INCOME TAXATION

FINAL EXAMINATION
April 2, 2022
Saturday

I. MULTIPLE CHOICE (Encircle the correct answer)

1. One of the following RR implements the new Income Tax rates on the regular income of
corporations, on certain passive incomes, including additional allowable deductions
from Gross Income of persons engaged in business or practice of profession pursuant to
Republic Act (RA) No. 11534 (Corporate Recovery and Tax Incentives for Enterprises or
CREATE Act), which further amended the National Internal Revenue Code (NIRC) of
1997.
A. RR No. 5-2021
B. RR No. 4-2021
C. RR No. 3-2021
D. RR No. 2-2021

2. ___________ Shall include one-person corporations, partnerships, no matter how

created or organized, joint stock companies, joint accounts (cuentas en participacion),
associations, or insurance companies, but does not include general professional
partnerships and joint ventures or consortiums formed for the purpose of undertaking
construction projects or engaging in petroleum, coal, geothermal and other energy
operations pursuant to an operating consortium agreement under a service contract
with Government
a. Corporation
b. Single Proprietorship
c. Partnership
d. Joint Venture

3. A _________________ is a corporation with a single stockholder, Provided, That only a

natural person, trust, or an estate may form a one –person corporations.
a. One-person Corporation
b. Stock Corporation
c. Non-Stock Corporation
d. Government owned and Controlled Corporation

4. Are partnerships formed by persons for the sole purpose of exercising their common
profession, no part of the income of which is derived from engaging in any trade or
business.
a. General Professional Partnership
b. General Partnership
c. Taxable Partnership
 d. All of the Above

5. Refer to any private schools, which are non-profit for the purpose of these Regulations,
maintained and administered by private individuals or groups, with an issued permit to
operate from the Department of Education (DepEd) or the Commission of Higher
Education (CHED) or Technical Education and Skills DeVelopment Authority (TESDA), as
the case may be, under existing laws and regulations.
a. Private Educational Institutions
b. Educational Institutions
c. Proprietary Schools
d. All of the Above

6. Refer to any private hospitals which are non-profit for the purpose of these Regulations,
maintained and administered by private individuals or groups.
a. General Hospitals
b. Proprietary Hospitals
c. Public Hospitals
d. All of the above

7. All corporations, agencies, or instrumentalities owned or controlled by the Government.

a. Corporations
b. Government Owned and Controlled Corporations
c. NON-Stock Corporations
d. Stock Corporations

8. A corporation organized, authorized, or existing under the laws of any foreign country,
engaged in trade or business within the Philippines.
a. Domestic Corporations
b. Resident Foreign Corporations
c. Non-Resident Foreign Corporations
d. Offshore Banking Units

9. A corporation organized, authorized, or existing under the laws of any foreign country,
not engaged in trade or business in the Philippines
a. Resident Foreign Corporations
b. Non-Resident Foreign Corporations
c. Domestic Corporations
d. All of the Above

10. Shall mean ownership of stocks in a corporation after the transfer of property possessing
at least fifty-one percent (51%) of the total voting power of all classes of stocks entitled
to vote: Provided, that the collective and not the individual ownership of all classes of
stocks entitled to vote of the transferor or transferors shall be used in determining the
presence of control.
 a. Owner’s Equity
b. Control
c. Subsidiary
d. Dividend

11. Means any trade, business, or other activity, the conduct of which is not substantially
related to the exercise or performance by such educational institution or hospital of its
primary purpose or function
a. Private Educational Institutions
b. Public Hospitals
c. Other Corporations
d. Unrelated Trade Business/Other Activity/Proprietary Educational Institutions and
Hospitals

12. Are dividends received from non-resident foreign corporations

a. Stock Dividend
b. Property Dividend
c. Domestic sourced Dividend
d. Foreign Sourced Dividend

13. For corporations with net taxable income not exceeding Five Million Pesos (ͥ₱5,000,000)
AND total assets not exceeding One Hundred Million (₱100,000,000), excluding the land
on which the particular business entity's office, plant and equipment are situated is
taxed at
12. 25% MCIT
13. 20% MCIT
14. 25% Regular Tax
15. 20% Regular Tax

14. Proprietary Educational Institutions and Hospitals is taxed at

a. 5% regular effective July 1, 2020 to June 30, 2023
b. 5% regular effective July 1, 2023
c. 1% regular effective July 1, 2020 to June 30, 2023
d. 1% regular effective July 1, 2023

15. Domestic corporations, in general is taxed at

a. 35% Effect July1, 2020
b. 30% Effect July1, 2020
c. 25% Effect July1, 2020
d. 20% Effect July1, 2020

16. MCIT Means.

a. Marginal Corporate Income Tax
b. Maximum Corporate Income Tax
 c. Minimum Corporate Income Tax
d. All of the Above

17. MCIT Rate for Domestic corporation, general is

a. 2% July 1,2020 to June 30,2023 and
1% July 1, 2023Net Sales
b. 2% July 1,2020 to June 30,2023 and
3% July 1, 2023Net Sales
c. 1% July 1,2020 to June 30,2023 and
2% July 1, 2023Net Sales
d. 3% July 1,2020 to June 30,2023 and
1% July 1, 2023Net Sales

18. Offshore Banking Unit (OBUs) (Note: OBUs shall now be taxed as resident foreign
corporation upon effectivity of the CREATE) at the regular rate of

a. 10% upon the effectivity of the CREATE Law

b. 20% upon the effectivity of the CREATE Law
c. 25% upon the effectivity of the CREATE Law
d. 15% upon the effectivity of the CREATE Law

19. Non Resident Alien Individual - Winnings from Philippine Charity Sweepstake Office
(PCSO) games amounting to more than ₱ I0,000.00 is taxed at
a. 10% upon effectivity of the CREATE
b. 25% upon effectivity of the CREATE
c. 20% upon effectivity of the CREATE
d. 15% upon effectivity of the CREATE

20. CREATE means.

a. Corporate Resources and Tax Incentives for Enterprises Act
b. Corporate Recover and tax Incentives for Economy Act
c. Corporate Recovery and Tax Incentives for Enterprises Act
d. None of the Above

II. True or False (Write T if the answer is True and Write F if the answer is False)
1. Another option in the computation of the interest arbitrage applicable for TY 2020 for
corporations under itemized deductions is to use the transitory rates specified in the
table, and multiply the same with the amount of gross interest income subjected to Final
Tax to find the amount of interest deductible from the interest expense claimed, with
the allowable interest expense as the end result.
2. For the rate to be used in the deduction of a certain percentage of interest income
subject to Final Tax from the claimed interest expense to come up with the allowable
 interest expense, or the interest arbitrage, the applicable rate specified in Section 9 of
the Regulations shall be applied for Taxable Year (TY) 2020 by corporations, except
resident foreign corporations.
3. Sale or exchanges of property used for business for shares of stocks covered under
Section 8 of the Regulations shall be subject to Value-Added Tax (VAT).
4. No gain or loss shall also be recognized if property is transferred to a corporation by a
person, alone or together with others, not exceeding five (5) persons, in exchange for
stock or unit of participation in such a corporation of which as a result of such exchange,
the transferor or transferors, collectively, gains or maintains control of said corporation.
5. No gain or loss shall be recognized on a corporation or on its stock or securities if such
corporation is a party to a reorganization and exchanges property in pursuance of a plan
of reorganization solely for stock or securities in another corporation that is a party to
the reorganization as defined under Section 2 of this Regulations.
6. The improperly accumulated earnings tax shall no longer be imposed on corporations
upon the effectivity of the CREATE onwards. This shall apply to the entire taxable year for
all fiscal years/taxable years ending after the effectivity of CREATE.
7. In general, foreign-sourced dividends received by domestic corporations are subject to
Income Tax.
8. GOCCs, agencies and instrumentalities, except the Government Service Insurance
System (GSIS), Social Security System (SSS), Home Development Mutual Fund (HDMF),
Philippine Health Insurance Corporation (PHIC), and the local water districts, shall pay
such rate of tax upon their taxable income as are imposed upon corporations or
associations engaged in a similar business, industry, or activity.
9. In the case of proprietary educational institutions or hospitals, if the gross income from
"unrelated trade, business or other activity" (as defined under Section 2 of this
Regulations) exceeds fifty percent (50%) of the total gross income derived by such
educational institutions or hospitals from all sources, the tax prescribed for domestic
corporations shall be imposed on the entire taxable income.
10. Domestic corporations shall account separately in their Annual Financial Statements
(AFS) the cost of the land on which the particular business entity’s office, plant and
equipment are situated, and shall not lump the same in one account title nor
consolidate its cost with other fixed asset accounts.
11. Domestic corporations shall account separately in their Annual Financial Statements
(AFS) the cost of the land on which the particular business entity’s office, plant and
equipment are situated, and shall not lump the same in one account title nor
consolidate its cost with other fixed asset accounts.
12. The Minimum Corporate Income Tax (MCIT) is imposed beginning on the fourth taxable
year immediately following the year in which such corporation commenced its business
operations, when it is greater than the regular Income Tax computed for the taxable
year.
13. The Tax on Fringe benefits at the rate of THIRTY-FIVE PERCENT (35%) shall be imposed
on the grossed-up monetary value of fringe benefits furnished or granted to an
employee (except rank and file employees) by the employer, whether an individual or a
corporation (unless the fringe benefit is required by the nature of, or necessary to tire
 trade, business or profession of the employer' or when the fringe benefit is for the
convenience of or advantage of the employer)' The tax herein imposed is payable by the
employer, which tax shall be paid in the same manner as provided for under Section 57
(A) of the Tax Code' as amended'
14. The grossed-up monetary value of the fringe benefit shall be determined by dividing the
actual monetary value of the fringe benefits by SIXTY-FIVE PERCENT (65%), effective
January 1,2018 and onwards: Provided, that the grossed-up value of the benefit shall be
determined by dividing the actual monetary value of the fringe benefit by the difference
between one hundred percent (100%) and the applicable tax rates under the aforesaid
subsections.
15. In general, there shall be allowed at the option of the taxpayer, itemized deductions or
an Optional Standard Deduction (OSD) at the rate of forty percent (40%).
16. No deductions shall be allowed to individual taxpayers earning compensation income
arising from personal services rendered under an employer-employee relationship, and
those who opted to be taxed at 8% income tax rate on their income from
business/practice of profession.
17. Unless the taxpayer, who is taxable under the graduated income tax rate, signifies in the
income tax return the intention to elect the OSD, it shall be considered as having availed
of the itemized deductions. Such election of the option, when made in the return, shall
be revocable for the taxable year for which the return is made.
18. The election to claim either the itemized deductions or the OSD for the taxable year
must be signified by checking the appropriate box in the income tax return filed for the
first quarter or the initial quarter of the taxable year after the commencement of a new
business/practice of profession.
19. A General Professional Partnership (GPP) may avail of the OSD only once, either by the
GPP or the partners comprising the Partnership.
20. GPP is not subject to income tax imposed pursuant to Sec. 26 of the Tax Code, as
amended, However, the partners shall be liable to pay income tax on their separate and
individual capacities for their respective distributive share in the net income of the GPP

III. Problem Solving (10 points each)

1. Ms. Fabricante operates a convenience store while she offers bookkeeping services to her
clients. In 2018, her gross sales amounted to P1,500,000.00, in addition to her receipts from
bookkeeping services of P400,000.00. Her recorded cost of goods sold and operating
expenses were P1,025,000.00 and P320,000.00, respectively.

Compute for the following:

a. Income tax Due of Ms. Fabricante if she opted to avail of the OSD.
st
b. Income Tax Due of Ms. fabricante if she signifies in her 1 Quarter return her intention
to be taxed at 8% income tax rate.

2. STAR Corporation, a retailer, has gross sales of P1,600,000,000.00 with a cost of sales of
P580,000,000.00 and allowable deductions of P150,000,000.00 respectively, for the calendar
year 2021. Its total assets of P180,000,000.00 as of December 31, 2021 per Audited
Financial Statements includes the land costing P50,000,000.00 and the building of
 P25,000,000.00 in which the business entity is situated, with an aggregate amount of
P75,000,000.00 as Fixed Assets.
Compute for the following:
th
Assuming CY 2021 is the 5 year of operation of LMB Corporation, compute for
the following:
a. Net Taxable Income of the corporation and Regular Tax Due
b. MCIT of the Corporation

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