TAX-801 - Lecture notes 11111 PDF

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ReSA - THE REVIEW SCHOOL OF ACCOUNTANCYCPA Review Batch 41  May 2021 CPA Licensure Examination  Week No. 8TAXATION A. Tamayo  G. Caiga  C. Lim  K. Manuel  E. BuenPage 1 of 4 0915-2303213  resacpareviewTAX-801: SOURCES OF INCOME1. Classification of Income as to Sources a**.** Income purely wit...

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ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY CPA Review Batch 41  May 2021 CPA Licensure Examination  Week No. 8

TAXATION

A. Tamayo  G. Caiga  C. Lim  K. Manuel  E. Buen

TAX-801: SOURCES OF INCOME 1. Classification of Income as to Sources a. Income purely within b. Income purely without c. Income partly within and partly without 2. Determination of Income as to Sources (Section 42 of the Tax Code, as amended) ITEMS OF INCOME a. Interest b. Dividends 1) From domestic corporation 2) From foreign corporation (based on the ratio of the gross income of the foreign corporation for the preceding 3 years prior to declaration of dividends derived from Philippine sources)

TEST OF SOURCE OF INCOME Residence of the debtor Income within General rule: Income within Income partly within and partly without if the ratio is less than 50% (computed % = income from within PH)

PHILIPPINE GROSS INCOME Total (World) Gross Income c. Income from services d. Rent e. Royalties f. Gain on sale of real property g. Gain on sale of personal property purchased in one country and sold in another h. Gain on sale of domestic shares

Place of performance Location of property Place of use of intangibles Location of property

Place of sale Income within

3. Deductions of Taxpayers Whose Taxable Income Is From Philippine Sources Only Gross income within Less: Expenses, interest, losses and other deductions properly allocated to income within Ratable portion of unallocated expenses, interest, etc. (Philippine Gross Income/Total gross income x Unallocated expenses) Net income 4. Exercise A corporation has the following income and expenses for the current year: Gross income, Philippines P1,600,000 Gross income, USA 400,000 Business expenses, Philippines 500,000 Business expenses, USA 200,000 Unallocated business expenses 150,000 Interest expense, USA 50,000 Interest expense, Philippines 100,000 Unallocated interest expense 80,000 Compute the tax payable assuming the above corporation: a. Resident foreign corporation. b. Nonresident foreign corporation. c. Domestic corporation.

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TAX-801

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY Week No. 8: SOURCES of INCOME

Suggested Answers/Solutions: a. Resident foreign corporation Gross income, Philippines Less: Business expenses, Philippines Unallocated expenses (1,600,000/2,000,000 x 150,000) Interest expense, Philippines Unallocated interest expense (1,600,000/2,000,000 x 80,000) Taxable net income Tax rate Tax due and payable

P1,600,000 500,000 120,000 100,000 64, 000

7 84,000 816,000 30% P 244,800

b. Non-resident foreign corporation Gross income, Philippines Tax rate Withholding tax due

P1,600,000 30% P 480,000

c. Domestic corporation Gross income, Philippines Gross income, USA Total gross income Less: Business expenses, Philippines Business expenses, USA Unallocated expenses Interest expense, Philippines Interest expense, USA Unallocated interest expense Taxable net income Tax rate Tax due and payable

P1,600,000 400,000 2,000,000 500,000 200,000 150,000 100,000 50,000 80, 000

1,080,00 0 920,000 30% P 276,000

5. Income partly from sources within and partly from sources without

a. Examples

a. Income from transportation and other services rendered partly within and partly without the Philippines. b. Income from the sale of personal property produced in whole or in part by the taxpayer within and sold without the Philippines. c. Income from sale of personal property produced, in whole or in part by the taxpayer without and sold within the Philippines.

b. Computation of income within when independent factory or production price has not been established

Taxable income x Value of property, within_________ 2 Value of property, within and without Add: Taxable income x Gross sales, within_____ 2 Gross sales, within and without Income within

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