Taxation, 2011 Bar — Question 15

MULTIPLE CHOICE

In 2009, Spratz, Inc.'s net profit before tax was P35 million while its operating expenses was P31 million. In 2010, its net profit before tax was P40 million and its operating expenses was P38 million. It did not declare dividends for 2009 and 2010. And it has no proposed capital expenditures for 2011 and the immediate future. May Spratz be subject to the improperly accumulated tax on its retained profits for 2009 and 2010? (A) Yes, since the accumulated amounts are reasonable for operations in relation to what it usually needed annually. (B) Yes, since the accumulation is not reasonably necessary for the immediate needs of the business. (C) No, because there is no showing that the taxpayer's 2009 and 2010 net profit before tax exceeded its paid-up capital. (D) No, because the taxpayer is not shown to be a publicly-listed corporation, a bank, or an insurance company.

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