Midterm Review for Tax

Question 1

🟢Definition, Nature, Basis, and Importance of Taxation🟢

What is the definition of Taxation

pg .1 & 2

Answer 1

Inherent Power of the Sovereign

Exercised through the legislature

To impose burden upon subjects & objects

w/in its JD for the purpose of raising revenues

to carry out the legitimate objects of gov’t

check pg. 2 & 3 (kma)

Question 2

can Congress pass a law to remove the tax exemption of a corporation?

Answer 2

No, as a general rule

The rule is when the exemption is granted for valuable consideration [AND] granted on the basis of a contract, it cannot be revoked by a passage of law thus the constitutional prohibition non-impairment of obligations is present

TN:
contract = charter of the corp
valuable consideration = can be services in return

TN: does not apply to FRANCHISE
LB: ABC-CBN it was a franchise granted by congress

Question 3

what are the requisites of a valid classification

Answer 3

1. rest on substantial distinctions
2. germane to the purpose of the law
3. NOT limited to existing conditions only
4. apply equally to all members of the same class

Question 4

Mandanas v. Ochoa doctrine

Question 5

As a general rule, the collection of taxes may not be enjoined by injunction

XPN

Answer 5

Only the CTA can issue a TRO because it is a matter of Collection questioning the way the tax was computed

Question 6

Tax is Not subject to compensation and set-off

XPN

Answer 6

LB: Domingo v. Garlitos

offsetting can be done under (2) conditions
1. both claims are due & demandable
2. both claims are fully liquidated

Question 7

what is the doctrine of equitable recoupment

Answer 7

a claim for refund that has been barred by prescription may be allowed to offset unsettled tax liabilities arising form the same transactilion.

The SC REJECTED this doctrine in Collector vs. UST since it may work to tempt both parties to delay and neglect their respective pursuits or legal action within the period set by law

Question 8

🟢Purpose & Objective of Taxation 🟢

4R’s / Effects of Taxation

Answer 8

representation
redistrbution
revenue
repricing

Question 9

What are the Inherent Limitations of Taxation

Answer 9

PENIT

Public Purpose
Exemption from Taxation of Gov’t Entities
Non-Delegation of the power to tax
International Comity
Territorial Jurisdiction

Question 10

Where do bills originate relating to
- appropriation,
- revenue, or tariff bills,
- bills authorizing increase of public debt,
- bills of local application, and
- private bills?

Answer 10

Art. 7 Sec. 24 of Constitution

REVENUE BILLS (not laws) must originate exclusively in the house but the Senate may propose amendments

Question 11

Q: If the Senate drafted ahead in their own version, can that be done, like a tax law? Exactly what happened to the amended VAT law.

Answer 11

Yes, provided Congress had enrolled the bill already.

It is permissible that Senate has their own bill but the same shall be submitted to the bicameral committee. What is required is that date of official registration of the bill is ahead.

Question 12

when can there be a law granting any tax exemptions?

Answer 12

Art. 6 Sec 28 Constitution

“No law granting any tax exemption shall be passed without the concurrence of a majority of all Members of the Congress

Question 13

You have a parcel of land and
you’re not engaged in any charitable activities or any educational purposes. In that land you have a building since it’s a 10-storey building, you decided to rent it to INC. The 1st floor is a restaurant and up until the 4th floor are parking lots for members of INC. From 5th to 7th floors are used for worship. From the 8th-10th floors are quarters of the ministers of the INC.

Will your property be exempted from tax? Provided Constiuttional Basis

Answer 13

Yes, but only on the 1st floor.

The 1st floor will be taxed because it’s not used actually, directly, and exclusive for religious purposes

It’s not only facilities that are indispensable but also incidentally necessary for that purpose, hence parking lots are exempted because it’s incidental to the use for that purpose

[A6 S28]
Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries,
and all lands, buildings, and improvements, [ade] actually, directly, and exclusively used for [rce] religious, charitable, or educational purposes shall be exempt from taxation.

Question 14

Petitioner, a non-stock, non-profit corporation, owns a parcel of land and a hospital building. It provides both paying and non-paying medical services, with a significant portion of its property leased out to private enterprises.

Is it taxable?

Answer 14

Insofar as the land the hospital is situated used for patients, it is exempt from tax.

Insofar as the portions of land or hospital leased out to private entities are not exempt form tax

LB: Lung Center v. Quezon City

[SC]
we hold that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are NOT exempt from such taxes.
On the other hand, the portions of the land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property taxes.

Question 15

Can a proprietary educational institution obtain a tax exemption even when the profits obtained are divided among its stock holders?

Answer 15

Yes, under certain conditions they may qualify for a tax preferential rate

Question 16

If the school buys computers from abroad
and was imported here in the Philippines. Will they be subject to VAT, Customs duties, and excise tax?

Answer 16

It depends.

• if these computers will be used for actual, direct, and exclusively used for educational purposes then it’s exempted, such as, for computer labs for the students
• if bought locally, it is NOT exempted because who is being taxed for VAT here is the seller and the seller shifts the burden to the buyer. The statutory taxpayer is the seller and not the local store, hence the school cannot make that as an exemption.

Question 17

knowledge check: Constitutional Provisions that provide for tax exemptions & their specific tax exemptions

Answer 17

Art. 6 Sec 28 (3) - real property tax

Art. 14, Sec 4 (3) (4) - income, import, duties, doner’s

Question 18

requisites for valid tax

Answer 18

1. It should be for a public purpose
2. The rule of taxation should be uniform
3. That either the person or property taxed be within the jurisdiction of the taxing authority.
4. That the assessment and collection should be in consonance with the due process clause
5. The tax must not infringe on the inherent and the constitutional limitations of the power of taxation.

Question 19

B. Indirect Constitutional Limitations

pg .35

discuss the case of Chamber of Real Estate & Builders’ Association Inc. v. Romulo et. al.

Answer 19

[MCIT]
Let’s say a corporation sells property for ₱10 million, and the cost of the property (cost of sales) was ₱6 million. The gross income is:

Gross Income = ₱10 million (sales) - ₱6 million (cost of property) = ₱4 million.
Now, the MCIT is applied to the gross income:
MCIT = 2% of ₱4 million = ₱80,000.

Question 20

Section 1, Art. III, 1987 Const. — […] nor shall any person be denied the equal protection of the laws.

on the topic of indirect constitutional limitations of taxation

knowledge check: It follows that the guarantee of the equal protection of the laws is not violated by legislation based on a reasonable classification. Classification, to be valid, must

Answer 20

1. rest on substantial distinctions
2. germane to the purpose of the law
3. not limited to existing conditions only,
4. apply equally to all members of the same class

Question 21

Does it apply not only to existing condition, for example, if in Cebu City, there will be an ordinance taxing an astronaut, and you happen to be the only astronaut in the area, can you question the ordinance for being violative of the Constitutional limitation and equal protection of laws?

Answer 21

A: because there may be only one astronaut now but it doesn’t mean there won’t be more in the future. The imposition of the ordinance is not only for the current situation but for future conditions as well. As long as it’s not intended specifically for you, then it cannot be questioned to be violative of equal protection of laws.

Question 22

valid classification > (1) substantial distinction >

what is compelling interest test?

Answer 22

as long as there is a compelling
governmental interest, then the distinction can be justified. It has to make a justification

imposing higher excise tax on sugar beverages

Question 23

when enacting laws that protect children, VAWC, it does not violate equal protection of laws because of the principle of

Answer 23

constitutionally permissible state interest

Question 24

Section 10, Art. III, 1987 Const. — No law impairing the obligation of contracts shall be passed

when does non-impairment of contracts apply to “Privileges”

Answer 24

As a privilege you cannot demand. So if it is granted to you then it can be taken away. The government can do that and there is no question

but if there is a substantial consideration in exchange for that privilege then it cannot just be taken by the government just like how it is with this investment promotion agency

Question 25

Congress granted Omega Power Corp. a 25-year legislative franchise to operate as an electricity distributor, which included a tax exemption on certain revenues. After 15 years, a new law was passed removing all tax exemptions for power distributors. Omega Power Corp. argued that the removal of their tax exemption violates the non-impairment clause and demanded to retain their franchise under the original terms. Issue: Can Omega Power Corp. demand to retain its tax exemption for the remaining 10 years of its franchise?

Answer 25

No, the non-impairment clause protects contracts but not **government franchises** The SC said that franchise is always subject to change because the Constitution provides that so this cannot be considered as violation of the non-impairment clause of the Constitution

Question 26

INCOME TAXATION

Answer 26

INCOME TAXATION

Question 27

what is Income tax?

Answer 27

sec. 31 NIRC "means the pertinent items of gross income specified in this Code, less the deductions, if any, authorized for such types of income by this Code or other special laws." [note] tax of all **yearly profits** arising from property, professions, trades or offices or as a tax on a person’s income, emoluments or profit.

Question 28

formula for **taxable income**

Answer 28

TI = Gross income - allowable deductions

Question 29

Enumerate Gross Income CGIRDAPP

Answer 29

(1) Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, commissions, and similar items; (2) Gross income derived from the conduct of trade or business or the exercise of a profession; (3) Gains derived from dealings in property; (4) Interests; (5) Rents; (6) Royalties; (7) Dividends; (8) Annuities; (9) Prizes and winnings; (10) Pensions; and (11) Partner's distributive share from the net income of the general professional partnership. *note* - may include **Treasures** & **gambling gains**

Question 30

when is INCOME deemed taxable?

Answer 30

if all these elements are present 1. there is **gain** or **profit** and 2. G/P is NOT exempted under any law/treaty

Question 31

Do you earn income from the inc. of your PLDT shares?

Answer 31

No, until you sell it then you're able to get the income because it remains **unrealized**

Question 32

is receiving a whiteboard marker without pay income? YES after a year, it will no longer be considered income, it will be considered? __ is it taxable?

Answer 32

CAPITAL No, we do not tax CAPITAL.

Question 33

What is the Montgomery test?

Answer 33

It's possible also that there's already income, it's already realized. But not yet received. It's still on credit. You're already on credit

Question 34

In a lessor-lessee rel't, is **security payment** taxable?

Answer 34

No, because you don't have rights over it only intended for damages if there are on the property therefore not considered as income yet

Question 35

In a lessor-lessee rel't, is **advance rental** taxable?

Answer 35

Yes

Question 36

What are EXCLUDED from Gross Income?

Answer 36

LAGCRIM sec. 32 NIRC 1. Life insurance 2. Amount received by **Insured** as Return of Premium 3. Gifts, Bequests, and Devises 4. Compensation for Injuries/Sickness 5. Income exempt under a **treaty** 6. Retirement benefits, pensions, gratuities, etc. 7. Misc.

Question 37

GR w/n LI is taxable XPN

Answer 37

GR: whoever is the beneficiary of the life insurance, there is no tax as it is excluded XPN: he is using LI as an **investment scheme ** so the proceeds are taxable.

Question 38

Sec. 32 NIRC > LAGCRIM > Life Insurance 1M life insurance. A is supposed to pay it for 10 years, which is PHP 10k/year, but the life insurance is good for 1M. In year 3, A sold it to B. Therefore, B, the buyer will have to continually pay the proceeds. Suppose A was able to sell it for 500k and he dies in the 7th year and the premium was paid by B for 4 years which is 40k thousand plus the 500k thousand. [A] what is the formula for "PROCEEDS" [B] How much is B's total COSTs? [C] why is BUYER the one to pay taxable income? [D] is SELLER liable for tax income as well?

Answer 38

[a] Proceeds - (Actual Consideration + amount premium shouldered by transferee) [b] 1M - (500k+ 40k) = 460k. hence, 460k is the taxable income on part of the BUYER [c] BUYER is taxed beacuse he will be the one who will receive the LI proceeds & that is the income return to sale [d] Yes. if there is income for SELLER, (sells it for 500k but purchased it for 30k) the difference then will be considered income on part of seller

Question 39

Sec. 32 NIRC > LAGCRIM > Amounts Received by Insured as Return of Premium Your life insurance is good for 20 years. If you will live for 20 years then you can get life insurance. So suppose the same, good for 20 years at 10,000 pesos but you will have a proceeds of 1,000,000 pesos. how much is to be taxed and why?

Answer 39

800k should be taxed and not the 1M because 200k should be excluded as it is a **return of premium** which is your cost/payment so it makes sense not to include it in the taxable

Question 40

Sec. 32 NIRC > LAGCRIM > Gifts, Bequest, and Devices do we tax bequest (personal property given thru will) and device (real property) under INCOME TAX?

Answer 40

No, it is under **Donor's Tax**

Question 41

Sec. 32 NIRC > LAGCRIM >Compensation to personal injuries/sickness You figured in an accident using your car and then you bump into another car because of which you are hospitalized for 10 days and you are not able to earn your compensation for 10 days and you have to pay for your medical bills. [a] You received insurance or compensation for your car repair and medical fee is it taxable? [b] loss of income during stay in hospital, is it taxable?

Answer 41

**Medical expenses** is exempt as it is part of Physical Injuries **Repair compensation** IS TAXABLE because the damage is not on the person but on the car [b] AMAGO - exempt as still part of damages related to sickness + Labor policy of "No work no pay" Normally, lost income is still income, even if it is received later as compensation for an accident. The idea is that if you had worked, you would have paid income tax on your salary. So, when you receive damages to replace that lost income, the government still considers it taxable because it's basically the same as receiving your salary

Question 42

which type of earners can avail of the 8% gross income tax option

Answer 42

1. earning business/professional income 2. mixed income earner (compensation + business income) *note* not available for pure compensation earners

Question 43

what is one benefit in opting for the 8% gross income tax?

Answer 43

no need to pay for **other percentage tax** where gross sales is NOT subject to 12% VAT the 8% is not imposed directly on the G.income, it's G.income **less** 250k** which is very good

Question 44

REQUISITES FOR 8% OPTION TO BE APPLICABLE

Answer 44

1. You have to be earning business or professional income 2. Your gross sales [or] gross receipts for the year should NOT exceed 3 million pesos 3. You must not have registered as a VAT taxpayer 4. Your business is not a business which is subject to any other special rate of other percentage tax but just the 3% other percentage tax.

Question 45

how to compute or the formulate for purely compensation income earners?

Answer 45

TI = GI - Nontaxable Income/Benefits

Question 46

how to compute for purely self-employed and/or professional income earners

Answer 46

GS/GR [and] **non-operating income** NOT exceeding the VAT threshold provided in NIRC of the Tax 3M

Question 47

what options are available to self-employed/professionals whose GR/GS [and] non-operating income does not exceed the VAT threshold of 3M

Answer 47

1. **graduated rates** OR 2. 8% tax on GS/GR [and] NOI in *excess* of 250k (in lieu of GIT AND percentage tax) (note) GIT - graduated income tax

Question 48

consistent w/ requisites, the option of 8% is NOT available to?

Answer 48

1. **vat registered tax payers** regardless amount of gross sales receipts 2. taxayer subject to **other percentage taxes** 3. partners of a general professional partnership

Question 49

A taxpayer subject to the graduated income tax rates (either selected this as the income tax regime. or failed to signify chosen intention or failed to qualify to be taxed at the 8% income tax rate) is also subject to

Answer 49

**applicable business tax**

Question 50

For MIXED income earners, the income tax rates applicable are:

Answer 50

1. The compensation income shall be subject to the tax rates prescribed under Section 24(A)(2)(a), [**AND**] 2. The **income from business or practice of profession** shall be subject to the following: a. If the gross sales/receipts and other non-operating income do not exceed the VAT threshold, the individual has the option to be taxed at: 1. sec 24(A)(2)(a) 2. 8% based on gross sales/receipts [and] non-operating income b. If the gross sales/receipts and other non-operating income EXCEEDS the VAT threshold, the individual shall be subject to the graduated income tax rates *BIG NOTE* in the 8% tax rate option, the 250k deduction shall NOT apply since it already was applied in the **compensation** aspect

Question 51

On February 2019, Ms. C tendered his resignation to concentrate on her business. Her total compensation income amounted to P150,000 inclusive of benefits of P20, 000. Her business for 2019 generated gross sales of P2,400,000. Her cost of sales operating expense are P1,000,000 and P600,000, respectively, and with nonoperating income of P100,000. She opted for the 8% income tax rate. How will you determine his tax liability? [b] where will the exemption of 250k be applied?

Answer 51

2.4M + 100k nonoperating income = 2.5mil x. 08 = 200k tax income due NOTE: Even if compensation income did not fully exhaust the 250k exemption, it would still not be reason for you to deduct 250k on your taxable business income just because you avail the 8% gross income tax. It is deemed not available anymore the moment you have a compensation income. The 250k would not still be allowed as a deduction in the business income. [b] if mixed earner - ang compensation income is subject to graduated rates. nya diri i apply ang 250k and dili sa professional/business income

Question 52

Forms of Escape from Taxation

Answer 52

1. shifting 2. evasion 3. avoidance 4. exemption 5. capitalization

Question 53

🟢 GAINS FROM DEALINGS IN PROPERTY 🟢 Properties of a taxpayer may be classified into 2:

Answer 53

1. capital assets 2. ordinary assets

Question 54

The following are the qualifications for you to be exempted from capital gains tax if you sell your principal residence (see Section 24(D)(2) above):

Answer 54

1. You sold your principal residence. 2. The proceeds will be used to acquire or construct a new principal residence within a period of 18 calendar months. 3. The historical cost or adjusted basis of the real property sold or disposed shall be carried over to the new principal residence built or acquired. 4. That the Commissioner shall have been duly notified by the taxpayer within thirty (30) days from the date of sale or disposition through a prescribed return of his intention to avail of the tax exemption herein mentioned. 5. You need to open an escrow account where you will deposit the supposed 6% capital gains tax. 6. Can only be availed only once every 10 years. 7. If there is no full utilization of the proceeds of sale or disposition, the portion of the gain presumed to have been realized from the sale or disposition shall be subject to capital gains tax [3] - What does it mean? Whatever is the value of the property that you sold, that value will be taken together for your new property. It will be part of the cost of the new property. [5] - So after 18 months, you will be able to get back that deposit in an escrow account. But it will remain there for a period of 18 months. Why? Because you’re trying to determine whether you can qualify under the exemption.

Question 55

The property that you are going to sell is worth 10 million. 10M is the Gross Selling Price. You purchased the property for 5M, which is the Acquisition Cost. The property is located in Mabolo, Cebu City. So this is under the jurisdiction of RDO 82. The Zonal Value of a property in Mabolo is 130K. The property is 100 sq.m. So 130k x 100 sq.m = 13,000,000, it’s the Zonal Value. Let’s say the fair market value determined by the local assessor is 9M. What will be the tax base for this particular property? Summary of Values: * GSP = 10M * Zonal Value = 13M * FMV = 9M

Answer 55

It will be the highest among the 3 values, which is the ZV of 13M. So this is the value where we based our tax rate of 6%. We don’t deduct the acquisition cost! CGT: 780,000 What if this is a principal residence? That means that the total proceeds that you got from the sale of your principal residence is only 10M (kay mao man imo GSP). The law says that you must be able to use this up within a period of 18 months just so you can be exempted.

Question 56

what are examples of tax-free exchange in the NIRC?

Answer 56

1. merger/consolidation 2. exchange of property for control

Question 57

AJMB owns a parcel of land worth P10 million. To diversify his investments, he transfers this land to XYZ Corporation in exchange for 60% of XYZ Corporation's total voting shares. The transfer is done solely for shares, and no cash or other property is involved. AJMB gains control of XYZ Corporation as a result of the transaction. Is the transfer of the parcel of land subject to capital gains tax? Explain

Answer 57

No, because AJMB owns more than 51% of XYZ corp and therefore it is a **tax free exchange**

Question 58

🟢 SITUS INCOME 🟢 Let’s say for example, call center agent, ang client nimu foreigners. You are paid in dollars but since diri ka sa Pilipinas, work from home ka nagrender sa service nimu what is the situs of income?

Answer 58

Here, you are supposed to pay income tax on the amount that you receive from your foreign clients to the Philippine government because the situs is here. it is irrelevant who is the one who paid or the contract, **what is relevant is where the SERVICE is render**

Question 59

where is the situs of income for a sale of **personal** property

Answer 59

mobilia sequuntur the law that governs the movable is the person's domicile

Question 60

where is the situs of REAL property

Answer 60

Lex rei sitae, where the property is situated, that is the law that governs it

Question 61

in what instances is the situs of income irrelevant? [b] in what instances DOES it matter?

Answer 61

for RC & DC because they are taxed within & without of the philippines [b] NRC or FC

Question 62

🟢INTEREST INCOME 🟢 Mr. X is a resident citizen, nagpautang kay Mr. Y, US citizen. Out of that utang, nakaearn si Mr. X ug income. [a] Taxable ba in the Philippines? b. since Y is US, and interest income is **the residence of the D/borrower**, when does that apply

Answer 62

A - yes, simply because X is a RC therefore taxable within & without B - basing residence applies when **Creditor** is a **NRC**

Question 63

Sister companies or business affiliates. Kana btaw si Foreign Corpo has a subsidiary in Philippines scenario: FC (extended a loan) to the Subsidiary sa Pilipinas. a. Asa ang situs in that case There is income interest. Subsidiary then pays the loan to the FC parent b. what is the tax to be applied

Answer 63

a **subsidiary in Phil.** is still a DC and thus the situs is in the Phil [b] - withholding tax of 25% because the situs of income is the Phil. & Debtor is a resident in Phil (apply those when it is NRC or FC)

Question 64

what are the allowable deductions (AD)? for NET INCOME ExIn TaLoBa ChaRe Pen Dep Dep

Answer 64

EIT LBC RPDD, also known as **itemized deductions** Expenses Interest Taxes Losses Bad Debts Charitable **contributations** research & dev't pensions **depreciations** depletion these are items allwoed by law to be deducted from GI to arrive at NI subject to tax *note* 1. not applicable to **compensation earners**

Question 65

what can be deducted from gross income?

Answer 65

SADC sales return allowances discounts cost of sales

Question 66

basic principle in relation to allowable DEDUCTIONS (AD) (not exclusions)

Answer 66

1. law authorizing deduction 2. complied all required conditions for entitlment 3. construed strictly against the taxpayer 4. **withholding tax** must be imposed whenever required by law *note* first two would suffice

Question 67

Deduction vs. Exclusions

Answer 67

D - initially part of GI E - never part of GI

Question 68

Exclusion v. Exemption both are items of nicome both are non taxable

Answer 68

EXCL - are exclusions from GI EXMP - exempted not just for determining GI, but from the tax itself DAFUQ

Question 69

if TP (self-employed professional) opted 8% but exceeds the VAT threshold during the year, what are his liabilities

Answer 69

1. for the first 3M, he now has to pay 3% **percentage tax** (if he hadn't exceeded, the 8% already replaced this which is why he didn't have to pay) 2. compute the income tax on the **accumulated income** using 0-35% 3. **Deduct 8% income tax paid** from previous quarter 4. pay VAT on succeeding receipts

Question 70

Mixed Income Eaerner (MIE) what is his tax liabilities for 3M and exceeding 3M

Answer 70

3M 1. **business tax** 8% tax rate + 0-35% GITR of **compensation income** 2. business income [and] compensation income at 0-35% + 3% percentage tax [Exceeding 3M] 1. business income [and] compensation income at 0-35% GITR + 12% VAT

Question 71

requisites to avail of the 8% tax rate for business income

Answer 71

Revenue Memorandum Order No. 23-2018 which are: a. Individuals (Single Proprietor or Professional or Mixed Income Earner) earning from self-employment and/or practice of profession; b. Taxpayers whose gross sales/receipts **and** other non-operating income did not exceed the ₱ 3 Million VAT threshold during the taxable year; c. Taxpayers registered and subject only to **Percentage Tax** under Section 116 of the NIRC, as amended; or taxpayers exempt from VAT or other Percentage Taxes; and d. Taxpayer must have signified his/her intention to elect the 8% Income Tax rate

Question 72

is passive income part of the income tax?

Answer 72

No, it is subject to **final withholding tax** such that the tax is withheld to be immediately be paid out to BIR so no computation is required

Question 73

taxable or not? dividends issued from one DC-DC dividends issued from one DC-RFC dividends issued from one DC-NRFC

Answer 73

provided it is CASH exempt exempt FWT of 25%

Question 74

when is stock dividends taxable?

Answer 74

1. when it is **repurchased** by the corp 2. when it **dilutes ownership & benefits** of a SH

Question 75

how is *diguised dividends* taxed?

Answer 75

as part of the **ordinary income** of a SH

Question 76

what is the tax sparing rule?

Answer 76

CIR v. P&G-Phil. The Tax Sparing Rule applies to dividends paid by a DC to (NRFC). Normally, the tax rate on such dividends is 25%. However, if the **NRFC’s home country allows a "deemed paid" tax credit** the Philippines reduces the tax rate to 15% instead of 25%. 15% came from sec. 28(B)(5)(b)

Question 77

what are the types of **CAPITAL GAIN**

Answer 77

1. sale of **real property** w/in philippines (6% of FMV/SP whiever higher) 2. sales of shares of stock (15% of **net capital gain**) a. listed but not traded in LSE b. not listed not traded in LSE 3. sale of **other capital assets** (GITR)

Question 78

when does MCIT apply?

Answer 78

MCIT/ tax on 2% on the **gross** income is imposed to a corp at the 4th taxable yaer immediately ff. the year corp commenced its business operations (5 years basically starting from day 1) 2020(1), 2021(2), 2022(3), 2023(4), 2024(**5**) past the 2025, if the MCIT > than RCIT, then MCIT is applied. if RCIT > than MCIT, then RCIT is applied

Question 79

JKL, Inc. is a corporation authorized to engage in the business of manufacturing ultra—high density microprocessor unit packages. After its registration on July 5, 2015, GHI, Inc. constructed buildings and purchased machineries and equipment. As of December 31, 2015, the total cost of the machineries and equipment amounted to P250,000,000.00. However, GHI, Inc. failed to commence operations. Its factory was temporarily closed effective December 15, 2019 due to the COVID-19 Pandemic. With the worsening situation, the company plans to sell its machineries and equipment to JKL Integrated for P300,000,000.00 by October 30, 2020. Thereafter, GHI,Inc. will be dissolved effective November 30, 2020. May the machineries and equipment be deemed a capital asset? If yes, what is the applicable tax rate?

Answer 79

Yes, the **machineries and equipment** are capital assets. However, NIRC provides that the capital gains tax of **6% applies only to sale of land/buildings**. Although classified as **CA**, it is subject to RCIT (MCIT if 5 years after operation + if MCIT higher than RCIT) **SMI-ED Phil Case** SC ruled that provision on CGT on *individuals* [and] *corporation* differs individuals: **real property** corp: sale of **land/bldgs.** The machineries & equipment are CA because the corp **failed to commence its business** so it did not form part of the **stocks in trade** nor was it **subject to depreciation**

Question 80

mental cue for corporate properies GR xpn

Answer 80

gr: ordinary assets (RCIT) xpn: 1. if provided for another classification (final tax, etc) 2. not used in the business is **capital** (if land/bldg = CGT 6%) if rael property = CGT 6% only for individuals if stocks listed not in LSE/ not in both = 15% CGT if capital asset, but machinery then it is RCIT

Question 81

fringe benefits HEV HIMEHEL (from frieren)

Answer 81

- housing privilege - expense accout - motor vehicles - household expenses - interest of loan at less than market value - membership fees, dues, other expenses in social & athletic clubs (except business associations) - expenses for foreign travel - holiday & vacation expenses - **educational assistance** of ees/dependents - life/health insurance & other non-insurance claims

Question 82

distinguish NSNP institution from Proprietary Educational Institution

Answer 82

NSNP EI - constitutionally exempts them from **ALL TAXES** provided that the assets & properties used are *ADE* **used** for educational purposes PEI - exempts **property tax** only if property used is *ADE* - can avail of the *preferential interest tax rate 10%* provided that it complies with the **predominance test**

Question 83

Co-ownership You co-own a property for the purpose of enjoyment of the common property. Not to earn profit. Because if you own the property to earn property, then that is already taxable partnership. instances where co-ownership may be taxed

Answer 83

1. failure to divide for a certain no. of years 2. **investmetn &dev't** of the property IN ORDER TO EARN PROFIT

Question 84

what are the **itemized deductions** ExIn TaLoPa ChaRePen DepDep

Answer 84

expenses interests taxes losses patents chartiable contributions research & dev't ~pension~ no more depreciation depletion

Question 85

what is the Cohan Rule?

Answer 85

in exceptional circumstances, if sure that you incur expenditure, but cannot send proof then BIR examiners use this rule that allow 50% and disallow 50%