Quiz #1 (MIDTERM)

1. Under this system, the amount of income tax withheld by the withholding agent is
constituted as a full and final payment of the income tax due from the payee on the said
income.

a. Creditable withholding tax c. Global tax system

b. Final withholding tax d. Scheduler tax system

2. Final tax is generally withheld:

I - on passive income;
II – from Philippine sources

a. Both I and II are correct c. Only I is correct

b. Neither I nor II is correct d. Only II is correct

3. Interest, royalties, prices and other winnings derived from Philippine sources by
individuals except nonresident aliens not engaged in trade or business shall be subject
to a final tax of:

a. 10% c. 30%
b. 20% d. 32%

4. Which of the following shall not be subject to the 20% final tax?

a. Amount of interest from any currency bank deposit and yield or any other
monetary benefit from deposit substitutes and from trust funds and similar
arrangements
b. Royalties
c. Other winnings (except Philippine Charity Sweepstakes and Lotto winnings)
d. Prizes amounting to ten thousand pesos (P10,000) or less

5. The term shall mean an alternative form of obtaining funds from the public other than
deposits, through the issuance, endorsement, or acceptance of debt instruments for the
borrowers own account, for the purpose of relending or purchasing of receivables and
other obligations, or
financing their own needs or the needs of their agent or dealer.

a. Quasi-banking activities c. Banking activities

b. Deposit substitutes d. Mutual funding

6. The term ‘public’ means borrowing from how many individual or corporate lenders at
any one time?
a. Twenty-five (25) or more c. Twenty (20) or less
b. Twenty (20) or more d. Ten (10) or more

7. Which of the following statements is correct?

 a. Government Debt Instruments and Securities, including Bureau of Treasury
bonds (T-bonds) Treasure Bills (T-bills) and Treasury notes, shall be
considered as deposit substitutes irrespective of the number of lenders at
the time of origination if such debt instruments and securities are to be
traded or exchanged in the secondary market.
b. Interest income derived from the Government Debt Instruments and
Securities is subject to final withholding tax payable upon original issuance of
the deposit substitutes.
c. The mere issuance of government debt instruments and securities is deemed
falling within the coverage of “deposit substitutes” irrespective of the
number of lenders at the time of origination, and therefore interest income
derived there from shall be subject to the applicable final withholding tax on
deposit substitutes.
d. All of the choices

8. Interest income derived from any other debt instruments not within the coverage of
“deposit substitutes” and under Revenue Regulations No. 14-2012, unless otherwise
provided by law or other regulations shall be subject to:

a. Final withholding tax at the rate of 20%

b. Creditable withholding tax at the of 20%
c. Final withholding tax at the rate of 10%
d. Creditable withholding tax at the rate of 10%

9. Which of the following is not included in the term “deposit substitutes”?

a. Bankers’ acceptances
b. Promissory notes
c. Repurchase agreements, including reverse repurchase agreements entered
into by and between the Banko Sentral ng Pilipinas (BSP) and any authorized
agent bank, certificates of assignment or participation and similar
instruments with recourse
d. Debt instruments issued for interbank call loans with maturity for not more
than five (5) days to cover deficiency in reserves against deposit liabilities,
including those between or among banks and quasi-banks

10. Interest income received by an individual taxpayer (except a nonresident individual)

from a depository bank under the expanded foreign currency deposit system shall be
subject to a final income tax at the rate of:

a. Twenty percent (20%) of such interest income.

b. Fifteen percent (15%) of such interest income.
c. Seven and one-half percent (7 ½%) of such interest income.
d. Two and one-half percent (2 ½%) of such interest income.
11. Interest income from long-term deposit or investment in the form of savings, common
or individual trust funds, deposit substitutes, investment management accounts and
other investments evidenced by certificates in such form prescribed by the Banko
Sentral ng Pilipinas (BSP) shall be:

a. Exempt from tax. c. Subject to 15% final tax.

b. Subject to 20% final tax. d. Subject to Section 24 (A).

12. Should the holder of the certificate pre-terminate the deposit or investment before the
fifth (5th) year, a final tax shall be imposed on the entire income and shall be deducted
and withheld by the depository bank from the proceeds of the long-term deposit or
investment certificate. At what rate shall the final tax be if the remaining maturity is
four (4) years to less than five (5) years?
a. 5% c. 20%
b. 12% d. 25%

13. Interest income from long-term deposit or investment received by a non-resident alien
not engaged in trade or business in the Philippines shall be subject to Final Withholding
Tax at the rate of :
a. 30% c. 20%
b. 25% d. 7 ½ %

14. Interest income from long-term deposit or investment received by a non-resident

foreign corporation in the Philippines shall be subject to Final Withholding Tax at the
rate of :
a. 30% c. 20%
b. 25% d. 7 ½ %

15. Interest income from long-term deposit or investment received by a domestic

corporation and resident foreign corporation shall be:
a. Subject to final withholding tax.
b. Subject to regular income tax.
c. Exempt from income tax.
d. Subject to final withholding tax depending on the amount.

16. Who of the following shall be subject to 7 ½% tax on interest received from a depository
bank under the expanded foreign currency deposit system?
a. Nonresident alien engaged in trade or business in the Philippines
b. Nonresident alien not engaged in the trade or business in the Philippines
c. Nonresident citizen
d. Resident citizen

17. If an account in a depository bank under the foreign currency deposit system in jointly in
the name of a nonresident citizen such as an overseas contract worker, or a Filipino
seaman, and his spouse or dependent who is a resident of the Philippines, the interest
on such deposit shall be:
a. Exempted in its entirely.
 b. Subject to final withholding tax of 7 ½% in its entirely.
c. 50% exempt and 50% subject to final withholding tax of 7 ½%.
d. Subject to regular income tax rates for individuals.

18. First statement: The tax on interest income from foreign currency deposit shall be
imposed unless the depositor who is a nonresident citizen or nonresident alien can
present documentary evidence that he is not a resident of the Philippines.
Second statement: To be entitled to an exemption from the tax on interest income on
foreign currency deposit, the Foreign Currency Bank Account shall be in the name of the
nonresident individual or nonresident corporation.
a. Both statements are correct.
b. Both statements are incorrect.
c. Only the first statement is correct.
d. Only the second statement is correct.

19. Interest derived by a depository bank under the expanded foreign currency deposit
system from foreign currency transactions with non-residents, offshore banking units in
the Philippines, local commercial banks including branches of foreign banks that may be
authorized by the Banko Sentral ng Pilipinas (BSP) to transact business with foreign
currency deposit system units and other depository banks under the expanded foreign
currency deposit system shall be:
a. Subject to final withholding tax.
b. Subject to regular income tax.
c. Exempt from income tax.
d. Either subject to regular tax or exempt from tax.

20. Interest income from foreign currency loans granted by depository banks under the
expanded foreign currency deposit system other that offshore banking units in the
Philippine or other depository banks under the expanded system shall be:
a. Subject to final withholding tax at the rate of 10%.
b. Subject to regular income tax.
c. Exempt from income tax.
d. Subject to final withholding tax at the rate of 20%.

21. Which of the following statements is incorrect?

a. Income derived by offshore banking units authorized by the Banko Sentral ng
Pilipinas (BSP), from foreign currency transactions with nonresidents, other offshore
banking units, local commercial banks, including branches of foreign banks that may
be authorized by BSP to transact business with offshore banking units shall be
subject to the regular income tax payable by banks.
b. Interest income derived from foreign currency loans granted to residents other than
offshore banking units or local commercial banks, including local branches of foreign
banks that may be authorized by the BSP to transact business with offshore banking
units, shall be subject to a Final Withholding Tax (FWT) at the rate of ten percent
(10%).
c. Any income of nonresidents, whether individuals or corporations, from transactions
with offshore banking units shall be exempt from income tax.
 d. None of the choices.

22. Which of the following share in the net income received by an individual shall not be
subject to final tax but to regular tax for individuals?

a. Share of an individual in the distributable net income after tax of a business

partnership of which he is a partner.
b. Share of an individual in the distributable net income of a general professional
partnership of which he is a partner.
c. Share of an individual of an individual in the distributable net income after tax of an
association, a joint venture or taxable consortium taxable as a corporation of which
he is a member or co-venture.
d. None of the choices.

23. Which of the following cash and/ or property dividends actually or constructively
received by an individual shall not be subject to final tax but to regular income tax for
individuals?

a. Cash and / or property dividends from the domestic corporation or from a joint
stock company.
b. Cash and/ or property dividends from insurance or mutual fund company.
c. Cash and/ or property dividends from regional operating headquarters or
multinational companies.
d. Cash and/ or property dividends from a nonresident foreign corporation.

24. For income tax purposes, every dividend declared by a corporation is presumed to
come from the most recently accumulated profits. In ascertaining the source of a
distribution, consideration shall be given to the following except.
a. The earnings or profits of the taxable year
b. The earning or profits accumulated up to the prior year to the year prior to the
current taxable year.
c. Source other than earnings or profits only after the earnings or profits have been
distributed.
d. None of the choices.

25. The LAB Corporation, which was incorporated in 1996, has the following Stockholder’s
Equity Section as of December 31, 2008:

Capital stock authorized, issued and outstanding P 50,000,000

Accumulated profits and losses (retained earnings) P 30, 000,000

An analysis of the retained earnings account shows that the credit to this account came
from income of the following years:

Taxable income from 2008 P 3,000,000

Taxable income from 1998 to 2007 22,000,000

 Taxable income from 1996 to 1997 5,000,000

Total P 30,000,000

The Corporation declared cash dividends of 55% to stock holder of record as of March
15, 2009 payable on March 31, 2010. The total amount of cash dividend is P27, 000,000
(55% x P50,000,000).

How much of the dividend shall be subject to 10% Final Tax?

a. P30,000,000
b. P27,500,000
c. P27,000,000
d. P25,000,000

26.There shall be levied collected and paid for each taxable year upon the entire income
received from all sources within the Philippines by every nonresident lien individual not
engaged in trade or business within the Philippines as interest cash and/ or property
dividends, a tax equal to

a. 25% of such income

b. 20% of such income
c. 15% of such income
d. 10% of such income

27. Which of the following passive income is not subject to 20% final withholding tax?

a. Interest form any peso bank deposit.

b. Yield or any other monetary benefit from deposit substitutes and from trust funds
and similar arrangements.
c. Prizes (except prizes amounting to P10,000 or less)
d. Royalties on books and as well as other literary works and musical compositions.

28. A cinematographic film owner, lessor or distributor who is a nonresident alien engaged
in trade or business shall pay tax of:

a. 25% of gross income from all sources within the Philippines.

b. 20% of gross income from all sources within the Philippines.
c. 15% of gross income from all sources within the Philippines.
d. 10% of gross income from all sources within the Philippines.

29. Which of the following shall be exempt form income tax?

i. Philippine Charity Sweepstakes winnings and lotto winnings.

ii. Interest income from long-term deposit or investment trust funds,
deposit substitutes, investment management accounts and other
investments evidenced by certificates in such form prescribed by BSP.
a. Both I and II
b. Neither I nor II
c. I only
d. II only
30. Which of the following passive income from Philippine sources is exempt from
Philippine income tax when received by nonresident aliens and non-resident citizens?

a. Royalties in general
b. Yield or other monetary benefit from deposit substitute
c. Interest income from a depository bank under expanded foreign currency deposit
system.
d. Other winnings.

31. Cash and/ or property dividend shall be subject to 10% final tax if actually or
constructively received from any of the following:

a. Domestic corporation or from joint stock corporation

b. Insurance or mutual fund companies
c. Regional operating headquarters of multinationals
d. A nonresident foreign corporation.

32. Share of an individual in the distributable net income after tax shall be subject to 10%
final tax if received from any of the following except:

a. Business Partnership
b. General Professional Partnership
c. Association
d. Joint account, joint venture or consortium

33. Which of the following passive income is exempt from tax when received by resident or
citizen and nonresident aliens engaged in trade or business in the Philippines but subject to
25% final tax when received by nonresident aliens not engaged in trade or business?

a. Prizes of more than P10,000

b. Interest income from long-term deposit or instrument evidenced by certificates
prescribed by BSP
c. Yield or any other monetary benefit from trust fund and similar arrangements
d. Other winnings

34. A resident citizen received a prize of P40, 000. Which of the following statements is
correct in connection with the imposition of final tax on the prize?

a. The first prize of P10,000 is subject to Section 24(A), the remaining P30,000 is
subject to 20% final tax.
b. The whole P40,000 is shall be subject to 20% final tax.
c. The first prize of P10,000 is exempt, the remaining P30,000 is subject to 20% final
tax.
d. The whole amount is subject to 25% final tax.

35. Passive income received by domestic corporations and resident foreign corporations
derived from sources within the Philippines shall be subject to final tax of:

a. 25%
b. 20%
c. 15%
 d. 10%

36. Which of the following passive income is not subject to final tax when received by
corporations?

a. Prizes and Winnings

b. Interest on Philippine currency bank deposit
c. Royalties
d. Yield or monetary benefit from deposit substitute

37. Interest income derived by a domestic corporations and a resident foreign corporation
from a depository bank under the expanded foreign currency deposit system shall be
subject at the rate of:

a. 15% of such interest income

b. 7.5% of such interest income
c. 4.5% of such interest income
d. 2.5% of such interest income

38. Which of the following derived by domestic or resident foreign depository bank under
the expanded foreign currency deposit system is subject to 10% FINAL TAX.

a. Income from foreign currency transactions with nonresidents

b. Income from foreign currency transactions with offshore banking units in the
Philippines
c. Income from foreign currency transactions with local banks that may be authorized
by the BSP to transact business with foreign currency deposit system units
d. Interest income from foreign currency loans granted to residents.

39. Any income from of nonresidents, whether individuals or corporations from transactions
with depository banks under the expanded system shall be:

a. Exempt from income tax

b. Subject to 15% final tax
c. Subject to 10% final tax
d. Subject to 7.5% final tax

40. Dividends received by Domestic Corporation or by a resident foreign corporation from a

domestic corporation shall:

a. Not be subject to tax

b. Be subject to 15% final tax
c. Be subject to 10% final tax
d. None of the choices