CPA Review School of the Philippines TAXATION PRE-WEEK BATCH 90. Score 50/50.

CPA Review School of the Philippines TAXATION PRE-WEEK BATCH 90 (1) Within 30 days from the deadline of filing their annual ITRs, what additional reports should business entities (a) registered wi th 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 (a) Numbers 1 and 2 (b) Numbers 2 and 3 (c) Numbers 3 and 4 (d) All of the above (2) In its first year, a domestic corporation did not derive any income nor any gain as it had not yet started commercial operations in said year. However, it was assessed a deficiency tax by the BIR. The BIR found that the corporation overstated its pre-operating expenses, some of which were unsubstantiated. Should such disallowed expenses give rise to income tax? a) Yes. The fact that pre-operating expenses were overstated should give rise to a penalty in the form of income tax thereon. b) No. Income tax cannot be imposed in the absence of any gain or profit which is realized or received, actually or constructively. c) No. Assuming that the disallowance of the pre-operating expenses was proper, no income tax may result therefrom because the taxpayer did not benefit from the deduction of the disallowed expenses. d) (B) and (C). (3) 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. (4) Build-It Corporation (“Build-It”) is engaged in the construction business as a contractor. It entered into an agreement with Wholesome Supermarket Corporation (“Wholesome”) for the construction of its flagship supermarket store in Taguig City. Under said contract, Build-It agreed to pay liquidated damages should it fail to finish the supermarket on time. Build-It unfortunately failed to deliver on time. Consequently, it was made to pay liquidated damages in favor of Wholesome for non-delivery of the supermarket store amounting to ₱25,000,000. Are the liquidated damages received by Wholesome subject to VAT? (a) Yes. The liquidated damages result in its gross receipts exceeding the threshold of ₱3,000,000.2 (b) No. The liquidated damages received by Wholesome for failure of the contractor to deliver on time are not subject to VAT since the same represent indemnification for the unexpected loss of assets. (c) I don’t know. (d) None of the above. (5) CValix Corporation declared property dividends in the form of common shares of its whollyowned subsidiary, RValix Corporation. The BIR assessed a donor’s tax on the difference between the FMV of the shares and the book value of such shares. Should a donor’s tax be imposed on this transaction? (a) Yes. A property dividend in the form of shares of stock may be classified as “other disposition” of shares of stock held as capital assets. Such disposition may result in a selling price lower than the FMV of such shares, and the difference between the 2 amounts shall be deemed a gift subject to the donor’s tax. (b) No. No gain or loss is recognized by the payor of the dividends. There can be no inadequacy of consideration which can lead to a donor’s tax. (c) All of the above. (d) None of the above. (6) 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. Estate Tax (7) 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 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 5,000,0003 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 8) If the decedent in number 7 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. 9) 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. 10) 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. 11) 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) All are true. (b) All are false. (c) 2 are true. (d) 2 are false.4 12) 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:1 (1)the taxpayer actually sustained a loss when the Department of Finance (“DOF”) denied 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” 13) 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. (14)Statement 1: The tax base for the excise tax excludes the VAT and the excise tax. Statement 2: The tax base for the VAT includes the excise tax. Statement 3: The tax base for the CWT excludes the VAT and the excise tax. (a) All are true. (b) All are false. (c) 2 are true. (d) 2 are false. Computation of VAT, Excise Tax, and CWT (15) Ms. Chona decided to undergo a noselift procedure. She availed of the services of Belat Clinic which is owned by Bole Medical Corporation, and located outside a hospital. Belat Clinic charged Ms. Chona ₱50,000, inclusive of VAT but exclusive of the 5% excise tax, for the service rendered. Compute the correct output VAT and the excise tax to be charged by Belat Clinic. (a) ₱5,625, ₱2,232 (b) ₱5,600, ₱2,200 (c) ₱5,620, ₱2,230 (d) None of the above 1 CIR vs. Maersk Global Service Centers, CTA (En Banc) Case No. 1786, June 13, 2019.5 (16) In number 15, if a 15% CWT on professional income payments is withheld by Ms. Chona, how much will the Belat Clinic collect: (a) ₱45,804 (b) ₱52,500 (c) ₱46,906 (d) None of the above 17) 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 ₱50,000, 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 ₱20,000, exclusive of the excise tax. Compute the correct output VAT and the excise tax on the transaction. (a) ₱5,625, ₱3,232 (b) ₱5,600, ₱2,200 (c) ₱5,625, ₱2,232 (d) None of the above 18) In number 17, how much will the hospital collect from Emma? (a) ₱73,500 (b) ₱70,500 (c) ₱50,000 (d) None of the above (19) If Dr. Mendiola avails 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. (20) 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 license (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.6 21) When Albert Estrada died, he had 3 legal heirs: Xavier Estrada, Yolanda Estrada, and Zion Estrada. Albert’s estate consisted of the following real properties to be shared equally among his legal heirs: Classification Assessor’s Value Zonal Value Residential ₱4,000,000 ₱3,000,000 Commercial ₱1,500,000 ₱6,000,000 Agricultural ₱5,000,000 ₱2,100,000 Instead of sharing the properties equally, the 3 heirs executed an Extrajudicial Settlement of the Estate. Pursuant to their agreement, the residential property went to Xavier, the commercial property went to Yolanda, and finally, the agricultural property went to Zion. How much donor’s tax will be payable, if any? (a) ₱70,500 (b) ₱60,500 (c) ₱45,000 (d) None of the above 22) Upon retirement, Kaitlynn Gabriel planned to sell a parcel of idle land (capital asset) in Calamba, Laguna which she inherited from her father 20 years ago. Before selling, she discovered that other parcels of land of the same size and in the same area sold for ₱2.8 M. She even hired a professional appraiser who estimated the value of her land at ₱3.0 M. She eventually sold the parcel of idle land to her friend for ₱2.4 M. The zonal value at the time of sale was ₱2.6 M, and the assessor’s value was ₱2.7 M. What is the capital gains tax (“CGT”) on the sale? a) 6% of ₱3.0 M b) 6% of ₱2.8 M c) 6% of ₱2.4 M d) None of the above. 23) 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 24) 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 C7 c) B and E d) E only e) None of the above 25) DEEP-FREEZE Medical Products installed refrigeration units in its Makati warehouse to store its vaccines. The City of Makati wants to assess DEEP-FREEZE for real property tax on the land, warehouse, and the refrigeration units. A. DEEP-FREEZE is not taxable. B. DEEP-FREEZE is taxable on the land and warehouse only C. DEEP-FREEZE is taxable on land and refrigeration units only. D. DEEP-FREEZE is taxable on land, warehouse, and refrigeration units. E. None of the above. 26) 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 27) 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. 28) Which of the following is FALSE? A. Every person legally authorized to practice his profession shall pay the professional tax anywhere in the Philippines, regardless of where he practices his profession or his principal office location. B. Such person who has paid the corresponding professional tax shall be entitled to practice his profession in any part of the Philippines without being subjected to any other national or local tax, license, or fee for the practice of such profession. C. The province or city may levy an annual professional tax on each person engaged in the exercise or practice of his profession requiring government examination at such amount and reasonable classification. D. Every person legally authorized to practice his profession shall pay the professional tax to the province or city where he practices his profession or where he maintains his principal office if he practices in several places. 29) Five years ago, AJ Raval bought 5,000 shares of ZENA Corporation (domestic, not listed) at par value. She sold her 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 the8 exception of its real property, the book value of ZENA’s assets and liabilities is equivalent to their market values. The book, market, zonal, and appraised values of ZENA’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 AJ’s shares of stock? A. ₱1,046,250 C. ₱375,000 B. ₱1,087,500 D. ₱750,000 30) How much is the documentary stamp tax due on the sale of AJ’s shares of stock? A. ₱37,500 C. ₱18,750 B. ₱91,875 D. ₱75,000 31) How much is the donor’s tax due, if any? A. ₱103,500 C. ₱135,000 B. ₱ 90,000 D. None 32) Assume that AJ donated the 5,000 shares of stock of ZENA 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 33) 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 100,0009 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 34) Compute total CGT on CRISTAL’s capital gains. (A) ₱ 753,000 (B) ₱4,065,000 (C) ₱ 615,000 (D) None of the above 35) 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 36) How much is the corporation’s RCIT? (a) ₱1,481,793 (b) ₱1,721,714 (c) ₱1,485,290 (d) None of the above 37) How much is the corporation’s MCIT? (a) ₱175,898 (b) ₱172,714 (c) ₱150,340 (d) None of the above10 38) 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 39) 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 40) Valix School of Business, Inc. (domestic corporation) is a proprietary educational institution with an issued permit from the CHED. In FY ending February 28, 2021, it recorded a net taxable income of ₱3.0 Million. Compute its income tax due for taxable year 2020 assuming that it passed the predominance test. (A) ₱300,000 (B) ₱ 30,000 (C) ₱120,000 (D) None of the above VAT Returns: 41) Domestic Inc., VAT-registered, had the following data (net of business taxes) for the last quarter of 2020 in Philippine peso: October November December Quarterly Totals Sales: VATable sales to private entities 500,000 200,000 300,000 1,000,000 Exempt sales 400,000 200,000 600,000 Sales to the government 300,000 100,000 400,000 Export sales 200,000 50,000 250,000 Total 1,400,000 400,000 450,000 2,250,000 October November December Quarterly Totals Purchase of goods from VAT suppliers related to: VATable sales to private entities 40,000 50,000 90,000 Exempt sales 30,000 50,000 80,000 Sales to the government 0 Export sales 30,000 30,000 Total 70,000 30,000 100,000 200,00011 October November December Quarterly Totals Purchase of services from VAT suppliers related to: VATable sales to private entities 20,000 20,000 Exempt sales 30,000 30,000 Sales to the government 200,000 100,000 300,000 Export sales 20,000 20,000 Total 220,000 50,000 100,000 370,000 October November December Quarterly Totals Purchase of depreciable capital goods from VAT supplier 3,000,000 2,000,000 5,000,000 Life in years 3 6 The corporation had excess input tax credit from the previous quarter in the amount of ₱3,900. In November 2020, it chose to file an application for VAT refund/TCC in the amount of ₱2,000. The purchase of the depreciable capital goods is for the benefit of all its businesses. What is the VAT payable for October 2020? (A) ₱43,900 (B) ₱69,000 (C) ₱43,000 (D) None of the above 42) What is the VAT payable for November 2020? (A) ₱43,900 (B) ₱13,000 (C) ₱23,000 (D) None of the above 43) What is the VAT payable for the 4th Quarter of 2020? (A) ₱19,564 (B) ₱20,889 (C) ₱13,567 (D) None of the above 44) Assume that the information in number 41 is for the 4th quarter of 2021, compute the VAT payable for October 2021.12 (A) ₱16,747 (B) ₱17,757 (C) ₱13,676 (D) None of the above 45) Assume that the information in number 41 is for the 4th quarter of 2021, compute the VAT payable for November 2021. (A) ₱13,000 (B) ₱17,757 (C) ₱13,676 (D) None of the above 46) Assume that the information in number 41 is for the 4th quarter of 2021, compute the VAT payable for 4th quarter of 2021. (A) ₱13,000 (B) ₱17,757 (C) ₱ 4,276 (D) None of the above The End