue Regulations No. 16-2005

7. A VAT-registered taxpayer files a claim for refund with the Large Taxpayers Service having jurisdiction over the principal place of business. Which of the following statements is correct? a. The said taxpayer may also file a claim for refund with One Stop Center of the Department of Finance. b. The taxpayer may also file a claim for refund with the Revenue District Office. c. The taxpayer is precluded from filing the same claim for refund with another office. d. The taxpayer is entitled to refund from any Revenue District Office. Answer: C References: Section 112 (C), NIRC, as amended Section 4.112.1 (c), Revenue Regulations No. 16-2005

Claims for refunds/tax credit certificate shall be filed with the appropriate BIR office {Large Taxpayers Service (LTS) or Revenue District Office {RDO)) having jurisdiction over the principal place of business of the taxpayer; Provided, however, that direct exporters may also file their claim for tax credit certificate with the One Stop Shop Center of the Department of Finance; Provided, finally, that the filing of the claim with one office shall preclude the filing of the same claim with another office.

197


8. In proper cases, the Commissioner of Internal Revenue shall grant a tax cre<;iit certificate or refund for creditable input taxes within how . many days from the date of submission of complete documents in support of the application filed? a. One hundred thirty (130) days b. One hundred twenty-five (125) days c. One hundred twenty (120) days d. One hundred ( 100) days

Answer: C Reference: Section 4.112.1 (d), Revenue Regulations No. 16-2005

9.

In case of full or partial denial of the claim for tax credit certificate/ refund as decided by the Co~missioner of Internal Revenue, the taxpayer may appeal to the Court of Tax Appeals (CTA) within how many days from the receipt of said denial? a. Thirty (30) days c. Twenty (20) days b. Twenty-five (25) days d. Ten (10) days

Answer: A References: Section 112 (C), as amended Section 4.112.1 (d), Revenue Regulations No. 16-2005

10. If no action on the claim for tax credit certificate/refund has been taken by the Commissioner of Internal Revenue after the allowed period within which he is required to act on such claim, the taxpayer may appeal to the CTA v.,-ithin how many days from the lapse of the said period? c. Twenty (20) days a. Thirty (30) days b. Twenty-five (25) days d. Ten (10) days

Answer: A References: Section 112 (C), NIRC, as amended Section 4.112.1 (d), Revenue Regulations No. 16-2005

198

Chapter 14: Refund ofValue-Added Tax

11. First statement: Refund shall be made upon warrants drawn by the Commissioner of Internal Revenue or by his duly authorized representative without the necessity of being countersigned by the Chairman, Commission on Audit (COA), the provision of the Revised Administrative Code to the contrary notwithstanding. Second statement: Refunds under the first statement shall not be su.bject to post audit by the COA. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

Answer: C References: Section 112 (D), NIRC, as amended Section 4.112.1 (e), Revenue Regulation\S No. 16-2005

Refund shall be made upon warrants drawn by the Commissioner of Intemal Revenue or by his duly authorized representative without the necessity of being countersigned by the Chairman, Commission on Audit (COA), the provision of the Revised Administrative Code to the contrary notwithstanding; Provided, that refunds under this paragraph shall be subject to post audit by the COA.

199

Chapter 15 VALUE-ADDED TAX CASES 'Fai{ure is simp{y tfie opportunity to 6egin again, tfiis time more inte{{igent{y. -.7-{enry 'Ford


)· A VAT subject real estate dealer sold a residential lot on January 15, 2011. The following information was made available on the terms of the sale: Gross selling price p 3,000,000 Initial payments on January 15, 2011 (consisting of down payment and installments in the year of sale) 900,000 Balance to be paid in equal installment, installments ~tarting February 15, 2011 2,100,000 The zonal value of the residual lot was P2,800,000. How much was the output tax on January 15, 2011 using 12% VAT rate? a. P360,000 c. P108,000 b. P300,000 d. None 2. Using the data in the preceding number, how much was the output tax on February 15, 2011 using 12% VAT rate? a. P360,000 c. P108,000 b. P300,000 d. None

1. Answer: A

I

P3,000,000

X

12% = P.360,000

2. Answer: D Reference: Section 3, Revenue Regulations No. 4-2007 The initial payments over the selling price exceed 25%. This is a

;::a:: :f::::;d::;:::p::::: :~e;:::_;:~::::::;::ot

-,1 on I

the instal!ment plan, the transaction shall be treated as cash sale which makes the entire selling price taxable in the month of sale. Payments subsequent to "initial payments" shall no longer be subject to output VAT, in the case of sale on a deferred payment basis.

200 -----'-------------------··--~---- ...

Chapter 15: Value-added Tax Cases

3.

ABC Corporation sold a parcel of land to XYZ Company on July 2, 2011 for P1,000,000, plus the output VAT, with a monthly installment payment of PlO,OOO, plus the output VAT. The zonal value of the subject property at the time of sale amounted to P1,500,000. How much was the output tax on the installment payment? c. P1,000 a. P1,800 d. p 800 b. P1,200

Answer: A Reference: Section 4, Revenue Regulations No. 4-2007 Actual collection (VAT exclusive)--------------------------------------------- X Zonal value X 12% =Output tax Agreed consideration (VAT exclusive)

Computation: (PlO,OOO/Pl,OOO,OOO) X 1,500,000 X 12'Yo

/

=

£L§OO

4, 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 exceed 70% of the total annual production 2,000,000 Local sales of goods to Asian Development Bank (ADB) 500,000/ Consignment of goods (not returned within 60 days following the date of consignment) 200,000, Goods transferred for the personal use of the owner 100,000 How much was the total taxable sales? c. a. P3,000,000 d. b. P3,300,000 5,

P3,800,000 P5,800,000

Using the same data in the preceding number, how much was the output tax using 12% VAT rate? c. p 456,000 a. P 360,000 d. p 696,000 b. p 396,000

201

'-


4. Answer: D 5. Answer: B Taxable sales p 3,000,000 Domestic sale of goods Sales of packaging materials 2,000,000 to export-oriented enterprise Local sales of goods to ADB 500,000 Consignment of goods (deemed sold) 200,000 Goods transferred for the personal use of the owner (deemed sold) 100 000 Total

Rate

Output tax

12%

p 360,000

0%, 0'% 12°/t,

24,000

12%

12,000 p 396_,QQQ

/

6. JP Corporation is a m~rchandising concern_ and has a~ inventory of ( \ /goods for sale amountmg to Pl,OOO,OOO. Rm Corporatwn, a real '--- estate developer, exchanged its real estate properties for shares of stocks of JP Corporation resulting to the acquisition of corporate control. How much was the output tax of JP Corporation using 12% VAT rate? c. p 80,000 a. P120,000 b. PlOO,OOO d. None

#'

7. 'Using the same data in the preceding number, how much was the , output VAT of Ria Corporation on the exchange of real properties held for sale valued at P1,000,000 for shares of stock using 12% VAT rate? c. p 80,000 a. P120,000 b. P100,000 d. None l\\

l"6. Answer: D -~ · Reference: Section 8, Revenue Regulations No. 4-2007 The inventory of goods owned by JP Corporation (Pl,OOO,OOO) is 'not subject to output tax despite the change in corporate control because the same corporation still owns them. <:

7. Answer: A (P1,000,000 X 12% = P120,000) Reference: Section 8, Revenue Regulations No. 4-2007 as amended by Section 2, Revenue Regulations No. 10-2011 The exchange of real estate properties held for sale or for lease, for shares of stocks, whether resulting in corporate control or not, is subject to VAT. This is an actual exchange of properties which makes the transaction taxable.

202


VS Corporation is a real estate dealer and has a real property for sale amounting to P 1 ,000,000. Waldorf Corporation, a real estate developer, exchanged its real estate properties for shares of stocks of VS Corporation resulting to the acquisition of corporate control. How much is the output tax using 12% VAT rate? a. P120,000 c. P 80,000 b. P100,000 d. None

Answer: D ·\.'~' :,• ;::. \" v. ,_,..,. Ac· .. '~·· \cell•(' \ f·'- ' ' Reference: Section 8, Revenue Regulations No. 4-2007

If the transferee of the transferred real property by a real estate dealer is another real estate dealer, in an exchange where the transferor gains control of the transferee-corporation, no output VAT is imposable on the said transfer.

9:

(Phil. CPA Modified) A VAT-registered trader made the following sales of goods during the second calendar quarter of the current year: Cash sales P 200,000 Open account sales 100,000 Installment sales (receipts, P40,000) 100,000 Consignment sales (not yet sold as of end of the quarter): June 15 100,000 May 15 100,000 100,000 April 15" How much is the output tax for the quarter using 12% VAT rate? a. P 60,000 c. P 40,800 b. p 48,000 d. p 24,000

Answer: A Cash sales (P200,000 X 12%) Open account sales (PlOO,OOO X 12%) Installment sales (Pl 00,000 X 12'%) Consignment sales, April 15 (P100,000 X 12°/c,) Output tax for the quarter

p

24,000 12,000 12,000 12,000

p

60 000

----

203


10. Butch, VAT-registered, made the following purchases during the month of January, 2011: p 246,400 Goods for sale, inclusive of VAT 20,000 Supplies, exclusive of VAT Office air-conditioner, total invoice price 56,000 :. ' (estimated life is 3 year) 17,920 Home appliances for residence, gross of VAT Service for store repair, contractor not VAT-registered, 33,000 total invoice amount 'k Service for repainting of store, total invoice amount evidenced b.Y(ordinacy receipt issued by contractor 4,480 How much was the total using 12% VAT rate? a. P 38,688.00 b. p 35,337 ..60

a~o~ft;\e 'fJ1~~£ t~~s 'of Butch for the month c. d.

p 34,800.00 p 34,542.86

Answer: C Goods for sale (P246,400 X 12/ 112) Supplies (P20,000 X 12%) Office air-conditioner (P56,000 X 12/ 112)

p 26,400.00 2,400.00 6 000.00

Creditable input tax

P 34

SO~O_Q

11,The following data are taken from the books of accounts of a VATregistered taxpayer: p 1,000,000 Third quarter Sales 800,000 Purchases Excess input VAT as of end of 25,000 second quarter Fourth quarter : Sales Purchases

p 1,500,000 1,100,000

How much is the VAT payable (excess input tax) for the third quarter using 12% VAT rate? a. P 36,000 c. (P 5,000) b. p 24,000 d. (P 1,000)

_./

J2. Using the same data in the preceding number, how much is the VAT payable for the fourth quarter using 12°/o VAT rate? a. P 48,000 c. P 11,000 b. P 47,000 d. None of the choices

204 ------------------------------

---

-·-


11. Answer: D 12. Answer: B Reference: Section 4.110-7, Revenue Regulations No. 16-2005 as amended by RR No. 2-2007 and RR No. 4-2007 Third quartPr

Output tax (P1 ,000,000 X 12'%) Less: Input taxes Carried over from previous quarter p 25,000 On current transactions (P800,000 X 12%) 96 000 Excess input tax

p 120,000

121,000)

(E

1

QQQ)

Fourt/1 quarter

Output tax (P1,SOO,OOO X 12°;(,) p 180,000 Less: Input taxes Carried over from previous quarter p 1,000 On current transactions (P1,100,000 Xl2'%) 132,000 133,000) VAT payable

e_ 4 'LQQQ

Note: R.A. No. 9361 (approv:ed on November 24, 2006) deletes the provision under R.A. No. 9337 that subjects the allowable input tax credit to the 70%, limit (based on output tax) in case the input tax exceeds output tax. The repeal covers VAT returns for taxable quarters ending not earlier than December 2006.

-f.(

13.iThe following data (net of VAT) are available: p 1,500,000 quarter Sales Purchases 800,000 -:¥ Purchase of machinery 2,000,000 ') p, i Unutilized input VAT as of end of second quarter 97,000

~Third

Fourth quarter : Sales Purchases

p 2,000,000 100,000

Hmv much is the VAT payable (excess input tax) for the third quarter using 12°1oVAT rate? a. P 83,000 c. (P 25,.000) b. p 54,000 d. (P 16,000) 14. Using the same data in tlle preceding number, how much is the VAT ·payable for the fourth quarter using 12% VAT rate? a. P203,000 c. P191,000 b. P200,000 d. P 72,000

205


13. Answer: C 14. Answer: C Third quarter

Output tax (P1,500,000 X 12%) Less: Input taxes Carried over from previous quarter On current transactions: On purchases (PSOO,OOO X 12%L o_n machinery (P2~0,000/60

e

Excess mput tax

p 180,000 p 97,000

96,000 12,000 (

205,000)

(P

hl 1 i?-"',

p

Deferred input tax VAT on capital goods (P240,000- P12,000)

25,000 228,000

p 253,000

Total Fourth quarter Output tax (P2,000,000 X 12%)

Less: Input taxes Carried over from previous quarter On current transactions: On purchases (P100,000 X 12%) On machinery (P240,000/60 X 3)

25,000)

p 240,000 p 25,000

12,000 12,000

49,000)

VAT payable

p

Deferred input tax VAT on capital goods (P240,000- P24,000)

p

Total

~~lM~.£2

191,000

216 000

~.

~--

15. (Phil. CPA) The following are the data of City Appliances Marketing Co. for the last quarter of 2011: Sales up to December 15, total invoice value P 319,200 Purchases for November up to December 15, net of input taxes 215,000

Additional in[onnation: On December 16, 2011, the City Appliances Marketing Co. retires from its business. The inventory valued at P190,000 is taken and transferred to New City Appliances Co. There is a deferred input tax of P3,500 for the third quarter. How much is the total value-added tax due from the City Appliances Marketing Co. for its operations in the last quarter and its retirement from business using 12% VAT rate? a. P 33,004 c. p 27,700 b. p 28,900 d. p 27,089

206


""it 16. Using the same data in the previous number, and assuming that the New City Appliances Co. has the following data for the first month of 2012: Sales (including the inventory transferred from p 336,000 City Appliances Marketing), total invoice value 224,000 Purchases, total invoice value How much is the VAT payable (excess input tax) for the first month of 2012 using 12% VAT rate? · a. P 17,100 c. (P 10,800) b. P 12,000 d. (P 9,480)

15. Answer: C Actual sales (P31 9,200 X 12 /112) Deemed sales (P190,000 X 12%) Output taxes Less: Input taxes On purchases (P215,000 X 12'Yo) Carried from previous quarter (deferred input tax)

p p

34,200 22,800 57,000

p 25,800

3 500

29 300)

Value-added tax due

p

27,700

P

36,000

16. Answer: C Output taxes on actual sales (P336,000 X 12/ 112) Less: Input taxes On deemed sales (see previous number) P 22,800 On purchases (P224,000 X 12/ 112) 24,000 Excess input tax

?-

.

46 800)

(P

10&QQ)

17. \A taxpayer registered under the VAT system on January 2, 2011 after ·-.__./his sales exceeded P1,5000,000 in the previous year. He became subject to VAT for the first time. The following selected data were taken from his books: Inventory, December 31, 2010 purchased from VAT-registered seller: Cost P 60,000 Net realizable value (50,000' VAT paid on December 31,2010 inventory ·-o;uoo Inventory, December 31, 2010 purchased from VAT-exempt seller 80,000 Sales, net of VAT 181,000 Purchases, net of VAT 70,000 How much was the VAT payable using 12% VAT rate? a. P13,320.00 c. P 5,892.86 b. p 7,320.00 d. p 4,992.86

207

r


Answer: B Output tax (P181,000 X 12%) Less: Input taxes On purchases (P70,000 X 12°/.,) Tparr~ional input tax ' 2°/d''X PSO. ,000 ~:- ,, -VAT paid Allowed (higher) /

P

8,400

P 1 000 P 6 000 6 000

14 400

VAT payable

18. Sweet Tooth, Inc. manufactures refined sugar. The following selected data are taken from its books: P2,000,000 Sale of refined sugar, net of VAT Purchase of sugar cane from farmers 500,000 784,000 Purchases of packaging materials, gross of VAT 112,000 Purchase of labels, gross of VAT 60,000 Advance payment of VAT before release from refinery How much is the VAT payable using 12% VAT rate? a. Pl24,000 c. P 64,000 b. p 84,000 d. p 20,000 Answer: C Output ta.x (P2,000,000 X 12%) Less: Input taxes Presumptive input tax on sugar cane (PSOO,OOO X 4%) On packaging materials (P784,000 X 12/ 112) On labels (P112,000 X 12/ 112) VAT payable Less: Tax payments/ credits Advance VAT paid

,.

t

f

I

P 21,720

Tax payable

p 240,000

p 20,000 84,000 12 000 (

116 000) p 124,000 60 000)

I'_ 6 4_,.Q.Q_Q

208

L-~---~-

·--------------------

-------------

-


:'1

19. to 23. are based on the following: A VAT-registered trader has the following transactions: P2,500,000 Sales of good to private entities, net of 12% VAT Purchases of goods sold to private entities, gross of 12% VAT 896,000 Sales to a government owned corporation (GOCC), . net of 12% VAT 1,000,000 700,000 Purchases of goods sold to GOCC, net of 12% VAT

..l 19. How much is the withholding VAT?

a. b. ~

P120,000 p 70,000

20. How much is the standard input tax? a. P120,000 ~ ~ · - . b. p 70,000

c. d.


c. d.


'¥ 21. What is the treatment of the excess actual input VAT attributable to

sales to GOCC? a. Input tax credit b. Expense or cost

c. d.

Income None of the choices

22. How much is the creditable input tax on sale to private entities? a. P176,000 c. P 70,000 b. P 96,000 d. None of the choices /.-·-~

( 23. Bow much is the VAT payable? "'-_/ a. P244,000 b. P204,000 19. Answer: 20. Answer: 21. Answer: 22. Answer: 23. Answer:

c. d.

P120,000 None

C B B B B

19. Computation: Pl,OOO,OOO X 5% = P50,QOO 20. Computation: Pl,OOO,OOO X 7% = P70 000 21. Excess actual input tax forms part of the seller's expense or cost. 22. Computation: P896,000 X 12/112 = PQQ_.QQQ 23. Computation: Government Private Output tax It = P 120,000 P 300,000 Less: Input taxes Standard input tax ( 70,000) ) 96 000) ~ . On purchases of goods sold to private ( ) ( p 204,000 p 50,000 VAT payable Less: Withholding VAT 50 000) ( ) ( VAT payable

-----

p

p 204,000

209 --------~------------------------------------


24:, A VAT-registered taxpayer engaged the services of a non-resident service provider. The contract price was P500,000 which was paid by the VAT-registered taxpayer in full. How much was the amount of withholding VAT to be withheld by the VAT-registered taxpayer using 12% VAT rate? c. p 35,000 a. P 60,000 b. p 50,000 d. p 25,000 25. Using the same data in the preceding number, how much input tax could be claimed as credit by the VAT-registered taxpayer using 12% VAT rate? c. p 35,000 a. P 60,000 b. p 50,000 d. p 25,000

24. Answer: A I

500,000

X

12%, = P60,000

25. Answer: A I

500,000

X

12%,

=

P60,000

26. (Phil. CPA Modified) Off Pring Corporation is a Value-Added Tax registered dealer of appliances. The following data are for the last quarter of the current year: p 6,921,600 Sales, total invoice value 5,500,000 Purchases, net of input taxes 224,000 Sales returns (based on total invoice value) 300,000 Purchases returns, net of input taxes Deferred input taxes (carried over from the 9,500 third quarter of the current year) How much is the value-added tax due for the last quarter of the current year using 12% VAT rate? a. P170,212.00 c. P84, 100.00 b. p 150,956.94 d. P72, 100.00

Answer: C p 717,600 Output tax on net sales (P6,697,600 X 12/ 112) Less: Input taxes p 624,000 On net purchases (P5,200,000 X 12°/r,) 9 500 ( 633,500) Carried over from previous quarter

VAT payable

210

p

84 100

Sales, total invoice value Less: Sales returns Net sales

(

p 6,921,600 224 000) p 6 697 600

Purchases Less: Purchase returns Net purchases

(

p 5,500,000 300 000) p 5,200,000


27. A VAT-registered taxpayer engaged in the supply oLs~rvices has the -· following data taken from its books for the month of January 2011: Accounts receivable, January 1, 2011 P 560,000 Sales on account for the month of January 1,000,000 Cash sales for the month of January 300,000 Accounts receivable, January 31, 2011 784,000 How much is the output tax for the month of January, 2011 using 12% VAT rate? a. P156,000 c. P129, 120 b. P132,000 d. P110,000

Answer: B Cash sales Collections from receivables (PSOO,OOO + Pl ,000,000- P700,000) Gross receipts Tax rate

p

300,000

800 000 p 1,100,000 12'%

Output tax

It has to be noted that sales_2er books are exclusive of VAT while receivables per books are inclusive of VAT. To compute the collections from receivables, the receivables per books have to be converted into an amount exclusive of VAT. An alternative computation using VAT inclusive data follows: Cash sales Collections from receivables (P560,000 + P1, 120,000- P784,000) Total invoice amount Multiplied by

P

300,000 896 000

p 1,232,000

12/112

Output tax

28. A VAT-registered contractor has the following selected VAT inclusive data for the month of July, 2011: Collections from con tracts completed in 20 1 0 p 560,000 Advances from contracts to be completed in 2012 336,000 ~Collections from contracts completed in July, 2011, net of 10% retention on billings which was deposited in the account of the contractor by the contractee 221,760 Materials charged with the services rendered 112,000 Hmv much is the output tax for the month of July, 2011 using 12% VAT rate? a. P150,528 c. P131,760 b. P134,400 d. P120,000

211


... Answer: B Collections from contracts completed in 2010 Advances from contracts to be completed in 2012 Collections from contracts completed in July 2011 (P221,760 divided by 90'%) ·rc;- '~ ""''"' ;" • · Materials charged with the services rendered Total invoice amount Multiplied by

p

560,000 336,000

246,400 112,000 p 1,254,400 12/112

Output tax

29: Hotel California, VAT -registered, offers different services to its guests. The following data taken from the books of the taxpayer are for the first quarter of 20 11:

Hotel rooms (local guests) Dining hall: Sale of food and refreshments Sale of wine, beer and liquor Disco: Sale of food and refreshments Sale of wine, beer and liquor

Revenues

Collections

p 800,000

p 700,000

1,000,000 700,000

850,000 600,000

600,000 500,000

550,000 450,000

How much is the output tax for the first quarter of 2011 using 12% VAT rate? a. P432,000 c. P258,000 d. None of the choices b. P378,000 Answer: C Collections, hotel rooms P 700,000
p

258.000

Sales of food, refreshments, wine, beer and liquor in disco are subject to amusement taxes.

212 ·---------------~---------------·


30. Stackhouse, a VAT-registered stockbroker and dealer in securities, has the following data for the first quarter of the current year (net of applicable taxes): p 200,000 Commissions received from representing buyers 300,000 Commissions received from representing sellers Selling price of shares of stock: 400,000 Hope Corp. held as inventory 600,000 Faith Corp. held as investment Acquisition cost: 300,000 Hope Corp. held as inventory 350,000 Faith Corp. held as investment Operating expenses connected with VAT-subject transactions: 70,000 Supplies bought from VAT-registered supplier 90,000 Salaries of employees 5,000 Electricity 3,000 Water What is the VAT payable for the quarter using the 12% VAT rate? a. P 63,600 c. P 62,640 b. p 63,600 d. p 51,840

Answer: C Output tax on gross receipts as stockbroker (P500,000 X 12%) Output tax on gross receipts as dealer in securities '"cc· :''· ""(P100,000 X 12'Yo) .. ,' \ ?1 ,· Total output tax · Less: Input taxes P8,400 On supplies (P70,000 X 12%) On electricity (PS,OOO X 12'X,) 600 On water (P3,000 X 12°/,) 360 ~Ql•'c'·'

p 60,000

p

12 000 72,000

9 360)

VAT Payable

p 62 64Q

Commissions received from representing buyers Commissions received from representing sellers

p 200,000 300 000

Gross receipts as stockbroker

E. 500,00_Q

Selling price, Hope Corporation shares Less: Acquisition cost, Hope Corporation shares Gross receipts as dealer in securiLies

p 400,000 ( 300,000) P lO_Q,D_.QQ

Shares held as investment (Faith Corporation shares) when sold are either subject to capital gains tax or stock transactions tax.

213


.~~\ ~

31. (Phil. CPA Modified) Mr. C. Juan is a transportation contractor with ...- contract to transport the products of CMP Corp. to its outlets. For the month of April, 2011, CMP paid Mr. Juan P371,250, net of the 1% expanded withholding income tax and the applicable VAT. ~-,;' During the month, Mr. Juan has VAT-subject purchases of -·~ P336,000, gross of VAT. How much is Mr. Juan's VAT payable for the month of April, 2011 using 12% VAT rate? a. P 8,196 c. P 9,000 b. p 8,550 d. p 13,500

Answer: C Output tax [(P371,250 divided by 99°1<>) X 12%] Less: Input tax (P336,000 X 12/112) VAT payable

,~

'-!--

p (

45,000 36 000)

F'- 9,00Q

-·

(32. A VAT-registered public works contractor has the following data on /$ervices rendered in the Philippines for the first quarter of the current year (VAT-exclusive): Contract price (foreign clients doing business 100,000 $ outside the Philippines) ($1:P50) p 5,000,000 Contract price (private sector clients) 3,000,000 Contract price (Government) 100,000 Collections from foreign clients $ 1,000,000 Collections from Government contracts 2,000,000 Collections from private sector clients Purchases during the quarter 800,000 (used in private sector clients contracts) Payments for services of a VAT-registered sub400,000 contractor (used in Government contracts) Purchases during the quarter (used in private sector clients and 300,000 government contracts only) How much is the VAT payable for the quarter using 12% VAT? a. P190,000 c. P120,000 b. P170,000 d. None

L

214

------------

y


Answer: C Output tax(>.''' ,: . . Less: Input taxes Standard input tax Purchases (directly attributed to private contracts) Purchases (ratably all,ocated to private cor. tracts) 1 ,, .. , 1 , ,_,;; ''' VATpayable c'/,'·;c,),_,_.;t\ · Less: Withholding VAT Tax payable

Private p 240,000

Government p 120,000

70,000) 96,000)

( p (

:P~

) 50,000 50 000)

(

24 000) p 120,000 ( )

-=------

p 120.000

Collections from foreign clients (P5,000,000 X 0%) Collections from private clients (P2,000,000X 12%) Output tax on private client contracts

p

Collections from Government (P1,000,000 X 12%,)

p 120,000

Standard input tax (P1,000,000 X 7'Yo)

p

70 000

\Vithholding VAT (P1,000,000 X 5'Yr,)

p

50 000

Input tax on purchases ratably attributed to private clients contracts (P2,000,000/P3,000,000 X P36,000)

p

24.000

240 000 p 240,000

33. (Phil. CPA) Dayag Builderz was a contractor. It entered into a //contract on December 31, 2011, which was completed on March 15, 2012. E received the total value of the contract including materials charged with the services amounting to P5,500,000 on March 25, 2012. Dayag Builderz spent for the materials used in the contract which it acquired from value-added tax registered suppliers costing Pl ,500,000. During the month of January 2012, it purchased an equipment with a contract price of P2,500,000 and paid PSOO,OOO as down payment. The estimated life of the equipment is 4 years. · How much was the value-added tax payable for the quarter ending March 31, 2012 using 12% VAT rate assuming all the data were exclusive of VAT? a. P465,000 c. P360,000 b. P461,250 d. Pl80,000

Answer: B Output tax (P5,500,000 X 12%) Less: Input taxes Materials (P1 ,500,000 X 12'Yr,) Equipment (P300,000/48 months X 3 mo'n:t~) VAT payable

p 660,000

P 180.000 18 750

198.750 P46L250

r

r

l


--, 34. An owner of a warehouse, which used to be VAT -exempt because its annual receipts never exceeded Pl,500,000, decided to register under the VAT system on January 2, 2011. The following data were from the first quarter ending March 31, 2011: Rental from warehousing services, net of 12% VAT p 336,000 Purchases of supplies (February), gross of VAT 112,000 Inventory of supplies, January 1, 2010 100,000 VAT on the inventory of supplies, January 1, 2010 10,000 How much was the VAT payable for the quarter ending March 2011? a. P 26,320 c. P 14,000 b. P 18,320 d. None of the choices Answer: B Output tax (P336,000 X 12%) Less: Input taxes Supplies (P112,000 X 12/ 112) Transitional input tax P1 00,000 X 2% Actual VAT paid

p 40,320 p 12,000 p 2 000 p 10,000

10 000

22,000

VAT payable

I'_lli__320

35. (Phil. CPA Modified) Robin P. imported a car from the USA for his personal use. Total landed cost is P250,000 (about $5,952) including customs duties of P50,000. VAT payable using 12% rate is: a. P 30,000. c. P 10,000. b. P25,000. d. none. Answer: A Total landed cost Tax rate

p 250,000 12%

VAT on importation

p

30.000

36. (Phil. CPA Modified) An importer wishes to withdraw its importation from the Bureau of Customs. The imported goods are subjected to 10% customs duties in the amount of P12,500 and to other charges in the amount of P9,500. The value-added tax due using 12% rate is: a. P 12,500. c. P 14,000. b. p 13,364. d. p 17,640.

216


Answer: D Dutiable value (P12,500 / 10°/tl) Add: Customs duties Other charges Total Tax rate VAT on importation

/

p 125,000 p 12,500

9 500

22,000 p 147,000 12'%

p

17 640

/Babes Corp. imported an article from Japan. The invoice value of the imported article was Yl,OOO,OOO (Yl=P0.35). The following were incurred in connection with the importation: p 15,000 Insurance 10,000 Freight Postage 5,000 7,000 Wharfage dues 8,000 Arrastre charges Brokerage fees 25,000 3,000 Facilitation fee ~oi'Qiu: The imported article was subject to PSO,OOO customs duties and to P30,000 excise tax. After the re.lease from the Bureau of Customs, Babes Corp. paid PS,OOO,cnet ofVAT~ for trucking to a warehouse in Quezon City. It also paid 'W~ng rent of PlO,OOO,(net~~Y~T. How much was the VAT on importation using 12% VAT rate? a. P 60,360 c. P 51,600 b. p 60,000 d. p 50,400

,/38. Using the same data in the preceding number, assuming the ,imported article wc:.s sold by the importer for P700,000, net of VAT, /how much was the VAT payable using 12% VAT rate? a. P 22,200 c. P 20,000 b. P 21,840 d. None of the choices

217


37. Answer: B Value of imported goods (Y1 ,000,000 X 0.35) Add: Customs duties Excise tax Insurance Freight Postage Wharfage Arrastre charges Brokerage fees Total Tax rate

p 350,000 p 50,000 30,000 15,000 10,000 5,000 7,000 8,000 25,000

VAT on importation

150 000 p 500,000 12'Yo p

60.000

Facilitation fee is not a legal charge. It is not included in the term "other charges prior to release of goods from Customs custody."

38. Answer: A Output tax (P700,000 X 12%) Less: Input taxes VAT on importation Trucking (P5,000 X 12%) Warehousing (P10,000 X 12%)

p p 60,000 600 1,200

61 800 p

VAT payable

84,000

22,200

39. The following data pertain to a VAT-registered taxpayer for February: /' Sales, total invoice price P 896,000 / Domestic purchases from a VAT supplier, gross of VAT 268,800 In January, there is an importation of goods to be sold, with a landed cost of P200,000. There are no sales in January. d.::.

How much is the value-added tax,in February using 12% VAT rate? a. P 43,200 ' c. P 67,200 b. p 51,264 d. p 72,000 Answer: A Output tax (P896,000 X 12/112) Less: Input taxe~ VAT on importation carried over from previous period (P200,000 X 12%,) Purchases (P268,800 X 12/ 112) VAT payable

218

p

p 24,000 28,800

96,000

52,800

f

4_3_._2DJ2


'f 40: A VAT-registered taxpayer has the following information on his " importations: Invoice c_os't (US$ 1 = PSO) "'-. Based on' cost: ·• 1' .' ,;_: ~" . J Freight and insurance Other expenses before the goods are released from Bureau of Customs Expenses incurred §:fJer the goods are released from Bureau of Customs

For sale

For own use

$ 50,000

$ 10,000

4%

4%

6%

6%

lj:>O/o

12%

The imported goods are sold within the same taxable period the importation is made for P7,840,000, VAT inclusive. How much is the VAT on imr-ortation using 12% VAT rate? a. P396,000 c. P330,000 b. P331 ,500 d. None of the choices ~-

41. Using the same data in the preceding number, how much is the VAT payable on the sale of imported goods using 12% VAT rate? a. P840,000 c. P508,234 b. PSlO,OOO d. P444,000

40. Answer: A For Sale

For Personal Use

p 2,500,000

p

100,000 150 000 p 2,750,000 12% p 330 000

p p

500,000 20,000 30 000 550,000 12% 66 000

p

396 000

Output tax (P7,840,000 X 1';!./ 112) Less: Input tax VAT on importation on goods for sale

p

840,000

VAT payable

P __5_1Q_OOO

Invoice value Add: Freight charges Other expenses before the release Total VAT1:; 1 1kC+ h~t-I.Ad;_i Tax rate VAT on importation Total VAT on importation

41. Answer: B

330 000

There is no input tax on expenses incurred after the goods are released from the Bureau of Customs becauseJhe Rroblem d~Qe,S.not st9.k..tha.LiheiTj§_JJ,9;§._~ed -on ~eipen;es.

VAron-

219

Chapter 16 VAT COMPLIANCE REQUIREMENTS 'Iiie secret qfgetting alieaa is getting started"- ')far!( 'Twain


1. A VAT-registered person shall issue for every. sale, barter or exchange of goods or properties a: a. VAT invoice. c. VAT credit certificate. d. VAT refund. b. VAT official receipt.

Answer: A References: Section 113 (A) (1), NIRC, as amended Section 4.113-1 (A) (1), Revenue Regulations No. 16-2005

2. A-VAT-registered person shall issue a for every lease of goods or properties, and for every sale, barter or exchange of service a: a. VAT invoice. c. VAT credit certificate. b. VAT official receipt. d. VAT refund.

Answer: B References: Section 113 (A) (2), NIRC, as amended Section 4.113-1 (A) (2), Revenue Regulations No. 16-2005

3. Which of the following is incorrect? a. Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their invoice or official receipts. b. The printed documents in letter a. shall be considered as a "VAT Invoice" or "VAT official receipt". c. All purchases covered by invoices/receipts other than VAT Invoice or Official Receipt shall not give rise to any input tax. d. None of the choices.

Answer: D Reference: Section 4.113-1(A), Revenue Regulations No. 16-2005

Chapter 16: VAT Compliance Requirements

4. VAT invoice or official receipt shall be prepared at least in duplicate: I - the original to be given to the buyer. II - the duplicate to be retained by the seller as part of his accounting records. a. b.


c. Neither I nor II is correct d. Both I and II are correct

Answer: D Reference: Section 4.113-1 (A), Revenue Regulations No. 16-2005

5. Which of the following information shall be indicated in VAT invoice or VAT official receipt? a. A statement that the seller is a VAT -registered person, followed by TIN. b. The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the VAT. c. In the case of sales in the amount of one thousand pesos (Pl,OOO) or more where the sale or transfer is made to a VATregistered person, the name, business style, if any, address and TIN of the purchaser, customer or client. d. All of the choices.

Answer: D References: Section 113 (B) (1), (2) and (3), NIRC, as amended Section 4.113-1 (B) (1), (2) and (3), Revenue Regulations No. 16-2005

6. Which of the following statements is incorrect? a. The amount of VAT shall be shown as a separate item in the invoice or receipt. b. If the sale is exempt from VAT, the term "VAT-exempt sale" shall be written or printed prominently on the invoice or receipt. c. If the sale is subject to zero percent (0%) VAT, the term "zerorated sale" shall be written or printed prominently on the invoice or receipt. d. The VAT-subject seller does not have the option to issue separate invoices or receipts for the taxable, exempt, and zero-rated components of the sale.

221


Answer: D References: Section 113 (B) (2) (a), (b) and (c), NIRC, as amended Section 4.113-1 (B) (2) (a), (b) and (c), Revenue Regulations No. 16-2005

7. If the sale involves goods, properties or services some of which are subject to and some of which are VAT zero-rated or VAT-exempt, the invoice ·or receipt shall clearly indicate: I - the break-down of the sale price between its taxable, exempt and zero-rated components. II - the calculation of the VAT on each portion of the sale shall be shown on the invoice or receipt. a. b.


c. d.

Neither I nor II is correct Both I and II are correct

Answer: D References: Section 113 (B) (2) (d), NIRC, as amended Section 4.113-1 (B) (2) (d), Revenue Regulations No. 16-2005

8. Which of the following deemed sale transactions requires a memorandum entry in the subsidiary sales journal? a. Transfer, use or consumption not in the course of business of goods or properties originally intended for sale or for use in the course of business. b. Distribution or transfer to shareholders or investors as share in the profits of VAT-registered person and creditors in payment of debt or obligation. c. Consignment of goods if actual sale is not made within 60 days following the date such goods were consigned. d. Retirement from or cessation of business with respect to all goods on hand, whether capital goods, stock-in-trade, supplies or materials as of the date of such retirement or cessation.

222



In the case of transfer, use or consumption not in the course of business of goods or properties originally intended for sale or for use in the course of business, a memorandum entry in the subsidiary sales journal to record withdrawal of goods for personal use is required. In the case of distribution or transfer to shareholders or investors as share in the profits of VAT-registered person and creditors in payment of debt or obligation and consignment of goods if actual sale is not made within 60 days following the date such goods were consigned, an invoice shall be prepared at the time of the occurrence of the transaction, which should include, all the information prescribed in Revenue Regulations 16-2005. The data appearing in the invoice shall be duly recorded in the subsidiary sales journal. The total amount of "deemed sale" shall be included in the return to be filed for the month or quarter. In the case of retirement from or cessation of business with respect to all goods on hand, whether capital goods, stock-in-trade, supplies or materials as of the date of such retirement or cessation, an inventory shall be prepared and submitted to the RDO who has jurisdiction over the taxpayer's principal place of business not later than 30 days after retirement or cessation from business.

9.

First statement: In case of retirement from or cessation of business, the invoice prepared need not enumerate the specific items appearing in the inventory, but it must show the total amount. Second statement: If the business is to be liquidated and the goods in the inventory are sold or disposed of to VAT-registered buyers, an invoice or instrument of sale or transfer shall be prepared citing the invoice number wherein the tax was imposed on the deemed sale, at the same time the tax paid corresponding to the goods sold should be separately indicated in the instrument of sale. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct Answer: A Reference: Section 4.113-2, Revenue Regulations No. 16-2005


10. "A", at the time of retirement, had 1, 000 pieces of merchandise which was deemed sold at a value of P20,000.00 with an output tax of P2,400.00. After retirement, "A" sold to "B" 500 pieces of these for P12,000.00. In the contract of sale or invoice, "A" stated the sales invoice number wherein the output tax on "deemed sale" was imposed and the corresponding tax paid on the 500 pieces. He prepared the following invoice: p 10,800 Gross selling price VAT previously paid on "deemed sale: 1,200 p 12,000

Total How much is the input tax of "B"? a. P2,400 b. Pl,200

c. d.

Pl,OOO None of the choices


11. Notwithstanding the provisions of Sec. 233 (Subsidiary Books), all persons subject to VAT under Sec. 106 (VAT on sale of goods or properties) and 108 (VAT on sale of services and use or lease of properties) of the Tax Code shall, in addition to the regular accounting records' required, maintain what books on which every sale or purchase on any given day is recorded? I - Subsidiary sales journal II - Subsidiary purchase journal a. b.

Both I and U Neither I nor II

c. d.

I only II only

Answer: A References: Section 113 (C), NIRC, as amended Section 4.113-3, Revenue Regulations No. 16-2005

12. A subsidiary record in ledger form shall be maintained for the acquisition, purchase or importation of depreciable assets or capital goods which shall contain, among others: I - information on the total input tax thereon. II- the monthly input tax claimed in VAT declaration or return. a. b.


c. d.

I only II only

Answer: A References: Section 113 (C), NIRC, as amended Section 4.113-3, Revenue Regulations No. 16-2005

224

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13. If a person who is not VAT-registered issues an invoice or receipt showing his TIN, followed by the word "VAT", the erroneous issuance shall result to the following, except which one? a. The non-VAT person shall be liable to the percentage taxes applicable to his transactions. b. The non-VAT person shall be liable to the VAT due on the transactions. c. The non-VAT person shall have the benefit of input tax credit. d. The non-VAT person shall be liable to a 50% surcharge under Sec. 248 (B) of the Tax Code.

Answer: C References: Section 113 (D) (1) (a) (i) and (ii), NIRC, as amended Section 4.113-4 (A) ( 1) (i), (ii) and (iii), Revenue Regulations No. 16-2005

14. The VAT-registered purchaser in a transaction where a seller who is not VAT-registered issues an invoice or receipt showing his TIN, followed by the word "VAT": a. shall recognize as an input tax credit the "passed-on VAT" provided the requisite information required under the Regulations is shown on the invoice or receipt. b. shall be liable to the percentage taxes applicable to the transaction. c. shall claim a refund for the erroneous VAT provided the requisite information required under the Regulations is shown on the invoice or receipt. d. none of the choices.

Answer: A References: Secti.on 113 (D) (b), NIRC, as amended Section 4.113-4 (A) (2), Revenue Regulations No. 16-2005

15. If a VAT-registered person issues a VAT invoice or VAT official receipt for a VAT-exempt transaction, but fails to display prominently on the invoice or receipt the words "VAT-exempt sale", the transaction shall: a. still be exewpt from value-added tax. b. become taxable and the issuer shall be liable to pay VAT thereon. c. be effectively subject to zero percent. d. be considered erroneous transaction and must be disregarded.

225


Answer: B References: Section 113 (D) (2), NIRC, as amended Section 4.113-4 (B), Revenue Regulations No. 16-2005

16. If a VAT-registered person issues a VAT invoice or VAT official receipt for a VAT-exempt transaction, but fails to display prominently on the invoice or receipt the words "VAT-exempt sale", the purchaser shall: a. be entitled to claim an input tax credit on his purchase. b. ask for a refund of the VAT erroneously included in the VAT invoice or VAT official receipt. c. not entitled to claim an input tax credit on his purchase because there is no passed-on VAT. d. consider the transaction erroneous and must be disregarded.

Answer: A References: Section 113 (D) (2), NIRC, as amended Section 4.113-4 (B), Revenue Regulations No. 16-2005

17. Every person liable to pay VAT shall file a quarterly return of the amount of his quarterly gross sales or receipts within how many days following the close of taxable quarter using the latest version of Quarterly VAT Return? a. Thirty (30) days c. Twenty (20) days b. Twenty-five (25) days d. Ten (10) days

Answer: B References: Section 114 (A), NIRC, as amended Section 4.114-1 (A), Revenue Regulations No. 16-2005

18. For VAT purposes, the term "taxable quarter" shall mean: a. calendar quarter whether the taxpayer uses fiscal or calendar quarter for income tax purposes. b. fiscal quarter whether the taxpayer uses fiscal or calendar quarter for income tax purposes. c. the quarter that is synchronized to the income tax quarter of the taxpayer. d. none of the choices.

Answer: C Reference: Section 4.114-1(A), Revenue Regulations No. 16-2005

226


19. First statement: Amounts reflected in the monthly VAT declarations for the first two (2) months of the quarter shall not be included in the quarterly VAT return because the VAT on the monthly declarations had already been paid. Second statement: Payments in the monthly VAT declarations shall be credited in the quarterly VAT return to arrive at the net VAT payable or excess input tax/ overpayment as of the end of a quarter. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct Answer: D Reference: Section 4.114-1(A), Revenue Regulations No. 16-2005

20. When shall the manual monthly VAT Declarations (BIR Form 2550M) of taxpayers whether large o.r non-large be filed and the taxes paid? a. Not later than the 25th day following the end of each month b. Not later than the 20th day following the end of each month c. Not later than the lOth day following the end of each month d. None of the choices Answer: B Reference: Section 4.114-1 (A), Revenue Regulations No. 16-2005

21. When shall the return for withholding of VAT be filed? a. On or before the 25th day of the following month of withholding b. On or before the 20th day of the following month of withholding c. On or before the lOth day of the following month of withholding d. On or before the 5th day of the following month of withholding Answer: C Reference: Section 4.114-1(A), Revenue Regulations No. 16-2005


22. For purposes of filing returns under the Electronic Filing and Payment System (EFPS) the taxpayers classified under Group A shall be required to file Monthly VAT Declarations on or before: a. 25 days following the end of the month. b. 24 days following the end of the month. c. 23 days following the end of the month. d. 22 days following the end of the month.

Answer: A Reference: Section 4.114-1(A), Revenue Regulations No. 16-2005 For purposes of filing retums under the EFPS, the taxpayers classified under the following business industries shall be required to file Monthly Value-Added Tax Retums on or before the dates prescribed and presented below: Monthly Percentage Tax Return Group A 25 days following end of the month Group B 24 days following end ofthe month Group C 23 days following end ofthe month Group D 22 days following end of the month GroupE 21 days following end ofthe month

23. Suppose the accounting period adopted by the taxpayer is fiscal year ending October 2011, when is the due date for the filing of his monthly VAT declarations for the first and second month of the first fiscal quarter? a. November 20, 2011 and December 20, 2011 b. August 20, 2011 and September 20, 2011 c. November 20, 2010 and December 20, 2010 d. December 20, 2010 and January 20, 2011

Answer: D Reference: Section 4.114-1(A), Revenue Regulations No. 16-2005 If the fiscal year ends October 2011, the first quarter shall cover the months of Novemper, 2010, December 2010 and January 2011.

For the month of November, 2010, the due is December 20, 2010. For the month of December, 201 0, the due date is January 20, 2011.


24. Which of the following is not subject to the advance payment of VAT? a. Sale of refined sugar b. Sale of flour milled from wheat, which is imported and declared for flour milling c. Purchases by flour millers of imported wheat from traders to be paid by the flour miller prior to delivery d. Importation of wheat by any trader

Answer: D Reference: Section 4.114-1(B) 1 and 2, Revenue Regulations No. 16-2005

25. First statement: The amount of advance VAT payments made by the flour miller shall be allowed as tax credit against liability I payable of the flour miller. Second statement: The Payment Order, together with the deposit slip issued by the AAB or the ROR issued by the RCO, shall serve as proof for the credit of such advance payment. a. Both statements are correct b. Both statements are incorrect c. Only the first statement ·is correct d. Only the second statement is correct

Answer: A Reference: Section 4.114-1(B) 2e, Revenue Regulations No. 16-2005

26. Any person who retires from business with due notice to the BIR office where the taxpayer (head office) is registered or whose VAT registration has been cancelled shall file final quarterly return and pay the tax due thereon within how many days from the end of the month when the business ceases to operate or when VAT registration has been officially cancelled? a. 60 days c. 30 days b. 45 days d. 25 days

Answer: D Reference: Section 4.114-1(C), Revenue Regulations No. 16-2005


is the effective date of VAT registration? First day of the month following the registration Date of registration First day of the taxable year None of the choices

229


Answer: A Reference: Section 4.114-1(C), Revenue Regulations No. 16-2005

28. If the effective date of registration falls on the first and second month of the taxable quarter: I- initial monthly VAT declaration shall be filed within 20 days after the end of the month. II - initial quarterly return shall be filed on or before the 25th day after the end of the taxable quarter. a. b.


c. d.


Answer: A Reference: Section 4.114- (C), Revenue Regulations No. 16-2005

29. If the effective date of registration falls on the third month of the taxable quarter: I - no monthly VAT declaration need be filed for the initial quarter. II - initial quarterly return shall be filed on or before the 25th day of the month following the end of the quarter. a. b.

Both I and !I are correct Neither I nor II is correct

c. d.

Only I is correct o·nly II is correct

Answer: A Reference: Section 4.114-1(C), Revenue Regulations No. 16-2005

30. The monthly VAT declaration and quarterly return shall be filed, and VAT due thereon paid to: a. an AAB under the jurisdiction of the Revenue District/ BIR Office where the taxpayer (head office of the business establishment) is required to be registered. b. an AAB under the jurisdiction of the Revenue District/BIR Office where the Chief Executive Officer resides. c. an AAB under the jurisdiction of the Revenue District/SIR Office where the external auditor holds its office. d. none of the choices.

Answer: A Reference: Section 4.114-1(0), Revenue Regulations No. 16-2005

230


-----2~~--~------------------------------

31. In cases where there are no duly accredited agent'banks (AABs) within the municipality or city, the monthly VAT declaration and quarterly VAT return, shall be filed with and any amount due shall be paid to the following, except: a. Revenue District Office where such taxpayer (head office of the business establishment) is required to be registered. b. Collection Agent where such taxpayer (head office ofthe business establishment) is required to be registered. c. duly authorized Treasurer of the Municipality of City where such taxpayer (head office of the business establishment) is required to be registered. d. none of the choices. Answer: D Reference: Section 4.114-1(D), Revenue Regulations No. 16-2005

32. The quarterly VAT return and the monthly VAT declaration, where no payment is involved, shall be filed with the following, except: a. RDO/LTDO/Large Taxpayers Assistance Division (LTAD) where the taxpayer (head office of the business establishment) is registered or required to be registered. b. Collection Agent where the taxpayer (head office of the business establishment) is registered or required to be registered. c. duly authorized Municipal/City Treasurer of Municipality/City where the taxpayer (head office of the business establishment) is registered or required to be registered. d. an AAB under the jurisdiction of the Revenue DistrictjBIR Office where the taxpayer (head office of the business establishment) is required to be registered. Answer: D Reference: Section 4.114-1(D), Revenue Regulations No. 16-2005

231


33. Which of the following statements is correct with regards to filing of VAT returns and declarations for a person with several lines of business subject to VAT? a. Only one consolidated quarterly VAT return or monthly VAT declaration covering the results of operation of the head office as well as branches shall be filed for every return period. b. Separate quarterly VAT return or monthly VAT declaration covering the results of operation of the head office as well as branches shall be filed for every return period. c. Consolidated or separate quarterly VAT return or monthly VAT declaration covering the results of operation of the head office as well as branches shall be filed for every return period depending on the convenience of the taxpayer. d. No quarterly VAT return or monthly VAT declaration covering the results of operation of the head office as well as branches shall be filed for every return period.

Answer: A Reference: Section 4.114-1(D), Revenue Regulations No. 16-2005

34. All persons liable to VAT such as manufacturers, wholesalers, service-providers, among others, shall be required to submit summary lists of sales/receipts if their quarterly sales: a. exceed P2,500,000. ,, b. amount to P2,500,000 or less. c. exceed Pl,OOO,OOO. d. answer not given.

Answer: A Reference: Section 4.114-3 a. ( 1), Revenue Regulations No. 16-2005

35. All persons liable to VAT such as manufacturers, wholesalers, service-providers, among others, shall be required to submit summary lists of purchases l.f their quarterly purchases: a. exceed Pl,OOO,OOO. ''', :(' b. amount to Pl ,000,000 or less. c. regardless of the amount of quarterly purchases. d. answer not given.

Answer: A Reference: Section 4.114-3 a. (2), Revenue Regulations No. -162005

232


36. When shall the quarterly summary list of sales or purchases, whichever is applicable, be submitted in diskette form to the RDO or LTDO or LTAD having jurisdiction over the taxpayer? a. On or before the 30th day of the month following the close of the taxable quarter (VAT quarter)-calendar quarter or fiscal quarter b. On or before the 25th day of the month following the close of the taxable quarter (VAT quarter) -calendar quarter or fiscal quarter c. On or before the 20th day of the month following the close of the taxable quarter (VAT quarter)-calendar quarter or fiscal quarter d. On or before the 15th day of the month following the close of the taxable quarter (VAT quarter)-calendar quarter or fiscal quarter Answer: B Reference: Section 4.114-3 b., Revenue Regulations No. 16-2005

37. Taxpayers under the jurisdiction of the LTS, and those enrolled under the EFPS, shall, through electronic filing facility submit their Summary List of Sales/Purchases to the RDO/LTDOjLTAD: a. on or before the 30th day of the month following the close of the taxable quarter. b. on or before the 25th day of the month following the close of the ta'Cable quarter. c. on or before the 20th day of the month following the close of the taxable quarter. d. on or before the 15th day of the month following the close of the taxable quarter. Answer: A Reference: Section 4.114-3 b., Revenue Regulations No. 16-2005

233


38. Which of the following statements is incorrect? a. The quarterly summary list must contain the monthly total sales generated from regular buyers/customers, regardless of the amount of sale per buyer/ customer, as well as from casual buyers I customers with individual sales amounting to PlOO,OOO.OO or more. b. The term "regular buyers/ customers" shall refer to buyers/ customers who are engaged in business or exercise of profession and those with whom the taxpayer has transacted at least six (6) transactions regardless of amount per transaction either in the previous year or current year. c. The term "casual buyers/ customers", on the other hand, shall refer to buyers/ customers who are engaged in business or exercise of profession but did not qualify as regular buyers/ customers. d. Information pertaining to sales made to buyers not engaged in business or practice of profession (e.g., foreign embassies) may not be required from the seller.

Answer: D Reference: Section 4.114-3 c., Revenue Regulations No. 16-2005

39. Which of the following statements is incorrect? a. The summary schedules of sales to regular buyers/ customers shall not only refer to sales subject to VAT but shall likewise include sales subject to final VAT withheld, exempt and zerorated sales. b. The summary schedule of purchases likewise shall not only refer to purchases subject to VAT but also to exempt and zero-rated purchases. c. The names of sellers/ suppliers/ service-providers and the buyers/ customers shall be alphabetically arranged and presented in the schedules. d. None of the choices.

Answer: D Reference: Section 4.114-3 e. ( 1 ), (2) and (3), Revenue Regulations No. 16-2005

234


40. If the total quarterly sales amounted to P3,000,000 and the total quarterly purchases amounted to P900,000, what summary list/ s shall be submitted? a. Summary list of sales and summary list of purchases b. Summary list of sales only c. Summary list of purchases only d. None of the choices Answer: B Reference: Section 4.114-3 e. (7) (a), Revenue Regulations No. 16-2005

41. If the total quarterly sales amounted to P2,000,000 and the total quarterly purchases amounted to P1,500,000, what summary listjs shall be submitted? a. Summary list of sales and summary list of purchases b. Summary list of sales only c. Summary list of purchases only d. None of the choices Answer: C Reference: Section 4.114-3 e. (7) (a) and g., Revenue Regulations No. 16-2005 ·

42. First statement: Once any of the taxable quarters total sales andjor purchases exceed the threshold amount for summary lists, VAT taxpayer, shall be further required to submit the summary lists for the next three (3) succeeding quarters, regardless of whether or not such succeeding taxable quarter sales and/ or purchases exceed the set threshold amounts for summary lists. Second statement: The Quarterly Summary List of Sales and Purchases shall be submitted directly to the RDO or LTDO or LTAD having jurisdiction over the taxpayer on the same date when the Quarterly VAT return is due for filing with and the tax .thereon due for payment to the appropriate AAB or BIR Office, whichever is applicable. a .. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct Answer: A Reference: Section 4.114-3 e. (7) (b), Revenue Regulations No. 16-2005

235


43. In addition to other administrative and penal sanctions provided for in the Tax Code and implementing regulations, the Commissioner of Internal Revenue or his duly authorized representative may order suspension or closure of a business establishment for a period of how many days? a. Not less than 15 days c. Not less thar1 7 days b. Not less than 10 days d. Not less than 5 days


44. In addition to other administrative and penal sanctions provided for in the Tax Code and implementing regulations, the Commissioner of Internal Revenue or his duly authorized representative may order suspension or closure of a business establishment for any of the following violations, except: a. failure to issue receipts and invoices. b. failure to file VAT return as required under the provisions of Sec. 114 of the Tax Code. c. understatement of taxable sales or receipts by 20% or more of his correct taxable sales or receipt for the taxable quarter. d. failure of any person to register as iequired under the provisions of Sec. 236 of the Tax Code.

Answer: C Reference: Section 4.115-1 (a) (1), (2), (3) and (4), Revenue Regulations No. 16-2005 Letter c is incorrect. Revenue Regulations No. 16-2005 provides: Xxx (1) XXX (2) XXX

(3) Understatement of taxable sales or receipts by 30% or more of his correct taxable sales or receipt for the taxable quarter. (4)

XXX

236

-----·-·-----··----·---

.


Section 2, Revenue Regulations No. 26-2002

Business Industry

Period for filing of Monthly VAT

Returns Group A

Insurance and Pension Funding Activities Auxiliary to Financial Intermediation Construction Water Transport Hotels and Restaurants Land Transport

25 days following the end of the month

GroupB

Manufacture & Repair of Furniture Manufacture of Basic Metals Manufacture of Chemicals and Chemical Products Manufacture of Coke, Refined Petroleum & Fuel Products Manufacture of Electrical Machinery & Apparatus N.E.C. Manufacture of Fabricated Metal Products Manufacture of Food, Products & Beverages Manufacture of Machinery & Equipment NEC Manufacture of Medical, Precision, Optical Instruments Manufacture of Motor Vehicles, Trailers & Semi-Trailers Manufacture of Office, Accounting & . Computing Machinery Manufacture of Other Non-Metallic Mineral Products Manufacture of Other Transport Equipment Manufacture of Other Wearing Apparel Manufacture of Paper and Paper Products Manufacture of Radio, TV & Communication Equipment/ Apparatus Manufacture of Rubber & Plastic Products Manufacture of Textiles Manufacture of Tobacco Products Manufacture of Wood & Wood Products Manufacturing N.E.C. Metallic Ore Mining Non-Metallic Mining & Quarrying


237


Business Industry

Group C

Retail Sale Wholesale Trade and Commission Trade Sale, Maintenance, Repair of Motor Vehicle, Sale of Automotive Fuel Collection, Purification And Distribution of Water Computer and Related Activities Real Estate Activities ~c~~-------------------------4----------~

I

Group D

Air Transport

-

Electricity, Gas, Steam & Hot Water Supply Postal & Telecommunications Publishing, Printing & Reproduction of Recorded Media Recreational, Cultural & Sporting Activities Recycling Renting of Goods & Equipment Supporting & Auxiliary Transport Activities

__E_____________________________________

~G_r_o_u_p

Activities of Membership Organizations Inc. Health and Social Work Public Admin & Defense Compulsory Social Security Research and Development Agricultural, Hunting, and Forestry Farming of Animals Fishing Other Service Activities Miscellaneous Business Activities Unclassified

I I'll

I

I

day-s . 22 following the end of the month I ,

1111

J 1

'I

I ~----------

[ I

I

21 days follovving the I end of the I month

I I I

.I I I

I I

I

~

238

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Chapter 17 OTHER PERCENTAGE TAXES Some tfiings in t!ie wor(a are far more important tfian 'Wca(tfi; one of tfiem is t!ie a6i{ity to enjoy simp(e tfiings. - rDa(e Carnegie


1. A business tax that is based on a given ratio between the gross sales or receipts and the burden imposed upon the taxpayer which is based on a set ratio between the volume of sales and the amount of the tax. c. Donor's tax a. Percentage tax b. Income tax d. Documentary stamp tax

Answer: A

2. ~*

First statement: Other percentage taxes are indirect taxes that can be

passed on by person required to pay to another person who shall bear the burden of the tax. Second statement: Persons and transactions that are subject to the other percentage taxes are no longer subject to the value-added tax but may be subject to excise tax. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

Answer: A Reference: Section 109 (1) (E), NIRC, as amended

~ 3. A seller of goods is not VAT-registered. His annual gross sales amount to P1,919,500 (VAT threshold amount). To what business tax is he liable? a. 3% tax on VAT-exempt persons b. 12% value-added tax c. 3% common carrier's tax d. Not subject to any percentage tax

239

Chapter 17: Other Percentage Taxes

Answer: A References: Section 116, NIRC, as amended Section 109 (X), NIRC, as amended Section 3 (e), Revenue Regulations No. 16-2011

Any person whose sales or receipts are exempt under Section 109(X) o[this Code from the payment of value-added tax and who is

not a VAT-registered person shall pay a tax equivalent to three percent (3%) of his gross quarterly sales or receipts: Provided, That cooperatives shall be exempt from the three percent (3%) gross receipts tax herein imposed (Section 116, NJRC, as amended). The Monthly Percentage Tax Returns of taxpayers, whether large or non-large, shall be filed, and taxes paid, not later than the 201h day following the end of each month (Section 2, R.R. No. 4-2002). The author opines that the 3'?,6 percentage tax under Section 116 shall be based on the gross monthly sales or receipts because of Section 2, Revenue Regulations No. 4-2002. Sale or lease of goods or properties or the performance of services other than the transactions mentioned in paragraphs (A) to ( W) of Section 109, the gross annual sales and/ or receipts do not exceed the VAT threshold amount shall be exempt from Value-Added Tax (Section 109 (X), NJRC, as amended).

1

j

First statement: Persons whose transactions are exempt from valueadded tax under Section 109 (x) because their sales or receipts do not exceed the VAT threshold amount may voluntarily apply for registration under the VAT system. Second statement: A VAT-registered person whose gross sales or -}. receipts for two (2) consecutive years did not exceed the VAT threshold amount may apply for cancellation of VAT registration and revert back to being VAT-exempt under Section 109 (x). a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

4.

Answer: C References: Section 116, NIRC, as amended Section 9.236-1(c),Revenue Regulations No. 16-2005 Section 3 (e), Revenue Regulations No. 16-2011 Any person who is exempted from VAT because his annual sales~ receipts do not exceed P 1, 91 9, 500 (new threshold) but who 1 optionally registered under the VAT system shall not be allowed to cancel his registration or the next three (3) years. __j 1

240


5. Which of the following is not subject to the 3% common carrier's tax? a. Cars for rent or hire driven by the lessee b. Transportation contractors, including persons who transport pa~sengers for ):lire c. Owners of~!'lim1U-drawn two-wheeled vehicle d. Domestic carriers by land for the transport of passengers


6. Which of the following is subject to the 3% common carrier's tax? a. Owners of banca b. Domestic carriers by land for the transport of goods or cargoes c. Domestic carriers by air.Jor the transport of passengers d. Keepers of garage


Owners of banca are exempt from the common carrier's tax.

l

Domestic carriers by land for the transport of goods or cargoes are subject to Value-Added Tax. The same is true with domestic carriers by air and water for the transport of passengers, goods or cargoes.

7.

[ I

First statement: The gross receipts of common carriers derived from their incoming and outgoing freight shall be subject to the local taxes imposed under the Local Guyernment Code. NJ'l<;ce,: · ·· ':. Second statement: The 3% common carrier's tax is based on the actual quarterly gross receipts ornrinimum.quarterly: receipts. whiehe~wer.

a. b. c. d.

Both Both Only Only

statements are correct statements are incorrect the first statement is correct the second statement is correct


241

u

-----


8. In computing the percentage tax on domestic carriers and keepers of garage, which of the following shall be considered an incorrect minimum quarterly gross receipts? a. Jeepney for hire, Manila and other cities- P65,700 b. Jeepney for hire, provincial- P32,900 c. Taxis, Manila and other cities - P98,600 d. Taxis, provincial- P49,300

Answer: D Reference: Sec. 2, Revenue Regulations No. 9-2007 The correct minimum quarterly gross receipts for provincial taxis is P65, 700.

The other minimum quarterly gross receipts are as follows: Public utility bus (not exceeding 30 passengers) - P98, 600; Public utility bus (exceeding 30 passengers but not exceeding 50 passengers- P164,200; Public utility bus (exceeding 50 passengers) - P 19 7, 100; Car for hire (with chauffeur) - P82, 1 00; Car for hire (without chauffeur)- P49,300. To get the minimum gross monthly receipts, the above amounts shall be divided by 3. This adjustment ofthe minimum quarterly gross receipts had been subsequent! suspended b1 Con ress.

9.

International carriers doing business in the Philippines is subject to the: a. 3% percentage tax of their quarterly gross receipts. b. 3% percentage tax on their actual gross receipts or minimum gross receipts whichever is higher. c. 12% value-added tax on their gross receipts. d. 0% percent value-added tax on their gross receipts.


SEC. 118 Percentage Tax on International Carriers. (A) International air carriers doing business in the Philippines shall pay a tax of three percent (3%) of their quarterly gross receipts. (B) International shipping carriers doing business in the Philippines shall pay a tax equivalent to three percent (3%) of their quarterly gross receipts. The author believes that the basis of the 3% percentage on international carrier is its monthly gross receipts because percentage taxes are now generally payable on a monthly basis per Section 2, R.R. 4-2002.

242 --·-··-·

-·-··--

---


'f 10. Which of the following franchise grantees is subject to the 2% percentage tax on franchise? a. Franchise on radio andjor television broadcasting companies the gross annual receipts in the preceding year do not exceed P10,000,000 b. Franchise on gas and water utilities c. Franchise on toll road operations d. PAGCOR and its licensees and franchisees

Answer: B Reference: Section 119, NIRC, as amended Letter a is subject to 3% percentage tax on franchise.

Letters c and d are subject to value-added tax.

11. First statement: Radio and television broadcasting companies whose annual gross receipts of the preceding year do not exceed P10,000,000 shall have the option to be registered as a value-added taxpayer and pay the tax due thereon. Second statement: Once radio and television broadcasting companies qu~ali · / to ffr{v'o .ontionally register exercise the option, said option shall 01~/U be "~a e withlh three (3) years from date of registration. a:-sot statements are correct b. Both statements are incorrect c. Only the first statement is correct ·d. Only the second statement is correct

t:·

Answer: C Reference: Section 119 ,._,N=..=.=IR=-=-=C'-'''-a=s=----=a=m==-=e:..:n::cd=-e:c_d=-----------, Provided, however, That radio and television broadcasting I companies referred to in this Section shall have an option to be I registered as a value-added taxpayer and pay the tax due thereon: P 'ded, furt. her, That once the option is exercised, said option shall evocable (Section 119, NIRC, as amended).

Xx.x

1

----------~

'*-12. How much tax shall be collected upon every overseas dispatch, message or conversation transmitted from the Philippines by telephone, telegraph, telewriter exchange, wireless and other communication equipment service? a. 3% on gross receipts on gross receipts X c. 10% on the amount paid for the services d. 12% on the amount paid for the services

.,C.s%


243


t

13. One of the following statements is incorrect. a. Overseas communications tax is imposed on overseas communications originating from the Philippines. b. The person liable to overseas communications tax may or may not be engaged in any trade or business. c. The overseas communications tax is imposed whether the overseas communications are made in the course of trade or business or not. d. The overseas communications tax is imposed on the owner of the communications facilities used to make overseas communications.

Answer: D Reference: Section 120 (A), NIRC, as amended - - - - - - - - - - - , I The tax imposed in Section 120 shall be payable by the person \. paying for the services rendered and shall be paid to the person II rendering the services who is required to collect and pay the ta_-,c thin twenty (20) days after the end of each quarter.

J

"'· 14. A VAT-registered telephone company provides services for domestic and overseas calls. What business taxes are due from the services offered? I -Value-added tax for domestic calls " II - Overseas communications tax for overseas calls originating '' from the Philippines a. Yes to I and II b. No to I and II

c. Yes to I only d. Yes to II only


15. Which of the following is subject to the tax on overseas dispatch, messages or conversation originating from the Philippines? a. Amounts paid for messages transmitted by the Government of the Republic of the Philippines or any of its political subdivisions or instrumentalities ~ b. Amounts paid for messages transmitted by any embassy and '·'<· '.•' ·,,_ .,,.f consular offices of a foreign government tJh•U~Q\rf',c. Amounts paid for messages transmitted by a public international organization or any of its agencies based in the Philippines enjoying privileges, exemptions and immunities which the Government of the Philippines is committed to recognize pursuant to an international agreement d. None of the choices

244


Answer: D Reference: Section 120 (B), NIRC, as amended Section 120 (B) Exemptions. - The tax imposed by this Section shall not apply to: (1) Government. - Amounts paid for messages transmitted by the I Government ofthe Republic of the Philippines or any of its political subdivisions or instrumentalities; (2) Diplomatic Services. - Amounts paid for messages transmitted by any embassy and consular office of a foreign government; (3) International Organizations. -Amounts paid for messages transmitted by a public international organization or any of its agencies based in the Philippines enjoying privileges, exemptions and immunities which the Government ofthe Philippines is committed to recognize pursuant to an international agreement; and (4) News Services. -Amounts paid for messages from any newspaper, press association, radio or television newspaper, broadcasting agency, or newstickers services, to any other newspaper, press association, radio or television newspaper broadcasting agency, or newsticker service or to a bona fide correspondent, which messages deal exclusively with the collection of news items for, or the dissemination of news item through public press, radio or television broadcasting or a newsticker service furnishing a general news service similar to that of the public press.

* ·

16. When is the tax on overseas dispatch, message or conversation originating from the Philippines paid? a. Thirty (30) days after the end of the month b. Twenty (20) days after the end of the month c. Twenty (20} days after the end of the quarter d. Five (5) days after the end of the quarter

Answer: C Reference: Section 120 (B), NIRC, as amended The tax imposed in Section 120 shall be payable by the person paying for the services rendered and shall be paid to the person rendering the seruices who is required to collect and pay the tax within twenty (20) days after the end of each quarter.

245 ·-·

----------


17. Banks and non-bank financial intermediaries performing quasibanking functions are subject to: a. value-added tax. c. franchise tax. b. gross receipts tax. d. amusement tax.

Answer: B \;"f, O::.Q.~rl , 3/. :.l·C:;jt.I, !";, c 1 ~';. Reference: Section 121, NIRC, as amended by November 1, 2005)

y ?'tj'~ RA 9337\(effective

18. The tax on banks and non-bank financial intermediaries performing quasi-banking functions on interest, commissions and discounts from lending activities as \Nell as income from financial leasing on instruments from which such receipts are derived with a remaining maturity of 5 years or less is: a. 7% on gross receipts. c. 1% on gross receipts. b. 5% on gross receipts. d. 0°/c, on gross receipts.

Answer: B Reference: Section 121, NIRC, as amended by RA 9337 (effective November 1, 2005)

'i 19. The lease of property, real or personal, by a bank is subject to: a. 5% gross receipts tax. c. 12% VAT. d. none of the choices. b. 7% gross receipts tax.


·,:r

20. Which of the follmving is subject to the 0% gross receipts tax? a. Gross receipts on interest, commissions and discounts from lending activities and income from financial leasing (:/. -~- b. Dividends and equity shares in net income of subsidiaries c. Royalties, rentals of property, real or personal, profits from r•·;c · 1o·"' ~ exchange and all other items treated as gross income in the Tax Code '- d. Net trading gains within the taxable year on foreign currency, 'i debt securities, derivatives and other similar financial instruments t;, 0


246


21. Which of the following is subject to the 7% gross receipts tax? a. Gross receipts on interest, commissions and discounts from lending activities and income from financial leasing b. Dividends and equity shares in net income of subsidiaries c. Net trading gains within the taxable year on foreign currency, debt securities, derivatives and other similar financial instruments d. None of the choices Answer: C Reference: Section 121, NIRC, as amended by RA 9337 (effective November 1, 2005) 22. What is the tax on the interest, commissions, discounts and all other items treated as gross income of other non-bank financial intermediaries doing business in the Philippines? " ~ a. 7% on the gross receipts c. 1% on the gross receipts '", b. 5% on the gross receipts d. 0% on the gross receipts ',,

',,,_

Answe~: B. Reference: Section 122, NIRC, as amended " 23. The tax on other n~'fi~'bQ.nk financial intermediaries on interests, commissions and discounts from lending activities, as well as income from financial leasing, will be based on the remaining maturities of the instruments from which receipts are derived, in accordance with the following schedule: I - Maturity period is five (5) years or less ................ 5% II - Maturity period is more than five (5) years ........... 1% c. d.

a. I only is correct b. II only is correct Answer: C Reference: Section 122, ~

NIR~,

,

Both I and Il are correct Neither I nor II is correct

as amended

~:)q.

OPT

24. First statement: The tax on lif~;t insurance premium applies t9 every person, company or corporl'ition doing life insurance business of any sort in the Philippines, except purely cooperative companies and associations. Second statement: A person engaged in non-life insurance business is subject to value-added tax. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct Answer: A Reference: Section 123, NIRC, as amended

247


\!,

fF

25. The tax on life insurance premium based upon the total premiums collected in the Philippines \Yhether such premiums are paid in money, notes, credits or any substitute for money is: a. 12%. c. 7%. b. 10%. d. 2%.

Answer: D References: Section 123, NIRC, as amended Section 1, Republic Act No. 1001 per Revenue Memorandum Circular No. 22-2010 ,------Ejve (51 y_egr_§_gf{~[)}lr;:~fiff£:L91{vity_QJJ[Jis. CocieJ!J..c;tJ,. no tax on life insurance remium shall be collected. (Sec. 4, R.A. No. 22-201 0)

26. Which of the following shall not be included in the tax base of tax on life insurance premiums? a. Premiums refunded within six (6) months after payment on account of rejection of risk or returned for other reason to a person insured b. Reinsurance by a company that has already paid the tax c. Premiums collected or received by any branch of a domestic corporation, firm or association doing business outside the Philippines on account of any life insurance of the insured who is a non~resident, if any tax on such premium is imposed by the foreign country where the branch is established d. All of the choices


---·-------

Xxx but premiums refunded within six {6) months after payment on account of rejection of nsk or returned for other reason to a person insured shall not be included in the taxable receipts; nor shall any tax be paid upon reinsurance by a company that has already paid the tax; nor upon premiums collected or received by any branch of a domestic corporation, fimi or association doing business outside the Philippines on account of any life insurance of the insured who is a nonresident, if any tax on such premium is imposed by the foreign country where the branch is established nor upon premiums collected or received on account of any reinsurance , if the insured, in case of personal insurance, resides outside the Philippines, if any tax on such premiums is imposed by the foreign country where the I original insurance has been issued or perfected; nor upon that I portion of the premiums collected or received by the insurance 1 companies on variable contracts (as defined in section 232(2) of I Presidential Decree No. 612), in excess ofthe amounts necessary to l insure the lives of the variable contract workers. 1

,I'

1

1

248


27. Every fire, marine or miscellaneous insurance agent authorized under the Insurance Code to procure policies of insurance as he may have previously been legally authorized to transact on risks located in the Philippines for companies not authorized to transact business in the Philippines shall pay a tax equal to: a. 12% of the total premiums collected. b. 10% of the total premiums collected. c. 5% of the total premiums collected. d. none of the choices. Answer: B Reference: Section 124, NIRC, as amended

28. First statement: The provisions of Section 124 shall not affect the right of an owner of property to apply for and obtain for himself policies in foreign companies in cases where said owner does not make use of the services of any agent, company or corporation residing or doing business in the Philippines. Second statement: In all cases where owners of property obtain insurance directly with foreign companies, it shall be the duty of said owners to report to the Insurance Commissioner and to the Commissioner of Internal Revenue each case where insurance has been so effected, and shall pay the tax of five percent (5%) on premiums paid, in the manner required by Section 123. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct Answer: A Reference: Section 124, NIRC, as amended

29. Who shall be liable to the amusement taxes under Section 125? a. Patrons of amusement places b. Lessors of amusement places c. Proprietor, lessees, or operator of amusement places d. None of the choices Answer: C Reference: Section 125, NIRC, as amended

249


30. The operator of one of the following places is not subject to amusement tax. a. Cockpits c. Bowling alleys -{7 dah CJ~· ;~o ·'' c"u'L b. Racetracks d. KTV Karaoke joints


31. First statement: All boxing exhibitions held in the Philippines shall be subject to amusement tax. Second statement: Admission charges to amusement places are required for the imposition of amusement tax. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

Answer: B Reference: Section 125, NIRC, as amended xxx Provided, however, That boxing exhibitions wherein World or Oriental Championships in any division is at stake shall be exempt from amusement tax: Provided, further, That at least one of the contenders for World or Oriental Championship is a citizen of the Philippines and said exhibitions are promoted by a citizen/ s of the Philippines or by a corporation or association at least sixty percent (60%) ofthe capital of which is owned by such citizens [Section 125 (c)};

xxx irrespective, of whether or not any amount is charged for admission [Section 125 (e)].

32. One of the following is a correct amusement tax rate. a. 30% on jai-alai and racetracks b. 18% on boxing exhibitions c. 15% on cockpits, cabarets, night and day clubs d. 10% on professional basketball games

250

~----------~-

---------


Answer: A Reference: Section 125 (a), (b), (c), (d) and (e) NIRC, as amended I SEC. 12 5. Amusement Taxes. - There shall be collected from the proprietor, lessee or operator of cockpits, cabarets, night or day clubs, boxing exhibitions, professional basketball games, Jai-Alai and racetracks, a tax equivalent to: {a) Eighteen percent {18%) in the case of cockpits; {b) Eighteen percent (18%) in the case of cabarets, night or day clubs; {c) Ten percent {1 0%) in the case of boxing exhibitions: Provided, however, That boxing exhibitions wherein World or Oriental Championships in any division is at stake shall be exempt from amusement tax: Provided, further, That at least one of the contenders for World or Oriental Championship is a citizen of the Philippines and said exhibitions are promoted by a citizen/ s of the Philippines or by a corporation or association at least sixty percent {60%) ofthe capital of which is owned by such citizens; {d) Fifteen percent {15%) in the case of professional basketball games as envisioned in Presidential Decree No. 871: Provided, however, That the tax herein shall be in lieu of all other percentage ta-xes of whatever nature and description; and {e) Thirty percent {30%) in the case of Jai-Alai and racetracks of their gross receipts, irrespective, of whether or not any amount is charged for admission.

xxx The "terms" night and day clubs and cabarets have become passe. Amusement places which offer the same pleasurable diversion entertainment and ji1nction now include videoke bars, karaoke bars, karaoke television, karaoke boxes and music lounges. I (RMC No. 18-2010 dated March 1, 2010)


is the amusement taxes under Section 125 payable? Thirty (30) days after the end of the month Twenty (20) days after the end of the month Twenty (20) days after the end of the quarter Five (5) days after the end of the quarter

Answer: C Reference: Section 125, NIRC, as amended I The taxes imposed under Section 125 shall be payable at the end of I each quarter and it shall be the duty of the proprietor, lessee or ! operator concerned, as well as any party liable, within twenty {20) i days after the end of each quarter, to make a tme and complete I return of the amount of the gross receipts derived during the L!!!_f}ced!!_1g quarter and pay the tax due ther'!__o.~n_._ _ _ _ __

~51


34. Who of the following is not subject to tax on \Vinnings under Section 126? a. Person who wins in horse races b. Winners from double, forecast/ quinella and trifecta bets c. Winners in cockfighting d. Owners of vYinning race horses


35. What is the tax base of the tax on winnings of persons who own race horses? a. Actual amount paid for every winning ticket b. Actual amount paid for every winning ticket after deducting the cost of the ticket c. Prizes d. Gross receipts


36. What is the tax base of the tax on winnings of a person who wins in horse races? a. Actual amount paid for every winning ticket b. Actual amount paid for every winning ticket after deducting the cost of the ticket c. Prizes d. Gross receipts



of the following is not subject to the 10% tax on winnings? Winnings in horse races Prize received by an owner of winning race horses Winnin_gs from double, forecast/ quinella and trifecta bets None of the choices

Answer: C Reference: Section 126, NIRC, as amended I XXX Provided, That in the case of winnings from double, , forecast/ quinella and trifecta bets, the tax shall be four percent (4%).

~----~~----------~-----------------------------------------~

38. When is the tax on horse race winnings under Section 126 payable?

252


a. Thirty (30) days after the end of the month b. Twenty (20) days after the end of the month c. 1)wenty (20) days from the date the tax was deducted and withheld d. Five (5) days after the end of the quarter

Answer: C Reference: Section 126, NIRC, as amended The operator, manager or person in charge of horse races shall, within twenty (20) days from the date the tax was deducted and withheld in accordance with the second paragraph hereof, file a true and correct return with the Commissioner in the manner or form to be prescribed by the Secretary of Finance, and pay within the same period the total amount oftax so deducted and withheld.

39. Shares of stock held as investment listed and sold through the local stock exchange shall be subject to: a. Y2 of 1% percentage tax based on gross selling price or gross value in money. b. 12% VAT based on gross income. c. capital gains tax of 5% on first P100,000 capital gain; 10% on excess of P100,000. d. 4%; 2%; 1% percentage tax based on gross selling price or gross value in money.


40. Who shall be liable to the Y2 of 1% tax on sale, barter or exchange of shares of stock listed and traded through the local stock exchange? a. Stockbroker c. Buyer or tranferee b. Seller or transferor d. Dealer in securities r. •

Answer: B . ,. Reference: Section 127 (A), NIRC, as amended Section 127 (A) Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded through the Local Stock Exchange. - There shall be levied, assessed and collected on every sale, barter, exchange, or other disposition of shares of stock listed and traded through the local stock exchange other than the sale by a dealer in securities, a tax at the rate of one-half of one percent (1 I 2 of 1%) of the gross selling pn'ce or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed which shall be paid by the seller or transferor.

[__---·-----------------------------~

253


41. Shares of stock held as investment when sold not through the local stock exchange shall be subject to: .t a. 'h of 1% percentage tax based on gross selling price or gross value in money. \r t-\L·:\· -<«- b. 12% VAT based on gross income. c. capital gains tax of 5'% on first PlOO,OOO capital gain; 10% on excess of Pi 00,000. d. 4%; 2%; 1% percentage tax based on gross selling price or gross value in money.

Answer: C References: Section 24 (C), NIRC, as amended Section 27 (D) (2), NIRC, as amended

42. A corporation where at least fifty percent (50%) in value of the outstanding capital stock or at least fifty percent (50%) of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or for not more than twenty (20) individuals. a. Closely held corporation c. Foreign corporation b. Publicly held corporation d. Domestic corporation


43. Who is the taxpayer as far as the primary public offering in the local stock exchange of closely held corporations is concerned? a. The purchaser of shares b. The corporate issuer c. The seller of the shares of stock d. The local stock exchange


44. Who is the taxpayer as far as the secondary public offering in the local stock exchange of closely held corporations is concerned? a. The purchaser of shares b. The corporate issuer c. The seller of the shares of stock d. The local stock exchange

Answer: C Reference: Section 127 (B), NIRC, as amended

254 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --------


45. If the proportion of shares of stock sold, bartered, exchanged or otherwise disposed to the total outstanding shares of stock after the listing in the local stock exchange is up to twenty-five percent (25%), the tax on shares of stock sold or exchanged through initial public offering by a closely-hold corporation shall be: a. 4% based on the gross selling price or gross value in money. b. 2% based on the gross selling price or gross value in money. c. 1% based on the gross selling price or gross value in money. d. 1;2 of 1% based on the gross selling price or gross value in money.

Answer: A Reference: Section 127 (B), NIRC, as amended Section 127 (B) Tax on Shares of Stock Sold or Exchanged Through Initial Public Offering. - There shall be levied, assessed and collected on every sale, barter, exchange or other disposition through initial public offering of shares of stock in closely held corporations, as defined herein, a tax at the rates provided hereunder based on the gross selling pn·ce or gross value in money of the shares of stock sold, bartered, exchanged or othenuise disposed in accordance with the proportion of shares of stock sold, bartered, exchanged or othenuise disposed to the total outstanding shares of stock after the listing in the local stock exchange: Up to twenty-five percent (2 5%) 4% Over twenty-five percent (25%) but not over thirty-three and one third percent (33 1/3%) 2% Over thirty-three and one third percent (33 1I 3%) 1% The tax herein imposed shall be paid by the issuing corporation in primary offering or by the seller in secondary offering.

~

46. It shall be the duty of every stock broker who effected the sale subject to the tax imposed under Section 127 (A) to collect the tax and remit the same within: a. twenty (20) days after the end of the quarter. b. ten (10) working days after the end of the month. c. five (5) days from the date of collection. d. five (5) banking days from the date of collection.

Answer: D Reference: Section 127 (C) (1), NIRC, as amended

-------------

255 ~--------------


t- 47. In case of primary offering of the shares of stock of a closely-held corporation, the corporate issuer shall file the :r:eturn and pay the corresponding tax within: a. thirty (30) days from the date of listing of the shares of stock in the local stock exchange. b. twenty (20) days from the date of listing of the shares of stock in the local stock exchange. c. ten (10) working days after the end of the month. d. five (5) banking days from the date of collection.

Answer: A c,,, :" CL ' Reference: Section 127 (C) (2), NIRC, as amended

48. In the case of secondary offering of the shares of stock of a closelyheld corporation, it shall be the duty of every stock broker who effected the sale subject to the tax to collect the tax and remit the same within: a. thirty (30) days from the date of listing of the shares of stock in the local stock exchange. b. twenty (20) days from the date of listing of the shares of stock in the local stock exchange. c. ten (10) working days after the end of the month. d. five (5) banking days from the date of collection.

Answer: D Reference: Section 127 (C) (2), NIRC, as amended

49. Any gain derived from the sale, barjter, exchange or other disposition of shares of stock under Section 1 27 shall be exempt from: I - capital gains tax imposed in Sections 24(C), 27(0)(2), 28(A)(8)(c), and 28(B)(5)(c) of the Tax Code (5% on first P100,000 and 10% on excess of P100,000). II - the regular individual or corporate income tax. a. b.


c. d.


Answer: A Reference: Section 127 (D), NIRC, as amended

256


:< 50. First statement: -The tax on sale, barter, exchange or shares of stock

listed and traded through the local stock exchange or through initial public offering shall not be deductible for inco~t:ax purposes. Second statement: The percentage taxes are genevally paid monthly. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct Answer: A References: Section 127 (D), NIRC, as amended Section 2, Revenue Regulations No. 4-2002

:L


of the following statements is incorrect? The percentage taxes are basically on sale of services. The percentage taxes are generally paid monthly. The percentage taxes may be shifted to customers or clients. An isolated transaction not in the course of trade or business will not result in a liability for a percentage tax.

Answer: D An overseas call originating from the Philippines, even once, is subject to overseas communications tax.

if made only

Sale of shares of stock through the local stock exchange, even if an isolated one, is subject to %of 1% percentage tax.


of the following is incorrect? The percentage tax is: a tax on a sale of sale of services. imposed on a sale of goods. imposed together with the value-added tax. imposed together with the excise tax.

Answer: C Reference: Section 109 (E), NIRC, as:c_::_:a=m=-e_:c_n=d~e--=d'-------------, SEC. 109. Exempt Transactions. - (1) Subject to the provisions of I Subsection (2) hereof, the following transactions shall be exempt from the value-added tax: (A) (B) (C) (D)

Xxxx Xxxx Xxxx Xxx:.,-x:

(E) Services subject to percentage tax under Title V;

257


Other Percentage Taxes (Summarized) ,------------------------,-------------------------,---,-------------

Percentage Tax Tax Base Tax Rate Sec. 116- Tax on persons exempt from I VAT under Sec. 109 (x) Gross monthly sales or 3% (annual gross sales or receipts receipts do not exceed ~P~1,~5~0~0~,0~0~0~)_______________~---------------------------4--------------Sec. 117 - Percentage tax Actual or minimum on domestic carriers and 3% monthly gross receipts keepers of garage whichever is higher , (transport of r>_assengers) Sec. 118- Percentage tax Monthly gross receipts 3% on international carriers Sec. 119- Tax on Gross receipts: franchises Franchises on radio and/ or TV broadcasting 3% companies whose annual gross receipts of the preceding year exceed P10,000,000

Sec. 120 - Tax on overseas dispatch, message or conversation originating from the Philippines Sec. 121 - Tax on banks and non-bank financial intermediaries performing quasibanking functions

Franchises on gas and water utilities Amount paid for such services (by the person who used the communications facilities) Gross receipts on interest, commissions and discounts from lending activities; income from financial leasing:

2%

10%

Remaining maturity period of instrument is 5 years or less

5%

Remaining maturity period of instrument is more than 5 years

1%

Dividends and equity shares in net income of subsidiaries;

258

---------------------------------------------------------------

0%


------------------------------

------------------

Royalties, rentals of property, real or personal, profits from exchange and all other items treated as gross income under the Tax Code

------------------------------

Sec. 122 - Tax on other non-bank financial intermediaries

7%

----------------

Net trading gains within the taxable year on foreign currency, debt securities, derivatives and other similar financial instruments Gross receipts derived from interest, commissions, discounts and all other items treated as gross income under the Tax Code

------------------------------

7%

5%

------------------

Interests, commissions and discounts from lending activities, as well as income from financial leasing: Remaining maturity of instrument is 5 years or less ------------------------------

Remaining maturity of instrument is more than 5 years Sec. 123- Tax ?nQY:~ Total premiums insurance premium;>__ I collected Sec. 124:- Tax on 'agents/ Total premiums offoreign insuran~-- '"; collected/ paid generally companies- (fire, marine,,/ -----------------------------mi~cellaneous [owner§}of property insp_rance) obtain insurance directly with foreign insurance companies Sec. 125 - Amusement Gross receipts taxes Jai-alai and race track

or

-----------------------------Cockpits, cabarets, I night or day clubs

5%

-----------------1% Afkv c; 2%

D<

C~ "-t-r

"f".r .;

f\._ c_.J;. .~·c_.,,c e

'

10%

-----------------5%

30%

---------------18%__j

259


Sec. 126 - Tax on winnings

Professional basketball games

15'/"o

Boxing exhibitions Actual amount paid for every winning ticket after deducting the cost of the ticket

10%

Winnings from double, forecast/ quinella and trifecta bets Prize of winning race horse owners Sec. 127 (A) Tax on sale, barter or exchange of shares of stock listed and traded through the local stock exchange (B) Tax on shares of stock

sold or exchanged through public offerings

",'_

-·

Gross selling price or gross value in money in accordance with the proportion of shares of stock sold, bartered, exchanged or otherwise disposed to the total outstanding shares of stock after listing in the local stock exchange Up to 25%

260

10%

4%

Over 25% but not over 33 1/3%

2%

Over 33 1/3%

1%

(

:vCJ~'I

________________

4%

Gross selling price or gross value in money

'.:.iGlnc'{

...._

10%

Chapter 18 PERCENTAGE TAXES CASES J{e wfio docs not fiope to

ct in

fias cl[ready [ost. -Jose Joaquin O[mcdo

Multiple Choice: Choose the best possible answer. .1~ ·The following data are taken from the records of Ms. Tala Datsrite,

not VAT-registered, who owns various businesses for the current year: p 300,000 Gross sales from sale of shoes and clothes Gross sales from her boutique 400,000 Gross receipts from her parlor 500,000 During the month of January, the following data are presented: Gross sales from sale of shoes and clothes P 30,000 Gross sales from her boutique 40,000 Gross receipts from her parlor 50,000 How much is the percentage tax due for the month of January? a. P2,400 c.· P3,600 b. P2,700 d. P6,000

Answer: C

~-

Gross receipts from sales of shoes and clothes Gross sales from her boutique Gross receipts from her parlor Total Tax rate

p

Percentage tax

p

p

30,000 40,000 50 000 120,000 3%

3,600

Mr. Jaime Rodriguez is the owner of a small variety store. His gross sales in any one year do not exceed the VAT threshold amount. He is not VAT-registered. The following data are taken from the books of the variety store for the month ending November 30, 2011: Merchandise inventory, October 31, 2011 P 10,000 Gross sales 45,000 Purchases from VAT-registered suppliers 35,000 How much is the percentage tax due and payable? a. P 1,650 c. P 300 b. P 1,350 d. None

261

-----------------·------------

Chapter 18: Percentage Taxes Cases

Answer: B Gross sales Tax rate

p

45,000 3%

Percentage tax

p

1 350

3. and 4. are based on the following: Ube Pas pas Bus is a common carrier by land. During a particular month, it has the following gross receipts: P1,000,000 Transport of passengers 1,500,000 Transport of goods Transport of cargoes 500,000 3.

How much is the common carrier's tax payable? a. P 120,000 c. P 60,000 b. p 90,000 d. p 30,000

4.

How much is the Value-Added Tax? a. P 360,000 b. p 240,000

c. d.

p 120,000 p 30,000

3. Answer: D Gross receipts (transport of passengers) Tax rate

p 1,000,000 30;(,

Common carrier's tax

4. Answer: B Gross receipts (transport of goods) Gross receipts (transport of cargoes) Total Tax rate

p 1,500,000

Value-added tax

262

----------------------------------------------------

500 000 2,000,000 12%


5. and 6. are based on the following: Mikai, a jeepney operator in Bacolod City, has the following receipts during a particular month: Jeepney no. 1 (net of P5,000 gasoline expenses) P 20,000 Jeepney no. 2 (gross of P4,000 gasoline expenses) 16,000

+ 5.

~

How much is the common carrier's tax due for the month? a. P 1,407 c. P 1,080 b. P 1,230 d. None of the choices.

6. Assuming the jeepney operator is engaged in provincial operation, how much is the common carrier's tax due for the month? a. P 1,407 c. P 1,080 b. P 1,230 d. None of the choices.

5. Answer: A Gross receipts- Jeepney no.1 (P20,000 + PS,OOO) (actual is higher) Gross receipts- ,Jeepney no. 2 (minimum is higher) Total Tax rate Common carrier's tax

p

25,000 21 900 46,900 3%

p

1 407

The updated minimum quarterlyr?Jross1receipts per unit of jeepneys for hire in Manila and other cities are ?65, 700. The minimum monthly gross receipts are ?21, 900 (P65, 700 divided by 3 months) (Section 2, Revenue Regulations No.9-2007). The implementation ofthe adjusted minimum quarterly receipts had been suspended.

6. Answer: B Gross receipts - Jeepney no.1 (P20,000 + PS,OOO) (actual is higher) Gross receipts- Jeepney no. 2 (actual is higher) Total Tax rate

p

25,000 16 000 41,000 3o;;,

Common carrier's tax

The updated minimum quarterly gross receipts per unit of jeepneys for hire in provinces are ?32, 900. The minimum monthly gross receipts are Pl 0, 967 (?32, 900 divided by 3 months) (Section 2, Revenue Regulations No. 9-2007). The implementation ofthe adjusted minimum quarterly receipts had been suspended.

263


7. to 9. are based on the following: Anya Company is a holder of franchise. Aside from its receipts from the use of franchise, it also leases its auditorium and theatre. In a particular month, its gross receipts from the use of franchise amount to P2,000,000. The gross receipts from the lease of its auditorium and theater amount to P800,000. i ·~.\ "'.(( · 7.

Assuming Anya Company is franchise grantee selling electricity, how much is the franchise tax due for the month? a. None c. P 84,000 b. p 60,000 d. p 336,000

8.

In connection with question no. 7, how much is the output VAT for the month using 12% rate? c. p 240,000 a. None b. p 96,000 d. p 336,000

9.

Assuming Anya Company is a franchise grantee of gas utilities, how much is the franchise tax? c. p a. P 84,000 56,000 d. p b. p 60,000 40,000

7. Answer: A [ Franchise grantee of electric utilities is subject to VAT. 8. Answer: D Gross receipts (sale of electricity) Gross receipts (lease of auditorium and theatre) Total Tax rate

p 2,000,000

Output value-added tax

P

800 000 p 2,800,000

120/r, 336 OQO

9. Answer: D Gross receipts (sale of gas) Tax rate Franchise tax

264

p 2,000,000

2o/r,


10. and 11. are based on the following: Vanderwoodsen is a radio-TV broadcasting franchise grantee. The previous year, its gross receipts did not exceed P 10,000,000. In the first month of the current year, it had the following data: Gross receipts, sale of airtime P2,000,000 Payments received from user of radio station's communications facilities for overseas 500,000 communications 700,000 Business expenses 10. How much was the franchise tax due? a. P 75,000 b. p 60,000

c. d.

p p

50,000 40,000

+ 11. How much was the overseas communications tax? a. b.

P 250,000 p 200,000

c. d.

P p

75,000 50,000

10. Answer: B Gross receipts (sale of airtime) Tax rate

p 2,000,000 3%

Franchise tax

p

.6Q_,_QQQ

Gross payments received Tax rate

p

500,000 10'%

Overseas communications tax

p

~-5.QJlQQ

11. Answer: D

12. and 13. are based on the following: Blaire Telecommunications has the follmving data for the first month of the second calendar quarter of the current year: P5,000,000 Gross receipts, domestic calls Payments received, overseas calls (originating from 3,000,000 the Philippines) Purchases of supplies used in connection with domestic calls, net of VAT 300,000 Purchases of equipment used in connection \;v·ith both domestic calls and overseas calls, net of VAT 800,000 Business expenses 1,000,000 12. How much is the overseas communications tax on payments received from persons who used the communications facilities? a. P 960,000 c. P 500,000 b. p 800,000 d. p 300,000

265 ---~--------------------------·------

I


13. How much is the VAT payable, if any? a. P 828,000 b. p 504,000

c. d.

p 468,000 None, not subject to VAT

12. Answer: D Gross payments received Tax rate

p 3,000,000 10%

Overseas communications tax

13. Answer: B Output tax on domestic calls (P5,000,000 X 12%) Less: Input taxe'S Supplies (P300,000 X 12%) Equipment (P5,000,000/P8,000,000 X P96,000)

p p

VAT Payable

600,000

36,000 60 000

96 000 f--~504~QQ

14. Agence France Press, a news service, has used communication facilities to send its news to its head office in Paris, France. During the current month, it paid a total of P500,000 for its overseas communications originating from the Philippines. How much is the overseas communications tax due? a. P 60,000 c. P 25,000 b. P 50,000 d. None Answer: D The overseas communications shall not apply to: XXX XXX XXX

(4) News Services. -Amounts paid for messages from any newspaper, press association, radio or television newspaper, broadcasting agency, or newstickers services, to any other newspaper, press association, radio or television newspaper broadcasting agency, or new sticker service or to a bona fide correspondent, which messages deal exclusively with the collect:Jzon of news items for, or the dissemination of news item through, public press, radio or television broadcasting or a newsticker service furnishing a general news service similar to that of the public press.

L_26~-·-·-~---


< 'li 15. Banco d'Brandy, Inc. has the following data for the first month of the

current year: Interest, commissions and discounts from lending activities (remaining maturity of instrument is 5 years) Income from financial leasing (remaining maturity of instrument is more than 5 years) Dividends and equity shares in net income of subsidiaries Rentals of properties Net trading gains within the taxable year on foreign currency How much is the gross receipts tax? a. P 336,000 b. p 330,000

c. d.

P5,000,000 3,000,000 1,000,000 500,000 300,000

p 320,000 p 288,000

Answer: A Interest, commissions and discounts (P5,000,000 X 5%) Income from financial leasing (P3,000,000 X 1'Yo) Dividends from equity shares (Pl,OOO,OOO x O'Yo) Rentals of properties (P500,000 X 7%) Net trading gains within the taxable year on foreign currency (300,000 X 7%)

p

250,000 30,000 0 35,000

2LOOO

Gross receipt tax

16. and 1 7. are based on the following: Bank Kat has the following income (loss): March 2011: Interest income with maturity of p 50,000 less than five (5) years 50,000 Rentals Net trading loss __, 1-·"-dl ,.,_
267 --------~-------------------------------


16. Answer: A Interest income (P50,000 X 5%,) Rentals (P50,000 X 7%)

p

2,500 3 500

Gross receipts tax

p

6 000

Interest income (PlOO,OOO X 5%) Rentals (P50,000 X 7%) Net trading gains (P20,000- PlO,OOO) X 7%

p

5,000 3,500 700

Gross receipts tax

p

9 200

17. Answer: C

18. Berta Segura, a domestic insurance company, has the following data for the current month: Premiums collected on life insurance policies P2,000,000 Premiums refunded within 6 months after the payment on account of rejection of risk (part of the tot&l premiums collected) 500,000 .·.·Reinsurance premium (tax has already· been paid) 200,000 Premiums collected by a branch doing business outside the Philippines from non-resident policy holders 300,000 How much is the tax on life insurance premiums? a. P 200,000 c. P 40,000 b. p 150,000 d. p 30,000 Answer: D

268

Premiums collected on life insurance Less: Premiums refunded Net Tax rate

p 2,000,000 500 000 1,500,000 2%

Tax on life insurance premium

p

30 000


19. and 20. are based on the following: Successful Life is engaged in insurance business. It also serves as an agent of a marine foreign insurance company. It has the following data for the current month (exclusive of applicable tax). Total premiums collected as an agent of a foreign P2,000,000 insurance company Total premiums collected from non-life 3,000,000 insurance business Purchase of supplies for use in non-life 500,000 insurance business 19. How much is the tax on total premiums collected as an agent of a foreign insurance company? a. P 300,000 c. P 150,000 b. P 200,000 d. None of the choices 20. How much is the VAT payable using 12% VAT rate? a. P 300,000 c. P 180,000 b. P 200,000 d. Not subject to VAT 19. Answer: B Total premiums collected as a foreign insurance agent Tax rate

p 2,000,000

10%

Tax on foreign !nsurance agents

20. Answer: A Output tax on premiums (non-life insurance) (P3,000,000 X 12%) Less: Input tax on supplies (PSOO,OOO X 12%) VAT payable

p

( P

360,000 60 000) 3QQ,QOO

, 21. Chiko operates a cockpit. Inside the cockpit, he also operates a restaurant and has stalls for rent. Data for the particular quarter follow: p 500,000 Gross receipts (cockpit operation) Gross receipts (restaurant operation) Sale of food 100,000 Sale of liquor 150,000 Gross rentals from stalls inside the cockpit 200,000 How much is the amusement tax due from Chiko? a. P171,000 c. P142,500 b. Pl51,650 d. P 90,000

269


Answer: A Gross receipts (P500,000+P100,000+P150,000+P200,000) P Tax rate

950,000 18%

p

171 000

Amusement tax

For the purpose of the amusement tax, the term "gross receipts" embraces all the receipts of the proprietor, lessee or operator of the amusement place. Said gross receipts also include income from television, radio and motion picture rights, if any. A person or entity or association conducting any activity subject to the tax herein imposed shall be similarly liable for said tax with respect to such portion of the receipts derived by him or it (Section 12 5, NIRC, as amended).

22. and 23. are based on the following: J. Santos promoted a world boxing championship in Manila featuring Manny Hakot, a Filipino champion. Gate receipts amounted toP 3,000,000 and additional receipts from television coverage was P2,000,000. 22. How much was the amusement tax due? a. P 750,000 c. b. P 500,000 d.

P 300,000 None

23. Assuming the boxing exhibition was for a Philippine national championship, how much was the amusement tax? a. P 750,000 c. P 300,000 b. P 500,000 d. None 22. Answer: D

xxx Provided, however, That boxing exhibitions wherein World or Oriental Championships in any division is at stake shall be exempt from amusement tax: Provided, further, That at least one of the contenders for World or Oriental Championship is a citizen of the Philippines and said exhibitions are promoted by a citizen/ s of the Philippines or by a corporation or association at least sixty percent (60%) ofthe capital of which is owned by such citizens (Section 125 I (c), NIRC, as amended). ___j 23. Answer: B

27b

Gross receipts Receipts from television coverage Gross receipts Tax rate

p 3,000,000 2 000 000 p 5,000,000 10%

Amusement tax

P

500..QQQ


24. Antonio "Bumblee Bee" Dayag is the current Philippine national boxing champion in the flyweight division. He defended his crown against the number one challenger Cris "Sigee" Espenilla in a boxing exhibition, which also featured other boxers in supporting bouts. The following data were made available after the fight: Gate receipts p 700,000 Income from live TV coverage 500,000 Income from motion picture rights 300,000 Total P1,500,000 p 500,000 Less: Prizes given to boxers Other expenses 1,700,000 2,200,000 Net loss

(P 700,000)

How much was the amusement tax due, if any? a. P 150,000 c. P 100,000 b. P 120,000 d. None Answer: A Gross receipts Tax rate

p 1,500,000 10%

Amusement tax

p__150,QOO

25. Carrie Rista, a horseracing aficionado, has the following winnings during a particular race day: p 10,000 Total winnings Cost of tickets 500 How much is the tax to be withheld from the winnings? a. P 1,000 c. P 400 b. p 950 d. p 380 Answer: B Total winnings Less; Cost of ticket Net winnings lax rate

p

10,000 500 9,500 10%

Tax to be withheld on winnings

p

950

271


26. and 27. are based on the following: Serena invested P 500,000 in shares of stock in Manila Trading Corp. The corporation's shares were listed and were traded in the local stock exchange. Serena sold her shares in the local stock exchange through her stockbroker for P350,000. 26. How much was the percentage tax on the sale? a. P 42,000 c. P 1,750 b. P 2,500 d. None ·'c

27. Assuming Serena sold the shares to Arman, a direct buyer, how much was the percentage tax on the sale? a. P 42,000 c. P 1,750 b. P 2,500 d. None 26. Answer: C Gross selling price Tax rate

p

350,000 .005

Stock transactions ta.X

p

1 75Q

27. Answer: D None. Sales made directly to buyers and not through the local stock exchange are subject to _capital gains tax based on capital gains. However, since- this sale resulted in a loss, it will not be subject to capital ains tax.

j'

28. Hope, a qealer in securities, sells P1,500,000 worth of shares she holdsas investment. The shares sold are acquired for Pl,400,000 and are listed
How much is the business tax due on the sale? a. P 12,000 c. P 5,000 b. P 7,500 d. None Answer: B Gross selling price Tax rate

p 1,500,000

.005

Stock transactions tax

While the seller is a dealer in securities, the shares sold are held by her as investment and not as inventories. Hence, the sale is subject to stock transactions tax. If the shares sold are held as inventories, the transaction shall be subject to value-added tax

272

1'


29. A closely held corporation has initially offered its shares in the Philippines Stock Exchange. The following data pertain to the initial public offering: Number of shares sold in IPO 500,000 shares Total outstanding shares, after the listing the Philippine Stock Exchange 2,000,000 shares p 10,000,000 Gross value in money of the IPO How much is the percentage tax due? a. P 400,000 b. p 200,000

c. d.

p 100,000 p 50,000

Answer: A Gross value in money Tax rate

PlO,OOO,OOO 4%


The proportion between the shares sold and the total outstanding shares does not exceed 25% (500,000/2,000,000). In such a case, the rate is 4%.

30. and 31. are based on the following: Sam Trading Company is exempt from VAT under Section 1 09 (x) because its gross receipts never exceeded P1,500,000. It is subject to the 3% percentage tax under Section 116 of the Tax Code. It files a "Notice of Availment of the Option to Pay the Tax Through Withholding Process". It furnishes a copy of the notice to its withholding agents-payors and its RDO as well as th.e RDOs of its withholding agents-payors. The following selected data are made available by Sam Trading Company: a. Sales to customers who bought the goods in the course of trade or business, net of 3% withholding tax, PlO,OOO; b. Sales to customers who bought goods not in the course of business, P15,000 _ 30. How much is the withholding percentage tax? a. P 741.00 c. P 300.00 b. p 450.00 d. p 291.00 . 31. How much is the percentage tax payable after deducting the withholding percentage tax? a. P 741.00 c. p 299.73 b. p 450.00 d. Zero

273


30. Answer: C p Gross receipts Add: Percentage tax (P10,000 X 3%) p Total Less: Withholding percentage tax (P10,000 X 3%)

Receipts, net of withholding percentage tax

p

Amount 10,000 300 10,300 300

100% 3% 103% 3%

lJLQQQ

100%

31. Answer: B Gross receipts (P10,000 + P15,000) Tax rate Percentage tax due Less: Withholding percentage tax

p

25,000 3'Yo 750 300


p

450

32. RFB Corporation, a closely-held corporation, has an authorized capital stock of 100,000,000 shares with par value of Phpl.OO/share as 6f January 1, 2011. Of the 100,000,000 authorized shares, 25,000,000 thereof is subscribed and fully paid up by the following stockholders: Mr. Estoy B. Zabala P 5,000,000 Mrs. Rowena V. Posadas 5,000,000 Mr. Conrado G. Cruz 5, 000,000 Mr. Benedict 0. Sison 5,000,000 Mrs. Linda 0. Evangelista 5,000,000 Total Shares Outstanding P25.000,000 RFB Corporation finally decides to conduct an IPO and initially offers 25,000,000 of its unissued shares to the investing public at P1.50 per share. After the IPO in March 2008, RFB Corporation's total issued shares increased from 25,000,000 to 50,000,000 shares. At the IPO, one of the existing stockholders, Mrs. Linda 0. Evangelista, has likewise decided to sell her entire 5,000,000 shares to the public at P1.50 per share. Thus, 25,000,000 shares have been offered in the primary offering and 5,000,000 shares in the secondary offering.

Question 1:_ How much is the capita'! gains tax? a. b.

P375,000 P300,000

274

-----···--------·--------------·

c. d.

P187,500 None ~~


Question 2: How much is the percentage tax on the primary offering? a. P375,000 c. P187,500 d. None b. P300,000

s Question 3: How much is the percentage tax on the secondary offering? a. P375,000 b. P300,000

c. d.

Pl87,500 None

Answers: Question 1 - D Question 2 - A Question 3 - B References: Section 127 (B), NIRC, as amended Section 6 (c.3), Revenue Regulations No. 6-2008 Question 1

None. Shares of stock listed and traded in the local stock exchange are not subject to capital gains tax. Question 2 Selling price (25,000,000 shares X Pl. SO per share) Multiplied by: Rate Percentage tax on primary offering

p 37,500,000

1% 375 000

p

The rate is 1% because the ratio of shares offered to the public over the number of shares outstanding after the listing at the local stock exchange is 50% (see chapter on other percentage taxes of Reviewer in Taxation: Book 2 by the same author.) Number issued by RFB prior to IPO Add: Number of additional shares sold through primary offering Total shares outstanding

25,000,000 25,000,000 50.000,000

Ratio: 25,000,000/50,000,000 =50%

Question 3 Selling price (5,000,000 shares X Pl.SO per share) Multiplied by: Rate Percentage tax on secondary offering

p 7,500,000 _ _ _ _4-"--0-'-"Yo

P

- ,.

;}Q_O,OOO

Ratio: 5,000,000/50,000,000 = 10%

The tax rates for percentage tax on primary and secondary offerings of shares of stock of a closely held corporation under Section 127 {B) ofthe Tax Code follow: Ratio Rate Not over 25% 4% Over 25% but not over 33 1/3% 2% Over 33 1/3% 1%

275


33_. In June 2011, RFB Corporation (same corporation in the preceding number) after the IPO that results to total outstanding shares of 50,000,000 decides to increase capitalization by offering another 30,000,000 of unissued shares to the public at P2.00jshare consequently bringing the total issued shares to 80,000,000 shares.

Question 1: How much is the capital gains tax'T'V >-:[:·, , a. P600,000 c. Pl87,500 b. P300,000 d. None ~

Question 2: How much is the percentage tax? a. P600,000 c. P187,500 b. P300,000 d. None

Answers: Questic;m 1 - D . ), Question 2 - D Reference: Section 6 (c.3), Revenue Regulations No. 6-2008

! '

} : ~, I I ~·-

Question 1 None. Shares of stock listed and traded through the local stock exchange are not subject to capital gains tax. Question 2 None. The follow-on/ follow-through sale which are shares issued subsequent to IPO shall no longer be taxed pursuant to Section 6 of RR 6-2008 (percentage tax on IPO.) The transaction, however, is subject to Documentary Stamp Tax.similar to the transaction covered by Primary Offering as well as Secondary Offering of shares of stock.

34. Mr. Benedict 0. Sison, one of the stockholders of RFB Corporation (same corporation in the preceding number), decides to sell his 5,000,000 shares to the public subsequent to IPO at P2.00 per share.

Question 1: How much is the capital gains tax? a. P400,000 c. P50,000 b. P100,000 d. None ·" ....., Question 2: How much is the percentage tax? ;;rr a. P400,000 c. P50,000 b. P100,000 d. None

276


Answers: Question 1 - D Question 2 - C References: Section 6 (2.3), Revenue Regulations No. 6-2008 Section 5, Revenue Regulations No. 6-2008 Section 127 (A), NIRC, as amended Question 1

None. Shares of stock listed and traded through the local stock exchange are not subject to capital gains tax. Question 2 Selling price (5,000,000 X P2 per share) Multiplied by: Tax rate (1/2 of Ff<,) Percentage tax

p 10,000,000 .005

In case another existing shareholder decides to offer his existing shares to the public subsequent to !PO, he shall be taxed pursuant to Section 127(A) of the Tax Code as implemented by Section 5 of RR 6-2008 which is Y2 of 1.

277

Chapter 19 RETURNS AND PAYMENT OF PERCENTAGE TAXES Procr,zstination is a major enemy ofprogress.- /In onymous


1.

First statement: The Monthly Percentage Tax returns of taxpayers, whether large or non-large, shall be filed, and taxes paid, not later than the 20th day following the end of the month; Second statement: With respect to taxpayers enrolled with EFPS classified under Group A, the deadline fore-filing the Monthly Percentage Tax Return and e-paying the tax thereon shall be 25 days following the end of the month. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct Answer: A References: Section 2, Revenue Regulations No. 4-2002 ___ Section 2, Revenue Regulations___!'!o. 26-2002

I

For purposes of filing returns under the EFPS, the taxpayers classified under the following business industries shall be required to file Monthly Percentage Tax Returns on or before the dates prescribed and presented below: Monthly Percentage Tax Return I Group A 25 days following_ end ofthe month GroupE 24 days following end of the month I Group C 23 days following end of the month Group D 22 days following end ofthe month I GroupE 21 days following_ end of the month _ _ jI

I

I. '

~

_ _ _ _ __j

2.

One of the following percentage taxes is paid on a monthly basis. a. Overseas communications tax c. Tax on winnings b. Amusement tax d. Franchise tax

Answer: D References: Section 2, Revenue Regulations No. 4-2002 Sections 120, 125 and 126, NIRC, as amended

278

- - - - - -·-------- ·--··--·--------------

Chapter 19: Returns and Payment of Percentage Taxes

3.

How is the percentage tax on the secondary offering of shares of stock of closely held corporation collected and paid? a. The stockbroker collects and remits the tax within 5 working days from the date of collectiQn. b. The stockbroker collects and remits the tax within 5 banking days from the date of collection. c. The purchaser collects and remits the tax within 5 days after the end of the quarter, fiscal or calendar. d. The local stock exchange collects and remits the tax within 5 banking days from the date of collection. · Answer: B Reference: Section 127 (A), NIRC, as amended

4. Which of the following percenltage taxes is paid on a quarterly basis? a. Common carrier's tax c. Tax on winnings b. Amusement tax d. Stock transactions tax Answer: B Reference: Section 125, NIRC, as amended

5.

Which of the following is not a large taxpayer? a. Taxpayers with P200,000 quarterly VAT payments b. Taxpayers with Pl,OOO,OOO annual income tax payments c. Taxpayers whose gross receipts are Pl,OOO,OOO per year d. Taxpayers whose net worth is P300,000,000 at the close of the taxable year Answer: C Reference: Revenue Regulations 1-98 as amended by Section 5, Revenue Regulations No. 17-2010

6.

In the case of a person whose VAT registration is cancelled and who becomes liable to the 3% tax on VAT-exempt persons, the tax shall accrue from the date of cancellation and shall be paid within: a. 10 days after the end of each taxable month. b. 15 days after the end of each taxable month. c. 20 days after the end of each taxable month. d. 30 days after the end of each taxable month. Answer: C References: Section 128 (A) (1), NIRC, as amended Section 2, Revenue Regulations No. 4-2002

279


7.

Any person retiring from a business subject to percentage tax shall notify the nearest internal revenue officer, file his return and pay the tax due thereon within how many days after closing his business? a. 10 days c. 20 days b. 15 days d. 30 days

Answer: C Reference: Section 128 (A) (2), NIRC, as amended

8.

Any person, natural or juridical, with respect to his/its purchase in the course of trade or business from a seller shall withhold at source based on the payee's (seller's) sales or receipts: I - 3% percentage tax under Sec. 116. II - The seller files a "Notice of Availment of the Option to Pay the Tax Through the Withholding Process." a. Yes to both I and II b. No to both I and II

c. d.

Yes to I only Yes to II only

Answer: A

9.

The Commissioner of Internal Revenue may prescribe a minimum amount of gross receipts under the following cases except when: a. the taxpayer fails to issue receipts or invoices. b. no return is filed. c. the taxpayer is engaged in mixed transactions and files his return not on the due date. d. there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in the return.

Answer: C Reference: Section 128 (A) (4), NIRC, as amended

10. A large taxpayer subject to percentage has its principal office in Makati City. Its President and CEO lives in Quezon City. Its warehouse is in Pasig City. Where will the taxpayer file its consolidated monthly percentage tax return? a. Authorized agent bank in Makati City b. Revenue District Office in Quezon City c. Office of the Collection Agent in Pasig City d. Any of the above as long as the correct tax is paid

280

- - - - - - --------·----


Answer: A Reference: Section 128 (B), NIRC, as amended Except as the Cormnissioner othenvise permits, every person liable to the percentage tax under this Title may, at his option, file a separate return for each branch or place of business, or a consolidated return for all branches or places of business with the authorized agent bank, Revenue District Officer, Collection Agent or duly authorized T,·easurer of the city or municipality where said business or principal place of business is located, as the case may be.

1

L

11. First statement: Bureaus, offices and instrumentalities of the government, including government-owned or controlled corporations as well as their subsidiaries, provinces, cities and municipalities making any money payment to private individuals, corporations, partnerships and/ or associations are required to deduct and withhold the (percentage) taxes from the payees on account of such money payments. Second statement: No money payments shall be made by any government office or agency unless the (percentage) taxes due thereon shall have been deducted and withheld. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

Answer: A Reference: Sec. 5.116 (A) and (B), Revenue Regulations No. 2-98

~ercentage taxes on gross money payments,

to the following shall

I be subjected to withholding: i

(1) Persons exempt from value-added tax (Sec. 116);

'

(2) (3) {4) (5)

II I

Il__

Domestic carriers and keepers of garages (Sec. 117); International carriers (Sec. 718); Franchises (Sec. 119); Banks and other non-bank financial intermediaries performing quasi-banking functions (Sec. 121 ); (6) Other non-bank financial intermediaries (Sec. 122); (7) Life insurance premiums (Sec. 123); (8) Agents offoreign insurance companies (Sec. 124); (9) Amusements (Sec. 125); (1 0) Sale, barter or exchange of shares of stock listed and traded through the local stock exchange [Sec. 127 (A)j; (11) Shares of stock sold or exchanged through initial public offering [Sec. 1 2 7 (B)).

281


12. First statement: Purchases of goods or payments for purchases of services made in the course of trade or business (including exercise of profession or calling) from a non-VAT person whose gross annual sales or receipts do not exceed the threshold amount for VAT purposes, shall be subject to a percentage tax withholding at source at the rate of three percent (3%) based on the payee's gross sales or receipts. Second statement: The withholding of the three percent (3%) percentage tax shall be made if the taxpayer-payee files a "Notice of Availment of the Option to Pay the Tax through the Withholding Process" thereby manifesting his option to remit his percentage tax through the withholding and remittance of the same by the withholding agent-payor. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

Answer: A. Reference: Sec. 5.128 (A), Revenue Regulations No. 2-98 as amended by Revenue Regulations No. 14·2003

13. A person subject to percentage tax under Sec. 116 (Non-Vat person whose gross annual sales or receipts do not exceed the threshold amount for VAT) is qualified to substituted filing of percentage tax return if: I- the said income recipient-payee has only one payor from whom he generates his income. II - a "Notice of Availment of the Substituted Filing of Percentage Tax Return" is filed with the Revenue District Office (RDO) where the income recipient is registered or required to register. a. b.


c. d.


Answer: C Reference: Sec. 5.128 (A), Revenue Regulations No. 2-98 as amended by Revenue Regulations No. 14-2003

282

- - - - - -·----------- -·---·--------


14. Which of the following shall be stated in the "Notice of Availment of the Substituted Filing of Percentage Tax Return"? a. The income-recipient is a non-VAT taxpayer, having not opted to be covered by the VAT system b. The income-recipient's actual annual gross sales or receipts or expected annual gross sales or receipts from one payor do not exceed the threshold amount for VAT purposes c. The income-recipient is opting to file under the substituted filing of percentage tax return d. All of the choices

Answer: D Reference: Sec. 5.128 (A), Revenue Regulations No. 2-98 as amended by Revenue Regulations No. 14-2003

15. When shall a payee be required to file a regular percentage tax return? Case I - If the payee has more than one payor Case II - In case the total amount of tax withheld by the payor.s who are engaged in business is incorrect Case III - If the payee has transactions with payors who are not engaged in business and therefore not obliged to withhold a. b.

In case I only In cases I and III only

c. d.

In case II only In cases I, II and III

Answer: D Reference: Sec. 5.128 (A), (D) and (E), Revenue Regulations No. 2-98 as amended by Revenue Regulations No. 14-2003

16. If done manually, the withholding 3% percentage tax shall be remitted within: a. 30 days following the end of the month the withholding was made. b. 20 days following the end of the month the withholding was made. c. l 0 days following the end of the month the withholding was made. d. 5 days follO\ving the end of the month the withholding was made.

283 ---~------·-----------


Answer: C References: Sec. 5.128 (C), Revenue Regulations No. 2-98 as amended by Revenue Regulations No. 14-2003 Section 2, Revenue Regulations No. 26-2002

For purposes of filing retums under the EFPS, however, the taxpayers classified under the following business industries shall be required to file Monthly Withholding Tax Retums, except withholding of VAT, on or before the dates prescribed and presented below: I Monthly Percentage Tax Return 15 days following end of the month Group A 14 days following end of the month - Group B I 13 days following end o_f the month Group C 12 days following end ofthe month Group D I 1 days following end ofthe month GroupE

17. Sellers of services ·whose gross receipts have been subjected to the withholding of the 3% percentage tax shall be exempt from the obligation of issuing duly registered non-VAT receipts covering their receipts of payments for services if they have: I -just one payor. II - several payors. a. Yes to I only b. Yes to II only

c. d.

Yes to I and II No to I and II

Answer: C References: Sec. 5.128 (F), Revenue Regulations No. 2-98 as amended by Revenue Regulations No. 14-2003 Section 2, Revenue Regulations No. 26-2002

Business Industry

Period for filing of Monthly Percentage Tax Returns

Group A

Insurance and Pension Funding Activities Auxiliary to Financial Intermediation Construction Water Transport Hotels and Restaurants Land Transport

284



Business Industry

Period for filing of Monthly Percentage Tax Returns

GroupB

Manufacture & Repair of Furniture Manufacture of Basic Metals Manufacture of Chemicals & Chemical Products Manufacture of Coke, Refined Petroleum & Fuel Products Manufacture of Electrical Machinery & Apparatus N.E.C. Manufacture of Fabricated Metal Products Manufacture of Food, Products & Beverages Manufacture of Machinery & Equipment NEC Manufacture of Medical, Precision, Optical Instruments Manufacture of Motor Vehicles, Trailers & Semi-Trailers Manufacture of Office, Accounting & Computing Machinery Manufacture of Other Non-Metallic Mineral Products Manufacture of Other Transport Equipment Manufacture of Other Wearing Apparel Manufacture of Paper and Paper Products Manufacture of Radio, TV & Communication Equipment/ Apparatus Manufacture of Rubber & Plastic Products Manufacture of Textiles Manufacture of Tobacco Products Manufacture of Wood & Wood Products I Manufacturing N.E.C. I Metallic Ore Mining Non-Metallic Mining & Quarrying I Group C

, Retail Sale / Wholesale Trade and Commission Trade I Sale, Maintenance, Repair of Motor Vehicle, Sale of Automotive Fuel I Collection, Purification & Distribution of Water Computer and Related Activities Real Estate Activities II



--------


~--~-

Business Industry

1

Group D

I I

i I 1

I

Air Transport Electricity, Gas, Steam & Hot Water Supply Postal & Telecommunications Publishing, Printing & Reproduction of Recorded Media Recreational, Cultural & Sporting Activities Recycling Renting of Goods & Equipment . Supporting & Auxiliarv Trans_2S)rt Activities

Period for filing of Monthly Percentage Tax Returns i

~ 22 days following the end of the month

GroupE 1

1

1

1

1

I

i 1

I ~

Activities of Membership Organizations lnc. Health and Social Work Public Admin & Defense Compulsory Social Security Research and Development Agricultural, Hunting, and Forestry Farming of Animals Fishing Other Service Activities Miscellaneous Business Activities Unclassified -----------------

21 days following the II end of the month 1

1

I

I

_j

Large taxpayers under Section 5, revenue regulations no. 17-2010 5.1 As to tax payments a. Value-added tax At least P200,000 per qu~rter (preceding yearl_j b. Excise tax At least Pl,OOO,OOO (preceding year) I c. Income tax Atleast Pl,OOO,o6o (pr~ceding year) ----~ d. Withholding tax At least Pl,OOO,OOO from all types (annual) rz-P~nt~ tax At least_ P20_0,000 per quarter (preced~g-;~ea~fj [~Doc. stamp tax _ At l~a~t P1 ,OOO,OOQ (aggregate annual) _j !

_I

5.2 As to financial condition and results of operation a. Gr9s~sale_sl!~~pts I At least Pl,OOO,OOO,_()_QQJpreceding yearl__ __~ b. Net worth --t-At least P300,000,0QO (close of each year) ! c. Gross urchases 1 At least P800,000,000 (preceding year) i d. Top corporate. -lUsted and published by the Securities andl L__ taxpayers ~~change Commissi_c~_JI__(SEC_)__________j

286 ---------------- - - - - - - - - - - - - - ·

CHAPTER 20

COMMUNITY TAX 'fVIien _you cfepencf on prayer, you wi(( receive w·liat Cjocf lias for you. - )1 nonymous


1. Which political subdivision may levy community tax? I- Cities II- Municipalities a. b.

Both I and II I only

c. d.

II only Neither I nor II

Answer: A Reference: Sec. 156, Book II, Local Taxation and Fiscal Matters, The Local Government Code of the Philippines

2. Who of the following individuals shall be liable to community tax? a. Every inhabitant of the Philippines eighteen ( 18) years of age or over who has been regularly employed on a wage or salary basis for at least thirty (30) consecutive working days during any calendar year b. Every inhabitant of the Philippines eighteen ( 18) years of age or over who is engaged in business or occupation c. Every inhabitant of the Philippines eighteen (18) years of age or over who owns real property with an aggregate assessed value of One thousand pesos (P1,00Q.OO) or more d. All of the choices Answer: D Reference: Sec. 157, Book II, Local Taxation and Fiscal Matters, The Local Government Code of the Philippines

3.

How much is the annual community tax for individuals? a. P25 c. PlO b. P20 d. P 5 Answer: D Reference: Sec. 157, Book II, Local Taxation and Fiscal Matters, The Local Government Code of the Philippines

287

Chapter 20: Community Tax

4.

How much is the annual additional community tax for individuals'? a. One peso (Pl.OO) for every One thousand pesos (Pl,OOO.OO) of income regardless of whether from business, exercise of profession or from property b. Two pesos (P2.00) for eve!)· Two thousand pesos (P2,000.00) of income regardless of whether from business, exercise of profession or from property c. Three pesos (P3.00) for every One thousand pesos (Pl,OOO.OO) of income regardless of whether from business, exercise of profession or from property d. None of the choices


5.

How much is the maximum annual additional community tax for individuals? a. P 20,000 c. p 10,000 b. p 15,000 d. p 5,000

Answer: D Reference: Sec. 157, Book II, Local Taxation and Fiscal Matters, The Local Government Code of the Philippines

6.

First statement: An individual who is required by law to file an income tax return shall pay an annual community tax.

Second statement: In the case of husband and wife, the additional tax herein imposed shall be based upon the total property owned by them and the total gross receipts or earnings derived by them. a. Only the first statement is correct b. Only the second statement is correct c. Both statements are correct d. Both statements are not correct

Answer: C Reference: Sec. 157, Book II, Local Taxation and Fiscal Matters, The Local Government Code of the Philippines

288

______

....._

----------------··

----------------·


7.

Mr. and Mrs. Jose Lee, resident citizens, had the following data for the calendar year: Mr. Jose Lee

Salaries and bonuses Assessed value of land in Manila

p

500,750 1,000,000

p

725,700 1,500,000 600,000

Mrs. Jose Lee

Gross receipts from business Assessed value of apartment house Income from apartment house

How much would be the total additional community tax due in the succeeding year aside from the P5 basic community tax of each spouse? a. P4,236 c. Pl,826 b. P2,500 d. P1,226

Answer: C Mr. Jose Lee- salaries and bonuses Mrs. Jose Lee Gross receipts from business Income from apartment house Total Divided by Basis of additional community tax Multiply by

p

p 725,700 600 000

500,750

1 325 700 p 1,826,450

p

1 000 1,826 1

Additional community tax

8.

Every corporation no matter how created or organized, whether domestic or resident foreign, engaged in or doing business in the Philippines shall pay an annual community tax of: a. One thousand pesos (Pl ,000.00). b. Five hundred pesos (P500,00). c. Two hundred pesos (P200.00). d. One hundred pesos (PlOO.OO).

Answer: B Reference: Sec. 158, Book II, Local Taxation and Fiscal Matters, The Local Government Code of the Philippines

289


9.

Every corporation no matter how created or organized, whether domestic or resident foreign, engaged in or doing business in the Philippines shall pay an annual additional tax in accordance with the following schedule: I- For every Five thousand pesos (P5,000.00) worth of real property in the Philippines owned by it during the preceding year based on the valuation used for the payment of the real property tax under existing laws, found. in the assessment rolls of the city or municipality where the real property is situatedTwo pesos (P2.00). II - For every Five thousand pesos (P5,000.00) of gross receipts or earnings derived by it from its business in the Philippines during the preceding year- Two pesos (P2,00). The dividends received by a corporation from another corporation however shall, for the purpose of the additional tax, be considered as part of the gross receipts or earnings of said corporation. a. Only I is correct b. Only II is correct c. Both I and II are not correct d. Both I and II are correct

Answer: D Reference: Sec. 158, Book II, Local Taxation and Fiscal Matters, The- Local Government Code of the Philippines

10. The maximum annual additional community tax of juridical persons lS:

a. b.

P20,000. p 15,000.

c. d.

p 10,000. p 5,000.


11. The a. b. c. d.

community tax for an individual shall be paid in the place of: residence of the individual. work of the individual. residence or work of the individual, whichever is convenient. none of the choices.


290


12. Kapatidz Corporation, domestic, had the following selected data in the preceding year: Cash sales p 3,390,000 Cost of sales 1,400,000 Operating expenses 900,000 Dividend received from a domestic corporation 50,000 Assessed value of land 500,000 Assessed value of building 700,000 Assessed value of machinery 1,500,000 How much would be the total basic and additional community taxes in the current year? · a. P2,956 c. Pl,376 b. P2,456 d. Pl,080

Answer: A p

Basic community tax Additional community tax Cash sales (3,390,000/5,000) X 2 Dividend (S0,000/5,000) X 2 Assessed value, land (500,000/S,OOO) X 2 Assessed value, building (700,000/5.000) X 2 Assessed value. machinery (1,500,000/5,000) X 2

500

p 1,356 20 200 280 2 456

600

P_2~.52

Total community tax

13. Which of the following shall be exempt from the community tax? I - Diplomatic and consular representatives II - Transient visitors when their stay in the Philippines does not exceed three (3) months a. I only b. II only

c. d.



14. The a. b. c. d.

community tax for corporations shall be paid in the place where: the Chief Executive officer resides. the External Auditor hold office. any of the principal officers files his income tax return. the principal office of the corporation is located.

291


Answer: D Reference: Sec. 160, Book II, Local Taxation and Fiscal Matters, The Local Government Code of the Philippines

15. The community tax shall accrue on the first (1st) day of January of each year which shall be paid not later than the last day of: a. January of each year. b. February of each year. c. March of each year. d. April of each year. Answer: B Reference: Sec. 161 (a), Book II, Local Taxation and Fiscal Matters, The Local Government Code of the Philippines

16. A person who reaches the age of eighteen (18) years or otherwise loses the benefit of exemption on or before the last day of June, shall be liable for the community tax on: I - the day he reaches such age. II - upon the day the exemption ends. a. Both I and II are correct b. Both I and are not correct

c. d.


Answer: A Reference: Sec. 161 (a), Book II, Local Taxation and Fiscal Matters, The Local Government Code of the Philippines

17. If a person reaches the age of eighteen (18) years or loses the benefit of exemption on or before the last day of March, how many days shall he have to pay the community tax without becoming delinquent? a. Twenty (20) days c. Five (5) days b. Fifteen (15) days d. None of the choices Answer: A Reference: Sec. 161 (a), Book II, Local Taxation and Fiscal Matters, The Local Government Code of the Philippines

292


18. Persons who come to reside in the Philippines or reach the age of eighteen (18) years on or after the first (1st) day of July of any year, or who cease to belong to an exempt class on or after the same date, shall: a. be liable to pay the community tax not later than the last day of February of each year. b. be liable to community tax not later than July 15 of each year. c. not be subject to the community tax for that year. d. none of the choices.

Answer: C Reference: Sec. 161 (a), Book II, Local Taxation and Fiscal Matters, The Local Government Code of the Philippines

19. Corporations established and organized on or before the last day of June: a. shall be liable to pay the community tax for that year. b. shall not be liable to pay the community tax for that year. c. shall be liable to pay the community tax only if it has generated income for that year. d. none of the choices.

Answer: A Reference: Sec. 161 (b), Book II, Local Taxation and Fiscal Matters, The Local Government Code of the Philippines

20. Corporations established and organized on or before the last day of March shall have how many days within which to pay the community tax without becoming delinquent? a. Twenty (20) days c. Five (5) days b. Fifteen (15) days d. None of the above


21. Corporations established and organized on or after the first day of July shall: a. not be subject to the community tax for that year. b. be liable to pay the community tax for that year. c. be liable to pay the community tax only if it has generated income for that year. d. none of the choices.

293



22. If the community tax is not paid within the time prescribed, there shall be added to the unpaid amount an interest of: a. t\v·enty-five percent (25%) per annum from the due date until it is paid. b. twenty-four percent (24%) per annum from the due date until it is paid. c. twenty percent (20%) per annum from the due date until it is paid. d. twenty percent (20%) per annum or such higher rate as may be decided by the Bureau of Internal Revenue.

Answer: B Reference: Sec. 161 (b), Book II, Local Taxation and Fiscal Matters, The Local Government Code of the Philippines

23. First statement: The husband and wife will each pay the basic community tax but they shall have a consolidated additional community tax. Second statement: A community tax certificate may also be issued to any person or corporation not subject to the community tax upon payment of One peso (Pl.OO). c. True, False a. True,True d. False, True b. False, False


24. In which of the following instances shall the presentation of community tax certificate not be required from an individual? a. When he acknowledges any document before a notary public b. When he takes the oath of office upon election or appointment to any position in the government service c. When he receives any license, certificate, or permit from any public authority d. When he registers as a voter

294

---·~-------

--------


Answer: D Reference: Sec. 163 (a), Book II, Local Taxation and Fiscal Matters, The Local Government Code of the Philippines

25. In which of the following instances shall the presentation of community tax certificate be required from an individual? a. When he pays any tax or fee b. When he receives any money from any public fund c. When he transacts other official business or receives any salary or wage from any person or corporation d. All of the choices

Answer: D Reference: Sec. 163 (a), Book II, Local Taxation and Fiscal Matters, The Local Government Code of the Philippines

26. In which of the following instances shall the presentation of community tax certificate be required from a juridical person? a. When it receives any license, certificate, or permit from any public authority b. When it pays any tax or fee c. When it receives money from public funds, or transacts other official business d. All of the choices

Answer: D Reference: Sec. 163 (b), Book II, Local Taxation and Fiscal Matters, The Local Government Code of the Philippines

27. First statement: The community tax certificate required to be presented shall be the one issued for the current year. Second statement: For the period from January until the fifteenth (15th) of April each year, the certificate issued for the preceding year shall suffice in instances where the community tax is required to be presented. a. Only the first statement is correct b. Only the se-:ond statement is correct c. Both statements are correct d. Both statements are incorrect


Answer: C Reference: Sec. 163 (c), Book II, Local Taxation and Fiscal Matters, The Local Government Code of the Philippines

28. Which of the following shall print community tax certificates and distribute the same to the cities and municipalities through the city and municipal treasurers in accordance with prescribed regulations? a. Bureau of Printing b. Bureau of Internal Revenue c. City or provincial executive d. City or provincial treasurer

Answer: B Reference: Sec. 164 (a), Book II, Local Taxation and Fiscal Matters, The Local Government Code of the Philippines

29. First statement: The proceeds of the tax shall accrue to the general funds of the cities, municipalities and barangays except a portion thereof which shall accrue to the general fund of the national government to cover the actual cost of printing and distribution of the forms and other related expenses. Second statement: The city or municipal treasurer concerned shall remit to the national treasurer the said share of the national government in the proceeds of the tax within ten (10) days after the end of each quarter. a. Both statements are true b. Both statements are false c. Only the first statement is true d. Only the second statement is false

Answer: A Reference: Sec. 164 (a), Book II, Local Taxation and Fiscal Matters, The Local Government Code of the Philippines

30. The proceeds of the community tax actually and directly collected by the city or municipal treasurer shall accrue: a. entirely to the general fund of the city or municipality concerned. b. partly to the general fuf\d of the city or municipality concerned. c. entirely to the general fund of the National Government. d. none of the choices.

296



31. Can the city or municipal treasurer deputize the barangay treasurer to collect the community tax in their respective jurisdictions? a. No, the city or municipal treasurer cannot deputize the barangay treasurer to collect the community tax in their respective jurisdictions because the Local Government Code does not allow it. b. Yes, the city or municipal treasurer can deputize the barangay treasurer to collect the community tax in their respective jurisdictions without any pre-condition. c. No, the city or municipal treasurer cannot deputize the barangay treasurer to collect the community tax in their respective jurisdictions because such act is the sole prerogative of the Bureau of Internal Revenue. d. Yes, the city or municipal treasurer can deputize the barangay treasurer to collect the community tax in their respective jurisdictions provided, however, that said barangay treasurer shall be bonded in accordance with existing laws.

Answer: D Reference: Sec. 164 (b), Book II, Local Taxation and Fiscal Matters, The Local Government Code of the Philippines

32. The proceeds of the community tax collected through the barangay treasurers shall be apportioned as follows: I - Fifty percent (SQ%) shall accrue to the general fund of the city or municipality concerned. II - Fifty percent (50%) shall accrue to the barangay where the tax is collected. a. b.

Both I and II are correct Both I and are not correct

c. d.


Answer: A Reference: Sec. 164 (c), Book II, Local Taxation and Fiscal Matters, The Local Government Code of the Philippines

297 ---

-~-------·----------------

Chapter 21 ADDITIONS TO TAX '!fie nearest way to f][ory is to stn"<·e to 6e ·wliat you u·isli to 6e tfwuglit to 6e. -Socrates


1. First statement: The additions to the tax or deficiency tax prescribed shall apply to all taxes, fees and charges imposed under the Tax Code. Second statement: The amounts so added to the tax shall be collected at the same time, in the same manner and as part of the tax. c. True, False a. True, True b. False, False d. False, True Answer: A References: Section 247 (a), NIRC, as amended Section 2, Revenue Regulations No. 12-99

2.

First statement: If the withholding agent is the Government or any of

its agencies, political subdivisions or instrumentalities, or a government-owned or controlled corporation, the employee thereof responsible for the withholding and remittance of the tax shall be personally liable for the additions to the tax prescribed herein. Second statement: The term "person", as used for the additions to the tax purposes, includes an officer or employee of a corporation who as such officer, employee or member is under a duty to perform the act in respect of which violation occur. a. True, True c. True, False b. False, False d. False, True Answer: A Reference: Section 247 (b) and (c), NIRC, as amended

298 ---·-------

Chapter 21: Additions to Tax

The following infractions were noted: I - Failure to file any return and pay the tax due thereon as required und~r the provisions of the Tax Code or rules and regulations on the date prescribed; II -Filing a return with an internal revenue officer other than those with whom the return is required to be filed, unless otherwise authorized by the Commissioner of Internal Revenue; III - Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; IV - Failure to pay the full or partial amount of tax shown on any return required to be filed under the provisions of the Tax Code or rules and regulations, or the full amount of tax due for which no return is required to be filed, on or before the date prescribed for its payment. Which of the above will be subject to the civil penalty of 25% of the amount due? c. I, II, and III only a. I and II only b. III and IV only d. All of the· above Answer: D References: Section 248, NIRC, as amended Section 4.1, Revenue Regulations No. 12-99

(Phil. CPA) In which of the following cases where civil penalties of 25% or 50% imposed by the Tax Code is not applicable? a. In case of false or fraudulent return b. Failure to pay the full amount of tax shown on any return required to be filed under the law c. Failure to file certain information required by the Tax Code d. Failure or willful neglect to file the tax return within the period prescribed by law Answer: C

(Phil. CPA) Which statement is wrong? The surcharge of 25% is imposed if: a. a tax return was not filed within the time prescribed by law. b. a tax was not paid within the time prescribed by law. c. a tax return was not filed within the time prescribed by law and at the same time the tax was not paid within the time prescribed by law. d. none of the above. Answer: D

299


6. The following cases were noted: A. Willful neglect to file the return within the period prescribed by the Tax Code or rules and regulations; B. A false or fraudulent return is willfully made; C. A person who is not VAT-registered issues an invoice or receipt showing his TIN, followed by the word "VAT". Which of the above will be subject to a 50% civil penalty of the tax or of the deficiency tax? a. A only c. A, Band C b. B only d. Neither A nor B

Answer: C Reference: Section 248 (B), NIRC, as amended Section 4.113-4 (A) (1) (iii), Revenue Regulations No. 16-2005

7.

(Phil. CPA) For filing false and fraudulent return, a surcharge is imposed. Which of the following is correct? a. 50% administrative penalty b. 50% criminal penalty c. 25% plus 50% d. 25% criminal penalty

Answer: A

8.

In one of the following cases, a return filed is not false or fraudulent. a. There is intentional substantial under declaration of income or overstatement of deduction. b. There is intentional under declaration of selling price and overvaluation of cost of property sold. c. Recurrence of the understatement of income or overstatement of deductions for more than one taxable year. d. Filing of return has been delayed for a considerable length of time.

Answer: D Reference: Section 248 (B), NIRC, as amended

300 · - - - - - - - - - ---------

-


9. Which of the following shall constitute substantial under or over declaration? I - Failure to report sales, receipts or income in an amount exceeding thirty percent (30%) of that declared per return II - Claim of deductions in an amount exceeding (30%) of actual deductions a. I only b. II only

c. d.



10. It is a civil penalty imposed by law as addition to the main tax required to be paid. c. Delinquency a. Surcharge d. Deficiency b. Interest Answer: A Reference: Section 4.1 and 4.2, Revenue Regulations No.12-99

11. First statement: There is willful neglect if the taxpayer knowingly delays the filing of income tax return. Second statement: In case the taxpayer, without notice from the Commissioner or his duly authorized representative, voluntarily files a return, only 25% surcharge shall be imposed for late filing and late payment of the tax in lieu of the 50% surcharge. a. True, True c. True, False b. False, False d. False, True Answer: A Reference: Section 4.2, Revenue Regulations No. 12-99 -------, The term "willful neglect to file the return within the period prescribed by the Tax Code" shall not apply in case the taxpayer, without notice from the Commissioner of Internal Revenue or his authorized representative, voluntarily files the said return, in which case, only 2 5% surcharge shall be imposed for late filing and late payment of the tax in lieu of the 50% surcharge. Conversely, the 50% surcharge shall be imposed in case the taxpayer files the return only after prior notice in writing from the Commissioner of Internal Revenue or his duly authorized representative (Sec:tion 4.2.1, Revenue Regulations No. 12-99).

301


12. There shall be assessed and collected on any unpaid amount of tax, interest at the rate of: a. twenty percent (20%) per annum from the date prescribed for payment until the amount is fully paid. b. twenty percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations, from the date prescribed for payment until the amount is fully paid. c. twenty-five percent (25%) per annum, or such higher rate as may be prescribed by rules and regulations, from the date prescribed for payment until the amount is fully paid. d. fifty percent (50%) per annum, or such higher rate as may be prescribed by rules and regulations, from the date prescribed for payment until the amount is fully paid.

Answer: B Reference: Section 249 (A), NIRC, as amended

13. Which of the following interests is incorrect? a. Interest on deficiency b. Interest on delinquency c. Interest on extended payment d. Interest on surcharge

Answer: D Reference: Section 249 (B), (C) and (D), NIRC, as amended

14. Which of the following cases shall be subject to delinquency interest? a. Failure to pay the amount of the tax due on any return to be filed b. Failure to pay the amount of the tax due for which no return is required c. Failure to pay a deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner d. All of the choices

Answer: D Reference: Section 249 (C), NIRC, as amended

302

------ -------

..


15. Which of the following shall be subject to interest on extended payment? I - Any person required to pay the tax who is qualified and elects to pay the tax on installment under the provisions of the Tax Code, but fails to pay the tax or any installment hereof, or any part of such amount or installment on or before the date prescribed for its payment II - Where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof a. b.

I only II only

c. d.


Answer: D Reference: Section 249 (D), NIRC, as amended

16. In the case of each failure to file an information return, statement or list, or keep any record, or supply any information required by the Tax Code or by the Commissioner on the date prescribed therefore, unless it is shown that such failure is due to reasonable cause and not to willful neglect, there shall, upon notice and demand by the Commissioner, be paid by the person failing to file, keep or supply the same: I- one thousand pesos (P1,000) for each failure. II - the aggregate amount to be imposed for all such failures during a calendar year shall not exceed Twenty-five thousand pesos (P25,000). a. b.


c. d.



17. Failure of the taxpayer to pay the tax due on the date fixed by law or indicated in the assessment notice or letter of demand. a. Surcharge c. Delinquency b. Interest d. Deficiency Answer: C

303


18. First statement: Any person required to withhold, account for, and remit a·ny tax imposed by this Code or who willfully fails to withhold such tax, or account for and remit such tax, or aids or abets in any manner to evade any such tax or the payment thereof, shall, in addition to other penalties provided for under the Chapter on additions to tax, be liable upon conviction to a penalty equal to the total amount of the tax not withheld, or not accounted for and remitted. Second statement: Any employer/withholding agent who fails or refuses to refund excess withholding tax shall, in addition to the penalties provided in the Title X of the Tax Code (Statutory Offenses and Penalties), be liable to a penalty to the total amount of refunds which was not refunded to the employee resulting from any excess of the amount withheld over the tax actually due on their return. a. Both statements are true b. Both statements are false c. Only the first statement is true d. Only the second statement is false Answer: A Reference: Section 251 and 252, NIRC, as amended

19. The amount still due and collectible from a taxpayer upon audit or investigation. a. Surcharge c. Delinquency b. Interest d. Deficiency Answer: D

20. (Phil. CPA) Which of the following violations cannot be subject to compromise? a. Failure to keep or preserve books of accounts and accounting records. b. Failure to keep books of accounts or records in a native language or English. c. Failure to have books of accounts audited and have financial statements attached to income tax return certified by an independent CPA. d. Keeping of two sets of books of accounts or records. Answer: D

304 ---··----------


21. First statement: The extra-judicial settlement of the taxpayer's criminal liability and the amount of the suggested compromise penalty shall conform to the schedule of compromise penalties provided under Revenue Memorandum Order No. 19-2007 or as revised. Second statement: A compromise in extra-judicial settlement of the taxpayer's criminal liability for his violation is consensual in character, hence, may not be imposed on the taxpayer without his consent. c. True, False a. True, True d. False, True b. False, False Answer: A

22. The income tax return for the calendar year 2003 was due for filing on April 15, 2004. The tax due was P100,000. The taxpayer voluntarily filed his tax return without notice from the BIR only on June 30, 2004.

Question 1 -How much \Vas the surcharge? a. P 50,000.00 c. P 20,000.00 b. P 25,000.00 d. None Question 2 - How much vvas the interest on delinquency? a. P 5,194.07 c. P 4,155.24 b. P 4,166.66 d. None. Question 3- How much was the total amount due? a. P 130,194.07 c. P 129,155.24 b. P129,166.66 d. None of the choices Question 1: Answer: B Question 2: Answer: C Question 3: Answer: C Reference: Section 5.1, Revenue Regulations No. 12-99 Tax per return Add: Surcharge for late filing and payment of tax (25'/o x P1 00,000) P 25,000.00 Interest on delinquency (April 15 to June 30, 2004) 4 155.24 Total amount due

Computation of interest April 15 to June 15 (2 months) (PlOO,OOO X 20% X 2/ 12) June 15 to June 30 (15 days) (PlOO,OOO X 20% X 15/365) Total

P100,000.00

29 155.24 Pl_29__J_55.::!4

p

3,333.33 821.91

p

4.155.24

305


23. The taxpayer's 2003 percentage tax return is required to be filed through the authorized agent bank under the jurisdiction of ROO East Makati. Without prior authorization from the Commissioner, the taxpayer files the return and pays the tax through an authorized agent bank under the jurisdiction of ROO Oavao City on April 15, 2004. The tax due and paid per return is P100,000.

Question 1 -How much is the surcharge? a. b.

P50,000.00 P25,000.00

c. d.

P 20,000.00 None

Question 2 - How much is the interest on delinquency/ deficiency? a. b.

P20,000.00 PlO,OOO.OO

c. d.

P6,666.67 None

Question 3- How much is the amount still due? a. b.

P145,000.00 P125,000.00

c. d.

P 31,666.67 P 25,000.00

Question 1: Answer: B Question 2: Answer: D Question 3: Answer: D Reference: Section 5.2, Revenue Regulations No. 12-99 Tax per return Add: Surcharge for filing with a wrong venue (PlOO,OOO X 25%)

Total Less: Amount already paid

p

100,000

p

25.000 125,000 100 000

.

Amount still due

24. The taxpayer did not file his income tax return for the calendar year 1997 which was due for filing on April 15, 1998. He was notified by the BIR of his failure to file the tax return, for which reason, he filed his tax return and paid the tax, only after the said notice, on June 30, 1999. The tax due per return was P100,000. How much is the total amount due excluding suggested compromise for late filing and late payment of the tax? a. P199, 155.24 c. P149, 155.24 b. P174, 155.24 d. None of the choices

306 -------------


Answer: B Reference: Section 5.3, Revenue Regulations No. 12-99 Income tax due per return Add: Surcharge for willful neglect to file the return and late payment of tax (Pl 00.000 X 50'%) Interest in delinquency

p 100,000.00

p 50,000.00 24 155.24

74 155.24

Total amount due

Computation of interest April 15, 1998 to April 15, 1999 (1 year) (P100,000 X 20%,) April 15, 1999 to ,June 15, 1999 (2 months) (PlOO,OOO X 20°/c, X 2/ 12) ,June 15, 1999toJune30, 1999(15days) (PlOO,OOO X 20'/r, X 15/365)

p

20.000.00 3,333.33 821.91

Total

25. (Adapted) Taxpayer filed on time his income ta.x return for calendar year 1997 and paid PlOO,OOO on April 15, 1998. Upon pre-audit of his return, it was disclosed that he erroneously computed the tax due. The correct amount of tax due was Pl20,000. The taxpayer was assessed for deficiency income tax in a letter of demand and assessment notice issued on June 30, 1999.

Question 1 -How much was the surcharge? a. P 50,000.00 c. P 20,000.00 b. P 25,000 d. None. Question 2 - How much was the interest on deficiency? a. P 4,831.05 c. P 24,155.25 b. p 4,833.33 d. p 28,986.30 Question 3 - How much vvas the total amount still due? a. P 124,831.05 c. P 24,833.33 b. P104,831.05 d. P 24,831.05

307


Question 1: Answer: D Question 2: Answer: A Question 3: Answer: D Reference: Section 5.4, Revenue Regulations No. 12-99 Tax due per assessment Tax per return Deficiency income tax Add: Interest on deficiency (Aprill5, 1998 to ,June 30, 1999)

p p

120,000.00 100 000.00 20,000.00 4,831.05

Amount still due

Computation o( interest April 15, 1998 to April 15, 1999 (1 year) (P20,000 X 20%) April15, 1999 to June 15, 1999 (2 months) (P20,000 X 20% X 2/ 12) ,June 15, 1999 to June 30, 1999 (15 days) (P20,000 X 20% X 15/365)

p

4,000.00 666.67 164.38

Total

26. (Adapted) ABC Corporation filed its income tax return for calendar year 1997 and paid its income tax on time shown thereunder, amounting to PlOO,OOO. Said taxpayer was investigated. Upon verification of its accounting records, it was disclosed that its deduction from gross income of representation expenses in the amount of P200,000 did not meet all the statutory requisites for deductibility. The corporation was duly notified of the said discrepancy through a Preliminary Assessment Notice. Based on the 35'Yo income tax rate on corporations applicable in the year 1997, the income tax due after investigation amounted to P170,000 after deduction of income tax paid per return filed, the basic deficiency income tax amounted to P70,000, excluding penalties. Failing to protest on time against the preliminary assessment notice, a formal letter of demand and assessment notice was issued on May 31, 1999, requiring payment of the assessment not later than June 30, 1999.

Question 1 - How much was the surcharge? a. P 50,000.00 c. P 17,500.00 b. P 25,000.00 d. None Question 2- How much was the interest on deficiency? a. P 24,155.25 c. P 16,908.67 b. P 16,916.66 d. None Question 3- How much was the total amount still due? a. P 124,155.25 c. P 86,908.67 b. P116,916.66 d. P 70,000.00

308 -·------------------------~-


Question 1: Answer: D Question 2: Answer: C Question 3: Answer: C Reference: Section 5.4 Revenue Re ulations No. 12-99 Tax due per investigation Tax per return Deficiency income tax Add: Interest on deficiency (April 15, 1998 to .June 30, 1999)

p

Amount still due

p

170,000.00 100 000.00 p 70,000.00 16 908.67 ..

86,908.67

Computation of in I Prest

April 15, 1998 to April 15, 1999 (1 year) (P70,000 X 20'Yr,) April15, 1999 to .June 15, 1999 (2 months) (P70,000 X 20'Yo X 2/ 12) ,June 15, 1999 to June 30, 1999 (15 days) (P70,000 X 20'Yr, X 15/365)

p 14,000.00

2,333.33 575.34

Total

27. (Adapted) XYZ Corporation filed its income tax return for calendar year 1997 with a net taxable income of P500,000. At the applicable income tax rate of 35% for the year 1997, its income tax amounted to Pl75,000. However, upon investigation, it was disclosed that its income tax return w'as false or fraudulent because it did not report a taxable income amounting to another P500,000. On its net income of P1,000,000, per investigation, the income tax due is P350,000. Deducting its payment per return filed, tbe deficiency, excluding penalties, amounted to P175,000. [twas duly informed of this finding through the Preliminary Assessment Notice. Failing to protest on time against the preliminary assessment notice, a formal letter of demand and assessment notice was issued on May 31, 1999 calling for payment of the deficiency income tax on or before June 30, 1999.

Question 1 - How much \vas the surcharge? a. P 175,000.00 c. P 43,750.00 b. P 87,500.00 d. None Question 2 - How much was the interest on deficiency? a. P 84,543.38 c. P 42,271.69 b. P 42,291.66 d. None Question 3- How much was the total amount due? a. P304, 771.69 c. P261 ,041.66 b. P262,500.00 d. P261,021.69

--------------

-_j


Question 1: Answer: B Question 2: Answer: C Question 3: Answer: A Reference: Section 5.4, Revenue Regulations No. 12-99 Deficiency income tax Add: Surcharge for filing false or fraudulent return (P175,000 X 50°/c,) Interest on deficiency (April 15, 1998 to June 30, 1999)

P175,000.00 87,500.00 42,271.69

129,771.69

Total amount due

Computation of interest April15, 1998 to April 15, 1999 (1 year) (P1 75,000 X 20%) April16, 1999 to June 15, 1999 (2 months) (P175,000 X 20% X 2/ 12) June 15, 1999 to June 30, 1999 (15 days) (P175,000 X 20% X 15/365) Total

p 35,000.00

5,833.33 1 438.36 P_4:_?.271._62

28. (Adapted) Using the same data in the preceding number, assume that the calendar year 1997 deficiency income tax assessment against XYZ Corporation was not paid by June 30, 1999, the deadline for payment of the assessment and assume further that this assessment had already become final and collectible. The corporation paid its tax assessment only by July 31, 1999.

Question 1 - How much was the surcharge? a. P 152,385.85 c. P 60,954.34 b. P 76,192.92 d. None Question 2- How much was the interest on deficiency? a. P 5,079.53 c. P 5,000.00 b. P 5,009.95 d. None. Question 3- How much was the total amount due excluding suggested compromise penalty for late payment? a. P462,237.07 c. P385,974.56 b. P386,044.14 d. P380,964.61

310


Question 1: Answer: B Question 2: Answer: A Question 3: Answer: B Reference: Section 5.5, Revenue Regulations No. 12-99 Total amount due Add: Surcharge for late filing (304,771.69 X 25%) Interest on delinquency (June 30; 1999 to July 31, 1999) (304,771.69 X 20% X 1/12)

P304,771.69 P76,192.92

5 079.53

Total amount due

81,272.45 P386 044.14

29. (Adapted) DEF Corporation due to financial incapacity, requested that it be allowed to pay its income tax liability per return for calendar year 1998, in the amount of Pl,OOO,OOO in four (4) monthly installments, starting April 15, 1999. Its request had been duly approved pursuant to Sec. 53 of the Tax Code.

Question 1 -How much was the amount due on April 15, 1999? a. b.

P262,500.00 P258,333.33

c. d.

P254, 166.67 P250,000.00

Question 2- How much was the amount due on May 15, 1999? a. b.

P262,500.00 P258,333.33

c. d.

P254, 166.67 P250,000.00

Question 3- How much was the amount due on June 15, 1999? a. b.

P2625,00.00 P258,333.33

c. d.

P254, 166.67 P250,000.00

Question 4- How much was the amount due on April 15, 1999? a. P262,500.00 b. P258,333.33

c. d.

P254, 166.67 P250,000.00

311

Chapter 21: .Additions to Tax

Question 1: Answer: D Question 2: Answer: A Question 3: Answer: B Question 4: Answer: C Reference: Section 5.6, Revenue Regulations No. 12-99 1.

Amount due, April15, 1999 (P1,000,000/4)

2.

Tax due Less: Payment, April15, 1999 Balance Add: Interest on extended payment (April 15 to May 15, 1999) (P750,000 X 20'1<, X 1/12)

3.

(

p 1,000,000 250 000) p 750.000

------"J--'=2 '500

Total

Ll_f22~5QO

Installment due Add: Interest on extended payment Amount due, May 15, 1999

p

Total Less: Payment, April15, 1999 Balance Add: Interest on extended payment (May 15, 1999 to ,June 15, 1999) (PSOO,OOO X 20%, X 1 I 12)

2.50,000 12 500

P762,500.00 ( ?6? 500.00) 500,000.00

8 333.33

Total

f~Q_~,3_3;3_.33

Installment due Add: Interest on extended payment

P250,000.00 g 333.33

Amount due, May 15, 1999 4.

Total Less: Payment, April15, 1999 Balance Add: Interest on extended payment (P250,000 X 20'Yo X 1/ 12) Amount due, July 15, 1999

312

P508,333.33 ( 258.333.33) 250,000.00 4 166.67 f'254,,1§§~67


30. (Adapted) GHI Corporation did not file its final adjustment income tax return for the calendf'lT year 1998 which was due on April 15, 1999. The BIR informed the corporation of its failure to file its said tax return and required that it file the same, inclusive of the 25% surcharge and 20% interest per annum penalties incident to the said omission. On May 15, 1999, it advised the corporation that its income tax due for the said year amounted to P1,000,000. The corporation due to its adverse financial condition at the moment informed the Commissioner that it would be unable to pay the entire amount, inclusive of the delinquency penalties. Hence, on May 15, 1999, it made a partial payment of P400,000. Assuming that the BIR demanded payment of the unpaid balance of its tax obligation payable by June 15, 1999, how much was the amount still due exclusive of the suggested compromise penalty for late filing and late payment? c. P762,500.00 a. P 881, 111. 11 d. None of the choices b. P866,666.67

Answer: A Reference: Section 5.6, Revenue Regulations No. 12-99 Pl ,000,000.00 Tax due Add: Surcharge for late payment (P1 ,000,000 X 25'X•) P250,000.00 Interest on delinquency (April 15,1999 to May 15, 1999) 266 666.67 (Pl,OOO,OOO X 20% Xl/12) 16 666.67 1,266,666.67 Total 400 000.00) Less: Payments 866,666.67 Balance Add: Interest on deficiency (May 15, 1999 to ,June 15, 1999) 14 444.44 (P866,666.67 X 20'Y, X I /12) Amount still due

E88L_1J).ll

31. (Phil. CPA Modified) Mr. Juan Kuan filed his donor's ta.X return and paid the tax thereon in the amount of P100,000 on July 15, 2001. The date of donation was March 16, 2001. How much was the total penalties in the form of interest collectible from him? a. P 105,000 c. P5,000 b. P 100,000 d. None Answer: C Interest on delinquency (April 15, 2001 to July 15, 2001) (PlOO.OOO X 20'Yu X 3/12)

313


32. (Phil. CPA Modified) Mr. Nama Thay died on October 15, 1999. The administrator of the estate filed the estate tax return and paid the tax shown thereon in full on April 15, 2000. In February, 2001, the administrator received an assessment notice and demand from the BIR to pay deficiency estate tax of P20,000 on or before April 15, 2001. How much was the total amount of tax payable as shown in the assessment notice? a. P 24,000 c. P 4,000 b. P 20,000 d. None of the choices

Answer: A p

Deficiency estate tax Add: Interest on deficiency (April 15, 2000 to April 15, 2001) (P20,000 X 20'%)

20,000

4 000

Total amount of tax payable per assessment

33. A taxpayer did not file his monthly VAT declaration for the month of January, 2002, which was due for filing on February 20, 2002. He was notified by the BIR of his failure to file the declaration, for which reason, he filed his declaration and paid the tax only after the said notice on June 30, 2003. The tax due per monthly VAT declaration was P100,000. How much was the total amount due on June 30, 2003? a. P 172,222.23 c. P 100,000.00 b. P 177,214.62 d. None of the choices

Answer: B Tax per return Add: Surcharge for willful neglect to file return ( 100,000 X 50%) Interest on deficiency (Feb. 20, 2002 to ,June 30, 2003)

P100,000.00 p 50,000.00

27,214.62

Total amount due

Computation of interest Feb. 20,2002 to Feb. 20,2003 (1

314

77 214.62 P17G_214.62

yea~

(PlOO,OOO X 20%) Feb. 20, 2003 to June 20, 2003 (4 months) (PlOO,OOO X 20% X 4/12) June 20, 2003 to June 30, 2003 (10 days) (P100,000 X 20% X 10/365)

p 20,000.00

Total

p 27.214.62

6,666.67 547.95

Chapter 22 REMEDIES IN GENERAL (Authority of the Commissioner to Compromise Tax Payments, Abate or Cancel Tax Liability . and Refund or Credit Taxes)
Multiple Choice: Choose the best possible answer. 1.

Except for the provision in Section 222, internal revenue taxes shall be assessed within how many years after the last day prescribed by law for the filing of the return? c. Three (3) years a. Five (5) years d. Two (2) years b. Four (4) years Answer: C Reference: Section 203, NIRC, as amended

2.

First statement: In cases where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return was filed. Second statement: A return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

Answer: A Reference: Section 203, NIRC, as amended . Section 203. Period of Limitation Upon Assessment and ~ Collection. - Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided, That in a case where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return was .filed. For purposes of this Section, a return filed before the last day prescribed by law for the filing I thereof shall be considered as filed on such last day. I

I

.

1

1 I'

315

Chapter 22: Remedies in General

3. A decedent dies on January 1, 2009. The estate tax return is filed on September 1, 2009. When is the last day to make a valid assessment? a. April 15, 2010 c. July 1, 2012 b. July 1, 2009 d. September 1, 2012

Answer: D The due date for filing the estate tax retum in this case is July 1, 2009 (within 6 months after death.) Since the retum is filed on September 1, 2009 which is beyond the period prescribed by law, the three (3)-year period shall be counted rom the da the retum is iled.

4.

A donation was made on March 14, 2009. was filed on March 31, 2009. When is the assessrrien t? c. a. March 14, 2012 d. b. April 13, 2012

The donor's tax return last day to make a valid April 14, 2012 September 14, 2012

Answer: B The due date for filing the donor's tax retum in this case is April 13, 2009 (within 30 days after the date of donation.) Since the retum is filed before the due date prescribed by law, it shall be considered as filed on such due date. Hence, the 3-year period will be counted from the due date.

5.

(Phil. CPA) As a general rule, the prescriptive period for assessment of a return filed after the date the return was due or was filed, whichever is later, is within: c. ten ( 10) years. a. three (3) years. d. fifteen (15) years. b. five (5) years.

Answer: A

6. The Commissioner of Internal Revenue has the authority to do all of the following except: a. compromise the payment of any internal revenue tax. b. cancel or abate tax liability. c. credit or refund tax. d. review the decisions of the Court of Tax Appeals.

Answer: D Reference: Section 204, NIRC as amended

316

------- - - - - - - - - - - - - - - - - - - - - - - - - - - - -


7. The Commissioner may compromise the payment of any internal revenue tax, when: I -there is a reasonable doubt as to the validity of the claim against the taxpayer II - the financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. a. Both I and II are correct b. Both I and II are incorrect



8.

(Phil. CPA) The Commissioner of Internal Revenue cannot: a. abate or cancel tax liability. b. compromise payment of internal revenue taxes. c. credit or refund taxes erroneously or illegally collected. d. compromise the criminal aspect of tax violations already filed in court. Answer: D Reference: Section 204 (A) and B), NIRC, as amended All criminal violations may be compromised except: {a) those already led in court, or (b those involvin raud.

9. Which of the following cases may not be compromised? a. Delinquent accounts b. Cases under administrative protest after issuance of the Final Notice of Assessment to the taxpayer still pending in the BIR c. Civil tax cases being disputed before the courts d. Criminal violations involving criminal tax fraud. Answer: D Reference: Section 2, Revenue Regulations No. 30-2002 The following cases may, upon taxpayer' compliance with the basi$ set forth under Section 3 of Revenue Regulations No. 30-2002, be the subject matter of compromise settlement, viz: 1). Delinquent accounts; 2). Cases under administrative protest after issuance of the Final Notice of Assessment to the taxpayer which are still pending in the Regional Offices, Revenue District Offices, Legal Service, Large Taxpayer Service (LTS), Collection Service, Enforcement Service and other offices in the National Office; 3). Civil tax cases being disputed before the courts; 4). Collection cases filed in courts; 5). Criminal violations, other than those already filed in court or those involving criminal tax fraud.

Chapter 22: Remedies in Gen€ral

10. Which of the following cases may not be compromised? a. Withholding tax cases b. Delinquent accounts with duly approved schedule of installment payments c. Estate tax cases \\·here compromise is requested on the ground of financial incapacity of the taxpayer d. All of the choices. Answer: D Reference: Section 2~ Revenue Regulatio!!~--~o. 30-2002

~

_ 1 Section 2. Cases which may be compromised. The following cases i may, upon taxpayer' compliance ruith the basis .set forth under Section J ! f Reuenue Regulutions No ..30-2002, be the subjf'ct matter of ompromise settlement, uiz:

1

1. ~nx

I

XXX

5.

I

X.XX

Exceptions: (1) ·withholding tax cases, unless the applicant-taxpayer invokes provision of law that cost doubt on the taxpayer's obligation to withhold; Cn"rninal tax fraud cases confirmed as such by the Commissioner of lntenwl Rezwnue or his duly authorized representatiue; Cn"minal violations already filed in court; (4) Delmquent account with duly approved schedule of installment payments: (5) Cases where final reports of reinvestigation or reconsideration have been issued resulting to reduction in the on"ginal assf'ssment and the taxpayer is agreeablE' to such decision by signing the required agreement fonn for the purpose; (6) Cases which become final and executory after final judgment of a court, where compromise is requested on the ground of doubrj!Jl validity ofthe assessment; , Estate tax cases where compromise is requested on the ground of I 7; financial incapacity of_the taxpaye!_._~~- -n·--~-~-----.--1

~ ;:

I I I

l(

1 1. Which of the following offer to compromise a disputed assessment may be accepted on the ground of reasonable doubt as to the validity of the assessment? a. Jeopardy assessment b. Arbitrary assessment based on presumption c. Assessment issued on or after Jarmarv 1, 1998 \Yhere demand notice allegedly failed to comply with formalities prescribed in the Tax Code d. All of the choices

318


Answer: D Reference: Section 3, Revenue Regulations No. 30-2002 I Section 3. Basis for acceptance of compromise settlement. - The Commissioner may compromise the payment of any internal revenue tax on the following grounds: 1. Doubtful validity of the assessment. - The offer to compromise a delinquent account or disputed assessment on the ground of reasonable doubt as to the validity ofthe assessment may be accepted when it is shown that: a) The delinquent account or disputed assessment is one resulting from a jeopardy assessment; or· b) The assessment seems to be arbitrary in nature, appearing to be based on presumption and there is reason to believe that it is lacking in legal and/ or factual basis; or c) The assessments were issued on or after January 1, 1998, where the demand nrJtice allegedly [ailed to comply with formalities prescribed in the Tax Code; or d) Assessments made based on the "Best Evidence Obtainable Rule" and there is reason to believe that the same can be disputed by sufficient and competent evidence; or e) The assessment was issued within the prescriptive period [or assessment as extended by the taxpayer's execution of Waiver of the Statute of Limitations the validity or authenticity of which is being questioned or at issue and there is strong reason to believe and evidence to prove that it is not authentic; or f) The assessment is based on an issue where a court of competent jurisdiction made an advance decision against the Bureau, but for which the Supreme Court has not decided upon withfinality (RR No. 8-2004); or g) The taxpayer [ailed to file an administrative protest on account of the alleged failure to receive notice of assessment and there is reason to believe that the assessment is lacking in legal and/ or factual basis; or h) The taxpayer [ailed to file a request [or reinvestigation or reconsideration within 30 days from receipt of final assessment notice and there is reason to believe that the assessment is lacking in legal and/ or factual basis; or i) The taxpayer [ailed to elevate to the Court of Tax Appeals {CTA/ an adverse decision o[the Commissioner o[Intemal Revenue, or his duly authorized representative, in some cases, within 30 days from receipt of such adverse decision and there is reason to believe that the assessment is lac kin in le al and/ or actual basis

319


12. Which of the follov:ing offer to compromise a delinquent account shall be accepted on the ground of reasonable doubt as to the validity of the assessment? a. The taxpayer failed to file an administrative protest on account of the alleged failure to receive notice of assessment b. The taxpayer failed to file a request for reinvestigation or reconsideration within 30 days from receipt of final assessment notice c. The taxpayer failed to elevate to the Court of Tax Appeals (CTA) an adverse decision of the Commissioner of Internal I~evenue

d.

All of the choices

Answer: D Reference: Section 3, Revenue Regulations No. 30-2002

13. What is the technical term for a tax assessment made by an authorized Revenue Officer (RO) without the benefit of complete or partial audit, in light of the RO's belief that the assessment and collection of a deficiency tax \vill be jeopardized by delay caused by the taxpayer's failure to comply v;ith audit and investigation requirements to present his books of accounts and/ or pertinent records, or substantiate all or any of the deductions, exemptions or credits claimed in his return'? a. Jeopardy assessment b. Arbitrary assessment based on presumption c. Assessment issued on or after January 1, 1998 \\·here demand notice allegedly failed to comply with formalities prescribed in the Tax Code d. Assessment made based on "Best Evidence Obtainable Rule"

Answer: A Reference: Section 3. 1 (a), Revenue Regulations No. 30-2002

14. Which of the following offers to compromise a disputed assessment on the ground of reasonable doubt as to the validity of the assessment may be accepted? a. Assessment made based on "Best Evidence Obtainable Rule" b. Assessment issued within the prescriptive period for assessment as extended by the taxpayer's execution of the Waiver of the Statute of Limitations c. Assessment based on an issue where a court of competent jurisdiction made an advance decision against the BIR, but for which the Supreme Court has not decided upon with finality d. All of the choices

320


Answer: D Reference: Section 3, Revenue Regulations No. 30-2002 as amended by Revenue Regulations No. 8-2004

15. The offer to compromise based on financial incapacity may be accepted upon showing the following, except when: a. the corporation ceases operation or is already dissolved. b. the taxpayer is suffering from surplus or earnings deficit resulting to impairment in the original capital by 50%. c. the taxpayer is a compensation income earner with no other source of income and the family's gross monthly compensation income does not exceed Pl 0,500, if single, or P21,000, ifmarried. d. the taxpayer does not waive in writing his privilege of the secrecy of bank deposits.

Answer: D Reference: Section 3. 2, Revenue Regulations No. 30-2002 offer to compromise based on financial incapacity may be accepted n showing that: The corporation ceased operation or is already dissolved; , 2) The taxpayer is suffering from surplus or earnings deficit resulting to impairment in the original capital by at least 50%; I 3) The taxpayer is suffering from net worth deficit, and in case of an · individual taxpayer he has no leviable/ distrainable assets other than family home; 4) The taxpayer is a compensation income earner with no other source of income and whose monthly salary is PlO,SOO or less, if single, or P21, 000 or less, if married, and has no leviable/ distrainable assets other than family home; 5) The taxpayer has been declared by any competent tribunal or authorit or bod or overnment a enc as bankru t or insolvent. 1

1

I I

16. The Commissioner shall not consider any offer for compromise

settlement on the ground of financial incapacity under the following situations, except when: a. the taxpayer has Tax Credit Certificate issued, on hand, or in transit. b. the taxpayer has a pending claim for tax refund or tax credit with the BIR, Department of Finance One-Stop Shop Tax Credit and Drawback Center and/ or other courts. c. the taxpayer has an existing finalized agreement or prospect of future agreement with any party that resulted or could result to an increase in the equity of the taxpayer at the time of the offer for compromise or at a definite future time. d. the taxpayer is suffering from a net worth deficit.

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Answer: D Reference: Section 3. 2, Revenue Regulations No. 30-2002 The Commissioner shall not consider any offer for compromise settlement on the ground offinancial incapacit!d under the following situations: 1) Taxpayer with Tax Credit Certificate (TCC) issued, on hand, or in transit; 2) Taxpayer with pending claim [or tax refund or tax credit with the BIR, Department of Finance One-Stop-Shop Tax Credit and Drawback Duty Center (Tax Revenue Group or Investment Incentive Group) and/ or the court; 3) Taxpayer with existing finalized agreement or prospect of future agreement with any party that resulted or could result to an increase in the equity of the taxpayer at the time of the offer for compromise or at a definite future time; 4) Taxpayer does not waive in writing his privilege of the secrecy of bank deposits.

17. For cases involving financial incapacity, which of the following is not subject to 10% compromise rate based on the basic assessed tax? a. Taxpayer is an individual whose sole source of income is from employment, and whose monthly salary is P10,500 or less, if single, and P21 ,000 or less, if married b. Taxpayer is an individual without any source of income c. Taxpayer has a zero net worth or negative net worth d. Taxpayer is suffering from surplus or earning deficit resulting in impairment in the original capital by at least 50% Answer: D Reference: Section 4, Revenue Regulations No. 30-2002

18. For cases involving financial incapacity, which of the following is not subject to 20% compromise rate based on the basic assessed tax? a. Dissolved corporation b. Already non-operating companies for a period of less than 3 years c. Already non-operating companies for 3 years or more as of the date of application for compromise settlement d. Taxpayer is declared insolvent or bankrupt

322 ------------------

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-·-


Answer: C Reference: Section 4. 1., Revenue Regulations No. 30-2002 Minimum% of compromise (per tax type assessment basis) 10%

20%

~

l

-40%

Basis for Compromise

1) Individual whose only source is from employment and whose monthly salary is ?10,500 or less, if single, or ?21,000 or less, if married, and has no leviable/ distrainable assets other than family home; 2) Individual without any source of income; 3) Taxpayer with zero net worth; 4) Taxpayer with negative net worth; 5) Already non-operating companies for a period of 3 years or more as of date of application for compromzse settlement 7) Dissolved corporations; 2) Already non-operating companies for a period of less than 3 years; 3) Declared insolvent, bankrupt. unless the taxpayer falls under any of the cases subject to a different percentage. Taxpayer is suffering from surplus or earnings deficit resulting to impairment in the original capital by at least SO%

19. What is the prescribed minimum percentage of compromise in case of doubtful validity of the assessment? a. 40% of the basic assessed tax b. 30% of the basic assessed tax c. 30% of the basic assessed tax d. 10% of the basic assessed tax

Answer: A Reference: Section 4. 2., Revenue Regulations No. 30-2002

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I


20. First statement: Except for offers of compromise where the approval is delegated to the Regional Evaluation Board, all compromise settlements within the jurisdiction of the National Office shall be approved by the majority of all members of the National Evaluation Board. Second statement: All decisions of the National Evaluation Board, granting the request of the taxpayer or favorable to the taxpayer, shall have the concurrence of the Commissioner of Internal Revenue. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct Answer: A Reference: Section 6, Revenue Regulations No. 30-2002

21. First statement: Offers of compromise of assessment issued by the Regional Office involving basic deficiency taxes of PSOO,OOO or less and for minor criminal violations discovered by the Regional and District Offices, shall be subject to the approval of the Regional Evaluation Board. Second statement: If the offer of compromise is less than the prescribed minimum percentage of compromise settlement, the same shall be subject to the approval of the National Evaluation Board. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct Answer: A Reference: Section 6, Revenue Regulations No. 30-2002

22. In which of the following cases shall the compromise be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners? I - Where the basic tax involved exceeds One million pesos (Pl ,000.000) II -Where the settlement offered is less than the prescribed minimum rates a. Neither I nor II b. Both I and II

c. d.

I only II only


324 ----------------

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-

-

-


23. The Commissioner of Internal Revenue may abate or cancel a tax liability, when: I - the tax or any portion thereof appears to be unjustly or excessively assessed. II - the administration and collection costs involved do not justify the collection of the amount due. a. b.




24. The following are instances when penalties and/ or interest imposed on the taxpayer may be abated or cancelled on the ground that the imposition thereof is unjust and excessive, except when the : a. filing of the return or payment of the tax is made at the wrong venue. b. taxpayer's mistake in payment of his tax is due to erroneous written official advice of a revenue officer. c. assessment is brought about or a result of the taxpayer's noncompliance with the law due to a difficult interpretation of the said law. d. taxpayer is declared insolvent or bankrupt.

Answer: D Reference: Section 2, Revenue Regulations No. 13-2001 Instances when penalties and/or interest imposed may be abated or cancelled on the ground that the imposition is untust and excessive" 1) When the filing of the retum/ payment is made at the wrong venue; 2) When the filing ofthe retum/payment of his tax is due to erroneous written official advice of a revenue officer; 3) When the taxpayer fails to file a retum and pay the tax on time due substantial losses from prolonged labor dispute, force majeure or legitimate business reverses; Note: In no. 3) above the abat~ment shall only cover the surcharge . and the compromise penalty and not the interest. 4) When the assessment is brought about or the result of the taxpayer's non-compliance with the law due to a difficult interpretation of the said law; 5) When the taxpayer Jails to file the retum and pay the correct tax on time due to circumstances beyond his control, provided however, that abatement shall cover only the surcharge and the compromise penalty and not the interest; 6) Late pa ment of the tax under meritorious circumstances.

325


25. In which of the following instances may the interest imposed be abated or cancelled on the ground that the imposition is unjust and excessive due to substantial losses? a. Labor strike for more than 6 months, which has c:aused the temporary shutdown of business b. Public turmoil c. Natural calamity such as lightning, earthquake, storm, flood and the like d. All of the choices

Answer: D Reference: Section 2.3, Revenue Regulations No. 13-2001 Instances of substantial losses from prolonged labor dispute, force majeure or legitimate business reverses: 1) Labor strike for more than 6 months, which has caused the temporary shutdown of business; 2) Public turmoil; 3) Natural calamity such as lightning, earthquake, storm, flood and the like; 4) Armed conflicts such as war or insurgency; 5) Substantial losses sustained due to fire, robbery, theft, embezzlement; 6) Continuous heavy losses incurred by the taxpayer for the last two (2) years; 7) Liquidity problem of the taxpayer for the last three (3) years; 8) Such other instances which the Commissioner may deem analogous to the enumeration above.

26. In which of the following instances may the penalties and/ or interest imposed be abated or cancelled on the ground that the imposition is unjust and excessive due to meritorious circumstances? a. One day late filing and remittance due to failure to beat bank cut-off time b. Use of wrong tax form but correct amount of tax was remitted c. Surcharge erroneously imposed d. All of the choices

Answer: D Reference: Section 2.6, Revenue Regulations No. 13-2001 Instances of meritorious circumstances: 1) One day late filing and remittance due to failure to beat bank cut-off time; 2) Use of wrong tax form but correct amount oftax was remitted; 3) Filing an amended return under meritorious circumstances, provided, however, that abatement shall cover only the penalties and not the interest; 4) Surcharge erroneously imposed; 5) Late filing ofretum due to unresolved issue on classification or valuation of real property (for capital gains tax cases, etc.);

326


6) Offsetting of taxes ofthe same kind, i.e., overpayment in one quarter or month is offset against underpayment in another quarter or month; 7) Automatic offsetting of overpayment of one kind of withholding tax against the underpayment of another kind; 8) Late remittance of withholding tax on compensation of expatriates for services rendered in the Philippines pending the issuance by the SEC of the license to the Philippine branch office or subsidiary, provided, however, that the abatement shall only cover the surcharge and the compromise penalty and not the interest; 9) Wrong use of Tax Credit Certificate (TCC) where Tax Debit Memo (TDM) was not properly applied for; 10) Such other instances which the Commissioner may deem analogous to the enumeration above.

27. In which of the following instances shall the compromise not cover the interest on the ground that the imposition thereof is unjust and excessive? a. When the taxpayer fails to file a return and pay the tax on time due to substantial losses from prolonged labor dispute, force majeure, or legitimate business reverses b. When the taxpayer fails to file the return and pay the correct tax on time due to circumstances beyond his control c. Late remittance of withholding tax on compensation of expatriates for services rendered in the Philippines pending the issuance by SEC of the license to the Philippine branch office or subsidiary d. All of the choices

Answer: D Reference: Section 2, Revenue Regulations No. 13-2001

Instances where interest is not abated

When the taxpayer fails to file a ;~tum and pay the tax on time due to substantial losses from prolonged labor dispute, force rr~:a)eure or legitimate business reverses; 2) When the taxpayer fails to file the return and pay the correct tax on time due to circumstances beyond his control; 3) Filing an amended return under meritorious circumstances; 4) Late remittance of withholding tax on compensation of expatriates for services rendered in the Philippines pending the issuance by the SEC of the license to the Philippine branch office or subsidiary. 1)

327


28. The following are instances when the tax liabilities, penalties and/ or interest imposed on the taxpayer may be abated or cancelled on the ground that the administration and collection costs are more than the amount sought to be collected, except: a. assessment confirmed by lower court but appealed by the taxpayer to a higher court. b. withholding tax assessment and on delayed installment payment under meritorious cases. c. delayed installment payment under meritorious cases. d. none of the choices. Answer: D Reference: Section 3, Revenue Regulations No. 13-2001 Instances when the tax liabilities, penalties and/or interest imposed on taxpayer may be abated or cancelled on the ground that the administration and collection costs are more than the amount sought to be collected: 1) Assessment confirmed by lower court but appealed by the taxpayer to a higher Court; 2) Withholding tax assessment under meritorious circumstances; 3) Delayed installment payment under meritorious circumstances; 4) Assessment reduced after reinvestigation but taxpayer is still contesting reduced Assessment; 5) Such other instances which the Commissioner may deem analogous to the enumeration above.

II

I

Note: For cases 1 to 4 above, the abatement of the surcharge and the I compromise penalty shall be allowed only upon wntten application by the taxpayer signifying his willingness to pay the basic tax and znterest or basic i tax onl , whichever is a licable under the prevailing circumstance. ___ j 1

29. First statement: The Commissioner of Internal Revenue has the sole authority to abate or cancel tax, penalties and/ or interest. Second statement: The authority of the Commissioner of Internal Revenue to abate or cancel is generally applicable to surcharge and compromise penalties only; however, in meritorious instances, the Commissioner may likewise abate the interest as well as the basic tax assessed. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct Answer: A Reference: Section 4, Revenue Regulations No. 13-2001

328


30. Cases for abatement or cancellation of tax, penalties and/ or interest by the Commissioner shall be coursed through which of the following officials? I- Deputy Commissioner (Operations Group), who shall constitute a Technical Working Committee (TWC) for the evaluation and review of any application for abatement or cancellation of tax, penalties and/ or interest II- The Deputy Commissioner (Legal and Inspection Group), who shall evaluate the legal issue involved in the case a. b.

Both and I and II Neither I nor II

c. d.

I only II only


31. The application for abatement or cancellation of tax, penalties and/ or interest should be acted upon by the processing office within five (5) days from receipt by said office, and the BIR National Office has how many days within which to act on the case? a. Thirty (30) days c. Twenty (20) days b. Twenty-five (25) days d. Ten (10) days


32. The Commissioner of Internal Revenue has the authority to credit or refund the following except: a. taxes erroneously or illegally received or penalties imposed vYithout authority. b. the val~ue of internal revenue stamps when returned in good condition by the purchaser. c. the value, upon proof of destruction, of unused stamps that are unfit for use. d. none of the choices.

Answer: D Reference: Section 204 (C), NIRC, as amended I The Commissioner may credit or refund taxes erroneously or illegally -~ I received or penalties imposed without authority, refund the value o( i internal revenue stamps when they are returned in good condition by 1 the purchaser, and, in his discretion, redeem or change unused stamps / I that have been rendered unfit (or use and refund their value upon proof I Lof destructzon.

329


33. First statement: No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) :'/ears after the payment of the tax or penalty. Second statement: A return filed showing an overpayment shall be considered as a written claim for credit or refund. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is corr-ect d. Only the second statement is corrf'ct Answer: A Reference: Section 204 (C), NIRC, as amended

34. Which of the following statements is incorrect'? a. A Tax Credit Certificate validlY issued under thE' provisions of the Tax Code may bE' applied against any internal revenue tax, excluding withholding taxes, for which the taxpayer is directly liable. b. The original copy of the Tax Credit Certificate showing a creditable balance is to be surrendered to the appropriate revenue officer for verification and cancellation. c. In no case shall a tax refund be gi\·en resulting from availment of incentives granted pursuant to special lmvs for which no actual payment was made. d. None of the choices. Answer: D Reference: Section 204 (C), NIRC, as amended

330 ·---------------

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·-·-··.-

Chapter 23 CIVIL REMEDIES FOR COLLECTION OF TAXES (Remedies of the Government) Vn[ess a man unaertakf:s more tlian lie possi6(y can ao, lie wi[[ never ao a[[ tliat lie can. - J{enry tDrummoncf

Multiple Choice: Choose the best possible answer. 1. Which of the following is not a remedy for the collection of internal revenue taxes, fees or charges, and any increment thereto resulting from delinquency? a. Distraint of goods, chattels, or effects, and other personal property of whatever character, including stocks and other securities, debts, credits, bank accounts and interest in and rights to personal property b. Levy upon real property and interest in rights to real property c. Civil or criminal action d. None of the choices Answer: D Reference: Section 205, NIRC, as amended Section 205. Remedies for the Collection of Delinquent Taxes. The civil remedies for the collection of internal revenue taxes, fees or charges, and any increment thereto resulting from delinquency shall be: a) By distraint of goods, chattels, or effects, and other personal property of whatever character, including stocks and other securities, debts, credits, bank accounts and interest in and rights to personal property, and by levy upon real property and interest in rights to real property; and b) By civil or criminal action. Either of these remedies or both simultaneously may be pursued in the discretion of the authorities charged with the collection of such taxes: Provided, however, That the remedies of distraint and levy shall not be availed of where the amount of tax involved is not more than One hundred pesos (Pl 00). The judgment in the criminal case shall not only impose the penalty but shall also order payment of the taxes subject of the criminal case as finally decided by the Commissioner. The Bureau of Internal Revenue shall advance the amounts needed to defray costs of collection by means of civil or criminal action, including the preservation or transportation of personal property distrained and the advertisement and sale thereof, as well as of real property and improvements thereon.

331

Chapter 23: Civil Remedies for Collection of Taxes

2. Which of the following statements is correct? a. The remedies of distraint and levy shall not be availed of where the amount of tax involved is not more than One hundred pesos (PlOO). b. The judgment in the criminal case shall not only impose the penalty but shall also order payment of the taxes subject of the criminal case as finally decided by the Commissioner. c. The Bureau of Internal Revenue shall advance the amounts needed to defray costs of collection by means of civil or criminal action, including the preservation or transportation of personal property distrained and the advertisement and sale thereof, as well as of real property and improvements thereon. · d. All of the choices.


3.

Under which of the fqllowing instances may the property of a delinquent taxpayer or any taxpayer be placed under constructive distraint? a. The taxpayer is retiring from any business subject to tax b. The taxpayer is intending to leave the Philippines or to remove his property therefrom c. The taxpayer is intending to hide or conceal his property or to perform any act tending to obstruct the proceedings for collecting the tax due or which may be due from him d. All of the choices


332


4.

First statement: The constructive distraint of personal property shall

be effected by requiring the taxpayer or any person having possession or control of such property to sign a receipt covering the property distrained and obligate himself to preserve the same, intact and unaltered, and not to dispose of the same in any manner whatsoever, without the express authority of the Commissioner. Second statement: In case the taxpayer or the person having the possession and control of the property sought to be placed under constructive distraint refuses or fails to sign the receipt, the revenue officer effecting the constructive distraint shall proceed to prepare a list of such property and, in the presence of two (2) \vitnesses, leave a copy thereof in the premises where the property distrained is located, after which the said property shall be deemed to have been placed under constructive distraint. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct


5. Who shall order the distraint of personal property if the amount of delinquent tax or delinquent revenue is in excess of Pl,OOO,OOO? a. Secretary of Finance b. Commissioner of Internal Revenue exclusively c. Commissioner of Internal Revenue or his duly authorized representative d. Revenue District Officer

Answer: C Reference: Section 207 (A), NIRC, as amended

6.

Who shall order the distraint of personal property if the amount of delinquent tax or delinquent revenue is Pl ,000,000 or less? a. Secretary of Finance b. Commissioner of Internal Revenue exclusively c. Commissioner or his duly authorized representative d. Revenue District Officer


333


7. A report on the distraint shall be submitted by the distraining officer to the Revenue District Officer and to the Revenue Regional Director within how many days from receipt of the warrant? a. Thirty (30) days c. Fifteen (15) days b. Twenty-five (25) days d. Ten (10) days


8. Who has the power to lift the order of distraint? a. Secretary of Finance b. Commissioner of Internal Revenue exclusively c. Commissioner of Internal Revenue or his duly authorized representative d. Revenue District Officer

Answer: C Reference: Section 207 (A), NIRC, as amended Section 207. Summary Remedies. (A) Distraint of Personal Property. - Upon the failure of the person owing any delinquent tax or delinquent revenue to pay the same at the time required, the Commissioner or his duly authorized representative, if the amount involved is in excess of One million pesos (P 1, 000, 000). or the Revenue District Officer, if the amount involved is One million pesos (PI, 000, 000) or less, shall seize and distraint any goods, chattels or effects, and the personal property, including stocks and other securities, debts, credits, bank accounts, and interests in and rights to personal property of such persons, in sufficient quantity to satisfy the tax, or charge, together with any increment thereto incident to delinquency, and the expenses of the distraint and the cost ofthe subsequent sale.

A report on the distraint shall, within ten (1 0) days from receipt of the warrant, be submitted by the distraining officer to the Revenue District Officer, and to the Revenue Regional Director: Provided, That the Commissioner or his duly authorized representative shall, subject to rules and regulations promulgated by the Secretary of Finance, upon recommendation of the Commissioner, have the power to lift such order of distraint: Provided, further, That a consolidated report by the Revenue Regional Director may be required by the Commissioner as often as necessa .

334


9. Which of the following statements is correct? a. After the expiration of the time required to pay the delinquent tax or delinquent revenue as prescribed in the Tax Code, real property may be levied upon, before, simultaneously with or after the distraint of personal property belonging to the delinquent. b. Any internal revenue officer designated by the Commissioner or his duly authorized representative shall prepare a duly authenticated certificate showing the name of the taxpayer and the amounts of the tax and penalty due from him. c. The certificate prepared by any internal revenue officer designated by the Commissioner or his duly authorized representative shall operate with the force of a legal execution throughout the Philippines. d. All of the choices


10. To whom shall the written notice of the levy be mailed to or served upon? a. Register of Deeds for the province or city where the property is located b. The delinquent taxpayer, or if he be absent from the Philippines, to his agent or the manager of the business which incurred the liability c. The occupant of the property in question, if the delinquent taxpayer has no agent or manager d. All of the choices


1 1. Who has the power to lift the warrants of levy? a. Secretary of Finance b. Commissioner of Internal Revenue exclusively c. Commissioner of Internal Revenue or his duly authorized representative d. Revenue District Officer

33S


Answer: C Reference: Section 207 (B), NIRC, as amended ~Section 207. Summary Remedies. ·--·--------

---·--l

(B) Levy on Real Property. -After the expiration of the time required to pay the delinquent tax or delinquent revenue ClS prescn'bed in this Section, reG/ property may be levied upon, before. simultaneously with or after the I dzstraint of personal property belonging to the delinquent. To this end, any I intemal revenue officer designated by the Commissioner or his duly authon'zed representative shall prepare a duly authenticated certificote showing the name of the taxpayer and the amounts of the tax and penalty I due from him. Said certificate shall operate with the force of a legol I. Pxecution throughout the PhilippinPs. 1

i Levy shall be effected by writing upon sazd certificate a description of the property upon which levy is madP. At the same time, written notice of the ,

levy sholl be mailed to or SPrved upon the Register of Deeds for the prouince or city where the property is located and upon the delinquent taxpayer, or if he be absent from the Philippines, to his agent or the I manager of the business in respect to which the liability arose, or if there I be none, to the occupant of the property in question. 1

1

1

I In case the warrant of levy on real property is not issued before or I simultaneously with the warrant of distraint on personal property, and the personal property of the taxpayer is not sufficient to satisfy his tax delinquency, the Commissioner or his duly authon'zed representative I shall, within thzrty (30) days after execution of the distraint. proceed with I the levy on the ta:x:payer's real property.

I Wzthin ten (1 0) days after receipt of the warrant. a report on any levy shall be submitted by the levying officer to the Commisszoner or._ his duly authorized representative: Provided, howeuer, Thot a consolidated report by the Revenue Regional Director may be required by the Commissioner as often as necessary: Provided, further, That the Commissioner or his duly authorized representative, subject to rules and regulations mulgated by the Secretary of Finance, upon recommendation of the i rnmissioner, shall have the authority to lift warrant.s of levy issued in I ordance with the provisions hereof . --~

II

II

lE

12. Which of the following shall be subject to garnishment and not distraint? c. Bank account a. Stock and other securities d. None of the choices b. Debts and credits

336


Answer: C Reference: Section 208, NIRC, as amended Section 208. Procedure for Distraint and Garnishment. - The officer serving the warrant of distraint shall make or cause to be made an account of the goods, chattels, effects or other personal property distrained, a copy of which, signed by himself, shall be left either with the owner or person from whose possession such goods, chattels, or effects or other personal property were taken, or at the dwelling or place of business of such person and with someone of suitable age and discretion, to which list shall be added a statement of the sum demanded and note of the time and place of sale.

Stocks and other securities shall be distrained by serving a copy of the warrant of distraint upon the taxpayer and upon the president, manager, treasurer or other responsible officer of the corporation, company or association, which issued the said stocks or securities. ! Debts and credits shall be distrained by leaving with the person owing the

1

debts or having in his possession or under his control such credits, or with his agent, a copy of the warrant of distraint. The warrant of distraint shall be I sufficient authority to the person owning the debts or having in his I possession or under his control any credits bf'longing to the taxpayer to I. pay to the Commissioner the amount of such debts or credits. Bank accounts shall be garnished by serving a warrant of garnishment

'[

I upon thf' taxpayer and upon the president, manager, treasurer or other I responsible officer of the bank. Upon receipt of the warrant of ,

j

I gam1shment, the bank shall tum over to thf' Cornm1sswner so much of the I [ bank nccounts as may be sufficient to satisfy the claim of the Government. Distinction Among Warrant of Distraint, Warrant of Levy and Warrant of Garnishment

l

1

Distraint

~--------.------+-1

!

a.

As to subject mutter

----,---

I Personal property ou,ned by and in possession of the taxpayer 1

Le=-=v'------,--,:G,--a_r_n_tc-.s-c:hc-m-ent

Real property owned by and in the possession of the taxpayer

Personal property owned by the taxpayer but in the possession of a third mril Purchased by Government then resold to I meet deficiencylj

lJ. As to disposition Purchased by ForfPited to the fur want of the Government GovPmment then I bidders or bids then resold to sold to meet the I uwdl?quate to meet clf'}iciency deficiency , satisfy tax l___s}e (icwnc.y...,_ _ _-+ I c. As to No Advertised once a No 1 advertisement advenisement week for th.r··e-e--~-'ac:._d_u-'e-"rt__z_·s--=e-'nc_1e_J_1_t_jl for sole _____,__is_r_e~q_u_ir_e_d___"--w-'-'-eeks _ is required I,

1

337


13. Which of the following statements is correct? a. At the time and place fixed in such notice, the said revenue officer shall sell the goods, chattels, or effects, or other personal property, including stocks and other securities so distrained, at public auction, to the highest bidder for cash, or with the approval of the Commissioner, through duly licensed commodity or stock exchanges. b. In the case of stocks and other securities, the officer making the sale shall execute a bill of sale which he shall deliver to the buyer, and a copy thereof furnished the corporation, company or association which issued the stocks or other securities. c. Any residue over and above what is required to pay the entire claim, including expenses, shall be returned to the owner of the property sold. d. All of the choices. Answer: D Reference: Section 209, NIRC, as amended Section 209. Sale of Property Distrained and Disposition of Proceeds. - The Revenue District Officer or his duly authorized representative, other than the officer referred to in Section 208 of this Code shall, according to rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner, forthwith cause a notification to be exhibited in not less than two (2) public places in the municipality or city where the distraint is made, specifying the time and place of sale and the articles distrained. The time of sale shall not be less than twenty (20) days after notice. One place for the posting of such notice shall be at the Office of the Mayor of the city or municipality in which the property is distrained. At the time and place [!Xed in such notice, the said revenue officer shall sell the goods, chattels, or effects, or other personal property, including stocks and other securities so distrained, at public auction, to the highest bidder for cash, or with the approval of the Commissioner, through duly licensed commodity or stock exchanges. In the case of Stocks and other securities, the officer making the sale shall execute a bill of sale which he shall deliver to the buyer, and a copy thereof furnished the corporation, company or association which issued the stocks or other securities. Upon receipt of the copy of the bill of sale, the corporation, company or association shall make the corresponding entry in its books, transfer the stocks or other securities sold in the name ofthe buyer, and issue, if required to do so, the corresponding certificates of stock or other securities. Any residue over and above what is required to pay the entire claim, including expenses, shall be returned to the owner of the property sold. The expenses chargeable upon each seizure and sale shall embrace only the actual expenses of seizure and preservation of the property pending; the sale, and no charge shall be imposed for the services.

338 - ------------------

--------

· - - - - - - - - - - - - - - - - ------


14. Which of the following statements is incorrect? a. The Revenue District Officer or his duly authorized representative, other than the officer referred to in Section 208 of the Tax Code shall, according to rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner, forthwith cause a notification to be exhibited in not less than two (2) public places in the municipality or city where the distraint is made, specifying the time and place of sale and the articles distrained. b. The time 'of sale of the articles distrained shall not be less than twenty (20) days after notice. c. One place for the posting of such notice shall be at the Office of the Mayor of the city or municipality in which the property is distrained. d. None of the choices.


15. First statement: If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the sale, the goods or effects distrained shall be restored to the owner. Second statement: Within two (2) days after the sale of the articles distrained, the officer making the same shall make a report of his proceedings in writing to the Commissioner and shall himself preserve a copy of such report as an official record. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

Answer: A References: Section 210, NIRC, as amended Section 211, NIRC, as amended

339

-----------------------


16. First statement: When the amount bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of the articles offered for sale, the Commissioner or his deputy may purchase the same in behalf of the National Government for the amount of taxes, penalties and costs due thereon. Second statement: Property so purchased may be resold by the Commissioner or his deputy, subject to the rules and regulations prescribed by the Secretary of Finance, the net proceeds therefrom shall be remitted to the National Treasury and accounted for as internal revenue. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct


17. Which of the following statements is incorrect? a. Within five (5) days after the sale, a return by the distraining or levying officer of the proceedings shall be entered upon the records of the Revenue Collection Officer, the Revenue District Officer and the Revenue Regional Director. b. The Revenue Collection Officer, in consultation with the Revenue District Officer, shall then make out and deliver to the purchaser a certificate from his records, sho\ving the proceedings of the sale, describing the property sold stating the name of the purchaser and setting out the exact amount of all taxes, penalties and interest. c. In case the proceeds of the sale exceeds the claim and cost of sale, the excess shall be turned over to the owner of the property. d. None of the choices.

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Answer: D Reference: Section 213, NIRC, as amended Section 213. Advertisement and Sale.- Within twenty (20) days after levy, the officer conducting the proceedings shall proceed to advertise the property or a usable portion thereof as may be necessary to satisfy the claim and cost of sale; and such advertisement shall cover a period of at least thirty (30) days. It shall be effectuated by posting a notice at the main entrance of the municipal building or city hall and in public and conspicuous places in the barrio or district in which the real estate lies and; by publication once a week for three (3) weeks in a newspaper of general circulation in the municipality or city where the property is located. The advertisement shall contain a statement of the amount of taxes and penalties so due and the time and place of sale, the name of the taxpayer against whom taxes are levied, and a short description of the property to be sold. At any time before the day fixed for the sale, the taxpayer may discontinue all proceedings by paying the taxes, penalties and interest. If he does not do so, the sale shall proceed and shall be held either at the main entrance of the municipal building or city hall, or on the premises to be sold, as the officer conducting the proceedings shall determine and as the notice of sale shall specify. Within five (5) days after the sale, a return by the distraining or levying officer of the proceedings shall be entered upon the records of the Revenue Collection Officer, the Revenue District officer and the Revenue Regional Director. The Revenue Collection Officer, in consultation with the Revenue District Officer, shall then make out and deliver to the purchaser a certificate from his records, showing the proceedings of the sale, describing the property sold stating the name of the purchaser and setting out the exact amount of all taxes, penalties and interest: Provided, however~ That in case the proceeds of the sale exceeds the claim and cost of sale, the excess shall be turned over to the owner of the property. The Revenue Collection Officer, upon approval by the Revenue District Officer may, out of his collection, advance an amount sufficient to defray the costs of collection by means of the summary remedies provided for in this Code, including; the preservation or transportation in case of personal property, and the advertisement and subsequent sale,. both in cases of personal and real property including improvements found on the latter. In his monthly collection reports, such advances shall be reflected and supported by receipts.

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18. Which of the following statements is incorrect? a. Within twenty (20) days after levy, the officer conducting the proceedings shall proceed to advertise the property or a usable portion thereof as may be necessary to satisfy the claim and cost of sale; and such advertisement shall cover a period of at least thirty (30) days. b. The advertisement shall be effectuated by posting a notice at the main entrance of the municipal building or city hall and in public and conspicuous places in the barrio or district in which the r-=al estate lies and by publication once a week for three (3) weeks in a newspaper of general circulation in the municipality or city where the property is located. c. At any time before the day fixed for the sale, the taxpayer may discontinue all proceedings by paying the taxes, penalties and interest. d. None of the choices.


19. Within what period shall the owner of the property sold redeem such property? a. Within one (1) year from the date of sale b. Within two (2) years from the date of sale c. Within three (3) year from the date of sale d. Within five (5) years from the date of sale


20. To redeem the property sold, what needs to be paid by the delinquent taxpayer, or any one for him? I -The amount of the public taxes, penalties, and interest thereon from the date of delinquency to the date of sale II -The interest on the purchase price (paid by the highest bidder) at the rate of fifteen percent (15%) per annum from the date of purchase to the date of redemption a. b.

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c. d.

I only II only

1 Chapter 23: Civil Remedies for Collection of Taxes

Answer: A Reference: Section 214, NIRC, as amended Section 214. Redemption of Property Sold. - Within one (1) year from the date of sale, the delinquent taxpayer, or any one for him, shall have the right of paying to the Revenue District Officer the amount of the public taxes, penalties, and interest thereon from the date of delinquency to the date of sale, together with interest on said purchase price at the rate of fifteen percent (15%) per annum from the date of purchase to the date of redemption, and such payment shall entitle the person paying to the delivery of the certificate issued to the purchaser and a certificate from the said Revenue District Officer that he has thus redeemed the property, and the Revenue District Officer shall forthwith pay over to the purchaser the amount by which such property has thus been redeemed, and said property thereafter shall be free from the hen of such taxes and penalties. The owner shall not, however, be deprived of the possession of the said property and shall be entitled to the rents and other income thereof until the expiration of the time allowed for its redemption.

21. Which of the following statements is correct? a. In case there is no bidder for real property exposed for sale or if the highest bid is for an amount insufficient to pay the taxes, penalties and costs, the Internal Revenue Officer conducting the sale shall declare the property forfeited to the Government in satisfaction of the claim in question and \vithin two (2) days thereafter, shall make a return of his proceedings and the forfeiture which shall be spread upon the records of his office. b. It shall be the duty of the Register of Deeds concerned, upon registration with his office of any such declaration of forfeiture, to transfer the title of the property forfeited to the Government without the necessity of an order from a competent court. c. Within one (1) year from the date of such forfeiture, the taxpayer, or any one for him may redeem said property by paying to the Commissioner or the latter's Revenue Collection Officer the full amount of the taxes and penalties, together with interest thereon and the costs of sale; but if the property be not thus redeemed, the forfeiture shall become absolute. d. All of the choices. Answer: D Reference: Section 215, NIRC, as amended

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22. Which of the following statements is incorrect? a. The Commissioner shall have charge of any real estate obtained by the Government of the Philippines in payment or sqtisfaction of taxes, penalties or costs arising under the Tax Code or in compromise or adjustment of any claim therefor. b. The Commissioner may, upon giving not less than twenty (20) days notice, sell and dispose of the same on public auction or with prior approval of the Secretary of Finance, dispose of the same at private sale. c. The proceeds of the sale shall be deposited with the National Treasury, and an accounting of the same shall be rendered to the Chairman of the Commission on Audit. d. None of the choices.


23. First statement: The remedy by distraint of personal property and levy on realty may be repeated if necessary until the full amount due, including all expenses, is collected. Second statement: No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by the Tax Code. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

Answer: A References: Section 217, NIRC, as amended Section 218, NIRC, as amended

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24. First statement: If any person, corporation, partnership, jointaccount (cuentas en participacion), association or insurance company liable to pay an internal revenue tax, neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the Government o( the Philippines from the time the assessment was made by the Commissioner until paid, with interests, penalties, and costs that may accrue in addition thereto upon all property and rights to property belonging to the taxpayer. Second statement: The lien shall not be valid against any mortgageepurchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the office of the Register of Deeds of the province or city where the property of the taxpayer is situated or located. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct


25. Which of the following statements is incorrect? a. Civil and criminal actions and proceedings instituted in behalf of the Government under the authority of the Tax Code or other law enforced by the Bureau of Internal Revenue shall be brought in the name of the Government of the Philippines and shall be conducted by legal officers of the Bureau of Internal Revenue. b. No civil or criminal action for the recovery of taxes or the enforcement of any fine, penalty or forfeiture under this Code shall be filed in court without the approval of the Commissioner of Internal Revenue. c. The remedy for enforcement of statu tory penalties of all· sorts shall be by criminal or civil action, as the particular situation may require, subject to the approval of the Commissioner of Internal Revenue. d. None of the choices

Answer: D References: Section 220, NIRC, as amended Section 221, NIRC, as amended

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26. First statement: The forfeiture of chattels and removable fixtures of any sort shall be enforced by the seizure and sale, or destruction, of the specific forfeited property. Second statement: The forfeiture of real property shall be enforced by a judgment of condemnation and sale in a legal action or proceeding, civil or criminal, as the case may require. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct Answer: A Reference: Section 224, NIRC, as amended 27. Which of the following statements is incorrect? a. Sales of forfeited chattels and removable fixtures shall be effected, so far as practicable, in the same manner and under the same conditions as the public notice and the time and manner of sale as are prescribed for sales of personal property distrained for the non-payment of taxes. b. All other articles subject to excise tax, which have been manufactured or removed in violation of the Tax Code, as well as dies for the printing or making of internal revenue stamps and labels which are in imitation of or purport to be lawful stamps, or labels may, upon forfeiture, be sold or destroyed according to the discretion of the Commissioner. c. Forfeited property shall not be destroyed until at least twenty (20) days after seizure. d. None of the choices. Answer: D Reference: Section 225, NIRC, as amended Section 225. When Property to be Sold or Destroyed.- Sales of forfeited chattels and removable fixtures shall be effected, so far as practicable, in the same manner and under the same conditions as the public notice and the time and manner of sale as are prescribed for sales of personal property distrained for the non-payment of taxes. Distilled spirits, liquors, cigars, cigarettes, other manufactured products of tobacco, and all apparatus used or about the illicit production of such articles may, upon forfeiture, be destroyed by order of the Commissioner, when the sale of the same for consumption or use would be injurious to public health or prejudicial to the enforcement of the law. All other articles subject to excise tax, which have been manufactured or removed in violation of this Code, as well as dies for the printing or making of internal revenue stamps and labels which are in imitation of or purport to be lawful stamps, or labels may, upon forfeiture, be sold or destroyed in the discretion of the Commissioner. Forfeited property shall not be destro ed until at least twent (20) da s a ter seizure.

346


28. First statement: When an action is brought against any Internal Revenue Officer to recover damages by reason of any act done in the-performance of official duty, and the Commissioner is notified of such action in time to make defense against the same, through the Solicitor General, any judgment, damages or costs recovered in such action shall be satisfied by the Commissioner, upon approval of the Secretary of Finance, or if the same be paid by the person sued shall be repaid or reimbursed to him. Second statement: No such judgment, damages, or costs shall be paid or reimbursed in behalf of a person who has acted negligently or in bad faith, or with willful oppression in the performance of official duty. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct


29. (Phil. CPA) The following remedies for the collection of the taxes are available to the Government, except: a. distraint and levy. b. inquiring into bank deposit accounts of taxpayers. c. entering into compromise of tax cases. d. enforcement of forfeiture of property.

Answer: B

30. (Phil. CPA) The following are coercive means in the collection of taxes by the BIR, except: a. distraint and levy. b. seizure of goods on which the Government has claim for unpaid taxes. c. enforcement of tax lien. d. compromise.

Answer: D

31. (Phil. CPA) The seizure by the Government of personal property to be sold in a public sale to. enforce payment of taxes that are not voluntarily paid is called: a. distraint. c. forfeiture. b. levy. d. lien.

Answer: A

347


32. (Phil. CPA) A warrant of distraint may be issued against the taxpayer owing delinquent taxes on his: a. real property. b. personal property. c. bank deposits. d. property under custodia legis. Answer: B

33. (Phil. CPA) A warrant of levy may be issued against the taxpayer owing delinquent taxes on his: a. real property. b. personal property. c. bank deposits. d. property under custodia legis. Answer: A

34. (Phil. CPA) The distinction between actual distraint and constructive distraint is that: a. actual distraint may be made on the property of any taxpayer whether delinquent or not while constructive distraint is made on the property only of a delinquent taxpayer. b. in actual distraint, there is taking of possession, while in constructive distraint, the taxpayer is merely prohibited from disposing of the property. c. actual distraint is effected by 1) requiring the taxpayer to sign a receipt of the property or 2) having the revenue officer prepare and leave a list of the distrained property or 3) serving a warrant of distraint or garnishment. d. answer not given. Answer: B Distinction between actual distraint and constructive distraint Actual Distraint Constructive Distraint 1) Personal property is physically 1) Personal property is not physically taken. taken. 2) The taxpayer is already 2) There is no finding yet of a delinquent in payment of his discrepancy, only that the taxes. taxpayer is leaving the country or disposing of his property in fraud of creditors or is in the process of liquidation. 3) Personal property taken is sold 3) Personal property is merely held in order to satisfy the tax as security to answer for any delinquency. f11ture tax delinquenCJ.J.

348

1 i

Chapter 24 PROTESTING AN ASSESSMENT, REFUND, ETC. (Remedies of the Taxpayer) Its easier to go down a fii(( tfian up it 6ut tlie ·view is mucfi 6etter at tfie top. - J{enry 'Ward,Beecfier

Multiple Choice: Choose the best possible answer. 1. A declaration of deficiency taxes issued to a Taxpayer who fails to respond to a Pre-Assessment Notice (PAN) within the prescribed period of time, or whose reply to the PAN was found to be without merit. This shall inform the Taxpayer of this fact, and that the report of investigation submitted by the Revenue Officer conducting the audit shall be given due course. a. Notice of Informal Conference b. Preliminary Assessment Notice c. Letter of Authority d. Formal Assessment Notice Answer: D

2. An official document that empowers a Revenue Officer to examine and scrutinize a Taxpayer's books of accounts and other accounting records, in order to determine the Taxpayer's correct internal revenue tax liabilities. a. Notice of Informal Conference b. Prelimirwry Assessment Notice c. Letter of Authority d. Formal Assessment Notice Answer: C

3. A written notice informing a Taxpayer that the findings of the audit conducted on his books of accounts and accounting records indicate that additional taxes or deficiency assessments have to be paid. a. Notice of Informal Conference b. Preliminary Assessment Notice c. Letter of Authority d. Formal Assessment Notice Answer: A

:149

Chapter 24: Protesting and Assessment, Refund, Etc.

4. A communication issued by the Regional Assessment Division, or any other concerned BIR Office, informing a Taxpayer who has been audited of the findings of the Revenue Officer, following the review of these findings. a. Notice of Informal Conference b. Preliminary Assessment Notice c. Letter of Authority d. Formal Assessment Notice Answer: B

5. A Notice for Informal Conference shall be responded to within: a. fifteen (15) days after receipt of the notice. b. thirty (30) days after receipt of the notice. c. two (2) months after the receipt of the notice. d. six (6) months after the receipt of the notice. Answer: A Reference: Section 3.1.1, Revenue Regulations No. 12-99

6. After the Notice for Informal Conference, a Preliminary Assessment Notice may be sent to the taxpayer. The Preliminary Assessment Notice shall be responded to within: a. fifteen (15) days after receipt of the notice. b. thirty (30) days after receipt of the notice. c. two (2) months after the receipt of the notice. d. six (6) months after the receipt of the notice. Answer: A Reference: Section 3.1.2, Revenue Regulations No. 12-99

7. A Preliminary Assessment Notice shall not be required in the following cases except when: a. the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return. b. a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent. c. the taxpayer who opted to claim a refund or tax credit of excess creditable tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarters of the succeeding taxable year. d. the taxpayer failed to pay the correct income tax.

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Answer: D Reference: Section 3.1.3, Revenue Regulations No. 12-99 The notice for informal conference and the preliminary assessment notice shall not be required in any of the following cases, in which case, issuance of the formal assessment notice for the payment of the taxpayer's deficiency tax liability shall be sufficient: 1) When the finding for any deficiency tax is the result of mathematical error in the computation ofthe tax appearing on the face of the return filed by the taxpayer; or 2) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or 3) When the taxpayer who opted to claim a refund or tax credit of excess creditable tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarters of the succeeding taxable year; or 4) When the excise tax due on excisable articles has not been paid; or 5) When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.

8. The taxpayer or his dul_y authorized representative may protest administratively by filing a request for reconsideration or reinvestigation in such form and manner as may be prescribed by implementing rules and regulations within how many days from the date of receipt of the formal notice of assessment? a. Sixty (60) days c. Twenty (20) days b. Thirty (30) days d. Ten (10) days

Answer: B References: Section 228, NIRC, as amended Section 3.1.5, Revenue Regulations No. 12-99

9. The taxpayer shall submit the required documents in support of the protest against the formal notice of assessment within how many days from date of filing of the letter of protest? a. Sixty (60) days c. Twenty (20) days b. Thirty (30) days d. Ten ( 1 0) days

Answer: A References: Section 228, NIRC, as amended Section 3.1.5, Revenue Regulations No. 12-99

331

Chapt~r

24: Protesting and Assessment, Refund, Etc.

10. If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals, or from the lapse of one hundred eighty (180)-day period within how many days from receipt of the said decision? a. Sixty (60) days c. Twenty (20) days b. Thirty (30) days d. Ten (10) days

Answer: B References: Section 228, NIRC, as amended Section 3.1.5, Revenue Regulations No. 12-99

11. An assessment shall become final, executory and demandable if: a. relevant supporting documents are not submitted within sixty (60) days from filing the protest against the formal notice of assessment. b. formal notice of assessment is not responded to within thirty (30) days after receipt. c. no appeal to the Court of Tax Appeals is filed within thirty (30) days from receipt of the adverse decision of the Commissioner, or from the lapse of one hundred eighty (180)day period after submitting the required documents in support of the protest against a formal assessment. d. all of the choices.

Answer: D References: Section 228, NIRC, as amended Section 3.1.5, Revenue Regulations No. 12-99

12. (Phil. CPA) A taxpayer is assessed for taxes for filing false return and for failure to pay the taxes. She files an administrative protest with the BIR contesting said assessment. May the BIR during the pendency of the protest file a criminal action against the taxpayer for filing a false return? Which of the following answers is not correct? a. Yes, for what is involved in this case is not the collection of taxes but a criminal prosecution for the violation of the Tax Code. b. Yes. The protest of the taxpayer against the assessment cannot stop the prosecution for violation of the Tax Code. c. Yes, because there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution. d. No, the filing of the criminal action is premature and precipitate since the protest has not yet been resolved.

352


Answer: D

13. (Phil. CPA) A taxpayer filed her income tax return for 2000 on April 15, 2001 and paid the tax of P12,000. Upon audit of the BIR, an assessment notice was issued on May 2, 2003 requiring the taxpayer to pay a deficiency tax of P50,000 not later than July 15, 2003. The taxpayer may: a. go to the Supreme Court if the issue involved is purely a question of the law. b. ignore the assessment as the date of collection is beyond three (3) years as the taxable year covers 2000. c. request for an extension of time to pay the deficiency income tax. d. go to the Court of Tax Appeals to appeal the assessment made by the BIR.

Answer: C

14. (Phil. CPA) The following are related to the tax assessment of a taxpayer: Date when assessment was received October 1, Petition for reconsideration was filed with BIR October 9, BIR decision of denial was received July 2, Second request for reconsideration was filed with the BIR July 15, Date revised assessment was received July 5,

1999 1999 2000 2000 2001

The last day to appeal to the Court of Tax Appeals is on: a. July 15,2001. c. August 4, 2001. b. August 6, 2001. d. September 5, 2001.

Answer: C

, The 30-day period is counted from the date the revised assessment is I. recewed.

353


15. The following are related to the tax assessment of a taxpayer: Assessment received January 5, 2008 Petition for reconsideration filed with BIR February 1, 2008 Documents supporting the petition filed with BIR February 7, 2008 Decision of BIR denying the petition received March 22, 2008 by the taxpayer Second request for reconsideration filed with BIR March 30, 2008 Decision of denial of second request for April 12, 2008 reconsideration was received Last day to appeal to the Court of Tax Appeals is on: a. May 12, 2008. c. May 4, 2008. b. July 4, 2008. d. June 4, 2008.

Answer: C From March 22, 2008 to March 30, 2008, eight (8} days have already passed. When the taxpayer files a second request for reconsideration the running of the 30-day period is suspended. Upon receipt of the decision of denial of the second request for reconsideration, the taxpayer has twenty-two (22} more days to appeal to the Court of Tax Appeals. It has to be noted that no revised assessment is issued by the BIR.

16. Which of the following statements is correct? a. If the notice to the taxpayer is served by registered mail, and no response is received from the taxpayer within the prescribed period from date of the posting of the notice in the mail, the same shall be considered actually or constructively received by the taxpayer. b. If the notice is personally served on the taxpayer or his duly authorized representative who, however, refused to acknowledge receipt of the notice, the same shall be constructively served on the taxpayer. c. Constructive service of the notice shall be considered effected by leaving the same in the premises of the taxpayer and this fact of constructive service is attested to, witnessed and signed by at least two (2) revenue officers other than the revenue officer who constructively served the notice. d. All of the choices.

Answer: D Reference: Section 3.1.7, Revenue Regulations No. 12-99

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17. Except as provided in Section 222, internal revenue taxes shall be assessed within how many years after the last day prescribed by law for the filing of the return? a. Five (5) years c. Three (3) years b. Four (4) years d. Two (2) years Answer: C Reference: Section 203, NIRC, as amended

18. First statement: In a case where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return was filed. Second statement: A return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct Answer: A Reference: Section 203, NIRC, as amended Section 203. Period of Limitation Upon Assessment and Collection. -Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided, That in a case where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return was filed. For pwposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day.

19. In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time within how many years after the discovery of the falsity, fraud or omission? a. Ten (10) years c. Three (3) years b. Five (5) years d. Two (2) years

355


Answer: A Re!eren~e:

Section 222 (a), NIRC, as amended :ection 222. Exceptions as to Period of Limitation of Assessment nd Collection of Taxes.

a) In thE' case of a false or fraudulent return with intent to f'vadf' tax or of failure to .file a return, the tax may be assessed, or a prf'ceding in court for the collection of such tax may be filed without assessment, at any time within ten (1 0) years after the discovenJ of the falsity, fraud or omission: Provided, That in a fraud assessment which has I · become final and executory, the fact of fraud shall be judicially taken I cognizance of in the civil or criminal action for the collection the reo .

II 1

20. First statement: If before the expiration of the 3-year period prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. Second statement: The period of extension so agreed upon in writing may be extended by a subsequent written agreement made before the expiration of the period previously agreed upon. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct. Answer: A Reference: Section 222 (b), NIRC, as amended

21. In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, any internal revenue tax which has been assessed within the ten (10)-year period may be collected by distraint or levy or by a proceeding in court within how many years following the assessment of the tax? a. Ten (10) years c. Three (3) years b. Five (5) years d. T\vo (2) years Answer: B Reference: Section 222 (c), NIRC, as amended

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22. First statement: Any internal revenue tax, which has been assessed within the extended period agreed upon, may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing before the expiration of the five (5)-year period. Second statement: The period so agreed upon may be extended by subsequent written agreements made before the expiration of the period previously agreed upon. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct.

Answer: A Reference: Section 222 (d), NIRC, as amended

23. The Statute of Limitations provided in Sections 203 (3-year period) and Section 222 ( 10-year period) regarding assessment and the beginning of distraint or levy proceeding in court for collection, of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty (60) days thereafter: a. when the taxpayer requests for a reinvestigation which is granted by the Commissioner. b. when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected. c. when the warrant of distraint or levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could be located. d. all of the choices.

3S7

i-

i


Answer: D Reference: Section 223, NIRC, as amended Section 223. Suspension of Running of Statute of Limitations. The running of the Statute of Limitations provided in Sections 203 and 222 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty (60) days thereafter; when the taxpayer requests [or a reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected: Provided, that, if the taxpayer informs the Commissioner of any change in address, the running of the Statute of Limitations will not be suspended; when the warrant of distraint or levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could be located; and when the taxpayer is out o the Phili ines.

24. First statement: No such suit or proceeding for the recovery of tax erroneously or illegally collected shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment. Second statement: The Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct. Answer: A Reference: Section 229, NIRC, as amended Section 229. Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be filed after the expiration oftwo (2) years from the date of payment ofthe tax or penalty regardless olanu supervening cause that may arise after payment:

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Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the retum upon which payment was made, such payment appears clearly to have been erroneousl.l.J paid.

25. A refund check or warrant issued in accordance with the pertinent provisions of the Tax Code, which shall remain unclaimed or uncashed, shall be forfeited in favor of the Government and the amount thereof shall revert to the general fund within how many years from the date the said warrant or check was mailed or delivered? c. Three (3) years a. Ten ( 10) years d. Two (2) years b. Five (5) years


26. A Tax Credit Certificate issued in accordance with the pertinent provisions of the Tax Code, which remains unutilized, shall, unless revalidated, be considered invalid, and shall not be allowed as payment for internal revenue tax liabilities of the taxpayer, and the amount covered by the certificate shall revert to the general fund, after how many years from the date of issue? a. Ten(lO)years c. Three(3)years b. Five (5) years d. Two (2) years


27. Which of the following shall be a remedy of the owner desiring to contest the validity of forfeiture in case of the seizure of personal property under claim of forfeiture? I -The owner desiring to contest the validity of the forfeiture may, at any time before sale or destruction of the property, bring an action against the person seizing the property or having possession thereof to recover the same, and upon giving proper bond, may enjoin the sale. II- The owner desiring to contest the validity of the forfeiture may, after the sale and within six (6) months, bring an action to recover the net proceeds realized at the sale. a. Both I and II b. Neither I nor II

c. d.

I only II only


359


28. (Phil. CPA) Which of the following rules governs the prescription for violation of the Tax Code? First rule: Prescription starts from the day the law is violated and if the same is not known, prescription starts from the discovery of the violation; Second rule: All violations of any provision of the Tax Code shall prescribe after ten (10) years. a. Both rules are correct b. First rule is wrong, second rule is correct c. Both rules are wrong d. First rule is correct, second rule is wrong

Answer: D

29. (Phil. CPA) Ms. J. Cruz filed an income tax return for the calendar year 2002 on March 10, 2003. The BIR issued a deficiency assessment income tax on April 10, 2004, which has become final. When is the last day for the BIR to collect? a. April 10,2009 c. April 15,2008 b. April 15, 2006 d. March 10, 2006

Answer: A

30. The income tax return for 1999 was filed on April 12, 2000. An assessment for deficiency tax was made on October 1, 2002. A warrant of distraint was issued on June 5, 2003. I - The assessment was issued within the allowed period; II- The warrant of distraint was issued within the allowed period. a. Yes to I and II b. No to I and II

c. Yes to I only d. Yes to II only

Answer: A

31. A fraudulent return for 1999 income was filed on April 15, 2000. The fraudulent return was discovered on June 10, 2004. When would be the last day to send valid assessment? a. April 15, 2003 c. April 15, 2013 b. June 10, 2007 d. June 10, 2014

Answer: D

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32. Using the same data in the preceding number, assuming that assessment was sent on July 22, 2010, when would be the last day to collect? a. July 22, 2013 c. April 15, 2015 b. July 22, 2015 d. Cannot be collected anymore

Answer: B 33. (Phil. CPA) The following are administrative remedies available ·to a taxpayer in connection with collection of taxes, except: a. filing of claim for tax refund or credit. b. filing of petition for reconsideration or reinvestigation. c. filing of criminal complaint against erring BIR officials or employees. d. entering into a compromise.

Answer: C 34. (Phil. CPA) A taxpayer paid excessive tax on April 15, 2000. On December 20, 2001, she filed a written claim for refund. Her claim was denied by the BIR and she received the denial on March 2002. She filed a motion for reconsideration with the BIR on March 31, 2002. On April 18, 2002, she received the final denial of the BIR. What will be the taxpayer's remedy? a. File anoth ~• motion for reconsideration with the BIR v;ithin 30 days after the receipt of the final denial b. File an appeal with the Court of Tax Appeals within 30 days after the receipt of the final denial c. File an appeal with the Court ofTax Appeals within 15 days after the receipt of the final denial d. The taxpayer has no more remedy against the final denial

Answer: D

i The la_s_t_d-:-a-y-to--a-p_p_e_a_l_to-the Court of Tax Appeals is April 15, 2002. 35. The following data pertain to a taxpayer's request for refund: Date tax erroneously paid January 2, 2001 Petition for request for refund filed January 10, 2001 Documents supporting the request for refund submitted January 22, 2001 The Commissioner of Internal Revenue has not acted on the request as of July 12, 2001. When is the last day to appeal to the Court of Tax Appeals? a. July 21, 2001 b. August 20, 2001 c. January 2, 2003 d. No more appeal as the period for appeal lapsed

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Answer: C

36. (Phil. CPA) Which of the following statements is not true? a. If a taxpayer is acquitted in a criminal violation of the Tax Code, this acquittal does not exonerate him from his civil liability to pay the taxes. b. A conviction for tax evasion is not a bar for collection of unpaid taxes. c. A tax assessment is necessary to criminal prosecution for willful attempt to defeat and evade payment of taxes. d. Criminal proceedings under the Tax Code is now a mode of collection of internal revenue taxes, fees and charges.

Answer: C

37. (Phil. CPA) Which of the following criminal acts arising from violation of the Tax Code is subject to both fine and imprisonment? a. Making false entries, reports or certification b. Unlawful pursuit of business without paying the privilege tax required for the business c. Willful attempt to evade or defeat in any manner any tax under the J'ax Code and willful failure to pay a tax, make a return, supply correct and accurate information and remit taxes withheld d. All of the above

Answer: D

38. A private educational institution paid income tax of P320,000 (32% X P1,000,000) on April 10, 2002. The tax due should have been P100,000 (10% X P1,000,000). When is the last day for the taxpayer to go to the BIR and Court of Tax Appeals? BIR CTA a. April 10, 2004 April 10, 2004 b. April 10, 2004 May 10, 2004 c. May 10, 2004 April 10, 2004 d. May 10, 2004 May 10, 2004

Answer: A

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39. Assuming the taxpayer filed a claim for refund on September 10, 2003 and submitted relevant documents on September 15, 2003. When is the last day for the BIR to decide on the filed claim for refund? a. November 15, 2003 c. April 10, 2004 b. March 13, 2004 d. May 10, 2004

Answer: B 40. Assuming the BIR did not act on the filed claim for refund, when is the last day to go to the Court of Tax Appeals? a. April 10, 2004 c. May 10, 2004 b. April 12, 2004 d. No more appeal

Answer: A Summary of Period of Assessment and Collection a. Return filed was TIJC~llection with prior assessment notfalse or , a) Assessment shall be made within 3 years from fraudulent the date offiling of return or from the last day rrquired by law for filing, if the return was filed I j before such last day; b) Collection shall be made within 5 years from the 1 date of assessment. either by: ) {1) Summary procredings, or (2) Judicial proceedings. 2) Collection without prior assessment a) No proceeding in court 1uithout assessment for the collection shall be lwgun after the expiration of the 3-year period. b. Returnfiled was 1) Collection with prior assessment. false or a) AssessmPnt shall be madP at any time within 10 fraudulent with years ajier discouery of the falsity, fraud or intent to evade omission; tax or no return h) Collection shall be made within S years from the was filed date of assessment, either by: (1) Summary proceedings, or (2} Judicial procePdings. 2) Collection without prior assessment a) A proceeding in court for the collection of tax may be filed wztlwut assessment at any time I 1/llthm 10 years after the dzscouery of the falsity, 1

1

I

f C. ExteMio_n_o_if-::----

L_ _____[raud or omzsswn. ! I} If before the expzrotzon

'~~

of the 3-year period, both the assessment I Comrmsswner and I he taxpayer hcwe agreed 111 ' wntmg to zts assessment after such tzrne, assessment maybe made unthm the penod agreed 2) The period so agreed upon may be extended by the subsequent written ayreement before the expiration of the 5-year periodfollmuiny the assessment by: u) Summary proreedmys, or ~--------------e_ _ _ b'-)_J_udicial proceedings__. _ _ _ _ _ __

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Due process in the issuance of a deficiency tax assessment (Remedy Against an Assessment) a. Notice for Informal Conference b. Preliminary Assessment Notice (PAN) c. Formal letter of demand assessment notice d. Protest the assessment

e. Submit all relevant supporting documents to theBIR

To be responded within fifteen (15) days after receipt of this notice. To bP responded within fifteen (15} days after receipt of this notice.

I To be eesponded within thirty (30) dnys. The taxpayer shall file a request for reconsideration or reinvestigation with the BIR within thirty (30) days from receipt of the assessment notice. Notes: 1} Before going to CTA, the taxpayer may eleuate his protest to the Commissioner within thirty (30) daysfrom date of receipt of the final decision of the Commissioner's duly authorized reprPsentatiue. 2} The decision ofthe Commissioner's du.ly authorized representatiue shall not be considered final, executory and demandable, in which case the protest shall be decided by the Commissioner. Within 60 days from filing of protest, all relevant

supporting documents shall have been submitted; otherwise the assessment shall becorr,e final.

Note: There is now a 180-day requirement for the BIR to decide on an administrative appeal. f. Appeal to Court of If the protest is denied, in whole or in part, by the Tax Appeals Commissioner, the taxpayer may appeal to the (CTA) CTA within 30 days: 1) from the receipt of the adverse (unfavorable) decision; or 2) from the lapse ofthe 180-day period. Note: Failure to appeal to Court of Tax Appeals shall make the BIR's decision final, executory and demandable.

364


Remedy Against an Erroneously or Illegally Paid Tax a. File a formal claimJ_or reJund b. Submit the relevant documents c. File an appeal with CTA

File a formal claim for refUnd with the BIR within 2 lJ!!arsfrum the date o{pa_ljment o{the tax. Submit the relevant documents within sixty (60) days from filing of claim for refUnd. File an appeal with CTA, raising questions offacts and/ or law within 30 days (but within the 2-year period required for filing a formal claim for refund): 1) from receipt offinal unfavorable decision on the claim for refUnd or 2) from the lapse of 180 days.

Notes: 1) If the tax is paid in installments, the twoyear period shall be counted from the date of final payment. 2) Thefzling of the claim for refUnd with the BIR and the institution of judicial action with the CTA to recover the tax can be done either simultaneously or one after the other within the 2-year period to protect the interest of the taxpayer. I

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Chapter 25 JURISDICTION OF THE COURT OF TAX APPEALS Let us not 6e content to wait and see wliat wi([ liappcn, 6ut give us tlic determination to mal{§ tlie rig/it tliings liappen.- CJ'eter'Marsfia[[

Multiple Choice: Choose the best possible answer. 1.

First statement: There is hereby created a Court of Tax Appeals (CTA)

which shall be the same level as the Court of Appeals, possessing all the inherent powers of a Court of Justice. Second statement: The CTA shall consist of a Presiding Justice and eight (8) Associate Justices. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

Answer: A Reference: Section 1, Republic Act No. 1125, as amended by Republic Act No. 9503

2.

First statement: The CTA may sit en bane or in three (3) Divisions,

each Division consisting of three (3) Justices. Second statement: Five (5) Justices shall constitute a quorum for

sessions en bane and tvvo (2) Justices for session of a Division. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

Answer: A Reference: Section 2, Republic Act No. 1125, as amended by Republic Act No. 9503

3. The affirmative votes of how many members of the Court en bane shall be necessary to reverse a decision of a Division? a. Five (5) c. Three (3) b. Four (4) d. Two (2)

Answer: B Reference: Section 2, Republic Act No. 1125, as amended by Republic Act No. 9503

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Chapter 25: Jurisdictions of the Court of Tax Appeals

4. The affirmative votes of how many members of a Division shall be necessary for the rendition of a decision or resolution? a. Five (5) c. Three (3) b. Four (4) d. Two (2)

Answer: D Reference: Section 2, Republic Act No. 1125, as amended by Republic Act No. 9503 The affinnative votes of five (5) members of the Court en bane shall be necessary to reverse a decision of a Division but a simple majority of the Justices present necessary to promulgate a resolution or decision in all other cases or two (2) members of a Division, as the case may be, shall be necessary for the rendition of a decision or resolution in the Division Level.

5.

Which of the following shall be exercised by the Court of Tax Appeals? a. Exclusive appellate jurisdiction to review by appeal b. Jurisdiction over cases involving criminal offenses c. Jurisdiction over tax collection cases d. All of the choices

Answer: D Reference: Section 7, Republic Act No. 1125, as amended by Republic Act No. 9282

6. Which of the following is under the exclusive appellate jurisdiction of the CTA to review by appeal? a. Decision of the CIR in cases involving disputed assessments, refunds of internal revenues, fees or other charges, penalties in relation thereto, or other matters arising under NIRC or other laws administered by the BIR. b. Inaction by the CIR in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under NIRC or other laws administered by the BIR, where the NIRC provides a specific period for action, in which case the inaction shall be deemed a denial c. Decisions, order, or resolutions of the Regional Trial Court in local tax ca3es originally decided or resolved by them in the exercise of their original or appellate jurisdiction d. All of the choices

Answer: D Reference: Section 7 (a), Republic Act No. 1125, as amended by Republic Act No. 9282

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7.

Which of the following is not under the exclusive appellate jurisdiction of the CTA to review by appeal? a. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees of other money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties, in relation thereto, or other matters arising under the Customs b. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over cases involving the asses~ment and taxation of real property originally decided by the ]Jr ovincial or city board of assessment appeals c. Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from decisions of the Commissioner of Customs which are adverse to the Government under Sec.2315 of the Tariff and Customs Code d. None of the choices

Answer: D Reference• Section 7 (a), Republic Act No. 1125, as amended by Re ublic Act No. 9282 The CTA shall exercise exclusiue appellate jurisdiction to reuiew by appeal: (1) Decision o[the CIR in cases irwoluing disputed assessments, refunds of

(2)

(3)

(4)

(5)

(6)

(7)

368

internal reuenues, fees or other charges, penalties in relation thereto, or other matters arising under NIRC or other laws administered by the BIR; Inaction by the CIR in cases irwolving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under NIRC or other laws administered by the BIR, where the NIRC provides a specifi"c pen.od for action, in which case the inaction shall be deemed a denial; Decisions, order, or resolutions o[the Regional Trial Court in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction; Decisions oft he Commissioner o( Customs in cases involving liability for customs duties, fees of other money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties, in relation thereto, or other matters arising under the Customs; Decisions o{the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over cases involving the assessment and taxation of real property originally decided by the prouincial or city board of assessment appeals; Decisions o[the Secretary of Finance on customs cases elevated to him automatically for review from decisions of the Commissioner of Customs which are adverse to the Government under Sec.231 S of the Tanff and Customs Code; Decisions o[the Secretan1 o[Trade and Industry in the case of nonagricultural, product, commodity or article, and the Secreton1 of Agriculture in the case of agricultural products, commodity or article, inuoluing dumping and countervailing duties under Section 301 and 301, respectively, of the Tariff and Customs Code, and safeguard measures under R.A. No. 8800, where either party may appeol the decision to im ose or not to im Jose said duties.


8. Which of the following cases involving criminal offense shall be under the jurisdiction of the CTA? a. Exclusive original jurisdiction over all criminal offenses arising from violations of the NIRC or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or the Bureau of Customs b. Exclusive appellate jurisdiction in criminal offense over appeals from judgments, resolutions or orders of the Regional Trial Court in Tax cases originally decided by them, in their respective territorial jurisdictions c. Exclusive appellate jurisdiction in criminal offenses over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan Circuit Trial Courts in their respective jurisdictions d. All of the choices

Answer: D Reference: Section 7 (b), Republic Act No. 1125, as amended by Republic Act No. 9282 The CTA shall exercise jurisdiction over cases involving criminal offenses: (1) Exclusive original jurisdiction over all criminal offenses arising from violations of the NIRC or Tariff and Customs Code and other laws administered by the BIR or the BoC: Prouided, however, That offenses or felonies where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than Pl,OOO,OOO or where there is no specified amount claimed shall be tried by the regular courts and the jurisdiction of the CTA shall be appellate. (2) Exclusive appellate jurisdiction in criminal offenses: (a) Over appeals from judgments, resolutions or orders of the Regional Trial Court in Tax cases originally decided by them, in their respective territorial jurisdictions; (b) Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan Circuit Trial Courts in their respective jurisdictions.

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9.

First statement: Criminal offenses or felonies where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than Pl,OOO,OOO or where there is no specified amount claimed shall be tried by the regular courts and the jurisdiction of the CTA shall be appellate. Second statement: Any provision of law or the Rules of Court to the contrary notwithstanding, the criminal action and the corresponding action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with, and jointly determined in the same proceeding by the CTA, the filing of the criminal· action being deemed to necessarily carry with it the filing of the civil action, and no right to reserve the filing of such civil action separately from the criminal action will be recognized. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct Answer: A Reference: Section 7 (b) ( 1), Republic Act No. 1125, as amended by Republic Act No. 9282

10. Which of the following cases involving tax collection cases shall be under the jurisdiction of the CTA? a. Exclusive original jurisdiction in tax collection cases involving final and executory assessments for taxes, fees, charges and penalties b. Exclusive appellate jurisdiction in tax collection cases over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax collection cases originally decided by them, in their respective territorial jurisdictions c. Exclusive appellate jurisdiction in tax collection cases over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the exercise of their appellate jurisdiction over tax collection cases decided by the Metropolitan Trial Courts and Municipal Circuit Trial Courts, in their respective jurisdictions d. All of the choices

Answer: D Reference: Section 7 (c), Republic Act No. 1125, as amended by Republic Act No. 9282

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1 Chapter 25: Jurisdictions of the Court of Tax Appeals

11. (Phil. CPA Modified) Which of the following cases does not fall within the jurisdiction of the Court of Tax Appeals? a. Criminal action for violation of the National Internal Revenue Code b. Question of whether or not to impose a deficiency tax assessment upon a taxpayer c. Appeal from an undisputed tax assessment d. Action for refund of real property tax

Answer: C

12. Which of the following statements is not correct? a. The Court of Tax Appeals may review tax cases motu propia under its expanded jurisdiction. b. The findings of fact of the Court of Tax Appeals is binding upon the Supreme Court. c. The Court of Tax Appeals may dismiss a petition for want of jurisdiction even if the question is not raised in the pleadings or even suggested by counsel. d. The Court of Tax Appeals may review the findings of the Secretary of Finance in seizure and forfeiture cases.

Answer: A

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Chapter 26 INHERENT POWERS OF THE STATE ~'vfore pmverju( tfian

tfie cwf{{ to win is tfie COUr£1f}C to fiegin. - )1nonymous


1. It is the act of laying a tax, i.e. the process or means by which the sovereign, through its lawmaking body, raises income to defray the necessary expenses of government. c. Police power a. Taxation d. None of the choices b. Power of eminent domain

Answer: A

2.

It is the power of the State or those to whom the power has been delegated to take private property for public use upon paying the owners a just compensation to be ascertained according to law. a. Taxation c. Police power b. Power of eminent domain d. None of the choices

Answer: B

3.

It is the power of the State to enact such laws in relation to persons and property as may promote public health, public morals, public safety and general welfare of the people. a. Taxation c. Police power b. Power of eminent domain d. None of the choices

Answer: C

j

4.

(Phil. CPA) Which statement refers to police power as distinguished from taxation? a. It can only be imposed on specific property or properties. b. The amount imposed depends on whether the activity is useful or not. c. It involves the taking of property by the government. d. The amount imposed has no limit.

Answer: B

372

Chapter 26: Inherent Powers of the State

,/ 5.

(Phil. CPA) Which of the following may not raise money for the government? a. Power of taxation b. Police power c. Power of eminent domain d. Privatization of government's capital assets Answer: C

Distinction among the inherent powers as to amount of imposition Taxation No limit Police power Limited to the cost ofthe license and the necessary expenses of police surveillance and regulation Power of eminent No imposition, the owner is paid the fair domain market value of his property 6.

In this power of the State, the person who is parting with his money or property is presumed to receive a benefit. a. Taxation c. Eminent domain b. Police power d. Forfeiture power Answer: A

../7.

(Phil. CPA) Police power as distinguished from eminent domain. a. Just compensation is received by the owner of the property. b. May be exercised by private individuals. c. Superior to impairment clause of the Constitution. d. Property is taken by the government forpublic purposes. Answer: C Article III, Section 10. "No law impairing the obligation of contracts shall be passed."

Distinction among the three inherent powers as to relationship to the non-zmpazrment o1 0 bl"zgatzons c lause o1 t h e c onstztutzon Taxation . . I,nferim; to the·~lause Police power Superior to the clause Power of eminent domain Inferior to the clause

/s.

(Phil. CPA) The following are common to the inherent power of taxation, power of eminent domain and police power, except for which of the following? a. They are necessary attributes of sovereignty. b. They interfere with private rights and property. c. They affect all persons or the public. d. They are legislative in implementation.

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Answer: C Similarities among the three inherent powers: 1) They are inherent in the State; 2) They exist independently of the Constitution; 3) They constitute the three methods by which the State interferes with private rights and property; 4) They are legislative in natur.e and character; 5) Each presu poses an equivalent compensation.

9. The basic principle of taxation, where, "Taxes must be based on the taxpayer's ability to pay" is called: c. theoretical justice. a. equality in taxation. d. equity in taxation. b. ability to pay theory.

Answer: C Basic Principles of a Sound Tax System (Canons of Taxation) a. Fiscal Adequacy - This means that the sources of revenue should be sufficient to meet the demands of public expenditures. b. Equality or Theoretical Justice - This means that the tax burden should be proportionate to the taxpayer's ability to pay (ability to pay principle). c. Administrative Feasibility - This means that the laws should be capable of convenient, just and effective administration. ·

10. Under this basic principle of a sound tax system, the government should not incur a deficit. c. Fiscal adequacy a. Theoretical justice d. Debt restructuring b. Administrative feasibility

Answer: C

./ 11. What basic principle of a sound tax system is met when Congress evolves a progressive system of taxation as mandated in the Constitution? l~Hi~ -\()~ ~\'W\dt>\e a. Fiscal adequacy c. Administrative feasibility b. Theoretical justice d. Balanced budget

Answer: B

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l j

I


.·

./ 12. Which of the following is not a basic principle of a sound taxation system? a. It should be capable of being effectively enforced. Ar b. It must be a progressive tax. 't 3 c. It must be sufficient to meet government expenditures and other public needs.f! fJ,. d. It should be exercised to promote public welfare. Answer: D

13. Which one of the following is not a characteristic of the State's power to tax? a. It is inherent in sovereignty. b. It is legislative in character. c. It based on the ability to pay. d. It is subject to constitutional and inherent limitations.

.·

Answer: C Characteristics (or Nature) of the State's Power to Tax a. It is inherent in sovereignty, hence, it may be exercised although not expressly granted by the Constitution. b. It is legislative in character, hence, only the legislature can impose taxes (high prerogative of sovereignty). c. It is subject to Constitutional and inherent limitations, hence, • it is not an absolute power than can be exercised by the legislature anyway it pleases.

14. (Phil. CPA) Statement 1: The power of taxation is inherent in sovereignty being essential to the existence of every government. Hence, even if not mentioned in the Constitution, the State can still exercise the power. Statement 2: Taxation is essentially a legislative function. Even in the absence of any constitutional provision, taxation power falls on " Congress as part of the general power of lawmaking. a. Both statements are false c. Both statements are true b. Only statement 1 is false d. Only statement 1 is true ·Answer: C

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j

15. (Phil. CPA) Which of the following statements is not correct? a. Taxes may be imposed to raise revenue or to provide ~incentives or disincentives for certain activities within the State. b. The State can have the power of taxation even if the Constitution does not expre~l.fgive it the power to tax. c. For the exercise of the power of taxation, the state can tax anything at any time. d. The provisio'ns of taxation in the Philippine Constitution are grants of power and not limitations on the taxing power. Answer: D

..1"16. Which is the best answer? A tax reform at any given time

underscores the fact that: a. taxation is an inherent power of the state. b. taxation is essentially a legislative power. c. the State can and should adopt progressive taxation. d. taxation is a power that is very broad. Answer: D

../"17. That the legislative body can impose a tax at any amount underscores the legal truism that taxation is: a. an inherent power of the state. b. very broad as a power of the state. c. essentially a legislative power. · d. for public purpose. Answer: B

.J 18. The government's ability to serve the people depends on taxation. Since taxes are collected, for their benefit, taxes may be imposed even in the absence of constitutional grants and collection of taxes cannot be stopped. a. Government is a necessity theory c. Ability to pay d. Lifeblood theory b. Benefits received theory Answer: D Taxes are the lifeblood of the Government and their prompt and certain availability are imperious (expecting obedience} need. Upon taxation depends the government's ability to serve the people for whose benefit taxes are collected.

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""

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I 19. One of the following is not a manifestation of lifeblood theory. a. Imposition of tax even in the absence of constitutional grant b. Right to select objects and subjects of taxation c. No injunction to enjoin tax collection d. Equal protection of law Answer: D Manifestation of lifeblood theory: 1} Imposition of tax even in the absence of Constitutional grant. 2} Right to select objects oftaxation. 3} No injunction to enjoin (or stop} tax collection.

,f2o. The power of taxation pr~ceeds ~~on what theory? a. b.

Government is a necessity theory Benefits received theory '!': '· ., ... ::\ .......

c. Ability to pay d. Severance test

~.--~-: ·t···

Answer: A The power of taxation proceeds upon the theory that the existence of the government is a necessity, that it cannot continue without means to pay its expenses and that for this means it has a right to compel all its citizens and property within its limits to contribute.

/21. That taxation is based on the principle of reciprocal duties of protection and support between the State and its inhabitants. a. Government is a necessity theory c. Ability to pay b. Benefits received theory d. Lifeblood theory Answer: B --------------------------------------------------------~ The basis oftaxation is the reciprocal duties ofprotection and support between the State and its inhabitants. The State collects taxes from the subjects oftaxation in order that it may be able to perform the functions of government. The citizens on the other hand, pay taxes in order that they may be secured in the enjoyment of the benefits of organized society (benefits received theory). 22. (Phil. CPA) First statement: In the exercise of the power of taxation, the State can tax anything, at any time, and at any amount. Second statement: Taxes may be imposed not only to raise revenue, but also to provide incentives and disincentives to certain activities within the State. a. Both statements are correct b. Both statements are incorrect c. The first statement is correct, the second is incorrect d. The first statement is incorrect, the second is correct Answer: A

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/23. (Adapted) Among the nature of taxation is that it is an inherent power being an attribute of sovereignty. Which among the following is not among its manifestation as such inherent power? a. Courts cannot issue an injunction to enjoin the collection of taxes. b. There should be no improper delegation of the pcwer to tax. c. Taxes may be imposed even without a constitutional grant. d. The State has the right to select the subjects and objects of taxation. Answer: B .]w-\~6\tlfott\

J24. (Adapted) First statement: Symbiotic relation is the reason why the government could impose taxes on the income of the resident citizens derived from sources outside the Philippines. ~~m\)",lfl\ c. ttie>\l t"S'\tt Second statement: Jurisdiction is the reason why citizens must provide support to the State so the latter could continue to give protection. a. b. c. d.

Both Both Only Only

statements are correct statements are incorrect the first statement is correct the second statement is correct

Answer: B The first statement refers to jurisdiction while the second statement refers to symbiotic relationshi (reciprocal duties) . ../ 25. (Adapted) The City of Masbate passed an ordinance imposing a license fee on all motor vehicles entering the city between the hours of 9:00a.m. and 5:00p.m. Owners of motor vehicles assailed the validity of the law. Is the law valid? a. Yes, because it was issued as a source of revenue. b. Yes, because it is a legitimate exercise of police power. c. No, because it discriminates against those who are not able to pay the license fee, particularly, the low-salaried employees, and is, therefore, class legislation. d. No, because it is not imposed by any other municipality, Answer: B

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- - - - - - -·---

··-

l I

i


/26. (Adapted) Which of the following is not one of the canons of a sound tax system? a. Quantifiability b. Equality c. Certainty d. Convenience

Answer: A

/27. (Phil. CPA) The President of the Philippines and the Prime Minister of Japan entered into an executive agreement in respect of a loan facility to the Philippines from Japan whereby it was stipulated that interest on loans granted by private Japanese financial institutions in the Philippines shall not be subject to Philippine income tax laws. What basic characteristic of taxation has been violated by this agreement? a. Inherent limitation c. Legislative in character b. Theoretical justice d. Administrative feasibility Answer: C

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I!

Chapter 27 LIMITATIONS ON THE POWER OF TAXATION ~Vfost of tfie important tfiings in tfie worra fiavc 6een accompusfied 6y pcop(e u:lio liave fispt on trying wlicn tliere seemed to 6e no liopc at a{{ - 'Da{e Carnegie


1. These are part and parcel of the power of taxation and originate from the very nature of taxation. a. Inherent limitations b. Constitutionallimitations c. Basic principles of sound tax system d. None of the choices Answer: A Reference: Bar Reviewer in Taxation, Volume 1, Seventh Edition, Abelardo T. Domondon pages 23 to 24 Inherent limitations oftaxation also known as the elements, tenets or characteristic of taxation 1. The tax imposed should be for public purpose; 2. There should be no improper delegation of the taxing power; 3. The power to tax is limited to the territorial jurisdiction of the taxing government; 4. Exemption of government entities from taxation; 5. Observance of international comity. Note: Majority of the authorities hold that there are only five (5} inherent limitations but a minority believe that there are six (6) including double taxation.

2. The proceeds of the tax must be used for the support of the State or for some recognized objects of government or directly promote the welfare of the community. a. The tax imposed should be for public purpose. b. There should be no improper delegation of the taxing power. c. The power to tax is limited to the territorial jurisdiction of the taxing government. d. Exemption of government entities from taxation. Answer: A

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Chapter 27: Limitations on the Power of Taxation

3. A tax must be imposed for public purpose. Which of the following is not a public purpose? a. National defense b. Public education c. Improvement of sugar industry d. None of the choices

Answer: D

/4.

One of the following is not a public purpose. a. National defense b. Improving sugar industry c. Building of churches common to all religions d. Retirement benefits of public officials

Answer: C

5. Is it possible for the tax to be used partly for public and partly private without violating the limitation that a tax must be for public purpose? a. Yes. The purpose to be accomplished by taxation need not be exclusively public. Although private individuals are directly benefited (e.g. giving aid to flood victims), the tax will still be valid provided such benefit is only incidental. b. No. The purpose to be accomplished by taxation need to be exclusively public. To benefit private individuals will be tantamount to deprivation of property of those who paid the tax without due process. c. Yes. The purpose is not important as long as the use of the tax can be property accounted for. d. No. The purpose shall either be public or private. It cannot be both.

Answer: A 6. An annual tax of Pl ,000 was imposed upon all residents of the Philippines, who are above 21 years of age, with a gross income of P250,000, whether or not they send their children to public schools, for the purpose of raising funds in order to improve public school buildings. The tax is: a. violative of the equal protection clause of the Constitution. b. confiscatory. c. for public purpose. d. contradicts the inherent limitations.

Answer: C

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7. A tax does not meet the public purpose limitation if it: a. is for the welfare of the nation or greater portion of the population. b. Affects the areas as a community rather than as a individuals. c. Is for the benefit principally of limited subjects or objects. d. Is designed to support the services of government for some of its recognized objects.

Answer: C

8. The principle of separation of powers ordains that each of the three branches of the government has exclusive cognizance of and is supreme in matters falling within its own constitutionally allocated sphere. a. The tax imposed should be for public purpose. b. There should be no improper delegation of the taxing power. c. The power to tax is limited to the territorial jurisdiction of the taxing government. d. Exemption of government entities from taxation.

Answer: B Reference: Abakada Guro Partylist, etc. vs. Ermita et al, GR No. 168056, September 1, 2005 citing Angara v. Electoral Commission No. 45081, July 15, 1936, 63 Phil. 139, 156

J9.

That there should be no improper delegation of the legislative authority to tax is: a. a principle of a sound tax system. b. a constitutional limitation on the power of taxation. c. an inherent limitation of on the power of taxation. d. both a constitutional and inherent limitation on the power of taxation.

Answer: D

10. Being legislative in nature, the power to tax may not be delegated, except: a. to local government (to be exercised by the local legislative bodies thereof) or political subdivisions. b. when allowed by the Constitution. c. when delegation relates merely to administrative implementation that may call for some degree of discretionary powers under a set of sufficient standards expressed by law or implied from the policy and purpose of the Act. d. all of the choices.


Answer: D References: Cu Unjieng vs. Patstone, 42 Phil. 818 Cervantes v. Auditor General, 91 Phil. 359 Maceda v. Macaraig, 197 SCRA 771

11. This stems from the principle that we pay taxes for the protection and services provided by the taxing authority which could not be provided outside the territorial boundaries of the taxing state. a. The tax imposed should be for public purpose. b. There should be no improper delegation of the taxing power. c. The power to tax is limited to the territorial jurisdiction of the taxing government. d. Exemption of government entities from taxation. Answer: C Reference: Bar Reviewer in Taxation, Volume 1, Seventh Edition, Abelardo T. Domondon page 45

12. The place or authority that has the right to impose and collect taxes. a. Situs of taxation c. Scope of taxation b. Sources of taxable income d. None of the choices Answer: A Reference: Commissioner of Internal Revenue v. Marubeni Corporation, GR No. 137377, December 18, 2001 Subject Situs of Taxation 1} Poll tax on persons Residence oLthe person 2}Realproperlytax State where the properly is located whether the owner is resident or not 3} Tax on tangible State where it is physically located although personal properlies the owner resides in another jurisdiction (lexi rei· sitae} 4} Tax on intangible Domicile of the owner (mobilia sequntur personal propertl.J personam} 5) Income tax State where the taxpayer is a resident or citizen 6} Business, occupation Place where the business is done, or the and transaction tax occupation is engaged in or the transaction took place 7) Gratuitous transfer of State where the transferor is/ was a citizen properlu or resident, or where the properly is located

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/13. Which of the following is a remedy against multiplicity of situs? a. Provision of exemptions b. Allowance of deduction or tax credit for foreign taxes c: Treaties with other states d. All of the choices Answer: D

14. Government agencies performing governmental functions are exempt from tax unless expressly taxed while those performing proprietary functions are subject to tax unless expressly exempted. a. The tax imposed should be for public purpose. b. There should be no improper delegation of the taxing power. c. The power to tax is limited to the territorial jurisdiction of the taxing government. d. Exemption of government entities from taxation. Answer: D

15. (Phil. CPA) A fundamental rule in taxation is that, the property of one country may not be taxed by another country. This is knmvn as: a. internationallaw. c. reciprocity. b. international comity. d. international inhibition. Answer: B 16. The Philippine Constitution has expressly adopted the generally accepted principles of international law as part of the land. Which inherent limitation of taxation is being adhered to? a. Territorial jurisdiction b. International comity c. Public purpose d. Non-delegation of power of taxation Answer: B

.( 17. First statement: A violation of inherent limitations can amount to taking of property without due process of law. Second statement: Any tax law contravening any of the inherent limitations of taxation, in effect, will likewise be unconstitutional. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

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Answer: A Reference: Tax Law and Jurisprudence, Third Edition, Justice Jose Vitug and Justice Ernesto D. Acosta citing Pepsi Cola vs. Municipality of Tanauan, 69 SCRA 460 pages 4 and 5 /18. (Phil. CPA) The City of Manila, claiming that it can impose taxes under the Local Government Code, imposed a tax on banks (in addition to the percentage tax on banks imposed in the National Internal Revenue Code). The banks within the City of Manila objected for the various reasons given below. Which would justify the objection of the banks? a. The power of taxation cannot be delegated b. The rule of double taxation c. Uniformity in taxation d. None of the above Answer: D /19. (Phil. CPA) Ms. Rita Dayag is the owner of various real estate properties in Cagayan. These properties are for lease and yield rental income to Miss Dayag. Every year, she pays value-added tax to the BIR. The Cagayan government enacts an ordinance imposing on her a lessor tax in accordance with the schedule of amounts related to her gross rental income from the same real properties.

First question: Does the local ordinance, constitute, in effect, double taxation? Answer: Yes, there is double taxation because there are two kinds of taxes levied on the same person for the same occupation or business. The Province of Cagayan enacts an ordinance which imposes an occupation tax upon owners of prawn farms. The validity of the ordinance is being challenged on the ground that it constitutes double taxation because the prawn farm is already subje<:;t to land tax.

Second question: Is the ordinance valid? Answer: Yes, because there are two different taxes involved, a tax on occupation and a tax on the land. Hence, there is no double taxation. a. Answer to 1st question wrong, answer to 2nd question correct. b. Answer to both questions are correct. c. Answer to both questions are wrong. d. Answer to 1st question is right, answer to 2nd question is wrong. Answer: A

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J20.

(Phil. CPA) Which of the following cases constitute an objectionable double taxation? a. A license fee and a tax imposed on the same business or occupation for selling the same articles b. A tax imposed both on the occupation of fishing and fishpond· operation ' c. Persons engaged in leasing or selling real property are subject to income tax on their income and their sales are subject to VAT d. A tax of 1% is imposed for banks reserve deficiency while penalty of 1/2 of 1% a day is also imposed as consequence of such reserve deficiency

Answer: B

21. First statement: Our Constitution does not prohibit double taxation. Second statement: If double taxation occurs, the taxpayer may seek relief under the uniformity rule or equal protection guarantee. a. 1st statement is correct, 2nd statement is wrong b. 1st statement is wrong, 2nd statement is correct c. Both statements are wrong d. Both statements are correct

Answer: D

22. (Phil. CPA) Which of the following is not an element of double taxation? a. Two taxes c. Same year b. Same subject matter d. Same amount

Answer: D Direct double taxation means taxing twice, by the same taxing authority, within the same jurisdiction or taxing district, for the same purpose, in the same year{or taxing period) some of the property in the territo

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23. These a. b. c. d.

are restrictions imposed by the Constitution. Inherent limitations Constitutionallimitations Basic principles of sound tax system None of the choices

Answer: B Reference: Bar Reviewer in Taxation, Volume 1, Seventh Edition, Abelardo T. Domondon page 23

24. Compliance with procedural requirements must be followed strictly to avoid collision course between the state's power to tax and the individual's recognized rights. a. Due process of law b. Equity in taxation c. Non-infringement of religious freedom d. Non-impairment of obligation of contracts

Answer: A { 25. There can be no tax unless there is a law imposing that tax is consistent with the doctrine or principle of: a. uniformity in taxation. b. due process of law. c. non-delegation of the power to tax. d. the power of taxation is very broad and the only limitation is the sense of responsibility of the members of the legislature to their constituents.

Answer: B

26. There is due process if deprivation of life, liberty or property is done: I - under the authority of law that is valid or of the. Constitution itself. II - after compliance with fair and reasonable methods of procedure prescribed by law. a. b.

Both I and II are correct Only I is correct

c. d.

Both I and II are incorrect Only II is correct

Answer: A No person shall be deprived of life, liberty, or property without due process o(law, nor shall any person be denied the equal protection of the laws (Art. III, Sec. 1).

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J 27.

(Phil. CPA) The City Council of Mas bate passed an ordinance imposing an occupation tax on an air-conditioning technician. Antonio is the only person with such occupation in the city. He challenged the validity of the ordinance as being discriminatory since he is the only one adversely affected. a. The contention of Antonio is tenable. b. The ordinance is unconstitutional because Antonio is denied of his right to equal protection of the law. c. The contention of Antonio is not justified because the rule on uniformity is not violated considering that the ordinance would also be imposed on all air-conditioning technicians who may come with the jurisdiction of the city. d. The issue on validity or invalidity of the ordinance should be set aside.

Answer: C

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28. A law was passed by Congress which granted tax amnesty to those who have not paid income taxes for a certain year without at the same time providing for the refund of taxes to those who have already paid them. The law is: a. valid because there is a valid classification. b. not valid because those who did not pay their taxes are favored over those who have paid their taxes. c. valid because it was Congress which passed the law and it did not improperly delegate the power to tax. d. not valid because only the President with the approval of Congress may grant amnesty.

Answer: A

~ 29. A fixed license fee on the sale of bibles and other religious literature 1s a violation of : a. non-infringement of religious freedom. b. no appropriation for religious freedom. c. exemptions of religious, charitable or educational entities, nonprofit cemeteries and churches from property taxation. d. exemption of revenues and assets of non-stock, non-profit educational institutions and donations for educational purposes from taxes and duties.

Answer: A No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof The free exercise and enjoyment of religious profession and worship, without discrimination or preference, shall forever be allowed. No religious test shall be required for the exercise of civil or political rights (Art. III, Sec. 5).

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1 Chapter 27: Limitations on the Power of Taxation

j30. Congress granted a franchise to Ruthie Shipping Lines for the operation of a passenger or freight service between Manila and Cebu City subject to the condition that the shipping line should carry government mails free of charge. It was then exempted from the payment of the franchise tax. In a law that was passed later, the shipping line's exemption from the franchise tax was removed on the ground that the government needed funds for its projects. Was the law valid? a. Yes, because the government has the power to remove exemptions if the need for public funds arose. b. Yes, because the Congress has the sole prerogative to enact laws including removal of exemptions. c. No, because the grant of the franchise tax exemption was a valid consideration, which may be considered a contract. To remove the tax exemption would impair the obligation of contract. d. No, because Congress can only enact laws. It cannot remove or withdraw exemptions. Answer: C No law impairing the obligation of contracts shall be passed (Art. III, Sec. 1 0).

/31. A taxpayer who had gross income in the preceding year did not declare it when he paid the poll tax. He paid only the basic tax and did not pay the additional poll tax based on gross income. Will he be imprisoned? a. No. No person shall be imprisoned for non-payment of poll tax. b. Yes. This is a case of tax evasion. Tax evasion is now a criminal offense. c. No. Paying the basic poll tax is enough. Additional poll tax is discretionary. d. Yes. Non-payment of poll is punishable by imprisonment. Answer: B

32. (Phil. CPA) No person shall be imprisoned for non-payment of this. a. Property tax c. Poll tax b. Excise tax d. Income tax Answer: C No person shall be imprisoned for debt or non-payment of a poll tax (Art. III, Sec. 20).

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33. (Phil. CPA) Which statement is wrong? A revenue bill: a. must originate from the House of Representative and on the same bill the Senate may propose amendments. b. may originate from the Senate and on which same bill the House of Representative may propose amendments. c. may have a House version and a Senate version approved separately. d. may be recommended by the President to Congress. Answer: B All appropriation, revenue or tariff bills authorizing increase of the public debt, bills of application, and private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments (Art. VL Sec. 24).

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34. First statement: The President shall have the power to veto any particular item or items in an appropriation, revenue, or tariff bill, but the veto shall not. affect the item or items to which he does not object.

Second statement: The President shall have the power to veto any particular item or items in a bill that penalizes crimes, but the veto shall not affect the item or items to which he does not object. a. b. c. d.

1st statement is correct, 2nd statement is wrong 1st statement is wrong, 2nd statement is correct Both statements are wrong Both statements are correct

Answer: A The President shall have the power to veto any particular item or items-in an appropriation, revenue, or tariff bill, but the veto shall not affect the item or items to which he does not object [Art. VL Sec. 27 (2).

35. This requires that all subjects or objects of taxation, similarly situated are to be treated alike or put on equal footing both in privileges and liabilities. c. Progressive taxation a. Due process d. None of the choices b. Uniformity Answer: B The rule oftaxation shall be uniform and equitable. The Congres~ shall evolve a progressive system of taxation Art. VI, Sec. 28 (l)).__j

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36. The Congress may, by law, authorize the President to fix within specific limits, and subject to such limitations and restrictions as it may impose, except: a. tariff rates, import and export quotas. b. tonnage and wharfage dues. c. other duties or imposts. d. none of the choices. Answer: D The Congress may, by law, authorize the President to ]vc within specific limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government [Art. VI, Sec. 28 (2)}.

• 37. The basis or test of exemption of real properties owned by religious or charitable entities from real property taxes is: a. use of the real property. b. ownership of the real property. c. location of the real property. d. , ownership or location of real property at the option of the Government. Answer: A 38. A hospital, put up primarily as a charitable institution, has admitted pay patients. The hospital devotes the income from the paying patients to the improvement of the charity wards which represent 2/3 of the bed capacity of the hospital, aside from "out-charity patients" who come only for consultation. Which of the following statements is correct as regards the hospital? a. The hospital is subject to income tax because it is now engaged in an income-oriented activity. b. The hospital is exempt from income tax because·it is exclusively ·• using the income for charitable purposes. c. The hospital is subject to income tax because, as a rule, hospitals are subject to income tax. d. The hospital is exempt from income tax because majority of its patients are in the charity ward. Answer: B Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable or educational purposes shall be exempt from taxation [Art. VI, Sec. 28 {3)}.

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39. No law granting any tax exemption shall be passed without the concurrence of a majority of all the: a. members of the Congress. b. members of the majority party of the Congress. c. members of Congress present during the deliberation of the tax exemption bill. d. members of the Ways and Means Committee of the Congress. Answer: A No law granting any tax exemption shall be passed without the concurrence of a majority of all the members of the Congress [Art .. VI, Sec. 28 (4)}.

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40. Public money or property may be appropriated: a. for the use, benefit or support of any sect, church, denomination, sectarian institution, or system of religion. b. for the use, benefit or support of any.priest, preacher, minister, or other religious teachers, or dignitary as such. c. for the use, benefit or support of any priest, preacher, minister or dignitary assigned to the armed forces, or to any penal institution, or government orphanage or leprosarium d. none of the choices. Answer: C No public money or property shall be appropriated, applied, paid or employed, directly or indirectly, for the use, benefit or support of any sect, church, denomination, sectarian institution, or system of religion, or of any priest, preacher, minister, or other religious teachers, or dignitary as such, except when such priest, preacher, minister or dignitary is assigned to the armed forces, or to any penal institution, or government orphanage or leprosarium [Art. VI, Sec. 29 (2)}.

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41. The Court ruled that the "stabjlization fees" collected by the State (PHILSUCOM) for the promotion of the sugar industry were in the nature of taxes and no implied trust was created for the benefit of sugar producers. No part thereof may be used for the exclusive benefit of any private person or entity but for the benefit of the entire sugar industry. Which constitutional limitation is addressed by the ruling? a. No person shall be deprived of life, liberty or property without due process of law b. No person shall be deprived equal protection of law c. All money collected for a special purpose shall be treated as a special fund d. No law shall be passed impairing obligation of contracts

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Answer: C All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purpose only. If the purpose for which a special fund was created has been fulfilled or abandoned, the balance, if any, shall be transferred to the general funds ofthe Government [Art. VI, Sec 29 (3)].

/42. A tax lavY was passed expressly providing that it is not subject to any judicial review so as not to delay the tax collection which is badly needed to advance economic reforms. Is the law valid? a. No, it violates the constitutional provision on non-impairment of the obligation of contracts. b. Yes, no court is empowered to enjoin tax collection because of the lifeblood theory. c. No, it violates the provision on non-impairment of the jurisdiction of Supreme Court in tax cases. d. Yes, taxing power is exclusively legislative and therefore not subject to any judicial review.

Answer: C The Supreme Court has the power to review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules of Court may provide, final judgments and orders of lower courts in all cases involving the legality of any tax, impost, assessment, or toll, or any penalty imposed in relation thereto [Art. VIII, Sec. 5 (2) (b)].

43. Which of the following has no power of taxation? a. Provinces c. Barangays b. Cities d. Barrios

Answer: D

J 44. Which statement gives the correct answer?

That a feasibility study needs or need not look into the taxes of different political subdivisions of government which may be alternative sites of the business because: a. provinces, cities and municipalities must have uniform taxes between and among themselves. b. the local taxes of a political subdivision need not be exactly the same as with the local taxes of another political subdivision. c. businesses that are subject to national business taxes are exempted from local business taxes. d. local business taxes may be credited against national business taxes.

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Answer: B Each local government unit shall have the power to create its own~ sources of revenue and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments (Art. X, I Sec. 5). _ _ _ _ _ _ _ __

Local government units shall have a just share, as detennined by law, in the national taxes which shall be automatically released to them (Art. X, Sec. 6).

I: I

45. Which of the following statement is incorrect? a. All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties. b. Upon the dissolution or cessation of the corporate existence of such non-stock, non-profit educational institutions, their assets shall be disposed of in the manner provided by law. c. Proprietary educational institutions, including those cooperatively owned, may likewise be entitled to such exemptions subject to the limitations provided by law including restrictions on dividends and provisions for reinvestment. d. None of the choices.

Answer: D All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation of the corporate existence of such institutions, their assets shall be disposed of in the manner provided by law.

Proprietary educational institutions, including those cooperatively owned, may likewise be entitled to such exemptions subject to the limitations provided by law including restrictions on dividends and provisions for reinvestment Art. XIV, Sec. 4 (3)}.

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~6. Which of the following statements is correct? a.

Subject to conditions prescribed by law, all grants, endowments, donations, or contributions used actually, directly, and exclusively for educational purposes shall be exempt from tax b. The Congress may provide for incentives, including tax deductions, to encourage private participation in programs of basic and applied scientific research. c. Scholarships, grants-in-aid, or other forms of incentives shall be provided to deserving science students, researchers, scientists, inventors, technologists, and specially gifted citizens. d. All of the choices

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Answer: D Subject to conditions prescribed by law, all grants, endowments, donations, or contributions used actually, directly, and exclusively for educational purposes shall be exempt from tax [Art. XIV, Sec. 4 (4).

The Congress may provide for incentives, including tax deductions, to encourage priuate participation in programs of basic and applied scientific research Scholarships, grants-in-aid, or other forms of incentiues shall be prouided to deseruing science students, / researchers, scient!sts, inuentors, technologists, and specially gifted Lciil!'-_"!'3_5_fArt. XIV, Sec. 11).

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/47. (Phil. CPA) Which of the following statements is not correct? a. An inherent limitation of taxation may be disregarded by the application of a Constitutional limitation. b. The property of an educational institution operated by a religious order is exempted from property tax, but its income is subject to income tax. c. The prohibition of delegation by the state of the power of • taxation will still allow the Bureau of Internal Revenue to modify the rules regarding time for filing returns and payment of taxes. d. The power of taxation is shared by the legislative and executive departments of government.

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Answer: D The principle of separation of powers ordains that each of the three branches of the government has exclusive cognizance of and is supreme in matters falling within its own constitutionally allocated sphere (Abakada Guro Partylist, etc. vs. Ermita et al, GR No. 168056, September 1, 2005 citing Angara v. Electoral Commission No. 45081, July 15, 1936, 63 Phil. 139, 156).

Being legislative in nature, the power to tax may not be delegated, except: a. to local government {to be exercised by the local legislative bodies thereof) or political subdivisions {Cu Unjieng v. Patstone, 42 Phil. 818). b. when allowed by the Constitution. c. when delegation relates merely to administrative implementation that may call for some degree of discretionary powers under a set of sufficient standards expressed by law {see Cervantes v. Auditor General, 91 Phil. 359) or implied from the policy and purpose of the Act {Maceda v. Macaraig, 197 SCRA 771) .

./ 48. One of the characteristics of our internal revenue laws is that they are: a. political in nature. b. penal in nature. c. generally prospective in operation although the tax statute may nevertheless operate retrospectively, provided it is clearly the legislative intent. .· d. criminal in nature.

Answer: C

J 49. required Some franchise holders who are paying the franchise tax are being by an amendatory law to pay the value-added tax, while others remain subjected to franchise tax. Which of the following constitutional provisions makes the law unconstitutional? a. No law shall be passed impairing the obligation of contracts. b. The rule on taxation shall be uniform. c. No person shall be deprived of property without due process of law. d. None of the above.

Answer: D

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A franchise cannot be amended by: a. an amendment of a special law, which granted the franchise. b. an amendrr:ent of a law of general application. c. an amendment of tax laws. d. none of the choices. Answer: D

51. (Phil. CPA) A taxpayer gives the following reasons for refusing to pay a tax. Which of his reasons is not acceptable for legally refusing to pay the tax? a. That he has been deprived of due process of law. b. That there is lack of territorial jurisdiction. c. That the prescriptive period for the tax has elapsed. d. That he will derive no benefit from the tax. Answer: D

J 52. Violation of inherent limitations can amount to: a. taking of property without due process. b .. impairment of obligation of contracts. c. infringement of religious freedom. d. infringement of the Supreme Court's jurisdiction over tax cases. Answer: A

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Chapter 28 TAX AND OTHER CHARGES We were 6orn to succeed, not to jai[- ~l(cnry 'Davia71ioreau


1.

It is an enforced contribution levied by the state by virtue of the sovereignty on persons and property within its jurisdiction for the support of the government and all public needs. a. Tax c. Special assessment b. Toll d. License

Answer: A

2.

(Phil. CPA) The proportional contribution by persons and property levied by the lawmaking body of the state by virtue of its sovereignty for the support of the government and all public needs is referred to as: b. special assessment. a. tax. b. license fee. d. penalty.

Answer: A

3.

(Phil. CPA) The amount required as dictated by the needs of the government is: a. license fee. c. toll. b. tax. d. tariff.

Answer: B

4.

(Phil. CPA) One of the characteristics of tax is that it is generally: a. based on contract. c. assignable. b. payable in money. d. optional.

Answer: B

/s.

(Phil. CPA) Which is not an essential characteristic of tax? a. Unlimited as to amount c. Proportionate in character b. Payable in money d. Regular payment

Answer: D

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Chapter 28: Taxes and Other Charges

J6.

(Phil. CPA) All of the following, except one, is an essential characteristic of a tax. Whic.h is the exception? a. It is based on the ability to ·pay b. It is an enforced contribution c. It is generally payable in money d. It is proportionate in character

Answer: A

7.

(Phil. CPA) One of the following is not a characteristic or an element of tax. a. It is levied by the legislature b. It is payable in money or in kind c. It is proportionate in character d. It is an enforced contribution

Answer: B

8.

(Phil. a. b. c. d.

CPA) One of the characteristics of tax is that: it is generally based on contract. it is generally payable in money. it is generally assignable. answer not given.

Answer: B The following are the essential characteristics of tax: 1) It is an enforced contribution; 2) It is levied pursuant to legislative authority; 3) It is proportionate in character; 4) It is payable in money; 5) It is levied on persons and property within the jurisdiction of the State; 6) It is levied and collected for the purpose of raising revenue to be used for public purpose; 7) It is commonly required to be paid at regular intervals (not all taxes).

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9.

One of the following is not a national tax. a. Income tax c. b. Value-added tax d.

Documentary stamp tax Community tax

Answer: D Classification of tax as to scope 1) National- imposed by the National Government (e.g. income tax, estate tax, donor's tax, value added tax, other percentage taxes, documentary stamp tax.) 2) Local or Municipal- imposed by municipal corporations (e.g. real estate tax, community tax.) The following are national tQ'<:es imposed under special laws (not found in the Tax Code): a) Customs duties; b) Sugar adjustment tax; c) Tax on narcotic drugs; d) Specific educational fund tax; e) Science fund tax; f) Energy taxes on aircraft, motorized watercraft and electric power consumption; g) Travel tax; h) Private motor vehicle tax.

10. (Phil. CPA) Tax on business is: a. a direct tax. b. an indirect tax.

c. a property tax. d. a poll tax.

Answer: B

11. (Phil. CPA) Which of the following is not a direct tax? · a. Immigration tax b. Transfer tax c. Income tax d. Contractor's tax (now value-added tax) Answer: D

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12. (Phil. CPA) Which of the following is not an example of a direct tax? a. Income tax c. Community tax b. Transfer tax d. Business tax 'lp[l Answer: D

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13. (Phil. CPA) The basic community tax of P5.00 of an individual is: a. a property tax. c. a national tax. b. a direct tax. d. an ad valorem tax.

Answer: B Classification of tax as to who bears the burden 1) Direct- Tax which is demanded from the person who also shoulders the burden of tax or tax which the taxpayer cannot shift to another (e.g. income tax, estate tax, donor's tax). 2) Indirect - Tax which is demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another or ta;;: which can be shifted to another person (e.g. value-added tax, other percentage taxes)

14. (Phil. CPA) Tax of fixed proportion to the value of the property with respect to which the tax is assessed and requires the intervention of assessors or appraisers to estimate the value of such property before the amount due from each taxpayer can be determined is known as: a. specific. c. ad valorem. b. special or regulatory. d. fiscal.

Answer: C Classification of tax as to the determination of the amount 1) Specific - Tax of fixed amount imposed by the head or number, or by some standard of weight or measurement. It requires no assessment other than a listing or classification of the subjects to be taxed (e.g. excise tax on cigar, cigarettes and liquors). 2) Ad valorem- Tax of fzxed proportion of the value of the property with respect to which the tax is assessed. It requires the intervention of assessors or appraisers to estimate the value of such property before the amount due from each taxpayer can be determined (e.g. VAT, income tax, donor's tax and estate tax).

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15. (Phil. CPA) One of the following is not a general or revenue tax. a. Income tax c. Customs duty b. Donor's tax d. None of the choices

Answer: C Classification of tax as to purpose 1) General/Fiscal/Revenue - Tax imposed solely for the general purpose of the government, i.e., to raise revenue for government expenditures (e.g. income tax, donor's tax and estate tax). 2) Special/Regulatory- Tax imposed for a specific purpose, i.e., to achieve some social or economic ends irrespective of whether revenue is actually raised or not (e. . tari and certain duties on imports).

401


16. (Phil. CPA) Which of the following is not an example of excise tax? a. Transfer tax c. Real property tax b. Sales tax (now value-added tax) d. Income tax Answer: C Classification of tax as to object or subject matter 1) Personal/Poll/Capitation - Tax of a fzxed amount imposed on individuals, whether citizens or not, residing within a specified territory without regard to their property or the occupation in which may be engaged (e.g. community tax). 2) Property - Tax imposed on property, whether real or personal, in proportion either to its value, or in accordance with some other reasonable method of apportionment (e.g. real estate tax). 3) Excise -Any iax which does not fall within the classification of a poll tax or a property tax. This is a tax on the exercise of certain rights or privileges (e.g. income tax, estate tax, donor's tax, VAT other percentage taxes) Note: This is different from the excise tax which is a business tax imposed on items such as cigars, cigarettes, wines, liquors, ·· fireworks, mineral products, etc.

17. (Phil. CPA) As to rate, value added tax is an example of: a. gradated tax. c. progressive tax. b. regressive tax. d. proportional tax. Answer: D

18. (Phil. CPA) A kind of tax system where rate increases as the tax base increases. c. Regressive tax a. Digressive tax d. Progressive tax b. Proportional tax Answer: D

19. (Phil. CPA) The following are kinds of taxes as to gradation. Which one is not? a. Digressive c. Uniform b. Regressive d. Progressive

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Answer: A Classification of tax as to rates or gradation 1) Proportional - Tax based on a fixed percentage of amount of the property, receipts, or other basis to be taxed (e.g. VAT, other percentage taxes). 2) Progressive - tax the rate of which increases as the tax base or bracket increases (e.g. income tax, estate tax and donor's tax). 3) Regressive - Tax the rate of which decreases as the tax base or bracket increases. A regressive tax must not be confused with regressive system of taxation. In a society where the majority of the people have low income, it exists when there are more indirect taxes imposed than direct taxes. The low- income sector of the population as a whole buys more consumption goods on which indirect taxes are collected. The burden of indirect taxes rests more on them than on the more affluent groups. Studies reveal that the progressive elements of the income and other direct taxes have not sufficiently offset the regressive effects of the indirect taxes as a whole.

20. Statement 1: The value-added tax is a property tax. Statement 2: The estate tax is a direct tax. a. The two statements are correct b. The two statements are wrong c. Statement 1 is correct while statement 2 is wrong d. Statement 1 is wrong while statement 2 is correct

Answer: D

21. This is a demand of ownership. a. License fee b. Tax

c. Toll d. Franchise

Answer: C Toll is a sum of money collected for the use of something, generally applied to the consideration which is paid for the use of road, bridge or the like, of a public nature.

22. It is collected for the use of somebody else's property. a. Toll c. Tax b. Debt d. Special assessment.

Answer: A

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23. (Phil. CPA) Toll as distinguished from tax. a. Demand of sovereignty b. Imposed by government only c. Amount is based on the cost of construction of public improvement used d. Paid for the support of the Government Answer: C Distinction between toll and tax: 1) Toll is a demand of proprietorship while tax is a demand of sovereignty; 2) Toll is paid for the use of another person's property while tax is paid for the support ofthe Government; 3) The amount of toll is based on the cost of construction or maintenance of the public improvements used while the amount of tax is based on the necessities ofthe State; 4) Toll may be imposed by the Government or by private entities while tax is imposed by Government only.

24. An enforced proportional contribution from owners of lands for special benefits resulting from public improvements. a. Tax c. Special assessment b. Toll d. Penalty Answer: C

J25. Special assessment distinguished from tax. a. b. c. d.

Levied on persons, property or the exercise of privilege Personal liability of the person taxed Has general application Exceptional both as to time and place

Answer: D Distinction between special assessment and tax: 1) Special assessment is levied on land only while tax is levied on persons, property or the exercise of privilege; 2) Special assessment is not a personal liability of the person assessed while tax is a personal liability of the person taxed; 3) Special assessment is based wholly on the special benefits to the property assessed while tax is based on the necessities of the government without any special benefit directly accruing to the taxpayer; 4) Special assessment is exceptional both as to time and place while tax has general application.

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Chapter 28: Taxes and 0t:1er Charges

;;6. (Phil. CPA) Which statement is wrong? a. A tax is a demand of sovereignty. b. A toll is a demand of ownership. c. A special assessment is a tax. d. Customs duty is a tax. Answer: C

27. (Phil. CPA) Which of the following terms describes the statement, "that the state has complete discretion on the amount to be imposed, after distinguishing between a useful and non-useful activity?" a. Tax c. Toll b. License fee d. Customs duty Answer: B

28. (Phil. CPA) Which of the following distinguishes tax from license fee? a. Non-payment does not necessarily render the business illegal b. A regulatory measure c. Imposed in the exercise of police power d. Limited to cover cost of regulation Answer: A

29. The distinction of permit or license from tax is that license fee is: a. imposed for revenue. b. one which involves an exercise of police power. c. one in which there is generally no limit on the amount that may be imposed. d. imposed through the provisions of the Constitution. Answer: B

30. (Phil. CPA) The distinction of a tax from permit or license is that a tax is: a. imposed for regulation. b. one which involves an exercise of police power. c. one in which there is generally no limit on the amount that may be imposed. d. imposed through the provisions of the Constitution.

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Answer: C Distinction between license fee and tax: 1) License fee is imposed for regulation while tax is imposed for revenue; 2) License fee involves an exercise of police power while tax involves an exercise of police power; 3) The amount of license fee is limited to the necessary expenses of regulations while the amount oftax is generally not limited; 4) License fee is imposed on the right to exercise a privilege while tax is imposed on persons, property and the right to exercise a privilege; 5) License fee is a legal compensation or reward of an officer for specific services while tax is an enforced contribution assessed by sovereign authority to defray public expenses; 6) Failure to pay license fee makes the act or business illegal while failure to pay tax does not necessarily make the business illegal.

31. Which of the following is generally based on contract? a. Tax c. Debt b. Toll d. Penalty Answer: C

32. Debt as distinguished from tax. a. Based on law b. May be paid in kind c. Does not draw interest except when delinquent d. Generally not subject to set-off or compensation Answer: B Distinction between debt and tax: 1) Debt is based on contract while tax is based on law; 2) Debt is assignable while tax is generally not assignable; 3) Debt may be paid in kind while tax is generally payable in money; 4) Debt may be subject to set-off or compensation while tax is generally not subject to set-off or compensation; 5) There is no imprisonment for non-payment of debt while there is imprisonment for non-payment of tax except poll tax; 6) Debt is governed by ordinary prescriptive period while tax is governed by special prescriptive period; 7) Debt draws interest when stipulated or when there is default while tax does not draw interest except when delinquent.

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33. Which of the following is designed to regulate conduct? a. Tax c. Penalty b. Toll d. Special assessment Answer: C Distinction between penalty and tax: 1) Penalty is designed to regulate conduct while tax is aimed at raising revenue; 2) Penalty is imposed by Government or private entities while tax is imposed by Government only.

34. There can be a classification of the subject matter being required to shoulder the burden. Which is the exception? a. Tax c. Toll b. License fee d. Eminent domain Answer: D

35. A pecuniary aid directly granted by the government to an individual or private commercial enterprise deemed beneficial to the public. a. Subsidy c. Revenue b. Tariff d. Customs duty Answer: A

36. Which of the following refers to the term tariff? a. A book of rates drawn usually in alphabetical order containing the names of several kinds of merchandise with the corresponding duties to be paid for the same b. The duties payable on goods imported or exported c. The system or principle of imposing duties on the importation and exportation of goods d. All of the choices Answer: D

37. It comprises all kinds of funds including taxes. a. License fee c. Customs duties b. Income d. Revenue Answer: D

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38. In case of deductions and exemptions on income tax returns, doubts shall be resolved: a. liberally in favor of the taxpayer. b. liberally in favor of the employer. c. strictly against the government. d. strictly against the taxpayer.

Answer: D Exemption/rom taxation is a grant of immunity, express or implied, to particular persons, or corporations, or to persons or corporations of a particular class, from a tax upon property, or an excise tax which persons and corporations generally within the same taxing district, are obliged to pay.

Exemptions from taxation may be: 1) Express or affirmative - These are express provisions in the Constitution, statutes, treaties, ordinances, franchises or contracts. 2) Implied or exemption by omission- This occurs when a tax is levied on certain classes of persons, properties or transactions without mentioning other classes. Those not mentioned are deemed exempted by omission. Exemption grants are strictly construed against the person, entity or property claiming exemption. One claiming must justify such claim by clear and positive grant

J39. The following, except one, are exceptions to the rule that tax exemptions must be strictly construed. a.

Where the statute granting the exemption provides for the liberal interpretation thereof b. The taxpayer does not fall within the purview of exception by clear legislative intent c. Case of special taxes relating to special cases and affecting only special classes of persons d. Exemptions refer to public property

Answer: A

40. (Phil. CPA) In case of ambiguity, tax laws shall be interpreted: a. strictly against the taxpayer. b. liberally against the government. c. liberally in favor of the taxpayer. d. liberally in favor of the government.

Answer: C

408


41. Which of the following is not a legal way of not paying tax? a. Tax avoidance c. Tax exemption b. Tax evasion d. None of the choices Answer: B Tax avoidance (tax minimization) is the use by the taxpayer or legally permissible methods in order to reduce tax liability while tax evasion (tax dodging) is the use by the taxpayer of illegal means to defeat or lessen the payment of tax.

/42. (Phil. CPA) Which of the following is not a scheme of shifting the incidence of taxation? a. The manufacturer transfers the tax to the consumer by adding the tax to the selling price of the goods sold b. The purchaser asks for a discount or refuses to buy at regular prices unless it is reduced by the amount equal to theta;;: he will pay c. Changing the terms of the sale like FOB shipping point in the Philippines to FOB destination abroad, so that the title passes abroad instead in the Philippines d. The manufacturer transfers the sales tax to the distributor, then in turn to the wholesaler, to the retailer and finally to the consumer Answer: C lrhe impact of taxation corresponds to the imposition of the tax, I shifting refers to the transfer of tax and incidence consists of the payment ofthe tax.

Shifting is the transfer of the burden of a tax by the original payer or the one to whom the tax was assessed or imposed to another or someone else.

These are the kinds of shifting: 1) Forward shifting- This takes place when the burden of the tax is transferredfrom afactor or production through the factors of distribution until it finally settles on the ultimate purchaser or consumer. 2) Backward shifting- This is effected when the burden of the ta.}c is transferredfrom the customer or purchaser through the factors of distribution to the factor of production. 3) Onward shifting - This occurs when tax is shifted two or more time either forward or backward.


43. (Phil. CPA) One of the characteristics of internal revenue tax is that they are: a. criminal in nature. b. penal in nature. c. political in nature. d. generally prospective in application.

Answer: D

44.

(Phil. CPA) In case of conflict between tax laws and generally accepted accounting principles (GAAP): a. both tax laws and GAAP shall be enforced. b. GAAP shall prevail over tax laws. c. . tax laws shall prevail over GAAP. d. the issue shall be resolved by the court.

Answer: C

45.

(Phil. CPA) "Schedular system of income taxation" means: a. all types of income are added together to arrive at gross income. b. separate graduated rates are imposed on different types of income. c. capital gains are excluded in determining gross income. d. compensation income and business/professional income are added together in arriving at gross income.

Answer: B The opposite of "scheduler system of income taxation" is called "global system of income taxation" which is described in choice letter d. above.

(Phil. CPA) Christopher, a CPA, has just obtained her CPA license. Before he can lawfully pursue his occupation, he should pay: a. privilege tax (PTR). b. income tax. c. percentage tax. d. value-added tax.

Answer: A I Privilege tax is a local tax imposed by local governments.

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/47. The reduction in the selling price of income-producing property by an amount equal to the capitalized value of future taxes that may be paid by the purchaser. a. Shifting c. Transformation b. Capitalization d. Tax exemption

Answer: B /48. The method by which the manufacturer or producer upon whom the tax is imposed pays the tax and strives to recover such expenses through lower production cost without sacrificing the quality of the product. a. Shifting c. Transformation b. Capitalization d. Tax exemption

.•

Answer: C ./ 49. The least source of out tax laws. a. Statutes b. Court decisions

c. Constitution d. BIR rulings

Answer: D

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Chapter 29 POWERS AND AUTHORITY OF THE COMMISSIONER OF INTERNAL REVENUE 'We wi{[ often fin a compensation if we tliin~more of wliat Cife lias gi,ven us ana Cess a6out wliat Cife lias ta/(§n away. - 'Wi[Ciam !Barday


j

1. The power to~e provision of the Tax Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner of Internal Revenue subject to review by: a. Secretary of Finance. c. Court of Appeals. b. Court of Tax Appeals. d. MunicipalCourts. Answer: A Reference: Section 4, NIRC, as amended

~ 2. In ascertaining the correctness of any return, or in making a return when none has been made, or in determining the liability of any person for any internal revenue tax, or in collecting any such liability, or in evaluating tax compliance, the Commissioner is authorized to do the following, except: a. to examine any book, paper, record, or other data which may be relevant or material to such inquiry. b. to summon the person liable for tax or required to file a return, or any officer or employee of such person, or any person having possession, custody, or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax, or any other person, to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books, papers, records, or other data, and to give testimony. c. to inquire into bank deposits of taxpayers under investigation for violations of the Tax Code. d. none of the choices. Answer: C Reference: Section 5, NIRC, as amended

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Chapter 29: Powers and Authority of the Commissioner of Internal Revenue

~.

decide~ssessments,

The power to refunds of internal revenue taxes, fees or other charges or other matters administered by the BIR is vested in the Commissioner of Internal Revenue, subject to the exclusive appellate jurisdiction of the: a. Secretary of Finance. c. Court of Appeals. b. Court of Tax Appeals. d. Municipal Courts.


v

4. Which of the following is within the power of the Commissioner to obtain information, to summon, examine and take testimony of persons? a. To obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation b. To take such testimony of the persons concerned, under oath, as may be relevant or material to such inquiry c. To cause revenue officers to canvass from time to time of any revenue district or region and require after and conceming all persons therein who may be liable to pay any intemal revenue tax, and all persons owning or having the care, management or possession of any object with respect to which a tax is imposed d. All of the choices


A.

Which of the following statements is incorrect? a. After a return has been filed as required under the provisions of the Tax Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax. b. Failure to file a return shall prevent the Commissioner from authorizing the examination of any taxpayer. c. The tax or any deficiency tax so assessed shall be paid upon notice and demand from the Commissioner or from his duly authorized representative. d. Any return, statement or declaration filed in any office authorized to receive the same shall not be withdrawn.



First statement: Within three (3) years from the date of filing of any

return, statement or declaration, the same may be modified, changed, or amended. Second statement: The modification, change or amendment to any return, statement of declaration filed is allowed if no notice for audit or investigation of such return, statement or declaration has in the meantime been actually served upon the taxpayer. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct


7.

First statement: When a report required by law as a basis for the

assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false, incomplete or erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable. Second statement: In case a person fails to file a required return or other document at the time prescribed by law, or willfully or otherwise files a false or fraudulent return or other document, the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise, which shall be prima facie correct and sufficient for all legal purposes. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct


8.

If there is reason to believe that such person is not declaring his correct income, sales or receipts for internal revenue tax purposes, the Commissioner may: I - order inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities. II - may plac;e the business operations of any person, natural or juridical, under observation or surveillance. a. b.

414

Neither I nor II Either I or II

c. d.

I only II only


Answer: B Reference: Section 6 (C), NIRC, as amended

9. The Commissioner, after taking into account the sales, receipts, income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts, sales and taxable base, and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person wheu: I - it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of this Code. II- there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of the Tax Code. a. Either I or II b. Neither I nor II

c. d.

I only II only

Answer: A Reference: Section 6 (C), NIRC, as amended

10. Which of the following is not within the Commissioner's authority to terminate taxable period? a. When the taxpayer is retiring from business subject to tax b. When taxpayer is intending to leave the Philippines or remove his property therefrom c. When the taxpayer is performing any act tending to obstruct the proceedings for collection of the tax for the past or current year or quarter d. When the taxpayer's business is suffering losses

.fl.')

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=


Answer: D Reference: Section 6 (D), NIRC, as amended SEC. 6. Power of the Commissioner to Make Assessments and ~ ~ Prescribe Additional Requirements for Tax Administration and Enforcement. (D) Authority to Terminate Taxable Period. _ When it shall come to the knowledge of the Commissioner that a taxpayer is retiring from business subject to tax, or is intending to leave the Philippines or to remove his property therefrom or to hide or conceal his property, or is performing any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately, the Commissioner shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision, together with a request for the immediate payment of the tax for the period so declared terminated and the tax for the preceding year or quarter, or such portion thereof as may be unpaid, and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed, unless paid within the time fixed in the demand made by the Commissioner.

11. First statement: The Commissioner is hereby authorized to divide the Philippines into different zones or areas and shall, upon consultation with competent appraisers both from the private and public sectors, determine the fair market value of real properties located in each zone or area. Second statement: For purposes of computing any internal revenue tax, the value of the property shall be, whichever is the higher of (1) the fair market value as determined by the Commissioner, or (2) the fair market value as shown in the schedule of values of the Provincial and City Assessors. a.· Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

Answer: A Reference: Section 6 (E), NIRC, as amended

416

I


12. Notwithstanding any contrary provision of R.A. No. 1405 and other general or special laws, the Commissioner of Internal Revenue is authorized to inquire into bank deposit: Case 1 - of a decedent to determine his gross estate. Case 2 - of any taxpayer who has filed an application for compromise of his tax liability by reason of financial incapacity provided there is waiver of his privilege under R.A. No. 1405 or under other general or special laws. a. True in both cases b. False in both cases c. True only in the first case d. True only in the second case

Answer: A Reference: Section 6 (F), NIRC, as amended SEC. 6. Power of the Commissioner to Make assessments and Prescribe additional Requirements for Tax Administration and Enforcement. (F) Authority of the Commissioner to inquire into Bank Deposit Accounts. - Notwithstanding any contrary provision of Republic Act No. 1405 and other general or special laws, the Commissioner is hereby authorized to inquire into the bank deposits of (1) a decedent to determine his gross estate; and

(2) any taxpayer who has filed an application for compromise of his tax liability under Sec. 204 (A) (2) of this Code by reason of financial incapacity to pay his tax liability. In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed, his application shall not be considered unless and until he waives in wn'ting his privilege under Republic act NO. 1405 or under other general or special laws, and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits o the taxpa er.

417


13. Which of the following statements is incorrect? a. The Commissioner shall accredit and register, based on their professional competence, integrity and moral fitness, individuals and general professional partnerships and their representatives who prepare and file tax returns, statements, reports, protests, and other papers with or who appear before, the Bureau for taxpayers. b. Individuals and general professional partnerships and their representatives who are denied accreditation by the Commissioner and/ or the national and regional accreditation boards may appeal such denial to the Secretary of Finance, who shall rule on the appeal within sixty (60) days from receipt of such appeal. c. Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant. d. Only Certified Public Accountants who practice accountancy singly or in partnership with other CPAs shall be accredited and registered to file tax returns, statements, reports, protests, and other papers with or who appear before, the Bureau for taxpayers.

Answer: D Reference: Section 6 (G), NIRC, as amended SEC. 6. Power of the Commissioner to Make assessments and Prescribe additional Requirements for Tax Administration and Enforcement. (G) Authority to Accredit and Register Tax Agents. - The Commissioner shall accredit and register, based on their professional competence, integrity and mora/fitness, individuals and general professional partnerships and their representatives who prepare and file tax returns, statements, reports, protests, and other papers with or who appear before, the Bureau for taxpayers. Within one hundred twenty ( 120) days from January 1, 1998, the Commissioner shall create national and regional accreditation boards, the members of which shall serve for three (3} years, and shall designate from among the senior officials of the Bureau, one (1) chairman and two (2) members for each board, subject to such rules and regulations as the Secretary of Finance shall promulgate upon the recommendationofthe Commissioner. Individuals and general professional partnerships and their representatives who are denied accreditation by the Commissioner and/ or the national and regional accreditation boards may appeal such denial to the Secretary of Finance, who shall rule on the appeal within sixty (60) days from receipt of such appeal. Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for accreditation oLthe aQPellant.

418


14. First statement: The Commissioner may prescribe the manner of compliance with any documentary or procedural requirement in connection with the submission or preparation of financial statements accompanying the tax returns. Second statement: The Commissioner may delegate the power to recommend the promulgation of rules and regulations by the Secretary of Finance. a. Both statements are correct b. Both statements are incorrect c. Only the first statement is correct d. Only the second statement is correct

Answer: C References: Section 6 (H), NIRC, as amended Section 7 (a), NIRC, as amended

15. Which of the following powers of the Commissioner of Internal Revenue may not be delegated? a. The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the BIR b. The power to compromise or abate any tax liability c. The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept d. All of the choices

Answer: D Reference: Section 7 (b), (c) and (d), NIRC, as amended

16. The pmver to compromise or abate any tax liability shall not be delegated except: I - assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (PSOO,OOO) or less. II - minor criminal violations.

I I \

a. b. c. d.

I

Both Both Only Only

exceptions are correct exceptions are incorrect the first exception is correct the second exception is corret

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Answer: A Reference: Section 7 (c), NIRC, as amended Provided, However, That the following powers of the Commissioner shall not be delegated: (c) The power to compromise or abate, under Sec. 204 (A) and (B) of the Tax Code, any tax liability: Provided, however, That assessments issued by the regional offices involving basic deficiency taxes o[Five hundred thousand pesos (PSOO, 000} or less, and minor criminal violations, as may be determined by rules and regulations to be promulgated by the Secretary of finance, upon recommendation of the Commissioner, discovered by regional and district officials, may be compromised by a regional evaluation board which shall be composed of the Regional Director as Chairman, the Assistant Regional Director, the heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as members.

17. (Phil. CPA) Which of the following is not under the special power of the Commissioner to make assessments and prescribe additional requirements for tax administration and enforcement? a. To make assessment b. To require prior accreditation and registration of persons who may represent taxpayer with the BIR c. To obtain information, examine, summon and take testimony d. To prescribe fair market value of real property Answer: C References: Section 5, NIRC, as amended Section 6, NIRC, as am~nded

18. How many are the Deputy Commissioners of the Commissioner of Internal Revenue? c. Five a. Three b. Four d. Six Answer: D References: Section 3, NIRC, as amended Executive Order No. 430 dated July 28, 1997 The six (6) Deputy Commissioners are for the: 1) Operations Group; 2) Legal and Enforcement Group; 3) Information Systems Group; 4) Resource Management Group; 5) Tax Reform Administration Group; 6) Special Concerns Group.

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Presently:

.

. .

CPA Reviewer, The Review School

of

Accountancy {ReSA), Manila Partner, Pellejera andTamayo, Certilied Public Accountants, Marikina City Author, Business and Transfer Taxes

ReSA Review School 813 R. Papa cor S. Loyola Streets, Sampaloc, Manila Tel. Nos. 7 34-3989; 735-9807

TAMAYO_Reviewer In Taxation_Book 2_2012e.pdf

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