STM Reviewer for Final Dept.

Exam

1. When does the Minimum Corporate Income Tax (MCIT) apply to corporations in the
Philippines?
a. Before the 4th taxable year
b. After the 4th taxable year
c. Beginning on the 4th taxable year
d. None of the above
2. Under the Ease of Paying Taxes Act or R.A. 11976, for purposes of responsive tax
administration, taxpayers shall be classified based on their gross sales as follows,
choose the incorrect one:
a. Micro – Less than Three million pesos
b. Small – Three million pesos to less than Twenty million pesos
c. Medium – Twenty million pesos to less than One billion pesos
d. Large – One billion pesos or above
3. Within what timeframe shall a taxpayer file a suit or proceeding in court for the
recovery or refund of erroneously paid tax or penalty?
a. Within two years from the date of payment of tax or penalty
b. Within 180 days from the receipt of the denial of claim from the CIR.
c. After 2 years from the date of payment of tax or penalty or lapse of 180-day
period to decide.
d. Within 30 days from the receipt of the denial of claim or lapse of 180-day
period to decide.
4. Statement I. To add maximum value to each transaction, decision makers need to
stay focused on the firm’s strategic plan, anticipating tax impacts across time for all
parties a ected by the transaction.
Statement II. Managers add value by considering these impacts when negotiating
the most advantageous arrangement, thereby transforming the tax treatment of
items to the most favorable status.
a. Both statements are correct
b. Only statement I is correct
c. Only statement II is correct
d. Both statements are not correct
5. The SAVANT Framework stands for:
a. Strategy, Anticipating, Value-adding, Negotiating, and Transforming
b. Strategic, Anticipation, Value-adding, Negotiation, and Transformation
c. Strategizing, Anticipating, Value-addition, Negotiating, and Transforming
d. Strategy, Anticipation, Value-adding, Negotiating, and Transforming
6. Tax saving strategies usually fall into one of these four types.
a. Anticipation, Conversion, Timing, Forwarding
b. Creation, Avoidance, Accruing, Splitting
c. Anticipation, Avoidance, Deferring, Splitting
d. Creation, Conversion, Timing, Splitting
7. Statement I. In a sole proprietorship, the owner has sole control and decision-
making authority over the business operations.
Statement II. Sole proprietors have unlimited personal liability for the debts and
obligations of the business as it has a separate juridical personality.
a. Both statements are correct
b. Only statement I is correct
c. Only statement II is correct
d. Both statements are not correct
8. Ordinary partnerships are subject to the following taxes, except:
a. Minimum Corporate Income Tax
b. Regular Corporate Income Tax
c. Optional income tax of 8% on gross sales/receipts
d. Value-Added Tax or Percentage Tax
9. A General Professional Partnership are not subject to the following taxes, except:
a. VAT
b. Income Tax
c. Withholding Tax
d. MCIT
10. What is the primary source of funding for internal financing?
a. Borrowing from financial institutions
b. Issuing bonds to the public
c. Retained earnings generated by the company
d. Selling shares of the company's stock
11. External financing is often sought when:
a. The company has ample retained earnings
b. The company wants to avoid debt
c. Internal resources are insu icient
d. The company aims to maintain control
12. Internal financing is advantageous because:
a. It does not require repayment
b. It allows the company to leverage outside expertise
c. It reduces the risk of financial distress
d. It typically provides access to larger amounts of capital
13. What is the initial phase in the typical product/process development process?
a. Promotion and advertising
b. Research and development
c. Manufacturing and distribution
d. Market analysis and feasibility study
14. What is the purpose of the promotion and advertising phase in the product/process
development process?
a. To develop the product prototype
b. To identify potential markets
c. To communicate the benefits of the product to consumers
d. To conduct market research
15. For R&D treated as deferred expenses, in what manner are deductions typically
allowed, as outlined in tax regulations?
a. Deducted fully in the year they are incurred
b. Deducted evenly over a period of not less than sixty (60) months
c. Deducted only in the month they are realized
d. Deducted in the year following their realization
16. Statement I. Executive compensation should be closely aligned with the long-term
interests of shareholders and with corporate goals and strategies.
Statement II. Compensation of the CEO and other top executives may be
determined by the board of directors as compensation committee.
a. Both statements are correct
b. Only statement I is correct
c. Only statement II is correct
d. Both statements are not correct
17. Non-employee relations include the following, except:
a. Professional-client relationship
b. Self-employed contractor
c. Agency or commission-based arrangements
d. Labor-only contracting
18. The following are tax-exempt compensation income, except:
a. Statutory minimum wage, including holiday pay, hazard pay, overtime pay,
and night shift di erential
b. 13th month pay, Christmas bonus, and productivity incentives exceeding
P90,000.00
c. Mandatory contributions for SSS, PhilHealth, and Pag-IBIG
d. If the net compensation income does not exceed P250,000.00
19. Alice, a wealthy young woman, wants to establish a sole proprietorship business in
Bamban, Tarlac. Which of the following is NOT required for her to successfully
register her business?
a. Registering with the Department of Trade and Industry (DTI)
b. Obtaining a Mayor's Permit
c. Registering with the Securities and Exchange Commission (SEC)
d. Securing a Tax Identification Number (TIN) from the Bureau of Internal
Revenue (BIR)
20. As clarified by RMC 8-2024, what happens when the gross remittances of
₱500,000.00 received by an online seller/merchant from e-marketplace operators
and DFSPs exceed the threshold during the taxable year?
a. The online seller/merchant must pay a penalty to the Bureau of Internal
Revenue (BIR).
b. The e-marketplace operators and DFSPs must automatically deduct the
prescribed Withholding Tax from the remittance exceeding the threshold.
c. The online seller/merchant must submit a special report to the Department
of Trade and Industry (DTI).
d. The e-marketplace operators and DFSPs must suspend further remittances
until the next taxable year.
21. In the context of RR 16-2023, what is the purpose of the prescribed Withholding Tax
on remittances exceeding ₱500,000.00 from e-marketplace operators and DFSPs to
online sellers/merchants?
a. To penalize online sellers for high sales volumes
b. To ensure proper tax collection and compliance
c. To provide incentives for online sellers to increase sales
d. To regulate the pricing strategies of e-marketplace operators
22. As of 2024, how many Double Taxation Agreements (DTAs) does the Philippines
have in e ect?
a. 41
b. 42
c. 43
d. 44
23. Statement I. Treaties exist to minimize conflicts between countries, to attract foreign
investment, to avoid double taxation, and for other policy reasons.
Statement II. When the firm decides to go overseas, it predicts implicitly whether tax
rates will change over time. If the firm is o ered a tax holiday for a fixed period, it
must anticipate the amount of tax increase that will occur at the expiration time.
a. Both statements are correct
 b. Only statement I is correct
c. Only statement II is correct
d. Both statements are not correct
24. Alis Uhog Corporation, a domestic corporation, has the following data for the
calendar year. the corporation signified its intention to claim tax credits on income
taxes paid to the foreign countries:

COUNTRY GROSS INCOME ALLOWED DEDUCTIONS TAX PAID

Philippines P1,000,000 P800,000 P-

United States 500,000 200,000 50,000
Japan 300,000 200,000 35,000

How much tax credit can Alis Uhog Corporation claim?

a. P75,000
b. P80,000
c. P85,000
d. P90,000
25. A firm’s purchasing decisions involve a number of choices, including these three key
strategic decisions, except:
a. Sourcing locations, whether suppliers will be local, national, or foreign
b. Timing of purchase orders for inventories or materials
c. Whether the firm will seek to cooperate with suppliers
d. Deciding the quantity of goods to produce
26. Which of the following is NOT considered a local source of revenue for Local
Government Units (LGUs)?
a. Tax revenues from real property tax and business tax
b. Non-tax revenues from fees and charges, receipts from government business
operations, and proceeds from the sale of assets
c. Internal Revenue Allotment (IRA) and other shares from special laws
d. Grants and borrowings
27. Statement I. The city government may impose and collect any of the taxes, fees and
charges imposed by the province or municipality.
Statement II. The provisions under the Local Government Code are self-executing,
meaning each local government unit does not need to enact a local tax ordinance to
implement these provisions.
a. Both statements are correct
 b. Only statement I is correct
c. Only statement II is correct
d. Both statements are not correct
28. To finance ongoing operations, firms can generate cash flows from a variety of
sources, including the following, except:
a. Sale of operating assets
b. Short-term borrowing
c. Accelerating, factoring, or selling receivables
d. Increase in dividends
29. Statement I. Losses on the sale of operating assets are not treated as ordinary
losses and are not tax deductible.
Statement II. Losses between related parties are tax deductible.
a. Both statements are correct
b. Only statement I is correct
c. Only statement II is correct
d. Both statements are not correct
30. Which of the following statements is TRUE regarding the treatment of capital gains
and losses from the sale of investments?
a. Capital gains by corporations are subject to a holding period.
b. Capital losses are deductible to the full extent of capital gains and any
excess may be carried over indefinitely.
c. Capital gains by individual taxpayers are subject to a holding period, but
corporations are not.
d. Capital losses are not deductible under any circumstances.
31. Which of the following statements is TRUE regarding the business tax on purchases
of fixed assets such as machinery and equipment?
a. Fixed assets are exempt from any taxes
b. Most vendors of fixed assets are not VAT registered
c. Fixed assets acquisitions are subject to a 12% value-added tax (VAT)
d. VAT paid on fixed assets cannot be claimed as input tax
32. A delivery service company is considering whether to replace its trucks in
December or postpone the purchase until January of the next year. The depreciable
life of the trucks is expected to change from seven years to three years for property
placed in service in January. From a tax perspective, what should a tax-paying firm
do?
a. Replace the trucks in December to benefit from the current seven-year
depreciable life.
 b. Postpone the purchase until January to benefit from the new three-year
depreciable life.
c. Replace the trucks in December to avoid any tax implications
d. Postpone the purchase until January because it makes no di erence to the
firm’s tax situation.
33. What is the primary purpose of capital budgeting?
a. To determine the potential of long-term investment options involving
enormous capital expenditure
b. To manage daily cash flow
c. To implement short-term investment strategies
d. To evaluate minor operational expenses
34. Which of the following is a critical first step in the tax planning procedure for
companies?
a. Reviewing tax credits
b. Taking itemized deductions
c. Understanding the di erent taxes to which the company is liable or belong
d. Implementing quarterly tax payments
35. What is the di erence between a tax deduction and a tax credit?
a. A tax deduction increases the taxable income, while a tax credit decreases
the tax due.
b. A tax deduction lowers the taxable income, while a tax credit directly
reduces the tax due.
c. A tax deduction applies only to individuals, while a tax credit applies only to
businesses.
d. A tax deduction is always more beneficial than a tax credit.
36. Why is segment margin analysis important for a company's management?
a. It helps determine the overall revenue of the company.
b. It focuses solely on the geographic distribution of the company's profits.
c. It eliminates the need for reporting to the Securities and Exchange
Commission (SEC).
d. It identifies which divisions or product lines are performing well and which
are not.
37. What is the primary goal of process restructuring in a firm's financial strategy?
a. To reduce the number of employees
b. To identify and enhance the delivery of products or services better, cheaper,
or faster than competitors
c. To increase the firm's debt-equity ratio
d. To merge with competitors
38. Statement I. In the context of legal entity restructuring, a split-o occurs when a
parent corporation isolates one of its businesses in a subsidiary and transfers the
shares of the subsidiary to the parent’s shareholders.
Statement II. On the other hand, a split-up occurs when a parent corporation divides
itself into two (or more) subsidiaries and then distributes their stock to its
shareholders.
a. Both statements are correct
b. Only statement I is correct
c. Only statement II is correct
d. Both statements are not correct
39. As part of the company’s financial restructuring, what is the tax treatment of gains
realized from the early retirement of bonds with a maturity of more than five years?
a. Gains are fully taxable as regular income.
b. Gains are subject to capital gains tax.
c. Gains are excluded from gross income and exempt from income tax.
d. Gains are partially taxable depending on the amount.
40. What is one reason why corporate acquisitions in the Philippines are typically
structured as share purchases?
a. Share purchases are generally more expensive than asset acquisitions.
b. Share purchases allow for the easy avoidance of regulatory consent and
approval.
c. Share purchases are generally simpler to implement and more tax-e icient.
d. Share purchases ensure that all pre-existing obligations of the selling entity
are avoided.
41. What is required before the transfer of shares of stock in a Domestic Corporation
can be recorded in the stock and transfer book?
a. Payment of a documentary stamp tax
b. Filing a tax return with the Bureau of Internal Revenue (BIR)
c. Approval from the Securities and Exchange Commission (SEC)
d. Obtaining a Certificate Authorizing Registration (CAR) from the BIR
42. Under the business purpose doctrine, what is required for a transaction to qualify as
tax-free?
a. The transaction must be motivated solely by tax avoidance.
b. The transaction must have at least one valid business purpose, even if tax
avoidance is a principal motivation.
c. The transaction must have no tax avoidance motivations at all.
d. The transaction must be approved by the Securities and Exchange
Commission (SEC).
43. Under which conditions is a joint venture (JV) formed for undertaking construction
projects not taxable as a corporation, according to the Bureau of Internal Revenue
(BIR)?
a. The JV must be licensed by the Securities and Exchange Commission (SEC).
b. The JV must have a minimum capital investment of PHP 10 million.
c. The JV must complete the project within one year.
d. The JV partners must be local contractors and/or foreign contractors with a
special license, and the project must be certified by the appropriate
government o ice as foreign-financed/internationally funded.
44. What happens to the gain or loss derived by stockholders when receiving liquidating
dividends during the liquidation of a subsidiary?
a. It is subject to capital gains tax.
b. It is exempt from all taxes.
c. It is subject to regular income tax rates.
d. It is deferred until the assets are sold.
45. Under the Financial Rehabilitation and Insolvency Act (FRIA), what is the condition
for the court to issue a liquidation order for voluntary liquidation of an individual
debtor?
a. The debtor's properties must not be su icient to cover his liabilities, and the
debts must exceed PHP 500,000.
b. The debtor must have assets exceeding PHP 1,000,000.
c. The debtor must present a feasible restructuring program.
d. The debtor must have the consent of at least 60 percent of his creditors.