NEW ERA UNIVERSITY COLLEGE OF LAW

FIRST SEMESTER, AY 2021-2022 October 24, 2021, 3-5 p.m.

TAX LAW REVIEW Midterm Examination

1.
ABC is not correct. It is still taxable.
A domestic corporation like the ABC is liable for its income derived from
sources within and outside the Philippines.

2.
Justin is not correct.
The amount of compensation that Justin received from Gia is considered
as an income for purposes of taxation. Even though Justin is indebted on Gia,
the amout paid is still a compensation since it is paid due to the services he
rendered, hence, subjecting it to income taxation.

3.
No. BIR is incorrect.
The law provides that minimum wage earners in the private sector are
exempted from income tax. Such exemption includes overtime pay, hazard pay,
overtime pay, nightshift differential, holiday pay earned by the minimum wage
worker. In this case, Dan is a minimum age worker, the fact that his total
income exceeds Php250,000.00 is immaterial to subject him from income tax.

4.
Ben may pay his tax due by installment.
The law provides that, a taxpayer may choose to pay their taxes due by
installment basis. Provided that the first installment shall be made upon filing of
the return and the second installment paid within the taxable year. In this case,
Ben may pay by installment provided that he shall abide by the said conditions.

5. Arturo is a partner in ABC & Co., a duly registered accounting and

auditing firm in Makati City. For the taxable year 2020, ABC and Co. earned
a netincome of P5 Million, net of the 40% Optional Standard Deduction.
Arturo’s share in the partnership income is 20%.
(a) Explain the income tax liabilities of Arturo and ABC & Co. (5%)
(b) Is Arturo entitled to claim for the 40% Optional Standard Deduction or
8% income tax rate option? Explain. (5%)

6.
No. Especially when it is already settled that the tax law enacted is proper
and for public use. The court cannot question the wisdom of such selection. Into
the object and subject of taxation. However, the exception lies when there is an
allegation of a violation of constitutioal limitations.

7.
The taxability of a proprietary educational institutions is a tax rate of
10% on their taxable income. Also, if the gross income coming from unrelated
business and other activity exceeds 50% of its total gross income, its total
taxable income shall be subject to a 30% tax rate (regular corporation tax). On
the other hand, a non-stock non-profit educational institution is exempted
from tax on its revenues and assets which are exclusively used for educational
purposes.

8.
No there was no violation. The consolidation and concurrence of the two houses
validated the enactment of said tax law.

9.
a) Yes. B can choose to be taxed at 8%.
The law provides that, a self employed individual whose gross receipts for
the year does not exceed Php3,000,000.00 can avail of the 8% Income Tax Rate
on gross receipts. In this case, B is a practicing lawyer with no other source of
income and his gross receipts did not exceed Php3,000,000.00.

b) Yes. B may still avail of the 8% Income Tax Rate. His gross receipts still
does not exceed Php3,000,000.00, because of his administrative and operating
expenses (subtracted from his gross receipt) of Php500,000.00 which is
necessary for the conduct of his business.

c) During the taxable year, B borrowed money from a lawyer friend amounting to
500,000.00 subject to the interest rate of 12% per annum. The loan is payable in
2 years. Can B claim the interest expense on the loan as a deductible item from
his gross receipts? Explain. (5%)

10.
J. Kimura is still subject to income taxation, as a resident alien, as they are
subject to Philippine income tax on their Philippines-sourced income only, such
as employment income and passive income.

11.
The Constitution provides for these exceptions, such as:
(1) Power to tax may be delegated to LGUs to create their own sources of
revenues, levy taxes, fees and charges. Included in this grant of legislative
power is the grant of local taxing power; and
(2) Power of the President to impose fix tariff rates, import and export quotas and
wharfage and tonnage dues and other duties on imports.

JULIAN, Diane Jesica B.