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c)
TAXATION LAW 1
Questions for Finals
1. Mr. X is a non resident senior citizen. He receives monthly pension
from SSS which he deposits with ABC Bank. Mr. X claims that he is
absolutely exempt from any tax and therefore he is not required to
file an income tax return. Is Mr. X correct?
Answer:
No. Mr. X is not absolutely exempt from tax. Although he is exempt from
income tax on his monthly SSS pensions, the interest income which
accrues on the pension deposited ABC Bank is subject to final tax. On
the issue of filing an income tax return, since Mr. X sole taxable income
is already subject to final tax, he is not required anymore to file an
income
tax
return.
2. X Corporation entered into an agreement with(B) Corporation for
mining. The agreement stated that B Corp. will operate the min. In
turn, X Corp will be liable for the financing operations.After such
operations, X and B Corporations will have a proportion in whatever
net income will accrue to the operations. X Corp. in accordance with
the agreement made advances to B Corp. However, the mining did
not go well and B Corp. became insolvent. B Corp. entered into a
second agreement with X Corp. acknowledging its indebtedness to
X Corp. for the amounts that were advanced to it. X Corp. now tries
to claim as deductions the advances to B Corp. which unpaid as
bad debts written off. Will C Corpc claim be allowed?
Answer:
No. The requirements for write-off are not complete. To be written off as
bad debts, the following must concur: (1) there must be an indebtedness
and (2) it must be due and legally demandable. In this case, the
agreement between X and B Corporations is a contract of partnership or
joint venture, since they intended to contribute money, property, or
industry to a common fund, with the intention of dividing the profits
among themselves. Hence, X Corporations advances cannot be treated
as a debt of B to X Corp. Rather, the advances were mere capital
investments in the partnership.
3. In order to facilitate the processing of its application for a
telecommunications franchise, SME Corporation found it necessary
to pay the amount of P500,000 as a bribe to Mr. Bee, the approving
official. SME Corporation deducted the P500,000 from its gross
income.
No, the bank should withhold only 7.5%on the final interest income of the
wife. The husband is exempt.
7. Company L, a luxury car company, recently celebrated their 6th year
anniversary. In line with the anniversary, they crafted an event to
celebrate with their employees. Part of the anniversary program
included having a priest hold mass in gratitude for achieving the
coveted number 2 slot in the local luxury car market and a motivational
speech by Gilas national coach, Coach Chot Reyes. L then paid fees to
both the priest and Coach Chot, claiming both as deductions. Proper?
Answer:
Not entirely. The fees for Coach Chot are deductible as it can be argued by
L that the motivational talk given by Coach Chot is an ordinary and necessary
business expense. L can claim that this is to increase the productivity of its
sales staff, and as such, can be deductible. The fees paid to the priest cannot
be deducted though. A mass cannot be held as an expense that can be
considered ordinary and necessary. As it has been held in Trebilcock v.
Commissioner, it is inherently personal in nature and is thus disallowed as a
deduction.
8. Who are deemed nonresident citizens under the NIRC?
Answer:
(1) A citizen of the Philippines who establishes to the satisfaction of the
Commissioner the fact of his physical presence abroad with a
definite intention to reside therein.
(2) A citizen of the Philippines who leaves the Philippines during the
taxable year to reside abroad, either as an immigrant or for
employment on a permanent basis.
(3) A citizen of the Philippines who works and derives income from
abroad and whose employment thereat requires him to be physically
present abroad most of the time during the taxable year.
(4) A citizen who has been previously considered as nonresident citizen
and who arrives in the Philippines at any time during the taxable year
to reside permanently in the Philippines shall likewise be treated as
a nonresident citizen for the taxable year in which he arrives in the
Philippines with respect to his income derived from sources abroad
until the date of his arrival in the Philippines.
(5) The taxpayer shall submit proof to the Commissioner to show his
intention of leaving the Philippines to reside permanently abroad or
to return to and reside in the Philippines as the case may be for
purpose of this Section. (NIRC, Section 22,E)