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2012 Edition
Asser S.Temayo
2012 Edition
Asser S. Tamayo
CFA KE_VIEWEK IN TAXATION:

500K2

5Y

ASSE_K SAMSON TAMAYO

BSC 1\ccounting, CPA l\IBA (candidate)


CPA Rc,"iC\\Tr, The Rc,"icw School of Accountancy (RcSJ\), ::\Ianila
Partner, Pellejera and Tamayo, Certified Public Accountants, l\Iarikina City
Philippine Copyrip-ht, 2009

~All rights resern~d. Printed in the Philippines.


No part of this book may be used or reproduced in any form and by
any means, or stored in a data base or retrieYa! system, \Yithout prior
written permission from the author .

. \ny copy of this bouk without the signature of the author on this
page shall be considered as coming from an illegal source.
To my father, Mr. Ruben Yanson Tamayo(+)
and my mother, Mrs. Esperanza Samson-Tamayo (+)

To my father-in-law, Col. Samuel Demeterio Paler (+)


and my mother-in-law, Mrs. Felicisima Martinez-Paler (+)

"Honor your father and your mother, and you will live a long time
in the land I am giving you." -Exodus 20:12 (Contemporary
English Version)
PREFACE

CPA Reviewer In Taxation: Book 2 (2012 Edition) is intended primarily to


help reviewees who will take the CPA Licensure Examination. But it is
also a good resource material for fellmv teachers handling taxation at the
undergraduate level.

The author backs each correct ans\ver with \\ell-researched material to


establish its technical basis. References used are taken from the
.\'ational Internal Revenue Code of 1997, as amended, Revenue
Regulations issued by the Bureau of Internal Revenue (BIR}, Civil Code of
rhe Philippines, The Family Code of the Philippines and court rulings and
decisions when applicable.

Each test item deals \Yith the basic concepts, rules and principles vvhich
the author believes should be \Yithin the competence level of candidates
\\ho will be taking the CPA licensure exam. As much as possible, he
a\oids giving pis personal view or opinion unless these are properly
supported by laws and regulations.

This review material adheres closely to the syllabus on Taxation issued


by the Professional Board of Accountancy.

It is the \\Titer's wish that Taxation reviewees and students will find
\aluable information and practical application of principles in this work.
He has taken extra effort to make taxation challenging and hopefully less
of an ordeal for them.

The encouragement and positive feedback from his current and former
students gave him the boost to finally come up with a reviewer. To them,
he is ,ery grateful.

The author wishes to thank Ms. Janina S. Baquiran, CPA, for helping
him organize the materials and giving him some insightful advice on the
contents of the book. He also thanks Mr. Edilberto B. Bagnes, CP.A, for
the cowr design. The author is indebted to Mrs. Lorna S. Roque, Office
Manager of ReSA Review School, for gathering the reference materials for
the book.

Special mention goes to Mrs. Cynthia Paler-Tamayo for making this


reviewer more readable and easily understood even by laymen.
This work would not have come into fruition, were it not for the
encouragement of the author's fellow reviewers in ReSA Review School,
namely: Mr. Antonio J. Dayag, Mr. Conrado 0. Uberita, Mr. Charlwin P.
Lee, Dean Jose M. Ireneo, Mrs. Shirley Cordova-lreneo, Atty. Marceliano
S. Bonafe, Mr. George R. James, Mr. Christopher T. Espenilla and Mr.
Gorgonio D. Macariola.

The author also expresses his gratitude to Atty. Conrado T. Valix for
inspiring nevv authors to come up with their own work which will help
make the study of accounting and taxation easier.

And above all, the greatest praise goes to his Lord and Savior Jesus
Christ for the gift of writing.

Feedback, comments and suggestions for improvement are most welcome


and would contribute to a better future edition.

A.S.T
THE CPA LICENSURE EXAMINATION
SYLLABUS ON TAXATION
(50% of Business Law and Taxation)
(Effective October 2006 Examination)

This subject tests the candidates' conceptual knowledge and proficiency


in the practical application of the basic principles of taxation as they
relate to accounting practice. The emphasis is on the application of the
theory and principles in solving tax problems. Candidates are expected to
know, understand and be able to apply the laws on income tax, business
taxes (value-added and percentage taxes), estate tax, donor's tax, as well
as Revenue Regulations and Court of Tax Appeals and Supreme Court
decisions.
Candidates should know the tax rates for computing taxes, except for the
follmYing vvhere the tax rates will be given:
- schedular income tax rates for individuals
- schedular estate tax rates; and
- schedular donor's tax rates.
Each examination will contain a minimum of 25 and maximum of 35
multiple choice questions allocated to the different subject areas, as
indicated below.

1. 0 Principles of Taxation and its Remedies


1.1 Nature, scope, classification, and essential characteristics
1 . 2 Principles of sound tax system
1.3 Limitations of the power of taxation (inherent limitations and
constitutional limitations)
1.4 Differences between taxation and police power
1.5 Differences between taxation and eminent domain
1.6 Similarities among taxation, police power and eminent
domain
1.7 Tax evasion vs. tax avoidance
1.8 Sites/place of taxation
1.9 Double taxation (direct and indirect)
1.10 Taxes
a. Essential characteristics
b. Classification
c. Tax vs. other charges (toll, special assessment, license fee,
debt)
r 2.0 Povv'ers and Authority of the Commissioner of Internal Revenue
under Section 4 to 7, Title 1 of the Tax Code

3.0 Authority of the Commissioner to Compromise Tax Payments,


Abate or Cancel Tax Liability and Refund or Credit Taxes

4.0 Tax Remedies


4.1 Remedies of the government (State)
a. Definition, scope, prescriptive period
b. Administrative remedies (tax lien, compromise, levy and
distraint)
c. Judicial actions (ci\il or criminal)
4.2 Remedies of the taxpayer
a. Prescriptive periods
i
b. Administrative remedies

I 1. Against an assessment (protest, request for

2.
reinvestigation)
Request for refund or credit of taxes (recovery of
erroneouslY or illegally collected taxes, forfeiture of
cash refund and tax credit)
4.3 Expanded jurisdiction of the Court of Tax Appeals (limited to
jurisdiction)

5.0 Income Tax (refer to Reviewer in TCL-x:ation Book 1)

6.0 Compliance Requirements (refer to Reviewer in TCLvltion Book 1)

7. 0 Transfer Taxes
7. 1 Estate taxes
a. Gross estate
b. Deductions allmncd to estate (ordinary and special
deductions)
c. Tax credit for estate tax paid to a foreign country
d. Filing of estate tax returns, payment of estate tax
requirements
e. Attachments to the estate tax return, including CPA
certificate
7.2 Donor's ta.'<
a. Gross gift
b. Exemption of certain gifts and other deductions from gross
gift
c. Tax rates in general and when the donee is a stranger
d. Filing of donor's tax returns, pa\ment and requirements
SC \ alue Added T<lX
8.1 VAT-subject transactions .
a. Sale of goods or properties (actual sales, deemed sales,
zero rated sales)
b. Sale of services and lease of properties (actual sales or
lease, zero rated sales)
c. Importation
8.2 VAT exempt transactions
8.3 Input value added taxes
a. Passed-on VAT
b. Transitional VAT input
c. Presumptive VAT input
d. Withholding VAT (creditable and final)
e. Excess VAT input in previous return
8.4 Refund of VAT input (zero rated sales, purchase of land and
capital goods)
8.5 Compliance requirements (invoicing, returns and payment of
value addcci tax; pov,er of the Commissioner to suspend
business)

9.0 Percentage Taxes


9.1 Taxpayer. tax base and tax rates
9.2 Tax on persons exempt from value added tax (annual gross
sales or receipts do not exceed P550,000.00)
9.3 Tax on domestic or international carrier (including
exemptions)
9.4 Tax on franchise
9.5 Overseas communications tax (including exemptions)
9.6 Tax on banks and non-bank financial intermediaries
performing quasi-banking functions
9. 7 Tax another non-bank financial intermediaries
9.8 Tax on life insurance
9. 9 Tax on agents of foreign insurance companies
9.10 Amusement taxes
9.11 Tax on winnings
9. 12 Stock transaction tax
9. 13 Returns and payment of percentage tax (regular and
electronic filing)

10.0 Community Tax (computation of basic, additional and optional


community tax for individuals and corporations and the maximum
amount due)

11.0 Additions to Tax


11.1 Surcharges (late filingjpayment, wrong venue, \Villful neglect,
false or fraudulent returns)
11.2 Interests (on deficiency, on delinquency, on extended
payments)
11.3 Compromise penalties, amount to be specified in the problem.
TABLE OF CONTENTS

Chapter Title Page


1 Gross Estate----------------------------------------------- 1
2 Deductions from Gross Estate-------------------------- 19
3 Estate Tax Cases ----------------------------------------- 43
4 Tax Credit for foreign Estate Tax----------------------- 61
5 Filing of Estate Tax Returns, and
Payment of Estate Tax------------------------------- 68
6 Attachments to the Estate Tax Return,
Including CPA Certificate --------------------------- 78
7 Gross Gifts------------------------------------------------- 82
8 Exemption of Certain Gifts and Other Deductions
fmm Gross Gifts------------------------------~------- 95
9 Donor's Tax Rates and Donor's Tax Cases ----------- 104
10 Filing of Donor's Tax Returns, Payment and
Requirements ----------------------------------------- 125
A1 VAT -Subject Transactions ------------------------------ 131
/12 VAT- Exempt Transactions ------------------------------ 165
13 Input Value-Added Taxes --------------------~--------- 182
14 Refund of Value-Added Tax----------------------------- 195
.15 Value-Added Tax Cases --------------------------------- 200
16 VAT Compliance Requirements ------------------------ 220
%7 Other Percentage Taxes --------------------------------- 239
.AS Percentage Tax Cases------------------------------------ 261
19 Returns and Payment of Percentage Taxes----------- 278
20 Community Tax------------------------------------------- 287
21 Additions to Tax------------------------------------------- 298
22 Remedies in General ------------------------------------- 315
23 Civil Remedies for Collection of Taxes----------------- 331
Chapter Title Page
24 Protesting an Assessment, Refund, Etc.--------------- 349
25 Jurisdiction of the Court of Tax Appeals ------------- 366
26 Inherent Powers of the State---------------------------- 372
27 Limitations on the Power of Taxation------------------ 380
28 Tax and Other Charges---------------------------------- 398
29 Powers and Authority of the Commissioner of
Internal Revenue-------------------------------------- 412
Chapter 1
GROSS ESTATE
"Wisdom is /(pawing wfiat to do, s/{j[[ is K.J1ouing fimv to do it,
and surccss is doing it. "-;1nonymous

Multiple Choice: Choose the best possible answer.

1. A mode of acquisition by virtue of which the property, rights and


obligations to the extent of the value of the inheritance, of a person
are transmitted through his death to another or others either by his
will or by operation of lm':.
a. Succession c. Inheritance
b. Donation d. Liquidation

Answer: A <.- -- :;:: '


Reference: Art. 774, Civil Code of the Philippines

2. The general term applied to the person whose property is transmitted


through succession, \Vhether he left a will or failed to do so.
a. Successor c. Trustor
b. Decedent d. Administrator

Answer: B
Reference: Art. 775, Civil Code of the Philippines

3. A person ,,hose property is transmitted through succession in


accordance with a will he left.
a. lntestak c. Testator
h. Heir d. Executor

Answer: C
Reference: Art. 775, Civil Code of the Philippines
-- - - - - - ---------------------------------
.~----"- ------~~-~-----------,

1
A person is soid to hove rliecl intestate if no 1uill was left.
L_____ ____________ -------------- -- --- ---
I
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _]

4. A person called to succession either bY the provision of a will or by


operation of law.
a. Successor c. De,isee
b. Heir d. Lr:'gatee
Chapter 1: Gross Estate
--------------------------------------------------

Answer: B
Reference: Art. 782, Civil Code of the Philippines
~
1 Devisees and legatees are persons to whom gifts of real and I
I personal property are respPctively given by virtue of a will.
L. - -- . - -~------J
I

5. An act wherebv a person is permitted, v.ith the formalities prescribed


by lavv, to control to a certain degree the disposition of his estate, to
take effect after his death.
a. Contract c. Will
b. Trust d. Legacy

Answer: C
Reference: Art. 783, Civil Code of the Philippines

6. It refers to the mass of all property, rights and ohligat10ns of a person


v;hich are not extinguished by his death.
a. Estate c. Co-ownership
b. Trust d. Partnership

Answer: A
Reference: Art. 776, ~!_vi.!_~_od~of the }Jhilippines
Art. 776. The inhen'tance includes all the property, n'ghts and
obligations of a person which are not extinguished by his death. .
'------------------ ------------~-----~---~------~-

7. The gross estate of a decedent shall be comprised of the following


properties and interest therein at the time of his death, including
revocable transfers and transfers for insufficient consideration:
I - Residents and citizens ~ all properties, real or pE'rsonal, tangible
or intangible, vYherever situated;
II - Non-resident aliens~ only properties situated in the Philippines
provided, that, with respect to intangible personal property, its
inclusion in the gross estate is subject to the rule of reciprocity.
a. Both I and II are correct c. Onlv I is correct
b. Both I and II are incorrect d. Only II is correct

Answer: A
References: Section 85, NIRC, as amended
Section 104, NIRC, as amended
Section 4, Revenue Regulations 2-2003

2
Chapter 1: Gross Estate

8. The gross estate of this decedent shall only be comprised of


properties situated in the Philippines.
a. Filipino residing in the Philippines
b. American residing in the Philippines
c. Filipino residing in the US
d. American residing in the US

Answer: D
References: Section 85, NIRC, as amended
Section 4, Revenue Regulations 2-2003

9. Which of the following is not included in the decedent's gross estate?


a. Extent of decedent's interest in property
b. Transfer in contemplation of death
c. Revocable transfer
d. Property passing under special power of appointment

Answer: D
Reference: Section 85 (A), (B), (C) and (Dj,__!\liRC, as amended
I What is included in the gross estate is a property passing und::ris
I\ general power of appointment. A gene. ral power of appointment is
I
one which may be exercised in favor of anybody. ,

10. Which of the following proceeds from a life insurance shall be


included in the decedent's gross estate?
I -To the extent of the amount to be received by the estate of the
deceased, his executor, or administrator, as insurance under
policies taken out by the decedent upon his own life,
irrespective of whether or not the insured retained the poYver of
revocation;
II - To the extent of the amount to be received by any beneficiary
designated in the policy of insurance, except when it is
expressly stipulated that the designation of the beneficiary is
irrevocable.
a. l only c. Neither I nor II
b. II only d. Both I and II

Answer: D
Reference: Section 85 (E), NIRC, as amended

3
Chapter 1: Gross Estate

11. Which of the folloYving proceeds shall be included in the taxable gross
estate?
a. Insurance proceeds from SSS and GSIS
b. Amount receivable by any beneficiary, irrevocably designated
in the policy by the insured
c. Amount receivable by any beneficiary designated in the
insurance policy
d. Proceeds of group insurance taken out by a company for its
employees

Answer: C
Reference: Section 85 (E), NIRC, as amended
The designation of the beneficiary in letter cis not clear. Under the
Insurance Code, when the designation is not clear, it is presumed
to be revocable. Hence, the amount receivable is included in the
I gross estate. Under Section 85 (E) of the NIRC proceeds of life
insurance is included to the extent ofthe amount receivable by any
beneficiary designated in the policy of insurance, except when it is
expressly stipulated that th.e designation o[the beneficiary is
irrevocable.

12. If transfer in contemplation of death, revocable transfer or property


passing under general power of appointment is made, created,
exercised or relinquished for consideration in money or money's
worth, but there is no bona fide sale for an adequate and full
consideration in money or money's worth, the gross estate will
include:
a. fair market value of such property at the time of transfer.
b. historical cost of such property at the time acquired.
c. excess of the fair market value of the property at the time of
death over the value of the consideration received therefor.
d. fair market value or the assessed value of such property, at
the time of death, whichever is higher.

Answer: C
Reference: Section 85 (G), NIRC, as amended

13. One of the following transfers is not included in the gross estate.
a. Transfer with reservation and retention of certain rights
b. Transfer passing under general power of appointment
c. Transfer for adequate and full consideration
d. Transfer in contemplation of death

Answer: C
Reference: Section 85 (G), NIRC, as amended

4
Chapter 1: Gross Estate

14. X, decedent, O\vns a property valued at Pl ,500,000 at the time of his


death. The said property was sold by X during his lifetime toY for
P700,000 when its value was Pl ,200,000. It was agreed by X and Y
that the transfer of ownership will take effect after X's death.
For Philippine estate tax purposes, which of the following statements
is correct?
a. The transaction is a transfer for inadequate consideration,
hence, the amount of PSOO,OOO shall be included in the gross
estate.
b. The transaction is a bona fide sale for adequate consideration,
hence, no amount shall be included in the gross estate.
c. The transaction is a transfer in contemplation of death,
hence, the amount of Pl,SOO,OOO shall be included in the
gross estate.
d. The transaction is a transfer for inadequate consideration,
hence, the amount of the PSOO,OOO shall be included in the
gross estate.

Answer: A
Reference: Section 85 (G), NIRC, as amended

15. A property which is firmly fixed, settled or fastened is called:


a. real or immovable property.
b. tangible personal property.
c. intangible property.
d. none of the choices.

Answer: A
tThe Civil Code of the Philippines does not define immovable
property. It simply enumerates the immovable property. Under
Art. 415 of the Civil Code of the Philippines, the following are
immovable property:
(1) Land, buildings, roads and constructions of all kinds adhered
to the soil;
(2) Trees, plants, and growing fruits, while they are attached to
the land or form an integral part of an immovable;
(3) Everything attached to an immovable in a fixed manner, in
such a way that it cannot be separated therefrom without
breaking the material or deterioration of the object;
(4) Statues, reliefs, paintings, or other objects for use or
ornamentation, placed in buildings or on lands by the owner !
of the immovable in such a manner that it reveals the intention I
to attach them permanently to the tenements; I
(5) Machinery, receptacles, instruments or implements intended I
by the owner of the tenement for an industry or works which
may be carried on in a building or on a piece of land, and
J'
which tend directly to meet the needs ofthe said industry or
works;

5
Chapter 1: Gross Estate

(6) Animal houses, pigeon-houses, beehives, fish ponds or


breeding places of similar nature, in case their owner has
placed them cr preserves them with the intention to have them
permanently attached to the land, and fomling a permanently
attached to the land, and forming a permanent part of it; the
animals in these places are included;
(7) Fertilizer actually used on a piece of land;
(8) Mines, quarries, and slag dumps, while the matter thereof
forms part of the bed, and waters either running or stagnant;
(9) Docks and structures which, though floating, are intended by 1

their nature and object to remain at a fixed place on a river,


lake, or coast; 'z_
(1 OJ Contracts for public works, and servitudes and other real
I
J
rights over immovable property.
--~~~---------------------

16. Which of the following things are deemed to be personal property?


a. Those movables susceptible of appropriation which are not
included under Article 415 of the Civil Code
b. Real property which by any special provision of law is
considered "lS personalty
c. Forces of nature which are brought under control by science
d. All of the above

Answer: D
Reference: Art. 416 Civil Code of the----~~-----------------,
Philippines
Art. 416. The following things are deemed to be personal property:
(1) Those movables susceptible of appropn'ation which are not
included under Article 415 of the Civil Code;
(2) Real property which by any special provision of law is
considered as personalty;
(3) Forces of nature which are brought under control by science;
(4) In general, all things which can be transported from place to
place without impaim1ent of the real property to which they
are fixed.

17. Which of the following shall also be considered as personal property?


I - Obligations and actions which have for their object movables or
demandable sums
II - Shares of stock of agricultural, commercial and industrial
entities, although they may have real estate
a. Both I and II c. I only
b. Neither I nor II d. II only

Answer: A
Reference: Art. 417, Civil Code of the Philippines

6
Chapter 1: Gross Estate

18. One of the following is not an intangible personal property situated in


the Philippines.
a. Shares, obligations or bonds issued by any corporation or
sociedad anonima organized or constituted in the Philippines
in accordance with its laws
b. Shares, obligations or bonds issued by any foreign
corporation 85% of the business of which is located in the
Philippines
c. Shares, obligations or bonds issued by any foreign
corporation if such shares, obligations or bonds have acquired
business situs in the Philippines
d. Shares, obligations or bonds issued by a non-resident foreign
corporation

Answer: D
Reference: Section 104, NIRC, as amended
The shares, obligations or bonds in letter d are not classified as
intangible within the Philippines because there is no mention that
the issuing foreign corporation's business is 85% located in the
Philippines. The same shares, obligations or bonds have not also
acquired business situs in the Philippines.

19. For esta,te tax purposes, one of the following is not an intangible
personal property.
a. Accounts receivable c. Bank deposit
b. Investment in stock d. Livestock

Answer: D
Livestock is not an intangible personal property because it can be
perceived by human senses. Intangible personal property are
personal property that cannot be seen and touched. They
represent rights or pn.vileges.

20. For estate tax purposes, the rule of reciprocity applies:


I - When the decedent is a non-resident alien
II - With respect to intangible personal properties situated in the
Philippines
a. Only I is correct
b. Only II is correct
c. Both I and II are correct
d. Neither I nor II are correct

Answer: C
Reference: Section 104, NIRC, as amended

7
r
Chapter 1: Gross Estate

21. John Johnson, an American domiciled in South Africa, died in 2011.


He left the following property:
a. Rest house in Hawaii;
b. A villa in Switzerland;
c. Shares of stock in LA Corporation, USA;
d. Shares of stock in San Miguel Corporation, Philippines;
e. Shares of stock in Union Corp, a foreign corporation where
85% of its business is in the Philippines;
f. Time deposit, Philippine National Bank, Manila;
g. Lease contract over his Manhattan, New York, USA apartment
leased to the Philippine Consulate.
John Johnson's Philippine gross estate shall consist of:
a. All property enumerated above
b. Only property d, e, and f
c. Only property a, b, and d
d. None of the property enumerated above

22. Using the data in preceding question, assuming there is reciprocity,


John Johnson's Philippine gross estate shall consist of:
a. All properties enumerated above
b. Only properties d, e, and f
c. Only property f
d. None of the properties enumerated above

21. Answer: B
22. Answer: D
Reference: Section 104, NIRC, as amended
The gross estate of non-resident aliens includes properties situated
in the Philippines provided, that, with respect to intangible
personal property, its inclusion in the gross estate is subject to the
rule of reciprocity.
"xxx No tax shall be collected xxx in respect of intangible personal
property:
(a) if the decedent at the time of his death was a citizen and
resident of a foreign country which at the time of his death did
not impose a transfer tax of any character, in respect of
intangible personal property of the citizens of the Philippines
not residing in that foreign country, or
(b) ifthe laws oftheforeign country ofwhich the decedent was a
citizen and resident at the time of his death allows similar
exemption from transfer or death taxes of every character or
description in respect of intangible personal property owned
by citizens of the Philippines not resid1:ng in that foreign
country.

8
Chapter 1: Gross Estate

23. Mr. Juan Cruz, Filipino citizen, died in the United States of America
in :2011. He left the following properties:
a. House and lot, California, USA;
b. Shares of stock in PLDT, domestic corporation;
c. Bank deposit, First Bank of California, USA;
d. Bank deposit, BPI-Manila;
e. Tax-free long term Philippine Government bonds;
f. Car, registered in the name of his 21-year old son.
The Philippine gross estate shall consist of:
a. All properties enumerated above
b. All properties enumerated above except f
c. All properties enumerated above except e and f
d. Only properties a and d

Answer: B
I The gross estate of residents and citizens includes all properties,
I real or personal, tangible or intangible, wherever situated to the
extent of the interest therein of the decedent at the time of his
I death.
I

II The tax-free long term Philippine Government bonds are exempted
from income tax but not from estate tax.
I The car in letter (is not owned hy the decedent at the time of his
[ death. It is registered in the name of his 21-year old son . .

24. Case I- X transfers shares of stock toY on the condition that X shall
receive or enjoy the dividends during X's lifetime, thereafter toY or
his estate.
Case II- B makes a transfer of property in trust, income payable to
himself for six (o) years. thereafter to C or his estate. B dies before
the six (6) years lapsed.
a. Both transfers are with retention and reservation of certain
rights, hence, taxable.
b. Both transfers are exempt from estate tax.
c. The first tr2.nsfer is taxable, the second is exempt.
d. The first transfer is exempt, the second is taxable.

Answer: A
Reference: Section 85 (B), NIRC, as amended

9
Chapter 1: Gross Estate

25. One of the following is not a motive which precludes a transfer from
category of one made in contemplation of death.
a. To relieve the donor from burden of management
b. To settle family litigated and unlitigated disputes
c. To reward services rendered
d. To save on donor's and estate tax

Answer: D

26. One of the following is not included in the gross estate of a decedent.
a. Cash dividend that accrued before death
b. Shares of stock transferred in contemplation of death
c. Land held in trust but in decedent's possession before death
d. Rent income on property that accrued before death

Answer: C
Reference: Section 85 (A), NIRC, as amended -------------------,
A property held in trust is not owned by the decedent at the time of
his death.

27. The widow and children of a passenger who died in an airplane crash
were paid P3,500,000 by the airline. This figure \vas released after
negotiation between the heirs of the deceased and the insurer of the
airline, the latter having received indubitable evidence that the
deceased had a net income of P350,000 at the time of his death and
that 10 productive years would have insured financial stability for his
family. Should the heirs declare this amount in the estate tax return?
a. No. The hei1s should not declare the P3,500,000 in the estate
tax return because the amount is not part of the decedent's
property at the time of death.
b. No. The heirs should not declare the P3,500,000 in the estate
tax return because it was a result of a negotiation between the
heirs and the airline company.
c. Yes. The heirs should declare the P3,500,000 in the estate tax
return because the designation of the beneficiary is not
known, hence, revocable.
d. Yes. The heirs should declare the P3,500,000 in the estate tax
return because the amount would have been earned by the
decedent if he did not die.

Answer: A
Reference: Section 85 (A), NIRC, as amended

10
-L-------------------------------------------------------------------------------
Chapter 1: Gross Estate

.28. The following are transactions and acquisitions exempt from transfer
ta.xes except:
a. transmission from 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 usufruct in the owner of the naked title.
d. all bequests, devises, legacies or transfers to social welfare,
cultural and charitable institutions.

Answer: D
Reference: Section 87 (A), (B), (C) and (D), NIRC, as amended
Letter d is not exempted because bequests, devises, legacies or
transfers to social welfare, cultural and charitable institutions to
be exempted must satisfy two requirements:
7) The recipient institution is non-profit. hence, no part of the net
income inures to the benefit of any individual; and
2) That not more than JO"b ofthe said bequests, devises,
legacies or transfers shall be used by such institutions for
administration purposes. _________j

..29. Which of the follmdng exempt transactions \\ill still require the
inclusion of the property in the gross estate?
a. Merger of the usufruct in the owner of the naked title.
b. Bequests, devises, legacies or transfers to social welfare,
cultural and charitable institutions the administration
expenses of which do not exceed 30% of such bequests,
devises, legacies or transfers.
c. Transfer from the first heir to a second heir designated b_y the
decedent.
d. Death benefits received from SSS and GSIS.

Answer: B
Refere_!lce: Section__~7 (A), (B), (C) and (D), NIRC, as amended
The exemption of bequests, devises, legacies or transfers to social I
welfare. culturol and charitable institutions is not automatic I
because of the two requirements mentioned in the preceding
number. J

11
Chapter 1: Gross Estate

30. Case I- Y devised in his will a piece of land; naked title to B and
usufruct to C for as long as C lives, thereafter to B. The
transmission from Y to B and Cis subject to estate tax but the
merger of the usufruct and the naked title in B upon of the death of
Cis exempt.
Case II - Z devised in his will real property to his brother D who is
entrusted with the obligation to preserve and to transmit the
property toE, a son of D, when he becomes of age. The
transmission from D to his son E is subject to tax.
a. Both statements as to the taxability and non-taxability of the
transmissions are correct
b. Both statements as to the taxability and non-taxahility of the
transmissions are incorrect
c. Only the first statement as to the taxability and non-taxability
of the transmissions is correct
d. Only the second statement as to the taxability and non-
taxability of the transmissions is correct

Answer: C
Reference: Section 87 (A), (B), NIRC, as amended

31. The properties comprising the gross estate shall be valued based on
r their:
a. historical cost at the time of death.
b. adjusted cost at the time of death.
c. fair market value at the time of death.
d. book value at the time of death.

Answer: C
References: Section 88 (B), NIRC, as amended
Section 5, Revenue Regulations 2-2003

32. If the property included in the gross estate is a real property, which
shall be the fair market value?
a. Zonal value
b. Assessed value
c. Zonal value or assessed value whichever is higher
d. Zonal value or assessed value whichever is lower

Answer: C
References: Section 88 (B), NIRC, as amended
Section 5, Revenue Regulations 2-2003

12
Chapter 1: Gross Estate

33. X died in 1990 leaving a will which directed all real estate owned by
him not to be sold or disposed of for a period of ten ( 10) years after
his death and ordered that the property be given to Y upon the expiry
of the 10-year period. In 1990, the estate left by X had a fair market
\alue of Pl ,000,000. In 2002, the fair market value of said estate
increased to P3,000,000 and the Commissioner of Internal Revenue
assessed thereon estate tax based on P3,000,000.

Is the Commissioner's assessment based on P3,000,000 correct?


a. Yes. The assessment of the Commissioner is correct because
on matters of assessment he has the authority to determine
the value to be assessed.
b. No. The assessment of the Commissioner is incorrect because
the assessment should have been based on the fair market
value at the time of death which is P1,000,000.
c. Yes. The assessment of the Commissioner is correct because
it was based on the value at the time of assessment.
d. No. The assessment of the Commissioner is incorrect because
estate tax is not subject to any assessment.

Answer: B
References: Section 88 (B), NIRC, as amended
Section 5, Revenue Regulations 2-2003

~-+- \Vhich of the following value is not generally used for estate valuation
purposes'?
a. Fair market value at the time of death
b. Fair market value at the time the return is filed
c. Fair market value, assessed value or zonal value whichever is
the highest in case of real property
d. Book value, in case of common shares of stock not traded in
the local stock exchange

Answer: B
References: Section 88 (B), NIRC, as amended
Section 5, Revenue Regulations 2-2003

35. Statement I: Unlisted common shares are valued based on their


book value while unlisted preferred shares are valued at par value;
Statement II: For shares which are listed in the stock exchanges,
the fair market value shall be the arithmetic mean between the
highest and lowest quotation at a date nearest the date of death,
if none is available on the date of death itself.
a. Both I and II are correct c. Only I is correct
b. Both I C).ncl II are incorrect d. Only II is correct

Answer: A
Reference: Section 5, Revenue Regulations 2-2003

13
Chapter 1: Gross Estate

36. Mr. X died. He was survived by his wife and children. The couple
had exclusive and common properties. The gross estate of Mr. X
would include:
a. common and capital properties.
b. common and paraphernal properties.
c. common, capital and paraphernal properties.
d. common properties only.

Answer: A
Reference: Section 85 (H), NIRC, as amended
The capital of the surviving spouse of a decedent shall not, for the
purpose ofestate tax, be deemed part of his or her gross estate.

37. In the absence of a marriage settlement, or when the regime agreed


upon is void, the property relations of the spouses who married on or
after August 3, 1988 shall be governed by:
a. conjugal partnership of gains.
b. absolute community of properties.
c. complete separation of properties.
d. none of the choices.

Answer: B
References: Article 75, Family Code of the Philippines
Section 1, Revenue Re ulations 2-2003
In the absence of a marriage settlement, or when the regime
agreed upon is void, the property relations of the spouses who
married before August 3, 1988 shall be governed by conjugal
partnership of gains.

38. Under this system there is a merger of all the properties of the
husband and the wife owned by them at the time of the celebration of
the marriage, or those acquired thereafter.
a. Conjugal partnership of gains
b. Absolute community of properties
c. Complete separation of properties
d. None of the choices

Answer: B
Reference: Comments on Art. 75, Family Code of the Philippines
Annotated, Dean Ernesto L. Pineda

14
Chapter 1: Gross Estate

39. Under this system the spouses retain the ownership of the property
\Yhich they respectively brought to the marriage as well as those they
acquired during the marriage by gratuitous title or by right of
redemption, barter or exchange with separate property and those
,,hich they purchased with their own money.
a. Conjugal partnership of gains
b. Absolute community of properties
c. Complete separation of properties
d. None of the choices

Answer: A
Reference: Comments on Art. 75, Family Code of the Philippines
Annotated, Dean Ernesto L. Pineda

-tO. Properties owned before marriage and brought into the marriage are
generally classified as:
I - conjugal properties under conjugal partnership of gains.
II- exclusive properties under absolute community of properties.
a. Only I is correct c. Both I and II are correct
b. Only II is correct d. Both I and II are incorrect

Answer: D
References: Art. 91, Family Code of the Philippines
Art. 109 (1), Family Code of the Philippines

41. The net fruits as \\ell as the mcome received during the marriage
from the exclusi,e properties of the spouses are classified as:
I - conjugal properties vnder conjugal partnership of gains.
IJ- exclusive properties under absolute community of properties.
a. Only I is correct c. Both I and II are correct
b. Only II is correct d. Both I and II are incorrect

Answer: C
References: Art. 92 (1) & (3), & Art. 117 (3) Family Code of
the Philippines

42. During their last anniversary, the wife bought an expensive coat for
her husband using salary she earned during the marriage. Shortly
thereafter, the husband died. For Philippine estate tax purposes, the
expensive coat shall be classified as:
a. common property.
b. exclusive property of the husband-decedent.
c. exclusive property of the wife-surviving spouse.
d. exclusion from the gross estate.

15
Chapter 1: Gross Estate

Answer: B
Reference: Art. 92 (2), Family Code of the Philippines

43. The communitv properties shall consist of all property owned by the
spouses at the time of the celebration of the marriage or acquired
thereafter. One of the follm\ ing, however, is not a community
property.
a. Properties inherited by the spouses before the marriage
b. Properties acquired by th<~ spouses as donation bt>fore the
marriage
c. Properties acquired using the salary earned by either spouse
before the marriage
d. Properties acquired before marriage bv either spouse who had
legitimate descendants by a former marriage

Answer: D
References: Art. 91, Family of the Philippines
Art. 92 (3), Family Code of the Philippines
Arl. 92 (Family Code). The following shu/lbe excluded from the -,1.
community property:
I

1 (1) Property acquired during the marriage by gratuitous title by


either spouse, and thefmits as well as the income thereof, if
I any, unless it is expressly provided by the donor, testator, or

~
grantor that they shall fonn part of the community property; ,:1

(2} Property for personal and exclusive use of either spouse:


fcFO ph-U i':t:
J:1QJA.l.f:_l!_ei.,_)fw~liif.'sha1Lfonn part of the community property; l
:/'':~- ;_;4-t~~~
(3) Property acquired before the marriage by either spouse Luho 1

has legitimate descendants by a jom1er marriage, and the .II

fmits as well as the income, if any, of such property. ~

44. During the engagement ceremony before their marriage, the man
gifted his woman an expensive diamond necklace. The necklace was
for the exclusive use of the woman. How would this necklace be
classified for Philippine estate tax purpose, assuming the man died
and was survived by the woman and they were under absolute
community of properties?
a. Communal property
b. Exclusive property of the decedent
c. Exclusive property of the surviving spouse
d. Excluded from the gross estate

Answer: A
Reference: Art. 92 (2), Family Code of the Philippines

16
Chapter 1: Gross Estate

45. Under conjugal partnership of gains, which of the following is an


exclusive property?
a. Property acquired during the marriage using common fund for
the exclusive use of one of the spouses
b. Properties acquired through occupation such as fishing or
hunting
c. Properties acquired during the marriage by gratuitous title
d. Properties acquired by chance, such as winning from
gambling or betting

Answer: C
References: Art. 109 (2), Family Code of the Philippines
I -l
I Art. 109 (Family Code) The following shall be an exclusive property
i of each spouse:
(1) That which is brought to the marriage as his or her own;
(2) That which each acquires during the marnage by gratuitous
title;
(3) That which is acquired by right of redemption, by barter, or by
exchange witt'1 property belonging to only one of the spouses;
and
(4) That which is purchased with exclusive money of the wife or of
the husband.
i
I Art. 11 7 {Family Code) The following are conjugal partnership
I: propertzes:
(1) Those acquired by onerous title during the marriage at the
i expense ofthe common fund, whether the acquisition be for
the partnership, or for only one of the spouses;
I (2) Those obtained from the labor, industry, work or profession of
1

I either or both spouses;


; (3) The fruits, natural, industrial, or civil, due or received during
1 the marriage from the common property, as well as the net
1 fruits from the exclusive property of each spouse;
I (4) The share of either spouse in the hidden treasure which the
law awards to the finder or owner ofthe property where the
I treasure is found;
(5) Those acquired through occupation such as fishing or hunting:
(6) Livestock existing upon the dissolution of the partnership in
I excess of the number of each kind brought to the marriage by
either spouse; and
I (7) Those which are acquired by chance. such as winmngs from
1
1 gambling or betting. However, losses therefrom shall be borne
I, exclusively by the loser-spouse.
L__________ _

17
Chapter 1: Gross Estate

46. Are properties acquired during the marriage by the spouses


presumed to belong to the common property, unless they are proven
to be excluded therefrom?
A. Yes, under conjugal partnership of gains;
B. Yes, under absolute community of properties.
a. Both answers are correct c. Only A is correct
b. Both answers are incorrect d. Only B is correct

Answer: A
References: Art. 93, Family Code of the Philippines
Art. 116, Family Code of the Philippines

4 7. Estate taxation is governed by the statute in force at the time:


a. of death of the decedent.
b. the executor or administrator shall have qualified.
c. the return is filed.
d. the heirs are known.

Answer: A
Re(erence: Sec. 3, Revenue Regulations 2-2003

48. Statement I: The estate tax accrues as of the death of the decedent
and the accrual of the tax is distinct from the obligation to pay the
same.
Statement II: Upon the death of the decedent, succession takes place
and the right of the State to tax the privilege to transmit the estate
vests instantly upon death.
a. Both I and II are correct c. Only I is correct
b. Both I and II are incorrect d. Only II is correct

Answer: A
Reference: Sec. 3, Revenue Regulations 2-2003

18
Chapter 2
DEDUCTIONS FROM GROSS ESTATE
"&oaai[( ncrergice )'OU a dream witfiout gzcing you
tlie a6iHty and qua(i_ficutions to accompHsfi tfi,zt dream. "-)ltzonymous

Multiple Choice: Choose the best possible answer.

Statement 1: Any amount for funeral expenses that exceed the


P200,000 threshold, whether the same had actually been paid or
still payable, shall not be allowed as a deduction from the gross
estate.
Statement 2: The unpaid portion of the funeral expenses incurred
which is in excess of P200,000 threshold shall not be allowed as a
deduction under "claims against the estate''.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

Answer: C
Reference: Section 6 (A) ( 1), Revenue Regulations 2-2003

2. The deductible funeral expenses shall be the actual funeral expenses


(\Yhether paid or unpaid) up to the time of interment, or an amount
equal to 5% of the gross estate, whichever is lower, but in no case to
exceed:
a. P 100,000. c. p 500,000.
b. p 200,000. d. p 1,000,000.

Answer: B
References: Section 86 (A) (1) (a), NIRC, as amended
. Section 6 (A) ( 1), Revenue Regulations 2-2003

3. The follov,ing data are presented to enable you to compute the


deductible funeral expenses.
Gross estate p 1,000,000
Actual funeral expenses 70,000
The deductible funeral expense is:
a. P 200,000. c. p 70,000.
b. p 100,000. d. p 50,000.

19
r

Chapter 2: Deductions from Gross Estate

Answer: D

Actual funeral expenses p J_Q,_Q_QQ


Limit (Pl,OOO,OOO X 5%) p =20..flQ_Q
Allowed (lower) ___ ~_Q~QQJ2

4. Given the following data:


5% of gross estate p 100,000
Amount of actual funeral expenses
(P20,000 still unpaid) 150,000
How much shall be allowed as deduction from gross estate?
Funeral expenses Claims against the estate
a. P 150,000 P 50,000
b. p 130,000 p 20,000
c. P 130,000 Zero
d. P 100,000 Zero

Answer: D
References: Section 86 (A) (1) (a), NIRC, as amended
,--------S_ection 6 (A) (1), Revenue Regulations 2-2003
The deductible funeral expenses shall be the actualfunera:J
expenses (whether paid or unpaid) up to the time of interment, or
an amount equal to five per cent (5%) of the gross estate,
whicheuer is lower, but in no case to exceed ?200, 000.

5. The gross estate left by the decedent amounted to P5,000,000.


The actual funeral expenses paid for from the estate by the
administrator amounted to P300,000. How much was the deductible
funeral expenses?
a. P300,000 c. P200,000
b. P250,000 d. PlOO,OOO

Answer: C

Actual funeral expenses p 300,000


Limit (P5, 000,000 X 5%) p 250,000
Allowed (maximum) E~2QO~Qf}_Q

20
Chapter 2: Deductions from Gross Estate

6. The following were incurred in connection with the wake and burial
of a decedent:
Mourning clothing of grandchildren p 10,000
Mourning clothing of the decedent's married children 15,000
Expenses of the wake preceding the burial 30,000
Publication charges for death notices 5,000
Telecommunication expenses incurred in informing
relatives of the deceased 3,000
Cost of the three (3) burial plots (one was used as
burial site of the decedent) 30,000
Interment fees and charges 12,000
Expenses for the performance of the rites and
ceremonies incident to interment 5,000
Expenses incurred for prayers after the interment 3,000
Medical expenses of the last illness 50,000
The value of the gross estate vvas P2,000,000.
The deductible funeral expenses should be:
a. P200,000. c. p 90,000.
b. PIOO,OOO. d. p 65,000.

Answer: D
Expenses of the wake preceding the burial p 30,000
Publication charges for deatb. notices 5,000
Telecommunication expenses incurred in
irtjom1ing relatives ofthe deceased 3,000
Cost of the three (3) burial plots (one was used
as burial site of the decedent) (P30,000/ 3) 10,000
Intemlentfees and charges 12,000
Expenses for the performance of the rites and
ceremonies incident to intemwnt 5 000
Total actual funeral expenses p 65,000
Limit (?2, 000, 000 X 5?a} p 100,000

Allowed (lower) P _65._QOO

7. Which of the following will not be included in the term "funeral


expenses"?
a. Upkeep of the burial plot, tombstones, monument or
mausoleum
b. Expenses incurred after interment, such as for prayers, masses,
entertainment, or the like
c. Any portion of the funeral and burial expenses borne or
defrayed by relatives and friends of the deceased
d. All of the above

21
Chapter 2: Deductions from Gross Estate

Answer: D
Reference: Section 6 (A) ( 1), Revenue Regulations 2-2003
The term "FUNERAL EXPENSES" is not confined to its ordinary
or usual meaning. They include:
{a) The mourning apparel of the surviving spouse and unmamed
minor children of the deceased bought and used on the
occasion ofthe burial;
{b) Expenses for the deceased's wake, including food and drinks;
{c) Publication charges for death notices;
(d) Telecommunication expenses incurred in informing relatives of
the deceased;
{e) Cost of burial plot, tombstones, monument or mausoleum but
not their upkeep. In case the deceased owns a family estate
or several burial lots, only the value corresponding to the plot
where he is buried is deductible;
(f) Interment and/ or cremation fees and charges; and
{g) All other expenses incurred for the perfonnance of the rites
and ceremonies incident to interment.
Expenses incurred after the interment, such as for prayers,
masses, entertainment, or the like are not deductible. Any portion
of the funeral and burial expenses borne or defrayed by relatives
and friends ofthe deceased are not deductible.
Medical expenses as of the last illness will not form part of the
funeral expenses but should be claimed under "Medical
Expenses". _ _ _ ___j

8. First statement: The deductible judicial expenses are those incurred


during the settlement of the estate but not beyond the last day
prescribed by law, or the extension thereof, for the filing of the
estate tax return.
Second statement: Any unpaid amount for the cost and expenses
claimed under "judicial expenses" should be supported by a sworn
statement of account issued and signed by the creditor.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
Reference: Section 6 (A) (2), Revenue Regulations 2-2003

22
Chapter 2: Deductions from Gross Estate

9. Which of the follmving incurred expenses shall not be deducted under


the category of judicial expenses?
a. Expenses for the inventory-taking of the assets comprising the
gross estate
b. Expenses for the administration and payment of debts of the
estate
c. Expenses for the distribution of the estate among the heirs
d. Expenses a<> of the last illness of the decedent

Answer: D
Reference: Section 6 (A) (2), Revenue Regulations 2-2003
Judicial expenses may include:
(a) Fees of executor and administrator;
(b) Attorney's fees;
(c) Court fees;
(d) Accountant's fees;
(e) Appraiser's fees;
(f) Clerk hire;
(g) Costs of preserving and distributing the estate;
(h) Costs of storing or maintaining prope11y of the estate; and
(i) Brokerage fees for selling property of the estate.
----------------~

10. One of the following is not a requisite for deduction from gross estate
of losses.
a. Losses are incurred during the settlement of the estate arising
from fires, storms, ship\\Teck, or other casualties, or from
robbery, theft or embezzlement.
b. Losses are not compensated for by insurance or otherwise.
c. Losses have been claimed as a deduction for the income tax
purposes in an income tax return. .
d. Losses are incurred not later than the last for the payment of
the estate tax.

Answer: C
References: Section 86 (A) ( 1) (e), NIRC, as amended
Section 6 (A) (5) (c), Revenue Regulations 2-2003
~-------------------~-

: Letter__s: is not a requirement. It shall be "At the time ofthefiling of


i the estate tax return such losses have not been claimed as a
: deduction for the income tCL'( purposes in an income tax return."
L _ __ _ , _ - ------------ ---------------------------------'

23
...
r Chapter 2: Deductions from Gross Estate

11. (Phil. CPA) Y, a Filipino resident, died on November 5, 2003, and his
estate incurred losses:
First loss: from fire on February 2, 2003 of improvement on his
property, not compensated by insurance;
Second loss: from flood on February 25, 2004 of household furniture
also not compensated by insurance.
a. First loss is not deductible. but second loss is deductible
b. Both losses are not deductible from the gross estate
c. Both losses are deductible from the gross estate
d. First loss is deductible, but second loss is not deductible

Answer: A

12. Which of the following losses incurred during the settlement of the
estate shall be deductible from the gross estate?
I - Losses arising from fires, storms, ship\\reck, or other casualties
II - Losses from robbery, theft or embezzlement
a. I and II c. II only
b. I only d. Neither I nor II

Answer: A

13. (Phil. CPA) The following are the requisites in order for claims
against the decedent's estate to be deductible. except which one?
a. They must be existing against the estate.
b. They must be reasonably certain as to amount.
c. They must have been prescribed.
d. They must be enforced by the claimant.
I

f Answer: C
;
Reference: Section 6 (A)(3)(i), ~evenue Regulations 2-2_0_0_3 _ __
~ites for deductibility of claims against the estate:
I {~}-'rh~ liability represents a personal obligation of the deceased
existing at the time of his death (except unpaid funeral
expenses and unpaid medical expenses which are classified
under different category of deductions}; .
(b) The liability was contracted in good faith and for adequate and
full consideration in money or money's w011h;
I The claims must be a debt or claim which is valid in law and
(c)
I enforceable in court;
. (d) The indebtedness must not have been condoned by the creditor

1
I
or tl:e actwn to collect from the decedent must not ilave I
1

l_ _ prescribed~--~- ___ ------------ _ _ _ _ _ _ _ _j

24
Chapter 2: Deductions from Gross Estate

14. Claims against the estate or indebtedness with respect to property


may arise out of the following:
I - contract;
II - tort;
III - operation of law.
a. I, II and Ill c. II and III only
b. I and II only d. III only

Answer: A
Reference: Section 6 (A)(3), Revenue Regulations 2-2003

15. In case of a simple loan, which of the following requirements/


documents need to be complied with or submitted?
I - Debt instrument duly notarized at the time the indebtedness
was incurred;
II - Duly notarized Certification from the creditor as to the unpaid
balance as of the time of death;
III - Proof of financial capacity of the creditor to lend the amount at
the time the loan \vas granted, as well as its latest audited
balance sheet v,;ith a detailed schedule of its receivable showing
the unpaid balance of the decedent-debtor;
IV - A statement under oath executed by the administrator or
executor of the estate reflecting the disposition of the proceeds
of the loan if said loan was contracted within three (3) years
prior to the death of the decedent.
a. I, II, III and IV c. III and IV only
b. I and II onlv d. I and IV only

Answer: A
Reference: Section 6 (A) (3) (ii), Revenue Regulations 2-2003

16. Nati Guok died on June 30, 2011, leaving among others,
the follmving charges and obligations:
Real property tax for the calendar year 2011 p 50,000
Notarized interest bearing promissory note 60,000
Accrued interest on the promissory note
at the time of death 2,000
Interest to accrue on tht> promissory note
from the date of death to the date of maturity 500
How much were the deductions from the gross estate?
a. Pl 12,500 c. PllO,OOO
P1 12,0W1 d. p 62,500

25

~--------------------------------------------------------
Chapter 2: Deductions from Gross Estate

Answer: A
Real. property tax for the colendar year 2011 p 50,000
Notarized interest beanng promissory note 60.000
Accrued interest on the promissory note
m the time of death 2,000
Interest to arcme on the promissory note from
the date of death to the date of matunty . sou
Total deductions f_J~~~Q

Real property tax accrues at the start oftlte year which may
be payable quarterly. Interest to accrue on the promissory note
from the date of death to the date ofmatun'ty is part of a
personal obligation of the deceased existing at the time of his
death.

17. You were appointed by court as an administrator of the Estate of N.A.


Mete. N.A. Mete died on March 15, 2011. The following unpaid taxes
were presented to you:
Unpaid real estate tax for the second, third
and fourth quarters of 2011 p 90,000
Unpaid tax on the income received by the
estate of N .A. Mete 20,000
Estate tax on the Estate of N.A. Mete 50,000
Unpaid tax on income received by N.A. Mete
for the period January 1 to March 14, 2011 3,000
Ho\\. much should be the deductible unpaid taxes?
a. Pl63,000 c. P 90,000
b. P 93,000 d. None

Answer: B
Unpwcl real estate tux for tile second, third
andfourth quorters of20 11 p 90,000
Unpaid tax 011 income recei11ed by N.A. Mete
for the period Jonuury 1 to March 14, 2011 3 000
Deductible unpnirl tcvces

18. Which of the following taxes is not deductible from the gross estate?
a. Income tax paid on income received before death
b. Property tax accrued prior to death
c. Estate tax paid to a foreign country
d. Donor's tax accrued prior to death

26
Chapter 2: Deductions from Gross Estate

Answer: C
Reference: Section 6 (A)(S}(b), Revenue Regulations No. 2-2003
The value of the net estate shall be determined by deducting from
the value ofthe gross estate taxes which have accrued as ofthe
death of the decedent which u;ere unpaid as of the time of death.
This deduction will not include income tax upon income receiued
after death, or property taxes not accrued before his death, or the
estate tax due from the transmission of his estate.

~ 9. Which of the following taxes shall be deductible from the gross estate
of the decedent?
a. Income tax for income received after death
b. Income tax for income received before death
c. Property taxes not accrued before his death
'\. d. Estate tax due from the transmission of his estate
s
Answer: B
Reference: Section 6 (A)(S)(b), Revenue Regulations No. 2-2003

20. Which of the follovYing statements is incorrect? A claim against an


insolvent person, which is not collectible in full:
a. is included in the gross estate.
b. is not included in the taxable net estate.
c. must be notarized if arising out of a debt instrument of the
insolvent.
d. needs no preliminary filing of a case against the insolvent.

Answer: C
References: Section 86 (A) (1) (d), NIRC, as amended
Section 6 (A) (4), Revenl!_~~:g~_&!J.lations No. 2-2003
The value of the net estate shall be detemnned by deducting from
the value ofthe gross estate claims ofthe deceased against
insolvent persons where the value ofthe decedent's interest
therein is included in the ualue ofthe gross estate. '

The requirement for notarization of debt instrument is for the I


deductibility ofthe "claims against the estate". __j
-----

27
,
Chapter 2: Deductions from Gross Estate

21. The following selected data were taken from the Estate of Ed Sados:
Claim against an insolvent person
(fully uncollectible) P 500,000
Claim against a person vvho absconded
(fully uncollectible) 300,000
Claim against an insolvent person
(20% collectible) 100,000
How much should be included in and deducted from the gross
estate? ,
Amount to be included Amount to be deducted
a. P900,000 P580,000
b. P900,000 P880,000
c. P400,000 PlOO,OOO
d. PlOO,OOO p 80,000

Answer: A
Amounts to be
Included Deducted
Claim against an insoluent
person (fully uncollectible) p 500,000 p 500.000
Claims against a person who
absconded (fully uncollectible) 300,000
Claims against insoluent person
(20% collectible) 1 00 000 80 000
Total f:c=9/]~()Q_Q [~ __58Q.J,IOJ2

The full value of the claims against insolvent persons are


included in the gwss estate whether fully or partially
uncollectible. The deduction allowedfrom the gross estate is the
uncollectible amount.
Claims against persons who absconded are also included in
but cannot be deducted from the gross estate because the
persons who absconded are not insolvent. The insolvency ofthe
debtors must not be merely alleged but must be factual.

22. A piece of land was included in the gross estate at a value of


P2,000,000. Upon closer examination, you found out that the value
used was net of P500,000 unpaid mortgage on the same land.
How much should have been included and deducted from the gross
estate?
Amount to be included Amount to be deducted
a. P2,500,000 P500,000
b. P2,000,000 P500,000
c. P2,000,000 None
d. Pl,500,000 None

28
Chapter 2: Deductions from Gross Estate

Answer: A
References: Section 86 (A) (1) (e), NIRC, as amended
Section 6 (A) (5) (a), Revenue Regulations No. 2-2003

23. A real property ovvned by the decedent was acquired for Pl ,000,000.
Its fair market value was Pl,SOO,OOO at the time of the decedent's
death. Said property was mortgaged for P300,000 which remained
unpaid at the time of death. For estate tax purposes, what value
would be included in the gross estate of the decedent?
a. PI ,000,000 c. Pl,500,000
b. Pl ,200,000 d. None of the choices

Answer: C
References: Section 86 (A) (1) (e), NIRC, as amended
_~______ection 6 (A) (5) (a), Revenl!_~Re ulations No. 2-2003
The value of the net estate shall be determined by deducting from
the value ofthe gross estate unpaid mortgages upon, or any
rindebtedness in respect to, property where the value ofthe
decedent's interest therein, undiminished by such mortgage or
indebtedness, is i'1cluded in the value ofthe gross estate.
The deduction herein allowed in case of claims against the estate,
1
unpaid mortgage or any indebtedness shall, when founded upon a
1 promise or agreement, be limited to the extent that they were
. contracted bona [ide and [or an adequate and full consideration in
iI money or money's worth. '

24. First statement: In case unpaid mortgage payable is being claimed by


the estate, verification must be made as to who was the beneficiary
of the loan proceeds.
Second statement: If the loan is found to be merely an
accommodation loan where the loan proceeds went to another
person. the value of the unpaid loan must be included as a
receivable of the estate.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
Reference: Section 6 (A) (5), Revenue Regulations No. 2-2003

29

~----------------------------------------
Chapter 2: Deductions from Gross Estate

25. First statement: If there is a legal impediment to recognize the


accommodation loan as receivable of the estate, the unpaid i
obligation or mortgage payable shall not be recognized as a

I
deduction from the gross estate.
Second statement: In all instances, the mortgaged property,
to the extent of the decedent's interest therein, should always form
part of the gross taxable estate.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
Reference: Section. 6 (A) (5), Revenue Regulations No. 2-2003

26. First statement: An oral transfer to the National Government


exclusively for public purposes to take effect after the decedent's
death is deductible from the gross estate.
Second statement: In case of non-resident alien decedents, deduction
for transfer for public purposes from the gross estate is allowed
only when the property transferred is situated in the Philippines.
a. True, True c. True, False
b. False, False d. False, True

Answer: D
References: Section 86 (A) (3), NIRC, as amended
Section 86 (B) (3), NIRC, as amended

27. (Phil. CPA Modified) The following are the requisites for vanishing
deduction to be allO\'-'able, except one.
a. The estate tax of the prior succession must have been finally
determined and paid.
b. The present decedent died within five (5) years from date of
death of the prior decedent.
c. The property with respect to which deduction is sought can be
identified as having been received by the present decedent
from the prior decedent.
d. The property must have formed part of the gross estate
situated outside the Philippines of the prior decedent.

Answer: D
Reference: Section 86 (A) (2), NIRC, as amended

30
Chapter 2: Deductions from Gross Estate

.28. (Phil. CPA) Rudolfo, a citizen of the Philippines and resident of


Bacolod City, died testate on May 10, 1991. Among his gross estate
\\ere properties inherited from his deceased father who died on
April 4, 1988. What percentage of the deduction would be used in
computing the amount of vanishing deduction?
n a. 80% b. 60% c. 40% d. 20%

Answer: C
Reference: Section 86 (A) (2), NIRC, as amended
YY-MM-DD
Date of present decedent's death 1991-05-10
Date of prior decedent's death 1988-04-04
Distance between two (2) deaths 3-01-06
More than 3 years but not more than
4 years 40%
Deduction for property previously taxed in an amount equal to:
One hundred percent (1 00%) of the value, if the prior decedent
died within one (1) year prior to the death of the decedent, or if
m the property was transferred to him by gift within the same
period prior to his death;
Eighty percent (80%) of the value, if the prior decedent died
more than one (1) year but not more than two (2) years prior to
the death o_fthe decedent, or if the property was transferred to
him by gift within the same period prior to his death;
Si:dy percent (606) of the value, if the prior decedent died more
than two (2) years but not more than three (3) years prior to the
death of the decedent, or ifthe property was transferred to him
by gift within the same period prior to his death;
Forty percent (40%) of the value, if the prior decedent died more
than three (3) years but not more than four (4) years prior to the
death of the decedent, or if the property was transferred to him
by gift within the same period prior to his death;
Twenty percent (20%) of the value, if the prior decedent died
more than four (4) years but not more them five (5) years prior to
the death of the decedent, or if the property was transferred to
him by gift within the same period prior to his death;

31
Chapter 2: Deductions from Gross Estate

29. An unmarried decedent died leaving properties he inherited


4 Y2 years ago which had fair market value of P800,000 at the time of
his death (P650,000 at the time of inheritance, and unpaid mortgage
of P50,000 paid by the present decedent). Other properties in his
gross estate had fair market value of P1 ,000,000. The total expenses,
losses, indebtedness, taxes and transfer for public purpose amounted
to P300,000.
How much was the vanishing deduction?
a. P 500,000 c. p 200,000
b. p 225,000 d. p 100,000

Answer: D
Value to take p 650,000
Less: Mortgage paid 50 000
Initialbasis 600.000
Less: Proportional deduction
(P600,000/ PI ,800,000 X P300,000) 100.000
Final basis 500,000
Rate 20"o
Vanishing deduction

30. First statement: R.A. No. 4917 provides that retirement benefits given
to employees of private firms shall not be subject to attachment,
levy, execution, or any tax whatever.
Second statement: Any amount received by the heirs from the
decedent's employer as a consequence of the death of decedent-
employee in accordance with R.A. No. 4917 is allowed as deduction
provided that the amount of the separation benefit is included as
part of the gross estate of the decedent.
a. True, True c. True, False
b. False, False d. False, True

Answer: A
Reference: Section 86 (A) (7), NIRC, as amended

31. First statement: The value of the net estate shall be determined by
deducting from the value of the gross estate an amount equivalent
to the current fair market value of the decedent's family home,
provided, that if the said current fair market value exceeds
Pl,OOO,OOO, the excess shall be subject to estate tax.
Second statement: As a sine qua non condition for the exemption or
deduction, the family home must have been the decedent's family
home as certified by the Barangay Captain of the locality.
a. True, True c. True, False
b. False, False d. False, True

32
Chapter 2: Deductions from Gross Estate

Answer: A
Reference: Section 86 (A) (4), NIRC, as amended
Section 6 (D), Revenue Regulations No. 2-2003

32 First statement: The family home is deemed constituted on the house


and lot from the time it is actually occupied as a family residence
and is considered as such for as long as any of its beneficiaries
actually resides therein.
Second statement: Actual occupancy of the house or house and lot as
the family residence shall not be considered interrupted or
abandoned in such cases as the temporary absence from the
constituted family home due to travel or studies or work abroad, etc.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
Reference: Section 6 (D), Revenue Regulations No. 2-2003

33. For purposes of availing of a family home deduction to the extent


allowable, a person may constitute:
a. as many family homes as possible.
b. only one family hnJ""
c. one family home fo; each spouse.
d. one family for each child.

Answer: B
Reference: Section 6 (D), Revenue Regulations No. 2-2003

34. The beneficiaries of a family home are:


I - The husband and \Vife, or the head of a family.
II -Their parents, ascendants, descendants including legally
adopted children, brothers and sisters, whether the relationship
be legitimate or illegitimate, who are living in the family home
and who depend upon the head of the family for legal support.
a. Both I and II are correct c. Only I is correct
b. Both I and II are incorrect d. Only II is correct

Answer: A
Reference: Section 6 (D), Revenue Regulations No. 2-2003

33
Chapter 2: Deductions from Gross Estate

35. The following real properties were owned b.\ a decedent, he~d of
family, who was a Filipino citizen at the time of his death:
Vacation house, USA P 2,000,000
Beach house, Bohol 1,500,000
House and lot (family home), Masbate 900,000
House and lot (dwelling place \'~<hen in
the city), Manila 2,500,000
How much should be included in and deducted from the gross
estate?
Amount to be included Family home deduction
a. p 6,900,000 p 1,000,000
b. p 4,900,000 p 1,000,000
c. p 6,900,000 p 900,000
d. p 900,000 p 900,000

Answer: C
Vacation house, USA p :2,000,000
Beach house, Bohol 1,500,000
House and lot (family home), Masbate goo,ooo
House and lot (dwelling place when in
the city), Manila 2 500 000
Total amount to be included ~~Q~_Q_Q
Family home deduction P -~.2cili1D_Q_Q

36. The actual residential home of the decedent and his family at the
time of his death, as certified by the Barangay Captain of the locality
where the family home is situated has a fair market value of
P1,500,000. The family home is part of the common property of the
spouses. How much is the family home deduction?
a. Pl ,500,000 c. P750,000
b. P1,000,000 d. P500,000

Answer: C

Amount declared in the gross estate p 1,500,000


Extent of the decedent's interest p 750 000
Lower amount p 750 000
Maximum family home deduction p 1,000,000
Family home deduction p 750.000

34
Chapter 2: Deductions from Gross Estate

3-. Which of the following statements is incorrect in connection with


family home deduction?
a. Family home deduction shall be allowed only if such family
home is situated in the Philippines
b. The total value of the family home must be included as part of
the gross estate of the decedent
c. For purposes of availing family home deduction, a person may
constitute only one family home
d. Family home deduction may not be lower than Pl,OOO,OOO

Answer: D
Reference: Section 6 (D), Revenue Re ulations No. 2-2003
Conditions for the allowance of FAMILY HOME as deduction from
the gross estate:
1. The family home must be the actual residential home of the
decedent and his family at the time of his death, as certified by
the Barangay Captain ofthe locality where the family home is
situated;
2. The total value of the family home must be included as part of
the gross estate; and
3. Allowable deduction must be in an amount equivalent to the
current fair market value of the family home as declared or
included in the gross estate, or the extent of the decedent's
interest (whether conjugal/ community or exclusive property),
whichever is lower, but not exceeding P 1, 000, 000.

~~5. The actual residential home of the decedent and his family at the
:::ne of his death, as certified by the Barangay Captain of the locality
,\here the family home is situated, has a fair market value of
P3.000,000. The family home is part of the common property of the
S?QUSes. How much is the family home deduction?
a. Pl ,500,000 c. P750,000
b. Pl,OOO,OOO d. PSOO,OOO

Answer: B
Amount declared in the gross estate p 3,000,000
Extent of the decedent's interest
(PJ,OOO,OOO X 1/2} p 1,500,000
Lower amount p 1,500,000
.l!aximumfamily home deduction p 1,000,000
Family home deduction P 1 OOQJ)OO

35
r

Chapter 2: Deductions from Gross Estate

39. The actual residential home of the decedent and his family at the
time of his death, as certified by the Barangay Captain of the locality
where the family home is situated, has a fair market value of
P500,000. The family home is part of the exclusive property of the
decedent. How much is the family home deduction?
a. P1,500,000 c. P750,000
b. Pl,OOO,OOO d. P500,000

Answer: D
Amount declared in the gross estate p 500 000
Extent of the decedent's interest p sao ooo
Maximum family home deduction p 1,000,000
Family home deduction p 50Q,OOO

40. The fair market value of the family home which is partly exclusive
and partly common is as follows:
Family lot (exclusive) p 500,000
Family house (common) 900 000
Total ~.OQJKJO

How much is the deductible amount for family home?


a. Pl ,400,000 c. P950,000
b. Pl,OOO,OOO d. P700,000

Answer: C
Extent of the decedent's interest in the
family lot p 500,000
Extent of the decedent's interest in the
family house (?900?000 X 1/2) 450 000
Total p 950 000
Maximum family home deduction p 1 000 000
Family home deduction P 950,QOO

41. Which of the following statements is incorrect regarding standard


deduction?
a. A deduction in the amount of Pl,OOO,OOO shall be allowed as
an additional deduction without need of substantiation.
b. The full amount of Pl ,000,000 shall be allowed as deduction
for the benefit of the decedent.
c. Standard deduction is a deduction from the conjugal or
community properties of married decedents.
d. Standard deduction is not allowed to decedents who are non-
resident aliens.

36
Chapter 2: Deductions from Gross E?tate

Answer: C
y References: Section 86 (A) (5), NIRC, as amended
Section 6 (E), Revenue Regulations No. 2-2003

One of the following is not deductible .lS medical exrpenses.


a. Cost of medicine c. Doctorls fees
b. Hospital bills d. None Of the choices

Answer: D
Reference: Section 6 (F), Revenue Regulations No. 2-2003

.c,.:: ::-~e \alue of the net estate shall be determined by deducting from the
_ I:"' of the gross estate all medical expenses:
incurred (whether paid or unpaid) within one (1) year before the
death of the decedent;
~~ - duly substantiated with official receipts for services rendered by
the decedent's attending physicians, invoices, statements of
account duly certified by the hospital, and such other
documents in support thereof;
=: - the total amount thereof, \vhether paid or unpaid, does not
exceed PSOO,OOO.
a.. Only I and II and correct
J. Only III is correct
c. Only I and Ill are correct
d. I, II and III are correct

ADswer: D
References: Section 86 (A) (6), NIRC, as amended
Section 6 (F), Revenue Regulations No.2-2003

"'-' S:-:::.rement I: If the actual amount of medical expenses incurred is


?250,000, then only P250,000 shall be allowed as deduction and
:wt to the extent of the P500,000 threshold amount;
S~a:ement II: If the actual amount of medical expenses incurred
'.\-ithin the year prior to decedent's death is P600,000, only the
rr:.aximum amount of P500,000 shall be allowed as deduction.
If in case the excess of PlOO,OOO (P600,000- P500,000) is still
unpaid, such amount shall not be allowed to be deducted from the
gross estate as "claims against the estate".
a. Both I and II are correct c. Only I is correct
b. Both I and II are incorrect d. Only II is correct

Answer: A
Reference: Section 6 (F), Revenue Regulations No. 2-2003

37
Chapter 2: Deductions from Gross t::state
--------------------------------------

45. One of the following is not allovved as deduction from the gross estate
of a non-resident alien decedent.
a. Vanishing deduction c. Medical expenses
b. Share of surviving spouse d. Transfer for public use

Answer: C
Reference: Section 7, Revenue Regulations No. 2-2003

46. All of the following are allowed as deductions !'rom the gross estate of
a non-resident alien, but are prorated betw~en Philippine gross estate
and the total or ,.,orld gross estate, except:
a. funeral expenses.
b. claims against the estate.
c. unpaid taxes.
d. transfers for public purpose.

Answer: D
Reference: Section 7, Revenue Regulations No. 2-2003
The value of the net estate of a decedent who is a non-resident
alien in the Philippines shall be determined by deducting from the
value of that part of his gross estate which at the time of his death
is situated in the Philippines the following items of deductions:
(1) Expenses, losses, indebtedness and tax:es- xxx
Philippine gross estate
---------------------------------- X Expenses, loss('s. indebtedness & tcoces I
World gross estate !'
(2) Property previously taxed;
(3) Transfers for public use;
(4) Net share of the surviving spouse in the conjvgal property or I
community property. ____j

47. The value of the net estate of a decedent who is a non-resident alien
in the Philippines shall be determined by deducting from the value of
that part of his gross estate which at the time of his death is situated
in the Philippines the following items of deduction:
I - that proportion of the total expenses, losses, indebtedness, and.
taxes which the value of such part bears to the value of his
entire gross estate wherever situated;
II - property previously taxed or vanishing deduction;
III - transfer for public use;
IV - net share of the surviving spouse in the conjugal property or
community property.
a. All of the above are deductible
b. None of the above is deductible
c. Only I, II, and III are deductible
d. Only I and II are deductible

38
Chapter 2: Deductions from Gross Estate
------------------------------------~

Answer: A
Reference: Section 86 (B) (1), (2), and (3), NIRC, as amended

48. First statement: No deduction shall be allowed in the case of a non-


resident decedent \Vho is not a citizen of the Philippines, unless the
executor, administrator, or anyone of the heirs, as the case may be,
includes in the rPturn required to be filed under the Tax Code,
the value at the time of the decedent's death of that part of his
gross estate not situated in the Philippines.
Second statement: Special deductions such as family home, standard
deduction and medical expenses shall not be allowed as deduction
from the gross estate of non-resident alien decedents.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
Reference: Section 7, Revenue Regulations No. 2-2003

49. One of the following deductions physically diminishes the gross


estate of the decedent.
a. Standard deduction c. Vanishing deduction
b. Family home d. Medical expenses

Answer: D

50. A non-rcsiclent alien decedent \\ho is unmarried, left the following


properties:
Car, M;:mila p 500,000
Car, USA 600,000
Shares of stock, USA 600,000
Shares of stock, Manila 400,000
House and lot, USA 800,000
Bank deposit, PNB-Manila 100,000
The administrator claimed the following deductions:
Actual funeral expenses 40,000
Judicial expenses 30,000
Claims against the estate 20,000
Transfer for public use 10,000
How much was the total deductions from Philippine gross estate in
connection with Philippine estate tax?
a. PlOO,OOO c. p 43,333
b. p 90,000 d. p 40,000

39
Chapter 2: Deductions from Gross Estate

Answer: D
Funeral expenses
Actual p 40.000
Limit (Pl,OOO,OOO X 5'"a) p 50 000
Allowed (lower) p 40,000
Judicial expenses 30,000
Claims against the estate 20 0()0
Total expenses, losses, indebtedness, taxes, etc p _;;JOJ1JJI2
Deductible expenses, losses, indebtedness,
taxes, etc (Pl,OOO,OOO/P3,000,000 X ?90,000) p 30,000
Transfer for public use 10 000
Total deductions from Philippine gross estate P 4_G,QOO

40
Chapter 2: Deductions from Gross Estate

51. Classify the following into exclusive deduction or conjugal/ communal


deduction
a. Funeral expenses CONJUGAL/
COMMUNAL
b. Judicial expenses CONJUGAL/
COMMUNAL
c. Loss of exclusive properties EXCLUSIVE
d. Loss of conjugal/ communal properties CONJUGAL/
COMMUNAL
e. Claims against exclusive properties EXCLUSIVE
. f. Claims against conjugal/communal CONJUGAL/
properties COMMUNAL
g. Unpaid taxes on exclusive properties EXCLUSIVE
, h. Unpaid taxes on conjugal/communal CONJUGAL/
properties COMMUNAL
1. Claims against insolvent exclusive debtor EXCLUSIVE
j. Claims against insolvent conjugal/ communal CONJUGAL/
debtor COMMUNAL
k. Unpaid mortgage on exclusive :ero:eerties EXCLUSIVE
1. Unpaid mortgage on conjugal/communal CONJUGAL/
properties COMMUNAL
m. Transfers for public purpose EXCLUSIVE
n. Vanishing deduction on properties inherited EXCLUSIVE
or received as donation before marriage
(under conjugal partnershi:e of gains)
o. Vanishing deduction on properties inherited EXCLUSIVE
or received as donation during marriage
(under conjugal :eartnership of gains)
p. Vanishing deduction on properties inherited CONJUGAL/
or received as donation before marriage COMMUNAL I
(under absolute community of properties)
q. Vanishing deduction on properties inherited EXCLUSIVE
or received as donation during marriage
(under absolute community of properties)
r. Amount received under RA No. 4917 CONJUGAL/
COMMUNAL (?)
s. Fam~me SPECIAL
t. Standard deduction SPECIAL
u. Medical expenses SPECIAL

41

~-----------------------------------
Chapter 2: Deductions from Gross Estate

52. Under the Family Code, the following are either charge against
exclusive or conjugal/ communal property Identify each one.

l
~~~- Suppoct of spouses, theic common ehiidcen CONJUGAL/
and legitimate children of either spouse COMMUNAL
b. All debts and obligations contracted during CONJUGAL/
the marriage by the designated COMMUNAL
administrator-spouse for the benefit of the
conjugal partnership of gain or community,
or by both spouses, or by one spouse with
the consent of the other
' c. Debts and obligations contracted by either CONJUGAL/
spouse without the consent of the other to COMMUNAL
the extent that the family may have been
benefited
d. All taxes, liens, charges and expenses, CONJUGAL/
including major and minor repairs, upon the COMMUNAL
conjugal/ community property
e. All taxes and e.xpenses for mere preservation CONJUGAL/
made during the marriage upon the separate COMMUNAL
property of either spouse used by the family I
f. Expenses to enable either spouse to CONJUGAL/
commence or complete a professional or COMMUNAL
vocational course, or other activity for self-
improvement
g. Ante nuptial debts of either spouse insofar as CONJUGAL/
they have redounded to the benefit of the COMMUNAL
family
h. Value of what is donated or promised by both CONJUGAL/
spouses in favor of their legitimate children COMMUNAL
for the exclusive purpose of commencing or
completing a professional or vocational
course or other activity for self-improvement
i. Expenses of litigation between the spouses CONJUGAL/
unless the suit is found to be groundless COMMUNAL
j. Ante nuptial debts of either spouse that did EXCLUSIVE
not redound to the benefit of the family
k. Support of illegitimate children of either EXCLUSIVE
spouse
1. Liabilities incurred by either spouse by EXCLUSIVE
reason of crime or quasi-delict
m.Loss during the marriage in any game of EXCLUSIVE
chance, betting, sweepstakes, or any other
kind of gambling whether permitted or
prohibited by law

42
Chapter 3
ESTATE TAX CASES
'ri 11iat tlic min a of man ran concdc:e ana 6e[iew,
tlie mind' of man can ,1.-liiecc. - :Napo[eon J{i[[

Multiple Choice: Choose the best possible answer.

1. The decedent is an unmarried head of family with the following data:


Real and personal properties P 5,000,000
Family home 2,000,000
Ordinary deductions
Funeral expenses p 200,000
Other deductions 1,300,000 1,500,000
Medical expenses 600,000
The taxable net estate is:
a. P 4,000,000. c. p 2,900,000.
b. p 3,000,000. d. p 1 ,500,000.

Answer: B
Reference: Section 8, Revenue Reguh~tions No. 2-2003

Gross estate p 7,000,000


Less: Deductions ( 1,500,000)
Estate after deductions p 5,500,000
Less: Special deductions
Family home 1,000,000)
Standard deductions 1 ,000,000)
Medical expenses 500 000)
Taxable net estate p 3,000.000

2. The decedent is an unmarried head of family with the following data:


Real and personal properties P 2,700,000
Family home 300,000
Ordinary deductions
Funeral expenses p 200,000
Other deductions 1,000,000 1,200,000
The taxable net estate is:
a. P 1 ,550,000. c. p 500,000.
b. p 550,000. d. (P 50,000.)

43
Chapter 3: Estate Tax Cases

Answer: B
Reference: Section 8, Revenue Regulations No. 2-2003
Gross estate p 3,000,000
Less: Deductions ( 1 150 000)
Estate after deductions p 1,850,000
Less: Special deductions
Family home 300,000)
Standard deductions 1 ,000,000)
Taxable net estate p 550 000
; .
!.'
Deductions:
Funeral expenses (5% x:3,000,00dJ lower p 150,000
Other deductions L. --- - 1,000,000
Total deductions p 1,150.000

3. The decedent is a married man with a surviving spouse \vith the


following data:
Conjugal real properties p 5,000,000
Exclusive family home 2,000,000
Other exclusive properties 2,500,000
Conjugal ordinary deductions
' Funeral expenses p 150,000
Other deductions 1,300,000 1,450,000
Medical expenses 500,000
The taxable net estate is:
a. P 4,750,000. c. p 3,750,000.
b. p 3,775,000. d. p 2,250,000.

Answer: B
Reference: Section 8, Revenue Regulations No. 2-2003
Exclusive Conjugal Total
Gross estate P 4,500,000 P 5,000,000 P 9,500,000
Less: Deductions ( ) ( ' 1 ,450,000) ( 1 ,450,000)
Estate after deductions P 4,500,000 P 3,550,000 P 8,050,000
Less: Share of surviving
spouse _ _ _ _) ( 1,775,000) ( 1 775 000)
Estate before special
deductions p 4,500,000 p 1,775,000 p 6,275,000
Less: Special deductions
Family home 4: ( 1 ,000,000)
Standard deductions ( 1,000,000)
Medical expenses ( 500 000)
Taxable net estate E_3J75,000

44
Chapter 3: Estate Tax Cases

4. The decedent is a _married man with a surviving spouse with the


following data:
Conjugal real properties p 5,000,000
Exclusive family home 2,000,000
Other exclusive properties 2,500,000
Conjugal ordinary deductions
Funeral expenses p 150,000
Other deductions 1,300,000 1,450,000
Medical expenses (including unpaid
hospital bills amounting to P200,000
incurred two (2) years before death) 500,000
The taxable net estate is:
a. P 4,075,000. c. p 3,750,000.
b. p 3,975,000. d. p 2,775,000.

Answer: B

Exclusive Con iuqal Total


c, : ~J ~~ Gross estate p 4,500,000 p 5,000,000 p 9,500,000
. ''";'

Less: Deductions ( J( 1 450 ooof ( 1 450 ooo)


Estate after deductions p 4,500,000 p 3,550,000 p 8,050,000
Less: Share of surviving
spouse _ _ _ _) ( 1 775 000) ( 1 775 000)
Estate before :>pecial
deductions p 4 500 000 p 1 775 000 p 6,275,000
Less: Special deductions
Family home (maximum) 1,000,000)* -"
Standard deductions 1 ,000,000)
Medical expenses (P500,000- P200,000) 300 000)
Taxable net estate P ~27'5~DOQ

5. The decedent is a married man with a surviving spouse with the


following data:
Conjugal real properties p 5,000,000
Conjugal family home 1,500,000
Exclusive properties 2,500,000
Conjugal ordinary deductions
Funeral expenses p 200,000
Other deductions 1 000 000 1,200,000
Medical expenses 500,000
Additional information:
a. 20 % of the funeral expenses were borne by the estate.
b. Other deductions includes P200,000 judicial expenses incurred
to settle the conflicting claims of the heirs.
The taxable net estate is:
a. P 3,400,000. c. p 3,080,000.
b. p 3,200,000. d. p 2,750,000.

45
Chapter 3: Estate Tax C'lSt'S
------------------------

Answer: C ---------------------------------------,
l~xciusiue _ r.m ;unul ___ IsJjQ)__
Gross estak P :2,500,000 P h,SUU.OOO P 9,000,000
Less: Declue< ions ( _ _-___ ) (__ _ji_~_QSJOU) ( __ K40 000)
Es[atc after deductions f' :?,SOO,OOO P 5_()()0,000 P 8.160,000
Ll:ss: Share of surviving
spouse ( )( )i')JU 000) ( ) .830 UOO)
EstHtt' bdon sptcin_l
deductions P_2~~0Q"O_Qi) P~.?,S,lp_"Q_QQ P 5,330.000
Less: Spcci<ll dtd uctions
F<tmily hurr.t (Pl ,.SOO.O'JO X 1 /2) 750,000)
Standard deductions l ,000.000)
:\kdical expenses 500 0001

Taxable net estr:tc Ec30cB,Q,cP_QQ

*Cor;Jugal deductions
F<me-ralt:xpenst'S (P-.200,000 X '20";,) p 40,000
Other dcdlJ:tions (Pl ,OO(),OO.U- P200JJOOi 800 000
Total I; c8~.9~0SJQ
\ ' I "~c t ~ :__ ' '

6. The decedent is a married man wnh a survi\ing spouse \\ith the


follmving data:
Conjugal real properties p 5,000,000
Conjugal famil:> house 1,000,000
Exclusiw famil:- lot 400,000
Other exclusiye properties 2,500,000
Conjugal ordinary deductions
Funeral expenses p 2UO,OOO
Other deductions 1,500,000
Medical expenses 500,000

The taxable net estate is:


a. P 4,750,000. c. p 3,250,000.
b. p 3,750,000. d. p 2,750,000.

7. Using the same data in the preceding number, how tnU(h is the
estate tax payable?
a. P 437,500 (_ p 272,500
b. p 327,500 d. p 2] 7,500

46
Chapter 3: Estate Tax Cases

6. Answer: D
Exclusive Conjugal Total
Gross estate p 2,900,000 p 6,000,000 p 8,900,000
Less: Deductions ( ) ( 1 ,500,000) ( 1 ,500,000)
Estate after deductions p 2,900,000 p 4,500,000 p 7,400,000
Less: Share of surviving
spouse _ _ _ _ ) ( 2,250,000) ( 2,250,000)
Estate before special
deductions p 2,900,000 p 2,250.000 p 5,150,000
Less: Special deductions
Family home [(1/2 X P1,000,000) + P400,000] ( 900,000)
Standard deductions (. 1,000,000)
Medical expenses ( 500,000)
Taxable net estate p 2.750.000

7. Answer: D
Taxable net estate
Taxable due and payable
p 2,000,000 p 135,000
750,000 X 11%, 82 500

8. Mr. J. Santos, resident decedent, married, died, leaving the following


properties:
Real and personal properties acquired
during the marriage P 3,000,000
House and land inherited from the father one
year and 3 months before he died (fair market
value when inherited, P1,500,000) used as
decedent's family home 2,000,000
Car purchased vvith cash received as gift from the
mother during the year the decedent died 500,000
Cash (inclusive of P500,000 received as
inheritance from the father) 1,500,000
The following obligations and expenses were also made available:
Claims against conjugal properties 600,000
Unpaid mortgage on the inherited house and land
(original mortgage was for P600,000) 100,000
How much was the vanishing deduction?
a. P 1,530,000 c. P 1,000,000
b. P 1,080,000 d. None of the choices

47
Chapter 3: Estate Tax Cases

Answer: A
Inherited property [rom the [ather
Value to take li:l~u fiJ q\ .L,"' ''"" h .
House and land ' . ' ; P 1,500,000
Cash 500 000
Total P 2,000,000
Less: Mortgage paid ( 500 000)
Initial basis P 1,500,000
Less: Proportional deduction
Pl,500,000jP7,000,000 x P700,000 ( 150 000)
Final basis c,, 1 ~ ~: ;,,.!. p 1,350,000
., ..
Rate -----'8"'-'0"--'Yc'-"o P 1 , 080,000
Car purchased with cash received from mother
Value to take/ Initial basis P 500,000
Less: Proportional deduction
P500,000/P7,000,000 x P700,000 (_ ____,5'-"0'-L0"-'0'--=-0)
Final basis p 4~0,000
Rate lOO'Yo 450 000
r;
J
Vanishing deduction E1 53o.ooo

9. to 12. are based on the following: The following data were provided by
the Estate of Jose Juan, head of family, a resident of Quezon City.
Mr. Juan died intestate on September 30, 2011.
Land and house (family home) p 3,000,000
Agricultural land inherited from his father
who died 2 v2 years before his death 800,000
Other real properties 1,000,000
Other tangible personal properties 200,000
Bank deposit, PNB-Manila representing amount
received by heirs under R.A. No. 491 7 500,000
Obligations of and charges against certain properties follow:
Medical expenses of last illness (unpaid as of
the time of death, supported by bills and
statements from hospital) P 600,000
Actual funeral expenses (30% paid for from the
estate, 70% paid for by relatives) 500,000
Judicial expenses incurred within six (6) months
after death 100,000
Claims against the estate other than
unpaid mortgage 250,000
Unpaid mortgage on inherited agricultural land 30,000
Claims against insolvent persons 100,000
Unpaid real estate tax for the 4th quarter of 2011 20,000
The agricultural land was inherited by the present decedent.
Its value at the time of inheritance was P500,000. It had an unpaid
mortgage of PSO,OOO.

48
Chapter 3: Estate Tax Cases

9. How much was the vanishing deduction?


a. P 265,178 c. p 159,107
b. p 238,661 d. None of the choices

10. How much was the total deduction excluding family home, standard
deduction and medical expenses?
a. P 1,415,178 c. p 1,309,107
b. p 1,388,661 d. None of the choices

11. How much was the taxable net estate?


a. P 1,684,822 c. p 1,790,893
b. p 1,711,339 d. None of the choices

12. How much was the estate tax payable?


a. P 109,786 c. p 111,907
b. p 118,271 d. None of the choices

9. Answer: B
Value to take p 500,000
Less: Mortgage paid (_ _50,000)
Initial basis p 4'50,000
Less: Proportional deduction
(P450,000/P5,600,000) X P650,000 ( 52,232)
Final basis l p 397,768
Rate )tl(__ ,_.,-.._,,; _,,
60%
Vanishing deduction

10. Answer: B
Schedule of deductions l.'<.di<c-i! r ..
Funeral expenses (actual) (P500,000 X 30'%) P150,000
Judicial expenses 100,000
Claims against the estate 250,000
Taxes 20,000
Claims against insolvent 100,000
Unpaid mortgage 30 000 P650,000 EL T
Vanishing deduction 238,661
Amount received under RA 491 7 <~ 500 000 ...
~ :- : _i :r J : , ;

Total

11. Answer: B
Personal property (P200,000 + PSOO;OOO + Pl 00,000) p 800,000
Real property (P3,000,000 + P800,000 + P1 ,000,000) 4 800 000
Gross estate p 5,600,000
Less: Deductions ( 1 388 661)
Estate before special deductions P4,211,339
Less: Family home (maximum) ( 1,000,000)
Standard deduction ( 1,000,000)
Medical Expenses ( 500 000)
Taxable net estate El]lL::t~

49
Chapter 3:- Estate Tax Cases

12. Answer : C
p 500,000 p 15,000
1,211,339X8%, 96 907
Tax due and payable p 111 907

13. to 20. are based on the following: A married decedent who was under
absolute community of properties died on October 15, 2011.
His estate provided the following information:
Real properties inherited before the marriage
from his father who died 3 years before the
present decedent's death p 500,000
Real property given as gift by his uncle
during the marriage 4 1/2 years before the
present decedent's death 1,500,000
Land inherited during the marriage from an aunt
who died 6 years before the present
decedent's death 500,000
House built on the inherited land using
communal fund 900,000
Cash income from the real property received as gift 100,000
Real properties rec~ived by the surviving spouse
before the marriage 1,800,000
Real properties acquired by the spouses
during the marriage 1,500,000
Personal properties acquired during the marriage 1,000,000
The following were considered as deductions from the gross estate:
Actual funeral expenses P 100,000
Judicial expenses 150,000
Medical expenses 200,000
" Obligations incurred before marriage that benefited
the community properties 250,000
Claims against an insolvent debtor 50,000
Unpaid mortgage on inherited land 100,000
Loss of car through theft on December 31, 2011
(part of personal properties acquired
during marriage) 300,000
Unpaid realty tax on real property received as gift
from his uncle 30,000
The value of the real properties at the time of inheritance was
P300,000. The value of the real property received as gift from an
uncle was P1,000,000 at the time of donation.
The inherited land and the house built on it were certified as the
family home of the decedent and his family by the Barangay Captain
in the locality where they were situated.

so
Chapter 3: Estate Tax Cases

13. How much was the total exclusive property?


a. P 2,100,000 c. P 3,100,000
b. P 2,600,000 d. None of the choices

14. How much was the total community property?


a. P 5,700,000 c. P 5,750,000
b. P 5,250,000 d. None of the choices

15. How much was the exclusive vanishing deduction?


a. P 280,058 c. P 174,872
b. P 175,032 d. None of the choices

16. How much was the total exclusive deductions?


a. P 41 0,051 c. P 304,872
b. P 305,032 d. None of the choices

17. How much was the community vanishing deduction?


a. P 157,529 c. PO
b. P 157,385 d. None of the choices

18. How much was the total community deductions?


a. P 1,007,529 c. P 600,000
b. P 757,385 d. None of the choices

19. How much was the taxable net estate?


a. P 2,369,949 c. p 2,016,203
b. p 2,116,435 d. None of the choices

20. How much the estate tax payable?


a. P 175,694 c. p 136,782
b. p 14 7,807 d. None of the choices

13. Answer: A
Real property given during the marriage by his uncle
as gift 4 V" years before the present decedent's death p 1,500,000
Land inherited during the marriage from an aunt
who died 6 years before the present decedent's death 500,000
Cash income from the real property received as gift 100 000
Total exclusive property P 2, LOQ.,ill)_Q

51
Chapter 3: Estate Tax Cases

14. Answer: C
Real properties inherited before the marriage
from his father who died 3 years before
present decedent's death p 500,000
House built on the inherited land using
communal fund 900,000
Real properties received by surviving spouse
before the marriage 1,800,000
Real properties acquired by the spouse during
the marriage 1,500,000
Personal properties acquired by the spouse during
the marriage 1,000,000
Claims against an insolvent debtor 50 000
Total community property p 5,750.000

15. Answer: B
Gift
(Exclusive)
Value to take/ Initial basis p 1,000,000
Less: Proportional deduction
(Pl,OOO,OOO/P7,850,000) X P980,000 ( 124 841)
Final basis p 875,159
Rate 20%
Vanishing deduction p 175,032

16. Answer: B
Taxes p 30,000
Unpaid mortgage 100,000
Vanishing deduction 175 032
Total p 305.032

17. Answer: A
Inheritance
(Communittt)
Value to take/ Initial basis p 300,000
Less: Proportional deduction
(P300,000 / P7 ,850,000) X P980,000 ( 37 452)
Final basis p 262,548
Rate -----"6'-00"-''Yr..:oo-t, h~ -t;
Vanishing deduction p 157,529

52
Chapter 3: Estate Tax Cases

18. Answer: A
Schedule of Deductions Community
Funeral expenses (actual) p 100,000
Judicial expenses 150,000
Losses 300,000
Claims against the estate 250,000
Claims against insolvent 50,000
Vanishing deduction 157 529
Total p 1,007,529

19. Answer: C
Exclusive Community Total
Gross estate P 2,100,000 P 5,750,000 P 7,850,000
Less:Deductions ( 305032)( 1,007,529)( 1,312,561)
Estate after deductions P 1,794,968 P 4,742,471 P 6,537,439
Less: Share of surviving
spouse _ _ _ _ ) ( ?,371,236) ( 2,371,236)
Estate before special
deductions P 1 794 968 P 2,371,235 P 4,166,203
Less: Special deductio9_s~ ,, ;.;~:~-~-, t-"+
Family home (1/2x 900,000) + 500,000 950,000)
Standard deductions 1 ,000,000)
Medical expenses 200 000)
Taxable net estate

20. Auswer: C
p 2,000,000 p 135,000
16,203 X 11 ;(, 1 782
Tax due and payable p 136 782

53
r Chapter 3: Estate Tax Cases

21. to 24. are based on the following: An unmarried non-resident alien,


died intestate on November 2, 2011. The following data were
provided by his estate:
House and lot, USA (family home) p 2,000,000
Investment in stock, Philippines 800,000
Investment in stock, USA 1,000,000
Investment in bonds, USA (85% of the business
of the USA corporation is in the Philippines) 700,000
Cash in bank, Philippines 300,000
Cash on hand, Philippines 50,000
Accounts receivable from a debtor who resides
in USA (fully uncollectible) 200,000
Car, Philippines 800,000
Actual funeral expenses 150,000
Judicial expenses 300,000
Unpaid Philippine income tax for income in 2010 120,000
Loss on December 31, 2011 due to theft
of cash on hand 10,000
~< Loss on sale of a portion of investment in
stock, Philippines 20,000
Devise to Quezon City for children's playground 70,000
Medical expenses 500,000

21. How much was the Philippine gross estate?


a. P 2,850,000 c. P 1,950,000
b. P 2,650,000 d. None of the choices

22. How much was the total deductions from the Philippines gross
estate?
a. P 332,735 c. P 286,517
b. P 324,808 d. None of the choices

23. How much was the net taxable estate in the Philippine?
a. P 2,363,483 c. P 2,317,265
b. P 2,325,192 d. None of the choices

24. How much was the estate tax payable in the Philippine?
a. P 174,983 c. P 169,899
b. P 170,771 d. Noneofthechoices

21. Answer: B

Investment in stock, Philippines p 800,000


Investment in bonds, USA (85% of the business
of the USA corporation is in the Philippines) 700,000
Cash in bank, Philippines 300,000
Cash on hand, Philippines 50,000
Car, Philippines 800 000
Philippine gross estate :E. 2~6_;)0,Q_OQ

54
Chapter 3: Estate Tax Cases

22. Answer: B

Schedule of Deductions ? 1\' ~I ' '

Funeral expenses (P2,650,000 X 5/r,) p 132,500


Judicial expenses 300,000
Losses - i+'"j;' )- ... , ,.- 10,000
Taxes . 1-~t._ c_,,y ':( 120 000
Total ELITE p 562.500
#> Deductible ELITE
(P2,650.000/P5,850,000) X P562,500 p 254,808
Transferforpublicuse "1'-f:T l:,,- ,_,_'- 70 000 '-_
_,_,), J J;
Total p _3~24 8_08

23. Answer: B

Gross estate p 2,650,000


Less: Deductions ( 324 808)
Taxable net estate P=2 ..32_5.J_92

24. Answer: B

p 2,000,000 p 135,000
325,192 X 11'% 35 771
Tax due and payable

25. to 31. are based on the following: A married non-resident alien,


died on September 11, 2011. He left the following:
Conjugal properties, Philippines p 3,000,000
Exclusive properties, Philippines 2,000,000
Conjugal properties, Foreign Country 4,000,000
Exclusive properties, Foreign Country 1,000,000
The following deductions \\-ere claimed:
Actual funeral expenses 100,000
Judicial expenses 300,000
Claims against the conjugal estate 500,000
Claims against the exclusive estate 150,000
Transfer for public use 200,000
Medical expenses 600,000
Losses (part of exclusive properties in
the Philippines) 100,000
Included in the Philippine gross estate were the following:
Domestic sharE's P 600,000
Share in a partnership 300,000
Other tangible personal properties 2,100,000

55
Chapter 3: Estate Tax Cases

The Philippine exclusive properties were all tangible personal


properties. These included a car, which was inherited 3 1/2 years
before the present decedent's death, and had a fair market value of
P400,000. The foreign country where the decedent was a citizen and
a resident at the time of his death did not impose transfer taxes of
any character on the intangible personal properties of Filipinos not
residing therein.

25. How much was the taxable exclusive property in the Philippines?
a. P 1,900,000 c. P 3,000,000
b. P 2,000,000 d. None of the choices

26. How much was the taxable conjugal property in the Philippines?
a. P 3,000,000 c. P 2,100,000
b. P 2,400,000 d. None of the choices

27. How much was the vanishing deduction?


a. P 200,693 c. P 133,140
b. P 133,795 d. None of the choices

28. How much was the total deductions from the exclusive gross estate in
Philippines?
a. P 503,193 c. p 436,650
b. p 436,295 d. None of the choices

29. How much was the total deductions from the conjugal gross estate in
the Philippines?
a. P 900,000 c. P 369,000
b. P 410,000 d. Noneofthechoices

30. How much was the Philippine taxable net estate?


a. P 2,429,205 c. P 2,096,807
b. P 2,341,807 d. None of the choices

31. How much was the estate tax payable in the Philippines?
a. P 182,213 c. P 145,649
b. P 172,599 d. None of the choices

25. Answer: B

Exclusive properties, Philippines p 2,000,000

26. Answer: C

Conjugal properties, Philippines p 3,000,000


Less: Intangible personal properties, Philippines
Domestic shares 600,000)
Shares in a partnership 300 000)
Taxable conjugal properties, Philippines _P 2 lOO,OOQ

56
Chapter 3: Estate Tax Cases

27. Answer: B

Value to take/ Initial basis p 400,000


Less: Proportional deduction
(P400,000/P4,100,000) X P671,500- ( 65 512)
Final basis '--' p 334,488
Rate fLIT, fl-.~~t -\ \\)l_\ 40%
Vanishing deduction p 133_,_795
~'. .: ,;: ~' ~ :
28. Answer: B

Schedule ofExclusive Deductions


Losses p 100,000
Claims against the estate 150 000
Total ELITE p 250,000

DeductiqJe--ELITE ~ ./' c'J::, "'!J-~ rt,.,,;f1'''


\'" tc " (P4)00,000/Pl0,000,000) X P250,000 --:.,.>., p 102,500
Transfer for public use "' 200,000
il:+(l_j (,.t;_
Vanishing deduction 133 795
Total E 4_36.22_~

29. Answer: C

Schedule of Conjugal Deductions


Funeral expenses (actual) p 100,000
Judicial expenses 300,000
Claims against the estate 500 000
Total ELITE p 900 000
Deductible ELITE
(P4,100,000/Pl0,000,000) X P900,000

30. Answer: A

Exclusive Conjugal Total


Gross estate p 2,000,000 p 2,100,000 p 4,100,000
Less: Deductions ( 436 295) ( 369 000) ( 805,295)
Estate after deductions p 1,563,705 p 1,731,000 p 3,294,705
Less: Share of surviving
spouse 865 500)

31. Answer: A

p 2,000,000 p 135,000
424,205 X 11 '% 47 213
Tax due and payable

57
Chapter 3: Estate Tax Cases

-lou, Cho,~ i.l. 1\:i:'\t;.CiY: !).~'


32. to 36. are based on the following: Mr. E. Cruz died intestate on
September 30, 2011. He was survived by his wife and his two
children. He and his wife were under conjugal partnership of gains.
He left the following properties:
Land (900 sq. m.) inherited form the decedent's father who died on
June 15, 2006; FMV per tax declaration, P1,900,000;
Zonal value, P3,000 per sq. m.;
Car inherited from the decedent's father, FMV, P500,000;
Cost, P700,000;
House and lot acquired during the marriage (family home),
Zonal value, P4, 100,000; assessed value, P3,300,000;
Household furniture and appliances acquired during the marriage,
FMV, P500,000;
~~' Other tangible personal properties (mode of acquisition unknown),
FMV, P1 ,800,000.
The following were considered as deductions from the gross estate:
Actual funeral expenses P 480,000
Judicial expenses 100,000
Other claims against the conjugal properties 500,000
Claims against insolvent persons 50,000
Medical expenses 120,000
The estate of the decedent's father paid the estate on the land at
the fair market value of P2,500,000 and on the car, P700,000.
During the marriage, Mr. E. Cruz mortgaged the inherited land
for P700,000 for the benefit of the family. He paid P350,000 before
he died.

32. How much was the total exclusive property?


a. P 3,400,000 c. P 3,000,000
b. P 3,200,000 d. None of the choices

33. How much was the total conjugal property?


a. P 6,450,000 c. P 5,650,000
b. P 6,400,000 d. None of the choices

34. How much was the total exclusive deductions?


a. P 595,404 c. P 525,389
b. P 560,415 d. None of the choices

35. How much was the total conjugal deductions?


a. P 1,725,389 c. P 850,000
b. P 1,200,000 d. None of the choices

36. How much was the taxable net estate?


a. P 3,309,596 c. p 3,144,585
b. p 3,179,611 d. None of the choices

58
Chapter 3: Estate Tax Cases

32. Answer: B
Land (900 sq.m.x P3,000) inherited from the father p 2,700,000
Car inherited from the father 500 000
Total exclusive property .E_.Q.,200,0QQ

33. Answer: A
House and lot acquired during the marriage

* (family home)
Other tangible personal properties (q~gde (E
acquisition unknown)
p 4,100,000

1,800,000
House"fioldfurniture ~nd appliances acquired
during the marriage 500,000
Claims against insolvent persons 50 000
Total conjugal property

~ 34. Answer: C
35. Answer: B
Schedule of deductions Exclusive Conjugal
Funereal expenses (maximum) p p 200,000 *
Judicial expenses 100,000
Claims against the estate 500,000
Claims against insolvent 50,000
<--Unpaid mortgage (P700,000- P350,000) 350,000 #- ;
Vanishing deduction 525 389
p_ 52.5_,389. p 1 200.000

i(, t. ,;h, ,,, q c Vanishing deduction


' " " Value to take
=. ;r<t! 1"' ib Land
~\~t

--1

Vanishing deduction i""' p

59
r Chapter 3: Estate Tax Cases

36. Answer: B

Exclusive Conjugal Total


Gross estate P 3,200,000 P 6.450,000 P 9,650,000
Less: Deductions ( 525,389) ( 1,200.000) ( 1 725 389)
Estate after deductions P 2,674,611 P 5,250,000 P 7,924,611
Less: Share of surviving
spouse (_ _ _ _ _ ) ( 2 6'75 000) ( - ),625,000)
Estate before special
deductions P2,674,6ll P'7,6?5,000 P 5,299,611
Less: Special deductions
Family home (maximum) 1 ,000,000)
Standard deductions 1,000,000)
Medical expenses 120 000)
Taxable net estate I'~~l_:LM-U

ESTATE TAX RATES

If the net estate is:

! ! OF~
OVER I BUT NOT THETAX '
PLUS I EXCESS I
OVER SHALL BE I I
I OVER
p 200,000 Exempt
p 200,000 \ 500,000 p 0 5%, p 200,000
500,000 \ 2,000,000 15,000 8% 500,000
2,000,000 5,000,000 135,000 11% 2,000,000
5,000,000 10,000,000 465,000 15% 5,000,000
110,000,000 1,215,000 i 20% 10,000,000

60
Chapter 4
TAX CREDIT FOR FOREIGN ESTATE TAX
"'11iey wlio are tlie most persistent, and wort( in tlie true spirit,
wi[[inmna6[y 6e tlie most successfuL "-SamueCSmies

Multiple Choice: Choose the best possible answer.

) . In computing the Philippine estate tax, which of the following shall


not be allowed estate tax credit?
a. Resident alien decedent
b. Non-resident alien decedent
c. Resident citizen decedent
d. Non-resident citizen decedent

Answer: B

1 2. Statement I: The amount of the credit with respect to the tax paid to
any country shall not exceed the same proportion of the tax against
which such credit is taken, which the decedent's net estate situated
within such country subject to estate tax bears to his entire net
estate;
Statement II: The total amount of the credit shall not exceed the
same proportion of the tax against which such credit is taken,
which the decedent's net estate situated outside the Philippines
subject to estate tax bears to his entire net estate.
a. Both I and II are correct
b. Both I and II are incorrect
c. Only I is correct
d. Only II is correct

Answer: A

3. and 4. are based on the following: A decedent left the following:


Net estate Philippines P 600,000
Net estate, USA (after estate tax) 1,300,000
Estate tax, USA 100,000
"' 3. How much was the Philippine estate tax payable assuming the
decedent was a non-resident citizen?
a. P 135,000 c. P 40,500
b. p 94,500 d. p 23,000

61
Chapter 4: Tax Credit for Foreign Estate Tax

4. How much was the Philippines estate tax payable assuming the
decedent was a non-resident alien?
a. P 135,000 c. p 40,500
b. p 94,500 d. p 23,000

3. Answer: C
Net estate, Philippines , p 600,000
Net estate, USA (P1,300,000 + P100,000) 1 400 000
Total taxable net estate p 2,000,000

Tax due p 135,000


Less: Estate tax credit
Actual foreign estate tax p 100,000
Limit [(1 ,400,000/ P2 ,000,000)
X P135,000] p 94 500 94 500)
Tax payable p - 4Q50Q

4. Answer: D
Net estate, Philippines p 600 000
Tax due and payable \- P~- 2_3_,00Q

5. and 6. are based on the following: Art Angeles, single resident citizen,
died in the city of Makati on March 16, 2011, leaving the following:
Net estate, Philippines P 300,000
Net estate, Country A 150,000
Estate tax paid, Country A 8,200
Net estate, Country B 100,000
Estate tax paid, Country B 4,600
Net estate, Country C 250,000
Estate tax paid, Country C 16,250
/5. How much is the allowable estate tax credit?
a. P 39,000 c. P 14,899
b. P 24, 101 d. Choice not given

/6. How much is the Philippine estate tax payable after tax credit for
foreign estate taxes?
a. P 39,000 c. P 14,899
b. P 24,101 d. Choice not given

62
_j
Chapter 4: Tax Credit for Foreign Estate Tax

5. Answer: B
Limit (a)- By country Limit Actual Allowed
A-150,000/800,000 X 39,000 p 7,313 p 8,200 p 7,313
B-100,000/800,000 X 39.000 4,875 4,600 4,600
C-250,000/800.000 X 39,000 12,188 16,250 12 188
Total p 24 101
Limit (b) - B\ total
500,000/800.000 X 39,000 24,375 29,050 p 24 375
Allowed (lower) P _:?1,HLl

6. Answer: C
Net estnte, Philippines p 300,000
Net estate, Country A 150,000
Net estate, Country B 100,000
Net estate, Count1>; C 250 000
Taxable net estate p 800 000
Tnx due p 39,000
Less: Tax credit for foreign estate tnxes ( 24 101)
Tax payable p ~t'!J32~

,J: The follmYing data are made available from the estate of a resident
citizen decedent:
Net (fstate, Philippines p 1,200,000
Net estate, Country A (after P12,000 estate tax paid) 188,000
Net estate, Country B (before P8,()00 estate tax paid) 100,000
Hovv much is the allowable estate tax credit?
a. P 95,000 c. P 18,333
b. P 19,000 d. None of the choices

Answer: C
Nt>t estate, Philippines ..... rhi:: i~ ~()X~i.lt ~t ~J'"'';r 1 '0" e:r p 1,200,000
Net esillte, Country A (PlSR,OOO + Pl2.000) 200,000
Net estate, Country B 100.000
Total (world) ntt estate P 1 :=iOO 000
Estate tax due _F>_ -~-~2~JbO_Q

Linnt (a) -By country Limit _t.ctual_ Allowed


A- P200.000;P1.500,000 X P95,000 p 12,66 ( p 12.000 p 12,000
B- Pl 00,000; P1.500,000 X P95,000 6.333 8.000 ___lic333
Total ~J33

Limit (b) -BY total


p:wo,ooo IPJ.soo,ooo x P95.ooo 19,000 20,000 p 19 000
Allom:'cl (lower) p 18,333

63
Chapter 4: Tax Credit for Foreign Estate Tax

8. to 15. are based on the following: Mr. E. Cruz died intestate on


September 30, 2011. He was survived by his wife and two children.
He and his wife were under conjugal partnership of gains. He left the
following properties situated in the Philippines:
a. Land (900 sq. m.) inherited from the decedent's father who died
on June 15, 2006; FMV per tax declaration, P1, 900,000; zonal
value, P3,000 per sq. m.;
b. Car inherited from the decedent's father, FMV, P500,000; Cost,
P700,000;
c. House and lot acquired during the marriage (family home),
Zonal value, P4, 100,000; assessed value, P3,300,000;
d. Household furniture and appliances acquired during the
marriage, FMV, P500,000;
e. Other tangible personal properties (mode of acquisition
unknown), FMV, P1,800,000.
His wife also owned a real property in USA valued at P1,500,000.
It had an unpaid mortgage of P300,000 at the time of his death.
The estate of Mr. E. Cruz paid P120,000 estate tax to the US
Government.
The following were considered as deductions from the gross estate in
the Philippines:
a. Actual funeral expenses, P480,000;
b. Judicial expenses, Pl 00,000;
c. Other claims against the conjugal properties, P500,000;
d. Claims against insolvent persons, P50,000;
e. Medical expenses, P120,000.
The estate of the decedent's father paid the estate on the land at fair
market value of P2,500,000 and on the car, P700,000. During the
marriage, Mr. E. Cruz mortgaged the inherited land for P700,000 for
the benefit of the family. He paid P350,000 before he died.
8. How much is the total exclusive properties?
a. P 3,400,000 c. P 2,600,000
b. p 3,200,000 d. p 2,400,000

9. How much is the total conjugal properties?


a. P 7,950,000 c. P 6,450,000
b. p 7,900,000 d. p 6,150,000

* 10. How much is the vanishing deduction?


a. P 519,283 c. p 415,426
b. p 458,700 d. None of the above

64
Chapter 4: Tax Credit for Foreign Estate Tax

-t 11. How much is the total exclusive deductions?


a. P 519,283 c. P 415,426
b. P 458,700 d. None of the above

t 12. How much is the total conjugal deductions?


a. P 1,780,000 c. P 850,000
b. P 1,500,000 d. None of the above

)3. How much is the total special deductions?


a. P 2,770,000 c. P 1,770,000
b. P 2,120,000 d. Noneoftheabove

~ 14. How much is the allowable tax credit?


a. P 105,057 c. p 0
b. p 20,000 d. None of the above

15. How much is the estate tax payable?


a. P 331,280 c. p 226,372
b. p 322,853 d. None of the above

8. Answer: B
Land (900 sq. m. x P3,000) inherited from the
decedent's fathe1' p 2,700,000
Car inherited from the decedent's father 500 000
Total exclusive properties p 3,200,000

9. Answer: A
House and lot acquired during the
marriage (family home) p 4,100,000
Household furniture and appliances
acquired during the marriage 500,000
Other tangible personal properties
(mode of acquisition unknown) 1,800,000
Real property in USA 1,500,000
Claims against insolvent persons 50 000
Total conjugal properties

65
Chapter 4: Tax Credit for Foreign Estate Tax

10. Answer: A
Value to take
Land p 2,500,000 *
Car 500 000 p 3,000,000
Less: Mortgage paid ( )
Initial basis p 3,000,000
Less: f(P3,000,000/Pll,l50,000) X P1,500,000] ( 403,587)
Final basis 2,596,413
Rate 20"!(,
Vanishing deduction

11. Answer: A
I Total Exclusive Deduction p 519_,?8_3

12. Answer: B
Schedule of deductions
Funeral expenses (maximum) p 200,000*
Judicial expenses 100,000
Claims against the estate 500,000
Claims against insolvent 50,000
Unpaid mortgage [(P700,000-P350,000)+P300,000] 650 000
Total p__L~()Q,Q,QQ

,; ! ,~ ~ ' , .....
"' '\

13. Answer: B
Special deductions
Family home (maximum) p 1,000,000
Standard deduction i,OOO,OOO
Medical expenses 120 000
Total ~2"1_20~QDO

14. Answer: A
Tax credit for foreign estate tax
Actual foreign estate tax p 120.000
Limit-
(P1,200,000*/P3,785,717) X P331,429 p 105 057
Lower (Actual) ~-__1_05 osz
*Net estate. USA (Pl,SOO,OOO- P300,000)
,, = Pl.200,000

66
Chapter 4: Tax Credit for Foreign Estate Tax

15. Answer: C
Exclusiue Conjugal Total
Gross estate P 3,200,_()00 P 7,9.')0,000 Pll,l50,000
Less: Deductions ( 519 283) ( 1 500 000) ( 2.019 283)
Estate after deductions p 2,680,717 p 6,450.000 p 9,130,717
Less: Share of surviving
spouse ____ )( 3 225,000) ( 3.225,000)
Est8 te before sptcial
deductions P 2 oso 717 P 3 225,ooo p 5.90.5,717
Less: Spec~] deductions
Family home (maximum) 1 ,000,000)
Standard deductions 1,000,000)
Medical txpenses 120 000)
Taxable net estate f __3, 'li? ,1-LZ

Tax due p 331,429


Less: Tax credit for foreign estate tax
Actual p 1.20.000
Limit -<:
(Pl ,200,000* /PlJ_8_5,7l):J X P33l ,429 P 1o;; 057
Lo\\ er (actunl) L7 +"xc>~H v'<1- ~. '""'{ ,, 1 , ~;;: 1 105.057
Tax payable E~=bZ~32~

'Net estate. liSA (P1 ,500,000- P300,000) = Pl 200.000

67
r
Chapter 5
FILING OF ESTATE TAX RETURNS
AND PAYMENT OF ESTATE TAX
It is fiard- tofili(, 6ut it is 'Worse nccer to fiacc tried" to succeed.
f[ficod"orc 'JZposece(t

Multiple Choice: Choose the best possible answer.

1. How much of the net estate is exempt from estate tax?


a. PlOO,OOO and below c. P500,000 and below
b. P200,000 and below d. P1,500,000 and below

Answer: B
References: Section 84, NIRC, as amended
Section 2, Revenue Regulations No. 2-2003

* 2. Under what cases \\-ill a written notice of death required to be filed?


I - In all cases of transfers subject to tax
II - In all cases '"'here, though exempt from tax, the gross value of
the gross estate exceeds twenty thousand pesos (P20,000)
a. Both I and II are correct c. Only I is correct
b. Both I and II are incorrect d. Only II is correct

Answer: A
Reference: Section 89, NIRC, as amended

3. When should the written notice of death be filed?


a. Within two (2) months after the decedent's death.
b. Within two (2) months after the decedent's death, or within a
like period after qualifying as such executor or administrator.
c. Within six (6) months after the decedent's death.
d. Within two (2) years after qualifying as such executor or
administrator.

Answer: B
Reference: Section 89, NIRC, as amended

68
Chapter 5: Filing of Estate Tax Returns, and Payment of Estate Tax

4. Who of the following shall file the written notice of death?


a. Executor
b. Administrator
c. Legal heirs
d. Any of the above

Answer: D
Reference: Section 89, NIRC, as amended

"'5. When there is a will, a person appointed in such will to take charge
in carrying out the wishes of the testator is called:
a. administrator. c. trustee.
b. executor. d. heir.

Answer: B
References: Comment on Article 881, Civil Code of the
Philippines Annotated, Justice Edgardo L. Paras
Chapter 1, Philippine Transfer and Business Taxes,
Atty. Virgilio D. Reyes

~ 6. If the person appointed by the testator refused to accept the


appointment, or failed to quali(y under the la\\, or the last will and
testament did not appoint anybody, and the court appointed
somebody, the person appointed is called:
a. administrator. c. trustee.
b. executor. d. heir.

Answer: A
References: Comment on Article 881, Civil Code of the
Philippines Annotated, Justice Edgardo L. Paras
Chapter 1, Philippine Transfer and Business Taxes,
Atty. Virgilio D. Reyes

69
Chapter 5: Filing of Estate Tax Returns, and Payment of Estate Tax

10. In case the estate tax return required is to be supported with a


statement duly certified to by a Certified Public Accountant, what
shall the statement contain?
a. Itemized assets of the decedent with their corresponding gross
value at the time of his death, or in the case of nonresident,
who is not a citizen of the Philippines, the value of that part of
his gross estate situated in the Philippines
b. Itemized deductions from gross estate allowed under Section
86
c. The amount of tax due whether paid or still due and
outstanding
d. All of the choices

Answer: D
Reference: Section 90 (A), NIRC, as amended

11. Who of the following shall file the estate tax return?
a. Executor
b. Administrator
c. Legal heirs
d. Any of the above

Answer: D
Reference: Section 90 (A), NIRC, as amended

12. When is the time for filing of the estate tax return?
a. Thirty (30) days from the decedent's death
b. Two (2) months from the decedent's death
c. Six (6) months from the decedent's death
d. Two (2) ~ears from the decedent's death

Answer: C
Reference: Section 90 (B), NIRC, as amended

13. When should the Commissioner of Internal Revenue be furnished


\vith a certified copy of the schedule of partition and the order of the
court approving the same?
a. Within thirty (30) days from the decedent's death
b. Within thirty (30) davs after the promulgation of the order
c. Within two (2) months from the decedent's death
d. Within six (6) months from the decedent's death

Answer: B
Reference: Section 90 (B), NIRC, as amended

71
Chapter 5: Filing of Estate Tax Returns, and Payment of Estate Tax

14. Can the filing of estate tax return be extended b\ the Commissioner
of Internal Revenue?
a. Yes, the Commissioner shall have authority to grant,
in meritorious cases, a reasonable extension not exceeding
sixty (60) days for filing the return.
b. Yes, the Commissioner shall have authority to grant,
in meritorious cases, a reasonable extension not exceeding
thirty (30) days for filing the return.
c. No, the Commissioner shall no longer be authorized to grant,
even in meritorious cases, a reasonable extension for the filing
the return under the new provisions of the Tax Code.
d. No, the Commissioner cannot extend the filing of the estate
tax return because only the Secretary of Finance can.

Answer: B ~'.c1Lt\r.\-~\G(\ ~cl.::.\\q\_1- ."\_: .. . ~1.d~~ r,-~~-


Reference: S~ction 90 fC), NIRC, ~s ~~end:ed. .. . '. j -"l .')

,. 15. In case of a resident decedent, the administrator or executor shall


register the estate of the decedent and secure a new TIN therefor
from the:
a. Office of the Commissioner.
b. ROO where the decedent was domiciled at the time of his
death.
c. ROO where the executor or administrator is registered.
d. duly authorized Treasurer of the city or municipality vvhere
the decedent is domiciled at the time of his death.

Answer: B
Reference: Section 9 (C), Revenue Regulations No. 2-2003

71' 16. In case of a resident decedent, the administrator or executor shall file
the estate tax return and pay the tax with any of the following, where
the decedent was domiciled at the time of his death, except:
a. Office of the Commissioner through RDO No. 39-South
Quezon City.
b. Accredited Agent Bank (AAB).
c. Revenue District Officer and Collection Officer.
d. duly authorized Treasurer of the city or the municipality.

Answer: A
Reference: Section 9 (C), Revenue Regulations No. 2-2003

72
Chapter 5: Filing of Estate Tax Returns, and Payment of Estate Tax

* 17. In case of a non-resident decedent, whether a non-resident citizen or


a non-resident alien, with executor or administrator in the
Philippines, the estate tax return shall be filed \Vith and the TIN for
the estate shall be secured from the:
a. Office of the Commissioner.
b. RDO where the decedent was domiciled at the time of his
death.
c. RDO where the executor or administrator is registered.
d. RDO having jurisdiction over the executor or administrator's
legal residence.

Answer: C
Reference: Section 9 (C), Revenue Regulations No. 2-2003

.,._ 18. In case of a non-resident decedent, whether a non-resident citizen or


a non-resident alien, with executor or administrator in the
Philippines who is not registered, the estate tax return shall be filed
with and the TIN for the estate shall be secured from the:
a. Office of the Commissioner through RDO No. 39- South
Quezon Citv.
b. RDO where the decedent was domiciled at the time of
his death.
c. RDO where the executor or administrator is registered.
d. RDO having jurisdiction over the executor or administrator's
legal residence.

Answer: D
Reference: Section 9 (C), Revenue Regulations No. 2-2003

19. In case of a non-resident decedent, whether a non-resident citizen or


a non-resident alien, who does not have an executor or
administrator in the Philippines, the estate tax return shall be filed
with and the TIN for the estate shall be secured from the:
a. Office of the Commissioner through RDO No. 39- South
Quezon Citv.
b. RDO where the decedent was domiciled at the time of his
death.
c. RDO where the executor or administrator is registered.
d. RDO having jurisdiction over the executor or administrator's
legal residence.

Answer: A
Reference: Section 9 (C), Revenue Regulations No. 2-2003

73
' Chapter 5: Filing of Estate Tax Returns, and Payment of Estate Tax

20. When
a.
b.
is the estate ta" paid?
Within six (6) months from the decedent's death
Within two (2) months from the decedent's death
c. As the return is filed
d. None of the choices

Answer: C
References: Section 91 (A), NIRC, as amended
-''t' ckJ. r , - .section 9 (D), Revenue Regulation No. 2-2003
-" .\ ,: ..... ' :_'.> ', ' -'-' ' ... ']i._ ,_; :r-\' ;_ -. \_ -~ ..

21. Can the Commissioner of Internal Revenue extend the time for
payment of the estate tax?
I - Yes, not to exceed five (5) years, in case the estate is settled
through the courts
II - Yes, not to exceed two (2) years, in case the estate is settled
extra-judicially
a. Only I is correct
b. Only II is correct
c. Both I and II are correct
d. Neither I nor II is correct

Answer: C ;>.c,:_ '-- J:>- 1 '"'c,, <v-c"L


References: Section 91 (B); NIRC, as amended
Section 9 (E), Revenue Regulations 2-2003

22. The Commissioner of Internal Revenue may extend the time for
payment of the estate tax:
I - when the Commissioner finds that the payment on the due date
of the estate tax or of any part thereof would impose undue
hardship upon the estate or any of the heirs.
II - where the taxes are assessed by reason of negligence,
intentional disregard of rules and regulations, or fraud on the
part of the taxpayer.
a. Only I is correct
b. Only II is correct
c. Both I and II are correct
d. Neither I nor II is correct

Answer: A
References: Section 91 (B), NIRC, as amended
Section 9 (E), Revenue Regulations 2-2003

74
Chapter 5: Filing of Estate Tax Returns, and Payment of Estate Tax

-r 23. The application for extension of time to file the estate tax return and
extension of time to pay f'State tax shall be filed with the:
a. Office of the Commissioner.
b. Revenue District Office (RDO) \vhere the estate is required to
secure its Taxpayer Identification Number (TIN) and file the
ta.x returns of the estate.
c. Revenue District Office (RDO) where the executor or
administrator is required to register.
d. duly authorized Treasurer of the city or municipality where
the decedent is domiciled at the time of his death.

Answer: B
References: Section 9 (B), Revenue Regulations No. 2-2003
Section 9 (E), Revenue Regulations No. 2-2003

.:. 24. If extension is granted, the Commissioner or his duly authorized


representative may require the executor, administrator or beneficiary
as the case may be, to furnish a bond in such amount:
a. exceeding double the amount of the tax and with such
sureties as the Commissioner deems necessary.
b. not exceeding double the amount of the tax and with such
sureties as the Commissioner deems necessary.
c. not exceeding P2,000,000.
d. none of the choices.

Answer: B
Reference: Section 9 (E), Revenue Regulations No. 2-2003

25. Any amount paid after the statutory due date of the estate tax, but
within the extension period, shall be subject to:
I - interest.
II - surcharge.
a. Both I and II c. I only
b. Neither I nor II d. II only

Answer: C
Reference: Section 9 (E), Revenue Regulations No. 2-2003

75
Chapter 5: Filing of Estate Tax Returns, <111d Payment of Estate Tax

26. Can the estate tax be paid in installment?


a. Yes, in case the available cash of the estate is not sufficient to
pay its total estate tax liability, the estate may be allm\ed to
pay the tax in installment and a clearance shall be released
only to the property where the corresponding/ computed tax
has been paid.
b. Yes, the administrator or executor can request paving on
installnwnt basis if the heirs request for such mode of
pavment.
c. No, payment of estate tax in installment is not possible
because the collection of tax cannot be delayed under any
circum stance.
d. None of the choices.

Answer: A
Reference: Section 9 (F), Revenue Regulations No. 2-2003

27. In case of installment payment of estate tax:


I - the computation of the estate tax shall always be on the
cumulative amount of the net taxable estate.
II - any amount paid after the statutory due date of the tax shall be
imposed the corresponding applicable penalty thereto.
a. Only I is correct
b. Only II is correct
c. Both I and II are correct
d. Neither I nor II is correct

Answer: C
Reference: Section 9 (F), Revenue Regulations 2-2003

28. Which of the following statements is incorrect?


a. The estate tax imposed under the Tax Code shall be paid by
the executor or administrator before the delivery of the
distributive share in the inheritance to any heir or beneficiary.
b. Where there are two or more executors or administrators, all
of them are severally liable for the payment of the estate tax.
c. The estate tax clearance issued by the Commissioner or the
Revenue District Officer having jurisdiction over the estate,
will serve as the authority to distribute the remaining or
distributable properties or shares in the inheritance to the
heir or beneficiary.
d. None of the choices.

Answer: D
Reference: Section 9 (G), Revenue Regulations 2-2003

76
Chapter 5: Filing of Estate Tax Returns, and Payment of Estate Tax

29. Who has the primary obligation to pay the estate tax?
a. Heir or beneficiary
b. Executor or administrator
c. Surviving spouse
d. None of the choices

Answer: B
References: Section 91 (C), NIRC, as amended
Section 9 (G), Revenue Regulations 2-2003

~ 30. Who has the subsidiary liability for the payment of estate tax?
a. Heir or beneficiary
b. Executor or administrator
c. Surviving spouse
d. None of the choices

Answer: A
References: Section 91 (C), NIRC, as amended
Section 9 (G), Revenue Regulations 2-2003

"'- 31. Under the Tax Code, the term "executor" or "administrator" means:
l - the executor or administrator of the decedent.
II - if there is no executor or administrator appointed, qualified, and
acting within the Philippines, then any person in actual or
constructive possession of any property of the decedent.
a. Only I is correct
b. Only II is correct
c. Both I and JI are correct
d. Neither I nor II is correct

Answer: C
Reference: Section 91 (C), NIRC, as amended

77
Chapter 6
ATTACHMENTS TO THE ESTATE TAX RETURN,
INCLUDING CPA CERTIFICATES
T ~'lien you finut u liM you tfiin~._yo,I ,-,w lo,
you rclll{y fimit alilll you r,w ,z,-rompCzsli- 3nonymous-

Multiple Choice: Choose the best possible answer.

1. A Notice of Death is required for deaths occurring on or after


January 1, 1998 if the taxable estate exceeds:
a. P 20,000. c. PlO,OOO.
b. p 15,000. d. p 3,000.

Answer: A
Reference: BIR Form No. 1801

~ 2. A Notice of Death is required for deaths occlJrring prior to


.January 1, 1998 if the taxable estate exceeds:
a. P20,000. c. PlO,OOO.
b. p 15,000. d. p 3,000.

Answer: D
Reference: BIR Form No. 1801

_,. 3. What attachment is required if the estate had been settled judicially?
a. Affidavit of self adjudication
b. Deed of extra-judicial settlement of the estate
c. Court order
d. S\vorn declaration of all properties of the estate

Answer: C
Reference: BIR Form No. 1801

:.\:. 4. When should the Commissioner of Internal Revenue be furnished


with a certified copy of the schedule of partition and order of the
court approving the same?
a. Within thirty (30) daYs from the df'cedent's death
b. Within thirty (30) clays after the promulgation of the order
c. Within two (2) months from the decedent's death
d. Within six (6) months from the decedent's death

78
Chapter 6: Attachments to the Estate Tax Return, Including CPA Certificates

Answer: B
Reference: Section 90 (B), NIRC, as amended

5. What attachment is required where declared properties have no


declared improvement?
a. Certified copy of schedule of partition
b. Certified true copy of transfer of real properties
c. Certified true copy of the latest tax declaration of real
properties
d. Certificate of no improvement issued by the assessor's office

Answer: D
Reference: BIR Form No.. 1801

6. For listed stock, what proof of valuation of shares at the time of death
shall be attached to the estate tax return?
a. Newspaper clippings/ certification from the stock exchange
b. Latest audited financial statements of issuing corporation
with computation of book value per share
c. Stockbroker's financial statements
d. None of the choices

Answer: A
Reference: BIR Form No. 1801

~ 7. For unlisted stock, what proof of valuation of shares at the time of


death shall be attached to the estate tax return?
a. Ne\vspaper clippings/certification from the stock exchange
b. Latest audited financial statements of issuing corporation
with computation of book value pt>r share
c. Stockbroker's financial statements
d. None of the choices

Answer: B
Reference: BIR Form No. 1801

8. In what case shall the estate tax returns be supported v\ith a


statement duly certified to bv a Certified Public Accountant?
a. In case where it shows a gross value of P2,000,000 and below
b. In case where it shows a gross value of P2,000,000 and above
c. In case where it shm\s a gross value exceeding P2,000,000
d. None of the choices

Answer: C
Reference: Section 90 (A), NIRC, as amended

79
Chapter 6: Attachments to the Estate Tax Return, Including CPA Certificates

9. When an estate tax return should be supported with a statement


duly certified to by a Certified Public Accountant, what shall the
statement contain?
a. Itemized assets of the decedent with their corresponding gross
value at the time of his death, or in the case of nonresident who
is not a citizen of the Philippines, of that part of his gross estate
situated in the Philippines
b. Itemized deductions from gross estate allowed under
Section 86
c. The amount of tax due whether paid or still due and
outstanding
d. All of the choices

Answer~D
Reference: Section 90 (A), NIRC, as amended

;,; 10. Claimed family home deduction shall be certified by:


a. Revenue District Office where the decedent was domiciled at
the time of death.
b. Duly authorized city or municipal Treasurer vvhere the
decedent was domiciled at the time of death.
c. Barangay Captain of the place where the family home is
situated.
d. None of the choices.

Answer: C
Reference: Section 6 (D), Revenue Regulations No. 2-2003

Attachment to. the Estate Tax Return (per BIR Form No. 18011
1. Certified tru(e"'copy of the DEATH CERTIFICATE;
2. NOTICE OF DEATH duly received by the BIR, if gross taxable estate
exceeds P20,000 for deaths occurring on or after Jan. 1, 1998; or if
the gross taxable estate exceeds P3,000 for deaths occurring prior to
Jan. 1, 1998;
3. Any of the following: a) Affidavit of Self Adjudication; b) Deed of
Extra-Judicial Settlement of the Estate, if the estate had been settled
extra-judicially; c) Court order if settled judicially;
d) Sworn Declaration of all properties of the Estate;
4. A certified copy of the schedule of partition of the estate and the
order of the court approving the same, if applicable;
5. Certified true copy/ ies of the Transfer/ Original/Condominium
Certificate of Title/ s of real property/ ies (front and back pages),
if applicable;
6. Certified true copy of the latest Tax Declaration of real properties at
the time of death, if applicable;

80
Chapter 6: Attachments to the Estate Tax Return, Including CPA Certificates

7. "Certificate of No Improvement" issued by the Assessor's Office where


declared properties have no declared improvement;
8. Certificate of Deposit/Investment/Indebtedness owned by the
decedent and the surviving spouse, if applicable;
9. Photo copy of Certificate of Registration of vehicles and other proofs
showing the correct value of the same, if applicable;
10. Proof of valuation of shares of stocks at the time of death,
if applicable;
For listed stocks- newspapers clippings/ certification from the
STOCK EXCHANGE
For unlisted stocks - latest audited Financial Statements of issuing
corporation with computation of book value per share
11. Xerox copy of certificate of stocks, if applicable;
12. Proof of valuation of other t:vpes of personal property, if applicable;
13. Proof of Claimed Tax Credit, if applicable;
14. CPA Statement on the itemized assets of the decedent, itemized
deductions from gross estate and the amount due if the gross value
of the estate exceeds two million pesos (P2,000,000);
15. Certification of the Barangay Captain for the claimed Family Home;
16. Duly notarized Promissor_y Note for "Claims Against the Estate"
arising from Contract of Loan;
17. Accounting of the proceeds of loan contracted within three (3) years
prior to death of the decedent;
18. Proof of the claimed "Property Previously Taxed'';
19. Proof of the claimed "Transf~:r for Public Usc.
20. Copy of Tax Debit Memo used as payment, if applicable.

These re(]uirements must be submitted upon field or office audit of


the tax case before the Tax Clearance Certificate/Certificate Authorizing
Registration can be released to the taxpayer.
Additional requirements may be requested for presentation during
the audit of the tax case depending upon existing audit procedures.

Note: All background information must be properly filled up.


All returns filed by an accredited tax representative on behalf of a
taxpayer shall bear the following information
A. For CPA's and others (individual practitioners, members of GPPs);
A.l Taxpayer Identification Number (TIN); and
A.2 Certificate of Accreditation Number, Date of Issuance. and
Date of Expirv.
B. For Members of the Philippine Bar (individual practitioners,
members of GPPs);
B.l Taxpa:.er Identification Number (TIN): and
B.2 Attorney's Roll Number or Accreditation Number, if any
TIN =Taxpayer Identification Number.
The last 3 digits of the 12-digit TIN refers to the. branch code.

81
Chapter 7
GROSS GIFTS
'Tiie (l'fio{e secret of u successju{ {ijc
is to fin a out wfiat is one's acstiny to ao, ana tficn ao it. -Henry 'Fora

Multiple Choice: Choose the best possible answer.

1. An act of liberality whereby a person disposes gratuitously of a thing


or right in favor of another who accepts it.
a. Succession c. Inheritance
b. Donation d. Liquidation

Answer: B ' :.' :.<... -


Reference: Article 725, Civil Code of the Philippines

2. When the donor intends that the donation shall take effect during the
lifetime of the donor, though the property shall be delivered till after
the donor's death, this shall be a:
a. donation mortis causa.
b. donation inter vivos.
c. donation propter nuptias.
d. none of the choices.

Answer: B
Reference: Article 729, Civil Code of the Philippines

3. When is the donation perfected?


a. The moment the donor knows of the acceptance by the donee
b. The moment the thing donated is delivered, either actually or
constructively, to the donee
c. Upon payment of the donor's tax
d. Upon execution of the deed of donation

Answer: A '"'fi" . _... , ..


Reference: Article 734, Civil Code of the Philippines

4. (Phil. CPA) The following are the requisites of a donation for


purposes of the donor's tax, except one.
a. Capacity of the donor
b. Capacity of the donee
c. Delivery of the subject matter or gift
d. Donative intent

82
Chapter 7: Gross Gifts

Answer: B
References: Article 741, Civil Code of the Philippines
Article 742, Civil Code of the Phi_li_.p"-"p._i_n_e._s_ _ _ __,
Letter b is the best choice because a minor and even an unborn
child can be a donee. (Art. 741 and Art, 742, Civil Code of the
Philippines)
However, according to Justice Edgardo L. Paras in his annotation
ofthe Civil Code of the Philippines, Art. 737 would in some cases
be inconsistent with Art. 734 which states that "the donation is
perfected from the moment the donor knows of the acceptance by
the donee." To avoid a contradiction, the rule may be stated thus:
"at the time the donation is perfected, both the donor and the
donee m.ust be capacitated (Civil Code of the Philippines,
Annotated by Justice Edgardo L. Paras, 15' 1' edition, 2002
Volume 2, page 880).

_ 5. For the donation to be considered valid, acceptance of the donation


must be made:
a. during the lifetime of the donor only.
b. during the lifetime of the donee only.
c. during the lifetime of the donor and the donee.
d. none of the choices.

Answer: C
Reference: Article 746, Civil Code of the Philippines

6. Which of the following donations inter vivos may not require that it be
made in \Hiting?
a. Donation of personal (movable) property, the value of which
exceeds P5,000
b. Donation of personal (movable) property, the value of which is
P5,000
c. Donation of real (immovable) property, the value of which is
less than P5,000
d. Donation of real (immovable) property, the value of which
exceeds P5,000

83
Chapter 7: Gross Gifts

Answer: B
Reference: Article 748, Civil Code of the Philippines
Art. 748. The donation of a movable may be made orally or in
writing.
An oral donation requires simultaneous delivery of the thing or of
the document representing the right donated.
If the value of the personal property donated exceeds five
thousand pesos, the donation and acceptance shall be made in
writing. Otherwise, the donation shall be void.

7. Which of the following statements regarding donation of an


immovable property is incorrect?
a. The donation must be made in a public document specifying
therein the property donated and the value of the charges
which the donee must satisfy.
b. The acceptance may be made in the same Deed of Donation or
in a separate public document, but it shall not take effect
unless it is done during the lifetime of the donor.
c. If the acceptance is made in a separate instrument, the donor
shall be notified thereof in an authentic form, and this step
shall be noted in both instruments.
d. None of the choices.

Answer: D
References: Article 749, Civil Code of the Philippines
Section 11, Revenue Regulations No. 2-2003

*' 8. One of the following is not a distinction between donation inter vivos
and donation mortis causa.
a. Donation inter vivos takes effect during the lifetime of the
grantor while donation mortis causa takes effect after the
death of the grantor.
b. Donation inter vivos is subject to donor's tax while donation
mortis causa is subject to estate tax.
c. Donation inter vivos requires a public document while
donation mortis causa may not require a public document.
d. Donation inter vivos is valued at fair market value at the time
the property is given while donation mortis causa is valued at
the fair market value at the time of the death of the grantor.

Answer: C
References: Article 748, Civil Code of the Philippines
Article 749, Civil Code of the Philippines

84
Chapter 7: Gross Gifts

9. Motivated by love, Mr. D donated a car to his brothers, Mr. E and Mr.
F, the naked title to Mr. E and usufruct to Mr. F for one year. Is the
transfer of the car, naked title to Mr. E and usufruct to Mr. Fa valid
donation?
a. Yes the transfer of the naked title to E and usufruct to F is a
valid donation, provided all the donees are living at the time of
donation.
b. No, the donation is not valid because it is specifically provided
in the Civil Code that such donation is not allowed.
c. Yes the donation is valid provided that Mr. E agrees to the
donation of usufruct to Mr. F.
d. No, the donation is not valid because a right (usufruct) cannot
be donated.

Answer: A
Reference: Article 756, Civil Code of the Philippines

10. The tax imposed on the transfer of property without consideration


between two or more persons who are living at the time the transfer
is made.
a. Estate tax c. Business tax
b. Donor's tax d. Property tax

Answer: B
Reference: Section 11, Revenue Regulations No. 2-2003
The donor's tax is not a property tax, but is a tax imposed on the
transfer of property by way of gift inter vivos. (Lladoc us.
Commissioner of Internal Revenue, L-1921 0, June 16, 1965; 14
SCRA, 292).

-tY. 11. Donor's tax is:


a. a property tax. c. a business tax.
b. a personal tax. d. an excise tax.

Answer: D

12. First statement: Donor's tax shall be levied, assessed, collected and
paid upon the transfer of property by any person, resident or non-
resident, as a gift.
Second statement: The donor' tax shall apply whether the transfer is
in trust or otherwise, whether the gift is direct or indirect, and
whether the property is real or personal, tangible or intangible.
a. True, True c. True, False
b. False, False d. False, True

85
Chapter 7: Gross Gifts

Answer: A
Reference: Section 98 (A) and (B), NIRC, as amended

13. For purposes of donor's tax, a "stranger" is a person who is not a:


I - brother, sister (whether by whole or half blood), spouse,
ancestor, and lineal descendant.
II - relative by consanguinity in the collateral line within the fourth
degree of relationship.
a. Both are correct c. Only I is correct
b. Both are incorrect d. Onlv II is correct

Answer: A
References: Section 99 (B), NIRC, as amended
Section 10 (B) ( 1) (2), Revenue Regulations
No. 2-2003

14. First statement: A legally adopted child is entitled to all the rights
and obligations of legitimate children as provided by lm.\ and
therefore, donation to him shall not be considered a donation made
to a stranger.
Second statement: Donation made between business organizations
and those made between an individual and a business organization
shall be considered as donation made to a stranger.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
Reference: Section 10 (B), Revenue Regulations No. 2-2003

15. Which of the following is a stranger for donor's tax purposes?


a. The son of the donor's first cousin
b. The donor's grandmother
c. The donor's spouse
d. A child born out of vYedlock of parents who are legally
impeded to marry each other at the time the child is being
conceived

Answer: A

86
Chapter 7: Gross Gifts

l 6. Statement I: Any contribution in cash or in kind to any candidate,


political party or coalition of parties for campaign purposes,
shall be governed by the Election Code, as amended.
Statement II: Any provision of law to the contrary notwithstanding,
any contribution in cash or in kind to any candidate or political
party or coalition of parties for campaign purposes duly reportedto
the COMELEC shall not be subject to the payment of any gift tax.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
References: Section 99 (C), NIRC, as amended
Section 10 (C), Revenue Regulations No. 2-2003
Section 13, R.A. No. 7166
~e absence of an express exempting provision of law, political
I ~;!,':!.,ributions in the Philippines are subject to donor's or gift tax
, (BIR Ruling No. 344, July 20, 1988).
Any prouision of lazD to the contrary notwithstanding any
contribution in cash or in kind to any candidate or political party or
1
coalition of parties for campaign purposes, duly reported to the
j Commission on Election shall not be subject to the payment of any
1 gift tax (Sec. 13, R.A. No. 7166, approved November 26, 199 I).

17. First statement: The donor's tax shall not apply unless and until
there is a completed gift.
Second statement: The Jaw in force at the time of the completion of
the donation shall govern the imposition of the donor's tax.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
Reference: Section 11, Revenue Regulations No. 2-2003

.i< 18. When is the donation completed?


a. The moment the donor knows of the acceptance by the donee
b. The moment the thing donated is delivered, either actually or
constructively, to the donee
c. Upon payment of the donor's tax
d. Upon execution of the deed of donation

87
Chapter 7: Gross Gifts

Answer: B
Reference: Section 11, Revenue Regulations No. 2-2003

19. A gift that is incomplete because of reserved po\\ers, becomes


complete \Vhen:
I - the donor renounces the po\',er.
II - his right to exercise the reserved pov.:er ceases because of some
event or contingenC\ o~ the fulfillment of some condition, other
than the donor's death.
c. True in l onlv
a. True in both l and II cl. True in Il only
b. Not tnw in both l and II

Answer: A
Reference: Section 11, Revenue Regulations No. 2-2003

'" 20. Which of the foliO\ving renunciations shall not be subject to donor's
ta.x? a. Renunciation by the surviving spouse of his/her share in the
conjugal partnership or absolute communitY aftf'r the
dissolution of the marriage in favor of the heirs of the
deceased spouse or any other person! s
b. Gt>neral renunciation by an heir, including the surviving
spouse. of hisjher share in the hereditarv estate left by the
deceden1
c. Renunciation by an heir, including the surviving spouse.
of his/ her share in the hereditary estate left by the decedent
categorically in favor of idt>ntified heir/ s to the exclusion or
disadvantage of the other co-heirs
d. None of the choices

Answer: B
Reference: Section 11, Revenue Regulations No. 2-2003

21. John sold his car to Sam for P200,000. John's car cost P500,000,
and had a fair value of P400,000 at the time of sale. What \\as the
ta.x consequence of the sale?
a. There was a taxable gift of P300,000
b. There was a taxable gift of P200,000
c. The transfer was for insufficient consideration, hence, not
subject to donor's ta.'\:
d. The transfer involved a personal property, hence, not subject
to donor's tax

88
Chapter 7: Gross Gifts

Answer: B
Reference: Section 100, NIRC, as amended
Section 11, Revenue Regulations No. 2-2003
Where property, other than a real property that has been subjected
to the final capital gains tax, is transferred for less than an
adequate and full consideration in money or money's worth, then
the amount by which the fair market value of the property at the
time oft he execution of the Contract to Sell or execution of the
Deed of Sale which is not preceded by a Contract to Sell exceeded
the value of the agreed or actual consideration or selling price
shall be deemed a gift, and shall be included in computing the
amount of gifts made during the calendar year. (Sec. 11, R.R. No.
2-2003)

22. First statement: A transfer is gratuitous or without consideration and


accordingly qualifies as a donation, if no economic benefit
measurable in money or money's worth flmved to the transferor
from the transferee.
Second statement: A gratuitous transfer is always subject to
donor's tax.
a. True, True c. True, False
b. False, False d. False, True

Answer: C
Donation._::_m_o_rt_i_s_c_a_l_is_a_w_h_ic-.r-t-is-a-ls-o--a-g-ra_t_u_i_to_L_l_S_t-it-le-is_s_u_b_lject to I
estate tax and not to donors tax.
- . ----------~--

23. (Phil. CPA) The common characteristic of transfer taxes is the


transfer of property:
a. is onerous.
b. takes effect during the lifetime of the transferor.
c. takes effect upon the death of the transferor.
d. is gratuitous.

Answer: D

24. Who is not subject to donor's tax?


a. An individual making a donation
b. A corporation making a donation
c. A partnership making a donation
d. An individual who pays premiums on the life insurance
of another

89
Chapter 7: Gross Gifts

Answer: D
Reference: Section 98 ~), NIRC, as amende::.:d=-----------
JThere shall be levied, assessed, collected and paid upon the
I transfer by any person, resident or non-resident, on the property
I, by gift, a tax, computed as provided in Section 99 (Sec. 98 (A),
I NIRC, as amended).
I Before its amendment by Republic Act No. 6110 (Omnibus Tax
L. aw). Section 120 (now Section 98) ofthe Tax Code taxed only gifts II

made by individuals. The word "individual" was changed to


"person" indicating that the donor's tax applies now to both \
1 natural and juridical persons.

25. When an indebtedness is cancelled without any service rendered by


the debtor in favor of the creditor, the forgiveness of debt will
result to:
a. taxable income.
b. distribution of dividend.
c. taxable indirect donation.
d. taxable estate.

Answer: C
Reference: Section 50, Revenue Regulations No. 2

26. First statement: The gross gifts of a donor who is a citizen or resident
of the Philippines will include all properties wherever situated.
Second statement: The gross gifts of a donor who is not a citizen,
and not a resident of the Philippines will include only properties
situated in the Philippines.
a. True, True c. True, False
b. False, False d. False, True

Answer: A
Reference: Section 104, NIRC, as amended

27. (Phil. CPA Modified) Which of the following examples is not taxable?
a. A Filipino citizen donated a parcel of land located in the
United States to B, non-resident alien.
b. On June 1, 1993, A made a gift of P200,000 to his daughter
on account of her marriage celebrated on May 1, 1992.
c. Mr. Ramos gives his girlfriend a diamond ring worth Pl 00,000
as a birthday gift.
d. A and B are the only heirs of C. A renounces his share of
inheritance in favor of B.

90
Chapter 7: Gross Gifts

---~
1\.\j.\(._\
r\
J, '}.,

Answer: D .\u .u' . . . ; . .." --. -


Reference: Section 11, Revenue Regulations No. 2-2003
.,

28. A non-resident citizen donor is taxed on his donation of properties:


a. situated in the Philippines only.
b. \Vherever situated.
c. situated outside the Philippines only.
d. situated in the Philippines only subject to the rule of
reciprocity.

Answer: B
Reference: Section 104, NIRC, as amended

29. The rule of reciprocity that applies to estate tax also applies to:
I - non-resident alien donor.
If - intangible personal property situated in the Philippines.
a. Both I and II are correct c. Only I is correct
b. Both I and II are incorrect d. Only II is correct

Answer: A
Reference: Section 104, NIRC, as amended

30. Every donation or grant of gratuitous advantage, direct and indirect,


betYveen the spouses during the marriage, shall be void, except:
a. moderate gifts which the spouses may give each other on the
occasion of any family rejoicing.
b. donation mortis causa.
c. donation propter nuptias which are given before the marriage.
d. all the choices are correct exceptions.

Answer: D
Reference: Article 87, Family Code of the Philippines
The Family Code of the Philippines Annotated,
Dean Ernesto L. Pineda
Every donation or grant of gratuitous advantage, direct or
indirect. between the spouses during the marriage shall be
void, except moderate gifts which the spouses may give each
other on the occasion of any family rejoicing. The prohibition
shall also apply to persons living together as husband and
wife without a valid marriage (Article 87, Family Code ofthe
Philippines).
What is moderate is relative, as it depends upon the financial
capability and social standing ofthe donor.
------------------~

91
Chapter 7: Gross Gifts

'f 31. Neither spouse may donate any conjugal partnership or community
property without the consent of the other. However, either spouse
may, without the consent of the other, make moderate donations
from the community property:
I - for charity.
II - on occasions of family rejoicing or family distress.
a. Neither I nor II is a correct exception
b. Both Iand II are correct exceptions
c. Only I is a correct exception
d. Only II is a correct exception

Answer: B
References: Articles 98 and 125, The Family Code of the
Philippines,
The Family Code of the Philippines, Annotated,
Dean Ernesto L. Pineda
What is moderate depends upon the financial and social standing
of the family and must not at all substantially affect the value of
the communal assets. In other words, it must be frugal and
abstemnious.
The prohibition against spouses to donate any community property
without the consent of the other should also apply with equal force
to those who are living as husband and wife without the benefit of
marriage or under a void marriage, insofar as their properties held
in co-ownership are concerned.

32. 1st statement: In all cases, void donations are not subject to
donor's tax.
2nd statement: Every donation between the spouses during the
marriage shall be void.
a. Both statements are true
b. Both statements are false
c. First statement is true while second statement is false
d. First statement is false while second statement is true

Answer: C

92
Chapter 7: Gross Gifts

~ 33. Question No. 1 -Is donative intent always essential to constitute a


gift? No. Where the property, other than real property classified as
capital assets, is transferred for less than an adequate and full
consideration in money or money's worth, the difference between
the fair market value at the time of transfer and the consideration
received is subject to donor's tax.
Question No. 2- HO\v is the donation made by the spouses from their
conjugal properties treated for donor's tax purposes? The donation
is taxable to the husband being head of family, as long as the wife
gives consent to it.
a. True, True c. True, False
b. False, False d. False, True

Answer: C
Reference: Sections 11 and 12, Revenue Regulations No. 2-2003

34. One of the follO\ving statements is correct.


a. A donation inter vivos by the husband and the wife jointly
during the marriage is a donation of conjugal property that
will require one computation of the donor's tax, if the spouses
are under the system of conjugal partnership of gains.
b. A donation inter vivos by the husband and wife jointly during
the marriage is a donation of community property that will
require one computation of the donor's tax, if the spouses are
under the system of absolute community of properties.
c. A donation inter vivos by the husband and the wife jointly
during the marriage is a donation of exclusive property by
either spouse that will require one computation of the donor's
tax, if the spouses are under the system of conjugal
partnership of gains.
d. A donation inter vivos by the husband and the wife jointly
during the marriage is a donation of each spouse to the extent
of one-half that will require separate computations for two
donor's taxes, under v\hichever property relationship exists
between the spouses.

Answer: D
~ence: Section 12, Revenue Regulations. No. 2-2003
I Husband and wife are considered as separate and distinct
taxpayers for purposes of the donor's tax. However, if what is
donated is a conjugal or community property and only the
huslJand signs the deed of donation, there is only one donor for
donor's tax purposes, without prejudice to the right of the wife to
question to validity of the donation without hf?r consent pursuant
to the pr11inent provisions of the Civil Code of the Philippines and
_
the Family Code of the Philippines. (Sec. 12, R. R. No. 2-2003) __
_:_ ~

93
Chapter 7: Gross Gifts

35. First statement: If properties are given as a gift, they shall be


appraised at its fair market value as of the time of donation.
Second statement: In valuing properties for donor's ta.'<:, the
principles on valuation of properties for estate tax shall apply.
a. True, True c. True, False
b. False, False d. False, True

Answer: A
Reference: Section 102, NIRC, as amended

36. First statement: In showing gross gifts in the donor's tax return, real
property should be valued at the current and fair market value, as
shown in the assessment rolls, or the fair market value, as
determined by the Commissioner of Internal Revenue, vvhichever is
higher.
Second statement: In showing gross gifts in the donor's tax return,
personal property should be valued at current fair market value or
at cost, whichever is lower.
a. True, True c. True, False
b. False, False d. False, Trw~

Answer: C
Reference: Section 102, NIRC, as amended

37. (Phil. CPA) Mr. King \Vas the President of a highly profitable
corporation, which was engaged in the marketing of cars.
When Mr. King's daughter got married to the son of a government
official, the corporation gave the newly wed couple a brand new car
worth P500,000, and entered the wedding gift in its books as an
advertising expense.
First statement: The car is not taxable income to the couple because--
it is truly a wedding gift, but the couple should pay the tax.
Second statement: The donor-corporation should pay the donor's ta.'<,
and deduct it from its gross income.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: B
I The do.:..n-=o'-r-'s-ta-x-is_p_a_y_a_b_le_b_y_t_h_e_._d_o_n_o_r_a_1_1d_i_t_i_s_n_o_t-deductible I
\ from the gross income for income tax purposes_._ _ _ _ _ _ _ _ j

94
Chapter 8
EXEMPTIONS OF CERTAIN GIFTS AND
OTHER DEDUCTIONS FROM GROSS GIFTS
On{y tfiose wfio wi[[ risf(goinlJ too far
can possi6fyfindout fioafarone can go. -T.S. C[{iot

Multiple Choice: Choose the best possible answer .

., 1. Dowries or gifts made on account of marriage of children shall be


exempt from donor's tax if given by parents:
I - before its celebration.
II - within one year thereafter.
a. Both I and II are correct c. Only I is correct
b. Neither I nor II is correct d. Only II is correct

Answer: A
Reference: Section 101 (A) (1), NIRC, as amended

2. The amount of the exempt dowry is to the extent of the first:


a. P32,000. c. P20,000.
b. p 25,000. d. p] 0,000.

Answer: D
Reference: Section 101 (A) (1), NIRC, as amended

3. One of the following is an incorrect statement regarding dowry.


a. The donor must be the natural or adopting parent of the
child.
b. The donee must be a legitimate, recognized natural or legally
adopted child of the donor.
c. The dowry or gift on account of marriage must be given before
the celebration of the marriage or within two (2) years
thereafter.
d. The exemption allowed is to the extent of the first PlO,OOO.

Answer: C ,

95
r Chapter 8: Exemptions of Certain Gifts and Other Deductions from Gross Gifts

.4. One of the following will not entitle the donor-parent to a PlO,OOO
dowry exemption.
a. Legitimate child
b. Recognized natural child
c. Adopted child
d. None of the choices

Answer: D
Reference: Section 101 (A) (1), NIRC, as amended
1:helaw classified children into: ---------~
a. Legitimate- Those conceived and born during the marriage of I
1 parents who are lawfully married. Or. those who are I
conceived before the marriage but born during the marnage. 1

b. lllegitimate -- Those conceived and born outside of valid


marriage {Art 165, The Family Code ofthe Philippines). I 1

c. Legitimated~ Those conceived of parents who at the time of


1

conception were not disqualified by any impediment to marry I


each other and who are later considered legitimate by reason I
of subsequent marriage of their parents {Arts. 177 and 178,
The Family Code of the Philippines).
d. Adopted. ~ Those who whether related by blood or not to the
adopter. by fiction of law, are made legitimate children of the 1
latter. _j

5. A married couple donated a conjugal property to their son who is


getting married. Which of the following statements is incorrect in
connection with the donation?
a. The husband is the proper claimant of the dowry, being head
of the familv.
b. The husband and wife shall file two separate donor's tax
returns.
c. The husband and the wife can claim PlO,OOO dowry each.
d. The gross gift of the husband shall be one-half of the value of
the donated conjugal property.

Answer: A

6. A donation on account of marriage will give the donor a deduction


from the gross gifts made if the donee is:
a. a legitimate child.
b. a stepchild.
c. the son of the donor's second cousin.
d. the legitimate father of the donor.

Answer: A

I
96
I
__j
Chapter 8: Exemptions of Certain Gifts and Other Deductions from Gross Gifts

~ 7. Which of the following gifts or donations shall be exempt from donor's


tax?
I - Those made to or for the use of the National Government or any
entity created by its agencies which is not conducted for profit
II - Those made to any political subdivision of the Government
a. I only c. Both I and II
b. II only d. Neither I nor II

Answer: C
Reference: Section 101 (A) (2}, NIRC, as amended

8. First statement: Transfers inter vivos in favor of non-profit


educational institutions are exempt from donor's tax.
Second statement: Transfers mortis causa in favor of non-profit
educational institutions are exempt from estate tax.
a. True, Tr.ue c. True, False
b. False. False d. False, True

Answer: C
Reference: Section 101 (A) (3}, NIRC, as amend_e'-d'-'-----
~ection 101. Exemption of Certain Gifts.- Thefollowing gifts or I
1 donations shall be exempt from the tax prouidedfor in this I
! Chapter. I
I A) !n the Case of Gifts !\!fade by a Resident I
(3) Gifts infauor of an educational and/or charitable, religious, I
cultural or social welfare corporation, institution, accredited non- i
gouemment organization. trust or philanthropic organization or /
research institution or organization: Provided, howeuer, That not
more .Uwn thirty percent (JO"o} of said gifts shall be used by such
donee for administration purposes.
For the purpose ofthe exemption, a non-profit educational and/or
charitable corporation, institution, accredited non-government
organization, tru.st or philanthropic organization and/ or research
institution or organization is a school, college or uniuersity and/ or
charitable corporation, accredited non-government organization.
trust or philanthropic organization and/ or research institution or
orgnnization,JrJcmporated as a non-stock entitlf. paying no
diuidend2,_ gouern~d blLJJl.Jstees who receiue no compensation,
i and QfiJOting all its income, whether student.< fees or gifts.
dorwti__on, subsidies or other [onns o[philonthroJ!y. to the
arcomJ!lishment and_J;!IQmotion o[the purpo~es enumerated in its
1
Articles o[Incorporution. [Section 70 7 (A) {3), N!RC as wnendeclj.
Transfers mortis causa to non-profit educotionnl institutions an~
i not exef!lpt frorn'!'stc~!e to;c__f:!;_~~-ection _?_j_D).'_ji/_[_RC, aS_!3!!_U::!_1clf!'_cij._~-

97
Chapter 8: Exemptions of Certain Gifts and Other Deductions from Gross Gifts

.,.. 9. Mr. J. Cruz donated P200,000 to a religious institution. During the


year, the total receipts from donations of the religious institution was
P5,000,000. Its total administrative expenses amounted to
P2,000,000. Hm~V much was the exempt gift to the religious
institution?
a. Zero c. PlOO,OOO
b. PlO,OOO d. P200,000

Answer: A
The gift was not exempted because the administmtive expenses~
the donee-institution exceed 30% ofthe total expenses
(P2, 000,000/ P5, 000,000 = 40i,).

10. Since donation to a charitable institution has no ceiling as a


deduction for donor's tax purposes,
]st statement: The net gift will be zero, so that in computing the
donor's tax, the donation may be omitted in gross gifts if it is
likewise omitted in deductions.
2"d statement: The gross gifts shall be reported and the deduction
shall be claimed.
a. Both statements are true
b. Both statements are false
c. First statement is true while second statement is false
d. First statement is false while second statement i.s true

Answer: D

:k 11. One of the following is not an exempt gift or a deduction from the
gross gift of a non-resident alien donor.
a. Dowries or gifts made on account of marriage
b. Gifts made to or for the use of the National Government or to
any of its political subdivision
c. Gifts in favor of an educational and/ or charitable, religious,
cultural or social welfare corporation, institution, accredited
non-government organization, trust or philanthropic
organization or research institution or organization
d. Encumbrance on the property donated, if assumed by the
donee

Answer: A
Reference: Section 101 (B), NIRC, as amended

98
Chapter 8: Exemptions of Certain Gifts and Other Deductions from Gross Gifts

- 12. A married non-resident alien donates shares of stock valued at


P300,000 to his son who is getting married to a Filipina in the
Philippines. Assuming there is reciprocity, how much is the gross gift
and the exempt dowry?
Gross Gift Dowrv
a. P 300,000 p 10,000
b. p 300,000 Zero
c. p 150,000 Zero
d. Zero Zero

Answer: D
! Tf;-gro~s~g-iji::-t-is-z;;,.o for Philippine donor's tax purposes becau~
i the donor is a non-resident alien and the property donated is an [
intangible personalproperty situated in the Philippines. When I
there is reciprocity, donations of intangible personal property 1

situated in the PhilljJpines hy a non-resident alien donor are not I


i subject to donor's tax. 1

Lf2owry e~emption ~-?._not allowed to non-resident aj_~n donors. ~-__j

13. Which of the following is not a deduction from the gross gifts?
a. Unpaid mortgage on the donated property assumed by the
donee
b. Unpaid real estate tax on the propertY donated assumed by
the donee
c. Diminution on the donated propert, specifically provided by
the donor
d. Unpaid donor's tax on the donated property assumed by the
donee

,-
Answer: D
- --------~----~~~---------~--------,

i The follouing are not found in the Tcvc Code but are nevertheless
'
1 allowed as deductions from gross gifts:
1a. Encumbrance on the property donated if assumed by the donee;
[b. Those specljlcaily provided by the donor as a diminution from 1

~~ the_p_roperty d0/}:9__f!!E__ ~-------------------- --~----'

14. Which of the following is a taxable gift?


a. Donations to the Intramuros Administration
b. Donations to the Communitv Chest
c. Donations to the Philippine Institute of Certified Public
Accountants
d. Donations to International Rice ResFarch Institute

99
Chapter 8: Exemptions of Certain Gifts and Other Deductions from Gross Gifts

Answer: C

I The following are exempted from donor's tax wi~er special!~~~=-~


I 1. Donations to the Philippine Government for scientzfic, i
1 engineering, and technological research, invention and I
' development (R.A. No. 7606).
2. Donations to social welfare, cultural and chmitable
institutions (P.D. No. 50 7, see R.A. I'-lo. 1916).
3. Donations to the International Rice Research Institute
(R.A. No. 2 70 7, P.D. No. 1620).
4. Donations to the Ramon Magsaysay Awards Foundation
(R.A. No. 3076).
5. Donations to the National Museum, the National Library, and
the archives ofthe Notional Historical Institute (P.D. No. 373).
6. Donations to the Southern Philippines Development
Administratzon (P.D. No. 690).
7. Irrevocable donations of American-owned private lands
acquired under the Laurel- Langley Agreement in favor of the
National Government or any entity created by any of its
agencies which is not conducted for profit or to any politica.l
subdivision of the said Government, or any charitable or
scientific organization with a nationwide scope of activities
and widely recognized as such as the Philippine National Red
Cross, Community Chest, Boy Scouts of the Philippines and
the Philippine Heart Foundation (P.D. No. 762).
8. Donations to the Museum of Philippine Costumes
(P.D. No. 1349, as amended by P.D. No. 1388).
9. Donations to the lntramuros Administraton (.P.D. No. 1616).

15. (Phil. CPA) The following are exempt from the donor's tax. Which is
the exception?
a. P200,000 cash given by a non-resident alien donor to his
legitimate son who is getting married in the Philippines to a
Filipina.
b. PlO,OOO cash given by a resident alien to his legitimate son
who is getting married in the Philippines.
c. Donation of a condominium in Hongkong to a Filipina by a
British national not residing in the Philippines.
d. P 150,000 donation to a non-profit school.

100
Chapter 8: Exemptions of Certain Gifts and Other Deductions from Gross Gifts

Answer: A
1 Letter a is the answer because non-resident aliens are not allowed

~ dowry exemption, hence, the donation of cash on account of


I marriage of his legitimate son is subject to Philippine donor's tax.
I Letter b is an exempt dowry.
I Letter cis not taxable in the Philippines because non-resident
aliens are subject to Philippine donor's tax only when the
donated property is situated in the Philippines.
Letter dis one of the exemptions under Section 101 (A) (3) and (B)
~)of the Tax Code. "''J '! ,. _:, . .. _ . . ~ .

' 16. A resident citizen of the Philippines made the following donations on
one date:
Donations on account of marriage:
To legitimate son p 100,000
To a legitimate daughter and her
husband-to-be, on account of marriage 15,000
To a recognized natural son 30,000
To an adopted child 60,000
To an illegitimate daughter 40,000
To a sister 12,000
To a charitable institution 20,000
The deductions from gross estate is:
a. P67,500. c. P57,500.
b. P60,000. d. P30,000.

Answer: C
Legitimate son (dmny) p 10,000
'i< Legitimate daughter and her husband-to-be (dowry)
(1 /2 X Pl5.000) 7,500*
Recognized natural son (dowry) 10,000
Adopted child (dowry) 10,000
D9nation to charitable institution 20 000
H - . . t-"-; .._, J
,'l _:~ ,_ . _._,
f'_ ; ~
---

Total deductions

Stranger Relative
Gross ;;ift p 7,500 p 7,500
Less: Dowry ( _ ___,_7-'-"5=0-'CO)*
Taxable net gift p 7 500 _,__P_ _ _ __

101
Chapter 8: Exemptions of Certain Gifts and Other Deductions from Gross Gifts

------------ ---,
I
Summary of Exemptions of Certain Gifts/ .
1

Deductions from Gross Gifts

I 1. Found in the Tax Code


~~---- ]R~-;i~f~-n-t___,- Non- ~1
1

Ji or Citizen Resi.dent
i
1 Donor Ahen
1 1

! 1
1 ~ Donor I
I a. Dowries oc g;fts made on account I Allo"ed-~-- Not ~
~ of marnage - u-------L- allo~~9~
1 b. Gifts made to or for the use of the I 1

National Government or any 1 !


1
entity created by any of its
agencies which is not conducted I Allowed Allowed
for profit, or to any political I
subdivision of the said I
Government ------- --------------+--
c. Gifts in favor of an educational 1
and I or charitable, religious, I

cultural or social welfare I


corporation, institution, /
accredited non-government Allowed ! Allowed
organization, trust or 1

philanthropic organization or 1 ,

/ research institution or 1 1 i
L orgarnzat10n_ _ ____ _______L _______ ~I__________ j

a. Ceiling of . ~-~ase of gifts made to certain i~~titutio;~~-l


administration ! (~o. 1 c above), in order to be exempt, not !
expenses I more than 30% of said gifts shall be used I
bv such donee for administration purposes.~
b. Definition of 1,A non-stock educational and/ or charitable
non-stock corporation, institution, accredited non-
1
educational , government organization, etc. (no.l c above)
and/or is a school, college or university andjor
charitable charitable corporation, accredited non- 1

corporation, etc government organization, etc. (no. 1 c above)!


a) incorporated as a non-stock entity, I
b) paying no dividends,
c) governed by trustees who receive no
compensation, and
d) devoting all its income to the
accomplishment and promotion of the
purpose enumerated in its Articles of
I
_j__lncorpora tio_n_._______ _j ':
c . __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
J

102
Chapter 8: Exemptions of Certain Gifts and Other Deductions from Gross Gifts

2. Other deductions
Resident or Non-
Citizen Resident
Donor Alien Donor
a. Encumbrance on the
property donated if AllmYed Allowed
assumed by the donee
b. Those specifically provided
by the donor as a
diminution from the Allowed Allowed
roperty donated

103
Chapter 9
DONOR'S TAX RATES
AND DONOR'S TAX CASES
'lfie more you fi"<rc;e to clian<"e. tlie {ess di<Zncc tlicre isjoryou. -'( l'ncent '7. 'Foss

Multiple Choice: Choose the best possible answer.

/1. First statement: When the donee or beneficiary is a stranger, the tax
payable by the donor shall be thirty percent (30%) of the net gifts.
Second statement: When the donee or beneficiary is a relative,
the tax payable by the donor shall be based on the schedular rates
of donor's tax provided in Section 99 of the Tax Code.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
References: Section 99 (A) and (B), NIRC, as amended
Section 10 (A) and (B), Revenue Regulations
No. 2-2003

2. When the donee is no_L~~f>.!r~DK~L how much is the exempted


net gift?
a. PSOO,OOO c. Pl 00,000
b. P200,000 d. None

Answer: C
References: Section 99 (A), NIRC, as amended
Section 10 (A), Revenue Regulations No. 2-2003

3. When the donee is a stranger, how much is the exempted net gift?
a. PSOO,OOO c. PlOO,OOO
b. P200,000 d. None

Answer: D
References: Section 99 (B), NIRC, as amended
,-------S~e.ction 10 (B), Revenue Regulations No. 2-2003
When the donee or beneficiary is a stranger, the tax payable by
the donor shall be thirty per cent (30%) of the net gifts.
The exemption from donor's tax of the P 1 00, 000 net gift does not
apply when the donee is a stranger.

104
Chapter 9: Donor's Tax Rates and Donor's Tax Cases

4. First statement: The computation of the donor's tax is on a


cumulative basis over a period of one calendar year.
Second statement: Husband and wife are considered as separate and
distinct taxpayers for purposes of the donor's tax.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
Reference: Section 12, Revenue Regulations No. 2-2003

-" 5. Which statements is wrong? The donor's tax:


a. is computed on the basis of the net gifts of a calendar year.
b. becomes proportionately bigger on later donations.
c. is computed separately for each spouse in case of a joint
donation.
d. is computed and paid within thirty (30) days from the date of
donation.

Answer: B _., +tt

6. Which of the following statements is wrong? A donation by husband


and wife out of conjugal community property to a brother of the wife
is:
a. one-half a donation to a non-stranger by the wife.
b. one-half a donation to a stranger by the husband.
c. a donation on which the husband must pay a donor's tax of
30% on his net gift.
d. a donation on which the husband must pay the graduated
donor's tax on his net gift.

Answer: D
A gift made to a brother-in-law or any other relative by c!ffinjjy is a
gift to a stranger, hence, subject to 30% tax on the net g{]fT.

105
Chapter 9: Donor's Tax Rates and Donor's Tax Cases

* 7. A donation on account of forthcoming marriage \\'as made. The


dowry was properly claimed as a deduction and the applicable
donor's tax return was filed. The marriage did not materialize. What
action should be taken with respect to the filed donor's tax return?
a. The donor may file an amended return with no deduction for
dowry and pay additional donor's tax.
b. The donee may call the attention of the BIR and file a donor's
tax return.
c. The donor and the donee may agree on who will pay the
donor's tax because it was not the donor's fault that the
marriage did not materialize.
d. No action shall be taken because the donor's tax return filed
was correct and in order at the time of its filing.

Answer: A
References: Articles 82 and 86 (1), Family Code of the Philippines
The Family Code of the Philippines Annotated,
Dean Ernesto L. Pineda
Donation made before the celebration of marriage is called
donation propter nuptias. Propter means before. To be
efficacious, it must be, (a) made before the celebration ofthe
marnage, (b) in consideration of the marriage, and (c) in favor of
one or both of the future spouses. If any of the above essential
elements is absent, there is no donation propter nuptias
although there might be an ordinary donation.
Donation proper nuptias may entitle the donor to an exempt
dowry to the extent of the first Pl 0,000 provided that the donation
is made by a parent to a legitimate, recognized natural or adopted
child. Ordinary donations will not entitle the donor to the P 1 0, 000
exempt dowry.

* 8. On one date, Lara made donations of property in the Philippines to


a non-stranger, and of property outside the Philippines to a stranger.
In taking a credit for the foreign donor's tax paid, the credit shall be
against the Philippine donor's tax on the:
a. donation to the non-stranger plus that to the stranger.
b. donation to the non-stranger.
c. donation to the stranger.
d. none of the options given.

Answer: A

106
Chapter 9: Donor's Tax Rates and Donor's Tax Cases

9. to 11. are based on the following: The following donations during the
calendar year 2011 are ~cie to relatives:
Date Amount
January 30, 2011 p 2,000,000
March 30, 2011 1,000,000
August 15,2011 500,000

-~ How much -is the tax due on the gift made on January 30, 2011?
a. P 204,000 c. P 80,000
b. p 124,000 d. p 50,000

10. How much is the tax due on the gift made on March 30, 20 11?
a. P 204,000 c. P 80,000
b. p 124,000 d. p 50,000

11. Hovv much is the tax due on the gift made on August 15, 2011?
a. P 204,000 c. P 80,000
b. p 124,000 d. p 50,000

9. Answer: B
10. Answer: C
11. Answer: D
Reference: Section 12, Revenue Regulations No. 2-2003
January 30, 2011 : Taxable net gift _e_ 2__,_i)O~Q.OOQ
Tax due and payable p =~_2_4"QQQ

March 30,2011 Net gift p l ,000,000


Add: Previous net gift 2 000 000
Total taxable net gifts E_3_,_Q_09. O_Q0

Tax due on total net gift p 204,000


Less: Tax paid on prior gifts ( 124 000)
Tax payable P-~~~Q.O.DD

August 15, :2011 Net gift p 500,000


Add: Total prior net gifts 3,000,000
Total taxable net gifts p J}illtPJloQ

Tax due on total net gift p 254,000


Less: Tax paid on prior gifts ( -;04.000)
Tax payable P=-~~CLQQQ

107
Chapter 9: Donor's Tax Rates and Donor's Tax Cases

,w: On January 15, 2011, Daisy gave a piece of land to her brother-in-
law who is getting married on February 14, 2011. The assessed
value and zonal value of the land were P750,000 and P1 ,000,000
respectively. The land had an unpaid mortgage of P200,000, which
was not assumed by the donee and an unpaid realty tax of P10,000
which was assumed by the donee.
How much was the donor's tax due?
a. P 297,000 c. p 43,400
b. p 237,000 d. p 31,400

Answer: A
Gross gift p 1,000,000
Less: Unpaid reFllty tax assumed by donee 10.000
Taxable net gift p==9;JQ='Q_Q_Q
Tax due and payable (30% X P990,000) P~ c~c~J.>cOQQ

13. to 15. are based on the following: Mr. Jose San Jose made the
following cash donations to his legitimate son, 18 years old, v\110 got
married on January 5, 2011:
Date of Donation Amount
December 23, 2010 p 5,000
January 5, 2011 3,000
January 5, 2012 10,000

,13. How much was the exempt dowry on the gift made on
December 23, 2010?
a. P 10,000 c. P 5,000
b. P 8,000 d. None.

)4. How much was the exempt dowry on the gift made on January 5,
2011?
a. P 10,000 c. p 3,000
b. p 5,000 d. None.

)5. How much was the exempt dowry on the gift made on J;:muary 5,
. 2012?
a. P 10,000 c. p 3,000
b. p 8,000 d. p 2,000

108
Chapter 9: Donor's Tax Rates and Donor's Tax Cases

13. Answer: C
The exempt dowry is equivalent to the amount ofthe actual dowry
given. Each donee will entitle the donor to ?10,000 exempt dowry.

14. Answer: C
The donor can claim an additional exempt dowry of ?3,000.
The dowry is given to the same donee in the preceding number.
Total exempt dowry so far is ?8,000 (PS,OOO + ?3,000).

15. Answer: D
The donor can claim an exempt dowry of P2, 000 only because he
has already been allowed exempt dowry of ?8,000 (PS,OOO +
P3, 000) in the preceding numbers. The exempt dowry is to the
e;dent of the first P 10,000 only.

16. Mr. Oscar Azucar donated the following cash donations to his legally
adopted daughter, 30 years old, who got married on June 10, 2011:
Date of Donation Amount
June 10,2011 p 6,000
August 11, 2011 4,000
October 10, 2011 5,000
How much was the exempt dowry on the donation made on
October 10, 2011?
a. P15,000 c. P 5,000
b. PlO,OOO d. None

Answer: D
The donor could no longer claim exempt dowry on the gift made on
October 10, 201 1 because he had already claimed P 1 0, 000
exemption on dowries made to the same donee on June 1 0, 2011
(?6,000) and on August 11, 2011 (?4,000).
Each donee would entitle the donor to an exempt dowry to the
I e:dent ofthefirst ?10,000.
I The age ofthe donee, in this case 30 years old, would not be a
L factor in the allowance oft he exempt dowry .

.....17. On June 10, 2011 Mr. Paolo Sao donated P50,000 cash to his favorite
g~c_:nds()n who is getting married on June 16, 201 1. For donor's tax
purposes the exempt dowry shall be:
a. P50,000. r:. P5,000.
b. P1 0,000. d. none.

109
Chapter 9: Donor's Tax Rates and Donor's Tax Cases

Answer: D
Reference: Section 101 (A) (1), NIRC, as amended
Dowries or gifts made on account of marriage and before its ~
celebration or within one year thereafter b11 parents to each of their
legitimate, recognized natural, or adopted children to the extent of
the first Ten thousand pesos (PlO,OOO) [Section 101 (A) {1), NJRC,
as amended are exempted from tax.
~~~~~~~~~~~~~~~~~~

~ 18. Mr. Pantaleon de Leon donated a piece of land to his best friend,
German La Germania. The land had an assessed value of
P1,000,000 and zonal value of P800,000 at the time of donation.
It was also encumbered with an unpaid mortgage of P300,000 which
was assumed by the donee. In addition, the donee agreed to pay the
applicable donor's tax ofP210,000. For donor's tax purposes,
how much was the total deductions?
a. P510,000 c. P210,000
b. P300,000 d. None

Answer: B

Mortgage assumed by the donee

'\'. 19. Mr. Nguyen Gandaipen, a !1on-residept alieu; donates a brand new
car valued at P1,200,000 to his legitimate son who is getting married
in the Philippines. The son agrees to pay the unpaid tax of Pl20,000
on the car. For Philippine donor's tax purposes, the total amount of
deduction shall be:
a. P130,000. c. P10,000.
b. P120,000. d. none.

Answer: B

Unpaid tax assumed by the donee

~~ :{{Ju..:..i1 h. .. .J;:v.)
._ .:(. <:.[,:)._ ,1\l,ol~rr'. ;)_ '-f~r,(.{

>t 20. Mr. George Jorge 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:
gross gifts? deductions?
a. P 600,000 P 500,000
b. p 500,000 p 500,000
c. p 600,000 p 100,000
d. p 500,000 p 100,000

Answer: A

110
Chapter 9: Donor's Tax Rates and Donor's Tax Cases

21. Ms. Josie Pruitt made the following gifts in the year 2011:
Date Donations
June 6, 2011 P50,000 to Jaimee, purely illegitimate daughter
on account of her marriage
celebrated on June 8 2010.
August 11, 2011 A piece of jev,;elry purchased by Ms. Pruitt
for P100,000 (but with a fair market value of
P150,000 at the time of donation) given to
her husband.
October 12, 2011 P50,000 to Maritz, her legitimate daughter,
on account of her marriage on
December 25 2010.
December 25, 2011 P20,000 cash donation to a non-profit
philanthropic organization.

The total taxable net gifts of Ms. Pruitt as of December 25, 2011
were:
a. P200,000. c. P90,000.
b. P140,000. d. zero.

Answer: C
Gross gift p 20,000
Less: Donation to philanthropic organization 20 000
Net gilt
Add: Prior net gifts
clune 6, 2011 P 50,000
August 11. 2011 (void donation)
October 2o, 2011 (50,000- I 0,000) 40.000
December 25, 2011 (20,000 ~ 20.000) 90 000
Total taxable net gifts, December 25, 2007 p_~Q,QOQ

22. (Phil. CPA) In 2011, Jose made the following gifts:


a. On June 1, 2011, Pl50,000 to Anton, his son, on account of his
marriage celebrated May 1, 2009;
b. On July 10, 2011, a parcel of land worth P180,000 to his father,
subject to the condition that his father would assume the
mortgage indebtedness of Jose in the amount of P40,000;
c. On September 30, 2011, P150,000 dm\T~' to his daughter Dana,
on account of her scheduled marriage on October 25, 2011, and
another wedding gift \vorth P20,000 on November 23, 2011.
How much was the total net gifts?
a. PSOO,OOO c. P450,000
b. P460,000 d. P430,000

111
Chapter 9: Donor's Tax Rates and Donor's Tax Cases

Answer: C
November 23. 201 1:
Net gift p 20,000
Add: Prior net gifts
June 1, 2011 p 150,000
July10,2011
(P180,000- P40,000) 140,000
September 30, 2011
(Pl5 1J,OOO- PlO,OOO) 140 000 430 000
Total net gifts P~1_5c(kQQQ

23. On January 5, 2011, Emma Crema, resident donor, made the


following donations:
a. To Crispina, recognized natural child, land in the Philippines
valued at P31 0,000, on account of her forthcoming marriage;
b. To Francisco, legitimate son, car in San Diego, California,
USA valued at P500,000 (donor's tax paid in USA, P20,000).
For Philippine donors tax purposes, the donor's tax due after tax
credit shall be:
a. P32,000. c. P12,000.
b. P20,000. d. none.

Answer: C
To Crispina p 310,000
To Francisco soo 000
Total gross gifts 810,000
Less: Dowry 10 000
Taxable net gifts PcBQQ_J)J2_J2

Tax due p 32,000


Less: Tax credit for foreign donor's tax
Actual foreign donor's tax ~= ~()_,Q_QQ
Limit (P500,000/P800,000) X P32,000 f'~~()_,Q<:JQ 20 000
Tax payable P~J2_,_QQQ

24. Mitch is a citizen and resident of the Philippines. On July 8, 2011,


she made donations to Yeng, a friend, of properties in Australia and
Thailand. Donor's taxes paid in Australia and USA amounted to
P95,000 and P50,000, respectively. The propert~ in Australia had a
fair market value of P300,000 while the property in US had a market
value of P200,000. How much was the donor's tax still due after
credit for foreign donor's taxes?
a. P 145,000 c. p 10,000
b. p 15,000 d. p 0

112
Chapter 9: Donor's Tax Rates and Donor's Tax Cases

Answer: C
Net gift, Australia p 300,000
Net gift, USA 200 000
Taxable net gifts P ~SOQ_._QQ_Q

Tax due (P500,000 X 30%,) p 150,000


Less: Tax credit foreign donor's tax 140 000
Tax payable ~- lQ.D_QQ

Tax credit Actual Allowed


Limit (a) - B11 country
Australia
(PJOO,OOOjP500,000) X P150,000 p 90,000 p 95,000 p 90,000
USA
(P200,000/P500,000) X Pl50,000 60,000 50,000 50 000
Total p 140 000
Limit (b)- By toto/
(Po00,000/P500,000) X P150,000 p 150,000 p 145,000 p 145 000

Allowed (iower betwePn limit a and limit b) p 140"00_9

25. Mr. James Jayme, non-resident citizen donor, made the following
donations on July 15, 2011:
a. To Charles, a legally adopted child, on accourtt of his marriage on
July 31, 2011, a property in Indonesia (donor's tax paid in
Indonesia, P70,000), fair market value, P510,000;
b. To Adjanto, best friend in the Philippines, a property \\'ith an
unpaid mortgage of P30,000 assumed by the donee,
fair market value, P230,000.
For Philippine donor's tax purposes, the allowable tax credit is:
a. P74,000. c. P52,857.
b. P70,000. d. P21, 143.

Answer: C
Stranger Relative
(lidjcmto/ (Charles/
Gross gifts p 230.000 p 510,000
Less: Dowry ( 10,000)
Mortgage assumed by donee 30.000)
Taxable net gifts t'200~D.QQ

Tax due p 60 000 p 14 000


Total tax due f'_ 7_ 4:_,00()_
Donor's tax credit
Actual foreign donor's tax p 70 000
Limit [(P500.000jP700,000) X P74,000J p 5') 857

AllmYed (lower) fc=J)?,_~51

113
Chapter 9: Donor's Tax Rates and Donor's Tax Cases

26. A resident alien donor donated to a Philippine domestic corporation a


property located abroad valued at P500,000. The foreign donor's tax
on the donation was P100,000. A donation earlier withir. the same
calendar year, was donated to a legitimate daughter, a property
valued at P300,000.
How much was the tax payable?
a. P 58,500 c. p 52,500
b. p 56,250 d. None of the choices

Answer: C
Stranger Relative
Net gifts p 500,000 p
Add: Prior net gifts 300 000
Taxable net gifts !"'3QQJ)Q_Q

Tax due p 150 000 p 6 000


Total tax due p 156,000
Less: Tax payments/ credits
Payments for prior gifts p 6,000
Foreign donor's tax 97 500 103 500
Total tax due J:'__ 5~.50_Q

Donor's tax credit


Actual foreign donor's tax p 100 000
Limit [(P500,000/P800,000) X P156,000] p 97 500
Allowed (lower) J"=9Z~O.Q

27. The following donations were made by a resident citizen donor during
the current year:
Date Donations
July 22 To Milan, legitimate daughter, on account of
forthcoming marriage in the USA, car valued at
P850,000 (US donor's tax paid was P40,000).
To Bryan, adopted son in the Philippines, cash
P500 000.
November 11 To Samuel, legitimate son, land in the Philippines
valued at P300,000 (unpaid mortgage of P50,000
vvas assumed by the donee).

Question 1: How much was the donor's tax payable on the gifts made
on July 22?
a. P 71,200 c. P 20,000
b. P 31,200 d. None of the choices

114
Chapter 9: Donor's Tax Rates and Donor's Tax Cases

Question 2: How much was the donor's tax payable on the gifts made
on November 11?
a. P 71,200 c. P 20,000
b. P 31,200 d. None of the choices

Answers: Question 1: B
Question 2: C

July 22: Gross gifts (P850,000 + PSOO,OOO) p 1,350,000


Less: Dowry ( 10 000)
Taxable net gift p 1,340.000

Tax due P 71,200


Less: Tax credit for foreign donor's tax (___4'--'0'-'-"'0-"'0-"'-0)
Tax payable ~p==3b1,,2""'0~0

NovEmber 11: Gross gift p 300,000


Less: Mortgage assumed by donee ( 50 000)
Net gift p 250,000
Add: Total prior net gifts 1 340 000
Total taxablE net gifts P 1.,.5_9D,OOQ

Tax due P 91,200


Less: Payments for prior gifts ( 31,200)
Tax credit for foreign donor's tax (___4'-'0'--L.=O=O=O)
Tax payable P 2..Q,D_QQ

Computation for tax credit for foreign donor's tax:


July 22:
Actual foreign donor's tax P40 000 Lower
Limit (P840,000/P1,340,000 X P71,200) P44 633
November 11:
Actual foreign donor's tax P40.000 Lower
Limit (P840,000 / P1 ,590,000 X P91 ,200) P48 181

28. On January 15, 201 1, Daisy gave a piece of land to her son who is
getting married on Februar:y 14, 2011. The assessed value and zonal
value of the land were P750,000 and Pl,OOO,OOO respectively.
The land had an unpaid mortgage of P200,000, which was assumed
by the donee and an unpaid realtv tax of PlO,OOO which was not
assumed by the donee. The donor's tax due was:
a. P44,000. c. P29,000.
b. P31 ,400. d. Pl6,400.

115
r
Chapter 9: Donor's Tax Rates and Donor's Tax Cases

Answer: B
Gross gift Pl,OOO.OOO
Less: Deduction
Dq\\TY p 10,000
Unpaid mortgage 200.000 210 000
Taxa blc net gift p __z:2J_U)~Q

Tax due and payable

29. On March 12, 2011, Faith gave a piece of land to her best friend who
is a graduate of Agricultural Engineering. The land had a fair market
value of PSO,OOO and had an unpaid tax of PlO,OOO which was
assumed by the donee. How much was the donor's tax due?
a. Pl5,000 c. Exempt
b. Pl2,000 d. None of the choices

Answer: B

Gross gift p 50.000


Less: Unpaid tax 10 000
Taxable net gift .P 40 000

Tax due and payable (P40,000 X 30%)

30. Donations of property and cash were all done, on one date by
Vincent, father, as follows: To Lizzy, a legitimate daughter on
account of her marriage, land \'\'ith a fair market value of PSOO,OOO
but subject to a mortgage of PlOO,OOO which was assumed by Lizzy.
To Alex, a legitimate son, on account of his marriage, cash of
P200,000. The net gifts made were:
a. P680,000. c. P590,000.
b. P700,000. d. P580,000.

Answer: D
To Lizzy (P500,000- P100.000- PlO,OOO) p 390,000
To Alex (P200,000- P10,000) 190 000
Total net gifts p_~SO,QQ_Q

116
Chapter 9: Donor's Tax Rates and Donor's Tax Cases

31. With the consent of his wife and on account of the son's forthcoming
marriage, Carlo donated a conjugal real property to his son.
The zonal value of the property vvas Pl ,000,000 and its value per tax
declaration was Pl ,500,000. Unpaid mortgage on the property was
P300,000 and unpaid realty tax was PlOO,OOO which were assumed
by the donee. The taxable net gift of Carlo was:
a. P550,000. c. P340,000.
b. P540,000. d. none of the choices.

Answer: B
Gross gift (Pl ,500,000 X 'l2) p 750,000
Less: Dowry p 10,000
Unpaid mortgage assumed by
donee (P300,000 X 'l2) 150,000
Unpaid realty tax (PJOO,OOO X V2) 50 000 210,000
Taxable net gift p 540.000

32. On account of the marriage of Arnie] Sy and Ana Dinio, son and
daughter-in-law, Mr. Allan Sy donated a real property with a fair
market value of Pl ,500,000, but subject to a mortgage of P300,000
which was assumed by the donees. The donor's tax is:
a. P77,750. c. P185,950.
b. P84,950. d. Pl99,400.

Answer: D
Stranger Relative
(/\.na Dlnio/ (Amlel Sui
Gross gift p 750,000 p 750,000
Less: Dowry ( 10,000)
Mortgage assumed by donees 150 000) ( 150.000)
Taxable net gift P 6QQ..Q_OO P 5_QOQ~Q

Tax due p 180 000 p 19 400


Total tax due .e_l9.9~~i2Q

117
Chapter 9: Donor's Tax Rates and Donor's Tax Cases

33. to 36. are based on the following: During the current calendar year,
Hope had the following donations/ transactions:
Date Donations
January 15 Donated a P150,000 diamond ring to her sister who
was getting married in March 15 of the same year.
March 15 Sold her personal car. valued at P500,000 for
P200 000 to his uncle.
April 15 Sold his residential house to his brother for
P1,500,000. The fair market value of the residential
house at the time of sale was P2,000,000.
June 15 Donated PlOO,OOO to Quezon City for public purpose
and P50,000 to her brother who graduated from
Aten eo.

33. How much was the donor's tax for the gift made on January 15?
a. P 30,000 c. P 800
b. P 1,000 d. None of the choices

34. How much was the donor's tax for the gift made on March 15?
a. P 81,000 c. P 11,000
b. P 12,000 d. None of the choices

35. How much was the donor's tax for the gift made on April 15?
a. P 12,000 c. P 1,000
b. P 11,000 d. None of the choices

36. How much was the donor's tax for the gift made on June 15?
a. P 32,000 c. P 2,000
b. P 14,000 d. None of the choices

118
Chapter 9: Donor's Tax Rates and Donor's Tax Cases

Answers:
33.B
34.C
35. D
36.C
January l5:Gross gift p 150,000
Less: Deduction
Taxable net gift p 150 000
Tax due and payable p_~_l,_Q_QQ

March 15: Gross gift (P500,000-P200,000) p 300,000


Less: Deduction
Net gift p 300,000
Add: Prior net gifts 150 000
Total taxable net gifts p 450,000

Tax due p 12,000


Less: Payments for prior gifts 1 000
Tax payable p 11 000

April 15: Not subject to donor's tax because the transaction


was subject to 6% capital gains tax.
Stranger Relative
June 15: Gross gifts P 100,000 P 50,000
Less: Deductions
Transfer to Quezon City
government 100 000
Net gifts p p 50,000
Add: Prior net gifts 450 000
Total tax net gifts E~-=--~ E..~~O~OQQ

Tax due P 14,000


Less: Payments for prior gifts 12 000
Tax payable p_ _2,QQQ

119
Chapter 9: Donor's Tax Rates and Donor's Tax Cases

37. to 40. are based on the following: Mr. Rodolfo Felix made the
following gifts in 20 11:
Date Donations
January 2 P500,00 to Ana, his acknowledged natural
daughter on account of her marriage celebrated
on Januarv 1 2010.
March 9 A diamond ring purchased by Mr. Felix at the
cost of P5,000 (but with a fair market value of
P9,000 at the time of donation) given to his wife
as a birthdav oift.
June 20 P150,000 to Boy, his legitimate son on account of
his marriage on December 12, 2010.
December 25 P120,000 cash donation to the Hospicio de
San Jose, acharitable institution.

37. How much is the donor's tax due for the gift made on January 2?
a. P 14,000 c. P 12,000
b. P 13,600 d. None of the choices

38. Hovv much is the donor's tax due for the gift made on March 9?
a. P 240 c. Zero
b. P 160 d. None of the choices

39. How much is the donor's tax due for the gift made on June 20?
a. P 9,800 c. r 7,800
b. P 8,400 d. None of the choices

40. Hmv much is the donor's tax duefor the gift made on
December 25?
a. P 36,000 c. Zero
b. p 7,200 d. None of the choices

120
Chapter 9: Donor's Tax Rates and Donor's Tax Cases

Answers:
37.A
38.C
39.B
40.C

Stranger Relative
January 2:
Gross gift p p 500,000
Less: Dowr~y
Net gift p p 500 000
Tax due and payable

March 9:
No donor's tax due. Donations made
between spouses are void except::
a. Moderate gifts on account of family
rejoicing;
b. Donation mortis causa.

June 20:
Gross gift p p 150,000
Less: Dowry 10 000
Net gift p p 140,000
Add: Prior net gifts 500 000
Total taxable net gifts p 640,000

Tax due p 22,400


Less: Payments for prior gifts 14 000
Tax payable p 8,400

December 25:
Gross gift p 120,000 p
Less: Deduction
Donation to charitable institution 120 000
Net gift
Add: Prior net gifts 640 000
Total taxable nee gifts p 640,000
~~~=

Tax due p 22,400


Less: Payments for prior gifts ( 22 400)
Tax payable p

121
Chapter 9: Donor's Tax Rates and Donor's Tax Cases

41. to 43. are based on the following: Mr. and Mrs. Juan Jose made the
follmving donations during the calendar year 2011 (common property
unless otherwise stated):
Date Donations
January 2 To Alice, legitimate daughter, on account of her
forthcoming marriage, 10,000 shares which are not
traded in the stock exchange. The book value at the
time of donation was P50 per share.
To Jewel, family friend of couple, on account of her
birthdav P20 000.
February 3 To Aevon, legitimate daughter, on account of her
marriage on February 1, 2010, a piece of antique
jewelry from the capital property of Mr. Jose. The
pawn value of the jewelry was P50,000.
To Janina, legitimate daughter, on account of her
graduation, a piece of land costing P500,000.
The fair market value per BIR at the time of donation
was P1,000,000. Its assessed value was P1,200,000.
The piece of land had an unpaid mortgage of
PlOO,OOO which was assumed by the donee.
To Anna, Mrs. Jose's sister, on account of her
forthcoming marriage, cash P100,000.
October 4 To ReSA Colleges, a non-profit educational institution,
P250,000.
To Belmont Shipping Company, a piece of land valued
at P700,000.
To John, legitimate son, on account of his
forthcoming marriage, cash of P200,000.

41. How much is the tax due and payable of Mr. Juan Jose on gifts made
on January 2?
a. P 19,600 c. P 6,600
b. P 7,000 d. None of the choices

42. How much is the tax due and payable of Mr. Juan Jose on gifts made
on February 3?
a. P 58,400 c. p 36,800
b. p 51,800 d. None of the choices

43. How much is the tax due and payable of Mr. Juan Jose on gifts made
on October 4?
a. P 126,000 c. P 111,000
b. P 111,800 d. None of the choices

122
Chapter 9: Donor's Tax Rates and Donor's Tax Cases

Answers:
41. c
42.B
43.C

Stranger Relative
January 2:
To Alice (PSOO,OOO X 1/2) p p 250,000
To Jewel (P20,000 X 1/2) 10 000
Gross gifts p 10,000 p 250,000
Less: Dowry 10 000
Taxable net gifts
Tax due p 3 000 _,__P_ _--"3'-'-6"'""0"'-0-"-
Aggregate tax due p 6,600

February 3:
To Aevon (PSO,OOO X 3) p p 150,000
To ,Janina (Pl,200,000 X 1/1) 600,000
To Anna (PlOO,OOO X V2) 50 000
Gross gifts p 50,000 p 7SO,OOO
Less: Deductions
Unpaid mortgage assumed by
Donee (PlOO,OOO X Vcz) 50 000
Net gift p oO,OOO P 700,000
Add: Prior net gifts 10 000 240 000
Total taxable net gifts

Tax due p 18 000 _,_P__4-'-0"'-'-'4-""0-"-0


Aggregate tax due p 58,400
Less: Payments for prior gifts 6 600
Tax payable

October 4:
To ReSA College (P250,000 X '/2) p 125,000 p
To Belmont Shipping (P700,000 X 1/:d 3SO,OOO
To John (P200,000 X 1/2) 100 000
Gross gifts p 475,000 p 100,000
Less: Deductions
Dowry 10,000
Donation to non-profit
educational institution 125 000
Net gifts p 350,000 p 90,000
Add: Prior net gifts 60 000 940 000
Total taxable net gifts P_ 4~\;LQQg _ELQ~P~QQD

Tax due p 1 23 000 p 46.400


Aggregate tax due p 169,400
Less: Payments for prior gifts 58 400
Tax payable

123
' Chapter 9: Donor's Tax Rates and Donor's Tax Cases

DONOR'S TAX RATES

If the net gift is:

OF
OVER BUT NOT THE TAX
PLUS EXCESS
OVER SHALL BE
OVER
p 100,000 EXEMPT
p 100,000 200,000 p 0 2% p 100,000
200,000 500,000 2,000 4% 200,000
500,000 1,000,000 14,000 6% 500,000
1,000,000 3,000,000 44,000 8% 1,000,000
3,000,000 5,000,000 204,000 10% 3,000,000
5,000,000 10,000,000 404,000 12% 5,000,000
10,000,000 1,004,000 15% 10,000,000

124
Chapter 10
FILING OF DONOR'S TAX RETURNS,
PAYMENT AND REQUIREMENTS
"cDo niiat tfie Lord wants andJ{e wi[[giw you your fieart 's desire" - 1Psuim 37:-1

Multiple Choice: Choose the best possible answer.

1. First statement: Any person making a donation (whether direct or


indirect), is required to accomplish under oath a donor's tax return
for every donation, unless the donation is specifically exempted
under the Tax Code or other special laws.
Second statement: The computation of the donor's tax is on a
cumulative basis over a period of one calendar year.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
References: Section 103 (A), NIRC, as amended
Sections (12) and 13 (A), Revenue Regulations
No. 2-2003

2. Which of the following information shall be set forth in the donor's


tax return?
I - Each gift made during the calendar year which is to be included
in computing net gifts;
II - The deductions claimed and allmvable;
III - Any previous net gifts made during the same calendar year;
IV - The name of the donee;
V - Relation of the donor to the donee;
VI - Such further information as the Commissioner may require.
a. All of the above c. I, II, III and IV only
b. None of the above d. I, II and III only

Answer: A
References: Section 103 (A), NIRC, as amended
Section 13 (A), Revenue Regulations No. 2-2003

3. The donor's tax return shall be filed and the tax due paid \Nithin how
many days after the date the donation was made or completed?
a. 60 days c. 30 days
b. 40 days d. 10 days

125
Chapter 10: Filing of Donor's Tax Returns, Payment and Requirements

Answer: C
Reference: Section 103 (B), NIRC, as amended

4. First statement: A donation with an unpaid donor's tax is not a valid


donation.
Second statement: The title to the donated real property cannot be
transferred to the donee in the Register of Deeds unless the donor's
tax on the donation had been paid.
a. True, True c. True, False
b. False, False d. False, True

Answer: D
References: Section 95, NIRC, as amended
The Law on Transfer and Business Taxation,
1998 edition. Hector de Leon
Payment of donor's tax is not a requisite for a valid donation.
The requisites for valid donation for donor's tax purposes are:
a. Capacity ofthe donor;
b. Donative intent, or intent on the part of the donor to make a
gift;
c. Delivery, whether actual or constructive, of the subject matter
of the gift; and
d. Acceptance ofthe gift by the donee.

5. A resident citizen has a property in Quezon City. His legal residence


is in Masbate City. While in Cebu City on a business trip, he donated
his property in Quezon City to a relative who is long-time resident of
Cebu City.
Where will the donor file the donor's tax return?
a Quezon City c. Masbate City
b. Cebu City d. Any of the three cities

Answer: C
Reference: Section 103 (B), NIRC, as amended

6. First statement: In the case of gifts made by a non-resident alien, the


return shall be filed with the Philippine Embassy or Consulate in
the country where he is domiciled at the time of the transfer, or
directly with the Office of the Commissioner.
Second statement: The term "Office of the Commissioner" shall refer to
Revenue District Office (RDO) having jurisdiction over the ErR-
National Office which houses the Office of the Commissioner, or
presently, to the Revenue District Office No. 39-South Quezon City.
a. True, True c. True, False
b. False, False d. False, True

126
Chapter 10: Filing of Donor's Tax Returns, Payment and Requirements

Answer: A
Reference: Section 13 (B), Revenue Regulations No. 2-2003

7. First statement: In order for donations to be exempt from donor's tax


and claimed in full as deduction, the donee-institution must be
duly accredited by the Philippine Council for NGO Certification
(PCNC).
Second statement: The donor engaged in business shall give a notice
of donation on every donation worth at least P50,000 to the
Revenue District Office, which has jurisdiction over his place of
business within 30 days after receipt of the qualified donee-
institution's duly issued Certificate of Donation.
a. True, True c. True, False
b. False, False d. False, True

Answer: D
References: Section 13 (C), Revenue Regulations No. 2-2003
Section 1, Executive Order No. 67,
dated October 22, 2007
The Philippine Council for NGO Certification (PCNC) had been
divested of its function to accredit donee-institutions (see Section 1,
E.O. No. 67.)
Section 1. Accrediting Entity - The following Departments are hereby
designated Accrediting Entities to determine the qualification of non-
stock, non-profit corporations, non-govemmental organizations,
associations, and foundations for accreditation as qualified donee
institutions to wit:
a. Department of Social Welfare and Development for charitable
and/ or social welfare organizations, foundations and associations
including but not limited to those engaged in youth, child, wome1,1.,
family, disabled persons, older persons welfare and
development;
b. Department of Science and Technology -for organizations,
associations and foundation primarily engaged in research and
other scientific activities;
c. Philippine Sports Commission- for organizations, foundations and
associations primarily engaged in sports development;
d. National Council for Culture and Arts -for organizations,
foundations, and associations primarily engaged in cultural
activities
e. Commission on Higher Education- for organizations, foundations
and association primarily engaged in educational activities

127
Chapter 10: Filing of Donor's Tax Returns, Payment and Requireme-nts

8. First statement: When a donor's tax return filed is found by the BIR
to have errors resulting in deficiency donor's tax, the donor may be
required to pay the deficiency although he does not possess or own
the property anymore.
Second statement: The Government is not bound by any agreement
between the donor and the donee that the latter shall pay the
donor's tax instead of the former.
a. True, True c. True, False
b. False, False d. False, True

Answer: A
Reference: Section 103 (B), NIRC, as amended
[ For donor's tax purposes, it is the donor who is liable to pay the l
donor's tax. 1

I
The return o[the donor reqvired in this Section shall be filed within 1
thirty (30) days after the date the gift is made and the tax due 1

thereon shall be paid at the time of filing [Section 1 O]j_B)]. __1

9. Unless the Commissioner otherwise permits, the donor's tax return


shall be filed with and the tax paid to which of the following?
a. Authorized Agent Bank
b. Revenue District Officer or Revenue Collection Officer
c. Duly authorized city or municipal Treasurer
d. Any one of the choices

Answer: D
References: Section 103 (B), NIRC, as amended
Section 13 (B), Revenue Regulations No. 2-2003

10. When the donor has no legal residence in the Philippines, the donor's
tax return shall be filed with the:
a. authorized agent bank.
b. Revenue District Officer '"here the donor is domiciled.
c. Revenue Collection Officer vvhere the donee is domiciled.
d. Office of the Commissioner.

Answer: D
References: Section 103 (B), NIRC, as amended
Section 13 (B), Revenue Regulations No. 2-2003

128
Chapter 10: Filing of Donor's Tax Returns, Payment and Requirements

11. (Phil. CPA) Gifts may or may not be covered by ta..xes. One of these
statements is false.
a. The donor's tax for each calendar year is computed on the
basis of the total net gifts made during the calendar year.
b. Gifts on property shall be valued at fair market value of the
property at the date of donation.
c. A gift to the Development Academy of the Philippines is
exempt from tax.
d. A gift out of conjugal property is always deemed as made by
both spouses.

Answer: D
Reference: Section 12, Revenue Regulation No. 2-2003
If what was donated is a conjugal or community property and only
the husband signed the deed of donation, there is only one donor
1
for donor's tax purposes, without prejudice to the right of the wife
to question the validity of the donation without her consent
pursuant to the pertinent provisions of the Civil Code of the
Philippines and the Family Code qf the Philippines {Sec. 12,
1Revenue Regulations No. 2-:..._70_0_3'--).______________ __j

12. (Phil. CPA) Donor's tax as distinguished from estate tax.


a. Exemption is P100,000
b. There is no optional valuation date
c. Payment is made as the return is filed
d. Notice is not needed

Answer: A
References: Sections 84 and 99 (A), NIRC, as amended

13. First statement: A separate return shall be filed by each donor for
each gift or donation made on different dates during the year
reflecting therein any previous net gifts made in the same
calendar year.
Second statement: Only one return shall be filed for several gift or
donations by a donor of the different donees on the same date.
a. True, True c. True, False
b. False, False d. False, True

Answer: A
Reference: BIR Form No. 1800 (Donor's Tax Return)

129
Chapter 10: Filing of Donor's Tax Returns, Payment and Requirements

14. Who of the following shall file a separate return?


I - Each spouse donating conjugal/ community property
II - Co-owners donating co-ownership property
a. I only c. Neither I nor II
b. II only d. Both I and II

Answer: D
Reference: BIR Form No. 1800 (Donor's Tax Return)

15. Which proof of valuation is valid for donor's tax purposes?


I - For listed stocks - newspaper eli ppings /certification issued by
the Stock Exchange as to the value of the share
II - For unlisted stocks - latest audited Financial Statements of the
issuing corporation with computation of the book value per
share
a. I only c. Neither I nor II
b. II only d. Both I and II

Answer: D
Reference: BIR Form No. 1800 (Donor's Tax Return)

130
'
Chapterll
VAT-SUBJECT TRANSACTIONS
'Ifie greater dangerfor most of us is not tfiat our aim is too fiigfi and we miss it,
6ut tfiat it is too (ou: and we reacfi it. -:Micfie(ange(o

Multiple Choice: Choose the best possible answer.

y'Which of the following shall be subject to Value-Added Tax?


a.Any person who, in the course of his trade or business, sells,
barters, exchanges or leases goods or properties
b. Any person who, in the course of his trade or business,
renders service
c. Any person who imports goods
d. All of the choices

Answer: D
Reference: Section 4.105-1, Revenue Regulations No. 16-2005

In the case of6ortatiQj:) of taxable goods, who shall be liable to


ya'I?
a. mporter whether an individual or corporatiop and .,}Vhether 4

o ot made in the course of his trade or busin~ss


b. Importer if made in the course of trade or business only
c. Importer if corporation and only when made in the course of
trade or business
d. None of the choices

Answer: A
~eference: Section 4.105-1, Revenue Regulations No. 16-2005 .--._._1. -

First statement: For VAT purposes, a taxable person is '1ny pers_n


liable to pay the VAT, whether registered or registra.le in
accordance with the Tax Code. v
Second statement: The status of a "VAT-registered person" as a VAT-
reg~stered pers911 shall continue ~til the cancellation of sue~
reg1strahcw. v"'
~- Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
Reference: Section 4.105-1, Revenue Regulations No. 16-2005

131
r Chapter 11: VAT-Subject Transactions

Y.who shall be@tutonly hao))~ for the tax on sale of goods or

b.

properties and sale of services a"Fid'lease of properties?
a.
elle
c. Consumer
d. None of the choices

Answer: B
Reference: Section 4.105-2, Revenue Regulations No. 16-2005

y Value-Added Tax is:


a. a specific tax. c. a local tax.
b. an indirect tax. d. none of the choices.

Answer: B
Reference: Section 4.105-2, Revenue Regulations No. 16-2005

~. 0 h e term "in the course of trade or business" does not include:


a. regular conduct or pursuit of a commercial or economic
activity.
b. incidental transactions.
c. transactions by any person regardless of whether or not the
person engaged therein is a non-stock, non-profit private
. organization (irrespective of the disposition of its net income
and whether or not it sells exclusively to members. or their.
.guest,:>), or government entity.
d. none of the choices.

Answer: D
Reference: Section 4.105-3, Revenue Regulations No. 16-2005

7./ First statement: Non-resident persons who perform services in the


/ Philippines are deemed to be making sales in the course of trade or
business, even if the performance of service is not regular. /
Second statement: VAT is imposed and collected on every sale, barter
. or exchq.nge,.. or transactiqps "deemed sale" of taxable goods or
propertie~at the rate of 12% of the gross selling price or gross value"
in money of the goods C:r properties sold, bartered, or exchanged, or
deemed sold in the Philippines. Y/,.
a. Both statements are C<{rrect
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
Reference: Section 4.105-3 and 4.106-1,
Revenue Regulations No. 16-2005

132
Chapter 11: VAT -Subject Transactions

~ Which of the following shall not be included in the term "goods or


properties"? _ -" ' , ,
a. Real properiies(notheld primarily for sale to customers or not
held for lease in the ordinary course of trade or business
b. The right or privilege to use patent, copyright, design or
model, plan, secret formula or process, goodwill, trademark,
trade brand or other like property or right
c. The right or the privilege to use any industrial, commercial or
scientific equipment
d. The right or the privilege to use motion picture film, films,
tapes and discs

Answer: A
Reference: Section 4.106-2, Revenue Re ulations No. 16-2005
-~~~~~~~~~~~~--------------.

The term "goods or properties" refers to all tangible and{intcmgible


obJects which are capable of pecuniary estTrnation and-shall - - -
include, among others:
(1) Real properties held primarily for sale to customers or held for
lease in the ordinary course oftrade or business;
(2) The right or the privilege to use patent, copyright, design or
model, plan, secret formula or process, goodwill, trademark, trade
brand or other like property or right;
(3) The right or the privilege to use any industrial, commercial or
scientific equipment;
(4) The right or the privilege to use motion picture films, films, tapes
and discs; and
(~) Radio, television, satellite transmission and cable television I
tzme. _____j

~ ~ Which of the follov.i~g s~all be subject to VAT?


V a. Sale of a res1dentml house and lot -1 ,,, -
b. Sale of an apartment house
c. Sale of a private car by its owner ,- "'I'!
,...,, I

d. All of the above

Answer: B
Reference: Section 4.106-3, Revenue Regulations No. 16-2005

;; @ n the case of sale of real properties on the installment plan, the real
estate dealer shall be subject to VAT on the:
a. selling price.
b. installment payments, excluding interest and penalties,
actually or constructively received by the seller.
c. selling price or fair market value whichever is higher.
d. installment payments, including interest and penalties,
actually or constructively received by the seller.
Chapter 11: VAT -Subject Transactions

Answer: D
.
Reference: Section 4.106-3, Revenue Regulations No. 16-2005

11. Which of the following sales of residential property where the


instrument of sale (whether the instrument is nominated as a deed of
absolute sale, deed of conditional sale or otherwise) is executed on or
after July 1, 2005, shall be subject to VAT?
I- Sale of[r~e!'i_d~~~tia_lJ~~ exceeding P1,919,500 (used to be
Pl,500,000.00)
II - Sale of residential house and lot or other residential dwellings
exceeding P3, 199,200 (used to be P2,500,000.00)
a. I only c. Both I and II
b. II only d. Neither I nor II

Answer: C
Reference: Section 4.106-3, Revenue Regulations No. 16-2005 as
amended by Section 2, Revenue Regulations No. 16-2011

12. Sale of real property by a real estate dealer, the initial payments of
which do not exceed twenty-five percent (25%) of the gross selling
price in the year of sale.
a. Sale of real property by a real estate dealer on a deferred
payment basis, not on installment
b. Sale of real property on installment plan
c. Initial payments
d. None of the choices

Answer: B - '' , ~ l;< '


Reference: Section 4.106-3, Revenue Regulations No. 16-2005

13. Sale of real property, the initial payments of which exceed twenty-five
percent (25%) of the gross selling price in the year of sale.
a. Sale of real property by a real estate dealer on a deferred
payment basis, not on installment
b. Sale of real property on installment plan
c. Initial payments
d. None of the choices

Answer: A
Reference: Section 4.106-3, Revenue Regulations No. 16-2005

134
Chapter 11: VAT-Subject Transactions

14. Which of the following is not subject to value-added tax?


a. Transmission of property to a trustee if the property is to be
merely held in trust for the trustor and/ or beneficiary
b. Property transferred is one for sale, lease or use in the
ordinary course of trade or business and the transfer
constitutes a completed gift
c. A zero-rated sale of goods or properties by a VAT-registered
person ? <'""
d. None of the choices

Answer: A
Reference: Section 4.106-3 and 4.106-5,
Revenue Regulations No. 16-2005

;f 15 ..M:t. Andres, VAT-registered real estate dealer, transferred a parcel of


land ~<!_for sale to his son as gift on account of his graduation.
For VAT purpose~s, the transfer is:
a. not subject to VAT because it is a gift.
b. subject to VAT because it is a deemed sale transaction.
c. not subject to VAT because it is subject to gift tax.
d. subject to VAT because it is considered an actual sale.

Answer: B
Reference: Section 4.106-3, Revenue Regulations No. 16-2005

16. Which of the following is not included in the term "gross selling
price"?
a. Total amount of money or its equivalent paid by the purchaser
b. Delivery, freight and insurance paid by the purchaser
c. Value-added tax passed on by the seller to the buyer
d. Excise tax

Answer: C
Refer_~I1~: Se_~tion 4.10~-4,~eve,nue R~gulations No. 16-2005
!The term "gross selling price" means the total amount of money or i
its equivalent which the purchaser pays or is obligated to pay to 1

the sel/Pr in consideration of the sale, barter or exchange of the


II goods 1

or properties, excluding VAT. The excise tax, if any, on such i


I goods or properties shall fomL part of the gross selling price. ____j

135
Chapter 11: VAT-Subject Transactions

17. In case of sale, barter or exchange of real property subject to VAT,


the term "fair market value" shall mean:
a. the fair market value as determined by the Commissioner of
Internal Revenue (zonal value).
b. the fair market value as shown in the schedule of values of
the Provincial and City Assessors (real property ta.x
declaration).
c. vvhichever is lower between the zonal value and the value per
real property tax declaration.
d. whichever is higher between the zonal value and the value per
real property tax declaration.

Answer: D
Reference: Section 4.106-4, Revenue Regulations No. 16-2005

;r; 18. In which of the following cases shall the selling price be deemed
inclusive of VAT?
I - If the gross selling price is based on the zonal value or market
value of the property
II - If the VAT is not billed separately
a. I only c. Both 1 and II
b. II only d. Neither I nor II

Answer: B
Reference: Section 4.106-4, Revenue Regulations No. 16-2005 as
amended by Section 4 Revenue Regulations
No. 4-2007
If the gross selling price-is_b_a_s_e_d_o_n_t_h_e_z-onal value or market l
value oft he property, the zonal or market value shall be deemed ,I

exclusive of VAT. If the VAT is not billed separately, the selling


price stated in the sales document shall be deemed to be inclusive I
ofVAT." ____ j

' 19. Which of the following statements i~in9orrect?


lt.i ~o.x'"'' fb. ~ a. A zero-rated sale of goods or p-roperties (by a VAT-registered
~-1U. . person) is a taxable transaction for VAT purposes, but shall
C\\\;. .\ 'l . ~/1\ not result in any output tax.
, b. The input tax on purchases of goods, properties or services,
related to zero-rated sales, shall be available as tax credit only
in accordance with the Regulations.
c. The input ta.x on purchases of goods, properties or services,
related to such zero-rated sale, shall be available as tax credit
or refund in accordance with the Regulations.
d. Any enterprise whose export sales exceed 70% of the total
annual production of the preceding taxable year shall be
considered an export-oriented enterprise.

136
Chapter 11: VAT -Subject Transactions

Answer: B
Reference: Section 4.106-5, Revenue Regulations No. 16-2005

.}. 20. The sale and actual shipment of goods from the Philippines to a
foreign country, irrespective of any shipping arrangement that may
be agreed upon which may influence or determine the transfer of
ownership of the goods so exported is an export sales if:
I - paid for in acceptable foreign currency or its equivalent in goods
or services.
! II - accounted for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP).
a. Only I is correct c. Both I and II are correct
b. Only II is correct d. Neither I nor II is correct

Answer: C
Reference: Section 4.106-5 (a) (1),
Revenue Regulations No. 16-2005

21. The sale of raw materials or packaging materials to a non-resident


buyer for delivery to a resident local export-oriented enterprise to be
used in manufacturing, processing, packing or repacking in the
Philippines of the said buyer's goods is an export sale if:
I - paid for in acceptable foreign currency.
II - accounted for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP).
a. Only I is correct c. Both I and II are correct
b. Only II is correct d. Neither I nor II is correct

Answer: C
Reference: Section 4.106-5 (a) (2),
Revenue Regulations No. 16-2005

l< .t 22. Which of the following i~ not an export sale?


a. The sale of raw materials or packaging materials to an export-
oriented enterprise whose export sales exceed seventy percent
(70%) of total annual production
~ ': :,:~A ~ <~-- b. Sale of gold to .the Bangko Sentral ng Pilipinas (BSP)
c. Transactions considered export sales under Executive Order
No. 226, othenYise known as the Omnibus Investments Code
of 1987, and other special laws
d. The exportation of goods on consignment where the export
products consigned are in fact not sold by the consignee

137
Chapter 11: VAT-Subject Transactions

Answer: D
Reference: Section 4.106-5 (a) (3), (4) and (5),
Revenue Regulations No. 16-2005
I "Export Sales" shall mean: I
(1) The sale and actual shipment of goods from the PhilippineS. to a I
foreign country, irrespective of any shipping arrangement that 1

may be agreed upon which may influence or determine the I


transfer of ownership of the goods so exported, paid for in I
acceptable foreign currency or its equivalent in goods or
services, and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
(2) The sale of raw materials or packaging materials to a non-
resident buyer for delivery to a resident local export-oriented
enterprise to be used in manufacturing, processing, packing or
repacking in the Philippines ofthe said buyer's goods, paid for
in acceptable foreign currency, and accounted for in accordance
with the rules and regulations of the BSP;
(3) The sale of raw materials or packaging materials to an export-
oriented enterprise whose export sales exceed seventy percent
(70%) of total annual production;
Any enterprise whose export sales exceed 70% ofthe total
annual production of the preceding taxable year shall be
considered an export-oriented enterprise.
?K (4) Sale of gold to the BSP; and
(5) Transactions considered export sales under Executive Order No.
226, otherwise known as the Omnibus Investments Code of
198 7, and other special laws.
(6) The sale of goods, supplies, equipment and fuel to persons
engaged in international shipping or international air transport
operations; Provided, that the same is limited to goods,
supplies, equipment and fuel pertaining to or attributable to the
transport of goods and passengers from a port {n the - ---
Philippines directly to a forf!ig7]J20rt or vice versa, without
0

do~5!11.E Q!__~~C!P_E_ir::g_at_af"L!J_O~her porf_Jri t':_ePl_lil~ppiT1f!S unless


1-\ -.:;JJ) Lr<;\ the docking or stopping at any other Philippine port is for the
"'C\9 <:>alA ""\9 purpose of unloading passengers and/ or cargoes that
r~Jr(h'UG t'-(1 onginated from abroad, or to load passengers and/ or cargoes
\~:' r~ ~~'-' rt\;_ .~~~
bound for abroad; Provided, further, that if any po_rtio_n_gf_yc,;.h
fuel, goods or supplies is used for purposes other tharJ that
mentioned in this paragraph, such portion of fuel goods and
supplies shalHies-u7)jeci to-twelve percent (12%) output VAT
starting February 1, 2006. (as amended by RR No. 4-2007)

138
Chapter 11: VAT-Subject Transactions

't'- 23. "Considered export sales under Executive Order No. 226" shall mean:
I - the Philippine port F.O.B. value determined from invoices, bills
of lading, inward letters of credit, landing certificates, and other
commercial documents, of export products exported directly by
registered export producer.
II - the net selling price of export products sold by a registered
export producer to another export producer, or to an export
trader that subsequently exports the same.
a. Only I is correct c. Both I and II are correct
b. Only II is correct d. Neither I nor II is correct

.Answer: C
Reference: Section 4.106-5 (a) (5),
Revenue Regulations No. 16-2005

24. Without actual exportation, which of the following shall be considered


constructively exported for purposes of VAT?
a. Sales to bonded manufacturing warehouses of export-oriented
manufacturers
b. Sales to export processing zones
c. Sales to registered export traders operating bonded trading
warehouses supplying raw materials in the manufacture of
export products under guidelines to be set by the Board of
Investment (BOI) in consultation with the Bureau of Internal
Revenue (BIR) and Bureau of Customs (BOC)
d. All of the choices

Answer: D
Reference: Section 4.106-5 (a) (5),
Revenue Regulations No. 16-2005_________~
I xxx without actual exportation the following shall be considered
I constructively exported for purposes of these provisions:
I (1) sales to bonded manufacturing warehouses of export-oriented
manufacturers;
(2) sales to export processing zones;
I
1 (3) sales to registered export traders operating bonded trading
: ,,J, warehouses supplying raw materials in the manufactur~ of
0
tJ
....l. T export. products under gwdelmes to be set by the Board m
consultation with the Bureau of Internal Revenue (BIR) and the
, 0~ Bureau of Customs (BOC);
- ~ (4) sales to diplomatic missions and other agencies and/ or
instrumentalities granted tax immunities. of locally
manufactured, assembled or repacked products -whether paid
-.::..........
./l!!:JI.l foreign c;urrency_g!_JWf.
==~~-----

139
r
I
Chapter 11: VAT-Subject Transactions

25. It means the sale to a non-resident of goods, except automobiles and


non-essential goods, assembled or manufactured in the Philippines
for delivery to a resident in the Philippines, paid for in acceptable
foreign currency and accounted for in accordance with the rules and
regulations of the BSP.
a. Export sale
b. Foreign currency denominated sale
c. Effectively zero-rated sale
d. Transaction deemed sale

Answer: B.
Reference: Section 4.106-5 (b),
Revenue Regulations No. 16-2005

26. Which of the following shall be considered export sale?


t"t\fvt\ y,<J r:: r\J~
I - Sales of goods, properties or services made by a VAT -registered
supplier to BOI-registered manufacturer or producer whose
J;. iY,Yt, :ct products are 100% exported
II - Sales of locally manufactured and assembled goods for
household and personal use !o Filipino~ ab_rQe and other non-
residents of the Philippines as well as returning Overseas
Filipinos under the Internal Export Program of the government
paid for in convertible foreign currency and accounted for in
accordance with the rules and regulations of the BSP
a. Neither I nor II c. I only
b. Both I and II d. II only

Answer: B
Reference: Sections 4.106-5 (a) (5) and 4.106-5 (b),
Revenue Regulations No. 16-2005

ii. 27. First statement: The term "effectively zero-rated sale of goods and
properties" shall refer to the export sale of goods and properties by
a VAT-registered person to a person or entity who was granted
indirect tax exemption under special laws or international
agreement.
~\c'\td. P(l J" "i' Second statement: Except for export sales and foreign currency
denominated sale, other cases of zero-rated sales shall require prior
application \vith the appropriate BIR office for effective zero-rating
and without an approved application for effective zero-rating, the
transaction otherwise entitled to zero-rating shall be considered
exempt.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

140
Chapter 11: VAT-Subject Transactions

Answer: C
Reference: Sec~ion 6, Revenue Regulations No. 4-2007
Section 6. EFFECTIVELY ZERO-RATED. - Sec. 4.106-6 of RR No.
16-2005 is hereby amended to read as follows:
"SEC. 4.106-6. Meaning oft he term 'Effectively Zero-Rated Sale of
Goods and Properties'. -The term 'effectively zero-rated sale of
goods and properties' shall refer to the local sale of goods and
!2Pertifl?.)J]J_9_ }'_AT registere,d Pf!C5_on to ape,r~-on ar:entz~y who
was granted indirect tax exemption under special laws or
iii.ternatzonal agreement." (R.R. No:-4-2007)
The following provision in RR No. 16-2005 is deleted in Section 6,
RR No. 4-2007:
"Except for Export Sale under Sec. 4.1 06-5(a) and Foreign
Currency Denominated Sale under Sec. 4.1 06-5(b), other cases of
zero-rated sales shall require prior application with the appropriate
BJR office for effective zero-rating. Without an approved application
for effective zero-rating, the transaction othenuise entitled to zero-
rating shall be considered exempt. The foregoing rule
1 notwithstanding, the Commissioner may prescribe such rules to
I effectively implement the processing of applications for effective
~era-rating." j

i- 28. Which of the following local sales of goods or property and services
v\"ill not be effectively subject to VAT at zero-rate?
a. Sales to enterprises duly registered and accredited v;ith the
Subic Ba.v Metropolitan Authority (SBMA)
b. Sales to enterprises duly registered and accredited with the
Philippine Economic Zone Authority (PEZA)
c. Sales to Development Bank of the Philippines (DBP) As::io~ ~fV.,Jt)
d. Sales to International Rice Research Institute (IRRI)

Answer: C
Reference: Section 4.106-5 (c) and 4.108-6,
Revenue Regulations No. 16-2005
- ~
Sales of goods or property cmd services to persons or entities who '
are tax-exempt under special laws, e.g. sales to enterprises duly I
registered and accredited with the Subic Bay Metropolitan I
Authority (SBMA) pursuant to R.A. No. 7227, sales to enterprises 1

duly registered and accredited with the Philippine Economic Zone ~


Authority (PEZA) or international agreements to which the
Philippines is signatory. such as, Asian Deuelopment Bank (ADB), I
International Rice Research Institute (JRRJ), etc., shall be effectively I
subject to VAT at zero-rate. 1
____j

141
Chapter 11: VAT-Subject Transactions

29. Transfer, use or consumption not in the course of business of goods


or properties originally intended for sale or for use in the course of
business is an example of:
a. actual sale of goods or properties.
b. effectively zero-rated sale of goods or properties.
c. deemed sale of goods or properties.
d. none of the choices. 'Jj ttl() ~. ~,,_ 'q

l~Qt{.. S\.i:V) ~' '.~\ -j\J'C :~>"',, kC',., .. +"~ ~~--"' .t.,
Answer: C l_;-,F -L. ~'d _:<. .,

Reference: Section 4.1o6:7'(a) (l), .,


Revenue Regulations No. 16-2005

""' 30. Which of the following circumstances shall give rise to transactions
"deemed sale"?
'I' I - Change of ownership of the business. There is a change in the
Cl 1
/
/ ownership of the business when a single proprietorship
~ incorporates; or the proprietor of a single proprietorship sells
feMJ -t'i.i'(\
I J
ck.wq.._
. "'
his entire business .
' f ''-' II- Dissolution of a partnership and creation of a new partnership
LJ": :J< -;._, "h\ which takes over the business.
a. I only c. Neither I nor II
b. II only d. Both I and II

Answer: D
Reference: Section 4.106-7 (a) (4) (i) and (ii),
Revenue Regulations No. 16-2005

31. Which of the following shall be considered "deemed sale"


transactions?
a. Distribution or transfer to shareholders or investors share in the
profits of VAT -registered person
b. Distribution or transfer to creditors in payment of debt or
obligation
c. Consignment of goods if actual sale is not made within 60 days
following the date such goods were consigned
d. All of the choices

d.;\\'(\

142
Chapter 11: VAT-Subject Transactions

Answer: D
Reference: Section 4.106-7 (a) (2) (i) and (ii) and (3)
,-------R--'evenue Regulations No. 16-2005
SEC. 4. 106-7. Transactions Deemed Sale. -
(a) The following transactions shall be "deemed sale" pursuant to
Sec. 106 (B) of the Tax Code:
(1) Transfer, use or consumption not in the course of business of
goods or properties originally intended for sale or for use in the
course of business. Transfer of goods or properties not in the
course ofbusiness can take place when VAT-registeredperson
withdraws goods from his business for his personal use;
(2) Distribution or transfer to:
i. Shareholders or investors share in the profits of VAT- I
registered person;
Property dividends which constitute stocks in trade or I
properties primarily held for sale or lease declared out of
retained eamings on or after January 1, 1996 and distributed I
by the company to its shareholders shall be subject to VAT
based on the zonal value or fair market value at the time of
distribution, whicheuer is applicable.
ii. Creditors in payment of debt or obligation. 1

(3) Consignment of goods if actual sale is not made within 60 I


days following the date such goods were consigned. ,
I Consigned goods re1JJTllf:?CLlJy thf;JQ/i!?_ig_ry?e within the 6Qcday _,
period are rwLdeemed;>o]d; I
I (4) Retirement from or cessation of business with respect to all ,

goods on hand, whether capital goods, stock-in-trade, supplies


I or materials as of the date of such retirement or cessation,
' ~l whether or not the business is continued by the new owner or I
1

j . 1
._ {"o successor. The following circumstances shall, among others,
give rise to transactions "deemed sale" for purposes of this
I

.9(_,,v I' Section; \! l '


_ u, 1 ,.~!:f!'j't
/i

J1'r '
; ..

rJ L Jf
,. 1 4: i. Change of ownership ofthe business. There is a change in ,
- ~ ; . .' the ownership of the business when a single proprietorship _1,

incorporates; or the proprietor of a smgle proprietorshzp sells


his entzre business. I
ii. Dissolution of a partnership and creatwn of a new
__partnership which takes over the busmess. __j

1-+3
Chapter 11: VAT-Subject Transactions

32. In what cases shall the Commissioner of Internal Revenue determine


the appropriate tax base?
a. In cases where a transaction is deemed a sale, barter or
exchange of goods or properties
b. Where the gross selling price is unreasonably lower than the
actual market value (lower by more than 30% of the actual
market value) -
c. Both a and b
d. Neither a nor b

Answer: C
Reference: Section 4.106-7 (b),
Revenue Regulations No. 16-2005
r---T_h_e_C_o_n__l_m_r_s-s-io_r_w_r of Internal Revenue shall det-e-rn_l_in-e-th-.e- l
. appropriate tax base in cases where a transaction is deemed a 1

sale, barter or exchange of goods or properties under Sec. 4.106-7 !I

I paragraph (a) of R.R. No. 16-2005, or where the gross selling price
is unreasonably lower than the actual market value. The gross I
selling price is unreasonably lower than the actual market value if
it is lower by more than 30'?(, of the actual market value of the I
same goods of the same quantity and quality sold in the immediate I
1
locality on or nearest the date of sale. J

33. For deemed sale transactions, other than retirement or cessation of


;. business, the output tax shall be based on the:
a. selling price of the goods deemed sold as of the time of the
occurrence of the transactions.
b. market value of the goods deemed sold as of the time of the
occurrence of the transactions.
c. acquisition cost of the goods deemed sold.
d. acquisition cost -or the current market price of the goods
whichever is lower.

Answer: B
Reference: Section 4.106-7 (b),
Revenue Regulations No. 16-2005
,-F-o_r_t-ra_n_s_a--c-tz-.o-n-s deemed sale. the output tax shall be based-;~?.the-l
market value ofthe goods deemed sold as ofthe time ofthe
occurrence of the transactions enumerated in Sec. 4.1 06-7(a)(1 ).(2),
and (3) ofR.R. No. 162005. However, in the case ofretirement or
rnw'fu,t. cessation of business, the tax base shall be the acquisition cost or
"' 4-
l(l ;~, ;.. the current market price of the goods or properties, whichever is
"'C'-i.:c.'-.J<,, ~
' .) ' nJ In the case of a sale where the gross selling price is unreasonably 1

lower than the fair market value, the actual market value shall be [
the tax base. _____j

144
Chapter 11: VAT-Subject Transactions

34. A VAT -registered person engaged in a taxable activity as a wholesaler


of goods decides to discontinue the activity and engages instead in
life insurance business, a business not subject to VAT. What is the
tax consequence on his goods or properties originally intended for
sale or use in business, and capital goods which already existed
when he decided to change his business?
a. The goods are not subject to VAT because the taxpayer is
already VAT-exempt.
b. The goods are subject to VAT as deemed sale transaction.
c. The goods are not subject to VAT because wholesalers are
generally exempt from VAT.
d. The goods are subject to VAT only when they are actually sold
by the new owner.

Answer: B
Reference: Section 4.106-8 (a),
Revenue Regulations No. 16-2005_ _ __
I SEC. 4. 106-8. Change or Cessatio~ of Status as VA 1'-regis~ered
Person.
I., (a) Subject to output tax
f The VAT provided for in Sec. 106 ofthe Tax Code shall apply to !

I goods nr properties originally intended for sale or use in business, '


I and capital goods which are existing as of the occurrence of the
1 following:
I 7. Cha,;_ge of business activity from VAT taxable status to VAT-
I] exempt status. An example is a VAT-registered person engaged
in a taxable activity like wholesaler or retailer who decides to
! discontinue such activity and engages instead in life insurance
business or in any other business not subject to VAT;
2. Approval of a request for cancellation of registration due to
reversion to exempt status.
3. Approval of a request for cancellation of registration due to a
desire to revert to exempt status after the lapse of three (3)
consecutive years from the time of registration by a person who
voluntarily registered despite being exempt under Sec. 109 (2)
oftlle Tax Code.
4. Approval of a request for cancellation of registration of one who
commenced business with the expectation of gross sales or
receipts exceeding Pl,500,000.00, but who failed to exceed this I
[_____a_mount during the first twelve months of operation. 1

145
Chapter 11: VAT-Subject Transactions

38. Which of the following statements is incorrect?


a. In case the valuation used by the Bureau of Customs in
computing customs duties is based on volume or quantity of
the imported goods, the landed cost shall be the basis for
computing VAT.
b. Landed cost consists of the invoice amount, customs duties,
freight, insurance and other charges.
c. If the goods imported are subject to excise tax, the excise tax
shall not form part of the tax base.
d. The same valuation rule applies to technical importation of
goods sold by a person located in a Special Economic Zone to
a customer located in a customs territory.

Answer: C
Reference: Section 4.107-1 (a),
Revenue Regulations No. 16-2005
SEC. 4. 10 7-1. VAT on Importation of Goods. -
(a) In general. - VAT is imposed on goods brought into the
Philippines, whether for use in business or not. The tax shall
be based on the total value used by the BOC in determining
tariff and customs duties, plus customs duties, excise tax, if
any, and other charges, such as postage, commission, and
similar charges, prior to the release of the goods from customs
custody.
In case the valuation used by the BOC in computing customs
duties is based on volume or quantity of the imported goods,
the landed cost shall be the basis for computing VAT. Landed
cost consists of the invoice amount, customs duties, freight,
insurance and other charges. ![the goods imported are subject
to excise tax, the excise tax shall [omL part o[the tax base.
The same rule applies to technical importation of goods sold
by a person located in a Special Economic Zone to a customer
located in a customs territory.
~~ No VAT shall be collected on importation of goods which are
~ecifically exempted under Sec. 109 (1) of the Tax Code.
Jl

148
Chapter 11: VAT-Subject Transactions

39. Which one is not included in the tax base of VAT on importation?
a. Value used by Bureau of Customs in determining tariff and
customs duties
b. Customs duties
c. Excise tax
d. Other charges after.Jhe release of imported goods from
Bureau of Customs~~ _ ,
.. ~ji;\j "\J -'!) l~ji\J~.;
1
i ~~~
Answer: D
Reference: Section 4.107-1 (a),
Revenue Regulations No. 16-2005

40. First statement: The rates for VAT prescribed under the Tax Code
shall be applicable to all importations withdrawn from customs
custody unless exempted.
Second statement: The VAT on importation shall be paid by the
importer prior to the release of such goods from customs custody.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
Reference: Section 4.107-1 (b), Revenue Regulations No. 16-2005

41. Who of the following shall be considered an importer for Value-Added


Tax purposes?
I - Any person who brings goods into the Philippines, whether or
not made in the course of his trade or business
II - Non-exempt persons or entities who acquire tax-free imported
goods from exempt persons, entities or agencies
a. Both I and II c. I only
b. Neither I nor II d. II only

Answer: A
Reference: Section 4.107-1 (b), Revenue Regulations No. 16-2005

149
Chapter 11: VAT-Subject Transactions

.>J ~~\(;)l:tn.t- L::)O ,,,1_ \\\~ :,)L:. ';t; '">'" r-';


/ ~

42. First state~nt: In the case of goods imported into the Philippines by
VAT-exempt persons, entities or agencies \Yhich are subsequently
sold, transferred or exchanged in the Philippines to non-exempt
persons or entities, the latter shall be considered the importer
thereof and shall be liable for VAT due on such importation.
Second statement: The tax on such importation (first statement
above) shall constitute a lien on the goods, superior to all charges
or liens, irrespective of the possessor of said goods.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
Reference: Section 4.107-1 (c), Revenue Regulations No. 16-2005

43. Ms. Consuelo Dimagulo receives a package of goods from her sister
who lives in California, United States of America. Ms. Consuelo will
use the goods for personal purposes. She is not VAT-registered.
Which of the following statements is correct in connection with the
receipt of a package?
a. Ms. Consuelo shall be subject to VAT on importation.
b. Ms. Consuelo shall not be subject to VAT on importation
because she is not VAT-registered.
c. Ms. Consuelo shall not be subject to VAT on importation but
shall be subject to VAT on safes.
d. None of the choices.

44. In determining the tax base one of the following is excluded from
other charges prior to release of goods from Bureau of Customs.
a. Wharfage dues c. Brokerage fees
b. Arrastre charges d. Facilitation fees .,.

Answer: D

45. An importer enjoys 90% exemption from customs duties. The total
customs duties of the imported goods is P500,000. For VAT
purposes, how much shall be the customs duty that shall be
included in the computation of the tax base?
a. P500,000 c. P 50,000
b. P450,000 d. None

Answer: C
I Psoo,ooo x 1o% =----=-cP=5=D=,o=o""o-=-____________ _____j

150
Chapter 11: VAT-Subject Transactions

46. Bigay Gabay, Inc. enjoys tax exemption for its importations. During
a particular month, it imported goods from Japan. After the release
from Customs custody, Bigay Gabay, Inc. transferred the imported
goods to Todo Bigay Trading, a VAT-registered entity.
ForVAT purposes, the VAT on importation shall be paid by:
a. hath Bigay Gabay, Inc, and Todo Bigay Trading.
b. neither Bigay. Gabay, Inc, nor Todo Bigay Trading.
c. Bigay Gabay only.
d. Todo Bigay only.

Answer: D

>-, 47. Mr. Jaime Jayme, VAT-registered, imported goods from South Korea.
After the release from Customs custody, he sold them to LBT
Importt>rs, Inc. Mr. Jayme would be liable to:
a. b.oth VAT on importation and VATon sale of goods.
b. neither VAT on importation nor VAT on sale of goods.
c. VAT on importation only.
d. VAT on sale of goods only.

Answer: A

48. The VAT on importation of goods which are subsequently used or


sold in the course of trade or business by a VAT -registered importer
shall be treated as:
a. expense. c. tax credit.
b. inventoriable cost. d. none of the choices.

Answer: C

49. Which statement is incorrect? VAT on importation of goods:


a. is imposed on an importation for sale or for use in business.
b. is imposed on an importation for personal use.
c. shall be paid prior to removal from customs custody.
d. may not be available as input tax.

Answer: D

151
Chapter 11: VAT-Subject Transactions

50. Which of the following shall be subject to Value-Added Tax?


I - Sale or exchange of services
II - Use or lease of properties
a. I only c. Both I and II
b. II only d. Neither I nor II

Answer: C
Reference: Section 4.108-1, Revenue Regulations No. 16-2005

SEC. 4. 108-1. VAT on the Sale of Services and Use or Lease of


Properties - Sale or exchange of services, as well as the use or
lease of properties, as defined in Sec. 108 (A) of the Tax Code shall
be subject to VAT, equivalent to 12% ofthe gross receipts
(excluding VAT).

51. Which of the following shall be subject to Value-Added Tax on sale or


exchange of services?
a. Construction and service contractors
b. Stock, real estate, commercial, customs and immigration
brokers
c. Lessors of property, whether personal or real
d. All of the choices

Answer: D
Reference: Section 4.108-2, Revenue Regulations No. 16-2005

'I SEC. 4.108-2. Meaning of "Sale or Exchange of Services". -- Th~e


term "sale or exchange of services" means the performance of all
kinds of services in the Philippines for others for a fee,
remuneration or consideration, whether in kind or in cash, II
including those performed or rendered by the following: I
(1) construction and service contractors;
(2) stock, real estate, commercial, customs and immigration I
brokers, I'
(3) lessors of property, whether personal or real; 1

(4) persons engaged in warehousing services; 1

(5) lessors or distributors of cinematographic films; I


(6) persons engaged in milling, processing, manufacturing or
repacking goods for others;
(7) proprietors, operators, or keepers of hotels, motels, rest
houses, pension houses, inns, resorts, theaters, and movie
houses;
(8) proprietors or operators of restaurants, refreshment parlors, . '

cafes and other eating places, including clubs and caterers;


_j
1
1

(9) dealers in securities;


(1 0) lending investors;

152
Chapter 11: VAT-Subject Transactions

(1 1) transportation contractors on their transp~rt of goods or


1

cargoes, including persons who transport goods or cargoes for


hire and other domestic common carriers by land relative to
their transport of goods or cargoes;
( 12) cornmon carriers by air and sea relative to their transport of
passengers, goods or cargoes from one place in the Philippines
to another place in the Philippines;
(13) sales of electricity by generation, transmission, and/ or
distribution companies;
(14) franchise grantees of electric utilities, telephone and telegraph,
radio and/ or television broadcasting and all other franchise
grantees. except franchise grantees of radio and/ or television
broadcasting whose annual gross receipts of the preceding
year do not exceed Ten Million Pesos (P 1 0, 000, 000. 00), and
franchise grantees of gas and water utilities; ~ .
(1 5) non-life insurance companies (except their crop inszg:EJJ..fes),
including surety, fidelity, indemnity and bonding companies;
and
(16) similar services regardless of whether or not the performance
thereof calls for the Pxercise or use of the physical or mental
'--~->L-
faculties ..

52. Which of the following common carriers shall not be subject to Value-
Added Tax?
a. Transportation contractors on their transport of goods or
cargoes
b. Common carriers by land relative to their transport of goods
or cargoes
c. Common carriers by land relative to their transport of
passengers
d. Common carriers by air and sea relative to their transport of
passengers, goods or cargoes

Answer: C
Reference: Section 4.108-2, Revenue Regulations No. 16-2005

53. Which of the follov.ing franchise grantees shall not be subject to


Value-Added Tax?
a. Franchise grantees of electric utilities ~'\OFT:'~ r, '.Pi
b. Franchise grantees of gas and water
c. Franchise grantees of telephone and telegraph
d. Franchise grantees of radio and/ or television broadcasting 3~ :j1~ o. -.:A-

Answer: B
Reference: Section 4.108-2, Revenue Regulations No. 16-2005

153
Chapter 11: VAT -Subject Transactions

-t 54. Which of the following non-life insurance companies shall not be


subject to Value-Added Tax?
a. Crop insurance companies c. Fidelity companies
b. Surety companies d. Bonding companies

Answer: A
Reference: Section 4.108-2, Revenue Regulations No. 16-2005

55. The phrase "sale or exchange of services" shalilikevvise include which


of the following?
a. The lease or the use of or the right or privilege to use any
copyright, patent, design, or model plan, secret formula or
process, goodwill, trademark, trade brand or other like
property or right
b. The lease or the use of, or the right to use any industrial,
commercial or scientific equipment
c. The supply of scientific, technical, industrial or commercial
knowledge or information
d. All of the choices

Answer: D
Reference: Section 4.108-2, Revenue Regulations No. 16-2005
The phrase "sale or exchange of services" sllall likewise include:
(1) The lease or the use of or the right or privilege to use any
copyright. patent, design or model, plan, secret fomlUla or
process, goodwill, trademark, trade brand or other like property
or right;
(2) The lease or the use of, or the right to use any industrial,
commercial or scientific equipment;
(3) The supply of scientific, technical, industrial or commercial
knowledge or information;
{4) The supply of any assistance that is ancillary and subsidiary to
and is furnished as a means of enabling the application or
enjoyment of any such property, or right as is mentioned in
subparagraph (2) hereof or any such knowledge or infomwtion as
is mentioned in subparagraph (3) hereof,
(5) The supply of services by a non-resident person or his employee
in connection with the use of property or rights belonging to, or
the installation or operation of any brand, machinery or other
apparatus purchased from such nonresident person;
(6) The supply of technical advice, assistance or services rendered in
connection with technical management or administration of any
scientific, industrial or commercial undertaking, venture, project
or scheme;
{7) The lease of motion picture films, films, tapes, and discs; and \i

(8) The lease or the use of, or the right to use, radio, television,
satellite transmission and cable television time. ~~~
L---~------------------------------------------------------

154
Chapter 11: VAT-Subject Transactions

- '.1:- 56. Which of the following statements is incorrect?


a. Lease of property shall be subject to VAT regardless of the
place where the contract of lease or licensing agreement was
executed if the property leased or used is located in the
Philippines.
b. VAT on rental and/or royalties payable to non-resident foreign
'j)r"<CJ
corporations or owners for the sale of services and use of lease
"'~f-',~(. rJ f{_j
~.;V'J.{ ?'
of properties in the Philippines shall be based on the contract
price agreed upon by the licensor and the licensee.
*c. The licensee shall be responsible for the payment of VAT on
'fJ J
0
such rentals and/ or royalties in behalf of the non-resident
. (A.(}J U , /iJ,IY;~
~"'~ I"Cl foreign corporation or owner.
d. None of the choices.

Answer: D
Reference: Section 4.108-3 (a), Revenue Regulations No. 16-2005

* 57. Which of the following advance payments by the lessee may be


subject to VAT?
a. A loan to the lessor from the lessee
b. An option money for the property
c. A security deposit to insure the faithful performance of certain
obligations of the lessee to the lessor ~ t--q'-(>'\:lO,\.,!< k;i +.,
d. Pre-paid rental

Answer: D
Reference: Section 4.108-3 (a), Revenue Regulations No. 16-2005

-: 58. It means rendering personal services such as engaging in the


business of receiving and storing goods of others for compensation or
profit; receiving goods and merchandise to be stored in his
warehouse for hire keeping or storing goods for others, as a business
and for use.
a. Warehousing service c. Lending investor
b. Common carrier d. Miller

Answer: A
Reference: Section 4.108-3 (b), Revenue Regulations No. 16-2005

59. Which of the following milling jobs shall not be exempt frbm VAT?
a. palay into rice ~-~
I<. CiJl.j {. VI\ l-
b. corn into corn grits
c. wheat into flour
d. sugar cane into raw sugar

Answer: C
Reference: Section 4.108-3 (c), Revenue Regulations No. 16-2005
r
Chapter 11: VAT -Subject Transactions

* 60. Which of the following statements is incorrect?


a. If the miller is paid in cash for his services, VAT shall be
based on his gross receipts for the month or quarter.
b. If the miller receives a share of the milled products instead of
cash, VAT shall be based on the actual market value of his
share in the milled products.
c. Sale by the owner or the miller of his share of the milled
products shall be subject to VAT.
d. A miller is a person engaged in milling for himself and is
subject to VAT on sale of services.

Answer: D
Reference: Section 4.108-3 (c), Revenue Re ulations No. 16-2005
A miller, who is a person engaged in milling [or others (except palay
into rice, corn into corn grits, and sugarcane into raw sugar), is
subject to VAT on sale o services. __j

61. Which of the following shall be subject to 0% Value-Added Tax?


a. Sale of electricity by generation companies
b. Sale of electricity by transmission companies
c. Sale of electricity by distribution companies
d. Sale of power or fuel generated through renewable sources of
energy

Answer: D
Reference: Section 4.108-3 (f), Revenue Regulations No. 16-2005

62. This refers to persons or entities authorized by the Energy Regulatory


Commission (ERC) to operate facilities used in the generation of
electricity.
a. Generation companies c. Distribution companies
b. Transmission companies d. None of the choices

Answer: A
Reference: Section 4.108-3 (f), Revenue Regulations No. 16-2005

63. This refers to any person or entity that owns and conveys electricity
through the high voltage backbone system and/ or sub-transmission
assets, e.g. NPC or TRANSCO.
a. Generation companies c. Distribution companies
b. Transmission companies d. None of the choices

Answer: B
Reference: Section 4.108-3 (f), Revenue Regulations No. 16-2005

156
Chapter 11: VAT-Subject Transactions

64. This refers to persons or entities which operate a distribution system


in accordance with the provision of EPIRA.
a. Generation companies c. Distribution companies
b. Transmission companies d. None of the choices

Answer: C
Reference: Section 4.108-3 (f), Revenue Regulations No. 16-2005

65. First statement: Gross receipts for generation~ transmission and


# distribution companies shall refer to the total amount charged by
these companies.
Second statement: The universal charge passed on and collected by
distribution companies and electric cooperatives shall be excluded
from the computation of the Gross Receipts.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
Reference: Section 4.108-3 (f), Revenue Regulations No. 16-2005

(-; ~ \ .:.. t ~
~

"' 66. For dealers in securities, the term "gross receipts" means:
a. gross selling price.
b. gross selling price less cost of the securities sold.
c. gross receipts without any deduction.
d. none of the choices.

Answer: B
Reference: Section 4.108-3 (g), Revenue Regulations No. 16-2005

67. It means a merchant of stocks or securities, \\:hether an individual


partnership or corporation, with an established place of business,
regularly engaged in the purchase of securities and their resale to
customers, that is, one '"ho as a merchant buys securities and sells
them to customFrs \>.ith a view to the gains and profits that may be
derived therefrom.
a. Dealers in ~ecurities c. Stock brokers
b. Lending investors d. Common carriers

Answer: A
Reference: Section 4.108-3 (g), Revenue Regulations No. 16-2005

15 7
Chapter 11: VAT-SubjectTransactions

68. It includes all persons other than banks, non-bank financial


intermediaries, finance companies and other financial intermediaries
not performing quasi-banking functions who make a practice of
lending money for themselves or others at interest.
a. Dealers in securities c. Stock brokers
b. Lending investors d. Common carriers

Answer: B
Reference: Section 4.108-3 (g), Revenue Regulations No. 16-2005

69. Which of the following is not subject to Value-Added Tax?


a. Franchise grantees of toll road opr:'rations
b. The Philippine Amusement and Gaming Corporation
(PAGCOR), and its licensees or franchisees
c. Franchise grantees of telephone and telegraph utilities
d. Amounts received for overseas dispatch, message, or
conversation originating from the Philippines

Answer: D
Reference: Section 4.108-3 (h), Revenue Regulations No. 16-2005

70. Which of the following is not subject to Value-Added Tax?


a. Non-life reinsurance premiums
b. Insurance and reinsurance commissions, whether life or
non-life
c. Life insurance premiums
d. Reinsurance premiums

Answer: C \Cj) \,. ... '


Reference: Section 4.108-3 (i), Revenue Regulations No. 16-2005

71. This term including surety, fidelity, indemnity and bonding


companies, shall include all individuals, partnerships, associations,
or corporations, including professional reinsurers defined in Sec. 280
of the Insurance Code of the Philippines (P.D. 612), mutual benefit
associations and government-owned or controlled corporations,
engaging in the business of property insurance, as distinguished
from insurance on human lives, health, accident and insurance
appertaining thereto or connected therewith which shall be subject to
the percentage tax under Sec. 123 of the Tax Code.
a. Non-life insurance companies
b. Life insurance companies
c. Pre-need companies
d. Health Maintenance Organizations

Answer: A
Reference: Section 4.108-3 (i), Revenue Regulations No. 16-2005

158
Chapter 11: VAT-Subject Transactions

i
~.., 72. The VAT on non-life insurance is based on:
a. total premiums collected, whether paid in money, notes,
credits or any substitute for money. ~" ~i1 : c, ,:n :::;, " :t
b. total premiums collected in money. I
~~~ ~\t_f()
c. premiums or payments received from the plan holders. -'1' 'if .J.. t.L:,,: C
d. total amount received as enrollment fee from their members
plus other charges received. ' " { ' ._. .:q .

Answer: A
Reference: Section 4.108-3 (i), Revenue Regulations No. 16-2005

~ 73. These are corporations registered with the Securities and Exchange
Commission (SEC) and authorized/licensed to sell or offer for sale
pre-need plans, whether a single plan or multi-plan.
a. Non-life insurance companies
b. Life insurance companies
c. Pre-need companies
d. Health Maintenance Organizations

Answer: C
Reference: Section 4.108-3 U), Revenue Regulations No. 16-2005

74. The VAT on pre-need companies is based on:


8. total premiums collected, Yvhether paid in money, notes,
credits or any substitute for money. ""'J .; c.~.
b. total premiums collected in money.
c. premiums or payments received from the plan holders.
a. total amount received as enrollment fee from their members
plus other charges received.

Answer: C
Reference: Section 4.108-3 U), Revenue Regulations No. 16-2005

75. These are entities, organized in accordance with the provisions of the
Corporation Code of the Philippines and licensed by the appropriate
government agency, \Yhich arranges for coverage or designated
managed care services needed by plan holders/members for fixed
prepaid membership fees and for a specified period of time.
a. 1\on-liff' insurance companies
b. Life inslJrance companies
c. Pre-need companies
d. Health Maintenance Or~anizations

Answer: D
Reference: Section 4.108-3 (k), Revenue Regulations No. 16-2005

1S9
Chapte: 11: VAT-Subject Transactions

76. The VAT on Health Maintenance Organizations is based un:


a. total premiums collected, \vhether paid in money, notes,
cr(Cdits or anv substitute for mont'\.
b. total premiums collected in money.
c. premiums or payments received from the plan holders.
d. total amount received as enrollment fee from their members
plus other charges received.

Answer: D
Reference: Section 4.108-3 (k), Revenue Regulations No. 16-2005

77. Which of the follov;ing shall not be included in the term "gross
receipts"?
a. Total amount of money or its equivalent representing the
contract price, cornpensation, service fee, rental or royalty.
b. Amount charged for materials supplied with the sf'rvices.
c. Advance pavments actually or constructivelv received during
the taxable period for the services performed or to be
performed for another person.
~{\ 'I
d. Value-added tax.
f',Jf~"

Answer: D
Reference: Section 4.108-4, Revenue Regulations No. 16-2005 as
amended by Section 11, Revenue Regulations
;---.-:-. ;--No. 4-2007' -
~ ~ --~ -------/- ----=---------::c-:::;--r-~-----~
Sect10n 7 1. GRUSS RECEIPTS. -Sec. 4.108--1 oj RR No. 1 b-.::.OOo 1s :
hereby omended to read as follows:
r SEC. 4. 708-4. Definition of Gross Receipts. - 'Gross receipts' re(ers
to the total amount ofnwney or its equivalent representing the
contract price. compensation, service fee, rental or royalty. including
the amount charged for materials supplied with the services and
deposits applied as payments for services rendered and advance
payments actually or constructively receiued during the taxablP penod i
for I he services petforrneci or to be perfonned for another person,
excluding the VAT, except those amounts eannarkerl for payment to
unrelated third (3rrl) pw1y or received as reimbursement for culuance
pny111ent on behulf of another which do not rt:clou.nd to the lwnejit of
the payor.

160
Chapter 11: VAT -Subject Transactions

78. "Constructive receipt" occurs when the money consideration or its


equivalent is placed at the control of the person who rendered the
$e1Vice without restrictions by the payor. Which of the following shall
not be considered as constructive receipt?
a. Deposit in banks which are made available to the seller of
services vvithout restrictions.
b. Issuance by the debtor of a notice to offset any debt or
obligation and acceptance thereof by the seller as payment for
services rendered.
c. Transfer of the amounts retained by the payor to the account
of the contractor.
d. Collection of receivables earned in previous period.
\ A
Answer: D ._,. +~C-'1-J:JJ 'u
Reference: Section 4.108-4 (1), (2) and (3),
Revenue Regulations No. 16-2005

-1'.. 79. Which of the following zero-rated services performed in the


Philippines require that they be paid for in acceptable foreign
currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP)?
I - Processing, manufacturing, or repacking goods for other
persons doing business outside the Philippines, \Vhich goods
are subsequently exported
II - Services. other than processing, manufacturing, or repacking
rendered to a person engaged in business conducted outside
the Philippines or to a non-resident person not engaged in
business who is outside the Philippines when the services are
performed
a. Both I and II c. I only
b. Neither l nor II d. II only

Answer: A
Reference: Section 4.108-5 (b) ( 1), (2) and (3), Revenue
Regulations No. 16-2005 as amended by Section 12,
Revenue Regulations No. 4-2007
r-SEC. 4. I 08-S. Zero-Rated Sale of Services. -
In general. -A zero-rated sale of service (by a VAT-registered
I (a} person) is a taxable transaction for VAT purposes, but shall not
result in any output tux. However, 'the input tax on purchases of
goods, properties or services related to such zero-rated sale shall
be available as tax credit or refund in accordance with these
Regulations.
j (b) Transactions Subject to Zero Percent (O'Jn) FAT Rate. - The
1 following services perfomi.ed m the Philippines by a FAT~
l______r-t:__gistere_{!_J2erson shall be subject to zero percent (0i) 1fAT m_t_e__:__ .

161
Chapter 11: VAT-Subject Transactions

( 1) Processing, manufacturing or repacking goods for other


persons doing business outside the Philippines, which goods
are subsequently exported, where the services are paid for in
acceptable foreign currency and accounted for in accordance
with the rules and regulations ofthe BSP;
(2) Services other than processing, manufacturing or repacking
rendered to a person engaged rn business conducted outside
the Philippines or to a non-resident person not engaged in
business who is outside the Philippines when the services are
perjom1ed, the consideration for which is paid for in
acceptable foreign currency and accounted for in accordance
with the rules and regulations of the BSP;
(3) Services rendered to persons or entities whose exemption
under special laws or international agreements to which the
Philippines is a signatory effectively subjects the supply of
such services to zero percent (0%) rate;
(4) Services rendered to persons engaged in international
shipping or air transport operations, including leases of
property for use thereof; Provided, however, that the services
referred to herein shall not pertain to those made to common
carriers by air and sea relative to their transport of
passengers, goods or cargoes from one place in the
Philippines to another place in the Philippines, the same being
subject to 12% VAT under Sec. 108 ofthe Tax Code;
(5) Services perfonned by subcontractors and/ or contractors in
processing, converting, or manufacturing goods for an
enterprise whose export sales exceed seventy percent (70%)
! of the total annual production;
I (6) Transport of passengers and cargo by domestic air or sea
carriers from the Philippines to a foreign country. Gross
receipts of international air carriers doing business in the
Philippines and international sea carriers doing business in
the Philippines are still liable to a percentage tax of three
percent (3%) based on their gross receipts as provided for in
Sec. 118 of the Tax Code but shall not to be liable to VAT; and
(7) Sale of power or fuel generated through renewable sources of
energy such as, but not limited to, biomass, solar, wind,
hydropower, geothennal and steam, ocean energy, and other
emerging sources using technologies such as fuel cells and
hydrogen fuels; Provided, however, that zero-rating shall
apply strictly to the sale of power or fuel generated through
renewable sources of energy, and shall not extend to the sa:e
of services related to the maintenance or operation of plants
II

generating said power.

162
Chapter 11: VAT-Subject Transactions

J.:-so. Which of the following is incorrect?


a. In a sale of goods or properties, the output tax is computed by
multiplying the gross st:_l!_ing price as defined in the
Regulations by the regular rate of VAT.
b. For sellers of services, the output tax is computed by
multiplying the gross receipts as defined in the Regulations by
the regular rate of VAT.
c. In all cases where the basis for computing the output tax is
either the gross selling price or the gross receipts, but the
amount of VAT is erroneously billed in the invoice, the total
invoice amount shall be presumed to be comprised of the
gross selling pricejgross receipts plus the correct amount of
VAT.
d. None of the choices.

Answer: D
Reference: Section 4.110-6, Revenue Regulations No. 16-2005

81. At the end of any taxable quarter if the output tax exceeds the input
tax, the excess shall be:
a. carried over the succeeding quarter by the VAT- registered
person.
b. claimed as tax credit and shall be deducted from the output
tax of the succeeding quarters by the VAT-registered person.
c. paid by the VAT-registered person.
d. none of the choices.

Answer: C
Reference: Section 4.110-7 (a), Revenue Regulations No. 16-2005

163
Chapter 11: VAT-Subject Transactions

82. If the input tax inclusive of input tax carried over from the previous
quarter exceeds the output tax, the excess input tax shall be:
a. credited in every quarter but not to exceed seventy percent
(70%) of the output tax.
b. carried over to the succeeding quarter or quarters.
c. disregarded because carry over is no longer allowed under the
new regulations.
d. deducted from income tax due.

Answer: B
Reference: Section 4.110-7 (b), Revenue Regulations No. 16-2005
as amended by Section 2, Revenue Regulations
No. 2-2007
Section 2. VAT PAYABLE. -Sec. 4.110-7 of RR No. 16-2005 is hereby
amended to read as follows:
"SEC. 4.110-7. VAT Payable (Excess Output) or Excess Input Tax.
Xxxxxxxxx.
(b) If the input tc::x inclusive of input tax car~!!:_9.1!.!:!I.fro11}_t}2e
previous quarter exceeds the output tax, the excess input tax
shah be carried over to the succeeding quarter orqw.Irters;
Provided-:h;;;;~~~~) that any znpuTt~ ~ttrib~t~ble to ;~;o--rated
sales by a VAT-registered person may at his option be refunded
or applied for a tax credit certificate which may be used in the
payment of internal revenue taxes, subject to the limitations as
may be provided for by law, as well as, other implementing
rules."

164
Chapter 12
VAT-EXEMPT TRANSACTIONS
"(f)esire is tfie starting point of a[[ acfiic'r;cment,
not a fiope, not a U'isfi, 6ut a /(fen pulSating desire,
wfiicfi transcends e'r;erytfiing. "-JVapo[eon J{i[[

Multiple Choice: Choose the best possible answer.

1. This refers to the sale of goods or properties and/ or services and the
use or lease of properties that is not subject to VAT (output tax) and
the seller is not allowed any tax credit of VAT (input tax) on
purchases.
a. VAT-exempt sales c. Deemed sales
b. Zero-rated sales d. Taxable sales

Answer: A
Reference: Section 4.109-1 (A),
Revenue Regulations No. 16-2005

2. Which of the following goods when sold or imported shall not be


exempt from VAT?
a. Agricultural and marine foods products in their original state.
b. Livestock and poultry of a kind generally used as, or yielding
or producing foods for human consumption.
c. Breeding stock and genetic materials therefore.
d. Processed or manufactured agricultural and marine food
products.

Answer: D
Reference: Section 4.109-1 (B) (1) (a),
Revenue Regulations No. 16-2005

3. Which of the following shall not be considered livestock for VAT-


exempt transactions purposes?
a. Cows c. Sheep
b. Bulls and calves d. Race horses

Answer: D
Reference: Section 4.109-1 (B) (1) (a),
Revenue Re ulations No. 16-2005
Livestock shall incluc/.e cows, bulls and calves, pigs, sheep, goats 1
1

and rabbits [Section 4.109-1 {B) {1) {a), Revenue Regulations No. i
16-2005). __j

165
Chapter 12: VAT- Exempt Transactions

4. Which of the following shall not be considered as poultry for VAT-


exempt transactions purposes?
a. Fowls c. Fighting cocks
b. Ducks and geese d. Turkey

Answer: C
Reference: Section 4.109-1 (B) (1) (a),
Revenue Regulations No. 16-2005
Poultry shall include fowls, ducks, geese and turkey. Livestock or
poultry does not include fighting cocks, race horses, zoo animals
and other animals generally considered as pets [Section 4.109-1
(B) (1) (a), Revenue Regulations No; 16-2005).

5. Marine food products shall include fish and crustaceans. Which of


the following is not exempt fromVAT?
a. Eels c. Prawns
b. Trout d. Aquarium fish

Answer: D
Reference: Section 4.109-1 (B) (1) (a),
Revenue Re ulations No. 16-2005
Marine food products shall include fish and crustaceans, such as,
but not limited to, eels, trout, lobster, shrimps, prawns, oysters~
l
mussels and clams (Section 4.1 09-1 (B) (1) (a), Revenue
Regulations No. 16-2005}.

6. Meat, fruit, fish, vegetables and other agricultural and marine food
products shall be considered in their original state even if they have
undergone the simple processes of preparation or preservation for the
market. Which of the following shall not be considered as simple
processes of preparation or preservation for the market?
a. Freezing c. Roasting
b. Drying d. Canning

Answer: D
Reference: Section 4.109-1 (B) (1) (a),
Revenue Regulations No. 16-2005
Meat, fruit, fish, vegetables and other agricultural and marine
food products classified under this paragraph shall be considered
in their original date even if they have undergone the simple
processes of preparation or preservation for the market, such as
freezing, drying, salting, broiling, roasting. smoking or stripping,
including those using advanced technological means of
packaging, such as shrink wrapping in plastjcs, vacuum packing,
tetra-pack, and other similar packaging methods [Section 4.109-1
(B) (1) (a), Revenue Regulations No'-.-'--1-'-6....::-2=-.:0:__0_5_Lj_. _ _ _ _ _ _ _
_____!

166
Chapter 12: VAT-Exempt Transactions

7. Meat, fruit, fish, vegetables and other agricultural and marine food
products shall be considered in their original state even if they have
undergone advanced technological means of packaging. Which of the
following shall not be considered as advanced technological means of
packaging?
a. Shrink wrapping in plastics c. Tetra-pak
b. Vacuum packing d. None of the choices

Answer: D
Reference: Section 4.109-1 (B) (1) (a),
Revenue Regulations No. 16-2005

8. Which of the following shall not be considered as agricultural product


in its original state and therefore subject to VAT?
a. Polished and/ or husked rice c. Copra
b. Raw cane sugar and molasses d. Bagasse

Answer: D
Reference: Section 4.109-1 (B) (1) (a),
Revenue Regulations No. 16-2005
Polished and/ or husked rice, corn grits; raw cane sugar and
molasses, ordinary salt and copra shall be considered as
agricultural food products in their original state.
Bagasse is not included in the exemption provided for under this
section [Section 4.109-1 (B) (1) (a), Revenue Regulations No. 16-
2005].
Bagasse (also spelled bagass) is the fiber left over after the juice
has been squeezed out of sugarcane stalks. As biomass, it holds
promise as a fuel source since it can produce more than enough
heat energy to supply the needs of a common sugar mill.
i A waste product, it is also used as a locally-grown source for
L manufacturing cellulosic ethanol.
-------------------------------~

9. Which of the following processed cane sugar shall be presumed, for


internal revenue purposes, to be refined sugar?
a. Product of a refining process
b. Products of a sugar refinery
c. Product of a production line of sugar mill accredited by BIR to
be producing and/ or capable of producing sugar with
polarimeter reading of 99.5 degree and above, and for which
the quedan issued therefor, and verified by the Sugar
Regulatory Administration, identifies the same to be of a
polarimeter reading of 99.5 degree and above
d. All of the above

167
Chapter 12: VAT-Exempt Transactions

Answer: D
Reference: Section 4.109-1 (B) (1) (a),
Revenue Regulations No. 16-2005

10. Which of the following sale or importation of goods shall not be


exempt from VAT?
a. Fertilizers
b. Seeds, seedlings and fingerlings
c. Fish, prawn, livestock and poultry feeds, including
ingredients, whether locally produced or imported, used in the
manufacture of finished feeds
d. Specialty feeds

Answer: D
Reference: Section 4.109-1 (B) (1) (b),
Revenue Regulations No. 16-2005

11. This refers to non-agricultural feeds and foods for race horses,
fighting cocks, aquarium fish, zoo animals and other animals
generally considered as pets.
a. Fish and prawn feeds
b. Specialty feeds
c. Livestock and poultry feeds
d. None of the choices

Answer: B
Reference: Section 4.109-1 (B) (1) (b),
Revenue Regulations No. 16-2005

12. Importation of personal and household effects shall be exempt from


VAT if:
I- belonging to residents of the Philippines returning from abroad
and non-resident citizens coming to resettle in the Philippines.
II - such goods (personal and household effects) are exempt from
customs duties under the Tariff and Customs Code of the
Philippines.
a. Both I and II are correct c. Only I is correct
b. Neither I nor II is correct d. Only II is correct

Answer: A
Reference: Section 4.109-1 (B) (1) (c),
Revenue Regulations No. 16-2005

168
Chapter 12-: VAT-Exempt Transactions
----------------------------------------------
13. Importation of professional instruments and implements, wearing
apparel, domestic animals, and personai household effects shall be
exempt from VAT if:
I - belonging to persons coming to settle in the Philippines, for
their own use and not for sale, barter or exchan~~---.
- II - accompanying such persons', or arriving withi,!{90~ before
or after their arrival, upon the production of eVlcrence
satisfactory to the Commissioner of Internal Revenue, that such
persons are actually coming to settle in the Philippines and that
the change of residence is bonafide.
a. Both I and II are correct c. Only I is correct
b. Neither I nor II is correct d. Only II is correct

Answer: A
Reference: Section 4.109-1 (B) (1) (d),
Revenue Regulations No. 16-2005

14. The following goods when imported shall be subject to VAT, except:
a. vehicle. c. machinery.
b. vessel. d. professional instruments.

Answer: D
Reference: Section 4.109-1 (B) (1) (d),
Revenue Re ulations No. 16-2005
Importation of professional instruments and implements, wearing
apparel, domestic animals, and personal household effects (except
any vehicle, vessel, aircraft, machinery and other goods [or use in
the manufacture and merchandise o[ any kind in commercial
quantity) belonging to persons coming to settle in the Philippines,
for their own use and not for sale, barter or exchange,
accompanying such persons, or arriving within ninety (90) days
I before or after their arrival, upon the production of evidence
satisfactory to the Commissioner of Internal Revenue, that such
I. persons are actually coming to settle in the Philippines and that the
/ change of residence is bonafide.

15. First statement: Services subject to (other) percentage taxes shall not
be subject to VAT.
Second statement: Services by agricultural contract growers and
milling of palay into rice, corn into grits, and sugar cane into raw
sugar are exempt from VAT. '
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

169
Chapter 12: VAT-Exempt Transactions

Answer: A
Reference: Section 4.109-1 (B) (1) (e) and (f),
Revenue Regulations No. 16-2005

16. This refers to those persons producing for others poultry, livestock or
other agricultural and marine food products in their original state.
a. Agricultural contract growers c. Millers
b. Agricultural cooperatives d. Fishpond operators

Answer: A
Reference: Section 4.109-1 (B) (1) (f),
Revenue Regulations No. 16-2005

17. Which of the following is subject to Value-Added Tax?


a. Medical, dental, hospital and veterinary services
b. Laboratory services
c. Sale of drugs and medicine in the hospital's pharmacy or drug
store
d. Medicines administered to a patient confined in the hospital

Answer: C
Reference: Section 4.109-1 (B) (1) (g),
Revenue Regulations No. 16-2005

18. Educational services are exempt from VAT if rendered by:


I - private educational institutions duly accredited by DepED,
CHED and TESDA.
II- government educational institutions.
a. Both I and II are correct c. Only I is correct
b. Neither I nor II is correct d. Only II is correct

Answer: A
Reference: Section 4.109-;1. (B) (1) (h),
Revenue Regulations No. 16-2005

19. The exemption from VAT of educational services does not include:
a. seminars and review classes.
b. in-service training.
c. other similar services rendered by persons who are not
accredited by DepED, the CHED and/ or the TESDA.
d. all of the choices.

Answer: D
Reference: Section 4.109-1 (B) (1) (h),
Revenue Regulations No. 16-2005

170
Chapter 12: VAT-Exempt Transactions

20. Which of the following shall not be exempt from Value-Added Tax?
a. Services rendered by individual pursuant to an employer-
employee relationship.
b. Services rendered by regional or area headquarters
established in the Philippines by multinational corporations
which act as supervisory, communications and coordinating
centers for their affiliates, subsidiaries or branches in the Asia
Pacific Region and do not earn or derive income from the
Philippines.
c. Transactions which are exempt under international
agreements to which the Philippines is a signatory or under
special laws.
d. Services rendered by professionals such GPAs, engineers,
lawyers, etc.

Answer: D
Reference: Section 4.109-1 (B) (1) (i), U) and (k),
Revenue Regulations No. 16-2005

-i. 21. All of the following cooperatives enjoy VAT exemption on their sales or
receipts except:
a. agricultural cooperatives.
b. credit and multi-purpose cooperatives.
c. non-agricultural, non-electric and non-credit cooperatives.
d. electric cooperatives.

Answer: D CD ~i<u\--ic Gobftto.;.,,L; (0..,_,, :;;J,,1 ~'"' 1.." .;.; ).


Reference: Section 4.109-1 (B) (1f (1), ~
Revenue Regulations No. 16-2005 c "ot

22. Which of the following transactions by agricultural coo;~'ffitives duly


registered and in good standing with the Cooperative Development
Authority (CDA) shall be ex;empt from VAT?
I - Sales to their memoers, as well as sale oLth~ir pro_<i~e; ~- .t.~! 1
_' .''
v.; -~;:t

whether in its original state or processed form, tc(nonjnembers "--->"'


II - Importation of direct farm inputs, machineries anCt-ecfuipment,
including spare parts thereof, to be used directly and
exclusively in the production and/ or processing of their produce
a. Both I and JI c. I only
b. Neither I nor II d. II only

Answer: A
Reference: Section 4.109-1 (B) (1) (1),
Revenue Regulations No. 16-2005

171
Chapter 12: VAT-Exempt Transactions

* 23. Which of the following statements is incorrect?


a. Sale by agricultural cooperatives to non-members can only be
exempted from VAT if the producer of the agricultural
products sold is the cooperative itself.
b. If the cooperative is not the producer (e.g., trader), then only
those sales to its members shall be exempted from VAT.
c. The sale or importation of agricultural food products in their
original state is exempt from VAT irrespective of the seller and
buyer thereof.
d. None of the choices.

Answer: D
Reference: Section 4.109-1 (B) (1) (1), Revenue Regulations
No. 16-2005, as amended by Section 14,
Revenue Regulations No. 4-200.7

;t:: 24. Which of the following transactions by certain cooperatives duly


registered and in good standing with the Cooperative Development
Authority (CDA) shall not be exempt from VAT?
a. Gross receipts from lending activities by credit or multi-
purpose cooperatives
b. Sales by non-agricultural, non-electric and non-credit
cooperatives
c. Importation by non-agricultural, non-electric and non-credit
cooperatives of machineries and equipment, including spare
parts thereof, to be used by them
d. None of the choices

Answer: C
Reference: Section 4.109-1 (B) (1) (m) and (n),
Revenue Regulations No. 16-2005

25. Sales by non-agricultural, non-electric and non-credit cooperatives


~+ shall be exempt from VAT provided:
I - that the share capital contribution of each member does not
exceed Pl5,000.
II - regardless of the aggregate capital and net surplus ratably
distributed among the members.
a. Both I and. II c. I only
b. Neither I nor II d. II only

Answer: A
Reference: Section 4.109-1 (B) (1) (n),
Revenue Regulations No. 16-2005

172
Chapter 12: VAT-Exempt Transactions

+26. Which of the following shall be exempt from VAT?.


I- Export sales by persons who are not VAT-registered -"' \li\\CX''"~+
II - Export sales by persons who are VAT- registered 'V -leo '(~,,:{
a. Both I and II are correct c. I only
b. Neither I nor II d. II only

Answer: C
Reference: Section 4.109-1 (B) (1) (0),
Revenue Regulations No. ,6~~,0~5 ___
~ ~. . ' ". .' . ,.

27. Which of the following sales of real properties shall not be exempt
from VAT?
a. Sale of real properties not primarily held for sale to customers or
held for lease in the ordinary course of trade or business. r_f T
b. Sale of real properties utilized for low-cost and socialized
housing. 'J.i>' t w ,
c. Sale of real properties utilized for commercial purposes.
d. Sale of residential lot valued at PI ,919,500 (used to be
P1,500,000) and below, or house and lot and other residential
dwellings valued at P3, 199,200 (used to be P2,500,000) and
below.

Answer: C
Reference: Section 4.109-1 (B) (1) (p) (1), (2), (3) and (4)
Revenue Regulations No. 16-2005 as amended by
Section 2, Revenue Regulations No. 16-2011

28. If two or more adjacent lots are sold or disposed in favor of one buyer,
for the purpose of utilizing the lots as one residential lot, the sale
shall be exempt from VAT only if the aggregate value of the lots does
not exceed:
a. P3,838,900. c. P2,559,200.
b. P3,199,200.-v,;tJ< d. P1,919,500.-r-~c.f-

Answer: D
Reference: Section 4.109-1 (B) (1) (p) (4), Revenue Regulations
No. 16-2005 as amended by Section 2, Revenue
Regulations No. 16-2011_ _ _ _ _ _ _ _ _ __
If two or more adjacent residential lots are sold or disposed in
I favor of one buyer, for the purpose of utilizing the lots as one
l
residential lot, the sale shall be exempt from VAT only if the .
aggregate value ofthe lots do not exceed Pl,SOO,OOO.OO.,;, : , , j

Adjacent residential lots, although covered by separate titles


and/ or separate tax declarations, when sold or disposed to one
and the same buyer, whether covered by one or separate Deed of
Conveyance, shall be presumed as a sale of one residential lot.

173
Chapter 12: VAT- Exempt Transactions

29. Which of the following lease of real property is not exempt from VAT?
a. Lease of residential units with a monthly rental per unit not
exceeding P12,800, but the amount of aggregate rentals
received by the lessor during the year exceed Pl ,919,200
b. Lease of residential units where the monthly rental per unit
exceeds P12,800 but the aggregate of such rentals of the
lessor during the year do not exceed P1,919,200
c. Lease of commercial units with a monthly rental per unit not
exceeding P12,800 but the aggregate of such rentals of the
lessor during the year exceed P1,919,200
d. Lease of commercial units with a monthly rental per unit not
exceeding P12,800 but the aggregate of such rentals of the
lessor during the year do not exceed P1 ,919,200

Answer: C
Reference: Section 4.109-1 (B) (1) (q), Revenue Regulations No.
16-2005 as amended by Section 3 (q) Revenue
Regulations No. 16-2011

30. In cases where a lessor has several residential units for lease, some of
which are leased out for a monthly rental not exceeding P12,800 per
unit while others are leased out for more than Pl2,800 per unit, his
tax liability will be as follows:
I- The gross receipts from rentals not exceeding P12,800 per
month per unit shall be exempt from VAT regardless of the
aggregate annual gross receipts.
II -The gross receipts from rentals exceeding P12,800 per month
per unit shall be subject to VAT if the aggregate annual gross
receipts from said units only (not including the gross receipts
from units leased for not more than P12,800) exceeds the VAT
threshold amount.
a. Both I and II are correct c. Only I is correct
b. Neither I nor II is correct d. Only II is correct

Answer: A
Reference: Section 4.109-1 (B) (1) (q), Revenue Regulations No.
16-2005 as amended by Section 3 (q) Revenue
Regulations No. 16-2011

31. This term refers to apartments and houses and lots used for
residential purposes and buildings or parts or units thereof solely as
dwelling places (e.g. dormitories, rooms and bed spaces) except
motels, motel rooms, hotels and hotel rooms.
a. Residential units c. Condominium units
b. Commercial units d. None of the choices

174
Chapter 12: VAT-Exempt Transactions

Answer: A
Reference: Section 4.109-1 (B) (1) (q),
Revenue Regulations No. 16-2005

:Y,32. In the case of one of these, the term "unit" shall mean per person.
a. Apartments
b. Residential houses
c. Dormitories, boarding houses and bed spaces
d. Rooms for rent

Answer: C
Reference: Section 4.109-1 (B) ( 1) (q),
_ _ _ _R_e~ve.nue Regulations No. 16-2005
!The term 'unit' shall mean an apartment unit in the case of
apartments, house in the case of residential houses; per person in
the case of dormitories, boarding houses and bed spaces; and per
room in case of rooms for rent.

33. Sale, importation, printing and publication of books and any


newspaper, magazine, revievv, or bulletin shall be exempt from VAT if
the latter:
I - appears at regular intervals with fixed prices for subscription
and sale.
II - is not devoted principally to the publication of paid
advertisements.
a. Only I is correct c. Neither I nor II is correct
b. Onlv II is correct d. Both I and II are correct

Answer: D
Reference: Section 4.109-1 (B) (1) (r),
Revenue Regulations No. 16-2005

~ 34. For VAT exemption purposes, the age limit of passenger and/or cargo
vessels at the time of acquisition counted from the date of the vessel's
original commissioning shall be:
a. 20 years old. c. 10 years old.
b. 15 years old. d. 5 vears old. ~

Answer: B
Reference: Section 4.109-1 (B) (1) (s),
Revenue Regulations No. 16-2005

-' 35. The exemption from VAT on the importation and local purchase of
passenger and/or cargo vessels shall be limited to those of:
a. 200 tons and above. c. 150 tons and below.
b. 150 tons and above. d. 50 tons and above.

175
Chapter 12: VAT-Exempt Transactions

Answer: B
Reference: Section 4.109-1 (B) (1) (s),
Revenue Regulations No. 16-2005
Sale, importation or lease of passenger or cargo vessels and
aircraft, including engine, equipment and spare parts thereof for
domestic or international transport operations; Provided, that the
exemption from VAT on the importation and local purchase of
passenger and/ or cargo vessels shall be limited to those of one
hundred fifty (150) tons and above, including engine and spare
parts of said vessels; Provided, further, that the vessels to be
imported shall comply with the age limit requirement, at the time
of acquisition counted from the date of the vessel's original
commissioning, as follows: (i) for passenger and/ or cargo vessels,
the age limit is fifteen (15) years old, (ii) for tankers, the age limit
is ten (1 0) years old, and (iii) For high-speed passenger crafts, the
age limit is five (5) years old; Provided, finally, that exemption
shall be subject to the provisions of Section 4 of Republic Act No.
9295, otherwise known as "The Domestic Shipping Development
Act of 2004";

36. Which of the following importations used for shipping transport


operations shall be VAT-Exempt?
a. Importation of life-saving equipment
b. Importation of safety and rescue equipment and
communication and navigational safety equipment
;t; c. Importation of steel plates and other metal plates including
marine-grade aluminum plates
d. All of the choices

Answer: D
Reference: Section 4.109-1 (B) (1) (t), Revenue Regulations No.
16-2005 as amended by Section 14,
Revenue Regulations No. 4-2007
Importation of life-saving equipment, safety and rescue equipment
and communication and navigational safety equipment, steel
plates and other metal plates including marine-grade aluminum
plates, used for shipping transport operations; Provided, that the I
exemption shall be subject to the provisions of Section 4 of Republic ~
Act. No. 9295, otherwise known as 'The Domestic Shipping
Development Act of 2004 '. . ~------'

l76
Chapter 12: VAT- Exempt Transactions

37. Which of the following importations used in the construction, repair,


renovation or alteration of any merchant marine vessel operated or to
be operated in the domestic trade shall be exempt?
a. Importation of capital equipment, machinery, spare parts
b. Importation of lifesaving and navigational equipment
c. Importation of steel plates and other metal plates including
marine-grade aluminum plates
d. All of the choices

Answer: D
Reference: Section 4.109-1 (B) (1) (u), Revenue Regulations
No. 16-2005 as amended by Section 14,
Revenue Re ulations No. 4-2007
Importation of capital equipment, machinery, spare parts,
lifesaving and navigational equipment, steel plates and other metal
plates including marine-grade aluminum plates to be used in the
construction, repair, renovation or alteration of any merchant
marine vessel operated or to be operated in the domestic trade.
Provided, that the exemption shall be subject to the provisions of
Section 19 of Republic Act. No. 9295, otherwise known as 'The
Domestic Shipping Development Act of 2004.

38. First statement: The importation of fuel, goods and supplies by


persons engaged in international shipping or air transport
operations shall be exempt if such fuel, goods and supplies shall be
used exclusively or shall pertain to the transport of goods and/ or
passengers from a port in the Philippines directly to a foreign port
without stopping at any other port in the Philippines.
Second statement: If any portion of such fuel, goods or supplies is
used for purposes other than transporting goods and/ or
passengers from a port in the Philippines directly to a foreign
country, such portion of fuel, goods and supplies shall be subject to
12% VAT.
a. Both statements are correct
b. Only the first statement is correct
c. Both statements are incorrect
d. Only the second statement is correct
Chapter 12: VAT-Exempt Transactions

Answer: A
Reference: Section 4.109-1 (B) (1) (v), Revenue Regulations
No. 16-2005 as amended by Section 14,
Revenue Regulations No. 4-2007
ITI).portation offuel, goods and supplies by persons engaged in
international shipping or air transport operations; Provided, that
the said fuel, goods and supplies shall be used exclusively or shall
pertain to the transport of goods and/ or passenger from a port in
the Philippines directly to a foreign port, or vice versa, without
docking or stopping at any other port in the Philippines unless the
docking or stopping at any other Philippine port is for the purpose
of unloading passengers and/ or cargoes that originated from
abroad, or to load passengers and/ or cargoes bound for abroad;
Provided, further, that if any portion of such fuel, goods or supplies
is used for purposes other than that mentioned in this paragraph,
such portion offuel, goods and supplies shall be subject to twelve
percent (12%) VAT starting February 1, 2006 [Section 4.109-1 (B)
(1) (v}, Revenue Regulations No. 16-2005 as amended by Section
14, Revenue Regulations No. 4-2007}.
I ~ \
;:- 39. Which of the following shall be exempt from Value-Added Tax?
a. Services of banks
b. Services of non-bank financial intermediaries performing
quasi-banking functions
c. Services of other non-bank financial intermediaries, such as
money changers and pawnshops
d. All of the choices

Answer: D
Reference: Section 4.109-1 (B) (1) (w), Revenue Regulations
No. 16-2005 as amended by Section 14,
Revenue Regulations No. 4-2007
Services of banks, non-bank financial intermediaries performing
quasi-banking functions, and other non-bank financial
intermediaries, such as money changers and pawnshops, subject
to percentage t~ under Sees. 121 and 122 , respectively, of the
Tax Code are exempt from value-added tax.

40. Sale or lease of goods or properties or the performance of services


other than the transactions mentioned under Sec. 109 (a) to (w), is
exempt from VAT if the gross annual sales andjor receipts do not
exceed the amount of:
a. P6,398,300. c. P1,919,500.
b. P3,199,200. d. P1,279,600.

178
Chapter 12: VAT-Exempt Transactions

Answer: C
Reference: Section 4.109-1 (B) (1) (x), Revenue Regulations No.
16-2005 as amended by Section 14, Revenue
Regulations No. 4-2007 and further amended by
Section 3 (e) (1), Revenue Regulations No. 16-2011

-t 41. During a particular year, the husband's gross receipts from his
practice of profession subject to VAT is Pl,OOO,OOO. His wife has a
gross sales of P920,000 from her VATable transactions. For VAT
purposes, assuming they are not VAT-registered, will they be subject
to VAT?
a. Yes, they are subject to VAT because their aggregate
receipts/sales exceed the VAT threshold amount.
b. No, they are not subject to VAT because for purposes of the VAT
threshold amount, the husband and the wife shall be
considered separate taxpayers and ~~r on~~Qf_t_h~!ll
exceeded the said threshold amount. ~-,,d' ,_._"c\"-; ;,,<; -o'.,
c. Yes;H1ey-are-subject to VAT because their transattions eire
VA Table.
d. Answer not given.

Answer: B
Reference: Section 4.109-1 (B) (1) (x), Revenue Regulations No.
16-2005 as amended by Section 14, Revenue
Regulations No. 4-2007 and further amended by
Section 3 (e) (1), Revenue Regulations No. 16-2011

42. During a particular year, the following gross sales/receipts subject to


VAT are recorded by a taxpayer:
Gross receipts, transport of goods and <;arg()eS - P 1 ,ooo,oool
Gross receipts, practice of profession 700,000 i 'JS ~-
Gross sales, grocery store 800,000J
Gross sales, agricultural food products in their
origin<!!._ s_~~t.f 30',000
I .
Based on the above data, assuming the taxpayer is not VAT-
registered, will he be subject to VAT?
a. No, he is not subject to VAT because his salesjreceipts in
each business do not exceed the VAT threshold amount.
b. Yes, he is subject to VAT because aside from the practice of
his profession, he also derives revenue from other lines of
business which are subject to VAT and applying the
aggregation rule his combined gross sales/receipts subject to
VAT exceed the threshold amount.
c. No, he is not subject to VAT because he is not VAT-registered.
d. Answer not given.

179
Chapter 12: VAT-Exempt Transactions

Answer: B
Reference: Section 4.109-1 (B) (1) (x), Revenue Regulations
No. 16-2005 as amended by Section 14,
Revenue Regulations No. 4-2007 and further amended
by Section 3 (e) (1), Revenue Regulations No. 16-2011
Sale or lease of goods or properties or the perfonnance of services
other than the transactions mentioned in the preceding
paragraphs, the gross annual sales and/ or receipts do not exceed
the amount of One Million Five Hundred Thousand Pesos
(?1,500,000.00). Provided, that not later than January 31, 2009
and every three (3) years thereafter, the amount of Pl,SOO,OOO.OO .
shall be adjusted to its present value using the Consumer Price
Index, as published by the NSO.
/_. n : -~~
For purposes ofthe threshold of Pl,SOO,OOO.OO, the husband and
the wife shall be considered separate taxpayers.
However, the aggregation rule for each taxpayer shall apply, for
instance, if a professional, aside from the practice of his
profession, also derives revenue from other lines of business which
are otherwise subject to VAT, the same shall be combined for
purposes of determining whether the threshold has been exceeded.
Thus, the VAT-exempt sale shall not be included in detennining the
threshold."

43. In which of the following situations will a person be mandatorily


required to register under the VAT system?
I- His gross sales or receipts for the past twelve (12) months, other
than those that are exempt under Sec. 109 (1)(A) to (W) of the
Tax Code, have exceeded the VAT threshold amount.
II - There are reasonable grounds to believe that his gross sales or
receipts for the next twelve (12) months, other than those that
are exempt under Sec. 109 (l)(A) to (W) of the Tax Code, will
exceed the VAT threshold amount.
a. I only c. Both I and II
b. II only d. Neither I nor II

Answer: C
Reference: Section 9.236-1 (b), Revenue Regulations No. 16-2005
as amended by Section 3 (e) ( 1), Revenue Regulations
No. 16-2011

180
Chapter 12: VAT-Exempt Transactions

44. Which of the follov..ing shall be allowed optional VAT registration?


a. Any person who is VAT-exempt.because the annual sales or
receipts do not exceed the threshold amount [Sec. 109 (x)]
b. Any person who is VAT-registered but enters into transactions
\Vhich are exempt from VAT (mixed transactions), with respect
to his transactions which would have been exempt under Sec.
109 (1) of the Tax Code
c. Franchise grantees of radio and/ or television broadcasting
whose annual gross receipts of the preceding year do not
exceed P10,000,000
d. All of the choices

Answer: D
Reference: Section 9.236-1 (c) (1), (2) and (3),
Regulations No. 16-2005

*' 45. Any person who elects tooptionally register under the VAT system,
other than franchise gran tees of radio and/ or television broadcasting,
shall not be allowed to cancel his registration for the next:
a. 5 years. c. 2 years.
b. 3 years. d. 1 year.

Answer: B
Reference: Section 9.236-1 (c) (3), Regulations No. 16-2005

">\.- 46. The taxpayers who are qualified to optionally register may apply for
VAT registration not later than how many days before the beginning
of the calendar quarter?
a. 30 days c. 15 days
b. 25 days d. 10 days

Answer: D
Reference: S~ction 9.236-1 (c) (3), Regulations No. 16-2005

~ 47. Once optionally registered as a VAT person, the taxpayer shall be


liable to output tax and be entitled to input tax credit beginning on
the:
a. first day of .the month following the registration.
b. first day of the month follovving the close of the first quarter
after registration.
c. tenth day of the month following the registration.
d. t\\"enty-fifth day following the dose of the quarter.

Answer: A
Reference: Section 9.236-1 (c) (3), Regulations No. 16-2005

181
Chapter 13
INPUT VALUE-ADDED TAXES
";1[[ suc.-csiuf peop[c. men ,wa women, urc 6(q arcamers.
<Jfiey imagine rcliat tficirfuture cou[a 6e, iaeu[ i11 cue I)' respect, and- tlien
tficy aorfi.JWl)' d.zy tocnm[ tlicirdlstant rision, tfiat no,z(orpwposc. "-<Jlnun 'Tracy

Multiple Choice: Choose the best possible answer.

1. It means the VAT due or paid by a VAT -registered person on


importation of goods or local purchases of goods, properties, or
services, including lease or use of properties, in the course of trade or
business.
a. Output tax c. Deferred input tax
b. Input tax d. VAT payable

Answer: B
Reference: Section 4.110-1, Revenue Regulations No. 16-2005
~--- ' '

1 SEC. 4.110-1. Credits For Input Tax.-- 'Input tax" means the
VAT due on or paid by a VAT-registered person on importation of
goods or local purchases of goods, properties, or services, including \
lease or use of properties, in the course of his trade or business. It
shall also include the transitional input tax and the presumptive
input tax detennined in accordance with Sec. 111 of the Tax Code. i
It includes input taxes which can be directly attributed to /
transactions subject to the VAT plus a ratable portion of any input I
tax which cannot be directly attributed to either the taxable o__jrI
exempt activity.
- .

2. Any input tax on the purchases or importation of goods in the course


of trade or business shall be creditable against the output tax if:
I - evidenced by a VAT invoice or official receipt.
II- issued by a VAT-registered person.
a. I and II are correct c. Only I is correct
b. Neither I nor II is correct d. Only II is correct

Answer: A
Reference: Section 4.110-1, Revenue Regulations No. 16-2005

182
Chapter 13: Input Value-Added Taxes

3. Which of the following transactions evidenced by a VAT invoice or


official receipt issued by a VAT-registered person in accordance with
Sees. 113 and 237 of the Tax Code shall be creditable against the
output tax?
a. Purchase or importation of goods for sale
b. Purchase or importation goods for conversion into or intended
to form part of a finished product for sale, including
packaging materials
c. Purchase m- importation of goods for use as supplies in the
course of business
d. All of the choices

Answer: D
Reference: Section 4.110-1 (a) (1), (2) and (3) Revenue
Regulations No. 16-2005
Any input tax on the following transactions evidenced by a VAT
invoice or official receipt issued by a VAT-registered person in
accordance with Sections 113 (Invoicing and Accounting
Requirements for VAT-Registered Persons) and 237 (Issuance of
Receipts or Sales or Commercial Invoice) of the Tax Code shall be
creditable against the output tax:
(a) Purchase or importation of goods
(1) For sale; or
(2) For conversion into or intended to form part of a finished
product for sale, including packaging materials; or
(3) For use as supplies in the course of business; or
(4) For use as raw materials supplied in the sale of services; or
(5) For use in trade or business for which deduction for
depreciation or amortization is allowed under the Tax Code,

4. 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

Answer: A
Reference: Section 4.110-1 (c), Revenue Regulations No. 16-2005

183
Chapter 13: Input Value-Added Taxes

! Any input tax on the following transactions evidenced by a VAT


invoice or official receipt issued by a VAT-registered person in
accordance with Sections 113 (Invoicing and Accounting
Requirements for VAT-Registered Persons) and 237 (Issuance of
Receipts or Sales or Commercial Invoice) of the Tax Code shall be
creditable against the output tax:
a. Xxx
b. Purchase of real properties for which a VAT has actually been
paid;
c. Purchase of services in which a VAT has actually been paid;
d. Transactions "deemed sale" under Sec. 106 (B) of the Tax Code;
e. Transitional input tax allowed under Sec. 4.111 (a) of these
Regulations;
f Presumptive input tax allowed under Sec. 4.111 (b) of these
Regulations;
g. Transitional input tax credits allowed under the transitory and
otherprovisions of these Regulations.

5. The input tax credit on importation of goods or local purchases of


goods, properties or services by a VAT-registered person shall be
creditable to which of the following?
a. To the importer upon payment of VAT prior to the release of
goods from customs custody
b. To the purchaser of the domestic goods or proper"Lies upon
consummation of the sale
c. To the purchaser of services or the lessee or licensee upon
payment of the compensation, rental, royalty, or fee
d. All of the choices

Answer: D
Reference: Section 4.110-2, Revenue Regulations No. 16-2005

6. Where a VAT-registered person purchases or imports capital goods,


which are depreciable assets for income tax purposes, the aggregate
acquisition cost of which (exclusive of VAT) exceeds Pl,OOO,OOO in a
calendar month regardless of the acquisition cost of each capital
good, shall be claimed as credit:
a. over a period of 60 months regardless of the estimated life.
b. over a period of 60 months unless the estimated life is less
than 5 years in which case over the actual number of months
comprising the estimated life.
c. in full in the month acquired, if the estimated life is less than
5 years.
d. in full in the quarter acquired unless the estimated life is less
than 5 years, in which case over the actual number of months
comprising the estimated life.

184
....
Chapter 13: Input Value-Added Taxes

Answer: B
Reference: Section 4.110-3 (a), Revenue Regulations No. 16-2005

7. The aggregate acquisition cost of a depreciable asset in any calendar


month refers to the:
a. total price agreed upon for one or more assets acquired during
the calendar month.
b. payments actually made during the calendar month.
c. total price agreed upon for one asset only acquired during the
calendar month.
d. initial payments made if purchased on installment plan.

Answer: A
Reference: Section 4.110-3 (b), Revenue Regulations No. 16-2005
The aggregate acquisition cost of a depreciable asset in any
calendar month refers to the total price agreed upon for one or
more assets acquired and not on the payments actually made
during the calendar month.

more than P 1, 000,000.00 will be subject to the amortization


input tax despite the fact that the monthly payments or
ofj
Thus . an asset acquired in installment for an acquisition cost of

installments may not exceed#/ 1, 000, 000.00.


-------------------------

8. If the depreciable capital good is sold or transferred within a ~eriod of


5 years or prior to the exhaustion of the amortizable input tax
thereon the unamortized input tax on the capital goods sold or
transferred can be:
a. claimed as input tax credit in its entirety during the month or
quarter when the sale or transfer was made.
b. amortized over the remaining life of the capital good.
c. claimed as input tax credit in its entirety or amortized over
the remaining life of the capital good at the option of the
taxpayer.
d. expensed fully in the month or quarter the sale or transfer
was made.

Answer: A
Reference: Section 4.110-3 (b), Revenue Regulations No. 16-2005

185
Chapter 13: Input Value-Added Taxes

9. A VAT-registered person who is also engaged in transactions not


subject to VAT shall be allowed to recognize input tax credit on
transactions subject to VAT as follows:
I - All the input taxes that can be directly attributed to
transactions subject to VAT
II- Ratable portion pertaining to transactions subject to VAT
a. Both I and II are correct c. Only I is correct
b. Neither I nor II is correct d. Only II is correct

Answer: A
Reference: Section 4.110-4, Revenue Regulations No. 16-2005

10. Which of the following input taxes shall not be credited against
output taxes arising from sales to non-government entities?
a. Input tax on purchase of real properties for which VAT has
actually been paid
b. Input tax on purchase of service in which VAT has actually
been paid
c. Transitional and presumptive input taxes
d. Input taxes that can be directly attributable to VAT taxable
sales of goods and services to the government or any of its
political subdivisions, instrumentalities or agencies,
including GOCCs

Answer: D
Reference: Section 4.110-4, Revenue Regulations No. 16-2005
\
11. First statement: The input tax attributable to VAT-exempt sales shall
not be allowed as credit against the output tax but should be
treated as part of cost or expense.
Second statement: For persons engaged in both zero-rated sales
under the Tax Code and non-zero rated sales, the aggregate input ,
taxes shall be allocated ratably between the zero-rated sale and
non-zero-rated sale.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
Reference: Section 4.110-4, Revenue Regulations No. 16-2005

186
Chapter 13: Input Value-Added Taxes

12. Which of the following statements is incorrect?


a. In all cases where the basis for computing the output tax is
either the gross selling price or the gross receipts, but the
amount of VAT is erroneously billed in the invoice, the total
invoice amount shall be presumed to be comprised of the
gross selling price/ gross receipts plus the correct amount of
VAT.
b. The output tax, in case where the amount of VAT is
erroneously billed, shall be computed by multiplying the total
invoice amount by a fraction using the rate of VAT as
numerator and one hundred per cent (100%) plus rate of VAT
as denominator.
c. The input tax that can be claimed by the buyer shall be the
corrected amount of VAT computed in accordance with the
formula in letter b above.
d. The buyer cannot claim input tax because the erroneous VAT
isconsidered illegally collected.

Answer: D
Reference: Section 4.110-6, Revenue Regulations No. 16-2005

13. Any input tax attributable to zero-rated sales by a VAT-registered


person may at his option be:
I - refunded.
II - applied for a tax credit certificate which may be used in
payment of internal revenue taxes.
a. Both I and II are \orrect c. Only I is correct
b. Neither I nor II is correct d. Only II is correct

Answer: A
Reference: Section 4.110-7 (b), Revenue Regulations No. 16-2005

14. Input taxes for the importation of goods made in the course of trade
or business, whether such input taxes shall be credited against zero-
rated sales, non-zero-rated sales, or subjected to the 5% Final
Withholding Tax, must be substantiated and supported by:
a. import entry or other equivalent document showing actual
payment of VAT on the imported goods.
b. invoice showing the information required under the Tax Code.
c. public instrument i.e., deed of absolute sale, deed of
conditional sale, contract/ agreement to sell, etc., together
with VAT invoice issued by the seller.
d. official receipt showing the information required under the
Tax Code.

187
Chapter 13: Input Value-Added Taxes

Answer: A
Reference: Section 4.110-8 (a), Revenue Regulations No. 16-2005
SEC. 4.110-8. Substantiation of Input Tax Credits. --
(a) Input taxes for the importation of goods or the domestic
purchase of goods, properties or services is made in the course
of trade or business, whether such input taxes shall be
credited against zero-rated sale, non-zero-rated sales, or
subjected to the 5% Final Withholding VAT, must be
substantiated and supported by the following documents, and
must be reported in the information returns required to be
submitted to the Bureau:
1) For the importation of goods- import entry or other
equivalent document showing actual payment of VAT on the
imported goods.
2) For the domestic purchase of goods and properties- invoice
showing the information required under Sees. 113 and 237
of the Tax Code.
3) For the purchase of real property- public instrument i.e.,
deed of absolute sale, deed of conditional sale,
contract/ agreement to sell, etc., together with VAT invoice
issued by the seller.
4) For the purchase of services - official receipJ showing the
information required under Sections 113 anCl237 ofthe Tax
Code.
A cash register machine tape issued to a registered buyer shall
constitute valid proof of substantiation of tax credit only if it shows
the infomwtion required under Sections 113 and 237 ofthe Tax
Code.

15. Which of the following substantiation of input tax is correct?


a. Transitional input tax shall be supported by inventory of
goods as shown in a detailed list to be submitted to BIR
b. Input tax from payments made to non-residents (such as for
services, rentals and royalties) shall be supported by a copy of
the Monthly Remittance Return of VAT Withheld (BIR From
1600) filed by the resident payor in behalf of the non-resident
evidencing remittance of VAT due which was withheld by the
payor
c. Advance VAT on sugar shall be supported by the Payment
Order showing payment of the advance VAT
d. All of the choices

188
Chapter 13: Input Value-Added Taxes

Answer: D
Reference: Section 4.110-8 (b), (c), (d) and (e),
Revenue Regulations No. 16-2005
SEC. 4.11 0-8. Substantiation of Input Tax Credits.-
XXX
a. Transitional input tax shall be supported by an inventory of
goods as shown in a detailed list to be submitted to the BIR.
b. Input tax on "deemed sale" transactions shall be substantiated
with the invoice required under Sec. 4.113-2 of these
Regulations.
c. Input tax from payments made to non-residents (such as for
services, rentals and royalties) shall be supported by a copy of
the Monthly Remittance Return of Value Added Tax Withheld
(BIR Fom1 1600) filed by the resident payor in behalf of the
non-resident evidencing remittance of VAT due1which was
withheld by the payor.
d. Advance VAT on sugar shall be supported by the Payment
Order showing payment of the advance VAT.

16. Which of the following shall be entitled to transitional input tax


credits on beginnirtg inventories?
I- Taxpayers who became '\AT-registered persons upon exceeding
the minimum turnover of P1,500,000 in any 12-month period
II - Taxpayers who voluntarily register even if their turnover does
not exceed P1 ,500,000 (except franchise grantees of radio and
television broadcasting whose threshold is P10,000,000)
a. Both I and II c. I only
b. Neither I nor II d. II only

Answer: A
Reference: Section 4.111-1 (a), Revenue Regulations No. 16-2005

17. Which of the following shall be included in the beginning inventory


for purposes of transitional input tax?
a. Goods purchased for resale in their present condition
b. Materials purchased for further processing, but which have
not yet undergone processing
c. Goods which have been manufactured by the taxpayer
d. All of the choices

189
Chapter 13: Input Value-Added Taxes

Answer: D .
Reference: Section 4.111-1 (a), Revenue Regulations No. 16-2005
SEC. 4.111-1. TRANSITIONAL/PRESUMPTIVE INPUT TAX
CREDITS.--
(a) Transitional Input Tax Credits on Beginning Inventories
Taxpayers who became VAT-registered persons upon exceeding
the-minimum turnoverofP1,500,000.00 in any 12-monthperiod, or
who voluntarily register even if their turnover does not exceed
PI, 500,000.00 (except franchise grantees of radio and television
broadcasting whose threshold is P 1 0, 000, 000. 00) shall be entitled
to a transitional input tax on the inventory on hand as of the
effectivity oftheir VAT registration, on the following:
1) goods purchased for resale in their present condition;
2) materials purchased for further processing, but which
have not yet undergone processing;
3) goods which have been manufactured by the taxpayer;
4) goods in process for sale; or
5) goods and supplies for use in the course ofthe taxpayer's
trade or business as a VA T-regis~ed person.

18. The transitional input tax shall be:


a. four percent (4%) of the value of the beginning inventory on
hand or actual VAT paid on such goods, materials and
supplies, whichever is lower.
b. actual VAT paid on goods, materials and supplies comprising
the beginning inventory.
c. two percent (2%) of the value of the beginning inventory on
hand or actual VAT paid on such goods, materials and
supplies, whichever is higher.
d. none of the choices.

Answer: C
Reference: Section 4.111-1 (a), Revenue Regulations No. 16-2005
The transitional input tax shall be two percent (2%) of the value of -~
the beginning inventory on hand or actual VAT paid on such, i
goods, materials and supplies, whichever is higher, which amount
shall be creditable against the output tax of VAT-registered person.
The value allowed for income tax purposes on inventories shall be
the basis for the computation of the 2% transitional input tax,
excluding goods that are exempt from VAT under Sec. 109 of the
Tax Code.

190
Chapter 13: Input Value-Added Taxes

19. Presumptive input tax is equivalent to:


a. ten percent ( 1 0%) of the gross value in money of the
purchases of primary agricultural products used as inputs to
the production.
b. five percent (5%) of the gross value in money of the purchases
of primary agricultural products used as inputs to the
production.
c. four percent (4%) of the gross value in money of the purchases
of primary agricultural products used as inputs to the
production.
d. two percent (2%) of the gross value in money of the purchases
of primary agricultural products used as inputs to the
production.

Answer: C
Reference: Section 4.111-1 (b), Revenue Re ulations No. 16-2005
SEC. 4.111-1. TRANSITIONAL/PRESUMPTIVE INPUT TAX
CREDITS.-
(a) xxx
(b) Presumptive Input Tax Credits
Persons or jinTls engaged in the processing of sardines, mackerel,
and milk, and in manufacturing refined sugar, cooking oil and
packed noodle-based instant meals, shall be allowed a
presumptive input tax, creditable against the output tax,
equivalent to four percent (4%) of the gross value in money of their
purchases of primary agricultural products which are used as
inputs to their production.
As used in this paragraph, the term processing shall mean
pasteurization, canning and activities which through physical
chemical process alter the exterior texture or form or inner
o:rJ I

substance of a product in such manner as to prepare it fur special


I use to which it could not have been put in its original fonn or
~ndition. ------~~---------------------------------------

20. Which of the following shall not be allowed presumptive input tax?
a. Persons or firms engaged in the processing of sardines,
mackerel and milk
b. Persons or firms engaged in the processing of canned fruits
and vegetables
c. Persons or firms manufacturing refined sugar and cooking oil
d. Persons or firms manufacturing packed noodle-based instant
meals

Answer: B
Reference: Section 4.111-1 (b), Revenue Regulations No. 16-2005

191
Chapter 13: Input Value-Added Taxes

21. The government or any of its political subdivisions, instrumentalities


or agencies, including government-owned or controlled corporations
(GOCCs) shall, before making payment on account of each purchase
of goods andjor services subject to VAT, deduct and withhold a final
VAT due at the rate of:
a. twelve percent (12%) of the gross payment thereof.
b. seven percent (7%) of the gross payment thereof.
c. five percent (5%) of the gross payment thereof.
d. four percent (4%) of the gross payment thereof.

Answer: C
Reference: Section 4.114-2 (a), Revenue Regulations No. 16-2005
SEC. 4.1142. Withlwlding of VAT on Government Money I
Payments and Payments to Non-Residents. -
(a) The government or any of its political subdivisions, ,
instrumentalities or agencies, including government-owned or iI
controlled corporations (GOCCs) shall, before making payment on I
account of each purchase of goods and/ or of services taxed at 12% i
VAT pursuant to Sees. 106 and 108 of the Tax Code, deduct and I
withhold a .final VAT due at the rate of five percent (5%) o[the I
gross payment thereo(.

22. Which of the following statements is incorrect?


a. The five percent (5%) final VAT withholding rate shall
represent the net VAT payable of the seller.
b. The remaining seven percent (7%) effectively accounts for the
standard input VAT for sales of goods or services to
government or any of its political subdivisions,
instrumentalities or agencies including GOCCs.
c. The standard input tax is in lieu of the actual input VAT
directly attributable or ratably apportioned to sales of goods or
services to government or any of its political subdivisions,
instrumentalities or agencies including GOCCs.
d. None of the choices.

Answer: D
Reference: Section 4.114-2 (a), Revenue Regulations No. 16-2005

23. Should actual input VAT exceed standard input tax.(7% of gross
payments):
a. the excess may form part of the sellers' expense or cost.
b. the difference must be closed to expense or cost.
c. the excess shall be claimed as input tax credit from output
tax on other sales/ receipts.
d. none of the choices.

192
Chapter 13: Input Value-Added Taxes

Answer: A
Reference: Section 4.114-2 (a), Revenue Regulations No. 16-2005

24. If actual input VAT is less than the standard input tax (7% of gross
payment):
a. the excess may form part of the sellers' expense or cost.
b. the difference must be closed to expense or cost. ,
c. the excess shall be claimed as input tax credit from output
tax on other sales/receipts.
d. none of the choices.

Answer: B
Reference: Section 4.114-2 (a), Revenue Regulations No. 16-2005

25. The government or any of its political subdivisions, instrumentalities


or agencies including GOCCs, as well as private corporations
individuals, estates and trusts whether large or non-large taxpayers,
shall withhold 12% VAT with respect with which of the following
payments?
a. Lease or use of properties or property rights owned by non-
residents
b. Services rendered to local insurance companies, with respect
to reinsurance premiums payable to non-residents
c. Other services rendered in the Philippines by non-residents
d. All of the choices

Answer: D
Reference: Section 4.114-2 (b), Revenue Regulations No. 16-2005

26. VAT withheld and paid for the non-resident recipient which VAT is
passed on to the resident withholding agent by the non-resident
recipient of the income, may be claimed as:
a. input tax by said VAT-registered withholding agent upon filing
his own VAT Return.
b. part of the cost or expenses of the said VAT-registered agent
upon filing his own VAT Return.
c. income of the said VAT -registered agent upon filing his
income tax return.
d. none of the choices.

193
Chapter 13: Input Value-Added Taxes

Answer: A
Reference: Section 4.114-2 (b), Revenue Regulations No. 16-2005
VAT withheld and paid for the non-resident recipient {remitted 1
using BIR Fom1 No. 1600), which VAT is passed on to the resident
withholding agent by the non-resident recipient of the income, may
I be claimed as input tax by said VAT-registered withholding agent
uponfiling his own VAT Retum, subject to the rule on allocation of
input ta.:x: among taxable sales, zero-rated sales and exempt sales.
The duly filed BIR Form No. 7600 is the proof or documentary
substantiation for the claimed input tax or input VAT.

27. If the resident withholding agent is a non-VAT taxpayer, said passed-


on VAT by the non-resident recipient of the income, evidenced by
duly filed BIR Form No. 1600, shall be treated as an:
a. asset or expense, whichever is applicable, of the resident
withholding agent.
b. input tax of the resident withholding agent.
c. income of the resident withholding agent.
d. none of the choices.

Answer: A
Reference: Sectio_n 4.114-2 (b), Revenue Regulations No. 16-2005
Nonetheless, if the resident withholding agent is a non- VAT I
taxpayer, said passed-on VAT by the non-resident recipient of the
ncome, evidenced by the duly filed BIR Form No. 1600, shall form
part ofthe cost of purchased services, which may be treated either
as an "asset" or "expense", whichever is applicable, of the resident
Uwithholding agent.

28. VAT withheld by a resident withholding agent on payments to non-


residents shall be remitted within how many days following the end
of the month the withholding was made?
a. 25 days c. 15 days
b. 20 days d. 10 days

Answer: D
Reference: Section 4.114-2 (b), Revenue Regulations No. 16-2005

194
Chapter 14
REFUND OF VALUE-ADDED TAX
"'R_ra( success is !(no wing wliLZt ~'od uants you to do and doing it."- finonymous

Multiple Choice: Choose the best possible answer.

1. Who may apply for the issuance of a tax credit certificate/refund?


a. A VAT-registered person whose sales of goods, properties or
services are zero-rated or effectively zero-rated
b. A VAT-registered person who purchases capital goods in the
course of trade or business
c. A VAT-registered person who purchases land in the course of
trade or business
d. A VAT-exempt person on his purchases where value-added
tax is passed on by the seller

Answer: A
References: Section 112 (A), NIRC, as amended
Section 4.112.1 (a), Revenue Regulations
No. 16-2005

2. Which of the following input taxes cannot be claimed as refund or tax


credit certificate?
a. Input tax attributable to zero-rated sales
b. Input tax attributable to effectively zero-rated sales
c. Input tax that has been applied against output tax
d. None of choices

Answer: C
References: Section 112 (A) NIRC, as amended
Section 4.112.1 (a), Revenue Regulations
No. 16-2005

3. When shall the application for tax credit certificate or refund be filed?
a. Within fifteen ( 15) days after the close of the month
b. Within twenty (20) days after the close of the quarter
c. Within two (2) years after the close of the taxable quarter
when such sales were made
d. Within two (2) years after the close of the taxable month when
such sales were made
Chapter 14: Refund of Value-Added Tax

Answer: C
References: Section 112 (A), NIRC, as amended
Section 4.112.1 (a), Revenue Regulations
No. 16-2005

4. Which of the following zero-rated sales require payments in acceptable


foreign currency duly accounted for in accordance with the BSP rules
and regulations?
a. The sale and actual shipment of goods from the Philippines to
a foreign country, irrespective of any shipping arrangement
that may be agreed upon which may influence or determine
the transfer of ownership of the goods so exported
b. Sale of raw materials or packaging materials to a non-resident
buyer for delivery to a resident local export-oriented enterprise
to be used in manufacturing, processing, packing or
repacking in the Philippines of the said buyer's goods
c. Sale to a non-resident of goods, except automobiles and non-
essential goods, assembled or manufactured in the
Philippines for delivery to a resident in the Philippines
d. All of the choices

Answer: D
References: Section 112 (A), NIRC, as amended
Section 4.112.1 (a), Revenue Regulations
No. 16-2005

5. Where the taxpaye:- is engaged in both zero-rated or effectively zero-


rated sales and in taxable (including sales subject to final
withholding VAT) or exempt sales of goods, properties or services, and
the amount of creditable input tax due or paid cannot be directly and
entirely attributed to any one of the transactions, which input taxes
can be claimed for refund or issuance of a tax credit certificate?
a. Proportionate share of input taxes allocated to zero-rated or
effectively zero-rated sales
b. Proportionate share of input taxes allocated to exempt sales
c. Proportionate share of input taxes allocated to taxable sales
d. Total input taxes

Answer: A
References: Section 112 (A), NIRC, as amended
Section 4.112.1 (a), Revenue Regulations
No. 16-2005

196
Chapter 14: Refund of Value-Added Tax

6. A VAT-registered person whose registration has been cancelled due to


retirement.from or cessation of business, or due to changes in or
cessation of status under Sec. 106 (C) of the Tax Code may, within
two (2) years from the date of cancellation:
I - apply for the issuance of a tax credit certificate for any unused
input tax which he may use in payment of his other internal
revenue taxes.
II - be entitled to a refund if he has no internal revenue tax
liabilities against which the tax credit certificate may be
utilized.
a. Only I is correct
b. Only II is correct
c. Both I and II are correct
d. Neither I nor II is incorrect

Answer: C
References: Section 112 (B), NIRC, as amended
Section 4.112.1 (b), Revenue Regulations
No. 16-2005

7. A VAT-registered taxpayer files a claim for refund with the Large


Taxpayers Service having jurisdiction over the principal place of
business. Which of the following statements is correct?
a. The said taxpayer may also file a claim for refund with One
Stop Center of the Department of Finance.
b. The taxpayer may also file a claim for refund with the Revenue
District Office.
c. The taxpayer is precluded from filing the same claim for
refund with another office.
d. The taxpayer is entitled to refund from any Revenue District
Office.

Answer: C
References: Section 112 (C), NIRC, as amended
Section 4.112.1 (c), Revenue Regulations
No. 16-2005
Claims for refunds/tax credit certificate shall be filed with the
appropriate BIR office {Large Taxpayers Service (LTS) or Revenue
District Office {RDO)) having jurisdiction over the principal place of
business of the taxpayer; Provided, however, that direct exporters
may also file their claim for tax credit certificate with the One Stop
Shop Center of the Department of Finance; Provided, finally, that
the filing of the claim with one office shall preclude the filing of
the same claim with another office.

197
Chapter 14: Refund of Value-Added Tax

8. In proper cases, the Commissioner of Internal Revenue shall grant a


tax cre<;iit certificate or refund for creditable input taxes within how
. many days from the date of submission of complete documents in
support of the application filed?
a. One hundred thirty (130) days
b. One hundred twenty-five (125) days
c. One hundred twenty (120) days
d. One hundred ( 100) days

Answer: C
Reference: Section 4.112.1 (d), Revenue Regulations No. 16-2005

9. In case of full or partial denial of the claim for tax credit


certificate/ refund as decided by the Co~missioner of Internal
Revenue, the taxpayer may appeal to the Court of Tax Appeals (CTA)
within how many days from the receipt of said denial?
a. Thirty (30) days c. Twenty (20) days
b. Twenty-five (25) days d. Ten (10) days

Answer: A
References: Section 112 (C), as amended
Section 4.112.1 (d), Revenue Regulations
No. 16-2005

10. If no action on the claim for tax credit certificate/refund has been
taken by the Commissioner of Internal Revenue after the allowed
period within which he is required to act on such claim, the taxpayer
may appeal to the CTA v.,-ithin how many days from the lapse of the
said period?
a. Thirty (30) days c. Twenty (20) days
b. Twenty-five (25) days d. Ten (10) days

Answer: A
References: Section 112 (C), NIRC, as amended
Section 4.112.1 (d), Revenue Regulations
No. 16-2005

198
Chapter 14: Refund ofValue-Added Tax

11. First statement: Refund shall be made upon warrants drawn by the
Commissioner of Internal Revenue or by his duly authorized
representative without the necessity of being countersigned by the
Chairman, Commission on Audit (COA), the provision of the
Revised Administrative Code to the contrary notwithstanding.
Second statement: Refunds under the first statement shall not be
su.bject to post audit by the COA.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: C
References: Section 112 (D), NIRC, as amended
Section 4.112.1 (e), Revenue Regulation\S
No. 16-2005
Refund shall be made upon warrants drawn by the
Commissioner of Intemal Revenue or by his duly authorized
representative without the necessity of being countersigned by
the Chairman, Commission on Audit (COA), the provision of the
Revised Administrative Code to the contrary notwithstanding;
Provided, that refunds under this paragraph shall be subject to
post audit by the COA.

199
Chapter 15
VALUE-ADDED TAX CASES
'Fai{ure is simp{y tfie opportunity to 6egin again,
tfiis time more inte{{igent{y. -.7-{enry 'Ford

Multiple Choice: Choose the best possible answer.

) A VAT subject real estate dealer sold a residential lot on


January 15, 2011. The following information was made available on
the terms of the sale:
Gross selling price p 3,000,000
Initial payments on January 15, 2011
(consisting of down payment and installments
in the year of sale) 900,000
Balance to be paid in equal installment,
installments ~tarting February 15, 2011 2,100,000
The zonal value of the residual lot was P2,800,000.
How much was the output tax on January 15, 2011 using 12% VAT
rate?
a. P360,000 c. P108,000
b. P300,000 d. None

2. Using the data in the preceding number, how much was the output
tax on February 15, 2011 using 12% VAT rate?
a. P360,000 c. P108,000
b. P300,000 d. None

1. Answer: A
I P3,000,000 X 12% = P.360,000

2. Answer: D
Reference: Section 3, Revenue Regulations No. 4-2007
The initial payments over the selling price exceed 25%. This is a -,1
;::a:: :f::::;d::;:::p::::: :~e;:::_;:~::::::;::ot
the instal!ment plan, the transaction shall be treated as cash sale
on I

which makes the entire selling price taxable in the month of sale.
Payments subsequent to "initial payments" shall no longer be
subject to output VAT, in the case of sale on a deferred payment
basis.

200
-----'---------------------~---- ...
Chapter 15: Value-added Tax Cases

3. ABC Corporation sold a parcel of land to XYZ Company on


July 2, 2011 for P1,000,000, plus the output VAT, with a monthly
installment payment of PlO,OOO, plus the output VAT. The zonal
value of the subject property at the time of sale amounted to
P1,500,000. How much was the output tax on the installment
payment?
a. P1,800 c. P1,000
b. P1,200 d. p 800

Answer: A
Reference: Section 4, Revenue Regulations No. 4-2007

Actual collection (VAT exclusive)-


--------------------------------------------- X Zonal value X 12% =Output tax
Agreed consideration (VAT exclusive)
Computation:
(PlO,OOO/Pl,OOO,OOO) X 1,500,000 X 12'Yo = LOO

4, The following information taken from the books of a VAT-registered


/ enterprise was provided to you:
Domestic sales of goods P 3,000,000
Sales of packaging materials to an export-
oriented enterprise whose export sales
exceed 70% of the total annual production 2,000,000
Local sales of goods to Asian Development
Bank (ADB) 500,000/
Consignment of goods (not returned within
60 days following the date of consignment) 200,000,
Goods transferred for the personal use of the owner 100,000
'-
How much was the total taxable sales?
a. P3,000,000 c. P3,800,000
b. P3,300,000 d. P5,800,000

5, Using the same data in the preceding number, how much was the
output tax using 12% VAT rate?
a. P 360,000 c. p 456,000
b. p 396,000 d. p 696,000

201
Chapter 15: Value-added Tax Cases

4. Answer: D
5. Answer: B

Taxable sales Rate Output tax


Domestic sale of goods p 3,000,000 12% p 360,000
Sales of packaging materials
to export-oriented enterprise 2,000,000 0%,
Local sales of goods to ADB 500,000 0'%
Consignment of goods (deemed sold) 200,000 12/t, 24,000
Goods transferred for the personal
use of the owner (deemed sold) 100 000 12% 12,000
Total p 396_,QQQ

6. JP Corporation is a m~rchandising concern_ and has a~ inventory of


(
\ /goods for sale amountmg to Pl,OOO,OOO. Rm Corporatwn, a real
'--- estate developer, exchanged its real estate properties for shares of
stocks of JP Corporation resulting to the acquisition of corporate
control.
How much was the output tax of JP Corporation using 12% VAT
rate?
a. P120,000 c. p 80,000
b. PlOO,OOO d. None

#' 7. 'Using the same data in the preceding number, how much was the
, output VAT of Ria Corporation on the exchange of real properties
held for sale valued at P1,000,000 for shares of stock using 12% VAT
rate?
a. P120,000 c. p 80,000
b. P100,000 d. None

l\\

l"6. Answer: D
<:
-~ Reference: Section 8, Revenue Regulations No. 4-2007
- The inventory of goods owned by JP Corporation (Pl,OOO,OOO) is
'not subject to output tax despite the change in corporate control
because the same corporation still owns them.

7. Answer: A (P1,000,000 X 12% = P120,000)


Reference: Section 8, Revenue Regulations No. 4-2007 as
amended by Section 2, Revenue Regulations No. 10-2011
The exchange of real estate properties held for sale or for lease, for
shares of stocks, whether resulting in corporate control or not, is
subject to VAT. This is an actual exchange of properties which
makes the transaction taxable.

202
Chapter 15: Value-added Tax Cases

VS Corporation is a real estate dealer and has a real property for sale
amounting to P 1 ,000,000. Waldorf Corporation, a real estate
developer, exchanged its real estate properties for shares of stocks of
VS Corporation resulting to the acquisition of corporate control.
How much is the output tax using 12% VAT rate?
a. P120,000 c. P 80,000
b. P100,000 d. None

Answer: D \.'~' :, ;::. \" v. ,_,..,. Ac .. '- ~ \cell(' \ f'- ' '
Reference: Section 8, Revenue Regulations No. 4-2007
If the transferee of the transferred real property by a real estate
dealer is another real estate dealer, in an exchange where the
transferor gains control of the transferee-corporation, no output
VAT is imposable on the said transfer.

9: (Phil. CPA Modified) A VAT-registered trader made the following sales


of goods during the second calendar quarter of the current year:
Cash sales P 200,000
Open account sales 100,000
Installment sales (receipts, P40,000) 100,000
Consignment sales (not yet sold as of end of the
quarter):
June 15 100,000
May 15 100,000
April 15" 100,000
How much is the output tax for the quarter using 12% VAT rate?
a. P 60,000 c. P 40,800
b. p 48,000 d. p 24,000

Answer: A
Cash sales (P200,000 X 12%) p 24,000
Open account sales (PlOO,OOO X 12%) 12,000
Installment sales (Pl 00,000 X 12'%) 12,000
Consignment sales, April 15 (P100,000 X 12/c,) 12,000
Output tax for the quarter p 60 000
----

203
Chapter 15: Value-added Tax Cases

10. Butch, VAT-registered, made the following purchases during the


month of January, 2011:
Goods for sale, inclusive of VAT p 246,400
Supplies, exclusive of VAT 20,000
Office air-conditioner, total invoice price
(estimated life is 3 year) 56,000 :. '
Home appliances for residence, gross of VAT 17,920
Service for store repair, contractor not VAT-registered,
total invoice amount 33,000
'k Service for repainting of store, total invoice amount
evidenced b.Y(ordinacy receipt issued by contractor 4,480
How much was the total a~o~ft;\e 'fJ1~~ t~~s 'of Butch for the month
using 12% VAT rate?
a. P 38,688.00 c. p 34,800.00
b. p 35,337 ..60 d. p 34,542.86

Answer: C
Goods for sale (P246,400 X 12/ 112) p 26,400.00
Supplies (P20,000 X 12%) 2,400.00
Office air-conditioner (P56,000 X 12/ 112) 6 000.00
Creditable input tax P 34 SO~O_Q

11,The following data are taken from the books of accounts of a VAT-
registered taxpayer:
Third quarter Sales p 1,000,000
Purchases 800,000
Excess input VAT as of end of
second quarter 25,000
Fourth quarter : Sales p 1,500,000
Purchases 1,100,000
How much is the VAT payable (excess input tax) for the third quarter
using 12% VAT rate?
a. P 36,000 c. (P 5,000)
b. p 24,000 d. (P 1,000)

J2. Using the same data in the preceding number, how much is the VAT
_./ payable for the fourth quarter using 12/o VAT rate?
a. P 48,000 c. P 11,000
b. P 47,000 d. None of the choices

204

------------------------------ --- --
Chapter 15: Value-added Tax Cases

11. Answer: D
12. Answer: B
Reference: Section 4.110-7, Revenue Regulations No. 16-2005 as
amended by RR No. 2-2007 and RR No. 4-2007

Third quartPr
Output tax (P1 ,000,000 X 12'%) p 120,000
Less: Input taxes
Carried over from previous quarter p 25,000
On current transactions (P800,000 X 12%) 96 000 121,000)
Excess input tax (E 1 QQQ)

Fourt/1 quarter
Output tax (P1,SOO,OOO X 12;(,) p 180,000
Less: Input taxes
Carried over from previous quarter p 1,000
On current transactions (P1,100,000 Xl2'%) 132,000 133,000)
VAT payable e_ 4 'LQQQ

Note: R.A. No. 9361 (approv:ed on November 24, 2006) deletes the provision
under R.A. No. 9337 that subjects the allowable input tax credit to the
70%, limit (based on output tax) in case the input tax exceeds output
tax. The repeal covers VAT returns for taxable quarters ending not
earlier than December 2006.

-f.( 13.iThe following data (net of VAT) are available:


~Third quarter Sales p 1,500,000
Purchases 800,000
-: Purchase of machinery 2,000,000 ') p, i
Unutilized input VAT as of end of
second quarter 97,000
Fourth quarter : Sales p 2,000,000
Purchases 100,000
Hmv much is the VAT payable (excess input tax) for the third quarter
using 121oVAT rate?
a. P 83,000 c. (P 25,.000)
b. p 54,000 d. (P 16,000)

14. Using the same data in tlle preceding number, how much is the VAT
payable for the fourth quarter using 12% VAT rate?
a. P203,000 c. P191,000
b. P200,000 d. P 72,000

205
Chapter 15: Value-added Tax Cases

13. Answer: C
14. Answer: C

Third quarter
Output tax (P1,500,000 X 12%) p 180,000
Less: Input taxes
Carried over from previous quarter p 97,000
On current transactions:
On purchases (PSOO,OOO X 12%L
o_n machinery (P2~0,000/60
Excess mput tax hl 1 i?-"',
e 96,000
12,000 (
(P
205,000)
25,000)

Deferred input tax p 25,000


VAT on capital goods (P240,000- P12,000) 228,000
Total p 253,000

Fourth quarter
Output tax (P2,000,000 X 12%) p 240,000
Less: Input taxes
Carried over from previous quarter p 25,000
On current transactions:
On purchases (P100,000 X 12%) 12,000
On machinery (P240,000/60 X 3) 12,000 49,000)
VAT payable p 191,000

Deferred input tax p


VAT on capital goods (P240,000- P24,000) 216 000
Total ~~lM~.2

~.

~-- 15. (Phil. CPA) The following are the data of City Appliances Marketing
Co. for the last quarter of 2011:
Sales up to December 15, total invoice value P 319,200
Purchases for November up to December 15,
net of input taxes 215,000
Additional in[onnation: On December 16, 2011, the City Appliances
Marketing Co. retires from its business. The inventory valued at
P190,000 is taken and transferred to New City Appliances Co. There
is a deferred input tax of P3,500 for the third quarter.
How much is the total value-added tax due from the City Appliances
Marketing Co. for its operations in the last quarter and its retirement
from business using 12% VAT rate?
a. P 33,004 c. p 27,700
b. p 28,900 d. p 27,089

206
Chapter 15: Value-added Tax Cases

""it 16. Using the same data in the previous number, and assuming that the
New City Appliances Co. has the following data for the first month of
2012:
Sales (including the inventory transferred from
City Appliances Marketing), total invoice value p 336,000
Purchases, total invoice value 224,000
How much is the VAT payable (excess input tax) for the first month of
2012 using 12% VAT rate?
a. P 17,100 c. (P 10,800)
b. P 12,000 d. (P 9,480)

15. Answer: C
Actual sales (P31 9,200 X 12 /112) p 34,200
Deemed sales (P190,000 X 12%) 22,800
Output taxes p 57,000
Less: Input taxes
On purchases (P215,000 X 12'Yo) p 25,800
Carried from previous quarter
(deferred input tax) 3 500 29 300)
Value-added tax due p 27,700

16. Answer: C
Output taxes on actual sales (P336,000 X 12/ 112) P 36,000
Less: Input taxes
On deemed sales (see previous number) P 22,800
On purchases (P224,000 X 12/ 112) 24,000 46 800)
Excess input tax (P 10&QQ)

?- . 17. \A taxpayer registered under the VAT system on January 2, 2011 after
-.__./his sales exceeded P1,5000,000 in the previous year. He became
subject to VAT for the first time. The following selected data were
taken from his books:
Inventory, December 31, 2010 purchased from VAT-registered seller:
Cost P 60,000
Net realizable value (50,000'
VAT paid on December 31,2010 inventory -o;uoo
Inventory, December 31, 2010 purchased from
VAT-exempt seller 80,000
Sales, net of VAT 181,000
Purchases, net of VAT 70,000
How much was the VAT payable using 12% VAT rate?
a. P13,320.00 c. P 5,892.86
b. p 7,320.00 d. p 4,992.86

207
r Chapter 15: Value-added Tax Cases

Answer: B
Output tax (P181,000 X 12%) P 21,720
Less: Input taxes
On purchases (P70,000 X 12/.,) P 8,400
Tparr~ional input tax
' 2/d''X PSO. ,000 ~:- ,,
/
P 1 000
-VAT paid P 6 000
Allowed (higher) 6 000 14 400
VAT payable

18. Sweet Tooth, Inc. manufactures refined sugar. The following selected
data are taken from its books:
Sale of refined sugar, net of VAT P2,000,000
Purchase of sugar cane from farmers 500,000
Purchases of packaging materials, gross of VAT 784,000
Purchase of labels, gross of VAT 112,000
Advance payment of VAT before release from refinery 60,000
How much is the VAT payable using 12% VAT rate?
a. Pl24,000 c. P 64,000
b. p 84,000 d. p 20,000

Answer: C
Output ta.x (P2,000,000 X 12%) p 240,000
Less: Input taxes
,. Presumptive input tax on sugar cane
(PSOO,OOO X 4%) p 20,000
t On packaging materials
f (P784,000 X 12/ 112) 84,000
On labels (P112,000 X 12/ 112) 12 000 ( 116 000)
VAT payable p 124,000
Less: Tax payments/ credits
Advance VAT paid 60 000)
Tax payable I'_ 6 4_,.Q.Q_Q

I 208
L-~---~- -------------------- ------------- -
Chapter 15: Value-added Tax Cases

:'1 19. to 23. are based on the following: A VAT-registered trader has the
following transactions:
Sales of good to private entities, net of 12% VAT P2,500,000
Purchases of goods sold to private entities,
gross of 12% VAT 896,000
Sales to a government owned corporation (GOCC),
. net of 12% VAT 1,000,000
Purchases of goods sold to GOCC, net of 12% VAT 700,000
..l 19. How much is the withholding VAT?
a. P120,000 c. p 50,000
b. p 70,000 d. None of the choices

~ 20. How much is the standard input tax?


a. P120,000 ~ ~ - . c. p 50,000
b. p 70,000 d. None of the choices

' 21. What is the treatment of the excess actual input VAT attributable to
sales to GOCC?
a. Input tax credit c. Income
b. Expense or cost d. None of the choices

22. How much is the creditable input tax on sale to private entities?
a. P176,000 c. P 70,000
b. P 96,000 d. None of the choices
/.--~

( 23. Bow much is the VAT payable?


"'-_/ a. P244,000 c. P120,000
b. P204,000 d. None

19. Answer: C
20. Answer: B
21. Answer: B
22. Answer: B
23. Answer: B
19. Computation: Pl,OOO,OOO X 5% = P50,QOO
20. Computation: Pl,OOO,OOO X 7% = P70 000
21. Excess actual input tax forms part of the seller's expense or cost.
22. Computation: P896,000 X 12/112 = PQQ_.QQQ
23. Computation: Government Private
Output tax It = P 120,000 P 300,000
Less: Input taxes
Standard input tax ( 70,000) )
On purchases of goods sold to private ( ) ( 96 000) ~ .
VAT payable p 50,000 p 204,000
Less: Withholding VAT ( 50 000) ( )
VAT payable p p 204,000

----- --------~------------------------------------
209
Chapter 15: Value-added Tax Cases

24:, A VAT-registered taxpayer engaged the services of a non-resident


service provider. The contract price was P500,000 which was paid by
the VAT-registered taxpayer in full. How much was the amount of
withholding VAT to be withheld by the VAT-registered taxpayer using
12% VAT rate?
a. P 60,000 c. p 35,000
b. p 50,000 d. p 25,000

25. Using the same data in the preceding number, how much input tax
could be claimed as credit by the VAT-registered taxpayer using 12%
VAT rate?
a. P 60,000 c. p 35,000
b. p 50,000 d. p 25,000

24. Answer: A
I 500,000 X 12%, = P60,000

25. Answer: A
I 500,000 X 12%, = P60,000

26. (Phil. CPA Modified) Off Pring Corporation is a Value-Added Tax


registered dealer of appliances. The following data are for the last
quarter of the current year:
Sales, total invoice value p 6,921,600
Purchases, net of input taxes 5,500,000
Sales returns (based on total invoice value) 224,000
Purchases returns, net of input taxes 300,000
Deferred input taxes (carried over from the
third quarter of the current year) 9,500
How much is the value-added tax due for the last quarter of the
current year using 12% VAT rate?
a. P170,212.00 c. P84, 100.00
b. p 150,956.94 d. P72, 100.00

Answer: C
Output tax on net sales (P6,697,600 X 12/ 112) p 717,600
Less: Input taxes
On net purchases (P5,200,000 X 12/r,) p 624,000
Carried over from previous quarter 9 500 ( 633,500)
VAT payable p 84 100

Sales, total invoice value p 6,921,600


Less: Sales returns ( 224 000)
Net sales p 6 697 600

Purchases p 5,500,000
Less: Purchase returns ( 300 000)
Net purchases p 5,200,000

210
Chapter 15: Value-added Tax Cases

27. A VAT-registered taxpayer engaged in the supply oLs~rvices has the


- following data taken from its books for the month of January 2011:
Accounts receivable, January 1, 2011 P 560,000
Sales on account for the month of January 1,000,000
Cash sales for the month of January 300,000
Accounts receivable, January 31, 2011 784,000
How much is the output tax for the month of January, 2011 using
12% VAT rate?
a. P156,000 c. P129, 120
b. P132,000 d. P110,000

Answer: B
Cash sales p 300,000
Collections from receivables
(PSOO,OOO + Pl ,000,000- P700,000) 800 000
Gross receipts p 1,100,000
Tax rate 12'%
Output tax
It has to be noted that sales_2er books are exclusive of VAT
while receivables per books are inclusive of VAT. To compute
the collections from receivables, the receivables per books
have to be converted into an amount exclusive of VAT.
An alternative computation using VAT inclusive data follows:
Cash sales P 300,000
Collections from receivables
(P560,000 + P1, 120,000- P784,000) 896 000
Total invoice amount p 1,232,000
Multiplied by 12/112
Output tax

28. A VAT-registered contractor has the following selected VAT inclusive


data for the month of July, 2011:
Collections from con tracts completed in 20 1 0 p 560,000
Advances from contracts to be completed in 2012 336,000
~Collections from contracts completed in
July, 2011, net of 10% retention on billings
which was deposited in the account of the
contractor by the contractee 221,760
Materials charged with the services rendered 112,000
Hmv much is the output tax for the month of July, 2011 using 12%
VAT rate?
a. P150,528 c. P131,760
b. P134,400 d. P120,000

211
Chapter 15: Value-added Tax Cases
...
Answer: B
Collections from contracts completed in 2010 p 560,000
Advances from contracts to be completed in 2012 336,000
Collections from contracts completed in July 2011
(P221,760 divided by 90'%) rc;- '~ ""''"' ;" 246,400
Materials charged with the services rendered 112,000
Total invoice amount p 1,254,400
Multiplied by 12/112
Output tax

29: Hotel California, VAT -registered, offers different services to its guests.
The following data taken from the books of the taxpayer are for the
first quarter of 20 11:
Revenues Collections
Hotel rooms (local guests) p 800,000 p 700,000
Dining hall:
Sale of food and refreshments 1,000,000 850,000
Sale of wine, beer and liquor 700,000 600,000
Disco:
Sale of food and refreshments 600,000 550,000
Sale of wine, beer and liquor 500,000 450,000
How much is the output tax for the first quarter of 2011 using 12%
VAT rate?
a. P432,000 c. P258,000
b. P378,000 d. None of the choices

Answer: C
Collections, hotel rooms P 700,000
<?'ollections.~dining hall (sale of food and refreshments) 850,000
~ollections;.dining hall (sale of wine, been and liquor) 600 000
Gross receipts P 2,150,000
Tax rate 12%,
Output tax p 258.000
Sales of food, refreshments, wine, beer and liquor in disco are
subject to amusement taxes.

212

---------------~---------------
Chapter 15: Value-added Tax Cases

30. Stackhouse, a VAT-registered stockbroker and dealer in securities,


has the following data for the first quarter of the current year (net of
applicable taxes):
Commissions received from representing buyers p 200,000
Commissions received from representing sellers 300,000
Selling price of shares of stock:
Hope Corp. held as inventory 400,000
Faith Corp. held as investment 600,000
Acquisition cost:
Hope Corp. held as inventory 300,000
Faith Corp. held as investment 350,000
Operating expenses connected with VAT-subject
transactions:
Supplies bought from VAT-registered supplier 70,000
Salaries of employees 90,000
Electricity 5,000
Water 3,000
What is the VAT payable for the quarter using the 12% VAT rate?
a. P 63,600 c. P 62,640
b. p 63,600 d. p 51,840

Answer: C
Output tax on gross receipts as stockbroker
~Ql'c'' (P500,000 X 12%) p 60,000
Output tax on gross receipts as dealer in securities
'"cc :'' ""(P100,000 X 12'Yo) .. ,' \ ?1 , 12 000
Total output tax p 72,000
Less: Input taxes
On supplies (P70,000 X 12%) P8,400
On electricity (PS,OOO X 12'X,) 600
On water (P3,000 X 12/,) 360 9 360)
VAT Payable p 62 64Q

Commissions received from representing buyers p 200,000


Commissions received from representing sellers 300 000
Gross receipts as stockbroker E. 500,00_Q
Selling price, Hope Corporation shares p 400,000
Less: Acquisition cost, Hope Corporation shares ( 300,000)
Gross receipts as dealer in securiLies P lO_Q,D_.QQ

Shares held as investment (Faith Corporation shares) when sold are


either subject to capital gains tax or stock transactions tax.

213
Chapter 15: Value-added Tax Cases

.~~\
~ 31. (Phil. CPA Modified) Mr. C. Juan is a transportation contractor with
...- contract to transport the products of CMP Corp. to its outlets.
For the month of April, 2011, CMP paid Mr. Juan P371,250, net of
the 1% expanded withholding income tax and the applicable VAT. ~-,;' y
During the month, Mr. Juan has VAT-subject purchases of -~
P336,000, gross of VAT. How much is Mr. Juan's VAT payable for
the month of April, 2011 using 12% VAT rate?
a. P 8,196 c. P 9,000
b. p 8,550 d. p 13,500

Answer: C
Output tax [(P371,250 divided by 991<>) X 12%] p 45,000
Less: Input tax (P336,000 X 12/112) ( 36 000)
VAT payable F'- 9,00Q

,~ -

'-!-- (32. A VAT-registered public works contractor has the following data on
/$ervices rendered in the Philippines for the first quarter of the current
year (VAT-exclusive):
Contract price (foreign clients doing business
outside the Philippines) ($1:P50) $ 100,000
Contract price (private sector clients) p 5,000,000
Contract price (Government) 3,000,000
Collections from foreign clients $ 100,000
Collections from Government contracts 1,000,000
Collections from private sector clients 2,000,000
Purchases during the quarter
(used in private sector clients contracts) 800,000
Payments for services of a VAT-registered sub-
contractor (used in Government contracts) 400,000
Purchases during the quarter (used in
private sector clients and
government contracts only) 300,000
How much is the VAT payable for the quarter using 12% VAT?
a. P190,000 c. P120,000
b. P170,000 d. None

L
------------
214
Chapter 15: Value-added Tax Cases

Answer: C
Government Private
Output tax(>.''' ,: . . p 120,000 p 240,000
Less: Input taxes
Standard input tax 70,000)
Purchases (directly attributed to
private contracts) 96,000)
Purchases (ratably all,ocated to
private cor. tracts) 1 ,, .. , 1 , ,_,;; ''' ( ) ( 24 000)
VATpayable c'/,';c,),_,_.;t\ p 50,000 p 120,000
Less: Withholding VAT ( 50 000) ( )
Tax payable :P~ -=------ p 120.000

Collections from foreign clients (P5,000,000 X 0%) p


Collections from private clients (P2,000,000X 12%) 240 000
Output tax on private client contracts p 240,000

Collections from Government (P1,000,000 X 12%,) p 120,000

Standard input tax (P1,000,000 X 7'Yo) p 70 000


\Vithholding VAT (P1,000,000 X 5'Yr,) p 50 000
Input tax on purchases ratably attributed to private
clients contracts (P2,000,000/P3,000,000 X P36,000) p 24.000

33. (Phil. CPA) Dayag Builderz was a contractor. It entered into a


//contract on December 31, 2011, which was completed on
March 15, 2012. E received the total value of the contract including
materials charged with the services amounting to P5,500,000 on
March 25, 2012. Dayag Builderz spent for the materials used in the
contract which it acquired from value-added tax registered suppliers
costing Pl ,500,000.
During the month of January 2012, it purchased an equipment with
a contract price of P2,500,000 and paid PSOO,OOO as down payment.
The estimated life of the equipment is 4 years.
How much was the value-added tax payable for the quarter ending
March 31, 2012 using 12% VAT rate assuming all the data were
exclusive of VAT?
a. P465,000 c. P360,000
b. P461,250 d. Pl80,000

Answer: B
Output tax (P5,500,000 X 12%) p 660,000
Less: Input taxes
Materials (P1 ,500,000 X 12'Yr,) P 180.000
Equipment
(P300,000/48 months X 3 mo'n:t~) 18 750 198.750
VAT payable P46L250
r

Chapter 15: Value-added Tax Cases

--, 34. An owner of a warehouse, which used to be VAT -exempt because its
annual receipts never exceeded Pl,500,000, decided to register under
the VAT system on January 2, 2011. The following data were from
the first quarter ending March 31, 2011:
Rental from warehousing services, net of 12% VAT p 336,000
Purchases of supplies (February), gross of VAT 112,000
Inventory of supplies, January 1, 2010 100,000
VAT on the inventory of supplies, January 1, 2010 10,000
How much was the VAT payable for the quarter ending March 2011?
a. P 26,320 c. P 14,000
b. P 18,320 d. None of the choices

Answer: B
Output tax (P336,000 X 12%) p 40,320
Less: Input taxes
Supplies (P112,000 X 12/ 112) p 12,000
Transitional input tax
P1 00,000 X 2% p 2 000
Actual VAT paid p 10,000 10 000 22,000
VAT payable I'_lli__320

35. (Phil. CPA Modified) Robin P. imported a car from the USA for his
personal use. Total landed cost is P250,000 (about $5,952)
including customs duties of P50,000. VAT payable using 12% rate is:
a. P 30,000. c. P 10,000.
b. P25,000. d. none.

Answer: A
Total landed cost p 250,000
Tax rate 12%
VAT on importation p 30.000

36. (Phil. CPA Modified) An importer wishes to withdraw its importation


from the Bureau of Customs. The imported goods are subjected to
10% customs duties in the amount of P12,500 and to other charges
in the amount of P9,500. The value-added tax due using 12% rate is:
a. P 12,500. c. P 14,000.
b. p 13,364. d. p 17,640.

r 216
l
Chapter 15: Value-added Tax Cases

Answer: D
Dutiable value (P12,500 / 10/tl) p 125,000
Add: Customs duties p 12,500
Other charges 9 500 22,000
Total p 147,000
Tax rate 12'%
VAT on importation p 17 640

/Babes Corp. imported an article from Japan. The invoice value of the
/ imported article was Yl,OOO,OOO (Yl=P0.35). The following were
incurred in connection with the importation:
Insurance p 15,000
Freight 10,000
Postage 5,000
Wharfage dues 7,000
Arrastre charges 8,000
Brokerage fees 25,000
Facilitation fee ~oi'Qiu: 3,000
The imported article was subject to PSO,OOO customs duties and to
P30,000 excise tax. After the re.lease from the Bureau of Customs,
Babes Corp. paid PS,OOO,cnet ofVAT~ for trucking to a warehouse in
Quezon City. It also paid 'W~ng rent of PlO,OOO,(net~~Y~T.
How much was the VAT on importation using 12% VAT rate?
a. P 60,360 c. P 51,600
b. p 60,000 d. p 50,400

,/38. Using the same data in the preceding number, assuming the
,imported article wc:.s sold by the importer for P700,000, net of VAT,
/how much was the VAT payable using 12% VAT rate?
a. P 22,200 c. P 20,000
b. P 21,840 d. None of the choices

217
Chapter 15: Value-added Tax Cases

37. Answer: B
Value of imported goods (Y1 ,000,000 X 0.35) p 350,000
Add: Customs duties p 50,000
Excise tax 30,000
Insurance 15,000
Freight 10,000
Postage 5,000
Wharfage 7,000
Arrastre charges 8,000
Brokerage fees 25,000 150 000
Total p 500,000
Tax rate 12'Yo
VAT on importation p 60.000
Facilitation fee is not a legal charge. It is not included in the
term "other charges prior to release of goods from Customs
custody."

38. Answer: A
Output tax (P700,000 X 12%) p 84,000
Less: Input taxes
VAT on importation p 60,000
Trucking (P5,000 X 12%) 600
Warehousing (P10,000 X 12%) 1,200 61 800
VAT payable p 22,200

39. The following data pertain to a VAT-registered taxpayer for February:


/' Sales, total invoice price P 896,000
/ Domestic purchases from a VAT supplier,
gross of VAT 268,800
In January, there is an importation of goods to be sold, with a
landed cost of P200,000. There are no sales in January.
d.::.
How much is the value-added tax,in February using 12% VAT rate?
a. P 43,200 ' c. P 67,200
b. p 51,264 d. p 72,000

Answer: A
Output tax (P896,000 X 12/112) p 96,000
Less: Input taxe~
VAT on importation carried over from
previous period (P200,000 X 12%,) p 24,000
Purchases (P268,800 X 12/ 112) 28,800 52,800
VAT payable f 4_3_._2DJ2

218
Chapter 15: Value-added Tax Cases

'f 40: A VAT-registered taxpayer has the following information on his


" importations:
For For
sale own use
Invoice c_os't (US$ 1 = PSO) "'-. $ 50,000 $ 10,000
Based on' cost: 1' .' ,;_: ~" . J
Freight and insurance 4% 4%
Other expenses before the goods are
released from Bureau of Customs 6% 6%
Expenses incurred :fJer the goods are
released from Bureau of Customs lj:>O/o 12%
The imported goods are sold within the same taxable period the
importation is made for P7,840,000, VAT inclusive.
How much is the VAT on imr-ortation using 12% VAT rate?
a. P396,000 c. P330,000
b. P331 ,500 d. None of the choices

~- 41. Using the same data in the preceding number, how much is the VAT
payable on the sale of imported goods using 12% VAT rate?
a. P840,000 c. P508,234
b. PSlO,OOO d. P444,000

40. Answer: A
For For
Sale Personal Use
Invoice value p 2,500,000 p 500,000
Add: Freight charges 100,000 20,000
Other expenses before the release 150 000 30 000
Total VAT1:; 1 1kC+ h~t-I.Ad;_i p 2,750,000 p 550,000
Tax rate 12% 12%
VAT on importation p 330 000 p 66 000
Total VAT on importation p 396 000

41. Answer: B
Output tax (P7,840,000 X 1';!./ 112) p 840,000
Less: Input tax
VAT on importation on goods for sale 330 000
VAT payable P __5_1Q_OOO
There is no input tax on expenses incurred after the goods are
released from the Bureau of Customs becauseJhe Rroblem
VAron-
d~Qe,S.not st9.k..tha.LiheiTj_JJ,9;._~ed -on ~eipen;es.

219
Chapter 16
VAT COMPLIANCE REQUIREMENTS
'Iiie secret qfgetting alieaa is getting started"- ')far!( 'Twain

Multiple Choice: Choose the best possible answer.

1. A VAT-registered person shall issue for every. sale, barter or exchange


of goods or properties a:
a. VAT invoice. c. VAT credit certificate.
b. VAT official receipt. d. VAT refund.

Answer: A
References: Section 113 (A) (1), NIRC, as amended
Section 4.113-1 (A) (1), Revenue Regulations
No. 16-2005

2. A-VAT-registered person shall issue a for every lease of goods or


properties, and for every sale, barter or exchange of service a:
a. VAT invoice. c. VAT credit certificate.
b. VAT official receipt. d. VAT refund.

Answer: B
References: Section 113 (A) (2), NIRC, as amended
Section 4.113-1 (A) (2), Revenue Regulations
No. 16-2005

3. Which of the following is incorrect?


a. Only VAT-registered persons are required to print their TIN
followed by the word "VAT" in their invoice or official receipts.
b. The printed documents in letter a. shall be considered as a
"VAT Invoice" or "VAT official receipt".
c. All purchases covered by invoices/receipts other than VAT
Invoice or Official Receipt shall not give rise to any input tax.
d. None of the choices.

Answer: D
Reference: Section 4.113-1(A), Revenue Regulations No. 16-2005
Chapter 16: VAT Compliance Requirements

4. VAT invoice or official receipt shall be prepared at least in duplicate:


I - the original to be given to the buyer.
II - the duplicate to be retained by the seller as part of his
accounting records.
a. Only I is correct c. Neither I nor II is correct
b. Only II is correct d. Both I and II are correct

Answer: D
Reference: Section 4.113-1 (A), Revenue Regulations
No. 16-2005

5. Which of the following information shall be indicated in VAT invoice


or VAT official receipt?
a. A statement that the seller is a VAT -registered person,
followed by TIN.
b. The total amount which the purchaser pays or is obligated to
pay to the seller with the indication that such amount
includes the VAT.
c. In the case of sales in the amount of one thousand pesos
(Pl,OOO) or more where the sale or transfer is made to a VAT-
registered person, the name, business style, if any, address
and TIN of the purchaser, customer or client.
d. All of the choices.

Answer: D
References: Section 113 (B) (1), (2) and (3), NIRC, as amended
Section 4.113-1 (B) (1), (2) and (3),
Revenue Regulations No. 16-2005

6. Which of the following statements is incorrect?


a. The amount of VAT shall be shown as a separate item in the
invoice or receipt.
b. If the sale is exempt from VAT, the term "VAT-exempt sale"
shall be written or printed prominently on the invoice or
receipt.
c. If the sale is subject to zero percent (0%) VAT, the term "zero-
rated sale" shall be written or printed prominently on the
invoice or receipt.
d. The VAT-subject seller does not have the option to issue
separate invoices or receipts for the taxable, exempt, and
zero-rated components of the sale.

221
Chapter 16: VAT Compliance Requirements

Answer: D
References: Section 113 (B) (2) (a), (b) and (c), NIRC, as amended
Section 4.113-1 (B) (2) (a), (b) and (c),
Revenue Regulations No. 16-2005

7. If the sale involves goods, properties or services some of which are


subject to and some of which are VAT zero-rated or VAT-exempt,
the invoice or receipt shall clearly indicate:
I - the break-down of the sale price between its taxable, exempt
and zero-rated components.
II - the calculation of the VAT on each portion of the sale shall be
shown on the invoice or receipt.
a. Only I is correct c. Neither I nor II is correct
b. Only II is correct d. Both I and II are correct

Answer: D
References: Section 113 (B) (2) (d), NIRC, as amended
Section 4.113-1 (B) (2) (d), Revenue Regulations
No. 16-2005

8. Which of the following deemed sale transactions requires a


memorandum entry in the subsidiary sales journal?
a. Transfer, use or consumption not in the course of business of
goods or properties originally intended for sale or for use in
the course of business.
b. Distribution or transfer to shareholders or investors as share
in the profits of VAT-registered person and creditors in
payment of debt or obligation.
c. Consignment of goods if actual sale is not made within 60
days following the date such goods were consigned.
d. Retirement from or cessation of business with respect to all
goods on hand, whether capital goods, stock-in-trade,
supplies or materials as of the date of such retirement or
cessation.

222
Chapter 16: VAT Compliance Requirements

Answer: A
Reference: Section 4.113-2, Revenue Regulations No. 16-2005
In the case of transfer, use or consumption not in the course of
business of goods or properties originally intended for sale or for
use in the course of business, a memorandum entry in the
subsidiary sales journal to record withdrawal of goods for
personal use is required.
In the case of distribution or transfer to shareholders or investors
as share in the profits of VAT-registered person and creditors in
payment of debt or obligation and consignment of goods if actual
sale is not made within 60 days following the date such goods
were consigned, an invoice shall be prepared at the time of the
occurrence of the transaction, which should include, all the
information prescribed in Revenue Regulations 16-2005. The data
appearing in the invoice shall be duly recorded in the subsidiary
sales journal. The total amount of "deemed sale" shall be included
in the return to be filed for the month or quarter.
In the case of retirement from or cessation of business with respect
to all goods on hand, whether capital goods, stock-in-trade,
supplies or materials as of the date of such retirement or cessation,
an inventory shall be prepared and submitted to the RDO who has
jurisdiction over the taxpayer's principal place of business not later
than 30 days after retirement or cessation from business.

9. First statement: In case of retirement from or cessation of business,


the invoice prepared need not enumerate the specific items
appearing in the inventory, but it must show the total amount.
Second statement: If the business is to be liquidated and the goods in
the inventory are sold or disposed of to VAT-registered buyers, an
invoice or instrument of sale or transfer shall be prepared citing the
invoice number wherein the tax was imposed on the deemed sale,
at the same time the tax paid corresponding to the goods sold
should be separately indicated in the instrument of sale.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
Reference: Section 4.113-2, Revenue Regulations No. 16-2005
Chapter 16: VAT Compliance Requirements

10. "A", at the time of retirement, had 1, 000 pieces of merchandise


which was deemed sold at a value of P20,000.00 with an output tax
of P2,400.00. After retirement, "A" sold to "B" 500 pieces of these for
P12,000.00. In the contract of sale or invoice, "A" stated the sales
invoice number wherein the output tax on "deemed sale" was
imposed and the corresponding tax paid on the 500 pieces.
He prepared the following invoice:
Gross selling price p 10,800
VAT previously paid on "deemed sale: 1,200
Total p 12,000
How much is the input tax of "B"?
a. P2,400 c. Pl,OOO
b. Pl,200 d. None of the choices

Answer: B
Reference: Section 4.113-2, Revenue Regulations No. 16-2005

11. Notwithstanding the provisions of Sec. 233 (Subsidiary Books),


all persons subject to VAT under Sec. 106 (VAT on sale of goods or
properties) and 108 (VAT on sale of services and use or lease of
properties) of the Tax Code shall, in addition to the regular
accounting records' required, maintain what books on which every
sale or purchase on any given day is recorded?
I - Subsidiary sales journal
II - Subsidiary purchase journal

a. Both I and U c. I only


b. Neither I nor II d. II only

Answer: A
References: Section 113 (C), NIRC, as amended
Section 4.113-3, Revenue Regulations No. 16-2005

12. A subsidiary record in ledger form shall be maintained for the


acquisition, purchase or importation of depreciable assets or capital
goods which shall contain, among others:
I - information on the total input tax thereon.
II- the monthly input tax claimed in VAT declaration or return.
a. Both I and II c. I only
b. Neither I nor II d. II only

Answer: A
References: Section 113 (C), NIRC, as amended
Section 4.113-3, Revenue Regulations No. 16-2005

224
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Chapter 16: VAT Compliance Requirements

13. If a person who is not VAT-registered issues an invoice or receipt


showing his TIN, followed by the word "VAT", the erroneous issuance
shall result to the following, except which one?
a. The non-VAT person shall be liable to the percentage taxes
applicable to his transactions.
b. The non-VAT person shall be liable to the VAT due on the
transactions.
c. The non-VAT person shall have the benefit of input tax credit.
d. The non-VAT person shall be liable to a 50% surcharge under
Sec. 248 (B) of the Tax Code.

Answer: C
References: Section 113 (D) (1) (a) (i) and (ii), NIRC, as amended
Section 4.113-4 (A) ( 1) (i), (ii) and (iii), Revenue
Regulations No. 16-2005

14. The VAT-registered purchaser in a transaction where a seller who is


not VAT-registered issues an invoice or receipt showing his TIN,
followed by the word "VAT":
a. shall recognize as an input tax credit the "passed-on VAT"
provided the requisite information required under the
Regulations is shown on the invoice or receipt.
b. shall be liable to the percentage taxes applicable to the
transaction.
c. shall claim a refund for the erroneous VAT provided the
requisite information required under the Regulations is shown
on the invoice or receipt.
d. none of the choices.

Answer: A
References: Secti.on 113 (D) (b), NIRC, as amended
Section 4.113-4 (A) (2), Revenue Regulations
No. 16-2005

15. If a VAT-registered person issues a VAT invoice or VAT official receipt


for a VAT-exempt transaction, but fails to display prominently on the
invoice or receipt the words "VAT-exempt sale", the transaction shall:
a. still be exewpt from value-added tax.
b. become taxable and the issuer shall be liable to pay VAT
thereon.
c. be effectively subject to zero percent.
d. be considered erroneous transaction and must be
disregarded.

225
Chapter 16: VAT Compliance Requirements

Answer: B
References: Section 113 (D) (2), NIRC, as amended
Section 4.113-4 (B), Revenue Regulations
No. 16-2005

16. If a VAT-registered person issues a VAT invoice or VAT official receipt


for a VAT-exempt transaction, but fails to display prominently on the
invoice or receipt the words "VAT-exempt sale", the purchaser shall:
a. be entitled to claim an input tax credit on his purchase.
b. ask for a refund of the VAT erroneously included in the VAT
invoice or VAT official receipt.
c. not entitled to claim an input tax credit on his purchase
because there is no passed-on VAT.
d. consider the transaction erroneous and must be disregarded.

Answer: A
References: Section 113 (D) (2), NIRC, as amended
Section 4.113-4 (B), Revenue Regulations
No. 16-2005

17. Every person liable to pay VAT shall file a quarterly return of the
amount of his quarterly gross sales or receipts within how many days
following the close of taxable quarter using the latest version of
Quarterly VAT Return?
a. Thirty (30) days c. Twenty (20) days
b. Twenty-five (25) days d. Ten (10) days

Answer: B
References: Section 114 (A), NIRC, as amended
Section 4.114-1 (A), Revenue Regulations
No. 16-2005

18. For VAT purposes, the term "taxable quarter" shall mean:
a. calendar quarter whether the taxpayer uses fiscal or calendar
quarter for income tax purposes.
b. fiscal quarter whether the taxpayer uses fiscal or calendar
quarter for income tax purposes.
c. the quarter that is synchronized to the income tax quarter of
the taxpayer.
d. none of the choices.

Answer: C
Reference: Section 4.114-1(A), Revenue Regulations No. 16-2005

226
Chapter 16: VAT Compliance Requirements

19. First statement: Amounts reflected in the monthly VAT declarations


for the first two (2) months of the quarter shall not be included in
the quarterly VAT return because the VAT on the monthly
declarations had already been paid.
Second statement: Payments in the monthly VAT declarations shall
be credited in the quarterly VAT return to arrive at the net VAT
payable or excess input tax/ overpayment as of the end of a quarter.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: D
Reference: Section 4.114-1(A), Revenue Regulations No. 16-2005

20. When shall the manual monthly VAT Declarations (BIR Form 2550M)
of taxpayers whether large o.r non-large be filed and the taxes paid?
a. Not later than the 25th day following the end of each month
b. Not later than the 20th day following the end of each month
c. Not later than the lOth day following the end of each month
d. None of the choices

Answer: B
Reference: Section 4.114-1 (A), Revenue Regulations
No. 16-2005

21. When shall the return for withholding of VAT be filed?


a. On or before the 25th day of the following month of
withholding
b. On or before the 20th day of the following month of
withholding
c. On or before the lOth day of the following month of
withholding
d. On or before the 5th day of the following month of withholding

Answer: C
Reference: Section 4.114-1(A), Revenue Regulations
No. 16-2005
Chapter 16: VAT Compliance Requirements

22. For purposes of filing returns under the Electronic Filing and
Payment System (EFPS) the taxpayers classified under Group A shall
be required to file Monthly VAT Declarations on or before:
a. 25 days following the end of the month.
b. 24 days following the end of the month.
c. 23 days following the end of the month.
d. 22 days following the end of the month.

Answer: A
Reference: Section 4.114-1(A), Revenue Regulations No. 16-2005
For purposes of filing retums under the EFPS, the taxpayers
classified under the following business industries shall be required
to file Monthly Value-Added Tax Retums on or before the dates
prescribed and presented below:
Monthly Percentage Tax Return
Group A 25 days following end of the month
Group B 24 days following end ofthe month
Group C 23 days following end ofthe month
Group D 22 days following end of the month
GroupE 21 days following end ofthe month

23. Suppose the accounting period adopted by the taxpayer is fiscal year
ending October 2011, when is the due date for the filing of his
monthly VAT declarations for the first and second month of the first
fiscal quarter?
a. November 20, 2011 and December 20, 2011
b. August 20, 2011 and September 20, 2011
c. November 20, 2010 and December 20, 2010
d. December 20, 2010 and January 20, 2011

Answer: D
Reference: Section 4.114-1(A), Revenue Regulations No. 16-2005
If the fiscal year ends October 2011, the first quarter shall cover
the months of Novemper, 2010, December 2010 and
January 2011.
For the month of November, 2010, the due is December 20, 2010.
For the month of December, 201 0, the due date is
January 20, 2011.
Chapter 16: VAT Compliance Requirements

24. Which of the following is not subject to the advance payment of VAT?
a. Sale of refined sugar
b. Sale of flour milled from wheat, which is imported and
declared for flour milling
c. Purchases by flour millers of imported wheat from traders to
be paid by the flour miller prior to delivery
d. Importation of wheat by any trader

Answer: D
Reference: Section 4.114-1(B) 1 and 2, Revenue Regulations No.
16-2005

25. First statement: The amount of advance VAT payments made by the
flour miller shall be allowed as tax credit against liability I payable of
the flour miller. -
Second statement: The Payment Order, together with the deposit slip
issued by the AAB or the ROR issued by the RCO, shall serve as
proof for the credit of such advance payment.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
Reference: Section 4.114-1(B) 2e, Revenue Regulations
No. 16-2005

26. Any person who retires from business with due notice to the BIR
office where the taxpayer (head office) is registered or whose VAT
registration has been cancelled shall file final quarterly return and
pay the tax due thereon within how many days from the end of the
month when the business ceases to operate or when VAT registration
has been officially cancelled?
a. 60 days c. 30 days
b. 45 days d. 25 days

Answer: D
Reference: Section 4.114-1(C), Revenue Regulations No. 16-2005

27. When is the effective date of VAT registration?


a. First day of the month following the registration
b. Date of registration
c. First day of the taxable year
d. None of the choices

229
Chapter 16: VAT Compliance Requirements

Answer: A
Reference: Section 4.114-1(C), Revenue Regulations No. 16-2005

28. If the effective date of registration falls on the first and second month
of the taxable quarter:
I- initial monthly VAT declaration shall be filed within 20 days
after the end of the month.
II - initial quarterly return shall be filed on or before the 25th day
after the end of the taxable quarter.
a. Both I and II are correct c. Only I is correct
b. Neither I nor II is correct d. Only II is correct

Answer: A
Reference: Section 4.114- (C), Revenue Regulations No. 16-2005

29. If the effective date of registration falls on the third month of the
taxable quarter:
I - no monthly VAT declaration need be filed for the initial quarter.
II - initial quarterly return shall be filed on or before the 25th day of
the month following the end of the quarter.
a. Both I and !I are correct c. Only I is correct
b. Neither I nor II is correct d. only II is correct

Answer: A
Reference: Section 4.114-1(C), Revenue Regulations No. 16-2005

30. The monthly VAT declaration and quarterly return shall be filed, and
VAT due thereon paid to:
a. an AAB under the jurisdiction of the Revenue District/ BIR
Office where the taxpayer (head office of the business
establishment) is required to be registered.
b. an AAB under the jurisdiction of the Revenue District/BIR
Office where the Chief Executive Officer resides.
c. an AAB under the jurisdiction of the Revenue District/SIR
Office where the external auditor holds its office.
d. none of the choices.

Answer: A
Reference: Section 4.114-1(0), Revenue Regulations No. 16-2005

230
Chapter 16: VAT Compliance Requirements
-----2~~--~------------------------------

31. In cases where there are no duly accredited agent'banks (AABs)


within the municipality or city, the monthly VAT declaration and
quarterly VAT return, shall be filed with and any amount due shall be
paid to the following, except:
a. Revenue District Office where such taxpayer (head office of
the business establishment) is required to be registered.
b. Collection Agent where such taxpayer (head office ofthe
business establishment) is required to be registered.
c. duly authorized Treasurer of the Municipality of City where
such taxpayer (head office of the business establishment) is
required to be registered.
d. none of the choices.

Answer: D
Reference: Section 4.114-1(D), Revenue Regulations No. 16-2005

32. The quarterly VAT return and the monthly VAT declaration, where no
payment is involved, shall be filed with the following, except:
a. RDO/LTDO/Large Taxpayers Assistance Division (LTAD)
where the taxpayer (head office of the business establishment)
is registered or required to be registered.
b. Collection Agent where the taxpayer (head office of the
business establishment) is registered or required to be
registered.
c. duly authorized Municipal/City Treasurer of
Municipality/City where the taxpayer (head office of the
business establishment) is registered or required to be
registered.
d. an AAB under the jurisdiction of the Revenue DistrictjBIR
Office where the taxpayer (head office of the business
establishment) is required to be registered.

Answer: D
Reference: Section 4.114-1(D), Revenue Regulations No. 16-2005

231
Chapter 16: VAT Compliance Requirements

33. Which of the following statements is correct with regards to filing of


VAT returns and declarations for a person with several lines of
business subject to VAT?
a. Only one consolidated quarterly VAT return or monthly VAT
declaration covering the results of operation of the head office
as well as branches shall be filed for every return period.
b. Separate quarterly VAT return or monthly VAT declaration
covering the results of operation of the head office as well as
branches shall be filed for every return period.
c. Consolidated or separate quarterly VAT return or monthly
VAT declaration covering the results of operation of the head
office as well as branches shall be filed for every return period
depending on the convenience of the taxpayer.
d. No quarterly VAT return or monthly VAT declaration covering
the results of operation of the head office as well as branches
shall be filed for every return period.

Answer: A
Reference: Section 4.114-1(D), Revenue Regulations No. 16-2005

34. All persons liable to VAT such as manufacturers, wholesalers,


service-providers, among others, shall be required to submit
summary lists of sales/receipts if their quarterly sales:
a. exceed P2,500,000. ,,
b. amount to P2,500,000 or less.
c. exceed Pl,OOO,OOO.
d. answer not given.

Answer: A
Reference: Section 4.114-3 a. ( 1), Revenue Regulations
No. 16-2005

35. All persons liable to VAT such as manufacturers, wholesalers,


service-providers, among others, shall be required to submit
summary lists of purchases l.f their quarterly purchases:
a. exceed Pl,OOO,OOO. ''', :('
b. amount to Pl ,000,000 or less.
c. regardless of the amount of quarterly purchases.
d. answer not given.

Answer: A
Reference: Section 4.114-3 a. (2), Revenue Regulations No. -16-
2005

232
Chapter 16: VAT Compliance Requirements

36. When shall the quarterly summary list of sales or purchases,


whichever is applicable, be submitted in diskette form to the RDO or
LTDO or LTAD having jurisdiction over the taxpayer?
a. On or before the 30th day of the month following the close of
the taxable quarter (VAT quarter)-calendar quarter or fiscal
quarter
b. On or before the 25th day of the month following the close of
the taxable quarter (VAT quarter) -calendar quarter or fiscal
quarter
c. On or before the 20th day of the month following the close of
the taxable quarter (VAT quarter)-calendar quarter or fiscal
quarter
d. On or before the 15th day of the month following the close of
the taxable quarter (VAT quarter)-calendar quarter or fiscal
quarter

Answer: B
Reference: Section 4.114-3 b., Revenue Regulations No. 16-2005

37. Taxpayers under the jurisdiction of the LTS, and those enrolled
under the EFPS, shall, through electronic filing facility submit their
Summary List of Sales/Purchases to the RDO/LTDOjLTAD:
a. on or before the 30th day of the month following the close of
the taxable quarter.
b. on or before the 25th day of the month following the close of
the ta'Cable quarter.
c. on or before the 20th day of the month following the close of
the taxable quarter.
d. on or before the 15th day of the month following the close of
the taxable quarter.

Answer: A
Reference: Section 4.114-3 b., Revenue Regulations No. 16-2005

233
Chapter 16: VAT Compliance Requirements

38. Which of the following statements is incorrect?


a. The quarterly summary list must contain the monthly total
sales generated from regular buyers/customers, regardless of
the amount of sale per buyer/ customer, as well as from
casual buyers I customers with individual sales amounting to
PlOO,OOO.OO or more.
b. The term "regular buyers/ customers" shall refer to
buyers/ customers who are engaged in business or exercise of
profession and those with whom the taxpayer has transacted
at least six (6) transactions regardless of amount per
transaction either in the previous year or current year.
c. The term "casual buyers/ customers", on the other hand, shall
refer to buyers/ customers who are engaged in business or
exercise of profession but did not qualify as regular
buyers/ customers.
d. Information pertaining to sales made to buyers not engaged in
business or practice of profession (e.g., foreign embassies)
may not be required from the seller.

Answer: D
Reference: Section 4.114-3 c., Revenue Regulations No. 16-2005

39. Which of the following statements is incorrect?


a. The summary schedules of sales to regular buyers/ customers
shall not only refer to sales subject to VAT but shall likewise
include sales subject to final VAT withheld, exempt and zero-
rated sales.
b. The summary schedule of purchases likewise shall not only
refer to purchases subject to VAT but also to exempt and
zero-rated purchases.
c. The names of sellers/ suppliers/ service-providers and the
buyers/ customers shall be alphabetically arranged and
presented in the schedules.
d. None of the choices.

Answer: D
Reference: Section 4.114-3 e. ( 1 ), (2) and (3), Revenue
Regulations No. 16-2005

234
Chapter 16: VAT Compliance Requirements

40. If the total quarterly sales amounted to P3,000,000 and the total
quarterly purchases amounted to P900,000, what summary list/ s
shall be submitted?
a. Summary list of sales and summary list of purchases
b. Summary list of sales only
c. Summary list of purchases only
d. None of the choices

Answer: B
Reference: Section 4.114-3 e. (7) (a), Revenue Regulations No.
16-2005

41. If the total quarterly sales amounted to P2,000,000 and the total
quarterly purchases amounted to P1,500,000, what summary listjs
shall be submitted?
a. Summary list of sales and summary list of purchases
b. Summary list of sales only
c. Summary list of purchases only
d. None of the choices

Answer: C
Reference: Section 4.114-3 e. (7) (a) and g., Revenue Regulations
No. 16-2005

42. First statement: Once any of the taxable quarters total sales andjor
purchases exceed the threshold amount for summary lists, VAT
taxpayer, shall be further required to submit the summary lists for
the next three (3) succeeding quarters, regardless of whether or not
such succeeding taxable quarter sales and/ or purchases exceed the
set threshold amounts for summary lists.
Second statement: The Quarterly Summary List of Sales and
Purchases shall be submitted directly to the RDO or LTDO or LTAD
having jurisdiction over the taxpayer on the same date when the
Quarterly VAT return is due for filing with and the tax .thereon due
for payment to the appropriate AAB or BIR Office, whichever is
applicable.
a .. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
Reference: Section 4.114-3 e. (7) (b), Revenue Regulations
No. 16-2005

235
Chapter 16: VAT Compliance Requirements

43. In addition to other administrative and penal sanctions provided for


in the Tax Code and implementing regulations, the Commissioner of
Internal Revenue or his duly authorized representative may order
suspension or closure of a business establishment for a period of how
many days?
a. Not less than 15 days c. Not less thar1 7 days
b. Not less than 10 days d. Not less than 5 days

Answer: D
Reference: Section 4.115-1 (a), Revenue Regulations No. 16-2005

44. In addition to other administrative and penal sanctions provided for


in the Tax Code and implementing regulations, the Commissioner of
Internal Revenue or his duly authorized representative may order
suspension or closure of a business establishment for any of the
following violations, except:
a. failure to issue receipts and invoices.
b. failure to file VAT return as required under the provisions of
Sec. 114 of the Tax Code.
c. understatement of taxable sales or receipts by 20% or more of
his correct taxable sales or receipt for the taxable quarter.
d. failure of any person to register as iequired under the
provisions of Sec. 236 of the Tax Code.

Answer: C
Reference: Section 4.115-1 (a) (1), (2), (3) and (4), Revenue
Regulations No. 16-2005
Letter c is incorrect. Revenue Regulations No. 16-2005 provides:
Xxx
(1) XXX
(2) XXX
(3) Understatement of taxable sales or receipts by 30% or more of
his correct taxable sales or receipt for the taxable quarter.
(4) XXX

236

------------------ .
Chapter 16: VAT Compliance Requirements

Section 2, Revenue Regulations No. 26-2002


Period for
filing of
Business Industry Monthly
VAT
Returns
Group A
Insurance and Pension Funding 25 days
Activities Auxiliary to Financial Intermediation following the
Construction end of the
Water Transport month
Hotels and Restaurants
Land Transport
GroupB
Manufacture & Repair of Furniture
Manufacture of Basic Metals
Manufacture of Chemicals and Chemical Products
Manufacture of Coke, Refined Petroleum &
Fuel Products
Manufacture of Electrical Machinery &
Apparatus N.E.C.
Manufacture of Fabricated Metal Products
Manufacture of Food, Products & Beverages
Manufacture of Machinery & Equipment NEC
Manufacture of Medical, Precision, Optical
Instruments
Manufacture of Motor Vehicles, Trailers &
Semi-Trailers 24 days
Manufacture of Office, Accounting & following the
. Computing Machinery end of the
Manufacture of Other Non-Metallic Mineral month
Products
Manufacture of Other Transport Equipment
Manufacture of Other Wearing Apparel
Manufacture of Paper and Paper Products
Manufacture of Radio, TV & Communication
Equipment/ Apparatus
Manufacture of Rubber & Plastic Products
Manufacture of Textiles
Manufacture of Tobacco Products
Manufacture of Wood & Wood Products
Manufacturing N.E.C.
Metallic Ore Mining
Non-Metallic Mining & Quarrying

237
Chapter 16: VAT Compliance Requirements

Business Industry

Group C
Retail Sale
Wholesale Trade and Commission Trade
Sale, Maintenance, Repair of Motor Vehicle,
Sale of Automotive Fuel
Collection, Purification And Distribution of
Water
Computer and Related Activities
Real Estate Activities
~c~~-------------------------4----------~
Group D I
Air Transport - I I
Electricity, Gas, Steam & Hot Water Supply I'll day-s ,

Postal & Telecommunications .


Publishing, Printing & Reproduction of 22 1111

Recorded Media I following the


Recreational, Cultural & Sporting Activities end of the

J
1

Recycling 'I month I


Renting of Goods & Equipment
Supporting & Auxiliary Transport Activities I
__E_____________________________________
~G_r_o_u_p ~---------- [
I
Activities of Membership I
Organizations Inc.
Health and Social Work
Public Admin & Defense Compulsory Social 21 days
Security follovving the
Research and Development I
I end of the
Agricultural, Hunting, and Forestry
Farming of Animals
month .I
Fishing I I
Other Service Activities I I
Miscellaneous Business Activities I I
I
Unclassified
~
I

238
----------------------
Chapter 17
OTHER PERCENTAGE TAXES
Some tfiings in t!ie wor(a are far more important tfian 'Wca(tfi;
one of tfiem is t!ie a6i{ity to enjoy simp(e tfiings. - rDa(e Carnegie

Multiple Choice: Choose the best possible answer.

1. A business tax that is based on a given ratio between the gross sales
or receipts and the burden imposed upon the taxpayer which is
based on a set ratio between the volume of sales and the amount of
the tax.
a. Percentage tax c. Donor's tax
b. Income tax d. Documentary stamp tax

Answer: A

2. First statement: Other percentage taxes are indirect taxes that can be
~* passed on by person required to pay to another person who shall
bear the burden of the tax.
Second statement: Persons and transactions that are subject to the
other percentage taxes are no longer subject to the value-added tax
but may be subject to excise tax.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
Reference: Section 109 (1) (E), NIRC, as amended

~ 3. A seller of goods is not VAT-registered. His annual gross sales


amount to P1,919,500 (VAT threshold amount). To what business tax
is he liable?
a. 3% tax on VAT-exempt persons
b. 12% value-added tax
c. 3% common carrier's tax
d. Not subject to any percentage tax

239
Chapter 17: Other Percentage Taxes

Answer: A
References: Section 116, NIRC, as amended
Section 109 (X), NIRC, as amended
Section 3 (e), Revenue Regulations No. 16-2011
Any person whose sales or receipts are exempt under Section
109(X) o[this Code from the payment of value-added tax and who is
not a VAT-registered person shall pay a tax equivalent to three
percent (3%) of his gross quarterly sales or receipts: Provided,
That cooperatives shall be exempt from the three percent (3%) gross
receipts tax herein imposed (Section 116, NJRC, as amended).
The Monthly Percentage Tax Returns of taxpayers, whether large
or non-large, shall be filed, and taxes paid, not later than the 201h
day following the end of each month (Section 2, R.R. No. 4-2002).
The author opines that the 3'?,6 percentage tax under Section 116
shall be based on the gross monthly sales or receipts because of
Section 2, Revenue Regulations No. 4-2002.
Sale or lease of goods or properties or the performance of services
other than the transactions mentioned in paragraphs (A) to ( W) of
Section 109, the gross annual sales and/ or receipts do not exceed 1

the VAT threshold amount shall be exempt from Value-Added Tax j


(Section 109 (X), NJRC, as amended).

4. First statement: Persons whose transactions are exempt from value-


added tax under Section 109 (x) because their sales or receipts do
not exceed the VAT threshold amount may voluntarily apply for
registration under the VAT system.
Second statement: A VAT-registered person whose gross sales or
-}. receipts for two (2) consecutive years did not exceed the VAT
threshold amount may apply for cancellation of VAT registration
and revert back to being VAT-exempt under Section 109 (x).
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: C
References: Section 116, NIRC, as amended
Section 9.236-1(c),Revenue Regulations No. 16-2005
Section 3 (e), Revenue Regulations No. 16-2011
Any person who is exempted from VAT because his annual sales~
receipts do not exceed P 1, 91 9, 500 (new threshold) but who 1

optionally registered under the VAT system shall not be allowed to 1

cancel his registration or the next three (3) years. __j

240
Chapter 17: Other Percentage Taxes

5. Which of the following is not subject to the 3% common carrier's tax?


a. Cars for rent or hire driven by the lessee
b. Transportation contractors, including persons who transport
pa~sengers for ):lire
c. Owners of~!'lim1U-drawn two-wheeled vehicle
d. Domestic carriers by land for the transport of passengers

Answer: C
Reference: Section 117, NIRC, as amended

6. Which of the following is subject to the 3% common carrier's tax?


a. Owners of banca
b. Domestic carriers by land for the transport of goods or
cargoes
c. Domestic carriers by air.Jor the transport of passengers
d. Keepers of garage

Answer: D
Reference: Section 117, NIRC, as amended
Owners of banca are exempt from the common carrier's tax. l
Domestic carriers by land for the transport of goods or cargoes are [
subject to Value-Added Tax. The same is true with domestic carriers I
by air and water for the transport of passengers, goods or cargoes.

7. First statement: The gross receipts of common carriers derived from


their incoming and outgoing freight shall be subject to the local
taxes imposed under the Local Guyernment Code. NJ'l<;ce,: ':. u
Second statement: The 3% common carrier's tax is based on the
actual quarterly gross receipts ornrinimum.quarterly: receipts.
whiehe~wer.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: B
Reference: Section 117, NIRC, as amended

241
Chapter 17: Other Percentage Taxes

8. In computing the percentage tax on domestic carriers and keepers of


garage, which of the following shall be considered an incorrect
minimum quarterly gross receipts?
a. Jeepney for hire, Manila and other cities- P65,700
b. Jeepney for hire, provincial- P32,900
c. Taxis, Manila and other cities - P98,600
d. Taxis, provincial- P49,300

Answer: D
Reference: Sec. 2, Revenue Regulations No. 9-2007
The correct minimum quarterly gross receipts for provincial taxis is
P65, 700.
The other minimum quarterly gross receipts are as follows:
Public utility bus (not exceeding 30 passengers) - P98, 600;
Public utility bus (exceeding 30 passengers but not
exceeding 50 passengers- P164,200;
Public utility bus (exceeding 50 passengers) - P 19 7, 100;
Car for hire (with chauffeur) - P82, 1 00;
Car for hire (without chauffeur)- P49,300.
To get the minimum gross monthly receipts, the above amounts shall
be divided by 3.

This adjustment ofthe minimum quarterly gross receipts had been


subsequent! suspended b1 Con ress.

9. International carriers doing business in the Philippines is subject to


the:
a. 3% percentage tax of their quarterly gross receipts.
b. 3% percentage tax on their actual gross receipts or minimum
gross receipts whichever is higher.
c. 12% value-added tax on their gross receipts.
d. 0% percent value-added tax on their gross receipts.

Answer: A
Reference: Section 118, NIRC, as amended
SEC. 118 Percentage Tax on International Carriers. -
(A) International air carriers doing business in the Philippines shall
pay a tax of three percent (3%) of their quarterly gross receipts.
(B) International shipping carriers doing business in the Philippines
shall pay a tax equivalent to three percent (3%) of their quarterly
gross receipts.
The author believes that the basis of the 3% percentage on
international carrier is its monthly gross receipts because percentage
taxes are now generally payable on a monthly basis per Section 2,
R.R. 4-2002.

242
----- ---- ---- ---
Chapter 17: Other Percentage Taxes

'f 10. Which of the following franchise grantees is subject to the 2%


percentage tax on franchise?
a. Franchise on radio andjor television broadcasting companies
the gross annual receipts in the preceding year do not exceed
P10,000,000
b. Franchise on gas and water utilities
c. Franchise on toll road operations
d. PAGCOR and its licensees and franchisees

Answer: B
Reference: Section 119, NIRC, as amended
Letter a is subject to 3% percentage tax on franchise.
Letters c and d are subject to value-added tax.

11. First statement: Radio and television broadcasting companies whose


annual gross receipts of the preceding year do not exceed
P10,000,000 shall have the option to be registered as a value-added
taxpayer and pay the tax due thereon.
Second statement: Once radio and television broadcasting companies
t: qu~ali / to ffr{v'o
.ontionally
01~/U
register exercise the option, said option shall
be "~a e withlh three (3) years from date of registration.
a:-sot statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: C
Reference: Section 119 ,._,N=..=.=IR=-=-=C'-'''-a=s=----=a=m==-=e:..:n::cd=-e:c_d=-----------,
Xx.x
Provided, however, That radio and television broadcasting
I companies referred to in this Section shall have an option to be
I registered as a value-added taxpayer and pay the tax due thereon:
1
P 'ded, furt. her, That once the option is exercised, said option shall
evocable (Section 119, NIRC, as amended).
----------~

'*-12. How much tax shall be collected upon every overseas dispatch,
message or conversation transmitted from the Philippines by
telephone, telegraph, telewriter exchange, wireless and other
communication equipment service?
a. 3% on gross receipts
.,C.s%
on gross receipts X
c. 10% on the amount paid for the services
d. 12% on the amount paid for the services

Answer: C
Reference: Section 120, NIRC, as amended

243
Chapter 17: Other Percentage Taxes

t 13. One of the following statements is incorrect.


a. Overseas communications tax is imposed on overseas
communications originating from the Philippines.
b. The person liable to overseas communications tax may or may
not be engaged in any trade or business.
c. The overseas communications tax is imposed whether the
overseas communications are made in the course of trade or
business or not.
d. The overseas communications tax is imposed on the owner of
the communications facilities used to make overseas
communications.

Answer: D
Reference: Section 120 (A), NIRC, as amended - - - - - - - - - - - ,
I The tax imposed in Section 120 shall be payable by the person \.
paying for the services rendered and shall be paid to the person
J
II rendering the services who is required to collect and pay the ta_-,c
thin twenty (20) days after the end of each quarter.

"' 14. A VAT-registered telephone company provides services for domestic


and overseas calls. What business taxes are due from the services
offered?
I -Value-added tax for domestic calls
" II - Overseas communications tax for overseas calls originating
'' from the Philippines
a. Yes to I and II c. Yes to I only
b. No to I and II d. Yes to II only

Answer: A
Reference: Section 120 (A), NIRC, as amended

15. Which of the following is subject to the tax on overseas dispatch,


messages or conversation originating from the Philippines?
a. Amounts paid for messages transmitted by the Government of
the Republic of the Philippines or any of its political
subdivisions or instrumentalities
~ b. Amounts paid for messages transmitted by any embassy and
''< '.' ,,_ .,,.f consular offices of a foreign government
tJhU~Q\rf',c. Amounts paid for messages transmitted by a public
international organization or any of its agencies based in the
Philippines enjoying privileges, exemptions and immunities
which the Government of the Philippines is committed to
recognize pursuant to an international agreement
d. None of the choices

244
Chapter 17: Other Percentage Taxes

Answer: D
Reference: Section 120 (B), NIRC, as amended
Section 120 (B) Exemptions. - The tax imposed by this Section shall
not apply to:
(1) Government. - Amounts paid for messages transmitted by the
I Government ofthe Republic of the Philippines or any of its
political subdivisions or instrumentalities;
(2) Diplomatic Services. - Amounts paid for messages transmitted
by any embassy and consular office of a foreign government;
(3) International Organizations. -Amounts paid for messages
transmitted by a public international organization or any of its
agencies based in the Philippines enjoying privileges,
exemptions and immunities which the Government ofthe
Philippines is committed to recognize pursuant to an
international agreement; and
(4) News Services. -Amounts paid for messages from any
newspaper, press association, radio or television newspaper,
broadcasting agency, or newstickers services, to any other
newspaper, press association, radio or television newspaper
broadcasting agency, or newsticker service or to a bona fide
correspondent, which messages deal exclusively with the
collection of news items for, or the dissemination of news item
through public press, radio or television broadcasting or a
newsticker service furnishing a general news service similar to
that of the public press.

16. When is the tax on overseas dispatch, message or conversation


originating from the Philippines paid?
a. Thirty (30) days after the end of the month
b. Twenty (20) days after the end of the month
c. Twenty (20} days after the end of the quarter
d. Five (5) days after the end of the quarter

Answer: C
Reference: Section 120 (B), NIRC, as amended
The tax imposed in Section 120 shall be payable by the person
paying for the services rendered and shall be paid to the person
rendering the seruices who is required to collect and pay the tax
within twenty (20) days after the end of each quarter.

245

- ----------
Chapter 17: Other Percentage Taxes

17. Banks and non-bank financial intermediaries performing quasi-


banking functions are subject to:
a. value-added tax. c. franchise tax.
b. gross receipts tax. d. amusement tax.

Answer: B \;"f, O::.Q.~rl , 3/. :.lC:;jt.I, !";, c 1 ~';. y ?'tj'~


Reference: Section 121, NIRC, as amended by RA 9337\(effective
November 1, 2005)

18. The tax on banks and non-bank financial intermediaries performing


quasi-banking functions on interest, commissions and discounts
from lending activities as \Nell as income from financial leasing on
instruments from which such receipts are derived with a remaining
maturity of 5 years or less is:
a. 7% on gross receipts. c. 1% on gross receipts.
b. 5% on gross receipts. d. 0/c, on gross receipts.

Answer: B
Reference: Section 121, NIRC, as amended by RA 9337 (effective
November 1, 2005)

'i 19. The lease of property, real or personal, by a bank is subject to:
a. 5% gross receipts tax. c. 12% VAT.
b. 7% gross receipts tax. d. none of the choices.

Answer: B
Reference: Section 121, NIRC, as amended by RA 9337 (effective
November 1, 2005)

,:r 20. Which of the follmving is subject to the 0% gross receipts tax?
t;, 0 a. Gross receipts on interest, commissions and discounts from
lending activities and income from financial leasing
(:/. -~- b. Dividends and equity shares in net income of subsidiaries
c. Royalties, rentals of property, real or personal, profits from
r;c 1o"' ~
exchange and all other items treated as gross income in the
Tax Code
'i
'- d. Net trading gains within the taxable year on foreign currency,
debt securities, derivatives and other similar financial
instruments

Answer: B
Reference: Section 121, NIRC, as amended by RA 9337 (effective
November 1, 2005)

246
Chapter 17: Other Percentage Taxes

21. Which of the following is subject to the 7% gross receipts tax?


a. Gross receipts on interest, commissions and discounts from
lending activities and income from financial leasing
b. Dividends and equity shares in net income of subsidiaries
c. Net trading gains within the taxable year on foreign currency,
debt securities, derivatives and other similar financial
instruments
d. None of the choices

Answer: C
Reference: Section 121, NIRC, as amended by RA 9337 (effective
November 1, 2005)

22. What is the tax on the interest, commissions, discounts and all other
items treated as gross income of other non-bank financial
intermediaries doing business in the Philippines?
" ~ a. 7% on the gross receipts c. 1% on the gross receipts
'", b. 5% on the gross receipts d. 0% on the gross receipts
',,
',,,_

Answe~: B.
Reference: Section 122, NIRC, as amended

" 23. The tax on other n~'fi~'bQ.nk financial intermediaries on interests,


commissions and discounts from lending activities, as well as income
from financial leasing, will be based on the remaining maturities of
the instruments from which receipts are derived, in accordance with
the following schedule:
I - Maturity period is five (5) years or less ................ 5%
II - Maturity period is more than five (5) years ........... 1%
a. I only is correct c. Both I and Il are correct
b. II only is correct d. Neither I nor II is correct

Answer: C
Reference: Section 122, NIR~, as amended
, ~:)q. OPT
~ 24. First statement: The tax on lif~;t insurance premium applies t9 every
person, company or corporl'ition doing life insurance business of
any sort in the Philippines, except purely cooperative companies
and associations.
Second statement: A person engaged in non-life insurance business is
subject to value-added tax.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
Reference: Section 123, NIRC, as amended

247
Chapter 17: Other Percentage Taxes

\!, 25. The tax on life insurance premium based upon the total premiums
fF collected in the Philippines \Yhether such premiums are paid in
money, notes, credits or any substitute for money is:
a. 12%. c. 7%.
b. 10%. d. 2%.

Answer: D
References: Section 123, NIRC, as amended
Section 1, Republic Act No. 1001 per Revenue
,-------
Memorandum Circular No. 22-2010
Ejve (51 y_egr__gf{~[)}lr;:~fiff:L91{vity_QJJ[Jis. CocieJ!J..c;tJ,. no tax on life
insurance remium shall be collected. (Sec. 4, R.A. No. 22-201 0)

26. Which of the following shall not be included in the tax base of tax on
life insurance premiums?
a. Premiums refunded within six (6) months after payment on
account of rejection of risk or returned for other reason to a
person insured
b. Reinsurance by a company that has already paid the tax
c. Premiums collected or received by any branch of a domestic
corporation, firm or association doing business outside the
Philippines on account of any life insurance of the insured
who is a non~resident, if any tax on such premium is imposed
by the foreign country where the branch is established
d. All of the choices

Answer: D
Reference: Section 123, NIRC, as amended
----------
Xxx but premiums refunded within six {6) months after payment on
account of rejection of nsk or returned for other reason to a person
insured shall not be included in the taxable receipts; nor shall any
tax be paid upon reinsurance by a company that has already paid
the tax; nor upon premiums collected or received by any branch of a
domestic corporation, fimi or association doing business outside the
Philippines on account of any life insurance of the insured who is a
nonresident, if any tax on such premium is imposed by the foreign
country where the branch is established nor upon premiums 1

collected or received on account of any reinsurance , if the insured, in ,I'

case of personal insurance, resides outside the Philippines, if any tax


on such premiums is imposed by the foreign country where the I
original insurance has been issued or perfected; nor upon that I
portion of the premiums collected or received by the insurance 1

companies on variable contracts (as defined in section 232(2) of I


Presidential Decree No. 612), in excess ofthe amounts necessary to l 1

insure the lives of the variable contract workers. 1

248
Chapter 17: Other Percentage Taxes

27. Every fire, marine or miscellaneous insurance agent authorized


under the Insurance Code to procure policies of insurance as he may
have previously been legally authorized to transact on risks located in
the Philippines for companies not authorized to transact business in
the Philippines shall pay a tax equal to:
a. 12% of the total premiums collected.
b. 10% of the total premiums collected.
c. 5% of the total premiums collected.
d. none of the choices.

Answer: B
Reference: Section 124, NIRC, as amended

28. First statement: The provisions of Section 124 shall not affect the
right of an owner of property to apply for and obtain for himself
policies in foreign companies in cases where said owner does not
make use of the services of any agent, company or corporation
residing or doing business in the Philippines.
Second statement: In all cases where owners of property obtain
insurance directly with foreign companies, it shall be the duty of
said owners to report to the Insurance Commissioner and to the
Commissioner of Internal Revenue each case where insurance has
been so effected, and shall pay the tax of five percent (5%)
on premiums paid, in the manner required by Section 123.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
Reference: Section 124, NIRC, as amended

29. Who shall be liable to the amusement taxes under Section 125?
a. Patrons of amusement places
b. Lessors of amusement places
c. Proprietor, lessees, or operator of amusement places
d. None of the choices

Answer: C
Reference: Section 125, NIRC, as amended

249
Chapter 17: Other Percentage Taxes

30. The operator of one of the following places is not subject to


amusement tax.
a. Cockpits c. Bowling alleys -{7 dah CJ~ ;~o
b. Racetracks d. KTV Karaoke joints '' c"u'L

Answer: C
Reference: Section 125, NIRC, as amended

31. First statement: All boxing exhibitions held in the Philippines shall be
subject to amusement tax.
Second statement: Admission charges to amusement places are required
for the imposition of amusement tax.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: B
Reference: Section 125, NIRC, as amended
xxx Provided, however, That boxing exhibitions wherein World or
Oriental Championships in any division is at stake shall be exempt
from amusement tax: Provided, further, That at least one of the
contenders for World or Oriental Championship is a citizen of the
Philippines and said exhibitions are promoted by a citizen/ s of the
Philippines or by a corporation or association at least sixty percent
(60%) ofthe capital of which is owned by such citizens [Section 125
(c)};
xxx irrespective, of whether or not any amount is charged for
admission [Section 125 (e)].

32. One of the following is a correct amusement tax rate.


a. 30% on jai-alai and racetracks
b. 18% on boxing exhibitions
c. 15% on cockpits, cabarets, night and day clubs
d. 10% on professional basketball games

250
~----------~- ---------
Chapter 17: Other Percentage Taxes

Answer: A
Reference: Section 125 (a), (b), (c), (d) and (e) NIRC, as amended
I SEC. 12 5. Amusement Taxes. - There shall be collected from the
proprietor, lessee or operator of cockpits, cabarets, night or day
clubs, boxing exhibitions, professional basketball games, Jai-Alai
and racetracks, a tax equivalent to:
{a) Eighteen percent {18%) in the case of cockpits;
{b) Eighteen percent (18%) in the case of cabarets, night or day clubs;
{c) Ten percent {1 0%) in the case of boxing exhibitions: Provided,
however, That boxing exhibitions wherein World or Oriental
Championships in any division is at stake shall be exempt from
amusement tax: Provided, further, That at least one of the
contenders for World or Oriental Championship is a citizen of the
Philippines and said exhibitions are promoted by a citizen/ s of the
Philippines or by a corporation or association at least sixty percent
{60%) ofthe capital of which is owned by such citizens;
{d) Fifteen percent {15%) in the case of professional basketball games
as envisioned in Presidential Decree No. 871: Provided, however,
That the tax herein shall be in lieu of all other percentage ta-xes of
whatever nature and description; and
{e) Thirty percent {30%) in the case of Jai-Alai and racetracks of their
gross receipts, irrespective, of whether or not any amount is
charged for admission.

xxx The "terms" night and day clubs and cabarets have become
passe. Amusement places which offer the same pleasurable
diversion entertainment and ji1nction now include videoke bars,
karaoke bars, karaoke television, karaoke boxes and music lounges.
I (RMC No. 18-2010 dated March 1, 2010)

33. When is the amusement taxes under Section 125 payable?


a. Thirty (30) days after the end of the month
b. Twenty (20) days after the end of the month
c. Twenty (20) days after the end of the quarter
d. Five (5) days after the end of the quarter

Answer: C
Reference: Section 125, NIRC, as amended
I The taxes imposed under Section 125 shall be payable at the end of
I each quarter and it shall be the duty of the proprietor, lessee or
! operator concerned, as well as any party liable, within twenty {20)
i days after the end of each quarter, to make a tme and complete
I return of the amount of the gross receipts derived during the
L!!!_f}ced!!_1g quarter and pay the tax due ther'!__o.~n_._ _ _ _ __

~51
Chapter 17: Other Percentage Taxes

34. Who of the following is not subject to tax on \Vinnings under


Section 126?
a. Person who wins in horse races
b. Winners from double, forecast/ quinella and trifecta bets
c. Winners in cockfighting
d. Owners of vYinning race horses

Answer: C
Reference: Section 126, NIRC, as amended

35. What is the tax base of the tax on winnings of persons who own race
horses?
a. Actual amount paid for every winning ticket
b. Actual amount paid for every winning ticket after deducting
the cost of the ticket
c. Prizes
d. Gross receipts

Answer: C
Reference: Section 126, NIRC, as amended

36. What is the tax base of the tax on winnings of a person who wins in
horse races?
a. Actual amount paid for every winning ticket
b. Actual amount paid for every winning ticket after deducting
the cost of the ticket
c. Prizes
d. Gross receipts

Answer: B
Reference: Section 126, NIRC, as amended

37. Which of the following is not subject to the 10% tax on winnings?
a. Winnings in horse races
b. Prize received by an owner of winning race horses
c. Winnin_gs from double, forecast/ quinella and trifecta bets
d. None of the choices

Answer: C
Reference: Section 126, NIRC, as amended
I XXX Provided, That in the case of winnings from double,
, forecast/ quinella and trifecta bets, the tax shall be four percent (4%).
~----~~----------~-----------------------------------------~

38. When is the tax on horse race winnings under Section 126 payable?

252
Chapter 17: Other Percentage Taxes

a. Thirty (30) days after the end of the month


b. Twenty (20) days after the end of the month
c. 1)wenty (20) days from the date the tax was deducted and
withheld
d. Five (5) days after the end of the quarter

Answer: C
Reference: Section 126, NIRC, as amended
The operator, manager or person in charge of horse races shall,
within twenty (20) days from the date the tax was deducted and
withheld in accordance with the second paragraph hereof, file a true
and correct return with the Commissioner in the manner or form to be
prescribed by the Secretary of Finance, and pay within the same
period the total amount oftax so deducted and withheld.

39. Shares of stock held as investment listed and sold through the local
stock exchange shall be subject to:
a. Y2 of 1% percentage tax based on gross selling price or gross
value in money.
b. 12% VAT based on gross income.
c. capital gains tax of 5% on first P100,000 capital gain; 10% on
excess of P100,000.
d. 4%; 2%; 1% percentage tax based on gross selling price or
gross value in money.

Answer: A
Reference: Section 127 (A), NIRC, as amended

40. Who shall be liable to the Y2 of 1% tax on sale, barter or exchange of


shares of stock listed and traded through the local stock exchange?
a. Stockbroker c. Buyer or tranferee
b. Seller or transferor d. Dealer in securities r.

Answer: B . ,.
Reference: Section 127 (A), NIRC, as amended
Section 127 (A) Tax on Sale, Barter or Exchange of Shares of Stock
Listed and Traded through the Local Stock Exchange. - There shall
be levied, assessed and collected on every sale, barter, exchange, or
other disposition of shares of stock listed and traded through the
local stock exchange other than the sale by a dealer in securities, a
tax at the rate of one-half of one percent (1 I 2 of 1%) of the gross
selling pn'ce or gross value in money of the shares of stock sold,
bartered, exchanged or otherwise disposed which shall be paid by
the seller or transferor.
[__--------------------------------~

253
Chapter 17: Other Percentage Taxes

41. Shares of stock held as investment when sold not through the local
stock exchange shall be subject to:
.t a. 'h of 1% percentage tax based on gross selling price or gross
value in money.
\r t-\L:\ -<- b. 12% VAT based on gross income.
c. capital gains tax of 5'% on first PlOO,OOO capital gain; 10% on
excess of Pi 00,000.
d. 4%; 2%; 1% percentage tax based on gross selling price or
gross value in money.

Answer: C
References: Section 24 (C), NIRC, as amended
Section 27 (D) (2), NIRC, as amended

42. A corporation where at least fifty percent (50%) in value of the


outstanding capital stock or at least fifty percent (50%) of the total
combined voting power of all classes of stock entitled to vote is owned
directly or indirectly by or for not more than twenty (20) individuals.
a. Closely held corporation c. Foreign corporation
b. Publicly held corporation d. Domestic corporation

Answer: A
Reference: Section 127 (B), NIRC, as amended

43. Who is the taxpayer as far as the primary public offering in the local
stock exchange of closely held corporations is concerned?
a. The purchaser of shares
b. The corporate issuer
c. The seller of the shares of stock
d. The local stock exchange

Answer: B
Reference: Section 127 (B), NIRC, as amended

44. Who is the taxpayer as far as the secondary public offering in the
local stock exchange of closely held corporations is concerned?
a. The purchaser of shares
b. The corporate issuer
c. The seller of the shares of stock
d. The local stock exchange

Answer: C
Reference: Section 127 (B), NIRC, as amended

254
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --------
Chapter 17: Other Percentage Taxes

45. If the proportion of shares of stock sold, bartered, exchanged or


otherwise disposed to the total outstanding shares of stock after the
listing in the local stock exchange is up to twenty-five percent (25%),
the tax on shares of stock sold or exchanged through initial public
offering by a closely-hold corporation shall be:
a. 4% based on the gross selling price or gross value in money.
b. 2% based on the gross selling price or gross value in money.
c. 1% based on the gross selling price or gross value in money.
d. 1;2 of 1% based on the gross selling price or gross value in
money.

Answer: A
Reference: Section 127 (B), NIRC, as amended
Section 127 (B) Tax on Shares of Stock Sold or Exchanged Through
Initial Public Offering. - There shall be levied, assessed and collected
on every sale, barter, exchange or other disposition through initial
public offering of shares of stock in closely held corporations, as
defined herein, a tax at the rates provided hereunder based on the
gross selling pnce or gross value in money of the shares of stock
sold, bartered, exchanged or othenuise disposed in accordance with
the proportion of shares of stock sold, bartered, exchanged or
othenuise disposed to the total outstanding shares of stock after the
listing in the local stock exchange:
Up to twenty-five percent (2 5%) 4%
Over twenty-five percent (25%) but not over
thirty-three and one third percent (33 1/3%) 2%
Over thirty-three and one third percent (33 1I 3%) 1%
The tax herein imposed shall be paid by the issuing corporation in
primary offering or by the seller in secondary offering.

~ 46. It shall be the duty of every stock broker who effected the sale subject
to the tax imposed under Section 127 (A) to collect the tax and remit
the same within:
a. twenty (20) days after the end of the quarter.
b. ten (10) working days after the end of the month.
c. five (5) days from the date of collection.
d. five (5) banking days from the date of collection.

Answer: D
Reference: Section 127 (C) (1), NIRC, as amended

255

------------- ~--------------
Chapter 17: Other Percentage Taxes

t- 47. In case of primary offering of the shares of stock of a closely-held


corporation, the corporate issuer shall file the :r:eturn and pay the
corresponding tax within:
a. thirty (30) days from the date of listing of the shares of stock
in the local stock exchange.
b. twenty (20) days from the date of listing of the shares of stock
in the local stock exchange.
c. ten (10) working days after the end of the month.
d. five (5) banking days from the date of collection.

Answer: A c,,, :" CL '

Reference: Section 127 (C) (2), NIRC, as amended

48. In the case of secondary offering of the shares of stock of a closely-


held corporation, it shall be the duty of every stock broker who
effected the sale subject to the tax to collect the tax and remit the
same within:
a. thirty (30) days from the date of listing of the shares of stock
in the local stock exchange.
b. twenty (20) days from the date of listing of the shares of stock
in the local stock exchange.
c. ten (10) working days after the end of the month.
d. five (5) banking days from the date of collection.

Answer: D
Reference: Section 127 (C) (2), NIRC, as amended

49. Any gain derived from the sale, barjter, exchange or other disposition
of shares of stock under Section 1 27 shall be exempt from:
I - capital gains tax imposed in Sections 24(C), 27(0)(2),
28(A)(8)(c), and 28(B)(5)(c) of the Tax Code (5% on first P100,000
and 10% on excess of P100,000).
II - the regular individual or corporate income tax.
a. Both I and II are correct c. Only I is correct
b. Neither I nor II is correct d. Only II is correct

Answer: A
Reference: Section 127 (D), NIRC, as amended

256
Chapter 17: Other Percentage Taxes

:< 50. First statement: -The tax on sale, barter, exchange or shares of stock
listed and traded through the local stock exchange or through
initial public offering shall not be deductible for inco~t:ax
purposes.
Second statement: The percentage taxes are genevally paid monthly.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
References: Section 127 (D), NIRC, as amended
Section 2, Revenue Regulations No. 4-2002

:L 51. Which of the following statements is incorrect?


a. The percentage taxes are basically on sale of services.
b. The percentage taxes are generally paid monthly.
c. The percentage taxes may be shifted to customers or clients.
d. An isolated transaction not in the course of trade or business
will not result in a liability for a percentage tax.

Answer: D
An overseas call originating from the Philippines, even if made only
once, is subject to overseas communications tax.
Sale of shares of stock through the local stock exchange, even if an
isolated one, is subject to %of 1% percentage tax.

52. Which of the following is incorrect? The percentage tax is:


a. a tax on a sale of sale of services.
b. imposed on a sale of goods.
c. imposed together with the value-added tax.
d. imposed together with the excise tax.

Answer: C
Reference: Section 109 (E), NIRC, as:c_::_:a=m=-e_:c_n=d~e--=d'-------------,
SEC. 109. Exempt Transactions. - (1) Subject to the provisions of I
Subsection (2) hereof, the following transactions shall be exempt from
the value-added tax:
(A) Xxxx
(B) Xxxx
(C) Xxxx
(D) Xxx:.,-x:
(E) Services subject to percentage tax under Title V;

257
Chapter 17: Other Percentage Taxes

Other Percentage Taxes (Summarized)


,------------------------,-------------------------,---,-------------
Percentage Tax Tax Base Tax Rate
Sec. 116- Tax on
persons exempt from I
VAT under Sec. 109 (x) Gross monthly sales or
3%
(annual gross sales or receipts
receipts do not exceed
~P~1,~5~0~0~,0~0~0~)_______________~---------------------------4---------------
Sec. 117 - Percentage tax
Actual or minimum
on domestic carriers and
monthly gross receipts 3%
keepers of garage
whichever is higher
, (transport of r>_assengers)
Sec. 118- Percentage tax
Monthly gross receipts 3%
on international carriers
Sec. 119- Tax on Gross receipts:
franchises Franchises on radio
and/ or TV broadcasting
companies whose 3%
annual gross receipts of
the preceding year
exceed P10,000,000

Franchises on gas and 2%


water utilities
Sec. 120 - Tax on Amount paid for such
overseas dispatch, services (by the person
message or conversation who used the 10%
originating from the communications
Philippines facilities)
Sec. 121 - Tax on banks Gross receipts on
and non-bank financial interest, commissions
intermediaries and discounts from
performing quasi- lending activities;
banking functions income from financial
leasing:

Remaining maturity
period of instrument is 5 5%
years or less

Remaining maturity
period of instrument is 1%
more than 5 years

Dividends and equity


shares in net income of
subsidiaries; 0%

258
---------------------------------------------------------------
Chapter 17: Other Percentage Taxes

------------------------------ ------------------
Royalties, rentals of
property, real or
personal, profits from
exchange and all other 7%
items treated as gross
income under the Tax
Code
------------------------------ ----------------
Net trading gains within
the taxable year on
foreign currency, debt 7%
securities, derivatives
and other similar
financial instruments
Sec. 122 - Tax on other Gross receipts derived
non-bank financial from interest,
intermediaries commissions, discounts 5%
and all other items
treated as gross income
under the Tax Code
------------------------------ ------------------
Interests, commissions
and discounts from
lending activities, as well
as income from financial
leasing:
Remaining maturity
of instrument is 5 years 5%
or less
------------------------------ ------------------
Remaining maturity
of instrument is more 1%
than 5 years
Sec. 123- Tax ?nQY:~ Total premiums Afkv c; C~ "-t-r "f".r .;
insurance premium;>__ 2% f\._ c_.J;. .~c_.,,c
I collected
D<
' e
Sec. 124:- Tax on 'agents/ Total premiums
offoreign insuran~-- '"; collected/ paid generally 10%
companies- (fire, marine,,/ ------------------------------ ------------------
or mi~cellaneous [owner}of property
insp_rance) obtain insurance 5%
directly with foreign
insurance companies
Sec. 125 - Amusement Gross receipts
taxes Jai-alai and race track 30%
------------------------------ ----------------
Cockpits, cabarets, 18%__j
I night or day clubs

259
Chapter 17: Other Percentage Taxes

Professional basketball 15'/"o


games

Boxing exhibitions 10%


Sec. 126 - Tax on Actual amount paid for
winnings every winning ticket 10%
after deducting the cost
of the ticket

Winnings from double,


forecast/ quinella and 4%
trifecta bets

Prize of winning race 10%


horse owners
Sec. 127 (A) Tax on
sale, barter or exchange
of shares of stock listed Gross selling price or
and traded through the gross value in money
local stock exchange

(B) Tax on shares of stock Gross selling price or


sold or exchanged gross value in money in
through public accordance with the
offerings proportion of shares of
stock sold, bartered,
exchanged or otherwise
disposed to the total
outstanding shares of
stock after listing in the
local stock exchange
Up to 25% 4%

Over 25% but not 2%


over 33 1/3%

Over 33 1/3% 1%
",'_ - (

'.:.iGlnc'{
:vCJ~'I

260
________________
...._
Chapter 18
PERCENTAGE TAXES CASES
J{e wfio docs not fiope to ct in fias cl[ready [ost. -Jose Joaquin O[mcdo

Multiple Choice: Choose the best possible answer.

.1~ The following data are taken from the records of Ms. Tala Datsrite,
not VAT-registered, who owns various businesses for the current
year:
Gross sales from sale of shoes and clothes p 300,000
Gross sales from her boutique 400,000
Gross receipts from her parlor 500,000
During the month of January, the following data are presented:
Gross sales from sale of shoes and clothes P 30,000
Gross sales from her boutique 40,000
Gross receipts from her parlor 50,000
How much is the percentage tax due for the month of January?
a. P2,400 c. P3,600
b. P2,700 d. P6,000

Answer: C
Gross receipts from sales of shoes and clothes p 30,000
Gross sales from her boutique 40,000
Gross receipts from her parlor 50 000
Total p 120,000
Tax rate 3%
Percentage tax p 3,600

~- Mr. Jaime Rodriguez is the owner of a small variety store. His gross
sales in any one year do not exceed the VAT threshold amount. He is
not VAT-registered. The following data are taken from the books of
the variety store for the month ending November 30, 2011:
Merchandise inventory, October 31, 2011 P 10,000
Gross sales 45,000
Purchases from VAT-registered suppliers 35,000
How much is the percentage tax due and payable?
a. P 1,650 c. P 300
b. P 1,350 d. None

261
-----------------------------
Chapter 18: Percentage Taxes Cases

Answer: B
Gross sales p 45,000
Tax rate 3%
Percentage tax p 1 350

3. and 4. are based on the following: Ube Pas pas Bus is a common
carrier by land. During a particular month, it has the following
gross receipts:
Transport of passengers P1,000,000
Transport of goods 1,500,000
Transport of cargoes 500,000
3. How much is the common carrier's tax payable?
a. P 120,000 c. P 60,000
b. p 90,000 d. p 30,000

4. How much is the Value-Added Tax?


a. P 360,000 c. p 120,000
b. p 240,000 d. p 30,000

3. Answer: D
Gross receipts (transport of passengers) p 1,000,000
Tax rate 30;(,

Common carrier's tax

4. Answer: B
Gross receipts (transport of goods) p 1,500,000
Gross receipts (transport of cargoes) 500 000
Total 2,000,000
Tax rate 12%
Value-added tax

262

----------------------------------------------------
Chapter 18: Percentage Taxes Cases

5. and 6. are based on the following: Mikai, a jeepney operator in


Bacolod City, has the following receipts during a particular month:
Jeepney no. 1 (net of P5,000 gasoline expenses) P 20,000
Jeepney no. 2 (gross of P4,000 gasoline expenses) 16,000
+ 5. How much is the common carrier's tax due for the month?
a. P 1,407 c. P 1,080
b. P 1,230 d. None of the choices.

~ 6. Assuming the jeepney operator is engaged in provincial operation,


how much is the common carrier's tax due for the month?
a. P 1,407 c. P 1,080
b. P 1,230 d. None of the choices.

5. Answer: A
Gross receipts- Jeepney no.1 (P20,000 + PS,OOO)
(actual is higher) p 25,000
Gross receipts- ,Jeepney no. 2 (minimum is higher) 21 900
Total 46,900
Tax rate 3%
Common carrier's tax p 1 407
The updated minimum quarterlyr?Jross1receipts per unit of
jeepneys for hire in Manila and other cities are ?65, 700.
The minimum monthly gross receipts are ?21, 900 (P65, 700
divided by 3 months) (Section 2, Revenue Regulations
No.9-2007). The implementation ofthe adjusted minimum
quarterly receipts had been suspended.

6. Answer: B
Gross receipts - Jeepney no.1 (P20,000 + PS,OOO)
(actual is higher) p 25,000
Gross receipts- Jeepney no. 2 (actual is higher) 16 000
Total 41,000
Tax rate 3o;;,

Common carrier's tax


The updated minimum quarterly gross receipts per unit of
jeepneys for hire in provinces are ?32, 900. The minimum
monthly gross receipts are Pl 0, 967 (?32, 900 divided by 3
months) (Section 2, Revenue Regulations No. 9-2007). The
implementation ofthe adjusted minimum quarterly receipts had
been suspended.

263
Chapter 18: Percentage Taxes Cases

7. to 9. are based on the following: Anya Company is a holder of


franchise. Aside from its receipts from the use of franchise, it also
leases its auditorium and theatre. In a particular month, its gross
receipts from the use of franchise amount to P2,000,000.
The gross receipts from the lease of its auditorium and theater
amount to P800,000. i ~.\ "'.((

7. Assuming Anya Company is franchise grantee selling electricity,


how much is the franchise tax due for the month?
a. None c. P 84,000
b. p 60,000 d. p 336,000

8. In connection with question no. 7, how much is the output VAT for
the month using 12% rate?
a. None c. p 240,000
b. p 96,000 d. p 336,000

9. Assuming Anya Company is a franchise grantee of gas utilities,


how much is the franchise tax?
a. P 84,000 c. p 56,000
b. p 60,000 d. p 40,000

7. Answer: A
[ Franchise grantee of electric utilities is subject to VAT.

8. Answer: D
Gross receipts (sale of electricity) p 2,000,000
Gross receipts (lease of auditorium and theatre) 800 000
Total p 2,800,000
Tax rate 120/r,
Output value-added tax P 336 OQO

9. Answer: D
Gross receipts (sale of gas) p 2,000,000
Tax rate 2o/r,
Franchise tax

264
Chapter 18: Percentage Taxes Cases

10. and 11. are based on the following: Vanderwoodsen is a radio-TV


broadcasting franchise grantee. The previous year, its gross receipts
did not exceed P 10,000,000. In the first month of the current year, it
had the following data:
Gross receipts, sale of airtime P2,000,000
Payments received from user of radio station's
communications facilities for overseas
communications 500,000
Business expenses 700,000
10. How much was the franchise tax due?
a. P 75,000 c. p 50,000
b. p 60,000 d. p 40,000

+ 11. How much was the overseas communications tax?


a. P 250,000 c. P 75,000
b. p 200,000 d. p 50,000

10. Answer: B
Gross receipts (sale of airtime) p 2,000,000
Tax rate 3%
Franchise tax p .6Q_,_QQQ

11. Answer: D
Gross payments received p 500,000
Tax rate 10'%
Overseas communications tax p ~-5.QJlQQ

12. and 13. are based on the following: Blaire Telecommunications has
the follmving data for the first month of the second calendar quarter of
the current year:
Gross receipts, domestic calls P5,000,000
Payments received, overseas calls (originating from
the Philippines) 3,000,000
Purchases of supplies used in connection with
domestic calls, net of VAT 300,000
Purchases of equipment used in connection \;vith
both domestic calls and overseas calls, net of VAT 800,000
Business expenses 1,000,000
12. How much is the overseas communications tax on payments received
from persons who used the communications facilities?
a. P 960,000 c. P 500,000
b. p 800,000 d. p 300,000

265

---~--------------------------------
Chapter 18: Percentage Taxes Cases

13. How much is the VAT payable, if any?


a. P 828,000 c. p 468,000
b. p 504,000 d. None, not subject to VAT

12. Answer: D
Gross payments received p 3,000,000
Tax rate 10%
Overseas communications tax

13. Answer: B
Output tax on domestic calls
(P5,000,000 X 12%) p 600,000
Less: Input taxe'S
Supplies (P300,000 X 12%) p 36,000
Equipment
(P5,000,000/P8,000,000 X P96,000) 60 000 96 000
VAT Payable f--~504~QQ

14. Agence France Press, a news service, has used communication


facilities to send its news to its head office in Paris, France.
During the current month, it paid a total of P500,000 for its overseas
communications originating from the Philippines. How much is the
overseas communications tax due?
a. P 60,000 c. P 25,000
b. P 50,000 d. None

Answer: D
The overseas communications shall not apply to:
XXX
XXX
XXX
(4) News Services. -Amounts paid for messages from any
newspaper, press association, radio or television newspaper,
broadcasting agency, or newstickers services, to any other
newspaper, press association, radio or television newspaper
broadcasting agency, or new sticker service or to a bona fide
correspondent, which messages deal exclusively with the collect:Jzon
of news items for, or the dissemination of news item through, public
press, radio or television broadcasting or a newsticker service
furnishing a general news service similar to that of the public press.

I
L_26~---~---
Chapter 18: Percentage Taxes Cases

< 'li 15. Banco d'Brandy, Inc. has the following data for the first month of the
current year:
Interest, commissions and discounts from lending
activities (remaining maturity of
instrument is 5 years) P5,000,000
Income from financial leasing (remaining maturity
of instrument is more than 5 years) 3,000,000
Dividends and equity shares in net income
of subsidiaries 1,000,000
Rentals of properties 500,000
Net trading gains within the taxable year on
foreign currency 300,000
How much is the gross receipts tax?
a. P 336,000 c. p 320,000
b. p 330,000 d. p 288,000

Answer: A
Interest, commissions and discounts
(P5,000,000 X 5%) p 250,000
Income from financial leasing (P3,000,000 X 1'Yo) 30,000
Dividends from equity shares (Pl,OOO,OOO x O'Yo) 0
Rentals of properties (P500,000 X 7%) 35,000
Net trading gains within the taxable year on
foreign currency (300,000 X 7%) 2LOOO
Gross receipt tax

16. and 1 7. are based on the following: Bank Kat has the following
income (loss):
March 2011: Interest income with maturity of
less than five (5) years p 50,000
Rentals 50,000
Net trading loss __, 1-"-dl ,.,_ <o,, 10,000)
April 20 ll Interest income with maturity of
less than five (5) years P100,000
Rentals 50,000
Net trading gain 20,000
16. How much is the gross receipts tax for the month of March 2011?
a. P 6,000 c. P 5,000
b. p 5,300 d. p 3,000

17. How much is the gross receipts tax for the month of April 2011?
a. P 15,500 c. P 9,200
b. p 9,900 d. p 8,000

267
--------~-------------------------------
Chapter 18: Percentage Taxes Cases

16. Answer: A
Interest income (P50,000 X 5%,) p 2,500
Rentals (P50,000 X 7%) 3 500
Gross receipts tax p 6 000

17. Answer: C
Interest income (PlOO,OOO X 5%) p 5,000
Rentals (P50,000 X 7%) 3,500
Net trading gains (P20,000- PlO,OOO) X 7% 700
Gross receipts tax p 9 200

18. Berta Segura, a domestic insurance company, has the following data
for the current month:
Premiums collected on life insurance policies P2,000,000
Premiums refunded within 6 months after the
payment on account of rejection of risk
(part of the tot&l premiums collected) 500,000
..Reinsurance premium (tax has already been paid) 200,000
Premiums collected by a branch doing business
outside the Philippines from non-resident
policy holders 300,000
How much is the tax on life insurance premiums?
a. P 200,000 c. P 40,000
b. p 150,000 d. p 30,000

Answer: D
Premiums collected on life insurance p 2,000,000
Less: Premiums refunded 500 000
Net 1,500,000
Tax rate 2%
Tax on life insurance premium p 30 000

268
Chapter 18: Percentage Taxes Cases

19. and 20. are based on the following: Successful Life is engaged in
insurance business. It also serves as an agent of a marine foreign
insurance company. It has the following data for the current month
(exclusive of applicable tax).
Total premiums collected as an agent of a foreign
insurance company P2,000,000
Total premiums collected from non-life
insurance business 3,000,000
Purchase of supplies for use in non-life
insurance business 500,000
19. How much is the tax on total premiums collected as an agent of a
foreign insurance company?
a. P 300,000 c. P 150,000
b. P 200,000 d. None of the choices

20. How much is the VAT payable using 12% VAT rate?
a. P 300,000 c. P 180,000
b. P 200,000 d. Not subject to VAT

19. Answer: B
Total premiums collected as a foreign insurance agent p 2,000,000
Tax rate 10%
Tax on foreign !nsurance agents

20. Answer: A
Output tax on premiums (non-life insurance)
(P3,000,000 X 12%) p 360,000
Less: Input tax on supplies (PSOO,OOO X 12%) ( 60 000)
VAT payable P 3QQ,QOO

, 21. Chiko operates a cockpit. Inside the cockpit, he also operates a


restaurant and has stalls for rent. Data for the particular quarter
follow:
Gross receipts (cockpit operation) p 500,000
Gross receipts (restaurant operation)
Sale of food 100,000
Sale of liquor 150,000
Gross rentals from stalls inside the cockpit 200,000
How much is the amusement tax due from Chiko?
a. P171,000 c. P142,500
b. Pl51,650 d. P 90,000

269
Chapter 18: Percentage Taxes Cases

Answer: A
Gross receipts (P500,000+P100,000+P150,000+P200,000) P 950,000
Tax rate 18%
Amusement tax p 171 000

For the purpose of the amusement tax, the term "gross receipts"
embraces all the receipts of the proprietor, lessee or operator of
the amusement place. Said gross receipts also include income
from television, radio and motion picture rights, if any. A person
or entity or association conducting any activity subject to the tax
herein imposed shall be similarly liable for said tax with respect
to such portion of the receipts derived by him or it (Section 12 5,
NIRC, as amended).

22. and 23. are based on the following: J. Santos promoted a world
boxing championship in Manila featuring Manny Hakot, a Filipino
champion. Gate receipts amounted toP 3,000,000 and additional
receipts from television coverage was P2,000,000.
22. How much was the amusement tax due?
a. P 750,000 c. P 300,000
b. P 500,000 d. None

23. Assuming the boxing exhibition was for a Philippine national


championship, how much was the amusement tax?
a. P 750,000 c. P 300,000
b. P 500,000 d. None

22. Answer: D
xxx Provided, however, That boxing exhibitions wherein World or
Oriental Championships in any division is at stake shall be exempt
from amusement tax: Provided, further, That at least one of the
contenders for World or Oriental Championship is a citizen of the
Philippines and said exhibitions are promoted by a citizen/ s of the
Philippines or by a corporation or association at least sixty percent
(60%) ofthe capital of which is owned by such citizens (Section 125 I
(c), NIRC, as amended). ___j
23. Answer: B
Gross receipts p 3,000,000
Receipts from television coverage 2 000 000
Gross receipts p 5,000,000
Tax rate 10%
Amusement tax P 500..QQQ

27b
Chapter 18: Percentage Taxes Cases

24. Antonio "Bumblee Bee" Dayag is the current Philippine national


boxing champion in the flyweight division. He defended his crown
against the number one challenger Cris "Sigee" Espenilla in a boxing
exhibition, which also featured other boxers in supporting bouts.
The following data were made available after the fight:
Gate receipts p 700,000
Income from live TV coverage 500,000
Income from motion picture rights 300,000
Total P1,500,000
Less: Prizes given to boxers p 500,000
Other expenses 1,700,000 2,200,000
Net loss (P 700,000)
How much was the amusement tax due, if any?
a. P 150,000 c. P 100,000
b. P 120,000 d. None

Answer: A
Gross receipts p 1,500,000
Tax rate 10%
Amusement tax p__150,QOO

25. Carrie Rista, a horseracing aficionado, has the following winnings


during a particular race day:
Total winnings p 10,000
Cost of tickets 500
How much is the tax to be withheld from the winnings?
a. P 1,000 c. P 400
b. p 950 d. p 380

Answer: B
Total winnings p 10,000
Less; Cost of ticket 500
Net winnings 9,500
lax rate 10%
Tax to be withheld on winnings p 950

271
Chapter 18: Percentage Taxes Cases

26. and 27. are based on the following: Serena invested P 500,000 in
shares of stock in Manila Trading Corp. The corporation's shares
were listed and were traded in the local stock exchange. Serena sold
her shares in the local stock exchange through her stockbroker for
P350,000.
26. How much was the percentage tax on the sale?
a. P 42,000 c. P 1,750
b. P 2,500 d. None

'c 27. Assuming Serena sold the shares to Arman, a direct buyer, how
much was the percentage tax on the sale?
a. P 42,000 c. P 1,750
b. P 2,500 d. None

26. Answer: C
Gross selling price p 350,000
Tax rate .005
Stock transactions ta.X p 1 75Q

27. Answer: D
None. Sales made directly to buyers and not through the local stock
j'
1'

exchange are subject to _capital gains tax based on capital gains.


However, since- this sale resulted in a loss, it will not be subject to
capital ains tax.

28. Hope, a qealer in securities, sells P1,500,000 worth of shares she


holdsas investment. The shares sold are acquired for Pl,400,000
and are listed<U1l::tiraded in the local stock exchange 0

How much is the business tax due on the sale?


a. P 12,000 c. P 5,000
b. P 7,500 d. None

Answer: B
Gross selling price p 1,500,000
Tax rate .005
Stock transactions tax

While the seller is a dealer in securities, the shares sold are held
by her as investment and not as inventories. Hence, the sale is
subject to stock transactions tax. If the shares sold are held as
inventories, the transaction shall be subject to value-added tax

272
Chapter 18: Percentage Taxes Cases

29. A closely held corporation has initially offered its shares in the
Philippines Stock Exchange. The following data pertain to the initial
public offering:
Number of shares sold in IPO 500,000 shares
Total outstanding shares, after the
listing the Philippine Stock Exchange 2,000,000 shares
Gross value in money of the IPO p 10,000,000
How much is the percentage tax due?
a. P 400,000 c. p 100,000
b. p 200,000 d. p 50,000

Answer: A
Gross value in money PlO,OOO,OOO
Tax rate 4%
Stock transactions tax

The proportion between the shares sold and the total outstanding
shares does not exceed 25% (500,000/2,000,000). In such a
case, the rate is 4%.

30. and 31. are based on the following: Sam Trading Company is exempt
from VAT under Section 1 09 (x) because its gross receipts never
exceeded P1,500,000. It is subject to the 3% percentage tax under
Section 116 of the Tax Code. It files a "Notice of Availment of the
Option to Pay the Tax Through Withholding Process". It furnishes a
copy of the notice to its withholding agents-payors and its RDO as
well as th.e RDOs of its withholding agents-payors. The following
selected data are made available by Sam Trading Company:
a. Sales to customers who bought the goods in the course of trade
or business, net of 3% withholding tax, PlO,OOO;
b. Sales to customers who bought goods not in the course of
business, P15,000
_ 30. How much is the withholding percentage tax?
a. P 741.00 c. P 300.00
b. p 450.00 d. p 291.00

. 31. How much is the percentage tax payable after deducting the
withholding percentage tax?
a. P 741.00 c. p 299.73
b. p 450.00 d. Zero

273
Chapter 18: Percentage Taxes Cases

30. Answer: C
Amount
Gross receipts p 10,000 100%
Add: Percentage tax (P10,000 X 3%) 300 3%
Total p 10,300 103%
Less: Withholding percentage tax (P10,000 X 3%) 300 3%
Receipts, net of withholding percentage tax p lJLQQQ 100%

31. Answer: B
Gross receipts (P10,000 + P15,000) p 25,000
Tax rate 3'Yo
Percentage tax due 750
Less: Withholding percentage tax 300
Stock transactions tax p 450

32. RFB Corporation, a closely-held corporation, has an authorized


capital stock of 100,000,000 shares with par value of Phpl.OO/share
as 6f January 1, 2011.
Of the 100,000,000 authorized shares, 25,000,000 thereof is
subscribed and fully paid up by the following stockholders:
Mr. Estoy B. Zabala P 5,000,000
Mrs. Rowena V. Posadas 5,000,000
Mr. Conrado G. Cruz 5, 000,000
Mr. Benedict 0. Sison 5,000,000
Mrs. Linda 0. Evangelista 5,000,000
Total Shares Outstanding P25.000,000
RFB Corporation finally decides to conduct an IPO and initially offers
25,000,000 of its unissued shares to the investing public at P1.50
per share. After the IPO in March 2008, RFB Corporation's total
issued shares increased from 25,000,000 to 50,000,000 shares.
At the IPO, one of the existing stockholders, Mrs. Linda 0.
Evangelista, has likewise decided to sell her entire 5,000,000 shares
to the public at P1.50 per share. Thus, 25,000,000 shares have been
offered in the primary offering and 5,000,000 shares in the secondary
offering.

Question 1:_ How much is the capita'! gains tax?


a. P375,000 c. P187,500
b. P300,000 d. None ~~

274
---------------------------
Chapter 18: Percentage Taxes Cases

Question 2: How much is the percentage tax on the primary offering?


a. P375,000 c. P187,500 -
b. P300,000 d. None

s Question 3: How much is the percentage tax on the secondary


offering?
a. P375,000 c. Pl87,500
b. P300,000 d. None

Answers: Question 1 - D
Question 2 - A
Question 3 - B
References: Section 127 (B), NIRC, as amended
Section 6 (c.3), Revenue Regulations No. 6-2008
Question 1
None. Shares of stock listed and traded in the local stock
exchange are not subject to capital gains tax.

Question 2
Selling price (25,000,000 shares X Pl. SO per share) p 37,500,000
Multiplied by: Rate 1%
Percentage tax on primary offering p 375 000
The rate is 1% because the ratio of shares offered to the public over
the number of shares outstanding after the listing at the local stock
exchange is 50% (see chapter on other percentage taxes of
Reviewer in Taxation: Book 2 by the same author.)
Number issued by RFB prior to IPO 25,000,000
Add: Number of additional shares sold through
primary offering 25,000,000
Total shares outstanding 50.000,000
Ratio: 25,000,000/50,000,000 =50%

Question 3
Selling price (5,000,000 shares X Pl.SO per share) p 7,500,000
Multiplied by: Rate _ _ _ _4-"--0-'-"Yo - ,.
Percentage tax on secondary offering P ;}Q_O,OOO
Ratio: 5,000,000/50,000,000 = 10%
The tax rates for percentage tax on primary and secondary
offerings of shares of stock of a closely held corporation under
Section 127 {B) ofthe Tax Code follow:
Ratio Rate
Not over 25% 4%
Over 25% but not over 33 1/3% 2%
Over 33 1/3% 1%

275
Chapter 18: Percentage Taxes Cases

33_. In June 2011, RFB Corporation (same corporation in the preceding


number) after the IPO that results to total outstanding shares of
50,000,000 decides to increase capitalization by offering another
30,000,000 of unissued shares to the public at P2.00jshare
consequently bringing the total issued shares to 80,000,000 shares.
Question 1: How much is the capital gains tax'T'V >-:[:, ,
a. P600,000 c. Pl87,500
b. P300,000 d. None

~ Question 2: How much is the percentage tax?


a. P600,000 c. P187,500
b. P300,000 d. None
! ' } : ~, I I ~-
Answers: Questic;m 1 - D . ),
Question 2 - D
Reference: Section 6 (c.3), Revenue Regulations No. 6-2008
Question 1
None. Shares of stock listed and traded through the local stock
exchange are not subject to capital gains tax.

Question 2
None. The follow-on/ follow-through sale which are shares issued
subsequent to IPO shall no longer be taxed pursuant to Section 6 of
RR 6-2008 (percentage tax on IPO.) The transaction, however, is
subject to Documentary Stamp Tax.similar to the transaction
covered by Primary Offering as well as Secondary Offering of
shares of stock.

34. Mr. Benedict 0. Sison, one of the stockholders of RFB Corporation


(same corporation in the preceding number), decides to sell his
5,000,000 shares to the public subsequent to IPO at P2.00 per share.
Question 1: How much is the capital gains tax?
a. P400,000 c. P50,000
b. P100,000 d. None

" .....,
;;rr
Question 2: How much is the percentage tax?
a. P400,000 c. P50,000
b. P100,000 d. None

276
Chapter 18: Percentage Taxes Cases

Answers: Question 1 - D
Question 2 - C
References: Section 6 (2.3), Revenue Regulations No. 6-2008
Section 5, Revenue Regulations No. 6-2008
Section 127 (A), NIRC, as amended
Question 1
None. Shares of stock listed and traded through the local stock
exchange are not subject to capital gains tax.

Question 2
Selling price (5,000,000 X P2 per share) p 10,000,000
Multiplied by: Tax rate (1/2 of Ff<,) .005
Percentage tax
In case another existing shareholder decides to offer his existing shares
to the public subsequent to !PO, he shall be taxed pursuant to Section
127(A) of the Tax Code as implemented by Section 5 of RR 6-2008 which
is Y2 of 1.

277
Chapter 19
RETURNS AND PAYMENT OF
PERCENTAGE TAXES
Procr,zstination is a major enemy ofprogress.- /In onymous

Multiple Choice: Choose the best possible answer.

1. First statement: The Monthly Percentage Tax returns of taxpayers,


whether large or non-large, shall be filed, and taxes paid, not later
than the 20th day following the end of the month;
Second statement: With respect to taxpayers enrolled with EFPS
classified under Group A, the deadline fore-filing the Monthly
Percentage Tax Return and e-paying the tax thereon shall be 25
days following the end of the month.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
References: Section 2, Revenue Regulations No. 4-2002
___ Section 2, Revenue Regulations___!'!o. 26-2002
For purposes of filing returns under the EFPS, the taxpayers I I
classified under the following business industries shall be required
to file Monthly Percentage Tax Returns on or before the dates I.
'
prescribed and presented below:
Monthly Percentage Tax Return I
Group A
GroupE
25 days following_ end ofthe month
24 days following end of the month ~
Group C 23 days following end of the month I
Group D 22 days following end ofthe month I
GroupE 21 days following_ end of the month _ _ jI
_ _ _ _ __j

2. One of the following percentage taxes is paid on a monthly basis.


a. Overseas communications tax c. Tax on winnings
b. Amusement tax d. Franchise tax

Answer: D
References: Section 2, Revenue Regulations No. 4-2002
Sections 120, 125 and 126, NIRC, as amended

278
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Chapter 19: Returns and Payment of Percentage Taxes

3. How is the percentage tax on the secondary offering of shares of stock


of closely held corporation collected and paid?
a. The stockbroker collects and remits the tax within 5 working
days from the date of collectiQn.
b. The stockbroker collects and remits the tax within 5 banking
days from the date of collection.
c. The purchaser collects and remits the tax within 5 days after
the end of the quarter, fiscal or calendar.
d. The local stock exchange collects and remits the tax within 5
banking days from the date of collection.

Answer: B
Reference: Section 127 (A), NIRC, as amended

4. Which of the following percenltage taxes is paid on a quarterly basis?


a. Common carrier's tax c. Tax on winnings
b. Amusement tax d. Stock transactions tax

Answer: B
Reference: Section 125, NIRC, as amended

5. Which of the following is not a large taxpayer?


a. Taxpayers with P200,000 quarterly VAT payments
b. Taxpayers with Pl,OOO,OOO annual income tax payments
c. Taxpayers whose gross receipts are Pl,OOO,OOO per year
d. Taxpayers whose net worth is P300,000,000 at the close of
the taxable year

Answer: C
Reference: Revenue Regulations 1-98 as amended by Section 5,
Revenue Regulations No. 17-2010

6. In the case of a person whose VAT registration is cancelled and who


becomes liable to the 3% tax on VAT-exempt persons, the tax shall
accrue from the date of cancellation and shall be paid within:
a. 10 days after the end of each taxable month.
b. 15 days after the end of each taxable month.
c. 20 days after the end of each taxable month.
d. 30 days after the end of each taxable month.

Answer: C
References: Section 128 (A) (1), NIRC, as amended
Section 2, Revenue Regulations No. 4-2002

279
Chapter 19: Returns and Payment of Percentage Taxes

7. Any person retiring from a business subject to percentage tax shall


notify the nearest internal revenue officer, file his return and pay the
tax due thereon within how many days after closing his business?
a. 10 days c. 20 days
b. 15 days d. 30 days

Answer: C
Reference: Section 128 (A) (2), NIRC, as amended

8. Any person, natural or juridical, with respect to his/its purchase in


the course of trade or business from a seller shall withhold at source
based on the payee's (seller's) sales or receipts:
I - 3% percentage tax under Sec. 116.
II - The seller files a "Notice of Availment of the Option to Pay
the Tax Through the Withholding Process."
a. Yes to both I and II c. Yes to I only
b. No to both I and II d. Yes to II only

Answer: A

9. The Commissioner of Internal Revenue may prescribe a minimum


amount of gross receipts under the following cases except when:
a. the taxpayer fails to issue receipts or invoices.
b. no return is filed.
c. the taxpayer is engaged in mixed transactions and files his
return not on the due date.
d. there is reason to believe that the books of accounts or other
records do not correctly reflect the declarations made or to be
made in the return.

Answer: C
Reference: Section 128 (A) (4), NIRC, as amended

10. A large taxpayer subject to percentage has its principal office in


Makati City. Its President and CEO lives in Quezon City. Its
warehouse is in Pasig City. Where will the taxpayer file its
consolidated monthly percentage tax return?
a. Authorized agent bank in Makati City
b. Revenue District Office in Quezon City
c. Office of the Collection Agent in Pasig City
d. Any of the above as long as the correct tax is paid

280
- - - - - - ------------
Chapter 19: Returns and Payment of Percentage Taxes

Answer: A
Reference: Section 128 (B), NIRC, as amended
Except as the Cormnissioner othenvise permits, every person liable
to the percentage tax under this Title may, at his option, file a
separate return for each branch or place of business, or a
consolidated return for all branches or places of business with the
authorized agent bank, Revenue District Officer, Collection Agent or
duly authorized T,easurer of the city or municipality where said
1business or principal place of business is located, as the case may
Lbe.

11. First statement: Bureaus, offices and instrumentalities of the


government, including government-owned or controlled
corporations as well as their subsidiaries, provinces, cities and
municipalities making any money payment to private individuals,
corporations, partnerships and/ or associations are required to
deduct and withhold the (percentage) taxes from the payees on
account of such money payments.
Second statement: No money payments shall be made by any
government office or agency unless the (percentage) taxes due
thereon shall have been deducted and withheld.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
Reference: Sec. 5.116 (A) and (B), Revenue Regulations No. 2-98
~ercentage taxes on gross money payments, to the following shall
I be subjected to withholding:
i (1) Persons exempt from value-added tax (Sec. 116);
' (2) Domestic carriers and keepers of garages (Sec. 117);
(3) International carriers (Sec. 718);
{4) Franchises (Sec. 119);
(5) Banks and other non-bank financial intermediaries
performing quasi-banking functions (Sec. 121 );
(6) Other non-bank financial intermediaries (Sec. 122);
(7) Life insurance premiums (Sec. 123);
(8) Agents offoreign insurance companies (Sec. 124);
II (9) Amusements (Sec. 125);
I (1 0) Sale, barter or exchange of shares of stock listed and traded
through the local stock exchange [Sec. 127 (A)j;
(11) Shares of stock sold or exchanged through initial public
Il__ offering [Sec. 1 2 7 (B)).

281
Chapter 19: Returns and Payment of Percentage Taxes

12. First statement: Purchases of goods or payments for purchases of


services made in the course of trade or business (including exercise
of profession or calling) from a non-VAT person whose gross annual
sales or receipts do not exceed the threshold amount for VAT
purposes, shall be subject to a percentage tax withholding at
source at the rate of three percent (3%) based on the payee's gross
sales or receipts.
Second statement: The withholding of the three percent (3%)
percentage tax shall be made if the taxpayer-payee files a "Notice of
Availment of the Option to Pay the Tax through the Withholding
Process" thereby manifesting his option to remit his percentage tax
through the withholding and remittance of the same by the
withholding agent-payor.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A.
Reference: Sec. 5.128 (A), Revenue Regulations No. 2-98
as amended by Revenue Regulations No. 142003

13. A person subject to percentage tax under Sec. 116 (Non-Vat person
whose gross annual sales or receipts do not exceed the threshold
amount for VAT) is qualified to substituted filing of percentage tax
return if:
I- the said income recipient-payee has only one payor from whom
he generates his income.
II - a "Notice of Availment of the Substituted Filing of Percentage
Tax Return" is filed with the Revenue District Office (RDO)
where the income recipient is registered or required to register.
a. Only I is correct c. Both I and II are correct
b. Only II is correct d. Neither I nor II is correct

Answer: C
Reference: Sec. 5.128 (A), Revenue Regulations No. 2-98
as amended by Revenue Regulations No. 14-2003

282
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Chapter 19: Returns and Payment of Percentage Taxes

14. Which of the following shall be stated in the "Notice of Availment of


the Substituted Filing of Percentage Tax Return"?
a. The income-recipient is a non-VAT taxpayer, having not opted
to be covered by the VAT system
b. The income-recipient's actual annual gross sales or receipts or
expected annual gross sales or receipts from one payor do not
exceed the threshold amount for VAT purposes
c. The income-recipient is opting to file under the substituted
filing of percentage tax return
d. All of the choices

Answer: D
Reference: Sec. 5.128 (A), Revenue Regulations No. 2-98
as amended by Revenue Regulations No. 14-2003

15. When shall a payee be required to file a regular percentage tax


return?
Case I - If the payee has more than one payor
Case II - In case the total amount of tax withheld by the payor.s
who are engaged in business is incorrect
Case III - If the payee has transactions with payors who are not
engaged in business and therefore not obliged to
withhold
a. In case I only c. In case II only
b. In cases I and III only d. In cases I, II and III

Answer: D
Reference: Sec. 5.128 (A), (D) and (E),
Revenue Regulations No. 2-98 as amended by
Revenue Regulations No. 14-2003

16. If done manually, the withholding 3% percentage tax shall be


remitted within:
a. 30 days following the end of the month the withholding was
made.
b. 20 days following the end of the month the withholding was
made.
c. l 0 days following the end of the month the withholding was
made.
d. 5 days follO\ving the end of the month the withholding was
made.

283

---~-----------------
Chapter 19: Returns and Payment of Percentage Taxes

Answer: C
References: Sec. 5.128 (C), Revenue Regulations No. 2-98
as amended by Revenue Regulations No. 14-2003
Section 2, Revenue Regulations No. 26-2002
For purposes of filing retums under the EFPS, however, the
taxpayers classified under the following business industries shall be
required to file Monthly Withholding Tax Retums, except withholding
of VAT, on or before the dates prescribed and presented below:
Monthly Percentage Tax Return I
Group A 15 days following end of the month
Group B I 14 days following end of the month - -
Group C 13 days following end o_f the month
Group D 12 days following end ofthe month
GroupE I 1 days following end ofthe month

17. Sellers of services whose gross receipts have been subjected to the
withholding of the 3% percentage tax shall be exempt from the
obligation of issuing duly registered non-VAT receipts covering their
receipts of payments for services if they have:
I -just one payor.
II - several payors.
a. Yes to I only c. Yes to I and II
b. Yes to II only d. No to I and II

Answer: C
References: Sec. 5.128 (F), Revenue Regulations No. 2-98
as amended by Revenue Regulations No. 14-2003

Section 2, Revenue Regulations No. 26-2002

Period for
filing of
Business Industry Monthly
Percentage
Tax Returns

Group A
25 days
Insurance and Pension Funding
following the
Activities Auxiliary to Financial Intermediation
end of the
Construction
month
Water Transport
Hotels and Restaurants
Land Transport

284
Chapter 19: Returns and Payment of Percentage Taxes

Period for
filing of
Business Industry Monthly
Percentage
Tax Returns

GroupB
Manufacture & Repair of Furniture
Manufacture of Basic Metals
Manufacture of Chemicals & Chemical Products
Manufacture of Coke, Refined Petroleum &
Fuel Products
Manufacture of Electrical Machinery &
Apparatus N.E.C.
Manufacture of Fabricated Metal Products
Manufacture of Food, Products & Beverages
Manufacture of Machinery & Equipment NEC
Manufacture of Medical, Precision, Optical
Instruments
Manufacture of Motor Vehicles, Trailers & 24 days
Semi-Trailers following the
Manufacture of Office, Accounting & end of the
Computing Machinery month
Manufacture of Other Non-Metallic Mineral
Products
Manufacture of Other Transport Equipment
Manufacture of Other Wearing Apparel
Manufacture of Paper and Paper Products
Manufacture of Radio, TV & Communication
Equipment/ Apparatus
Manufacture of Rubber & Plastic Products
Manufacture of Textiles
Manufacture of Tobacco Products
Manufacture of Wood & Wood Products
I Manufacturing N.E.C.
I Metallic Ore Mining
Non-Metallic Mining & Quarrying

I Group C 23 days
, Retail Sale following the
/ Wholesale Trade and Commission Trade end of the
I Sale, Maintenance, Repair of Motor Vehicle, month
Sale of Automotive Fuel
I Collection, Purification & Distribution of Water
IIComputer and Related Activities
Real Estate Activities
Chapter 19: Returns and Payment of Percentage Taxes

~--~-

Period for
filing of
1
Business Industry Monthly
Percentage
Tax Returns i
Group D
Air Transport
Electricity, Gas, Steam & Hot Water Supply
~
22 days
Postal & Telecommunications
following the
I Publishing, Printing & Reproduction of
I end of the
Recorded Media
i month
Recreational, Cultural & Sporting Activities
Recycling
I
1 Renting of Goods & Equipment .
I Supporting & Auxiliarv Trans_2S)rt Activities
GroupE
Activities of Membership Organizations lnc.
1

1 Health and Social Work


1 Public Admin & Defense Compulsory Social
21 days
Security
following the II
1

1 Research and Development


end of the 1
Agricultural, Hunting, and Forestry
month
Farming of Animals 1

I I
i Fishing
Other Service Activities
I
1

I Miscellaneous Business Activities


~ Unclassified
-----------------
_j
Large taxpayers under Section 5, revenue regulations no. 17-2010
5.1 As to tax payments
a. Value-added tax At least P200,000 per qu~rter (preceding yearl_j
b. Excise tax At least Pl,OOO,OOO (preceding year) I

c. Income tax Atleast Pl,OOO,o6o (pr~ceding year) ----~


d. Withholding tax At least Pl,OOO,OOO from all types (annual) !

rz-P~nt~ tax At least_ P20_0,000 per quarter (preced~g-;~ea~fj


_I

[~Doc. stamp tax _ At l~a~t P1 ,OOO,OOQ (aggregate annual) _j

5.2 As to financial condition and results of operation


a. Gr9s~sale_sl!~~pts I At least Pl,OOO,OOO,_()_QQJpreceding yearl__ __~
b. Net worth --t-At least P300,000,0QO (close of each year) !
c. Gross urchases 1 At least P800,000,000 (preceding year) i
d. Top corporate. -lUsted and published by the Securities andl
L__ taxpayers ~~change Commissi_c~_JI__(SEC_)__________j

286

-------- ---------------- - - - - - - - - - - - - -
CHAPTER 20
COMMUNITY TAX
'fVIien _you cfepencf on prayer, you wi(( receive wliat Cjocf lias for you. - )1 nonymous

Multiple Choice: Choose the best possible answer.

1. Which political subdivision may levy community tax?


I- Cities
II- Municipalities
a. Both I and II c. II only
b. I only d. Neither I nor II

Answer: A
Reference: Sec. 156, Book II, Local Taxation and Fiscal Matters,
The Local Government Code of the Philippines

2. Who of the following individuals shall be liable to community tax?


a. Every inhabitant of the Philippines eighteen ( 18) years of age
or over who has been regularly employed on a wage or salary
basis for at least thirty (30) consecutive working days during
any calendar year
b. Every inhabitant of the Philippines eighteen ( 18) years of age
or over who is engaged in business or occupation
c. Every inhabitant of the Philippines eighteen (18) years of age
or over who owns real property with an aggregate assessed
value of One thousand pesos (P1,00Q.OO) or more
d. All of the choices

Answer: D
Reference: Sec. 157, Book II, Local Taxation and Fiscal Matters,
The Local Government Code of the Philippines

3. How much is the annual community tax for individuals?


a. P25 c. PlO
b. P20 d. P 5

Answer: D
Reference: Sec. 157, Book II, Local Taxation and Fiscal Matters,
The Local Government Code of the Philippines

287
Chapter 20: Community Tax

4. How much is the annual additional community tax for individuals'?


a. One peso (Pl.OO) for every One thousand pesos (Pl,OOO.OO)
of income regardless of whether from business, exercise of
profession or from property
b. Two pesos (P2.00) for eve!) Two thousand pesos (P2,000.00)
of income regardless of whether from business, exercise of
profession or from property
c. Three pesos (P3.00) for every One thousand pesos (Pl,OOO.OO)
of income regardless of whether from business, exercise of
profession or from property
d. None of the choices

Answer: A
Reference: Sec. 157, Book II, Local Taxation and Fiscal Matters,
The Local Government Code of the Philippines

5. How much is the maximum annual additional community tax for


individuals?
a. P 20,000 c. p 10,000
b. p 15,000 d. p 5,000

Answer: D
Reference: Sec. 157, Book II, Local Taxation and Fiscal
Matters, The Local Government Code of the
Philippines

6. First statement: An individual who is required by law to file an


income tax return shall pay an annual community tax.
Second statement: In the case of husband and wife, the additional
tax herein imposed shall be based upon the total property owned by
them and the total gross receipts or earnings derived by them.
a. Only the first statement is correct
b. Only the second statement is correct
c. Both statements are correct
d. Both statements are not correct

Answer: C
Reference: Sec. 157, Book II, Local Taxation and Fiscal
Matters, The Local Government Code of the
Philippines

288
______
....._ ---------------- ----------------
Chapter 20: Community Tax

7. Mr. and Mrs. Jose Lee, resident citizens, had the following data for
the calendar year:
Mr. Jose Lee
Salaries and bonuses p 500,750
Assessed value of land in Manila 1,000,000
Mrs. Jose Lee
Gross receipts from business p 725,700
Assessed value of apartment house 1,500,000
Income from apartment house 600,000
How much would be the total additional community tax due in the
succeeding year aside from the P5 basic community tax of each
spouse?
a. P4,236 c. Pl,826
b. P2,500 d. P1,226

Answer: C
Mr. Jose Lee- salaries and bonuses p 500,750
Mrs. Jose Lee
Gross receipts from business p 725,700
Income from apartment house 600 000 1 325 700
Total p 1,826,450
Divided by 1 000
Basis of additional community tax p 1,826
Multiply by 1
Additional community tax

8. Every corporation no matter how created or organized, whether


domestic or resident foreign, engaged in or doing business in the
Philippines shall pay an annual community tax of:
a. One thousand pesos (Pl ,000.00).
b. Five hundred pesos (P500,00).
c. Two hundred pesos (P200.00).
d. One hundred pesos (PlOO.OO).

Answer: B
Reference: Sec. 158, Book II, Local Taxation and Fiscal Matters,
The Local Government Code of the Philippines

289
Chapter 20: Community Tax

9. Every corporation no matter how created or organized, whether


domestic or resident foreign, engaged in or doing business in the
Philippines shall pay an annual additional tax in accordance with the
following schedule:
I- For every Five thousand pesos (P5,000.00) worth of real
property in the Philippines owned by it during the preceding
year based on the valuation used for the payment of the real
property tax under existing laws, found. in the assessment rolls
of the city or municipality where the real property is situated-
Two pesos (P2.00).
II - For every Five thousand pesos (P5,000.00) of gross receipts or
earnings derived by it from its business in the Philippines
during the preceding year- Two pesos (P2,00). The dividends
received by a corporation from another corporation however
shall, for the purpose of the additional tax, be considered as
part of the gross receipts or earnings of said corporation.
a. Only I is correct
b. Only II is correct
c. Both I and II are not correct
d. Both I and II are correct

Answer: D
Reference: Sec. 158, Book II, Local Taxation and Fiscal Matters,
The- Local Government Code of the Philippines

10. The maximum annual additional community tax of juridical persons


lS:
a. P20,000. c. p 10,000.
b. p 15,000. d. p 5,000.

Answer: C
Reference: Sec. 158, Book II, Local Taxation and Fiscal Matters,
The Local Government Code of the Philippines

11. The community tax for an individual shall be paid in the place of:
a. residence of the individual.
b. work of the individual.
c. residence or work of the individual, whichever is convenient.
d. none of the choices.

Answer: A
Reference: Sec. 160, Book II, Local Taxation and Fiscal Matters,
The Local Government Code of the Philippines

290
Chapter 20: Community Tax

12. Kapatidz Corporation, domestic, had the following selected data in


the preceding year:
Cash sales p 3,390,000
Cost of sales 1,400,000
Operating expenses 900,000
Dividend received from a domestic corporation 50,000
Assessed value of land 500,000
Assessed value of building 700,000
Assessed value of machinery 1,500,000
How much would be the total basic and additional community taxes
in the current year?
a. P2,956 c. Pl,376
b. P2,456 d. Pl,080

Answer: A
Basic community tax p 500
Additional community tax
Cash sales (3,390,000/5,000) X 2 p 1,356
Dividend (S0,000/5,000) X 2 20
Assessed value, land
(500,000/S,OOO) X 2 200
Assessed value, building
(700,000/5.000) X 2 280
Assessed value. machinery
(1,500,000/5,000) X 2 600 2 456
Total community tax P_2~.52

13. Which of the following shall be exempt from the community tax?
I - Diplomatic and consular representatives
II - Transient visitors when their stay in the Philippines does not
exceed three (3) months
a. I only c. Both I and II
b. II only d. Neither I nor II

Answer: C
Reference: Sec. 159, Book II, Local Taxation and Fiscal Matters,
The Local Government Code of the Philippines

14. The community tax for corporations shall be paid in the place where:
a. the Chief Executive officer resides.
b. the External Auditor hold office.
c. any of the principal officers files his income tax return.
d. the principal office of the corporation is located.

291
Chapter 20: Community Tax

Answer: D
Reference: Sec. 160, Book II, Local Taxation and Fiscal Matters,
The Local Government Code of the Philippines

15. The community tax shall accrue on the first (1st) day of January of
each year which shall be paid not later than the last day of:
a. January of each year.
b. February of each year.
c. March of each year.
d. April of each year.

Answer: B
Reference: Sec. 161 (a), Book II, Local Taxation and Fiscal
Matters, The Local Government Code of the
Philippines

16. A person who reaches the age of eighteen (18) years or otherwise
loses the benefit of exemption on or before the last day of June,
shall be liable for the community tax on:
I - the day he reaches such age.
II - upon the day the exemption ends.
a. Both I and II are correct c. Only I is correct
b. Both I and are not correct d. Only II is correct

Answer: A
Reference: Sec. 161 (a), Book II, Local Taxation and Fiscal
Matters, The Local Government Code of the
Philippines

17. If a person reaches the age of eighteen (18) years or loses the benefit
of exemption on or before the last day of March, how many days shall
he have to pay the community tax without becoming delinquent?
a. Twenty (20) days c. Five (5) days
b. Fifteen (15) days d. None of the choices

Answer: A
Reference: Sec. 161 (a), Book II, Local Taxation and Fiscal
Matters, The Local Government Code of the
Philippines

292
Chapter 20: Community Tax

18. Persons who come to reside in the Philippines or reach the age of
eighteen (18) years on or after the first (1st) day of July of any year,
or who cease to belong to an exempt class on or after the same date,
shall:
a. be liable to pay the community tax not later than the last day
of February of each year.
b. be liable to community tax not later than July 15 of each year.
c. not be subject to the community tax for that year.
d. none of the choices.

Answer: C
Reference: Sec. 161 (a), Book II, Local Taxation and Fiscal
Matters, The Local Government Code of the
Philippines

19. Corporations established and organized on or before the last day of


June:
a. shall be liable to pay the community tax for that year.
b. shall not be liable to pay the community tax for that year.
c. shall be liable to pay the community tax only if it has
generated income for that year.
d. none of the choices.

Answer: A
Reference: Sec. 161 (b), Book II, Local Taxation and Fiscal
Matters, The Local Government Code of the
Philippines

20. Corporations established and organized on or before the last day of


March shall have how many days within which to pay the community
tax without becoming delinquent?
a. Twenty (20) days c. Five (5) days
b. Fifteen (15) days d. None of the above

Answer: A
Reference: Sec. 161 (b), Book II, Local Taxation and Fiscal
Matters, The Local Government Code of the
Philippines

21. Corporations established and organized on or after the first day of


July shall:
a. not be subject to the community tax for that year.
b. be liable to pay the community tax for that year.
c. be liable to pay the community tax only if it has generated
income for that year.
d. none of the choices.

293
Chapter 20: Community Tax

Answer: A
Reference: Sec. 161 (b), Book II, Local Taxation and Fiscal
Matters, The Local Government Code of the
Philippines

22. If the community tax is not paid within the time prescribed, there
shall be added to the unpaid amount an interest of:
a. t\venty-five percent (25%) per annum from the due date until
it is paid.
b. twenty-four percent (24%) per annum from the due date until
it is paid.
c. twenty percent (20%) per annum from the due date until it is
paid.
d. twenty percent (20%) per annum or such higher rate as may
be decided by the Bureau of Internal Revenue.

Answer: B
Reference: Sec. 161 (b), Book II, Local Taxation and Fiscal
Matters, The Local Government Code of the
Philippines

23. First statement: The husband and wife will each pay the basic
community tax but they shall have a consolidated additional
community tax.
Second statement: A community tax certificate may also be issued to
any person or corporation not subject to the community tax upon
payment of One peso (Pl.OO).
a. True,True c. True, False
b. False, False d. False, True

Answer: A
Reference: Sec. 162, Book II, Local Taxation and Fiscal Matters,
The Local Government Code of the Philippines

24. In which of the following instances shall the presentation of


community tax certificate not be required from an individual?
a. When he acknowledges any document before a notary public
b. When he takes the oath of office upon election or appointment
to any position in the government service
c. When he receives any license, certificate, or permit from any
public authority
d. When he registers as a voter

294
---~------- --------
Chapter 20: Community Tax

Answer: D
Reference: Sec. 163 (a), Book II, Local Taxation and Fiscal
Matters, The Local Government Code of the
Philippines

25. In which of the following instances shall the presentation of


community tax certificate be required from an individual?
a. When he pays any tax or fee
b. When he receives any money from any public fund
c. When he transacts other official business or receives any
salary or wage from any person or corporation
d. All of the choices

Answer: D
Reference: Sec. 163 (a), Book II, Local Taxation and Fiscal
Matters, The Local Government Code of the
Philippines

26. In which of the following instances shall the presentation of


community tax certificate be required from a juridical person?
a. When it receives any license, certificate, or permit from any
public authority
b. When it pays any tax or fee
c. When it receives money from public funds, or transacts other
official business
d. All of the choices

Answer: D
Reference: Sec. 163 (b), Book II, Local Taxation and Fiscal
Matters, The Local Government Code of the
Philippines

27. First statement: The community tax certificate required to be


presented shall be the one issued for the current year.
Second statement: For the period from January until the fifteenth
(15th) of April each year, the certificate issued for the preceding
year shall suffice in instances where the community tax is required
to be presented.
a. Only the first statement is correct
b. Only the se-:ond statement is correct
c. Both statements are correct
d. Both statements are incorrect
Chapter 20: Community Tax

Answer: C
Reference: Sec. 163 (c), Book II, Local Taxation and Fiscal
Matters, The Local Government Code of the
Philippines

28. Which of the following shall print community tax certificates and
distribute the same to the cities and municipalities through the city
and municipal treasurers in accordance with prescribed regulations?
a. Bureau of Printing
b. Bureau of Internal Revenue
c. City or provincial executive
d. City or provincial treasurer

Answer: B
Reference: Sec. 164 (a), Book II, Local Taxation and Fiscal
Matters, The Local Government Code of the
Philippines

29. First statement: The proceeds of the tax shall accrue to the general
funds of the cities, municipalities and barangays except a portion
thereof which shall accrue to the general fund of the national
government to cover the actual cost of printing and distribution of
the forms and other related expenses.
Second statement: The city or municipal treasurer concerned shall
remit to the national treasurer the said share of the national
government in the proceeds of the tax within ten (10) days after the
end of each quarter.
a. Both statements are true
b. Both statements are false
c. Only the first statement is true
d. Only the second statement is false

Answer: A
Reference: Sec. 164 (a), Book II, Local Taxation and Fiscal
Matters, The Local Government Code of the
Philippines

30. The proceeds of the community tax actually and directly collected by
the city or municipal treasurer shall accrue:
a. entirely to the general fund of the city or municipality
concerned.
b. partly to the general fuf\d of the city or municipality
concerned.
c. entirely to the general fund of the National Government.
d. none of the choices.

296
Chapter 20: Community Tax

Answer: A
Reference: Sec. 164 (b), Book II, Local Taxation and Fiscal
Matters, The Local Government Code of the
Philippines

31. Can the city or municipal treasurer deputize the barangay treasurer
to collect the community tax in their respective jurisdictions?
a. No, the city or municipal treasurer cannot deputize the
barangay treasurer to collect the community tax in their
respective jurisdictions because the Local Government Code
does not allow it.
b. Yes, the city or municipal treasurer can deputize the barangay
treasurer to collect the community tax in their respective
jurisdictions without any pre-condition.
c. No, the city or municipal treasurer cannot deputize the
barangay treasurer to collect the community tax in their
respective jurisdictions because such act is the sole
prerogative of the Bureau of Internal Revenue.
d. Yes, the city or municipal treasurer can deputize the barangay
treasurer to collect the community tax in their respective
jurisdictions provided, however, that said barangay treasurer
shall be bonded in accordance with existing laws.

Answer: D
Reference: Sec. 164 (b), Book II, Local Taxation and Fiscal
Matters, The Local Government Code of the
Philippines

32. The proceeds of the community tax collected through the barangay
treasurers shall be apportioned as follows:
I - Fifty percent (SQ%) shall accrue to the general fund of the city
or municipality concerned.
II - Fifty percent (50%) shall accrue to the barangay where the tax
is collected.
a. Both I and II are correct c. Only I is correct
b. Both I and are not correct d. Only II is correct

Answer: A
Reference: Sec. 164 (c), Book II, Local Taxation and Fiscal
Matters, The Local Government Code of the
Philippines

297

--- -~-----------------------
Chapter 21
ADDITIONS TO TAX
'!fie nearest way to f][ory is to stn"<e to 6e wliat you uisli to 6e tfwuglit to 6e. -Socrates

Multiple Choice: Choose the best possible answer.

1. First statement: The additions to the tax or deficiency tax prescribed


shall apply to all taxes, fees and charges imposed under the Tax
Code.
Second statement: The amounts so added to the tax shall be
collected at the same time, in the same manner and as part of the
tax.
a. True, True c. True, False
b. False, False d. False, True

Answer: A
References: Section 247 (a), NIRC, as amended
Section 2, Revenue Regulations No. 12-99

2. First statement: If the withholding agent is the Government or any of


its agencies, political subdivisions or instrumentalities, or a
government-owned or controlled corporation, the employee thereof
responsible for the withholding and remittance of the tax shall be
personally liable for the additions to the tax prescribed herein.
Second statement: The term "person", as used for the additions to
the tax purposes, includes an officer or employee of a corporation
who as such officer, employee or member is under a duty to
perform the act in respect of which violation occur.
a. True, True c. True, False
b. False, False d. False, True

Answer: A
Reference: Section 247 (b) and (c), NIRC, as amended

298
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Chapter 21: Additions to Tax

The following infractions were noted:


I - Failure to file any return and pay the tax due thereon as
required und~r the provisions of the Tax Code or rules and
regulations on the date prescribed;
II -Filing a return with an internal revenue officer other than those
with whom the return is required to be filed, unless otherwise
authorized by the Commissioner of Internal Revenue;
III - Failure to pay the deficiency tax within the time prescribed for
its payment in the notice of assessment;
IV - Failure to pay the full or partial amount of tax shown on any
return required to be filed under the provisions of the Tax Code
or rules and regulations, or the full amount of tax due for which
no return is required to be filed, on or before the date
prescribed for its payment.
Which of the above will be subject to the civil penalty of 25% of the
amount due?
a. I and II only c. I, II, and III only
b. III and IV only d. All of the above

Answer: D
References: Section 248, NIRC, as amended
Section 4.1, Revenue Regulations No. 12-99

(Phil. CPA) In which of the following cases where civil penalties of


25% or 50% imposed by the Tax Code is not applicable?
a. In case of false or fraudulent return
b. Failure to pay the full amount of tax shown on any return
required to be filed under the law
c. Failure to file certain information required by the Tax Code
d. Failure or willful neglect to file the tax return within the
period prescribed by law

Answer: C

(Phil. CPA) Which statement is wrong? The surcharge of 25% is


imposed if:
a. a tax return was not filed within the time prescribed by law.
b. a tax was not paid within the time prescribed by law.
c. a tax return was not filed within the time prescribed by law
and at the same time the tax was not paid within the time
prescribed by law.
d. none of the above.

Answer: D

299
Chapter 21: Additions to Tax

6. The following cases were noted:


A. Willful neglect to file the return within the period prescribed
by the Tax Code or rules and regulations;
B. A false or fraudulent return is willfully made;
C. A person who is not VAT-registered issues an invoice or
receipt showing his TIN, followed by the word "VAT".
Which of the above will be subject to a 50% civil penalty of the tax or
of the deficiency tax?
a. A only c. A, Band C
b. B only d. Neither A nor B

Answer: C
Reference: Section 248 (B), NIRC, as amended
Section 4.113-4 (A) (1) (iii), Revenue Regulations
No. 16-2005

7. (Phil. CPA) For filing false and fraudulent return, a surcharge is


imposed. Which of the following is correct?
a. 50% administrative penalty
b. 50% criminal penalty
c. 25% plus 50%
d. 25% criminal penalty

Answer: A

8. In one of the following cases, a return filed is not false or fraudulent.


a. There is intentional substantial under declaration of income
or overstatement of deduction.
b. There is intentional under declaration of selling price and
overvaluation of cost of property sold.
c. Recurrence of the understatement of income or overstatement
of deductions for more than one taxable year.
d. Filing of return has been delayed for a considerable length of
time.

Answer: D
Reference: Section 248 (B), NIRC, as amended

300
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Chapter 21: Additions to Tax

9. Which of the following shall constitute substantial under or over


declaration?
I - Failure to report sales, receipts or income in an amount
exceeding thirty percent (30%) of that declared per return
II - Claim of deductions in an amount exceeding (30%) of actual
deductions
a. I only c. Neither I nor II
b. II only d. Both I and II

Answer: D
Reference: Section 248 (B), NIRC, as amended

10. It is a civil penalty imposed by law as addition to the main tax


required to be paid.
a. Surcharge c. Delinquency
b. Interest d. Deficiency

Answer: A
Reference: Section 4.1 and 4.2, Revenue Regulations No.12-99

11. First statement: There is willful neglect if the taxpayer knowingly


delays the filing of income tax return.
Second statement: In case the taxpayer, without notice from the
Commissioner or his duly authorized representative, voluntarily
files a return, only 25% surcharge shall be imposed for late filing
and late payment of the tax in lieu of the 50% surcharge.
a. True, True c. True, False
b. False, False d. False, True

Answer: A
Reference: Section 4.2, Revenue Regulations No. 12-99 -------,
The term "willful neglect to file the return within the period
prescribed by the Tax Code" shall not apply in case the taxpayer,
without notice from the Commissioner of Internal Revenue or his
authorized representative, voluntarily files the said return, in
which case, only 2 5% surcharge shall be imposed for late filing
and late payment of the tax in lieu of the 50% surcharge.
Conversely, the 50% surcharge shall be imposed in case the
taxpayer files the return only after prior notice in writing from the
Commissioner of Internal Revenue or his duly authorized
representative (Sec:tion 4.2.1, Revenue Regulations No. 12-99).

301
Chapter 21: Additions to Tax

12. There shall be assessed and collected on any unpaid amount of tax,
interest at the rate of:
a. twenty percent (20%) per annum from the date prescribed for
payment until the amount is fully paid.
b. twenty percent (20%) per annum, or such higher rate as may be
prescribed by rules and regulations, from the date prescribed for
payment until the amount is fully paid.
c. twenty-five percent (25%) per annum, or such higher rate as may
be prescribed by rules and regulations, from the date prescribed
for payment until the amount is fully paid.
d. fifty percent (50%) per annum, or such higher rate as may be
prescribed by rules and regulations, from the date prescribed for
payment until the amount is fully paid.

Answer: B
Reference: Section 249 (A), NIRC, as amended

13. Which of the following interests is incorrect?


a. Interest on deficiency
b. Interest on delinquency
c. Interest on extended payment
d. Interest on surcharge

Answer: D
Reference: Section 249 (B), (C) and (D), NIRC, as amended

14. Which of the following cases shall be subject to delinquency interest?


a. Failure to pay the amount of the tax due on any return to be filed
b. Failure to pay the amount of the tax due for which no return is
required
c. Failure to pay a deficiency tax, or any surcharge or interest
thereon on the due date appearing in the notice and demand of
the Commissioner
d. All of the choices

Answer: D
Reference: Section 249 (C), NIRC, as amended

302

------ ------- ..
Chapter 21: Additions to Tax

15. Which of the following shall be subject to interest on extended


payment?
I - Any person required to pay the tax who is qualified and elects to
pay the tax on installment under the provisions of the Tax
Code, but fails to pay the tax or any installment hereof, or any
part of such amount or installment on or before the date
prescribed for its payment
II - Where the Commissioner has authorized an extension of time
within which to pay a tax or a deficiency tax or any part thereof
a. I only c. Neither I nor II
b. II only d. Both I and II

Answer: D
Reference: Section 249 (D), NIRC, as amended

16. In the case of each failure to file an information return, statement or


list, or keep any record, or supply any information required by the
Tax Code or by the Commissioner on the date prescribed therefore,
unless it is shown that such failure is due to reasonable cause and
not to willful neglect, there shall, upon notice and demand by the
Commissioner, be paid by the person failing to file, keep or supply
the same:
I- one thousand pesos (P1,000) for each failure.
II - the aggregate amount to be imposed for all such failures during
a calendar year shall not exceed Twenty-five thousand pesos
(P25,000).
a. Only I is correct c. Both I and II are correct
b. Only II is correct d. Neither I nor II is correct

Answer: C
Reference: Section 250, NIRC, as amended

17. Failure of the taxpayer to pay the tax due on the date fixed by law or
indicated in the assessment notice or letter of demand.
a. Surcharge c. Delinquency
b. Interest d. Deficiency

Answer: C

303
Chapter 21: Additions to Tax

18. First statement: Any person required to withhold, account for, and
remit any tax imposed by this Code or who willfully fails to withhold
such tax, or account for and remit such tax, or aids or abets in any
manner to evade any such tax or the payment thereof, shall, in
addition to other penalties provided for under the Chapter on
additions to tax, be liable upon conviction to a penalty equal to the
total amount of the tax not withheld, or not accounted for and
remitted.
Second statement: Any employer/withholding agent who fails or
refuses to refund excess withholding tax shall, in addition to the
penalties provided in the Title X of the Tax Code (Statutory Offenses
and Penalties), be liable to a penalty to the total amount of refunds
which was not refunded to the employee resulting from any excess
of the amount withheld over the tax actually due on their return.
a. Both statements are true
b. Both statements are false
c. Only the first statement is true
d. Only the second statement is false

Answer: A
Reference: Section 251 and 252, NIRC, as amended

19. The amount still due and collectible from a taxpayer upon audit or
investigation.
a. Surcharge c. Delinquency
b. Interest d. Deficiency

Answer: D

20. (Phil. CPA) Which of the following violations cannot be subject to


compromise?
a. Failure to keep or preserve books of accounts and accounting
records.
b. Failure to keep books of accounts or records in a native
language or English.
c. Failure to have books of accounts audited and have financial
statements attached to income tax return certified by an
independent CPA.
d. Keeping of two sets of books of accounts or records.

Answer: D

304
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Chapter 21: Additions to Tax

21. First statement: The extra-judicial settlement of the taxpayer's


criminal liability and the amount of the suggested compromise
penalty shall conform to the schedule of compromise penalties
provided under Revenue Memorandum Order No. 19-2007 or as
revised.
Second statement: A compromise in extra-judicial settlement of the
taxpayer's criminal liability for his violation is consensual in
character, hence, may not be imposed on the taxpayer without his
consent.
a. True, True c. True, False
b. False, False d. False, True

Answer: A

22. The income tax return for the calendar year 2003 was due for filing
on April 15, 2004. The tax due was P100,000. The taxpayer
voluntarily filed his tax return without notice from the BIR only on
June 30, 2004.
Question 1 -How much \Vas the surcharge?
a. P 50,000.00 c. P 20,000.00
b. P 25,000.00 d. None

Question 2 - How much vvas the interest on delinquency?


a. P 5,194.07 c. P 4,155.24
b. P 4,166.66 d. None.

Question 3- How much was the total amount due?


a. P 130,194.07 c. P 129,155.24
b. P129,166.66 d. None of the choices

Question 1: Answer: B
Question 2: Answer: C
Question 3: Answer: C
Reference: Section 5.1, Revenue Regulations No. 12-99

Tax per return P100,000.00


Add: Surcharge for late filing and
payment of tax (25'/o x P1 00,000) P 25,000.00
Interest on delinquency
(April 15 to June 30, 2004) 4 155.24 29 155.24
Total amount due Pl_29__J_55.::!4

Computation of interest
April 15 to June 15 (2 months)
(PlOO,OOO X 20% X 2/ 12) p 3,333.33
June 15 to June 30 (15 days)
(PlOO,OOO X 20% X 15/365) 821.91
Total p 4.155.24

305
Chapter 21: Additions to Tax

23. The taxpayer's 2003 percentage tax return is required to be filed


through the authorized agent bank under the jurisdiction of ROO
East Makati. Without prior authorization from the Commissioner,
the taxpayer files the return and pays the tax through an authorized
agent bank under the jurisdiction of ROO Oavao City on April 15,
2004. The tax due and paid per return is P100,000.
Question 1 -How much is the surcharge?
a. P50,000.00 c. P 20,000.00
b. P25,000.00 d. None

Question 2 - How much is the interest on delinquency/ deficiency?


a. P20,000.00 c. P6,666.67
b. PlO,OOO.OO d. None

Question 3- How much is the amount still due?


a. P145,000.00 c. P 31,666.67
b. P125,000.00 d. P 25,000.00

Question 1: Answer: B
Question 2: Answer: D
Question 3: Answer: D
Reference: Section 5.2, Revenue Regulations No. 12-99
Tax per return p 100,000
Add: Surcharge for filing with a wrong venue
(PlOO,OOO X 25%) . 25.000
Total p 125,000
Less: Amount already paid 100 000
Amount still due

24. The taxpayer did not file his income tax return for the calendar year
1997 which was due for filing on April 15, 1998. He was notified by
the BIR of his failure to file the tax return, for which reason, he filed
his tax return and paid the tax, only after the said notice, on
June 30, 1999. The tax due per return was P100,000.
How much is the total amount due excluding suggested compromise
for late filing and late payment of the tax?
a. P199, 155.24 c. P149, 155.24
b. P174, 155.24 d. None of the choices

306
-------------
Chapter 21: Additions to Tax

Answer: B
Reference: Section 5.3, Revenue Regulations No. 12-99
Income tax due per return p 100,000.00
Add: Surcharge for willful neglect to file
the return and late payment of
tax (Pl 00.000 X 50'%) p 50,000.00
Interest in delinquency 24 155.24 74 155.24
Total amount due
Computation of interest
April 15, 1998 to April 15, 1999 (1 year)
(P100,000 X 20%,) p 20.000.00
April 15, 1999 to ,June 15, 1999 (2 months)
(PlOO,OOO X 20/c, X 2/ 12) 3,333.33
,June 15, 1999toJune30, 1999(15days)
(PlOO,OOO X 20'/r, X 15/365) 821.91
Total

25. (Adapted) Taxpayer filed on time his income ta.x return for calendar
year 1997 and paid PlOO,OOO on April 15, 1998. Upon pre-audit of
his return, it was disclosed that he erroneously computed the tax
due. The correct amount of tax due was Pl20,000. The taxpayer
was assessed for deficiency income tax in a letter of demand and
assessment notice issued on June 30, 1999.
Question 1 -How much was the surcharge?
a. P 50,000.00 c. P 20,000.00
b. P 25,000 d. None.

Question 2 - How much was the interest on deficiency?


a. P 4,831.05 c. P 24,155.25
b. p 4,833.33 d. p 28,986.30

Question 3 - How much vvas the total amount still due?


a. P 124,831.05 c. P 24,833.33
b. P104,831.05 d. P 24,831.05

307
Chapter 21: Additions to Tax

Question 1: Answer: D
Question 2: Answer: A
Question 3: Answer: D
Reference: Section 5.4, Revenue Regulations No. 12-99

Tax due per assessment p 120,000.00


Tax per return 100 000.00
Deficiency income tax p 20,000.00
Add: Interest on deficiency
(Aprill5, 1998 to ,June 30, 1999) 4,831.05
Amount still due
Computation o( interest
April 15, 1998 to April 15, 1999 (1 year)
(P20,000 X 20%) p 4,000.00
April15, 1999 to June 15, 1999 (2 months)
(P20,000 X 20% X 2/ 12) 666.67
,June 15, 1999 to June 30, 1999 (15 days)
(P20,000 X 20% X 15/365) 164.38
Total

26. (Adapted) ABC Corporation filed its income tax return for calendar
year 1997 and paid its income tax on time shown thereunder,
amounting to PlOO,OOO. Said taxpayer was investigated.
Upon verification of its accounting records, it was disclosed that its
deduction from gross income of representation expenses in the
amount of P200,000 did not meet all the statutory requisites for
deductibility. The corporation was duly notified of the said
discrepancy through a Preliminary Assessment Notice. Based on the
35'Yo income tax rate on corporations applicable in the year 1997,
the income tax due after investigation amounted to P170,000 after
deduction of income tax paid per return filed, the basic deficiency
income tax amounted to P70,000, excluding penalties. Failing to
protest on time against the preliminary assessment notice, a formal
letter of demand and assessment notice was issued on May 31, 1999,
requiring payment of the assessment not later than June 30, 1999.
Question 1 - How much was the surcharge?
a. P 50,000.00 c. P 17,500.00
b. P 25,000.00 d. None

Question 2- How much was the interest on deficiency?


a. P 24,155.25 c. P 16,908.67
b. P 16,916.66 d. None

Question 3- How much was the total amount still due?


a. P 124,155.25 c. P 86,908.67
b. P116,916.66 d. P 70,000.00

308
-------------------------~-
Chapter 21: Additions to Tax

Question 1: Answer: D
Question 2: Answer: C
Question 3: Answer: C
Reference: Section 5.4 Revenue Re ulations No. 12-99
Tax due per investigation p 170,000.00
Tax per return 100 000.00
Deficiency income tax p 70,000.00
Add: Interest on deficiency
(April 15, 1998 to .June 30, 1999) 16 908.67
Amount still due p .. 86,908.67

Computation of in I Prest
April 15, 1998 to April 15, 1999 (1 year)
(P70,000 X 20'Yr,) p 14,000.00
April15, 1999 to .June 15, 1999 (2 months)
(P70,000 X 20'Yo X 2/ 12) 2,333.33
,June 15, 1999 to June 30, 1999 (15 days)
(P70,000 X 20'Yr, X 15/365) 575.34
Total

27. (Adapted) XYZ Corporation filed its income tax return for calendar
year 1997 with a net taxable income of P500,000. At the applicable
income tax rate of 35% for the year 1997, its income tax amounted to
Pl75,000. However, upon investigation, it was disclosed that its
income tax return w'as false or fraudulent because it did not report a
taxable income amounting to another P500,000. On its net income of
P1,000,000, per investigation, the income tax due is P350,000.
Deducting its payment per return filed, tbe deficiency, excluding
penalties, amounted to P175,000. [twas duly informed of this
finding through the Preliminary Assessment Notice. Failing to protest
on time against the preliminary assessment notice, a formal letter of
demand and assessment notice was issued on May 31, 1999 calling
for payment of the deficiency income tax on or before June 30, 1999.
Question 1 - How much \vas the surcharge?
a. P 175,000.00 c. P 43,750.00
b. P 87,500.00 d. None

Question 2 - How much was the interest on deficiency?


a. P 84,543.38 c. P 42,271.69
b. P 42,291.66 d. None

Question 3- How much was the total amount due?


a. P304, 771.69 c. P261 ,041.66
b. P262,500.00 d. P261,021.69

--------------
-_j
Chapter 21: Additions to Tax

Question 1: Answer: B
Question 2: Answer: C
Question 3: Answer: A
Reference: Section 5.4, Revenue Regulations No. 12-99
Deficiency income tax P175,000.00
Add: Surcharge for filing false or
fraudulent return (P175,000 X 50/c,) 87,500.00
Interest on deficiency
(April 15, 1998 to June 30, 1999) 42,271.69 129,771.69
Total amount due

Computation of interest
April15, 1998 to April 15, 1999 (1 year)
(P1 75,000 X 20%) p 35,000.00
April16, 1999 to June 15, 1999 (2 months)
(P175,000 X 20% X 2/ 12) 5,833.33
June 15, 1999 to June 30, 1999 (15 days)
(P175,000 X 20% X 15/365) 1 438.36
Total P_4:_?.271._62

28. (Adapted) Using the same data in the preceding number, assume
that the calendar year 1997 deficiency income tax assessment
against XYZ Corporation was not paid by June 30, 1999, the deadline
for payment of the assessment and assume further that this
assessment had already become final and collectible. The corporation
paid its tax assessment only by July 31, 1999.
Question 1 - How much was the surcharge?
a. P 152,385.85 c. P 60,954.34
b. P 76,192.92 d. None

Question 2- How much was the interest on deficiency?


a. P 5,079.53 c. P 5,000.00
b. P 5,009.95 d. None.

Question 3- How much was the total amount due excluding


suggested compromise penalty for late payment?
a. P462,237.07 c. P385,974.56
b. P386,044.14 d. P380,964.61

310
Chapter 21: Additions to Tax

Question 1: Answer: B
Question 2: Answer: A
Question 3: Answer: B
Reference: Section 5.5, Revenue Regulations No. 12-99
Total amount due P304,771.69
Add: Surcharge for late filing
(304,771.69 X 25%) P76,192.92
Interest on delinquency
(June 30; 1999 to July 31, 1999)
(304,771.69 X 20% X 1/12) 5 079.53 81,272.45
Total amount due P386 044.14

29. (Adapted) DEF Corporation due to financial incapacity, requested


that it be allowed to pay its income tax liability per return for
calendar year 1998, in the amount of Pl,OOO,OOO in four (4) monthly
installments, starting April 15, 1999. Its request had been duly
approved pursuant to Sec. 53 of the Tax Code.
Question 1 -How much was the amount due on April 15, 1999?
a. P262,500.00 c. P254, 166.67
b. P258,333.33 d. P250,000.00

Question 2- How much was the amount due on May 15, 1999?
a. P262,500.00 c. P254, 166.67
b. P258,333.33 d. P250,000.00

Question 3- How much was the amount due on June 15, 1999?
a. P2625,00.00 c. P254, 166.67
b. P258,333.33 d. P250,000.00

Question 4- How much was the amount due on April 15, 1999?
a. P262,500.00 c. P254, 166.67
b. P258,333.33 d. P250,000.00

311
Chapter 21: .Additions to Tax

Question 1: Answer: D
Question 2: Answer: A
Question 3: Answer: B
Question 4: Answer: C
Reference: Section 5.6, Revenue Regulations No. 12-99

1. Amount due, April15, 1999 (P1,000,000/4)

2. Tax due p 1,000,000


Less: Payment, April15, 1999 ( 250 000)
Balance p 750.000
Add: Interest on extended payment
(April 15 to May 15, 1999)
(P750,000 X 20'1<, X 1/12) ------"J--'=2 '500
Total Ll_f22~5QO

Installment due p 2.50,000


Add: Interest on extended payment 12 500
Amount due, May 15, 1999

3. Total P762,500.00
Less: Payment, April15, 1999 ( ?6? 500.00)
Balance 500,000.00
Add: Interest on extended payment
(May 15, 1999 to ,June 15, 1999)
(PSOO,OOO X 20%, X 1 I 12) 8 333.33
Total f~Q_~,3_3;3_.33

Installment due P250,000.00


Add: Interest on extended payment g 333.33
Amount due, May 15, 1999

4. Total P508,333.33
Less: Payment, April15, 1999 ( 258.333.33)
Balance 250,000.00
Add: Interest on extended payment
(P250,000 X 20'Yo X 1/ 12) 4 166.67

Amount due, July 15, 1999 f'254,,1~67

312
Chapter 21: Additions to Tax

30. (Adapted) GHI Corporation did not file its final adjustment income
tax return for the calendf'lT year 1998 which was due on
April 15, 1999. The BIR informed the corporation of its failure to file
its said tax return and required that it file the same, inclusive of the
25% surcharge and 20% interest per annum penalties incident to the
said omission. On May 15, 1999, it advised the corporation that its
income tax due for the said year amounted to P1,000,000.
The corporation due to its adverse financial condition at the moment
informed the Commissioner that it would be unable to pay the entire
amount, inclusive of the delinquency penalties. Hence, on
May 15, 1999, it made a partial payment of P400,000. Assuming
that the BIR demanded payment of the unpaid balance of its tax
obligation payable by June 15, 1999, how much was the amount still
due exclusive of the suggested compromise penalty for late filing and
late payment?
a. P 881, 111. 11 c. P762,500.00
b. P866,666.67 d. None of the choices

Answer: A
Reference: Section 5.6, Revenue Regulations No. 12-99

Tax due Pl ,000,000.00


Add: Surcharge for late payment
(P1 ,000,000 X 25'X) P250,000.00
Interest on delinquency
(April 15,1999 to May 15, 1999)
(Pl,OOO,OOO X 20% Xl/12) 16 666.67 266 666.67
Total 1,266,666.67
Less: Payments 400 000.00)
Balance 866,666.67
Add: Interest on deficiency
(May 15, 1999 to ,June 15, 1999)
(P866,666.67 X 20'Y, X I /12) 14 444.44
Amount still due E88L_1J).ll

31. (Phil. CPA Modified) Mr. Juan Kuan filed his donor's ta.X return and
paid the tax thereon in the amount of P100,000 on July 15, 2001.
The date of donation was March 16, 2001.
How much was the total penalties in the form of interest
collectible from him?
a. P 105,000 c. P5,000
b. P 100,000 d. None

Answer: C

Interest on delinquency
(April 15, 2001 to July 15, 2001)
(PlOO.OOO X 20'Yu X 3/12)

313
Chapter 21: Additions to Tax

32. (Phil. CPA Modified) Mr. Nama Thay died on October 15, 1999.
The administrator of the estate filed the estate tax return and paid
the tax shown thereon in full on April 15, 2000. In February, 2001,
the administrator received an assessment notice and demand from
the BIR to pay deficiency estate tax of P20,000 on or before
April 15, 2001.
How much was the total amount of tax payable as shown in the
assessment notice?
a. P 24,000 c. P 4,000
b. P 20,000 d. None of the choices

Answer: A

Deficiency estate tax p 20,000


Add: Interest on deficiency
(April 15, 2000 to April 15, 2001)
(P20,000 X 20'%) 4 000
Total amount of tax payable per assessment

33. A taxpayer did not file his monthly VAT declaration for the month of
January, 2002, which was due for filing on February 20, 2002.
He was notified by the BIR of his failure to file the declaration, for
which reason, he filed his declaration and paid the tax only after the
said notice on June 30, 2003. The tax due per monthly VAT
declaration was P100,000.
How much was the total amount due on June 30, 2003?
a. P 172,222.23 c. P 100,000.00
b. P 177,214.62 d. None of the choices

Answer: B
Tax per return P100,000.00
Add: Surcharge for willful neglect
to file return ( 100,000 X 50%) p 50,000.00
Interest on deficiency (Feb. 20,
2002 to ,June 30, 2003) 27,214.62 77 214.62
Total amount due P17G_214.62

Computation of interest
Feb. 20,2002 to Feb. 20,2003 (1 yea~
(PlOO,OOO X 20%) p 20,000.00
Feb. 20, 2003 to June 20, 2003 (4 months)
(PlOO,OOO X 20% X 4/12) 6,666.67
June 20, 2003 to June 30, 2003 (10 days)
(P100,000 X 20% X 10/365) 547.95
Total p 27.214.62

314
Chapter 22
REMEDIES IN GENERAL
(Authority of the Commissioner to Compromise
Tax Payments, Abate or Cancel Tax Liability
. and Refund or Credit Taxes)
<To surrcecf... you neca to fina sometfiing to fioM on to,
sometfiing to motz".vate you, sometfiing to inspire you. - 'Tony :Dorsett

Multiple Choice: Choose the best possible answer.

1. Except for the provision in Section 222, internal revenue taxes shall
be assessed within how many years after the last day prescribed by
law for the filing of the return?
a. Five (5) years c. Three (3) years
b. Four (4) years d. Two (2) years

Answer: C
Reference: Section 203, NIRC, as amended

2. First statement: In cases where a return is filed beyond the period


prescribed by law, the three (3)-year period shall be counted from
the day the return was filed.
Second statement: A return filed before the last day prescribed by law
for the filing thereof shall be considered as filed on such last day.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
Reference: Section 203, NIRC, as amended .
~

I
Section 203. Period of Limitation Upon Assessment and
Collection. - Except as provided in Section 222, internal revenue taxes
shall be assessed within three (3) years after the last day prescribed by
law for the filing of the return, and no proceeding in court without
assessment for the collection of such taxes shall be begun after the .

expiration of such period: Provided, That in a case where a return is 1


1

filed beyond the period prescribed by law, the three (3)-year period shall I'

be counted from the day the return was .filed. For purposes of this
Section, a return filed before the last day prescribed by law for the filing I
thereof shall be considered as filed on such last day. I

315
Chapter 22: Remedies in General

3. A decedent dies on January 1, 2009. The estate tax return is filed on


September 1, 2009. When is the last day to make a valid
assessment?
a. April 15, 2010 c. July 1, 2012
b. July 1, 2009 d. September 1, 2012

Answer: D
The due date for filing the estate tax retum in this case is July 1, 2009
(within 6 months after death.) Since the retum is filed on September 1,
2009 which is beyond the period prescribed by law, the three (3)-year
period shall be counted rom the da the retum is iled.

4. A donation was made on March 14, 2009. The donor's tax return
was filed on March 31, 2009. When is the last day to make a valid
assessrrien t?
a. March 14, 2012 c. April 14, 2012
b. April 13, 2012 d. September 14, 2012

Answer: B
The due date for filing the donor's tax retum in this case is April 13, 2009
(within 30 days after the date of donation.) Since the retum is filed
before the due date prescribed by law, it shall be considered as filed on
such due date. Hence, the 3-year period will be counted from the due
date.

5. (Phil. CPA) As a general rule, the prescriptive period for assessment


of a return filed after the date the return was due or was filed,
whichever is later, is within:
a. three (3) years. c. ten ( 10) years.
b. five (5) years. d. fifteen (15) years.

Answer: A

6. The Commissioner of Internal Revenue has the authority to do all of


the following except:
a. compromise the payment of any internal revenue tax.
b. cancel or abate tax liability.
c. credit or refund tax.
d. review the decisions of the Court of Tax Appeals.

Answer: D
Reference: Section 204, NIRC as amended

316
------- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Chapter 22: Remedies in General

7. The Commissioner may compromise the payment of any internal


revenue tax, when:
I -there is a reasonable doubt as to the validity of the claim
against the taxpayer
II - the financial position of the taxpayer demonstrates a clear
inability to pay the assessed tax.
a. Both I and II are correct c. Only I is correct
b. Both I and II are incorrect d. Only II is correct

Answer: A
Reference: Section 204 (A), NIRC, as amended

8. (Phil. CPA) The Commissioner of Internal Revenue cannot:


a. abate or cancel tax liability.
b. compromise payment of internal revenue taxes.
c. credit or refund taxes erroneously or illegally collected.
d. compromise the criminal aspect of tax violations already filed
in court.

Answer: D
Reference: Section 204 (A) and B), NIRC, as amended
All criminal violations may be compromised except: {a) those already
led in court, or (b those involvin raud.

9. Which of the following cases may not be compromised?


a. Delinquent accounts
b. Cases under administrative protest after issuance of the Final
Notice of Assessment to the taxpayer still pending in the BIR
c. Civil tax cases being disputed before the courts
d. Criminal violations involving criminal tax fraud.

Answer: D
Reference: Section 2, Revenue Regulations No. 30-2002
The following cases may, upon taxpayer' compliance with the basi$ set
forth under Section 3 of Revenue Regulations No. 30-2002, be the
subject matter of compromise settlement, viz:
1). Delinquent accounts;
2). Cases under administrative protest after issuance of the Final
Notice of Assessment to the taxpayer which are still pending in the
Regional Offices, Revenue District Offices, Legal Service, Large
Taxpayer Service (LTS), Collection Service, Enforcement Service and
other offices in the National Office;
3). Civil tax cases being disputed before the courts;
4). Collection cases filed in courts;
5). Criminal violations, other than those already filed in court or those
involving criminal tax fraud.
Chapter 22: Remedies in Genral

10. Which of the following cases may not be compromised?


a. Withholding tax cases
b. Delinquent accounts with duly approved schedule of
installment payments
c. Estate tax cases \\here compromise is requested on the
ground of financial incapacity of the taxpayer
d. All of the choices.

Answer: D

~
Reference: Section 2~ Revenue Regulatio!!~--~o. 30-2002 _
1
Section 2. Cases which may be compromised. The following cases i
may, upon taxpayer' compliance ruith the basis .set forth under Section J !
f Reuenue Regulutions No ..30-2002, be the subjf'ct matter of
ompromise settlement, uiz:
1 1. ~nx
I XXX
5. X.XX

Exceptions:
(1) withholding tax cases, unless the applicant-taxpayer invokes
I provision of law that cost doubt on the taxpayer's obligation to

~ ;:
withhold;
Cn"rninal tax fraud cases confirmed as such by the Commissioner of
lntenwl Rezwnue or his duly authorized representatiue;
Cn"minal violations already filed in court;
(4) Delmquent account with duly approved schedule of installment
payments:
(5) Cases where final reports of reinvestigation or reconsideration have
I been issued resulting to reduction in the on"ginal assf'ssment and
the taxpayer is agreeablE' to such decision by signing the required
I agreement fonn for the purpose;
I (6) Cases which become final and executory after final judgment of a

l( 7;
court, where compromise is requested on the ground of doubrj!Jl
validity ofthe assessment;
Estate tax cases where compromise is requested on the ground
financial incapacity of_the taxpaye!_._~~- -n--~-~-----.--1
of
,
I

1 1. Which of the following offer to compromise a disputed assessment


may be accepted on the ground of reasonable doubt as to the validity
of the assessment?
a. Jeopardy assessment
b. Arbitrary assessment based on presumption
c. Assessment issued on or after Jarmarv 1, 1998 \Yhere
demand notice allegedly failed to comply with formalities
prescribed in the Tax Code
d. All of the choices

318
Chapter 22: Remedies in General

Answer: D
Reference: Section 3, Revenue Regulations No. 30-2002
I Section 3. Basis for acceptance of compromise settlement. - The
Commissioner may compromise the payment of any internal revenue tax
on the following grounds:
1. Doubtful validity of the assessment. - The offer to compromise a
delinquent account or disputed assessment on the ground of
reasonable doubt as to the validity ofthe assessment may be
accepted when it is shown that:
a) The delinquent account or disputed assessment is one resulting
from a jeopardy assessment; or
b) The assessment seems to be arbitrary in nature, appearing to be
based on presumption and there is reason to believe that it is
lacking in legal and/ or factual basis; or
c) The assessments were issued on or after January 1, 1998, where
the demand nrJtice allegedly [ailed to comply with formalities
prescribed in the Tax Code; or
d) Assessments made based on the "Best Evidence Obtainable Rule"
and there is reason to believe that the same can be disputed by
sufficient and competent evidence; or
e) The assessment was issued within the prescriptive period [or
assessment as extended by the taxpayer's execution of Waiver of
the Statute of Limitations the validity or authenticity of which is
being questioned or at issue and there is strong reason to believe
and evidence to prove that it is not authentic; or
f) The assessment is based on an issue where a court of competent
jurisdiction made an advance decision against the Bureau, but for
which the Supreme Court has not decided upon withfinality (RR
No. 8-2004); or
g) The taxpayer [ailed to file an administrative protest on account of
the alleged failure to receive notice of assessment and there is
reason to believe that the assessment is lacking in legal and/ or
factual basis; or
h) The taxpayer [ailed to file a request [or reinvestigation or
reconsideration within 30 days from receipt of final assessment
notice and there is reason to believe that the assessment is lacking
in legal and/ or factual basis; or
i) The taxpayer [ailed to elevate to the Court of Tax Appeals {CTA/ an
adverse decision o[the Commissioner o[Intemal Revenue, or his
duly authorized representative, in some cases, within 30 days from
receipt of such adverse decision and there is reason to believe that
the assessment is lac kin in le al and/ or actual basis

319
Chapter 22: Remedies in General

12. Which of the follov:ing offer to compromise a delinquent account shall


be accepted on the ground of reasonable doubt as to the validity of
the assessment?
a. The taxpayer failed to file an administrative protest on
account of the alleged failure to receive notice of assessment
b. The taxpayer failed to file a request for reinvestigation or
reconsideration within 30 days from receipt of final
assessment notice
c. The taxpayer failed to elevate to the Court of Tax Appeals
(CTA) an adverse decision of the Commissioner of Internal
I~evenue
d. All of the choices

Answer: D
Reference: Section 3, Revenue Regulations No. 30-2002

13. What is the technical term for a tax assessment made by an


authorized Revenue Officer (RO) without the benefit of complete or
partial audit, in light of the RO's belief that the assessment and
collection of a deficiency tax \vill be jeopardized by delay caused by
the taxpayer's failure to comply v;ith audit and investigation
requirements to present his books of accounts and/ or pertinent
records, or substantiate all or any of the deductions, exemptions or
credits claimed in his return'?
a. Jeopardy assessment
b. Arbitrary assessment based on presumption
c. Assessment issued on or after January 1, 1998 \\here
demand notice allegedly failed to comply with formalities
prescribed in the Tax Code
d. Assessment made based on "Best Evidence Obtainable Rule"

Answer: A
Reference: Section 3. 1 (a), Revenue Regulations No. 30-2002

14. Which of the following offers to compromise a disputed assessment


on the ground of reasonable doubt as to the validity of the
assessment may be accepted?
a. Assessment made based on "Best Evidence Obtainable Rule"
b. Assessment issued within the prescriptive period for
assessment as extended by the taxpayer's execution of the
Waiver of the Statute of Limitations
c. Assessment based on an issue where a court of competent
jurisdiction made an advance decision against the BIR, but for
which the Supreme Court has not decided upon with finality
d. All of the choices

320
Chapter 22: Remedies in General

Answer: D
Reference: Section 3, Revenue Regulations No. 30-2002
as amended by Revenue Regulations No. 8-2004

15. The offer to compromise based on financial incapacity may be


accepted upon showing the following, except when:
a. the corporation ceases operation or is already dissolved.
b. the taxpayer is suffering from surplus or earnings deficit
resulting to impairment in the original capital by 50%.
c. the taxpayer is a compensation income earner with no other
source of income and the family's gross monthly
compensation income does not exceed Pl 0,500, if single, or
P21,000, ifmarried.
d. the taxpayer does not waive in writing his privilege of the
secrecy of bank deposits.

Answer: D
Reference: Section 3. 2, Revenue Regulations No. 30-2002
offer to compromise based on financial incapacity may be accepted
n showing that:
The corporation ceased operation or is already dissolved;
, 2) The taxpayer is suffering from surplus or earnings deficit resulting to
impairment in the original capital by at least 50%; 1
I 3) The taxpayer is suffering from net worth deficit, and in case of an
1
I
individual taxpayer he has no leviable/ distrainable assets other than
family home; I
4) The taxpayer is a compensation income earner with no other source of
income and whose monthly salary is PlO,SOO or less, if single, or
P21, 000 or less, if married, and has no leviable/ distrainable assets
other than family home;
5) The taxpayer has been declared by any competent tribunal or
authorit or bod or overnment a enc as bankru t or insolvent.

16. The Commissioner shall not consider any offer for compromise
settlement on the ground of financial incapacity under the following
situations, except when:
a. the taxpayer has Tax Credit Certificate issued, on hand, or in
transit.
b. the taxpayer has a pending claim for tax refund or tax credit
with the BIR, Department of Finance One-Stop Shop Tax
Credit and Drawback Center and/ or other courts.
c. the taxpayer has an existing finalized agreement or prospect
of future agreement with any party that resulted or could
result to an increase in the equity of the taxpayer at the time
of the offer for compromise or at a definite future time.
d. the taxpayer is suffering from a net worth deficit.

321
Chapter 22: Remedies in General

Answer: D
Reference: Section 3. 2, Revenue Regulations No. 30-2002
The Commissioner shall not consider any offer for compromise settlement
on the ground offinancial incapacit!d under the following situations:
1) Taxpayer with Tax Credit Certificate (TCC) issued, on hand, or in
transit;
2) Taxpayer with pending claim [or tax refund or tax credit with the BIR,
Department of Finance One-Stop-Shop Tax Credit and Drawback Duty
Center (Tax Revenue Group or Investment Incentive Group) and/ or the
court;
3) Taxpayer with existing finalized agreement or prospect of future
agreement with any party that resulted or could result to an increase
in the equity of the taxpayer at the time of the offer for compromise or
at a definite future time;
4) Taxpayer does not waive in writing his privilege of the secrecy of bank
deposits.

17. For cases involving financial incapacity, which of the following is not
subject to 10% compromise rate based on the basic assessed tax?
a. Taxpayer is an individual whose sole source of income is from
employment, and whose monthly salary is P10,500 or less, if
single, and P21 ,000 or less, if married
b. Taxpayer is an individual without any source of income
c. Taxpayer has a zero net worth or negative net worth
d. Taxpayer is suffering from surplus or earning deficit resulting
in impairment in the original capital by at least 50%

Answer: D
Reference: Section 4, Revenue Regulations No. 30-2002

18. For cases involving financial incapacity, which of the following is not
subject to 20% compromise rate based on the basic assessed tax?
a. Dissolved corporation
b. Already non-operating companies for a period of less than 3
years
c. Already non-operating companies for 3 years or more as of the
date of application for compromise settlement
d. Taxpayer is declared insolvent or bankrupt

322

------------------ ----------- --
Chapter 22: Remedies in General

Answer: C
Reference: Section 4. 1., Revenue Regulations No. 30-2002
Minimum% of
compromise
(per tax type Basis for Compromise
assessment
basis)
10% 1) Individual whose only source is from employment and
whose monthly salary is ?10,500 or less, if single, or
?21,000 or less, if married, and has no
leviable/ distrainable assets other than family home; I
2) Individual without any source of income;
3) Taxpayer with zero net worth;
4) Taxpayer with negative net worth;
5) Already non-operating companies for a period of 3 years
or more as of date of application for compromzse
settlement
20% 7) Dissolved corporations;
2) Already non-operating companies for a period of less
than 3 years;
3) Declared insolvent, bankrupt. unless the taxpayer falls

~
under any of the cases subject to a different
percentage.
-40% Taxpayer is suffering from surplus or earnings deficit

l resulting to impairment in the original capital by at least


SO%

19. What is the prescribed minimum percentage of compromise in case of


doubtful validity of the assessment?
a. 40% of the basic assessed tax
b. 30% of the basic assessed tax
c. 30% of the basic assessed tax
d. 10% of the basic assessed tax

Answer: A
Reference: Section 4. 2., Revenue Regulations No. 30-2002

323
Chapter 22: Remedies in General

20. First statement: Except for offers of compromise where the approval
is delegated to the Regional Evaluation Board, all compromise
settlements within the jurisdiction of the National Office shall be
approved by the majority of all members of the National Evaluation
Board.
Second statement: All decisions of the National Evaluation Board,
granting the request of the taxpayer or favorable to the taxpayer,
shall have the concurrence of the Commissioner of Internal
Revenue.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
Reference: Section 6, Revenue Regulations No. 30-2002

21. First statement: Offers of compromise of assessment issued by the


Regional Office involving basic deficiency taxes of PSOO,OOO or less
and for minor criminal violations discovered by the Regional and
District Offices, shall be subject to the approval of the Regional
Evaluation Board.
Second statement: If the offer of compromise is less than the
prescribed minimum percentage of compromise settlement, the
same shall be subject to the approval of the National Evaluation
Board.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: A
Reference: Section 6, Revenue Regulations No. 30-2002

22. In which of the following cases shall the compromise be subject to the
approval of the Evaluation Board which shall be composed of the
Commissioner and the four (4) Deputy Commissioners?
I - Where the basic tax involved exceeds One million pesos
(Pl ,000.000)
II -Where the settlement offered is less than the prescribed
minimum rates
a. Neither I nor II c. I only
b. Both I and II d. II only

Answer: B
Reference: Section 204 (A), NIRC, as amended

324
---------------- ----~------ - - -
Chapter 22: Remedies in General

23. The Commissioner of Internal Revenue may abate or cancel a tax


liability, when:
I - the tax or any portion thereof appears to be unjustly or
excessively assessed.
II - the administration and collection costs involved do not justify
the collection of the amount due.
a. Both I and II are correct c. Only I is correct
b. Both I and II are incorrect d. Only II is correct

Answer: A
Reference: Section 204 (B), NIRC, as amended

24. The following are instances when penalties and/ or interest imposed
on the taxpayer may be abated or cancelled on the ground that the
imposition thereof is unjust and excessive, except when the :
a. filing of the return or payment of the tax is made at the wrong
venue.
b. taxpayer's mistake in payment of his tax is due to erroneous
written official advice of a revenue officer.
c. assessment is brought about or a result of the taxpayer's non-
compliance with the law due to a difficult interpretation of the
said law.
d. taxpayer is declared insolvent or bankrupt.

Answer: D
Reference: Section 2, Revenue Regulations No. 13-2001
Instances when penalties and/or interest imposed may be abated
or cancelled on the ground that the imposition is untust and
excessive"
1) When the filing of the retum/ payment is made at the wrong venue;
2) When the filing ofthe retum/payment of his tax is due to erroneous
written official advice of a revenue officer;
3) When the taxpayer fails to file a retum and pay the tax on time due
substantial losses from prolonged labor dispute, force majeure or
legitimate business reverses;
Note: In no. 3) above the abat~ment shall only cover the surcharge
. and the compromise penalty and not the interest.
4) When the assessment is brought about or the result of the taxpayer's
non-compliance with the law due to a difficult interpretation of the said
law;
5) When the taxpayer Jails to file the retum and pay the correct tax on
time due to circumstances beyond his control, provided however, that
abatement shall cover only the surcharge and the compromise penalty
and not the interest;
6) Late pa ment of the tax under meritorious circumstances.

325
Chapter 22: Remedies in General

25. In which of the following instances may the interest imposed be


abated or cancelled on the ground that the imposition is unjust and
excessive due to substantial losses?
a. Labor strike for more than 6 months, which has c:aused the
temporary shutdown of business
b. Public turmoil
c. Natural calamity such as lightning, earthquake, storm, flood
and the like
d. All of the choices

Answer: D
Reference: Section 2.3, Revenue Regulations No. 13-2001
Instances of substantial losses from prolonged labor dispute,
force majeure or legitimate business reverses:
1) Labor strike for more than 6 months, which has caused the
temporary shutdown of business;
2) Public turmoil;
3) Natural calamity such as lightning, earthquake, storm, flood and
the like;
4) Armed conflicts such as war or insurgency;
5) Substantial losses sustained due to fire, robbery, theft,
embezzlement;
6) Continuous heavy losses incurred by the taxpayer for the last two
(2) years;
7) Liquidity problem of the taxpayer for the last three (3) years;
8) Such other instances which the Commissioner may deem analogous
to the enumeration above.

26. In which of the following instances may the penalties and/ or interest
imposed be abated or cancelled on the ground that the imposition is
unjust and excessive due to meritorious circumstances?
a. One day late filing and remittance due to failure to beat bank
cut-off time
b. Use of wrong tax form but correct amount of tax was remitted
c. Surcharge erroneously imposed
d. All of the choices

Answer: D
Reference: Section 2.6, Revenue Regulations No. 13-2001
Instances of meritorious circumstances:
1) One day late filing and remittance due to failure to beat bank cut-off
time;
2) Use of wrong tax form but correct amount oftax was remitted;
3) Filing an amended return under meritorious circumstances,
provided, however, that abatement shall cover only the penalties
and not the interest;
4) Surcharge erroneously imposed;
5) Late filing ofretum due to unresolved issue on classification or
valuation of real property (for capital gains tax cases, etc.);

326
Chapter 22: Remedies in General

6) Offsetting of taxes ofthe same kind, i.e., overpayment in one quarter


or month is offset against underpayment in another quarter or
month;
7) Automatic offsetting of overpayment of one kind of withholding tax
against the underpayment of another kind;
8) Late remittance of withholding tax on compensation of expatriates
for services rendered in the Philippines pending the issuance by the
SEC of the license to the Philippine branch office or subsidiary,
provided, however, that the abatement shall only cover the
surcharge and the compromise penalty and not the interest;
9) Wrong use of Tax Credit Certificate (TCC) where Tax Debit Memo
(TDM) was not properly applied for;
10) Such other instances which the Commissioner may deem analogous
to the enumeration above.

27. In which of the following instances shall the compromise not cover
the interest on the ground that the imposition thereof is unjust and
excessive?
a. When the taxpayer fails to file a return and pay the tax on
time due to substantial losses from prolonged labor dispute,
force majeure, or legitimate business reverses
b. When the taxpayer fails to file the return and pay the correct
tax on time due to circumstances beyond his control
c. Late remittance of withholding tax on compensation of
expatriates for services rendered in the Philippines pending
the issuance by SEC of the license to the Philippine branch
office or subsidiary
d. All of the choices

Answer: D
Reference: Section 2, Revenue Regulations No. 13-2001
Instances where interest is not abated
1) When the taxpayer fails to file a ;~tum and pay the tax on time due
to substantial losses from prolonged labor dispute, force rr~:a)eure or
legitimate business reverses;
2) When the taxpayer fails to file the return and pay the correct tax on
time due to circumstances beyond his control;
3) Filing an amended return under meritorious circumstances;
4) Late remittance of withholding tax on compensation of expatriates
for services rendered in the Philippines pending the issuance by the
SEC of the license to the Philippine branch office or subsidiary.

327
Chapter 22: Remedies in General

28. The following are instances when the tax liabilities, penalties and/ or
interest imposed on the taxpayer may be abated or cancelled on the
ground that the administration and collection costs are more than
the amount sought to be collected, except:
a. assessment confirmed by lower court but appealed by the
taxpayer to a higher court.
b. withholding tax assessment and on delayed installment
payment under meritorious cases.
c. delayed installment payment under meritorious cases.
d. none of the choices.<