PART 4

Corporations

CORPORATION DEFINED
For income tax purposes, a corporation as defined under Section 22 Of RA 0423 Shol INCLUDE:
1.) Partnerships, no matter how created or organized.
2.) Joint stock companies
3.) Joint accounts (cuentas en participacion)
4.) Association; or
5.) Insurance companies

BUT does NOT INCLUDE:

1.) General professional partnerships; and
2.) A joint venture or consortium formed for the purpose of undertaking;
a. Construction projects; or
b. Engaging in petroleum, coal, geothermal and other energy operations pursuant to an
operating or consortium agreement under a service contract with the government.

JOINT VENTURE OR CONSORTIUM

Joint venture is a commercial undertaking by two or more persons, differing from a partnership in
that it relates to the disposition of a single lot of goods or the completion of a single project.

IN GENERAL, a joint venture or consortium is taxable as corporation unless it refers to joint

ventures described above. Additional requirements are as follows:

1. A joint venture or consortium formed for the purpose of undertaking construction projects is
not considered as corporation (RR 10-2012, effective June 2012) provided:
a. The joint venture was formed for the purpose of undertaking a construction project; and
b. Should involve joining/pooling of resources by licensed local contracts; that is, licensed
as general contractor by the Philippine Contractors Accreditation Board (PCAB) of the
Department of Trade and Industry (DTI)
c. The local contractors are engaged in construction business; and.
d. The Joint Venture itself must likewise be duly licensed as such the Philippine Contractors
Accreditation Board (PCAB) of the Department of Trade and Industry (DTI).

FOREIGN CONTRACTORS
Joint ventures involving foreign contractors may also be treated as a ron-taxable corporation
provided:
 The member foreign contractor is covered by a special license as contractor by the PCAB.
 The construction project is certified by the appropriate Tendering Agency (government
office) that the project is a foreign financed/ internationally-funded project and that
international bidding is allowed under the Bilateral Agreement entered into by and
between the Philippine Government and the foreign / international financing institution
pursuant to the implementing rules and regulations of Republic Act No. 4566 otherwise
known as Contractor's License Law.

2. A joint venture or consortium for engaging in petroleum, coal, geothermal and other energy
operations pursuant to an operating consortium agreement under a service contract with the
government.

TREATMEMT OF CO - OWNER'S SHARE IN THE JOINT VENTURE PROFIT

JOINT VENTURE CO - VENTURER
CORPORATION INDIVIDUAL
Taxable Joint Venture Exempt 10% final withholding tax
Non - taxable Joint Venture 30% RCIT Basic tax

 JOINT STOCK COMPANIES Joint stock companies are constituted when a group of
individuals, acting jointly, establish and operate business enterprise under an artificial
name, with an invested capital divided into transferable shares, an elected board of
directors, and other corporate characteristics, but operating without formal government
authority.
 JOINT ACCOUNT COMPANIES Joint account (cuentas en participacion) is constituted
when one interests himself in the business of another by contributing capital thereto,
and sharing in the profits or losses in the proportion agreed upon. They are not subject
to any formality and may be privately contracted orally or in writing. The term
"associations" includes all organizations which have substantially the salient features of a
corporation to be taxable as a "corporation."

CLASSIFICATION OF CORPORATE TAXPAYERS

1) Domestic Corporation (DC)
Is a corporation created or organized in the Philippines or under its laws
2) Resident Foreign Corporation (RFC).
Is a corporation created or organized in a foreign country or under the laws of a foreign
country and engaged in business in the Philippines.
3) Nonresident Foreign Corporations (NRFC)
Is a corporation created or organized in a foreign country or under the laws of a foreign
country but not engaged in business in the Philippines.

DC, RFC AND NRFC MAY BE CLASSIFIED FURTHER INTO:

 1. Ordinary Corporation - corporations subject to the regular corporate income tax (RCIT)
rate of 30%.
2. Special corporation - corporations subject to income tax rate which is lower than the
regular corporate income tax (RCIT) rate of 30%.
The Special Corporations under the Tax Code, as amended, are as follows:
a. Domestic corporations
 Proprietary educational institutions
 Non-profit hospitals
b. Resident foreign corporations
 International carriers ,
 Offshore banking units (OBUS)
 Regional Operating Headquarters (ROHQs)
c. Non resident foreign corporations
 Non-resident Cinematographic Film Owner, Lessor or Distributor
 Non-resident Owner or Lessor of Vessels Chartered by Philippine
Nationals
 Non-resident Owner or Lessor of Aircraft, Machineries and Other
Equipment

EXEMPT ORGANIZATIONS
 The following organizations shall not be subject to income tax
Section 30, RA 8424); National Internal Revenue Code:
A. Labor, agricultural or horticultural organization not organized principally for profit;
B. Mutual savings bank not having a capital stock represented by shares, and cooperative
bank without capital stock organized and operated for mutual purposes and without
profit;
C. A beneficiary society, order or association, operating for the exclusive benefit or
members such as a fraternal organization operating under the lodge system, mutual aid
association or a non-stock corporation organized by employees prova for the payment of
life, sickness, accident, or other benefits exclusively to the members of such society,
order, or association, or non-stock corporation of them dependents;
D. Cemetery company owned and operated exclusively for the benefit of its members;
E. Non-stock corporation or association organized and operated exclusively for religious,
charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans,
no part of its net income or asset shall belong to or inure to the benen any member,
organizer, officer or any specific person;
F. Business league, chamber of commerce, or board of trade, not organized for pron and
no part of the net income of which inure to the benefit of any private stockholder or
individual;
G. Civic league or organization not organized for profit but operated exclusively for the
promotion of social welfare;
H. A non-stock and nonprofit educational institution;
I. Government educational institution;
 J. Farmers' or other mutual typhoon or fire insurance company, mutual ditch or irrigation
company, mutual or cooperative telephone company, or like organization of a purely
local character, the income of which consists solely of assessments, dues, and fees
collected from members for the sole purpose of meeting its expenses, and
K. Farmers', fruit growers', or like association organized and operated as a sales agent for
the purpose of marketing the products of its members and turning back to them the
proceeds of sales, less the necessary selling expenses on the basis of quantity of produce
finished by them.

 However, the income of whatever kind and character of the foregoing organizations
from any of their properties, real or personal, or from any of their activities conducted
for profit regardless of the disposition made of such income, shall be subject to income
tax.

GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS

All corporations, agencies or instrumentalities owned or controlled by the Government
shall be taxable like "ordinary corporations". However, the following shall be exempt:
1) Government Service and Insurance System (GSIS)
2) Social Security System (SSS)
3) Philippine Health Insurance Corporation (PHIC)
4) Philippine Charity Sweepstakes Office (PCSO)
5) Local Water Districts (RA 10026)

GENERAL PRINCIPLES
A. SOURCE OF INCOME SUBJECT TO TAX
1. DC - World
2. RFC and NRFC – Within the Philippines only

B. BASIS OF INCOME SUBJECT TO TAX:

1. DC, RFC - Net Income
2. NRFC - Gross Income

C. APPLICABLE TAXES. The following taxes apply to "ordinary corporations" upon generation of
income:
NATURE OF INCOME/APPLICABLE TAX DC RFC NRFC
ORDINARY INCOME: ✔ ✔ 30% FTW
30% Regular Corporate Income Tax (RCIT) OR
Whichever is higher between Regular Corporate ✔ ✔ NA
Income Tax (RCIT); and 2% (MCIT) starting on the 4th
year of operations following year of registration : OR
15% Gross Income Tax (GIT) if qualified ✔ ✔ NA
CERTAIN PASSIVE INCOME derived from within the ✔ ✔ 30% FTW
Philippines
Final Withholding Tax (FTW)
CAPITAL GAIN
CAPITAL GAINS TAX:
ON SALE of shares of stock of a domestic corporation ✔ ✔ ✔
directly to a buyer - Capital Gains Tax
ON SALE of land and/or buildings in the Philippines ✔ NA NA

Improperly Accounted Earnings Tax (IAET) ✔ NA NA

** refer to the schedule of final withholding taxes on passive income below:
PASSIVE INCOME From Philippine Sources SUBJECT TO FINAL TAXES
A. Certain PASSIVE Income Derived From Philippine
Sources subject to Final Tax DC RFC NRFC
INTEREST INCOME/YIELD/Other Monetary Benefit
Interest income in any currency bank deposit
Yield or any monetary benefit from deposit 20% 20% 30%
substitue 20% 20% 30%
Yield or any monetary benefit from trust fund and
other similar arrangements 20% 20% 30%
Interest income derived from depository bank under
expanded foreign currency deposit system
o PRIOR to effectively of TRAIN Law 7 1/2 7 1/2 Exempt
o Under TRAIN Law 15% 7 1/2 Exempt
Interest income derived from depository bank under
expanded foreign currency deposit system. 7 1/2 7 1/2 Exempt
2. ROYALTIES 20% 20% 30%
3. DIVIDENDS received from DC Exempt Exempt 15% or
30%
*One of the apparent inconsistencies under the TRAIN Law
**\f the country where the NRFC is domiciled allows a credit for taxes deemed paid in the
Philippines equivalent to 15% (also known as tax sparing), the tax rate is 15%, otherwise, 30%
(without tax sparing).
Income derived under expanded foreign currency deposit system BY DEPOSITORY BANKS
From foreign currency transaction with:
Non - residents Exempt
OBUs in the Philippines Exempt
Local Commercial Banks Exempt
Branches of foreign banks Exempt

From foreign currency loans granted to residents other than the 10%
enumeration above and other depository banks
Income derived by nonresidents (individuals or corporations) from transactions with depository
banks under expanded foreign currency deposit system shall be exempt from income tax.
B. Certain CAPITAL GAINS Derived from Philippine DC RFC NRFC
Sources subject to Capital Gains Tax
CGT is due with 30 days from date of sale
1.) On CAPITAL gains from sale of shares of stock of a
domestic corporation not traded in the local stock
exchange
o PRIOR to effectively of TRAIN Law 5% 5% 5%
First P100 000 capital gain 10% 10% 10%
Amount in excess of P100 000 capital gain
o Under TRAIN Law 15%
Capital gain regardless of amount by DC only
The 5% and 10% rates by RFC and RFC were retained
2.) CAPITAL GAINS TAX on sale or exchange or 6‰ NA NA
disposition of Land or Building Basis Selling Price or
Fair Market value whichever is higher.
 **FMV is the higher amount between the valuation provided by the Provincial or City
assessors, also known as "assessed value” versus the zonal valuation provided by the BIR

The % of CGT on shares of DC sold by RFC and NRFC was not amended under TRAIN
Law.
The 6% CGT is imposed, regardless of whether the sale resulted to a gain or loss.

The option available to individual taxpayers to subject the sale to either 6% CGT or Basic
Tax if the buyer is the government is not applicable to domestic corporations.
CAPITAL GAINS TAX
Capital Gains Tax on Sale of Land and/or Buildings
Requisites:
The land and/or building must be a capital asset; and
It must be located in the Philippines.
Regardless of whether the transaction resulted to a gain or loss
FORMULA:
Tax Base Pxxx.
Rate 6%
CGT. Pxxx

TAX BASE:
1. Selling Price
2. Fair Market Value
3. Zonal Value

 Capital Gains tax on Sale of Shares of Stock of a Domestic Corporation

Requisites:
1.) The shares of stock sold, bartered, exchanged or disposed must be from a domestic
corporation, and
2.) The transaction must be not through the local stock exchange.
Highest
3.) The seller should not be a dealer in securities (held for investment only)
4.) The transaction should result to a capital gain based on computation shown below:
FORMULA :
Selling Price Pxxx
Cost (xx) Prior to TRAIN LAW
Selling expense (xx) 1= P10000 can gain = 5%
Capital Gain Pxxx in excess of P100000 can gain
Rate % upon effectively oF TRAIN LAW
CGT Pxx Regardless of the amount of gain = 15%

 Sale of shares of a domestic corporation through the local Stock Exchange is not subject
to income tax but to a business tax of
 PRIOR to effectivity of TRAIN Law
o 1/2 of 1% of GSP (also known as stock transaction tax).
 Under TRAIN LAW
o 15% of GSP (also known as stock transaction tax),

 Sale of shares of stock by a dealer in securities such as brokerage firms, regardless of

whether the shares were sold directly to a buyer or through the local stock exchange is
subject to basic income tax and value added tax.

 Under RR 6-2013, the value of the shares of stock at the time of sale shall be the fair
market value. In determining the value of the shares, the Adjusted Net Asset Method
shall be used whereby all assets and liabilities are adjusted to market values. For
purposes of discussion in this review material, the selling price is assumed to be the
market value computed using the aforementioned method, assuming the latter is not
provided
REGULAR CORPORATE INCOME TAX (RCIT)
Gross Income Pxxx
Allowable Deductions (xxx)
Taxable income Pxxx
Rate 30%
RCIT Pxxx

GROSS INCOME - includes all income not subject to final withholding tax, capital gains tax and not
considered exempt under the law.

ALLOWABLE DEDUCTIONS:
1) Business Expenses & Losses (Itemized Deductions); or
2) Optional Standard Deduction

MINIMUM CORPORATE INCOME TAX (MCIT)

MCIT of two percent (2%) of the gross income as of the end of the taxable year (whether
calendar or fiscal), is imposed upon any domestic corporations and resident foreign corporations
beginning on the 4"taxable year immediately following the taxable vear in which such corporation
commenced its business operations. The MCIT shall be imposed whenever:
 The corporation has zero taxable income; or
 The corporation has negative taxable income; or
 Whenever the amount of MCIT is greater than the regular corporate income (RCIT) due
from such corporation. Hence, MCIT is always computed and compdie to RCIT starting
on the fourth year of operations.

GROSS INCOME DEFINED FOR MCIT PURPOSES:

1) Seller of Goods
Gross Sales Pxxx
Sales Discounts (xx)
Sales Returns and Allowances (xx)
Cost of Sales (xx)
Gross Income Pxx
Add: Other Income subject to RCIT xx
Total Gross Income for MCIT purpose Pxx

Cost of Goods Sold:

a.) Trader or Merchandiser
Invoice cost of goods sold Pxx
Import dutues xx
Freight xx
Insurance xx
Total Pxx

b.) Manufacturing Concern

Raw materials used Pxx
Direct Labor xx
Manufacturing overhead xx
Freight cost xx
Insurance premiums xx
Other cost of production xx
Total Pxx

2.) Seller of Services

Gross Receipts Pxx
Sales Discounts and Allowances (xx)
Cost of Services (xx)
Gross Income Pxx
Add: Other Income subject to RCIT xx
Total Gross Income for MCIT purpose Pxx

COST OF SERVICES:
Salaries/Employee benefits of personnel, consultants and specialisist Pxxx
directly rendering the service.
Cost of facilities directly utilized in providing the service. xxx
(e.g. rentals and cost of supplies)
Other direct costs and expenses necessarily incurred to provide the services. xxx
TOTAL Pxxx

 In case of banks, “cost of services” shall include interest expense.

CARRY FORWARD OF EXCESS MCIT (MCIT CARRY-OVER) Any excess of the MCIT over RCIT shall be
carried forward and credited against the RCIT for the three (3) immediately succeeding taxable
years.

RELIEF FROM THE MCIT The Secretary of Finance is authorized to suspend the imposition of the
MCIT on any corporation which suffers losses on account of:
1) Prolonged labor dispute
2) Force majeure
3) Legitimate business reverses

DOMESTIC CORPORATIONS EXEMPT FROM MCIT:

1) Proprietary educational institutions and hospitals which are non-profit.
2) Depository banks under expanded foreign currency deposit system

RESIDENT FOREIGN CORPORATIONS EXEMPT FROM MCIT:

1) International carrier
2) Offshore banking units
3) Regional or area headquarters
4) Regional operating headquarters
5) Firms that are taxed under special tax regime (e.g. Covered by PEZA law & Bases Conversion
Development Act)

OPTIONAL CORPORATE INCOME TAX (15% Gross Income Tax)

The President, upon the recommendation of the Secretary of Finance may effective
January 1, 2000, allow domestic and resident foreign corporations to in subjected to optional
corporation tax of 15% based on gross income. Election of 15% tax shall be irrevocable for the
three (3) consecutive taxable years during which the corporation is qualified under the scheme.

REQUISITES
All of the following conditions shall have to be satisfied in the allowance of optional corporate
tax:
1. A tax effort ratio of 20% of Gross National Product (GNP);
2. A ratio of 40% of income tax collection of total tax revenue;
3. A VAT effort of 4% of GNP; and
4. A 0.9 ratio of the Consolidated Public Sector Financial Position to GNP.
5. The option to be taxed based on gross income shall be available only to firms whose ratio of
cost of sales to gross sales or receipts from all sources does not exceed 55%.

FORMULA:
Sales/Revenues Pxx
Cost of sales/Cost of direct services (xx)
Gross income xx
Gross income tax rate 15%
Income tax due Pxx
Less: Taxes withheld Pxx
Taxes paid - previous quarters (xx)
Foreign tax credits (xx)
Income tax payable Pxx

IMPROPERLY ACCUMULATED EARNINGS TAX (IAET)

This tax is only applicable to domestic corporations which are classified a closely-held
corporations.
The following shall be exempt:
a) Banks and other non – bank financial intermediaries;
b) Insurance companies;
c) Publicity – held corporations;
d) Taxable partnerships;
e) General professional partnerships;
f) Non – taxable joint ventures ; and
g) Enterprise duly registered with the:
i. PEZA
ii. Pursuant to Bases Conversation and Development Act of 19992
iii. Special Economic Zones
iv. BOI registered entities

TAXABLE EVENT The taxable event in IAET is the accumulation of earnings BEYOND reasonable
needs of the business.

REASONABLE NEEDS OF THE BUSINESS The test used in determining the reasonable needs of the
business is the so called "Immediacy Test". It provides that "reasonable needs of the business is
equivalent to:
Immediate Needs Pxxx
Reasonably anticipated needs xxx
Reasonable Needs Pxxx

The following constitute accumulation of earnings for the reasonable needs of the business:
 1) Earnings reserved for definite corporate expansion projects or programs requiring
considerable capital expenditure as approved by the Board of Directors or equivalent
body;
2) Earnings reserved for building, plants or equipment acquisition as approved by the
Board of Directors or equivalent body;
3) Earnings reserved for compliance with any loan covenant or pre-existing obligation
established under a legitimate business agreement:
4) Earnings required by law or applicable regulations to be retained by the corporation
or in respect of which there is legal prohibition against its distribution;
5) In the case of subsidiaries of foreign corporations in the Philippines. all undistributed
earnings intended or reserved for investments within the Philippines as can be proven
by corporate records and/or relevant documentary evidence.

FORMULA (REVISED UNDER RMC 35-2001)

Taxable Income for the year Pxxx
Add: Income exempt from tax Pxxx
Income executed from gross income xxx
Income subject to final taxes xxx
Net Operating loss carry over (NOLCO) xxx xxx
Less: Dividends (actually or constructively paid) (xxx)
Income tax paid payable for the whole year (xxx) (xxx)
Total Pxxx
ADD: Retained earnings prior years xxx
Accumulated earnings as of the end of the current year xxx
LESS: AMOUMTTHAT MAY BE RETAINED
(100% of paid up capital as of year - end) (xxx)
EXCESS (considered improperly accumulated earnings) xxx
IAET rate 10%
Improperly accumulated earnings tax (IAET) Pxxx

SPECIAL CORPORATIONS
1. DOMESTIC CORPORATIONS:
 Proprietary Non-Profit Educational Institutions and Hospitals The rules applicable to
ordinary corporations will also apply to proprietary educational institutions and hospitals
which are nonprofit except the following:
1) In computing basic income tax, the rate is 10%. However, if income not related to its
primary purpose or function is more than 50% of its total gross income, the rate
applicable is 30%.

"Unrelated trade, business or other activity” is an activity which is not substantially related to
the exercise or performance of the school or hospital's primary purpose or function such as but
not limited to rental income from available school spaces or facilities.

Examples of related income (RMC 4-2013)

  Income from tuition fees and miscellaneous school fees
 Income from hospital where medical graduates are trained for residency
 Income from canteen situated within the school campus
 Income from bookstore situated within the school campus

"Proprietary educational institution” is any private school maintained and administered by

private individuals or groups with an issued permit to operate from the Department of Education,
Culture and Sports (DECS), or the Commission on Higher Education (CHED), or the Technical
Education and Skills Development Authority (TESDA), as the case may be, in accordance with
existing laws a regulations.
2) It is not subject to MCIT
3) Expenditures for expansion of school facilities may not be capitalized but instead claimed as
outright expense. This rule sha not apply; however, to a non-profit hospital.
Applicable Income Tax of Educational Institutions in the Philippines
EDUCATIONAL ORDINARY INCOME PASSIVE CAPITAL
INSTITUTION INCOME GAINS
FTW CGTL
Proprietary Generally 10% of net income 30% if unrelated
Educational income>related income
Institutions (PEIs)

Non-stock non-profit o Philippine Constitution Art. XIV Sec.

educational 4(3) ALL REVENUES and ASSETS of
institutions (NSEIs) non - stock, non-profit educational FTW CGT
institutions used actually, directly and
exclusively for educational purposes
shall be exempt from taxes and
duties, and
o Exempt under Sec. 30 NIRC. The FTW CGT
following shall not be taxed in respect
to income received by them as such
(H) a non-stock non-profit educational
institutions
o Exempt under Sec. 30 NIRC. The
Government following shall not be taxed in respect
Educational to income received by them as such
Institutions (GEIs) o (I) Government educational
institutions and
As provided for in the law or charter creating
the GEI

*On certain passive income derived from Philippine sources,

**On sale of shares of stock of a non-listed domestic corporation and real properties located in
the Philippines classified as capital assets.
*** Only PEls are classified as special corporations unless its Unrelated Income (UI) is higher than
Related Income (RI). Hence, the discussions regarding PEls in the preceding pages shall not be
applied to NSEls and GEls.
**** Section 234 of the Local Government Code (LGC) - The following are exempted from
payment of the real property tax: (b) Charitable institutions, churches, parsonages or covenants
appurtenant thereto, mosques, nonprofit or religious cemeteries and all lands, buildings, and
improvements actually, directly, and exclusively used for religious, charitable or educational
purposes.

Applicable Income Tax of Hospitals in the Philippines

HOSPITAL ORDINARY INCOME PASSIVE CAPITAL
INCOME GAINS
Proprietary Hospital (Higher) 30% RCIT 2% MCIT FTW CGT
Non-stock Non-profit 10% of net income however, 30% if
Hospitals (Special unrelated income>related income FTW CGT
Groups)
Non-stock Non-profit May be exempt if all the FTW CGT
Hospitals requirements for exemptions as
provided for under the law as in the
case of St. Luke's Medical Center Vs.
CIR are complied
*On certain passive income derived from Philippine sources.
** On sale of shares of stock of a non-listed domestic corporation and real properties located in
the ph classified as capital assets.
*** Generally, non-stock non-profit hospitals are classified as special corporations. Therefore,
generally taxable at 10% unless its Unrelated Income (UD) is higher than Related Income (RI).
**** Under Section 234 of the Local Government Code (LGC) - The following are exempted from
real property tax: (b) Charitable institutions, churches, parsonages or covenants appurtenant
cemeteries and all lands, buildings, and improvements actually, directly, and exclusively religious,
charitable or educational purposes.

2. RESIDENT FOREIGN CORPORATIONS:

 INTERNATIONAL CARRIERS
Gross Philippine Billings Pxxx
Rate 2.5%**
Income Tax Pxxx

**International carriers may avail of a lower tax rate (preferential rate) or exemption under
RA10378 on the basis of:
a. Tax Treaty
b. International agreement
 c. Reciprocity - An international carrier, whose home country grants income tax
exemption to Philippine carriers, shall likewise be exempt from income tax.

GROSS PHILIPPINE BILLINGS (GPB):

a. International Air Carrier - refers to the amount of gross revenue derived from
carriage of persons, excess baggage, cargo and mail:
o Originating from the Philippines;
o in a continuous and uninterrupted flight;
o Irrespective of the place of sale or issue and the place of payment of the ticket or
passage of document.

NOTE:
1) Tickets revalidated, exchanged and/or indorsed to another international airline
form part of the GPB if a passenger boards a plane in a port or point in the Philippines.
2) Flight which originates from the Philippines, but transshipment of passenger takes place at any
port outside the Philippines on another airline, only the aliquot portion of the cost of the ticket
corresponding to the leg flown from the Philippines to the point of transshipment shall form part
of the GPB.

b) International Shipping - means gross revenue whether for passenger, cargo or mail originating
from the Philippines up to final destination, regardless of the place of sale or payments of the
passage or freight documents.

 REGIONAL OPERATING HEADQUARTERS (ROHQs) The rules applicable to ordinary

corporations will also apply to Regional Operating Headquarters except the following:
1) In computing basic income tax, the rate is 10%.
2) It is not subject to MCIT.

3. NON-RESIDENT FOREIGN CORPORATIONS:

TYPE TAX BASE RATE
Non-resident Cinematographic Film Owner, Gross Income 25%
Lessor or Distributor
Non-resident Owner or Lessor of Vessels Chart Gross rentals, lease or 4.5%
Owner or Lessor of Vessels Chartered by charter fees
Philippine Nationals
Non-resident Owner or Lessor of Aircraft, Gross rentals, charters/other fees 7.5%
Machineries and Other Equipment
OFFSHORE BANKING UNITS (OBU)

An OBU is a branch, subsidiary or affiliate or a foreign banking corporation located in

a/an Offshore Financial Center (OFC) which is duly authorized by the BSP o transact offshore
banking business in the Philippines (PD1034: BSP Circular No. 1389). OBUS are allowed to provide
all traditional banking services to non-residents in any currency other than Philippine national
currency. Offshore banking units are forbidden to make any transactions in Philippine Peso.
Banking transactions to residents are limited and restricted. Income derived by offshore banking
units (OBU'S) from foreign currency transactions shall be taxed as follows:

COUNTERPARTY RATE
Non – residents Exempt
Other UBO’s Exempt
Branches of foreign banks Exempt
Other residents 10%

If an OBU earn income other than from foreign currency transactions, it will be subject
to basic income tax (RCIT vs. MCIT, whichever is higher). Hence, OBUs are not classified as special
corporations. Any Income derived by nonresidents (individuals or corporations) from transactions
with OBUs shall not be subject to income tax.

REGIONAL OR AREA HEADQUARTERS (RHQs)

RHQS shall not be subject to income tax. RHQs are not included in the definition of
corporation for income tax purposes. Hence, RHQs are not special corporations.

BRANCH PROFIT REMITTANCES TAX (BPRT) OF RFCs

FORMULA:
Profit Remittance Pxxx
Rate 25%
BPRT Pxxx

PROFIT REMITTANCE
PROFIT REMITTED APPLICABLE TAX

Connected with the conduct of its trade or Subject to 15% BPRT

business in the Philippines

Others (i.e., passive income) No subject to BPRT

EXEMPT ENTITIES Activities registered with the following shall be exempt from BPRT:
1) Philippine Economic Zone Authority (PEZA)
2) Subic Bay Management Authority (SBMA)
3) Clark Development Authority (CDA)
 QUIZZER

Choose the letter of the correct answer.

Corporate Taxpayers/Principles
1. The term "Corporation" shall include
I. Partnerships, no matter how created or organized
II. Joint stock companies
III. Joint accounts (ceuntas en participacion)
IV. Associations
V. Insurance companies
VI. Mutual fund companies
VII. Regional operating headquarters of multinational corporations

a. land ll only c. I, II, III, IV, and V only

b. I, II and III only d. All of the above

 Answer: D

2. Which of the following is not treated as corporation?

a. General professional partnership
b. A joint venture or consortium formed for the purpose of undertaking
construction projects.
c. A joint or consortium for engaging in petroleum, coal, geothermal and other
energy operations pursuant to an operating consortium agreement under a
service contract with the government.
d. All of the above

 Answer: D

 Generally, a Joint Venture is taxable as a corporation, unless it pertains to a joint venture

describe in "b" and "c" above.

3. Statement 1: Partnerships, no matter how created or organized, are taxable as corporations

for income tax purposes.
Statement 2: Associations and mutual fund companies, for income tax purposes, are
excluded in the definition of corporations.

a. Only statement 1 is correct

b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
  Answer: A

 "No matter how created" simply refer to how the partnership was established, either
orally or in writing.

4. Which of the following is not a taxable corporation?

a. Ana, Lorna and Fe agreed to contribute their money into a common fund to engage
in the business of buying and selling consumer goods. Their total investment Corberatus
amounted to P300.000 and they did not bother to register their business wille DTI and
the SEC.
b. Pedro. Juan and Luna, all certified public accountants, agreed to contribute when
money, property and industry to a common fund with the sole intention or joy exercising
their common profession. They have registered with the SEC.
c. Victorious Bus Company and California Bus Company owns separate franchise operate a
public utility covering the area of Northern Luzon. To achieve main efficiency of utilizing
their assets and to avoid the negative effects of competition, the two companies agreed
to pool their resources together and operate as a single company.
d. Rody and Allan, lawyer and certified public accountants, respectively, agreed to
contribute their money, property and industry to a common fund to render serice
business process outsourcing.

 Answer: B

 The partnership organized in "b" is a GPP, hence, non-taxable.

5. Which is not a characteristic of corporate income tax:

a. Progressive tax c. General tax
b. Direct tax d. National tax

 Answer: A
 A progressive tax is a tax where the rate increases as the tax base increases Examples of
a progressive tax under the NIRC are; income tax on individuals, donor's tax (prior to
TRAIN Law), estate tax (prior to TRAIN Law). On the other hand, proportional tax is tax in
proportion to the amount subject to taxation. The tax rate is fixed, regardless of whether
the tax base increases or decreases. Examples are; income tax on corporations, value
added tax, percentage taxes, donor's tax and estate tax (upon effectivity of the TRAIN
Law).
 General tax refers to a general levy by a government that offers no special benefit to the
taxpayer, but only a support to governmental programs that benefit all. It is a source of
public revenue.

6. Which of the following is subject to income tax?

a. S$$ and GSIS
b. Philippine Health Insurance Corporation (PHIC)
c. Local Water Districts
d. Philippine Amusement and Gaming Corporation (PAGCOR)

 Answer: D

7. One of the following is exempt from income tax

a. Proprietary educational institutions
b. Private cemeteries
c. Government educational institutions
d. Mutual savings bank

 Answer: C

8. Statement 1: Corporations exempt from income tax are not subject to income tax on incomes
received which are incidental or necessarily connected with the purposes for which they
were organized and operating
Statement 2: Corporations exempt from income tax are subject to income tax op imon or
whatever kind and character from any of their properties (real or personal) or from and other
activity conducted for profit, regardless of the disposition of such income.
a. Only statement 1 is correct c. Both statements are correct
b. Only statement 2 is correct d. Both statements are incorrect

 Answer: C

9. Which of the following statements is incorrect? "Joint Stock Companies are constituted when a
group of individuals, acting jointly, establish and operate business enterprise
a. Under an artificial name
b. With an invested capital divided into transferable shares.
c. An elected board of directors, and other corporate characteristics
d. Operating with formal government authority.

 Answer: D

10. A "Joint Account" is constituted when one interests himself in the business of another by/and
I. Contributing capital thereto.
II. Sharing in the profits or losses in the proportion agreed upon.
III. They are not subject to any formality.
IV. It may be privately contracted orally or in writing.
a. I and II only c. I, II, III and IV
b. I, II and III only d. All of the above

 Answer: C
11. Statement 1: Joint ventures, regardless of the purpose by they were created, are generally
exempt from corporate income tax.
Statement 2: The share of a co-venturer corporation in the net income of tax exempt joint
venture or consortium is subject to corporate income tax.
a. Only statement 1 is correct c. Both statements are correct
b. Only statement 2 is correct d. Both statements are incorrect
‫܂‬
 Answer: B

DC, RFC and NRFC

12. Which of the following statements is correct?

I. The term "domestic, when applied to a corporation, means created or organized in
the Philippines or under the laws of a foreign country as long as it maintains a Philippine
branch
II. A corporation which is not domestic may be a resident (engaged in business in the
Philippines) or nonresident corporation (not engaged in business in the Philippines).
III. Resident foreign corporations are subject to income tax based on net income from
sources within the Philippines
a. I only c. II and III only
b. ll only d. I, II and III

 Answer: C
 ADC is a corporation organized under Philippine laws.

13. Statement 1: Non-resident foreign corporation applies to a foreign corporation engaged

in trade or business within the Philippines,
Statement 2. Resident foreign corporation applies to a foreign corporation not engaged
in trade
or business in the Philippines.
a. Statements 1 & 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true

 Answer: A

14. Which of the following is taxable based on income from all sources, within and without?

a. Domestic Corporations c. Non-resident Foreign Corporation

b. Resident Foreign Corporations d. All of the choices

 Answer: A
15. The term applies to a foreign corporation engaged in trade or business in the Philippines.
a. Resident foreign corporation c. Multinational corporation
b. Nonresident foreign corporation d. Petroleum contractor

 Answer: A

16. Which of the following does not have the benefit of claiming deductions in computing income
tax?
a. Domestic Corporations c. Non-resident Foreign Corporations
b. Resident Foreign Corporations d. All of the choices

 Answer: C

17. Which of the following corporations shall pay a tax equal to thirty percent 13005 gross
income received during each taxable year from all sources within the Philippine
a. Domestic corporation c. Non-resident Foreign Corporation
b. Resident foreign corporation d. None of the choices

 Answer: C

18. Aside from the ordinary corporate income tax of 30%, what other tax(es) may be imposed on
corporations under the Philippine income tax laws?
a. Minimum corporate income tax c. Capital gains tax
b. Passive income tax d. All of the choices

 Answer: D

Passive Incomes subject to FWT; Capital Gains subject to CGTS

19. Statement 1: Passive incomes are subject to separate and final tax rates.
Statement 2: Passive incomes are included in the computation of taxable net income
from from business operations of a corporation.

A. B. C. D.
Statement 1 True False True False
Statement 2 True False False True

 Answer: C
 Statement 2 is False. The liability of the taxpayer for passive incomes subjected to final
withholding taxes is already PO because the taxes withheld already constitute final and
full payment of the applicable tax. Therefore, such income shall not be included
anymore in the determination of "taxable income” subject to regular corporate income
tax. Consequently, such income shall be excluded in the ITR of the corporation.
20. The following passive income received by a domestic corporation shall be subject to 20% final
withholding tax, except:
a. Interest income from peso bank deposit
b. Yield from deposit substitutes
c. Dividend income from another domestic corporation
d. Royalties

 Answer: C

DIVIDEND INCOME:
FROM TO TAX
DC DC Exempt; inter-corporate dividend
DC RFC Exempt; inter-corporate dividend
DC NRFC With Tax Spring = 15%; Without = 30%

21. Interest income on bank deposit or investment with maturity period of at least we years
received by a corporation is subject to:

Domestic Res. Foreign Corp. Non-res. Foreign Corp.

a. 20% 20% 30%
b. Exempt Exempt Exempt
c. 20% 20% Exempt
d. 20% Exempt Exempt

 Answer: A
 The exemption of interest income from long-term bank deposit or investment is not
applicable to corporations and NRAS-NETB.

22. Interest income received from a depository bank under expanded foreign currency deposit
system prior to 2018 shall be subject to:
DC RFC NRFC
a. 20% 20% 20%
b. 7½ 7½ Exempt
c. 15% 15% Exempt
d. 15% 7½ Exempt

 Answer: B

23. Interest income received from a depository bank under expanded foreign currency deposit
system beginning January 1, 2018 or upon effectivity of the TRAIN Law shall be subject to:
DC RFC NRFC
a. 20% 20% 20%
b. 7½ 7½ Exempt
c. 15% 15% Exempt
d. 15% 7½ Exempt

 Answer: D
 Unfortunately, the legislative branch failed to amend under RA No. 10963 (TRAIN Law)
the tax rate with respect to RFCs.

24. Royalty income received by a corporation prior to 2018 shall be subject to:
DC RFC NRFC
a. 20% 20% 30%
b. 7½ 7½ Exempt
c. 15% 15% Exempt
d. 15% 7½ Exempt

 Answer: A

25. Royalty income received by a corporation beginning January 1, 2018 or upon effectivity of the
TRAIN Law shall be subject to:
DC RFC NRFC
a. 20% 20% 30%
b. 7½ 7½ Exempt
c. 15% 15% Exempt
d. 15% 7½ Exempt

 Answer: A
 The tax rate for royalty income was not amended under TRAIN Law.
26. Royalty income from books received by a corporation prior to 2018 shall be subject to:
DC RFC NRFC
a. 10% 10% 30%
b. 20% 10% 30%
c. 15% 15% Exempt
d. 15% 7½ Exempt
 Answer: B
 The 10% tax rate on royalty from books and literary works for individual taxpayers is not
applicable to corporate taxpayers.

27. Royalty income from books received by a corporation beginning January 1, 2018 or upon
effectivity of the TRAIN Law shall be subject to:
DC RFC NRFC
a. 10% 10% 30%
b. 20% 20% 30%
c. 15% 15% Exempt
d. 15% 7½ Exempt

 Answer: B
  The tax rate for royalty income was not amended under the TRAIN Law

28. During the 2018, a domestic corporation derived the following items of revenues:
A. Gross receipts from a trading business, P500,000
B. Interests from money placements in the banks, P30,000
C. Dividends from its stock investments in domestic corporations, P20,000
D. Gains from stock transactions through the Philippine Stock Exchange, P50,000
E. Proceeds under an insurance policy on the lost of goods, P100,000
How much should the corporation report as taxable income?
a. P500,000 c. P600,000
b. P550,000 d. P 650,000

 Answer: A
 Generally, taxable income means income not subject to FWT on passive income. nor
CGT.
Item B is a passive income subject to 20% EWT Item C is a dividend income received
from another another DC, hence, tax-exem (inter-corporate dividend).
Item D is not subject to income tax, but to Percentage Tax of 6/10 of 1% (in Law) of gross
selling price under Section 127(A) of the tax code, as amended.
Item D is a compensation for lost of goods. It is a return of investment not subject to tax.

29. Lenovo, Inc. a resident foreign corporation, has earned the following income during 2017:
DVIIDEND INCOME FROM:
 Microsoft, a non-resident foreign corporation P 500,000
 Intel, a non-resident foreign corporation (ratio of Philippine 400,000
income over world income for the past 3 years is 40%)
 Panday, a domestic corporation 300,000
INTEREST INCOME FROM:
 Current account BDO 600,000
 Savings deposits 700,000
 FCDU deposits 800,000
ROYALTY INCOME from various domestic corporations 100,000

The total final tax on passive income for the taxable year is:
a. P200,000 c. P328,000
b. P260,000 d. P1,088,000

 Answer: A
 Solution: Interest income - BDO (P600,000 x 20%) P120,000
Interest income, FCDU deposits (P800,000 x 7.5%) 60,000
Royalty income from various domestic corp. (P100,000 x 20%) 20,000
Total Final Taxes on passive income P200,000
  Dividend income received by a foreign corporation (assuming the situs of the dividend is
Philippines) from foreign corporations (resident or nonresident), is subject to basic
income tax/regular corporate income tax (RCIT).
 A dividend income received by an RFC from a DC is tax exempt (inter-corporate dividend)
 The interest income from a bank deposit abroad is considered an income derived
abroad, subject to basic tax if received by an RC or DC.

30. Assume the same data in the immediately preceding number, except that the taxable year
was 2018, the total final tax on passive income for the year should be:
a. P200,000 c. P328,000
b. P260,000 d. P1,088,000

 Answer: A
 Solution:
Interest income - BDO (P600,000 x 20%) P120,000
Interest income, FCDU deposits (P800,000 x 7.5%) 60,000
Royalty income from various domestic corp. (P100,000 x 20%) 20,000
Total Final Taxes on passive income derived from Phil. Sources P200,000

 Under TRAIN Law, interest income from FCDU deposits is now subject to 15% FWT.
except if received by RFC (7.5%) and NTRC (Exempt)

31. Lenovo, Inc., a resident foreign corporation, has earned the following income 2017:
Dividend income from:
Microsoft, a non-resident corporation P500,000
Intel, a resident foreign corporation 400,000
IBM, a domestic corporation 300,000
Interest income from:
Current account, BDO 600,000
Savings deposit, ABN-AMRO bank, UK 700,000
US dollar deposit (FCDU)- BPI Makati 800,000
Royalty income from various domestic 100,000
corporations

Additional information:
 The ratio of Microsoft's gross income in the Philippines over worldwide income for the
past three years is 40%.
 The ratio of Intel's gross income in the Philippines over worldwide income for the past
three years is 60%.
 The ratio of IBM's gross income in the Philippines over worldwide income for the past
three years is 80%.

How much is the total income tax expense of Lenovo?

a. P200,000 c. P320,000
b. P400,000 d. P272,000

 Answer: D
 Dl-Microsoft
DI-Intel (P400,000 x 60% x 30%) P72,000
DI – IBM Exempt
Interest income - BDO @ 22% 120,000
FCDS deposit @ 7.5% 60,000
Royalty income @ 20% 20,000
Total Income Tax Expense P272,000

 Income Tax Expense = RCIT + Final Taxes on Passive Incomes + CGTS 2

 Unless clear or otherwise stated, dividend income from a foreign corporation shall
be considered income derived from abroad.
 Dividend income from Microsoft is treated as income derived purely from abroad
because the ratio of GI Philippines over world is less than 50%.

SITUS of Dividend Income:

 From DC = purely income derived from within the Philippines.
 From FC (RFC or NRFC);
o If silent = income derived from without (NOTE: author's assumption only)
o If provided in the problem = As provided
o If the ratio of Gross Income Philippines over world for the past three lu! years is
available, the rule is:
 Ratio is < 50% = purely income from without the Philippines
 Ratio is > 50% = partly income from within the Philippines
32. Assuming Lenovo is a domestic corporation, how much is its total income tax expense?
a. P200,000 c. P470,000
b. P560,000 d. P272,000

 Answer: C
 Solution:
DI- Microsoft (P500,000 x 30%) P150,000
Dl- Intel (P400,000 x 30%) 120,000
DI – IBM Exempt
Interest income – BDO @ 20% 120,000
FCDS deposit @ 7.5% Royalty income @ 20% 60,000
Total Income Tax Expense P470,000

 The entire dividend income from Microsoft and Intel (regardless of the ratio of GI
Philippines over world) is subject to RCIT because the taxpayer is a domestic
corporation (taxable on income derived from whatever source).
33. In 2018, a domestic corporation declared and paid dividends to its shareholders as follows:
To Apol, a resident citizen P100,000
To Alex, a nonresident citizen 100,000
To George, a resident alien 100,000
To LJ, a nonresident alien engaged in trade in the Philippines 100,000
To Francis, a nonresident alien not engaged in trade in the Philippines 100,000
To Chen, a domestic corporation 100,000
To a resident foreign corporation 100,000
To a nonresident foreign corporation (with tax sparing) 100,000

How much final tax shall be withheld by the corporation?

a. P80,000 c. P85,000
b. P90,000 d. P95,000

 Answer: B
Solution:
To Apol (P100,000 x 10%) P10,000
To Alex (P100,000 x 10%) 10,000
To George (P100,000 x 10%) 10,000
TO LJ (P100,000 x 20%) 20,000
To Francis (P100,000 x 25%) 25,000
To Chen (exempt)
To a resident foreign corporation (exempt)
To a nonresident foreign corporation (P100,000 x 15%) 15,000
Total P90,000

34. Statement 1: The share of a co-venturer individual in the net income of a tax-exempt
venture or consortium is subject to normal income tax under Section 24A of the tax
code. Statement 2: The share of a co-venturer individual in the net income of a tax-
exempt joint venture or consortium is subject to creditable withholding tax of 20%.
a. Only statement 1 is correct c. Both statements are correct
b. Only statement 2 is correct d. Both statements are incorrect

 Answer: A

SHARE IN JV'S NET INCOME by an Individual Co-Venturer DERIVED FROM A:

 Taxable JV = treated as dividend income from DC, generally subject to 10% FWT
 Tax Exempt JV = treated as ordinary income; not treated as dividend income subject to
basic income tax under Section 24(A), as amended.

35. The share of a con-venturer individual in the net income after tax of a joint venture or
consortium taxable as a corporation is
a. Subject to creditable withholding tax of 10%
b. Subject to final withholding tax of 10%
 c. Subject to capital gains tax
d. Exempt from income tax

 Answer: B

36. The share of a co-venturer corporation in the net income after tax of a joint venture or
consortium taxable as a corporation is
a. Subject to creditable withholding tax of 10%
b. Subject to final withholding tax of 10%
c. Subject to capital gains tax
d. Exempt from income tax

 Answer: “D”

SHARE IN JV'S NET INCOME DERIVED FROM A:

 Taxable JV = treated as dividend income from DC, therefore, exempt. It is treated as
inter-corporate dividend.
 Tax Exempt JV = treated as ordinary income; not treated as dividend income.

Use the following data for the next five (5) questions: ABC Company and DEF Company formed a
joint venture. They agreed to share profit or loss in the ratio of 70% and 30%, respectively. The
results of operations of the joint venture well as the co-venturers are as follows:
Joint Venture ABC Co. DEF Co.
Gross Income P5,000,000 3,000,000 2,000,000
OPEX 3,000,000 2,000,000 1,500,000

37. The income tax payable of the joint venture is

a. P0 c. P300,000
b. P150,000 d. P600,000

 Answer: D
 Income Tax Payable = TNI x 30%; ITP = P2M X 30% = P600,000

38. The total income tax payable of ABC Co. is:

a. P0 c. P300,000
b. P150,000 d. P600,000

 Answer: C
 Refer to the solution provided in the next question.
 The co-venturer's share in the income of the joint venture is treated as inter
corporate dividends, hence, non-taxable.

ABC's share in JV's Nl after tax = (P2M - RCIT of P600,000) x 70% = P980,000.
DIVIDEND INCOME:
From To Tax
DC DC Exempt; inter-corporate dividend
DC RFC Exempt; inter-corporate dividend
DC NRFC With Tax Spring = 15%; without = 30%

39. The total income tax expense of DEF Co. is:

a. P0 c. P300,000
b. P150,000 d. P600,000

 Answer: B

 Solution:
Joint Venture ABC Co. DEF Co.
Gross Income P5,000,000 P3,000,000 P2,000,000
Expenses (3,000,000) (2,000,000) (1,500,000)
TNI P2,000,000 P1,000,000 P500,000
NCIT 30% 30% 30%
Tax Due P600,000 P300,000 P150,000

40. Assume the joint venture (JV) is a tax-exempt JV, its income tax payable is
a. P0 c. P300,000
b. P150,000 d. P600,000

 Answer: A

41. Assume the joint venture is tax exempt, the total income tax expense of ABC Co. is:
a. P150,000 c. P300,000
b. P300,000 d. P720,000

 Answer: D
Joint Venture ABC Co. DEF Co.
Gross Income P5,000,000 P3,000,000 P2,000,000
Sh. In JV’s Income 1,400,000 600,000
Expenses (3,000,000) (2,000,000) (1,500,000)
TNI P2,000,000 P2,400,000 P1,100,000
NCIT 30% 30%
Tax Due P720,000 P330,000

 The co-venturer's share in the income of a tax exempt joint venture is treater ordinary
income, hence, subject to RCIT.
 ABC's share in IV's Nl subject to RCIT = P2M x 70% = P1,400,000
Capital Gains Tax
42. As a rule, there is no income tax if there is no income. Which is of the following is the
exception?
a. Capital Gains Tax on sale of land and/or building
b. Capital Gains Tax on sale of share of stock outside the local stock exchange
c. Tax on passive income
d. Regular Corporate Income Tax

 Answer: A
 The basis of CGT is not the gain, but the higher between FMV and SP.
 FMV, for CGT purposes, shall be the higher between the valuation provided by the City
or Provincial assessors (known as assessed value or FMV per tax declaration) and the BIR
(zonal value).

43. Kris Inc. sold its vacant lot to Moca Corporation for R10,000,000 which it acquired at a cost of
P5,000,000. The fair market value of the said property per tax declaration is P12,000,000, while
its zonal value is P15,000,000. How much is the income tax applicable on the transaction?
a. P600,000 c. P900,000 .
b. P720,000 d . P1,500,000

 Answer: C.
 FWTx = P15M x 6% = P900,000

44. Based on the preceding number, if the buyer of the property is the Philippine Government or
one of its owned or controlled corporations, what type of income tax will apply on the
transaction?
a. Basic income tax c. Either a or b at the option of the seller
b. Capital gains tax d. Either a or b at the option of the buyer

 Answer: B
 The option to subject the sale to either 6% CGT or basic tax is applicable only to
individual taxpayers.

45. If the property is located abroad, what type of income tax will apply on the transaction?
a. Basic income tax c. Either a or b at the option of the seller
b. Capital gains tax d. Either a or b at the option of the buyer

 Answer: A

46. Statement 1: Gain on sale of all kinds of capital assets are subject to the final tax on capital
gains.
Statement 2: Gain from sale of real property classified as capital asset and located in Miami,
Florida is not subject to the final tax on capital gain.
a. Both statements are correct
b. Both statements are not correct
c. Only the first statement is correct
d. Only the second statement is correct

 Answer: D
 Gain on sale of capital asset may be subject to:
o CGT (on shares or real properties)
o Basic tax (on CA other than shares of closely held DC and real properties situated
abroad)
o Exempt from income tax but subject to a business tax (stock 1 transaction tax under
Section 127(A) of the Tax Code on shares of publicly listed DC]

47. In 2017, East Star Inc. sold shares of stock for P250,000. The shares, acquired in 2015 at a cost
of P100,000, were held as investment, and were sold directly to a buyer. How much was the
capital gains tax due?
a. P10,000 c. P22,500
b. P15,000 d. P45,000

 Answer: A.
 CGTX = [(100,000 x 5%) + (50,000 x 10%)] = P10,000

48. Using the same data in the preceding number, how much is the capital gains tax assuming the
shares were sold in 2018?
a. P10,000 c. P22,500
b. P15,000 d. P 45,000

 Answer: C.
 CGTX = P150,000 x 15% = P22,500
 Under RA NO. 10963 (TRAIN Law), the CGT on shares of stock is now 15% regardless of
the amount of capital gain,

49. Assume the shares sold were not held for investment purposes and the seller is a dealer in
securities, how much is the capital gains tax?
a. P10,000 c. P 22,500
b. P15,000 d. nil

 Answer: D
 If the seller is a dealer in securities, the shares sold share asset, hence not subject to
CGT. The applicable income tax on the gain on sale is the graduated tax rate.

50. Assume the shares sold were from a foreign corporation, what type of income tax will apply
on the transaction?
a. Basic income tax
b. Capital gains tax
c. Either "a" or "b" at the option of the seller
d. Either "a" or "b" at the option of the buyer

 Answer: A

51. In 2017, East Star Inc. sold shares of stock of a domestic corporation for P250,000. The shares,
acquired in 2015 at a cost of P100,000, were held as investment, and were sold through the local
stock exchange. How much was the applicable tax due?
a. P1,250 c.P10,000
b. P1,500 d. P15,000

 Answer: A
 Sale of shares of stock of a domestic corporation held for investment through the local
stock exchange is not subject to income tax but to a business tax (stock transaction tax)
of 1/2 of 1% of gross selling price if the sale was made before the effectivity of TRAIN
Law.

 STT = P250,000 x .005 = P1,250

52. Assume the sale in the immediately preceding number was made in 2018, the applicable tax
due is?
a. P1,250 c. P10,000
b. P1,500 d.P15,000

 Answer: B
 Sale of shares of stock of a domestic corporation held for investment through the local
stock exchange is not subject to income tax but to a business tax (stock transaction tax)
of 6/10 of 1% of gross selling price beginning January 1, 2018 or upon the effectivity of
TRAIN Law.
 STT = P250,000 x .006 = P1,500

53. Assume the shares sold were not held for investment purposes and the seller is a dealer in
securities, how much is the capital gains tax?
a. P1,250 c. P10,000
b. P1,500 d. nil

 Answer: D

54. Mabuhay, Inc., a Philippine corporation, sold through the local stock exchange 10,000 DLDT
shares that it bought 2 years ago. In 2018. Mabuhay sold the shares for P2 on and realized a net
gain of P200,000. How shall it pay tax on the transaction?
a. It shall declare a P2 million gross income in its income tax return, deducingo cost of acquisition
as an expense.
b. It shall report the P200.000 in its corporate income tax return adjusted by me holding period.
c. It shall pay a tax of 12 of 1% of the P2 million gross sales.
d. It shall pay a tax of 6/10 of 1% of the P2 million gross sales.

 Answer: D

55. Which of the following income will be taxed in the same manner regardless of the
classification of the taxpayer?
a. Capital gain on sale of land and/or building
b. Capital gain on sale of shares of stock of a domestic corporation
c. Ordinary gain on sale of land and/or building
d. Ordinary gain on sale of shares of stock of a domestic corporation

 Answer: B

56. A dealer in securities sold unlisted shares of stocks of a domestic corporation in 2018 and
derived a gain of P500,000 therefrom. The gain is
a. Taxable at 30% regular corporate income tax based on net taxable income
b. Taxable at 15% capital gains tax based on net capital gain
c. Taxable at 6/10 of 1% stock transaction tax based on the gross selling price or fair market value,
whichever is higher
d. Exempt from income tax

 Answer: A

57. Makabayan, Incorporated (a domestic corporation) distributed earnings to its shareholders.

One of the recipients is Kano Corporation, a non-resident foreign corporation, with home country
in the United States of America. The Income Tax law of the said country does not impose tax on
dividends. What final withholding tax rate will apply to the dividend income received by Kano
Corporation?
a. 10% c. 20%
b. 15% d. 30%

 Answer : B
 Tax sparing rule

Regular Corporate Income Tax (RCIT)

Minimum Corporate Income Tax (MCIT)
Gross Income Tax (GIT)

58. A domestic corporation had the following data on income and expenses during the one
2018:
Gross income, Philippiness P10,000,000
Business expenses, Philippines 2,000,000
Gross income, China 5,000,000
Business expenses, China 1,500,000
Interest income, Metrobank, Philippines 300,000
Interest income, Shanghai Banking Corporation, China 100,000
Rent income, net of 5% withholding tax 190,000

How much was the income tax payable?

a. P3,540,000 c. P3,440,000
b. P3,530,000 d. P2,480,000

 Answer: B
 Solution:
Gross income, Philippines P10,000,000
Gross income, China 5,000,000
Business expenses, Philippines (2,000,000)
Business expenses, China (1,500,000)
Interest income, Shanghai Banking Corporation, China 100,000
Rent income, gross of 5% withholding tax (P190,000/95%) 200,000
Taxable net income P11,800,000
X RCIT % 30%
Income Tax Due P3,540,000
Less: CWT on rental income (10,000)
Income Tax Payable P3,530,000

 Interest income from Metrobank is a passive income subject to FWT.

 Income tax payable pertain to income tax “still due" on income not subject to FWT) on
passive income and CGTs. Hence, applicable to ordinary income not exempt from tax.

59. ALPHA Corporation, a domestic corporation has the following records of income and expenses
during 2018 taxable year:
Gross income, net of 1% withholding tax P1,435,500
Expenses 790,600
Rent income, net of 5% withholding tax 136,800
Dividend from domestic corporation 25,000
Royalty, gross of tax 80,000
Interest from bank deposit with PNB, net of tax 12,000

The income tax payable is –

a. P241,020 c. P260,000
b. P221,320 d. P238,320

 Answer: B
  Solution:
Gross income, gross of 1% withholding tax (P1,435,500/99%) P1,450,000
Expenses (790,600)
Rent income, gross of 5% withholding tax (P136,800/95%) 152,000
Taxable net income P811,400
X RCIT % 30%
Income Tax Due P243,420
Less: CWT on gross income (14,500)
CWT on rent (7,600)
Income Tax Payable P221,320

60. The total final taxes is:

a. R19,000 c. P33,250
b. P21,500 d. P3,000

 Answer: A
 Solution:
Royalty = P80,000 x 20% P16,000
Dividend income from DC Exempt
Interest income-PNB; [(12,000/80%) x 20%) 3,000
Total final taxes P19,000

61. Hananiah Corporation, a corporation engaged in business in the Philippines and abroad has
the following data for the current year:
Gross Income, Philippines P975,000
Expenses, Philippines 750,000
Gross Income, Malaysia 770,000
Expenses, Malaysia 630,000
Interest on bank deposit 25,000

Determine the income tax due if the corporation is

Domestic Res. Foreign Corp. Non-resident Foreign Corp.
a. P116,800 P72,000 P320,000
b. P109,500 P67,500 P300,000
C. P312,000 P515,850 P116,800
d. P109,500 P72,000 P300,000

 Answer: B
 Solution:
Domestic RFC NFRC
Gross Income, Philippines P975,000 P975,000 P975,000
Expenses, Philippines (750,000) (750,000)
Gross Income, Malaysia 770,000
Expenses, Malaysia (630,000)
Interest on bank deposit 25,000
Taxable income 365,000 225,000 P1,000,000
Tax Rate 30% 30% 30%
Tax Due P109,500 67,500 300,000

 Ordinary and passive incomes received by NRFCs are subject to FWT of 30%, unless
exempt under the law such as interest income derived from FCDS deposits.
 Generally, "income tax due" shall pertain to tax on "ordinary” income or income tax
other than FWT on passive income and CGTs.

62. It is important to know the sources of income for tax purposes, i.e., from within and without
the Philippines, because:
a. Some individual and corporate taxpayers are taxed on their worldwide income while
others are taxable only from sources within the Philippines.
b. The Philippines imposes income tax only on income from sources within.
c. Some individual taxpayers are citizens while other are aliens.
d. Export sales are not subject to income tax.

 Answer: B

Use the following data for the next three (3) questions:
A corporation has the following data for THE 2017 taxable year:
Gross income, Phil. P1,000,000
Gross income, USA 500,000
Gross income, Japan 500,000
Expenses, Phil. 300,000
Expenses, USA 200,000
Expenses, Japan 100,000
Other income:
Dividend from San Miguel Corp. 70,000
Dividend from Ford Motors, USA 120,000
Gain on sale of San Miguel shares directly to buyers 150,000
Royalties, Phils. 50,000
Royalties, USA 100,000
Interest from receivables in the Philippine 60,000
Rent Income, land in USA . 250,000
Rent income, Building in the Philippines 100,000
The Company also sold a condominium classified as capital asset for P2,000,000. Me cost of the
Condominium is P1,000,000 while its Zonal Value is P3,000,000.

63. Its income tax on all income as a domestic corporation is:

a. P578,000 c.P963,600
b. R683,500 d. P809,000
  Answer: D
Phil Abroad Total
Gross income, Phil P1,000,000 P1000,000,000
Gross income, USA 500,000 500,000
Gross income, Japan 500,000 500,000
Expenses, Phil. (300,000) (300,000)
Expenses, USA (200,000) (200,000)
Expenses, Japan (100,000) (100,000)
Dividend from Ford
Motors, USA 120,000 120,000
Royalties, USA 100,000 100,000
Interest from receivables 60,000 60,000
in the Philippines
Rent Income, land in USA 250,000 250,000
Rent income, Building
in the Philippines 100,000 100,000
Total P860,000 P1,170,000 P2,030,000
x RCIT rate 30%
RCIT P609,000

Basic income tax P609,000

FWT = Royalties Philippines = P50k x 20% 10,000
CGTs:
On shares = [5,000 + (50,000 x 10%)] 10,000
On real properties = P3M x 6% 180,000
Total taxes on all income P809,000

64. Based on the above problem, its income tax on all income if it is a resident foreign
corporation (disregard sale of condominium):
a. P278,000 c. P963,000
b. P683,500 d. 1809,000

 Answer: A
 Solution:
Basic income tax = P860,000 x 30% P258,000
FWT = Royalties Philippines = P50k x 20% 10,000
CGTs:
On shares = [5,000 + (50,000 x 10%)] 10,000
On real properties NA
Total taxes on all income P278,000

65. And if it is a non-resident foreign corporation and there is tax sparing, its income tax on
all income is (disregard sale of condominium):
a. P578,000 c. P963,000
b. P383,500 d. P809,000

 Answer: B
 Solution:
Phil.
Gross income, Phil. P1,000,000
Interest from receivables in the Philippines 60,000
Rent Income, land in USA
Rent income, Building in the Philippines 100,000
Royalty, Philippines 50,000
Total Gross income - Phils. P1,210,000
x Tax Rate 30%
Add: FWT on Di from DC @ 15% P363,000
CGT on shares of DC 10,500
Total taxes on all income P383,500

Use the following data for the next four (4) questions:
The following data were taken from the financial statement of Chen Corporation for 2018:
Philippines Abroad
Gross sales P10,000,000 P5,000,000
Sales returns 200,000
Cost of goods sold 3,500,000 2,250,000
Operating expenses 2,800,000 1,100,000
Interest income from trade receivable 100,000 50,000
Interest income from BPI deposits-Phils. 100,000
Interest income from BPI deposits-USA 80,000
Interest income- FCDU 150,000
Income from money market placement 200,000 100,000
Dividend income from domestic corporation 75,000
Dividend income from resident corporationi 45,000
Dividend income from nonresident corporation 30,000
Royalty income - in general 30,000 25,000
Royalty income - books 20,000
Gain on sale of shares of stock of domestic 120,000
corp. held as capital asset thru local stock
exchange; Selling Price-P500,000
Gain on sale of shares of stock of domestic 150,000
corp, held as capital asset directly to a
buyer Selling Price P650,000
Sale of real property in the Philippines 5,000,000
not used in business. Cost-P4M; FMV-P8M

66. How much is the income tax due and payable assuming the corporation is:
DC RFC
a. P1,674,00 P2,030,000
b. P2,038,500 P1,093,500
c. P1,674,000 P1,093,500
d. P1,093,500 P1,674,000

 Answer: C
Domestic Corporation:
Phil Abroad Total
Gross sales P10,000,000 P5,000,000 P15,000,000
Sales returns (200,000) (200,000)
Cost of goods sold (3,500,000) (2,250,000) (5,570,000)
Operating expenses (2,800,000) (1,100,000) (3,900,000)
Interest income from 100,000 50,000 150,000
trade receivable
Interest income from 80,000 80,000
BPI deposits-USA
Interest income from
money market placement
Dividend income-RFC 45,000 45,000
Dividend income-NRFC 30,000 30,000
Royalty income abroad 25,000 25,000
Taxable income P5,580,000
RCIT rate 30%
Normal Corporate Income P1,674,000
Tax Due

Resident Foreign Corporation:

Phil
Gross sales P10,000,000
Sales returns (200,000)
Cost of goods sold (3,500,000)
Operating expenses (2,800,000)
Interest income from trade receivable 100,000
Dividend income-resident foreign corp. 45,000
Taxable income P3,645,000
RCIT rate 30%
Normal Corporate Income Tax Due P1,093,000
67. How much is the final withholding tax on passive income assuming the corporation is:
DC RFC
a. P81,250 P81,250
b. P90,500 P90,500
c. P92,500 P81,250
d. P92,500 P92,500
  Answer: D

FWT - DC and RFC:

Phil FinalTax
Interest income from BPI 100,000 P20,000
deposits-Phils. @ 20% 150,000 22,500
Interest income from
FCDU @ 15%
Income from money market 200,000 40,000
placement @ 20%
Royalty income @ 20% 50,000 10,000
Final tax on passive income P92,500

 Royalty income derived from Philippine sources, regardless of classification (from books,
literary or otherwise) is subject to 20% FWT

68. How much is the total capital gains tax assuming the corporation is:
DC REC NRFC
a. P22,500 P22,500 P22,500
b. P550,000 P10,000 P22,500
c. P562,500 P22,500 P22,500
d. P562,500 P10,000 P10,000

 Answer: D

CGT – DC:
Gain on sale of shares sold directly to a buyer = [(150,000x 15%). P22,500
Sale of real property in the Philippines = (SP of P9M** x 6%) 540,000
Total Capital Gains Tax P562,500
**SP = Cost + Gain = P4M + 5M = POM; SP is higher than FMV

CGT – RFC and NRFC:

CGT on shares of DC =[(P100K x 5%) + ( P50k x 10%)] = P10,000

 Foreign corporations are not subject to CGT on real properties

69. How much is the total income tax expense assuming the corporation is:
DC RFC NRFC
a. P2,150,000 P1,150,000 P22,500
b. P2,200,000 P1,208,500 P2,038,500
c. P2,329,500 P2,329,500 P2,038,500
d. P2,329,000 P1,196,000 P2,048,500
  Answer: D
 Solution:
DC RFC NRFC
RCIT P1,674,000 P1,093,500 P2,038,500
FWT on passive income 92,500 92,500
CGTS 562,500 10,000 10,000
Income Tax Expense P2,329,000 P1,196,000 P2,048,500

Gross sales P10,000,000

Sales returns (200,000)
Cost of goods sold(3,500,000)
GROSS INCOME P6,300,000
ADD:
Interest income from trade receivable 100,000
Dividend income-resident foreign corp. 45,000
Interest income from BPI deposits-Phils. 100,000
Income from money market placement 200,000
Royalty income 50,000
Total "Gross” Income P6,795,000
Tax rate 30%
Final Tax Due (Basis: Gross income) P2,038,500

70. Which of the following statements is correct?

I. A minimum corporate income tax (MCIT) of 2% of gross income as of the end one
taxable year is imposed upon any domestic corporation beginning the 4th taxable year
immediately following the taxable year in which such corporation commerce its business
operations.
II. MCIT shall be imposed whenever such corporation has zero or negative taxable income,
or when the amount of MCIT is greater than normal income tax due mom such corporation.
III. The computation and the payment of MCIT shall likewise apply at the time of filing the
quarterly corporate income tax.

a. I only c. II and III only

b. Il only d. I, II and III

 Answer: D
 MCIT shall likewise apply to RFCs.
Statement / is a correct statement because it simply indicated that MCIT IS imposed on DC.

71. The MCIT shall apply to which of the following resident foreign corporations?
l. International carrier
II. Offshore banking units (OBUS) on their income from foreign currency transactions with
local commercial banks
III. Regional operating headquarters
a. I only c. I, II, and III
b. I and II only d. none of the above

 Answer: D
 MCIT is not applicable to:
o Special Corporations
o Tax exempt corporations
o Corporations subject to special or other income tax regime like BOI and PEZA registered
entities
o Nonresident foreign corporations.

72. Which of the following scenarios presented below is subject to MCIT?

Scenario 1: The corporation is exempt from income tax by virtue of tax holidays granted to it by
the Board of Investment.
Scenario 2: The corporation is subject to 5% tax in lieu of all types of taxes such as firms that are
taxed under special income tax regime such as PEZA registered firms.
A. B. C. D.
Scenario 1 Yes Yes No No
Scenario 2 Yes No No Yes

 Answer: C

73. Ocampo, De Leon and Valdez are classmates during their college days. After five (5)
years from their admission to the Accountancy Profession (PICPA), they have decided to form a
partnership whose sole purpose is the joint exercise of their common profession. 5 years into the
partnership, they have decided to offer CPA review classes to aspiring CPAs and they did so via
PRTC-Excel Corporation. A corporation whose shares are owned by them divided equally. One of
the following conclusions is correct:
a. The professional fees earned by the firm shall be exempt from income tax to the partnership.
However, the respective share of the each partner in the net distributable income shall be
subjected to the 10% final tax.
b. PRTC-Excel will be subjected to income tax on its taxable income whereby the applicable
income tax rate shall be 10%.
c. The Firm and the individual partners shall be exempt from income tax.
d. Assuming PRTC-Excel is in its fifth year of operation, it may be subjected to the Minimum
Corporate Income Tax.

 Answer: D

74. The minimum corporate income tax (MCIT) does not apply to a corporation, if
a. Imposition was suspended by the Secretary of Finance due to a corporation's heavy
losses arising from prolonged labor dispute;
b. Corporation is in its initial year of operation;
c. Corporation is exempt from income tax by virtue of tax holidays granted to it by the
Board of Investment;
d. All of the above

 Answer: D

75. One of the following is not accepted basic relief from the MCIT:
a. Prolonged labor dispute b. Force majeure problems C. Legitimate business reverses d. Law suits
filed by the company

 Answer: D

76. A domestic corporation is generally liable for Minimum Corporate Income Tax. However,
the Secretary of Finance may suspend the imposition of MCIT on any corporation which suffers
losses on account of any of the following, except:
a. prolonged labor disputes
b. mismanagement
c.. force majeure
d. legitimate business reverses

 Answer: B

77. Substantial losses from a “prolonged labor dispute" mean

a. Losses arising from a strike staged by the employees which lasted for more than six (6) months
within a taxable period.
b. The strike resulted to temporary shutdown of business operations.
c. Both of the above
d. None of the above

 Answer: C

78. Force maje ure" includes

a. A cause due to irresistible force as by “Act of God".
b. Lighting, earthquake, storm, flood and the like.
c. Armed conflicts like war or insurgency.
d. All of the above.

 Answer: D
79. If the taxpayer is a seller of services, which of the following shall not form part of its cost of
services?
a. Salaries and supplies
b. Employee benefits
c. Depreciation and rental expenses
d. Interest expense

 Answer: D

80. The following information were taken from the records of ABC Inc., a domestic corporation
already in its 5th year of operations:
Gross profit from sales P3,100,000
Capital gain on sale directly to buyer of 100,000
shares in a domestic corporation
Dividend from:
Domestic corporation 20,000
Resident foreign corporation 10,000
Interest on:
Bank deposit 20,000
Trade receivable 50,000
Business expenses 2,100,000
Income tax withheld 115,000
Quarterly income tax payments 160,000
Income tax payable prior year (10,000)

The income tax payable at the end of the year:

a. P33.000 c. P63,000
b. P43,000 d. P318,000

 Answer: A
Gross profit from sales P3,100,000
Dividend income from FC 10,000
Interest income on trade receivable 50,000
Total Gross Income P3,160,000
Less: Business expenses (2,100,000)
Taxable Net Income P1,060,000
RCIT = P1,060,000 x 30% P318,000
MCIT = P3,160,000 x 2% P63,200

Income Tax Due (Higher) P318,000

Less:
Quarterly tax payments (160,000)
Income tax withheld (115,000)
Excess payments/with- (10,000)
holding - prior year
Income Tax Payable P33,000

81. ABC Inc., registered with BIR in 2012, has the following data for the year 2018:
Gross receipts P1,150,000
Discounts and allowances 250,000
Salaries of personnel directly 300,000
involved in rendering service
Salaries of administrative personnel 100,000
Fees of consultants directly involved 50,000
in rendering service
Rental of equipment used in 70,000
rendering service
Rental of office space for use of 50,000
administrative personnel
Other operating expenses 420,000

How much was the income tax due and payable?

a. P0 c. P9,600
b. P6,600 d. P27,000

 Answer: C
Gross receipts P1,150,000
Discounts and allowances (250,000)
Salaries of personnel directly involved (300,000)
in rendering service
Fees of consultants directly involved (50,000)
in rendering service
Rental of equipment used in rendering (70,000)
service
Gross Income P480,000
Operating expenses (420,000)
Salaries of administrative personnel (100,000)
Rental expenses (50,000)
Taxable Net Income (loss) (90,000)
INCOME TAX:
RCIT P0
MCIT (P550,000 x 2%) P9,600
Income Tax Due (Higher) 9,600

82. A domestic corporation, already on its 5th year of operation as of 2017, has the following
data:
 2017 2018
Sales 1,700,000 2,300,000
Cost of Sales 1,050,000 1,425,000
Operating Expenses 675,000 480,000

The income tax payable in 2017 was:

a. P13,000 c. P35,000
b. P10,500 d. nil

 Answer: A

83. The income tax payable in 2018 was:

a. P111,000 c. 98,000
b. P17,500 d. nil

 Answer: C
2017 2018
Sales P1,700,000 P2,300,000
Cost of Sales (1,050,000) (1,425,000)
Gross Income P650,000 P875,000
Operating expenses (675,000) (480,000)
NOLCO (25,000)
Taxable Net Income (25,000) (25,000)
RCIT P0 P111,000
MCIT (P650,000 x 2%);
(P875,000 x 2%) P13,000 P17,500

Income Tax Due (Higher) P13,000 P17,500

Less: Excess MCIT carry-over (13,000)
Income Tax Payable P13,000 P98,000

 NOLCO is deductible from Gross Income if:

o The operations resulted to an income; and
o RCIT is higher than MCIT

84. A domestic corporation, already in its 5th year of operation as of 2016, provided the following
data:
2016 2017 2018
Gross Sales P2,040,000 P2,800,000 P3,000,000
Sales returns 40,000 100,000
Cost of goods sold 1,000,000 700,000 1,500,000
Business expenses 950,000 2,100,000 1,200,000

The income tax payable for taxable year 2018 was:

 a. P15,000 c. P60,000
b. P20,000 d. P55,000

 Answer: A
Solution:
2016 2017 2018
Gross Sales P2,040,000 P2,800,000 P3,000,000
Sales returns (40,000) (100,000)
Cost of goods sold (1,500,000) (700,000) (1,500,000)
Gross Income P1,000,000 P2,000,000 P1,500,000
Business expenses (950,000) (P2,100,000) (1,200,000)
NOLCO 2017 (100,000)
Taxable Net Income 50,000 (100,000) P200,000

RCIT P15,000 P0 P60,000

MCIT P20,000 P40,000 P30,000
Excess MCIT over RCIT P5,000 P40,000

Income Tax Due (Higher) P20,000 P40,000 P60,000

Less: Excess MCIT carry-over
2016 (5,000)
2017 (40,000)
Income Tax Payable P20,000 P40,000 P15,000

85. Na Dhale Corporation, a domestic corporation, had the following selected data:
YEAR GROSS ICOME EXPENSES
2014 P1,000,000 P1,200,000
2015 2,000,000 1,900,000
2016 3,000,000 2,950,000
2017 1,000,000 1,100,000
2018 980,000 500,000

The taxable income in 2018 was: a. P380,000

a. P380,000 c. P100,000
b. PO d. P50,000

 Answer: A

Solution:
2014 2015 2016 2017 2018
Gross Income P1,000,000 P2,000,000 P3,000,000 P1,000,000 P980,000
Expenses (1,200,000) (1,900,000) (2,950,000) (1,100,000) (500,000)
NOLCO:
2014 (100,000) (50,000)
2017 (100,00)
Income (loss) (200,000) P0 P0 (100,000) P3870,000

 NOLCO may be deductible from gross income for the next three succeeding years only.
The remaining NOLCO of P50,000 from 2014 is already beyond the allowable 3-year
period in 2018, hence, no longer deductible.

86. AlDub Corporation

Dub Corporation has the following results of operations from 2015 to 2018:

2015 2016 2017 2018

Gross Sales 550,000 650,000 800,000 1,200,000
Cost of Sales 300,000 350,000 400,000 500,000
Allowable deductions 300,000 375,000 300,000 300,000

AlDub Corporation was incorporated and registered with-BIR in 2006. Compute the income tax
payable.

2015 2016 2017 2018

a. P5,000 P6,000 P8,000 P120,000
b. P5,000 P6,000 P8,000 P105,000
c. P5,000 P6,000 P8,000 P93,500
d. P5,000 P6,000 P8,000 P86,000

 Answer: C
Solution:
2015 2016 2017 2018
Gross Sales P550,000 P650,000 P800,000 P1,200,000
Cost of Sales (300,000) (350,000) (400,000) (500,000)
GROSS INCOME P250,000 P300,000 P400,000 P700,000
Allowable deductions (300,000) (375,000) (300,000) (300,000)
Net Income (50,000) (75,000) P100,000 P400,000
NOLCO
2015 (50,000)
2016 (50,000) (25,000)
2017 -
Taxable Net Income (P50,000) (P75,000) P0 P375,000

RCIT (TNI 30%) P112,500

MCIT (GL x 2%) 5,000 6,000 8,000 14,000

TAX DUE (higher) P5,000 P6,000 P8,000 P112,500

Excess MCIT
2015 (5,000)
2016 (6,000)
2017 (8,000)
TAX PAYABLE P5,000 P6,000 P8,000 P93,500

The Next five (5) questions are based on the following:

Le Bron Corporation has the following information for the taxable year 2018:
QUARTER RCIT MCITA CWT
First 200,000 160,000 40,000
Second 240,000 500,000 60,000
Third 500,000 150,000 80,000
Fourth 300,000 200,000 70,000

Additional Information:
 MCIT carry-over from prior year amounts to P60,000;
 Excess tax credits from prior year amounts to P20,000.

87. How much was the income tax payable for the first quarter?
a. P200,000 c.P120,000
b. P160,000 d. P80,000

 Answer: D

88. How much was the income tax payable for the second quarter?
a. P660,000 c. P200,000
b. $460,00 d. P160,000

 Answer: B

89. How much was the income tax payable for the third quarter?
a. P860,000 c. P600,000
b. P120,000 d. P140,000

 Answer: D

90. How much was the annual income tax payable?

a. P1,260,000 c. P230,000
b. P390,000 d. 2930,000

 Answer: C

Q1 Q2 Q3 Annual
RCIT (cumulative) P200,000 P440,000 P940,000 P1,240,000
MCIT (cumulative) P160,000 P660,000 P810,000 P1,010,000

Income Tax Due (higher) P200,000 P660,000 P940,000 P1,240,000

CWT (cumulative) Excess (40,000) (100,000) (180,000) (250,000)
Tax credits PY (20,000) (20,000) (20,000) (20,000)
Excess MCIT PY (60,000) (60,000) (60,000)
Quarterly Payments (80,000) (540,000) (680,000)
(cumulative) -
Income Tax Payable P80,000 P460,000 P140,000 P230,000

 Excess MCIT carry-over from prior period (not to exceed three consecutive years) is
allowed only if RCIT is higher than MCIT

91. Using the same data in the preceding problem except that the MCIT on the 4th Quarter is
P500,000, how much was the annual income tax payable?
a. P330,000 c. P380,000
b. P1,310,000 d. P360,000

 Answer: D
ANNUAL
RCIT (cummulative) P1,240,000
MCIT(cummulative) P1,310,000

Income Tax Due (higher) P1,310,000

CWT (cummulative) (250,000)
Excess tax credits PY (20,000)
Excess MCIT PY
Quarterly Payments (cumulative) P(680,000)
Income tax payable P360,000

92. Delta Corporation, an entity organized under the laws of Russia, is engage in business the
Philippines for 10 years already. During the year 2018, its income and expenses are shown below:
Phil Russia
Gross income P20,000 P30,000
Business expense 18,500,000 21,000,000
Interest income from dollar deposit 500,000
Yield on money market placement 1,000,000

How much is the income tax payable upon filing its annual income tax return?
a. P23,000,000 c. P450,000
b. P400,000 d. P300,000

 Answer: C
 Gross income (Phils.) P20,000,000
Business expenses (Phils.) (18,000,000)
Taxable Net Income P1,500,000
INCOME TAX DUE:
RCIT (P1.5M X 30%) P450,000
MÇIT (P20M X 2%) 400,000
Income Tax Payable (higher) P450,000

93. Assume the same data in the preceding number except that the business expenses amounted
to P19,000,000. How much is the income tax payable upon filing its annual income tax return?
a. P3,000,000 c. P450,000
b.400,000 d. P300,000

 Answer: B
Gross income (Phils.) P20,000,000
Business expenses (Phils.) (19,000,000)
Taxable Net Income P1,000,00
RCIT (P1M X 30%) P300,000
MCIT (P20M X 2%) 400,000
Income Tax Payable (higher) P400,000
 MCIT is also applicable to RFCs

94. One of the following is wrong. Which is it? The gross income tax on corporation is:
a. Applicable to domestic corporations
b. Applicable to resident corporations
c. Applicable to non-resident corporations
d. May begin only beginning on taxable year 2000

 Answer: C

95. The president upon the recommendation of the secretary of finance may allow corporation
the option to be taxed on gross income, provided
I. The tax rate is 15%.
II. Available to firms whose ratio of cost of sales to gross sales or receipt from all
source does not exceed 55%.
III. Shall be irrevocable for 3 consecutive years during which the corporation is
qualified under the scheme.
a. Only I must be complied c. I, II, III must be complied
b. Only I and II must be complied d. None of the above

 Answer: C

96. The 15% gross income tax is applicable to:

A B C D
 Proprietary educational institutions True True False False
Resident foreign corporations True True True False
International carriers where True False False False
reciprocity is applicable

 Answer: C

97. Which statement is wrong? The gross income tax:

a. Is optional to a qualified corporation
b. Available only if the ratio of the cost of sales does not exceed fifty-five percent of the
gross sales or receipts from all sources
c. The choice shall be irrevocable for three consecutive years that the corporation is
qualified under the scheme
d. is always computed to compare with the normal income tax and minimum corporate
income tax

 Answer: D

98. Gross income taxation results to:

a. Less discretion on the part of tax examiners
b. Lower income tax revenues
c. More graft and corruption
d. More complicated tax computations.

 Answer: A

Special Corporations
99. Which of the following statements is incorrect?
a. Resident foreign corporations are subject to income tax based on net income from
sources within the Philippines.
b Domestic corporations are subject to income tax based on net income human sources.
c. Nonresident foreign corporations are subject to income tax based on gross income
from sources within the Philippines.
d. Private educational corporations are subject to income tax based on the net income
from sources within the Philippines at the tax rate of 10%.

 Answer: D

100. Which of the following shall be considered related income of proprietary educational
institutions?
I. Income from tuition fees and miscellaneous school fees
II. Income from hospital where medical graduates are trained for residency
III. Income from canteen situated within the school campus
IV. Income from bookstore situated within the school campus
 a. I only c. I, II, and IV only
b. I and II only d. I,II,III and IV

 Answer: "D"

101. A domestic proprietary educational institution improved its library facilities by adding a new
wing to its old library building. The capital outlay on library improvement, for income tax
purposes, may be:
a. Deducted at full at the time of completion of the improvement
b. Capitalized or expensed outright at the option of the school owners
c. Capitalized and depreciated over the estimated life of the improvement
d. Capitalized or expensed outright at the option of the Government

 Answer: B

102. Pioneer College, a private educational institution has presented the following data for the
year:

Gross income, related activities P5,000,000

Gross income, unrelated activities 5,000,000
(except rental income)
Rental income (gross of 5% WT) 2,000,000
Expenses, related activities 2,000,000
Expenses, unrelated activities 3,000,000
Dividend income from a domestic corporation 100,000
Quarterly income tax paid for the first 3 quarters 500,000

How much is the income tax payable?

a. P700.000 c. P2,100,000
b. P1,850,000 d. P1,500,000

 Answer: "D"
 Solution:
Gross income, related activities P5,000,000
Unrelated Income:
Gross income, unrelated activities 5,000,000
(except rental)
Rental income (gross of 5% WT) 2,000,000 P12,000,000

Expenses, related activities 2,000,000

Expenses, unrelated activities 3,000,000 (5,000,000)
Taxable income P7,000,000
Tax rate (unrelated income>related income) 30%
Tax due P2,100,000
 Less: Quarterly tax payments P500,000
Withholding tax on rental income 100,000 (600,000)
Income Tax payable P1,500,000

103. Advance Learning Institute, an educational institution provided the following data for
current taxable year:
Income from tuition fees P3,500,000
School miscellaneous fees 1,500,000
Dividend income:
Domestic corporation 2,000,000
Foreign corporation 2,000,000
Rent income (net of 5% withholding tax) 1,900,000
Operating expenses 4,000,000

The income tax payable of the school is:

a. P1,750,000 c. P500,000
b. P1,650,000 d. P400,000

 Answer: "D"
 Solution:
RELATED INCOME:
Income from tuition fees P3,000,000
Miscellaneous school fees 1,500,000 P5,000,000
UNRELATED INCOME
Dividend income from foreign corp. 2,000,000
Rental income (gross of 5% WT) 2,000,000 4,000,000
TOTAL GROSS INCOME P9,000,000
OPEX (4,000,000)
Taxable net income P5,000,000
Tax rate (related income>unrelated income) 10%
Tax due P500,000
Less: Withholding tax on rental income (100,000)
Income Tax payable P400,000

Use the following following data for the next two (2) questions:
Norte De University is a proprietary educational institution. It has the following selected
information for the taxable year 2018:

Tuition fees P12,800,000

Miscellaneous fees 1,800,000
Interest on bank deposits 12,300
Rent income 350,000
Salaries and bonuses, all personnel 7,500,000
Other operating expenses 3,500,000
 Quarterly income tax payments 48,000

Additional School Building was built and finished on April 1, 2018 at a cost of P2,000,000
with a depreciable life of 50 years.

104. Assuming the University opted to claim the cost of construction as an outright expense, the
income tax payable should be:
a. P147,000 c. P344,000
b. P160,000 d. P576,000

 Answer: A
 Solution:
Related Income:
Tuition fees P12,800,000
Miscellaneous fees 1,800,000 P14,600,000
Unrelated Income:
Rent income 350,000
Less: Operating expenses
Salaries and bonuses, all personnel 7,500,000
Other operating expenses 3,500,000
Cost of new building 2,000,000 (13,000,000)
Taxable Net Income P1,950,000
x Income tax rate 10%
Income Tax Due P1,950,000
Less: Income Tax Withheld (48,000)
Income Tax Payable P147,000

105. Assuming the University opted to capitalize the cost of building construction, the income tax
payable should be:
a. P147,000 c. P344,000
b. P160,000 d. P576,000

 Answer: A
Related Income:
Tuition fees P12,800,000
Miscellaneous fees 1,800,000 P14,600,000
Unrelated Income:
Rent income 350,000
Less: Operating expenses
Salaries and bonuses, all personnel 7,500,000
Other operating expenses 3,500,000
Dep'n-new building (P2M/50x9/12) 30,000 (11,030,000)
Taxable Net Income P3,920,000
 x Income tax rate 10%
Income Tax Due P3,920,000
Less: Income Tax Withheld (48,000)
Income Tax Payable P344,000

106. Bahala Na College, a proprietary educational institution provided the following data for
2018:
Income from tuition fees P3,000,000
School miscellaneous fees 250,000
Income from canteen operations 750,000
Dividend income:
Domestic corporation 100,000
Foreign corporation 50,000
Rent income (net) 5,700,000
Operating expenses 4,125,000
Quarterly income tax payments 250,000

The income tax payable of the school is:

a. P37,500 c. P1,212,500
b. P337,500 d. P1,227,500

 Answer: D
 Solution:

RELATED INCOME:
Tuition fees P3,000,000
Miscellaneous fees 250,000
Income from canteen operations 750,000 P4,000,000
UNRELATED INCOME:
Dividend income-FC 50,000
Rent income (gross) 6,000,000 6,050,000
OPEX (4,125,000)
Taxable Net Income P5,925,000
X (unrelated income > related income) 30%
Income Tax Due 1,177,000
Quarterly income tax payments (250,000)
CWTx on rent (300,000)
Income Tax Payable P1,127,500

Use the following data for the next two (2) questions:
Timpuyog Educational Foundation is a non-stock non-profit educational institution. It has
the following selected information for the taxable year 2018:

Tuition fees P15,000,000

 Miscellaneous school fees 2,500,000
Operating expenses 7,500,000
Interest on bank deposits 125,000
Rent income, net of CWT 332,500
Rental related expenses 75,000

Additional School Building was built and finished on April 1, 2018 at a cost o! P2,000,000
with a depreciable life of 40 years. Tuition and miscellaneous school fees are actually,
directly, exclusively used for educational purposes.

107. The income tax payable for the year should be:
a. P65,000 c. P344,000
b. P82,500 d. P1,224,000

 Answer: A
TAXABLE INCOME
Rent income P350,000
Rental related expenses (75,000)
Taxable Net Income P275,000
x Income tax rate 30%
Income Tax Due 82,500
Less: Income Tax Withheld (17,500)
Income Tax Payable P65,000

 A non-profit non-stock educational institution is not a special corporation. The rules

pertaining to proprietary educational institution are not applicable to non - stock non-
profit educational institutions.

Under Article XIV of the Philippine Constitution, all revenues of a non-stock non profit
educational institution that are actually, directly and exclusively used for educational
purposes are exempt from income tax.

Non-stock non-profit educational institutions are likewise exempt under Section 30 (H)
of the Tax Code. However, income not related to its exempt activities shall be subject to
regular corporate income tax.

108. Assuming the school is a government educational institution and it opted to expense
outright the cost of building construction. The income tax payable should be:
a. P65,00 c. P344,000
b. P82,500 d. P1,224,000

 Answer: A
 Solution = same with the immediately preceding number
 The rules pertaining to proprietary educational institution shall not be applied to non-
stock non-profit educational institutions and government educational institutions.

Government educational institutions are exempt under Section 30(1) of the Tax Code.
However, income not related to its exempt activities shall be subject to regular corporate
income tax.

109. Saint Mary's University (SMU) is a non-stock, non-profit educational institution registered
with Securities and Exchange Commission (SEC) as a corporation. For the year ended December
31, 2018, it reported rental income amounting to P150M from various tenants leasing portions of
the said corporation. The Bureau of Internal Revenue (BIR) assessed SMU P45M deficiency
income tax for rental income earned. Is the action of the BIR proper?
a. No, because a proprietary educational institution shall be subject only to 10%
preferential corporate income tax.
b. No. because all revenues of non-stock. non-profit educational institution shall be
exempt from taxes and duties as long as they are used actually, directly and exclusively
for educational purposes.
c. Yes, because leasing of property is not actually, directly and exclusively related to
educational purposes.
d. Yes, because taxes are the lifeblood of the government and tax exemptions are
construed strictly against the taxpayer and liberally in favor of the government.

 Answer: C

Use the following data for the next four (4) questions:
ABC has the following selected information for the taxable year 2018:
Tuition fees (actually, directly, exclusively P20,000,000
used for educational purposes)
Miscellaneous fees (actually, directly, 5,800,000
exclusively used for educational purposes)
Operating expenses related to school fees 18,500,000
Rental income (net) 7,125,000
Operating expenses related to rental income 2,250,000
Interest from bank deposits 100,000
Interest income from FCDS deposits 80,000
Dividend income from a domestic corporation 65,000
Dividend income from a foreign corporation 50,000
Quarterly income tax payments 80,000

Additional school building was built and finished on April 1, 2018 at a cost of R4,000,000
with a depreciable life of 25 years. Only if applicable, assume the educational institution
opted to claim the cost of construction as an outright expense.
110. How much is the income tax payable for 2018 assuming ABC is a non-stock non-profit
educational institution?
a. P75,000 c. P1,135,000
b. P405,000 d. P3,289,000

 Answer: C
Rental income (gross) P7,500,000
OPEX-rent (2,250,000)
Dividend income-FC 50,000
Taxable net income P5,300,000
X 30%
Income Tax Due P1,590,000
Quarterly tax payments (80,000)
CWT Income (375,000)
Tax Payable P1,135,000

111. How much is the income tax payable for 2018 assuming ABC is a govern educational
institution?
a. P75,000 c. P1,135,000
b. P405,000 d. P3,289,000

 Answer: C
Rental income (gross) P7,500,000
OPEX-rent (2,250,000)
Dividend income-FC 50,000
Taxable net income P5,300,000
X 30%
Income Tax Due P1,590,000
Quarterly tax payments (80,000)
CWT Income (375,000)
Tax Payable P1,135,000

112. How much is the income tax payable for 2018 assuming ABC is a proprietary educational
institution?
a. P75,000 c. P1,135,000
b. P405,000 d. P3,289,000

 Answer: B

School fees P25,800,000

OPEX-school fees (18,500,000)
OPEX-school building (4,000,000)
Rental income (gross) 7,500,000
OPEX-rent (2,500,000)
 Dividend income-FC 50,000
Taxable net income P8,600,000
X 10%
Income Tax Due P860,000
Quarterly tax payments (80,000)
CWT (375,000)
Income Tax Payable P405,000

113. How much is the income tax payable for 2018 assuming ABC is a CPA review school?
a. P75,000 c. 1,135,000
b. P405,000 d. P3,289,000

 Answer: D
School fees P25,800,000
OPEX-school fees (18,500,000)
OPEX-school building; dep'n (120,000)
Rental income (gross) 7,500,000
OPEX-rent (2,250,000)
Dividend income-FC 50,000
Taxable net income P12,480,000
X 30%
Distributive share in net income P3,744,000
Quarterly tax payments (80,000)
CWT Income (375,000)
Tax Payable P3,289,000

114. LEARN PA MORE University, a proprietary educational institution, is already in its 10th
year of operations. It has the following selected information for the taxable year 2015;
Tuition fees P7,600,000
Miscellaneous fees 2,400,000
Interest on peso bank deposits (net) 15,000
Interest on dollar deposits under FCDS (net) 11,100
Rent income 3,250,000
Dividend income from a domestic corporation 80,000
Direct cost of services 4,500,000
(including CAPEX for the newly built school building)
Capital gain on sale of shares of a domestic 125,000
corporation directly to a buyer
Other operating expenses 8,250,000
Quarterly income tax payments 25,000

Additional School Building was built and finished on April 1, 2015 at a cost of P2,000,000
with a depreciable life of 20 years.
Assuming the University opted to claim the cost of construction as an outright expense, the
income tax payable is:
a. P25,000 c. P150,000
b. P50,000 d. P190,000

 Answer: A
 Solution:
Tuition fees P7,600,000
Miscellaneous fees 2,400,000
Rent income 3,250,000
Direct cost excluding the CAPEX (2,500,000)
School CAPEX (2,000,000)
Other operating expenses (8,250,000)
Taxable Net Income P500,000
X 10%
Income Tax Due 50,000
Quarterly income tax payments (25,000)
Income Tax Payable P25,000

 NOTE: Not subject to MCIT

115. Based on the preceding number, but assuming the University opted to capitalize the cost of
building construction, the income tax payable is:
a. P217,500 c. P213,500
b. P242,500 d. P188,500

 Answer: A
 Solution:
Tuition fees P7,600,000
Miscellaneous fees 2,400,000
Rent income 3,250,000
Direct cost excluding the CAPEX (2,500,000)
CAPEX-Dep'n (P2M/20 x 9/12) (75,000)
Other operating expenses (8,250,000)
Taxable Net Income P2,425,000
X 10%
Income Tax Due 242,500
Quarterly income tax payments (25,000)
Income Tax Payable P217,500

Use the following data for the next four three (3) questions:
A non-profit domestic hospital has the following data during the year 2018:
Gross income from hospital operation P2,000,000
Operating expenses (excluding depreciation 500,000
 for the new hospital building)
Rent income of commercial space, hospital 190,000
ground floor, net of 5% withholding taxes
Interest on bank deposit, net of 20% withholding tax 40,000
Dividend income from a domestic corporation 100,000

 Additional hospital building was built and finished on June 30, 2018 at a cost of
24,000,000 with a depreciable life of 25 years.

116. The income tax still due and payable in 2018 is

a. P152,000 c. P476,000
b. P162,000 d. P486,000

 Answer: A
 Solution:
Gross income from hospital operation P2,000,000
Rent income (P190,000 x 95%) 200,000
Operating expenses (500,000)
Depreciation expense (80,000)
Taxable Net Income P1,620,000
x Tax rate 10%
Income Tax Due P162,000
Less: CWT on rent (10,000)
Income Tax Payable P152,000

117. Assume the non-profit hospital opted to expense outright the cost of the newly constructed
hospital. The income tax still due and payable in 2018 is
a. P0 c. P162,000
b. P152,000 d. P486,000

 Answer: B
 Solution same with the immediately preceding number.
 The option to either capitalize or expense outright capital expenditures applicable only
to proprietary educational institution.

118. Assume the hospital was organized for profit the income tax still due and payable in 2018 is
a. P396, 000 c. P476, 000
b. P406, 000 d. P486 000

 Answer: C
 Solution:
Gross income from hospital operation P2,000,000
Rent income (P190,000/95%) 200,000
Operating expenses (500,000)
 Depreciation expense ( 80,000)
Taxable Net Income P1,620,000
X Tax rate 30%
Income Tax Due P486,000
Less CWT on rent (10,000)
Income Tax Payable P476,000

119. H Hospital is a 100-bed hospital organized mainly for non-paying patients. However, out
of 100-bed capacity, 40-beds are allotted for paying patients, while the rest are intended for
charity patients. The revenues generated from these paying patients, however, are being used to
improve the facilities of the hospital. Which of the following statement is correct?
I. Hospital can claim exemption from real property tax. As a general principle, a
charitable institution does not lose its character as such and its exemption from taxes
simply because it derives income from paying patients, whether out-patient, or confined
in the hospital, or receives subsidies from the government, so long as the money
received is devoted or used altogether to the charitable object which is intended to
achieve and no money inures to the private benefit of the persons managing or
operating the institution.
II. H Hospital is subject to 10% on its net income, subject to compliance with the
*predominance test"
a. I only c. l and II
b. Il only d. Neither I nor II

 Answer: A

120. The Royale Air Corporation is an international carrier doing business in the Philippines.
Its taxable base for income tax purposes is -
a. Gross Philippine Billings
b. Gross Philippine Billings minus deductible expenses
c. Regular rate of 30% of its net taxable income
d. Allocation of income from sources within and without the Philippines as well as
expenses

 Answer: A

121. The following are excluded in the "Gross Philippine Billings* for income tax purposes of an
international air carrier except
a. Tickets sold outside the Philippines for passengers originating from outside the
Philippines.
b. Passage documents sold outside the Philippines for excess baggage originating
from the Philippines
c. Tickets sold in the Philippines for passengers originating from the Philippines
but are not actually flown
 d. Passage documents sold in the Philippines for cargoes originating from outside
the Philippines

 Answer: B

122. In order for an international carrier to qualify for exemption on the basis of reciprocity, what
type of tax shall be exempted as well by the its home country?
a. Income tax
b. Business Tax
c. Transfer tax
d. Any of the choices

 Answer: A

Use the following data for the next four (4) questions:
Pacific Airlines, an international air carrier showed the following gross receipts for 2018:

Point of Origin Destination Gross receipts

Philippines U.S.A P8,000,000
U.S.A. U.K 4,000,000
U.S.A Philippines 3,750,000
UK Philippines 2,100,000

Additional information:
• Forty percent (40%) of the shipments from the Philippines to the United States
were later shipped to the United Kingdom
• 25% of all its revenues were from transport of cargoes and goods.

123. The Income tax payable for 2018 is

a. P127,500 c. P170,000
b. P150,000 d. P200,000

 Answer: D
Income Tax Payable = P8M 2.5%

124. The total tax expense of Pacific Airlines in the Philippines for 2018 is
a. P187,500 c. P230.000
b. P210.000 d. P260.000

 Answer: D
 Income Tax Payable = (P&M X 2.5%) + (P&M x 3%) = P260,000
Total taxes * Income tax *Business tax
International carriers are subject to 3% CCT under Section 118 of the Code
125. The Income tax payable for 2018 assuming Philippine carriers in U.S.A. are subject only to 1%
income tax is
a. PO c. P160,000
b. P80,000 d. P200,000

 Answer: B
Income Tax Payable = P8M X 1%

126. The Income tax payable for 2018 assuming Philippine carriers in U.S.A. are exempt from
payment of income tax is
a. P0 c. P160,000
b. P80,000 d. P200,000

 Answer: A

127. China Airlines Inc., a resident foreign corp. has the following data for the taxable year 2018
Passengers airfare from China to Philippines P1,800,000
Passengers airfare from Philippines to China 1,500,000
Airfare for cargoes from China to Philippines 700.000
Airfare for cargoes from Philippines to China 1,300,000

How much was the income tax payable?

a. P39,000 c. P70,000
b. P60,000 d. P84,000

 Answer: C
Solution:
Passenger’s airfare from Philippines to China P1,500,000
Airfare for cargoes from Philippines to China 1,300,000
Total P2,800,000
X Tax Rate 2.5%
Income Tax Due and Payable 70,000

128. Based on the preceding number, how much was the common carrier's tax for the year
a. P39,000 c. P70,000
b. P60,000 d. P84,000

 Answer: A
 Solution:
Airfare tot cargoes from Philippines to China P1 300,000
* Business tax rate (common carriers tax) 3%
Income Tax Due and Payable P39,0000
  Common carriers tax (CCT) for international carriers (RFCs) is a business tax under
Section 118 in the Tax Code as amended CTT is based on gross receipts on their
transport of "good cargoes or malls” originating in the Philippines .

129. Which of the following shall pay a tax of ten percent (10%) of their taxable income?
I. Regional or area headquarters
II. Regional operating headquarters
a. l only c. Both land
b. ll only d. Neither I nor II

 Answer: B

130. Teri Yaki Corp., a Japanese Corp. having no business in the Philippines, is engage in ship
building It leases some of its newly constructed ships to Super Fairy Inc., a Philippine Carrier.
What income tax rate will apply to the rental payments to the lessor?
a. 30% Basic Income Tax
b. 25% Final Withholding Tax
c. 7.5% Final Withholding Tax
d. 4.5% Final Withholding Tax

 Answer: D

131. Rentals, charters and other fees derived by a non-resident lessor of aircraft machines and
other equipment in the Philippines shall be subject to a tax of
a. Twenty-five percent (25%)
b. Seven and one-half percent (72%)
c. Four and one-half percent (4 %) of gross rentals or fees
d. Two and one-half percent (2 %%) of gross income

 Answer: B

132. A cinematographic film owner, lessor or distributor shall pay tax bound an as gross income
from all sources within the Philippine
a. Twenty-five percent (25%)
b. Seven and one-half percent (7 1/2 %).
c. Four and one-half percent (4 %) of gross rentals or fees
d. Two and one-half percent (2.7% of town income)

 Answer: A

The next fourteen (14) questions are based on the following data:
Hananiah Corporation provided the following data for calendar year ending December 31. 2018
($1-50)
 Philippines Abroad
Gross income P4,000,000 $40,000
Deductions P2,500,000 $15,000
Income tax paid $3,000

133. If the corporation is a domestic corporation, its income tax payable is

a. P450.000 c. P675.000
b. P1,280,000 d. P825,000

 Answer: C
Solution
Philippines Abroad Total
Gross income P4,000,000 P2,000,000 P6,000,000
Deductions (2,500,000) (750,000) 3,250,000
Taxable net income P1,500,000 P1,250,000 P2,750,000
Tax Rate 30%
Income Tax Due P825,000
Less: INCOME TAX CREDIT
Actual payment abroad P150,000
Limit = 1,250/2,750 P825,000 375,000
Allowed (lower) (150,000)
Income Tax Payable P675,000

o WHO CAN CLAIM TAX CREDIT?

Only resident citizen claim tax credit.

o AMOUNT DEDUCTIBLE:
The LOWER between the Actual income tax paid abroad and the Limit.

o LIMIT:
It depends on how many foreign country is involved.
• If Only one foreign country is involved
Net income, foreign X Philippine income tax
Net income, world

• IF More than one foreign countries are involved. The limit is the lower between
Limit and Limit 2 computed as follows:

LIMIT 1 or A (Per Foreign country where there was estate tax paid);
Net income, per foreign country X Philippine income tax
 Net income, world

LIMIT 2 or B (Total of ALL foreign countries involved):

Net income, all foreign countries X Philippine income tax
Net income, world

134. Under the preceding number but opts to claim the tax paid abroad as deduction from gross
income, its income tax payable is
a. P780.000 c. P880,000
b. P730,000 d. P 830,000

 Answer: A
 Solution:
Philippines Abroad Total
Gross income P4,000,000 P2,000,000 P6,000,000
Deductions 2,500,000 750,000 3,250,000
Taxable net income P1,500,000 P1,100,000 P2,600,000
Tax Rate 30%
Income Tax Due 780,000

 Total OPEX abroad -P750 000 + 160.000 60.000

 Income tax payments abroad may be deducted from the income tax due or from
the gross income (treated as OPEX option of the taxpayer.
 Income Tax credit is applicable only to RCS and DCS
 If silent, treat the income tax payment abroad as a tax credit

135. If the corporation is a resident corporation, its income tax payable is

a. P450,000 c. P880,000
b. P1,280,000 d. P525,000

 Answer: A
Solution:
Philippines
Gross income P4,000,000
Deductions (2,500,000)
Taxable net income P 1,500,000
X tax rate 30%
Income tax due payable P450,000

136. If the corporation is a non-resident corporation, its income tale

a. P1,200,000 c. P880,000
b. P1,280,000 d. P1,400.000

 Answer: A
 Solution:
Philippines
Gross Income P4,000,000
X Tax Rate 30%
Income Tax Due/Payable P1,200,000
 NRFCs are taxable based on their gross Income

137. if the corporation is a resident international carrier, its income tax payable is
a. P100,000 c. P10.000
b. P37,000 d. P125.000

 Answer A
Solution:
Philippines
Gross Income P4,000,000
X Tax Rate 25%
Income Tax Due/Payable P1,000,000

138. If The corporation is a non-resident cinematographic film owner/lessor, its income tax
payable is
a. P1.000.000 c. P300,000
b. P100,000 d. P128,000

 Answer: A
Solution:
Philippines
Gross income P4,000,000
X Tax Rate 4.5%
Income Tax Due Payable P180,000

139. If the corporation is non-resident lessor of vessel, its income tax payable is:
a. P100,000 c. P300,000
b. P180.000 d. P128,000

 Answer: B
Solution:

Philippines
Gross income P4,000,000
X Tax Rate 25%
Income Tax Due/Payable P1,000,000
140. If the corporation is a non-resident lessor of aircrafts, machineries and equipment is income
tax payable is:
a. P100,000 c. P300,000
b. P180,000 d. P128,000

 Answer: C
Solution:
Philippines
Gross Income P4,000,000
X Tax Rate 7.5%
Income Tax Due/Payable P300,000

141. If the corporation is a proprietary educational institution, its income tax payable is:
a. P730,000 c. P150,000
b. P125,000 d. P275,000

 Answer: C
Solution:
Philippines Abroad Total
Gross Income P4,000,000 P2,000,000 P6,000,000
Deductions (2,500,000) (750,000) 3,750,000
Taxable net income P1,500,000 P1,250,000 P2,750,000
Tax Rate 10%
Income Tax Due P275,000
Less: INCOME TAX CREDIT
Actual payment abroad P150,000
Limit: 1.250/2.750 * P275.000 125,000
Allowed (lower) (125,000)
Income Tax Payable P150,000

142. If the corporation is a non-stock non-profit educational institution which uses all its revenues
or income for educational & charitable purposes, its income tax is:
a. P0 c. P120.000
b. P730,000 d. P64,000

 Answer: A

143. If the corporation is a government educational institution which uses all its
revenues or income for educational purposes, its income tax is:
a. Р0 c. P120.000
b. P730,000 d. P64,000

 Answer: A
144. If the corporation is a non-profit hospital, its income tax payable is:
a. P730,000 c. P150,000
b. P125,0 d. P275,000

 Answer: C; same treatment with a proprietary educational institution

145. If the corporation is a profit hospital, its income tax payable is

a. P675,000 c. P275,000
b. P832,000 d. P150.000

 Answer: A; Same treatment with a DC

146. If the corporation is a regional operating headquarters, its income tax payable is:
a. P150,000 c. P880,000
b. P450,000 d. P525,000

 Answer: A
Solution:
Philippines
Gross Income P4,000,000
Deductions (2,500,000)
Taxable net income P1,500,000
X Tax Rate 10%
Income Tax Due/Payable P150,000

Other Corporate Taxpayers

Branch Remittance Tax

147. A branch, subsidiary or affiliate of a foreign banking corporation which is duly authorized by
the Bangko Sentral ng Pilipinas (BSP) to transact offshore banking business in the Philippines in
accordance with the provisions of P.D. No. 1034 as implemented by a (now BSP) Circular No.
1389, as amended.
a. Offshore banking unit
b. Multinational company
c. Petroleum Service Contractor and Subcontractor
d. None of the choices

 Answer: A

148. Offshore Banking Units (OBUs) are tax exempt on income derived from
I. Foreign currency transactions with local commercial banks.
II. Foreign currency transactions with branches of foreign banks authorized by BSP
III. Interest income derived from foreign currency loans granted to residents.
a. I only c. I and II only
 b. ll only d. II and III only

 Answer: C;
 OBUs are not special corporations

149. A depository bank under Foreign Currency Deposit System has the following income from
foreign currency transactions (Exchange Rate $1=P45):
From Nonresidents $5,000
From residents $3,000
From Philippine National Bank $2,000
How much is the final withholding tax applicable on the above income?
a. P0 c. P13,500
b. P9,000 d. P22,500

 Answer: C
PWTX = $3,000 X P45 X 10% = P13,500
Income derived by a depository bank from its FCDS transactions may be tax exempt
subject to 10% FWT as follows:
FROM ITS FCDS TRANSACTION WITH:
Nonresidents Exempt
OBUs in the Philippines Exempt
Local commercial banks Exempt
Branches of foreign banks Exempt
From other residents 10%

150. an offshore banking unit, already in its 8th year in the Philippines, has the following data in
its income and expenses for the year 2018:
Foreign currency transactions with:
Non-residents 1,800,000
Local banks 1,200,000
Branches of foreign banks 1,000,000
Another OBU 500,000
Other residents 800,000
OTHER INCOME:
Rent income 1,000,000
Miscellaneous income 500,000
Operating Expenses 2,380,000
How much is the total income tax for the year?
a. P0 c. P292,500
b. P80,000 d. P372,500

 Answer: D

Solution:
 FWT on Income derived from FCDS transactions with residents
FWT = P800,000 x 10% = P80,000

OTHER INCOME:
Rental income P1,000,000
Miscellaneous income 500,000 1,500,000
Operating expenses (allocated);
Allocated OPEX = Other income/Total
income x Total OPEX
(1,500/6,800 x 2,380,000) (525,000)
Net income subject to RCIT and MCIT P975,000
INCOME TAX DUE:

RCIT (975,000 X 30%); P292,000

MCIT (P1,500,000 X 2%) 30,000

RCIT (higher) P292,000

FWT 80,000
Total Income Tax Expense P372,000

151. NoyPi Bank, a domestic corporation has the following data for the year
Regular Banking Unit
Interest Income from loans P10,000,000
Interest income from peso deposit with Bank of Philippine island 1,000,000
Dividend income from various domestic corporations 1,500,000

Foreign Currency Deposit Unit (Exchange Rate 11-10)

Interest Income from loans to residents $50,000
Interest Income from loans 10 nonresidents $12,500

The bank has total operating expenses of P12,000,000

How much was the normal income tax for the year?
a. PO c. P500,000
b. P400,000 d. P600,000

 Answer: D
Solution:

Interest Income from loans P10,000,000

Less: OPEX (allocated);
OPEX = Total OPEX X Gl regular operation/Total income
OPEX = P12M X 10/15 (8,000,000)
Net Income subject to RCIT P2,000,000
X RCIT % 30%
 Income Tax Payable (Basic or Normal Tax P600,000

152. Using the same data in the preceding number, the total income tax expense of NoyPi is
a. P400,000 c. P600,000
b. P500,000 d. P1,000,000

 Answer: D

Normal Tax (refer to computation in the preceding number) P600,000

FWT on interest income from BPI deposit (@ 20%) 200,000
Dividend income from DC exempt
Interest income from FCDS trans, with nonresidents exempt
Income from FCDS trans, residents (@ 10%) 200,000
Total income tax expense P10,000,000

153. If a branch of a foreign corp. in the Philippines remits passive income earned in the
Philippines to the head office, what is the applicable tax on the said transaction?
a. Subject to 30% final withholding tax
b. Subject to 12% creditable withholding VAT
c. Subject to 15% branch profit remittances tax
d. Exempt from branch profit remittances tax

 Answer: D

154. Which of the following statements is correct?

a. Any profit remitted by a branch office of a multinational corporation to its head
office in subject to 15% final tax based on total profits or earmarked for remittance
without deduction for the tax component.
b. Branch profit for purposes of branch remittance fax shall include interests,
dividends,
rents, royalties, including, remuneration for technical services, salaries, wages
premiums, annuities, emoluments or other fixed or determinable annual, periodic or
casual gains, profits, income and capital gains received during each taxable year from all
sources within the Philippines.
c. For purposes of branch profit remittance income items which are not effectively
connected with the conduct of its trade or business in the Philippines are not considered
branch profits
d. All of the above

 Answer: D

155. Which of the following remittances of income made by a branch of a foreign corporation in
the Philippines to its head office abroad is subject to 15% branch remittance tax?
 Ordinary Interest income Capital gains Dividend income
income from bank from a domestic
deposits corporation
a. Yes Yes No Yes
b. Yes Yes Yes No
c. No No Yes No
d. Yes No No No

 Answer: D

Improperly Accumulated Earnings Tax (IAET)

156. A tax imposed in the nature of a penalty to the corporation to prevent the scheme of
accumulating income rather than distribute the same to the stockholders for the purpose of
avoiding tax on dividends.
a. Minimum corporate income tax
b. Optional corporate income tax
c. Improperly accumulated earnings tax
d. Capital gains tax

 Answer: C

157. The Improperly Accumulated Earnings Tax shall not apply to the following, except?
a. Banks and other non-bank financial intermediaries
b. Insurance companies
c. Publicly-held corporation
d. Closely-held corporation

 Answer: D

158. It is a test used in determining the reasonable needs of a business to justify the
accumulation of earrings which will exempt the corporation from paying improperly accumulated
earnings tax
a. Urgency test
b. Immediacy test
c. Reasonable needs test
d. Control test

 Answer: B

Use the following data for the next three (3) questions:
JC Corporation, a domestic corporation had the following data for 2017 taxable year
Sales P5,000,000
Cost of goods sold 2,000,000
General selling and administrative expenses 500,000
Interest income from Philippine bank deposit 100, 000
Rental income (net of 5% withholding tax) 190,000
Dividend income:
From domestic corporation 60,000
From foreign corporation 50,000
Capital gains from sale of domestic shares of
stocks sold directly to buyer 75,000
Dividend declared and paid during the year 500,000
Retained earnings, 12/31/2016 1,000,000
Par Value of outstanding shares, 12/31/2017 500,000
Appropriation for future plant expansion 800,000

159. The income tax payable was:

a. P815.000 c. P825,000
b. P819,200 d. P899,000

 Answer: A
Sales P5,000,000
Rental income (P190,000/95%)) 200,000
Dividend income foreign corporation 50,000
Cost of goods sold (2,000,000)
General selling and administrative expenses (500,000)
Taxable Net Income P2,750,000
X 30%
Income Tax Due P825,000
Less: CWT on rental income (10,000)
Income Tax Payable P815,000

160. Based on the foregoing problem, the Improperly accumulated earnings tax in 2017 was:
a. P105,125 c. P208,125
b. P108,125 d. P213,625

 Answer: D
Solution:
Income subject to basic tax
Taxable net income P2,750,000
Passive income subject to FWT
Interest income from BPI 100,000
Tax exempt income
Dividend Income domestic corporation 60,000
Income subject to CGT
On shares of stock 75,000
Total P2,985,000
Less:
 Normal tax total, not the payable only) (825,000)
FWT on passive income (20,000)
CGT (P75.000 x 5%) (3,750)
Dividends paid (500,000)
Retention (Par Value of outstanding shares) (500,000)
Add:
Retained earnings, beginning 1,000,000
(Balance) Improperly accumulated earnings P2,136,250
X IAET % 10%
IAET P213,625

161. The Improperly accumulated earnings tax assuming the taxable year was 2018:
a. P105,125 c. P212.875
b. P108,125 d. P213,625

 Answer: C
Solution:
Income subject to basic tax:
Taxable net income P2,750,000
Passive income subject to FWT
Interest income from BPI 100,000
Tax exempt income
Dividend Income domestic corporation 60,000
Income subject to CGT
On shares of stock 75,000
Total P2,985,000
Less:
Normal tax total, not the payable only) (825,000)
FWT on passive income (20,000)
CGT (P75,000 x 15%) (11,250)
Dividends paid (500,000)
Retention (Par Value of outstanding shares) (500,000)
Add:
Retained earnings, beginning 1,000,000
(Balance) Improperly accumulated earnings P2,128,750
X IAET % 10%
IAET P212,875