Corporation

Question 1

1. Which of the following statements is incorrect?
   a. Domestic corporations are subject to income tax based on net income from all sources
   b. Resident foreign corporations are subject to income tax based on net income from sources within the Philippines
   c. Non-resident foreign corporations are subject to income tax based on gross income from sources within the Philippines
   d. Proprietary educational institutions and hospitals for non-profit are subject to income tax based on gross income from sources within the Philippines at a tax rate of 10% beginning July 1, 2020 until June 30, 2023

Answer 1

D; 1% Beginning July 1, 2020 - June 30, 2023

Question 2

2. Which of the following statements is wrong on corporations?
   a. Domestic corporations, in general, are subject to a tax rate of twenty-five percent (25%) effective July 1, 2020, on income derived from all sources within and outside the Philippines
   b. Proprietary educational institutions and hospitals which are nonprofit shall pay a tax of one percent (1%) on their taxable income from all sources within and outside the Philippines beginning July 1, 2020, until June 30, 2023, provided that gross income from ‘unrelated activities’ exceeds fifty percent (50%) of the total gross income derived from all sources
   c. Resident foreign corporations are subject to a tax rate of twenty-five percent (25%) effective July 1, 2020, on income derived from sources within the Philippines
   d. Domestic corporations with net taxable income not exceeding Five Million Pesos
   (P5,000,000) and total assets not exceeding One Hundred Million (P100,000,000),
   excluding the land on which the particular business entity’s office, plant and equipment are situated, are subject to a tax rate of twenty percent (20%) effective July 1, 2020

Answer 2

B

Question 3

3. This term applies to a foreign corporation engaged in trade or business in the Philippines.
   a. Resident foreign corporation
   b. Non-resident foreign corporation c. Multinational corporation
   d. Petroleum contractor

Answer 3

A

Question 4

4. Which of the following is subject to income tax?
   a. SSS and GSIS
   b. Home Development Mutual Fund (HDMF)
   c. Local water districts
   d. Philippine Amusement and Gaming Corporation (PAGCOR)

Answer 4

D; subject to 5% final tax - EOPTA

Question 5

5. Statement 1: In the case of corporations adopting the fiscal-year accounting period, the taxable income shall be computed without regard to the specific date when specific sales, purchases and
   other transactions occur. Their income and expenses for the fiscal year shall be deemed to have been earned and spent equally for each month of the period.
   Statement 2: The corporate income tax rate shall be applied on the amount computed by multiplying the number of months covered by the new rate within the fiscal year by the taxable income of the corporation for the period, divided by twelve.
   a. The first statement is true while the second statement is false
   b. The first statement is false while the second statement is true
   c. Both statements are true
   d. Both statements are false

Answer 5

C

Question 6

6. Statement 1: The amount of interest paid or incurred within a taxable year on indebtedness in connection with the taxpayer’s profession, trade or business shall be allowed as deduction from
   gross income: Provided, however, That the taxpayer’s otherwise allowable deduction for interest expense shall be reduced by twenty percent (20%) of the interest income subjected to final tax.
   Statement 2: Provided, finally, that if the interest income tax is adjusted in the future, the interest
   expense reduction rate shall be adjusted accordingly based on the prescribed standard formula as defined in the rules and regulations to be promulgated by the Secretary of Finance, upon the
   recommendation of the Commissioner of Internal Revenue.
   a. The first statement is true while the second statement is false
   b. The first statement is false while the second statement is true
   c. Both statements are true
   d. Both statements are false

Answer 6

C

Question 7

7. Which of the following statements is true? Dividends received by a
   a. Domestic corporation from a resident foreign corporation are subject to final withholding tax
   b. Resident foreign corporation from another resident foreign corporation are subject to schedular income tax in the Philippines
   c. Non-resident foreign corporation from domestic corporation are subject to final
   withholding tax
   d. Domestic corporation from another domestic corporation are subject to schedular income tax in the Philippines

Answer 7

C

Question 8

8. Interest income on bank deposit or investment with maturity period of at least five (5) years received by a corporation is subject to
   Domestic Resident Foreign Corporation Non-resident Foreign Corporation
   Final answers:
   Domestic – Ordinary income (subject to RCIT/MCIT)
   RFC – Ordinary income (subject to RCIT/MCIT)
   NRFC – 25% FWT
   Basis: RR 14-12 Sec. 3:6
   Take note that the exemption only applies to individuals.

Answer 8

EXEMPTIONS OPNLY APPLIES TO INDIVIDUALS

Question 9

9. Statement 1: The entire amount of the 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.
   Statement 2: Sale or exchanges of property used for business for shares of stock covered under this Subsection shall not be subject to value-added tax.
   a. Both statements are true
   b. Both statements are false
   c. The first statement is true while the second statement is false
   d. The first statement is false while the second statement is true

Answer 9

D; STATEMENT 1 - NO GAIN OR LOSS SHALL BE RECOGNIZED

Question 10

10. Statement 1: The income from bank deposit of a non-stock non-profit educational institution is
    exempt.
    Statement 2: Income of a non-stock non-profit educational institution is exempt.
    a. Both statements are true
    b. Both statements are false
    c. The first statement is true while the second statement is false
    d. The first statement is false while the second statement is true

Answer 10

D; BANK DEPOSITS ARE SUBJECT TO FWT

Question 11

11. Which of the following may not be allowed to claim OSD in lieu of the itemized deductions?
    a. Domestic corporation
    b. Resident foreign corporation
    c. Nonresident foreign corporation
    d. All of the above are not allowed to claim OSD

Answer 11

C

Question 12

12. A domestic corporation was registered with the BIR on January 1, 2021. What year would the first MCIT be imposed on such corporation assuming it commenced its business operations
    immediately after the date of registration?
    a. 2022
    b. 2023
    c. 2024
    d. 2025

Answer 12

D

Question 13

13. Which of the following statements is correct?
    I. A minimum corporate income tax (MCIT) of 1% of gross income beginning July 1, 2020 until June 30, 2023 is imposed upon any domestic corporation beginning the 4th taxable year immediately following the taxable year in which such corporation commenced its business operations.
    II. MCIT shall be imposed whenever such corporation has zero or negative taxable income, or when the amount of MCIT is greater than normal income tax due from such corporation.
    III. The computation and the payment of MCIT, shall likewise apply at the time of filing the quarterly corporate income tax.
    a. I only
    b. II only
    c. I and II only
    d. I, II and III

Answer 13

D

Question 14

14. The MCIT shall apply to which of the following resident foreign corporations?
    I. International carrier
    II. Offshore banking units (OBUs)
    III. Regional operating headquarters
    a. I and III only
    b. II and III only
    c. I and II only
    d. I, II and III

Answer 14

B

Question 15

15. If the gross income from unrelated activity exceeds 50% of the total gross income derived by any private educational institution, the rate shall be the regular corporate tax rate based on the entire
    taxable income. This principle is known as
    a. Constructive receipt
    b. Tax benefit rule
    c. End result doctrine
    d. Predominance test

Answer 15

D

Question 16

16. Which of the following income is not from a related trade, business or activity of a domestic proprietary educational institution?
    a. Income from hospital where medical graduates are trained for residency
    b. Income from the canteen situated within the school campus
    c. Income from bookstore situated within the school campus
    d. Income from rent of available office spaces in one of the school buildings

Answer 16

D

Question 17

17. A proprietary educational institution spent P10 million for the construction of a new school building. The amount spent for the construction
    a. May be capitalized or expensed outright at the option of the school
    b. May be capitalized or expensed at the option of the BIR
    c. Must be claimed as expense in the year of completion
    d. May be capitalized and claim annual depreciation over the useful life of the building

Answer 17

A

Question 18

18. The ABC Corporation is an international carrier doing business in the Philippines its taxable base
    for income tax purpose is
    a. 2.5% on Gross Philippine Billings
    b. 2.5% on Gross Philippine Billings minus deductible expenses
    c. Regular rate on its net taxable income
    d. Allocation of income from sources within and without the Philippines, as well as expenses

Answer 18

A

Question 19

19. Rentals, charters and other fees derived by a non-resident lessor of aircraft, machineries and other equipment in the Philippines shall be subject to a tax of
    a. Twenty-five percent (25%)
    b. Seven and one-half (7 1⁄2%)
    c. Four and one-half percent (4 1⁄2%) of gross rentals or fees
    d. Two and one-half percent (2 1⁄2%0 of gross income

Answer 19

B

Question 20

20. Rentals and charter fees payable to non-resident owners of vessels chartered by Philippine
    nationals shall be subject to a tax of
    a. Twenty-five percent (25%)
    b. Seven and one-half (7 1⁄2%)
    c. Four and one-half percent (4 1⁄2%) of gross rentals or fees
    d. Two and one-half percent (2 1⁄2%0 of gross income

Answer 20

C

Question 21

21. XYZ University is a non-stock, non-profit educational institution registered with Securities and Exchange Commission (SEC) as a corporation. For the year ended December 31, 2021, it reported
    rental income amounting to P150M from various tenants leasing portions of the said corporation. The Bureau of Internal Revenue (BIR) assessed XYZ P45M deficiency income tax for rental income earned. Is the action of the BIR proper?
    a. No, because a proprietary educational institution shall be subject only to 10% preferential
    corporate income tax
    b. No, because all revenues of non-stock, non-profit educational institution shall be exempt from taxes and duties as long as they are used actually, directly, and exclusively for
    educational purposes
    c. Yes, because leasing of property is not actually, directly, and exclusively related to
    educational purposes
    d. Yes, because taxes are the lifeblood of the government and tax exemptions are construed strictly against the taxpayer and liberally in favor of the government

Answer 21

C

Question 22

22. Which of the following statements is correct?
    a. Any profit remitted by a branch office of a multinational corporation to its head office is subject to 15% final tax based on total profits applied or earmarked by remittance without deduction for the tax component
    b. Branch profit for purposes of branch remittance tax shall include interests, dividends, rents, royalties, including remuneration for technical services, salaries, wages, premiums,
    annuities, emoluments or other fixed or determinable annual, periodic or casual gains, profits, income and capital gains received during each taxable year from all sources within the Philippines
    c. For purposes of branch profit remittance, income items which are not effectively connected with the conduct of its trade or business in the Philippines are not considered branch profits
    d. All of the above

Answer 22

A

Question 23

23. ABC Corporation is registered under the laws of Korea. In the Philippines, its products are imported and sold at a mark-up by its exclusive distributor, XYZ, Inc. The BIR compiled a record of all the
    imports of XYZ from ABC and imposed a tax on ABC’s net income derived from its exports to XYZ.
    Is the BIR correct?
    a. Yes. ABC is doing business in the Philippines through its exclusive distributor, XYZ
    b. No. ABC is a non-resident foreign corporation not engaged in trade of business in the Philippines
    c. No. The tax should have been computed based on gross revenues and not net income
    d. Yes. ABC is a non-resident foreign corporation engaged in trade of business in the Philippines

Answer 23

B

Question 24

24. ABC Corporation, a corporation registered in Japan, has a 50 MW electric power plant in Laguna. Aside from ABC’s income from its power plant, which among the following is considered as part of
    its income from sources within the Philippines?
    a. Dividends from a two-year old Japanese subsidiary with operations in Tokyo but derives 60% of its gross income from the Philippines
    b. Interests earned on its dollar deposits in a Philippine bank under the Expanded Foreign Currency Deposit System
    c. Royalties from the use in Thailand of generator sets designed in the Philippines by its engineers
    d. Gains from the sale to a Bataan power plant of generators bought from the United States

Answer 24

D

Question 25

25. In 2021, XYZ Corporation, a domestic corporation, had a net income of P3,000,000. If a dividend is declared by the corporation and received by the following stockholders, which of the following statements is false? a. Nonresident aliens engaged in trade or business are liable to pay 30% dividend tax b. Nonresident aliens not engaged in trade or business are liable to pay 25% dividend tax c. Resident citizens are liable to pay 10% dividend tax d. Resident foreign corporations are exempt from the payment of dividend tax

Answer 25

A