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IKM Corporation, doing business in the City of Kalookan, has been a distributor and retaile
and household materials. It has been paying the City of Kalookan local taxes based on Sections
Wholesalers,
Wholesalers, Distributors or Dealers) and 17 (Tax on Retailers) of the Revenue Code of Kalookan
Subsequently, the Sangguniang Panlungsod enacted an ordinance amending the Code by inser
21 which imposes a tax on "Businesses Subject to Excise, Value-Added and Percentage Taxe
National Internal Revenue Code (NIRC)," at the rate of 50% of 1 % per annum on the gross sales
on persons "who sell goods and services in the course of trade or business." KM Corporation pa
due under Section 21 under protest, claiming that (a) local government units could not impos
businesses already taxed under the NIRC and (b) this would amount to double taxation, since i
was already taxed under Sections 15 and 17 of the Code.

(a) May local government units impose a tax on businesses already subjected
subjected to tax unde
(2.5%)

(b) Does this amount to double taxation? (2.5%)

1. Yes. “Each local government unit shall have the power to create its own sources of reven
levy taxes, fees and charges subject to such guidelines and limitations as the Congress m
consistent with the basic policy of local autonomy. Such taxes, fees, and charges s
exclusively to the local governments.” (Article 10, Section 5 of the 1987 Consti tution).
Sec 133 of the LGC – Common limitations on the taxing power of LGC
Relate with Sec 143 (h) of the LGC – “Tax on Businesses: (h) On any business, not otherwi
in the preceding paragraphs, which the sanggunian concerned may deem proper to ta
That on any business subject to the excise, value-added or percentage tax under the Nati
Revenue Code, as amended, the rate of tax shall not exceed two percent (2%) of gro
receipts of the preceding calendar year. The sanggunian concerned may prescribe a s
graduated tax rates but in no case to exceed the rates prescribed herein.”
2. Yes, it will amount to indirect double taxation . Under the law, direct double taxation
following requisites exist:
 Both taxes are imposed on the same property or subject matter;
 For the same purpose;
 Imposed by the same taxing authority;
 Within the same jurisdiction;
jurisdiction;
 During the same taxing period;
 Covering the same kind or character of tax.
If there is an element lacking, only indirect double taxation exists. The Constitution only pro
double taxation.

II
Kronge Konsult, Inc. (KKI) is a Philippine corporation engaged in architectural design, e
and construction work. Its principal office is located in Makati City, but it has various infrastructure
the country and abroad. Thus, KKI employs both local and foreign workers. The company has
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(a) Kris Konejero, a Filipino accountant in KKl's Tax Department in the Makati office, and m
Filipino engineer also working in KKI;
(b) Klaus Kloner, a German national who heads KKl's Design Department in its Makati offic
(c) Krisanto Konde, a Filipino engineer in KKl's Design Department who was hired to
principal office last January 2017. In April 2017, he was assigned and detailed in the
project in Jakarta, Indonesia, which project is expected to be completed in April 2019;
(d) Kamilo Konde, Krisanto's brother, also an engineer assigned to KKl's project in Taip
Since KKI provides for housing and other basic needs, Kamila requested that all his sala
Taiwanese dollars, be paid to his wife in Manila in its Philippine Peso equivalent; and
(e) Karen Karenina, a Filipino architect in KKl's Design Department who reported back to K
office in June 2017 after KKl's project in Kuala Lumpur, Malaysia was completed.
Taxpayer classification Taxable income

Resident citizen A citizen of the Worldwide income

Philippines residing therein is taxable on
all income derived from sources within
and
without the Philippines

Non-resident citizen is taxable only on Philippine sourced income

income derived from sources within the
Philippines

Resident alien An alien individual,

whether a resident or not of the
Philippines, is taxable only on income
derived
from sources within the Philippines;

Non-resident alien

Substituted filing requisites:

 Employee receives purely compensation income (regardless of amount) during the taxable
 Employee receives income from a single employer in the Philippines during the taxable yea
 The amount of tax due from the employee at the end of the year equals the amount of tax
the employer;
 If married, the employee’s spouse also complies with all three aforementioned conditions, o
receives no income;
 The employer files BIR Form 1604CF; and
 Employee has BIR Form 2316 or Certificate of Final Tax Withheld At Source (BIR Form 2306
his employer.
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4. (Non-resident citizen) No Philippine sourced income; Not required

- Sec 22 (E)(2): Reside abroad for employment on a permanent basis
- A citizen of the Philippines who leaves the Philippines during the taxable year to reside
- either as an immigrant or for employment on a permanent basis.

5. (Non-resident citizen) Taxable only on the Philippine sourced income; Not required (if co
the substituted filing)
- Sec 22 (E)(4): Previously a non-resident citizen who arrives in the Philippines
- A citizen who has been previously considered as nonresident citizen and who ar
Philippines at any time during the taxable year to reside permanently in the Philip
likewise be treated as a nonresident citizen for the taxable year in which he arr
Philippines with respect to his income derived from sources abroad until the date of
the Philippines.

III
Kim, a Filipino national, worked with K-Square, Inc. (KSI), and was seconded to various K
corporations:
1. from 1999 to 2004 as Vice President of K-Gold Inc.,
2. from 2004 to 2007 as Vice President of KPB Bank;
3. from 2007 to 2011 as CEO of K-Com Inc.;
4. from 2011 to 2017 as CEO of K-Water Corporation, where Kim served as CEO for seven
his retirement last December 12, 2017 upon reaching the compulsory retirement age of 60

All the corporations mentioned are majority-owned in common by the Koh family and co
BIR-qualified multiemployer-employee retirement plan (MEE RP), under which the employees ma
around within the controlled group (i.e., from one KSI subsidiary or affiliate to another) without los
rights or break in the tenure. Kim was well-loved by his employer and colleagues, so upon retirem
his last day in office, KSI gave him a Mercedes Benz car worth PhP 5 million as a surprise, with
that reads: "You'll be missed. Good luck, Sir Kim."
(a) Are the retirement benefits paid to Kim pursuant to the MEERP taxable? (2.5%)
(b) Which internal revenue tax, if any, will apply to the grant of the car to Kim by the compa

1. Exempt. Sec 32 (B)(6)(a): Retirement benefits received under RA No. 7641 (Retirement Pa
287 of the Labor Code); or those received by officials and employees of private firm
individual or corporate, under a reasonable private benefit plan maintained by the employ
the following requisites are present:
The retiree has been in the service of the same employer for at least 10 years;
The retiree is not less than 50 years of age;
Exemption is availed of only once.
Considered as within 10 years due to the fact that “employees may be moved around within th
group without loss of seniority rights or break in the tenure”.
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Kornelio, in turn, sold the property in 2000 to Katrina for PhP 6.5 million and paid the capita
documentary stamp tax, local transfer tax, and other fees and charges. Katrina, in turn, donated
Klaret School last August 30, 2017 to be used as the site for additional classrooms. No donor's ta
because Katrina claimed that the donation was exempt from taxation. At the time of the donatio
School, the land had a fair market value of PhP 65 million.
(a) Is Katrina liable for donor's tax? (2.5%)
(b) How much in deduction from gross income may Katrina claim on account of the said
(2.5%)

1. Yes.
Sec 101 (a) (3) – Exempt from donor’s tax: Gifts in favor of an educational and/or charitab
cultural or social welfare corporation, institution, accredited nongovernment organizati
philanthropic organization or research institution or organization: Provided, however, Tha
than thirty percent (30%) of said gifts shall be used by such donee for administration purpo

For the purpose of the exemption, a 'non-profit educational and/or charitable corporation
accredited nongovernment organization, trust or philanthropic organization and/or researc
or organization' is a school, college or university and/or charitable corporation,
nongovernment organization, trust or philanthropic organization and/or research in
organization, incorporated as a nonstock entity, paying no dividends, governed by tr
receive no compensation, and devoting all its income, whether students' fees or gifts
subsidies or other forms of philanthropy, to the accomplishment and promotion of th
enumerated in its Articles of Incorporation.

2. None. Sec 34 (H)(1)- Contributions or gifts actually paid or made within the taxable year t
use of the Government of the Philippines or any of its agencies or any political subdivi
exclusively for public purposes, or to accredited domestic corporation or associations org
operated exclusively for religious, charitable, scientific, youth and sports development,
educational purposes or for the rehabilitation of veterans, or to social welfare institutions
government organizations, in accordance with rules and regulations promulgated by the
finance, upon recommendation of the Commissioner, no part of the net income of which in
benefit of any private stockholder or individual in an amount not in excess of ten percent (
case of an individual, and five percent (%) in the case of a corporation, of the taxpay
income derived from trade, business or profession as computed without the benefit of t
following subparagraphs. Here, the donee is not qualified and thus, no deduction from gr
is allowed.

V
Spouses Konstantino and Karina are Filipino citizens and are principal shareholders of
chain, Karina's, Inc. The restaurant's principal office is in Makati City, Philippines.
Korina's became so popular as a Filipino restaurant that the owners decided to expand its
overseas. During the period 2010-2015 alone, it opened ten (10) stores throughout North America
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in the five (5) US corporations that were doing poorly in gross sales. The spouses' lawyer-friend
that they will be taxed 5% on the first PhP100,000 net capital gain, and 10% on the net capital gai
of PhP100,000.
Is the lawyer correct? If not, how should the spouses Konstantino and Karina be taxed on
their shares? (5%)

No. Foreign shares are not within the purview of Sec 24(C) or CGT.
Sec 24(C) - Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange  - The
Section 39(B) notwithstanding, a final tax at the rates prescribed below is hereby imposed up
capital gains realized during the taxable year from the sale, barter, exchange or other disposition
stock in a domestic corporation, except shares sold, or disposed of through the stock exchange.

But the shares are considered capital assets, as defined under Sec 39(A) - "capital assets"   me
held by the taxpayer (whether or not connected with his trade or business), but does not inclu
trade of the taxpayer or other property of a kind which would properly be included in the inve
taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily
customers in the ordinary course of his trade or business, or property used in the trade or bu
character which is subject to the allowance for depreciation provided in Subsection (F) of Section
property used in trade or business of the taxpayer.

Thus, must be taxed based on the holding period as provided in Sec 39(B) - Percentage Taken I
- In the case of a taxpayer, other than a corporation, only the following percentages of the g
recognized upon the sale or exchange of a capital asset shall be taken into account in computing
gain, net capital loss, and net income: (1) One hundred percent (100%) if the capital asset has be
not more than twelve (12) months; and (2) Fifty percent (50%) if the capital asset has been held fo
twelve (12) months.

VI
Kria, Inc., a Korean corporation engaged in the business of manufacturing electric vehicles
established a branch office in the Philippines in 2010. The Philippine branch constructed a manufa
plant in Kabuyao, Laguna, and the construction lasted three (3) years. Commercial operations in th
plant began in 2014.
In just two (2) years of operation, the Philippine branch had remittable profits in an amount
175% of its capital. However, the head office in Korea instructed the branch not to remit the profits
Korean head office until instructed otherwise. The branch chief finance officer is concerned that the
hold the Philippine branch liable for the 10% improperly accumulated earnings tax (IAET) for perm
profits to accumulate beyond reasonable business needs.
(a) Is the Philippine branch of Kria subject to the 10% IAET under the circumstances stated
(2.5%)
(b) Is it subject to 15% branch profit remittance tax (BPRT)? (2.5%)
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exceeding 30% of that declared in its income tax and VAT returns. Kosco, Inc. denied the alleged
declaration, protested the deficiency assessment for income and value-added taxes and challeng
imposition of the 50% surcharge on the ground that the surcharge may only be imposed if Kosco,
pay the deficiency taxes within the time prescribed for their payment in the notice of assessment.
(a) Is the imposition of the 50% surcharge proper? (2.5%)
(b) If your answer to {a) is yes, may Kosco, Inc. enter into a compromise with the BIR for re
the amount of surcharge to be paid? (2.5%)

1. Yes. Penalty: , in case any payment has been made

of a return before the discovery of the
falsity or fraud.
• In case of: [ FiFa ]
a) Willful neglect to File the return within the period prescribed; or
b) False or fraudulent return is willfully made, in case any payment has been made
basis of such return before the discovery of the falsity or fraud.
• Prima facie evidence of a false or fraudulent return as determined by the Commissioner p
the rules and regulations promulgated by the Sec. of Finance:
1. substantial under declaration of taxable sales, receipts or income - failure to repo
receipts or income in an amount exceeding 30% of that declared per return
2. substantial overstatement of deductions - claim of deductions in an amount excee
of actual deductions

2. Yes. Compromise based on 2 grounds: a) financial capacity; and b) assessment is of doub

XX
Krisp Kleen, Inc. (KKI) is a corporation engaged in the manufacturing and processing of ste
by-products. It is both registered with the Board of Investments with a pioneer status, and with the
VAT entity. On October 10, 2010, it filed a claim for refund/credit of input VAT for the period Januar
March 31, 2009 before the Commissioner of Internal Revenue (CIR). On February 1, 2011, as the C
yet made any ruling on its claim for refund/credit, KKI, fearful that its period to appeal to the courts
prescribe, filed an appeal with the Court of Tax Appeals (CTA).
(a) Can the CTA act on KKl's appeal? (2.5%)
(b) Will your answer be the same if KKI filed its appeal on March 20, 2011 and CIR had not yet acte
claim? (2.5%)

the prescriptive period of 2 year . Sec. 204 (c) and 229 are applied only in instances of erroneous
and illegal collection. Sec. 112 (A) of NIRC applies here. Sec. 31 Chapter VIII Book I of the Admin
Code of 1987 being the more recent law governing legal period applies making 1 year = 12 month
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the 120-day period the CIR fails to act on the application for tax refund, the remedy is to appeal the
of the CIR to the CTA within 30 days.