TAXATION SIA/TABAG

TAX.2707-Income Tax on Corporations OCT 2019

LECTURE NOTES

A. CORPORATION DEFINED 7) Civic league or organization not organized for

For tax purposes, a corporation is defined under
Section 22 of RA 8424 as follows:
The term “corporation” shall INCLUDE:
1) Partnerships, no matter how created
organized;
2) Joint stock companies;
3) Joint accounts (cuentas en participacion)
4) Associations; 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.
B. CLASSIFICATION OF CORPORATE TAXPAYERS
1) Domestic Corporation (DC)
2) Resident Foreign Corporation (RFC)
3) Nonresident Foreign Corporation (NRFC)
profit but operated exclusively for the
promotion of social welfare;
8) A nonstock and nonprofit educational
institution;
9) Government educational institution;
or 10) Farmers’ or other mutual typhoon or fire
insurance company, mutual ditch or irrigation
company, mutual or cooperative telephone
company, or like organization of a purely local
character, the income of which consists solely
of assessments, dues, and fees collected from
members for the sole purpose of meeting its
expenses; and
11) Farmers’, fruit growers’, or like association
organized and operated as a sales agent for
the purpose of marketing the products of its
members and turning back to them the
proceeds of sales, less the necessary selling
expenses on the basis of 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.

DC, RFC and NRFC may be classified further into: D. GENERAL PRINCIPLES: SOURCES OF INCOME
1) Ordinary Corporation SUBJECT TO INCOME TAX
2) Special corporation
1. DC – World
C. EXEMPT ORGANIZATIONS 2. RFC and NRFC – Within the Phils. only

The following organizations shall not be subject to E. DOMESTIC CORPORATIONS

income tax (Section 30, RA 8424):
1) Labor, agricultural or horticultural organization 1. ORDINARY CORPORATIONS
not organized principally for profit;
2) Mutual savings bank not having a capital stock The following taxes apply to ordinary corporations
represented by shares, and cooperative bank upon generation of income:
without capital stock organized and operated a) Final Withholding Tax (FWT)
for mutual purposes and without profit; i. FWT on certain passive income within
3) A beneficiary society, order or association, the Philippines
operating for the exclusive benefit of the ii. Capital Gains Tax on sale of land
members such as a fraternal organization and/or buildings in the Philippines
operating under the lodge system, or a mutual
aid association or a non-stock corporation b) Capital Gains Tax on Sale of Shares of Stock
organized by employees providing for the
payment of life, sickness, accident, or other c) Basic Income Tax
benefits exclusively to the members of such i. Regular Corporate Income Tax (RCIT);
society, order, or association, or nonstock OR
corporation or their dependents; ii. Minimum Corporate Income Tax
4) Cemetery company owned and operated (MCIT)
exclusively for the benefit of its members;
5) Nonstock corporation or association organized  FINAL WITHHOLDING TAX ON CERTAIN
and operated exclusively for religious, PASSIVE INCOME WITHIN THE PHILIPPINES
charitable, scientific, athletic, or cultural
purposes, or for the rehabilitation of veterans, FORMULA:
no part of its net income or asset shall belong
to or inure to the benefit of any member, Passive Income PXXX
organizer, officer or any specific person; Rate XX%
6) Business league, chamber of commerce, or Final Withholding Tax PXXX
board of trade, not organized for profit and no
part of the net income of which inures to the
benefit of any private stockholder or individual;

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 1) INTEREST  REGULAR CORPORATE INCOME TAX (RCIT)
1) Interest on currency bank
deposit FORMULA:
2) Yield or any monetary benefit
from: 20% Gross Income PXXX
- Deposit substitutes Allowable Deductions XXX
- Trust funds and similar Taxable Income PXXX
arrangements Rate 30%
RCIT PXXX
Interest income FROM a depositary bank
under the expanded foreign currency GROSS INCOME – includes all income not subject
deposit system (EFCDS) 7.5% to final withholding tax, capital gains tax and not
 Prior to 2018 15% considered exempt under the law.
 Beginning 2018
ALLOWABLE DEDUCTIONS:
Interest Income derived by a depository 1) Business Expenses & Losses (Itemized
bank under the expanded foreign Deductions); or
currency deposit system from foreign 2) Optional Standard Deduction
currency transaction WITH:
1) Non-residents Exempt  MINIMUM CORPORATE INCOME TAX (MCIT)
2) Offshore banking units in the Exempt
Philippines TIME OF IMPOSITION – It is imposed beginning on
3) Local commercial banks Exempt the fourth taxable year immediately following
4) Branches of foreign banks Exempt the year in which such corporation commenced its
5) Residents 10% business operations, when the MCIT is GREATER
THAN RCIT.
2) ROYALTIES – 20%
3) DIVIDENDS FROM ANOTHER DC – 0% FORMULA:

 CAPITAL GAINS TAX ON SALE OF LAND AND/OR Gross Income PXXX

BUILDINGS Rate 2%
MCIT PXXX
REQUISITES:
1) The land and/or building must be a capital GROSS INCOME DEFINED:
asset; and
2) It must be located in the Philippines. 1) Seller of Goods

FORMULA: Gross Sales PXXX

Sales Discounts (XXX)
Tax Base PXXX Sales Returns and Allowances (XXX)
Rate 6% Cost of Goods Sold (XXX)
CGT PXXX Gross Income PXXX
Add: Other Income subject to RCIT XXX
TAX BASE: Total Gross Income PXXX
1. Selling Price
Highest

2. Fair Market Value Cost of Goods Sold:

3. Zonal Value
a. Trader or Merchandiser
 CAPITAL GAINS TAX ON SALE OF SHARES OF
STOCK Invoice Cost of the goods sold PXXX
Import Duties XXX
REQUISITES: Freight XXX
1) The shares of stock sold, bartered, exchanged Insurance XXX
or disposed must be in a domestic corporation; Total PXXX
and
2) The transaction must be not through the stock b. Manufacturing Concern
exchange.
Raw materials used PXXX
FORMULA: Direct Labor XXX
Selling Price PXXX Manufacturing overhead XXX
Cost (XXX) Freight Cost XXX
Selling Expense (XXX) Insurance Premiums XXX
Net Gain PXXX Other costs of production XXX
Rate XX% Total PXXX
CGT PXXX
2) Seller of Services
RATE:
Prior to 2018 Gross Receipts PXXX
First 100T of the gain = 5% Sales Discounts (XXX)
In excess of 100T = 10% Sales Returns and Allowances (XXX)
Cost of Services (XXX)
Beginning 2018 Gross Income PXXX
15% of capital gain regardless of amount

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 Cost of Services: However, the following shall be exempt:
1) Government Service and Insurance System
Salaries and Employee benefits of PXXX (GSIS)
personnel, consultants and specialists 2) Social Security System (SSS)
directly rendering the service 3) Philippine Health Insurance Corporation (PHIC)
4) Local Water Districts (RA 10026)
Cost of facilities directly utilized in XXX 5) Philippine Charity Sweepstakes Office (already
providing the service (e.g. rentals and taxable upon effectivity of the TRAIN Law)
cost of supplies)
3. IMPROPERLY ACCUMULATED EARNINGS TAX
Other direct costs and expenses XXX (IAET)
necessarily incurred to provide the
services PERSONS LIABLE
Total PXXX
This tax is only applicable to domestic corporations
NOTE: In case of banks, “cost of services” which are classified as closely-held corporations.
shall include interest expense.
The following shall be exempt:
AMOUNT PAYABLE TO BIR: a) Banks and other non-bank financial
intermediaries;
1) RCIT b) Insurance companies;
Higher
2) MCIT c) Publicly-held corporations;
d) Taxable partnerships;
CARRY FORWARD OF EXCESS MCIT (MCIT CARRY- e) General professional partnerships;
OVER) f) Non-taxable joint ventures; and
g) Enterprises duly registered with the:
Any excess of the MCIT over RCIT shall be carried i. PEZA
forward and credited against the RCIT for the three ii. Pursuant to Bases Conversion and
(3) immediately succeeding taxable years. Development Act of 1992
iii. Special Economic Zones
RELIEF FROM THE MCIT
TAXABLE EVENT
The Secretary of Finance is authorized to suspend
the imposition of the MCIT on any corporation The taxable event in IAET is the accumulation of
which suffers losses on account of: earnings BEYOND the reasonable needs of the
1) Prolonged labor dispute business.
2) Force majeure
3) Legitimate business reverses REASONABLE NEEDS OF THE BUSINESS

DOMESTIC CORPORATIONS EXEMPT FROM MCIT: The test used in determining the reasonable needs
1) Proprietary educational institutions and of the business is the so called “Immediacy Test”.
hospitals which are non-profit It provides that “reasonable needs” of the business
2) Depository banks under expanded foreign is equivalent to:
currency deposit system
Immediate Needs PXXX
2. SPECIAL CORPORATIONS Reasonably anticipated needs XXX
Reasonable Needs PXXX
PROPRIETARY NON-PROFIT EDUCATIONAL
INSTITUTIONS AND HOSPITALS The following constitute accumulation of earnings
for the reasonable needs of the business:
The rules applicable to ordinary corporations will 1) Earnings reserved for definite corporate
also apply to proprietary educational institutions expansion projects or programs requiring
and hospitals which are nonprofit except the considerable capital expenditure as approved
following: by the Board of Directors or equivalent body;
1) In computing basic income tax, the rate is 2) Earnings reserved for building, plants or
10%. equipment acquisition as approved by the
Board of Directors or equivalent body;
NOTE: If income not related to its primary 3) Earnings reserved for compliance with any loan
purpose or function is more than 50% of its covenant or pre-existing obligation established
total gross income, the rate applicable is 30%. under a legitimate business agreement;
4) Earnings required by law or applicable
2) It is not subject to MCIT regulations to be retained by the corporation or
3) Expenditures for expansion of school facilities in respect of which there is legal prohibition
may not be capitalized but instead claimed as against its distribution;
outright expense. 5) In the case of subsidiaries of foreign
corporations in the Philippines, all
GOVERNMENT-OWNED OR CONTROLLED undistributed earnings intended or reserved for
CORPORATIONS investments within the Philippines as can be
proven by corporate records and/or relevant
All corporations, agencies or instrumentalities documentary evidence.
owned or controlled by the Government shall be
taxable like “ordinary corporations”.

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 - Originating from the Philippines;
- In a continuous and uninterrupted
FORMULA flight;
- Irrespective of the place of sale or
Taxable Income PXXX issue and the place of payment of the
Add: ticket or passage of document.
a) Income subjected to final
tax PXXX NOTE:
b) NOLCO XXX 1) Tickets revalidated, exchanged and/or
c) Income exempt from tax XXX indorsed to another international
d) Income excluded from airline form part of the GPB if a
gross income XXX XXX passenger boards a plane in a port or
PXXX point in the Philippines.
Less: 2) Flight which originates from the
Philippines, but transshipment of
a) Income Tax Paid PXXX
passenger takes place at any port
b) Dividends declared/paid XXX XXX
outside the Philippines on another
Total PXXX
airline, only the aliquot portion of the
Add: Retained Earnings, beg. XXX
cost of the ticket corresponding to the
Less: Amount that may be leg flown from the Philippines to the
retained (100% of Paid-Up point of transshipment shall form part
Capital, end) XXX of the GPB.
Improperly Accumulated
Taxable Income XXX b. International Shipping – means gross
Rate 10% revenue whether for passenger, cargo or
Improperly Accumulated mail originating from the Philippines up to
Earnings Tax XXX final destination, regardless of the place of
sale or payments of the passage or freight
documents.
F. RESIDENT FOREIGN CORPORATIONS
USE OF PREFERENTIAL RATE OR EXEMPTION
1) ORDINARY CORPORATIONS (inserted by RA 10378)
The income taxes applicable to ordinary domestic
corporations upon generation of income are the International carriers may avail of preferential
same with resident foreign corporations, except: rate or exemptions on basis of:
a) The general principles as to source of taxable a. Tax Treaty
income must be considered; b. International agreement
b) Sale of land and/ or buildings is not subject to c. Reciprocity - An international carrier,
capital gains tax. whose home country grants income tax
c) Interest income FROM a depositary bank under exemption to Philippine carriers, shall
the expanded foreign currency deposit system likewise be exempt from income tax.
(EFCDS) was not amended under the TRAIN
Law, hence, shall still be subject to 7.5%  OFFSHORE BANKING UNITS
d) Capital gains tax on sale of shares of domestic
corporation was not amended under the TRAIN Income derived by offshore banking units
Law, hence, shall be subject to to: (OBU’s) from foreign currency transactions
shall be taxed as follows:
RATE:
First 100T of the gain = 5% COUNTERPARTY RATE
In excess of 100T = 10%
Non-residents 0%
e) RESIDENT FOREIGN CORPORATIONS EXEMPT Other OBU’s 0%
FROM MCIT: Local Commercial Banks 0%
i. International carrier
Branches of foreign banks 0%
ii. Offshore banking units
Other residents 10%
iii. Regional or area headquarters
iv. Regional operating headquarters
NOTE:
v. Firms that are taxed under special tax
 If OBU’s earn income other than from
regime (e.g. Covered by PEZA law & Bases
foreign currency transactions, it will be
Conversion Development Act)
subject to basic income tax (RCIT vs.
MCIT, whichever is higher).
2) SPECIAL CORPORATIONS
 Any Income derived by nonresidents
(individuals or corporations) from
 INTERNATIONAL CARRIER
transactions with OBUs shall not be subject
to income tax.
FORMULA:
Gross Philippine Billings PXXX
 REGIONAL OR AREA HEADQUARTERS
Rate 2.5%
Income Tax PXXX
Regional or area headquarters shall not be
subject to income tax.
GROSS PHILIPPINE BILLINGS (GPB):
a. International Air Carrier – refers to the
 REGIONAL OPERATING HEADQUARTERS
amount of gross revenue derived from
carriage of persons, excess baggage, cargo
and mail:

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 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%. H. DEADLINE FOR FILING OF RETURNS
2) It is not subject to MCIT.
1. Final Withholding Tax on passive income
3) BRANCH PROFIT REMITTANCES TAX (BPRT)
FORMULA: MANUAL FILING
Profit Remittance PXXX January to November 10th day of the month
Rate 15% following the month
BPRT PXXX the withholding was
made
PROFIT REMITTANCE December January 15 of the
succeeding year
PROFIT REMITTED APPLICABLE TAX
2. Capital Gains Tax
Connected with the a) Shares of stock
conduct of its trade or Subject to 15% BPRT i. Ordinary Return - 30 days after each
business in the transaction
Philippines ii. Final Consolidated Return - on or before
April 15 of the following year
Others Exempt b) Real Property – 30 days following each sale
or other disposition
EXEMPT ENTITIES
3. Fringe Benefits Tax – 10th day of the month
Activities registered with the following shall be following the end of the calendar quarter in
exempt from BPRT: which the fringe benefits were granted to the
1) Philippine Economic Zone Authority (PEZA) recipient.
2) Subic Bay Management Authority (SBMA)
3) Clark Development Authority (CDA) 4. Basic Income Tax
a) Quarterly – on or before the 60 th day
G. NONRESIDENT FOREIGN CORPORATIONS following the end of the quarter

1) ORDINARY CORPORATIONS b) Annual (Final Quarter) – April 15 of the

succeeding year.
Gross income from all sources within the
Philippines shall be subject to 30% final PERSONS REQUIRED TO FILE AND PAY UNDER EFPS
withholding tax, except the following: a) Taxpayer Account Management Program (TAMP) Taxpayers (RR
No. 10-2014)
INCOME APPLICABLE TAX b) Accredited Importer and Prospective Importer required to secure the
BIR-ICC & BIR-BCC (RR No. 10-2014)
Interest income on foreign 20% FWT c) National Government Agencies (NGAs) (RR No. 1-2013)
loans d) All Licensed Local Contractors (RR No. 10-2012)
Intercorporate Dividends: e) Enterprises Enjoying Fiscal Incentives (PEZA, BOI, Various Zone
1) With tax sparing 15% FWT Authorities, Etc.) (RR No. 1-2010)
2) Without tax sparing 30% FWT f) Top 5,000 Individual Taxpayers (RR No. 6-2009)
Net Capital Gains from sale g) Corporations with Paid-Up Capital Stock of P10 Million and above
of shares of stock not traded (RR No. 10-2007)
in the local stock exchange h) Corporations with Complete Computerized Accounting System (CAS)
(Not amended under the (RR No. 10-2007)
TRAIN Law) i) Procuring Government Agencies with respect to Withholding of VAT
1) First 100T 5% and Percentage Taxes (RR No. 3-2005)
2) In excess 10%
j) Government Bidders (RR No. 3-2005)
k) Insurance companies and Stock brokers (RMC No. 71-2004)
2) SPECIAL CORPORATIONS
l) Top 20,000 Private Corporation (RR No. 2-98, as amended)
m) Large Taxpayers (RR No. 2-2002, as amended under RR 17-2010)
TYPE TAX BASE RATE
 As to tax payments:
Percentage tax P200,000 per quarter
Non-resident
Cinematographic
VAT P200,000 per quarter
Film Owner, Lessor Gross Income 25% Excise Tax P1,000,000 per year
or Distributor Income Tax P1,000,000 per year
Documentary Stamp Tax P1,000,000 per year
Non-resident Owner Withholding taxes (all types) P1,000,000 per year
or Lessor of Vessels Gross rentals,
Chartered by lease or 4.5%  As to financial condition:
Philippine Nationals charter fees Gross sales/receipts P1,000,000,000 per year
Net worth P300,000,000 at the close of
Non-resident Owner each calendar or fiscal year
or Lessor of Aircraft, Gross rentals, Gross Purchases P800,000
Machineries and charters and 7.5% Per S.E.C list Top corporations as listed and
Other Equipment other fees published by the Securities
and Exchange Commission

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n) Non-Large Taxpayers However, Under Sec. 4(3) of RR 6-2014 and RR 5-2015, the
 Volunteering 200 or more Non-Large Taxpayers following are exempted and may file manually:
 Top 20,0000 private corporations (starting April , 2009)  Senior Citizen (SC) or Persons with Disabilities (PWDs)
o) Other Taxpayers: filing for their own return;
 Corporations with paid-up capital of P10,000,000 and  Employees deriving purely compensation income whether
above from one or more employers, whether or not they have any
 Corporation with complete computerized system tax due that need to be paid;
 Taxpayers joining public bidding pursuant to E.O. No. 398  Employees qualified for substituted filing under RR 2-98
as implemented by RR 3-2005 Sec. 2.83.4, as amended, but opted to file for an Income
p) Enterprises enjoying fiscal incentives granted by other government Tax Return (ITR) and are filing for purposes of promotion
agencies such as those registered with: (PNP/AFP), loans, scholarship, foreign travel requirements,
 Philippine Economic Zone Authority (PEZA) etc.
 Board of Investments (BOI
 Various zone authorities e) Government-Owned or -Controlled Corporations (GOCCs)
 Cagayan Special Economic Zone Authority f) Local Government Units (LGUs), except barangays; and
 Export Development Council g) Cooperatives registered with National Electrification Administration
 Tourism Infrastructure and Enterprise Zone Authority; and (NEA) and Local Water Utilities Administration (LWUA)
 PHIVIDEC Industrial Authority. Taxpayers who are not covered by the regulation may opt to file
their returns using the manual filing or eBIR Forms.
MANDATORY eBIR FORMS and MANDATORY e-FILING
Only those non-EFPS filers are covered by RR 6-2014, particularly the
following:
a) Accredited Tax Agents/Practitioners and all its client-taxpayers
b) Accredited Printers of Principal and Supplementary
Receipts/Invoices
c) One-Time Transaction (ONETT) taxpayers
d) Those who shall file a “No Payment” Return

7. Which of the following is taxed on gross income?

MULTIPLE CHOICE EXERCISES a. Domestic corporation
b. Resident foreign corporation
1. Which is not a characteristic of corporate income c. Non-profit cemetery
tax: d. Non-resident foreign corporation
a. Progressive tax c. General tax
b. Direct tax d. National tax 8. Aplets Corporation is registered under the laws of
the Virgen Islands. It has extensive operations in
2. For purposes of income taxation, which of the Southeast Asia. In the Philippines, its products are
following is not considered as a corporation? imported and sold at a mark-up by its exclusive
a. General partnership in trade distributor, Kim’s trading, Inc. The BIR compiled a
b. General professional partnership record of all the imports of Kim from Aplets and
c. Mutual fund company imposed a tax on Aplets net income derived from
d. Regional operating headquarters of its exports to Kim. Is the BIR correct?
multinational company a. Yes. Aplets is a non-resident foreign
corporation engaged in trade or business in the
3. For purposes of income taxation, which of the Philippines.
following is considered as a corporation? b. No. The tax should have been computed on the
a. General partnership in trade basis of gross revenues and not net income.
b. General professional partnership c. No. Aplets is a non-resident foreign corporation
c. Joint venture or consortium for construction not engaged in trade or business in the
project Philippines.
d. Joint venture of consortium for engaging in d. Yes. Aplets is doing business in the Philippines
energy operations under a service contract through its exclusive distributor Kim’s Trading,
with the government. Inc.

4. Which of the following is subject to income tax? 9. The following passive income received by a
a. SSS and GSIS domestic corporation shall be subject to 20% final
b. Philippine Health Insurance Corporation (PHIC) withholding tax, except:
c. Local Water Districts a. Interest income from peso bank deposit
d. Philippine Amusement and Gaming Corporation b. Yield from deposit substitutes
(PAGCOR) c. Dividend income from another domestic
corporation
5. Which of the following is taxable based on income d. Royalties
from all sources, within and without?
a. Domestic Corporations Use the following data for the next two (2) questions:
b. Resident Foreign Corporations ABC Company and DEF Company formed a joint venture.
c. Non-resident Foreign Corporations They agreed to share profit or loss in the ratio of 70% and
d. All of the choices 30%, respectively. The results of operations of the joint
venture as well as the co-venturers are as follows:
6. The term applies to a foreign corporation engaged Joint Venture ABC Co. DEF Co.
in trade or business in the Philippines. G.Income P5,000,000 P3,000,000 P2,000,000
a. Resident foreign corporation OPEX 3,000,000 2,000,000 1,500,000
b. Nonresident foreign corporation
c. Multinational corporation 10. The income tax payable of the joint venture is
d. Petroleum contractor

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 a. P0 c. P300,000 acquired in 2010 at a cost of P100,000, were held
b. P150,000 d. P600,000 as investment, and were sold directly to a buyer.
How much was the capital gains tax due?
11. The total income tax expense of DEF Co. is: a. P15,000 c. P22,500
a. P0 c. P276,000 b. P10,000 d. P45,000
b. P150,000 d. P330,000
20. Assume the shares were sold in 2018, the capital
12. Assume the joint venture is tax exempt, the total gains tax due is:
a. P15,000 c. P22,500
income tax expense of DEF Co. is: b. P10,000 d. P45,000
a. P0 c. P276,000
b. P150,000 d. P330,000 21. Assume the shares were sold in 2018 and East
Star Inc. is a foreign corporation, the capital gains
13. The share of a domestic corporation in the net tax due is:
income after tax of a joint venture or consortium a. P15,000 c. P22,500
taxable as a corporation of which it is a co- b. P10,000 d. P45,000
venturer is:
a. Subject to creditable withholding tax of 10%. 22. Bayan Inc., a domestic corporation in its 2 nd year
b. Subject to final withholding tax of 10%. of operation, had the following data on income and
c. Subject to capital gains tax.
expenses during the year 2018:
d. Exempt
Gross income, Philippines P10,000,000
Business expenses, Philippines 2,000,000
14. A depository bank under Foreign Currency Deposit
Gross income, China 5,000,000
System has the following income from foreign
Business expenses, China 1,500,000
currency transactions (Exchange Rate $1=P45):
Interest income, Metrobank, 300,000
Philippines
From Nonresidents $5,000
Interest income, Shanghai 100,000
From residents $3,000
Banking Corporation, China
From Philippine National
Rent income, net of 5% 190,000
Bank $2,000
withholding tax
How much is the final withholding tax applicable on
How much is the income tax payable?
the above income?
a. P3,540,000 c. P3,440,000
a. P22,500 c. P9,000
b. P3,530,000 d. P2,480,000
b. P13,500 d. P45,000
23. PHL Corporation, a domestic corporation in its 3 rd
15. Interest income of a domestic commercial bank
year of operation, has the following records of
derived from a peso loan to a domestic corporation
income and expenses during the year:
in 2016 is:
a. Subject to the 30% income tax based on its
Gross income, net of 1% P1,435,500
net taxable income
withholding tax
b. Subject to the 20% final withholding tax.
Expenses 790,600
c. Subject to the 7.5% final withholding tax.
Rent income, net of 5% withholding 136,800
d. Subject to 10% final withholding tax.
tax
Dividend from domestic corporation 25,000
16. As a rule, there is no income tax if there is no
Royalty, gross of tax 80,000
income. Which of the following is the exception?
Interest from bank deposit with 12,000
a. Capital Gains Tax on sale of land and/or
PNB, net of tax
building
b. Capital Gains Tax on sale of share of stock not
traded in the local stock exchange
The income tax payable is -
c. Tax on passive income
a. P241,020 c. P260,020
d. Regular Corporate Income Tax
b. P219,320 d. P238,320
17. KABA LESS Inc. sold its vacant lot to URO REALTY
INC. for P10,000,000 which it acquired at a cost of
24. The total final taxes is -
P5,000,000. The fair market value of the said
a. P19,000 c. P33,250
property per tax declaration is P12,000,000, while
b. P21,500 d. P3,000
its zonal value is P15,000,000. How much is the
income tax applicable on the transaction?
25. A domestic corporation was registered with the BIR
a. P900,000 c. P600,000
on November 1, 2008. What year would the first
b. P720,000 d. P1,500,000
MCIT will be imposed on such corporation?
a. 2009 c. 2011
18. Based on the preceding number, if the buyer of the
b. 2010 d. 2012
property is the Philippine Government or one of its
owned or controlled corporations, what type of
26. If the taxpayer is a seller of services, which of the
income tax will apply on the transaction?
following shall not form part of its cost of services?
a. Basic income tax
a. Salaries and supplies
b. Capital gains tax
b. Employee benefits
c. Either “a” or “b” at the option of the seller
c. Depreciation and rental expenses
d. Either “a” or “b” at the option of the buyer
d. Interest expense
19. In 2017, East Star Inc., a domestic corporation,
27. MCIT shall applies to which of the following
sold shares of stock for P250,000. The shares,
domestic corporations?
I. Proprietary educational institutions

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 II. Non-profit hospitals b. P17,500 d. nil
III. Depository banks under the expanded foreign
currency deposit system (FCDS) on income Next four (4) questions are based on the following: Jolly
from foreign currency transactions with local Jeep Corporation has the following information for the
commercial banks taxable year 2018:
IV. Firms that are taxed under a special income tax
regime QUARTER RCIT MCIT Creditable
Withholding
a. I and II only c. All of the above
Tax
b. III and IV only d. None of the above
First 200,000 160,000 40,000
Second 240,000 500,000 60,000
28. A PEZA registered enterprise has a registered and
Third 500,000 150,000 80,000
an unregistered activity. The MCIT shall apply to:
Fourth 300,000 200,000 70,000
a. Registered activity
b. Unregistered activity
c. Both activities Additional Information:
d. Neither registered or unregistered activity a) Excess MCIT for 2017, P60,000;
b) Excess tax credits from 2016 amounts to
29. The following information were taken from the P20,000.
records of Tropikana Inc., a domestic corporation
already in its fifth year of operation: 33. How much was the income tax payable for the first
quarter?
Gross profit from sales P3,100,000 a. P200,000 c. P120,000
Capital gain on sale directly to a 100,000 b. P160,000 d. P80,000
buyer of shares in a domestic
corporation 34. How much was the income tax payable for the
Dividend from: second quarter?
Domestic corporation 20,000 a. P660,000 c. P200,000
Resident foreign corporation 10,000 b. P460,00 d. P160,000
Interest on:
Bank deposit 20,000 35. How much was the income tax payable for the
Trade receivables 50,000 third quarter?
Business expenses 2,100,000 a. P860,000 c. P600,000
Income tax withheld 115,000 b. P120,000 d. P140,000
Quarterly income tax payments 160,000
Income tax payable prior year (10,000) 36. How much was the annual income tax payable?
a. P1,260,000 c. P230,000
The income tax payable at the end of the year: b. P390,000 d. P930,000
a. P318,000 c. P43,000
b. P63,200 d. P33,000 37. A domestic corporation, already in its 5 th year of
operation as of 2015, provided the following data:
30. Short Time Services Inc., registered with BIR in 2017 2018 2019
2013, has the following data for the year 2018: Gross Sales P2,040,000 P2,800,000 P3,000,000
Sales returns 40,000 100,000 -
Gross revenue P1,150,000 Cost of goods 1,000,000 700,000 1,500,000
Discounts 100,000 sold
Allowances 150,000 Business 950,000 2,100,000 1,200,000
Salaries of personnel directly 300,000 expenses
involved in rendering service
Salaries of administrative personnel 100,000 The income tax payable for taxable year 2019 was:
Fees of consultants directly involved 50,000 a. P15,000 c. P60,000
in rendering service b. P20,000 d. P55,000
Rental of equipment used in 70,000
rendering service 38. One of the following is not a ground for exemption
Rental of office space for use of 50,000 from MCIT:
administrative personnel a. Prolonged labor dispute
Other operating expenses 420,000 b. Force majeure problems
c. Legitimate business reverse
How much was the income tax due and payable? d. Law suits filed by the company
a. P27,000 c. P9,600
b. P6,600 d. Zero 39. The 15% gross income tax is applicable to:
A. B. C. D.
31. Delta Corporation, already in its 5 year of
th Proprietary True True False False
operation as of 2019, has the following data: educational
institutions
2018 2019 Resident foreign True True True False
Sales 1,700,000 2,300,000 corporations
Cost of Sales 1,050,000 1,425,000 International True False False False
carriers where
Operating Expenses 675,000 480,000
reciprocity is
applicable
The income tax payable in 2018 was –
a. P13,000 c. P35,000
40. Which of the following statements is incorrect?
b. P10,500 d. nil
a. Resident foreign corporations are subject to
income tax based on net income from sources
32. The income tax payable in 2019 is –
within the Philippines.
a. P111,000 c. P98,000

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 b. Domestic corporations are subject to income Assuming the University opted to claim the cost of
tax based on net income from all sources. construction as an outright expense, the income
c. Nonresident foreign corporations are subject to tax payable was:
income tax based on gross income from a. P344,000 c. P576,000
sources within the Philippines. b. P147,000 d. P160,000
d. Private educational corporations 'are subject to
income tax based on the net income from 45. Based on the preceding number, but assuming the
sources within the Philippines at the tax rate of University opted to capitalize the cost of building
10%. construction, the income tax payable was:
a. P344,000 c. P576,000
41. If the gross income from unrelated activity exceeds b. P147,000 d. P160,000
50% of the total gross income derived by any
private educational institution, the rate shall be 46. Pera Pera College, an educational institution
30% based on the entire taxable income. This provided the following data for the current year:
principle is known as Income from tuition fees P3,000,000
a. Constructive receipt School miscellaneous fees 250,000
b. Tax benefit rule Income from canteen operations 750,000
c. End result doctrine Dividend income:
d. Predominance test Domestic corporation 100,000
Foreign corporation 50,000
42. What is the rule on the taxability of income that a Rent income (net) 5,700,000
government educational institution derives from its Operating expenses 4,125,000
school operations? Such income is Quarterly income tax payments 250,000
a. Subject to 10% tax on its net taxable income
as if it is a proprietary educational institution. The income tax payable of the school is:
b. Exempt from income taxation if it is actually, a. P42,500 c. P1,227,500
directly, and exclusively used for educational b. P592,500 d. P1,777,500
purposes.
c. Subject to the ordinary income tax rates with 47. Bank of Recto, a domestic corporation has the
respect to income derived from educational following data for the taxable year 2018:
activities. Regular Banking Unit:
d. Exempt from income taxation in the same Interest Income from loans P10,000,000
manner as non-stock and non-profit Interest Income from peso deposit 1,000,000
educational institutions. with Bank of Philippine Islands
Dividend Income from various 1,500,000
43. Which of the following organizations shall be domestic corporations
exempted from income tax for income earned by
them as such? Foreign Currency Deposit Unit:
a. Non-stock corporation or association organized (Exchange Rate $1=P40)
and operated exclusively for religious, Interest Income from loans to $50,000
charitable, scientific, athletic or cultural residents
purposes, or for the rehabilitation of veterans, Interest Income from loans to $12,500
but part of its net income or asset shall belong nonresidents
or inure to the benefit of any member,
organizer or any specific person. Additional Information: The bank has total
b. Mutual savings bank having capital stock operating expenses of P12,000,000.
represented by shares and cooperative bank How much was the normal income tax for the
with capital stock organized and operated not year?
for mutual purposes and with profit. a. P600,000 c. P500,000
c. Business league, chamber or commerce, or b. P400,000 d. nil
board of trade, not organized for profit and no
part of the net income of which inures to the 48. A tax imposed in the nature of a penalty to the
benefit of any private stockholder or individual. corporation to prevent the scheme of accumulating
d. Farmers, fruit growers, or like association income rather than distribute the same to the
organized and operated as the central stockholders for the purpose of avoiding tax on
distributor of all agricultural products in a dividends.
particular region. a. Minimum corporate income tax
b. Optional corporate income tax
44. SCHOOL BUKOL University is a proprietary c. Improperly accumulated earnings tax
educational institution. It had the following d. Capital gains tax
selected information for the taxable year 2018:
Tuition fees P12,800,000 49. The Improperly Accumulated Earnings Tax shall
Miscellaneous fees 1,800,000 not apply to the following, except?
Interest on bank deposits 12,300 a. Banks and other non-bank financial
Rent income 350,000 intermediaries
Salaries and bonuses, all 7,500,000 b. Insurance companies
personnel c. Publicly-held corporation
Other operating expenses 3,500,000 d. Closely-held corporation
Quarterly income tax payments 48,000
50. It is a test used in determining the reasonable
Additional School Building was built and finished on needs of a business to justify the accumulation of
April 1, 2018 at a cost of P2,000,000 with a earnings which will exempt the corporation from
depreciable life of 50 years. paying Improperly accumulated earnings tax:
a. Urgency test c. Immediacy test
b. Reasonable needs test d. Control test

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 51. JCU Corporation, a domestic corporation had the Use the following data for the next four (4) questions:
following data for taxable year 2018: Pacific Airlines, an international air carrier showed the
Sales P5,000,000 following gross receipts for 2018:
Cost of goods sold 2,000,000 Point of Origin Destination Gross receipts
General selling and administrative Philippines U.S.A. 8,000,000
expenses 500,000 U.S.A. Russia 4,000,000
Interest income from Philippine bank U.S.A Philippines 3,750,000
deposit 100,000 Spain Philippines 2,100,000
Rental income (net of 5% withholding
tax) 190,000 Additional information:
Dividend Income:  Forty percent (40%) of the shipments from the
From domestic corporation 60,000 Philippines to the United States were later shipped
From foreign corporation 50,000 to the United Kingdom.
Capital gains from sale of domestic  25% of all its revenues were from transport of
shares of stocks sold Directly to cargoes and goods.
buyer 75,000
Dividend declared and paid during the 56. The income tax payable for 2018 is
year 500,000 a. P127,500 c. P170,000
Retained earnings, 12/31/2017 1,000,000 b. P150,000 d. P200,000
Par Value of outstanding shares, 500,000
12/31/2018 57. How much is the income tax payable for 2018
Appropriation for future plant 800,000 assuming the Philippines and U.S. entered into a tax
expansion
treaty subjecting international carriers to 1%
The income tax payable was: income tax rate?
a. P825,000 c. P899,200 a. P80,000 c. P68,000
b. P815,000 d. P819,200 b. P60,000 d. P155,000

52. Based on the foregoing problem, the Improperly 58. How much is the income tax payable for 2018
accumulated earnings tax was: assuming that Philippine carriers are exempt from
a. P208,125 c. P212,875 payment of income tax in the United States?
b. P108,125 d. P105,125 a. P60,000 c. P125,000
b. P80,000 d. P0
53. Peshcov Corporation, an entity organized under the
laws of Russia, is engage in business in the 59. The common carrier’s tax of Pan Pacific for 2018 is
Philippines for 10 years already. During 2018, its a. P36,000 c. P125,000
income and expenses are shown below: b. P60,000 d. P0
Philippines Russia 60. An offshore banking unit, already in its 7 th year in the
Gross income P20,000,000 P30,000,000 Philippines, has the following data in its income and
Business expenses 19,000,000 21,000,000 expenses for the year 2018:
Interest income 500,000
from dollar Foreign currency transactions
deposit, with ($1=P40):
Yield on money 1,000,000 Non-residents $45,000
market placement Local banks 30,000
Branches of foreign banks 25,000
How much is the income tax payable? Another OBU 12,500
a. P3,000,000 c. P1,000,000 Other residents (Interest 20,000
b. P400,000 d. P300,000 Income)
54. The TY Corporation is an international carrier doing Other income:
business in the Philippines. Its taxable base for Rent income 1,000,000
income tax purposes is – Miscellaneous income 500,000
a. Gross Philippine Billings
b. Gross Philippine Billings minus deductible Operating Expenses 2,380,000
expenses
c. Regular rate of 30% of its net taxable income How much is the total income tax for the year?
d. Allocation of income from sources within and a. P80,000 c. P372,500
without the Philippines, as well as expenses. b. P292,500 d. P0
55. In order for an international carrier to qualify for 61. Which of the following shall pay a tax of ten percent
exemption on the basis of reciprocity, what type of (10%) of their taxable income?
tax shall be exempted as well by the its home I - Regional or area headquarters
country? II - Regional operating headquarters
a. Income tax a. Both I and II
b. Business Tax b. Neither I nor II
c. Transfer tax c. I only
d. Any of the choices d. II only

62. 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?

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 a. Subject to 30% final withholding tax a. P90,000 c. P117,000
b. Subject to 12% creditable withholding VAT b. P166,000 d. P375,000
c. Subject to 15% branch profit remittances tax
d. Exempt from branch profit remittances tax 68. Based on the preceding number, how much was the
income tax expense?
63. Which of the following corporations shall pay a tax a. P84,375 c. P117,000
equal to thirty percent (30%) of the gross income b. P388,000 d. P394,000
received during each taxable year from all sources
within the Philippines? 69. Assuming further that the Corp. opted to claim as part
a. Domestic corporation of allowable deduction the income tax paid abroad,
b. Resident foreign corporation how much was the income tax payable?
c. Nonresident foreign corporation a. P84,375 c. P117,000
d. None of the choices b. P166,000 d. P375,000

64. Teri Yaki Corp., a Japanese Corp. having no business 70. How much was the income tax payable if the
in the Philippines, is engage in ship building. It leases Corporation is a resident foreign (ignore sale of vacant
some of its newly constructed ships to Super Fairy lot)?
Inc., a Philippine Carrier. What income tax rate will a. P90,000 c. P117,000
apply to the rental payments to the lessor? b. P166,000 d. P375,000
a. 30% Basic Income Tax
b. 25% Final Withholding Tax 71. Based on the preceding number, how much was the
c. 7.5% Final Withholding Tax total income tax on all income?
d. 4.5% Final Withholding Tax a. P132,000 c. P90,000
b. P522,000 d. P505,000
65. Rentals, charters and other fees derived by a non-
resident lessor of aircraft, machineries and other 72. Assuming that the taxpayer is a nonresident foreign
equipment in the Philippines shall be subject to a tax and there is tax sparing, how much was the income
of: tax on all income (ignore sale of vacant lot)?
a. Twenty-five percent (25%) a. P337,500 c. P378,500
b. Seven and one-half percent (7 ½%) b. P352,500 d. P363,500
c. Four and one-half percent (4 ½%) of gross
rentals or fees 73. Based on the preceding number, but assuming there
d. Two and one-half percent (2 ½%) of gross was no tax sparing, how much was the total income
income tax on all income?
a. P337,500 c. P378,500
66. A cinematographic film owner, lessor or distributor b. P352,500 d. P363,500
shall pay a tax, based on its gross income from all
sources within the Philippines, of: 74. The following data were taken from the financial
a. Twenty-five percent (25%) statements of RLS Corporation, a domestic
b. Seven and one-half percent (7 ½%) corporation, for 2017:
c. Four and one-half percent (4 ½%) of gross
rentals or fees Philippines Japan
d. Two and one-half percent (2 ½%) of gross Gross sales P950,000 P2,000,000
income Sales returns 25,000
Cost of goods sold 425,000 300,000
Next seven (7) questions are based on the following: Interest income from
Global Corporation, a corporation engaged in business trade receivables 10,000 50,000
worldwide, is in its 3 rd year of operation. The following data Interest income from
were disclosed: bank deposits 20,000
Dividend income from
Gross Income, Philippines P 1,000,000 domestic corporation 15,000
Expenses, Philippines 700,000 Royalty income 20,000
Gross Income, Abroad 500,000 Operating expenses 250,000 300,000
Expenses, Abroad 350,000 Income from deposit
Interest on peso bank 50,000 substitutes 35,000 100,000
deposit
Interest from foreign 80,000 Its income tax payable is:
currency bank deposit a. P640,000 c. P680,000
Royalties from books 75,000 b. P600,000 d. P543,000
Dividend income from 100,000
another Domestic Corp. 75. Its final tax on passive income is:
Income Tax Paid Abroad 60,000 a. P15,000 c. P4,000
b. P8,000 d. P11,000
Additional Information:
a) The Corporation sold its invested stocks in a domestic 76. Based on the above problem, its total income tax on all
corporation directly to the buyer for P240,000. The income if it is a resident foreign corporation:
cost of such shares is P80,000. a. P60,200 c. P41,000
b) It sold a vacant lot, booked as investment property b. P93,000 d. P28,000
held for capital appreciation, for P2,800,000. Fair
Market Value per Tax Declaration is P3,000,000 while 77. Using the same information above, except that the
zonal value is P3,300,000. The lot was acquired for entity is a regional operating headquarter of a multi-
P1,500,000. national company, how much is its total income tax on
all income?
67. How much was the income tax payable if the a. P60,200 c. P41,000
Corporation is domestic? b. P93,000 d. P28,000

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78. A corporation has the following data for 2018 :
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 60,000
Philippines
Rent Income, land in USA 250,000
Rent income, Building in the 100,000
Philippines

The Company also sold a land classified as capital

asset for P2,000,000. The cost of the land is
P1,000,000 while its Zonal Value is P3,000,000.

Its income tax on all income as a domestic

corporation is:
a. P578,000 c. P963,600
b. P821,500 d. P809,000

79. Based on the above problem, its income tax on all

income if it is a resident foreign corporation (ignore
sale of land):
a. P278,000 c. P663,600
b. P383,500 d. P509,000

80. And if it is a non-resident foreign corporation and there

is tax sparing, its income tax on all income is (ignore
sale of land):
a. P378,000 c. P663,600
b. P383,500 d. P509,000

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