Taxation

EASY
ELIMINATION

1. Exempted from donor’s taxation are gifts made

a. For the use of the barangay.
b. In consideration of marriage.
c. To a school which is a stock corporation.
d. To a for-profit government corporation.

Explanation:
Section 101 (A) (2) of the Tax Code.

2. The primary purpose of taxation is:

a. To enforce contribution from its subject for private purpose
b. To raise revenue for the government
c. To achieve economic and social stability
d. To regulate the conduct of business

Explanation:
The primary purpose is to generate funds for the State to finance the
needs of the citizenry and to advance the common weal. (GR No.
112024 Phil. Bank of Communications vs CIR).

3. True or False. Tax avoidance is prohibited by law.

False.

Explanation:
Tax avoidance is the use of a tax saving device within the means
sanctioned by law.

4. The VAT on goods

a. Is based on collections
b. Is imposed only on goods for domestic consumption
c. Is a selling expense of the trader
d. Maybe due even if there is no actual sale of the goods

Explanation:
Section 106 (B) of the Tax Code (Transactions Deemed Sales).

5. Which of the following transactions is a VAT-exempt transaction?

a. Sale of gold to Bangko Sentral ng Pilipinas
b. Sale of parking lots by a real estate dealer
c. Sale of services under employer-employee relationship
d. All of the above
 Explanation:
Section 109 (I) of the Tax Code.

6. When a legislative body taxes persons, property, rights, and privileges under the
same taxable category at the same rate, this is referred to as compliance with the
constitutional limitation of:
a. Equity
b. Uniformity
c. Due Process
d. Equal Protection Clause

Explanation:
Uniformity has been defined as that principle by which all taxable
articles or kinds of property of the same class shall be taxed at the
same rate. (Churchill v. Conception. 34 Phil. 969 [1916])

7. The amount of funeral expense that may be deducted from the gross estate is
a. 5% of the gross estate or P200,000 whichever is lower
b. Actual funeral expense or P200,000 whichever is lower
c. 5% of the gross estate or the actual funeral expenses whichever is lower
d. 5% of the gross estate or the actual funeral expenses, whichever is lower, but
in no case to exceed P200,000.

Explanation:
Section 86(A)(1) of the Tax Code.

8. Shares of stock held as investment when sold not through the local stock
exchange shall be subject to:
a. 1/2 of 1% based on gross selling price or gross value in money.
b. 12% VAT based on gross income.
c. 5% on first P100,000 capital gain; 10% on excess of P100,000.
d. 4%; 2%; 1% based on gross selling price or gross value in money

Explanation:
Section 24(C) of the Tax Code.

9. Which of the following is a deductible expense for income tax purposes?

a. Salaries of domestic servants
b. Ordinary repair of the personal car
c. Provision for doubtful accounts
d. None of the above

Explanation:
A and B are not ordinary and necessary trade, business or
professional expenses. While for C, only debts actually ascertained to
be worthless and charged off within the taxable year are considered
as deductible expense for income tax purposes.
10. True or False. The properties comprising the gross estate shall be valued based on
their fair market value as of the time of the filing of the estate tax return.
False.

Explanation:
Section 5 of RR 2-2003, it should be valued as of the time of the death.
 EASY
FINALS

1. A subdivision developer sold five (5) residential house and lots, each to different
vendees, for P3,000,000 per house and lot, or a total sales of P15,000,000 for the
taxable period.
These sales shall be classified as:
a. 12% VAT transactions
b. 0% VAT transactions
c. VAT exempt transactions
d. None of the foregoing

Explanation:
Sale of house and lot amounting to PHP3,199,200 and below are
considered as VAT-exempt transactions. (RR No. 16-2011)

2. Notice of death should be filed within ________ after decedent’s death, or

within a like period after qualifying as such executor or administrator, shall give
a written notice thereof to the Commissioner
a. 1 month
b. 40 days
c. 2 months
d. 6 months

Explanation
Section 89 of the Tax code.

3. That the President, upon the recommendation of the Secretary of Finance, may,
effective January 1, 2000, allow corporations the option to be taxed at fifteen
percent (15%) of gross income as defined herein, after the following conditions
have been satisfied, except:
a. A tax effort ratio of twenty percent (20%) of Gross Domestic Product (GDP)
b. A ratio of forty percent (40%) of income tax collection to total tax revenues
c. A VAT tax effort of four percent (4%) of GNP
d. 0.9 percent (0.9%) ratio of the Consolidated Public Sector Financial Position
(CPSFP) to GNP

Explanation
Section 27A of the Tax code.

4. As regards a revenue bill, which of the following is not correct?

a. The Senate may propose amendments if the bill originates from the House of
Representatives.
 b. The House of Representatives may propose amendments if the bill originates
from the Senate.
c. The President may recommend a revenue bill to Congress.
d. A House of Representative version and a Senate version approved separately
and then consolidated with both houses approving the consolidated version.

Explanation:
Under the Philippine Constitution, all appropriation, revenue or tariff
bills, bills authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in the House
of Representatives, but the Senate may propose or concur with
amendments. (Section 24, Article VI of the 1987 Constitution).

5. Congress passed a law subjecting government-owned and controlled corporations

(GOCCs) to income tax. Is the law valid?
a. Yes, because all government agencies and instrumentalities are subject to tax.
b. Yes, because GOCCs are not government agencies and are essentially
commercial in nature.
c. No, because the government agencies are exempt. This would pose a violation
of the equality clause in the constitution.
d. No, because GOCCs are constitutionally exempted from paying taxes.

Explanation:
General Rule: All corporations, agencies, or instrumentalities owned
or controlled by the government are taxable [Section 27(C) of the Tax
Code].

6. An educational institution operated by a religious organization was being

required by a local government to pay real property taxes. Is the assessment
valid?
a. Yes, with respect to all properties held by such educational purposes
b. Yes, with respect to properties not actually devoted by such educational
institution.
c. No, with respect to any properties held by such educational institution.
d. No, with respect to properties not actually devoted to educational purposes.

Explanation:
Only land, buildings and improvements which are actually, directly,
and exclusively used for religious, charitable, or educational purposes
shall be exempt from taxation [Section 28(3) of Article VI of the 1987
Constitution].

7. The following income are subject to the final tax, except

a. Royalty income received by a domestic corporation from a domestic
corporation
b. Cash dividends received by non-resident foreign corporation from a domestic
corporation
 c. Cash dividends received by a domestic corporation from a domestic
corporation
d. Interest income received by resident foreign corporation from a Philippine
bank

Explanation:
Section 27(D)(4) of the Tax Code.

8. The power to decide disputed assessments, refunds of internal revenue taxes, fees
or other charges, penalties imposed in relation thereof, or other matters arising
under the Tax Code or other laws or positions thereof administered by the BIR is
vested in the:
a. Regional Trial Court c. Secretary of Finance
b. Court of Tax Appeals d. Commissioner of Internal Revenue

Explanation:
Section 4 of the Tax Code.

9. The following are examples of corporate expenses deductible from gross income,
except one:
a. Representation expenses designed to promote business.
b. Bribes and kickbacks made in order to win a government contract.
c. Expenses paid to an advertising firm in order to create a favorable image for
the corporation.
d. Premiums on life insurance covering the life of an employee if the beneficiary
is his heirs.

Explanation:
Section 34 (A)(1)(c) of the Tax Code.

10. Which of the following losses can be deducted from gross income?
a. losses on the destruction of the principal residence of the taxpayer
b. losses for which a deduction has been in the estate tax return
c. losses incurred from the trading domestic securities through the Philippine
Stock Exchange
d. loss arising from the disposition of a real property classified as ordinary asset

Explanation:
Section 34 (D)(1) of the Tax Code.
 EASY
CLINCHER OR SPARE

1. Which of the following is not an inherent limitation of the power of taxation?

a. Territoriality of taxation
b. International comity
c. Uniformity and equality of taxation
d. Inherently legislative

Explanation
Letter C is a constitutional limitation of the power of taxation.
[Section 28(1) of Article VI of the 1987 Constitution].

2. A corporation files a quarterly return within

a. 30 days after the end of each of the first 3 quarters
b. 60 days after the end of each of the first 3 quarters
c. 30 days after the end of each of the first 4 quarters
d. 60 days after the end of each of the first 4 quarters

Explanation:
Section 75 of the Tax Code.

3. Which of the following GOCC’s is not exempt from income tax?

a. Social Security System
b. Government Service and Insurance System
c. Philippine Health Insurance Corporation
d. None of the above.

Explanation:
Section 27(C) of the Tax Code.

4. One of the following is not included in the gross estate of a citizen decedent:
a. Land situated outside the Philippines
b. Car situated -within the Philippines;
c. Investment in a Japanese corporation;
d. Capital of the surviving spouse.

Explanation:
Section 85 (H) of the Tax Code.

5. If an importer paid 15% custom duties in the amount of P24,000 plus P134,000
charges to the Bureau of Customs, what is the VAT on importation?
a. Zero b. 18,960 c. 35,280 d. 38,160

Explanation:
Customs duties is included in the tax base for VAT purposes. [Section
107(A) of the Tax Code]
[(Php24,000/15%)+Php24,000+PHP134,000]*12%
 AVERAGE
ELIMINATION

1. The lease of property, real or personal, is subject to:

I. 7% gross receipts tax if the lessor is a bank.
II. 12% VAT if the lessor is not a bank.
a. Yes to I and II
b. No to I and II
c. Yes to I only
d. Yes to II only

Explanation
Section 108 (A) and 127 (c) of the Tax code.

2. Gerardo died on July 31, 2014. The estate tax return should be filed within:
a. Six months from filing of the notice of death.
b. Sixty days from the appointment of an administrator.
c. Six months from the time he died on July 31, 2014.
d. Sixty days from the time he died on July 31, 2014.

Explanation
Section 9 of RR No. 2-2003.

3. The following are transactions and acquisitions exempt from tax from transfer
taxes, except
a. Transmission from the first heir or donee in favor of another beneficiary in
accordance with the desire of the predecessor.
b. Transmission or delivery of the inheritance or legacy by the fiduciary heir
or legatee to the fideicommissary.
c. The merger of the usufruct in the owner of the naked tide
d. All bequests, devises, legacies or transfers to social welfare, cultural and
charitable institutions

Explanation:
Section 87 of the Tax code.

4. The gross estate of this decedent shall be comprised of properties situated in the
Philippines only:
a. American residing in the Philippines;
b. Filipino residing in the Philippines;
c. Filipino residing in the US;
d. American residing in the US

Explanation
Section 4 of RR No. 2-2003.
5. After resigning in 2007, Mrs. Imelda Juanito immediately joined another
company with a reasonable pension plan but she was terminated in 2012 due to
retrenchment. Is the separation pay exempt?
a. No, because she did not met the employment term requirement.
b. No, because she was previously exempted in her retirement.
c. Yes, because the underlying reason of her resignation was beyond her
control.
d. Yes, because she had satisfied the age requirement by this time.

Explanation
Section 32(B)(6)(b) of the Tax Code.

6. The proceeds of insurance taken by a corporation on the life of an executive to

indemnify it against loss of his death is
a. Exempt from income tax
b. Part taxable income
c. Subject to final tax
d. Partly exempt, partly taxable

Explanation
Section 32 (B)(1) of the Tax Code and Section 62 of the Income Tax
Regulation.

7. When the donor has no legal residence in the Philippines, the donor’s tax return
shall be filed with
a. Authorized Agent Bank
b. Revenue District Officer where the donor is domiciled
c. Revenue Collection Officer where the donee is domiciled
d. Office of the Commissioner

Explanation
Section 13 of RR No. 2-2003.

8. Mr. San Jose made the following cash donations to his legitimate son, 18 years
old, on account of his marriage on January 5, 2006:
Date of Donation Amount
December 23, 2005 P 5,000
January 5, 2006 3,000
January 5, 2007 10,000
How much was the exempt dowry on the gift made on January 5, 2007?
a. P10,000 b. P8,000 c. P5,000 d. P2,000

Explanation
Section 101 A(1) of the Tax code.
9. Mr. Sam Angelo donated P500,000 to the City of Manila and P100,000 to his
best friend who graduated summa cum laude. For donor’s tax purposes, how
much shall be the deductions from Sam’s gross income?
a. 500,000 b. 100,000 c. 600,000 d. zero
Explanation
Section 34 (H) of the Tax Code.

10. Chi Ming Tsoi, a Chinese billionaire and a Canadian resident, died and left assets
in China valued at P80 billion and in the Philippines assets valued at P20 billion.
For Philippine estate tax purpose the allowable deductions for expenses, losses,
indebtedness, and taxes, property previously taxed, transfers for public use, and
the share of his surviving spouse in their conjugal partnership amounted to P15
billion. Tong's gross estate for Philippine estate tax purposes is:

a. 20 billion b. 100 billion c. 5 billion d. 85 billion

Explanation
Section 88 of the Tax code.
 AVERAGE
FINALS

1. Marian Alentajan, a resident citizen died leaving the following:

Net estate (before standard deduction):
Philippines P 5,000,000
USA 3,000,000
Australia 2,000,000
Estate tax paid:
USA 280,000
Australia 220,000

Required: Determine the estate tax due after tax credit.

a. 1,215,000 c. 500,000
b. 750,000 d. 465,000

Explanation:
Section 86 E (2)b of the Tax code.

Tax of P10,000,000 = P1,215,000

Proration:
USA = 1,215,000 x 3/10 = 364,500 vs 280,000
Australia = 1,215,000 x 2/10 = 243,000 vs 220,000

280,000 + 220,000 = 500,000 vs 465,000

Tax due 1,215,000

Tax paid credit 465,000
Tax still due 750,000

2. Double taxation in its general sense means taxing the same subject twice during
the same taxing period. In this sense, double taxation:
a. Violates substantive due process
b. Does not violate substantive due process
c. Violates the right to equal protection
d. Does not violate the right to equal protection

Explanation
Section 1, Article 3 of the Philippine Constitution

3. On July 31, 2014, Esperanza received a preliminary assessment notice from the
BIR demanding that she pays P180,000 deficiency income taxes on her 2012.
How many days from July 31, 2014 should Esperanza respond to the notice?
a. 180 days b. 30 days c. 60 days d. 15 days
 Explanation
Section 3.1.2 of RR No. 12-1999, as amended.

4. For income taxation purposes, the term "corporation" excludes one of the
following:
a. Ordinary partnership
b. Business partnership
c. General professional partnership
d. An incorporated business organization

Explanation
Section 22 (B) of the Tax code.

5. The Philippine Health Insurance Corporation, a government owned corporation,

is:
a. Exempt from the corporate income tax
b. Subject to the basic corporate income tax
c. Subject to the preferential corporate income tax
d. Subject to final tax

Explanation
Section 27 (C) of the Tax code.

6. Public educational institutions, like the University of the Philippines is deemed

by law:
a. Subject to the preferential corporate income tax for special corporations
b. Subject to the basic corporate income tax
c. Subject to both the preferential income tax and the basic corporate income tax
d. Exempt from the corporate income tax

Explanation
Section 30 (I) of the Tax code.

7. One of the general principles of income taxation:

a. A foreign corporation engaged in business in the Philippines is taxable on all
income derived from sources within and without the Philippines.
b. A foreign corporation engaged in business in the Philippines is taxable on all
income derived from sources within the Philippines only.
c. A domestic corporation is taxable on income derived from sources within the
Philippines only.
d. A domestic corporation is taxable on income derived from sources without the
Philippines only.

Explanation
Section 23 (F) of the Tax code.
8. The reciprocity on exemption of intangible properties located in the Philippines
of non-resident aliens may apply on the following conditions, except when the
foreign country where the non-resident alien is a citizen
a. Do not have an estate tax law.
b. Has estate tax only to residents or citizens therein.
c. Has estate tax only to properties of a citizen thereon regardless of nature.
d. Has no income tax imposed on income earned by the estate but imposes
transfer taxes.

Explanation
Section 104 of the Tax Code.

9. A, operates a ferryboat. During a particular quarter, its receipts consists of the

following
Gross Receipts (without VAT)
Transport of passengers P1,000,000
Transport of goods 1,500,000
Transport of cargoes 500,000
The common carrier’s tax payable is
a. 30,000 b. 90,000 c. 100,000 d. None

Explanation
Section 117 of the Tax code.

10. A cellular company had the following receipts:

P2,000,000 - from domestic calls
P3,000,000 - incoming calls to the Philippines
P2,500,000 - outgoing calls abroad

What is the percentage tax?

a. Zero b. 75,000 c. 165,000 d. 250,000

Explanation
Section 120 (A) of the Tax Code.
 AVERAGE
CLINCHER OR SPARE

1. Bright University, a private education institution organized in 2000, had the

following data for 2017
Tuition fees P 850,000
Rental Income 150,000
School related expenses 820,000

The income tax due for 2017 is

a. 17,600
b. 18,000
c. 19,250
d. 20,000

Explanation
Section 27 (B) of the Tax code.

Tuition fees P 850,000

Rental Income 150,000
School related expenses (820,000)
Income subject to tax 180,000
Preferential tax rate x 10%
Income tax due, 2017 18,000

2. Ka Pedring Matibag, a sole proprietor, buys and sells "kumot at kulambo" both of
which are subject to value-added tax. Since he is using the calendar year as his
taxable year, his taxable quarters end on the last day of March, June, September,
and December. When should Ka Pedring file the VAT quarterly, return for his
gross sales or receipts for the period of July 1 to September 30?
a. Within 25 days from September 30
b. Within 45 days from September 30
c. Within 15 days from September 30
d. Within 30 days from September 30

Explanation
Section 114 of the Tax code.

3. Which theory in taxation states that without taxes, a government would be

paralyzed for lack of power to activate and operate it, resulting in its destruction?
a. Power to destroy theory c. Sumptuary theory
b. Lifeblood theory d. Symbiotic doctrine

Explanation
Section 22 of the Tax code.
4.
Date assessment was received March 8, 2016
Date petition for reinvestigation was filed with BIR March 18, 2016
Date of filing of documents to support petition April 8, 2016
No decision on the protest is received as of October 1, 2016
The last day to appeal to the CTA is:
a. October 31, 2016
b. October 8, 2016
c. November 4, 2016
d. March 8, 2018

Explanation
Revenue Regulation No. 12-99 i.e., 30th day from the lapse of 180 days
from the submission of supporting documents

5. Gross receipts tax is business tax paid by a –

a. Hotel operator
b. Insurance company
c. Franchise holder
d. Bank

Explanation
Section 121 of the Tax code.
 DIFFICULT
ELIMINATION

1. Tiger Airlines, a resident foreign international carrier has the following records of
income for the period. (The income represents gross Philippine billings)

 Continuous flight from Manila to Tokyo = 1,000 tickets at Php 2,000 per
ticket
 Flight from Manila to Singapore; transfer flight from Singapore to Tokyo =
2,000 tickets at Php 3,000 per ticket
 Continuous flight from Manila to Singapore = 3,000 tickets at Php 1,000 per
ticket
The income tax due is
a. Php 225,000
b. Php 125,000
c. Php 100,000
d. Php 175,000

Explanation
Section 28 of the Tax code.

Manila to Tokyo (1,000 x P2,000) P2,000,000

Manila to Singapore* (2,000 x P2,000) 4,000,000
Manila to Singapore (3,000 x P1,000) 3,000,000
Total p 9,000,000
Tax rate x 2.5%
Income tax due P 225,000

2. Statement 1: A BIR Ruling issued by a Commissioner of Internal Revenue which

grants tax exemption would create a perpetual exemption in favor of the
taxpayer.
Statement 2: A tax exemption may be withdrawn anytime at the pleasure of the
state.

a. True, false
b. False, true
c. True, true
d. False, false

Explanation
The overruling of decision is inherent in the interpretation of law.
Thus Commissioner of Internal Revenue could reverse the ruling of
his predecessors. Moreover, erroneous application of the law by
public officer do not preclude subsequent correct application of the
 statute. And the government is never estopped by mistakes or error
on the part of its agents.

Tax exemption is an act of liberality which could be taken back by the

government provided that such revocation does not violate certain
provisions of the constitution such as the non-impairment clause of
the constitution.

3. An ordinary and necessary expenses which is fully documented and supported by

receipts may be fully deducted for income tax purposes over and above the limit
set by law

a. medical expense
b. contribution
c. representation
d. high school fee
Explanation
Section 86 of the Tax code.

4. Which importation is exempt from VAT?

a. Importation by books by a school

b. Importation of books by a student
c. Importation of books by a bookstore
d. All of these

Explanation
Section 109 of the Tax code.

5. Mr. Kwon imports Korean vegetables and sells them in domestic market for
Korean residents in the Philippines. The following data relates to his operations
during the period:
Total landed cost of importation P 800,000
Total sales 1,200,000
What is the VAT in importation?
a. Zero b. 24,000 c. 96,000 d. 144,000

Explanation
Section 109(A) of the Tax code.

6. Rodel Masipag is a vegetable trader. He buys raw vegetables from farmers and
sells them to consumers.
Which statement is correct?
a. Rodel shall pay business tax as he is engaged in business.
b. Rodel shall not pay business tax on the sale of vegetables.
c. Rodel shall not pay business tax as he is not engaged in the farming
business
 d. Rodel shall pay business tax since he is a trader rather than a farmer.

Explanation
Section 109(A) of the Tax code.

7. Tony, a VAT registered taxpayer, reported P200,000 sales in the month of May.
Tony’s annual sales never exceeded P1,800,000. Compute the percentage tax.
a. Zero b. 5,400 c. 6,000 d. 6,600

Explanation
Section 105 of the Tax code.

8. There are two competing keepers of garage with the following receipts:
Miguel P 1,200,000
Matthew 2,500,000
Which will pay 3% of percentage tax?
a. Miguel c. Both
b. Matthew d. None of them

Explanation
Section 116 of the Tax code.

9. Allan lines is engaged in provincial transport operation. It has the following gross
receipts in June:

Bus 1 (carriage of goods, P8,000) P100,000

Bus 2 (carriage of goods, P3,500) 65,000
Salaries of drivers and conductors 25,000
Cost of oil and gasoline 160,000
Taxi 30,000
Jeepney 22,000
Cargo truck 45,000
Sea vessel 250,000

During the month, Bus 1 was bumped by another bus owned by Chloe Lines and
paid Allan Lines P20,000 for the damage done.

The percentage tax due on Allan Line in June is –

a. P6,180 b. P6,165 c. P14,430 d. P5,730

Explanation
Section 117 of the Tax code.

Bus 1 (100,000 – 8,000) P 92,000

Bus 2 (65,000 – 3,500) 61,500
Taxi 30,000
 Jeepney 22,000
Total 205,500
Tax rate x3%
Percentage tax due P 6,165

10. I. An unpaid mortgage on the donated property assumed by the done is a

deduction from the gross gifts of the donor.
II. The allowable donor’s tax credit is higher between the statutory limit and the
actual foreign donor’s tax.

a. I is true, II is false
b. II is true, I is false
c. Both are true
d. Both are false

Explanation
Section 86 (A) 1e and Section 101 (C)2 of the Tax code, respectively.

DIFFICULT
FINALS

1. The prescriptive period for the issuance of a formal letter of demand and final
assessment notice (FLD/FAN) may not ordinarily be stayed because of the
lifeblood theory. However, there are certain instances where the running of the
prescriptive period may be suspended. Which of the following is not among the
recognized exceptions which suspend the prescriptive period within which to
assess?
a. Where the taxpayer requests for and is granted a reinvestigation by the
Commissioner.
b. If the taxpayer is out of the country.
c. If the taxpayer changes his address and informs the Commissioner of such
change.
d. When the Commissioner of Internal Revenue is prevented from making an
assessment and within 60 days thereafter.

Explanation
Section 223 of the Tax code.
2.
Date assessment was received March 8, 2016
Date petition for reinvestigation was filed with BIR March 18, 2016
Date of filing of documents to support petition April 8, 2016
No decision on the protest is received as of October 1, 2016

The last day to appeal to the CTA is:

a. October 31, 2016
 b. October 8, 2016
c. November 4, 2016
d. March 8, 2018

Explanation
Revenue Regulation No. 12-99

3. Which cannot be a deductible as tax expense?

Interest on Foreign tax paid claimed Fringe benefit
delinquent tax as tax credit tax
a. Yes Yes Yes
b. Yes Yes No
c. No No Yes
d. No No No

Explanation
Chapter VII of the Tax code.

4. Which of the following losses cannot be initially deducted upon happening of the
event?
a. Loss on Embezzlement pending investigation
b. Theft where the perpetrator is identified
c. Loss of income under the cash basis
d. All of the above

Explanation
Section 34 (D) of the Tax code.

5. Blue Moon, Inc. is a resident international mining corporation with various

mining operation across Europe and America. It has properties abroad equivalent
to P4,000,000,000 with expected residual value of P500,000,000 and an
average useful life of 20 years. In the Philippines, it has P60,000,000 mining
properties with estimated residual value of P10,000,000 and a useful life of 10
years. How much is the total depreciation deductible against gross income for
Philippine income tax purposes?

a. P 0 b. P175M only c. P 180M d. 5M only

Explanation
Section 34 (F) of the Tax code.

6. I. A donation inter vivos to a religious is allowed as deduction from the gross gifts
of a non-resident alien donors.
II. A donation to the Integrated Bar of the Philippines is not exempted from
donor’s tax.
a. I is true, II is false
b. II is true, I is false
 c. Both are true
d. Both are false

Explanation
Section 101 of the Tax code.

7. A request for reinvestigation was filed on May 10, 2014. When shall be the last
day to submit the required documents?
a. July 9,2015
b. July 10,2015
c. July 15, 2015
d. No need to submit documents because it is only a request for
reinvestigation.
Explanation
Revenue Regulation No. 12-99

8. How many votes shall be necessary to reverse a decision of a Division of the Court
of Tax Appeals?
a. Five affirmative votes of the Justices present during the deliberation.
b. Simple majority of the Justices present during the deliberation.
c. Five affirmative votes of members of the Court en banc.
d. Votes unnecessary because decision of a Division cannot be reversed.

Explanation
Section 4 of the 1999 Internal Rules of the Court of Tax Appeals

9. Which of the following transactions in the course of trade or business requires

actual payment of VAT before an input tax is allowed as tax credit from the
output tax?
a. Purchase of services
b. Transactions deemed sale
c. Domestic purchase of goods for use as raw materials supplied in the sale of
services
d. Domestic purchase of goods for use in trade or business for which
deduction for depreciation or amortization is allowed under the Tax Code.

Explanation
Section 4.110-8 of RR No. 16-2005, as amended.

10. Statement 1: A tax credit certificate issued in accordance with the

pertinent provisions of this Code, which shall remain unutilized after three (3)
years from the date of issue, shall, unless revalidated, be considered invalid, and
shall not be allowed as payment for internal revenue tax liabilities of the
taxpayer, and the amount covered by the certificate shall revert to the general
fund.
 Statement 2: Any income of nonresidents, whether individuals or corporations,
from transactions with depository banks under the expanded system shall be
exempt from income tax.

a. Statement 1 is true, Statement 2 is false

b. Statement 1 is false, Statement 2 is true
c. Both statements are true
d. Both statements are false

Explanation
Section 230 (B) and 27 (D)3 of the Tax code.

DIFFICULT
CLINCHER OR SPARE

1. Mia, a compensation income earner, filed her income tax return for the taxable
year 2010 on March 30, 2011. On May 20, 2014, Mia received an assessment
notice and letter of demand covering the taxable year 2010 but the postmark on
the envelope shows April 10, 2014. Her return is not a false and fraudulent
return. Can Mia raise the defense of prescription?
a. No. The 3 year prescriptive period started to run on April 15, 2011, hence, it
has not yet expired on April 10, 2014.
b. Yes. The 3 year prescriptive period started to run on April 15, 20:1, hence, it
had already expired by May 20, 2014.
c. No. The prescriptive period started to run on March 30, 2011, hence, the 3
year period expired on April 10, 2014.
d. Yes. Since the 3-year prescriptive period started to run on March 30, 2011,. it
already expired by May 20, 2014.

Explanation
Revenue Regulation No. 12-99

2. Statement 1: An amount equivalent to five percent (5%) of the excess of actual

collections of national internal revenue taxes over the collection goal shall accrue
to the special fund of the Bureau of Internal Revenue and shall be treated as
receipts automatically appropriated.
Statement 2: The said amount shall be utilized as incentive bonus for revenue
personnel, purchase of necessary equipment and facilities for the improvement of
tax administration, as approved by the Commissioner.

a. Statement 1 is true, Statement 2 is false

b. Statement 1 is false, Statement 2 is true
 c. Both statements are true
d. Both statements are false

Explanation
Section 285 of the Tax code.

3. Ms. Mho designated a trust in favor of his minor boyfriend, Bacleito. Both the
P2,000,000 corpus and all future income of the trust is designated by Ms. Mho
as irrevocable. During the year, the trust earned P400,000 gross income, paid
P40,000 as Management fees to the trustee and distributed P200,000 as
allowance to Bacleito. Bacleito has other income from part-time employment.
Compute the taxable income of the trust and the taxable income of Bacleito.
a. 200,000 c. P150,000
b. P160,000 d. P140,000

Explanation
Section 62 of the Tax code.

Gross Income P 400,000

Management fees 40,000
Allowance to Bacleito – distributed 200,000
Subtotal P 160,000
Personal exemption (20,000)
Taxable income of the trust P 140,000

4. No deduction shall be allowed in respect of interest under following, except:

a. If within the taxable year an individual taxpayer reporting income on the

cash basis incurs an indebtedness on which an interest is paid in advance
through discount or otherwise.
b. If the indebtedness is incurred to finance petroleum exploration.
c. If both the taxpayer and the person to whom the payment has been made or
is to be made are persons specified under Section 36(B) – Items Not
Deductible: Losses from Sales or Exchange of property
d. None of the above

Explanation
Section 34 (B) 2a of the Tax code.

5. Statement 1: Assessment insurance companies, whether domestic or foreign,

cannot deduct from their gross income the actual deposit of sums with the officers
of the Government of the Philippines pursuant to law, as additions to guarantee or
reserve funds.
Statement 2: The term 'net capital gain' means the excess of the gains from sales
or exchanges of capital assets over the losses from such sales or exchanges.

a. Statement 1 is true, Statement 2 is false

b. Statement 1 is false, Statement 2 is true
c. Both statements are true
d. Both statements are false

Explanation
Section 37 (D) and Section 39 (A) 2 of the Tax code, respectively.