Acttax3 Ps

DE LA SALLE UNIVERSITY
RAMON V DEL ROSARIO COLLEGE OF BUSINESS

DEPARTMENT OF ACCOUNTANCY
TAXATION – PART 3 (ACTTAX3)
TERM 1, ACADEMIC YEAR 2023-2024
TAX PROBLEMS SET
GENERAL INSTRUCTIONS –
1. Read the problems carefully. Read the problem in its entirety. Answer the requirements stated by
showing all necessary computations in good accounting format. Parenthetical notations showing the
supporting computations are not allowed. Round-off the figures to the nearest peso and the
percentages to the nearest two decimal places.
2. Place your answers in a columnar notebook. Make sure that you have your assignments with you
before coming to class.
I. TAX REMEDIES –
Problem 1 – Late filing of tax returns and late payment of tax liabilities, tax assessments
The following are independent situations regarding the tax liabilities of Piko Corporation:
a. Piko Corporation, a company engaged in sale of goods, filed its VAT return for the quarter ended
December 31, 20A1 and declared gross receipts of P27,000,000 on January 25, 20A2. The related VAT
payable was also paid on said date. Its accountant believes that its output tax will be calculated based
on collections. However, upon consultation with its tax consultant, it was advised that its output tax
should be calculated based on gross sales/selling price. It had gross sales of P35,000,000 for the quarter
ended December 31, 20A1. As such, it filed an amended VAT return and paid the additional tax and
penalties on October 15, 20A2.
b. Piko Corporation, a company engaged in sale of goods, filed its VAT return for the quarter ended
December 31, 20A1 and declared gross receipts of P27,000,000 on January 30, 20A2. The related
VAT payable and penalties, if any, were also paid on said date. Its accountant believes that its output
tax will be calculated based on collections. However, upon consultation with its tax consultant, it was
advised that its output tax should be calculated based on gross sales/selling price. It had gross sales of
P35,000,000 for the quarter ended December 31, 20A1. As such, it filed an amended VAT return and
paid the additional tax and penalties on October 15, 20A2.
c. Piko Corporation, a company engaged is sale of goods, filed its VAT return for the quarter ended
December 31, 20A1 and declared gross receipts of P27,000,000 on January 25, 20A2. The related VAT
payable was also paid on said date. It intentionally used gross receipts although it knew that its output
tax should be calculated based on gross sales/selling price, since it has substantial gross sales/selling
price. It had gross sales of P35,000,000 for the quarter ended December 31, 20A1. On October 1,
20A2, Piko received a notice from the BIR to pay its additional VAT liability including penalties. The
assessed amount including penalties were paid on October 15, 20A2.
d. Piko Corporation, a company engaged in sale of goods filed its VAT return for the quarter ended
December 31, 20A1 and declared gross sales/selling price of P27,000,000 on January 25, 20A2. The
related VAT payable was also paid on said date. Piko received a Letter of Authority from the BIR on
January 1, 20A3 and it examined its books. The BIR assessed Piko additional VAT liability since it
was determined that its correct gross sales/selling price was P35,000,000. The BIR issued Preliminary
Assessment Notice (PAN) and Final Assessment Notice (FAN). Piko did not protest the assessment
since it believed that it was correct. The BIR required the payment of the tax and penalties on October
15, 20A3. Piko paid assessed amount including penalties on October 15, 20A3.
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e. Piko Corporation, a company engaged in sale of goods filed its VAT return for the quarter ended
December 31, 20A1 and declared gross sales/selling price of P27,000,000 on January 25, 20A2. The
related VAT payable was also paid on said date. Piko received a Letter of Authority from the BIR on
January 1, 20A3 and it examined its books. The BIR assessed Piko additional VAT liability since it
was determined that its correct gross sales/selling price was P35,000,000. The BIR issued Preliminary
Assessment Notice (PAN) and Final Assessment Notice (FAN). Piko did not protest the assessment
since it believed that it was correct. The BIR required the payment of the tax and penalties on October
15, 20A3. However, Piko paid the assessed amount including penalties on October 31, 20A3.
Required: Determine the deficiency VAT and penalties paid by Piko Corporation on the given dates in all
situations.
Problem 2 – Tax refunds
The following are independent situations regarding the tax liabilities of Bagani Corporation:
a. Bagani Corporation, a manufacturing company, filed its annual income return for the year ended
December 31, 20A1 and paid its related income tax liability of P10,000,000 on April 15, 20A2. It was
not able claim as income tax deduction, its write-off of worthless inventories amounting to P5,000,000.
These inventories were destroyed on November 5, 20A1 and the BIR issued a Certificate of
Destruction dated December 1, 20A1. In this case, it amended its annual income tax return on May 31,
20A2 to reflect the additional deduction.
b. Bagani Corporation, a manufacturing company, filed its annual income return for the year ended
December 31, 20A1 and paid its related income tax liability of P10,000,000 on April 15, 20A2. It was
discovered on May 10, 20A4 that it was not able claim as income tax deduction, its write-off of
worthless inventories amounting to P5,000,000. These inventories were destroyed on November 5,
20A1 and the BIR issued a Certificate of Destruction dated December 1, 20A1.
c. Bagani Corporation, a manufacturing company, filed its quarterly final withholding tax (FWT) return
for the quarter ended March 31, 20A1 and paid its related tax liability of P3,500,000 on April 30,
20A1. The said FWT pertains to 20% FWT on interest on foreign loans. It amended said FWT return
on May 25, 20A2 to reflect the additional FWT on dividend payments. Bagani paid dividends of
P15,000,000 to Hayahay Corporation, a resident of Australia, on March 31, 20A1. However, it used the
25% FWT. It paid the additional FWT and penalties when it amended its FWT return. On October 20,
20A2, its tax consultant advised that since the dividend income is exempt from income tax in Australia,
it can apply the rules on tax sparing under the Tax Code.
Required:
1. Determine the prescription date for filing the claim for tax refund, and the party which should file the
claim for refund.
2. Determine the amount of tax overpayment and amount of tax refund, if any.
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II. LOCAL BUSINESS TAX –
Problem 1 – Local transfer tax on real properties
Gunita Company, Inc., engaged in the manufacture of toys, had the following real properties as of January 1,
20A1 with their carrying amounts for financial reporting purposes:
Land A P30,000,000
Land B 32,000,000
Building A, net 28,000,000
Building B, net 5,000,000
These properties are located in cities. These were sold in 20A1. The following are the additional information:
• Land A was acquired in 20A0 when its fair market value was P32,500,000. It was not used until it was
sold for P35,000,000 on March 1, 20A1 when its fair market value was P33,500,000.
• Land B was acquired five years ago at fair market value. Building A was constructed on said land. As
of January 1, 20A1, Building A had remaining useful life of 14 years. Its carrying amount was net of
accumulated depreciation of P18,000,000 and impairment loss of P14,000,000 which was recognized
on December 31, 20A0. On July 1, 20A1, Land B was sold for P40,000,000 while Building A for
P30,000,000. These properties have fair market value of P38,000,000 and P32,000,000, respectively.
The building was used as production plant of the entity.
• Building B was constructed on a leased land for P60,000,000. It was initially used for three years and
subsequently became idle for five years and it was sold for P20,000,000 on October 1, 20A1 when its
fair market value was P23,000,000. Its carrying amount was net of accumulated depreciation of
P40,000,000 and impairment loss of P15,000,000 which was recognized on December 31, 20A0.
Building B had remaining useful life of 4 years.
The cities where these real properties are located impose the maximum local transfer tax (LTT) on the transfer
of real properties.
Required:
1. Determine the local transfer tax (LTT) on the transfer of the real properties.
2. Determine the deadline for the payment of LTT.
Problem 2 – Tax on business of printing and publication, franchise tax, professional tax and delivery trucks
Indak Corporation is engaged in the business of printing and/or publication of books, cards, posters, leaflets, and
other printed materials. It reported the following information for the periods ended September 30, 20A0 (three
months), December 31, 20A0 (six months) and December 31, 20A1:
September 30, 20A0 December 31, 20A0 December 31, 20A1

Revenues P160,000,000 P350,000,000 P480,000,000
Accounts receivables 50,000,000 65,000,000 100,000,000
Unearned revenues 10,000,000 15,000,000 280,000,000
Indak started its business on July 1, 20A0 with capital investment of P500,000,000. It initially employed 60
professionals on July 1, 20A0. It hired additional professionals during the same year. As of December 31, 20A0,
it had 180 professionals and 350 professionals as of December 31, 20A1.
Required:
1. Determine the local tax liabilities of Indak for the years 20A0 and 20A1.
2. Determine the deadline for payment of the tax liabilities for the years 20A0 and 20A1.
3. Assume that Indak is engaged in telecommunications business, determine its local tax liabilities for the
years 20A0 and 20A1.
4. Assume that Indak is engaged in the manufacturing business and it owns 200 delivery trucks in 20A0
and 280 trucks in 20A1, determine the local tax on delivery trucks for the years 20A0 and 20A1.
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5. Determine the professional tax liabilities of Indak for the years 20A0 and 20A1.
6. Determine the deadline for payment of the professional tax liabilities for the years 20A0 and 20A1.
Problem 3 – Tax on quarry resources
Kalinaw Company, Inc. is engaged in the quarry business. For the year ended December 31, 20A1, it had the
following information:
December 31, 20A1
Revenues P500,000,000
Accounts receivables 280,000,000
It had accounts receivables of P250,000,000 as of January 1, 20A1. In addition, it extracted 3,500,000 cubic
meters of sand for the year ended December 31, 20A1 with fair market value of P380 per cubic meter.
Required:
1. Determine the local tax on quarry resources for the year ended December 31, 20A1.
2. Determine the distribution of the local tax on quarry resources for the year ended December 31, 20A1
among the local tax authorities.
Problem 4 – Amusement tax
Maruho Company, Inc., a domestic corporation, is a sports promoter that owns a sports arena. It had the
following gate receipts for the year ended December 31, 20A1 from international competitions:
Table tennis P15,000,000

Professional basketball 25,000,000
Boxing (world light weight championship) with a Filipino contender conducted in April 70,000,000
Boxing (world bantam weight championship) without Filipino contender conducted in June 30,000,000
Volleyball 17,000,000
Tennis 12,000,000
Maruho also derived gross receipts of P60,000,000 in each event from satellite coverage, and P26,000,000 in
each event from advertising streamers.
Required:
1. Determine the amusement tax for the year ended of December 31, 20A2.
2. Determine the deadline for payment of the amusement tax for the year ended December 31, 20A2.
Problem 5 – Local business tax, retirement of business
Luneta Corporation, a company located in the Municipality of Cauayan in Negros Occidental, had the following
information for the year ended December 31, 20A1:
December 31, 20A1

Revenues P100,000,000
It had accounts receivables of P50,000,000 as of January 1, 20A1. The following are independent situations:
a. Luneta is engaged in the manufacture of computer products which are sold locally.
b. Luneta is engaged in the manufacturing and exportation of computer products.
c. Luneta is engaged in the wholesale of consumer products.
d. Luneta is engaged in the retail of consumer products.
e. Luneta is engaged in the wholesale of cooking oil.
f. Luneta is engaged in the construction business.
The Municipality of Cauayan imposes tax rates equivalent to the maximum rate under the LGC.
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Required:
1. Determine the local business tax (LBT) for the year ended December 31, 20A2.
2. Assuming that Luneta is located in Bacolod City, determine the local business tax (LBT) for the year
ended December 31, 20A2 assuming it imposes tax rates equivalent to the maximum rate under the
LGC.
3. Determine the deadline for payment of the local business tax (LBT).
4. Assume that Luneta is engaged in the manufacturing business. In addition to the above information, it
had revenues of P30,000,000 and P24,000,000 for the first and second quarters of 20A2, respectively
and it terminated its business on June 30, 20A2. Determine its local business tax liabilities for the year
20A2.
Problem 6 – Situs of taxation
The following are independent situations regarding Tanglaw Manufacturing Company, which is engaged in the
manufacture of consumer products:
a. Tanglaw manufactured its products in its two plants located in Caliraya (municipality) and Sta. Rosa
City, Laguna, and sold in its head office located in Makati City. For the year ended December 31,
20A1, it generated revenues of P120,000,000 where P70,000,000 pertains to goods manufactured in
Caliraya and P50,000,000 in Sta. Rosa.
b. Tanglaw manufactured its products in its two plants located in Caliraya (municipality) and Sta. Rosa
City, Laguna. For the year ended December 31, 20A1, it generated revenues of P120,000,000 where
65% pertains to goods manufactured in Caliraya and 35% in Sta. Rosa. Its head office is in Makati City
but 80% of its production were sold in its Pasig City branch and the remaining 20% were sold in
Bocaue, Bulacan branch.
c. Tanglaw manufactured its products in its two plants located in Caliraya and Sta. Rosa, Laguna. For the
year ended December 31, 20A1, it generated revenues of P120,000,000 where P75,000,000 pertains to
goods manufactured in Caliraya and P45,000,000 in Sta. Rosa. Its head office is in Pasig City with
branch in Bocaue, Bulacan. These were sold as follows:
Goods produced in Pasig City Bocaue City

Caliraya 65% 35%
Sta. Rosa 75% 25%
d. Tanglaw had banana plantation in Caliraya. The bananas are transported to its plant in Sta. Rosa,
Laguna for manufacturing banana products. These products were sold in its head office located in
Makati City. For the year ended December 31, 20A1, it generated revenues of P120,000,000.
e. Tanglaw had banana plantation in Caliraya. The bananas are transported to its plant in Sta. Rosa,
Laguna for manufacturing banana products where 80% were sold in its head office located in Makati
City while 20% were sold in its branch in Bocaue, Bulacan. For the year ended December 31, 20A1, it
generated revenues of P120,000,000.
The respective localities impose the maximum LBT rates as provided under the LGC.
Required:
1. Determine the local business tax (LBT) for the year ended December 31, 20A1.
2. Determine the deadline for payment of the local business tax (LBT).
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Problem 7 – Late payment of taxes, tax assessments
The following are independent situations regarding the liabilities of Santan Corporation located in Makati City:
a. Santan Corporation, a company engaged in the wholesale of goods paid its quarterly LBT in 20A1 on
time using the gross receipts for the taxable year 20A0 of P160,000,000. Its accountant believes that its
LBT will be calculated based on collections. However, upon consultation with its tax consultant, it was
advised that its LBT should be calculated based on gross sales. It had gross sales of P185,000,000 for
the year ended December 31, 20A0. As such, it paid the additional tax and penalties on October 20,
20A2.
b. Santan Corporation, a company engaged in the wholesale of goods paid its quarterly LBT in 20A1 on
time using the gross receipts for the taxable year 20A0 of P160,000,000. It intentionally used gross
receipts although it knew that its LBT should be calculated based on gross sales, since it has substantial
gross sales. It had gross sales of P185,000,000 for the year ended December 31, 20A0. On October 1,
20A2, Santan received a notice from the local government unit to pay its additional LBT liability
including penalties. The assessed amount including penalties were paid on October 20, 20A2.
c. Santan Corporation, a company engaged in the wholesale of goods paid its quarterly LBT in 20A1 on
time using the gross sales for the taxable year 20A0 of P160,000,000. Santan received a Notice of
Assessment on June 30, 20A5 where the local tax authority calculated the LBT based on the audited
gross sales of P185,000,000 for 20A0. Santan did not protest the assessment since it believed that it
was correct. Santan paid the deficiency tax and penalties on July 20, 20A5.
d. Santan Corporation, a company engaged in the wholesale of goods paid its quarterly LBT in 20A1 on
time using the gross sales for the taxable year 20A0 of P160,000,000. Santan received a Notice of
Assessment on June 30, 20A4 where the local tax authority calculated the LBT based on the audited
gross sales of P185,000,000 for 20A0. Santan did not protest the assessment since it believed that it
was correct. Santan paid the deficiency tax and penalties on July 20, 20A4.
Makati City imposes the maximum LBT rate under the LGC.
Required: Determine the deficiency LBT and penalties paid by Santan Corporation on the given dates in all
situations.
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III. REAL PROPERTY TAX –
Problem 1 – Properties subject to RPT: land, building, improvements and machinery
The following are independent situations relative to the properties of Lirio Corporation:
a. Lirio is a manufacturer. It owns the following properties:
• Land where is factory is located

• Building used for administration purposes and as factory
• Specialized movable machinery used in production
• Immovable machinery used in production
• Movable machinery used in production (common for various industries)
• Computers used in production and for administration purposes
• Specialized machinery used for pollution control
• Office equipment
• Office furniture and fixtures
• Building improvements (including partitions, doors, walls, etc.)
b. Lirio is engaged in the communication business (covering both broadcasting and telecommunication):
• Land where its building is located

• Building used for administration and production purposes
• Broadcasting equipment
• Various specialized telecommunication equipment
• Underground cables
• Poles and network cables
• Cellular sites
• Radio transmitter equipment
• Television transmitter equipment
• Antenna tower
• Office equipment
• Office furniture and fixtures
• Building improvements (including partitions, doors, walls, etc.)
Required: For each independent situation:

1. Determine the properties which are reportable for RPT purposes.
2. Determine the real properties which are subject to and exempt from RPT.
Problem 2 – RPT on land, building and improvement, idle land
Santan Electric Company has a franchise to provide electricity in Central Philippines. It has the following
properties which are located in various locations as of December 31, 20A0:
Location
Book value Fair market City Municipality
value
Land P150,000,000 P180,000,000 70% 30%
Buildings 120,000,000 140,000,000 60% 40%
Sub-transmission and distribution
equipment 200,000,000 210,000,000 30% 70%
Communication equipment 100,000,000 120,000,000 50% 50%
Office furniture and fixtures 50,000,000 60,000,000 60% 40%
Transportation equipment 90,000,000 100,000,000 30% 70%
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The following are the additional information:
• Land includes idle land with book value of P20,000,000 and fair market value of P30,000,000.
• Buildings are used both for administration and operations.
• Sub-transmission equipment includes substations (30% of total); underground and above ground cables
(20% of total); and transformers, wires, insulators and poles made of wood, concrete and steel (25% of
total). The remaining balance pertains to other specialized equipment. (Use the same percentages in the
table above with respect to the location of properties.)
• Communication equipment comprises of specialized equipment (65% of total) and ordinary equipment
(35% of total) used in its business. (Use the same percentages in the table above with respect to the
location of properties.)
• Office furniture and fixtures include fixtures that are permanently attached to the building with book
value of P28,000,000 and fair market value of P32,000,000. (Use the same percentages in the table
above with respect to the location of properties.)
The following are the assessment levels for commercial and industrial properties:
Land 50%
Buildings and other structures 60%
Machinery 80%
The various local government units where the properties are located grant 20% discount if the RPT is paid by
December 31, 20A0. However, 15% discount is granted if paid by January 31, 20A1. No discount is granted if
RPT is paid on or after February 1, 20A1.
Required:
1. Determine the RPT liability (including Special Education Fund) of Santan for 20A1. Disregard the
impact of depreciation allowance.
2. Determine the deadline for payment of the RPT liability for 20A1.
Problem 3 – RPT on machinery, acquisition, disposal, depreciation allowance
Sampaguita Paper Company, based in General Santos City, is engaged in the manufacture of goods. It started its
commercial operations on October 1, 20A0. It acquired the following specialized machines which were used in
the manufacture of its finished goods:
Date Acquisition cost

October 15, 20A0 P18,000,000
December 20, 20A0 12,000,000
March 1, 20A1 20,000,000
June 30, 20A1 25,000,000
November 15, 20A1 15,000,000
The acquisition costs reflect the fair market value of the machines. The machine which was acquired on June 30,
20A1 was sold for P20,000,000 on October 30, 20A2. The assessment level of the machinery classified as
industrial and commercial is 80%.
Required:
1. Determine the RPT liability (including Special Education Fund) of Sampaguita for the above machines
from 20A0 to 20A3. Assume that no discount is available for early payment of RPT.
2. Determine the deadline for payment of the RPT liability for 20A0 to 20A3.
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Problem 4 – RPT exemptions, PEZA, BOI-registered entities
The following are independent situations about Begonia which owns real properties and machines used in its
main activities:
a. Begonia University, a non-stock, non-profit educational institution.

b. Begonia Review Center, a profit-oriented entity conducting CPA review.
c. Begonia Hospital, a charitable institution engaged in hospital services.
d. Begonia Hospital, a profit-oriented entity engaged in hospital services.
e. Begonia Water Company, a private water utility company with franchise. In addition, it uses certain
real properties and machines owned by the government for its water business.
f. Begonia Electric Company, a government-owned and controlled corporation, engaged in the generation
and transmission of electricity.
g. Begonia Consumer Cooperative engaged in the procurement and distribution of commodities to
members and non-members.
h. Begonia Corporation, an export-oriented entity registered with PEZA under the PEZA Law enjoying
income tax holiday (ITH) incentive.
i. Begonia Corporation, an export-oriented entity registered with PEZA under the PEZA Law, paying the
5% gross income tax (GIT) before the CREATE Act.
j. Begonia Corporation, an export-oriented entity registered with PEZA under the CREATE Act enjoying
income tax holiday (ITH) incentive.
k. Begonia Corporation, an export-oriented entity registered with PEZA under the CREATE Act, paying
the 5% special corporate income tax (SCIT).
l. Begonia Corporation, an export manufacturing company registered with BOI under EO No. 226
enjoying income tax holiday (ITH) incentive.
m. Begonia Corporation, an export manufacturing company registered with BOI before the CREATE Act
paying the regular corporate income tax.
n. Begonia Corporation, an export manufacturing company registered with BOI under the CREATE Act
enjoying income tax holiday (ITH) incentive.
o. Begonia Corporation, an export manufacturing company registered with BOI under the CREATE Act
paying the 5% special corporate income tax (SCIT).
Required: For each independent situation, determine whether Begonia is liable to RPT and cite the legal basis.
Problem 5 – RPT assessment, declared and undeclared properties, back taxes
Aster Company, Inc. is a manufacturing company with the following properties for the year ended December
31, 20A0:
Book value Fair market value

Land P100,000,000 P120,000,000
Buildings 70,000,000 90,000,000
Specialized production equipment 80,000,000
Other production equipment 50,000,000
Office furniture and fixtures 30,000,000
Transportation equipment 20,000,000
It is located in Sta. Rosa City. It paid the correct RPT on January 31, 20A1 on land and buildings. However, it
did not pay RPT on other assets enumerated above. The following are the economic life and remaining
economic life as of December 31, 20A0 of the assets which were not declared for RPT purposes:
Economic life Remaining

economic life
Specialized production equipment 20 8
Other production equipment 8 5
Office furniture and fixtures 5 3
Transportation equipment 5 2
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The following are the assessment levels for commercial and industrial properties:
Land 50%
Buildings and other structures 60%
Machinery 80%
Required:
1. Determine the RPT that was actually paid on January 31, 20A1.
2. Determine the RPT exposure (including penalties, if any) as of December 31, 20A0.
3. Assume that the specialized equipment had book value of P2,000,000 with remaining economic life of 2
years and economic life of 20 years, determine the RPT exposure (including penalties, if any) as of
December 31, 20A0.
4. Assume that Aster paid the RPT on land and buildings on January 31, 20A1. However, it was
determined that the land and building had fair market of P150,000,000 and P100,000,000,
respectively. Determine the amount of deficiency RPT plus penalties if Aster paid said amount on
March 31, 20A2.
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IV. ENTITIES ENJOYING SPECIAL TAX INCENTIVES –
Problem 1 – BOI-registered entity; income tax holiday; commencement; before CREATE, CREATE
Laruan Manufacturing Company is engaged in the manufacture of toys for export. It was incorporated and
registered with the BIR in December 20A0. It registered with the Board of Investments (BOI) and enjoyed
income tax holiday (ITH) incentive. Its ITH incentive commenced on May 1, 20A1, which is the start of its
commercial operations.
The following information relates to its operations for the year ended December 31, 20A1:
January 1 to May 1 to
April 30 December 31
Sales P1,000,000 P90,000,000
Interest income 200,000 1,000,000
Scrap sales 3,600,000
Gain on sale of fixed assets 12,500,000
Foreign exchange gain 600,000 4,200,000
Cost of sales 250,000 32,000,000

Interest expense 4,000,000 6,000,000
Salaries and bonuses 3,000,000 25,000,000
Depreciation 4,500,000 16,000,000
Pension expense 3,500,000 6,500,000
Other business expenses 300,000 650,000
Foreign exchange loss 500,000 3,300,000

• Interest income pertains to interest subjected to 20% FWT. The amount recorded is gross of tax.
• Scrap sales pertain to gain on sale of scraps of P2,000,000 which have undergone production while the
balance pertains to scrap raw materials sold. These scraps were sold locally at 20% mark-up to various
scrap buyers not entitled to tax incentives.
• Gain on sale of fixed assets pertains to gain from sale of equipment to a local buyer. Proceeds
amounted to P15,000,000.
• Foreign exchange gain pertains to realized and unrealized gains. Out of the total amount, 30% of the
gain from May to December 31, 20A1 was not realized yet. The balance was already realized during
the year. These pertain to trade transactions.
• Interest expense pertains to interest on loans used in connection with Laruan’s trade or business.
• Pension expense pertains to accrual of pension obligation based on PAS 19.
• Foreign exchange loss pertains to realized and unrealized losses. Out of the total amount, 20% of the
loss from May to December 31, 20A1 was not realized yet. The balance was already realized during the
year. These pertain to trade transactions.
• Laruan has total assets of P120,000,000 (it does not own any land).
• The locality where Laruan is located imposes LBT at the rate of 75% of 1% on manufacturers.
Required:
1. Determine the following assuming Laruan is registered with the BOI prior to the effectivity of the
CREATE Act:
a. Taxable income subject to income tax for the year ended December 31, 20A1.
b. Taxable income covered by ITH for the year ended December 31, 20A1.
c. Income tax liability for the year ended December 31, 20A1.
d. Income tax savings related to its ITH for the year ended December 31, 20A1.
e. Value-added tax (VAT) liability or excess input tax credits for the year ended December 31, 20A1
(assume that input taxes arose from other business expenses and 60% of cost of sales).
f. Local business tax (LBT) liability and the year when this tax will be settled.
2. Determine the following assuming Laruan is registered with the BOI under the CREATE Act:
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e. Value-added tax (VAT) liability or excess input tax credits for the year ended December 31, 20A1
(assume that input taxes arose from other business expenses and 60% of cost of sales, if
applicable). Hint: Purchases of goods and services of export enterprises that are directly and
exclusively used in registered activities may qualify for VAT zero-rating.
f. Local business tax (LBT) liability and the year when this tax will be settled.
Problem 2 – Expiration of income tax holiday; before CREATE, CREATE
Kapistahan Company is engaged in the manufacture of electronic items for export. It registered with the BOI
and enjoyed income tax holiday (ITH) incentive for 6 years. Its ITH incentive expired on September 30, 20A1.
January 1 to October 1 to
September 30 December 31
Sales P120,000,000 P50,000,000
Interest income 100,000 70,000
Dividend income 1,000,000
Scrap sales 1,400,000 1,200,000
Gain on sale of fixed assets 1,350,000 1,250,000
Foreign exchange gain 450,000 320,000
Cost of sales 40,000,000 15,000,000

Interest expense 7,000,000 3,000,000
Salaries and bonuses 33,000,000 18,000,000
Depreciation 18,000,000 6,000,000
Impairment loss 10,000,000
Provision for doubtful accounts 8,000,000
Pension expense 7,500,000 2,500,000
Other business expenses 2,300,000 850,000

• Interest income pertains to interest subjected to 20% FWT. The amount recorded was net of tax.
• Scrap sales pertain to sale of scraps which have undergone production of P800,000 for those sold until
September 30 and P650,000 for those sold after said date. The balance pertains to scrap raw materials
sold.
• Gain on sale of fixed assets pertains to gain from sale of equipment.
• Foreign exchange gain pertains to realized and unrealized gains from trade transactions. Out of the total
amount, 35% of the gain from January to December 31, 20A1 was not realized yet.
• Interest expense pertains to interest on loans used for the acquisition of fixed assets used in
Kapistahan’s production.
• Pension expense pertains to accrual of pension obligation under the Philippine Financial Reporting
Standards (PFRS). Cost of sales also include pension accrual of P3,500,0000. Contributions during the
year pertaining to normal cost amounted to P12,000,000 where P2,800,000 pertains to production.
Proportionate amount of pension accruals and normal cost based on number of months pertain to ITH.
• Accounts written-off during the year amounted to P5,000,000. These pertain to receivables during ITH
period.
Required:
1. Determine the following assuming Kapistahan is registered with the BOI prior to the effectivity of the
CREATE Act:
12
2. Determine the following assuming Kapistahan is registered with the BOI under the CREATE Act and it
availed of the 5% special corporate income tax (SCIT) after the expiration of its ITH:
a. Taxable income/gross income subject to income tax for the year ended December 31, 20A1.
c. Income tax liability (BIR and LGU) for the year ended December 31, 20A1.
d. Income tax savings for the year ended December 31, 20A1.
Problem 3 – Multiple registrations; expansion; before CREATE, CREATE
Balsa Company, Inc., a manufacturer of motor vehicles for export, is an entity registered with the BOI. It had
two registered activities. One activity pertains to a new product line while the other activity pertains to
expansion of its old product line. These two activities enjoyed ITH for the year ended December 31, 20A1.
Balsa was registered with the BIR eight years ago.
The following information relates to these activities:
New product Old product

Sales P120,000,000 P200,000,000
Cost of sales 40,000,000 30,000,000
Deductions 20,000,000 16,000,000
Balsa produced 120,000 units of its new products and 200,000 units of old products. Its base figure for its
expansion project was 150,000 units with sales value of P140,000,000. The registered products were
homogeneous products.
Required:
1. Determine the following assuming Balsa is registered with the BOI prior to the effectivity of the
CREATE Act:
2. Determine the following assuming Balsa is registered with the BOI under the CREATE Act and it
availed of the 5% special corporate income tax (SCIT) after the expiration of its ITH:
a. Gross income subject to 5% SCIT for the year ended December 31, 20A1.
c. Income tax liability (BIR and LGU) for the year ended December 31, 20A1.
d. Income tax savings for the year ended December 31, 20A1.
Problem 4 – 5% gross income tax; 5% special corporate income tax
Kasibulan Company, Inc. is engaged in the manufacture of automotive wiring harness for export. It registered
with the Philippine Economic Zone Authority (PEZA) a few years ago and its ITH expired on September 30,
20A0. Hence, it was subject to 5% gross income tax (GIT) starting October 1, 20A0.
Sales P150,000,000
Interest income on loans 1,000,000
Interest income on bank deposit 500,000
Dividend income 2,500,000
Scrap sales 7,500,000
Gain on sale of fixed assets 10,000,000
Foreign exchange gain 6,000,000
13
Cost of sales
Raw materials 12,000,000
Indirect materials 5,000,000
Salaries and wages 15,000,000
Pension expense 3,500,000
Depreciation 10,000,000
Repairs and maintenance 3,000,000
Royalty fees 4,500,000
Subcontractor’s fees 8,000,000
Rentals 6,500,000
Training 2,250,000
Operating expenses
Supplies 3,000,000
Depreciation 3,750,000
Repairs and maintenance 1,250,000
Utilities 2,200,000
Rentals 1,800,000
Janitorial 1,600,000
Security 2,100,000
Interest 5,800,000
Doubtful accounts 3,000,000
Impairment loss 2,500,000

• Scrap sales pertain to 25% raw materials and 75% work-in-process.
• Dividend income pertains to dividend from a domestic corporation.
• Gain on sale of fixed assets pertain to obsolete equipment no longer used in production.
• Foreign exchange gain pertains to unrealized gains relating to loans (60%) and trade receivables (40%).
Kasibulan realized gains of P5,000,000 during the year where 65% pertains to loans and 35% pertains
to trade receivables.
• Cost of sales pertain to expenses incurred by Kasibulan’s production department.
• Pension expense recorded pertains to accruals under the Philippine Financial Reporting Standards
(PFRS). Contributions equivalent to normal cost amounted to P5,000,000 where 80% pertains to
production and 20% to administration.
• Interest expense pertains to interest on loans obtained to finance the construction of its factory.
Kasibulan claimed 50% of the training expenses as credit against its GIT liability.
Required:
1. Determine the following assuming Kasibulan is registered with PEZA prior to the effectivity of the
CREATE Act:
a. Gross income subject to 5% GIT for the year ended December 31, 20A1.
b. 5% GIT for the year ended December 31, 20A1.
c. Taxable income subject to RCIT for the year ended December 31, 20A1.
d. RCIT and MCIT for the year ended December 31, 20A1.
e. Income tax liability (BIR and LGU) for the year ended December 31, 20A1.
f. Tax savings for the year ended December 31, 20A1.
2. Determine the following assuming Kasibulan is registered with PEZA under the CREATE Act:
a. Gross income subject to 5% SCIT for the year ended December 31, 20A1.
b. 5% SCIT for the year ended December 31, 20A1.
c. Taxable income subject to RCIT for the year ended December 31, 20A1.
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Problem 5 – Multiple registrations: 5% GIT/5% SCIT, ITH and regular tax
Kalinisan Manufacturing Company, Inc. is engaged in the manufacture of various optical products with two
product lines and warehousing business. These activities were separately registered with PEZA. The following
are the details of its registrations:
Product Line A Product Line B Warehousing

Expiration of ITH January 1, 20A0 June 30, 20A3 None
Type of registration New, Non-pioneer New, Non-pioneer Not applicable
Tax regime ITH, 5% GIT ITH, 5% GIT 25% RCIT/2% MCIT
Kalinisan was registered with the BIR five years ago.
The following information relates to Kalinisan’s operations for the year ended December 31, 20A1:
Product Line A Product Line B Warehousing

Sales/Revenues P100,000,000 P120,000,000 P30,000,000
Direct costs/Cost of services 60,000,000 68,000,000 8,000,000
Operating expenses 20,000,000 30,000,000 2,800,000

• Direct costs include depreciation of P8,000,000 for Product Line A and P10,000,000 for Product Line
B related to impaired assets. Tax depreciation amounted to P9,000,000 for Product Line A and
P12,000,000 for Product Line B.
• Operating expenses include provision for doubtful accounts of P2,250,000 for Product Line A and
P2,500,000 for Product Line B, and provision for potential litigation losses of P3,500,000 relating to
Product Line B.
• Revenues from warehousing activities include revenues collected in advance and subjected to income
tax in 20A0 of P3,000,000. There were advance collections during 20A1 amounting to P4,000,000
which were not yet subjected to income tax.
Required:
1. Determine the following assuming Kalinisan is registered with PEZA prior to the effectivity of the
CREATE Act:
a. Gross income subject to 5% GIT for the year ended December 31, 20A1.
b. 5% GIT for the year ended December 31, 20A1.
c. Taxable income subject to 30% RCIT for the year ended December 31, 20A1.
g. Value-added tax (VAT) liability or excess input tax credits for the year ended December 31, 20A1
(assume that 60% of cost of sales and 80% of operating expenses pertain to purchases from VAT-
registered entities).
h. Local business tax (LBT) liability and the year when this tax will be settled.
2. Determine the following assuming Kalinisan is registered with PEZA under the CREATE Act:
a. Gross income subject to 5% special corporate income tax (SCIT) for the year ended December 31,
20A1.
b. 5% SCIT for the year ended December 31, 20A1.
c. Taxable income subject to 30% RCIT for the year ended December 31, 20A1.
g. Value-added tax (VAT) liability or excess input tax credits for the year ended December 31, 20A1
(assume that 60% of cost of sales and 80% of operating expenses pertain to purchases from VAT-
15
registered entities, and suppliers pass-on VAT for purchases that are not directly and exclusively
used in its registered activities).
h. Local business tax (LBT) liability and the year when this tax will be settled.
Problem 6 – Enhanced deductions, 5% SCIT, export enterprise, domestic market enterprise, VAT
Pabrikante Corporation is engaged in the manufacturer of goods. It is registered with the PEZA nine (9) years
ago under the CREATE Act. It initially availed of the income tax holiday (ITH) and it is currently availing the
enhanced deductions (ED). The following relates to the results of its operations for the year ended December 31,
20A1 (amounts are VAT-exclusive, if applicable):
Gross sales P822,850,000

Sales discounts (granted at the time of sale, not contingent) 15,000,000
Sales returns 10,000,000
Cost of goods manufactured and sold 350,000,000
Interest income on bank deposit 5,000,000
Interest income on loans 2,750,000
Dividend income on investment in domestic shares 4,000,000
Gain on sale of transportation equipment (P7,850,000 selling price) 6,200,000
Gain on sale of domestic shares 2,800,000
Salaries and bonuses 68,500,000
Research and development 27,000,000
Interest expense 22,800,000
Depreciation expense 48,500,000
Impairment loss on fixed assets 12,700,000
Provision for doubtful accounts 8,500,000
Loss on sale of equipment (P4,300,000 selling price) 5,800,000
Fire loss (factory equipment) 22,600,000
Utilities expense 9,500,000
Charitable contributions (full deduction) 12,500,000
Other expenses 32,500,000

a. Cost of goods manufactured and sold includes the following which are directly and exclusively
incurred in the production of its goods:
Raw materials (35% were locally purchased) 75,000,000

Direct labor 82,000,000
Depreciation of building 50,000,000
Depreciation of machinery and equipment 35,000,000
Employee training (approved by PEZA) 18,000,000
Power expenses 27,000,000
The local goods and services, which are directly and exclusively used in production, were purchased
from VAT-registered local suppliers. These are supported by Certification for VAT zero-rating issued
by PEZA. For imported raw materials, the value recorded pertains to the landed cost.
b. Research and development expenses include local expenditures for the salaries of local employees and
consumables of P12,500,000, payment to expatriate consultants of P4,800,000 and service fees to
foreign corporations of 5,700,000. The balance pertains to goods imported from abroad.
c. Interest expense pertains to loans acquired to finance the construction of its factory building.
d. Depreciation expense includes building depreciation of P33,000,000, and machinery and equipment of
P22,500,000.
e. Pabrikante wrote-off accounts receivables of P15,750,000. These were properly supported by
documents to support worthlessness.
f. Fire loss was supported by declaration of loss filed with the BIR within 30 days from the date of loss.
16
g. Pension expense was recognized in accordance with Philippine Financial Reporting Standards.
Pabrikante contributed P17,000,000 to its BIR-registered pension plan. Normal cost amounted to
P14,000,000 based on actuarial valuation for funding.
h. During 20A0, Begonia contributed P15,000,000 to its pension plan. Normal cost during the same year
amounted to P12,200,000.
i. Pabrikante incurred net operating losses of P68,000,000 four (4) years ago from its registered activities.
Out of these losses, P47,500,000 were carried-over and utilized as tax deduction from gross income
under its registered activities in the last three (3) years.
j. Utilities and other expenses were purchased from VAT-registered suppliers.
k. Pabrikante had total assets of P120,000,000 as of December 31, 20A1.
Required:
1. Assuming Pabrikante is either an export enterprise or domestic market enterprise, determine the
income tax liability of Pabrikante for the year ended December 31, 20A1.
2. Assuming Pabrikante is an export enterprise (100% exports), determine its VAT liability, if any, for the
year ended December 31, 20A1.
3. Assuming Pabrikante is a domestic market enterprise (60% exports), determine its VAT liability, if any,
for the year ended December 31, 20A1.
4. Assuming Pabrikante is an export enterprise (100% exports) and it availed the 5% special corporate
income tax, determine its income tax liability for the year ended December 31, 20A1.
5. Assuming Pabrikante is an export enterprise (100% exports) and it availed the 5% special corporate
income tax, determine its VAT liability for the year ended December 31, 20A1.
Problem 7 – Enhanced deductions, reconciling items, export enterprise
Kalinaw Corporation, an exporter (100%) of services which is registered with the Board of Investments (BOI)
under the CREATE Act, had revenues of P300,000,000, cost of services of P120,000,000 and financial income
before income tax of P65,000,000 for the year ended December 31, 20A1.
Its cost of services includes the following:
Direct labor 60,000,000

Depreciation of building 9,000,000
Depreciation of equipment 10,000,000
Depreciation of right-of-use asset 3,500,000
Employee training (approved by BOI) 8,000,000
Power expenses 7,000,000
The depreciation of right-of-use asset pertains to leased building where Kalinaw incurred actual rentals of
P4,200,000 during the year.
Its operating and other expenses include the following items:

Depreciation expense 8,800,000
Utilities expenses 2,500,000
Impairment of receivables 7,500,000
Interest expense on lease obligation (related to right-of-use asset) 2,700,000
Foreign exchange loss 2,500,000
Charitable contributions 5,000,000
17
The foreign exchange loss includes unrealized loss pertaining to uncollected foreign currency denominated
accounts receivables. Kalinaw contributed P10,200,000 to its retirement plan. The actuarial valuation under PAS
19 provides current service cost of P5,200,000 and past service cost of P700,000. Its retirement plan is still
being registered with the BIR.
Kalinaw also earned dividend income from investment in a domestic corporation of P1,200,000, interest income
subject to final tax of P650,000 (gross of final tax) and equity income from investment in associate of
P4,500,000, which were recorded as part of other income.
Kalinaw’s income tax holiday (ITH) expired on October 31, 20A0. After which, it availed of the enhanced
deductions.
Required:
1. Determine Kalinaws’s income tax liability for the year ended December 31, 20A1.
2. Assuming Kalinaw opted to pay the 5% special corporate income tax (SCIT), determine its income tax
liability for the year ended December 31, 20A1.
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V. DOUBLE TAXATION AGREEMENTS –
Problem 1 – Permanent establishment, subcontractor, business profits
Bandila Company, Inc., a domestic corporation, entered into the following transactions with its affiliate,
Inglatera Corporation, a company domiciled in United Kingdom for the year ended December 31, 20A1:
• Inglatera rendered administration and accounting services to Bandila which commenced on January 31,
20A1. Inglatera sent three employees to render the services in the Philippines. The two employees were
in the Philippines from January 31, 20A1 to March 31, 20A1 while the third employee was in the
Philippines from April 15, 20A1 to June 15, 20A1. Bandila paid Inglatera P5,000,000.
• Inglatera rendered management services to Bandila which commenced on March 1, 20A1. Inglatera
sent one employee to render the services in the Philippines from May 1, 20A1 to December 15, 20A1.
Bandila paid Inglatera P7,000,000.
• Bandila availed engineering services from Inglatera which commenced on May 1, 20A1. However,
Inglatera, subcontracted said services to Watawat Philippines Corporation, a domestic corporation.
Watawat also provided engineering services to other clients. The services were rendered from May 1,
20A1 for 12 months. Bandila paid Inglatera P4,000,000.
Required:
1. Determine the final withholding tax (FWT) liability of Bandila for the year ended December 31, 20A1.
2. Determine the net payments made by Bandila to Inglatera for the year ended December 31, 20A1.
Problem 2 – Permanent establishment; royalties and service fees; grossing-up
Kanyugan Corporation, a domestic corporation, entered into the following agreements with certain non-resident
foreign corporations, for the year ended December 31, 20A1:
• Licensing agreement with Camnang Company, a resident of Vietnam, for the use of know-how in the
production process. License fees paid during the year amounted to P4,250,000, exclusive of Philippine
income tax, if any. Camnang did not send any employees to the Philippines in connection with this
agreement.
• Technical service agreement with Hapon Company, a resident of Japan, for technical services rendered.
Technical service fees paid during the year amounted to P2,500,000. Hapon sent employees to the
Philippines to render the related services for 200 days.
• Royalty agreement with Franciscano Corporation, a resident of the United States. Royalty fees paid
during the year amounted to P4,200,000. Franciscano did not send any employees to the Philippines.
• Franchise agreement with Britania Corporation, a resident of British Virgin Islands. Franchise fees paid
during the year amounted to P3,900,000, net of all taxes. Britania sent employees to the Philippines for
one-month in connection with this agreement.
Required:
1. Determine the final withholding tax (FWT) liability of Kanyugan for the year ended December 31,
20A1.
2. Determine the net payments made by Kanyugan to the non-residents for the year ended December 31,
20A1.
Problem 3 – Permanent establishment; interest and penalties; trade transactions
Kapalaran Corporation had the following loans and trade payables with non-residents for the year ended
December 31, 20A1:
• Loan of USD1,200,000 with 7.5% interest from Amerikano Corporation, a resident of the United
States. The loan was outstanding for the entire year. Interest was paid on December 31, 20A1.
19
• Loan of EUR380,000 with 5% interest from Europa Corporation, a resident of France. The loan was
outstanding for the entire year. Interest was paid on December 31, 20A1. Europa maintains a Philippine
branch engaged in construction activities. The said Branch did not participate in the loan transaction.
• Loan of HKD6,000,000 with 6% interest from Hong Corporation, a resident of Hong Kong. The loan
was outstanding for the entire year. Interest was paid on December 31, 20A1.
• Accounts payable of AUD500,000 to Australyano Corporation, a resident of Australia. This was
outstanding for two years and penalty of 1.5% per year was charged. No penalty was paid as of year-
end.
• Accounts payable of EUR350,000 to Praha Corporation, a resident of Czech Republic. This was
outstanding for more than one year and penalty of 2.5% was charged. No penalty was paid as of year-
end.
• Installment payable of SGD300,000 to Singapura Corporation, a resident of Singapore, bearing 2%
interest per annum. The liability was outstanding for the entire year. Interest was paid on December 31,
20A1.
The foreign exchange rates on December 31, 20A1 were as follows:
USD1 = P50
EUR1 = P60
HKD1 = P6
AUD1 = P40
SGD1 = P33
Required:
1. Determine the final withholding tax (FWT) liability of Kapalaran for the year ended December 31,
20A1.
2. Determine the net payments made/payable by Kapalaran to non-residents for the year ended December
31, 20A1.
Problem 4 – Permanent establishment; dividend and branch profit remittance
The following are independent situations relative to dividend payments and branch profit remittances to a non-
resident foreign corporation for the year ended December 31, 20A1:
a. Busilak Philippines Corporation, a domestic corporation, is a wholly-owned by Noruega Corporation, a

Norwegian entity. Busilak declared and paid dividend of P10,000,000 during 20A1.
b. Busilak Philippines Corporation, a domestic corporation paid P10,000,000 during 20A1 to Noruega
Corporation, a Norwegian entity. Noruega owns 5% of Busilak.
c. Noruega Philippine Branch remitted branch profits of P10,000,000 to its head office, Noruega
Corporation, a Norwegian entity.
d. Busilak Philippines Corporation, a domestic corporation, is a wholly-owned by Nederland Corporation,
a Dutch entity. Busilak declared and paid dividend of P10,000,000 during 20A1. Nederland maintains a
Philippine Branch. Said Branch did not participate in the investment transaction of Nederland with
Busilak.
e. Nederland Philippine Branch remitted branch profits of P10,000,000 to its head office, Nederland
Corporation, a Dutch entity.
f. Busilak Corporation, a domestic corporation, is a subsidiary of Britannica Corporation, a resident of
British Virgin Islands. Busilak declared dividend of P10,000,000 during 20A1. Dividends were not
taxable in British Virgin Islands.
Required:
1. Determine the final withholding tax (FWT) liability of Busilak, Noruega Philippine Branch and
Nederland Philippine Branch for the year ended December 31, 20A1.
2. Determine the net payments made/payable by Busilak, Noruega Philippine Branch and Nederland
Philippine Branch to non-residents for the year ended December 31, 20A1.
Problem 5 – Sale of shares, real property interest
20
On September 1, 20A1, Energo Corporation, a non-resident foreign corporation, sold 100,000 shares of Molino
Philippines Corporation, a domestic corporation for P3,500 per share. Said shares were acquired for P2,000 per
share on May 1, 20A0. The following are the independent situations relative to the residency and real property
interests of Energo in Molino:
a. Energo Corporation is a resident of Hong Kong. Molino’s total assets amounted to P300,000,000 in
which P170,000,000 pertains to real properties.
b. Energo Corporation is a resident of the United States. Molino’s total assets amounted to P300,000,000
in which P170,000,000 pertains to real properties.
c. Energo Corporation is a resident of Japan. Molino’s total assets amounted to P300,000,000 in which
P100,000,000 pertains to real properties.
d. Energo Corporation is a resident of United Kingdom. Molino’s total assets amounted to P300,000,000
in which P170,000,000 pertains to real properties.
Required: Determine the capital gains tax (CGT) from the sale of Molino shares on September 1, 20A1.
Problem 6 – Dependent personal services
Mr. Oslo was employed by Kon-Tiki Corporation. During 20A1, he was assigned to render consultancy services
to Kon-Tiki Philippines Corporation (KPC), a Philippine subsidiary of Kon-Tiki.
The following are additional independent information about Mr. Oslo’s assignment in the Philippines:
a. Mr. Oslo and Kon-Tiki Corporation are residents of Norway. Mr. Oslo was in the Philippines for three
months. Mr. Oslo received compensation of P3,500,000 directly from Kon-Tiki.
b. Mr. Oslo and Kon-Tiki Corporation are residents of Norway. Mr. Oslo was in the Philippines for seven
months. Mr. Oslo received compensation of P3,500,000 directly from Kon-Tiki.
c. Mr. Oslo and Kon-Tiki Corporation are residents of Norway. Mr. Oslo was in the Philippines for three
months. Mr. Oslo received compensation of P3,500,000 directly from KPC.
d. Mr. Oslo and Kon-Tiki Corporation are residents of Norway. Mr. Oslo was in the Philippines for seven
months. Mr. Oslo received compensation of P3,500,000 directly from KPC.
e. Mr. Oslo and Kon-Tiki Corporation are residents of Hong Kong. Mr. Oslo was in the Philippines for
three months. Mr. Oslo received compensation of P3,500,000 directly from Kon-Tiki.
f. Mr. Oslo and Kon-Tiki Corporation are residents of Hong Kong. Mr. Oslo was in the Philippines for
seven months. Mr. Oslo received compensation of P3,500,000 directly from Kon-Tiki.
Assume that there is reciprocity with the Philippines and the foreign country and the personal exemption granted
under the Philippines is lower than in foreign country.
Required: Determine the income tax liability of Mr. Oslo for the year ended December 31, 20A1.
Problem 7 – Independent personal services
Mrs. Ingles is a professional consultant. During the 20A1, she rendered management consultancy services to
Mapera Philippines, Inc. a Philippine resident.
The following are additional independent information about Mrs. Ingles’ management consultancy services in
the Philippines:
a. Mrs. Ingles is a resident of United Kingdom. She was in the Philippines for two months. Mrs. Ingles
received compensation of P1,300,000 directly from Mapera.
b. Mrs. Ingles is a resident of United Kingdom. She was in the Philippines for five months. Mrs. Ingles
c. Mrs. Ingles is a resident of United Kingdom. She was in the Philippines for eight months. Mrs. Ingles
d. Mrs. Ingles is a resident of Hong Kong. She was in the Philippines for two months. Mrs. Ingles
21
e. Mrs. Ingles is a resident of Hong Kong. She was in the Philippines for five months. Mrs. Ingles
f. Mrs. Ingles is a resident of Hong Kong. She was in the Philippines for eight months. Mrs. Ingles
Required: Determine the income tax liability of Mrs. Ingles for the year ended December 31, 20A1.
22
VI. ESTATE TAX: GROSS ESTATE, DEDUCTIONS AND TAX COMPUTATION –
Problem 1 – Gross estate, tangibles and intangibles, life insurance, claims against insolvent persons, reciprocity
Mr. Mabuhay died on June 1, 20A1 with the following properties, rights and claims at the time of his death:
Real property
Zonal value P50,000,000
Fair market value per RPT declaration 45,000,000
Shares of stock (domestic shares)
Abaca Company, 10,000 common shares (listed in the PSE)
Par value 4,000,000
Book value 5,000,000
Begonia Company, 100,000 common shares (unlisted shares)
Par value 3,000,000
If sold at the time of death 3,200,000
Begonia Company, 10,000 preferred shares (unlisted shares)
Par value 3,000,000
Par value plus dividend in arrears 3,500,000
Shares of stock (foreign shares)
Camilla Corporation, 1,000 shares (unlisted)
Par value 1,000,000
Jewelry
Acquisition cost several years ago 2,000,000
Present pawn value 600,000
Receivables under life insurance policies
Domestic insurance company 6,300,000
Singaporean insurance company 2,800,000
Receivable from Ms. Masaya who has no properties 200,000
Cash in banks
Philippine National Bank, Singapore Branch 2,000,000
Bank of Singapore, Singapore Head Office 5,000,000

a. Abaca Company’s common shares were traded on June 1 at the highest price of P670 and lowest price
of P630.
b. Begonia Company owned real properties with book value of P100,000,000 and fair market value of
P125,000,000. It had revaluation surplus of P7,500,000 recorded in its books. It had 1,000,000 issued
and outstanding common shares.
c. For jewelry, the practice of pawnshops is to give a pawn value equal to 1/3 of the fair market value of
any property pawned.
Required:
1. Determine the gross estate of Mr. Mabuhay if at the time of his death, he was a citizen of the
Philippines.
2. Determine the gross estate of Mr. Mabuhay if at the time of his death, he was neither a citizen nor a
resident of the Philippines.
3. Determine the gross estate of Mr. Mabuhay if at the time of his death, he was neither a citizen nor a
resident of the Philippines. Assume that the country where Mr. Mabuhay resided does not impose death
or estate tax.
23
Problem 2 – Gross estate, various properties, transfers in contemplation of death, life insurance, other transfers
Mr. Segundo, widower, died on October 15, 20A1 with the following properties, rights and claims at the time of
her death:
Real property in Bohol, fair market value P65,000,000

House in Quezon City, used as residence (mortgaged to Masaya Banking
Corporation for P5,800,000), fair market value 15,000,000
House and lot in Krabi, Thailand, used as vacation house (mortgaged to
Sawadee Banking Corporation, Thai bank, for P12,000,000) 25,000,000
Furniture and fixtures in residential house 680,000
Transfers in contemplation of death:
Sale of real properties in the Philippines
Consideration received 2,000,000
Fair market value at the time of transfer 19,900,000
Fair market value at the time of death 20,800,000
Donation of real properties in Bangkok, Thailand
Sale of personal properties in the Philippines but outside the
Philippines at the time of death
Consideration received 100,000
Sale of personal properties outside the Philippines but within the
Philippines at the time of death
Fair market value at the time of transfer 400,000
Sale of personal properties in the Philippines and within the
Philippines at the time death
Fair market value at the time of transfer 900,000
Insurance proceeds receivables
Life insurance policies taken out by Mr. Segundo on his own life
Policy 1000: Beneficiary was his estate, with power of revocation
not exercised before his death 8,500,000
Policy 3000: Beneficiary was his son, with power to change the
beneficiary 7,000,000
Policy 5000: Beneficiary was his son, with irrevocable designation
of beneficiary 6,500,000
Group life insurance taken out by the employer with estate of
decedent as revocable beneficiary 3,500,000
Accident insurance for injury sustained while still alive 1,200,000
Property insurance 2,700,000
Accounts receivables
Ms. Masaya against whom insolvency proceedings is pending in
court. Ratio of properties to her liabilities is 1:2. 500,000
Mr. Maputi, a Korean residing in Japan with obligation maturing on
December 20A1 1,000,000
Mr. Matangkad, a Korean in South Korea, admittedly insolvent 1,500,000
Shares of stock:
Domestic corporation, certificates deposited in Thai Bank, fair market
value 3,600,000
Foreign corporation, certificates deposited in Thai Bank, fair market
value 5,200,000
24
Required:
1. Determine the gross estate of Mr. Segundo if at the time of his death, he was a citizen of the
Philippines.
2. Determine the gross estate of Mr. Segundo if at the time of his death, he was neither a citizen nor a
resident of the Philippines.
3. Determine the gross estate of Mr. Segundo if at the time of his death, he was neither a citizen nor a
resident of the Philippines. Assume that the country where Mr. Segundo resides provides tax exemption
from donor’s tax and estate tax to Filipinos on transfers of intangible properties.
Problem 3 – Gross estate, exclusions and exemptions
Ms. Masaya, a resident of the Philippines, died on February 1, 20A1. She left the following properties and
rights:
Commercial property, fair market value P35,000,000

Residential house and lot, fair market value 18,000,000
Jewelry, fair market value 2,500,000
Agricultural lot in Cebu, fair market value 10,000,000
Agricultural lot in Negros Oriental, fair market value 12,000,000
Agricultural lot in Negros Occidental, fair market value 15,000,000
Agricultural lot in Samar, fair market value 8,000,000
Various personal properties donated to a charitable institution 3,000,000
Death benefits from SSS 6,000,000
Retirement benefits from employer 6,800,000
Life insurance proceeds with her sister as revocable beneficiary 7,000,000

a. The residential house and lot was mortgaged for P7,500,000.
b. The agricultural lot in Cebu was originally owned by Ms. Maganda. When Ms. Maganda died, she left
the usufruct of the said property to Ms. Masaya while the naked title to Ms. Matalino. The said lot was
subjected to estate tax when Ms. Maganda died.
c. The agricultural lot in Negros Oriental was originally owned by Ms. Matiwasay. When Ms. Matiwasay
died, she left the property to Ms. Masaya with a condition that if Ms. Malaki gets married, Ms. Masaya
must give the property to Ms. Malaki. Estate tax was paid when Ms. Matiwasay died.
d. The agricultural lot in Negros Occidental was inherited by Ms. Maganda from her mother. However,
Ms. Maganda will own the property for five years with the obligation to preserve said property. After
five years, 60% must be given to Ms. Masaya’s daughter while Ms. Masaya will retain the remaining
40%. Estate tax was paid when Ms. Maganda inherited the property four years ago.
e. The agricultural lot in Samar was purchased five years ago for donation to the local government unit as
provided in the last will and testament.
f. The accounts receivables pertain to receivables from Ms. Masaya’s friends. One of them was insolvent.
Receivable from said person amounted to P50,000.
Required: Determine the gross estate of Ms. Masaya.
25
Deductions, net estate and estate tax
Problem 4 – Net estate, various expenses, claims against the estate, casualty losses, family home
Mrs. Marikit, a citizen of the Philippines and resident of Tacloban City, died testate, on June 1, 20A1, leaving
gross estate of P42,800,000 (declarable for estate tax purposes), which includes a family home of P8,800,000.
The following expenses and losses were incurred:
Expenses of the last illness (two months before death) P6,000,000

Food for friends and relatives who went to the funeral parlor 40,000
Obituary 10,000
Coffin 100,000
Funeral services 150,000
Cash given to church for celebrating a mass for the dead 15,000
Publication of “card of thanks” in the newspapers 12,000
Cost of lot and mausoleum in the cemetery 1,800,000
Expenses for the upkeep of the lot and mausoleum 18,000
Actual court expenses for the probate of the will 60,000
Attorney’s fees for testamentary proceedings 600,000
Commissions paid to brokers for selling properties to realize cash to liquidate the
obligations of the decedent 160,000
Obligations and loss before and soon after death
Unpaid purchase price on property in the gross estate 1,800,000
Unpaid mortgage on property in the gross estate 1,500,000
Note payable (notarized, bearing interest of 12% per annum) 450,000
Loss on fire of property included in the gross estate 800,000
Dispositions in the last will and testament
Barangay Magana for the repair of barangay roads 350,000
Accredited non-stock non-profit institution 200,000
The following are the other information:

a. The note payable had unpaid interest for 2 months before the decedent died.
b. The note payable had unpaid interest for 5 months after death which were incurred during the
settlement of the estate and until maturity.
c. The fire that resulted in a loss occurred 10 months after the death of the decedent.
Required: Determine the net estate and estate tax.
Problem 5 – Net estate, vanishing deduction, inheritance, bank deposits
Mr. Matipuno, a citizen of the Philippines died on July 15, 20A1, with the following:
House and lot used as family home P7,200,000

Furniture and appliances in the house 1,300,000
Land, inherited from his father two and one-half years ago 6,000,000
Other properties 3,500,000
Unpaid mortgage on the land inherited from his father 1,800,000
Claims against the estate 600,000
Other properties include cash of P5,500,000 deposited in a bank. No withdrawals were made up to July 15,
20A2.
Funeral expenses amounted to P900,000. The land inherited from his father was subjected to estate tax based on
the value of P5,000,000 as declared in the estate. At the time of death of his father, the land had mortgage of
P3,800,000.
26
Required:
1. Determine the net estate and estate tax.
2. Assume that the heirs of Mr. Matipuno withdrew cash of P1,250,000 from his bank deposit, determine
the net estate and estate tax including the final withholding tax (FWT).
Problem 6 – Net estate, vanishing deductions, inheritance, property within and outside
Ms. Macapuno, a citizen and resident of the Philippines, died with gross estate of P28,500,000 (declarable for
estate tax purposes) on August 21, 20A1. Her gross estate includes the following:
Real property in the Philippines inherited from her father one and one-half years ago
FMV at the time of her father’s death 6,500,000
FMV at the time of Ms. Macapuno’s death 8,000,000
Mortgage on the property when inherited 1,700,000
Mortgage on the property in the estate of Ms. Macapuno 1,200,000
Real property in Thailand received as a gift from her father two and one-half years ago
FMV at the time of her father’s death 5,000,000
FMV at the time of Ms. Macapuno’s death 3,000,000
In addition, the following are unpaid loans:
Loan obtained five years ago 1,600,000

Loan obtained two years ago 1,800,000
There were transfers for public use of P1,300,000, and retirement benefits received under RA No. 4917 of
P2,520,000.
Problem 7 – Vanishing deductions, inheritance and gift, net estate, estate tax, bank deposit
Mrs. Mangoosteen, a citizen and resident of the Philippines, died on October 12, 20A1, with the following
properties acquired through inheritance and gift:
Lot 1 Lot 2
FMV when received P6,300,000 P5,400,000
FMV at the time of Mrs. Mangoosteen’s death 7,000,000 4,200,000
Indebtedness on the property when received 1,000,000 700,000
Payments made by Mrs. Mangoosteen on the indebtedness 300,000 450,000
Lot 1 was inherited from her father three years and two months ago while Lot 2 was received as gift from her
mother 6 months ago. These were properly subjected to transfer taxes at the time of transfer.
In addition to the above properties, Mrs. Mangoosteen has other properties with value of P3,800,000 at the time
of her death and cash in bank of P17,000,000. The entire amount of cash was withdrawn by her heirs on June
15, 20A2.
Deductions from gross estate amounted to P12,000,000 comprising of claims against the estate, claims against
insolvent persons including the above unpaid indebtedness.
Required:
1. Determine the net estate and estate tax, including the final withholding tax (FWT).
2. Assuming that cash was not withdrawn by the heirs, determine the net estate and estate tax.
Problem 8 – Net estate, estate tax, non-residents
27
Mr. Portugueso, a citizen and resident of Portugal, died on November 25, 20A1, during his visit in the
Philippines, leaving a gross estate of P34,875,000 in Portugal and P10,125,000 in the Philippines and following
charges:
Loan payable, Philippines P4,000,000

Claims against insolvent persons, Philippines 2,000,000
Mortgage payable, Philippines 3,000,000
Loan payable, Portugal 7,000,000
Claims against insolvent persons, Portugal 6,000,000
Mortgage payable, Portugal 5,000,000
Its gross estate in Portugal includes family home of P12,000,000. Moreover, his last will and testament provides
that certain properties with fair market value of P2,500,000 will be transferred to the City of Manila to be used
for public purpose. With respect to the mortgage payable in Portugal, it is attached to a property located also in
Portugal.
Required:
1. Determine the total deductions from gross estate.
2. Determine the net estate and estate tax.
Problem 9 – Net estate, estate tax, vanishing deductions, non-residents
Ms. Espanyol, a citizen and resident of Spain, died on May 25, 20A1, with gross estate of P16,500,000
(including legacies) in Spain and P4,000,000 in the Philippines. The gross estate includes the following
properties, which were inherited from her father, who is a Filipino citizen, four and one-half years ago:
Condominium unit, Philippines P3,000,000

Condominium unit, Spain 2,000,000
Personal properties, Spain 1,200,000
The condominium unit in the Philippines had P1,500,000 mortgage at the time of inheritance where Ms.
Espanyol paid P1,250,000 before she died. These properties had the following fair market values at the time of
inheritance:
Condominium unit, Philippines P2,575,000

Condominium unit, Spain 2,200,000
Personal properties, Spain 1,500,000
The gross estate in Spain also includes family home of P8,000,000.
Moreover, the following were the other charges and claims against Ms. Espanyol’s estate:
Loan payable, Philippines P1,500,000

Mortgage payable, Philippines 2,300,000
Loan payable, Spain 3,500,000
Claims against insolvent persons, Spain 1,000,000
Mortgage payable, Spain (related to family home) 1,500,000
Legacy to the Philippine government for public purpose 800,000
Legacy to the Spanish government for public purpose 1,250,000
Legacy to Matulungin Charitable institution, Philippines 500,000
The legacies were included as part of the gross estate.
Problem 10 – Estate tax credits, one and multiple foreign countries
28
The following are independent situations:
a. Mr. Libertad died residing in the Philippines. He left a net estate after deduction of P14,000,000 in the
Philippines and P6,000,000 in Singapore. His net estate in Singapore paid an estate tax of P450,000 in said
country.
b. Mr. Libertad died in the Philippines. The following information relates to his net estate after deductions,
and estate taxes paid in foreign country:
Net estate Estate tax paid

Philippines P13,900,000
Germany 5,000,000 P400,000
Poland 300,000 15,000
Russia 200,000 18,000
Switzerland 100,000 5,000
Required: Determine the estate tax still due after tax credit under each situation.
29
VII. ESTATE TAX: MARRIED DECEDENTS –
Conjugal partnership of gains
Problem 1 – Gross estate: Exclusive and conjugal properties
Mr. Durian, a citizen of the Philippines and a resident of Manila, under the property relationship of conjugal
partnership of gains during his marriage, died leaving the following:
House and lot inherited from his father P17,500,000

Cash received as a gift from his mother 1,500,000
Cash on hand, his income during the marriage 1,000,000
Cash in bank, income of the property of his wife during the marriage 1,200,000
Jewelry owned before the marriage 500,000
Household appliances purchased with his inherited money 700,000
Clothes of his wife, purchased with his income during the marriage 450,000
Personal property exchanged with personal property he inherited 350,000
Other properties at the time of his death 2,400,000
Required:
1. Determine the gross exclusive properties.
2. Determine the gross conjugal properties.
Problem 2 – Conjugal properties, net taxable estate, estate tax, bank deposit
Mr. Habagat, a Filipino residing in Baguio City, died testate on December 26, 20A1, survived by his wife. He
left the following conjugal properties, with their corresponding fair market values, and related charges:
Real property in Baguio City P14,800,000

Real property in Baguio City (family home) with an unpaid mortgage
indebtedness in favor of the Philippine National Bank for P2,000,000 5,400,000
Other real properties in the Philippines 10,800,000
Cash in bank 4,000,000
Personal properties in the Philippines 520,000
Accounts receivable from an insolvent friend 350,000
Funeral expenses 800,000
Judicial expenses of intestate proceedings 500,000
Claims against conjugal properties (mortgage indebtedness not included) 280,000
In addition, he acquired the following properties through inheritance and gift:
Real property inherited from his father who died seven years ago P11,200,000
Personal property received as gift from his mother six years ago 8,200,000
His heirs withdrew P1,500,000 from his bank account on February 20, 20A2 and P1,000,000 on January 5,
20A3.
Required: Determine the net taxable estate and the estate tax.
Problem 3 – Conjugal properties, net taxable estate, estate tax
Mrs. Azucena, a citizen and resident of the Philippines, died in October 20A1, leaving exclusive and conjugal
properties, with their corresponding fair market values, as follows:
Properties inherited from her father who died 6 years ago P20,800,000
Family home acquired during her marriage through her own efforts 12,350,000
Personal property received as gift from her father 6 years ago 250,000
30
Land purchased 6 years ago out of cash inherited from her mother 5,640,000
Personal properties acquired during her marriage 1,100,000
Land in California, United States 10,000,000
The husband had his own exclusive properties of P2,500,000.

a. A decedent had a claim against an insolvent person of P600,000. Of this amount, only P200,000 can be
collected.
b. The funeral expenses paid out of the estate amounted to P520,000.
c. A mortgage existed on the piece of land inherited from her father. The unpaid mortgage at the date of
death of the decendent was P1,200,000.
d. The piece of land in California, United States, was acquired by installment. An unpaid purchase price
of P3,000,000 at the time of his death was secured by a mortgage on said land.
Required: Determine the net taxable estate and estate tax.
Problem 4 – Conjugal properties, vanishing deductions, net taxable estate, estate tax
Mr. Amihan, a citizen and resident of the Philippines, under the property relationship with his spouse during
marriage of conjugal partnership of gains, died on April 10, 20A1, leaving the following properties, rights,
charges and obligations:
Land inherited from his father (4 ½ years ago), with a fair market value of
P1,600,000 when inherited (used as family home) P3,000,000
Building on the land inherited built out of income during the marriage (used as
family home) 15,000,000
Commercial land and building inherited from his mother eight years ago 25,000,000
Personal properties 3,800,000
Cash in banks:
In the United States, inherited from his father (4 ½ years ago) 6,500,000
In the Philippines, inherited from his father (4 ½ years ago) 5,400,000
Earned during marriage 8,900,000
Claim against an insolvent friend (60% not realizable) 2,500,000
Medical expenses of last illness 2,000,000
Funeral expenses 750,000
Expenses of extrajudicial settlement of the real estate 500,000
Unpaid mortgages:
On land inherited, constituted when the building (family home) was
constructed (after payment of P500,000 during his lifetime) 1,000,000
On building used as family home (after payment of P1,000,000 during his 2,000,000
lifetime)
Other obligations (indebtedness) 50,000
Legacy to the National Government (from cash earned during marriage) 200,000
Legacy to the Tahanang Walang Hagdanan (from cash earned during marriage)
100,000
Absolute community of property
Problem 5 – Absolute community, net taxable estate, estate tax
Mr. Makulay, a citizen of the Philippines, died on December 15, 20A1, survived by his spouse. The spouses
were under the system of absolute community of property. He died leaving the following (in the Philippines,
unless otherwise indicated):
31
Vacation house and lot in Hawaii, United States P18,000,000
Residential house and lot in Teresa, Rizal (family home) 5,000,000
Receivable from brother 100,000
Receivable under life insurance:
With wife as revocable beneficiary 1,000,000
With wife as irrevocable beneficiary 800,000
Inheritance from his father received during marriage 750,000
Gift from mother received during marriage 15,150,000
Actual funeral expenses 800,000
Medical expenses (October 10 to 22, 20A1) 1,650,000
Judicial expenses 500,000
Gambling obligations 100,000
Accrued taxes 200,000
Other obligations (loans) 1,200,000
His brother went to a Middle East country and had not been heard of since his departure. He left no properties in
the Philippines. The inheritance from the father was received 8 years ago, while the gift from the mother was
received 7 years ago.
Problem 6 – Absolute community, vanishing deduction, family home, net taxable estate, estate tax
Mrs. Mapula, married, under the system of absolute community of property during the marriage, a citizen of the
Philippines, died leaving properties, obligations, and charges as follows:
Real property owned before marriage P6,000,000

Real property acquired during marriage (family home) 7,000,000
Agricultural land received as gift from her mother three and one-half years ago 26,000,000
and during marriage
Properties received as gift 6 years ago (before the marriage) 10,000,000
Shares of stock inherited from her mother three months ago and during marriage
800,000
Receivable from an insolvent friend 200,000
Actual funeral expenses 1,200,000
Judicial expenses for the settlement of the estate 1,500,000
Claims against the estate 8,000,000
Unpaid mortgage on agricultural land 6,000,000
At the time of inheritance, the agricultural land had a fair market value of P21,800,000 and an unpaid mortgage
of P8,000,000. Mrs. Mapula paid P2,000,000 on this mortgage. The shares of stock had a fair market value of
P900,000 when inherited three months ago.
Problem 7 – Absolute community, vanishing deduction, net taxable estate, estate tax, bank deposit
Mr. Yakal got married on October 5, 20A1 (absolute community of property). He is a citizen of the Philippines
and he died on December 5, 20A1, leaving the following properties within and outside the Philippines,
obligations and charges:
Gifts from his mother:

Car, on September 10, 20A1 P1,000,000
Cash, on September 14, 20A1 300,000
Land inherited by Mr. Yakal during marriage 1,800,000
Movable properties owned by Mrs. Yakal before marriage 3,000,000
32
Cash inherited by Mrs. Yakal during marriage 1,200,000
Jewelry purchased by Mrs. Yakal 5,000,000
Cash 27,000,000
Medical expenses, December 5, 20A1 7,800,000
Judicial expenses 1,000,000
Claims against the estate (not including mortgage) 7,500,000
Unpaid mortgage on car 50,000
Accrued taxes 100,000
Mr. and Mrs. Yakal lived in a rented apartment. The car had a fair market value of P900,000 when it was
received as gift. With an increase in prices, the car had a fair market value of P1,000,000 with unpaid purchase
price of P250,000. Out of said unpaid amount, Mr. Yakal paid P210,000 prior to his death. Moreover, the cash
of P2,100,000 coming from community property was withdrawn by his heirs on December 15, 20A1.
Required: Determine the net taxable estate and estate tax including final withholding tax (FWT).
Problem 8 – Absolute community, vanishing deduction, inheritance before marriage
Ms. Paraluman, married, under the system of absolute community of property during the marriage, a citizen and
resident of the Philippines, died on August 6, 20A1. She left the following properties and related charges:
Land inherited before marriage P6,000,000

Lot and house, acquired by gift before marriage (family home) 4,000,000
Personal properties owned before marriage 3,150,000
Cash and personal properties acquired during marriage 26,850,000
Judicial expenses 1,000,000
Claims against the estate 2,500,000
The land had a fair market value of P5,600,000 when inherited two and one-half years before she died, and had
a mortgage of P600,000 at that time. She paid P350,000 of the mortgage indebtedness before she died. The lot
and house received as gift had a fair market value of P3,850,000 when it was received ten months before August
6, 20A1.
With respect to personal properties acquired during marriage, it includes properties of Ms. Paraluman which are
of personal nature of P3,000,000 and P5,000,000 for his husband’s personal use.
33
Problem 9 – Net taxable estate, estate tax credits, estate tax
Mrs. Trinidad, a citizen and resident of the Philippines died leaving the following properties in and outside the
Philippines, and related charges:
Philippines Australia
Exclusive properties P30,000,000 P8,000,000
Conjugal properties (including family home of P5,880,000,
Philippines) 10,000,000 12,000,000
Funeral expenses 800,000 200,000
Medical expenses 1,000,000 500,000
Claims against the estate and unpaid mortgages, conjugal 1,000,000 200,000
Claims against the estate and unpaid mortgages, exclusive 6,375,000 625,000
Estate tax paid 1,000,000
Required: Determine the net taxable estate and estate tax still due after tax credit.
34
VIII. DONOR’S TAX –
Problem 1 – Donor’s tax, single and married donors, single and multiple donations
a. Mr. Halaran, a resident citizen of the Philippines, made a donation of P3,000,000 to his son, Ramon, on
account of marriage, and on the day of its celebration. Ramon got married on June 15, 20A1. This is the
only donation made during the year.
b. Mr. Halaran, a citizen of Singapore, made a donation of P2,750,000 to his son, Ramon, on account of
marriage, and on the day of its celebration. Ramon got married on June 15, 20A1. This is the only donation
made during the year.
c. Mr. and Mrs. Halaran, citizens of the Philippines and residents of Baguio City, under the system of conjugal
partnership of gains, made donation to their daughter, Ramona, who is getting married within the year, as
follows:
July 5, 20A1 Donation by Mrs. Halaran to Ramona, on account of marriage, jewelry

that she inherited from her mother, with a fair market value of P6,000,000
August 18, 20A1 Donation by Mr. and Mrs. Halaran to Ramona, on account of marriage,
P4,000,000.
December 15, 20A1 Donation by Mr. and Mrs. Halaran to Mr. Gomez, their relative,
P8,000,000.
Required: For each situation:

1. Determine the donor’s tax.
2. Determine the deadline for filing the donor’s tax return and payment of the related tax.
Problem 2 – Donor’s tax, exemptions
a. Mr. Plazoleta, a resident of the Philippines, a widower, made donations in 20A1, as follows:
May 30, 20A1 Donation of P600,000 to son, Ariel

Donation of P1,500,000 to the Philippine National Red Cross
September 10, 20A1 Donation on account of marriage, of land with fair market value of
P5,000,000 to Ariel, who was to get married on October 2, 20A1
b. Mr. Plazoleta, a resident of the Greece, a widower, made donations in 20A1, as follows:
May 30, 20A1 Donation of P600,000 to son, Ariel

Donation of P1,500,000 to the Philippine National Red Cross
September 10, 20A1 Donation on account of marriage, of land located in the Philippines with
fair market value of P5,000,000, and land located in Greece with fair
market value of P8,000,000 to Ariel, who was to get married on October
2, 20A1
c. Mr. and Mrs. Plazoleta, married, citizens and residents of the Philippines, made the following donations:
35
July 14, 20A1 To son, Elias, on account of marriage, cash of P1,200,000
To son, Elias (by Mr. Plazoleta alone), on account of marriage, cash of
P1,750,000
October 5, 20A1 To brother of Mrs. Plazoleta, Basilio (by Mrs. Plazoleta alone), cash of
P800,000
To son, Elias, on account of marriage, property subject to an unpaid
mortgage of P2,000,000 and unpaid tax of P380,000, all assumed by Elias,
with fair market value of P5,000,000
d. Mr. and Mrs. Plazoleta, citizens of the Philippines, made the following donations in 20A1:
• February 1, 20A1, donation by Mr. and Mrs. Plazoleta to David, a legitimate child on account of
marriage, property with fair market value of P1,400,000
• October 6, 20A1, donation by Mr. Plazoleta, alone, to Diosa, a legitimate daughter, of property with
fair market value of P1,450,000
• October 19, 20A1, donation by Mr. and Mrs. Plazoleta, to Joshua, an illegitimate child of Mr.
Plazoleta, on account of marriage, cash of P500,000

Problem 3 – Donor’s tax, tax exempt donations, transfer for less than adequate consideration
Sampaguita Corporation had the following transactions for the year ended December 31, 20A1:
• Donated idle land with fair market value of P12,000,000 to Akasya Foundation, Inc., a non-stock, non-
profit charitable institution, accredited by Philippine Council for NGO Certification (PCNC).
• Transferred building with fair market value of P7,500,000 without consideration to Azucena
Corporation, its affiliate, located in Clark Special Economic Zone.
• Sold equipment for P2,500,000 with fair market value of P3,200,000 to Camia Corporation. The selling
price was reduced to help Camia sustain its business.
• A portion of its land was expropriated by the Local Government Unit (LGU) of Mabalacat, Pampanga,
for road construction. The LGU paid Sampaguita P5,000,000 equivalent to the fair market value of said
land.
• Donated cash for P2,800,000 to the LGU of Makati City to be used for educational purposes.
Required:
1. Determine the tax-exempt donation.
2. Determine the taxable donation.
36
Problem 4 – Donor’s tax, sale of shares, listed shares, over-the-counter, unlisted shares
Makisig Corporation owned 100,000 shares of Tadhana Company, Inc. which are listed in the Philippine Stock
Exchange (PSE). These were acquired for P120 per share five years ago, through the PSE. On July 1, 20A1,
Makisig sold said investment for P210 per share, over-the-counter. These shares were traded in the PSE on same
day with highest price of P270 and lowest price of P230.
The balance sheet of Tadhana as of June 30, 20A1 showed the following:
Cash P10,000,000
Inventories 35,000,000
Property, plant and equipment 100,000,000
Accounts payable 18,000,000
Notes payable 25,000,000
Tadhana had 500,000 outstanding and issued shares with P100 par value. Its property, plant and equipment had
fair value of P120,000,000. The book value of other assets and liabilities were not significantly different from
their fair market values.
Required:
1. Determine the donor’s tax, if any, from the transaction.
2. Assume that Tadhana shares are not listed in the PSE. Determine the donor’s tax, if any, from the
transaction.
Problem 5 – Donor’s tax credits, single and married taxpayers
a. Mr. Sebaste is a citizen and resident of the Philippines. On July 8, 20A1, he donated his properties in
Vietnam and Thailand to Mr. Aruga with fair market value of P4,200,000 and P2,800,000 respectively. He
paid donor’s tax of P300,000 and P150,000 in Vietnam and Thailand, respectively.
b. Mr. and Mrs. Sebaste, citizens and residents of the Philippines, made the following donations in 20A1:
March 10, 20A1 To legitimate son, Aristotle, on account of marriage, property with a fair
market value of P8,000,000, but which is subject to a mortgage of
P2,000,000 assumed by the donee.
July 5, 20A1 To legitimate daughter, Ruffa, on account of marriage, property outside

the Philippines with a fair market value of P2,000,000, and foreign
donor’s tax payment of P50,000.

1. Determine the donor’s tax after tax credits.
Problem 6 – Donor’s tax credits
Mr. and Mrs. Aruga, citizens of the Philippines made donations, jointly or separately, as follows:
• On February 6, 20A1, to Cris, a legitimate child, and Laura, betrothed to Cris, on account of marriage
to be celebrated on March 1, 20A1, a donation, jointly, of property in the United States with a fair
market value of P8,400,000, and donor’s tax payment in the United States of P320,000.
• On April 16, 20A1, to Antonio, a legitimate son, and Ana, daughter-in-law by Antonio, a donation
separately by Mr. Aruga, of property in the Philippines with a fair market value of P5,600,000.
37
Required:
1. Determine the donor’s tax after tax credits.
38

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DE LA SALLE UNIVERSITY

RAMON V DEL ROSARIO COLLEGE OF BUSINESS

Problem 2 – Tax refunds

Problem 1 – Local transfer tax on real properties

September 30, 20A0 December 31, 20A0 December 31, 20A1

Problem 3 – Tax on quarry resources

Problem 4 – Amusement tax

Table tennis P15,000,000

Problem 5 – Local business tax, retirement of business

December 31, 20A1

Problem 6 – Situs of taxation

Goods produced in Pasig City Bocaue City

Problem 1 – Properties subject to RPT: land, building, improvements and machinery

a. Lirio is a manufacturer. It owns the following properties:

• Land where is factory is located

• Land where its building is located

Required: For each independent situation:

Problem 2 – RPT on land, building and improvement, idle land

Problem 3 – RPT on machinery, acquisition, disposal, depreciation allowance

Date Acquisition cost

a. Begonia University, a non-stock, non-profit educational institution.

Problem 5 – RPT assessment, declared and undeclared properties, back taxes

Book value Fair market value

Economic life Remaining

Cost of sales 250,000 32,000,000

The following are the additional information:

Problem 2 – Expiration of income tax holiday; before CREATE, CREATE

Cost of sales 40,000,000 15,000,000

The following are the additional information:

Problem 3 – Multiple registrations; expansion; before CREATE, CREATE

The following information relates to these activities:

New product Old product

Problem 4 – 5% gross income tax; 5% special corporate income tax

The following are the additional information:

Problem 5 – Multiple registrations: 5% GIT/5% SCIT, ITH and regular tax

Product Line A Product Line B Warehousing

Kalinisan was registered with the BIR five years ago.

Product Line A Product Line B Warehousing

The following are the additional information:

Gross sales P822,850,000

The following are the additional information:

Raw materials (35% were locally purchased) 75,000,000

Problem 7 – Enhanced deductions, reconciling items, export enterprise

Its cost of services includes the following:

Direct labor 60,000,000

Its operating and other expenses include the following items:

Salaries and wages 18,500,000

Problem 1 – Permanent establishment, subcontractor, business profits

Problem 2 – Permanent establishment; royalties and service fees; grossing-up

Problem 3 – Permanent establishment; interest and penalties; trade transactions

The foreign exchange rates on December 31, 20A1 were as follows:

Problem 4 – Permanent establishment; dividend and branch profit remittance

a. Busilak Philippines Corporation, a domestic corporation, is a wholly-owned by Noruega Corporation, a

Problem 5 – Sale of shares, real property interest

Problem 6 – Dependent personal services

Problem 7 – Independent personal services

The following are the additional information:

Real property in Bohol, fair market value P65,000,000

Problem 3 – Gross estate, exclusions and exemptions

Commercial property, fair market value P35,000,000

The following are the additional information:

Required: Determine the gross estate of Ms. Masaya.

Expenses of the last illness (two months before death) P6,000,000