III. Other deductions and non-deductible items Problem 1 - Interest: Stipulated in writing, tax arbitrage, related parties Tikling Company, Inc. had the following borrowings, advances and equity instruments during 20A1 : - Loan obtained from Itik Bank, a local bank, on July 1,20A0 amounting to P 1,000,000 with 5% interest payable on July 1,20A2. - Non-interest bearing advances obtained from its affiliate, Maya Corporation, amounting to P500,000 on January 1,20A1, payable on December 31, 20A3. For financial reporting purposes, the loan was initially recognized in the books at P408,150 using market interest rate of 7%. Maya is wholly-owned by Kaya Corporation. Kaya is 60% owned by Mr. Polka. Mr. Polka also owns 30% of Tikling. - Preferred shares of P1,500,000 with 10% dividend rate classified as liabilities for financial reporting purposes. - Loan obtained from its affiliate, Surtido Corporation amounting to P2,000,000 bearing 8% interest on January 1, 20A0 payable on January 20A5. Surtido is a wholly-owned subsidiary of Pantomina, Inc. Pantomina is 80% owned by Mrs. Carinosa. Mrs. Carinosa also owns 80% of Malong Corporation. Malong owns 90% of Latik and Latik owns 75% of Tikling. During the year, Tikling derived the following interest income: - Interest income of P60,000 on bank deposits with Itik Bank, which were subjected to 20% final withholding tax. - Interest income of P15,000 on bank deposits under the Expanded Foreign Currency Deposit System of Itik Bank, which were subjected to 15% final withholding tax. - Interest income of P20,000 on loans granted to Pantomina, its affiliate. - Interest income of P25,000 on bank deposits in Rasa Sayang Bank, a non-resident foreign bank located in Malaysia, which were subjected to 10% final withholding tax. Required: Determine the deductible interest expense for the year ended December 31, 20A1