Business and Transfer Taxation by Valencia and Roxas-Solution Manual

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 1 SUGGESTED ANSWERS Chapter 1: INTRODUCTION TO INTERNAL REVENUE TAXES

CHAPTER 1

INTRO. TO INTERNAL REVENUE TAXES Problem 1-1 1. False – National Internal Revenue Taxes are collected by the BIR. 2. False – professional tax is collected by the local government. 3. True 4. False – Only sales within are subject to business tax in the Philippines. 5. False – business tax is another Internal Revenue Tax distinct from income tax. 6. False – When there is loss, business tax is paid but no income tax. 7. True 8. False – it is the other way around. 9. True 10. True 11. True 12. True 13. False – citizens whether resident or nonresident are subject to transfer tax within.. 14. False – on the 20th of the month following the taxable month. 15. True Problem 1-2 1. True 2. False – there is no double taxation because income tax is different from business tax. 3. True 4. True 5. False – Donation is without consideration; hence, not onerous transfer. 6. False – Sale of family home is not subject to business tax because a family home is not business asset. 7. True – one for the first quarter and the other is the annual ITR. 8. False – monthly payment is both on the 20th of the next month. 9. True 10. False – the requirement is P100,000 in any quarter of the preceding year. 11. False – electronic filing and payment is required only to large taxpayers. 12. False – It is the BIR Commissioner that should recommend. 13. True 14. False – only income earned within will be taxable against resident alien 15. False – should be at least P1,000,000 per year. Problem 1-3 1. B 2. C 3. B 4. D 5. C 6. B 7. D 8. D 9. C 10. B

Problem 1-4 1. C 2. C 3. A 4. D 5. D 6. A 7. C 8. A 9. C 10. A

Problem 1-5 1. C 2. B 3. D 4. A 5. A 6. C 7. C 8. D 9. A 10. B

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 2 SUGGESTED ANSWERS Chapter 1: INTRODUCTION TO INTERNAL REVENUE TAXES

Problem 1–6 A Income tax due Divided by normal corporate income tax rate Amount subject to income tax per ITR Problem 1–7 B Gross income from ordinary operation Add: Cost of sales Sale of scrap materials Total amount subject to business tax

P270,000 30% P900,000 P3,300,000 P2,170,000 30,000

Problem 1–8 C Cancellation of indebtedness from: Abun Daboy, a friend Grace, current girlfriend Kristita, his sister Hacienda Luisita Inheritance from Coritita, his mother Amount included for transfer tax reporting

2,200,000 P5,500,000

P 50,000 10,000 5,000 100,000 1,000,000 P1,165,000

Problem 1–9 D Fair market value, higher amount Capital gains tax (P4,000,000 x 6%) Add: Documentary stamp tax (P4,000,000 x 1.5%) Total amount of taxes paid to the BIR Problem 1–10 C VAT (P10,000,000 x 12%) Income tax: Gross income (P10,000,000 – P6,000,000) Less: OSD (P4,000,000 x 40%) – tax minimization Net taxable income Multiplied by normal corporate income tax DST (P10,000,000 x 1.5%) Total national tax

P240,000 60,000 P300,000 P1,200,000 P4,000,000 1,600,000 P2,400,000 30%

720,000 150,000 P2,070,000

Problem 1–11 1. Letter A Subject to business tax is P6,000,000. Only sales within are subject to business tax. Subject to income tax: Total sales (P6,000,000 + P4,000,000) Total cost of sales (P2,000,000 + P1,500,000) Gross taxable income

P10,000,000 ( 3,500,000) P 6,500,000

Subject to transfer tax (P3,000,000 + P2,000,000)

P 5,000,000

Since the donor is a citizen, all of his properties donated within and without is subject to donor’s tax. 2.

Letter B Subject to business tax is P6,000,000. Only sales within are subject to business tax.

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 3 SUGGESTED ANSWERS Chapter 1: INTRODUCTION TO INTERNAL REVENUE TAXES

Subject to income tax: Sales – within Cost of sales – within Gross income

P6,000,000 (2,000,000) P4,000,000

Subject to transfer tax (P3,000,000 + P2,000,000)

P5,000,000

Since the donor is a citizen, all of his properties donated within and without is subject to donor’s tax. Problem 1–12 A a. The administrator of JC does not need to file and pay the Philippine estate tax because his properties are not situated in the Philippines. This is incorrect because the all properties of a Filipino citizen situated within and outside the Philippines are object of Philippine estate tax. Problem 1–13 1. B 2. O 3. O 4. O 5. O

6. B 7. B 8. O 9. T 10. T

Problem 1–14

Sales Gross income

Within

Without

Res. Citizen

3,000,000 600,000

2,000,000 400,000

3,000,000 1,000,000

1.

Taxpayer is a resident citizen a. P1,000,000 = [P5,000,000 – (P5,000,000/1.25)] b. P3,000,000

2.

Taxpayer is a resident alien a. P600,000 = [P3,000,000 – (P3,000,000/1.25)] b. P3,000,000

3.

Taxpayer is nonresident alien a. P600,000 = [P3,000,000 – (P3,000,000/1.25)] b. P3,000,000

Problem 1–15 1.

P720,000 = (P600,000 x 1.2)

2.

P180,000 = (P720,000 – P600,000) + (P660,000 – P600,000)

Problem 1–16 1. Tax returns: a. BIR Form 2551 – for business tax b. BIR Form 1701Q – for quarterly income tax return c. BIR Form 1701 – for annual income tax return

Taxable Amount Res. Alien 3,000,000 600,000

Non-Res. Alien 3,000,000 600,000

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 4 SUGGESTED ANSWERS Chapter 1: INTRODUCTION TO INTERNAL REVENUE TAXES

2.

Dates of filing and payments: a. On or before the 20th of each month (BIR Form 2551) b. April 15, August 15, and November 15 for the first 3 quarters and April 15 of the following year for the annual tax return.

Problem 1–17 1. a. Business tax (professional income-within)

P500,000

b.

Capital gains tax

c.

Regular income tax (professional income – within)

P500,000

d.

Transfer tax (P500,000 + P400,000)

P900,000

e.

Documentary stamp tax

2. Sale of land (capital asset) - within Capital gains tax (P3,000,000 x 6%) Documentary stamp tax (P3,000,000 x 1.5%) Donation to strangers – within and without Donor’s tax (P500,000 + P400,000) x 30% Professional income – within Other percentage tax (P500,000 x 3%) Income tax: Professional income within Less: OSD (P500,000 x 40%) Net income Less: Personal exemption Net taxable income – within Income tax on P250,000 Total amount of NIRT due in the Philippines

P3,000,000

P3,000,000

P180,000 45,000 270,000 15,000 P500,000 200,000 P300,000 50,000 P250,000

50,000 P560,000