Taxation Material 2
Taxation Material 2
Taxation Material 2
I. Matt Cooperative, a registered cooperative doing construction business, equipment rental and buy-and-
sell of hardware materials and basic commodities to members and non-members with accumulative
reserves and undivided net savings of PhP 1.43 M, on all its income from operations
II. Nathanson Company, a Board of Investments (BOI)-registered entity undertaking a low-cost housing
project, on its interest income from in-house financing
III. ILY University, a non-stock, non-profit, educational institution, on its income from all sources supported
by a Certificate of Tax Exemption
IV. GG Company, a regional operating headquarters (ROHQ), on their taxable income and any income
derived from Philippine sources
ANSWER: I only
Reference:
Statements I is correct [Court of Tax Appeals (CTA) Case No. 8751 dated November 16, 2016]
Statement II is wrong because Bureau of Internal Revenue (BIR) Ruling No. 29-17 dated February 02, 2017
provides that only income directly attributable to its registered project shall be exempt from income tax.
Statement III is wrong because as clarified by CTA En Banc (CTA EB) Case No. 1298 dated September 20, 2016,
while a Certificate of Tax Exemption is not a condition precedent for the enjoyment or entitlement of the income
tax exemption, it still has to prove that its income is used actually, directly, and exclusively for educational
purposes.
Statement IV is wrong because ROHQsshall be subject to a tax rate of ten percent (10%) of their taxable income
and any income derived from Philippine sources.
Compute the final withholding tax (FWT) due from the Bank.
Solution:
Interest income from foreign currency loans granted to residents PhP 45,000,000
(other than offshore banking units in the Philippines or other
depository banks under the expanded system) – Onshore
income
Less: Interest expense allocable to the on shore income [30M x 25,000,000
(45M/45M + 9M)]
Gross income subject to FWT PhP 20,000,000
Multiply by: 10% FWT 10%
FWT due PhP 2,000,000
Notes:
The offshore income amounting to PhP 9,000,000 is exempt from all taxes.
“All-Other” income amounting to PhP 15,000,000 is subject to the higher between Regular Corporate Income Tax
(RCIT) and Minimum Corporate Income Tax (MCIT).
Section 28 (4) of the 1997 Tax Code, as amended
A. The cost of the discount shall be allowed as deduction from gross income for the same taxable year
that the discount is granted
B. The seller must record its sales inclusive of the discount granted, as a reduction of sales to arrive at net
sales
C. The total amount of claimed tax deduction net of value-added tax (VAT), if applicable, shall be included
in their gross sales receipts for tax purposes
D. Only the portion of the gross sales exclusively used, consumed, or enjoyed by the PWD shall be
eligible for the deductible sales discount
ANSWER: B.
Reference:
RR No. 05-2017 states that establishments granting sales discounts to PWD on their sale of goods and/or
services may be entitled to deduct the said sales discount from their gross income subject to the following
conditions:
► The cost of the discount shall be allowed as deduction from gross income for the same taxable year that
the discount is granted
► The total amount of claimed tax deduction net of VAT, if applicable, shall be included in their gross sales
receipts for tax purposes
► The total amount of claimed tax deduction shall be subject to proper documentation and to the provisions
of the 1997 Tax Code, as amended.
► Only the portion of the gross sales exclusively used, consumed, or enjoyed by the PWD shall be eligible
for the deductible sales discount;
► The seller must record its sales inclusive of the discount granted, not as a reduction of sales to arrive at
net sales, but as a deduction from gross income.
Solution:
Installment Deferred
Land 1 Land 2 Land 3 Land 4 Land 5
Initial Payments (IP)* 100,000 = 25% 140,000 = 20% 200,000 = 25% 300,000 = 33% 400,000 = 33%
Selling Price (SP) 400,000 700,000 800,000 900,000 1,200,000
Capital gains tax (CGT) 400,000 X 6% = 700,000 X 6% = 800,000 X 6% = 900,000 X 6% = 1,200,000 X 6% =
due 24,000 42,000 48,000 54,000 72,000
IP X CGT 100,000 X 24,000 140,000 X 42,000 200,000 X 48,000
Contract Price** 400,000 600,000 400,000
Final tax PhP 6,000 PhP 9,800 PhP 24,000 PhP 54,000 PhP 72,000
Notes:
Property sold had no Mortgage assumed by the Mortgage assumed by the Buyer does
mortgage Buyer does not exceed the not exceed the cost of seller
cost of seller
Initial Payments* Down payment + Installment Down payment + Installment Down payment + Installment payments in
payments in the year of sale, payments in the year of sale, the year of sale, per contract + Excess of
per contract per contract mortgage assumed by the buyer over cost
of the seller(Per Section 4 of Revenue
Regulation No 13-85)
Contract Price** Selling Price Selling Price – Mortgage Selling Price – Mortgage assumed by buyer
assumed by buyer + Excess of mortgage assumed by the
buyer over cost of the seller(Per Section 4
of Revenue Regulation No 13-85)
I. Finance Lease
II. Promissory Notes
III. Stock Options
IV. Advances supported only by office memo
V. Loan Agreements
Reference:
The nature of a Finance Lease is similar to that of a debt rather than a lease. The mere act of extending credit is already
a means of facilitating an obligation or advancing in behalf of the lessee certain property in lieu of cash in exchange for
a definitive amortization to be paid to the lessor with profit margin included.Hence, any document, transaction or
arrangement entered into under a financial lease is subject to DST of PhP 1 on each PhP 200, or fractional part thereof,
of the issue price pursuant to Section 179 of the 1997 Tax Code, as amended. (RMC. No. 46-2014
)
CLINCHER ROUND – Problem 1
To avail tax deduction incentives under Republic Act (RA) No. 10028 “Expanded Breastfeeding Promotion Act
of 2009”, Henson Electronics which primarily employs women, decided to install a lactation station for its
nursing employees. The following costs were incurred in the foregoing:
Reference:
Under RA 10028, an additional expense for the same amount may be claimed under special itemized allowable
deduction.
ANSWER: D.
Reference:
ANSWER: B.
Reference:
• Section 28 (6) (a) of the 1997 Tax Code, as amended, states that regional or area headquarters as defined in
Section 22 (DD) shall not be subject to income tax.
The amount of withholding VAT (WVAT) due for the month is ____________.
Solution:
For the period January to June 30, 2008, it reported a net income of PhP 300,000.00 using the itemized
method of deduction where its gross sales for the period amounted to PhP1,000,000.00 and its cost of sales
for the same period amounted to PhP 620,000.00.
With the effectivity of Republic Act (RA) No. 9504, it decided to use the 40% optional standard deduction
(OSD) in claiming its business expenses for the third quarter covering July 1 to September 30, 2008. Its gross
income for said period amounted to PhP 400,000.00 with actual operating expenses of PhP50,000.00.
For the last quarter of calendar year (CY) 2008, its net income amounted to PhP 150,000.00. The gross sales
and operating expenses for the same last quarter amounted to PhP600,000.00and PhP150,000.00,
respectively.
If Hedley Corporation decides to use the OSD method of deduction when it files its annual income tax return,
how much will be the net income for CY 2008?
Solution:
Gross Income
January to June (P1,000,000 - P620,000) P 380,000
Third Quarter 400,000
Fourth Quarter (P150,000 + P150,000) 300,000 P 1,080,000
Less: Deductions
Itemized deductions from January 1 to June 30* P 100,000
OSD deduction from July 1 to September 30 160,000
OSD deduction from October 1 to December 31 120,000 P 380,000
*For taxable period 2008 which is the initial year of the implementation of the 40% OSD under RA 9504 which modified
the OSD for individuals from 10% of gross income to 40% of gross sales/gross receipts and introduced the OSD as an
alternative deduction for corporations, the 40% maximum deduction shall only cover the period beginning the effectivity of
RA 9504. RA 9504 became effective July 06, 2008. However, in order to simplify and provide ease of administration
during the transition period, July 1, 2008 shall be considered as the start of the period when the 40% OSD may be
allowed. (Section 8, RR No. 16-08)
Hence, itemized deductions was used for the period January to June 30, 2008 computed as follows:
P1,000,000 – P600,000 = P400,000 – P300,000 = P100,000.
Properties
Cash in bank PhP 200,000
Residential lot inherited from his father on June 12, 2007 1,200,000
Family home:
House (community property) 1,300,000
Lot (exclusive property of Angelo) 1,000,000
Personal properties acquired by the spouses during marriage 200,000
Receivable from his sister (insolvent) 100,000
Inter vivos donation from his mother on July 2010, revocable 150,000
Receivable from SSS as indemnity for hospitalization 12,000
Obligations
Unpaid mortgage on the residential lot contracted by the father:
At the time of death of father 300,000
At the time of death of Angelo 100,000
Funeral expenses (40% were shouldered by relatives) 80,000
Judicial expenses (30% were incurred after 6 months) 35,000
Claims against the estate (includes unpaid medical expenses of 12,000) 35,000
Unpaid mortgage on the house (loaned to Angelo’s sister) 100,000
Casualty loss (50% was indemnified by the insurance company) 60,000
Donation to Barangay BagongPag-asa (verbal donation) 25,000
Solution:
Exclusive Communal Total
Cash in bank 200,000
Residential lot inherited from his father on June 12, 2007 1,200,000
Family home:
House (community property) 1,300,000
Lot (exclusive property of Angelo) 1,000,000
Personal properties acquired by the spouses during 200,000
marriage
Receivable from his sister (insolvent) 100,000
Inter vivos donation from his mother on July 2010, Subject to estate Subject to
revocable tax to his mother estate tax to his
mother
Receivable from SSS as indemnity for hospitalization Exempt Exempt
Gross Estate 1,000,000 3,000,000 4,000,000