Chapter 7 Introduction to Gross Income Income Defined Gross income means, in its broad sense, all income from whatever source, derived within or without the Philippines, whether legal or illegal. The tax code does not distinguish legal and illegal income. Proceeds of embezzlement or swindling, for instance, are income because’ embezzler or ‘swindler already has complete dominion over them and can use such for his economic benefit. In the case of James vs. United States, the Supreme Court of the U.S. held that “If a taxpayer receives income, legally or illegally, without consensual recognition of obligation to repay, that income is automatically taxable”. “Income” means all wealth which flows into the taxpayer, other than return of capital. It imports something distinct from principal or capital. On the other hand, “Capital” constitutes the investment which is the source of income. Therefore, capital is fund while income is the flow. Capital is wealth, while income is the service of wealth. Capital is the tree while income is the fruit (Vicente Madrigal et al v. James Rafferty, 38 Phil. 414). ILLUSTRATIVE CASE - INCOME FROM WHATEVER SOURCE Cloris a big-time swindle. In oe year, he was able to eam P,000,000 fom his swindling activites. When the Commissioner of Intemal Revenue discovered his income from swinding, the Commissioner assessed im a deficiency income tax for such income. Clifford protested the ascessment onthe folowing grounds: 4) Theincome tax applies only to egal income, not to legal incomes, 2) Cifras receipts from his swindling did not constitute income because he was under blgation to retum the amount he had swindled, hence his receipt from swinding was similar to a loan, whichis not income, because for every peso borowed, he has @ coresponding ably to pay one peso; and ifhe has to pay the deficiency income tax assessment, there willbe hardly anything left to rtum tothe victims ofthe swindling, How will you rule on each of the three grounds for the protest?lipter 7- Tekrideckion & Gross Jwcome ANSWER: 4) The contenton thatthe income tax apps to legal income and not fo legal come is not correct. Section 32(A) ofthe Tax Code includes wihin the purview of gross nome all Income from whatever source derived. Hence, the illegality of the income will not preclude the imposton ofthe income tax thereon. 2) The contention thatthe receips fom his swindling dd not consite income because of his obligaon to etum the amount swindled is likewise not corect. When a taxpayer _aoquies earings, awfully or unlawful, without the consensual recognition, express or implied, ofan obligation to repay and witout restriction as to their disposition, he has received tarable income, even though it may sill be claimed thal he is not ented to retain the money, and even though he may sill be adjudged to restore its equivalent (James vs. U.S;366 U.S. 213, 1961). To treat the embezzled funds not as taxable“ income would perpetuate injustice by relieving embezzlers ofthe duty of paying income taxes on the money they enrich themselves with through embezzlement, while honest people pay their taxes on every conceivable typeof income. 3) The deficiency income tax assessment isa direct tax imposed on the owner wich is an excise on the pvege to eam an income. It will not necessary be pad out ofthe same income that was subjected to the tax. Cfo’ liability to pay the taxis based on his havig realized a taxable income from his swindling actives and wil not affect his obligation to meke “esttutin’. Payment ofthe tax isa cl oblgaion imposed by law while resttuion i acl abit arising fom a crime. ILLUSTRATIVE FLOW OF WEALTH CASE —- Deposit with no interest does not produce income for the depositor because there is no flow of wealth. MERE RETURN OF CAPITAL ‘ Leclec lends Gore P1,000,000. Gore repays P1,000,000 plus P25,006 inlerest. The P1 000,000 isnot an income as this is merely a retum of epresenting interest is considered income. Examples of Return of capital and OTHER THAN Return of Capital: Mere return of capital Receipt other than mere return of capital "Collection of loans receivable Interest paid on loans receivable af s . Liquidating dividend... ‘Condonation of deb for services rendered ‘Amere increase in the value of . [Link] seling price over the cost of an asset property {rely a ine unrealized sold é t increase in capital) teal igke ih pe ne ga ap ho EO 354Oheter 7- Iutrodaction to- Gross Income Forms of Income Income may be “realized in any form, whether in money, -property, services, indirect economic benefit. Items indirectly benefitting taxpayers are excluded from gross income.’ Income includes the forms of income specifically described as gains derived from sale ot other disposition of capital (Madrigal vs. Rafferty, 38 Phil. 414). It also refers to the amount of money coming to a person or corporation within a specified time, whether as payment of services, interest, or profits from investment. (Fisher vs. Trinidad, 43 Phil. 973). Valuation of Income The amount of income ‘recognized is generally the value received or which the taxpayer has a right to receive. If the services were rendered at a stipulated price, in the absence of any evidence to the contrary, such price shall be presumed to be the fair market value of the compensation received. Transfer’ of. land made by a person’ to another in payment of services rendered in the form of attorney's fees shall be considered as part of the gross income of the latter valued at either the fair market value or the zonal valuation, whichever is nighet in the taxable year received (BIR Ruling #017- 2003). CLASSIFICATION OF INCOME: 1. Income as to source a. Compensation income. b, Professional income c. Business income d. Other income 2. Income as to territorial source a. Income within the Philippines b. ‘Income without the Philippines c. Mixedincome (partly within and without) 3. As to taxability > * Taxable income a. Ordinary or Regular income subject to [Link] normal tax such as the scheduler tax under Section 24(A) of the Tax Code, as amended = Reportable in the ITR (Quarterly and Annually, Filing) = Subject to expanded withholding tax, if applicable = Tax credits * Catch-all or basket of other income 355Closer 7-hsodetion to Gres Tctne b. Certain Passive Incomes ‘Subject to final withholding taxes Withholding taxes constitutes final payment of income tax Payor is obliged to withhold and remit the corresponding tax [Link] to include in the income tax return BIR will run after the withholding agent Applicable only to certain passive income derived from sources within the Philippines such as interest income on bank deposit and royalties. c ea gains subject to capital gains taxes, specifically: Gain on sale of shares of stock of a domestic and foreign corporations (as amended under the CMEPA) sold directly toa buyer. = Sale of real properties classified as capital assets located in ‘the Philippines, d. Special income subject to special rates. = ‘Income from registered business ‘activities of Registered Business Enterprises (RBEs) 'as granted by an Investment Promotion Agency (IPA) such as PEZA and BOI. RBEs:‘may be subject to Income Tax Holiday (ITH), or 5% Special Corporate Income Tax (SCIT) or Enhanced Deduction Regime (EDR) “>. Tax exempt income a. By constitutional mandate b. By statute (general or special) c. By international come, (ie., bilateral agreements, treaties) TAXABLE INCOME Section 31 of the Tax Code, as amended, provides that “Taxable income” means the pertinent items of gross income specified in the Tax Code, less deductions, if any, authorized for such type of income by the Tax Code or other special laws. It does not include income excluded by law, or which are exempt from income tax (Sec. 32, Code) as well as’ income subject to final taxes. Hence, it pertains to all income subject to basic and creditable withholding taxes, It includes gains, profits, and income derived from - whatever source, whether legal or illegal.Chapter 7- Itrodaction to Gross: Income Requisites for Income to be Taxable a) There must be gain. The gain need not be in cash derived from Doctrine of sale of assets. It may occur as a result of Constructive Receipt exchange of property, payment, assumption, It is not the actual reduction or cancellation of the taxpayer's receipt but the right to indebtedness (except gifts) or other profit receive that determines realized from completion of a transaction. when to include an amount in the gross b) The gain must be realized OR received. income (Filipinas A mere increase in the value of property Synthetic Fiber Corp. vs. without actual realization, either through sale CA). The right to or other disposition, is not taxable. The ‘eceive must be realization of income need not take the form unconditional, valid and of actual receipt or property by the taxpayer *forceable. as it may occur as where there is a constructive receipt of the income by the taxpayer. f The doctrine of constructive receipt complements the doctrine of actual receipt as a test of realization of income. An amount is constructively received when it is set aside and made available to a taxpayer without substantial restrictions. There is constructive receipt of income when: > Payment is credited to payee’s account; or Importance of the Doctrine > Payment is set aside for the payee, or of Constructive Receipt of otherwise made available so the payee —_Income: may draw upon it at any time, or so the —It_ prevents. a cash-basis payee could have drawn upon it during taxpayer «ftom deliberately the taxable year if notice of intention to . —tuming his back on income withdraw hed been given without and thereby selecting the ‘substantial limitations. Hence, there is no —_year in which he reports it. constructive receipt of income when: Not recognizing —the = Constructive receipt is subject to constructive receipt of income substantial limitations. as realized income clearly = Payor does not have funds would open the door to tax necessary to make payment. avoidance and, possibly, tax = The amount is not available to the ——_evasion. taxpayer/payee.Olepter 7- heave te Gs fea Ilustration-Constructive Receipt of Income: Case 1 George was informed that his check dated December 16, -2020 is already available and he can get it anytime. George did not get the check until January 30, 2021. In this case, George constructively received income in December 2020 and is taxable in that taxable period. Case 2 “An employer issued a bonus check to an employee on December 31, 2020 but asked her to hold it for few days until the company could make deposits to cover the check”. The income was not constructively received on December 31,.2020 since the issuer did not have sufficient funds in its account to pay the debt as of the issuance of the check. Case 3 - Other examples of income constructively realized = Cash or Property dividend received by individual taxpayers _ Share ofa partner in the net income of a general professional partnership or from a taxable partnership = Rent income deposited in court by a lessee of the property in view. of the “unjustified [Link] lessor (Limpian Investment Corp. vs Commissioner), Art. 1264 Civil Code c) The gain must not be excluded by law from taxation. Incomes that are exempt from tax by law or treaty are not considered in determining gross income. Income is recognized in the year it is actually or constructively received in cash or cash equivalent. Characteristics of Philippine Income Tax 1. National tax. It is imposed and collected by the National Government throughout the country. 2. General tax. It is levied without specific or a predetermined purpose. Hence, the revenue from income tax may be appropriated for general purposes. 3. Excise tax. It is imposed on the right or privilege of a person to receive or eam an income. 4. Direct tax. It is payable by the person upon whom it is directly imposed by law. It cannot be shifted or passed on to others. 5. Progressive tax. It is based upon one's ability to pay. The rate of income tax increases as the tax base increases.Chapter 7- Introduction ia Gross Income INCOME TAX SYSTEMS 1) Schedular Tax System vs. Global Tax System Under a ‘Schedular System”, the various typesiitems of income (compensation; business/professional income) are classified accordingly * and are accorded different tax treatments, in accordance with schedules characterized by graduated tax rates. Since these types of income are treated separately, the allowable deductions shall likewise vary for each type [Link]. On the other hand, all income received by a taxpayer under the “Global Tax System” are grouped together, without any distinction as to the type or nature of the income, and after deducting therefrom expenses and other allowable deductions, are subjected to tax at a fixed rate. The distinctions of the two income tax systems are summarized as follows: SEARED) Cul t Income tax rules varies = Uniform tax and made to depend on ‘treatment or rules the kind or category of taxable income of the taxpayer (Tan vs. del Rosario) 1. Classification * Categorizes or classifies. Does not “generally” of income income categorize or classify + income 2. Taxrates Imposes different tax Imposes uniform tax treatment and rates rales Individual taxpayers = NRFC, NRA-NETB ‘Approach used in the Philippines Partly: scheduler (ve, individuals) and part 2) Gross income [Link]. Net income taxation The income tax system of the Philippines may be characterized under two general categories, The Gross income taxation and Net income taxation. The different components of gross income for tax purposes are enumerated under Section 32 of the Tax Code, asamended. 359Clete 7- Vatrodaitions wo Gross Jucome =I CICS CUCU Ea eS EL Gross income taxation Net income taxation = No deductions or = Allows deductions/ exemptions exemptions allowed > Example: > Example:~ Retumable income Income subject to final taxes Gross income Net income NRA-NETB Individual taxpayers except Nonresident corporations. NRANET . Corporate taxpayers except nonresident foreign corporations Minimizes source of graft dust, fair and reasonable and coruption due to Equitable relief (deductions and minimization of margin of exemptions) to taxpayers discretion exercised by_ More revenue to the government revenue district officers. Minimizes tax evasion (subject Simplifies tax system to counterchecking by the BIR) \ i BASIC FEATURES OF PHILIPPINE INCOME TAXATION 1). It has adopted a comprehensive tax situs by using the nationality, residence, and source rules. This makes citizens and resident aliens taxable on their income derived from all sources while ‘non-resident aliens are taxed only on [Link] derived from within the Philippines. Domestic corporations are also taxed on universal income while foreign . corporations are taxed only on income from within. 2 The individual income tax system is mainly progressive in nature in that it provides a graduated rates of income tax. Corporations in general are taxed at a flat rate of either 20%, or 25% under the CREATE Act. 3) It has retained more scheduler than global features with respect to individual taxpayers but has maintained a more global treatment on corporations.er 7- Inbrodaction bo Gross Income SITUS (SOURCE/PLACE) OF INCOME Gross income may be derived entirely from sources within the Philippines, entirely from sources without the Philippines, 07 ‘tom sources partly within and partly The without the -Philippines. For income tax purposes, — generalrule is “source” refers to the activity, or property, or labor that —_ that the taxing gave rise or produced the income. Source, therefore, is. _ power cannot the origin of the income. “Situs” means the place of — gobeyond the taxation ofthe income or the country which has temtitorial limits jurisdiction to impose the tax (CIR v. Marubeni Corp). ° ofthe taxing The State where the subject to be taxed has a situs may authority rightfully levy and collect the tax. The situs is necessarily in the State which has jurisdiction or which exercises dominion over the subject in question. Knowledge of the “situs” of a particular income is vital in determining the taxable income as some taxpayers are taxable on their income from all sources (income within and without such as in the case of resident citizens and domestic corporations) while others are taxable only on their income from sources within the Philippines only. Knowledge of “situs” also avoids a taxpayer's risk of failing to declare income which are taxable in the Philippines - and likewise ensure that only income taxable in the Philippines is assessed by the regulatory bodies, specifically the Bureau of Internal Revenue (BIR). Factors affecting Situs-of income are as follows:’ = — Residence or domicile of the taxpayer = Nationality = Source of income RULES in determining the “situs” of income: 1... Interest Intérest income refers to:income derived from interest on bonds, notes or other interest-bearing obligations of residents, corporate or otherwise. The test of source of income is the residence of the debtor. 2. Income from services Income from services refers to compensation for labor or personal services performed. The test of source of income is the place or performance of the service rendered. When services are performed partly within the Philippines and partly without the Philippines, the - allocation should be based on “time” rendered within and without the [Link] as follows;: Chapter 7- Sadroduction te Gross Jucome No. of days’of performance in RP No. of days of performance in RP & outside x Compensation of RP received 3. Rentals and Royalties The test of source of income is the location of the property or place * where the intangible is used. Rentals and royalties refer to rentals and royalties from property or from any interest in such property, including rentals and royalties for: a. The use of or the right or privilege to use in the Philippines any copyright, patent, design or model, plan, secret formula or process, goodwill, trademark; trade brand or other like property or right; b. The use of, or the right to use in the Philippines any industrial,’ commercial or scientific equipment; c. The. supply of scientifie, ‘technical, industrial 106 commercial inawledge or information; d. .The supply [Link] assistance that. is ancilary ‘and subsidiary to, and is furnished as a means of enabling the application or enjoyment of, any such property or right as. is mentioned in paragraph (a), any such equipment as is mentioned in paragraph (b) or-any such knowledge or information as is mentioned in Paragraph (c); e. The supply of services by a nonresident person or his 5 aeiajes in connection with ‘the use of property or rights ‘belonging to, or * the installation or operation of any brand, machinery or other apparatus purchased from such nonresident person; f, Technical advice, assistance or services rendered in. connection with technical management or administration. of any scientific, industrial or commercial undertaking, venture, project or scheme; and the use of or the right to use: = Motion picture films; : « Films or video tapes for use in connection with television; and = Tapes for use in connection with radio broadcasting,2 Chase es Iitsadeciae to Gross Jucome 4. Gain on sale of real property. The test of source of income is the location of the real property. 5. Gain on sale of personal property. The test of source of income is the : “place of sale” except sale of shares of Gain from the sale of stocks of a domestic corporation. shares of stock in a Gains, profits and income derived from domestic corporation the purchase of personal property within shall be treated as and its sale without the Philippines, or derived entirely from from the purchase of personal property sources within the without and its sale within the Philippines regardless Philippines shall be treated as derived — of where the said entirely form sources within the country shares are sold. in which itis sold. : 6. Dividend Income Dividend income may be considered as purely income within or purely income without the Philippines or partly income within and without. The following rules shall be observed: TABLE 7-3: Situs of Dividend Income SOURCE OF DIVIDEND SOURCE OF INCOME FROM Foreign corporation {| =» Based onthe ratio ofthe Gross Income (Gl) of the foreign corporation forthe preceding 3 years prior to declaration of dividends derived from Philippine sources. Ratio:’ URatiois: GiPhils. x Dividend = <50%: Income is treated as entirely Ghar derived from sources outside of the Philippines 250%: Income is derived entirely from sources within the Philippines 363Chapter 7- Introduction to Gross Tucome SITUS OF DIVIDEND INCOME . FROM FOREIGN CORPPORATIONS (Sec. 42 of the Tax Code, as amended) The tax treatment of dividends received by a domestic corporation from a foreign corporation will depend on the sources of income of the foreign corporation. Under Section 42(A)(2)(b) of the Tax Code, as amended, dividend from a foreign corporation shall be treated as income derived from sources WITHIN THE PHILIPPINES UNLESS less than 50% of the gross income of the foreign corporation for the three-year period ‘ering with the close of its taxable year preceding the declaration of such dividends (or for such part of the period as the corporation has, been in existence). was derived from sources within the Philippines. |. Mining tye test of: source of i income is the Piece Where mine is located Farming - : 3 : The test of ‘source of inconie i is the | place where farm is located ). Manufacturing Business “Source of Income = Produced and [Link], Within * Produced and sold without Withiout : * Produced in whole/part, Partly within and without sold without * Produced in whole/part without Partly within and without and sold within The term “produced” includes created, fabricated, manufactured, » extracted, processed, cured or aged i 42(F) of the Tax Code, as amended].CHAPTER pel on) MULTIPLE CHOICE. Choose the letter of the correct answer. 1. Income, for tax purposes: 1. Means all income’ from whatever source (legal or illegal), unless specifically excluded under the Tax Code. I Mears: all wealth which flows into the taxpayer other than return of capital. Ill. Is recognized in the year it is actually or constructively received. |V. Refer to the amount of money coming to a person or corporation within a specified time, whether as payment of services, interest, or profits from investment. a. |, land Ill only c. Ill, Illand IV b. land IV only d. None of the above 2. The sources from which income is derived a. Labor b. The use of capital c. Profits derived from sale or exchange of capital Beeats d. Allof the above 3. The sources from which income is derived A. B. C. D.- Labor True . True ‘True False Gifts and inheritance True False False False Use of capital True True. False. False 4. Which of the following is a characteristic of income?. + % A. B. Cues Increase in taxpayer's wealth True True True False Realization of gain Trié | False False. False Return ‘on taxpayer's wealth True True _False__ False 5. Which of the following is a requisite for an income to be taxable? a. There must be gain b. [Link] must be realized or received c. The gain must not be excluded by law from taxation d. Allofthe above 6. Which of the following is not an income for income tax purposes? a. Gain derived from labor b. Retum on capital c. *. Excess of selling price over cost of assets sold d. Gift received 365lair 7 —Iabrdecion to Gras Irene 7. Which of the following is not an income for income tax purposes? ‘a. Collection of loans receivable b. Condonation of debt for services rendered c. Excess of selling price over the cost of an asset sold “d. None of the above 8. Which of the following is not a characteristic of income? a. Increase in taxpayer's wealth. b. Realization or receipt of gain. c. Eamings constructively received. d. Return of taxpayer's wealth. 9. Whici is not a valid definition of income? a. Income is the return from capital invested. b. Income is a fund at one distinct point of time. c. Income means all wealth which flows [Link] taxpayer other than a mere return of capital. d. Income means cash or its equivalent unless otherwise specified. 10. Which of the following is considered or construed as an example of “constructive receipt"? — a.” Retirement benefits, pensions, gratuities b. Fees paid toa public official c. Interest coupons that have matured and are payable but have not been cashed d. Deposits for rentals to answer for. damages; restricted as to use. 11. Constructive receipt occurs when the money consideration or its’ equivalent is placed at the control of the person who renderéd the service without restrictions by the payor; The following are examples of constructive receipts, excépt: a. Asecurity deposit to insure the faithful performance of certain obligations of the lessee to the lessor. b. Deposit in banks which are made available to the seller of services without restrictions; c._ Issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by the seller as payment for services tendered; d. Transfer of the amounts retained by the payor to the eecount of. the contractor.lapter 7 — Introduction & Gross cae 12. There is constructive receipt of income when: a. Payments credited to payee’s account. b. Payment is set aside for the payee, or otherwise made available so the payee may draw upon it at any time, or so the payee could have drawn upon it during the taxable year if notice of intention to withdraw had been given without substantial limitations. c. Botha’ and “b” d. Neither “a” nor “b” 13. When different types of income are subjected to common tax rate, the tax system is described as a. Global tax system b. Scheduler tax system c. Final tax system d. Mixed income tax system 14, Situs of taxation on income from sale of property purchased. a. Place of the seller b. Place of sale c. Place of buyer d. As determined by:the Commissioner 15. Which of the following test of source of income is incorrect? a. Interest income - residence of the debtor b. Income from services ~ place of performance c. Royalties — place of use of intangible - d.- Gain on sale of real property — place of sale 16. Situs of taxation on income from sale shares of a. domestic corporation. a. b. c d. Always treated as income derived from within the Philippines ‘Always treated as income derived from without the Philippines May be treated as income within or without the Philippines depending on the place of sale May be treated as income within or without the Philippines depending where ‘he. shares are kept 17. Situs of taxation on income from sale shares of a foreign corporation. _ |. Always treated as income derived from within the Phil . Always treated as income derived from’ without the Philippines pines May be treated as income within or without the Philippines depending on the place of sale |. May be treated as income within or without the Philippines depending where the shares are kept 367apes Y —Ietreduction be Gross Income 18. Pedro earned interest income from a promissory note issued to him by Juan, a resident of California, U.S.A. Assuming that Pedro is a nonresident citizen, the interest income is a. Subject to basic income tax b. Subject to final tax c. Nof subject to income tax d. Partly subject to scheduler and partly subject to final tax 19. It is important to know the source of income for tax purposes (i.e., from within or without the Philippines) because: a. Some individual and corporate taxpayers are taxed on their worldwide income while others are taxable only upon income from ‘sources within the Philippines b. The Philippines imposes income tax only on income from sources within % c. Some individual taxpayers are citizens while others are aliens d. Export sales are not subject to income tax 20. Situs, for taxation purposes will depend upon various factors, including |. The nature of the tax and the subject matter thereof. I. The possible protection and benefit that may accrue both ~ to the government and to the taxpayer. : Ill. Domicile'of residence -, \V. Citizenship V.. Source of income a. | and V only s 1,1, Vand V b. 1, Ill and IV only ‘I, Il, Ill, Vand V a1 wey of the following is NOT true about source of income? In case of income derived from labor, source is ihe place where * the labor is performed. b. Incase of income derived from use of capital, source is the place where the capital is employed. c. Incase of profits from the sale or exchange of capital assets, source is the place or transaction occurs. d. , None of the above, 22. All of the following are correct except one. Which is the exception? a. The source:of interest income is the country where the debtor resides. b. The source of interest income is the country where the creditor “resides.leper 7 Introduction to- Gross Income c. Rents or royalties are considered derived from the country where the property is located. d. Income from personal services is considered derived from the county where the services were rendered. 23. Statement’: A gain from sale of shares of a domestic corporation shall be considered derived from the Philippines regardless of where the shares were sold, Statement 2: A gain from a sale of shares of a foreign corporation shall be considered derived from the country where the corporation was created or organized. a. Statements 1 and 2are false b. Statement 1 is true but statement 2 is false c. Statement 1 is false but statement 2 is true d. Statements 1 and 2 are true 2 & . Which of the following is not an income derived from sources within the Philippines for income tax purposes? a. Interests derived from bonds issued by a foreign corporation b. Interest on notes or other interest-bearing obligations of residents c. Both “a” and “b" d. Neither ‘a” nor “b” 25. A cash dividend of 2100,000 received by a taxpayer from a resident foreign corporation, whose income from Philippine sources was 40% of its total income is Statement 1: Partly taxable if he is a resident citizen. Statement 2: Partly taxable if he is a non-resident alien | a. Statements 1 and 2 are false b. Statement 1 is true but statement 2 is false c. .Statement 1 is false but statement 2 is true d, Statements 1 and 2 are true 2 S Using the above data, which of the following is correct? The cash dividend is a. Exempt from income tax if he is a resident citizen. b, Partly taxable if he is a resident alien. c. Taxable in full if he is a nonresident citizen, d. Exempt from income tax if he is a nonresident alien. 369Chapter 7 Inbroduction to Gross Sucome 27. A taxpayer is employed by a shipping company touching Philippine and foreign ports. During the year, he received a gross payment for his services rendered of R300,000. In that year, the vessels on board of which he rendered services had a total stay in Philippine ports of four months. His gross income from the Philippines was: a. P300,000 c. P150,000 b. PO d. P100,000 28. Assume the following: Gain on sale of personal property purchased in the 400,000 Philippines and sold in Hongkong Compensation received for personal services in the 200,000 Philippines Rent income from real property in Malaysia 300,000 Gain from sale in the Philippines of shares of a 100,000 foreign corporation 6 Deductions identified with: Philippine income 80,000 Foreign income : 120,000 Deductions unidentified with any particular income 30,000 The Philippine net income should be: a. P220,000 c. P190,000 b, P211,000 d. P111,000 29. Pedro, an operator of Offtrack Betting Station, has the plowing data during the taxable year: Gross income from bets -P600,000 Rental expenses for the space where bets are 120,000 received, gross of 5% withholding tax Salaries of assistants 100,000 Bribe money to authorities 50,000 How much is the taxable income of Pedro? a. P380,000 c. P180,000 b. P330,000 d. P150,000Clete 7 — Introduction to- Gress Income Use the following data for the next two (2) questions: ‘A resident alien had the following during the taxable year: Gross income, Philippines « P2,000,000 Business expenses 1,200,000 Dividends received: From domestic corporation (net) 60% of its income came from the Philippines 40% of its income came from the Philippines From resident foreign corporation (gross), 60% of its income came from the Philippines 40% of its income came from the Philippines 30. How much is the taxpayer's taxable income? a. P830,000 c. P796,000 b. P850;000 : d. P800,000 31. How much is the correct final withholding tax? a. P16,200 c. P25,200 b. P18,000 d. P26,000 Use the following data for the next two (2) questions: 90,000 72,000 50,000 40,000 ABC Corporation, a domestic corporation had the following data during the year: Gross Income, Philippines Allowable itemized deductions/expenses Dividend income FROM: a) Diaz Corporation, a domestic corporation b) Tokyo -Corporation, a resident foreign corporation, 80% of its gross income were derived from the Philippines Olympiad’ Corporation, a resident foreign corporation, 50% of its gross income were derived from the Philippines Nonresident foreign corporation, 25% of its gross income were derived from the Philippines °) d 32. The taxable income should be: a. P6,400,000 c. R7,700,000 b. P7,500,000 d. 8,200,000 10,000,000 4,000,000 1,000,000 900,000 800,000 400,000Chapter 7 Introduction to Gross Income 33. Assume ABC Corporation is a resident foreign corporation, how much is its taxable income during the year? a. P6,400,000 c. R7,700,000 b. P7,500,000 d. P8,200,000 Use the following data for the next two (2) questions: Lenovo, Inc., a resident foreign corporation, has earned the following income during the taxable year: Dividend income from: Microsoft, a non-resident corporation 500,000 Intel, a resident foreign corporation 400,000 IBM, a domestic corporation 300,000 Interest income from: 3 Current account, BDO 600,000 Savings deposit, ABN-AMRO bank, UK - 700,000 US dollar deposit (FCDU)- BP! Makati ‘ 800,000 Royalty income from various domestic corporations: 400,000 Additional information: * The ratio of Microsoft's gross income in the Philippines over worldwide income for the past three years was.40%. « The ratio of Intel’s gross income in the Philippines over-worldwide income for the past three years was 60%. » The ratio of IBM's gross iricome in the Philippines over worldwide income for the past three years was 80%. , 34. How much is the total income tax expense of Lenovo (Apply CMEPA)? a. P200,000 : c. P360,000 b. P400,000 d. P400,000 : i 35. Assuming Lenovo is a domestic corporation classified as MSME, how much is its total income tax expense (Apply CMEPA)? a. P300,000 c. P500,000 b. P400,000 d. P540,000