CPA Review School of the Philippines

TAXATION (C. Llamado)

PRE-WEEK BATCH 94

(1) Statement 1: Revenue regulations (RRs) are issuances signed by the Secretary of Finance
upon recommendation of the CIR.

Statement 2: Revenue memorandum circulars (RMCs) and revenue memorandum orders

(RMOs) are issuances signed by the CIR.

a) All are true.

b) All are false.
c) Only Statement 1 is true.
d) Only Statement 2 is true.

(2) Armed with an LOA, a Revenue Officer requested Chris Chico to submit his books of
accounts relating to a tax investigation being conducted by the BIR RDO where he is
registered. Chris Chico refused to comply with the request.

A. The CIR may authorize the issuance of a subpoena duces tecum against the taxpayer.
B. The BIR may file a motion with the Court of Tax Appeals or the regular courts to compel
the taxpayer to present the books of accounts.
C. The BIR may enter the office of the taxpayer to obtain the books of accounts.
D. The BIR shall issue final assessment based only on the available documents submitted by
Chris Chico.

(3) If a taxpayer refuses to comply with a Subpoena Duces Tecum (“SDT”), the concerned BIR
Legal office may perform the following courses of action:1

Not a a) File a criminal case for “Failure to Obey Summons” against the taxpayer for violation
Question of Section 5 in relation to Sections 14 and 266 of the Tax Code; and/or
b) Initiate a proceeding to cite the taxpayer for contempt under Rule 71 of the Revised
Rules of Court.

(4) Taxpayer received on June 10, 2020 from the Office of the Treasurer of Davao City an
assessment for the payment of permit fees to slaughter against its dressing plant for the years
2015 to 2019. The taxpayer paid the assessment after its protest with the City Treasurer was
denied. The taxpayer appealed with the RTC in Davao, which in turn upheld the City
Treasurer’s denial.

Can the taxpayer appeal the RTC’s decision to the CTA?

(a) Yes.
Hint: The CTA has no
(b) No.
jurisdiction to decide a case not
(c) It depends.
involving a local tax case decided
(d) None of the above.
by the RTC.

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RMO Nos. 45-2010; 16-2023.

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(5) The following shall be required in the application for a TIN card:
(a) Duly accomplished BIR Form No. 1905 (Application for Not a
Registration Update/Correction/Cancellation); Question
(b) ID picture;
(c) Any government-issued ID;
(d) Affidavit of Loss, in case of replacement;
(e) ₱100 replacement fee.

(6) Section 17 of the Watershed Code of Davao City provides:

“The Environmental Tax collected shall accrue to the General Fund, and shall be
appropriated in the Annual Budget solely for the purpose of implementation of this Code,
the operational expenses of the Watershed Management Council and all its instrumentalities,
and for watershed protection, conservation, and management programs and projects, subject
to the approval of the Davao City Council.”

Is the imposition a tax, or a licence (or regulatory fee)?

(a) It is a tax.
(b) It is a license or regulatory fee.
(c) It is both.
(d) None of the above.

(7) Statement 1: Liquidating dividends, if in the form of real property located in the Philippines,
are subject to the 6% capital gains tax.

Statement 2: Possession of more than one (1) TIN is criminally punishable under the Tax
Code.

a) All are true.

b) All are false.
c) Only Statement 1 is true.
d) Only Statement 2 is true.

Income Tax of Social Media Influencers

Gross Income of Social Media Influencers2

The term social media influencers includes all taxpayers, individuals or corporations, receiving
income in cash or in kind, from any social media sites and platforms (e.g. YouTube, Facebook,
Instagram, Twitter, TikTok, Reddit, Snapchat, etc.) in exchange for services performed as
bloggers, video bloggers, or vloggers, or as influencers, and from any other activities performed
on such social media sites and platforms.

Social media influencers, other than corporations or partnerships, shall be treated as self-employed
individuals or persons engaged in trade or business as sole proprietors. Their income, therefore,
shall generally be considered business income, irrespective of the manner or form of payment.
Thus, if a social media influencer receives free products in exchange for the promotion thereof,

2
RMC No. 97-2021.

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such social media influencer must declare the fair market value thereof as income in the income
tax return.

Income treated as royalties in another country, including payments under the YouTube Partner
Program, received by a resident citizen or domestic corporation shall be included in the
computation of gross income in the income tax return.

Social media influencers derive their income from the following sources: (1) YouTube Partner
Program; (2) sponsored social and blog posts; (3) display advertising; (4) becoming a brand
representative; (5) affiliate marketing; (6) co-creating product lines; (7) promoting own products;
(8) photo and video sales; (9) digital courses, subscriptions, e-books; and (10) podcasts and
webinars.

I. If Income is Business Income (i.e. Income from Services)

Place of Performance
Taxpayer Within the Phils. Without the Phils.
RC ITR – Sales/Revenues ITR – Sales/Revenues
NRC ITR – Sales/Revenues Exempt
RA ITR – Sales/Revenues Exempt
NRAETB ITR – Sales/Revenues Exempt
NRANETB 25% FT Exempt

DC ITR – Sales/Revenues ITR – Sales/Revenues

RFC ITR – Sales/Revenues Exempt
NRFC 25% FT Exempt

II. If Income is Royalty Income

Location of the Social Media Platform

Taxpayer Within the Phils. Without the Phils.
RC 20% FT ITR – Sales/Revenues
NRC 20% FT Exempt
RA 20% FT Exempt
NRAETB 20% FT Exempt
NRANETB 25% FT Exempt

DC 20% FT ITR – Sales/Revenues

RFC 20% FT Exempt
NRFC 25% FT Exempt

8) Jamil Villanueva, Filipino, a social media influencer residing in Quezon City, received
₱10,000,000 ($200,000) from YouTube LLC, a foreign corporation based in the U.S.,
as his share from advertising revenues. U.S. tax law considers such payments as
royalties which are subject to a 24% tax in the U.S. YouTube LLC thus withheld the
equivalent of ₱2,400,000 from its payment to Jamil. He incurred ₱1,000,000 operating
expenses in connection with such income.

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 However, under the U.S.-Philippine Tax Treaty, royalties derived by a Philippine resident in
the U.S. shall be taxed at a maximum of only 15% of the gross amount. Apparently, Jamil
was unaware of this and failed to invoke the treaty to lower the tax withheld by YouTube
LLC.

Compute his tax payable in his Philippine ITR if the amount received from YouTube LLC is
his only income for the taxable year, and if he is claiming credit for taxes paid in the U.S.

Compute Jamil’s tax payable.

(A) ₱1,052,500
(B) ₱2,760,000
(C) ₱ 360,000
(D) None of the above

Gross income, U.S. ₱10,000,000

Less: Business expenses (1,000,000)
Net taxable income ₱ 9,000,000

Tax on ₱ 8,000,000 = ₱ 2,202,500

Tax on 1,000,000 x 35% = 350,000
₱ 9,000,000 ₱ 2,552,500

Less: Tax Credit

Tax deemed paid in U.S. (15% x ₱10 M) ₱1,500,000
Limit: (₱9.0M/₱9.0M) x ₱2,552,500) 2,552,500
Tax Credit (lower) (1,500,000)
Tax payable ₱ 1,052,500

Notes:

(1) A resident citizen is taxable on income earned within and without. Royalties sourced
abroad are therefore taxable to a resident citizen. It cannot be subject to final taxes, and
therefore will be included in the ITR of a resident citizen.

(2) Generally, credit for taxes paid in a foreign country is limited to that actually paid or
accrued in said foreign country.

A tax treaty may exist between the source state and the Philippines, but the taxpayer may
fail to invoke the provisions of such treaty to lower or totally eliminate his/its tax liability.
In such situations, the tax credit that may be claimed by the taxpayer shall be limited to
the tax that should have been paid by the taxpayer had he/it claimed the benefits under
such treaty.

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9) CRISTAL corporation (domestic), which started operations in 2010, has the following data
for FY ending April 30, 2021:

Sales, net of sales discounts 20,000,000

Cost of sales 5,000,000
Salaries of employees, net of payroll deductions of ₱350,000 5,000,000
Fringe benefits given to:
Rank and file employees 1,040,000
Managerial employees 325,000
EAR expenses 550,000
Rent expenses 1,200,000
Depreciation expense 700,000
Bad debt expense (1/3 charged off during the year) 105,000
Interest expense on BPI loan 400,000
Interest expense on loan from majority shareholder 100,000

Other income:
Cash dividends received from:
1) Domestic corporations 550,000
3) Foreign corporations 30,000
Interest income from Philippine bank deposits, net of FT 100,000
Royalty income (Phils.), gross of FT 125,000
Gain from sale of property:
1) Makati real property not used in business (SP = ₱10M) 2,000,000
2) Domestic shares (not listed) held as capital assets 100,000
3) Domestic shares (listed) held as capital assets 23,000,000
Liquidating dividend from ABC Corp. 100,000
(cost of ABC shares = ₱96,000)

CWT withheld by customers 68,000

Tax paid in first 3 quarters 30,000

Compute final taxes on the CRISTAL’s passive income.

(A) ₱50,000
(B) ₱45,000
(C) ₱40,000
(D) None of the above

Final taxes on passive income:

Interest income, Philippine bank deposit (₱125,000 x 20%)
Royalty income (₱125,000 x 20%)

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10) Compute total CGT on CRISTAL’s capital gains.

(A) ₱ 753,000
(B) ₱4,065,000
(C) ₱ 615,000
(D) None of the above

CGT
Sale of Makati real property (6% x ₱10,000,000)
Domestic shares held as capital assets (15% x ₱100,000)

Computation of Blended Rate

RCIT MCIT Interest rate
arbitrage

May 1, 2020 to June 30, 2020 2 months 30.00% 2.00% 33.00%

July 1, 2020 to April 30, 2021 10 months 25.00% 1.00% 20.00%

12 months 25.83% 1.17% 22.17%

Net Sales 20,000,000

Cost of Sales (5,000,000)
Gross income from operations 15,000,000
Add: Other taxable income not subject to FTs:
Foreign dividends + liquidating dividend 34,000
Total Gross Income 15,034,000
Less: Ordinary Itemized Deductions
(a) Salary expense, net of payroll deductions 5,000,000
Add: Payroll deductions 350,000 (5,350,000)
(b) Fringe benefits of employees
Rank and file 1,040,000
Managerial 325,000 (1,365,000)
(c) FBT (₱325,000/65% x 35%) (175,000)
(d) EAR 550,000
Limit (1/2 of 1% of Net Sales) 100,000 (100,000)
(e) Rent expense (1,200,000)
(f) Depreciation expense (700,000)
(g) Bad debt expense (1/3 charged off) (35,000)
(h) Deductible interest expense 400,000
Less: Interest arbitrage (22.17% x ₱125,000) (27,713) (372,288)
Net taxable income 5,736,713
RCIT (25.83%) 1,481,793
MCIT (1.17% of Total Gross Income) 175,898

Tax due RCIT 1,481,793

Less: Tax Credits:
(1) Tax paid in previous quarters (30,000)
(2) CWTs (68,000)

Tax payable/(Tax credit/refund) 1,383,793

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11) How much is the corporation’s net taxable income?
(A) ₱5,750,250
(B) ₱5,736,713
(C) ₱5,666,713
(D) None of the above

12) How much is the corporation’s RCIT?

(a) ₱1,481,793
(b) ₱1,721,714
(c) ₱1,485,290
(d) None of the above

13) How much is the corporation’s MCIT?

(a) ₱175,898
(b) ₱172,714
(c) ₱150,340
(d) None of the above

14) How much is the corporation’s income tax payable?

(a) ₱1,383,793
(b) ₱1,481,793
(c) ₱1,550,340
(d) None of the above

15) How much withholding tax should CRISTAL withhold and remit on its loan interest payments
assuming the corporation is included in the BIR list of top withholding agents?
A. ₱ 23,000 C. ₱10,000
B. ₱ 75,000 D. None of the above

Interest income received by banks from payors belonging to the Top 20,000
corporations strictly arising from individual loans obtained from the banks that are not
securitized, assigned, or participated out, shall be subject to CWT at the rate of two
percent (2%) (RMC 84-2012) (400,000 x 2%) = 8,000

Interest income derived from any debt instrument not within the coverage of deposit
substitutes is subject to a 15% CWT (RR 14-2012). (100,000 x 15%) = 15,000

16) Statement 1: The income of an individual, trust, or estate that owns a proprietary
educational institution as a sole proprietor shall be taxed at the preferential rate
of 10% (1% from July 1, 2020 to June 30, 2023). Provided, the individual, trust,
or estate passes the predominance test.

Statement 2: The income of a proprietary educational institution organized as a resident

foreign corporation shall be taxed at the preferential rate of 10% (1% from July
1, 2020 to June 30, 2023). Provided, such resident foreign corporation passes
the predominance test.

(a) Only Statement 1 is true.

(b) Only Statement 2 is true.

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 (c) Both Statements are true.
(d) Both Statements are false.

17) ABE Corporation, a domestic trading corporation, had the following financial information
for 2023:

Sales, gross of the 1% CWT ₱ 14,000,000

Cost of sales 5,850,000
Operating expenses 7,990,000
Non-operating income 250,000

Total assets 480,000,000

Land 100,000,000
Building 125,000,000

Calculate the income tax payable/(refundable) of ABE Corporation in its 2023 AITR.

a) ₱(14,000) c) ₱102,500
b) ₱126,000 d) None of the above.

Sales, gross of the 1% CWT 14,000,000

Cost of sales (5,850,000)
Gross income 8,150,000
Other taxable income 250,000
Total gross income 8,400,000
Itemized deductions (7,990,000)
Taxable net income 410,000
RCIT (25%) 102,500
MCIT (blended 1.5%) 126,000
Tax due 126,000
Credits: CWT (140,000)
Tax payable/(refundable) (14,000)

18) Assume the same information in the preceding number, except the corporation adopts a
fiscal year ending August 31, 2023. Calculate its tax payable/(refundable) in its AITR.

a) ₱(14,000) c) ₱(42,000)
b) ₱(37,500) d) None of the above.

Computation of blended rate for MCIT:

From September 1, 2022 to June 30, 2023 (10 months) 1.00%

From July 1, 2023 to August 31, 2023 (2 months) 2.00%
Blended rate (weighted average) 1.17%

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 Sales, gross of the 1% CWT 14,000,000
Cost of sales (5,850,000)
Gross income 8,150,000
Other taxable income 250,000
Total gross income 8,400,000
Itemized deductions (7,990,000)
Taxable net income 410,000
RCIT (25%) 102,500
MCIT (blended 1.17%) 98,000
Tax due 102,500
Credits: CWT (140,000)
Tax payable/(refundable) (37,500)

19) CPAR College Inc., a proprietary educational institution has the following information for
calendar year 2023:

Tuition fees ₱199,850,000

Cost of services 159,750,000
Operating expenses 250,000
Non-operating income 150,000

Compute its tax due if it passes the predominance test in 2023.

a) ₱ 2,200,000 c) ₱8,000,000
b) ₱10,000,000 d) None of the above.

From January 1, 2023 to June 30, 2023 (6 months) 1.00%

From July 1, 2023 to December 31, 2023 (6 months) 10.00%
Blended rate (weighted average) 5.50%

Tuititon fees 199,850,000

Cost of sales (159,750,000)
Gross income 40,100,000
Other taxable income 150,000
Total gross income 40,250,000
Itemized deductions (250,000)
Taxable net income 40,000,000
Tax due (blended 5.5%) 2,200,000

20) Assume the same financial information in the preceding number but CPAR College Inc.’s
taxable year ends on September 30, 2023. Compute its tax due in the AITR if it passes the
predominance test.

a) ₱1,300,000 c) ₱6,000,000

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 b) ₱2,200,000 d) None of the above.

From October 1, 2022 to June 30, 2023 (9 months) 1.00%

From July 1, 2023 to September 30, 2023, (3 months) 10.00%
Blended rate (weighted average) 3.25%

Tuititon fees 199,850,000

Cost of sales (159,750,000)
Gross income 40,100,000
Other taxable income 150,000
Total gross income 40,250,000
Itemized deductions (250,000)
Taxable net income 40,000,000
Tax due (blended 3.25%) 1,300,000

21) First Investors, Inc., domestic corporation, invested its excess funds in money market
placements with BDC bank, a local bank. The interest income on such market placements
was not subjected to the final withholding taxes by the bank.

The BIR contends that First Investors should have included in its income tax return the same
interest income which was not subjected to final withholding taxes. The BIR thus assessed
First Investors deficiency income taxes.

(a) First Investors is liable for the deficiency taxes in its ITR. Otherwise, it would escape
tax on its interest income which is taxable.

(b) First Investor is not liable for any deficiency income tax. It is the payor, BDC, which is
mandated by law to withhold the final tax on such passive income, and remit the same
to the BIR.

22) Annabelle Pasco’s employment with a domestic corporation was terminated due to
redundancy. She was given a severance package consisting of 2 parts: (a) a separation pay
consisting of 1.5 months’ salary for every year of service, and (b) a retirement pay computed
in accordance with the early retirement provision of the employer’s Retirement Plan.
Annabelle, resident citizen, was just 46 years old at the time of her termination.

a) Only the “separation pay” is exempt from income tax.

b) Only the “retirement pay” is exempt from income tax.
c) Both are exempt from income tax.
d) None of the above

Note: Amounts received by reason of involuntary

separation/termination are exempt from income tax regardless
of an employee’s age or length of service.

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 23) Statement 1: A business expense will be disallowed as a deduction if the corresponding
CWT has not been withheld and remitted to the BIR.

Statement 2: OSD cannot be disallowed due to non-withholding of the expanded or

creditable withholding tax pursuant to Section 34(K) of the Tax Code.

(a) Both are true.

(b) Both are false.
(c) Statement 1 is true. Statement 2 is false.
(d) Statement 1 is false. Statement 2 is true.

24) A claim for refund of input VAT paid which is denied by the BIR is a valid loss which is
deductible from gross income given the following circumstances:

Not a (1) the taxpayer actually sustained a loss when the Department of Finance (“DOF”) denied
Question its claim for refund considering that with the denial, the taxpayer no longer had any
reasonable expectation to classify the same as a receivable;
(2) the loss was sustained when the taxpayer received the DOF’s denial letter;
(3) the taxpayer was not compensated for the loss;
(4) the taxpayer incurred the loss in the conduct of its trade or business, i.e., the denied input
VAT arose from the taxpayer’s 0-rated sales; and
(5) the DOF categorically stated in its denial letter that the taxpayer’s claim for issuance of a
refund/tax credit certificate “cannot be given due course” (CIR vs. Maersk Global Service
Centers, CTA (En Banc) Case No. 1786, June 13, 2019).

25) Statement 1: Contributions or gifts actually made within the taxable year to domestic
corporations organized exclusively for educational purposes may be allowed
as deductions from the gross income of the donor, but shall be subject to the
limits provided under Section 34(H) of the Tax Code.

Statement 2: If the donee in Statement 1 is an accredited NGO, the gift may be deducted
in full from the gross income of the donor.

a) Only Statement 1 is true. c) Both statements are true.

b) Only Statement 2 is true. d) Both statements are false.

TAX INCENTIVES FOR LAWYERS or GPPs RENDERING FREE LEGAL

SERVICES3

A lawyer or professional partnership rendering actual free legal services shall be entitled to an
allowable deduction from gross income equivalent to the lower of (a) the amount that could
have been collected for the actual free legal services, or (b) ten percent (10%) of the gross
income derived from the provision of legal services.

3
For purposes of availing the incentives, the legal services to be provided must be within the services
defined by the Supreme Court in Bar Matter No. 2012, and subsequent issuances. The free legal service
shall refer to the appearance in a court or quasi-judicial body for and in behalf of an indigent or pauper
litigant, and to the preparation of pleadings or motions. It shall also cover assistance by a practicing
lawyer to indigent or poor litigants in court-annexed mediation and in other modes of alternative dispute
resolution, including being appointed as counsel de officio (Rev. Reg. No. 12-2022).

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 (1) The actual free legal services mentioned above shall not include the minimum sixty (60)-
hour mandatory legal aid services rendered to indigent litigants as required under the
Rule on Mandatory Legal Aid Service for Practicing Lawyers, under Bar Matter No.
2012, issued by the Supreme Court; and

(2) The lawyer or professional partnership shall secure a certification from the Public
Attorney’s Office (“PAO”), the Department of Justice (“DOJ”), or any accredited
association of the Supreme Court, indicating that the aforementioned agencies cannot
provide the legal services to be provided by the private counsel.

26) Atty. Roberto Duran rendered the following services during the year:

Gross receipts from legal fees ₱5,000,000

Value of 60 hours assistance to indigent clients 200,000
Value of other pro-bono services 400,000
Direct cost of services 1,200,000
Other deductible expenses 900,000

Compute his taxable net income for year.

(a) ₱750,000
(b) ₱2,520,000
(c) ₱2,500,000
(d) None of the above.

Solution:
Gross receipts ₱ 5,000,000
Cost of Services (1,200,000)
Gross income from operations ₱ 3,800,000
Less Deductions:
(a) Deductible expenses (900,000)
(b) Value of pro-bono services 400,000
Limit (10% of gross income) 380,000 (380,000)
Net income from operations ₱ 2,520,000
Add: Non-operating income 0
Share in GPP net income 0
Taxable net income ₱ 2,520,000

27) Aside from the 20% discount on the purchase of certain goods and services, PWDs and
Senior Citizens (SCs) are also entitled to a special discount of five percent (5%) off the Not a
regular retail price of basic necessities and prime commodities.4 However, this 5% Question
discount is not available as a special deduction to establishments granting the same.

4
Basic necessities shall include: (1) all kinds of variants of rice; (2) corn; (3) all kinds of bread (not
including pastries and cakes); (4) fresh, dried, and canned fish and other marine products (including those
which are frozen and in various modes of packaging); (5) fresh pork, beef, and poultry meat; (6) all kinds
of fresh eggs (not including quail eggs); (7) potable water in bottles and containers; (8) fresh and processed
milk (not including milk labelled as food supplement); (9) fresh vegetables including root crops; (10)
fresh fruits; (11) locally manufactured instant noodles; (12) coffee and coffee creamer; (13) all kinds of
sugar (not including sweeteners); (14) all kinds of cooking oil; (15) salt; (16) powdered, liquid, or bar
laundry and detergent soap; (17) firewood; (18) charcoal; (19) all kinds of candles; (20) household
liquefied petroleum gas (“LPG”), not more than 11 kilograms LPG content once every five (5) months

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28) Under the Tax Code, as amended by the CREATE Law, what incentives may registered
domestic market enterprises avail of:

a) ITH, 5% SCIT, and Enhanced Deductions (EDs)

b) ITH, and Enhanced Deductions
c) Only EDs
d) None.

For Registered
ITH 5% SCIT or EDs
Export Enterprises then
For 4-7 years for 10 years
(REEs)

For Domestic
ITH EDs
Market Enterprises then
For 4-7 years for 5 years
(DMEs)

29) PWDs/Senior Citizens may avail the 20% discount and VAT exemption from the purchases
of certain goods/services upon submission of the following proofs of entitlement thereto:

(a) identification card issued by the city/municipal mayor, or barangay captain of the place
where the PWD resides; or the Senior Citizen’s ID card (for senior citizens);
(b) passport;
(c) transportation discount fare identification card issued by the National Council for the
Welfare of Disabled Persons (NCWDP);
(d) Any of the above.

30) Services rendered within intra-company divisions and for which management fees are
charged are subject to VAT.

(a) True, if such intra-company services and payment of management fees are done in the
ordinary course of business of the company.
(b) False. Such services are not services performed for another entity. The intra-company
divisions are considered one and the same entity for financial reporting and for tax
purposes.
(c) No comment.
(d) None of the above.

bought from LPG dealers; and (21) kerosene, not more than 2 liters per month (Joint DTI-DA-DOE
Administrative Order No. 17-01, Series of 2017; Sec. 2.8, Rev. Reg. No. 5-2017, as amended by Rev.
Reg. No. 9-2019).

Prime commodities shall include: (1) flour; (2) dried, processed, and canned pork, beef, and poultry meat;
(3) dairy products not falling under the definition of basic necessities; (4) onions and garlic; (5) vinegar,
patis, and soy sauce; (6) toilet/bath soap; (7) fertilizer; (8) pesticides; (9) herbicides; (10) poultry feeds,
livestock feeds, and fishery feeds; (11) veterinary products; (12) paper and school supplies; (13) nipa
shingle; (14) sawali; (15) cement, clinker, GI sheets; (16) hollow blocks; (17) plywood; (18) plyboard;
(19) construction nails; (20) batteries (not including cell phone and automotive batteries); (21) electrical
supplies and light bulbs; and (22) steel wires (Joint DTI-DA-DOE Administrative Order No. 17-01, Series
of 2017; Sec. 2.9. Rev. Reg. No. 5-2017, as amended by Rev. Reg. No. 9-2019).

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31) The following are establishments which grant sales discounts to senior citizens and PWDs on
their sale of goods and/or services. Which is/are the EXCEPTION(s)?

A. Cinema houses C. Concert halls E. International airlines

B. Residential unit lessor D. Funeral parlors

a) A and C
b) B and C
c) B and E
d) E only
e) None of the above

32) Statement 1: Under VAT 0-rating, the effects of the VAT system on the particular 0-rated
transaction are totally nullified.

Statement 2: A VAT-exempt taxpayer ends up paying and shouldering more VAT than one
engaged in 0-rated sales.

a) Only Statement 1 is true.

b) Only Statement 2 is true.
c) Both statements are true.
d) Both statements are false.

33) Hey Jude Corporation (HJC), a domestic retailer, owns shares of GPAP, another domestic
corporation. GPAP is in the merchant acquiring business whereby it enters into merchant
agreements with accredited merchants to honor credit cards it issues under various card
associations of which it is a member.

Later, HJC sold its GPAP shares to LEMON Corporation for ₱85.0 Million. In one of the
Whereas Clauses of the Share Sale and Purchase Agreement, it was mentioned that ₱20.0
Million of the total selling price represented goodwill generated by GPAP over the years.

Will the ₱20.0 Million representing goodwill be subject to output VAT?

(a) Yes. Goodwill is an ordinary intangible asset whose sale is subject to output VAT.
(b) No. The shares sold are capital assets in the hands of the seller. The sale of such capital
assets is not considered a sale in the ordinary course of trade or business. Therefore, the
sale is not subject to VAT, and no portion of the selling price will be subject to output
VAT.

34) FEC Inc., a domestic corporation in the fuel distribution business, sold its service gas stations,
to TEPI Inc., another domestic corporation. The total purchase price of the service stations
amounted ₱18,731,630. In the Deed of Sale, the total purchase price was broken down as
Purchase Price of ₱5,794,280 plus Goodwill of ₱12,937,350.
According to the BIR, a 12% output VAT must be imposed on the total purchase price of
₱18,731,630. FEC Inc., the seller, is claiming that output VAT must be imposed only on the
purchase price of ₱5,794,280 since the sale of goodwill is a sale of a capital asset.
Who is correct?
(a) The BIR is correct. The sale of the service gas stations is a sale of ordinary assets made
incidentally in the ordinary course of its trade or business, which is subject to output VAT.
(b) FEC is correct. Since goodwill is a capital asset, the sale thereof is not subject to output
VAT. Instead, the sale of the goodwill shall be subject to CGT.

14
 (c) Both are correct.
(d) None of the above.

35) Input VAT for the importation of goods shall be substantiated by the import entry or other
equivalent document showing actual payment of VAT on the imported goods. At present,
these documents include the following:

(a) VAT invoice

(b) VAT official receipt
(c) VAT Payment Certification, together Single Administrative Document (SAD) or the
Statement of Settlement of Duties and Taxes (“SSDT”)
(d) None of the above.

Note: VAT Payment Certification ,and the Single Administrative Document (“SAD”)
and/or the Statement of Settlement of Duties and Taxes (“SSDT”) are issued by
the BOC.1

36) Under what conditions may a Solo Parent (defined under R.A. No. 8972) be entitled to a
10% discount and to a VAT exemption on purchases?

(a) The purchase consists of baby’s milk, food, micro-nutrient supplements, sanitary diapers,
duly-prescribed medicines, vaccines, and other medical supplements.
(b) The purchase must be made from the birth of the child or children until 6 years of age.
(c) The Solo Parent is earning less than ₱250,000 annually.
(d) All of the above.

37) Dante Medina, a balikbayan, returned to the Philippines from South Africa intending to
retire in Quezon City. On his flight home, he brought with him the following: (a) 7 baby
land turtles named Doc, Grumpy, Happy, Sleepy, Bashful, Sneezy, Dopey; (b) 2 suitcases of
used clothes which he intends to use in the Philippines; and (c) his ₱5,000,000 Ramirez
classical guitar which he uses in his concerts. Within a month from his arrival in the
Philippines, his BMW Z4 worth ₱3,500,000 arrived in the Port of Manila.

Which of the following are subject to VAT on importation?

(a) All except the BMW Z4

(b) None except the BMW Z4
(c) Only the turtles and the classical guitar
(d) All
(e) None

VAT-exempt:
Importation of (a) professional instruments and implements; (b) tools of trade,
occupation or employment; (c) wearing apparel; (d) domestic animals; and (e)
personal household effects (except any vehicle, aircraft, machinery, and other
goods for use in the manufacture and merchandise of any kind in commercial
quantities), belonging to overseas Filipinos, in quantities and of the class suitable
to the profession, rank, or position of the persons importing said items, for their
own use and not for sale, barter, or exchange, accompanying such persons, or
arriving within a reasonable time.

15
38) The following purchases do not give rise to input tax credits, except:
(a) Purchases from non-VAT and/or exempt persons;
(b) Effectively 0-rated purchases;
(c) Purchases from VAT persons which are personal in nature or not made in the course of
trade or business;
(d) Purchases of VAT-exempt goods, properties, or services from VAT-registered persons
although covered by VAT invoices or receipts;
(e) None of the above.

39-41)

Emma underwent an invasive cosmetic procedure which was done by a certain Dr. Plastico
Mendiola, a VAT-registered self-employed doctor who practices his profession inside
Beautiful Hospital in Makati City. The hospital billed Emma the following: the professional
fee of Dr. Mendiola in the amount of ₱100,000, inclusive of the 12% VAT but exclusive of
the excise tax, and other fees for the use of hospital facilities and supplies in the amount of
₱40,000, exclusive of the excise tax.

39) Compute the correct output VAT and the excise tax on the transaction.

(a) ₱11,250, ₱6,464

(b) ₱11,200, ₱4,400
(c) ₱11,250, ₱4,464
(d) None of the above

40) In number 39, how much will the hospital collect from Emma?

(a) ₱147,000
(b) ₱141,000
(c) ₱100,000
(d) None of the above

Billings by hospital for supplies and

other hospital services (VAT-exempt) ₱ 40,000
Add: Excise tax (₱40,000 x 5%) 2,000 ₱42,000

Doctor's professional fee, gross of VAT,

net of excise tax ₱100,000
Doctor's professional fee, net of 12% VAT
(₱100,000/1.12) ₱ 89,286
Add: Excise tax (₱89,286 x 5%) 4,464
VAT base for doctor's professional fee ₱93,750
Add: 12% VAT (₱93,750 x 12%) 11,250 105,000
Total amount to be collected by the hospital ₱147,000

41) If Dr. Mendiola is not VAT-registered and is able to avail of the 8% income tax on gross
sales/receipts plus non-operating income, would he still be subject to excise tax under
Section 150-A of the Tax Code?
(a) Yes.
(b) No.

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42) What is the basis of the documentary stamp tax to be imposed when one of the contracting
parties on the sale of real property is the Government?

A. Consideration contracted to be paid for such realty

B. Consideration contracted to be paid for such realty or on its fair market value, whichever
is higher
C. Actual consideration
D. Consideration contracted to be paid for such realty or on its fair market value, whichever
is lower

43) Which of the following constitutes constructive affixture of documentary stamps in

connection with the payment of DST?
(1) Purchase of documentary stamps and affixing the same on the taxable document.
(2) Imprinting the DST, through a metering machine, on the taxable document.
(3) The DST return is filed and paid, and a copy of the DST return is attached to the taxable
document.
(4) For taxable certificates issued by government agencies and instrumentalities (“GAs”), the
attachment to the certificate of the official receipt issued by the GA upon payment of the
DST.

(a) 1 and 2
(b) 3 and 4
(c) 1, 2, 3, 4
(d) None of the above.

44) HJ Cigarettes is a cigarette manufacturer which packs cigarettes by hand. CJ Cigarettes is a

cigarette manufacturer which uses machines to pack cigarettes.
Which manufacturer is subject to the excise tax?

(a) The manufacturer which packs cigarettes by hand.

(b) The manufacturer which packs cigarettes by machine.
(c) Both.
(d) None of the above.

What type of excise tax?

(a) Specific tax.
(b) Ad valorem tax
(c) Both.
(d) None of the above.

Note: The importation/manufacture of CIGARs is subject to both types of

excise taxes.

45) Which of the following is a distilled spirit?

(a) gin
(b) fermented liquor
(c) sparkling water
(d) None of the above.

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 Importation/manufacture of distilled spirits is subject to what type of excise tax?

(a) Specific tax.

(b) Ad valorem tax
(c) Both.
(d) None of the above.

Spirits or distilled spirits is the substance known as ethyl alcohol, ethanol or spirits of wine,
including all dilutions, purifications and mixtures thereof, from whatever source, by
whatever process produced, and shall include whisky, brandy, rum, gin and vodka, and other
similar products or mixtures.

Fermented liquor refers to beer, a generic term for all alcoholic beverages that are brewed
from malted cereal grains, such as malted barley, flavoured with hops, and fermented by
yeast. It includes lager beer, ale, porter, and other types of beer.

- Manufacture/importation of fermented liquor is subject to a specific excise tax only.

Wines include all alcoholic beverages produced by fermentation without distillation, from the
juice of any kind of fruit (Sec. 2(17), Rev. Reg. No. 2-97).

Wines includes (1) sparkling wines/champagnes; (2) still wines and carbonated wines
containing 14% of alcohol by volume or less; (3) still wines and carbonated wines containing
more than 14% but not more 25% of alcohol by volume; and (4) fortified wines containing
more than 25% of alcohol by volume.

- Manufacture/importation of wines is subject to a specific excise tax only.

46)

Not a Donation of real Donor’s tax DST

Question property to
None None
government

Estate Tax

47) Don Julio, single, head of family, Filipino, and resident of Makati City, died intestate on
November 15, 2018. He left the following properties and interests:

House and lot (family home) in Makati City ₱ 800,000

Vacation house in Beverly Hills, California, USA 5,500,000
Commercial land in Makati donated by his
father in 1980 2,000,000
Mustang car located in Makati being used by
his girlfriend 500,000
Proceeds of life insurance where the beneficiary
is his girlfriend (revocable) 1,000,000
Collectible toy collection 1,000,000

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 Claims against an insolvent person (Filipino resident)
whose assets total ₱10,000 and whose liabilities
total ₱100,000 100,000
Shares of stock in AB Corp (domestic, not listed
with FMV = ₱200,000) and book value of 100,000
BPI Peso bank account assigned to daughter before
death 5,000,000

The expenses and charges on the estate are as follows:

Funeral expenses ₱ 250,000
Accountant's fees incurred before death 600,000
Medical expenses of last illness 800,000
Other claims against the estate 310,000

What is the gross estate, allowable deductions, and estate tax?

a) ₱11,000,000; ₱3,500,000; ₱840,000 c) ₱5,500,000; ₱3,500,000, 0

b) ₱11,000,000; ₱6,800,000; ₱252,000 d) None of the above

Solution:

House and lot (family home) in Makati City 800,000

Vacation house in Beverly Hills, California 5,500,000
Commercial land in Makati City donated by his father in 1980 2,000,000
Mustang car located in Makati being used by girlfriend 500,000
Proceeds of life insurance where the revocable beneficiary is his girlfriend 1,000,000
Collectible toy collection 1,000,000
Claims against insolvent person (Filipino resident) whose assets total
₱10,000, and whose liabilities total ₱100,000 100,000
Shares of stock in ABC Corporation, not listed in stock exchange
Book Value 100,000 11,000,000

Ordinary Deductions:
Accountant's fees 600,000
Claims against the estate 310,000
Bad debt expense 90,000 1,000,000

Special Deductions:
Family Home 800,000
Amounts (RA 4917)
Standard Deduction 5,000,000 5,800,000 (6,800,000)
Net Taxable Estate 4,200,000
6% Tax Rate 6%
Estate Tax 252,000

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 48) If the decedent in number 47 was a non-resident alien, what would be the gross estate for
Philippine estate tax purposes, the allowable deductions, and estate tax?

a) ₱11,000,000; ₱600,000; 0 c) ₱5,500,000; ₱600,000; ₱454,000

b) ₱5,500,000; ₱1,000,000; ₱270,000 d) None of the above.

Non-resident alien
decedent

House and lot (family home) in Makati City 800,000

Commercial land in Makati City donated by his father in 1980 2,000,000
Mustang car located in Makati being used by girlfriend 500,000
Proceeds of life insurance where the revocable beneficiary is his girlfriend 1,000,000
Collectible toy collection 1,000,000
Claims against insolvent person (Filipino resident) whose assets total
₱10,000, and whose liabilities total ₱100,000 100,000
Shares of stock in ABC Corporation, not listed in stock exchange
Book Value 100,000 5,500,000

Ordinary Deductions:
Accountant's fees 600,000
Claims against the estate 310,000
Bad debt expense 90,000
1,000,000
x (5.5M/11M) 500,000
Special Deductions:
Standard Deduction 500,000 (1,000,000)

Net Taxable Estate 4,500,000

6% Tax Rate 6%
Estate Tax 270,000

49) Statement 1: Donations mortis causa take effect upon the death of the donor while donations
inter vivos take effect during the lifetime of the donor. As such, the property
donated in the former is included in the estate of the donor, while the property
donated in the latter is excluded from the estate of the donor.

Statement 2: The heir who receives personal property from an estate is called a legatee, while
the heir who receives real property is called a devisee.

a) All are true.

b) All are false.
c) Only Statement 1 is true.
d) Only Statement 2 is true.

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50) Five years ago, actor Coco Martin bought 5,000 shares of Lovie Corporation (domestic, not
listed) at par value. He sold his shares for ₱10,000,000 today. The corporation has 10,000
outstanding shares with par value of ₱1,000/share. Per its latest Financial Statements, the
corporation’s assets totalled ₱30,000,000 and its liabilities totalled ₱5,000,000. With the
exception of its real property, the book value of Lovie’s assets and liabilities is equivalent to
their market values.

The book, market, zonal, and appraised values of Lovie’s real properties are as follows:

BV per FS MV per TD* Zonal Value Appraised

Value
Land A ₱2,000,000 ₱2,500,000 ₱5,000,000 ₱6,000,000
Land B 2,000,000 2,200,000 4,000,000 3,500,000
Building A 1,000,000 2,400,000 3,000,000
Building B 500,000 2,000,000 1,950,000

*TD- Tax declaration

How much is the capital gains tax due on the sale of Coco’s shares of stock?

A. ₱1,046,250 C. ₱375,000
B. ₱1,087,500 D. ₱750,000

Selling Price ₱10,000,000

Less Cost (5,000,000)
Capital gain ₱5,000,000

CGT (15%) ₱750,000

51) How much is the documentary stamp tax due on the sale of Coco’s shares of stock?
A. ₱37,500 C. ₱18,750
B. ₱91,875 D. ₱75,000

DST on sale of shares:

DST rate: ₱1.50 Per ₱200 of par value

Total par value of 5,000 shares at ₱1,000 par value /share ₱5,000,000
Divided by ÷ ₱200
25,000
Multiplied by x ₱1.50
DST ₱37,500

52) How much is the donor’s tax due, if any?

A. ₱103,500 C. ₱135,000
B. ₱ 90,000 D. None

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 Computation of FMV (book value) per share:
Book Value
Equity ₱25,000,000
÷ 10,000 shares
Equity/share ₱2,500

Computation of Donor’s tax:

FMV (₱2,500 x 5,000 shares) ₱12,500,000
Selling Price (10,000,000)
Gross gift 2,500,000
Less (250,000)
Net Gift 2,250,000
Donor's tax (6%) 135,000

53) Assume that Coco donated the 5,000 shares of stock of Lovie Corporation, instead of selling
them. How much is the donor’s tax due on the said donation?
A. ₱435,000 C. ₱735,000
B. ₱585,000 D. ₱703,500

Book value/share ₱2,500

x Number of shares donated x 5,000
Total book value ₱12,500,000

Gross gift ₱12,500,000

Less (250,000)
Net gift ₱12,250,000
Donor's tax (6%) ₱ 735,000

54)
Income tax VAT Donor’s tax
Endowments or gifts received
NO NO YES
Not a by homeowner’s associations
Question NO (except campaign
contributions made by
Campaign contributions to
YES (excess foreign corporations)
candidates for public office and
campaign NO Provided: Such
to political parties/party-list
funds) campaign contributions
groups
are utilized during
campaign period.

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 NOTES:
(a) Endowments or gifts received by such homeowners’ associations are not exempt
from donor’s tax. Such gifts do not qualify for exemption under Section 101(A)(2)
of the Tax Code. (RMC No. 53-2013; BIR Ruling No. DT-352-2022, July 14, 2022).

(b) Campaign contributions to candidates for public office and to political parties/party
list groups are not subject to VAT. All candidates and political parties/party list
groups shall register Non-VAT Official Receipts which shall be issued for every
contribution received, whether in cash or kind. (RMC No. 22-2022).

55) (a) Within 30 days from the deadline of filing their annual ITRs, what additional reports
should business entities (a) registered with an Investment Promotion Agency (ex. PEZA, BOI,
TIEZA, SBMA, etc.) and (b) availing of tax incentives, submit?

(1) Beneficial Ownership Report

(2) Statistical Report
(3) Annual Tax Incentives Report
(4) Annual Benefits Report
(5) Certificate of Entitlement to Tax Incentives (“CETI”)

(a) Numbers 1 and 2

(b) Numbers 2 and 3
(c) Numbers 3 and 4
(d) All of the above

Annual Tax Incentives Report – which shall contain complete information on

income-based incentives, VAT incentives, duty exemptions, deductions, credits,
exclusions, and other information needed to analyse and monitor the impact of
the same to the Philippine economy.

Annual Benefits Report – which include data on (a) the approved and actual
amount of investments, (b) approved and actual employment level and job
creation including information on quality of jobs and hiring of foreign and local
workers, (c) approved and actual exports and imports, (d) domestic purchases,
(e) profits and dividend payout, and (f) all taxes paid.

55) (b) What document must be attached to the Annual ITR of a business enterprise registered
with an Investment Promotion Agency (ex. PEZA, BOI, TIEZA, SBMA, etc.) and availing of
tax incentives?

(a) Numbers 1
(b) Numbers 2
(c) Number 5
(d) All of the above

23
 Certificate of Entitlement to Tax Incentives (CETI) – issued by the
concerned Investment Promotion Agency prior to the filing of the
Annual ITR. It must be attached to the Annual ITR filed with the
BIR.

56) What is a stop-filer case?

A “stop filer case” shall refer to a system-created case which arises when a taxpayer fails to
file a return for a required tax type for a taxable period.

57) Authorized agent banks (AABs) may impose penalties for any violation committed by
taxpayers in the filing of their tax returns and payments of internal revenue taxes.

a) True. AABs are authorized by the BIR to collect taxes in its behalf, and also to collect
the corresponding penalties in cases of violations.
b) False. It is only the BIR which is authorized to impose whatever penalties that are
incidental to violations of the tax laws, rules, and regulations.

58) Which of the following tax cases may not be compromised?

A. Criminal violations, other than those already filed in court or those involving criminal tax
fraud
B. Collection cases filed in courts
C. Delinquent accounts with duly approved schedule of installment payments
D. Civil tax cases being disputed before the courts

59) Kuwait Airlines filed its Annual ITR for the FY ended March 31, 2016, and paid the
corresponding income tax on July 14, 2016 based on the special tax rate of 2.5%.

On March 6, 2017, the BIR issued its ruling confirming Kuwait Airlines’ entitlement to the
lower 1.5% preferential rate in accordance with the Philippines-Kuwait Tax Treaty.

On March 21, 2018, it filed with the BIR an Amended Annual ITR for the same FY ended
March 31, 2016 in which it applied the 1.5% preferential income tax rate and showing an
overpayment of ₱12.0 Million.

When is the last day for filing a claim for refund/TCC?

a) July 14, 2018.

b) March 6, 2019.
c) March 21, 2020.
d) None of the above.

60) TVT Corporation (“TVT”) imported a shipment of engine spare parts which arrived in the
port of Manila on March 18, 2014. It paid the value-added tax (“VAT”), one of the taxes
imposed under the Tax Code, on April 8, 2020. TVT intends to file an application for
refund of the VAT it paid.

24
 a) The application for refund must be filed with the District Collector of the Bureau of
Customs by April 8, 2022.
b) The application for refund must be filed with the Commissioner of Customs by April 8,
2022.
c) The application for refund must be filed with the Commissioner of Internal Revenue by
April 8, 2022.
d) None of the above.

61) Cipriano Enterprises, Inc. (“Cipriano”), a domestic corporation, received a FAN dated
December 9, 2015. The FAN became final and executory since Cipriano did not file any
protest thereto.

The BIR proceeded to issue the Warrant of Distraint/Levy and Warrant of Garnishment both
dated January 2, 2021 against the taxpayer for the collection of the assessed taxes.

Which statement is correct?

(a) The validity of the warrants for the collection of taxes cannot be questioned anymore
before the CTA because the taxpayer failed to file any administrative protest against the
FAN making the latter final and executory.
(b) The taxpayer may still raise the issue of prescription of collection of the taxes before the
CTA. In this case, the BIR lost its right to collect the assessed taxes from the taxpayer on
the ground of prescription. The warrants should have been issued within 5 years from
December 9, 2015.

62) In applying for registration with the PEZA, what documents shall be submitted?

A. Project brief
B. AOI and by laws
C. Project feasibility study
D. Board Resolution
E. List of Machineries/Equipment
F. Company brochure
G. Photographs of product
H. Mayor's permit

a) All except the (D)

b) All except (B) and (G)
c) All except (H)
d) None.

END

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