1. ABC Corp., a domestic corp.

is on its 7th year of

operations when it was assessed by the BIR for improperly
accumulated profits.
Gross income 2,000,000
Business Expense 1,400,000
NOLCO Prior Years 500,000
Dividend Income Phil 30,000
Gross Interest Income - from bank 50,000
Gain on sale of Phil stocks directly to buyer 200,000
Gain on sale of land classified as capital asset
(Selling price = P2M; Fair Market Value = P2.5M) 500,000
Dividends declared 100,000
Appropriation for Treasury Stock 50,000
Appropriation for Plant Expansion 150,000

Compute for the Improperly Accumulated Earnings Tax.

Provide the step by step process. (11 points)

Gross income 2,000,000

Less: Business Expense -1,400,000
Less: NOLCO Prior Years -500,000
Taxable Income 100,000 1
RCIT (100K * 30%) 30,000
MCIT (2M * 2%) 40,000
Less: Income Tax paid for the year - MCIT -40,000 2
Add: NOLCO Prior Years 500,000 3
Add: Exempt Dividend Income Domestic 30,000 4
Add: income subject to final tax
Interest Income from bank net of tax (50K - 20%tax) 40,000 5
Gain on sale Phil stocks net of tax (200K - 15% tax) 170,000 6
Gain on sale of land net of tax (500K - 2.5M * 6%) 350,000 7
Less: Dividends Declared -100,000 8
Less: Appropriation for Treasury Stock -50,000 9
Less: Appropriation for Plant Expansion -150,000 10

Improperly Accumulated Earnings 850,000

IAET Rate 10%
Improperly Accumulated Earnings Tax 85,000 11

2. A branch of a foreign corporation engaged in wholesale of imported

goods had the following income details:

Gross income from sale of goods 4,000,000

Business Expenses 3,600,000
Gain on sale of fully depreciated properties 400,000
Dividend Income Phil 50,000
Capital gain on sale of non-traded stock, net of tax 90,000

Compute for the branch remittance tax if the branch earmarked 50%
of the total net profits for remittance to the home office in the USA. (3
points)
 Gross income from sale of goods 4,000,000
Less: Business Expenses -3,600,000
Add: Gain on sale of fully depreciated properties 400,000
Taxable Income 800,000 12
Less: Income Tax Due - RCIT -240,000 13
Net Income 560,000
Portion Remitted (50%) 280,000
Branch remittance tax (280K * 15%) 42,000 14

***Dividend Income and Capital gain on sale of non-traded stock are excluded
from remittance tax base because such INCOME/CAP.GAINS are NOT
EFFECTIVELY CONNECTED WITH THE BUSINESS OF THE TAXPAYER, per SEC.
28(A)(5)

3. Eva Air, a resident foreign air carrier, reported the

following summarized results of its Philippine operations
during the quarter:
Inbound flights Outbound flights Total
Gross Receipts 9,000,000 8,000,000 17,000,000
Direct Expenses 5,000,000 4,000,000 -9,000,000
Other Common Expenses -2,000,000
Net Income 6,000,000

How much income tax shall Eva Air pay? (1 point)

Gross Receipts (Outbound) 8,000,000

Multiply by Income Tax Rate (for Gross Phil Billings) 2.50%
Income Tax Due 200,000 15

4. Philex Mining, a domestic corporation, rented specialized

mining equipment from abroad. The non-resident foreign
corporation lessor billed Philex the following amounts in
peso equivalents.
Equipment Rental 10,000,000
Set-up and training fee 1,000,000
Initial Service and Maintenance Fee 500,000
Interest on rent in arrears 50,000

Compute for the total final tax to be withheld by Philex

Mining from the NRFC. (1 point)

Equipment Rental 10,000,000 * 7.5% 750,000

Set-up and training fee 1,000,000 * 7.5% 75,000
Initial Service and Maintenance Fee 500,000 * 7.5% 37,500
Interest on rent in arrears 50,000 * 30% 15,000
Total Final Withholding Tax 877,500 16