Pre-Week (Llamado)

CPA Review School of the Philippines
TAXATION (C. Llamado)

PRE-WEEK BATCH 92
(1) (a) Within 30 days from the deadline of filing their annual ITRs, what additional reports
should business entities (a) registered with an Investment Promotion Agency (ex. PEZA, BOI,
TIEZA, SBMA, etc.) and (b) availing of tax incentives, submit?
(1) Beneficial Ownership Report

(2) Statistical Report
(3) Annual Tax Incentives Report
(4) Annual Benefits Report
(5) Certificate of Entitlement to Tax Incentives (“CETI”)
(a) Numbers 1 and 2

(b) Numbers 2 and 3
(c) Numbers 3 and 4
(d) All of the above
Annual Tax Incentives Report – which shall contain complete information on

income-based incentives, VAT incentives, duty exemptions, deductions, credits,
exclusions, and other information needed to analyse and monitor the impact of
the same to the Philippine economy.
Annual Benefits Report – which include data on (a) the approved and actual
amount of investments, (b) approved and actual employment level and job
creation including information on quality of jobs and hiring of foreign and local
workers, (c) approved and actual exports and imports, (d) domestic purchases,
(e) profits and dividend payout, and (f) all taxes paid.
(1)(b) What document must be attached to the Annual ITR of a business enterprise registered with
an Investment Promotion Agency (ex. PEZA, BOI, TIEZA, SBMA, etc.) and availing of tax
incentives?
(a) Numbers 1
(b) Numbers 2
(c) Number 5
(d) All of the above
Certificate of Entitlement to Tax Incentives (CETI) –

issued by the concerned Investment Promotion Agency
prior to the filing of the Annual ITR. It must be
attached to the Annual ITR filed with the BIR.
(2) What is a stop-filer case?

A “stop filer case” shall refer to a system-created case which arises when a taxpayer fails to
file a return for a required tax type for a taxable period.
1
(3) CValix Corporation declared property dividends in the form of common shares of its wholly-
owned subsidiary, RValix Corporation. The BIR assessed a donor’s tax on the difference
between the FMV of the shares and the book value of such shares. Should a donor’s tax be
imposed on this transaction?
(a) Yes. A property dividend in the form of shares of stock may be classified as “other
disposition” of shares of stock held as capital assets. Such disposition may result in a
selling price lower than the FMV of such shares, and the difference between the 2
amounts shall be deemed a gift subject to the donor’s tax.
(b) No. No gain or loss is recognized by the payor of the dividends. There can be no
inadequacy of consideration which can lead to a donor’s tax.
(c) All of the above.
(d) None of the above.
(4) Statement 1: Liquidating dividends, if in the form of real property located in the Philippines,
are subject to the 6% capital gains tax.
Statement 2: Possession of more than one (1) TIN is criminally punishable under the Tax
Code.
a) All are true.

b) All are false.
c) Only Statement 1 is true.
d) Only Statement 2 is true.
Estate Tax
(5) Don Julio, single, head of family, Filipino, and resident of Makati City, died intestate on
November 15, 2018. He left the following properties and interests:
House and lot (family home) in Makati City ₱ 800,000

Vacation house in Beverly Hills, California, USA 5,500,000
Commercial land in Makati donated by his
father in 1980 2,000,000
Mustang car located in Makati being used by
his girlfriend 500,000
Proceeds of life insurance where the beneficiary
is his girlfriend (revocable) 1,000,000
Collectible toy collection 1,000,000
Claims against an insolvent person (Filipino resident)
whose assets total ₱10,000 and whose liabilities
total ₱100,000 100,000
Shares of stock in AB Corp (domestic, not listed
with FMV = ₱200,000) and book value of 100,000
BPI Peso bank account assigned to daughter before
death 5,000,000
The expenses and charges on the estate are as follows:

Funeral expenses ₱ 250,000
Accountant's fees incurred before death 600,000
Medical expenses of last illness 800,000
Other claims against the estate 310,000
2
What is the gross estate, allowable deductions, and estate tax?
a) ₱11,000,000; ₱3,500,000; ₱840,000 c) ₱5,500,000; ₱3,500,000, 0

b) ₱11,000,000; ₱6,800,000; ₱252,000 d) None of the above
UNDER TRAIN
House and lot (family home) in Makati City 800,000

Vacation house in Beverly Hills, California 5,500,000
Commercial land in Makati City donated by his father in 1980 2,000,000
Mustang car located in Makati being used by girlfriend 500,000
Proceeds of life insurance where the revocable beneficiary is his girlfriend 1,000,000
Claims against insolvent person (Filipino resident) whose assets total
₱10,000, and whose liabilities total ₱100,000 100,000
Shares of stock in ABC Corporation, not listed in stock exchange,
book Value 100,000 11,000,000
Ordinary Deductions:
Accountant's fees
Claims against the estate
Bad debt expense
Special Deductions:
Family Home
Amounts (RA 4917)
Standard Deduction
Net Taxable Estate
6% Tax Rate 6%
Estate Tax
(6) If the decedent in number 5 was a non-resident alien, what would be the gross estate for
Philippine estate tax purposes, the allowable deductions, and estate tax?
a) ₱11,000,000; ₱600,000; 0 c) ₱5,500,000; ₱600,000; ₱454,000

b) ₱5,500,000; ₱1,000,000; ₱270,000 d) None of the above.
3
UNDER TRAIN
House and lot (family home) in Makati City 800,000

Commercial land in Makati City donated by his father in 1980 2,000,000
Mustang car located in Makati being used by girlfriend 500,000
Proceeds of life insurance where the revocable beneficiary is his girlfriend 1,000,000
Claims against insolvent person (Filipino resident) whose assets total
₱10,000, and whose liabilities total ₱100,000 100,000
Shares of stock in ABC Corporation, not listed in stock exchange
Book Value 100,000 5,500,000
Ordinary Deductions:
Accountant's fees 600,000
Claims against the estate 310,000
Bad debt expense 90,000
1,000,000
x (5.5M/11M) 500,000
Special Deductions:
Family Home
Medical expense
Standard Deduction 500,000 500,000 (1,000,000)
Net Taxable Estate 4,500,000
6% Tax Rate 6%
Estate Tax 270,000
7) PWDs/Senior Citizens may avail the 20% discount and VAT exemption from the purchases
of certain goods/services upon submission of the following proofs of entitlement thereto:
(a) identification card issued by the city/municipal mayor, or barangay captain of the place
where the PWD resides, or the Senior Citizen’s ID card (for senior citizens);1
(b) passport;
(c) transportation discount fare identification card issued by the National Council for the
Welfare of Disabled Persons (NCWDP);
(d) Any of the above.
8) Authorized agent banks (AABs) may impose penalties for any violation committed by
taxpayers in the filing of their tax returns and payments of internal revenue taxes.
a) True. AABs are authorized by the BIR to collect taxes in its behalf, and also to collect
the corresponding penalties in cases of violations.
b) False. It is only the BIR which is authorized to impose whatever penalties that are
incidental to violations of the tax laws, rules, and regulations.
1
PDAO (PWD Affairs Office); OSCA (Office of Senior Citizen Affairs).
4
9) Statement 1: A business expense will be disallowed as a deduction if the corresponding
CWT has not been withheld and remitted to the BIR.
Statement 2: OSD cannot be disallowed due to non-withholding of the expanded or

creditable withholding tax pursuant to Section 34(K) of the Tax Code.
(a) All are true.

(b) All are false.
(c) 2 are true.
(d) 2 are false.
10) A claim for refund of input VAT paid which is denied by the BIR is a valid loss which is
deductible from gross income given the following circumstances:
(1) the taxpayer actually sustained a loss when the Department of Finance (“DOF”) denied
its claim for refund considering that with the denial, the taxpayer no longer had any
reasonable expectation to classify the same as a receivable;
(2) the loss was sustained when the taxpayer received the DOF’s denial letter;
(3) the taxpayer was not compensated for the loss;
(4) the taxpayer incurred the loss in the conduct of its trade or business, i.e., the denied input
VAT arose from the taxpayer’s 0-rated sales; and
(5) the DOF categorically stated in its denial letter that the taxpayer’s claim for issuance of a
refund/tax credit certificate “cannot be given due course” (CIR vs. Maersk Global Service
Centers, CTA (En Banc) Case No. 1786, June 13, 2019).
11) Services rendered within intra-company divisions and for which management fees are
charged are subject to VAT.
(a) True, if such intra-company services and payment of management fees are done in the
ordinary course of business of the company.
(b) False. Such services are not services performed for another entity. The intra-company
divisions are considered one and the same entity for financial reporting and for tax
purposes.
(c) No comment.
(d) None of the above.
(12) Statement 1: The tax base for the excise tax excludes the VAT and the excise tax.
Statement 2: The tax base for the VAT includes the excise tax.
Statement 3: The tax base for the CWT excludes the VAT and the excise tax.
(a) All are true.

(b) All are false.
(c) 2 are true.
(d) 2 are false.
Computation of VAT, Excise Tax, and CWT
(13) Ms. Chona decided to undergo a noselift procedure. She availed of the services of Belat
Clinic which is owned by Bole Medical Corporation, and located outside a hospital. Belat
Clinic charged Ms. Chona ₱50,000, inclusive of VAT but exclusive of the 5% excise tax,
for the service rendered.
5
Compute the correct output VAT and the excise tax to be charged by Belat Clinic.
(a) ₱5,625, ₱2,232

(b) ₱5,600, ₱2,200
(c) ₱5,620, ₱2,230
(d) None of the above
Original amount charged (inclusive of VAT) ₱50,000
Gross receipts, net of 12% VAT (₱50,000/1.12)

Add: 5% excise tax (₱44,643 x 5%)
VAT Base, inclusive of excise tax
12% VAT (₱46,875 x 12%)
(14) In number 13, if a 15% CWT on professional income payments is withheld by Ms. Chona,
how much will the Belat Clinic collect:
(a) ₱45,804
(b) ₱52,500
(c) ₱46,906
Original amount charged (inclusive of VAT) ₱50,000
Gross receipts, net of 12% VAT (₱50,000/1.12)

Add: 5% excise tax (₱44,643 x 5%)
VAT Base, inclusive of excise tax
Add: 12% VAT (₱46,875 x 12%)
Less: 15% CWT (₱44,643 x 15%)
Amount to be collected
15) Emma underwent an invasive cosmetic procedure which was done by a certain Dr. Plastico
Mendiola, a VAT-registered self-employed doctor who practices his profession inside
Beautiful Hospital in Makati City. The hospital billed Emma the following: the professional
fee of Dr. Mendiola in the amount of ₱50,000, inclusive of the 12% VAT but exclusive of the
excise tax, and other fees for the use of hospital facilities and supplies in the amount of
₱20,000, exclusive of the excise tax.
Compute the correct output VAT and the excise tax on the transaction.
(a) ₱5,625, ₱3,232

(b) ₱5,600, ₱2,200
(c) ₱5,625, ₱2,232
6
16) In number 15, how much will the hospital collect from Emma?
(a) ₱73,500
(b) ₱70,500
(c) ₱50,000
Billings by hospital for supplies and

other hospital services (VAT-exempt) ₱20,000
Add: Excise tax (₱20,000 x 5%) 1,000 ₱21,000
Doctor's professional fee, gross of VAT,

net of excise tax ₱50,000
Doctor's professional fee, net of 12% VAT
(₱50,000/1.12)
Add: Excise tax (₱44,643 x 5%)
VAT base for doctor's professional fee
Add: 12% VAT (₱46,875 x 12%)
Total amount to be collected by the hospital
17) If Dr. Mendiola is not VAT-registered and is able to avail of the 8% income tax on gross
sales/receipts plus non-operating income, would he still be subject to excise tax under
Section 150-A of the Tax Code?
(a) Yes.
(b) No.
18) What is the basis of the documentary stamp tax to be imposed when one of the contracting
parties on the sale of real property is the Government?
A. Consideration contracted to be paid for such realty

B. Consideration contracted to be paid for such realty or on its fair market value, whichever
is higher
C. Actual consideration
D. Consideration contracted to be paid for such realty or on its fair market value, whichever
is lower
19) The following are establishments which grant sales discounts to senior citizens and PWDs on
their sale of goods and/or services. Which is/are the EXCEPTION(s)?
A. Cinema houses C. Concert halls E. International airlines

B. Residential unit lessor D. Funeral parlors
a) A and C
b) B and C
c) B and E
d) E only
e) None of the above
7
20) Which of the following tax cases may not be compromised?
A. Criminal violations, other than those already filed in court or those involving criminal tax
fraud
B. Collection cases filed in courts
C. Delinquent accounts with duly approved schedule of installment payments
D. Civil tax cases being disputed before the courts
21) Five years ago, AJ Raval bought 5,000 shares of ZENA Corporation (domestic, not listed)
at par value. She sold her shares for ₱10,000,000 today. The corporation has 10,000
outstanding shares with par value of ₱1,000/share. Per its latest Financial Statements, the
corporation’s assets totalled ₱30,000,000 and its liabilities totalled ₱5,000,000. With the
exception of its real property, the book value of ZENA’s assets and liabilities is equivalent
to their market values.
The book, market, zonal, and appraised values of ZENA’s real properties are as follows:
BV per FS MV per TD* Zonal Value Appraised

Value
Land A ₱2,000,000 ₱2,500,000 ₱5,000,000 ₱6,000,000
Land B 2,000,000 2,200,000 4,000,000 3,500,000
Building A 1,000,000 2,400,000 3,000,000
Building B 500,000 2,000,000 1,950,000
*TD- Tax declaration
How much is the capital gains tax due on the sale of AJ’s shares of stock?
A. ₱1,046,250 C. ₱375,000
B. ₱1,087,500 D. ₱750,000
Selling Price
Less Cost
Capital gain
CGT (15%) ₱750,000
22) How much is the documentary stamp tax due on the sale of AJ’s shares of stock?
A. ₱37,500 C. ₱18,750
B. ₱91,875 D. ₱75,000
8
DST on sale of shares:
DST rate: ₱1.50 Per ₱200 of par value
Total par value of 5,000 shares at ₱1,000 par value /share

Divided by ÷ ₱200
Multiplied by x ₱1.50
DST
23) How much is the donor’s tax due, if any?

A. ₱103,500 C. ₱135,000
B. ₱ 90,000 D. None
Computation of FMV of XYZ equity:

Book Value
Assets
Liabilities
Equity
÷ 10,000 shares
Equity/share
Computation of Donor’s tax:

FMV (₱2,500 x 5,000 shares)
Selling Price
Gross gift
Less
Net Gift
Donor's tax (6%)
24) Assume that AJ donated the 5,000 shares of stock of ZENA Corporation, instead of selling
them. How much is the donor’s tax due on the said donation?
A. ₱435,000 C. ₱735,000
B. ₱585,000 D. ₱703,500
9
Book value/share
x Number of shares donated
Total book value
Gross gift
Less
Net gift
Donor's tax (6%)
25) CRISTAL corporation (domestic), which started operations in 2010, has the following data
for FY ending April 30, 2021:
Sales, net of sales discounts 20,000,000

Cost of sales 5,000,000
Salaries of employees, net of payroll deductions of ₱350,000 5,000,000
Fringe benefits given to:
Rank and file employees 1,040,000
Managerial employees 325,000
EAR expenses 550,000
Rent expenses 1,200,000
Depreciation expense 700,000
Bad debt expense (1/3 charged off during the year) 105,000
Interest expense on BPI loan 400,000
Interest expense on loan from majority shareholder 100,000
Other income:
Cash dividends received from:
1) Domestic corporations 550,000
3) Foreign corporations 30,000
Interest income from Philippine bank deposits, net of FT 100,000
Royalty income (Phils.), gross of FT 125,000
Gain from sale of property:
1) Makati real property not used in business (SP = ₱10M) 2,000,000
2) Domestic shares (not listed) held as capital assets 100,000
3) Domestic shares (listed) held as capital assets 23,000,000
Liquidating dividend from ABC Corp. 100,000
(cost of ABC shares = ₱96,000)
CWT withheld by customers 68,000

Tax paid in first 3 quarters 30,000
Compute final taxes on the CRISTAL’s passive income.
(A) ₱50,000
10
(B) ₱45,000
(C) ₱40,000
(D) None of the above
Final taxes on passive income:

Interest income, Philippine bank deposit (₱125,000 x 20%)
Royalty income (₱125,000 x 20%)
26) Compute total CGT on CRISTAL’s capital gains.
(A) ₱ 753,000
(B) ₱4,065,000
(C) ₱ 615,000
CGT
Sale of Makati real property (6% x ₱10,000,000)
Domestic shares held as capital assets (15% x ₱100,000)
27) How much is the corporation’s net taxable income?

(A) ₱5,750,250
(B) ₱5,736,713
(C) ₱5,666,713
Computation of Blended Rate

RCIT MCIT Interest rate
arbitrage
May 1, 2020 to June 30, 2020 2 months 30.00% 2.00% 33.00%
July 1, 2020 to April 30, 2021 10 months 25.00% 1.00% 20.00%
12 months 25.83% 1.17% 22.17%
11
Net Sales
Cost of Sales
Gross income from operations
Add: Other taxable income not subject to FTs:
Foreign dividends + liquidating dividend
Total Gross Income
Less: Ordinary Itemized Deductions
(a) Salary expense, net of payroll deductions
Add: Payroll deductions
(b) Fringe benefits of employees
Rank and file
Managerial
(c) FBT (₱325,000/65% x 35%)
(d) EAR
Limit (1/2 of 1% of Net Sales)
(e) Rent expense
(f) Depreciation expense
(g) Bad debt expense (1/3 charged off)
(h) Deductible interest expense
Less: Interest arbitrage (22.17% x ₱125,000)
Net taxable income
RCIT (25.83%)
MCIT (1.17% of Total Gross Income)
Tax due RCIT

Less: Tax Credits:
(1) Tax paid in previous quarters
(2) CWTs
Tax payable/(Tax credit/refund)
28) How much is the corporation’s RCIT?

(a) ₱1,481,793
(b) ₱1,721,714
(c) ₱1,485,290
29) How much is the corporation’s MCIT?
(a) ₱175,898
(b) ₱172,714
(c) ₱150,340
12
30) How much is the corporation’s income tax payable?
(a) ₱1,383,793
(b) ₱1,481,793
(c) ₱1,550,340
31) How much withholding tax should CRISTAL withhold and remit on its loan interest payments
assuming the corporation is included in the BIR list of top withholding agents?
A. ₱ 23,000 C. ₱10,000
B. ₱ 75,000 D. None of the above
Interest income received by banks from payors belonging to the Top 20,000 corporations
strictly arising from individual loans obtained from the banks that are not securitized,
assigned, or participated out, shall be subject to CWT at the rate of two percent (2%)
(RMC 84-2012)
Interest income derived from any debt instrument not within the coverage of deposit
substitutes is subject to a 15% CWT (RR 14-2012).
32) Valix School of Business, Inc. (domestic corporation) is a proprietary educational institution
with an issued permit from the CHED. In FY ending February 28, 2021, it recorded a net
taxable income of ₱3.0 Million. Compute its income tax due for taxable year 2020 assuming
that it passed the predominance test.
(A) ₱300,000
(B) ₱ 30,000
(C) ₱120,000
Tax rate
March 1, 2020 to June 30, 2020 4 months 10.00%
July 1, 2020 to February 28, 2021 8 months 1.00%
12 months 4.00%
Net taxable income

Blended tax rate
Tax due
13
VAT Returns:
(33) Domestic Inc., VAT-registered, had the following data (net of business taxes) for the last
quarter of 2020 in Philippine peso:
Quarterly
October November December Totals
Sales:
VATable sales to private entities 5,000,000 2,000,000 3,000,000 10,000,000
Exempt sales 400,000 200,000 600,000
Sales to the government 300,000 100,000 400,000
Export sales 200,000 50,000 250,000
Total 5,900,000 2,200,000 3,150,000 11,250,000
Quarterly
Purchase of goods
from VAT suppliers related to:
VATable sales to private entities 40,000 50,000 90,000
Exempt sales 30,000 50,000 80,000
Sales to the government 0
Export sales 30,000 30,000
Total 70,000 30,000 100,000 200,000
Quarterly
Purchase of services
VATable sales to private entities 20,000 20,000
Exempt sales 30,000 30,000
Total 220,000 50,000 100,000 370,000
Quarterly
Purchase of depreciable capital
goods from VAT supplier 3,000,000 2,000,000 5,000,000
Life in years 3 6
The corporation had excess input tax credit from the previous quarter in the amount of ₱3,900.
In November 2020, it chose to file an application for VAT refund/TCC in the amount of ₱2,000.
The purchase of the depreciable capital goods is for the benefit of all its businesses.
14
What is the VAT payable for October 2020?
(A) ₱580,086
(B) ₱690,000
(C) ₱430,000
October November
goods from VAT supplier 3,000,000 2,000,000
Life in years 3 6
Total ITC 360,000 240,000

ITC/month 10,000 4,000
October 2020
Output VAT (₱5,000,000 x 12%) + (₱200,000 x 0%) 600,000
ITC:
Excess ITC from previous quarter 3,900
Purchase of goods (₱40,000 x 12%) 4,800
Purchase of services (₱20,000 x12%) 2,400
Amortized ITC allocated to VATable sales
₱10,000 x (₱5.2 M/₱5.9 M) 8,814 (19,914)
VAT Payable 580,086
(34) What is the VAT payable for November 2020?
(A) ₱143,900
(B) ₱223,273
(C) ₱223,000
November 2020
Output VAT (₱2,000,000 x 12%) 240,000
ITC:
₱14,000 x (₱2.0 M/₱2.2 M) 12,727
Less: Amount applied for refund/TCC (2,000) (16,727)
VAT Payable 223,273
15
35) What is the VAT payable for the 4th Quarter of 2020?
(A) ₱119,564
(B) ₱340,919
(C) ₱153,567
4th Quarter 2020

Output VAT (₱10.0 M x 12%) + (₱250,000 x 0%) 1,200,000
ITC:
₱38,000 x (₱10.25 M/₱11.25 M) 34,622
VAT Due 1,144,278
Credits:
VAT paid on the first month 580,086
VAT paid on the first month 223,273 (803,359)
VAT Payable 340,919
16
(36-38) Domestic Inc., VAT-registered, had the following data (net of business taxes) for the last
quarter of 2022 in Philippine peso:
Quarterly
Sales:
VATable sales to private entities 5,000,000 2,000,000 3,000,000 10,000,000
Exempt sales 400,000 200,000 600,000
Export sales 200,000 50,000 250,000
Total 5,900,000 2,200,000 3,150,000 11,250,000
Quarterly
Purchase of goods
VATable sales to private entities 40,000 50,000 90,000
Exempt sales 30,000 50,000 80,000
Sales to the government 0
Total 70,000 30,000 100,000 200,000
Quarterly
Purchase of services
VATable sales to private entities 20,000 20,000
Exempt sales 30,000 30,000
Total 220,000 50,000 100,000 370,000
Quarterly
goods from VAT supplier 3,000,000 2,000,000 5,000,000
Life in years 3 6
The corporation had excess input tax credit from the previous quarter in the amount of ₱3,900.
In November 2022, it chose to file an application for VAT refund/TCC in the amount of ₱2,000.
The purchase of the depreciable capital goods is for the benefit of all its businesses.
17
36) Compute the VAT payable for October 2022.
(A) ₱156,747
(B) ₱250,307
(C) ₱173,676
October 2022
Output VAT (₱5.3 M x 12%) + (₱200,000 x 0%) 636,000
ITC:
Purchase of capital goods
₱360,000 x (₱5.5 M/₱5.9 M) 335,593 (370,693)
Net VAT 265,307
Credit: Creditable VAT withheld (₱300,000 x 5%) (15,000)
VAT Payable 250,307
37) Compute the VAT payable for November 2022.
(A) ₱17,818
(B) ₱17,757
(C) ₱13,676
November 2022
Output VAT (₱2.0 M x 12%) 240,000
ITC:
₱240,000 x (₱2.0 M/₱2.2 M) 218,182
VAT Payable 17,818
38) Compute the VAT payable for 4th quarter of 2022.
(A) ₱13,000
(B) ₱17,757
(C) ₱334,775
18
4th Quarter 2022
Output VAT (₱10.4 M x 12%)+ (₱250,000 x 0%) 1,248,000
ITC:
₱600,000 x (₱10.65 M/₱11.25 M) 568,000
Net VAT 622,900
Credits:
Creditable VAT withheld (₱400,000 x 5%) 20,000 (288,125)
VAT Payable 334,775
39. Armed with an LOA, a Revenue Officer requested Chris Chico to submit his books of
accounts relating to a tax investigation being conducted by the BIR RDO where he is
registered. Chris Chico refused to comply with the request.
A. The CIR may authorize the issuance of a subpoena duces tecum against the taxpayer.
B. The BIR may file a motion with the Court of Tax Appeals or the regular courts to compel
the taxpayer to present the books of accounts.
C. The BIR may enter the office of the taxpayer to obtain the books of accounts.
D. The BIR shall issue final assessment based only on the available documents submitted by
Chris Chico.
Filing of Amended Returns
40. CBA Corporation filed its annual ITR for taxable year ending December 31, 2020 on April
10, 2021. It paid the income tax still due thereon in the amount of ₱500,000. However, an
examination conducted by its external auditor revealed that its net taxable income was actually
higher than what was reflected in the filed return, resulting in an increase in the income tax
still due from ₱500,000 to ₱600,000. The company filed an amended return on June 2, 2021.
Compute the amount CBA Corporation should pay upon filing the amended annual ITR if
the compromise penalty for late payment amounts to ₱15,000 pursuant to RMO No. 7-2015.
Answer: CBA Corporation’s income tax payable in its amended annual ITR shall amount to
₱116,578, computed as follows:
19
Income tax still due (per amended return) ₱ 600,000
Income tax paid in initial return (500,000)
Net income tax payable ₱ 100,000
Add: Penalties
25% surcharge -
12% interest per annum
(₱100,000 x 12% x (48/365)) 1,578
Compromise penalty 15,000
Total amount payable ₱ 116,578
Notes:
(a) No 25% surcharge is imposed upon payment of the income tax

payable in the amended return because the initial ITR was filed
before the prescribed deadline.
(b) The deficiency interest charged is 12% per annum for a period
of 48 days (from April 15, 2021 to June 2, 2021)
Income Tax of Social Media Influencers
Gross Income of Social Media Influencers2
The term social media influencers includes all taxpayers, individuals or corporations,
receiving income in cash or in kind, from any social media sites and platforms (e.g.
YouTube, Facebook, Instagram, Twitter, TikTok, Reddit, Snapchat, etc.) in exchange for
services performed as bloggers, video bloggers, or vloggers, or as influencers, and from
any other activities performed on such social media sites and platforms.
Social media influencers, other than corporations or partnerships, shall be treated as self-
employed individuals or persons engaged in trade or business as sole proprietors. Their
income, therefore, shall generally be considered business income, irrespective of the
manner or form of payment. Thus, if a social media influencer receives free products in
exchange for the promotion thereof, such social media influencer must declare the fair
market value thereof as income in the income tax return.
Income treated as royalties in another country, including payments under the YouTube
Partner Program, received by a resident citizen or domestic corporation shall be included
in the computation of gross income in the income tax return.
Social media influencers derive their income from the following sources: (1) YouTube
Partner Program; (2) sponsored social and blog posts; (3) display advertising; (4) becoming
a brand representative; (5) affiliate marketing; (6) co-creating product lines; (7) promoting
own products; (8) photo and video sales; (9) digital courses, subscriptions, e-books; and
(10) podcasts and webinars.
2 RMC No. 97-2021.
20
I. If Income is Business Income (i.e. Income from Services)
Place of Performance
Taxpayer Within the Phils. Without the Phils.
RC ITR – Sales/Revenues ITR – Sales/Revenues
NRC ITR – Sales/Revenues Exempt
RA ITR – Sales/Revenues Exempt
NRAETB ITR – Sales/Revenues Exempt
NRANETB 25% FT Exempt
DC ITR – Sales/Revenues ITR – Sales/Revenues

RFC ITR – Sales/Revenues Exempt
NRFC 25% FT Exempt
II. If Income is Royalty Income
Location of the Social Media Platform

Taxpayer Within the Phils. Without the Phils.
RC 20% FT ITR – Sales/Revenues
NRC 20% FT Exempt
RA 20% FT Exempt
NRAETB 20% FT Exempt
DC 20% FT ITR – Sales/Revenues

RFC 20% FT Exempt
NRFC 25% FT Exempt
41. Jamil Villanueva, Filipino, a social media influencer residing in Quezon City, received
₱10,000,000 ($200,000) from YouTube LLC, a foreign corporation based in the U.S., as his
share from advertising revenues. U.S. tax law considers such payments as royalties which are
subject to a 24% tax in the U.S. YouTube LLC thus withheld the equivalent of ₱2,400,000
from its payment to Jamil. He incurred ₱1,000,000 operating expenses in connection with
such income.
However, under the U.S.-Philippine Tax Treaty, royalties derived by a Philippine resident in
the U.S. shall be taxed at a maximum of only 15% of the gross amount. Apparently, Jamil
was unaware of this and failed to invoke the treaty to lower the tax withheld by YouTube
LLC.
Compute his tax payable in his Philippine ITR if the amount received from YouTube LLC is
his only income for the taxable year, and if he is claiming credit for taxes paid in the U.S.
Compute Jamil’s tax payable.

(A) ₱1,260,000 (C) ₱360,000
(B) ₱2,760,000 (D) None of the above
21
Gross income, U.S. ₱10,000,000
Less: Business expenses (1,000,000)
Net taxable income ₱ 9,000,000
Tax on ₱ 8,000,000 = ₱ 2,410,000

Tax on 1,000,000 x 35% = 350,000
₱ 9,000,000 ₱ 2,760,000
Less: Tax Credit

Tax deemed paid in U.S. (15% x ₱10 M) ₱1,500,000
Limit: (₱9.0M/₱9.0M) x ₱2.76 M) 2,760,000
Tax Credit (lower) (1,500,000)
Tax payable ₱ 1,260,000
Notes:
(1) A resident citizen is taxable on income earned within and without. Royalties sourced
abroad are therefore taxable to a resident citizen. It cannot be subject to final taxes, and
therefore will be included in the ITR of a resident citizen.
(2) Generally, credit for taxes paid in a foreign country is limited to that actually paid or
accrued in said foreign country.
A tax treaty may exist between the source state and the Philippines, but the taxpayer may
fail to invoke the provisions of such treaty to lower or totally eliminate his/its tax liability.
In such situations, the tax credit that may be claimed by the taxpayer shall be limited to
the tax that should have been paid by the taxpayer had he/it claimed the benefits under
such treaty.
Sale of Cryptocurrencies
The sale of cryptocurrency shall be considered a sale of personal property. Personal property can
be either an ordinary asset or a capital asset.
The source of any income from such sale shall depend on the place of sale. Cryptocurrencies are
normally sold thru an exchange. Therefore, if the same are sold in a domestic exchange, then any
income from the sale shall be considered income within the Philippines. On the other hand, if the
same are sold in a foreign exchange, then the income therefrom shall be considered income without
the Philippines.
Any income from the sale of cryptocurrencies shall not be subject to CGT because only the sale
of domestic shares and real property in the Philippines held as capital assets are subject to CGT.
Such income is also not subject to the FT on passive income as it is not one of those listed in the
Tax Code as such.
The following are the tax consequences of the sale of cryptocurrencies:
I. The seller is an Individual
A) Seller is a dealer in cryptocurrencies (i.e. the cryptocurrency is an ordinary asset)
22
1) Cryptocurrencies are sold in a domestic exchange
If the taxpayer is a RC, NRC, RA, or NRAETB, any gain or loss from the sale shall
be included as an ordinary gain or ordinary loss in the ITR. The selling price and
the cost of the cryptocurrency shall be reflected respectively in the “Sales, Receipts”
and “Cost of Sales” lines in the ITR.
If the taxpayer is a NRANETB, the sale shall be subject to a 25% FT.
2) Cryptocurrencies are sold in a foreign exchange
Only the RC shall be taxable on the sale. Any gain or loss from the sale shall be
included as an ordinary gain or ordinary loss in the ITR. The selling price and the
cost of the cryptocurrency shall be reflected respectively in the “Sales, Receipts”
B) Seller is not a dealer in cryptocurrencies (i.e. the cryptocurrency is a capital asset)
If the taxpayer is a RC, NRC, RA, or NRAETB, any gain or loss from the sale shall
be included in the computation of net capital gains. The total net capital gain shall
be included as “Non-operating Income” in the ITR.
If the taxpayer is a NRANETB, the sale shall be subject to a 25% FT.
Only the RC shall be taxable on the sale. Any gain or loss from the sale shall be
included in the computation of net capital gains. The total net capital gain shall be
included as “Non-operating Income” in the ITR.
II. The seller is a Non-Individual
A) Seller is a dealer in cryptocurrencies (i.e. the cryptocurrency is an ordinary asset)
If the taxpayer is a DC or RFC, any gain or loss from the sale shall be included as
an ordinary gain or ordinary loss in the ITR. The selling price and the cost of the
cryptocurrency shall be reflected respectively in the “Sales, Receipts” and “Cost of
Sales” lines in the ITR.
If the taxpayer is a NRFC, the sale shall be subject to a 25% FT.
Only the DC shall be taxable on the sale. Any gain or loss from the sale shall be
included as an ordinary gain or ordinary loss in the ITR. The selling price and the
cost of the cryptocurrency shall be reflected respectively in the “Sales, Receipts”
23
B) Seller is not a dealer in cryptocurrencies (i.e. the cryptocurrency is a capital asset)
If the taxpayer is a DC or RFC, any gain or loss from the sale shall be included in
the computation of net capital gains. The total net capital gain shall be included as
“Other taxable income not subject to FT” in the ITR.
If the taxpayer is a NRFC, the sale shall be subject to a 25% FT.
Only the DC shall be taxable on the sale. Any gain or loss from the sale shall be
included in the computation of net capital gains. The total net capital gain shall be
included as “Other taxable income not subject to FT” in the ITR.
Place of Sale
Dealer in
Domestic Exchange Foreign Exchange
Cryptocurrency
(within the Phils.) (without the Phils.)
ITR – Sales/Revenues ITR – Sales/Revenues
RC
– COS – COS
ITR – Sales/Revenues
NRC Exempt
– COS
RA Exempt
– COS
NRAETB Exempt
– COS
ITR – Sales/Revenues ITR – Sales/Revenues

DC
– COS – COS
RFC Exempt
– COS
NRFC 25% FT Exempt
NOT a Dealer Place of Sale

in Domestic Exchange (within Foreign Exchange
Cryptocurrency the Phils.) (without the Phils.)
ITR – Non-operating income ITR – Non-operating income
RC
(NCG) (NCG)
ITR – Non-operating income
NRC Exempt
(NCG)
RA Exempt
(NCG)
NRAETB Exempt
(NCG)
24
NOT a Dealer Place of Sale
in Domestic Exchange (within Foreign Exchange
Cryptocurrency the Phils.) (without the Phils.)
ITR – Other taxable income ITR – Other taxable income
DC
but not subject to FT (NCG) but not subject to FT (NCG)
ITR – Other taxable income
RFC Exempt
but not subject to FT (NCG)
NRFC 25% FT Exempt
42. Statement 1: The income of an individual, trust, or estate that owns a proprietary educational
institution as a sole proprietor shall be taxed at the preferential rate of 10% (1%
from July 1, 2020 to June 30, 2023). Provided, the individual, trust, or estate
passes the predominance test.
Statement 2: The income of a proprietary educational institution organized as a resident

foreign corporation shall be taxed at the preferential rate of 10% (1% from July
1, 2020 to June 30, 2023). Provided, such resident foreign corporation passes
the predominance test.
(a) Only Statement 1 is true.

(b) Only Statement 2 is true.
(c) Both Statements are true.
(d) Both Statements are false.
43. Annabelle Pasco’s employment with a domestic corporation was terminated due to
redundancy. She was given a severance package consisting of 2 parts: (a) a separation pay
consisting of 1.5 months’ salary for every year of service, and (b) a retirement pay computed
in accordance with the early retirement provision of the employer’s Retirement Plan.
Annabelle, resident citizen, was just 46 years old at the time of her termination.
a) Only the “separation pay” is exempt from income tax.
b) Only the “retirement pay” is exempt from income tax.
c) Both are exempt from income tax.
d) None of the above.
44. Statement 1: Under VAT 0-rating, the effects of the VAT system on the particular 0-rated
transaction are totally nullified.
Statement 2: A VAT-exempt taxpayer ends up paying and shouldering more VAT than one
engaged in 0-rated sales.
a) Only Statement 1 is true.

b) Only Statement 2 is true.
c) Both statements are true.
d) Both statements are false.
END
25

Pre-Week (Llamado)

Uploaded by

Copyright:

Available Formats

Pre-Week (Llamado)

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Pre-Week (Llamado)

Uploaded by

Copyright:

Available Formats

CPA Review School of the Philippines

TAXATION (C. Llamado)

(1) Beneficial Ownership Report

(a) Numbers 1 and 2

Annual Tax Incentives Report – which shall contain complete information on

Certificate of Entitlement to Tax Incentives (CETI) –

(2) What is a stop-filer case?

a) All are true.

House and lot (family home) in Makati City ₱ 800,000

The expenses and charges on the estate are as follows:

a) ₱11,000,000; ₱3,500,000; ₱840,000 c) ₱5,500,000; ₱3,500,000, 0

House and lot (family home) in Makati City 800,000

a) ₱11,000,000; ₱600,000; 0 c) ₱5,500,000; ₱600,000; ₱454,000

House and lot (family home) in Makati City 800,000

Statement 2: OSD cannot be disallowed due to non-withholding of the expanded or

(a) All are true.

(a) All are true.

Computation of VAT, Excise Tax, and CWT

(a) ₱5,625, ₱2,232

Original amount charged (inclusive of VAT) ₱50,000

Gross receipts, net of 12% VAT (₱50,000/1.12)

Original amount charged (inclusive of VAT) ₱50,000

Gross receipts, net of 12% VAT (₱50,000/1.12)

(a) ₱5,625, ₱3,232

Billings by hospital for supplies and

Doctor's professional fee, gross of VAT,

A. Consideration contracted to be paid for such realty

A. Cinema houses C. Concert halls E. International airlines

BV per FS MV per TD* Zonal Value Appraised

*TD- Tax declaration

CGT (15%) ₱750,000

Total par value of 5,000 shares at ₱1,000 par value /share

23) How much is the donor’s tax due, if any?

Computation of FMV of XYZ equity:

Computation of Donor’s tax:

Sales, net of sales discounts 20,000,000

CWT withheld by customers 68,000

Compute final taxes on the CRISTAL’s passive income.

Final taxes on passive income:

26) Compute total CGT on CRISTAL’s capital gains.

27) How much is the corporation’s net taxable income?

Computation of Blended Rate

May 1, 2020 to June 30, 2020 2 months 30.00% 2.00% 33.00%

July 1, 2020 to April 30, 2021 10 months 25.00% 1.00% 20.00%

12 months 25.83% 1.17% 22.17%

Tax due RCIT

Tax payable/(Tax credit/refund)

28) How much is the corporation’s RCIT?

29) How much is the corporation’s MCIT?

March 1, 2020 to June 30, 2020 4 months 10.00%

July 1, 2020 to February 28, 2021 8 months 1.00%

Net taxable income

Total ITC 360,000 240,000

(34) What is the VAT payable for November 2020?

4th Quarter 2020

37) Compute the VAT payable for November 2022.

38) Compute the VAT payable for 4th quarter of 2022.

Filing of Amended Returns

(a) No 25% surcharge is imposed upon payment of the income tax

Income Tax of Social Media Influencers