DAY 2 (PM) Taxation Law Flashcards
I
KM Corporation, doing business in the City of Kalookan, has been a distributor and retailer of clothing and household materials. It has been paying the City of Kalookan local taxes based on Sections 15 (Tax on Wholesalers, Distributors or Dealers) and 17 (Tax on Retailers) of the Revenue Code of Kalookan City (Code). Subsequently, the Sangguniang Panlungsod enacted an ordinance amending the Code by inserting Section 21 which imposes a tax on “Businesses Subject to Excise, Value-Added and Percentage Taxes under the National Internal Revenue Code (NIRC),” at the rate of 50% of 1 % per annum on the gross sales and receipts on persons “who sell goods and services in the course of trade or business.” KM Corporation paid the taxes due under Section 21 under protest, claiming that (a) local government units could not impose a tax on businesses already taxed under the NIRC and (b) this would amount to double taxation, since its business was already taxed under Sections 15 and 17 of the Code.
(a) May local government units impose a tax on businesses already subjected to tax under the NIRC?
I
KM Corporation, doing business in the City of Kalookan, has been a distributor and retailer of clothing and household materials. It has been paying the City of Kalookan local taxes based on Sections 15 (Tax on Wholesalers, Distributors or Dealers) and 17 (Tax on Retailers) of the Revenue Code of Kalookan City (Code). Subsequently, the Sangguniang Panlungsod enacted an ordinance amending the Code by inserting Section 21 which imposes a tax on “Businesses Subject to Excise, Value-Added and Percentage Taxes under the National Internal Revenue Code (NIRC),” at the rate of 50% of 1 % per annum on the gross sales and receipts on persons “who sell goods and services in the course of trade or business.” KM Corporation paid the taxes due under Section 21 under protest, claiming that (a) local government units could not impose a tax on businesses already taxed under the NIRC and (b) this would amount to double taxation, since its business was already taxed under Sections 15 and 17 of the Code.
(b) Does this amount to double taxation?
II
Kronge Konsult, Inc. (KKI) is a Philippine corporation engaged in architectural design, engineering, and construction work. Its principal office is located in Makati City, but it has various infrastructure projects in the country and abroad. Thus, KKI employs both local and foreign workers. The company has adopted a policy that the employees’ salaries are paid in the currency of the country where they are assigned or detailed.
Below is an employee of KKI. Determine whether the compensation s/he received from KKI in 2017 is taxable under Philippine laws and whether s/he is required to file tax returns with the Bureau of Internal Revenue (BIR).
(a) Kris Konejero, a Filipino accountant in KKl’s Tax Department in the Makati office, and married to a Filipino engineer also working in KKI.
II
Kronge Konsult, Inc. (KKI) is a Philippine corporation engaged in architectural design, engineering, and construction work. Its principal office is located in Makati City, but it has various infrastructure projects in the country and abroad. Thus, KKI employs both local and foreign workers. The company has adopted a policy that the employees’ salaries are paid in the currency of the country where they are assigned or detailed.
Below is an employee of KKI. Determine whether the compensation s/he received from KKI in 2017 is taxable under Philippine laws and whether s/he is required to file tax returns with the Bureau of Internal Revenue (BIR).
(b) Klaus Kloner, a German national who heads KKl’s Design Department in its Makati office.
II
Kronge Konsult, Inc. (KKI) is a Philippine corporation engaged in architectural design, engineering, and construction work. Its principal office is located in Makati City, but it has various infrastructure projects in the country and abroad. Thus, KKI employs both local and foreign workers. The company has adopted a policy that the employees’ salaries are paid in the currency of the country where they are assigned or detailed.
Below is an employee of KKI. Determine whether the compensation s/he received from KKI in 2017 is taxable under Philippine laws and whether s/he is required to file tax returns with the Bureau of Internal Revenue (BIR).
(c) Krisanto Konde, a Filipino engineer in KKl’s Design Department who was hired to work at the principal office last January 2017. In April 2017, he was assigned and detailed in the company’s project in Jakarta, Indonesia, which project is expected to be completed in April 2019.
II
Kronge Konsult, Inc. (KKI) is a Philippine corporation engaged in architectural design, engineering, and construction work. Its principal office is located in Makati City, but it has various infrastructure projects in the country and abroad. Thus, KKI employs both local and foreign workers. The company has adopted a policy that the employees’ salaries are paid in the currency of the country where they are assigned or detailed.
Below is an employee of KKI. Determine whether the compensation s/he received from KKI in 2017 is taxable under Philippine laws and whether s/he is required to file tax returns with the Bureau of Internal Revenue (BIR).
(d) Kamilo Konde, Krisanto’s brother, also an engineer assigned to KKl’s project in Taipei, Taiwan. Since KKI provides for housing and other basic needs, Kamila requested that all his salaries, paid in Taiwanese dollars, be paid to his wife in Manila in its Philippine Peso equivalent.
II
Kronge Konsult, Inc. (KKI) is a Philippine corporation engaged in architectural design, engineering, and construction work. Its principal office is located in Makati City, but it has various infrastructure projects in the country and abroad. Thus, KKI employs both local and foreign workers. The company has adopted a policy that the employees’ salaries are paid in the currency of the country where they are assigned or detailed.
Below is an employee of KKI. Determine whether the compensation s/he received from KKI in 2017 is taxable under Philippine laws and whether s/he is required to file tax returns with the Bureau of Internal Revenue (BIR).
(e) Karen Karenina, a Filipino architect in KKl’s Design Department who reported back to KKl’s Makati office in June 2017 after KKl’s project in Kuala Lumpur, Malaysia was completed.
IV
Years ago, Krisanto bought a parcel of land in Muntinlupa for only PhP65,000. He donated the land to his son, Kornelio, in 1980 when the property had a fair market value of PhP75,000, and paid the corresponding donor’s tax.
Kornelio, in turn, sold the property in 2000 to Katrina for PhP 6.5 million and paid the capital gains tax, documentary stamp tax, local transfer tax, and other fees and charges. Katrina, in turn, donated the land to Klaret School last August 30, 2017 to be used as the site for additional classrooms. No donor’s tax was paid, because Katrina claimed that the donation was exempt from taxation. At the time of the donation to Klaret School, the land had a fair market value of PhP 65 million.
(a) Is Katrina liable for donor’s tax?
IV
Years ago, Krisanto bought a parcel of land in Muntinlupa for only PhP65,000. He donated the land to his son, Kornelio, in 1980 when the property had a fair market value of PhP75,000, and paid the corresponding donor’s tax.
Kornelio, in turn, sold the property in 2000 to Katrina for PhP 6.5 million and paid the capital gains tax, documentary stamp tax, local transfer tax, and other fees and charges. Katrina, in turn, donated the land to Klaret School last August 30, 2017 to be used as the site for additional classrooms. No donor’s tax was paid, because Katrina claimed that the donation was exempt from taxation. At the time of the donation to Klaret School, the land had a fair market value of PhP 65 million.
(b) How much in deduction from gross income may Katrina claim on account of the said donation?
V
Spouses Konstantino and Karina are Filipino citizens and are principal shareholders of a restaurant chain, Karina’s, Inc. The restaurant’s principal office is in Makati City, Philippines.
Korina’s became so popular as a Filipino restaurant that the owners decided to expand its operations overseas. During the period 2010-2015 alone, it opened ten (10) stores throughout North America and five (5) stores in various parts of Europe where there were large Filipino communities. Each store abroad was in the name of a corporation organized under the laws of the state or country in which the store was located. All stores had identical capital structures: 60% of the outstanding capital stock was owned by Karina’s, Inc., while the remaining 40% was owned directly by the spouses Konstantino and Korina.
Beginning 2017, in light of the immigration policy enunciated by US President Donald Trump, many Filipinos have since returned to the Philippines and the number of Filipino immigrants in the US dropped significantly. On account of these developments, Konstantino and Karina decided to sell their shares of stock in the five (5) US corporations that were doing poorly in gross sales. The spouses’ lawyer-friend advised them that they will be taxed 5% on the first PhP100,000 net capital gain, and 10% on the net capital gain in excess of PhP100,000.
Is the lawyer correct? If not, how should the spouses Konstantino and Karina be taxed on the sale of their shares?
VI
Kria, Inc., a Korean corporation engaged in the business of manufacturing electric vehicles, established a branch office in the Philippines in 2010. The Philippine branch constructed a manufacturing plant in Kabuyao, Laguna, and the construction lasted three (3) years. Commercial operations in the Laguna plant began in 2014.
In just two (2) years of operation, the Philippine branch had remittable profits in an amount exceeding 175% of its capital. However, the head office in Korea instructed the branch not to remit the profits to the Korean head office until instructed otherwise. The branch chief finance officer is concerned that the BIR might hold the Philippine branch liable for the 10% improperly accumulated earnings tax (IAET) for permitting its profits to accumulate beyond reasonable business needs.
(a) Is the Philippine branch of Kria subject to the 10% IAET under the circumstances stated above?
VI
Kria, Inc., a Korean corporation engaged in the business of manufacturing electric vehicles, established a branch office in the Philippines in 2010. The Philippine branch constructed a manufacturing plant in Kabuyao, Laguna, and the construction lasted three (3) years. Commercial operations in the Laguna plant began in 2014.
In just two (2) years of operation, the Philippine branch had remittable profits in an amount exceeding 175% of its capital. However, the head office in Korea instructed the branch not to remit the profits to the Korean head office until instructed otherwise. The branch chief finance officer is concerned that the BIR might hold the Philippine branch liable for the 10% improperly accumulated earnings tax (IAET) for permitting its profits to accumulate beyond reasonable business needs.
(b) Is it subject to 15% branch profit remittance tax (BPRT)?
VII
Karissa is the registered owner of a beachfront property in Kawayan, Quezon which she acquired in 2015. Unknown to many, Karissa was only holding the property in trust for a rich politician who happened to be her lover. It was the politician who paid for the full purchase price of the Kawayan property. No deed of trust or any other document showing that Karissa was only holding the property in trust for the politician was executed between him and Karissa.
Karissa died single on May 1, 2017 due to a freak surfing accident. She left behind a number of personal properties as well as real properties, including the Kawayan property. Karissa’s sister, Karen, took charge of registering Karissa’s estate as a taxpayer and reporting, for income tax and VAT purposes, the rental income received by the estate from real properties. However, it was only on October 1, 2017 when Karen managed to file an estate tax return for her sister’s estate. The following were claimed as deductions in the estate tax return:
- Funeral expenses amounting to PhP250,000;
- Medical expenses amounting to PhP100,000, incurred when Karissa was hospitalized for pneumonia a month before her death; and
- Loss valued at PhP6 million arising from the destruction of Karissa’s condominium unit due to fire which occurred on September 15, 2017.
(a) Should the beachfront property be included in Karissa’s gross estate?
VII
Karissa is the registered owner of a beachfront property in Kawayan, Quezon which she acquired in 2015. Unknown to many, Karissa was only holding the property in trust for a rich politician who happened to be her lover. It was the politician who paid for the full purchase price of the Kawayan property. No deed of trust or any other document showing that Karissa was only holding the property in trust for the politician was executed between him and Karissa.
Karissa died single on May 1, 2017 due to a freak surfing accident. She left behind a number of personal properties as well as real properties, including the Kawayan property. Karissa’s sister, Karen, took charge of registering Karissa’s estate as a taxpayer and reporting, for income tax and VAT purposes, the rental income received by the estate from real properties. However, it was only on October 1, 2017 when Karen managed to file an estate tax return for her sister’s estate. The following were claimed as deductions in the estate tax return:
- Funeral expenses amounting to PhP250,000;
- Medical expenses amounting to PhP100,000, incurred when Karissa was hospitalized for pneumonia a month before her death; and
- Loss valued at PhP6 million arising from the destruction of Karissa’s condominium unit due to fire which occurred on September 15, 2017.
(b) Are the claimed deductions proper?
VIII
Upon the death of their beloved parents in 2009, Karla, Karla, and Karlie inherited a huge tract of farm land in Kanlaon City. The siblings had no plans to use the property. Thus, they decided to donate the land, but were not sure to whom the donation should be made. They consult you, a well-known tax law expert, on the tax implications of the possible donations they plan to make, by giving you a list of the possible donees:
- The Kanlaon City High School Alumni Association (KCHS AA), since the siblings are all alumni of the same school and are active members of the organization. KCHS AA is an organization intended to promote and strengthen ties between the school and its alumni;
- The Kanlaon City Water District which intends to use the land for its offices; or
- Their second cousin on the maternal side, Kikay, who serves as the caretaker of the property.
Advise the siblings which donation would expose them to the least tax liability.