A.

CORPORATION DEFINED 12) Farmers’, fruit growers’, or like association

organized and operated as a sales agent for the
For tax purposes, a corporation is defined under Section purpose of marketing the products of its members
22 of RA 8424 as follows: and turning back to them the proceeds of sales,
less the necessary selling expenses on the basis of
The term “corporation” shall INCLUDE: quantity of produce finished by them.
1) Partnerships, no matter how created or organized;
2) Joint stock companies; HOWEVER, the income of whatever kind and character
3) Joint accounts (cuentas en participacion) of the foregoing organizations from any of their
4) Associations; or properties, real or personal, or from any of their
5) Insurance companies activities conducted for profit regardless of the
disposition made of such income, shall be subject to
But does NOT INCLUDE: income tax.
1) General professional partnerships; and
2) A joint venture or consortium formed for the D. GENERAL PRINCIPLES: SOURCES OF INCOME
purpose of undertaking: SUBJECT TO INCOME TAX
a. Construction projects; or
b. Engaging in petroleum, coal, geothermal and 1. DC – World
other energy operations pursuant to an 2. RFC and NRFC – Within the Phils. only
operating or consortium agreement under a
service contract with the government. E. DOMESTIC CORPORATIONS

B. CLASSIFICATION OF CORPORATE TAXPAYERS 1. ORDINARY CORPORATIONS

1) Domestic Corporation (DC)
2) Resident Foreign Corporation (RFC) The following taxes apply to ordinary corporations upon
3) Nonresident Foreign Corporation (NRFC) generation of income:
a) Final Withholding Tax (FWT)
DC, RFC and NRFC may be classified further into: i. FWT on certain passive income within the
1) Ordinary Corporation Philippines
2) Special corporation ii. Capital Gains Tax on sale of land and/or
buildings in the Philippines
C. EXEMPT ORGANIZATIONS b) Capital Gains Tax on Sale of Shares of Stock
c) Basic Income Tax
The following organizations shall not be subject to i. Regular Corporate Income Tax (RCIT); OR
income tax (Section 30, RA 8424): ii. Minimum Corporate Income Tax (MCIT)
1) Labor, agricultural or horticultural organization not
organized principally for profit; ❖ FINAL WITHHOLDING TAX ON CERTAIN PASSIVE
2) Mutual savings bank not having a capital stock INCOME WITHIN THE PHILIPPINES
represented by shares, and cooperative bank
without capital stock organized and operated for FORMULA:
mutual purposes and without profit;
3) A beneficiary society, order or association, Passive Income PXXX
operating for the exclusive benefit of the members Rate XX%
such as a fraternal organization operating under Final Withholding Tax PXXX
the lodge system, or a mutual aid association or a
non-stock corporation organized by employees 1) INTEREST
providing for the payment of life, sickness, accident, 1) Interest on currency bank deposit
or other benefits exclusively to the members of 2) Yield or any monetary benefit from:
such society, order, or association, or nonstock - Deposit substitutes
corporation or their dependents; - Trust funds and similar 20%
4) Cemetery company owned and operated arrangements
exclusively for the benefit of its members; Interest income FROM a depositary bank
5) Nonstock corporation or association organized and under the expanded foreign currency deposit 7.5%
operated exclusively for religious, charitable, system (EFCDS)
scientific, athletic, or cultural purposes, or for the Interest Income derived by a depository bank
rehabilitation of veterans, no part of its net income under the expanded foreign currency deposit
or asset shall belong to or inure to the benefit of system from foreign currency transaction
any member, organizer, officer or any specific WITH:
person; 1) Non-residents 0%
6) Business league, chamber of commerce, or board 2) Offshore banking units in the 0%
of trade, not organized for profit and no part of the Philippines
net income of which inures to 3) Local commercial banks 0%
7) the benefit of any private stockholder or individual; 4) Branches of foreign banks 0%
8) Civic league or organization not organized for profit 5) Residents 10%
but operated exclusively for the promotion of social
welfare; 2) ROYALTIES – 20%
9) A nonstock and nonprofit educational institution; 3) DIVIDENDS FROM ANOTHER DC – 0%
10) Government educational institution;
11) Farmers’ or other mutual typhoon or fire insurance
company, mutual ditch or irrigation company,
mutual or cooperative telephone company, or like
organization of a purely local character, the income
of which consists solely of assessments, dues, and
fees collected from members for the sole purpose
of meeting its expenses; and
❖ CAPITAL GAINS TAX ON SALE OF LAND AND/OR a. Trader or Merchandiser
BUILDINGS
Invoice Cost of the goods sold PXXX
REQUISITES: Import Duties XXX
1) The land and/or building must be a capital asset; Freight XXX
and Insurance XXX
2) It must be located in the Philippines. Total PXXX

FORMULA: b. Manufacturing Concern

Tax Base PXXX Raw materials used PXXX

Rate 6% Direct Labor XXX
CGT PXXX Manufacturing overhead XXX
Freight Cost XXX
TAX BASE: Insurance Premiums XXX
1. Selling Price Other costs of production XXX
Highest

2. Fair Market Value Total PXXX

3. Zonal Value
2) Seller of Services
❖ CAPITAL GAINS TAX ON SALE OF SHARES OF STOCK
Gross Receipts PXXX
REQUISITES: Sales Discounts (XXX)
1) The shares of stock sold, bartered, exchanged or Sales Returns and Allowances (XXX)
disposed must be in a domestic corporation; and Cost of Services (XXX)
2) The transaction must be not through the stock Gross Income PXXX
exchange.
Cost of Services:
FORMULA:
Salaries and Employee benefits of PXXX
Selling Price PXXX personnel, consultants and specialists
Cost (XXX) directly rendering the service
Selling Expense (XXX)
Net Gain PXXX Cost of facilities directly utilized in XXX
Rate XX% providing the service (e.g. rentals and cost
CGT PXXX of supplies)

RATE: Other direct costs and expenses XXX

1. First 100T of the gain = 5% necessarily incurred to provide the
2. In excess of 100T = 10% services
Total PXXX
❖ REGULAR CORPORATE INCOME TAX (RCIT)
NOTE: In case of banks, “cost of services” shall
FORMULA: include interest expense.
Gross Income PXXX
Allowable Deductions XXX AMOUNT PAYABLE TO BIR:
Taxable Income PXXX
Rate 30% 1) RCIT
RCIT PXXX Higher
2) MCIT

GROSS INCOME – includes all income not subject to CARRY FORWARD OF EXCESS MCIT (MCIT CARRY-OVER)
final withholding tax, capital gains tax and not
considered exempt under the law. Any excess of the MCIT over RCIT shall be carried
forward and credited against the RCIT for the three (3)
ALLOWABLE DEDUCTIONS: immediately succeeding taxable years.
1) Business Expenses & Losses (Itemized Deductions);
or RELIEF FROM THE MCIT
2) Optional Standard Deduction
The Secretary of Finance is authorized to suspend the
❖ MINIMUM CORPORATE INCOME TAX (MCIT) imposition of the MCIT on any corporation which suffers
losses on account of:
TIME OF IMPOSITION – It is imposed beginning on the 1) Prolonged labor dispute
fourth taxable year immediately following the year 2) Force majeure
in which such corporation commenced its business 3) Legitimate business reverses
operations, when the MCIT is GREATER THAN RCIT.
DOMESTIC CORPORATIONS EXEMPT FROM MCIT:
FORMULA: 1) Proprietary educational institutions and hospitals
which are non-profit
Gross Income PXXX 2) Depository banks under expanded foreign currency
Rate 2% deposit system
MCIT PXXX
2. SPECIAL CORPORATIONS
GROSS INCOME DEFINED:
PROPRIETARY NON-PROFIT EDUCATIONAL
1) Seller of Goods INSTITUTIONS AND HOSPITALS

Gross Sales PXXX The rules applicable to ordinary corporations will also
Sales Discounts (XXX) apply to proprietary educational institutions and
Sales Returns and Allowances (XXX) hospitals which are nonprofit except the following:
Cost of Goods Sold (XXX) 1) In computing basic income tax, the rate is 10%.
Gross Income PXXX NOTE: If income not related to its primary purpose
Add: Other Income subject to RCIT XXX or function is more than 50% of its total gross
Total Gross Income PXXX income, the rate applicable is 30%.

Cost of Goods Sold:

 2) It is not subject to MCIT d) Income excluded from gross
3) Expenditures for expansion of school facilities may income XXX XXX
not be capitalized but instead claimed as outright PXXX
expense. Less:
a) Income Tax Paid PXXX
GOVERNMENT-OWNED OR CONTROLLED b) Dividends declared/paid XXX XXX
CORPORATIONS Total PXXX
Add: Retained Earnings, beg. XXX
All corporations, agencies or instrumentalities owned or Less: Amount that may be
controlled by the Government shall be taxable like retained (100% of Paid-Up
“ordinary corporations”. Capital, end) XXX
However, the following shall be exempt:
Improperly Accumulated Taxable
1) Government Service and Insurance System (GSIS)
Income XXX
2) Social Security System (SSS)
Rate 10%
3) Philippine Health Insurance Corporation (PHIC)
Improperly Accumulated
4) Philippine Charity Sweepstakes Office (PCSO)
Earnings Tax XXX
5) Local Water Districts (RA 10026)

3. IMPROPERLY ACCUMULATED EARNINGS TAX (IAET)

F. RESIDENT FOREIGN CORPORATIONS
PERSONS LIABLE
1) ORDINARY CORPORATIONS
This tax is only applicable to domestic corporations
which are classified as closely-held corporations. The income taxes applicable to ordinary domestic
corporations upon generation of income are the same
The following shall be exempt: with resident foreign corporations, except:
a) Banks and other non-bank financial intermediaries; a) The general principles as to source of taxable
b) Insurance companies; income must be considered; and
c) Publicly-held corporations; b) Sale of land and/ or buildings is not subject to
d) Taxable partnerships; capital gains tax BUT basic income tax.
e) General professional partnerships; c) RESIDENT FOREIGN CORPORATIONS EXEMPT
f) Non-taxable joint ventures; and FROM MCIT:
g) Enterprises duly registered with the: i. International carrier
i. PEZA ii. Offshore banking units
ii. Pursuant to Bases Conversion and iii. Regional or area headquarters
Development Act of 1992 iv. Regional operating headquarters
iii. Special Economic Zones v. Firms that are taxed under special tax regime
(e.g. Covered by PEZA law & Bases Conversion
TAXABLE EVENT Development Act)

The taxable event in IAET is the accumulation of 2) SPECIAL CORPORATIONS

earnings BEYOND the reasonable needs of the
business. ❖ INTERNATIONAL CARRIER

REASONABLE NEEDS OF THE BUSINESS FORMULA:

The test used in determining the reasonable needs of
the business is the so called “Immediacy Test”. It
provides that “reasonable needs” of the business is
equivalent to:
Immediate Needs PXXX
Reasonably anticipated needs XXX
Reasonable Needs PXXX
The following constitute accumulation of earnings for
the reasonable needs of the business:
1) Earnings reserved for definite corporate expansion
projects or programs requiring considerable capital
expenditure as approved by the Board of Directors
or equivalent body;
2) Earnings reserved for building, plants or equipment
acquisition as approved by the Board of Directors
or equivalent body;
3) Earnings reserved for compliance with any loan
covenant or pre-existing obligation established
under a legitimate business agreement;
4) Earnings required by law or applicable regulations
to be retained by the corporation or in respect of
which there is legal prohibition against its
distribution;
5) In the case of subsidiaries of foreign corporations in
the Philippines, all undistributed earnings intended
or reserved for investments within the Philippines
as can be proven by corporate records and/or
relevant documentary evidence.
FORMULA
Gross Philippine Billings PXXX
Rate 2.5%
Income Tax PXXX
GROSS PHILIPPINE BILLINGS (GPB):
a. International Air Carrier – refers to the amount
of gross revenue derived from carriage of
persons, excess baggage, cargo and mail:
- Originating from the Philippines;
- In a continuous and uninterrupted flight;
- Irrespective of the place of sale or issue
and the place of payment of the ticket or
passage of document.
NOTE:
1) Tickets revalidated, exchanged and/or
indorsed to another international airline
form part of the GPB if a passenger boards
a plane in a port or point in the Philippines.
2) Flight which originates from the Philippines,
but transshipment of passenger takes
place at any port outside the Philippines
on another airline, only the aliquot portion
of the cost of the ticket corresponding to
the leg flown from the Philippines to the
point of transshipment shall form part of
the GPB.
b. International Shipping – means gross revenue
whether for passenger, cargo or mail
originating from the Philippines up to final
destination, regardless of the place of sale or
payments of the passage or freight documents.

USE OF PREFERENTIAL RATE OR EXEMPTION

Taxable Income PXXX
(inserted by RA 10378)
Add:
a) Income subjected to final tax PXXX
b) NOLCO XXX
c) Income exempt from tax XXX
 G. NONRESIDENT FOREIGN CORPORATIONS
International carriers may avail of preferential rate
or exemptions on basis of: 1) ORDINARY CORPORATIONS
a. Tax Treaty
b. International agreement Gross income from all sources within the Philippines
c. Reciprocity - An international carrier, whose shall be subject to 30% final withholding tax, except
home country grants income tax exemption the following:
to Philippine carriers, shall likewise be exempt
from income tax. INCOME APPLICABLE TAX

❖ OFFSHORE BANKING UNITS Interest income on foreign loans 20% FWT

Intercorporate Dividends:
Income derived by offshore banking units (OBU’s) 1) With tax sparing 15% FWT
from foreign currency transactions shall be taxed 2) Without tax sparing 30% FWT
as follows: Net Capital Gains from sale of
shares of stock not traded in the
COUNTERPARTY RATE local stock exchange
1) First 100T 5%
Non-residents 0% 2) In excess 10%
Other OBU’s 0%
Local Commercial Banks 0% 2) SPECIAL CORPORATIONS
Branches of foreign banks 0% TYPE TAX BASE RATE
Other residents 10%
Non-resident
NOTE: Cinematographic Film
If OBU’s earn income other than from foreign Owner, Lessor or Gross Income 25%
currency transactions, it will be subject to basic Distributor
income tax (RCIT vs. MCIT, whichever is higher)
Non-resident Owner or
❖ REGIONAL OR AREA HEADQUARTERS Lessor of Vessels Gross rentals,
Chartered by Philippine lease or charter 4.5%
Regional or area headquarters shall not be subject Nationals fees
to income tax.
Non-resident Owner or
❖ REGIONAL OPERATING HEADQUARTERS Lessor of Aircraft, Gross rentals,
Machineries and Other charters and 7.5%
The rules applicable to ordinary corporations will also Equipment other fees
apply to Regional Operating Headquarters except the
following:
1) In computing basic income tax, the rate is 10%. H. DEADLINE FOR FILING OF RETURNS
2) It is not subject to MCIT. 1. Final Withholding Tax on passive income

3) BRANCH PROFIT REMITTANCES TAX (BPRT) MANUAL FILING

January to November 10th day of the month
FORMULA:
following the month the
withholding was made
Profit Remittance PXXX
December January 15 of the
Rate 15%
succeeding year
BPRT PXXX
2. Capital Gains Tax
PROFIT REMITTANCE
a) Shares of stock
i. Ordinary Return - 30 days after each
PROFIT REMITTED APPLICABLE TAX
transaction
ii. Final Consolidated Return - on or before
Connected with the
April 15 of the following year
conduct of its trade or Subject to 15% BPRT
b) Real Property – 30 days following each sale or
business in the Philippines
other disposition
Others Exempt
3. Fringe Benefits Tax – 10th day of the month
following the end of the calendar quarter in which
EXEMPT ENTITIES the fringe benefits were granted to the recipient.
Activities registered with the following shall be exempt
from BPRT: 4. Basic Income Tax
1) Philippine Economic Zone Authority (PEZA) a) Quarterly – on or before the 60th day following
2) Subic Bay Management Authority (SBMA) the end of the quarter
3) Clark Development Authority (CDA)
b) Annual (Final Quarter) – April 15 of the
succeeding year.
 MULTIPLE CHOICE EXERCISES
1. Which is not a characteristic of corporate income tax:
a. Progressive tax c. General tax
b. Direct tax d. National tax

2. For purposes of income taxation, which of the following is not considered as corporation?
a. General partnership in trade
b. General professional partnership
c. Mutual fund company
d. Regional operating headquarters of multinational company

3. Which of the following is subject to income tax?

a. SSS and GSIS
b. Philippine Health Insurance Corporation (PHIC)
c. Local Water Districts
d. Philippine Amusement and Gaming Corporation (PAGCOR)

4. Which of the following is taxable based on income from all sources, within and without?
a. Domestic Corporations
b. Resident Foreign Corporations
c. Non-resident Foreign Corporations
d. All of the choices

5. The term applies to a foreign corporation engaged in trade or business in the Philippines.
a. Resident foreign corporation
b. Nonresident foreign corporation
c. Multinational corporation
d. Petroleum contractor

6. Which of the following does not have the benefit of claiming deductions in computing income tax?
a. Domestic Corporations
b. Resident Foreign Corporations
c. Non-resident Foreign Corporations
d. All of the choices

7. One of the following is exempt from income tax

a. Proprietary educational institutions
b. Private cemeteries
c. Government educational institutions
d. Mutual savings bank

8. The following passive income received by a domestic corporation shall be subject to 20% final withholding tax, except:
a. Interest income from peso bank deposit
b. Yield from deposit substitutes
c. Dividend income from another domestic corporation
d. Royalties

9. The share of a domestic corporation in the net income after tax of a joint venture or consortium taxable as a corporation
of which it is a co-venturer is subject to:
a. Creditable withholding tax of 10%.
b. Final withholding tax of 10%.
c. Capital gains tax.
d. Exempt

10. A depository bank under Foreign Currency Deposit System has the following income from foreign currency transactions
(Exchange Rate $1=P45):

From Nonresidents $5,000

From residents $3,000
From Philippine National
Bank $2,000

How much is the final withholding tax applicable on the above income?
a. P22,500 c. P9,000
b. P13,500 d. P45,000

11. As a rule, there is no income tax if there is no income. Which is of the following is the exception?
a. Capital Gains Tax on sale of land and/or building
b. Capital Gains Tax on sale of share of stock outside the local stock exchange
c. Tax on passive income
d. Regular Corporate Income Tax

12. KABA LESS Inc. sold its vacant lot to URO REALTY INC. for P10,000,000 which it acquired at a cost of P5,000,000. The
fair market value of the said property per tax declaration is P12,000,000, while its zonal value is P15,000,000. How much
is the income tax applicable on the transaction?
a. P900,000 c. P600,000
b. P720,000 d. P1,500,000

Taxation Review
Corporate Income Tax
By: Prof. Davey C. Medidas, CPA, MBA Page 1
13. Based on the preceding number, if the buyer of the property is the Philippine Government or one of its owned or
controlled corporations, what type of income tax will apply on the transaction?
a. Basic income tax
b. Capital gains tax
c. Either “a” or “b” at the option of the seller
d. Either “a” or “b” at the option of the buyer

14. In 2013, East Star Inc. sold shares of stock for P250,000. The shares, acquired in 2010 at a cost of P100,000, were held
as investment, and were sold directly to a buyer.

How much was the capital gains tax due?

a. P15,000 c. P7,500
b. P10,000 d. P45,000

15. Unan Inc., a domestic corporation, had the following data on income and expenses during the year 2013:
Gross income, Philippines P10,000,000
Business expenses, Philippines 2,000,000
Gross income, China 5,000,000
Business expenses, China 1,500,000
Interest income, Metrobank, 300,000
Philippines
Interest income, Shanghai Banking 100,000
Corporation, China
Rent income, net of 5% 190,000
withholding tax

How much was the income tax payable?

a. P3,540,000 c. P3,440,000
b. P3,530,000 d. P2,480,000

16. PHL Corporation, a domestic corporation has the following records of income and expenses during the year:

Gross income, net of 1% withholding tax P1,435,500

Expenses 790,600
Rent income, net of 5% withholding tax 136,800
Dividend from domestic corporation 25,000
Royalty, gross of tax 80,000
Interest from bank deposit with PNB, net 12,000
of tax

The income tax payable is -

a. P241,020 c. P260,020
b. P219,320 d. P238,320

17. The total final taxes is -

a. P19,000 c. P33,250
b. P21,500 d. P3,000

18. A domestic corporation was registered with the BIR on November 1, 2008. What year would the first MCIT will be
imposed on such corporation?
a. 2009 c. 2011
b. 2010 d. 2012

19. If the taxpayer is a seller of services, which of the following shall not form part of its cost of services?
a. Salaries and supplies
b. Employee benefits
c. Depreciation and rental expenses
d. Interest expense

20. The following information were taken from the records of Adobong Mani Inc., a domestic corporation already in its fifth
year of operation:

Gross profit from sales P3,100,000

Capital gain on sale directly to buyer of 100,000
shares in a domestic corporation
Dividend from:
Domestic corporation 20,000
Resident foreign corporation 10,000
Interest on: 20,000
Bank deposit
Trade receivable 50,000
Business expenses 2,100,000
Income tax withheld 115,000
Quarterly income tax payments 160,000
Income tax payable prior year (10,000)

The income tax due at the end of the year:

a. P318,000 c. P43,000
b. P63,200 d. P33,000

Taxation Review
Corporate Income Tax
By: Prof. Davey C. Medidas, CPA, MBA Page 2
21. Short Time Services Inc., registered with BIR in 2007, has the following data for the year 2013:

Gross receipts P1,150,000

Discounts 100,000
Returns and allowances 150,000
Salaries of personnel directly involved in 300,000
rendering service
Salaries of administrative personnel 100,000
Fees of consultants directly involved in 50,000
rendering service
Rental of equipment used in rendering 70,000
service
Rental of office space for use of 50,000
administrative personnel
Other operating expenses 420,000

How much was the income tax due and payable?

a. P27,000 c. P9,600
b. P6,600 d. Zero

22. Lughey Lahgey Corporation, already on its 5th year of operation as of 2012, has the following data:

2012 2013
Sales 1,700,000 2,300,000
Cost of Sales 1,050,000 1,425,000
Operating Expenses 675,000 480,000

The income tax payable in 2012 was –

a. P13,000 c. P35,000
b. P10,500 d. nil

23. The income tax payable in 2013 was –

a. P111,000 c. P98,000
b. P17,500 d. nil

Next five (5) questions are based on the following: Jolly Jeep Corporation has the following information for the
taxable year 2013:
QUARTER RCIT MCIT Creditable
Withholding
Tax
First 200,000 160,000 40,000
Second 240,000 500,000 60,000
Third 500,000 150,000 80,000
Fourth 300,000 200,000 70,000

Additional Information:
a) MCIT carry-over amounts to P60,000;
b) Excess tax credits from prior year amounts to P20,000.

24. How much was the income tax payable for the first quarter?
a. P200,000 c. P120,000
b. P160,000 d. P80,000

25. How much was the income tax payable for the second quarter?
a. P660,000 c. P200,000
b. P460,00 d. P160,000

26. How much was the income tax payable for the third quarter?
a. P860,000 c. P600,000
b. P120,000 d. P140,000
27. How much was the annual income tax payable?
a. P1,260,000 c. P230,000
b. P390,000 d. P930,000

28. Using the same data in the preceding problem except that the MCIT on the 4 th Quarter is P500,000, how much was the
annual income tax payable?
a. P330,000 c. P380,000
b. P1,310,000 d. P360,000

29. A domestic corporation, already in its 5th year of operation as of 2010, provided the following data:
2010 2011 2012
Gross Sales P2,040,000 P2,800,000 P3,000,000
Sales returns 40,000 100,000 -
Cost of goods sold 1,000,000 700,000 1,500,000
Business 950,000 2,100,000 1,200,000
expenses
The income tax payable for taxable year 2012 was:
a. P15,000 c. P60,000
b. P20,000 d. P55,000

Taxation Review
Corporate Income Tax
By: Prof. Davey C. Medidas, CPA, MBA Page 3
30. Windang Corporation, a domestic corporation, had the following selected data:
YEAR GROSS INCOME EXPENSES
2008 P1,000,000 P1,200,000
2009 2,000,000 1,900,000
2010 3,000,000 2,950,000
2011 1,000,000 1,100,000
2012 980,000 500,000

The taxable income in 2012 was:

a. P380,000 c. P100,000
b. P0 d. P50,000

31. One of the following is not accepted basic relief from the MCIT:
a. Prolonged labor dispute
b. Force majeure problems
c. Legitimate business reverse
d. Law suits filed by the company

32. (Phil. CPA) Which of the following statements is incorrect?

a. Resident foreign corporations are subject to income tax based on net income from sources within the Philippines.
b. Domestic corporations are subject to income tax based on net income from all sources.
c. Nonresident foreign corporations are subject to income tax based on gross income from sources within the
Philippines.
d. Private educational corporations 'are subject to income tax based on the net income from sources within the
Philippines at the tax rate of 10%.

33. SCHOOL BUKOL University is a proprietary educational institution. It has the following selected information for the
taxable year 2013:
Tuition fees P12,800,000
Miscellaneous fees 1,800,000
Interest on bank deposits 12,300
Rent income 350,000
Salaries and bonuses, all personnel 7,500,000
Other operating expenses 3,500,000
Quarterly income tax payments 48,000
Additional School Building was built and finished on April 1, 2013 at a cost of P2,000,000 with a depreciable life of 50
years.Assuming the University opted to claim the cost of construction as an outright expense, the income tax payable
was:
a. P344,000 c. P576,000
b. P147,000 d. P160,000

34. Based on the preceding number, but assuming the University opted to capitalize the cost of building construction, the
income tax payable was:
a. P344,000 c. P576,000
b. P147,000 d. P160,000

35. Pera Pera College, an educational institution provided the following data for the current year:
Income from tuition fees P3,500,000
School miscellaneous fees 500,000
Income from school canteen 500,000
Income from school dormitory 500,000
Dividend income:
Domestic corporation 2,000,000
Foreign corporation 2,000,000
Rent income (net of 5% withholding tax)
1,900,000
Operating expenses 4,000,000

The income tax payable of the school is:

a. P1,600,000 c. P1,500,000
b. P1,500,000 d. P1,400,000

36. Bank of Recto, a domestic corporation has the following data for the taxable year 2013:

Regular Banking Unit:

Interest Income from loans P10,000,000
Interest Income from peso deposit with 1,000,000
Bank of Philippine Islands
Dividend Income from various 1,500,000
domestic corporations

Foreign Currency Deposit Unit:

(Exchange Rate $1=P40)
Interest Income from loans to $50,000
residents
Interest Income from loans to $12,500
nonresidents

Additional Information: The bank has total operating expenses of P12,000,000.

How much was the normal income tax for the year?
a. P600,000 c. P500,000
b. P400,000 d. nil

Taxation Review
Corporate Income Tax
By: Prof. Davey C. Medidas, CPA, MBA Page 4
37. A tax imposed in the nature of a penalty to the corporation to prevent the scheme of accumulating income rather than
distribute the same to the stockholders for the purpose of avoiding tax on dividends.
a. Minimum corporate income tax
b. Optional corporate income tax
c. Improperly accumulated earnings tax
d. Capital gains tax

38. The Improperly Accumulated Earnings Tax shall not apply to the following, except?
a. Banks and other non-bank financial intermediaries
b. Insurance companies
c. Publicly-held corporation
d. Closely-held corporation

39. It is a test used in determining the reasonable needs of a business to justify the accumulation of earnings which will
exempt the corporation from paying Improperly accumulated earnings tax:
a. Urgency test c. Immediacy test
b. Reasonable needs test d. Control test

40. JCU Corporation, a domestic corporation had the following data for taxable year 2013:

Sales P5,000,000
Cost of goods sold 2,000,000
General selling and administrative
expenses 500,000
Interest income from Philippine bank
deposit 100,000
Rental income (net of 5% withholding tax)
190,000
Dividend Income:
From domestic corporation 60,000
From foreign corporation 50,000
Capital gains from sale of domestic shares
of stocks sold Directly to buyer
75,000
Dividend declared and paid during the
year 500,000
Retained earnings, 12/31/2012 1,000,000
Par Value of outstanding shares, 500,000
12/31/2013
Appropriation for future plant expansion 800,000

The income tax payable was:

a. P825,000 c. P899,200
b. P815,000 d. P819,200

41. Based on the foregoing problem, the Improperly accumulated earnings tax was:
a. P208,125 c. P213,625
b. P108,125 d. P105,125

42. Peshcov Corporation, an entity organized under the laws of Russia, is engage in business in the Philippines for 10 years
already. During the year 2013, its income and expenses are shown below:

Philippines Russia
Gross income P20,000,000 P30,000,000
Business expenses 18,500,000 21,000,000
Interest income from 500,000
dollar deposit,
Yield on money 1,000,000
market placement

How much is the income tax payable upon filing its annual income tax return?
a. P3,000,000 c. P1,000,000
b. P400,000 d. P300,000

43. The TY Corporation is an international carrier doing business in the Philippines. Its taxable base for income tax purposes
is –
a. Gross Philippine Billings
b. Gross Philippine Billings minus deductible expenses
c. Regular rate of 30% of its net taxable income
d. Allocation of income from sources within and without the Philippines, as well as expenses.

44. The following are excluded in the "Gross Philippine Billings" for income tax purposes of an international air carrier,
except:
a. Tickets sold outside the Philippines for passengers originating from outside the Philippines
b. Passage documents sold outside the Philippines for excess baggage originating from the Philippines
c. Tickets sold in the Philippines for passengers originating from the Philippines but are not actually flown
d. Passage documents sold in the Philippines for cargoes originating from outside the Philippines

45. In order for an international carrier to qualify for exemption on the basis of reciprocity, what type of tax shall be
exempted as well by the its home country?
a. Income tax c. Transfer tax
b. Business Tax d. Any of the choices

Taxation Review
Corporate Income Tax
By: Prof. Davey C. Medidas, CPA, MBA Page 5
46. China Northern Airlines Inc., a resident foreign corp. has the following data for the taxable year 2013:

Passengers airfare from China to Philippines P1,800,000

Passengers airfare from Philippines to China 1,500,000
Airfare for cargoes from China to Philippines 700,000
Airfare for cargoes from Philippines to China 1,300,000

How much was the income tax payable?

a. P60,000 c. P84,000
b. P39,000 d. P70,000

47. Based on the preceding number, how much was the common carrier’s tax for the year?
a. P60,000 c. P84,000
b. P39,000 d. P70,000

48. An offshore banking unit, already in its 7th year in the Philippines, has the following data in its income and expenses for
the year 2014:

Foreign currency transactions with:

Non-residents 1,800,000
Local banks 1,200,000
Branches of foreign banks 1,000,000
Another OBU 500,000
Other residents (Interest Income) 800,000

Other income:
Rent income 1,000,000
Miscellaneous income 500,000

Operating Expenses 2,380,000

How much is the total income tax for the year?

a. P80,000 c. P372,500
b. P292,500 d. P0

49. Which of the following shall pay a tax of ten percent (10%) of their taxable income?
I - Regional or area headquarters
II - Regional operating headquarters
a. Both I and II
b. Neither I nor II
c. I only
d. II only

50. If a branch of a foreign corp. in the Philippines remits passive income earned in the Philippines to the head office, what is
the applicable tax on the said transaction?
a. Subject to 30% final withholding tax
b. Subject to 12% creditable withholding VAT
c. Subject to 15% branch profit remittances tax
d. Exempt from branch profit remittances tax

51. Which of the following corporations shall pay a tax equal to thirty percent (30%) of the gross income received during
each taxable year from all sources within the Philippines?
a. Domestic corporation
b. Resident foreign corporation
c. Nonresident foreign corporation
d. None of the choices

52. Teri Yaki Corp., a Japanese Corp. having no business in the Philippines, is engage in ship building. It leases some of its
newly constructed ships to Super Fairy Inc., a Philippine Carrier. What income tax rate will apply to the rental payments
to the lessor?
a. 30% Basic Income Tax
b. 25% Final Withholding Tax
c. 7.5% Final Withholding Tax
d. 4.5% Final Withholding Tax

53. Rentals, charters and other fees derived by a non-resident lessor of aircraft, machineries and other equipment in the
Philippines shall be subject to a tax of:
a. Twenty-five percent (25%)
b. Seven and one-half percent (7 ½%)
c. Four and one-half percent (4 ½%) of gross rentals or fees
d. Two and one-half percent (2 ½%) of gross income

54. A cinematographic film owner, lessor or distributor shall pay a tax, based on its gross income from all sources within the
Philippines, of:
a. Twenty-five percent (25%)
b. Seven and one-half percent (7 ½%)
c. Four and one-half percent (4 ½%) of gross rentals or fees
d. Two and one-half percent (2 ½%) of gross income

Taxation Review
Corporate Income Tax
By: Prof. Davey C. Medidas, CPA, MBA Page 6
Next seven (7) questions are based on the following:
Global Corporation, a corporation engaged in business in the Philippines and abroad which is on its 3rd year of operation, has
the following data in 2013:

Gross Income, Philippines P 1,000,000

Expenses, Philippines 700,000
Gross Income, China 500,000
Expenses, China 350,000
Interest on peso bank deposit 50,000
Interest from foreign currency 80,000
bank deposit
Royalties from books 75,000
Dividend income from another 100,000
Domestic Corp.
Income Tax Paid in China 60,000

Additional Information:
a) The Corporation sold its stocks in a domestic corporation directly to the buyer for P240,000. The cost of such shares is
P80,000.
b) It sold a vacant lot, booked as investment property held for capital appreciation, for P2,800,000. Fair Market Value per
Tax Declaration is P3,000,000 while zonal value is P3,300,000. The lot was acquired for P1,500,000.

55. How much was the income tax payable if the Corporation is domestic?
a. P90,000 c. P117,000
b. P166,000 d. P375,000

56. Based on the preceding number, how much was the income tax expense?
a. P84,375 c. P117,000
b. P166,000 d. P375,000
57. Assuming further that the Corp. opted to claim as part of allowable deduction the income tax paid abroad, how much was
the income tax payable?
a. P84,375 c. P117,000
b. P166,000 d. P375,000

58. How much was the income tax payable if the Corporation is a resident foreign (disregard sale of vacant lot)?
a. P480,000 c. P90,000
b. P511,000 d. P505,000

59. Based on the preceding number, how much was the total income tax on all income?
a. P480,000 c. P90,000
b. P132,000 d. P505,000

60. Assuming that the taxpayer is a nonresident foreign (disregard sale of vacant lot) and there is tax sparing, how much
was the income tax on all income?
a. P727,500 c. P363,500
b. P352,500 d. P757,500

61. Based on the preceding number, but assuming there was no tax sparing, how much was the total income tax on all
income?
a. P727,500 c. P742,500
b. P352,500 d. P378,500

62. The following data were taken from the financial statement of RLS Corporation, a domestic corporation, for the current
year:

Philippines Japan
Gross sales P950,000 P2,000,000
Sales returns 25,000
Cost of goods sold 425,000 300,000
Interest income from trade
receivables 10,000 50,000
Interest income from bank
deposits 20,000
Dividend income from
domestic corporation 15,000
Royalty income 20,000
Operating expenses 250,000 300,000
Income from deposit
substitutes 35,000 100,000
Sale of Building in the Phil.
not used in
business, cost P4,000,000 5,000,000

The Fair Market Value of the Building sold was P8,000,000 at the time of the sale.
Its income tax payable is:
a. P640,000 c. P680,000
b. P600,000 d. P543,000

63. Its final tax on passive income is:

a. P15,000 c. P4,000
b. P8,000 d. P11,000

Taxation Review
Corporate Income Tax
By: Prof. Davey C. Medidas, CPA, MBA Page 7
64. Its capital gains tax is:
a. P480,000 c. P300,000
b. P495,000 d. P60,000

65. Based on the above problem, its total income tax on all income if it is a resident foreign corporation (disregard sale of
building):
a. P435,200 c. P166,000
b. P168,000 d. P403,000

66. Using the same information above, except that the entity is a regional operating headquarter of a multi-national
company, how much is its total income tax on all income (disregard sale of vacant lot)?
a. P435,200 c. P66,000
b. P468,000 d. P403,000

67. A corporation has the following data for the current year:
Gross income, Phil. P1,000,000
Gross income, USA 500,000
Gross income, Japan 500,000
Expenses, Phil. 300,000
Expenses, USA 200,000
Expenses, Japan 100,000
Other income:
Dividend from San Miguel Corp.
70,000
Dividend from Ford Motors, USA
120,000
Gain on sale of San Miguel shares
directly to buyers 150,000
Royalties, Phils. 50,000
Royalties, USA 100,000
Interest from receivables in the 60,000
Philippines
Rent Income, land in USA 250,000
Rent income, Building in the 100,000
Philippines

The Company also sold a condominium classified as capital asset for P2,000,000. The cost of the Condominium is
P1,000,000 while its Zonal Value is P3,000,000.

Its income tax on all income as a domestic corporation is:

a. P578,000 c. P963,600
b. P683,500 d. P809,000

68. Based on the above problem, its income tax on all income if it is a resident foreign corporation (disregard sale of
condominium):
a. P278,000 c. P963,600
b. P683,500 d. P809,000

69. And if it is a non-resident foreign corporation and there is tax sparing, its income tax on all income is (disregard sale of
condominium):
a. P578,000 c. P963,600
a. P383,500 d. P809,000

Taxation Review
Corporate Income Tax
By: Prof. Davey C. Medidas, CPA, MBA Page 8