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Q: A regulation was passed by the BIR exempting or

therefore subject to corporate income tax. (Oña, et al v. CIR, GR L-

excluding income of a RC derived from sources outside the

19342, May 25, 1972)

Philippines. Is it valid?
A: No, such regulation is contrary to law in particular the NIRC. In
order for a regulation to be valid such must be in harmony with law.
Q: Assuming the BIR changed the tax base of a RC from
taxable income to gross income, is that valid?
A: No, the BIR cannot go beyond the sources of the law.
Q: Is the income of an overseas worker derived abroad
A: No, it is no longer taxable applying the rule that in case of NRC,
only income derived from sources within the Philippines is taxable.
Q: Pascual and Dragon bought 2 parcels of land from
Q: Brothers A, B and C borrowed a sum of money from their

Bernardino and 3 from Roque. Thereafter, the first 2 were

father which amount together with their personal monies

sold to Meirenir Development and 3 to Reyes and Samson.

was used by them for the purpose of buying real properties.

They divided the profits between the 2 of them. The CIR

The real properties they bought were leased to various

contended that they formed an unregistered partnership or

tenants. The BIR demanded the payment of income tax on

joint venture taxable as a corporation under the Code and

corporations, real estate dealer’s tax, and corporation

its income is subject to the NIRC. Decide.

residence tax. However, A, B and C seek to reverse the letter

A: No, sharing of returns does not in itself establish a partnership

of demand and be absolved from the payment of the taxes in

whether or not the persons sharing therein have a joint or common

question. Are they subject to tax on corporations?

right or interest in the property. (Art. 1769, NCC) In the present

A: Yes, "Corporations" strictly speaking are distinct and different

case, there is clear evidence of co-ownership between the

from "partnerships". When the NIRC includes "partnerships"
among the entities subject to the tax on "corporations", it must
allude to organizations which are not necessarily "partnerships" in
the technical sense of the term. As defined in the NIRC "the term
corporation includes partnership, no matter how created or
organized." This qualifying expression clearly indicates that a joint
venture need not be undertaken in any of the standards form, or

petitioners. There is no adequate basis to support the proposition
that they thereby formed an unregistered partnership. The 2
isolated transactions where they purchased properties and sold the
same a few years thereafter did not thereby make them partners.
The transactions were isolated. The character of habituality
peculiar to business transactions for the purpose of gain was not
present. (Pascual and Dragon v. CIR, GR 78133, Oct. 18, 1988)

conformity with the usual requirements of the law on partnerships,
in order that one could be deemed constituted for the purposes of

Q: On 2 Mar. 1973, Joe transferred his rights under contract

the tax on corporations. (Evangelista v. CIR, GR L-9996, Oct. 15,

with Ortigas Co. to his 4 children to enable them to build


residences on the lots. TCTs were issued. Instead of building
houses, his children sold them to Walled City Securities

Q: Julia died leaving as heirs her surviving spouse, Lorenzo

Corporation and Olga Cruz Canda. The BIR required the

and her five children. A settlement of the estate was

children to pay corporate income tax under the theory that

instituted in the CFI. The project partition was approved by

they formed an unregistered partnership or joint venture.

the court however, there was no attempt made to divide the

Are they liable for corporate income tax?

properties listed. Instead, the properties remained under

A: No, the children are co-owners since they did not form a

the management of Lorenzo who used said properties by

partnership. It is an isolated act which shows no intention to form a

leasing or selling them and investing the income derived

partnership. To regard the children as having formed a taxable

therefrom. From said investments and properties, the heirs

unregistered partnership would result in oppressive taxation and

derived income. The BIR decided that the heirs formed an

confirm the dictum that the power to tax involves the power to

unregistered partnership and therefore subject to corporate

destroy. It appears that they decided to sell it after they found it

income tax. They protested the assessment and asked for
reconsideration alleging that they are co-owners of the
properties inherited and the profits derived from the
transactions. Are the heirs of the decedent subject to
corporate income tax?
A: Yes, while as a rule, co-ownership is tax exempt, the coownership of inherited properties is automatically converted into an
unregistered partnership the moment said common properties
and/or the income derived therefrom are used as common fund with
intent to produce profits. If after such partition, each heir allows his
share to be held in common with his co-heirs under a single
management to be used with the intent of making profit thereby in
proportion to his share, there can be no doubt that, even if no
document or instrument were executed for the purpose, for tax
purposes, at least, an unregistered partnership is formed and

expensive to build houses. The division of the profit was merely
incidental to the dissolution of the co-ownership which was in the
nature of things a temporary state. (Obillos, Jr. v. CIR, GR L-68118,
Oct. 29, 1985)
Q: Assuming Mr. R withdraws money from his bank account,
is it income?
A: No, because income is other than a mere return of capital.
Q: Are security advances and security deposits paid by a
lessee to a lessor considered income for tax purposes?
A: No, the amount received by the lessor as security advances or
deposits will eventually be returned to the lessees, hence the lessor
did not earn gain or profit therefrom. (Tourist Trade and Travel v.
CIR, CTA Case No. 4806, Jan. 19, 1996)

property. Is Alpha Corporation subject to income tax on the exchange of property? If so what is the tax base and rate? A: 1. Juan agreed to exchange his agricultural lot in Laguna for a onehalf hectare residential property located in Batangas. U. (Sec. a doctor by profession. he abandoned his plan because the surrounding area became a down. The one-half hectare residential property owned by Alpha Corporation is an ordinary asset because the owner is engaged in the purchase and sale of real property. Is his contention correct? A: No. He claims that he should not be made to pay the 6% final tax because he did not have any actual gain on the sale. 24 [D]. If he has to pay the deficiency income tax assessment there will be hardly anything left to return to the victims of the swindling. owned by Alpha Corporation. In 1994. (Sec. NIRC. his colleague and at a time when the real estate prices had gone down. This property has a current fair market value of P10 million in view of the construction of a concrete road traversing the property. To treat the embezzled funds as not taxable income would perpetuate injustice by relieving embezzlers of the duty of paying income taxes on the money they enrich themselves with. Is the BIR correct? A: Yes. Is the land a capital asset or an ordinary asset? A: The land is a capital asset because it is neither for sale in the ordinary course of business nor a property used in the trade or business of the taxpayer. and even though he may still be adjudged to restore its equivalent. 2. with a fair market value of P10 million. Juan agreed to exchange his agricultural lot in Laguna for a onehalf hectare residential property located in Batangas.000. It will not necessarily be paid out of the same income that was subjected to the tax. Alpha Corporation acquired the property in 2007 for P9 million. The deficiency income tax assessment is a direct tax imposed on the owner which is an excise on the privilege to earn an income. stock and other form. owned by Alpha Corporation. 2.000. the CIR assessed him a deficiency income tax for such income. in a taxable disposition of a real property classified as capital asset the tax base is the higher between: the fair market value of the property received in exchange and the fair market value of the property exchanged. he has received taxable income. At the time of the sale. Since the income is withheld is an income owned by Express Transport. sold in the year 2000 a parcel of land which he bought as a form of investment in 1990 for P1 million. In 2007. which is not income. of an obligation to repay and without restriction as to their disposition. The law does not define the term “gross receipts. Yes. When the CIR discovered his income from swindling. the amount withheld is paid to the government on its behalf. He used the proceeds to finance his trip to the United States. Bank of market value of P10 million in view of the construction of a Commerce.000. (1995 Bar Question) form paid. The fact that it did not actually receive the amount does not alter the fact that it is remitted for its benefit in satisfaction of its tax obligations. The lawyer of Lao protested the assessment on the following grounds: 1. by embezzlement. Alpha Corporation acquired the property in exchanged for tax purposes . (James v. whichever is higher. because for every peso borrowed he has a corresponding liability to pay one peso.Q: Suppose the gain or profit is in the nature of property or in kind. The term “gross receipts” is broad enough to include income with the intention of building his residence on it. hence. RR 7-03) (2008 Bar Question) Q: Lao is a big-time swindler.” Express Transport a bus company has time deposits with ABC Bank. (CIR or ordinary asset? A: The one hectare agricultural land owned by Juan is a capital asset because it is not a real property used in trade or business. 1970. he sold it for P800. Hence. Sec. 2005) (2006 Bar Question) 2007 for P9 million. 39. kind. not to illegal income. a domestic corporation engaged in the purchase and sale of real property.S. 1. NIRC) Actual gain is not required for the imposition of the tax but it is the gain by fiction of law which is taxable. the 6% capital gains tax on sale of a real property held as capital asset is imposed on the income presumed to have been realized from the sale which is the fair market value or selling price thereof. June 8. even though it may still be claimed that he is not entitled to retain the money. Therefore whether paid in cash. the zonal value was P500. In one year he was able to earn P1 Million from his swindling activities. the illegality of the income will not preclude the imposition of the income tax thereon. 39 [A]. after deducting the 20% final withholding tax from its time deposits with the bank. (Sec.. the same forms part of its gross receipts. Is Juan subject to income tax on the exchange of property? If so what is the tax base and what is the tax rate? 2. Q: In 1990. can we not consider it as taxable gain? A: Under Sec. such is taxable. After all. instead. Naval bought a lot for P1 million in a subdivision Q: Congress enacted a law imposing a 5% tax on the gross depressed area and land values in the subdivision went receipts of common carriers. What is the nature of the real properties concrete road traversing the property. Lao’s liability to pay the tax is based on his having realized a taxable income from his swindling activities and Q: In Jan. 1970. Juan bought 1 hectare of agricultural land in Laguna for P100. express or implied. without the consensual recognition. The BIR wants to collect a 5% gross receipts tax on the interest income of Express Transport without deducting the 20% final withholding tax. 32 A [1] compensation for services can be in whatever will not affect his obligation to make restitution. Payment of the tax is a civil obligation imposed by law while restitution is a civil liability arising from a crime. Express Transport earned P1 Million interest. 32 of the NIRC includes within the purview of gross income all Income from whatever source derived. while honest people pay their taxes on every conceivable type of income. This property has a current fair not physically rendered but constructively received by the taxpayer.000. and Q: A. 202 US 401 [1906]) 3. The income tax applies only to legal income. (2001 Bar Question) 3. Juan bought 1 hectare of agricultural land in Laguna for P100. in satisfaction of its withholding taxes. The land was sold to B.GR 149636. the said market value should be taken as . a domestic corporation engaged in the purchase and sale of real property. Lao's receipts from his swindling did not constitute income because he was under obligation to return the amount he had swindled. with a fair market value of P10 million. How will you rule on each of the three grounds for the protest? A: 1. lawfully or unlawfully. for only of the land. When a taxpayer acquires earnings. Since the fair market value of the two properties are the same. his receipt from swindling was similar to a loan. NIRC) (1995 Bar Question) Q: In Jan.

From the pertinent items of gross income. Since Manalo did not derive any ordinary income. NIRC) Q: What is the tax treatment of the following interest on deposits with: 1. Is John subject to Philippine income tax on the sale of his shares through his stockbroker? Is he liable for any other tax? 2. It is a passive income subject to a withholding tax rate of 20%. (1997 Bar Question) traded in the Philippine Stock Exchange at the price of P2 Million. (Sec. without the capital gains tax paid being allowed as Q: If the taxpayer constructed a new residence and then sold his old house. (2008 Bar Question) Q: Manalo. relies on her pension from the GSIS and the Interest Income from a time deposit of P500.2 million. 27 [A] and Sec 31. However. the gain from the exchange constitutes an item of gross income. the computation of the gain recognized from the sale did not consider the holding period of the asset. 21 [e]. 2. Filipino citizen residing in Makati City. Is the BIR officer’s tax assessment correct? A: No.75 million deficiency income tax. the buyer is subject to capital gains tax on the exchange of lots on the basis of prevailing fair market value of the property transferred at the time of the exchange or the fair market value of the property received. 9. a US citizen residing in Makati. 2009. is he liable for Philippine income tax? If so what is the tax base and rate? A: 1.000 and 10% for any excess. 39 [b]. if a corporation cancels or redeems stock issued as a dividend at such time and in such manner as to make the distribution and cancellation or redemption. the corporate income tax rate is 30%. another Filipino residing in Quezon City for P20 million. NIRC). no income tax return was filed by him for 2006. he sold said real property to Mayaman.2 million representing 6% capital gains tax. NRC). the BIR officer assessed Manalo for deficiency income tax computed as follows: P5 million (P20million less P15 million) x 35%= P1. Yes. 1. (Sec. exemption from capital gains tax does not find application since the law is clear that the proceeds should be used in acquiring or constructing a new principal residence. the realty company exchanged his lot with another corner lot with an equal area but affording a better view. (Sec.the tax base which is P10million and the income tax rate is 6%. the general rule states that a stock dividend representing the transfer of surplus to capital account shall not be subject to tax. The tax rate is 5% for a net capital gain not exceeding P100. he sold the shares of stock through his favorite Makati stockbroker at a gain of P200. Q: What is the tax treatment of the following in the Q: John. the old residence should first be sold before acquiring or constructing the new residence. and being a business income. However. bought shares of stock in a domestic corporation whose shares are listed and preparation of annual income tax returns: Interest on deposits with: (i) BPI Family Bank. On Jan.000 with ABC Bank. 24 B [1].6 million. NIRC) (2008 Bar Question) Note: The applicable tax rate to the case at bar is still 35% since it was taxed on 2007. No. CA. 2006. The redemption converts into money the stock dividends which becomes a realized profit or gain and consequently. Manalo consulted a real estate broker who said that the P1. Q: Is the redemption of stocks of a corporation from its stockholders as well as the exchange of common with preferred shares considered as “essentially equivalent to the distribution of taxable dividend" making the proceeds thereof taxable? A: Yes. and the buyer decided to build his house thereon. If John directly sold the shares to his best friend. NIRC) 2. The capital asset having been held for more than 12 months. 28 b [7] F. the stockholder's separate property. After the tax audit conducted in 2007. When he complained. only 50% of the gain is recognized. at a gain of 200. the interest she receives thereon is subject to 20% final withholding tax. and the title to the property was issued. first. NIRC) Both interests are not to be declared as part of gross income in the income tax return. He paid P1. Is the buyer liable for capital gains tax on the exchange of the lots? A: Yes. However. GR 108576. 24 [C]. executed deeds of sale on various subdivided lots.000. 24 [D]. Yes.75 million. 127 [A]. with her time deposit. (Sec.000. Is Maribel liable to pay any tax on her income? A: Maribel is exempt from tax on the pension from the GSIS (Sec. the sale of shares of stocks of a domestic corporation held as capital. Real property transactions subject to capital gains tax are not limited to sales but also exchanges of property unless exempted by a specific provision of law. the seller is subject to the percentage tax of ½ of 1% of the gross selling price. . in whole or in part. On Feb. A day after.2 million capital gains tax should be credited from the P1. As realized income. Thus.5%. (Sec. the amount so distributed in redemption or cancellation of the stock shall be considered as taxable income to the extent it represents a distribution of earnings or profits accumulated. Profits derived from the capital invested cannot escape income tax. 20. the value of the lot appreciated to a market value of P1. Jan. It is a passive income subject to final withholding tax rate of 7. Effective Januray 1. 10. 1999) tax credit. The tax due would be P15. which he acquired in 2000 for P15 million. BPI Family Bank? 2. Second. Upon inspection. not through a trading in the local stock exchange. is the transaction subject to capital gains tax? A: Yes. owns a vacation house and lot in California. NIRC). NIRC). US citizen residing in Makati City. a retired public school teacher. 2006. A local offshore banking unit of a foreign bank? A: 1. however. he discovered that a huge tower antenna had been erected on the lot frontage totally blocking his view. One buyer. 2. the gain on the sale or disposition of shares of sock of a domestic corporation held as capital assets will not be subjected to income tax if these shares sold are listed and traded in the stock exchange (Sec. the proceeds of the redeemed stock dividends can be reached by income taxation regardless of the existence of any business purpose for the redemption (CIR v. deductions allowed by law from gross income can be claimed to arrive at the net income which is the tax base for the corporate income tax rate of 35%. A year later.000. essentially equivalent to the distribution of a taxable dividend. bought a corner lot with a good view of the surrounding terrain. after going around the subdivision. Q: A corporation. whichever is higher (Sec. it must be reported in the annual ITR of Alpha Corporation. is subject to capital gains tax based on the net capital gain during the taxable year. Manalo filed the capital gains return and paid P1. the rate of income tax used is the corporate income tax although the taxpayer is an individual. and (ii) a local offshore banking unit of a foreign bank. engaged in real estate development. (2005 Bar Question) Q: Maribel.

administrator or executor is designated as beneficiary. Will the proceeds of the insurance form part of the income of the parents of Noel and be subject to income tax? A: No. The stockholder has received nothing but a representation of an interest in the property of the corporation and as a matter of fact. on the masked dividend payment. NIRC) Q: If Mr. it can be considered as interest on capital therefore not deductible. Gorgeous what are the tax implications? A: Mr. (i) (2005 Bar Question) 3. Upon maturity. 32 B (3). 30.000 is taxable. The excluded amount is that portion which corresponds to the premiums that he had paid since 1965. 24 B [1]. 28.) the proceeds form part of the estate if the designation is revocable. said amount cannot be claimed as deduction. When he retired at 65 he received retirement pay equivalent to 2 months' salary for every year of service as provided in the hospital BIR approved retirement plan.520 x 20 years). also matured. Under Sec. 2. the proceeds will not be included in the gross estate. (2007 Bar Question) Q: Suppose Al obtained an endowment policy valued at P1 million. the general rule that the designation is revocable shall apply. A stock dividend. the capital being the life of the insured. The parents of Noel are made the beneficiaries of the insurance policy. He paid premiums amounting to P800. He was then paid the face value of his insurance policy in the amount of P50. The value of the gift received by Ms. There is only irrevocable designation if the policy expressly provides. Fred protested the assessment made against him and claimed that the stock dividends in question are not income but are capital and are. Generous gave a gift to Ms. If the designation is irrevocable.520 since 1965. demanded payment of income tax on the aforesaid dividends. stock dividends are not income and are therefore not taxable as such. the donor is subject to donor’s tax while Ms. . therefore. On the part of the stockholder whose indebtedness has been condoned he is subject to 10% final tax. Yes. On the part of the corporation. he received his endowment insurance policy. Trinidad.000 insurance proceeds exempt from income taxation? A: The P50. for which he was paying an annual premium of P1. beneficiaries upon the death of the insured are not included as part of the gross income of the recipient. 11 of the Insurance Code of the Philippines. unless he has expressly waived this right in said policy. NIRC. 27. (Fisher v. Generous. He was hired by HP. what is the tax implication in case the debt is condoned by the corporation? A: This may take the form of indirect distribution of dividends by a corporation. (Sec. the insured has the right to change the beneficiary he designated in the policy. Is his P50. Are stock dividends income? A: No. A declaration of stock dividend by a corporation involves no disbursement to the stockholder of accumulated earnings and the corporation parts with nothing to its stockholder. estate. It depends. he must have paid a total of P30. he was offered the arrangement that part of his compensation package would be an insurance policy with a face value of P20 million.000.000 insurance proceeds is not totally exempt from income tax. The property represented by a stock dividend is still that of the corporation and not of the stockholder. If the person designated is a 3rd person (which includes the employer. Gorgeous the donee is not subject to donee’s tax. he received P1 million. what is the rule? A: 1. it resolved to pay him a gratuity of P1 million over and above his retirement pay. gifts. After working for more than 2 years in X Corporation. he may never receive anything. what amount is taxable? A: The amount of P200. If the heirs. 1985. Will the proceeds form part of the estate of the decedent and therefore subject to estate tax? 3. when declared. the manner of designation or the name of the beneficiary is immaterial.520 per year multiplied by twenty (20) years which was the period of the policy. Accordingly. Q: Suppose the employer insures the life of his employee and the one paying the premiums on that life insurance policy is the employer. The amount of the proceeds is excluded from the gross income. not subject to tax. GR L-21186. Q: Quiroz worked as chief accountant of a hospital for 45 years. Gorgeous is not included in the computation of gross income pursuant to Sec. The difference between the value of the insurance and the actual premiums paid forms part of Al’s gross income.000. is merely a certificate of stock which evidences the interest of the stockholder in the increased capital of the corporation. the proceeds form part of the estate whether the designation is revocable or irrevocable. Mario decided to retire and avail of the benefits under the very reasonable retirement plan maintained by his employer. Are the proceeds of the life insurance policy excluded from the gross income? 2. Q: Noel is a bright computer science graduate. Q: Mario worked his way through college. When the corporation declares dividends. Said corporation declared a stock dividend and that a proportionate share of stock dividend was issued to the Fred. bequest and devises are excluded from gross income. was a stockholder in the Philippine American Drug Company. It shall be considered as revocably designated.A: Both items are excluded from the income tax return: (i) Interest income from any currency bank deposit is considered passive income from sources within the Philippines and subject to final tax. Hence.600. The CIR. The Board of Directors of the hospital felt that the hospital should give Quiroz more than what was provided for in the hospital's retirement plan in view of his loyalty and invaluable services for 45 years. At the rate of P1. NIRC) (ii) Same as No. If the policy is silent. If the employee dies: 1. Assuming the designation of the 3rd person in the policy is silent whether his designation is revocable or irrevocable. There is no income realized because nothing flows to Noel’s parents other than a mere return of capital. Since it is subject to final tax it is not included in the annual ITR. the proceeds of life insurance policies are paid to the heirs or Q: Fred. 1924) Q: Suppose the creditor is a corporation and the debtor is its stockholder. depending upon the final outcome of the business of the corporation. To entice him to accept the the job. Feb. he wil be subject to report as taxable income the amount of P19. On the day of his retirement on Apr.400. Donee’s tax has been abolished by PD 69. (P1. (Sec.

Due to business reverses the firm offered voluntary redundancy program to . The amount cannot be considered as separation pay that would have exempted benefits from income tax since it was Mario who had decided to retire instead of being required to do so. the retirement pay must have been extended to an employee who is at least 10 years with the employer. from withholding tax: the retiring employee (1) has been in the service of the same employer for at least 10 years.000 as moral damages. 34 [H]. What is the tax treatment of the cash equivalent of such vacation leave credits? A: It depends. U.000. 2. the same? A: No. Bernardo Zialcita. 32 B [4]. P250.000 as retirement benefit. including retirement gratuity. Is the said amount taxable or not? A: Yes. Which if any.' emphasis should be placed on the value of Quiroz services to the company as the compelling reason for giving him the gratuity. On his retirement. which he received by virtue of his compulsory retirement.000 for loss of income during the period of his treatment and recuperation. for purposes of determining the taxability of retirement benefits received by retiring employees. 1. since terminal leave pay is applied for by an officer or employee who has already severed his connection with his employer and who is no longer working. Q: Bernardo. it is taxable because the benefit of exemption can only be availed of once. After rendering 10 years. as amended by RR 10-2000) The amounts that JR received from the airline are excluded from gross income and not subject to income tax because they are compensation for personal injuries suffered from an accident as well as damages received as a result of an agreement on account of such injuries. 393) minimum requirement of 50 years provided for under Section 32 B [6] a. as amended. Therefore. a retired employee of the SC filed a request with the SC for the refund of the amount of P59. and (2) is not less than 50 years of age at the time of his retirement. Is Quiroz correct in claiming that the additional P1 Million was gift and therefore excluded from income? A: No. he received P400. provided that the minimum age requirement and the length of service prerequisite are met. Bernardo’s request was granted. For government employees – both vacation and sick leaves are tax exempt irrespective of the number of days. (Re: Request of Atty. consequently. In addition. 2. Sec. 22. except the money equivalent of 10 days unutilized vacation leave credits which is not taxable. and (b) it was a gift. 06. esteem and kindness' which motivated the employer to give the gratuity. but since the CBA or other applicable employment contract is deemed the law between the parties. Hence. Mario decided to retire and avail of the benefits under the very reasonable retirement plan maintained by his employer. 2001. the amount received was in consideration of his loyalty and invaluable services to the company which is clearly a compensation income received on account of employment. He survived the accident but sustained serious physical injuries which required hospitalization for 3 months.78 A [7]. The donor is not entitled to claim as full deduction the fair market value/zonal value of the lot donated. P300. Under the employer's 'motivation test.S. donated a piece of vacant lot situated in Mandaluyong City to an accredited and duly registered non-stock. After working for more than 2 years in X Corporation. under RA 7641. 186 F. 18. Is terminal leave pay subject to income tax? A: No. (Sec. the agreed age of retirement shall become the basis in determining the taxability of retirement benefits of retiring employees. Q: Mario worked his way through college. the actual retirement age may even be lower than 50 years of age. an agreement was reached under the terms of which JR was paid the following amounts: P500. 1990) Q: On Dec. May the donor claim in full as deduction from its gross income for the taxable year 2001 the amount of the donated lot equivalent to its fair market value/zonal value at the time of the donation? A: No. The Court said that the terminal leave pay of Bernardo. Payment was made under a BIR approved retirement plan. Supp.000 for his hospitalization. AM 90-6-015-SC.. can never be considered as part of his salary subject to income tax. Sept. The payment would only qualify as a gift if there is nothing but 'good will.000 retirement benefit is subject to income tax. (Sec. Q: Mel received from his first employer. of the 1997 NIRC. 2009). Is Mario’s P400. it cannot be received by the said employee as salary.000 retirement benefit subject to income tax? A: Mario’s 400. according to RA 8291 (The GSIS Act of 1997) all benefits he received are tax exempt. hence it should constitute a taxable income. It is one of those excluded from gross income and is therefore not subject to tax. of the amounts are subject to income tax? A: The amount of P200. For private employees – vacation leaves are exempt from tax up to 10 days while sick leaves are always taxable.000 that JR received from his employer is subject to income tax. donations and/or contributions made to qualified donee institutions consisting of property other than money shall be based on the acquisition cost of the property.) would your answer be the Q: JR was a passenger of an airline that crashed. To be exempt. Mel retired from his second employer and received P50. shall apply in order to qualify for the exemption granted therein. LVN Corp.The CIR taxed the P1 million as part of the gross compensation income of Quiroz who protested that it was excluded from income because (a) it was a retirement pay. wherein the vacation or sick leave may be converted into cash.000 representing the cash equivalent of his earned vacation and sick leaves. Amounts of vacation allowances or sick leave credits which are paid to an employee constitute compensation. RR 2-98. Q: Are retirement benefits paid by an employer which does not have a private benefit plan but has an existing CBA providing for retirement benefits of employees excluded from income tax? A: Yes.000 as retirement benefit and was subsequently employed by another employer. as when it is given annually to the employee. 32 B [6] A of the NIRC provides for two conditions in order for retirement benefits to be exempt from income tax and. non-profit educational institution to be used by the latter in building a sports complex for students. NIRC) (2005 Bar Question) Q: Assuming it does not form part of the terminal leave pay. SB [041] 6032009. On the other hand. JR received from his employer the amount of P200. Following negotiations with the airline and its insurer. Oct.502 which were deducted from his terminal leave pay as withholding tax. (Sec. it necessarily follows that the terminal leave pay or its cash equivalent is no longer compensation for services rendered. Q: If the second employer is a Government entity (assuming Mel was employed by the DPWH. the retirement age is that age established in the CBA or other applicable employment contract. Thus. However. if the CBA or other applicable employment contract does not provide for a retirement age. (Stonton v. P20. (BIR Ruling No. NIRC) (2002 Bar Question) Q: Jacobo worked for a manufacturing firm.

the alleged facilitation fees which they claims as standard operating procedure in transactions with the government comes in the form of bribes or “kickback” which are not allowed as deductions from gross income as they are illegal. it is exempt from donor’s tax not based on the NIRC but on RA 7549. OXY objected to the insurance purchase but ADD purchased the policy anyway. Every time he comes to the Philippines. usual or customary. Q: Onyoc. A: The prize will not constitute a taxable income to Onyoc. or civic achievement” The fellowship award of $10.500 as part of the Palanca Award for an outstanding short story. Under the program an employee who offered to resign would be given separation pay equivalent to his 3 month's basic salary for every year of service. 32 B [7] c. Does the US$1. Is the award included in the gross income of JM for tax purposes? A: No. receipts. NIRC) Q: OXY is the president and CEO of ADD Computers. He is retired and came back to the Philippines a balikbayan. The law is clear when it categorically stated “That the donors of said prizes and awards shall be exempt from the payment of the donor’s tax. otherwise it would be included in his gross income and subjected to a scheduler rate (Sec. Kintanar was separated from the service. claims as expense. and other documentary proof however may be excused under Sec. No. the provision which requires the preservation of the books of accounts and other accounting records for a period of 3 years from the date of last entry. artistic. Du . The fellowship is for $10. because his separation from employment is due to causes beyond his control. an amateur boxer. The award was given to her in recognition for her outstanding performance in the field of sports. 24 B [1].000 as separation pay under the program After all the employees who accepted the offer were paid. Should Q include these awards and fellowship in her gross income? A: The first award granted to Q. literary. Inc. Finally. 32 B [6] c. In the second award.000 plus free board and lodging. Contributor/Donor is allowed to claim it as a deduction from gross income based on RA 7549. Did Kintanar derive income when he received his separation pay? A: 1. (Basilan Estates v. she received a Fellowship Award from the University of California to pursue a master's degree in American literature. NIRC) 2. NIRC) (2007 Bar Question) Q: JM.reduce overhead expenses. it is not included.000 for winning the on-thespot peace poster contest sponsored by the Lions Club. Sept.” (1996 Bar Question) Q: When there are no receipts to prove a deduction. As to the contributor/donor of the award. Inc. Did Jacobo derive income when he received his separation pay? 2. The term "ordinary" is used in the income tax law in its common significance and it has the connotation of being normal. hence the BIR is not correct in imposing the income tax. 34 A [1] c. Hence.000 is however. the lack of supporting vouchers. When OXY was asked to join the government service as director of a bureau under the Department of Trade and Industry. the firm found its overhead is still excessive. Are these expenses allowable as deduction from gross income? A: No. the premium is not deductible because it is not an ordinary business expense. She was also named MVP of the Varsity volleyball team and was given a trophy and P10. On ethical grounds. because his separation from employment was voluntary on his part in view of his offer to resign.000 pension become taxable because he is now residing in the Philippines? A: No. a contractor who won the bid for the construction of a public highway. requires submission of literary works. it is exempt from income tax. (Sec. RA 7549 explicitly provides that “All prizes and awards granted to athletes in local and international sports tournaments and competitions in the Philippines or abroad and sanctioned by their respective national sports association shall be exempt from income tax. he stays here for about a month. 1. are excluded from gross income. ADD proposed to obtain a policy of insurance on his life.000. a Filipino immigrant living in the United States for more than 10 years.000 a month.000. Give the tax implication/s as to the recipient as well as to the donor/contributor. the law provides that pensions received by resident or nonresident citizens of the Philippines from foreign government agencies and other institutions. However. excluded from her income as she was selected therefore without any action on her part and the same was given to her in recognition of literary and educational achievement.000 as separation pay. Q did not file any application to enter into any contest. this is included in the gross income because it fails to meet the legal requirement that the recipient was selected without any action on his part to enter the contest or proceeding. Various unprofitable departments were closed. private or public.000. A: As to the recipient of the award. goodwill and opportunities improved with OXY in the government. (Sec. CIR. received a prize of P100. The BIR tried to collect income tax on the amount received by Onyoc who refuses to pay. scientific. he took a leave of absence from ADD. Yes. (1995 Bar Question) Q: Z. (1993 Bar Question) Q: A won P100. a Palanca award. GR L022492. (Deputy v. Hence it adopted another redundancy program. Believing that its business outlook.000 in a competition sanctioned by the national sports association. Decide. NIRC) (2000 Bar Question) Note: The prize constitutes a taxable income for it was made primarily in recognition of his artistic achievement which he won due to an action on his part to enter the contest. He regularly receives a pension from his former employer in the United States. 5. It is subject to a final tax of 20% for the amount is in excess of P10. amounting US$1. He also received P400. What is excluded from gross income is any amount received by an official or employee as a consequence of separation of such official or employee from the service of the employer for any cause beyond the control of the said official or employee. educational. presumably without her being required to render future services for the grantor. can the taxpayer still claim it as a deduction? A: Yes. to wit: “Prizes and awards made primarily in recognition of religious charitable. As a result. won in a boxing competition sponsored by the Gold Cup Boxing Council.000 as his prize which was donated by Ayala Land Corporation. 1967) Q: MC. Its annual premium amounted to P100. (Sec. Jacobo accepted the offer and received P400. 235 of the NIRC.? A: No. a sports association duly accredited by the Philippine Boxing Association. facilities fees which according to them is standard operating procedure in transactions with the government. Onyoc received the amount of P500. 28 B *8+ e. Is said premium deductible by ADD Computers. the recognition in the field of sports is not among those stated under Sec. NIRC) Q: Q won P2.” Neither is the BIR correct in collecting the donor’s tax from Ayala Land corporation. The separation was involuntary as it was a consequence of the closure of various unprofitable departments pursuant to the redundancy program. (Sec 28.

Because of the assurances from her retained CPA that she stands a good chance of being able to secure a refund of P50. and that it is not compensated by insurance or otherwise.000. Is the promotional expense deductible? A: Yes. Z is allowed a depreciation allowance for the exhaustion. the premium is not allowed as a deduction from gross income (2004 Bar Question) Q: Gold and Silver Corporation gave extra 14 th month bonus to all its officials and employees in the total amount of P75 million. the payment of premium will constitute bribes which are not allowed as deduction from gross income. wear and tear (including reasonable allowance for obsolescence) of the machineries which he is using in his trade or business. it disallowed as item of deduction the P75 million bonus the corporation gave its officials and employees on the ground of unreasonableness. To entice him to accept the job. What should have been the proper tax treatment of the payment of P75. When it filed its corporate income tax return the following year. taxes allowed as deductions. usual or customary. then divide the difference by its useful life. If X is engaged in trade or business. (Sec. Believing that the amount is excessive. he can deduct the value of the car from his gross income provided he can recover only up to the amount of the casualty loss that does not exceed its book value. Giving an extra bonus at a time that the company suffers operating losses is not a payment done in good faith and is not normal to the business.000. Algue proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise (Vegetable Oil Investment Corporation) and involve themselves in a new business requiring millions of pesos. NIRC) (1983 Bar Question) Q: What is the annual depreciation of a depreciable fixed asset with a cost of P100.000 having a salvage value of P10. 36 A [4]. 17. Sally. NIRC) Q: Algue. when refunded or credited shall be included as part of gross income in the year of receipt to the extent of the income tax benefit of said deduction. The fact that the machineries were already depreciated by its original owner does not matter. If X is an employee of a company. is a domestic corporation engaged in engineering. he was offered the arrangement that part of is compensation would be an insurance policy with a face value of P20 million. Under the tax benefit rule. construction and other allied activities. Pursuant to said authority and through the joint efforts of the officers of Algue.000] then [90. the prohibition for their deduction does not exist. (2006 Bar Question) Q: Noel is a bright computer science graduate. NIRC) On the other hand. Can X deduct the value of his car from his income as casualty loss? A: It depends. The extra bonus is not normal to the business and unreasonable. Inc. Algue received as an agent a commission of P125. She deducted only the P25. GR L-28896 Feb. inducing other persons to invest in it. he cannot deduct the losses incurred since an individual taxpayer who derives income from compensation is allowed only personal and additional deductions and the reasonable premiums for health and hospitalization insurance. Another reason for its non-deductibility is the fact that it can be considered as an illegal compensation made to a government employee.Pont. 1988) Q: In 2006. (1993 Bar Question) Q: Z purchased fully depreciated machineries and entered the machineries in his books at P120.000 in 2008.000 / 20 = 4. Adopting the straightline method. In the course of his travel. When she received the refund of P50. Is the deduction proper. whether directly or indirectly. [100. Algue. his estate or heirs were made as the beneficiary (because of the requirement of insurable interest). (CIR v.000 she did not deduct the same anymore from her income tax return. The corporation claimed that the bonus is an ordinary and necessary expense that should be allowed. they formed the Vegetable Oil Investment Corporation. the premiums paid are ordinary and necessary business expenses of the company. the promotional expense paid by PSEDC to Algue amounting to P75.000 in his income tax return.000 and an estimated useful life of 20 years under the straight line method? A: The annual depreciation is P4. the corporation declared a net operating loss. 34 [F].000 customs duties in 2006. Z claimed a depreciation deduction of P24. a travelling salesman in Sulu. the military and the MNLF band had a chance encounter which caused X’s car to be a total wreck.000 is deductible for it was reasonable and not excessive.000 which she believed was due from her. a fruit market operator received an assessment for customs duties for her imported market equipment in the amount of P75. authorizing it to sell its land. The parents of Noel are made the beneficiaries of the insurance policy. Q: X. Can the company deduct from its gross income the amount of the premium? A: Yes. Based on the independent appraisal and engineering report. she should have included the amount as part of her income. Philippine Sugar Estate Development Company (PSEDC) appointed Algue as its agent. For this sale. 308 US 488 [1940]) Paying premiums for the insurance of a person not connected to the company is not normal. This is so because if the insured. She received the refund amounting to P50. if the company was made the beneficiary. considering that in the hands of the original owner. hence unreasonable and would not qualify as ordinary and necessary expense. When the income tax return of the corporation was reviewed by the BIR the following year. factories and oil manufacturing processes. (Sec.500] Q: Are the following expenses deductible from gross income: 1) Employer’s contribution to the Christmas fund of his employees 2) Contribution to the construction of a chapel of a university that declares dividends to its stockholders 3) Premiums paid by the employer for the life insurance of his employees .000 and from this commission the P75. He was hired by Hewlett Packard. If you were the CIR. the said machineries were already fully depreciated? A: Yes. (Sec.000 promotional fees were paid to the officers of Algue. the starting point for the computation of the deductions for depreciation is the reasonable cost of acquiring the asset and its economic life. The next day. Z assigned to the machineries an economic life of 5 years.000 in 2008.500 computed as follows: Acquisition cost less salvage value. how will you resolve the issue? A: I will rule against the deductibility of the bonus. Since the parents of the employee were made the beneficiaries.000 in 2006? A: Sally should have deducted the total P75. This new corporation later purchased the PSEDC properties. she paid the same under protest. a band of MNLF seized his car by force and used it to kidnap a foreign missionary. 34 A [l] c.000 – 10.000 = 90. They are allowed as a deduction from gross income so long as the employer is not a direct or indirect beneficiary under the policy of insurance.

Q: Supposed the child was gainfully employed at the age of 15. Q: Assuming. 1993. legally separated has 1 child who is 15 years of age. a dependent. XPN: Can be entitled to personal and additional exemption subject to the rule on reciprocity: 1. they sold the condominium unit and bought a new unit. 2. If he is earning from trade or business. A week before their marriage.000. the child gets married. 3. Charlie lives with Jane who is legally married to Mario. How much additional exemption can Charlie claim? 1. the NIRC provides no exception. some renovations were made at a cost of P150. Will she be entitled to personal additional exemption? A: Yes. They have a child named Jill. Birth of their second child in 1993 would likewise entitle them to claim additional exemption of P25. Q: In case of married individuals and both are working. 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 P25. However.000 and the 5. who is incapable of self-support because of mental or physical defect may qualify as a dependent. File an accurate return of his income from all sources within the Philippines.000. (1998 Bar Question) Q: Is a non-resident alien engaged in trade.000 for each dependent. 4. and a second child was born on 07 Nov. has two sons by his previous marriage. A crippled son of X is in the hospital as one of its patients. After the marriage. a resident citizen.000 which may be enjoyed irrespective of the individual taxpayer’s status. the employed spouse within the Philippines shall be automatically entitled to claim the additional exemptions for their children. (1968 Bar Question) Q: W.000 if the hospital is accredited as a donee institution. In 1994. His foreign country allows personal exemptions to citizens of the Philippines not residing therein. is W still entitled to personal exemption? A: No.000. organizations or associations. who is entitled to additional exemptions? 2. are contributions to a 1. on time. The spouses were both employed in 1991 by the same company. 2.000 for 1993. he could not deduct either the P100.4) Contribution to a newspaper fund for needy A: Additional exemptions may be claimed only by the spouse who families when such newspaper organizes a group of has custody of the child or children. an individual taxpayer may claim the BPE irrespective of status. NIRC) No. the charitable contribution must be given to accredited A: It depends. 1992. and 3. 35 [B]. Amount allowable is not to exceed our maximum allowable personal exemption. part of the net income of the university inures to the benefit of its private stockholders. by way of donation. Q: Charlie. business. for the beneficiary is the employer (Sec. Discuss. The children are all minors and not gainfully employed. Charlie may claim the basic personal exemption (BPE) of P50. No. 34 H [1]. a widower. the child must not be more than 21 years old. 27 RAMO 1-87 subject to the condition that the contribution does not exceed ½ month’s basic salary of all the employees. their first child was born. management and/or operation and/or conduct of trade or business or profession. (2006 Bar Question) A: candidate in an election allowable as a deduction from gross income? A: The contributor is not allowed to deduct the contributions because the said expense is not directly attributable to the development. what were the events in the life of the spouses that had income tax incidence? A: The events in the life of spouses. but with regard to marriage and gainful employment. is W still entitled to personal exemption? Q: The Filipinas Hospital for Crippled Children is a charitable organization. 4. Yes.000 to a crippled girl whom he particularly pitied.000 because to qualify for exemption.000 from his gross income. Their marriage in 1990 had no effect on their entitlement to the basic personal exemption of P50. Birth of their first child in 1992 would give rise to an additional exemption of P25. living with and dependent upon Charlie for their chief support. who is entitled to additional exemptions? A: Additional exemption for dependents shall only be allowed to one of the spouses. is W still entitled to personal exemption? A: No. they are unmarried. 36 A [4]. If not. married and has 4 qualified dependents. (Sec. How much personal exemption can Charlie claim? 2. NIRC) civic spirited citizens solely for charitable purposes. 34 [H]. On 30 Dec.000 from her parents. he could not deduct the P5. Their employment in 1991 by the same company will make them liable to the income tax imposed on gross compensation income. It is part of the ordinary and necessary expenses. regardless of age. or in the exercise of a profession in the Philippines (NRA-ETB) entitled to personal and additional exemptions? A: GR: No.000 for taxable year 1992. 2. Under RA 9504. if apart from being minor and not gainfully employed. A: If X is earning from compensation income. under No. NIRC) Note: Where the spouse is unemployed or is a non-resident citizen deriving income from foreign sources. Mar and Joy. X wants to exclude both the P100. X visited the hospital and gave P100. Q: The child reached the age of 22.000 and the P5. NIRC) (1993 Bar Question) Q: On the part of the contributor. The husband shall be the proper claimant unless he explicitly waives his right in favor of the wife in the Application for Registration (Sec.000 to the hospital and P5. NIRC) No. He earns a monthly compensation . 3. Q: Mar and Joy got married in 1990. Note: In case of age requirement there is an exception. as a rule. Q: In case of legally separated spouses. (Sec. Joy received. then no deduction is allowed. (1997 Bar Question) Q: Assuming X. which have income tax incidence are: 1. Under the foregoing facts. 35 [B]. he could deduct the P100. However. A: 1. contributions to a newspaper fund for needy families are not deductible for the reason that the income inures to the benefit of the private stockholder of the printing company. (Sec. a condominium unit worth P750.

is a foreign corporation duly organized and existing under the laws of Japan and duly licensed to engage in business under Philippine laws. Congress has the power to condition.000) Additional Exemption (25K x 4) (100. Maru contends that it is a resident foreign corporation subject only to the 10% intercorporate final tax on dividends received from a domestic corporation in accordance with Sec. 1988) Note: The NCIT rate at the time the case was decided was still 35% now it is 30%.000 Q: Assume that X is a non-resident alien not engaged in trade or business. Is the contention of Maru correct? A: No. Feb. 22. while international air carriers that do not have flights to and from the Philippines but nonetheless earn income from other activities in the country will be taxed at the normal rate of 30% of such income. hence does not constitute a taxable fringe benefit.S company in the Philippines until he retired in 1999.000. is a DC owned by Glaro Ltd. 2010) Q: Maru Corp.000. GR 180356. GR 160756.500. Switzerland did not impose any tax on dividends received by Glaro.income of P25. Mar. Apr.000+30% of the excess over P250. the imposition of MCIT is not violative of due process for the following reasons: 1. The test of taxability is the source. Wander filed a claim for refund. the applicable rate is: Over P250. He came to like the Philippines so much that following his retirement. 2004) Note: If an international air carrier maintains flights to and from Note: Premium payment on health and/or hospitalization insurance cannot be availed since the family gross income is more than P250. Is the imposition of MCIT unconstitutional? A: No. 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 Sec.000 Taxable income subject to graduated rates P300. He earned gross income in the amount of P1.000 Thus.000 Add: Net business income 150. Q: Ralph Donald. Is Wander entitled to the preferential rate of 15% withholding tax on the dividends it remitted to Glaro? A: Yes. Thus. subject to the condition that the country in which the non-resident corporation shall allow a credit against the tax due from the non-resident corporation taxes deemed to be paid in the Philippines equivalent to 20% which represents the difference between the regular tax of 35% on corporations and 15% tax on dividends. To deny Wander to withhold the 15% tax would run counter to the very spirit and intent of said law. Dec. it shall be taxed at the rate of 2½% of its Gross Philippine Billings. Accordingly he must pay P375. the income tax payable is: Over 250. and the source is that activity which produced the income.000 x 12) P300.000 Excess x 30% (50. (Air Canada v. which he could use as his residence in the fishponds. should be considered as a full satisfaction of the given conditions. Atlantic Gulf and Q: How much is his income tax payable? A: From the taxable income of P300. In the instant case. the small hut is provided for the convenience of the employer.. the dividend income remitted to Maru arising from its equity investments in AGP of Manila is considered separate and distinct income from the branch office in the Philippines. 33.000 P50.000 INCOME TAX PAYABLE P65. (CIR v. reduction of the applicable tax rate. To enable him to perform his duties well. CIR. however.000 x 30%) 15. Even assuming that he is a managerial or supervisory employee.000.000 computed as A: No. (CIR v. the Philippines. it is not arbitrary or confiscatory. How much will he pay as income tax? A: Since X is a non-resident alien not engaged in trade or business. How much is his taxable income for Philippine territory render the income received by an the year 2009? international air carrier income outside the Philippines? A: X’s taxable income for the year 2009 is P300. Wander remits dividends to its parent company out of which Wander withholds 35% and pays the same to the BIR. was a top executive of a U. (Sec.5 million from his onenight concert in the Philippines. It is not an additional tax imposition but is imposed in lieu of normal net income tax and only if said tax is suspiciously low. 33 of the NIRC? A: No. et al. limit or deny deductions from gross income in order to arrive at the net that it chooses to tax.a foreign service corporation not engaged in trade or business in the Philippines. 2001) Q: Wander Inc. the tax rate shall be 15% of the dividends remitted. The absence of flight operations within the Philippines cannot alter the fact that the income received was derived from activities within the Philippines. Such fact.000 but not over P500. he decided to spend the rest of his life in the country. dividends received from a domestic corporation is liable to tax. Maru claimed for the refund or issuance of a tax credit representing profit tax remittance erroneously paid on the dividends remitted by AGP. he earned P150. (CREBA. his gross income within the Philippines is subject to 25% final tax and is not allowed any deductions. NIRC) (2001 Bar Question) Q: CREBA assails the constitutionality of MCIT on the contention that it violates due process. 3.000 through their local agents shall be considered as resident foreign corporation engaged in trade or business in the country.000 (1.000 for the taxable year. Only managerial or supervisory employees are entitled to a fringe benefit subject to the FBT. 15. GR 137377. 6572. but certainly not of the branch in the Philippines. 18. He applied for and was granted permanent . at the same time. (South African Airways v. There can be no other logical conclusion that the investment was made for purposes peculiarly germane to the conduct of the corporate affairs to Maru. MCIT is imposed on gross income and not capital. Dec. CTA Case No. 9. CIR. contending that it is liable only for 15% withholding tax and not 35% as provided in the NIRC.000 P50. GR L68375. Romulo. Marubeni. (Switzerland) . 2010) Pacific Co. Inc. Wander Philippines Inc. an American citizen. v. Subsequently. he was also provided a small hut. 24 c [1] of the NIRC. of Manila (AGP) declared and paid cash dividends to petitioner and withheld the corresponding final dividend tax thereon. In 2009. 2. In as much as deductions are a matter of legislative grace. There is no legal objection to a broader tax base or taxable income resulting from the elimination of all deductible items and. 16.000 x 25%) Q: X was hired by Y to watch over Y’s fishponds with a salary of P10..000 Less: Basic Personal exemptions (50. X is neither a managerial nor a supervisory employee.000 as net income Q: Does the absence of flight operations within the from his retail business.000) Premium payment on health and/or Hospitalization insurance -----------Net Compensation Income 150. a foreign airline company selling tickets in the Philippines follows: Gross Income (P25. under the NIRC.

36 [A][4]. the estate tax cannot be imposed thereon. life of an employee where the employer is designated as the beneficiary. a Filipino residing in Quezon City. 108). Obviously.S treasury bonds h. Q: Suppose an employer takes a life insurance policy on the Shares of stock in San Miguel Corporation and PLDT f.000 as Q: A.00 on Christmas 2001 or to give P100. his Ortiz. are included in the taxable gross estate in the Philippines. d. 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 P200. 85. the intention of the donor in making the inter-vivos gifts is to avoid the imposition of the estate tax and since the donees are likewise his forced heirs who are called upon to inherit. At the time of his death he left the following properties: a. on the same day. by operation of law. 78{a) of the Tax Code still forms part of "decedent's interest".S A: The premiums paid by the employer will not be deductible from company where he worked. with coconut trees. NIRC). NIRC. he suffered a donations were made mortis causa. or simultaneously with. splitting the donation into two equal amounts of P100. Bank deposits with Citibank Makati and Citibank Orlando Florida. Posadas. Since the privilege to transmit property is not exercised by the decedent. Ralph Donald is considered a resident alien for tax purposes since he is an Aerican citizen and was a permanent resident of the Philippines at the time of his death. are the inter-vivos gifts considered transfers in contemplation of death for purposes of determining properties to be included in his gross estate? A: Yes. A: I would advise him to split the donation. In the spring of 2004. (2007 Bar Question) Q: Your bachelor client. it will not form part of his gross estate. Rest house in Orlando. 000 donation in the graduated brackets is exempt (Sec. the aggregation of all donations made by a donor is allowed only over one calendar year. (Sec. Upon the death of earned employed. No. c. (2001 Bar Question) . In your opinion. Conversely. NIRC). 2002. the government. The estate tax is a tax on the privilege enjoyed by an individual in controlling the disposition of her properties to take effect upon her death. payable upon his death to his estate. (2005 Bar Question) its employer’s gross income (Sec. (2001 Bar Question) heart attack and died.000. Neither will it be included in the gross income of the employee-beneficiary based on Sec. Shares of stock in Disney World in Florida g. Ten days later. the life insurance proceeds will form part of the gross estate of the decedent employee if his designation is revocable. (h) proceeds from a life insurance policy. Shares of stock in the Phil subsidiary of the U. 1994 were acquired by the government under CARP are no longer part of his taxable gross estate. the proceeds from life insurance. 58 Phil.00 on Christmas 2001 and the other P100. gainfully employed. which is excluded from the gross income of the recipient. The amount received in a settlement agreement with the airline company and insurance company is an amount received from the accident insurance covering the passenger of the airline company and is in the nature of compensation for personal injuries and for damages sustained on account of such injuries. Q: Jose Ortiz owns 100 hectares of agricultural land planted the have 2. Florida. Edgardo was her only heir. on August 1. Prior to his agricultural lands except five (5) hectares. aged 90 years and suffering from incurable cancer. made several inter-vivos gifts to his children. 2001 wrote a will and. This is what Antonia would Agrarian Reform Law all hectares of agricultural land in the preparation of the estate tax return. The P10 million is not a property existing at the time of the decedent’s death. She died in an airplane crash. While the donor’s tax is computed on the cumulative donations. Q: Antonia Santos.resident status the following year. Proceeds from a life insurance policy issued by a US corporation. 32(B)(1).000 given on two different years will totally relieve the donor from the donor’s tax because the first Pl00. hence it cannot be said that she exercised control over its disposition. it will create a presumption juris tantum that said 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. NIRC) The other item. death. Giving the P200. (Roces v. wants to give his sister a gift of P200.000. Please explain your advice. However. the making of gifts. NIRC).000. U. Which of the foregoing assets shall be included in the taxable gross estate in the Philippines? Explain. 1994. 99. Edgardo is a lawyer and he negotiated with the airline company and insurance company and they were able to agree to settlement of P10 million.000. the gifts are considered as having been made in contemplation of death. (Sec. 85[E]. 30 years old. What advice will you give her? A: The 100 hectares of land that Jose Ortiz owned but which prior to his death on May 30. acquired under Comprehensive as 1. hence. He seeks your advice. his widow asked you how she will consider the 100 somebody 2. Q: If the property insured was destroyed after the taxpayer’s death. A condominium unit in Makati. what are its tax implications? b. wherever situated. He died on May 30. will it still form part of the gross estate? A: No. (1994 Bar Question) who was gainfully Is the P10 million subject to estate tax? Should Edgardo report the 10 million as his income being Antonia’s only heir? A: 1. e. with the exception of the remaining five (5) hectares which under Sec. real or personal. When the donor makes his will within a short time of. On the other hand. 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. it will be considered as a receivable of the estate. is the sister of Eduardo Santos. A: All of the properties enumerated except (h). tangible or intangible. while vacationing in Orlando Florida USA. he died. may also be included on the assumption that it was Ralph Donald who took out the insurance upon his own life. if the designation is irrevocable.00 on January 1. the properties donated shall be included as part of A's gross estate. No.

were tax on the part of Y and Z for their respective A: 1. The CIR may allow an extension of time to pay the estate tax if the payment on the due date would impose undue hardship upon the estate or any of the heirs. in order to be deductible from the gross estate must be essential to the settlement of the estate. brokerage fees or commissions for selling or disposing of the estate. allowed as deductions from the gross estate of decedent in testamentary or intestate proceedings. The CIR may require the posting of a bond to secure the payment of the tax. his lot with a market value of P1. Pending said action. However. Y. hence a return of capital. Does the condition that the basis of the estate tax will be the value at the time of the payment have order to arrive at the value of the net estate? A: Although the Tax Code specifies "judicial expenses of the Does CIR have the power to extend the payment of estate tax? and the attorney's fees in the guardianship proceedings be Q: reduced A: No. 2.000. If there is a legal and factual basis. As stated in the problem. 30. She died leaving three condominium units in Quezon City valued at 5 million each. 2006 and filed the estate tax return on March 30. Will the tax refund form part of his gross estate? A: It depends.. or condoned through deduction from the gross estate are existing claims against the estate. CA. for the purpose of paying its creditors. 123206. (Sec. no estate Q: On June 30. Rodolfo was her only heir. which is beyond the scope of income taxation (Sec. Such expenses may include executor's or administrator's fees. creditors 1. NIRC) (2003 Bar Question) Q: What shall be the liability of a co-depositor who was able to withdraw funds from the account of a deceased depositor without paying the estate tax? A: They shall be held liable for perjury because all withdrawal slips contain a statement to the effect that their co-depositors are still living at the time of the withdrawal by any one of the joint depositors and such statements are deemed under oath. an individual. (Dizon. died on November 10.R. 1.000. Z. (CIR v. it will. costs of preserving and distributing the estate and storing or maintaining it.000 and his son Z. The proceeds of life insurance received upon the death of the insured constitute a compensation for the loss of life. The law explicitly provides that the 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. The valuation of properties comprising the estate of a decedent is the fair market as of the time of death. 140944. Attorney's fees incurred in the guardianship proceeding were essential to the distribution of the property to the persons entitled thereto. Q: May the notarial fee paid for the extrajudicial settlement 2. The claims against the estate which the law allows as the gross estate of X? Explain. payment of the debts. which has a fast growing business. NIRC) Only the proceeds of 1. 2003 X died and his wife and son went to the compromise agreements entered into by the Estate with its insurer to collect the proceeds of X’s life insurance policy. CTA ordered that the estate should pay the own life in the amount of P2. Q: A. et.000 for P600. and the like. 2000) During the proceeding for the probate of Jose Fernandez’s estate. He reported her death on December 6. Deductible attorney's fees are those incurred by the executor or administrator in the settlement of the estate or in defending or prosecuting claims against or due the estate. 2008) Are the proceeds of the insurance to form part of No. (Sec. to her key executives in X Co. Hence.000. A sold some of her shares of stock in X Co. there is no more claim against the estate which may be allowed as a deduction. attorney's fees. but in the latter designation. 2007. and distribution of the remainder among those entitled thereto.000. He designated his wife. deduction is limited to such administration expenses as are actually and necessarily incurred in the collection of the assets of the estate. Under the Tax Code. al v. Because she needed to sell one unit of the condominium to pay for the estate tax she asked the CIR to give her one year to pay the estate tax due. the proceeds received by Y shall be excluded while the proceeds received by Z shall be included in the gross estate of X.000. claims Are the proceeds of the insurance subject to income shares? Explain. .000. NIRC) (2007 Bar Question) Q: A tax refund was filed by a taxpayer. the legal basis? A: 1. Otherwise. Dizon claims that in as much as the valid claims of creditors against the estate are in excess of the gross estate. a resident citizen. the administrator. Apr. Dizon. If there is no more indebtedness by reason of the condonation. Mar. to May the actual claims of the creditors be fully allowed as the balance of P1. The extension in any case. the BIR issued an Estate Tax Assessment Notice demanding payment of the deficiency estate tax. estate tax liability with interest. (Sec. No other valuation date is allowed by law. 2. 85(E). An indebtedness that has been condoned is in legal effect no indebtedness at all. shall form part of the Gross Estate of X. requested the probate court's authority to sell several properties forming part of the estate. 2000. 22. 2006. taxpayer died. Q: Remedios. will not exceed 2 years if the estate is not under judicial settlement of 5 years if it is under judicial settlement.R No." there is no reason why expenses incurred in the administration and settlement of an estate in extrajudicial proceedings should not be allowed. A also owns X Co. 32 B (1). 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. Accordingly.000. X took out a life insurance policy on his tax was due. NIRC) No.000.000. as irrevocable beneficiary to P1. her sister-in-law. Attorney's fees. court fees and charges. 91[B].However. appraiser's fees. Yes.000. No.00 given to the son. only the designation of Y is irrevocable while the insured/decedent reserved the right to substitute Z as beneficiary for another person. clerk hire. G. A's cost in the lot is P100. on the other hand. sold to B. 88. The CIR approved the request of extension of time provided that the estate tax be computed on the basis of the value of property at the time of payment of tax. B is financially capable of buying the lot. 2. G. deductions from the gross estate of Jose despite the fact reserving his right to substitute him for another. it will not be included. On that September 1. the attorney's fees incurred in the guardianship proceedings should be allowed as a deduction from the gross estate of the decedent. CA.

(Sec. G. as amended. who is a stranger? A: A stranger is the one who is not a brother. Suppose. An exemption means that the sale of goods. Inasmuch as both sales are considered export sales subject to VAT at 0% rate under the National Internal Revenue Code. The excess of the fair market value over the selling price is a deemed gift. How much did Dino gain on the sale? Explain. Furthermore. an export enterprise. Is he correct? Explain. or (b) the fair market value as shown in the schedule of values fixed by the Provincial and City Assessors. properties or services that are VAT exempt. The purpose of A in selling the shares is to enable her key executives to acquire a propriety interest in the business and have a personal stake in its business. Taxable transactions are those transactions which are subject to value-added tax either at the rate of ten percent (10%) or zero percent (0%).5million in 1995. and the other one-half proindiviso interest to the same son on 2 January 1995. the chairman of Political Party Z. does not apply to a sale of property subject to capital gains tax (Sec. He says that since there were only two (2) days separating the two donations they should be treated as one. 2. it may even be considered as a bribe or a kickback. It is now worth P20 Million although the zonal value is only P15 Million. it filed an application for tax credit/refund of VAT paid for the said period representing excess VAT input payments. 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 transactions. who wants to run for President in the 2004 elections. The contributor is not allowed to deduct the contributions because the said expense is not directly attributable to. the seller shall be entitled to tax credit for the value-added tax paid on purchases and leases of goods. Cebu Toyo Corporation.000. 2. or a relative by consanguinity in the collateral line within the 4th civil degree of the donee. The transfer for less than adequate and full consideration. 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. the tax payable by the donor shall be 30% of the net gifts. 4. Dino gained an income of 19 million from the sale. For purposes of this tax. 149073. It sells 80% of its products to its mother corporation. which gives rise to a deemed gift. (1999 Bar Question) Q: When the donee or beneficiary is a stranger. RR 02-03) of the two values mentioned as provided under Sec. properties or services and the use or lease of properties is not subject to VAT (output tax) and the seller is not allowed any tax credit on VAT (input tax) previously paid. 16. provided the recipient candidate had complied with the requirement for filing of returns of contributions with the Commission on Elections as required under the Omnibus Election Code. having been made within one year. Dino subsequently sold the land to a buyer for P 20 Million. instead of receiving the lot by way of donation. There is no legal justification for treating two gifts effected in two separate calendar years as one gift. Dino received it by inheritance. shall not result in any output tax. Cebu Toyo is engaged in taxable rather than exempt Q: Kenneth Yusoph owns a commercial lot which she bought many years ago for P1 Million. NIRC]. Since the property was acquired by gift. NIRC)(2000 Bar Question) Note: A donation is considered made to a stranger when it is: I. 98. Knowing . the development. The CIR belies the claim for refund. A VATregistered purchaser of goods.R. and the rest are sold to various enterprises doing business in the Mactan Export Processing Zone. Dino acquires a carry-over basis which is the basis of the property in the hands of the donor or P1 million. ancestor and lineal descendant. The Revenue District Officer questions the splitting of the donations into 1994 and 1995. Is the grant of a refund representing unutilized input VAT to Cebu Toyo proper? A: Yes. 3. is a subsidiary of a foreign corporation duly registered with the Philippine Economic Zone Authority pursuant to PD 66 and is also registered with the BIR as a VAT taxpayer. is not entitled to any input tax on such purchases despite the issuance of a VAT invoice or receipt. which is the book value of the shares sold but with a market value of P5. No.000. 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). The sale of shares of stock below the fair market value thereof is subject to the donor's tax pursuant to the provisions of Section 100 of the Tax Code. Under the system. The selling price is P3. No because the computation of the gift tax is cumulative but only insofar as gifts made within the same calendar year. Explain. operation and/or conduct of a trade. The value of the gifts for purposes of computing the gift tax shall be P7. The stepped-up basis of P15 million which is the value for estate tax purposes is the basis for determining the gain.5million in 1994 and P7. which is a taxable transaction for VAT purposes. the gain is computed by deducting the basis of P1 million from the amount realized which is P20 million. What would be his gain on the sale of the lot for P20 Million? Explain.These executives are not related to A. Between business organizations Between an individual and a business organization (Sec 10B. spouse. Hence. if the lot sold is an ordinary asset. 2005). How much is the value of the gifts in 1994 and 1995 for purposes of computing the gift tax? 1. business or profession. A: 1. is it allowable as a deduction from gross income? A: No. NIRC).. NIRC)(1995 Bar Question) Q: Cebu Toyo Corp. (1998 Bar Question) Q: X is a friend of Y. 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. 34(b)(2). management. if the candidate is an incumbent Government official or employee. but the input tax on his purchase of goods. 000. Explain if the above transactions are subject to donor's tax. 100. properties or services. the excess of the fair market value over the consideration received shall be considered as a gift subject to the donor's tax. A's cost in the shares sold is P1. 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. 4. 000. Q: Are contributions to a candidate in an election subject to donor's tax? On the part of the contributor. 000. a zero rated sale by a VAT-registered person. In taxable transactions. A: The first transaction where a lot was sold by A to her sister-inlaw for a price below its fair market value will not be subject to donor's tax if the lot qualifies as a capital asset. Feb. 3. II. sister. 1. 34(a). However.000. properties or services related to such zerorated sale shall be available as tax credit or refund (CIR v. 81 of the Tax Code. (Sec. She donates one-half pro-indiviso interest in the land to her son Dino on 31 December 1994.

is only for taxes which it is directly liable. RR 2-2003) An administrative claim for refund of VAT input taxes in the amount of P28. Magsaysay asked BIR for a formal request for a ruling whether said purchaser should pay VAT on account of such sale. because the ecozone within which it is registered is managed and operated by the PEZA as a separate customs territory. no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority. The purchaser is subject to VAT because it is merely added as part of the purchase price and not as a tax because the burden is merely shifted. (Magsaysay). moreover. This means that in such zone is created the legal fiction of foreign territory. provided. then the same rule holds for such exports from the national territory -. 000. Although the transactions involving such tax are not exempt. supplies. G. It is also registered with the PEZA to engage in the manufacture of recording components primarily used in computers for export. (Sec. not from time to time. (Sec. The donation being in the nature of real property complies with the utilization requirement. is not a taxpayer in so far as the passed-on tax is concerned and therefore. Seagate has the burden of proof that the taxes sought to be refunded were erroneously or illegally collected. 369. If exports of goods and services from the Philippines to a foreign country are free of the VAT. National Development Company (NDC) sold five of its vessels to Magsaysay Lines Inc. it is exempt from payment of all local and national internal revenue taxes. The act of NDC in selling the vessels was not done in the regular manner. Under the cross-border principle of the VAT system being enforced by the BIR. once she becomes a candidate for an elective post. Only taxpayers are allowed to file a claim for refund. The VAT on capital goods is an internal revenue tax from which the entity is exempt. religious. No doubt. while "doing business" conveys the idea of business being done.00 for her campaign. shifted to it. or coalition of parties for campaign purposes. The seller is still exempt because it could pass on the burden of paying the tax to the purchaser. What would your answer be? Will your answer be the same if she were to donate to Political Party Z instead of to Y directly? A: The donation to Y.38 with supporting documents was filed with Revenue District Office in Cebu. the rate to be applied is zero. NIRC) (2007 Bar Question) Q: Mr. Lily’s Fashion Inc. 99[C]. July 28. The CTA reversed the same on the ground that it was not done in the ordinary course of business of NDC. political party or coalition of parties for campaign purposes. Thus. No. Is Magsaysay lines liable to pay VAT on such sale? A: No.except . it cannot claim for a refund of a tax merely. Lily’s Fashion Inc. Seagate enjoys preferential tax treatment. During its operations. filed with the BIR a claim for refund for the input tax shifted to it by the suppliers. a non-VAT exempt purchaser. benefits. Is Mr. Unfortunately. is not subject to donor's tax provided that she complies with the requirement of filing returns of contributions with the Commission on Elections as required under the Omnibus Election Code. etc. accredited nongovernment organization. reported to COMELEC shall not be subject to payment of any gift tax (Sec.226. If you were the CIR will you allow the refund? A: No. barter or exchange of goods or services by persons who engage in such activities. however. Seagate as a VAT-registered person. articles. prosecuting and continuing business by performing progressively all the acts normally incident thereof. Q: Lily’s Fashion Inc is a garment manufacturer located and registered as a Subic Bay Freeport Enterprise under R.. is entitled to their credits. BIR held that it is liable to pay VAT. 7227 (duty-free importation) and 7844 (tax credits). SEAGATE is a VAT-registered entity. She asks you whether her intended donation to Y will be subject to the donor's tax. political party. Its exemption under both PD 66 and RA 7916 effectively subjects such transactions to a zero rate. NIRC) (2003 Bar Question) Q: The Congregation of Mary Immaculate donated a parcel of land and a dormitory building located along Espana St. in favor of Sisters of the Holy Cross. 2006) Q: SEAGATE is a resident foreign corporation duly registered with the SEC to do business in the Philippines. The "carrying on business" does not mean the performance of a single disconnected act. 146984. in the course of trade or business. enjoy all privileges. etc or would be entitled to income tax holiday. VAT on the transaction? Fashion. Inc. Is Seagate entitled to the refund or issuance of Tax Credit Certificate representing alleged unutilized input VAT paid on capital goods purchased? A: Yes. (CIR v. hence. 101[A][3].R. Seagate failed to do so. Since the purchases of Seagate are not exempt from the VAT. no more than 30% of the gifts are used for administration purposes. Gifts in favor of educational and/or charitable. a VAT-exempt retailer sells to Mr.A. The CIR contended that since ‘taxes are presumed to have been collected in accordance with laws and regulations. The exemption of Lily’s Fashion Inc. It shall. it purchased various supplies and materials necessary in the conduct of its manufacturing business.that Y needs funds for posters and streamers. but all the time. additional deduction for labor expense. advantages or exemptions under both Republic Act Nos. that. VAT is a tax levied only on the sale. Is the donation subject to donor’s tax? A: No. NIRC. And as such. as a PEZA-registered enterprise within a special economic zone. but means conducting. In the sales contract it provides that VAT shall be paid by the purchaser Magsaysay Lines. it is entitled to the fiscal incentives and benefits provided for in either PD 66 or EO 226 which would not subject respondent to internal revenue laws and regulations for raw materials. a group of nuns operating a free clinic and high school teaching basic spiritual values. A. O liable to pay A: Yes. The administrative claim for refund was not acted upon by the petitioner prompting the respondent to elevate the case to the CTA. "Course of business" is what is usually done in the management of trade or business. trust or philanthropic organization or research institution or organization are exempt from donor’s tax. O. which is not at all considered a tax to the buyer but part of the purchase price. not in the ordinary course of trade or business.000. Q: items amounting to P500. In fact the sale was effected only because of the privatization program of the government thus the sale was not subject to VAT. it cannot claim exemption for tax shifted to it. (2006 Bar Question) Q: Are donations for political campaign purposes exempted from donor’s tax? A: Any contribution in cash or in kind to any candidate. The answer would be the same if X had donated the amount to Political Party Z instead of to Y directly because the law places in equal footing any contribution to any candidate. Magsaysay Lines Inc. 7227 and a non-VAT taxpayer. social welfare corporation or cultural institution. X is thinking of donating to Y P150. 99(C). The supplier of these goods shifted to Lily’s the 10% VAT on the purchased Pursuant to the privatization program of the government.

dental. that it then contracts the services of physicians. Subsequently. 24. Inc. and that it enters into contract with clinics.R. Tractors and other agricultural implements fall under the definition of goods which include all tangible objects which are capable of pecuniary an ecozone. If you decide to purchase the car. the BIR sent PHILHEALTH a Preliminary Assessment Notice for deficiency in its payment of the VAT and documentary stamp taxes (DST) for taxable years 1996 and 1997 and a letter demanding payment of “deficiency VAT” and DST for taxable years 1996 to 1997.”(CIR v. Consequently. where the goods are subsequently. Are the services of PHILHEALTH subject to VAT? Fees for lodging paid by students to Bahay-Bahayan Dormitory. such as fresh vegetables. As it is. (Sec. Since the imposition of a tax is a burden on the taxpayer. but cancelling the payment of DST. in her dress shop and other outlets. NIRC) VAT at 12%.. R. 4. who shall be liable for any internal revenue tax on such importation. Apr. (2005 Bar Question) Q: Are gross receipts derived from sales of admission tickets in showing motion pictures subject to VAT? A: No. hospital and veterinary services except those rendered by professionals. G. SM Prime Holdings.88 stating that PHILHEALTH. 107 (B) of the Tax Code provides that “In case of tax-free importation of goods into the Philippines by persons. a corporation that establishes. No. 153866. 1. Tax Code. medical and dental practitioners. 500). No. retroactivity of rulings guaranteed under Section 246 of the Sale of RTW by Cely's Boutique. After a Manila. This transaction also falls under the definition of goods which include all tangible . which is an entity exempted from taxation under international agreements to which the Philippines is a signatory.specifically declared areas -. 5. a by contractor Jake's to the Construction World Health Organization in the renovation of its offices in deficiency. 2. PHILHEALTH filed a protest with the Commissioner but the Q: State whether the following transactions are: a) VAT Exempt. (CIR v. Pamilihang Bayan ng Trece Martirez.A. substantially adopting and reproducing the provisions of E. 109[A]. 26. 11. or producing foods for human consumption is exempt from VAT.R. Motion for Partial Reconsideration. the power to impose amusement tax on cinema/theatre operators or proprietors remains with the local government. 106[A][1]. a private entity operating a student A: Yes. transferees or recipients shall be considered a the importer thereof. Since Jake's Construction Company has rendered services to the World Health Organization.O. PHILHEALTH brought the matter to the CTA. the 10% VAT being on top of the 30% amusement tax imposed by the Local Government Code of 1991. amending further the NIRC of 1977. of a kind generally used as. Sale of agricultural products. NIRC) VAT at 0%. With the passage of these laws. G. The privilege of exemption from tax is recognized by tax authorities. A contrary ruling will subject cinema/theatre operators or proprietors to a total of 40% tax. the purchasers. PHILHEALTH is not actually rendering medical service but merely acting as a conduit between the members and their accredited and recognized hospitals and clinics. which he imported tax-free for his personal use. conducts and operates a prepaid group practice health care delivery system or a health maintenance organization to take care of the sick and disabled persons enrolled in the health care plan. 3. is the sale subject to tax? Explain. the supply of services is subject to zero percent (0%) rate. was exempt from the VAT coverage. 273 on VAT and the E-VAT law. Sec. The legislative intent is not to impose VAT on persons already covered by the amusement tax. Philippine Health Care Providers Inc. Seagate Technology (Philippines). a Filipino dress designer. VAT exempt. in their original state. 2010) Q: PHILHEALTH. Republic Act 7716 (E-VAT Law) took effect. G. in the absence of showing of bad faith on its part. (Sec. No. PHILHEALTH’s services are not VAT-exempt. (Sec. sold. entities or agencies exempt from tax. The sale is subject to tax. as a provider of medical services.R. NIRC) This is subject to VAT at 12%. hospitals. transferred or exchanged in the Philippines to non-exempt persons or entities. 168129. latter did not take action on its protest. financing and other procedures in the delivery of health services. inquired before the Commissioner of Internal Revenue (Commissioner) whether the services it provided to the participants in its health care program were exempt from the payment of VAT. A: 1. Feb. decision with respect to the payment of deficiency VAT and Sale of tractors and other agricultural implements by Bungkal Incorporated to local farmers. it cannot be presumed nor can it be extended by implication. The Commissioner issued VAT Ruling 231. It merely provides and arranges for the provision of pre-need health care services to its members for a fixed prepaid fee for a specified period of time. A: Yes. 185305. b) subject to VAT at 12%. or c) subject to VAT at 0%. Those exempted from VAT are those engaged in the performance of medical. The repeal by the Local Government Code of 1991 of the Local Tax Code transferring the power to impose amusement tax on cinema/theatre operators or proprietors to the local government did not grant nor restore the said power to the national government nor did it expand the coverage of VAT. 2005) Q: Anshari. medical professionals and then negotiates with them regarding payment schemes.. [1%] held that PHILHEALTH was entitled to the benefit of non- 4. clinics and hospitals to perform such services to its enrolled members. 8424 (NIRC of 1997) took effect. an alien employee of Asian Development Bank (ADB) who is retiring soon has offered to sell his car to you. The CTA declared that VAT Ruling 231-88 is void and without force and effect and ordered it to pay the VAT Services rendered Company. 2. 108[B][3]. (CIR v. Meanwhile. Feb. maintains. 2007) Sale of fresh vegetables by Aling Ining at the dormitory (monthly fee PI. CTA overruled its 3. thereby killing the “*goose+ that lays the golden egg*s+.

be set-off against the unliquidated claim which the Taxpayer conceived to exist in his favor. 29. NIRC) VAT Exempt.103-1. Aug. set off said claims against his other tax liabilities? Explain your answer.(1998 Bar Question) Q: May a taxpayer who has pending claims for VAT input credit or refund. 106[A][1]. The monthly fee paid by each student falls under the lease of residential units with a monthly rental per unit not exceeding P10. objects which are capable of pecuniary estimation (Sec. (Philex Mining Corp. In the instant case. the liquidated obligation of the taxpayer to the government cannot. Set-off is available only if both obligations are liquidated and demandable. No. The term unit shall mean per person in the case of dormitories. 4. NIRC). therefore. (Sec. which is exempt from VAT regardless of the amount of aggregate rentals received by the lessor during the year. 1998) (2001 Bar Question) . A: No. 109[Q]. CIR. 795). RR No. Liquidated debts are those where the exact amounts have already been determined.5. G. A fortiori. v. 125704. boarding houses and bed spaces (Sec.000. a claim of the taxpayer for VAT refund is still pending and the amount has still to be determined.R.