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CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

CORPORATIONS Dela Cruz / De Vera / Llamado

1. One of the following does not fall under the definition of a <corporation= for income tax purposes:
a. General partnership
b. One-person corporation
c. Insurance company
Sole proprietorship

2. For income taxation purposes, the term <corporation= excludes one of the following:
a. Ordinary partnership
b. An incorporated business organization
General professional partnership
d. One-person corporation

3. A corporation organized and created under the laws of a foreign country and is authorized to do
business/ trade in the Philippines is:
a. Domestic corporation
. Resident foreign corporation
c. Government owned and controlled corporation
d. Non-profit hospital

4. One of the general principles of income taxation:

a. A foreign corporation engaged in business in the Philippines is taxable on all income derived from
sources within and without the Philippines.
A foreign corporation engaged in business in the Philippines is taxable on all income derived from
sources within the Philippines only
c. A domestic corporation is taxable on income derived from sources within the Philippines only.
d. A domestic corporation is taxable on income derived from sources without the Philippines only.

5. A domestic corporation or resident foreign corporation may employ, as a basis for filing its annual
corporate income tax return the:
a. Calendar year only Either calendar or fiscal year
b. Fiscal year only d. Neither calendar or fiscal year

6. A corporation files a quarterly return within

a. 30 days after the end of each of the first 3 quarters
60 days after the end of each of the first 3 quarters
c. 30 days, after the end of each of the first 4 quarters
d. 60 days after the end of each of the first 4 quarters

7. A final or annual return is filed on or before the 15th day of the

a. Month following the close of the taxable year
b. 2nd month following the close of the taxable year.
c. 3rd month following the close of the taxable year
0 year 0
4th month following the close of the taxable

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8. DEF, a corporation registered in Germany, operates a 1,000 ton steel milling plant in Quezon province.
Which among the following shall be taxable under the Tax Code?

a) Its income from a steel-forging plant located in the Netherlands

b) Its gain from the sale of its non-operational smelting plant in Indonesia.
Royalties from the use in the Philippines of its proprietary software which was developed and
patented in Germany.
d) Interest income from a Euro deposit with a French bank in Paris.
e) None of the above.

9. Aplets Corporation is registered under the laws of the Virgin Islands. It has extensive operations in
Southeast Asia. In the Philippines, its products are imported and sold at a mark-up by its exclusive
distributor, Kim’s Trading, Inc. The BIR compiled a record of all the imports of Kim from Aplets and
imposed a tax on Aplets’s net income derived from its exports to Kim. Is the BIR correct?
a. Yes. Aplets is a non-resident foreign corporation engaged in trade or business in the Philippines.
b. No. The tax should have been computed on the basis of gross revenues and not net income.
No. Aplets is a non-resident foreign corporation not engaged in trade or business in the Philippines.
d. Yes, Aplets is doing business in the Philippines through its exclusive distributor Kim’s Trading Inc.

10. ABC Inc., a corporation registered and holding office in Australia, not operating in the Philippines, may
be subject to Philippine income taxation on
a. Gains it derived from sale in Australia of an ore crusher it bought from the Philippines with the
proceeds converted to pesos.
Gains it derived from sale in Australia of shares of stock of Philex Mining Corporation, a Philippine
corporation.
c. Dividends earned from investment in a foreign corporation that derived 40% of its gross income
from Philippine sources.
d. Interest derived from its dollar deposits in a Philippine bank under the Expanded Foreign Currency
Deposit System.

11. Which of the following is subject to the income tax?

a. A non-stock and non-profit educational institution
b. Public educational institution
c. Civic league or organization not organized for profit and operated exclusively for the promotion of
social welfare
. Mutual savings bank and cooperative bank having a capital stock represented by shares organized
and operated for mutual purposes and profit.

12. The Philippine Health Insurance Corporation (Philhealth), and the Home Development Mutual Fund
(Pagibig) are government-owned corporations which are
Exempt from the corporate income tax.
b. Subject to the preferential corporate income tax for special corporations.
c. Subject to the basic corporate income tax
d. Subject to final tax

13. Public educational institutions, like the University of the Philippines, is deemed by law:
a. Subject to the preferential corporate income tax for special corporations.
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b. Subject to the basic corporate income tax. 0
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c. Subject to both the preferential income tax and the basic corporate income tax.
Exempt from the corporate income tax.

14. Which is not correct? The following are exempt from the corporate income tax:
a. Local water districts
b. Bureau of Internal Revenue
Government owned or controlled corporations
d. Social Security System

15. Which of the following may be subject to the corporate income tax?
a. A non-stock and non-profit educational institution
b. A public educational institution
. A private educational institution
d. Government Service Insurance System

16. The improperly accumulated earnings tax (IAET) shall apply to:
a. Publicly held corporations for all taxable years prior to 2021
b. Banks and other non-bank financial intermediaries
c. Insurance companies for taxable years ending after July 20, 2020
. Closely held domestic corporations for taxable years ending prior to April 11, 2021.

17. Which of the following statements is not correct?

. MCIT is not applicable to resident foreign corporations.
b. The corporate quarterly return shall be filed within 60 days following the close of each of the first
three quarters of the taxable year.
c. Resident foreign corporations would be taxed on net income from within the Philippines only.
d. Non-resident foreign corporations are taxed on gross income from within the Philippines only.

18. The following income are subject to final tax, except

a. Royalty income received by a domestic corporation from a domestic corporation.
b. Cash dividends received by a non-resident foreign corporation from a domestic corporation
. Cash dividends received by a domestic corporation from a domestic corporation.
d. Interest income from a Peso deposit received by resident foreign corporation from a Philippine bank.
e. Branch profit remitted by a branch to the head office of a resident foreign corporation.

19. The MCIT shall not apply to the following resident foreign corporations, except
a. RFC engaged in business as international carrier subject to 2 1/2 % of their Gross Philippine Billings
b. RFC engaged in business as ROHQ before January 1, 2022
Offshore banking units beginning April 11, 2021
d. None of the above

20. Beginning July 1, 2020, the RCIT rate for domestic corporations shall be 25%. However, a lower
RCIT rate of 20% shall be imposed if the following conditions is/are present:
a. The domestic corporation’s net taxable income is not more than ₱5.0 Million
b. The domestic corporation’s net assets (excluding the land on which its office, plant, or equipment
are situated) are not more than ₱100 Million.
All of the above.
d. None of the above.
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21. The MCIT is 2% of gross income. However, the MCIT rate to be imposed shall be 1%
a. From January 1, 2021 to June 30, 2023
b. From October 8, 2021 to June 30, 2023
From July 1, 2020 to June 30, 2023.
d. None of the above.

22. CPG Corporation had the following data for calendar year 2021, its first year of operations:

Gross sales, Philippines ₱ 8,000,000

Gross sales, US 5,100,000
Cost of sales, Philippines 3,300,000
Cost of sales, US 2,300,000
Allowable deductions, Philippines 800,000
Allowable deductions, US 700,000

The corporation’s audited financial statements as of December 31, 2021 includes the following
accounts:

Land, Philippines ₱ 50,000,000

Building, Philippines 25,000,000
Total Assets 180,000,000

Compute the income tax due if the taxpayer is a domestic corporation:

(a) ₱1,500,000
(b) ₱ 975,000
(c) ₱1,175,000
(d) None of the above

Gross sales, Philippines ₱8,000,000

Gross sales, US 5,100,000 ₱ 13,100,000
Cost of sales, Philippines ₱3,300,000
Cost of sales, US 2,300,000 (5,600,000)
Gross income from ops. ₱ 7,500,000
Add: Other taxable income -
Total Gross Income ₱ 7,500,000
Allowable deductions, Phils. ₱ 800,000
Allowable deductions, US 700,000 (1,500,000)
Net taxable income ₱ 6,000,000
RCIT (25%) ₱ 1,500,000
MCIT (1% x Total Gross Inc.) None

Note: Even if the computed net taxable income of the corporation is not more than ₱5.0
Million, the applicable tax rate would still be 25% because its total assets excluding the
land amounts to ₱130 Million (₱180 Million - ₱50 Million) which is more than the ₱100
Million threshold.

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23. Compute the income tax due in number 22 if the taxpayer is a foreign corporation with a branch in the
Philippines (RFC).

(a) ₱1,500,000
(b) ₱ 975,000
(c) ₱1,175,000
(d) None of the above

Gross sales, Philippines ₱ 8,000,000

Cost of sales, Philippines (3,300,000)
Gross income ₱ 4,700,000
Add: Other taxable income -
Total Gross Income ₱ 4,700,000
Allowable deductions, Phils. (800,000)
Taxable net income ₱ 3,900,000
RCIT (25%) ₱ 975,000
MCIT (1% of Total Gross Income) None

24. Compute the income tax due in number 22 if the taxpayer is a foreign corporation with no branch or
office in the Philippines (NRFC).

(a) ₱1,500,000
(b) ₱ 975,000
(c) ₱1,175,000 Gross income, Phils. ₱4,700,000
(d) None of the above Income tax rate x 25%
Final Withholding Tax ₱1,175,000

25. MVP Corporation, domestic corporation, had the following financial data for taxable year ending April
30, 2021:

Gross sales ₱15,000,000

Cost of sales 8,500,000
Allowable deductions 2,500,000

Compute the corporation’s income tax due for taxable year ending April 30, 2021, if it is taxable at the
new RCIT rate of 20% effective July 1, 2020.

(a) ₱866,800
(b) ₱1,000,000
(c) ₱75,833
(d) None of the above.
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RCIT MCIT
May 1, 2020 to June 30, 2020 (2 months) 30% 2%
July 1, 2020 to April 30, 2021 (10 months) 20% 1%
Blended Rates 21.67% 1.17%

Gross sales
Cost of sales
Gross income from ops.
Add: Other taxable income
Total Gross Income
Allowable deductions
Net taxable income

RCIT (21.67%)
MCIT (1.17%)

26. The records of Acme Corporation, domestic, organized in 2014, engaged in retail, show the following
in calendar years 2019, 2020, 2021:

2019 2020 2021

Sales 1,800,000 1,740,000 2,100,200
Cost of Sales 430,000 110,000 510,100
Operating Expenses 1,740,200 1,600,000 1,300,400
Non-operating income 400,000 70,000 230,000
CWT per BIR Form 2307 18,000 2,500 21,002

The corporation had excess tax credits at the end of 2018 in the amount of ₱15,000. The corporation
chooses to credit in future years any excess tax credits it may have in a taxable year.

Compute the tax due and tax payable for 2019.

a. ₱35,400, ₱2,400
b. ₱35,400, ₱17,400
c. ₱8,940; ₱0
d. None of the above

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RCIT 30%
MCIT 2%

2019
Sales 1,800,000
Cost of Sales (430,000)
Gross income from operations 1,370,000
Add: Other taxable income not subject to FTs 400,000
Total Gross Income 1,770,000
Less: Itemized Deductions (or OSD) (1,740,200)
Taxable income 29,800
Rate of tax 30%
RCIT 8,940
MCIT (2% of Total Gross Income) 35,400

Tax due 2019 (MCIT) 35,400

Less: Tax Credits:
(1) Excess tax credits from prior year (15,000)
(2) Tax paid in previous quarters
(3) CWTs per BIR Form 2307 (18,000)
(4) Excess MCIT from prior year
(5) Foreign tax credits
(6) Tax paid in previous return if filing amended return
Tax payable/(Tax credit/refund) 2,400

Excess MCIT (2019-2022) 26,460

27. In number 26, what would be the tax payable of Acme Corporation for taxable years 2020 and 2021
if the taxpayer qualifies for the 20% tax rate effective July 1, 2020?

a) ₱23,000; ₱55,978
b) ₱6,440; ₱134,908
c) ₱30,500; ₱131,908
d) None of the above.

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RCIT 25% 20%

MCIT 1.5% 1%

2020 2021
Sales
Cost of Sales
Gross income from operations
Add: Other taxable income not subject to FTs
Total Gross Income
Less: Itemized Deductions (or OSD)
Taxable income
Rate of tax
RCIT
MCIT

Tax due
Less: Tax Credits:
(1) Excess tax credits from prior year
(2) Tax paid in previous quarters
(3) CWTs
(4) Excess MCIT from prior year
(5) Foreign tax credits
(6) Tax paid in previous return if filing amended return
Tax payable/(Tax credit/refund)

28. The records of CAMEL Corporation, domestic, show the following for calendar year 2021.

1st Q 2nd Q 3rd Q 4th Q

Sales 4,000,000 12,400,000 5,500,000 5,200,000
Cost of Sales 50,000 50,000 245,000 45,000
Operating Expenses 3,700,000 12,100,000 4,000,000 4,500,000
Non-operating income 30,000 120,000 70,000 45,000
Excess tax credit (previous year) 10,000
CWT 50,000 30,000 40,000 35,000
Excess MCIT (previous year) 30,000

The income tax payable for the first 3 quarters and in the annual return are:
a. ₱84,000; ₱329,000; ₱592,500; ₱802,500
b. ₱84,000; ₱195,000; ₱435,500; ₱802,500 0 0
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c. ₱54,000; ₱245,000; ₱193,500; ₱175,000

d. ₱0; ₱74,500; ₱259,250; ₱140,000
e. None of the above

Note: We use the 25% corporate income tax rate because there is no information that
the taxpayer qualifies for the lower 20% income tax rate.

1st Q 2nd Q 3rd Q Annual

Sales 4,000,000 16,400,000
Cost of Sales (50,000) (100,000)
Gross income from operations 3,950,000 16,300,000
Add: Other taxable income not subject to FTs 30,000 150,000
Total Gross Income 3,980,000 16,450,000
Less: Itemized Deductions (or OSD) (3,700,000) (15,800,000)
Taxable income 280,000 650,000
Rate of tax 25% 25%
RCIT (25%) 70,000 162,500
MCIT (1% of Total Gross Income) 39,800 164,500

Tax Due 70,000 164,500

Less: Tax Credits:
(1) Excess tax credits from prior year (10,000) (10,000)
(2) Tax paid in previous quarters 0
(3) CWTs (50,000) (80,000)
(4) Excess MCIT from prior year (30,000)
(5) Foreign tax credits
(6) Tax paid in previous return if filing amended
return
Tax payable 0 74,500

29. If the gross income from unrelated activity exceeds 50% of the total gross income derived by any
proprietary educational institution, the tax rate shall be the RCIT rate (25%/20%) based on the entire
taxable income. This is known as the
a. Constructive receipt
b. Tax benefit rule
c. End trust doctrine
. Predominance test

30. Holy Hospital, Inc. (domestic corporation), a private non-profit hospital, has the following financial
information for CY 2021:

Hospital-related activities:
Gross receipts 0 0
₱10,000,000
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