26.

What is the prescriptive period for the collection of taxes:

Abellon, Caryl Mae B.

SUGGESTED ANSWER:

(a) with prior assessment?

Section 222 (c) of the Tax Code provides that ―Any internal revenue tax which has
been assessed within the period of limitation as prescribed in paragraph (a) hereof
may be collected by distraint or levy or by a proceeding in court within five (5)
years following the assessment of the tax."

(b) without prior assessment?

The prescriptive period for the collection of taxes without prior assessment depends
if the no tax return was filed or it was filed falsely, fraudulently or not.

If the return filed was not false or fraudulent, the collection should be made within
three (3) years from the date of filing of return or date return is due, whichever is
later.

On the other hand, if no return was filed, or it was filed falsely or fraudulently, the
collection should be made within ten (10) years after the discovery of the falsity,
fraud or omission to file a return.

(c) if no return was filed or the return was false or fraudulent?

Section 222 (a) of the Tax Code states that ―In the case of a false or fraudulent
return with intent to evade tax or of failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of such tax may be filed
without assessment, at any time within ten (10) years after the discovery of the
falsity, fraud or omission: Provided, That in a fraud assessment which has become
final and executory, the fact of fraud shall be judicially taken cognizance of in the
civil or criminal action for the collection thereof.‖

27. What are the two kinds of distraint of personal property?

Alipayo, Queen Anne A.

SUGGESTED ANSWER:

The following are the two kinds of distraint of personal property:

a. Actual distraint – Under Sec. 207 of the NIRC, it is resorted to when at the time
required for payment, a person fails to pay his delinquent tax obligation. The

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 Commissioner or his duly authorized representative, if the amount involved is in
excess of One million pesos (P1,000,000), or the Revenue District Officer, if the
amount involved is One million pesos (P1,000,000) or less, shall seize and
distraint any goods, chattels or effects, and the personal property, including
stocks and other securities, debts, credits, bank accounts, and interests in and
rights to personal property of such persons, in sufficient quantity to satisfy the
tax, or charge, together with any increment thereto incident to delinquency, and
the expenses of the distraint and the cost of the subsequent sale. Distraint
consists in the actual seizure and taking possession of personal property of the
taxpayer; and
b. Constructive distraint – A preventive remedy which aims at forestalling a
possible dissipation of the taxpayer’s assets when delinquency sets in. No actual
tax delinquency of the taxpayer is necessary before the same is resorted to by
government. Under Sec. 206 of the NIRC, to safeguard the interest of the
Government, the Commissioner may place under constructive distraint the
property of any taxpayer: i) when he is retiring from any business subject to
tax; ii) when he is intending to leave the Philippines; iii) when he is intending to
remove his property therefrom or to hide or conceal his property; or iv) when
he is intending to perform any act tending to obstruct the proceedings for
collecting the tax due or which may be due from him.

28. What is the remedy of the taxpayer once the BIR Commissioner issues
the warrant of distraint? (AMER)

Amer, Sittie Farhannah H.

SUGGESTED ANSWER:

A taxpayer must file an appeal with the CTA (Court of Tax Appeal) within 30 days
from receipt of a Warrant of distraint and or levy.

29. May the taxpayer recover his property prior to consummation of the
sale?

Bacalso, Hannah M.

SUGGESTED ANSWER:

Yes. Under SEC. 210. Release of Distrained Property Upon Payment Prior to Sale. -
If at any time prior to the consummation of the sale all proper charges are paid to
the officer conducting the sale, the goods or effects distrained shall be restored to
the owner.

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30. How is constructive distraint effected?

Capute, Charlene C.

SUGGESTED ANSWER:

Section 206, 2nd paragraph of the NIRC provides that the constructive distraint of
personal property shall be effected by requiring the taxpayer or any person having
possession or control of such property to sign a receipt covering the property
distrained and obligate himself to preserve the same intact and unaltered and not
to dispose of the same in any manner whatever, without the express authority of
the Commission.

31. When may property of the taxpayer be placed in constructive distraint?

(Tax Remedies, No. 31)

Castro, Aivy Mae R.

SUGGESTED ANSWER:

As provided under Section 206 of the National Internal Revenue Code of the
Philippines, a property of the delinquent taxpayer or any taxpayer may be placed in
constructive distraint when:

1. Retiring from any business subject to tax;or

2. Intending to leave the Philippines; or
3. To remove or conceal his property; or
4. 4. To perform any act tending to obstruct the proceedings for collecting the tax
due or which may be due from him.

The constructive distraint of personal property shall be affected by requiring the

taxpayer or any person having possession or control of such property to sign a
receipt covering the property distrained and obligate himself to preserve the same
intact and unaltered and not to dispose of the same ;in any manner whatever,
without the express authority of the Commissioner.

If the taxpayer or any person in possession and control of the property refuses or
fails to sign the receipt, the revenue officer shall prepare a list of the property and
leave a copy of such list in the premises where the property distrained is located, in
the presence of two (2) witnessed.

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32. When is further distraint or levy resorted to by the BIR? (see Sec. 217,
Tax Code)

De Asis, Quejarra R.

SUGGESTED ANSWER:

According to Sec.217 of the NIRC, The remedy by distraint of personal property and
levy on realty may be repeated if necessary until the full amount due, including all
expenses, is collected.

33. What is a tax lien?

Derecho, April C.

SUGGESTED ANSWER:

It is a legal claim or charge on property, personal or real, established by law as a

sort of security for the payment of tax obligations (HSBC v. Rafferty, 39 Phil. 145).

Tax in itself is not a lien even upon the property against which it is assessed, unless
expressly made so by statute.

34. What is the difference between seizure under forfeiture and a seizure
to enforce a tax lien?

Elesterio, Dessa Marie V.

SUGGESTED ANSWER:

Under Sec. 2205, Seizure under forfeiture is when Customs Official, Fisheries
Commission or Philippine Coast Guard makes a seizure of any vessel, aircraft,
cargo, animal or any movable property when the same is subject to forfeiture or
liable for any fine under the Tariff and Customs Law.

While under Sec. 1508, Seizure to enforce a tax lien is when an importer has an
outstanding and demandable account with the Bureau of Customs, the collector
shall hold the delivery of the article. Upon notice, collector may sell such
importation or a portion of it to satisfy the obligation. The importer may settle his
obligation anytime before the sale.

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35. When may taxes be refunded or credited?

Jaen, John Paul I.

SUGGESTED ANSWER:

1. Taxes erroneously or illegally assessed or collected.

2. Penalties imposed without authorities.
3. Value of internal revenue stamps when they are returned in good
condition by the purchaser.
4. Unused stamps that have been rendered unfit for use (Commissioner
may redeem, change or refund their value upon proof of destruction)
5. Any sum alleged to have been excessively or in any manner wrongfully
collected.
The taxpayer must file a written claim for refund stating a categorical demand for
reimbursement before the Commissioner within TWO years from date of payment.
(Sec. 229, NIRC)

36. In a claim for refund of unutilized input VAT, does the two-year
prescriptive period include both administrative and judicial claims?

Malinao, Deborah H.

SUGGESTED ANSWER:

No. The judicial claim need not be filed within the two – year prescriptive period.
The phrase "within two (2) years x x x apply for the issuance of a tax credit
certificate or refund" refers to applications for refund/credit filed with the CIR and
not to appeals made to the CTA. This is apparent in the first paragraph of
subsection (D) of the same provision, which states that the CIR has "120 days from
the submission of complete documents in support of the application filed in
accordance with Subsections (A) and (B)" within which to decide on the claim.

In fact, applying the two-year period to judicial claims would render nugatory
Section 112 (D) of the NIRC, which already provides for a specific period within
which a taxpayer should appeal the decision or inaction of the CIR. The second
paragraph of Section 112 (D) of the NIRC envisions two scenarios: (1) when a
decision is issued by the CIR before the lapse of the 120-day period; and (2) when
no decision is made after the 120-day period. In both instances, the taxpayer has

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30 days within which to file an appeal with the CTA. The 120-day period is crucial in
filing an appeal with the CTA. It is only the administrative claim that must be filed
within the two-year prescriptive period; the judicial claim need not fall within the
two-year prescriptive period.

What is the proper reckoning date for the two-year prescriptive period?
(See CIR vs. Mindanao II Geothermal Partnership, GR No. 191498, January
15, 2014)

SUGGESTED ANSWER:

Reckoning point for the two (2) – year prescriptive period:

1. Zero – rated or effectively zero rated sales: after the close of the taxable
quarter when the sales were made. (Sec. 112 (A), NIRC)
2. Cessation of business or VAT status: from date of cancellation (Sec. 112 (B),
NIRC)

37. State the rule on claims for refund of erroneously or illegally assessed
or collected taxes under Sec. 229 of the Tax Code.

OÑAS, Arlene E

SUGGESTED ANSWER:

Section 229 of the Tax Code provides that, no suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax
hereafter alleged to have been erroneously or illegally assessed or collected, or of
any penalty claimed to have been collected without authority, of any sum alleged to
have been excessively or in any manner wrongfully collected without authority, or
of any sum alleged to have been excessively or in any manner wrongfully collected,
until a claim for refund or credit has been duly filed with the Commissioner; but
such suit or proceeding may be maintained, whether or not such tax, penalty, or
sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2)
years from the date of payment of the tax or penalty regardless of any supervening
cause that may arise after payment: Provided, however, That the Commissioner
may, even without a written claim therefor, refund or credit any tax, where on the
face of the return upon which payment was made, such payment appears clearly to
have been erroneously paid.

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38. What are the taxpayer’s remedies if his claim for refund (of
erroneously or illegally assessed or collected tax) is denied or is not acted
upon by the Commissioner?

Papas, Keziah Cyra B.

SUGGESTED ANSWER:

The taxpayer, in filing his judicial claim, can do so in two ways: 1) file the judicial
claim within thirty days after the Commissioner of Internal Revenue denies the
claim within the 120-day period, or 2) file the judicial claim within 30 days from the
expiration of the 120 day period if the Commissioner does not act within the 120-
day period. Therefore, in case the Commissioner has not taken action, the taxpayer
may appeal to the CTA within 30 days after the lapse of 120 days from the
submission of the complete documents. On the other hand, in case of CTA‘s denial,
the taxpayer may appeal the full or partial denial of the claim to the Court of Tax
Appeal within 30 days from the receipt of said denial, otherwise the decision shall
become final.

39. If the Commissioner of Internal Revenue grants the refund, within

what period must it be claimed by the taxpayer?

Papelleras, Jannica, G.

SUGGESTED ANSWER:

Section 112(C) provides that in proper cases, the Commissioner shall grant a
refund for creditable input takes within ninety (90) days from the date of
submission of the official receipts or invoices and other documents in support of the
application filed in accordance with Subsections (A) and (B)

(However prior to January 1, 2018, taxpayer has 120 days to claim the refund)

40. In a claim for refund of unutilized input VAT, within what period
should the Commissioner act on the claim?

Paquera, Elvira V.

SUGGESTED ANSWER:

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In proper cases, the Commissioner of Internal Revenue shall grant refund for
creditable input taxes within ninety (90) days from the date of submission of the
official receipts or invoices and other documents in support of the application filed
in accordance with subsections (A) and (B) hereof. Provided, that, should the
Commissioner find that the grant of refund is not proper , the Commissioner must
state in writing the legal and factual basis for the denial.

However, all claims for refund/tax credit certificate filed prior to January 1,2018
shall still be governed by the one hundred twenty (120)-day processing period.
(Regulation 13-2018).

41. Under the R.A. 10963 – TRAIN Law, what is the liability of a BIR officer
who failed to act upon, within the statutory period, a valid application for
refund of input VAT?

Regala, Mary Licel, I.

SUGGESTED ANSWER:

Section 4.112-1 (d) paragraph 5 provides that:

In case of full or partial denial of the claim for tax refund, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim,
appeal the decision with the Court of Tax Appeals: Provided, however, that failure
on the part of any official, agent, or employee of the BIR to act on the application
within the ninety (90)- day period shall be
punishable under Section 269 of the Tax Code, as amended.

42. Who is the proper party to ask for a refund of an indirect tax? (See
Exxon Mobil Petroleum v. CIR, GR No. 180909, January 26, 2011)

Reyes, Sarah Patricia P.

SUGGESTED ANSWER:

The proper party to question, or seek a refund of, an indirect tax is the statutory
taxpayer, the person on whom the tax is imposed by law and who paid the same
even if he shifts the burden thereof to another. Section 130 (A) (2) of the NIRC
provides that "[u]nless otherwise specifically allowed, the return shall be filed and
the excise tax paid by the manufacturer or producer before removal of domestic
products from place of production."
Here, the sellers of the petroleum products or Jet A-1 fuel subject to excise tax are
Petron and Caltex, while Exxon was the buyer to whom the burden of paying excise

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tax was shifted. [68] While the impact or burden of taxation falls on Exxon, as the
tax is shifted to it as part of the purchase price, the persons statutorily liable to pay
the tax are Petron and Caltex. [69] As Exxon is not the taxpayer primarily liable to
pay, and not exempted from paying, excise tax, it is not the proper party to claim
for the refund of excise taxes paid.
As petitioner is not the statutory taxpayer, it is not entitled to claim a refund of
excise taxes paid. (Exxon Mobil Petroleum v. CIR, GR No. 180909, January 26,
2011)

Is there an exception to the general rule? (see PAL v. CIR, GR No. 198759,
July 1, 2013) (Tax Remedies, No. 42)

SUGGESTED ANSWER:

Accordingly, in cases involving excise tax exemptions on petroleum products under

Section 135 of the NIRC, it is the statutory taxpayer who is entitled to claim a tax
refund and not the party who merely bears its economic burden. However, this rule
does not apply to instances where the law clearly grants the party to which the
economic burden of tax is shifted an exemption from both direct and indirect taxes.
In which case, the latter must be allowed to claim a tax refund even if it is not
considered as the statutory taxpayer. If the law confers an exemption from both
direct and indirect tax, a claimant is entitled to a refund even if it only bears the
economic burden of the applicable tax. On the other hand, if the exemption
conferred by law applies to direct taxes, then the statutory taxpayer is regarded as
the proper party to file the refund claim. (PAL v. CIR, GR No. 198759, July 1, 2013)

43. What are the grounds for the compromise of the payment of national
internal revenue taxes? What are the limitations of the Commissioner’s
power to compromise?

Roa, Vanessa C.

SUGGESTED ANSWER:

Under RR No. 30-2002, the Commissioner of Internal Revenue (CIR) may

compromise the payment of any internal revenue tax on the following grounds:
Doubtful validity of the assessment;
Financial incapacity
Limitations of the CIR‘s power to compromise:
For cases of financial incapacity: a minimum compromise rate equivalent to 10% of
the basic assessed tax;
For other cases: a minimum compromise rate of equivalent to 40% of the basic
assessed tax.

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44. What are the grounds for the abatement or cancellation of tax
liabilities and/or penalties?

Sagarino, Dapnee C.

SUGGESTED ANSWER:

Revenue Regulations No. 4-2012 dated March 28,2012 (RR4-12) and entitled
―Amending Revenue Regulations No. 13-2001, Regarding Abatement or
Cancellation of Internal Revenue Tax Liabilities‖ now provides an updated list of
instances of abatement on the ground that the imposition thereof is unjust and
excessive.
Under RR 4-12. Section 2.6.1 of Revenue Regulations No.13-2001 providing for
abatement or cancellation of penalties and / or interest on the ground of one day
late filing and remittance due to failure to beat the bank cut-off time has been
deleted. This in effect is saying that a one-day late payment because the taxpayer
failed to catch up with the bank‘s cut-off time is not subject for cancellation of 25%
surcharge, 20% interest and compromise penalties ranging from P200 to P25,000
depending on the amount of basic tax due.
Sec.2 of RR No.13-2001 shall now reads as follows:
Section 2. Instances When The Penalties and/or Interest imposed on the
Taxpayer May Be Abated Or Cancelled On The Ground That The Imposition Thereof
Is Unjust or Excessive-
X x x...
2.6 Late payment of the tax under meritorious circumstamces such as those
provided hereunder:
2.6.1 Use of wrong tax form but correct amount of tax was remitted;
2.6.2 Filing an amended return under meritorious circumstances provided,however,
that abatement shall cover only the penalties and not the interest;
2.6.3 Surcharge erroneously imposed;
2.6.4 Late filing of return due to unresolved issue on classification/valuation of real
property (for capital gains tax cases,etc)
2.6.5 Offsetting of taxes of the same kind, i.e overpayment in one quarter/month is
offset against underpayment in another quarter/month;
2.6.6 Autonatic offsetting of overpayment of one kind of withholding tax against the
underpayment in another kind;
2.6.7 Late remittance of withholding tax on compensation of expatriates for
services rendered in the Philippines pending the issuance of Securities and
Exchance Commission of the License to the Philippine branch office or subsidiary.
Provided, however, that the abtement shall only cover the surcharge and the
compromise penalty and not the interest;
2.6.8 Wrong use of Tac Credit Certificates (TCC) where Tax Debit Memo was not
properly appliedfor; and
2.6.9 Such other instances which the Commissioner may deem analogous to the
enumeration above.

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The above instances are normally subject to penalties and interest, but with the
above regulations, the same could be abated or cancelled upon coordination with
the Revenue District office of location or with the Office of the Commissioner of
Internal Revenue. Upon abatement, the taxpayer will no longer be held liable for
the penalties and/or interest.

45. What are the cases that may be the subject matter of a compromise
settlement?

Salubre, Paulynn C.

SUGGESTED ANSWER:

These are the following cases subject to compromise agreement:

Delinquent accounts
Cases under administrative protest after issuance of the Final Assessment Notice to
the taxpayer which are still pending in the RO, RDO, Legal Service, Large Taxpayer
Service, Collection Service, Enforcement Service, and other office in the National
Office
Cases covered by pre-assessment notices but taxpayer is not agreeable to the
finding of the audit office as confirmed by the review office
Civil tax cases disputed before the courts
Criminal violations, except:
Those already filed in courts; and
Those involving criminal tax fraud.

46. May the Commissioner compromise cases of criminal violations?

Samson, Frances C.

SUGGESTED ANSWER:

Generally, YES but it admits of exceptions

Revenue Regulation 30-2002 provides for specific instances where tax liability in
the Philippines could be compromised based on certain conditions and
requirements, to wit:

1. Delinquent accounts;
2. Cases under administrative protest after issuance of the Final Assessment Notice
to the taxpayer which are still pending in the Regional Offices, Revenue District

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 Offices, Legal Service, Large Taxpayer Service, Collection Service, Enforcement
Service and other offices int the National Office;
3. Civil tax cases being disputed before the courts;
4. Collection cases filed in courts;
5. Criminal violations, except:
• Those already filed in court
• Those involving criminal tax fraud

47. Are there tax returns which are false but not fraudulent? [See Aznar v.
CTA (1974)]

Sesante, Monyeen Marie T.

SUGGESTED ANSWER:

Yes. We believe that the proper and reasonable interpretation of said provision
(Section 332 of the NIRC) should be that in the three different cases of (1) false
return, (2) fraudulent return with intent to evade tax, (3) failure to file a return, the
tax may be assessed, or a proceeding in court for the collection of such tax may be
begun without assessment, at any time within ten years after the discovery of the
(1) falsity, (2) fraud, (3) omission. Our stand that the law should be interpreted to
mean a separation of the three different situations of false return, fraudulent return
with intent to evade tax, and failure to file a return is strengthened immeasurably
by the last portion of the provision which segregates the situations into three
different classes, namely "falsity", "fraud" and "omission". That there is a difference
between "false return" and "fraudulent return" cannot be denied. While the first
merely implies deviation from the truth, whether intentional or not, the second
implies intentional or deceitful entry with intent to evade the taxes due. (Aznar vs.
CTA, GR No. L-20569, August 23, 1974)

48. Under the “Irrevocability Rule”, does the exercise of the option to
carry-over the excess income tax credit prohibit a claim for refund in the
subsequent taxable years for the unused portion of the excess tax credits
carried over? (See Asiaworld Properties Philippines Corporation v. CIR, GR
NO. 171766, July 29, 2010)

Sunico, Mary Claire Therese L.

SUGGESTED ANSWER:

Yes, under Section 76 of the NIRC of 1997, the application of the option to carry-
over the excess creditable tax is not limited only to the immediately following
taxable year but extends to the next succeeding taxable years. The clear intent in

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the amendment under Section 76 is to make the option, once exercised, irrevocable
for the "succeeding taxable years."

Thus, once the taxpayer opts to carry-over the excess income tax against the taxes
due for the succeeding taxable years, such option is irrevocable for the whole
amount of the excess income tax, thus, prohibiting the taxpayer from applying for a
refund for that same excess income tax in the next succeeding taxable years. The
unutilized excess tax credits will remain in the taxpayer's account and will be
carried over and applied against the taxpayer's income tax liabilities in the
succeeding taxable years until fully utilized

49. Is a motion for reconsideration from the decision of a CTA Division

mandatory prior to elevating the case to the CTA en banc? (See CIR vs.
Marina Sales, Inc., GR No. 183868, November 22, 2010)

Tan, Vivian B.

SUGGESTED ANSWER:

Yes. A motion for reconsideration from the decision of a CTA Division is

mandatory before the CTA En Banc can take cognizance of the case.

As ruled in CIR v. Marina Sales Inc., the supreme court ruled that before the
CTA En Banc can take cognizance of a petition for review, respondent must
satisfactorily comply with the mandatory provision of Rule 8, Sec. 1 of the Revised
Rules of the Court of Tax Appeals requiring among other that the petition for review
of a decision or resolution of the Court in division must be preceded by the filing of
a timely motion for reconsideration or new trial with the division.

The word ―must” clearly indicates the mandatory – not merely directory – nature of
a requirement.

50. Does the Secretary of Justice have jurisdiction to review the

Commissioner of Internal Revenue’s decision on disputed assessments?
(See CIR v. Sec. of Justice and PAGCOR, GR No. 177387, November 9,
2016)

Valladores, Ara Joy C.

SUGGESTED ANSWER:

The Secretary of Justice has no jurisdiction to review the disputed assessments.

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It is the Court of Tax Appeals (CTA), not the Secretary of Justice, that has the
exclusive appellate jurisdiction, pursuant to Section 7(1) of Republic Act No. 1125
(R.A. No. 1125), which grants the CTA the exclusive appellate jurisdiction to
review, among others, the decisions of the Commissioner of Internal Revenue "in
cases involving disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties imposed in relation thereto, or other matters arising under
the National Internal Revenue Code (NIRC) or other law or part of law administered
by the Bureau of Internal Revenue. (CIR v. Sec. of Justice and PAGCOR, GR No.
177387, November 9, 2016) (Tax Remedies, No. 50)

51. Under Sec. 4 of the Tax Code, the power to interpret tax laws shall be
under the exclusive and original jurisdiction of the Commissioner of
Internal Revenue, subject to review by the Secretary of Finance. Where
should the decision of the Secretary of Finance, in the exercise of his
power of review, be appealed? (see Philippine American Life and General
Insurance Company vs. Secretary of Finance, GR No. 210987, November
24, 2014)

Zamora, Jerianne Andre Q.

SUGGESTED ANSWER:

The court in its ruling in the case of Philippine American Life and General Insurance
Company vs. Secretary of Finance said that under Sec. 7(a)(1) of RA 1125, as
amended, addresses the seeming gap in the law as it vests the Court of Tax
Appeals, albeit impliedly, with jurisdiction over the CA petition as “other matters”
arising under the NIRC or other laws administered by the BIR.

Also in the case of City of Manila v. Grecia-Cuerdo, the Court en banc has ruled that
the CTA now has the power of certiorari in cases within its appellate jurisdiction.

Thus, the power to decide disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties imposed in relation thereto, or other matters
arising under this Code or other laws or portions thereof administered by the
Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive
appellate jurisdiction of the Court of Tax Appeals.

52. Does the Court of Tax Appeals (CTA) have jurisdiction over a special
civil action for certiorari assailing an interlocutory order issued by the
Regional Trial Court (RTC) in a local tax case? (See The City of Manila vs.
Hon. Caridad H. Grecia-Cuerdo, GR No. 175723, February 4, 2014)

Acaylar, Franz Lawrence Q.

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SUGGESTED ANSWER:

Yes. The prevailing doctrine is that the authority to issue writs of certiorari involves
the exercise of original jurisdiction which must be expressly conferred by the
Constitution or by law and cannot be implied from the mere existence of appellate
jurisdiction.

While under RA 1125 as amended by RA 9282 (Jurisdiction of the CTA), there is no

express grant of such power, Section 1, of Art VIII of the 1987 Constitution
provides, nonetheless, that judicial power shall be vested in one Supreme Court
and in such lower courts as may be established by law and that judicial power
includes the duty of the courts of justice to settle actual controversies involving
rights which are legally demandable and enforceable, and to determine whether or
not there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the Government.

A grant of appellate jurisdiction implies that there is included in it the power

necessary to exercise it effectively, to make all orders that will preserve the subject
of the action, and to give effect to the final determination of the appeal. The court,
in aid of its appellate jurisdiction, has the authority to control all auxiliary and
incidental matters necessary to the efficient and proper exercise of that jurisdiction.
(City of Manila vs. Grecia-Cuerdo, G.R. No. 175723, February 4, 2014)

53. Are campaign contributions considered taxable income of the candidate

to whom they were given? (See R.R. No. 7-2011 and RMC No. 30-2016)

Alo, Reyniere M.

SUGGESTED ANSWER:

No, as a general rule, campaign contributions are not included in the taxable
income of the candidate to whom they were given, the reason being that such
contributions were given not for the personal expenditure/enrichment of the
concerned candidate, but for the purpose of utilizing such contributions for his/her
campaign. Thus, to be considered as exempt from income tax, these campaign
contributions must have been utilized to cover a candidate's expenditures for
his/her electoral campaign.

54. If the CTA Division denies the taxpayer’s motion for reconsideration on
a disputed assessment, can the taxpayer directly appeal to the Supreme
Court by filing a petition for review on certiorari under Rule 45?

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BASAÑEZ, James Marvin C.

SUGGESTED ANSWER:

No. The taxpayer cannot directly file a petition for review on certiorari, under Rule
45, a decision of the CTA Division to the Supreme Court.

Section 18 of R.A. 1125 provides for the manner in which an appeal from the
decision of the CTA to the Supreme Court is made, to wit:

Section 18. Appeal to the Supreme Court. - No judicial proceeding against the
Government involving matters arising under the National Internal Revenue Code,
the Customs Law or the Assessment Law shall be maintained, except as herein
provided, until and unless an appeal has been previously filed with the Court of Tax
Appeals and disposed of in accordance with the provisions of this Act.

The enactment however of R.A. No. 9282 on April 2004 elevated the rank of the
CTA to the level of a collegiate court, making it a co-equal body of the CA. The
appeal of a CTA decision under Section 18 of R.A. No. 1125 was amended by R.A.
No. 9282, which reads as follows:

SEC. 18. Appeal to the Court of Tax Appeals En Banc. - No civil proceeding
involving matter arising under the National Internal Revenue Code, the Tariff and
Customs Code or the Local Government Code shall be maintained, except as herein
provided, until and unless an appeal has been previously filed with the CTA and
disposed of in accordance with the provisions of this Act. A party adversely affected
by a resolution of a Division of the CTA on a motion for reconsideration or new trial,
may file a petition for review with the CTA en banc.

Does the Supreme Court have jurisdiction over the case? (See Duty Free
Philippines v. CIR, GR NO. 197228, October 8, 2014)

SUGGESTED ANSWER:

No. The Supreme Court does not have jurisdiction over the case.

Section 18 of R.A. No. 9282, as amended, states that ―a party adversely affected by
a resolution of a Division of the CTA on a motion for reconsideration or new trial,
may file a petition for review with the CTA en banc.‖ Furthermore, Section 2, Rule 4
of the Revised Rules of the CTA reiterates the exclusive appellate jurisdiction of the
CTA en banc relative to the review of the court division‘s decisions or resolutions on
motion for reconsideration or new trial in cases arising from administrative agencies

16 | P a g e
such as the BIR. Lastly, Section 19 of R.A. No. 9282 provides, ―a party adversely
affected by a decision or ruling of the CTA en banc may file with the Supreme Court
a verified petition for review on ceriorari pursuant to Rule 45.

Clearly, the Supreme Court is without jurisdiction to review decisions rendered by a

division of the CTA. The exclusive appellate jurisdiction over which is vested in the
CTA en banc.

55. Is the 20% discount on the purchase of medicines by persons with

disability (PWDs) an exercise by the government of its police power or an
exercise of its power of eminent domain? (See Drugstores Association of
the Philippines v. National Council on Disability Affairs, GR No. 194561,
September 14, 2016) (

Belarmino, Alphonse Louie E.

SUGGESTED ANSWER:

It is a legitimate exercise of police power

In the case of Drugstores Association of the Philippines, Inc. and Northern Luzon
Drug Corporation v. National Council on Disability Affairs states that police power is
the power of the state to promote public welfare by restraining and regulating the
use of liberty and property. In the exercise of this power, property rights of private
individuals are subjected to restrains and burdens in order to secure the general
comfort, health, and prosperity. It must show that it is for the interest of the public
generally and the means employed are reasonably necessary for the
accomplishment of the purpose and not unduly oppressive.
In this case, the 20% discount is supported by a valid object or purpose, which the
discount is a privilege that the PWDs are entitled enjoyed by the general public to
which these citizens belong. The means employed is reasonable and related to its
accomplishment.

56. What is tax amnesty?

Cuenca, Joben Vernan C.

SUGGESTED ANSWER:

Tax amnesty is an immunity from all criminal and civil obligation arising from non-
payment of taxes. It is a general pardon given to all taxpayers. It applies only to
past tax periods, hence of retroactive application. (People v Castarieda GR no. L-
46881, 1988)

17 | P a g e
What is the constitutional requirement for the enactment of a law granting
tax exemption to taxpayers?

SUGGESTED ANSWER:

SECTION 28. (1) The rule of taxation shall be uniform and equitable. The Congress
shall evolve a progressive system of taxation.
(4) No law granting any tax exemption shall be passed without the concurrence of a
majority of all the Members of the Congress.
Note that in granting tax exemptions, an absolute majority vote of the members of
Congress is required, while in cases of withdrawal of such tax exemption, a relative
majority vote is sufficient.
Tax amnesties, tax condonations, and tax refunds are in the nature of tax
exemptions. Such being the case, a law granting tax amnesties, tax condonations,
and tax refunds requires the vote of an absolute majority of the Members of
Congress.

57. What are BIR Rulings?

Esparagoza, Keneth Jorge A.

SUGGESTED ANSWER:

These are Official positions of the CIR to queries raised by taxpayers and other
stakeholders relative to clarification and interpretation of tax laws.

What are the two types of BIR Rulings?

SUGGESTED ANSWER:

Generally, the two Types of Rulings are BIR Rulings and VAT Rulings. However,
Rulings may come in other different forms such as:

1. Rulings issued by International Tax Affairs

Division (ITAD); and

2. Rulings issued thru delegated authorities or

18 | P a g e
 unnumbered rulings

58. Discuss the doctrine of non-retroactivity of ruling under Sec. 246 of the
Tax Code. Are there exceptions to the rule?

Jurado, Ralph E.

SUGGESTED ANSWER:

Rulings, circulars, rules and regulations promulgated by the Commissioner on

Internal Revenue should have no retroactive effect application if applying the would
prejudice the taxpayers (CIR v. CA, G.R. No. 117982)

However, Sec. 246 of the tax code provides for several exceptions, they are as
follows:

1.) A taxpayer deliberately misstates or omits material facts from his return or
any document required by the BIR.
2.) Where subsequent facts gathered by the BIR are materially different from
which the ruling is based.
3.) Where the taxpayer acted in bad faith.
59. How much is the informer’s reward?

Manubag Celedonio Jr. S.

SUGGESTED ANSWER:

Under Section 282 of the National Internal Revenue Code (NIRC), allows a person
who "voluntarily" shares information on possible irregularities to get "10% of the
revenues, surcharges or fees recovered and/or fine or penalty imposed and
collected or One Million Pesos (P1,000,000) per case, whichever is lower.

What are the conditions to qualify for the informer’s reward under Sec. 282
of the Tax Code?

SUGGESTED ANSWER:

Under Section 282 of the National Internal revenue Code (NIRC) the following
conditions must be complied with:

a)should not be a BIR employee,

b)a person related to the sixth degree of consanguinity to any bureau official, or

19 | P a g e
c)a previous official who discovered the anomaly "during [his/her] incumbency."

60. A taxpayer is a non-stock, non-profit educational institution.

Maruhom, Datu Esma Mikee P.

a. Is the rental income from the cafeteria subject to income tax?

SUGGESTED ANSWER:

No, the rental income is not subject to income tax if such revenue
has been actually, directly, and exclusively used for educational
purposes.

Section 4(3), Article XIV of the 1987 Constitution provides:

(3) All revenues and assets of non-stock, non-profit educational

institutions used actually, directly, and exclusively for educational
purposes shall be exempt from taxes and duties. Upon the
dissolution or cessation of the corporate existence of such
institutions, their assets shall be disposed of in the manner provided
by law.

Proprietary educational institutions, including those cooperatively

owned, may likewise be entitled to such exemptions subject to the
limitations provided by law including restrictions on dividends and
provisions for reinvestment.

The exemption from the payment of income tax is not on the use of the
building as a school canteen, but on the use of the rental income actually,
directly, and exclusively for educational purposes. The Constitution does not
require that the revenues and income must have also been sourced from
educational activities or activities related to the purposes of an educational
institution. The phrase all revenues is unqualified by any reference to the
source of revenues.

Hence, the rental income is tax exempt if such revenue is used solely
for educational purposes.

b. Is the portion of the school building utilized as school canteen

subject to real property tax, even if the related rental income
is used for educational purposes?

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SUGGESTED ANSWER:

Yes, the portion of the school building used as school canteen is

subject to real property tax.

Section 4(3), Article XIV of the 1987 Constitution provides:

(3) All revenues and assets of non-stock, non-profit educational

institutions used actually, directly, and exclusively for educational
purposes shall be exempt from taxes and duties. Upon the
dissolution or cessation of the corporate existence of such
institutions, their assets shall be disposed of in the manner provided
by law.

Proprietary educational institutions, including those cooperatively

owned, may likewise be entitled to such exemptions subject to the
limitations provided by law including restrictions on dividends and
provisions for reinvestment.

In order to be exempt from payment of property tax, the use of such asset or
property must be actually, directly, and exclusively for educational purposes.
In the case given, the portion of the school building used as a school canteen
is considered not actually, directly, and exclusively used for educational
purposes. The commercial use of the property is also not incidental to and
reasonably necessary for the accomplishment of the main purpose of a
university, which is to educate its students.

Therefore, the school building used as school canteen is not within

the tax exemption contemplated by the provision.

C. If the school utilized a portion of its revenue for commercial purposes,

does it remove such item from the tax exemption coverage under the
Constitution? (see Commissioner of Internal Revenue vs. De La Salle
University, Inc., G.R. No. 196596, November 9, 2016)

SUGGESTED ANSWER:

Yes, the portion of the income used for commercial purposes is not tax-
exempt.

The Constitution provides that revenues actually, directly and exclusively used for
educational purposes by non-stock, non-profit educational institutions are
exempted from taxation. Should income be used for purposes other than the
furtherance of the educational objectives of the institution, such income or revenue
is not covered by the exemption and may be subjected to income tax. To avail of
the exemption, the taxpayer must factually prove that it used actually, directly and

21 | P a g e
exclusively for educational purposes the revenues or income sought to be
exempted.

Hence, incomes of non-stock, non-profit educational institutions are not

automatically exempt from taxation since there must be a showing that the
incomes are used actually, directly, and exclusively for educational purposes.

7. Gains and Losses from Disposition of Property

Neri, Tauniño Jillandro G.

d. State the rule on capital gain or losses on individuals. What do you

understand by the “holding period rule” in relation to capital gains/loss?

SUGGESTED ANSWER:

Capital gains include the gain derived from the sale or exchange of an asset not
connected with the trade or business. On the other hand, capital loss is the loss
that may be sustained from the sale or exchange of an asset not connected with
the trade or business. Capital loss may not exceed capital gains when used as a
deduction to income. Holding period available. The percentages of gain or loss to be
taken into account shall be the ff.: 100% - if the capital assets have been held for
12 months or less; and 50% - if the capital asset has been held for more than 12
months Non-deductibility of Net Capital losses. Capital losses are allowed only up to
the extent of the capital gains; hence, the net capital loss is not deductible.

Holding period rule (long term capital gain vis-à-vis short term capital
gain)

Where the taxpayer held the capital asset sold for more than 12 months, the gain
derived therefrom is taxable only to the extent of 50%. Consequently, if the
taxpayer held the capital asset sold for a year or less, the whole gain shall be
taxable. The same also applies to capital loss. It is a form of tax avoidance since
the taxpayer can exploit it in order to reduce his tax due (NIRC, Sec. 39 [B]).

NOTE: Holding period does not find application in the case of disposition of:

1. shares of stock; and

2. real property considered as capital asset, whether the seller is an individual,

trust, estate or a private corporation.

Only individual taxpayers can avail of the holding period rule. It is not
allowed to corporations.

22 | P a g e
e. What are the rules on capital gains or losses for corporations?

SUGGESTED ANSWER:

No holding period is allowed in corporation. Capital gains and losses are taxable to
the extent of 100% non-deductibility of Net Capital losses XPN: If any domestic
bank or trust company, a substantial part of whose business is the receipt of
deposits, sells any bond, debenture, note or certificate or other evidence of
indebtedness issued by any corporation (including one issued by a government or
political subdivision) NCLCO not allowed

f. State the rule on gain/loss from short sales.

SUGGESTED ANSWER:

Gains or Losses From Short Sales, Etc. - For purposes of this Title –

(1) Gains or losses from short sales of property shall be considered as gains or
losses from sales or exchanges of capital assets; and (2) Gains or losses
attributable to the failure to exercise privileges or options to buy or sell property
shall be considered as capital gains or losses.

g. What are wash sales? What is the treatment on loss on wash sales?

Ouano, Jansen Ynrik V.

SUGGESTED ANSWER:

Under the tax code a Wash sale occurs when there is a sale or other disposition of
shares of stock or securities where it appears that within a period beginning thirty
(30) days before the date of such sale or disposition and ending thirty (30) days
after such date, the taxpayer has acquired by purchase or by exchange upon which
the entire amount of gain or loss was recognized by law, or has entered into a
contact or option so to acquire, substantially identical stock or securities.

Sec. 38 of National Internal Revenue code provides that In the case of any loss
claimed to have been sustained from any sale or other disposition of shares of stock
or securities where it appears that within a period beginning thirty (30) days before
the date of such sale or disposition and ending thirty (30) days after such date
(referred as the 61 day period), the taxpayer has acquired (by purchase or by
exchange upon which the entire amount of gain or loss was recognized by law), or
has entered into a contact or option so to acquire, substantially identical stock or
securities, then no deduction for the loss shall be allowed unless the claim is made

23 | P a g e
by a dealer in stock or securities and with respect to a transaction made in the
ordinary course of the business of such dealer.

What are substantially identical shares?

Identical Shares are two stocks that are linked together in such a way that any
change in the price of one will be reflected in the price of another, they‘re likely to
be treated as substantially identical securities for purposes of the wash sale rule.

h. Is sale of principal residence subject to 6% capital gains tax? Is

there an exception?

Yes. Generally, the sale of principal residence is subject to 6% capital gains tax.

Sec 24 D par 1 of the NIRC, provides that a final tax of six percent (6%) based on
the gross selling price or current fair market value as determined in accordance
with Section 6(E) of this Code, whichever is higher, is hereby imposed upon capital
gains presumed to have been realized from the sale, exchange, or other disposition
of real property located in the Philippines, classified as capital assets, including
pacto de retro sales and other forms of conditional sales, by individuals, including
estates and trusts.

However such provision is subject to an exception. Under Sec 24 D par 2 it

provides that capital gains presumed to have been realized from the sale or
disposition of their principal residence by natural persons, the proceeds of which is
fully utilized in acquiring or constructing a new principal residence within eighteen
(18) calendar months from the date of sale or disposition, shall be exempt from the
capital gains tax imposed, Provided, That the historical cost or adjusted basis of the
real property sold or disposed shall be carried over to the new principal residence
built or acquired: Provided, further, That the Commissioner shall have been duly
notified by the taxpayer within thirty (30) days from the date of sale or disposition
through a prescribed return of his intention to avail of the tax exemption herein
mentioned: Provided, still further, That the said tax exemption can only be availed
of once every ten (10) years: Provided, finally, that if there is no full utilization of
the proceeds of sale or disposition, the portion of the gain presumed to have been
realized from the sale or disposition shall be subject to capital gains tax. For this
purpose, the gross selling price or fair market value at the time of sale, whichever
is higher, shall be multiplied by a fraction which the unutilized amount bears to the
gross selling price in order to determine the taxable portion and the tax prescribed
under paragraph (1) of this Subsection shall be imposed thereon.

i. What are tax-free exchanges? State the rules on tax-free exchanges

of property.

24 | P a g e
Tax-free exchanges refer to those instances enumerated in Section 40(C)(2) of the
National Internal Revenue Code (NIRC) that are not subject to Income Tax, Capital
Gains Tax, Documentary Stamp Tax and/or Value-added Tax, as the case may be.
To wit:

No gain or loss shall be recognized if in pursuance of a plan of merger or

consolidation -

(a) A corporation, which is a party to a merger or consolidation, exchanges

property solely for stock in a corporation, which is a party to the merger or
consolidation; or

(b) A shareholder exchanges stock in a corporation, which is a party to the merger

or consolidation, solely for the stock of another corporation also a party to the
merger or consolidation; or

(c) A security holder of a corporation, which is a party to the merger or

consolidation, exchanges his securities in such corporation, solely for stock or
securities in such corporation, a party to the merger or consolidation.

No gain or loss shall also be recognized if property is transferred to a corporation by

a person in exchange for stock or unit of participation in such a corporation of
which as a result of such exchange said person, alone or together with others, not
exceeding four (4) persons, gains control of said corporation: Provided, That stocks
issued for services shall not be considered as issued in return for property.

In general, there are two kinds of tax-free exchange: (1) transfer to a controlled
corporation; and, (2) merger or consolidation.

In the first instance, no gain or loss shall be recognized if property is transferred to

a corporation by a person in exchange for stock or unit of participation in such
corporation of which as a result of such exchange said person, alone or together
with others, not exceeding four persons, gains control of said corporation.

In the second instance, no gain or loss shall be recognized if in pursuance of a plan

of merger or consolidation --- (a) a corporation, which is a party to a merger or
consolidation, exchanges property solely for stock in a corporation, which is a party
to the merger or consolidation; or, (b) a shareholder exchanges stock in a
corporation, which is a party to the merger or consolidation, solely for the stock of
another corporation also a party to the merger or consolidation; or, (c) a security
holder of a corporation, which is a party to the merger or consolidation, exchanges
his securities in such corporation, solely for stock or securities in another
corporation, a party to the merger or consolidation.

25 | P a g e
8. Taxation of Individuals

Cuizon, Razel V.

a. Discuss the classification of taxpayers.

SUGGESTED ANSWER:

A. Individuals:

1. Citizens of the Philippines:

a. Residents of the Philippines [Secs. 23 (A) and 24 (A)]

i. Filipinos residing in the Philippines

ii. Filipinos living abroad but without intention of residing there permanently.
[Sec. 22 (E)]

b. Not Residents of the Philippines [Secs. 23 (B) and 24 (A)]

i. One has intention to reside permanently abroad

c. OFW and Seaman [Sec. 23 (C) and 24 (A)]

2. Aliens (Taxable WITHIN only)

a. Residents of the Philippines

b. Not Residents of the Philippines [Secs. 22 (G); 23 (D); 25 (A) and (B)

i. Non-resident alien engaged engaged in trade and business in the Philippines

ii. Non- resident alien engaged in trade or business in the Philippines

c. Aliens employed by multinational companies, offshore banking units and

petroleum contractors and subcontractors.

3. Estates and Trusts

b. Who are considered citizens of the Philippines?

SUGGESTED ANSWER:

As provided under Section 1, Article IV of the 1987 Constitution, the following are
citizens of the Philippines:

26 | P a g e
[1] Those who are citizens of the Philippines at the time of the adoption of this
Constitution;

[2] Those whose fathers or mothers are citizens of the Philippines;

[3] Those born before January 17, 1973, of Filipino mothers, who elect Philippine
citizenship upon reaching the age of majority; and

[4] Those who are naturalized in accordance with law.

Section 2. Natural-born citizens are those who are citizens of the Philippines from
birth without having to perform any act to acquire or perfect their Philippine
citizenship. Those who elect Philippine citizenship in accordance with paragraph (3),
Section 1 hereof shall be deemed natural-born citizens.

Section 3. Philippine citizenship may be lost or reacquired in the manner provided

by law.

Section 4. Citizens of the Philippines who marry aliens shall retain their citizenship,
unless by their act or omission, they are deemed, under the law, to have renounced
it.

Section 5. Dual allegiance of citizens is inimical to the national interest and shall be
dealt with by law.

c. How do we tax aliens?

Bariquit, Joymee L.

SUGGESSTED ANSWER:

An alien employee in the Philippines may be taxed as follows:

Non-resident Alien – A non-resident alien in the Philippines is one who is not a

citizen of the Philippines and who is not a resident of the Philippines but deriving
income as employee in the Philippines. He is classified either as a non-resident alien
1. Not engaed in trade or business, or 2. Engaged in trade or business.

A non-resident alien in the Philippines not engaged in trade or business in the

Philippines is subject to 25% withholding tax on gross compensation. On the other
hand, as non-resident alien engaged in trade or business in the Philippines is taxed
at 5-32% of compensation income.

As to a Resident alien, he or she is taxable at 5-32% income tax rates in like

manner as a Filipino citizen using the withholding tax table on compensation.

27 | P a g e
d. Distinguish NRAETB from NRANEBT.

SUGGESSTED ANSWER:

The determining factor is the aggregate length of presence in the Philippines. Under
25(A)(1) of the Philippine Tax Code, a non-resident alien who stayed an aggregate
period of more than 180 days during any calendar year shall be deemed a non-
resident alien doing business in the Philippines. In BIR Ruling No. 056-05, the BIR
ruled that ―any calendar year‖ covers all the months in the calendar year covered
by the period of assignment of the alien in the Philippines.

e. What is taxable income?

SUGGESSTED ANSWER:

Taxable income is the amount of income used to calculate how much tax an
individual or as a company owes to the government in a given tax year.

f. What are the (revised) schedular tax rates?

Roncesballes, Vhal N.

SUGGESSTED ANSWER:

Taxable income subject to graduated rates of 5%-32% refers to those items of

income, other than passive income and capital gains, which are subject to final tax

Under RA 10963, Section 24 of NIRC is amended with Rates of Tax on Taxable

Income of Individuals. - The tax shall be computed in accordance with and at the
rates established in the following schedule:

"(a) Tax Schedule Effective January 1, 2018 until December 31, 2022:

"Not over ₱250,000 0%

"Over ₱250,000 but not over ₱400,000 20% of the excess over ₱250,000

"Over ₱400,000 but not over ₱800,000 ₱30,000 + 25% of the excess over
₱400,000

"Over ₱800,000 but not over ₱2,000,000 ₱130,000 + 30% of the excess over
₱800,000

"Over ₱2,000,000 but not over ₱5,000,000 ₱490,000 + 32% of the excess over
₱2,000,000

28 | P a g e
"Over ₱8,000,000 ₱2,410,000 + 35% of the excess over
₱8,000,000

"Tax Schedule Effective January 1, 2023 and onwards:

"Not over ₱250,000 0%

"Over ₱250,000 but not over ₱400,000 15% of the excess over ₱250,000

"Over ₱400,000 but not over ₱800,000 ₱22,500 + 20% of the excess over
₱400,000

"Over ₱800,000 but not over ₱2,000,000 ₱102,500 + 25% of the excess over
₱800,000

"Over ₱2,000,000 but not over ₱8,000,000 ₱402,500 + 30% of the excess over
₱2,000,000

"Over ₱8,000,000 ₱2,202,500 + 35% of the excess over

₱8,000,000

g. Who are entitled to the Optional Standard Deduction, and how shall it
be computed?

SUGGESSTED ANSWER:

Under Revenue Regulation 16-08, Sec. 4:

1. Individuals, except non-resident aliens

Under accrual basis- not exceeding 40% based on gross sales, or
Under cash basis- not exceeding 40% based on gross receipts

2. Corporation: not exceeding 40% based on gross income of domestic

corporation and resident foreign corporation

Can a taxpayer avail both itemized deductions and optional standard

deduction (OSD) at the same time?

SUGGESSTED ANSWER:

No, the taxpayer can only avail of one method of deduction.

29 | P a g e
Under Revenue Regulation 16-08, section 7 the taxpayer is not allowed to use a
hybrid method of claiming his/her deduction for one taxable year.

Such election to avail of the OSD when made by the qualified taxpayer is
irrevocable for the year in which the return is made. However he can change to
itemized deduction in the succeeding years.

How do you distinguish the computation of optional standard deduction for

individuals and corporations?

Tan, Rolan Vincent S.

SUGGESSTED ANSWER:

For individual taxpayers, the computation of the OSD is based on 40% of the Gross
Sales/Gross receipts, while for a corporation, it is computed based on 40% of its
Gross Income.

h. What are the requisites/conditions that must be complied with

before an individual taxpayer can qualify under the substituted filing of
income tax return?

SUGGESSTED ANSWER:

 Employees who satisfies all of the following conditions:

1. Receiving purely compensation income regardless of
amount

2. Working for only one employer in the Philippines for the

calendar year.

3. Tax has been withheld correctly by the employer (tax due

equals tax withheld).

4. The employee‘s spouse also complies with all three (3)

conditions stated above.

5. The employer files the annual information return (BIR

Form No. 1604-CF).

6. The employer issues BIR Form No. 2316 to each

employee.

30 | P a g e
9. Taxation of Corporation

Ong Oh, Jose IV B.

a. What comprises “corporation” for tax purposes?

SUGGESSTED ANSWER:

The term ‗corporation‘ shall include partnerships, no matter how created or

organized, joint-stock companies, joint accounts (cuentas en participacion,
associations, or insurance companies, but does not include general professional
partnerships and a joint venture or consortium formed for the purpose of
undertaking construction projects or engaging in petroleum, coal, geothermal and
other energy operations pursuant to an operating or consortium agreement under a
service contract with the Government.

B. What is the classification of corporation for tax purposes?

SUGGESSTED ANSWER:

Domestic corporation, meaning created or organized in the Philippines or under its

laws. Also, Foreign corporations, meaning a corporation which is not domestic.

c. How do we tax domestic corporations?

SUGGESSTED ANSWER:

A domestic corporation is taxable on all its income from sources within and without
the Philippines.

d. When is an income subject to final tax?

SUGGESSTED ANSWER:

Final income subject to final withholding taxes of varying rates corresponding tax
required upon their payment of such income.

e. Discuss the concept of minimum corporate income tax (MCIT).

Parcon, Junfe S.

SUGGESSTED ANSWER:

Minimum Corporate Income Tax (MCIT) is 2% of gross income for domestic

corporation/resident foreign corporation. MCIT is in the nature of tax credit, not an
allowable deduction. Its purpose is to prevent the corporations from escaping being
taxed by including frivolous expenses in their statement of income. If the

31 | P a g e
corporation‘s regular income is higher than the MCIT, then the corporation does not
pay the MCIT.

f. Discuss the concept of improperly accumulated earnings tax (IAET).

SUGGESSTED ANSWER:

Income tax of 10% is imposed on corporation with improperly accumulated

earnings. IAET is imposed on corporations in order to discourage the practice of
accumulating earnings and profits in order to avoid the payment of income tax on
the part of the shareholders. It is only applicable to domestic corporation.

What corporations are exempt from IAET?

SUGGESSTED ANSWER:

IEAT does not apply to publicly-held corporations, banks, non-bank financial

intermediaries and insurance companies.

10. Other amendments under TRAIN Law

a. Optional 8% income tax:


For purely self-employed and/or professionals, when can they avail
of the optional 8% income tax on gross sales or gross receipts?
SUGGESTED ANSWER:

Purely self-employed and/or professionals can avail of the optional 8% income tax
on gross sales or gross receipts if their gross sales or gross receipts and other non-
operating income do not exceed the VAT threshold of P3 million.

If gross sales or receipts for the year exceed P3.0 million, can the
individual still avail of the 8% income tax?

SUGGESTED ANSWER:

No. If the gross sales or receipts and other non-operating income for the year
exceeded the P3 million threshold, the graduated income tax rates for individuals
will apply.

For individuals earning purely compensation income, are they

entitled to avail of the optional 8% income tax?

SUGGESTED ANSWER:

32 | P a g e
If the gross sales or gross receipts does not exceed P250,000, the taxpayer is
exempted from paying income tax and is no longer required to avail of the 8%.

Who are not qualified to avail of the optional 8% income tax?

SUGGESTED ANSWER:

The option to be taxed at 8% income tax rate is not available to a VAT-registered

taxpayer, regardless of the amount of gross sales/ receipts, and to a taxpayer who
is subject to Other Percentage Taxes under Title V of the Tax Code, as amended,
except those subject under Section 116 of the same Title. Likewise, partners of a
General Professional Partnership (GPP) by virtue of their distributive share from
GPP which is already net of cost and expenses cannot avail of the 8% income tax
rate option.

b. What is the final tax rate on interest on foreign currency deposit?

SUGGESTED ANSWER:

Under the TRAIN Law, the rate of final tax on interest income received by resident
individual taxpayer under the expanded foreign currency deposit system increased
from 7.5% to 15% final tax.

c. What is the applicable capital gains tax rate on sale of shares not
traded through the stock exchange?

SUGGESTED ANSWER:

Under the TRAIN Law, the final tax rate for net capital gains tax on the sale, barter,
exchange or other disposition of shares of stock in a domestic corporation not
traded through the stock exchange is increased from the 5/10% CGT to a flat rate
of 15% CGT.

d. What is the revised rate for stock transaction tax?

SUGGESTED ANSWER:

There shall be levied, assessed and collected on every sale, barter, exchange or
other disposition of shares of stock listed and traded through the local stock
exchange other than the sale by a dealer in securities, a tax at the rate of six-
tenths of one percent (6⁄10 of 1%) of the gross selling price or gross value in money
of the shares of stock sold, bartered, exchanged or otherwise disposed which shall
be paid by the seller or transferor.

e. If an individual’s taxable income is subject to zero percent, is he still

required to file an income tax return? Cite legal basis.

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SUGGESTED ANSWER:

Under the TRAIN Law, individual taxpayers whose taxable income is subject to zero
percent under the new graduated tax table or does not exceed P250,000 shall not
be required to file an income tax return.

f. Can individual taxpayers still claim “premium on health and

hospitalization insurance” as deduction from gross income?

SUGGESTED ANSWER:

Individual premiums would still be considered a fringe benefit which is subject to

tax.

g. Are estates and trusts still entitled to claim personal exemption of

P50,000?

SUGGESTED ANSWER:

The exemption for estates and trusts is already removed under TRAIN Law.

h. Is PCSO exempt from corporate income tax?

SUGGESTED ANSWER:

Under the TRAIN Law, PCSO is no longer exempt from paying corporate income tax.

i. How much is the general interest on unpaid amount of tax? Cite legal
basis.

SUGGESTED ANSWER:

General interest on unpaid amount of tax is changed to 12% at double the rate of
legal interest rate for loans or forbearance of an express stipulation as set by the
Bangko Sentral ng Pilipinas (BSP). Prevailing BSP set legal interest is 6%.

j. Can deficiency and delinquency interests be imposed simultaneously?

SUGGESTED ANSWER:

No. Deficiency and delinquency interests shall in no case be imposed

simultaneously.

k. How much is the threshold amount for the mandatory issuance of

receipts or invoices on sale of merchandise or service rendered?

SUGGESTED ANSWER:

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Under the TRAIN Law, it is expressly provided that the issuance of the receipt or
invoice shall be made at the point of sale. The threshold amount is increased to
P100.00

l. If an individual taxpayer (involved in business or profession) elects

to register at 8% gross income tax, will he still be allowed to avail of the
optional VAT registration?

SUGGESTED ANSWER:

No. If an individual taxpayer elects to register at 8% gross income tax, such

election shall be irrevocable and no amendment of the option shall be made during
the taxable year, except if exceeded the P3 million threshold.

If the individual’s gross receipts for the year exceed the VAT
threshold, is the taxpayer allowed to avail of the 8% income tax?

SUGGESTED ANSWER:

No. The individual taxpayer shall be subject to the graduated income tax rate.

m. Discuss the revised penalties (fines and imprisonment) for attempt

to evade or defeat tax under Section 254 of the Tax Code, as amended.

SUGGESTED ANSWER:

Any person who willfully attempts in any manner to evade or defeat any tax
imposed under this Code or the payment thereof shall, in addition to other penalties
provided by law, upon conviction thereof, be punished with a fine of not less than
Five hundred thousand pesos (₱500,000) but not more than Ten million pesos
(₱10,000,000), and imprisonment of not less than six (6) years but not more than
ten (10) years: Provided, That the conviction or acquittal obtained under this
Section shall not be a bar to the filing of a civil suit for the collection of taxes.‖

n. Discuss the revised penalties for failure or refusal to issue receipts or

invoices under Section 264 of the Tax Code, as amended.

SUGGESTED ANSWER:

Section 264 of the Tax Code provides that Failure or refusal to Issue Receipts or
Sales or Commercial Invoices, Violations related to the Printing of such Receipts or
Invoices and Other Violations include;

(a) Any person who, being required under Section 237 to issue receipts or sales or
commercial invoices, fails or refuses to issue such receipts of invoices, issues
receipts or invoices that do not truly reflect and/or contain all the information

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required to be shown therein, or uses multiple or double receipts or invoices, shall,
upon conviction for each act or omission, be punished by a fine of not less than One
thousand pesos (P1,000) but not more than Fifty thousand pesos (P50,000) and
suffer imprisonment of not less than two (2) years but not more than four (4)
years.

(b) Any person who commits any of the acts enumerated hereunder shall be
penalized with a fine of not less than Five hundred thousand pesos (₱500,000) but
not more than Ten million pesos (₱10,000,000), and imprisonment of not less than
six (6) years but not more than ten (10) years:

(1) Printing of receipts or sales or commercial invoices without authority from the
Bureau of Internal Revenue; or

(2) Printing of double or multiple sets of invoices or receipts; or

(3) Printing of unnumbered receipts or sales or commercial invoices, not bearing

the name, business style, Taxpayer Identification Number, and business address of
the person or entity.

(4) Printing of other fraudulent receipts or sales or commercial invoices.‖

o. What is “sales suppression device”? Discuss the penalties if a

taxpayer is found liable for using sales suppression device.

SUGGESTED ANSWER:

Purchase, Use, Possession, Sale or Offer to Sell, Installment, Transfer, Update,

Upgrade, Keeping or Maintaining of Sales Suppression Devices.— Any person who
shall purchase, use, possess, sell or offer to sell, install, transfer, update, upgrade,
keep, or maintain any software or device designed for, or is capable of: (a)
suppressing the creation of electronic records of sale transactions that a taxpayer is
required to keep under existing tax laws and/or regulations; or (b) modifying,
hiding, or deleting electronic records of sales transactions and providing a ready
means of access to them, shall be punished by a fine of not less than Five hundred
thousand pesos (₱500,000) but not more than Ten million pesos (₱10,000,000),
and suffer imprisonment of not less than two (2) years but not more than four (4)
years: Provided, That a cumulative suppression of electronic sales record in excess
of the amount of Fifty million pesos (₱50,000,000) shall be considered as economic
sabotage and shall be punished in the maximum penalty provided for under this
provision.‖

When is the violation considered economic sabotage?

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SUGGESTED ANSWER:

A cumulative suppression of electronic sales record in excess of the amount of Fifty

million pesos (₱50,000,000) shall be considered as economic sabotage and shall be
punished in the maximum penalty provided for under the law.

p. Discuss the new rules on the authority of the Commissioner of

Internal Revenue to prescribe zonal values, based on the amendments
introduced by the TRAIN Law.

SUGGESTED ANSWER:

The Commissioner is hereby -authorized to divide the Philippines into different

zones or areas and shall, upon mandatory consultation with competent appraisers
both from the private and public sectors, and with prior notice to affected
taxpayers, determine the fair market value af real properties located in each zone
or area, subject to automatic adjustment once every three (3) years through rules
and regulations issued by the Secretary of Finance based on the current Philippine
valuation standards: Provided, That no adjustment in zonal valuation shall be valid
unless published in a newspaper of general circulation in the province, city or
municipality concerned, or in the absence thereof, shall be posted in the provincial
capitol, city or municipal hall and in two (2) other conspicuous public places
therein: Provided, further, That the basis of any valuation, including the records of
consultations done, shall be public records open to the inquiry of any taxpayer. For
purposes of computing any internal revenue tax, the value of the property shall be,
whichever is the higher of:

―(1) the fair market value as determined by the Commissioner; or

―(2) the fair market value as shown in the schedule of values of the Provincial and
City Assessors.‖

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