TAX CASE COMPETTION
JPIA R3 Incorporated (the “Company”) is a domestic corporation primarily engaged in
creating and developing an online marketplace where sellers of goods and services can
conduct, facilitate and manage transactions with buyers. It started its commercial
operations on February 16, 2014.
On April 14, 2019, the Finance Manager of the Company engaged your Firm to compute
for its income tax liability for taxable year ended December 31, 2018 using itemized
deductions. The Company’s working trial balance (all amounts are in peso) has been
provided to you along with the following confirmations:
1. The Company has been notified by the Bureau of Internal Revenue (“BIR”) that it
is among the Top Withholding Agents (“TWA”) last December 1, 2018.
2. Expenses which are required to be subjected to Withholding Taxes (i.e.
Compensation, Expanded, Final, Withholding Tax on Fringe Benefits, whichever
may be applicable) were properly withheld with the appropriate withholding tax
rates, except for the below expenses:
a. Professional fees account consisting of the following transactions:
Audit fees 2,004,714
Legal fees 1,586,432
Consultancy fees 3,945,384
Management fees 10,772,309
The audit and legal fees were payments made to general professional
partnerships in the Philippines.
Consultancy fees pertain to actuarial services for the Company’s
retirement benefit plan and payroll services rendered by a domestic
corporation registered with the Philippine Economic Zone Authority
amounting to 2,659,267 and 1,286,117, respectively.
The management fees were paid to an offshore supplier based in
Singapore contracted by the Company to render IT-related services in
the Philippines for 2018. Verification of the service agreement
disclosed that several employees of the offshore supplier had been
assigned to the Philippines for three months. The Company confirmed
that the offshore supplier has not provided any tax ruling.
b. Spare parts recorded in the trial balance pertain to purchase of computer
hardware from DT Limited, a foreign corporation based in the United States.
The Company provided the corresponding purchase order and invoice which
indicates that the importation was arranged by Philippine branch under
shipping terms port of destination.
c. Examination of the Company’s records revealed the nature of the transactions
of the following expenses:
Communication, Payments for utilities 158,060,243
light and water
Repairs and Payments to general 53,410,484
maintenance contractors
Travel and Car rental with driver 3,552,986
transportation
Travel and Employee reimbursements 1,500,000
transportation of taxi and grabcar fare
for meeting with clients
Insurance Premium payments 4,795,862
Representation and Meals and other expenses 10,557,999
entertainment for meeting with clients
and vendors
3. Breakdown of foreign exchange:
Unrealized loss 12,638,081
Realized loss 147,574,171
Unrealized gain 0
Realized gain 153,979,308
4. Dividend income of the Company is received from the following corporations:
Company A, a domestic corporation 960,000
Company B, a foreign corporation 787,200
5. Interest Income is broken down as follows:
Interest income received from loans
to external parties 335,727
Interest income credited to the
Company’s PHP bank account, net of
20% final tax 1,342,907
6. Perusal of the auditor’s lead sheet revealed that the Other operating taxes
account consists of the following:
BIR surcharge 528,087
BIR interest 317,373
SSS penalty 26,758
BIR compromise penalty 25,000
7. Retirement expense for pension are mere estimates. The Company has made
contributions of 3,000,000 to the pension plan for the year 2018.
8. The Company’s summary of the creditable withholding taxes for the year 2018
totals 10,762,230.
9. Company provides copies of the Certificates of Creditable Tax Withheld at Source
(BIR Form No. 2307) amounting to 10,606,759, 5,818,321 of which covers
December 31, 2017.
10. Total income tax payments for 1st to 3rd quarters:
1st quarter – 373,736
2nd quarter – 884,826
3rd quarter – 200,188
