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Chapter 5 - tax

Financial accounting (Africa University)

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CHAPTER 5 – FINAL INCOME TAXATION

TRUE OR FALSE 1
TRUE 1. Generally, interest income from non-bank sources is subject to
regular income tax.
FALSE 2. Foreign income is subjected to final tax if the taxpayer is
taxable on global income.
FALSE 3. Items of passive income from abroad is subject to final tax.
TRUE 4. Interest income on government securities are subject to final
tax.
FALSE 5. All items of passive income are generally subject to final
tax.
TRUE 6. Final tax is collected at source; hence, there is no need to
file an income tax return.
FALSE 7. Corporations are tax-exempt on inter-corporate dividends from
any corporations.
FALSE 8. Individuals and corporations are tax-exempt on interest
income on long-term deposits.
TRUE 9. Dividends from resident corporations are subject to regular
tax.
FALSE 10. Dividends from Real Estate Investment Trusts are exempt from
final tax.
FALSE 11. Stock dividends are always exempt from final tax.
FALSE 12. Corporations are subject to final tax on prizes.
FALSE 13. The share in the net income of a business partnership is
subject to a creditable withholding tax, not to final tax.
FALSE 14. General professional partnerships are subject to final tax
but not to regular tax.
TRUE 15. All non-residents are exempt from final tax on foreign
currency deposits.
FALSE 16. Royalties, active or passive, are subject to regular income
tax.
FALSE 17. The tax sparing rule is applicable to resident and non-
resident foreign corporations.
TRUE OR FALSE 2
FALSE 1. A government employee may claim the tax informer’s reward.

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FALSE 2. The final tax on winnings applies to corporations.

FALSE 3. Individuals, except corporations, are subject to final tax on
winnings abroad.
FALSE 4. Winnings which are not more than P10,000 in amount are
subject to regular income tax.
FALSE 5. PCSO or lotto winnings exempt from all types of income tax.
TRUE 6. Special aliens do not file a regular income tax return on
their compensation income.
FALSE 7. The final tax on interest on tax-free corporate covenant
bonds applies only to resident individual or corporate taxpayer.
FALSE 8. NRA-NETB and NFRC are subject to final tax only to passive
income from sources in the Philippines.
TRUE 9. NRA-NETB and NFRCs are not required to file the regular income
tax return.
TRUE 10. Residents shall withhold 10% final tax upon interest on
foreign currency loans of FCDU banks and OBUs under the expanded
foreign currency deposit system.
TRUE 11. A qualified employee trust fund is not subject to final tax.
FALSE 12. The income of FCDU banks from fellow depositary banks under
the expanded foreign currency deposit system is subject to 10% final
tax.
TRUE 13. Petroleum service subcontractors are subject to 8% final tax
on their income from petroleum service contractors.
FALSE 14. The final withholding tax return shall be filed by
withholding agent on or before the 15th day of the month the final
taxes were withheld.
TRUE 15. Foreign governments and foreign government-owned and
controlled corporations are exempt from final tax.

MULTIPLE CHOICES - THEORY 1

1. Which is correct with regard to final income taxation? A. Taxpayers
need not file an income tax return
2. Which statement is correct regarding final income tax? B. Final tax
applies only on certain passive income earned within the Philippines
3. Interest income from which of the following sources is subject to
final income tax? D. Money market placements

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4. The final tax does not apply to interest on D. Promissory notes

5. The exemption on final tax on interest from long-term deposit is
not applicable to B. Corporations
6. Which interest income is not subject to any income tax? C. Imputed
interest
7. The final tax rates on pre-termination of long-term deposits is not
relevant to A. Any corporations
8. Which of the following is subject to 15% final tax on interest from
foreign currency deposits made with Philippine banks? D. Resident
alien
9. The following are subject to final tax on all income from sources
within the Philippines. Which is the exception? C. Non-resident alien
engaged in trade or business
10. The interest income from long-term peso deposits made within
foreign banks is C. Subject to regular tax
11. What is the final tax on interest income on 6-year deposit pre-
terminated less than 2 years before maturity? A. 20%
12. Which of the following recipients is exempt from final tax on
dividends? C. Resident corporation
13. A dividend declaration in 2019 is subject to final tax of C. 10%
14. Dividends declared by a resident corporation is A. exempt from any
tax
15. Between the date of declaration and the date of record, BCD Inc.
sold an investment representing stock of ABC, Inc., a domestic
corporation. Which statement is correct? A. ABC Inc. shall withhold
10% dividend tax if the buyer of the sale is an individual.
MULTIPLE CHOICES – THEORY 2
Mm1. Which is covered by final tax? B. Share in the net income of a
joint venture
2. Which is not subject to 20% final tax? B. Royalties from musical
compositions
3. Which is not subject to 10% final tax? D. Royalties from business
trademark
4. Which of the following is taxable? B. Prize from dance competition
abroad
5. Which winning is taxable to a final tax? D. All of these

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6. Prizes from sources abroad is subject to final tax D. Under no

circumstances
7. The following winnings are exempt from tax, except one. Which is
the exception? A. Jueteng winning
8. Which of the following is exempt from final tax? C. Interest income
earned by a bank from lending activities
9. Dividend income from domestic corporations is subject to final tax
effective C. 1998
10. Prizes arising from sources within the Philippines may be D.
exempt or subject to final tax or regular income tax
11. Any royalties earned abroad by a non-resident corporation is A.
Not subject to Philippine income tax
12. The winnings of a resident alien from abroad is D. not subject to
Philippine income tax
13. Royalty income of a domestic corporation from abroad is A. Subject
to regular tax
14. Winnings from PCSO are generally A. Exempt from any tax
15. The final tax rates on passive income are generally similar to the
following taxpayers, except one. Select the exception. D. Non-resident
corporation
16. The tax informer’s reward may be granted to D. Relatives of
government employees beyond the 6th degree of consanguinity
17. Which is not subject to final tax? D. Fringe benefits of rank and
file employees
18. Which of the following is exempt to final tax? C. Dividends from a
foreign corporation
MULTIPLE CHOICE – PROBLEM 1
1. Winnie, a resident citizen, deposited P2,000,000 in the 180-day
time deposit of Banco de Oro. The deposit pays 8% interest. Compute
the final tax on maturity of the deposit. D. P16,000
2. Assume that Winnie is a non-resident alien not engaged in trade or
business, compute the final tax on maturity of the deposit. C. P20,000
3. Renz received P42,000 interest from short-term deposits. Compute
the final tax withheld on the interest. A. P10,500
4. On January 1, 2014, Mr. Albuera invested P2,000,000 in the six-year
time deposit of Sulu Unibank which pays 10% annual interest. Compute
the final tax to be withheld by Sulu Unibank on December 31, 2014. A.
P0

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5. Assume Mr. Albuera pre-terminated the time deposit on July 1, 2018;

compute the final tax to be withheld on pre-termination. C. P45,000
6. Boy, a resident citizen, received the following interest income:
* P80,000 from short-term peso time deposit
* P16,000 from a five-year bond issued by a commercial bank
* P24,000 from 5/6 lending to market vendors
C. P20,000
7. Jake corporation, a domestic corporation, deposited P1,000,000 in
the five-year time deposit of Banco Pilipino which pays 10% annual
interest. Compute Jake Corporation’s net interest income in the first
year of the deposit. C. P80,000
8. Assume Jake corporation is a non-resident corporation; compute the
final tax on interest income. D. P30,000
9. On January 2, 2011. Quezon, Inc. placed P1,000,000 in the 5-year
time deposit of bank of laguna. The placement earns 10% annual
interest. Quezon Inc. pre-terminated the deposit on June 30, 2014.
Compute the final tax withheld on pre-termination B. P10,000
10. Francis, a resident citizen, invested P1,000,000 in a dept
instruments (deposit substitute) issued by Unibank. The dept
instruments pay 10% annual interest payable every quarter. How much
final tax should Unibank withhold in the first quarter of issue? B.
P5,000
11. Cyndrell, a resident citizen, deposited P5,000,000 in a non-
resident foreign depositary bank which pays 12% annual interest. How
much final tax shall be withheld in the first year? A. P0
12. Rodrigo, a non-resident citizen, deposited his $2,000,000 savings
in a two-year time deposit in Blue Bank, a depositary bank under the
expanded foreign currency deposit system. The deposit pays 8% annual
interest. Compute the final tax to be withheld in dollars in the first
year. A. $0
13. Vernon is a non-resident citizen working abroad. He invested his
$1,000,000 personal savings in a FCDU bank under a joint account with
his resident wife. The bank pays 8% annual interest. Compute the final
tax to be withheld in one year. B.$ 6,000
14. Yvonne, a non-resident alien not engaged in trade or business,
made a $5,000,000 deposit to a FCDU bank. The deposit pays 8% annual
interest. Compute Yvonne’s final tax in the first year. A. $0
15. Gerry, a resident alien, deposited $1,000,000 in a depositary bank
under the expanded foreign currency deposit system. The five-year

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savings deposit pays 10% annual interest. Assuming a P45:$1 exchange

rate, how much final tax on interest would be withheld in the first
year? D. P675,000
MULTIPLE CHOICE – PROBLEM 2
1. Kendrick Inc, a domestic corporation was credited $46,250 interest
income on its depositary account in an FCDU bank. How much final tax
was withheld? C. $6,937.50
2. Assuming Kendrick Inc, is a resident foreign corporation, how much
final tax was withheld? B. $6937.50
3. Tuzan corporation declared P1,000,000 divided in 2014. 40% of its
outstanding shares is held by its only corporate investor, abdul, inc.
compute the amount of dividend tax to be withheld on declaration? C.
$60,000
4. Mr. neis a resident alien owns 40% of the shares of coco
corporation, a resident corporation. Coco declared P200,000 dividends
in 2014. How much final tax should be withheld from Mr. neis’
dividends? D. P0
5. Carrots, inc owns 20% of the stocks of cabbage declared P120,000
dividends in 2014. Carrot and Cabbage are both domestic corporations.
Cabbage declared P120,000 dividends in 2014. How much dividend income
after any applicable tax will carrots receive? A. P24,000
6. Mr. Siegfried, a resident citizen, received P100,000 dividend
income from vodka, inc, a domestic corporation. How much final tax
must have been withheld by vodka inc.? B.P11,111
7. Ms. Gina owns 40% of the capital and profits of cebu ventures, a
business partnership engaged in the trade of tourist souvenirs. Cebu
ventures reported P200,000 net income in 2014. Compute the total final
tax to be withheld by the partnership on Gina’s profit sharing. B.
P8,000
8. Raymond owns 20% of the capital and profits of a general
professional partnership. The partnership reported P500,000 profits in
2014. How much final tax will be withheld from reymond? D. P0
9. Teddy is a venture sharing 50% in the profits of wise ventures, an
unincorporated joint venture, engaged in the trading of home
appliances. Wise ventures reported P200,000 profits for 2014. How much
final tax will be withheld by wise ventures? C. P20,000
10. Zamboanga corporation, a resident corporation, is a venture in
southern Philippine ventures (SPV), an incorporated joint venture
formed under Philippine laws. Zamboanga owns 30% interest in SPV.
During 2014, SPV reported P3,000,000 profit and declared P1,000,000 in

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dividends. How much final tax will be withheld from the dividend
distribution to Zamboanga corporation? D. P0
11. Petrodrill ventures is a joint venture which operates under a
service contract the government. Petrodrill is 30% owned by individual
investors. The rest owned by corporate oil exploration companies.
Petrodrill reported P2,000,000 profit which was to be distributed. How
much final tax will petrodrill withhold? D. P0
12. Mr. bayugan published his book abroad for the international
market. During the first quarter, he earned a gross royalty of
P1,000,000. How much final tax will be withheld by the foreign
publisher? D. P0
13. Sison inc. is the only corporate shareholder of surigao inc.
owning 60% of the outstanding voting shares. During the year, surigao
inc. declared a P1,000,000 divided. Compute the final income tax to be
withheld by surigao? C. P40,000
14. Mr. tuao won an P800,000 prize in a national dancing competition.
The organizer og the event declared that P800,000 grand prize was “tax
free” how much final tax must be remitted by the organizer to the BIR?
A. P200,000
15. Mr. crocodile owns a mining property in prosperidad. He allowed a
mining company to operate under a condition that he will be paid 10%
royalty on the gold production, the mining company produced P8,000,000
worth of gold during the year. How much net royalties will be paid to
Mr. crocodile? B. P640,000
MULTIPLE CHOICE – PROBLEM 3
1. Mr. aguak earned the following prizes from two different
competitions:
Date event gross prize
January 4, 2017 singing competition P12,000
Febrary 14, 2017 painting competition P10,100
Compute the total final tax that should have been withheld from the
above prizes. B. P4,420
2. Mr. rems orayt participated in two different events on january4,
2020:
Date organizer competition gross prize
January 4,2020 ang mahiwagang boses singning P10,000
January 4,2020 sexy body foundation dancing 11,000

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Compute the total final tax that should have been withheld from the
above prizes? A. P0
3. Mr. conrado won the P50,000,000 6/49 super lotto jackpot of the
Philippine charity sweepstakes office. How much final tax will be
withheld? D. P0
4. Ms. Matti won a gold medal and P50,000 cash prize for chess
competition in the palarong pambansa. How much tax should be withheld
from the prize? D. P0
5. Tiong sang department store conducted a sales promotion where
customer purchases exceeding P1,000 in one transaction shall be
entitled to a ticket for a chance to win P500,000 raffle prize. Mr.
shing won the prize? B. P100,000
6. Tacurong, a resident citizen, won $1,000,000 from the US lottery.
The lottery winning is? D. subject to regular tax
7. Mr. curandang submitted a sworm statement regarding the alleged tax
evasion practices of chitie corporation. This led the BIR to recover
P20,000,000 unpaid taxes. How much net tax informer’s reward shall be
paid to Mr. curandang? D. P900,000
8. A concerned government employee furnished the BIR a statement
detailing the improper tax practices of a corporate taxpayer. The
information was instrumental to the collectio0n of P500,000 tax. How
much informer’s tax reward after tax shall be released to the
informant? A. P0
9. Roy invest P1,000,000 in the “tax-free” corporate bonds of RBC
corporation the bond pays 8.75% interest annually net of any taxes.
How much final tax must RBC corporation withhold from the annual
interest payment to roy? C. P37,500
10. A tax payer wants to manually file his monthly remittance return
of final income tax withheld for the month of February 2017. Wat is
the deadline for the return? C. March 10, 2017
11. In reviewing its tax compliance, rang-ay Banco noted that it
failed to remit the P90,000 final taxes it withheld for the month of
February 2017. Compute the total amount of taxes due including the
penalties of rang-ay banco settles the obligation on march 20, 2017?
D. P128,000
12. Bangko illusrado failed to withhold the final tax on the
P1,200,000 interest expense which was credited to various accounts of
individual depositors in the month of April 2016. It wants to settle
the unpaid final withholding tax on June 10, 2017. Compute the
surcharge and interest penalty due? C. P64,000

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