Income taxation by valencia chapter 12 (income tax on corporations)

False – Not taxable because the corporation is a foreign corporation/ 11.. False – If the unrelated income of the proprietory educational institution exceeds the related income, the inco

CHAPTER 12

INCOME TAX OF CORPORATIONS

Problem 12 – 1 TRUE OR FALSE

1 True

2 True

3 False – Only domestic corporations are to be taxed for income within and without

4 True

5 False – 30% normal tax effective 2009

6 True

7 True

8 True

9 True

10 False – Not taxable because the corporation is a foreign corporation/

11 False – 30%

12 False – applicable only to resident Offshore Banking Unit on gross receipts of OBU

13 False – final tax of 10%

Problem 12 – 2 TRUE OR FALSE

1 False – If the unrelated income of the proprietory educational institution exceeds the related income, the income tax rate applicable would be the corporate income tax of 35%

2 False – Sale of real property outside the Philippines by a resident foreign corporation

is not subject to tax in the Philippines

3 False – 10% based on gross income within

4 True

5 True

6 False – In general, GOCCs are subject to corporate income tax

7 True

8 True

9 True

10 True

11 True

12 True

Problem 12 – 3 Problem 12 – 4

8 C 8 Not in the choices = normal tax of

30%

9 A 9 Not in the choices = normal tax of

30%

13 A

Problem 12 – 5

income Income taxdue

Business expenses (P5,000,000 + P3,000,000) 8,000,000

Note: The land sold is a capital asset Hence, not

subject

to corporate income tax but for final tax of 6% based on

sales price or zonal value, whichever is higher

Business expenses 5,000,000

Note: The land sold is a capital asset Hence, not

subject

to corporate income tax but for final tax of 6% based on

sales price or zonal value, whichever is higher

Problem 12 – 6 B

Problem 12 – 7 D

Problem 12 – 8

1 Domestic corporation

Gross income – within and without

Deductions – within and without

2 Resident foreign corporation

Problem 12 – 9 C

Problem 12 – 10 B

%

Problem 12 – 11 D

Problem 12 – 12 D

Problem 12 – 13 YEAR 2005 use 35% normal tax rate

1 D

Net income per GAAP

Add: Allowance for bad debts

Contribution

Income before allowable contribution

Less: Deductible contribution (P5,450,000 x 5%)

Net taxable income

Multiply by normal corporate income tax rate

Income tax due and payable

P5,000,000 150,000

300,000 P5,450,000

272,500 P5,177,500 35% P1,812,125

2 D

Net income per GAAP

Add: Operating expenses

Gross income

Multiply by minimum corporate income tax rate

Minimum corporate income tax

P 5,000,000

80,000,000 P85,000,000 2%

P 1,700,000

Problem 12 – 14

1

2

Problem 12 – 15 A

None There is no excess corporate MCIT over NCIT in 2005 to be applied on 2006 because the MCIT is not yet applicable for the company as it only has 3 years of operation in 2005

Problem 12 – 16 C

Problem 12 – 17 C

Problem 12 – 18

1 D

Domestic Corporation:

a Not traded in local exchange:

Selling price

Cost (P110 x 12,000 shares)

Capital gain

Tax on P100,000 x 5%

Tax on excess (P280,000 – P100,000) x 10%

b Traded in local exchange (P1,800,000 x 005)

P1,600,000

1,320,000

P 280,000

P 5,000 18,000 P 23,000

9,000

c Sale of land abroad (P3,000,000 – P2,500,000) x 30%

d Sale of land – Philippines (P1,200,000 x 6%) 72,000150,000

P254,000

2 A

Resident Foreign Corporation

a

b

c

d (P1,200,000 x 6%)

Total

P 23,000 9,000 72,000 P104,000

Problem 12 – 19 C

Dividend from a domestic corporation received by a domestic corporation is tax exempt Dividend from a nonresident foreign corporation is subject to normal tax

Problem 12 – 20

1 B

Domestic Corporation

a ($20,000 @ 7.5% x P50)

b P300,000 @ 20%

c P100,000 @ 20%

d P 80,000 @ 20%

Total

P75,000 60,000 20,000 16,000 P171,000

2 B = Resident foreign corporation (same as letter 1)

3 C

Nonresident foreign corporation

a Exempted

b (P300,000 @ 30%)

c (P100,000 @ 30%)

d (P 80,000 @ 30%)

Total

P90,000 30,000 24,000 P144,000

Problem 12 – 21

Dividend income - (PCB and Magnolia are both domestic corporations) Exempt

Problem 12 – 22 D

Problem 12 – 23 A

Nonprofit educational institutions are tax-exempt

Problem 12 – 24 D

Government educational institutions are tax-exempt

Problem 12 – 25 B

Problem 12 – 26 A

Manila to Beijing (P5,000 x 2,000)

Manila – Hong Kong – Beijing (P6,000 x 4,000) x P3,000/P6,000

Manila to Hong Kong (P3,000 x 2,000)

Total reportable gross income within

Multiplied by applicable rate

Income tax

P10,000,000 12,000,000

6,000,000 P28,000,000 2.5%

P 700,000

Problem 12 – 27 Not in the Choices = P2,500,000 & P1,500,000

Note: Gross income means gross receipts The aforementioned resident foreign corporation

are subject special tax rates (final taxes) They are not allowed to deduct costs or expenses from their gross receipts The cost of service is only applicable for MCIT purposes (Sec 27(E) (4), NIRC)

Problem 12 – 28 B

Note: Although cooperatives are tax-exempt, they still subject to final income taxes on

interest income

Problem 12 – 29 A

All of the transactions of Unlad Cooperative are exempted from income taxes

Problem 12 – 30 Not in the choices = P6,000

Income tax due – 2nd quarter [(P792,000/99%) – P700,000) x 30% P 30,000 Income tax due – 1st quarter [(P495,000/99%) – P480,000) x 30% ( 6,000)

Note: The withholding tax for the 1st quarter is already included in the income tax due in the first quarter

Problem 12 – 31 C

Income tax from ordinary net income (P1,000,000 – P900,000) x 30% P30,000 Final income taxes:

Problem 12 – 32 B

Income tax on interest income from peso savings bank (P100,000 x 30%) P 30,000 Interest income earned by nonresident foreign corporation from EFCD is tax-exempt

Problem 12 – 33 C

Tax on cash dividend from a resident foreign corporation (P100,000 x

Dividend received by a resident foreign corporation from a domestic corporation is

tax-exempt

Problem 12 – 34 C

Cash dividend received by a domestic corporation from another domestic corporation is tax- exempt because it is considered earned outside the Philippines since only 40% of its business

is done within

Problem 12 – 35 D

Zero because the earnings of the said resident foreign corporation have no tax situs in the Philippines

Problem 12 – 36

Interest from a depository bank under expanded foreign currency

deposit - PCI Bank ($30,000 x P50 x 7.5%) 112,500 Dividends from Zerxes, a resident foreign corporation (P500,000 x 30%) 150,000

Problem 12 – 37 C

3

rd Quarter 4 th Quarter

Problem 12 – 38 A

Income subject to normal tax rate (P300,000/ 30%)

Passive income (P60,000/20%)

Capital gains (P35,000: 5,000 @5%, 30,000@10%)

Total income

Less: Income taxes paid:

Income tax per annual tax return

Final tax on passive income

Capital gains tax

Amount subject to 10% surtax

P300,000 60,000 35,000

P1,000,000 300,000

400,000 P1,700,000

395,000 P1,305,000

Problem 12 – 39

Year 2009

Within Without Total Gross income:

Philippine

USA

Japan

Deductions:

Philippine

USA

Japan

Net income

Multiply by tax rate

Income tax payable

Tax credit allowed – see supporting computation

Income tax still due

P1,000,000

(800,000)

P 200,000

P 400,000 300,000

(200,000) (200,000) P300,000

P1,000,000 400,000 300,000 (800,000) (200,000)

(200,000)

P 500,000 30%

P 150,000

( 90,000)

P 60,000

Supporting computation:

US

Japan

Total

Tax credits:

(P200,000/P500,000) x P150,000 = P60,000 vs P80,000

Allowed, lower (P100,000/P500,000) x P150,000 = P30,000 vs P30,000

Allowed, lower (P300,000/P500,000) x P150,000 = P90,000 vs P100,000

Allowed, lower

P60,000 30,000

P90,000 90,000

P90,000 Problem 12 – 40

Reported income before tax

Add: Loss from sale of shares of stock outside stock market

Total

Less: Gains subject to final income tax:

(1) Gain from sale of stock in the stock market

(2) Gain from sale of short-term debt securities

(3) Gain from sale of real property

(P9,400,000 – P4,400,000)

Adjusted income subject to corporate income tax

Multiply by normal corporate income tax

Correct amount of income tax

Total reported income before tax

Less: Normal corporate income tax

Net income after tax

P 25,000 10,000 5,000,000

P10,000,000 5,000 P10,005,000

5,035,000

P 5,630,000 30%

P 1,689,000 P10,000,000

1,689,000

P 8,311,000

Problem 12 – 41

Service charge – credit card (P1,000,000/5%) x 3% ( 600,000)

Less: Creditable expanded withholding tax (P1,000,000/5%) x ½

Problem 12 – 42

Taxable income (normal tax)

Add: Income subject to final tax

Income exempt from tax

Income, excluded from gross income

Amount of NOLCO deducted

Total

Less: Dividends

Income tax paid for the year

Improperly accumulated income

Multiply by tax rate

Tax on improperly accumulated income

P 60,000 50,000 10,000 50,000 P150,000

200,000

P 900,000

170,000 P1,070,000

350,000

P 720,000 10%

P 72,000

Problem 12 – 43

Capital gains:

Problem 12 – 44

Government educational institutions are exempted from tax (Sec 30(I), NIRC.)

Problem 12 – 45

Tuition fees

Miscellaneous fees

Income from rents

Net income, school canteen

Net income, book store

Gross income

Less: Allowable deductions:

Payroll and administrative salary

Other operating expenses

Interest expense

Depreciation, net six room building

Taxable income

Multiply by the applicable tax rate

Income tax

P1,425,420 762,330 82,100 37,500

P2,843,10

0 362,600 60,000 36,200 24,800 P3,326,70

0

2,307,350 P1,019,350 10%

P 101,935

Note: The tax differential on interest income shall not be used because the tax applicable is 10% not 30% normal tax

Problem 12 – 46

1 3 rd year 4 th year 5 th year 6 th year

) (2,400,000) (2,700,000) Rent income 200,000 300,000 100,000 50,000

Operating expenses allowed ( 300,000

) (1,300,000) (1,400,000) (1,500,000)

Multiplied by NCIT rate 30% 30% 30% 30%

Income tax due P 90,000 P 90,000 P 90,000 P 255,000

) ( 20,000) ( 30,000) ( 40,000) Income tax still due and payable P 80,000 P 70,000 P 60,000 P 215,000

2 3 rd year 4 th year 5 th year 6 th year

Interest income, net of tax 20,000 32,000 16,000 24,000 Total passive income, net of tax P100,000 P192,000 P136,000 P 64,000

Multiplied by final tax rate 20% 20% 20% 20%

Problem 12 – 47

(1)

(2)

(3)

(4)

Income subjected to final tax (P150,000 + P250,000) 400,000 500,000

Problem 12 – 48

Less: Operating expenses:

Interest expense [P50,000 – (40,000 x 33%) 36,800 1,536,800

Note:

• Interest income is subject to final tax of 20%

• Inter-corporate dividend is tax-exempt

• Losses on investment in securities is not deductible – capital loss