Tax Review Final Exams. Atty M. P_ Quibod Income Taxation, VAT & Remedies (NIRC) March 18, 2015 INSTRUCTIONS: ANSWER THE QUESTIONS ON YOUR NOTEBOOK. DO NOT WRITE ON THE QUESTION SHEET. 1. Kaoru Kamiya is a Filipina nurse. She worked at John Hopkins Hospital at Maryland, USA for 10 years. Because of her hard work, she was able to purchase an apartment which a portion of it she had rented out for a fee amounting to $2,500 per month. By the age of 45 years, she decided to fetire sometime on 1 August 2014 for which she received her relirement pay amounting to $100,000 plus a loyalty pay of $10,000. She retumed to the Philippines on 30 August 2014 for good and stayed with her sister. On 31 December 2014, she decided to sell the apartment to its occupant at a hefty amount to which all of the proceeds thereof were used to buy her expensive new residence in Robinsons Highlands. Determine the taxability of the income items received by Kaoru Kamiya for the year 2014. (12%) 2. St. James Medical Center, Inc. is a proprietary hospital. During the tax year. it made income from its hospital operations of P100 Million and another P90 Million from rental income from its commercial spaces. What is the tax consequence of the income earned by ‘St. James Medical Center? Explain. (3%) b. In the following tax year, St James Medical Center made hospital income of P100 Million and rental income of P150 Million. What is the tax consequence of the said income during this tax year? Explain. (3%) cc. Will you apply the minimum corporate income tax (MCIT) rule in the two (2) aforementioned tax years? Explain. (3%) 3. During the tax year, 3G Corp. was penalized by the BIR for violating Sec. 29 of the NIRG and was assessed payment of a sur tax of P10 Million, 3G then deciared dividends and distributed them to its stockholders. Xone of the stockholders received cash dividends of P100,000 less tax on the dividends in the net amount of P80,000. X demanded for the return of his P10,000 withheld dividends tax since the distribution is no longer taxable as the corporation was already penalized and paid the penalty tax. Decide and explain. (4%) 4, Coco B is a resident citizen and owns 5 outlets selling beauty products and during the tax year he made a sales of P75 Million with a cost of sales of P45 Million making an income of P30Million. a) If Coco B availed of using the optional standard deduction (OSD), what is his OSD? Explain. (3%) b) If the taxpayer were a corporation, what is its OSD? Explain. (3%) 5. During the tax year, LGBT Wellness Corp. paid the following interest payments: a) P360,000 interest paid in advance for one year in a loan secured on September 1 where the loan was used for working capital purposes; (3%) b) P25,000 interest paid for the late payment of the VAT liability of the business as the VAT payments were not allowed as deduction; (3%) ¢) Paid P450,000 interest on a loan of P10,000,000 to purchase gym and wellness equipment for the business (3%) What is the tax treatment of these interest expenses? Explain. 6. During the tax year, Trivia Techno, Inc, made the following expenses and deductions: ‘a) P5,500,000 to purchase a new vehicle for the new president of the corporation as the corporation had new majority stockholders; (4%) 'b) P7,000,000 estimated receivables which are found to be doubtful for collection and recovery; (3%) c) 600,000 remainder of the net operating loss which deduction will be claimed this year being the 3” year (3%) What is the tax treatment of these expenses or deductions? 7. During the tax year, Atty Darla $ had the following expenses: a) P600,000 annual rental payments where the ground floor and half of the second floor are used by him as his office, library and conference room and the other half of the second floor as his residence; (4%)b) P2,000,000 paid to purchase a new motor vehicle where 80% of the time is being used in his practice and 20% of the time is used to bring and fetch his children, who are staying with his wife, from school; (4%) ¢) P300,000 paid to his doctor for medical services brought about by an iliness he acquired due to the tremendous stress of the law practice which findings are supported by medical diagnosis. (2%) What is the tax treatment of these expenses? Explain 8. During the tax year, AX Corp. had an excess income tax credits of 600,000. a) What options are given to the taxpayer of the excess income tax credits? Explain. (3%) b) What is the consequence or effect in the event an option is exercised by the taxpayer? Explain. (3%) 9. Candyland is an importer of candies from abroad. It is not VAT registered and its annual sales do not exceed P1.5 Million. What is the tax consequence of the importation under the VAT system? Explain, (3%) 10. Sureseat is the owner-operator of movie houses. During the year, it received a total gross receipts of P20 Million from the operation of its movie houses. It did not register as a VAT person, What is the tax consequence of the business operation? Explain (3%) 11. _ How is the excess input VAT claimed or refunded by a VAT-registered person? Explain. (10%) 12. Kalibo Management and Services Corporation (KAMASERCO) is a Filipino corporation. It is an affiliate of Sunlife and is organized by the latter to perform collection, consultative, and other technical service function as intemal auditor of Sunlife and its other affiliates. The BIR assessed KAMASERCO for deficiency VAT amounting to P300,000.00 for the services it rendered for the year 2013. KAMASERCO protested and denied liability. According to KAMASERCO, it is not engaged in sale of services because it is not motivated by profit and it was operating only on reimbursement-of-cost basis, without any profit.” According ta KAMASERCO, profit motive is material in ascertaining who to tax for purposes of determining liability for VAT. According to BIR however, KAMASERCO is liable for VAT because VAT is a tax on the value added by the performance of service and it is immaterial whether profit is derived from rendering the service. Is KAMASERCO liable for VAT? (4 points) 13. X entered into an agreement with the BIR to extend the assessment for 6 months. They signed a waiver of the statute of limitations under the NIRC in connection with the tax assessment of 2010. The waiver provided that "the assessment is extended for six months from April 15, 2014." The BIR and X had copies of their signed waiver. On September 15, 2014 X received the Final ‘Assessment Notice finding a deficiency income tax with interest and. penalties of P8Million. Is the waiver valid? Explain. (4%) 14. On February 13, 2014 LJ Inc. received from the BIR a preliminary assessment notice covering its calendar tax year of 2010. LJ Inc. contested the assessment being erroneous and informed that on March 1, 2014 its new address will be at 2/F LJ Bldg., Jacinto St, Davao City. On March 5, 2014 BIR denied the protest and said reply was sent to its Jacinto St. address. On April 1, 2014 BIR send the final assessment notice finding a deficiency income tax of P10Million. The FAN was sent by the BIR at Atribida Towers, J. P. Rizal St., Davae City, LJ Inc.'s address in its 2010 annual income tax return. The building administrator of Atribida Towers received the letter on April 18, 2014 and forwarded it to LJ Inc. on May 5, 2014. Is the assessment valid? Explain. (4%) 15. For tax year 2009 the BIR sent Y an assessment notice dated April 18, 2013 which Y received ‘on April 25, 2013. Y protested that assessment has prescribed. BIR on November 2013 filed a criminal complaint against Y for violation of the NIRC on his 2009 tax return. Y in his counter- affidavit claimed the criminal action is a trump-up charge since the BIR could no longer assess due to prescription. He asked the DOJ to dismiss the criminal complaint. Is Y correct? Decide and Explain. (6%) END PLEASE RETURN THE QUESTION SHEETATENEO DE DAVAO UNIVERSITY COLLEGE OF LAW BOOKLET NO.: 4708 4 <= LAW SCHOOL ao Tox Rui) SUBJECT | __Deam Viowwatl P. 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