Case Analysis-Income Taxation

August 3, 2020 Tempo Manufacturing Inc. received a Preliminary assessment for taxable year 2018 from
the Bureau of Internal Revenue. Details is as follows:

Income Tax

Net Income per Income tax return 0.00

Add: Undeclared sales (Annex A) 613,792
Disallowed expenses (Annex A) 3,800,562
Taxable Income per investigation 4,4145,354
Tax Due(30%) 1,324,306
Less: Payments 200,156
Deficiency Income tax 1,124,150
Add: Interest 185,901
Compromise Penalty 20,000
total 1,330,051

Per BIR: Taxpayer is asssessed of deficiency on income tax due to activities not specifically included in its PEZA Certificate
of Registration, Defieciency in income tax is assessed pursuant to Section 32A of the tax mde and the Implementing Rules
and Regulation of RA 7916 otherwise knows as "The Special Eamomic Zone Act of 1995 "

Expanded withholding Tax

Deficiency tax 112,209.11

Add: Interest 21,876.17
Compromise Penalty 1,000.00
TOTAL AMOUNT PAYABLE

The BIR has assessed the company 5% Expanded withholding tax on Rent

Annex A
Salaries and Wages 1,333,532.34
Representation Expense 76,038.02
Others — 235,423.00
Production Supplies 2,155,569.00

Total 3,800,562

FACTS;
1. Tempo Manufacturing Inc. is a PEZA Registered entity where PEZA has issued certificate of
Registration. PEZA finds Tempo Manufacturing Inc.’s activity as feasible in technical, financial
and marketing aspects and has given the right to operate.
2. The company is paying 5% Gross Profit Tax as PEZA-Registered entityhich is as follows:
Net Sales xxxx
 Less: cost of goods Sold xxxx
Gross Profit xxxx
Multiplied by 5%
Gross Income Tax
3. No schedule of undeclared sales was presented
4. Sales and salaries above constitute the employer’s share in SSS, Pagibig and Philihealth which is
properly supported by payments to SSS, Pagibig and Philhealth
5. Representation expense is the excess in the ½ percent as allowed for regular companies.
6. The BIR has not presented he schedule of “Others”
7. The company has a schedule of Production supplies and properly supported by Receipts issued
by their Vendors
8. Lessees in PEZA are not require to withhold 5% tax as lessors in PEZA are xempted from
withholding tax.

REQUIRED:
Prepare letter of protest on the assessment given by the BIR to Tempo Manufacturing Inc.

MATRIX:

1. Issues to be protested 40%

2. Identify the documents that will support above (item 1 if the matrix) 40%
3. Presentation of the letter 20%
Total 100%