TAXATION LAW

I.

The contention of the BIR is incorrect.

Under the National Internal Revenue Code, in case of denial of protest of

asessment of deficiency tax, appeal on the decision must be made within thirty (30) days
from the denail of the protest.

In this case, the BIR reasoned that the protest was denied because the assessment
has become final, executory, and demandable because BWI failed to file an appeal after
the inaction of the BIR to decide the protest within 180 days. The rule on inaction only
applies to protest in the Local Board of Assessment Appeal and not before the BIR. BWI
may still appeal the decision thirty (30) days from the receipt of the decision of the BIR.

Thus, making BIR’s contention that the assessment has become final, executory,
and demandable is incorrect.

II.

The contribution of cash and campaign materials is subject to donor’s tax.

Under the National Internal Revenue Code, donations for election campaigns may
be considered as a donation exempted from donor’s tax, upon showing that the donation
if fully utilized for campaign purposes and that the fully itemized list of the donated
amount and the corresponding expenses is filed with the COMELEC.

In this case, there is no showing that the entire amount donated by Mr. De
Almacen is fully utilized for the election campaign of Mr. De Sarapen. Thus, the
contribution of cash and campaign materials is subject to donor’s tax.

III.

No, Dr. Taimtim cannot use his donation to the chapel as an allowable deducion
from his gross income under the National Internal Revenue Code.

Under the National Internal Revenue, an individual may claim as an allowable

deductions donations made within the taxable year in favor of charitable, non-profit
educational institutions and religious institutions.

In this case, the donation made by Mr. Taimtim was in favor of UU, a privately
owned profit educational institution. Although the donations made was for the
maintenance of the chapel, such chapel is established within the bounds of UU. Hence,
the donation was not made to a religious institution, but to UU itself.

Therefore, Dr. Taimtim cannot use the donation to the chapel as an allowable
deduction from his gross estate.

IV.

(A)
 No, the CTA is incorrect for denying the tax refund relative to the input VAT of
GC for the first quarter of 2012, based on the reason that the claim was filed beyond the
two-year period.

Under the National Internal Revenue Code, the two-year period within which a
claim for refund may be made is reckoned from the date of the actual payment of the tax.

In this case, the VAT for the first quarter of 2012, paid on 25 April 2012, is being
refunded on 22 April 2014. Thus, there are still three (3) days left before the lapse of the
two-year period. Hence, a claim for refund may still be filed on 22 April 2014.

Therefore, the CTA is incorrect for denying the tax refund relative to the input
VAT of GC for the first quarter of 2012, based on the reason that the claim was filed
beyond the two-year period.

(B)

Yes, my answer would still be the same if the claim for refund was made before
the CTA on 22 Feburary 2014.

Under the National Internal Revenue Code, the two-year period within which a
claim for refund may be made is reckoned from the date of the actual payment of the tax.

In this case, the VAT for the first quarter of 2012, paid on 25 April 2012, is being
refunded on 22 February 2014. Thus, the two-year period within which a claim for refund
must be made has not yet lapsed.

V.

Atty. Frank’s contention that the CTA cannot entertain a petition for certiorari is
incorrect.

In a case decided by the Supreme Court, it was ruled that the CTA stands on equal
footing as that of the Court of Appeals, and all powers exercised by the Court of Appeals
shall be enjoyed by the CTA.

In this case, the Petition for Certiorari was filed by Talin Company before the
Court of Appeals, the Court of Appeals do not exercise jurisdition over tax-related cases,
the same should have been lodged before the CTA. Thus, Atty. Frank’s contention that
the CTA cannot entertain a petition for certiorari is incorrect.

VI.

VII.

No, the petition for certiorari filed by Baguio City before the Supreme Court will
not prosper.

Under the law, petition for certiorari with respect to local taxation falls within the
jurisdiction of the CTA.
 In this case, the petition for certiorari is being filed before the Supreme Court, the
Supreme Court, as provided for by the Constitution does not have jurisdiction over local
taxation cases. Thus, the petition for certiorari should be denied due to error of
jurisdiction.

VIII.

The sale of the delivery van by MKI to MGSC is not subject to VAT.

Under the National Internal Revenue Code, sale of properties or ordinary assets
used in the ordinary course of trade or business shall be exempted from the imposition of
VAT.

In this case, delivery vans of MKI, a catering business, are used in the ordinary
course of trade or business, thus an ordinary asset of MKI. By applying the National
Internal Revenue Code, the sale of the delivery vans to MGSC is not subject to the
imposition of VAT.

IX.

No, Mr. Gipit is incorrect.

Under the National Internal Revenue Code, all types of income dervived from
whatever source should be included in the computation of the gross income of the
taxpayer.

In this case, Mr. Gipit rendered services in favor of Mr. Maunawain, in exchange
of the canellation of Mr. Gipit’s debts in the amount of PhP75,000.00. Although, no
money was received from the rendering of the service, the cancellation of Mr. Gipit’s
debt is treated as compensation for service rendered. Hence, the PhP75,000.00 cancelled
debt is considered as a taxable income.

X.

XI.

No, the compensation for the services of Single Star is not an income from
sources within the Philippines.

Under the National Internal Revenue Code, foreign corporations shall only be
taxable for income from sources within the Philippines.

In this case, the services performed by Single Star was made in th Hong Kong
branch of Triple Star, a domestic corporation. Although Triple Star is a domestic
corporation, services were rendered by Single Star in Hong Kong, hence the income that
Single Star derived are from sources without the Philippines.

Therefore, the compensation for the services of Single Star is not an income from
sources within the Philippines.
 XII.

XIII.

No, Generous Bank is not liable to pay capital gains tax as a result of the
foreclosure sale.

Under the National Internal Revenue Code, capital gains tax for the forecloure of
mortgage shall be payable only from the expiration of the period within which
redemption may be made, and no redemption was made.

In this case, the property foreclosed was already redeemed, hence no income was
derived from the forclosure of the property. Thus, Generous Bank is not liable to pay
capital gains tax as a result of the foreclosure sale.

XIV.

(A)

The items that must be considered as part of the gross estate income of Mr. X are:
(1) family home in Makati City; (2) condominium unit in Las Pinas City; (3) proceeds of
health insurance from Take Care; and (4) land in Alabama, USA.

Under the National Internal Revenue Code, the gross estate of a deceased non-
resident Filipino citizen shall comprise of all his properties within and outside of the
Philippines.

In this case, Mr. X is a Filipino, residing in Alabama, USA. Hence, all his
properties within and outside of the Philippines shall form part of his gross estate.

(B)

The items that may be considered as deductions from his gross estate are (1)
funeral expenses; (2) medical expenses; and (3) judicial expenses in the testate
proceedings.

Under the National Internal Revenue Code, in the computation of the estate tax of
the decedent, there are a number of allowable deductions that may be used against the
gross estate of the deceased. Among the allowable deductions under the National Internal
Revenue Code are (1) funeral expenses; (2) medical expenses; and (3) judicial expenses
in the testate proceedings.

Thus, the estate of Mr. X can validly claim the (1) funeral expenses; (2) medical
expenses; and (3) judicial expenses in the testate proceedings as allowable deductions
from his gross estate.

XV.

A
 XVI.

No, based on the assessment received by Mr. Tiaga he cannot file a protest yet.

Under the National Internal Revenue Code, a protest may be made only against a
Final Assessment Notice.

In this case, Mr. Tiaga was given a pre-assessment notice stating that there was a
deficiency in the income tax that he paid for the year 2011. Absent, any final assessment
notice, no protest may be made yet. Hence, based on the assessment received by Mr.
Tiaga he cannot file a protest against the assessment yet.

XVII.

No, the Contract of Sale is not admissible.

Under the National Internal Revenue Code, documents without a documentary

stamo, when the law provides that such document should contain a documentary stamp,
is deemed not registered and is not admissible in evidence.

In this case the Contract of Sale without a stamp is being presented in evidence,
absent a stamp, the Contract of Sale shall be inadmissible in evidence.

XVIII.

(A)

In order to contest the assessment, Madam X may file for a protest, in the
following order:

(1) pay the deficiency assessment and file a written notice of protest within thirty (30)
days from the receipt of the assessment before the City Treasurer;
(2) the City Treasurer shall decide on the case within a period of 120 days;
(3) the taxpayer may appeal the decision from the date of the receipt of the denial of
the protest or from the lapse of 120 days from the date of the filing of the protest
with the Local Board of Assessment Appeals;
(4) in case of denial, the taxpayer may file an appeal with the Central Board of
Assessment Appeals within 60 days from the receipt of the denial of the appeal by
the Local Board of Assessment Appeals;
(5) the Central Board of Assessment appeals then has a period of thirty days within
which to decide on the appeal.

(B)

No, Madam X may not refuse to pay the deficiency tax assessment during the
pendency of the appeal.

Under the Local Government Code, protests on the deficiency assessment of the
city treasurer shall be made after payment of the deficiency tax, as assessed.

Hence, Madam X, cannot file for a protest without paying for the deficiency tax.
 XIX.

The argument of the Solicitor General is correct.

Under the National Internal Revenue Code, income generated by the taxpayer
which are not related or made in the ordinary course of trade or business shall be subject
to VAT.

In this case, the condominium corporation is generating income from the

collection of association dues, which is an income not made in its ordinary course of
trade or business. Hence, the income generated from such collection is subject to VAT.

XX.

No, I do not agree with the BIR.

Under the National Internal Revenue Code, unpaid claims againts the estate shall
be allowed as a deduction to the gross estate of the deceased.

In this case, an unpaid claim in the amount of PhP2,000,000.00 should be

considered as an allowable deduction against the gross estate of Mr. Sakitin. Therefore,
the BIR is incorrect when it disallowed the deduction based on the unplaid claim against
the estate.

XXI.

Haeltown Corporation (“HC”) shall not be held liable for the transaction that
transpired.

Tax evasion is defined as the lessening of tax liabilities through illegal means.
The requisites for tax evasion are: (1) the end result which is to lessen the tax liability;
and (2) that the means used is illegal or in bad faith. While, tax avoidance on the other
hand is the lessening of the tax liabilities through legal means.

In this case, HC is seeking to lessen its tax liablities through avoidance, namely:
(1) the Deed of Absolute Sale between Mr. Belly and BGI was notarized ahead of the
sale of HC and Mr. Belly; (2) HC received payment from BGI and not from Mr. Belly;
(3) the payment was recorded as an investment to HC; and (4) the amount paid was
withdrawn and declared as cash dividends to all its stockholders. Although there were
steps employed by HC to lessen its tax liabilities, such steps were not illegal. Hence, a
valid avoidance, and not subject to any criminal liability.

XXII.

XXIII.

B
 XXIV.

(A)

In the computation of ABC Law Firm’s gross income the following should be
included: (1) cash prize received from a religious socirty in recognition of the exemplary
service of ABC Law Firm; and (2) gains derived from sale of excess computers and
laptops.

Under the National Internal Revenue Code, a general professional partnership,

does not as a rule conduct business in the pursuance of the exercise of a specific
profession. It derives income from sources other than the conduct of the profession of the
partners.

In this case, the professional/legal fees derived by the partners cannot be said to
be the income of ABC Firm, but are treated as the individual income of the partners.
Hence, only the the following should be included in the gross income of ABC Law Firm:
(1) cash prize received from a religious socirty in recognition of the exemplary service of
ABC Law Firm; and (2) gains derived from sale of excess computers and laptops.

(B)

The following items may be considered as deductions from the gross income of
ABC Law Firm: (1) salaries of office staff; and (2) rentals for office space.

Under the National Internal Revenue Code expenses made in the ordinary course
of trade or business may be deducted from the gross income of the taxpayer.

In this case the taxpayer is a general professional partnership. A general

professional partnership, does not as a rule conduct business in the pursuance of the
exercise of a specific profession. It derives income from sources other than the conduct of
the profession of the partners. Thus, representation expenses incurred in meetings with
clients cannot be regarded as an ordinary expense of ABC Law Firm.

(C)

ABC Law Firm with respect to the net income it derived in the year 2012, shall be
liable for income tax, which shall not include the individual income derived by the
individual partners. While A, B, and, C shall be liable for income tax based on their
individual income for the year 2012.

XXV.

XXVI.

No, Freezy Corporation may not claim the payment to the officer as deduction
from its gross income.

Under the National Internal Revenue Code, expenses made in the ordinary course
of trade or business may be deducted from the gross income. However, illegal payments
and payments made for purposes of bribery cannot be considered as an ordinary expense.
 In this case, payments were made by Freezy Corporation to secure the trade
secrets of Frosty Corporation. The expense made here is an illegal expense, and cannot be
considered as an ordinary expense of Freezy Corporation. Thus, the payment made
cannot be claimed as an allowable deduction.

XXVII.

(A)

Yes, he is entitled to personal exemption, in the amount of PhP50,000.00.

(B)

Yes, he is entitled to additional exemptions in the amount of PhP25,000.00 for

every minor beneficiary, since he has two beneficiaries, he is entitled to an additional
exemption of PhP50,000.00

(C)

The taxes withheld from his salaries shall be remitted by his employer to the BIR,
in effect his income tax shall be filed and paid by his employer, on his behalf.

XXVIII.

XXIX

(A)

If I was Atty. ELP, I will advice Doña Evelina to pay the tax assessed, then file a
claim for refund.

Under the Local Government Code, refunds may be made only after payment of
the tax, as assessed.

In this case, Doña Evelina can request for a refund of the tax that she paid and
question the assessment after payment of the assessed tax.

(B)

If Doña Evelina eventually recovers the local business taxes, the said amount
shall not be considered as income taxable by the national government.

Under the National Internal Revenue Code, income derived from whatever source
shall be included in the gross income of the taxpayer.

In this case, the amount recovered by Doña Evelina is not considered as an

income, since she did not gain anything from the recovrty of the tax that was
erronoerously assessed. Hence, such recovery shall not be considered as taxable income
under the National Internal Revenue Code.