DAY 2 (PM) Taxation Law Flashcards
- Bank A deposits money with Bank B which earns interest that is subjected to the 20% final withholding tax. At the same time, Bank A is subjected to the 5% gross receipts tax on its interest income on loan transactions to customers. Which statement below INCORRECTLY describes the transaction?
a) There is double taxation because two taxes – income tax and gross receipts tax are imposed on the interest incomes described above and double taxation is prohibited under the 1987 Constitution.
b) There is no double taxation because the first tax is income tax, while the second tax is business tax.
c) There is no double taxation because the income tax is on the interest income of Bank A on its deposits with Bank B (passive income), while the gross receipts tax is on the interest income received by Bank A from loans to its debtor-customers (active income).
d) Income tax on interest income of deposits of Bank A is a direct tax, while GRT on interest income on loan transaction is an indirect tax.
a) There is double taxation because two taxes – income tax and gross receipts tax are imposed on the interest incomes described above and double taxation is prohibited under the 1987 Constitution.
- Which of the following statement is NOT correct?
a) In case of doubt, statutes levying taxes are constructed strictly the government.
b) The construction of a statute made by his predecessors is not binding upon the successor, if thereafter he becomes satisfied that a different construction should be given.
c) The reversal of a ruling shall not generally be given retroactive application, if said reversal will be prejudicial to the taxpayer.
d) A memorandum circular promulgated by the CIR that imposes penalty for violations of certain rules need not be published in a newspaper of general circulation or official gazette because it has the force and effect of law.
d) A memorandum circular promulgated by the CIR that imposes penalty for violations of certain rules need not be published in a newspaper of general circulation or official gazette because it has the force and effect of law.
- Which statement below expresses the lifeblood theory?
a) The assessed taxes must be enforced by the government.
b) The underlying basis of taxation is government necessity, for without taxation, a government can neither exist nor endure.
c) Taxation is an arbitrary method of exaction by those who are in the seat of power.
d) The power of taxation is an inherent power of the sovereign to impose burdens upon subjects and objects within its jurisdiction for the purpose of raising revenues.
b) The underlying basis of taxation is government necessity, for without taxation, a government can neither exist nor endure.
- Which statement is WRONG?
a) The power of taxation may be exercised by the government, its political subdivisions, and public utilities.
b) Generally, there is no limit on the amount of tax that may be imposed.
c) The money contributed as tax becomes part of the public funds.
d) The power of tax is subject to certain constitutional limitations.
a) The power of taxation may be exercised by the government, its political subdivisions, and public utilities.
- The Philippines adopted the semi-global tax system, which means that:
a) all taxable incomes, regardless of the nature of income, are added together to arrive at gross income, and all allowable deductions are deducted from the gross income to arrive at the taxable income.
b) all incomes subject to final withholding taxes liable to income tax under the schedular tax system, while all ordinary income as well as income not subject to final withholding tax under the global tax system.
c) all taxable incomes are subject to final withholding taxes under the schedular tax system.
d) all taxable incomes from sources within and without the Philippines are liable to income tax.
b) all incomes subject to final withholding taxes liable to income tax under the schedular tax system, while all ordinary income as well as income not subject to final withholding tax under the global tax system.
- Income from the performance of services is treated as income from within the Philippines, if:
a) the payment of compensation for the service is made in the Philippines.
b) the contract calling for the performance of services is signed in the Philippines.
c) the service is actually performed in the Philippines.
d) the recipient of service income is a resident of the Philippines.
c) the service is actually performed in the Philippines.
- For income tax purposes, the source of the service income is important for the taxpayer, who is a:
a) Filipino citizen residing in Makati City.
b) non-resident Filipino citizen working residing in London, United Kingdom.
c) Japanese citizen who is married to a Filipino citizen and residing in their family home located Fort Bonifacio, Taguig City.
d) domestic corporation.
b) non-resident Filipino citizen working residing in London, United Kingdom.
- Interest income of a domestic commercial bank derived from a peso loan to a domestic corporation in 2010 is :
a) subject to the 30% income tax based on its net taxable income.
b) subject to the 20% final withholding tax.
c) subject to the 7.5% final withholding tax.
d) subject to 10% final withholding tax.
a) subject to the 30% income tax based on its net taxable income.
- A resident corporation is one that is:
a) organized under the laws of the Philippines that does business in another country.
b) organized under the laws of a foreign country that sets up a regional headquarter in the Philippines doing product promotion and information dissemination.
c) organized under the laws of the Philippines that engages business in a special economic zone.
d) organized under the laws of a foreign country that engages in business in Makati City, Philippines.
d) organized under the laws of a foreign country that engages in business in Makati City, Philippines.
- A dealer in securities sold unlisted shares of stocks of a domestic corporation in 2010 and derived a gain of P1 Million therefrom. The gain is:
a) taxable at 30% regular corporate income tax based on net taxable income.
b) taxable at 5%/10% capital gains tax based on net capital gain.
c) taxable at ½ of 1% stock transaction tax based on the gross selling price or fair market value, whichever is higher.
d) exempt from income.
a) taxable at 30% regular corporate income tax based on net taxable income.
- An individual, who is a real estate dealer, sold a residential lot in Quezon City at a gain of P100,000.00 (selling price of P900,000.00 and cost is P800,00.00). The sale is subject to income tax as follows:
a) 6% capital gains tax on the gain.
b) 6% capital gains tax on the gross selling price of fair market value, whichever is higher.
c) ordinary income tax at the graduated rates of 5% to 32% of net taxable income.
d) 30% income tax on net taxable income.
c) ordinary income tax at the graduated rates of 5% to 32% of net taxable income.
- During the audit conducted by the BIR official, it was found that the rental income claimed by the corporation was not subjected to expanded withholding tax. Accordingly, the claimed rental expense:
a) is deductible from the gross income of the corporation, despite non-withholding of income tax by the corporation.
b) is deductible from the gross income of the corporation, provided that the 5% expanded withholding tax is paid by the corporation during the audit.
c) is not deductible from gross income of the corporation due to non-withholding of tax.
d) is deductible, if it can be shown that the lessor has correctly reported the rental income in his tax return.
c) is not deductible from gross income of the corporation due to non-withholding of tax.
- A resident Filipino citizen (not a dealer in securities) sold shares of stocks of a domestic corporation that are listed and traded in the Philippine Stock Exchange.
a) The sale is exempt from income tax but subject to the ½ of 1% stock transaction tax.
b) The sale is subject to income tax computed at the graduated income tax rates of 5% to 32% on net taxable income.
c) The sale is subject to the stock transaction tax and income tax.
d) The sale is both exempt from the stock transaction tax and income tax.
a) The sale is exempt from income tax but subject to the ½ of 1% stock transaction tax.
- The appropriate method of accounting for a contractor on his long-term construction contract (i.e., it takes more than a year to finish) is the:
a) cash method.
b) accrual method.
c) installment sale method.
d) percentage of completion method.
d) percentage of completion method.
- A general professional partnership (GPP) is one:
a) that is registered as such with the Securities and Exchange Commission and the Bureau of Internal Revenue.
b) that is composed of individuals who exercise a common profession.
c) that exclusively derives income from the practice of the common profession.
d) that derives professional income and rental income from property owned by it.
c) that exclusively derives income from the practice of the common profession.
- The interest expense of a domestic corporation on a bank loan in connection with the purchase of a production equipment:
a) is not deductible from gross income of the borrower-corporation.
b) is deductible from the gross income of the borrower-corporation during the year or it may be capitalized as part of cost of the equipment.
c) is deductible only for a period of five years from date of purchase.
d) is deductible only if the taxpayer uses the cash method of accounting.
b) is deductible from the gross income of the borrower-corporation during the year or it may be capitalized as part of cost of the equipment.
- The “all events test” refers to:
a) a person who uses the cash method where all sales have been fully paid by the buyers thereof.
b) a person who uses the installment sales method, where the full amount of consideration is paid in full by the buyer thereof within the year of sale.
c) a person who uses the accrual method, whereby an expense is deductible for the taxable year in which all the events had occurred which determined the fact of the liability and the amount thereof could be determined with reasonable accuracy.
d) a person who uses the completed method, whereby the construction project has been completed during the year the contract was signed.
c) a person who uses the accrual method, whereby an expense is deductible for the taxable year in which all the events had occurred which determined the fact of the liability and the amount thereof could be determined with reasonable accuracy.
- All the items below are excluded from gross income, except:
a) gain from sale of long-term bonds, debentures and indebtedness.
b) value of property received by a person as donation or inheritance.
c) retirement benefits received from the GSIS, SSS, or accredited retirement plan.
d) separation pay received by a retiring employee under a voluntary retirement program of the corporate employer.
d) separation pay received by a retiring employee under a voluntary retirement program of the corporate employer.
- Which statement is correct? A non-stock, non-profit charitable association that sells its idle agricultural property is:
a) not required to file an income tax return nor pay income tax on the transaction to the BIR, provided the sales proceeds are invested in another real estate during the year.
b) required to pay the 6% capital gains tax on the gross selling price of fair market value, whichever is higher.
c) mandated to pay the 30% regular corporate income tax on the gain from sale.
d) required to withhold the applicable expanded withholding tax rate on the transaction and remit the same to the BIR.
b) required to pay the 6% capital gains tax on the gross selling price of fair market value, whichever is higher.
- ABS Corporation is a PEZA-registered export enterprise which manufactures cameras and sells all its finished products abroad. Which statement is NOT correct?
a) ABS Corporation is subject to the 5% final tax on gross income earned, in lieu of all national and local taxes.
b) ABS Corporation is exempt from the 30% corporate income tax on net income, provided it pays value added tax.
c) ABS Corporation is subject to the 30% corporate income tax on net income.
d) ABS Corporation is exempt from all national and local taxes, except real property tax.
a) ABS Corporation is subject to the 5% final tax on gross income earned, in lieu of all national and local taxes.
- In May 2010, Mr. And Mrs. Melencio Antonio donated a house and lot with a fair market value of P10 Million to their son, Roberto, who is to be married during the same year to Josefina Angeles. Which statement below is INCORRECT?
a) There are four (4) donations made – two (2) donations are made by Mr. Melencio Antonio to Roberto and Josefina, and two (2) donations are made by Mrs. Antonio.
b) The four (4) donations are made by the Spouses Antonio to members of the family, hence, subject to the graduated donor’s tax rates (2%-15%).
c) Two (2) donations are made by the spouses to members of the family, while two (2) other donations are made to strangers.
d) Two (2) donations made by the spouses to Roberto are entitled to deduction from the gross gift as donation proper nuptias.
d) Two (2) donations made by the spouses to Roberto are entitled to deduction from the gross gift as donation proper nuptias.
- While he was traveling with friends, Mr. Jose Francisco, resident Filipino citizen, died on January 20, 2011 in a California Hospital, USA, leaving personal and real properties with market values as follows: House and Lot in Quezon City – P10 Million; Cash in bank in California – US$10,000.00; Citibank in New York – US$5,000.00; Cash in BPI Makati – P4 Million; Car in Quezon City – P1 Million; Shares of stocks of Apple Corporation, US corporation listed in NY Stock Exchange – US$1 = Php50. His gross estate for the Philippine estate tax purposes shall be:
a) P13 Million.
b) P14 Million.
c) P15 Million.
d) P16 Million.
b) P14 Million.
- In 2006, Mr. Vicente Tagle, a retiree, bought 10,000 CDA shares that are unlisted in the local stock exchange for P10 per share. In 2010, the said shares had a book value per share of P60 per share. In view of a car accident in 2010, Mr. Vicente Tagle had to sell his CDA shares but he could sell the same only for P50 per share. The sale is subject to tax as follows:
a) 5%/10% capital gains tax on the capital gain from sale of P40 per share (P50 selling price less P10 cost).
b) 5%/10% capital gains tax on the capital gain of P50 per share, arrived at by deducting the cost (P10 per share) from the book value (P60 per share).
c) 5%/10% capital gains tax on the capital gain from sale of P40 per share (P50 selling price less P10 cost) plus donor’s tax on the excess of the fair market value of the shares over the consideration.
d) graduated income tax rates of 5% to 32% on the net taxable income from the sale of the shares.
c) 5%/10% capital gains tax on the capital gain from sale of P40 per share (P50 selling price less P10 cost) plus donor’s tax on the excess of the fair market value of the shares over the consideration.
- On January 10, 2011, Maria Reyes, single-mother, donated cash in the amount of P50,000.00 to her daughter Cristina, and on December 20, 2011, she donated another P50,000.00 to Cristina. Which statement is correct?
a) Maria Reyes is subject to donor’s tax in 2011 because gross gift is P100,000.00.
b) Maria Reyes is exempt from donor’s tax in 2011 because gross gift is P100,000.00.
c) Maria Reyes is exempt from donor’s tax in 2011 only to the extent of P50,000.00.
d) Maria Reyes is exempt from donor’s tax in 2011 because the donee is minor.
b) Maria Reyes is exempt from donor’s tax in 2011 because gross gift is P100,000.00.
- Jose Ramos, single, died of a heart attack on October 10, 2011, leaving a residential house and lot with a market value of P1.8 Million and cash of P100,000.00. Funeral expenses paid amounted to P250,000.00.
a) His estate will be exempt from estate tax because the net estate is zero.
b) His estate will be subject to estate tax because net estate is P1,650,000.00.
c) His estate will be subject to estate tax because net estate is P1,700,00.00.
d) His estate will be subject to estate tax because net estate is P800,000.00.
a) His estate will be exempt from estate tax because the net estate is zero.
- Sale of residential house and lot by an official of a domestic corporation to another official in the same corporation for a consideration of P2.5 Million in 2011 is:
a) exempt from VAT because the gross sales do not exceed P2.5 Million.
b) exempt from VAT because the property sold is a capital asset, regardless of the gross selling price.
c) exempt from VAT because the seller is not a person engaged in real estate business.
d) taxable at 12% VAT output tax on the gross selling price of P2.5 Million.
b) exempt from VAT because the property sold is a capital asset, regardless of the gross selling price.
- An importer of flowers from abroad in 2011:
a) is liable for VAT, if it registers as a VAT person.
b) is exempt from VAT, because the goods are treated as agricultural products.
c) is exempt from VAT, provided that his total importation of flowers does not exceed P1.5 Million.
d) is liable for VAT, despite the fact that it did not register as a VAT person and its total annual sales of flowers do not exceed P1.5 Million.
d) is liable for VAT, despite the fact that it did not register as a VAT person and its total annual sales of flowers do not exceed P1.5 Million.
- A VAT-registered contractor performed services for his customer in 2010 and billed him P11.2 Million, broken down as follows: P10 Million – cost of services, plus P1.2 Million, 12% VAT. Of the contract price of P10 Million, only P8 Million plus VAT thereon was received from the customer in 2010, and the balance of P4 Million plus VAT was received by the contractor in 2011. How much is the taxable gross receipts of the contractor for 2010, for VAT purposes?
a) P10 Million, the total cost of services performed in 2010.
b) P8 Million, the amount received from the customer in 2010.
c) P8 Million plus VAT received from the customer in 2010.
d) P11.2 Million, the total cost of services performed plus 12% VAT.
b) P8 Million, the amount received from the customer in 2010.
- MBM Corporation is the owner-operator of movie houses in Cavite. During the year 2010, it received a total gross receipts of P20 Million from the operation of movies. It did not register as a VAT person. Which statement below is correct?
a) MBM Corporation is exempt from the 12% VAT, but liable for the 20% amusement tax on admissions under the Local Government Code.
b) MBM Corporation is both liable for the 12% VAT and 20% amusement tax on admissions.
c) MBM Corporation is both exempt from the 12% VAT and 20% amusement tax on admissions.
d) MBM Corporation is liable for the 12% VAT, but exempt from the 20% amusement tax on admissions.
a) MBM Corporation is exempt from the 12% VAT, but liable for the 20% amusement tax on admissions under the Local Government Code.
- A pawnshop shall now be treated, for business tax purposes:
a) as a lending investor liable to the 12% VAT on its gross receipts from interest income and from gross selling price from sale of unclaimed properties.
b) not as a lending investor, but liable to the 5% gross receipts tax imposed on a non-bank financial intermediary under Title VI (Other Percentage Taxes).
c) as exempt from 12% VAT and 5% gross receipts tax.
d) as liable to the 12% VAT and 5% gross receipts tax.
b) not as a lending investor, but liable to the 5% gross receipts tax imposed on a non-bank financial intermediary under Title VI (Other Percentage Taxes).
