Taxation, 2013 Bar — Question MC-II

MULTIPLE CHOICE

MGC Corp. secured an income tax holiday for 5 years as a pioneer industry. On the fourth year of the tax holiday, MGC Corp. declared and paid cash dividends to its stockholders, all of whom are individuals. Are the dividends taxable? (1%) (A) The dividends are taxable; the tax exemption of MGC Corp. does not extend to its stockholders (Sunio v. NLRC, G.R. No. 57767, 31 January 1984). (B) The dividends are tax exempt because of MGC Corp.'s income tax holiday. (C) The dividends are taxable if they exceed 50% of MGC Corp.'s retained earnings. (D) The dividends are exempt if paid before the end of MGC Corp.'s fiscal year.

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