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Questions and Answers
What is the final withholding tax rate for the gross income of a non-resident alien not engaged in trade or business?
A non-resident foreign corporation received interest income from a Philippine bank. How is this income treated for tax purposes?
Which type of income should be reported by a corporation on an accrual basis?
In calculating net income, which of the following is NOT an allowable deduction?
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Gross income includes all of the following EXCEPT:
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If a resident citizen receives cash dividends from a domestic corporation, what is the final tax rate applied?
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What is the Final Tax for the ₱40,000,000 collected by the BIR based on Alicia's information?
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If the tax seized by the BIR amounted to only ₱40,000, what is the Final Tax?
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Which of the following income items are subject to final withholding tax for non-resident foreign corporations?
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Which of the following income items are taxable on an accrual basis?
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Which of the following income items should be included in the taxpayer's gross income calculation?
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Which of the following income items are eligible for deductions in the taxpayer's net income calculation?
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Which type of entity may be entitled to a preferential tax rate of only 15% on dividends received?
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Which of the following is a power of the Commissioner of Internal Revenue?
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Under what condition can an offer to compromise based on financial incapacity be accepted?
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What is the interest income from a deposit subject to if it incurs a 25% final withholding tax?
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Who exercises the power to impose taxes under the Local Government Code?
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What happens if a taxpayer waives in writing his privilege of the secrecy of bank deposits?
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Study Notes
Taxation of Non-Resident Citizens and Corporations
- Interest income earned by a non-resident citizen on expanded foreign currency deposit system is subject to a final withholding tax.
- Interest income on currency bank deposits earned by a resident citizen from a Danish bank abroad is taxable.
Final Withholding Tax Rates
- The final withholding tax rate for the gross income of a non-resident alien not engaged in trade or business is 25%.
- The final tax rate on cash dividends received by resident citizens from a domestic corporation is 10%.
Taxation of Corporations
- A domestic corporation is taxable for its income from within and without sources of the Philippines.
- A resident foreign corporation is taxable for its income from within the Philippines.
- A non-resident foreign corporation is taxable for its income from sources within the Philippines.
Corporate Income Tax
- General professional partnerships, joint ventures, and insurance companies are not subject to corporate income tax.
- Joint stock companies are subject to corporate income tax.
Final Withholding Tax for Corporations
- A domestic corporation and a non-resident foreign corporation are subject to final withholding tax for their ordinary income.
Tax on Pre-Termination of Long-Term Deposits or Investments
- The tax rate for pre-termination of long-term deposits or investments with a holding period between 3 years to less than 4 years is 20%.
Tax on Royalties
- Active royalties are subject to a 20% final tax.
Tax Informer's Reward
- The tax informer's reward is valid and claimable if the following are required: definite sworn information which is not yet in the possession of the BIR.
- The reward is not valid if the interest income from the said deposit shall be subject to a 0% final withholding tax.
Tax Sparing Principle
- The tax sparing principle, which entitles the taxpayer to a preferential tax rate of 15% on dividends received from a domestic corporation, may be applied to domestic corporations and resident foreign corporations.
Authority of the Commissioner of Internal Revenue
- The Commissioner of Internal Revenue has the authority to compromise the payment of any internal revenue tax, cancel or abate tax liability, and credit or refund tax.
- The Commissioner cannot review the decisions of the Court of Tax Appeals.
Offer to Compromise
- The offer to compromise based on financial incapacity may be accepted upon showing the following: the corporation ceases operation or is already dissolved, the taxpayer is suffering from surplus or earnings deficit, or the taxpayer is a compensation income earner with no other source of income.
- The offer cannot be accepted if the taxpayer does not waive in writing his privilege of the secrecy of bank deposits.
Power to Impose Tax
- The power to impose a tax, fee, or charge, or to generate revenue under the Local Government Code shall be exercised by the Sanggunian of the local government unit concerned through an appropriate ordinance.
Tax Informer's Reward Calculation
- The final tax is 10% of the collected tax, or ₱ 4,000,000 in the given scenario.
- If the tax seized by the BIR amounts to ₱ 40,000, the final tax is ₱ 4,000.
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Description
Test your knowledge on interest income taxation and the tax sparing principle. Determine the correct final withholding tax rate for interest income and understand which entities can apply the tax sparing principle for dividends received.
