PROPOSED SUGGESTED ANSWERS

2016 BAR EXAMS IN TAXATION

Prepared by Prof. Abelardo T. Domondon

COMMENTS: The examinee need not cite the authorities in order to get full credit.

RECOMMENDATION: There should be liberality in the correction or a bonus should

be given. It is difficult for the Bar candidates to finish answering some of the
questions considering the limitation of “12 minutes to answer each question, and 6
minutes to answer each sub-question.”

I. Lifeblood doctrine. Taxes are the lifeblood of the government [Chamber of

Real Estate and Builders’ Associations, Inc. v. Romulo, 614 SCRA 605 (2010)] for without taxes,
the government can neither exist nor endure. (National Power Corporation v. City of
Cabanatuan, G.R. No. 149110, April 9, 2003 citing various cases)
Necessity theory. The theory behind the exercise of the power to tax
emanates from necessity, without taxes, government cannot fulfill its mandate of
promoting the general welfare and well being of the people. [Gerochi v, Department of
Energy, 527 SCRA 696 (2007)]
Benefits received principle. “The expenses of government, having for their
object the interest of all, should be borne by everyone, and the more man enjoys the
advantages of society, the more he ought to hold himself honored in contributing to
those expenses.” [Opening quotation in Abakada Guro party List (formerly AASJAS), etc., v.
Ermita, et al., G. R. No. 168056, September 1, 2005 and companion cases from Anne Robert Jacques
Turgot (1727-1781) a French statesman and economist]
Doctrine of symbiotic relationship. The “symbiotic relation” between
the state and its citizens constitutes the reciprocal duties of protection and support
between the state and its citizens and residents. (Commissioner of Internal Revenue v.
Algue, Inc., et al., 158 SCRA 8, 16-17)
NOTE NOT PART OF THE ANSWER: The concepts of the “benefits received
principle” and the doctrine of symbiotic relationship” are practically the same.

Related Bar Questions:

1. Discuss the meaning and the implications of the following statement:

“Taxes are the lifeblood of government and their prompt and certain availability
is an imperious need.” (1991)
2. Discuss the basis/bases of taxation. (1978, adapted)

II. Any five (5) of the following forms part of the SUGGESTED
ANSWER: The Court in Divisions shall exercise:
“a. Exclusive original or appellate jurisdiction to review by appeal the
following:

1) Decisions of the Commissioner of Internal Revenue in cases

involving disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue Code or other laws administered by the Bureau of
Internal Revenue;
 2) Inaction by the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue Code or other laws administered by the Bureau of
Internal Revenue where the National Internal Revenue Code or other
applicable law provides a specific period for action: Provided, that in case of
disputed assessments, the inaction of the Commissioner of Internal Revenue
within the one hundred eighty day-period under Section 228 of the National
Internal Revenue Code shall be deemed a denial for purposes of allowing the
taxpayer to appeal his case to the Court and does not necessarily constitute a
formal decision of the Commissioner of Internal Revenue on the tax case;
Provided, further, that should the taxpayer opt to await the final decision of
the Commissioner of Internal Revenue on the disputed assessments beyond
the one hundred eighty day-period abovementioned, the taxpayer may appeal
such final decision to the Court under Section 3 (a),Rule 8 of these Rules;
and Provided, still further, that in the case of claims for refund of taxes
erroneously or illegally collected, the taxpayer must file a petition for review
with the Court prior to the expiration of the two-year period under Section 229
of the National Internal Revenue Code.
3) Decisions, resolutions or orders of the Regional Trial Courts in
local tax cases decided or resolved by them in the exercise of their original
jurisdiction;
4) Decisions of the Commissioner of Customs in cases involving
liability for customs duties ,fees or other money charges, seizure, detention or
release of property affected, fines, forfeitures or other penalties in relation
thereto or other matters arising under the Customs Law or other laws
administered by the Bureau of Customs;
5) Decisions of the Secretary of Finance on customs cases
elevated to him automatically for review from decisions of the Commissioner
of Customs adverse to the Government under Section 2325 of the Tariff and
Customs Code; and
6) Decisions of the Secretary of Trade and Industry, in the case
of nonagricultural product, commodity or article, and the Secretary of
Agriculture, in the case of agricultural product, commodity or article, involving
dumping and countervailing duties under Sections 301 and 302, respectively,
of the Tariff and Customs Code, and safeguard measures under Republic Act
No. 8800, where either party may appeal the decision to impose or not to
impose said duties. ” [RRCTA, Rule 4, Sec. 3 (a)]
“The Court en banc shall exercise exclusive appellate jurisdiction to review by appeal
the following:
a. Decisions or resolutions on motion for reconsideration or new trial of the
Court in Divisions in the exercise of its exclusive appellate jurisdiction over:
1) Cases arising from administrative agencies – Bureau of
Internal Revenue, Bureau of Customs, Department of Finance, Department of
Trade and Industry, Department of Agriculture;
2) Local tax cases decided by the Regional Trial Courts in the
exercise of their original jurisdiction; and
3) Tax collection cases decided by the Regional Trial Court in the
exercise of their original jurisdiction involving final and executory assessments
 for taxes, fees, charges and penalties, where the principal amount of taxes and
penalties claimed is less than one million pesos;
b. Decisions, resolutions or orders of the Regional Trial Courts in local tax
cases decided or resolved by them in the exercise of their appellate jurisdiction;
c. Decisions, resolutions or orders of the Regional Trial Courts in tax
collection cases decided or resolved by them in the exercise of their appellate
jurisdiction;
d. Decisions, resolutions or orders on motions for reconsideration or new
trial of the Court in division in the exercise of its exclusive original jurisdiction over tax
collection cases;
e. Decisions of the Central Board of Assessment Appeals (CBAA) in the
exercise of its appellate jurisdiction over cases involving the assessment and taxation
of real property originally decided by the provincial or city board of assessment
appeals;
f. Decisions, resolutions or orders on motions for reconsideration or new
trial of the Court in Division in the exercise of its exclusive original jurisdiction over
cases involving criminal offenses arising from violations of the National Internal
Revenue Code or the Tariff and Customs Code and other laws administered by the
Bureau of Internal Revenue or Bureau of Customs;
(g) Decisions, resolutions or orders on motion for reconsideration or new trial
of the Court in Division in the exercise of its exclusive appellate jurisdiction over
criminal offenses mentioned in the preceding subparagraph; and
(h) Decisions, resolutions or orders of the Regional Trial Courts in the
exercise of their appellate jurisdiction over criminal offenses mentioned in
subparagraph (f).” (RRCTA, Rule 4, Sec. 2)

Related Bar Question. State the jurisdiction of the Court of Tax Appeals.
(1970)

III. I shall advise Rakham to treat the obligation as “bad debt” by deducting the
same from his income tax return, and proving compliance with the following
requisites for the deductibility of a “bad debt.”
The requisites for the deductibility of a “bad debt” are:
a. There must be an existing indebtedness due to the taxpayer
which must be valid and legally demandable.
b. The same must be connected with the taxpayer’s trade,
business or practice of profession.
c. The same must not be sustained in a transaction entered into
between related parties.
d. The same must be actually charged off the books of accounts
of the taxpayer as of the end of the taxable year.
e. The debt must be actually ascertained to be worthless
and uncollectible during the taxable year.
f. The debts are uncollectible despite diligent effort exerted by
the taxpayer. [NIRC of 1997, Sec. 34 (E) (1), arrangement and numbering supplied; RR No.
5-99, Sec. 3, reiterated in RR No. 25-2002; Philippine Refining Corporation v. Court of Appeals,
et al., 256 SCRA 667]
g. Must have been reported as receivables in the income tax
return of the current or prior years. (RR No. 2, Sec. 103)
 Related Bar Question: PQR Corp. claimed as a deduction in its tax returns
the amount of P1,000,000 as bad debts. The corporation was assessed by the
Commissioner of Internal Revenue for deficiency taxes on the ground that the debts
cannot be considered as “worthless,” hence they do not qualify as bad debts. The
company asks for your advice on “What factors will hold in determining whether or
not the debts are bad debts ? Answer and explain briefly. (2004)

IV. The defenses I would raise are the following:

a. Cities like the Cityof Maharlika have the power to pass and ordinance
imposing a tax on the sale, donation, barter, or on any other mode of transferring
ownership of title to real property located within its territorial boundaries, (LGC, Sec.
135, in relation to Secs. 142 and 151)
b. The required capital gains tax collected by the national government is
different from the tax that is imposable by the local government units such as the City
of Maharlika,
c. The transfer tax imposed and collected by cities are not among those
included in the common limitations on the power of taxation which are reserved
solely for the exercise by the national government.
d. There is no direct duplicate taxation because there are two different
taxing authorities, the national government and a local government unit.

Related Bar Question: The municipality of Malolos passed an ordinance

imposing a tax on any sale or transfer of real property located within the municipality
at a rate of one-fourth (1/4) of one percentum (1%) of the total consideration of such
transaction. X sold a parcel of land in Malolos which he inherited from his deceased
parents and refused to pay the tax aforesaid. He instead filed the appropriate case
asking that the ordinance be declared null and void since such a tax can be collected
by the national government, as in fact he has paid the BIR the required capital gains
tax. The municipality countered that under the Constitution, each local government is
vested with the power to create its own sources of revenue and to levy taxes, and it
imposed the subject tax in the exercise of said constitutional authority.
Resolve the controversy. (1991)

V. NOTES AND COMMENTS: “International carriers” are excluded from

the 2016 coverage. The question is an almost exact replica of a 2009 Bar
Question that was based on the case of South African Airways v.
Commissioner of Internal Revenue, G.R. No. 180356, February 16, 2010, and
reiterated in the latest case of Air Canada v. Commissioner of Internal
Revnue, G.R. No. 169507, January 11, 2016.
It is suggested that the number be considered as a BONUS.

Related Bar Question: Kenya International Airlines (KIA) is a foreign

corporation, organized under the laws of Kenya. It is not licensed to do business in

 
the Philippines. Its commercial airplanes do not operate within the Philippine
territory, or service passengers embarking from Philippine airports. The firm is
represented in the Philip pines by its general agent, Philippine Airlines (PAL), a
Philippine corporation.
KIA sells airplane tickets through PAL, and these tickets are serviced by KIA
airplanes outside the Philippines. The total sales of airline tickets transacted by PAL
for KIA in 2011 amounted to P2,968,156.00. The Commissioner of Internal Revenue
assessed KIA deficiency income taxes at the rate of 30% on its taxable income,
finding that KIA’s airline ticket sales constituted income derived from sources within
the Philippines.
KIA filed a protest on the ground that the P2,968,156.00 should be
considered as income derived exclusively from sources outside the Philippines since
KIA only serviced passengers outside Philippine territory.
Is the position of KIA tenable ? Reasons. (2009)

VI. No. The 5% discount of the purchase price of its products, so-called
“courtesy discounts” on purchases, granted by Mapagbigay Corporation to all its
employees (rank and file, supervisors, and managers) otherwise known as “de
minimis benefits,” furnished or offered by an employer to his employees merely as a
means of promoting the health, goodwill, contentment, or efficiency of his employees,
are not considered as compensation subject to income tax and consequently to
withholding tax. [Rev. Regs. 2-98, Sec. 2.78.1 (A) (3), as amended by RR No. 8-2000, RR No. 5-
2008, RR No. 10-2008, RR No. 5-2011, and RR No. 8-2012]
As such “de minimis benefits, if given to supervisors and managerial
employees, they are also exempt from the fringe benefits tax. (Ibid.)

Related Bar Question: What are de minimis benefits and how are they taxed
? Give three (3) examples of de minimis benefits. (2015)

VII. Yes. The Philippine National Railways (PNR) was created as a corporation to
serve as an instrumentality of the Government of the Philippines (Rep. Act No. 10638,
amending Sec. 1 of Rep. Act No. 4156) upon which the local governments are not allowed
to levy taxes, fees or other charges including real property taxes. [Manila International
Airport Authority v. Court of Appeals, et al., G. R. No. 155650, July 20, 2006; Manila International Airport
Authority v. City of Pasay, G. R. No. 163072, April 2, 2009, 583 SCRA 234 (2009) citing Philippine
Fisheries Development Authority v. Court of Appeals, G.R. No. 150301, 2 October 2007, 534 SCRA
490]
PNR is not a government and controlled corporation but an instrumentality of
the government hence it is not included in the withdrawal of exemptions. Finally,
under the common limitations on local government units’ power of taxation, shall not
extend to o the levy of “taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, and local government units.”
[LGC, Sec. 133 (o), paraphrasing supplied)
The railroad tracks, train stations, freight customer facilties, land improvements,
and equipment within its main station in Tutuban, Manila are properties of public
dominion intended for public use, and as such are exempt from real property tax
under Section 234 (a) of the Local Government Code (LGC). (Manila International Airport
Authority v. City of Pasay, supra)

Related Bar Question: LLL is a government instrumentality created by

Executive Order to be primarily responsible for integrating and directing all
reclamation projects for the National Government. It was not organized as a stock
corporation, nor was it intended to operate commercially and compete in the private
market.
By virtue of its mandate, LLL in 2008 reclaimed several portions of the
foreshore nad offshore areas of the Manila Bay, some of which were within the
territorial jurisdiction of Q City. Certificates of titles to the reclaimed properties in Q
City were issued in the name of LLL in 2008. In 2014, Q City issued /warrants of
Levy on said reclaimed properties of LLL based on the assessment for delinquent
property taxes for the years 2010 to 2013.
(A) Are the reclaimed properties registered in the name of LLL sjbject ot
real property tax ?
(B) Will your answer be the same in (A) if from 2010 to the present time,
LLL is leasing portions of the reclaimed properties for the establishment and use of
popular fastfood restaurants J Burgers, G Pizza, and K Chicken ? (2015)

VIII. No. The assignments are not gratuitous, and there is no intent to transfer
ownership hence not subject to gift tax.
The value of the right to avail of the privileges attendant to Mabuhay Golf
Club, Inc. Membership Certificate is due to David’s merits or services as a computer
consultant. It is a fringe benefit taxable to the employer. [NIRC of 1997, Sec. 33 (B)
(6)]

Related Bar Question: ABC Computer Corp. purchased some years ago
Membership Certificate No.7 from the Calabar Golf Club, Inc. for P300,000.00. In 4
September 2013, it transferred the same to Mr. John Johnson, its American
Computer consultant, to enable him to avail of the facilities of the Club during his stay
here. The consultancy agreement expired two (2) years later. In the meantime, the
value of the club share appreciated and what was purchased by the corporation at
P300,000.00, commanded a market value of P800,000.00 in 2015. Before he
returned home a few days after his tenure ended, Mr. Johnson transferred the
subject share to Mr. Robert James, the new consultant of the firm and the newly
designated playing representative, under a Deed of Declaration of Trust and
Assignment of Shares wherein the former acknowledged the absolute ownership of
ABC Computer Corp. over the share, that the assignment was without any
consideration, and that the share was placed in his name because the Club required
it to be done.
Is the said assignment a gift and, therefore, subject to gift tax ? (1991, dates
supplied)

IX. a) The following is a summary of the proper procedure and applicable

time periods for administrative and judicial claims for refund/credit of unutilized
excess input VAT:
1. An administrative claim must be filed with the CIR within two
years after the close of the taxable quarter when the zero-rated or effectively
zero-rated sales were made.
2. The CIR has 120 days from the date of submission of
complete documents in support of the administrative claim within which to
decide whether to grant a refund or issue a tax credit certificate. The 120-day
period may extend beyond the two-year period from the filing of the
administrative claim if the claim is filed in the later part of the two-year period.
If the 120-day period expires without any decision from the CIR, then the
administrative claim may be considered to be denied by inaction.
3. A judicial claim must be filed with the CTA within 30 days from
the receipt of the CIR’s decision denying the administrative claim or from the
expiration of the 120-day period without any action from the CIR.
4. All taxpayers, however, can rely on BIR Ruling No. DA-489-03
from the time of its issuance on 10 December 2003 up to its reversal by this
 Court in Aichi on 6 October 2010, as an exception to the mandatory and
jurisdictional 120+30 day periods.” (Mindanao II Geothermal Partnership v.
Commissioner of Internal Revenue, G.R. No. 193301, March 11, 2013 and companion
case)
Alternative answer. The following is a summary of the proper procedure and
applicable time periods for administrative and judicial claims for refund/credit of
unutilized excess input VAT:
A. Two-Year Prescriptive Period
1. It is only the administrative claim that must be filed within the
two-year prescriptive period. (Aichi)
2. The proper reckoning date for the two-year prescriptive period
is the close of the taxable quarter when the relevant sales were made. (San
Roque)
3. The only other rule is the Atlas ruling, which applied only from
8 June 2007 to 12 September 2008. Atlas states that the two-year prescriptive
period for filing a claim for tax refund or credit of unutilized input VAT payments
should be counted from the date of filing of the VAT return and payment of the
tax. (San Roque)
B. 120+30 Day Period
1. The taxpayer can file an appeal in one of two ways: (1) file the
judicial claim within thirty days after the Commissioner denies the claim within
the 120-day period, or (2) file the judicial claim within thirty days from the
expiration of the 120-day period if the Commissioner does not act within the
120-day period.
2. The 30-day period always applies, whether there is a denial or
inaction on the part of the CIR.
3. As a general rule, the 30-day period to appeal is both
mandatory and jurisdictional. (Aichi and San Roque)
4. As an exception to the general rule, premature filing is allowed
only if filed between 10 December 2003 and 5 October 2010, when BIR Ruling
No. DA-489-03 was still in force. (San Roque)
5. Late filing is absolutely prohibited, even during the time when
BIR Ruling No. DA-489-03 was in force. (San Roque). (Commissioner of Internal
Revenue v. Mindanao II Geothermal Partnership, G.R. No. 191498 , January 15, 2014)

Related Bar Question: Discuss the proper procedure and applicable time
periods for administrative and judicial claims for refund/credit of unutilized excess
input VAT ? (2015)

b) 1. Taxpayer files claim for refund or credit with the Commissioner

of Internal Revenue.
2. Within two (2) years from payment taxpayer may file a
petition for review for recovery with the Court of Tax Appeals (Division). The
decision of the Commissioner appealable to the CTA within thirty (30) days
after the receipt but within two (2) years from payment of the tax.
3. A decision of the Court of Tax Appeals (Division) denying the
petition for review may be the subject of a motion for reconsideration or new
trial with the same division.
 4. A decision of the Court of Tax Appeals (Division) denying the
motion for reconsideration or new trial may be the subject of a petition for
review to be filed with the Court of Tax Appeals (en banc)

Related Bar Question: What must a taxpayer do in order to claim a refund of,
or tax credit for, taxes and penalties which he alleges to have been erroneously,
illegally or excessively assessed or collected. (2002)

X. (a) The effect of converting the 20% discount from a “tax credit” to a “tax
deduction” is to reduce the tax benefit that was formerly enjoyed by sellers of goods
and services to senior citizens.
Under the “tax credit” method the sellers who granted the 20% senior citizens
discount are able to recover 100% of the amount of the discount they gave. This is
so because they could deduct the totality of the discount they gave from the taxes
they are supposed to pay.
Upon the other hand under the “tax deduction” method they are allowed to
recover only a certain percentage (depending upon their tax base) of the discount
they gave. For example, if the entity granting the discount is a corporation, then it
could recover only 30% of the 20% discount because the discount is allowed as a
deduction from gross revenues in order to arrive at income subject to tax. The net
income is then subject to the 30% tax.
(b) I will decide in favor of the constitutionality of the law. [Manila Memorial
Park, Inc. v. Department of Social Welfare and Development, G.R. No. 175356, December 3, 2013
The 20% discount as well as the tax deduction scheme is a valid exercise of
the state’s police power.. (Ibid.)

XI. No. The assessment is invalid because Soaring Eagle purchased the TCC in
good faith from a government entity which must have guaranteed its transferability.
The government, through the BIR, is thus estopped from claiming that the Soaring
Eagle is not a qualified transferee.
In the instances where the government is physically unable give a cash refund
resulting from either an overpayment of income taxes, unused VAT input taxes, or
where a provision specifically provides for a refund, or a tax credit, there is issued a
tax credit certificate. “A Tax Credit Certificate validly issued under the provisions of
this Code may be applied against any internal revenue tax, excluding withholding
taxes, for which the taxpayer is directly liable.” [NIRC of 1997, Sec. 204 (C), 2nd par.), 1st
sentence] A TCC is transferable, and in the case of Soaring Eagle may be used to pay
excise taxes. (Pilipinas Shell Petroleum Corporation v. Commissioner of Internal Revenue, G.R. No.
172598, December 21, 2007)

XII. No. The City Assessor is not correct in classifying the Center as
“commercial.”
The fact alone that the separate St. Michael’s Medical Arts Center will house
medical practitioners who shall treat the patients confined in the Hospital and are
accredited by the Association takes away the said Medical Arts Center from being
categorized as “commercial” since a tertiary hospital is required by law to have a pool
of physicians who comprise the required medical departments in various medical
fields. [City Assessor of Cebu City v Association of Benevola de Cebu, Inc., 524 SCRA 128 (2007)]
XIII. No. The BIR is not correct.
While it is true that the VAT is an indirect tax, It is clear from the agreement
that WHO is “exempt from all direct and indirect taxes.” Since the 12% VAT is an
indirect tax whose burden was shifted by PCC to WHO then it is evident that the BIR
is not correct. (CIR v. John Gotamco & Sons, Inc., G.R. No. L-31092, Feb. 27, 1987, 148 SCRA 36
[1987])
To allow the shifting of the burden to WHO would negate its exemption and in
violation of the international agreement entered into by the Philippines,

Related Bar Question: State whether the following transactions are a) VAT
exempt, b) subject to VAT at 12%; or c) subject to VAT at 0%:
xxx xxx xxx
b. Services rendered by Jake’s Construction Company, a contractor to
the World Health Organization in the renovation of its offices in Manila. (1998,
paraphrasing supplied)

XIV. Yes. The BIR is correct in assessing the taxes on Lucky.

There was no tax avoidance, instead there was tax evasion on the part of
Lucky because of the simulated sale to Rainier which had its apparent purpose to
reduce the income tax to be paid by Lucky on the sale to HSC.
The sale to Rainier was simulated as evidenced by the fact that two months
prior to the sale of the properties to Rainier, Lucky received P40 million from HSC
and not from Rainier.
The intermediary transaction (the simulated sale to Rainier), was prompted
more on the mitigation of tax liabilities than for legitimate business purpose
constitutes one of tax evasion. (CIR v. Benigno Toda, Jr., G.R. No. 147188, September 14, 438
SCRA 290)

Related Bar Question: On August 31, 2016, Haelton Corporation (HC), thru
its authorized representative Ms. Pares, sold a 16-storey commercial building known
as Haelton Building to Mr. Belly for P100 million. Mr. Belly, in turn, sold the same
property on the same day to Bell Gates, Inc. (BGI) for P200 million. These two (2)
transactions were evidenced by two (2) separate Deeds of Absolute Sale notarized
on the same day by the same notary public.
Investigations by the Bureau of Internal Revenue (BIR) showed that: (1) the
Deed of Absolute Sale between Mr. Belly and BGI was notarized ahead of the sale
between HC and Mr. Belly; (2) as early as May 17, 2016, HC received P40 million
from BGI, and not from Mr. Belly; (3) the said payment of P40 million wa recorded by
BGI in its books as of June 30, 2016 as investment in Haelton Building, and (4) the
substantial portion of P40 million was withdrawn by Ms. Pares through declaration of
cash dividends to all its stockholders.
Based on the foregoing, the BIR sent Haelton Corporation a Notice of
Assessment for deficiency income tax arising from an alleged simulated sale of the
aforesaid commercial building to escape the higher corporate income tax rate of thirty
percent (30%). What is the liability of Haelton Corporation, if any ? (2014, dates
supplied)
XV. Not all of the representation and entertainment expenses claimed by Golden
Dragon are deductible. Only those that are reasonable in amount and nature should
be deductible. It should be noted that the total expenses is P430,000.00 for the five
(5) investors or P86,000.00 each.
I would allow only a deduction in such amounts as are reasonable under the
circumstances but in no case shall all deductions for representation and
entertainment expenses, including those above enumerated, exceed 0.50% of net
sales. [NIRC of 1997, Sec. 34 (A) (1) (iv); RR 10-2002]

XVI. Yes. API’s petition for review will prosper.

Since API”s petition for review was filed on September 15, 2010 it is an
exception to the general rule. The premature filing is allowed because it was filed
between 10 December 2003 and 5 October 2010, when BIR Ruling No. DA-489-03
was still in force. (Mindanao II Geothermal Partnership v. Commissioner of Internal
Revenue, G.R. No. 193301, March 11, 2013 and companion case)

Related Bar Questions. Gangwam Corporation (GC) filed its quarterly tax
returns for the calendar year 2012 as follows:
First quarter – April 25, 2012
Second quarter – July 23, 2012
Third quarter – October 25, 2012
Fourth quarter – January 27, 2013
On December 22, 2013, GC filed with the Bureau of Internal Revenue (BIR)
an administrative claim for refund of its unutilized input Value-Added Tax (VAT) for
the calendar year 2012. After several months of inaction by the BIR on its claim for
refund, GC decided to elevate its claim directly to the Court of Tax Appeals (CTA) on
April 22, 2014. In due time, the CTA denied the tax refund relative to the input VAT
of GC for the first quarter of 2012, reason-ing that the claim was filed beyond the two-
year period prescribed under Section 112 (A) of the National Internal Revenue Code
(NIRC).
(A) Is the CTA correct ? (2014)
(B) Assuming that GC filed its claim before the CTA on February 22,
2014, would your answer be the same ? (2014)

XVII. No. VVV is not liable because the waiver it executed is invalid hence it did
not extend the prescriptive period within which to assess.
The characteristics of an invalid waiver, which are all present in the problem,
are as follows:
1. The waiver is defective if it does not specify a definite agreed date
between the Bureau of Internal Revenue and the taxpayer within which to formally
assess and collect. (Philippine Journalists, Inc. v. Commissioner of Internal Revenue, G. R. No.
162852, December 16, 2004)
2. Waiver is defective if signed only by the Revenue District Officer and
not the Commissioner of Internal Revenue. (Ibid.)
3. Waiver is not complete if copies were not furnished the taxpayer. This
is so because the waiver must be signed by Commissioner of Internal Revenue. It is
not correct to state that since it was the taxpayer who proposed the waiver that he
already knows the same because the waiver is not a unilateral act of the taxpayer, it
must have the concurrence of the Commissioner. (Ibid.)
 The BIR’s arguments fall by the wayside because the invalid waiver did not
extend the period within which the BIR’S should assess. Furthermore, a waiver of
the statute of limitations under the National Internal Revenue Code to a certain extent
is a derogation of the taxpayer’s right to security against prolonged and unscrupulous
investigation and must therefore be strictly construed. (Ibid., with a note to see Ouano v.
Court of Appeals, G. R. No. 129279, 04 March 2003, 398 SCRA 525 citing People v. Donato, G. R. No.
72969, 05 June 1991, 198 SCRA 130) Laws on prescription should be liberally construed in
favor of the taxpayer. Reason: for the purpose of safeguarding taxpayers from an
unreasonable examination, investigation or assessment, our tax laws provide a
statute of limitation on the collection of taxes. Thus, the law on prescription, being a
remedial measure, should be liberally construed in order to afford such protection,
As a corollary, the exceptions to the law on prescription should perforce be strictly
construed. [Philippine Journalists, Inc. v. Commissioner of Internal Revenue, G. R. No. 162852,
December 16, 2004 citing Commissioner of Internal Revenue v. B.F. Goodrich Phils, Inc. (now Sime
Darby International Tire Co., Inc.) et al., G.R. No. 104171, February 24, 1999, 303 SCRA 546]
A waiver does not mean that the taxpayer relinquishes the right to invoke
prescription unequivocally. (Bank of Philippine Islands, v. Commissioner of Internal Revenue, G.
R. No. 139736, October 17, 2005 citing Philippine Journalists, Inc. v. Commissioner of Internal
Revenue, G. R. No. 162852, December 16, 2004)

Related Bar Question: Taxpayer A was required by the BIR to sign and
submit a waiver of the statute of limitations on the assessment period, to give the BIR
more time to complete its investigation. The BIR accepted the waiver but failed to
indicate the date of its acceptance.
What is the legal status of the waiver ?
(A) The waiver is valid because the date of acceptance is immaterial and
unimportant.
(B) The waiver is invalid; the taxpayer cannot be required to waive the
statute of limitations.
(C) The waiver is invalid; the date of acceptance is crucial in counting the
start of the period of suspension of the prescriptive period.
(D) The waiver is valid, having been accepted by the BIR. (2013)
SUGGESTED ANSWER: (C)

XVIII. Henry’s lease payments may be considered as rental expense that may be
deducted as ordinary and necessary expenses from the operation of his trading
business. On the other hand, the buyer when he leases back the property to Henry
is using it in his trade and business of renting out properties. Thus, he could deduct
as ordinary and necessary expenses, depreciation, repairs and maintenance, real
property and other taxes, and other expenses incidental to renting out the property to
Henry.
ALTERNATIVE ANSWER: There are no tax benefits that could be availed of
by both Henry and the buyer. This is so because the BIR would consider the sale-
lease back transaction as a devise to deprive the government of its right to collect
taxes. The sale-leaseback is merely simulated transaction, there being no effective
transfer of ownership because of the option to purchase. Henry would surely
repurchase the property because of is sentimental value.
Henry could not deduct his lease payments as rentals because he is taking
title to the property in the future. [NIRC of 1997, Sec. 34 (A) (1) (a) (2)] On the other hand,
the rental proceeds earned by the buyer would be considered as income from
whatever source taxable at gross without any deduction.

XIX. a. Yes. The shares of stock have obtained a business situs in the Philippines
being those of a corporation organized and existing by virtue of Philippine Laws (NIRC
st
of 1997, Sec. 104, 1 par.) hence includible in the gross estate of Janina, irrespective of
whether she is a Filipino citizen or alien.
There is no showing that at the time of Janina’s death (if she is a U.S. citizen),
the U.S. did not impose a transfer tax of any character in respect of intangible
personal property of Filipino citizens not residing in the U.S.or allows a similar
exemption from transfer or death taxes of every character or description in respect of
intangible personal property owned by Filipino citizens not residing in the U.S. (NIRC
st
of 1997, Sec. 104, 1 par.,

Related Bar Question: A died in June 2016 in LA, California, her last
residence and domicile. She left properties consisting of among others, shares of
stocks in BMC, Inc., a company organized and existing under the laws of the
Philippines with principal office at Makati, MM. The estate tax due on said shares
were correspondingly paid to the state of California. The BIR sought to subject anew
the same shares of stock to Philippine estate tax. Will the action of the BIR prosper ?
Explain your answer. (1978, date supplied and reworded)

b. The concept of double taxation is taxing the same subject or object

twice during the same taxing period.
It may be direct duplicate taxation (or double taxation in its strict sense) which
violates the equal protection clause hence it could nullify a tax measure or it may be
indirect duplicate taxations (double taxation in its broad sense) that is not violative of
the equal protection clause.

Related Bar Question: Differentiate double taxation in the strict sense and
in a broad sense and give an example of each. (2015)

XX. I will advise Patrick that if he reacquires his Philippine citizenship and establish
residence in the Philippines, he shall be considered as a resident citizen subject to
tax on incomes derived from sources within or without the Philippines. [NIRC of 1997,
Sec. 23 (A)]
Consequently, the BIR could now tax him on his income derived from sources
without the Philippines which is the income he earns from his U.S. business,

Related Bar Question: Mr. A, a citizen and resident of the Philippines, is a

professional boxer. In a professional boxing match held in 2016, he won prize
money in United States (US) dollars equivalent to P300,000.
a) Is the prize money paid to and received by Mr. A in the US taxable in
the Philippines ? Why ? (2015, date and paraphrasing supplied)

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