Tax 2_tabag_q&a

Estate Wrcr Succession it is 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 will or by operation of law (Alt. 774, Civil Code 'of the Philippines). TYPES:

Ertithe TTA:. Kinds of Heirs Compulsory Heirs. They inherit with or without a will. I.)

Primary Compulsory Heirs 0 0 0

Secondary Compulsory Heirs In default of legitimate children and descendants, legitimate parents O

•

Testamentary. That which results from the designation of an heir, inade in a will execilted in the form prescribed by law.

and ascendants IA The compulsory heirs are entitled to their legibme, with or without a will, unless validly "die-inherited".

Legtal or Intestate. That which is effected by operation of law or transmission of properties where 0 There IS no will; or If there is a • will, the same is void or lost its validity, of nobody 0 succeeds in the will. Mixed. That whichiis effected parliV by a will or by operation of law.

Voluntary Heirs. They inherit only if they are in the will. Intestate Heirs The compulsory heirs in testamentary succession are also heirs in intestate succession. They are entitled to their legibme. However, as to the free portion of the estate, it shalt be distributed to the following intestate heirs as follows (order of priority):• ' a. Legitimate children Legitimate parenta Illegitimate children Spouse • Brothers or sisters • Relatives by consanguinity up to Sth civil degree State

Efii The value of obligations that ma be transferred from the decedent to his/bet heir(s) should not exceed the value of the properties and rights (inheritance) tfansferred. WILL- an act whereby a person is permitted with the formalities prescribed by law, to control to a certain degree the disposition of his estate, to.take effect after his death (Art. 783, CCP) from the moment of the death of the decedent, the rights to the succession are- transmitted, and'the possession of the hereditary property is deemed transmitted toithe -heir (Art. 777, CCP). Cr

Legitimate children and descendants Illegitimate children Widow or widower

•

Kinds of Wills:

Notarial or Ordinary chAtte.Sted; YVill — is one which:IS, executed in accordance with the formalities prekribed;by PA 804th 808 of the 3wOvil Code. It is a will that is created for the testator, by .a third party Usually his lawyer, follows proper form, tigniad and dated in front of the required number of witnesses (3 or more witnesses),and acknowledged by the presence of a .n6tary public. . . Holographic Will-is a written .will which must be :entirely written; dated and signed by the hand of the testator himself, without the necessity Of any witness. This kind of will does not need formalities because many people can recognize his handwriting and it can be verified bya penmanship expert. Codicil — a supplement or addition to a will, made after the execution of a will and annexed to be taken as a part thereof, by which any disposition made in the original will is explained, added to or altered. • Elements of Succession Succession takes place if the following elerhents are present: DECEDENT - the person whose prciperty. ikiransmitted through succession, whether or not he left a will (Art. 775, CCP). HEIR - the person called to the succession either by the provision of a will or by operation of law (Art. 782, CCP). ESTATE - refers Li all the property, rights and obligations of a person which are not extinguished by his death (Art. 776, CCP). Decedent's Estate LEGITIME is the portion of the testator's property which could not be disposed of freely because the law has reServed it for the compulsory heirs. (Art. 886, CCP). FREE PORTION is that part of the whole estate which the testator could dispose of freely through written will irrespective of his relationship to the recipient.

366

Legitime divide by the number of LC, whether they survive alone or with concurring compulsory heir (CH) 1 LC SS 2 or more LC LC SS IC LPA LPA IC LPA SS LPA SS IC IC SS IC SS IP IP My child IP SS

'A 'A 'A Equal to 1 LC

%of 1 LC 'A 'A 'A 'A 1/S 1/4 1/2 1/3 1/3 1/2 'A Excluded It depends

'A 'A

All the concuning CH get from the half free portion, the share of the SS haang preference over that of the IC. whose share may suffer reduction pro-rata because there is no preference among themselves Whether they survive alone or with concurring CH ile succeed in the % in equal shares

ande equally among the IC

1/3 if marriage is in arliculo mortis and deceased spouse dies within 3 months after the marriage Children inherit in the amounts established in the foregoing rules Only the parents of IC are included. Grandparents and other ascendants are excluded.

367

Accovutliti Nleirelitolksattat

dief

7/1,Cdrlfr

36 Assuming the asset above isa capital asset, the capital gains tax payable is 2017 and in 2018 is — R36,000 and PO, respectively P7,500 and P18,000, respectively PO and P36,000, respectively •R)8,000 and P7,500, respectively • Answer: B 4 Capital gains tax (CGT) 2017 = P125,000 x 6% = 7,500 0

PART 9

ti cede 74 TRANSFER TAXES

Capital gains tax (CGT) 2017.= P25,000 x 12 x 6% = 18,000

Transfer taxes are taxes imposed upon the gratuitous disposition of private properties or rights. Gratuitous transfer "is one that - neither imposeS burden nor requires consideration from transferee or recipient. The transfer of ownership is free because of the absence of financial . consideration. Hence; gratuitous transfers are essentially donations. The applicable takes on gratuitous transfers are as follows: . Object of Effectivity • DONATION

Upon .. death of the donor . i During the lifetime of the donor and thb donee

- Taxation moths caina Estate Tax Privilege fo - .- - • • . transfer • inter-NW* Donorls Tax gratultousli -

. - TYPe •

.. • - Tax':

Nature Excise Tax

Estate Tax Estate Tax is a tax imposed on. the privilege that a -person is given in controiling to a certain extent, the disposition of his property to take effectupon death. As shown in the table above, Estate Taxis an excise tax imposed dn the act Of passing the ownership of property at the-time of death arid not on the value of the property or right.

Accruat

It aecrues as of '• the death of- the decedent, notwithstanding :the postponement of the actual. possessionor enjoyment of the estate by the beneficiary. Upon the death • of the decedent, succession -takes place and the right of the "State". to the tax the privilege to transmit the estate vests instantly upon death (RR 2-2003).

Filing of Estate Tax Return: 0 0

Decedent died before 2018: within 6 months after death Decedent died upon/during OffectiVity of TRAIN Law: 1 year from date of death CA The accrual of the tax is distinct froth the obligation to pay the same (filing period) LA Under meritorious cases (to be determined by the BIR), filing of estate tax return may be extended for a period of not more than 30 days

Taxpayer The "estate" of the decedent as fa juridical person, represented by the administrator, executor or legal heirs. • Personal obligabbn to file and pay the applicable taxes: 0 0

Primarily liable: Administrator or executor Secondarily liable: Any of the heirs

Law to be applied. The law/statute in forth as of the date of death of the decedent.

364

365

EStette, TaRMATI

74,

Erlazie 7;(

COMPIlatiat014; ESTATE TAX RATE

SINGLE DECEDENT: GrossrEstate LESS: Ordinary Deductions Spscial Deductions Net Takable Net Estate

Estate Tax Due"' Less: Tax-Crodit Estate Tax Payable -(Prior to 2018: Tax Table) (Beg. Jan. 1.2018: 6%)

IF THE DECEDENT DIED BEFORE 2018 OVER BUT NOT OVER THE TAX SHALL BE P200,000 Exempt P200,000 500,000 PO 2,000,000 15,000 500,000 5,000,000 135,000 2,000,000 10,000,000 465,000 5,000,000 1,215,000 10,000,000

MARRIED DECEDENT: Conj./Comm. Exclusive Total GROSS ESTATE xx xx Real or immovable property xx xx Tangible personal properly xx xx Intangible property xx xx Certain transfersn, xx xx Total xx xx LESS: ORDINARY DEDUCTIONS . ELITe • Funeral Expenses (repealed under TRAIN Law) Judicial Expenses (repealed undet TRAIN Law) Losses (xx) ' Indebtedness or Claims against the estate (xx) Unpaid Taxes , (xx) etc., such as Claim against insolvent persons, (xx) Vanishing Deduction — . •Properly,Relationshi4 cgo, (xx) (xx) Property RelabonshifiNitoP • (xx) 3) Transfer for Public Use (generally exclusive), (xx) (xx) Net Community/Exclusive before special deductions XX LESS: SPECIAL DEDUCTIONS Prior to "MAIN Law: not alloWed to NRA.decedents TRAIN Law: Nags are allowed of Startdaid Deduction 1. STANDARD DEDUCTION -Prior to TRAIN Law: .P1,000,000 TRAIN Law: Citizen/Resider11 decedents - P5M • . NRA decedents - P500.000 2 MEDICAL EXPENSES Prior to TRAIN Law: Maximum of P500,000 TRAIN Law: Repealed FAMILY HOME LI Prior to TRAIN Law: Maximum of P1.0.00,000 CA TRAIN Law: Maximum of P10,000,000 AMOUNT RECEIVED UNDER RA4917 t NET ESTATE before share of the surviving spouse Less: Share of the Surviving Spouse (%el ite net common Aperty before Special Deductions) NET TAXABLE ESTATE Pxx ESTATE TAX DUE (Tax Table or 6%, as the case may- be) Pxx Intangible properties including rights accruing before death, claims against insolvent persons, RA 4917, and receivable as proceeds from life insurance taken out by the decedent. — Refer to certain transfers made before death but will take effect upon death (transfer mortis causa) as well as transfer under general power of appointment, transfers made to (justified charitable organizations and transfer for public purpose.

368

t

PLUS 5% of excess over P200,000 8% of excess over P500,000 11% of excess over P2,000,000 15% of excess over P5,000,000 20% of excess over P10,000,000

IF THE DECEDENT DIED on or after January 1, 2018 60/0 of taxable net estate

GROSS ESTATE • Consists of all properties and interests in properties of the decedent at the time of his death as well as properties transferred during lifetime (only in form), but in substance was only transferred at the time death. 1.

Components of the Gross Estate PROPERTIES EXISTING AT THE TIME OF DEATH SUCH AS: Real property and other tangible Personal Property Decedents interest and Intangibles Decedent's Interest - Refers to the , extent of equity or ownership participation of the decedent on any property physically existing and present in, the gross estate, whether or, not in his poccrecsion, control or dominion. It also refers to the value of any interest in property owned or possessed by the decedent at the time of his -death (interest having value or capable of , being valued, transferred) Intangible Properties considered Located in the Philippines: , Franchise which must be exercised in the Philippines; Shares, obligations or bonds issued by a any corporation or sociedad anonima organized or constituted in the Philippines; SharesObligations or bonds issued by any foreign corporation, at least 85%- of the business of which is located in the Philippines; Shares, obligations, or bonds issued by any foreign corporation if such shares, obligations, or bonds have acquired a business situs (used in the furtherance of its business in the Philippines) in the Philippines; Shares or rights in partnership, business or industry established in the Philippines. c.

Properties transferred gratuitously during lifetime, but in substance, transferred. , upon death: Transfer in contemplation of death - the thought of death must be the Transfer with retention or reseriotion of certain right - allows the transferor to continue enjoying, possessing or controlling the property (beneficial ownership), because only the naked title has been transferred.

369

Ethic- '7;( 3

Revocable transfer - decedent transfers the enjoyment of his property to another, subject to his right to revoke -the transfer at will, with or without notifying the transferee, any time before he dies.

4.

Property passing under General Primer of Appointment (GPA).

't 5.

Transfers for insufficient consideration - sale of property below fair market value (FMV):

6

2.

Amount included in gross estate: PXXX FMV at the time of death Less: Selling Price . • 0000 Included in Gross Estate • PXXX • Proceeds 'from lift insurance - the following are induded in the .gross estate:. . a.• Whether REVOCABLE. or IRREVOCABLE, when. the beneficiary is the:• • • Ettlete of the deceased -• His executor; Or- • Administrator-, , b. When the beneficiary is athird person, only if REVOCABLE.

Exemptions and ExclusionsfrOm Gross Estate a.

b

. UNDER SECTION 85 AND Kick Capital or exclisivetperty of the surviving:spouse - • . - • . • .• Pro.perbesairtaide th ,Philifigffies of anon-resident alien decedent • . • Intawitile:perriolial,gropert.y .:,in the Philippines of a noffiresident alien when the rulerif.RisiprprFitY:aPPIJes.:. . • r' (.., . . UNDER SECTION fd/N1k0 •••• • -. i) 'The mergerbf the usufnia(gi ghb tb use) in the Owner of the naked title. . . . .. 2) The transffilse Hon from the first heir, legatee or donee in favor of another beneficiary in accordance With the will of the -piffi ffecessor. This type of transfer is 1 t commtinly known as "'transfer under Special Power of Appointment (SPA)". 0 GPA vs SPA: . • .. , g GPA = additionto gross estate 0 -- SPA = exclusion from the gross estate . The transmission or delivery of. the inheritance Or legacy of the fiduciary heir or legatee to the faleicomissary.. . o This . is the 'same witkPA above. The only difference is, in fideicomissary transfer, th 'relationship of the donor and donee is only one degree apart (i.e.,frorh a Parent to his/her son) A All bequests, devices, legacies or transfers to social welfare, cultural and charitable institutions, provided: I) No part of the net income of said institutions inure to the benefit of any individual; . 2) Not more than 30% of such transfers shall be used for administration purposes.

370

Estais 7;6 c.

UNDER SPECIAL LAWS Proceeds of life insurance and benefits received by members of the GSIS (RA728). Benefits received by members from the SSS by reason of death (RAI792). Amounts received from Philippine and United States governments for war damages. Amounts received from United States Veterans Administration. Benefits received from the Philippines and US government for damages suffered during World War II (RA227). Retirement benefits of officials/employees of a private firm (RA4917). Payments from the Philippines of US gbvcmment to the legal heirs of deceased of World War II Veterans and deceased civilian for supplies/services furnished to the US and Philippine Army (FtA136) . Proceeds of life insurance under a group insurance taken out by employer (not taken • out upon his life) Transfers by way of bona fide sales • Transfer of property to the National govemment or to any of its political subdivisions. Personal tquity and Retirement Account (PERA) assets of the decedent-contributor (RA No. 9505)

THE COMPOSITION OF THE ESTATE.Ta MAY BE SUMMARIZED AS FOLLOWS: Gross Estate Decedent + Citizen or . Property (Real or Personal)-prOperty wherever • Resident alien situated 2. Intangible personal propertYWherever situated 1 Real property situated in-the Philippines + Nonresident alien 2 •Tangible personal property situated in the Philippines ff • Intangible personal PrqPerW with Silts in the . 'Philippines, unless excluded on the basis of • : reciprocity as described in the•next page. RECIPROCITY CLAUSE -No tax shall be impeded with respect loinlangible personal properties of a NRA situated in the Philippines{ When the foreign country, where such NRA-is a resident and citizen, does not impose tiansfer tax with reipect to intangible personal Properties of Filipino citizens not residing in that country; or When the foreign country imposes transfer taxes, but grants similar exemption with respect to intangible personal properties of Filipino citizens not residing in that country. VALUATION OF GROSS ESTATE In General - fair market value upon death. Personal Properties - Fair market value Real Property - the higher amount between: Fair Market Value Zonal Value Shares of stock Traded in the Local Stock Exchange (LSE) - mean between the highest and lowest quotations nearest the date of death, if none is available on the date of death itself. Not traded in thelocal stock exchange: Common (ordinary) shares - Book value Preferred (preference) shares - Par Value Usufruct - based on latest Basic Mortality Table to he approved by the Secretary of Finance, upon recommendation of the Insurance Commissioner.

371

Etale, rite

Lstithe 7;e.

The Property relationship or marriage settlement Of the spouses shall be determined as follows (order of priority):

Absolute Community of Property (ACoP} 1) Community Properties: All properties owned by the spouses at the time of celebration of the marriage (properties before marriage); or • Acquired thereafter, unless proven otherwise, as well as the fruits or income thereof. Rule on Fruits: "FFS - The Fruit (or income) will follow the Source"

PROPTRTY ItTigtOtalatrIP BETWEETT SPOUSES

1.

2.

3.

BASED eiN AGREEMENT If there was an agreement entered into by the parties before marriage, apply the type of settlement entered into by the parties such as: Absolbte Community of Property (ACoP) Conjugal Partnership of Gains (CPC) Complete Separation

2) ei

Exclusive Properties: Property acquired during marriage by gratuitous title by spouse, as well as the fruits or income thereof. EXCEPTION: unless it is expressly provided by the donor, testator or grantor that

they shall form part of the community property.

BY OPERATIONS OF LAW (New Family Code) In the absence of an agreement, the marriage settlement will depend on the date of marriage as providediunder the law [New Family Code (NFC)) as f011ovvs: Date: Before the effectivity of the NFC (Aug. 3, 1988), apply CPG Date: On or after the effectivity of the NFC (Aug. 3, 1988), apply ACoP

Ruie on Fruits: "?FS - The Fruit (or

income) will follow the Source"

Property for personal and exclusive use of either spouse.

EXCEPTION: jewelry shall form part of the community property. Property acquired before the marriage by either spouse who has legitimate desrondants by the former marriage, and the fruits as well as the income, if any of such property

BY CUSTOMS OR TRADMONB. • Conjugal Partnership of Gains (CPG) Exclusive Properties: That which is brought to the marriage as his or her own (properties before marriage) , That which each acquires, during marriage by gratuitous title; That which is iacquired by right of redemption, by barter, or by exchange with property belonging to any one of the spouses; and• That which•is purchased with eiclusive•money of the Wife or of the husband. Conjugal Properties:. Those acquired by onerous title during marriage at the expense of the common fund, whether the acquisition be for the partnership, or for only one of the spouses; Those obtained from labor, industry, work or profession of either or both spouses; . . . The FRUITS (or income), natural or industrial, or civil, due or received during marriage from common property, as well as the net fruits from the exclusive property of each spouse; Rule on Fruits under CPG: "AFC - ALL Fruits (Or income) are Common" The share of either spouse in the hidden treasure which the law awards to the finder or owner of the property where treasure is found; Those acquired through occupation suchras fishing or hunting; Livestock existing upon dissolution of thee partnership in excess of the number of each kind brought to the marriage by either spouse; and Those are acquired by chance, such as winnings from gambling or betting. However, losses there from shall be borne exclusively by the loser-spouse-

372 •

SUMMARY: -1 2

3

4

' ACoP . CPG PROPERTY Exclusive Common Properties acquired before marriage Properties acquired during marriage Exclusive Exclusive From exclusive property • . Common Common From common property Common Those obtained from labor, industry, work or profession of either • Common or both spouses; From Gratuitous Transfer (inheritance or donation) Exclusive CPG ACoP • Exclusive Generally The idonoritestator expressly provided that it shall form Common part of the community property FRUITS or income on properties: Apply the following rules: ACoP: The Fruit shall follow the source CPG: All Fruits are common Property for personal and exclusive use of either spouse Exclusive Exclusive Generally Common Except JEWELRY under ACoP

ALLOWABLE DEDUCTIONS DEFINED I. Deductions are items wrath the law on estate tax allows, as amended, to be subtracted from the value of the gross estate in order to arrive at the net taxable estate. As a rule, deductions from gross estate are presumed to be common deductions unless specially identified as exclusive. Refer also to the "FORMAT" of computation for married decedents as shown in the preceding pages.

373

Esiai° 7tre T:

Esigic, 7;6, ORDINARY DEDUCTIONS — classified as exdualve or coMmon deduction. I. EXPENSES, LOSSCSS, INDEBTEDNESS, TAXES, etc. (ELITe)

k

Funeral.Ex Uses re • ealed under TRAIN-Law 0 Requisites: . Must be.iiicurred prid to interment; Shetailered bjethre estate; and ,• Ithit'to exteedthe hind sett,/ law; ' 0 Arnftdrit deductible:. Whichever • -Actualfuneral expenses • the lowest -t . 5% Of Gross Estate tP200;0•00.-.•

•I

•

COmPonents of Acttial.Fpnerat,Eirperiset: t; Expensesforthetleoeasetleiwake ltiCILidiri food and drinks; : Publication chattes for death itotthei;" ning relatives • of the Telecommunication expenses Inttirred ihfOrr Cost of burial plot; totribkolies; .inoriiiittent. or mausoleum hit not their upkeep/C1n7Casetthe' deceased &Mrs k family' estate or several burial lots, only the value Corresponding tot:beI:dot Where he is buried is deductible; Interment aniVertrematitinleet and charges; and ' The thoui-nIngcappirel Ofthe'aurvivirig'SPoySe end unmarried minor children kOboOglitlintl.lueeil on the occasion Of.thefiurial;::. 'of be Alrotherexperisti incurred:0 the perfOrMance Of the rites and ceremonies inddent to inteM int. -• t, • "i/ • Focteitth • Meitarial, btanotitt'arndurirrait coered by. the Plan and • p.siid. fromp'ieat4 shall4omi part.of the alltnyablefuneral dperisias„ 3udicial Expen*seS as:t.sata_qi

"

- 1.

0

-of the eState, but•not bethind the ; Mustibe last day prestritiediprthe filing of the 'es:fratze tax'rEtorri (Within 6 months); y -enit of debts or the ,2. mks( be estentiii• io 1.. pam -ft ft .' • disbibution:Of tfie'esoate. ' •• • Amount deductible drienses'incurnad, . • inventory-tiOn9 of,assets conithising the gross estate; • Their administraticin. Payment of debts of the eState ft . • d.. Distribution .otthe estate among the heirs. .

Casualti Losses . . • 0 Requisites:. ,L . . . Incurred during the setdement.of the estate. Settlement period is the period alioWed by law to file ái pay the State tax is follows:, Decedent died before 2018 -within six month's (6) after death' Decedent' died on or after Jan. 1,2018 - within one (1)year after death Arising from fires, storms„ shipwreck, or other casualties, or from robbery, theft or embezzlement; 4 Not compensated by insurance; 4 Not claimed as deduttion fir income tax purposes; Incurred not later then' the last day for the payment of the estate tax. 0' Amount deductible.— the amount deductible is the value of the property lost.

374

,

Claims Against Insolvent Persons • 0 • Requisites: a.. Value of the-claims is induded in the gross estate; and b. The Insolvency of the debtor.must be established. . • 0 Amount deductible — the amount of dalms/receivable that 'Cannot be collected. Indebtedness or Claims Aciainsi the Estate 0 Requisites: Personal debt of the decedent existing.at the time of hisdeath; Contracted In- good Faith; Must be valid in law-and enforceable In tourt; Must not have been condoned-by the 'creditors; Must nothayepresaibed; Substantiabon Requirements: In Case of Simple Loans including AdVartees • . .tcDuly.Notarized Certification froth the creditor as to the unpaid balance of the debt including—interest as,•the date of ,death... The Sworn Certification • • • -• shall be'signed

•

:SIGNATORY CilEbITOR If Ciedit01 is a • Theifliesident; or Corribration • VicOresident; or . .•' • OtheePrinci01 Office of the Corporation - ' If Creditor fs a . • • ..Anx.ritthi4eneral partners ' ' fr9ftnkSiliP f „Creditor:Is Baiik/Siincial

• .flianctil manager of the Bank or Financial Institution : which- Monitors and manages the lidaniCithe decedent-debtor

CU In any.of tthicises abort/8;01e OneTilho should certify. racist not be a relative of the et:amberWithin the fourth civil game, either by cansanguinity or .affinity. IF SAID LOAN IS CON-FRACTEO WITHIN THREE (3) years prior to the death of the-decedent: A Statementkunder Oath executed by the administrator or executor of the estate reflecting the disposition of the proceeds of the loan.

If the unpaid Obligation arose from purchase of Goods or Services: • Pertinent documents evidencing the purchase of goods of service, such as sales invoice, delivery reteipts, official receipts. A Duly Notarized Certification from the Creditor as to the unpaid balance of the debt induding interest as the date of death.

375

Es-tit& 7,;(

1-_,stittic,

The property on which vanishing deduction is being taken must be identified as the one received from the prior decedent, or from the donor, or something acquired in exchange therefore; No vanishing deduction on the property was allowable to the estate of the prior decedent.

The Sworn Certification shall be signed by: CREDITOR SIGNATORY If Creditor is a The President; or • Corporation Vice-President; or Other Principal Office of the Corporation

If Creditor is a • Partnership , If Creditor is a . • Bank/Financial Institution

Any of the general partners

AMOUNT DEDUCTIBLE (PROFORMA COMPUTATION): Value to take (lower between FMV at the time death vs. FMV at the time inheritance or donation) Less: Mortgage paid by present decedent (on mortgaged assumed) Initial Basis (TB) Less: Proportional Deduction [(IB/GE) xI(**ELITe + TFPU)] Final Basis Rate VANISHING DEDUCTION '

Branch manager of the Bank or Financial Institution which monitors and manages the loan of the decedent-debtor

LH In any of the cases above, the one who should certify must not be a relative of the borrower within the fourth civil degiee,- either by consanguinity or affinity.

0

Amount dedUctible — the amount of debt that will qualify in the above requirements.

Unpaid Mortqaoe 0 Requisites: . a. The fair market value Of the mortgaged property undiminished by the mortgage indebtednes.S should be included in the gross estate; Contracted in gocid faith;_and • • For an adequate and full. consideration. 0 Amount Deductible — arnount of -unpaid mortgage. Unpaid Taxes 0 Requisite —the tax 'muse have accrued before the death of thetlecedent 0 Amount deductible +.unoaid taxes that accrued before the decedent's death but not including: Any income tax upon income received after death; •• • Propertytaxes not accrued before death; and Estate taX frorn the transmission of his estate. TRANSFER FOR PUBLIC USE (TFPU) Requisites: O Given to the Government of'the Philippines (National or local); C. Must be testamentary in character; or O By way of donation mortis cauSa executedty the decedent before his death; C. Exclusively for public purpose: Amount deductible — amount of all bequests, legacies, devises; or transfers to or for the use of the Government of the Philippine;j or any of its political subdivisions. E VANISHING DEDUCTION (PROPERTY PFIEVIOUSLY TAXED) Requisites: The decedent died within 5- years from receipt of the property from a prior decedent or donor; The erty is lotated in the Philippines (RECIMERECIEr repealed under TRAIN Lain The property must have formed part of the-taxable estate of the prior decedent or the taxable gift of the donor and the transfer tax relative thereto had been paid;

376

74

PXX (XX) PXX (XX) PXX X% PXX

EU **II the decedent died on or after January 1, 2018, exclude the following in the coniputation of proportional deduction: Funeral expenses 'Repeat( tan&r 0 0 Judicial expensesrivtavolLoy RA I INTERVAL OF ACQUISITION AND DEATH OF 1 LE PRESENT DECEDENT i_ Within I year ' -. , .: . .I ! i More than I: year but not more than 2 years I More than /years but not morethan 3 yeog 1 I I More than 3 years but not more than 4years 1 I More than 4 years but not More than 5 years

; . RATE . 100% 1300/n 60% 40% 20%

SPECIAL DEDUCTIONS •

SUMMARY:

Citizen/Resideht decedent

NRA decedent

Standa riDeduction Prior to TRAIN Law TRAIN Law

PI,000,000 P5,000,000

P500,000

Tamffiy 'Home Prior to TRAIN Law TRAIN Law

P1,000,000 (max) P10,000,000 (max)

Nedical expenses Prior to TRAIN Law RAIN La

Benefits ntfe'r A% 4917

P500 000 (max) e ealed As provided

377

listafr 174 SPECIAL DEDUCTIONS Standard Deduction The ampunt deductible without any required substantiation Is P1,000,000 If the decedent died before 2018 and P5,000,000 if the decedent died on or after January 1, 2018. A standard deduction of P500,000 shall also be allowed to nonresident alien decedent beginning January 1, 2018. Family Home Allowance 0 REQUITES: . IT* decedent is inarried or. head of a family; 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 Brgy. Captain of the locality the family home is situated; It Is located in the Philippines; ' The value of the family home is included iri the gross estate 0

WI-10 CAN QAIM? Only resident or citizen decedents can claim tax credit.

0

AMOUNT DEDUCTIBLE: The LOWER between the Actual estate tax pald abroad and the Limit.

0 LIMIT: It Depends on how many foreign country is involved. IF Only one foreign country is involved Net estate, foreign x Philippine estate tax - Net estate, wrirld •. IF More than one foreign cotmtries am involved. The limit is the lower between Limit 1 and Limit 2 computed as follows:

ACTUAL INTEREST. . Plirely ExdUsive = 100% RV • i 0 0 Purely Conimop Property = 100%F24182 O MIXED: Excitisivekkoperty.(100%), Add:C6mrhon Property (100%/2) . Total '• '

UMIT 1 or A (Per Foreign Country where there was estate tax paid): Nit etate, per foreign -, Philippine estate tax Net estate, world .4. LIMIT 2 or B (Total of ALL foreign counties involved): Net estate, all fereignicountries x Philippine estate tax NeteSpate; . . • . Pxx

031+4P.C17171c2 REQ1,1712EMETriT'S

L i-

" 4.

0

•

Medical Expenses Re ealed under'TRAIN La 0

TAX CREDIT FOR ESTATE TAX PAID TO A FOREIGN COUNTRY

AMOUNT.DEDUCTIIILE - The LOWER between the Actual Interest and the Limit. The LIMIT as providedty law are as iollows: 0 Prior to TRAIN Law = 1:11,000,000. 0 TRAIN Law = P10,000,000, '

0

Esthete. 7;d;

Notice of Death

REQUISITES (ApPlicable Only if the decedent died before 2018): IncuiredwithIn eyear prior to the death of the decedent; Duly substantiated; ' Not to exceed P500,000 ,

0

Amount Recehled by heirs under. R.A. 4917 0 REQUISITES Include such amount in the gross estate. • Amount Deductible - amount received by the heirs from the decedent's employer as a consequence of the death of the decedent-employee.

Repealed under TRAIN Law, hence, abplicable only if the decedent died before January 1,2018. Requirement: In all cases of transfer subject to estate tax; or The value of the gross estate exceeds P20,000. Who shall file:

SHARE OF THE SURVIVING SPOUSE 0 Applicable only to married decedents. 0 Amount Deductible: Common Properties -Common Deductions ' Net Common Properties before special deductions Multiply by: Share of the Surviving Spouse

378

Executor/Administrator; or Any of the legal heirs PM 4/00() 'MX 50% P)Ca

Date of Filing: Within two (2) months alter the decedent's death; or Within two (2) months after the executor or administrator has qualified.

379

kstette, 74, Estate Tax Return When is it Required? PRIOR TO TRAIN LAW In' all cases subject to estate 'IL tax; • The gross estate . exceeds ,113200,000 Regardless of the amount of the gross Sate, where it consists of registered or registrable property Such as real property,. motor, vehicle, shares of stock, or Other similar 'property for which a "Certificate Authorizing Registration (CAR)" from the. BIR' is required as a condition precedent tor' the transfer of ownership thereof in the name of the transferee, the .j administrator, or the executor, or any of the legal heirs, as the case may be, shall fite a return., under oath. •

TRAIN LAW In all cases subject to estate tax; Regardless of the amount of the gross estate, where it consists of registered or registrable property such as real property, motor vehicle, shares of stock, or other similar property for which a "Certificate Authorizing Registration (0)1R)" from the BIR is required as a condition precedent for the transfer of ownership thereof in ,the name of the transferee, the administrator, or the executor, or any of the legal heirs, as the case may be, shall file a return under oath

Place of Filing: In case of a resident decedent Authorized agent bank; or Revenue District Officer; Collection Officer; or Duly authorized Treasurer of the city or municipality in which the decedent was domiciled at the time of his death. In case of a non-resident decedent , Revenue District Office where the executor or administrator is registered Revenue District Office having juriadiction over the executor or administrator's legal residence (if executor or administrator is not , registered) Office of the MR Commissioner (RDO No. 39 - South Quezon City) if the estate does not have an executor or administrator in the Philippines. Payment of Estate Tax: Estate tax shall be paid at the time the return is filed (Pay as you File) When the Commissioner finds that the payment of the estate tax or of any part thereof would impose undue hardship upon the estate or any of the heirs, he may extend the time for payment as follows: Estate is setded-extrajudidally (extraludicial settlement) -2 years Estate IS settled judicially (judicial settlement) -5'years •

CPA Certification IS requiked if the gross estate exceeds P2L000,000 - If decedent died before 2018 • P5,000,000 - If the decedent died pn or afterianuary 1, 2018 . , CPA Certification shall contain certification as to: Composition of the Gross Estate The allowable deductions daimed: The estgte tax due Who shall file the Estate Tax Return? Executor/administrator (primary); or Any of the legal heirs: (secondary) ' Date of Filing: Prior to TRAIN Law - Within-six (6) months after death TRAIN Law - Within one (1) ler after death

The application for extension Shall be filed with the RDO) where the estate is required to sethre its TIN end file the estate tax retum. This application Shall be approved by the CIR or • his duly authorized representative. Where the request for extension is by reason of negligence, intentional disregard of rules and regulations, or fraud, no extension shall be granted. If an 'extension is granted, the CIR may require the executor, or administrator, or beneficiary, as the case may be, to furnish a bond in such amount. not exceeding double the amount of the tax and with suth sureties as the Commissioner deems necessary, conditioned Oran the payment of the said tax in accordance with the terms of the extension. Estate tax shall be paid at the time the return is filed (Pay as you File)

tEl The Court approving the project of ;partition shall furnish the Commissioner with a codified copy thereof and its order within thirty (30) days from promulgation of such order. GI EXTENSION: The Commissioner or hisrher duly authorized representative, shall have the authority to grant, in meritorious cases, a reasonable extension, not exceeding thirty (30) days, for filing the return.

380 /

381_

Estrito

74

Flit& iitd;

INSUFFICIENCY OF CASH FOR .THE PAYMENT OF ESTATE TAX In case of insufficiency of cash for the 'immediate payment of the total estate tax due, the estate may be allowed to pay the estate tax due thrbugh the. following options, Induding corresponding terms and conditions (RR 12-2018): 1.

2.

Cash Installment; lit • The cash installments shall be made within tiNo (2) years:from the date . . of the filing of the estate tax return; The frequency (l.e., monthly, quarterly, • semi-annually, annually) ' deadline:and the amciunt of each installment shall be Indicated in the estate tax return, subject to the approval by the 81k; ,• In-case of •lapse of .hivo,(2) years without the ,payment of entire tax due, the rernaining balance. tifereof Shall be due and demandable. ' subject bi applicable penalties and inthrett reckoned from the j prescribed deadline for filing the return and paymentof estate tax; and No civil Penallies:or interest maybe Imptsied on the estatet permitted. to pay thees:tate tax.dire by InStallment.,' / ,. •

IF BANK HAS KNOWLEDGE OF THE DEATH OF A PERSON 'WHO MAINTAINED A JOINT ACCOUNT, PRIOR TO TRAIN LAW: .•• Itshall not allow any withdraWai by a surviving depositor from the said joint accountuniess the CommIssionet has certified that the estate tax has been paid: Provided, however, thatthe administrator Pt the estate or anyone of the heirs of the-decedent Maiptipon authorizatien by the Commissioner of BM, withdraw an amount nothoiceeding twenty itvausand pesos (P20,000) without the Certification. -42: • .

Partial disposition of estate and application of Its proceeds to the estate tax

s option, shall, refer to the The distiosition,, ,.ficr ,purpoieS,Pf ,thi conveyance,of property, whether real, personel or intangible property, , with the eOutfalentcash consideration; The written, request for the partial 'disposition of estate shall be filed, together witha notarized, undertaking that the proceeds thereof shall be excipshrelycitediftir the payment of the total State tax due;: the ,The tomptiteilasfatelaX• due slip 'Oe'allotated In re opdrty value „ • • 'Affelettnink 'Certificate Auth;offilng.Registration(eicAR) shall be.issued uportiretentation Ofthe;proilf of payment of, the proportionate estate taX.due ce,theliroperbiintenried to be dispOsdcl... Accordingly;,eCARS . shall be Istued as Mantaithere ate..Properties , to be'disposed to cover the proPertiorrate estate tax(es)' . the :total raitate .thx.'dtier ,net: ;. previouslYiPaid Under this Optioh; and In cage pf faiturato.pay the total estafte tax due out froin the proceeds of the said dispOsition, the estate tax dueshall be Immediately due and demandable subject to the applicable peneitiet and Interest reckoned from the prescribed deadline for filing the retuin and payment of the estate tax, without prejudice,ot withholding. the issuance of eCARs on the remaining properties until the payment of the remaining' balance of the estate tartlue, including the penalties and interest. .• Duties of Certain Officers and Persons' : There shall not be transferred to any netrowner in the books of any corporation, sociedad anonima; partnership, busin j or industry organized or established in the Philippines any share, obligation, bald or right by way of gift inter-vivos or mortis cause, legacy, or inheritance, unless an eCAR is issued by the Commissioner or his duly authorize representative. • a.

Register of Deeds shall not register regi I i nthe registry of droperty any transfer of real property or real rights -therein, or any mortgage, by way of donation mortis causa or inheritance, without a certification frorn the SIR of payment of estate tax, and they shall immediately ootify the SIR of non-payment of tax discovered by them.

d

e.

UNDER TRAIN LAN': If a bank has knowledge of thè'eathbf a personevirrho Maintained a bank deposit account alone, Or jointly with another, it shall Slew any withdrawal from the 'said deposit account, ;tubject to a final Withholding tax of six ' percent (6%). For this' purpote;: all withdrawal shot 'shall contain a statement to the effect that all otthe joint depositors .are. still living at the time of withdrawal brany onecilthe joint depositort and,such statement ahall be under oath by the saki 'depositors. In all cases, the final tax withheld shall not be refunded, or; credited on the tax due;• On the • . net taxable estate of the decedent ; • In Instal-ices Where the den* aunts have been duly irk:hided in the presnt eon'pald,-the meecAR gross eitate.;of the decedent and 'the estate tax due there all executor, administrator, or Tany of Ma:legal heirsshall bank"deposit _ "deposit ., t issued for the said estate prior toy' withdrawing from the : actourit. Such withdrawal shall ne longer tiPSubject to the 6% withholding. tax by the.bank. . hls Official • Any lawyer, notary publicOr any government office; who, by reason ofduties, intervenes In the preparation oaCknowledgment of documents' regarding partition br disposal of donations inter vivos Or, mortia thusa, legaty Inheritance 'shall furnish the BIR 'with copies or such documents 'and' any information whatsoever which may facilitate the collection of the estate tax. A debtor shall not pay his debts to the heirs, legatees, eXecutor Of administrator of•his creditor-decedent without a certification from SIR that the estate tax has been paid, but he may paY the executor or judicial administrator without such certiffation if the credit is included In the inventory of the estate of the decedent.

No. judge shall authorize the executor or judicial administrator to deliver a distributive share to any party interested in the estate, unless a tertification from the Bureau of Internal Revenue (BIR) that the estate tax has been paid is shown.

382

383_

-

Etat& 'kr.

Lcegee 7acr

QUIZZER C. d.

Choose the letter of the correct answer. Transfer Taxes 1. Which ofghe following statements is false? Transfer tax is • Imposed upon gratuitous transfer of property ' Of two kinds: estate tax and donors tax ClasSiked as national lax None of the above

Answer: C 5.

Answer: D 2:

and the donee is a donation inter-vivos subject to do'ner's tax. a. Only statement 1 is Othect •, b.. Only statement 2 is correct Both statements are correct. Both statements are incorrect

Not in the ordina 'Course of trade or business

3

6

The subject matter or object of transfer taxes is . c. Properties of the decedent Right to transmit d. Beneficiaries Decedent

Perions, otherwise known as 'personal tax' Property, otherwise known as "property tax" Right or Privilege, otherwise known as 'excise tax'. •• Estate Tax is p tax imposed oh the 'privilege' that a person is given in controlling te a certain extent, the disposition of his property (right to transmit) to take effect upon death..- Consequently. Estate Tax is an excise tax ithposed on the act of passing the ownership of property et the time of death and not on the property or right.

• Business tax (vat or opt * excise tax, if applicable) and Income Tex • Not subject to business tax but may be subject to income tax

Statement 1: A sale is:a form of transfer transaction that requires payment of transfer tax. Statement 2: Transfer tax accrues at the time of transfer of the decedent's property or rightsto the

heir.

7

Justification for the imposition of transfer tax. Redistribution of wealth theory • Benefit received theory State partnership theciry Allot the above . Answer: D JUSTIFICATION FOR THE IMPOSITION OF ESTATE TAX

Only statement us correct Only statement 2 is correct Both statements are correct Both statements are incorrect

Redistribution of Wealth Theory

Answer: 0 Transfer tax is applicable only to gratuitous tt feis (inter-vWos and mortis causer donations). A 'sale', in general, is an onerous transfer, he e, not subject to transfer tax. Transfer tax accrues from the effectivity of tt1a gratuitous transfer (upon death in case of mortis tausa donation and Upon perfection of the donation in case of donation inter-vivos).

4

.

C. Answer: A ' The subject matter or object or taxation are: TAX Donors tax (a transfer tax) Estate tar (a trans fertax)

• \ Onerous Transfer ' nibs ordinary caws° a trade or business

•

The right to succession is effected at the time of death of the decedent (refer also to 'statements I and 2 of the immediately preceding number).

'

Gratuitous Transfer Donation inter-civos Donation mortis Cat

Mortis causa transfer of property is effected: When the property is received by the heir. When the court awarded the ownership of property to a particular heir. Upon the death of the decedent. Upon payment of estate tax. C. Answer: C•

Statement 1: Gratuitous transfer or donation is subject to transfer tax. Statement 2: A donation which takes effect at the time of death of the donor is a donation Mortis cause subject to estate while a donation which takes effect during the fifebrne of both the donor

Answer: C

Only statement 1 is correct Only statement 2 is correct Both statements are correct Both statements are incorrect

Statement 1: The rights to the succession are transmitted from the moment of death of the

decedent, notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary. Statement 2: The heirs succeed immediately to all the property of the deceased ancestor at the moment of death as completely as if the ancestor had executed and delivered to them a deed for The same before his death.

384

The receipt of inheritance is a contributing factor to the inequalities in wealth and rncomes. The imposition of estate tax reduces the property received by the successor, thus helping to promote equitable distribution of wealth in society. The tax base is the value of the properly and the progressive scheme of taxation is precisely motivated by the desire to mitigate the evils of Inheritance in the present form. • Benefit-Received Theory -

The law considers the service rendered by the government in the distribution of the estate of the decedent, either by law or in accordance with his wishes. For the performance of these services and other benefits that accrue to the estate and the heirs, the State collects the tax. Privilege or State Partners ,hip Theory

Under this theory, inheritance is not a right but a privilege granted by the Slate and legatees have been acquired only with the protection of the State. Consequently, the State as a passive silent partner in Um accumulation of property has the right to collect the share which is property due to it.

385

Es &tie, 7

k.s &if& 74 Ability to Pay Theory • Receipt of inheritance which is In the nature of an unearned wealth or windfall, are place assets , into the hands of the heirs and. beneficiaries. This creates an ability to pay the tax and thus contributes to government income. 8.

Inheritance received is construed as unequal distiibtltion of wealth resulting to the imposition of estate takulescribes: redistribution of wealth theory c. state partnership theory beneffreceived theory d. ability to pay theory .11, Answer A

9.

The tax imposed on the right to transmit property at death is known as: Donor's tax a Business tax Estate tax d. Income tax

Excise tax is an ad valorem tax. It is assessed based on the net value of the estate transferred. Upon effectivity of the TRAIN Law, estate tax is a proportional tax. It is no longer based on a graduated tax rate but to a fixed rate of 6% on the net taxable estate of a decedent. Estate tax is a specific tax. Answer: D Prior to TRAIN Law, estate tax is a graduated tax, computed using a graduated tax table. Specific tax is applicable only to sin products and non-essential goods. . 14. The taxpayer in estate tax is: The decedent The estate as a juridical entity The heirs or succession The administrator or executor

9 Answer B10

Answer: B

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. Donor's tax c. Business tax Estate tax d. Income tax Answer 'A

121. Estate tax is a A, property tax because It Iknposed bathe properlyfransmitted by the decedent to his heirs. b. An indirect tax bedaufie the rden of paying thetax is shifted oh the executor or any of the . . .. . .. , . heirs Of the decedent • i.,An excise tax because the object of,which is the shifting of economic benefits' andenjoyment of (imperil./ from the dead tb thi living ,, "" ' . .., , • , '',. A poll tax because it is also imposed on residents of the Philippines whether. Filipino Citizens , . ,. or not .... , . . Answer 'C Estate taxis unposed not on the decedent nor on the property transmitted upon death but on the 'privilege to transfer properties gratuitously upon death. Estate tax is not an indirect tax. Though the personal obligation to file am:IPS/the estate lax rests with the administrator/executor or any of the heirs, respectively, the 'burden" of paying the tax is not shifted to them. The money used to Pay the estate will be taken from the estate, not from the administrator/executor or any of the heirs. 12

Which among the following statements is correct? Estate taxation is governed by the statute in fort at the time of death of the decedent. Estate tax accrues as of the death of the deced nt. Succession takes place and the right of the Stat to tax the privilege to transmit the estate vests instantly upon death. All of the above 9 Answer: D

13

Which of the following is incorrect? a. Estate tax is an excise tax. It is a tax on the right to transfer property at death and on certain transfers which are made by law the equivalent of testamentary disposition.

386

15 Estate tax acmes from: The moment of death of the decedent The moment the notice of death is filed The Moment the estate tax return is filed • The moment the properties are delivered to the heirs Answer A Upon the death of the decedent, succession takes place and the right of the 'State' to the tax the privilege to transmit the estate vests instantly upon death (Section 3, RR 2-2003). 16

Who has the persohal liability to pay estate tax? a. " The decedent • . b: The estate as a juridical entity ' a. The heirs or successors The administrator or executor Answer: D a Taxpayer- the estate as a juridical- person. Being a juridical person, it cannot file the estate tax return and pay the corresponding estee fax due on its own. The 'personal obligation" to tile and pay rests with the executor or administrator, as the case may be. In the absence of an executor or administrator, any of the legal and rightful heirs.

17

It is a well settled rule that estate taxation is governed by the statute in force at the time of: Creation of the last will testament or death of the decedent in case of intestate succession Death of the decedent Filing of estate tax return Either letter "b" or "c" whichever will result to higher estate tax liability 9 Answer: B

B. An executor or administrator, after paying the estate tax, and to escape a future liability or a deficiency estate tax, must secure a written discharge from personal liability from: The heirs. The Commissioner of Internal Revenue. The court where the estate was being settled.

387

Lstette-'77ie

f—j& fe. 7; 1 7y.d.

Need not secure a written discharge as long as he has a receipt on payment of the estate tax.

FORMS OF A LAST WILL AND TESTAMENT: Ordinary Will or Notarial or Attested Will

C- Answer: B

It must be in writing and executed in a language or dialect known to the testator. It must be subscribed at the end there& by the testator himself or by the testator's name ' written by some other person in his presence and by his express direction. It must be-attested and subscribed by three or more credible witnesses in the presence of the testator and of one another.

Concept of Stkcession 19. It is a rngde of acquisition by Virtue of which, the property, rights and obligations, to the extent of the value.of the inheritance, of a person are trinsmitted through his death to another either by his wilt or by operation of law. Sitocession c. Prescription Donation d. Exchanges

Holographic Will

,•

Answer: A Title IV, Chapter 1, Article 774 of RA No. 386, otherwise known as the Civil Code of the Philippines 20, Statement 1: Decedent is the general term applied to the person whose property is transmitted through succession, whether or not he left a will. Statement 2: An heir is a person called to succession either by provision of a will or by operation of law. Only statement 1 is correct Only statement 2 is,correct Both statements arecorrect Both statements ard incorrect

24.

Answer: C Title IV, Chapter 1; Article 775 and 782 of RA No. ,386, Civil Cade of the Philippines 21 Which statement is false about ccesston: The successor inhedte all.th transmissible property of a decedent including his liabilities. The successor.can,be madetiabkifor the obligations of the decedent beyond the value of the asset he rebeived. ' •. In succession, fruits and credits maturing after the death of the decedent pass to the heirs even if they were not subjected to estate tax: In succession, the successor can refuse,the inheritance.

25

Answer: B 22. Which of the following could legally effect transfer of properties through succession? By virtue of a will By operations of law Ill.By onerous transfer I only • c. land III only I and II only d. I, II and 1111 Answer: B The question is specifically pertaining to &anger 'Through succession' only, a gratuitous transfer, hence, exclude onerous transfer. • 23. An act whereby a person is permitted, with the formalities prescribed by law, to control to a certain degree the disposition of his estate, to take effect after his death. Contract c. Will Trust d. Legacy

It must be entirely written, in a language or dialect known to the testator. Dated ,Signed by the hand of the testator himself. It is subject to no other form and it may be made in or out of the Philippines and need not be witnessed (Art. all NCC).

is a written will which must be entirely written, dated and signed by the hand of the testator himself. It subject to no other form and it may be made iii or out of the Philippines and need not be witnessed. , • c. Holographic will a. Ordinary will b., Notarial will d. Codicil Answer: C ' ' Ordinary will, attested will and notarial will are one and the same In case of any insertion, cancellation, erasure or alteration in a holographic will, the testator mustauthenlicate the same by his full signature. Codicil is a supplement or addition to a will, made after the execution of awill and annexed to be taken as a part thereof, by which' any, disposition . made in the original will is explained, added to or altered. In order that a codicil may be effective, it shalt be executed as in the case of a will (Arls.826 and 826 NCCI • ' . . Statement 1: The making of a will is•Strictly a personal act: It cannot be left in whole or in part of the discretion of a third person, or accomplished through the instrumentality of an agent or attorney. Statement 2: The burden of .proof that the testator was not of sound mind at the time of making his dispositions is on the perion who opposes the probate of the. will; but if the testator, one month, or less, before making his will was publicly knowri-to be insane, the person who maintains the validity of the will must prove that the testator made it during a lucid interval. Only statement 1 is correct Only statement 2 is correct Both statements are correct Both statements are incorrect C. Answer: C id Article 784 and 800 of RA No. 386, otherwise known as the Civil Code of the Philippines

26

The persons prohibited by law to make a will are: I. Those below 18 years of age. II.• Those who are not of soundmind at the time of its execution. c. Both I and II . I only d. Neither I nor II II only C' Answer: C

.1- Answer: C The Forms of a 'will' shall be observed, otherwise, it is considered void.

388

389

Elafr '74 27. The following are the elements of succession, except: Decedent c. Heir Estate d. Executor Answer D 28. Succession which results frofn the designation of an heir, made in a will executed in the form prescribed by law is known as: a. Legatbi intestate succession b,. Testamentary succession Mixed Succession Ordinary succession. Answer: 29. The portion of the decedent's estate which the law reserves to his compulsory heir is called: Legifiale a -Legacy Free portion d. Bequest Answer: 'A The estate of a decedent is divided into two categories, legitime and free portion Bequest means tranifer of properhr by virtue o1a last will and testatnent 0• Legacy is a type of bequest involving personal easterlies Device is a type of bequest involving teal properties 30. A personwho inherits specificjpprSonal properly thm e-will:. , a Devisee ?C.:Heir j b, Legatee -• • d. 'Successer • rt• Answer El, •

Composition and Valuation of the Gross Estate 34. One of the following is subject to estate tax'on properties situated within the Philippines only a. resident citizen c. nonresident citizen b. resident alien d. nonresident alien Answer: D j 35. The personal properties of a non-resident, not citizen of the Philippines, would not be included in the gross estate if: The intangible personal properly in the Philippines The intangible personal property is in-the Philippines and the reciprocity clause of the estate tax law applies The tangible personal-property is in the Philippines The pelsonal properly is shateagf stock of a domestic corporation 90% of whose business is in the Philippines. Answer: Et 36. Statement 1: As a general rule, the Silts of tangible personal property is the place or country where such is actually located at the time of the decedent's death. Statement 2: The rule that the Silts of intangible personal property is the domicile or residence of the owner does not apply when the properly has a siths elsewhere. • ,- Only statement 1 is correct Only statement 2 is correct Both statements are correct Both statements ard incorrect' 1

Answer: C 37

31. A aeMon Who inherits specific real property dim a will: a: Devisee " c. Heir b. Legatee d. Successor .5 Answer: A 32. Which of the following is a Valid will? • That which reduces the legitime of compulsory heirs. That which increase the share of one heir without impairing the legitime of the other heirs, That which transfer-The legitithe of one heir to the other heir. That which impair the legitime of compulsory heirs. Answer 8 33. Which of the following is not a compulsory heir? Legitimate children and descendants, with respect to their legitimate parents or ascendants In default of letter ga', legitimate parents or ascendants, with respect to their legitimate children or descendants Widow or widower Relatives by affinity Answer: D

390

All of the following are considered intangible in-the-Philippines, except: Franchise whibhimust be exercised in the Philippines Shares, obligations or bonds issued by,any carpoiation or sociedad anonime organized or , constituted in the Philippines in accordance with its laws Shares, obligations or bonds by any foieign corporation 75% of the business of which is . located in the Philippines Shares, obligations of bonds-issued by any foreign corporation if such shares, obligations or bonds have acquired a business situain the Philippines; C. Answer: C

38

Which of the 'following item is considered situated outside the Philippines? Franchise in the name of the decedent which IS exercised in the Philippines Share of stock holdings of decedent in a foreign corporation whose business is 90% done in the Philippines c, Bond certificate issued by a domestic corporation owned by a non-resident decedent d. Foreign currency deposited in bank outside the Philippines • Answer: D

39. Shares are not deemed properly Within the Philippines when • The shares are issued by a domestic corporation. The shares are issued by a foreign corporation with no business situs in the Philippines.

391

L.1 4/ seethe,

4t;

Lcta;te,

The shares are issued by a foreign corporation with 85% business in the Philippines The shares are issued by a corporation organized under Philippine laws. Answer: B SITUS of INTANGIBLEs INTANGIBLE SITUS In General Domicile of the owner 2. Shares, bonds, securities DC (regardless of % of operations in the Philippines ,),1 , Philippines)

FC In °envie; • Foreign At least 85% of its operations is hi the Philippines Philippines 0 Regardless of % of 'operations in the Philippines Philippines, but expressly provided that It had acquired businesasitus in the Philippines SALE or shares, bonds, securities of: DC . • Philippines. FC • Place of Bale Franchise, copyright, trademark.s, patents . - Where it is exercised Receivables • Residence of the debtor Bank deposits • • Location of the depository bank

Answer: C • 43. Pedro March 1, 2018. The following data were available in connection with the property. Assessed valued, six (6) months before death P2,500,000 Fair market value at time of filing estate tax return on Feb. 28, 2019 3,000,000 2,000,000 Zonal value, March 1,2016 What would be the value of the piece of land in the gross estate? , P2,000,000 c. P3,000,000 d. P5,000,600 P2,500,000

0

Answer: A

.

SITUS of TANGIBLE Properties I. MovableApersonal properly 2. Immovable or real 40

•

The higher between the FMV provided by the City or Provincial assessors (assessed value) or zonal value provided by the BIR, at the time of death.

44. A decedent left 10,000 PLOT shares. The shares were traded in the local stock exchange. At the time of death, the following were available: p400 per share Fair market value P500 per share Mean between the highest and the lowest quotations P350 per 'share Book value What was the value included in the decedent's gross estate? P3,500,000 • • P4,000,000 P5,000,000 Whichever was the highest afnong the fair market value, mean and book value

Where it is located Where it is situated

The following are general rules oktus. Which One issnot?'.. Thesitus of real property is th: place or country where it is•situated. The situs of tangible personal property is the place or country where such iC actually located at the time of decedent's death: . .'; • . The situs of intangible perscinal properly is the piaCe or country where such is actually located at the time of the decedent's death.. The sibs of intangible personal property is the dornicile or residenee of.the owner. r

Answer: B • VALUATION of Shares of Stork: In General, FMV at the time of death, Traded FMV (closing rate) at the date:of death Traded. FMV at the time of death is not available - the average between the highest and lowes quotation nearest the date of death. Common or ordinary sharen.not traded- book value at the date of death Pretend or preference Shares, not traded - par value GE r P10,000 shares x P400 per share= P400,000 ' Use Mier t'only if there is no valuation atthe date of death.

Answer C 41. Which is not a test of situs? Residence of the debtor in case of accounts receivable. Place of storage in case of shares of stocks. c.. Location of depository bank in case of bank deposit. d. Place of exercise in case of copyright • Answer B 42. Statement 1: For estate tax computation, real estate 4311 be valued at fair market value at the date of death of the decedent. .< Statement 2: If zonal value is available at date of death, and this is higher than the fair market value per assessor's listings of values, then the amount to be reported in the gross estate is the zonal value. Only statement.1 is correct Only statement 2 is correct Both statements are correct Both statements are incorrect

392

45

Which properly is valued using the book value? Bonds being traded in the bond market Annuity Shares of stock not traded in the stock exchange Usufruct. 4. Answer: C

46. Pedro died on Nov. 2, 2018, leaving the following properties: Common stocks of Sunchamp .Corporation (2,000 shares) - listed in the Philippine Stock Exchange (highest -P40; lowest- P39). Common stocks of AgriNurture Corporation (1,500 shares) -not listed in the stock exchange. Cost P50 per share; book value- P45 per share.

393

1-_secte&

7itr.

Preferred stocks of Greenergy Inc. (3000 shares) — not listed in the stock exchange. Cost P70 per share; book value - P60 per share; par value — P50 per share Car (cost - P600,000; book value - P.350,000; market value - P400,000) Gen! properties (zonal value - P120,000; assessed value - P72,000) The gross estate of Pedro is: Rp16,500 P817,500

Es - tab, lift( 50

Answer: B c. P824,000 d. P848,500

House and Lot in Syria Vacant Lot in Manila Shares of stock in a domestic corporation Shares of stock in a foreign corp., Car in Manila Total

Anskat: A Solution: Sunchamp f(P40+P39)/2 x 2000 shares AgriNurture (P45 x 1,500 shares)' Greenergy(P50 x 3,000 shares) Car Rea properties Total

P79,000 67,500 150,000 400,000 120.000 P816,500

. At least 85% of its operations is in the Philippines; or i it expressly provided that the foreign corporation have already acbuired business sites in the Philippines (regardless of the % of operations in the Philippines) Do not assume reciprocity. 1 "

.9 Answer: A 48. Ana, Filipino, dud-in Syria leaving the,folloMnPprripeities: House and Lot in Syria • • Vacant Lot in.Marilla • --• - Shares of stock in a dOmestic corp., % 50 of the business-is located in the Philippines • Shares of stock in a foreign corp., 70% of the business is located in the Philippines Car in Manila

1,-,000,000 2,000,000 100,000

51 Following are properties in the gross estate with their fair market value: House and lot, family home in-Quezon City P1,500,000 Deposit in the foreign branch of a domestic bank 500,000 Shares of stock issued by a domestiecorperation, certificate kept in the US 1,000,000 Pieces of jewelry 800,000 Receivable, debtor in Cebu . 200,000 . . If decedent was non-resident Oken and there is reciprocity, property excluded from gross estate is valued at P4,000000 a. P700,000 P1,700,090 d. P200,000. Answer: B . Solution: Deposit in the foreign branch oba domestic bank Shares of stock of a DC Receivable, debtor in Cebu Total exclusion

200,000 500,000

9 Answer D ci Refer to the solution n 650 49. Based on the preceding number, but assuming Ana is a non-resident alien, the gross estate is: P2,000,000 c. P2,600,00 P2,500,000 0. P3,800,009

P500,000 1,004000 200,000 P1,700,000

Since the decedent is NRA and there is reciprocity, eke/oiled from GE are properties without the Philippines and Intangibles.in the Philippines. Shares of a DC is always considered an estate in the Philippines, regardless of where the certificate is kept. The silos of bank deposit is where the depoSitay bank is located (regardless of whether the bank is foreign or domestic). Therefore, the bank deposit in the problem is considered part of estate without the Philippines because though the bank is domestic, it pertains to its foreign branch.

c. P2,600,00 d. P3,800,090

Answer C

Citizen/Resident NRA w/o rec. NRA w/ rec. P1,000,000 ' 2,090,000 P2,000,000 P2,000,000 100,000 - 100,000 200,000 500,000 500,000 500,000 P3,800,000 P2,600,000 P2,500,000

The .situs of shares of stocks of I domestic corporation is 'always considered in the Philippines, regardless of the % of its operations in the Philippines. The situi Of shares ofstocks of a foreign Lorpuration is Philippines ONLY IF: '

47. Part of the estate left by Aare preference shares of MERALCO. The shares are listed and traded in the Philippine Stock Exchange. Which of the following rules of valuation is correct? The preference share's will be valued using the arithmetic mean between the highest and lowest quotation at the date nearest the date-of death, if none 11 aVailable on the date of . death itself. •, The preference shares will be valued based on theirhook value. ,, ;The preference stirs will be valued based on their par value, .. ' The.preferents spares will ..be valued haSed on theizfair market valbais detennined by the Commissioner-of Internal ventie .

How much is the gross estate? P2,000,000 P2,500,000

Continuing the preceding number and the rule of reciprocity applies, the gross estate is: P2,000.000 P. P2,600,00 P2,500,000 d. P3,800,000

52

A non-resident alien left the following properties at the time of his death: Bank deposit, Canada Bank deposit, BOO-Manila Car in Ouezoncity Investment in Ponds, PLDT Investment in stocks, IBM; USA House and lot, USA

394 395

F sta-te/ 74

Lied& 74 cl,

The country of the non-resident alien decedent does not impose aftansfer or death tax of any character with respect to intangible personal property of citizens of the Philippines not residing in that foreign country. What properties will be included in the Philippine gross estate of the non-resident alien decedent? ct All the properties above Properties BC, and D ,!roperty C only -171roperties A and C Answer: C NRA decedents are taxable only on their estate 'boated in the Philippines. If reciprocity rule applies, Intangibles in the Philippines are likewise excluded. In the problem proyided, ,the decedent is NRA and reciprocity rule is applicable.. Therefore, . ' included in his estateere tangible properties boated in the Philippinen only.

53. Using the same data in the preceding number, assuming the decedent is a resident alien, and his country does not impose transfer taxes to Filipino not 'residing therein, the Philippine gross estate should include: All the properties above a b. Property B, C and 0 C. Property C only d. Properties Aend C C. Answer: A

C. Answer: 57. Lob Sot, 95 years old, was 'diagnosed of various ailments on January 1, 2018. Motivated by though of death, he decided to dispose all his properties to his children and relatives. He executed a last will and testament disposing all his properties in the Philippines to his children. On the same day, he made donations inter-vivos to his other relatives as to his properties in the United States. Lob Sot died a month after disposing all his properties. Should the properties donated by Lob Sot to his other relatives be included in his gross estate upon his death? a. No, because they were not his properties anymore at the time of death. h. Yes, because the donations were donations mortis causa.and should be governed by the rules on estate taxation. No, if the donor's tax had been paid already on the donations. No, because they were not transfers in contemplation of death, since the donations were not simultaneous with the execution of the last will and testament. Answer: B The motivating factor of Lob Sot in transferring his properties was the 'thought of his death'. Hence, both transfers, in substance, were made in cOntemplation of death. Consequently, both transfers' must be included in his gross estate.

58. To prevent undue avoidance of tax, inter-vivos disposition in contemplation of death is subject to Donor's tax c. Income tax Estate tax d. Excise tax

Citizen and Residentc. &dents are taxable On their estate located within and without the 'Philippines. Reciprocity I e is/applicable onlyon intangible's within off/PA decedents.

54. Which of the following %hall be included in the decedent's gross.estate? .Share in coalman proPerties.of the Sunliving spouse ' Capital or paraphernal property ofthe sun/Wing-spouse Properties outside the Philippines-of a non-resident 'citizen decedent -Ill. Intangible personal property in the Philippines ofa non-resident alien IV. c. 1,111 and IV Only 1 only. d. 1, II, Ill and IV land III only '

The poWer of the decedent-transferor to revoke terms may be exercised just once.

G Answer: B 59

The following are deemed transfth in contemplation of death, except While still alive, the decedent donated property where the.donation will take effect at the time Of his death. The decedent transferred a property in the regular course of the business operation. The decedent donated a property with the condition that he/she will enjoy the fruits of such while he/she is still alive. The decedent transferred a property to take effect after his/her death G Answer B

Answer: C Transfer in Contemplation of Death and Revocable Transfers 55. Which of the following is not a characteristic of donation mortis causa? The transfer to the donee is irrevocable while donor is alive. There is no conveyance of title or ownership the donee before the death of the donor. The transferor retains the kill or naked ownership and control of the properly while alive. The transfer should be void lithe donor should survive the donee. G Answer: A 56. Which of the following statements is incorrect? a. In a revocable transfer, the decedent during his lifetime may revoke, alter, amend, or terminate the terms of enjoyment or ownership of the properly. b. A revocable transfer is always includible in the gross estate of the decedent-transferor. c. A revocable transfer shall be included in the gross estate of the decedent-transferor even though the power to revoke was not exercised.

396

General Power of Appointment (GPA) and Special Power of Appointment (SPA) ' 60. Statement 1: A special power Of appointment authorizes the donee of the power to appoint only from among a designated class or group of persons other than himself. Statement 2: The donee-decedent of a special power of appointment only holds the property in trust, hence, the property shall form part of the donee-decedent's gross estate. Only statement 1 is correct Only statement 2 is correct Both statements are correct Both statements are incorrect Answer: A GPA = + to GE; SPA= exclude from GE The power granted to the donee-decedent or current decedent shall be known as 'General Power of Appointment (GPA)' if he is authorized to choose 'anyone' who should inherit the property, and not merely based on the desire of the predecessor. It encompasses ownership, hence, shall be added to the gross estate upon his death.

397

dale, 7.4

sewte, tizzav The power granted to the donee-decedent or current decedent shall be known as "Special Power of Appointment (SPA)" if he is authorized to choose only from those identified hy the predecessor. Thus, the properly involved under SPA was only entrusted to the donee-decedent in favor of another as desired by the predecessor, therefore, excluded in his estate upon death.

61. Which ihorrect? The person who creates the power is.the donor of the power (donor-decedent). ' The mobil who is given the right to.exerdee the power of appointment is the donee (doneedededent). The property being transferred and the subject of the power of appointment is the appointed property. All of the above Answer: D

65. Statement 1: The power of appointment is 'general' when the power of appointment authorizes the donee of the power to appoint only from a restricted or designated class of persons other than himself. Statement 2: Special power of appointment exists when the power of appointment authorizes the donee of the power to appoint any person he pleases. Only statement 1 is correct Only statement 2 is correct Both statements are correct Both statements are incorrect Answer: D Statement 1 pertains to SPA, not CPA Statement 2 pertains to CPA, not SPA

66

The donor-decedent is also known as predecessor while the donee-decedent is also known as the present decedent.

62

Which of the following statements is incorrect? A general power of appointment authorizes the donee of the power to appoint any person to possess or enjoy the prOperty. A general powerof appointment makes the donee of the power the owner of the property. The appointed properly passing under a general power of appointment is not includible in the grossiestate of the donee-daqedent. • None•of the above

Answer C Transfer for an adequate and full consideration in money or money's worth = valid sale. It is an onerous transfer, not subject to transfer tax The term money or moneys worth includes tangible and intangible property, services, and other consideration reducible to among Value (Monarch v. US, 2009, US,Dist LEM 64546)

67

,Answer: '

f

•

63. One of the following donations is hot included as part of gross estate a: Revocable transfers ' " • Transfers with reSeniation of certain rights * Transfers under special politer Of appointment • Transfers in contemplation of death ' Answer: C 64. Statement 1: Aguinaldo devisediin his will a piece of land; naked title to Bonifacio and usufruct to Bizet for as long as Rizal lives, thereafter. to Bonifacio. The Transmission from Aguinaldo to Bonifecio and Rizal is subject to estate tax but the merger of the usufruct and the naked title to • Bonifacio upon the death of Rizal is exempt. Statement 2: Erap devised in hie will real property to his brother Fidel who is entrusted with the obligation to preserve and transmit the property to JDV, a son of Fidel, when JDV becomes of age. The transmission from Fidel to his son JDV is subject to tax. Only statement 1 is correct Only statement 2 is correct Both statements are correct Both statements are incorrect C- Answer: A Fidel to JEW = not subject to estate tax

398

Which of the following transfer ii not included in the gross estate? Transfer with reservation of ceriain rights . Transfer for insufficient consideration i Transfer fot an adequate and full consideration in money or money's worth Transfer in contemplation of death

Statement 1: Pedro died giving Juan the power to appoint a person who will inherit his house and lot. Juan, hoWever can only choose among Ana, Loma and Fe. Juan decided to transfer the properly to Fe through the formers will. Theitransfer from Juan to Fe is subject to estate tax. Statement 2: During A's lifetime, he decidekno give- B as gift his (A) car subject to the condition that if B does not becorbe a.CPA within 3,years, A 'tall revoke the transfer. In The second year however, A died. The car should form part cif A's gross estate. " • a. Only statement 1 is correct b. Only statement 2 is correct Both statements are correct Both statements are incorrect

4. Answer: B Statement 1 pertains to SPA' hence, not subject to estate tax. Statement 2 pertains to revocable transfer, subject to estate tax.

68. The following are transactions and acquisitions exempt from transfer tax, except Transmission from the first heir or donee in favor of another beneficiary in accordance with the desire of the predecessor Transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the • fideicommissary The merger of usufruct in the owner of the naked title All bequests, devises, legacies or transfers . to social welfare, cultural and charitable institutions Answer: D • Choices 'a' end "b" are properties 'held in trust" only by the decedent The decedent in letter "c" is not the owner of the property, therefore, excluded.

399

Estill& 7Bequest to Charitable Institutions - Requirements for Exclusion: All bequest devises, legacieS or transfers to social welfare, cultural and charitable institutions, no . part of the net income of which inures to the benefit of any individual: Provided, however, that not more than thirty percent (36%) Of the said bequest, devises, legacies or transfers shall be used by such institutions for administration purposes. The government agency which is empowered to detemiine the exemption is the BIR. To enable it to exercise such power, the value of transfer to ',I social welfare, cultural and charitable institutions should be included in the gross estate. An equal .amount, however, may be taken up asth deduction. While the Tax Code includes this item in the exempt acguiSitions and transmissions, it is actually considered a deduction from the gross estate. ,Failure to include the properly transferred to social welfare, cultural or charitable institutions will impair the power of the BIR to assess taxes properly.

Insufficient Consideration 69. On the belief that Pedro is about to die, he mild to his daughter a parcel of land valued at P3,000,000 for the same amount. One (1) year later, Pedro died of a car accident. At that time, the property had already a value of P1,500,000. For -Philippine estate tax purposes, the amount includible in the gross estate is P500,000 0. P3,500,000' P3,000,000 d. nil

71 Based on the preceding number, if the fair market value of the property at the time of death is only P600,000, how much will form part of gross estate? .. PO . c. P800,000 P500,000

Answer: A The FMV at the time of death was already loWer than the proceeds received. As discussed in the preceding number, the amount to be included in the gross estate is the excess of FMV upon death over the proceeds:, Proceeds of Life Insurance

74. Which of the following is not included in the gross estate? Revocable transfer where the consideration is not sufficient. Revocable transfer where the power of revocation was not exercised: Proceeds of life inkurance where the beneficiary designated is the estate and the designation is irrevocable Proceeds of life insurance where the beneficiary designated is the mother and the designation is irrevocable. ; Answer: D

Answer: D If the proceeds is substantially the same or higher than the FAN of the property sold. ft is a bona Ode sale, a valid sale, excluded from the gross estate. 70. Vlad died on October 20,2018. During his lifetime, ugion knowing that he had Stage 4 cancer, sold

his Lamborghini car to his son for P4,000,000. The fair market value of the car at the time of sale is P3,000,000 while it is already valued at 95,000p0 at theeme of death. The amount thatwill be added to gross estate is:It: ' .• PO c.1/2 800,000 d. R1,200,000 ' R500,000 Answer: A.

ft is a valid or honetide safe.

71. Based on the preceding number, if the consideration is fictitious, how much will form part of gross estate? • c. P5,000,000 P1,000,000

P2,000,000

d. nil

C' Answer: C Fictitious sale means labhcatee sale.. The proceeds from sale is assumed to be PO. 72. Pedro, decedent, owns a property valued at P1,500,000 at the time of his death. The said property. was sold by Pedro during his lifetime to Juan for P700,000 when its value was P1200,000. It was

agreed by Pedro and Juan that the ;former will enjohthe income of the property as tong as he lives. For Philippine estate tax purposes, how much will b included in determining gross estate? PO c. P800,000 d. P1,200,000 P500,000

75

Amounts receivable by the estate of the deceased, his executor or administrator as an insurance under policy taken by the decedent upon his own life is: Excluded from the gross estate; Part of the-gross estate whether the beneficiary is revocable or irrevocable; Part of the gross estate if the beneficiary is revocable; Part of the gross estate if the beneficiary is irrevocable.. Answer: B APPLY THE FOLLOWING RULES: INCLUDED-IN THE Gross Estate IF: Proceeds of life insurance taken out by the by thedecedent on his own life should be included in the gross estate if the following requisites are present It must be an insurance on the life of the decedent The beneficiary must be either of the following; His estate, his executor, his administrator (revocable Or not). My third person provided that the designation is not irrevocable EXCLUDED IN THE Gross Estate IF: Proceeds of life insurance taken out by the by the decedent on his own We should be excluded in the . gross estate if the following requisites are present: It must be an inSurance on the life of the decedent The beneficiary must be OTHER THAN; His estate, his executor, his administrator (i.e., children, spouse, parents); and The designation is irrevocable

SUMMARYLIFE INSURANCE

Beneficiary:

Answer: C The amount to be included in the gross estate is the excess of FAN upon death over the proceeds. The P700,000 proceeds vs. FAAV at the time of transfer of PI,200,000 shall be used only to determine whether or not it will fall under sale for 'insufficient consideration'.

400

d. P1,200,000

Designation. Revocable Irrevocable

Taken out by the decedent Estate or administrator or Other than the estate, administrator or executor executor Include in the GE Include in the GE

•

Include in the GE Exclude from the GE

401

Taken out by Me decedent's EMPLOYER Not subject to estate tax

Li-tale, rae,

tiff& Ea The Philippine Insurance Code presumes that the designation of a policy is revocable in case the designator' of the beneficiary is not clear or silent: Section II. of the Insurance Code states that 'the insured should have the right 'to change the beneficiary he designated in the policy, unless he has expressly waived this right in said poky,' 76. Proceeds of fife insurance where the beneficiary of the decedent IS not his estate, executor or administrator is: Paha( gross income if the beneficiary is revocable Part of gross income regardless whether the beneficiary is revocable or irrevocable Not pert of gross estate if the benefidary is irrevocable Partletgress estate regardless whether the beneficiary is revocable or irrevocable C' Answer: C 77. Proceeds of life insurance to the ektent of the amount receivable by the estate of the deceased, his executor or administrator under policies taken out by the decedent upon his own life 'shall be . I. Part of the gross estate irrespective -of whether Or not theinsUred retained the power of revocation Not part of the gross estate if the beneficiary is irrevocable. Part of the gross income if the designation of the beneficiary is revocable Not part of the gross, incorhe trrespective of -whether or not the' insured retained the power of revocation land It c. :I and IV I and III d. only I

80. Statement 1: Conjugal partnership of gains, absolute community of property and complete separation are all valid regimes that may govern property relations between spouses. Statement 2: Under the regime of absolute community of property, the husband and the wife place in a common fund the proceeds, products, fruits and income from their separate property and those acquired by either or both spouses through their effort or by chance. • Only statement 1 is correct Only statement 2 is correct e. Both statements are correct d. Both statements are Incorrect . 10 Answer: C 81, Under the law, the properly relationship between husband and wife shall be govemed in what order? By marriage settlements executed before the marriage. By the provisions of this Code By the local custom. a,,ll, lll c.11,111, I la.1 , 11 d. III, 11,1 Answer: A Exclusive property of the wife is called? a, income c. paraphemal b. capital d. equity

C' Answer: D . . . 78 Which of the folloWirig. life 'ipso nce proceeds shall not be included in the computation of gross . .. estate? • a. Beneficiary is the estate, .executor, oradministrator and the.designalion of the beneficiary is revocable; .. . . . . . b. Beneficiary is the estate, executor or administrator and•the des ofithe beneficiary is ignation . irrevocable; Benefidary - is other. thart-the estate, executor or 'administrator and the . designation of the „ . . beneficiary is revogable; . . Beneficiary is other than.the estate, eXecutor, or administrator and -thedesignation of the . beneficiary is irrevocable. ,- / . . • , Answer: 0 PROPERTY RELATIONSHIP; MARRIAGE SETTLEMENT . 79. Which of the following statements is incorrect? a.: Marriage settlements may fix the property relationS of spautes during the marriage within the limits provided by the family code. . ‘tp The purpose of system of property relations isiii to distinguish a conjugal or community property from an exclusive proderty. , 1 Modifications or amendments in the marriage settlements may only be allowed after the .. celebration of the marriage. None of the above Answer: C 0 Amendments shall be. made prior to marriage.

402

-1. Answer: C Exclusive property of the husband Is called? a. income , c. paraphemal b. capital , d. equity .1. Answer: B 84

The gross estate of a decedent who was married at the time of death will be composed of: a His capital property, the wife's paraphemal property and the common property • b. His cepital property and the common property c. Common property d. His capital property C. Answer: B

85

Statement 1: In the absence of mardage settlements executed before the marriage, the property relationship between husband-and wife shall be governed by local custom and by the provisions of law, respectively. • Statement 2: Claims against insolvent persons may be charged against exclusive property a. Only statement 1 is correct e Only statement 2 is correct - a Both statements are correct .d. Both statements are incorrect Answer: B

403

Fate, 7716 Statement 1 rderpfP,icly: Agreement of the spouses executed before marriage By operations of law Customs or haaions

745

That Which is acquired by right of redemption. That which is purchased with the spouses' common fund. Answer: D

' 86 In thi absence of a marriage settlement, or Mien the regime agreed upon is void, the property relations of the spouses who married before August 3, 1998 shall be mivemed by: Aholute community of properties. Conjugal partnership of gains Absetute separation of properties. Nolleperly relations. Answer 8 87. In the absence of a marriage settlement, or when the regime agreed upon was void, the properly relations of the spouses who were Married on or after August 3, 1988 would be: a.' Absolute community of property b. Conjugal partnership of gains • • Absolute separation of property Either absolute community of property or conjugal partnership of gains

92. Which of the following is exclusive properly under the system of conjugal partnership of gains? Property be' ' marriage Inheritance during marriage , • Property acquired during marriage out Of exclusive money Al of the above. . .• Answer: 0 • . .• ticr Absolute Community of Property . • P.,. "4 . 93. One of the following is not a community properly of the spouses' ... • Property inherited by the husband before marriage 't 2,21.1 Winnings in gambling . Fruits of property Inherited during the marriage . 7 •-;:is--vc, ;-t.,• Fruits of property inherited before the marriage •A : . 7: Answer: C

rir Answer: A 88

E. Thittle,

e: .

'..

Property acquired during marriage, under ACeP, Cr wrier* erti1 e progeny.

The foilowing are exclusive properly of each spouse. Whiclione is not? That which each acquires during the marriage bv. lucrative title. That which is purchased with the exclusiVe money of either spouse. That which is acquired by exchange with other property belonging •to the spouses. That which is brought to th marriage as his or her own. Answer: C

Conjugal Partnership of Gains (CPO 89. One of the following is a conjugal property of the spouses That which is brought to the marriage as his of her own That which each acquires during the marriage by inheritance C. The fruits of an exclusive property, d. That which is purchased with the exclusive property of the wife Answer: C The term 'conjugal property shall pertain to common properly under CPS. The 1M -community property shall POMOto common properly under ACoP.

90 Which of the following is exclusive property under the system of conjugal partnership of gains? Property before marriage Inheritance during marriage Property acquired during marriage out of exclekive money All of the above. Answer D 91 Which is not an exclusive property of a spouse? That which is brought to the marriage as his or. her own. That which each acquired during the marriage by gratuitous title.

404

RULES on FRUITS: rto AC0P: ifs- FS vnl I Follow the Source Se.:12mmunoty itfrom cornmurciy pr' dm CPG: AFC • AO Ruits are Common (regardless oisource). Since the hut in this Particular case - Carte (PM "'entente thinng adage (an exdusive properly), I strati be classified es exclusive prctoettyk inTrirSi.,..ter . .• i.e

94. Which of the following is exclusive properly under the systilm ot absolute community of property? 4*, Property before marriage Inheritance during marriage s. Properly-acquired during marriage :et - d. All of the above. . . d.'r Answer 8 , . 95. Properties owned by the spouses before and brought into the marriage shall be classified as: gal Par mr __q_L Absolute Community Property Conju Conjugal , Community Exclutiv,e,• Exclusive Exclusive Community Conjugek Exclusive .• Answer: C

96. The fruits on properties owned by the spouses before and brought into the marriage ShaN be classified as: of Gains • 4 4 lit' Co—alPar shio Absolute Community Property s_teL_P__— '• A• Conjugal Community EXClUahle Exclusive Exclusive Community Conjugal Exclusive cr Answer: A

405

; 11

Estate, 97

Az:

Properties received from gratuitous transfer during maniage Shall be classified as: Absolute Community Property Conjugal Partnership of Gains Community Conjugal Exclusive . Exclusive Community . Exclusive ..,. Exclusive Conjugal '

tstitti& Car, inherited by wife during marriage (the decedent provided in his Will that it shall form part of the common properties of the spouses) Jewelry, acquired during marriage for exclusive use of the wife

74,

1,300,000 200,000

101 How much is the conjugal properties under Conjugal Partnership of Gains? P12,510,000 c. P22,310,000 ' P18,510,000 d. P23,610,000 -

Answer: B C. Answer: A 98

Properties received from gratuitous roister during marriage where the donor or testator expressly provides that it shall form part of the common property of the spouses shall be classified as: . Absolute Community Properly Conjugal Partnership of Gains Community • Conjugal • Exclusive Exclusive , Community Exausive Exclusive , Conjugal Answer: C

99

The fruits received during marriage from gratuitous transfer will be classified as: Absolute Community Property' Conjugal Partnership of Gains Community. ' . ' • • Conjugal Exclusive .•, . ... : Exclusive . , Community , . .. • , , Exclusive • . d. .Exchnive • , •, , . , ' Conjugal. '.• . C. Answer:: D .

J.

•' : •

Solution: Rest house in Cebu Income from rest house in Cebu Condominium in Davao Income from condominium in Davao ' ToWn house in Quezon City Income from town house in Quezon City Car, inherited by wife during man*, Jewelry, Total Conjugal Properties

1110. Personal property for personal and exclusive use shall be classified as: -. Absolute Community Properly ' Conjugal Partnership of GainaCommunity. ' Conjugal Excluilye Exclusive C. Community Exclusive . . . d. . . Exclusive Conjugal

Conjugal Conjugal Conjugal ‘.Eiol - : of Ihe Surviving Spouse ai...).,.=.•)-_=,-) —±Excl. of the Surviving Spouse

- P12,5,000-

Answer: B Rest house in Cebu Income from rest house in Cebu Condominium in Davao Income from condominium in Davao Town house in Quezon City Income from town house in Noon City Car, inherited by wife during marriage Jewelry, Total Gr&s Estate under CPG

„ow

-)690-Q00 :360,00 io:60,060 lib.5A000

General Rule: Exclusive . However, 'jewelry under ACoP, shall be classified as community property as piovided under Section 92o1 the new Civil Code. This ruletver, shall not apply to CPG.

The next four (4) questions are based on the data provideg below Mr. J. Chavez died leaving the following properties: Rest house in Cebu, acquired before marriage Income from rest house in Cebu. Condominium in Davao, brought to marriage by wife Income from condominium in Davao Town house in Quezon City, acquired during marriage Income from town house in Quezon City

406

6,000,000 600,000 3,600,000 369,000 10,500000 1,050,000

Ent of the decedent (Mr.1411' Conjugal Excl. of the Surviving Spouse Conjugal .0011u9ad Conjugal Excc Eitt c4 otthe ;e ,,5 Su um tyrim oving SP ; ejutp,} se -

P16,510.000

• 103. How much is the community properties Undo} Absolute GoniMunifY of Property? c. P22,310,000 " a. P12,510,000 d. P23,610,000 'b. P18,510.000 tt

Answer: D. olution:

Answer: B

•

In- 360000 '

102. How much is- the gross estate under Conjugal Partnershipof. Gains? c. P22,310,000:, P12,510,000 ' d. P23,610,0004 P18,510,000 J•ox

.

Properties re,ceivecl from-gratuitous transfer' during Montage are.generefirclassified as exclusive properly unless the Marriage settlement 0 ACoP and the donor or festater expressly provides that it shall loon part of.the,Common &Lowly& the spouses.. ' Fruits: refer to rules prOitided in 093 , . . , . .-.

. Excl. of the decedent (Mr. J) Conjugal :. 660: 19, 0 ..: . .P. :1,1: 0 30: 6500 , 00 090, ,,,,;:::::ofthe SurvivingSpo conjug us I

P6,000,000 600,000 3,600,000 360 000 10,500,000 1,050,000 1,300,000

Rest house in Cebu' Income from rest house in Cebu

) CemmontlY .kCOMMLIWIY Conway ‘Community

Condominium in Davao Income from condominium innavao - C;ammUMid Town house in Quezon City . COMTPUOtt Income from town house in Quezon City Community Car, inherited by wife during marriage community. 200,000 - Jewelry, P23,610,000 Total Gross Estate under CPG ordonation) 'during Under ACoP, properly acquired though gratuitous transfer (iobedience donor expressly provided that such shall marriage,, is generally exclusive, unless, the testator or cpc. form part of the community property. This rule, however, is not applicable to -, Jewelry: refer to discussion in 100. 0

407

Ethic/74 107. How much is the net taxable estate under Conjugal Partnership of Gains? c. P3,426,000 a. P3,926,000 d. P1,348,000 C P6,426,000

104. How much is the gross estate under Absolute Community of Properties? P12,510,000 c. P22,310,000 P16,510,000 d. P23,610,000 , Answer: D • Same solution above.

.1-

4 Under ACoP, estate may be classified as exclusive or common. However, under this particular case, all the properties are classified as community properties. .

Family home-lot Family home-house Other properties Jewelry Properly in U.S. Rental income Total Qress Estate ORDINARY DEDUCTIONS: Casualty Losses Claims against the estate Vanishing deduction" NET Estate before Special Deductions and Share of the SS SPECIAL DEDUCTIONS: Standard Deduction Family Home Lot = P4M House = P1OW2 SHARE OF THE SS (P15W2)

, .1 , 105. Statement The right to successien is effected at the time of transfer of the decedent's property or rights to the heir. Statement 2: Ana is the surviving spouse of Jose. Her share in their community property is classified as her exclusive properly and shall form part of the decedent's distributable estate. • Only statement 1 is correct • • Only statement 2Is correct: Both statements are correct Both statements are incorrect • Answer: D. • 106. The list provided below is not included in the gross estate Of a decedent, except: Share in common properties of the Surviving spouse; Exclusive property of the'surviving spouse; Properties outside the Philippines of a non-resident alien decedent; Intangible personal property in the Philippines. of a non-resident alien when the rule of Reciprocity applies. tik • :-

gross estate before

share of

qf

P14,000,000

6,000,000 2,500,000 _

1,200,000

Expenses/Claims:

Funeral expenses Judicial expenses , Casualty losses incurred on Dec. 10, 2018 Claims against the estate - Medical expenses within 1 year prior to death, only half wasTeceipted

408

420,000 800,000 600,000 1,600,000 4,000,000

iota/

P10,000,006 6,000,000 2,500,000 2,300,000 P8,800,000

1,200,000 P17,200,000

P26,000,000

(600,000) (t600,000) (952,000)** P7,848,000

P15,000,000

(3,152,000) P22,848,000

(5000,000) (9,000,000

(7.500,000) P1,348,000

Answer: D Exclusive

2,300,000

Common

108. How much is the net taxable estate under Absolute Community Of Properly? • s. P1,174,000 P4,636,060 d. P2,174,000 (P2,174,000)

Use the following data for the next two (2) questions: The estate of Pedro, resident citizen decedencrhanied, who died on April 1, 2018 are as follows: House and lot (Family Home) The lot was acquired at a coif of P3M before marriage while the house was constructed on March 1,2018, during marriage, at a cost of P1OM from partnership funds. The lot had a FMV of P4,000,000 after construction of the house. Other properties acquired during marriage Jewelry inherited on Feb. 14, 2017, during marriage, then with a fair market 'value of P1,300,000 • .. Property in U.S., received as gift during marriage tor* friend on Jan. 12, 2017 • (the applicable donor's tax was not paid by the donor)s Rental income on the above property tip to time of deal

Exclusive P4,000,000

Taxable Net Estate

Answer: A 71": The entire common' property Shell be included first in the surviving spouse is deducted'

Answer: D

Family home-lot Family home-house Ofher properties . Jewelry . Property in U.S. Rental income Total Gross Estate ORDINARY DEDUCTIONS: Casualty Losses Claims against the estate Vanishing deduction" NET Estate before Special Deductions-and Share of the-SS SPECIAL DEDUCTIONS: Standard Deduction' Family Name (P14W2) SHARE OF THE SS (P22,500 Taxable Net Estate

2,300,000, 1,200,000 P3,500,000 ,

Common P4,000,000 10,000,000 6,000.000 Z500,000

Total

P22,500,000

P26,000,000

(600,000)

(1,600,000) P3,500,000

(952,000)" 19,348,000

(3,152,000) P22,848.000

(5,000,000) (7,000,000 (9,674,000) P1,174,000

409

Effrite,

fr_stettc DEDUCTIONS FROM GROSS ESTATE Funeral Expenses Mowed only if the decedent died before 2018 taitable yek Assume the decedent died befoye 2018 taxable year in the following questions on funeral menses • 109. Which of the following is correct? a, •Coartqf burial plot, tombstone, monument or mausoleum can be claimed as deduction from gross estate including their upkeep. Expenses of the-prayer vigils succeeding the burial are deductible from the gross estate. Telecommunication expenses incurred to inform relatives of the decedent may be claimed as deduction from gross estate. All of the above Answer: C 110. Which is deductible front gross estate? Interment fees unsupported by receipts or otherwise Expenses incurred after interment Interment expenses borne bithe decedent's bent fdehd Death and interment notice Published and duly receipted C.

Answer: .0

111. Not allowed as funeral expenstg. Burial plot • ‘• Mouming clothes of surviving Spouse • • . c: Maiming clothes of minor and unmarried children d. Expenses for religious rites 40 days after death . .C•

Answer: O

112. Statement 1: Funeral expenses derived from assistance by sympathizers are deductible funeral expense. Statement 2: Rdceipts or invoices or other evidence to show that the expense was really incurred must duly support thefuneral expense. Only statement 1- is correct Only statement 2 iscorredBoth statements are correct - Both statements are incorrect i• Answer: El 113. Jose died on November 1,2017 leaving a gross est . te of P4,500,000. The actual funeral expense on his burial is P250,000. Of the said amount, P100,000 is unpaid. How much is the funeral expense that can be claimed in computing the taxable net estate? P100,000 c. P200,000 P150,000 d. P250,000

114. Based on the above data, how much is the dedudble claims against the estate? a, P5,000 c. P150,000 b. P100,000 d. PO • C- Answer: D 115. Assume. Jose died on Nev. 1, 2018, how much is the funeral expense that can be claimed.in computing the taxable net estate? P150,000 c. P250,000 P200,000 d. nil Answer: D Funeral, judicial and medical expenses as deduction from the gross estate were repealed under ' • RA No. 10963, othenvise known as the TRAIN Law

116. Aling FeN, administrator, claims the following funeral expenses for a decedent who died in 2017: , Expenses of interment (paid by fiend) , P 60,000 Cost of burial & tombstone (1/2 paid by relatives) 42,000 Other funeral parlor expenses 36,000 Expenses during the•wake 13,000 Obituary notice 7,500 Card of thanks 3,500 Mouming clothing of friends 15,000 Mourning clothing of unmerited minor children 5,000 If the gross estate is P1,500,000, the allowable funeral expenses is: • - a. P75,000 c: P93,500 • b. P82,500 , . d. P174,500 C.

Answer: A Solution: Expenses CI interment (paid by friend) . Cott of burial 44 tombstone (1/2) Other funeral 'parlor expensesExpensesduring die wake Obituary notice • . Card ofthanks Mourning clothing of friends Mourning clothing of unmarried miner children Total actual allowable deductions vs. Limit (P1,5M x 5%) ALLOWED (Lower Amount)

-

5,000 P82,500 P75,000' P75,000

117. Based on the preceding number, but the gross estate is P2,500,000, the allowable funeral expenses is: P75,000 c. P93,500 P82,500 d. P174,500 Answer: B Actual = P82,500 Limit = P2.5M x 5g= P125,000; Lower (allowable deduction). P82,500

C.. Answer: C

410

21,000 36,000 13,000 ' 7,500

411

E-thic

743

. Judicial Expensed ' • • Allowed only if the decedent died before 2018 taxable year Assume the decedent died before 2018 taxable year in the following questions on funeral expenses 118. Judicial, expenses may be deducted from the gross estate of a decedent who died before 2018. Which df the statements provided below is correct? Judicial expenses are costs and expenseS incurred during the settlement of the estate and beydod. Any unpaid arimunt of judicial expenses need not be supported by a sworn statement of account issued and signed by the creditor.. , • Attorney's feel incident to litigation incurred by the heirs in asserting their respective rights cannot be claimed as deduction from gross estate. Expenses incurred in .the administration and settlement of an estate in extrajudicial • proceedings is not allowed as deduction. Answer: C • 119. Judicial expenses may be deducted from 'the gross estate- of a decedent'who died before 2018. However, expenses not essential in the proper settlement of the estate but incurred for the individual benefit of the heirs, legatees, or devisee's are not allowed as judicial expenses. Which of the following is non-deductible under this category?' AttOrney's fees paid by the heirs to their respective layryers arising from conflicting claims are not deductible as judicial expenses. These expenses should be separately borne by . them., Premiums paid by a jukcial administrator on his bond are not deductible because the ability of the appointee to givetyond is in.the nature o/ a qualification. , • Compensation of trustees such as expenses being for the account and benefit not of the estate but of the beneficiaries. All of the above Answer:, D 120. Statement /: To he deductible,' judicial expenses should be incurred during the settlement of the estate but not beyond the last day prescribed by law, or the extension thereof, for the filing of estate tax return. Statement 2: Expenses primarily incurred by ad hew intended to establish his interest in the estate are deductible judicial expenses from the gross estate. Only statement 1 is correct, Only statement 2 is cowedBoth statements are correct Both statements are indirect Cr Answer: A 1 121. Which of the following statements is true? Statement /: Expenses incurred in locating a legal heir of the testator is a deductible judicial expense. Statement 2: Brokerage fees in selling property of the estate are part of the deductible judicial expenses. Only statement 1 is correct Only statement 2 is correct Both statements are correct

412

Etat& 74 d

Both statements are incorrect Answer: C

122. Which of the following incurred expenses shall not be deducted under the category of judicial expenses for a•decedent who died before 2018? Expenses for the inventory-taking of the assets comprising the gross estate; Expenses for the administration and payment of debts of the estate; Expenses for the distribution of the estate among the heirs; Expenses as of the last illness of the decedent. Answer: D • 123. Which of the following is deductible as judicial -expense of the testamentary and judicial proceedings? Expenditures incurred for the individual benefit of the heirs, devisees or legatees Premiums paid on the bond filed by the administrator as an expense of the administration in the nature of a qualification for the office. ' Attorney's fees incident to litigation incurred by the heirs in asserting their respective rights. Payments to an accounting firm for services in taking inventory-of assets, tax consultations, and preparation of income tax returns for the the estate.. AnsWer: D 124. Mr. Ded, a bachelor and resident Filipino citizen, died on November 2, 2017. The following fees were paid to the following In Connection with the settlement of his estate. 50.000 Executor, for time and effort in executing the will Pe0,000-Attorney, for legal advice in carrying aid the will AppraiseV, for establishing property values . 4730,0: 000 Administrative expenses for locating and collecting assets. Accountant, for estate tax return preparation • How much deduction for judicial expenses may the estate claim? a: P150,000 . b. P220,000 cdl.P2 P237000 010000 Answer: D Solution,' Executor, for time and effort in executing the will Attorney, for legal alike in carrying out the will Appraiser, for establishing property values Administrative expenses for locating' and collecting assets Accountant, for estate tax return preparation Total allowable judicial expenses

P50,000 80,000 70,600 40,000 30000 P270,000

Losses 125. Pedro died in 2017. The following are the requisites in claiming casually losses in the computation of estate tax, except: Losses are not compensated by insurance; losses must not have been claimed as deduction in the computation of income tax; Losses were incurred not later than the six (6) months from the time of deal. Losses were incurred not later than one (1) year from the time of death. Answer: D o To be deductible, losses must be incurred after death but within the settlement period

413

[sue& 'retc Settlement period refers to the period allowed by law to file and pay the estate tax which are as follows:

,O 0

Decedent died prior to 2018- within six (6) moths from dale of death. Decedent died on or after January 1,2018 - within one (1) year from data of death.

126. Pedro died in January 2018. the following are the-requisites in claiming-casually losses in the computetion of estatelax, except: Losses are not compensated by insurance; Losof must not have-been claimed as deduction in the computation of inco e tax; Losses were incurred imitator than one (1) year from the time of death None of the abrive

k.sta,t6 7:1(' Accommodation Loan 131. If a loan is found to be merely an accommodation loan where the-loan proceeds went to another person, which of the following statements is incorrect? The value of the unpaid loan must be included as a receivable of the estate. • If there is a legal impediment to recognize the same as receivable of the estate, said unpaid obligation shall not be allowed as a deduction from gross estate. In all instances, the mortgaged property, to the extent of the decedent's interest therein, should always form part of the gross estate. None of the choices C. Answer:

Answer. .0 • Indebtedness or Claims Against the Es . tateAnd Umpald Taxes 127. Deductible claims against the estate ,or indebtedness in respect of property May arise out of, except: a. contract c: °Orations of law d. none of the -above b tort . C. Answer: D 128.. Which of the following statements pertaining to the dilly notarized certifiChtion from the creditor as tote unpaid balanceot debt of debt by the decedent inclUdingtinterest ai of the date is correct? a If the Creditor is a.corptitation, it shall bpi. signed by President, or Vice-President or other principal officer of the,corpothtion:-. • . Stith general partners. • . t b. If the creditor is ipartnerAlp, it Shall he signed by c. If the creditor is d- bank o ;other financiut, inslitutions it shall be executed by ,the branch manager of -theliankifinancial institution Urhibh trionito'rs'anctmenades the loan of the debtordededent. . ,. cf. All of the above C. Answer 19.

132. Which of the followingth not a requirement in claiming unpaid mortgage as deduction for estate tax purposes? a. The fair market value of the moitaged property, net of the mortgage indebtedness, should be included in the gross estate; The fair market value of the-mortgaged property undiminished by the mortgage indebtedness b should be included in the gross estate; • c, The loan must be contracted in good faith • d. The loan must be for an adequate and kill consideration Answer: A 133. Mr. Pobre is in need of money to.start a small business. However, he has rid properly to secure a loan from a bank so he sought the help of his good hiend Mr. Rich:tiAr. Rich-then obtained a loan from Banco de Uro amounting to lmillion Pesos secured by a real property worth 2miliion pesos to accommodate the request blMr. Pobre. If subsequent to securing the loan and delivering to Mr. Pobre the proceeda, Mr. Rich died, how much grossetate should? reported? c. P3,000,000 .P1-,000,000, • . d. nil . P2,000,000 C. Answer: C

129. The , following are the requisites -in order far claims against the decedent's' estate may be deductible, except which one? They must be the personal debt of the decedent • They must be enforceable in court. They may have been condoned prior to death, If the loan was contracted 3 years before death, submit statement showing the disposition of the proceeds. C. Answer: C 130. Which of the following is not deductible from the grws estate of a decedent? 1 . Income taxes on income received after death Property taxes not accrued before death Estate Tax c. All of the above a land II onh, • d. None of the above b. II and III only 4- Answer: C in To be deductible, the lax shall be due on or before date or death Estate tax Ls not deductible hem the Gross Estat

414

134 A piece of land with a fair market value of P10,009,000 at-the time of thedecedent's death was included in the gross estate. Upon closer examination, you found out that the value used was net of P2,000,000 unpaid mortgage on the some land. How much should have been included and deducted from the gross estate? Amount to be deducted Amount to be included P2,000,000 P12,000,000 2,000,000 P10,000,009 0 P10,000,000 0 P8,000,000 C. Answer: A Vanishing Deduction 135. The following are the requisites for vanishing deduction lobe allowable, except one. The estate tax of the prior succession must have been finally determined and paid. The present decedent died within five (5) years from date of death of the prior decedent. The property with respect to which deduction is sought can be identified as having been • received by the present decedent from the priorsiecedent. None of the above

415

t—staie, 1,500,000

Cash (inclusive of P5001000 received as inheritance from the father) Answer: D 136. Ded Nha, a citizen of the Philippines and resident of Manila died intestate on November 2, 2018. Among his gross estate are properties acquired through public sale of properties left by Bernardo who died 41/2 years ago. What percentage of deduction will be Used in computing the amount of vanishiitdeduction? a60% • c.20% b. 40% d. nil Answer: D .0 Vanishing deduction is allowed only if the properly was acquired through gratuitous transfer (donation or inheritance). The property in,this particular probfem was acquired through public sale (public auction; onerous transfer) •

The following obligations and expenses were also made available: Claims against conjugal properties Unpaid mortgage on the inherited house and lot. • (original mortgage was for P600,000) How much is the total vanishing deduction? P1,000,000 c. P1,530,000 d. nil P1.080,000 Answer: C Solution:

INHERITANCE FROM THE FATHER: Value to Take:

137. Which Of the following properties of Namayapa Nha viho .died December 1, 2018 is subjdct to vanishing deduction? Property 1: Rest House in Tagaytay.purchased in 2012 Properly 2: Commercial lot and building inherited from her mother in 2011 where the estate tax thereon had not beentaid. . Property 3: Donatiod from a friend in 3013 . Property 4: Property won in a lottery six (6) months before death. Property 1 Property 2 Property 3 Properly 4 No No • Yes • Yes . No No •Yes. No Yes Yes Na, Yes Yee No Yes. No t, . • 4 Answer. B • 138.. Pedro a citizen of the Philippines-and resident of Mekati .Cihk died testate on May 10, 2018.•Among his gross estate were properties inherited from, his deceaSed• futheriwho died on April 4,•2015. What percentage of the deduction wouldte used in computing the amount of vanishing deduction? 60% c. 20% 40% d. nil Answer: B o

The propeffy—was inherited from the predecessor more than three years before the present decedent's death. The vanishing deduction rate shall be: Interval of Acquisition and death of the present decedent Within one year Within two years_ , Within three, years‘• Within rourythars t Within fare years

100% 80% 80% 40% 20%

139. Mr. Pim Manaw, resident decedent, married, died, leaving the following properties: Real and personal properties acquired during the marriage P 3,000,000 House and lot inherited from his father one year and 3 months before he 2,000,000 died (fair market value when inherited, P1,500,000) used as the . decedent's family home Car purchased with cash received as gift from his mother during the year 500,000 he died

416 -

600,000 100,000

•

House and rot (lower amount) 6th • Total Less: Mortgage paid on mortgage assumed Initial Basis Less: Proportional deduation (1,500/7,000 x e700,000) Final Basis x Vanishing deduction % Vanishing deduction- inheritance

P1,500,000 500400 P2000,000 7500,000) ' '1,500,000 (150,000) P1,350,000 80% •

P1,080,000

OONATION FROM THE MOTHER: • (3500000

Value to take/initial Basis Less: Proportional deduction (500/7,000 x P700,000) Final Basis • x Vanishing deduction %

,(50,000)

Roux, 100%

TOTAL VANISHING DEDUCTIONS

1,450,000 131,530,000

140 Teh Pok died on November 20,2018. Some of the properties he left are the following: Market Value Date of Date . Date Mode Death Acquired Acquired of Acquisition Asset 350,000 500,000 7-3-14 Land Purchase 980,660 800,000 10-2-17 Car Donation Other information: The gross estate of the decedent amounts to P3,000,000. The car was mortgaged for P50,000 when it was acquired and Teh Pok paid the same before he died. The allowable deductions totaled P325,000, which includes judicial expenses of P30,000 and funeral expenses of P150,000. The vanishing deduction is P581,000 P571,000

c. P648,783 d. P637,617

Answer: B

417

Edit& 7a-j Solution: Value to Take - Car Less: Mortgage paid on mortgage assumed Initial Basis fees: Proportional deduction • 750/3,000 x P145,000n Final Basis x Vanishing deduction % Vanklyng deduction - inheritance

P800,000 (50,000) 760,000 (36,259) P726,250 80% P571 000

Solution: Value to Take (lower value)" Less: Mortgage paid on mortgage assumed Initial Basis Less: Proportional deduction 6,000/18,000x P2,500 Final Basis a Vanishing deduction % Vanishing deduction ID

Ea ID

"UT = (P325,000-30,000-150,000) P145,000 Funeral end judicial expenses are no fonder allowed as deduction from gross estate of a decedent who died on or after the effectivity of the TRAIN Law (Jan. 1,1018)

141. A decedent died in 2016 leaving properties helnhedted 2% years ago which had fair market value of P8,000,000 at the time•of his death (P6,500,000 at the time of inheritance, and unpaid, mortgage of P500,000 paid by the present decedent). After inheritance, the decedent mortgages the properly for P500,000 and paid the sarrie before his death. Other properties in his gross estate had fair market value of P10,000,000.. The total, expenses, losses; indebtedness, taxes and transfer. for public purpose amounted to P3,000,000. • , How much is the vanishing deduction? P2,000,000. P2,750,1100

c. P3,000,000 d. P3,126,000

Answer:

Value to Take flower value) , Lass: Mort0age Paid on mortgage assumed ' Initial Basis ' , Less: Pmportional deduction 6,000/18,000 x P3,000 , Final Basil. • . ' x Vanishing dedication % Vanishing deduction ca

P6A00,000 (500,000)

(1,000,000) P5,000,000 60% P3,000,000

The mortgage 'alter inheritance and contracted by the present decedent after settlement of the mortgage assumed when inherited shall be ignored for purposes of computing the vanishing deduction. The subsequent mortgage has nothing to do with the inheritance or donation, hence, shall be ignored in computing the applicable vanishing deduction.

142. Assume the same data in theimmediately preceding number except for the following assumptions: The decedent died in 2018 eb‘ titiness . , ,. . Out of the P3,000,000 expenses, pe losses, Ind , taxes and transfer for public use, P200,000 was incurred for funeral expenses and Pa00,000 for judicial expenses. How much is the vanishing deduction? P2,009000 c. P3,000,000 P2,75,000 d. P3,120,000 Answer: D

418

fa

P6,500,000 (500,000) 6,00+3,000 (800,000) P5,200,000 60% P3,120,000

Allowable Losses, indebtedness, taxes and transfer for public use (excluding funeral and judiciaf expenses) P3,000,000-200,000-400,000. P2,400,000 Funeral and judicial expenses were repealed under the TRAIN Law, consequently, these expenditures shall be excluded in the computation or determination Of the proportional deduction for vanishing deduction purposes.

143. Mrs. Nathy Gok died on March 20, 2017 leaving a gross estate of P8,000,000 including a land inherited from his uncle on October 15, 2013 and a car donated to him on April 20: 2011: The • following data pertain to the thro properties: FMV upon death FMV upon receipt Unpaid Mortgage P1,250,000 Land • P100,000 . P1,800,000 400,000 • 300,000. 50,000 Car The decedent was able to pay.% of the unpaid mortgage on the land before his death. The deductions are: Expenses, losses, indebtedness, taxes (excluding the Unpaid mortgages- P 1,200,000 above but including actual funeral expenses of P300,000 and medical expenses of P600,000) 300,090 Transfer to the Government included above '2,000,000 Family home (included above) The allowable vanishing deduction is: c. P440,625 P213,000 d. P626,000 P426,000 Answer: .8 Value to Take -Land (lower value) Less: Mortgage paid on mortgage assumed Initial Basis Less: Proportional deduction 1,20018,000 x P900,000— Final Basis x Vanishing deduction % Vanishing deduction o

**Corrected ELITe and TFPU: ELITe unadjusted ADD: Unpaid mortgage on land Unpaid mortgage on the car LESS: Excess on allowable funeral expenses Medical expenses ADJUSTED ELITe ADD: TFPU ADJUSTED ELITe and TFPU**

419

P1,250,000 . (50,000) 1,200,000 (135,000) P1,065,000 40% P426,000

P1,200,000 50,000 50,000 (100,000) (600,000) P600,000 300,000 P900,000

Estettc Zric 146. The taxable net estate based on the preceding number is: P2,174,000 c. P51,620.000 P40,000,000 d. P52,000,000

144. The taxable net estate based on the preceding numbers: c. P4,074000 P2,174000 P3,174,000 d. P4,174,000 C.

Answer:, D

Answer: D

1

. Gross estate Adjusted ELITe /41. Transfer for Public Use Vanishing Deduction • .4:-.1 . Standard Deduction Family Home Medical expenses Taxable Net Estate

Gross estate Adjusted ELITe Transfer for Public Use Vanishing Deduction Standard Deduction 'Family Home Taxable Net Estate

P8,000,000 (600,000) (300,000)

(426,000) (1,000000) (1,000,000) ' '(500,000) P4,174,000 „.

•

.

145. Mrs. Natty Gok died on March 20, 2018 laving a gross estate of P80,000,1100 including a land inherited horn his uncle on October 15,.2014 and ,a car donated to him on 'Apd1 20, 2012. The following data pertain to the two properties: . . • Unpaid Mortgage • : Fhiv uporireceipt FMV upon death Land P1,000,000', P18,000000. . P12,500000 , . .4,000,000 . Car 500,000 . 3,000,000 The decedent Was able to pay % of the unPaid Mortgage on the land before his death. The deductions are: , . . Expenses, losses, indebtedness', taxes (exclbding.the unpaid mortgages P 12,000,000 , above but including actual funeral eiperries of p3,000,000-and medical expenses of, P6,000,000) • .. • .. • :: 1 : ' . 3,000,000 Transfer to the GovemmenWholuded above - 20,000,000 . Family home (included °bine). The allowable vanishing deduction is: P2,130,000 " P4,260,000 Answer: C

C. P4,380,000. • d P6,260000

•-

Solution: , Value to Take -Land (lower value) Less: Mortgage paid on mortgage assumed Initial Basis Less: Preportienal deduction • 12,000/80,000 x P7,000,000** Final Basis x Vanishing deduction % Vanishing deduction 0

•

-Corrected LITe + TFPU: LITe 'unadjusted ' ADD: Unpaid mortgage on land Unpaid mortgage on the car LESS: Funeral expenses Medical expenses ADJUSTED ELITe ADD: TFPU ADJUSTED ELITe and TFPU-

P12,500000 (500000) 12,000,000 (1050,000) P10,950,000 40% P4,380,000

P60,000,000 (6,000,00) (3,000,000) (4,380,000) , (5,000,000) (10000,000) P51,620,000

147. Vanishing deduction on properties received from gratuitous transfer -before marriage shall be classified as: Absolute Community Property Conjugal Partnership of Gains Conjugal Community Exclusive • Exclusive Exclusive Community Conjugal Exclusive C• Answer: C The classification of the deduction will depend on the classification otthe property. Property before Marriage: ACoP r Communiqc CPO= Exclusive .

148. Vanishing deduction on properties received --frOm 'gratuitous: transfer during marriage shall be " •-• classified as: Absolute Conimuhity Property Conjugal Partnership of Gaint , Conjugal Community . Exclusive Exclusive Exclusive' Community Conjugal Excliisive • C.' Answer B The classification of the deduction wit depend on the classification of the properly.. Property from gratuitous transfer during marriage: AC,oP,= generally exclusive; CPG exclusive

149. lithe decedent is married under the conjugal partnership of gains, vanishing deduction shall be chargeable against? . Exclusive Properties Conjugal Properties Either Exclusive Properties or Conjugal Properties Neither Exclusive nor Conjugal Properties

‘.4! .P12,000,000 500,000 500,000 (3,000,000) (6,000 000) P4,000,000 3,000 000 P7,000,000

420

C. • Answer: A . Refer also to the two preceding numbers

150. The following are required to be- listed as part of the gross estate, but are exempted from estate tax, except Share of the surviving Spouse Transfer for public use Exclusive property of the decedent Amount received by heirs under RA 4917

421

Estate

74

4. Answer C 0 'A, 8, and D' are part of GE but also part of deductions, hence, not subjected to'estate tax Claim Against Insolvent Persons 151. Which statement is incorrect about claims against insolvent persons? They must be included in the gross estate even if uncollectible. They mIst be duly notarized ai a rule. C. The deduction is only the uncollecbble portion. d. The insolyepty of the debtor must be established. C• Answer.B

•

152 Statement 1: In a claim against insolvent person, the insolvency of the debtor must be proven and not merely alleged. Statement 2: It could be that the amount tote included as pad of the gross estate is a claim against insolvent person Leless than the full amount pled. Only statement 1 is correct, Only statement 2 is correct Both statements are correct Both statements are incorrect P Answer: A 153 The following data were taken from the estate of Pedro:Claims against Juan (insolvent), Filoopoo, fully uncollectible. Claims against Manuel (insolvimt), P200;000, 50% collectible. Claims against a person who dnroaded,• R300,000. . Based on the data provided-how much should be deducted from Pedro's gross estate? P600,000 c. R200,000, P500,000 Answer:. A

'

'Allowable deduction = receivable from Juan end 50% receivable from Manuel = P200,009 A person 11110 absconded Is a person who escaped or runaway.

154. One of the following statements is wrong. Claims against insolvent persons . • Should always be-included in the gross estate. If entirely uncollecbble, may be omitted in the computation for the net taxable estate. Can give rise to reduction even if the debtor had some properties. . d. Can boa deduction even if secured by a mortgage.. ,

The deductible claims against insolvent person is

a P29,285 b. P32,000

c. P48,000 d. P80,000

Answer: B P100,000 (40,000) : ' P60,000 P100,000 . 60%

Assets Unpaid taxes to the government ( Aratable assets Divide by remaining liabilities Co/lea-Ole % of receivables

.P80,000 40%

Juan's receivable from Pedro x uncollectible portion (10055-50%) Uncollectible Portion - Claim Against Insolvent Persons

P32,000

SPECIAL DEDUCTIONS Standard Deduction 156. The following statements are correct regarding standard deduction under the TRAIN LAW, except: A deduction in the amount of P5,000,000 shall be allowed as an additional deduction without need of substantiation. The full amount of P5,000,000 shall be allowed as deduction for the benefit of the decedent. Standard deduction is not allowed to decedents Who are non-resident aliens. None of the above Answer: C • PRIOR TO 2018: Allawable.only to citizen and resident decedents. Deductible amount = P1,000,000

For decedents who died on or after January 1, 2018: AlloWable only all decedents (citizens, residents and NRAs) Deductible amount: Citizen and Resident Decedent = P5,000,000 IrIRA Decedent P500,000 Substantiation requirements= none

157. If a decedent died prior to 2018, standard deduction from his gross estate is allowed for P1,000,000, unless the decedent has a gross estate valued not more than P1,000,000 has his estate opted for itemized deduction was a resident alien was a non-resident alien. Answer: D

Answer: B • 155. The gross estate of Juan includes P80,000 receivablesthich is duly notarized from debtor Pedro whose records show: Assets Floo,000. Indebtedness to: •• Government (unpaid taxes) 40,000 Juan • 80,000 Other creditors • 20,000 •

422

158 All of the following items are allowed as deductions against exclusive portion of the estate, except rTaxes Claims against insolvent persons Share of the surviving spouse Family home it• Answer: C Share of the surviving spouse as well as special deductions are not deductible under 'exclusive' nor "common property of the decedent.

423

Etat& ria(

Estait> Medical Expenses ire

I

TRAIN w •

nl I

the.ece.et"

PRIOR 10201K: Allowable only to citizen and resident decedents. Deductible amount = Actual expenditure but nett° exceed P500,000 Must be incurred within one (I) year before death, paid or unpaid, with supporting documents The unpaid portion shall not be classified under indebtedness or claims against the estate For decedents who died on or after January 1, 2018: REPEALED. No Longer deductible from the gross estate

159. Medical expense is allowed as a deduction from the gross estate of a decedent who died odor to the effectivity of the TRAIN Law. Which of the following is coned? If the actual amount of medical expenses incurred is P300,000, then only P300,000 shall be allowed as deduction and not to the extent of the P500,000 threshold amount. If the actual amount of medical expenses incurred within the year prior to decedent's death is P700,000, Only the maximum amount of P500,000' shall te allowed as deduction. If in case the excess of P200,000 (P700,000 - P500,000) is still unpaid, such amount shall be deducted from the ofoss estate as 'claims against the estate'. only c. Fund II • • b. II only d. None of the above • C. Answer: A Family Home (FH)

-•

PRIOR TO 2018: Allowable onfyto cilizegnd resident decedents who are meta& or heed cit the family. Deductible amotint = A al FAN of the FH but not to exceed P1,000,000 If the FH is purely comrhen,„ Its FMV,shall be divided by•hvo but The deductible 'amount shall not exceedihe /imit of P1,000,000 ' If the FH is purely exclusive 'the deductible amount shall be its entire FMV but not exceed the limit of P1,000,000 . . . If the FH is partly exclusive and peaty:gamin:On; the deductible amount shall be the total allowable common and exclusive EH as describe in the preceding paragraphs, but its total a/leviable amount shall not exceed the limit 01 P1,000,000 - . , . • For decedents who died on or after Jahuary.1, 2018: . Allowable'Only to citizen and resident decedents who are married or head of the family. Deductible amount =Actual FMV of the FH but net to exceed P10,000,000 If the FH is purely com-mon, its FAN shall be divided by two but the deductible amount shall not exceed the limit of P10,000,000 ; If the FH is purely exclusive, the deductible amount shell* its entire FMV but not exceed the limit of P10.000,000 ' . • If the FH is partly exclusive and partly common, the deductible amount shall be the total allowable common and exclusive FH as describe hi the preceding paragraphs, but its total allowable amount shall not exceed the whit of P10,000,000

160. Which of the following statements is incorrect in nnection with family home deduction prior to TRAIN Law? Family home deduction shall be snowed only if such family home is situated in the Philippines The total value of the family home must be included as part of the gross estate of the decedent For purposes of availing family home deduction, person may constitute only one family home • rt. Family home deduction may not be lower than P1,000,000

161. A decedent died on Nov. 1,2017 leaving a family home composed of the following: Conjugal house worth P800,000, and the land which he exclusively owned valued at P400,000. He also owns a vacation house in Baguio worth P700,000. The deductible amount of family home is: c. P1,200,000 P800,000 d. P1,900,000 P1,000,000 C' Answer: A Allowable FH = (P800,000/2) • 400,000' P600,000

162. Based on the preceding number, if the house is also an exclusive property, how much is the deductible family home allowance? c. P1,200,000 P800,000 d. P1,900,000 P1,000,000 ti Answer: B Allowable PH' P800,000 + 400,000= P1,200,000, max= P1,000,000

153. In 2016, a moiled, nonresident citizen decedent has the following common properties, obligations, and expenses P4,000,000 Real property, Philippines 5,000,000 Real property, USA 250,000 Funeral expenses . 150,000 . Judicial expenses, 50,000 ' Unpaid taxes , ' j 650,000 Medical expenses The real property in the Philippines includes the family home valued at P1509,000. How , much is the taxable net estate? c. P2,050,00 . P6,350,000 d. P2,300,000 1 P3,050,000 Answer C Solution: Gross Estate Real properly, Philippines Real properly, USA Total Less: Funeral expenses Judicial expenses Unpaid taxes Net common estate Less: Share of surviving spouse (8.6W2) Medical expenses Family Home (1.5M/2) Standard Deduction Net taxable estate

pa.odo,000 5,000,000 P9,000,000 (200,000) (150,000) (50,000)

(4,300,000 (500,000) (750,000) (1,004000) P2,050,000

C. Answer: D

424

(400000) P8,600,000

425

Es tette

r

Use the following data for the next three (3) questions: The following information were from the estate of a married citizen decedent Who died on June 2017: Properly:

• Family home • Domestic shares inherited 6 years ago during marriage Bank deposit, representing dividend earned during marriage Awelty received as gift 8 years ago during marriage

1,200,000 600,000 100,000 100,000

Eta& rit6 168. Under TRAIN Law, all of the following, except one, are not deductible from the gross estate of a non-resident alien: Funeral and judicial expenses Death benefits under RA 4917 Family home allowance Standard deduction

Expenses:

Funeral expenses AAA! Medical expenses

100000 50,000 150,000

164. Under conjugal partnership of gains, gross onnjugal prope is P1,300,000 c. P800,00 P1,200,000 d. P600,000

, . . Answer: 0 . .. Prior to TRAIN Law, letter 'a' is deductible (prorated) from the gross estate of NRA decedent Beginning January 1, 2018, standard deduction amounting to P500,000 is now allowed to NRA

decedents.

.

169. One of the following cannot be claimed as deduction m the gross estate of a non-resident alien decedent: • Vanishing deduction Medical expenses Share of surviving spouse Transfer for public use

Answer( A 165. The 1/4 share of the surviving spouse is P600,000 c. P500,00 P575,000 d. P300,000 t Answer: B

Answer: B

166. The net taxable estate of the decedent is • P600,090 c, P500,00 • P575,000 d. P475,000 14. Answer: D Cantu*

EXCif ISMS

GrossEstate: ' Family home Domestic shams Bank depOsif Jewelry Total Deductions: Funeral expenses Judicial expenses Net estate before special deductions Special Deductions Standard deduction Medical expenses . Family Home (1,200,000/2) Share of the surviving spouse Net taxable estate

,

Total

e Answer: A

P1,200,000 100,000

100,000 P700,000

P700,000

‘ t

•

P1,300,000

P2,000,000

(100,000) (50 000) P1,150,000 •

(150,000) P1.850,000 (1.00(,000) (150,000) (600,000) (575,000) (P475,000)

Computation of Net Taxable Estate for Nonresident Alien Decedents 167. Prior to TRAIN Law, which of the following is deductible from the gross estate of a non-resident alien decedent? Funeral and judicial expenses Death benefits under RA 4917 Family home allowance Standard deduction Answer: A

426

170. One of the following is allowed as a deduction from the gross estate of a non-resident alien decedent who died prior to 2018, but is prorated between Philippine gross estate and the total or , world gross estate: Expenses, tosses, indebtedness, taxes, etc Share of the surviving spouse - Vanishing deduction Amount received under RA. 4917

171. One of the following is allowed as a deduction from the gross estate of a non-resident arien decedent Who died on or after January 1,.2018, but is prorated between- Philippine gross estate and the total or world gross estate: Losses, indebtedness, taxes, etc. Share of the surviving spouse Vanishing deduction Amount received under B.A. 4917 Answer: A Beginning January -1, 2018, funeral and judicial expenses are no longer deductible from the gross estate of a decedent (regardless of classification).

172. One of the following is allowed as a deduction from the gross estate of a non-resident alien decedent (prior or after TRAIN Law) c, medical expenses transfer for public use d. family home standard deduction 4- Answer: A 173 Allowable deduction for non-resident alien decedent who died on January 1,2018: c, family home a, funeral expenses d. all of the above b. vanishing deduction 4- Answer: B

_427

Esette, 74, Use the following data for the next four (4) questions: Sarah, a resident of China and a Chinese citizen died last July 4,2017 leaving the following properties: P2,000,000 Land in Davao 1,000,000 Rest house in China 500,000 Jewelries received from Leni, a week before her death 1,500,000 Family Howe 800,000 Car The descendahlsof Sarah claimed the following deductions: Funeral expenses Claims against insolvent persons Amounts received under RA 4917 Judicial expenses Medical expenses incurred from September 2016 to July 4,2017 Family home Standard deductions 174. The gross estate is P4,800,000 P5,300,000

P300,000 500,000 1,000,000 100,000 200,000' 1,500,000 1,200,000

c. P5,800,000 P6,300,000

Answer: D 175 Total ELITe to be deducted from the gross estate o. P690,411 P300,000 • . d. P800,000 P604,911 Answer: C 176. Deductible vanishing deduction shall PO P335,205

'FLIT Funeral expenses (max) Claims against insolvent person Judicial expenses Total

C. P445,205 d. P545,205

P200,000 500,000 100,000 P809,000

**VANISHNG DEDUC77ONS Value to take/Initial Basis Proportional or?Jr deduction (500/6,300r 690,411) Final Basis • rate Vanishing deduction

P500,000 (54,795) 445,205 100% P445,205

, Use the following data for the next three (3) questions: Kano, a non-resident American:died on May 1,2018 leaving the following: Exclusive properties, Philippines P5,600,000 . Conjugal properties, Philippines 4,200,000 Conjugal properties, Abroad 18,200,000 Claims against insolvent persons 1,000:000 Funeral expenses . 200,000 , 850,000 Judicial expenses 1,500:000: Claims against the estate Losses: occurring 8 mos. after death due to fire 1,700,000 1ft00,000i Donation MIAs causa to M.akati City Hall 10,000,000) Family Home (inc. above), located abtoad -Standard deduction 178. The taxable net estate is: P5,165,000 P4,665,000

C; P4,981,250 d. P21,000,000

Answer: 13 Solution:

Answer: C 177. Net taxable estate is P1,854,795 P2,049,884

beettc

Gross estate Allowable Proportional Life Whit - Makati Net Standard deduction Share of the surviving spouse Net taxable estate

P4,000,000 P5,164,384

Answer: D Solution: Land in QC dewy/des Family home Toyota car Claims against insolvent person Amounts received under RA 4917 Total gross estate Deductions: Allowable FLIT T6,300/7,300 x P800,000 Vanishing Deductions NET TAXABLE ESTATE

428

hi

P2,000,000 500,000 1,500,000 800,000 500,000 1,000,000

Exclusive P5,600,000 (1,800,000) P3,800,000

Claims against insolvent persons Claims against the estate Losses Total P6,300,000

(690,411) (445.205) P5,164,384

Common P4,200,000 (1,470,000) P2,730,000

Total

P6,530,000 (500,000) (1,365,000) P4,665,000

"

P1,000,000 1,500,000 1,700,000 P4,200,000 9,6(28 Allowable Proportional Life P1,407,000** Beginning January 1, 2018, funeral and Judicial expenses are no longer deductible from the gross estate of a decedent (regardless of classification). Standard deduction of P500,000 is allowed as deduction from the gross estate of NRA decedent under the TRAIN Law.

429

&alai&

74

179. The taxable net estate assuming Kano died on Nov. 1,2017: P5,165,000 c. P4,981,250 P4,665,000 d. P21,000000 +

The taxable net estate is: P2,672,329 P2,757,500

Answer: C Sniss estate Allowable Proportional Lire TFP1.1- Maker' Net Standard deduction Sham of the surviving spouse Net taxable estate

Exclusive P5,600000 . (1,800000) P3.800,000

Claims against in:solvent persons Funeral expenses Judicial expenses Claims against the estate Losses Total

o is'

Common P4,200,000 (1,837,500)

Total P9,800,000

P2,36Z 500

P6,182,500 NA (1,181,250) P4,981,250

P1,000,000 200,000 850,000 1,500,000 1,700,000 P5,250,000 9.8/28 P1,837,500-

Allowable Proportional ELITe

Prior to 2018, funeral and judicial expenses am allowable deductible from the gross estate as part of Ellie. ' Prior to TRAIN Law, Special Deductions am non-deductible from the gross estate of a NRA decedent' • •

180. If decedent is a Filipino citizen, le taxable net estate is: P11,490,000 c: P4,100;000 P12,645,000 d.. P7,900,000 4. Answer: D Comprehensive Problems 181. Bonifacio,-- head Of family. died on January 15, 2017, leaving the following properties and obligations: • Cash in bank, 50%, donated mortis cause to Nett Govt;50-%-to Q.C. govt P300,000 House and lot in Makati, F. Home 1,500,000 Personal properties 1,500,000 Farm lot 825,000 Claim against an insolvent debtor 225,000 Transfer in contemplation of death (gratuitous) 1,500,000 Transfer passing under special power of apporent 75,000 DEDUCTIONS CLAIMED: Funeral expenses , 575,000 Judicial expenses 87,500 Donation mortis cause to Quezon City government 150,000 Unpaid mortgage on the farm lot 75,000 Medical expenses (included in the funeral expenses incuned within the 1 225,000 year period with receipts) The farm lot was inherited 5 1/2 years by the decedent before his death with a value then of P575,000 and a mortgage indebtedness of P150,000.

430

7:16 c. P3,757,500 d. P4,982,500

Answer: B Solution: TFPU (Cash in bank, QC and Nat'l Gov't) Family Home Personal properties Farm lot Claim against an insolvent debtor Transfer in contemplation of death (gratuitous) Transfer passing under special power of appointment DEDUCTIONS CLAIMED: Funeral expenses Judicial expenses TFPU Claim against an insolvent debtor Unpaid mortgage on the farm lot Medical Expenses Standard deduction Family Home Net Taxable Estate

P300,000 1,500,000 1,500,000 825,000 225,000 1,5oosoo

( 200,000) ( 67,500) (300,000) (225,000) ( 75,000) (225,000) (1,000400) (1,000,000)

P2,757,500

al The decedent died before the effectivity of the TRAIN Law. CU No vanishing deduction. The Inheritance was received mom than five (5)pars before, cleathef the present decedent.

182. Bonifacio, head of family died on January is, 2018, leaving the following properties and obligations: Cash in bank, 50%, donated Mortis causa to Nab Govt;50-% to Q.C. goVt House and fot tn Mat F. Koine Personal properties Farm lot • Claim against an insolvent debtor Transfer in contemplation of death (gratuitous) Transfer passing under special power of appointment DEDUCTIONS CLAIMED: Funeral expenses Judicial expenses Donation mortis cause to Quezon City government . Unpaid mortgage on the farm lot Medical expenses (included in. the funeral expenses• incurred within the 1 year period with receipts)

P3,000,000 15,000000 15,000,000 8,250,000 2,250,000 15,000,000 750,000 5,750,000 675,000 1,500,000 750,000 2,250,000 ,

The farm lot was inherited 5 'A years by the decedent before his death with a value then of P5,750,000 and a mortgage indebtedness of P1,500,090. The taxable net estate is: a. P26,720,000 b P37,500,000

c. P41,500,000 d. P50,500,000

4 Answer: B

431

f—sth-t& Solution: TFPU (Cash in bank. QC and Nat'l GM) Family Home Personal properties Fam lot Claim against an insolvent debtor Transfer in contemplation of death (gratuitous) Transfer passing under special power of appointment DEDUCTIONS CLAIMED: ,‘ funeral expenses Judicial expenses TEM Claim against an insolvent debtor Unpaid mortgage on the farm lot Medical Expenses Standard deduction Family Home Net Taxable Estate

-4- Answer: C P3,000,000 15,000,000 15,000,000 8,250,000 2,250,000 15,000,000

(3,000000) (2,250000) • ( 750,000) ,(5,000,000) • (10,000,000) , P37,500,000

The decedent died during the effectivity of the TRAIN Law. REPEALED UNDER TRAIN LAW: Funeral, Judicial, and Medical expenses. Standard DeductionAncreased from PIM to P94 for citizen and resident decedents Standard Deduction for NRA decedents: Alreidy allowed at a fixed amount of P500,000 Limit for Famih; Home: Increased from PIM to PIOM Estate Tax Credit 183. Statement 1: Estate Tax credit refets to the taxpayer's right to deduct from the tax due the amount of tax it has paid to a foreign gountry. Statement 2: Estate Tax creditieould be claimed as a deduction if Such taxes pertain to properties which are included in the grills estate for Philippine estate tax computation. Only statement 1 is correct Only statement 2 is toted Both statements are correct • Both statements are incorrect C. Answer: C 184. In computing the estate tax, which.of the following shall not be allowed tax-credit for taxes paid abroad? Resident alien decedent Non-resident alien decedent Resident citizen decedent Non-resident citizen decedent C' Answer: B 185. Statement 1: Estate Tax credit refers to the taxpater's right to deduct from the tax due the amount of tax it has paid to a foreign country. Statement 2: Estate Tax credit could be claimed as a deduction if such taxes pertain to properties which are included in the gross estate for Philippine estate tax computation. a Only statement 1 is correct b Only statement 2 is correct . Both statements are correct Both statements are incorrect

432

186. Statement 1: This deduction is allowed by law to lessen the harshness of international double taxation where the same estate is being subject to both the foreign estate tax and the Philippine estate tax. - Statement 2: Nonresident alien decedentsaM not entitled to estate tax credit. Only statement 1 is correct Only statement 2 is correct Both statements are correct Both statements are incorrect Answer: C 187. Statement 1: An estate tax credit is allowed as deduction from the estate tax due if the decedent at the time of his death was a resident citizen of a foreign country which at the time of his death did not impose an estate tax of any character in respect-of intangiNe personal property of citizens of the Philippines not residing in that foreign county. Statement 2: An estate tax credit is allowed as deduction from the estate tax due if the laws of the -

foreign country of which the decedent was a resident citizen at the.time of his death allow a similar exemption from °State taxes of every character, in roe& of intangible personal property owned . by citizens of the Philippines not residing in that foreign country, Only statement 1 is correct Only statement 2 is correct Both statements are correct Both statements are incorrect Answer: D 188. Which of the following is not allowed with tax credit for parnehtiCt • A resident alien A non resident citizen An alien who was a resident of his own county at the datijofid An American residing in the Philippines at the date of death -) • Answer: C 189. Statement 1: Tax credit for foreign estate tax is alloWed to minimize the effect of multiplicity o Statement 2: Tax credit for foreign estate tax is allowed to minimize the effect of indirect taxation. a. Only statement 1 is correct Only statement 2 is correct . . c. Both statements are correct _. Both statements are incorrect C' Answer: C

433

E eide, 7716

Ethafr

Tax Credit -I Foreign Country Only Next two (2)ouestions are based on the following:

A alien-dude:lent died in 2018 with the following data: Phibppines Gross Estate P14,200,000 Allowable Deductions 6,400,000 (exchling standard deduction) Estate tax paid

The estate tax payable in the Philippines is: P9.000 c. P13,250 P13,500 d. P14,000 .

USA P4,400,000 2200,000

Answer: D

150900

k 190. Flow muCh fs the estate tax payable in the Philippines assuming the decedent is a non-resident citizen? P132,000 c. P168,000 P150,000 d. P300,000 4.

Solution: Gross Estate Aknrable dedabui Taxable Net Estate

P18,602000 . (8400,000) (5000,000) P5000000

Allowable deductions exckrdiv standard deduction Standard deduction Taxable Net Estate Estate Tex Due (PM. 4 x 6%) Less: Estate Tax Crest ' Estate lax paid ,in abroad vs. Unit n (1,1005,000 x P300,004 Alorrtible Tax Dye& (LOWER amount) Estate Tax Payable .

P300,000 P150,000 132.000

• (131,000) P168,000

191. How much is the estate tax gayable in the Philippines assuming the decedent is a non-resident alien? P150,000 . . . • c. P300,000 P168,000 d. P438,000

Movable deductions excluding standard deduction Standard deduction Taxable Net Estate

P14,100400 (8,400,000) (500,000) P7,330000

Estate Tax Due (P7.3M x 6%) P438,000 CO NRA decedents am not catlike, to estate tax credit CO The Standard deduction for NR4 Øcedents under the TRAIN Lawn P500000 only.

Tax Credit- More than 1 Foreign Countries

PAW

Less: Allowahle Tax Crecq

LIMIT 1

Actual

Japan. No estate tax payment USA x- 375750 , P35,000 TOTAL LIMIT 1

Mowed

P7,000 .

P3,750 .

17,50a

18$00

17,500 P21,150

11,750

21,000

P3,750

LIMIT 2 (M foreign countries) China, Japan, USA 450/750 x P35,000

ALLOWABLE TM CREDIT (low) ESTATE TM PAYABLE

1:12 FORMIASFOR ESTATE TM CREDIT where only one (I) foreign couney is involved: Rat eike, tocsin xr. Or/mile estikte Aix • • •

C. Answer: D Gross estate (wet* on)))

P750,0%

ESTATE TM DUE (old Tax Table) China' 150/750 x P35,000

Answer: C Gross estate (ratan and arkhout)

P3,125,000 (2,475,000)

(21,000) P14, 0%

ai FORMULA FOR ESTATE TM CREDIT where more than on (1) foreign countrIeS are inched: LIMIT (Per Foreign CountryMyra there wattle tax Fald): • Net es ' ippine Ntsto hx . . LIMIT 2: (Totai el ALL foreIgn coedits invcRed):, •pp re Nefesteeal forage countries..., xr:

-• re la.

Compliance Requirements 193, Statement 1: The estate tax •imposed under the Tait Code she% be path by the executor or' administrator before the delivery of the distributive sham in the inheritance to any he or • beneficiary. Statement 1: The executor or administrator of an estate tas the primary ottgaf en to pay the estate tax but the heir or beneficiary has subsidiary liabty for paying that porton of the estate corresponding to his distriwtive share In the value of the total net estate. Only statement 1 is correct Only statement 2 is correct c, Both statements are correct d. Both statements am incorrect

a

192. Mr: Bombo, Filipino died on April 10,2016 with the following data: Allowable Estate tax • Gross Estate Deductions Paid Phppines . P1,875,000 P1,575,000 PChina 300,000 150,000 3,750 Japan 450,000 525,000 USA 600,000 225,000 '18,000

434

Answer C 194. Statement 1:11 the decedent died before 2018,a notice of death is always required to be filed. Statement ?If the decedent died before 2018, the notice of death shall be filed by the executor, administrator or any of the legal heirs within two (2) months after the decedent's death, or within like period after qualifying as such executor or administrator. a. Only statement I is correct • • b. Only statement 2 is correct

435

Ef tette. ret6 Both statements are correct Both statements are incorrect e

_seictec

74

e Answer: C

Answer: •B

195. Lobo Sot died in 2017 leaving's gross estate amounting to 1)150,000 only. No estate tax is due based on-the tax code. The gross estate is composed of a second hand car worth -P80,000, shares of stocks valued at P50,000 and P20,000 time deposit. The administrator believes that only notice,sfe death should be filed since the value of the gross estate is exempt from tax. What will you telrhim? Notice of death and estate tax return have to be filed because the gross estate exceeds P20,000 and when the gross estate consists of registered or regis)zable properties, estate tax is required Jo be filed regardless of the value of the gross estate. Only notice of death is required to be filed because the gross estate exceeds P20,000. Estate tax return is required to be filed only when the gross estate exceeds P200,000 and/or there is estate tax due. Neither notice of death nor estate tax return need to be filed in this particular case. Only estate tax return has to be filed because the filing of the return also serves as the notice of death. Answer: A The decedent died prior to effectivity of the TRAIN Law • The rules prior to TRAIN Law are: •

NOTICE OF DEATH: When Required?' • . . In altEases of hansfer subject to estate tam or The vacue of the gross estate exceeds P20,000. „ ESTATE TAX RETURN: When Required? 7 In all cases subjectio estate tax te exceeds P200,000 The gross esta Regardless of the amount of the gross estate, where it consists of real or registrable properties. 196. A decedent died before the effectivity of the TRAIN Law, under which of the following situations an estate tax return is not required to be filed? • Transfers which are subject to estate tax. The gross value of the estate exceeds P200,000. The estate consists of registered or registrable properties for which a clearance from the SIR is required as a condition precedent fort he transfer of ownership. The gross value of the estate consisting of 09n-registrable properties does not exceed P200,000 and the deductions amount to P150 000. • sie Answer: D 197. A decedent died upon the effeCtivity of the TRAIN Law, under which of the following situations an estate tax return is not required to be filed? Transfers which are subject to estate tax. The estate consists of registered or registrable properties for which a clearance from the BIR is required as a condition precedent fort he transfer of ownership. c The gross value of the estate consisting of min-registrable properties does not exceed P5,000,000. M None of the above

436

198 Who shall file the estate tax return? a. Executor, or administrator, or any of the legal heirs b_ Creditors of the decedent Personal secretary — decedent Debtors of the decedent Answer: A 199, The Estate Tax Retum shall be filed and payment made with An Authorized Agent Bank (MB) of the Revenue District Office (RDO) having jurisdiction over the place of residence of the decedent at the time of hls/her death. If there is no MB within the residence of the decedent, the Estate Tax Return must be filed and the payment made with the Revenue Collection Officer or duly Authorized City or Municipal Treasurer of the RDO having jurisdiction over the place of residence of the decedent. If the required filer has no legal residence in the Philippines; the Estate Tax return will be filed with the Office of the Commissioner or in the Philippine Embassy or Consulate in the country where. the decedent was residing at the time of his or her death. All of the above Answer: D 200. If the decedent died before 2018, the estate tax return'shou •6aii6d At the time of death Within 30 days after death Within six months after death Within one (1) year after death e Answer: C • 201. If the decedent died on or after January 1,2018, the estate takretum At the time of death Within 30 days after death Within six months after death Within one (1) year after death Answer: D 202. An estate tax return is not necessary in the following instance Donation of P50,000 cash • Transfer of motor vehicle valued at P130,000 Both "a" and "b" Neither "a" nor "b" Answer: A

437

1- stale, 203. Statement 1: The Commissioner or any of the Revenue Officer authorized by him pursuant to the tax Code shall have the authority to grant, in meritorious cases, a 'reasonable extension not exceeding thirty (30) days for filing the return. Statement 2', The application for the extension of time to file•the estate tax return must be filed with the RDO where the estate is required to secure its TIN andble tax return of the estate. On statement 1 is correct Only statement 2 is correct Both statements are correct BothAtements are incorrect Answer C 204. Extension for the payment of the estate tax shall be allowed on the ground of: Undue hardship upon the estate or any of the heirs Negligence Intentional disregard Of rules and regulations Fraud

ra,

Extra-judicially settled = 2 years from expiration of the original due date Judidatiy-settled F 5 yeara from expiration of the original due date 209. A died leaving a house and lot to 8 on April 1,2018 which Was questioned by C and it is under litigation but, subsequently, the parties executed an extra-judicial settlement. The last day for filing the estate tax return is: c. October 1, 2018 April 30, 2018 d. March 31,2019 April 30, 2019 4

Answer: D;

(RR 12-2018)

210. The last day for the payment of estate tax may be extended; until; c. October 1, 2021 October 1,2019 d. March 31,2022 March 31,2021 Answer: B Extension to pay estate tax:

Extra-judicially settled .7..2 years from expiration of the original due date Judicially settled = 5 years from expiration of the original due date

Answer: A 205. The Commissioner, on meritodouS cases, may extend the timetor payment of estate tax: In Case the estate is settled In case the estate is judicially settled extra-judicially a, 5 years 5 years b. , 2.yearS 2 years ' C., 5 years 2,years d. • '2 years Tears 4 Answer: C

211. A resident citizen died September 3, 2017. An administrator was appointed on September 15, 2017. The inventory taking of the decedent's properties was completed on October 10, 2017. When should the estate tax return be filed?. November 3,2017 March 3,2018 March 15,2018 Sept 2, 2018.• 4 Answer: B

,

• 206. When an estate is settled extra-judicially, the estate tax return may be filed and the estate tax paid By any.of the heirs, with a right Of reimbursement from the other heirs.' Only by the heir with authority from the bther heirs. •, By each of the heirs, the payment being fothis distributive share in the estate tax: • The eldest of the heirs and closest in relationship to the decedent.

212. In filing the estate tarreturn of a decedent who died prior to the effectivity of the TRAIN Law, a CPA certificate is required when: Gross estate exceeds P 2,000,000 Gross estate exceeds P 5,000,000 Gross estate exceeds P10,000,000 Gross estate reaches P 2,000,000

Answer: A

Answer: A

207. A died leaving a house and lot to B on March 31, 2012 which was questioned by C and it is under litigation but, subsequently, the parties executed an extra-judicial settlement The last day for filing the estate tax return is: April 30,2013 c. September 30,2012 April 30, 2016 d. Octoberit 2012 Answer: C

213. In fling the estate tax return under the TRAIN Law, a CPA certificate is required when: a. Gross estate exceeds P 2,000,000 h Gross estate exceeds P 5,000,000 c. Gross estate exceeds P10,000,000 d Gross estate reachesP2,000,000 C.

Answer: B;

(RR 12-2018)

Filing of estate tax return if decedent died prior to 2018 = Whin six (6) months after death

208. The list day for the payment of estate tax may be extended, until; a. April 30, 2015 c. September 30,2014 b. April 30, 2018 d. April 30, 2018 4. Answer: C Extension to pay estate tax:

438

214. One of the following is not a content of the statement certified to by a CPA: Itemized asset of the decedent with their corresponding gross value at the time of his death or in case of non-resident alien of that part of his gross estate situated in the Philippines Itemized deductions from gross estate r The amount of tax due whether paid or still due and outstanding d. Certified copy of partition

439

Eittette, fret( 9- Answer. 0 215 Statement): If an extension for payment of estate tax is granted, the Commissioner or his duly authorized representative may require the executor, or administrator, or beneficiary, as the case may be, to furnish a bond in such amount, not exceeding double the amount of the tax. Statement 2: Any amount paid after the statutory due date of the estate tax, but within the extension loriod, shall be subject to interest but not-to surcharge. Only statement-1 is correct • • Only statement 2 is correct Both stagments are correct Both statements are incorrect Answer: C 216. Which of the following is not correct? • When a compulsory heir is given by-will less than:his legitime, the provisions of the will should be modified in such a way that he will receive his legitime. The CIR may examine the bank deposit of a decedent for the. purpose of determining hi$ gross estate even if the estate did not request for a compromise on the ground of .financial incapacity. The sharing of heirs in testamentary succession must satisfy the rulei on legitime. If an extension to pay the estate taxis granted, the Commissioner or his duly authorized • representative may require the administrator,- or executor, or beneficiary, to fumish a bond in such amount exceeding double the amount of .the tax and with such sureties as the Commissioner deems neCeisary, Conditioned upon the payment of. said tax in .accOrdance '• • .with the ten's of the extension: Answer: 0; (RR 12-2018) . 217. Statement 1: My amount paid•beyond the staiutory due date of the tax, but within the extension period, shall be subject to interest but net to.surCharge.. Statement 2: No extension for 'payment, of 'estate tax shall be granted, where the request for extension is by reason of negligence, intentional disregard of lutes and regulations, or fraud on the pan of the taxpayer. Only statement 1 is coned Only statement 2 is correct c Both statements are correct d Both statements are incorrect 9. Answer: C 218. In case of a resident decedent, the administrator of executor shall register the estate of the decedent and secure new TIN from the the. Office of the Commissioner. RDO where the administrator or executor is regisWred. RDO where the decedent was domiciled at the time of his death. cl. Duly authorized treasurer of the city or municipality where the decedent domiciled at the time of his death. Answer: C

Esthie 177.1 219. Can the estate tax be paid in installment? Yes, in case the available cash of the estate is not sufficient to pay its estate tax liability. YS, at the option of the heirs with corresponding interest charges. No, tax is the lifeblood of the State, hence, collection cannot be delayed under any circumstance. None of the above Answer: A • • 220. Which of the following is not correct regarding the estate of a decedent who died before 2018? No judge shall order a distribution of any part of the estate to an heir without a certification from the BIR that the tax has been paid. . A bank shall not allow the co-depositor of a deceased to withdraw from the joint bank account without a certification from the BIR that the tax has been paid) No Register of Deeds shall transfer to any heir the title of a decedent to real property without certification from the BIR that the tax has been paid. None of the above ir Answer: D 221. A -decedent who maintains a bank account died in March 12, 2018: Which of the following, 'statements is correct? Statement 1: If a bank has knowledge of the death of a person, who maintbined a bank account alone, or jointly with another, it shall allow the withdrawal from said deposit account, subject to a: final withholding tax of 6% of the amount to be withdraw, provided, that-the withdrawal shall only be, made within 'one year from the date of said decedent. Stateinent 2: In all cases, the filial tax withheld shall not be refunded, or credited on the tax due, • on the net taxable estate of the decedent. Only statement 1 is correct • Only statement 2 is conoct Both statements are correct cl.. Both itatements are incorrect Answer: C; (RR 12-2018) 222. Which of the following statements is correct? There shall not be transferred to any new owner in the books of any corporation, sociedad anonima, partnership, business, or industry organized or established in the Philippines any share, obligation, bond or tight by way of gift .inteOvivos -or mortis causa, legacy or inheritance, unless an eCAR is . issued by the Commissioner or his duly authorize representative. In instances where the deposit accounts have been duly included in the gross estate of the decedentand-the estate tax due thereon paid, the executor, administrator, or any of the legal heirs shall present the eCAR issued for the said estate prior to withdrawing from the bank deposit account. The withdrawal describe in letter b shall no longer be subject to the 6% withholding tax by the bank. All of the above C-

440

Answer: D; (RR 12-2018)

441

PART 10 at/toili -f

Deitetr ), cli(tj6

Formal Requisites Although the law used the term tact", the law considers donation as a "contract, as shown by the fact that it requires acceptance, and that the rules on obligations and contracts apply to it as a suppletory law (Art. 732 NCC). Being so, the required form, as provided below shall be observed, otherwise, void.

Amount of donation

Personal Properly P5,000 or less More than P5,000

Real orregistrableproperty Regardless of amount

Form of Donation

Oral or in writing

In public document

In writing

Nature of Donor's Tax Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor df another, who accepts it (Art. 725 of the New civil 'Code). A donor's tax .(or gift tax) is a tax levied, assessed, collected and paid upon the transfer by any person, resident or nonresident, of the property by Oift.(whether the transfer is in trust or otherwise, whether the gift is director indirect, and whether the property is real or personal, tangible or intangible). ! It ISM tax imposed on the exercise of the donor's right during lifetime to transfer property to others in he form -of gift. "Hence, donors'tax is not re property ! tax, but it is an excise tax imppsed on the transfer of property- by way of 'gift intervivos (RR 12-2018). Although the law used the term "act"; the law cOnsiders donation as a , rcontractn, as shown by the fact ,that it requires a'cceptance; 'and that the rules on, obligations and contracts apply to it as a suppletoryla it. 732 'NCC): Purposes of Donor's Tax To supplement the estate tax To prevent the avoidance of income taxes. Without donor's tax, the donor may exrape the progressive rates of income taxation through the simple expedient way of splitting his income among numerous donees. Elements of Taxable Donation I. Capacity of the donor to transfer property 2. Donative intent (not an absolute requiremioti required only in direct gift) , Delivery EU The transfer of the property is completed by the delivery, either actually or constructively, of the donated properbe to the done. Acceptance of the gift by the donee LLI The transfel- of property bY gift is perfected from the moment the donor knows of the acceptance by the donee.

442

Classification of Donors Citizen or Resident (RC/NRC/RA) Non-resident Alien (NRA) With reciprocity Without reciprocity FORMAT OF COMPUTATION FIRST DONATION OF THE YEAR Gross Gift Less! Exem_ptions/DeductiOns Net Gift Multiply: Rate Donor's Tax , Less! Tax Credit Donor's Tax Due/Payable

I i 1 ,i .{. -41 1I

P)30( !Pal MCC >MO PXXX (X)O) P)00(

SECOND AND SUBSEQUENT DONATION WITHIN THE YEAR ! 13)0(X ' _ Gross Gift, Current ! 1)000 Less: Exemptions/Deductions Current Net Gift, Current ,l PXXX ! XXX Add: Prior Net Gift . I MX Aggregate Net Gift . : xxok Multiply: Rate !------! ' PX)0( Donor's Tax _ ._ __.._._ Tax Paid— Prior Gift 00( 1 .S>903_ Tax Credit . P)0(X Donor's Tax Due/Payable Note: The computation of the donor's tax is on a cumulative basis over a period of one calendar year. 443

D otter's

74

Dfittler ).3 6)

Donor's 'fax Rate FOR DONATIONS MADE PRIOR-TO JANUARY 1r2018

FMV at the time of sale Less. Selling Price Taxable Gift

,) , 1.1 'If given to relatives: 1., Over , But not over 1 The tax shall I Plus 1 Of the excess over 1. be . , t PlOOT I Exempt: 1 -rP100T 0 r 2% 4 PlOOT 1 200T . 200T • r 2,000 1' 4% I 200T • 500T , SOOT 114 1 14,000 1 6%i 500T j 44,000 i 8% 1 im 111 , 3M 3M l 5M L 204,000 j_ 10% L, 3M 5M 1 10M 1 404,000 5M ! 12% 1 10M , 10M ! I 1,004,000 i 15% r

P/00C

PP jw/n j, j 1V V H' 1. X .41/ . ' x 1 X . IX ix

TPP

e

Gift from Common Property — the.9ift iS taxable one-half to each donor spouse.

4,

Donation between husband and wife during the marriage GENERAL RULE: The gift is not taxable, OS iris declared void by law. EXCEPTION: Moderate gifts between the spcitises are- valid.

EXEMPTIONS OR DEDUCTIONS FROM GROSS GIFT 1)

444

•

„. .. Husband and wife are considered as: separate and distinct taxpayer's for - purposes of the donor's tax. Howerier, 'if whet ikrasdrinated is a conjugal or community property and only the husband -signed the deed of donation, there is only one donor 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 of the Philippines.

- FOR DONATIONS MADE ON OR AFTER JANUARY 1, 2018

GROSS GIFT C- Transfers subject to donor's tax: Direct gift; Gift through creation of a trust; Condonation of debt; Repudiation of inheritance if: Specifically and categorically done A favor of identified heirs; and To the exclusion or disadvantage of other co-heirs. Renunciation by the surviving spouse of his/her share in; the conjugal partnership or absolute community after the dissolution of the marriage in favor of the heirs of the deceased spouse or any other person/s;

PXXX (XXX)

neoMPONENTS OF GROSS GIFT RP 1 ! Donor ja tr/2_, RC/NRC/RA _ N/ 1V V ,NRA w/o Reciprocity_ LI/ JX • V NRAw/Reciprocity V H'. X

2). If given to strangers — 30% . NOTE: A strangeris a person who is NOT: ' , Brother or Siseer_(Whether wholeOr half .....blood); , Spouse; 1. Ancestor; 't„ ' . . Lineal descendant; , . Relative by consanguinity in the collateral line within 4" Civil degree, , of relationship:, •

Regardless of the relationship of the donor and donee, the donor's tax rate is 6% in excess of P250,000 exempt gifts. •

Transfer for insufficient consideration EXCEPTION: Real property classified as capital asset.

Dowry Exemption NOTE: Applicable only to donations made prick- to January 1, 2018. This particular deduction/exemption was repealed by RA No. 10963, otherwise known as the TRAIN Law. Requisites: • Gift made-on account of marriage; Given before its celebration or within 1 year thereafter; Given to legitimate, recognized natural or adopted children; Amount of exemption is P10,000 per donor per child.

445

Dwr's

/.27llar's 74 2) Gifts to the Government - gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for Orofit.

2) 4) 5) 6)

Net Gift, foreign World Net Gift

446

J

i VI:, V

Limit 1 or A - Per Foreign Country

Limit 1 or B

Philippine Donor's Tax

By Total Philippine Donor's Tax

Net Gift all foreign countries World Net Gift

DEADLINE FOR FILING OF RETURN - within 30 days from date of donation. NOTE: No allowed extension.

RCLNRC/RA !

l

Philippine Donor's Tax

Net Gift, per foreign cOuntry World Net Gift

NOTE: For purposes of the donor's tax, "NET GIFT" shall mean the net economic benefit from the transfer that accrues to the donee. (RR No. 2-2003)

V

X

2) Two or more foreign countries are involved (whichever is lower of the following.):

Encumbrances on the property donated assumed by the donee Diminution of gift provided by the donor Exemption under Special Laws -International Rice Research InstituteRamon Magsaysay Aunciation- ' Integrated Bar of the Philippines Development- Agademy of the Philippines , National Museum National Library Archives of the National Historical Institute Museum of Philippine. Costumes Intramuros Administration

I •

whichever is lower

Limit: 1) Only one foreign country is involved

Not more than 30% of the said gift shall be used for administration purposes.

Exemption or deduction EDowry Gifts to the Government ! Gifts to educational, charitable, religivis etc. ! Encumbrances on gift assumed by donee 1 Diminution of gift_ provided by donor

TAX CREDIT FOR DONOR'S TAX PAID TO A FOREIGN COUNTRY . Only resident or citizen can claim tax credit Amount Deductible: Actual estate tax paid abroad Limit -

3) Gifts to educational, charitable, religious corporation etc. ReguiSifes: 1) Gifts in favor of the following entities: Educational Charitable Religious Cultural Social welfare Accredited non-government organization; Trust or Philanthropic organization; . . Research institution or organization;

ra6

V V V

: i

DEADLINE FOR PAYMENT - pay as you file. PLACE OF FIUNG a Except in cases where the Commissioner otherwise permits, the return shall be filed and the tax paid to the following where the donor was domiciled at the time Of the transfer, or if there be no legal residence on the Philippines, with the Office of the Commissioner: An authorized agent bank Revenue District Officer Revenue Collection Officer or Duly authorized treasurer of the City or municipality

447

Dmurc

c74

Deitar's 7ad t

It In the case of gifts made by a nonresident, the return may be filed with: Philippine Embassy or _consulate in the country where he is domiciled at sit the time of the transfer, or Directly with the officer of the Commissioner.

QUIZ ZER Choose the letter of the correct answer.

' TABLE 6-2: CcCPISONS BETWEEN ESTATE TAX AND DONOR'S TAX NIRC as amended by RA 10963 otherwise known as TRAIN Law) Concept Involved

ESTATE TAX Succession

1

, DONOR'S TAX Gift or donation Donation inter vivos

Donation mortis causa • Requisites or Elements

C. Answer: C

Death of the decedent Heir or successor is alive at the time of the decedent's death and is not disqualified to inherit. 2.1 compulsory heir 2.2 voluntary ,heir 3.Estate/Inheritance

1.. Donative intent of the donor; Capacity-or authority of the donor; Delivery of donated property; Acceptance by the donee; Additional requisite: Donation must be M proper form othervilse,.void (Refer to Page 443)

Accrual Period

upon r the 'date of, death of the at the time the gift or donation is made or decedent , perfected „

Governing Law

statute iii forA at the time ofdeath of decedent

Tax Rate Filina 8. Payment

Scope

An act of liberality whereby one disposes gratuitously a thing or right in favor of another who accepts it c. donation succession occupation d. tradition

6% net estate Within one (1) year from death extension to file: „ not more than 30 days pay as you file or with extension to pay: 2 years (extrajudicial) 5 year Of judicial) RC, NRC, RA - on estate within and without NRA - on estate within

statute in force at the time of the perfactionfoompletion of donation 6% net gifts in excess of P250,000 , Within 30 days from donation • no extension to file

2.

e, Answer: B . . 3. -Which of the following statements is correct? . A transfer is gratuitous or without consideration and accordingly qualifies as a . donation, if nb economic. benefit measurable in money or money's-worth flbwed to • the transferor from thetransferee. A gratuitous tranSfer is always subject to donor's tax, , A donation on which the donorls tax was no! paid isnot a valid donation. Title tci the donated real property thn be transferred to the donee inthe Register of Deeds even if the donors tax on the donation had not been paid. • C. Answer: A

pay as you file no extension Mr payment 4. RC, NRC, RA -on gifts within and without NRA - on giftsiwithin

It is a tax imposed on the exercise of the. donor's right during lifetime to transfer property to.others in the form of gift c. Property Tax Estate Tax d. Income Tax 4. Donor's Tax

•

Which of the following constitutes "Gift' for Gift Tax purposes? Transfer of property without consideration. Sales, exchanges and other dispositions of property for a consideration to the extent that. the value of the property transferred exceeds the value in money or money's worth of the consideration received therefor. Both "a" and "b" Neither "a" nor 'If .• Answer: C

448

449

Dall,ovis Donors tax is: a. A property tax b, personal tax

9 C. A business tax d. An excise tax

4 Answer: D

Donors tax is a(n) Excise tax Direct Tax Personal Tax - IV. Property tax land II only 1,11 and III only

).5

74

The common characteristic of transfer taxes is that the transfer of property: Is onerous. Takes effect during the lifetime of the transferor. Takes effect upon the death of the transferor. Is gratuitous. C. Answer: B

I, II and IV only 1,11,111 and IV

10. A tax imposed on the gratuitous transfer of property between two or more persons who are hying at the time the transfer is made estate tax .c. income Tax d. transfer tax donors tax C. Answer: B

4 Answer: A 7.

Statement 1: A gift occurs when the donor surrenders control over the property. Statement 2: If the donor retains an unlimited power to revoke the gift, ills clear that gift has occurred. Only statement 1 is correct - Only statement 2 is chrrect Both statementi are &Sired Both statements are inborrect 4 Answer: A 0 The gift in statement 2 a revocable gift, an incomplete gift, not subject to donors tax.

11. One of the following is not a distinction between donation inter vivos and donation mortis causa. Donation inter vivos takes effect during the lifetime of the grantor while donation morbs cause takes effect after the death of the grantor. Donation inter vivos is subject to donors tax while donation mortis cause' is subject to estate tax. Donation inter vivossequires a public document While donation mortis causa may hot require a public document. 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. 4 Answer: C

8

A gift that is incomplete because of reserved powers, becomes:complete when either: I. the donor renounces the power; or 11: his right to exercise the reserved power ceases because of the happening of some event or contingency or the fulfillment of some condition, other than because of the donor's death. Only 1 is correct Only II is correct Both land II are correct Both land Hare incorrect

12. The following are the requisites of a donation for purposes of the donor's tax, except one. Capacity of the donor Capacity of the donee Delivery of the subject matter or gift: Donative intent 4 Answer: B 13 Statement 1: 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. Statement 2: The donor's tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the properly is real or personal, tangible or intangible. a. Only 1 is correct

Angwer: A

450

451

Dimor)_,

r

Only II is correct Both I and II are correct both I and II are incorrect 4 Answer: , C 14. Statement 1: "Consideration" means money or equal value or some goods or service capable of being evaluated in money. Statement 2: Donative intent is required only in indirect gift.. Only I is correct Only II is correct Both I and II are correct Both I and II are incorrect Answer: A 0 Donative intent is required only in direct gifts - 15

Which of the following donations inter vivas may not require:that it be in writing?. Donation of personal (movable) properly, the value of which exceeds P5,000. Donation of personal (movable) property, the value of whiCh is P5,000. Donation of real (imfAevable) property, the'value of whictlis less than P5,000. Donation'of real (immcNrable) property, the value of whichexteeds P5,000. 02.

- 16

Answer: B

••

Which of the following statements is correct? Donation of immovable property may be made orally or in writing. If the value of the real property donated exceeds P5,000, the donation and the , acceptance shall be made in writing,•otheiwise, the donation shall be void. An oral donation requires the simultaneouS delivery of the thing or of the document representing the right donated. All of the above Answer: C 0 Choices "a" and "b" are incorrect. Donation of immovable property shall be made in a public documenilgardless of amount.

Dniter's r/(76 17. Which of the following statements regarding donation of an immovable property is correct? The donation must be made in a public document specifying therein the property donated. The acceptance may be made in the same Deed of Donation or in a separate public instrument, but it shall not take effect unless it is done during the lifetime of the donor. It the acceptance is made in a Separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be noted intoth instruments. d All of the above it• Answer: D 18 For the donation to be considered valid, acceptance of the donation must be made: • During the lifetime of the donor only. During the lifetime of the donee only. Duringthe lifetime of the donor and the donee. None of the choices. Answer: C 19 When is the donation perfected? The moment the donor knows of the acceptance by the donee The moment Me thing donated is detiVered,• either actually or constructively, to the' donee Upon payment of the donor's tax Upon execution of the deed of donation C• Answer: A 20. Which of the following statements is correct? Donation is perfected not from the time of acceptance but from the time of knowledge of the donor that the donee has accepted the donation. Acceptance must be made during the lifetime of the donor and of the donee. Donations made to conceived and unbom children may be accepted by those persons who would legally represent them if they were already born. All of the above C' Answer: D

452

453

giufr's .7itt .

DOlithe' .5' 21 Which is not true? ;a. The donation is perfected only from the moment the donor knows of the acceptance by the donee. b. Vitiated consent renders the donation voidable. G. , vAcceptance may be made after the lifetime of the donor. d. The donee must accept the donation personally or through an authorized person; otherwise the donation shall be void.

25. Which of the following is subject to donor's tax? Those made between persons who were guilty of adultery or concubinage at the time of the donation. • Those made 'to conceived and unborn children. Those made to a public officer by reason of his office. Those made between husband and wife during their marriage. Answer: 8

Answer: C 22. Which of the following transactions is deemed a taxable gift? Condonation or remission of a debt Sale of residential house and lot for less than adequate and full consideration in money or moneys worth Both (a) and (b) Neither (a) nor (b) Answer:A 13" is a bona fide sale or valid sale, not a gift. 23. Who is not subject to the dkors tax? An individual making adonabon. A corporation making a donation, A partnership making a donation. An employer who pays premiums on the life insurance of its employee. Answer: D 0, The employer-corporation shall treat the premium payment n letter "0" as operating expenses, not a gift., 24. Which of the following is false? Donors tax applies also to juridical persons For purposes of donors tax, second cousins are strangers to each other Encumbrance on the property donated, if assumed by the' donor IS deductible ;for donors tax purposes As a rule, donation between husband wife during the marriage is void

26 Statement 1: In all cases, void donations are not subject to donor's tax. Statement 2: Every donation between the spouses during the marriage shall be void. Only I is correct Only II is c,orrect Both land II are correct Both land II are incorrect Answer: A -Op Moderate gifts between husband and wife during family rejoicing Or family mouming is a valid gift, subject to donors tax. 27 Which of the following Statements is correct? Donation is perfected not from the tine of acceptance, but from the time of knowledge of the donor that the donee has accepted the donation. Acceptance must be made during the lifetime of the donor and of the donee. Donations made to conceived and unborn children may be accepted by th6se persons who would legally represent them if they were already born. ; All of the above Answer: D 28 A non-resident citizen donor is taxed oh his donation of properties: Situated in the Philippines only. • Wherever situated. Situated outside the Philippines only. Situated in the Philippines only Subject to the rule of reciprocity. Answer: 8

Answer: C i() To be deductible, the encumbrance or obligation shall be assumed by the donee.

454

29. Statement 1: Resident alien would be subject to donor's tax only on their donations of property located in the Philippines. Statement 2: A donation by a foreign corporation of its own shares of stock to resident employees is not subject to gift tax but may be subjected to income tax. a. Only the first statement is correct 455

- Dew/is 7:1

DO-11:01; b c d

Only the second statement is correct. Both statements are correct. Roth statements are incorrect. 4.,‘ Answer: B • 0 Citizens and resident donors are taxable on their donation within and without the Philippine. -

.30 There is reciprocity, When the donor and the donated propertY is: Donor Property •-• Non-resident alien Intangible Personal.Pronerty Non-resident citizen. Unmovable • • • Non-resident alien Tangible Personal Property Resident alien Any kind of property 4. Answer: A 31 Which of the following is .taxable only with respect to properties. donated within ,the Philippines? a. Resident citizen b: Non-resident citizen Resident alien Non-resident alien'

g.

P200.000 receivable,50% condoned by Juliet She has also transferred the following properties Selling Price Car, Makah P200,000 Car, Malaysia • 300,000 Rest house, Tagaytay 1,000,000 Rest house, Malaysia 1,500,000

33. How much is the gross gift? P5,200,000 P4,200,000

FMV P300,000 200,000 2,000,000 2,500,000

c. P4,100,000. d. P3,200,000

Answer: C 34. If she is a non-resident Alien, her gross gift is: c. P1,100,000 P3,200,000 • d. P850,000 ;21,200,000 4. Answer: C 35. If she is a non-resident alien, and there is reciprocity law, her gross gift is c. P1,050,000 , a. P850,000 d. P700,000 b: P050,000

4. Answer: I) 4. Answer: A 32 If a donor is a non-resident alien and the rule of reciprocity applies, which of the following properties will not form part of his gross gift?' Real properties in the Philippines Tangible personal properties within the Philippines Intangible personal properties within'the Philippines Al] of the choices • Answer: C

Next three (3) questions are based on the follow, data: Juliet, a Filipina made the following donations. To Nick, a land worth P450,000 in Manila. To Rosalee, jewelry worth P100,000 in Japan. To Adalind, PLOT shares amounting to P150,000. To Renard, a building in Italy P1,600,000 mortgaged for P 50,000 aSsumed by the-donee. To Drew, land in Davao worth P300,000. R300.000 cash, PNB New York to Hank 456

To Nick To Rosalee To Adafind To Renard To Drew To Hank To Juliet (50%) Insufficient consideration (car Mla). • Insufficient consideration (Rest House Mla) Total Gross Gift 0

.Citizen NRAdecedent decedent (w/o reciprocity) P450,000 P450,000 100,000 P150,000 P150,000 1,600,000 300,000 300,000300,000 100,000 100,000 100,000 100,000

NRA decedent (W/ reciprocity) P450,00Q

a 300,000

100,000

1,000,000 P4,100,000

As a rule, reciprocity is never assumed.

457

P1,100,000

P850,000

Daft,ar's ()

90

The sale of rest house in Tagaytay was for insufficient consideration. However, such sale is subject to CGT (capital asset + real properly + Philippines), not donor's tax. The sale of rest house in Malaysia was for insufficient consideration. However, such sale is not subject to CGT because the property is located abroad, hence, subject to donor's tax.

39. For donor's tax purposes, one of the following is a stranger. Brother or Sister c. Uncle Spouse d. Son in law Answer: D

36. Statement 1: Regardless of the relationship to the donee, donations made by the donor are subject to the scheduler rates of 2% to 15%, if such donation was made prior to the effectivity of the TRAIN Law. . Statement?: A relative by consanguinity in the collateral•fine within the fourth degree of. relationship is not a stranger. Only the first staternent is correct Only the second statement is correct Both statements are correct. ' Both statements are incorrect.

40. Donations made to an adopted child by common donation shall be considered as donations made to a relative. Statement 2: For donor's tax purposes, the children of the first cousin of the donor are considered strangers. Statements 1 & 2 are false Statement 1 is true but statement 2 is false Statement 1 is false but statement 2 is true Statements 1 and 2 are he

Answer: B 0 Statement 1 is wrong. Prior to 2018, only donations made to a relative is subject to §cheduler. rates. Donations to strangers are subject to 30% tax on net gifts:tki 37 For donations made prior to 2018, where the donee or beneficiary; is a stranger, the tax .• payable by the donor shall be: 30 % of the gross gifts. 30% of the net gifts. Based on the graduated rates with the first P 100,600 net gift exempt or30 %. Based on the graduated rates with the first P100,000 *gift exenipt or 30% of the net gifts whichever is higher. Answer: B 38 Statement 1: Regardless of the relationship to the donee, donations made by the donor beginning January 1, 2018 shall be subject to 6% donor's tax rate in excess of P250,000 exempt gifts. Statement 2: Donations made by or in favorrafjundical persons beginning January 1, 2018 shall be subject to 6% donor's tax rate ar excess of P250,000 exemptgifts. Only the first statement is correct Only the second statement is correct. Both statements are correct. Both statements are incorrect. Answer: C 458

Answer: C

if

41, Statement 1: Donations made to'a legally adopted Child shall be considered as donations made to a relative. • Statement 2 For donor's tax purposes, the children of the first cousin 'of the donor are considered strangers. Only the first statement is correct Only the second statement is correct., Both statements are correct. Both statements are incorrect. Answer: C 42. When an indebtedness is cancelled without any. service rendered by the.debtor in favor of the creditor, the forgiveness of debt will result to: . taxable income distribution of dividend taxable donation taxable estate Answer: C • 43. If an individual performs services for a creditor who in consideration thereof cancels the debt, the cancellation of indebtedness may amount to a Gift Capital contnkution 459

Daiwris C. d.

74

Dotwr's b. C.

Donation inter vivos Payment of income Answer D

74

I and II are not correct Only I is correct Only II is correct 4 Answer: A

44. Which of the following renunciations shall be subject to donor's tax Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute community after the dissolution of the marriage in favor of the heirs of the deceased spouse teeny other persbn(s). . General renunciation by an heir, including the, surviving spouse, of his or her share in the hereditary estate left by the decedent. : General renunciation by an heir, including the surviving spouse, of his or her share in the hereditary estate left by the decedent categorically in: favor of identified heir(s) to the exclusion or disadvantage of ether co-heir(s). • I only c. land lll.only land II only d. I, II and III Answer: C GUIDE: : RENUNCIATIdOF INHERITANCE Taxableonl/if it.wasmade expresslyei faiorof en heir, to the exclusion or disadVantage of anotherheir. Otheni/ise, non-taxable gift: RENUNCIATION or SHAE'IS THE COMMON PROPERTY Always treated as taxable donation. 45. Which of the following events is not subject to donor's tax? A Filipino citizen donated a parcel of land located in the United States to B, nonresident alien. • A resident alien made a gift of P200,000 to his daughter on account marriage. A non-resident citizen gives his girlfriend a diamond ring worth P100,000 as a birthday gift. A and B are the onlY heirs af C. A renounces his share ofinheritance in favor of B. Answer: D ix

46. A gift that is incomplete because of reserved powers, becomes complete when: The donor renounces the power The right of the donor to exercise the reserved power ceases becauee of the happening of some event or contingency or the fulfillment of some condition, other than because of the donors death ' a. I and II are correct 460

47. If the gift is made in properties, it shall be appraised at its: a. Fair market value as of the time the donor's tax retum is filed. b: Fair market value as of the time of donation: c. Historical cost at the time the donated 'property was acquired. d. Value in the hands of the donor. C. Answer: 8 48. Every donation or grant of gratuitous advantage, direct and 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. Donation mortis causa Donation propter nuptias which are given before the marriage. • All the choices are correct exceptions. C. Answer: D 41 A thic minimization scheme which is done by spreading the gift over numerous calendar • • years to avail of lower tax liability Spread-out method Donation of life insurance Splitting of gift Void donation • Answer: C 50. The spouses Ma and Pedro wanted to donate a parcel of land to their son Loma who is getting married in December, 2018: The parcel of land has a zonal valuation of P420,000.00. What is the most efficient mode of donating the property? The spouses should first donate in 2016 a portion of the property valued at P20,000, then spread the P400,000 equally for 2017, 2018,2019 and 2020. Spread the donation over a period of 5 years by the spouses donating P100,000 each year from 2016 to 2020. The spouses should each donate a P110,000 portion of the value of the property in 2016 then each should donate P100,000 in 2017.

461

Dotter's

ri,6

ploozo

d. The spouses should each donate a portion of the value of the property in 2016, and another P100,000 each in 2017. Then, in 2018, Pedro should donate the rerhaining R20,000. , Answer: C SPLITTING OF GIFT- GUIDE: BEFORE TRAIN LAW. Applicable only if the donor and the donee are relatives. • Not applicable to strangers UPON EFFECTIVITY OF TRAIN LAW • Applicable regardless of the relationship of the donor and the donee because the 1st P250,000 donation is exempt. Splitting the gift may therefore eliminate payment of tax or result to a lower tax due. • 51. Jay sold his car to Jana for R200,000. Jay's car. costs P500,000, and had e fair market value of P400,000 at the time of sale. What is the tax consequence of the sale? There is a taxable gift of P300,000 There is a taxable gift of P200,000 The transfer is for insufficient consideration, hence;not subject to doncr's tax The transfer involved'a, personal property, hence, not subject to donors tax

, t* Answer: B

•

52. Statement 1: Where a 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, the amount by which the fair market value of the properly at the-time of transfer exceeded the actual consideration shall be deemed gift and shall be included in the computation of gifts made during the calendar year. Statement 2: A dohafion 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 whichever property relationship exists between the spouses.. Statements 1 & 2 are false Statement 1 is true but statement 2 is se Statement 1 is false but statement 2 is rue Statements 1 and 2 are true , t Answer: C

/)otters 7;6 GUIDE - INSUFFICIENT CONSIDERATION Cs SALE OF MOVABLE OR PERSONAL PROPERTY Where donor's tax had been paid— not to be included anymore in the determination of gross estate upon death. Not yet subjected to donor's tax — to be included in the determination of gross estate upon death. • SALE OF REAL PROPERTY . Capital Asset located in the Philippines = 6% CGT only. However, upon ' death of the seller, .abyexcess of ,FMV at the time of death aver consideration received at the time of transfer shall be included.in the gross estateof the decedent. Capital Asset located abroad = subject to donor's tax (excess FMV over over proceeds) Ordinary Asset — Donor's tax DONATION Personal or Real properly (regardless of classification) — subject to donor's tax.' , • 53 Pedro, an individual, sold to his friend .Ana, his residential lot with a market value of P1,000,000 for P600,000. Pedro's cost- in the .fot. is R1 Ana is financially capable of buying the lot. What tax should be imposed and collected from Pedro as a result of the transaction? a. Capital gains tax b.. Donor's Tax Real property Tax Capital gains tax and Donors Tax

wow'

• Answer: A 0 The real property sold is classified as' capital asset located in the Philippines. The applithble tax is CGT. Refer to the guide presented in the preceding paragraph. 54 Pedro, an individual, donated to his friend Ana, his residential lot with a market value of R1,000,000. Pedro's cost in the lot is P100,000. Aria is financially capable of buying the lot. What tax should be imposed and collected from Pedro as a result of the transaction? Capital gains tax Donor's Tax Real property Tax Capital gains tax and Donor's Tax Cs

462

Answer B 463

IJartar's 771( 55. In 2017, Caroline donated P110,000.00 to her friend ,Vicky who was getting married. Caro44ie gave no other gift during the calendar year. What is the donors tax implication on Caroline's donation? a. Tfip P100,000 portion of the donation is exempt since given in consideration of Marriage. A $10,000 portion of the donation is exempt being a donation in consideration of marriage. Caroline shall pay a 30% donors tax on the P110,000 donation. The donation is exempt under the revised donor's tax rate (TRAIN Law). Answer: C 56: Assume the donation in the preceding number was made in 2018 calendar year, what is the donor's tax implication on Caroline's donation? a. The P100,000 portion of the donation is exempt since given inconsideration of marriage. AP10,000 portion of the donation is exempt being a donation in consideration of marriage. Caroline shall pay donors taX,on the P110,000 donation: The donation is exem4 under the reviseddonor's tax rate (TRAIN Law). Answer: D 57. Mr.Putiis a Russian national residing in Ukraine.. He donated some properties located in the Philippines and curious as to what can be deduct in arrivinoat His rietgifts. subject to donor's tax. Which of the following cannot be claimed as deduction?-: Gifts made to or for the use of the National Government Gifts in favor of an educational institution C. Both 'a" and "b" d. Neither "a" nor If Answer: D 58. One of the following is an incorrect statement regarding dowiji (for donations made prior to 2018). The donor must be the natural or adoplg parent of the child. 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 1 year before the celebration of the marriage d. The exemption allowed is to the extent of the first P10,000.

Answer: C 0 Shall be before marriage or one year after marriage. The interval between , the date of marriage and donation is relevant only if the donation was made after marriage. 59 One of the following is not an exempt gift or a deduction frqm the gross gift of a nonresident alien donor. Dowries or gifts made on account of marriage. Gifts made to or for the use of the National Government or to any of its political subdivision. Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited non-govemment organization, trust or philanthropic organization or research institution or organization. Encumbrance on the properbidonated, if assumed by the donee. Answer: A 60

A married couple donated in 2016 a,conjugal property to their son who is getting married. Which of the following statements is incorrect in connection with the donation? The husband is the proper claimant of the dowry, being head of the family. The husband and Wife shall file two separate dOnoes lax returns: ' O The husband and the wife can claim P10,000 dowry each. 6 The gross gift of the husband shall be one-half of the value of the donated conjugal property. AnSwer: A 0 For donor's tax purposes, spouses are treated as separate taxpayers. Consequently, both of them are entitled to dowry for donations made on . account of marriage prior to the effectivity of the TRAIN Law.

61. Who of the following cannot claim P10,000 exemption on gifts given on account of marriage? resident citizen resident alien nonresident citizen ct. nonresident alien Answer: D 62 One of the following is not an exempt gift or a deduction from the gross gift of a nonresident alien donor. Dowries or gifts on account of marriage Gifts made to or for the use of the National Government or to any political subdivision 465

Dotwr's

Ogiffir ).5

difts in favor of an educaftonal and/or charitable, religious, cultural or social welfare corporation, institution, - accredited non-government 'organization, trust or philanthropic organization or research institution or organization nicumbrance on the property donated, if assumed by the donee.,

The allowable deduction is: P10,000 c. P40,000 P20,000 d. P0

tlAnswer: A 63. Which of the following is not a deduction from the gross gifts? Unpaid mortgage on the donated property assumed by the donee Unpaid real estate tax on the propefty donated assumed by the donee Diminution on the donated property specifically provided byte donor d. Unpaid donor's tax on the donated praperty,assumed by the.donee Answer: D 0 For estate tax and income tax purposes estate tax is not a deduction from the gross estate and income:tax is not a deduction frdm the gross income (except forincome tax abroad by RCs and DCs opting to treat the income tax as part of OPEX). Apply the same rule in donation inter-vivos. Donors tax is not a deduction from the gross gifts.' , 64. At of the following except ire are exempt from gift tax under special laws a. Donation to Integrategar of the Philippines ; P. Donation to Development Academy. of the Philippines C. Donation to Philippine Institute of Certified Public Accountants Donation to International Rice Research Institute , • tse Answer: C

66. In 2017, Ronald gave a property with a fair market value of R2,000,000, with unpaid mortgage of P200,000 to be paid by him, to his son Daniel and Daniel's bride Enfily, on account of their marriage 15 months ago.

Answer: D 0 The mortgage is non-deductible because it was not assumed by any of the donee& 67 The donor's tax payable based on the above problem is: a. R300,000 c. P1,000,000. P344,000 d. RO C. Answer: 8 Solution:

Gross gifts = P2,000,000/2 Unpaid mortgage (non-deductible; assumed by the donor) Dowry (NA; beyond one year after marriage) Net Taxable Gifts ,

_ RONALD Daniel (R) Emily (S) P1,000,000 1,000,000

P1,000,000

P1,000,000

DONOR's TAX DUE: Relative (old fable) Stranger @ 30% TOTAL Donor's Tax Due

P44,000‘. 300,000

,

65 All of the following, except one, are exempt from donors tax Donation to the Philippine National Red Cross •Donation to the Development Academy of the Philippines' Donation directly given to the victims of the typhoon Yolanda Donation to the City of Davao for public purpose Answer: C 0 . If the donation was not courses) through the-government or to a charitable institution, such donation shallbe subject to donor's tax.

466

68 The donor's tax payable based on the above problem assuming 2018 taxable year is: R300,000 c. P105,000 R344,000 d. R120,000 C- Answer: C Solution: Gross gifts (relative and stranger) Unpaid mortgage (non-deductible; assumed by the donor) Dowry (NA; repealed under TRAIN_Law).__ Net Gifts Less: Exempt Gilts Net Taxable Gifts Donor's Tax Rate (TRAIN Law) Donoes Tax Due

467

P2,000,000

P2,000,000 (250,000) P1,750,000 6% P105,000

Datter's 771(

at/my

ite

Use the following data for the next eight (8) questions:

Mr. and Mrs. Mapagbigay, made the fallowing donations during 2017: Jan.9,5: To Oliver, their legitimate son, on account of marriage last January 20, 2016, car worth P400,000, with P200,000 unpaid mortgage, 'A was assumed by the donee. .4 •

70. The gift tax payable of Mr. Mapagbigay as of May 31 assuming taxable year of 2018 is: P8,000 c. P7,200 P7,000 d. P6,000 C. Answer: 13

May 31: To John, brother of Mr. Mapagbigay, his capital property worth P200,000 on account of marriage 6 months ago with a condition that the donee -will pay the:donors tax thereon. July 15: To Felicity, daughter of Mrs. Mapagbigay by former marriage, on account of her marriage 12 months ago, Mrs. Queen's paraphemal property worth 12100,000. . . Aug. 20 Conjugal car of the couple worth P400,000, with P200,000 unpaid•mortgage, 'A assumed by Felicity and P500,000 worth of land to their four sons on account of their graduation, 20% of which was owned by their closest friend Roy, who agreed to donate his share through a public document. 69 The gift tax payable of Mr1Napagbigay as of May 31,.2017 is c. P7,200 . P8,000 P7,000 ' d, 06,000 4.• Answer: B Solution: JAN, 25 Gross gifts = P400,000/2 Mortgage assumed by the donee = (P200k x 50%)/2 Dowry (NA; beyond one year after marriage) Net Taxable Gifts Tax Due (old tax table)

Mr, Mrs. P260,000 200,000 (50,000) (50,000) P150,000 P150,000 P1,000 P1,000

MAY 31 Gross gifts Add: Prior net gift Aggregate net gifts as of May 31

,P200,000 15q000 P350,000

Donor's Tax Due (old tax table) Less: Donor's Tax Paid, Jan. 25 Donor's Tax Payable - May 31

P8,000 (1,000) P7,000

The agreement between the .donor and donee is irrelevant. It is valid between the two contracting parties, 'mayor, Os not binding on the point of view of the taxing authority (BIR). 468

Solution: JAN. 25 Gross gifts = P400,000/2 Mortgage assumed by the donee = (P200k x 50%)/2 Dowry (NA; not allowed under TRAIN Law) Net Gifts Less: Exempt gifts Taxable Net Gifts Tax Due (old tax table) MAY 31 Gross gifts Add: ()gar net gift Aggregate net gifts as of May31 Less: Exenipt gifts Aggregate taxable net gifts'as of May 21 x Donor's Tax Rate under TRAIN Law . Donors Tax Payable -.-.May 31

, Mr. P200,000 (50,000)

Mrs. 200,000 (50,000)

P150,000 (250,000) (P100,000) Exempt

P150,000 (250,000) (P100,000) Exempt

P200,000 ' 150,000 P350,000 (250,000) P100,000

6.4

- P6,000,

71. The gift tax payable of Mrs. Mapagbigay as of JUly15, 2017 is c. P2,800 P3,600 4. P4,000 • P2,600 C. Answer: B Solution: JULY 15 Gross gifts Dowry Add: Prior net gifts Aggregate Net Gilts

Mrs.

P/00,000 (10,000) 150,000 P240,000 P3,600

Donor's Tax Due Less: Payments, Jan. 25 Donor's Tax Payable, July 15

P2,500

72. The gift tax payable of Mrs. Mapagbigay as of July 15 assuming xable year of 2018 is: c. P15,000 P1,000 d. PO P2,600

469

Daiwir's

Deal'

Answer: D Solution: JULY 15 Gross gifts Dowry ...‘ Add: Prior net gifts Aggregate Net Gifts Less: Exempt gifts Taxable net gift Donor's Tax Due

74. The gift taxes payable of Mr. and Mrs. Mapagbigay on AugUst 20 assuming taxable year of 2018: R27,000 & R21,000 R21,000 & P27,000 R21,000 & R21.000 R6,000 & PO

Mrs. P100,000 NA 150,000 P250,000 (250,000) PO Exempt.

Answer: C

73. The getaxes payable of Mr. and Mrs. Mapagbigay on August 20.2017: P69,000 & P18800 R17,000 & R18,800 o. P54,000 & P15,800 . d. R54,000 & R18,800 C. Answer: C Solution: AUG. 20 - MR L. Gross gifts (To FeliciO, Mortgage assumed by the donee = P100,000/2 ' Additional gifts (to their sons) P500,000 x 80% /2 Add: Prior Net Gifts Net Taxable Gifts Donor's Tax Due Less: Prior Tax Payments Tax Due (old tax table) TOTAL

Relative. Stranger P200,000 ' (50,000) P200,000 350,000 • P550,000 P150,000 30% P17,000 P45,000 (8,000) P45,000 P9,000 P54,000

AUG. 20-MRS. Gross gifts (To Felicity) Mortgage assumed by the donee = P106000/2 Additional gifts (to their sons) = P500,000 x 80% /2 Add: Prior Net Gifts Net Gifts

Mrs. . 200,000 (50,000) 200,000 240,000 P590,000

Donor's Tax Due Less: Prior Tax Payments Tax Due (old tax table)

P19,400 (3,600) P15,800

470

Solution: AUG. 20: • Gross gifts (To Felicity; stranger) Additional gifts (to their sons)P500,00Ox 80%12 Mortgage assumed by the donee = P100,000/2 Add: Prior Net Gifts Aggregate Net Gifts Less: Exempt Gilts Donor's Tax Due x Donor's Tax Rate Donor's Tax Due Less: Prior Tax Payments Donor's Tax Payable- Aug. 20, 2018.

MR P200,000 200,000

(Kap 350,000 P704000 (250,000) P450,000 6% P27,000 (6,000) P21,000

MRS. P200,000 200,000 (5o,o00) 250,000 P600,000 (250,000) P350,000 6% P21,000 P21,000

75. The gift tax payable of Roy on June 20,2017 is: P30,000 C. P45,000 P 6,000. d. PO Answer: A Donors Tax Payable = P500,000 x 20% x 30% = P30,000 76. The gift tax payable of Roy on June 20 assuming taxable year of 2018 is: C. P 30,000 c. P45,000 d. P 6,000 d. PO Answer: D Solution: Gross gifts Add: Prior net gifts . Less: Exempt gifts Taxable net gift Donor's Tax Due

P500,000 20% P100,000 (250,000) (P150,0000 Exempt

471

Deituir's 74,

Dawfir's 7aj 77. Pedro gave gifts to the following persons on June 12,2017, his 40th birthday: A second hand car worth P350,000 to Kaskasero, his trusted driver. The donation ikas made orally. Since then, the driver had taken possession of the property. To his Mayordoma, Ms. Mercy, a lot with a bungalow theredn, The value of the property is P1,200,000. The donation provides that it may be revoked anytime at the pleasure of Mikey. His flower shop worth P700,000 to Hardinero, his gardener. The donation is provided in his will. Cash of P100,000 each to his three king-time friends. How much is the donor's tax due on the above donations? a. P720,000 c. 'P100,000 b: P90,000 d.. P3,000 Answer: B 0 Donor's Tax Due 7 P100,000 3 x30% = P90,000 o The donation to Kaskasero is not subject to ,Idnor's tax. The donation is void because the required form was not observed. , ;• 0 The donation to Mercy iso revocable gift; hence, not Subject to donor's tax. , 0 The donation to Hardinero is a donation mortis cause, subject lo estate tax instead ,of donor's tat; \

79. The donor's tax payable on the donation to strangers is a. P9,000 c. P60,000 • b P24,000 d. P120,000 4 Answer: D 0 Donor's Tax Due (To Kat) = P400,000 x 30% = P120,000 80. The donor's tax payable on the donation to strangers assuming 2018 taxablayear is c. P60,000 P9,000 d. R120,000 R24,000 C. Answer: A 0 Donor's Tax Due (To Kat) = P400,000 - 250,000 x 6% = P9,000 81. The total donor's tax payable in 2017 is .c. P160,000 P66,000 d. P220,000 R100,000

•

78 How much is the donor's tax due on the above donations assuming the taxable year is 2018? P720,000 ..c. P100,000 P45,000 ,d. 03,000 C. Answer: 0 Donor's Tax Due = R0100,000 x 3) - 250,0001 x.6% ; P3,000 The next four (4) questions am based on the following information: . Pedro, single, donated the following properties on September 21, 2017: • Value Property . . Donee. 100,000 - Juan, brother, on account of marriage JeWelries 400,000 Kat, girlfriend residing in Korea 1,500.000 House & lot parents,Iver wedding anniversary gift 75,000 Land Bgy. Markyapa, for use of barangay hall 300,000 Car Fe, sisterNonation is revocable 50,000 Cash International Rice Research institute Cash 100,000 Guillermo, father of the father of his mother 70,000 Motorcycle Kay, niece, donation is embodied in the will

Answer: D Taxable Net Gifts to Relatives: ' To Juan, Parents, and Guillermo

P100,000 120,000 P220,000

Tax Due (old tax table) Tax Due (strangers) • Total Donor's Tax Due

82. The total donor's tax payable assuming 2018 taxable year is 'o. P160,000 P111,000 d. P220,000 P126,000 C. Answer: A . To Juan, Parents, and Guillermo To Kat Less: Tax exempt gifts Taxable Net„Gift Donor's Tax Due (@6%)

P1,760,000 400,000 (250,000) P1850,000 P111,000

83 Managayat made donations to John and Ara, son and daughter-in-law, on account of marriage, of real property with a fair market value of P2,000,000, but subject to a • mortgage of P300,000 that was assumed by the donee. The donor's tax is d. P199,400 c. P278,140 b. P289,400 a. P283,300 C. Answer: B

472

P1,700,000 '

473

Doiwr's

Dimm-).S. Solution: ci

To John (ft) Gross gift Dowry Mortgage Net gift Tax Due (Table)

P1,000,000 (10,000) (150,00) P840,000 P34,400

To Are (S) Gross gift Mortgage

r

Net gilts Tax Due (30%)

P1,000,000 (150,000) P850,000 P255,000

Total P289,400

Donor's Tax Due (@ 6%) Less Tax Credit

t Answer: D Next tour (4) questions are based on theiollowinq data: • Mr. Nicklaus, resident alien, made the following donations for the year 2016: April 15 • • To Hayley, legally adoptectshild on account of marriage last week, Car .worth P710,000 in Phifippines. To Rebekah, his daughter, car in USA Worth P300,000. They paid $200 donor's lei in the US ($1 - P 45) July 20 - To Sophie niece in Manila, P200,000 worth of personal property. To Devine, legitimate daughter on account of marriage, July IS, 2013 car in Manila, worth P400,000 but mortgaged for P200,000, 1/2 of whichwas assumed by the donee. 85. The gift tax payable on April 15, 2016 is: P30,800 c. P44,000 P35,000 d. P33,000 Answer: B

Donor's Tax Due (old tax table) Less: Tax Credit

P1,010,000

(10:000) P1;000,000 P44,000

Actual = P9,000 vs. Limit = 300/1,000 x P44,000 = P13,200 Donor's Tax Payable

Answer: D SoArtion Gross Gilt (P710,000 + 300,000) Less: Dowry (no longer albwed) Tax exempt gifts Taxable Net GB?

84. Donors tax credit is not allowed to a donor who is a: Resident citizen Non-resident citizen Resident alien Non-resident alien

Solution Gross Gilt (P710,000 + 300,000) Less: Dowry Taxable Net Gift

86. Assuming taxable year of 2018, Um gift tax payable on April 15 should be: P45,600 c. R44,000 P35,000 .d. P36,600

(9,000)

(250,000) P760,000 P45,600 ,

Actual = P9,000 vs. Limit = 300/760 x P45,600 = P18,000 Donor's Tex Payable

69,00 P36,600

87 The gift tax payable on July 20, 2016 is: c. P84,000 P40,000 P36,009 d. P80,000 .0 Answer: A Sobtion Gross Gilt July 20 (P200,000 + 400,000) Less: Dowry (more than 1 year ago) Mortgage assumed by the donee Add. Prior Net Gift Taxable Net Gift ' Donor's Tax Due (old tax table) Less: Prwiousy paid donor's tax Tax credit

P600,000 (100,000)

1,000,000 P1,500,000 P84,000 (35,000)

Actual = P9,000 vs. Limit = 300/1500 x P84,000 = P16,800

- (0,000)

Donor's Tax Payable

P40 000

88 Assuming the taxable year is 2018, the gift tax payable on July 20 should be: .1440.000 c, R84,000 d. P80,000 P30,000

P35,000

0 Answer: 8 474

P1,010,000 NA

475

Daitar Sobtion Gross Gift July 20 (P200,000 + 400,000) Less: Donny (not a lbwed under TRAIN Law) Akrtgage assumed by the donee Add: Prior hkt Gill Totathet Gifts Less: Tax exempt gifts Taxable Net Gift Donor's Tax Due (@ 6%) Less: Previousir paid donols bx Tax Credit Actual = P9,000 vs. Unit =300/1260 x P75,600 = P18,000 Donor's Tax Payable

P600,000 (100,000) 1,010,000 1,510,000 (250,000) P1 260 000 • ., P75,600 (36,600).

(9,000) P30 000

• 89. Mr: Riano made the following gifts to his relatives in 2017; UK Phils. USA . P250,000 P750,000 P500;000 Gross gift 250,000 . 200,000 • ' 150,000 Deductions 12000, Tax paid -25,000 . • X, The gift tax due .after tax credit is: C. P33,520 P35,600 d. P39,000 • P25,600 Answer: C Soistion Gross Gilt Less: Taxable Net Gift

P2,000,000 950,000 P1,250,000

Donor's Tax Due (old tax table) Tax Credit Donor's Tax Payable

(30,480)" P33,520

Italy P500,000 150,000 -10;000 •

771-

Devu/r );:rit r

•

Limit 1: USA P300/P1,250 x P64,000 Paid Allowed

Deductible P15,360 25,000 P15,360

UK: P100/P1,250 xPS4,000 Paid Albwed

5,120 12,000

Italy P350IP1,250 x P64,000 Paid Arbwed TotabIJMIT 1

17,920 10,000

5,120

10,000 P30,480

Limit 2: P750/P1,250 x P64,000 Actual (25 + 12 + 10).

938,400 P38,400 47,000

TAX DUE: Pl P1,000,000 • p250,000x 8% ' , Donors Tarr Due -Less: Tex Credit Dorres'Tax Paid/ale

.P44,000 '.20,000 . P64,000 , 00,480) . . 'P331520' •

90 Assume the taxable year in' the preceding nUmber is 2018, the donor's tax payable after tax credit is: C;P33,520 P26,000 0, P60,000 P246,000 L• Answer: B Soblion Gift Less: Net Gift Less: Exempt gift Taxable Net Gift

P2,000.000 (750,000) P1,250,000 (250,000) P1,000000

Donor's Tax Due @ 6% Tax Credft Donor's Tax Payable

476

P60,000 (34,000)" P26,000

477

Demo{ ).; Deductibk

Limn 1: N.USA- P300/P1,000 x P60,000

P18,000 25,000

Paid ±(1:ined

1);essoo

6,000 12,000

UK P10091,000 x P50,000 Paid AlbAed

21,000 •

Itak P350/P1,000 x P60,000 Paid Albxed 7otal4IMIT 1

•

10,000 10,8100 P34,000 P45,000

Limit 2: . P750/P1,000 x P60,000

Actual (25 12 -• JO)

74,

P45,000.-

,

47,000

91 In 2017, Jose made the following gifts: . On June 12017, P150,000 to Anton, his son, on account of his -manage celebrated , • - . .. • . on May 1, 2015; , 1.... „ On July 10, 2017, a 'fierce! of land Worth P180,006 .1; hiS father, subject to the condition that his father would -assume the' mortgage' indebtedness of Jose in the •. . • ' dmount of P40,000; On Septembet 30, 2017, pisosmo demi tothis daighter Crane; on account of her . scheduled manage on October 25, 2017, . • and anotherieedrfinggift,wilrlh P20,000 on November 23, 2017. ' How much was the total net gills? o. P450,000 ' a P500,000 d. P430,000., b P460,000 Answer: C 92. For donations made prior to 2018. the donor's tax return shall be filed within: six (6) months after the date the gift is made. two (2) months after the date the gift ilmade thirty (30) days after the date the gift iimade. One year after the dale the gift is made

Miter Is

93. For donations made on or after January 1, 201;4the donor's. tax return shall be filed within: six (6) months after the dale the gift is made. ; two (2) months after the date the Oft is made thirty (30) days after the date the gift Is made:: One year after the date the gift is made .14 t Answer: C 0 Unlike in estate taxation, the filing of donors tax return was not amended under the TRAIN Law. ...4 94. Statement I: A donation can be bath ^a girt Of the Toss gift of the donor and a taxable income to the donee. 4 „ Statement 2: A donation may be exempt from donor's tax but not necessarily.a deduction from he donor's gross income. „ -) Orly statement 1 is true Onh) statement 2-is true Both statements are true Both statements are false .1.0t e

f_f• '1;" n Answer B 'Eme Properties received from gretuitous transfets are hot ,considered income. 0 However, income 'receivedrte.-m-74s aie; lease-or sale.shall be treated as , taxable income.

95: Statement I: Only one return shall be filed for several gills (donations) by a donor to the •‘,E, , different donees on the same.date. • • Statement 2: If the donation involves conjugalkomniimitiproperty, each spouse shall file separate return corresponding to hisTher respeilth share in the conjugal/community properly.. c. True, True True, False d. False, False False, True 0, Answer: C 0 There shall be one return per every date of donation regardless of who are the donees (relatives or strangers or both) and the number of donees.

Answer: C

478

'be

479

Detter's 96. Statement 1: If on any one date, there is a donation by one donor to his relative and another one to a stranger, there will be two (2) separate donor's tax return to be Red. Statement 2: In donors tax, no extension of time for filling the donors tax return allowed Stattment 1 is correct, while Statement 2 is wrong Statement 1 is wrong, while Statement 2 is correct C. Bothe Statements are correct d. Both Statements are wrong Answer: B

Lbiter'i 100. Statement When a donor's tax return was filed and it was found out by the BIR to have errors which gave rise to .a defidiency donors tax, the donor might be required to pay the deficiency although he did not posseas or own the property anymore. Statement 2: 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. Statements 1 & 2 are false b., Statement 1 is true but statement 2 is false Statement 1 is false but statement 2 is true Statements 1 and 2 are true Answer: D

97. Manolo, a resident of Dagupan City donated to Arturo a property in Laoag City. The donor's tax is P40,000. The deed of donation was signed in the residence of Arturo in Baguio City. The donors tax return mdst be filed in Dagupan City ,c. Baguio City , b. Laoag City d. Quezon City Answer: A 98. When the donor has no Ilgal residence in the Philippines, the donors- tax return 'shall be • \ filed with: Authorized AgentBank, Revenue District Officer where the donor is domiciled. C. Revenue Collection Officer where the donee is domiciled. d. Office of the Commissioner. Answer: D 99 Statement 1: Husband and wife are considered ,as separate and distinct taxpayers for purposes of the donor's tax. • Statement 2: If what was deflated is a conjugal or community property and only the husband signed the deed of donation, there is only one, donor 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 of the Philippines. Statements 1 & 2 are false Statement 1 is true but statement us false Statement 1 is false but Statement 2 is true Statements 1 and 2 are true Answer: D

480

4E11

vetthale, SUMMARY,RULES Annual Gross SalesiReceipts

PART 11

0t4r

P&wthq& ri tr,

roper}

More than P8M e1.919,5002nor to 20181

_

P3M and below (P1,919.000 and below prior to 2018) KINDS OF PERCENTAGE TAXES: Tax on person exempt from value-added tax (Sec. 116); , Percentage tax on domestic carriers and keepers of garages (Sec, 117); „ Percentage tax on international carriers (Sec. 118); . . Tax on franchises (Sec. 119); Tax on overseas dispatch, message or conversation. originating • from Philippines (Sec. 120); Tax on banks and non-bank financial intermediaries (Sec. 121); Tax on other non-bank financial intermediaries (Sec. 122); Tax on life insurance premiums (Sec. 123); Tax on agents of foreign insurance companies (Sec. 124); Amusement taxes (Sec. 125); Tax on winnings (Sec. 126); • Tax on sale, barter or exchange of shares of stock listed and traded through the local-stock exchange or through initial public offering (Sec. 127)..

Business Tax Applicable VAT

VAT or OPT If the taxpayer opts to pay VAT, it will be irrevocable for 3 consecutive year's.

PERCENTAGE TAX ON DOMESTIC CARRIERS AND KEEPERS OF GARAGES (Sec. 117). Common Carriers - refers to the persons, corporations, firms or accoriations engaged in the business of carrying or transporting passengers or goods, or both by land for compensation; offering their services to the public, and shall include transportation contractors. Persons Liable: Cars for' rent or hire driven by the lessee (rent-attar); Transportation contractors, including persons. who transport , i passengers for hire; . . . . Other domestic carriers by land for-transport of passengers; Keepers of garages.

TAX ON RERSONS EXEMPTALOM VALUE-ADDED TAX (Sec.'116). Requisite Not a VAT registered person; and The annual gross soles or receipts do not exceed (P1,9191500 prior to 2018). Exempt Person — Cooperatives

• 1, 2018, Self-employed individuals and professionals availing of the 8% tax on gross sales and/or receipts and other non-operating income under the TRAIN Law.

Exempt Persons: Owners of bancas Owners of animal-drawn two-wheeled vehicles Formula: Tax Base Rate Common Carriers Tax

Beginning Jan.

Fommla: Tax Base Rate Percentage Tax

Tax Base Actual Gross Receipts Minimum Gross Receipts

Whichever is higher'

0 10k

FT&

:‘ Tax Base Seller of Goods — Gross Sales Seller of Services — Gross Receipts

482

SUMMARY RULES Transporting Type of Domestic ! Common Carrier f Persons By Land ! CargolGoods J Persons, Goods or Cargoes By Air 1 Persons, Goods or Cargoes By Sea

483

Business Tax Applicable OPT VAT VAT VAT

PerctwLqe Ifteeo , -

Pet-ea/rt. c riajetoL-/ PERCENTAGE TAX ON INTERNATIONAL CARRIERS (Sec. 118). 0 Persons Liable: International Air Carriers International Shipping Carriers Formula: GrOss Receipts Rate Cordnon Carriers Tax

PXXX 3% PXXX

TAX ON OVERSEAS DISPATCH, MESSAGE OR CONVERSATION ORIGINATING FROM THE PHILIPPINES (Sec. 120). *a Requisites: There is an overseas dispatch, message or conversation; It originated from the Philippines; It was made through a telephone, telegraph, telewriter exchange, wireless and other communication equipment. C.

Gross Receipts — shall include, but shall not be limlted to, the total amount of money or its equivalent representing the contract, freight/cargo fees, mail fees, deposits applied as payments, advance payments and other service charges and fees tactually or constructively recejved during the taxable quarter from cargo and/or mail, originating from the Philippines In a continuous and uninterrupted.fligh4 irrespective of the-place of sale or issue and the place of payment of the passage documents. (RA No. 10378, RR No.

15-2013) SUMMARY RULES Business Tax Applicable Airline/Shipping Co. VAT ' Domestic Corp. OPT [ Resident Foreign Corp.

•

•

I

TAX ON FRANCHISES (Seca19).• \ 4. Persons Liable: Franchises on Gas and Water Utilities Franchises on Radio and/ or Television Broadcatting Companies Requisites for franchises on Radio and/ or Television Broadcasting Companies: Not a VAT regidtered person; and Annual gross receipts of the preceding year do not exceed P10,000,000. SUMMARY RULES APPLICABLE TO RADIO AND/OR TELEVISION BROADCASTING COMPANIES Business Tax Applicable Annual Gross Receipts VAT More than P10 00(000 P.Y. VAT er OPT P10,000,000 and below P.Y. If the taxpayer opts to pay VAT, it will be irrevocable. Formula: Gross Receipts Rate Franchise Tax 4.

PkNot xoto PX>C(

Rate: Gas and Water — 2% Radio and/or Television Broadcasting Companies —

484

Person Liable — the user of the facility Formula: Payments for Services Rate • Overseas Communications Tax

PXV 10% PX,V

Exempt Persons: Diplomatic Services International Organizations News Agencies or Services Government TAX ON BANKS AND NON-BANK FINANCIAL INTERMEDIARIES PERFORMING QUASI-BANKING FUNCTIONS,(Sec. 121). • Banks or Banking institutions — refer to those entities as defined under Section 3 of Republic Act No. 8791, -otherwise known as the General Barilting Law of 2000, or more specifically, to entities engaged in the lending of funds obtained in the form of deposits. The term "banks" or "banking institutions" are synonymous and interchangeable [and specifically include qniversal banks, commercial banks, thrift banks (savings and mortgage banks, stock savings and loan associations, and private development banks), cooperative banks, rural banks, Islamic banks and other classifications of banks as may be determined by the Monetary Board of the-BSP.IRR No. 8-08) Non-bank Financial Intermediaries — refer to persons or entities whose principal function include the lending, investing or placement of funds or eVidences of indebtedness or equity deposited with them, acquired by them or otherwise coursed through them, either for their own account or for the account of others. This includes all entities regularly engaged in the lending of funds or purchasing of receivables or other -obligations with funds obtained from the public through the issuance, endorsement or acceptance of debt instruments of any kind for their own account, or through the issuance of certificates, or of repurchase agreements, whether any of these means of obtaining funds from the public is done on a regular basis or only occasionally. (RR No. 8-08) Quasi-banking Functions — shall refer to the borrowing of funds from twenty (20) or more personal or corporate lenders at any one time, through the issuance, endorsement or acceptance- of debt instruments of any kind,

485

oren fit

74,V.ed-

• other than deposits, for the borrower's own account or through the issuance of certificates of assignment or similar instruments, with letourse, or of repurchase agreements for purposes of relending or purchasing receivables or other similar obligations. Provided, however, that commercial, industrial and other non-financial companies, which 'borrows funds through any of thy.se means for the limfted purpose of financing their own needs or the needs if their agents or dealers, shall not be considered as performing quasibanking functions. ,GRT OF BANKS & NON-BANK FINANCIAL INSTITUTIONS .- - *= PERFORMING QUASI-BANKING OPERATIONS Gross receipts or income derived from Interest, commissions and discounts from tending activities and Financial leasing: Remaining maturity period in 5 years or less Remaining maturity period is more than 5 years . Dividends and equity shares in net income of subsidiaries Royalties, rentals of property, real or personal, profits from exchange and all other items treated as gross income under the Tax Code Net trading gains within the taxable year on foreign currency, debts securities derivative and other similar financial instruments r..GRT ON OTHER NON-BANK FINANCIAL INSTITUTIONS NOT .PERFORMING QUASI-BANKING OPERATIONS 'A Gross receipts or income derived froth • ' Interest, commissions, discounts, and all other items treated as • -, .grosslincome under the** code ' Interest, commissions and discounts froth Lending activities and • , • Financial leasing: . • , (a) Remaining maturity period in 5 years qrless b Remainin. Maul .eriod is more than.5. 2'ars

Tax Rate

7%

Tax Rate, :5% -

5% 1%

TAX ON LIFE INSURANCE PREMIUMS (Sec. 123) Formula: Premiums Collected Rate . Premiums Tax O

MOO( * 2% PX)0(

The following premiums are exempt from tax: Premiums refund within six (6). months after payment on account of rejection of risk or returned fos.9ther reason to a person paid the tax. premiums paid upon re-issuan* by a company that has already paid the tax 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 wherethe branch is established. 4) Premiums collected are received on account of any reinsurance, if the insured, in case of personal insurance, resides outside the Philippines,

486 ,

if any tax on such premiums is imposed by the foreign country where the original insurance has been issued or perfected; Portion of the premiums collected or received by the insurance companies or variable contracts in excess of the arnotints necessary to insure the lives of the variable contract workers (as defined in Sec. 232(2) of Presidential Decree No. 612). Premium collected by a purely cooperative company or association.. TAX ON AGENTS OF FOREIGN INSURANCE COMPANIES (Sec. .124). O Persons Liable: Fire, Marine or Miscellaneous Agents. of Non-resident Foreign Corporations engaged in insurance business; and Owners of property directly- obtaining insurance from Non-resident Foreign Corporations engaged in insurance business. Agents of Non-resident Foreign Corporations engaged in insurance business Formula: Premiums Collected 4% (twice the rate of Sec. 123) Rate PXXX Premiums Tax Owners of property directly. obtaining insurance-to Non-resident Foreign Corporation engaged in insurance business Formula: PXXX • Premium Payments 5% Rate Premiums Tax P)00( AMUSEMENT TAXES (Sec. 125). Persons Liable — Proprietor, lessee or operator of cockpits, cabarets, .night or day clubs, boxing exhibitions, professionaltasketbalf games, Jai-Alai and racetracks. '" Formula: Gross Receipts Rate Amusement Tax

PXX)( X0/0 MOCX

Gross receipts - embraces all the receipts (such as from television, radio arid motion picture rights, if any) of the proprietor, lessee or operator of the amusement places. Rates: Amusement Places Place for Boxing Exhibition Place for professional Basketball games Cockpits, Cabarets, Night or Day Clubs Jai-alai and Racetracks

487

Tax Rate

Percy/that& ?ti (n

Pcrctw ji& rlars

*Requisites for Exemption of Boxing Exhibitions: World or Oriental Championships is at stake; One of the contenders is a citizen of the Philippines; and Promoted by citizens of the Philippines or by a . corporation or association at least sixty percent (60%) of the capital of which is liwned by such citizen.

Tax on Shares of Stock Sold or Exchanged through Initial Public Offering

Formula: Gross Selling Price Rate Stock Transaction Tax

TAX ON WINNINGS (Sec. 126). PersonVLiable: - 1) Owners of the winning horse; and 2) Bettor in a horse race or jai-alai

PXXX Xolo PX)0(

Rate:

Owner of the winning horse Formula: Prize/Winnings Rate Tax on Winnings C.

Requisites: Sale is made through the LSE; and It is an initial public offering of a "dosely held corporation".

RATE WILL DEPEND ON THIS RATIO (SHARES SOLD/OUTSTANDING SHARES AFTER THE SALq____ ,RATIO ___ ____ 25% and below . 4% _1 More than 25% but not more than 33 10% 2% -4 More than 33 1130/0 1%

PX)0( 10% PXXX

Bettor in a horse race or jai-alai Gross Winnings Less: Cost of the Winning Ticket Net Winnings .Rate Tax on Winnings

PXXX (X)0Q P)O0( .X0/0' MC< •

\• Rate: 1) Ordinary Winnings — "10% 2), Special Winnings (Double, Forecast, Quihella, Trifecta)-- 4%

"Initial Public Offering (IP0)" refers to a public offering of Shares of stock made for the first. time in the Local Stock Exchange. "Closell Held Corporation" means any corporation at least 50% in value of the outstanding capital stock or at least 50% of the totalcombined voting - power o(all classes of stock entitled to vote is owned directly or indirectlYby or fornot more than 20 indit4dtial§.. • Person Liable: Primary Offering — Issuing Corporation Secondary Offering — Seller

TAX ON STOCKS TRANSACTIONS (Sec. 127). • • Kinds of Stock Transaction Tax: Tax on Sale, Barter or Exchange of Shares of Stok Listed and Traded through the Local Stock Exchange Tax on Shares of Stock Sold or Exchanged through qnitial Public Offering

"Primary Offering" refers to the original sale made to the investing public by the issuer corperation of its unissued Shares of Stock.

Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded through the Local Stock Exchange Requisites: • Seller is not a dealer in securities; gid Shares sold is listed and traded throLgh the LSE.

"Po/low-on/Follow-through Offering of Shares" refers to an offering of shares to the investing public subsequent to-an- IPO. -

"Secondary Offering" refers to an offer for sale to the investing public by the existing shareholders of their securities which is conducted during an IPO or a follow-on/follow-through Offering.

I '

Formula: Gross Selling Price x Rate Stock Transaction Tax

PX)0C .005 prior to TRAIN Law, .006 TRAIN Law PX)0(

488

489

Percotth

n, Percottege, Itzec

ad:xi

RETURN AND PAYMENTS OF PERCENTAGE TAXES Choose the letter of the correct answer PRIOR TO TRAIN LAW Section I 116 Monthly; 20 days end of the month 117 Monthly; 20 days end of the month Monthly; 20 days end of the month 118 119 Monthly; 20 days end of the month 120

QUARTERLY; 20 days end of the quarter

121 122 123 124

Monthly; 20 days end of the MOnth Monthly; 20 days end of the month Monthly; 20 days end of the month Monthly; 20 days end of the month

125

QUARTERLY; 20 days end of the quarter

126

20 days from the date the tax was deducted '1„. . • •

127A

TRAIN LAW

QUARTERLY .

Principles 1. Statement 1: Other percentage taxes are indirect taxes lhat can be -passed on by person required to pay to another person•whO shall bear the burden of paying The tax. Statement 2: Persons and transactions that are 'subject to the elherpercentage taxes are no longer subject to the value-added tax butmay bisubject to excise tax. Only statement 115 correct Only statement 2 is correct Both statements are correct Both statements are incorrect

25 Days end of the after

Answer: C 2

5 banking. days from date of 5 banking days naM gate of collection collection

. 127 B

Primary Offering-. 30 days from date oflisting in the LSE -

Primary Offering -30 days from date of listing In the LSE

127 B

Secondary Offering - 5 banking days from date of collection

Secondary Offering banking days from date of collection

Statement VAT-exempt taxpayers shan be Subject to other percentage taxes. Statement 2. A taxpayer who is subject percentage tax on his gross receipt will also be subject to income tax on his het income. Only statement 1 is correct Only statement 2 is Correct Both statements are correct Both statements are incorrect Answer: B

3.

Which of the following is not correct? The percentage.tax:{ Is a tax on sale of servites. May be imposed on sale of goods. May be imposed together with the value-added tax.. May be imposed together with the excise tax. • ' Answer: C

4.

VVhich of the following statement is not correct about percentage tax? . a It is a business tax. b. It is a transfer tax. e. It is an ad valorem tax. d. It is not a progressive lax. Answer: B 0 Transfer tax is applicable to gratuitous transfers (donation or inheritance) while percentage tax and vat are applicable to onerous taxes.

490

491

Percenfr 5.

Percotth, 7-

VVhich statementis wrong? Percentage taxes are basically on sales of services. Percentage taxes are paid quarterly. Percentage taxes are not allowed by law to be shifted to the customers or clients. O. M isolated transaction not in the course of business will-not result in a liability for a peitentage tax

0

0

;.4pswer: C Section 116- OPT on vat exempt sales and transactions 6. A seller of agricultural food products is vat-exempt. His annual gross sales in 2018 amounted to P3,000,000. To what business tax is he liable? 3% tax on vat-exempt persons 12% value-added tax 3% common carriers tax d none of the above Answer: D 7. Which of the following is subject to 3% percentage tax under Section 116 of the Tax Code? a Fruit dealer whose gross receipts for 2018 amounted to P2800,000 only, M individual taxpayer whose gross sales for the year amounted to P100,000. School bus operator Milne gross receipts for 2018 amounted to P2500,000 d. None of the above ,1• Answer: D Section 116 shall apply if: . 1. The transaction is vat exempt and the 'reason for vat-exemption is . simply because the taxpayer's gross sales or receipts did not exceed the vat threshold of P3M (previously P1,919,500); and 2 The taxpayer is not vat registered.

8.

i()

If the reason for vat exemption is not because of #s 1 and 2 above, the transaction is not subject to Section 116.

0

The taxpayer in item 'B' is known-as Marginal Income Earner (MIE), an individual whose gross sales or receipts during the year is not more than P100,000. MIE is not subject t4business tax (Vat and OPT).

The taxpayer is a trader of poultry feeds. Determine his applicable business tax. Subject to 12% vat Vat exempt but subject to 3% OPT under Section 116 12% valor 3% OPT, at his option Exempt from 12% vat and OPT 4 Answer:

9.

Refer to the explanation in the preceding number. Salle of Poultry Feeds is vat exempt, but the reason for vat exemption is not simply because the seller's gross sales did not exceed the vat threshold of P3,000;000 (previously P1,919,500) but because poultry feeds are intended for poultry animals. SIMPLE GUIDE: If the transaction is in the list of vat exempt sales or transaction AND not in the fist of transactions subject to vat, such transaction is exempt both from Vat and OPT

One of the following is subject to three percent (3%) percentage tax a. Establishments whose annual gross sales or receipts exceed P3,006,000 and who are VAT registered. b Businesses whose annual gross sales or receipts exceed P3,000,000 and who are not VAT registered. c VAT registered establishments whose annual gross sales or receipts do not exceed P3,000,000 d Estabtishments whose annual gross sales or receipts do not exceed P3,000,000 and who are not VAT registered. 4 Answer: D

10 Floyd (self-employed) is a non-vat registered taxpayer .who operates -a convenience store. The following were proVided for 2018: Sales of processed food items . p280,000 Sales of non-food items 220,000 Purchases of processed food items 100,000 Purchases of non-food items 80,000 Salaries of helpers 48,000 The percentage tax (tax due) is (above amounts are net of taxes) P15,000 c. P50,000 P32,000 d. P27,200 Answer: A 0 The taxpayer is non-vat registered + his gross sales did not exceed the vat threshold + the transactions are not exempt from vat. Consequently, he is subject to 3% OPT under Section 116 of the Tax Code, as amended. 0 OPT = (P280,000 + 220,000) x 3% pispoo 11 Assume Floyd opted to be taxed at 8% on his gross sales and receipts, his applicable business tax is: Subject to 12% vat Vat exempt but subject to 3% OPT under Section 116 12% vat or 3% OPT, at his option None of the above Answer: D

492

493

j

Percothd 0 r1etj6es 0

The 8% optional tax under TRAIN Law is in LIEU of Graduated income tax and Section 116 of the Tax Code. Obviously, if the taxpayer is subject to Section 116, he is no longer subject to vat

12. Ma has' the following data for 2018 the taxable year P2,850,000 Grttss sales 1,420,000 Collections ft Ms. Ma is a seller of goods, her business tax for the year should be P42,600 OPT c. P170,400 vat • d. P342,000 vat P85,500.0PT •

Pentaldie/

Section 117- Common Carriers Tax on DomesticCammon Carriers 16. cTali rryi srnegferosf to apns ers poorns lin, corporations, firms or ' j. in me business of g passengers or goods7,6snrcitc oaritra,tifoort.:. atim °7 by emaged land, water, compensation, offering their .serviCes to the Paoic zand '- shall include , contractors. Common carriers; Dealers in securities; Lencting investors; • Franchise grantees. G Answer: A

Answer B . 0 OPT = P2,850,000 x 3% =.1085,500 0 The basis of business tax for sale of goods is gross sales. 13., If Ms. Ma is a seller of service, her business tax for the year should be c. P170:400 vat a. P42,600 OPT • d. P342,000 vat b: P85,500 OPT G Answer A 0 OPT = P1,420r000 x 3% = P42,600 0 ' The basis of usiness tax for sale of service is-gross receipts or collection 14. If Ma is vat registered She is subject to 12% vat She is subject to'OPT under Sedan 116 • She is subject to 12% Val or 3% OPT, at her option She is exempt from OPT under Section 116 if She opted.to be taxed at 8% • G Answer: A 0 The 8% optional tax is not appliCable to vat registered taxpayers. 15. If Ma is a taxi operator She is subject to 12% vat b. She is subject to common carrier's lax under Section 117 c. She is subject to 12% vat or 3% common carrier's tax, at her option d. She is exempt from OPT if is she gated to be taxed at 8% , G Answer: B 0 The 8% optional tax is not applicable to taxpayers who are subject to OPT • other than Section 116 of the Tax Code, as amended.

f "en-C

,

,

17. A person whose businesSis to,keepautontobiles for hire oekeeplheni stored for use or , order. , .• -•Keepers of garage: .• Common carrier •' Taxicab operator Tourist bus operator • , " Answer: A . .• 18. 'A keeper of garage whose grosileceiptslor zula -19frflaid:P.Moccobb is subject to: .• Value-added tax Garage sales lax Commoncarriers tax 4.••• Franchise tax. ft, ta: C Answer: C • 0 A keeper Or garage is5SUbject to common'dirtier'sreg. dI C: amount of its gross receipts..

thee.

19. Which of the following is subject to the 3comm0n carrier's tax? ' Transportation contractors on theityansport of goods or cargoes. Common carriers by air and sea relative to their transport of Passengers hvo.whaeled yehicle. anaimal-drawn i by d. Ownerssotca Domestic carriers land for the ifatreort of passengers. G Answer. D The gross receipts of conimoicianiers derived from they incoming and 20 Statement t freight shall be subject' to the local laie,S imposed under the Local Government code oTuaxtgoing .

:the .aCtuarrrgiiatterlysgross , Statement 2: The 3% common carriers tax i6lbisethon .. <: .. . receipts or minimum queried)/ receipt whichever is laseer-...';. E. .. i'' Only statement 1 is correct Only statement 2 is correct

494

495

Pet-coda e Wezeoc,

-

Pet?4 Both statements are correct Both statements are incorrect Answer: D 21 A non-tet registered transportation contractor is engaged in the trantportof passengers, goods and cargoes. What business taxes is he liable? 12% falue-added tax; 3%tommon carrier's tax; 3% tax on VAT-exempt persons on gross receipts from transport of goods and cargoes and 3% common carriers tax on gross. receipts from transport of passengers; 12% VAT on gross receipts from transport of goods and cargoes and 3% common carrier's tax on gross receipts from transport of passengers. Answer: C 22. Using the same information in the preceding number, except that he is a vat-registered. What business taxes is he liable to? ' 12% value-added tax; • 3% common carriers tax; 3% tax on VAT-exempt persons on gross receipts from transport of goods and cargoes and 3% common carriers tax on gross receipts 'from transport of passengers. 12% VAT on gross receipts from transport of goods and cargoes and 3% common carriers tax on gross receipt from transport of passengers.'

25 Assume the annual gross receipts in the preceding number exceeded the revised vat threshold of P3,000,000 during 2018. To what business taxes is it liable? 12% value-added tax 3% Ofrr under Section 116 3% common carrier's tax under Section 117 Not subject to business tax. Answer: A 26. A domestic carrier by sea is engaged in the transport of passengers, goods and cargoes'. It is not VAT-registered and its annual grosS receipts do not exceed P3,000,000 during 2018. To what business taxes is it liable? a 12% value-added tax 3% OPT under Sechon 116 3% common carriers tax under Section 117 Not subject to business tax. Answer: B 27. Assume the annual gross receipts in the preceding number exceeded the revised vat threshold of P3,000,000 during 2018. TO what business taxes is it liable? . a. 12% value-added tax b 3% OPT under Section 116 3% common carriers tax under Section 117 Not subject to business tax.. Answer A

Answer: D 23. One of the following statements is wrong: Operators of transport facilities are a.. Subject to the value-added tax on gross receipts from transporting passengers. Subject to the value-added tax on gross receipts from transporting goods and cargoes. Subject to percentage tax oh gross receipts from transporting passengers. Subject to the value-added tax on gross receipts from renting out its transportation facilities.

28. A domestic carrier by .land is engaged in the transport of passengers. It is not VATregistered and its annual gross receipts do not exceed P3,000,000 during 2018. To what business taxes is it liable? a 12% value-added lax 3% OPT under Section 116 3% common carriers tax under Section 117 Not subject to business tax. Answer: C

Answer: A 24. A domestic carrier by land is engaged in the -mood of goods. It is not VAT-registered and its annual gross receipts do not exceed P8,000,000 during 2018. To what business taxes is it liable? 12% value-added tax 3% OPT under Section 116 3% common carrier's tax under Section 117 Not subject to business tax.

29 Assume the annual gross receipts in the preceding number exceeded the revised vat threshold of P3,000000 during 2018. To what business taxes is it liable? 12% value-added tax 3% OPT under Section 116 3% common carrier's tax under Section 117 Not subject to business tax. Answer: C

Answer: B

496

497

Per . cozy Litres

Parottet e, kiees SIMPLE GUIDE: 0 If it involves transport of passengers by land by domestic carriers, it is subject to Common Carrier's Tax under Section 117 of the Tax Code, regardless of the amount of annual gross receipts. Otherwise, vat On general, but it may also be subject to Section 116 if the taxpayer is non\ vat registered + the annual gross receipts do not exceed the vat threshold) .t, 30‘. VVhich °Me following is subject to the 3% common carrier's tax? Transportation contractors on their transport of goods or cargoes. Common carriers by air and sea relative to their transport of passengers. Owners of animal-drawn two-wheeled vehicle. Domestic carriers by land for the transport of passengers. Answer: D 'A' and '8' are subject to valwhile

is exempt frombusiness lax.

31. Maharlika Airlines, a domestic corporation 'plying domestie ratites, had the 'following gross receipts for the month ended April 2018: carriage of passenger, P4,500,000; carriage of cargo, P7,000,000. The correct amount of business tax for the month ended • April 2017 is: 120 . c. 12345,000 R135,000 d. R1,380,000 tr, Answer:Li 0 Business Tax (vat) = (P4.5M + P7M)x 12% = P1,380,000 • 0 Domestic airline.companies are not subject to common carrier's tax

Use the following data for the next (2) two gUestions:. Rianne is an operator of ten (10) biges with' rOutes from Manila to Subic arid is likewise a transportation contractor with three (3) freight trucks. For the taxable year 2018, he reported gross receipts from his bus operations of P36,000,000. His gross receipts, however, from his freight of goods or cargoes amounted only to P800,008 for the year. • • 32. Assuming Rianne is non-vat registered, how much is his total business tax due? P1,080,000 c. P1,176,000 P1,104,000 d. P4,416,000 Answer: B Common earner's tax = P36M x 3‘ 9t Section 116 = P800,000 x 3% 4. Total bushes& taxes

P1,080,000 24,000 1,104,000

33. Assuming Rianne is vat registered, how much is his total business tax due? P1,080,000 c. P1,176,000 P1,104,000 d. P4416,000

Common carrier's tax = P36M x 3% P1,080,000 VAT= P800,000 x 12% 96,000 Total business taxes 1,/ 76 000 34. Pedro is a jeepney operator. He is also engaged in the business of leasing residential units. His gross receipts from his jeepney operation amounted to P5,000,000 for the year. The monthly rental of the residential units is P14,000 with a total annual gross receipts of P3,500,000 for 2018. Which of the following is correct? Pedro is required to register under the vat system Pedro may apply for optional vat registration Pedro is exempt from business and income tax None of the above Answer: D 0 He is not required to register under the vat system nor wily for optional vat registration because his business activities are not subject to vat. 0 He is not exempt from business tax. He is subject to common carrier's tax under Section 117 of the Tax Code. 35. All of the following, except one, are not subject to common carrier's tax owner of a parking lot/building rent-a-car companies common carriers engaged in carriage of goods or cargo • domestic airline companies e Answer: B; Choices 'a, c and cr are subject to vat. 36 lsarog is a vat registered common carrier with passenger buses and cargo trucks. For the month of June 2018, it had the following data on revenues and receipts, taxes not included: • For transporting passengers, gross revenues and receipts of P330,000. For transporting cargoes, gross revenues of P220,000, of Which P200,000 was received. For renting out to the MMDA its towing trucks, gross' receipts of P50,000, representing P10,000 from gross revenue of the quarter ending March 31 and P40,000 for the month of June. The percentage tax is: P1,500 P9,900

c. P15,900 d. P17,400

e Answer: B = P330,000 x 3% = P9,900 0 Common Carrier's Tax under Section 117: 0 The basis of business tax if from sale or service is collections or receipts, . regardless of when the it was earned.

.0, Answer: 8

498

499

•

37. The value added tax is: a P24,000 b. P30,000

. Parettlet e, (-tr -) ,eic

Additional Information: Salaries of drivers and conductor 125,000 . 175,000 V. Cost of oil and gasoline During the month, Bus 1 was bumped by another bus owneckby Mandaon Lines and paid Milagros Lines P120,000 for the damage. The percentage tax due on Milagros Line in February • c. P11,715 P10,770 d. nil . P14,370 Answer:- A Solution: Bus 1 = P100,000- 18,000 Bus 2 = P165,000- 13,500 Taxi Jeepney Total

0

Solution: OPT (refer to the preceding number) VAT: Carriage of goods (P18,000+ 13,500) Cargo truck Sea vessel Total

• c P28,800 d. P25,000

Okt Answer: B () 12% Vat = (P200,000 + 50,000) x 12% = P30,000 .t 38 Milagroaines, a VAT-registered person, has the following gross receipts in February: 100,000 . Bus 1 (carriage of goods, P18,000) 165,000 Bus 2 (carriage of goods, P13,500) 90,000 Taxi 35,500 Jeepney 45,000 Cargo truck 250,000 • Sea vessel

OPT CCT

Percouy& riettes

•

P10,770 31,500 45,000 250,000 P326,500 12%

Total Business Taxes 40.

39,180 • P49,950

is a pool of land transportation vehicles whose accessibility to the riding public is facilitated through the use of common point of contact which may be in the form of text, telephone and/or cellular calls, email, mobile applications or by other means. Domestic common carriers . International carriers Transportation network vehicle services (TNVS) Partners Answer: C

41 The owner(s) of the vehicles, other than the TNVS, used in transporting passengers and/or goods in TNVS, shall be referred herein as Domestic common carriers International carriers Transportation network vehicle services (TNVS) Partners 'Answer: D

P82,000 151,500 90,00035,500 P359,000 3% P10,770

Ignore income and expenses for business taxation purposes.

39. The total business taxes in the preceding num er should bef c. P49,950 P10,770 et nil P39,180

42 Statement 1: Under RMC 70-2015, transport network vehicle services, such as but not limited to the likes of UBER, GRAB TAXI, their Partners/suppliers and Similar arrangements, Which are holders of a valid and current Certificate of Public Convenience for the transport of passengers by land, shall be subject to 3% common carriers tax under Sec. 117. Statement 2. Transport network vehicle services, such as but not limited to the fikes,of USER, GRAB TAXI, their Partners/suppliers and similar arrangements, which are not holders of a valid and current Certificate of Public Convenience for the transport of passengers by land, shall also be subject to 3% comlnon carriers tax under Sec. 117. Only statement 1 is correct Only statement 2 is correct Both statements are correct Both statements are incorrect Answer: A 0 Statement 2- shall be subject to 12% vat.

Answer: C

500

501

Percet Section 118— Common Carrier's Tax on International Carriers 43 The 3% percentage tax on international carrier is imposed upon: International air carrier' International shipping doing business in the Philippines doing business in the Philippines Yes Yes a.\ No No Yes No No Yes t Answer: A 44 Statement 1: Domestic common carriers are subject to 0% on its flight originating from abroad to the Philippines. Statement 2: Resident international carriers are subject to the 0% VAT on its gross Philippine billings on flight originating from the Philippines to a foreign destination. Statement 1 Statement 2 a True True True False False False True False Answer: C GUIDE:

74,e;

2,15. Determine the carrier that is subject to the Percentage Tax: . a Resident foreign corporation operating as an international shipping carrier Non-resident foreign corporation operating as an international air carrier' Domestic corporation with international flights Domestic corporation with international voyages Answer: A (), Nonresident foreign corporations operating as international carriers are not subject to CCT under Section 118 of the Tax Code because they are not operating in the Philippines. 0 Domestic carriers on their international flights and shipments originating in in the Philippines are subject to 0% vat, not CCT. 46 Statement 1: International air carriers and international shipping carriers shall not be subject to 12% value added tax but to 3% common carrier's tax based on gross receipts derived from their transport of passengers and goods from Philippines to other countries. Statement 2: In cases when the Gross Philippines Billings Tax of 2.5% for international carriers Is not applicable (i.e., tax exempt based on reciprocity or treaty), the common carrier's tax under Section 118 of the NIRC, as amended, shall still apply. D. B. C. A. False False True True Statement 1 False • True False True Statement 2

k

Dothestic Common Carriers • 0 On their transport of passengers by land a- Sec in 4 On their transport of goods or cargoes including Mai; hy land 12% vat • • 0 On their domestic transport from and to the Philippines of passengers, goods/cargoes, and mails by airor by sea = 12% vat. ' 0 On their international flights and shipments dnginafing from the Philippines to a foreign country = 0% vat 0 On their international flights and shipments originating from abroad to the Philippines = exempt from business tax: International Carriers 0 On their transport of passehgers on their international fights and shipments originating from thyhilippines to a foreign country = exempt from business tax 0 On their transport of goods/carves and mails on their international flights and shipments originating from the Philippines to a fcireign Country = Section 118; Common Carriers tax on International Carriers. 0 On their intemational flights and shipments originating from abroad to the Philippines = exempt from businees tax.

4* Answer: C 0 Statement 1: Gross receipts from transport operations shall beexcluded. -47. Statement 1: Banks are subject to the VAT on its interest income. Statement 2: Resident international carriers are subject to the 0% VAT on its gross Philippine billings on flight originating from the Philippines to a foreign destination. Statement 2 Statement 1 True True False True False c. True d. + Answer: C 48 The Republic of Korea, as an act Or gOodili, doeS not impose business taxes to Philippine carriers. Korean Air is operating in the Philippines having two flights a week. If you were engaged by Korean air as its tax consultant and asked you whether it is liable to percentage tax, which of the following will be your advice? Korean Air is liable to percentage tax based.on gross receipts from passengers, goods, cargoes and mails. Korean Air is liable to percentage tax based on gross receipts from passengers only.

502

503

ri j

Perratut e• t etcr4;

Perceitth //acres Korean Airs liable to percentage tax based on gross receipts from goods, cargoes and mails only. Korean air is not liable .to percentage based on the principle of reciprocity. a Answer: C • 0, Unlike in income taxation for International carriers, reciprocity is not applicable to Section 118 (common carrier's tax on international carriers) of the Tax , Code. Section 119- Franchise Tax 49. A right or Privilege granted by the State to a person, individual or corporation, to operate a public utility such as radio broadcasting, television station, 'electric fight system, telephone company, gas, and water utilities. Franchise c. Dealers in securities Common carriers d. Lending investors .Answer: A 50 Statement 1: A franchise is a privilege to serve the public acquired' by spedal grants from private organizations. Statement 2, There are franchise holders whose gross receipts are subject to 12% vat even if not vat registered. • Both statements are correct. Both statements arnconect. Only the•first statement is correct. Only the second statement is correct. Answer: 0• • 51 Which Of the following franchise grantees is subject to the franchise tax? Franchise on radio and/or television broadcasting companies the annual gross receipts in the preceding year exceed P10,000,000. Franchise on gas and water utilities. Franchise on toll road operations. d PAGCOR and its licensees and franchisees Answer: B 0 0

Radio and/or television broadcaling whose gross receipts in the preceding year exceed P10,000,000 shall betsubjed to value added tax. Although there are other franchise's granted by:the government such as but not linited to electric companies, cable companies and telecom companies, the term "Franchise Tax" shall pertain only to franchise tax levied under Section 119 of the Tax Code, as amended.

52 Statement 1: Radio and/or television broadcasting whose gross receipts in the preceding year did not exceed P10,000,000 shall have an option to be registered as value-added taxpayer. Statement 2: Once a radio and/or television broadcasting franchise grantees registered as value-added taxpayer, the registration shall not be revoked. Both statements are correct. Both statements are incorrect. Only the first statement is correct. Only the second statement is correct. Answer: A 53. A franchisee, had the following data on revenues and receivables in 2017: , AR, end AR, beg. Revenues Quarter ended, March 31, 2017 • P600,000 P800,000 P4,000,000 Covered by the franchise 160000 • • 1,200,000 Not covered by the franchise If the franchisee is generating and selling electricity, the correct amount of business taxis: c. P580,800 P200,800 d. P238,800 P456,000 Answer: C Solution.: . Covered by the franchise: Revenues Add: AR, beg. Less: AR, end = Collections Not Covered by the franchise: Revenues Add: AR, beg. Less: AR, end = Collections Total collections x VatRate Value Added Tax 0

P3,800,000 P1,200,000 (160,000) P1,040,000 P4,840,000 12% P580,800

Sale of electricity is subjectto vat indeed of franchise tax under Section 119 of the Tax Code

54. if the franchisee is a gas and water utilities, the correct amount of business tax is: c. P580,800 P200,800 d. P238,800 P456,000 Answer: A

504

P4,000,000 600,000 - (800,000)

505

Pertothe e 749 Solution. • Covered by the franchise: Revenues Add: AR, beg Less: AR, end = Collections x Franchise Tax Rate it Not Covered by the franchise: Revenues Add: AR, beg. Less: AR, end = Collections x Vat Rate Total Business Tax 0 ()

P4,000,000 600,000 (800,000) P3,800,000 2%

P76,000

(160,000) 124400 P200,800

The gross receipts from those covered by the franchise is subject to the applicable franchise tax rate, regardless of the ammint of the gress receipts. The gross receipts not covered by the franchise is subject to vat•because the gross receipts for the taxable year will obviously exceed the vat threshold.

55, if the franchisee is a radio television broadcasting company,. the correct amount of business tax is: P200,800 c. P580,800 P456,000 d. P238,800 Answer: D Covered by the franchise. Revenues Add' AR, beg. Less AR end = Collecbons x Franchise Tax Rate Not Covered by the franchise: Revenues Add: AR, beg. Less: AR, end = Collections x Vat Rate Total Business Tax

P4,000,000 600,000 (800,000) P3,800,000. 3% •

P114.000

160,000) I

506'

2017 P360,000 1,440,000 360,000 360,000

2018 P1,200,000 1,440,000 300,000 360,000

Answer: A 0 2016 = P9,000,000 x 3% =P270,000 0 2017 = P12M x 3% = P360,000; . Gross receipts preceding years P10M; apply 3% Franchise Tax 0 2018 = P10,000,000 x 12% = P1,200,000 Gross receipts preceding year > NOM; 'subject to vit 57. Gallant Transport Corporation is a holder of franchise from the government to offer passenger and cargo transport operations by land. Its gross receipts 'from passenger. operatiOns amounted to P10,000,000 while its .gross receipts from cargo operations amounted to P2,000,000. How much is the franchise tax due for the month? . P360,000 c. P1,440,000 P540,000 . d. PO Answer: D 0 The gross receipts from passenger operations by land is subject to CCT under Section 117, not Franchise Tax under Section 119. of the Tax Code. 0 The gross receipts from cargo transit operations is subject to vat, instead of Franchise Tax under Section 119 of the Tax Code.58. Using thesame data in the preceding paragraph, how much is the total business taxes due for the month? P300,000 c. P1,440,000 P540,000 d. PO

P1,200,000

P1,040,000 12%

56. Bulwagan ng Katotohan Broadcasting Company,a. non-va ca hid s:et: hoeldfefi lr. off ae'frani P et rC operate a radio and/or television network provided the following data (net of any tax): Year Gross Receipts 2016 P9,000,000 2017 12,000,000 2018 10,000,000 The business tax liability is 2016 P270,000 1,080,000 C' 270,000 d. 1,080,000

P1,200,000

P1,040,000 ' 12%

'7"

124,800 P238,800

Answer: 6 Passenger operations (CCT) P1OM x 3% Cargo operations (Vat) = P2M x 12% Total Business Taxes

507

P300,000 240,000 P540,000

Para& reo

Percale/tie, Section 120- Overseas Communications Tax Solution: Outpul vat (135M x 12%) Input vat:

59 A telephone company, VAT-registered, provides services for domestic and overseas calls. VVhat business taxes are due from thaservices offered? I. Value-added tax for domestic calls. R.N. Overseas communications tax for overseas calls. c. Both I and II a I only d. Neither I nor II b. ITSply Answer: C GUIDE: 0 Local communications = 12% vat 0 Overseas originating in the Philippines= 10% 'OCT under Section 12Q 0 Overseas originating abroad = not subject to business tax 60

Directly attributabb = I300,000 x 12% Allocated= P800,000 x 12%* WS Vat Payable 63

One of the following is subject to overseas communications tax: Long distance call by a son from Manila to hisfather in Iloilo City. Monthly telephone bill from PLDT. Telephone bill on a call by a mother in the Philippines toter son in London. Telephone call by Magda in Hongkong to her friend in Manila.

How much is the overseas communications tax collected from persons who used the communications facilities? c. P800,000 P300,000 d rtil P500,000 4. Answer A 0 OCT = P3,000,000 x 10% = P300,000 62

Using the same data in the preceding number, how much is the vat payable? P420,000 c. P504,000 P470,000 d. nil iRt. Answer: A

P504,000

VVhich of the following statements is false? , BBC, an international news agency; is required to pay 10% percentage tax from messages originating from the Philippines by'ffilephone or telegraph. . Amounts paid for messages transmitted by an embassy and consular offices of a foreign governrnent is not subject to 10% oVelaeaS communications taxi Overseas communications initiated by a resident citizen not engaged in trade or business is subject to oversees communitation tax. d None of the above

64

,. ", One of the following statements is incorrect. _ Overseas communications tax is imposed on.oversaas. coininunications originating from the Philippines. . The person liable to overseas communications tax mayor may not be engaged in any trade or business. . . . The • overseas 'communications tax is imposed whether the overseas communications are made in the course of trade or business or not. The overseas communications tax is imposed on the owner of the communication facilities used to make overseas communications. Answer: D 0 'D is wrong. It is imposed on the user of the facility

65

Moon Telecom Inc. has the following collections for the month of April 201,8: P1,120,000 Overseas call originating abroad 860,000 . Overseas call originating in the Philippines - 2,240,000 Local calls How much is the overseas communications tax to be remitted by Moon for the month? P220,000 c. P200,000 P88,600 d. P80,000 Answer:

508

(36,000)

(60,000)

CP Answer: A EXEMPT from OCT: • Diplomatic Services International Organizations , News Agencies or Services . Government

le Answer: C 0 V and V, stipjectto vat: 0 V not subjectio business tax 61. Smart-Globe Telecommunications has the following data for a particular month: P5,000,000 Gross receipts, domestic calls ' 3000,000 Gross receipts, overseas calls (originating inthe Philippines) 360,000 Purchase of supplies used in connection with domestic Calls net of VAT 800,000 Purchase of equip. used in connection with both domestic calls and overseas calls, net of VAT 1,000,000 Business expense

P600,000

509

73erceath e 77fires Solution. Collections

Journal Entry

0

Cr.

Dr. P880,000 ., , 80,000

Cash OCT Expenses Revenues OCT Payable

P880,000 80,000

NOTE. Percentage Taxes, except Stock 'Transaction Taxes under Sections 127(A) and (B) of the Tax Code are classified as oPerating expenses for income taxation purposes.

0 The overseas calls originating abroad is. not subject te lAsineSs tax in the' Philippines .• 66 Based on the preceding number, how much is the output tag? . P360,000 P240,000 b. P268,800 P454,286 •

68., Banko Natin sold a repossessed car to JJ at .P1,000,000, Banko Nein is Subject to value added tax Subject to gross receipts tax of 7% Subject to regular corporate income tax III only a. II and III only I arid III only d. None of the above Answer: C 69. Maharlika Bank purchased machineries from a VAT supplier. What is -the treatment for VAT purposes of the sale transaction considering that banks are, subject to percentage taxes under Sec. 121 of the Tax Code? • 0% vat c. exemptfrom vat 12% at d. percentage tax '

0 • P2,240,000 • A00/112 coo,opo 12%, P240.000

.

Journal Entry Dr. P2,240,000

Cr. P2,000,000 240,000

Revenues Output vat 0

Answer: B

• Answer: 13 ,

Answer: A Solution: Collections x Revenues exclusive of vat x OCT % OCT

Cash

ad:es

Section 121 and 122 —Gross Receipts Tax 67. Which of the following is subject to Other Percentage Taxes? Banks Financing/ credit Companies III, Pawnshops IV. Duly registered Credit Cooperatives I and II only c. I, II, III and IV I, II and III only d. None of the above

P880,000 100/110 P800,000 10% P80,000

Revenues exclusive of OCT x OCT % OCT

ZJercetz

a Unlike percentage taxes, vat on sale (output vat) is not classified as operating expenses. It is a tax credit against output vat.

Although banks and other financial institutions are not subject to value added fax but to gross receipts tax under Section 121 of the Tax Code, it does not follovi that sale of vatable goods to them is no longer, subject to vat. Sale of machineries are subject to vat.' Consequentiy, sale of such items to a banking institution is subject to vat.

70 Which of the following is subject to Gross-Receipts Tax? Pawnshops/money changers Credit cooperatives Lending activities of multi-Purpose cooperatives. A. B. C. D. - .I Yes Yes Yes No II Yes No No No III Yes No Yes No Answer: 8 0 Other non-bank financial intermediaries, such as money changers and pawnshops, are subject to percentage tax under Sections 121 and 122, respectively, of the Tax Code. [Sec. 4.109-1 (B)(w), RR 4-2007]

510

511

Perceillar rittr,es 71 A pawnshop, for business tax purposes Is treated as a lending investor liable to 12% vat on its gross receipts from interest income and from gross selling price from sale of unclaimed properties. Is not treated as a lending investor but liable to 5% gross receipts tax under Section 122 of the Tax Code on its gross receipts from interest income and from gross • telling price from sale of unclaimed properties. Is exempt from 12% vat and OPT Is2upject to 12% vat and OPT -if• Answer: 8; (Sec. 4.109-1 (B)(w), RR 4-2007] 72. Piggy Bank has the following data for the,menth of January 2018: Interest income, the remaining maturity of the instrument.is 5 years • Rentals (gross of 5% expanded withholding tax) Net trading loss

P100,000 • 50,000 oo,00dj.

How much is the gross receipts tax on the collections of Piggy for January 2018? C. P7,800 P5,000 d P8,500 P3,500 Answer: D

.

Interest income - from short term ban = P100,000 x 5% • P5000 3,500 - • Rental income -4P50,000 7% P8,500 • Gross receipts fait

731 In addition to the information in the preceding numberc Ftiggy sank has the following information for the month of February 2018: -10,000 Interest income, the remaining maturity of the instrument le 6 years 50,000 Rentals (gross of 5% eXpanded withholding tax) ] • 20,000 Net trading gain How 'much is the gross receipts tax on the collections of Piggy for February 20182 c. P9,200 a P5,200 d. P9,900 b. P5,900 Answer: A Interest income - from brig term ban = P100,000 xi% Rental income - P50.000 x 7%1 . Net trading gain = (P20000-10, 0)x 7% ei . Gross receipts tax

Apply cumulative rule as to net trading gain

512

P1,000 3,509 700

P5,200

Pere01,61,

74,CS

74 Pedro executed On January 1,2014, a long term loan from PRTC Bank in the amount of R6,000,000 payable within ten (10) years, With an annual interest of 2%. However, on January 31, 2018, the loan was pre-terminated. Assuming PRTC Bank declared correctly the interest from 2014 to 2017 and the applicable gross receipts taxes were paid, how much gross receipts tax should be paid for the year. 2018? P100 P24,500 ] cd159 l P 0070 Answer: C GRT payment from Jan. 1, 2014 to Dec. 31, 2017 (P6,000,000 x 2% x 4 years) x 1% Adjusted CRT (P6M x 2% x 4 x 5%) Adjustment (deficiency) Add) GRT for January 2018 (P6M x 2% /12months)x 5% Total Gross Receipts Tax, Jan. 31, 2018

(P4,800)

24,000 P19,200

500 • P19,700-

75 December 1, 2013, Rianne borrowed P1,000,000 torn BDO payable within 10 years. The loan pays an annual interest of P100,000 payable every December 1 'beginning DeCember 1,2014. On December 1,2018, Riannne pre-terminated the loan by, repaying the principal in full. The gross receipts tax still due from BOO due to the pre-termination in 2018 is: , a.- P5,000 c. P21,000 b. P16,000 d. P25,600 + Answer: C GRT payment fromDec. 1, 2014 to Dec. 1, 2017 (P100,000 x 4 years) x 1% Adjusted CRT (P400,000 x 5%) Adjustment (deficiency) Add: GRT for 2018 = P100,000 x 5% Gross Receipts Tax Due, Dec. 1, 2018

(P4,000) 20,000' P16,000

5v0 P21,000

76 DU30 Bank extended loans to its debtors during tha year, with real properties of the debtors being used as collateral to secure the loans. When the debtors failed to to pay the unpaid principal and interest after several demand letters, the bank foreclosed the same and entered into contracts of lease with tenants. The bank is subject to business tax as follows: I, 12% vat II. 7% gross receipts tax a I only , a. Both land II b. II only d. Neither nor It Answer:

51.3

Perceit& Witr,es, t_ Section 123- Premiums Tax on Life Insurance Section 124- Premiums Tax on Agents of Foreign Insurance companies 77. Statement 11 The tax on insurance premiums applies to every person, company or corporation doing fife insurance business of any sort in the Philippines, except,purely cooperative companies and associations. Statemfnt 2: A person engaged in non-life insurance business is subject to value-added tax. a Bothtstatements are correct. b. Both ttatements are incorrect. C. Only the first statement is correct. d. Only the second statement is correct. Answer A 78 Statement 4: The tax on life insurance premiums is 2% based upon the total premiums collected whether such premiums are paid in money, notes, credits, or any substitute for money. Statement 2: The tax on agents of foreign insurance companies is 4% based upon the total premiums collected. • Both statements are correct. Both statements are incorrect. . Only the first statement is correct. Only the second statement is correct. 4, Answer: A . 79. Statement 1.: All insurance premium collected by lifkinsurance company is subject to 2% gross receipt tax. Statement2: A life insurance premium refunded within six (6) months is not subject taa 2% percentage tax. Both statements are correct. Both statements are incorrect. Only the first statement is correct. Only the second statement is correct

Pert:eglar- I;cra 81 A domestic insurance company gave the following information for the month: Gross receipts from its insurance policies Premium on life insurance P2,100,000 Premium on non-fife insurance 1,500,000 Gross receipts as agent of a non-resident foreign insurance co. Premium on non-life insurance P4,000,000 Premium on property insurance .1,000,000 The percentage tax due for the month is: P355,000 c. P242,000 P430,000 d. P605,000 C. Answer: C Solution: Gross receipts pm its insurance policies Premium on life insurance (P2,100,000 x 2%) Gross receipts as agent of a non-resident foreign insurancecompany Premium on non-life insurance (P4,000,000 x 4%1 Premium on property insurance (P1,000,000 x 4%) Percentage Tax for the month

P42 000

160,000 40,000 ..P242,000

82 Pro-Life Insurance is engaged in business„ It also serves as an agent of,a marine nonresident foreign insurance company. It has the following data for the current month: Total premium collected as an agent of a fereighinsurance 'company P2,000,000 Total premiums collected from non-fife insuraricein. the Philippines 500,000 Purchase of supplies for use in non-fife business in thePhifippines 300,000 How much is the tax for total premiums dollected as an agent Of eforeign insurance company? P80,000 c. P40,000 P100,000 d. P20,000. Answer: A . . 0 Tax on Agents of Foreign Insurance Co. = P2,000,000 X 4% =P80,000

Answer: A • 80 Section 124 of the Tax Code, as amended, provides that every fire, marine or miscellaneous insurance agent authorized evicler the Insurance Code to Procure policies of insurance as he may have previously bten legally authorized to transact on risks located in the Philippines for companies St authorized to transact business in he Philippines shall pay a tax equal to: c.5% a2% d.10% b.4%

83. Using the same data in the preceding problem, how much is vat payable? P24,000 c. P40,000 P52,800 d. •P20020 Answer: A Output vat (P500.000 x 12%) Less input vat (P300,000 12%) Vat payable

AnsWer A 0 The tax rate, as provided in the Tax Code, is twice of Section 123.

519

515

P60,000 (36,000) 24,000

Percottit

;eta

84. Mabuhay Insurance Corporation furnished us its data shown below: Insurance Premiums collectible is P3,750,000 The breakdown of the above premiums is as follows: 75% Life Insurance Premiums, 25% Non-life insurance premiums Bitring the month, 70% of collectible fife insurance premiums and 50% of collectible non-life insurance premiums were collected. The Premiums Tax payable is: P39,375 P78,750

Total premiums collected on fife insurance Premiums Tax Payable

Section 125— Amusement Taxes 88. A tax on the right or privilege to entetp value added tax c, tit franchise tax djnitketakt „.•• .

ant

Answer C 89. The operator of one of the following places isnot Subject to amusement lax. Cockpits Racetracks Bowling alleys KTV Karaoke joints

C. P94,437.50 d. P196,875

Answer: A Insurance premiums collectible

ercethrie,I;es

P3,750,000 . .,75% 70% P1,968,750 2% P39,375

85. Using the same data in the preceding number, the total business taxes should be: c. P95,625 P39,375 d. P120,000 P56,250 • , 4- Answer: c P59,375 PienurnS Tax Pdyable (preceding number) • 56;250 Output Vat (P3,750,000 x 25% x.5056 x 12% P95,625 • • • Total business taxes for the month • 86 Pedro wants to procure fire insuranbe for his Mansion in Forbes Park Makati from Gallaxy Insurance Company, a non-resident foreign corporation, through its agent in the Philippines, al. Joe. He paid premiums in 2018 amounting to R500,000. How much is the premiums tax payable on the transaction? c: P25,000 P10000 d. P50,000 • P20,000

Answer: C Bowling alleys are subject to vat, not amusement lax. • 90. One of the following is a correct amusement tax rate: 30% on jai-alai and racetracks 15% on cockpits, cabarets, night and day clubs 18% on boxing exhibitions 10% on,professional basketball games • Answer A • . 0 cockpits, cabarets, ,nightand day clubs still be 18% boxing exhibitions shall be 10% 0 professional basketball games shall be 1,5% 91. One of the following is an incorrect amusement tax rate: a. Jai-alai and racetracks — 30% , b: Cockpits, cabarets, night and day clubs —18% Professional basketball games — 15% Boxing exhibitions — 12% + Answer: D

Answer: B Premiums Tax on Agents of Foreign Insurance Co ) = P500,000 x 4% = P20,000 .ut as ming Pedro directly obtained the insurance 87. Using the same information above, lo policy from Gallaxy Insurance Company, hew rhuch is the premiums tax payable on the transaction? t P25,000 P10,000 • d. P50,000 P20,000 Answer: C Premiums Tax = P500,000 x 0

516

= P25,000

92. One of the following is subject to amusement tax on gross receipts Owners of winning racehorses. Proprietors of karaoke..KWthouses_ Owners of winning cocks in the cockpits Lessees of bowling alleys Answer 0 Owners of winning racehorses are subject to percentage tax on winnings under Section 126 of the Tax Code, not amusement tax. 0 Owners of winning cocks in the cockpits are subject to income tax only 0

°Ir is subject to vat

517

Percatta

/ Ora lit et

e, tjtves

k_ 93. Gross receipts for amusement tax shall include all the following except one. Which one is it? a Income from television, radio andMetier) picture rights. Income from sale of tickets. Idioms from sale of food and refreshments within the amusement place. Income from sale of food and refrethments outside the amusement place. +';'Arknswer: D 94 Statement 1: All boxing exhibitions held- in the Philippines shallbe subject to amusement 'tax. Statement 2: Admission charges to amusement places are required .for the imposition of amusement tax. . Both statements are correct. Both statementsaie incorrect. Only the first statement is correct. ti Only the second statement is correct.. Answer: B 95. Apol B., a Filipino citizen, promoted a world boxing championship bout-in thffiphilippine Arena in Bocaue, Bulacan featuring Manny Pacquiao, a Filipino chamPion, and Lucas . Matthysse, dubbed as 'Fight of Champions'. Gate. receipts amounted to .13.30,00.0600 and:additional receipts frodijelevision Coverage was .P201300,000. The enysement lax • duels: • c P5,000,000 a„ P2,000,000 d nil b. P3,000,000 Answer: D 96. Assuming the bout above will be held in Malaysia, how much is the amusement tax? c. P5,000,000 : P2,000,000 d. nil P3,000,000 Co Answer: D 97. Assuming the bout is in the Philippines but the promoter,.Apol B., is a foreign natiOnal, how much is the amusement tax? c. PS, 0,000 P2,000,000 . d. nil 4 P3,000,000 Answer: C 0 Amusement Tax = (P3OM + P2OM ) x 10%' P5M

518

98. &kohl, a comedy bar, had the following data during the month of March 2018 Net income during the Month :P160,000 Collections during the month: From seryices rendered in January: ,' . .200,000 . From services rendered in FebruarY '. , 1 , From services to be performed in March ' 40,000 • : z.' • How much is the amusement tax for the .mOrith?. , 1,200,000 P218,000 c. P259,200 .. '... P252,000 d. P288,000 Answer: C Solution' Collections during the month:- i„ , From services rendered in January • 400, 006 From services rendered in February; i.. 1,200,000. „ From services to be performed in March :L 40,000 Total collections y1,440,000; 18% Amusement Tax P259 200 . . For business tax purposes, ignore income' and eXpenses. • If it pertains to sale of services;•thelbasIsciguSinesslax is gross receipts or collections, regardless Of when The seNig:evasiendered. , • 0 A comedy bar, for business taxation purpcieeffi is is subject to amusement tax: . 'Night and Day ClubS° as provided in Rmd :4200 Pid" drinking, danding and entertainment venues which oftentimes 'setae' food ...end provide entertainment. :Cabarets', on the.otheri hand, are restauriati.oriclubs.where liquor and food are served, vdth a stage provided for performances bymUsicians, dancers or coniedians, including a venue for dancing by patronsicustoMeri,:similar to-that of nightclubs. With the advent of modem interactive entertainment, along wfth.recorded .music• (and/or music video) using a microphone and public address-system, the proprietorsIlessees or operators of these aniusement places have pursued a new form of lounge and club entertainment. Most of these establishments Provide facilities to avow patrons losing • with the expectation that sufficient revenue will be made' selling food. and drinks to customers. The 'terms° nigh and day clubs and 'cpbarets have become - passe'. Amusement places which offer the same pleasurable diversion entertainment and ffinction now include- videoke barsrkaraoke-bars, karaoketelevisions,. Rama° boxes and music lounges. As such, the proprietors, lessees, or operators of the aforementioned establishments are deemed also subject to 18% amusement tax under Section 125 of the Tax Code, and not to the 12% value added tax. 99 Based on the preceding number, if it is a racetrack, how much is the amusement tax payable for the month? . How much is the amusement tax for the month? P60,000 c. P432,000 P360,000 d. P480,000

519

Percet racres Answer: C Solution: Collections during the month: From services rendered in January From services rendered in February From services to be performed in March Total collections Amusement Tax

Solution: PBA: Gross receipts, PBA = P9.8M x 15% OPT Bryan: Gross receipts, restaurant = P2,950,000 x 12% vat 200,000 1,200,000 40,000 1,440,000 30% P432,000

- 100. Philippine Basketball Association (PBA), a 'professional basketball league in the Philippines, opened its own coliseum during April 612018 and held all its games for the month in the newly built, state of the art facility in Bulacan. PBAiProvided The following i data during the month: P9,800,000

Receipts from Entrance Fee Gross Receipts from Restaurant operaticins: Sale of food and beverages - Sale of wines & liquor Expenses

2,200,000 750,000 3,800,000

How much is the amusement tax for the month? • c. P1,762,000 P1,210,000Li d. P1,912,500 P1,320,000 Answer: D Solution: Gross receipts from entrance fee Sale of food and beverages Sale of wines and liquors Total gross receipts Amusement Tax

Bryan is subject to vat, not to amusement tax.

102. Ana is the operator of Tanghalan Coliseum. During the month it had the following gross receipts from various activities: . Concert by Loma P2,500,000 Professional basketball game 1,240,000 Boxing Exhibition 1,780,000 The boxing. exhibition is a world championship fight between G.I. Joe and Lucas Matthysse, both foreign nationals and the bout was promoted by Trillanes promotions. How much is the amusement tax payable? P1,78,000 c. P364,000 P186,000 d. P664,000 C. Answet: C Solution: Professional basketball (P1,240,000 x 15%) Boxing Exhibition (P1,780,000 x 10%) Total Amusement Taxes

•

P9,800,000 2,200,000 750,000 12,750,000 15% P1,912,500

C Solution: Concert (P1,240,000 x /5%) Professional basketball (P1,240,000 x'15%) Boxing Exhibition (P1,780,000 x 10%) Total Business Taxes

,P300,000 186,000 178,000 P664,000

.

Efil Persons liable to amusement taxes areithe proprietors, lessees or operators of amusement places. 104. Boxing exhibitions shall be exempt from amusement tax when the following conditions are present: Involves World or Oriental championships in any division. One of the contenders is a citizen of the Philippines. Promoted by citizens of the Philippines or by a, corporation or association at least 60% of the capital is owned by Filipino citizens. d All of the conditions above must be satisfied • Answer: D

520

P186,000 178,000 P364,000

103. How much is totalbusiness taxes?, a. P1,78,000 c P364,000 ib. P186,000 ' d P664,000

101. Based on the preceding number but suppose the restaurant is owned and operated by Bryan, a vat-registered person, the amusement taxes of Bryan and the PBA is , PBA Bryan 1,320,000 • P354,000 354,000 P1,320,000 P354,000 f#354,000 . PP1,470,000 Answer: D

bi

P1,470,000 354,000

521

Perceitth Section 126— Tax on Winnings 10a. The Percentage Tax on Winnings is imposed on the winnings of bettors in: Cockfighting Horse race • C. Jai-alai d. boxing Answer: 8 106. The following shall always be subjectto 10% percentage tax, except? . Overseas call made by Mr. X, resident of Manila, to his mother in Libya Winnings from horse races by a bettor ,. • Oriental Championship match in the Philippines between a Filipino and Mexican promoted by Bob Arum. . Winnings from horse races by a horse owner. Answer: 8 • 0 A bettor of horse races may be subject to 10% o14% tax based on net winnings. 0 Basis: Net winnings = Gross winnings or dividends less cost or the Winning ticket(s) 0 % • trdinary winnings: 10% • Special winnings (forecast double, trifecikgtilnela): 4% 0 Norse owner(s) are aubject to 10% tax based on grOal!Witinings. 107. Statement 1: The 10% tax on winnings is based on actual" amount paid to the winner.. Statement 2 The rate of tax on winnings in case of double, foracsittigUinella and trifecta shall be four percent (4%). Both statements are correct. Both statements are incorrect. Only the first statement is correct. Only the second statement is correct. Answer D 108. Mang Jose, a horse-owner, receives gross winnings of P120,000 during the current month. His tax on winnings should bl P6,000 a P18,000 P12,000 d. P24,000 e'• Answer: 8 0 Tax on winnings = P120,000 x 10% = P12,000

Leo purchased horse racing tickets amounting to P6,000. Fifty percent (50%) of the tickets purchased won double, entitling him a prize of P60,000. How much cash will be given to Leo by the operator? a. P57,720 C.. P54,300 b. P54,720 d. P51,300 C. Answer: A Gross winnings P60,000 Less: Tax on winnings Gross winnings P60,000 Cost of winning tickets (P6,000 x 50%) - (3,000) . Net winnings P57,000 x 4% 527, 75200) Amount to be paid to Pedro i() The cost of the winning tickets shall not-be deducted from the amount to be paid to Pedro because the purchase of -ticket and receipt of dividends or winnings are separate transactions. Pedro, a horse bettor, had the following records of his horse races for the month of May of 2018: Type of Gross Cost of . Horse Winnings Winnings winning.fickets Ana Khan Lor Naden Fe Licidad

Trifecta Ordinary Double

P100,000 • P40,000 250,000 I". 50,000 325,000 75,000 . •

. How much is the business tax on winnings? p32,400 c P49,000 P35,750 d. P68,000 Answer: A Horse Ana Khan Lor Naden Fe Licidad TOTAL

Type of Winnings Trifecta Ordinary Doubt&

Net winnings P60.000 200,000 250.000

% 4% 10% 4%

Tax P2,400 20,000 .10000 P32,400

111. Mike Ong received P100,000-winnings from cockfighting. Determine his tax liability. Subject to 10% OPT (tax on winnings) under Section 126 of the Tax Code Subject to income tax Subject to 10% OPT (tax on winnings) under Section 126 of the Tax Code and 20% final tax on passive income I I only c. Ill only II only d. I and III , C. Answer:

523 522

I ars

Parotid kir:es

Percen e, tiees Section 127 - Stock Transaction Tax

112. Mannu Gal received P100,000 winnings from horseracing. Determine his tax liability. I.. Subject to 10% OPT (tax on winnings) under Section 126 of the Tax Code IL Subject to basic income tax III. Subject to 10% OPT (tax on winnings) under Section 126 of the Tax Code and 20% final tax on passive income I only c. Ill only d. I and III H only Answer: A 113. A race track bettor won the folbwing bets: . On double, a bet of P200 and dividend of P200 per P20 ticket. On winner take all, a bet of P500 and a dividend of P1,000 per P50 ticket On forecast, 'a bet of P1,000 and dividend of P100 per P20licket The total percentage tax due front the winnings is: c. P1,280 a P682 d. P1,530 • b. P1,182 Answer: B Solution: '0 ON DOUBLE = P200 belP20 per bet = 10 tiCkets = Net winninbs per ticket = P200-20 = P180 OPT = P180 x 10 tickets x 4% =' P72.. 0

ON Winner Take All (Ordinarywinnings) = P500 bet/P50 per bet = 10 tickets = Net winnings per ticket = P1,000 - 50 = P950 OPT = P950 x 10 tickets x 10% = P950 •

The next four (4) questions are based on the following data: Galaxy Corporation, a closely-held corporation, has an authorized capital stock of 20,000,000 shares with par value of P5.00/share.. Of the 20,000,000 authorized shares, 5,000,000 thereof were subscribed and fully paid Up by the following shareholders: Pedro 1,000,000 Ana 1,000,000 Loma 1,000,000 Fe 1,000,000 Juan 1,000,000 Total Shares Outstanding 5,000,000 On February 2018, Gallaxy. decided to conduct an initial public offering (IPO) and initially offers 5,000,000 of its unissued shares to the investing public for P7.50/share. • During the IPO period, one of its existing shareholders, Lorna, has likewise decided to Sell her entire 1,000,000 shares to the public for P7.50/share. 114. How much is the percentage tax due on the primary offering? P375,000 . c. P750,000 P1,500,000 d. nil Answer: A . Solution: 0. Tax on 'primary offering', refers to percentage tax due of the issuing corporation during its initial public offering (IPO). 0

0 0

0

ON FORECAST = H .boo bet/P20 per bet = 50 tickets = Net winnings per ticket = P100-20 = P80 OPT= P80 x 50 tickets x 4% = P160 TOTAL Tax on Winnings = P72 • P950 * 160 = P1,18t

524

RATIO = shares issued@ /PO over outstanding shares after IPO 5/150% IPO Rate =1% OPT on IRO = Proceeds x Tax % = 5M shares x P7.5 x 1% = P375,000

115. How much is the percentage tax due on the secondary offering (Lorna)? P75,000 c. P150,000 P300,000 'd. nil

s • Answer: B Solution0 Tax on 'secondary offering' refers' to percentage tax due of The shareholder who sold his/her share at the lime the corporation is undergoing initial public offering (IPO). 0 RATIO = shares issued @ (PC over outstanding shares after (PO • =1/1(k10% 0 [PO Rate =4% 0 OPT on IPO = Proceeds x Tax % = 1M shares x P7.5 x 4% = P300,000

525

; ty,7re:

Pty'reithave, 7;;d:es

116. If in May 2018, Gallaxy again decides to increase capitalization by offering another 6,600,000 of unissued shares to the public at P1.0.00/share, how much is the percentage tax due? c. P2,400,000 P600,000 d. nil P1,200,000 ci + Answer: D Issuance of shares by the issuing corporation after !PO is known as 'follow-on-follow-through issuance'. The issuing corporation. is subject 'only to one (1) type of Percentage Tax, the Percentage Tax on IPO under Section 127(B) of the Tax Code, as amended. 0, The issuing corporation is not subject to Percentage Tax before and after IPO. However, it is liable to documentary stamp lax (DST) on the issuance of stock certificate to shareholders. •

118 Issuance of shares by a closely held issuing corporation shall be subject to: a. Percentage tax- % of 1% based on gross selling price or gross value in money. ' b. Capital gains tax - 5% on first P10,000 capital gain; 10% on excess of P100,000. Percentage on IPO - 4%, 2%,; 1% based on gross selling price or gross value in money. No business tax but subject to documentary stamp tax (DST)

Petrol

117.11 in August 2018, Juan decides to sell his entire, stock ownership to he public at P10.00/share, how much is the percentage tax due? c. P400,000 a. P50,000 d. nil P60,000 do Answer B 0 SALE of shares by a shareholder after IPO is known asloilow-on4ollot • through sale" Under Section 127(A) of the Tax Code, as amended, subject to Percent* Tax as follqws: . • -Salb prior to 2018:1A. of 1% of Gross: Selling Price' ; Sale on or after Jan. 1,2018:- 6/10.of -1% of GrdiS Selling Pace .. ' OPT = 1,000;000 shares x P10 x 006 0

Answer: 119. Primary offering of shares by the issuing' corporation (issuance during initial public offering) shall be subject to: • Percentage tax - % of 1% based on gross selling price or gross value in money. Capital gains tax - 5% on first P10,000 capital gain; 10% on excess of P100,000. Percentage on IPO - 4%, 2%,; 1% based on gross selling price or gross value in money_ No business tax but subject to documentary stamp tax ps-0 4 Answer: C 120. Follow on follow through issuance of shares by the issuing corporation (issuance after !PO) shall be subject to: a. Percentage tax - % of 1% based on gross setting price or grdss value in money. b. Capital gains.tax - 5% on first P10,000 capital gain; 10% on excess•of P100,000. c. Percentage on IPO - 4%, 2%,; 1% based on gross,selting price or gross value in.. money. d. No business tax but subject to documentary stamp tax (DST) 4 Answer: D

ADDITIONAL GUIDE: -SUMMARY OF APPLICABLE TAXES IN THE ISSUANCE OR SALE OF SHARES OF STOCK*

TERM, USED Issuance of shares before IPO ISSUING CORPORATION Issuance of shares during Ipo

Primary Offering

Issuance of shaies after IPO

Follow , on through

APPLICABLE TAX , Not subject .to. VAT, OPT:A: intone tax but subject to, OST• OPT: 4% 2%, 1%

follow

Not subject to VAT, OPT and income tax but subject to Capital gains tax 5% 10% TRAlN Law = 15%

Sale of shares before IPO SHAREHOLDER Sale of shares during IPO

Primary Offering

Sale of shares after IPO

Follow on through

526

OPT: 4% 2% 1% follow

OPT: 1/2 of 1%of GSP OP,T:6/10 of 1% of GSP (It)

• 121. Shares of stock held as investment when sold drectly to a buyer prior to January 1, 2018 shall be subject to. Percentage tax - 4 of 1% based on gross selling price or gross value in money. Value-added tax - 10% based on gross income. Capital gains tax - 5% on first P10,000 capital gain; 10% on excess of P100,000. Percentage on IPO - 4%, 2%,; 1% based on gross setting price or gross value in money. Answer: C 0 Also known as sale of shares of closely held corporation (DC). • 122. Shares of stock held as investment when sold directly to a buyer on or after January 1, 2018 shall be subject to: Percentage tax - 6/10 of 1% based on gross selling price or gross value in money. Value-added tax - 10% based on gross income. Capital gains tax - 15%.of capital gain cf. Percentage on IPO - 4%, 2%,; 1% based on gross selling price or gross value in money. Answer: C

527

4

U:3

Percoith ey tr,e0-

123. Secondary offering of stock held as investment when sold dbring IPO period shall be subject to: Percentage tax - 1/2 of 1% based on gross selling price or gross value in money. Value-added tax - 10% based on gross income. Capital gains tax - 5% on first P10,000 capital gain; 10% on excess of P100,000. Ptcentage on IPO - 4%, 2%,; 1% based on gross selling price or gross value in money.

128. Assum . ing the shares were not listed in the local stock exchange and that Trillanes sold the shares to Cayatano, the percentage tax on the sale is: a P15,000 -C. P30,000 b. P25,000 d. PO

Answer: D 124. Shares of stock held as investment when sold through the local stock exchange prior to January 1 2018 shall be subject to: Percentage tax - 'A of 1% based on gross selling pric.e or gross value in money: Value-added tax -10% based on gross incame. Capital gains tax - 5% on first P10,000 capital gain; 10% on excess of P100,000. Percentage on IPO - 4%, 2%,; 1% based on gross selling price or gross value in money. Answer: A 0 The sale is also known as 'follow-on-follow-through sale'. 0 Assume the shares held were from a domestic cdirpoafion. 125. Shares of stock held as investment when sold through theilocal stook eichange on or . -.. . . . after January 1, 2018 shall liksubject to: . . . Percentage tax - 6/10 of 1% based on gross selling price Or gross Value in _money. Value-added tax - 10% based on gross income. ' '. • . ' .•' Capital gains tax -5% on first P10,000 capital gain; 10% on excess of P100,000. Percentage on IPO - 4%, 2%; 1% based be gross selling price or gross value in money.

+ Answer: B 0 Subject to COT, not percentage tax 129. One of the following statements is incorrect. The 1/2 of 1% tax shall be collected by the broker who made the sale and shall be remitted within 5 banking days from the date of collection The tax paid on sale of shares through local stock exchange 'and initial public offering (IPO) and secondary offering shall not be allowable deduction or income tax purposes The 'A of I% stock transaction tax is a final withholding tax on income. The % of 1% stock transaction tax is collected whether there is an income or a loss and is a percentage tax. + Answer: C 130. 1til Statement: Sale by a stock dealer. of shares of stocks through the .local stock exchange is subject to the stock transactions tax. 2nd Statement: Sale by a Stock dealer of shares of stocks directly to a buyer is subject to the capital gains tax Both statements are correct. Both statements are incorrect. Only the first statement is correct.' Only the second state statement iS correct. Answer: B 0 Sale of shares by a stock dealer is subject to basic income tax and vat.

+ Answer: A 126. In 2016, Trillanes invested P5,500,000 in the shares of stock of 0u30 Corporation. The corporation's shares are listed and are traded in the local stock .exchange. Trillanes subsequently sold the shares in 2017 for P5,000,000 through the locarstock exchange. The percentage tax on the sale is: P15,000 c. P30,000 P25,000 d. P50,10 Answer: B 0 Stock Transaction Tax = P5M 4005 = P25,000

131. All of the following except one are liable to 'A of 1% stock transaction tax. Which one is. not? Individual taxpayers, whether citizens or alien Corporate taxpayers, whether domestic or foreign Estates and Trust Dealers in securities

127. Assume Trillanes sold the shares in 2018, the percentage tax on the sale is P15,000 c. P30,000 P25,000 d. P50,000 Answer: B 0 Stock Transaction Tax = P5M x .006: P30,000

132. Gallery Corporation issued 10,000 shares, with par value of P100 per share, to Mr. Apolinario Bobadilla for R150 per share. The transaction did not pass through,* the Philippine Stock Exchange. How much is the capital gains tax on the sale? c. P50,000 P45,000 P25,000 d. zero

528

Answer: D

529

n, .Percenfitf e- I dep. Answer: D 0 CGT is applicable only if the seller is a shareholder or investor, not issuer 0 The transaction is not subject to any business lax except DST . 133. Using the data in the preceding number, how much is the percentage tax assuming Mc Mr. Bobeidilla subsequently sold his shares for P200 per share?' c. P10,000 P45,000 d. zero P25,000 4 Answer: D 0 The sale will be subjected to capital gains-lax (an income tax) but not subject to percentage tax 134. Statement 1' The buyer of shares under primary offering Shall be the' one liable for the payment Of stock transaction tax to be-withheld and remitted by the stock broker. Statement 2: The seller shall be the one liable for the stock transaction tax of shares sold under secondary offering offering. A Statement 1 True True False False Statement 2 True False True False

Percete- 74-stres 137. Statement 1: Prior to the effectivity of the TRAIN Law, payment of stock transaction tax of 'A of 1% is within five (5) banking days from the date withheld by the broker. Statement 2: Payment of stock transaction tax of 4%, 2% and 1% on primary offering should be within thirty (30) days from the date of listing in the local stock exchange. Both statements are correct. Both statements are incorrect. Only the first statement is correct. Only the second state statement is correct. 4 Answer: A 138. Statement 1: Upon the effectivity of the TRAIN Law, payment of stock traniaction tax of 6/10 of 1% is within five (5) banking days from the date withheld by the broker. Statement 2: Payment of stock transaction tax of 4%, 2% and. 1% on primary offering should be within thirty (30) days from the dale of listing in the local stock exchange. Both statements are correct Both statements are incorrect. s. Only the first statement is correct. d. Only the second state statement is caned. Answer: A

4 Answer:?

, 135. Which of the following-perce4age taxes is paid on a quartedy,basis Viet toleffectivitY of . the TRAIN Law? Tax on overseas. disPatch, message, or conversation originating from the •,Philippines • Amusement taxes 111. Stock transactions tax IV. Percentage lax on.intemational carriers land II only c. I, II and IV only Ill and IV only d. I, II, Ill and IV 4 Answer: A 136. Assume the taxable year is 2018, which of the percentage taxes in the preceding number is paid on a quarterly basis? I and II only c I, II IV only III and IV only d I, II, I and IV

a

13y Prior to 2018, the following percentage taxes arepaid on a monthly.basis, except? Franchise tax Tax on winnings . Percentage' tax on international carriers 111. Overseas communication's tax . Percentage tax on banks and nonbank financial intermediaries c. L land HI only land It only d. All of the above II and IV only Answer: B 140. Assume the taxable year is 2018, which of the percentage taxes in the preceding number is paid on a quarterly basis? c. I, II and III only I and II only d. All of the above II and IV only Answer: D

Answer: C

530

531

]%,/, 74,77,7/74 PART 12 C. EXEMPT TRANSACTIONS This means the sale of goods, properties or services and the use or lease of properties are not subject to VAT (Output Tax) and the seller or lessor is not allowed to any tax credit on VAT (Input Tax) on purchases. The following are VAT-Exempt transactions (under TRAIN Law): . 1) Sale or importation of: agricultural and marine food product in their original state;. human' livestock and poultry used as, or producing foods for human consumption; breeding stock and genetic materials.

A. BUSINESS TAXES Business taxes are those imposed upon onerous transfers,such as sale,: barter, exchange and importation. It is called as such because without 'business, pursued in the Philippines (except importation) by the taxpayer, business taxes cannot be applied. Business taxes are in-addition te income and other taxes paid, unless specifically exempted. . EXCEPTION: . Any business pursued by an individual - where, the • aggregate gross sale ,or ; , ,receipts do not exceed I2100,000 during the any 12 month , period shall be considered principally for shbsistence or livelihood and not in the-ordinary course . of trade or business. Hence, not subject to business taxes. ' , _ TYPES: Value Added Tax Other Percentage Taxes Excise Taxes Documentary Stamp Taxes B. NATURE AND CHARACTERISTICS OF VAT It is a business tax levied on the value-added on certain goods, prOperties and services in the domestic market and/or importer of goods. • It is imposed not on the goods or services as such but. on the privilege of selling or importing goods or rendering services for a fee, remuneration or consideration. • It is an indirect tax and the amount 4:if tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. The party directly liable for the payment of the tax is the seller, importer or the service provider, although the burden of the tax may be shifted or passed on to the consumer. .

532

Products considered in their original state: products which undergone simple processes of preparation or preservation for the market (freezing, drying, salting, broiling, roasting, smoking or stripping) polished or husked rice corn grits raw cane sugar and molasses ordinary salt copra NOTE: Livestock or poultry does not include fighting cocks race horses, zoo animals and other animals generally conSidered as pets. 2) Sale or importationof: Fertilizers Seeds, seedlings and fingerlings., - Fish, prawn, livestock and boUttry feeds d.. Ingredients used in the manufacture of finished feeds (except 'specialty feeds for race horses, fighting cocks, aquariurn fish, zoo animals and other animals generally considered as pets). 3) Importation of personal and household effects belonging to-the: • residents of the Philippines returning from abroad; and Non-resident citizens coming to resettle in the Philippines. NOTE: Such goods must be exempt from customs duties. 4) Importation of professional instruments and implements, tools of trade occupation or employment, wearing apparel, domestic animals, and personal household effects, provided. a. It belongs to persons coming to settle in the Philippines, or Filipinos or their families and descendants who are now -residents or citizens of other countries such parties herein referred to as overseas Filipinos; b In quantities and of the class suitable to the profession, rank or position of the persons importing said items; c For their own use and not for sale, barter or exchange; d Accompanying such persons, or arriving within a reasonable time.

533

late-AiLl71;11 Provided, that the Bureau of Customs may, upon the production of ' satisfactory evidence that such persons are actually coming to settle in the Philippines-and that the goods are brought-from their fonther.place of abode, exempt-such goods from payment of duties and taxes:-Provded, \further, vehicles, vessels, aircraft And Machineries and other -similar goods for use in manufacture, shall riot fall within_this classification and• Skiall therefore be subject to duties, taxes and other charges.. 5)

12)

to be used directly' and: SuWely:ln the production and/or processing of their proeded.:t •

Services subject to percentage tax Services by agricbitural contract growers and milling for others of play-into rice, corn into grits and sugar cane into raw sugar;

.

AGRICULTURAL CONTRACT GROWER': • Refer to those persons producing for others' po ' ultry, livestotk or other agricultural and Marine food produds.in their original state such as contract for a package of senices of receivihg eggs. from breeder . farm,. sorting, fumigating, setting, hatching; sexing of day;oid • broilers. .sorting.and . delivering them to other crintract grower. .

. . • • k

•

7) Medical, dental, hospital and veterinary services "except.those rendeied. .-• , .• professionals; . . ••••„ NOTE: '. .... . • . . . . Laboratory services are'exempted.' if the: hcispital et- clbit.operates.a. pharmacy or dhigitote, the sole of .drugs and' medicines'•are-subjed VAT. Hospital •billi- Atenstitute medical services: ..The• sale's- Made by the • drugstore ter the inapatients which are IndudeclIrt.tti
For agricultural cooperatives: Sales to their menibera Sales to non-memteis.if the copPeratNe is the producer ,(If not, „(04': •" subject to VAT). • ;' r '9 '7 • •• Importation of: • ' - direct forth inputs; MadlIfieriest eirei equipment, including spare ,

Educational servicestendered by: a: private educatibnal institutions, duly accredited by: Department of EducatiOn (DepEd) ii Commission on Higher Education (CHED) • • Technical Education and Skills Devebpment Authority (TESDA) b. Government Educati6Tiallittitut4

9).

Services rendered by individual# pursuant to an employer-employee relationship

10)

Services rendered by regional or area headquarters

11)

Transactions which are exempt under international agreements to whichthe Philippines is a signatory or under special laws

534

' SALE Sale of cooperative's,'OW n; lpfogy.ct . . its , , , .,.. ite members. Sale of cooperative's •-r.,,OWil 'phigLice • to .: • '.:' nonmembers :''''-'-';:j-k..1-', ' Sale to its members of•gdgc1S.,other.thaii the: cooperative's own produce !?--‘-.!27-..•'• Sale to nonmembers of good other ;than the cooperative's own produce :"..±A- ..i"?...ch .

TAX. .. + Exempt Exempt Exempt Subject to Vat

13) Gross receipts froth lending activitiest, bi,i'credit or mulii-purlose cooperatives '. • ". TAX . GROSS RECEIPTS -"Exempt • Gross Receipts from tendingaethatleS
t to. Gross Receipts from - tapthriMi Aiiiiiiittel'. nonmembers •• ' Gross Receipts from Non-Lending ,AeliVitiesqo its members and non-members :. •

-

'

Exempt

Subject to Vat

'14) Sales by non-agricultural, non-electric. and norktedit Cooperatives, provided, that the share capital contribution of -each member does not exceed P15,000 NOTE: Importation by non-agricultural, non-electric and noncredit cooperatives of machineries and equipment including spare parts thereof, to be used by-thern-are-subject-to-VAT.. 1. CONTRIBUTION Contribution • er member 5 P15 000 Contribution • er member > P15 000

535

TAX

vaite Agivi

7/tAt /411-17eirlite; as may from time to time be determined by HUDCC and the NEDA and other related laws.

15) Export sales by persons who are not VAT-registered

'Socialized housing' raters to housing programs and projects covering houses and home lots only that are undertaken by the government or the private sector for the underprivileged and . homeless citizens, which shall include sites and services development, long-tern financing, liberalized terms on interest payments, and as such other benefits in accordance with the provisions oi Republic Act 7279, otherwise known as the 'Urban Development and Housing Act of 1992' and RA No. 7835 and RA No. 8763. 'Socialized Housing' shall also refer to projects intended for the underprivileged and homeless wherein the housing package selling price is Within the lowest - interest rates under the Unified Home Lending Program (UHLP) or any equivalent housing program of the Government, the private sector or nongovernnient organizations,

, . EXPORT SALE By a Non Vat Registered EXporte By a Vat Registered Exporter (Exempt from Vat), . (Subject to 00/a Vat) FORMULA: Output Vat (@ 0%) Input Vat Excess Input Vat"

• PO Dal

**MAY BE: Refunded Used as Tax Credit against output vat in relation to sales subjected to 120/0 vat (local sales) May be converted into a tax credit certificate for payment of any internal revenue taxes BIR taxes

Output Vat Input Vat*** Vat Payable

.

None' N/A None

***may be closed to expense or cost

d

Real properties primarily held for sale to customers or held for lease in the ordinary course of trade or business, if: i. Residential lot valued at: Prior to Jan. 1,2018: P1,919,500 and below; Beg. Jan. 1, 2018 (TRAIN Law): P1,500,000 i(.

16) Sale of: .a. - Real propertres• not primarily held,for sale to custOthers cirheld for lease in the ordinarY thurSe of trade or. business. However, even if the real property is not primarily held for sale tor cifstomers pr held for lease in the ordinary conrseof trade or-business but the same IS used in trade or business of the seller, the ,sale thereof shall be subject to vat being a transaction incidental to the taxpayer's Main business. Real property utilized for low-Cost housing as defined under RA No. 7279, otherwise known as the "Urban Development and Housing Act of 1992" and other related laws. 'Low-cost housing' refers to housing projects intended for" homeless lowincome family beneficiaries, undertaken by the Government or private developers, which may either be a subdivision or a condominium, registered and licensed by the Housinglatid Land ,Use Regulatory Board/Housing (HLURB) under BP Big. 220, Pig 957, or any other similar law, wherein the unit selling price is wghin the sellkag.price per unit asset by the Housing and Urban Development coordinating Council (HUOCC) pursuant to RA 7279, otherwise known as the 'Urban Development and Housing Act of 1.992' and other laws.

House and lot, and other residential dwellings valued at: Prior to Jan. 1, 2018: P3,199;200 and below; Beg. Jan. 1, 2018 (TRAIN Law): P2,500,000

NOTE:' If two or more adjacent residential lots ale 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 do not exceed P1,506,000 (as amended). Adjacent residential lots, although coVlered by separate titles and/or separate tax declarations, when sold to'one and the same buyer, whether covered by one separate Deed of Conveyance, shall. be presumed as sale of one residential lot. Provided, that beginning January 1, 2021, the vat exemption shall only. apply to sale of real properties not primarily held fro sale to customers or held for lease in the ordinary course of trade or business, sale of real property utilized for socialized housing as defined under - RA No. 7279, sale of house and lot and other residential dwellings with selling price of not more that two million pesos (P2,000,000); Provided, further, that every three (3) years thereafter, the amounts state herein shall be adjusted to its present value using the Consumer Price Index, as published by the Philippine Statistics Authority (PSA).

Real property utilized for "soeialized housing" as defined by Republic Act No. 7279, and other related laws such as RA No. 7835 and - RA No. 8763, wherein the price ceiling per unit is P450,000 or

536

537

14

4,6 Agtliir

17) Lease of a residential unit with a monthly rental not exceeding P15,000 (P12,800 prior to Jan. 1, 2018), regardless of the amount of aggregated . rentals received by the lessor during the year. NIQTES: LFASE of RESIDENTIAL UNITS where the monthly rental per`unit exceeds P15,000 (previously P12,800) but the aggregate of such rentals ..tbf the lessor during the year do not exceed P3,000,000 (previously pI,919,500) shall likewise be exempt from VAT, however, the same . shall be subjected to three (3%) percentage tax (RR 16-2011; RR-132018).

416,(7+ 20) "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 subject to the requirements on restriction on vessel importation and mandatory vessel retirement program of MARINA (RR 15-2015). 21) Importation of fuel, goods and supplies, by persons engaged in international shipping or air transport operations, provided that: Fuel, goods and supplies shall be exclusively or shall pertain to the transport of goods and/or passenger from a port in the Philippines directly to a foreign port without stopping at any other port in the Philippines. Fuel, goods or supplies is used for the purposes other than -that mentioned in the preceding paragraph, sudi portion of fuel, goods and supplies shall be subject to 12% vat.

In cases where a lessor has SEVERAL RESIDENTIAL UNITS for LEASE, some are leased out for a monthly rental. per -unit of not excee'clipg P15,000 beginning Jan. 1, 2018 (previously P12,800) while others are leased out for more than P15,000 or P12,800,- as thecase may be, per unit, his tax liability will be:

"Services of banks, non-bank financial intemiediaries. performing quasibanking functions, and other non-bank finandal intermediaries such as money changers and pawnshops, subject to percentage tax under Sections 121 and 122, respectively, of the Tax Code.

The gross receipts from rentals not exceeding P15,009 (previously P12,800) per month per unit shall be exempt from VAT regardless of the aggregate annual gross receipts. The gross receipts from rentals exceeding P15,000 (preViously P12,800) per month per unit shall be subject to VAT If the annual gross receipts (from said -units only not • includjng. the ,moss receipts -from, units leased out for not - more--thanP.15,000 . (previously P12,8130) exceed - P3,000,000 (P1,919,500- prior to 2018). Otherwise, the gross receipts shall be subject to three pet:cent (3%) percentage tax under section 116 of the tax code (PR. 16-2011; RR 13-2018). 18) Sale, importation,. printing or publication of books and am/ newspaper, magazine, review or bulletin: . Appears at regular intervals; • With fixed prices for subscription and sale; Not devoted principally to the publication of paid advertisements., • 19) Transport of passengers by international carriers doing business in the Philippines. The same shall not be subject to Other Percentage Taxes as amended under RA10378 and Transsort of cargo by international carriers doing business in the Philippines, a4 the same is subject to 3% common carrier's tax (Other Percentage Taxesas amended under RA10378 and (RR 15-2015).

.

Sale or lease of goods and. services ,to senior citizens: and persons with disabilities, as provided under RA No. 9994 (Expanded Senior Citizens Act of 2010) and RA No. 10754 (An Act Expanding-the Benefits and Privileges of Persons with Disability (PWD), respectively. Transfer of property pursuant to Section 40(C)(2) of the Tax Code, as amended (Upon effectivity of RA10963-TRAIN Law only; new provision). • Association dues, membership fees, and other assessments and charges collected on a purely reimbursement basis by homeowners' associations and condominium corporations established under RA No. 9904 (Magna Carta for Homeowners' and Homeowners Association) and RA - No.. 4726 (Condominium Act), respectively. This provision shall take effect only beginning January 1, 2018 or upon the effectivity of FtA10963-TRAIN Law (new provision). Sale of Gold to the Bangko Sentra' ng Pilipinas (BSP). This provision shall take effect only beginning January 1, 2018 or upon the effectivity of RA10963-TRAIN Law (new provision). Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension beginning January 1, 2019 (new provision) "Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of P3,000,000, as amended (previously P1,919,500).

538

539

7411} , -1/g.471/Z1

'Viii,e741/4( 1721:6

3) CANCELLATION OF VAT REGISTRATION D. VAT REGISTRATION

Instances when a VAT-registered person may cancel his VAT registration: 1. If he makes a written application and can demonstrate to the commissioner's satisfaction that his gross sales or receipts for the following twelve (12) months, other than those that are exempt under Section 109 (A) to (U), will not exceed P3,000,000, as amended; or

• 1) MANDATORY REGISTRATION Any person or entity who, in the course of his trade or business, sells, barters, exchanges, leases goods or properties and renders services-subject . to VAT, if the aggregate amount of actual gross sales or receipts exceed P3,000,000. (as amended) for the past 12 months (other than those that art. exempt) OR there are reasons to believe that the gross sales or receipts for the next 12 months will exceed P3,000,000.

Radio and/or television broadcasting companies whose annual gross receipts -

of the preceding year exceeds P10,000,000.

A person required to register as VAT taxpayer but failed to register. Penalty for non-registration of those required to .registeres VAT?

He shall be liable to pay the tax as if he were a VAT-registered person but he cannot avail the benefits of input tax credit for the period he was not properly registered.

2) OPTIONAL REGISTATION Any person who is VAT-exempt'or not required to register for VAT may, in relation to D.1.a above, elect to be VAT-registered by 'registering with the ROO. that has jurisdiction over the head office:of that person, and pay the annual registration fee of P506.00 for /every.separate and distinct establishment. Any person who elects to register under optional registraticin Shall not be allowed to cancel his registrabbn for the next three (3) years.

Kny person who is VAT-registered but enters into transactions which are exempt from VAT (mixed transactions) may opt that the VAT apply to his transactions which would have been exempt under Section 109(1) of the Tax Code, as amended [Sec. 109(2)1. Fienchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed ten million pesos (P10,000,000.00) derived from the NJAiness covered by the law granting the franchise may opt for VAT registraeon. This option, once exercised, shall be irrevocable. (Sec. 119, Taxiode). • The above-stated taxpayers may apply for VAT registration not later than ten (10) days before the beginning of the calendar quarter and shall pay the registration fee unless they have already paid at the beginning of the year. In any case, the Commissioner of Internal Revenue may, for administrative reason deny any application fo( registration. Once registered as a VAT person, the taxpayer shall be liable to output tax and be entitled to input tax credit beginning on the first day of the month following registration.

540

2.

If he has ceased to carry on his trade or business, and does not expect to recommence any trade or business within the next-twelve (12) months. . V The cancellation for registration will be effective from the first day of the following month the cancellation was approved.

POWER OF THE COMMISSIONER TO SUSPEND BUSINESS OPERATIONS: t The Commissioner of the Internal Revenue or his authorized representative may order suspension or closureof business establishment for a period of not less than 5 days for any of the following violations: Failure to issue receipts or invoices Failure to file vat return .• Understatement of taxable sales or receipts by 300/vor more of the correct taxable sales or receipts for the taxable quarter. Failure of any person to register as required under the law. . E. VAT FOR SELLER OF GOODS, PROPERTIES AND SERVICES PERSONS LIABLE - Any person who, in the course of his trade or business:

Sells, barters or exchanges goods or properties (Seller of Goods or Properties) Leases goods or properties (Lessor) Renders services (Service Provider) MEANING OF "IN THE COURSE OF TRADE OR BUSINESS" — the regular conduct

or pursuit of a commercial or economic activity, including transactions incidental thereto, 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 exdusively to members or their guests), or government entity. FORMULA:

Output Tax Input Tax VAT Payable (Excess Input Tax)

PXXX a.L1 ( PXXX

511

fre Va/ ,A 177 ,eir ,

74444%67742 F. OUTPUT TAX OF SELLER OF GOODS OR PROPERTIES C. KINDS OF SALE OF GOODS OR PROPERTIES SUBJECT TO VAT: Actual Sale 1. 2. Transactions deemed sale: Transfer, use or consumption not in the course of business of goods or Aroperties originally intended, for; sale or for ,use in the course of business. Transfer of goods or properties not in the course of business can take place when VAT-registered person withdraws goods from his business for his personal use; Distribution or transfer to: i. .Shareholders or investors share in the Profits- of VAT-registered person; R. Creditor§ in payment of debt; Consignment of goods if actual sale is not made within 60 days following the date such goods were consigned; and Retirement from or cessation of business with respect to all. goods on ; hand, whether capital goods, stack-in-trade; supplies or Materials as of the date Of such retirement or cessation, whether orria the businessis continued by the new owner or successor.

Gross Selling Price — means the total amount of money or its equivalent which the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or properties, excluding VAT. The excise tax, if any, on such goods or properties shall form part of the gross selling price. NOTE: The following shall be allowed as deductions from gross selling price; Sales discount indicated in the invoice at the time of sale, the grant of which is not dependent upon the happening of a future event; and • Sales returns and allowances for which a proper ci it Or refund was made for sales previously recorded as taxable sales. " DEFINITION OF GROSS SELLING PRIG? EXPRESSED IN A FORMULA: PX)IX

Gross Sales Less: Sales discount Sales returns & allowances Net Sales Add: Excise tax Tax Base

XX PXXX XX ROM

-Fair Market Value — means fair market value as shown in the schedule of values of the Provincial and City Assessors (real property tax declaration).

FORMULA IN COMPUTING OUTPUT TAX Zonal Value— means fair market value as determined by the BIR Ccimmissioner. Tax Rase Rate ' Output Tax

PXXX XX% PXXX

Installment Plan — means sale of real property, the initial payment of which in the year of sale do not exceed 25% of the gross selling price:

TAX BASE ; Actual Sale I ;,..; l_Persona_l_prop_er

Deferred Payment Basis - means sale of real property,, the initial payments- of which ' in the-year of sale exceed 25% of the gross selling price.

COMPONENTS OF INITIAL PAYMENT:

i GSP

________.;_.„ i GSP vs. FMV vs. ZV w/c ii 1.lash _ ...... ..........,Sale . : 2. Deferred Payment ; ever is the highest ! i Basis 4 3. Installment Plan [(Collection/6SP) x GSP' Vs. FMV vs. ZV w/c ever is

PM< ; XXX XXX I3)00( • -

Down payment Other collections in the year of sale Excess of unpaid mortgage over cost Initial Payments

......... Transaction Deemed Sale ..2._.1....(a),_(h) and (c) above L FMV I AC vs. FMV (w/c ever is '2. (d) above I GSP — Gross Selling Price FMV — Fair market value ZV — Zonal Value AC— Acquisition Cost

542

543

iL4141-17;(6.

fige(74 3. EXPORT SALE RATE- As a general rule, the rate of value-added tax for the sale of goods or properties is 12% (Local Sales). However, the following transactions are subject to 0% (ZERO-RATED SALES): 1) Export Sales: Sale and actual shipment of goods from the Philippines to a foreign .zIcountry, paid for in acceptable currency, and . accounted for. in accordance with the rules and regulations of the BSP; 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, paid for in acceptable currency, and accounted for in accordance with the rules and regulations of the BSP; . Sale of raw materials or packaging materials to an export-oriented enterprise whose export sales exceed 70% of total annual production; Transactions considered export sales under E.O. No. 226; ART. 23 EO 226 That without actual exportation the following shall be considered constructively espoited for purposes Of this-provision: sales to bonded manufacturing warehouses of export-oriented manufacturErs; . sales to export processing zones; sales to registered export -traders operating bonded. trading warehouses supplying raW materials used in the. manufacture-of export products under guidelines to be • set by the Board inconsultation with the Bureau of -Internal- Revenue- and the Bureau of Customs; sales to foreign military bases, diplomatic . missions and • other agencies and/or instrumentalities granted tax immunities, 'of locally manufactured, assembled or repacked products whether paid for in foreign currency or not: Provided, further, that export sales of registered export traders may include commission income: :and Provided, finally, that exportation of goods on consignment shall not be deemed export sales until the export products consigned are in fact sold by the consignee. Sales of locally manufactured or assembled goods for household and personal use to Filipinot.abroad and other non-residerits of the Philippines as well as returning Overseas Filipinos under the Internal Export Program of the government and paid for in convertible foreign currency inwardly remitted through the Philippine banking systems shall also be considered export sales.

544

Items 1(b), 1(c) and 1(d) above are now subject to 12% vat under Sec. 31 of kfion953 (TRAiN Law) upon satisfactionof the following Successful establishment and implementation of an enhance refund system that grants refunds of creditable input tax within 90 days from the filing of the vat refund application with the BR; Provided that, all applications filed from January 1, 2018 shall be processed. and decided within 90 days from the filing of the vat refund application. The ninety (90) day period to process and decide, pending the establishment of the enhanced VAT Refund System shall only be up to the date of approval of the Recommendation Report on such application for VAT refund by the Commissioner or his duly authorized representative; Provided; that all claims for refund/tax credit certificate filed prior to January 1, 2018 will be governed by the one-hundred (120)-day processing period. and All pending vat refund claims as of Dec. 31, 2017 shall be fully paid in. cash by Dec. 31, 2019. Sale of gold to 1351' (Vat exempt beginning Jan. 1, 2018) . Sale of goods, supplies, equipment and fuel to persons engaged in intemabonal shipping or international air transpore operations. Foreign Currency Denominated Sale (repealed Under TRAIN Law) 7 means the sale to a non-resident of goods, except automobile and nonessential 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. Sales to Persons or Entities Deemed Tax-exempt under Special Law Or International Agreement (Also Known as Effectively Zero-Rated Sale): Sales of goods or property to persons or entities who are tax-exempt under special laws, such as: • Subic Bay Metropolitan Authority (SBMA) Philippine Economic Zone Authority (PEZA) Sales of goods or property to persons or entities who are tax-exempt under international agreements to which the Philippines is a signatory, such as: Asian Development Bank (ADS) - International Rice Research Institute (IRRI) . NOTE: A zero-rated sale of goods or properties is a taxable transaction Mr VAT purposes, but shall not result in any output tax. 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.

545

yr iatafort,

%At 46:67-6)(

a

STATUS QUO ON VAT ZERO-RATING OF SALES TO PEZA.ENTITIES • NOTE: For Dealer in Securities, the term "gross receipts" means gross Selling price less cost of securities sold.

,DOF Memorandum Circular No. 2018-003 declared "status quo" on vat-zero rating incentive on the sale of goods/service, to sepaiate custom§ territeries.. It further prbVes that Section 8 of • the PEZA Law, which provides :that special economic zones are to be operated and managed as a .separate ctistdms territory; was not amended or repealed by TRAIN Law. Consequently, until a laW.6r,..revenueregulation is passed orissued contrary to or incompatible with the.prohouncement by the DOF, the vat zero-rating incentive being enjoyed by PEZA locators or entitiesShall remain in full force and effect • •

"Constructive receipt" occurs when the money consideration or its equivalent is placed at the control of the person who rendered the service without restrictions by the payor. The following are example of constructive receipts: Deposits in banks which are made available to the seller of services . without restrictions; Issuance by the debtor of a notice to offset any debt or obligation and • acceptance thereof by the, seller as payment for services rendered; and Transfer of the amounts retained bythe payorto the account of the cOntractor.

G. OUTPUT TAX OF SELLER OF SERVICES AND LESSOR OF GOODS .DR PROPERTIES .1.

FORMULA IN COMPUTING OUTPUT TAX Gross Receipts Rate Output Tax

4.

PX)0( XX0/u NOM

1. 2. 3.

A loan to the lessor from the lessee. An option money for the property. A security 'deposit to insure the NOT faithful performance of certain subject tb obligations of the lessee to the lessor. VAT

4

Prepaid rental

Subject to VAT

DEFINITION OF GROSS RECEIPTS EXPRESID IN A FORMULA: •

546

Processing, manufacturing or repacking goods far other persons dbing business outside the Philippines, which goods are subsequently exported, where services are paid for in 'aeceptable foreign' currency and accounted for in accordance with the rules and regulations of the BSP; • 2 Services performed by subcontractors and/or cOntractort in PrOcessing, converting; or manufacturing goods for an enterprise -whose export sales exceed 70% of the total annual production; ., „ Transactions #I and #2 above, are already subject to 12°A; vat from the efft.Uvity of RA10963 upon satisfaction of the following: • a Successful establishment and implementation of an enhance refund system that grants refunds of creditable input tax within 90 days from the filing of the vat refund application with the- BIR; Provided that, all applications filed from January 1, 2018 shall be processed and decided within 90 days froni the filing of the vat refund application. -

Gross Receipts — refers to the total amount of money 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 payncecits 'far services rendered and ,advance payments actually br• mngtructively.: received for the servicelperformedtr:to te'pOrformed for another person, excluding- VAT.. . . . , ' Advance Payments. In a lease contract, advance payment by the lessee may be:

Cash received (actually and constructively) Advance payments Materials charged for services Gross receipts

RATE - As a general rule, the rate of value-added tax for the sale of services and lease of goods or properties is 12%. However, the following transactions are subject to 0% (ZERO-RATED SALES):

1:9C<X YJCX XXX PXXX

The ninety (90) day period to process and decide, pending the establishment of the enhanced VAT Refund System shall only be.up to the date of approval of the Recommendation Report on such application for VAT refund by the Commissioner or his duly authorized representative; Provided; that all claims for refund/tax credit certificate filed prior to January 1, 2014 will be governectby the one-hundred (120)-day processing period. and All pending vat refund claims as of Dec. 31, 2017 shall be fully paid in cash by Dec. 31, 2019.

-

54L. -

iL44,‘.174 Services other than processing, manufacturing or repacking goods for other persons engaged in business who is outside the Philippines •When the services are performed:the consideration for which is paid for inacceptable foreign currency and accounted for in accordance with the rules and • regulations of the BSP; • Services rendered to persons or entities whose exemption under special laws or-ihtemational agreements to which the Philippines is a signatory effectively subjects the supply of services to zero percent (0%) rate; Services rendered to persons engaged in ,international shipping or air transport operations, including leases of property for use thereof; , Transport of passengers and cargo by domestic air or sea carriers from the Philippines to a foreign country; and Sale of, power or fuel generated through renewable sources of energy such as, but not limited to: Biomass Solar Wind Hydropower Geothermal and Steam Ocean energy Other emerginwources using technologies Such as fuel .cells and hydrogen fuels. INPUT TAX • REQUISITES: H 1. The taxpayer is a VAT-registered person; and 2. The input tax is related to business subject to VAT (12% and 0%). KINDS OF INPUT TAX Input tax on local purchases of goods or properties other than capital goods; Input tax on importation of goods or properties other than capital goods; Input tax on local purchases or importation of capital goods; Input tax on local purchases of services; Creditable withholding VAT Transitional input tax Presumptive input tax a INPUT TAX ON LOCAL PURCHASES OR IMPORTATION OF CAPITAL GOODS

1

Capital Goods - refer to depreciable properties in which the useful. life is more than one (1) year.

548

When is amortization required? Purchases or importation of capital goods, the aggregate acquisition cost of ' which (net of VAT) in a calendar month exceeds P1,000,000. regardless of the acquisition cost of each capital good: shall be amortized. Amount Deductible = Input Tax/Amortization period NOTE: 1. Amortization period is the shorter period of the following: 60 months Useful life in months 2. If the 1M threshold is not breached, no need for amortization (Input Tax is 100% deductible). 3. If the CAPITAL GOOD IS SOLD within the five (5) year period or prior to exhaustion of Input Vat thereon, the ENTIRE UNAMORTIZED INPUT TAX on the capital goods sold can be claimed as input tax credit during the month or quarter when the sale is made. 4 Construction in Progress is a purchase of services. Input taxes will be carted in the month payment was made on the progress billing. In the case Where labor will be furnished by the contractor and materials will be purchased by the contractee from other suppliers, input taxes will be recognized on labor when payment is made on the progress billings while input taXes will be recognized on materials at the time the. •materialsare purchased. - 4* CREDITABLE WITHHOLDING VAT Non-resident persons Who perforta services in the Philippines are deemed -to be making sales in the course of trade or business, even if the performance of services is not regular. The recipient of the service is the one required to withhold and remit the VAT to the BIR. Such VAT can be claimed by the recipient as input tax. TRANSITIONAL INPUT TAX Persons Covered. Taxpayers who became VAT-registered persons (previously non-VAT) shall be entitled to a transitional input tax. Amount Deductible: Beginning Inventory Rate Actual Input VAT, Inventory beg. Transitional Input Tax (Higher Amount) PXXX e

PXXX 2% PXXX XXX

NOTE: Beginning inventory will include all inventories related to business subject to VAT regardless of whether or not it was purchased from VAT or non-VAT supplier.

549

Agirbff,,

LfL7ziatleir: PRESUMPTIVE INPUT TAX FINAL WITHHOLDING VAT

PersonS Covered: Persons or firms engaged in: Processing of sardines, mackerel and milk; and Manufacturing refined sugar, cooking oil and packed noodle-based instant meals.

The government or any of its political subdivisions, instrumentalities or agencies, inci, GOCCs shall, before making payment on account of-each purchase of goods and or services taxed at 12% VAT, deduct and withhold a Final VAT due at the rate of five percent (5%) of the gross payment.

Amount :Deductible: Purchases of Primary Agricultural Products Rate Presumptive Input Tax

The 5% final VA1 shaft represent the net VAT payable to the seller. The remaining 7% effectively accounts for the standard input VAT of the seller, in lieu of the actual input VAT.

PXXX 4% " MO( "

The difference between actual input VAT and standard input VAT must be closed to expense or cost. •

I. VAT ON IMPORTATION PERSONS LIABLE: • Any person who bring goods into the Philippines, whether or not made in , . , the course or his trade or business. It includes non-exempt persons or entities who acquire tax-free imported goods from exempt persons, entities or agencies. • . NOTE: In case of goods imported into the Philippines by VATrexeMpt persons; entities oragencies 'Which are subsequently sold, transferred or exchanged in the . Philippines to non-exeninpersons or entities, the latt4r shall be considered the importers thereof and shall be liable for VAT due on such importation FORMULA: , Q:stomscluties is ad valorem (based on value): Dutiable Value PXXX Customs duties XXX acts° tax XXX Other charges Win BOC XXX • Tax Base PXXX Rate 12% 'VAT on Importation PXXX b)

Customs duties is specific (based on quantity or volume):_ Invoice amount PXXX Customs duties XXX Freight )XX Insurance X Other chargesivtin BOC X Landed Cost PAX Excise tax XXX Total PXXX Rate. ' 12% VAT on Importation PXXX

550

MIXED BUSINESS TRANSACTIONS Refer to a situation wherein the taxpayer is engaged in transactions subjwect to VAT (12% and/or 0%) as well as not subject to VAT (exempt). The main concern in such a case is the determination of input tax that can be claimed for VAT purposes.

4

A Vat registered person who is also engaged in transactions not subject to Vat • shall be allowed of Input tax credit as follows: Total input tax which can be directly attributed to transactions subject to vat (except vat taxable sales of goods and services to the government or GOCCs); and . 2. Ratable Portion of any input tax which cannot be directly attributed to either . adivity. (allocation shalt be on the basis of sales volume.) EXCESS INPUT TAX KINDS OF INPUT TAX Related to sales subject to 12% VAT

TREATMENT Carry-over

Related to 0010 VAT

Carry-over Refund Convert into tax credit certificate

In case of cancellation of VAT registration

Convert into tax credit certificate In case it has no other tax liability, refund.

551

-

741,, 446,174

Vaite. Aileiricji

M. VAT and DISCOUNTS FOR SENIOR CITIZENS Senior citizen or Elderly - refers to any Filipino citizen who is a resident of .the Philippims, sixty (60) years old or above. It may apply to senior citizens with "dual cidzenship" status provided they prove their Filipino citizenship and have at least six (6) months residency in the Philippines (RA 9994 otherwise known as "Expanded Senior Citizens Act of 2010" and its related revenue regulations/ • „circulars RR7-2010, RR 8-2010, RMC 38-2012). a Filipino Citizen with permanent/ legal residence • in the Resident Citizen Philippines, and shall include one, who, having migrated to a foreign country, has returned to the Philippines with a definite intention to reside therein, and whose immigrant visa has been surrendered to the foreign government. VAT Exempt Sales to Senior Citizens (Section 4, RR 7-20101 The following items sold to a senior citizen are vat-exempt and will entitle the latter to a minimum discount of 20°./G: a) Medicine and Drug Purchases including influenza and pneumococcal vaccines and such other essential medical supplies, accessories- and equipment. Professional fees of attending physicians in all private hospitals, Medical facilities, outpatient clinics and home health care services: Professional fees of licensed health. workers Proyiding' home health care services in all private hospitals, medical facilities, outpatient 'clinics, and home health care services • Medical and dental services, diagnostic and laboratory fees On actual fare for land transportation travel • In actual fare for domestic air transport and sea shipping 'vessels and [h._ like On the utilization of services in hotels and similar lodging establishments, restaurants, recreation centers On admission fees charged by theaters, cinema houses and concert halls, circuses, carnivals and other similar places of - culture, leisure and amusement. .i) On funeral and burial services of senidr citizens. RULE FOR RESTAURANTS The discount shall be for the sale of food, drinks, dessert and other consumable items served by the establishments, including value meals and promotional meals, offered for the consumption of the general public. Condiments and side -products fall within the ambit of "other consumable items served by the establishments". The 20% discount and vat exemption for restaurants shall apply to:

552

Dine in, take-out, take-home, drive-thru, delivery orders (excluding bulk orders), called-in or phoned-in orders. Bulk orders are within the context of pre-contracted or prearranged group meals or packages, and hence, not entitled to 200/D discount and VAT exemption. • Set meals, group meals or group walk-ins ineluding purchase of a whale cake and pizza orders. "Pasalubong" food items which are single-serving/solo meal for the personal and exclusive consumption of the Senior Citizen. However, other "pasalubong" food items (e.g. box of •biscocho, bottles or jars of ginarnos, several packets of mango preserves, etc) which are not for the personal and exclusive consumption of the Senior Citizen are NOT entitled to 20% discount and VAT exemption. This limitation extends to "novelty items" or-non-consumables sold in restaurants. FORMULAs: Disct. = (Total Billing Amount - VAT) x 20% Amount Due: Total bill inclusive of vat Less: vat Total bill exdusive of vat Less: 20% discount Total Amount Due •

**Dsct.=

Total Billing Amt. No. of customers

Pxx 040 13,Joi 000** Pielt

Less VAT x 20%

**Use the above formula in the following cases • The bill is for.a group of individuak involving non-senior citizen's and a senior citizen In case of set meal(s) not limited to a single serving and is shared with Non-Senior Citizens. • For group of diners composed of Senior Citizens who ordered, for group meals or food items for sharing in restaurants and not all the Senior Citizens have their valid Senior Citizen's ID cards (including. purchase of whole cake and pizza). Grant of 50/s Special Discount (Section 6, RR 7-2010 as amended by RR 8-2010 and RMC 38-2012). • A special discount of five percent (5%) of the regular retail price of basic necessities and prime commodities as defined under Section 2 of the joint DTI-DA Administration Order No. 10-02, series of 2010, shall be granted to Senior Citizens on their purchases thereof, taking into consideration that said purchases shall be for the personal and exclusive consumption and/or enjoyment of the Senior Citizen (Section 3, Joint DUDA Administrative Order No. 10-02, Series of 2010).

553

74,4e, /1/(417tijd;

a) Basic Necessities Rufe Corn • Bread excluding pastries and cakes Fresh, dried and canned fish and other marine products Fresh pork, beef and poultry meet Fresh eggs Fresh and processed milk Fresh vegetables including root crops Coffee and coffee creamer • Sugar Cooking-oil Salt • Powdered, liquid, bar laudry and detergent soap Firewood • Charcoal Candles b) Prime Commodities Fresh fruits Flour . Dried, processed and canned pork, beef and poultry meat Dairy clsoduds not falling under basic necessities Canned lardines, tuna Noodles . Onions Garlic Geriatric diapers Herbicides . Poultry, swine and cattle feeds Veterinary products for poultry, swine and cattle Nipa shingle, plyboard and construction nails Batteries Electrical supplies and light bulbs Steel wire Retailers — shall mean any natural or juridical, person engaged in the business of- selling consumer products directly to consumers, which, shallinclude among others, supermarketgrocetY/FOnvenfentrstores and shops but excluding stalls in food courts, Yood carts and sari-sari stores with a capitalization of less than P100,000, Outilic and private wet markets, talipapa and cooperative stores. Purchase of basic necessities and prime commodities are not exempt from vat. The total amount of purchases shall not exceed P1,300 per calendar week without carry-over of unused amount A purchase booldet issued by OSCA shall be presented to the retailer upon purchase of basic necessities and prime commodities.

554

NOTE: The input tax attributable to the exempt sale shall not be allowed as an input tax credit and must be closed to cost or expense account by the seller (Sec. 10, RR 7-2010). While RA 9994 expressly provides -for the VAT exemption of Senior Citizens on their purchase of certain goods and services, the law does not include exemption from theo payinent of Percentage Tax. In .the purchase of goods and services which are on promotional discount, the Senior Citizen shall avail-Of eitherthe promotional dikount or the 20%/5% discount, whichever Is higher. However, the dikount that roust be given to the Senior. Citizen shall in no case be less -than 20%/5%. Moreover, the sale Oficods and services on Promotional discount is still exempt from VAT (except sale of basic necessities and prime commodities)... • Meals primarily prepared and intentionally marketed for children and-not for Senior Citizen's personal clonal-motion are not entitled to 20% discount. (Rule IV, Article 7, Section 3(d) of the Rules and Regulations implementing RA No. 9994; SectIOn.6`of RR No. 7-2010). • • • Generally, alcoholic beverages are -not subject to the 20% discount and VAT exemption especially If -purchased:No bulk", "in buckets" or "in cases". However, if served as a single:serving:drink, its purchase by a Senior Citizen is entitled to Atte ,2(K'diScOghtc and VAT, exemption. HoweVer, alcoholic beverages purchaSed. In a- bar, dub or cabaret are exempt from VAT but subject to amusement tax of 18% under Section 125 Of the NIRC, as amended. A Senior Citizen may still, avail of the 20% discount on the purchase of an alcoholic drink but the discount shall be limited only to a single serving of an alcoholic beverage. Cigarettes/cigars are not the food or essential items deemed subject to the 20% discount. Toll fees are not the same as "fares". Hence, It is not subject to the 20% Senior Citizen Discount. N. PERSONS WITH - DISABILITY . (RA7277-Magna Carla for Persons with Disability as amended under RA9442 and RA10754;) A person with disability shall refer to an individual suffering from restriction or different abilities, as a result of mental, physical or sensory Impairment to perform an activity in a manner or within the range considered normal for human being (RR 1-2009).

555

14LAIgh,-;„ RA 10754 AN ACT EXPANDING THE BENEFITS AND PRIVILEGES OF PERSONS WITH DISABILITY (PWD) "SEC. 32. Persons with disability shall be entitled to: "(a) At let twenty percent pock) discount and exemption from the valueadded tax (VAT), if applicable, on the following sale of goods and services for the exclusive use and enjoyment or availment of the PWD: "(1):.bn the fees and charges relative to the utilization of all services in hotels and similar lodging establishments; restaurants and recreation centers; On admission fees charged by theaters, cinema houses, concert halls, circuses, carnivals and other similar places of culture, leisure and amusement; On the purchase of medicines loan drugstores; On medical and dental services including diagnostic and laboratory fees such as, but not limited to, x-rays, computerized tomography scans and blood tests, and professional fees of attending dottors in all government facilities, subject to the guidelines to be issued by the Department of Health (DOH), in coordination ,,with the Philippine Health • Insurance Corporation (PhilHearth);

To the extent practicable and feasible, the continuance Of same benefits and privileges given by the Government Service Insurance System (GS1S), Social Security System (SSS), and Pag-IBIG, as the case may be, as are enjoyed by these in actual service;

To the extent possible, the government may grant special discounts in special, programs for PWD on purchase of basic commodities, subject to the guidelines to be issued for the purpose by the Department of Trade and Industry (DTI) and the Department of Agriculture (DA); and

Provision of express lanes for PWD in all commercial and government establishments; in the absence thereof, priority shall be gWen to them. "The abovementioned privileges are available only to PWD who are Filipino citizens upon submission of any of the following as proof of his/her entitlement thereto: "0) An identification card issued by the city or municipal mayor or the barangay captain of the place where the PWD resides;' "(ii) The passport of the PWD concerned; or

."(5) On medical and dental services including diagnostic and laboratory fees, and professional fet of attending doctors in, all private hospitals and medical facilities, in accordance with the rules and-regulations to be issued by the DOH, in coordinebon with the PhilHealth; On fare for domestic air and sea travel; On actual fare for land transportation travel-such as, but not limited to, public utility buses or jeepneys (PUB5/PU35), taxis, asian utility vehicles (AUVs), shuttle services and public railways, including light Rail Transit (LRT), Metro Rail Transit (MRT) and Philippine National Railways (PNR); and "(8)On funeral and burial services for the death of the PWD: Provided, That the beneficiary or any person who shall shoulder the funeral and burial expenses of the deceased PWD shall claim the discount under this rule for the deceased PWD upon presentation of the death certificate. Such expenses shall cover the purchase of casket or urn, embalming, hospital morigue, transport of the body to intinded burial site in the place of origin, but shall exclude obituary publication brid the cost of the memorial lot.

"(iii).Transpoitation discount fare Identification Card (ID) issued by the National Council for.the Welfare of Disabled Persons (NCWDP). • "The privileges may not be claimed if the PWD claims a higher discount as may be granted by the commercial establishment and/or under other existing laws or In combination with other discount program/s. "The establishments may claim the-discounts granted in subsection (a), pafagraphs (1), (2), (3), (5), (6), (7), and (8) as tax deductions based on the net cost of the goods sold or services rendered: Provided, however, That the cost of the discount shall be allowed as deduction from the gross income for the same taxable year that the discount is granted: Provided, further, That the total amount of the claimed tax deduction net of value-added tax, if applicable, shall be included in their gross salts receipts for tax purposes and shall be subject to proper documentation and to the provisions of the National Internal Revenue Code (NIRC), as amended. ,

"(b) Educational assistance to PWD, for them to pursue primary, secondary, tertiary, post tertiary, as well as vocational or technical education, in both public and prWate schools, through the provision of scholarships, grants, financiaF aids, subsidies and other incentives to qualified PWD, including support for books, learning materials, and uniform allowance to the extent feasible: Provided, That PWD shall meet the minimum admission requirements;

556

.557

,

j

Jae (4 7 . CONSEQUENCES of issuing an erroneous invoice or official receipt If a person who is not a VAT registered person issues an invoice or receipt showing his TIN followed by the word VAT, the nonVAT person shall be liable to: The percentage taxes applicable to his transactions. N. The VAT due on the transactions without the benefit of any tax credit; and iii. A 50% surcharge.

0. ADMINISTRATIVE PROVISIONS 1. INVOICING REQUIREMENTS a A VAT registered person shall issue: a) A VAT invoice for every sale; barter or . exchange of goods or , t properties; and 'If A VAT official receipt for every lease of goods or properties and for every sale, barter or exchange of services.

If a NAT registered person issues a VAT invoice or official receipt for a VAT-exempt transaction but fails to display prominently on the invoice or receipt theterm "VAT EXEMPT SALE", the issuer shall be liable to VAT.

Single invoice/ receipt involving VAT and Non-VAT transactions ' A Vat registered taxpayer may issue a single invoice/ receipt involving VAT and non-VAT transactions provided that the invoice or receipt shall clearly indicate the break-down of the sales pride between its taxable, exempt and zero-rated components and the calculation of the ValueAdded Tax on each portion of the sale shall be shown on•the invoice or receipt,

NOTE: In both cases, the VAT shall, if other requisite inforrhation required is shown on the invoice or receipt, be recognized as an input tax credit to the purchaser.

:* Separate'invoices/ receipts invoNing VAT and Non-VAT transactions A VAT registered person may issue Separate invoices/ eeceipts for the taxable, exempt, and zero-rated component of its soles procaded.thatffi the sales is exerkpirt from value-added tax, the tenti"VAT-EXEMPT SALE" shall be written o -printed prominently on the invbite or: receipt and if the' sale is subject to zero percent (0%) VAT, the term "ZERO-RATED. • SALE" shall be written or printed prominently on the Inveice orreceipt.

•

SALE TO SENIOR CITIZENS. The amount of sales that must be reported for tax purposes is the undiscounted selling price and not the amOunt of sales net of the discount. The gross selling price and theSales dikount must be separately indicated in the official receipt or sales invoice issued by the eStablishment for the sale of goods or services to the Senior Citizen. With regard to the VAT exemption, the mochine tape must properly segregate the VAT exempt sales from the taxable Sales (Sections 7 and 10 of RR- No. 7-2010). The business establishment giving sales discounts to qualified Senior , Citizens is required to keep a separate and accurate record of Sales, which shall include the name °lithe Senior Citizen-purchaser, OSCA ID, gross sales/receipts, sales discounts granted, dates Of transactions and , . e transaction to Senior Citizens. The invoice/OR number for every sal invoicing requirements in Section 9.113-1 of Revenue Regulations No. 16-2005 must also be complied with (Sections 7 and 10 of RR No. 72010).

558

559

n

-1 /I V it 0 Choose the letter of the correct answer.

.0 Principles cl

0 1

Value addp4 tax Is an indirect national tax levied on the value added in the production of a good (or service) as it moves through the various.stages of production. Is ad valorem tax. c: Is preferred in place of a personal income tax by many economists because income taxes are a disincentive to work, whereas a VAT , discourages unnecessary consumption. d. All of the above.

0 4.

"A' is correct. Sale of an article not exempt from vat is not subject to vat if the seller is not vat registered and the amount of annual sale or receipts s than the vat threshold. °I? is correct.. Sale of an article not exempt from vat is subject to vat if the seller is vat registered or the annual gross.sales or receipts exceeded the vat threshold. t" is correct. The taxpayer or seller is engaged in mixed transactions, Refer,also to the discussions in No. 2 V is wrong. To be subjected to excise tax, the product manufactured or imported that pertain to sin products and non-essential goods.

Winch of the following is not a business tax? Excise Tax Value-added tax Other percentage tax Income tax

Answer: D Answer: D 2

Which of the following is incorrect? An article exempt from vat may be exempt from percentage tax An article subjected to excise tax may be subjected to vat An article subjected to vat may be subjected to percentage tax None of the above

5.

ix

0

0 0

3

Answer: C If an article is exempt from vat and at the same time not in the list of transaction subject to Percentage Taxes (sections 116-127), such article. is exempt business tax such as but not limited to: sale of agricultural marine food productS at its original state sale of fertilizers, poultry feeds sale of books Excise tax is in addition to vat or Percentage Tax An article may be subjected to either vat or percentage tax, but same article cannot be subjected to both vat and percentage tax. A takpayer (individual or corporation): however, may be engaged in transactions that are subject to vat and transactions subject to percentage taxes (mixed transactions).. What is prohibited is "same transaction or article' is subjected to vat and percentage tax.

Which of the following is incorrect? A vat-taxable article may be exempt from •ett A vat-taxable article may be subject to vat A taxpayer may have two businesses where one is subject to vat and the other- is subject to percentage tax Manufacturers and importers of goods are subject to excise tax

Which is correct? Without a business pursued in the Philippines (except importation) by-the taxpayer, value added tax cannot be imposed, 'In the course of trade or business!' means the regular conduct orpursuitof a . commercial or an economic activity, including transactions incidental thereto,-byani 'person regardless of Whether or.not the person engaged therein:is anim-,stects,-pon, - profit private organization or government entity. c, Services rendered in the Philippines by a non-resident foreign porsbn'shall:Wy„ considered as being rendered in the course of trade or business even if, the... perforrnance is not regular. d. Al of the above •

0

6.

Statement 1: For a person to be subjected_to.any business lax, it is necessary that he is regularly engaged in the conduct or pursuit of an economic activity. Statement 2: A non-resident foretell person performing isolated transaction in the Philippines shall be liable to VAT. C. D. A. B. Statement 1 . Statement 2

Answer: D

0

560

Answer: D Generally, isolated transaction is not subject to vat. It is assumed to have been: made not in the ordinary course of trade or business. However, isolated services rendered by a nonresident foreign person is considered a transaction in , the ordinary apse of trade or business, therefore subject to vat.

True True

True False

False True

Answer: A Refer to the discussions in No. 5

561

False False

4147: 11: 177

7479 /147;1741;

';1„1/ftle..

11e,

7.

Wnich Statement is wrong? Transactions considered In the course of trade or business', and therefore subject to the business taxes include: Rigular conduct or pursuit of a commercial or an economic activity by a stock private organization. Regular conduct or pursuit of a commercial or an economic activity by a non-stock, norkprofit private organization. Isolated services in the Philippines by non-resident foreign persons Isolated sale of goods or services. + Answer: D

8.

Statement 1: Nonstock and nonprofit private organizations which sell exclusively to their members in the regular conduct or pursuit of commercial or economic activity aro exempt from value-added tax. Statement 2: Government entities engaged in commercial or economic activity are generally exempt from value-added tax Both statements are correct. Both statements are incorrect. Only the first statement is correct. Only the second state statement is correct.

0

9.

„

iv Answer:13 As long as the •trardaction is not exempt under the law, vat- shall be tmpoSed regardless of the classification of the senator the buyer (gevernmenti non-stock non-profit organization, private 'entities, etc.). Refer also to litter "c* of the .next question. .

The term In the course of trade or business° does not include Regular conduct or pursuit Of a commercial or economic activity. Incidental business transactions. 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 government entity. None of the above

i()

Answer: D Under the vat law, incidental transats (i.e., sale of asset used in business) is subject to value added tax.

://,;(1:

11. An individual who is not an employee nor a license professional, deriving gross sales or receipts not exceeding P100,000 from activities principally for subsistence or livelihood Minimum Wage Eamer • c. Ambulant Vendor Marginal Income Earner d. A privileged store Answer: B 0 Marginal Income Earners are not subject to business taxes. 12 Pedro is a manufacturer of fermented liquors. In making sales, all taxes on the products and transactions are passed on to the buyers. For purposes of be value added tax, which of the three (3) taxes listed below that he pays forms part of the gross setting price? Excise tax Value added tax Percentage tax None of the choices C.- Answer: A i() Manufacture or importation of sin products and non-essential goods is subject to excise tax. However: sale of such products will be subject to vat or percentage tax. Excise tax is in addition to vat or percentage tax. 3 Which is correct? An excise tax which imposes a tax based on weighloivolume capacity olany other physical unit of measurement is called specific.tax. • M excise tax which imposes a tax based On selling price or other specified value of the article is called ad valorem tax. . A percentage tax which is imposed whether The transaction resulted in a gain Or loss is called transaction tax. All of the above + Answer: . 14

VVhich of the following taxes describes the value added tax? Income tax Sales tax Indirecttax d. Personal tax Answer: C

10 Who is the one statutorily liable for the payment of VAT? a consumer c. seller • b. buyer d buyer or seller Answer: C

562

563

74-7;t1i,•/ 11,4/7(1",

1/tirey

Vat Registration 15 Which is incorrect? A1/4 itaxpayer whose annual gross receipts or sales exceed P3,000,000 shall pay vat even if not vat registered. A taxpayer whose annual receipts or sales do not exdeed P3,000,000 blit who is vat regi5lered shall pay vat. C. A non-resident lessor or foreign licensor who is not vat-registered is subject to vat. d. An individual taxpayer whose gross sales or receipts do not exceed P100,000 is exempt from VAT provided he pays the 3% other percentage tax. 4. Answer: D; (Refer to No 11) 16 Registration of taxpayers under the vat system may be classified as, except Mandatory vat registration Optional vat registration Mixed vat registration None of The above Answer: C MANDATORY VAT REGISTRATION • Gross sales or retpts > P3,000,000 (previously P1,919,500) and not exempted., , under the law from value added tax i.Gross receipts preceding year > P10,000,009 and the taxpayer is ia radio and/or television broadcasting company. • OPTIONAL VAT REGISTRATION • • Gross sales or receipts 59,3,000,000 (previously P1,919,500) and. not exempted under the law from value added tax Gross receipts preceding year 512'10,000,000 and the taxpayer is a radio and/or television broadcasting company. . 17 IMiich of the following has an option to register under the VAT system in 2018? I. Common, carriers by air transporting passengers, the gross receipts of Which' do not exceed P3,000.000. Radio and/or television broadcasting companies whose annual gross receipts of the preceding year exceeds P10,000,000 Operator of cockpit, the receipts orthich do not exceed P3,000,000 during the " year. IV Seller of vat-subject services the 'brass receipts of which do not exceed P3,000,000. a. IV only c. land IV only b .1 and III only d. All of the above 1'. Answer: C 9 II and III cannot avail the optional vat registration because these transactions, under the law, are subject to Percentage Taxes instead of value added tax.

564

' 18. The following data were provided by spouses' Pedro and Ma. In 2018, Pedro's- gross receiptsifrom his practice of profession was P2,850,000 while her wife, Ana, has gross sales of P2,200,000 derived from her trading business. Assuming they are not vat registered, will they be subject to vat? • a. Yes, because their aggregate gross receipts/sales exceeded the ivat Threshold of P9,000,000. b No, because for purposes of vat threshold, husband arid wife shall be considered as separate taxpayers. • c Yes, because their gross receipts/sales are not specifically exempt from vat as providedin the Tax Code. d. None of the above 4. Answer: B 0' VAT Threshold prior to 2018, P1,919,509 P3,000,000 beginning January 1, 2018: As a rule, husband and wife are treated as separate taxpayers, 19. In 2016, the following gross receipts/sales were recorded by Juan: Gross receipts from dream of profession P1,250,000 . Gross sales from trading activities 600,000 Gross sales — sale of agricultural food products 475,000 Assuming Juan is ndn-vat registered, will he be subject to vat? • No, because his gross receipts/sales in eaCh business do not' exceed the vat Threshold of P1.,919,500: . •• .• Yes, because if a professional, aside from the practice of his profession, also derivies revenue from other, lines of business which are otherwise subject to VAT, the same shall be combined for purposes of determining whether the thleshold has been exceeded. ' c No, because he is not vat registered d None of the above

a

9

O

Answer A VAT Threshold prior to 2018 is P1,919,500. In determining whether the taxpayer exceeded the vat threshold, exclude transactions expressly provided by law as vat exempt. Therefore, ignore the gross sales from sale of agricultural food product in the problem. P1,250,000 + 600,000 = P1,850,000. It is lower than the vat threshold prior to TRAIN Law Of P1,919,500.

20. kis a certified public accountant. He applied for work and was hired by a Firm which is engage in Business Process Outsourcing business handling accounting work for US entities. He was paid for his services. How should JJ treat such paYrnent for business tax purposes? Subject to 12% VAT Subject to Percentage Tax Exempt from VAT and Percentage Tax

__565

74k, 447:6(774 d

Agicitt6

It is a zero-rated transaction

C" Answer: Q () The payrnent he is receiving is dassifed as salaries or compensation income due to S . the presence of employer-employee relationship_ JJ is an employee of the Finn; hence, not subject to business tar Vat Exempt Sales and Transactions 21. VVtiere even if There is a business, there is no vat imposable when A business is pursued by an individual where the aggregate gross sales and or. receipts do not exceed P100,000 during any twelve month period. Sale of real properties for low cost housing Ill. Sale of real properties for socialized housing Sale of residential lot at P1,500,000 per unit and below beginning „January 1, 2018 Sale of house and lot and other residential dwellings valued at P2,500,000 and below beginning January 1,2018 a I, II and Ill only c. III,IV and V only b. II and Ill only d. All of the above :* Answer: D .22. Where eveh if there is no butirtess, vat is impose* on: . Importations of goods for personal use Services rendered in the Philippines by nonresident foreign persons', 'even isolated, shall be , considered as being rendered in the course'-of 'bade or business. a. I only c. I and II b. It only d. None of the above' Answer: C 23. One of the following is not an activity subject to VAT: Sale in retail of goods by a dealer Sale of Bamboo poles by a dealer Sublease of real property in the course of business Importation of ordinary feeds for poultry Ehicken Answer: D 24. The following are exempt from vat, except Sale of 1 sack of rice Sale of lechon manok Sale of pet food Sale of newspaper

25. The following are exempt from vat, except Sale of marinated fish Sale of gold to the Bangko Sentra! ng Pilipinas Association dues, membership fees, and other assessments and charges collected ' by homeowners associations and condominium corporations. d None of the above Answer: A Revenue Ruling 348-11 dated Sept 28, 2011 provides that sale of marinated fish is . not exempt from vat. Laws granting exemption 'from lax are construed strictly against the taxpayer. Exemption from payment of tax must be dearly stated in the language of the law. .0 .13" is exempt from vat beginning Jan. 1, 2018.(previously sObject to 0% van "C" is exempt from vat beginning Jan. 1,2018 0

26. Which of the following shall be exempt from vat? Services of banks. Services of money changers and pawnshops. Services of credit cooperatives All of the above

0

Answer: D . . "A" and "B" are subject to gross receipts tax, a percentage tax under Sections 121' and 122 of the Tax Code. "C" is exempt from vat and OPT.

272 Whictrof the following is exempt from VAT? a: Common carriers transporting passengers by air within the Philippines b. Common carriers transporting passengers by sea within.the Philippines , c. Common carriers transporting passengers by land within the Philippines d. Common carriers transporting cargoes by air within the Philippines Answer: C 28 Which of the following carrier shall be subject to value-added.tax? Sea carrier classified as Resident Foreign Corporation, annual gross receipts is P2,000,000. Air carrier classified as Resident Foreign Corporation, annual gross receipts is P2,000,000. Sea carrier classified as Domestic Corporation, voyage is from Philippines to Japan, annual gross receipts is P2,000,000. None of the choices. Answer: C "C" is subject to 0% vat

Answer: C

566

567

vZe. /44e/ rite 0

'A and 131 are subject to Section 118.of the Tax Code, also known as common carrier's tax on interrialtional carriers with respect to their transport of goods, cargoes or mails originabng in the PhilipPines. As to their passenger Operations, they are exempt both from vat and percentage tax.

26. A dealer in securities sold unlisted shares of stocks of a domestic corporation in 2018 , andderived a gain of P100,000 therefrom. The sale is: Subject to capital gains tax Subject to percentage tax of 'A of 1% of gross selling price. Subject to 12% vat Exempt from business tax.

74

, Determine the correct statement from the following: In cases where a lessor has several residential units for lease, some are leased out for a monthly rental per unit of not exceeding P15,000 while others are leased out for. more than P15,000 per unit, his tax liability will be: The gross receip.. Er om rentals not exceeding P15,000 per month per unit shall be exernpl from vat regardless of the aggregate annualgross receipts. The gross leceipts from rentals exceeding P15,000 per Month per unit shall be subject to vat if the annual gross receipts from said units including the gross receipts from units leased out for net more than P15,000 exceed P3,000,000. Both statements are correct. Both statements are incorrect Answer: A 0 'Refer to the discussions in the preceding number (No. 30).

, Answer: C 30. Determine the business taxes of the following for 2018 taxable year !lease of residential units with a monthly rental per unit not exceeding P15,000 (regardless of the amount of aggregate annual gross rentals). • 'Reese of residential units with a monthly rental, per unit 'exceeding P15,000 but the aggregate of such rentals during the year de not exceed P3,000,000: III.Lease of commercial units regardless of monthly rental per unit.. •A B C I None • Pone None Vat II OPT UPI OPT Val, III Vat OPT Vat Vat Answer C GUIDE: , Lease of commercial units generally subject to vat, regardless-of the amount of • monthly rental per unit. 0

VrAli.e.. /Lae/

Lease of residential units Monthly rental per unit P15,000 = exempt from business tax Monthly rental per unit > P15,000 but the annual gross receipts from this units P3,000,000 = exempt from vat but subject to 3% percentage tax under Section 116 of the Tax Code, as amended. . • Monthly rental per unit > P15,000 and the .annual gross redeipts from this units > P3,000,000 = subject to 9% vat. Lessor is engaged in renting out iesidential units with monthly rental per unit of s P15,000 as well as residential units with monthly rental per unit of > P15,000 = treat both activities separately. The residential units With monthly rental per unit of s j1215600 is exempt from business taxes while - the residential units with monthly rental per unit of > P15,000 is either subject to Section 116 or vat.

568

32 To be subject to vat under the TRAIN Law, the lease of residential units shall have Monthly rental per unit exceeding P15,000 Gross annual rental exceeding P3,000,000 a. Both I and It are necessary b Both I and tare not neeessary Only I is necessary Only Ills necessary 'Answer: A 33. To be subject to vat under the TRAIN Law, the lease of commercial u'nits shall have I. • Monthly rental per unit exceeding- P12,800 Gross annual rental exceeding P3,000,000 It Both land II are necessary Both I and II are not necessary Only I is necessary Only Ills necessary :• Answer 34. Sale of the following real properties prior to 2018 are exempt from vat, except Residential lot, held for sale in the ordinary course of business, sold for P1,600,000. Residential house and lot, held IS Sale in the ordinary course of trade, sold for P2,700,000. Sale of real property used in the ordinary course of business. Sale of real properly not primarily held for sale in the ordinary course of business. Answer: C 0 Letter 'a' is not subject to vat because the threshold for residential lot prior to . the effectivity of TRAIN Law was P1,919,500.

569

vaL /1112774 0

The threshold for residential house and lot and other residential dwellings prior to 2018 was P3,199,200. Consequently, letter "b" is exempt from vat priorto 2018. If the property sold is not for sale in the ordinary course of trade or business nor for use intusiness, the asset is classified as capital asset. Consequently, not subject to vat but may be subject to capital gains tax.

35. Sale of :tke following real properties beginning January 1, 2018Jare subject to vat, except Residential lot, held for sale in the ordinary course of business, sold for P1,600,000. Residential house and lot, held for sale in the ordinary course of trade, sold for P2,700,000. Sale of real property used in the ordinary course of business. Sale of real property not primarily held for sale in the ordinary course of business. Answer: D 0 Under the TRAIN Law, the threshold for sale of residential lot was reduced from P1,919,500 to P1.500,000 while that of residential Muse and lot and other residential dwellings was reduced from P3,199,260 to P2,500,000. Applying these revised thresholds, transactions "e" and "b" are now subject to 12% vat beginning January 1,2018. 0 "C" is subject to vat 36. In 2017, Ana bought one udij of residential house and lot for 02,850,000 from Loina, a Vat registered real.estate developer, in one of the lattees subaliVision projects located in" Bulacan. A month after, the purchase, she teamed that •the eV/nen:if the adjacent, resideritial house jand lot, Fe, is about to relocate, in Batangas. She.bought the adjacent unit for .P1,500,000. 'Based on the information provided, Of the .following statements is.correct? The purchase of residential house and lot from Loma and Fe are subject to vat. Since the units are adjacent and the aggregate purchase pride,of the two (2) units (P2,850,000 and P1,500,000) is more than the vat threshold e P3,199,200, the said units shall be subject to 12% vat. Only the sale of residential house and lot by Loma is subject Id vat, regardless of selling price, because it was made in the course of trade or business and the seller is a vat registered. Both acquisitions are exempt from vat, however, the sale of residential house and lot by Fe to Ma shall be subject to 6% epital gains tax. None of the above a Answer: C 0 RR 13-2012 provides, if two or more adjacent residential lots, house and lots, and other residential dwellings are sold or disposed in favor of one buyer from the sale seller, for the purpose of utilizing The lots, house and lots, or other residential dwellings as one residential area "within a 12-month period", the sale shall be exempt from vat only if the aggregate value do not exceed P1,919,500 for residential lots and P3,199,200 for residential lots and other

570

vaL Agifird6 residential dwellings. Adjacent residential lots, house and tots, and other residential dwellings, although covered by separate titles andlor separate tax declarations, when sold to one and the same buyer, whether covered by one separate Deed of Conveyance, shall be presumed as sale of one residential lot, house and lot and other residential dwellings (RR 16-2011; RR 13-2012). This however, does not include the sale of parking lot which may or may not be included in the sale of condominium units. The sale of parking lots in a condominium is a separate and distinct transaction and is not covered by file rules on threshold amount not being a residential lot, house 8 lot or a residential dwelling, thus, should be abject to VAT regardless of amount of • selling price.". 37. Statement 1: The sale of two (2) adjacent residential lots in the course of trade 'or business to one buyer within the same taxable year for P1,000,000 each is subject to Vat Statement 2: The sale of parking lot as an adjunct of a condominium unit in the course of trade or business at a gross selling price of P500,000 is exempti from vat as long as its .• price, together witht the unit, does not exceed P3,199,200. B. C. D. A. False False True True Statement 1 False True False Statement 2 True Answer: B 0 . The sale of parking lot as an adjunct of a condorhinium unit is subject to vat • regardless of selling price because it is not classified as house and lot nor other residential dwellings. 38. Prior to 2018, a real estate dealer sold two (2) adjacent residential lots in the city for a price of P800,000 each, or a total price of P800,000, to a vendee who intends to erect his reSidential house thereon. The sale shall be classified as a: 12% VAItransactions 0% VAT transactions VAT exempt transactions None of the foregoing Answer: C 0 When two adjacent lots were sold by the same seller to the same vendee within twelve-month period, treat the same as one transaction. Consequently, the selling price in the problem, when.combined will not exceed the vat threshold (prior to 2018) of P1,919,500. 39. Assume the taxable year in the preceding number is 2018. the sale shall be classified as 12% VAT transactions 0% VAT transactions VAT exempt transactions None of the foregoing

571

4

7/J4 Age170

C: Answer: A 0 The consolidated selling price (treated as one transaction), will exceed.the revised vat threshold for 2018 of P1,500,000, hence, subject to vat. .41 Clifford purchase a condominium unit from his friend in 2017, Ronald (condo unit owner) for P3,0,90,000 and a parking lot from the subdivision developer for P800,000. The. correct amount of vat is P456,000 c. R96,000 R360,000 d. PU 4:-

Answer': C 0 The sale tit- the condominium by Ciffor's friend is subject to 6% capital gqins tax because the unit sold to him W classified as capital asset located.in the

0

The sale of parking lot by the subdiWon developer (threfore ordinary asset of the developer) is subject to vat. Such sale shall not be subjed to the P1,500,000 (previously P1,919,500) or P2,500,000 (previously P3,199,200) threshold because sale of parking lot, under revenue regualtions, is not treated as a sale of residential lot nor house and lot and other residential dwellings. This rule is applicable' before, or after the effectivity of the TRAIN Law.

.41. Rios to 2018, a subdivision developer sold five (5) residential houge and lots, each. todifferent Vendees, for P3,000,000 per lot, or a total sales of P15000,000 for the taxable .4 period. These sales shall be classified as: 12% VAT transactions OVVAT transactions VAT exempt transactions None &the foregoing

43 Statement 1 Lease of a parking lot attached to a residential unit at P8,000 per month is exempt from vat. Statement 2 Lease of 8 residential units at R18,500 per month is subject to vat. A. B. C. D: Statement 1 True True False False Statement 2 True False True False Answer: D 0 Statement 1 is wrong. It is subject to vat. The rules on lease of residential . units will not apply to lease of parking space or parking lot. 0 Statement 2 is wrong. The total annual gross receipts in the problem is only P1,776,000 (8 x P18,500 x, 12 months). It will not exceed the vat threshold, prior or after the effectivity of the TRAIN Law, hence, subject only lo Percentage Tax under Section 116 of the Tax Code. 44 Statement I: Sale of drugs and medicines of pharmacy run byte hospital to outpatients are subject to VAT. . . . . Statement 2: Pharmacy items used in the performance of medical procedures in hospital units such as in the operating and delivery rooms and by other departments are considered part of medical services rendered by the hospital, hence, not subject to vat. ' A. B. Statement 1 True True False False Statement 2 True 'False True False C-

. • Answer: C 0 Since there are different vendees, treat each transaction separately. If not combined or not treated as one transaction, the selling price per unit is lower than the required threshold of P3,199,200 (prior to 2018), therefore, not subject to value added tax. ' 42 Assume the sale in the preceding number wet' made in 2018, the sale shall be classified as. 12% VAT transactions 0% VAT transactions VAT exempt transactions None of the foregoing

Based on the data provided, even if the sale to the different vendees are not combined, the selling price per unit still exceeded the revised vat threshold of P2,500,00 for sale of residential house and lot and other residential dwellings, hence, subject to vat.

Answer: A

45 Kape Ko Cooperative is an agricultural cooperative which processes coffee production of• its members for sale to Nescafe Philippines, a coffee processing company Selling instant coffee. Kane Ko imported a coffee drier from abroad. After five years of active use, Kape Ko sold the coffee drier to. one _ of its members, Juan Dela Cruz. Which of the " following is subjectto vat? Importation of coffee drier. The sale of coffee drier to one of its members, Juan Dela Cruz • Sale of coffee to Nescafe Philippines Sale of coffee by members to Kape Ko Cooperative Answer: B

t"

C• Answer: A

572

573 —

14,L,7 /1/74774

YetL 7171,(//745,

Output Vat, 46 Camelia really corporation sold the following real properties during 2017 the taxable year: 2 unAs of residential house and lot at P3,000,000 each P6,000,000 8,000,000 4 residential lotset P2,000,000 each 3,000,000 1 consenercial lot at P3,000,000 How much is the total transactions subject to VAT? c. P11,000,000 a P6,000,000 d. P17,000,000 b. P8,000,000

:'• Answer C 51 The value added tax due on the sale of taxable goods, property and services by any person whether or not he has taken the necessary steps to bq registered. a. input tax c. excise tax b: Output tax d. sales tax 4* Answer: B

Answer: C '47 Using the same data in the preceding number but assuming the taxable year is 2018, how mcuh is the total transactions subject to vat? c. P11,000,000. a P6,000,000 d. P17,000,000 b.. P8,000,000 .) Answer. D

50. Sta. Lucia Really, a real estate dealer, sold a commercial lot amounting to P800,000. This transaction is . a. vat exempt c. subject to vat b. zero-rated sale d. subject to OPT

52 Gross Setting price includes all of the following except one. Which one? Total amount which the purchaser pays to the seller. Total amount which the purchaser is Obligated to pay to the seller. Excise lax. Value-added tax.

•.

• • A telephone 'boinpany, VAT-registered, Provides services for domestic ancheverseas •• calli. It is a taxpayer as far what business tax is concerned?, a. Value-added tax' b..Overseas coniniufficaltons tax; Value-added tax oh domestre calls and overseas communications tziX on overieli calls; Franchise tax. Answer; C 49 VVhich of the following is not subject to VAT by a VAT-registered seller? Remaining inventory upon retirement from business Sale of company's used car to its officers Sale of goods or services to the national government Sale of residential lot amounting to P1,000,000 Answer: 0 'A is a transaction deemed sale4 subject' to vat. 0 "B° is an incidental transaction, subject to vat. 0 "C" is subject to yet. If the goods or service sold is not exempt under the law, the vat shall be imposed regardless of the clasification of the buyer or seller (i.e., government, charitable institutions, non-profit educational institutions)

574

., • Answer: D 53 Which of the following is not deductible from Gress-30110g Price for yalpurposes? .a. , Discounts determined and granted at the time of sale, which, are expressly indicated in the invoice, the amount thereof formingpart of.the gripes- sales duly recorded in the books of accounte b Discount determined and granted after the agreed Set quota is met by the buyer. Sales discount indicated in the invoice at the time Of sale, the grant of which is-not c dependent upon the happening of a future event, deductiblewithin the samemonti or quarter given. d Sales returns and allowances for which a proper Creditor refund was Made during the montti or quarter to the buyer for sales previously recorded as taxable Sales. Ce Answer: B 54. On January 5, 2018, Pinoy Food Corporation, va-registered, sold on account goods for P112,000 inclusive of vat The term was, 2/10, n/30. payment was made on January 10, 2018. The total amount due is c P112,000 P110,000 d P109,760 P107,800 Answer: A 0 The buyer paid within the discout period, therefore, the 2% discount shall be granted. However, since the discount granted is conditional (to be granted only if paid within 10 days), the basis for the imposition of vat shall be the selling price before deducting the discout. The total amount to be paid by the buyer shall be computed as follows

575

144,7/171774

Vaitt 7447.4 77774 Solution: Sating price without discount Less: cash diseount Add: 12% vat based on P100,000 Total amount due

P100,000 (2,000) 12,000 .P110,000

.‘ 55. Mr. Andred, VAT-registered real estate dealer, transferred a parcel of land held for sale. to his son as gift on account of his graduation. For VAT purposes, the transfer is: Not subject to VAT because it is a gift Subject to VAT because it is a deemed sale transaction Not subject to VAT because it is subject to gift tax Subject to VAT because it is considered an actual sale Answer: Ei 56. One of the following is not a transaction deemed sale: 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. Distribution or transfer to shareholders or investors of goods or properties as share in the profits of a VAT-registered person or creditors in payment of debt. Retirement from or cessation from business with respect to all goods on hand as of the date of such rebreraent or cessation. . • Consignment of goods if.pclual sale is made within so days follOwing the date such goods were consigned. Answer: D () Item °D° is not a transaction deemed sale. It is an actual sale.

57. The following are the data of Davao International for the last quarter of 2018: Sales up to Dec. 15 (invoice vakue) P380,800 Purchases up to Dec. 15 (net) 150,000 Additional information: On December 16, 2016, the Company retired from its business and the inventory valued at P190,000 remained unsold. There is a deferred input tax from the third quarter of P3,500. How much is the total value-added taxes payable of Davao Internaltional? a. P42,100 c. P22,800 b P21,500 d. P19,300 Answer: A

Solution: OUTPUT VAT Sales up to Dec 15 TDS transaction INPUT VAT On Purchases Deferredinputvat VAT PAYABLE

P40,800 22800 (18,000) (3.500) P42.100

58 Genson Distribution Inc., a VAT taxpayer, had the following data in a month: P200,000 Cash sales 500,000 Open account sales Consignment: 0 to 30 days old (on which there were remittances from 600,000 consignees of P200,000) 700,000 31 to 60 dayO old 900,000 61 days old and above How much is the output lax? c. P264,000 P348,000 dt P108,000 P216,000 Answer: B Cash sales ' Open account sales Remittance from 0-30 days consignment Consignment, 61days old and above Total x Vat Rate Output vat

59. Ma, a vat registered lessor of commercial spaces received P1,337,500 rentals during the year from various clients, net of the 5% creditable withholding taxon rental income. How much is the correct output vat? c. P150,000 -P154,080 d. P160,500 P142,500 Answer: C SolutionAmount received Divide by (95% net + 12% vat) Gross rental income excl. of vat Output vat

576

P200,000 500,000 200,000 900,000 P1,800,000, 12% P216,000

517

P1,337,500 . 1.07 P1,250,000 12% P150,000

71g7 ,745, Check: Rental income exclusive of vat Add: 12% vat Less: 5% wilhhokling,1P1,250,000 x 5%) Amountieceived

P1,250,000 150,000 (62,500) P1337,500

60. Assumeipapt in the preceding number, Ana is a non-vat registered lessor, how much is her correct business tax? P42,237 c. P38,118 P40,125 d. PO Answer: A Sokition: * Amount received Divide by Gross rental income

P1,337,500

95% P1,407,895 3% P4Z237

OPT under Section 116

61 Prior to 2048, sale of raw materials or packing materials to export-oriented enterprise is considered export sales when export sales of such enterprise. Exceed 50% of total annual production Exceed 60%.of 'total ariaal production Exceed 70% of total anaal production d Exceed 80% of total annual production

17174 •

STATUS QUO ON VAT ZERO-RATING OF SALES TO PEZAENDDES DOF Memorandum Circular No. 2018-003 declared 'status quo' on vat-zero rating incentive on the sale of goods/services to separate customs tenitories. It further provides that Section 8 of the REZA Law, which provides that Special economic zones are to be operated and managed as a separate customs territory, was not amended or repealed by TRAIN Law. Conseduently;until a law or revenue regulation is passed or issued contrary to or incompatible with the pronouncement by the DOF,. the vat zerorating incentive being enjoyed by PEZA heaters or entities shall remain in full force and effect.

62. Bobs Corporation is a local export oriented ethterase engage in the business of manufacturing of sardines. In 2017, it sold to Mr. Bo Huang of China under. the term FOB Shipping Point. , . Mr. Huang wants a specialized packaging material for his sardines. He ordered the said packaging materials from another Philippine Company Norhan packaging Inc. (NPI). It was agreed that NPI will deliver the packaging materialt to Bobs Corporation so that the latter can use the same for the sardines to be delivereclki Mr. Huang in China. • What is the tax treatrnent for vat purposes of the sale of Bobs Corporation to Mr. Huang? a. Subject to 12% t b. Subject to 0% Exempt None of the choices Answer: B

Answer C GUIDE: Sale of raw materials or packaging materials to a local export oriented enterprise may be subject to 0% valor 12% al depending bn the ratio of its exports sales over its total annual production. lithe ratio exceeds 70%, the applicable vat rate is 0%, otherwise 12%. Sale of raw materials or packaging materials to a nonresident 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 buyers goods, paid for in acceptable currency, and. accounted bin accordance with the rules and regulations of the BSP, is subject to 0% vat. Transactions considered export. sales undt al 225, otherwise known as the Omnthus Investment Code of the Philippines, are subjekt to 0% rate NOTE: Transactions "a to c" above will basubjected to 12% eat under the TRAIN Law but only after the requirements set by law are fully satisfied (refer to Pages 544545). Foreign Currency Denominated Sale. Means the sale to a non-resident of goods, except automobile 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 idth the rules and regulations of the BSP. This provision was repealed under TRAIN law Therefore, subject to 12% vat be•innin. Janua 1,2018_

578

63. Based on the preceding number, what is the tax treatment of the sale of NPI to Mr. Huang? a.. Subject to 12% b. Subject to 0% c. Exempt I d. None of the choices Answer: B 64.. Suppose Bobs Corporation bought packaging materials from NPI, what is status of the sale? Subject to 12% Subject to 0% Subject to 0% only if NPI's export sales exceed 70% of total annual production in the current year. Subject to 0% only if Bobs Corporahon's export sales exceed 70% of total annual production in the current year. Answer: D

579

74,4e, 74&514t:

65. Which df the following service may be subject to VAT? a. Hospital services b.- TESDA-registered educational services Setninars and Training services Employees services , • 4 Answer: C Input Vat 66. Tax credit for input taxes shall be allowed if: Both the seller and the purchaser are VAT-registered Either one of the seller or the purchaser is VAT-registered. Neither one of the seller or the purchaser is VAT-registered as long as VAT inVoice is issued. The seller is VAT-regittered regardless of whether the purchaser is VAT-registered or not. Answer: A . If the seller is vat registered but the buyer is non-vai registered, he latter . is not allowed to recognized "input . vat' in its books. Instead, the applicable vat is recognized either as part of the article purchased or as part of its operating expenses. 0 If the seller is non-vat registered, the buyer (even if vat registered) Oanhot. recognize input vat because the seller did not impose such tax on its sale.. .67. Any input tax attributable to zero-rated sales by a vat-registered person may at his option be': a_ Deducted from output tax b. Refunded c. Applied for a tax credit certificate (TCC) which may be used in payment of internal revenue taxes d. Ail of the above Answer: D 0, If the exporter is non-vat registered, its export sale is exempt from vat. The input vat attributable to its,export sale may only be classified as cOst of the article exported Of as patof the exporters operating expenses. TCCs may be used to pay any internal revenue taxes (BIR taxes) only. It cannot be credited against other taxes collected by other taxing authorities such as the Bureau of Customs and the Local Government Units.

68. Which statement is not correct? The excess input taxes Of a taxable month arising from domestic sales may be carried over to the succeeding month. The excess input taxes of a taxable quarter arising from domestic sales may be carried over to the succeeding quarter. The excess input taxes of a. taxable period arising from domestic sales may be refunded. The excess input taxes of a payable period arising from exports sales may be refunded. Answer: C Input Vat on Importations 69. 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 I. Tax credit Inventoriable cost Expense a I only c.' Ill only . b. II only d. none of the above Answer: A 0 Items II and III are applicable only if the importer is non-vat registered. 70. Which of the following statements is incorrect? ..... , a. VAT on importation is paid to the Bureau of Customs before the ienported.goodeare . released from its custody. Wien a person who enjoys. tax-exemption on his importation subseqUenthetells. in the Philippines such imported articles to non-exempts person, the-purChaser:non. . , exempt Person shall pay the VAT on such importation. Expenses incurred after the goods are released from Customs custody ere , , disregarded in computing VAT on importation. Imported goods which are subject to excise tax are no longer subject to value-added,. tax. Answer: D 71. VVhich pf the following importation is subject to value added tax? Importation for personal use of the importer Importation intended for resale Importation of machinery for the importers factory - of All of the above Answer: D

580

581

vg, 72. Francis, not a vat registered taxpayer, was sent a package of goods by his brother who was abroad. The package was claimed by Francis. The Bureau of Customs required him to pay vat on importation Francis refused to pay the vat on the ground that he was not a vpt registered and therefore not an importer. Was Francis' ground in refusing to pay vat ;orrect? a. Yes, because only vat registered importers should be subject to vat. b. Norlfecause importations, unless exempted, should be subject to vat. Yes, because the goods were for her personal use, and therefore, he was not an importer. No, because the package of gbods sent by his brother had value. + Answer B , 73 First statement: An importation of goods by a non-profit charitable organization shall not be subject to the value-added tax. Second statement In the case of importation, the importer is not the one liable for the VAT but the person who shall buy the imported goods. a Both statements are correct b. Only the first statement is correct C. Both statements are incorrect d. Only the second statement is correct

76. Pacman imported brand new Jaguar, 2018 model from the USA for personal use of Jinkee. Total landed costs is P15,000,000 exclusive of customs duties of P3,000,000, excise tax of P2,000,000, and facilitation cost of P1,000,000. VAT payable is: P240,000 c. P1,800,000 d. P2,400,000 P360,000 Answer: D 0 Unless exempt under the law, all importations, regardless of purpose, is subject to value added tax. 0 Facilitation expense shall not be included in computing vat on importation. 0 Vat on importation = (P15M + P3M + P2M) x 12% = P2,400,000 77 Statement 1: The Vat on importation is always based on the dutiable value of the article imported, as determined by the Bureau of Intemal Revenue, including customs duties and excise taxes. Statement 2: The importation by a person exempt from Vat is exempt from the1.ax whatever may be the ultimate destination of the article imported. a. Both statements are correct .b. Both statements are not correct Only the first statement is correct Only the second,statement is correct

Answert 74. Which statement is cottect? Vat on importation a: Should be paid by the tax exempt importer, if he subsequenty.sells the goods to a non-tax exempt purchaser. , b. 'Should be paid by the non-tax exempt purchaser to whom the tax exempt importer. sells it. c. In liability, either of the tax exempt importer or the non-tax exempt purchaser. d. Should not be paid if, the importer is tax exempt but the imported article was subsequently sold to a non-exempt purchaser because the transaction was exempt , at the point of importation. + Answer: B 0 Refer also to letter V of No. 70. 75. VVhich of The following is not a proper inclusith for the computation of VAT on imported items? a. Custom duties on importation b, Excise tax on importation Invoice price of the imported items Facilitation expense , + Answer: D 0 Facilitation fee is an illegal payment (bribe), hence, shall be exluded,

582

+ Answer: B 0 In cases where valuation from BOC is not provided, the invoice pricö shall be used as basis in computing the vat on importation plus all addifional legitimate charges imposed by the BOC such as customs, duties and excise taxes. Use the following data for the next four (4) questions: World Power Corp. imported an article from Japan. The invoice value of the imported articles was $7,000 ($1- P50), however, customs officials valued the imported article for P500,000. The following additional costs were incurred in connection with the importation: P 15,000 Insurance 10,000 Freight from Japan 5,000 Postage 7,000 Wharfage 8,000 Arrastre charges 25,000 Brokerage fee 3,000 Facilitation fee .The imported article was imposed P50,000 customs duty and P30,000 excise tax. The Company likewise spent P50,000 for trucking fee from the customs.warehouse to its warehouse in Quezon City. The carrier is a vat-registered entity.

583

vaLAZ1z6

344.,74,a1741,-, Soktpion ura : ase Price (Invoice Vakre); P7,000 x P50 Insurance Freight from Japan Postage Wharfage Affastre charges Brokerage fee Customs duty Excise fax Total

78. The VAT on importation is: R60,000 c. R60,600 P7,000 d. R80,000 d• Answer: B

.:.t. Solution: Value of Imported Article Insurance Freight from Japan Postage Wharfage Arrastre charges Brokerage fee Customs duty Excise tax Total , x . Vat on importation 0

. P500,000 15,000 10,000 5,000 7.000 . 8,000 25.000 50,000 30,000 P650,000

X

P350,000 " .10000 157,°°0 TWO • 8,000 25,000 .54060 - 30000 P509000 .r .12%

'

•

Vat on importation . 0

-

Facilitation fee shall be excluded in the computation beause it is in the nature of an illegal payment (bribe). .,'7.. • .

e i J...., Based on the preceding number, if the imported article was sold for P800,000, VAT ti• exclusive, the VAT payable is: , .'"• ' c. - R24,000 c. R36,000 4'..ili•-•4/ d. R12,000 d. R30,000

12%

P78,000

Facilitation fee shall be excluded in the computation because:ir is in the nature of an illegal payment (bribe).

4

‘,

Solution: Clutput vat Input vat on iMportation Input vet on freight (50,000 x 12%) Vat payable

70. Based on the preceding number, if the imported article Was sold for P800 000 (exclusive r of vat), the VAT payable is:. R24,000 ,c. R36,000 R12,000 ' d. R30,000

6:

'

Answer 'D

0,Z..

"

Use the letbwing data for the next Swop) questions:

Answer: B

' ,e „1-( P',

• 4P96,00e t% .' 000,0001• fr. .4!1(4000) • i' Jr' , -1234000 'i g srir-o , •' e t • : "r;$4,

‘1;„,•.

(''C''•NI:.''. •

:Taxpayer is a VAT registered person. Importation were for: (thnounts are vat exclusive)

Solution: Output vat Input vat on importation Input vat on freight (50.000 x 12%) Vat payable

For Sale To;- Osen Use P96,000 (78,000) (6,000) P12,000

80. Assume the BOG did not provide the valuation for the imported article, the vat on importation is: R60,000 C. R60,600 R42,000 d.. R80.000

$100,000 .4 $5,000 Invoice cost (exchange rate is $1: P45) Expenses based on cost. 6% 1 Freight and insurance 496'1 • 4%• Other expenses up to the point of removal iPtit), . • from customs house 2% 2% . Transfer expense from customs house to warehouse in Makab, net of VAT Selling price of goods imported for sale was P8,000,000. The value added tax payable on importation is: a. P492,800 c. P623.700 b. P491,300 d. P620,928

e Answer: A

e

584

Answer: C

585

vitt 74/641

34tit Alia(74, Solution. Invoice Value Add: additional expenses up to point of removal from customs house (10%) Total Vat Rate Input Vat on Importation TOTAL Vat onimportation

fl

For Sale P4,500,000

For Own use

-

P225000

450000

22,500

P4,950,000

P247,500

12% 12% P594,000 P29,700 P623,700

83 The value added tax payable on sale is P355,200 c P366,000 P128,640 d. P720,000

0

+ Answer A Output Vat Less: Vat in importation (For Sale) Input vat on transfer from BOC to warehouse (P4,500,000 x 2% x 12%) Vat Payable

0

P960,000 (594,000) (10,800) P355,200

Theinput vat paid to BOC in relation to input vat on importation 'for own use", is' non-creditable against the output vat beiatise it is.a 'non-business related inportabon. IrShall be tteated as a personal expenseof the importer. In general, all importation, regardless of purpose, is subjed to yet on importation. It.shall be paid to the,B0C before the imported article is release. However, only importations, intended for resale in the ordinary course and importation for business use shall be deductible from Output Vat:

84. Aboitiz Transport, ja vat registered taxpayer, is a customs broker and forwarder, representing importers at the piers and transporting their importations to warehouses all over the Philippines_ On an importation by Unilever, its costs were as follows (exclusive of taxes): Invoice cost of importation (exchange rate is $1:P56) . $30,000 Expenses on the importation up to Philippine port P20,000 Excise tax 10,000 Customs.duly • 15,000 Customs brokerage charges paid to Abut? 8,000 Forwarding charges and brokerage fee pal0 to Aboitiz 25,000 The value added tax of Unilever on its importation is a_ P173,300 c. P207.860 d. P210,960 • b. P175,800 + Answer: C

Solution: Invoice cost of importation (exchange rate is $30,000 x P56) ,Expenses on the importation up to Philippine port Excise tax Customs duty Customs brokerage charges paid to Aboitiz Total Vat rate Input Vat on importation

Though the amount was paid to Aboitiz, the 'customs brokerage charges" is considered charges imposed by the BOC. It shall be considered as reimbursement by only by Aboitiz but it will not for part of Aboitiz fees subject to income tax.

85 The business tax of Aboithz Transport is P3,000 value added tax P990 percentage tax . P3,000 value added-tax or P990 percentage tax, at the option ofAboitiz. Exenipt from business tax + Answer: A; (P25,000 x 12%)

TiansitiOnal Input Vat 86. .A person subject to Vat for the first time can have an input tax out of the inventory of goods, material and supplies on hand at the time he become liable. This is called: Value added tax deemed paid Transitional input tax Presumptive input tax None of the above Answer: B • 87. Taxpayers who became VAT registered persons upon exceeding' the vat threshold of P3,000,000 in any 12-month period, or who voluntarily register even if their turnover does not exceed P3,000,000 shall be entitled to a transitional input tax on the inventory on hand as of the effectivity of their vat registration on the following, except; Supplies for use in the course of taxpayer's trade or business Goods which have been Manufactured by the taxpayer • Goods in processed for sale Capital goods being used in the operation of the business + Answer: D

586

P1,680,000 P20,000 10,000 15,000 8,000 P1,733,000 12% P207,960

581

741.117,e,7 44:72(77tie:

71/1 /

88. Transitional input tax can be claimed as deduction from output tax. Vtrhich of the following statements is correct as to when it can be allowed as deduction? . . It can be claimed by a vat registrable person. It can be claimed by a taxpayer who registered asvat taxpayer from the inception of basiness. It can be claimed by a taxpayer who is initially subject to vat and subsequently • cancqed his vat registration. It can be claimed by a taxpayer who is initially paying percentage tax and . . subsequently registered as vat taxpayer.

/1/677eixt1

91 A taxpayer registered under the VAT system on January 1,2018. His records during the month show: Value of inventory as of December 31, 2017 purchased from VAT-registered persons P112,000 VAT paid on inventory as of December 31, 2017 12,000 Value of inventory as of December 31,2017 purchased, from 518,000 non-VAT persons Sales, net of VAT 281,000 Purchases during the month, net of VAT 70,000 Purchases during the month of vat exempt goods 50,000

Answer: D. 89 Which of the following shall be included in. the beginning. inventory for purposes of determining the transitional input vat? • Goods purchased for resale in the ordinaricourse of trade or business. Materials purchased for further processing which have not yet undergone processing c Goods which have been manufactured by the taxpayer d All of the above Answer: D 90 An owner of warehouse, witch used to bevel exempt, because its arrual receipts never , ' exceeded P1,919,500, deciciad to register under the vat system on January 2, 2018. The ,. following data were from the V quarter ending March 31, 2018: P336,000 . Rental from warehousing services, net of vat : 112,000 Purchases of supplies in February, gross of vat 100,000 Inventory of supplies, January 1, 2018 10,000 • ' . Vat on inventory of supplies, January 1, 2018 How much was the vat payable for the quarter ending March 2018? c. P14,000 P26,320 d. PO P18,320 Answer: B Output Vat (P336,000 x 12%) Input vat: Purchases of suppdes in Feb. (P112,000 x 3/28) Transitional Input Vat Vat payable 0

0

P40,320 (12,000) (10,000) P18,320

The alowable transitional input vat is the higher between the actual input vat on the beginning inventory and 2% of the beginning inventory. The composition of the beginning inventory is provided in Nos. 87 and 89. Actual vat on beginning inventory r• P10,000; 2% of P100,000 r P2,000. The allowable transitional input vat is P10,000

VAT payable is: P23,080 P25,320

P12,720 P12,320

Answer C Solution: Output Vat (P281;000 x 12%) Less: Purchases (P70,000 x 12%) Transitional input vat (higher) Actual vs. 2% x (P112,000518,000) + Value Added Tai Payable 0

(8,400) P12,000 P12,600 ,

(12,600) P12,720 .

The 2%TranNtional input vat shall be multiplied from the beginning inventory regardless of .whether it 'was acquired froth vat registered or non-vat registered suppliers.

92 Centro, a VAT registered grocery and sugar dealer submitted the following data as of Dec. 31, 2017 to the Revenue District Officer: P350,000 Grocery items, total value Raw sugar cane, total value 150,000 During the month of January 2018, first month as a VAT-registered taxpayer, he had the following sales and purchases: Purchases Sales P708,400 Grocery, total invoice value P1,195,040 320,000 Raw sugar cane 570,000 The VAT payable for the first month Is: P29,400 c. P45,140 d. P36,500 P47,400 Answer: C

588

P33,720

589

/

'Pa& 4iiie/74s

14

ia• ';

Solution: ' Output Vat (P1,195,040 x 3/28) • Less: Rirchases (P708,400 x 3/28) \, Transitional input vat (highei) Actual vs. 2% x P350000 it Value Added Tax Payable 6

-P128,040

(7,000) P45,140

-14 ce/

Solution:

(75.900)

P7,000

(

Output Vat (P1,000000 x 12%) Less: Purchases (P300k + 100k + 400K", x 12% Additional purchases (P616,600 x 3/28) Transitional input vat (higher) RAW MATERIALS: Actual vs. 2% x P120,000 SUPPLIES: Actual • vs. 2% x P40,000 ' Value Added Tax Payable

-

The 2%Transitional input vat shall be multiplied from the beginning inventory of 'goods subject to 'vat regardless of whether it waS acquired from vat registered or non-vat registered suppliers. Raw sugar cane is a vat exempt, hence, shall be exluded from the determination of transitional input vat. "Unlike in the preceding problem (No. 91), the beginning inventory of 'grocery items' in this particular case is silent as to how Much came from vat 'registered and non-vat registered suppliers. Applying the principle that as to 'deductions', it must be strictly construed against the taxpayer and liberally in favor of the government, it is safe to consider the 2% as the TIV rather than getting the 12% vat on the entire beginning imientory,which, Some, if not all or • majority, may,have been purchased from non-vat regilteredisuppliers.

o .-

(96,000) - (6;600)

P2,000 2.400 P4,000 800 •

(2,400)

(4,000) P11000

•

The input vat on the purchase of capital goods (machinery) shall not be amortized over its useful life because the acquisition cost for the month did , not exceed P1,000,000. The TIV for the raw materials and supplies shall be computed separately.

k Presumptive Input Vat

93 ballaxy Corporation, a maraacturer, had the following data for the first montt of 2018: (First . Year as a' VAT Taxpayer) • Sales P2,000,000 Export sale t000ma ' Domestic sales (net) Purchases: • 300,000 , Raw materials 100,000 Services 400,000 Machinery (useful fife is 2 years)

94. krbilhich statement is wrong? a .There is a transitional input tax on sales of goods or properties. There.is atransitional input tax on sales of services. There is a presumptive input tax on sales of goods or properties. There is a presumptive input tax on sales of services. Answer:

. On January..1, 2018, the company had inventories and taxesi paid thereon as follows' Cost Vat Paid P2,000 P120,000 Raw materials 40000 4,000 Supplies

O

P120,000

95. All of the following are allowed presumptive input tax, except for one. a. Processor of sardines, mackerel and milk. Manufacturer of refined sugar and cooking oil. Producers/manufacturers of packed noodles. Supplier of books and other school supplies. Answer: D

During the month, additional raw materials wire purchased from another enterprise with a total invoice value of P61,600, not included gbove. The VAT payable of Gallaxy is: ' a. P72,000 b. P57,000

c. P11,000 d P66,000

4. Answer: C

590

96 Olive is a producer of cooking oil from coconut and corn. Previously exempt from value added tax, he became subject to value added tax on January 1, 2017. For January 2017, sales, vat not included, of P700,000, he had the following other data for the moth: Cost Inventory, January 1, 2017 P100,000 Corn and coconut purchased from farmers 22,400 Packaging materials purchased from vat suppliers 11,200 Supplies purchased from vat suppliers

591 —

7414, 4tei74 Purchases during the month Purchases during the month frdm coconut and corn 4mers Pt:chases during the month from vat suppliers: Packaging materials Supblies The transitional input tax is P672 P762

330,000 3

P56,000 16,800

c P3,600 d. P4,080

) Answer: C Colt/lion: Nord vat (P700,000 x 12%) • Input vat: 7W (P22,400 x 3/28) vs (P22,400 x 2%)whichever is higher UV (P11,200 x .3/28) vs (P11,200 x 2%) whichever is higher Presumptive (P330,000 x 4%) From purchases of materials and suppies 06,000 + 16,800)x, Vat payable 97 The 'presumptive input tax is'; a P13200 b. P33,000 P6,600 P39,600

t.

100. Mantika Corp., a VAT-registered Corp., is a producer of cooking oil from coconut and cam. It had the following data for the month of January 2018: P784,000 Sales, gross of VAT 50,000 Corn & Coconut, Dec. 31,2018 330,000 Purchases of Com & Coconut in 2018 20,000 Com & Coconut, Jan., 1,2018 Purchases from VAT suppliers, VAT included: 56,000 Packaging Materials 16,800 Supplies. • The value-added tax payable for the month: P56,060 c.. P60,650 d. P63,000 P54,900

P84,000 P2,400 1,200 13,200 7,800

Answer: D OUTPUT VAT (P784,000 x3/28) LESS INPUT VAT Presumptive P330,000 x 4% Materials and supplies Total Creditable Input Vat

P84,000 (13,200) (7,800) P63,000

Input Vat on Capital Goods 101. When . is the input tax on purchases of capital asset is amortized over 60 months or useful fives of the capital assets if shorter than 60 months? 'a. If capital assets have been acquired from enterprises registered with and located at The export processing zones. If the value of the capital asset purchased, excluding vat, exceeds P1,000,000.. If the aggregate monthly purchases of capital assets, excluding vat, exceeds P1,000,000. If the vat taxpayer has secured prior approval for him to amortized input tax on purchases of capital assets.

4. Answer: A 98 The creditable input taxes are P21,762 P24,600 P25,080 P21,672

Answer: C Answer: B 99 The value added tax payable for the month is P62,328 P58,920 P59,400 P62,328 Answer: C

592

102. Statement 1: The input vat on purchase of capital goods valued at P1,000,000 shall be spread over 60 months if the life of property is equivalent to 5 years or more. Statement 2: The input vat on purchase of capital goods valued at P1,000,000 shall be spread over the life of property if the life of property is less than 5 years. Both statements are correct Only first statement is correct Both statements are incorrect Only first statement incorrect

593

-1/a4 0 0

4/7/7

14L,4.6-4(74

J

The P1,000,000 threshold is not applied on 'per capital goods' purchased but on the 'aggregate.purchases" of capital goods for the month_ The aggregate purchase price for the month must exceed the P1,000,000 threshold.

106. How much is the creditable input oat for The month of January? P2,000 c. P4,500 P2,500 d. P6,000 Answer: C

103. A taxpayer has excess credit as a result of input taxes paid on purchases of capital goods. bleirtay: Haire his excess tax credit refunded to a VAT registered person. Make his application for refund in the subsequent period following The period during which the purchases were made. Carry-over and apply his excess tax credit against output taxes in the subsequent period or periods. Use it in payment of any internal revenue tax of a VAT registered person: Answer: C 104. Pedro, vat-registered, made the following purchasedduring the-month of January, 2018: - Goods for sale, inclusive of VAT P 246400 • Supplies, exclusive of VAT 20, 000 Packaging materials, total invoice amount 56,000 Home appliances for residence, gross of VAT 1T,920 Offic&xnachines (5 pos.), 8 years useful life, net of VAT 2,000,000 Creditable Input taxes are: , a. P38 800 b. •P34,800

0 The aggregate acquisition cast for the month of January exceeds P1M, hence, amortize the Input vat as follows: Jan. 1 (P1.000 000 x 12%/60 mos.) P2,000 Jan. 15 (P500.000 x 12%)/24 mos. Z500 Tote/ allocated input vat for January P4,500 107. Flow much is the creditable input vat for the month of February? P2,000 c. P4,500 P2,500 d P6,000 Answer: C 0 Same solution with the preceding number 108. How much is the creditable input vat for the month of March? . a. P4,000 c. P64,000 • b. P4,500 d. P64,500 C' Answer: D

c. P37,440 d. P35,520

Answer A Input vet on goods for sale (P246,400 x 3/28) Suppies (P20,000 x 12%) • Packaging materials (P56,000 x 3/28) Home appliances; (noncreditabie; personal use) Office machines (P2M x 12% / 60 rnongis Total Creditable Input Vat

P26,400 2400 6,000 4 000 P38,800

105.-A VAT registered taxpayer made the following acquisition of capital goodsifrom VAT registered suppliers (net of vat) during 2017: Purchase Date Acquisition Cot' Estimated Useful Life (yrsj Jan. 1-* P1,00000 10 i 15 50000 2 Mar. 2 200,000 6 20 300,000 2 Oct. 6 600,000 4 30 800,000 6 Dec 25 3,000,000 1 m The asset was sold on December 2017

594

0 The aggregate acquisition cost for the month of March is not more than P1,000,000.Accordingtit, the related input vat should not be spread or • allocated during the estimated usekil ife of the assets. The entire input vat for these assets should be claimed as tax credit during the month of March. Solution: Jan. 1(P1.000,000 x 12%/60 mos.) Jan. 15 (P500.000 x 12%)/24 mos. For March acq. = P500,000 x 12% Total allocated input vat for January

P2,000 2.500 60,000 P64,500

109. How much is the creditable input vat for the month of April? P2,000 c P4,500 P2,500 d. P6,000 Answer: C From January Acquisition: Jan. 1 (pi.000, 000 x 12%160 nios.) . Jan. 15 (P500,000 x 12%)/24 mos. March Acquisition TOTAL input tax credit for April

.595___.

P2,000 2,500 P4,500

14/16 47E7'

144 741.1e774-

Use the folbwinq data for the next five (5)questions:

110. How myth is the creditable input vat for the month of October? c. P7,600 P2,500 d. P8,000 P4,500

Mother's Best Corporation is a manufacturer of cooking oil made of corn since 2010. However, for 2018 taxable year, it started its operations as vat registered (from being VAT exempt). The following were the transactions during the first quarter taken from its books and reco/ds,

+ Answer: C

Solution: , ,z From January Acquisition: Jan. 1 (P1,000,000 x 1216/60 mos.) Jan. 15 (P500,000 x 12%)l24 mos. March Acquisition . From October Acquisition: Oct. 6 (P600,000 x 12%/48 mos.) Oct. 30 (P800,600 x 12%1/60 mos. TOTAL input tax credit for October

at

P2000 2,500

SALES PURCHASES: Corn used as raw materials Supplies and other materials Two (2) heavy equipment (U.L.-8 yrs.) Four (3) heavy eqUipment (U.L.-4 yrs.)

P1,500

1,600 P7,600

How much is the creditable input vat for the month of November? c. P7,600 a: P2,500 d. P8,000 b. P4,500

P780,000 125,000 150,000 800,000 450,000

BEGINNING INVENTORY: Supplies/other materials-from vat suppliers Supplies/other materials-from nonvat suppliers Corn

+ Answer: C 0 Same Computation with the preceding number

Determine the following:

FlOw much is the creditable i1/2eut vat for the month of December? c. P463,600 P63,600 d. P480,000 P268,060

113. Transitional inPut vat is PO P200

+ Answer: :C.. .

c. P1,200 d. P1,400

+ Answer: "D"

From January /Acquisition: 'Unclaimed Input vat for January 1 acquisition: r [1M x 12% - (2,000x 11 months)] Jan. 15 (P500,000 x 12%)/24 mos. March Acquisition From OcloberAc.quisilion: Oct. 6 (P600,000 x 12%/48 mos.) Oct. 30 (P800,000 x 12%)/60 mos. December Acquisition (P3M x 12%) (Not a capital asset) TOTAL input tax credit for Decembfr

P98,000 2,500

R1,500 1,600 360,000

P463,600

"Unclaimed Input vat for January 1 If the capital good is sold or disposed within the five (S) year period or prior to exhaustion of input vat thereon, the entire unamortized input vat thereon . can be claimed as input tax credit during the month or quarter when the

sale/disposal is made.

114. Vat payable for the nionth of July is (P80,800) c P66,475 P64,575 d P66,675 + Answer: "C" 11-5. Val payable for the month of August is P48,000 c. P45,900 P47,800 d. (P96,750) 4* Answer: 116. Vat payable for the month of September is P53,750 c. P51,850 P53,950 d. (P88,075) + Answer: "A"

596

597

10,000 60,000 25,000

As P640,000

Sept P720,000

210,000 160,600 175,000170 . 000 , . .

gj7:16

TL

Vite 4

Solution: July

August

September (cumulative) Po.600 P76,800 P256,800 Oubautiyat (1,400) . (1,400) T1V fHiaher bet actual of P1.200 vs. (2%xP70,000)r (6,400) - (19,800) . (5,000) 4% Presumptive input vat (18,000) (21,000) (59,400) IV on 64ip lies and other materials (4,800) (1.600) (1,600) IV on heavy equipment (1,125), (3,375) (1.125) 1.V. on light equipment P66,475 P47,800 P168,025 Vat liability .. , (114,275) , Less: Vat paid in July and August . P53,750 P66,475 P47,800 Vat Payable -September .. • -O. "Beginning inventory& corn shall not be Molded in the computatihn of TIV. •

117. How much is the correct vat payable (excess input vat) for the month of September • assuming the company disposed one of the:heavy equipment during the month? c. R13,925 P8,150 d. P10,725 P7,750 + Answer: "A" Any unclaimed input vat on capital goods shall j;le deducted from the vat liability at, the time of disposaNr retirement. •

Output Vat . ITV Higher bet actual ot P1,200 vs. (2%xP70,000)) 4% presumptive input vat IV on stipples and other materials on heavy equipment IV. on heavy equipment (refired) I.V. on fght equipment Vat liability Less: Vat paid in July and August Vat Payable -September

July

August

. P93.600

.P76,800

(t400) (5,000) (18, 000) (1,600)

(6,400) (21,000) (1,600)

(1,125) P66, 475

(1,125) P47,800

P66,475

P47.800

1 31,600 + 1,600 +800 on the undtposed heavy equipment "Unclaimed input vat on one heavytequipment P400,000 cost x 12% - input vat claimed in July and August = P48,000 — (P800 x 2 months) = 46,400 To Check. Total I.V. for the two heavy equipment for the •IT Qtr . indisposed = (P400,000 x 12%)/60 x 3 months = P2,400 Disposed = P400,000 x 12% = r46,000 TOTAL for the two equipment = P50,400

September (cumulative) P256,800 fi (1,400) (19,800) 1 (59,400) *(A009) **(46,400) (3,375) P122,425 (114,275) ' P8,150

Standard Input Vat (SIV) 118.,What institution is required to deduct and withhold a final VAT of 5% on the purchase of goods or services subject to VAT? National government or any political subdivision thereof Government-owned or controlled corporations Both (a) and (b) Neither (a) nor (b) -) Answer: C 119. Which of the following statements is correct regarding standard input tax? Input tax that can be directly attributable to VAT taxable sales of goods and ' I. services to the Government shall be credited against output taxes arising from sales to non-Government entities. The govemment or any of its political subdivisions. instrumentalities or 11 agencies as well as purchasers in the course of trade or business, shall deduct and withhold a final VAT due at the rate of fiVe percent (5%) of the gross payment. Both land 11 I only Neither I nor 11 II only . + • Answer: D 0 .1" is wrong. Only SW is allowed to be credited from the output vat on sale attributable to the government. 0 "IP is wrong. The 5% final vat is applicable only if the buyer is the government including its political subdivisions and government agenciesandior instrumentalities, 120.1f actual input VAT is less than the standard input lax (7% of gross payment): The excess may form part of the sellers' expense or cost. The difference must be closed to expense or cost. The excess shall be claimed as input tax credit from output tax on other sales/receipts. None of the choices. + Answer: D 121. Government units making payments to VAT registered business is required to withhold the estimated tax corresponding to its payment. The VAT withholding tax on payment to VAT registered suppfiers is 3%of gross payment 5% of gross payment 8.5% of gross payment 10% of gross payment Answer: B

598

599

iL741/17;it;

14-i(e.7-1/61 ,74 126. How much is the output tax? P300,000 c. P420,000 P120,000 d. nil

122_ The withholding agent of creditable value added tax is required to remit the amount of value added tax withheld within 25 days following the end of month the withholding was made 20 days following the end of month the withholding was made 15,days following the end of month the withholding was made 10 days following the end of month the withholding was made

4 Answer: C 0 Output Vat = Sales to private entities and the government 0 Output vat = (P2.5M + P1M) x 12% = P420,000

+— Answer: D 127. flow much is the standard input tax? C. P50,000 P20,000 d. nil • P70.000

123. Ma sold office supplies to the City of Davao on April 1, 2018 The City of Davao shall remit the 5% final vat to the Bureau of Customs on or before: a Apri111, 2018 April 20, 2018 C. April 30, 2018 d. May 10, 2018

0

Answer: B Standard Input Vat (SIV) IM x 7% = 70,000

128. Howfnuch is the, creditable input vat (CIV)? c. P70,000 a. P166,000 d. P180,000 h. P96,000

Answer: D 124: Lorna sold office supplies to the City of Davao on April 28, 2018. The City of Davao shall • ; remit the 5% final vat to the Bureau of Customs on or before: Apnl 11, 2018 April 20,2018 -April 30, 2018 May10, 2018 :Answer: D 125;A VAT-registered supplier sold goods amounting to P500,000 to a government-Controlled. .• corporation during a particular quarter. VVhich of the following statements is incorrect in relation to the sale in relation to the sale of goods? a. The sale is subject to final withholding VAT _b. The govemment-controlled corporation will withhold P25,000 withholding VAT. The government-controlled corporation shall remit the withholding of VAT to the B1R within 10 days following the end of the month the withholding was made... The VAT-registered supplier may refuse the withholding of VAT as long as it‘ it wilting to pay the full 12% VAT, Answer: D Use the folbwing data for the next five (5) questiofts: A VAT-registered trader has the following transactions: Sales of good to private entities, net of VAT Purchases of goods sold to private entities, gross of 12% VAT Sales to a government owned corporation (GOCC), net of VAT Purchases of goods sold to GOCC, net of 12% VAT

P2„500,000 896,000 1,000,000 700,000

0 0 ,

Answer: A CIV. = From purchases for sale to private entities + SIV CIV= P96,0011f+ 70,000 = 0166,000 • -

129. How much is the input tax closed to income or (expense)? c. (P14,000) . 014,000 d. (P34,000) P34,000

0 0 0 0 0

Answer: C SIV = P70,000 Actual Input vat on sale to the govemment = P700,000 x 12% = P84,000 Expense.= Actual over SIV = P84,000 — P70,000 = P14,06 If Actual- input vat is higher than SIV -= close to expense If SIV is higher than-Actual input vat = closet income

130. How much is the VAT payable to the BIR? c, P204,0130 P404,000 d. nil P390,000 Answer: C OUTPUT VAT LESS INPUT VAT SIV , On purchase of goods 5%withholding from the government Vat Payable OR

600

601

P420,000. (70,000) (96,000) (50,000) P204,000

9

v.de 74a-rb

vaite (f,1,6774

OR OUTPUT VAT (from private entities only) LESS INPUT VAT

P300,000

On purchase of goods Vat Payable

(96,000) P204,000

131.A VAT-reariered trader has the following transactions for the month of July 2018: Sale of goods to private entities, net of 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 VAT 1,500,000 Purchases of goods sold to GOCC, net of 12% VAT 700,000 - Purchases of Machineries, gross of VAT, useful life is 6 years 11200,000 How much is the VAT payable to the BIR? P280,000 c. P191,500 P224,000 d. P300,000 t • Answer: c, OUTPUT VAT 'LESS INPUT,VAT

The amount of input tax which can be refunded or converted into tax credit certificates at the option of Leomar is: P120,000 c P39,600 P118,800 . d. P50,000 • Answer: D

P460,000

Private SIV 1.. Allocated InpubYat (1,200,000/60 x 2.5/4) • 5% withhOlding from the government Vat Payable

133. Leomar, a VAT-registered person has the following data: Export sales, total invoice amount P3,000,000 Domestic sales, total invoice amount 6,720,000 Purchases used to manufacture Goods for export and domestic sales: Raw Materials, VAT inclusive 616000 Supplies, VAT inclusive 448,000 Equipment, VAT exclusive 300,000

(96,000)(105,000) (12,599) (75,000) P191,500

Solution: Raw Materials (P616,000 x 3128) SOppies (P448, 000 x 3/28) Equipment (P300,000 x 1236) Total input Vat X Input vat attnbutable to export sale

P66,000 348,000 65,000 000 P150,000 3/9 P50,000

-

134. Based on the preceding number, if the refundable input taxes ere not. refunded but ,. used as tax credit, the VAT due is: a. P570,000 c. P666,888 - b. • P697,888 .d. P570,000

OR Cc, Answer: I) OUTPUT VAT (private entities only) LESS INPUT VAT Private Allocated Input Vat (1,200,000/60 x 2.5/4) Vat Payable

P300,000 (96,000) (12,500) P191,500

132. Based on the preceding number, how much isle input tax closed to (expense) income? a.P13,500 c,(13,g00) b.P21,000 d.(P21k000)

0 0 0

Answer: A • ' Total actual input vat = P96,000 + 20,000 + 84,000 = P200,000 Allowed = P213,500 Income P13,500

602

Solution: Output vat Total input vat Vat Payable

P720,000 (150.000) P570,000

135. But assuming further that the taxpayer opted to claim them as refund, the VAT due a. P576,000 c. P746,888 b.. P697,888 d. P620,000 Answer D Solution: Output vat Total input vat Vat Payabk

P720,000 (1(10,000) P620.000

603

L.7-laci174

vah, b. .c. d.

Sale of Real'Property 136. 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 is considered a Sale of real estate by a real estate dealer on a deferred basis b. SaleAreal estate by a real estate dealer on installment basis c.. Both "a and "b' d. Neither "a' nor "b' ' Answer: B 137. In the case of sale of real properties on the installment plan, the real estate dealer 'shall be subject to VAT on the: Selling price Selling price or fair market value whichever is lower Selling price of fair market value whichever is higher Installment payments, including interest and penalties, actually or constructively received by the seller. Answer: D 138. Statement 1: On a sale'of tilt' property on installments by a real estate dealer, the seller shall be subject to VAT on the installment payment received, including interests and penalties for late payment Statement 2: On sale of real property on installments by real estate dealer, where the Vat is computed not on the consideration in the deed of sale-but on the higher fair Market value, thaVat must be billed separately with a specific mention that it is based on the market value of the property. a. -Both statements are correct b: . Both statements are not correct Only the first statement is correct Only the second statement is correct Answer: A 139. Statement 1: In the case of sale on deferrit payment basis not qualifying under the installment plan, the transaction shall be treated as cash sale and the vat is payable on the month of sale. Statement 2: In the case of a sale on deferred payment basis not qualifying under the installment plan, payments subsequent to the initial payments shall no longer be subject to vat. Both statements are correct Both statements are not correct

604

Both statements are not correct Only the first statement is correct Only the second statement is carrect Answer: A

140. Kaktus Realty Inc. developed a condominium in Manila. During the month of January 2013, it had the following data (VAT included,if applicable): Selling Pried Cash sale of a 3 bedroom unit P5,040,000 Sale of parking lot 560,000 Installmentsale of 2 bedroom unit (initial payments exceed 25% of the selling price) 3,920,000 The 3 bedroom uhit sold for cash had a zonal Value of P5,000,000 and the 2 bedroom unit had a fair market value per Tax Declaration of P3,000,000. How much is the output tax for the month? a. 'P920,000 c. P1,020,000 b., P900,000 d. P1,080,000 Answer: D 3 Bedroom unit SP = P5,040,000/1.12 = P4,5000 ,,Z.V =P5M Output Vat = P5M x 12% 2 Sedroodi unit SP = P3,920,000 = P3,500,000 ZV= P3,000,000 OV = P3.5M x 12% TOTAL Output Vat

P600,000

60,000 420,000 P1,080,000

141. West Star Realty Corp. sells a commercial lot in the month of November 2018 under the following terms (including VAT): P1,120,000 Total contract price 112,000 Downpayment, 11-01-2018 112,000 First installment, 12-01-2018 The output VAT in November 2018 is: c. P30,000 a.. P12,000 b. P24,000 d. P120,000 • Answer: A 0 Ratio of initial payment over SP = 200/1M.= 20% 0 Type of Sale = Installment Sale 0 Output Vat Nov. = P112,000 x 3/28 = P12,000

605

the 142. Bahzi; Kubo Inc. is a real estate dealer. Details of its sates during the year .showed , • following: June 2, 2014 • ; Datkof sale P5,000,000 bonaderation in the deed of sale 4,800,000 Fair,morket value in the assessment rolls 5,200,000 ,ionalaelue Schedule of payments: 1,000,000 ' jaie 2;2014 2,000,000 'line 24015 ' 2,000,000' *me 2/206 'Pliiw.,mrith'is the output (axle be recognized for the June 2,2016 payment? c. P249,600 d. P624,000 • b.-re24000 1/23 Answer •C ' 0 Ratio of iritia payment over SP = 1/5 = 20% • TYpeOf Sale = Installment Sale , -0-41Output4attlov. 2016 ; 2/5 x 5,200,000 x 12% = P249,600 " ' c.,-.40..Aisuming that ,pie.scheiltiO Payment on Jane 2, 2014 is P2000,0170,,how,:much is, the . I , &Colptit tali to be leitignizeptor the „time 22016 payment? • ' - • • t: P249,600 a. tP0'...:.; • ,• d. P624,606 1 .b:^P24,000 f. 4) Answer: A 4$.; ''. : .. SP = 2/5-= Ratio oiiritikpayment over/ '''.0 0 Type of sale = deferred sale; treated as cash Sale 0 • The entire celput vat will be paid on 2014 0 LiatilitY 2E06 = PO • Use the following data for the next two (2) questions: .• „JJ is a real estate dealer. During the month of October 2016, he sold three (3) commercial .. 1, lots under the following terms: Lo13 Lot 2 'Lot 1 P300,000 P204100 P250,000 Selling Price 130(700 115,000 150,000 Cos! 125,000 100,000 70 000 Gain/Loss Terms: 40,000 25,000 50,000 Dovin: Oct. 5 Due: '25,000 20,000 12/05/ 2016 20,000 260,000 ' 130,000 240,000 Year 2017 350,000 250,000 Zonal Value 260,000

606

'144. How much is the Output tax tor the month of October? . a. P26,500 c. P31,800 b. P34,800 d. P40,200 <4 Answer: 0 145. The Output tax for December is c. P5,400 d: P4,500 t• Answer: C L$120% Ratio Installment Type of Sale , OCT 'DEC •

P4,200 4:200 •

c. P6,600 d. none Lot 2 35% Deferred 31,200 , none

tot 3 20% Sale

-TOTAL 20% Sale

'4,800 2,400

P40,200 8,600

.146: Statement 1: On a sale 'of real property on installment by a real estate dealer, the sellershall be subject to VAT on the installment payment received, including interests :and : penalties for late payment. . • . the '. 'Vat' • : Steterhetit 2: Onsale of real prcgierty on installments by mat Sate dealer, *hire is ccirnpUtetloot on the consideration in the deed of sale but on the higher "fair market • value, the Vat must be billed SeCaratelY with esgecific mention that it is bgerl: on the. I , -• . niarket value of the property. • Both statements are.coirect a.. • b: 'Both statements are incorrect c. only the first statement is correct d. Only the second statement is correct. .

C' Ans-vrer A

147. Statement 1: In the case of sale on deferred payment basis not qualifying Under the installment•plan, the transaction shall be treated as cash sale and the-Vatisriayable on the month of sale. . . . Statement 2: In the case of a sale on deferred payment basis not qualifying tinder the" installment plan,-payments subsequentioiheinitialpayments shalt no longer bo subjed to vat. Both statements are correct Both statements are incorrect Only the first statement is correct Only the second statement is correct. t• Answer A

607

744, 4,17174

ly / 4 iri V el r (WY / it)

-

Sale by a Dealer in Securities 150. Lobo Sot, a senior citizen went to Jollibee to treat his 4 grandchildren on account of his retirement. They consumed foods and beverages with gross amount of P1,120 inclusive of VAT. How much is amount to be paid by lobo Sot? c. P1,056 P896 d. P1,100 ' P920

148. A dealer in securities has the following for the year 2018: P5,000,000 Sales, shares held as inventory Sales, shares held as investment 1,500,000 Cos of shares, held as inventory 2,000,000 Cos oftshares, held as investment 500,000 Supplies expense, net of vat 100,000 Rent expense, net of vat 200,000 • How much is the vat payable? P470,000 P324,000

Answer: C Allocated the GC = P1,120 x 415 = P896 Allocated to the SC = P1,120 x 1/5/1.12 x 80% = P160 'Amount to be Paid: P896 + 160: P1,056

0 0

c P270,000 d vat exempt

+ AnsWer B Solution: Sales, shares hekt as inventory Cos of shares, held as inventory Gross income • Vat rate Output vat Les: Input vat Suppliegfixpense Rent eviepse • Vat payable

P5, 000, 000 (2,000,000) 3,000,000 12% P360,000 12,000 24,000

(36,000) P324,000 -

VATIDiscount on Sale to Senior Citizens and PWDs 149. Lola Lite; a senior citizen, bought a medicine with a selling price of P9,520 inclusive of VAT. How much is the net amount to be paid by Lola? P8,500 c. P6,916 P7,616 d. P6,800 + Answer: D Purchase price = P952011.12 Discount (P8,500 x 20%) Amount to be paid by the SC

0 0 0

(1,700)

P6,800

1 1,700 P8,500

Record the sales at undiscounted amount The 20% discount shall be recognized as part of operating expenses. Any input vat attributable to the sale to SC and PWDs shall be classified as operating expenses

608

Answer:- A Amount to be Paid = P500,000 x 80% = P400,000

0

152:Masbate Foam Inc. paid royalties to. Kama Italia Inc., ,a manufacturer of foam based in Italy for allowing the former to use the tatter's newly developed technology in manufacturing foam. Which of the following statements is true as to the tax consequence of the said paynient? Masbate Foam Inc. will pay the BIR 5% final withholding VAT b. • Kama Italia Inc. will pay the BIR 5% final withholding VAT • Masbate Foam Inc. will pay the BIR 12% creditable withholding VAT Kama Italia Inc. will pay the BIR 12% creditable withholding VAT Answer: C

P8500

JOURNAL ENTRY OF THE SE4ER T P6,800

Cash SC Discount Expense Sales

151. Gabriana Clinic, a VAT-registered entity, performed a prosthetic surgery on the legs of , Loyd, a person with disability. The total cost of medical operation was P500,000. Being a disabled person, Loyd received 20% discount from Gabriana. How much is the total amount to be paid by Loyd? c. P500,000 P400,000 d. P560,000 P448,000

153. The Commissioner or his authorized representative is empowered to suspend the business operations and temporarily close the business establishment of any person for: Failure to issue receipts or invoices of a VAT- registered entity. Failure to file a VAT-retum for VAT-registered person as required by the tax code. Understatement of taxable sales or receipts by thirty percent (30%) or more of his correct taxable sales or receipts for the taxable quarter All of the above Answer: D

609

-yak

"Vitt 74764(74 154. 131 Statement - Failure of any person to register as a VAT-entity shall result to his being temporality dosed for the duration of not less than five (5) days and shall be lifted only uncin, compliance with whatever requirements prescribed by the Commissioner in the closure order.

Ni,11-4,

157. First statement The transitional input tax shall be 2% of the value of the beginning inventory on hand, or actual VAT paid on such goods, materials and supplies, whichever is higher, which amount shall be creditable against the output tax of VAT-registered persons. Second statement The value allowed for income tax purpose's on inventories.shall be the basis for the computation of the 2% transitional input tax, including goods that are exempt for VAT under Sec. 109 of the Tax Code. a., Both statements are correct Both statements are incorrect Only the first statement is correct Only the second statement is correct.

*4

rd Statement — A taxpayer may apply for VAT registration not tater than ten (10) days before ,bp beginning of the calendar quarter and shall [ay the registration fee.unless they have already paid at the beginning Of the year. Both statements are correct Both statements are incorrect Only the first statement is correct Only the second statement is correct.

0. Answer C 0 Answer A 158. First statement: Unused input tax of persons whose registration had been cancelled may be converted into taX credit certificate which may be used in payment of other NIRC taxes. Second statement: Refund or tax credit certificate shall be granted within 25 days from the date of submission of compete documents_ Both statements are correct. Both statements are incorrect. Only the first statement is correct. - Only the second state t tatement is correct.

155. The-term 'grins receipts' for hotel and restaurant business operators shall include .17Service -charges billed separately and actually distributed to waiters and employees. ILACtual cost of long dStance and overseas telephone calls, fax, cable, telex, and charges , of .the telecommunication companies collected by the establishment ,,for the customers/clients for the concerned telecom,munication. companies, such as- PLDT, which are earmarked for payment to the tatter. passed on to customers -1111..qtral taxeS V.RopritS,Jaunctry,,valet Services and food/beverages consumption .1 ,,VI.trlandling:charges for providing telephone, cable or fax services Vtl,Cake shop Sales, lease to concessionaires and compensation for other services orily VI and.VII Only b. 11;110 ghel VII only ' d. All of the above • r

Ylidvil

4.

,

159. 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? The non-VAT person shall be liable to The percentage taxes applicable to his transactions. The non-VAT person shall be liable to the VAT due on the transactions. The non-VAT person shall have the benefit of input tax credit. The non-VAT person shall be liable to a 50% surcharge under Sec. 248 (B) of the Tax Code.

C: V,

Answer: C

156. Which statement is correct? a. ,The sales invoice that shows a total, with an indication that it includes the value. added tax, even if it does-not show the tax separately, is a correctly prepared , invoice. b The invoice which shows the selling price and the value added tax separately, and with a total which is a correct amount is a properly prepared invoice. c NI invoice which shows the sang prte and the value added tax separately, but where the value added tax is wrow, which is paid by the buyer, is a violation of the revenue regulations bn issuance of sales invoices. d A sales invoice by a VAT taxpayer can be used only on a VAT sale. Answer: 0

• .Antiver C

4-

Answer: C 160. Which of the following statement is not correct? Under Vat, the consumption tax is borne by the consumer. Under Vat, the seller is merely serving as tax collector. , Under Vat, the buyer is claiming the input Vat. Under Vat, the final consumer is claiming the input vat as refund. Answer: D

610

611

PART 13 161. What instifttlion is required to deduct and withhold a final VAT of 5% on the purchase of goods or services subject to VAT? . a. Nationaligovernment or any political subdivision thereof b. Gevernment-owned or controlled corporations Ba (a) and (b) Neither (a) nor (b) Answer: C 162. The withholding agent- of creditable value added tax is required to remit the amount of value added tax withheld within e. 25 days following the end of month the withholding was made 20 days following-the end of month the withholding was made f. g. • 15 days following the end of month the withholding was made h. • 10 days following the end of month the withholding was made Cr Answer: D 63. A VAT-registered supplier sold goods amounting to P500,000 to a government-controlled corporation during a particular quarter. VVhich of the following statements is incorrect in relation to the sale in relation to the sale of goods? The sale is subject to final withholding VAT. The government-contrahfd corporation will.withhdd P25,000 withholding VAT: The government-controlled corporation shall remit the withholding of VAT to the BIR within 10 days following the end of the month the withholdinglwas made. . d The VAT-registered supplier may refuse the withholding of VAT. as long as it is willing lo pay the full 12% VAT. Answer: D

A. TAX REMEDIES, DEFINED On the Part of the government, these are courses of action provided by or allowed in the law to implement the tax laws or enforce tax collection; . On the part of the taxpayer, these are legal actions which a -taxpayer can avail of to seek relief from the undue burden -or oppressive effect of tax laWs; or as a means to check possible excesses by revenue officers in the performance of their duties. B. ASSESSMENT PROCESS - STAGE I— TAX AUDIT OR INVESTIGATION , The BIR conducts an audit by issuing Letter of Authority (LA). letter.of Authority — is an official document that empowers a Revenue Officer to examine and scutinize a taxpayer's books of accounts and other accounting records, in - order to determine the taxpayer's correct internal revenue tax liabilities. • In the absence of such an authority, the assessment or examination is a nullity. (OR vs. Sony Phils., Inc., 635 SCRA 234). PERSONS AUTHORIZED TO ISSUE LA TAXPAYER Under the jurisdiction of the National Office Under the jurisdiction • of the regional , . offices

' PERSON AUTHORIZED Commissioner of Internal Revenue (CIR) Regional Director --

- TAX CASES NEED NOT BE COVERED BY AN LA 1) Cases involving civil or criminal tax fraud which fall under the jurisdiction-of the National Investigation Division (MD) under the Enforcement and Advocacy Services (FAS) of the BIR; and -2) Policy cases under audit by the special teams in the National Office

612

613

&21",elies EFFECT OF TFIE ISSUANCE OF LA A tax return, statement or declaration filed by a taxpayer may be modified, changed or amended within three (3) years from the date of filing. However, when an LA or investigation of such tax return, statement • or dedaratton has been actually served upon the taxpayer, amendment Shall no lontier be allowed. NOTE: 4thence of Letter Notices (LN's) being served by the BIR upon taxpayers who were found to have underdeclared their sales pr purchases through the Third Party Information Program can be considered a notice of audit or 'investigation which will prohibit the taxpayer from amending the return/5 subject . of Such audit or investigation.

enute.4. • STAGE 3 — ISSUANCE OF FORMAL LETTER OF DEMAND/FINAL ASSESSMENT NOTICE (FAN) WHEN ISSUED? 1) The taxpayer failed to respond to the PAN; or 2)- The reply to the PAN was found to be without merit. PRESCRIPTIVE PERIOD

Return filed is not fraudulent Return filed is FRAUDULENT; or NO return was filed

Three (3) years from: Actual filing of return; or Deadline for filing whichever is LATER. Ten (10) years from discovery.

STAGE 2 — ISSUANCE OF PRELIMINARY ASSESSMENT NOTICE (PAN). A PAN is a Communication issued by the Regional Assessment Division or by the Commissioner or his duly authorized representative informing a taxpayer, who has been audited of the findings of the revenue officer.

REMEDY OF THE TAXPAYER 1) File a protest, to the CIR or his authorized representative within 30 days from date of receipt of the FAN.

The PAN shall be In writing and shall show in detail the facts and the law, rules and regulations or jurisprudence on which the proposed assessment is based, otherwiSe, the assessment is void.

TYPES OF PROTEST (RR 18-2013) Request for-Reconsideration Refer to a plea of re-evaluation of an assessment on the basis of existing iewrds without need of additional evidence. It may involve both a question of fact or of law or both.

MANDATORY NATURE OF SERVICE OF PAN PRIOR TO FINAL ASSESSMENT . NOTICE (FAN1 As a general - rule, iSsuance of PAN prim: to FAN is part of the "due process reguireniene, the absence Of which 'renders nugatory any assessment made by the tax authorities. . . However, as an exception, PAN is not required in the following cases: When the finding for any defidency tax is the result of mathematical error in the computation. of the tax as appearing on the face of the return; or When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or When a taxpayer who opted to daim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have . carried over. and automatically applied the same amount claimed -against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or When the exdse tax due on excisable artides has not been paid; or When an article locally purchased or-pealed by an exempt-person, such as, but not limited to, vehicles, capital equipment, machineries and spareparts, has been sold, traded or transforred to non-exempt persons. REMEDY OF THE TAXPAYER The taxpayer has 15 days to reply contesting the finding in the PAN. EFFECT OF FAILURE-TO REPLY The taxpayer is considered in default and the SIR will then issue a Final Assessment Notice.

614

, Request for Reinvestigation• Refer to a plea of re-evaluation of an assessment on the basis of newly discoVered or additional evidence that a taxpayer intends to present in the reinvestigation. It May also involve a question of fact or of law or both. 2)

Submit all supporting documents within 60 days from filing of protest (in racP of request for reinvestigation under RR 18-2013).

'STAGE 4— DENIAL OF PROTEST WAYS TO DENY PROTEST I) Direct denial of protest 2) Indirect denial of protest — If the OR or his duly authorized representative fails to act on the taxpayer's protest within 180 days from date of submission, the protest may be considered denied.

DIRECT DENIAL INDIRECT DENIAL

File an appeal with the Court of Tax Appeals (CIA) Division within 30 days from receipt of letter of denial. File an appeal with the CIA Division within 30 days from the lapse of the 180 day period. OR his duly authorized Await the final decision of the OR or representative and appeal such final decision to the CIA within 30 days after the receipt of a copy of such decision . (RR18-2013).

615

Nett STAGE 5 — DENIAL OF APPEAL BY CIA DIVISION REMEDIES OF THE TAXPAYER File motion for reconsideration (MR) before -the same CIA Division within 15 days from receipt of the decision. Then, if the MR is denied, file an appeal with the CIA en banc within 15 • days from receipt Of the decision.

7<etett(les METHODS OF COLLECTION The SIR can collect delinquent internal revenue taxes through the following means: 1)

Actual Distraint — personal property is physically seized by the SIR and offered for sale at public auction. The property is sold to the highest bidder and the proceeds of the sale are applied. to the payment of the tax due. Garnishment- is the distraint of bank accounts. Constructive Distraint — the person in pOrsession of personal property is made to sign a receipt, undertaking that he will preserve the . property and will not dispose of the property without the. express - authority of Bureau of Internal Revenue (SIR).

STAGE 6— DENIAL OF APPEAL BY CIA EN BANC REMEDIES OF THE TAXPAYER File MR before the CIA en banc within 15 days from receipt of the decision. Then, if the MR is denied, file an appeal with the Supreme Court (SC) Division within 15 days from receipt of the decision: STAGE 7 —DENIAL OF APPEAL BY SC DIVISION REMEDIES OF THEIAXPAYER 1) File MR before the same SC Division within 15 days from receipt of the decision. • '2) Then, if the MR is denied, file an appeal with the SC en banc within 15 days from receipt of the decision.

Constructive distraint may be availed of in the following cases: The taxpayer is retiring from any business subject to tax. He intends to leave the Philippines. He removes his property therefrom. He performs any act tending to obstruct the proceeding for collecting the tax due or which may be due from him.

STAGE EI — DENIAL OF APPEAL BY SC EN BANC . REMEDY OF THE TAXPAYER , File MR before the SC en banc within 15 days from receipt of the decision. EFFECT IF MR IS DENIED 4 The taxpayer has no More remedy. The assessment shall become final, executory and demandable.

PERSON AUTHORIZED TO COMMENCE DISTRAINT PROCEEDINGS AMOUNT INVOLVE More than P1,000,000. f11,000,000 or less

NOTE: From the issuance of FAN, all the periods in avaling the remedies are mandatory in which failure to comply shall result in the assessment being final, exeCutory and demandable.

2) Within 5 years from issuance of FAN.

4. ? Return filed is not false Sr fradulent

Three (3) years from: Actual filing of return; or Deadline for filingwhichever is LATER..

, Without Prior Assessment

Return filed FRAUDULENT; or NO return was filed

616

is Ten (10) years from discovery.

PERSON AUTHORIZED OR Revenue District Officcer

RIGHT OF PRE-EMPTION If at any time prior to the consummation of the sale, all proper charges (taxes, interest and penalties) are paid to the officer conducting the sale; , the goods or effects distrained shall be restored to the owner.

C. COLLECTION - The SIR may avail of the remedy of collection when the assessment becomes final, executory and demandable. PRESCRIPTIVE PERIOD With Prior Accessment

Distraint- the seizure by the government of personal property, tangible or intangible to enforce the payment of taxes.

Levy- the seizure by the government of real properties and interest in or rights to such properties in order to enforce the payment of taxes. RIGHT OF REDEMPTION For period of one (1) year from the date of sale, the property may be redeemed by the taxpayer. During this period, the taxpayer is not deprNett of the possession and fruits from the property. If the taxpayer fails to redeem the property, a final deed of sale is executed in favor of the buyer. RIGHTS OF THE OWNER DURING THE ONE (1) - YEAR PERIOD OF REDEMPTION Ddring the one (1) year period of redemption, the owner shall not be deprived of the possession of the said property and shall be entitled to the rents and other income thereof until the expiration of the time allowed for its redemption:

617

kvi talte6i 3) :liditial preteedings ' m Fling of ch.41 case for collection .1:1)-- File a criminal case (Tax Evasion)

G. CIVIL PENALTIES In addition to the basic tax assessed on the taxpayer, the following civil penalties will also be collected: 1) Surcharge zy Interest 3) Penalties

It •

. D. CoMkROMISE GROUNDS . : 1)' •A reasonable doubt as to the validity of the claim against the taxpayer ?, .. ' - ' Mges; or • - 2) "itte financial position of the taxpayer demonstrates a dear: inabllitY to pay .• • :the assested tax. ' . YAlleriminaLviolatioris May be compromised except: '..:.1) 'tilt& already filed In court; or • ••••.2) fraud.. . .,.. .•ThoSeinvolvhig . . I • ' ` • ' • •MINIMUNAMOUNTS -•1) ' For ieases•of 'financial incapacity, a minimum compromise rate eqUivalent to .. . . t 'Rep pereent (10%) of the bast assested tax.; and 2):--.FOr.pther cases, a minimum- compromise ratelequIValent to forty pertent the basic asseSsed tax. ,

SURCHARGE A 25% surcharge shall be ccillected in any of the following' cases. Failure•to file any return and pay the tax due on time. Filing a return with an internal revenue officer other than those with whom the return is required to be filed, unless authorized by the Commissioner of InternM Revenue.. • : 3) Failure to pay the deficiency tax within the time prescribed rot its-payment , • In the notice of assessment. 4) Failure to pay the full or part elf the amount of tax shown on any return, orthe full amount of tax due for which no return is required to-be filed. • A 50%surcharge shall be collected in any of the following cases: Willful neglect to file the return on time. . There is willful neglect if the taxpayer files only after prig notice in writing from the BIFt. ' . . . There is siniple neglect (25% surcharge) if the takpayer voluntartr ffies.the retum.after the deadline without notice from the BIR.

•

• INSTANCES WHEN APPROVAL OF THE EVALUATION BOAFtD'IS REQUIRED 1) 'Where the basic tax Involved exceeds one millionfiesos:(111,000;000); or" ":.2);;Wliere•thetettlerneit offered Is leis than theipreteribed minirhuM tateS.: MPOSITTON OF THE TEV LUATION BOARD 2) !,.FOUr,f4) tiePui9 eci'rilniiisigneii

-•.

S Prima fact evidence,of false oi.fraudulent return: •, I). •SubStantialoVerstatement (more than 30%) of deductions: . 2) Substantlal.under dedaration (more than 30%) of taxable sales., receipts or Income. • INTEREST IniereSt is an increrhent on any unpaid amount of tax, Assessed at the rite Of twenty percent (20%) per annum, from the date prescribed for payment until' the amount is fully paid.

:2 •

. • , TALIABIlItY ''ABATEMiill'OR CANCELLATION OF k . • GROUNDS - . —rtiOn thereof appears.co be unjuStli or excessively . -I) 'the- tax i..or any po ...a.S.Sessed; or The administration and collection oasts involved do not justify the collection. •• -• • •. .of:the amount due. . .,• . F. SUSPENSION OF THE 'RUNNING OF STATUTE OF LIMITATIONS The presaiptive period for assessment and the beginning of distraint or levy or a proceeding in court for collection of any tax deficiency may be suspended 'under , the following situations: '• , TaxPayer's request for reinvestigat was granted; Taxpayer can not be located in the address given in the return; ' No property of the taxpayer can be located; or 9) 'The taxpayer is out of the country.

. tL

KINDS OF INTEREST I) • Deficiency interest — refers to the interest imposed on the amount still due and collectible from a taxpayer after audit or investigation. 2) Delinquency interest — refers to interst for failure of the taxpayer to pay the following: The amount of tax due on any return required to be-filed;' The amount of the tax due for which no return is required; or A defidency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the OR.

' NOTE: The suspension shall be for the duration of the situation plus 60 days thereafter.

618

619

I'v_ity4te

74, 3) Interest on extended payment — refers to the interest imposed on the following cases: a; Any person who fails to pay the tax or any installment, or, any part of such amount or installment on or before the date prescribed for its payment; or • Wher the OR has authorized an extension of time within which to pay a tax or. a.deficiency tax.

Choose the letter of the correct answer. 1

TAX DELINOIJENCY TM DELINQUENCY TAX DEFICIENCY The amount still due, and collectible from a taxpayer audit or 'uptin investigation.

Failure of the taxpayer to pay the tax due on the date fixed by law or .indicated . in the assessment notice (FAN) or letter of demand.

.11; - REFUND OF TAXES , REQUISITES:. I) A tax waS erroneously or illegally collected by the BIR; 2) The taxpayer should file a written claim for refund or tax credit with the CIR WITHIN TWO (2) YEARS from the DATE OF PAYMENT of the tax or • penalty; and , • 3) • If the claim for refund is denied by the OR, file a petition for refund with the , _CIA: • ',Within 30 days from. receipt of the denial; AND Within two .(2) ars from the date of payment of the tax or. penalty _

Preliminary assessment notice is not required in the following cases, except: Tax deficienpy is due to mathematical error Tax deficiency is due to unpaid VAT Tax deficiency is due to unpaid excise taxes Tax deficiency is due to withholding tax Answer B

2.

A written notice•and demand by the BIR on the taxpayer for the settlement of a due tax liability that is there definitely set and fixedAssessment Forfeiture 'Audit engagement letter • Institution of criminal, action 9 Answer A

3

. A pre-assessment notice is required Wien a discrepancy has been determined between the amount of sales declared . . and the purchaseS recorded by the sellers customers. f 'When a discrepancy has been determined between the tax Withheld and the amount . actually remitted by the withholding agent. *c. Wien an article locally-purchased or imported by an exempt person has been sold, . - traded or transferred to non-exempt persons. c.' d. When the deficiency tax is the result of mathematical errors in the computations appearing on the face of the return. + Answer A

4.

Which of the following statements is not true? If a taxpayer is acquitted in a criminal violation of the Tax Code, this acquittal does not exonerate him from his civil liability to pay the taxes. A conviction for tax evasion is not a bar for collection of unpaid taxes. A tax assessment is necessary to a criminal prosecution-for willful attempt to defeat . and evade payment of taxes. Criminal proceedings under the Tax Code is now a mode of collection of intemal revenue taxes, fees or charges: Answer: C

620

621

5.

ego, s

74W/es

Where areturn was filed, as a general rule, the prescriphve period for assessment after the datelhe return was due or was filed, whichever is later, is within c. Five years a. Three years d. Answer not given b. • Ten years

11 If the taxpayer did not file a 'thin, what is the prescriptive period for he issuance of Final Assessment Notice? Three (3) years counted from the time of filing or deadline whichever is earlier Three (3) years counted from the time of filing or deadline whichever is later Ten (10) years counted from the time of filing or deadline for filing whichever is later Ten (10) years counted from the date of discovery by the Bureau of Internal Revenue that no return was filed.

41 Answer: A. 6. 'Allan flag his ITR for 2014 on October 15,2015. The last day for BIR to assess is on? c. April 15, 2018 Odrotier IS, 2020 d. October 14, 2018 October 15, 2018 * Answer: B 7.

Donor's tax return for a donation made on January 15, 2010 was.filed on. Januaty 3t 2010. Last dayfor BIR to assess is on? c. February 14, 2013 February 28, 2013 d. January IS, 2013 d. 'January 31, 2013 Answer C. Based on the preceding number, but assume the return filed was fraudulent and *as discovered on March 31, 2010 The lest day for BIR to assess is on? c. February 14, 2020 February 28,2020 d. March 31,2020 January 31,2020 4 ,

9

Answer: D '12. Rosalie, a compensation income earner, filed her income tax return for the taxable year 2012 on March 30, 2013. On May 20, 2016, Rosalie received an assessment notice and letter of demand covering the taxable year 2012 but the postmark on the envelope shows April 10, 2016. Her return is not a false and fraudulent return. Can Rosalie raise the defense of prescription? No. The 3 year prescriptive period started to run on April 15,2013, hence, it has not yet expired on April 10, 2016. Yes. The 3 year prescriptive period started to run on April 15, 2013, hence, it had already expired by May 20, 2016. No. The prescriptive period started to run on March 30, 2013, hence, the 3 year period ekpired on April 10, 2016. d. Yes. Since the 3-year prescriptive period started to run on .March•30, 2013, it already expired by May 20, 2016.

Answer. D

Answer

Mr..,A seasOnably riled .a protest and submitted' supporting documents with the BR.. Within how Many days that] the former await the. decision of.latter before he assumes, that the protest tias been indirectly denied? c 60 days a: 180 days d 30 days .b. 90 days Answer: A

• 10. Fortuna Hotel-Inc., using calendar year accounting period, Overpaid its 2014 second quarter income tax and it failed to correct the said overpayment on the computation of its Annual Income Tax. How shall the taxpayer recover the excess. tax paid? File a claim for refund with the BIRkithin three (3) years from August 29,2014. • File a claim for refund with the BIR 'Within three (3) years from April 15, 2015 File a claim for refund with the BIR kithin two (2) years from August 29, 2014. File a claim for refund with the BIR within two (2) years from April 15,2015 Answer: D

13. On March 30, 2012 Emmett Foods, Inc. received a Niro° of assessment and a letter of demand on its April 15, 2007 final adjustment return from the BIB Emmett Foods then filed a request for reinvestigation together with the requisite supporting documents on April 25, 2012. On June 2, 2012, the BIR issued a final assessment reducing the amount of the tax demanded. Emmett Foods was satisfied with the reduction, it did not do anything anymore. On April 15, 2017 the BIR garnished the corporation's bark deposits • to answer for the tax liability. Was the BIR action proper? Yes. The BIR has 5 years from the filing of the protest within which to collect. Yes. The BIR has 5 years from the issuance of the final assessment within which to collect. • No. The taxpayer did not apply for a compromise. No. Without the taxpayer's prior authority, the BIR action violated the Bank Deposit Secrecy Law. Answer: B . 14

622

.

Renesmee, Inc. received a notice of assessment and a letter from the BR demanding the payment of P3 million pesos in deficiency income taxes for the taxable year 2008. The financial statements of the company show that it has been suffering financial reverses from the year 2009 up to the present Its asset position shows that it could pay only R500,000.00 which it offered as a compromise to the BIR. Which among the

623

vitien following.may the BIR require to enable it to enter into a compromise with Renesmee, Inc.? Renesmee must show it has faithfully paid taxes before 2009. Renesmee must promise to pay its deficiency when financially able Renesmee must waive its right to the secrecy of its bank deposits. Re'hesmee r.nust immediately deposit the p500,000 with the BiR. :* j,i,Snswer: C 15 As a rule, within what period must a taxpayer elevate to the Court of Tax Appeals a denial of his application for refund of income tax overpayment? a. Within 30 days from receipt of the Commissioner's denial of his application for -refund., b Within 30 days from receipt of the denial which must not exceed 2 years from payment of income tax. c. Within 2 years from payment of the income taxes sought to be refunded. Within 30 days from receipt of the denial or within two years from payment; • J • • Answer: B 16. What is the effect on the tax liability of a taxpayer who does not protest an assessment for deficiency taxes? a: The tatayer may appeal his liability to the CTA since the assessmenf is t final decision of the CommisNoper Si the matter. The SIR could already enforce the collection of the taxpayers liability if it could. secure authority from the CTA. c. The taxpayers liability becomes fixed and subject to collection as the assessment , becomes final and collectible. The taxpayers liability remains suspended for 180 days from the expiration of the period to protest.. Answer: C 17 The taxpayer seasonably filed his protest together with all the supporting documents. It is already July 31, 2016, or 180 days from submission of the protest j but the BIR Commissioner has not yet decided his protest. Desirous of an early resolution of his protested assessment, the taxpayer should file his appeal to the Court of Tax Appeals not later than a August 31, 2016 j b. August 30, 2016 August 15,2016 August 1, 2016 Answer: B

18 Mr. Alvarez is in the retail business. He received a deficiency tax assessment from the BIR containing only the computation of the deficiency tax and the penalties, without any explanation of the factual and legal bases for the assessment. Is the assessment valid? The assessment is valid; all that Mr. Alvarez has to know is the amount of the tax. The assessment is invalid; the law requires a statement of the facts and the law upon which the assessment is based. The assessment is valid but Mr. Alvarez can still contest it. The assessment is invalid because Mr. Alvarez has no way to determine if the computation is erroneous. Answer: B 19. Which among the following circumstances negates the prima facie presumption of correcthess of a HR assessment? The BIR assessment was seasonably protested within 30 days from receipt, No preliminary assessment notice was issued prior lathe assessment notice. Proof that the assessment is utterly without foundation, arbitrary, and capricious. . d. The BIR did not include a formal letter of demand to pay the alleged deficiency.

j • Answer: C 20. Taxpayer Andy received on January 3,2017 a preliminary assessment notice (PAN) from %the SIR, stating that he had fifteen (15) days from its receipt to comment or to file a protesL Eight (8) days later (or on January 11, 2017), before he. 'could comment or file a protest, Andy received the final assessment notice (FAN). Decide on the validity of. the FAN. j a. The FAN is invalid; Andy . was not given the chance to respond to the PAN," in violation of his due process rights The FAN is invalid for being premature. • The FAN is valid since it was issued before the right to assess prescribed. The FAN is valid. There is no legal requirement that the FAN should await the protest to the PAN because protest toile PAN is not mandatory. C. Answer: D 21. What is the effect on the tax liability of a taxpayer who does not protest an assessment for deficiency taxes? The taxpayer may appeal his liability to the CTA since the assessment is a final. decision of the Commissioner on the matter. The BIR could already 'enforce the collection of the taxpayers liability if it could secure authority from the CTA. The taxpayers liability becomes fixed and subject to collection as the assessment becomes final and collectible. The taxpayers liability remains suspended for 180 days from the expiration of the petiod to protest. Answer: C

624

625

d.

If If the taxpayer informs the Commissioner of any change in address. :• Answer: D

22. Statement 1: A tax due from the taxpayer whose amount does not justify the expenses to be incurred in collecting it may be compromised. Statethent 2: In case of false or fraudulent return with intent to evade the tax, assessment may be validly made on the 101^ year from discovery thereof and collection may beeq?cted . within We (5) years thereafter. a. Both'statements are correct • Both statements are not correct Only the first statement is correct Only The second statement is correct

26 Statement 1: A lax return, statement or declaration filed by a taxpayer may be modified, changed or amended within three (3) years from the date of filing. Statement 2: When a letter of authority or investigation of tax return, statement or declaration has been actually served upon the taxpayer, amendment of such retunt shall no longer be allowed_ Statements 1 & 2 are false Statement 1 is true but statement 2 is false Statement 1 is false but statement 2 is true Statements 1 and 2 are true

Answer: B •

• Statement 1: Where the tax withheld as shown on the tax return and the actual tax remitted by the withholding agent to the Bureau of Internal Revenue (BIR) do not match, a, final notice of assessment (FAN) may .be issued without need of a pre-assessment notice. Statement 2: The taxpayer who filed a protest case has 180 days from the filing of the written request for reinvestigation to elevate an appeal to theCourt of Tax Appeals (CTA) in case the Commissioner of Internal Revenue (CIR) fails to act on the protest. j a.Bothstitements are correct • tyl3oth.stratements.are not Correct 1.c, Only the:first statement is orrect .ti OnlYjthe second statement is 'correct + • answer: q 'Albert received a final assessment notice (FAN) from the BIR on October.30, 20;19. He . submitted his pretest and the supporting documents within the time prescribed by the Law. Aftei180 days, the subsequent stepis available to him Shall be: I., Elevate the case on appeal to the CTA, 'alleging inaction of the CIR, within 30 days, from the 1801^ day since he submitted the supporting documents on his protest. • II. Wait for the decision of the Commissioner of Internal Revenue(CIR) and if adverse, appeal the case before the CTA within thirty days.

+ Answer: D 27. Which of the following rules governs The prescription for violation of the Tax Code? 10 Rub: Prescription starts from the day the law is violated and if the same is not known, prescription starts from the discovery of violation thereof. 2s Rule: All violations of any provision of the Tax Code shall prescribe after 10 yrs. Both rules are correct in rule wrong, 2" rule correct both rules are wrong l' rulecorreet, 2" rule wrong + Answer: D 28 Which of the following statements is incorrect? . The prescriptive period of three (3) years commences town after the date the return is due (last day prescribed by law for filing) or filed, whichever comes later. If the return is filed before the last day for filing, the prescriptive period begins to ftin only from such last day. If the return is filed after the last day or due date, the period shall.be Counted from the day the return is filed. • d. If the return was amended substantially, the period starts from the due date ofthe return. + Answer: D

a

I only

b. II only

and 11

d. I or 11

+ Answer: D 25 The running of the prescriptive period for assessment is suspended When the taxpayer requests for a reinvestigation which is granted by the Commissioner of Internal Revenue, When the taxpayer is out of the Philippines, c When the warrant of distraint has been duly served upon the taxpayer and no property could be located;

626 -

29 Zenaida filed her 2013 Income Tax Return (ITR) on April 10, 2014. On June 20, 2014, she filed an amended return which is substantially different from the original return. The last day to release, mail or send an assessment isc. June 20. 2017 Apri110, 2017 d. June 20, 2019 April 15, 2017 :• Answer: C

627

Ney_rbeefiea 30 VVhich of the following prescriptive period for the BAR. to conduct a tax audit is Correct? a Teu (10) years when no return is filed b. Ten (10) years when return filed is false or fraudulent C. Three (3) years from actual filing of return or from the deadline for filing if the return filtd is not fraudulent. d. mid the above

36. A taxpayer received an assessment notice on January 5, 2015. He files a motion for reconsideration with the SIR on January 15, 2015. When is the last day for the " submission of complete documents to support his motion for reconsideration? a. February 4,2015 c. January 15, 2017 d. Not required to submit , b. March 16,2015 Answer: D

.44nswer: D 31 Marceline tiled her 2013 Income Tax Return and paid - the tax due thereon on Aoril 1, 2014. The last day for the Bureau of Internal Revenue to send an assessment is c. April 15, 2017 April 1,2017 d. April 15, 2024 Apti115, 2019 Answer: C 32. Apolonio filed his Income Tax Return (ITR) for taxable year 2013 on May 2,2014. After an investigation, it was discovered that the tax paid was deficient. The last day for the BIR to send an assessment: c. May 2, 2016 April 16,2017 d. April 15, 2016 May 2,2017

37. A taxpayer.disdosed the following information: Date of filing 2011 ITR Received assessment of deficiency income tax Protest was filed Submission of supporting documents Received denial of protest

May 12, 2012 October 10, 2013 October 30, 2013 December 5,2013 April 20, 2014

'The last day to appeal the decision of the BIR to the Court of.Tax Appeals is c. May 19, 2014 June 4,2014 d. June 20, 2014 May 20, 2014 Answer: 8

Answer: B A taxpayer disclosed to you the following information' Mar. 28, 2012 Dale of filing the Income Tax Return: June 20, 2014 Date assessment was received: July 4,2014 Request for, reinvestigation was filed:. Thrilast day for the taxpayer to submit relevantisupporting docUmentS is c. September 2.2014 , a. September 4, 2014 d. April IS, 2015 6, July 20,2014 Answer: C Assuming that the taxpayer submitted the documents supporting his motion on August 26, 2014. The Bureau of Internal Revenue should act on the protest not later than c. February 26, 2014 a: September 26,2014 d. Februal 22, 2015 b. April 15, 2015 •

Cs Answer: D

35 Based on the preceding number, assuming that the SIR did not act on the protest, the last day for the taxpayer to appeal to the Court of Tax Appeals (in case he opted to elevate the case to the CTA after indirect denial) is March 22, 2014 c. March 23, 2014 d. April 15, 2016 March 24, 2015

38 Mang Ben filed an income tax return for the calendar year 2011 on Math 10, 2012. The BIR issued a Formal Letter of Demand/Final Assessment Notice on April 10, 2014 which • has beconie final, executorty and demandable. When is the last day for the BIR to collect? c. April 15, 2017 a. Peril 10,2019 d. March 10, 2015 b. April 15, 2015 + Answer: A - 39 Which of the statements regarcting collection of tax assessment is incorrect? Wthin five (5) years from assessment Within ten (10) years in case there is no assessment and in case of false or fraudulent returns with intent to evade the tax. b. Both I and II a. I only d. Neither I nor II c. II only ••':. Answer: D 40. The distinction between actual distraint and constructive distraint is that: Actual distraint may be made on the property of any taxpayer whether delinquent or not while constructive distraint is made on the property only of a delinquent taxpayer. In actual distraint, there is a taking of possession, while in constructive distraint, the taxpayer is merely prohibited from disposing of the property..

:* Answer: 8

628

629

7<cuteMeo

\cifte Actual distraint is effected by requiring the taxpayer to sign a receipt of the property or by the revenue officer preparing and leaving a list of the distrained property or by seevice of a warrant of distraint or garnishment Answer not given

First statement is true while second statement is false. First statement is false while second statement is true. Both statements are true. Both statements are false. Answer: C

el it Answer: B 41. The property of a delinquent taxpayer shall not be placed under constructive distraint by the Commissioner of Internal Revenue if in his opinion the taxpayer is Retiring from any business subject to tax; Intending to leave the country or to remove his property' Therefrom; Doing all possible legal means to dispute the assessment; d: Performing an act tending to obstruct the proceedings for collecting the tax due.. Answer: C 42 A car dealer cotild not pay his taxes on sales.. The dealer delivered several units of the car to the Bureau of Internal Revenue in payment of the faxes. Which of the following statements is correct? This is a valid payment of the tax. This is in effect collections of the tax by distraint. This is a valid forfeiture etproperty. This is not a valid procedure for collection of a tax.. + AnsWer D 43 -Acontracterhereby the taxpayer and the government by reciprocal concessions avoid a • litigation or,put an end to one already commenced, c. Distraint ,a. Confiscation d. Suspension b. Compromise Answer: B

46 A civil penalty of 50% of the basic tax is imposed in case of Failure to file the return on time. Filing the return with unauthorized revenue officer. Willful neglect to file the return on time. Failure to pay the deficiency tax within the time prescribed for payment.. Answer: C 47. In - which of the following cases where the civil penalties of 25% or 50% imposed by the Tax Codeis not applicable? In case a false or fraudulent return is willfully made. Failure to pay the full amount of tax shown on any return required to be filed under the law. Failure to file certain information required by the tax code. Failure or willful neglect to file the tax return within the period prescribed by law: Answer. C iere any national internal revenue tax is alleged to haveteen erroneously or illegally 48. ' -collectedbythe BIR, the taxpayer should first - a. File a claim for refund or credit with the CIR File an action for refund with the RTC File an action for refund with the CTA Answer not given Answet: A

44 One of the following violations cannot be subject to compromise? Failure to keep/preserve books of accounts and accounting records. Failure to keep books of accounts or records in a native language or English. Failure to have books of accounts audited and have financial statements attached to income tax return certified by independent CFA Keeping two sets of books of accounts lords. + Answer: D 45 Statement I. The Commissioner of Internal Revenue is authorized to inquire into the bank deposit of a taxpayer who has filed an application for compromise of his tax liability by reason of financial incapacity to pay. Statement 2. A compromise for a tax liability on.the ground of financial incapacity to pay shall still involve a payment of tax from the taxpayer at a 'minimum compromise rate of 10% of the basic assessed tax.

630

49. From the date of payment, claim for refund of taxes erroneously or illegally received or penalties imposed without authority must be filed within: c. 5 years 2 years d. 7 years 3 years + Answer: A 50 Bam paid his income tax liability for 2012 on April 15, 2013. It was found out later on June 30, 2013 that he overpaid by more than P100000. The last day to file a claim for tax refund is? c. June 30. 2015 April 15, 2015 d. June 30, 2016 April 15, 2016 4. Answer: A

631

74iteies

7<ezt es

51. Assuming his claim for fax refund in the preceding number was denied and he denial was received on April 30, 2016. The proper remedy available to Bam is? • Appeal to Court of Tax Appeals on or before May 15, 2016 Apseal to Court of Tax Appeals on or before May 20, 2016 File a motion for reconsideration on or before May 30, 2016 No more remedy since the 2-year period already expired tit

56 The following information was disclosed to you. April 15, 2011 Erroneous payment of tax Feb. 18, 2012 Claim for refund was filed Receipt of BIR decision denying July 5,2012 claim for refund The last day to appeal to the Court of Tax Appeals is c. August 6, 2012 August 5,2012 d. April 15, 2013 August 4,2012

46 Answer: C 40 Answer: B 52. Mr. Bong filed his 2011.income tax return and paid the tax due on April 1,2012 case of Overpayment, the last day to file claim for refund is on a: April 1,2014 c. April 1,2015 b. April 15, 2014 d. April 15, 2017 . . 4 Answer: A 53. The last day for. the taxpayer to claim refund if the tax was paid in installment is Two-(2) years from the date of first installment payment. Two (2) years from the date of final payment. c. Five (5) years.from the date of first installment payment d. Five (5) years from the date of second installment payment. - Answer B

I.

, 57 Which statement is correct? in case of a tax erroneously collected. A case for refund may be filed with the Court simultaneously with the filing of a claim for refund with the Bureau of Internal Revenue. A case for refund May be filed with the courteven without filing a claim for refund with the Bureau of Internal Revenue. A claim for .refund-must first be filed with the Bureau of Internal Revenue and a decision of the Bureau must, under any circumstance, be.awaited before a case for refund may be filed with the court. A CUM for refund must first be filed with the-Bureau of Internal Revenue and, in a given situation, a case for refund may be filed with the court without awaiting the decision Of the Bureau. • 4, Answer D

54. Statement 1: The filing of quarterly income tax returns and payment of guartedy-inaome tax by corporations are mere installments and therefore, not the basis in Computing the twaryear prescriptive period for-refund. Statement 2: If the tax has beeh Withheld from source (withholding on wages), the Oreecriptive period for refund is counted from the date it falls due at the end of the' taxable year. Tnie, False. c. False. False False, True d. True, True

58. Statement 1— The Cornmissioner may refund a tax even without a-claim for refund from the taxpayer *hare on the face Of the return upon which the payment was made, such payment clearly appears to have been erroneously made. Statement 2. No Silii or proceeding shall be brought for refund of lax after two years from . the date of payment, regardless of any supervening cause that may arise after payment. a. .Both statements are correct. Both statements are wrong. First statement is correct while second statement is wrong. d. First- statement is wrong while second statement is correct.

Answer: D 4 Answer: A 55. Arhount of tax per ITR Withholding tax 10 installment payment 2i,d installment Last day to claim refund March 28,2013 April 15, 2011

P30,000 20,000.1 , March 28, 2i11 July 1, 20114 c July 1,2013 d July 1,2016

59 The books of accounts must be kept-in- - — Any language.depending on the preference of the taxpayer. English language only. Native languageor English only Native language, English or Spanish 4 Answer: 0

4 Answer: C

632

633