Professional Documents
Culture Documents
Dindong and Marian are husband and wife, both Filipinos and residents of Quezon City
who are both employed by Eraser Pharmaceutical Corporation (EPC), a domestic
corporation. Dindong is the Vice President for the Legal Department and is receiving the
following from his employment and other sources for the calendar year 2012:
1.
2.
3.
4.
5.
6.
Anual dues with IBP amounting to P2,040 and annual dues with the American Bar
Association for P3,400.
7.
8.
9.
Marian is the Vice President for Marketing and is entitled to the following:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10. Total taxes withheld and remitted on Marians compensation for the year is
P1,571,301.
The spouses have three (3) legitimate children and one (1) legally adopted child who
are all living with them and dependent upon them for chief support. The oldest
legitimate child celebrated his 21st birthday on January 1, 2012 and the adopted child
became gainfully employed on December 15, 2012 upon turning 21 years old. On April
27, 2012, the spouses donated a residential lot with a fair market value of P2 Million in
favor of their adopted child and fiancee who are to be married in the succeeding year.
The 4 children are all covered by health and hospitalization insurance for which the
husband was paying a premium of P3,000 per child per annum. The husband waived his
right to claim for additional personal exemption in favor of his wife.
The spouses also operate a car repair shop, D&M Motors which is duly registered for VAT
purposes and earned service sales/ revenues of P4.2 million during 2012. They started
the year with zero receivables from customers but as of December 31, 2012, P200,000
remains uncollected on the services rendered that year. The expenses for the operations
of the business are comprised of:
1.
Salaries of the two mechanics and the cashier at the rate of the statutory
minimum wage in Metro Manila of P456 per day. The total salaries paid is P49,320.
Equivalent to P166,440 per employee (P456 x 365 days).
2.
Hazard pay of P20,000 each was paid to the 2 mechanics, over the pay and night
shift differential pay amounted to P30,000 each for the 3 employees.
3.
1. All of the above payments were not subjected to withholding tax due to the
honest belief of the spouses that the minimum wage earners are exempt from
income tax.
2. Rental expenses (net of the 12% VAT passed-on by lessor) amounted to P240,000
for the year for which the 5% Expanded Withholding Tax was properly deducted
and remitted to the government.
3. Purchase of equipment at the start of the year (january) amounted to P1,200,000
(exclusive of 12% VAT) and expected to be used for 5 years.
4. Spare parts and other supplies purchased from VAT-suppliers amounted to
P750,000 (net of the 12% VAT)
5. All purchases from VAT-suppliers are covered either by VAT invoice or VAT official
receipt. There are no input taxes at the start of the year.
EPC, is a VAT-registered trader of pharmaceutical products. Its sales for 2012 amounted
to P500 Million. The year started with an inventory of P5 Million. The purchases for the
year amounted to P400 Million but P50 Million worth of merchandise remained unsold as
of December 31. These were all purchased from VAT-registered suppliers. All the input
taxes in the previous year were fully utilized in payment of its output taxes for that year.
EPC received cash dividends amounting to P2 Million, from Barack Corporation, a U.S.
Corporation deriving 40% of its gross income from Philippine sources through its branch
in Pasig City.
The total administrative and selling expenses incurred by EPC for 2012 amounted to
P100 Million inclusive of all the payments made for the benefit of the spouses, Dindong
and Marian.
On September 30, 2013, EPC, through its corporate offices, received a Final Assessment
Notice from the Commissioner of Internal Revenue reflecting deficiency Income Tax and
Value-Added Tax for taxable year 2011. The procedures required for the issuance of a
valid assessement were religiously followed by the CIR.
Your services are now engaged by the spouses Dindong and Marian to address
the following concerns:
1.
Determine the types of income that each should declare in their Income
Tax Return for the year 2012. Prepare a list with the corresonding
amount of all returnable income of the spouses.
2.
3.
4.
Identify the incomes that are not required to be declared in the income
tax return and give the reasons for each. Also indicate the amount of
such income you have identified, the amount of tax thereon if subject to
tax, or indicate if the income if exempt from income tax. Cite the legal
basis for each item.
5.
6.
What are the deductions that can be claimed by Dindong and Marian?
Indicate the amount and the reason for their deductibility and cite your
legal bases.
7.
What are the items not deductible? Give reasons and cite your legal
bases.
8.
9.
How much is the taxable business income of Dindong and Marian? Give
reasons for your computation and give legal bases.
10. How much is the respective total taxable income (tax base) of the
spouses?
11. How much is the income tax liablity per income tax return of Dindong
and Marian?
12. What are the donors tax implications of the donation made by the
spouses in 2012? Determine the amount of donors tax due from each
donation made.
13. Calculate the VAT exposure of Dindong and Marian for 2012 (aanualized
determination) and explain how you arrived at that amount.
14. How much is the taxable income of EPC in its income tax return for the
taxable year 2012? Support your answer with explanation and legal
bases of what should be included or excluded in your computations (both
on income and deductions)
15. Calculate the VAT exposure of EPC for 2012 and explain your position.
16. Explain the legal remedies available to EPC on the Final Assessment
Notice for taxable year 2011.