PROBLEM SOLVING:

(P4.1)
CASE A (Domestic Corporation):
1. P1,636,500
2. P81,250
3. P550,000
Solution
Philippines Abroad Total
Gross sales P10,000,000 P5,000,000 P15,000,000
Sales returns 200,000 (200,000)
Cost of goods sold 3,500,000 2,250,000 (5,750,000)
Operating expenses 2,800,000 1,100,000 (3,900,000)
Interest income from trade receivable 100,000 50,000 150,000
Interest income from BPI deposits-USA - 80,000 80,000
Dividend income-resident foreign corp. 45,000 - 45,000
Dividend income-nonresident foreign corp. - 30,000 30,000
Taxable income P5,455,000
Tax rate 30%
Normal Corporate Income Tax Due P1,636,500

Philippines Final Tax

Interest income from BPI deposits-Phils. @ 20% 100,000 P20,000
Interest income from FCDS @ 7.5% 150,000 11,250
Income from money market placement @ 20% 200,000 40,000
Royalty income @ 20% 50,000 10,000
Final tax on passive income P81,250
Capital Gains Tax

Gain on sale of shares sold directly to a buyer P10,000

[(100,000x 5%) + (50,000 x 10%)]
Sale of real property in the Philippines 540,000
(SP of P9M** x 6%)
Total Capital Gains Tax P550,000

**SP = Cost + Gain = P4M + 5M = P9M; SP is higher than FMV

CASE B (Resident Foreign Corporation):

4. P1,093,500
5. P81,250 (Same with Case A)
6. P550,000 (Same with Case A)

Solution:
Gross sales P10,000,000
Sales returns (200,000)
Cost of goods sold (3,500,000)
Operating expenses (2,800,000)
Interest income from trade receivable 100,000
Dividend income-resident foreign corp. 45,000
Taxable income P3,645,000
Tax rate 30%
Normal Corporate Income Tax Due P1,093,500
 CASE C (Non-Resident Foreign Corporation):
7. P2,038,500 computed as follows:
Gross sales P10,000,000
Sales returns (200,000)
Cost of goods sold (3,500,000)
GROSS INCOME P6,300,000
ADD:
Interest income from trade receivable 100,000
Dividend income-resident foreign corp. 45,000
Interest income from BPI deposits-Phils. 100,000
Income from money market placement 200,000
Royalty income 50,000
Total “Gross” Income P6,795,000
Tax rate 30%
Final Tax Due (Basis: Gross income) P2,038,500

(P4.2) P0. A foreign corporation is taxable only on its income derived from sources within the Philippines. The incomes
provided in the problem were all derived in U.S.

(P4.3)

Current account, BDO @ 20% P120,000

Savings deposit, BPI @ 20% 100,000
Interest income from government bonds @ 20% 40,000
Royalty income from various domestic corporations @ 20% 20,000
US dollar deposit, FCDU @ 7.5% 60,000
Total final taxes on passive income P340,000

(P4.4)
Q1 Q2 Q3 Q4
Gross profit from sales P1,600,000 P3,200,000 P4,800,000 P6,200,000
Business expenses (1,200,000) (2,400,000) (3,400,000) (4,200,000)
Taxable income 400,000 800,000 1,400,000 P2,000,000
NCIT 120,000 240,000 420,000 600,000
MCIT (Gross Profit x 2%) 32,000 64,000 96,000 124,000

TAX DUE (Higher) P120,000 P240,000 P420,000 P600,000

Less: Income tax withheld (30,000) (70,000) (130,000) (230,000)
Tax Paid Q1 - (90,000) (90,000) (90,000)
Tax Paid Q2 (80,000) (80,000)
Tax Paid Q3 - (120,000)
Income Tax Payable P90,000 P80,000 P120,000 P80,000

(P4.5)
 Year 4 Year 5 Year 6 Year 7 Year 8
MCIT 100,000 60,000 50,000 40,000 20,000
NCIT 30,000 70,000 60,000 30,000 90,000
TAX DUE (Higher) P100,000 P70,000 P60,000 P40,000 P90,000
Excess MCIT
Year 4 - (70,000) - - -
Year 7 (10,000)
Income Tax Payable P100,000 P0 P60,000 P40,000 P80,000

(P4.6)
1. P120,000
2. P690,000
3. P210,000
4. P495,000
Q1 Q2 Q3 Q4
Tax Due NCIT P300,000 MCIT P990,000 NCIT P1,410,000 NCIT P2,010,000
Excess MCIT Prior Yr (90,000) - (90,000) (90,000)
W/holding tax-Prior Yr (30,000) (30,000) (30,000) (30,00)
W/holding -During the Yr (60,000) (150,00) (270,000) (375,000)
Tax Paid Previous Qtr(s) (120,000) (810,000) (1,020,000)
Tax Payable P120,000 P690,000 P210,000 P495,000

(P4.7)
Case A (Taxable Joint Venture)
1. Taxable income of the joint venture = P20M
2. Tax due of the joint venture = P6M
3. Taxable income of ABC Company = P10M
4. Tax due of ABC Company = P3M
5. Taxable income DEF Company = P5M
6. Tax due of DEF Company = P1.5M
Joint Venture ABC Co. DEF Co.
Gross income P50,000,000 P30,000,000 P20,000,000
Business expenses (30,000,000) (20,000,000) (15,000,000)
Taxable income P20,000,000 P10,000,000 P5,000,000
Tax Rate (NCIT) 30% 30% 30%
Tax Due P6,000,000 P3,000,000 P1,500,000

Case B (Tax Exempt Joint Venture)

7. Taxable income of the joint venture = P0 (tax exempt)
8. Tax due of the joint venture = P0
9. Taxable income of ABC Company = P24M
10. Tax due of ABC Company = P7.2M
11. Taxable income DEF Company = P11M
12. Tax due of DEF Company = P3.3M

Joint Venture ABC Co. DEF Co.

Gross income P50,000,000 P30,000,000 P20,000,000
Business expenses (30,000,000) (20,000,000) (15,000,000)
Share in the income of the - 14,000,000 6,000,000
 joint venture
Net/ Taxable income P20,000,000 P24,000,000 P11,000,000
Tax Rate (NCIT) 30% 30%
Tax Due P0 P7,200,000 P3,300,000
(P4.8)
Case A:
1. Taxable income of the joint venture = P20M
2. Tax due of the joint venture = P6,000,000
3. Taxable income of Rico = P10M
4. Taxable income Earl = P5M
5. Final tax due of Rico (10%) = P980,000
6. Final tax due of Earl (10%) = P420,000
Joint Venture Rico Earl
Gross income P50,000,000 30,000,000 20,000,000
Business expenses (30,000,000) (20,000,000) (15,000,000)
Taxable income P20,000,000 P10,000,000 P5,000,000
Less: Tax Due @ 30% (6,000,000)
Distributable income P14,000,000
Share in income
Rico @ 70% P9,800,000
Earl @ 30% 4,200,000

Case B:
7. Taxable income of the joint venture = P0 (tax exempt)
8. Tax due of the joint venture = P0
9. Taxable income of Rico = P24,000,000
10. Taxable income Earl = P11,000,000
11. Final tax due of Rico = P0 ; subject to basic and creditable withholding tax
12. Final tax due of Earl = P0 ; subject to basic and creditable withholding tax

Joint Venture Rico Earl

Gross income P50,000,000 30,000,000 20,000,000
Business expenses (30,000,000) (20,000,000) (15,000,000)
Net income P20,000,000 P10,000,000 P5,000,000

Distributable income P20,000,000

Share in income
Rico @ 70% P14,000,000 14,000,000
Earl @ 30% 6,000,000 6,000,000
Taxable income P24,000,000 P11,000,000

(P4.9)
1. [(P6M-4M) + (($50,000-$20,000)x45)] = P3,350,000 x 30% = P1,005,000
2. (P6M-4M) x 30% = P600,000
3. P6M x 30% = P1,800,000
4. P6M x 2.5% = P150,000
5. P6M x 1.5% = P90,000
6. P6M x 25% = P1,500,000
 7. P6M x 4.5% = P270,000
8. P6M x 7.5% = P450,000
9. *P3,350,000 x 10% = P335,000; * from #1
10. P1,005,000; same computation with #1
11. P0; exempt

(P4.10)
1. [5M + 3M] x 2.5% = P200,000
2. [5M x 2.5%) + (3M x 1%)] = P155,000
3. [5M + 3M] x 2.5% = P200,000; No GPB on Gross receipts from USA to Russia

(P4.11)
1.Related 4.Related
2.Related 5.Related
3.Related 6.Unrelated

(P4.12)
Gross income, related activities P5,000,000

Gross income, unrelated activities (excluding rental income) 5,000,000

Rental income from commercial spaces (gross of 5% WT) 2,000,000

Expenses, related activities (2,000,000)

Expenses, unrelated activities (3,000,000)

Taxable income P7,000,000

Tax Rate (NCIT); Unrelated income  Related income 30%

Tax Due 2,100,000

Less: Quarterly tax payments for the first 3 quarters (500,000)

Income Tax Payable P1,600,000

(P4.13)
Question 1:
Tuition fees P9,500,000
Miscellaneous fees 1,200,000
Income from bookstore 350,000
Income of school canteen 180,000
Salary, allowances and bonus (6,400,000)
Other operating expenses (2,600,000)
Depreciation expense-classrooms (75,000)
Depreciation expense-furniture and equipment (50,000)
Taxable income P2,105,000
x Tax Rate 10%
Tax Due P210,500
 Question 2:
Tuition fees P9,500,000
Miscellaneous fees 1,200,000
Income from bookstore 350,000
Income of school canteen 180,000
Salary, allowances and bonus (6,400,000)
Other operating expenses (2,600,000)
Construction of additional classrooms (1,300,000)
Acquisition of furniture and equipment (400,000)
Taxable income P530,000
x Tax Rate 10%
Tax Due P53,000

(P4.14)
1. Income Tax Due (Payable) = P249,000 – CWT 15,000 = P234,000
2. Improperly accumulated earnings tax = P46,425
Solution:
Gross income (gross of 1% WT) P1,500,000
Business expenses (600,000)
Gain on sale of business asset 60,000
NOLCO in 2011 (130,000)
Taxable income P830,000
ADD:
2011 NOLCO 130,000
Interest on peso bank deposit (P5,000/80%) 6,250
Dividends from a domestic corporation 35,000
Gain on sales of shares, not listed and traded subjected to
capital gains tax (P150,000-115,000) 35,000 206,250
DEDUCT:
NCIT (P830,000 x 30%; higher than MCIT) 249,000
Final Tax on Passive income (6,250 x 20%) 1,250
Capital gains tax on shares (35,000 x 5%) 1,750
Dividends paid during the year 120,000 (372,000)
BALANCE P664,250
RE Jan. 1 200,000
RE Dec. 31, 2015 P864,250
LESS: Amount that may be retained (Par of Outs. Sh.) (400,000)
IMPROPERLY ACCUMULATED EARNINGS P464,250
x IAET RATE 10%
IMPROPERLY ACCUMULATED EARNINGS TAX P46,425

(P4.15) P1.5M x 6% = P90,000

(P4.16) (Sale 3 = P14,000) + (Sale 4 = P2,500) = P16,500