Chapter 15-A: SELF-TEST EXERCISES

Discussion Questions
1. State the general income tax rules for regular types of
corporations.
2. Enumerate he different types of resident foreign corporations and
their corresponding tax rates.
3. What are exempt corporations? What is their primary distinguishing
feature?
4. Explain classification rule.
5. Explain the dominance test. What types of taxpayers are covered by
the dominance test?
6. Discuss the taxation rules for FCDU and offshore banking units.
7. Explain the meaning of Gross Philippine billings.
8. What are the special types of non-resident foreign corporations and
their tax rates?

True or False 1
1. Foreign and domestic banks may have an EFCDU.
2. The income of FCDU, OBU, and EFCDU from residents other than
depository banks in the EFCDS or FCDS is subject to a 10% final
tax.
3. The income of FCDU or EFCDU from foreign sources is subject to
regular income tax.
4. Corporations subject to a rate below 30% are referred to as
special corporations.
5. Corporation includes joint ventures, associations, and
partnerships.
6. Joint ventures formed for the purpose of undertaking
construction projects or engaging in energy operations are
taxable as corporations.
7. Exempt corporations are never subject to corporate income tax.
8. Government-owned and controlled corporations are subject to
corporate income tax.
9. A non-profit hospital is an exempt corporation taxable only on
income from unrelated activities.
10. PEZA-registered enterprises are exempt from tax.
11. BOI-registered enterprises enjoy income tax holiday for 20
years.
12. FCDU and OBU are divisions of a foreign bank.
13. The income of OBU from foreign sources is exempt from income
tax.
14. International carriers are subject to a tax of 2.5% on taxable
income.
15. A domestic carrier is subject to 30% tax on Philippine taxable
income.
16. Special corporations can claim optional standard deduction.
17. Exempt corporations are not required to file income tax
returns because they do not pay tax.
18. Exempt corporations and special corporations are mandated to
use the itemized deductions.
19. Exempt corporations who filed late are not subject to
penalties because they have no tax due.
 20. Exempt corporations filing BIR Form 1702-EX will not pay tax
as a rule.

True or False 2
1. The classification rule is applied to private schools and non-
profit hospitals.
2. The dominance test is applied to non-profit schools and private
hospitals.
3. A government school is exempt from income tax.
4. A non-resident owner or lessor of vessel is subject to tax at
7.5% of the gross rental.
5. A regional area headquarters is exempt from tax because it does
not derive income.
6. A regional operating headquarter of a multinational company is
subject to 10% on world income.
7. A non-resident cinematographic film owner, lessor, or
distributor is subject to 25% tax on taxable income.
8. A non-resident owner or lessor of aircraft, machineries and
other equipment is subject to tax at 4.5% of gross rentals.
9. A farmers' or fruit growers' association is exempt from income
tax.
10. Exempt corporations are subject to income tax on their income
from unrelated activities.
11. A non-stock, non-profit institution must be organized for
religious, charitable scientific, athletic, cultural, or for the
rehabilitation of veterans.
12. To be exempt, all of the net income or asset of a non-profit
corporation or association must be devoted to its purposes, and
no part of its net income or asset accrues to benefit any member
or a specific person.
13. The unrelated income of non-profit corporations is exempt from
income tax if the same is diverted to its non-profit purpose.
14. The exemption of non-stock and non-profit corporations or
associations shall commence when they secure their tax exemption
ruling.
15. The certificate of tax exemption ruling is valid for one year
and renewable every year thereafter.

True or False 3
1. The FCDUS, OBUs and EFCUs are never subject to regular income
tax.
2. Persons and service establishments inside an ECOZONE are subject
to the regular tax.
3. The Gross Philippine Billings of international carriers includes
receipts from outgoing voyage or flights which must be billed in
the Philippines.
4. Expenses of an exempt corporation not directly traceable to
either related or unrelated operations are allocated based on
the ratio of gross income.
5. Local water districts are exempt from income tax.
6. Cooperatives that transacts business with non-members are
taxable on income allocated to interest on members' capital when
their accumulated reserve exceeds P10,000,000.
 7. All cooperatives, regardless of classification, are subject to
income tax on their income from unrelated activities.
8. The expenses of exempt corporations from exempt operations are
deductible to its gross income from unrelated operations.
9. When the income from related activities constitutes at least 50%
of total income, private schools are subject to tax at 10% of
taxable income from related and unrelated activities.
10. When the income from unrelated activities exceeds 50% of total
income, only the income from unrelated activities of private
schools and non-profit hospitals is subject to 30% tax.
11. Refunded tickets and tickets of non-revenue passengers are
excluded in the Gross Philippine Billings.
12. The gross receipts from transient passengers are excluded from
Gross Philippine Billings if they depart from the Philippines
through the same carrier within 48 hours from their arrival.
13. The 48-hour rule does not apply when another carrier continued
the flight or voyage of transient passengers.
14. The 48-hour rule may be extended by force majeure.
15. Domestic film owners, lessors or distributors shall be subject
to 25% tax on gross income from all sources within.

Multiple Choice: Theory 1

1. A non-resident foreign corporation is taxable on
a. world taxable income.
b. world gross income.
c. Philippine taxable income.
d. Philippine gross income.
2. The resident and non-resident classifications do not apply to
a. domestic corporation.
b. foreign corporation.
c. both domestic and foreign corporations.
d. neither domestic nor foreign corporations.
3. Which of these is a special corporate taxpayer?
a. A private school
b. A private hospital
c. A business partnership
d. A trading corporation
4. As a rule, non-profit, non-stock corporations are exempt from
income tax. Which of these non-profit entities is subject to
income tax?
a. Association
b. School
c. Farmer's cooperative
d. Hospital
5. The exemption of non-profit corporations specifically pertains to
income from
a. related parties.
b. unrelated activities.
c. related activities.
d. both related and unrelated activities.
6. A domestic corporation is taxable on
a. world taxable income.
b. world gross income.
 c. Philippine taxable income.
d. Philippine gross income.
7. A resident foreign corporation is taxable on
a world taxable income.
b. world gross income.
c. Philippine taxable income.
d. Philippine gross income.
8. Benguet State University, a public educational institution, is
a. subject to income tax at preferential rate.
b. subject to income tax at the regular rate.
c. subject to both regular and preferential income tax.
d. exempt from corporate income tax.
9. Generally, government-owned and controlled corporations are
a. subject to preferential income tax.
b. subject to regular income tax.
c. subject to both regular and preferential income tax.
d. exempt from income tax.
10. Generally, private proprietary educational institutions are
a. subject to preferential income tax.
b. subject to regular income tax.
c. subject to both regular and preferential income taxes.
d. exempt from income tax.
11. Which is not an exempt corporation?
a. Social Security System
b. Philippine Health Insurance System
c. Government-owned and controlled corporations
d. Home Development Mutual Fund
12. Which of these foreign corporations is subject to the 30%
regular corporate tax?
a. Offshore banking units
b. International carrier
c. Regional operating headquarters of a multinational company
d. Call center
13. A non-resident foreign corporation is
a. subject to 30% tax on taxable income.
b. subject to 25% tax on gross income.
c. not subject to 30% tax on gross income.
d. never subject to 30% tax on gross income abroad.
14. A resident foreign corporation is
a. subject to 10% tax on global taxable income.
b. subject to 10% tax on Philippine taxable income.
c. not subject to 30% tax on foreign income.
d. not subject to 30% tax on Philippine taxable income.
15. A domestic corporation is not subject to the 30% regular
income tax on
a. foreign income.
b. global income.
c. Philippine income.
d. gross income.
Multiple Choice: Theory 2
1. An allocation of common expenses between related and unrelated
activities is to properly reflect taxable income. This procedure is
required only of
a. domestic corporations.
b. resident foreign corporations.
c. exempt corporations.
d. non-profit hospitals.
2. What percentage of profit will shareholders ultimately receive from the
corporate earnings?
a 70% of taxable income
b.70% of gross income
c.63% of taxable income
d.63% of gross income
3. Which of these concepts is not relevant to corporations?
a. Exclusion
b. Gross income
c. Deduction
d. Personal exemptions
4. The preferential tax rate of 10% on taxable income applies to
a proprietary hospital.
b. proprietary school.
c. non-profit school.
d. non-profit association.
5. When applicable, the 10% preferential tax rate applies to income from
a. related activities.
b. unrelated activities.
c. both related and unrelated activities.
d. neither related and unrelated activities.
6. Exempt corporations are nevertheless subject to 30% tax on income from
a. related activities.
b. unrelated activities.
c. both related and unrelated activities.
d. neither related and unrelated activities,
7. Which is not taxable on unrelated activities?
a. Government agencies
b. Non-profit corporations
c. Government-owned and controlled corporations
d. None of these
8. The income from properties of exempt corporations is considered income
from
a. related sources.
b. unrelated sources.
c. either related or unrelated activities at the discretion of the
examiner.
d. either related or unrelated activities depending on the nature
of the
properties concerned.
9. The classification rule is not relevant to
a. cooperative.
b. farmers' association.
c. government school.
d. profit-oriented agricultural organization.
10. Which is subject to corporate income tax?
a. Joint venture engaged in construction
b. Joint venture engaged in oil exploration
c. Philippine Charity Sweepstakes Office
d. A charitable medical hospital
11. International carriers are taxable on their gross income or receipt
from
a. incoming shipment or flight.
b. outgoing shipment or flight.
c. both incoming and outgoing flight.
d. any sources.
12. A domestic carrier is subject to tax on
a. Philippine gross income.
b. world gross income.
c. Philippine taxable income.
d. world taxable income.
13. A non-resident lessor of vessels chartered by Filipino nationals is
subject to
a.25% tax on its gross rentals from Filipino nationals.
b.25% tax on its worldwide rentals.
c.4.5% tax on its gross rentals from Filipino nationals.
d.7.5% tax on its gross rentals from Filipino nationals.
14. A domestic cinematographic film owner, distributor, or lessor is
subject to
a.25% tax on Philippine gross income.
b.30% tax on global taxable income.
c.25% tax on global taxable income.
d.30% tax on Philippine gross income.
15. A non-resident film owner, distributor or lessor is subject to
a.25% tax on Philippine gross income.
b.30% tax on global taxable income.
c.25% tax on global taxable income.
d.30% tax on Philippine gross income.
16. A non-resident lessor of aircraft is subject to
a.7.5% tax on Philippine gross income.
b.4.5% tax on global taxable income.
c.25% tax on global taxable income.
d.30% tax on Philippine gross income.
17. A domestic lessor of aircraft and other equipments is subject to
a.4.5% tax on Philippine gross income.
b.30% tax on global taxable income.
c.7.5% tax on global taxable income.
d.30% tax on Philippine gross income.
18. An exempt corporation with no taxable income is delinquent in filing
its tax return. Which penalty is it liable to?
a. Surcharge
b. Interest
c. Compromise
d. All of these
Multiple Choice: Case Problems

Problems 1
Bershire Corporation reported the following gross income and expenses in
2020:

Philippines Abroad Total

Gross income P 400,000 P 300,000 P 700,000
Deductions 200,000 150,000 350,000
Taxable income 200,000 150,000 350,000

Compute the income tax due if the corporation is a\an:

1.Domestic corporation.
a.P 210,000 c.P 60,000
b.P 120,000 d.P 105,000
2.Resident foreign corporation.
a.P 60,000 c.P 105,000
b.P 120,000 d.P 210,000
3.Non-resident foreign corporation.
a.P 210,000 c.P 105,000
b.P 120,000 d.P 60,000
4.Private proprietary educational institution or a non-profit hospital
majority of its income is form related activities.
a.P 105,000 c.P 70,000
b.P 35,000 d.P 20,000
5.Non-profit entity.
a.P 105,000 c.P 35,000
b.P 60,000 d.P 0
6.Government-owned and conrrolled corporation.
a.P 105,000 c.P 35,000
b.P 60,000 d.P 0
7.International carrier.
a.P 105,000 c.P 17,500
b.P 10,000 d.P 5,000
8.Offshore banking unit.
a.P 105,000 c.P 20,000
b.P 35,000 d.P 40,000
9.Non-resident cinematographic film owner,distributor or lessor.
a.P 120,000 c.P 100,000
b.P 87,500 d.P 50,000
10.Non-resident owner oer lessor of vessels.
a.P 18,000 c.P 120,000
b.P 31,500 d.P 15,750
11.Non-resident owner or lessor of aircraft,machineries and other
equipment.
a.P 120,000 c.P 30,000
b.P 52,500 d.P 26,250
12.Non-profit association, 60% of its income was derived from unrelated
activities.
a.P 105,000 c.P 42,000
b.P 63,000 d.P 0
Problem 2
Maharata Hathaway reported the following:

Related Unrelated Total

Gross income P 300,000 P 200,000 P 500,000
Deductions 100,000 100,000 200,000
Taxable income P 200,000 P 100,000 P 300,000

Compute the tax due if the corporate is a/an:

1.Regualar domestic corporation
a.P 90,000 c.P 60,000
b.P 150,000 d.P 30,000
2.Proprietary educational intitution or non-profit hospital
a.P 90,000 c.P 30,000
b.P 60,000 d.P 20,000
3.Exempt non-profit corporation
a.P 90,000 c.P 60,000
b.P 30,000 d.P 0

Problem 3
A domestic bank reports the following income from its regular banking
(RBU) and foreign currency deposite unit (FCDU):

RBU FCDU
Interest from lending with FCDUs/OBUs P - P 300,000
Interest from to other residents 2,000,000 3,000,000
Interest from lending to non-residents 1,000,000 1,500,000
Less: business expenses 1,800,000 2,000,000
Net income P 1,200,000 P 2,800,000

Answer the following:

1.Compute the total final tax.
a.P 500,000 c.P 390,000
b.P 300,000 d.P 150,000
2.Compute the regular income tax due.
a.P 750,000 c.P 240,000
b.P 360,000 d.P 60,000

Problem 4
The following data pertains to a taxpayer:

Philippines Abroad Total

Gross income P 500,000 P 700,000 P 1,200,000
Direct deductions 200,000 300,000 500,000
Commom expenses 150,000

Compute the income tax if the taxpayer is a:

1.Business partnership organized in the Philippines
a.P 71,250 c.P 165,000
b.P 90,000 d.P 0
2.General professional partnership
a.P 165,000 c.P 71,250
b.P 90,000 d.P 0
3.A joint venture formed for the undertaking of construction project or
oil exploration under service contracts with the government
a.P 165,000 c.P 71,000
b.P 90,000 d.P 0
4.A business joint venture organized in the philippines
a.P 165,000 c.P 71,250
b.P 90,000 d.P 0
5.A co-ownership which is limited to the collection of income and
preservation the properties co-owned
a.P 165,000 c.P 71,000
b.P 90,000 d.P 0
6.A co-ownership which re-invested the income of the property in other
income-producing properties
a.P 165,000 c.71,000
b.P 90,000 d.P0
7.Resident foreign corporation
a.P 165,000 c.P 71,000
b.P 90,000 d.P 0
8.Non-resident foreign corporation
a.P 360,000 c.P 90,000
b.P 150,000 d.P 0

Problem 5
Antartica,a shipping company,reported the following gross receipts and
deductions during the year:

Shipments
Income Outgoing Total
Gross reciepts P 2,000,000 P 3,000,000 P 5,000,000
Less:Deductions 1,500,000 2,000,000 3,500,000
Net income P 500,000 P 1,000,000 P 1,500,000

Compute the tax due assuming the corporate taxpayer is a:

1.Domestic shipping carrier
a. P 30,000 c.P 75,000
b.P 125,000 d.P 450,000
2.Resident international shipping carrier
a.P 450,000 c.P 125,000
b.P 75,000 d.P 30,000

Problem 6
An air carrier reported the following for its air transport operations:

Destination Fares
Philippines – Australia P 1,000,000 (1,000 tickets)
Australia – Philippines P 1,250,000 (1,000 tickets)
Philippines – Russia* P 2,000,000 (1,000 tickets)
Philippines - Japan P 1,500,000 (2,000 tickets)
*The flight was referred to another airline in Japan. The Japanese airliner airlifted
passengers for Russia.

Determine the income tax due assuming that the carrier is a/an:
1.International carrier
a.P 147,750 c.P 62,500
 b.P 112,500 d.P 81,250
2.Domestic carrier with P3,000,000 global expenses
a.P 525,000 c.P 147,750
b.P 825,000 d.P 112,500

Problem 7
PhilTravel is engaged in the business of sea transport. It arranged the
transport of various cargoes with a shipping company to bring the cargoes
from the Philippines to Afghanistan for a total charter fee of P4,000,000.

Compute the income tax on this transaction assuming that the shippinmg
company is a/an:
1.International shipping carrier
a.P 300,000 c.P 100,000
b.P 180,000 d.P 0
2.Non-resident shipping carrier
a.P 1,200,000 c.P 180,000
b.P 300,000 d.P 100,000

Problem 8
A non-profit non-stock school has a gross income of P4,000,000 only 40% of
which was contributed by related activities and total expenses of
P3,000,000, 50% of which was incurred in connection with non-related
activities.

1.Compute the total income tax if the income from non-related activities
is not used exclusively for educational purpoese.
a.P 300,000 c.P 100,000
b.P 90,000 d.P 270,000
2.In the immediately preceding problem, compute the income tax due if all
income of the non-profit school is used for educational purpose.
a.P 0 c.P 270,000
b.P 100,000 d.P 300,000
3.Compute the total income tax assuming the taxpayer is non-profit
charitable institution.
a.P 270,000 c.P 100,000
b.P 300,000 d.P 90,000
4.Compute the total income tax assuming the taxpayer is private school.
a.P 100,000 c.P 300,000
b.P 270,000 d.P 90,000
5.Compute the income tax assuming the taxpayer is a private hospital.
a.P 90,000 c.P 100,000
b.P 270,000 d.P 300,000
6.Compute the income tax assuming the taxpayer is a non-profit hospital.
a.P 270,000 c.P 100,000
b.P 300,000 d.P 90,000
7.Compute the income tas assuming the taxpayer is a government hospital.
a.P 300,000 c.P 100,000
b.P 270,000 d.P 90,000

Problem 9
A private school has P5,000,000 gross income; 60% of this represents
tuition and miscellaneous fees. It has net income of P2,000,000,60% of
which was contributed by sources not related to academic instruction.
1.Compute the total income tax.
a.P 900,000 c.P 360,000
b.P 440,000 d.P 200,000
2.Compute the total income tax if the school uses all its income for
educational purposes.
a.P 900,000 c.P 360,000
b.P 440,000 d.P 200,000

Integrated Case 1
The following are the income and expenses of a private school:

Philippines Abroad
Gross profit from educational services P 2,000,000 P 500,000
Dividend from a domestic corporation 40,000 0
Dividend from a foreign corporation - 200,000
Interest income from a bank deposit 30,000 40,000
Intererst expense from bank barrowings 100,000 0
Business expenses 1,000,000 280,000
Income taxes paid 150,000 45,000

Required:Compute the tax due assuming that:

a. The foreign taxes are claimed as tax credit.
b. The foreign taxes are claimed as deductions

Integrated Case 2
Baguio Medical Center is a non-profit hospital. In 2020, it reported the
following gross income and expenses:

Activities
Related Unrelated Total
Gross income P 4,000,000 P 5,000,000 P 9,000,000
Directly traceable expenses 3,075,000 3,000,000 6,075,000
Common expenses of both activities 1,125,000
Net income P 1,800,000

Required:Compute the tax due assuming

1. The given facts.
2. That Baguio Medical Center is a private hospital.
3. That Baguio Medical Center is a government hospital.

Integrated Case 3
Danumco, a government-owned and controlled corporation,had the following
items of income during the year:
Service charges to clients P 8,000,000
Rental on properties 800,000
Interest on bank deposits, net 45,000
Dividend income 50,000
Gain on the sale of stocks directly to a buyer 250,000
Expense 7,000,000

Required:Compute the following:

1. Final tax withheld on the interest income
2. Capital Gains tax due on the sale of domestic stocks
 3. Regular income tax
a. Assuming the given facts
b. Assuming Danumco is a local water district
Integrated Case 4
A private school had the following list of transactions during the year:

Tuition fees and assessments P 80,000,000

Rentals fro, various concessionaries 4,000,000
Fees from a parking lot maintained by the school 2,4000,000
Interest on savings account and time deposit 1,600,000
Dividend from stocks 400,000

Salaries expenses (10% to senior citiens) 50,000,000

Contribution to pension fund of employees 400,000
(40% to prior service cost)
General utilities and maintenance 24,000,000
Research and development 2,000,000
Miscellaneous expenses 1,000,000
Contributions to various accredited NPOs 5,000,000
Contributions to government priority activities 2,000,000

Required:Compute the following:

a. Total final tax withheld at source
b. Total gross income subject to regular tax
c. Total claimable deductions
d. Corporate income tax due