BFJPIA

CUP 4 – BUSINESS LAW AND TAXATION

EASY
1. The process or means by which the sovereign, through its law-making body raises income to defray the necessary
expenses of the government:
a. Toll c. Taxation
b. License fee d. Assessment

2. Which of the following may not raise money for the government?
a. Power of taxation
b. Police power
c. Power of eminent domain
d. Privatization of government’s capital assets

3. One of the following is a false statement about double taxation. Which is it?
a. There is no constitutional prohibition on double taxation.
b. Direct duplicate taxation is a valid defense against a tax measure if it is violative of the equal protection clause.
c. Absence of any of the elements of direct double taxation makes it indirect duplicate taxation.
d. A 20% final withholding tax on interest income on bank deposits and a 5% gross receipts tax on banks is a direct
duplicate taxation.

4. Progressivity of taxation is also mandated in the Constitution.

Statement 1: Our income tax system is one good example of such progressivity because it is built on the principle of
the taxpayer’s ability to pay.

Statement 2: Taxation is progressive when their rate goes up depending on the resources of the person affected.

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

5. No law granting any tax exemption shall be passed without the concurrence of –
a. Majority of all members of Congress
b. 2/3 vote of all memners of Congress
c. ¾ vote of all members of Congress
d. Unanimous vote of all members of Congress

6. Contracts take effect only between the parties or their assigns and heirs, except where the rights and obligations
arising from the contract are not transmissible by their nature, by stipulation, or by provision of law. In the latter
case, the assigns or the heirs are not bound by the contracts. This is known as the principle of
a. Relativity of contracts
b. Mutuality of contracts
c. Freedom to stipulate
d. Obligatory force of contracts

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7. Under this doctrine, the separate personality of a corporation may be disregarded if it is used for fraudulent or illegal
purpose or to escape the faithful compliance of an obligation:
a. Trust fund doctrine
b. Doctrine of piercing the veil of corporate entity
c. Doctrine of corporate opportunity
d. Doctrine of limited capacity

8. When A voluntarily takes charge of the neglected business of B with the latter’s authority where reimbursement must
be made for necessary and useful expenses, there is a:
a. Contract of agency c. Negotiorum Gestio
b. Quasi contract d. Solutio Indebiti

9. Delay or default on the part of the obligor is known as –

a. mora solvendi ex re
b. mora accipiendi
c. mora solvendi ex persona
d. Mora solvendi

10. The debtor shall lose the right to make use of the period in the following cases, except:
a. when he becomes insolvent.
b. when he violates any undertaking in consideration of which the creditor agreed to the period.
c. when the debtor attempts to abscond.
d. when he does not furnish any guaranty or security to the creditor.

AVERAGE

1. A program initiated by the Department of Finance and Bureau of Internal Revenue to investigate and prosecute
individuals and/or entities engaged in tax evasion and other criminal violations of the NIRC
a. Non-issuance of Official Receipts (NO OR) c. eComplaint System
b. RATE d. Disiplina Program

2. Under this program, business operations of non-compliant taxpayers will be suspended and their establishments will
be temporarily closed if they will be found to have violated certain tax laws
a. Oplan Kandado b. RATE c. DISIPLINA d. eComplaint System

3. Which is not an effect of fraud under the Tax Code?

a. Civil penalty resulting to the imposition of a 25% surcharge.
b. Fraud cases cannot be the subject of a compromise.
c. Power of the BIR to assess and collect the tax is extended to 10 years from the discovery of the fraud
case.
d. Criminal cases resulting to the imposition of penal sanctions of imprisonment and/or fine upon
conviction by judicial courts.

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4. Which of the following statements is not correct?

a. Creditable withholding tax may refer to withholding tax on compensation or to withholding of business
tax.
b. The withholding tax on business may refer either to VAT or to Percentage Tax.
c. Withholding tax on compensation may also refer to expanded withholding tax.
d. Creditable withholding tax is the other term for final withholding tax.

5. Which of the following is not exempt from withholding tax on compensation?

a. Retirement benefits received under RA 7641 c. Payment for damages.
b. Remuneration for domestic services. d. Overtime pay

6. Which of the following right cannot be exercise by an assignee of interest:

A. To get whatever profits the assignor partner would have obtained
B. To avail himself of the usual remedies in case of fraud in the management.
C. To demand information, accounting and inspection of the partnership books
D. The right to participate in the management
a. All of the above c. B, C and D
b. Only C d. C and D

7. The rule is that no stock dividend shall be issued without the approval of stockholders representing at least 2/3 of the
outstanding capital stock at a regular or special meeting called for the purpose. As to other forms of dividends:
a. a mere majority of the entire Board of Directors applies.
b. a mere majority of the quorum of the Board of Directors applies.
c. a mere majority of the votes of stockholders representing the outstanding capital stock applies.
d. the same rule of 2/3 votes applies.

8. Contracts are effective and binding only between the parties, their assigns and their heirs. Three of the following
enumerations are exceptions as provided by law. Which does not belong to the exception?
a. Where there is a stipulation in favor of a third party
b. Where one of the parties to the contract dies and thereafter a suit is filed on the basis of the contract.
c. Where the obligations arising from contract are not transmissible by their nature.
d. Where the obligations arising from contract are not transmissible by stipulation or by provision of law.

9. The action for annulment must be brought within four years. Which of the following is false with respect to the
reckoning of the beginning of the prescriptive period?
a. In cases of intimidation, violence and undue influence, the period begins from the time the defect in the consent
ceases.
b. In case of fraud, the period begins to run from the discovery thereof.
c. In case of mistake, the period begins to run from the time it was committed.
d. In cases of contracts entered into by minors or other incapacitated persons, the period runs from the time
guardianship ceases.

10. It is one brought by one or more of the stockholder or members in the name and on behalf of the corporation to
redress wrongs committed against it or to protect or vindicate corporate rights, whenever the officials of the
corporation refuse to sue, or are the ones to be sued or hold control of the corporation.
a. Mandamus c. Derivative suit
b. Quo warranto d. Individual suit

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DIFFICULT

1. Income tax return for the calendar year 2008 was due for filing on April 15, 2009 but the taxpayer voluntarily
filed his tax return, without notice from the BIR, only on July 15, 2009. The tax due per return amounts to P100,000.
The tax payable by the taxpayer is -

a. 125,000 b. 130,000 c. 155,000 d. 150,000

2. Artemio leased a 216 square meter of idle land to Leizzie College of Business (LCB), a proprietary educational institution, for
a period of twenty (20) years effective January 1, 2011, at a monthly rental of P5,000. The lease contract provides that
Leizzie College of Business (LCB) will erect a building thereon to be used as classroom, which it did on the lot of Artemio.
The agreement provides also that the building shall become the property of the lessor at the end of the lease. The building
was completed on June 30, 2013 at a cost of P1,800,000. The estimated life of the leasehold improvement is thirty (30)
years.
If was further agreed that Leizzie College of Business (LCB) will pay the real estate tax on the land assessed at P3,000
annually. On January 2, 2011, LCB paid Artemio P120,000 consisting of rental covering the two (2) year period from
2011 to 2012.

The rent income to be reported by Artemio in 2011 –

a. 60,000 b. 123,000 c. 120,000 d. 63,000

3. Elizabeth Barbosa Company gave benefits to its employees during the year, as follows:

a. To the eight (8) rank and file employees:

Christmas bonus P 32,000
Loans at 8% interest with a term of one year 96,000
Medical cash allowance to dependents 16,000
Uniform allowance 12,000
b. To the company supervisor:
Christmas bonus 4,000
Fees in a civic club 5,000
Premium on life insurance - employee is the 15,400
beneficiary
Uniform allowance 3,000
The deductible fringe benefit tax expense–
a. P 30,000 b. 9,600 c. 6,528 d. 12,706

4. Sheryl had the following data:

Compensation income, Philippines (gross of w/tax of P10,000) P 120,000

Business income, Philippines 350,000
Business income, Canada $ 200,000
Vacant lot inherited from her mother, Baby P 500,000
Cash dividend from Le Corp., a domestic company 40,000
Share in the net income of a business partnership 50,000
Winnings in lotto, Philippines 1,540,000
Business expenses, Philippines 220,000
Business expenses, Canada $ 150,000
Proceeds of life insurance policy as a result of death of Baby. Her daughter
Sheryl is the appointed beneficiary (premiums paid–P60,000) 250,000
Exchange rate: Canadian $1 = P25

The income tax payable by Sheryl if she is a Filipino citizen, married with one legitimate child, residing in Culacling, Lupi,
Camarines Sur is –
a. 422,200 b. 432,200 c. 411,000 d. 448,800

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5. The West Central School submitted the following data for the calendar year ending December 31 of the current year:
Tuition fees P 9,500,000
Miscellaneous fees 1,200,000
Cash dividend from domestic corporations 80,000
Income of bookstore 350,000
Interest on bank deposits 70,000
Income of school canteen 180,000
Salaries, allowances and bonuses 6,400,000
Other operating expenses 2,600,000
Other expenditures for the improvement of school facilities:
Construction of additional classrooms 1,300,000
Furniture and equipment for library 400,000
The depreciable life of the additional facilities is 20 years. The construction of the additional classrooms was finished
April 1, while the furniture and equipment were purchased in June 30.

If the West Central School is a private educational institution recognized by the government and the cost of improvement of
school facilities is capitalized, the income tax due for the calendar year ending December 31 is–

a. 223,000 b. 61,000 c. 217,125 d. 53,000

6. X and Y were to marry in 3 months. Meantime, to express his affection, X donated a house and lot to Y, which
donation X wrote in a letter to Y. Y wrote back, accepting the donation and took possession of the property. Before
the wedding, however, Y suddenly died of heart attack. Can Y’s heirs get the property?
a. No, since the marriage did not take place.
b. Yes, since all the requisites of a donation of an immovable are present.
c. No, since the donation and its acceptance are not in a public instrument.
d. Yes, since X freely donated the property to Y who became its owner.

7. A and B are partners in buying and selling automobiles. A, by the partner’s agreement, was authorized to buy
automobiles on a cash basis, never on the installment plan. One day A bought on credit or on installment plan a car
from X, a client. X did not know of A’s lack of authority. A’s purchase was made on behalf and in the name of the
partnership. Is the partnership bound?
a. No because A was not really authorized to bought on installment plan.
b. No because acquisition of automobiles requires the consent of all partners.
c. Yes because although A was not really authorized, still for “apparently carrying on in the usual way the business
of the partnership” A is implicitly authorized and X did not know of A’s lack of authority.
d. Yes because all transaction made by any partners with third person is valid provided the latter acted in good
faith.

8. X Corp. operates a call center that received orders for pizzas on behalf of Y Corp. which operates a chain of pizza
restaurants. The two companies have the same set of corporate officers. After 2 years, X Corp. dismissed its call
agents for no apparent reason. The agents filed a collective suit for illegal dismissal against both X Corp. and Y Corp.
based on the doctrine of piercing the veil of corporate fiction. The latter set up the defense that the agents are in the
employ of X Corp. which is a separate juridical entity. Is this defense appropriate?
a. No, since the doctrine would apply, the two companies having the same set of corporate officers.
b. No, the real employer is Y Corp., the pizza company, with X Corp. serving as an arm for receiving its outside
orders for pizzas.
c. Yes, it is not shown that one company completely dominates the finances, policies, and business practices of the
other.
d. Yes, since the two companies perform two distinct businesses.

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9. Due to his debt to C, D wrote a promissory note which is payable to the order of C. C's brother, M, misrepresenting
himself as agent of C, obtained the note from D. M then negotiated the note to N after forging the signature of C.
May N enforce the note against D?
a. Yes, since D is the principal debtor.
b. No, since the signature of C was forged.
c. No, since it is C who can enforce it, the note being payable to the order of C.
d. Yes, since D, as maker, is primarily liable on the note

10. M signs a promissory note payable to the order of P which is blank as to amount. M delivers the note to P with
instruction to type the amount of P20,000,00 on the blank. P, however, types the amount of P50.000.00, and
negotiates the same to A, A to B, B to C, and C to H, a holder in due course. A, B, C and also H had no knowledge of
the wrongful completion of the blank.
a. H may collect from M nothing because P violated M's instructions.
b. H may collect from M P20,000.00 the amount M instructed P to place on the space for the amount.
c. H may collect from M P50,000.00, the amount actually placed by P.
d. H may collect from A, B or C P20,000.00 since they had no knowledge of the wrongful completion.

TIE BREAKER
1. A and B are partners in buying and selling automobiles. A, by the partner’s agreement, was authorized to buy
automobiles on a cash basis, never on the installment plan. One day A bought on credit or on installment plan a car
from X, a client. X did not know of A’s lack of authority. A’s purchase was made on behalf and in the name of the
partnership. Is the partnership bound?
a. No because A was not really authorized to bought on installment plan.
b. No because acquisition of automobiles requires the consent of all partners.
c. Yes because although A was not really authorized, still for “apparently carrying on in the usual way the business
of the partnership” A is implicitly authorized and X did not know of A’s lack of authority.
d. Yes because all transaction made by any partners with third person is valid provided the latter acted in good
faith.

2. X Corp. operates a call center that received orders for pizzas on behalf of Y Corp. which operates a chain of pizza
restaurants. The two companies have the same set of corporate officers. After 2 years, X Corp. dismissed its call
agents for no apparent reason. The agents filed a collective suit for illegal dismissal against both X Corp. and Y Corp.
based on the doctrine of piercing the veil of corporate fiction. The latter set up the defense that the agents are in the
employ of X Corp. which is a separate juridical entity. Is this defense appropriate?
a. No, since the doctrine would apply, the two companies having the same set of corporate officers.
b. No, the real employer is Y Corp., the pizza company, with X Corp. serving as an arm for receiving its outside
orders for pizzas.
c. Yes, it is not shown that one company completely dominates the finances, policies, and business practices of the
other.
d. Yes, since the two companies perform two distinct businesses.

3. X is a director in T Corp. who was elected to a 1-year term on Feb. 1, 2010. On April 11, 2010, X resigned and was
replaced by R, who assumed as director on May 17, 2010. On Nov. 21, 2010, R died. S was then elected in his place.
Until which time should S serve as director?
a. April 11, 2011 c. May 17, 2011
b. Feb. 1, 2011 d. Nov. 21, 2011

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4. Under this doctrine, the separate personality of a corporation may be disregarded if it is used for fraudulent or illegal
purpose or to escape the faithful compliance of an obligation:
a. Trust fund doctrine
b. Doctrine of piercing the veil of corporate entity
c. Doctrine of corporate opportunity
d. Doctrine of limited capacity

5. In 2006, Corporation "A" passed a board resolution removing "X" from his position as manager of said corporation.
The by-laws of "A" corporation provides that the officers are the president, general-manager, treasurer and
secretary. Upon complaint filed with the SEC, it held that the general manager could be removed by mere resolution
of the board of director
On motion for reconsideration, "X" alleged that he could only be removed by the affirmative vote of the stockholders
representing 2/3 of the outstanding capital stock. Is "X's" contention legally tenable.
a. No, the vote required is majority of the board and 2/3 OCS consenting
b. Yes, the voting requirement is only 2/3 of the outstanding capital stock.
c. No, the required vote is MBD consented by MOCS.
d. No, the voting requirement is only majority of the Board of Directors.

6. The Corporation Code sanctions a contract between two or more corporations which have interlocking directors,
provided there is no fraud that attends it and it is fair and reasonable under the circumstances. The interest of an
interlocking director in one corporation may be either substantial or nominal. It is nominal if his interest:
a. does not exceed 25% of the outstanding capital stock.
b. exceeds 25% of the outstanding capital stock.
c. exceeds 20% of the outstanding capital stock.
d. does not exceed 20% of the outstanding capital stock.

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

8. There is no taxable income until such income is recognized. Taxable income is recognized when the
a. taxpayer fails to include the income in his income tax return.
b. income has been actually received in money or its equivalent.
c. income has been received, either actually or constructively.
d. transaction that is the source of the income is consummated.

9. Aplets Corporation is registered under the laws of the Virgin Islands. It has extensive operations in Sotheast Asia. In
the Philippines, its products are imported and sold at a mark-up by its exclusive distributor, Kim’s Trading, Inc. The
BIR compiled a record of all the imports of Kim from Aplets and imposed a tax on Aplets net income derived from its
exports to Kim. Is the BIR correct?
a. Yes. Aplets is a non-resident foreign corporation engaged in trade or business in the Philippines.
b. No. The tax should have been computed on the basis of gross revenues and not net income.
c. No. Aplets is a non-resident foreign corporation not engaged in trade or business in the Philippines.
d. Yes. Aplets is doing business in the Philippines through its exclusive distributor Kim’s Trading, Inc.

10. The actual effort exerted by the government to effect the exaction of what is due from the taxpayer is known as
a. assessment.
b. levy.
c. payment.
d. collection.

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