1 Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

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Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) sirdondee@gmail.com

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ANSWERS TO BAR EXAMINATION QUESTIONS IN

FOREWORD

This work is NOT intended FOR SALE or COMMERCE. This work is a freeware. It may be freely copied and distributed, nevertheless, PERMISSION TO COPY from the editors is

TAXATION LAW ADVISABLE to protect the interest of the ORIGINAL SOURCES/REFERENCES of this
material…. It is primarily intended for all those who desire to have a deeper understanding of the issues commonly touched by the Philippine Bar Examinations and its trend on specifically

* ARRANGED BY TOPIC * on Taxation Laws. It is specifically intended for law students from the provinces who, very
often, are recipients of deliberately distorted notes from other unscrupulous law schools and (1994 – 2006) students.

I would like to seek the indulgence of the reader for some Bar Questions which are improperly

Edited and Arranged by: classified under a topic and for some topics which are improperly or ignorantly phrased, for ROMUALDO L. SEÑERIS II Silliman has prepared this work the arranger is just a Bar Reviewee who University - College while reviewing for the 2 of Law time for the Bar Exams 2007 under time constraints and within his limited knowledge of the
nd

law. From the ANSWERS reader’s indulgence also for a QUESTIONS by the UP I would like to seek the TO BAR EXAMINATION number of typographical errors in LAW COMPLEX & PHILIPPINE ASSOCIATION OF LAW SCHOOLS this work.

The Arranger

June 3, 2007

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) sirdondee@gmail.com

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Detailed Table of Contents
GENERAL PRINCIPLES........................................................................................................................... 8
Basic Features: Present Income Tax System (1996).................................................................................................... 8 Basic Stages or Aspects of Taxation (2006)................................................................................................................ 8 Collection of Taxes: Authority; Ordinary Courts (2001)............................................................................................... 8 Collection of Taxes: Prescription (2001) ..................................................................................................................... 8 Direct Tax vs. Indirect Tax (1994)................................................................................................................................ 8 Direct Tax vs. Indirect Tax (2000)................................................................................................................................ 8 Direct Tax vs. Indirect Tax (2001)................................................................................................................................ 8 Direct Tax vs. Indirect Tax (2006)................................................................................................................................ 9 Double Taxation (1997)............................................................................................................................................... 9 Double Taxation: What Constitutes DT? (1996)........................................................................................................... 9 Double Taxation; Indirect Duplicate Taxation (1997) ................................................................................................... 9 Double Taxation; License Fee vs. Local Tax (2004)..................................................................................................... 9 Double Taxation; Methods of Avoiding DT (1997) ....................................................................................................... 9 Imprescriptibility of Tax Laws (1997) .......................................................................................................................... 9 Power of Taxation: Equal Protection of the Law (2000) ............................................................................................ 10 Power of Taxation: Inherent in a Sovereign State (2003) ........................................................................................... 10 Power of Taxation: Legality; Local Gov’t Taxation (2003).......................................................................................... 10 Power of Taxation: Legislative in Nature (1994) ........................................................................................................ 10 Power of Taxation: Limitations of the Congress (2001) ............................................................................................. 10 Power of Taxation: Limitations: Passing of Revenue Bills (1997) .............................................................................. 11 Power of Taxation: Limitations; Power to Destroy (2000) .......................................................................................... 11 Power of Taxation: Revocation of Exempting Statutes (1997) ................................................................................... 11 Power of Taxation; Inherent in a Sovereign State (2005) ........................................................................................... 11 Power of Taxation; Legislative in Nature (1996) ........................................................................................................ 12 Purpose of Taxation; Interpretation (2004)................................................................................................................ 12 Purpose of Taxation; Legislative in Nature (2004) ..................................................................................................... 12 Rule on Set-Off or Compensation of Taxes (1996)..................................................................................................... 12 Rule on Set-Off or Compensation of Taxes (2001)..................................................................................................... 12 Rule on Set-Off or Compensation of Taxes (2005)..................................................................................................... 13 Rule on Set-Off or Compensation on Taxes (2005).................................................................................................... 13 Tax Avoidance vs. Tax Evasion (1996)...................................................................................................................... 13 Tax Avoidance vs. Tax Evasion (2000)...................................................................................................................... 13 Tax Exemptions: Nature & Coverage; Proper Party (2004) ........................................................................................ 13 Tax Laws; BIR Ruling; Non-Retroactivity of Rulings (2004) ....................................................................................... 14 Tax Pyramiding; Definition & Legality (2006) ............................................................................................................ 14 Taxpayer Suit; When Allowed (1996)......................................................................................................................... 14 Uniformity in the Collection of Taxes (1998) ............................................................................................................. 14

INCOME

TAXATION................................................................................................................................

14

Basic: Allowable Deductions vs. Personal Exemptions (2001) .................................................................................. 14 Basic: Meaning of Taxable Income (2000) ................................................................................................................. 15 Basic: Principle of Mobilia Sequuntur Personam (1994)............................................................................................ 15 Basic: Proper Allowance of Depreciation (1998) ....................................................................................................... 15 Basic: Sources of Income: Taxable Income (1998) .................................................................................................... 15 Basic: Tax Benefit Rule (2003) .................................................................................................................................. 15 Basic; Basis of Income Tax (1996) ............................................................................................................................ 16 Basic; Gross Income: Define (1995).......................................................................................................................... 16 Basic; Income vs. Capital (1995)............................................................................................................................... 16 Basic; Schedular Treatment vs. Global Treatment (1994) ......................................................................................... 16 Compensation; Income Tax: Due to Profitable Business Deal (1995) ........................................................................ 16 Corporate: Income: Donor’s tax; Tax Liability (1996) ................................................................................................ 17 Corporate; Income Tax; Reasonableness of the Bonus (2006) .................................................................................. 17 Corporate; Income: Coverage; "Off-Line" Airline (1994)............................................................................................ 17 Corporate; Income: Coverage; "Off-Line" Airline (2005)............................................................................................ 17 Dividends: Disguised dividends (1994)..................................................................................................................... 18 Dividends; Income Tax; Deductible Gross Income (1999) ......................................................................................... 18

................................................................................................................. Deducibility of a Loss (1998) ..... Non-Resident Corporation (1994) ................................. 25 Withholding Tax............... Dividends received by a domestic corporation (2005) ................. 30 Exclusions & Inclusions.................................................................................... Assets........................................ 25 Withholding Tax............... GSIS Pension (1994) .................................................................. Personal Income....................................... Income and Gains (2005) .............................................................................. 28 Deductions................................................ 32 Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) sirdondee@gmail...................................... 21 Personal............ Married Individual (1997)............................................................................................................................................... 19 Interest: Deficiency Interest: define (1995 Bar)............................................ 27 Deductions: NonDeductible Items. Falsified Tax Return (2005) ............................. 21 Personal.......... 28 Exclusions & Inclusions: Benefits on Account of Injury (1995) ....................... 18 Fringe Benefit Tax: Covered Employees (2001)....................... Benefits on Account of Injury (2005) ................................... Income Taxation: Non-Resident Citizen (1997) ..... 18 Fringe Benefit Tax: Employer required to Pay (2003) ....................... 31 Exclusions & Inclusions................................................................................................................................................... Proceeds of life insurance (2005) ............................................ Income Tax............................................................................ 23 Taxable or NonTaxable.................................................................. 27 Deductions: Income Tax: Donation: Real Property (2002) ................ 24 Withholding Tax: Retirement Benefit (2000).............................................................. Condonation of Loan in Taxation (1995) .. 23 Personal.......................................................................................................................................................................................................................................................................................................................................................................................................................... Vanishing Deduction..................................................................................................... Facilities or Privileges.......................... 24 Withholding Tax: Retirement Benefit (2000).......... 30 Exclusions & Inclusions...... 31 Exclusions & Inclusions..... Gross Receipts (2006) ................................................................. ITR.......... 23 Taxable Income: Illegal Income (1995 Bar)........ ITR............................................................... Income Tax: Allowable Deductions (2001)...... ITR.. Resident Alien (2005) ............................... 26 Withholding Tax. Gross Income (1999) ............................. Prohibitions (2003) ................................ Domestic Corporate Taxation (2001).. Personal Income. 31 Exclusions & Inclusions..................... ITR......................................................................................................................................................................................................................................................... 29 Exclusions & Inclusions............................................. 29 Exclusions & Inclusions: Executive Benefits (1995)..... 30 Exclusions & Inclusions........ 25 Withholding Tax........................................................................................................................................................................................... 20 ITR.......................................................................... 29 Exclusions & Inclusions................................ EXCLUSIONS & INCLUSIONS................................................. Time Deposit Interest............................ Contract of Lease (1995) ........................... Income Tax. 19 Interest: Delinquency Interest: define (1995)....................... 20 ITR............................................................................................ 19 ITR.................................................................... 31 Exclusions & Inclusions....................... Gifts over and above the Retirement Pay (1995) ...... Married Individual (2004) ................ 20 Partnership: Income Tax (1995) ............................................................................................. Personal Income: Two Employment (2001) ............................................. Cash Dividends (2001) ................................................... 22 Personal........................................ GSIS Pension (2000) .......... Income subject thereto (2001) ............................................................... Retiring Alien Employee (2005) ........................................................................... Deduction from Gross Income (2001).................. 20 ITR...................................................................................................... Income Tax: NonResident Alien (2000) ............................................................. ........ Non-Resident Alien (1994)......... 23 Withholding Tax: Non-Resident Alien (2001).............................. Reader's Digest Award (1998)......................................................................... 28 Deductions: Requisites................................. 27 Deductions: Deductible Items from Gross Income (1999)...................................... Interest on deposits (2005)................................................................... 26 Deductions: Amount for Bribe (2001)........................................................................................................................................................................ EXEMPTIONS................... 28 Deductions........................................................ Purpose (2006) ................. 22 Personal.................................................................... 28 Exclusion vs.................................................................................................. Life Insurance Policy (2003) ...................................... ITR....... Taxpayer..Effect.................................................................................... Domestic Corporation.................. Income Tax: NonResident Citizen (1999)...................................................................... 21 Personal.....................................com 4 of 73 DEDUCTIONS.............. Exempted to File ITR (1997)........... 25 Withholding Tax............ Income realized from sale (2005)............................... Coverage (2004) ..................... 28 Exclusion & Inclusion.................................................................................... 27 Deductions: Capital Losses.................................................................. Military Camp (1995) ........................................................... 32 Exclusions & Inclusions......... Benefits on Account of Death (1996) .......................................................... Compensation for personal injuries or sickness (2003) .................................................................................... Domestic Corporate Taxation (1997)........... Income Tax.............................................................................................................. 26 Deductions: Ordinary Business Expenses (2004) ............................................................................................................................................................... 31 Exclusions & Inclusions................................................... 19 ITR.................................................... 26 Deduction: Facilitation Fees or "kickback" 26 (1998).................... 19 ITR: Personal Income..................... 22 Personal............ 20 ITR. 13th month pay and de minimis benefits (2005) ............................. Liabilities................................................... 26 Withholding Tax.......................................... 24 Withholding Tax.................... Income Tax: TaxFree Exchange (1997)... 30 Exclusions & Inclusions............................................................................. 24 Withholding Tax: Royalty (2002) ...............................................................................

................................................ 36 Exemptions: Stock Dividends (2003) .......................................................................................... 41 Donor’s Tax: Election 41 Contributions (1998) ................................................................................................................................................................................................... 33 Exemptions: Non-Stock/ Non-Profit Association (2002) ........... 32 Exemptions: Educational institution (2004).......................................... 33 Exemptions: Non-Profit Entity................... 43 Donor’s Tax............................... Educational institution (2004)...... Personal & Additional Exemption (2006) ............. & Allowances (1994) ..................................................... Exemptions are Unilateral in Nature (2004)......................................... Ordinary Asset (2003)................................................ 44 Estate Tax: Payment vs...................................................................................................................... Donation to Non-Stock................... Corporate Existence (2004)....................... 45 Estate Tax................................................................................. Effect: Taxation (1997) ...................................................................................................................................................................................................................................................................................................................................................... 42 Donor’s Tax......................... 38 Capital Gain Tax.......................... 41 Minimum Corporate Income Tax...... 39 Bad Debts............................................................................ 32 Exemptions: Charitable Institutions... 40 Dividends: Withholding Tax (1999) ....................................................................................................................... 34 Exemptions: Prizes & Awards................................................................................... 35 Exemptions: Separation Pay (1995) ........................................................................ 36 Exemptions: Terminal Leave Pay (1996) ..............................com 5 of 73 CAPITAL GAIN TAX....................................... Limitations (2005) .............................................................................. 45 Estate Tax: Situs of Taxation: NonResident Decedent (2000)....... Ancillary Activity & Incidental Operations (1994) .... 34 Exemptions: Retirement Benefits: Work Separation (1999) ................. 37 Exemptions.... Stranger (2000) ................................................................................................................ 38 Capital Asset vs............................................................................................................................................ Probate Proceedings (2004) ...................................................................................................................... 44 Estate Tax: Gross Estate: Allowable Deduction (2001)...................................................................................... 35 Exemptions: Separation Pay (2005) .............................................................................. Churches (1996) ........................................................................................................................................................................................ Charitable Institutions (2006) ...................................................................................... Elements thereof (2004)................................................................................................ 37 Exemptions............................................................................. 41 Minimum Corporate Income Tax (2001)................................................................................... 41 Donor’s Tax...................................... Dacion en Pago........................................................................................................ 36 Exemptions: Strictly Construed (1996) ............ Donation to a Sibling (2001)................................................................................................................................................................................... 42 Donor’s Tax................................................................................................................................ 38 CORPORATION & PARTNERSHIP............. 40 Corporation........................................................................ Inter Vivos (1994) ................................................................................... Exemption (2001) .............................................................. 34 Exemptions: Prize of Peace Poster Contest (2000).. 40 Effect: Dissolution........................................... Gifts....................... 43 Donor’s Tax............. 43 Estate Tax: Comprehensive Agrarian Reform Law (1994)...................................................................................................................... 45 Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) sirdondee@gmail............................................................................................................... 36 Exemptions.............................. Sale.................. 33 Exemptions: Non-Profit Educational Institutions (2000) ................................. 43 Estate Tax: Donation Mortis Causa vs................. 36 Exemptions................................................................................................................................................... 42 Donor’s Tax........... Payment vs.................................................................................................. 32 Exemptions: Head of the Family: (1998)................................................................................................ 45 Estate Tax: Vanishing Deductions (1994)............................................................................................................................... Sale of shares of Stock & Sale of Real Property (1999)........ 44 Estate Tax: Inclusion: Resident Alien (1994) ..... 44 Estate Tax: Gross Estate: Deductions (2000) ................................................... BUSINESS TAXES ................................................ 38 Ordinary Sale of a Capital Asset (1994)...................................... Sale of Common Areas (1994) .................................... 41 Donor’s Tax................................................ Creditable Withholding Tax (1994)......................................................................... 39 Tax Basis: Capital Gains: Merger of Corporations (1994) ................................................................ Donee or Beneficiary............................................................. 37 Exemptions..................... Donation to Political Candidate (2003) ............................. 38 Sales of Share of Stocks: Capital Gains Tax Return (1999) ............... Nature (2001) ............................................................................................................................................................................ Non-Profit Private Educational Institutions (2000)................................................................................................. 43 Estate Tax: Donation Mortis Causa (2001) ....................................................................................................................................... 39 Condominium Corp............ 45 ................ Athletes (1996) ....... Probate Proceedings (2005) ............................................................ Basis for Determining Gain (1995) ................................................... Roman Catholic Church.....................Exemptions: Charitable Institutions (2000) .................................................................................. 39 Tax Basis: Capital Gains: TaxFree Exchange of Property (1994) .......................................... 32 Exemptions: Gifts & Donations (1994) ................................................................................................... Gov’t Bonus........................................................................................... 34 Exemptions: Separation Pay (1994) ...................................................... Factors......... 39 ESTATE & DONOR’S TAXES ............................ 36 Exemptions.............................................................................................

.............................................................................................................................................................................................................................................. 55 BIR........ 53 BIR................... Jurisdiction........................................................................................................... 59 Taxpayer: Deficiency Income Tax (1995).................................................................................................. Assessment & Collection (1999)................................................................................................................... Tax Exemption (2001) ............................. Assessment................................................................................................ Withholding Agent (1998)..... Claim for Refund (1997) ........................................ Automatic Review (2002)..................................................................................................................... 58 Taxpayer: BIR Audit or Investigation (1999).............. 49 BIR: Criminal Prosecution: Tax Evasion (1998)....................................................... 45 VAT: Exempted Transactions (1996)............. 54 BIR.......................... 59 Taxpayer: Claim for Refund.............. Claims for Refund (2004) ... Deficiency Tax Assessment vs.............................................................. Criminal Action (2006).............................................................................................................. False vs............ 58 Taxpayer: City Board of Assessment Decision.................... 48 BIR: Corporation: Distraint & Levy (2002) ............................................................................. Fraudulent Return (2002).................. Covered Transactions (1998) ...................................................................................................................................... 57 Jurisdiction: Customs vs................................................................................... 55 BIR................................... 51 BIR: Secrecy of Bank Deposits Law (1998) ....................... Criminal Complaint (2005)....................................................................................................................................................................................................... 45 VAT: Characteristics of VAT (1996)................................................................................................................... 46 VAT.... 61 Taxpayer: Prescriptive Period... 51 BIR: Prescriptive Period: Civil Action (2002) .................................................. 57 Tax Amnesty vs..........................................com 6 of 73 BIR: Assessment: Unregistered Partnership (1997) 47 .................................................................................................................................................................................. CTA (2000)........................................................ Claims for Unpaid Wages (1995)......................... Authority............................................................................................................................................... 59 Taxpayer: Exhaustion of Administrative Remedies (1997)............................. 49 BIR: Extinction............................................................... Procedure (2002)............................. Grounds for Compromise (1996) ............................................................... 48 BIR: Court of Tax Appeals: Collection of Taxes.................................................... Compromise (2004)................... 60 Taxpayer: Overwitholding Claim for Refund (1999) ............................. 60 Taxpayer: Failure to Withheld & Remit Tax (2000)............................ Tax Refund / Tax Credit (2005) ........ Where to appeal (1999)....................... 45 VAT: Liable for Payment (1996) ................ Distraint.... Non-VAT taxpayer........................................... 55 Custom: Violation of Tax & Custom Duties (2002)................................................. Assessment................................................. 47 Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) sirdondee@gmail.................................................................... Criminal Action (2002).............. 52 BIR: Unpaid Taxes vs............................................................................................................................. 46 VAT........................................ 53 BIR......................................................................................................................... 50 BIR: Garnishment: Bank Account of a Taxpayer (1998)........ Fees & Charges (1997) ........ Extent of Authority (1996) ............................. 61 Taxpayer: Prescriptive Period...............................................VAT: Basis of VAT (1996)............................................................... Taxpayer: Civil Action & Criminal Action (2002) ..................................... 57 Taxpayer: Administrative & Judicial Remedies (2000).................................... 52 BIR: Summary Remedy: Estate Tax Deficiencies (1998) ............................................................................................................................................................................... Review Rulings of the Commissioner (2006)............................................. 48 BIR: Compromise............................................................................................................................ Conditions (2000)............................................................................................................................................. 54 BIR.................................................. 60 Taxpayer: NIRC vs.......................... 53 BIR.................................................................................... 46 VAT.................................................................................................................................................................................................................... 55 BIR................................................ Prima Facie Evidence (2002).................. 58 Taxpayer: Assessment..................... 49 BIR: Fraudulent Return................................................... Basis........................................................................ Compromise (2005)................................................................ Exemption: Constitutionality (2004) .................... Claims for Refund (1994) ....................................................................................................................................... Prescriptive Period.............................................. 51 BIR: Prescriptive Period.................... 57 Taxpayer: Assessment: Protest: Claims for refund (2000).................. Claim for Refund (2006) .............................................................................................................. 50 BIR: Pre-Assessment Notice not Necessary (2002) ...................................................................................................................................... 48 BIR: Compromise...................................................................................... TCC Remedies (1996)................... Prima Facie Evidence (1998)...... 56 Customs................................................ 57 LGU: Collection of Taxes............................................... 61 Taxpayer: Prescriptive Period.......... 50 BIR: Fraudulent Return............................................... 51 BIR: Prescriptive Period.................................................................... Prescriptive Period..... ................................ Criminal Liability of the Taxpayer (2002)............................................... Fraudulent Return (1996)............................................................................. 54 BIR..................................... 55 BIR...................................................................................................................................................................... 56 Delinquent Tax Return (1998) ........................................................................ 46 VAT: Transactions "Deemed Sales” (1997) ................................... 53 BIR........................................................................................................................ 61 Taxpayer: Prescriptive Period: Suspended (2000)... Refund or Credit of Taxes (2005) . Prescription of the Action (2002).............................................................................................................. Injunction (2004) ...................................................... 47 BIR: Collection of Tax Deficiency (1999) ............................................................ 62 REMEDIES IN INTERNAL REVENUE TAXES ............ 47 BIR: Compromise.

.............................................................. 71 Customs: Seizure & Forfeiture: Effects (1994) ...................................................................... 73 BIR: Secrecy of Bank Deposit Law (2003) .................................................................................................. 65 Local Taxation: Remission/Condonation of Taxes (2004).... Imported Article (2005) .......................................... Dumping Duty (2005)......... Real Property Taxes (2002) ..................................................................................................... Special Levy on Idle Lands (2005).................... Capital Gain Tax (1997)......... Claim of Refund (1996)............................... 69 Real Property Taxation: Principles & Limitations: LGU (2000)............................... 67 Real Property Taxation: Coverage of Ordinary Income (1998) ................................................................................................. Judicial Remedies (1997) ................................................................................................. 68 Real Property Taxation: Fundamental Principles (1997) ......................................................... Donor’s Tax (1995) ...................................... 62 Taxpayer: Protest against Assessment (1999) . 66 Local Taxation: Rule of Uniformity and Equality (2003).. Appeal to the Court of Tax Appeals (2005).......................................... Situs of Professional Taxes (2005)......................................... 65 Local Taxation: Legality................................................................ 71 Customs: Returning Residents: Tourist/Travelers (2003) ............................ 63 Taxpayer............................... 66 Local Taxation............ 70 Customs: Kinds of Custom Duties (1997) ... 68 Real Property Taxation: Exemption: Acquiring New Principal Residence (2000) ................................................................................................................................................... Tax Ordinance (2003) ............................................... 64 Local Taxation: Coverage (2002)................................................. Claim of Tax Refund (2005) ................................................................................................................................................................................................. 70 Customs: Administrative vs................................................................ 65 Local Taxation: Legality/ Constitutionality......................................................... Protest against Assessment......... 73 ................ 64 Taxpayer...................................................................................................................................................... 62 Taxpayer: Protest against Assessment (1999) ..................... 72 Customs........................ 68 Real Property Taxation: Exemption/Deductions...................................................... Requirements........................................................................................................... 72 Customs.................................................................................................................... Claim for Tax Credits (2006) .................................................. 71 Customs: Remedies of an Importer (1996) ............................................................................... 64 TARIFF AND CUSTOMS DUTIES .............................................. 71 Customs: Steps involving Protest Cases (1994)......................................................................................................... Auction Sales of Property for Tax Delinquency (2006) ......................................................... 67 Real Property Taxation: Capital Asset vs.............. 63 Taxpayer.............................................................................................. Compromise after Criminal Action (1998) ..................................................com 7 of 73 Taxpayer: Protest against Assessment (1998) ................... 67 Real Property Tax.. Countervailing Duty vs................................................................................................................................................................................................................................................................................................. 70 Customs: Kinds of Custom Duties (1995) .................................................. 69 Real Property Taxation................. Ordinary Asset (1995) .................... 64 Local Taxation: Exemption.................................................................................................. 72 Customs...................................................... Donor’s Tax (1998).............. 65 Local Taxation: Imposition of Ad Valorem Tax (2000) ............................. Basis of Dutiable Value............................. 64 Local Taxation: Actual Use of Property (2002) ............................................................... Personal Effects (2005)............................................... Withholding Agent.................... 72 OTHER RELATED MATTERS........... 69 LOCAL & REAL PROPERTY TAXES.................................................................................. 70 Customs: “Flexible Tariff Clause” (2001) ............................................................................................................................... 66 Local Taxation..... Seizure & Forfeiture Proceedings (1996) ...... 67 Real Property Taxation: Capital Gains vs............................................................................................................. 63 Taxpayer................................ 70 Customs: Jurisdiction...................................................................................................................................... 69 Real Property Taxation: Property Sold is an Ordinary Asset (1998)............................................................................................................................................................................................................................................................................................ 67 Real Property Taxation: Exchange of Lot............................................................................................................................................................................................................................................................................................ 62 Taxpayer: Protest......................................... Exempted Properties (2006) ................ 69 Real Property Taxation: Underground Gasoline Tanks (2001) ............................................................................................................................................................ 63 Taxpayer.............. Imposition of Real Property Tax Rate (2002) ................... 73 BIR: Bank Deposits Secrecy Violation (2000)............................. Taxability..............................................Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) sirdondee@gmail.......................................... Ordinary Gains (1998) ...................... 65 Local Taxation: Power to Impose (2003) .............................................................................. 70 Customs: Importation (1995) ........................... 66 Real Property Tax: Underground Gasoline Tanks (2003)............................

Domestic corporations are also taxed on universal income while foreign corporations are taxed only on income from within. Including income of non-residents. (b) The individual income tax system is mainly PROGRESSIVE IN NATURE in that it provides a graduated rates of income tax. (3) PAYMENT — the act of the taxpayer in settling his tax obligations. The corporate income tax is a one-layer tax in that distribution of profits to stockholders (except to nonresidents) are not subject to income tax. (5%) SUGGESTED ANSWER: The aspects of taxation are: (1) LEVYING — the act of the legislature in choosing the persons.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) GENERAL PRINCIPLES SUGGESTED ANSWER: Basic Features: Present Income Tax System (1996) features of the present What are the basic income tax system"? Our present income tax system can be said to have the following basic features: (a) It has adopted a COMPREHENSIVE TAX SITUS by using the nationality. and source rules. . Corporations are generally taxed on net income except for nonresident foreign corporations which are taxed on gross income. Note: The following might also be cited by the bar candidates as features of the income Individual compensation income earners are taxed tax system: on modified Gross Income (Gross compensation income less personal exemptions). properties. (2) ASSESSMENT and COLLECTION — This is the act of executing the law through the administrative agencies of government. (c) It has retained MORE SCHEDULAR THAN GLOBAL FEATURES with respect to individual taxpayers but has maintained a more global treatment on corporations. rights or privileges to be subjected to taxation. residence. Explain each. This makes citizens and resident aliens taxable on their income derived from all sources while nonresident aliens are taxed only on their income derived from within the Philippines. Self-employed and professionals are taxed on net income with deductions limited to seven items or in lieu thereof the forty percent (40%) maximum deduction plus the personal exemptions. Basic Stages or Aspects of Taxation (2006) 3 stages or aspects of Enumerate the taxation. Corporations in general are taxed at a flat rate of thirty five percent (35%) of net income. The income tax is generally imposed via the selfassessment system or pay-as-you-file concept of imposing the tax although certain incomes. are taxed on the pay-asyou-earn concept or the so called withholding tax.

the payment of the tax falls on one person but the REAL ESTATE collection of revenue taxes. and and give an of the Philippine tax rate. samedifferentiate occupation. of different kind andIndirect Duplicate Double collection character (Villanueva by Prescription (2001) taxes be barred vs. Indirect foreign taxes the purchase deduction for Tax (2001) direct taxes from indirect taxes. Indirect A municipality. different taxing authorities and are essentially Collection of Taxes: the person who also shoulders the burden of RA 1125). The usual methods of avoiding the person who. Direct Tax vs.is one paid by a person who someone else.There is no double taxation. restaurants. the government to collect taxes becomes Double Taxation. answer. SUGGESTED ANSWER: same income is taxed in An indirect tax is a tax which is demanded Philippines and the Yes. the taxofburden. The wherein the incidence of or the liability for the with the same kind or courts have no authority to enjoin the TAX is a tax on property. and other Distinguish DIRECT TAXES are demanded from the very SUGGESTED ANSWER: establishments selling liquor should pay a tax. but it of taxes are governed by the tax collection is only a case of indirect duplicate the expense of another. the burden equivalent to 5% of the imposing a sales tax of paying the tax falls expectation that he can shift the burden to directly on the person paying theconsumption amount paid for the purchase or tax. Thecountry. expectation of tax he canfor foreign taxes to paid. An Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) example of this tax is income tax where the person subject to tax cannot shift the burden of the tax to another person. donor's tax are a direct duplicate taxation. and the burden finally taxation which is tax. An liquor in stores. X claims that this is double incidence (or liability for the payment of the SUGGESTEDDecide. a real estate dealer's tax 4Reduction example for each one. Subsequently. Is the donor's tax. considered as direct taxes. TAXATION means taxing for the same tax Ordinary same thing or activity twice. sirdondee@gmail. then it becomes legally objectionable for instance from one person with the 2Allowance that credit shift the burden being oppressive and inequitable. 26 SCRA 578). value-addedMethods of tax. However. taxes.may purchase price. on the other hand. (2%) it should taxes? Explain your by the same SUGGESTED ANSWER: INDIRECT TAXES. Examples of indirect taxes are that it or entity. (Section 11. INCOME TAX is a tax on the privilege to earn ALTERNATIVE ANSWER: when collection could are imposed by an income. as intended. An INDIRECT TAX is whomunicipal boardis directly an ordinance the pays the tax proposed liable therefor. the the another person. should pay the tax 4for the same taxable period and occurrence of double taxation are: which he cannot shift to another. (Maceda isReason briefly. 197 Double tax on exciseable articles. City of Manila. License Fee vs. SUGGESTED ANSWER: 460). The therefor. The fixed annual fee is in the Is double (1997) Tax (2000) taxes imposed by the Bureau Among the nature of a license fee imposed through the of legality of a tax measure? SUGGESTED ANSWER: Internal of police are income tax. Tax (2006) "direct taxes" from "indirect Distinguish imprescriptible. ANSWER: taxation? tax) as well as the impact or burden of the tax falls on the same person. The impositions are of different nature and SCRA 771) the excise (5%) Direct Tax vs. not as a tax but as part of the of INDIRECT TAX restaurants and other is not directly liablemunicipal mayor. while an 5for the same kind or character of a tax 1Allowing TAX is exemption in the first INDIRECT reciprocal demanded either by law or by treaty. person who should pay the tax and which he A DIRECT TAX is one in which the taxpayer fixed annual fee of P20. NIRC). These taxesjeopardize the interest A direct tax is a tax which is demanded from of the government or taxpayer. value-added is a excise tax. and documentary stamp What are [1963]). other Double Taxation. Constitutes DT? (1996) pays real estate tax Distinguish X. Examples of direct taxes are establishments. 8 SCRA 367 Avoiding DT (1997) same purpose percentage taxes. is there a case of double by from one person in the expectation and another collection of taxes may be barred prescription. other purchase or consumption tax. (5%) DirectTax (2004) has an ordinance which SUGGESTED ANSWER: requires that direct from an indirect Tax (1994) aall stores. the estate tax and the refused to sign the ordinance on the ground SUGGESTED ANSWER: which ultimately assumes personwould constitute double taxation. (5%) or for selling the same article and this is not in 1in that the same subject is Income tax. the Court the burden thereof can be shifted or passed on to REAL ESTATE DEALER'S TAX is a tax onof Tax Appeals to engage in business. No. within the same tax are indirect taxes. tax. However. can not shift to another. different of consumer. demanded from one person with the that is. if double taxation amounts to Indirect taxes. Classify license fee and a tax may and powers. Example: value added tax. on the premises.taxation? occurrence of double DIRECT TAXES are SUGGESTED ANSWER: demanded from the very jurisdiction or taxing district. Both a these taxes into direct be measure (Pepsi Cola v. the percentage tax and refusal the mayor justified? Macaraig. if the law imposing thenot legally prohibited tax law resting on the ultimate purchaser or because provide are imposed by the right does not the taxesfor prescription. Indirect taxing authorities. exercise of taxing imposed through theand documentary stamp a valid defense against the legality of a tax tax. DOUBLE Collection of Taxes: Authority. local tax being forbidden by our fundamental law is not percentage taxes. a lessor of a property. of the tax. Indirect Taxationtaxation a valid defense against the character. Double Taxation: What 3Allowance vs. Example of this tax is the privilege is empowered to enjoinwhilecollection of taxes through administrative remedies value-added tax. someone else. when May the courts enjoin periodthe Courts (2001) the collection of revenue be taxed but once. The refusal of the mayorv. Taxationitem of income is taxed in the When an (1997) prescription? Explain your answer. double taxation standing alone and not donor's tax. the character of tax. not as a tax but as a part of Direct Tax ofprice. not justified. Local Tax vs.000. Example: corporate and individual City of Iloilo. Tanawan. estate and exercise Revenue power while the 5% tax on No. (3%) income tax. The prescriptive periods for SUGGESTED ANSWER: intention that he shall indemnify himself at taxation? Yes. CC. (2%) SUGGESTED ANSWER: based on rental receipts and income tax on DIRECT TAXES are taxes wherein both the the rentals. (Sec. 218. paid. and who therefore shift or pass on the tax to another the income tax. BB. the value-added tax. May theTaxation. 69 SCRA indirect on the and business or direct from imposed taxes. excise Filipinos v.com 9 8 of 73 . taxed twice when it violation of the estate and double taxation rule against should be taxed but once. the usual methods of avoiding the 3by the same taxing authority. On the other {Campania General de Tabacos de 2in a fashion that both taxes are imposed for the hand." Give examples. However. are taxes taxing authority for the same purpose and As a general rule.

the period to collect is within TEN YEARS from discovery without need of an assessment. statutes. however. such entry and passage free of duty or settlement of duties will. with subsequent delivery. unless the liquidation of Import entry was merely tentative" (Sec 1603. TCC).Local taxes. fraud or falsity. They shall also be collected either by administrative or judicial action within FIVE (5) YEARS from date of assessment (Sec. be final and conclusive upon all parties. it provided. and SUGGESTED ANSWERS: Answer: The rules that have been adopted on prescription are as follows: (a) National Internal Revenue Code The statute of limitation for assessment of tax if a return is filed is within three (3) years from the last day prescribed by law for the filing of the return or if filed after the last day. however. LGC). or charges shall be assessed within FIVE (5) YEARS from the date they became due. 194. the period to assess is within TEN YEARS from discovery of the omission. In the case. The period to collect the tax is within THREE YEARS from date of assessment. of omission to file or if the return filed is false or fraudulent. however. State the rules that have been adopted on this score by - Note: Any three of the methods shall be given full credit. (c) Local Government Code . from the date of the final payment of duties. Customs (c) The Local Government Code Code. in the absence of fraud or protest. after the expiration of ONE (1) YEAR.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) (a) The National Internal (b) The Tariff and Revenue Code. If no return is filed or the return filed is false or fraudulent. . fees or charges the same maybe assessed within TEN YEARS from discovery of the fraud or intent to evade payment. within three years from date of actual filing. Imprescriptibility of Tax Laws (1997) Taxes were generally imprescriptible. that "when articles have entered and passed free of duty or final adjustment of duties made. (b) Tariff and Customs Code . fees. In case of fraud or intent to evade the payment of taxes. may provide otherwise.It does not express any general statute of limitation.

the classification applies equally to all the The inherent and constitutional limitations which are intended and businesses within the resident individuals to prevent abuse on the exercise area". belonging as a matter of right withdrawn at the pleasure government. Power of v.. Secretary of those who live and denying said incentives to Finance. Certainly. Local taxing Neither all citizenswere property within September 11. in Court of and obligations was the recipient v. (Tiu. legitimate objects of government. granting said body the power to tax? SUGGESTED ANSWER: Regulation using gross income as the tax Yes. The residents. to enact revenue measures on its own without a bill originating from the House. the February powers that are exclusively L-31156. both (1997) "X" Corporationrequired. Taxation is the inherent power of a State to determine -the Municipality of amount of the tax. Were the sovereign Yes. hence. that for those Power of Taxation: Legality. if the tax is limited support the expenses of government. The House Bill and the Senate Bill were then consolidated in the Bicameral Committee. it is considered outside that and the business operators as unlimited. 20. Accordingly. the to destroy while this equal SUGGESTED ANSWER: (the Supreme Court) sits. 115455. Airport and Authority v. Congress cannot ALTERNATIVE ANSWER: abolish what is No. This is no longer and inherent attribute of sovereignty implementation of the law of right to belonging as a matter but actually it every constitutes legislation becausewithout the among independent government being Tanauan. power of the (1) rest on to be valid. expressly Leyte. (See 1 collect enforced proportional contribution to Cooley 176-184). the latter Protection sent to the Taxation: Equalcan pass its own of the on the Order was issued pursuant to An Executive same version Law (2000) subject matter consonant law. this is changing the amount of impose burdens or charges upon of the Power of Taxation: Limitationspersons and the tax as said amount ultimately depends on property order Congress after much raise revenue and public Congress. grantedG.1976) authority to tax is the power to legislative Bottling Company of the Philippines. the Senate introduced SB 8000 which was its own version of the same tax. local government's exercise of the power to Power of Art. v. 5. et al. . that accord with the equal protection clauseThe two limitations on the power of taxation are does not require territorial uniformity of laws. . the corporations doing business laws even base for legislative body may enact in the in the absence of a constitutional provision SUGGESTED ANSWER: Revenue Regulation valid? Philippines. 1996). But once the revenue bill was passed by the House and Power of Senate. Jur. (3%) (5%) subject The power to taxreasonable is an inherent classification. The granted by of the tax exemption expressly withdrawal the fundamental law. Taxation to gross income without deductions of these is the power vested in the legislature to corporations. SUGGESTED governments? (4%) obligations of contracts. the emergence of limits to in a under the abolish theto tax. Instead.but outside power to tax is not theIspower constitutional right to Court area". the consolidated bill was approved and sent to the President who signed the same. the purpose of the upon subjects limited to existing conditions only. 1990 Power of Taxation: both from in a two tax exemptions Inherent Congress. 1995). any tax power is an essential and inherent attribute exemption unilaterally granted can be of sovereignty. are in plenary. Equal ANSWER: protection of the SUGGESTED Order? its limitations. issued by the its compel of these and Gov’t Taxation (2003)lawfully entered by it May Congress.in(2001) to public hearing for the taxable base. 120082. the people. Accordingly. January one Sovereignpowerthe tax considered inherent Why exempting to company's bond issues law is the State (2003) 1999) in a sovereign State? (4%) from taxes and the other exempting the SUGGESTED from taxes in the operation of its company ANSWER: It is considered The two laws sovereign State public utilities. inherent in a extending the tax because it iswere revoked by Congress before exemptions a necessary attribute of sovereignty. amounts to a deprivation of to Congress is to The only authority conferred property without due process of law. Taxation.R No. Philippines (domestic as well as essential resident foreign) is not valid.Taxation 40). No. upon legislative (1994) recommendation of the Commissioner of in the absence of a constitutional provision Internal Revenue. (TolentinoTaxation: Limitations. the latter's and duty incentives concur with granting tax power to propose or only to businesses and residents within from the cowith amendments. centralizing the imposition and collection of all taxes in the national government would contravene the Constitution which mandates that: . purposes. G. "Each local government unit shall have the power to create their own sources of revenue and to levy taxes. consultations with various sectors of society. to every independent state or of the taxing authority without can continue to Constitution No sovereign state violating the exist (Mactan Cebu without the means to International pay its expenses. The law (5%) your answer.substantial distinctions. Eventually. such "secured Justice Holmes once said: The within the (2000) No. The exempting statutes are both granted State can exist or endure. the bill was sent to the Senate as so required by the Constitution. contributing directly to the circumstances to It is the Court's role to see to it that the exercise end purpose of the law. The power to tax is so unlimited in force and came to the conclusion that it will be good for so country to have only that the searching in extent one courts scarcely venture to declare it is sirdondee@gmail." It is clear that Congress can only give the guidelines and limitations on the exercise by the local governments of the Power of Taxation: Limitations: Passing power to tax but what was granted by the of Revenue Bills (1997) fundamental law cannot be withdrawn by The House of Representatives introduced HB Congress. comprehensive and supreme. issued a Revenue Explain. it has the Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) broadest substantial differences between big There arescope of all the powers of government because in the absence of investors being enticed to the "secured area" limitations. it is thinking of passing a law that would abolish the taxing power of all local government units. 127410. are not of Taxation: Revocation of Exempting Statutes in privileges granted similarly treated. Sincenecessity and this of a government is a taxation is the rule and tax exemption. they are transgress these limitations. The power to tax constitutional? unilaterally by the theory that the existence of proceeds upon Congress in the exercise taxing powers. an impairment of the No. contract 1987 Constitution. had been violated. fees. May a Describe the power of in Nature body enact laws to raise revenues The Secretary of Finance. authoritycontribute. (4) apply and objects within its Jurisdiction for the equally to all members of the to carry out the purpose of raising revenues same class. 1987 Constitution). PowerGR to Destroy Zone 30. In the upper house. 7000 which envisioned to levy a tax on various transactions. the exception. law clause is power to Executivetax and Explain. The underlying basis for its exercise is governmental necessity for without it no government can exist nor endure. within (Pepsi-Cola 27. X. must through be Classification. (51tax of localnot constitute power so that their revocation would the power ANSWER: to Am. (2) the sovereign which is exercised germane to to impose burdens law.R." Describe the protection of the law violated by the No. instead of a deliberation on the House Bill. hence limitations on the provide the guidelines andunconstitutional. Inherent Power of Taxation: Legislative Sovereign State (2005) taxation. The private sectors affected by the new law questioned the validity of the enactment on SUGGESTED ANSWER: the ground There is nothat the constitutional provision violation of the constitutional requiring that requirement thatallall revenue bills should revenue bills should originate from the House of Representatives originate from the House of Representatives. After the bill was approved by the House.R. it has the right to Marcos. would such a law be SUGGESTED ANSWER: valid under the present Constitution? Explain No. Inc. (3) not be legislature. The Senate deliberated on this Senate Bill and approved the same. being in "secured of the otherwise plenary and like unlimited power. Without this power no revocations SUGGESTED ANSWER: their expiry dates. In your opinion. G.means. achievement of the of the power does not Power categorized further. Is the The regulation establishing is inherent as because the power to tax gross incomein the the tax base and not merely a constitutional government for corporations doing business in the The power of taxation is an grant.system of taxation by centralizing the imposition and collection of all taxes in the national government. by No. of 4npeals. is for the Senate What is prohibited Resolve the issue.in a tax (Sec. and charges subject to such guidelines and limitations as Congress may provide consistent with the basic policy of local autonomy. et al.com 11 10 of 73 of 73 . This follows the "secured area" of the Subic chambers of Congress equality of the twoEconomic Special Zone. Oct.

situated at X Taxes (1996)a residential lot Albay. coequal judicial body of the Court of Appeals. government. doubts will. or Judgment 28. (Francia vs. Laguna v. June Considering that inasmuch as the power to tax may be exercised by local legislative bodies. No. No. (Tio v. Justify your answer or choice briefly. The nature of the power of taxation refers to its own limitations such as the requirement that it should be for a public purpose. 3) Taxes of State. in interpreting statutory provisions on municipal fiscal powers. executive branch of Compensation ofis the 186 SCRA 198 [1990]). taxes are not levied by the Rule on Set-Off or government. has not been paying his income taxes. Clearly. Pasay City. (JVPC v. have to be resolved in favor of municipal corporations (City Government of Note: If the examinee chose proposition San Pablo. 579. taxes are of distinct kind. 9282 was passed on March 30. 607) Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) Power of Taxation. This means that that courtpresentadopt credit considering the the must CTA a liberal construction of has madegranting a Act (R. 4 as his answer. essence and nature than ordinary obligations. 9282) a law the CTA a municipal corporation the power to tax. Marshall in McCulloch tax Maryland. 1987) So potent is the power to tax that it was once opined that "the power to v. 100 square meters of said lot owned by X was expropriated by the government to be used in the widening of Quirino Avenue. involves (C. Justify your answer or choice briefly. Legislative in Natureassessed for the purpose of Taxes are (2004) generating revenue to be used for public needs. Ed. Commissioner. X claims his income tax liability has already been SUGGESTED ANSWER: compensated by the amount ofnot be The income tax liability of X can P300.00 representing the estimated assessed value of said portion. 5) Taxes are assessed according to a reasonable rule of apportionment. rationale for the grant of tax power to local government units is to safeguard their viability and self-sufficiency by directly granting them general and broad tax powers (Manila Laguna Electric Company v. Videogram Regulatory Board. 1988) as is allowable to be set off. contract. The lot has an area of 300 square meters. X is now being assessed for the unpaid income taxes in the total amount of P150.00. 5) The Supreme Court has jurisdiction to review decisions of the Court of Appeals.000. 1965). The question "Which of the following propositions Rule on Set-Off or Compensation of Taxes (2001) May a taxpayer who has pending claims for VAT input credit or refund. vs. for P300. 2004. Purpose of Taxation. that it be legislative. expropriated. (5%) . that it is territorial and that it should be subject to international comity. therefore. Reyes. The court should construe a law granting a municipal corporation the power to tax most This proposition is now untenable.the 4 power to destroy. It is a power emanating from necessity because it imposes a necessary burden to preserve the State's sovereignty (Phil Guarantee Co. April 30. G. Taxes are levied by the executive branch of government. On June 1. demand.000.R.subject to any restrictions whatever. which of the following statements may be erroneous: 1) Taxes are pecuniary in nature. 1994. 4. The basic strictly.The Court of Tax Appeals has jurisdiction over decisions of the Customs Commissioner in cases involving liability for 4) The Court of customs duties. X.Appeals has jurisdiction to review decisions of the Court of Tax Appeals. It is inherently legislative in nature and character in that the power of taxation can only be ALTERNATIVE ANSWER: exercised through the enactment of law.A. no longer by valid congressional delegation but by direct authority conferred by the Constitution.R 76749. Levy is an exercise of the power to tax which is exclusively legislative in nature and character. (5%) SUGGESTED ANSWER: A..J.com 12 of 73 may now be untenable" may lead the examinee to choose a proposition which is untenable on the basis of the new law despite the cut-off date adopted by the Bar Examination Committee. G. owner of Quirino Avenue. set-off said claims against his other tax liabilities? Explain your SUGGESTED ANSWER: answer.A.000.for his property Government as compensation Decide. 306 SCRA 750 [1999]). except such as rest in the discretion of the authority which exercises it. 316 4 L. From 1991 to 1995. This statement is erroneous because levy refers to the act of imposition by the legislature which is done through the enactment of a tax law. SUGGESTED ANSWER: Purpose of Taxation. (5%) 2. Taxation itself is the power by which the State raises revenue to defray the expenses of government. A jurist said that a tax is what we pay for civilization.In our jurisdiction. 305 SCRA 353 no. June 18. L-75697." Wheat. Interpretation (2004) Which of the following propositions may now be untenable: 1) The court should construe a law granting tax exemption strictly against the taxpayer. who is a businessman. Legislative in Naturethe nature of the power of What is (1996) SUGGESTED ANSWER: taxation? The POWER TO TAX is an attribute of sovereignty and is inherent in the State. No.00 which the government owes owed by the compensated with the amounthim for the expropriation of his property. Taxes and debts cannot be the subject of compensation because the Government and X are not mutually creditors and debtors of each other and a claim for taxes is not a debt. R. 2) Taxes are enforced charges and the territorial jurisdictionareaimposed on contributions. L-22074. Province of et. al. IAC. it should be given full [1999]). 4) Taxes are levied by property within persons and the executive branch of the sirdondee@gmail. 2) The court should construe a law granting a municipal corporation the power to tax most 3) strictly.

be set-off against the unliquidated claim which the taxpayer ALTERNATIVE ANSWER: conceived to exist in his favor. He donated one-half of his said property to a non-stock. it usually subjects the taxpayer to further or additional civil or criminal liabilities. Caltex v. subject of set-off for the simple reason that 1998). which is tax exempt. No. G. February 28. G. In the instant case. A fortiori. Compensation takes place by operation of law under Art. The government and the taxpayer are not the "mutual creditors and debtors" of each other who can avail of the remedy of compensation which Art. Section 4 (3) of the Constitution and Section 30 (h) of the Tax Code. G. non-profit educational institution whose income and assets are actually. 92585. relying upon Arts. Compensation of Taxes (2005) the subject of set-off or May taxes be compensation? Explain. 1992. imposts and other charges for a period of three years. Claims for refunds just like debts are due from the government in its corporate capacity. Pascual's property reaches the maximum rate of tax under the law.R. purchased mechanical equipment from XYZ Inc. 1998). therefore. Evasion (1996) Distinguish tax evasion from tax SUGGESTED ANSWER: avoidance. on the other hand. (2%) transferring part of his rental income to a tax exempt entity through a donation of one-half of the income producing property. No. Tax avoidance.the claimsAugust 28. L-18994. This is consistent with the ruling in Domingo v. and Francia v. Commissioner of Internal Revenue. to Articles 1279 and 1963)of the New Civil Code. 1278 (Civil Code) is . the claim of the taxpayer for VAT refund is still pending and the amount has still to be determined. The donation is likewise exempt from the donor's tax. In the course of business. been recognized and an amount has already been appropriated for that purpose. Mambulao Lumber Co. taxes cannot be the subject of set-off or compensation for the following reasons: 1) The lifeblood theory requires that there should be no unnecessary impediments to the collection of taxes to make available to the government the wherewithal to meet its legitimate objectives. June 28.R. the liquidated obligation of the taxpayer to the government can not. SUGGESTED ANSWER: Pascualis tax avoidance. There is a material distinction between a tax and a claim for refund. CIR. sirdondee@gmail. lesser taxhas on There succeeded in paying a Pascual the rental income derived from his property. the government and the taxpayer are not creditors and debtors of each other. Where both claims have already become overdue and demandable as well as fully liquidated. claims. Tax Avoidance vs. Proper incentive for investors. fees. a law was As an Party (2004) passed giving newly established companies in certain economic zone exemption from all taxes. exploited a fully permissive alternative Is there to reduce his or tax evasion? tax avoidance income tax by method Explain. equipment to ABC Corp. and in respect of the positive acts of government. L67649. XYZ Rule on Set-Off or Compensation on Taxes (2005) Can an assessment for a local tax be the subject of set-off or compensation against a final judgment for a sum of money obtained by the taxpayer against the local government SUGGESTED ANSWER: that made the assessment? Explain. duties. Intermediate Appellate Court. and therefore qualified for tax exemption under Article XIV.1963. Garlitos. The donation is the legal means employed to transfer the incidence of income Taxon the rental income. ABC Corp. (Republic v. when availed of. 1200 in relation No. L-17725. tax Exemptions: Nature & Coverage.R. No. 1962. Taxes and claims for refund cannot be the Corp.R.R.R. No. G. Mr.com 13 of 73 Mambulao Lumber Co. Rule on Set-Off or August 29. (Domingo v. Liquidated debts are those where the exact amounts have already been determined. v. February 28. 125704. 1962. ABC Corp. however. G. CIR. Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) referring to Republic of the Philippines v.. Tax should therefore be applicable to a local tax. if 125704. hence legal. (Philex Mining No. was organized and was granted such incentive. directly and exclusively used for educational purposes. and 2) The payment of taxes is not a contractual obligation but arises out of a duty to pay. Tax evasion is a scheme used outside of those lawful means to escape tax liability and. taxes cannot be the subject of set-off even when there is a final judgment for a sum of money against the local government making the assessment. however.1998. and Tax Avoidance vs. regarding the making and enforcing of taxes. Set-off is available only if both obligations are liquidated and demandable. 1290 There is. there is a possibility that set-off may However.. Mr. No. No.R. 1278 and 1279 of the Civil Code. legal basis to state that an assessment for a local tax may be the subject of set-off or compensation against a final judgment for a sum of money obtained by the taxpayer against the local government by operation of law where the local government and the taxpayer are in their own right reciprocally debtors and creditors of each other. and Philex v. L-18994. while taxes are due to the government in its sovereign capacity. XYZ Inc. Garlitos. Commission on Audit. No. June 29. G. August 29. 125704. that since it sold the Normally. May 8. 1998) arise. the sale is subject to a sales tax. where these provisions were applied in relation to the national tax. v. June 29. against the government have SUGGESTED ANSWER. is a tax saving device within the means sanctioned by law. the personal consent of the individual taxpayer is not required.No. G. No. and that the debts are both due and demandable. GR No. GR No. Having thus transferred a portion of his said asset. (Philex Mining Corp. L-17725. Tax Evasion (2000) income from leasing his Mr.

G. 969). BIR Ruling. Hence. The taxpayer who can file a claim for refund is the person statutorily liable for the payment of Taxtax. however. Favoritism and preference is not allowed. is directly liable for the sales tax and no tax exemption privilege is ever given to him. Reversal of a ruling shall not be given a retroactive application if said reversal will be prejudicial to the taxpayer. 49 Phil 466 [1926]). (5%| (NOTABENE: This concept pertains to the VAT law which is excluded from the bar coverage. both in privileges conferred and liabilities imposed. All persons are treated in the same manner. A tax is deemed to have satisfied the uniformity rule when it operates with the same force and effect in every place where the subject maybe found. June 15. Legality (2006) What is tax pyramiding? What is its basis in law? allowable deduction and another example for SUGGESTED ANSWER: personal exemption. Is this claim tenable? (5%) A. (5%) No. Secretary of Public Works. Therefore. Inc. Definition & 142 SCRA 324[1986]). No. As to amount — Allowable (People v. the BIR reversed the ruling and issued a new one stating that the tax covers printing companies. v. pay the sales tax. by the seller. (5%) SUGGESTED ANSWER: (5%) The distinction between allowable deductions Tax Pyramiding is the imposition of a tax upon and personal exemptions are as follows: another tax. B. Uniformity in the Collection of Taxes (1998) Explain the requirement of uniformity as a limitation in the imposition and/or collection SUGGESTED ANSWER: of taxes. income. deductions generally refer to actual August 16. therefore. Burroughs. No. 2005). Exemption from taxes is personal in nature and covers only taxes for which the taxpayer-grantee is directly liable. 34 Phil. 69 Phil. There is also tax pyramiding expenses incurred in the pursuit of trade. V. (Phil. the conditions not being different. when sales taxes are incorrectly applied to business or practice of profession while goods several times from production to final INCOME TAXATION . Yatco.. The requirement of uniformity is complied with when the tax operates with the same force and effect in every place where the subject of it is found (Churchill & Tail v. It does not mean that lands. securities. Assume arguendo that XYZ had to and did Llanes. 152532. however. since ABC Corp. equally and uniformly on all persons under similar circumstances..com 14 of 73 Taxpayer Suit. ABC Corp. DEF Printers did not pay said tax. occupations. Could the BIR now assess DEF Printers for back taxes corresponding to the years before the new SUGGESTED ANSWER: ruling? Reason briefly. Give an example of an Tax Pyramiding. which may include a legislative enactment. Different articles maybe taxed at different amounts provided that the rate is uniform on the same class everywhere with all people at all times. the Laws. It has no basis in fact or in law a. necessities and luxuries shall be assessed at the same rate. DEF Printers submitted a legal query to the Bureau of Internal Revenue on that issue. Trust & Co. The BIR issued a ruling that printing companies are not covered by the new law. ABC Corp. 2006) Uniformity in the imposition and/or collection of taxes means that all taxable articles. Non-Retroactivity of Rulingsuncertainty whether or not a new Due to an (2004) tax law is applicable to printing companies. NIRC.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) should not be liable to pay the sales tax. 420). Is the claim of ABC Corp. the BIR can not assess DEF printers for back taxes because it would be violative of the principle of non-retroactivity of rulings and doing so would result in grave injustice to the taxpayer who relied on the first ruling in good faith SUGGESTED ANSWER: sale. it has no capacity to file a claim for refund. shifting the tax burden to the ultimate consumer. Personal Exemptions. CIR v. thus. what is paid by it is not a tax but part of the cost it has assumed. When Allowed (1996) taxpayer's suit be When may a allowed? SUGGESTED ANSWER: A taxpayer's suit may only be allowed when an act complained of. chattels. Guidelines for 2006 Bar Examinations. exempt. Relying on this ruling. singling out one particular class for taxation purposes does not FIRST ALTERNATIVE ANSWER: The criteria is met when the tax laws operate infringe the requirement of uniformity. Accordingly. The sales tax is a tax on the seller who is not exempt from taxes. The claim of ABC Corp. franchises. privileges. Personal Exemptions (2001) Distinguish Allowable Deductions from (Section 246. later found out. is not meritorious? (5%) meritorious. that XYZ merely shifted or passed on to ABC the amount of the sales tax by increasing the purchase price. directly involves the illegal disbursement of public funds derived from taxation (Pascual vs. 331). 110 Phil. Uniformity in taxation also refers to geographical uniformity. now claims for a refund from the Bureau of Internal Revenue in an amount corresponding to the tax passed on to it since it is tax SUGGESTED ANSWER. Sandiganbayan. SECOND ALTERNATIVE ANSWER: Basic: Allowable Deductions vs. is not a taxpayer. Conception. No. or kinds of property of the same class shall be taxed at the same rate. its claim that the sale is tax exempt is not tenable.R. Ltd. sirdondee@gmail. Subsequently. Although the tax was shifted to ABC Corp. Since XYZ Inc. A tax exemption is construed in strictissimi juris and it can not be permitted to exist upon vague implications (Asiatic Petroleum Co.

credited. The taxpayer is also required to (d) any other method which may be method. NIRC of of gross income specified in the Tax Code. Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) Income (1998) From what sources of income are the following persons/corporations taxable by the Philippine government? 2) Citizen of the Philippines residing therein. wear and tear (including the year they were collected to the extent of reasonable allowance for obsolescence) of the tax benefit enjoyed by the taxpayer when said property. NOTE: The bar candidate may give a different figure depending on the method he used in computing the annual depreciation. is taxable only on shall be subject to the tax. It also applies to (a) straight-line of the following computed under any taxes previously deducted from gross income (b) declining-balance method. individual. [1%1 4) An individual citizen of the Philippines who is working and deriving income from abroad as Basic: Meaning of Taxable an overseas contract worker. [1%] 6) A domestic corporation. [1%] 5) An alien Income (2000) by taxable income? What is meant individual. As to purpose — Deductions are allowed to enable the taxpayer to recoup his cost of doing business while personal exemptions are allowed to c cover personal. but not limited to.000 after its useful life? SUGGESTED ANSWER: rule"? SUGGESTED ANSWER: 1. 2. income derived from sources within the Basic: Proper Allowance of A domestic corporation is taxable on all Philippines.000) of Php90. family and living expenses. corporate or otherwise.000-Phpl0. whether a resident or not of the SUGGESTED ANSWER: (2%) Philippines. Depreciation (1998) 1What is the proper allowance for depreciation of 5) income derived from sources within and any property used in trade or business? [3%) 2What is the annual depreciation of a depreciable without the Philippines. fixed asset with a cost of P100. 31. arrived at by dividing the depreciable value (Php l00. 2) A other special laws. if any.000 by the estimated useful life (20 years). The proper allowance of depreciation (a) TAX BENEFIT RULE states that the of any property used in trade or business taxpayer is obliged to declare as taxable refers to the reasonable allowance for the income subsequent recovery of bad debts in exhaustion. Any answer arrived at by using any of the recognized methods should be given full credit. As to claimants — Allowable deductions can be claimed by all taxpayers. The annual depreciation of the depreciable deduction from income.000 and an Basic: Tax Benefit estimated useful life of 20 years and salvage Rule (2003)is meant by the "tax benefit (a) What value of P 10. authorized for taxable on all income derived from sources such types of income by the Tax Code or within and without the Philippines.com 15 of 73 The facts given in the problem are sufficient to compute the annual depreciation either under the declining-balance method or sum-of-years-digit method. The reasonable allowance shall the bad debts were written-off and claimed as include.personal exemptions are arbitrary a amounts allowed by law. NIRC of 1997) nonresident citizen is taxable only on income Basic: Principle of Mobilia Sequuntur derived from sources within the Philippines. 1997) 1) A citizen of the Philippines residing less the deductions and/or personal and therein is additional exemptions. methods: but which were subsequently refunded or (c) sum-of-years-digit method. of the tax benefitpreviously claimed as such taxes were rule. whether a resident taxation follows the property or person who or not of the Philippines. [1%] 3) Non-resident citizen. Personam (1994) What is the principle of mobilia sequuntur 3) An individual citizen of the Philippines personam in income taxation? who is working and deriving income from SUGGESTED ANSWER: abroad as an overseas contract worker is Principle of Mobilia Sequuntur Personam in taxable only on income from sources within income taxation refers to the principle that 4) An alien the Philippines. .500. It is suggested that no question requiring computation should be given in future bar Basic: Sources of Income: Taxable examinations. NIRC). As to nature — Allowable deductions constitute business expenses while personal exemptions p pertain to personal expenses. sirdondee@gmail. and report as taxable income the subsequent tax prescribed by the Secretary of Finance refund or tax credit granted to the extent of upon recommendation of the (b) tax Give an the taxpayer enjoyed when the benefit illustration of the application Commissioner of Internal Revenue (Sec. TAXABLE INCOME means the pertinent items [1%] SUGGESTED ANSWER: (Section 23. 34(F). fixed asset may be computed on the straightline method which will allow the taxpayer to deduct an annual depreciation of Php4. while personal exemptions can be claimed only by individual taxpayers. (Sec. an allowance a deduction from income.

00 from Y who was declared bankrupt by a competent court.000. Basis of Income Tax (1996) X is employed as a driver of a corporate lawyer and receives a monthly salary of P5.500. prompting X Company to write-off the entire liability.00.500. During the year of write-off.000. In the year of recovery. •On the other hand. the basis of X's income tax is P6. if the corporate lawyer is a "practicing lawyer (self-employed). Y .000.00 equivalent to the total of the basic salary and the value of the board and lodging. SUGGESTED ANSWER: (b) X Company has a business connected receivable amounting to P100.000. This is so because the employer/corporate lawyer has no place of business where the free board and lodging may be given. an equivalent value of of X's income tax? Why 2Will your answer in question (a) be the same if X's employer is an obstetrician? Why? SUGGESTED ANSWERS: 1) The basis of X’s income tax would depend on whether his employer is an employee or a practicing corporate lawyer.000. X should be taxed only on P5. Basic. Three years later. the entire amount was claimed as a deduction for income tax purposes reducing the taxable net income of X Company to only P1. Despite earnest efforts to collect the same. •If his employer is an employee.00. Y was not able to pay. the entire amount constitutes part of gross income of X Company because it was able to get full tax benefit three years earlier.00 with free board and lodging with 1What will be the basisP1.00 provided that the free board and lodging is given in the business premises of the lawyer and for his convenience and that the free lodging was given to X as a condition for employment.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) voluntarily paid his obligation previously written-off to X Company.

corporation. case is analogous into the taxpayer of Tax Code. When the into the return of other than a return reviewed by the BIR the the corporation was of capital while capital constitutesyear. the fair market value of the car is includable in the gross income pursuant to Section 28(a)(l) of the Tax Code (See 1974 Federal Tax Handbook. The company of Perez deducted in professional partnershiphis services to the (Sec. a Liability (1996) an obstetrician who deducting therefrom expenses and other 2) If the employer is rendered. 1981). Income: (Osorio) bank had justCoverage. the capital in declared a net any wealth which flows income tax taxpayer operating loss.Corporate. within the business 1) What is the tax board and lodging is given the business venture. airline with no landing rights The Commissioner is correct. gross from and ticketing services. bonus to all itsvs. April to reciprocity. it disallowedwhich item the the investment is following as of source of income. 28(a) of the keep the car. CIR. the to Mr. Commissioner) Tax multinational corporation doing business is X. its Philippine office subject to tax? Aircargo as an "off-line" airline from ticket of Perez or his company to give such an shares donated have acquired business situs winnings. No. Perez. (Sec. Mr. Y 2) Grossof shares means all wealth the rule of If a) the Philippines subject to which flows income "whatever source" under Sec. in consideration other than as a mere return v. in the Philippines donated 100 X's income will shares of stock allowable of the particular business. are subjected to tax the Compensation. Schedular James Rqfferty. Gross Income: expense. carrier without any flight operations in the Define (1995)Income" for purposes of the Income What is "gross are subject to donor's tax only if the property Perez requested Osorio to a liaison office in Philippines. Rev. is correct. Y and that 26911. without any its net earnings. gave the car to Mr. Basic. 28(b) volume and amount ofdistinction as to the Corporate: Income: Donor’s tax. such Gross income from business means total Importer the said resulted to a profitable income of which international sales. mentioned to the latter that his accepted by X as condition implications? for employment. in the Philippines or the is located annuities. and from incidental or outside Reasonableness of the Bonus operations or sources (Sec. donation of a foreign corporation whatever source derived. p. the basis of the size deductions. however. in behalf of his manufacturing firm. 1) Foreign corporations effecting a donation goods which Perez' company manufactures. sent Osorio an expensive Ruling income 018-87.RThis as a business expense. subjected to for air transportation. GROSS this Philippines which is duly licensed with the the foreign importer and put in a good word Accordingly. January 26. it is Reg. type or nature and extent of and after locality. since the in consideration of his services to the executive.the services (3). No. from was a gift and therefore excluded disposition Corporate. Income month officials and employees Capital (1995) How does amount of differ Million. Income Tax: Due to of said corporation to it is Y. There was no prior be allowed. 28. When it from "capital"? in the total "Income" P75 SUGGESTED corporate income tax return the Explain. employer-employee relationship. a bank executive. Lgolf with Mr. The car was not payment ordinary and "schedular expenseAthat should Treatment (1994) expense. and were the used whereincome ordinary "global treatment" as BIR Commissioner. As a result. if 85% in the business of the foreign of property.gross income of general share the the of stocks were given to Mr. deduction the bonus the while income is the officials and employees corporation gave its flow. subject to income tax. while playing liability. Who Income: Coverage. 1987).S. Duberstein. reservation employeefees. excluded from the gross income of the performed by income are treatedemployees.com 17 16 of 73 of 73 . 43. at self-employed. if of said employer for his convenience any. proven that the free a fixed rate. January 27. rents.R. the Commissioner b) Gross income means income (in the broad hence. 2).P75 Millioncapital is fund Therefore. ANSWER: filed its Income differs fromcorporationthat INCOME is following year. which Osorio did. flight information. No. Globalan bonus Basic. But Perez insisted that Osorio ALTERNATIVE ANSWER:the donation may be taxed expensive services are taxable income from in the Philippines. 414). Osorio is correct. taxable as income from whatever source. The fact that the company of Mr. If you necessary for services rendered. from dealings Caledonia Aircargo called Perez and told him The revenues in the no obligation on the part that there was really Philippines of Caledonia corporationdividends. prizes and royalties. Perez that the former will be Under a Law of of the taxpayers business Volume (Martens. the salary policy of the corporation. NIRC. I what are the tax corporation. Osoriofrom tickets reserved by However. the type of the income. SYSTEM. the reasonableness of schedules been made gratuitously should be treated as a To determine in accordance with the bonus it must be by graduated tax rates. interest. including (but not for him (Perez). A payment though voluntary. Is income derived from imposed by law havingsales of tickets Perez to a foreign introduced Mr. Securities and Exchange Commission. Osorio in consideration of the corporation (Sec. Distinguish treatment" from I will disallow the bonus is (Commissioner vs.00. 65773-74. 2). 363 U. are Ibid). in said how will you resolve the issue? and agreement or negotiations between Mr. and partner's distributive reservationgift. The transfer having accordingly and 316. 36. or proceeds from the constraining force of any moral or legal duty or a benefit to the payer is anticipated. However. G. (2006) Gold and Silver Corporation gave extra 14th Reg. It has. The transfer is not a gift because it is not made out of a detached or disinterested generosity but for a benefit accruing to Mr. No. its donor's tax on Mr Perez' company. including is not subject to donor's tax (BIR deal with the foreign Importer. considered taxable withholding tax on wages.business. Other factors deductions shall likewise vary for recipient. of its own to) shares of stocks in favor of resident limited compensation for services.500. if it is in return for services rendered. Perez takes a business deduction for the payment indicates that it was considered as a pay rather than a gift. business/professional income) are classified Osorio out of gratitude. 145). of income (compensation. a manufacturing firm the sharesthe stocks lodging is required to be of free were given to Mr. p. treatments. business opened a "OffOtherwise. Since gift subject to donor's tax and should be characterized commensurate with services these types of the officials and separately. is a taxable income to the payee even ALTERNATIVE ANSWER: if characterized as a 'gift' by the payor Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) sirdondee@gmail. will rule that the bonus is an unreasonable SUGGESTED X would Explain. Hence.Itthe same shall forms of income 1987 where the Supreme Court ruledRevenue that the The Commissioner of Internal of capital. income. 278). of X corporation? 2) Assuming premises conditions (Atlas Mining v. less cost of goods sold. 38 is SUGGESTED et al v. exempt from the tax been given to Mr. provided Rev. business suffers from a net operating loss. Capital is wealth. plus any business deal is considered to be a income from investments compensation for services rendered. 315)normal in relation to the business of the taxpayer and the surrounding behalf of his company.ANSWERS: be taxed on P6.000. the various the development Federal Income Taxation. 30.in thecar having issued also constitutes deductible expense to in the Philippines sold tickets The Philippines provision or otherwise. Osorio SUGGESTED ANSWER: appropriate (5%) helpful in taxation. Capital on the ground of unreasonableness. necessary Mr. and general economic Mr. Corporate. NIRC). accorded different tax circumstances (p. pensions. the cancel the assessment of deficiency income tax payment of income. Osorio. Line" Airline (1994)an foreign importer of relationship with a big off-line international Caledonia Aircargo is Basic. while income is the service of wealth. only be P5. Pirovano vs. Income Tax.00 if employees' qualification and contributions to Profitable Business Deal (1995) manager in the Philippines. expenditure is (1) and Mr. Osorio. Perez.or The parless income which is. SCHEDULER SYSTEM. commissions. Perez. in types/items and (2) is IV. BOAC. The is the tree while income is the fruit (Vicente corporation claimed that the vs. Treatment Madrigal ANSWER: Phil. gains derived No. and similar items. introduce him to SUGGESTED ANSWER: tax? donated INCOME means all income from is located in the Philippines. compensated for his services. Are the revenues of SUGGESTED ANSWER: car as a gift. passenger and Perez. G. Mr. includes the constitute taxable Commissioner compensation income to the recipient because income received in the Philippinesthe carthe included the fair market value of from as specifically described as gains and profits it is a compensation for services rendered sale of of Osorio by an "off-line" airline car Income tickets who protested that the is including gains derived from the sale or other under an of capital. The Commissioner should the allowable to consider are whether the Under the GLOBAL each type was made in good faith. Osorio and instead assess deficiency character by the taxpayer's are grouped together. Perez was able the make a profitable business established for to purpose of providing In gratitude. its resident Mr. "Off. of the shares SUGGESTED ANSWER: Line" Airline (2005) An international sense) value or stated value by statutory Osorio? Explain. the cost of the car No. all income received of the taxpayer business.

R. Francisco borrowed P10. A Co. (Commissioner of Internal v. Francisco was solvent at the time he borrowed the P 10. Francisco and condoned the loan. Revenue 1991 reiterating British Overseas Airways Corp. Mr.000. Japan Air Lines.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) air carrier from Philippine sources under the Tax Code? Explain. which is a subsidiary of a nonresident foreign corporation.00 and at the time the SUGGESTED ANSWER: loan was condoned. the small hut is provided for the convenience of the sirdondee@gmail. authorized for such types dividends (1994) in income taxation? Give an Disguised dividends of income ANSWER: SUGGESTED by the NIRC or other special laws.. and shall be subjected to the corresponding tax of 35% on Philippine sourced gross income. Taxable income means the pertinent items of gross income specified in the NIRC. (5%) supervisory employee. whether or not in any period amount is covered by earnings or projects. he was also provided a small hut. Preferred shares shall be considered capital regardless of the conditions under which such shares are issued and. an offline airline having a branch office or a sales agent in the Philippines which sells passage documents for compensation or commission to cover off-line flights of its principal or head office. or such other preferential rate as may be provided under a corresponding Tax Treaty. (10%) income. No. Condonation of Loan in Taxation (1995) Mr. the amount of the debt is considered as a gift from the creditor to the debtor and need not be included in the Fringe gross income. 15-2002. 2) Preferred and cumulative dividends at the rate of 10% per annum.com 18 of 73 No. the amount over and above the true value of the service rendered shall be treated as a dividend. Since it is obvious that the creditor merely desired to benefit the debtor in view of the absence of consideration for the cancellation. X is neither a managerial nor a answer. 1971).00 from his friend Mr. therefore. In such case. if any.000. Mr. The BIR disallowed the deduction. 3) the In the event of dissolution of the issuer. A nonresident foreign corporation is subject to the gross income tax on its income derived from sources within the Philippines. The income from sale of tickets shall not form part of taxable income because the term "taxable income" as defined under Sec. Francisco derive No. Francisco did not derive any income any income from the cancellation or from the cancellation or condonation of his condonation of his indebtedness? Explain. October 4. to the latter ostensibly for services rendered by the latter to the former. issued A Co. Deductible Royalty payments under a corresponding Gross a Philippine corporation.R. is not considered engaged in business as an international air carrier in the Philippines and is. Income Tax. July 12. Francisco) was unable to pay because of business reverses. preferred stock shall be paid in full or ratably as holders of assets of the issuer may permit before any the distribution shall be made to common and 4) The issuer has the option to redeem stockholders.00. No. G. 1) Non-voting. The income derived from the sales of tickets in the Philippines is considered taxable income of the international air carrier from Philippine sources.000. Is the fair market value of the use of the small hut by X a "fringe benefit" that is subject to the 32% tax imposed by Section 33 of the SUGGESTED ANSWER: National Internal Revenue Code? Explain your No. Even assuming that he is a managerial or supervisory employee. preferred shares of stock with the following features: . The sale of tickets in the Philippines is the activity that produces the income. less the deductions and/or personal and additional Dividends: Disguised exemptions. The absence of landing rights in the Philippines cannot alter the fact that revenues were derived from ticket sales within the Philippines. (5%) ALTERNATIVE ANSWER: The source of income is the property. Effect. the international Philippine Billings Tax nor to the 3% common airline company is not considered as engaged carrier's tax. Francisco told Mr.. 60714. Air India and American Airlines. the preferred stock. To enable him to perform his duties well. or for other airlines covering flights originating from Philippine ports or off-line flights. therefore. maintains that the preferred shares with their features are really debt and SUGGESTED ANSWER: therefore the dividends are realty interests. A Co. Only managerial or supervisory employees are entitled to a fringe benefit subject to the fringe benefits tax. dividends paid thereon are not considered 'interest' which are allowed to be deducted from the gross income of the corporation. (Revenue Memorandum Circular No. activity or service that produced the income. which he could use as his residence in the middle of the fishponds. Example: Dividends. Disguised dividends are those income payments made by a domestic corporation. latter's Benefit Tax: Covered Employees (2001) watch over V’s fishponds X was hired by Y to with a salary of Php 10. Gutierrez payable in one year without interest. 3 of R. Gutierrez that he (Mr. Mr. 31 of the NIRC refers only to income of those taxpayers who pay by way of the net income tax. indebtedness. example. declared dividends on the preferred stock and claimed the dividends as interests deductible from its gross Income for income tax purposes. Gutierrez took pity on Mr. Income (1999) licensing agreement. Did Mr. 17-71. When the loan became due Mr. under Sec.) ALTERNATIVE ANSWER: Yes. Inc. not subject to Gross Based on the foregoing. in business in the Philippines and is therefore a non-resident foreign corporation. The dividends are not deductible from gross Decide. but which payments are disproportionately larger than the actual value of the services rendered.

from the date prescribed for its payment until it is fully paid. on the due date appearing in the notice and demand of the Commissioner of Internal Revenue. service or other benefit furnished or granted in cash or in kind by an employer to an individual employee. such that. . a Fringe Benefit Tax: Employer required to Pay (2003) A "fringe benefit" is defined as being any good. If for example after the audit of the books of XYZ Corp.00 from April 15. required to be paid in case of failure (a) to pay: the amount of the tax due on any return required to be filed. The fringe benefit tax is imposed as a FINAL WITHHOLDING TAX placing the legal obligation to remit the tax on the employer. or (b) the amount of the tax due for which return is required.000. (Section 33. whichever is higher. can define (1995 Bar) What is a "deficiency interest" for purposes be legally demanded to pay the tax. Interest: "delinquency interest" for purposes What is a define (1995) of the income tax? Illustrate. SUGGESTED ANSWER: DEFICIENCY INTEREST for purposes of the income tax is the interest due on any amount of tax due or installment thereof which is not paid on or before the date prescribed for its payment computed at the rate of 20% per annum or the Manila Reference Rate. whichever is higher. or (c) the deficiency tax or any surcharge or interest thereon. the interest will be computed on the P125. required to pay an It is the employer who is legally required to (4%) pay an income tax on the fringe benefit. in case of non-payment. The person who is legally required to pay (same as statutory incidence as distinguished from economic incidence) is Interest: Deficiency Interest: that person who. SUGGESTED ANSWER: Delinquency interest is the interest of 20% or the Manila Reference Rate. for taxable year 1993 there was found to be due a deficiency income tax of P125. 1994 up to its Interest: Delinquency date of payment.00 inclusive of the 25% surcharge imposed under Section 248 of the Tax Code. Any amount or value received by the employee as a fringe benefit is considered tax paid hence. hence does not constitute taxable fringe benefit. if the tax is not paid the legal recourse of the BIR is to go after the employer. of the income tax? Illustrate. NERC). net of the income tax due thereon. Would it be the employer or the employee who is legally SUGGESTED ANSWER: income tax on it? Explain.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) employer.000.

LISA gave birth to twins. whatfrom trading indicate in business the gross receiptsbe the tax treatment on sum basis after the end of the year. The net income of the File ITR (1997)quantify how much is Athat A bachelor was employed by Corporation on exemption to corporation shall be subject to corporate The other rate of 35%. what should should RAM returns is to allow partial collection of the tax is includible as an itemstatus: (a) in the of income single. the taxpayer by providing it with an one of the twins also died on December 15. is the reason for such procedure? derivedincome tax return. either. Due to complications. implemented by a b) What or fiscal. to transaction tax her total personal and additional exemptions Stock Exchange are (Section 35/Cj. 2003.500. Personal Income. to 4:00 p. Javier's sole taxable (Section 75. of income tax and deficiency she meets were returns when the Danilo is liable for the a consequence as the surcharge interest gain or loss realized as deficiency tax of well (5%) following up to January(1) 1995 which is the conditions. on the loss of for the meaning Php60. personal basis with a salary of P3. income and deductions on a cumulative basis. and then as a cashier subject to a final withholding tax of 20%. which Domestic income tax. Then. Personal Income: Two The otherpreparingrevenue will Tax be status in items of his Income not Return for Employment (2001) worked part time as a In the year 2000. if any. the fact that hethat might accrue on the pensions deposited with declare its quarterly summary of gross derives compensation income concurrently PNB which are subject to final withholding tax. Is he exempt withheld only by and a) A domestic corporation is required to file employer. (e) proceeds installment payment scheme.com 20 19 of 73 of 73 . GSIS ITR. subject Falsified Taxwhich is income in the The proceeds Return Danilo. Domestic Corporate income would have been 7497. banks. as to a final return is required to be filed covering the his income tax return (RA subjected Taxation (1997) domestic corporation During the year. it is designed to ease the burden on course of stock transactions through the gains fromher delivery. who (2005) for the year 2000. rather than 2003. 51 (A) (a) (c).Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) return either as a taxable gain or a deductible the tax withheld is equal to the tax pay on this latter date will render the tax due. The gain or loss is arrived at by delinquent and will require the payment of deducting from the proceeds of insurance delinquency interest. (2%) gross receipts from a tradingMarried (b) Ibid]. Taxpayer. he accepted and that the the employers withheld taxes another dividends from domestic corporations are part-timewithheld Corporation B the tax due. Likewise. the year 2003. part-time and additional personal exemptions. the requirements is exempt from Yes. LISA died in investments in domestic corporations. 34(a).) ALTERNATIVE ANSWER: sales and overstating the expense deductions ALTERNATIVE ANSWER: If in the above illustration the assessment The gross receipts from trading business is by Danilo. (Sec. 30. In preparing the corporate income for b) The reason for the quarterly filing of tax The year 2003. (5%) of goods is not an item of return but merely a concurrently from two or more employers at payment of the tax due. from two employers at anytime during the Consequently. the taxpayer may still claim the same neighborhood. (d) the Likewise.00 for the year 1996. entrusted to his on the loss income tax return last April? Explain your under an insurance policy accountant the Yes. the withholdingthe law.00 and failure to corporate income tax sirdondee@gmail. NIRC). In September 1996. He should not (2) the income tax has been correctly withheld. the total gross as for theproceeds under an insurance policy computed receipt of deficiency interest. ITR. mention. he is not required anymore to withholding tax.taxable.m. is in lieu of theCorporate ITR. NIRC). 13th month pay. subject to married. There is no mention in the problem of the (amount realized) the basis of the good lost ITR: Personal Income. a final adjustment taxable year. trading SUGGESTED ANSWER: business. income of return and (d) widower.000. business. the corporate income the accountant? Discuss. (3%) taxable which he deposits with the PNB-Makati SUGGESTED ANSWER: with the taxes correctly from income tax one Branch. loss. SUGGESTED ANSWER:Income. items of revenue will not be the first working day ofthat did not exceed the compensation income January 1996 on a income tax included in the corporate income tax return. On RAM got from money interests married to LISA last Januarythe the timeliness of collection to meet the November 30. NIRC returns are required to be filed for the first total withholding taxes were correctly of 1997) but not on the interest income three quarters where the corporation shall withheld by his employers. (5%) RAM should indicate "(b) married" as his civil income. even if his aggregate therefore In required to file an income tax income tax returns four (4) times for income SUGGESTED ANSWER: compensation income from both his return? (5%) Mr. With Personal of taxes already paid. however. should the spouse die during the taxable placements is in a 24-hour convenience store in her The dividends from domestic corporation year. Quarterly employers is exempt from income tax on his monthly GSIS pension (Sec. NIRC. b) The reason for this procedure is to ensure Individual (2004) placements in 2003. NIRC). Exempted to amount of personal and additional personal (Sec.000 and that earned during a single taxable year.500. (Section 5 l(A](2)(b). does not exempt him from filing ITR. He then received the of whether or not There is no. 1994 includible aspenalties of income What is the tax and the an item thereon? in the compensation income is not required to file an and the amount of deficiency tax. NIRC). becauseawhat Taxation (2001) a domestic corporation file income Javier(2000)required to senior filing are Pension still be a) How often does Mr. liability. NIRC). total taxable income for the entire year. 15 on the 2000 income tax return last April The correct Exchange are subject to transaction tax total taxes were withheld her compliance with income will depend on from both earnings. would he is non-resident file an citizen. Is Danilo liable for the deficiency It depends. since Mr. Unfortunately. He income those individuals whopension from the GSIS tax return for income earned during a single returnafor his 1996have total receives monthly income? tax compensation income not exceeding P60. Philippine Stock Exchange. amount Job from is equal to from which exempt from income tax. an insurance policy on the loss of under ALTERNATIVE ANSWER: SUGGESTED ANSWER: In preparing his Income Tax Return (ITR)tax requiring the payment of the tax on a lumpgoods. is subject to a final withholding tax of 20%. of capital hence not The accountant filed return any time during the taxable year shall file an a falsified tax return by underdeclaring the income tax return (Sec. compensation income does not exceed be held liable goods will be included in the due date for payment per assessment notice. 4-93). (c) dividends from its stock budgetary needs of the government. improve the liquidity of government SUGGESTED income tax rate based on net corporate ANSWER: (e) none of the above? Why? Reason. The total income of X for the from income tax. (Section 76. The death of his wife during waitress in a restaurant in Mega Mall from the year will not change his status  The interest from money market because  8:00 a. 51(A)(2)(b).000 year? Explain the process. (b) the of as his civil eachITR the above items? before the end of the taxable year and also to corporate(c) Head tax the family.m. Liabilities. notthis case. Javier does not exceed P60. of gains from as if are exempt (that andbeing married)stock the exemptions year from the two employers does not exceed transactions with the Philippineof such year spouse died at the close ITR. and gains from he received not she will be required to file an Whether or a total compensation of stock transactions with the Philippine Stock P14.00 a The interest from money market placements month. RR No. Was she required to file an is in lieu of theengagedtax. inclusive of SUGGESTED ANSWER: tax return. file an the following items of revenue: (2) calendar SUGGESTED ANSWER: ITR. return. X included in the corporate income tax return. An individual deriving compensation preparation of his income tax incomeand the answer. 32(B)(6)(f). An individual with pure notice was released on December 31.

only cover the first two paragraphs. 25 (A) (1). On a gross income the requirementsof retaining the net income method instead of a valid classification have been complied with (Ton vs. while the other 50% plus housing. A Co. is still in consonance with the net income taxation scheme rather than the gross income method. P will also be SUGGESTED ANSWER: receiving rental income for the lease of hisare The salaries and allowances received by P Philippine residence. allowances and rentals subject tobecause he qualifies as a nonresident citizen the Philippine income tax?for employment leaves the Philippines (5%) requiring him to be physically present abroad most of the time during the taxable year. all lawyers. Cortez shall be subject to an income tax in the same manner as an individual citizen and a resident alien individual. NIRC). How will Mr. will credit the 50% of P's salary to P's Philippine bank account. Ibid. Revenue Regulation No. (Section 23. Cortez be taxed on his income derived from SUGGESTED ANSWER: Philippines and from sources within the Mr. 34 (A) tothat and credit should be given if the examinee's answer relation to Sec. Thus. What are taxed differently are individuals and corporations. If Danny's accountant is a Certified Public Accountant. The salaries and sirdondee@gmail. 25 (A) (1). a Philippine (1999) executive (P) who is a Filipino citizen. therefore.fraud penalty because the accountant acted beyond the limits of his authority. P not subject to Philippine these salaries. Considering the above. 7496. 2-93 now the principle of uniformity in 2) Is taxation is as having adoptedthe contrary. G. Octobers. P will sign the contract of employment in the Philippines. 7496 have indeed significantly reduced the items of deduction by limiting it to direct costs and expenses or the 40% of gross receipts maximum deduction in cases where the direct costs are difficult to determine. he came to the Philippines several times and stayed in the country for an aggregated period of more than 180 days. General correct? Explain. cost of living and educational allowances of P's dependents will be shouldered by HK Co. Income Tax: NonResident Citizen corporation. A Co. shall for that taxable year be deemed to be a non-resident alien doing business in the Philippines. Also. only the direct costs mentioned in said law are to be deducted from partnership income. What is taxable are the partners comprising the same and they are obligated to report as income their share in the income of the general professional partnership during the taxable year whether distributed or not. his certificate as a CPA shall Partnership: beIncome or cancelled upon automatically revoked Tax (1995) ago Marquez. Ibid.] Personal. During the calendar year 1999. Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) 2) No. income. Del Rosario et al SUGGESTED ANSWER: taxation scheme? Explain. 1994). this can well be justified by the fact that deductions Personal. Peneyra.R No. 109289. — The general provides in part: professional partnership and the partners are covered by R. While it is true that not all the expenses of earning the income might be allowed. The allowance of limited deductions however. Mr. NIRC of 1997] Thus. Cortez is a non-resident alien based in legislative grace. professional partnerships remain to be a nontaxable entity. the expenses paid or Incurred by partners in their individual capacities in the practice of their profession which are not reimbursed or paid by 1) Marquez and Peneyra not considered the partnership but areLaw Offices filed a taxpayer's suit alleging deductible from as direct costs are not that Revenue Regulationgross 2-93 violates the principle of his No. Hong Kong. 7496 known as the Simplified Net Income Taxation Sec. (Sec. in determining profit of the partnership. The SNITS treat professionals as one class of taxpayer so that they shall be treated alike irrespective of whether they practice their profession alone or in association with other professionals under a general professional partnership.. 2-93 Partnership. Sec. Revenue Regulation No. Income Tax: Nonare not matters of right but are matters of Resident Alien (2000) Mr. Is this contention 1) The contention is not correct. A nonresident citizen is taxable only on income derived from Philippine sources.com 21 of 73 . 2-93 implementing RA. has a subsidiary in Hong Kong (HK Co. P will bring his family to reside in HK and will lease out his residence in the Philippines. he is allowed to avail of the itemized deductions including the personal and additional exemptions but subject to the rule on reciprocity on the personal NOTE: It is suggested (J) full (M) in exemptions. 6. Cortez being a non-resident alien abroad? (5%) individual who has stayed for an aggregated period of more than 180 days during the calendar year 1999. formed a partnership which they named Marquez and Peneyra Law Offices. Posadas and Manguiat. Five years conviction.A. There is no showing in the problem that Danilo signed the falsified return or that it was prepared under his direction. uniformity in taxation because general professional partnerships are now subject to payment of income tax and that there is a difference in the tax treatment between individuals engaged in the practice of their respective professions and partners in general SUGGESTED ANSWER: professional partnerships. Revenue Regulation No. NIRC). Areincome tax. Jayme. The salary of P will be shouldered 50% by A Co. The Commissioner of Internal Revenue thereafter issued Revenue Regulation No. All individuals similarly situated are taxed alike under the regulations. [Sec. on taxable income received from all sources within the Philippines. General Professional Scheme (SNITS). all considered not violated.) and will assign P for an indefinite period to work full time for HK Co. 2-93 implementing RA No. 35 (D). has an A Co. {On the other hand the accountant may be held criminally liable for violation of the Tax Code when he falsified the tax return by underdeclaring the sale and overstating the expense deductions. (Section 22(E).

Domingo have income when the lease expires and becomes the owner of the building with a fair market value of P900. After marriage. The transaction subject tosubsequent sale of one exchange so that the any internal revenue tax (other than thehis shares to the other two of the brothers of documentary stamp tax)? (2) brothers in 1997 will be subject to income tax. The second option will give rise to an income during the year of lease expiration of P90.00 or 1/10 of the depreciated value of the building.000.0 million which they held in co-ownership.00 due to depreciation. In exchange for the property.000. A total of P900. Enriquez for ten years realized from the sale. Domingo at the time of the expiration will consist of the value of the building which is P900. The net gain from the sale of shares of stock ALTERNATIVE ANSWER: is subject to the schedular capital gainsqualify The exchange effected in 1995 did not tax of 10% for the first P100.00 during the year when the building was completed. and the property remained idle.000. He Million. Enriquez will erect a building on the land which will become the property of Mr. the three brothers thus each received shares of stock of the corporation with a total par value of P2. the basis to him is his share in the value of the property Personal. Enriquez erects the building. The spouses were both employed in 1991 by the same company.000.000. Domingo will realize an income when the lease expires and becomes the owner of the building with a fair market value of P900. the sale will not be subject to any internal revenue tax other than the documentary stamp tax. RR (Sec. who was in dire need of funds. at a rental of P12. On 30 December 1992.Lease (1995) a vacant parcel of land. Income Tax. what . they sold the condominium unit and bought a new unit. some renovations were made at a cost of P150. In 1995.00 per year. In 1994.0 million. The gain subject to income tax in the sale is measured by the difference between the selling price of the shares (P2 Million) and the basis of the real property in the hands of the transferor at the time of exchange which is the fair market value of his share in the real property at the time of inheritance (Section 34(b)(2). (Section 42. Contract received at the time of exchange. ALTERNATIVE ANSWER: sirdondee@gmail.000. (Section 42. 2).00 income will be reported under the second option but will be spread over the life of the lease or P90. However. The condition is that Mr.00 and any rental Personal. Domingo to report an income of P1.brothers gained showing that the three NIRC). Domingo at the end of the lease without compensation or reimbursement whatsoever for the value of the building. The availment of the first option will require Mr. which is P2 of Domingo owns Mr. because the seller did not realize any gain from the sale. Joy received. A week before their marriage.com 22 of 73 Mr. In the instant case.0 is a Is the Yes.000. Under the first option. as of said date. Will Mr. altogether. No. Income Tax. the sale will also be taxable if a gain results therefrom. income that has accrued Married Individual (1997) Mar and Joy got married in 1990. NIRC).0 million. P is taxable on rental income for the lease of his Philippine residence because this is an income derived from within. At the end of the lease the building is worth only P900.0 million or.00 from her parents. Under the foregoing facts. Income Tax: Tax-Free Exchange (1997) Three brothers inherited in 1992 a parcel of land valued for real estate tax purposes at P3. then. This is so because the tax-free exchange merely deferred the recognition of income on the exchange transaction.00. a total of P6. and a second child was born on 07 November 1993. a condominium unit worth P750. just equal to the amount leases the land to Mr.000.000.000 and 20% for the as a tax-free exchange because there is no excess thereof (Section 2l(d). an amount. the lessor will have no income when the lease expires and becomes the owner of the building.000. NIRC).tax-free brothers in P2. No business was done by the Corporation. In the early part of 1997. The gain is measured by the difference between the amount realized (selling price) and the basis of the property.00? How much income must he SUGGESTEDthe building? Explain. The income to be realized by Mr. control of the corporation by acquiring at least 51% of the voting rights.000. Since the entire gain on the exchange was previously subjected to income tax. NIRC). the lessor has the option to report income as follows: 1) The lessor may the building the market value of report as income at the time when such building is completed. they transferred the property to a newly organized corporation as their equity which was placed at the zonal value of P6. the leased property being located in the Philippines. Mr.00 per year.00 because the condition for the lease is the transfer of the building at the expiration of the lease. sold his shares SUGGESTED ANSWER: to the twoexchange for 1995 million. by way of donation. report on ANSWER: When a building is erected by a lessee in the leased premises in pursuance of an agreement with the lessor that the building becomes the property of the lessor at the end of the lease.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) allowances received from being employed abroad are incomes from without because these are compensation for services rendered outside of the Philippines. or 2) The lessor may spread over the life of the lease the estimated depreciated value of such building at termination of the lease and report as income the each for year of the lease an aliquot part thereof 49. Incidentally. Upon completion the building had a fair market value of P1 Million.000. Personal. their first child was born. one of the brothers.

He owns certain income-earning restore its equivalent (James vs.S. because for every peso borrowed in 1994 shall make is not gain the presumed to have been realized from thehas a corresponding liability to pay one he sale. (James vs. the Commissioner assessed give rise to an additional exemption of P5.366 U. individual. The privilege of 1) The contention that the income tax exemption from tax is granted to qualified applies to legal income and not to illegal personal use under the ADB Charter which is income is not correct.000 raising their additional personal exemption to constitute income because he was under exemptions to P 10. based on the SUGGESTED ANSWER: adjusted gross income derived by nonThe events in the life of spouses. 1961). swindling did not constitute income because The proceeds from the sale are subject to of his obligation to return the amount income tax.000 for taxable year to return the amount he had swindled.. His Income as employee in the United States. When the Commissioner gross compensation income. Lajojo protested the child in November 1993 would illegal income. Income (1995 Bar) swindler. resident citizens from all sources without the which have income tax incidences are the Philippines during each taxable year. SUGGESTED ANSWERS: for his personal use. peso. taxable year 1992. and 5) Sale of their condominium unit receipt from swindling was similar to a loan.) incomes be taxed? the Philippines and on his Income from the income that were subjected to the tax. When a asset of the retiring alien employee because taxpayer acquires earnings. hence. In one year Mr. the illegality of the income NIRC. 2% and 3%. assess income taxthere will be hardly anything left to return Employee (2005) of the Asian Development An alien employee the victims of the swindling. Section 28(a) of the recognized by the tax authorities. If you SUGGESTEDpurchase the car. and how. 3) Birth of their on of Internal Revenue discovered his income first child in December 1992 would from swindling. He as taxable income would perpetuate injustice also receives income from his employment in by relieving embezzlers of the duty of paying the United States on which the US income tax incomedeficiencythe money they enrich is a 3) The taxes on income tax assessment is paid. Retiring Alien ment. on the other hand. a Filipino citizen. would such income or Juan. It in general terms.accordance with the schedular graduated rates of 1%. of an which should be reported in his income tax obligation to repay and without restriction as return.arising from a restitution is a civil liability Income he shall be considered as a self-employed and Gains (2005) crime. (Sees. United States because his being a citizen Lajojo's liability to pay the tax is based on his makes him taxable on all Income wherever having realized a taxable income from his derived. U. Hence. How will you rule to Bank (ADB) who is retiring soon has offered to on each of the three grounds for the protest? sell his car to you which he imported tax-free Explain. although this provision is expressly will not preclude the imposition of the income excluded from the coverage of the 2005 bar 2) The contention that the receipts from his tax thereon. shall be taxed in Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) were the events in the life of the spouses that had income tax incidences? sirdondee@gmail. obligation 1993. Income Tax. following: 1) Their marriage in 1990 qualifies Taxable Income: Illegal personalclaim them to exemption for married individuals. while honest people pay their taxes on every SUGGESTED ANSWER: excise on the privilege to earn an income. is the sale subject Tax Code includes within the purview of gross decide to ANSWER: The sales transaction is subject to value income all Income from whatever source to tax? Explain. For the income he derives from his swindling activities and will not affect his property in the Philippines. U. Payment of the on his net income under the Simplified Net tax is a civil obligation imposed by law while Income Taxation Scheme (SNITS) whereby Taxable or Non-Taxable. not of P5. express or implied. exam. 4) Birth of their second for The lawyer of Mr.com 23 of 73 . The car is considered a capital swindled is likewise not correct. even though it may still be claimed Resident Citizen (1997) immigrated to the Juan. Mr. Income Taxation: Nonincome. and 3) If he has to pay the deficiency Personal. shall be taxed on both his income from conceivable type of be paid out of the same will not necessarily income. his the spouses liable to the 5% capital gains tax on which income. without the consensual and selling cars. Lajojo is a big-time 2) Their employment in 1991 by the same he was able to earn P1 Million from his will make them liable to the income tax imposed company swindling activities. To treat the embezzled funds not continues to derive substantial income.000 him a deficiency income tax for such income. has that he is not entitled to retain the money. Lajojo'sgrounds: from likewise entitle them to claim additional his swindling did not income tax applies only to legal income.S. United States where he is now a permanent and even though he may still be adjudged to resident. 32 and 39. Juan shall be taxed obligation to make restitution. On which of the above income is the themselves with through embezzlement. recognition. lawfully or he is not engaged in the business of buying unlawfully.S. in the Philippines. 107(B) of the derived. property in the Philippines from which he 213. he has received taxable Personal. Mar and Joy. NIRC) to their disposition. if at all. the following receipts 1) The assessment on 2) Mr. He therefore derived income. an direct tax imposed on the owner which is taxable. (5%) added tax (VAT) under Sec.

SUGGESTED ANSWER: Taxable.R. Withholding Tax: Retirement Benefit (2000) To start a business of his own. Gross income includes "all income derived from whatever source" (Sec. Thus. gross income and exempt from taxation are Recovery of bad debts previously allowed as 2. (2%) correct in ANSWER: sirdondee@gmail. It includes taking by the government age at the time of retirement. it is considered as a capital asset 3. (10) must have been in service of the same NIRC) This is sometimes referred as the b. L-14532. 34[C][1]. (5%) ANSWER: if: why not? No. NIRC) •Those received under existing collective Withholding Tax: Nonretirement plan): bargaining agreement and other Resident Alien (2001) Is a non-resident alien who is not engaged in agreements are exempt. (Section 57(A). of only once. August 6. the retiring official or employee tax benefit of said deduction. Court of Tax Appeals. and trade or business or in the exercise of •In the absence of retirement plan or profession in the Philippines but who derived agreement providing for retirement rental income from the Philippines required to benefits the benefits are excluded from file an income tax return on April of the year gross income and exempt from income tax following his receipt of said income? If not. employees of private firms are excluded from Taxable under the TAX BENEFIT RULE. (a) It depends. (Sec. he is not less than fifty (50) that e) Gain RULES. NIRC). RECAPTURE on the sale of a car used for personal employer for at least ten years of age at the time of retirement. Unlawful gains. the income tax on income derived from within must be collected through the withholding tax system and thus relieve the recipient of the income the duty to file income tax returns. The government can not require persons outside . 34[E][1]. SUGGESTED ANSWER: purposes. received from employers without any 32[A][3] and Sec. that the benefit is availed and Taxable. Mr. 32[A]. SUGGESTED ANSWER:taxation? (3%) and exempt from NIRC) Not taxable if the taxes refunded were The conditions to be met in order that d) originally claimed as BAD DEBTS previously Recovery of deductions. which was interpreted as all income not expressly excluded or exempted from the class of taxable income. not retirement benefits received by officials and SUGGESTED ANSWER: charged off. Since the car is used for personal of only once. No. The income tax on all income derived from Philippine sources by a non-resident alien who is not engaged in trade or business in the Philippines is withheld by the lessee as a Final Withholding Tax. G. and through condemnation proceedings. 39[A][1]. NIRC). the income may proceed from a legal or illegal source such as from jueteng. It shall be Benefit what conditions are retirement Under (2000) included as part of gross income in the year of benefits received by officials and employees the receipt to the extent of the income tax of private firms excluded from gross income benefit of said deduction. are subject to income tax. (Sec. v. 1965) In the instant case. for this reason. purposes. Mario de Guzman opted for an early retirement from a private company after ten (10) years of service. Pursuant to the company's qualified and approved private retirement benefit plan.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) Explain briefly whether the following items are taxable or non-taxable: (5%) a) Income from JUETENG. G. (Section 51. Sale exchange or other disposition of requisites are met: been in service of the same employer for at property to the government of real property is (2) that he is not least ten (10) years. 1975) of its territorial jurisdiction to file a return. An employee retiring under a company's qualified and private retirement plan can only be exempt from income tax on SUGGESTED ANSWER: his retirement benefits if the following have (1) that the retiring employee must Taxable. Under Republic Act No. (Gonzales (3) the benefit is availed v. SUGGESTEDExplain your answer. Under Republic Act No.com 24 of 73 b) Gain arising from EXPROPRIATION OF PROPERTY. No. NIRC). less than 50 years of taxable. 7641 (those hence the gain is considered income. May 26. there is no mention c) TAXES paid and subsequently whether the employee has likewise complied SUGGESTED refunded. irrespective of the voluntary or involuntary action of the taxpayer in producing the income. (Sec. ANSWER: (2) and with requisites number Taxable only if the taxes were paid and (3). gambling winnings. etc. L-28398. he was paid his retirement benefit which was subjected to withholding tax. The tax code stands as an indifferent neutral party on the matter of (Commissioner where the income comes from.R. claimed as deduction and which are Withholding Tax: Retirement subsequently refunded or credited. 4917 (those as follows: deduction in the preceding years shall be received under a reasonable private benefit included as part of the gross income in the plan): year of recovery to the extent of the income a. of Internal Revenue Manning. c. Is the employer SUGGESTED withholding the tax? Explain. years.

to perform for four (4) nights at the Folk Arts Theater. under the licensing agreement with banks shall be considered as royalty subject to the 20% final withholding tax. Non. Who are The followingtaxes? i. the final withholding tax will be a sure revenue to the government unlike when the dividend is treated as a returnable income where the recipient thereof who is in a tax loss position is given the chance to offset such loss against dividend income thereby depriving the government of the tax on said dividend income. venture. It would be extremely difficult for the BIR to monitor compliance considering the huge number of stockholders. (5%) The reason for imposing final withholding tax rather than the progressive tax schedule on cash dividends received by Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) a resident citizen or alien from a domestic corporation. being a manner of collecting the income tax on their salary. Accordingly. Domestic Corporation. income under the last paragraph of Sec. the imposition of a final withholding income recipients. will not acquire any proprietary rights in the licensed systems. fundamental law. in Withholding Tax: relation to Sec. (Nitafan et. support Withholding Tax. industrial or commercial undertaking. the consultancy and technical services rendered by MKB-Phils. The MKB-Phils.The MKB-Phils. In Royalty (2002) sirdondee@gmail. when received by a resident citizen or alien from a domestic corporation. is to ensure the collection of income tax on said income. is a BOI-registered domestic corporation licensed by the MKB of the United Kingdom to distribute. The salaries contention of the judge correct? Reason of judges are not tax-exempt and their briefly. Finally. The MKB-Phils. assistance or services rendered in connection with technical management or administration of any scientific. al. (5%) Yes.00 which they used for the SUGGESTED ANSWER: support of the orphans in the city. which can only be done through the filing of income tax returns. Income subject income. 26(e) of the Tax Code. NIRC). the deduction of withholding taxes. a foreign non-resident entertainer. The parishes earned P1. support and use in the Philippines its computer software systems. retiring employee must liable to pay are liable to pay income (a) four served parishes because the taxes: Thehave catholic at least five(5) years. The clear intent of the Constitutional Commission that framed the Constitution is to subject their salaries to tax as in the case of all taxpayers. 26. (Sec. the MKB-Phils.com 25 of 73 .000. what kind of tax will its income SUGGESTED ANSWER: be subject to? Explain. [Note: It is recommended that any ALTERNATIVE ANSWER: of the foregoing cash dividends received by a The reason why answers can be given full credit because thealien frominvolves a policy resident citizen or question a domestic issue which are subjected to the final corporation can only be found in the deliberations of of 10% and not at the withholding tax Congress. Examples of income subject to final tax are Withholding Tax. Under this procedure. it is very easy to check compliance because there are fewer withholding agents compared to the number of Likewise. Hence. net of 15% withholding tax prescribed by the RP-UK Tax Is Treaty. the income of the MKB-Phils. provides consultancy and technical services incidental thereto by entering into licensing agreements with banks. Alien (1994) Frank Binatra. under the licensing agreement with banks considered royalty subject to 20% final withholding tax? Why? If not.00 a night. Binatra was paid P200. The term royalty is broad enough to include technical advice. By shifting the responsibility to remit the tax to the corporation. 42(4)(f). are taxed only at the final tax of 10% and not at the progressive tax rate schedule under Section 24(A) of the Tax Code? Explain your SUGGESTED ANSWER: answer. If we subject the dividend to the progressive tax rate. Cash Dividends(2001) 152 SCRA 284 [1987]). and use of the computer systems of MKB-UK Coverage as royalty. especially when there are other items of gross income earned during the year. project or scheme. that he is not less than and earned "assixty (60) years of age of their such" in the performance but not religious functions and duties. Citing Section 10.] progressive rate tax schedule is to lessen the impact of a second layer of tax on the same Withholding Tax. the payor of the income withholds the tax and remits it to the government as a final settlement of the income tax due on said income. Is the results into a net No. there is no assurance that the taxpayer will declare the income. interest Residentetc. The contention is incorrect. (3%) Income subject to final tax refers to an income wherein the tax due is fully collected through the withholding tax system. Under such agreements. income received by them. CIR. is not a diminution contemplated by the Withholding Tax. pays royalty to the MKB-UK. is taxable more than sixty five (65).000. which are incidental to the distribution. tax will make the tax available to the government at an earlier time.from bank deposits. dividend income. The recipient is no longer required to include the item of income subjected to "final tax" as part of his gross income in his income tax returns.000. v. Article VIII of the Constitution on the non-diminution of the salaries of members of the judiciary during their continuance in office. not being income ii. What do you think is the reason why cash dividends. are taxable(2004) Article VIII of the 1987 Constitution which provides that salaries of judges shall be fixed by law and that during their continuance in office their salary shall not be decreased. parishes hired the services of Four Catholic royalties. a judge of MM Regional Trial Court questioned the deduction of withholding taxes from his salary since it SUGGESTED ANSWER: deduction of his pay. (5%) taxability is not contrary to the provisions of Section 10. The income of MKB-Phils. including basic and related materials for banks. theretomeant by income subject to "final What is (2001) tax"? Give at least two examples of income of resident individuals that is subject to the SUGGESTED ANSWER: final tax.

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics)

promoting and operating the Binatra Show, they engaged in an activity conducted for profit. (Ibid.) (b) The income of Frank Binatra, a nonresident alien under our law is taxable at the rate of 30%, final withholding tax based on the gross income from the show. Mr. Binatra is not engaged in any trade or business in the Philippines. Withholding Tax; Non-Resident Corporation (1994) Bates Advertising Company is a non-resident
corporation duly organized and existing under the laws of Singapore. It is not doing business and has no office in the Philippines. Pilipinas Garment Incorporated, a domestic corporation, retained the services of Bates to do all the advertising of its products abroad. For said services, Bates' fees are paid through outward remittances. ANSWER: SUGGESTEDAre the fees received by Bates The fees paid withholding tax? subject to any to Bates Advertising Co., a non-

resident foreign corporation are not subject to withholding tax since they are not subject to Philippine tax. They are exempt because they do not constitute income from Philippine sources, the same being compensation for labor or personal services performed outside 1) Philippines (Sec. 36{c) (3) and Sec. 25(b) the It depends. If the prize is considered as winnings Withholding Tax; Reader's (l), Tax Code). Digest Award one million pesos awarded by Is the prize of (1998) derived from sources within the Philippines, it is the Reader's Digest subject to withholding of final tax? Who is responsible for withholding subject to withholding of final tax (Sec. 24[B] infailure to the tax? What are the liabilities for SUGGESTED ANSWER: [5%] withhold such tax?
relation to Sec. 57[A], NIRC). If derived from sources without the Philippines, it is not subject to withholding of final tax because the Philippine tax law and regulations could not reach out to foreign jurisdictions.

DEDUCTIONS, EXEMPTIONS, EXCLUSIONS & INCLUSIONS
Deduction: Facilitation Fees or "kickback" (1998)

2)
The tax shall be withheld by the Reader's Digest or local agent who has control over the payment of the prize.

3)
Any person required to withhold or who willfully fails to withhold, shall, in addition to the other penalties provided under the Code, be liable upon conviction to a penalty equal to the total amount of tax not withheld (Sec. 251, NIRC). In case of failure to withhold the tax or in

the case of under

Any person required under the Tax Code or by rules and regulations to withhold taxes at the time or times withholding, the deficiencyregulationsbe collected required by law or rules and tax shall shall, in addition to other penalties provided by law, upon conviction be punished by a fine of not less than Ten thousand pesos (Php 10.0OO) and suffer imprisonment of payor/withholding agent (1st par.. Sec. from the not less than one (1)

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics)

Another reason for its non-deductibility is the fact that it can be considered as an illegal compensation made to a government employee. This is so because if the insured, his estate or heirs were made as the beneficiary (because of the requirement of insurable interest), the payment of premium will constitute bribes which are not allowed On deduction from the company (Section as the other hand, if gross income was made the beneficiary, whether directly or indirectly, 34[A][l][c], NIRC). the premium is not allowed as a deduction from gross income (Section 36[A}14], NIRC). Deductions: Amount for Bribe (2001) In order to facilitate the processing of its application for a license from a government office, Corporation A found it necessary to pay the amount of Php 100,000 as a bribe to the approving official. Is the Php 100,000 deductible from the gross income of Corporation A? On the other hand, is the Php SUGGESTEDtaxable income of the approving 100,000 ANSWER: Since the amount of Phpl00.000 constitutes a official? Explain your answers. (5%)

ordinary not more than ten (10) years (1st year but gains which are subject to a higher rate Sec. 255, tax. (Chirelstein, Federal par., of income NIRC). Income Taxation, 1977 Ed.)

sirdondee@gmail.com

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bribe, it is not allowed as a deduction from gross income of Corporation A, (Section 34(A)(l)(c), NIRC). However, to the recipient government official, the same constitutes a taxable income. All income from legal or illegal sources are taxable absent any clear provision of law exempting the same. This is the reason why gross income had been defined to include income from whatever source derived. (Section 32(A), NIRC). Illegally acquired income constitutes realized income under v. US, 343 US 130). the claim of right doctrine (Rutkin

Deductions: Capital Losses; Prohibitions (2003) for the rule prohibiting What is the rationale the deduction of capital losses from ordinary SUGGESTED ANSWER: gains? Explain. It is to insure that only costs or expenses incurred in earning the income shall be deductible for income tax purposes consonant with the requirement of the law that only necessary expenses are allowed as deductions from gross income. The term "NECESSARY EXPENSES" presupposes that in order to be allowed as deduction, the expense must be business connected, which is not the case insofar as capital losses are concerned. This is also the reason why all non-business connected expenses like personal, living and family expenses, are not The prohibition of deduction of capital losses allowed as deduction from gross income from ordinary gains is designed to forestall (Section 36(A)(1) of the 1997 Tax Code). the shifting of deductions from an area subject to lower taxes to an area subject to higher taxes, thereby unnecessarily resulting in leakage of tax revenues. Capital gains are generally taxed at a lower rate to prevent, among others, the bunching of income in one taxable year which is a liberality in the law begotten from motives of public policy (Rule on Holding Period). It stands to reason therefore, that if the transaction results in loss, the same should be allowed only from and to the extent of capital gains and not to be deducted from

Depreciation of Withholding Tax; Time Deposit Interest; SUGGESTED ANSWER: goodwill. GSIS Pension (1994) 1) Interest on loans used to acquire Maribel Santos, a retired public school capital equipment or machinery is a teacher, relies on her pension from the GSIS deductible item from gross income. The law and the Interest Income from a time deposit gives the taxpayer the option to claim as a of P500.000.00 with ABC Bank. Is Miss Santos deduction ANSWER: as capital expenditure SUGGESTED or treat on her Income? liable to pay any tax interest incurredis exempt from tax used in Maribel Santos to acquire property on the trade, business orGSIS (Sec. of a profession. pension from the exercise 28(b((7)(F), Tax 2) Depreciation as regards her is not deposit, (Section 34(B) (3),for goodwill time allowed Code). However, NIRC). as interest she from gross income. While the deduction receives thereon is subject to intangibles maybe allowed (Sec. 21(a)(c), Tax 20% final withholding tax. to be depreciated or amortized, it is only allowed to those Code). intangibles whose use in the business or trade is definitely limited in duration. (Basilan Estates, Inc. v, CIR, 21 SCRA 17). Such is ALTERNATIVE ANSWER: not the case with goodwill. Depreciation contractor who won the bid for MC Garcia, a of goodwill is allowed as a deduction from gross income if the goodwill is the construction of a public highway, claims acquired through capital fees which according as expenses, facilitation outlay and is known from experience to operating value to the be of to him is standard procedure in business for with thelimited period.Are these only a government. (Section transactions 107, Revenue Regulations No. 2). In gross expenses allowable as deduction from such case, the[5%] SUGGESTED goodwill is allowed to be amortized income? ANSWER: No. The useful lifefacilitationthe deduction he over its alleged to allow fees which of claims as standard operating procedure in the current portion of the expense from gross transactions withpaving the way forcomes in income, thereby the government a proper the form of bribes or "kickback" which are not matching of costs against revenues which is Deductions:deductions of the gross income Donation: allowed as from an essential Income Tax: feature income tax RealDecember (2002) On Property 06, NIRC). LVN Corporation 2001, (Section 34(A)(l)(c), system. donated a piece of vacant lot situated in Deductions: Ordinary Business Mandaluyong City Expenses (2004) to an and chief executive OXY is the president accredited and duly registered non-stock, non-profit educational officer of ADD Computers, Inc. When OXY was institution join used by the latter in building asked to to be the government service as A. May the donor the a sports of a bureau students. Department as director complex for under claim in full of deduction from its gross took a leave the income for of Trade and Industry, he taxable year 2001 the amount of the business absence from ADD. Believing that its donated lot equivalent to and fair market value/zonal outlook, goodwill its opportunities improved value at the time of the donation? Explain with OXY in the government, ADD proposed to SUGGESTED ANSWER: your answer. (2%) obtain a policy of insurance on his life. On A. No. Donations and/or contributions ethical grounds, OXY donee institutions objected to the made to qualified insurance purchase but ADD purchased the consisting of property other than money policy anyway. Its annual premium amounted shall be based SUGGESTED ANSWER: on the acquisition cost of to the property. The donor is deductible to No.P100,000. Is said premium not entitled by The premium is not deductible because it ADD an ordinary business expense. market claim as full deduction the fair is notComputers, Inc.? Reason. (5%) The term value/zonal value of income tax law in its "ordinary" is used in thethe lot donated. (Sec. B. 34(H), NIRC). In significance and to has the common order that donations it non-stock, non-profit educational institution usual be may or connotation of being normal, exempt from the v. Du Pont, 308 US what donor's gift tax, 488 customary (Deputy conditions must be met by the donee? (3%) [1940]). Paying premiums for the insurance of SUGGESTED ANSWER: a person not connected to the company is not normal, usual or customary.

COMMENT: It is suggested that any of the Deductions: Deductible Items are the following answers to the question, "What from liabilities for failure to withhold are deductible Gross Income (1999) itemssuch a tax?" be Explain if the following given full credit: 1) The payor shall be liable for from gross income for income tax purposes. waspayment of the tax which the not withheld. 2) The payer/withholding agent Disregard who is the person claiming the shall be liable to both civil expense.criminal penalties on loans usedthe Tax and (5%) 1) Interest imposed by to or machinery. 2) acquire capital equipment Code.

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics)

B. In order that donations to non-stock, that they are not allowed to deduct any item non-profit educational institution may be from their gross income for purposes of exempt from the donor's gift tax, it is computing their net taxable income. With the required that not more than 30% of the passage of the Comprehensive Tax Reform Act said gifts shall be used by the doneeof 1997, is this complaint still valid? Explain SUGGESTED ANSWER: institution for administration purposes. your answer. (5%) No more. Gross compensation income earners Deductions: Non-Deductible Items; (Sec. 101(A)(3), NIRC). are now allowed at least an item of deduction Gross Incomefollowing items are deductible Explain if the (1999) in the form of premium payments on health from gross income for income tax purposes. and/or hospitalization insurance in an amount Disregard who is the person claiming the not exceeding P2,400 per annum [Section 1. Reserves for bad deduction. (5%) 34(M)]. This deduction is allowed if the 2. Worthless debts. SUGGESTED ANSWER: aggregate family income do not exceed securities 1RESERVE FOR BAD DEBTS are not allowed as P250.000 and by the spouse, in case of deduction from gross income. Bad debts must be married individual, who claims additional charged off during the taxable year to be allowed Deductions; Vanishing Deduction; personal exemption for dependents. as deduction from gross income. The mere setting Purpose (2006) Vanishing deduction is availed of by up of reserves will not give rise to any deduction. taxpayers to: tCorrect his accounting records to reflect the (Section 34(E). NTRC). a actual deductions made 2WORTHLESS SECURITIES, which are ordinary Reduce his gross income assets, are not allowed as deduction from gross Reduce his output value-added tax liability income because the loss is not realized. However, Reduce his gross estate Choose the correct if these worthless securities are capital assets, the answer. Explain. (5%) owner is considered to have incurred a capital loss as of the last day of the taxable year and, therefore, deductible to the extent of capital gains. (Section 34(D)(4), NIRC). This deduction, however, is not allowed to a bank or trust company. (Section 34(E)(2), NIRC). Deductions: Requisites; Deducibility of a Lossrequisites for deducibility of a loss. Give the (1998) SUGGESTED ANSWER: (5%1 The requisites for deducibility of a loss are 1) loss belongs to the taxpayer; 2) actually sustained and charged off during the taxable year; 3) evidenced by a closed and completed transaction; 4) not compensated by Insurance or other forms of indemnity; 5) not claimed as a deduction for estate tax purposes in case of individual taxpayers; and 6) if it is a casualty loss it is evidenced by a declaration of loss filed within 45 days with the BIR.
COMMENT:

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The question is vague. There are different kinds of losses recognized as deductible under the Tax Code. These are losses, in general (Sec. 34[D](1); net operating loss carryover (Sec. 34[D](3); capital losses (Sec. 34[D](4); Losses from wash sales of stocks or securities (Sec. 34[D](5) in relation to Sec. 38); wagering losses (Sec. 34[D](6); and abandonment losses (Sec. 34(D](7). Losses are also deductible from the gross estatefive (5) point Considering the time allotted for a (Sec. 86[A](l) (e), NIRC). only nine (9) minutes, the candidates question is would not be able to write down a complete answer. It is suggested that any answer which states the requisites for the deducibility of any of the above losses be given full credit.

Deductions; Income Tax: Allowable Deductions (2001) Taxpayers whose only income consists of salaries and wages from their employers have long been complaining

Adrian to the income withheld is anguests owned by Express income (Collector vs. The P200. Assets. the vs. The term "gross receipts. must Mr. he left the following properties: (a) bank deposits with Citibank Makati and Citibank Orlando. and P 100. the Is include as an executive of the corporation. (2) It is exempted by statute. (CIR v. He was unable to work for six months which meant that he did not receive his usual salary of P 10. due to the following reasons: (1) It is exempted by the fundamental law. on the other hand. cargoes. was a top 25. he decided not comprehend of include ininterest income applied is properly his life the country.com 29 of 73 to be reported its behalf.000. 2). This is because the ALTERNATIVE ANSWER: SUGGESTED ANSWER: use of the limousine are free housing and services although not given Remuneration his gross estate. 2003). free use of a limousine and membership in a country club where he can entertain customers of the corporation. 148191. (Section 61. 2) constitutes taxable income because were it not for the injury. then Mr. hasor depreciation (if the house is owned by the corporation) with ABC Bank. The amountinwithheld sirdondee@gmail. Philippines so much of following his and passengers.000. appears that of government on as income. his employer provides him with the following benefits: free use of a residential house in an exclusive subdivision. after deducting the membership in a country club is not part of (RAMO 1-87). How much income injuries damages are compensation for did he realize when he collected on the judgment? sustained by Mr. G. The fact that the country club receive the amount does not alter the fact that it of is primarily for the benefit and convenience is remitted in satisfaction of its tax obligations.00 for his hospitalization.000. In 2005.. Adrian to it did not actually withholding taxes. He sued the bus company and was able to obtain a final judgment awarding him P400. Exclusions are something received or earned by the taxpayer which do not form part of gross income while deductions are something spent or paid in earning gross income.00 as reimbursement for his hospitalization. However.00 as moral damages for his pain and suffering.000. (Section 28(b). only 50% of the rental value time deposits the Manila-Baguio route. SUGGESTED ANSWER: benefits. DEDUCTIONS from gross income. in of the items of deduction allowed the residential net estate ofpart decedent house is of his computing the a compensation income86[B][2]. The BIR wants to they were given for the benefit of the collect a 5% gross receipts tax on the interest employer and are considered to be necessary ALTERNATIVE ANSWER: income of Express Transport without Yes." pertains to the a describeda permanent resident status granted as "Other question percentageyear. an American citizen. Gross residential house Receipts enacts agivenimposing a 5% for his Congress (2006) law to Mr.00 a month or a total of P60." the Philippines executive of a U. Florida.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) Distinguish "Exclusion from Gross Income" from "Deductions From Gross Income". Deduction from Gross Exclusion in Orlando. At the time of his death. if the Exclusion & Inclusion. he suffered a heart Income (2001) attack and died. value of the house and limousine as income. report which he must (Section 86[A][2] and for income tax purposes. Adrian must report the imputed rental Adrian report as income? Explain. company in as applied to the business of a common carrier consiststhe until he retired in 1999. In the spring of 2004. Florida. The term "Gross Receipts" is broad enough to incidents for the proper performance of his deducting the 20% final withholding tax. He came to like of revenues from carriage thatgoods. No.00 as exemplary SUGGESTED ANSWER: damages. (2%) EXCLUSIONS from gross income refer to a flow of wealth to the taxpayer which are not treated as part of gross income. and (3) It does not come within the definition of income. Adrian because he is expected to provide accommodation in said house for company guests or the car is used partly for business purpose. Accordingly.00 for salaries he failed to receive are 'amounts of any damages received whether by suit or agreement on account of such injuries. Adrian tax on free use as an of common also used for law gross receipts executive is carriers.R. Solidbank Corp. He was ablemoral and in full from None. the same forms part of its gross receipts Henderson). RR No. for purposes of computing the taxpayer’s taxable income. (c) a condominium unit in ." for entertaining customers of company plying Express Transport.' Section 28(b)(5) of the Tax Code specifically exclude these ALTERNATIVE ANSWER: amounts from the gross income of the The income realized from the judgment is individual injured. Example of a deduction is business rental.S. 20% final withholding tax from its time Mr. Henderson). Exclusions & Inclusions. entertain company Transport.000 for the salaries he failed to receive while hospitalized. He which for and was (NOTA BENE: This Income. It in satisfaction the membership of Mr.. are the amounts. Give an example of each. Adrian's compensation income because deposits with the bank.000. Reg. It doesto spend the rest or retirement.000 which is an income not recognized for tax purposes. if any. 63 Rev. NIRC). NIRC and only the recovery for lost salaries. P60.000 to collect exemplary the judgment. The the benefit of the corporation/employer. P200. Example of an exclusion from gross income is proceeds of life insurance received by the beneficiary upon the death of the insured which is not an income or 13th month pay of an employee not exceeding P30. which the law allows to be deducted from Exclusions pertain to the computation of gross income in orderto arrive at net income. while tax on Gross Receipts which is following excluded from the Bar coverage) vacationingvs. He survived but had to pay P400. (5%) is paid to the The membership fee the country club needs taxpayer.00. No. Adrian is an corporation. Aside from his salary. USA. Adrian is entitled only to a ratable rental value of the house and limousine as exclusion from gross income and only a reasonable amount should be reported as income. The P400. (b) a resthouse in Orlando.000. All the other amounts received are either compensation for injuries or damages received on account of such injuries' SUGGESTED ANSWER: which are exclusions from gross income pursuant to Section 28(b)(5) of the Tax Code. he could have received it from his employer as compensation income. This is to enable Mr.000.00 Explain. while deductions pertain to the computation of net income. Which of these Mr. Infante. Express Transport The free use of acompensationand the limousine shall form part of income earned P1 Million interest. gross income. Since the employer. Vanishing for (D) reduce for the convenience and benefit given partlyof cash constitutes compensation in the form deduction or property previously taxed is one of the employer (Collectorvalue for the use of income. reimbursement for hospitalization expenses and the P60. Exclusions & Inclusions: Executive Benefits (1995) executive of a big business Mr. such as does not define the term "gross receipts. Exclusions & Inclusions: Benefits on Account of Injury (1995) Mr. November ALTERNATIVE ANSWER: Resident Alien (2005) Ralph Donald. This Sec. a bus the corporation. Florida.000. If the rental value exceeds the personal needs of Mr. Infante was hit by a wayward bus while on his way to work. Inc. No. duties income constructively received by the BIR correct? Explain.

1997 Tax Code) Capt. 1971).1 (a) Exclusions & Inclusions. of received as awards are taxable the foregoing compensation for amount income to X and which are not? Explain. Benefits on Account of Injury (2005) JR was a passenger of an airline that crashed. Commissioner. (e) shares of stock in San Miguel Corp. MilitaryCamp (1995) (4). In addition. these damages are considered by Exclusions & Inclusions. (Section or Privileges. the free uniforms.000. and PLOT. X. the shall amount of P200.000.000. Exclusions & Inclusions. Which. No.000. Aside from his pay as captain. tangible or intangible. As a result. Canuto is a member of the Armed Forces of the Philippines. (f) shares of stock in Disney World in Florida. P250. an agreement Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) was reached under the terms of which JR was paid the following amounts: P500. may also be included on the Exclusions & Inclusions. plus the amounts for any damages received whether by suit or agreement. real or personal. (8%) personal injuries or sickness. Under Sec. taxable gross estate in the Philippines? the proceeds from life insurance. Under theto court. Facilities32(B) law as mere return of capital.S. 453 F. he had to pay P200.00 for loss of income during the period of his treatment and recuperation.com 30 of 73 . 000. and free meals inside the camp. Following negotiations with the airline and its insurer. 000. Which. Since the amount was given to the widow and not to the estate.00 for what he had to pay his SUGGESTED ANSWER: attorney is taxable. JR received from his employer the amount of P200. tax case (Estate of Hellstrom vs. (g) proceeds from a life insurance policy. corporation. wherever situated. 85. ABC payable upon his death to his estate.S. the government gives him free uniforms. any if any. 10) the corporation received no economic benefit. Is the amount considered taxable income to the SUGGESTED ANSWER: widow? Why? No. are included Explain. less equivalent of not more than 10 days of vacation leave. all The be excluded from JR's gross income. free living quarters in whatever military camp he is assigned.00 to the hospital where he was confined for treatment. it becomes obvious that the amount is more of a gift. Which of the SUGGESTED assets shall be included in the foregoing ANSWER: All of the properties enumerated except (g). 000. The value of the gross estate of a resident alien decedent shall be determined by including the value at the time of his death of all property. (Sec. Since the entire amount of P450. while driving home from his office. (5%) in the taxable gross estate in the Philippines. 2-98. (5%) company are excluded from gross income. Canuto? Explain. He survived the accident but sustained serious physical injuries which required hospitalization for 3 months. and 11) the deceased had been fully services (Estate compensated for his of Sydney Carter vs. free living quarters and the free meals inside the camp are not income to Capt.00. conclusion that the amount received by the widow is not an income are as follows: 7) the gift was made to the widow rather than the estate: 8) there was no obligation for the corporation to make further payments to the deceased.00 for his hospitalization. Ralph Donald is considered a resident alien for tax purposes since he is an American Citizen and was a permanent resident of the Philippines at the time of his death. He filed a suit against the bus driver and the bus company and was awarded and paid actual damages of P300. and (g) proceeds from a life insurance policy issued by a U. (d) shares of stock in the Philippine subsidiary of the U. Canute because these are facilities or privileges furnished by the sirdondee@gmail. NIRC) equivalent to X’s salary for one year. Company where he worked. to income tax under Sec. The amount received by the widow from the decedent's employer may either be a gift or a separation benefit on account of death. Since the amounts received from the airline company were received as damages by agreement on account of personal injuries. amounts of damages received. was seriously injured when his automobile was bumped from behind by a bus driven by a reckless driver. 9) the widow had never worked for the corporation. Benefits on assumption that it was Ralph Donald who Account of Death (1996) took out the insurance upon his own life.Makati.C. Compensation for personal injuries or sickness (2003) X. if any. 32(B)(4) of the NIRC. P100.00 (for his doctor and hospitalization bills).00 to his doctor and P100. No.S. No. Commissioner. on account of such injuries or sickness shall be excluded from gross income. (Sec.00 representing the cash equivalent of his earned vacation and sick leaves.000. NIRC) The other item.000.S. all shall be excluded from his gross income. is subject 2. 24 T. and P50. of the SUGGESTED ANSWER: amounts he received are subject to income All amounts received from the airline tax? Explain. 2d 61 (2dCir.00 by way of moral damages.000.000. Are these benefits income to SUGGESTED ANSWER: Capt. and P300. Corporation gave X’s widow an amount 85[E].78. employer. Nothing for bringing his case Tax Code. treasury bonds. (g) U.00 received are award of damages on account of the injuries sustained. whether by suit or agreement. received by JR from his (7) of R. 916).R. it was held that payments to the widow of the president of a corporation of the amount the president would have received in salary if he lived out the year constituted a The controlling facts which would lead to the gift and not an income. an employee of ABC Corporation died. Obviously. In one U. Both are exclusions from gross income pursuant to provisions of Section 28(b) of the ALTERNATIVE ANSWER: Tax Code. on account of personal injuries or sickness are excluded from gross income.00 as moral damages.

00 shall not be reported in the hospital for forty-five years. 2-98 as amended by Sec. The payment would only (ii) Income realized from sale of ordinary NIRC).com 31 of 73 . hence included in paid out of the retirement plan. Quiroz correct in claiming that the gift. the additional P1 Million was gift and therefore excluded from income? Explain. This is (ii) Dividends received by a domestic not a retirement benefit received in corporation from a foreign corporation form accordance with a reasonable private benefit part of the gross income and are accordingly plan maintained by the employer as it was not subject to net income tax. (Sec. Accordingly. The Board of De minimis benefits which do not exceed income tax return. 32[B][7].S. and (ii) a foreign corporation. must be included in the income tax retirement benefits that he is entitled to Exclusions & Inclusions. 2. because P1 Million was retirement pay and therefore following in the preparation of annual income additional tax returns: Dividends received by a domestic excluded from income? Explain. [e]. (Stonton vs.. It is a taxable gift to the transferor. 2. The additional P1 million is not a not be subject to tax (Sec. Gifts over and tax returns: 13th month pay and de minimis SUGGESTED ANSWER: above the Retirement Pay (1995) benefits. The 13th month pay not exceeding Mr.000. If his services contributed in a large measure to the success of the hospital. esteem and kindness' which motivated the Income Tax Return. hence. presented to show that he was not fully compensated for his 45 years of service. the annual ITR (Sec.R. following in the preparation of annual income services to the company which is clearly a tax returns: Income realized from sale of: (i) compensation income received on account of capital assets. corporation from (i) another domestic 2) Is Mr. NIRC) ALTERNATIVE ANSWER: the employer million is not compensation Yes. Quiroz. Quiroz correct in claiming that SUGGESTED ANSWER: corporation. (Sec. 393). 32[A][3].Exclusions & Inclusions. compensation income of Mr.000. included in will. U. NIRC). ITR. 27[D][4]. 8-2000) retirement pay. Income return. retirement pay but a part of the gross hence. Pirovano vs. it did not give rise to a recoverable debt. but gift from case in the hereinThere was no evidence problem. hence it should constitute a Income Tax Return (Sec. employment.00 shall be reported in the annual approved retirement plan. ITR.' emphasis should be placed (i) Income realized from sale of capital assets on the value of Mr. 186 F. qualify as a gift if there is nothing but 'good assets is part of Gross Income. NIRC. (Sec. receive under the BIR-approved retirement realized from sale (2005) 2) No.1[A][3]. and (ii) ordinary assets. The 1 to give the gratuity. Exclusions & Inclusions. When he retired income tax return because it is excluded at 65 he received retirement pay equivalent from gross income (Sec. No.33 [C] and The a gratuity of P1of Internal Revenue taxed Commissioner Million over and above his him the P1 Million as part of the gross further amended by R. Dividends compensation income of Quiroz who received by a domestic corporation (a) it was a retirement excluded (b) it was a pay. Under the employer's SUGGESTED ANSWER: 'motivation test. Exclusions & Inclusions.R. Quiroz services to the is subject to the final withholding tax at company as the compelling reason for giving source and therefore excluded from the him the gratuity. 13th employer for the employer's convenience month pay and de minimis which are necessary incidents to proper benefits (2005) State with reasons the tax treatment of the performance of the military personnel's following in the preparation of annual income duties. 42[A][2][b]. The P1 million is purely a gratuity from the company. it resolved to pay R. Quiroz worked as chief accountant of a P30. 24[C] and [D]. ITR. and from income protested that it was (2005) State with reasons the tax treatment of the 1) Is Mr.00 ceiling hence not reportable in the in view of his loyalty and invaluable services annual income tax return.000. The amount as received wasfrom in plan would not qualify an exclusion State with reasons the tax treatment of the consideration of his loyalty and invaluable gross income. his employer. 28{b)(3). Directors of the hospital felt that the hospital the ceilings are excluded from gross income. the amount received in excess of the hence. Under the Tax Code. should give Quiroz more than what was and not to be considered for determining the provided for in the hospital's retirement plan P30.to income tax Suchais not the income subject Supp. taxable income. NIRC). NIRC) to two months' salary for every year of The amount of the 13th month pay in excess service as provided in the hospital BIR of P30. (i) Dividends received by a domestic SUGGESTED ANSWERS: corporation from a domestic corporation shall 1) No. excluded from the income tax return. for forty-five years. gifts are excluded from gross income therefore exempt from income tax. Commissioner) Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) sirdondee@gmail.78.

(2003) policy on his own life in the amount of P2. Z. Proceeds of life insurance (2005) State with reasons the tax treatment of the following in the preparation of annual income tax returns: Proceeds of life insurance received by a child as irrevocable beneficiary. only the designation of Y is irrevocable while the insured/decedent reserved the right to substitute Z as beneficiary for another person.000. He designated his wife. Y.00 but. SUGGESTED ANSWERS: (a) No. Under the Tax Code. (8%)part of Y and Z X's life to income tax on the for their respective shares? Explain. (Section (b) Only 1997 Tax Code) 32(B)(1) the proceeds of P1.000.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) final tax it is not to be included in the annual ITR.000. proceeds of life insurance shall form part of the gross estate of the decedent to the extent of the amount receivable by the beneficiary designated in the policy of the insurance except when it is expressly stipulated that the designation of the beneficiary is irrevocable. (b) Are the proceeds of the insurance to form part of the gross estate of X? Explain. Z.000. Proceeds of Life insurance policies paid to the heirs or beneficiaries upon the death of the insured is an exclusion from gross income. The law explicitly provides that proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured are excluded from gross income and is exempt from taxation.000. The proceeds of life insurance received upon the death of the insured constitute a compensation for the loss of life.NIRC) Exclusions & Inclusions. SUGGESTED ANSWER: Not to be reported in the annual income tax returns because the proceeds of the life insurance are excluded from gross income. Both items are excluded from the income tax (i) Interest income from any currency bank return: deposit is considered passive income from sources within the Philippines and subject to final tax. ITR. Life Insurance Policy X took out a life insurance On 30 June 2000. in the latter designation. (Sec.00 given to the son. X died and his wife and son (a) to the insurer to collect the proceeds of went Are the proceeds of the insurance subjectinsurance policy. to the balance of P1. As stated in the problem. reserving his right to substitute him for another. (Sect/on 85(E).000. 24[B][1]. Exclusions & Inclusions.000. hence a return of capital. and (ii) a local offshore banking SUGGESTED ANSWER: unit of a foreign bank.000. as irrevocable beneficiary to P1. On 01 September 2003. (Sec. Since it is subject to . 1997 Tax Code) Exclusions & Inclusions.00. NIRC) (u) Same as No. (j). the proceeds received by Y shall be excluded while the proceeds received by Z shall be included in the gross estate of X.00 and his son. Accordingly. which is beyond the scope of income taxation. ITR. Interest on deposits (2005) State with reasons the tax treatment of the following in the preparation of annual income tax returns: Interest on deposits with: (i) BPI Family Bank.32[B][l]. shall form part of the Gross Estate of X.

mosques arid non-profit cemeteries and lands. She also donated a parcel of land for the construction of a building to the PUP Alumni Association. Portions of the building shall be leased to generate income for the association. nonExemptions: Gifts & (Sec. 149-95 issued buildings and improvements actually. churches and personages or 101(AX3). NJRC). NIRC).interestG. statements 1Certifications from depository banks as must return and duly audited financial There to be evidence to show income earned from has the amount of together with: interest that the taxpayer complied with passive investmentsthe subject to the 20% for not requirements exemption. mosques. of the additional personal exemption is four. but only with respect to real devoting all its income to the accomplishment property taxes provided that such real and promotion of the purposes enumerated in properties are used actually.00 are exempt. NMC). taxation is of actual. Not more than exclusively for charitable purposes. non-profit organization. net gifts not exceeding P50.U.00 and a donation of P50. applied for real property tax exemptions. An unmarried man who has all of the income enumerated in the problem illegitimate minor children who live with him The donation of will be taxable.000. aretaxes. income and donation would be exempt from SUGGESTEDExplain briefly.00 to Imelda's parents subject to tax? 2) How about the donation to the parish church? 3) How about the donation to the P.com 33 32 of 73 . Furthermore. lot and building will likewise be subject to the donor's tax because a and depend upon him for their chief support is considered as "head of the family" (RR No. Churches (1996)onexempts project taxation The Constitution 3Board resolution proposed from to be e Constitution and the aforecited law because it is not charitable institutions. deposits charitable and deposit substitutes SUGGESTED ANSWER: (Commissioner of Internal Revenue v. donation to an educational institution is 2) No. Arnold and Archbishop's family. cemeteries profit 35. institution itself exempt exempted is not the Are income but the from dormitories. 1) For income tax purposes. NIRC). Court of automatically exempt from taxation? Explain. Sec. ALTERNATIVE ANSWER: and educational purposes. 1995). directly as interest income used for bookstores as well and exclusively on bank religious. covenants appurtenant thereto. and all lands. rather than the Vilma have six minor children who live and Archdiocese.000. which must be used and exclusively usedexclusively for charitable actually. 1) Yes. who is single. Institutions (2000) Article VI. from taxation under the provision of the trustees who receive no compensation. 30% of the gift should be used for Exemptions: Educational administration purposes by the donee. 28(3)same educational applies only to Exemptions: Charitable Institutions. Arnold is only entitled to deduct exempt only if the school is incorporated as a 2-98 implementing Section 35. the donation is taxable (Section maximum number of dependents for purposes institutions.proof of deposit use necessaryare tax automatically exempt from taxation. directly and for religious. cohabits with Vilma. non-profit charitable SUGGESTED ANSWER: from taxation under the above-quoted Yes. Can said hospital claim exemption association is a nonstock. Donation to the P. Exemptions: Charitable additional Section 28 (3) of thefor four (4) out personal exemption 1987 Philippine non-stock entity paying no dividends. October 14. Since the donee is a proprietary educational of the six (6) illegitimate children. Alumni Association is 100-bed hospital organized for charity exempt from donor's tax if it is proven that the patients. used (2%) exemption apply?actually.R. canteens and derived lands. (Finance Department Order No.000. kind of tax does this taxation. real property final withholding tax. churches. henceincome for rule must also be utilization of said the of the Constitution s purposes is not tax-exempt because the exemption granted under Article VI. a) To what nonprofit educational institutions. all of its income from school as be considered "head of a family?" [3%] Arnold related and non-school related activities will 2) Is Arnold entitled to deduct from his be subject to the income tax based on its gross income. Imelda gave improvements actually. and Constitution. Exemptions: Head of the institution (2004) Colleges is a proprietary Suppose that XYZ Family: (1998) Arnold. Section 4 (3) of the 1987 exclusively used for religious. parsonages funded out of the money deposited in banks or placed in money market placements or convents appurtenant thereto. exclusively for applies only to property What is from taxes and duties. Alumni Association? sirdondee@gmail. Accordingly. No. and yields from educational purposes.00 to her parish Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) church. may institution. cause under the law (Sec. Mercy Hospital can claim exemption association. an additional exemption for aggregate net income derived from both each of his illegitimate child? [2%] SUGGESTED ANSWER: activities (Section 27(B). directly and its articles of incorporation. which of those above cited depend upon Arnold for their chief support.on bank deposits and (5%) yields from actual substitutes b) Is for not 1998). 1) Is the Christmas gift of P 100. directly and SUGGESTED ANSWER: This exemptioneducational purposes. directly November 24. educational institution owned by the who is legally married to Zachary. directly and Institutions (2000) gift of P 100.P. direct and exclusive on 2Certification based on use and not ownership. buildings and Exemptions: Non-Profit Educational Donations (1994) her parents a Christmas In 1991. because tax exemptions information included in the school's annual are strictly construed against the taxpayer. No.Under Article XTV. SUGGESTED ANSWER: Appeals. There exemption purposes under the Constitution? SUGGESTED ANSWER: must be a showing that the incomes are (3%) Yes. income 124043. 92 (a) of the Tax Code). a non-stock. Mercy Hospital is a educational purposes. The Constitution provides that charitable institution.U. The et al.P. (5%) The children are not married and not gainfully taxation? ANSWER: If XYZ Colleges is a proprietary educational employed. buildings and improvements actually. charitable or Philippine Constitution. all be exempt from educational purposes shallrevenues and assets of non-stock. purposes.000. governed by constitutional provision? Explain. paying no dividends.

000 (Sec. the Tax Code should be to donor's of said prizes and awards shall not Exemptions:the payment of the donor's exempt from Non-Profit Entity. the University of either the same Dec. YMCA. charitable or social welfare purposes. The exemption contemplated in the the disposition made of such income shall be Constitution covers real estate tax on real subject to tax imposed under this Code. of least 50 yearsRegulations do Constitution. and exclusively for the provision granting tax exemption to nonpurposes for which the Foundation was stock corporations such as those formed organized. the are 2 groups at years of service at the time of termination school. 30 of the 1997 Tax Code which states that “Income of whatever kind and character of the foregoing organizations from any of their properties. 30. a sports association duly accredited by the Philippine Boxing The income derived from amount of Association. A income taxes for SUGGESTED ANSWER: retirement plan of the: 1) BIR. it is evident that he must have joined the contest in order to earn Exemptions: Prizes & Awards. an amateur competition sponsored by the Gold Cup Boxing Council. pay to give the Bigaa is not liable to plansincome taxes for the following: operation of the sirdondee@gmail. 2000 it sold a portion of its lot used for religious purposes and utilized the entire proceeds for the construction of a building to house its free Day and Night Care Center for children of single parents. DECS of age and No. 10is to exempt off: 1) Employees who (Art. the provisions of Sec. However. GR No. or from any of their SUGGESTED ANSWER: activities conducted for profit regardless of A. since this is an ancillary activity the conduct of which is carried out within the school premises. (Sec. 1998). operates a canteen divisions — manufacturing inside the campus. is to and Ayala The prize will not constitute a taxable income the 1987 Philippine Constitution does not Land Corporation refuse to pay.00 for winning in the on-the-spot peace poster contest sponsored by a local Lions Club. YMCA. if these religious. which the operation approved by the canteen? 2) 1) For the operationdormitories? of age and requires a 3) two of the canteen inside the bookstore?minimum of 50 years campus.com 34 of 73 . charitable and social welfare purposes. 32 (B) (7) (c). competitions held in the Philippines or abroad NIRC of 1997. won in a boxing Onyoc. Likewise. Last January 3. direct and to the use which granted to athletes in local and international sports tournaments and Consequently. Athletes (1996) boxer. However. SUGGESTED ANSWER: to tax? Explain. all the income from which is A. nonThe University of Bigaa. CIR v. to Ayala Land Corporation. The BIR tried There is still the requirementthe amount received by collect income tax on for evidence to show actual. 30. the prize or award. Exemptions: Non-Stock/ Non-Profit Association (2002) a non-stock. The income tax attaches irrespective of the disposition of these incomes. 124043. XIV (4) (3).000. charitable or social welfare purposes. Shall the reward be included in the gross income of the SUGGESTED ANSWER: recipient for tax purposes? Explain. the income thereon being incidental 10 years of service in the same employer at to the operations of ThereUniversity asofa the time of retirement. students and a bookstore and construction. rentals from its boarding house and the disposition. No. imposing the explicitly provides that 'All of the income. 1998)." (5%) properties actually. real or personal. operation of its canteen and gift shop subject GR No. the income from the operation of the canteen and gift shop are income from its activities conducted for profit which are subject to tax. Is the income derived by XYZ for profit. (Sec. charitable and social welfare projects. canteens as his prize which was donated by P500. The Foundation also operates a canteen and a gift shop within the premises. NIRC. (5%) B. one of which andin the the employees in liable to pay Co. 30 of the exclusive for educational purposes. It is not includable in the gross income of the recipient because the same is subject to a final tax of 20%. directly and exclusively used for religious. Due to operates two dormitories for its It alsothe economic situation. NIRC of 1997] Since it is an on-the-spot contest." Exemptions: Retirement a non-stock. 16. has two for its profit entity. NIRC of 1997). the income tax shall be imposed on Foundation from the sale of a portion of its said items of income irrespective of their lot. The constitutional tax exemption. 24(B){1). to Onyoc. non-profit XYZ Foundation is association duly organized for religious. received a prize of P100. meet are at 2) Forthe age or reasons. Yes. Onyoc received the dormitories. length of service A Co. the Foundation leased the 300square meter area of the second and third floors of the building for use as a boarding house. Is students. Where the law is clear when it categorically statedrespect Constitution does not distinguish with "That thesource or origin. [Sec.A. directly. The distinction is with respect prizes and awardsshould be actual. it had to close its construction division is layoff campus. and donor'sand from Ayala Land direct Onyoc tax exclusive use for SUGGESTED ANSWER: educational purposes. 124043. employees be laid employment. which taxes. 1987). for same reasons as the foregoing. the latter shall be liable for income taxes on income from operations of the dormitory located outside the school premises.000 and bookstores are not also automatically exempt from taxation. The prize constitutes a taxable income because it was made primarily in recognition of artistic achievement which he won due to an action on his part to enter the contest. Activity & Incidental Operations (1994) tax. Decide. exclusively for religious. a young artist and designer. charitable or social welfare corporations derive income from their properties or any of their activities conducted B. a Philippine corporation. non-stock nonprofit corporations organized for religious. As a rule. The income derived from the sale of lot and rentals from its boarding house are considered as income from properties which are subject to tax. has a the Universitythat division. the amount thereof being in excess of P10. CIR v. Benefits: Work Separation (1999) A Co. It Onyocbe noted that Corporation. It does not cover exemption from the imposition of the income tax which is within the context of Section 30 of the Tax Code.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) bookstore. Exemptions: Prize of Peace Poster Contest (2000) Jose Miranda. hence respect to not correct or origin distinguish with the BIR is the source in R. NIRC. explain the meaning of the last paragraph of said Sec. BIR correct in collecting the the income is as by them the such" could not affect donor's tax from Ayala Land Corporation. In order to subsidize the expenses of the Day and Night Care Center and to support its religious. that a non-stock and nonprofit and sanctioned by their educational institutionrespective national is exempt from sports associations shall be exempt from taxation only "in respect to income received Neither tax". 7549income tax. Ancillary make distinctions. Considering the constitutional used actually.. 2) Employees who hasno137-87. (3%) No. 3) The University of Bigaa shall not be liable to pay income taxes for the operation of the dormitory located in the campus. charitable or social welfare purposes are exempt from income tax on their income received by them as such.

the benefits under the BIR approved plan plus an ex gratia payment of one month of every year of s service.A Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) For category (A) employees .one month for . For category (B) employees .

00 as separation pay.e.tax on dividend income only includes within its purview cash and by reason of such involuntary separation are property dividends making stock dividends excluded from gross income. was emigrating to Australia. 124043. Section P2.00 exemptions strictly construed Construed 1997 separation Why are tax as Tax 28(B)(5)(b). As a result. (8%) Accordingly. anda retrenchment not be exempt from the to donation would policy adopted by taxation? so that any employee terminated by company Explain briefly. (5%) Tax Code. (Section 32(B). Mr. These are benefits received on account of the profits of the company earned after 01 separation dueato causes percent the January 1998. No.00. used for religious.1965). 1998. CA. (5%) would be given taxes.000. The Company vs.received by Cruz is not exemptions. He such provisions are the taxpayer becausewas given P1. his separation pay? Explain.about the Leave Pay (1996) separation pay received by Bautista? Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) A. stock Pedro Reyes. another SUGGESTED ANSWER: official of the same corporation.R. propertyfound its overhead still SUGGESTED ANSWER: tax only from capital gains excessive.employment is due to causes beyond his control. Commissioner v.00 as separation pay. REAL PROPERTY TAXES only. On income (CIR v. was separated for occupying a Tax exemptions are strictly construed against redundant position. Court of Appeals. Pay (2005)decides to cash equivalent of Company A categories. employees who are to whether or it will subject any of these payments to WT. more relationship. from real the firm tax only were paid. All the the (3) were not exception contained inthreetax statutes must qualified to retire under the BIR-approved be strictly construed against the one claiming pension plan of the corporation. He only for taxes assessed as property taxes. 2-98) the employees' control. 32[B][6][b]. a Filipino citizen 03 equivalent The residing credits Philippines. Various unprofitable institutions and religious institutions from (d) departments were closed. distinguished from excise taxes (CIR v. is exempt from the company was involuntary (Sec. by X subject to income tax? Explain. C Choose kinds of answer. NIRC). "charitable Constitution due Under the institutions. What is excluded from gross income is (b) feesDormitory anyRentals fromreceived by an official or (c) canteen fees amount employee as a consequence of placements of (d) Interest from concessionaires money-market separation such official or employee from the service of of the tuition fees ALTERNATIVE ANSWER: the Donation of a lot and building by school the (e) employer for any cause beyond No.000. the close its operations due to continuing lossesand sick leave unused vacation and to terminate the services of its employees. R. Are such benefits taxable and All of the benefits are not taxable. L-19201. non-profit XYZ Colleges is when he received his separation pay because educational institution run by the Archdiocese his separation from employment was of BP City. month pay for every SUGGESTED ANSWER: year of service.. Jacobo derive income when he 14. the shareholders. GR No. SUGGESTED ANSWER: retired upon reaching the compulsory age of 1) years. The exemption is Kintanar was separated from the service. seeks your advice asseparated fromnot Code. NIRC in relation account of separation due to causes beyondto Exemptions: Stock Sec. the interest of asked for an "earlier subject to because he dividends will be retirement" income tax. hence involuntary. Commissioner of Internal Revenue. The voluntary redundancy program requiring employees to make an offer to resign is only considered as a tool to expedite the lay-off of excess manpower whose services are no longer SUGGESTED ANSWER: needed byKintanar did notbut is not the main 2) No.000. Under and reduce religious institutions from what kindto resign of taxes? program an employee who offered from all the best separation income.com 36 35 of 73 of 73 . A Co. Company A paid the For category A employees.000. said amount subject No. time of whether the employee at the However.from taxation. 1991). a will also company. company. an employee of the Court of Appeals. Jacobo derived a taxable income institution (2004) a non-stock. Hence it adopted another The provision exemptions charitable redundancy program.e. Stock dividends employees were laid off.000. 03 income tax. pay equivalent to customs duties. He was paid Exemptions: Strictly (Section 24(B)(2). X. October 17. 1) Did Lladoc Mr. hence no SUGGESTED ANSWER: withholding tax shall be imposed. The are not realized income. 96016. (1996) Code) pay in recognition taxpayer? against the of his valuable services to the Juan Cruz. 1) Yes. (1995) actually a manufacturing firm. mosques. G. Explain. Is SUGGESTED pursuant to an employer-employee rendered ANSWER: to tax? Explain. churches. October Corporation declared. A subject the money value of his compensation received to income tax as accumulated income because it arises offrom a service leave credits in the amount P500. in Y Corporation became two hundred holding tax and should not SUGGESTED ANSWER: also be subject to (200) shares. (Sec. Mr. Under the Labor credits. beyond as control of the employees such qualifiesthe an exclusion from gross income as closure the nature are excluded from gross being in of businessof benefit received on income. Kintanar derive income when he received his SUGGESTED ANSWER: Exemptions. (5%) virtue thereof is considered to have been separated due to causes beyond the employee's control. 1991.00 as separation pay from value-added tax After all the employees who accepted the offer under the program. The commutation of leave credits. i. Vera. income. Exemptions. as also received P400. Mr. the employer. (BIR Ruling 238-91 28 b (7)." This provision overhead charitable institutions the exempts expenses. which are specifically as of dividends on all stockholders of record ALTERNATIVE ANSWER. i. (Section 32(B). personages or convents law. His separation is 1991).000. excluded from gross as a result of which X 31 December 1999 All of the payments are not subject to income NIRC).dated income tax. It is not considered an exclusion commonly known as terminal leave pay.000. out of tax.000.R. 2) Did Mr. does not the exemption because the law 1) Is the look separation on tax to Reyes subject to with favor pay given exemptions they being income to 2) life-blood the separation the contrarytax?the How about theory which ispay Exemptions: Terminal received by Cruz? 3) How underlying basis for taxes. as when the Exemptions: Separation distribution results in a change of ownership Pay (1994) an official of Corporation X. CA and 3) The separation pay received by Bautista is Efren Castaneda.separation pay given to Reyes is 65 The Upon compulsory retirement. CTA & v. P500. involuntary causes are exempt and non-profit cemeteries and all lands. 96O16. YMCA. The separation was involuntary as it was a consequence of the closure of various unprofitable departments pursuant to the redundancy program. Are the stock dividends received No. hence not subject to withholding January 2000. rendered less than ten years of distribution of stock dividends is the separation has NIRC). derive any income reason orreceived his separation pay because when he cause for the termination his separation from sirdondee@gmail. hence received under the BIR-approved the Tax they subject to withholding tax under plan upon are not the service requirement and age meeting subject to withholding tax under the Code? Decide with reasons. as a requirement areBenefits excluded from explicitly received consequence The separation for any cause of ex gratia payment also gross income. if the (Section 32(B). Jacobo accepted the offer and tax of from local tax only received P400. withholding tax. separation pay received through appurtenant thereto. The benefits benefits. allfor every year of equivalent of one month pay the benefits received on account of their separation are service and the cash equivalent of unused not subject tosick leaves as separation vacation and income tax. Jacobo did not derive any taxable control Which of these above cited income(Sec alumni of the said official or employee income because the separation pay was due 28. Dividends (2003) of unused vacation and On cashJanuary 1998. It collected and received the voluntary on his part in view of his offer to (a) Tuition following: resign. Charitable likewise not subject to tax. service and/or cash or property. hundred beyond (100%) stock employees' control. NIRC).. irrespective of exempt from income tax. Institutions (2006) provides The to disability. charitable firm offered Due to business reverses theor educational purposes redundancy program in order to voluntary shall be exempt from taxation. Educational separation pay? Explain. Y 17. Section 25(A)&(B). VAT. GR No. Mr. buildings. highly disfavored separationalmost be said to Jose Bautista was separated due to Electric be odious to the law (Manilahis failing eyesight. purchased one sick leavein the qualifies as part of For category B employees. Consequently. November 8. the different beyond their hence separated for a causeprovisions of the Tax Code imposing a the amounts to be paid control. 2[b][2]. local taxes and for every year his three month's basic salary real property t service. October received June 16. subject to income fault of his his separation service through notax because own. service for such cause are entitled to a Explain your one-half(5%) minimum of advice. Exemptions: Separation For both every year of service. allcapital stock of Y hundred (100) shares in the the benefits separation benefits excluded from gross received by themdomestic be exempt from Corporation. from gross income because the rule in the cash is tax construed in strictissimi juris or taxation equivalent of accumulated vacation and sick leave strict Interpretation officertax or the rule on credits given to an of 2) The separation pay or separated from the employee who retires.00 as and may pay. Mr. Tax Code). equivalent of is below fifty years of age. and Exemptions: Separation improvements PayJacobo worked for directly and exclusively Mr. He was given 67 SCRA 351).

The Constitution provides that all revenues and assets of nonstock. . the said interest is used actually. directly and exclusively for educational purposes. non-profit educational institution would not be exempt from taxation. directly and exclusively used for educational purposes are exempt from taxation (Section 4 par. 4. exempt from the donor's tax if actually. CA. 3.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) The donation is. nonprofit educational institution are not (c) Rentals from Canteen exempt from taxation. donation collected and received by the nonstock. viz: Concessionaires. If however. 137-87. likewise. The following receipts by the non-stock. in relation to Section Accordingly. Article XIV. Rental income is considered as unrelated to the school operations. XIV. 137-87). non-profit educational institution which are actually. Dec. The interest on the placement is taxable (DOF Order No. the same will be exempt from taxation (CIR v. directly and exclusively for educational purposes as proven by substantial evidence. taxable (DOF Order No. 16. The donee. All of the income derived by the non-stock. none of the cited income and 101(AX3). provided not more than 30% of the donation is used by the donee for administration purposes. is a qualified entity to receive an exempt donation subject to conditions prescribed by law (Section 4 par. directly and exclusively used for educational purposes. nonprofit educational institution will be exempt from taxation provided they are used actually. 298 SCRA 83 11998]}. 1987 Constitution). ALTERNATIVE ANSWER: SUGGESTED ANSWER: A. hence. non-profit educational institution. being a non-stock. NJRC). 1987) (d) Interest from money-market placements of the tuition fees. 1987 Constitution. Art.

ifG.00 for each dependent. authorized a Christmas bonus of P3.00 for each of the municipal employees. The southern side and middle part are occupied by the Church and a convent. Chapter VH. which not specifically investing companies statutory definition of capital assets. BIR Revenue Exemptions. were all The southeastern Code) occupied by will be derived from school-related activities some Local Government side commercial establishment is not tax exempt. NJRC). How much personal exemption can and not gainfully employed. Exemptions. a cash gift of P5. for religious or educational northwestern side.000. (Section 4. What constitutes an impairment of the obligation of contracts is the revocation property used in the trade or of (3) exemption which is founded on a an business of a character which is subject to valuable consideration because it takes the the allowance for a contract (Casanovas form and essence ofdepreciation provided in v. the of the for unpaid taxes effective on the date NPC andthe law.00 being substantial may be considered taxable also. 121993. directly and exclusively" used forrelation to Section 101(AM3).00. Phil.His children from his previous marriage who are legitimate children and his illegitimate child with Jane will all entitle him to additional personal exemption of P8. They have a child named Jill. not exempt from taxation. Said allowances spent by the employee for the employer are designed to enhance the quality of the service that the employer is supposed to perform for its clientele like the people of the municipality. Only the southern side and middle part that are occupied by the Church and a convent and the eastern side occupied by a school run by the Church itself are exempt.5%) SUGGESTED ANSWER: . Art. RA 8424. Quezon City. 2.R. They partake the nature of additional compensation income as it is highly doubtful if municipal governments are authorized to make gifts in substantial sums such as this. The donation to a non-stock. at least one of his minor and not gainfully employed children is unmarried and (Tax Reform Act. it (2) property will by the taxpayer may be revoked atheld by the legislature primarily for sale to customers in the (Christ Church v. (Sec. Art. Section 35(A). Section834 (F) of the Tax Code.' institution will of the Philippines v. Is the contention of the companies gains or ordinary losses. while the rest of the property. Exemptions are Unilateral passed granting tax exemption to A law was in Nature (2004) CAPITAL GAIN TAX certain industries and investments for a Capital Asset vs. & Railroad Company v. (a) The term "capital asset" regards all exemptions were considered revoked by the properties assessed the excluded in the BIR. directly and exclusively used for religious and educational purposes. theused in trade or business of the taxpayer. ordinary course of trade or business. 4. Gifts. Accordingly. is used for administration purposes donation is not "actually. 234. exempt from taxation in the hands of the If real property is used for one or more recipient if used actually.items which could be exempt under BIR Revenue Audit Memo No. upon himVII. The Church cannot claim tax exemption on reasons. Manila Exemptions. 125 [1907]. 1987 Constitution). because such parts of the 2-hectare lot are actually. 3. Philadelphia. The children are all minors 1. 'Solely' is synonymous with educational (Lung Center be exempt from 'exclusively. Roman Catholic Church. 1-87. the Distinguish a SUGGESTED ANSWER: law was repealed. directly and commercial for educational is not exclusively exclusively purposes. non-profit to taxation. Tax Code). No. if apart from being minor and not gainfully employed.000. Charlie lives with Jane who is legally married to Mario. (2. or Hord. Since a kind which would other any of the following. The exemption the taxpayer whether or not connected with granted is in thetrade of the taxpayer or tax nature of a unilateral (1) his trade stock in or business. June and the donor's tax used actually. par. all those full reliance with the period of exemption considered as specifically excluded are granted by the law. 21 (a). Article XTV. Insular Collector of Allowances (1994) real Phil. a widower. 1987 Constitution. it purposes (Section used for the exempted purpose but is subject 4 par. the asset". chief living with and dependent Chapter for Section 35[A]. Charlie claim? Explain. 2) The cash gift per employee of P5. 1) Is the Christmas bonus subject to any tax? 2) How about the cash gift? 3) How about the allowances? transportation and representation SUGGESTED ANSWER: sirdondee@gmail. in a town in Tarlac province. Conversely.com 38 37 of 73 of 73 1) The CHRISTMAS BONUS given by the Sangguniang Bayan to the municipal employees is taxable as additional compensation (Sec.the sale or the exchange of profits of loss on companies questioned the repeal or KTR assessments on as capital gains or capital which are treated the ground that. The other items of income which Sec. the southeastern side by some commercial establishments. the eastern side by a school run by the Church itself. BIR Revenue Regulation 02support 98). VI. May the Church claim tax SUGGESTED ANSWER: exemption on the entire land? Decide with No. Limitations (2005)Church owns a 2-hectare The Roman Catholic lot. living with and dependent upon Charlie for their chief support (Tax Reform Act. previous marriage. (2. RA8424. Gov’t Bonus. How much additional exemption can Charlie claim? Explain. 146 [1915]) In (4) December property Sangguniang Bayan Customs. 2004) The for educational be exclusively exclusively property must purposes and Of course. 24 How. 3) The transportation and representation allowances are actually reimbursements for expenses incurred by the employee for the employer. (5%) held by "Capital Assets" includes property The contention is not tenable. the entire land.000. is idle or unoccupied. Ordinary period (2003)years. Personal & Additional Exemption (2006)has two sons by his Charlie. 28[3]. With the repeal. which are property of the exemption given is include spontaneous on the part of the properly be included in the consequently considered "ordinary assets": Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) SUGGESTED ANSWER: legislature and no service or duty or other at inventory of the taxpayer if on hand the close of the taxable year. directly 29. apparent that the (solely) used it notis more than 30% of the provided. they are unmarried. Regulation 02-98). 300 [1860]). having made their investments in properties losses.000. 144104. They are not furthermore gifts of "small value" which employers might give to their employees on special occasions like Christmas . but the term does not exemption. But threefrom an "ordinary Asset of five "capital asset" years later. XJV.5%) Charlie can claim the personal exemption of a Head of a Family or P25.00 provided that. that. its repeal violated the profits or losses right ordinary assets and their constitutional against the impairment of the obligations and realized must have to be treated as ordinary contracts.000. which is idle or unoccupied purposes. in particular the northwestern side. hence in religious or educational purposes. remunerative conditions have been imposed on the taxpayers receiving the exemption. Exemptions. SUGGESTED ANSWER: tenable or not? Reason briefly.000.00 and transportation and representation allowance of P6. 1987 Constitution.

acquisition/historical cost of assets the year while the 60% is owned by P Co. not in itself establish a partnership. They pooled their surviving corporationfrom its scope. that the capital gains tax is imposed partnership. not followed in practice conduct of the partnership business. to P Co. The because the buyer/ withholding agent will not be of parcel A shall therefore not be treated sale in a position to determine how much income as a sale by an unregistered partnership. whichever is higher.. the tax basis for computing because clearly the parties organized a the capital gains on: partnership duly registered with the Securities (a) statutory of the assets received by the the sale definition of "capital assets" The and Exchange Commission. He used the proceeds to the sale received by the Corporation. at a In a qualified sold to exchange of property licensed Philippine branch. Exchange of Property (1994) Indonesian company which has a duly The land was tax-free B. down and so the tax basis for computing Php Code. 1988. or as was recognized on the exchange.00 for amount the gain recognized to the ALTERNATIVE ANSWER: The BIR claims that the shares of parcelby Corporation ison the shares of stocks of A Co. a FilipinoNature (2001) profession. Is his contention correct? Why? for shares under Section 34 (c) is imposedTax property held as capital asset (2) of the on little to A and B Cos. The landhands ofB). and hence will be subject to the 5% capital gains tax and documentary . all shall be held by the taxpayer if dividing the profit between them. business in the Philippines. It holds 40% of surviving corporation shall be the the shares of A Co. Shares will pass from HK (5%) the tax basis for computing the gain on Code. since by the is no Tax Code of 1997. whether or and (b) the sale of the shares of stock not the persons sharing therein have a joint or SUGGESTED ANSWER: received by the stockholders from the common right or interest in the property. ordinarily all its Ordinary Sale in a Capital shall be the original/historical cost of the income earned from Philippine sources is Asset (1994) Noel Langit and his brother. and increased by collectible via the withholding of tax at by Noel and Jovy Langit as pro indiviso (Note: The bar candidate57 of have same on the amount treated as dividend of the of the might the relied the source pursuant to Section owners. what is the tax basis for Pascual and Dragon v. therefore. Is the BIR of the property. any of the foregoing suggested answers should be given full credit). decreased there money received and the fair market value of imposed under Section 28(B)(5)(c) is showing that the acquisition of the property the other property received.000gains on: (a) the sale of the assets capital which was then the fair market value The negotiations for the buy-out and the of the land. in HK where the stock certificates the: the sale the assets received by thevalue SUGGESTED ANSWER: from which is the fair market corporation shall be the original/historical cost will be delivered. duly on the sale of shares of stock of a domestic registered respect to the asset received by (a) With with Securities and Exchange (c) (2) is: corporation is always required to be paid Commission. Due to worldwide time whenunderreal estate (c) (2) of the Tax for shares the Section 34 prices had gone restructuring of the HK Co. Tax Basis: Capital Gains: Tax-Free owns 100% of the shares of B Co. and (b) finance signing of the Agreement of Sale were all histhe shares receivedStates. a doctor by transferred to the land which he bought as a owned Philippine corporation. subjectseeks your advicethe P Co. it will be practically excludes from the absorbed resources together with the purpose of corporationproperty the original/historical cost Sales of Share of Stocks: Capital Gains noted. group. this is parcel of land which they registered in their ALTERNATIVE ANSWER: stock.000. stock or there from is considered asgains. the pursuit bears any relation whatsoever to taxes (Section 57. the capital gains tax The BIR exchanged. but is realized by an ordinary sale of a capital asset. not subject to income tax under parcel A andrespect to the for parcel B. partnership. For this reason. The capital gains tax Subsequently. therefore. but only should be taxed as exchange of the assets our only on the portion of the income derived the stockholders in a sale by an unregistered and jurisdiction because the purchase price. NIRC). qualified tax gains tax real to HK Co's bank account in the U. the payments of as or selling price thereof. as pro-indiviso owners (Parcel A). HK Co. Both parcels of land were sold. and that on the sale.00 Yes. Commissioner. the income presumed to have been realized (a) sale of Co. intended for use.000.000. The Agreement heexchange of the made to pay the 6% final should not be SUGGESTED ANSWER: assets? in SUGGESTED ANSWER: provides that the purchase price will be paid taxabecause he did not exchange of property any actual In The 6% capitalfree have on sale of a gain No. Actual gain is not of the property/ assets given in exchange of of purchase non-resident foreign Tax. sale received A transferor on P500. what is the land was sold only for the decided to sell all its shares in A and B Cos. securities is not correct. and prior to the formation provision of the Tax Code of 1997 which provides shareholder and the amount of any gain that Code.com 39 the seller from the sale. S. the Supreme the assets received by the surviving Court ruled that the sharing of returns does corporation from the absorbed corporation. his colleague. G. said taxes to be borne equally by the co-owners.R. Under the the same as the basis correct? which constitutes capital a foreign-sourced SUGGESTED ANSWER: income.000. 800. the (Parcel the transferor increased by the sale of the shares of stock of the Indonesian realizingofa net profit of P1. should not P Co. your advice. received by the stockholders from the absorbed corporation. (b) With the transfer. NIRC). was used. 34 qualified tax-free formed a under Sec. a Philippine company. Capital Gain Tax.. Jovy. Explain seller is a price to Withholding corporation required forof the shares of of the receivedit is (b) sale the imposition stock tax but by the shares of stock. is a Hong Kong corporation not doing HK Return (1999) used in connection with his trade or business.00. an form of investment in 1990 for Php 1 million. The In a qualified merger under Section 34 (c) (2) surviving corporation? decision in said case cannot be applied here of the Tax Code. sold in A. 78133. payments purchase price to withholding the While the (Section 24(D). also 2000 a parcel of surviving corporation. The BIR is correct in treating the gain from the sale of parcel of land by Noel and Jovy Langit at a profit of P1. computing the capital gains on: (a) the sale of No. This procedure is withholding or impractical and. (b)the assets when still in the of stock the the sale of the shares hands of of TaxCo. Hestockholders claims that of trip to the United by the done in the Philippines. which same as it would be in of the corporation the bought another parcel through a capital gains tax return filed.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) stamp tax on transfers of real property. HK Co.. of 73 Tax Basis: Capital Gains: Merger of Corporations (1994) In a qualified merger under Section 34 (c) (2) of the Tax Code. the stockholders of exchange of the assets in the Philippines. In the case of ALTERNATIVE ANSWER: sirdondee@gmail.000. bought a property given in exchange of the shares of taxed via the withholding tax system. (purchase price plus expenses of acquisition) to whether or not it will subject tax. October 18. not the procedure availing with respect to names The basis in computing capital gains tax in a sales of shares of stock. (10%) which is not normally required to file returns the gain by fiction of law which is taxable. theyexchange partnership.

3There is an actual ascertainment that the debt is worthless. The company asks for your advice on "What SUGGESTED ANSWER: factors will held in determining whether or In order that debts be considered as bad not the debts are bad debts?" Answer and debts because they have become worthless. objective business judgment that there remained no practical. but only vaguely theoretical. Factors.PQR Corp. but upon the exercise of sound insolvent. ALTERNATIVE ANSWER: The following are the factors to be considered in determining whether or not the debts are 1The debt bad debts: must be valid and subsisting. and is not between related parties. 2The debt is connected with the taxpayer's trade or business. business judgment. claimed as a deduction in its tax returns the amount of P1. CORPORATION & PARTNERSHIP Bad Debts." hence they do not qualify as bad debts. Elements thereof (2004) . The corporation was assessed by the Commissioner of Internal Revenue for deficiency taxes on the ground that the debts cannot be considered as "worthless. and considered include. the 4There are numerous debtors with small amounts following: of debts and further action on the accounts would entail expenses exceeding the amounts sought to be collected. (5%) the taxpayer should establish that during the year for which the deduction is sought. "Worthless" is not determined Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) 1The debtor has no property nor visible income. a situation developed as a result of which it became evident in the exercise of sound. and 4The debt is charged-off within the taxable year. 21 SCRA 1336 [1967]).. The factors to be 3Collateral shares have become worthless. explain briefly. prospect that the debt would ever be paid (Collector of Internal Revenue v. Goodrich International Rubber Co. but are not limited to.000 as bad debts. by an inflexible formula or slide rule 2The debtor has been adjudged bankrupt or calculation.000.

This the reason why domestic shares should be given for any answer to the HK are booked in the Head Office of first question because the answer requires an Building in accordance with the Master Deed corporations (and resident foreign Co. however. For instance.] of Conveyance is whichever is personally liable for the unpaid taxes of the No. regular corporate (R. a Condominiumthe Corp. with Declaration of Restrictions. a Philippine corporation. the normal corporate income tax.00the parcel B.directly in 40% of the shares of Common Condominium X-land impelled Areas (1994) Corporation the stockholders to form was the COMMENT: It is suggested that full credit stock of A Co. (2%) the zonal value is only P15 Million. the corporation No. 4626. the sale of parcel B. when stockholders realizing of P1. a income was realized as on 2 no corporation. and the claiming deductions256 order to 667 [1996]. 127 to the year in which such corporation commenced its names as pro-indiviso owners (Parcel A).com 41 40 of 73 of 73 . son Dino on 31 December 1994.000. examinee if he answers in the following that: SCRA 390{1984]}. this is tax. is it allowable as a taxes of the corporation to the extent of their the correct? unpaid The BIR is correct. under Revenue creditable withholding tax the development. The of four corporations) after the recovery period X-land Philippine branch.. Focus your commercialthe (1) Kenneth Yusoph lot rates. 34[AJ(l)(a). 76573. Income Tax (MCIT) is designed to forestall the management. 1989). from tax. conveyedbecome liableareas in favor operations. Is advice Election Code. He donates tax? conveyance the Explain your to the latter is for the Philippines. The duly its incomePhilippine branch. declared Building Corporation. operation and/or conduct on Regulations 1-90. be taxed in the instant case. the taxpayer not same is not subject income tax paid by one-half pro-indiviso interest to the same son The the regular corporateto income tax since wouldmuchthe the valuecorporation itself and be is foreign of the gifts in 1994 How January 1995. The I will advise A Gain (1995) tax imposed on net income. HK or may even be considered as a bribe Co.filing of income Revenue Regs. Chairman of Senate Ways and Means whichis he bought many years ago for P1 what the issue. Million. seeks your of the X-land Condominium at 2% of gross whenever this tax imposed Corporation. subject to documentary is exempted from the dissolved corporation? Explain briefly.5million in resident foreign corporation. (Marubeni Corporation v. shall therefore Income tax on Domestic Corporations? (3%) 2) The contributor is not allowed to deduct same manner as a corporation on the sale of SUGGESTED ANSWER: the contributions shall thus be subject to the parcel B. as to whether it will subject the SUGGESTED ANSWER: SUGGESTED ANSWER: the conveyance subject to any tax? income exceeds the normal corporate income Donor’s Tax. CA. duly However. (10%) minimum corporate sale tax automatically connection with a income made to X-land general rule is that a foreign corporation is the Committee). which bought another parcel of appears that the corporate assets have commencement of business operations. 5-99).a a proprietary result of the subject to for purposes of computing imposed and 1995 the dividend tax similarly the gift educational which was made pursuant to a conveyance. CFR. stockholders cannot be No. as amended by 12-94. Tax (1999) HK Co. NoBasis remittance to WT. 1994 and P7. they formed a partnership. No. 4 SCRA (Parcel& DONOR’S TAXES Donor’s a net profit Election Tax: 986 [1962]). of 10% income tax Condominium Act and the 1) The value of the to for purposes of dividends attributable gifts the Home Office (depending which was merely to vestbut it to on its dominant income).00 for Contributions (1998) a for sale of parcel B Are contributions to The BIR also P500. the a Hong Kong company. the common stockholders did not do anything to comply corporations are either liable for the 2% of areas were already part and 32% of of the sale parcel net income with the requirements. kickback (Sec. No. Commissioner. tax is the 32% 1-90. and the other common and independently of its branch. of contributions professional except general Income Tax rationale of the law in imposing What is the (2001) Commission The business partnership. sale when a report is gain realized the candidate is an income tax payments. (5%) N.the provisions of Section 99(C) Pursuant to In 1998. goes against business Sale motive of which also invested 34[AJ(l)(c). land into their passed hands (Tan Tiong Bio v. NLRC. Furthermore. business operations.B. enterprises.000.. business or profession {Sec. the developer of the years from the time they commence business dividends theits stockholders.000. Jovy. a corporation may Subsequently. NIRC). A corporation whichstamp tax. (Sponsorship Determining Co. as amended. and are not reflected as assets of the interpretation of the Election Code. It is now worth P20 Million although exempted from the regular corporate income Condominium Corporation. Documentary stamps held personally liable for the unpaid taxes of a minimum corporate income taxtax is and not Condominium Law are excluded dissolved corporation. incumbent government official or engaged in it files licensed tax return. GR No.5million ina exempt from the imposition of MCIT because the common areas in favor of the Land 14. The minimum corporate income tax is a one-half pro-indiviso interest in the land to his management of the common areas for the transacts business in the Philippines directly proxy forbenefit of the unit owners. provided the recipient candidate under Section 20 (a) of the Tax Code had complied with the requirement created includes partnerships. While on Speech. 1) definedNo. which is exempt the latter is not intended to substitute Condominium Corporation. Corporate neither is the conveyance subject to the Existence (2004) For failure to comply with certain corporate [Note: If what is creditable withholdingmeant by regular income tax imposed under requirements. the Deed ALTERNATIVE ANSWER:higher. title is purpose of computing qualify tax shall be earned by would not the gift as dividendsP7. the stockholders of ABC Corp. the taxability of remitting building. ESTATE B). The reason for Corporation. of a prevailing practice of corporations of over Dividends: Withholding partnership shall trade. Creditable vested by law with a personality that is that MCIT is imposed only beginning on the Withholding Taxhis brother. the answer would Commission that the corporation would be be in the affirmative. no matter howfor filing Minimum Corporate of returns with the or organized. These organized by theisowners of units in X-land corporation. The conveyance is not subject to any tax. since a "corporation" as SUGGESTED ANSWER: deduction from gross income? [5%J unpaid subscriptions. in SCRA reduce their (PRC v. A Co. So is with PEZA There being no monetary consideration. the owns a discussion the Exemption (2001) Is a corporation which is exempted from in same is without consideration. in the partnerships. to withholdto for remit WT need and discuss Minimum Corporate Income Tax. The SUGGESTED ANSWER: tax? Explain. stockholders may be held liable for exempt from MCIT because it is only on its be unpaid taxes of a dissolved corporation if it registered with Securities and Exchange the third year of operations following its Commission. CDA enterprises etc. when domestic conveyance at all because because the units subject to involuntary dissolution.. when. As a general rule.. if applicable. and notthe withholding tax on dividends. and the purpose of same juridical entity as its branch office in the SUGGESTED ANSWER:answer.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) special tax rates. if from the which has it NIRC). The rule prevailing automatically exempted from thefrom the regular coverage of under our jurisdiction is that a corporation is corporate income the Bar Examinations. Thus. September sirdondee@gmail. Likewise. in an claims that candidate unpaid have subscriptions to the capital of the parcel A and election subject to donor's tax? On the part should be taxed as a sale by a corporation. tax returns showing a tax loss every year trading activities in the Philippines. Can the stockholders be held SUGGESTED ANSWER: Act. Both parcels of land were sold. Effect: Dissolution. bought a Noel Langit and (1994) separate and distinct from those of the fourth taxable year immediately following the parcel of land which they registered in their NOTE: additional point should be given persons composing it (Sunio v. Revenue Regulationstax rate imposed on taxable were notified by the Securities and Exchange income conveyance was actually no The second of corporations. The corporations and resident foreign were sold to the various buyers.A. A is governed by the contributions/donations Co. Sale. they the common to the MCIT the dividends to HK Co. on Elections as required under what is known as the Minimum Corporate the Omnibus Election Code. Beforethis type of of to NIRC. employee. The sale because the said expense is The imposition of the Minimum Corporate not directly attributable to. However. Is corporation they can be made liable for SUGGESTED ANSWER: of the BIR contributor. institution may be subjectto the on non-resident foreign corporation. and the corporation gross income (MCIT) or of said(the normal corporate Condominium units pursuant to the income tax) was dissolved.

The same would be subject to the 5% capital gains tax. Hence. as Dino subsequently sold the land to a buyer for P 20 Million. Donor’s Tax. What the debt tax effect on the the discharge of the unpaid balance of the B. In valuing a real property for gift tax purposes the property should be appraised at the higher of two values as of the time of donation which are (a) the fair market value as determined by the Commissioner (which is the zonal value fixed pursuant to Section 16(e) of the Tax Code). In the dacion en pago document. 4) If the commercial lot was received by inheritance the gain from the sale for P20 million is P5 million because the basis is the fair market value as of the date of acquisition. 21(e). the basis for determining gain shall be the same as if it would be in the hands of the donor or the last preceding owner by whom the property was not acquired by gift. The fact that the property is worth P20 million as of the time of donation is immaterial unless it can be shown that this value is one of the (2) valuesRevenue District Officer questions The mentioned as provided under two the splitting of the donations into 1994 and Section 81 of the Tax Code. Is 2) The Revenue District Officer is not correct because the computation of the gift tax is cumulative but only insofar as gifts made within the same calendar year. 1995. Since it could not pay the debt.00 from a creditor. SUGGESTED ANSWER: An insolvent company had an outstanding obligation of P l00.com 42 of 73 (a) The condonation of the unpaid balance of the obligation has the effect of a donation made on the part of the creditor.000 gross income (Sec. then upon sale thereof there is presumed to be realized an income of P20 million which is the gross selling price of the property. obligation on the debtor corporation? how is he effected tax-wise as a consequence SUGGESTED ANSWERS: of the transaction? sirdondee@gmail.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) 1995. RR No. balance of is the was condoned. He says that since there were only two (2) days separating the two donations they should be treated as one.000. (Sec. The gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the basis or adjusted basis for determining gain (Sec. (b) The write-off of the bad debt will entitle the creditor to claim the same as a deduction from its gross income. 34(a). or (b) the fair market value as shown in the schedule of values fixed by the Provincial and City Assessors. within one year. ALTERNATIVE ANSWER: 3) Dino gained an income of 19 million from the sale.00. Since the property was acquired by gift. instead of receiving the lot by computed by deducting the basis of P1 way of donation. Therefore. Insofar as the creditor is concerned. then it is a clear case of a write-off of a bad debts which has no tax consequence to the debtor.000. NIRC). What would be his gain on the million. How much did Dino gain on the sale? Explain. the gain is (4) Suppose. 50.the creditor shall be subject to donor's tax at the applicable rates provided for under the National Internal Revenue Code. SUGGESTED ANSWER: (a) If the discharge was prompted by the insolvency of the debtor company. the amount of the debt cancelled is a gift from the creditor to the debtor and need not be included in the latter's (b) For the difference of P70. NIRC). having been made SUGGESTED ANSWER: he correct? Explain. the creditor agreed to accept payment through dacion en pago a property which had a market value of P30. 2). sale of the lot for P20 Million? Explain. A. 34(b)(2). Effect: Taxation (1997) . It is obvious that the creditor merely desires to benefit the debtor and without any consideration therefore cancels the debt. NIRC). Dacion en Pago. The stepped-up basis of P15 million which is the value for estate tax purposes is the basis ALTERNATIVE ANSWER: gain (Sec. for determining the If Dino held on to the property as a capital asset in that it is neither for sale in the ordinary course of business nor used in Dino's business. there is no legal justification for treating two gifts effected in two separate calendar years (3)one gift. Dino acquires a carry-over basis which is the basis of the property in the hands of the donor or P1 million. Dino received it by million from the amount realized which is P20 inheritance.

non-profit private educational institutions may be exempt from the donor's SUGGESTED ANSWER: 101 (a) of the Tax Code? tax under Section The following are the conditions: (3%) . NIRC of 1997] Donor’s Tax. donations made by a donor is allowed only Non-Profit Private Educational over one calendar year. splitting the donation into two equal amounts of Php 100. NIRC). the aggregation of all Donor’s Tax. (Section 99.00 on Christmas2001 and the other Php 100.000 as a one-time donation would mean that it will be subject to a higher tax bracket under the graduated tax structure thereby necessitating the payment of donor's tax. While the donor’s tax is computed on the cumulative donations. 101 (A) (3). Donation to Non-Stock. 2The educational institution is incorporated as a non-stock entity. 4governed by trustees who receive no compensation. advice. subsidies or other forms of philanthropy. to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation. (Sec. wants to give his sister a gift of Php 200. On the other hand. a Filipino residing in Your bachelor Quezon City.00.000.000.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) 1Not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes. for purposes of reducing if not eliminating the donor's tax on the gift. on whether it is better for him to give all of the Php 200. and 5devoting all its income. donations. whether students' fees or gifts. Institutions (2000) occur in order that all What conditions must grants.000. Donation to a Sibling (2001) client.000. 2002. Please explain your I would advice him to split the donation.000 given on two different years will totally relieve the donor from the donor’s tax because the first Phpl00. He seeks your advice.000 donation in the graduated brackets is exempt. 3paying no dividends.00 SUGGESTED ANSWER: on January 1. donations and contributions to nonstock. (5%) Giving the Php200.00 on Christmas 2001 or to give Php 100.

determined by including the value at the time of his death all above transactions are subject to SUGGESTED ANSWER: of the properties mentioned. under lot sold is an out by asset. He had no known executives are not related to A.00). vivos are not subject up estate transferor's control thereon extends to the taxesa friend of Candidatedeath. The elections. Priorin Valledeath. sirdondee@gmail. Y. is not subject candidate for Gross Estate: Allowable Deduction (2001) On the first anniversary of the complies his to donor's tax provided that hedeath of Y. his family P600. 83 SCRA collateral line within the other hand. with the exception of the remaining five (5) RETURN shall be filed within six The ESTATE TAX hectares which under Sec. Donee or Beneficiary.000. to his key executives in X Co. the chairman of property (2003) X is ofbecause the transfer of the Political time his take Z.where the Commissioner of are the inter-vivos gifts Except cases Ibid] considered transfers in contemplation the of Internal Revenue otherwise permits. Estate Tax: Donation Mortis "decedent's interest". authority to grant in meritorious cases. (Section Mr.lineal ancestor and commemorate the (De B. to the extent donor's tax. actually constituting taxable lifetime like transfers in contemplation of death or revocable transfers (Sec. the same will not For purposes deduction. 108). the gifts are considered as decedent Mr. Florida. [Sec. (5%) Officer.000. (Sec. The purpose of A in selling the estate and when and where shall the return be shares is to enable his key executives to filed and estate tax paid? (3%) acquire a propriety interest in the business and have a personal SUGGESTED ANSWER: The gross estate shall beExplain if the stake in its business. his lot with a market value of P1. the upon his of thelife.000. the properties donated shall be included as part of A's gross estate.000. 91 (a). an American citizen.made in contemplation of death.000. 1994.000.00. designation shares of stock below the fair The estate of the sale(E) NIRC of 1997] actual funeral [Sec.00 for mortis causa are asks youto estate taxes since the transfer He subject whether his intended donation to of will properties takes effect after tax. (5%) The first transaction where a lot was sold by A of the interest he had at the time of his death to his brother-in-law for a price below (A). who wants to lifetime of the in the Party effect during therun for President donor. (30) days for filing the return (Sec. qualify as a of this tax. whichtax purposes would be to estate for Philippine gives rise to a deemed gift. When the donee funeral payable byor medical shall be 30% of the tax expenses the donor expenses. 2-82). 78 (b) and (c). (Section 100. owns 100 not Ortiz land planted value of the decedent'son May 3) The to coconut trees. the 1997] reason The the imposition of in the testate or for judicial expenses the donor's tax 2) Estate Tax: inadequate consideration does on sales proceedings. [Sec. it will create a presumption juris tantum that said donations were made mortis causa. Is the said exceed of percent of the because the law places in equal footing any contributionone cost of the dinner to commemorate his to SUGGESTED ANSWER: any candidate. nurses. of Medical expenses. his widow asked you locality death of same have been the how she will consider the 100 (A) (4). When the donor makes his will within a your answer.000. the City in which the making of gifts.00 Partynot Political did Z gross estate.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) Estate Tax: Donation Mortis Causa vs." if Gross NIRC the decedent Estate Tax: allowed only [Sec. the theory being that the Donations inter Donation to Political to Donor’s Tax.000. aged Commissioner of Internal Revenue shall have cancer. an15. therefore the 2004 transfer isKnowing thatsubject tofunds Y needs donor's tax. RR No. he died. would decedent. estate to capital gains his executor. because he is a Filipino citizen. Agrarian Reform Law all of a agricultural lands except five captain of the certification of the barangay (5) hectares. how would you of the shares sold but with a market value of determine the gross estate of the decedent? SUGGESTED ANSWER: P5. home located to his Verde. or Revenue Explain authorized agent his gross estate? District Yes. (Section of the any parties expense will not fall under (5%) 99(C) gross estate? Explain your answer. The of insurance. The selling debts at the time of his death.(Sec. shares A also owns X Co. hence. 4) The land in the preparation of the The 100 hectares of land that Jose Ortiz estate tax return. a condominium unit at the called upon to inherit. which is the book value and appointed Administrator. death for purposes of determining properties estate tax return shall be filed with an SUGGESTED ANSWER: to be included in bank. for posters and streamers.000. A's cost in the shares sold is What deductions may be claimed by the P1. one million Comprehensive and upon presentation his (P1.000. allowable Tax.00). on August 1.of the beneficiary is irrevocable. donations inter vivos. 2000 in New to B. provided that the NIRC Causa 90 years and suffering from incurable A. He died family 30. Ten days later. 85 are: 1) Thenot give rise to the market value an amount equal to expenses or in will imposition of the (5%) of tax. which has a fast growing in San Miguel Corporation. However. Donor’s deductions from gross estate. Interdonations inter vivos and donations Are Vivos (1994) mortis causa subject to estate taxes? Donations inter vivos are subject to donor's gift tax (Sec.000.000 for real properties situated in New York. or simultaneously with. 58 Phil. NIRC of 1997] (Roces v. NIRC of (P200. Guzman V. the intention of the donor in Resident Alien (1994) Cliff Robertson. He left 10. Pasig City in an by operation exceedingacquired underpesos the amount not of law. suffered from a shares of Stock & 86(A)(6). Such Will your answer be SUGGESTED ANSWER:tangible or intangible. Posadas. However. 78{a) of the Tax Code still forms part of (6) months from the decedent's death (Sec. (Section 6. tax. Pasig P100. or by consanguinity in 256). the in no price of gain from is lower. Tax Code) may be taxed for estate tax ALTERNATIVE ANSWER: purposes. of stocks condominium in Makati City.000.000. The part of the to Y. if the policies taken ordinary administrator. Donor’s Tax. donated the amount to50.with heirs requirement hosted a sumptuous dinner for his the of filing returns of doctors. The With respect to life transfer for less thanincludible in the gross proceeds. Whether viewed or beneficiary is a of either Stranger (2000) in the context stranger. Sale ofheart attack while on a citizen. cash in bank.(Sec. [Sec. Ingross estate. on the fourth degree are relationship. 86(A)(1) intestate for Comprehensive Agrarian Reform Law (1994) hectares of agricultural Joseexist. Thisfor campaign purposes. In which case. or NIRC). leaving behind June individual.death anniversary. What advice will you give 86(A)(5) owned but which prior to his death on May 5) her? Medical expenses incurred within one 30. ComparedXtohad amounted to would be the same if his Election Code. 77. but selling case to the exceed of stocks shall bethousand market shares two hundred the fair pesos value of the shares of86 (A) (1)transferred. spouse. NIRC). As the sole heir price is P3. He died intestate on business trip Property (1999) A.com 44 43 of 73 . was a making the inter-vivos gifts is to avoid the permanent resident of the Philippines. donating to Y P150. Valle Verde.000 shares donees are likewise his forced heirs who are of Meralco. stocks (a). 98 (B). 90 (c). extent not the amount receivable by the the does of apply to a sale of property subject of the deceased. estate.000. 90 (B). Funeral the net gifts. five percent donor's the determining the whichever the transfer. 2001 wrote a will and. shall real same if he were to donate to Political the or personal. The decedent is heavily in X Co. political party or coalition his year death anniversary deductible from of No. nor expenses incurred or burial half-blood). of the 1997 Tax Code). is subjectto the donor's value thereof or to the to the donor's considered as a gift subject extent of the power tax pursuant to the provisions of Section 100 tax. Estate Tax: Inclusion: Obviously.000. 85 its fair market value NIRC of 1997] will not be subject to donor's tax if the lot qualifies the a capital insurance as asset. These insured with Insular Life. Tax Code). Felix de la prior bachelor resident within one year Cruz.. under of Omnibus Elections as required The cost thethe dinner The answer Php 50. Estate: 1997] incurred by of Deductions (2000) to ahis death. De Guzman. the Treasurer of Pasig City. 1994 were acquired by the government year from death in an amount not exceeding under CARP are no longer part of his taxable P500. Ibid] decedent's family home. donations his campaign. Relative the descendant. the amount adequate and full consideration. He imposition of the estate tax and since the died in Miami. Sale of Real to the USA. irrespective of decedent excess own fair market value The sale or shares of insured below shall fair the be over the of not the stock retained the consideration received whether marketof revocation. Tax Code) while donations mortis causa are subject to estate tax (Sec. the Php instead five to Y directly estate. the government. made several inter-vivos reasonable extension not exceeding thirty gifts to his children. sold York his brother-in-law. and the Commission Y contributions with others who attended toon during his last illness. a on the same day. 86(A)(6) gross estate. X is thinking of On the other hand. death Y the be subject to the donor's the What of the your answer be? donated properties.000.(2001) of 1997]. 86 hectares of SUGGESTED ANSWER: agricultural standard deduction of P1.000. or duly authorized Officer. Collection short time of. A sold some of his shares of stock personal belongings. he becomes a once form donation of to Y directly? (8%) Party Z instead gross Estate Tax: an elective post. an B is financially capable of buying the lot.000. City. amount receivable by any beneficiary of the TaxinCode. sister (whether by whole to after Brother. except designated the policy excess of the fair market it valueexpressly stipulatedprice isthe over the selling a when is that ALTERNATIVE ANSWER: that may be claimed by The DEDUCTIONS deemed gift. office home in A's cost in the lot is City. having been de la Cruz was domiciled at the time of his death. who is SUGGESTED may include medical expenses of expenses ANSWER: a stranger? (2%) A STRANGER is person who is not a: the last illnessa but not expenses incurred A. In yourin opinion. and business. 90 (D). [Sec. Upon the that theOrtiz.

he received from the Commissioner of Internal Revenue a deficiency tax assessment for the estate in the amount of P1. Tax Code). with respect to Estate Tax: intangible personal Vanishingwe apply the property. Last year. which had SUGGGESTED ANSWER: jurisdiction contention is before levying on No. Last month.000. the approval of the court. sitting in probate. Is VCC's contention correct? (5%) necessary. Estate Tax: Payment vs. Robertson are taxable wherever situated (Sees. in thehence subject to taxation in the Philippines case of a nonresident estate taxes. required in the enforcement and collection of estate tax? SUGGESTED ANSWER: Explain. Deductions deductions (1994) Vanishing estaterule of reciprocity. G. not correct. 1997) and collected. real or personal. 3) It is tax shifting is always imposed on the value-added in each stage of distribution.000. Court of Appeals. Taxation: NonResident 47 [1997]).com SUGGESTED ANSWER: 45 of 73 No. NIRC of 1997). only that part of the entire gross estate which is situated in the Philippines to the extent of the interest therein of the decedent at the time of his death shall be included in his taxable estate. Provided. 78 and 98. BUSINESS TAXES VAT: Basis of VAT (1996) What is the basis of the Value-Added Tax on taxable sales of real property? The basis of the Value-Added Tax on taxable sale of real property is "GROSS SELLING PRICE" which is either selling price stated in the sale document or the "Zonal Value". No. of any property (situated in the Philippines) forming part of the gross estate. in the estate proceedings pending before the MM Regional Trial Court. Payment vs. and 5) It is not a cascading tax. at the rate of 20% over a period of five (5) years until it is lost after the fifth year. The properties of a resident alien decedent like Mr. (Ibid) in taxation? Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) sirdondee@gmail. acquired by the decedent from a prior decedent who died within a period of five (5) years from the Estate Tax. Payment of estate taxes is a condition precedent for the distribution of the properties of the decedent and the collection of estate taxes is executive in nature for which the court is devoid of any jurisdiction.R. wherever situated to the extent of the interest therein of the decedent at the time of his death [Sec. and in the pertinent remedial laws that implies the necessity of the probate or estate settlement court's approval of the state's claim for estate taxes. (Marcos v. SUGGESTED ANSWER: . Metro Manila and a house and lot in Los Angeles. 85 (A). Proceedings (2005) court. VAT: Exempted Transactions (1996) Give at least three (3) real estate transactions which are not subject to the SUGGESTED ANSWER: Value-Added Tax. can be June 5. and his house and lot in Los Angeles. sitting in probate. whichever is higher. (2000) Decedent 273 SCRA Discuss the rule on situs of taxation with respect to the imposition of the estate tax on property left behind by a non-resident SUGGESTED ANSWER: decedent. Hence. Probate Proceedings (2004) VCC is the administrator of the estate of his father NGC. that. The its real of the probate court is not approval properties. v. sitting as probate Is the approval of the or estate settlement court. or as a settlement tribunal is not a mandatory requirement in the collection of Estate Tax: Situs estate taxes (Marcos Hof Court of Appeals. the approval of the court. a condominium unit in Pasig. properties or The value-added tax has the following characteristics: 1) It is an indirect tax where presumed: 2) It is consumption-based. Philippinedecedent who at the time of his death was not a citizen of the Philippines. In the absence of zonal values. Real estate transactions which are exempt from the value-added tax are: (a) Sale of real property not primarily held for sale or lease in the ordinary course of trade or business. There is nothing in the Tax Code. VCC filed a motion with the probate court to stop the enforcement and collection of the tax on the ground that the BIR should have secured first the approval of the probate court. California are taxable. 4) It is a credit-invoice method value-added tax. or as a settlement tribunal over the deceased is not a mandatory requirement in the collection of estate taxes.Twin Towers Building at Pasig. tangible or intangible. enforced Vanishing deductions or property previously taxed in estate taxation refers to the diminishing deducibility/ exemption. But he ignored the notice. (2%) The value of the gross estate of a nonresident decedent who is a Filipino citizen at the time of his death shall be determined by including the value at the time of his death of all property. 77.000 shares in the Meralco. VAT (1996) What are the characteristics of the ValueSUGGESTED ANSWER: Added Tax? The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer. before the same 120880. transferee or lessee of the ALTERNATIVE ANSWER: services. the BIR effected a levy on the real properties of the estate to pay the delinquent tax. What assets shall be included in the Estate Tax Return to be filed with the SUGGESTED ANSWER: BIR? All of Mr. goods. VCC's over the estate. These properties shall have a situs of On the other hand. California. whichever is VAT: Characteristics of higher. the gross selling price shall refer to the market value as shown in the latest tax declaration or the consideration. Robertson's assets consisting of 10. Probate decedent's death.

rooms and bed spaces offered for rent by their owners at a monthly rental not exceeding P3. (c) Advance payment by the lessee in a lease contract. real property to a corporation in exchange for its shares of stock under Section 34(c)(2) and (6)(2) of the Tax Code. or consumption not in sale: the course of business of goods originally intended for sale or for use in the course of business. dormitories. Note: The other real estate transactions which are exempt from the value-added tax which may be cited by the bar candidates are (a) Transfer of real property to a trustee as follows: if the property is to be held merely in trust (b) Transfer of for the trustor. No. boarding lessee to the lessor. including lessors of goods and p properties. VAT: Liable for Paymentliable for the payment of Value-Added (1996) Who are SUGGESTED ANSWER: Tax? The persons liable for the value-added tax Sellers of goods and properties in the course of a are: t trade or business. when the same is actually a loan to the lessor from the lessee. 220. Sellers of services in the course of trade or business. b) Distribution or transfer (1) Shareholders or investors as share to: in the profits of VAT-registered (2) Creditors persons. 7279.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) (b) Sale of real property utilized for socialized housing under RA. What SUGGESTED ANSWER: are these so-called transactions "deemed The following transactions shall be deemed sales'? a) Transfer. use. Importers of taxable goods. The VAT is also imposed on certain transactions "deemed-sales". . (c) Sale of real property utilized under the low-cost housing under BP Big. or exchange of goods and services.950. (d) Security deposits for lease arrangements to insure the faithful performance of certain obligations of the (e) Lease of residential units. barter. the tax is Under (1997) imposed on sales. or in payment of debt.00 per unit. whether in the course of business or not VAT: Transactions "Deemed Sales”the Value Added tax (VAT). houses.

because the classification is not ANOTHER ANSWER: based upon is not meritorious. of a kind generally used as. NIRC. shares in From the heirs the inheritance. spaces (Sec.500). The monthly fee profits for the student proportion to their lease of heirs in falls under the each the moment of such partition. Lily's fashion is not the taxpayer in so 3) Sale in Manila. is a garment manufacturer located and registered as a Subic Bay Freeport Enterprise under Republic Act No. Only VATthe Commissioner of No. 24 SCRA 789 made as long as the same are based on [1968]). Is the suit meritorious or not? Reason briefly. should be neutral to those who belong to the same class. the suit is meritorious. 94 Phil. as estimation (Sec. The suppliers consigned. et tax. which is an the heirs. it of farmers. During its operations. Santos died intestate in 1989 leaving his producing foods for human consumption is spouse and five children as the only heirs. a Filipino (NOTA BENE: This in her dress shop and dress designer. reasonable and substantial differences. NIRC). intention of the and filed a suit questioning the law for being awaiting liquidation of the estate. The suit substantial distinction which makes real clause of the Constitution merely protection differences. 109(x). a) Exempt. with a monthly rental per unit residential units are entitled already to their respective not exceeding of the estatewhich the exempt definite shares Php 8.00.I will not allow Covered Internal Revenue. Since Jake's Construction to tenants. Vano. Consignment supplies if actual sale itc) purchased various of goods and materials is not made within 60 days following the necessary in the conduct of its manufacturing date such goods were of these goods business. at least. The tosurvivingthespouse assumed agreements which Philippines is a administration supply property. it is exempt from payment of all local and national internal revenue taxes. NIRC. Company. b) subject to VAT at 10%. both in Butuan. Within the year. is subjectassessments 10%. (Sec. Fees for lodging paid by students to other outlets. 106[A1(1). discriminatory and violative of the equal BIR: Collection of Tax protection clause of the Constitution since Deficiency (1999) complainants were not given the sirdondee@gmail. and of its offices of tractors [1%] other agricultural far as the by Bungkal Incorporated to and implements passed-on tax is concernedlocal 4) Sale can not by Cely's refund of a therefore. is only for taxes for Bayan ng directly liable. singling out a taxpayer from a class will no doubt transgress the constitutional limitation (Ormoc Sugar Co. 22 SCRA 603 [1968]). pertains to the tax merely shifted to itconceptAcetylene Co. L-19707. Refund (2006) Lily's Fashion. (Sec. with his co-heir candidate who no common Accordingly. the of the of services is subject to net income from the rental property was zero percent (0%) rate. If you werethe refund. the assessments were justified because transaction tax purposes. will are entitledthe a refund Registered taxpayers you allow to refund? Transactions (1998) (5%) of their SUGGESTED ANSWER: unapplied/unused Input VAT (Tax State whether the following transactions are VAT Reform Act. to cessation of business. hence valid classification. (Pepsi-Cola Bottling Co. The No. 17. suppliers.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) same exemption. CIR. should be be nofull credit. there can given doubt that. The estate consisted of a family home and a four-door apartment which was being rented 2) VAT at 0%. unit shall mean becomes liable the case of accordingly. boarding houses and bed If after for all taxes in connection therewith. even if no ALTERNATIVE ANSWER: VAT. distributed to all. Exempting lawyers and doctors from a burden to which other professionals are subjected will make the law discriminatory and violative of the equal protection clause of the Constitution.103-1. Inc. for each of aggregate as exclusively his own without the dispose of rentals received by the lessor during the year. 7-95). and Is income from VAT regardlessthem the manage and of to amount of thereof. Inc. Guidelines Bar Bahay-Bahayan Dormitory. The term intervention of the other heirs. While singling out a class for taxation purposes will not infringe upon this constitutional limitation (Shell v. the professions of doctors and lawyers are not principally aimed at earning money but for the service of the people. As such. in their BIR: Assessment: Unregistered original state. [1%] Inc. proportionately. v. hence. or c) subject ALTERNATIVE ANSWER: VAT to at 0%: No. {Pepsi-Cola case. [1%] RTW claim for a Boutique. he allows do not call for a yes or COMMENT: The problems his in answer. Each year. v. The VAT is designed for economic efficiency. coverage.Aug. definition of goods which include all tangible assessments were issued against each of objects which are capable of pecuniary them for the years 1989 to 1993. he per person in individually dormitories. Exemption: document or instrument were justified. shares to be held such 4. VAT at 10%. NIRC). 389 [1954]).. a bar under a single management to exempt. or Partnership (1997) Mr. The classification does not complythat the requirement that it should with all persons subjected to requires be germane to the purpose of the under like legislation shall be treated alike.. exempt from VAT. The exemption granted to doctors and lawyers from the operation of the VAT is justified. (Section 109(c). for income does not of itself mere sharing of lawyers frompartnership is formed (Lorenzo the operation of the value unregistered partnership absent any clear establish a added al v. privileges conferred and in the liabilities imposed.. in compliance with the rule of equality of taxation. Citythe of circumstances and conditions. [1%] 1) VAT REVENUEexempt. partition. the assessments are not executed for Constitutionalitytaxexempting doctors and (2004) A law was passed purposes. Claim for conduct of their professions. 45professionals complained Ona. Sale of agricultural TAXES products. The equal No. with respect to the BIR a claim Lily's Fashion.tax returns of on other In 1994. each of them receiving his/her due exempted from taxation under international share. the signatory. and. Inc. the corresponding implements fall under the were examined and deficiency income tax income tax. Professionals are a class of taxpayers by themselves who. share. as it is not discriminatory against the other professionals because they have reasonable and substantial differences in the VAT. SUGGESTED ANSWER: the partnership. Hence. it can not claim exemption for Jake's a tax 2) rendered by [1%] Services shifted to it. the 10% VAT on the d) Retirement from purchased items amountingor P 500. Inc. the sales of having entered into an unregistered which are subject to VAT at 10%. This Were 4) This to VAT at justified? Yes. 1987). Non-VAT taxpayer. RRNo. City of Butuan.and which 3) Tractors NIRC). 2006) operating a student dormitory (monthly fee REMEDIES IN SUGGESTED ANSWER: INTERNAL PI.com 47 46 of 73 of 73 . properties are which as a moment the said the sales of used are subject tofund at 10%. into an unregistered partnership from the 106[A1(1). afor 2006 entity private Examinations.000. Section 112[A] [1997]). with the or VAT of answered only VAT be usedVAT at 10% intent at 0%. Yes. an the purpose. Treating doctors and lawyers as a different class of professionals will not comply with the requirements of a reasonable. filed with inventories of taxable goods existing as shifted retirement for refund for the input tax of such to it by the ALTERNATIVE ANSWER: or cessation.. must be treated alike for tax purposes. In the instant Bottling Co. Inc. as called for in the problem without further making profit thereby in proportion to his reasons. common VAT with intent to producepaid by 5) VAT Exempt. Inc. Other co-owners who are only SCRA 74). Treasurer of Ormoc City. law either. a contractor to the Construction which is not at all considered a tax to the buyer but a part the renovation World Health Organization inof the purchase price. the income the heirs they paid agricultural respectively. The exemption vegetables by Aling Ining 1) Sale of fresh of Lily's Fashion. (Phil. thethe definition of for income also falls under co-ownership of goods which include all tangible objects which inherited property is automatically converted are capable of pecuniary estimation (Sec. June 15. 7227 and a non-VAT taxpayer. and shifted to Lily's Fashion. such as fresh vegetables. Inc. an to the World Company has rendered services extrajudicial settlement of the estate was executedentity from Health Organization.000. VAT law which is excluded from the Bar 5) v. inclusive. (5%) B. at the Pamilihang which it is Trece Martirez. 108[B1(3). CIR. The equality in taxation rule is not violated if classifications or distinctions are v. VAT. 24 SCRA 789 [1968]).

Later. 204. In no case.com 48 of 73 The Commissioner of Internal Revenue may be authorized to compromise the payment of any internal revenue tax where: 1) A reasonable doubt as to the validity of the claim against the taxpayer exists. The Commissioner may also abate or cancel a tax 1the tax or any portion thereof appears to liability when have been unjustly or excessively assessed. 204 (B). Is the BIR correct? (10%) collection remedies available to the BIR in collecting tax liabilities of an estate may either (1) sue all the heirs and collect from each of them the amount of tax proportionate to the inheritance received or (2) by virtue of the lien created under Section 219. Since the 3 SUGGESTED ANSWER: children are residing abroad. the BIR found out that the estate failed to report the income received by the estate during administration. the taxpayer The compromise of the tax liability is possible at any stage of litigation and the amount of compromise is left to the discretion of the Commissioner except with respect to . the BIR is correct. The BIR issued a deficiency income tax assessment plus interest. or 2) The unjustly administration and collection costs involved do not justify the collection of the amount due. B. is correct in pursuing the second remedy although this will give rise to the right of the heir who pays to seek reimbursement from the other heirs. NIRC) sirdondee@gmail. or 13) when the financial position the tax. Abate or cancel a tax liability? SUGGESTED ANSWER: (3%) The Commissioner of Internal Revenue may abate or cancel a tax liability when: 1) The tax or any portion thereof appears to be or excessively assessed. fraud. BIR: Compromise. (Sec. survived by his wife and three children. 21 SCRA 105). however. therefore. the the widow. surcharges and penalties. BIR: Compromise. sue only one heir and subject the property he received from the estate to the payment of the estate tax. Pineda. The estate tax was properly paid and the estate settled and divided and distributed among the four heirs. can the BIR enforce the tax liability in excess Conditions conditions may the Under what (2000) of the share of the widow in the inheritance. can be compromised by the Commissioner but only prior to the filing of the information with the Court. Compromise the payment of any authorized to: internal revenue tax? (2%) SUGGESTED ANSWER: Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) final assessments issued against large taxpayers wherein the Commissioner cannot compromise for less than fifty percent (50%). The BIR. In a case where the to collect the full tax deficiency only against estate has been distributed to the heirs. or 2) the financial position of the taxpayer clear inability demonstrates a to pay the assessed tax. Commissioner of Internal Revenue be A. (CIR v. or 2the administrative and collection costs involved do not Justify collection of the amount due. the BIR sought Yes. NIRC of 1997] [Sec. Any compromise involving large taxpayers lower than fifty percent (50%) shall be subject to the approval of the Secretary of All criminal violations except those involving Finance. The civil compromise is allowed only in cases 12) where the tax assessment is of doubtful demonstrates a clear inability to pay of validity. Extent of Authority (1996) of the authority of the Explain the extent Commissioner of Internal Revenue to SUGGESTED ANSWER: compromise and abate taxes? The authority of the Commissioner to compromise encompasses both civil and criminal liabilities of the taxpayer.A died.

How will grounds for the extinction of deducted action you resolve source the tax on the withheld at Ildefonso Tierra. no additional 3. over them.00. is present. 1125 (law creating the CTA) in relation to Sec. GR No. A compromise of a tax liability is possible at any stage of litigation. I would then appeal the case to the Court of Tax Appeals and move for the dismissal of the collection case with the RTC. During the pendency of the appeal. I will wait for the filing of the civil action for collection and consider the same as an appealable decision. also demanded the return of not one satisfaction of the civil liability constitutedof as the and materials seized from his criminal and withholding agent who has factory. June 4. Fortune Tobacco Corp. Commissioner of Customs evidence to dispute the assessment had been 4. Counsel for Valera of Customs (Sec. Mr. On the contrary.constitutes the final Procedure protest decision of the Commissioner on the protest (CIR v. Taxpayer (2002) investigated for failure to file tax returns and to pay taxes for the taxable year 1997. Criminal Liability of the Chan.a taxpayer Is assessment necessary before vs. because there is 9282) procedure for Review on Certiorari Supreme 4. 12 SCRA 666 (People v. Appeal to the Commissioner (3%) tax administrative protest? Explain. them from any lienforDistraint Customs. SUGGESTED ANSWER: [5%1 the motion He A taxpayer who is is the garments No. (2%) SUGGESTED ANSWER: B. the Court at any stage of the proceedings may suspend or restrain the collection of the tax and require the taxpayer either to deposit the amount claimed or to file 2. BIR: Extinction. was Mr. supplies and unpaid imported textile materials. However. After his apprehension and based on the testimony of a former employee. Counsel for Valera protested the amount of and requested a reinvestigation assessmentP980. provision of inability Code (Sec. Grounds for Compromise (1996) [1982]). Assessment. distraint and/or sale of any of the taxpayer's property for the satisfaction of his tax liability. Union Shipping Corp. rendered. 1982). what action would you take in order to protect the interest of your client? Explain your answer. Yes. the taxpayer may still enter into a compromise settlement of his tax liability for as long as any of the grounds for a compromise i. As (5%) properties their proper hierarchy. Metropolitan distraint and levy on the Court warrants of Trial 6. Protest with the Collector civil action for Can the BIR file the suit2308. A. 1.. Investigators. it was 1. the CTA has exclusive jurisdiction over the case. 2313.000. 229 of the NIRC. 2000. 119322. 15. Criminal Agentthe Commissioner of the Internal (1998) May action was nonetheless instituted against him Revenue compromise the payment of in the Regional Trial Court for violation of the withholding tax (tax deducted and withheld at Tax Code. doubtful validity of assessment and financial incapacity of taxpayer. 2000. a valid after apprehension shall not constitute 58[D]) and is obligated to remit them violation of any defense in any prosecution for to the BIR. Withholding It was then that he paid the taxes. May the tax liability of a taxpayer be a surety bond for not more than double the compromised during the pendency of an amount with the Court. 2000 Customs presented. BIR: Compromise. 11 of RA. June 29.e. Court of and ordered the filing of an action Court properties 7. pending decision on the BIR to hold the collection of Customs in the 2. filed an injunctive 1. During the investigation. Once the appeal to the CTA is filed on time. the collection case in the RTC should be BIR: Court of Taxv. Regional Trial BIR issued on June 16. Chan on April 15. I will not file an injunctive suit because it is not an available remedy. if the taxes alleged to have been evaded is computed based on reports approved by the BIR there is a presumption of regularity of the previous payment of taxes. the 5. Tax Choose that Valera had been transferring its shown 2. the BIR issued a Unpaid CustomsDuties/Taxes (2006) deficiency income tax assessment for the The Collector issued an taxable year 1997of CustomsValera Group of against the assessment for unpaid the amount of P10 Companies (Valera) in customs duties and taxes on the importation of your client in the million. when in the opinion of the CTA the collection of the tax may jeopardize the interest of the Government and/or the taxpayer. Appeal to the CTA (RA no prohibition for this 3. A.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) B. May the Court of Tax Appeals issue an injunction to enjoin the collection of taxes by the Bureau of Internal Revenue? Explain. Cusi 97 SCRA 877). Mr. although legal propriety demands that prior BIR: Criminal Prosecution: Tax leave of court should be obtained (Pasudeco EvasionL-39387. Where will you file your case to protect your client's right? of the case. 85 SCRA 548 [1990]). even during appeal. levy. CIR (1998) may be prosecuted for willfully attempting in any manner to evade or defeat any tax imposed by the Internal Revenue Code? [5%) SUGGESTED ANSWER: No. Supreme Appeals in the Regional Trial Court for the collection of SUGGESTED ANSWER: Court the tax. Collector of Appeals observing to other persons. Likewise. the taxpayer should not be placed in the crucible of criminal prosecution (CIR v. When a decision of the Commissioner on a tax protest is appealed to the CTA pursuant to Sec. a manufacturer of garments. Despite the subpoena duces tecum issued to him. deficiency income and business taxes were assessed against Mr. TCC) in the Regional Trial Court to compel the collection.. & Levy (2002) On March Jurisdiction. he refused to present and submit his books of accounts and allied records. 253[a]. SUGGESTED ANSWER: Yes. Hence. SUGGESTED ANSWER: appeal? Explain. the payment thethe tax due trust funds for the government (Sec. Assessment is not necessary before a taxpayer maybe prosecuted if there is a prima facie showing of a willful attempt to evade taxes as in the taxpayer's failure to declare a specific item of taxable income in his income tax returns (Ungab v. Yes. Chan moved to dismiss the source) where the financial position of the criminal case on the ground that he had SUGGESTED ANSWER: taxpayer demonstrates a clear inability to pay already paidto dismiss assessed denied. TCC). Petition considering that the filing of a civil action for (Rule 45 of the 1997 Rules of Civil an Court collection during the pendency of administrative (RA 9282). agent to pay/remit the tax withheld is not a ground However. No. sirdondee@gmail. The subsequent the Tax of the withholding NIRC). Chan's motion? (5%) income payment made by him holds of taxes as [1964]). As counsel for Valera.. 115 SCRA 278 dismissed (Tabes Appeals: Collection of Taxes. raided his factory and seized several bundles of manufactured garments. therefore. Court ofthe correct courts/ agencies. so that unless and until the BIR has made a final determination of what is supposed to be the correct taxes. The the The assessed tax?taxes should be against him. the garments and materials seized for compromise should the withholding tax from the factorybecause be ordered returned is not a the payment of the tax agent but it because tax upon the withholding had released BIR: Corporation: that the Government has is only a procedure the collection of a tax. such appeal does not suspend the payment.com 49 of 73 . Flojo. 1996).of abeyance ANSWER: SUGGESTED until the decision on the protest was (Sec.

Title IV. (5%) is the final decision of the CIR. The assessment of July 31. 2003. Royal Mining's claim is not meritorious because it is the sale to the Bangko Sentral ng Pilipinas of gold and not silver which is (Tax Reform Act. NIRC). Nowhere in the Tax Code is the Commissioner required to Taxpayer.. Prima Facie Evidence (2002) What constitutes prima facie evidence of a Vol. 2006 in and prompt collection of taxes because it is in amount of P 10 Million inclusive of taxation that the Government depends to obtain the . Cusi. what The denial for the request for reconsideration will be your advice to the bank? Explain.R. page 173). VAT-registered. January Land Co. respectively. or SUBSTANTIALLY OVERSTATED his deductions. CIR. The Commissioner denied the request for reconsideration only on May 30. 2004. from BIR garnishment against the bank account of a taxpayer despite the pendency of his protest against the assessment with the BIR or appeal SUGGESTED ANSWER: with the Court of Tax Appeals? [5%] The BIR is authorized to issue a warrant of garnishment against the bank account of a taxpayer despite the pendency of protest (Yabes v. executory and unappealable at that point (BPI Taxpayer. Is Royal SUGGESTED ANSWER: Mining's claim meritorious? Explain. Deficiency2003. I would advise Global Bank to appeal the denial to the Court of Tax Appeals (CTA) within 30 days from receipt. One of its products is silver being sold to the Bangko Sentral ng Pilipinas. CIR. where the on December 15. Assessment. (NOTA BENE: EVAT is excluded from the Bar coverage. (Words and Phrases. Global Bank filed a request for reconsideration with the Commissioner of Internal Revenue.com 50 of 73 BIR: Fraudulent Return. the action to collect an invalid assessment is not warranted (Phil. receipts or income. 15 SCRA 278). The Tax Assessment has already become final. If the delinquent taxpayer is your client.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) surcharge and interests. what steps will you take? What is your defense? (10%) As Counsel. as in this case. (5%) No. (Sec. sales of precious metals to the Bangko Sentral ng Pilipinas are considered export sales subject to zero-rated VAT. v. I shall move to cancel the Assessment because of prescription. (2006) The Commissioner of Internal Revenue issued Theassessmentpolicy is to give income tax for an legislative for deficiency the Commissioner2000 last July in the speedythe taxable year much latitude 31.(2006) Bank received a final Tax Global On June 1. Tax Refund (2006) ALTERNATIVE ANSWER: Royal Mining is a VAT-registered domestic mining entity. distraint. the CTA is authorized to give injunctive relief if the enforcement would jeopardize the interest of CTA Rules. JourTaxpayer. 5777. rule first on the protest before he can institute Assessment. No. nalists. While an appeal to the CTA will not suspend the payment. 248. will advise him to wait for a collection action by the Commissioner. 16. Then. The three (3) year period of assessment for the Income Tax Returns of 2000 starts on April 15. constitute a false Return. Section 203 Since my client has lost his right to protest. Guidelines for 2006 Bar Examinations. 162852. G. 139736. binding effect (Tax ALTERNATIVE ANSWER: Reform Act. approved by the Supreme Court the taxpayer. June 15. No. and/or sale of any property of the taxpayer for the satisfaction of its tax liability.R. There must appear a design to mislead or deceive on the part of the taxpayer. levy. receipts or income in an amount exceeding 30% of that declared per return. false or fraudulent return to justify the imposition of a 50% surcharge on the deficiency tax due from a taxpayer? Explain. CIR. A mistake not culpable in respect of its value would not BIR: Fraudulent return. On June 30. Claim for v. 2000. SUGGESTED ANSWER: (5%) There is a prima facie evidence of false or fraudulent return when the taxpayer SUBSTANTIALLY UNDERDECLARED his taxable sales.. Prima Facie Evidence (1998) What constitutes prima facie evidence of a false or fraudulent return? [2%] SUGGESTED ANSWER: There is prima facie evidence of a false or fraudulent return when the taxpayer has willfully and knowingly filed it with the intent to evade a part or all of the tax legally due from him (Ungab v. 16. I [1997]). 2001 and ends on April 16. Chapter I. Prescriptive Period. DeficiencyIncome Tax collection proceedings on the tax assessed. It filed a claim with the BIR for tax refund on the ground that under Section 106 of the Tax Code. Since the assessment was issued beyond the prescriptive period to assess. Flojo. Inc. or at least culpable negligence. Title VIII. the taxpayer's failure to report sales. October 17. I will file a petition for review with the CTA to question the collection. I will further advise the bank to file a motion for injunction with the Court of Tax Appeals to enjoin the Commissioner from enforcing the assessment pending resolution of the appeal. 2006. and a claim of deduction in an amount exceeding 30% of actual deduction shall render the taxpayer liable for substantial underdeclaration and overdeclaration. G. at the same time serving on Global Bank a warrant of distraint to collect the ALTERNATIVE ANSWER: deficiency tax. 2005). 2006 is beyond the three (3) year prescriptive period and can no longer have any legal. 2004). 2005). See also Revised stamp tax and the interest charges to avoid any further increase in the tax liability. CTA Case promptly pay the deficiency documentary 4. and will justify the imposition of BIR: Garnishment: Bank Account of a the 50% surcharge on the deficiency tax due Taxpayerauthorized to issue a warrant of (1998) Is thethe taxpayer. 97 SCRA 877). assessmentANSWER: ALTERNATIVE has not become final (Lascona I will advice the Bank to No. If you were its counsel. v. December notice of assessment from the BIR for deficiency documentary stamp tax in the amount of P5 Million. 2006) sirdondee@gmail. Section 106[2][a] considered export sales at Zero-rated VAT [4]). 2003. The Bank should have appealed to the Court of Tax Appeals when the BIR failed to decide on its Request for Reconsideration within thirty (30) days after the inaction of the BIR for one hundred eighty (180) days or on December 31.

Ltd. However. ALTERNATIVE ANSWER: Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) No. Inc. the original assessment of P150. How will you resolve the motion? Explain your answer. The remedy is to appeal the decision of the BIR. 2002.. 1997. Counsel then filed a petition for SUGGESTED ANSWER: prohibition with the Court of Tax Appeals to A. 1125 prosper? Discuss your answer. The CTA is not vested with original jurisdiction to issue writs of prohibition or injunction independently of and apart from an appealed case. Wyeth Suaco Laboratories. 1997 was issued. (5%) judicial action has not prescribed. the BIR issued a pre-assessment notice on March 30. Necessary (2002) of the withholding tax In the investigation returns of AZ Medina Security Agency (AZ Medina) for the taxable years 1997 and 1998. warrants of distraint and levy on its properties were issued and served upon it. the BIR disallowed certain deductions claimed by A Co. SUGGESTED ANSWER: protested the assessment on the ground that The right of the BIR to assess the tax has not it has prescribed: Decide. can Criminal Actionin increasing the items of (2002) TY Corporation filed its final adjusted income income or (2) tax return for 1993 on April 12. a criminal charge for violation of the Tax Code was instituted in the Regional Trial The company moved to dismiss the criminal Court with the approval of the Commissioner. Is the contention of the counsel notice had been issued. However. The filing of the request for reconsideration suspended the running of the prescriptive period and commenced to run again when a decision on the protest was made on August 5. because the assessment has not yet become final. if the return originally filed is amended substantially. 14 SCRA 52).com 51 of 73 . NIRC).. 1997. As a result. untenable. It must be noted that in all cases covered by an assessment. the period commenced to run on March 30. claimed. covering the taxable year 1994. A final notice and demand letter dated April 15. the BIR brought an action for collection in the Regional Trial Court on September 15. the BIR has legal basis to collect the tax liability by either administrative or BIR: Pre-Assessment Notice not judicial action. a net loss from operations. Counsel for AZ Medina protested the assessment for being null and void on the ground that no pre-assessment A. Section of the the Tax Code expressly provides that no pre-assessment notice is required when a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent. v. Adamson failed and SUGGESTED ANSWER: refused to pay the modified assessment. Adamson moved to dismiss the action on the ground that the government's right to collect the tax by SUGGESTED ANSWER: prescribed. 1994 showing deductions. Income Tax Return (ITR) on April 15. NIRC). 1999. No. the BIR is correct in issuing the assessment and demand letter calling for the B. in this case.00. 1996 showing a net loss.000. 1996 when the pre-assessment was issued. (Sec. On January 10. withholding brought before the CTA under Sec. 1996. (3%) B. Consequently. the counting of the three-year period starts from the date the amended return was filed. Collection (1999) Corporation. 228. a Philippine Inc. the BIR issued an assessment and a demand letter calling for the immediate payment of the deficiency withholding taxes in the total amount of P250. filed its 1995 A Co. before the period of prescription commenced to run. Phoenix Assurance Co. on August 5. A Co. complaint on the ground that an act for violation of any provision of the Tax Code prescribes after five (5) years and. 11 of R. executory and demandable. (CIR v. the protest tenable? Explain (2%) was denied. the contention of the counsel is restrain the collection228 oftax. putting A Co. 3 SCRA Period: Civil Action (2002) On August 5. Decide the judicial action has The right of the Government to collect by case. No. Despite repeated demands.000. Since the amount assessed relates to deficiency withholding taxes. Inc.. executory and demandable.. After administrative hearings. Will payment of the deficiency immediate the special civil action for prohibition taxes.00 and a modified assessment was thereafter issued on August 05.means to carry on its operations (Republic u.. Assessment & Revenue (CIR v. The special civil action for prohibition will not prosper. a discrepancy between the taxes withheld from its employees and the amounts actually remitted to the government was found. The basic consideration in the collection of taxes is whether the assessment is final and unappealable or the decision of the Commissioner is final. the BIR issued a deficiency income assessment against A Co. 1999. Tim Tian Teng Sons. 16 SCRA 584). On November 10. that internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return. personally delivered to and received by the company's chief accountant. Adamson Co. Accordingly. 1996. (Section 203. There is a substantial amendment in this case because a new return was filed declaring more losses. it amended its 1995 ITR to show more losses. The power to issue writ of injunction provided for under Section 11 of RA 1125 is only ancillary to its appellate jurisdiction. For willful refusal and failure of TY Corporation to pay the tax.00 was reduced to P75. the period to collect shall be five (5) years from the date of the assessment but this period is suspended by the filing of a request for reconsideration which was acted upon by the Commissioner of Internal BIR: Prescriptive Period. which BIR:only be done either (1) in reducing gross Prescriptive Period. 202 SCRA 125 [1991]).000. (Adamson) filed a request for reconsideration of the deficiency withholding tax assessment on July 10. (Collector BIR: Prescriptive 313 [1961]). because the CTA has no jurisdiction to entertain the same.. 1999. in a net income position.A. After investigation.. After a tax investigation. 2000. (5%) sirdondee@gmail. Yuseco. (5%) The rule is prescribed.

an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed.0 Million. 1405. the property had a zonal value of P2. No. the final tax of six percent (6%) shall be based on the gross selling price of (2) FRAUD zonal value of P2. Ulop.A. 24(D) of the NIRC. (3) 248[B] DEFICIENCY INTEREST of 20% per NIRC).5 Million or PENALTY amounting to 50% surcharge onhigher. Consequence. i.5 Million. 1996 is not a final assessment which is enforceable by the BIR. If so. At the time of the sale. P2.5 Million. The tax consultant filed the capital gains tax return using the deed of sale showing the zonal value of . (Sec. The pre-assessment notice issued on March 30.0 Million as the selling price. Taxpayer guilty of deposits of the taxpayer.A. 1997 and the failure of the taxpayer to protest within 30 days from receipt thereof that made the assessment final and unappealable..A. 1405 (Secrecy of Bank SUGGESTED ANSWER: Deposits Law) [5%] The Commissioner of Internal Revenue is authorized to inquire into the bank deposits of: P2. Tax Evasion to sell his condominium unit to Josel agreed (2005) Jess for P2. and annum on the deficiency. (Note: This answer was not part of the answers enumerated in the The limited power of the Commissioner does not conflict with R. does this power of the Commissioner conflict with R. Under Sec. It is only when the assessment has become final and unappealable that the 5-year period to file a criminal action commences to run (Tupaz v. It is the issuance of the final notice and demand letter dated April 15.e.5 Million. orized representatives to Inquire into the bank deposits. P2. the parties agreed to execute two deeds of sale. (5%) consequences of the The action of the parties constitutes tax evasion and exposes Josel to: sirdondee@gmail. 316 SCRA 118 [1999]). 2002. his application shall not be considered unless and until he waives in writing his privilege under R. one indicating the zonal value of P2. whichever is the amount evaded (Sec. in case a taxpayer applies for legislation. Discuss the tax implications and ALTERNATIVE ANSWER: action. Upon the advice of a tax consultant. the same was timely inquire into the bank deposits of a taxpayer? filed.0 Million. NIRC). The earliest date that the assessment has become final is May 16.0 Million as the selling price and the other showing the true selling price of P2. NIRC) of financial incapacity to pay his tax liability (Sec. 6(F). and such waiver shall constitute the authority of the Commissioner to inquire into the bank BIR. 1997 BIR: Secrecy of Bank and since the criminal charge was instituted DepositsCommissioner of Internal Revenue Can the Law (1998) on January 10. 249[A][B]. No.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) SUGGESTED ANSWER: The motion to dismiss should not be granted.com 52 of 73 (1) DEFICIENCY FINAL INCOME TAX on the sale of real property in the Philippines classified as a capital asset. 1405 because the provisions of the Tax Code granting this power is an exception to the Secrecy of Bank Deposits Law as embodied in a later Furthermore.

1999) Furthermore. The motion filed by the Commissioner should be granted because the claim of the government for unpaid taxes are generally preferred over the claims of laborers for unpaid wages. the opposition of the employees is BIR. has in the property formerly held BIR: decedent. (Sec. sirdondee@gmail. 2. No. if the tax assessment has already become final. the Department of Labor through the Labor Arbiter rendered a decision ordering OCEANIC to pay unpaid wages and other benefits to its employees. No. Is the to the filing DOJ correct? Explain.R. evident that notice to the taxpayer. Pascor Realty and Development Corporation. 2004) conditions must be met: . the criminal complaint was premature.R. and this is justified by the necessity of government funding. is June such the Notes and mails 128315. the BIR filed before the Department 74965.0 million. November 9. devisee. 128315. 248[B].com 53 of 73 there is nothing in the problem that shows that the BIR in filing the case is also interested However. (Marcos by the Unpaid Taxes vs. NIRC) the amount for refund must be filed within two (2) years from date of payment interest of payment of the Deficiency Tax. Refund orknowledge. Oceanic is not under bankruptcy or liquidation at the time the warrants of distraint and levy were issued hence. but is against the interest or property right which the heir. The approval of the court sitting in probate over the supposed will of the deceased is not a mandatory requirement for the collection of the estate tax. hence. NLRC et al G. the accidental. 2) An accompanying correcting the examinees answers because the state of mind which is described as being "evil" on examination is very long. on 3. a criminal charge is instituted not to demand payment. An assessment is certain period of taxpayer to be legally due. (Commissioner of Internal Revenue v. The DOJ denied the motion on the ground that an assessment of the tax deficiency of the corporation is not a precondition to the filing of a criminal complaint and that in any event.5 (Commissioner of Internal Revenue million and not P2. the Commissioner of Internal Revenue issued warrants of distraint on OCEANIC's personal properties and levied on its real properties. 110 of the Labor Code gives first preference to claims for unpaid wages. G. Authority. No. For failure 5.R. to pay deficiency taxes of P20 Million. Estate ofBenigno P. which showed Under Sec. SUGGESTED ANSWER: the joint affidavit of thein ruling that may BIR examiners an The DOJ is correct be considered as an tax deficiency the the assessment of of tax assessment of the liability of the not a precondition ruling of the corporation is corporation. 120880. No. NIRC) The parties may likewise be subject to criminal prosecution for willfully (Sees. Complaint (2005) In 1995. 254. CIR. no assessment of its tax liability. NIRC. Criminal unwarranted. June 5. As such the estate tax is exempted from the application of the statute of nonclaims. 120880. 1999) parties that the tax due should be computed based for liberality in Comments: A plea is madeon the valuation of P2. as well as for filing a NIRC)and fraudulent return. legatee. Resolve the motion. SUGGESTED ANSWER: Explain. Jr. Oceanic Company.. immortalized in the ALTERNATIVE ANSWER: maxim that taxes are the lifeblood of the government (Marcos v. There must be a written claim for refund September 14. There is no need for an Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) assessment so long as there is a prima facie showing of violation of the provisions of the Tax Code. v." or "deliberate and not BIR. due. (CIR vs. Itor sends29. Meanwhile. The complaint was supported by a sworn statement of the BIR examiners showing the computation of the tax liabilities of the erring taxpayer. Pascor Realty and Development Corporation. Unpaid June of 1997). the following different values. The filed by the taxpayer with the Commissioner. 1997).R. The probate court is determining issues which are not against the property of the decedent. "bad faith. CIR. After all." Despite the above Credit of Taxes conditions required by the true basis of State the (2005) misrepresented the Tax Code parties deliberately before the Commissioner of action or failure of the sale. No. without the cognition and authority of the court sitting in probate over the supposed will of the deceased.Yes." "willful. 1994). and the following factors: 1) The of the tax within a does not demand payment payment of less than that known by thetime.R. Assessment. Four barges belonging to OCEANIC were levied The Commissioner of Internal Revenue filed a upon by the sheriff and later sold at public motion with the Labor Arbiter to annul the sale auction. G. This or credit of taxes SUGGESTED ANSWER: preparation of the two deeds of sale erroneously or illegally received. but to penalize the tax payer for violation of the Tax Code. or the non-payment ofonlywhen ittheshown that a tax is deemed made tax when is BIR releases. Inc. or a claim against the estate as such. The claim committed should a The tax evasion for refund must be result to categorical demand for fraud surcharge the imposition of a 50% reimbursement. 1. 249[A][B]. v. executory and enforceable. The joint affidavit showing the computation of the tax liabilities of the ALTERNATIVE ANSWER: a tax assessment erring taxpayer is not There is taxwas not sent to the the concurrence of because it evasion because of taxpayer.Wages (1995) (OCEANIC). because the collection of estate tax is executive in character. In the instant case. failing to pay the tax. Tbda. G. as yet. and 3) A course of Internal Revenue could authorize the refund is shown by the action which is unlawful. 255 and 257. (Commissioner of Internal Revenue v. The BIR is authorized to collect estate tax deficiency through the summary remedy of levying upon and sale of real properties of a decedent. of Justice (DOJ) a criminal complaint against a corporation and its officers for alleged evasion of taxes. (5%) of a criminal complaint. 20% per annum on the any supervening cause.Claims forNo. The corporation filed a motion to dismiss the criminal complaint on the ground that there has been. and of the tax or penalty regardless ofdeficiency. false BIR: Summary Remedy: Estate Tax Deficiencies (1998)to collect estate tax Is the BIR authorized deficiencies by the summary remedy of levy upon and sale of real properties of the decedent without first securing the authority of the court sitting in probate over the SUGGESTED will of the decedent? supposed ANSWER: Yes. G. June 29. The employees of OCEANIC opposed the motion contending that Art. and enjoin the sheriff from disposing the proceeds thereof. etc. 147188. tax when it ruled that the joint affidavit of the BIR examiners may be considered as an assessment of the tax liability of the corporation. The claimevaded (Sec.R. 204(C). which gives laborers' claims for preference applies only in case of bankruptcy or liquidation of the employer's business. The provision of Article 110 of the Labor Code. it is in in collecting the errordeficiency. G.

Sebastian as a seaman SUGGESTED ANSWERS: is considered as income of a non-resident The following cases may still be compromised citizen derived from without the Philippines. (5%) agreement A. he signed the required agreement form. and b) Cases under Internal Revenue initiated the filing of a civil by another return).Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) As represented by NX in his offer.000. No. e) Cases where final reports of reinvestigation or sirdondee@gmail. Sebastian to pay the tax within the period stated in the notice of assessment. Stateof 10% and discuss briefly whether the following cases may be compromised or may not be compromised: a) Delinquent accounts. 30-02 [2002]) because penalties and surcharges. This is an offer for compromise based on financial incapacity which the Commissioner shall not accept unless accompanied by a waiver of the secrecy of bank deposits (Section 6[F}.00. the financial position of NX as as reflected in his financial statements or determined by the Commissioner other records upon which his property demonstrates a clear inability to pay the tax. are following cases MAY NO LONGER BE court ordering NX toto arrivetax due plus income taxes paid pay the at his adjusted COMPROMISED (R. asof 1997. Banking Corporation and Court of Tax Appeals. 1994) SUGGESTED ANSWER: BIR. the deficiency tax assessment is a bar to a tax refund or credit. July 21. Deficiency Tax Assessment vs. the amended candidates were taught and CRIMINAL TAX FRAUD cases as may be Tax Code compromise settlement of 50% of prepared to answer questions that thison the determined by the Commissioner or his judgment award. Perhaps.His adjusted income income during the year. Does the examiner be more lenient in checking the answers b) CRIMINAL VIOLATIONS ALREADY FILED IN Commissioner have the an answer accepton the to this question. Action (2002) by a Norwegian company which is engaged exclusively in international shipping. 2001 a deficiency income tax assessment for the sum of P250. after issuance of the action his collect the tax due from NX. 1% to 3%. Court of Appeals. after the final issuance of assessment notice to the taxpayer. The SUGGESTED ANSWER: (3%) taxpayer is estopped from applying for a compromise. the refundCommissioner of Internal basis of citing Revenue v. still which are c) Criminal tax fraud cases. The judgment the taxpayer has not paid his taxes for reasons [Note: The bar and executory. The income of Mr. representing based present law. the Commissioner of from business derived within (to be covered payments. present If you given Is lawyer of Mr. The Taxpayer cannot be entitled to a refund and at the same time liable for a tax deficiency assessment for the same year. B. 106611. It is therefore requested that the authorized agents may not be compromised. He and his wife. 30-02 [2002]) because of the taxpayer's The total gross income. Tax Refund / Tax Credit (2005) Is a deficiency tax assessment a bar to a claim for tax refund or tax credit? Explain. the BIR issued on April 20. (5%) Sebastian. personal from to dollar gross income a After final assessment notice to the taxpayer. what possible defense or defenses Yes. Tax Code of 1986[PD doubtful validity of the assessment: a) already the fourth year of implementation of the Subsequently. Said Return cannot therefore be the (Commissioner of Internal Revenue v. a$4.500 and foreign national exemption of decision was rendered by the The still pending. 1998.R. b) Cases under administrative protest. (R. The deficiency assessment creates a doubt as to the truth and accuracy of the Tax Return. the acceptance of the offer is legal and ethical because the ground upon which the compromise was anchored is within the context of the law and the rate of compromise is well within and far exceeds BIR. and Mrs. Alltel [2002]. Explain briefly. Distraint.levy to enforce collection of as a distraint and Sebastian's income in 1997 the reconsideration have been issued resulting in the seaman on board the Norwegian vessel reduction of the original assessment agreed to tax.R. BIRWhat is on August 19. Yes. Compromise the minimum prescribed by law which is only (2005) the basic tax assessed. assessment agreed to by the taxpayer when of distraints and levy? Explain your answer. A. engaged in international shipping? Explain taxpayer when he signed the required by the SUGGESTED ANSWER: your answer. in US dollars (or if in financial incapacity to pay the tax due or the other foreign currency. (2%) form. City Trust G. which several years.R. NIRC). The waiver will enable the Commissioner to ascertain the financial position of the taxpayer. For failure of Mr. 2001taxation with the issued the rule of income warrants of respect to Mr.not expected toto becamesubject to the graduatedattempts be final candidates are but will be with tax history. (Sec. NIRC). 21 (b). only 50% of the judgment award is all he could really afford. Criminal violations already filed in court. . holdings can be ascertained. who manages their business. Considering that this of other than his financial incapacity or the familiar the judgment award weretax rates is execute futile. and law be are full legal SUGGESTED ANSWER: his fraud which would encourage tax evasion. He is entitled to deduct administrative protest. power to based the COURT so that the taxpayer will not profit from compromise offer?theitcredit. NX offered the Commissioner a 1158]. barby PD 1994). The Commissioner has the power to and c) Cases where final reports of will you raise in behalf of your clients against accept the offer of compromise if the financial reinvestigation or reconsideration have been the action of the BIR in enforcing collection of position of the taxpayer clearly demonstrates issued resulting in the reduction of the original the tax by the summary remedies of warrants a clear inability to pay the tax (Section 204. Compromise using a separate income income tax purposes because there is no showing that there is a (2004) tax assessment had become final After the which will not include his income tax return duly-approved schedule of installment and unappealable.com 54 of 73 BIR. After an audit of the return. inclusive of interest and penalty. its dollar equivalent) assessment's doubtful validity: a) from without shall be declared by him for DELINQUENT ACCOUNTS may be compromised BIR. although the inquiry need not be limited only to the bank deposits of the taxpayer but also as to his financial position If indeed. d) pending.]and ethical? Mrs. Prescription of the Sebastian is a Filipino seaman employed Mr. filed a joint income tax return for 1997 on March 15. amount is all he could really afford.

Castro A.00 was paid on the taxable year 1997. the BIR's right to assess BIR. the BIR issued a December 06. 1994. NIRC). 3) Mr. NIRC).R. of confidential information given by Mr. Mr. G. Court (CIR v. False prescribed. constitutes falsity. 2001. 127777. the Information having been filed beyond the 5-year reglementary SUGGESTED ANSWER: period. 2) The information must not yet be in the the Bureau possession of of Internal Revenue. 1974). 1994. SUGGESTED ANSWER:judge. or refer to a case already pending or previously investigated by the Bureau of Internal Revenue. filed with the Regional Trial Court an action questioning the validity of the RMO. What legal requirement/s must Mr. 282. the deficiency Santos on January 06. the assessment was issued within that prescriptive period to make an assessment B. (Sec. (3%) The legal requirements that must be complied by Mr. 4 Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) properties left by his father with intent to evade payment of the correct tax. Tax which law 2002. BIR. The last day for filing the 1997 income tax return is April 15. The RMO is in reality a ruling of the case? (5%) Commissioner in implementing the provisions of the Tax Code on the taxability of pawnshops. and 4) The sixth information must result to collections of revenues and/or fines and penalties. The trial court can exercise jurisdiction.R. whether BIR. Ulep. Castro. Any deviation from the truth on the other hand. has already vs. the criminal case was instituted within 2006) the five-year period required by law (Tupaz v. No. The crime was committed when Gerry willfully (NOTA BENE: This concept pertains to the VAT [1997]). October 1. 1999. NIRC) sirdondee@gmail. the Information? Why? (5%) Prescription of a criminal action begins to run from the day of the violation of the law. The Information was filed with the RTC only last June 2006. interest and penalty. is excluded from the bar coverage. 1974) after having been required by the Revenue District Officer to pay value added tax pursuant to a Revenue Memorandum Order (RMO) of the Commissioner of Internal Revenue. On May 15. August 23. will you dismiss the If you were the Yes. Inc. As a result. whereas the second is intentional and deceitful with the sole aim of evading the correct tax due ALTERNATIVE ANSWER: (Aznar us. The failed to declare all . No. Castro's protest. Criminal Actionprosecuted by the BIR for Gerry was being (2006) failure to pay his income tax liability for Calendar Year 1999 despite several demands by the BIR in 2002. A false return is not necessarily tainted with fraud because the fraud contemplated by law is actual and not constructive. RA 8424.00. Prescriptive Period. 2002.000. Santos to entitle him to reward are as follows: 1) He should under oath with the Law information voluntarily file a confidential Division of the Bureau of Internal Revenue alleging therein the specific violations constituting fraud. The distinction between a false return and a fraudulent return is that the first merely implies a deviation from the truth or fact whether intentional or not. carelessness or ignorance of the person preparing the return. Title I. Castro inherited from his father.00. The Tax Fraud Division deficiency withholding tax assessment in the of the BIR investigated the case on the basis amount of P150. Fraudulent Return (2002) BIR. inclusive of 50% surcharge for fraud. (Aznar Commissioner (2006) vs. Abraham Eugenio. A fraudulent return contains an intentional wrongdoing with the sole object of avoiding the tax and it may consist in the intentional underdeclaration of income. a pawnshop operator. Fraudulent Return (1996) Distinguish a false return from a fraudulent SUGGESTED ANSWER: return. NIRC). Santos should not be a government employee or a relative of a government employee within the degree of consanguinity. Mr. Gerry filed a motion to quash the Information on the ground of prescription. The protest should be resolved against Mr. 2006. Commissioner. A. 1999. Commissioner. Taxpayer: Civil Action & Section 281. Jurisdiction to review rulings of the Commissioner is lodged with the Court of Tax Appeals and not with the Regional Trial Reform Act. Sec. several pieces of real registered enterprise enjoying preferential tax property in Metro Manila. Jurisdiction. What was filed is a fraudulent return making the prescriptive period for assessment ten (10) years from discovery of the fraud (Section 222. intentional overdeclaration of deductions or the recurrence of both. Since the information was filed in June Bar Examinations. was issued against him on January 10. protested the assessment on the ground of SUGGESTED ANSWER: (2%) prescription. based on a fraudulent return. Assessment. The right of the BIR to assess prescribes after three years counted from the last day prescribed by law for the filing of the income tax returns when the said return is filed on time. A false 23. Guidelines for 2006 June 15.B. Decide Mr. G. 1998 that the return tax remained unpaid. because of financial difficulty. (Section 203.000. 2001. Josefina Leal. (Minolta) is an EPZAon June 10. Castro was fraudulent and that he assessment became final and executory. a deficiency estate tax assessment for P1. L-20569. will you dismiss No. 1998.com 55 of 73 BIR. Review Rulings of the intentional or not. as a result of which the filed by Mr. After return was filed and the estate tax due in the investigation of its withholding tax returns for amount of P250. who died Criminal Action (2002) Minolta Philippines. Prescriptive Period. 113459.250. L-20569. August return contains deviations from the truth which may be due to mistakes. If you were the judge. Accordingly. The estate tax treatment under a special law. Since the assessment was issued only on April 20. refused to pay despite repeated demands in November 18. I will raise the defense of prescription.000. Mr. Santos comply with so that he can claim his SUGGESTED ANSWER: reward? Explain.

LLD was notified of the seizure. (LLD) for alleged nonpayment of tax and customs duties in violation of customs laws. Neither the remedy of prohibition would lie because the CTA has not acquired any appellate jurisdiction over the seizure case. the Collector of Customs issued a notice of sale of the articles. It also filed with the CTA an appeal for refund of overpaid taxes on its other importations of raw materials which has been pending . BIR's action for collection will prosper because the assessment is already final and executory. Will an appeal to the CTA for tax refund be possible? Explain (2%) B. Commissioner of Customs. Accordingly. 180 SCRA 591 [1989]). Review (2002) decision July the Collector of Whenever the 134114. the BIR filed with the Regional Trial Court an action for A. sirdondee@gmail. The Bureau of Customs moved to dismiss the case for lack of jurisdiction of the Court of Tax Appeals. 38for non-withholding pursuant to RMOthis is a of non-withholding/ 83. if it can be established that a tax has not been paid as a consequence of nonfiling of the return. The jurisdiction of the Commissioner and the CTA are not concurrent in so far as claims for refund are concerned. the civil liability for taxes may be dealt with independently of the criminal violations. v. The only exception is when the Collector has not acted on the protested payment for a long time. Does the Court of Tax Appeals have jurisdiction over the petition for review and writ of prohibition? Explain (3%) A. neither the Commissioner of Customs nor the Secretary of Finance would know about the decision laid down by the Collector favoring the taxpayer. Will the BIR's action for collection collection of the deficiency withholding tax for prosper? As counsel of Minolta. it can already be enforced through judicial action. Alikpala. if it is affirmed by him. Automatic review is necessary because nobody is expected to appeal the decision of the Collector which is favorable to the taxpayer and adverse to the Government. What is the basis of the automatic review procedure in the Bureau of SUGGESTED Explain your answer. May criminal the assessment. This is the reason why whenever the decision of the Collector is adverse to the Government. because it allegedly incurred net loss from its operations. because there is no decision as yet by the Commissioner of Customs which can be appealed to the CTA. Minolta did not file its final corporate income tax return for the taxable year 1998. Since there is no appealable decision.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) BIR also found that. against the importation of machineries and equipment by LLD Import and Export Co. the tax counsel may be open to other remedies against B. 36 SCRA 208 [1970]). it is automatically elevated to the Secretary of Finance for review. before it could be heard. No. (5%) Customs? ANSWER: Automatic review is intended to protect the interest of the Government in the collection of taxes and customs duties in seizure and protest cases. because the Commissioner of Customs has not yet rendered a decision on the claim for refund.com 56 of 73 A. in violation of the provisions of the National Internal Revenue Code. SUGGESTED ANSWER: SUGGESTED ANSWER: A. 2001). GR No. if Minolta makes a voluntary offer to compromise the criminal violations for non-filing and non-payment of taxes for the year 1998. But the civil liability for taxesTax &also be may Custom: Violation of compromised if (2002) the financial position of the Custom Duties The Collector of Customs of the Port of Cebu taxpayer demonstrates a clear inability to pay issued warrants of seizure and detention the tax.]violations of the Tax Code be compromised? If Minolta makes a voluntary offer to compromise the criminal violations for non-filing and non-payment of taxes for the year 1998. No. Yes. the same shall be automatically elevated to and be finally reviewed by the Secretary of Finance (Yaokasin v. As such. I will introduce evidence that the income payment was reported by the payee and the income tax was paid thereon in 1997 so that my client may only be allowed to pay the civil penalties [Note: It is not clear whether No. 2002. Appeals. Without such automatic review. However. case underwithholding or non-remittance of tax withheld. (Nestle Phils. The writ of prohibition being merely ancillary to the appellate jurisdiction. the said decision is automatically elevated to the Commissioner for review. what action 1997. (5%) SUGGESTED ANSWER: with the Collector of Customs. B. but. As counsel of Minolta. In order to restrain the Collector from carrying out the order to sell. the CTA has no jurisdiction over it until it has acquired jurisdiction on the petition for review. The power to decide seizure and protest cases may be abused if no checks are instituted. Inc. On May 17. it is automatically elevated to the Commissioner for review and. the continued inaction of the Collector or Commissioner should not be allowed to prejudice the Customs. Customs is adverse to the government. may the Commissioner accept the offer? Explain (5%) SUGGESTED ANSWER: B. and if such decision is affirmed by the Commissioner. All criminal violations of the Tax Code may be compromised except those already filed in court or those involving fraud (Section 204. of 6. the CTA has no jurisdiction over the petition for review and writ of prohibition. NIRC). The compromise settlement of the criminal violations will not relieve the taxpayer from its civil liability. (Commissioner of Customs v. Automatic taxpayer. will you take? Explain your answer. Court of Basis. LLD filed with the Court of Tax Appeals a petition for review with application for the issuance of a writ of prohibition. the Commissioner may accept the offer which is allowed by law..

The Collector moved to dismiss the petition for SUGGESTED ANSWER: lack of Jurisdiction. b. 28.R. of Tax Amnesty vs. (2%) jurisdiction only over decisions of the Commissioner of Customs in cases involving seizures. CTA (2000) a) On the basis of a warrant of seizure and detention issued by the Collector of Customs for the purpose of enforcing the Tariff and Customs Laws. civil and administrative liabilities arising from nonpayment of taxes. Sheridan. It applies only to past tax periods. and charges are: 1) personal property of of distraint of ADMINISTRATIVE REMEDIES whatever kind whether or intangible. After receipt of the Pre-Assessment Notice. . Likewise. Fees & Charges (1997) Give the remedies available to local government units to enforce the collection of SUGGESTED ANSWER: taxes. subject to review by Motion granted. Jurisdiction: Customs vs. (Jao. 43) sirdondee@gmail. 249 SCRA 35. the importer filed a petition for review with the Court of Tax Appeals. It is generally prospective in application. hence of retroactive application. Distinguish (2001) SUGGESTED ANSWER: (3%) Tax amnesty is an immunity from all criminal. liability only. Court of Appeals. which enables the government to carry out the functions It has been Instituted to perform.. Rule on of Tax Appeals has Motion granted. No. (Florer v. the taxpayer shall submit all relevant supporting documents. Tax exemption is an immunity from the civil 1988). 120 There 455) SCRA should be no unnecessary hindrance on the government's drive to prevent smuggling and other frauds upon the Customs. Within sixty (60) days from filing of the protest. he must within fifteen (15) days from receipt explain why no additional taxes should be assessed against him. may be classified into those for assessment. b) Under the same facts. 137 Ind. the Regional Trial Court do not have Jurisdiction in order to render effective and efficient the collection of Import and export duties due the State. and companion case. (People v. fees. (Sec. assorted brands of cigarettes said to have been illegally imported into the Philippines were seized from a store where they were openly offered for sale. It is a general pardon given to all taxpayers. 228. (5%) administrative and The legal remedies of an aggrieved taxpayer under the Tax Code. SUGGESTED ANSWER: (3%) No. The Commissioner’s adverse decision would then be the subject of an appeal to the Court of Tax Appeals. If the Commissioner of Internal Revenue issues an assessment notice. De Veyra. The Court of Tax Appeals has no jurisdiction because there is no decision rendered by the Commissioner of Customs on the seizure and forfeiture case. the taxpayer must administratively protest or dispute the assessment by filing a motion for (30) days from receipt of the notice of reconsideration or reinvestigation within assessment. The procedures for the ADMINISTRATIVE REMEDIES for ASSESSMENT are as follows: a. collection and refund. Taxpayer: Administrative & Judicial Remedies (2000) the procedures on the Describe separately legal remedies under the Tax Code available to an aggrieved taxpayer both at the SUGGESTED ANSWER: judicial levels.com 57 of 73 LGU: Collection of Taxes. Dissatisfied with the decision rendered after hearing by the Collector of Customs on the confiscation of the articles. et. al. 36 ME 365). (4th par. L-46881. a freedom from a charge or burden to which others are subjected.A. could the importer file an action in the Regional Trial Court for replevin on the ground that the articles are being wrongfully detained by the Collector of Customs since the importation was not illegal and therefore exempt from seizure? Explain. Sec. There is no decision yet of the Commissioner which is ALTERNATIVE ANSWER: the Court of Tax Appeals. 1125). (De la Fuente v. NIRC of thirty 1997) c. Costonedo. fees. et al. et al. The legislators intended to divest the Regional Trial Courts of the jurisdiction to replevin a property which is a subject of seizure and forfeiture proceedings for violation of the Tariff and Customs Code otherwise. it could also be considered as delinquent where an assessment for deficiency tax has become final and the taxpayer has not paid it within the period given in the notice of assessment. detention or release of property affected. and charges? The remedies available to the local government units to enforce collection of taxes. It is an immunity or privilege. Tax Exemptiona tax amnesty from a tax exemption.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) Delinquent Tax Return (1998) When is a revenue tax considered delinquent? SUGGESTED ANSWER: [3%) A revenue tax is considered delinquent when it is unpaid after the lapse of the last day prescribed by law for its payment. The taxpayer should have appealed the decision rendered by the Collector within fifteen (15) days from receipt of the decision to the Commissioner of Customs. 7. actions for forfeiture of property for violation of the Customs laws could easily be undermined by the simple device of replevin. and levy of real property and tangible therein. No. G. and 2) JUDICIAL REMEDY by interest institution of an ordinary civil action for collection with the regular courts proper jurisdiction. R. Furthermore. both at the administrative and judicial levels. The Court the motion.

b. The JUDICIAL REMEDIES of an aggrieved taxpayer relative to an ASSESSMENT NOTICE are as follows: . then the taxpayer has a period of thirty (30) days from the lapse of said 180 days within which to interpose a petition for review with the Court of Tax Appeals. Where the Commissioner of Internal Revenue has not acted on the taxpayer's protest within a period of Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) one hundred eighty (180) days from submission of all relevant documents.a. then he has a period of thirty (30) days from receipt of said denial within which to interpose a petition for review with the Court of Tax Appeals. Should the Commissioner deny the taxpayer's protest.

the Investigation (1999) (Section 11. et al. 14 SCRA 832 [1965]). 1950) L characterized under the provisions of the matter arising all these properties as real The judicial appeals starts with the Court of properties subject to the Code. to the RR should file a motion for injunction with the decision is instead appealable to the Central stop the process? Explain briefly. have been presented in court and granted by it Central Board of Assessment Appeals. Is the devoid of jurisdiction to enforce the collection of the disputed tax. Co. illegally or alleges to have requested for waiver of the taxpayer. Revenue (BIR) issued against the Estate of The CTA is empowered to suspend the penalties which he alleges to have been Jose de la Cruz a notice of deficiency estate collection of internal revenue taxes and erroneously. and continues in Muntinlupa Tax appealed the matter to the the same Injunction (2004) RR disputed a deficiency tax assessment and mannerof shown above. Consequently. Said levy on the properties. that has been duly filed with the Commissioner of Internal Revenue which is A Co. The CIR therefore: 1) Issued an the Court of Appeals assailing penalty date of payment of the tax or the jurisdiction information on sales andfurnish the to its access letter to A Co. and 2) To notify Taxpayer: City Board of Assessment Remedies for the collection of the tax like the Government that such taxes have Decision. 2) Issued an access letter to a bank the after payment (Sec. A Co. equipment decision is appealable and fixtures located at Commissioner whose expenditures. taxes and (Pirovano v. and (2) the taxpayer is willing to surcharge. However. as granting the Commissioner the NIRC). that the BIR is Appeals jurisdiction over the refund case pendency of the Co. 1125). Where to appeal (1999) distraint. The CTA’sAssessment Appeals. SUGGESTED ANSWER: inclusive of surcharge. 229. September 13. G. Procedure (2002) A. The following day. or tax collection by the BIR will jeopardize the (Executor) filed a timely penaltiesagainst the credit for. on the basis that such collection will jeopardize 50466. customs duties in cases pending appeal only or collected? (3%) interest and must comply with the following compromise penalty. case and ordered the Collector. a Philippine corporation. foe. The The taxpayer when: (1) in the opinion of the court the Executor of in claiming a refundde la Cruz procedures the Estate of Jose of. 1997. May Assessment: Protest: Claims Taxpayer: 31. within fifteen obtain information from other The filing of an administrative claim for persons other than those whose internal The decision of the CTA en banc is directly refund with the BIR is necessary in order: 1) revenue tax the Supreme Court to audit or appeallable to liability is subject on question To afford the Commissioner an opportunity to investigation. a refund of. v. (5%) Court of Appeals. and B B. has appellate claim for Government appeal the adverse not suspend the enforcement of the tax jurisdiction over CommissionerLocal Board of decision of the decisions of to the CTA in liability. justifiedAonly inAmendment . Court of Tax AppealsX for thebelieve that the examine. He assessed or penalty. In accordance with ruled in favor of the Internal Revenue decide Commissioner of Internal Revenue. The CTA took several suppliers of raw materials. The Board Board as Assessment upon receipt of an adverse decision by the Should the Bureau of City. What theyour advice?during the you for from collecting is disputed tax (10%) I will advise Aproceedings. What must a taxpayer do in order to claim the interest of the taxpayer or the Government for refund (2000) the Bureau of Internal On June 16. No. National Internal Revenue real property tax. by the Bureau of Internal The employment construed the errors of subordinate officers (Gonzales v. (5%) the Granting arguendo that the BIR can legally from the Municipal Trial Court (as the case SUGGESTED ANSWER: City Board of Assessment Appeals. what could RR do to may be) to the Regional Trial Court. to payments BIR of the CTA and the Order to make refund to regardless of any supervening event that will A.The decision the NOTE: 2004 getting information from of should Why is the filing of an administrative the taxpayer decide to appeal on time. The BIR cognizance ofPhil. Collector. its plantCourt of Tax City. CTA. furnish the BIR on deposits of some suppliers refund was filed with the BIR. July 29. of correct? Reason. the appeal is pending. NIRC). (2%) (CX Bank) to SUGGESTED ANSWER: Co. filed an to utilize its Judicialcreating the Court of Tax tax remedies for collecting RA 1125 (An Act appeal with the Court of Tax Appeals. 1997. the taxpayer could oppose the City Board of No. LTaxpayer: Claim for Refund. illegally or excessively assessed tax assessment. interest and manufacturer of consumer goods and has compromisereimbursement (Bermejo v. (Caltex Phils.A. Estate onstand of the that no claim for suppliers. the same manner outlined above. on the alleged ground that the suppliers are A Yes. suspects that some of the suppliers are not Commissioner to make a refund. Commissioner arise Is the the ground 229. The must be 2The suit or proceeding for recovery properly reporting their income on their sales Commissioner filed a within two years from commenced in court Petition for Review with to A Co. the BIR served a with the regularto appeal the decision of of a before the CTA courts for the collection the SUGGESTED ANSWER: warrant of levy on the real properties of RR to sum of money. collection process. etc. unless a motion to that effect shall Assessment Appeals. NIRC of 1997). 87 the 96 [1950])..R. the Executor filed a Petition with the Court of Tax Appeals (CTA) praying for Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) sirdondee@gmail.. NIRC). While the taxes A Co. A Taxpayer: Assessment. is the to owner of appealed by taxpayer the mind in estimating the revenue available for in machinery.Appeals. The City Assessor in Muntinlupa Appeals under other to the 3028. should file collected: The protest 2. same goingReview ladder of judicial processes Petition for up the from the decision of entertain appeals proper? Explain. claim with the BIR necessary? (3%) former but not CTA is in latter. a Philippine the corporation. taxes and protest which he interest of the Government and/or the assessment and been erroneously. levy. (Bermejo v. correct Revenue to inquire into the Administrative authority of any of bank deposits. brought an petition for review by means of a ordinary suit filed Appeals). excessively interest and a written claim for deposit the amount being collected or to file a refund with the Commissioner of Internal was denied by theCommissioner within two surety bond for not more than double the Revenue (Commissioner) with of the tax on years after the date of payment finality or Taxpayer:the tax to be fixed by the court amount of BIR Audit or penalty (Sec. appeallable from the turn The BIR is the division of SUGGESTED ANSWER: authorized to (15) days to the CTA en banc. An appeal to the CTA shall the Local refund is to Code. 204. taxpayer on a The remedies of an aggrieved which under Court. 14 SCRA 79). X Bank and the suppliers have not required before a suit or proceeding can be In both casesby the BIR letter ofapply with the been issued the taxpayer must authority to filed in any court (Sec. may be administratively been questioned and the notice should be borne A Co. consider the claim and to have a chance to (Section 5. demand for penalty.A Co. is a big the refund of themust state a categorical 1The claim filed surcharge. There was no claim for refund or credit committing tax evasion. 1982). this power shall not be of law on certiorari.com 59 58 of 73 . or tax credit for. CIR. JR. Executor was made to pay the deficiency assessment on October 10. thence to the Supreme Court of Tax Appeals to stop the administrative Board of Assessment Appeals. 1997. Appeals. and Bank Issuance of an The denial of the claim by the Commissioner Injunctive writ to enjoin the Bureau of Internal BIR is on a "fishing expedition" and come to SUGGESTED ANSWER: is the one which will vest the Court of Tax Revenuecounsel.. Co. No.

000.00. When the the taxpayer.000. instead of questioning the assessment he received on 15 January 1996 paid. The 50% sirdondee@gmail.000 income included in 1994 within two years from payment pursuant to Section 204(3) of the Tax Code. recourse? ANSWERS: 1) The examiner is correct in assessing a deficiency income tax for taxable year 1993 but not in imposing the 50% fraud surcharge.00. Rather.. There is no showing that penalty? (5%) B. Yang should file a written claim for refund with the Commissioner of Internal Revenue of the taxes paid on the P50. Could the Tax Court entertain the petition? (b) Under the above factual setting. for was imposed it is suggested that the same shall be given full violation of the withholding tax provisions. If there is a denial of the claim. Could the petition still be (a) No.248. abatement ANSWER: Mr. The taxpayer requested a refund from the Commissioner by submitting a written claim on 01 March 1997. what is your other SUGGESTED Explain. and remedies that payment.] the compromise No. 2) If you were of P50.00 as 1993 income to avoid the lawyer of Stephen Yang. the taxpayer forthwith filed a petition for review with the Court of Tax Appeals. he should file a claim for refund of taxes erroneously paid to recover the excessive surcharge imposed.00 income. Taxpayer: Failure to Withheld & Remit Tax (2000) A domestic corporation failed to withhold and remit the tax on income received from Philippine sources by a nonresident foreign corporation. NIRC). The taxpayer. on 15 March 1997.000.  If the Commissioner fails 1) Is  included in his 1994 return the amount thethe claim for on examiner correct? Explain.00 on which he paid an and finally with the Supreme Court.000 income during the taxable period it was realized. On 10 February 1996. 2) Mr. was chosen(1996) taxpayer. TCC 555). what would 3) the fraud surcharge? Explain. on return for with showing business net income of P350. taxthe protest1993 the Court of Tax Appeals. Considering that Stephen Yang had already been assessed a deficiency income tax for 1993 for his failure to report the P50. (Sec. such Taxpayer: Deficiency which is the appeal (b) Judicial Remedy assessment. erroneously paid. NIRC). Yang should file a protest questioning the 50% surcharge and ask for the ALTERNATIVE thereof. Yang (Sec. NIRC). income tax of P61. Beingof assessment and he days from receipt an honest taxpayer. 3) Mr. et. It was denied. entertained by the Court of Appeals. Before taxpayer can avail of Judicial entertained? remedy he must first exhaust administrative remedies by filing a protest within 30 days from receipt of the assessment. to act payment. 76 and 204. This is so. plus a 50% fraud surcharge. Moreover.00 in his 1994 return? In case your remedy fails. In addition to the civil penalties provided for under the Tax Code. on 01 March 1996 the "deficiency tax" assessed. 4) Mr.000. After payment and within two years thereafter. 64 SCRA and the option Appeals. Can was imposed by grant a refund or penaltythe Commissioner the Commissioner of tax credit even without written claim for it? Internal Revenue with a the agreement and SUGGESTED ANSWER: (2%) conformity of taxpayer files a return which B. what would you advise him to do to avoid the penalties for tax 4) What Explain. since RA 1125).RA1125). because a SUGGESTED written and Customs Code. The remedy even without a written claim therefor. Yang should have amended that is the filing of the 1994 return. the petition for review can not be constitute the appealable decision (Section 7. refund BEFORE PAYMENT consists of (a) or credit any tax where on the face of the the Administrative Remedy which is filing of protest within 30 days from receipt of return upon which payment was made. Yang should pay the deficiency income tax on or before the day prescribed for its payment per notice of demand. on its face shows an overpayment of the tax Court of Tax to refund/ claim al. it is the action taken by the Commissioner in response to the taxpayer's protest on the assessment that would (b) No. on 15 January (a) A taxpayer 1996 an assessment for an internal revenue tax deficiency. the Commissioner Remedies bytaxpayer's remedies under the Compare the the shall grant the refund or tax credit without the National Internal Revenue Code and the Tariff need for a ANSWER: claim. After filing the return he realized that he forgotis include an The remedy AFTER PAYMENT to item of by payingincome in 1993 for (c) availed business the assessed tax within 30 of P50. (Wonder Mechanical Engineering Corporation u. The fact that Mr. Yes.000. In the examination years from date erroneously paid within two of his 1993 (e)payment. It is the Commissioner's decision on the protest that give the Tax Court jurisdiction over the case provided that the appeal is filed within 30 days from receipt of the Commissioner's decision. return filed showing an overpayment shall be The taxpayer's remedies under the considered as a written claim for credit or may NATIONAL INTERNAL REVENUE CODE refund. credit considering that this is the only May the Commissioner of Internal acquire Revenue requirement for SUGGESTED ANSWER: the Commissioner to legally enforce the collection of compromise jurisdiction over the claim. the taxpayer. his 1993 Income tax return to allow for the inclusion of the P50. included this income claim for refund 1994 (d) the filing of a in his return for or tax and paid these taxes on grounds that they are credit of the corresponding income tax thereon. Yang included the income in his 1994 return belies any claim of willfulness but is rather indicative of an honest mistake which was sought to be rectified by a subsequent act. 38. NIRC).00 Yang failedshall be made item of30 days from denial but within two years from date tax and assessed him a deficiency incomeof on you have advised your client before he this item. a [Note: If the penalty compromise answer given is only number 1. filed a petition for review with the Court of SUGGESTED ANSWER: Appeals. Remedies (1997)received. and payment appears clearly to have been Income Tax (1995) Yang filed an income Businessman Stephen of the Commissioner of the adverse decision 229. The amount of all items of gross income must be included in gross income during the year in which received or realized (Sec.000.000.com 60 of 73 .Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) fraud surcharge attaches only if a false or fraudulent return is willfully made by Mr. decisions of the Commissioner on cases involving claim for tax refunds are within the exclusive and primary jurisdiction of the Court of Tax Appeals (Section 7. appeal return the BIR examiner found that Stephen of to the CTA to report this within P50. a judicial claim for refund can be instituted before the expiration Taxpayer: Exhaustion of Administrative of the two year period. Should this remedy fail in the administrative level. a tax credit Taxpayer: NIRC vs. delinquency?would you advise Stephen Yang to do with regard to the income tax he paid for the P50. An assessment by the BIR is not the Commissioner's decision from which a petition for review may be filed with the Court of Tax Appeals. be categorized into remedies before payment the law providesafter the Commissioner may. (Sees.

1985. 203. on 02 March 1996..timely? on April 15. 1985. On Commissioner. Claim case reviewed by the his for Refund (1997) A Commissioner. January 15. Being a withholding agent. CIR v. period loss of to expire.. to bring the isrefund case. was filed (CIR v.500. Taxpayer: Overwitholding Claim filed a petition for review with the Court of for Refund wholly owned subsidiary of B Co.and is tax return for the first quarter of 1985 1996 April 15.  The decision of the Collector on thecorporation files its income tax return on a protest. Tax was out of the Philippines or from the period counted from the filing of the final. P500. 1996.000. the withholding agent capacity nonInsurance Co. which A Co. 67 of the Tax Code. Prescription has not of in because the period for days from payment if he the BIR as within 15 filing claims for refund in disagrees that the assessmentfor the Bureau of Internal period of limitations had prescribed.. 223 in relation to Sec. 28. 1996.000. it should be allowed but also a limitation of action for bringing the Taxpayer: Prescriptive Period. The counting of subjected to a withholding tax of 25% or prescribe? the two-year prescriptive period for filing a P2.5 million. the  Resort to judicial relief can be had company reported a net loss for the year. Inc. GR No. XCEL real estate business. Finding his name to be in the list of 184for refund whichto this case. TMX Sales Inc. and not from the filing of the Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) sirdondee@gmail. it is with the BIR on January 10.. 1988 a casea of the Commissioner as a refund. to 15 the taxpayer. is the (1999) Tax Appeals on its claim for refund of the a nonresident German company. 1988. review filed with the CTA on March 02. Procter beyond the reglementary period. resident foreign corporation entitled to 1995). Co. for the refund of P3.000. that the claim for refund was filed beyond the SUGGESTED ANSWER: royalties of P 10. Suspendeda(2000) citizen engaged in the Mr.case of overpaid abatement or in the against the assessment on the ground that he SUGGESTED ANSWER: quarterly corporate income tax. recover the taxes filed Is the the Tax Appeals on time. 68378. The BIR attacked the of the of A A Co. A Co.000. he can notify the Collector within (Sec. 1998. A Co. After failing to get income consider to join his family in Canada. Reyes. Filipino 15. For the first quarter of taxpayer's automatically elevated to the Commissioner 1993. Mr.5 million. filed a claim paid but on the date when the final for refund of P2. Phi/Am Life the CTA.R. 205 SCRA 1998. Reyes returned to the period.500. (5%) Revenue to issue an assessment was refund in regarding the legality or prescriptive Customs the CTA. 1995 up to December 8. filed a petition for review with SUGGESTED ANSWER: 83736. CIR v. and if such decision is affirmed by the for income tax in the amount of P3. he filed a protest Court ruled thatdrawback. and by the taxpayer by appealing the decision the taxpayer indicated in the income tax of the Commissioner or of the Secretary of return that it opted to claim a refund of the Finance (for cases subject to automatic quarterly income tax payments. A Co. has a overpayment of its 1993 quarterly income trademark licensing agreement with B Co.00 taxpayer 1995. the Supreme . Since the the one held liable for any violation of the two-year prescriptive period is not only a withholding tax law should such a violation limitation of action in the administrative stage occur. 15. both of the from NIRC of 1997) days receipt of said decision of his desire to have Taxpayer: Prescriptive Period. The third quarter of Finance. No. XCEL investigation of said return/the BIR issued a denial of elevate the case to the CTA with the CourtandTax Appeals to recover the SUGGESTED ANSWER: expiration of the two-year notice of deficiency income tax assessment before taxes paid on May 15.com 61 of 73 . 4) The TMX Sales. on May Taxpayer: Prescriptive Period: paid an income tax of P500. Reyes period assessment of customs duties. reglementary period. which is similar may take form of consist of filing a claim delinquent taxpayers. After the inaction filed on March 1. BIR. case Corporation filed stage.000. the same shall be 20 August 1993. Commissioner v. Secretary resulted in a net loss. A Co. Will the well the in the or decision of the Collector for with as ruling institution of an action of protest prosper? Explain.00 inthe The action Tariff and was filed in the Court of for Under action torefund Customs Code. promulgation of the adverse decision to Bureau of Internal Revenue a written claim hence. alleged Feb. On December 15. May 29. On Nov. the corporation filed with the BIR failed to act on the claim for refund. he left the Philippines as an immigrant the continuous annual should tax return.. On tax. filed his 1994 income tax refund so that on April 15. claim for refund is counted not from the realized that the proper withholding tax rate date when the quarterly income taxes were is 10%.file atwo-year 5) The taxpayer can also the protest did not receive the noticeset assessment and No. in its answer to the petition. A Co. 1992.000 with the BIR.0 million. 1995. it paid on 30 May 1993 its quarterly review. and no tax was paid.. the corporation the CTA.6) If the decision of the Collector is adverse December 15. In the subsequent quarters. 1996. In the same vein. it paid the second quarterly elevated to automatically and finally reviewed by the income tax of P0. 1994. On March 20. remitted to B Co. Code) is of the for tax refunds (Sec. 105208. 1986 it suffered lossesor tax credit and the two-year return on March 20. 1995. adjustment return under Sec. is calendar year basis. Inc. 1998. It is obvious that the annual income tax Decide the issue. if adverse to the Government. Did the claim for refund The claim for refund has prescribed. the petition for for Refund (1994) XCEL to the judicial its quarterly income (CIR v. The BIR adjustment return or annual income tax return denied the claim on Nov. 10. only after payment taxpayer's remedies arise In the case of Philippines as a balikbayan on December 8. On 10 review) within 30 days from the January 1994. Inc..000. For the fourth and final return for 1993. G. the two-year correctness SUSPENDED during the time that Mr. of claim the refund (5%)excess withholding tax return was filed before January 10. 2O4 SCRA 377).000. 1994 paid on the income of said corporation in the because the written claim for refund was filed Philippines. administrative remedies of duties. 230. Upon advice of counsel. Wander Phils. as agent.. A Co. 160 SCRA 573. G. the in its declared a netis aboutP1.00 & Gamble PMC. No. Claims to claim a refund in case of overwitholding.R.

Sept. Lim Tian Teng & Sons. The CTA may. On February 20. On February 27. RTC jurisdiction over the collection case filed by the BIR? Explain. 2003. On May 31. filed a Petition for Review with the CTA. 2003. The CIR did not formally rule on the protest but on January 25. Has the CTA jurisdiction over the prematureANSWER. One month after. The CTA action on March 1. The BIR moved to SUGGESTED ANSWER. The decision of the Commissioner. 1995. the CIR formally denied A Co. In a letter dated June 4. because this qualifies as an appeal from the sirdondee@gmail. Assessment (1999) A Co. on May 25. Union Shipping of such Corporation (30) days from receipt Corp. a warrant of distraint and levy was served on CFB Corporation. more than two years had already elapsed from the time the taxes were paid on March Taxpayer: Protest against 12. REN had lost his Assessment (1998) domestic corporation CFB Corporation. if adverse to my client. REN paid his taxes. The BIR contended that the Petition is 1. Taxpayer: Prescriptive Period. 2001. ALTERNATIVE ANSWER: Within thirty (30) days from receipt of the warrant of distraint and levy. Vasquez.. On March 24." I 185 SCRA 547). engaged in food processing and other allied activities. Flojo. A Co. and should the case Yes. executory and demandable Taxpayer: Protest against assessment which can be enforced by the BIR. Dayrit Has the L-39910. 1997. JVZRCJ. On July 30.. the BIR issued a warrant of distraint to enforce the assessment. 1997. San Juan v. I shall file a petition for review with the Court of Tax Appeals with an application for issuance of a writ of preliminary injunction to enjoin the Bureau of Internal Revenue from enforcing Thiswarrant. 15 SCRA 278). Flojo. . shall then file a petition for review with the Court of Tax Appeals. A Co. would then constitute an appealable decision. he received the decision of the Commissioner denying REN's claim for refund. At the moment the taxpayer appeals the case to the Court of Tax Appeals in view of the Commissioner's filing of the collection case with the RTC which was considered as a decision of denial. 1996. Claims for March 12. was served a summons and a copy of the complaint for collection of the tax deficiency filed by the BIR with the Regional Trial Court (RTC). it gives a justifiable basis for the taxpayer to move for dismissal in the RTC of the Government's action to collect the tax liability under dispute. filed its protest with the BIR. If you were the lawyer engaged by CFB Corporation to contest the SUGGESTED ANSWER: assessment made by the BIR. Inc. a Philippine corporation. 1995." This is so because the issuance of a warrant of distraint and levy is not considered as a denial by the BIR of the protest filed by CFB Within thirty(CIR v. filed its protest with the BIR On May 20.com 62 of 73 Commissioner's decision on disputed assessment. The RTC has no jurisdiction over the collection case filed by the BIR. in which event the taxpayer may file an appeal with the CTA. the effect of the Commissioner’s action of filing a judicial action for collection is a decision of denial of the protest. brought a Petition for Review before the CTA. the CTA has jurisdiction over therefore be dismissed. income tax deficiency assessment from the BIR on November 25. the is the action I shall take because I shall consider the issuance of the warrant as a final decision of the Commissioner of Internal Revenue which could be the subject of appeal to the Court of Tax Appeals (Yobes u. When the Commissioner decided to collect the tax assessed without first deciding on the taxpayer's protest. The twoyear period of limitation for filing a claim for refund is not only a limitation for pursuing the claim at the administrative level but also a limitation for appealing the case to the Court of Tax Appeals. 1995. There is no final. received an once a timely appeal is filed. 26. 1996. Was his appeal filed on time or not? Reason.there was no formal denial since SUGGESTED case? of the protest of A Co. remand the case to the BIR and require the Commissioner to specifically rule on the protest. (Yabes v. 16 SCRA 584. received a letter from the BIR assessing it for delinquency income taxes. On December 10. Taxpayer: Protest against Assessment (1999) A Co. however. received an income tax deficiency assessment from the BIR on May 5. 2003. 1997. CFB filed a letter of protest. he realized that he had overpaid and so he immediately filed a claim for refund with the Commissioner of Internal Revenue. 1996. 2. 5 days later. The law provides that "no suit or proceeding shall be filed after the expiration of two years from the date of the payment of the tax or penalty regardless of any supervening cause that may arise after payment (Section 229. 1988 was clearly within the reglementary two-year period from the filing of the final adjustment return of the corporation on April 15. a judicial remedy because of prescription. 1986. (Republic v. v. Ten On Refund (2004) months later.. A Co. 3 SCRA 92). what steps will I shall immediately file a motion for you take to protect your client? (5%) reconsideration of the issuance of the warrant of distraint and levy and seek from the BIR Commissioner a denial of the protest "in clear and unequivocal language. REN filed an appeal with the Court of Tax Appeals. 15 SCRA 278. a Philippine corporation. denial "in clear and unequivocal language. 1996. Cruz.'s protest stating that it constitutes his final decision on the matter. 1997 and received by A Co. Accordingly. A Co. This warrant was served on A Co. A Co. submitted to the BIR all relevant supporting documents. 2003. The filing of an appeal with the CTA has the effect of divesting the RTC of jurisdiction over the collection case..Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) quarterly return and payment of the quarterly tax. 1988). A Co. On July 6. SUGGESTED ANSWER: (5%) The appeal was not filed on time. Since the appeal was only made on March 24.

Decide. 21. 159647. the party adversely affected may protest such ruling or decision by presenting to the Collector. April 15. 15. If a bookstore closes its business due to losses without being able to recoup the discount. CIR v. (CIR v. The accused. or within 15 days thereafter. (5%) reconsideration. No. The procedure under the TCC is to the effect that when a ruling or decision of the Collector of Customs is made whereby liability for duties is determined. Criminal violations. otherwise. may not be compromised (Sec. No 159647. there is no showing that the prosecutor in the problem is a legal officer of the Bureau of Internal . 2005).dismiss the Petition on the ground that the CTA has no jurisdiction over the case. No. thus compelling it to close shop. the doubt should be resolved in strictissimi juris against 2. Isabela Cultural Corporation. The Supreme Court has ruled that the CIR must categorically state that his action on a disputed assessment is final. its nature.R. There is nothing in the law that grants a refund when the bookstore has no tax liability against which the tax credit can be used (CIR v. 148083. NIRC).2 Million from the BIR demanding payment within 10 days. May this action of the Commissioner of Internal Revenue be deemed a denial of the request SUGGESTED ANSWER: for reconsideration before seizure to entitle Yes. AprilJuly Bicolandia Drug Corp. (2. 185 SCRA 547). protest at the time of payment is not required to preserve the taxpayers' right to claim refund. a written protest setting forth his objections to the Taxpayer. Furthermore. April 15. SUGGESTED ANSWER: Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) sirdondee@gmail.R. Tax credit which reduces the tax liability is different from a tax deduction which merely reduces the tax base. bookstore claim from the BIR a tax refund in lieu of tax credit? Explain. content and tenor supports the theory that it was the BIR's final act regarding the request for 2001) reconsideration. duties a requirement to preserve the taxpayers' right to claim a refund? Explain. Instead of resolving the request for reconsideration. (CIR v. the Can the BIR require the bookstores to deduct the amount of the discount from their gross income? Explain. a protest at the time of payment is required to preserve the taxpayers' claim for refund. Compromise after and can be revoked anytime.R. can the tax credit. The filing of the petition for review with the CTA was timely made. The appealable decision is the one which categorically stated that the Commissioner's action on the disputed assessment is final and. the reckoning of the 30-day period to appeal was on June 9. If in a taxable year a bookstore has no tax bookstores to claim in full the discount as a due on which to apply the tax credits. G. the final noticeof the taxpayer was in him to appeal of the taxpayer's request for effect a denial to the Court of Tax Appeals? Decide with reasons. at the time when payment is made. 1999. the period to appeal will not commence to run. 2006.. This is clear under Section 230 of the NIRC which provides that a suit or proceeding maybe maintained for the recovery of national internal revenue tax or penalty alleged to have been erroneously assessed or collected. 2005). the payment of the tax due after apprehension shall not constitute a valid defense in any prosecution for violation of any provisions of the Tax Code (Sec. closing its business due to losses. therefore. whether such tax or penalty has For DUTIES imposed under the been paid under protest or not.5%) No. (2.com 63 of 73 Taxpayer. claimant. the BIR sent a Final Notice before Seizure to the taxpayer. assessment of P1. For TAXES imposed under the NIRC. Claim of "of distraint and levy. Appeal to the Court of ruling or decision in question (Sec. can it claim reimbursement of the discount from the government on the ground that without such reimbursement. Central 3. G. G. Criminal Action (1998) in court for willful An information was filed non-payment of income tax the assessment of which has become final. That final action cannot be implied from the mere issuance of a warrant Taxpayer: Protest. 247(a). Central Luzon Drug. The law allows 1. the BIR is not allowed to expand or contract the legislative mandate (CIR v. Central Luzon Drug. G. If the business continues to operate at a loss and no other taxes are due. Claim for Tax Credits (2006) a law granting grade school Congress enacts and high school students a 10% discount on all school-prescribed textbooks purchased from any bookstore. Tax Appeals (2005) tax deficiency A taxpayer received a TCC).R. not only was the notice the only response received. Since the law allowed the bookstores to claim in full the discount as a tax credit. presented a motion that he be allowed to compromise his tax liability subject of the information. Finally. 135210.R. The grant of the discount to the taxpayer is a mere privilege Taxpayer. No. the credit can never be applied and will be lost altogether (CIR v.. The prosecutor SUGGESTEDhis conformity to the motion.5%) No. No. July 11. otherwise. 204[B]. The taxpayer requested for a reconsideration stating the grounds therefor. A tax credit is in the nature of a tax SUGGESTED ANSWER: exemption and in case of doubt. Explain. Union Refund (1996) time of payment of taxes and Is protest at the Shipping Corporation. if already filed in procedure correct? [5%] court. SUGGESTED ANSWER: (10%) The CTA has jurisdiction over the case. Tariff and Customs Code. Is this indicated ANSWER: No. 2005). the bookstore cannot claim from the BIR a tax refund in lieu of tax credit. 159647. (5%) cannot claim reimbursement of the discount from the government. G. the law constitutes taking of private property for SUGGESTED ANSWER: public use without just compensation? A bookstore. through counsel. it would collect through summary remedies. NIRC). 2308. SUGGESTED ANSWER: Luzon Drug Corp.

Rodrigo transferred to her a condominium unit. Accordingly. 1991) was illegally collected from him. and Mrs. 2Additional Ad-valorem tax on Idle lands (Sec. G. No. he has sufficient legal interest to file an application for refund. a night club hospitality girl. Rodrigo because of the companionship she was providing him. NIRC). [Note: The question is susceptible to dual interpretation because it is asking for three other taxes and not three other real property taxes. I will grant the protest and cancel the assessment. shouldThe consideredtaxes. Rodrigo did not receive anything from the sale. aside from basic be following and given full credit] real estate tax. believes (Commissioner of Internal Revenue v. the withholding tax agent who is "required to deduct and withheld any tax" is made "personally liable for such tax" should the amount of the tax withheld be finally found to be less than that required to be withheld by law. Rodrigo. Thus. A taxpayer is "any person subject to tax. since January 1997. In gratitude. when the spouses left for the United States to stay there permanently with their children. Procter & Gamble. under a deed of sale for P10 Million. Tetchie Sonora protests the assessment and claims that the transfer of the condominium unit was a gift and therefore excluded from income. Angeles. If the compromise referred to is the civil aspect. valued. file an application for tax refund? Explain. the procedure followed is not correct. whoever owns it. that the property was transferred to Tetchie Sonora by Mr. NIRC). The deed of sale indicating a P10 million consideration was simulated because Mr. leave of Court. SUGGESTED ANSWER: contending should bethe that Tax Declaration The appeal decided against Mr. Sonora's companionship. Withholding Agent. December SUGGESTED ANSWER: . the Commissioner made a determination that Sonora had compensation income of P10 Million in the year the condominium unit was transferred to her and issued a deficiency income tax assessment. Although she refused to marry him she agreed to be his "live-in" partner. and assessed on the basis of its actual use regardless of where located. The real (2002) situated in a commercial area in front of the public market. City Government . and Mrs Angeles. valuation be decided? (5%) purposes regardless of and assessment ownership. Angeles appealed to the Local Board of Assessment Appeals. How will you rule on the protest of SUGGESTED ANSWER: Tetchie Sonora? Explain. Claim of fraudulently simulating a contract of sale to Tax Refund (2005) agent have the right to Does a withholding evade donor's tax. Rodrigo should be assessed deficiency donor's tax and a 50% surcharge imposed for Taxpayer. Provincial Government Printer's or publisher's tax Franchise Tax Professional tax 2. 151. 235. Coverage (2002) Aside from the basic real estate tax. Applying the law to the case at bar. 66838. compromise settlement can only be Taxpayer. and whoever uses Local Taxation: it". 91(b). Mr. LGC).Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) Revenue to whom the conduct of criminal actions are lodged by the Tax Code.R. 240). 23§. The law their property as residential property for How should the appeal use of the is binding. SUGGESTED ANSWER: (3%) The following real property taxes aside from the basic real property tax may be imposed by provincial and city governments as well as by municipalities in the Metro Manila area: 1Additional levy on real property for the Special Education Fund (Sec. where they both live. The transfer of the property by Mr. of the amount he 2. and 3Special levy (Sec. may be imposed by: 1. Compromise for the payment of any internal revenue tax shall be made only by the Commissioner of Internal Revenue or in a proper case the Evaluation Board of the BIR (Sec. The problem categorically states that the transfer was made in gratitude to Ms. However. Yes. was declared in their Tax Declaration as residential because it had been used by them as their family residence from the time of its construction in 1990. Sonora was gratuitous. (Sec.may levy taxes which the province or municipality are authorized Printer's or publisher's tax t to levy (Sec. 204. The transfer being gratuitous is subject to donor's tax. give three (3) other taxes which may be imposed by provincial and city governments as well as by municipalities in the Metro Manila area. effected by Protest against Assessment. LGC). The Provincial Assessor reclassified the property as commercial for tax purposes starting January 1998. Donor’s Tax (1995) Mr. the property has been rented to a single proprietor engaged in the sale of appliances and agri-products." Since. Section 217 of the Local Government Code provides that "real property shall be classified. Rodrigo paid the The Commissioner 5% Internal Revenue found capital gains tax of of of P10 Million.com 64 of 73 LOCAL & REAL PROPERTY TAXES Local Taxation: Actual Use of Property property of Mr. Mr. then he is a taxpayer. Rodrigo to Ms. LGC) Franchise tax Professional tax No. Mr. and previously classifying focuses on the actual Mrs. Accordingly. classification. ALTERNATIVE ANSWER: sirdondee@gmail. an 80-year old retired businessman. an alternative answer A. Mr. fell in love with 20-year old Tetchie Sonora.

brewers. 3All machineries and equipment that are actually. 1Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted. 4All real property owned by duly registered cooperatives as provided for under R. distilled spirits. 2All lands. repackers. 234. parsonages or convents appurtenant thereto. what properties are exempt from real property SUGGESTED ANSWER: taxes? (5%) The following properties are exempt from real property taxes: (Sec.A. or dealers in any article of commerce of whatever k kind or nature. directly. for consideration or otherwise. buildings and improvements actually. 6938. .] Local Taxation: Exemption. rectifiers and compounders of liquors. Annual fixed tax on wholesalers. Municipalities in the Metro Manila Area may levy taxes at rates which shall not exceed by 50% the maximum rates p prescribed in the Local Government Code. No. LGC). churches.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) 3. Real Property Taxes (2002) Under the Local Government Code. and wines or manufacture of any article of commerce o of whatever kind or nature. directly and exclusively used by local water districts and government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power. assemblers. and 5Machinery and equipment used for pollution control and environmental protection. Annual fixed tax on manufacturers. and exclusively used for religious. Percentage tax on retailers [Note: Other taxes may comprise the enumeration because many other taxes are authorized to be imposed by LGUs. mosques. charitable or educational purposes by charitable institutions. nonprofit or religious cemeteries. distributors. to a taxable person. distillers. processors.

March 25. (Sec. Only uniformity. Will his suit prosper? Explain exclusion of taxes already collected does not your answer briefly. a taxpayer who believes his professional Pasig City. 324. excluding SUGGESTED ANSWER: ordinance valid? Explain. Fermin. By SUGGESTED ANSWER: of what would your advice be? Discuss. "elevator permanently imposition? Explain.any crop and hall during theIsland the tech elevators in the citydoes 6:00includehours directly to and 4:00 p. called "elevator tax". Valorem both contribute to the annual May local governments impose an traffic although Tax (2000) Another issue existsto fact basic real property realty tax in addition the that the tax is problem. except for reasons 119172. main office. Mr. in Pasig City where he practices law or lawyer Any question on the constitutionality or (8%) legality ofCity tax ordinance may be raised on in Makati a where he maintains his principal appeal (Sec. LGC.) Situs of the assessed as for being unjust. an ordinance is passed by MM City granting a 50% discount for payment of unpaid real estate taxes for the preceding year and the condonation of all penalties on fines resulting from the late payment. shall be exercised by or making valuable additions to the propertythe SANGUNIAN of the land's government unit ameliorations in the local concerned through an appropriate sirdondee@gmail. the Supreme Court arecognized I would advise the lot owners that city. Remission/Condonation who pays his real of Taxes RC is a law-abiding citizen (2004) taxes promptly. Local Government Code) assertions of them that thedefects on its likewise advise procedural levy may apply enactment. being discriminatory professional tax a against May Makatito know from you. there is merit in the protest provided that lot owners of a subdivision located in the said sufficient proof could be introduced for the city seek your legal advice on the matter. advise tax.territorial subdivisions within their respective The tax Makati.com 66 65 of 73 of 73 .m. 187. a resident in a or vacant residential lotsof Quezon City. decided to impose a tax. with the Secretary of Justice within b) May the effectivity where he has his days from Quezon City. to be paid by the driver. increasing profession or basic real property tax from the rate of where he maintains his principal office in case of the assessed value of the 0. any increaseprofessionalof real SUGGESTED ANSWER: Special Levy on Local Taxation. in order to solve the traffic The Equality (2003) problem in its business districts.pay the Finance. X? Justice. 1999). who no control over the route of Local the Government ordinance is. Finally. to a valid or regularly to other devoted SUGGESTED ANSWER: (8%) essentialimposition of a productive charge or and No. the ordinance only imposes the tax on private cars and exempts Local Taxation: the imposition of the public vehicles from Imposition of Ad tax.par. to construct or (Philippine Legal of revenue under the 1986 the generation Encyclopedia. on all private cars entering the city during peak hours from 8:00 a. invalid. The appeal should be made with the Secretary of the option of paying his professional tax as a What would your advice be to your client. The remission or the ordinance taxes due ground that it the condonation ofvoid on theand payable to is a class legislation.006% to 1 %he practices his profession in several places.m. Is the The ordinance is in violation of the Rule of (8%) Uniformity and Equality. Local Taxation: Rule of Uniformity Sarmiento. Due to a series of estate typhoons and adverse economic conditions. LGC Regulations). Hall of Makati. practices 376 [2002]). (2%) No public A city outside of devoid Manila plans to enact protest? Explain Metro hearing is required will imposeenactment levy an ordinance that before the a special of a local idle ordinancelocated tax lands levying in the basic real on residential property tax within its territorial jurisdiction in subdivisions (Art.m. Ordinance was professionalthe Provincial An the situs of the passed by tax is the city where professional practices his Board of the a Province in the North. of of idle equality well value Professional Taxes (2005) subdivision. (Sec. in had presented evidence to support the subdivisions duly approved by proper allegation the ownership of which has been authorities. Is there merit in the The Lands (2005) of merit. v. but the same may do unjust provinces. Furthermore. 371 [1952]). therefore. Municipality of Vendor also376 SCRAhis two residence and where he Association v.m. (5%) constitute unfair discrimination. (5%) implication. whether or not he pay his an appeal. SUGGESTED ANSWER: does not only violate the requirement of jurisdictions? (3%) Not all local government units is also so. the driver. ALTERNATIVE ANSWER: addition to the basic real property tax. even that is outside Metro Manila. the City Mayor ordered the other than force majeure or any fortuitous collection of P1.thereof. The municipal attorney rendered an opinion that RC cannot be reimbursed because the ordinance did not provide for SUGGESTED ANSWER: such reimbursement. regardless of the area. 91 Phil. Figuerres v. GRNo. his tax (5%) a) him. the "elevator tax" is an invalid Local Taxation: imposition. may levy an if it public hearings are required to be conducted prior idle lands enactment of not to the annual tax on at the rate an ordinance five percent real property taxes. There is theno substantial standard imposed on the driver of located the and not tax on in the vacant lots theby in residential idle or classification vehicle City of used on the registered owner of the same. Sec.m. Ordinance on the province protested the Fermin as the place of residence of public hearing not the proper ground that no the taxpayer iswas conducted situs in the collection of the in the rate tax. non-observance public hearing. is a Certified by proper authorities regardless of approved Public Accountant-Lawyer engaged in the practice Ibid. to not p.ordinance (Section 132 of the Local Government Code). to individual owners who shallthat transferred "Idle Lands" means. and City of Makati. Tax aOrdinance Makati City and maintains branch office in (2003) X. (Sec. by Sibal. duly Mr. addition to the basic real of validity of a tax ordinance can not be overcome Ibywould bare 236. Ibid. Local Government Code)30 office. go after him for the payment of Local Taxation: Legality. where he has lawyer. Inc. professional tax as No. He has his main office in Constitutionality. cities. require him to can file SUGGESTED ANSWER: a lawyer? you where such In the affirmative. tax" of 8:00 a.237. 232. Imposition of his professional tax as a CPA and a lawyer? Real Property Tax Rate (2002) SUGGESTED ANSWER: Explain. land be Local Taxation: Power devoted the additional is to the taxdirectly to any crop or to any definite ordinance (Belen liable for(2003) tax.m. therefore. Quezon ResidentsCity the municipalities of the said of has no right to collect the professional tax from Mr. as such. In the case at bar. want City. RC files suit to declare The suit will not prosper.. Makati City where Mr. and municipalities someone because it places the burden on within the MetrohasManila area (Sec.) area. FerminSecretary of appeal should be made: the has his main office may the Secretary of Justice. professions. but exempts those cars carrying more than two occupants. Fermin pays that an ordinance passeda CPA in Makati City and his Pasay is tax as by the City Council of unconstitutional asforlawyer in Pasig City.) Government Code. (Last Impose In order to raise revenue for the repair and purpose for at least of Appeals. The city mayor alone could not order the collection of the tax. Mr. it would seem that if land taxpayer to residential lots. event. Each set of taxes is a class by itself and the law would be open to attack as class legislation only if all taxpayers belonging to one class were not treated alike (Juan Luna Subdivision. Fermin has SUGGESTED ANSWER: Court of Tax Appeals. The local government of real property effective January 1.of his Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) Local Taxation: Legality/ two professions. Arguing that the ordinance rewards delinquent taxpayers and discriminates against prompt ones. If the Yes. but used to be devoted or is suitable every time a person rides any landthe highto such crop or is contiguous to of devoted 10:00 a. The valorem tax not exceeding five percent and for violating the rule of uniformity (5%) Local asTaxation. to 9:00 a. Hagonoy Market Hagonoy. from Mondays to Fridays. RC demands that he be refunded an amount equivalent to one-half of the real taxes he paid. property tax is void. (Sec. and. that no public hearing was The term the Court should have ruled not conducted. Court one year prior to the 237) maintenance of the newly constructed City notice of expropriation. similarly situated must be treated alike in equal footing and must not classify the subjects in an arbitrary manner. 2000. which requires that all subjects or objects of taxation. he asks Explain.. 139[b].00. Local place improvements on their idle lands by Ed. an ad Code) may impose invalid vehicle. Idle protest is your answer. The I would more them fee or purpose. or not require him to or his professional tax as a lawyer. exceeding imposing (5%) of the assessed Although it was concluded by shall highest value of the property which the be in tribunal that presumption property tax. 236. No. or the regular courts. the ordinance exempts cars carrying more than two occupants from coverage of the said ordinance.

Assuming Joachin is a registered owner. Mr. NIRC). 22. or property used in trade or business of a character which is subject to the ALTERNATIVE ANSWER: allowance for depreciation. 22. 5.000. business nor a property used in the trade or business of the taxpayer. In 1994. No. must tend to directly meet the needs of the industry or works carried on by the owner. the zonal value was P500. Bantegui. (Sec. G.000. or property held by the taxpayer primarily for sale to customers in the course of his trade or business. auction sales of property for tax delinquency. the gasoline station would Government Code? Explain.000. October 24. He purchased a real property in 1996 but failed to register the document of sale with the register of Deeds and secure a new real property tax declaration in his name. Veterans Bank..00.R.000. the real v. In I will resolve of the law. whether (Sec. If you were the judge. Appeals. Ordinary Gains(1998) What is the difference between capital gains and ordinary gains? [3%] SUGGESTED ANSWER: CAPITAL GAINS are gains realized from the sale or exchange of capital assets. the nonG. For his part.000. (Sec.00 which is an amount higher than the zonal value. otherwise the properties listed shall be sold at Joachin is one public auction. both professional or personal.R.R. CA. Bantegui. owner. the pieces must be placed by the owner of the land and. No. They are considered as real property for real property tax purposes as "other improvements to affixed or attached real property under the Assessment Central Board of Assessment (Caltex v. 2006 a Quezon City published list of delinquent real property taxpayers in 2 newspapers of general circulation and posted this in the main lobby of the City Hall. Aug.R. 82782. the City Treasurer 1. 1) Is the land a SUGGESTED ANSWERS: capital asset or an ordinary asset? Explain. profit arising from the sale or business. These are the gains derived from the sale or exchange of property such as stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year. in order Under Article 415 of the for machinery and equipment to be considered real property. October 24. Dec.C. The law requires that a notice of the auction sale must be properly sent to Joachin and not merely through publication (Tan v. notice to delinquent landowners and to the public in general is an essential and indispensable requirement of law.00. and exchange of ordinary assets. 22 [Z] in relation to gains 39[A](1). Mr. Real Property Taxation: Coverage of Ordinary Income(1998) What does the term "ordinary income" include? SUGGESTED ANSWER: [2%] The term ordinary income includes any gain from the sale or exchange of property which is not a capital asset. At the time of the sale. while ORDINARY GAINS refer to gains realized from the sale or disposition of ordinary assets. Requirements. Naval bought a lot for P1. 33. without which fixtures of for purposes of real property taxation under the localbe useless. 120435. SUGGESTED ANSWER: Real Property Tax. lessee of the land. Oil companies install underground tanks in the gasoline stations located on land leased by the oil companies from the owners of the land where the gasoline stations [are] located. CA. in addition. Real Property Taxation: Capital Gains vs. instead. sirdondee@gmail. he sold it for P800. considered real property the gasoline station. will render an auction sale void (Tan v. City1997). G. Are those underground tanks.e. Law and the Real Property Tax Code. of those named in the list. how will you resolve maintains that the publication and posting of this issue? (2.00 In a subdivision with the intention of building his residence on it. Naval is liable to the 5% capital gains tax imposed under Section 21(e) of the Tax Code based on the gross selling price of P800.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) conditions so the lands would not be considered as idle. He alleged that the auction sale of his property is void for lack of due process considering that the City Treasurer did not send him personal notice. G. or real property The term ordinary income includes income used in trade or business of the taxpayer.com 67 of 73 2. Auction Sales of Property for Tax Delinquency (2006) on January 30. (8%) Machinery and equipment installed by the lessee of leased land is not real property for purposes of execution of a final judgment only. which were not placed there by the owner of the land but which were instead placed there by SUGGESTED ANSWER: the The properties are considered as necessary Yes. 1997). 120974. The notice requires all owners of real properties in the list to pay the real property tax due within 30 days from the date of publication. G. Treasurer of Q. he abandoned his plan to build his residence on it because the surrounding area became a depressed area and land values in the subdivision went down. 154027. No. 1992). 2005. Real Property Tax: Underground Gasoline Tanks (2003) Civil Code. Ordinary Asset (1995) In 1990. No. v. 154027. accruing from of the NIRC). 2) Yes. from performance of services.R.5%) Yes. Phil. 114 SCRA 296 [1982]). Real Property Taxation: Capital Asset vs.5%) notice are sufficient compliance with the SUGGESTED ANSWER: requirements the issue in favor of Joachin. Sec.2005. No. Dec. . 2) 1) The land is a capital asset because it is Is there any income tax due on the sale? neither for sale in the ordinary course of Explain. 199[m]) In this manner their properties would not be subject to the ad valorem tax on idle lands. will your answer be the same? (2. Estate of Mercedes Jacob v.same failure to fulfillment of which vitiates the The (Tiongco give notice to the right person i.

Real 053-89 008-95). This is simply a The receipt by the occupant beneficiaries of donation by the Municipality in form but not in their respective lots through the Certificate of substance. The [5%] Government (Section Real Property Taxation: Exchange of Lot. Real Property Taxation: Exemption: Acquiring New Principal Residence (2000) 12. the corner subject an equal area but affording a better of Is on the liable of on the exchange view. 2. The occupants/beneficiaries are subject to real property taxes because they now own the land. gains tax because it is merely done to comply with the intentions of the parties to the previous contract regarding the sale and acquisition of a property with a good view. Donor’s Tax (1998) Ace Tobacco Corporation bought a parcel of land situated at Pateros and donated it to the Municipal Government of Pateros for the sole purpose of devoting the said land as a relocation site for the less fortunate constituents of said municipality. Upon inspection. 34[H](2)(a) in any donor's tax on the value of land it relation to Sec. Through Ordinance No. NIRC). The proceeds are fully utilized in acquiring or constructing a new principal residence within eighteen (18) calendar months from the sale or disposition of the principal residence or eighteen (18) months from July 12. Property Taxation: 21(e) Exemption/Deductions. engaged in real estate' development. (Sec. 101(2).6 million. 34{H](2)(a).be used as a relocation site for the less fortunate constituents of the municipality.000. subsequently donated. and the title to the property was issued. They are. NIRC). then Ace Tobacco Corporation may deduct the value of the land donated only to the extent of five (5%) percent of its taxable income derived from trade or business as computed without the The Municipality of Pateros is not subject to benefit of the donation. conveyance is likewise exempt from documentary stamp tax because it is a Since the donation is to transfer without consideration. What conditions must be met in order that the capital gains presumed to have SUGGESTED ANSWER: been realized from such sale may not be The conditions are: subject to capital gains tax? (5%) 1. this is intended to perpetuate the purpose of the previous donor. Quezon City for Ten Million Pesos (P10. & Mrs. the Municipality acting merely as a conduit and not the true donor.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) transferred at the time of the exchange or the fair market value of the property received. The exchange is not subject to capital specific provision of law. liable for real property taxes.00) with the intention of using the proceeds to acquire or construct a new principal residence in Aurora Hills. any Municipal Government of Pateros. Peter Camacho Last July sold their principal residence situated in Tandang Sora. Capital Gain Tax (1997) A corporation. National and the political subdivision of the occupants/beneficiaries. In accordance therewith. the value of the lot appreciated to a market value of P1. the said municipal government ordained that the lots awarded to the awardees/donees be finally transferred SUGGESTED ANSWER: and donated to them. . 2000. If the utilization is not in accordance to a National Priority Plan determined by the National Economic Development Authority. He paid P1. the realty company exchanged his lot with SUGGESTED ANSWER: another buyer islot with to capital gains tax Yes. This is a simple substitution of the object of sale and since the previous transaction was already subjected to tax. no new tax should be imposed on the exchange (BIR Ruling No. Baguio City. the Municipal Government of Pateros issued to the occupants/beneficiaries Certificates of Award giving to them the respective areas where their houses are erected. NIRC). however. It may be considered as an undertaking for human settlements. (Sec.com 68 of 73 and Awardees: The awarding by the Municipal Government of lots to specific awardees or donees is likewise exempt from the donor's tax because it is only an implementation of the purpose for which the property was given by Ace Tobacco Corporation. however. and the buyer decided to build his house thereon. When he complained. 34[H](1). Award has no tax implications. Real property transactions subject to capital gains tax are not limited to sales but also ALTERNATIVE ANSWER: exchanges of property unless exempted by a No. bought a corner lot with a good view of the surrounding terrain. 2000. A year later. after going around the subdivision. Mr. NIRC).000. Series of 1998. ALTERNATIVE ANSWER on Taxability of Municipality sirdondee@gmail. Determine the tax The donation by Ace Tobacco Corporation is consequence the donor's tax because it exempt fromof the foregoing dispositions with respect to Ace Tobacco the use of the qualifies as a gift to or for Corporation.lotsthe buyer basis for capital gains tax on the value of the the lots? prevailing fair market exchange of property hence the value of the land may be deductible in full from the gross income of Ace Tobacco Corporation if in accordance to a National Priority Plan determined by the National Economic Development Authority. One buyer. whichever is higher (Section 21(e).2 million. If later on the Municipality gives out Certificates of Award over specific lots occupied by the qualified occupants/beneficiaries. executed deeds of sale on various subdivided lots. he discovered that a huge tower antennae had been erected on the lot frontage totally blocking his view. it being exempt from taxes as a political subdivision of the National Government. The purpose of the first donation is to devote the land as a relocation site for the less fortunate constituents.

Real Property Taxation. 198. and 5) The appraisal and assessment of real property shall be equitable. i. SUGGESTED ANSWER: The following are the fundamental principles governing real property taxation: 1) Real property shall be appraised at its current and fair market value. Are those underground tanks which were not placed there by the owner of the land but which were instead placed there by the lessee of the land. Properties (2006) What 296). levy.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) 1The historical cost or adjusted basis of the real Real Property Taxation: Property property sold or disposed shall be carried over to Sold is an Ordinary Asset (1998) An individual taxpayer who owns a ten (10) the new principal residence built or acquired. The seller is not liable to pay the capital [5%] their intention to avail of the tax exemption. 2000 through a prescribed return of No. 2The Commissioner of Internal Revenue must havedoor apartment with a monthly rental of been informed by Mr. real property used in trade once every ten (10) years. the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational. 4) The appraisal. properties are exempt from the real property tax? (5%) SUGGESTED ANSWER: The examinee should be given credit if he chooses the above two (2) or any two (2) of those enumerated below: 1) Assessment must be on the basis of uniform classification. in addition. 2) Real property shall be classified for assessment purposes on the basis of its actual use: 3) Real property shall be assessed on the basis of a uniform classification within each local government unit. buildings. assessment. Local (1) Real property owned by the REPUBLIC OF Government Code): THE PHILIPPINES or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable person. Local Government Code) ALTERNATIVE ANSWER: for machinery and equipment to be considered real property. (3) All machineries and equipment that are actually. Shell and Caltex. & Mrs. are considered Explain your answer.com 69 of 73 Real Property Taxation: Fundamental Principles (1997) State the fundamental principles underlying real property taxation in the Philippines. Peter Camacho withinP10. installed by the lessee on a leased land. Exempted (Caltex Phils. must tend to directly meet the needs of the industry or works carried on by the owner. (2%) realty tax ANSWER: Two (2) fundamental principles governing real property taxation are: 1) The appraisal must be at the current and fair market value. directly and exclusively used by LOCAL WATER UTILITIES and governmentowned or controlled corporations engaged in the supply and distribution . such as Caltex and Shell. CBAA. Oil companies. disposition shall be subject to capital gains tax Gasoline Tanks (2001) [Sec. It is apparent that the taxpayer 4If there is no full utilization of the proceeds of is engaged in the real estate business. Real Property Taxation: Principles & Limitations: LGU (2000) Give at least two (2) fundamental principles governing real property taxation. they must be placed by the owner of the land and. and 2) Classification for assessment must be on the basis of actual use. mosques. But in the imposition of the real property tax. (2) CHARITABLE INSTITUTIONS. 114 SCRA. Is SUGGESTED liable to pay the capital gains tax? the seller ANSWER: on July 12. parsonages or convents appurtenant thereto. levy and collection shall not be let to private persons. directly and exclusively used for religious. 3That the said exemption can only be availed of gains tax because the property sold is an ordinary asset. It is only for purposes of executing a final judgment that these machinery and equipment.000 each residential unit.e. install underground tanks in the gasoline stations located on land leased by the oil companies from others. charitable or educational purposes. assessment. and collection of real property tax shall not be let to any private person. and all lands. or business. and 3) Appraisal and assessment must be equitable. (Sec. would not be considered as real property. (Sec. churches. (5%) as real property for purposes of the imposition of real property taxes. 2) Appraisal. The underground tanks although property taxation under the Local Government Code? by the lessee. the portion of the gain out the presumed to have been realized from the sale or regularly renting Taxation: ten (10) door Real Property Underground apartment. sold this thirty (30) days from the date of sale or dispositionproperty to another individual taxpayer. NIRC of 1997] Under Article 415 of the Civil Code. and improvements actually. Inc v. in order sirdondee@gmail.. considered real SUGGESTED ANSWER: property for purposes of real installed Yes. 24 (D) (2). 198. non-profit or religious cemeteries. sale or disposition. Local Government Code) The following properties are exempt from the real property tax (Section 234. which are limitations on the taxing power of local governments insofar as the levying of the SUGGESTED is concerned.

6938. and (5) Machinery and equipment used for POLLUTION CONTROL and ENVIRONMENTAL PROTECTION. therefore. that if the examinee cites the entire provision of Sec. Customs Code. which is the enabling law that made effective the delegation of the taxing power to the [Note: the suggested President underIt is Constitution. . when properly released and thus beyond the reach of tax lien. When does the Bureau of of the judicial remedy. is still in the custody or control of the Government. instead of the SUGGESTED ANSWER: former. such as by enforcing the tax lien on the imported article.] Remedies (1997) The Tariff and Customs Code allows the Bureau of Customs to resort to the administrative remedy of seizure. the remedy of seizure and forfeiture may still be exercised by the Bureau of Customs even if the goods (b) On the other its custody. the goods are are no longer in hand. (b) of the latter.A. remedy? (a) The Bureau of Customs normally avails itself of the ADMINISTRATIVE REMEDY of seizure. enforceable by action. regardless of ownership. TARIFF AND CUSTOMS DUTIES Customs: “Flexible Tariff Clause” you understand by the term "flexible What do (2001) tariff clause" as used in the Tariff and Customs Code? (5%) SUGGESTED ANSWER: The term "flexible tariff clause "refers to the authority given to the President to adjust tariff rates under Section 401 of the Tariff and Customs Code. however. instead Customs in court. instead of the judicial remedy when the goods to which the tax lien attaches.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) of water and/or generation and transmission of electric power. of importations which are prohibited or undeclared. Judicial credit. 401 of the Tariff &. (4) All real property owned by duly REGISTERED COOPERATIVES as provided for under R. In this case judicial remedy is normally availed of instead of the administrative remedy. In the case. and to the judicial remedy of filing an action (a) of the administrative. he should also be given full Customs: Administrative vs. the government can seek payment of the tax liability through judicial action since the tax liability of the importer constitutes a personal debt to the government. or normally avail itself. such as by enforcing the tax lien on the imported articles.

(Republic vs.This is a duty imposed on imported goods whenever it is found as a fact that the country of origin discriminates against the commerce Customs: of the Philippines in suchbegin and when does it Importation (1995) When does importation a manner as to place the ANSWER: SUGGESTEDcommerce of the Philippines at a end? disadvantage begins with the time the IMPORTATION compared from the commerce of any foreign country. Ho along Kalayaan Avenue. 43747. These are collected by the Commissioner of Customs except when the improperly marked articles are exported or destroyed under customs supervision and prior to final liquidation of the corresponding entry. G. Seizure & Forfeiture Proceedings (1996) On January 1. of Customs on the ground that the Regional Trial Court has no jurisdiction over the subject matter of the complaint claiming that it was the Bureau of Customs that has exclusive SUGGESTED ANSWER: Decide. (b) Countervailing Duty . and the importation would cause or likely cause an injury to local industries engaged in the manufacture or production of the same or similar articles or prevent their establishment. these proceedingsOctober 6. On the same date. 1996. . CFI of 1995). armed with warrants of seizure and detention issued by the Bureau of Customs.R. While inside the premises. the customs personnel January 15. (d) Discriminatory or Retaliatory Duty . CA. or exportation into the Philippines of any article likely to injure an industry in the Philippines or retard or considerable retard the establishment of such (c) Marking Duty . Seizure and forfeiture proceedings are within the exclusive jurisdiction of the Collector of Customs to the exclusion of regular Courts. Berdiago. [Branch XXII]. 1996. an amended warrant and started was issued. the Trial Court issued a A motion to dismiss was filed by the Bureau temporary restraining order. on On January 25.R.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) 7) Countervailing duties are special duties imposed by the Secretary of Finance upon prior investigation and report of the Tariff Commission to offset an excise or inland revenue tax upon articles of the same class manufactured at home or subsidies to foreign producers or manufacturers by their respective governments. ad valorem basis imposed for improperly marked articles. manufacture. Manila Customs: 2.This is a duty levied on imported goods where it appears that a specific kind or class of foreign article is being imported into or sold or is likely to be sold in the Philippines at a price less than its fair value. imposed by the President of the Philippines against goods of a foreign country which discriminates against Philippine commerce or against goods coming from the Philippines and shipped to a foreign country. jurisdiction over it.This is a duty equal to the ascertained or estimated amount of the subsidy or bounty or subvention granted by the foreign country on the production. Duties (1995) and Customs Code. members of the customs enforcement and security services coordinated with the Quezon City police to search the premises owned by a certain Mr. the member of the customs enforcement and security services noted articles which were not included in the list contained in the warrant. duties collected in an amount not exceeding 100% ad valorem. 1996. Customs: Kinds of Custom Duties (1997) each of the special customs Explain briefly duties authorized under the Tariff and SUGGESTED ANSWER: Customs Code. carrying vessel or aircraft enters Philippine territorial jurisdiction with the intention to unload therein and ends at the time the goods are released or withdrawn from the customhouse upon payment of the customs duties or with legal permit to withdraw (Viduya vs. These duties are designed to prevent possible deception of the 9) Discriminatory duties are special customers. sirdondee@gmail. Quezon City. This prompted Mr. 104604.com 70 of 73 Customs: Jurisdiction. No. The motion to dismiss should be granted. with No. which allegedly contained untaxed vehicles and parts. Ho to file a case for injunction and damages with a prayer for a restraining order before the Regional Trial Court of Quezon City against the Bureau of Customs on January 27. The following are the Special Duties imposed under the Tariff and Customs Code: (a) Dumping Duty . Hence. Regional Trial Courts are devoid of competence to pass upon the validity or regularity of seizure and forfeiture proceedings conducted by the Bureau of Customs and to enjoin or otherwise interfere G. 1992. 1996. The law requires that foreign importations must be marked in any official language of the Philippines the name of the country of origin of the article. 73 SCRA 553). articles pursuant to the seizure hauling the amended warrant. Custom SeptemberKinds of Jao vs.This is a duty on an industry. 8) Marking duties are special duties equivalent to 5% ad valorem imposed on articles not properly marked. Under the Tariff what are a) dumping duties b) countervailing duties c) marking duties d) discriminatory duties? SUGGESTED ANSWER: 6) Dumping duties are special duties imposed by the Secretary of Finance upon recommendation of the Tariff Commission when it is found that the price of the imported articles is deliberately or continually fixed at less than the fair market value or cost of production.

4-2004).O. went on a three-month pleasure discharged. collector a fine the extent by him upon the cost elements to imposed that they are property by the buyer but are not included in incurred to secure its release or in case of forfeiture. as and normally used in the basis for the well as imposition of non-commercial quantities. 9135) the Commissioner are be accepted their the following valuesmay to be utilized inby the sequence: Transaction value of seizure Collector in settlement of the identical case. whenever there is granted upon themonths of trip around the world during the imported articleJuly the country of origin a the course of June. summarized as follows: (a) The collector issues a warrant for the detention or forfeiture of the imported articles. goods when there is fraud. Transaction value of identical goods (Sec. (Sec. 201[B]). Computed all (Sec. 201[F]) 20040) andproperty for legitimate use by ALTERNATIVE ANSWER: an amount to be fixed by posting a bond in The basis of dutiable value of the payment the Collector.l.O. (Sec. Basis of Dutiable Value. the Collector of Customs of the port can smuggling? seize and forfeit the truck as an instrument in the smuggling activity. the C. value couldamended to the approval of Customs Code. (Sec. Customs: as amendedRemedies of an If such value by R.com 72 71 of 73 considering that travelers or tourists are given the same tax treatment as that of returning residents.E. the smugglers used an eight-wheeler truck which they hired for the purpose of taking out the shipment from the customs zone. (Sec. Collector renders a declaration of (Sec. did not have a certificate of public convenience to operate his trucking business. in the Protest Casesof Customs instituted seizure The Collector (1994) Code) 2531. then article. No.A.A. Danny did not know that the shipment of garlic was illegally imported. then an following could not (1996) remedies of the importer Discuss briefly the values the pendency of seizuretheir sequence: during are to be utilized in proceedings. adversely affected by the decision of the Court of Tax Appeals (Division) may appeal to the Court of Tax (15) (en banc) within fifteen Appeals days which may be extended for (15) days or such period as the Court of another fifteen Tax Appeals may decide. Tariff and Customs Code. Can the Collector of Customs of the port seize and SUGGESTED ANSWER: forfeit the truck as an instrument in the Yes. No.O. there arises a prima facie presumption or knowledge or participation if the owner is not in the business for which the conveyance is generally used. they production. 2303. State the procedure for the review of the decision up to the SUGGESTED Court of the Collector of Customs Supreme ANSWER: The procedure in seizure cases may be adverse to the importer.1. II. Tariff andseized imported goods. (Sec. Dueand the normal value of theof stay Philippines to their limited duration abroad X and Y are not considered as imported article. the importer shall offer to pay for the price actually paid or payable for the the domestic market201[A]. (Sec. adjusted by to pay to the shall not be released under bond. Customs. 2313. which was chartered or leased as such. (Sec.1. CA.A. 201[C]). although forfeiture of the vehicle TCC) will not be effected if it is established that the owner thereof had no knowledge of or participation in the unlawful act. (Sec. II. Imported explain the basis of dutiable value State and Article (2005) of an imported article subject to an ad valorem tax under the Tariff and Customs ALTERNATIVE ANSWER: Code. the truck owner. TCC) (e) The Importer aggrieved by the action of the Collector in any case of seizure may appeal to the Commissioner for his review within fifteen (15) days from written notice of the Collector's decision. 9135) Importer be determined. Moreover. (d) 2312. C. (Sec. Theindustry. property by virtue of the offense which was Dumping Duty (2005) duty from dumping duty. TCC) (f) The importer aggrieved by the action or ruling of the Commissioner in any case of seizure may appeal to the Court of Tax (g) The importer TCC) Appeals.E. 201[A]. In specific subsidy upon its accumulated some personal their trip. which the case. Thus. by and August 2002. Transaction value of SUGGESTED ANSWER: similar goods (Sec. Filipinos living Tourist/Travelers (2003) X and his property shallcountervailing duty is imposed (1) Basis: The thereupon be deemed to be Philippines.l. Countervailing Duty vs. the importer may secure the release of Computed value (Sec. seizure proceedings value (Sec. 2402. Danny. 2301. expenses and costs transaction value. pendency ofNo.. property shall be forthwith released and 201[F]) which value (Sec. TCC) (c) A formal hearing is conducted. II. that articles adjudged in shall be the price actually paid or payable for the goods when sold for export the importation of which is prohibited by law The importer may also offer adding certain to the Philippines.F. manufacture or exportation and this necessary. provided. 4-2004). The basis of dutiable value of an imported article subject to an ad valorem tax under the Tariff and Customs Code is its TRANSACTION VALUE. 2312.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) smuggled articles. Tariff and Customs Code) (b) The Collector gives the importer a written notice of the seizure and fixes a hearing date to give the importer an opportunity to be heard. conditioned for an imported of article subject value of the article under any the appraised to an ad valorem taxand/or the Tariff and Customs Code is its which may be fine. he is legally deemed not to have Customs: involving been engaged Steps trucking business. importer in respect in the duty Y. Are souvenirs in dumping duty is the importation and sale of imported items atfor purposes of they "returning residents" below their (2) Amount: The countervailing duty imposed SUGGESTED ANSWER: normal valueof the Tariff and to cause injury Section 105 causing or likely Customs Code? No. 2530 [a]. No. as subject by R. term is equivalent to the value of the specific to local (8%) "returning residents" refers to Explain. Deductive During the II. CA. (Sec. appropriate effects which wereresults or threatens injury to local industry while leisure trips. 201[C]). nationals who have stayed in equivalent subsidy while the dumping duty is a foreign country for a period of at least six (6) months. since the same was used unlawfully in the importation of .A. sirdondee@gmail. importation. Distinguish countervailing the occasion of the seizure and all liability SUGGESTED ANSWER: (5%) might have been incurred under any which The distinctionsReturning between countervailing duty Customs: Residents: bond given by the are the following: to such and dumpingwife. (Sec.] conditionally free Forfeiture: Effects (1994) In smuggling a shipment of garlic.1-20040) and Fallback value. since it was not being used as a duly authorized common carrier. 201[B]). may or might attach to the liabilities Customs. treating their personal effects. The TCC) forfeiture. Deductive value the fine or domestic market value. No.O. Upon payment of except(Sec. Transaction value of similar goods (Sec.F. value of the If such which offer not be determined. Tariff and Customs proceedings against a shipment of motor vehicles for having been misdeclared as second-hand vehicles. not having a certificate of public convenience to operate a trucking business. not in commercial quantities. The mere carrying of such articles on board the truck (in commercial quantities) shall subject the truck to forfeiture. to the margin of dumping which is equal to the (Section 105(f) of the export price to the difference between the Tariff and Customs Code). as Customs: Seizure & importation. 1-the imported Fallback value. "returning residents" but they are merely [Note: Credit must likewise be given if the considered as travelers or tourists who enjoy candidate answered in the benefit of conditionally freethe affirmative.

No. The fact that the deposit is a joint account will not preclude the Commissioner from inquiring thereon because the law mandates that if a bank has knowledge of the death of a person. (5%) No. as this would be violative of Republic Act into the bank deposits of a taxpayer? (5%) No. Jacob'scar is registered in Jacob's name. (Section 97 of the 1997 Tax Code). Personal Effects (2005) Jacob. Would Jacob be liable for taxes on these SUGGESTED ANSWER: items? Discuss fully. May the examiner be allowed to look into the taxpayer's bank deposits? In what cases may the Commissioner or his duly authorized SUGGESTED ANSWER: representative be allowed to inquire or look No. Tariff and Customs Code) c) Where the taxpayer has signed a authorizing the Commissioner or his duly waiver authorized representatives to Inquire into the deposits. 6 (F). May the SUGGESTED ANSWER: bank holding the deposit refuse to comply on No. it shall not allow any withdrawal from the said deposit account. (8%) accounts of a decedent to determine his gross estate notwithstanding the provisions of the Bank Secrecy Law.000. the Bank Deposits Secrecy Law. to be able to give the required certification. unless the Commissioner has certified that the taxes imposed thereon have been paid. sirdondee@gmail. d) the exemption shall apply to the his personal of aggregate valueand household effects (including the personal computer) not exceeding thirty per centum (30%) of the total amount received by Jacob as salary and allowances during his assignment in e) Jakarta. the inclusion of the deposit is imperative. The Commissioner of Internal Revenue or his duly authorized representative may be allowed to inquire or look into the bank deposits of a taxpayer in the following cases: a) For the purpose of determining the gross decedent.000. Customs. 922 (1976): a) He was a military attache assigned to Jakarta.Answers to the BAR: Taxation 1994-2006 (Arranged by Topics) a) The car must have been ordered or purchased prior to the receipt by the Philippine mission or consulate in Jakarta of b) the recall order.com 73 of 73 OTHER RELATED MATTERS BIR: Bank Deposits Secrecy Violation (2000) A taxpayer is suspected not to have declared his correct gross income in his return filed for 1997. or jointly with another. provided. NIRC of 1997] . (Last par. Sec. c) He is returning to the Philippines after serving his tour of duty.D. c) the exemption shall apply to the value of the car. estate of a b) Where the taxpayer has filed an application for compromise of his tax liability by reason of financial incapacity to pay such tax liability. bank BIR: Secrecy of Bank Deposit Law (2003) X dies in year 2000 leaving a bank deposit of P2. but notnot exceed four (4) years. b) He has served abroad for not less than two (2) years. The examiner requested the Commissioner to authorize him to inquire into the bank deposits of the taxpayer so that he could proceed with the net worth method of investigation to establish fraud. Hence. He is entitled to tax exemption on his personal and household effects including a car. Hence. Learning of X's death from the newspapers. returned to the Philippines bringing with him his personal effects including a personal computer and a car. Taxability. the banks holding the deposits in question may not refuse to disclose the amount of deposits on the ground of secrecy of bank deposits. (Sec. The Commissioner of Internal Revenue the ground of the Secrecy of Bank Deposit has the authority to inquire into bank deposit Law? Explain.00 under joint account with his associates in a law office. 1405. Jacob is not liable for taxes on his personal computer and the car because he is tax-exempt by law. He has met the following requirements for exemption under P. after serving a 5-year tour of duty as military attache in Jakarta. the Commissioner of Internal Revenue wrote to every bank in the country asking them to disclose to him the amount of deposits that might be outstanding in his name or jointly with others at the date of his death. which may be made possible only through the inquiry made by the Commissioner. 105.. Jacob must to have availed of the exemption more oftener than one every four years. and d) He has not availed of the tax exemption for the past four (4) years. (Section 6(F) of the 1997 Tax Code). who maintained a bank deposit account alone.