Corporation GPP Income Taxation PDF

CABRIA CPA REVIEW CENTER
CORPORATION AND GPP INCOME TAXATION Tel. Nos. (043) 980-6659

JIEXEL L. MANONGSONG
Classification of Income Taxpayers (other than individuals)
1. Corporation
1. Domestic Corporations (DC)
2. Foreign
1. Resident Foreign Corporations (RFC)
2. Non-resident Foreign Corporations (NRFC)
2. General Professional Partnership (GPP)
Corporation - is an artificial being created by operation of law, having the right of succession and the powers,
attributes, and properties expressly authorized by law or incident to its existence.
1. Artificial being – juridical person
2. Created by operation of law – created under Corporation Code of the Philippines or any other
special laws
3. Has right of succession – corporation will continue to exist, regardless of change of ownership
brought about by death, withdrawal, insolvency or incapacity of the existing owners
(shareholders)
4. Has the powers, attributes, and properties expressly authorized by law or incident to its existence
– corporation can enter into a contract, can sue and be sued, and can acquire properties and
rights necessary for its existence.
Corporation - includes partnerships, joint stock companies, joint accounts, associations, or insurance
companies (except for GPP and joint venture)
5. Domestic – corporation created or organized in the Philippines or under its laws
6. Foreign – corporation which is NOT domestic
1. RFC – foreign corporation engaged in trade or business within the Philippines
2. NRFC – foreign corporation NOT engaged in trade or business within the Philippines
SOURCE OF TAXABLE INCOME

TYPE OF CORPORATION SOURCE
DC World
RFC
Within only
NRFC
TYPES OF INCOME TAX

1. Final Withholding Tax (FWT) On Passive Income
2. Capital Gains Tax
3. Basic Tax
4. Tax on Branch Profit Remittances
5. Improperly Accumulated Earnings Tax
Final Withholding Taxes on passive income
Pro-forma Computation:
Passive income Pxxx
Rate x%
FWT Pxxx
KINDS OF PASSIVE INCOME
Page 1 of 22 cabria.batangas@gmail.com LAW.101

1. Interest Income
2. Royalties
3. Dividends
INTEREST INCOME Taxpayer RATE
Interest income from: DC 20%

a) Bank deposit RFC
b) Deposit substitute
c) Trust funds
Interest FROM (Depositor) a depositary bank under FCDU DC 15% TRAIN Law
NIRC of 1997 - 7.5% RFC
Taxpayer BORROWER RATE

Interest BY a depositary bank under FCDU DC Resident 10%
RFC Non-resident 0%
Local Banks and
OBU’s
ROYALTIES
Taxpayer RATE
DC 20%
RFC
DIVIDENDS
PAYOR (ISSUER) Taxpayer RATE
DC DC 0%
RFC
NRFC 15%
FC DC BASIC TAX
CAPITAL GAINS TAX

KINDS of Capital Gains Tax
1. Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange
2. Capital Gains from Sale of Land and/or Building
CGT ON SHARES
Selling price Pxxx
Cost (xx)
Selling expense (xx)
Net gain Pxxx
x 15%*
Capital Gains Tax Pxxx
TRAIN Law – flat rate 15%

NOTE: Applicable to ALL classes of corporations.
CGT ON REAL PROPERTY
Tax Base Pxxx

Rate 6%
Capital Gains Tax Pxxx
Tax Base =

NOTE: Not applicable to FC.
BASIC TAX
SPECIAL CORPORATIONS
Types of Special Corporations
1. Domestic Corporations
a) Proprietary Educational Institutions (PEI’s)
b) Non-profit Hospitals (NPH’s)
c) Government-owned or Controlled Corporations (GOCC’s)
2. Resident Foreign Corporations
a) International Carriers
b) Offshore Banking Units
c) Regional Operating Headquarters
3. Non-Resident Foreign Corporations
a) Cinematographic Film Owner, Lessor or Distributor
b) Owner or Lessor of Vessels Chartered by Philippine Nationals
c) Owner or Lessor of Aircraft, Machineries & Other Equipment
Domestic Corporation: PEI’S & NPH

AMOUNT OF TAX
Gross Income PXXX
Allowable Deductions (XX)
Taxable Income PXX
Rate ?
Basic Tax PXX
RATE
In General (Income Related > Income NOT related) 10%
Income Related < Income not related 30%
• Pre-Dominance Test – to check if the income related is HIGHER than the income not related.
Domestic Corporation: GOCC’s

APPLICABLE TAX
In General Taxable like Ordinary Corp.
SPECIFIC Exempt
1. Social Security System (SSS)
2. Government Service Insurance System (GSIS)
3. Philippine Health Insurance Corp. (PHIC)
4. Philippine Charity Sweepstakes Office (PCSO) (subject to
Tax base on TRAIN Law)
5. Local Water Districts (LWD)
RFC: International Carriers

Gross Philippine Billings PXXX
Rate 2.5%
Basic Tax PXX
RFC: Offshore Banking Units (OBUs)

TYPE OF INCOME BORROWER RATE
Interest income from foreign currency loans Resident 10% FWT
Non-resident 0%
Local Banks & OBUs

RFC: Regional Operating Headquarters (ROHQs)
Taxable Income PXXX
Rate 10%
Basic Tax PXX
NRFC in General
Tax base is Gross Income from sources within the Philippines, such as interest, dividends, rents, royalties,
salaries, premiums (except reinsurance premium) annuities, emoluments, or other fixed or determinable
annual, periodic or casual gains, profits and income, and capital gains.
Gross Income xxx
Tax rate x 30%
Tax Due xxx
NRFC in Particular
1. Cinematographic Film Owner, Lessor, or Distributor
2. Owner or Lessor of Vessels
3. Owner or Lessor of Aircraft, Machinery and other Equipment
NRFC: Cinematographic Film Owner Etc.

Gross Income PXXX
Rate 25%
Basic Tax PXX
NRFC: Owner/Lessor of Aircraft etc.

Gross Income PXXX
Rate 7.5%
Basic Tax PXX
NRFC: Owner/Lessor of Vessels

Gross Income PXXX
Rate 4.5%
Basic Tax PXX
Income Tax of NRFC
TYPE OF INCOME RATE

Interest income on foreign loans 20%
Interest income from a depository bank under FCDU 0%
Dividend income w/ tax sparring 15%
All other income 30%
Branch profit remittances TAX (BPRT)

Profit remitted to HO PXXX
Rate x15%
BPRT PXXX
NOTE:
1. Applicable only to RFC
2. Income not connected to trade or business is not included.
EXEMPTION FROM BPRT

Entities registered with the following:
1. PEZA
2. SBMA
3. CDA
4. Other companies within the special economic zones

Ordinary Corporation
Taxable Income Pxxx
x30%
Regular Corporate Income Tax (RCIT) Pxxx
VS.
Minimum Corporate Income Tax
Gross Income from Operation x 2% Pxxx
Regular Corporate Income Tax (RCIT)

Sales/Revenues/Receipts/Fees P xxx
Less: Cost of Sales/Services (xxx)
Gross Income from Operation P xxx
Add: Non-operating Income xxx
Total Gross Income PXXX
Allowable Deductions (XX)
Taxable Income PXXX
Rate 30%
RCIT Pxxx
Allowable Deductions
- items or amounts which the law allows to be deducted from gross income in order to arrive at the taxable
income.
DC/RFC- may deduct from its business income
1. Itemized Deductions; or
2. OSD (40% of gross income)
NRFC – are NOT allowed deductions from gross income.
Minimum Corporate Income Tax
• MCIT – 2% of Gross Income as of the end of the taxable year imposed beginning the fourth 4th taxable
year (whether calendar or fiscal year) in which such corporation commenced its business operations.
MCIT shall be imposed whenever:
a. Such corporation has zero or negative taxable income; or
b. The amount of MCIT is greater than the RCIT
Relief from MCIT

Corporations which suffers losses on account of:
a. Prolonged labor dispute – losses arising from strike staged by the employees which lasted for more than
six (6) months within a taxable period and which has caused temporary shutdown of business operation
b. Force majeure – cause due to an irresistible force as by “Act of God” like lightning, earthquake, storm,
flood and the like. It also include armed conflicts like war and insurgency.
c. Legitimate business reverses – includes substantial losses sustained due to fire, robbery, theft or
embezzlement, or for other economic reason as determined by the Secretary of Finance.
Gross Income for Trading/Merchandising and Manufacturing Concerns
Gross Sales xxx

Less: Sales Returns xxx
Sales Discounts xxx
Sales Allowances xxx (xxx)
Net Sales xxx
Less: Cost of Sales/Cost of Goods Sold (xxx)
Gross Income xxx
X rate 2%
MCIT xxx
Cost of Sales for Trader/Merchandiser

Invoice Cost PXXX
Import Duties XXX
Freight XXX
Insurance while in transit XXX
COS PXXX
Cost of Goods Sold for Manufacturer

DO - FIRM
Direct Labor PXXX
Other Costs of Production XXX
Freight XXX
Insurance premiums XXX
Raw materials used XXX
Manufacturing Overhead XXX
COGMS PXXX
Gross Income for Sale of Services Under Cash Basis
Gross Receipts xxx

Less: Sales Returns xxx
Sales Discounts xxx
Sales Allowances xxx (xxx)
Net Receipts xxx
Less: Cost of Services (xxx)
Gross Income xxx
x rate 2%
MCIT xxx
* If under Accrual Basis (Gross Receipts x 2%)
Cost of Services
CORDS
Cost of Supplies PXXX
Other Direct Costs XXX
Rental XXX
Depreciation XXX
Salaries & Employee Benefits XXX
COS PXXX
Cost of Services for Banks & Financial Intermediaries
I-CORDS
Interest Expense PXXX
Cost of Supplies XXX
Other Direct Costs XXX
Rental XXX
Depreciation XXX
Salaries & Employee Benefits XXX
COS PXXX
Period subject to MCIT

 Beginning 4th taxable year following the year of commencement of business operations.
Accounting Treatment of Excess of MCIT over RCIT
 Any excess MCIT over RCIT shall be recorded as “deferred charges – MCIT”
 It shall be carried forward and credited against RCIT for 3 immediately succeeding taxable years.
 Any excess MCIT which has not or cannot be so credited against the RCIT due for 3 – year reglementary
period shall LOSE its creditability. (expired)

 Such amount shall be remove from deferred charges-MCIT and debited (charge) to Retained
Earnings and debited to deferred charges - MCIT
Entities Exempt from MCIT

Domestic Corporation
1. Proprietary educational institutions
2. Non-profit hospitals
3. Depository banks under expanded FCDS
4. Firms under a special tax regime such as:
a. PEZA/SBMA registered entities
b. Bases Conversion Devt’ Act registered entities
Entities Exempt from MCIT

Resident Foreign Corporations
1. International Carriers
2. Offshore banking units (OBU’s)
3. Regional operating headquarters
4. Firms under a special tax regime such as:
a. PEZA/SBMA registered entities
b. Bases Conversion Devt’ Act registered entities
Suspension of MCIT
In order that cessation of business activities as a result of being placed under involuntary receivership may be
a basis for the recognition of the suspension of the MCIT, such a situation should be properly defined and
included in the regulations. Pending such inclusion, the same cannot yet be invoked. (BIR Ruling 007-01, Feb
22, 2001)
Improperly Accumulated Earnings Tax (IAET)

The 10% IAET is imposed on improperly accumulated earnings starting Jan. 1, 1998 by domestic
corporations as defined under the Tax Code and which are classified as closely-held corporations.
Who Are Exempted?
IAET shall not apply to (BPI):
1. Banks and other nonbank financial intermediaries;
2. Publicly- held corporations; and
3. Insurance companies.
-partnerships-
1. Taxable Partnership
2. GPP
3. Non-taxable joint ventures
4. PEZA registered enterprises
Closely – held Corporations

Corporations with at least fifty percent (50%) in value of the outstanding capital stock or at least fifty percent
(50%) of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly
by or for not more than twenty (20) individuals.
Domestic corporations not falling under the aforesaid definition are, therefore, publicly-held corporations.
Who Are Liable?

• Corporation permitting its earnings and profits to accumulate beyond the reasonable needs of the
business.
Presumption of evidence of improper accumulation of profits and hence avoidance of tax payables of
stockholders:
1. holding companies 3. closely-held corporations
2. investment companies 4. profit accumulation beyond the needs of business

Reasonable accumulation of profits:
1. additional working capital purposes
2. purchase of long-life assets reasonably required by the business (expansion, improvement and
repairs)
3. the acquisition of a related business or the purchase of the stock of a related business where a
subsidiary relationship is established
4. obligation in a contract to set aside funds in a sinking fund to settle a debt
5. anticipated losses or business reverses
Immediacy Test – profit must be applied not too long from the time of retention of profits. This rule applies
if the accumulation of profit is deemed for the reasonable needs of business.
Limit under the Corporation Code of the Philippines – a corporation can retain profits not exceeding 100%
of its paid in capital. Accumulation of profits up to 100% of the paid up capital therefore is not an improper
accumulation of profit.
Formula in computing IAET:

Taxable income for the year xxx
Add:
a) Income subjected to final tax xxx
b) NOLCO xxx
c) income exempt from tax xxx
d) income excluded from gross income xxx xxx
Total xxx
Less:
a) income tax paid xxx
b) dividends declared/paid xxx xxx
Total
Add: Retained Earnings from prior years
Accumulated earnings as of the year xxx
Less: Amount that may be retained (100% of paid up (xxx)
Improperly Accumulated Taxable Income xxx
Multiply by rate 10%
Improperly Accumulated Earnings Tax xxx
Period of Payment of Dividend/ Payment of IAET

The dividend must be declared and paid or issued not later than one year following the close of the
taxable year, otherwise IAET, if any, should be paid within fifteen (15) days thereafter.
Determination of Purpose to Avoid Income Tax

Prima Facie Evidence – the fact that any corporation is a mere holding company or investment
company.
Holding or Investment Company – refer to a corporation having practically no activities except holding
property, and collecting the income from therefrom or investing the same.
Prima facie instances:
1. Investment of substantial earnings of the corporation in unrelated business or in stock or securities of
unrelated business
2. Investment in bonds and other long-term securities
3. Accumulation of earnings in excess of 100% of paid-up capital, not otherwise intended for the reasonable
needs of the business.
Exempt Corporations (Section 30 of the Tax Code)

a. Labor, agricultural or horticultural organizations not organized principally for profit
b. Mutual savings bank not having a capital stock represented by shares, and cooperative bank without
capital stock organized and operated for mutual purposes and without profit (now governed by RA 8367
or the Revised Non-Stock Savings and Loan Association Act of 1997 and RA 6938, as amended
by RA 9520 or the Philippine Cooperative Authority Law of 2008)
c. A beneficiary society, order or association, operating for the exclusive benefit of the members such as
fraternal organizations operating under the lodge system, or a mutual aid association or a non-stock

corporation organized by employees providing for the payment of life, sickness, accident, or other
benefits exclusively to the members of such society or order, or association, or nonstick corporation or
their dependents.
d. A cemetery company owned and operated exclusively for the benefit of its members
e. Non-stock corporation or association organized and operated exclusively for religious, charitable,
scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its income inure
to the benefit of any member, organizer, officer or any specific person
f. Business league, chamber of commerce, or board of trade, not organized for profit and no part of the net
income or which inures to the benefit of any private stockholder or individual
g. Civic league or organizations not organized for profit but operated exclusively for social welfare
h. Non-stock and nonprofit educational institution
i. Government educational institution
j. Farmer’s or other mutual typhoon or fire insurance company, mutual ditch or irrigation company, mutual
cooperative telephone company, or like organizations of a purely local character, the income of which
consists solely of assessments, dues, and fees collected from members for the sole purpose of meeting
its expenses; and
k. Farmer’s, fruit growers’, or like association organized and operated as a sales agent for the purpose of
marketing the products of its members and turning back the proceeds of sales, less the necessary selling
expenses on the basis of the quantity of produce finished by them.
Note: Income from whatever kind and character of the above organizations from any of their properties, real or
personal, or from activities conducted for profit regardless of the disposition made of such income, shall be
subject to income tax except on non-stock, non-profit educational institution which remain exempt.
PARTNERSHIP
By the contract of partnership, two or more persons bind themselves to contribute money, property or
industry to a common fund with the intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of profession. Art. 1767 of the Civil
Code
Kinds of Partnerships
KINDS OF Partnerships Regular Income Tax
General Professional Partnerships (GPP’s) Exempt

General Co-Partnerships (GCP’s) Taxable like Ordinary Corp.
Unregistered Partnerships (UP’s)
KINDS OF Partnerships Regular Income Tax
General Professional Partnerships (GPP’s) Exempt

General Co-Partnerships (GCP’s) Taxable like Ordinary Corp.
Unregistered Partnerships (UP’s)
Allowable Deductions
1. Itemized deductions
2. Optional Standard Deductions
Net Distributable Income from GCP/ UPs

• Income distributed to each partner is subject to 10% Final Withholding Tax like the dividends received
by individuals from corporations.
Net Distributable Income of GPPs

• Part of Taxable Income of each or individual partners. Subject to Basic Tax.
• Not more than 720, 000 – 10% CWT
• 720, 000 or more – 15% CWT
Co-ownerships
There is co-ownership whenever the ownership of an undivided thing or right belongs to different
persons (Art. 484, NCC)
A co-ownership is exempt from tax.
-done-
MULTIPLE CHOICE THEORIES

1. Guidant Resources Corporation, a corporation income taxation on
registered in Norway, has a 50MW electric power A. Gains it derived from sale in Australia of
plant in San Jose, Batangas. Aside from an ore crusher it bought from the
Guidant's income from ts power plant, which Philippines with the proceeds converted to
among the following is considered as part of its pesos.
income from sources within the Philippines? B. Gains it derived from sale in Australia of
A. Gains from the sale to an Ilocos Norte shares of stock of Philex Mining
power plant of generators bought from the Corporation, a Philippine corporation.
United States. C. Dividends earned from investment in a
B. Interests earned on its dollar deposits in a foreign corporation that derived 40% of its
Philippine bank under the Expanded gross income from Philippine sources.
Foreign Currency Deposit System. D. Interests derived from its dollar deposits in
C. Dividends from a two-year old Norwegian a Philippine bank under the Expanded
subsidiary with operations in Zambia but Foreign Currency Deposit System.
derives 60% of its gross income from the
Philippines. 4. A corporation organized and created under the
D. Royalties from the use in Brazil of laws of a foreign country and is authorized to do
generator sets designed in the Philippines business/ trade in the Philippines is:
by its engineers. A. Domestic corporation C. Non-resident
foreign corporation
2. Aplets Corporation is registered under the laws of B. Resident foreign corporation D. General co-
the Virgin Islands. It has extensive operations in partnership
Southeast Asia. In the Philippines, Its products
are imported and sold at a mark-up by its 5. A corporation which may be classified as cither a
exclusive distributor, Kim's Trading, Inc. The BIR resident corporation or a non-resident corporation
compiled a record of all the imports of Kim from is
Aplets and imposed a tax on Aplets net income A. Domestic corporation C. Government owned
derived from its exports to Kim. Is the BIR and controlled corporation
correct? B. Foreign corporation D. Non-profit hospital
A. Yes. Aplets is a non-resident foreign
corporation engaged in trade or business 6. A domestic corporation may employ, as a basis
in the Philippines. for filing its annual corporate income tax return
B. No. The tax should have been computed the:
on the basis of gross revenues and not A. Calendar year only C. Either
net income. calendar or fiscal year
C. No. Aplets is a non-resident foreign B. Fiscal year only D. Neither
corporation not engaged in trade or calendar nor fiscal year
business in the Philippines.
D. Yes. Aplets is doing business in the 7. A corporation files a quarterly return within
Philippines through its exclusive distributor A. 30 days after the end of each of the first 3
Kim's Trading. Inc. quarters
B. 30 days after the end of each of the first 4
3. Zygomite Minerals, Inc., a corporation registered quarters
and holding office in Australia, not operating in C. 60 days after the end of each of the first 3
the Philippines, may be subject to Philippine quarters

D. 60 days after the end of each of the first 4 A. Social Security System
quarters B. Phil. Charity Sweepstakes Office
C. Proprietary Educational Institution
8. A final or annual return is filed on or before the 15 D. Government Service Insurance System
day of the
A. Month following the close of the taxable year 14. The Philippine Health Insurance Corporation, a
B. 3rd month following the close of the taxable government owned corporation is:
year A. Exempt from the corporate income tax.
C. 2nd month following the close of the taxable B. Subject to the preferential corporate income
year. tax for special corporations.
D. 4th month following the close of the taxable C. Subject to the basic corporate income tax.
year D. Subject to final tax.
9. A corporation on a fiscal year ending March 31, 15. Public educational institutions, like the University
should file its annual return of the Philippines is deemed by law:
A. On or before April 15 of the same year A. Subject to the preferential corporate income
B. On or before July 15 of the same year tax for special corporations
C. On or before April 15 of the following year B. Subject to the basic corporate income tax.
D. On or before July 15 of the following year C. Subject to both the preferential income tax
and the basic corporate income tax.
10. One of the general principles of income taxation: D. Exempt from the corporate income tax.
A. A foreign corporation engaged in business in
the Philippines is taxable on all income 16. Which is not correct? The following are exempt
derived from Sources within and without the from the corporate income tax:
Philippines A. Philippine Charity Sweepstakes Office
B. A foreign corporation engaged in business in B. Gov't. owned or controlled corp.
the Philippines is taxable on all income C. Bureau of Internal Revenue
derived from sources within the Philippines D. Social Security System
only
C. A domestic corporation is taxable on income 17. Which of the following maybe subject to the
derived from sources within the Philippines corporate income tax?
only. A. A non-stock and non-profit educational
D. A domestic corporation is taxable on income institution
derived from sources without the Phils. only. B. A private educational institution
C. A public educational institution
11. One of the following does not fall under the D. Government Service Insurance System
definition of a "corporation" for income tax
purpose: 18. The improperly accumulated earnings tax shall
A. General partnership C. Insurance company apply to
B. Joint stock company D. Sole proprietorship A. Publicly held corporation
B. Insurance companies
12. Which of the following is subject to the corporate C. Banks and other non-bank financial
income tax? intermediaries
A. A non-stock and non-profit educational D. Private corporations
institution
B. Public educational institution 19. Which of the following statements is not correct?
C. Civic league or organization not organized for A. MCIT is not applicable to non-resident foreign
profit and operated exclusively for the corporations
promotion of social welfare B. The corporate quarterly return shall be filed
D. Mutual savings bank and cooperative bank within 60 days following the close of each of
having a capital stock represented by shares the first three quarters of the taxable year.
organized and operated for mutual purposes C. Resident foreign corporations would be taxed
and profit. on net income from within the Phils. only
D. Non-resident foreign corporations are taxed
13. Which of the following is classified as special on gross income from within and without the
corporation subject to preferential corporate Phils.
income tax rate?

20. The following income are subject to final tax,
except 23. If the gross income from unrelated activity
A. Royalty income received by a domestic exceeds 50% of the total gross income derived by
corporation from a domestic corporation. any private educational institution, the rate shall
B. Cash dividends received by a non-resident be for ordinary corporation based on the entire
foreign corporation from a domestic taxable income. This principle is known as
corporation A. Constructive receipt
C. Cash dividends received by a domestic B. End trust doctrine
corporation from a domestic corporation. C. Tax benefit rule
D. Interest income received by resident foreign D. Predominance test
corporation from a Philippine bank
24. All of the following statements are correct, except
21. The MCIT shall not apply to the following resident one. Which is the exception?
foreign corporations, except A. The source of interest income is the country
A. RFC engaged in business as international where the debtor resides
carrier subject to 2 49% of their Gros B. The source of dividend income is the country
Philippine Billings where the corporation was incorporated
B. RFC engaged in business as Offshore C. Rents are considered derived from the
Banking Units on their income from foreign country where the property is located
currency transactions with local commercial D. Income from personal services is considered
banks. derived from the country where the services
C. RFC engaged in business as regional were rendered
operating headquarters 25. Statement 1 - A gain from sale of shares of a
D. RFC engaged in hotel, motel and resort domestic corporation shall be considered derived
operations from the Philippines regardless of where the
shares were sold.
22. A Corporation declared and distributed to its Statement 2- A gain from sale of shares of a
stockholders shares of B Corporation. One of its foreign corporation shall be considered derived
stockholders, W, received 100 shares of B from the country where the corporation was
Corporation shares as dividends. At the date of created or organized
dividend declaration, the fair market value of B A. True, True
Corporation shares was P120 per share and by B. True, false
the time W received the dividend, the fair market C. False, true
value per share was P180. Which of the following D. False, false
is correct? The dividend is
A. A stock dividend, hence exempt from tax
B. A property dividend, hence part of taxable
income of W 26. For income taxation purposes, the term
C. A property dividend, hence subject to final tax "corporation" excludes one of the following:
based on its fair market value of P120 per A. Ordinary partnership
share B. An incorporated business organization
D. A property dividend, hence subject to final tax C. General professional partnership
based on its fair market value of P180 per D. Business partnership
share
MULTIPLE CHOICE PROBLEMS

Problem 1
Mha Swerte Corporation provided the following data for calendar year ending December 31, 2019 ($1= Php
50)
Philippines Abroad
Gross Income Php 4, 000, 000 $ 40, 000
Deductions 2, 500, 000 15, 000
Income Tax Paid 3, 000
1. If it is a domestic corporation, its income tax b. 675, 000

due after tax credit is c. 962, 500
a. 812, 500 d. 480, 000

10. If it is a non-resident lessor of aircrafts,
2. If it is a resident corporation, its income tax is machineries and equipments, its income tax is
a. 730, 000 a. 100, 000
b. 450, 000 b. 180, 000
c. 480, 000 c. 300, 000
d. 525, 000 d. 128, 000
3. If it is a non-resident corporation, its income tax 11. If it is a resident corporation but its expenses
is within and outside the Philippines is Php 3M,
a. 730, 000 unallocated (disregard original data on
b. 1, 280, 000 expenses), its income tax is
c. 1, 200, 000 a. 640, 000
d. 1, 400, 000 b. 700, 000
c. 480, 000
4. Under No. 1, but it opts to claim the tax paid d. 600, 000
abroad as deduction from gross income, its
income tax is
a. 910, 000 12. If it is a resident corporation and it remitted 60%
b. 832, 000 of its net profit to its head office abroad, its total
c. 275, 000 tax liability is (original data)
d. 780, 000 a. 480, 000
5. If it is a private educational institution, its b. 571, 800
income tax due after tax credit c. 544, 500
a. 125, 000 d. 612, 750
b. 832, 000
c. 275, 000 13. If it is a private educational institution but Php 3,
d. 150, 000 500, 000 of its total gross income is from leas &
restaurant business, its income tax is:
6. If it is a non-profit hospital, its income tax due a. 730, 000
after tax credit b. 675, 000
a. 125, 000 c. 150, 000
b. 832, 000 d. 832, 000
c. 275, 000
d. 150, 000 14. If it is domestic corporation but its total expense
is Php 5, 800, 000 (disregard original data on
7. If it is a resident international carrier, its income expenses), its income tax is
tax is a. 730, 000
a. 100, 000 b. 64, 000
b. 10, 000 c. 120, 000
c. 37, 000 d. 85, 000
d. 125, 000
15. If under No. 14, but the domestic corporation is
8. If it is a non-resident cinematographic film a non-profit hospital, (disregard tax paid
owner/lessor, its income tax is abroad) its income tax is:
a. 1, 000, 000 a. 20, 000
b. 100, 000 b. 64, 000
c. 300, 000 c. 10, 909
d. 128, 000 d. 120, 000
9. If it is non-resident lessor of vessels, its income 16. If the corporation is a non-stock educational
tax is institution which uses all its revenues or income
a. 100, 000 for educational & charitable purpose, its income
b. 180, 000 tax is
c. 300, 000 a. 0
d. 128, 000 b. 730, 000
c. 120, 000
d. 64, 000

Problem 2
Ba Nal Corporation has the following data for the year 2019:
Gross Income, Philippines Php 1, 000, 000

Gross Income, USA 500, 000
Gross Income, Japan 500, 000
Expenses, Philippines 300, 000
Expenses, USA 200, 000
Expenses, Japan 100, 000
Other Income:
Dividend from San Miguel Corp 70, 000
Dividend from Ford Motors, USA 120, 000
Gain, Sale of San Miguel Share directly to buyer 150, 000
Royalties, Philippines 50, 000
Royalties, USA 100, 000
Interest (other than from banks) 60, 000
Rent, land in USA 250, 000
Other rent income 100, 000
Prizes, contest in Manila 200, 000
Land in Philippines 1, 000, 000
1. The cost of land which is not used in business at Php 3, 500, 000 while FMV is Php 4, 000, 000. Its tax
liability as a domestic corporation is
a. 780, 500
b. 669, 000
c. 959, 000
d. 980, 500
2. Based on the above problem, its total tax liability if it is a resident corporation is
a. 721, 000
b. 608, 000
c. 638, 000
d. 741, 000
3. And if it is a non-resident corporation, its total tax liability is

a. 743, 500
b. 701, 700
c. 746, 000
d. 864, 000
Problem 3
Mha Palad Company has the following data for the current taxable year:
Philippines Australia
Gross Sales 3, 000, 000 2, 000, 000
Cost of Sales 1, 200, 000 800, 000
Other income 600, 000 400, 000
Total Itemized Business Exp 1, 200, 000 540, 000
In addition, Mha Palad Company earned an income of Php 700, 000 during the year that cannot be identified if
sourced from within the Philippines or from Australia.
Required: Compute the amount of corporate tax liability under each of the following cases:
1. Domestic corporation using itemized deduction
2. Resident foreign corporation using the optional standard deduction
3. Non-resident foreign corporation, assuming income from within the Philippines is derived from
interest, rents and dividends.

Problem 4
CPA University, a private educational institution organized in 2000, had the following data for 2012.
Tuition fees P 850,000
Rental income (net of 5% cwt) 142,500
School related expenses 820,000
How much is the income tax sill due for 2012?
a. P 54,000 b. Pi0,500 c. P 18,000 d. P 46,500
Problem 5
CPA College, a private educational institution organized in 2000, had the following data for 2012.
Tuition fees P 480,000
Rental income (net of 5% cwt) 494,000
School related expenses 945,000
How much is the income tax still due for 2012?
a. P16,500 b. (P 9,500) C. P6,000) d. P 20,000
Problem 6
CPA Airlines, a resident foreign international carrier has the following records of income for the period. (The
income represents gross Phil. billings) 27*
a. Continuous flight from Manila to Tokyo =1,000 tickets at P 2,000 per ticket
b. Flight from Manila to Singapore; transfer flight from Singapore to Tokyo = 2,000 tickets at
P2,000 per ticket
c. Continuous flight from Manila to Singapore=3,000 tickets at P 1,000 per ticket
How much is the income tax due?
a. P 225,000 b. P 125,000 c. P 100,000 d. P 175,000
Problem 7
Selected cumulative balances were taken from the records of CYA Co., a domestic corporation, in its fifth year
of operations in 2019, which had an income tax refundable of Php 10, 000 for a preceding year for which there
is a certificate of tax credit:
Q1 Q2 Q3 Q4
Gross profits from sale Php 800, Php 1, 600, Php 2, 400, Php 3, 100,
000 000 000 000
Capital gain on sale directly to buyer of shares 50, 000 50, 000 50, 000 50, 000
of domestic corp
Dividend from domestic corp 10, 000 10, 000 10, 000 10, 000
Interest in Phil currency Bank deposits 5, 000 10, 000 15, 000 20, 000
Business expenses 600, 000 1, 200, 000 1, 700, 000 2, 100, 000
Income tax withheld 15, 000 35, 000 65, 000 115, 000
1. The income tax due at the end of first quarter:
a. Php 39, 000
b. Php 45, 000
c. Php 35, 000
d. Php 60, 000
2. The income tax due at the end of second quarter:

a. Php 50, 000
b. Php 85, 000
c. Php 70, 000
d. Php 40, 000
3. The income tax due at the end of third quarter:

a. Php 60, 000
b. Php 70, 000
c. Php 75, 000

d. Php 80, 000
4. The income tax due (refundable) at the end of the year:

a. Php 52, 000
b. Php 50, 000
c. Php 30, 000
d. Php 40, 000
PROBLEM 1 MCIT
A Corporation's records show: Excess MCIT Excess Withholding
Quarter RCIT MCIT Taxes Excess MCIT Prior Excess Withholding Tax
Withheld Year Prior Year
First P100,000 P80,000 P20,000 P30,000 P10,000
Second 120,000 250,000 30,000
Third 250,000 100,000 40,000
Fourth 200,000 100,000 35,000
1. How much is the income tax due for the first quarter?
a. P100,000 b. P80,000. P50,000 d. P40,000
2. How much is the income tax due for the second quarter?
a. P120,000 b. P250,000 c. P150,000 d. P230,000
3. How much is the income tax due for the third quarter?
a. P250,000 b. P100,000 c. P140,000 d. P70,000
4. How much is the income tax due for the year?

a. P200,000 b. P100,000 c. P135,000 d. P165,000
5. Using the preceding problem except that the normal income tax for the fourth quarter is P50,000 (instead
of P200,000), how much is the income tax due for the year?
a. P120,000 b. P55,000 c. P45,000 d. P75,000
PROBLEM 2 MCIT
A domestic corporation organized in 2008 provided the following information:
2016 2017 2018 2019 2020
Net Sales P4, 000, 000 P5, 000, 000 P6, 000, 000 P7, 000, 000 P9, 000, 000
Cost of Sales 2, 000, 000 3, 500, 000 4, 200, 000 5, 000, 000 5, 200, 000
Gross Income
Business Expenses 1, 900, 000 1, 550, 000 1, 820, 000 2, 100, 000 2, 300, 000
Net Income
1. How much is the Income tax due for 2016?

A. Php 35, 000
B. Php 30, 000
C. Php 40, 000
D. Php 32, 000
2. The income tax due for 2020?

A. Php 293, 000
B. Php 399, 000
C. Php 344, 000
D. Php 450, 000
PROBLEM 3 MCIT
A domestic Corporation has the following data for 2019:
Excess MCIT 2018 - Php 10, 000

Q1 Q2
Income, net of 1% withholding tax Php 495, 000 Php 792, 000
Deductions 480, 000 700, 000
Net income
How much is the income tax still due and payable in the second quarter?
A. Php 4, 000
B. Php 8, 000
C. Php 9, 000
D. Php 13, 000
PROBLEM 1 IAET
The records of a closely held domestic corporation show the following data for 2019:
Gross income Php 1, 500, 000

Business Expenses 600, 000
Gain on sale of business asset 60, 000
Interest on deposits with Metrobank, net of tax 5, 000
Sale of shares of stocks, not listed and traded:
Selling price 150, 000
Cost 115, 000
Dividends from Victory Corporation, domestic 35, 000
Dividends paid during the year 120, 000
Reserved for building acquisition 300, 000
In 2018, the corporation suffered an operating loss of Php 130, 000. This amount was carried forward and
claimed as deduction from gross income in 2019.
1. How much is the income tax due in 2019?
A. Php 234, 375
B. Php 249, 000
C. Php 273, 937
D. Php 288, 000
2. How much is he improperly accumulated earnings tax?

A. Php 48, 640
B. Php 34, 765
C. Php 35, 640
D. Php 36, 425
PARTNERSHIP
PARTNERSHIPS, JOINT VENTURE AND CO-OWNERSHIP
1. The following statements regarding taxable partnerships are correct, except
A. They file quarterly and year-end income tax returns.
B. They are subject to the rules on corporation for capital gains tax, final tax on passive income, normal
income tax, minimum corporate income tax and gross income tax.
C. The partners' share in the distributable net income is subject to final tax.
D. They are subject to the improperly accumulated earnings tax.
2. As regards a general professional partnership, which of the following is not correct?

A. It shall not be subject to income tax
B. The partners shall not be liable for income tax on their respective distributive share
C. Each partner shall report as gross income his distributive share in the partnership net income
D. The share of a partner shall be subject to a creditable withholding tax of 10% if his distributive share is
P720,000 and below, and 15% if more than P720,000
3. If a partner, on his own transactions, is on the cash method of accounting while the general professional
partnership is on the accrual method of accounting, in the partner's determination of his taxable income for

the year, he
A. Must convert his income from the partnership into cash method
B. Must convert his own income into accrual method
C. Does not report his income from the partnership because the partnership is exempt from income tax
D. Can consolidate his share in the net income of the partnership under accrual method with his own income
under cash method
4. Which of the following statements is not correct?

A. When the co-owners invest the income of the property co-owned in a business or in any income
producing properties or activities constituting themselves into a business partnership, such partnership
is consequently subject to tax as a corporation.
B. As a rule, a co-ownership is not subject to income tax because the activities of the co-owners are limited
to the preservation and enjoyment of the property and the collection of the income there from.
C. A co-owner subject to income tax on his share in the net income of the co-ownership actually or
constructively received
D. All partnerships, no matter how created or organized are considered corporations subject to corporate
income tax
5. As regards an ordinary partnership, which of the following statements is correct?

A. Partners' share are subject to final tax, hence it need not file an ITR
B. Subject to improperly accumulated earnings tax 9enera
C. Treated like corporations, hence partners have limited liability
D. Partners share even if distributed will not be included in their ITR
6. As regards a general professional partnership, which of the following statements is correct?

A. Treated like a corporation, hence t 1s subject to the corporate income tax
B. It is exempt from income tax, hence it need not file an ITR
C. Partners' share are subject to final tax
D. Partners' share will be included in their respective ITRs whether distributed or not
7. Which of the following statements is correct?

A. Partners of a taxable partnership are considered as stockholders and profits distributed to them by the
partnership are considered as dividends
B. The share of each partner in net income of a taxable partnership shall be based on their capital
contribution
C. The share of an industrial partner in the net income of a taxable partnership shall be equal to the share
of a capitalist partner with the least capital contribution
D. The industrial partner shall contribute money and or property but not services
8. Statement 1- A CPA and a Lawyer may form a general co-partnership to sell law and accounting books
Statement 2- Partnerships and Corporations have separate juridical personalities distinct from the owners,
as such partners and stockholders are not liable to creditors of the business
a. True, true b. False, false c. False, true d. True, false
9. Statement 1 The general professional partnership may claim itemized deduction in computing its net income
and a partner may also claim itemized deduction in computing his net income
Statement 2 - general professional partnership may claim optional standard deduction in computing its net
income while a partner may claim itemized deduction in computing his net income
a. True, true b. True, false c. False, true d. False, false
10. Statement 1 - The general professional partnership may claim itemized deduction in computing its net
income while a partner may claim optional standard deduction in computing his net income
Statement 2-The general professional partnership may claim optional standard deduction in computing its
net income and a partner may also claim optional standard deduction in computing its net income
a. True, true b. True, false c. False, true d. False, false
11. 1Statement 1- The share of the partner in the net income of an OP is added to his own gross income

Statement 2-The share of the partner in the net income of a GPP is also considered as passive income
a. True, true b. False, false c. False, true d. True, false
12. The net share received by a partner in a general professional partnership 1s

A. Part of his taxable income c. Subject to 10% creditable withholding tax
B. Exempt from income tax d. Subject to final tax
13. The net share received by a partner in a general co-partnership is

A. Part of his taxable income c. Subject to 10% creditable withholding tax
B. Exempt from income tax d. Subject to final tax
14. Which of the following statements is not correct?

A. A and B, both CPAs can form a general professional partnership to go into public accounting
B. W and Y both lawyers, can form a general professional partnership to practice law
C. C, a CPA and D, a lawyer can form a general professional partnership to go into the practice of taxation
D. as they have a common field of practice K, a doctor and L, a medical technologist can form a partnership
to engage in the operation of drugstore
15. As regards a business partnership, which of the following is not correct?

A. The partnership must file quarterly and year end income tax returns
B. The distributable income available to the partners is the taxable income less the income tax thereon
C. The share of a partner in the distributable net income, even if not actually received is considered
constructively received by the partner
D. The share of a partner in the distributive net income whether actually received or not is subject to a final
withholding tax of 10%, as if dividend
16. AB partnership with A and B as partners had a net professional income amounting to P500,000 for 2012. Is
other income included bank interest income of P8,000, net of final withholding tax and it received dividend
income from a domestic corporation of P10,000. A is single and has a net income of P 200,000. The net
taxable income of A who shares profit and loss equally with B is
a. P 364,000 b. P 440,000 c. P439,000 d. P 409,000
17. Using the preceding number, but it is a business partnership, the taxable income of the partnership is
a. P518,000 b. P500,000 c. P510,000 d. P508,000
18. Using the preceding number, the net distributable share of A is

a. P162,500 b. P146,250 c.P165,600 d. P154,350
A, B and C are partners sharing profits and losses 30%, 30% and 40%, respectively. The following data
pertain to the partnership and the individual account of the members in their own business for the taxable year
2012:
A B C Partnership
Gross Income P400,000 P300,000 P350,000 P900,000
Deductions 100,000 70,000 160,000 420,000
19. If the partnership is a GPP, how much is the taxable income of C?

a. P332,000 b. P342,000 c. P357,000 d.P344,500
20. If the partnership is a GPP, how much is the taxable income of B?

a. P301,000 b. P342,000 c. P357,000 d. P324,000
21. If the partnership is an OP, how much is the taxable income of A?

a. P280,000 b. P394,000 c. P265,000 d. P250,000
22. If the partnership is an OP, how much is the taxable income of B?

a. P180,000 b. P198,000 c. P165,000 d. P189,000

23. If the partnership is an OP, how much is the taxable income of C?
a. P152,500 b. PI98,000 c. P165,000 d P140,000
24. How much is the income tax due if it is an ordinary partnership?

a. P153,600 b. P168,000 c. P37,000 d. P144,000
25. A and B are co-owners by virtue of a property given to them by their father. The co-ownership had a gross
rental income of PS00,000 (gross of 5% tax)jand expenses related to rental activity of P300,000 but 10% is
not deductible for the year 2012. A and B share in the profits ai 75% and 25%, respectively. A withdrew
P50,000 from the co-ownership net income for the year, B did not withdrew any amount. A and B are both
single. How much is the income tax liability of the co-ownership?
a. P102,400 b. P76,800 c. P80,000 d. PO
26. Suppose A and B did not divide but instead invested the entire profit in another business venture where they
earned a net income after deductions of P450,000, how much is the tax due of the co-ownership?
a. P135,000 b. P144,000 c. P157,500 d. PO
For the calendar year 2012, AB Partnership, a general partnership in trade, and Mr. A 4 partner, single, had
the following data:
Gross income of AB P 1,400,000
Business expenses of AB 960,000
Participation of A 60%
Own gross income from profession of A 1,000,000
Own expenses of A, practice of profession 360,000
Income tax withheld from practice of profession 100,000
27. How much is the final tax payable or the share of Mr. A in AB partnership income?
28. How much is the income tax due (refundable of Mr. A)?
A Co. and B Co., both in construction business, formed a joint venture to build houses for the poor, a
government project, with an agreed equal sharing in net income. Data on income and expenses for the year
Joint Venture A Co. B Co.

Gross Income P80,000,000 P2,000,000 P3,000,000
Expenses 60,000,000 1,200,000 2,000,000
29. How much is the income tax liability of the joint venture?
30. How much is the income tax liability of A Co.?
A Co. and B Co. both engaged in transportation business operating in Northern and Central Luzon formed a
joint venture agreeing to distribute the net income of the joint venture equally. In a taxable year, the joint
venture had a gross income of P5,000,000 and expenses of P3,500,000.
31. How much is the income tax liability of the joint venture?
32. How much is the share of A Co. in the distributable net income?
33. A is a 40% partner in ABC, a general professional partnership. The partnership was organized in 2010, with
A contributing P200,00%0. The partnership had the following net income:
2011-P120,000 distributed to the partners
2012-P 70,000 not yet distributed to the partners.
In 2012, the partnership was dissolved, and A received the sum of P250,000 upon liquidation. How
much is the taxable gain or deductible loss of A?
Problem 1
Carlos and Dante were partners in CD & Co., a general professional partnership, and shared profits and
losses in the ratio of 40% and 60%, respectively. The partnership presented the following data for the taxable
year:
Gross Income Php 1, 000, 000
Operating Expenses 600, 000
Charitable contributions subject to limitation 50, 000
Required: Determine the following:
1. Tax liability of the partnership

2. Distributive share of Carlos and Dante, net of creditable withholding tax
Problem 2
Mr. Alexander and Mr. Peter, both married and certified public accountants, are employees of Paramount
Summit Corp. with an annual salary of Php 250, 000 each. They decided to form a general professional
partnership during the current taxable year to render consultancy services to the public outside office hours.
As agreed, profits and losses shall be divided equally. The result of the partnership’s operation showed the
following data:
Gross receipts from clients Php 450, 000
Less: Cost of service - allowable business expenses 270, 000
Net income 180, 000
Mr. Alexander and Mr. Peter have three and five qualified dependents, respectively
Required: Compute the net taxable income of both partners under the following options:
1. Mr. Alexander opted to report income from partnership using the gross income method
2. Mr. Peter decided to use the itemized method of reporting allowable deductions
Problem 3
Mr. Francis and Mr. Bob, both self-employed and married, decided to form partnership for the purpose of
buying and selling fresh mango. For the 2019, taxable year, they presented the result of the partnership
operation as follows:
Gross Income Php 1, 800, 000

Less: Itemized allowable deductions 1, 450, 000
Net Income Php 350, 000
The results of their individual business operations are as follows:

Francis Bob
Gross Income 800, 000 1, 200, 000
Less: Allowable Business expense 550, 000 970, 000
Net Income 250, 000 230, 000
Mr. Francis and Mr. Bob have six and two qualified dependents, respectively. In their partnership, they divide
profits and losses in the ratio of Mr. Francis, 45% and Mr. Bob, 55%
Required: Compute the net income for each partner subject to basic tax and final tax
Problem 4
Jeremiah and Calix are partners in the JC & Co., CPAs. Their respective share is 50:50 in the partnership
profits. The following appeared in the financial statements of the partnership as audited:
Gross receipts Php 10,000,000

Gross income Php 5,000,000
Deductions Php 2,000,000
Compute the distributive share of each partner (Show your full computation):
1. Jeremiah
2. Calix
3. What is the nature of the income?
4. What type of withholding is the income subject to?
Problem 5
profits. The following appeared in the financial statements of the partnership:
Rental income Php 2,000,000
Compute the partner’s share of each (Show your full computation):
1. Jeremiah

2. Calix
3. What is the nature of the income?
4. What type of withholding is the income subject to?
Problem 6
profits. The following appeared in the financial statements of the partnership as audited:
Capital gains from sale of shares of stocks
not traded in the stock exchange 1,000,000
Capital gains from sale of real property
classified as capital asset 1,000,000
Compute the total net income of the partnership. Show your full computation

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CABRIA CPA REVIEW CENTER

CORPORATION AND GPP INCOME TAXATION Tel. Nos. (043) 980-6659

SOURCE OF TAXABLE INCOME

TYPES OF INCOME TAX

KINDS OF PASSIVE INCOME

Page 1 of 22 cabria.batangas@gmail.com LAW.101

INTEREST INCOME Taxpayer RATE

Interest income from: DC 20%

Taxpayer BORROWER RATE

CAPITAL GAINS TAX

TRAIN Law – flat rate 15%

Tax Base Pxxx

Page 2 of 22 cabria.batangas@gmail.com LAW.101

Domestic Corporation: PEI’S & NPH

Domestic Corporation: GOCC’s

RFC: International Carriers

RFC: Offshore Banking Units (OBUs)

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NRFC: Cinematographic Film Owner Etc.

NRFC: Owner/Lessor of Aircraft etc.

NRFC: Owner/Lessor of Vessels

Income Tax of NRFC

TYPE OF INCOME RATE

Branch profit remittances TAX (BPRT)

EXEMPTION FROM BPRT

Page 4 of 22 cabria.batangas@gmail.com LAW.101

Regular Corporate Income Tax (RCIT)

Minimum Corporate Income Tax

Relief from MCIT

Gross Sales xxx

Cost of Sales for Trader/Merchandiser

Cost of Goods Sold for Manufacturer

Gross Income for Sale of Services Under Cash Basis

Gross Receipts xxx

Period subject to MCIT

Page 6 of 22 cabria.batangas@gmail.com LAW.101

Entities Exempt from MCIT

Entities Exempt from MCIT

Improperly Accumulated Earnings Tax (IAET)

Closely – held Corporations

Who Are Liable?

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Formula in computing IAET:

Period of Payment of Dividend/ Payment of IAET

Determination of Purpose to Avoid Income Tax

Exempt Corporations (Section 30 of the Tax Code)

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General Professional Partnerships (GPP’s) Exempt

KINDS OF Partnerships Regular Income Tax

General Professional Partnerships (GPP’s) Exempt

Net Distributable Income from GCP/ UPs

Net Distributable Income of GPPs

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MULTIPLE CHOICE THEORIES

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MULTIPLE CHOICE PROBLEMS

1. If it is a domestic corporation, its income tax b. 675, 000

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Gross Income, Philippines Php 1, 000, 000

3. And if it is a non-resident corporation, its total tax liability is