UNIVERSITY OF THE PHILIPPINES COLLEGE OF LAW

Diliman, Quezon City

MOCK BAR (Set 1) EXAMINATIONS 2012 TAXATION

INSTRUCTIONS: Choose the correct answer by shading the circle of the corresponding letter of your

answer. Do not write anything in the questionnaire. Turn in the questionnaire at the end of the exam.

1. The following are similarities of the inherent powers of taxation, eminent domain, and police power, except: A. they are necessary attributes of sovereignty B. they interfere with private rights and property C. they affect all persons or the public D. legislative in implementation 2. Which of the following statements about double taxation is true? A. Indirect double taxation is a valid defense against the legality of a tax measure. B. Double taxation standing alone is prohibited by the 1987 Constitution. C. There is no double taxation if an item of income is taxed in the Philippines and the same income is taxed in another country. D. In order to constitute double taxation in the strict sense, the tax imposed must be of the same kind or character. 3. Which is not a usual method of eliminating double taxation? A. Allowance of deduction for foreign taxes paid. B. Reduction of Philippine tax rate. C. Reduction of allowable tax credits for foreign taxes paid. D. Allowance of reciprocal exemptions by law or by treaty. 4. Which of the following pertains to the constitutional guaranty which provides that all taxable articles and property of the same class should be taxed at the same rate? A. equity in taxation B. rule of uniformity in taxation C. equal protection of law D. due process of law 5. Citing Section 10, Article VIII of the 1987 Constitution which provides that salaries of judges shall be fixed by law and that during their continuance in office their salary shall not be decreased, a judge of a Regional Trial Court questioned the deduction of withholding taxes from his salary since it results into a net deduction of his pay. Is the contention of the judge correct? A. No. The contention is incorrect because taxes are enforced contributions. B. No. The contention is incorrect because taxes must be collected in order to support the government. C. No. The contention is not correct because deduction of withholding taxes is not a diminution contemplated

by the Constitution. D. No. The contention is incorrect because deduction of withholding taxes is required by law. 6. Which of the following are taxed based on their gross income?

A. Non-Resident Alien engaged in trade or business in the Phils. B. Non-Resident Alien not engaged in trade or business in the Phils. C. Resident Alien D. Non-Resident Citizen 7. Which constitutional limitation of taxation is being complied with the serving of assessment notices to delinquent taxpayers? A. due process of law B. equal protection of law C. rule of uniformity D. non-impairment clause 8. The power to tax involves the power to destroy, said Chief Justice Marshall of the US Supreme Court. This should be construed to mean that: A. The power of taxation is unlimited B. The power to tax may be used solely for the purpose of raising revenues. C. The power to tax includes the power to regulate even to the extent of prohibition or destruction. D. The power to tax is superior to all other forms of the government. 9. The following are similarities of taxation, police power and eminent domain, except: A. all are inherent to the existence of the state B. all have a corresponding form of compensation C. all are superior to the non-impairment clause D. all are limited for public purposes 10. Gross income means all income derived from whatever source, including the following items except: A. Pensions B. Prizes and winnings C. Rents D. Stock dividends 11. What is the rate of fringe benefits tax for the Mr. Singh, an Indian national not engaged in the trade or business in the Philippines? A. 15% B. 20% C. 25% D. 32% 12. Exclusions from gross income under the Tax Code include the following except: A. Veterans benefits B. Compensation for injuries and sickness C. Gifts, bequests, and devises D. Gains from redemption of shares of stock 13. Allowable deductions are distinguished from personal exemptions in that: A. The former may be availed of only by corporate taxpayers, whereas the latter may apply to individual taxpayers. B. The former applies to corporate and individual taxpayers engaged in business or are practicing their

profession, whereas the latter covers only natural persons. C. The former may be found in Section 34, while the latter is granted under Section 35. D. The former is a privilege while the latter is a matter of right.

14. The Roman Catholic Church owns a 2-hectare lot in a town in Tarlac province. The Church and a convent occupy the southern side and middle part. The southeastern side by some commercial establishments, while the rest of the property, in particular the northwestern side, is idle or unoccupied. Which of the following is correct?

A. The Church may claim tax exemption on the entire land. B. The exemption covers only the southern side and middle part occupied by the Church and a convent and

the eastern side by a school run by the church. C. The tax is imposable on the northwestern side which is idle or unoccupied. D. The entire property is taxable for real property taxation 15. XYZ Colleges is a non-stock, non-profit educational institution run by the Archdiocese of BP City. Which of

the following item(s) is included in its Income Tax Return? A. Tuition fees B. Laboratory fees C. Rentals from canteen concessionaires D. Interest from money-market placements of the tuition fees 16. The following statements are correct regarding Research and Development cost, EXCEPT.

A. Land and building acquired for research and development purposes is not deductible as research and development cost;

B. May be claimed as an outright deduction from gross income; C. May be treated as deferred expense to be amortized over the period which will benefit from the

expenditure; D. May be treated as deferred expense to be amortized over a period of not less than sixty months from

the date benefit from the expenditure is derived.

17. Who among the following cannot report income on the installment method? A. Dealer of personal property regularly selling on installments; B. Casual seller of personal property other than inventory, if the selling price does not exceed one

thousand pesos (P1000) and the initial payments do not exceed twenty-five percent (25%) of the selling price;

C. Seller of real property if the initial payments do not exceed 25% of the selling price; D. Seller of real property even if the initial payments exceed 25% of the seller price, as long as

installment sales are made regularly.

18. Which of the following statements is INCORRECT? A. Bad debt is an expense in the books of accounts when a provision is made for it. B. Bad debt is a deduction from the gross income when the account is written off. C. The cost of leasehold improvements shall be deductible by the lessee by spreading the cost of the

improvements over the life of the improvements or remaining term of the lease, whichever period is longer.

D. Depreciation expense can be a deduction for both tangible and intangible property with limited useful life.

19. Which of the following is subject to the Improperly Accumulated Earnings Tax?

A. Taxable partnerships B. Taxable joint ventures C. General professional partnerships D. Mining companies

20. In 2011, a non-resident citizen sold shares of stock of a domestic corporation held as capital asset, directly to a buyer, at a selling price at fair market value of P400,000, when the cost to him was P320,000 the payments were in two years: P100,000 in the year of sale and P300,000 in the following year. The capital gains tax in 2012 is?

A. P4,000 B. P3,000 C. P2,000 D. P1,000

21. On general rules on capital gains and losses, which statement is incorrect? A. Capital gains and losses of corporations are always considered at one hundred percent (100%),

regardless of the length of the holding period of the asset of the asset. B. Capital gains and losses for individuals, estates, and trust, take into account the holding period of the

capital asset; C. Capital losses are always deductible only to the extent of capital gains; D. The net capital loss of one year can be carried over to the succeeding year.

22. Which income from sources partly within and partly outside the Philippines is allocated on the time basis?

A. Income of an international shipping corporation with vessels touching Philippine ports; B. Income from personal services performed in part in the Philippines and in part abroad. C. Income of a telegraph company with transmission from the Philippines to points abroad. D. Income from goods produced in whole or in part in the Philippines and sold in a foreign country, or

vice versa. 23. In 2011, A Corp., a domestic corporation paid cash dividend to X Corp., a non-resident foreign corporation organized in Canada. What is the tax treatment of this transaction?

A. The dividend received shall be taxed at 10% in the Philippines if Canada will credit 100% of the tax imposed in the Philippines.

B. The dividend received shall be taxed at 15% in the Philippines if Canada will credit at least 20% of the tax imposed in the Philippines.

C. The dividend received shall be taxed at 15% in the Philippines if Canada will credit at least 15% of the tax imposed in the Philippines.

D. The dividend received shall be taxed at 30% in the Philippines if Canada will not credit any amount less than 20% of the tax imposed in the Philippines.

24. Which of the following is false regarding wash sales?

A. Within a period beginning thirty days before, and ending thirty days after the date of sale or disposition, there was an acquisition of shares or securities.

B. Within a period beginning thirty days before, and ending thirty days after the date of sale or disposition, there was an option to acquire shares or securities.

C. Generally deductible unless made by a dealer in stock or securities. D. It involves substantially identical stock or securities.

25. An individual client not engaged in realty business paid in full the P 50,000 attorney’s fees of his counsel

in lot which he bought in 1990 for P 5,000 and which has a fair market value of P 60,000. Which of these is correct?

A. The client-transferor is subject to final capital gains tax based on Php 60,000 B. The client-transferor is subject to final capital gains tax based on Php 50,000 C. The client-transferor is not subject to final capital gains tax D. The client-transferor is subject to income tax for the difference between Php 50,000 and Php 5,000 26. Zero Corporation is registered under the laws of the United states. It has extensive operations in Southeast Asia. In the Philippines, Its products are imported and sold at a mark-up by its exclusive

distributor, Uno's Trading, Inc. The BIR compiled a record of all the imports of Uno from Zero Corp. and imposed a tax on Zero net income derived from its exports to Kim. Is the BIR correct?

A. Yes. Zero is a non-resident foreign corporation engaged in trade or business in the Philippines. B. No. The tax should have been computed on the basis of gross revenues and not net income. C. No. Zero is a non-resident foreign corporation not engaged in trade or business in the Philippines. D. Yes. Zero is doing business in the Philippines through its exclusive distributor Uno's Trading. Inc.

27. Jason got married to Kat last January 2005. On November 30, 2005, Kat gave birth to twins.

Unfortunately, however, Kat died in the course of her delivery. Due to complications, one of the twins also died on December 15, 2005. In preparing his Income Tax Return (ITR) for the year 2005, what should Jason indicate in the ITR as his civil status?

A. Single B. Married C. Head of the family D. Widower. 28. A pension plan was established in 2011 requiring a lump sum payment of P2,000,000 into the fund to provide for services of employees before the establishment of the plan, and contribution annually of P100,000 beginning 2011. the deduction of the employer in 2011 would have been:

A. P100,000 B. P300,000 C. P2,000,000 D. P2,100,000

29. Kirk, a Filipino citizen, pays his real estate taxes promptly. Due to a series of typhoons and adverse economic conditions, an ordinance was enacted by the Sangguniang Panlungsod of Quezon City granting a 50% discount for payment of unpaid real estate taxes for the preceding year and the condonation of all penalties on fines resulting from the late payment. Arguing that the ordinance rewards delinquent taxpayers and discriminates against prompt ones, Kirk demanded that he be refunded an amount equivalent to one-half of the real estate taxes he paid. The city attorney rendered an opinion that Kirk cannot be reimbursed because the ordinance did not provide for such reimbursement. Kirk filed suit to declare the ordinance void on the ground that it is a class legislation.

Will his suit prosper? Choose the best answer.

A. A. The suit will prosper because the ordinance is discriminatory in character. B. B. The suit will prosper because the ordinance is not based on substantial distinction. C. C. The suit will not prosper because taxes are the lifeblood of the government and should be

collected without unnecessary hindrance. D. D. The suit will not prosper because the ordinance is based on substantial distinction. Each set of

taxes is a class by itself and the law would be open to attack only if all the taxpayers belonging to one class were not treated alike.

30. May the collection of taxes be barred by prescription? A. Yes, provided that they are income taxes. B. Yes, provided that they are local taxes. C. Yes, provided that they are custom duties. D. Yes, provided that the tax law provides for prescriptive periods. 31. Taxable rent income includes the following items except: A. Value of permanent improvement B. Premiums paid on the insurance of the leased premises C. Royalties D. Interest on bond issued by the lessor

32. Income from long-term contracts may not be reported under one of the following methods: A. Outright method B. Spread-out method C. Accrual basis D. Cash basis 33. Jason got married to Kat last January 2005. On November 30, 2005, Kat gave birth to twins. Unfortunately, however, Kat died in the course of her delivery. Due to complications, one of the twins also died on December 15, 2005. In preparing his Income Tax Return (ITR) for the year 2005, what should Jason indicate in the ITR as his civil status? A. Single B. Married C. Head of the family D. Widower. 34. The Roman Catholic Church owns a 2-hectare lot in a town in Tarlac province. The Church and a convent

occupy the southern side and middle part. The southeastern side by some commercial establishments, while the rest of the property, in particular the northwestern side, is idle or unoccupied. Which of the following is correct?

A. The Church may claim tax exemption on the entire land. B. The exemption covers only the southern side and middle part occupied by the Church and a convent and

the eastern side by a school run by the church. C. The tax is imposable on the northwestern side which is idle or unoccupied. D. The entire property is taxable for real property taxation 35. Which of the following is subject to estate tax?

a. Accident insurance proceeds

b. Proceeds of life insurance when the beneficiary is the estate of the deceased

c. Proceeds of a group insurance policy taken out by a company for its employees

d. Benefits accruing under the SSS Law

36. XYZ Colleges is a non-stock, non-profit educational institution run by the Archdiocese of BP City. Which of

the following item(s) is included in its Income Tax Return? A. Tuition fees B. Laboratory fees C. Rentals from canteen concessionaires D. Interest from money-market placements of the tuition fees

37. Which of the following is exempt from VAT?

a. Services rendered by Jolly’s Construction Company, a contractor to the Asian Development

Bank in the renovation of its office in Ortigas

b. Sale of fresh fruits and vegetables by Aling Puring at Nepa Q-Mart

c. Sale of tractors and other agricultural implements by AgriProducts, Inc. to local farmers

d. Sale of RTW by Patis Tesoro, a well-knowned fashion designer in her dress shop and other

outlets in the Philippines

38. What is vanishing deductions in estate taxation?

a. Vanishing deductions refer to the diminishing deductibility at the rate of 20% over a period

of five years until it is lost after the fifth year, of any property situated inside and outside the

Philippines, forming part of the gross estate, acquired by the decedent from a prior decedent

who died within a period of five years from the decedent’s death.

b. Vanishing deductions refer to the diminishing deductibility at the rate of 20% over a period

of five years until it is lost after the fifth year, of any property situated in the Philippines,

forming part of the gross estate, acquired by the decedent from a descendant who died

within a period of five years from the decedent’s death.

c. Vanishing deductions refer to the diminishing deductibility at the rate of 20% over a period

of five years until it is lost after the fifth year, of any property situated in the Philippines,

forming part of the gross estate, acquired by the decedent from a prior decedent who died

within a period of five years from the decedent’s death.

d. Vanishing deductions refer to the diminishing deductibility at the rate of 20% over a period

of five years until it is lost after the fifth year, of any personal property situated in the

Philippines, forming part of the gross estate, acquired by the decedent from a prior decedent

who died within a period of five years from the decedent’s death.

39. JR was a passenger of an airline that crashed. He survived the accident but sustained serious physical injuries which required hospitalization for 3 months. Following negotiations with the airline and its insurer, an agreement was reached under the terms of which JR was paid some amounts. Which of the following amounts constitute taxable income? A. Php 500,000 for his hospitalization B. Php 250,000 as moral damages C. Php 300,000 for loss of income during the period of his treatment and recuperation JR received from his employer D. the amount of P200,000 representing the cash equivalent of his earned vacation and sick leaves 40. ABC Corporation donated a piece of vacant lot in Quezon City to an accredited and duly registered non-

stock, non-profit education institution to be used by the latter in building a laboratory for the students. The

donor may—

a. Claim in full as deduction from its gross income the amount of the donated lot equivalent to

its fair market value.

b. Claim the deduction from its gross income the amount of the donated lot based on its

acquisition cost.

c. Claim exemption from donor’s tax if more than 30% of the donation is used by the done for

administration purposes.

d. Claim exemption from donee’s tax if not more than 30% of the donation is used for

administration purposes.

41. Mr. Bill Cosby, an American citizen, and a resident of New York City, U.S.A sends a gift check of Php 10,000

to his future Filipino daughter-in-law, Cristine, who is to be married to his only son, Rayver, in the

Philippines. Who is liable to pay the donor’s tax?

a. Bill Cosby

b. Cristine

c. Rayver

d. No one is liable because the donation made to Cristine was on account of marriage.

42. The value-added tax due on the sale or lease of taxable goods or properties or services by any VAT-

registered person is the—

a. Input tax

b. Output tax

c. Presumptive tax

d. Transitional tax

For 43 and 44: Odin owns a commercial lot which he bought many years ago for P1 Million. Its current fair market value is P20 Million but its zonal value is only P15 Million. He donates one-half pro indiviso interest in the land to his son, Loki, on 31 December 2009 and the other one-half pro-indiviso interest to the same son on 2 January 2010.

43. How much is the value of the gifts in 2009?

a. P15 Million

b. P20 Million

c. P10 Million

d. P7.5 Million

44. How much is the value of the gifts in 2010?

a. P15 Million

b. P20 Million

c. P10 Million

d. P7.5 Million

45. A VAT of 12% is imposed on—

a. Sales of abaca fiber to Greasy Ropes, Inc., an enterprise engaged solely in the exportation of

ropes to Mexico

b. Consignment of pieces of furniture to LAMB Warehouse after the lapse of 60 days from the

day Margarita consigned them

c. Sales of converted vehicles assembled in Laguna to Randall Raines, an American hoodlum

residing in California, to be delivered to Chav Singson, a Filipino residing in Ilocos, paid in US

Dollars

d. Importation of three Bombardier Q300, Turboprop jets, by Philippine Airlines Inc., to be

used for its domestic operations

46. Sale of goods by a VAT-registered person located in the customs territory will also be deemed as—

a. Domestic sale, subject to 12% VAT

b. Export sale, subject to zero-rating

c. Importation, subject to zero-rating

d. Domestic sale, subject to VAT exemption

47. The following transactions shall be deemed sale except—

a. Transfer not in the course of business of goods originally intended for sale in the course of

business

b. Distribution to shareholders or investors as share in the profits of the VAT-registered

persons

c. Retirement from business with respect to inventories of taxable goods existing as of such

retirement

d. Consignment of goods where actual sale is made in 15 days from date of consignment

48. Mr. Tan leased his house in Ayala Alabang, Muntinlupa City to Mr. Sy for a rental fee of P50,000 per

month. The contract was executed in Beijing, China. The lease is subject to—

a. 12% VAT

b. 0% VAT

c. Exemption from VAT

d. 3% Percentage Tax

49. The value-added tax due from or paid by a VAT-registered person in the course of his trade or business on

importation of goods or local purchases from a VAT-registered person is the—

a. Input tax

b. Output tax

c. Presumptive tax

d. Transitional tax

50. An individual client not engaged in realty business paid in full the P 50,000 attorney’s fees of his counsel

in lot which he bought in 1990 for P 5,000 and which has a fair market value of P 60,000. Which of these is correct?

A. The client-transferor is subject to final capital gains tax based on Php 60,000 B. The client-transferor is subject to final capital gains tax based on Php 50,000 C. The client-transferor is not subject to final capital gains tax D. The client-transferor is subject to income tax for the difference between Php 50,000 and Php 5,000