[THEORIES MCQ] Taxation on Corporations Flashcards
In income taxation, corporation includes
a. general professional partnerships
b. cuentas en participacion
c. co-ownerships
d. joint venture formed for undertaking energy operations with the government
ANSWER: b. cuentas en participacion
Basis: In income taxation, the term “corporation” has a wider scope because its definition includes one-person corporations, partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participacion), associations, or insurance companies, but does not include general professional partnerships and joint ventures or consortiums formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal, and other energy operations pursuant to an operating or consortium agreement under a service contract with the government. (p. 306-307)
SOURCE: Book
For income tax purposes, the term “resident” means
a. An individual who is not a citizen of the Philippines but is permanently residing therein.
b. A corporation or other juridical person organized under the laws of the Philippines.
c. A branch, subsidiary, affiliate, extension office, or other unit of corporations or juridical persons organized under the laws of any foreign country operating in the Philippines.
d. All of the above.
ANS: d. All of the above.
Basis: A resident means an individual who is not a citizen of the Philippines but is permanently residing therein, a corporation or other juridical person organized under the laws of the Philippines, or a branch, subsidiary, affiliate, extension office, or other unit of corporations or juridical persons organized under the laws of any foreign country operating in the Philippines. (p. 308)
One of the following is taxed on gross income
a. Domestic corporation
b. Resident foreign corporation
c. Non-profit cemetery
d. Nonresident foreign corporation
ANS: d. Nonresident foreign corporation.
Basis: A nonresident foreign corporation is generally taxed at 25% of its gross income from sources within the Philippines. (p. 328)
The regular tax rate imposed on ordinary corporations is
a. 20%
b. 30%
c. 25%
d. 35%
ANS: c. 25%.
Basis: The regular corporate income tax (RCIT) rate is 25% effective July 1, 2020, for corporations with net taxable income exceeding P5 million and total assets exceeding P100 million, excluding land on which the business entity’s office, plant, and equipment are situated. (p. 309)
An intercorporate dividend which is not taxable is one which is received by a
a. Nonresident foreign corporation from a domestic corporation.
b. Domestic corporation from a resident foreign corporation.
c. Resident foreign corporation from another resident foreign corporation.
d. Domestic corporation from a nonresident foreign corporation.
ANS: None of the given options fully match the tax exemption rule, but the closest possible answer is a. Nonresident foreign corporation from a domestic corporation.
Basis: Dividends received by a domestic corporation from another domestic corporation are exempt from tax. However, nonresident foreign corporations receiving dividends from a domestic corporation are subject to a 25% final withholding tax, unless a tax treaty provides for a lower rate. (p. 330)
The following statements are true. Which is false?
a. Dividends received by residents or citizens from a domestic company are subject to final tax.
b. Intercorporate dividends between domestic corporations are exempt from tax.
c. Dividends received by non-resident foreign corporations from domestic corporations may be subject to a 15% final tax.
d. Tax sparing credit may be applied if the dividends are received by domestic corporations from nonresident foreign corporations.
ANS: d. Tax sparing credit may be applied if the dividends are received by domestic corporations from nonresident foreign corporations.
Basis: The tax sparing rule applies to dividends remitted by a domestic corporation to a nonresident foreign corporation, subject to a reduced 15% final withholding tax instead of the regular 25%, provided that the country of domicile of the foreign corporation allows a tax credit for taxes deemed paid in the Philippines. (p. 330)
Which of the following income is not subject to final withholding tax?
a. Cash dividends received by a domestic corporation from a domestic corporation.
b. Cash dividends received by a non-resident foreign corporation from a domestic corporation.
c. Royalty income received by a domestic corporation from a domestic corporation.
d. Royalty income received by a resident foreign corporation from a domestic corporation.
ANS: a. Cash dividends received by a domestic corporation from a domestic corporation.
Basis: Dividends received by a domestic corporation from another domestic corporation are exempt from tax. (p. 330)
A domestic corporation may employ, as basis for filing its annual corporate income tax return the
a. Calendar year only
b. Fiscal year only
c. Neither calendar nor fiscal year
d. Either calendar or fiscal year
ANS: d. Either calendar or fiscal year.
Basis: Domestic corporations may use either the calendar year or fiscal year as their taxable year for filing income tax returns. (p. 310)
Which is correct? The improperly accumulated earnings tax is
a. Applicable effective 2023.
b. Not applicable in 2020.
c. Not applicable effective 2021.
d. Suspended.
ANS: c. Not applicable effective 2021.
Basis: A tax equivalent to ten percent (10%) of the improperly accumulated taxable income shall be imposed for each taxable year to every corporation… This shall no longer be imposed effective taxable year 2021. (p. 330)
Which of the following is allowed to use OSD?
a. International carrier
b. Private Educational Institution
c. Real Estate Corporation
d. Social Security System
ANS: c. Real Estate Corporation.
Basis: In lieu of the itemized deductions that may be claimed by the corporation, a corporation (except non-resident foreign corporation) may elect a standard deduction in an amount not exceeding forty percent (40%) of its gross income as defined in Sec. 32 of the National Internal Revenue Code. (p. 319)
From July 1, 2020 to June 30, 2023, the minimum corporate income tax (MCIT) is
a. 2% of gross income
b. 1% of gross income
c. 2% of taxable income
d. 20% of taxable income
ANS: b. 1% of gross income.
Basis: The tax rate to be imposed is one percent (1%) of gross income from July 1, 2020 to June 30, 2023. Effective July 1, 2023, the rate shall revert back to two percent (2%) of gross income. (p. 312)
This term includes substantial losses sustained due to fire, robbery, theft or embezzlement, or other economic reason
a. Substantial losses from a prolonged labor dispute
b. Force majeure
c. Legitimate business reverses
d. Onshore transaction
ANS: c. Legitimate business reverses.
Basis: Legitimate business reverses shall include substantial losses due to fire, robbery, theft, or embezzlement, or for other economic reason as determined by the Secretary of Finance. (p. 318)
A corporation organized in December 2019 and registered with the Bureau of Internal Revenue on March 2020 shall be subject to MCIT effective
a. January 1, 2020
b. January 1, 2021
c. January 1, 2019
d. January 1, 2024
ANS: d. January 1, 2024
Basis: The effectivity shall commence on the 4th taxable year immediately following the year in which such corporation commenced its business operation. (p. 312)
The domestic corporation above is exempt from the imposition of minimum corporate income tax if it is a:
a. Domestic corporation
b. Offshore banking units
c. Non-profit hospital
d. Regional operating headquarter
ANS: c. Non-profit hospital.
Basis: The minimum corporate income tax (MCIT) shall apply only to corporations subject to the normal corporate income tax. Accordingly, it shall not be imposed upon any of the following: a. Educational institutions which are subject to the preferential tax rate; b. Hospitals which are nonprofit. (p. 318)
Which of the following is not correct in the computation of the minimum corporate income tax?
a. Corporations subject to preferential tax rates are not subject to MCIT.
b. MCIT does not apply on the first three taxable years from registration with BIR.
c. Application of MCIT is suspended during the period of pandemic.
d. Generally, it is applicable on corporations that suffered losses during the taxable year.
ANS: c. Application of MCIT is suspended during the period of pandemic.
Basis: There is no provision in the document stating that MCIT was suspended during the pandemic. Instead, the rate was reduced to 1% from July 1, 2020 to June 30, 2023, after which it reverted to 2%. (p. 312)
A tax imposed upon gross income of any domestic or resident foreign corporation which has zero or negative taxable income beginning on the fourth (4th) taxable year immediately following the taxable year in which such corporation has commenced its business operations.
a. Minimum corporate income tax
b. Tax avoidance
c. Improperly accumulated earnings tax
d. Earnings tax on improperly accumulated
ANS: a. Minimum corporate income tax.
Basis: This tax shall be imposed whenever the corporation has zero or negative taxable income or whenever the MCIT is greater than the Normal Income Tax (NIT) due from such corporation. (p. 312)
The West Central School is subject to the normal corporate income tax rate if it is a:
a. Private but not non-profit educational institution
b. Non-profit private educational institution
c. Non-stock, non-profit educational institution
d. Government educational institution
ANS: a. Private but not non-profit educational institution.
Basis: If the proprietary educational institution is distributing dividends to shareholders (not non-profit), it shall be taxable at the regular corporate income tax rates of either twenty-five percent (25%) or twenty percent (20%). (p. 323)
If the gross income from an unrelated activity of West Central School exceeds 50% of its total gross income, the rate shall be 25% based on the entire taxable income. This principle is known as:
a. Constructive receipt
b. Tax benefit rule
c. End result doctrine
d. Predominance test
ANS: d. Predominance test.
Basis: If the gross income from an unrelated business or other activity exceeds fifty percent (50%) of the total gross income derived by such educational institutions and hospitals from all sources, the tax shall be based on the usual tax rates imposed on corporations (predominance test) (Sec. 27[B], id.). (p. 323)
Which of the following is exempt from tax? What kind of tax?
a. The importation of laboratory equipment – from customs duties.
b. The school building being rented by the school – from real property tax.
c. A portion of the school building being leased to a fast-food chain – from real property tax.
d. The income from operation – from income tax.
ANS: a. The importation of laboratory equipment – from customs duties.
*Basis: Non-stock, non-profit educational institutions are exempt from income taxes (Sec. 4[3], Art. XIV, Philippine Constitution). (p. 325)
Interest income from currency bank deposits and yield from deposit substitute instruments used actually, directly, and exclusively in pursuance of its purpose as a non-stock, non-profit educational institution are exempt from the 20% and 15% tax on interest income under the expanded foreign currency deposit system, subject to submission of pertinent documents. (p. 326)
Since importation of laboratory equipment is related to educational purposes, it is exempt from customs duties.*
Assuming that the school is a non-stock, non-profit educational institution. Which of the following is subject to tax? What kind of tax?
a. The school building owned by the school being used as a classroom – from real estate tax.
b. The school building being rented by the school – from real property tax.
c. A portion of the school building being leased to a fast-food chain – from real property tax.
d. The income from operation – from income tax.
ANS: c. A portion of the school building being leased to a fast-food chain – from real property tax.
*Basis: Non-stock, non-profit educational institutions are exempt from income taxes (Sec. 4[3], Art. XIV, Philippine Constitution). (p. 325)
*The exemption extends to incidental income derived from canteen, bookstore, and dormitory facilities which are owned and operated by the school itself and are located inside the school campus (DECS Order No. 137-87). Thus, canteens operated by mere concessionaires are taxable (id.). (p. 326)
Since a fast-food chain is a concessionaire and not owned by the school, the rental income is subject to real property tax.
“Taxable net income received during each year from all sources” is the tax base for income tax purposes of this class of taxpayers:
a. Domestic corporation
b. Resident corporations
c. Resident foreign corporations engaged in trade or business in the Philippines
d. Resident foreign corporations not engaged in trade or business in the Philippines
ANS: a. Domestic corporation.
Basis: Domestic corporations are taxable on income derived from sources within and without the Philippines, while foreign corporations are taxable on income derived from sources within the Philippines only. (p. 309)
Saudia Air Corporation is an international air 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. None, because it is exempt from income tax
D. Allocation of income from sources within and without the Philippines
ANS: A. Gross Philippine billings.
Basis: An international carrier doing business in the Philippines shall pay a tax of two and a half percent (2.5%) on its Gross Philippine Billings (Sec. 28[A][3]). Gross Philippine Billings refer to the amount of gross revenue derived from carriage of persons, excess baggage, cargo, and mail originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the ticket or passage document. (p. 326)
Which of the following taxpayers is subject to a tax rate of 25% of its gross income from sources within the Philippines?
A. Nonresident owner or lessor of aircraft, machineries, and other equipment
B. Nonresident owner or lessor of vessels chartered by Philippine nationals
C. Nonresident cinematographic film owner, lessor, or distributor
D. Regional operating headquarters of multinational companies
ANS: C. Nonresident cinematographic film owner, lessor, or distributor.
Basis: A cinematographic film owner, lessor, or distributor shall pay a tax of 25% of its gross income from all sources within the Philippines (Sec. 28[B], id.). (p. 328)
Refers to the conduct of banking transactions whereby any person, whether natural or juridical, may deposit foreign currencies forming part of the Philippines’ international reserves in accordance with the provisions of RA 6426.
A. Foreign loans
B. Onshore transaction
C. Foreign currency deposit system
D. Offshore banking system
ANS: C. Foreign currency deposit system.
Basis: The interest income derived by a domestic corporation and resident foreign corporation from a depository bank under the expanded foreign currency deposit system shall be subject to a final withholding tax at the rate of fifteen percent (15%) of such interest income. (p. 309)
Which of the following is subject to tax?
A. Government Service Insurance System
B. One-Person Corporation (OPC)
C. Philippine Health Insurance Corporation
D. Home Development Mutual Fund
ANS: B. One-Person Corporation (OPC).
Basis: A one-person corporation is a corporation with a single stockholder. Only a natural person, trust, or an estate may form a one-person corporation. A business partnership is taxable as a corporation, while a general professional partnership is exempt from income tax. (p. 306)
One of the following is exempt from income tax:
A. Ace Computer College, a private educational institution
B. Humiga Ka Na Memorial Garden, a proprietary cemetery
C. University of the Philippines, a state-owned university
D. Banco de Oro
ANS: C. University of the Philippines, a state-owned university.
Basis: Government educational institutions are exempt from income tax (Sec. 30[I], NIRC). (p. 326)
Which of the following is exempt from income tax?
A. Privately owned cemetery
B. Interest income on bank deposits earned by religious corporations
C. Importation of books and teaching materials by non-stock, nonprofit educational institutions
D. Rural banks
ANS: C. Importation of books and teaching materials by non-stock, nonprofit educational institutions.
Basis: Non-stock, non-profit educational institutions are exempt from income taxes (Sec. 4[3], Art. XIV, Philippine Constitution). Interest income from currency bank deposits and yield from deposit substitute instruments used actually, directly, and exclusively in pursuance of its purpose as a non-stock, non-profit educational institution are exempt from the 20% and 15% tax on interest income under the expanded foreign currency deposit system, subject to submission of pertinent documents. (p. 325-326)
Which of the following special corporations is subject to preferential corporate income tax?
A. Social Security System
B. Home Development Mutual Fund
C. Non-profit hospitals
D. Government Service Insurance System
ANS: C. Non-profit hospitals.
Basis: Proprietary educational institutions and hospitals shall pay a tax of 1% from July 1, 2020 to June 30, 2023, and 10% effective July 1, 2023, based on taxable income. (p. 323)
