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Select the most appropriate answer. 50 pts. GOOD LUCK! 1. Tips and gratuities paid directly to an employee by a customer and not reported to the employer are: a. Taxable compensation income and subject to withholding tax b. Not taxable c. Taxable compensation income but not subject to withholding tax d. subject to donors tax 2. South African Airways (SAA) is a foreign corporation, organized under the laws of the Republic of South Africa. Its commercial airplanes do not operate within Philippine Territory, or service passengers embarking from the Philippine airports. The firm is represented in the Philippines by its general agent, Aerotel Limited Corporation (Aerotel). SAA sells airplane tickets through Aerotel, and these tickets are serviced by SAA airplanes outside the Philippines. The total sales of airplane tickets transacted by Aerotel for SAA in 2000 amounted to P3, 500,450. The Commissioner of Internal Revenue assessed SAA deficiency income taxes at the rate of 30% on its taxable income, finding that SAAs airline ticket sales constituted income derived from sources within the Philippines. SAA filed a protest on the ground that the alleged deficiency income taxes should be considered as income derived exclusively from the sources outside the Philippines since SAA only serviced passengers outside Philippine territory. Is the posture of SAA tenable? a. SAAs posture is untenable. SAA is taxable as a resident foreign corporation considering that the tickets exchanged hands here and payments for fares were also made here in the Philippines. b. SAAs posture is tenable because as off- line international airline, it rendered no services in the Philippines from which income may derived. c. SAAs posture is untenable. Reason: The NIRC, as amended, does not exempt off- line international airline from corporate income tax. d. SAAs posture is tenable. Under Section 28 (3)(a), international airline is taxable only if it derives revenues from the carriage of passengers originating from the Philippines. 3. The periodic decrease in the value of a fixed asset due to wear and tear, obsolescence or inadequacy- . a. depletion b. depreciation c. capital loss d. special loss 4. Which of the following is not a source of tax laws? a. Administrative regulations and rulings or opinions of the Secretary of Justice b. Administrative regulations and rulings or opinions of the Secretary of Budget and Management

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c. Administrative regulations ad rulings or opinions of the Commissioner of Internal Revenue d. Administrative regulations an rulings or opinions of the Secretary of Finance 5. A conversion from capital to ordinary asset is allowed provided that it was: a. In the furtherance of the trade or business. b. In the furtherance of a Real Estate Business c. In the furtherance of the purposes of the Taxpayer. d. In the furtherance of a Taxable Transaction. 6. Which among the following is exempted from the imposition of improperly accumulated earnings tax without any qualification? a. Taxable partnership b. General professional partnership c. Insurance companies d. Non-Taxable joint ventures 7. X Co. is organized in the Philippines and during the tax year it received profits from its branches in the United States, Japan, and Thailand amounting to US$400,000.00 net of deductions and expenses (gross remittance is US$415,000.00). Profit remittances are taxable at: a. 15% of US$415,000.00 b. 15% of US$400,000.00 c. 7.5% of US$415,000.00 d. 30% of US$415,000.00 8. U.K Trust Co. is a non- resident foreign corporation based in London. It granted a loan to PNB Metals,Inc., a domestic corporation, of US$20 Million. PNB paid interest due on the loan during the tax year and remitted them abroad. Interest earned by UK Trust is: a. exempted from tax b. taxable at 20% c. taxable at 30% d. taxable at 7.5% 9. If UK Trust Co. is a non-resident foreign corporation owned and controlled by the government of United Kingdom/Britain, the interest earned by UK Trust is: a. exempted from tax b. taxable at 20% c. taxable at 30% d. taxable at 7.5% 10. Citing section 10, article VIII of the 1987 Constitution which provides that the salaries of judges shall be fixed by law and that during their continuance in office their salary shall not be decreased, a judge of a Regional Trial Court questioned the deduction of withholding taxes from his salary since it results into a net deduction of his pay. Is the contention correct?

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a. No. The contention is incorrect because taxes are enforced contributions. b. No. The contention is incorrect because taxes must be collected in order to support the government. c. No. The contention is not correct because deduction of withholding taxes is not a diminution contemplated by the fundamental law. d. No. The contention is incorrect because deduction of withholding taxes is required by law. e. None of the above. 11. Due to an uncertainty whether or not a new tax is applicable to printing companies, ABC Printers submitted a legal query to the BIR on that issue. The BIR issued a ruling that printing companies are not covered by the new law. Relying on this ruling, ABC Printers did not pay said tax. Subsequently, however, the BIR reversed the ruling and issued a new one stating that the tax covers printing companies. Could the BIR now assess ABC Printers for back taxes corresponding to the years before the new ruling? a. Yes. The reversal of the ruling is not prejudicial to the taxpayer. b. Yes. The reversal of the ruling is within the power of the BIR. c. Yes. The reversal of the ruling is consistent with the lifeblood doctrine. d. Yes. The reversal of the ruling does not result in grave injustice to the taxpayer. e. None of the above. 12. B Corporation, a domestic corporation, bought machineries from HK Corporation, a non- resident foreign corporation with principal office in Hong Kong. After some time, the machines bought by B Corporation necessitated repairs. B Corporation immediately contacted HK Corporation, and the parties agreed on the following terms: HK Corporation will conduct its repairs, subject to the payment of a consideration of $1M, payable as follows: $500,000 to be paid upon execution of the contract, while the remaining $500,000 shall be paid in five equal annual installments, with interest at 10% per annum on the amount outstanding. After the parties have entered into an agreement, B Corporation immediately shipped back the machines to HK Corporation for the repairs, Thereafter, when the repairs were completed; B Corporation complied religiously with its obligation to pay. Suppose B Corporation asked your advice as to whether it should subject the payments to withholding taxes, what would your advice be? a. To withhold taxes on the payment of interest only b. To withhold taxes on the payments of $1M and the interest c. To withhold taxes on the payment of $500K and the interest d. Not to withhold any tax 13. Settled is the rule that in tax matters, the government is not estopped by the errors or mistakes committee by its agents or officers. This should be construed to mean that: a. The power to tax is supreme and unlimited. b. The power to tax is plenary and comprehensive. c. The state may still collect prescribed taxes. d. BIR can still present evidence to prove assessment.

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14. X Realty and Development Corporation has a parcel of land with a fair market value of Php100M. Its cost to X Corporation, ten years ago, is only Php10M. It is contemplating of selling the land to Y for Php100M. From the foregoing facts, which of the following statements is correct? a. Regardless of the turnout of the transaction it would not subject to final tax but X Corporation shall be liable for ordinary income tax based on its aggregate net income for all its transactions during the entire year. b. If X Corporation will sell the property directly to Y, X Corporation would not be paying any income tax because the property is an ordinary asset; hence, the transaction will not result to any gain considering that the sale was for an amount equivalent to its fair market value. c. It is better for X Corporation to make it appear that the land would be sold first to A, the president of X Corporation for an amount of Php10M, then A would be the one to sell it to Y for Php100M, because if the property would be sold directly to X Corporation to Y, The transaction would subject to an ordinary income tax equivalent to 30% of the net income Of X Corporation. On the other hand, if the property would be made to appear as having been sold first to A, there will be lesser taxes because the liability will only be for capital gains tax of 6% of selling price or fair market value, whichever is higher, since A is not engaged in the realty business. d. The transaction would be subject to capital gains tax based on the fair market value of Php100M. 15. Value added tax is an indirect tax becausea. It is a regressive tax. b. It is imposed on the sale of goods and services as well as importation of goods. c. It can be shifted by the seller to the buyer. d. The impact of taxation falls on the seller, while the incidence of taxation is on the buyer. 16. Any amount received under claim of right is taxable if: a. It arises from illegal transaction. b. It is received without restriction as to its disposition. c. It is decreed by the court. d. The claimant dies. e. The claimant donates the same. 17. The Roman Catholic Church owns a 2-hectare lot in a town in Tarlac. The church and a convent occupy the southern side and middle part. The southeastern side by some commercial establishments, while the rest of the property, in particular the northwestern side is idle or unoccupied. Which of the following is correct? a. The Church may claim tax exemption on the entire land. b. The exemption covers only the southern side and the middle part occupied by the Church and a convent and the eastern side by a school run by the church. c. The tax is imposable on the northwestern side which is idle or unoccupied. d. The entire property is taxable for real property taxation.

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18. Cash dividend amounting to P1, 000,000 given by Mitsubishi Japan in April 10, 2011 received by a resident citizen is: a. Exempt from income tax b. Subject to final tax of 6% c. Subject to final tax of 8% d. Subject to final tax of 10% e. Subject to final tax of 25% f. Subject to regular tax from 5%- 32% 19. The source of interests on bonds, notes or other interest bearing obligations of residents, corporate or otherwise is determined by: a. Residence of the obligee b. Physical location of the securities c. Residence of the obligor d. Place of payment 20. The determining factor in identifying the source of taxable income in compensation for labor, or personal services performed in the Philippines is thea. place of performance b. place of payment c. place of perfection of contract d. place of execution of the contract 21. Gains, profits and income from the sale of Real property located in the Philippines are deemed as income from; a. sources without the Philippines b. sources within the Philippines c. sources from within and without the Philippines d. sources depending upon the income earner 22. The jurisprudential distinction between a tax and a license isa. Tax is levied in the exercise of the taxing power, while license is exacted by virtue of the police power. b. Tax is imposed on persons and properties, whereas license regulates businesses. c. Tax is levied to generate revenue, while license aims to regulate an activity or businesses. d. Non- payment of license makes the business illegal. On the other hand, failure to pay the tax does not make the activity or transaction invalid. 23. The improperly accumulated earnings tax is a tax imposed on companies who allow their earnings to accumulate without being divided or distributed. The improperly accumulated earnings tax is not applicable to the following, EXCEPT: a. Publicly- held corporations b. Banks and other nonbank financial intermediaries c. Insurance companies d. Government owned and controlled corporations.

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24. Except as otherwise may be provided, the following individuals are required to file an income tax return, except: a. Every Filipino citizen residing in the Philippines b. Every Filipino citizen residing outside the Philippines, on his income from sources without the Philippines. c. Every alien residing in the Philippines on income derived from sources within the Philippines. d. Every non- resident alien engaged in trade or business or in the exercises of a profession in the Philippines. 25. Mr. French Baker, a Danish tourist, arrived in the Philippines on Aug 1, 2010 and stays in the country up to 8 months is classified as: a. Resident Citizen b. Non- Resident Citizen c. Resident Alien d. Non-Resident Alien Engaged in trade or business e. non-Resident Alien Not Engaged in trade or business 26. Income received through mistake is taxable on the theory thata. the source of income is immaterial. b. income received from whatever resource is taxable. c. taxes are the lifeblood of the government. d. recipient must have received material benefit. 27. What is the reason behind the reduction of otherwise allowable interest expense equal to an amount representing a percentage of the taxpayers interest income subjected to final tax? a. To further increase the tax collection of the government b. To force the taxpayer to justify that it is not using interest arbitrage as a form of tax avoidance. c. Since the presumption of the laws is that the loan taken out by the taxpayer does not have an underlying business purpose. d. Any of the above. 28. Best evidence obtainable is justified when any of the grounds is clearly establisheda. the taxpayer submits no accounting records. b. the taxpayer acted in bad faith. c. no return is filed. d. the report submitted by the taxpayer is false, incomplete or erroneous. 29. Congress passed a law allowing the payment of taxes in kind/services. This violates the principle of: a. Economic efficiency b. Fiscal adequacy c. Theoretical justice d. Administrative feasibility

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30. Which of the following is false? a. a sale where 20% of the payment is cash and the rest is covered by postdated checks is treated as an installment sale. b. all individuals considered as business income earners are required to file an income tax returns. c. a taxpayers option to carry- over excess quarterly payments to the succeeding years may be revoked after one year. d. a creditable withholding tax is not considered as a final settlement of the tax liability on the transaction. 31. The secondary or non-revenue purposes of taxation include the following except: a. As an implement of the power of eminent domain. b. To encourage the growth of local industries. c. To reduce social inequality. d. To protect our local industry against unfair competition. 32. Tax evasion is the use of illegal means to avoid payment of tax. There is evasion when: a. depreciation method is use in claiming deduction to lessen the income tax. b. property is transferred in contemplation of death to lessen estate tax. c. Sales are understated to lessen the VAT. d. Indirect taxes are shifted to the consumers. 33. Double taxation is not unconstitutional but obnoxious double taxation exists when: a. Corporate income tax and the stockholders shares are also taxed from the same corporation. b. The real estate tax and income tax is collected on the same real property. c. VAT is imposed on the gross receipts and income tax on the same gross receipts. d. Income tax and capital gains tax collected on the gain from the sale of the real property. 34. In a transaction involving a capital assetsa. an individual taxpayer will only report 50% of the gain of the asset has been held for less than 12 months. b. the gain, if any, will not form part of the taxpayers gross income as the same will always be subject to some final tax. c. a gain will be deemed to exist if the amount realized exceeds the basis of the asset. d. a non- resident foreign corporation will always treat any gain as part of its gross income. 36. Which is a true statement? a. income tax may be considered as a deduction in certain instances. b. a donation to the Ateneo basketball team is a donation deductible in full. c. the optional standard deduction is the default choice if the taxpayer does not signify his intention to elect the itemized deductions.

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d. bad debts expense is not allowed if the intention of the supposed lender is to treat the money given as investment rather than as the loan. 37. Which of the following is a false statement? a. interest expense cannot be claimed if the loan is between father and son b. a taxpayer always has the option to treat interest expense either as a deduction or as a capital expenditure. c. the interest must be stipulated in writing to be a deductible expense. d. interest paid in connection with a deficiency tax assessment is deductible. 38. Which of the following statements is true? a. A foreign corporation not engaged in trade or business in the Philippines is subject to a tax of 30% of its gross income within the Philippines which include its capital gains. b. The improperly accumulated tax 10% of improperly accumulated income is applicable to publicity held corporation. c. Losses from sales or property directly or indirectly, between members of a family are allowed as a deduction to the extent of 50%. d. The Secretary of finance is authorized to suspend the imposition of minimum corporation rate tax income tax or any corporations or account for reasons provided for under the NIRC. 39. Bad debts previously written off, which is ultimately paid shall cause: a. Automatic recognition of income on the collected amount. b. No effect on the income of the year of collection. c. Recognized as income on the year of collection if the same was written off only on the current year. d. Recognized as income on the year of collection if the tax payer is received a tax benefit of the said deduction. 40. ABC Corporation recently spent an amount of P2, 000, 000 for the purpose of repainting and renovating its office building and premises. The said expenditure was normally incurred by the company every other year due to the fading of the paint of the building and ordinary wear and tear. The renovation did not increase the useful life of the property nor did it materially increase the value of the said property. For income tax purposes, the said P2, 000, 000 should be: a. Added to the original cost of the property because it represents improvements to the property. b. Expensed immediately as a part of the operating expenses of the company. c. Depreciated over the useful life of the re- painting and renovation over a period of two years. d. Depreciated over the useful life of the original structure because it has integrated itself as a part of the original structure. 41. Company B and Mr. A decided to form a joint venture entity for the purpose of constructing condominium units for sale to the general public. Under the joint venture, Company B would be in charge of the construction of the units while Mr. A would contribute the land that he has for the project .After the development of the property,

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Mr. A received amounts equivalent to the value of the land he has contributed and the rest was transferred to Company B, the taxing system that would be imposed on Company B, Mr. A and the joint venture would be as follows: a. Company B, Mr. A and the joint venture would be treated as independent taxpayers. b. Company B, and Mr. A would be treated as a independent taxpayers while the joint venture would not be subject to any taxes. c. Company B, and Mr. A would be treated as owners in the new corporation created through joint venture . d. The joint venture would be taxable for all the activities without any taxes being imposed on Company B and Mr. A. 42. The government in promoting the welfare of senior citizens enacted a senior citizens law which granted a mandatory discount on the purchase of merchandise for senior citizens. The said law allows the retailers servicing the senior citizens to claim the amount of discount against the tax liability of the said retail establishment. The said law was questioned by the retailers as being excessive and a deprivation of their right to property because of their existing low margins on such sales that such will put them out of business. The said law is: a. Invalid because it is an abuse by government on the property rights of taxpayers. b. Invalid because it did not grant the said discount to all the citizens of the Republic. c. Valid because it is an exercise of police power of the state. d. Valid because the government has the power to choose whom to tax and whom to grant tax exemptions therein. 43. CDE corporation determined that it has to establish a pension trust for its employees and hired an actuarial study to determine the funding requirements of the corporation. After the study, it was determined that the company shall be required to pay an amount of P100, 000 as annual contributions to the fund and that the past service cost, for accumulated benefits of the employees, should be established at the amount of P1, 000, 000. 00, the company shall be allowed for tax purposes to: a. Set up the past services cost immediately and claim the said expense on the year it was established and expense yearly the annual contributions. b. Amortize the past service cost over a period of 10years and expense yearly the annual contributions. c. Allow only the annual contributions as an expense with the past service cost as a nondeductible expense. d. Amortize the past service cost over a period of 5 years and expense yearly the annual contributions of the corporation. 44. An employee was terminated by the corporation for stealing the property of the corporation. The employee filed a suit with the arbitration division of the NLRC which ruled in favor of the corporation. The case was elevated to the NLRC which affirmed the decision of the labor arbiter. The case was then brought to the Supreme Court which reversed the decision of the NLRC and declared that there was illegal dismissal present in the case and it should be ruled in favor of the complainant employee. The

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SC remanded the case to the NLRC which then ordered the payment of separation pay. The said amount paid to the complainant employee is: a. Subject to the withholding taxes because termination of the employees services was due to the employees fault. b. Not subject to the withholding taxes because it is done without the fault of the employee. c. Not subject to the withholding taxes because it is penalty imposed on the corporation. d. Subject to the withholding taxes because it is an ordinary expense of the corporation in doing business. 45. The rule in taxation is that the property of a Filipino taxpayer in the United States cannot be taxed in the Philippines is recognition of the principle of: a. Reciprocity b. Territoriality c. International Law d. International Comity 46. Domestic and resident corporations may be taxed on the basis of net income at 30% or the option of 15% of gross income. This taxable option may be imposed by: a. Congress b. President c. Secretary of Finance d. Commissioner of the BIR 47. GF company was engaged in the food industry, for the year 2009, it incurred an advertising expense equal to of the gross income of the company, thereby substantially reducing its taxable income. The BIR assessed the company deficiency income tax based on the disallowance of 50% of the reported advertising expense. The company responded that the same is a necessary expenditure of the corporation. The case was elevated to the CTA and ultimately the Supreme Court, the said expenses should be: a. Disallowed because even if the same may be necessary, the amount incurred may be not classified as ordinary. b. Disallowed because the expenses of advertising is not necessary. c. Allowed in full because the same may be classified as ordinary and necessary. d. Allowed in full because the same was actually paid for in full by the corporation. 48. DEF Corporation decided to insure the life of its chief executive due to the various travels that he would be doing the current year. In the life insurance policy, the company named itself as the beneficiary of the P10, 000, 000. 00 insurance policy, as a consequence of the said action, the company would be: a. Be subjected to the fringe benefits tax for the insurance of the CEO. b. Would have to report an income of P10, 000, 000.00 in the event that the CEO dies. c. Would claim an insurance expense amounting to the premiums paid for the year. d. Would not be allowed to claim the insurance premium payments for deductions for its income tax return.

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49. Mr. Juan de la Cruz was employed by several companies on a part time basis for several years. During this time, all of his employers were withholding from his salary Social Security system contributions despite the fact that he has already exceeded the maximum allowed contributions under the SSS Mr. de la Cruz then filed a refund from the SSS on the said contributions to which the SSS paid back to Mr. de la Cruz the said amounts excess. The effect of the said refund of SSS payment to Mr. de la Cruz would be: a. The amount refunded represents return of capital and therefore not subject to income tax for the years that they were deducted. b. The amount refunded represents return of income and therefore should be included in the income tax on the years that they were deducted. c. The amount refunded represents return of capital and therefore not subject to income tax for the year that it was received. d. The amount refunded represents return income and therefore should be included in the income tax on the year that it was received. 50. A company was assessed by the BIR for deficiency fringe benefits tax on the P1, 500. 00 rice allowance it gave monthly to all its employees from management level to the rank and file, which amounted to roughly P5, 000, 000. 00 per year. The said assessment was questioned by the counsel of the corporation because it believed that the company is not liable for the said tax, the best defense that the counsel should take on such assessment is: a. The P5, 000, 000. 00 should be reduced because not all the employees are managerial and therefore the full amount should not be subject to the fringe benefits tax. b. The P5, 000, 000. 00 should be treated as compensation income subject to normal income tax rather than the fringe benefits tax. c. The P5, 000, 000. 00 should just be compromised because the taxpayer and examiner are friends. d. The P5, 000, 000. 00 should be considered as a de minimis benefit exempt from taxation.